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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 25
TO
SCHEDULE 14D-9
(WITH RESPECT TO THE TENDER OFFER BY QVC NETWORK, INC.)
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SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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PARAMOUNT COMMUNICATIONS INC.
(NAME OF SUBJECT COMPANY)
PARAMOUNT COMMUNICATIONS INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS
(TITLE OF CLASS OF SECURITIES)
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699216 10 7
(CUSIP NUMBER OF CLASS OF SECURITIES)
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DONALD ORESMAN, ESQ.
PARAMOUNT COMMUNICATIONS INC.
15 COLUMBUS CIRCLE
NEW YORK, NEW YORK 10023-7780
(212) 373-8000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF
OF THE PERSON FILING STATEMENT)
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COPY TO:
JOEL S. HOFFMAN, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
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This Amendment No. 25 supplements and amends to the extent indicated herein
the Solicitation/Recommendation Statement on Schedule 14D-9 of Paramount
Communications Inc., filed with the Securities and Exchange Commission on
November 8, 1993 (as supplemented and amended through the date hereof, the
"Schedule 14D-9"), with respect to the Current QVC Offer (as described therein).
Capitalized terms used herein and not otherwise defined herein have the meanings
ascribed to such terms in the Schedule 14D-9.
ITEM 3. IDENTITY AND BACKGROUND
The response to Item 3(b) is hereby supplemented and amended as follows:
On January 21, 1994, Paramount terminated the QVC Merger Agreement
pursuant to a notice of termination, a copy of which is filed as Exhibit
No. 78 to the Schedule 14D-9 and is incorporated herein by reference.
In addition, pursuant to the terms of the QVC Merger Agreement, the
QVC Exemption Agreement became effective on January 21, 1994. The QVC
Exemption Agreement is filed as Exhibit No. 79 to the Schedule 14D-9 and is
incorporated herein by reference. The QVC Exemption Agreement, by providing
for the amendment of the Rights Agreement and the taking of appropriate
action so that restrictions on business combinations contained in Article
XI of the Paramount Certificate of Incorporation and Section 203 of
Delaware Law shall not apply to the consummation of the Current QVC Offer,
will allow Paramount stockholders, if they so choose, to have their Shares
accepted for payment pursuant to the Current QVC Offer if the minimum
condition with respect to the Current QVC Offer, among other conditions, is
satisfied.
The following is a summary of certain provisions of the QVC Exemption
Agreement. The form of merger agreement to be annexed to the QVC Exemption
Agreement will be substantially similar in form and substance to the
original QVC Merger Agreement. The following summary is qualified in its
entirety by reference to the QVC Exemption Agreement. Terms defined in this
Item 3(b) and also defined elsewhere in the Schedule 14D-9 shall have the
meanings ascribed to such terms below for purposes of such description and
the terms "business day" and "fully diluted basis", and the method of
computing time periods, will be as set forth below in Item 7 in the
description of the Viacom Merger Agreement (as defined below in Item 7).
Agreements of Paramount. Under the terms of the QVC Exemption
Agreement, Paramount has agreed that, upon delivery by QVC of the
Completion Certificate (as defined below), it shall take all necessary
action to amend the Rights Agreement so that the consummation of the
Current QVC Offer on the terms permitted under the QVC Exemption Agreement
and as contemplated by the form of merger agreement to be attached as
Exhibit A to the QVC Exemption Agreement, will not cause (i) the Rights
issued pursuant to the Rights Agreement to become exercisable under the
Rights Agreement, (ii) QVC or any subsidiary of QVC to be deemed an
"Acquiring Person" (as defined in the Rights Agreement), or (iii) the
"Stock Acquisition Date" (as defined in the Rights Agreement) to occur upon
such consummation; provided, however, that Paramount will not be required
to make such amendments to the Rights Agreement if (A) QVC has not
performed or complied in all material respects with all agreements and
covenants required by the QVC Exemption Agreement to be performed or
complied with by it on or prior to the consummation of the Current QVC
Offer or (B) Paramount obtains and there is in force from the Delaware
Court of Chancery an order declaring that the making of such amendments to
the Rights Agreement would be contrary to the fiduciary duties of the
Paramount Board. Notwithstanding the foregoing, in no event shall the
Paramount Board make an amendment of the Rights Agreement in favor of
Viacom or any other person without making such amendments in favor of QVC;
provided that Paramount will not be obligated to make such amendments for
QVC if QVC has become obligated to terminate the Current QVC Offer pursuant
to the provisions of the QVC Exemption Agreement as set forth in
"Termination of the Current QVC Offer" below.
Paramount has agreed under the terms of the QVC Exemption Agreement
that it shall take all appropriate actions so that the restrictions on
business combinations contained in (i) Article XI
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of the Paramount Certificate of Incorporation and (ii) Section 203 of
Delaware Law will not apply to the consummation of the Current QVC Offer;
provided, however, that such action will not be effective if Paramount is
not required to amend the Rights Agreement as contemplated in the
immediately preceding paragraph.
Agreements Regarding Terms of the Current QVC Offer. QVC has also
agreed under the QVC Exemption Agreement (i) that unless it terminates the
Current QVC Offer, to extend the expiration date (such expiration date as
extended from time to time shall be defined herein to mean the "Expiration
Date") of the Current QVC Offer until 12:00 midnight on the date to which
Viacom has agreed to extend the Revised Viacom Offer (as defined below in
Item 7) pursuant to the Viacom Merger Agreement, which extension by QVC
shall not be required to be more than eleven business days from the date of
the Viacom Merger Agreement; (ii) that so long as Viacom is bound by
substantially identical restrictions made for the benefit of Paramount and
QVC, not to amend the Current QVC Offer in order to (A) increase by less
than $60 million the aggregate cash consideration to be paid pursuant to
the Current QVC Offer or (B) increase the number of Shares for which
tenders are sought by less than 2% of the outstanding Shares; (iii) not to
extend the Expiration Date, except for extensions pursuant to certain
provisions of the QVC Exemption Agreement, and except for (x) failure to
satisfy a condition at the Expiration Date or (y) any such extension
required by federal securities law; (iv) that no extension of the
Expiration Date permitted under the QVC Exemption Agreement shall be for a
period of less than three business days; and (v) that the Expiration Date
shall not be extended for any reason beyond 12:00 midnight on February 14,
1994, subject to certain provisions of the QVC Exemption Agreement or as
required by federal securities law to the extent that the extension arises
due to an event other than a change in the terms of the Current QVC Offer
(the "Final Expiration Date"). QVC has agreed that it will not increase the
per Share consideration offered in the Current QVC Offer or otherwise amend
the Current QVC Offer primarily to extend the expiration date of the
Revised Viacom Offer.
QVC has agreed that, without the prior written consent of Paramount,
no change in the terms of the Current QVC Offer shall be made which, (i)
decreases the aggregate cash consideration payable in the Current QVC Offer
or changes the form of consideration payable in the Current QVC Offer
(except to the extent Viacom has made such changes or has been granted
benefits by Paramount that diminish the value of Paramount to QVC), (ii)
reduces the number of Shares to be purchased in the Current QVC Offer below
50.1% of the outstanding Shares on a fully diluted basis; provided,
however, that the number of Shares sought in the Current QVC Offer can be
decreased to not less than 50.1% of the outstanding Shares on a fully
diluted basis so long as the aggregate cash consideration payable in the
Current QVC Offer is not decreased or (iii) waives the Minimum Condition
(as defined in the Current QVC Offer but which under no circumstances may
be less than 50.1% of the outstanding Shares on a fully diluted basis).
Subject to the provisions of the QVC Exemption Agreement, QVC, prior to
being obligated to execute a merger agreement by the terms of the QVC
Exemption Agreement, has in the QVC Exemption Agreement expressly reserved
the right to terminate the Current QVC Offer pursuant to its terms or to
increase the price per Share or the number of Shares for which tenders are
sought in the Current QVC Offer.
In order to cause the Current QVC Offer and the Revised Viacom Offer
to remain on the same time schedule, QVC has agreed that if Viacom remains
subject to the Viacom Merger Agreement or remains subject to the Viacom
Exemption Agreement (as defined below in Item 7), in either case containing
terms substantially identical to the QVC Exemption Agreement for the
benefit of Paramount (the "Exemption Procedures"), and (i) extends the
expiration date of the Revised Viacom Offer (such expiration date as
extended from time to time, the "Other Expiration Date") in accordance with
the Exemption Procedures, then the Expiration Date shall be extended (as
soon as practicable, but not later than one business day following the
announcement of the extension of the Other Expiration Date) by QVC to the
Other Expiration Date, or (ii) if upon notification to Paramount by QVC and
Viacom of the results of their respective offers (which notification will
be
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required to be delivered by QVC and Viacom no later than promptly following
the expiration of their respective offers), Paramount has notified QVC and
Viacom (which notification shall be required to be delivered by Paramount
promptly) that a number of Shares that would satisfy the Minimum Condition
or the minimum condition defined in the Revised Viacom Offer (which under
no circumstances may be less than 50.1% of the outstanding Shares on a
fully diluted basis) (the "Other Minimum Condition") have not been validly
tendered (and not withdrawn) pursuant to the Current QVC Offer or the
Revised Viacom Offer, respectively, at the Expiration Date (or a number of
Shares that would satisfy the Minimum Condition and the Other Minimum
Condition have been validly tendered and not withdrawn pursuant to both the
Current QVC Offer and the Revised Viacom Offer at the Expiration Date),
then QVC will extend the Expiration Date for a period of 10 business days.
QVC will be subject to the obligations set forth above in this paragraph
and the obligations set forth in "Termination of the Current QVC Offer" for
so long as QVC is subject to the Exemption Procedures; provided, however,
that QVC will not be subject to such obligations in the event that Viacom
has not performed or complied in all material respects with the Exemption
Procedures.
Recommendation of the Current QVC Offer. Under the terms of the QVC
Exemption Agreement, if, at any time, the Paramount Board recommends
acceptance of the Current QVC Offer by Paramount stockholders, or informs
QVC that the Paramount Board intends to recommend acceptance of the Current
QVC Offer, then QVC will promptly execute and deliver the merger agreement
(the "Executed Merger Agreement") substantially in the form of the QVC
Merger Agreement (with representations and warranties dated as of the date
of execution of such Executed Merger Agreement, unless otherwise specified
therein, and with such other changes as may be necessary to reflect the
terms of the Current QVC Offer as it then exists, changes in the
consideration offered under the Executed Merger Agreement and changes
related thereto) as soon as practicable, but in no event more than one
business day thereafter, which Executed Merger Agreement will be executed
by Paramount within one business day of receipt thereof.
Receipt of Common Stock by QVC. In the event that a number of Shares
that would satisfy the Minimum Condition shall have been validly tendered
and not withdrawn in the Current QVC Offer at the Expiration Date (provided
that Viacom does not also receive a number of Shares that would satisfy the
Other Minimum Condition in its offer) and, as of such Expiration Date, QVC
has waived all conditions to the Current QVC Offer (other than the Minimum
Condition and the conditions relating to the Rights Agreement, Article XI
of Paramount's Certificate of Incorporation, Section 203 of Delaware Law
and governmental or judicial injunction, each as set forth therein), then
QVC has agreed (i) to extend the Expiration Date to a date 10 business days
from the then scheduled Expiration Date, provided, that such extension
shall be for a period of 5 business days in the event that the Revised
Viacom Offer has been terminated prior to the foregoing Expiration Date and
(ii) promptly to deliver the Executed Merger Agreement (with
representations and warranties dated as of the date of delivery to
Paramount of such Executed Merger Agreement, unless otherwise specified
therein, and with such other changes as may be necessary to reflect the
terms of the Current QVC Offer as it then exists, changes in the
consideration offered under the Executed Merger Agreement and changes
related thereto), as soon as practicable, but in no event more than one
business day after the date of such waiver, which such Executed Merger
Agreement will be executed by Paramount within one business day of receipt
thereof.
Completion Certificate. At such time as QVC has fulfilled the terms
set forth in the immediately preceding paragraph, QVC will deliver to the
Paramount Board a certificate (the "Completion Certificate"), executed by
an authorized officer of QVC, certifying that all such terms have been
fulfilled.
Termination of the Current QVC Offer. Under the terms of the QVC
Exemption Agreement, QVC has agreed to terminate the Current QVC Offer at
such time as QVC has been notified
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pursuant to a certificate executed by an authorized officer of Paramount
that (i) a number of Shares that would satisfy the Other Minimum Condition
shall have been validly tendered to the Revised Viacom Offer and not
withdrawn at the Other Expiration Date of the Revised Viacom Offer
(provided that QVC does not also receive valid tenders of a number of
Shares that would satisfy the Minimum Condition in its offer); (ii) all
conditions to the Revised Viacom Offer, except the Other Minimum Condition
and the conditions relating to the Rights Agreement, Article XI of
Paramount's Certificate of Incorporation, Section 203 of Delaware Law and
governmental or judicial injunction, each as set forth therein, shall have
been waived; and (iii) a Completion Certificate from Viacom has been
delivered to Paramount; provided, however, that QVC shall not be required
to terminate the Current QVC Offer in the event that Viacom has not
performed or complied in all material respects with the Exemption
Procedures.
Termination of QVC Exemption Agreement. The QVC Exemption Agreement
terminates at the earliest of (i) 9:00 A.M. on the first business day
following the Final Expiration Date, (ii) the execution and delivery by
both QVC and Paramount of a merger agreement in the form attached as
Exhibit A to the QVC Exemption Agreement, (iii) the delivery of notice by
either party to the QVC Exemption Agreement in the event the other party
materially breaches any agreement or representation under the QVC Exemption
Agreement or (iv) such time as QVC shall have terminated the Current QVC
Offer in accordance with the terms thereof.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
The responses to Items 4(a) and 4(b) are hereby supplemented and amended as
follows:
(a) At a meeting of the Paramount Board held on January 21, 1994, the
Paramount Board reviewed and considered the terms of Viacom's revised
acquisition proposal (which proposal set forth the terms of the Revised
Viacom Offer and the Revised Viacom Second-Step Merger (each as defined
below in Item 7)) submitted pursuant to the Bidding Procedures established
by the Paramount Board and its representatives. The Paramount Board
unanimously (i) approved the terms of the Viacom Merger Agreement and the
Viacom Voting Agreement (each as defined below in Item 7) and authorized
the execution and delivery thereof, (ii) determined that the Revised Viacom
Offer and the Revised Viacom Second-Step Merger, taken together, are fair
to and in the best interests of Paramount's stockholders, (iii) recommended
approval and adoption of the Viacom Merger Agreement by Paramount's
stockholders and (iv) recommended that holders of Shares tender such Shares
pursuant to the Revised Viacom Offer.
The Paramount Board also unanimously (i) recommended that stockholders
reject the Current QVC Offer and not tender any of their Shares pursuant to
the Current QVC Offer and (ii) authorized the termination of the QVC Merger
Agreement.
Paramount's press release and letter to stockholders with respect to
the Paramount Board's positions are filed as Exhibit Nos. 80 and 81,
respectively, to the Schedule 14D-9 and are incorporated herein by
reference.
(b) At its January 21 meeting, the Paramount Board reviewed and
considered presentations from the Paramount Board's legal and financial
advisors with respect to the Revised Viacom Offer and Revised Viacom
Second-Step Merger, as well as the Current QVC Offer and Current QVC
Second-Step Merger.
In making the determinations and recommendations set forth in
paragraph (a) above, the Paramount Board gave consideration to a number of
factors, including, without limitation, the following:
(i) The presentation by Lazard to the Paramount Board and its
written opinion dated January 21, 1994 stating that as of such date (A)
the aggregate consideration payable to Paramount stockholders in the
Revised Viacom Offer and the Revised Viacom Second-Step
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Merger, taken together (the "Viacom Transaction Consideration"), is fair
to Paramount stockholders from a financial point of view, (B) the
aggregate consideration payable to Paramount stockholders in the Current
QVC Offer and the Current QVC Second-Step Merger, taken together (the
"QVC Transaction Consideration"), is fair to Paramount stockholders from
a financial point of view and (C) the Viacom Transaction Consideration
is marginally superior to the QVC Transaction Consideration from a
financial point of view. A copy of Lazard's opinion, which includes the
matters considered, the assumptions made and the limits of review, is
attached hereto as Annex A, is filed as Exhibit No. 82 to the Schedule
14D-9 and is incorporated herein by reference. The discussion herein of
Lazard's opinion is qualified in its entirety by reference to the full
text of such opinion. Stockholders are urged to read such opinion in its
entirety.
(ii) The Paramount Board's determination, taking into account
Lazard's presentation and written opinion, that the Revised Viacom Offer
and the Revised Viacom Second-Step Merger, taken together, represents
the best value available under the circumstances to Paramount
stockholders. This determination was also based upon the Paramount
Board's view that the Viacom Transaction Consideration has a more
certain value than the QVC Transaction Consideration because (A) the
Viacom Transaction Consideration contains a larger percentage of cash
and securities readily susceptible to valuation than the QVC Transaction
Consideration and (B) the CVR's (as defined below in Item 7) to be
issued in the Revised Viacom Second-Step Merger will afford a degree of
value assurance protection to Paramount stockholders with respect to the
Viacom Class B Common Stock to be issued in the Revised Viacom
Second-Step Merger.
(iii) The terms and provisions of the Viacom Merger Agreement,
including the following:
(A) The Bidding Procedures incorporated in the Viacom Merger
Agreement (and in the QVC Exemption Agreement) that enable the
Paramount Board and Paramount stockholders to consider any better
offers for Paramount that may develop for a reasonable period
following execution of the Viacom Merger Agreement. These procedures
are designed to remove the coercive element from any offer by QVC or
Viacom and to provide stockholders with a meaningful choice between a
tender offer from QVC or Viacom.
(B) Paramount's right to terminate the Viacom Merger Agreement
in order to accept a transaction that offers better value.
(C) The absence of any stock option, asset lock-up, termination
fee, expense reimbursements or other provisions that could deter a
higher offer for Paramount.
(iv) The conditions to the Revised Viacom Offer and the Paramount
Board's determination that all such conditions have been satisfied or
can reasonably be expected to be satisfied by the expiration date of the
Revised Viacom Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
The response to Item 6(b) is hereby amended and restated to read in its
entirety as follows:
(b) To the best knowledge of Paramount, (i) none of its executive
officers, directors, affiliates and subsidiaries presently intends to
tender Shares to QVC pursuant to the Current QVC Offer, and (ii) none of
its executive officers, directors, affiliates or subsidiaries has
determined whether such person presently intends to sell any Shares which
are owned beneficially or held of record by such person; provided that
executive officers obtaining Shares upon the exercise subsequent to the
commencement of the original QVC Offer or the original Viacom Offer of
stock options presently intend to sell Shares issued upon exercise of such
options in the open market. The foregoing does not include any Shares over
which, or with respect to which, any such executive officer, director,
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affiliate or subsidiary acts in a fiduciary or representative capacity or
is subject to instructions from a third party with respect to such tender.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
The responses to Items 7(a) and 7(b) are hereby supplemented and amended as
follows:
(a) After receipt of the Revised Viacom Offer and prior to terminating
the QVC Merger Agreement and entering into the Viacom Merger Agreement,
Paramount's financial and legal advisors held discussions with each of QVC
and Viacom.
On January 21, 1994, Paramount and Viacom entered into an Agreement
and Plan of Merger (the "Viacom Merger Agreement"), which sets forth, among
other things, (i) the revised terms of the Viacom tender offer (as so
revised, the "Revised Viacom Offer"), which terms had provided for the
purchase of 50.1% of the outstanding Shares plus the Shares issuable upon
the exercise of the then exercisable stock options, as of the expiration of
the offer, at a price of $105 per Share, and which now provide for the
purchase of such Shares at a price of $107 per Share and (ii) the revised
terms of the second-step merger to be effected in the event the Revised
Viacom Offer is consummated (as so revised, the "Revised Viacom Second-Step
Merger"), which terms had provided for the exchange of (A) 0.93065 shares
of Viacom Class B Common Stock and (B) 0.30408 shares of Viacom Merger
Preferred Stock for each remaining Share and which now provide for the
exchange of (1) 0.93065 shares of Viacom Class B Common Stock, (2) 0.30408
shares of Viacom Merger Preferred Stock, (3) 0.93065 Contingent Value
Rights ("CVRs") and (4) 0.5 Warrants (the "Viacom Warrants") to purchase
Viacom Class B Common Stock for each remaining Share. The Revised Viacom
Offer is currently scheduled to expire at 12:00 midnight on January 31,
1994.
Except as described above or in Items 3(b) or 4, Paramount does not
presently intend to undertake any negotiation in response to the Current
QVC Offer which relates to or would result in: (i) an extraordinary
transaction, such as a merger or reorganization, involving Paramount or any
subsidiary of Paramount; (ii) a purchase, sale or transfer of a material
amount of assets by Paramount or any subsidiary of Paramount; (iii) a
tender offer or other acquisition of securities by Paramount; or (iv) any
material change in the present capitalization or dividend policy of
Paramount.
(b) The following is a summary of the Viacom Merger Agreement and
certain related agreements.
VIACOM MERGER AGREEMENT
The following is a summary of the Viacom Merger Agreement, a copy
of which is filed as Exhibit No. 83 to the Schedule 14D-9 and is
incorporated herein by reference. Such summary is qualified in its
entirety by reference to the Viacom Merger Agreement. For purposes of
this description, capitalized terms used and not defined have the
meanings given to such terms in the Viacom Merger Agreement. In addition,
references in the summary to "Revised Viacom Offer", "Revised Viacom
Merger" and "Revised Viacom Alternative Merger" shall have the same
meanings as "Offer", "Merger" and "Alternative Merger", respectively, in
the Viacom Merger Agreement.
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The Revised Viacom Offer
The Viacom Merger Agreement provides that Viacom has amended its
currently outstanding tender offer to acquire 61,657,432 of the outstanding
Shares to provide that the purchase price offered for Shares will be $107
per Share and to extend the expiration date of the Revised Viacom Offer
until 12:00 midnight on the tenth business day following the date of the
amendment to the Revised Viacom Offer (such expiration date, as extended
from time to time, the "Expiration Date"). The obligation of Viacom to
accept for payment and pay for Shares tendered pursuant to the Revised
Viacom Offer is subject to the condition that at least 61,657,432 Shares,
or such greater number of Shares as equals 50.1% of the outstanding Shares
on a fully diluted basis, will have been tendered to Viacom prior to the
expiration of the Revised Viacom Offer (the "Minimum Condition"), the
Rights Condition (as defined below), and certain other conditions that are
set forth in Annex A to the Viacom Merger Agreement, to which reference is
hereby made.
Pursuant to the Viacom Merger Agreement, Viacom has expressly reserved
the right to waive any condition other than the Minimum Condition. Subject
to certain limitations, Viacom may unilaterally change the terms of the
Revised Viacom Offer, including increasing the aggregate cash consideration
to be paid pursuant to the Revised Viacom Offer and increasing the number
of Shares sought in the Revised Viacom Offer; provided, however, that no
change in the Revised Viacom Offer may be made without Paramount's consent
which (i) decreases the number of Shares sought in the Revised Viacom Offer
below 50.1% of the then outstanding Shares on a fully diluted basis, (ii)
decreases the aggregate cash consideration payable in the Revised Viacom
Offer, (iii) changes the form of consideration payable in the Revised
Viacom Offer (except to the extent QVC (the "Other Offeror") has made such
changes with the consent of Paramount) or (iv) imposes conditions to the
Revised Viacom Offer in addition to those set forth in Annex A to the
Viacom Merger Agreement. Notwithstanding the foregoing sentence, so long as
the Other Offeror is bound by substantially identical restrictions made for
the benefit of Paramount, Viacom will not amend the Revised Viacom Offer in
order to increase by less than $60 million the aggregate cash consideration
to be paid pursuant to the Revised Viacom Offer or increase the number of
Shares sought by less than 2% of the outstanding Shares. Subject to the
terms and conditions of the Revised Viacom Offer, Viacom will pay, as
promptly as practicable after expiration of the Revised Viacom Offer, for
all Shares validly tendered and not withdrawn.
The Revised Viacom Merger
The Viacom Merger Agreement provides that, upon the terms and subject
to the conditions thereof, at the Effective Time, the Company will be
merged (the "Revised Viacom Merger") with and into Viacom in accordance
with Delaware Law. As a result of the Revised Viacom Merger, the separate
corporate existence of the Company will cease and Viacom will continue as
the Surviving Corporation. Alternatively, if Shearman & Sterling, counsel
to Viacom, is unable to deliver an opinion, in form and substance
reasonably satisfactory to Viacom, that the Revised Viacom Merger will
qualify as a reorganization under Section 368(a) of the Code, Viacom may
elect to cause the Revised Viacom Merger to be effected by causing a
subsidiary of Viacom to merge with and into the Company. In such event, the
separate corporate existence of such subsidiary will cease and the Company
will continue as the Surviving Corporation as a direct, wholly owned
subsidiary of Viacom.
Upon consummation of the Revised Viacom Merger, in the event the
Revised Viacom Offer has been consummated prior to the Effective Time, each
issued and then outstanding Share (other than any Shares held in the
treasury of the Company, or owned by Viacom or any direct or indirect
wholly owned subsidiary of Viacom or of the Company, which Shares will be
automatically canceled and extinguished, and other than Dissenting Shares
(as defined below)) will be converted automatically into the right to
receive (i) 0.93065 shares of Viacom Class B Common Stock, (ii) 0.30408
shares of Viacom Merger Preferred Stock, (iii) 0.93065 CVRs and (iv) 0.5
Viacom Warrants.
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The Viacom Merger Agreement requires the Company to use its reasonable
best efforts to obtain the approval of its stockholders for the adoption of
the Viacom Merger Agreement. If such approval is obtained, and the Revised
Viacom Offer has not been consummated prior to the Effective Time, the
Revised Viacom Merger will be consummated on alternative terms (the
"Revised Viacom Alternative Merger"). Under the Revised Viacom Alternative
Merger, subject to the election and allocation procedures set forth in the
Viacom Merger Agreement as described below, each holder of Shares issued
and outstanding immediately prior to the Effective Time (other than Shares
held in the treasury of the Company or owned by Viacom or any direct or
indirect wholly owned subsidiary of Viacom or of the Company, which Shares
will be automatically canceled and extinguished, and other than Dissenting
Shares) will be entitled to (i) elect to receive (a) 0.93065 shares of
Viacom Class B Common Stock, (b) 0.30408 shares of Viacom Merger Preferred
Stock, (c) 0.93065 CVRs and (d) 0.5 Viacom Warrants in exchange for each of
such holder's Shares (a "Securities Election"), (ii) elect to receive $107
in cash in exchange for each of such holder's Shares (a "Cash Election") or
(iii) indicate that such holder has no preference as to the receipt of
Viacom Class B Common Stock, Viacom Merger Preferred Stock, CVRs and Viacom
Warrants (taken together, "Viacom Securities") or cash in exchange for such
holder's Shares (a "Non-Election").
The aggregate number of Shares to be converted into the right to
receive cash in the Revised Viacom Alternative Merger (the "Cash Election
Number") will be equal to 50.1% of the number of Shares outstanding
immediately prior to the Effective Time, and the aggregate number of Shares
to be converted into the right to receive Viacom Securities in the Revised
Viacom Alternative Merger (the "Securities Election Number") shall be equal
to 49.9% of the number of Shares outstanding immediately prior to the
Effective Time. If the aggregate number of Shares with respect to which
Cash Elections have been made plus Dissenting Shares (the "Cash Election
Shares") exceeds the Cash Election Number, all Shares with respect to which
Securities Elections have been made (the "Securities Election Shares") and
all Shares with respect to which Non-Elections have been made (the
"Non-Election Shares") will be converted upon the Revised Viacom
Alternative Merger into the right to receive Viacom Securities, and the
Cash Election Shares (other than Dissenting Shares) will be converted into
the right to receive a pro rata portion of the cash available to be paid
pursuant to the Revised Viacom Alternative Merger with the remainder of the
consideration to be paid in respect of such Shares in Viacom Securities. If
the aggregate number of Securities Election Shares exceeds the Securities
Election Number, all Cash Election Shares (other than Dissenting Shares)
and all Non-Election Shares will be converted into the right to receive
cash, and all Securities Election Shares will be converted into the right
to receive a pro rata portion of Viacom Securities available to be paid
pursuant to the Revised Viacom Alternative Merger with the remainder of the
consideration to be paid in respect of such Shares in cash. In the event
that neither the aggregate number of Cash Election Shares exceeds the Cash
Election Number nor the aggregate number of Securities Election Shares
exceeds the Securities Election Number, all Cash Election Shares will be
converted into the right to receive cash, all Securities Election Shares
will be converted into the right to receive Viacom Securities, and the
Non-Election Shares, if any, will be converted into the right to receive a
pro rata portion of Viacom Securities and cash remaining available to be
paid pursuant to the Revised Viacom Alternative Merger.
The Viacom Merger Agreement provides that, at the Effective Time with
respect to a merger of the Company with and into Viacom, the Certificate of
Incorporation and By-Laws of Viacom will be the Certificate of
Incorporation and By-Laws of the Surviving Corporation. Alternatively, at
the Effective Time with respect to a merger of a subsidiary of Viacom with
and into the Company, the Certificate of Incorporation and By-Laws of the
Company will be amended and restated to read as the Certificate of
Incorporation and By-Laws of such subsidiary of Viacom.
Pursuant to the Viacom Merger Agreement, the closing of the Revised
Viacom Merger will take place as promptly as practicable, and in any event
within two business days, after all closing
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conditions to the Revised Viacom Merger are satisfied or, if permissible,
waived, unless another date is agreed to in writing by Paramount and
Viacom.
Terms of Viacom Merger Preferred Stock
The Viacom Merger Preferred Stock will have a liquidation preference
of $50.00 per share, plus accrued and unpaid dividends, and pay cumulative
quarterly dividends at the rate of $2.50 per annum per share. The Viacom
Merger Preferred Stock will be convertible, at the holder's option, at any
time, into shares of Viacom Class B Common Stock at an initial conversion
price of $70.00 per share, subject to adjustment. The Viacom Merger
Preferred Stock will be redeemable for cash, at Viacom's option, in whole
or in part, at any time after the fifth anniversary of the Effective Time,
initially at a redemption price of $52.50 per share, and thereafter at
prices declining to a price of $50.00 per share on and after the tenth
anniversary of the Effective Time, plus in each case all accrued and unpaid
dividends. The Viacom Merger Preferred Stock will rank on parity with
respect to dividend rights and rights upon liquidation with the preferred
stock to be issued to Blockbuster and NYNEX pursuant to their equity
investments in Viacom.
The Viacom Merger Preferred Stock will be exchangeable in whole or in
part, at the option of Viacom, on any dividend payment date beginning on
the third anniversary of the Effective Time for Viacom's 5% Convertible
Subordinated Debentures (the "Debentures") at the rate of $50.00 principal
amount of Debentures for each share of Viacom Merger Preferred Stock.
Viacom may effect such exchange only if all accrued and unpaid dividends on
the Viacom Merger Preferred Stock have been paid. The Debentures will have
substantially the same terms as the Viacom Merger Preferred Stock, but with
a maturity date 20 years from the Effective Time.
The Viacom Merger Preferred Stock will have no voting rights except
(i) as otherwise required by law and (ii) the right, along with holders of
other series of Viacom preferred stock ranking on parity with the Viacom
Merger Preferred Stock, to elect, voting as a class, two additional
directors to Viacom's Board in the event of specified dividend arrearages.
Terms of CVRs
Upon maturity, each CVR will represent the right to receive, in cash
or in the equivalent fair market value (as determined by an independent
investment bank) of registered securities of Viacom, at Viacom's option,
the amount by which the Target Price exceeds the greater of the Current
Market Value and the Minimum Price (each as defined below). The CVRs will
mature on the first anniversary of the Effective Time (the "Maturity
Date"), unless otherwise extended, at Viacom's option, to the second
anniversary of the Effective Time (the "First Extended Maturity Date") or
the third anniversary of the Effective Time (the "Second Extended Maturity
Date"). If the Current Market Value equals or exceeds the Target Price at
the time of maturity, no amount will be payable with respect to the CVRs.
Target Price means (i) at the Maturity Date, $48.00, (ii) at the First
Extended Maturity Date, $51.00 and (iii) at the Second Extended Maturity
Date, $55.00, in each case subject to certain antidilution protections with
respect to the Viacom Class B Common Stock. Current Market Value means (a)
with respect to the Maturity Date and the First Extended Maturity Date, the
median of the averages of the closing prices on the American Stock Exchange
(the "AMEX") of the Viacom Class B Common Stock during each 20 consecutive
trading day period that begins and ends during the 60 day valuation period
immediately preceding such maturity date (a "Valuation Period") and (b)
with respect to the Second Extended Maturity Date, the highest average of
the closing prices on the AMEX of the Viacom Class B Common Stock during
any 20 consecutive trading day period within a Valuation Period. Minimum
Price means $38.00, subject to certain antidilution protections with
respect to the Viacom Class B Common Stock. Except under certain limited
circumstances, none of Viacom, Amusements or any of their affiliates may
trade Viacom Class B Common Stock during the period commencing 10 trading
days prior to, and ending on the last day of, any Valuation Period.
In the event of certain specified business combination and other
transactions involving Viacom which would extinguish or diminish the value
of the Viacom Class B Common Stock, the holders of
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CVRs will be entitled to receive an amount based on a formula similar to
that applied at the time the CVRs mature. In addition, upon the occurrence
and continuation of certain specified events of default, the CVRs may be
declared due and payable, and a default amount, based on a formula
generally more favorable to holders of CVRs than that applied at the time
the CVRs mature, will become due and payable and, thereafter, will bear
interest at a rate of 8% per annum until payment is made.
The CVRs will be issued pursuant to a CVR Agreement. The CVRs will be
non-interest bearing (other than during a continuation of an event of
default, as described above), unsecured obligations of Viacom. The CVRs
will trade separately from the Viacom Class B Common Stock. Viacom will
use its reasonable best efforts to list the CVRs on the AMEX (or such
other securities exchange on which the Viacom Class B Common Stock is
listed). No fraction of a CVR will be issued in the Revised Viacom Merger.
In lieu thereof, a cash payment will be made in an amount determined in
accordance with a formula contained in the Viacom Merger Agreement.
Terms of Viacom Warrants
Each Viacom Warrant will entitle its holder to purchase one share of
Viacom Class B Common Stock per whole Viacom Warrant at any time prior to
the third anniversary of the Revised Viacom Merger at a price of $60.00,
payable in cash. The terms of the Viacom Warrants will include customary
antidilution and other provisions. No fraction of a Viacom Warrant will be
issued in the Revised Viacom Merger. In lieu thereof, a cash payment will
be made in an amount determined in accordance with a formula contained in
the Viacom Merger Agreement.
Dissenting Shares
Notwithstanding any provisions of the Viacom Merger Agreement to the
contrary, Shares that are (i) outstanding immediately prior to the
Effective Time and (ii) held by stockholders who (a) have not voted in
favor of the Revised Viacom Merger or consented thereto in writing, (b)
have demanded appraisal for such Shares in accordance with Section 262 of
Delaware Law ("Section 262") and (c) have not withdrawn such demand or
otherwise forfeited appraisal rights (collectively, the "Dissenting
Shares"), will not be converted into or represent the right to receive the
consideration in the Revised Viacom Merger pursuant to the Viacom Merger
Agreement. Such stockholders will be entitled to receive payment of the
appraised value of such Shares in accordance with Section 262, except that
all Dissenting Shares held by stockholders who have failed to perfect,
withdrawn or lost their rights to appraisal of such Shares under Section
262 will be deemed to have been converted into and to have become
exchangeable, as of the Effective Time, for the right to receive, without
any interest thereon, the consideration in the Revised Viacom Merger
pursuant to the Viacom Merger Agreement (as if such Shares were
Non-Election Shares in the case of a Revised Alternative Viacom Merger).
Procedures Regarding the Revised Viacom Offer
Termination of the Revised Viacom Offer. Pursuant to the Viacom Merger
Agreement, Viacom is required (unless a number of Shares that would satisfy
the Minimum Condition has been tendered to Viacom prior to the Expiration
Date) to terminate the Revised Viacom Offer if it has been notified by
Paramount that (a) a number of Shares that would satisfy the Other Minimum
Condition (as defined below) has been tendered to the tender offer by the
Other Offeror to purchase the outstanding Shares (the "Other Offer") at the
expiration date of the Other Offer (such expiration date, as extended from
time to time, the "Other Expiration Date") and (b) all conditions to the
Other Offer, other than the Other Minimum Condition and the conditions
relating to the Rights Agreement, Article XI of the Paramount Certificate
of Incorporation, Section 203 of the General Corporation Law of Delaware
("Delaware Law") and judicial or governmental injunction, have been waived.
Viacom will be subject to the obligations contained in the preceding
sentence for so long as the Other Offeror remains subject to the
obligations of an agreement (the "Other Exemption Agreement"), containing
terms for the benefit of Paramount substantially similar to the form of
exemption agreement attached as an exhibit to the Viacom Merger Agreement
(the "Viacom Exemption Agreement"); provided, however, that Viacom will not
be subject to such obligations in the event that the Other Offeror has not
performed or complied in all material respects with the Other Exemption
Agreement.
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The Viacom Merger Agreement permits Viacom to terminate the Revised
Viacom Offer at any time, subject to its continuing obligations to
consummate the Revised Viacom Merger, provided that prior to such
termination, Viacom shall have determined in good faith that either (i)
terminating the Revised Viacom Offer will facilitate the earlier
consummation of the Revised Viacom Merger or (ii) the conditions to the
Revised Viacom Offer (other than the Minimum Condition and the Rights
Condition) are unlikely to be satisfied. Notwithstanding the foregoing,
pursuant to the Viacom Merger Agreement, Viacom has agreed that, without
the written consent of the Company, Viacom may not terminate the Revised
Viacom Offer, unless otherwise required to terminate the Revised Viacom
Offer as described in the preceding paragraph, at any time that all
conditions to the Revised Viacom Offer have been satisfied or there exists
no material risk that the conditions will not be satisfied by the
expiration of the Revised Viacom Offer.
Extension of Expiration Date. Pursuant to the Viacom Merger Agreement,
Viacom has agreed that, without the written consent of the Company, it may
not extend the Expiration Date, at any time that all conditions to the
Revised Viacom Offer have been satisfied or there exists no material risk
that the conditions will not be satisfied by such Expiration Date, except
for (i) extensions necessitated by the failure to satisfy a condition at
the Expiration Date, (ii) extensions required by federal securities law and
(iii) extensions pursuant to certain provisions of the Viacom Merger
Agreement.
No extension of the Expiration Date permitted pursuant to the Viacom
Merger Agreement will be for a period of less than three business days, and
the Expiration Date will not be extended for any reason beyond 12:00
midnight on February 14, 1994, subject to certain provisions of the Viacom
Merger Agreement, or as required by federal securities law to the extent
that the extension arises due to an event other than a change in the terms
of the Revised Viacom Offer (the "Final Expiration Date"). Viacom has
agreed that it will not increase the price per Share payable in the Revised
Viacom Offer or otherwise amend the Revised Viacom Offer primarily to
extend the Other Expiration Date.
Pursuant to the Viacom Merger Agreement, in order to cause the Revised
Viacom Offer and the Other Offer to remain on the same time schedule,
Viacom has agreed that (i) if the Other Offeror remains subject to the
Other Exemption Agreement and extends the Other Expiration Date in
accordance with the Other Exemption Agreement, then Viacom will extend the
Expiration Date to coincide with the Other Expiration Date, or (ii) if a
number of shares that would satisfy the Minimum Condition or the minimum
condition of the Other Offer (the "Other Minimum Condition") (which under
no circumstances may be less than 50.1% of the outstanding Shares) has not
been tendered pursuant to either the Revised Viacom Offer or the Other
Offer at the expiration date of such offers (or a number of Shares that
would satisfy the Minimum Condition and the Other Minimum Condition has
been tendered pursuant to both the Revised Viacom Offer and the Other Offer
prior to the expiration date of such offers), then Viacom will extend the
Expiration Date for a period of not less than 10 business days. Viacom will
be subject to the obligations contained in the preceding sentence for so
long as the Other Offeror remains subject to the obligations of the Other
Exemption Agreement; provided, however, that Viacom will not be subject to
such obligations in the event that the Other Offeror has not performed or
complied in all material respects with the Other Exemption Agreement.
Receipt of Common Stock by Viacom. In the event that a number of
Shares that would satisfy the Minimum Condition has been tendered in the
Revised Viacom Offer at the Expiration Date (provided that the Other
Offeror does not also receive a number of Shares that would satisfy the
Other Minimum Condition) and, as of such Expiration Date, Viacom has waived
all conditions to the Revised Viacom Offer (other than the Minimum
Condition and the conditions relating to the Rights Agreement, Article XI
of the Paramount Certificate of Incorporation, Section 203 of Delaware Law
and judicial or governmental injunction), then Viacom has agreed to extend
the
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Expiration Date to a date 10 business days from the then scheduled
Expiration Date (or for a period of 5 business days in the event that the
Other Offer has been terminated prior to the foregoing Expiration Date).
Agreements of Viacom and the Company
Stockholders' Meetings. Pursuant to the Viacom Merger Agreement, the
Company will call and hold a meeting of its stockholders (the "Company
Stockholders' Meeting") and Viacom will call and hold a meeting of the
holders of the Viacom Class A common stock, par value $0.01 per share (the
"Viacom Stockholders' Meeting" and, together with the Company Stockholders'
Meeting, the "Stockholders' Meetings"), as promptly as practicable after
the Registration Statement (defined below) becomes effective, for the
purpose of considering and taking action on the Viacom Merger Agreement,
the transactions contemplated thereby and the other matters contemplated
thereunder (to the extent not previously approved by such stockholders);
provided, that neither Viacom nor the Company is required to call or hold a
Stockholders' Meeting while the Revised Viacom Offer remains outstanding.
Pursuant to the Viacom Merger Agreement, Paramount has represented that the
affirmative vote of holders of a majority of the outstanding Shares is
required to approve the Merger. Viacom has agreed to cause all Shares owned
by it and its subsidiaries to be voted in favor of approval of the Viacom
Merger Agreement and the transactions contemplated thereby. If Viacom
acquires at least a majority of the outstanding Shares in the Revised
Viacom Offer, Viacom will have sufficient voting power to obtain such
approval, even if no other stockholder of the Company votes in favor of the
Revised Viacom Merger.
Pursuant to the Viacom Merger Agreement, Viacom has represented that
the affirmative vote of holders of a majority of the outstanding shares of
Viacom Class A Common Stock, par value $0.01 per share ("Viacom Class A
Common Stock"), is necessary to approve: (i) the Viacom Merger Agreement
and the Revised Viacom Merger and (ii) to the extent necessary, the
amendment to Viacom's Certificate of Incorporation to increase (x) the
shares of authorized Viacom Class B Common Stock to a number not less than
the number sufficient to consummate the transactions contemplated under the
Viacom Merger Agreement and (y) the size of the Viacom Board to a number
not less than 13.
Proxy Statement/Registration Statement. The Viacom Merger Agreement
provides that the Company and Viacom will, as soon as practicable following
the execution of the Viacom Merger Agreement, prepare and file with the SEC
an amendment to the joint proxy statement previously filed with the SEC
relating to the Stockholders' Meetings (the "Proxy Statement"), and, as
promptly as practicable following consummation of the Revised Viacom Offer,
Viacom shall prepare and file with the SEC a registration statement on Form
S-4 (together with any amendments thereto, the "Registration Statement") in
which the Proxy Statement will be included as a prospectus, in connection
with the registration under the Securities Act of 1933, as amended (the
"Securities Act"), of the shares of Viacom Class B Common Stock and Viacom
Merger Preferred Stock, the CVRs and the Viacom Warrants to be issued to
Paramount's stockholders in the Revised Viacom Merger, the Viacom Class B
Common Stock into which such Viacom Merger Preferred Stock is convertible,
the Viacom Class B Common Stock issuable upon the exercise of the Viacom
Warrants and the Debentures for which the Viacom Merger Preferred Stock is
exchangeable. Each of the Company and Viacom has agreed to use all
reasonable efforts to cause the Registration Statement to become effective
as promptly as practicable, and to mail the Proxy Statement to its
stockholders as promptly thereafter as practicable; provided, that no such
mailing is required while the Revised Viacom Offer remains outstanding. The
Company and Viacom have agreed that, subject to the respective fiduciary
duties of the Paramount Board and the Viacom Board under applicable law as
advised by counsel, the Proxy Statement will include the recommendation of
the Paramount Board and the Viacom Board in favor of the Revised Viacom
Merger, and each of the
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Company and Viacom will use its reasonable best efforts to take all action
necessary to secure the vote of stockholders for approval of the Revised
Viacom Merger.
