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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 34
TO
SCHEDULE 14D-9
(WITH RESPECT TO THE TENDER OFFER BY VIACOM 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. 34 supplements and amends to the extent indicated herein
the Solicitation/Recommendation Statement on Schedule 14D-9 of Paramount
Communications Inc., as amended and restated on October 27, 1993 (as
supplemented and amended through the date hereof, the "Schedule 14D-9"),
initially filed with the Securities and Exchange Commission on October 25, 1993,
with respect to the Revised Viacom Offer (as described herein and therein).
Capitalized terms used herein and not otherwise defined herein have the meanings
ascribed to such terms in the Schedule 14D-9.
ITEM 2. TENDER OFFER OF THE BIDDER
The response to Item 2 is hereby supplemented and amended as follows:
On February 4, 1994, Paramount and Viacom entered into an Amended and
Restated Agreement and Plan of Merger (the "Restated Viacom Merger
Agreement"), which sets forth, among other things, (i) the terms of
Viacom's tender offer for Paramount (the "Current Viacom Offer"), which
terms provide 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 $107 per Share, and (ii) the
revised terms of the second-step merger to be effected in the event the
Current Viacom Offer is consummated (as so revised, the "Current Viacom
Second-Step Merger"), which terms had provided for the exchange of (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 Warrants to purchase
Viacom Class B Common Stock for each remaining Share and which now provide
for the exchange of (1) 0.93065 shares of Viacom Class B Common Stock, (2)
0.93065 CVRs, the terms of which have been revised as described below (as
so revised, the "Revised CVRs"), (3) 0.5 three-year Warrants (the "Viacom
Three-Year Warrants") to purchase Viacom Class B Common Stock, (4) 0.3
five-year Warrants (the "Viacom Five-Year Warrants") to purchase Viacom
Class B Common Stock and (5) $17.50 in principal amount of 8% Exchangeable
Subordinated Debentures of Viacom (the "Viacom Merger Debentures") for each
remaining Share. The Current Viacom Offer is scheduled to expire at 12:00
midnight on February 14, 1994.
ITEM 3. IDENTITY AND BACKGROUND
The response to Item 3(b) is hereby supplemented and amended as follows:
On January 27, 1994, Paramount and Viacom entered into amendments to
the Viacom Merger Agreement and the Viacom Exemption Agreement. Such
amendments provide that (i) Viacom will not cause the expiration date of
its tender offer to be extended beyond 12:00 midnight on February 14, 1994
except in specific circumstances, including an extension required by
federal securities laws to the extent the extension arises due to an event
outside the control of Viacom (those events not deemed to be outside the
control of Viacom include, without limitation, any change in the terms of
its tender offer or the proposed terms of its second-step merger), (ii)
Viacom will not increase the per Share consideration of its tender offer or
second-step merger or otherwise amend its tender offer or the proposed
terms of its second-step merger primarily to extend the expiration date of
QVC's tender offer, (iii) any amendment by Viacom to its tender offer or
any change in the consideration offered to the stockholders of the Company
in Viacom's second-step merger that results in an extension of the
expiration date of its tender offer will be publicly announced by 5:00 p.m.
on the date of such amendment or change and (iv) Viacom will not (A) seek
to amend or waive any provision of the Bidding Procedures or (B) publicly
announce an intention to take an action which is not otherwise permitted,
or refrain from taking an action which is required, under the terms of the
Bidding Procedures. Copies of the amendments to the Viacom Merger Agreement
and the Viacom Exemption Agreement were previously filed as Exhibits Nos.
94 and 95, respectively, to the Schedule 14D-9 and are incorporated herein
by reference. The foregoing summary is qualified in its entirety by
reference to such amendments.
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RESTATED VIACOM MERGER AGREEMENT
The following is a summary of the Restated Viacom Merger Agreement, a
copy of which is filed as Exhibit No. 105 to the Schedule 14D-9 and is
incorporated herein by reference. The Restated Viacom Merger Agreement is
substantially similar to the previous Viacom Merger Agreement, as amended
as described above, except for the provisions summarized below. Such
summary is qualified in its entirety by reference to the Restated Viacom
Merger Agreement. For purposes of this description, capitalized terms used
and not otherwise defined herein have the meanings given to such terms in
the Restated Viacom Merger Agreement.
The Merger
Upon consummation of the Current Viacom Second-Step Merger, in the
event the Current 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 the Company, which Shares will be
automatically canceled and extinguished, and other than Dissenting Shares)
will be converted automatically into the right to receive (i) 0.93065
shares of Viacom Class B Common Stock, (ii) 0.93065 Revised CVRs, (iii) 0.5
Viacom Three-Year Warrants, (iv) 0.3 Viacom Five-Year Warrants and (v)
$17.50 in principal amount of Viacom Merger Debentures (collectively, the
"Current Viacom Merger Consideration").
The terms of the Alternative Merger have likewise been revised to
provide that 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 the Company, which Shares will be automatically
canceled and extinguished, and other than Dissenting Shares) will be
entitled to (i) elect to receive the Current Viacom Merger Consideration in
exchange for each of such holder's Shares, (ii) elect to receive $107 in
cash in exchange for each of such holder's Shares or (iii) indicate that
such holder has no preference as to the receipt of the Current Viacom
Merger Consideration or cash in exchange for such holder's Shares.