Conduct of Business. Each of the Company and Viacom has agreed that
prior to the Effective Time, unless otherwise consented to by the other
party, and, except in the case of Viacom, for actions taken by Viacom in
order to consummate (x) the acquisition of Blockbuster and (y) the
transactions contemplated by the Subscription Agreement, dated as of
January 7, 1994, between Blockbuster and Viacom (the "Blockbuster
Subscription Agreement"), the businesses of each of the Company and Viacom
and their respective subsidiaries will in all material respects be
conducted in, and each of the Company and Viacom and their respective
subsidiaries will not take any material action except in, the ordinary
course of business, consistent with past practice. In addition, each of
the Company and Viacom will use its reasonable best efforts to preserve
substantially intact its business organization, to keep available the
services of its and its subsidiaries' current officers, employees and
consultants and to preserve its and its subsidiaries' relationships with
customers, suppliers and other persons with which it or any of its
subsidiaries has significant business relations. By way of amplification
and not limitation, Viacom and the Company have agreed that, except as
contemplated by the Viacom Merger Agreement, including certain schedules
attached thereto, and for any actions taken by Viacom in order to
consummate the acquisition of Blockbuster or in order to consummate the
transactions contemplated by the Blockbuster Subscription Agreement,
neither Viacom nor the Company nor any of their respective subsidiaries
will, prior to the Effective Time, directly or indirectly do, or propose
or agree to do, any of the following without the prior written consent of
the other (provided that the following restrictions do not apply to any
subsidiaries which the Company or Viacom, as the case may be, do not
control): (i) amend the Certificate of Incorporation or By-Laws of Viacom
or the Company (except, with respect to Viacom, the amendments to its
Certificate of Incorporation contemplated by the Viacom Merger Agreement
and the filing of the Certificate of Designation for the Viacom Merger
Preferred Stock); (ii) issue, sell, pledge, dispose of, grant, encumber
or authorize the issuance, sale, pledge, disposition, grant or encumbrance
of (a) any shares of capital stock of any class of it or any of its
subsidiaries, or any options (other than the grant of options in the
ordinary course of business consistent with past practice to employees who
are not executive officers of the Company or Viacom), warrants, convertible
securities or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest (including, without
limitation, any phantom interest), of it or any of its subsidiaries (other
than the issuance of shares of capital stock in connection with any
dividend reinvestment plan or by any Company benefit plan with an employee
stock fund or employee stock ownership plan feature, consistent with
applicable securities laws or the exercise of options, warrants or other
similar rights, or conversion of convertible preferred stock, outstanding
as of the date of the Viacom Merger Agreement and in accordance with the
terms of such options, warrants or rights in effect on the date of the
Viacom Merger Agreement or otherwise permitted to be granted pursuant to
the Viacom Merger Agreement) or (b) any assets of it or any of its
subsidiaries, except for sales in the ordinary course of business or
which, individually, do not exceed $10.0 million or which, in the
aggregate, do not exceed $25.0 million; (iii) declare, set aside, make
or pay any dividend or other distribution, payable in cash, stock, property
or otherwise, with respect to any of its capital stock, except (a) in the
case of Viacom, with respect to its Series A and Series B Preferred Stock,
and in the case of the Company, regular quarterly dividends in amounts not
in excess of $.20 per Share per quarter and payable consistent with past
practice; provided, that prior to the declaration of any such dividend, the
Company shall consult with Viacom as to the timing and advisability of
declaring any such dividend, and (b) dividends declared and paid by a
subsidiary of either the Company or Viacom, each such dividend to be
declared and paid in the ordinary course of business consistent with past
practice; (iv) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock other
than acquisitions by a dividend reinvestment plan or by any Company benefit
plan with an employee stock fund or employee stock ownership plan feature,
consistent with applicable securities laws; (v) (a) acquire (including,
without limitation, by merger, consolidation, or acquisition of stock or
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assets) any corporation, partnership, other business organization or any
division thereof or any assets, except for such acquisitions which,
individually, do not exceed $10.0 million or which, in the aggregate, do
not exceed $25.0 million; (b) incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse, or otherwise as
an accommodation become responsible for, the obligations of any person, or
make any loans or advances, except (1) for any such indebtedness incurred
by Viacom in connection with the Revised Viacom Merger or the Revised
Viacom Offer, (2) the refinancing of existing indebtedness, (3) borrowings
under commercial paper programs in the ordinary course of business, (4)
borrowings under existing bank lines of credit in the ordinary course of
business, or (5) which, in the aggregate, do not exceed $25.0 million; or
(c) enter into or amend any contract, agreement, commitment or arrangement
with respect to any matter described in this clause (v); (vi) increase the
compensation payable or to become payable to its executive officers or
employees, except for increases in the ordinary course of business in
accordance with past practices, or grant any severance or termination pay
to, or enter into any employment or severance agreement with any director
or executive officer of it or any of its subsidiaries, or establish, adopt,
enter into or amend in any material respect or take action to accelerate
any rights or benefits under any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or
other plan, agreement, trust, fund, policy or arrangement for the benefit
of any director, executive officer or employee; or (vii) take any action,
other than reasonable and usual actions in the ordinary course of business
and consistent with past practice, with respect to accounting policies or
procedures.
Directors' and Officers' Indemnification/Insurance. Viacom and the
Company have agreed in the Viacom Merger Agreement that the Certificate of
Incorporation and By-Laws of the Surviving Corporation will contain the
provisions with respect to indemnification set forth in the Certificate of
Incorporation and By-Laws of Viacom on the date of the Viacom Merger
Agreement, which provisions will not be amended, repealed or otherwise
modified for a period of six years after the Effective Time in any manner
that would adversely affect the rights thereunder of individuals who at any
time prior to the Effective Time were directors or officers of the Company
in respect of actions or omissions occurring at or prior to the Effective
Time (including, without limitation, the transactions contemplated by the
Viacom Merger Agreement), unless such modification is required by law. The
parties have also agreed in the Viacom Merger Agreement that after the
Effective Time, the Surviving Corporation will indemnify, defend and hold
harmless the present and former officers and directors of the Company
(collectively, the "Indemnified Parties") against all losses, expenses,
claims, damages, liabilities or amounts that are paid in settlement of,
with the approval of the Surviving Corporation (which approval shall not
unreasonably be withheld), or otherwise in connection with any claim,
action, suit, proceeding or investigation (a "Claim"), based in whole or in
part on the fact that such person is or was a director or officer of the
Company and arising out of actions or omissions occurring at or prior to
the Effective Time (including, without limitation, the transactions
contemplated by the Viacom Merger Agreement), in each case to the full
extent permitted under Delaware Law. Viacom and the Company have agreed in
the Viacom Merger Agreement that the Surviving Corporation will advance
expenses to each Indemnified Party as incurred to the fullest extent
permitted by Delaware Law, provided that the recipient thereof provides the
undertaking to repay such advances contemplated by Delaware Law. Viacom and
the Company have also agreed in the Viacom Merger Agreement that if any
such claim, action or proceeding is brought against any Indemnified Party
(whether arising prior to or after the Effective Time) after the Effective
Time, the Surviving Corporation will pay the reasonable fees and expenses
of counsel selected by such Indemnified Party and will use its reasonable
best efforts to assist in the vigorous defense of such matter.
The Viacom Merger Agreement further provides that, with respect to
matters occurring prior to the Effective Time, the Surviving Corporation
will cause to be maintained for three years after
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the Effective Time the current policies of directors' and officers'
liability insurance maintained by the Company, or may substitute therefor
policies of at least the same coverage, containing terms and conditions
which are no less advantageous. The Surviving Corporation will not be
required to pay premiums for such insurance in excess of an amount equal to
200% of current annual premiums paid by the Company for such insurance
(which premiums the Company represented and warranted to be $850,000 in the
aggregate).
Rights Agreement Amendments. Under the Viacom Merger Agreement the
Company has agreed to amend the Rights Agreement so that the consummation
of the Revised Viacom Offer will not cause the Rights issued thereunder to
become exercisable; provided, however, that Paramount will not be required
to make such amendments to the Rights Agreement if (i) Viacom has not
performed or complied in all material respects with all agreements and
covenants required by the Viacom Merger Agreement to be performed or
complied with by it on or prior to the consummation of the Revised Viacom
Offer or (ii) Paramount obtains and there is in force from the Delaware
Court of Chancery an order declaring that the making of any such amendments
to the Rights Agreement would be contrary to the fiduciary duties of the
Paramount Board. Notwithstanding the foregoing, in no event will the
Paramount Board make an amendment to the Rights Agreement in favor of the
Other Offeror or any other person without making such amendments in favor
of Viacom; provided that Paramount will not be obligated to make such
amendments for Viacom if Viacom has become obligated to terminate the
Revised Viacom Offer pursuant to the provision in the Viacom Merger
Agreement described in the second sentence under "Procedures Regarding the
Revised Viacom Offer--Termination of the Revised Viacom Offer" above.
Except as contemplated by the Viacom Merger Agreement, the Paramount
Board will not amend the Rights Agreement or redeem the Rights prior to the
Effective Time except pursuant to the Other Exemption Agreement. As used
herein, "Rights Condition" means the condition to the Revised Viacom Offer
that the Paramount Board shall have amended the Rights Agreement as
described in the preceding paragraph or the rights shall be otherwise
inapplicable to the Revised Viacom Offer.
Financing. Viacom has delivered to Paramount binding commitments or
agreements to obtain the financing in an amount sufficient, together with
the Viacom Class B Common Stock, the Viacom Merger Preferred Stock, the
CVRs and the Viacom Warrants, to acquire all the Shares in the Revised
Viacom Offer and the Revised Viacom Merger and to pay all related
contemplated fees and expenses. Viacom has represented to Paramount that it
does not know of any fact or circumstance that is reasonably likely to
result in Viacom's inability to receive the proceeds of such financing.
Further Actions. The Viacom Merger Agreement provides that, subject to
its terms and conditions, each of the parties thereto will (i) make
promptly any filings with or applications to the Federal Communications
Commission (the "FCC") with respect to the transactions contemplated by the
Viacom Merger Agreement and (ii) use its reasonable best efforts to take,
or cause to be taken, all appropriate action, and to do or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
by the Viacom Merger Agreement, including, without limitation, using its
reasonable best efforts to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Company and Viacom and their
respective subsidiaries as are necessary for the consummation of the
transactions contemplated by the Viacom Merger Agreement.
In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of the Viacom Merger
Agreement, the proper officers and directors of each
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party to the Viacom Merger Agreement are required to use their reasonable
best efforts to take all such action.
Board of Directors. Pursuant to the Viacom Merger Agreement, promptly
following the acceptance for payment of the Shares to be purchased pursuant
to the Revised Viacom Offer, Paramount will, if requested by Viacom,
subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder, take all actions necessary to cause a majority of directors of
Paramount to be designated by Viacom; provided that, prior to receipt by
Viacom of long-form approval by the FCC permitting Viacom to control
Paramount, Paramount will take all actions necessary to elect the Viacom
voting trustee to the Paramount Board.
Following the election or appointment of Viacom's designees and prior
to the Effective Time, any amendment or termination of the Viacom Merger
Agreement, extension for the performance or waiver of the obligations or
other acts of Viacom or waiver of Paramount's rights under the Viacom
Merger Agreement, will require the concurrence of a majority of directors
of Paramount then in office who were directors on the date of the Viacom
Merger Agreement or who are designated by a majority of the directors of
Paramount who were directors on such date.
Transactions With Significant Stockholder. Pursuant to the Viacom
Merger Agreement, until the tenth anniversary of the Effective Time, Viacom
will not enter into any agreement with any stockholder (the "Significant
Stockholder") who beneficially owns more than 35% of the then outstanding
securities entitled to vote at a meeting of the stockholders of Viacom that
would constitute a Rule 13e-3 transaction under the Exchange Act (any such
transaction being a "Going Private Transaction"), unless Viacom provides in
any agreement pursuant to which such Going Private Transaction will be
effected that, as a condition to the consummation of such Going Private
Transaction, (i) the holders of a majority of the shares of each class of
common stock subject to such Going Private Transaction and not beneficially
owned by the Significant Stockholder will have voted in favor of the Going
Private Transaction at the meeting of stockholders called to vote on such
transaction and (ii) a special committee (the "Special Committee") of the
Viacom Board comprised solely of the independent directors of Viacom will
have (a) approved the terms and conditions of the Going Private Transaction
and recommended that the stockholders vote in favor of such transaction and
(b) received from its financial advisor a written opinion that the
consideration to be received by the stockholders (other than the
Significant Stockholder) in the Going Private Transaction is fair to them
from a financial point of view. These restrictions will not apply to a
Significant Stockholder if there exists at the same time another
stockholder who beneficially holds a greater percentage of outstanding
Viacom voting securities.
Blockbuster Merger Agreement and Blockbuster Subscription
Agreement. Pursuant to the Viacom Merger Agreement, Viacom has agreed that,
from and after the date of the Viacom Merger Agreement, the terms of the
Agreement and Plan of Merger, dated as of January 7, 1994, between
Blockbuster and Viacom (the "Blockbuster Merger Agreement") and the
Blockbuster Subscription Agreement will not, without the consent of
Paramount, be amended or waived in any manner that would have a material
adverse effect on the value of the aggregate consideration to be received
by the Paramount stockholders pursuant to the terms of the Revised Viacom
Offer and the Revised Viacom Merger taken together.
Other Agreements of Viacom and the Company. The Viacom Merger
Agreement also contains provisions with respect to: (i) the qualification
of a merger of the Company with and into Viacom or a subsidiary of Viacom
as a reorganization under Section 368(a) of the federal tax code; (ii) the
parties' obligations with respect to the Company's stock options and
employee benefit plans; (iii) the avoidance of defaults and other
occurrences under Company debt instruments; (iv) the coordination of public
announcements; (v) the listing of shares of Viacom Class B Common Stock and
Viacom Merger Preferred Stock, the CVRs and the Viacom Warrants on the
AMEX; (vi) the
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treatment of securities held by affiliates; (vii) conveyance taxes; (viii)
the assumption of debt and leases; and (ix) certain state and local taxes.
Representations and Warranties
The Viacom Merger Agreement contains various customary representations
and warranties of the parties thereto including representations by each of
the Company and Viacom regarding its capitalization, the absence of certain
changes or events concerning their respective businesses, compliance with
law, litigation, employee benefit plans, trademarks, patents and
copyrights, taxes and other matters. Pursuant to the Viacom Merger
Agreement, Paramount has also represented to Viacom that Paramount has
taken all necessary action so that the restrictions on business
combinations contained in Section 203 of Delaware Law and Article XI of
Paramount's Certificate of Incorporation will not apply with respect to or
as a result of the transactions contemplated by the Viacom Merger
Agreement. The Viacom Merger Agreement also contains a representation made
by Viacom that, since September 12, 1993, neither Viacom nor, to Viacom's
knowledge, its affiliates have purchased or sold certain securities of
Viacom and Viacom is without knowledge of any such trading.
Pursuant to the Viacom Merger Agreement, certain representations and
warranties made by Paramount will be deemed to be made on September 12,
1993 and not made on the date of the Viacom Merger Agreement. Such
representations and warranties do not include, among others, those which
address matters as of a particular date and those with respect to actions
to make inapplicable certain restrictions on business combinations
contained in Section 203 of Delaware Law and Article XI of Paramount's
Certificate of Incorporation and with respect to amending the Rights
Agreement to permit consummation of the Revised Viacom Offer.
Pursuant to the Viacom Merger Agreement, Viacom has confirmed that
certain representations and warranties of Blockbuster with respect to SEC
filings, Blockbuster's financial statements, the absence of certain changes
or events and the absence of litigation contained in the Blockbuster Merger
Agreement will be true and correct as of the date of the Viacom Merger
Agreement and as of the date of the consummation of the Revised Viacom
Offer, except as would not have a material adverse effect on the financial
condition of Paramount, Viacom and Blockbuster and their subsidiaries taken
as a whole.
Conditions to the Revised Viacom Merger
The obligations of Viacom and the Company to consummate the Revised
Viacom Merger and the other transactions contemplated by the Viacom Merger
Agreement, whether or not the Revised Viacom Offer has been previously
consummated, are subject to the satisfaction or, where legally permissible,
waiver of various conditions, including (i) the effectiveness of the
Registration Statement and the absence of any stop order suspending the
effectiveness thereof and any proceedings for that purpose initiated by the
Commission; (ii) the approval of the Viacom Merger Agreement by the
requisite number of votes of holders of Shares and the approval of the
Revised Viacom Merger and the Viacom Merger Agreement and the other matters
thereunder requiring stockholder approval (to the extent not previously
approved) by the requisite number of votes of holders of Viacom Class A
Common Stock, as described above; (iii) no governmental entity having
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and which
materially restricts, prevents or prohibits consummation of the Revised
Viacom Merger or any transaction contemplated by the Viacom Merger
Agreement; provided, however, that the parties have agreed to use their
reasonable best efforts to cause any such decree, judgment, injunction or
other order to be vacated or lifted; and (iv) the shares of Viacom Class B
Common Stock and Viacom Merger Preferred Stock, the CVRs and the Viacom
Warrants issuable to stockholders of the Company in accordance with the
terms of the Viacom Merger Agreement being authorized for listing on the
AMEX upon official notice of issuance.
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The obligations of Viacom to effect the Revised Viacom Alternative
Merger are also subject to the following conditions: (i) each of the
representations and warranties of the Company contained in the Viacom
Merger Agreement being true and correct as of the Effective Time as though
made on and as of the Effective Time, except (a) for changes specifically
permitted by the Viacom Merger Agreement and (b) that those representations
and warranties which address matters only as of a particular date are
required to remain true and correct as of such date, except in any case for
such failures to be true and correct which would not, individually or in
the aggregate, have a material adverse effect on the Company; (ii) the
Company having performed or complied in all material respects with all
agreements and covenants required by the Viacom Merger Agreement to be
performed or complied with by it on or prior to the Effective Time; and
(iii) since the date of the Viacom Merger Agreement, there being no change,
occurrence or circumstance in the business, results of operations or
financial condition of the Company or any of its subsidiaries having or
reasonably likely to have, individually or in the aggregate, a material
adverse effect on the business, results of operations or financial
condition of the Company and its subsidiaries, taken as a whole.
The obligations of the Company to effect the Revised Viacom Merger and
the other transactions contemplated by the Viacom Merger Agreement, whether
or not the Revised Viacom Offer has been previously consummated, are also
subject to the following conditions: (i) each of the representations and
warranties of Viacom contained in the Viacom Merger Agreement being true
and correct as of the Effective Time, as though made on and as of the
Effective Time, except (a) for changes specifically permitted by the Viacom
Merger Agreement and (b) that those representations and warranties which
address matters only as of a particular date are required to remain true
and correct as of such date, except in any case for such failures to be
true and correct which would not, individually or in the aggregate, have a
material adverse effect on Viacom; (ii) Viacom having performed or complied
in all material respects with all agreements and covenants required by the
Viacom Merger Agreement to be performed or complied with by it on or prior
to the Effective Time; (iii) since the date of the Viacom Merger Agreement,
there being no change, occurrence or circumstance in the business, results
of operations or financial condition of Viacom or any of its subsidiaries
having or reasonably likely to have, individually or in the aggregate, a
material adverse effect on the business, results of operations or financial
condition of Viacom and its subsidiaries, taken as a whole; and (iv) Viacom
having filed with the Secretary of State of the State of Delaware a
certificate of amendment to Viacom's Certificate of Incorporation pursuant
to which the amendments required by the Viacom Merger Agreement became
effective.
Termination
The Viacom Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after the stockholders of the Company
have approved the Viacom Merger Agreement and the Revised Viacom Merger or
the stockholders of Viacom have approved the issuance of the shares of
Viacom Class B Common Stock pursuant to the Viacom Merger Agreement, (a) by
mutual consent of the Company and Viacom; (b) by Viacom, prior to
consummation of the Revised Viacom Offer, or the Company, upon a breach by
the other party of any of its representations, warranties, covenants or
agreements set forth in the Viacom Merger Agreement, or if any
representation or warranty of the other party shall have become untrue, in
either case such that the conditions relating to such other party's
representations, warranties, agreements or covenants would be incapable of
being satisfied by July 31, 1994 (provided that in any case, a wilful
breach will be deemed to cause such conditions to be incapable of being
satisfied); (c) by either Viacom or the Company, if any permanent
injunction or action by any governmental entity preventing the consummation
of the Revised Viacom Merger shall have become final and nonappealable; (d)
by either Viacom or the Company, if the Revised Viacom Merger shall not
have been consummated before July 31, 1994; provided, however, that the
Viacom Merger Agreement may be extended by written notice of either Viacom
or the Company to a date not later than
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September 30, 1994, if the Revised Viacom Merger shall not have been
consummated as a direct result of Viacom or the Company having failed by
July 31, 1994 to receive all required regulatory approvals or consents with
respect to the Revised Viacom Merger; (e) by either Viacom or the Company,
if the Viacom Merger Agreement and the Revised Viacom Merger fail to
receive the requisite vote for approval and adoption by the stockholders of
the Company or Viacom at the Stockholders' Meetings.
Viacom may also terminate the Viacom Merger Agreement if (i) the
Paramount Board withdraws, modifies or changes its recommendation of the
Viacom Merger Agreement, the Revised Viacom Merger or the Revised Viacom
Offer in a manner adverse to Viacom or has resolved to do so; provided,
that a statement by the Paramount Board that it is neutral or unable to
take a position with respect to the Revised Viacom Offer after the
commencement or amendment of a tender offer by a third party will not be
deemed to constitute a withdrawal, modification or change of its
recommendation of the Viacom Merger Agreement if the
Solicitation/Recommendation Statement on Schedule 14D-9 relating to such
third party tender offer recommends rejection of such tender offer and the
Paramount Board reconfirms its recommendation of the Revised Viacom Offer;
(ii) the Paramount Board has recommended to the stockholders of the Company
a Competing Transaction (as defined below); (iii) Viacom has not
consummated the Revised Viacom Offer and a tender offer or exchange offer
for 30% or more of the outstanding shares of capital stock of the Company
is commenced, and the Paramount Board recommends that the stockholders of
the Company tender their shares in such tender or exchange offer; or (iv)
Viacom has not consummated the Revised Viacom Offer and any person has
acquired beneficial ownership or the right to acquire beneficial ownership
or any "group" (as such term is defined under Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder) shall have been
formed which beneficially owns, or has the right to acquire "beneficial
ownership" (as defined in the Company's shareholder rights agreement) of,
more than 30% of the then outstanding shares of capital stock of the
Company.
The Company may also terminate the Viacom Merger Agreement if (a) the
Paramount Board (i) fails to make or withdraws or modifies its
recommendation of the Revised Viacom Offer or the Revised Viacom Merger if
there exists at such time a tender offer or exchange offer or a proposal by
a third party to acquire the Company pursuant to a merger, consolidation,
share exchange, business combination, tender or exchange offer or other
similar transaction or (ii) recommends to the Company's stockholders
approval or acceptance of any of the foregoing, in each case only if the
Paramount Board, after consultation with and based upon the advice of legal
counsel, determines that such action is necessary for the Paramount Board
to comply with its fiduciary duties to stockholders under applicable law;
and (b) if due to an occurrence or circumstance that would result in a
failure to satisfy any of the conditions set forth in Annex A to the Viacom
Merger Agreement or otherwise, (i) the Revised Viacom Offer expires without
the purchase of Shares thereunder or Viacom is obligated under the terms of
the Viacom Merger Agreement to terminate the Revised Viacom Offer as a
result of the circumstances described in the second sentence under
"Procedures Regarding the Revised Viacom Offer--Termination of the Revised
Viacom Offer" above, or (ii) Viacom fails to accept for payment Shares
pursuant to the Revised Viacom Offer prior to 9:00 a.m. on the first
business day following the Final Expiration Date, unless such failure is
caused by or results from the failure of Paramount to perform its
obligations under the Viacom Merger Agreement or results from the
termination of the Revised Viacom Offer by Viacom under certain limited
circumstances.
"Competing Transaction" means any of the following involving the
Company or any of its subsidiaries: (i) any merger, consolidation, share
exchange, business combination, or other similar transaction; (ii) any
disposition of 30% or more of the assets of the Company and its
subsidiaries, taken as a whole, in a single transaction or series of
transactions; (iii) any tender offer or exchange
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offer for 30% or more of the outstanding shares of capital stock of the
Company or the filing of a registration statement under the Securities Act
in connection therewith; (iv) any person having acquired beneficial
ownership or the right to acquire beneficial ownership of, or any "group"
(as such term is defined under Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder) having been formed which
beneficially owns or has the right to acquire beneficial ownership of, 30%
or more of the then outstanding shares of capital stock of the Company; or
(v) any public announcement of a proposal, plan or intention to do any of
the foregoing or any agreement to engage in any of the foregoing.
In the event of termination of the Viacom Merger Agreement by either
Viacom or the Company, the Viacom Merger Agreement will become void and
there will generally be no liability or obligation on the part of Viacom or
the Company, except with respect to a wilful breach of the Viacom Merger
Agreement, the confidential treatment of nonpublic information and a
limited number of other provisions. Notwithstanding the foregoing, if
Viacom or Paramount has terminated the Viacom Merger Agreement pursuant to
its terms, and if Viacom continues the Revised Viacom Offer, the Viacom
Exemption Agreement, attached as an exhibit to the Viacom Merger Agreement,
will become effective.
Amendment
Subject to applicable law, the Viacom Merger Agreement may be amended
by action taken by or on behalf of the respective Boards of Directors of
Viacom or the Company at any time prior to the Effective Time. After
approval of the Revised Viacom Merger by the stockholders of the Company or
Viacom, no amendment which under applicable law may not be made without the
approval of the stockholders of the Company or Viacom, may be made without
such approval.
Waiver
At any time prior to the Effective Time, either party to the Viacom
Merger Agreement may (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any inaccuracies
in the representations and warranties of the other party contained in the
Viacom Merger Agreement or in any document delivered pursuant to the Viacom
Merger Agreement and (iii) waive compliance by the other party with any of
the agreements or conditions contained in the Viacom Merger Agreement.
Each of Paramount and Viacom agree that nothing contained in the
Viacom Merger Agreement will constitute a waiver of any rights, claims or
defenses of Viacom or Paramount created by or arising under the Amended and
Restated Agreement and Plan of Merger, dated as of October 24, 1993,
between Paramount and Viacom, as subsequently amended, or the Stock Option
Agreement, dated as of September 12, 1993, between Paramount and Viacom, as
subsequently amended, all of which rights, claims and defenses are
expressly reserved.
Fees and Expenses
All costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred by
the Company and Viacom in connection with the Viacom Merger Agreement will
be borne solely and entirely by the party which incurred such costs and
expenses; provided, however, that all costs and expenses related to
printing, filing and mailing the Registration Statement and the Proxy
Statement and all related filing fees will be borne equally by the Company
and Viacom.
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Specific Performance
Pursuant to the Viacom Merger Agreement, the Company and Viacom have
agreed that irreparable damage would occur in the event any provision of
the Viacom Merger Agreement was not performed in accordance with its terms
and that the parties will be entitled to specific performance of the terms
of the Viacom Merger Agreement.
Governing Law
Except to the extent that Delaware Law is mandatorily applicable to
the Revised Viacom Merger and the rights of stockholders of Paramount and
Viacom, the Viacom Merger Agreement provides that it will be governed by
the laws of the State of New York.
Definitions and Time Periods
For purposes of the Viacom Merger Agreement, (i) "business day" has
the meaning set forth in Rule 14d-1(c)(6) as promulgated under the Exchange
Act and (ii) "fully diluted basis" means giving effect to the Shares then
outstanding plus other Shares issuable upon the exercise of the then
exercisable options.
For purposes of computing any time period under the Viacom Merger
Agreement, the computation will be governed by Rule 14d-1(c)(6) as
promulgated under the Exchange Act.
VIACOM VOTING AGREEMENT
In connection with the Viacom Merger Agreement, Paramount and
Amusements executed a voting agreement (the "Viacom Voting Agreement"), a
copy of which is filed as Exhibit No. 84 to the Schedule 14D-9 and is
incorporated herein by reference.
Pursuant to the Viacom Voting Agreement, Amusements has agreed to vote
all shares of Viacom Class A Common Stock held by it (i) in favor of the
Viacom Merger (as defined in the Viacom Merger Agreement), the Viacom
Merger Agreement (as amended from time to time) and the transactions
contemplated by the Viacom Merger Agreement, including, but not limited to,
the amendments to the Certificate of Incorporation of Viacom contemplated
thereby, and (ii) against any proposal for any recapitalization, merger,
sale of assets or other business combination between Viacom and any person
or entity (other than the Viacom Merger and any merger of Blockbuster with
Viacom) or any other action or agreement that would result in a breach of
any covenant, representation or warranty or any other obligation or
agreement of Viacom under the Viacom Merger Agreement or which could result
in any of the conditions to Viacom's obligations under the Viacom Merger
Agreement not being fulfilled.
RIGHTS AGREEMENT AMENDMENT
In connection with the Viacom Merger Agreement, Paramount executed
Amendment No. 6 to the Rights Agreement ("Rights Amendment No. 6"). Rights
Amendment No. 6 provides that, among other things, Viacom will not become
an "Acquiring Person" and that no "Triggering Event", "Stock Acquisition
Date" or "Distribution Date" (as such terms are defined in the Rights
Agreement) will occur as a result of: (a) the approval, execution or
delivery of the Viacom Merger Agreement or (b) the consummation of the
Viacom Merger (as defined in the Viacom Merger Agreement), provided that no
shares of capital stock are acquired pursuant to the Revised Viacom Offer.
Although the Rights Agreement does not presently permit the consummation of
the Revised Viacom Offer, Paramount has, pursuant to the Viacom Merger
Agreement, agreed to amend the
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Rights Agreement to permit such consummation subject to certain conditions
and exceptions as described above under "Agreements of Viacom and the
Company--Rights Agreement Amendments".
VIACOM EXEMPTION AGREEMENT
Concurrently with the execution of the Viacom Merger Agreement, the
Viacom Exemption Agreement terminated by its terms. The Viacom Exemption
Agreement will again become effective if the Viacom Merger Agreement is
terminated in accordance with its terms and Viacom continues the Revised
Viacom Offer.
Except as described above or in Items 3(b) or 4, there are no
transactions, board resolutions, agreements in principle or signed
contracts in response to the Current QVC Offer which relate to or would
result in one or more of the matters referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The response to Item 8 is hereby supplemented and amended as follows:
By letter to Paramount dated January 19, 1994, Viacom expressly
reserved all of its rights, claims and defenses with respect to any and all
amounts due under either the termination fee provisions of the Restated
Merger Agreement between Viacom and Paramount (which was terminated by
Paramount on December 22, 1993) or the Stock Option Agreement between
Viacom and Paramount. Viacom stated that, to the extent necessary to
reserve such rights, such letter should be viewed as a demand for payment
of the termination fee pursuant to Section 8.05 of the Restated Merger
Agreement and as a Put Notice pursuant to Section 3.03(a) of the Stock
Option Agreement. Viacom also stated that, consistent with its prior
representations, it will not seek to enforce the foregoing demand in a
manner that would interfere with the ongoing bidding process for Paramount.
A copy of Viacom's letter is filed as Exhibit No. 85 to the Schedule 14D-9
and is incorporated herein by reference.
On January 20, 1994, QVC's attorneys delivered a letter to Paramount,
attached to which was a memorandum to QVC from QVC's financial advisor
comparing the QVC and Viacom acquisition proposals. The letter and the
attached memorandum were distributed to each member of the Paramount Board
in connection with its January 21, 1994 meeting. A copy of the letter
(together with the memorandum) is filed as Exhibit No. 86 to the Schedule
14D-9 and is incorporated herein by reference.
On January 21, 1994, Viacom's attorneys delivered a letter to
Paramount, attached to which was a memorandum to Viacom from Viacom's
financial advisor responding to the January 20 memorandum of QVC's
financial advisor. The letter and the attached memorandum were distributed
to each member of the Paramount Board. A copy of the letter (together with
the memorandum) is filed as Exhibit No. 87 to the Schedule 14D-9 and is
incorporated herein by reference.
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
The response to Item 9 is hereby supplemented and amended to add the
following:
Exhibit 78 --Notice of Termination dated January 21, 1994 delivered
by Paramount to QVC.
Exhibit 79 --Exemption Agreement, dated as of January 21, 1994,
between QVC and Paramount.
Exhibit 80 --Press Release issued by Paramount on January 21, 1994.
Exhibit 81 --Letter to Stockholders of Paramount dated January 24,
1994 with respect to the Current QVC Offer and the
Revised Viacom Offer.
Exhibit 82 --Opinion of Lazard dated January 21, 1994.
Exhibit 83 --Agreement and Plan of Merger, dated as of January 21,
1994, between Paramount and Viacom.
Exhibit 84 --Voting Agreement, dated as of January 21, 1994, between
Paramount and Amusements.
Exhibit 85 --Letter from Viacom to Paramount dated January 19, 1994.
Exhibit 86 --Letter from Wachtell, Lipton, Rosen & Katz to Paramount
dated January 20, 1994.
Exhibit 87 --Letter from Shearman & Sterling to Paramount dated
January 21, 1994.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
PARAMOUNT COMMUNICATIONS INC.
By /s/ DONALD ORESMAN
..................................
Name: Donald Oresman
Title: Executive Vice President
Dated: January 24, 1994
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ANNEX A
LAZARD FRERES & CO.
NEW YORK
January 21, 1994
The Board of Directors
Paramount Communications Inc.
15 Columbus Circle
New York, NY 10023-7780
Dear Members of the Board:
We refer to our written opinions to you set forth in
the letter, dated January 12, 1994 (the "January 12, 1994
Letter"). You have requested our opinion, as of this date, as
to the relationship from a financial point of view of the
Amended Viacom Transaction Consideration (as defined in the
January 12, 1994 Letter), as further amended by Viacom on
January 18, 1994 pursuant to the Amended Viacom Proposal (as
defined below), to the QVC Transaction Consideration (as
defined below).
As stated in the January 12, 1994 Letter, we
understand that the proposed acquisition by QVC Network, Inc.
("QVC") of all of the outstanding shares of common stock (the
"Common Stock") of Paramount Communications Inc. ("Paramount")
by means of a cash tender offer (the "QVC Offer") by QVC,
followed by a proposed second-step merger of Paramount and QVC
(the "QVC Second-Step Merger"; collectively with the QVC Offer,
the "QVC Two-Step Transaction") is to be effected pursuant to
the Agreement and Plan of Merger, dated as of December 22,
1993, between QVC and Paramount (the "QVC Merger Agreement"),
whereby (i) QVC is offering to purchase 61,607,894 shares of
Common Stock, or such greater number as equals 50.1% of the
outstanding shares of Common Stock, at a purchase price of
$92.00 per share in cash, and (ii) following completion of the
QVC Offer, Paramount would be merged into QVC in the QVC
Second-Step Merger, and each share of Common Stock not
purchased in the QVC Offer (other than shares of Common Stock
held in the treasury of Paramount or owned by Paramount or any
A-1
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The Board of Directors
Paramount Communications Inc.
January 21, 1994
Page 2
direct or indirect wholly-owned subsidiary of Paramount or QVC
or shares of Common Stock held by those Stockholders (as
defined below) who exercise and perfect stockholders appraisal
rights under Delaware law) would be converted into the right to
receive (a) 1.43 shares of common stock of QVC (the "QVC Common
Stock "), (b) 0.32 shares of a new series 6% cumulative
non-convertible exchangeable preferred stock of QVC (the "QVC
Merger Preferred Stock") and (c) 0.32 warrants to purchase one
share of QVC Common Stock at a price of $70.34 per share,
exercisable at any time by the holder prior to the tenth
anniversary of the QVC Second-Step Merger (the "QVC Warrants")
(the aggregate consideration payable to holders of Common Stock
(the "Stockholders") pursuant to the QVC Offer set forth in
clause (i) and the aggregate consideration payable to
Stockholders pursuant to the QVC Second-Step Merger set forth
in subclauses (a), (b) and (c) of clause (ii) is collectively
referred to as the "QVC Transaction Consideration"). We also
understand that the QVC Merger Agreement provides that the QVC
Merger Preferred Stock will pay cumulative quarterly dividends
at a rate of $3.00 per annum per share, will have a liquidation
preference of $50.00 per share, will be redeemable for cash by
QVC at declining redemption premiums on and after the fifth
anniversary of the QVC Second-Step Merger and will be
exchangeable by QVC into QVC's 6% subordinated debentures (the
"QVC Debentures") at an exchange rate of $50.00 principal
amount of QVC Debenture per share of QVC Merger Preferred Stock
on and after the third anniversary of the QVC Second-Step
Merger. In addition, we understand that the QVC Warrants will
be exercisable with cash or by using an equivalent amount of
liquidation preference of QVC Merger Preferred Stock or
principal amount of QVC Debentures and will be redeemable for
cash by QVC, at its option, at $15.00 per QVC Warrant on and
after the fifth anniversary of the QVC Second-Step Merger.
In addition, we understand that, as set forth in
(i) the written proposal submitted to Paramount by Viacom Inc.
("Viacom") on January 18, 1994 and (ii) Amended Number 25 to
the Tender Offer Statement on Schedule 14D-1 filed by Viacom,
National Amusements, Inc., Mr. Summer M. Redstone and
Blockbuster Entertainment Corporation ("Blockbuster") with the
Securities and Exchange Commission (the "Commission") on
January 18, 1994, (the "Viacom Tender Offer Statement")
(collectively, the "Amended Viacom Proposal"), Viacom amended
the terms of the cash tender offer (the "Viacom Offer") that it
had commenced on October 25, 1993. Under the Amended Viacom
Proposal, (a) Viacom is offering in the Viacom Offer to
purchase 61,657,432 shares of Common Stock, or such greater
number as equals 50.1% of the outstanding shares of Common
Stock, at a purchase price of $107.00 per share in cash, and
(b) following completion of the Viacom Offer, in accordance
A-2
<PAGE>
The Board of Directors
Paramount Communications Inc.
January 21, 1994
Page 3
with the form of Agreement and Plan of Merger, between Viacom
and Paramount (the "Form Viacom Merger Agreement") that is
attached to the Exemption Agreement, dated December 22, 1993,
between Viacom and Paramount (the "Viacom Exemption
Agreement"), Paramount would be merged into Viacom in the
proposed second-step merger between Viacom and Paramount (the
"Viacom Second-Step Merger"; collectively with the Viacom
Offer, the "Viacom Two-Step Transaction"), and each share of
Common Stock not purchased in the Viacom Offer (other than
shares of Common Stock held in the treasury of Paramount or
owned by Paramount or any direct or indirect wholly-owned
subsidiary of Paramount or Viacom or shares of Common Stock
held by those Stockholders who exercise and perfect
stockholders appraisal rights under Delaware law) would be
converted into the right to receive (1) 0.93065 shares of
Class B common stock of Viacom (the "Viacom Class B Common
Stock"), (2) 0.30408 shares of a new series of Viacom
cumulative convertible exchangeable preferred stock (the
"Viacom Merger Preferred Stock"), (3) 0.5 warrants to purchase
one share of Viacom Class B Common Stock at a price of $60.00
per share, exercisable at any time by the holder prior to the
third anniversary of the Viacom Second-Step Merger and
(4) 0.93065 contingent value rights of Viacom (the "Viacom
CVRs") having the terms described below (the aggregate
consideration payable to Stockholders pursuant to the Viacom
Offer set forth in clause (a) and the aggregate consideration
payable to Stockholders pursuant to the Viacom Second-Step
Merger set forth in subclauses (1), (2), (3) and (4) of
clause (b) is collectively referred to as the "Revised Viacom
Transaction Consideration"). We also understand that the
Amended Viacom Proposal provides that each Viacom CVR will
represent the right on the first anniversary of the Viacom
Second-Step Merger to receive in cash or securities, at
Viacom's election, the amount by which the Average Trading
Value (as defined in the Amended Viacom Proposal and as
described below) of Viacom Class B Common Stock is less than a
minimum price of $48.00 per share of Viacom Class B Common
Stock, and Viacom will have the right, in its sole discretion,
to extend the payment measurement dates of the Viacom CVR by
one year, in which case the minimum price will increase to
$51.00 per share of Viacom Class B Common Stock, and a further
one year extension right which, if exercised, would increase
the minimum price to $55.00 per share of Viacom Class B Common
Stock. As used in the Amended Viacom Proposal, the "Average
Trading Value" will be based upon the market prices of Viacom
Class B Common Stock during the 60 trading days ending on the
last day of the relevant period and is subject to a floor of
$38.00 per share of Viacom Class B Common Stock.
A-3
<PAGE>
The Board of Directors
Paramount Communications Inc.
January 21, 1994
Page 4
Lazard Freres & Co. has from time to time acted as
financial advisor to Paramount and has acted as its financial
advisor in connection with proposed QVC Two-Step Transaction
and proposed Viacom Two-Step Transaction. As you know, a
General Partner of our firm is a member of Paramount's Board of
Directors. In addition, we have from time to time in the past
provided, and we are currently providing, in matters unrelated
to Paramount, financial advisory or financing services to one
or more of the respective equity investors in Viacom and QVC,
or persons engaged in pending transactions with one or more of
such investors, and we have received, or expect to receive,
fees for the rendering of such services. In connection with
our opinions set forth in this letter, we have, among other
things:
(i) reviewed the terms and conditions of (a) the
written proposal submitted by QVC on December 20,
1993, Amendment Number 21 to the Tender Offer
Statement Schedule 14D-1 filed by QVC on December 23,
1993 with the Commission, and the QVC Merger Agreement
(including the form Exemption Agreement between QVC
and Paramount attached thereto) and (b) the Amended
Viacom Proposal, the Viacom Tender Offer Statement and
the Viacom Exemption Agreement (including the Form
Viacom Merger Agreement attached thereto);
(ii) reviewed the terms and conditions of the
Agreement and Plan of Merger, dated as of January 7,
1994, between Viacom and Blockbuster (the "Blockbuster
Merger Agreement"), and the Subscription Agreement,
dated January 7, 1994, between Viacom and Blockbuster,
analyzed the Amended Viacom Proposal both with and
without giving effect to the consummation of the
proposed merger between Viacom and Blockbuster
contemplated by the Blockbuster Merger Agreement and
observed that the proposed merger between Viacom and
Blockbuster is subject to the approval of the
stockholders of Blockbuster;
(iii) analyzed certain historical business and
financial information relating to Paramount, Viacom,
QVC and Blockbuster, including (a) the Annual Reports
to Stockholders and the Annual Reports on Form 10-K of
Paramount for each of the fiscal years ended
October 31, 1988 through 1992, the Transaction Report
on Form 10-K of Paramount for the period from
November 1, 1992 through April 30, 1993 and Quarterly
A-4
<PAGE>
The Board of Directors
Paramount Communications Inc.
January 21, 1994
Page 5
Reports on Form 10-Q of Paramount for the quarters
ended January 31, April 30 and July 31 for each of the
same fiscal years and for the quarters ended January
31, April 30, July 31 and October 31, 1993, (b) the
Annual Reports to Stockholders and the Annual Reports
on Form 10-K of Viacom for each of the fiscal years
ended December 31, 1988 through 1992, and Quarterly
Reports on Form 10-Q of Viacom for the quarters ended
March 31, June 30 and September 30 for each of the
same fiscal years, and for the quarters ended
March 31, June 30, and September 30, 1993, (c) the
Annual Reports to Stockholders and the Annual Reports
on Form 10-K of QVC for each of the fiscal years ended
January 31, 1989 through 1993, and Quarterly Reports
on Form 10-Q of QVC for the quarters ended April 30,
July 31 and October 31 for each of the same fiscal
years, and for the quarters ended April 30, July 31
and October 31, 1993 and (d) the Annual Reports to
Stockholders and the Annual Reports on Form 10-K of
Blockbuster for each of the fiscal years ended
December 31, 1988 through 1992, and Quarterly Reports
on Form 10-Q of Blockbuster for the quarters ended
March 31, June 30 and September 30 for each of the
same fiscal years, and for the quarters ended
March 31, June 30, and September 30, 1993;
(iv) reviewed certain financial forecasts and other
data provided to us by Paramount, Viacom, QVC and
Blockbuster relating to their respective businesses
(except in the case of Paramount, financial forecasts
for the current fiscal year only, having been advised
that Paramount has not prepared projections beyond the
current fiscal year);
(v) conducted discussions with members of the
senior management of Paramount, Viacom, QVC and
Blockbuster with respect to the business and prospects
of Paramount, Viacom, QVC and Blockbuster and the
strategic objectives of each;
(vi) reviewed public information with respect to
certain other companies in lines of businesses we
believe to be comparable to the businesses of
Paramount, Viacom, QVC and Blockbuster;
(vii) reviewed the financial terms of certain
business combinations involving companies in lines of
A-5
<PAGE>
The Board of Directors
Paramount Communications Inc.
January 21, 1994
Page 6
business we believe to be comparable to those of
Paramount, Viacom, QVC and Blockbuster, and in other
industries generally;
(viii) reviewed the historical stock prices and
trading volumes of the Common Stock, Viacom Class B
Common Stock, QVC Common Stock and shares of common
stock of Blockbuster;
(ix) reviewed the procedures for bidding set forth
in the QVC Merger Agreement and the Viacom Exemption
Agreement, in particular noting the respective
provisions therein providing for the extension of the
QVC Offer or the Viacom Offer, as applicable, for 10
business days upon delivery of a Completion
Certificate (referred to in the QVC Merger Agreement
or the Viacom Exemption Agreement, as applicable) by
QVC or Viacom, as applicable; and
(x) conducted such other financial studies,
analyses and investigations as we deemed appropriate.
We have assumed and relied upon the accuracy and
completeness of the financial and other information provided by
Paramount, Viacom, QVC and Blockbuster to us, and on the
representations contained in the QVC Merger Agreement and the
Form Viacom Merger Agreement, and we have not undertaken any
independent verification of such information or any independent
valuation or appraisal of any of the assets of Paramount,
Viacom, QVC or Blockbuster. With respect to the financial
forecasts referred to above, we have assumed that they have
been reasonably prepared on a basis reflecting the best
currently available judgments of the managements of Paramount,
Viacom, QVC or Blockbuster as to the future financial
performance of Paramount, Viacom, QVC and Blockbuster,
respectively. In addition, we have assumed that the Viacom
Proposal (as defined in the January 12, 1994 Letter) and the
Amended Viacom Proposal were made in compliance with the terms
and conditions of the Viacom Exemption Agreement. Further, our
opinions are based on economic, monetary and market conditions
existing on this date.
We have not reviewed any proxy statement or similar
document that may be prepared for use in connection with the
proposed QVC Two-Step Transaction or the proposed Viacom
Two-Step Transaction. In accordance with the Procedures for
Submissions of Proposals (the "Bidding Procedures") established
A-6
<PAGE>
The Board of Directors
Paramount Communications Inc.
January 21, 1994
Page 7
by Paramount's Board of Directors on December 13, 1993,
Paramount's Board of Directors has authorized us to respond to
inquiries with respect to Paramount from prospective bidders
(in addition to QVC and Viacom) and to receive proposals from
additional bidders, if any. We have not, however, solicited
third party indications of interest in acquiring all or any
part of Paramount.
As part of our analysis, we have continued to evaluate
the transactions, as we have in the past, not only on the basis
of current market values but also applying other financial
valuation methodologies generally applicable to transactions of
this type. These financial valuation methodologies, which are
subject to certain limitations as applied to these prospective
combinations, including the lack of projections for Paramount
beyond the current fiscal year and the difficulties in
quantifying synergies and revenue enhancements resulting from
the combinations, slightly favor in varying degrees the Revised
Viacom Transaction Consideration from a financial point of
view. On the basis of recent market values, the QVC
Transaction Consideration has had a slightly higher market
valuation than the Revised Viacom Transaction Consideration; in
this connection, we observe the high volatility of Viacom
Class B Common Stock and QVC Common Stock and that the market
prices of the stocks seem to be impacted by the perception of
the market-place as to whether QVC or Viacom would be the
ultimate acquiror of Paramount.
We also observe that there is a greater percentage of
cash and preferred stock as components of the Revised Viacom
Transaction Consideration than the QVC Transaction
Consideration. We further note the offering of the Viacom CVRs
in the Amended Viacom Proposal. Finally, we observe the
express preference of Paramount's Board of Directors in the
Bidding Procedures for cash and securities readily susceptible
to valuation, such as securities with a fixed income stream,
with a liquidation preference, or in the case of equity
securities, securities which enjoy the benefits of a wide
collar or other value assurance mechanism.
Our engagement and the opinions expressed herein are solely
for the benefit of Paramount's Board of Directors and
are not on behalf of, and are not intended to confer rights or
remedies upon, Viacom, QVC, Blockbuster, any stockholders of
Paramount, Viacom, QVC or Blockbuster or any other person other
than Paramount's Board of Directors.
A-7
<PAGE>
The Board of Directors
Paramount Communications Inc.
January 21, 1994
Page 8
In reaching our opinions expressed herein, we have
taken into account various factors, including our assessment of
the probability of consummation of the proposed merger between
Viacom and Blockbuster contemplated by the Blockbuster Merger
Agreement under the circumstances existing on the date of this
letter and that, given the terms and conditions of the proposed
QVC Two-Step Transaction and the proposed Viacom Two-Step
Transaction and the limitations of the financial valuation
methodologies referred to above, we view as a favorable factor
an offer that contains a greater percentage of cash and
securities readily susceptible to valuation. Based on and
subject to the foregoing and such other factors as we deemed
relevant, including our assessment of economic, monetary and
market conditions existing on the date of this letter, we are
of the opinion that, as of this date, (i) the QVC Transaction
Consideration is fair to the Stockholders from a financial
point of view (ii) the Revised Viacom Transaction Consideration
is fair to the Stockholders from a financial point of view and
(iii) the Revised Viacom Transaction Consideration is
marginally superior to the QVC Transaction Consideration from a
financial point of view.
Very truly yours,
/s/ Lazard Freres & Co.
A-8
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO.
- ------- ------------------------------------------------------------ --------
1 * Pages 5, 6 and 10-20 of Paramount's Proxy Statement dated
January 29, 1993 for its 1993 Annual Meeting of
Stockholders.
2 * Employment Agreement with Robert Greenberg, a senior vice
president of Paramount, dated as of April 5, 1993.
3 * Press Release issued on November 6, 1993.
4 * Letter to Stockholders of Paramount dated November 8, 1993
with respect to the Viacom Offer.
5 * Letter to Stockholders of Paramount dated November 8, 1993
with respect to the QVC Offer.
6 * Amended and Restated Agreement and Plan of Merger, dated as
of October 24, 1993, between Paramount and Viacom.
7 * Amendment No. 1, dated as of November 6, 1993, to the
Amended and Restated Agreement and Plan of Merger.
8 * Stock Option Agreement, dated as of September 12, 1993, as
amended on October 24, 1993, between Paramount and Viacom.
9 * Voting Agreement, dated as of September 12, 1993, as amended
on October 24, 1993, between Paramount and Amusements.
10 * Press Release issued by Viacom on November 12, 1993.
11 * Press Release issued on November 15, 1993.
12 * Letter to Stockholders of Paramount dated November 16, 1993
with respect to the QVC Offer.
13 * Press Release issued by QVC on November 20, 1993.
14 * Press Release issued by Viacom on November 19, 1993.
15 * Press Release issued by QVC on November 22, 1993.
16 * Press Release issued by Viacom on November 22, 1993.
17 * Press Release issued by QVC on November 23, 1993.
18 * Press Release issued by Viacom on November 23, 1993.
19 * Press Release issued by QVC on November 24, 1993.
20 * Press Release issued by Viacom on November 24, 1993.
21 * Memorandum Opinion in QVC Network, Inc. v. Paramount
Communications Inc., et al., Civ. Action No. 13208 (Del. Ch.
November 24, 1993).
22 * Preliminary Injunction Order in QVC Network, Inc. v.
Paramount Communications Inc., et al., Civ. Action No. 13208
(Del. Ch. November 24, 1993).
23 * Press Release issued by Paramount on November 24, 1993.
24 * Press Release issued by Viacom on November 24, 1993.
25 * Press Release issued by Viacom on November 26,1993.
26 * Press Release issued by Viacom on November 29, 1993.
27 * Order of the Delaware Supreme Court dated November 29, 1993.
28 * Press Release issued by QVC on December 1, 1993.
29 * Revised Memorandum Opinion in QVC Network, Inc. v. Paramount
Communications Inc., et al., Civ. Action No. 13208 (Del. Ch.
November 24, 1993).
30 * Press Release issued by QVC on December 10, 1993.
31 * Press Release issued by Paramount on December 9, 1993.
- ---------------
*Previously filed.
<PAGE>
EXHIBIT DESCRIPTION PAGE NO.
- ------- ------------------------------------------------------------ --------
32 * Press Release issued by Viacom on December 9, 1993.
33 * Order in Paramount Communications Inc., et al. v. QVC
Network, Inc., Civ. Action No. 13208 (Del. December 9,
1993).
34 * Press Release issued by QVC on December 9, 1993.
35 * Letter from Richards, Layton & Finger to Vice Chancellor
Jack B. Jacobs of the Delaware Court of Chancery dated
December 10, 1993.
36 * Bidding Procedures of Paramount dated December 14, 1993.
37 * Press Release issued by Paramount on December 14, 1993.
38 * Letter to Stockholders of Paramount dated December 14, 1993
with respect to the Viacom Offer and the QVC Offer.
39 * Press Release issued by QVC on December 14, 1993.
40 * Press Release issued by Viacom on December 14, 1993.
41 * Press Release issued by QVC on December 16, 1993.
42 * Letter from Wachtell, Lipton, Rosen & Katz to Lazard dated
December 14, 1993.
43 * Letter from Simpson Thacher & Bartlett to Wachtell, Lipton,
Rosen & Katz dated December 15, 1993.
44 * Press Release issued by Paramount on December 15, 1993.
45 * Letter from the Delaware Chancery Court to Young, Conaway,
Stargatt & Taylor; Richards, Layton & Finger; Morris &
Morris; and Morris, Nichols, Arsht & Tunnell dated December
14, 1993.
46 * Revised pages to the Memorandum Opinion in QVC Network, Inc.
v. Paramount Communications Inc., et al., Civ. Action No.
13208 (Del. Ch. November 24, 1993).
47 * Letter from Shearman & Sterling to Lazard dated December 15,
1993.
48 * Letter from Simpson Thacher & Bartlett to Shearman &
Sterling dated December 16, 1993.
49 * Letter from Simpson Thacher & Bartlett to Wachtell, Lipton,
Rosen & Katz dated December 17, 1993.
50 * Press Release issued by Paramount on December 20, 1993.
51 * Press Release issued by QVC on December 22, 1993.
52 * Press Release issued by Paramount on December 22, 1993.
53 * Agreement and Plan of Merger, dated as of December 22, 1993,
between Paramount and QVC.
54 * Voting Agreement dated December 22, 1993 among BellSouth
Corporation, Comcast Corporation, Cox Enterprises, Inc.,
Advance Publications, Inc. and Arrow Investments, L.P.
55 * Letter to Stockholders of Paramount dated December 23, 1993
with respect to the Revised QVC Offer and the Viacom Offer.
56 * Opinion of Lazard dated December 21, 1993.
57 * Notice of Termination dated December 22, 1993 delivered by
Paramount to Viacom.
58 * Exemption Agreement, dated as of December 22, 1993, between
Viacom and Paramount.
59 * First Amendment, dated as of December 27, 1993, to Agreement
and Plan of Merger, dated as of December 22, 1993, between
Paramount and QVC.
60 * Press Release issued by QVC on January 7, 1994.
61 * Press Release issued by QVC on January 10, 1994.
- ---------------
*Previously filed.
<PAGE>
EXHIBIT DESCRIPTION PAGE NO.
- ------- ------------------------------------------------------------ --------
62 * Press Release issued by Paramount on January 7, 1994.
63 * Press Release issued by Viacom on January 7, 1994.
64 * Press Release issued by Viacom on January 9, 1994.
65 * Letter from Wachtell, Lipton, Rosen & Katz to the Paramount
Board dated January 11, 1994.
66 * Letter from Shearman & Sterling to the Paramount Board dated
January 12, 1994.
67 * Letter from Paramount to Wachtell, Lipton, Rosen & Katz
dated January 13, 1994.
68 * Press Release issued by Paramount on January 12, 1994.
69 * Letter from Simpson Thacher & Bartlett to Shearman &
Sterling and Wachtell, Lipton, Rosen & Katz dated January
13, 1994.
70 * Letter to Stockholders of Paramount dated January 13, 1994
with respect to the Current QVC Offer and the Revised Viacom
Offer.
71 * Opinion of Lazard dated January 12, 1994.
72 * Letter from Wachtell, Lipton, Rosen & Katz to Simpson
Thacher & Bartlett dated January 14, 1994.
73 * Letter from Simpson Thacher & Bartlett to Wachtell, Lipton,
Rosen & Katz dated January 18, 1994.
74 * Letter from the Commission to Simpson Thacher & Bartlett
dated January 15, 1994.
75 * Press Release issued by Paramount on January 18, 1994.
76 * Press Release issued by Viacom on January 18, 1994.
77 * Press Release issued by QVC on January 19, 1994.
78 Notice of Termination dated January 21, 1994 delivered by
Paramount to QVC.
79 Exemption Agreement, dated as of January 21, 1994, between
QVC and Paramount.
80 Press Release issued by Paramount on January 21, 1994.
81 Letter to Stockholders of Paramount dated January 24, 1994
with respect to the Current QVC Offer and the Revised Viacom
Offer.
82 Opinion of Lazard dated January 21, 1994.
83 Agreement and Plan of Merger, dated as of January 21, 1994,
between Paramount and Viacom.
84 Voting Agreement, dated as of January 21, 1994, between
Paramount and Amusements.
85 Letter from Viacom to Paramount dated January 19, 1994.
86 Letter from Wachtell, Lipton, Rosen & Katz to Paramount
dated January 20, 1994.
87 Letter from Shearman & Sterling to Paramount dated January
21, 1994.
- ---------------
*Previously filed.
PARAMOUNT COMMUNICATIONS INC.
Via Telecopy (215) 430-2380
------------
January 21, 1994
QVC Network, Inc.
Goshen Corporate Park
West Chester, PA 19380
Attention: Corporate Secretary
Dear Sirs:
Reference is hereby made to the Agreement and Plan of
Merger (the "Agreement"), dated as of December 22, 1993, between
QVC Network, Inc. and Paramount Communications Inc.
("Paramount"). In accordance with the terms and conditions
provided therein, Paramount hereby terminates the Agreement
pursuant to Section 8.1(h) of the Agreement. Pursuant to Section
8.2 of the Agreement, the exemption agreement attached thereto as
Exhibit B shall be in effect as of the date hereof.
PARAMOUNT COMMUNICATIONS INC.
By:/s/ Donald Oresman
---------------------------
cc: Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Pamela S. Seymon, Esq.
(212) 403-2000
EXEMPTION AGREEMENT, dated as of January 21, 1994 (this
"Agreement"), between QVC NETWORK, INC., a Delaware corporation
(the "Offeror"), and PARAMOUNT COMMUNICATIONS INC., a Delaware
corporation ("Paramount").
Paramount and the Offeror are entering into this
Agreement to provide the Offeror with an opportunity, under
certain circumstances, to consummate its outstanding tender offer
(as it may be amended and supplemented, the "Offer") to acquire
not less than 50.1% of the then outstanding shares of common
stock, par value $1.00 per share (the "Common Stock"), of
Paramount on a fully diluted basis (as hereinafter defined);
Accordingly, in consideration of the foregoing and the
mutual covenants and agreements contained herein, and intending
to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE I
AGREEMENT OF PARAMOUNT
SECTION 1.01. Agreements of Paramount. (a) Paramount
-----------------------
hereby agrees that, upon delivery by the Offeror of the
Completion Certificate (as defined herein), it shall take all
necessary action to amend the Rights Agreement, dated as of
September 7, 1988, as amended, between Paramount and
Manufacturers Hanover Trust Company, as Rights Agent (the "Rights
Agreement"), so that the consummation of the Offer on the terms
permitted hereunder and as contemplated by the form of Merger
Agreement attached as Exhibit A hereto, will not cause (A) the
<PAGE>
2
rights (the "Rights") issued pursuant to the Rights Agreement to
become exercisable under the Rights Agreement, (B) the Offeror or
any subsidiary of the Offeror to be deemed an "Acquiring Person"
(as defined in the Rights Agreement), or (C) the "Stock
Acquisition Date" (as defined in the Rights Agreement) to occur
upon such consummation; provided, however, that Paramount shall
-------- -------
not be required to make such amendments to the Rights Agreement
if (i) the Offeror has not performed or complied in all material
respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to
the consummation of the Offer or (ii) Paramount obtains and there
is in force from the Delaware Court of Chancery an order
permanently, preliminarily or temporarily declaring that the
making of such amendments to the Rights Agreement would be
contrary to the fiduciary duties of the Board of Directors of
Paramount. Notwithstanding anything else contained herein, in no
event shall the Board of Directors of Paramount make an amendment
of the Rights Agreement in favor of the Other Offeror or any
other person without making such amendments in favor of the
Offeror; provided that Paramount will not be obligated to make
such amendments for the Offeror if the Offeror has become
obligated to terminate the Offer pursuant to Section 2.06 of this
Agreement.
(b) Paramount hereby agrees that it shall take all
appropriate actions so that the restrictions on business
combinations contained in (i) Article XI of the Paramount
Certificate of Incorporation and (ii) Section 203 of the General
<PAGE>
3
Corporation Law of the State of Delaware will not apply to the
consummation of the Offer; provided, however, that such action
-------- -------
shall not be effective if Paramount is not required to amend the
Rights Agreement as contemplated by Section 1.01 hereof.
ARTICLE II
AGREEMENTS OF THE OFFEROR
SECTION 2.01. Terms of the Offer. (a) In the event
------------------
Paramount executes the Other Merger Agreement (as defined below)
the Offeror hereby agrees (i) unless it terminates the Offer, to
extend the expiration date (such expiration date as extended from
time to time shall be defined herein to mean the "Expiration
Date") of the Offer until 12:00 midnight on the date to which
Viacom Inc. (the "Other Offeror") has agreed to extend its tender
offer (the "Other Offer") pursuant to the merger agreement
between Paramount and the Other Offeror (the "Other Merger
Agreement"), which extension by the Offeror shall not be required
to be more than eleven business days from the date of the Other
Merger Agreement; (ii) so long as the Other Offeror is bound by
substantially identical restrictions made for the benefit of
Paramount, not to amend the Offer in order to (A) increase by
less than $60 million the aggregate cash consideration to be paid
pursuant to the Offer or (B) increase the number of shares of
Common Stock for which tenders are sought by less than 2% of the
outstanding shares of Common Stock; (iii) not to extend such
Expiration Date, except pursuant to Sections 2.01(a)(i), 2.01(c)
and 2.04 hereof, and, unless required to terminate pursuant to
Section 2.06 hereof, except for (A) failure to satisfy a
<PAGE>
4
condition at the Expiration Date or (B) any such extension
required by federal securities law; (iv) that no extension of the
Expiration Date permitted pursuant to this Agreement shall be for
a period of less than three business days; and (v) that the
Expiration Date shall not be extended for any reason beyond 12:00
midnight on February 14, 1994, or such later date in accordance
with the last parenthetical in Section 2.01(c)(ii), Section 2.04,
or as required by federal securities law to the extent that the
extension arises due to an event other than a change in the terms
of the Offer (the "Final Expiration Date"). The Offeror agrees
that it will not increase the per share consideration of the
Offer or otherwise amend the Offer primarily to extend the
expiration date of the Other Offer.
(b) The Offeror hereby agrees that, without the prior
written consent of Paramount, no change in the terms of the Offer
shall be made which, (i) decreases the aggregate cash
consideration payable in the Offer or changes the form of
consideration payable in the Offer (except to the extent the
Other Offeror has made such changes or has been granted benefits
by Paramount that diminish the value of Paramount to the
Offeror), (ii) reduces the number of shares of Common Stock to be
purchased in the Offer below 50.1% of the outstanding shares of
Common Stock on a fully diluted basis; provided, however, that
-------- -------
the number of shares of Common Stock sought in the Offer can be
decreased to not less than 50.1% of the outstanding shares of
Common Stock on a fully diluted basis so long as the aggregate
cash consideration payable in the Offer is not decreased or (iii)
<PAGE>
5
waives the Minimum Condition (as defined in the Offer but which
under no circumstances may be less than 50.1% of the outstanding
shares of Common Stock on a fully diluted basis). Subject to the
provisions of this Agreement, the Offeror expressly reserves the
right to terminate or amend the Offer pursuant to its terms or
increase the price per share of Common Stock or the number of
shares of Common Stock for which tenders are sought in the Offer.
(c) In order to cause the Offer and the Other Offer to
remain on the same time schedule, the Offeror hereby agrees that
if the Other Offeror remains subject to the Other Merger
Agreement or remains subject to the form of exemption agreement
attached thereto (the "Other Exemption Agreement"), in either
case containing terms substantially identical to this Agreement
for the benefit of Paramount (the "Bidding Procedures"), and (i)
extends the expiration date of the Other Offer (such expiration
date as extended from time to time, the "Other Expiration Date")
in accordance with the Bidding Procedures, then the Expiration
Date shall be extended (as soon as practicable, but not later
than one business day following the announcement of the extension
of the Other Expiration Date) by the Offeror to the Other
Expiration Date, or (ii) if upon notification to Paramount by the
Offeror and the Other Offeror of the results of their respective
Offers (which notification shall be required to be delivered by
the Offeror and the Other Offeror no later than promptly
following the expiration of their respective offers), Paramount
has notified the Offeror and the Other Offeror (which
notification shall be required to be delivered by Paramount
<PAGE>
6
promptly) that a number of shares of Common Stock that would
satisfy the Minimum Condition or the minimum condition defined in
the Other Offer (which under no circumstances may be less than
50.1% of the outstanding shares of Common Stock on a fully
diluted basis) (the "Other Minimum Condition") shall not have
been validly tendered (and not withdrawn) pursuant to either the
Offer or the Other Offer, respectively, at the Expiration Date
(or a number of shares of Common Stock that would satisfy the
Minimum Condition and the Other Minimum Condition shall have been
validly tendered and not withdrawn pursuant to both the Offer and
the Other Offer at the Expiration Date), then the Offeror shall
extend the Expiration Date for a period of 10 business days.
(d) The Offeror shall be subject to the obligations of
Sections 2.01 and 2.06 for so long as the Other Offeror is
subject to the Bidding Procedures; provided, however, that the
-------- -------
Offeror shall not be subject to Sections 2.01 and 2.06 in the
event that the Other Offeror has not performed or complied in all
material respects with the Bidding Procedures.
SECTION 2.02. Recommendation of the Offer. If, at any
---------------------------
time, the Board of Directors of Paramount recommends acceptance
of the Offer by Paramount stockholders, or informs the Offeror
that the Board intends to recommend acceptance of the Offer, then
the Offeror shall promptly execute and deliver the Merger
Agreement (the "Executed Merger Agreement") substantially in the
form attached as Exhibit A hereto (with representations and
warranties dated as of the date of execution of such Executed
Merger Agreement, unless otherwise specified therein and with
<PAGE>
7
such other changes as may be necessary to reflect the terms of
the Offer as it then exists, changes in the consideration offered
under the Merger Agreement and changes related thereto) as soon
as practicable, but in no event more than one business day
thereafter, which Executed Merger Agreement shall be executed by
Paramount (with representations and warranties dated as of the
date of such Executed Merger Agreement, unless otherwise
specified therein) within one business day of receipt thereof.
SECTION 2.03. Intentionally Omitted.
---------------------
SECTION 2.04. Receipt of Common Stock. Unless the
-----------------------
event referred to in the last parenthetical of Section
2.01(c)(ii) occurs, in the event that a number of shares of
Common Stock that would satisfy the Minimum Condition shall have
been validly tendered and not withdrawn in the Offer at the
Expiration Date and, as of such Expiration Date, the Offeror has
waived all conditions to the Offer (other than the Minimum
Condition and the conditions relating to the Rights Agreement,
Article XI of the Paramount Certificate of Incorporation, Section
203 of the General Corporation Law of Delaware and judicial or
governmental injunction each as set forth therein), then the
Offeror shall (i) extend the Expiration Date to a date 10
business days from the then scheduled Expiration Date, provided,
that such extension shall be for a period of 5 business days in
the event that the Other Offer has been terminated prior to the
foregoing Expiration Date and (ii) promptly deliver the Executed
Merger Agreement (with representations and warranties dated as of
the date of delivery to Paramount of such Merger Agreement,
<PAGE>
8
unless otherwise specified therein and with such other changes as
may be necessary to reflect the terms of the Offer as it then
exists, changes in consideration offered under the Merger
Agreement and changes related thereto), as soon as practicable,
but in no event more than one business day after the date of such
waiver, which such Executed Merger Agreement shall be executed by
Paramount within one business day of receipt thereof (with
representations and warranties dated as of the date of such
Executed Merger Agreement, unless otherwise specified therein).
SECTION 2.05. Completion Certificate. At such time as
----------------------
the Offeror has fulfilled the terms of Section 2.04 above, the
Offeror shall deliver to the Board of Directors of Paramount a
certificate (the "Completion Certificate"), executed by an
authorized officer of the Offeror, certifying that all the terms
of Section 2.04 have been fulfilled.
SECTION 2.06. Termination of the Offer. Unless the
------------------------
event referred to in the last parenthetical of Section
2.01(c)(ii) occurs, the Offeror hereby agrees to terminate the
Offer at such time as the Offeror has been notified pursuant to a
certificate executed by an authorized officer of Paramount that
(i) a number of shares of Common Stock that would satisfy the
Other Minimum Condition shall have been validly tendered to the
Other Offer and not withdrawn at the Other Expiration Date of the
Other Offer; (ii) all conditions to the Other Offer, except the
Other Minimum Condition and the conditions relating to the Rights
Agreement, Article XI of the Paramount Certificate of
Incorporation, Section 203 of the General Corporation Law of
<PAGE>
9
Delaware and judicial or governmental injunction, each as set
forth therein, shall have been waived and (iii) a Completion
Certificate from the Other Offeror has been delivered to
Paramount; provided, however, that the Offeror shall not be
-------- -------
required to terminate the Offer in the event that the Other
Offeror has not performed or complied in all material respects
with the Bidding Procedures.
ARTICLE III
MISCELLANEOUS
-------------
SECTION 3.01. Termination. This Agreement shall
-----------
terminate at the earliest of (a) 9:00 A.M. on the first business
day following the Final Expiration Date, (b) execution and
delivery by both parties to this Agreement of a Merger Agreement
in the form attached as Exhibit A, (c) delivery of notice by
either party in the event the other party materially breaches any
agreement or representation hereunder or (d) such time as the
Offeror shall have terminated the Offer in accordance with the
terms thereof.
SECTION 3.02. Further Assurances. Paramount and the
------------------
Offeror will execute and deliver all such further documents and
instruments and take all such further action as may be necessary
in order to consummate the transactions contemplated hereby.
SECTION 3.03. Specific Performance. The parties
--------------------
hereto agree that irreparable damage would occur in the event any
provision of this Agreement was not performed in accordance with
the terms hereof and that the parties shall be entitled to
<PAGE>
10
specific performance of the terms hereof, in addition to any
other remedy at law or in equity.
SECTION 3.04. Entire Agreement. This Agreement
----------------
constitutes the entire agreement between the parties and
supersedes all prior agreements and understandings, both written
and oral, between the parties or any of them, with respect to the
subject matter hereof.
SECTION 3.05. Assignment. This Agreement shall not be
----------
assigned by operation of law or otherwise and any purported
assignment in contravention of the terms shall be void and of no
effect.
SECTION 3.06. Parties in Interest. This Agreement
-------------------
shall be binding upon and inure solely to the benefit of each
party hereto and its respective successors and permitted assigns
and there is no intended third party beneficiary; provided,
--------
however, nothing in the foregoing shall be deemed to derogate
-------
from any rights of the Other Offeror (other than as a third party
beneficiary) as against Paramount or its Board with respect to
any amendment of this Agreement or failure to enforce the
Agreement.
SECTION 3.07. Amendment. This Agreement may not be
---------
amended except by an instrument in writing signed by the parties
hereto.
SECTION 3.08. Severability. If any term or other
------------
provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless
<PAGE>
11
remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected
in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in an acceptable
manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
SECTION 3.09. Definitions. (a) The term "business
-----------
day" as defined herein shall have the meaning set forth in Rule
14d-1(c)(6) as promulgated under the Securities Exchange Act of
1934 (the "Exchange Act") and (b) the term "fully diluted" as
used herein shall mean giving effect to the shares of Common
Stock then outstanding plus the shares of Common Stock issuable
upon the exercise of the then exercisable options.
SECTION 3.10. Time Period. In computing any time
-----------
period hereunder, the computation shall be governed by Rule 14d-
1(c)(6) as promulgated under the Exchange Act.
SECTION 3.11. Notices. All notices and other
-------
communications given or made pursuant hereto shall be in writing
and shall be deemed to have been duly given or made as of the
date delivered, mailed or transmitted, and shall be effective
upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) to the
respective parties at their addresses as specified in the form of
<PAGE>
12
Merger Agreement attached as Exhibit A hereto or sent by
electronic transmission to the respective parties at their
telecopier numbers as specified in such form of Merger Agreement.
SECTION 3.12. Governing Law. This Agreement shall be
-------------
governed by, and construed in accordance with, the laws of the
State of Delaware regardless of the laws that might otherwise
govern under applicable principles of conflicts of law, except to
the extent that any provisions are governed by the federal
securities laws.
SECTION 3.13. Headings. The headings contained in
--------
this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this
Agreement.
SECTION 3.14. Counterparts. This Agreement may be
------------
executed in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
<PAGE>
13
IN WITNESS WHEREOF, the Offeror and Paramount have
caused this Agreement to be executed as of the date first written
above by their respective officers thereunto duly authorized.
QVC NETWORK, INC.
By /s/ William F. Costello
-----------------------------
Name: William F. Costello
Title: Executive Vice President
PARAMOUNT COMMUNICATIONS INC.
By /s/ Donald Oresman
------------------------------
Name: Donald Oresman
Title: Executive Vice President
PARAMOUNT COMMUNICATIONS INC.
NEWS
FOR IMMEDIATE RELEASE January 21, 1994
NEW YORK, Jan. 21 -- Paramount Communications Inc. (NYSE:PCI)
announced today that its Board of Directors has unanimously
recommended that Paramount's stockholders accept the revised
tender offer by Viacom Inc. and tender their shares pursuant to
that offer. Paramount also announced that, under the terms
of the bidding procedures initiated by the Board, the Company
will enter into a previously negotiated merger agreement with
Viacom, which will reflect the financial terms of the revised
Viacom proposal. Paramount also said that it will withdraw its
recommendation of the QVC offer and will terminate its existing
merger agreement with QVC. As is also the case with Viacom, QVC
continues to be bound by the bidding procedures established by
the Paramount Board.
Martin S. Davis, chairman and chief executive officer of
Paramount Communications, said, "the Board determined, following
an analysis from its financial and legal advisors, that the
aggregate consideration offered in the Viacom offer and its
second step merger, taken together, represent the best value
available to Paramount stockholders at this time."
Mr. Davis further stated that, "the Board is committed to
obtaining the best value for stockholders and, as contemplated by
the bidding procedures, is prepared to revisit today's
recommendation if further bids are received. The bidding
procedures," he added, "have from the beginning functioned fairly
and smoothly and have resulted in material improvements in value
for the Paramount stockholders. Consistent with that objective,
the procedures will continue to enable bidders to increase
existing bids through the end of the bidding process on February
1."
Mr. Davis emphasized that "the bidding procedures ensure
that the decision of Paramount's stockholders in tendering their
shares to either Viacom or QVC will ultimately determine the
winning bidder."
# # #
Contact: Jerry Sherman Jeffrey Z. Taufield
Paramount Communications Inc. Kekst and Company
(212) 373-8725 (212) 593-2655
Carl D. Folta
Paramount Communications Inc.
(212) 373-8530
PARAMOUNT COMMUNICATIONS INC.
January 24, 1994
Dear Stockholder:
On January 21, 1994, Paramount entered into a merger
agreement with Viacom Inc. providing for an increase to $107 per
share of its cash tender offer to purchase 50.1% of the outstanding
shares, on a fully diluted basis, of Paramount's Common Stock.
Following completion of the Viacom Offer, Viacom will complete the
Viacom Second-Step Merger in which each Share not purchased in the
Viacom Offer will be converted into the right to receive (i) 0.93065
shares of Viacom Class B Common Stock, (ii) 0.30408 shares of Viacom
Merger Preferred Stock, (iii) 0.93065 Contingent Value Rights ("CVRs")
and (iv) 0.5 Warrants to purchase Viacom Class B Common Stock.
The CVRs provide a value assurance mechanism with respect to the
Viacom Class B Common Stock to be issued in the Viacom Second-Step
Merger. A description of the terms of the CVRs is contained in the
enclosed Schedule 14D-9's. Each whole Viacom Warrant will represent
the right to purchase, at any time prior to the third anniversary of
the Viacom Second-Step Merger, one share of Viacom Class B Common
Stock at a price of $60 per share, payable in cash.
Concurrently with the execution of the Viacom Merger
Agreement, Paramount terminated its merger agreement with QVC
Network, Inc. pursuant to which QVC had made a tender offer for
50.1% of the Shares, on a fully diluted basis, at a purchase
price of $92 per Share in cash. Under the QVC Merger Agreement,
QVC would effect the QVC Second-Step Merger in which each Share
not purchased in the QVC Offer would be converted into the right
to receive (i) 1.43 shares of QVC Common Stock, (ii) 0.32 Shares
of QVC Merger Preferred Stock and (iii) 0.32 Warrants to purchase
QVC Common Stock. Notwithstanding the termination of the QVC
Merger Agreement, QVC will remain obligated under the bidding
procedures previously negotiated with Paramount.
<PAGE>
2
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE
VIACOM OFFER AND THE VIACOM SECOND-STEP MERGER, TAKEN TOGETHER,
ARE FAIR TO, AND IN THE BEST INTERESTS OF, STOCKHOLDERS OF
PARAMOUNT AND RECOMMENDS THAT ALL STOCKHOLDERS ACCEPT THE VIACOM
OFFER AND TENDER THEIR SHARES IN THE VIACOM OFFER.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS REJECT THE PRESENT QVC OFFER AND NOT TENDER ANY OF
THEIR SHARES PURSUANT TO IT.
In reaching its conclusions, the Board considered, among
other things, the opinion of Lazard Freres & Co., financial
advisor to Paramount, that (i) the aggregate consideration
payable to Paramount stockholders in the Viacom Offer and the
Viacom Second-Step Merger, taken together, is fair to Paramount
stockholders from a financial point of view, (ii) the aggregate
consideration payable to Paramount stockholders in the QVC Offer
and the QVC Second-Step Merger, taken together, is fair to
Paramount stockholders from a financial point of view and (iii)
the aggregate consideration payable to Paramount stockholders in
the Viacom Offer and the Viacom Second-Step Merger, taken
together, is marginally superior to the aggregate consideration
payable to Paramount stockholders in the QVC Offer and the QVC
Second-Step Merger, taken together, from a financial point of
view. The Board also considered that the aggregate consideration
offered by Viacom has a more certain value than the aggregate
consideration offered by QVC because of the higher proportion of
cash and securities readily susceptible to valuation and the
greater certainty as to the value of the equity securities
offered in the second-step merger (by virtue of the CVRs) in the
Viacom proposal as compared to the QVC proposal. Other important
information is described in the enclosed Schedule 14D-9's being
filed with the Securities and Exchange Commission.
Pursuant to the bidding procedures, and notwithstanding the
Board's recommendations, stockholders will be provided with the
opportunity to choose between the tender offers and ultimately
determine which offer will be successful. The Board is committed
to obtaining the best value for stockholders and, as contemplated
by the bidding procedures, is prepared to revisit the foregoing
recommendations in the event that any revised bids are proposed
prior to the end of the bidding process on February 1, 1994.
We urge you to read the enclosed materials carefully in
making your decision with respect to tendering your Shares.
Sincerely,
/s/ Martin S. Davis
Martin S. Davis
Chairman of the Board
and Chief Executive Officer
LAZARD FRERES & CO.
NEW YORK
January 21, 1994
The Board of Directors
Paramount Communications Inc.
15 Columbus Circle
New York, NY 10023-7780
Dear Members of the Board:
We refer to our written opinions to you set forth in
the letter, dated January 12, 1994 (the "January 12, 1994
Letter"). You have requested our opinion, as of this date, as
to the relationship from a financial point of view of the
Amended Viacom Transaction Consideration (as defined in the
January 12, 1994 Letter), as further amended by Viacom on
January 18, 1994 pursuant to the Amended Viacom Proposal (as
defined below), to the QVC Transaction Consideration (as
defined below).
As stated in the January 12, 1994 Letter, we
understand that the proposed acquisition by QVC Network, Inc.
("QVC") of all of the outstanding shares of common stock (the
"Common Stock") of Paramount Communications Inc. ("Paramount")
by means of a cash tender offer (the "QVC Offer") by QVC,
followed by a proposed second-step merger of Paramount and QVC
(the "QVC Second-Step Merger"; collectively with the QVC Offer,
the "QVC Two-Step Transaction") is to be effected pursuant to
the Agreement and Plan of Merger, dated as of December 22,
1993, between QVC and Paramount (the "QVC Merger Agreement"),
whereby (i) QVC is offering to purchase 61,607,894 shares of
Common Stock, or such greater number as equals 50.1% of the
outstanding shares of Common Stock, at a purchase price of
$92.00 per share in cash, and (ii) following completion of the
QVC Offer, Paramount would be merged into QVC in the QVC
Second-Step Merger, and each share of Common Stock not
purchased in the QVC Offer (other than shares of Common Stock
held in the treasury of Paramount or owned by Paramount or any
<PAGE>
The Board of Directors
Paramount Communications Inc.
January 21, 1994
Page 2
direct or indirect wholly-owned subsidiary of Paramount or QVC
or shares of Common Stock held by those Stockholders (as
defined below) who exercise and perfect stockholders appraisal
rights under Delaware law) would be converted into the right to
receive (a) 1.43 shares of common stock of QVC (the "QVC Common
Stock "), (b) 0.32 shares of a new series 6% cumulative
non-convertible exchangeable preferred stock of QVC (the "QVC
Merger Preferred Stock") and (c) 0.32 warrants to purchase one
share of QVC Common Stock at a price of $70.34 per share,
exercisable at any time by the holder prior to the tenth
anniversary of the QVC Second-Step Merger (the "QVC Warrants")
(the aggregate consideration payable to holders of Common Stock
(the "Stockholders") pursuant to the QVC Offer set forth in
clause (i) and the aggregate consideration payable to
Stockholders pursuant to the QVC Second-Step Merger set forth
in subclauses (a), (b) and (c) of clause (ii) is collectively
referred to as the "QVC Transaction Consideration"). We also
understand that the QVC Merger Agreement provides that the QVC
Merger Preferred Stock will pay cumulative quarterly dividends
at a rate of $3.00 per annum per share, will have a liquidation
preference of $50.00 per share, will be redeemable for cash by
QVC at declining redemption premiums on and after the fifth
anniversary of the QVC Second-Step Merger and will be
exchangeable by QVC into QVC's 6% subordinated debentures (the
"QVC Debentures") at an exchange rate of $50.00 principal
amount of QVC Debenture per share of QVC Merger Preferred Stock
on and after the third anniversary of the QVC Second-Step
Merger. In addition, we understand that the QVC Warrants will
be exercisable with cash or by using an equivalent amount of
liquidation preference of QVC Merger Preferred Stock or
principal amount of QVC Debentures and will be redeemable for
cash by QVC, at its option, at $15.00 per QVC Warrant on and
after the fifth anniversary of the QVC Second-Step Merger.
In addition, we understand that, as set forth in
(i) the written proposal submitted to Paramount by Viacom Inc.
("Viacom") on January 18, 1994 and (ii) Amended Number 25 to
the Tender Offer Statement on Schedule 14D-1 filed by Viacom,
National Amusements, Inc., Mr. Summer M. Redstone and
Blockbuster Entertainment Corporation ("Blockbuster") with the
Securities and Exchange Commission (the "Commission") on
January 18, 1994, (the "Viacom Tender Offer Statement")
(collectively, the "Amended Viacom Proposal"), Viacom amended
the terms of the cash tender offer (the "Viacom Offer") that it
had commenced on October 25, 1993. Under the Amended Viacom
Proposal, (a) Viacom is offering in the Viacom Offer to
purchase 61,657,432 shares of Common Stock, or such greater
number as equals 50.1% of the outstanding shares of Common
Stock, at a purchase price of $107.00 per share in cash, and
(b) following completion of the Viacom Offer, in accordance
<PAGE>
The Board of Directors
Paramount Communications Inc.
January 21, 1994
Page 3
with the form of Agreement and Plan of Merger, between Viacom
and Paramount (the "Form Viacom Merger Agreement") that is
attached to the Exemption Agreement, dated December 22, 1993,
between Viacom and Paramount (the "Viacom Exemption
Agreement"), Paramount would be merged into Viacom in the
proposed second-step merger between Viacom and Paramount (the
"Viacom Second-Step Merger"; collectively with the Viacom
Offer, the "Viacom Two-Step Transaction"), and each share of
Common Stock not purchased in the Viacom Offer (other than
shares of Common Stock held in the treasury of Paramount or
owned by Paramount or any direct or indirect wholly-owned
subsidiary of Paramount or Viacom or shares of Common Stock
held by those Stockholders who exercise and perfect
stockholders appraisal rights under Delaware law) would be
converted into the right to receive (1) 0.93065 shares of
Class B common stock of Viacom (the "Viacom Class B Common
Stock"), (2) 0.30408 shares of a new series of Viacom
cumulative convertible exchangeable preferred stock (the
"Viacom Merger Preferred Stock"), (3) 0.5 warrants to purchase
one share of Viacom Class B Common Stock at a price of $60.00
per share, exercisable at any time by the holder prior to the
third anniversary of the Viacom Second-Step Merger and
(4) 0.93065 contingent value rights of Viacom (the "Viacom
CVRs") having the terms described below (the aggregate
consideration payable to Stockholders pursuant to the Viacom
Offer set forth in clause (a) and the aggregate consideration
payable to Stockholders pursuant to the Viacom Second-Step
Merger set forth in subclauses (1), (2), (3) and (4) of
clause (b) is collectively referred to as the "Revised Viacom
Transaction Consideration"). We also understand that the
Amended Viacom Proposal provides that each Viacom CVR will
represent the right on the first anniversary of the Viacom
Second-Step Merger to receive in cash or securities, at
Viacom's election, the amount by which the Average Trading
Value (as defined in the Amended Viacom Proposal and as
described below) of Viacom Class B Common Stock is less than a
minimum price of $48.00 per share of Viacom Class B Common
Stock, and Viacom will have the right, in its sole discretion,
to extend the payment measurement dates of the Viacom CVR by
one year, in which case the minimum price will increase to
$51.00 per share of Viacom Class B Common Stock, and a further
one year extension right which, if exercised, would increase
the minimum price to $55.00 per share of Viacom Class B Common
Stock. As used in the Amended Viacom Proposal, the "Average
Trading Value" will be based upon the market prices of Viacom
Class B Common Stock during the 60 trading days ending on the
last day of the relevant period and is subject to a floor of
$38.00 per share of Viacom Class B Common Stock.
<PAGE>
The Board of Directors
Paramount Communications Inc.
January 21, 1994
Page 4
Lazard Freres & Co. has from time to time acted as
financial advisor to Paramount and has acted as its financial
advisor in connection with proposed QVC Two-Step Transaction
and proposed Viacom Two-Step Transaction. As you know, a
General Partner of our firm is a member of Paramount's Board of
Directors. In addition, we have from time to time in the past
provided, and we are currently providing, in matters unrelated
to Paramount, financial advisory or financing services to one
or more of the respective equity investors in Viacom and QVC,
or persons engaged in pending transactions with one or more of
such investors, and we have received, or expect to receive,
fees for the rendering of such services. In connection with
our opinions set forth in this letter, we have, among other
things:
(i) reviewed the terms and conditions of (a) the
written proposal submitted by QVC on December 20,
1993, Amendment Number 21 to the Tender Offer
Statement Schedule 14D-1 filed by QVC on December 23,
1993 with the Commission, and the QVC Merger Agreement
(including the form Exemption Agreement between QVC
and Paramount attached thereto) and (b) the Amended
Viacom Proposal, the Viacom Tender Offer Statement and
the Viacom Exemption Agreement (including the Form
Viacom Merger Agreement attached thereto);
(ii) reviewed the terms and conditions of the
Agreement and Plan of Merger, dated as of January 7,
1994, between Viacom and Blockbuster (the "Blockbuster
Merger Agreement"), and the Subscription Agreement,
dated January 7, 1994, between Viacom and Blockbuster,
analyzed the Amended Viacom Proposal both with and
without giving effect to the consummation of the
proposed merger between Viacom and Blockbuster
contemplated by the Blockbuster Merger Agreement and
observed that the proposed merger between Viacom and
Blockbuster is subject to the approval of the
stockholders of Blockbuster;
(iii) analyzed certain historical business and
financial information relating to Paramount, Viacom,
QVC and Blockbuster, including (a) the Annual Reports
to Stockholders and the Annual Reports on Form 10-K of
Paramount for each of the fiscal years ended
October 31, 1988 through 1992, the Transaction Report
on Form 10-K of Paramount for the period from
November 1, 1992 through April 30, 1993 and Quarterly
<PAGE>
The Board of Directors
Paramount Communications Inc.