Terms of Revised CVRs
The terms of the Revised CVRs are the same as the terms of the CVRs
described in Viacom's previous second-step merger proposal, except that the
Minimum Price has been revised to be $36.00 at the Maturity Date, $37.00 at
the First Extended Maturity Date and $38.00 at the Second Extended Maturity
Date, subject to certain anti-dilution protections with respect to the
Viacom Class B Common Stock.
Terms of Viacom Three-Year Warrants
The terms of the Viacom Three-Year Warrants are the same as the terms
of the Warrants described in Viacom's previous second-step merger proposal.
Terms of Viacom Five-Year Warrants
Each Viacom Five-Year Warrant will entitle the holder to purchase one
share of Viacom Class B Common Stock per whole Viacom Five-Year Warrant at
any time prior to the fifth anniversary of the Effective Time at a price of
$70.00, payable in cash or in liquidation value of Viacom Exchange
Preferred Stock (as defined below) (or in face value of Viacom Exchange
Debentures (as defined below)). The terms of the Viacom Five-Year Warrants
will include customary anti-dilution and other provisions. No fraction of a
Viacom Five-Year Warrant will be issued in the Current Viacom Second-Step
Merger. In lieu thereof, a cash payment will be made in an amount
determined in accordance with a formula contained in the Restated Viacom
Merger Agreement.
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Terms of Viacom Merger Debentures
The Viacom Merger Debentures will mature 12 years from the Effective
Time and will be subordinated in right of payment to all senior
indebtedness of Viacom. Interest will accrue on the Viacom Merger
Debentures from the date of issuance at a rate of 8% per annum and will be
payable semi-annually commencing January 1, 1995. The Viacom Merger
Debentures will be redeemable at the option of Viacom, in whole or in part,
on and after the fifth anniversary of the Effective Time, initially at a
redemption price of 103% of the principal amount thereof and thereafter at
prices declining to 100% of the principal amount thereof on the eighth
anniversary of the Effective Time, plus in each case all accrued and unpaid
interest.
The Viacom Merger Debentures will be exchangeable at the option of
Viacom, in whole but not in part, into 5% Cumulative Exchangeable Preferred
Stock of Viacom (the "Viacom Exchange Preferred Stock") at a rate of one
share of Viacom Exchange Preferred Stock for each $50.00 in principal
amount of Viacom Merger Debentures exchanged on or after the earlier of (i)
January 1, 1995, but only if the merger of Viacom and Blockbuster has not
been consummated by such date, and (ii) the acquisition by a third party of
beneficial ownership of a majority of the then outstanding voting
securities of Blockbuster. The Viacom Merger Debentures will be issued in
minimum denominations of $1,000 and integral multiples thereof and no
fraction of a Viacom Merger Debenture will be issued in the Current Viacom
Second-Step Merger. In lieu thereof, Viacom will aggregate and sell such
fractions and a cash payment will be made to the holders of Viacom Merger
Debentures in an amount determined in accordance with a formula contained
in the Restated Viacom Merger Agreement.
The Viacom Exchange Preferred Stock will have a liquidation preference
of $50.00 per share, plus accrued and unpaid dividends, and will pay
quarterly dividends cumulative from the Effective Time at the rate of $2.50
per annum per share with such rate increasing to $5.00 per annum per share
on the tenth anniversary of the Effective Time, if not redeemed prior to
such time. The Viacom Exchange Preferred Stock will be redeemable for cash
at the option of Viacom, in whole or in part, at any time on and after the
fifth anniversary of the Effective Time, initially at a redemption price of
$52.50 per share and thereafter at prices declining to $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 Exchange Preferred Stock will
rank on a 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 Exchange Preferred Stock will be exchangeable at the option
of Viacom, in whole or in part, on any dividend payment date beginning on
and after the third anniversary of the Effective Time, for Viacom's 5%
Subordinated Debentures (the "Viacom Exchange Debentures") at the rate of
$50.00 in principal amount of Viacom Exchange Debentures for each share of
Viacom Exchange Preferred Stock. Viacom may effect such exchange only if
all accrued and unpaid dividends on the Viacom Exchange Preferred Stock
have been paid. The Viacom Exchange Debentures will have substantially the
same terms as the Viacom Exchange Preferred Stock (including a provision
for the increase of the interest rate to 10% on the tenth anniversary of
the Effective Time), except that interest will be payable semi-annually
rather than quarterly. The Viacom Exchange Debentures will mature 20 years
from the Effective Time.
The Viacom Exchange 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 a parity with the Viacom
Exchange Preferred Stock, to elect, voting separately as a class, two
additional directors to Viacom's Board in the event of specified dividend
arrearages.
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Other Terms
Certain other changes were made in the Restated Viacom Merger
Agreement to reflect the new composition of the Current Viacom Merger
Consideration as compared to the consideration offered in Viacom's prior
second-step merger proposal.
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 February 4, 1994, the
Paramount Board reviewed and considered the terms of the revised
acquisition proposals of each of Viacom and QVC submitted pursuant to the
Bidding Procedures established by the Paramount Board and its
representatives. The Paramount Board unanimously (i) approved the terms of
the Restated Viacom Merger