January 21, 1994
Page 5
Reports on Form 10-Q of Paramount for the quarters
ended January 31, April 30 and July 31 for each of the
same fiscal years and for the quarters ended January
31, April 30, July 31 and October 31, 1993, (b) the
Annual Reports to Stockholders and the Annual Reports
on Form 10-K of Viacom for each of the fiscal years
ended December 31, 1988 through 1992, and Quarterly
Reports on Form 10-Q of Viacom for the quarters ended
March 31, June 30 and September 30 for each of the
same fiscal years, and for the quarters ended
March 31, June 30, and September 30, 1993, (c) the
Annual Reports to Stockholders and the Annual Reports
on Form 10-K of QVC for each of the fiscal years ended
January 31, 1989 through 1993, and Quarterly Reports
on Form 10-Q of QVC for the quarters ended April 30,
July 31 and October 31 for each of the same fiscal
years, and for the quarters ended April 30, July 31
and October 31, 1993 and (d) the Annual Reports to
Stockholders and the Annual Reports on Form 10-K of
Blockbuster for each of the fiscal years ended
December 31, 1988 through 1992, and Quarterly Reports
on Form 10-Q of Blockbuster for the quarters ended
March 31, June 30 and September 30 for each of the
same fiscal years, and for the quarters ended
March 31, June 30, and September 30, 1993;
(iv) reviewed certain financial forecasts and other
data provided to us by Paramount, Viacom, QVC and
Blockbuster relating to their respective businesses
(except in the case of Paramount, financial forecasts
for the current fiscal year only, having been advised
that Paramount has not prepared projections beyond the
current fiscal year);
(v) conducted discussions with members of the
senior management of Paramount, Viacom, QVC and
Blockbuster with respect to the business and prospects
of Paramount, Viacom, QVC and Blockbuster and the
strategic objectives of each;
(vi) reviewed public information with respect to
certain other companies in lines of businesses we
believe to be comparable to the businesses of
Paramount, Viacom, QVC and Blockbuster;
(vii) reviewed the financial terms of certain
business combinations involving companies in lines of
<PAGE>
The Board of Directors
Paramount Communications Inc.
January 21, 1994
Page 6
business we believe to be comparable to those of
Paramount, Viacom, QVC and Blockbuster, and in other
industries generally;
(viii) reviewed the historical stock prices and
trading volumes of the Common Stock, Viacom Class B
Common Stock, QVC Common Stock and shares of common
stock of Blockbuster;
(ix) reviewed the procedures for bidding set forth
in the QVC Merger Agreement and the Viacom Exemption
Agreement, in particular noting the respective
provisions therein providing for the extension of the
QVC Offer or the Viacom Offer, as applicable, for 10
business days upon delivery of a Completion
Certificate (referred to in the QVC Merger Agreement
or the Viacom Exemption Agreement, as applicable) by
QVC or Viacom, as applicable; and
(x) conducted such other financial studies,
analyses and investigations as we deemed appropriate.
We have assumed and relied upon the accuracy and
completeness of the financial and other information provided by
Paramount, Viacom, QVC and Blockbuster to us, and on the
representations contained in the QVC Merger Agreement and the
Form Viacom Merger Agreement, and we have not undertaken any
independent verification of such information or any independent
valuation or appraisal of any of the assets of Paramount,
Viacom, QVC or Blockbuster. With respect to the financial
forecasts referred to above, we have assumed that they have
been reasonably prepared on a basis reflecting the best
currently available judgments of the managements of Paramount,
Viacom, QVC or Blockbuster as to the future financial
performance of Paramount, Viacom, QVC and Blockbuster,
respectively. In addition, we have assumed that the Viacom
Proposal (as defined in the January 12, 1994 Letter) and the
Amended Viacom Proposal were made in compliance with the terms
and conditions of the Viacom Exemption Agreement. Further, our
opinions are based on economic, monetary and market conditions
existing on this date.
We have not reviewed any proxy statement or similar
document that may be prepared for use in connection with the
proposed QVC Two-Step Transaction or the proposed Viacom
Two-Step Transaction. In accordance with the Procedures for
Submissions of Proposals (the "Bidding Procedures") established
<PAGE>
The Board of Directors
Paramount Communications Inc.
January 21, 1994
Page 7
by Paramount's Board of Directors on December 13, 1993,
Paramount's Board of Directors has authorized us to respond to
inquiries with respect to Paramount from prospective bidders
(in addition to QVC and Viacom) and to receive proposals from
additional bidders, if any. We have not, however, solicited
third party indications of interest in acquiring all or any
part of Paramount.
As part of our analysis, we have continued to evaluate
the transactions, as we have in the past, not only on the basis
of current market values but also applying other financial
valuation methodologies generally applicable to transactions of
this type. These financial valuation methodologies, which are
subject to certain limitations as applied to these prospective
combinations, including the lack of projections for Paramount
beyond the current fiscal year and the difficulties in
quantifying synergies and revenue enhancements resulting from
the combinations, slightly favor in varying degrees the Revised
Viacom Transaction Consideration from a financial point of
view. On the basis of recent market values, the QVC
Transaction Consideration has had a slightly higher market
valuation than the Revised Viacom Transaction Consideration; in
this connection, we observe the high volatility of Viacom
Class B Common Stock and QVC Common Stock and that the market
prices of the stocks seem to be impacted by the perception of
the market-place as to whether QVC or Viacom would be the
ultimate acquiror of Paramount.
We also observe that there is a greater percentage of
cash and preferred stock as components of the Revised Viacom
Transaction Consideration than the QVC Transaction
Consideration. We further note the offering of the Viacom CVRs
in the Amended Viacom Proposal. Finally, we observe the
express preference of Paramount's Board of Directors in the
Bidding Procedures for cash and securities readily susceptible
to valuation, such as securities with a fixed income stream,
with a liquidation preference, or in the case of equity
securities, securities which enjoy the benefits of a wide
collar or other value assurance mechanism.
Our engagement and the opinions expressed herein are solely
for the benefit of Paramount's Board of Directors and
are not on behalf of, and are not intended to confer rights or
remedies upon, Viacom, QVC, Blockbuster, any stockholders of
Paramount, Viacom, QVC or Blockbuster or any other person other
than Paramount's Board of Directors.
<PAGE>
The Board of Directors
Paramount Communications Inc.
January 21, 1994
Page 8
In reaching our opinions expressed herein, we have
taken into account various factors, including our assessment of
the probability of consummation of the proposed merger between
Viacom and Blockbuster contemplated by the Blockbuster Merger
Agreement under the circumstances existing on the date of this
letter and that, given the terms and conditions of the proposed
QVC Two-Step Transaction and the proposed Viacom Two-Step
Transaction and the limitations of the financial valuation
methodologies referred to above, we view as a favorable factor
an offer that contains a greater percentage of cash and
securities readily susceptible to valuation. Based on and
subject to the foregoing and such other factors as we deemed
relevant, including our assessment of economic, monetary and
market conditions existing on the date of this letter, we are
of the opinion that, as of this date, (i) the QVC Transaction
Consideration is fair to the Stockholders from a financial
point of view (ii) the Revised Viacom Transaction Consideration
is fair to the Stockholders from a financial point of view and
(iii) the Revised Viacom Transaction Consideration is
marginally superior to the QVC Transaction Consideration from a
financial point of view.
Very truly yours,
/s/ Lazard Freres & Co.
-----------------------------------------------------------------
=================================================================
AGREEMENT AND PLAN OF MERGER
between
VIACOM INC.
and
PARAMOUNT COMMUNICATIONS INC.
Dated as of January 21, 1994
-----------------------------------------------------------------
=================================================================
<PAGE>
Index of Defined Terms
----------------------
Section
-------
affiliate SECTION 9.3
Agreement PREAMBLE
AMEX SECTION 1.7
beneficial owner SECTION 9.3
Blockbuster SECTION 4.3
Blockbuster Merger Agreement SECTION 4.8
Blockbuster Subscription Agreement SECTION 4.3
Blue Sky Laws SECTION 3.5
Business Combination SECTION 8.5
business day SECTION 9.3
Cash Election SECTION 1.6
Cash Election Number SECTION 1.6
Cash Election Shares SECTION 1.6
Cash Fraction SECTION 1.6
Certificate of Merger SECTION 1.3
Certificates SECTION 1.7
Claim SECTION 6.3
Class A Exchange Ratio SECTION 1.6
Class B Exchange Ratio SECTION 1.6
Code RECITALS
Communications Act SECTION 3.5
Competing Transaction SECTION 6.2
Confidentiality Agreements SECTION 6.1
control SECTION 9.3
controlled SECTION 9.3
controlled by SECTION 9.3
CVRs SECTION 1.6
CVR Exchange Ratio SECTION 1.7
Debentures SECTION 4.3
Delaware Law RECITALS
Dissenting Shares SECTION 1.10
ERISA SECTION 3.10
Effective Time SECTION 1.3
Exchange Act SECTION 2.2
Exchange Agent SECTION 1.7
Exchange Cash Consideration SECTION 1.7
Exchange Fund SECTION 1.7
Exchange Ratios SECTION 1.6
Exemption Agreement SECTION 2.1(d)
Expiration Date SECTION 2.1
FCC SECTION 6.10
Final Expiration Date SECTION 2.1(c)
Financing SECTION 4.17
Form of Election SECTION 1.6
Forward Merger RECITALS
fully diluted SECTION 9.3
Gains Tax SECTION 6.18
Governmental Entity SECTION 3.5
HSR Act SECTION 3.5
Incentive Stock Option SECTION 1.7
<PAGE>
2
Index of Defined Terms (cont'd)
----------------------
Section
-------
Indemnified Parties SECTION 6.3
Indenture SECTION 4.3
IRS SECTION 3.10
Material Paramount Subsidiary SECTION 3.1
Material Viacom Subsidiary SECTION 4.1
Merger RECITALS
Merger Consideration SECTION 1.7
Merger Subsidiary RECITALS
Minimum Condition SECTION 2.1
National RECITALS
Non-Election SECTION 1.6
Non-Election Fraction SECTION 1.6
Non-Election Shares SECTION 1.6
NYNEX Agreement SECTION 4.3
Offer RECITALS
Offer Documents SECTION 2.1
Offer to Purchase SECTION 2.1(c)
Other Offer SECTION 2.1(c)
Other Offeror SECTION 2.1(d)
Other Exemption Agreement SECTION 2.1(c)
Other Expiration Date SECTION 2.1(d)
Paramount PREAMBLE
Paramount 1992 Balance Sheet SECTION 3.12
Paramount Common Stock RECITALS
Paramount Disclosure Schedule SECTION 3.3
Paramount Indentures SECTION 6.17
Paramount Material Adverse Effect SECTION 3.1
Paramount Plans SECTION 3.10
Paramount Preferred Stock SECTION 3.3
Paramount SEC Reports SECTION 3.7
Paramount Subsidiary SECTION 3.1
Paramount Triggering Event SECTION 6.9
Per Share Amount RECITALS
Per Share Cash Amount SECTION 1.6
Preferred Stock Exchange Ratio SECTION 1.6
Proxy Statement SECTION 6.6
Registration Statement SECTION 6.6
Representatives SECTION 1.6
Respective Representatives SECTION 6.1
Reverse Merger RECITALS
Rights SECTION 3.13
Rights Agreement SECTION 3.13
Rights Condition SECTION 2.1
Schedule 14D-1 SECTION 2.1
Schedule 14D-9 SECTION 2.2
SEC SECTION 2.1
Securities Act SECTION 3.5
Securities Election SECTION 1.6
Securities Election Number SECTION 1.6
Significant Stockholder SECTION 6.21
<PAGE>
3
Index of Defined Terms (cont'd)
----------------------
Section
-------
Stock Election Shares SECTION 1.6
Stock Fraction SECTION 1.6
Stock Option SECTION 3.3
Stockholders' Meetings SECTION 6.7
subsidiaries SECTION 9.3
subsidiary SECTION 9.3
Surviving Corporation SECTION 1.1
Transactions SECTION 3.4
Transfer Tax SECTION 6.18
Trustee SECTION 4.3
under common control with SECTION 9.3
Viacom PREAMBLE
Viacom Certificate Amendments SECTION 4.4
Viacom 1992 Balance Sheet SECTION 4.12
Viacom Class A Common Stock RECITALS
Viacom Class B Common Stock SECTION 1.6
Viacom Common Stock SECTION 1.6
Viacom Disclosure Schedule SECTION 4.3
Viacom International SECTION 4.7
Viacom Material Adverse Effect SECTION 4.1
Viacom Merger Preferred Stock SECTION 1.6
Viacom Plans SECTION 4.10
Viacom Preferred Stock SECTION 4.3
Viacom SEC Reports SECTION 4.7
Viacom Series A Preferred Stock SECTION 4.3
Viacom Subsidiary SECTION 4.1
Viacom Triggering Event SECTION 6.9
Viacom Vote Matter SECTION 4.4
Voting Agreement RECITALS
Warrants SECTION 1.6
Warrant Exchange Ratio SECTION 1.6
<PAGE>
TABLE OF CONTENTS
-----------------
Page
ARTICLE I
THE MERGER . . . . . . . . . . . 2
SECTION 1.1. The Merger . . . . . . . . . . . . . . . . 2
SECTION 1.2. Closing . . . . . . . . . . . . . . . . . 2
SECTION 1.3. Effective Time . . . . . . . . . . . . . . 3
SECTION 1.4. Effect of the Merger . . . . . . . . . . . 3
SECTION 1.5. Certificate of Incorporation; By-Laws . . 3
SECTION 1.6. Conversion of Securities . . . . . . . . . 3
SECTION 1.7. Exchange of Certificates and Cash . . . . 9
SECTION 1.8. Stock Transfer Books . . . . . . . . . . . 12
SECTION 1.9. Stock Options; Payment Rights . . . . . . 12
SECTION 1.10. Dissenting Shares . . . . . . . . . . . . 14
ARTICLE II
THE OFFER . . . . . . . . . . . . 15
SECTION 2.1. The Offer . . . . . . . . . . . . . . . . 15
SECTION 2.2. Action by Paramount . . . . . . . . . . . 17
SECTION 2.3. Receipt of Common Stock . . . . . . . . . 19
SECTION 2.4. Completion Certificate . . . . . . . . . . 19
SECTION 2.5. Termination of the Offer . . . . . . . . . 19
SECTION 2.6. Board of Directors; Section 14(f) . . . . 19
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARAMOUNT . . . 20
SECTION 3.1. Organization and Qualification;
Subsidiaries . . . . . . . . . . . . . . 20
SECTION 3.2. Certificate of Incorporation and By-Laws . 21
SECTION 3.3. Capitalization . . . . . . . . . . . . . . 21
SECTION 3.4. Authority Relative to This Agreement . . . 22
SECTION 3.5. No Conflict; Required Filings and
Consents . . . . . . . . . . . . . . . . 23
SECTION 3.6. Compliance . . . . . . . . . . . . . . . . 24
SECTION 3.7. SEC Filings; Financial Statements . . . . 24
SECTION 3.8. Absence of Certain Changes or Events . . . 25
SECTION 3.9. Absence of Litigation . . . . . . . . . . 26
SECTION 3.10. Employee Benefit Plans . . . . . . . . . 26
SECTION 3.11. Trademarks, Patents and Copyrights . . . 27
SECTION 3.12. Taxes . . . . . . . . . . . . . . . . . . 27
SECTION 3.13. Amendment to Rights Agreement . . . . . . 28
SECTION 3.14. Opinion of Financial Advisor . . . . . . 29
SECTION 3.15. Vote Required . . . . . . . . . . . . . . 29
SECTION 3.16. Brokers . . . . . . . . . . . . . . . . . 29
i
<PAGE>
Page
----
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VIACOM . . . . 29
SECTION 4.1. Organization and Qualification;
Subsidiaries . . . . . . . . . . . . . . 29
SECTION 4.2. Certificate of Incorporation and By-Laws . 30
SECTION 4.3. Capitalization . . . . . . . . . . . . . . 30
SECTION 4.4. Authority Relative to This Agreement . . . 33
SECTION 4.5. No Conflict; Required Filings and
Consents . . . . . . . . . . . . . . . . 33
SECTION 4.6. Compliance . . . . . . . . . . . . . . . . 34
SECTION 4.7. SEC Filings; Financial Statements . . . . 35
SECTION 4.8. Absence of Certain Changes or Events . . . 36
SECTION 4.9. Absence of Litigation . . . . . . . . . . 36
SECTION 4.10. Employee Benefit Plans . . . . . . . . . 37
SECTION 4.11. Trademarks, Patents and Copyrights . . . 37
SECTION 4.12. Taxes . . . . . . . . . . . . . . . . . . 38
SECTION 4.13. Opinion of Financial Advisor . . . . . . 39
SECTION 4.14. Vote Required . . . . . . . . . . . . . . 39
SECTION 4.15. Ownership of Paramount Common Stock . . . 39
SECTION 4.16. Brokers . . . . . . . . . . . . . . . . . 39
SECTION 4.17. Financing . . . . . . . . . . . . . . . . 39
SECTION 4.18. Purchases of Securities . . . . . . . . . 39
SECTION 4.19. Representations in Blockbuster Merger
Agreement . . . . . . . . . . . . . . . 40
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER . . . . 40
SECTION 5.1. Conduct of Respective Businesses by
Paramount and Viacom Pending the Merger 40
ARTICLE VI
ADDITIONAL COVENANTS . . . . . . . . . 42
SECTION 6.1. Access to Information; Confidentiality . . 42
SECTION 6.2. Intentionally omitted . . . . . . . . . . 43
SECTION 6.3. Directors' and Officers' Indemnification
and Insurance . . . . . . . . . . . . . 43
SECTION 6.4. Notification of Certain Matters . . . . . 44
SECTION 6.5. Tax Treatment . . . . . . . . . . . . . . 45
SECTION 6.6. Registration Statement; Joint Proxy
Statement; Offer Documents and
Schedule 14D-9 . . . . . . . . . . . . . 45
SECTION 6.7. Stockholders' Meetings . . . . . . . . . . 47
SECTION 6.8. Letters of Accountants . . . . . . . . . . 47
SECTION 6.9. Employee Benefits . . . . . . . . . . . . 48
SECTION 6.10. Further Action; Reasonable Best Efforts . 48
SECTION 6.11. Debt Instruments . . . . . . . . . . . . 49
ii
<PAGE>
Page
----
SECTION 6.12. Public Announcements . . . . . . . . . . 49
SECTION 6.13. Listing of Viacom Securities . . . . . . 49
SECTION 6.14. Affiliates of Paramount . . . . . . . . . 49
SECTION 6.15. Conveyance Taxes . . . . . . . . . . . . 50
SECTION 6.16. Rights Agreement . . . . . . . . . . . . 50
SECTION 6.17. Assumption of Debt and Leases . . . . . . 50
SECTION 6.18. Gains Tax . . . . . . . . . . . . . . . . 50
SECTION 6.19. Reverse Merger . . . . . . . . . . . . . 51
SECTION 6.20. Post-Offer Agreements . . . . . . . . . . 51
SECTION 6.21. Transactions With Significant Stockholder
After the Effective Time . . . . . . . 51
SECTION 6.22. Blockbuster Merger Agreement and
Subscription Agreement . . . . . . . . 52
ARTICLE VII
CLOSING CONDITIONS . . . . . . . . . 52
SECTION 7.1. Conditions to Obligations of Each Party
to Effect the Merger . . . . . . . . . . 52
SECTION 7.2. Additional Conditions to Obligations of
Viacom . . . . . . . . . . . . . . . . . 53
SECTION 7.3. Additional Conditions to Obligations of
Paramount . . . . . . . . . . . . . . . 54
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER . . . . . . 55
SECTION 8.1. Termination . . . . . . . . . . . . . . . 55
SECTION 8.2. Effect of Termination . . . . . . . . . . 58
SECTION 8.3. Amendment . . . . . . . . . . . . . . . . 58
SECTION 8.4. Waiver . . . . . . . . . . . . . . . . . . 58
SECTION 8.5. Fees, Expenses and Other Payments . . . . 58
ARTICLE IX
GENERAL PROVISIONS . . . . . . . . . 59
SECTION 9.1. Effectiveness of Representations,
Warranties and Agreements . . . . . . . 59
SECTION 9.2. Notices . . . . . . . . . . . . . . . . . 59
SECTION 9.3. Certain Definitions . . . . . . . . . . . 60
SECTION 9.4. Time Period . . . . . . . . . . . . . . . 61
SECTION 9.5. Headings . . . . . . . . . . . . . . . . . 62
SECTION 9.6. Severability . . . . . . . . . . . . . . . 62
SECTION 9.7. Entire Agreement . . . . . . . . . . . . . 62
SECTION 9.8. Assignment . . . . . . . . . . . . . . . . 62
SECTION 9.9. Parties in Interest . . . . . . . . . . . 62
SECTION 9.10. Specific Performance . . . . . . . . . . 62
SECTION 9.11. Governing Law . . . . . . . . . . . . . . 62
SECTION 9.12. Counterparts . . . . . . . . . . . . . . 63
iii
<PAGE>
ANNEX A Principal Conditions to the Offer
ANNEX B Principal Terms of Viacom Merger Preferred Stock
ANNEX C Principal Terms of Contingent Value Rights
ANNEX D Principal Terms of Warrants
EXHIBIT 6.14 Form of Affiliate Letter
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of January 21,
1994 (this "Agreement"), between VIACOM INC., a Delaware
---------
corporation ("Viacom"), and PARAMOUNT COMMUNICATIONS INC., a
------
Delaware corporation ("Paramount").
---------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Viacom and Paramount have determined that it
is in the best interest of their respective shareholders to enter
into this Agreement so as to facilitate the business combination
of the two companies through a first-step cash tender offer and a
second-step merger, while preserving the ability to proceed with
a single-step merger in appropriate circumstances, and in
accordance with the General Corporation Law of the State of
Delaware ("Delaware Law"), Paramount and Viacom have agreed to
------------
enter into a business combination transaction pursuant to which
Paramount will merge with and into Viacom (the "Forward Merger")
--------------
or alternatively, a subsidiary of Viacom ("Merger Subsidiary")
-----------------
will merge with and into Paramount (the "Reverse Merger" and,
--------------
together with the Forward Merger, the "Merger");
------
WHEREAS, in furtherance of the Merger, Viacom has
amended and supplemented its outstanding tender offer (as amended
and supplemented in accordance with this Agreement, the "Offer")
-----
to acquire 61,657,432 shares of common stock, par value $1.00 per
share, of Paramount ("Paramount Common Stock"), or such greater
----------------------
number of shares as equals 50.1% of the shares of Paramount
Common Stock outstanding on a fully diluted basis (as defined in
Section 9.3 herein), for $107.00 per Paramount share (the
consideration per share of Paramount Common Stock to be paid
pursuant to the Offer being referred to as the "Per Share
---------
Amount"), upon the terms and subject to the conditions of this
------
Agreement and the Offer;
WHEREAS, the Board of Directors of Paramount has
determined that the Merger and the Offer are consistent with and
in furtherance of the long-term business strategy of Paramount
and are fair to, and in the best interests of, Paramount and the
holders of Paramount Common Stock and has approved and adopted
this Agreement and has approved the Merger and the other
transactions contemplated hereby (including, without limitation,
the Offer) and recommended approval and adoption of this
Agreement and approval of the Merger by the stockholders of
Paramount and agreed to recommend that stockholders of Paramount
tender their shares of Paramount Common Stock pursuant to the
Offer;
WHEREAS, the Board of Directors of Viacom has
determined that the Merger and the Offer are consistent with and
in furtherance of the long-term business strategy of Viacom and
are fair to, and in the best interests of, Viacom and its
<PAGE>
2
stockholders and has approved and adopted this Agreement and has
approved the Merger and the other transactions contemplated
hereby (including, without limitation, the making of the Offer)
and recommended approval and adoption of this Agreement and
approval of the Merger by the holders of the Class A Common
Stock, par value $.01 per share, of Viacom (the "Viacom Class A
--------------
Common Stock");
------------
WHEREAS, for federal income tax purposes, it is
intended that the Forward Merger qualify as a reorganization
under the provisions of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code"); and
----
WHEREAS, concurrently with the execution of this
Agreement and as an inducement to Paramount to enter into this
Agreement, National Amusements, Inc., a Maryland corporation and
the majority stockholder of Viacom ("National"), and Paramount
--------
will enter into a Voting Agreement, substantially in the form of
the Voting Agreement previously entered into on September 12,
1993 (the "Voting Agreement"), pursuant to which National shall,
----------------
among other things, vote its shares of Viacom Class A Common
Stock in favor of the Merger and the other transactions
contemplated by this Agreement;
NOW, THEREFORE, in consideration of the foregoing and
the respective representations, warranties, covenants and
agreements set forth in this Agreement, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject
----------
to the conditions set forth in this Agreement, and in accordance
with Delaware Law, at the Effective Time (as defined in
Section 1.3), Paramount shall be merged with and into Viacom;
provided, however, that if, after consulting with Paramount and
-------- -------
its professional advisors in good faith, Shearman & Sterling,
counsel to Viacom, is unable to deliver an opinion in form and
substance reasonably satisfactory to Viacom (such opinion to be
based on customary assumptions and representations) that the
Forward Merger will qualify as a reorganization under Section
368(a) of the Code, Viacom may elect to cause a subsidiary of
Viacom to merge with and into Paramount. As a result of the
Forward Merger, the separate corporate existence of Paramount
(or, in the case of the Reverse Merger, Merger Subsidiary) shall
cease and Viacom (or, in the case of the Reverse Merger,
Paramount) shall continue as the surviving corporation of the
Merger (the "Surviving Corporation").
---------------------
SECTION 1.2. Closing. Unless this Agreement shall
-------
have been terminated and the transactions herein contemplated
<PAGE>
3
shall have been abandoned pursuant to Section 8.1 and subject to
the satisfaction or, if permissible, waiver of the conditions set
forth in Article VII, the consummation of the Merger will take
place as promptly as practicable (and in any event within two
business days) after satisfaction or waiver of the conditions set
forth in Article VII, at the offices of Shearman & Sterling, 599
Lexington Avenue New York, New York, unless another date, time or
place is agreed to in writing by the parties hereto.
SECTION 1.3. Effective Time. As promptly as
--------------
practicable after the satisfaction or, if permissible, waiver of
the conditions set forth in Article VII, the parties hereto shall
cause the Merger to be consummated by filing a certificate of
merger (the "Certificate of Merger") with the Secretary of State
---------------------
of the State of Delaware in such form as required by, and
executed in accordance with the relevant provisions of, Delaware
Law (the date and time of such filing, or such later date or time
as set forth therein, being the "Effective Time").
--------------
SECTION 1.4. Effect of the Merger. At the Effective
--------------------
Time, the effect of the Merger shall be as provided in the
applicable provisions of Delaware Law. Without limiting the
generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise provided herein, all the
property, rights, privileges, powers and franchises of Viacom
(or, in the case of the Reverse Merger, Merger Subsidiary) and
Paramount shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Viacom (or, in the case of the Reverse
Merger, Merger Subsidiary) and Paramount shall become the debts,
liabilities and duties of the Surviving Corporation.
SECTION 1.5. Certificate of Incorporation; By-Laws.
-------------------------------------
(a) At the Effective Time of the Forward Merger, the Certificate
of Incorporation and the By-Laws of Viacom, as in effect
immediately prior to the Effective Time, shall be the Certificate
of Incorporation and the By-Laws of the Surviving Corporation.
(b) Alternatively, at the Effective Time of the Reverse
Merger, the Certificate of Incorporation and By-Laws,
respectively, of the Surviving Corporation shall be amended and
restated in their entirety to read as the Certificate of
Incorporation and By-Laws of Merger Subsidiary.
SECTION 1.6. Conversion of Securities. At the
------------------------
Effective Time, by virtue of the Merger and without any action on
the part of Viacom, Paramount or the holders of any
of the following securities:
(a) In the event that the Offer has been consummated
prior to the Effective Time, each share of Paramount Common
Stock issued and outstanding immediately prior to the
Effective Time (other than any shares of Paramount Common
Stock to be canceled pursuant to Section 1.6(c) and any
Dissenting Shares (as defined in Section 1.10)) shall be
<PAGE>
4
converted into the right to receive (A) .93065 shares of
Class B common stock, par value $0.01 per share ("Viacom
------
Class B Common Stock"), of Viacom, (B) .30408 shares of a
--------------------
new series of convertible exchangeable preferred stock, par
value $0.01 per share ("Viacom Merger Preferred Stock") of
-----------------------------
Viacom having the principal terms described in Annex B, (C)
.93065 contingent value rights of Viacom (the "CVRs") having
----
the principal terms described in Annex C and (D) .50
warrants (the "Warrants") of Viacom having the principal
--------
terms described in Annex D; provided, however, that, in any
-------- -------
event, if between the date of this Agreement and the
Effective Time the outstanding shares of Viacom Class B
Common Stock, Viacom Merger Preferred Stock or Paramount
Common Stock shall have been changed into a different number
of shares or a different class, by reason of any stock
dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares, the amounts of
Viacom Class B Common Stock, Viacom Merger Preferred Stock
CVRs and Warrants specified above shall be correspondingly
adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or
exchange of shares. All such shares of Paramount Common
Stock shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each
certificate previously evidencing any such shares shall
thereafter represent the right to receive, upon the
surrender of such certificate in accordance with the
provisions of Section 1.7 certificates evidencing (a) such
number of whole shares of Viacom Class B Common Stock and
Viacom Merger Preferred Stock and (b) such number of whole
CVRs and Warrants into which such Paramount Common Stock was
converted in accordance herewith. The holders of such
certificates previously evidencing such shares of Paramount
Common Stock outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such
shares of Paramount Common Stock except as otherwise
provided herein or by law. No fractional share of Viacom
Class B Common Stock or Viacom Merger Preferred Stock or
fractional CVR or Warrant shall be issued and, in lieu
thereof, a cash payment shall be made pursuant to Section
1.7(d).
(b) In the event that the Offer has not been
consummated prior to the Effective Time:
(i) subject to the further provisions of this
Section 1.6, each share of Paramount Common Stock
issued and outstanding immediately prior to the
Effective Time (other than any shares of Paramount
Common Stock to be canceled pursuant to Section 1.6(c))
and any Dissenting Shares, shall be converted, subject
to Section 1.7(d), into the right to receive (A)(i)
.93065 of a share of Viacom Class B Common Stock (the
"Class B Exchange Ratio"); (ii) 0.30408 of a share of
----------------------
<PAGE>
5
Viacom Merger Preferred Stock (the "Preferred Stock
---------------
Exchange Ratio"); (iii) .93065 CVRs (the "CVR Exchange
-------------- ------------
Ratio") and (iv) .50 Warrants (the "Warrant Exchange
----- ----------------
Ratio"; and together with the Class B Exchange Ratio,
-----
the Preferred Stock Exchange Ratio and the CVR Exchange
Ratio; the "Exchange Ratios"), (B) $107.00 in cash (the
---------------
"Per Share Cash Amount"); or (C) a combination of
---------------------
shares of Viacom Class B Common Stock and Viacom Merger
Preferred Stock, CVRs, Warrants and cash determined in
accordance with Sections 1.6(b)(iv), (v) and (vi);
provided, however, that, in any event, if between the
-------- -------
date of this Agreement and the Effective Time the
outstanding shares of Viacom Class B Common Stock,
Viacom Merger Preferred Stock or Paramount Common Stock
shall have been changed into a different number of
shares or a different class, by reason of any stock
dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of
shares, the Exchange Ratios and Per Share Cash Amount
shall be correspondingly adjusted to reflect such stock
dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of
shares. All such shares of Paramount Common Stock
shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and
each certificate previously evidencing any such shares
shall thereafter represent the right to receive, upon
the surrender of such certificate in accordance with
the provisions of Section 1.7 and in accordance with
the allocation procedures set forth in this Section
1.6, (i) certificates evidencing (x) such number of
whole shares of Viacom Class B Common Stock and Viacom
Merger Preferred Stock and (y) such number of whole
CVRs and Warrants into which such Paramount Common
Stock was converted in accordance with the Exchange
Ratios and/or (ii) the Per Share Cash Amount multiplied
by the number of shares of Paramount Common Stock
previously evidenced by the canceled certificate. The
holders of such certificates previously evidencing such
shares of Paramount Common Stock outstanding
immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of
Paramount Common Stock except as otherwise provided
herein or by law. No fractional share of Viacom Class
B Common Stock or Viacom Merger Preferred Stock or
fractional CVR or Warrant shall be issued and, in lieu
thereof, a cash payment shall be made pursuant to
Section 1.7(d).
(ii) Subject to the election and allocation
procedures set forth in this Section 1.6, each holder
of record of shares of Paramount Common Stock as of the
record date for the meeting of stockholders of
Paramount referred to in Section 6.7 will be entitled
<PAGE>
6
to (A) elect to receive certificates evidencing such
number of shares of Viacom Class B Common Stock and
Viacom Merger Preferred Stock and (y) such number of
whole CVRs and Warrants into which such number of
shares of Paramount Common Stock would be converted in
accordance with the Exchange Ratios (a "Securities
----------
Election"), (B) elect to receive the Per Share Cash
--------
Amount multiplied by such number of shares of Paramount
Common Stock (a "Cash Election"), or (C) indicate that
-------------
such holder has no preference as to the receipt of cash
or shares of Viacom Class B Common Stock and Viacom
Merger Preferred Stock and CVRs and Warrants in
exchange for such shares of Paramount Common Stock (a
"Non-Election"). All such elections shall be made on a
------------
form designed for that purpose and mutually acceptable
to Viacom and Paramount (a "Form of Election") and
----------------
mailed to holders of record of shares of Paramount
Common Stock as of the record date for the meeting of
stockholders of Paramount referred to in Section 6.7.
Holders of record of shares of Paramount Common Stock
who hold such shares as nominees, trustees or in other
representative capacities ("Representatives") may
---------------
submit multiple Forms of Election, provided that such
Representative certifies that each such Form of
Election covers all the shares of Paramount Common
Stock held by such Representative for a particular
beneficial owner entitled to so elect pursuant to the
first sentence of this Section 1.6(b)(ii). Elections
shall be made by holders of Paramount Common Stock by
mailing to the Exchange Agent (as defined in Section
1.7) properly completed and signed Forms of Election.
In order to be effective, a Form of Election must be
received by the Exchange Agent no later than the close
of business on the last business day prior to the
Effective Time. All elections may be revoked until the
last business day prior to the Effective Time. Viacom
shall have the discretion, which it may delegate in
whole or in part to the Exchange Agent, to determine
whether Forms of Election have been properly completed
and signed and properly and timely submitted or revoked
and to disregard immaterial defects in Forms of
Election, and any good faith decision of Viacom or the
Exchange Agent in such matters shall be binding and
conclusive. Neither Viacom nor the Exchange Agent
shall be under any obligation to notify any person of
any defect in a Form of Election. Any holder of shares
of Paramount Common Stock who fails to make an election
and any holder who fails to submit to the Exchange
Agent a properly completed and signed and properly and
timely submitted Form of Election shall be deemed to
have made a Non-Election.
(iii) The aggregate number of shares of Paramount
Common Stock to be converted into the right to receive
<PAGE>
7
cash in the Merger (the "Cash Election Number") shall
--------------------
be equal to 50.1% of the number of shares of Paramount
Common Stock outstanding immediately prior to the
Effective Time, and the aggregate number of shares of
Paramount Common Stock to be converted into the right
to receive shares of Viacom Class B Common Stock and
Viacom Merger Preferred Stock and CVRs and Warrants in
the Merger (the "Securities Election Number") shall be
--------------------------
equal to 49.9% of the number of shares of Paramount
Common Stock outstanding immediately prior to the
Effective Time.
(iv) If the aggregate number of shares of
Paramount Common Stock with respect to which Cash
Elections have been made plus Dissenting Shares (the
"Cash Election Shares") exceeds the Cash Election
--------------------
Number, all shares of Paramount Common Stock with
respect to which Securities Elections have been made
(the "Securities Election Shares") and all shares of
--------------------------
Paramount Common Stock with respect to which
Non-Elections have been made (the "Non-Election
------------
Shares") shall be converted into the right to receive
------
shares of Viacom Class B Common Stock and Viacom Merger
Preferred Stock, CVRs and Warrants, and the Cash
Election Shares (other than Dissenting Shares) shall be
converted into the right to receive shares of Viacom
Class B Common Stock, Viacom Merger Preferred Stock,
CVRs, Warrants and cash in the following manner:
each Cash Election Share (other than Dissenting
Shares) shall be converted into the right to
receive (i) an amount in cash, without interest,
equal to the product of (x) the Per Share Cash
Amount and (y) a fraction (the "Cash Fraction"),
-------------
the numerator of which shall be the Cash Election
Number and the denominator of which shall be the
total number of Cash Election Shares, (ii) a
number of shares of Viacom Class B Common Stock
equal to the product of (x) the Class B Exchange
Ratio and (y) a fraction equal to one minus the
Cash Fraction, (iii) a number of shares of Viacom
Merger Preferred Stock equal to the product of (x)
the Preferred Stock Exchange Ratio and (y) a
fraction equal to one minus the Cash Fraction,
(iv) a number of CVRs equal to the product of (x)
the CVR Exchange Ratio and (y) a fraction equal to
one minus the Cash Fraction and (v) a number of
Warrants equal to the product of (x) the Warrant
Exchange Ratio and (y) a fraction equal to one
minus the Cash Fraction.
(v) If the aggregate number of Securities
Election Shares exceeds the Securities Election Number,
all Cash Election Shares (other than Dissenting Shares)
<PAGE>
8
and all Non-Election Shares shall be converted into the
right to receive cash, and all Securities Election
Shares shall be converted into the right to receive
shares of Viacom Class B Common Stock and Viacom Merger
Preferred Stock, CVRs, Warrants and cash in the
following manner:
each Securities Election Share shall be converted
into the right to receive (i) a number of shares
of Viacom Class B Common Stock equal to the
product of (x) the Class B Exchange Ratio and (y)
a fraction (the "Securities Fraction"), the
-------------------
numerator of which shall be the Securities
Election Number and the denominator of which shall
be the total number of Securities Election Shares,
(ii) a number of shares of Viacom Merger Preferred
Stock equal to the product of (x) the Preferred
Stock Exchange Ratio and (y) the Securities
Fraction, (iii) a number of CVRs equal to the
product of (x) the CVR Exchange Ratio and (y) the
Securities Fraction, (iv) a number of Warrants
equal to the product of (x) the Warrant Exchange
Ratio and (y) the Securities Fraction and (v) an
amount in cash, without interest, equal to the
product of (x) the Per Share Cash Amount and (y) a
fraction equal to one minus the Securities
Fraction.
(vi) In the event that neither Section 1.6(b)(iv)
nor Section 1.6(b)(v) above is applicable, all Cash
Election shares shall be converted into the right to
receive cash, all Securities Election Shares shall be
converted into the right to receive shares of Viacom
Class B Common Stock and Viacom Merger Preferred Stock,
CVRs and Warrants, and the Non-Election Shares, if any,
shall be converted into the right to receive shares of
Viacom Class B Common Stock and Viacom Merger Preferred
Stock, CVRs, Warrants and cash in the following manner:
each Non-Election Share shall be converted into
the right to receive (i) an amount in cash,
without interest, equal to the product of (x) the
Per Share Cash Amount and (y) a fraction (the
"Non-Election Fraction"), the numerator of which
---------------------
shall be the excess of the Cash Election Number
over the total number of Cash Election Shares and
the denominator of which shall be the excess of
(A) the number of shares of Paramount Common Stock
outstanding immediately prior to the Effective
Time over (B) the sum of the total number of Cash
Election Shares and the total number of Securities
Election Shares, (ii) a number of shares of Viacom
Class B Common Stock equal to the product of (x)
the Class B Exchange Ratio and (y) a fraction
<PAGE>
9
equal to one minus the Non-Election Fraction,
(iii) a number of shares of Viacom Merger
Preferred Stock equal to the product of (x) the
Preferred Stock Exchange Ratio and (y) a fraction
equal to one minus the Non-Election Fraction, (iv)
a number of CVRs equal to the product of (x) the
CVR Exchange Ratio and (y) a fraction equal to one
minus the Non-Election Fraction and (v) a number
of Warrants equal to the product of (x) the
Warrant Exchange Ratio and (y) a fraction equal to
one minus the Non-Election Fraction.
(vii) The Exchange Agent shall make all
computations contemplated by this Section 1.6 and all
such computations shall be binding and conclusive on
the holders of Paramount Common Stock.
(c) Each share of Paramount Common Stock held in the
treasury of Paramount and each share of Paramount Common
Stock owned by Viacom or any direct or indirect wholly owned
subsidiary of Viacom or of Paramount immediately prior to
the Effective Time shall automatically be canceled and
extinguished without any conversion thereof and no payment
shall be made with respect thereto.
(d) In the Reverse Merger, each share of common stock
of Merger Subsidiary issued and outstanding immediately
prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and
nonassessable share of common stock of the Surviving
Corporation.
SECTION 1.7. Exchange of Certificates and Cash.
---------------------------------
(a) Exchange Agent. As of the Effective Time (in the case
--------------
of a Merger to which Section 1.6(a) applies) or promptly after
completion of the allocation procedures set forth in Section 1.6
(in the case of a Merger to which Section 1.6(b) applies), Viacom
shall deposit, or shall cause to be deposited, with or for the
account of a bank or trust company designated by Viacom, which
shall be reasonably satisfactory to Paramount (the "Exchange
--------
Agent"), for the benefit of the holders of shares of Paramount
-----
Common Stock (other than Dissenting Shares), for exchange in
accordance with this Article I, through the Exchange Agent, (i)
certificates evidencing the shares of Viacom Class B Common Stock
and Viacom Merger Preferred Stock, the Warrants and the CVRs
issuable pursuant to Section 1.6 in exchange for outstanding
shares of Paramount Common Stock and (ii) cash, if any, in the
aggregate amount required to be exchanged for shares of Paramount
Common Stock pursuant to Section 1.6 (the "Exchange Cash
-------------
Consideration") (such certificates for shares of Viacom Class B
-------------
Common Stock and Viacom Merger Preferred Stock, the Warrants and
the CVRs, together with any dividends or distributions with
respect thereto, and the Exchange Cash Consideration, if any,
being hereafter collectively referred to as the "Exchange Fund").
-------------
<PAGE>
10
The Exchange Agent shall, pursuant to irrevocable instructions,
deliver the shares of Viacom Class B Common Stock and Viacom
Merger Preferred Stock, Warrants, CVRs and cash, if any,
contemplated to be issued pursuant to Section 1.6 out of the
Exchange Fund to holders of shares of Paramount Common Stock.
Except as contemplated by Section 1.7(d) hereof, the Exchange
Fund shall not be used for any other purpose. Any interest,
dividends or other income earned on the investment of cash or
other property held in the Exchange Fund shall be for the account
of Viacom.
(b) Exchange Procedures. As soon as reasonably
-------------------
practicable after the Effective Time, Viacom will instruct the
Exchange Agent to mail to each holder of record of a certificate
or certificates which immediately prior to the Effective Time
evidenced outstanding shares of Paramount Common Stock (other
than Dissenting Shares) (the "Certificates"), (i) a letter of
------------
transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only
upon proper delivery of the Certificates to the Exchange Agent
and shall be in such form and have such other provisions as
Viacom may reasonably specify) and (ii) instructions to effect
the surrender of the Certificates in exchange for the
certificates evidencing shares of Viacom Class B Common Stock and
Viacom Merger Preferred Stock, CVRs, Warrants and cash. Upon
surrender of a Certificate for cancellation to the Exchange Agent
together with such letter of transmittal, duly executed, and such
other customary documents as may be required pursuant to such
instructions, the holder of such Certificate shall be entitled to
receive in exchange therefor (A) certificates evidencing that
number of whole shares of Viacom Class B Common Stock and Viacom
Merger Preferred Stock and that number of whole CVRs and Warrants
which such holder has the right to receive in accordance with
Section 1.6 in respect of the shares of Paramount Common Stock
formerly evidenced by such Certificate, (B) cash, if any, which
such holder has the right to receive in accordance with Section
1.6, (C) any dividends or other distributions to which such
holder is entitled pursuant to Section 1.7(c), and (D) cash in
lieu of fractional shares of Viacom Class B Common Stock and
Viacom Merger Preferred Stock and fractional CVRs and Warrants to
which such holder is entitled pursuant to Section 1.7(d) (the
shares of Viacom Class B Common Stock and Viacom Merger Preferred
Stock, CVRs, Warrants, dividends, distributions and cash
described in clauses (A), (B), (C) and (D) being, collectively,
the "Merger Consideration"), and the Certificate so surrendered
--------------------
shall forthwith be canceled. In the event of a transfer of
ownership of shares of Paramount Common Stock which is not
registered in the transfer records of Paramount, shares of Viacom
Class B Common Stock and Viacom Merger Preferred Stock, CVRs,
Warrants and cash may be issued and paid in accordance with this
Article I to a transferee if the Certificate evidencing such
shares of Paramount Common Stock is presented to the Exchange
Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock
<PAGE>
11
transfer taxes have been paid. Until surrendered as contemplated
by this Section 1.7, each Certificate shall be deemed at any time
after the Effective Time to evidence only the right to receive
upon such surrender the Merger Consideration.
(c) Distributions With Respect to Unexchanged Shares
------------------------------------------------
of Viacom Class B Common Stock and Viacom Merger Preferred Stock,
-----------------------------------------------------------------
CVRs and Warrants. No dividends or other distributions declared
-----------------
or made after the Effective Time with respect to shares of Viacom
Class B Common Stock and Viacom Merger Preferred Stock, CVRs and
Warrants with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect
to the shares of Viacom Class B Common Stock or Viacom Merger
Preferred Stock, CVRs or Warrants they are entitled to receive
until the holder of such Certificate shall surrender such
Certificate.
(d) Fractional Shares, CVRs and Warrants. No fraction
------------------------------------
of a share of Viacom Class B Common Stock or Viacom Merger
Preferred Stock or fraction of a CVR or Warrant shall be issued
in the Merger. In lieu of any such fractional shares or
fractional CVRs or Warrants, each holder of Paramount Common
Stock entitled to receive shares of Viacom Class B Common Stock
and Viacom Merger Preferred Stock, CVRs and Warrants in the
Merger, upon surrender of a Certificate for exchange pursuant to
this Section 1.7, shall be paid (1) an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying
(i) the per share closing price on the American Stock Exchange
("AMEX") of Viacom Class B Common Stock on the date of the
----
Effective Time (or, if shares of Viacom Class B Common Stock do
not trade on the AMEX on such date, the first date of trading of
such Viacom Class B Common Stock on the AMEX after the Effective
Time) by (ii) the fractional interest in Viacom Class B Stock to
which such holder would otherwise be entitled (after taking into
account all shares of Paramount Common Stock then held of record
by such holder) plus (2) an amount in cash (without interest),
----
rounded to the nearest cent, determined by multiplying (i) $50.00
by (ii) the fractional interest in Viacom Merger Preferred Stock
to which such holder would otherwise be entitled (after taking
into account all shares of Paramount Common Stock then held of
record by such holder) plus (3) an amount in cash (without
----
interest), rounded to the nearest cent, determined by multiplying
(i) the fair market value of one CVR, as determined by reference
to a five day average trading price, if available, or if not
available, in the reasonable judgment of the Viacom Board of
Directors by (ii) the fractional interest in a CVR to which such
holder would otherwise be entitled (after taking into account all
shares of Paramount Common Stock then held of record by such
holder) plus (4) an amount in cash (without interest) rounded to
----
the nearest cent, determined by multiplying (i) the fair market
value of one Warrant, as determined by reference to a five day
average trading price, if available, or if not available, in the
reasonable judgment of the Viacom Board of Directors by (ii) the
fractional interest in a Warrant to which such holder would
<PAGE>
12
otherwise be entitled (after taking into account all shares of
Paramount Common Stock then held of record by such holder).
(e) Termination of Exchange Fund. Any portion of the
----------------------------
Exchange Fund which remains undistributed to the holders of
Paramount Common Stock for six months after the Effective Time
shall be delivered to Viacom, upon demand, and any holders of
Paramount Common Stock who have not theretofore complied with
this Article I shall thereafter look only to Viacom for the
Merger Consideration to which they are entitled pursuant to this
Article I.
(f) No Liability. Neither Viacom nor Paramount shall
------------
be liable to any holder of shares of Paramount Common Stock for
any such shares of Viacom Class B Common Stock or Viacom Merger
Preferred Stock, CVRs, Warrants (or dividends or distributions
with respect thereto) or cash from the Exchange Fund delivered to
a public official pursuant to any applicable abandoned property,
escheat or similar law.
(g) Withholding Rights. Viacom or the Exchange Agent
------------------
shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of
shares of Paramount Common Stock such amounts as Viacom or the
Exchange Agent is required to deduct and withhold with respect to
the making of such payment under the Code, or any provision of
state, local or foreign tax law. To the extent that amounts are
so withheld by Viacom or the Exchange Agent, such withheld
amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Paramount Common
Stock in respect of which such deduction and withholding was made
by Viacom or the Exchange Agent.
SECTION 1.8. Stock Transfer Books. At the Effective
--------------------
Time, the stock transfer books of Paramount shall be closed, and
there shall be no further registration of transfers of shares of
Paramount Common Stock thereafter on the records of Paramount.
On or after the Effective Time, any Certificates presented to the
Exchange Agent or Viacom for any reason shall be converted into
the Merger Consideration.
SECTION 1.9. Stock Options; Payment Rights. (a) At
-----------------------------
the Effective Time, Paramount's obligations with respect to each
outstanding Stock Option (as defined in Section 3.3) to purchase
shares of Paramount Common Stock, as amended in the manner
described in the following sentence, shall be assumed by Viacom.
The Stock Options so assumed by Viacom shall continue to have,
and be subject to, the same terms and conditions as set forth in
the stock option plans and agreements pursuant to which such
Stock Options were issued as in effect immediately prior to the
Effective Time, except that each such Stock Option shall be
exercisable for (i) that number of whole shares of Viacom Class B
Common Stock equal to the product of the number of shares of
Paramount Common Stock covered by such Stock Option immediately
<PAGE>
13
prior to the Effective Time multiplied by the Class B Exchange
Ratio and rounded up to the nearest whole number of shares of
Viacom Class B Common Stock, (ii) that number of whole shares of
Viacom Merger Preferred Stock equal to the product of the number
of shares of Paramount Common Stock covered by such Stock Option
immediately prior to the Effective Time multiplied by the
Preferred Stock Exchange Ratio and rounded up to the nearest
whole number of shares of Viacom Merger Preferred Stock (iii)
that number of whole CVRs equal to the product of the number of
shares of Paramount Common Stock covered by such Stock Option
immediately prior to the Effective Time multiplied by the CVR
Exchange Ratio and rounded up to the nearest whole number of
CVRs; provided, that, if the option holder has not exercised his
--------
or her Stock Option prior to the maturity of the CVRs, then the
CVRs described above shall be replaced by that number of shares
of Viacom Class B Common Stock equal in value to the amount by
which the Target Price (as defined in Annex C hereto) exceeds the
greater of the Current Market Value (as defined in Annex C
hereto) and the Minimum Price (as defined in Annex C hereto) on
the applicable maturity date multiplied by the number of such
CVRs, rounded up to the nearest whole number of shares and (iv)
that number of whole Warrants equal to the product of the number
of shares of Paramount Common Stock covered by such Stock Option
immediately prior to the Effective Time multiplied by the Warrant
Exchange Ratio and rounded up to the nearest whole number of
Warrants; provided, further that, if the option holder has not
-------- -------
exercised his or her Stock Option prior to the third anniversary
of the Effective Time, then the Warrants described above shall be
replaced by that number of shares of Viacom Class B Common Stock
equal in value to the fair market value of such Warrants (as
determined by reference to the average trading price for the
five-day trading period immediately prior to the third
anniversary of the Effective Date, if available, or, if not
available, in the reasonable judgment of the Viacom Board of
Directors), rounded up to the nearest whole number of shares;
provided that there shall be no such rounding up with respect to
--------
Incentive Stock Options (as defined below). Viacom shall (i)
reserve for issuance the number of shares of Viacom Class B
Common Stock and Viacom Merger Preferred Stock, CVRs and Warrants
that will become issuable upon the exercise of such Stock Options
pursuant to this Section 1.9 and (ii) promptly after the
Effective Time, issue to each holder of an outstanding Stock
Option a document evidencing the assumption by Viacom of
Paramount's obligations with respect thereto under this Section
1.9. Nothing in this Section 1.9 shall affect the schedule of
vesting with respect to the Stock Options to be assumed by Viacom
as provided in this Section 1.9. In the case of any Stock Option
to which Section 421 of the Code applies by reason of its
qualification under Section 422 of the Code (an "Incentive Stock
---------------
Option"), the option price, the number and type of shares
------
purchasable pursuant to such Incentive Stock Option and the terms
and conditions of exercise of such Incentive Stock Option shall
be determined immediately after the Effective Time in such manner
as to comply with Section 424(a) of the Code. To preserve the
<PAGE>
14
qualification of all Incentive Stock Options under Section 422 of
the Code, (i) in addition to the Viacom Class B Common Stock and
(ii) in lieu of all shares of Viacom Merger Preferred Stock, CVRs
or Warrants for which an Incentive Stock Option would otherwise
become exercisable pursuant to the foregoing provisions of this
Section 1.9, such Incentive Stock Option shall become exercisable
for that number of shares of Viacom Class B Common Stock equal to
the fair market value of such shares of Viacom Merger Preferred
Stock, CVRs or Warrants (determined, at the time of the Merger,
by reference to a five-day average trading price of such
securities, if available, or if not available, in the reasonable
judgment of the Viacom Board of Directors).
SECTION 1.10. Dissenting Shares. (a) Notwithstanding
-----------------
any other provision of this Agreement to the contrary, shares of
Paramount Common Stock that are outstanding immediately prior to
the Effective Time and which are held by stockholders who shall
have not voted in favor of the Merger or consented thereto in
writing and who shall have demanded properly in writing appraisal
for such shares in accordance with Section 262 of Delaware Law
and who shall not have withdrawn such demand or otherwise have
forfeited appraisal rights (collectively, the "Dissenting
----------
Shares") shall not be converted into or represent the right to
------
receive the Merger Consideration. Such stockholders shall be
entitled to receive payment of the appraised value of such shares
of Paramount Common Stock held by them in accordance with the
provisions of such Section 262, except that all Dissenting Shares
held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to
appraisal of such shares of Paramount Common Stock under such
Section 262 shall thereupon be deemed to have been converted into
and to have become exchangeable, as of the Effective Time, for
the right to receive, without any interest thereon, the Merger
Consideration (as if such Shares were Non-Election Shares in the
case of a Merger to which section 1.6(b) applies), upon
surrender, in the manner provided in Section 1.7, of the
certificate or certificates that formerly evidenced such shares
of Paramount Common Stock.
(b) Paramount shall give Viacom (i) prompt notice of
any demands for appraisal received by Paramount, withdrawals of
such demands, and any other instruments served pursuant to
Delaware Law and received by Paramount and (ii) the opportunity
to direct all negotiations and proceedings with respect to
demands for appraisal under Delaware Law. Paramount shall not,
except with the prior written consent of Viacom, make any payment
with respect to any demands for appraisal, or offer to settle, or
settle, any such demands.
<PAGE>
15
ARTICLE II
THE OFFER
SECTION 2.1. The Offer. (a) Viacom has amended and
---------
supplemented the Offer to (a) provide that the purchase price
offered for shares pursuant to the Offer shall be the Per Share
Amount, (b) provide that the obligation of Viacom to accept for
payment and pay for Shares tendered pursuant to the Offer shall
be subject to the condition (as such condition may be amended in
accordance with the terms hereof, the "Minimum Condition") that
-----------------
at least 61,657,432 shares of Paramount Common Stock (or such
greater number of shares as equals 50.1% of the shares of
Paramount Common Stock then outstanding on a fully diluted basis)
shall have been validly tendered and not withdrawn prior to the
expiration of the Offer, that the Board of Directors of
Paramount, in accordance with Section 3.13 of this Agreement,
shall have amended the Rights Agreement to make the Rights (such
terms being used as defined in Section 3.13) inapplicable to the
Offer and the Merger as contemplated by Section 3.13 or the
Rights shall be otherwise inapplicable to the Offer and the
Merger (the "Rights Condition"), and also shall be subject to the
----------------
satisfaction of the other conditions set forth in Annex A hereto
and (c) extend the expiration date of the Offer until Midnight on
the tenth business day following the date of the amendment to the
Offer referred to above. Viacom expressly reserves the right to
waive any such condition (other than the Minimum Condition), to
increase the aggregate cash consideration to be paid pursuant to
the Offer and to increase the number of shares of Paramount
Common Stock sought in the Offer; provided, however, that no
-------- -------
change may be made without the prior written consent of Paramount
which decreases the number of shares of Paramount Common Stock
sought in the Offer below 50.1% of the outstanding shares of
Common Stock on a fully diluted basis; which decreases the
aggregate cash consideration payable in the Offer or changes the
form of consideration payable in the Offer (except to the extent
the Other Offeror (as defined below) has made such changes with
the consent of Paramount); or which imposes conditions to the
Offer in addition to those set forth in Annex A hereto.
Notwithstanding the foregoing sentence, so long as the Other
Offeror is bound by substantially identical restrictions made for
the benefit of Paramount, Viacom shall not amend the Offer in
order to increase by less than $60 million the aggregate cash
consideration to be paid pursuant to the Offer or increase the
number of shares of Paramount Common Stock for which tenders are
sought by less than 2% of the outstanding shares of Paramount
Common Stock. The Per Share Amount shall, subject to applicable
withholding of taxes, be net to the seller in cash, upon the
terms and subject to the conditions of the Offer. Subject to the
terms and conditions of the Offer (including, without limitation,
the Minimum Condition and the terms of this Agreement), Viacom
shall pay, as promptly as practicable after expiration of the
Offer, for all shares of Paramount Common Stock validly tendered
and not withdrawn at the earliest such time following expiration
<PAGE>
16
of the Offer that all conditions to the Offer shall have been
waived or satisfied by Viacom.
(b) Viacom has filed with the Securities and Exchange
Commission (the "SEC") an amendment to its Tender Offer Statement
---
on Schedule 14D-1 (together with all amendments and supplements
thereto, the "Schedule 14D-1") with respect to the Offer. The
--------------
Schedule 14D-1 contains or incorporates by reference an amendment
and supplement to the offer to purchase (the "Offer to Purchase")
-----------------
and forms of the related letter of transmittal and any related
summary advertisement (the Schedule 14D-1, the Offer to Purchase
and such other documents, together with all supplements and
amendments thereto, being referred to herein collectively as the
"Offer Documents"). Viacom and Paramount agree to correct
---------------
promptly any information provided by any of them for use in the
Offer Documents which shall have become false or misleading, and
Viacom further agrees to take all steps necessary to cause the
Schedule 14D-1 as so corrected to be filed with the SEC and the
other Offer Documents as so corrected to be disseminated to
holders of shares of Paramount Common Stock, in each case as and
to the extent required by applicable federal securities laws.
(c) (i) Notwithstanding the amendment of the Offer,
Viacom shall be free to terminate the Offer at any time subject
to its continuing obligations to consummate the Merger, including
without limitation pursuant to Sections 6.6 and 6.10, provided
--------
that prior to such termination of the Offer, Viacom shall have
determined in good faith that either (x) terminating the Offer
will facilitate the earlier consummation of the Merger in
accordance with the terms of this Merger Agreement or (y) the
conditions to the Offer (other than the Minimum Condition and the
Rights Condition) are unlikely to be satisfied. Notwithstanding
the foregoing, Viacom hereby agrees that, without the written
consent of Paramount, it may not terminate the Offer unless
required to terminate pursuant to Section 2.5 hereof or extend
the Expiration Date except for failure to satisfy a condition at
the Expiration Date, at any time that all of the conditions to
the Offer have been satisfied or that there exists no material
risk that the conditions will not be satisfied by such Expiration
Date, provided, Viacom may extend the Expiration Date pursuant to
this Section 2.1(c), Sections 2.1(a), 2.1(d) and 2.3 hereof or
any such extension required by Federal securities laws.
(ii) No extension of the expiration date (such
expiration date as extended from time to time shall be defined
herein to mean the "Expiration Date") permitted pursuant to this
Agreement shall be for a period of less than three business days
and the Expiration Date shall not be extended for any reason
beyond 12:00 midnight on February 14, 1994, or such later date in
accordance with the last parenthetical of the last sentence of
Section 2.1(d)(ii), Section 2.3, or as required by law to the
extent that the extension arises due to an event other than a
change in the terms of the Offer (the "Final Expiration Date");
---------------------
Viacom agrees that it will not increase the price per share of
<PAGE>
17
Paramount Common Stock payable in the Offer or otherwise amend
the Offer primarily to extend the expiration date of the tender
offer by QVC Network, Inc. ("QVC") (the "Other Offeror") to
--- -------------
purchase the outstanding shares of Paramount Common Stock (the
"Other Offer").
-----------
(d) In order to cause the Offer and the Other Offer to
remain on the same time schedule, Viacom hereby agrees that if
the Other Offeror remains subject to an agreement (the "Other
-----
Exemption Agreement"), containing terms for the benefit of
-------------------
Paramount substantially similar to the form of exemption
agreement between Viacom and Paramount dated as of December 22,
1993 (the "Exemption Agreement"), and (i) extends the expiration
-------------------
date of the Other Offer (such expiration date, as extended from
time to time, the "Other Expiration Date") in accordance with the
---------------------
Other Exemption Agreement, then the Expiration Date shall be
extended (as soon as practicable, but not later than one business
day following the announcement of the extension of the Other
Expiration Date) by Viacom to the Other Expiration Date, or (ii)
if upon notification to Paramount by the Offeror and the Other
Offeror of the results of their respective offers (which
notification shall be required to be delivered by the Offeror and
the Other Offeror no later than promptly following the expiration
of their respective offers), Paramount has notified the Offeror
and the Other Offeror (which notification shall be required to be
delivered by Paramount promptly) that a number of shares of
Paramount Common Stock that would satisfy the Minimum Condition
or the minimum condition defined in the Other Offer (which under
no circumstances may be less than 50.1% of the outstanding shares
of Paramount Common Stock on a fully diluted basis) (the "Other
-----
Minimum Condition") shall not have been validly tendered (and not
-----------------
withdrawn) pursuant to either the Offer or the Other Offer,
respectively, at the Expiration Date (or a number of shares of
Paramount Common Stock that would satisfy the Minimum Condition
and the Other Minimum Condition shall have been validly tendered
and not withdrawn pursuant to both the Offer and the Other Offer
at the Expiration Date), then Viacom shall extend the Expiration
Date of the Offer for a period of 10 business days.
(e) Viacom shall be subject to the obligations of
Sections 2.1(c)(ii), 2.1(d) and 2.5 for so long as the Other
Offeror remains subject to the obligations set forth in the Other
Exemption Agreement; provided, however, that Viacom shall not be
-------- -------
subject to Sections 2.1(c)(ii), 2.1(d) and 2.5 in the event that
the Other Offeror has not performed or complied in all material
respects with the Other Exemption Agreement.
SECTION 2.2. Action by Paramount. (a) Paramount
-------------------
hereby approves of and consents to the making of the Offer and
represents that (i) the Board of Directors of Paramount, at a
meeting duly called and held on January 21, 1994, has unanimously
(A) determined that the Offer and the Merger, taken together, are
fair to and in the best interests of the holders of shares of
Paramount Common Stock, (B) approved and adopted this Agreement
<PAGE>
18
and the transactions contemplated hereby and (C) recommended that
the stockholders of Paramount approve and adopt this Agreement
and the transactions contemplated hereby and accept the Offer,
and (ii) Lazard Freres & Co. has delivered to the Board an
opinion on January 21, 1994, to the effect that, as of such date,
the consideration to be received by the holders of shares of
Paramount Common Stock pursuant to the Offer and the Merger,
taken together, is fair to the holders of shares of Paramount
Common Stock from a financial point of view. Subject to the
fiduciary duties of the Board of Directors of Paramount under
applicable law as advised by independent legal counsel (who may
be such party's regularly engaged legal counsel), Paramount
hereby consents to the inclusion in the Offer Documents prepared
in connection with the Offer of the recommendation of the Board
of Directors of Paramount described in the immediately preceding
sentence.
(b) As soon as reasonably practicable after the date
hereof, Paramount shall file with the SEC an amendment to its
Solicitation/Recommendation Statement on Schedule 14D-9 (together
with all amendments and supplements thereto, the "Schedule
--------
14D-9") containing, subject to the fiduciary duties of the Board
-----
of Directors of Paramount under applicable law as advised by
independent legal counsel (who may be such party's regularly
engaged legal counsel), the recommendation of the Board of
Directors of Paramount described in Section 2.2(a) and shall
disseminate the Schedule 14D-9 to the extent required by Rule
14e-2 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and any other applicable federal
------------
securities laws. Paramount and Viacom agree to correct promptly
any information provided by any of them for use in the Schedule
14D-9 which shall have become false or misleading, and Paramount
further agrees to take all steps necessary to cause the Schedule
14D-9 as so corrected to be filed with the SEC and disseminated
to holders of shares of Paramount Common Stock, in each case as
and to the extent required by applicable federal securities laws.
(c) Paramount shall promptly furnish Viacom with
mailing labels containing the names and addresses of all record
holders of shares of Paramount Common Stock and with security
position listings of shares of Paramount Common Stock held in
stock depositories, each as of a recent date, together with all
other available listings and computer files containing names,
addresses and security position listings of record holders and
beneficial owners of shares of Paramount Common Stock. Paramount
shall furnish Viacom with such additional information, including,
without limitation, updated listings and computer files of
stockholders, mailing labels and security position listings, and
such other assistance as Viacom or its agents may reasonably
request. Subject to the requirements of applicable law, and
except for such steps as are necessary to disseminate the Offer
Documents and any other documents necessary to consummate the
Merger or the Offer, Viacom shall hold in confidence the
information contained in such labels, listings and files, shall
<PAGE>
19
use such information only in connection with the Merger and the
Offer, and, if this Agreement shall be terminated in accordance
with Section 8.1, shall deliver to Paramount all copies of such
information then in its possession.
SECTION 2.3. Receipt of Common Stock. Unless the
-----------------------
event referred to in the last parenthetical of Section 2.1(d)(ii)
that would satisfy the Minimum Condition occurs, in the event
that a number of shares of Paramount Common Stock shall have been
validly tendered and not withdrawn in the Offer at the Expiration
Date and, as of such Expiration Date, Viacom has waived all
conditions to the Offer (other than the Minimum Condition and the
conditions relating to the Rights Agreement, Article XI of the
Paramount Certificate of Incorporation, Section 203 of Delaware
Law and judicial or governmental injunction, each as set forth
therein), then Viacom shall extend the Expiration Date to a date
10 business days from the then scheduled Expiration Date;
provided, that such extension shall be for a period of 5 business
days in the event that the Other Offer has been terminated prior
to the foregoing Expiration Date.
SECTION 2.4. Completion Certificate. At such time as
----------------------
Viacom has fulfilled the terms of Section 2.3 above, Viacom shall
deliver to the Board of Directors of Paramount a certificate (the
"Completion Certificate"), executed by an authorized officer of
----------------------
Viacom, certifying that all the terms of Section 2.3 have been
fulfilled.
SECTION 2.5. Termination of the Offer. Unless the
------------------------
event referred to in the last parenthetical of the last sentence
of Section 2.1(d)(ii) occurs, Viacom hereby agrees to terminate
the Offer at such time as Viacom has been notified pursuant to a
certificate executed by an authorized officer of Paramount that
(i) a number of shares of Paramount Common Stock that would
satisfy the Other Minimum Condition shall have been validly
tendered to the Other Offer and not withdrawn at the Other
Expiration Date of the Other Offer, (ii) all conditions to the
Other Offer, except the Other Minimum Condition and the
conditions relating to the Rights Agreement, Article XI of the
Paramount Certificate of Incorporation, Section 203 of the
Delaware Law and judicial or governmental injunction, each as set
forth therein, shall have been waived and (iii) a completion
certificate from the Other Offeror has been delivered to
Paramount; provided, however, that Viacom shall not be required
-------- -------
to terminate the Offer in the event that the Other Offeror has
not performed or complied in all material respects with the Other
Exemption Agreement.
SECTION 2.6. Board of Directors; Section 14(f). (a)
---------------------------------
If requested by Viacom, Paramount shall, promptly following the
acceptance for payment of the shares of Paramount Common Stock to
be purchased pursuant to the Offer, and from time to time
thereafter, take all actions necessary to cause a majority of
directors (and of members of each committee of the Board of
<PAGE>
20
Directors) of Paramount and of each subsidiary of Paramount
designated by Viacom (whether, at the request of Viacom, by means
of increasing the size of the Board of Directors of Paramount or
seeking the resignation of directors and causing Viacom's
designees to elected); provided; that prior to receipt by Viacom
--------
of long-form approval by the Federal Communications Commission
(the "FCC") permitting Viacom to control Paramount, Paramount
shall take all actions necessary to elect the Viacom voting
trustee approved by the FCC to the Paramount Board of Directors
and to otherwise act in a manner consistent with the voting trust
agreement approved by the FCC.
(b) Paramount's obligations to cause designees of
Viacom to be elected or appointed to the Board of Directors of
Paramount shall be subject to Section 14(f) of the Exchange Act
and Rule 14f-1 promulgated thereunder. Paramount shall promptly
take all actions required pursuant to Section 14(f) and Rule 14f-
1 in order to fulfill its obligations under this Section, and
shall include in the Schedule 14D-9 such information with respect
to Viacom and its officers and directors as is required under
Section 14(f) and Rule 14f-1. Viacom will supply to Paramount
any information with respect to it and its nominees, officers,
directors and affiliates required by Section 14(f) and
Rule 14f-1.
(c) Following the election or appointment of Viacom's
designees pursuant to this Section and prior to the Effective
Time, any amendment or termination of this Agreement, extension
for the performance or waiver of the obligations or other acts of
Viacom or waiver of Paramount's rights hereunder, will require
the concurrence of a majority of directors of Paramount then in
office who are directors on the date hereof or are designated by
a majority of the directors of Paramount who are directors on the
date hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARAMOUNT
Paramount hereby represents and warrants to Viacom
that:
SECTION 3.1. Organization and Qualification;
-------------------------------
Subsidiaries. (a) Each of Paramount and each Material Paramount
------------
Subsidiary (as defined below) is a corporation, partnership or
other legal entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation
or organization 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, except where the failure to be so organized, existing
or in good standing or to have such power, authority and
governmental approvals would not, individually or in the
<PAGE>
21
aggregate, have a Paramount Material Adverse Effect (as defined
below). Paramount and each Material Paramount Subsidiary is duly
qualified or licensed as a foreign corporation 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 would not, individually or in the aggregate,
have a Paramount Material Adverse Effect. The term "Paramount
---------
Material Adverse Effect" means any change or effect that is or is
-----------------------
reasonably likely to be materially adverse to the business,
results of operations or financial condition of Paramount and the
Paramount Subsidiaries, taken as a whole; provided, however,
-------- -------
where such term qualifies a representation or warranty contained
in this Article III during the period beginning after the date
hereof and until the Effective Time, then such term shall mean
any change or effect that is or is reasonably likely to be
materially adverse to the business or financial condition of
Paramount and the Paramount Subsidiaries, taken as a whole.
(b) Each subsidiary of Paramount (a "Paramount
---------
Subsidiary") that constitutes a Significant Subsidiary of
----------
Paramount within the meaning of Rule 1-02 of Regulation S-X of
the SEC is referred to herein as a "Material Paramount
------------------
Subsidiary".
----------
SECTION 3.2. Certificate of Incorporation and By-Laws.
----------------------------------------
Paramount has heretofore made available to Viacom a complete and
correct copy of the Certificate of Incorporation and the By-Laws
or equivalent organizational documents, each as amended to date,
of Paramount and each Material Paramount Subsidiary. Such
Certificates of Incorporation, By-Laws and equivalent
organizational documents are in full force and effect. Neither
Paramount nor any Material Paramount Subsidiary is in violation
of any provision of its Certificate of Incorporation, By-Laws or
equivalent organizational documents, except for such violations
that would not, individually or in the aggregate, have a
Paramount Material Adverse Effect.
SECTION 3.3. Capitalization. The authorized capital
--------------
stock of Paramount consists of 600,000,000 shares of Paramount
Common Stock and 75,000,000 shares of Preferred Stock, par value
$.01 per share ("Paramount Preferred Stock"). As of January 19,
-------------------------
1994, 121,865,001 shares of Paramount Common Stock were issued
and outstanding, all of which were validly issued, fully paid and
nonassessable. As of January 20, 1993, 25,990,047 shares were
held in the treasury of Paramount. As of December 31, 1993,
9,377,108 shares were reserved for future issuance pursuant to
Paramount's 1992 Stock Option Plan, 1989 Stock Option Plan and
1984 Stock Option Plan (any employee stock option issued under
any such plan being a "Stock Option") and reserved for future
------------
issuance under the Long-Term Incentive Plan. Between August 31,
1993 and the date of this Agreement, awards have been made under
the Long-Term Performance Plan as indicated on Schedule 3.3. As
<PAGE>
22
of January 19, 1994, options to acquire 2,581,763 shares of
Paramount Common Stock were outstanding. As of the date hereof,
no shares of Paramount Preferred Stock are issued and
outstanding. Except as set forth in Section 3.3 of the
Disclosure Schedule previously delivered by Paramount to Viacom
(the "Paramount Disclosure Schedule"), or except as set forth in
-----------------------------
this Section 3.3, and except pursuant to the Rights Agreement (as
defined in Section 3.13), there are no options, warrants or other
rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of Paramount or
any Material Paramount Subsidiary or obligating Paramount or any
Material Paramount Subsidiary to issue or sell any shares of
capital stock of, or other equity interests in, Paramount or any
Material Paramount Subsidiary. All shares of Paramount Common
Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to
which they are issuable, will be duly authorized, validly issued,
fully paid and nonassessable. Except as set forth in Section 3.3
of the Paramount Disclosure Schedule, there are no material
outstanding contractual obligations of Paramount or any Paramount
Subsidiary to repurchase, redeem or otherwise acquire any shares
of Paramount Common Stock or any capital stock of any Material
Paramount Subsidiary, or make any material investment (in the
form of a loan, capital contribution or otherwise) in, any
Paramount Subsidiary or any other person. Each outstanding share
of capital stock of each Material Paramount Subsidiary is duly
authorized, validly issued, fully paid and nonassessable and each
such share owned by Paramount or another Paramount Subsidiary is
free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on
Paramount's or such other Paramount Subsidiary's voting rights,
charges and other encumbrances of any nature whatsoever. Set
forth in Section 3.3 of the Disclosure Schedule is Paramount's
percentage interest in the outstanding capital stock or
partnership interests of USA Networks, United Cinemas
International Multiplex B.V., United International Pictures and
Cinamerica Theatres, L.P.
SECTION 3.4. Authority Relative to This Agreement.
------------------------------------
Paramount has all necessary power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and
to consummate the transactions (including, without limitation,
the Offer) contemplated hereby (the "Transactions"). The
------------
execution and delivery of this Agreement by Paramount and the
consummation by Paramount of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate
action and no other corporate proceedings on the part of
Paramount are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby (other than, with
respect to the Merger, the approval and adoption of this
Agreement by the holders of a majority of the then outstanding
shares of Paramount Common Stock, and the filing and recordation
of appropriate merger documents as required by Delaware Law).
This Agreement has been duly and validly executed and delivered
<PAGE>
23
by Paramount and, assuming the due authorization, execution and
delivery by Viacom, constitutes a legal, valid and binding
obligation of Paramount, enforceable against Paramount in
accordance with its terms. Paramount has taken all appropriate
actions so that the restrictions on business combinations
contained in Section 203 of Delaware Law and Article XI of
Paramount's Certificate of Incorporation will not apply with
respect to or as a result of the Transactions.
SECTION 3.5. No Conflict; Required Filings and
---------------------------------
Consents. (a) Except as set forth in Section 3.05 of the
--------
Disclosure Schedule, the execution and delivery of this Agreement
by Paramount does not, and the performance by Paramount of its
obligations under this Agreement will not, (i) conflict with or
violate the Certificate of Incorporation or By-Laws or equivalent
organizational documents of Paramount or any Material Paramount
Subsidiary, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Paramount or
any Paramount Subsidiary or by which any property or asset of
Paramount or any Paramount Subsidiary is bound or affected, or
(iii) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a
default) under, result in the loss of a material benefit 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 Paramount
or any Paramount Subsidiary pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Paramount or
any Paramount Subsidiary is a party or by which Paramount or any
Paramount Subsidiary or any property or asset of Paramount or any
Paramount Subsidiary is bound or affected, except, in the case of
clauses (ii) and (iii), for any such conflicts, violations,
breaches, defaults or other occurrences which would not prevent
or delay consummation of the Merger or the Offer in any material
respect, or otherwise prevent Paramount from performing its
obligations under this Agreement in any material respect, and
would not, individually or in the aggregate, have a Paramount
Material Adverse Effect.
(b) The execution and delivery of this Agreement by
Paramount does not, and the performance of this Agreement by
Paramount will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign (each a
"Governmental Entity"), except (i) for (A) applicable
-------------------
requirements, if any, of the Exchange Act, the Securities Act of
1933, as amended (the "Securities Act"), state securities or
--------------
"blue sky" laws ("Blue Sky Laws") and state takeover laws, (B)
-------------
applicable requirements of the Communications Act of 1934, as
amended (the "Communications Act"), and of state and local
------------------
governmental authorities, including state and local authorities
granting franchises to operate cable systems, (C) applicable
requirements of the Investment Canada Act of 1985 and the
<PAGE>
24
Competition Act (Canada), (D) filing and recordation of
appropriate merger documents as required by Delaware Law and (E)
any non-United States competition, antitrust and investment laws
and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the
Merger or the Offer in any material respect, or otherwise prevent
Paramount from performing its obligations under this Agreement in
any material respect, and would not, individually or in the
aggregate, have a Paramount Material Adverse Effect.
SECTION 3.6. Compliance. Except as set forth in
----------
Section 3.6 of the Paramount Disclosure Schedule, neither
Paramount nor any Paramount Subsidiary is in conflict with,
or in default or violation of, (i) any law, rule, regulation,
order, judgment or decree applicable to Paramount or any
Paramount Subsidiary or by which any property or asset of
Paramount or any Paramount Subsidiary is bound or affected, or
(ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or
obligation to which Paramount or any Paramount Subsidiary is a
party or by which Paramount or any Paramount Subsidiary or any
property or asset of Paramount or any Paramount Subsidiary is
bound or affected, except for any such conflicts, defaults or
violations that would not, individually or in the aggregate, have
a Paramount Material Adverse Effect.
SECTION 3.7. SEC Filings; Financial Statements.
---------------------------------
Except as set forth in Section 3.7 of the Paramount Disclosure
Schedule, (a) Paramount has filed all forms, reports and
documents required to be filed by it with the SEC since October
31, 1990, and has heretofore made available to Viacom, in the
form filed with the SEC (excluding any exhibits thereto), (i) its
Annual Reports on Form 10-K for the fiscal years ended October
31, 1990, 1991 and 1992, respectively, (ii) its Transition Report
on Form 10-K for the six months ended April 30, 1993, as amended,
(iii) its Quarterly Reports on Form 10-Q for the periods ended
July 31, 1993 and October 31, 1993, (iv) all proxy statements
relating to Paramount's meetings of stockholders (whether annual
or special) held since October 31, 1990, and (v) all other forms,
reports and other registration statements (other than Quarterly
Reports on Form 10-Q not referred to in clause (iii) above and
preliminary materials) filed by Paramount with the SEC since
October 31, 1990 (the forms, reports and other documents referred
to in clauses (i), (ii), (iii), (iv) and (v) above being referred
to herein, collectively, as the "Paramount SEC Reports"). The
---------------------
Paramount SEC Reports and any forms, reports and other documents
filed by Paramount with the SEC after the date of this Agreement
(x) were or will be prepared in accordance with the requirements
of the Securities Act and the Exchange Act, as the case may be,
and the rules and regulations thereunder and (y) did not at the
time they were filed, or will not at the time they are filed,
contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in
<PAGE>
25
order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. No
Paramount Subsidiary is required to file any form, report or
other document with the SEC.
(b) Each of the consolidated financial statements
(including, in each case, any notes thereto) contained in the
Paramount SEC Reports was prepared in accordance with generally
accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as may be indicated in
the notes thereto) and each fairly presented the financial
position, results of operations and cash flows of Paramount and
the consolidated Paramount Subsidiaries as at the respective
dates thereof and for the respective periods indicated therein
(subject, in the case of unaudited statements, to normal and
recurring year-end adjustments which were not and are not
expected, individually or in the aggregate, to be material in
amount).
(c) Except as set forth in Section 3.7 of the
Paramount Disclosure Schedule or except as and to the extent set
forth in the Paramount SEC Reports filed with the SEC prior to
the date of this Agreement, Paramount and the Paramount
Subsidiaries do not have any liability or obligation of any
nature (whether accrued, absolute, contingent or otherwise) other
than liabilities and obligations which would not, individually or
in the aggregate, have a Paramount Material Adverse Effect.
SECTION 3.8. Absence of Certain Changes or Events.
------------------------------------
Since April 30, 1993, except as contemplated by this Agreement or
as set forth in Section 3.8 of the Paramount Disclosure Schedule,
contemplated by this Agreement or disclosed in any Paramount SEC
Report filed since April 30, 1993 and prior to the date of this
Agreement, Paramount and the Paramount Subsidiaries have
conducted their businesses only in the ordinary course and in a
manner consistent with past practice and, since April 30, 1993,
there has not been (i) as of the date hereof, any change,
occurrence or circumstance in the business, results of operations
or financial condition of Paramount or any Paramount Subsidiary
having, individually or in the aggregate, a Paramount Material
Adverse Effect, (ii) any damage, destruction or loss (whether or
not covered by insurance) with respect to any property or asset
of Paramount or any Paramount Subsidiary and having, individually
or in the aggregate, a Paramount Material Adverse Effect, (iii)
any change by Paramount in its accounting methods, principles or
practices, (iv) any declaration, setting aside or payment of any
dividend or distribution in respect of any capital stock of
Paramount or any Paramount Subsidiary or any redemption, purchase
or other acquisition of any of their respective securities other
than regular quarterly dividends on the shares of Paramount
Common Stock not in excess of $.20 per share and dividends by a
Paramount Subsidiary to Paramount and other than to fund pre-
established Paramount Plans and dividend reinvestment plans, or
(v) other than as set forth in Section 3.3 and pursuant to the
<PAGE>
26
plans, programs or arrangements referred to in Section 3.10 and
other than in the ordinary course of business consistent with
past practice, any increase in or establishment of any bonus,
insurance, severance, deferred compensation, pension, retirement,
profit sharing, stock option (including, without limitation, 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 officers or key employees of
Paramount or any Paramount Subsidiary.
SECTION 3.9. Absence of Litigation. Except as set
---------------------
forth in Section 3.9 of the Paramount Disclosure Schedule or
except as disclosed in the Paramount SEC Reports filed with the
SEC prior to the date of this Agreement, there is no claim,
action, proceeding or investigation pending or, to the best
knowledge of Paramount, threatened against Paramount or any
Paramount Subsidiary, or any property or asset of Paramount or
any Paramount Subsidiary, before any court, arbitrator or
administrative, governmental or regulatory authority or body,
domestic or foreign, which, individually or in the aggregate, is
reasonably likely to have a Paramount Material Adverse Effect.
Except as disclosed in the Paramount SEC Reports filed with the
SEC prior to the date of this Agreement, neither Paramount nor
any Paramount Subsidiary nor any property or asset of Paramount
or any Paramount Subsidiary is subject to any order, writ,
judgment, injunction, decree, determination or award having or
reasonably likely to have, individually or in the aggregate, a
Paramount Material Adverse Effect.
SECTION 3.10. Employee Benefit Plans. With respect to
----------------------
all the employee benefit plans, programs and arrangements
maintained for the benefit of any current or former employee,
officer or director of Paramount or any Paramount Subsidiary (the
"Paramount Plans"), except as set forth in Section 3.10 of the
---------------
Paramount Disclosure Schedule or the Paramount SEC Reports and
except as would not, individually or in the aggregate, have a
Paramount Material Adverse Effect: (i) each Paramount Plan
intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter from the Internal
Revenue Service (the "IRS") that it is so qualified and nothing
---
has occurred since the date of such letter that could reasonably
be expected to affect the qualified status of such Paramount
Plan; (ii) each Paramount Plan has been operated in all respects
in accordance with its terms and the requirements of applicable
law; (iii) neither Paramount nor any Paramount Subsidiary has
incurred any direct or indirect liability under, arising out of
or by operation of Title IV of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), in connection with
-----
the termination of, or withdrawal from, any Paramount Plan or
other retirement plan or arrangement, and no fact or event exists
that could reasonably be expected to give rise to any such
liability; and (iv) Paramount and the Paramount Subsidiaries have
not incurred any liability under, and have complied in all
<PAGE>
27
material respects with, the Worker Adjustment Retraining
Notification Act, and no fact or event exists that could give
rise to liability under such act. Except as set forth in Section
3.10 of the Paramount Disclosure Schedule or the Paramount SEC
Reports, the aggregate accumulated benefit obligations of each
Paramount Plan subject to Title IV of ERISA (as of the date of
the most recent actuarial valuation prepared for such Paramount
Plan) do not exceed the fair market value of the assets of such
Paramount Plan (as of the date of such valuation).
SECTION 3.11. Trademarks, Patents and Copyrights.
----------------------------------
Paramount and the Paramount Subsidiaries own or possess adequate
licenses or other valid rights to use all material patents,
patent rights, trademarks, trademark rights, trade names, trade
name rights, copyrights, service marks, trade secrets,
applications for trademarks and for service marks, know-how and
other proprietary rights and information used or held for use in
connection with the business of Paramount and the Paramount
Subsidiaries as currently conducted or as contemplated to be
conducted, and Paramount is unaware of any assertion or claim
challenging the validity of any of the foregoing which,
individually or in the aggregate, would have a Paramount Material
Adverse Effect. The conduct of the business of Paramount and the
Paramount Subsidiaries as currently conducted does not conflict
in any way with any patent, patent right, license, trademark,
trademark right, trade name, trade name right, service mark or
copyright of any third party that, individually or in the
aggregate, would have a Paramount Material Adverse Effect. To
the best knowledge of Paramount, there are no infringements of
any proprietary rights owned by or licensed by or to Paramount or
any Paramount Subsidiary which, individually or in the aggregate,
would have a Paramount Material Adverse Effect.
SECTION 3.12. Taxes. Paramount and the Paramount
-----
Subsidiaries have timely filed all federal, state, local and
foreign tax returns and reports required to be filed by them
through the date hereof and shall timely file all returns and
reports required on or before the Effective Time, except for such
returns and reports the failure of which to file timely would
not, individually or in the aggregate, have a Paramount Material
Adverse Effect. Such reports and returns are and will be true,
correct and complete, except for such failure to be true, correct
and complete as would not, individually or in the aggregate, have
a Paramount Material Adverse Effect. Paramount and the Paramount
Subsidiaries have paid and discharged all federal, state, local
and foreign taxes due from them, other than such taxes that are
being contested in good faith by appropriate proceedings and are
adequately reserved as shown in the audited consolidated balance
sheet of Paramount dated October 31, 1992 (the "Paramount 1992
--------------
Balance Sheet") and its most recent quarterly financial
-------------
statements, except for such failures to so pay and discharge
which would not, individually or in the aggregate, have a
Paramount Material Adverse Effect. Neither the IRS nor any other
taxing authority or agency, domestic or foreign, is now asserting
<PAGE>
28
or, to the best knowledge of Paramount, threatening to assert
against Paramount or any Paramount Subsidiary any deficiency or
material claim for additional taxes or interest thereon or
penalties in connection therewith which, if such deficiencies or
claims were finally resolved against Paramount and the Paramount
Subsidiaries would, individually or in the aggregate, have a
Paramount Material Adverse Effect. The accruals and reserves for
taxes (including interest and penalties, if any, thereon)
reflected in the Paramount 1992 Balance Sheet and the most recent
quarterly financial statements are adequate in accordance with
generally accepted accounting principles, except where the
failure to be adequate would not have a Paramount Material
Adverse Effect. Paramount and the Paramount Subsidiaries have
withheld or collected and paid over to the appropriate
governmental authorities or are properly holding for such payment
all taxes required by law to be withheld or collected, except for
such failures to have so withheld or collected and paid over or
to be so holding for payment which would not, individually or in
the aggregate, have a Paramount Material Adverse Effect. There
are no material liens for taxes upon the assets of Paramount or
the Paramount Subsidiaries, other than liens for current taxes
not yet due and payable and liens for taxes that are being
contested in good faith by appropriate proceedings. Neither
Paramount nor any Paramount Subsidiary has agreed to or is
required to make any adjustment under Section 481(a) of the Code.
Neither Paramount nor any Paramount Subsidiary has made an
election under Section 341(f) of the Code. For purposes of this
Section 3.12, where a determination of whether a failure by
Paramount or a Paramount Subsidiary to comply with the
representations herein has a Paramount Material Adverse Effect is
necessary, such determination shall be made on an aggregate basis
with all other failures within this Section 3.12.
SECTION 3.13. Amendment to Rights Agreement. (a) The
-----------------------------
Board of Directors of Paramount has taken all necessary action to
amend the Rights Agreement, dated as of September 7, 1988, as
amended, between Paramount and Manufacturers Hanover Trust
Company, as Rights Agent (the "Rights Agreement") so that (i)
----------------
none of the execution or delivery of this Agreement, the exchange
of the shares of Paramount Common Stock for the shares of Viacom
Common Stock, Viacom Merger Preferred Shares and cash in
accordance with Article II or the making of the Offer will cause
(A) the rights (the "Rights") issued pursuant to the Rights
------
Agreement to become exercisable under the Rights Agreement, (B)
Viacom or any of the Viacom Subsidiaries to be deemed an
"Acquiring Person" (as defined in the Rights Agreement), or (C)
the "Stock Acquisition Date" (as defined in the Rights Agreement)
to occur upon any such event and (ii) the "Expiration Date" (as
defined in the Rights Agreement) of the Rights shall occur
immediately prior to the Effective Time. Paramount agrees to
take all necessary action to amend the Rights Agreement so that
the consummation of the Offer, on the terms permitted hereunder,
will not cause any of the effects referred to in Section 3.13
(a)(i)(A), (B) or (C) to occur; provided, however, that Paramount
-------- -------
<PAGE>
29
shall not be required to make such amendments to the Rights
Agreement if (i) Viacom has not performed or complied in all
material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior
to the consummation of the Offer or (ii) Paramount obtains and
there is in force from the Delaware Court of Chancery an order
permanently, preliminarily or temporarily declaring that the
making of such amendments to the Rights Agreement would be
contrary to the fiduciary duties of the Board of Directors of
Paramount. Notwithstanding anything else contained herein, in no
event shall the Board of Directors of Paramount make an amendment
of the Rights Agreement in favor of the Other Offeror or any
other person without making such amendments in favor of Viacom;
provided that Paramount will not be obligated to make such
amendments for Viacom if Viacom has become obligated to terminate
its Offer pursuant to Section 2.5 of this Agreement.
(b) The "Distribution Date" (as defined in the Rights
Agreement) has not occurred.
SECTION 3.14. Opinion of Financial Advisor. Paramount
----------------------------
has received the opinion of Lazard Freres & Co., dated January
21, 1994, to the effect that, as of such date, the consideration
to be received by the stockholders of Paramount pursuant to the
offer and the Merger, taken together, is fair to such
stockholders from a financial point of view, a copy of which
opinion will be delivered to Viacom promptly upon receipt.
SECTION 3.15. Vote Required. The affirmative vote of
-------------
the holders of a majority of the outstanding shares of Paramount
Common Stock is the only vote of the holders of any class or
series of Paramount capital stock necessary to approve the
Merger.
SECTION 3.16. Brokers. No broker, finder or
-------
investment banker (other than Lazard Freres & Co.) is entitled to
any brokerage, finder's or other fee or commission in connection
with the Transactions based upon arrangements made by or on
behalf of Paramount. Paramount has heretofore furnished to
Viacom a complete and correct copy of all agreements between
Paramount and Lazard Freres & Co. pursuant to which such firm
would be entitled to any payment relating to the Transactions.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VIACOM
Viacom hereby represents and warrants to Paramount
that:
SECTION 4.1. Organization and Qualification;
-------------------------------
Subsidiaries. (a) Each of Viacom and each Material Viacom
------------
Subsidiary (as defined below) is a corporation, partnership or
<PAGE>
30
other legal entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation
or organization 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, except where the failure to be so organized, existing
or in good standing or to have such power, authority and
governmental approvals would not, individually or in the
aggregate, have a Viacom Material Adverse Effect (as defined
below). Viacom and each Material Viacom Subsidiary is duly
qualified or licensed as a foreign corporation 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 would not, individually or in the aggregate,
have a Viacom Material Adverse Effect. The term "Viacom Material
---------------
Adverse Effect" means any change or effect that is or is
--------------
reasonably likely to be materially adverse to the business,
results of operations or financial condition of Viacom and the
Viacom Subsidiaries, taken as a whole; provided, however, where
-------- -------
such term qualifies a representation or warranty contained in
this Article IV during the period beginning after the date hereof
and until the Effective Time, then such term shall mean any
change or effect that is or is reasonably likely to be materially
adverse to the business or financial condition of Viacom and the
Viacom Subsidiaries, taken as a whole.
(b) Each subsidiary of Viacom (a "Viacom Subsidiary")
-----------------
that constitutes a Significant subsidiary of Viacom within the
meaning of Rule 1-02 of Regulation S-X of the SEC is referred to
herein as a "Material Viacom Subsidiary".
--------------------------
SECTION 4.2. Certificate of Incorporation and By-Laws.
----------------------------------------
Viacom has heretofore made available to Paramount a complete and
correct copy of the Certificate of Incorporation and the By-Laws
or equivalent organizational documents, each as amended to date,
of Viacom and each Material Viacom Subsidiary. Such Certificates
of Incorporation, By-Laws and equivalent organizational documents
are in full force and effect. Neither Viacom nor any Material
Viacom Subsidiary is in violation of any provision of its
Certificate of Incorporation, By-Laws or equivalent
organizational documents, except for such violations that would
not, individually or in the aggregate, have a Viacom Material
Adverse Effect.
SECTION 4.3. Capitalization. The authorized capital
--------------
stock of Viacom consists of 100,000,000 shares of Viacom Class A
Common Stock, 150,000,000 shares of Viacom Class B Common Stock
and 100,000,000 shares of Preferred Stock, par value $.01 per
share ("Viacom Preferred Stock"), of which 24,000,000 shares have
----------------------
been designated Viacom Series A Preferred Stock (the "Viacom
------
Series A Preferred Stock") and 24,000,000 shares have been
------------------------
designated Viacom Series B Preferred Stock (the "Viacom Series B
---------------
<PAGE>
31
Preferred Stock"). As of November 30, 1993, (i) 53,449,125
---------------
shares of Viacom Class A Common Stock and 67,345,982 shares of
Viacom Class B Common Stock were issued and outstanding, all of
which were validly issued, fully paid and non-assessable, (ii) no
shares were held in the treasury of Viacom, (iii) no shares were
held by the Viacom Subsidiaries, and (iv) 224,610 shares of
Viacom Class A Common Stock and 3,760,297 shares of Viacom Class
B Common Stock were reserved for future issuance pursuant to
employee stock options or stock incentive rights granted pursuant
to Viacom's 1989 Long-Term Management Incentive Plan and the
Viacom Inc. Stock Option Plan for Outside Directors. As of the
date hereof, 24,000,000 shares of Viacom Series A Preferred Stock
and 24,000,000 shares of Viacom Series B Preferred Stock are
issued and outstanding. Except as set forth in this Section 4.3
or as contemplated by this Agreement, there are no options,
warrants or other rights, agreements, arrangements or commitments
of any character relating to the issued or unissued capital stock
of Viacom or any Material Viacom Subsidiary or obligating Viacom
or any Material Viacom Subsidiary to issue or sell any shares of
capital stock of, or other equity interests in, Viacom or any
Material Viacom Subsidiary, except for (i) options granted since
November 30, 1993 in the ordinary course consistent with past
practice, (ii) the reservation of 17,140,800 shares of Viacom
Class B Common Stock for issuance upon conversion of shares of
Viacom Series B Preferred Stock, (iii) the reservation of
8,570,400 shares of Viacom Class B Common Stock for issuance upon
conversion of shares of Viacom Series A Preferred Stock, (iv) the
issuance of any securities in connection with the acquisition of
Blockbuster Entertainment Corporation, a Delaware corporation
("Blockbuster") and (v) the reservation of 22,727,273 shares of
-----------
Viacom Class B Common Stock for issuance upon the consummation of
the transactions contemplated by the Subscription Agreement,
dated as of January 7, 1994 (the "Blockbuster Subscription
------------------------
Agreement"), between Blockbuster and Viacom. All shares of
---------
Viacom Common Stock and VCRs subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid and nonassessable. Except
as set forth in Section 4.3 of the Disclosure Schedule previously
delivered by Viacom to Paramount (the "Viacom Disclosure
-----------------
Schedule"), there are no material outstanding contractual
--------
obligations of Viacom or any Viacom Subsidiary to repurchase,
redeem or otherwise acquire any shares of Viacom Common Stock or
any capital stock of any Material Viacom Subsidiary, or make any
material investment (in the form of a loan, capital contribution
or otherwise) in, any Viacom Subsidiary or any other person,
other than the amended and restated subscription agreement dated
as of October 21, 1993 between Viacom and Blockbuster, the
subscription agreement dated as of October 4, 1993, as amended,
between Viacom and NYNEX Corporation and the Blockbuster
Subscription Agreement. Each outstanding share of capital stock
of each Material Viacom Subsidiary is duly authorized, validly
issued, fully paid and nonassessable and each such share owned by
Viacom or another Viacom Subsidiary is free and clear of all
<PAGE>
32
security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on Viacom's or such other
Viacom Subsidiary's voting rights, charges and other encumbrances
of any nature whatsoever. The shares of Viacom Merger Preferred
Stock to be issued pursuant to the Merger will be duly and
validly authorized by Viacom and, when issued and delivered
pursuant to the terms of this Agreement will be duly and validly
issued, fully paid and non-assessable, and free of preemptive
rights. The shares of Viacom Class B Common Stock initially
issuable upon conversion of the Viacom Merger Preferred Stock at
the initial conversion price have been duly and validly
authorized and reserved for issuance upon such conversion, are
free of preemptive rights, and, if and when the Viacom Merger
Preferred Stock is converted into shares of Viacom Class B Common
Stock in accordance with the terms of the Viacom Merger Preferred
Stock, such shares of Viacom Class B Common Stock issued upon
such conversion will be duly authorized, validly issued, fully
paid and non-assessable, and the holders of outstanding shares of
capital stock of Viacom are not entitled to any preemptive or
other rights with respect to the Viacom Merger Preferred Stock or
the Viacom Class B Common Stock issued upon such conversion. If
and when the Warrants are exercised for Viacom Class B Common
Stock in accordance with the terms of the Warrants, such shares
of Viacom Class B Common Stock issued upon such exercise will be
duly authorized, validly issued, fully paid and non-assessable,
and the holders of outstanding shares of capital stock of Viacom
are not entitled to any preemptive or other rights with respect
to the Warrants or the Viacom Class B Common Stock issued upon
such exercise. Viacom's 5% Convertible Subordinated Debentures
due 2013 (the "Debentures") initially issuable upon exchange of
----------
the Viacom Merger Preferred Stock for such Debentures, and the
Viacom Class B Common Stock initially issuable upon conversion of
the Debentures, will be duly authorized and such Viacom Class B
Common Stock will be duly reserved for issuance upon such
conversion; when the Debentures have been duly executed,
authenticated, issued and delivered in exchange for the Viacom
Merger Preferred Stock in accordance with the terms of the Viacom
Merger Preferred Stock and the Indenture pursuant to which they
are issued (the "Indenture") between Viacom and the trustee
---------
thereunder (the "Trustee"), such Debentures will then constitute
-------
valid and legal binding obligations of the Company entitled to
the benefits provided by the Indenture; and the Debentures will
be convertible into Viacom Class B Common Stock in accordance
with the terms of the Indenture and the shares of Viacom Class B
Common Stock initially issuable upon such conversion, when issued
upon such conversion, will be validly issued, fully paid and
non-assessable. By the date of issuance of the Viacom Merger
Preferred Stock, the Indenture will have been duly authorized by
Viacom, duly qualified under the Trust Indenture Act of 1939,
and, when duly executed and delivered by Viacom and the Trustee,
will constitute a valid and binding instrument of Viacom
enforceable in accordance with its terms. Upon their issuance,
the Warrants and the CVRs shall each constitute legal, valid and
<PAGE>
33
binding obligations of Viacom enforceable in accordance with
their terms.
SECTION 4.4. Authority Relative to This Agreement.
------------------------------------
Viacom has all necessary power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Viacom and the
consummation by Viacom of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate
action and the Voting Agreement has been approved by the Viacom
Board of Directors for purposes of Section 203 of Delaware Law
and no other corporate proceedings on the part of Viacom are
necessary to authorize this Agreement or to consummate the
transactions contemplated hereby (other than, with respect to the
Merger (including the issuance of the Viacom Class B Common
Stock, the Viacom Merger Preferred Stock, the CVRs and the
Warrants), the approval by the holders of a majority of the then
outstanding shares of Viacom Class A Common Stock of (i) this
Agreement and the Merger and (ii) to the extent necessary, the
amendment to Viacom's certificate of incorporation necessary to
increase (x) the shares of authorized Class B Viacom Common Stock
to a number not less than the number sufficient to consummate the
issuance of Shares of Viacom Common Stock contemplated under this
Agreement (including such shares issuable upon the exercise of
the Warrants and, if applicable, in connection with the CVRs) and
(y) the size of the Board of Directors of Viacom to a number not
less than 13 (collectively, the "Viacom Vote Matter"; and the
------------------
amendments to Viacom's Restated Certificate of Incorporation
described in clauses (ii)(x) and (y) above being, collectively,
the "Viacom Certificate Amendments"), and the filing and
-----------------------------
recordation of the foregoing amendment to Viacom's Restated
Certificate of Incorporation and appropriate merger documents as
required by Delaware Law). This Agreement has been duly and
validly executed and delivered by Viacom and, assuming the due
authorization, execution and delivery by Paramount, constitutes a
legal, valid and binding obligation of Viacom, enforceable
against Viacom in accordance with its terms.
SECTION 4.5. No Conflict; Required Filings and
---------------------------------
Consents. (a) The execution and delivery of this Agreement by
--------
Viacom does not, and the performance of the transactions
contemplated hereby by Viacom will not, (i) conflict with or
violate the Certificate of Incorporation or By-Laws or equivalent
organizational documents of Viacom or any Material Viacom
Subsidiary, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Viacom or any
Viacom Subsidiary or by which any property or asset of Viacom or
any Viacom Subsidiary is bound or affected, or (iii) result in
any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under,
result in the loss of a material benefit 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
<PAGE>
34
any property or asset of Viacom or any Viacom Subsidiary pursuant
to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or
obligation to which Viacom or any Viacom Subsidiary is a party or
by which Viacom or any Viacom Subsidiary or any property or asset
of Viacom or any Viacom Subsidiary is bound or affected, except
in the case of clauses (ii) and (iii) of this Section 4.5, for
any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or delay consummation of the
Merger in any material respect, or otherwise prevent Viacom from
performing its obligations under this Agreement in any material
respect, and would not, individually or in the aggregate, have a
Viacom Material Adverse Effect.
(b) The execution and delivery of this Agreement by
Viacom does not, and the performance of this Agreement by Viacom
will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Entity,
except (i) for (A) applicable requirements, if any, of the
Exchange Act, Securities Act, state securities or Blue Sky Laws
and state takeover laws, (B) the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations thereunder
(the "HSR Act"), (C) applicable requirements of the
-------
Communications Act, and of state and local governmental
authorities, including state and local authorities granting
franchises to operate cable systems, (D) applicable requirements
of the Investment Canada Act of 1985 and the Competition Act
(Canada), (E) filing and recordation of appropriate merger
documents and the Viacom Certificate Amendments as required by
Delaware Law and (F) any non-United States competition, antitrust
and investment laws and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay consummation
of the Merger in any material respect, or otherwise prevent
Viacom from performing its obligations under this Agreement in
any material respect, and would not, individually or in the
aggregate, have a Viacom Material Adverse Effect.
SECTION 4.6. Compliance. Neither Viacom nor any
----------
Viacom Subsidiary is in conflict with, or in default or violation
of, (i) any law, rule, regulation, order, judgment or decree
applicable to Viacom or any Viacom Subsidiary or by which any
property or asset of Viacom or any Viacom Subsidiary is bound or
affected, or (ii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument
or obligation to which Viacom or any Viacom Subsidiary is a party
or by which Viacom or any Viacom Subsidiary or any property or
asset of Viacom or any Viacom Subsidiary is bound or affected,
except for any such conflicts, defaults or violations that would
not, individually or in the aggregate, have a Viacom Material
Adverse Effect.
<PAGE>
35
SECTION 4.7. SEC Filings; Financial Statements. (a)
---------------------------------
Viacom has filed all forms, reports and documents required to be
filed by it with the SEC since December 31, 1990, and has
heretofore made available to Paramount, in the form filed with
the SEC (excluding any exhibits thereto), (i) its Annual Reports
on Form 10-K for the fiscal years ended December 31, 1990, 1991
and 1992, respectively, (ii) its Quarterly Reports on Form 10-Q
for the periods ended March 31, 1993, June 30, 1993 and
September 30, 1993, (iii) all proxy statements relating to
Viacom's meetings of stockholders (whether annual or special)
held since January 1, 1991 and (iv) all other forms, reports and
other registration statements (other than Quarterly Reports on
Form 10-Q not referred to in clause (ii) above and preliminary
materials) filed by Viacom with the SEC since December 31, 1990
(the forms, reports and other documents referred to in clauses
(i), (ii), (iii), and (iv) above being referred to herein,
collectively, as the "Viacom SEC Reports"). The Viacom SEC
------------------
Reports and any other forms, reports and other documents filed by
Viacom with the SEC after the date of this Agreement (x) were or
will be prepared in accordance with the requirements of the
Securities Act and the Exchange Act, as the case may be, and the
rules and regulations thereunder and (y) did not at the time they
were filed, or will not at the time they are filed, contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make
the statements made therein, in the light of the circumstances
under which they were made, not misleading. No Viacom Subsidiary
(other than Viacom International Inc., a Delaware corporation
("Viacom International")) is required to file any form, report or
--------------------
other document with the SEC.
(b) Each of the consolidated financial statements
(including, in each case, any notes thereto) contained in the
Viacom SEC Reports was prepared in accordance with generally
accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as may be indicated in
the notes thereto) and each fairly presented the consolidated
financial position, results of operations and cash flows of
Viacom and the consolidated Viacom Subsidiaries as at the
respective dates thereof and for the respective periods indicated
therein (subject, in the case of unaudited statements, to normal
and recurring year-end adjustments which were not and are not
expected, individually or in the aggregate, to be material in
amount).
(c) Except as and to the extent set forth in the
Viacom SEC Reports filed with the SEC prior to the date of this
Agreement, Viacom and the Viacom Subsidiaries do not have any
liability or obligation of any nature (whether accrued, absolute,
contingent or otherwise) other than liabilities and obligations
which would not, individually or in the aggregate, have a Viacom
Material Adverse Effect.
<PAGE>
36
SECTION 4.8. Absence of Certain Changes or Events.
------------------------------------
Since December 31, 1992, except as contemplated by this
Agreement, any actions taken by Viacom in order to consummate the
acquisition of Blockbuster, or any actions taken by Viacom in
order to consummate the transactions contemplated by the
Blockbuster Subscription Agreement, as set forth in Section 4.8
of the Viacom Disclosure Schedule or disclosed in any Viacom SEC
Report filed since December 31, 1992 and prior to the date of
this Agreement, Viacom and the Viacom Subsidiaries have conducted
their businesses only in the ordinary course and in a manner
consistent with past practice and, since December 31, 1992 there
has not been (i) as of the date hereof, any change, occurrence or
circumstance in the business, results of operations or financial
condition of Viacom or any Viacom Subsidiary having, individually
or in the aggregate, a Viacom Material Adverse Effect, (ii) any
damage, destruction or loss (whether or not covered by insurance)
with respect to any property or asset of Viacom or any Viacom
Subsidiary and having, individually or in the aggregate, a Viacom
Material Adverse Effect, (iii) any change by Viacom in its
accounting methods, principles or practices, (iv) any
declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of Viacom or any
Viacom Subsidiary or any redemption, purchase or other
acquisition of any of their respective securities other than
dividends by a Viacom Subsidiary to Viacom or (v) other than as
set forth in Section 4.3 and pursuant to the plans, programs or
arrangements referred to in Section 4.10, other than in the
ordinary course of business consistent with past practice and
other than as contemplated by the Agreement and Plan of Merger,
dated as of January 7, 1994 (the "Blockbuster Merger Agreement"),
between Blockbuster and Viacom, any increase in or establishment
of any bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option (including, without
limitation, 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 officers
or key employees of Viacom or any Viacom Subsidiary, except for
the establishment of the Viacom Inc. Stock Option Plan for
Outside Directors and the grant of options to purchase an
aggregate of 5,000 shares thereunder.
SECTION 4.9. Absence of Litigation. Except as
---------------------
disclosed in the Viacom SEC Reports filed with the SEC prior to
the date of this Agreement there is no claim, action, proceeding
or investigation pending or, to the best knowledge of Viacom,
threatened against Viacom or any Viacom Subsidiary, or any
property or asset of Viacom or any Viacom Subsidiary, before any
court, arbitrator or administrative, governmental or regulatory
authority or body, domestic or foreign, which individually or in
the aggregate, is reasonably likely to have a Viacom Material
Adverse Effect. Except as disclosed in the Viacom SEC Reports
filed with the SEC prior to the date of this Agreement, neither
Viacom nor any Viacom Subsidiary nor any property or asset of
Viacom or any Viacom Subsidiary is subject to any order, writ,
<PAGE>
37
judgment, injunction, decree, determination or award having or
reasonably likely to have, individually or in the aggregate, a
Viacom Material Adverse Effect.
SECTION 4.10. Employee Benefit Plans. With respect to
----------------------
all the employee benefit plans, programs and arrangements
maintained for the benefit of any current or former employee,
officer or director of Viacom or any Viacom Subsidiary (the
"Viacom Plans"), except as set forth in Section 4.10 of the
------------
Viacom Disclosure Schedule or the Viacom SEC Reports and except
as would not, individually or in the aggregate, have a Viacom
Material Adverse Effect: (i) none of the Viacom Plans is a
multiemployer plan within the meaning of ERISA; (ii) none of the
Viacom Plans promises or provides retiree medical or life
insurance benefits to any person; (iii) each Viacom Plan intended
to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the IRS that it is so
qualified and nothing has occurred since the date of such letter
that could reasonably be expected to affect the qualified status
of such Viacom Plan; (iv) each Viacom Plan has been operated in
all respects in accordance with its terms and the requirements of
applicable law; (v) neither Viacom nor any Viacom Subsidiary has
incurred any direct or indirect liability under, arising out of
or by operation of Title IV of ERISA in connection with the
termination of, or withdrawal from, any Viacom Plan or other
retirement plan or arrangement, and no fact or event exists that
could reasonably be expected to give rise to any such liability;
and (vi) Viacom and the Viacom Subsidiaries have not incurred any
liability under, and have complied in all respects with, the
Worker Adjustment Retraining Notification Act, and no fact or
event exists that could give rise to liability under such Act.
Except as set forth in Section 4.10 of the Viacom Disclosure
Schedule or the Viacom SEC Reports, the aggregate accumulated
benefit obligations of each Viacom Plan subject to Title IV of
ERISA,(as of the date of the most recent actuarial valuation
prepared for such Viacom Plan) do not exceed the fair market
value of the assets of such Viacom Plan (as of the date of such
valuation).
SECTION 4.11. Trademarks, Patents and Copyrights.
----------------------------------
Viacom and the Viacom Subsidiaries own or possess adequate
licenses or other valid rights to use all material patents,
patent rights, trademarks, trademark rights, trade names, trade
name rights, copyrights, service marks, trade secrets,
applications for trademarks and for service marks, know-how and
other proprietary rights and information used or held for use in
connection with the business of Viacom and the Viacom
Subsidiaries as currently conducted or as contemplated to be
conducted, and Viacom is unaware of any assertion or claim
challenging the validity of any of the foregoing which,
individually or in the aggregate, would have a Viacom Material
Adverse Effect. The conduct of the business of Viacom and the
Viacom Subsidiaries as currently conducted does not conflict in
any way with any patent, patent right, license, trademark,
<PAGE>
38
trademark right, trade name, trade name right, service mark or
copyright of any third party that, individually or in the
aggregate, would have a Viacom Material Adverse Effect.
SECTION 4.12. Taxes. Viacom and the Viacom
-----
Subsidiaries have timely filed all federal, state, local and
foreign tax returns and reports required to be filed by them
through the date hereof and shall timely file all returns and
reports required on or before the Effective Time, except for such
returns and reports the failure of which to file timely would
not, individually or in the aggregate, have a Viacom Material
Adverse Effect. Such reports and returns are and will be true,
correct and complete, except for such failures to be true,
correct and complete as would not, individually or in the
aggregate, have a Viacom Material Adverse Effect. Viacom and the
Viacom Subsidiaries have paid and discharged all federal, state,
local and foreign taxes due from them, other than such taxes that
are being contested in good faith by appropriate proceedings and
are adequately reserved as shown in the audited consolidated
balance sheet of Viacom dated December 31, 1992 (the "Viacom 1992
-----------
Balance Sheet") and its most recent quarterly financial
-------------
statements, except for such failures to so pay and discharge
which would not, individually or in the aggregate, have a Viacom
Material Adverse Effect. Neither the IRS nor any other taxing
authority or agency, domestic or foreign, is now asserting or, to
the best knowledge of Viacom, threatening to assert against
Viacom or any Viacom Subsidiary any deficiency or material claim
for additional taxes or interest thereon or penalties in
connection therewith which, if such deficiencies or claims were
finally resolved against Viacom and the Viacom Subsidiaries
would, individually or in the aggregate, have a Viacom Material
Adverse Effect. The accruals and reserves for taxes (including
interest and penalties, if any, thereon) reflected in the Viacom
1992 Balance Sheet and the most recent quarterly financial
statements are adequate in accordance with generally accepted
accounting principles, except where the failure to be adequate
would not have a Viacom Material Adverse Effect. Viacom and the
Viacom Subsidiaries have withheld or collected and paid over to
the appropriate governmental authorities or are properly holding
for such payment all taxes required by law to be withheld or
collected, except for such failures to have so withheld or
collected and paid over or to be so holding for payment which
would not, individually or in the aggregate, have a Viacom
Material Adverse Effect. There are no material liens for taxes
upon the assets of Viacom or the Viacom Subsidiaries, other than
liens for current taxes not yet due and payable and liens for
taxes that are being contested in good faith by appropriate
proceedings. Neither Viacom nor any Viacom Subsidiary has agreed
to or is required to make any adjustment under Section 481(a) of
the Code. Neither Viacom nor any Viacom Subsidiary has made an
election under Section 341(f) of the Code. For purposes of this
Section 4.12, where a determination of whether a failure by
Viacom or a Viacom Subsidiary to comply with the representations
herein has a Viacom Material Adverse Effect is necessary, such
<PAGE>
39
determination shall be made on an aggregate basis with all other
failures within this Section 4.12.
SECTION 4.13. Opinion of Financial Advisor. Viacom
----------------------------
has received the opinion of Smith Barney Shearson Inc., dated
January 17, 1994, to the effect that, as of such date, the
financial terms of the proposed acquisition by Viacom of
Paramount are fair from a financial point of view to Viacom and
its stockholders. A copy of such opinion will be delivered to
Paramount promptly.
SECTION 4.14. Vote Required. The affirmative vote of
-------------
the holders of a majority of the outstanding shares of Viacom
Class A Common Stock is the only vote of the holders of any class
or series of Viacom capital stock necessary to approve the Viacom
Vote Matter.
SECTION 4.15. Ownership of Paramount Common Stock. As
-----------------------------------
of the date of this Agreement and based on the number of issued
and outstanding shares of Paramount Common Stock as of September
3, 1993 set forth in Section 3.3, Viacom and its affiliates
beneficially own, in the aggregate, less than five percent of the
issued and outstanding shares of Paramount Common Stock.
SECTION 4.16. Brokers. No broker, finder or
-------
investment banker (other than Smith Barney Shearson Inc., Goldman
Sachs & Co. and Bear, Stearns & Co. Inc.) is entitled to any
brokerage, finder's or other fee or commission in connection with
the Transactions based upon arrangements made by or on behalf of
Viacom. Viacom has heretofore furnished to Paramount a complete
and correct copy of all agreements between Viacom and each of
Smith Barney Shearson Inc., Goldman Sachs & Co. and Bear, Stearns
& Co. Inc. pursuant to which each such firm would be entitled to
any payment relating to the Transactions.
SECTION 4.17. Financing. Viacom has delivered to
---------
Paramount binding commitments or agreements to obtain the
financing in contemplation of the Transactions (the "Financing")
---------
in an amount sufficient, together with the Viacom Class B Common
Stock, the Viacom Merger Preferred Stock, the CVRs and Warrants,
to acquire all the shares of Paramount Common Stock in the Offer
and the Merger and to pay all related contemplated fees and
expenses. Viacom knows of no fact or circumstance (including the
obligations of Viacom under this Agreement) that is reasonably
likely to result in the inability of Viacom to receive the
proceeds from such Financing.
SECTION 4.18. Purchases of Securities. Since September
-----------------------
12, 1993, neither Viacom nor, to Viacom's knowledge, its
affiliates have purchased or sold shares of Viacom Class A Common
Stock or Viacom Class B Common Stock and neither Viacom nor, to
Viacom's knowledge, its affiliates have any knowledge of any such
trading.
<PAGE>
40
SECTION 4.19. Representations in Blockbuster Merger
-------------------------------------
Agreement. Viacom hereby confirms that the representations and
---------
warranties contained in Sections 3.07, 3.08 and 3.09 of the
Blockbuster Merger Agreement, shall be true and correct as of the
date hereof and as of the date of consummation of the Offer,
except as would not have a material adverse effect on the
financial condition of Paramount, Viacom and Blockbuster and
their subsidiaries taken as a whole.
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.1. Conduct of Respective Businesses by
-----------------------------------
Paramount and Viacom Pending the Merger. Each of Paramount and
---------------------------------------
Viacom covenants and agrees that, between the date of this
Agreement and the Effective Time, unless the other party shall
have consented in writing (such consent not to be unreasonably
withheld) and, except, in the case of Viacom, for actions taken
by Viacom in order to consummate (x) the acquisition of Blockbuster
and (y) the transactions contemplated by the Blockbuster Subscription
Agreement, the businesses of each of Paramount and Viacom and their
respective subsidiaries shall, in all material respects, be conducted
in, and each of Paramount and Viacom and their respective
subsidiaries shall not take any material action except in, the
ordinary course of business, consistent with past practice; and
each of Paramount and Viacom shall use its reasonable best
efforts to preserve substantially intact its business
organization, to keep available the services of its and its
subsidiaries' current officers, employees and consultants and to
preserve its and its subsidiaries' relationships with customers,
suppliers and other persons with which it or any of its
subsidiaries has significant business relations. By way of
amplification and not limitation, except (i) as contemplated by
this Agreement (including, without limitation, the making of the
Offer and Section 6.16), (ii) for any actions taken by Viacom in
order to consummate the acquisition of Blockbuster, (iii) for any
actions taken by Viacom in order to consummate the transactions
contemplated by the Blockbuster Subscription Agreement or (iv) as
set forth on Section 5.1 of the Paramount Disclosure Schedule or
Section 5.1 of the Viacom Disclosure Schedule, neither Viacom nor
Paramount nor any of their respective subsidiaries shall, between
the date of this Agreement and the Effective Time, directly or
indirectly do, or propose or agree to do, any of the following
without the prior written consent of the other (provided that the
--------
following restrictions shall not apply to any subsidiaries which
Paramount or Viacom, as the case may be, do not control):
(a) amend or otherwise change the Certificate of
Incorporation or By-Laws of Viacom or Paramount (except,
with respect to Viacom, the Viacom Certificate Amendments
and the Certificate of Designations to be filed with the
Secretary of State of the State of Delaware in respect of
the Viacom Merger Preferred Stock);
<PAGE>
41
(b) issue, sell, pledge, dispose of, grant, encumber,
or authorize the issuance, sale, pledge, disposition, grant
or encumbrance of, (i) any shares of capital stock of any
class of it or any of its subsidiaries, or any options
(other than the grant of options in the ordinary course of
business consistent with past practice to employees who are
not executive officers of Paramount or Viacom), warrants,
convertible securities or other rights of any kind to
acquire any shares of such capital stock, or any other
ownership interest (including, without limitation, any
phantom interest), of it or any of its subsidiaries (other
than the issuance of shares of capital stock in connection
with any dividend reinvestment plan or by any Paramount Plan
with an employee stock fund or employee stock ownership plan
feature, consistent with applicable securities laws or the
exercise of options, warrants or other similar rights, or
conversion of convertible preferred stock outstanding as of
the date of this Agreement and in accordance with the terms
of such options, warrants or rights in effect on the date of
this Agreement or otherwise permitted to be granted pursuant
to this Agreement) or (ii) any assets of it or any of its
subsidiaries, except for sales in the ordinary course of
business or which, individually do not exceed $10,000,000 or
which, in the aggregate, do not exceed $25,000,000;
(c) declare, set aside, make or pay any dividend or
other distribution, payable in cash, stock, property or
otherwise, with respect to any of its capital stock, except
(i) in the case of Viacom, with respect to the Series A
Preferred Stock and the Series B Preferred Stock, and in the
case of Paramount, regular quarterly dividends in amounts
not in excess of $.20 per quarter and payable consistent
with past practice; provided that, prior to the declaration
--------
of any such dividend, Paramount shall consult with Viacom as
to the timing and advisability of declaring any such
dividend and (ii) dividends declared and paid by a
subsidiary of either Paramount or Viacom, each such dividend
to be declared and paid in the ordinary course of business
consistent with past practice;
(d) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any
of its capital stock other than acquisitions by a dividend
reinvestment plan or by any Paramount Plan with an employee
stock fund or employee stock ownership plan feature,
consistent with applicable securities laws;
(e) (i) acquire (including, without limitation, by
merger, consolidation, or acquisition of stock or assets)
any corporation, partnership, other business organization or
any division thereof or any assets, except for such
acquisitions which, individually do not exceed $10,000,000
or which, in the aggregate, do not exceed $25,000,000; (ii)
incur any indebtedness for borrowed money or issue any debt
<PAGE>
42
securities or assume, guarantee or endorse, or otherwise as
an accommodation become responsible for, the obligations of
any person, or make any loans or advances, except (A) for
any such indebtedness incurred by Viacom in connection with
the Merger or the Offer, (B) the refinancing of existing
indebtedness, (C) borrowings under commercial paper programs
in the ordinary course of business, (D) borrowings under
existing bank lines of credit in the ordinary course of
business, (E) which, in the aggregate, do not exceed
$25,000,000; or (iii) enter into or amend any contract,
agreement, commitment or arrangement with respect to any
matter set forth in this Section 5.1(e);
(f) increase the compensation payable or to become
payable to its executive officers or employees, except for
increases in the ordinary course of business in accordance
with past practices, or grant any severance or termination
pay to, or enter into any employment or severance agreement
with any director or executive officer of it or any of its
subsidiaries, or establish, adopt, enter into or amend in
any material respect or take action to accelerate any rights
or benefits under any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted
stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any
director, executive officer or employee; or
(g) take any action, other than reasonable and usual
actions in the ordinary course of business and consistent
with past practice, with respect to accounting policies or
procedures.
ARTICLE VI
ADDITIONAL COVENANTS
--------------------
SECTION 6.1. Access to Information; Confidentiality.
--------------------------------------
(a) From the date hereof to the Effective Time, each of
Paramount and Viacom shall (and shall cause its subsidiaries and
officers, directors, employees, auditors and agents to) afford
the officers, employees and agents of the other party (the
"Respective Representatives") reasonable access at all reasonable
--------------------------
times to its officers, employees, agents, properties, offices,
plants and other facilities, books and records, and shall furnish
such Respective Representatives with all financial, operating and
other data and information as may be reasonably requested.
(b) All information obtained by Paramount or Viacom
pursuant to this Section 6.1 shall be kept confidential in
accordance with the confidentiality agreements, dated July 1,
1993 (the "Confidentiality Agreements"), between Paramount and
--------------------------
Viacom.
<PAGE>
43
(c) No investigation pursuant to this Section 6.1
shall affect any representation or warranty in this Agreement of
any party hereto or any condition to the obligations of the
parties hereto.
SECTION 6.2. Intentionally omitted.
---------------------
SECTION 6.3. Directors' and Officers' Indemnification
----------------------------------------
and Insurance. (a) The Certificate of Incorporation and By-Laws
-------------
of the Surviving Corporation shall contain the provisions with
respect to indemnification set forth in the Certificate of
Incorporation and By-Laws of Viacom on the date of this
Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six years after the Effective
Time in any manner that would adversely affect the rights
thereunder of individuals who at any time prior to the Effective
Time were directors or officers of Paramount in respect of
actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by
this Agreement), unless such modification is required by law.
(b) From and after the Effective Time, the Surviving
Corporation shall indemnify, defend and hold harmless the present
and former officers and directors of Paramount (collectively, the
"Indemnified Parties") against all losses, expenses, claims,
-------------------
damages, liabilities or amounts that are paid in settlement of,
with the approval of the Surviving Corporation (which approval
shall not unreasonably be withheld), or otherwise in connection
with any claim, action, suit, proceeding or investigation (a
"Claim"), based in whole or in part on the fact that such person
-----
is or was a director or officer of Paramount and arising out of
actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by
this Agreement), in each case to the full extent permitted under
Delaware Law (and shall pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified
Party to the fullest extent permitted under Delaware Law, upon
receipt from the Indemnified Party to whom expenses are advanced
of the undertaking to repay such advances contemplated by Section
145(e) of Delaware Law).
(c) Without limiting the foregoing, in the event any
Claim is brought against any Indemnified Party (whether arising
before or after the Effective Time) after the Effective Time (i)
the Indemnified Parties may retain Paramount's regularly engaged
independent legal counsel or other independent legal counsel
satisfactory to them, provided that such other counsel shall be
--------
reasonably acceptable to the Surviving Corporation, (ii) the
Surviving Corporation shall pay all reasonable fees and expenses
of such counsel for the Indemnified Parties promptly as
statements therefor are received and (iii) the Surviving
Corporation will use its reasonable best efforts to assist in the
vigorous defense of any such matter, provided that the Surviving
--------
Corporation shall not be liable for any settlement of any Claim
<PAGE>
44
effected without its written consent, which consent shall not be
unreasonably withheld. Any Indemnified Party wishing to claim
indemnification under this Section 6.3 upon learning of any such
Claim, shall notify the Surviving Corporation (although the
failure so to notify the Surviving Corporation shall not relieve
the Surviving Corporation from any liability which the Surviving
Corporation may have under this Section 6.3, except to the extent
such failure prejudices the Surviving Corporation), and shall
deliver to the Surviving Corporation the undertaking contemplated
by Section 145(e) of Delaware Law. The Indemnified Parties as a
group may retain no more than one law firm (in addition to local
counsel) to represent them with respect to each such matter
unless there is, under applicable standards of professional
conduct (as determined by counsel to the Indemnified Parties), a
conflict on any significant issue between the positions of any
two or more Indemnified Parties, in which event such additional
counsel as may be required may be retained by the Indemnified
Parties.
(d) For a period of three years after the Effective
Time, the Surviving Corporation shall cause to be maintained in
effect the current policies of directors' and officers' liability
insurance maintained by Paramount (provided that the Surviving
--------
Corporation may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are no
less advantageous) with respect to claims arising from facts or
events which occurred before the Effective Time; provided,
--------
however, that in no event shall the Surviving Corporation be
-------
required to expend pursuant to this Section 6.3(d) more than an
amount equal to 200% of current annual premiums paid by Paramount
for such insurance (which premiums Paramount represents and
warrants to be $850,000 in the aggregate).
(e) This Section 6.3 is intended to be for the benefit
of, and shall be enforceable by, the Indemnified Parties, their
heirs and personal representatives and shall be binding on the
Surviving Corporation and its respective successors and assigns.
SECTION 6.4. Notification of Certain Matters.
-------------------------------
Paramount shall give prompt notice to Viacom, and Viacom shall
give prompt notice to Paramount, of (i) the occurrence, or
nonoccurrence, of any event the occurrence, or nonoccurrence, of
which would be likely to cause (x) any representation or warranty
contained in this Agreement to be untrue or inaccurate or (y) any
covenant, condition or agreement contained in this Agreement not
to be complied with or satisfied and (ii) any failure of
Paramount or Viacom, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the
-------- -------
delivery of any notice pursuant to this Section 6.4 shall not
limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
<PAGE>
45
SECTION 6.5. Tax Treatment. Each of Paramount and
-------------
Viacom will use its reasonable best efforts to cause the Forward
Merger to qualify as a reorganization under the provisions of
Section 368(a) of the Code and to deliver, in connection with the
legal opinion referred to in Section 1.1, letters of
representation reasonable under the circumstances as to their
present intentions and present knowledge.
SECTION 6.6. Registration Statement; Joint Proxy
-----------------------------------
Statement; Offer Documents and Schedule 14D-9. (a) As promptly
---------------------------------------------
as practicable after the execution of this Agreement, Viacom and
Paramount shall prepare and file with the SEC an amendment to the
joint proxy statement previously filed with the SEC relating to
the meetings of Paramount's stockholders and holders of Viacom
Class A Common Stock to be held in connection with the Merger
(together with any amendments thereof or supplements thereto, the
"Proxy Statement") and, as promptly as practicable following
---------------
consummation of the Offer (or expiration or termination of the
Offer without any purchase of shares thereunder), Viacom shall
prepare and file with the SEC a registration statement on Form
S-4 (together with any amendments thereto, the "Registration
------------
Statement") in which the Proxy Statement shall be included as a
---------
prospectus, in connection with the registration under the
Securities Act of the shares of Viacom Class B Common Stock and
Viacom Merger Preferred Stock, the CVRs and Warrants to be issued
to the stockholders of Paramount pursuant to the Merger, the
Viacom Class B Common Stock into which such Viacom Merger
Preferred Stock is convertible, the Viacom Class B Common Stock
issuable upon the exercise of the Warrants and the Debentures for
which such Viacom Merger Preferred Stock is exchangeable. Each
of Paramount and Viacom shall use all reasonable efforts to have
or cause the Registration Statement to become effective as
promptly as practicable, and shall take all or any action
required under any applicable federal or state securities laws in
connection with the issuance of shares of Viacom Class B Common
Stock and Viacom Merger Preferred Stock, the CVRs and Warrants
pursuant to the Merger. Paramount shall furnish all information
concerning Paramount as Viacom may reasonably request in
connection with such actions and the preparation of the
Registration Statement and Proxy Statement. As promptly as
practicable after the Registration Statement shall have become
effective, each of Viacom and Paramount shall mail the Proxy
Statement to its respective stockholders; provided that no such
--------
mailing shall be required while the Offer remains outstanding.
The Proxy Statement shall include the recommendation of the Board
of Directors of each of Viacom and Paramount in favor of the
Merger, unless otherwise necessary due to the applicable
fiduciary duties of the respective directors of Viacom and
Paramount, as determined by such directors in good faith after
consultation with and based upon the advice of independent legal
counsel (who may be such party's regularly engaged independent
legal counsel).
<PAGE>
46
(b) The information supplied by Viacom for inclusion
in the Registration Statement and the Proxy Statement shall not,
at (i) the time the Registration Statement is declared effective,
(ii) the time the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to the stockholders of Viacom
and Paramount, (iii) the time of each of the Stockholders'
Meetings (as defined in Section 6.7), and (iv) the Effective
Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading.
If at any time prior to the Effective Time any event or
circumstance relating to Viacom or any of the Viacom
Subsidiaries, or their respective officers or directors, should
be discovered by Viacom which should be set forth in an amendment
or a supplement to the Registration Statement or Proxy Statement,
Viacom shall promptly inform Paramount.
(c) The information supplied by Paramount for
inclusion in the Registration Statement and the Proxy Statement
shall not, at (i) the time the Registration Statement is declared
effective, (ii) the time the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to the
stockholders of Paramount and Viacom, (iii) the time of each of
the Stockholders' Meetings, and (iv) the Effective Time, contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order
to make the statements therein not misleading. If at any time
prior to the Effective Time any event or circumstance relating to
Paramount or any of the Paramount Subsidiaries, or their
respective officers or directors, should be discovered by
Paramount which should be set forth in an amendment or a
supplement to the Registration Statement or Proxy Statement,
Paramount shall promptly inform Viacom.
(d) Viacom represents and warrants to Paramount that
the Offer Documents will not, at the time the Offer Documents are
filed with the SEC or are first published, sent or given to
stockholders of Paramount, as the case may be, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under
which they are made, not misleading. The Offer Documents shall
comply in all material respects as to form with the requirements
of the Exchange Act and the rules and regulations thereunder.
(e) Paramount represents and warrants to Viacom that
neither the Schedule 14D-9 nor any information supplied by
Paramount for inclusion in the Offer Documents shall, at the
respective times the Schedule 14D-9, the Offer Documents or any
amendments or supplements thereto are filed with the SEC or are
first published, sent or given to stockholders of Paramount, as
the case may be, shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements made
<PAGE>
47
therein, in the light of the circumstances under which they are
made, not misleading. The Schedule 14D-9 shall comply in all
material respects as to form with the requirements of the
Exchange Act and the rules and regulations thereunder.
SECTION 6.7. Stockholders' Meetings. Paramount shall
----------------------
call and hold a meeting of its stockholders and Viacom shall call
and hold a meeting of the holders of the Viacom Class A Common
Stock (collectively, the "Stockholders' Meetings") as promptly as
----------------------
practicable for the purpose of voting upon the approval, in the
case of Paramount, of the Merger and, in the case of Viacom, of
the Viacom Vote Matter (to the extent such matters have not been
previously voted upon and approved by the holders of the Viacom
Class A Common Stock), and Viacom and Paramount shall use their
reasonable best efforts to hold the Stockholders' Meetings on the
same day and as soon as practicable after the date on which the
Registration Statement becomes effective; provided that neither
--------
Paramount nor Viacom shall be required to call or hold a
stockholders meeting while the Offer remains outstanding.
Paramount shall use its reasonable best efforts to solicit from
its stockholders proxies in favor of the approval of the Merger,
and Viacom shall use its reasonable best efforts to solicit from
its stockholders proxies in favor of the Viacom Vote Matter and
each of Paramount and Viacom shall take all other action
necessary or advisable to secure the vote or consent of
stockholders required by Delaware Law to obtain such approvals,
unless otherwise necessary under the applicable fiduciary duties
of the respective directors of Paramount, as determined by such
directors in good faith after consultation with and based upon
the advice of independent legal counsel (who may be such party's
regularly engaged independent legal counsel).
SECTION 6.8. Letters of Accountants. (a) Paramount
----------------------
shall use its reasonable best efforts to cause to be delivered to
Viacom "comfort" letters of Ernst & Young, Paramount's
independent public accountants, dated and delivered the date on
which the Registration Statement shall become effective and as of
the Effective Time, and addressed to Viacom, in form and
substance reasonably satisfactory to Viacom and reasonably
customary in scope and substance for letters delivered by
independent public accountants in connection with transactions
such as those contemplated by this Agreement.
(b) Viacom shall use its reasonable best efforts to
cause to be delivered to Paramount "comfort" letters of Price
Waterhouse, Viacom's independent public accountants, dated the
date on which the Registration Statement shall become effective
and as of the Effective Time, and addressed to Paramount, in form
and substance reasonably satisfactory to Paramount and reasonably
customary in scope and substance for letters delivered by
independent public accountants in connection with transactions
such as those contemplated by this Agreement.
<PAGE>
48
SECTION 6.9. Employee Benefits. The "Continuing
-----------------
Directors" (as such term is defined in certain Paramount Plans,
including, without limitation, Paramount's Corporate Annual
Performance Plan, Corporate Long-Term Performance Plan,
Supplemental Executive Retirement Plan, Non-Qualified Retirement
Plan, Retirement Plan for Non-Employee Directors, Deferred
Compensation Plan for Directors and employment agreements with
Messrs. Doppelt, Greenberg, Hertlein, Levinson, Meyers and
Sherman) prior to the Effective Time shall approve the
transactions contemplated by this Agreement, and prior to the
Effective Time Paramount and its officers and directors shall
take such other actions, or shall forbear from taking any action,
as may be necessary to insure that such transactions shall not
constitute a "Change in Control" (or other similar event
accelerating or triggering changes to benefits or the terms of
any Paramount Plan (a "Paramount Triggering Event")) for purposes
--------------------------
of any Paramount Plan under which a Change in Control (or other
Paramount Triggering Event) may be avoided by action or inaction,
as the case may be, by Paramount or any of its officers or
directors. Paramount shall not terminate either Paramount's
Corporate Annual Performance Plan or Paramount's Long-Term
Performance Plan prior to the Effective Time, and shall (a) delay
the establishment and announcement of targets for awards under
Paramount's Corporate Annual Performance Plan with respect to
Paramount's 1994 fiscal year until after the Effective Time, and
(b) delay the implementation of a new performance cycle under
Paramount's Corporate Long-Term Performance Plan, in each case,
until Paramount and Viacom shall review the terms of such Plans
after the Effective Time and make such changes as they deem
appropriate taking into consideration the effects of the Merger.
Viacom shall take or forbear from taking such action as may be
necessary to insure that the transactions contemplated by this
Agreement shall not constitute a change in ownership or control
(or other similar event accelerating or triggering changes to
benefits or the terms of any Viacom Plan (a "Viacom Triggering
-----------------
Event")) for purposes of any Viacom Plan under which any such
-----
change in ownership or control (or other Viacom Triggering Event)
may be avoided by action or inaction, as the case may be, by
Viacom or any of its officers or directors.
SECTION 6.10. Further Action; Reasonable Best Efforts.
---------------------------------------
(a) Upon the terms and subject to the conditions hereof, each of
the parties hereto shall (i) make promptly any filings with or
applications to the Federal Communications Commission (the "FCC")
---
with respect to the Transactions and (ii) use its reasonable best
efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and
make effective the Transactions, including, without limitation,
using its reasonable best efforts to obtain all licenses,
permits, consents, approvals, authorizations, qualifications and
orders of Governmental Entities and parties to contracts with
Viacom and Paramount and their respective subsidiaries as are
necessary for the consummation of the Transactions. In case at
<PAGE>
49
any time after the Effective Time any further action is necessary
or desirable to carry out the purposes of this Agreement, the
proper officers and directors of each party to this Agreement
shall use their reasonable best efforts to take all such action.
(b) Each party shall use its best efforts to not take
any action, or enter into any transaction, which would cause any
of its representations or warranties contained in this Agreement
to be untrue or result in a breach of any covenant made by it in
this Agreement.
SECTION 6.11. Debt Instruments. Prior to or at the
----------------
Effective Time, Paramount and each Paramount Subsidiary shall use
its reasonable best efforts to prevent the occurrence, as a
result of the Merger, the Offer and the other transactions
contemplated by this Agreement, of a change in control or any
event which constitutes a default (or an event which with notice
or lapse of time or both would become a default) under any debt
instrument of Paramount or any Paramount Subsidiary, including,
without limitation, debt securities registered under the
Securities Act.
SECTION 6.12. Public Announcements. Viacom and
--------------------
Paramount shall consult with each other before issuing any press
release or otherwise making any public statements with respect to
this Agreement or any Transaction and shall not issue any such
press release or make any such public statement without the prior
consent of the other party, which shall not be unreasonably
withheld; provided, however, that a party may, without the prior
-------- -------
consent of the other party, issue such press release or make such
public statement as may be required by law or any listing
agreement with a national securities exchange to which Viacom or
Paramount is a party if it has used all reasonable efforts to
consult with the other party and to obtain such party's consent
but has been unable to do so in a timely manner.
SECTION 6.13. Listing of Viacom Securities. Viacom
----------------------------
shall use its reasonable best efforts to cause the shares of
Viacom Class B Common Stock and Viacom Merger Preferred Stock and
the Warrants and CVRs to be issued in the Merger to be approved
for listing on the AMEX prior to the Effective Time.
SECTION 6.14. Affiliates of Paramount. Paramount
-----------------------
represents and warrants to Viacom that Paramount will promptly
deliver to Viacom a letter identifying all persons who may be
deemed affiliates of Paramount under Rule 145 of the Securities
Act, including, without limitation, all directors and executive
officers of Paramount, and Paramount represents and warrants to
Viacom that Paramount has advised the persons identified in such
letter of the resale restrictions imposed by applicable
securities laws. Paramount shall use its reasonable best efforts
to obtain from each person identified in such letter a written
agreement, substantially in the form of Exhibit 6.14. Paramount
shall use its reasonable best efforts to obtain as soon as
<PAGE>
50
practicable from any person who may be deemed to have become an
affiliate of Paramount after Paramount's delivery of the letter
referred to above and prior to the Effective Time, a written
agreement substantially in the form of Exhibit 6.14.
SECTION 6.15. Conveyance Taxes. Viacom and Paramount
----------------
shall cooperate in the preparation, execution and filing of all
returns, questionnaires, applications, or other documents
regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any
transfer, recording, registration and other fees, and any similar
taxes which become payable in connection with the transactions
contemplated hereby that are required or permitted to be filed on
or before the Effective Time.
SECTION 6.16. Rights Agreement. Except as
----------------
contemplated by this Agreement, the Board of Directors of
Paramount shall not amend or modify the Rights Agreement or
redeem the Rights prior to the Effective Time except pursuant to
the Other Exemption Agreement.
SECTION 6.17. Assumption of Debt and Leases. With
-----------------------------
respect to debt issued by Paramount under indentures qualified
under the Trust Indenture Act of 1939 ("Paramount Indentures"),
--------------------
Viacom shall execute and deliver to the trustees under the
respective Paramount Indentures, Supplemental Indentures, in form
satisfactory to the respective trustees, expressly assuming the
obligations of Paramount with respect to the due and punctual
payment of the principal of (and premium, if any) and interest,
if any, on all debt securities issued by Paramount under the
respective Indentures and the due and punctual performance of all
the terms, covenants and conditions of the respective Paramount
Indentures to be kept or performed by Paramount and shall deliver
such Supplemental Indentures to the respective trustees under the
Paramount Indenture. Viacom shall similarly deliver instruments
of assumption to the holders of any debt obligations of, and the
lessors of any real property to, Paramount, which debt
obligations or leases expressly require such assumption in order
for the Merger to comply with the debt instrument or lease.
SECTION 6.18. Gains Tax. Except as provided in
---------
Section 1.7(b), Viacom shall pay any New York State Tax on Gains
Derived from Certain Real Property Transfers (the "Gains Tax"),
---------
New York State Real Estate Transfer Tax and New York City Real
Property Transfer Tax (the "Transfer Taxes") and any similar
--------------
taxes in any other jurisdiction (and any penalties and interest
with respect to such taxes), which become payable in connection
with the Offer and the Merger, on behalf of the stockholders of
Paramount. Viacom and Paramount shall cooperate in the
preparation, execution and filing of any required returns with
respect to such taxes (including returns on behalf of the
stockholders of Paramount) and in the determination of the
portion of the consideration allocable to the real property of
Paramount and the Paramount Subsidiaries in New York State and
<PAGE>
51
City (or in any other jurisdiction, if applicable). The terms of
the Offer to Purchase and of the Proxy Statement shall provide
that the stockholders of Paramount shall be deemed to have agreed
to be bound by the allocation established pursuant to this
Section 6.18 in the preparation of any return with respect to the
Gains Tax and the Transfer Taxes and any similar taxes, if
applicable.
SECTION 6.19. Reverse Merger. In the event that a
--------------
decision is made to structure the Merger as a Reverse Merger
pursuant to Section 1.1, Viacom agrees to form Merger Subsidiary
as promptly as practicable following such decision and to cause a
merger agreement conforming to Section 251 of the Delaware Law
and effecting the terms hereof to be adopted by Merger
Subsidiary. Paramount agrees in such case to enter into such
merger agreement.
SECTION 6.20. Post-Offer Agreements. In the event
---------------------
that the Offer is consummated and subject to any applicable
requirements of the FCC: (a) the affirmative vote of a majority
of the directors of Paramount who are directors on the date
hereof and continue as directors on the date of the actions
described below will be required to amend, modify or waive any
provisions of this Agreement, or to approve any other action by
Paramount with respect to the transactions contemplated hereby
which adversely affect the interests of the stockholders of
Paramount; (b) Viacom shall not directly or indirectly cause
Paramount to breach its obligations hereunder; and (c) at the
Paramount Stockholders' Meeting, Viacom shall cause all shares of
Paramount Common Stock then owned by it or its subsidiaries to be
voted in favor of the approval and adoption of this Agreement and
the transactions contemplated hereby.
SECTION 6.21. Transactions With Significant Stockholder
-----------------------------------------
After the Effective Time. From and after the Effective Time and
------------------------
until the tenth anniversary of the Effective Time, Viacom shall
not enter into any agreement with any stockholder (the
"Significant Stockholder") who beneficially owns more than 35% of
-----------------------
the then outstanding securities entitled to vote at a meeting of
the stockholders of Viacom that would constitute a Rule 13e-3 (as
such rule is in effect today) transaction under the Exchange Act
with respect to any class of common stock of Viacom (any such
transaction being a "Going Private Transaction") unless Viacom
-------------------------
provides in any agreement pursuant to which such Going Private
Transaction shall be effected that, as a condition to the
consummation of such Going Private Transaction, (a) the holders
of a majority of the shares of each class of common stock subject
to such Going Private Transaction and not beneficially owned by
the Significant Stockholder that are voted and present (whether
in person or by proxy) at the meeting of stockholders called to
vote on such Going Private Transaction shall have voted in favor
thereof and (b) a special committee (the "Special Committee") of
-----------------
the Board of Directors of Viacom comprised solely of the
independent directors of Viacom shall have (i) approved the terms
<PAGE>
52
and conditions of the Going Private Transaction and shall have
recommended that the stockholders vote in favor thereof and (ii)
received from its financial advisor a written opinion addressed
to the Special Committee, for inclusion in the proxy statement to
be delivered to the stockholders, and dated the date thereof,
substantially to the effect that the consideration to be received
by the stockholders (other than the majority stockholder) in the
Going Private Transaction is fair to them from a financial point
of view. Notwithstanding anything to the contrary in this
Section 6.21, the restrictions contained in this Section 6.21
shall not apply to any Significant Stockholder if there exists
another stockholder who beneficially owns a greater percentage of
outstanding securities entitled to vote at the meeting than the
Significant Stockholder.
SECTION 6.22. Blockbuster Merger Agreement and
--------------------------------
Subscription Agreement. Viacom hereby agrees that, from and
----------------------
after the date of this Agreement, the terms of (i) the
Blockbuster Merger Agreement and (ii) the Blockbuster
Subscription Agreement shall not, without the consent of
Paramount, be amended or waived in any manner that would have a
material adverse effect on the value of the aggregate
consideration to be received by the Paramount stockholders
pursuant to the terms of the Offer and the Merger taken together.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.1. Conditions to Obligations of Each Party
---------------------------------------
to Effect the Merger. The respective obligations of each party
--------------------
to effect the Merger and the other transactions contemplated
herein shall be subject to the satisfaction at or prior to the
Effective Time of the following conditions, any or all of which
may be waived, in whole or in part, to the extent permitted by
applicable law:
(a) Effectiveness of the Registration Statement. The
-------------------------------------------
Registration Statement shall have been declared effective by
the SEC under the Securities Act. No stop order suspending
the effectiveness of the Registration Statement shall have
been issued by the SEC and no proceedings for that purpose
shall have been initiated or, to the knowledge of Viacom or
Paramount, threatened by the SEC.
(b) Stockholder Approval. This Agreement and the
--------------------
Merger shall have been approved and adopted by the requisite
vote of the stockholders of Paramount and the Viacom Vote
Matter (to the extent not previously voted upon and approved
by the holders of Viacom Class A Common Stock) shall have
been approved and adopted by the requisite vote of the
stockholders of Viacom.
<PAGE>
53
(c) No Order. No Governmental Entity or federal or
--------
state court of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) which is
in effect and which materially restricts, prevents or
prohibits consummation of the Merger or any transaction
contemplated by this Agreement; provided, however, that the
-------- -------
parties shall use their reasonable best efforts to cause any
such decree, judgment, injunction or other order to be
vacated or lifted.
(d) AMEX Listing. The shares of Viacom Class B Common
------------
Stock and Viacom Merger Preferred Stock and the Warrants and
CVRs issuable to stockholders of Paramount in accordance
with Article II shall have been authorized for listing on
the AMEX upon official notice of issuance.
SECTION 7.2. Additional Conditions to Obligations of
---------------------------------------
Viacom. The obligations of Viacom to effect the Merger and the
------
transactions contemplated herein are also subject to the
following conditions:
(a) Representations and Warranties. Each of the
------------------------------
representations and warranties of Paramount contained in
this Agreement (including, without limitation,
Section 6.06), without giving effect to any notification to
Viacom delivered pursuant to Section 6.4, shall be true and
correct as of the Effective Time as though made on and as of
the Effective Time, except (i) for changes specifically
permitted by this Agreement and (ii) that those
representations and warranties which address matters only as
of a particular date shall remain true and correct as of
such date, except in any case for such failures to be true
and correct which would not, individually or in the
aggregate, have a Paramount Material Adverse Effect. Viacom
shall have received a certificate of the Chief Executive
Officer and Chief Financial Officer of Paramount to such
effect.
(b) Agreement and Covenants. Paramount shall have
-----------------------
performed or complied in all material respects with all
agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the
Effective Time. Viacom shall have received a certificate of
the Chief Executive Officer and Chief Financial Officer of
Paramount to that effect.
(c) Material Adverse Change. Since the date of this
-----------------------
Agreement, there shall have been no change, occurrence or
circumstance in the business, results of operations or
financial condition of Paramount or any Paramount Subsidiary
having or reasonably likely to have, individually or in the
aggregate, a material adverse effect on the business,
<PAGE>
54
results of operations or financial condition of Paramount
and the Paramount Subsidiaries, taken as a whole. Viacom
shall have received a certificate of the Chief Executive
Officer and Chief Financial Officer of Paramount to such
effect.
Notwithstanding the foregoing, the obligations of Viacom to
effect the Merger and the other transactions contemplated herein
following prior consummation of the Offer shall not be subject to
the conditions set forth in Sections 7.2(a), (b) and (c).
SECTION 7.3. Additional Conditions to Obligations of
---------------------------------------
Paramount. The obligation of Paramount to effect the Merger and
---------
the other transactions contemplated in this Agreement are also
subject to the following conditions:
(a) Representations and Warranties. Each of the
------------------------------
representations and warranties of Viacom contained in this
Agreement (including, without limitation, Section 6.6),
without giving effect to any notification made by Viacom to
Paramount pursuant to Section 6.4, shall be true and correct
as of the Effective Time, as though made on and as of the
Effective Time, except (i) for changes specifically
permitted by this Agreement and (ii) that those
representations and warranties which address matters only as
of a particular date shall remain true and correct as of
such date, except in any case for such failures to be true
and correct which would not, individually or in the
aggregate, have a Viacom Material Adverse Effect. Paramount
shall have received a certificate of the Chief Executive
Officer and Chief Financial Officer of Viacom to such
effect.
(b) Agreements and Covenants. Viacom shall have
------------------------
performed or complied in all material respects with all
agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the
Effective Time. Paramount shall have received a certificate
of the Chief Executive Officer and Chief Financial Officer
of Viacom to that effect.
(c) No Material Adverse Change. Since the date of
--------------------------
this Agreement, there shall have been no change, occurrence
or circumstance in the business, results of operations or
financial condition of Viacom or any Viacom Subsidiary
having or reasonably likely to have, individually or in the
aggregate, a material adverse effect on the business,
results of operations or financial condition of Viacom and
the Viacom Subsidiaries, taken as a whole. Paramount shall
have received a certificate of the Chief Executive Officer
and Chief Financial Officer of Viacom to such effect.
(d) Amendments to Viacom's Certificate of
-------------------------------------
Incorporation. Viacom shall have filed with the Secretary
-------------
<PAGE>
55
of State of the State of Delaware a certificate of amendment
to Viacom's certificate of incorporation pursuant to which
the Viacom Certificate Amendments shall have become
effective.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1. Termination. This Agreement may be
-----------
terminated at any time prior to the Effective Time, whether
before or after approval of this Agreement and the Merger by the
stockholders of Paramount or the approval by the stockholders of
Viacom of the issuance of the shares of Viacom Common Stock in
accordance with Article II:
(a) by mutual consent of Paramount and Viacom;
(b) by Viacom, prior to consummation of the Offer,
upon a breach of any representation,
warranty, covenant or agreement on the part of Paramount set
forth in this Agreement, or if any representation or
warranty of Paramount shall have become untrue, in either
case such that the conditions set forth in Section 7.2(a) or
Section 7.2(b), as the case may be, would be incapable of
being satisfied by July 31, 1994 (or as otherwise extended);
provided, that in any case, a wilful breach shall be deemed
--------
to cause such conditions to be incapable of being satisfied
for purposes of this Section 8.1(b);
(c) by Paramount, upon a breach of any representation,
warranty, covenant or agreement on the part of Viacom set
forth in this Agreement, or if any representation or
warranty of Viacom shall have become untrue, in either case
such that the conditions set forth in Section 7.3(a) or
Section 7.3(b), as the case may be, would be incapable of
being satisfied by July 31, 1994 (or as otherwise extended);
provided, that in any case, a wilful breach shall be deemed
--------
to cause such conditions to be incapable of being satisfied
for purposes of this Section 8.1(c);
(d) by either Viacom or Paramount, if any permanent
injunction or action by any Governmental Entity preventing
the consummation of the Merger shall have become final and
nonappealable;
(e) by either Viacom or Paramount, if the Merger shall
not have been consummated before July 31, 1994; provided,
--------
however, that this Agreement may be extended by written
-------
notice of either Viacom or Paramount to a date not later
than September 30, 1994, if the Merger shall not have been
consummated as a direct result of Viacom or Paramount having
<PAGE>
56
failed by July 31, 1994, to receive all required regulatory
approvals or consents with respect to the Merger;
(f) by either Viacom or Paramount, if this Agreement
and the Merger shall fail to receive the requisite vote for
approval and adoption by the stockholders of Paramount or
Viacom at the Stockholders' Meetings;
(g) by Viacom, if (i) the Board of Directors of
Paramount shall withdraw, modify or change its
recommendation of this Agreement, the Merger or the Offer in
a manner adverse to Viacom or shall have resolved to do any
of the foregoing; provided, that a statement by the Board of
--------
Directors of Paramount that it is neutral or unable to take
a position with respect to the Offer after the commencement
or amendment of a tender offer by a third party shall not be
deemed to constitute a withdrawal, modification or change of
its recommendation of this Agreement if the
Solicitation/Recommendation Statement on Schedule 14D-9
relating to such third party tender offer recommends
rejection of such tender offer and the Board of Directors of
Paramount reconfirms its recommendation of the Offer on the
date of the filing thereof; (ii) the Board of Directors of
Paramount shall have recommended to the stockholders of
Paramount a Competing Transaction (as defined below); (iii)
Viacom has not consummated the Offer and a tender offer or
exchange offer for 30% or more of the outstanding shares of
capital stock of Paramount is commenced, and the Board of
Directors of Paramount recommends that the stockholders of
Paramount tender their shares in such tender or exchange
offer; or (iv) Viacom has not consummated the Offer and any
person shall have acquired beneficial ownership or the right
to acquire beneficial ownership of or any "group" (as such
term is defined under Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder) shall have
been formed which beneficially owns, or has the right to
acquire "beneficial ownership" (as defined in the Rights
Plan) of, more than 30% of the then outstanding shares of
capital stock of Paramount;
(h) by Paramount, if the Board of Directors of
Paramount (x) fails to make or withdraws or modifies its
recommendation referred to in Section 2.2(a) or Section
6.6(a) if there exists at such time a tender offer or
exchange offer or a proposal by a third party to acquire
Paramount pursuant to a merger, consolidation, share
exchange, business combination, tender or exchange offer or
other similar transaction or (y) recommends to Paramount's
stockholders approval or acceptance of any of the foregoing
in each case only if the Board of Directors of Paramount,
after consultation with and based upon the advice of
independent legal counsel (who may be such party's regularly
engaged independent legal counsel), determines in good faith
that such action is necessary for the Board of Directors of
<PAGE>
57
Paramount to comply with its fiduciary duties to
stockholders under applicable law; and
(i) by Paramount, if due to the occurrence or
circumstance that would result in a failure to satisfy any
of the conditions set forth in Annex A or otherwise, (A) the
Offer shall have expired without the purchase of shares of
Paramount Common Stock thereunder or Viacom shall be
obligated to terminate the Offer pursuant to Section 2.5 or
(B) Viacom shall have failed to accept for payment shares of
Paramount Common Stock pursuant to the Offer prior to 9:00
a.m. on the first business day following the Final
Expiration Date, unless such failure to accept for payment
shares of Paramount Common Stock shall have been caused by
or resulted from the failure of Paramount to perform in any
material respect its material covenants and agreements
contained in this Agreement or resulted from the termination
of the Offer pursuant to Section 2.1(c).
The right of any party hereto to terminate this Agreement
pursuant to this Section 8.1 shall remain operative and in full
force and effect regardless of any investigation made by or on
behalf of any party hereto, any person controlling any such party
or any of their respective officers or directors, whether prior
to or after the execution of this Agreement. For purposes of
this Agreement, "Competing Transaction" shall mean any of the
---------------------
following involving Paramount or any Paramount Subsidiaries: (i)
any merger, consolidation, share exchange, business combination,
or other similar transaction; (ii) any disposition of 30% or more
of the assets of Paramount and the Paramount Subsidiaries, taken
as a whole in the single transaction or series of transactions;
(iii) any tender offer or exchange offer for 30% or more of the
outstanding shares of capital stock of Paramount or the filing of
a registration statement under the Securities Act in connection
therewith; (iv) any person having acquired beneficial ownership
or the right to acquire beneficial ownership of, or any "group"
(as such term is defined under Section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder) having been
formed which beneficially owns or has the right to acquire
beneficial ownership of, 30% or more of the then outstanding
shares of capital stock of Paramount; or (v) any public
announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
SECTION 8.2. Effect of Termination. Except as
---------------------
provided in Section 9.1, in the event of the termination of this
Agreement pursuant to Section 8.1, this Agreement shall forthwith
become void, there shall be no liability on the part of Paramount
or Viacom or any of their respective officers or directors to the
other and all rights and obligations of any party hereto shall
cease; provided, however, that (i) nothing herein shall relieve
-------- -------
any party from liability for the wilful breach of any of its
representations, warranties, covenants or agreements set forth in
this Agreement and (ii) if Viacom or Paramount shall terminate
<PAGE>
58
this Agreement in accordance with the provisions of Section 8.1,
and if Viacom shall continue the Offer, the exemption agreement
between the parties dated as of December 22, 1993 shall again
become effective.
SECTION 8.3. 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, further, that, after approval of the Merger by
-------- -------
the stockholders of Paramount or Viacom, no amendment, which
under applicable law may not be made without the approval of the
stockholders of Paramount or Viacom, may be made without such
approval. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 8.4. Waiver. At any time prior to the
------
Effective Time, either party hereto may (a) extend the time for
the performance of any of the obligations or other acts of the
other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained
herein or in any document delivered pursuant hereto and (c) waive
compliance by the other party with any of the agreements or
conditions contained herein. Any such extension or waiver shall
be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby.
SECTION 8.5. Fees, Expenses and Other Payments. All
---------------------------------
costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants,
incurred by the parties hereto shall be borne solely and entirely
by the party which has incurred such costs and expenses;
provided, however, that all costs and expenses related to
-------- -------
printing, filing and mailing the Registration Statement and the
Proxy Statement and all SEC and other regulatory filing fees
incurred in connection with the Registration Statement and the
Proxy Statement shall be borne equally by Paramount and Viacom.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1. Effectiveness of Representations,
---------------------------------
Warranties and Agreements. (a) Except as set forth in Section
-------------------------
9.1(b), the representations, warranties and agreements of each
party hereto shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of any other
party hereto, any person controlling any such party or any of
their officers or directors, whether prior to or after the
execution of this Agreement.
(b) The representations, warranties and agreements in
this Agreement shall terminate at the Effective Time or upon the
termination of this Agreement pursuant to Article VIII, except
<PAGE>
59
that the agreements set forth in Articles I, II and IX and
Sections 6.3 and 6.21 shall survive the Effective Time and those
set forth in Sections 2.2(c), 2.3, 6.1(b), 8.2 and 8.5 and
Article IX hereof shall survive termination.
(c) Each of the representations and warranties made
in Article III shall be deemed to be made on September 12, 1993
and not made on the date hereof, except for representations and
warranties which address matters as of a particular date,
provided, that the representations set forth in the last sentence
--------
of Section 3.4, Sections 3.13, 3.14, 4.13 and 4.17 and any
representations and warranties with respect to this Agreement,
the Merger and the Offer are made on the date hereof.
(d) Each of Paramount and Viacom agree that nothing
herein shall constitute a waiver of any rights, claims or
defenses of Viacom or Paramount created by or arising under the
Amended and Restated Agreement and Plan of Merger, dated as of
October 24, 1993, as subsequently amended, or the Stock Option
Agreement, dated as of September 12, 1993, between Paramount and
Viacom, as amended by Amendment No. 1 thereto, dated as of
October 24, 1993, all of which rights, claims and defenses are
hereby expressly reserved.
SECTION 9.2. Notices. All notices and other
-------
communications given or made pursuant hereto shall be in writing
and shall be deemed to have been duly given or made as of the
date delivered, mailed or transmitted, and shall be effective
upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for
a party as shall be specified by like changes of address) or sent
by electronic transmission to the telecopier number specified
below:
(a) If to Viacom:
Viacom Inc.
1515 Broadway
New York, NY 10036
Attention: Senior Vice President,
General Counsel
Telecopier No.: (212) 258-6134
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Attention: Stephen R. Volk, Esq.
Telecopier No.: (212) 848-7179
<PAGE>
60
(b) If to Paramount:
Paramount Communications Inc.
15 Columbus Circle
New York, NY 10023
Attention: Executive Vice President and
General Counsel
Telecopier No.: (212) 373-8184
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: Joel S. Hoffman
Telecopier No.: (212) 455-2502
SECTION 9.3. Certain Definitions. For purposes of
-------------------
this Agreement, the term:
(a) "affiliate" means a person that, directly or
---------
indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the first
mentioned person;
(b) "beneficial owner" with respect to any shares of
----------------
Paramount Common Stock means, unless otherwise defined
herein, a person who shall be deemed to be the beneficial
owner of such shares (i) which such person or any of its
affiliates or associates (as such term is defined in Rule
12b-2 promulgated under the Exchange Act) beneficially owns,
directly or indirectly, (ii) which such person or any of its
affiliates or associates has, directly or indirectly, (A)
the right to acquire (whether such right is exercisable
immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of consideration rights, exchange rights,
warrants or options, or otherwise or (B) the right to vote
pursuant to any agreement, arrangement or understanding or
(iii) which are beneficially owned, directly or indirectly,
by any other persons with whom such person or any of its
affiliates or associates, or any person with whom such
person or any of its affiliates or associates has any
agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares;
(c) "business day" shall have the meaning set forth in
------------
Rule 14d-1(c)(6) as promulgated under the Exchange Act;
(d) "control" (including the terms "controlled",
----------
"controlled by" and "under common control with") means the
------------- -------------------------
possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of
the management or policies of a person, whether through the
<PAGE>
61
ownership of stock or as trustee or executor, by contract or
credit arrangement or otherwise;
(e) The parties agree that the term "fully diluted
-------------
basis" as used herein, shall mean giving effect to the
-----
shares of Paramount Common Stock then outstanding plus the
shares of Paramount Common Stock issuable upon the exercise
of the then exercisable stock options;
(f) The parties agree that the term "Merger", as used
------
herein, may refer to, consistent with the context of such
usage, each of the single step merger, the second step
merger following the Offer, or both. The parties hereto
agree to promptly amend this Agreement subsequent to the
execution and delivery thereof to provide for more precise
defined terms and usage thereof; and
(g) "subsidiary" or "subsidiaries" of Paramount,
---------- ------------
Viacom, the Surviving Corporation or any other person means
any corporation, partnership, joint venture or other legal
entity of which Paramount, Viacom, the Surviving Corporation
or such other person, as the case may be (either alone or
through or together with any other subsidiary), owns,
directly or indirectly, 50% or more of the stock or other
equity interests, the holders of which are generally
entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal
entity.
SECTION 9.4. Time Period. In computing any time
-----------
period hereunder, the computation shall be governed by Rule
14d-1(c)(6) as promulgated under the Exchange Act.
SECTION 9.5. Headings. The headings contained in this
--------
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.6. Severability. If any term or other
------------
provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected
in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in an acceptable
manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
SECTION 9.7. Entire Agreement. This Agreement
----------------
(together with the Exhibits, the Paramount Disclosure Schedule,
<PAGE>
62
the Viacom Disclosure Schedule and the other documents delivered
pursuant hereto) and the Confidentiality Agreements constitute
the entire agreement of the parties and supersede all prior
agreements and undertakings, both written and oral, between the
parties, or any of them, with respect to the subject matter
hereof.
SECTION 9.8. Assignment. This Agreement shall not be
----------
assigned by operation of law or otherwise.
SECTION 9.9. Parties in Interest. This Agreement
-------------------
shall be binding upon and inure solely to the benefit of each
party hereto, and nothing in this Agreement, express or implied
(other than the provisions of Section 6.3), is intended to or
shall confer upon any person any right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement, including
to confer third party beneficiary rights; provided, however,
-------- -------
nothing in the foregoing shall be deemed to derogate from any
rights of the Other Offeror (other than as a third party
beneficiary) as against Paramount or its Board with respect to
any amendment of this Agreement or failure to enforce the
Agreement.
SECTION 9.10. Specific Performance. The parties
--------------------
hereto agree that irreparable damage would occur in the event any
provision of this Agreement was not performed in accordance with
the terms hereof and that the parties shall be entitled to
specific performance of the terms hereof, in addition to any
other remedy at law or in equity.
SECTION 9.11. Governing Law. Except to the extent
-------------
that Delaware Law is mandatorily applicable to the Merger and the
rights of the stockholders of Paramount and Viacom, this
Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts
of law.
SECTION 9.12. Counterparts. This Agreement may be
------------
executed in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
<PAGE>
63
IN WITNESS WHEREOF, Viacom and Paramount have caused
this Agreement to be executed as of the date first written above
by their respective officers thereunto duly authorized.
ATTEST: VIACOM INC.
By /s/ Katherine B. Rosenberg By /s/ Philippe P. Dauman
-------------------------- ------------------------
Assistant Secretary Senior Vice President,
General Counsel and
Secretary
ATTEST: PARAMOUNT COMMUNICATIONS INC.
By /s/ Martin M. Shea By /s/ Donald Oresman
------------------------ ------------------------
Vice President Executive Vice
President
<PAGE>
ANNEX A
CONDITIONS TO THE OFFER
-----------------------
Notwithstanding any other provision of the Offer,
Viacom shall not be required to accept for payment or pay for any
shares of Paramount Common Stock tendered pursuant to the offer,
and may terminate or amend the Offer and may postpone the
acceptance for payment of and payment for shares of Paramount
Common Stock tendered, if (i) the Minimum Condition shall not
have been satisfied, (ii) the Rights Condition shall not have
been satisfied, or (iii) at any time on or after the date of this
Agreement, and prior to the acceptance for payment of shares of
Paramount Common Stock, any of the following conditions shall not
exist:
(a) No Governmental Entity or federal or state court
of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) which is
in effect and which materially restricts, prevents or
prohibits consummation of the Offer, the Merger or any
transaction contemplated by the Agreement; provided that
--------
Viacom shall have used its reasonable best efforts to cause
any such decree, judgment, injunction or other order to be
vacated or lifted;
(b) Each of the representations and warranties of
Paramount contained in the Agreement (including, without
limitation, Section 6.6), without giving effect to any
notification to Viacom delivered pursuant to Section 6.4,
shall be true and correct as of the date of consummation of
the Offer as though made on and as of such date, except (i)
for changes specifically permitted by the Agreement and (ii)
that those representations and warranties which address
matters only as of a particular date shall remain true and
correct as of such date, except in any case for such
failures to be true and correct which would not,
individually or in the aggregate, have a Paramount Material
Adverse Effect;
(c) Paramount shall have performed or complied in all
material respects with all agreements and covenants required
by the Agreement to be performed or complied with by it on
or prior to the date of consummation of the Offer;
(d) Since December 22, 1993, there shall have been no
change, occurrence or circumstance in the business, results
of operations or financial condition of Paramount or any
Paramount Subsidiary having or reasonably likely to have,
<PAGE>
2
individually or in the aggregate, a material adverse effect
on the business, results of operations or financial
condition of Paramount and the Paramount Subsidiaries, taken
as a whole;
(e) The Agreement shall not have been terminated in
accordance with its terms;
(f) Viacom shall not have terminated the Offer under
Sections 2.1(c) or 2.5 of the Agreement;
(g) Viacom and Paramount shall not have agreed that
Viacom shall terminate the Offer or postpone the acceptance
for payment of or payment for shares of Paramount Common
Stock thereunder;
and, in the reasonable judgment of Viacom in any such case, and
regardless of the circumstances (including any action or inaction
by Viacom or any of its affiliates) giving rise to any such
condition, it is inadvisable to proceed with such acceptance for
payment or payment.
The foregoing conditions are for the sole benefit of
Viacom and may be asserted by Viacom regardless of the
circumstances giving rise to any such condition or may be waived
by Viacom in whole or in part at any time and from time to time
in their sole discretion, subject to the terms of this Agreement.
The failure by Viacom at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right;
the waiver of any such right with respect to particular facts and
other circumstances shall not be deemed a waiver with respect to
any other facts and circumstances; and each such right shall be
deemed an ongoing right that may be asserted at any time and from
time to time.
<PAGE>
ANNEX B
Principal Terms of Viacom Merger Preferred Stock
General Unless otherwise specified herein, the
Viacom Merger Preferred Stock will have
the same terms as contained in the
Certificate of Designation for Viacom's
existing Series A Cumulative Convertible
Preferred Stock.
Dividends Cumulative from the Effective Time at
the annual rate of $2.50 per share of
Viacom Merger Preferred Stock, payable
quarterly.
Conversion Rights The Viacom Merger Preferred Stock will
be convertible at the option of the
holder at any time, unless previously
redeemed, into shares of Viacom Class B
Common Stock at an initial conversion
price of $70.00 (equivalent to a
conversion rate of approximately .7143
of a share of Viacom Class B Common
Stock for each share of Viacom Merger
Preferred Stock), subject to adjustment
in certain events.
Liquidation Preference $50.00 per share of Viacom Merger
Preferred Stock, plus accrued and unpaid
dividends.
Redemption at the The Viacom Merger Preferred Stock may
Option of Viacom not be redeemed prior to the fifth
anniversary of the Effective Time. On
and after such date, the Viacom Merger
Preferred Stock may be redeemed in whole
or in part, at the option of Viacom,
initially at a per share redemption
price of $52.50 and thereafter at prices
declining to $50.00 on and after the
tenth anniversary of the Effective Time,
plus, in each case, all accrued and
unpaid dividends.
Mandatory Redemption None
Exchange for Debentures The Viacom Merger Preferred Stock will
be exchangeable in whole, or in part, at
the option of Viacom on any dividend
payment date beginning on and after the
third anniversary of the Effective Time,
<PAGE>
2
for Viacom's 5% Convertible Subordinated
Debentures (the "Exchange Debentures")
-------------------
at the rate of $50.00 principal amount
of Exchange Debentures for each share of
Viacom Merger Preferred Stock. Viacom
may effect each exchange only if all
accrued and unpaid dividends on the
Viacom Merger Preferred Stock have been
paid.
Voting Rights The Viacom Merger Preferred Stock will
have no voting rights except (i) as
otherwise required by law and (ii) for
the right to elect two additional
directors to Viacom's Board of Directors
in the event that Viacom has failed to
pay dividends payable on the shares of
Viacom Merger Preferred Stock for such
number of dividend periods which shall
in the aggregate contain not less than
360 days. In any such election, the
holders of shares of Viacom Merger
Preferred Stock will vote separately as
a class with the holders of shares of
any one or more other shares of
preferred stock ranking on a parity with
the Viacom Merger Preferred Stock. Such
right to elect two directors will
continue until such dividend arrearages
have been paid.
Exchange Debentures
Interest 5% per annum, payable semi-annually.
Aggregate Principal Equal to aggregate liquidation
Amount preference of Viacom Merger Preferred
Stock exchanged.
Maturity 20 years from the Effective Time.
Optional Redemption Not redeemable prior to the fifth
anniversary of the Effective Time. On
and after that date, redeemable, in
whole or in part, at the option of
Viacom, at a redemption price of 105% of
the principal amount thereof and
thereafter at prices declining to 100%
of the principal amount thereof on and
after the tenth anniversary of the
Effective Time, plus, in each case, all
accrued and unpaid interest.
Mandatory Redemption None
<PAGE>
3
Conversion Convertible at the option of the holder
at any time, unless previously redeemed,
into shares of Viacom Class B Common
Stock at an initial conversion price of
$70.00, subject to the same adjustments
as contained in the Viacom Merger
Preferred Stock.
Subordination The Exchange Debentures will be
subordinated in right of payment to all
Senior Indebtedness of Viacom when due.
Senior Indebtedness of Viacom will be
defined as (a) the principal of,
premium, if any, and accrued and unpaid
interest on (i) indebtedness of Viacom
for money borrowed, (ii) guarantees by
Viacom of indebtedness for money
borrowed by any other person, (iii)
indebtedness evidenced by notes,
debentures, bonds or other instruments
of indebtedness for payment of which
Viacom is responsible or liable, by
guarantees or otherwise, and (iv)
obligations of Viacom under capital
leases, and (b) modifications, renewals,
extensions and refunding of any such
indebtedness, obligations or guarantees,
unless it is provided that such
indebtedness, obligations or guarantees,
or such modifications, renewals,
extensions or refundings thereof, are
not superior in right of payment to the
Exchange Debentures. No payment on
account of principal or interest on the
Exchange Debentures may be made if at
the time of such payment there exists a
payment default with respect to any
Senior Indebtedness. Upon any
distribution of the assets of Viacom
upon any dissolution, total or partial
liquidation or reorganization of or
similar proceeding relating to Viacom,
the holders of its Senior Indebtedness
will be entitled to receive payment in
full before the Exchange Debenture
holders are entitled to receive any
payment.
Events of Default The term "Event of Default" when used in
the indenture for the Exchange
Indebtedness will mean any of the
following: (i) failure of Viacom to pay
(whether or not prohibited by the
subordination provisions) interest for
<PAGE>
4
thirty days on the principal of or any
redemption payment on any of the
Exchange Debentures, (ii) failure to
perform any other covenant contained in
the Indenture for sixty days after
notice to Viacom by the trustee (or to
Viacom and the trustee by the holders of
at least 25% in aggregate principal
amount of Exchange Debentures then
outstanding) and (iii) certain events of
bankruptcy, insolvency or
reorganization.
<PAGE>
ANNEX C
VIACOM INC.
PRINCIPAL TERMS OF CONTINGENT VALUE RIGHTS ("CVRs")
----
Issuer: Viacom Inc. ("Viacom")
------
Payment at Maturity: Following the maturity of a CVR, the
holder of such CVR (the "CVR Holder")
----------
shall have the right to receive the
amount, if any, by which the Target
Price exceeds the greater of the Current
Market Value and the Minimum Price (each
as defined below). The CVRs shall
mature on the Maturity Date unless
otherwise extended to the First Extended
Maturity Date or the Second Extended
Maturity Date, as the case may be (each
as defined below).
Form of Payment: Viacom, at its option, may pay any
amount due under the terms of the CVRs
to the CVR Holders in cash or in the
equivalent fair market value (as
determined by an independent nationally
recognized investment bank) of
registered securities of Viacom,
including, without limitation, common
stock, preferred stock, notes or other
securities.
Target Price: "Target Price" means (i) at the Maturity
------------
Date, $48.00, (ii) at the First Extended
Maturity Date, $51.00 and (iii) at the
Second Extended Maturity Date, $55.00.
In each case, such Target Prices shall
be adjusted upon the occurrence of any
event described in the Section entitled
"Antidilution" set forth below.
Current Market Value: "Current Market Value" means (i) with
--------------------
respect to the Maturity Date and the
First Extended Maturity Date, the median
of the averages of the closing prices on
the American Stock Exchange (or such
other exchange on which such shares are
then listed) of shares of Viacom's Class
B Common Stock, par value $.01 per share
(the "Class B Common Stock"), during
--------------------
each 20 consecutive trading day period
that both begins and ends in the
Valuation Period and (ii) with respect
to the Second Extended Maturity Date,
<PAGE>
2
the average of the closing prices on the
American Stock Exchange (or such other
exchange on which such shares are then
listed) of the Class B Common Stock
during the 20 consecutive trading days
in the Valuation Period which yield the
highest such average of the closing
prices for any such 20 consecutive
trading day period within the Valuation
Period. "Valuation Period" means the 60
----------------
trading day period immediately preceding
(and including) the Maturity Date, the
First Extended Maturity Date or the
Second Extended Maturity Date, as the
case may be.
Minimum Price: "Minimum Price" means $38.00, subject to
-------------
adjustment upon the occurrence of any
event described in the Section entitled
"Antidilution" set forth below.
Maturity Date;
Extensions Thereof: "Maturity Date" means the first
-------------
anniversary of the effective time (the
"Effective Time") of the merger between
--------------
Viacom and Paramount Communications Inc.
(the "Merger"); provided, however, that
------ -------- -------
Viacom, at its option, may (i) extend
the Maturity Date to the second
anniversary of the Effective Time (the
"First Extended Maturity Date") and (ii)
----------------------------
extend the First Extended Maturity Date
to the third anniversary of the
Effective Time (the "Second Extended
---------------
Maturity Date"). Viacom shall exercise
-------------
either such option to extend by
publishing notice of such exercise in
the Wall Street Journal (Eastern
Edition), or if the Wall Street Journal
is not then published, such other
newspaper with general circulation in
the City of New York, New York no later
than one business day preceding the
Maturity Date or First Extended Maturity
Date, as the case may be.
No Interest: Other than in the case of interest on
the Default Amount (as defined below),
no interest shall accrue on any amounts
payable to the CVR Holders pursuant to
the terms of CVRs.
Disposition Payment: Following the consummation of a
Disposition (as defined below), Viacom
<PAGE>
3
shall pay to each CVR Holder for each
CVR held by such CVR Holder an amount,
if any, by which the Discounted Target
Price (as defined below) exceeds the
greater of (a) the fair market value (as
determined by an independent nationally
recognized investment banking firm) of
the consideration, if any, received by
holders of Class B Common Stock for each
share of Class B Common Stock held by
such holder as a result of such
Disposition and (b) the Minimum Price.
Dispositions: "Disposition" means (a) a merger,
-----------
consolidation or other business
combination involving Viacom as a result
of which no shares of Class B Common
Stock shall remain outstanding, (b) a
sale, transfer or other disposition, in
one or a series of transactions, of all
or substantially all of the assets of
Viacom or (c) a reclassification of
Class B Common Stock as any other
capital stock of Viacom or any other
person.
Acceleration Upon
Event of Default: If an Event of Default (as defined
below) occurs and is continuing, either
the bank or trust company acting as the
trustee (the "Trustee") or CVR Holders
-------
holding at least 25% of the outstanding
CVRs, by notice to Viacom (and to the
Trustee if given by CVR Holders), may
declare the CVRs to be due and payable,
and upon any such declaration, the
Default Amount shall become due and
payable and, thereafter, shall bear
interest at an interest rate of 8% per
annum until payment is made to the
Trustee. "Default Amount" means the
--------------
amount, if any, by which the Discounted
Target Price exceeds the Minimum Price.
Discounted Target
Price: "Discounted Target Price" means (a) if a
-----------------------
Disposition or an Event of Default shall
occur prior to the Maturity Date,
$48.00, discounted to the Disposition
Payment Date (as defined below) or the
Default Payment Date (as defined below),
as the case may be, at a per annum rate
of 8%; (b) if a Disposition or an Event
of Default shall occur after the
<PAGE>
4
Maturity Date but prior to the First
Extended Maturity Date, $51.00
discounted to the date of the
Disposition Payment Date or Default
Payment Date, as the case may be, at a
per annum rate of 8%; or (c) if a
Disposition or an Event of Default shall
occur after the First Extended Maturity
Date but prior to the Second Extended
Maturity Date, $55.00 discounted to the
Disposition Payment Date or Default
Payment Date, as the case may be, at a
per annum rate of 8%. In each case, the
Discounted Target Price and the Minimum
Price shall be adjusted upon the
occurrence of any event described in the
Section entitled "Antidilution" set
forth below. "Disposition Payment
-------------------
Date", with respect to a Disposition,
----
means the date established by Viacom for
payment of the amount due on the CVRs in
respect of such Disposition, which in no
event shall be more than 30 days after
the date on which such Disposition was
consummated. "Default Payment Date"
--------------------
means the date on which the CVRs become
due and payable upon the declaration
thereof following an Event of Default.
Events of Default: "Event of Default", with respect to the
----------------
CVRs, means any of the following which
shall have occurred and be continuing;
(a) default in the payment of all or any
part of the amounts payable in respect
of any of the CVRs as and when the same
shall become due and payable following
the Maturity Date, the First Extended
Maturity Date or the Second Extended
Maturity Date, the Disposition Payment
Date or otherwise; (b) material default
in the performance, or material breach,
of any material covenant or warranty of
Viacom, and continuance of such material
default or breach for a period of 90
days after written notice has been given
to Viacom by the Trustee or to Viacom
and the Trustee by CVR Holders holding
at least 25% of the outstanding CVRs; or
(c) certain events of bankruptcy,
insolvency, reorganization or other
similar events in respect of Viacom.
Antidilution: If Viacom shall in any manner subdivide
(by stock split, stock dividend or
<PAGE>
5
otherwise) or combine (by reverse stock
split or otherwise) the number of
outstanding shares of Class B Common
Stock, Viacom shall correspondingly
subdivide or combine the CVRs and shall
appropriately adjust the Target Price,
the Minimum Price and the Discounted
Target Price.
Trading: None of Viacom, National Amusements,
Inc. or any of their affiliates shall
trade in shares of Class B Common Stock
during the period commencing 10 trading
days before the Valuation Period and
ending on the last day of the Valuation
Period, except with respect to employee
benefit plans and other incentive
compensation arrangements.
No Fractional CVRs: No fraction of a CVR will be issued in
the Merger. In lieu thereof, a cash
payment will be made in an amount
equivalent to the fair market value of
the fraction of the CVR.
CVR Agreement: The CVRs will be issued pursuant to a
CVR Agreement between Viacom and the
Trustee. Viacom shall use its
reasonable best efforts to cause the CVR
Agreement to be qualified under the
Trust Indenture Act of 1939, as amended.
Registration/Listing: The CVRs will be issued in registered
form, and Viacom shall use its
reasonable best efforts to list the CVRs
on the American Stock Exchange (or such
other securities exchange on which the
shares of Class B Common Stock are then
listed).
Nature and Ranking of
CVRs: The CVRs are unsecured obligations of
Viacom and will rank equally with all
other unsecured obligations of Viacom.
<PAGE>
ANNEX D
Summary of Terms and Warrants
-----------------------------
Each Warrant will entitle the holder thereof to
purchase one share of Viacom Class B Common Stock per whole
Warrant at any time prior to the third anniversary of the Merger
at a price of $60.00, payable in cash. The terms of the Warrants
will include customary anti-dilution (with respect to stock
splits, stock dividends, reverse stock splits or other similar
subdivisions or combinations of stock) and other provisions. No
fraction of a Warrant will be issued in the Merger. In lieu
thereof, a cash payment will be made in an amount determined in
accordance with Section 1.7 of this Agreement.
<PAGE>
EXHIBIT 6.14
FORM OF AFFILIATE LETTER
------------------------
Viacom Inc.
1515 Broadway
New York, NY 10036
Gentlemen:
I have been advised that as of the date of this letter
I may be deemed to be an "affiliate" of Paramount Communications
Inc., a Delaware corporation (the "Company"), as the term
-------
"affiliate" is defined for purposes of paragraphs (c) and (d) of
Rule 145 of the rules and regulations (the "Rules and
---------
Regulations") of the Securities and Exchange Commission (the
-----------
"Commission") under the Securities Act of 1933, as amended (the
----------
"Act"). Pursuant to the terms of the Agreement and Plan of
---
Merger dated as of January 21, 1994, (the "Agreement"), between
---------
Viacom Inc., a Delaware corporation ("Viacom"), and the Company,
------
the Company will be merged with and into Viacom or a wholly owned
Subsidiary of Viacom (the "Merger").
------
As a result of the Merger, I may receive (i) shares of
Class B common stock, par value $.01 per share, of Viacom, (ii)
shares of a new series of convertible exchangeable preferred
stock, par value $.01 per share, of Viacom, (iii) CVRs (as
defined in the Agreement) and (iv) Warrants (as defined in the
Agreement) (collectively, the "Viacom Securities"). I would
-----------------
receive such securities in exchange for, respectively, shares (or
options for shares) owned by me of common stock, par value $1.00
per share, of the Company (the "Company Securities").
------------------
I represent, warrant and covenant to Viacom that in the
event I receive any Viacom Securities as a result of the Merger:
A. I shall not make any sale, transfer or other
disposition of the Viacom Securities in violation of the Act
or the Rules and Regulations.
B. I have carefully read this letter and the
Agreement and discussed the requirements of such documents
and other applicable limitations upon my ability to sell,
transfer or otherwise dispose of Viacom Securities to the
extent I felt necessary, with my counsel or counsel for the
Company.
C. I have been advised that the issuance of Viacom
Securities to me pursuant to the Merger has been registered
with the Commission under the Act on a Registration
Statement Form S-4. However, I have also been advised that,
because at the time the Merger is submitted for a vote of
the stockholders of the Company, (a) I may be deemed to be
<PAGE>
2
an affiliate of the Company and (b) the distribution by me
of the Viacom Securities has not been registered under the
Act, I may not sell, transfer or otherwise dispose of Viacom
Securities issued to me in the Merger unless (i) such sale,
transfer or other disposition is made in conformity with the
volume and other limitations of Rule 145 promulgated by the
Commission under the Act, (ii) such sale, transfer or other
disposition has been registered under the Act or (iii) in
the opinion of counsel reasonably acceptable to Viacom, such
sale, transfer or other disposition is otherwise exempt from
registration under the Act.
D. I understand that Viacom is under no obligation to
register the sale, transfer or other disposition of the
Viacom Securities by me or on my behalf under the Act or to
take any other action necessary in order to make compliance
with an exemption from such registration available solely as
a result of the Merger.
E. I also understand that there will be placed on the
certificates for the Viacom Securities issued to me, or any
substitutions therefor, a legend stating in substance:
"THE [SHARES] [RIGHTS] [WARRANTS] REPRESENTED BY THIS
CERTIFICATE WERE ISSUED IN A TRANSACTION TO WHICH RULE
145 PROMULGATED UNDER THE SECURITIES ACT OF 1933
APPLIES. THE [SHARES] [RIGHTS] [WARRANTS] REPRESENTED
BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
____________ BETWEEN THE REGISTERED HOLDER HEREOF AND
VIACOM INC., A COPY OF WHICH AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICES OF VIACOM INC."
F. I also understand that unless a sale or transfer
is made in conformity with the provisions of Rule 145, or
pursuant to a registration statement, Viacom reserves the right
to put the following legend on the certificates issued to my
transferee:
"THE [SHARES] [RIGHTS] [WARRANTS] REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON
WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE
145 PROMULGATED UNDER THE SECURITIES ACT OF 1933
APPLIES. THE [SHARES] [RIGHTS] [WARRANTS] HAVE BEEN
ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF
WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF
1933."
<PAGE>
3
It is understood and agreed that the legends set forth
in paragraphs E and F above shall be removed by delivery of
substitute certificates without such legend if the undersigned
shall have delivered to Viacom a copy of a letter from the staff
of the Commission, or an opinion of counsel reasonably
satisfactory to Viacom in form and substance reasonably
satisfactory to Viacom, to the effect that such legend is not
required for purposes of the Act.
Execution of this letter should not be considered an
admission on my part that I am an "affiliate" of the Company as
described in the first paragraph of this letter, or as a waiver
of any rights I may have to object to any claim that I am such an
affiliate on or after the date of this letter.
Very truly yours,
--------------------------------
Name:
Accepted this day of
---
, 1994, by
---------
VIACOM INC.
By
---------------------
Name:
Title:
VOTING AGREEMENT, dated as of January 21, 1994 (this
"Agreement"), between NATIONAL AMUSEMENTS, INC., a Maryland
---------
corporation (the "Stockholder"), and PARAMOUNT COMMUNICATIONS
-----------
INC., a Delaware corporation ("Paramount").
---------
WHEREAS, Viacom Inc., a Delaware corporation
("Viacom"), and Paramount propose to enter into an Agreement
------
and Plan of Merger, dated as of the date hereof (the "Merger
------
Agreement"), which provides, among other things, that Paramount
---------
will merge with Viacom pursuant to the merger contemplated by
the Merger Agreement (the "Merger");
------
WHEREAS, as of the date hereof, the Stockholder owns
(i) 45,547,214 shares of Class A Common Stock, par value $.01
per share, of Viacom ("Viacom Class A Common Stock") and
---------------------------
(ii) 46,565,414 shares of Class B Common Stock, par value $.01
per share, of Viacom ("Viacom Class B Common Stock"; together
---------------------------
with the Viacom Class A Common Stock, the "Viacom Common
-------------
Stock"); and
-----
WHEREAS, as a condition to the willingness of
Paramount to enter into the Merger Agreement, Paramount has
required that the Stockholder agree, and in order to induce
Paramount to enter into the Merger Agreement, the Stockholder
has agreed, to enter into this Agreement with respect to all
the shares of Viacom Class A Common Stock now owned and which
may hereafter be acquired by the Stockholder (the "Shares").
------
NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants and agreements contained herein, and
intending to be legally bound hereby, the parties hereto hereby
agree as follows:
ARTICLE I
VOTING OF SHARES
----------------
SECTION 1.01. Voting Agreement. The Stockholder
----------------
hereby agrees that during the time this Agreement is in effect,
at any meeting of the stockholders of Viacom, however called,
and in any action by consent of the stockholders of Viacom, the
Stockholder shall vote the Shares: (a) in favor of the Merger,
the Merger Agreement (as amended from time to time) and the
transactions contemplated by the Merger Agreement, including,
but not limited to, the amendments to the Certificate of
Incorporation of Viacom contemplated thereby, and (b) against
any proposal for any recapitalization, merger, sale of assets
or other business
<PAGE>
2
combination between Viacom and any person or entity (other than
the Merger and any merger of Blockbuster Entertainment
Corporation, a Delaware corporation ("Blockbuster"), with
-----------
Viacom) or any other action or agreement that would result in a
breach of any covenant, representation or warranty or any other
obligation or agreement of Viacom under the Merger Agreement or
which could result in any of the conditions to Viacom's
obligations under the Merger Agreement not being fulfilled.
The Stockholder acknowledges receipt and review of a copy of
the Merger Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
-------------------------------------------------
The Stockholder hereby represents and warrants to
Paramount as follows:
SECTION 2.01. Authority Relative to This Agreement.
------------------------------------
The Stockholder has all necessary power and authority to
execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the
Stockholder and the consummation by the Stockholder of the
transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Stockholder, and no
other corporate proceedings on the part of the Stockholder are
necessary to authorize this Agreement or to consummate such
transactions. This Agreement has been duly and validly
executed and delivered by the Stockholder and, assuming the due
authorization, execution and delivery by Paramount, constitutes
a legal, valid and binding obligation of the Stockholder,
enforceable against the Stockholder in accordance with its
terms.
SECTION 2.02. No Conflict. (a) The execution and
-----------
delivery of this Agreement by the Stockholder do not, and the
performance of this Agreement by the Stockholder shall not, (i)
conflict with or violate the Certificate of Incorporation or
By-laws or equivalent organizational documents of the
Stockholder, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the
Stockholder or by which the Shares are bound or affected or
(iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the Shares pursuant
to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or
obligation to which the Stockholder is a
<PAGE>
3
party or by which the Stockholder or the Shares are bound or
affected, except, in the case of clauses (ii) and (iii), for
any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or delay the performance by
the Stockholder of its obligations under this Agreement.
(b) The execution and delivery of this Agreement by
the Stockholder do not, and the performance of this Agreement
by the Stockholder shall not, require any consent, approval,
authorization or permit of, or filing with or notification to,
any Governmental Entity (as such term is defined in the Merger
Agreement) except for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended, and except where
the failure to obtain such consents, approvals, authorizations
or permits, or to make such filings or notifications, would not
prevent or delay the performance by the Stockholder of its
obligations under this Agreement.
SECTION 2.03. Title to the Shares. As of the date
-------------------
hereof, the Stockholder is the record and beneficial owner of
45,547,214 shares of Viacom Class A Common Stock. Other than
46,565,414 shares of Viacom Class B Common Stock of which the
Stockholder is the record and beneficial owner, such Shares are
all the securities of Viacom owned, either of record or
beneficially, by the Stockholder. The Shares are owned free
and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on
the Stockholder's voting rights, charges and other encumbrances
of any nature whatsoever (other than a voting agreement entered
into in connection with the merger of Blockbuster and Viacom).
The Stockholder has not appointed or granted any proxy, which
appointment or grant is still effective, with respect to the
Shares.
ARTICLE III
COVENANTS OF THE STOCKHOLDER
----------------------------
SECTION 3.01. No Inconsistent Agreements. The
--------------------------
Stockholder hereby covenants and agrees that, except as
contemplated by this Agreement and the Merger Agreement, the
Stockholder shall not enter into any voting agreement or grant a
proxy or power of attorney with respect to the Shares which is
inconsistent with this Agreement (it being agreed that any
voting agreement entered into in connection with a merger of
Viacom and Blockbuster shall not be deemed to be inconsistent
with this Agreement.)
SECTION 3.02. Transfer of Title. The Stockholder
-----------------
hereby covenants and agrees that the Stockholder shall not
transfer record or beneficial ownership of any of the Shares
unless the transferee agrees in writing to be bound by the
terms and conditions of this Agreement.
<PAGE>
4
ARTICLE IV
MISCELLANEOUS
-------------
SECTION 4.01. Termination. This Agreement shall
-----------
terminate upon the termination of the Merger Agreement.
SECTION 4.02. Specific Performance. The parties
--------------------
hereto agree that irreparable damage would occur in the event
any provision of this Agreement was not performed in accordance
with the terms hereof and that the parties shall be entitled to
specific performance of the terms hereof, in addition to any
other remedy at law or in equity.
SECTION 4.03. Entire Agreement. This Agreement
----------------
constitutes the entire agreement between Paramount and the
Stockholder with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both
written and oral, between Paramount and the Stockholder with
respect to the subject matter hereof.
SECTION 4.04. Amendment. This Agreement may not be
---------
amended except by an instrument in writing signed by the
parties hereto.
SECTION 4.05. Severability. If any term or other
------------
provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or
legal substance of this Agreement is not affected in any manner
materially adverse to any party. Upon such determination that
any term or other provision is invalid, illegal or incapable or
being enforced, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest
extent permitted by applicable law in a mutually acceptable
manner in order that the terms of this Agreement remain as
originally contemplated to the fullest extent possible.
SECTION 4.06. Governing Law. Except to the extent
-------------
that the General Corporation Law of the State of Delaware is
mandatorily applicable to the rights of the stockholders of
Viacom, this Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York regardless
of the laws that might otherwise govern under applicable
principles of conflicts of law.
<PAGE>
5
IN WITNESS WHEREOF, the Stockholder and Paramount have
caused this Agreement to be duly executed on the date hereof.
NATIONAL AMUSEMENTS, INC.
By________________________
Name:
Title:
PARAMOUNT COMMUNICATIONS INC.
By________________________
Name:
Title:
January 19, 1994
VIA MESSENGER
-------------
Paramount Communications Inc. VIACOM
15 Columbus Circle
New York, New York 10023
Attn: Donald Oresman, Esq.,
Executive Vice President and General Counsel
Re: Termination Fee and Stock Option
--------------------------------
Dear Donald:
Reference is made to (i) Section 8.05 (the "Termination
Fee") of the Agreement and Plan Merger, dated as of September 12,
1993, between Paramount Communications Inc. ("Paramount") and
Viacom Inc. ("Viacom"), as amended and restated as of October 24,
1993 (the "Merger Agreement"), and (ii) the Stock Option
Agreement, dated as of September 12, 1993, between Paramount and
Viacom, as amended by Amendment No. 1 thereto, dated as of
October 24, 1993 (the "Stock Option Agreement").
As you know, on December 22, 1993, Paramount's board (i)
terminated the Merger Agreement, (ii) entered into a merger
agreement with QVC Network, Inc. ("QVC"), and (iii) determined to
recommend to its shareholders QVC's proposal to acquire Paramount.
In order to preserve all of its rights under the Stock Option
Agreement, and, in particular, Section 3.03(a) thereof, Viacom
must, by January 21, 1994, deliver a Put Notice (as defined in
the Stock Option Agreement) to cause Paramount to pay to Viacom
the Cancellation Price (as defined in the Stock Option Agreement).
As you also know, Viacom has represented to the Court and the
parties in the pending Delaware litigation that, while it
reserves all of its rights, Viacom will not seek to interpose a
claim for amounts due under either the Termination Fee provisions
of the Merger Agreement or the Stock Option Agreement in a manner
that would interfere with the on-going bidding process.
In light of the foregoing, Viacom hereby expressly reserves
all of its rights, claims and defenses with respect to any and
all amounts due under either the Termination Fee provisions of
the Merger Agreement or the Stock Option Agreement, and, to the
extent necessary to reserve such rights, this letter should be
treated as Viacom's demand for payment of the Termination Fee
pursuant to Section 8.05 of the Merger Agreement, and as Viacom's
Put Notice pursuant to Section 3.03(a) of the Stock Option
Agreement. However, consistent with its prior representation,
Viacom will not seek to enforce this demand in a manner that
would interfere with the on-going bidding process.
Best regards,
/s/ Phillippe
-------------------
Phillippe P. Dauman
WACHTELL, LIPTON, ROSEN & KATZ
January 20, 1994
VIA FACSIMILE
Donald Oresman, Esq.
Paramount Communications Inc.
15 Columbus Circle
New York, New York 10023-7780
Dear Don:
I enclose herewith an analysis that Allen & Company has provided
to QVC with respect to the QVC and Viacom offers. QVC believes that its
offer continues to be superior to the Viacom offer and that it is the
Paramount Board's fiduciary duty to continue to recommend the QVC offer.
Sincerely,
/s/ Marty
Martin Lipton
Enclosure
cc: Messrs. Richard I. Beattie
Felix Rohatyn
(with enclosure)
<PAGE>
MEMORANDUM
----------
TO: QVC Network, Inc.
FROM: Allen & Company Incorporated
DATE: January 20, 1994
- ---------------------------------------------------------------------------
The following analysis is being provided to assist you in
comparing the QVC-Paramount merger to the Viacom-Paramount and
Viacom-Paramount-Blockbuster transactions.
Our analysis includes comparisons of:
1. Market value of the transactions
2. Financial soundness of the transactions
3. Consensus trading prices for post-merger securities of QVC and Viacom
4. Comparative liquidity of the common stocks of QVC and Viacom
We believe that beyond this quantitative analysis there are substantive
qualitative factors that affect the integrity and value of the Viacom offer
which involve the CVRs and VCRs being issued and the nature of the operations
of Viacom and Blockbuster.
PARAMOUNT CVRS AND BLOCKBUSTER VCRS ARE INEFFECTIVE AND DETRIMENTAL
. Paramount CVRs provide no additional downside protection to Paramount
--
shareholders
- Viacom stock has already broken through $38 collar
--------------------------------------------------
. The CVRs and VCRs undermine the soundness of the securities to be issued by
Viacom because they constitute a double collar threatening significant
dilution for shareholders. This overhang creates an uncertain environment
for Viacom stock
. Viacom would only issue stock to satisfy the Paramount CVR if cash or debt
were not available. In this scenario, by definition, Viacom would not be
performing well, its stock would be under pressure and it would be the most
dilutive time to issue shares
. If Viacom stock were to trade at $33 at the end of one year, as predicted
by Wall Street analysts, Paramount CVRs and Blockbuster VCRs would represent
an additional 53.1 million shares, or 13% of the pro forma shares outstanding
. Given recent Viacom trading volumes, it would take approximately 1,316
trading days to sell this number of shares in the open market
VIACOM ASSETS ARE UNDER SIGNIFICANT PRESSURE
. MTV's international operations are rumored to be under attack by a new
televised music video joint venture by Sony, Time Warner, Thorn EMI and
Philips Electronics (WSJ 1/20/94)
<PAGE>
- This venture would significantly limit and directly challenge
international growth potential for MTV, its most significant growth
market
- The joint venture partners control over 70% of worldwide music
- The venture highlights MTV's vulnerability as a distributor, rather
than an owner or creator of product, because it threatens future
pricing and availability of product
. Showtime is a declining asset under pressure
- Encore, the newly formed, well capitalized and extremely aggressive
pay channel, has signed both Disney and MCA to long-term contracts
- Showtime is left with limited programming; only MGM and Tri-Star
under contract
- Movie Channel and Flix are negligible operations
. Television production operation virtually discontinued
. Viacom's aggressive litigation against the largest operators in the cable
industry leaves the company in a vulnerable position with regard to
distribution of new programming
WITH BLOCKBUSTER, VIACOM HAS COMBINED WITH A LOW TECHNOLOGY, CAPITAL INTENSIVE
VIDEO RENTAL BUSINESS WITH A LIMITED LIFETIME
. Viacom shareholders paid a premium for a high-priced retail stock
- Blockbuster shares trading near all time highs when deal announced
- Merger values Blockbuster shares at 32x earnings of last twelve
months ending 9/30/93, and 29x analyst earnings estimates for
fiscal year ending December 31, 1993
. Video on demand will virtually replace Blockbuster's current business
- Cable operators, Bell operating companies and recently long-distance
carriers (MCI) are significantly increasing investment in the
"information superhighway" while accelerating upgrade and installation
timeframes
- Recognizing the limited lifetime of its existing business, Blockbuster
management has been seeking a merger partner or joint venture during the
past few years, with little success
. Blockbuster's entry into music retail will be difficult
- Low growth
- Low margins
- High capital expenditures
- Strong competition
- Music superstore concept already exists (this was not the case with
video rental superstores). The best music retail locations already
have superstores with existing name brand recognition
. Blockbuster operations and growth are very capital intensive - suited for
a company with little leverage and significant free cash flow. Sustaining
capital expenditures at levels necessary to grow the business will be
problematic under a debt load in excess of $9 billion
<PAGE>
I. QVC OFFER IS SUPERIOR TO THAT OF VIACOM
. Per share value of QVC offer is $4.50 greater than that of Viacom
. Total value of QVC offer is approximately $554 million greater than
that of Viacom
QVC OFFER VIACOM OFFER
--------------------- ---------------------
Blended Blended
Per Share Per Share Per Share Per Share
--------- --------- --------- --------
Cash 50.1% $92.00 $46.09 $107.00 $53.61
Stock(a) 49.9% 62.92 31.40 36.76 17.47
Preferred 49.9% 16.00 7.98 15.20 7.59
Warrant 49.9% 3.20 1.60 1.91 0.95
CVR 49.9% - - - - 5.91 2.95
--- --- ---- ----
$82.12 $40.98 $58.04 $28.96
------ ------ ------ ------
Total $87.07 $82.57
------ ------
(a) As of close, 1/20/94
II. THE PRO FORMA QVC/PCI ENTITY WILL BE MORE FINANCIALLY SOUND THAN VIA/BV/PCI
OR VIA/PCI
MATURITY OF DEBT
(In Millions)
VIA/BV QVC
------ ---
Short-term Debt due within one year $4,800 0
Debt or Preferred due 1-6 years 2,900 1,300
------ -----
DEBT OR PREFERRED DUE WITHIN 6 YEARS $7,700 $1,300
------ ------
Debt or Preferred due 6-10 years 1,100 1,370
Debt or Preferred due after 10 years 933 2,220
--- -----
Total Debt or Preferred $9,733 $4,890
------ ------
<PAGE>
TERMS OF FINANCING FOR TENDER OFFER
(In Millions)
VIA/BV QVC
------ ---
COMMON EQUITY NONE $1,750
Preferred 1,200 1,250
SHORT-TERM DEBT 4,800 - -
Long-term Debt 600 2,670
--- -----
Total Debt $5,400 $2,670
------ ------
PRO FORMA INTEREST COVERAGES
(Calendar Year 1994)
QVC/PCI VIA/PCI VIA/BV/PCI
------- ------- ----------
EBITDA/Interest 2.6x 2.2x 2.5x
EBITDA/Fixed Charges 2.6x 2.2x 2.4x
EBITDA/Interest 2.6x 2.0x 2.4x
with CVR (a)
EBITDA/Fixed Charges 2.6x 2.0x 2.3x
with CVR (a)
(a) Reflects additional interest costs if Viacom pays for Paramount CVRs in
notes at end of first year.
. Blockbuster has heavy lease obligations which do not show up on the
balance sheet as capitalized leases. Security analysts have recognized
these lease obligations as a form of debt, which makes Blockbuster's
capital structure more leveraged than it appears.
<PAGE>
III. CONSENSUS TRADING PRICES FOR POST-MERGER SECURITIES OF QVC AND VIACOM
The consensus opinion is that the combination of QVC's management team,
its partners, and its increasingly profitable operations in the interactive
world offer a more compelling vision than the VIA/BV combination.
QVC/ VIA/BV/ VIA/
EXPECTED 1994 EBITDA MULTIPLE PCI PCI PCI
- ----------------------------- --- --- ---
Oppenheimer 14-15x 13x 12x
Kidder Peabody 13x 12x
UBS Securities - - 11x-12x 12x
Salomon Brothers - - Not comfortable with 13x
12.5x - 13.5x (Hold)
SG Warburg 15x - - 13x
CALCULATION OF PRO FORMA STOCK PRICE
1994 EBITDA (a) $790 $1,670 $1,160
estimates
Expected EBITDA
multiple (a) 15x 13x 13x
New Firm Value $11,850 $21,710 $15,080
Less Net Debt 4,890 9,733 8,633
----- ----- -----
Equity Value $6,960 $11,977 $6,447
------ ------- ------
IMPLIED PRICE PER SHARE $43 $33(b) $32(b)
--- --- ---
IMPLIED PRICE PER SHARE WITH
CVRS AND VCRS $30(b) $29(b)
--- ---
- ----------------------------
(a) Based on Wall Street analyst estimates
(b) Represents weighted price for Viacom "A" and "B" shares. The non-voting
"B" shares, which Paramount holders are receiving, will trade at a discount
to the voting "A" shares
<PAGE>
IV. BLOCKBUSTER AND PARAMOUNT MERGERS WILL FLOOD MARKET WITH VIACOM SHARES OF
LIMITED LIQUIDITY
PRO FORMA SHARES OUTSTANDING
(In Millions)
<TABLE>
<CAPTION>
CLOSELY PRESENTLY ISSUED
HELD TRADED TO PUBLIC TOTAL
---- ------ --------- -----
<S> <C> <C> <C> <C>
VIACOM
- ------
VIACOM SHARES CURRENTLY OUTSTANDING: 91.3 29.2 - - 120.5
NEW VIACOM SHARES ISSUED:
Viacom Shares Issued to BV - - - - 169.5 169.5
Viacom Shares Issued to PCI - - - - 57.1 57.1
Viacom Shares Issued for BV VCR (a) - - - - 34.1 34.1
Viacom Shares Issued for PCI CVR (a) - - - - 17.3 17.3
--- --- ---- ----
TOTAL VIACOM SHARES 91.3 29.2 278.0 398.5
---- ---- ----- -----
QVC
- ---
QVC Shares Outstanding 25.3 25.1 - - 50.4
QVC Shares Issued to Partners 29.2 - - - - 29.2
QVC Shares Issued to PCI - - - - 88.7 88.7
--- --- ---- ----
TOTAL QVC SHARES 54.5 25.1 88.7 168.3
---- ---- ---- -----
</TABLE>
(a) Assumes average Viacom "B" price of $33 after one year.
. Viacom shares issued to Paramount and Blockbuster shareholders and those
subject to distribution are 9.5x the number of shares presently held by
----
Viacom public shareholders. In contrast, QVC shares to be issued are only
3.5x the number presently held by QVC public shareholders.
<PAGE>
COMPARISON OF DAILY TRADING VOLUMES
SINCE ANNOUNCEMENT OF DEALS
QVC VIACOM
--- ------
Average Weekly Volume 3,495,335 1,055,865
AVERAGE DAILY VOLUME 699,067 211,173
New Shares Issued to Public 88,700,000 278,000,000
TRADING DAYS NEEDED TO TRADE 127 DAYS 1,316 DAYS
ALL OF NEWLY ISSUED SHARES
. Even assuming the artificially high trading volumes of the stocks since
the deal was announced, it would take OVER 5 YEARS to trade the new Viacom
------------
shares issued to the market and six months to trade the new QVC shares
issued to the market.
SHEARMAN & STERLING
January 21, 1994
Donald Oresman, Esq.
Executive Vice President,
Chief Administrative Officer,
General Counsel and Secretary
Paramount Communications Inc.
15 Columbus Circle
New York, New York 10023-7780
Dear Don:
Late yesterday we received a copy of the letter from
Wachtell Lipton to you with the attached materials from Allen
& Co. purporting to be a comparative analysis of the QVC and
Viacom offers. In Viacom's January 18th letter to the Paramount
board Viacom outlined the reasons why Viacom believes that its
offer is superior to QVC's offer. Accordingly, in the short
time available before the Paramount board meeting, Viacom will
not restate its full analysis. However, the attached Smith
Barney analysis corrects some of the more glaring inaccuracies
contained in the Allen & Co. materials.
Sincerely,
/s/ Steve
Stephen R. Volk
<PAGE>
MEMORANDUM
----------
TO: Viacom Inc.
FROM: Smith Barney Shearson Inc.
DATE: January 21, 1994
I. Viacom's offer remains superior and has significantly greater certainty of
value.
-- Viacom's bid contains 77.6% certain value in cash, stock price
protection (CVR), and convertible preferred stock.
-- QVC's bid offers only 63.3% certain value in cash and preferred stock.
<TABLE> <CAPTION>
VIACOM Offer QVC Offer
----------------------- -----------------------
Per Blended Per Blended
Share Per Share % Share Per Share %
----- --------- ----- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Cash 50.1% $107.00 $53.61 64.2% $92.00 $45.09 57.7%
Stock (a.) 49.9% 35.02 17.47 20.9 62.92 27.04 34.6
Stock Price Protection 49.9% 9.31 4.64 5.6 0.00 0.00 0.0
(CVR) (b.)
Cnvt. Preferred (c.) 49.9% 13.08 6.52 7.8 0.00 0.00 0.0
Non-cnvt. Preferred 49.9% 0.00 0.00 0.0 8.82 4.40 5.6
(d.)
Warrant (e.) 49.9% 2.50 1.25 1.5 3.21 1.60 2.1
------ ----- ------ -----
Total $83.49 100% $78.13 100%
====== ===== ====== =====
(a.) Viacom's current stock price (at $37.625 for Class B) reflects the market's
perception that Viacom's bid is superior to that of QVC. QVC's stock price
was $37.875 (and declining) when it was believed to have a winning bid;
only speculation of a revised bid from Viacom stopped the slide. As such,
we have used a $37.875 stock price for comparability.
(b.) At Viacom's current stock price, the CVR provides complete protection of
$10.00.
(c.) QVC is not offering a convertible preferred stock. A convertible preferred
-----------
stock is obviously of much higher value than a straight non-convertible
preferred stock. The current market value of Viacom's convertible
preferred is 86% of its face value.
(d.) QVC's non-convertible preferred stock would require an interest rate of
11.0% to trade at 100% of its face value. The current market value of
QVC's non-convertible preferred stock is 55% of face value.
(e.) Based on accepted warrant valuation techniques.
</TABLE>
<PAGE>
Viacom is willing to provide Paramount shareholders with protection on the price
of its stock through the use of a CVR. QVC is not. Viacom is confident in its
ability to achieve and surpass the stated levels of shareholder value.
The CVR has been structured to provide flexibility in the valuation timeframe,
with up to three years to achieve a minimum $55 price per Viacom Class B share.
It also provides flexibility in terms of form of payment, but not delivery of
certain value. If Viacom did not have confidence in its ability to grow its
stock value back to these levels and beyond, it would never have considered the
transactions at issue in the first place.
We caution against purported analysis that values Viacom's offer against QVC's
offer based on the current market trading levels of their respective common
equities. Current market trading levels include a discount in the stock of the
perceived winner of Paramount and therefore a comparable valuation of the two
offers on this basis is not possible.
The future trading price for Viacom common stock has been significantly
underestimated by analysts in the marketplace in part because the company has
been unable to share information concerning future expectations as a result of
securities law limitations imposed during the acquisition process. Viacom's
projections indicate values well in excess of the so-called analyst consensus
referred to by Allen & Company.
Estimates of EBITDA and growth potential grossly underestimate projected cost
savings and revenue enhancement opportunities of the
Viacom/Blockbuster/Paramount combination, as previously described to the
Paramount Board and its advisors.
II. Viacom/Blockbuster/Paramount represents a well diversified entertainment
and communications company with a solid capitalization
Revenue EBITDA
------- ------
Entertainment 27% 13%
Publishing 19 16
Video Rental/Retail 18 23
Networks 16 18
Live Entertainment 7 6
Music Retail 5 4
Broadcasting 4 8
Cable 4 12
--- ---
100% 100%
=== ===
Estimated debt as a percent of total capitalization 39%
Estimated coverage (EBITDA)
Interest 3.8x
Interest plus preferred dividends 3.0x
<PAGE>
- -- Conversely, QVC offers the Paramount shareholders very little
diversification and should be viewed merely as a leveraged recapitalization
of Paramount, offering the Paramount shareholders virtually the same assets
but on a more leveraged basis.
III. Trading Issue
It is absurd on its face, and meaningless, to estimate the number of trading
days required to sell Viacom shares after distribution of the shares to be
issued in the Paramount and Blockbuster transactions, since recent trading
volumes are based on a number that is 15% of the pro forma public shares to be
outstanding. Additionally, QVC intends to issue 50% more shares (with no price
protection at all) than does Viacom.
IV. Vibrancy Of Viacom Businesses
It is disingenuous for Allen & Company to disparage Viacom's businesses on the
basis of rumored future competition given the advent of intense competition in
QVC's only line of business - the television home shopping business --
----
including recent announcements by its former would-be merger partner Home
Shopping Network, by Macy's, Spiegel/Time Warner, Fingerhut/USA Direct, and
others. These competitors do not only threaten to compete with QVC but
threaten to change the economics of the home shopping business itself. Several
of these partners have indicated a willingness to pay significantly larger
shares of revenues to cable operators to obtain carriage on cable television
systems. This could significantly adversely impact QVC's operating margins.
MTV, as in the case of Nickelodeon, is one of the fastest growing entertainment
franchises and enjoys one of the strongest brand names in the world today. It
has withstood many competitive challenges in the past and is better positioned
than ever to thrive. There have been many attempts to build a network like MTV.
None have reached the stature of MTV and few have survived. To suggest that
mere access to videos will enable success is to grossly underestimate the
ability of MTV to program, package and create a unique look and feel. Few
channels in the basic cable television business have achieved MTV's brand
recognition and unique identity. It should also be noted that the same Wall
Street Journal article cited by Allen & Company states that Sony and Time Warner
have no plans to withhold their music videos from MTV.
Showtime has shown remarkable resiliency, including a significant growth in the
number of subscribers in 1993. Allen & Company's assertions as to programming
on Showtime are simply wrong. Showtime has exclusivity on Disney product
through 1997 and, despite TCI/Encore's best efforts to undermine Showtime, has
managed to secure attractive programming for many years to come, in addition to
increasing the pace of its own original production.
<PAGE>
V. The Viacom/Blockbuster Combination
The enormous attributes of Blockbuster's businesses and their tremendous fit
with both Viacom and Paramount were addressed in our previous correspondence
with the Paramount Board and our presentations to Lazard Freres. A few
additional points in response to Allen & Company's misleading memorandum should
be addressed.
Blockbuster represents a significant source of excess free cash flow (cash flow
available after capital reinvestment) over the next few years. It has been
projected to generate $1 billion in free cash flow over the next three years and
$3 billion in free cash in the next five years. Ironically, the combination of
Blockbuster and Viacom was suggested, endorsed and promoted to Viacom by, among
other investment bankers, Jack Schneider of Allen & Co as recently as last
summer.
The Video on Demand Issue
- -------------------------
- -- According to TCI Vice President of Technology Bruce Ravenal (reported in
the September 27, 1993 issue to Multi Channel News) :"None of us have a
business case that would make video on demand a business. My own personal
guess is that we won't see these services emerge until late in the decade.
Ravenal also commented that "Video on demand is susceptible to being cream
skimmed by lower cost businesses."
- -- In December, 1992 TCI announced that they would begin rolling out new
digital compression set top converters in the first quarter of 1994. On
January 20 of this year TCI said this rollout will be delayed by nearly a
year.
- -- Availability of new converters does not mean universal availability. TCI
plans to install as many as 100,000 new converters at the beginning of
1995.
- -- Paul Kagan and Associates project that movies exhibited via video on
demand, near video on demand and pay per view will be a $1.859 billion
dollar business by the year 2000. Kagan projects home video movie revenue
to be $21.5 billion in the same year.
- -- John Sie, CEO of the TCI/Liberty-backed ENCORE pay tv service expressed
doubt (Wall Street Journal November 29, 1993) that movies on demand will
capture all the revenue now going to video stores. According to Sie, "even
if movies on demand takes half of the recent hits video rental market it
would generate only about $1 billion a year in cash flow for the entire
cable industry."
- -- Studios control the windows of exhibition and there is no evidence that
video on demand will be advanced over home video.
- -- In year 2000 Kagan projects that the studios will realize $614 million in
revenue from video on demand and pay per view services. That same year
Kagan projects the studios reaping $2.7 billion from the sale of rental
titles to the home video industry.
<PAGE>
VI. Viacom/Blockbuster/Paramount Combination
The combination of Viacom/Blockbuster/Paramount will result in a company with
total assets of over $24 billion and over 25 different lines of business.
These assets are uniquely able to thrive in today's entertainment marketplace
and are well positioned to exploit their rich content libraries in the future.
The diversity of the businesses in the Viacom/Blockbuster/Paramount creates a
global entertainment powerhouse. There is no dependency on one line of
business. As a matter of fact, the motion picture production business will
represent less than 5% of Viacom/Blockbuster/Paramount's combined EBITDA.
While success of the volatile motion picture unit will be important, its level
of success in any one year will have minimal effect on the company as a whole.
The multi-faceted creative resources and powerful distribution channels of
Viacom/Blockbuster will substantially enhance the studio business itself. The
Viacom/Blockbuster/Paramount combination is notable because of an abundance and
diversity of management talent.
The new company will have some of the most successful entrepreneurs in the
entertainment business. The combination of management teams from
Viacom/Blockbuster and Paramount will represent some of the most outstanding
talents in the business.
While there is no doubt that Barry Diller is a talented movie studio executive,
the Viacom/Blockbuster/Paramount combination will provide a management depth
unparalleled in the industry.
Conclusion:
- -----------
Viacom believes that the Viacom/ Paramount combination will create tremendous
value for Paramount shareholders. The addition of Blockbuster to that
combination will add critical retail distribution to the mix and dramatically
reduce risk.
Viacom has provided a structure that protects the value delivered to Paramount
shareholders, through the use of CVRs, and provides them with additional value
on the upside, through the use of warrants. When you combine the additional
cash on the front end with the downside protection and upside value on the back
end, the certainty and superiority of Viacom's offer stands alone.
------------
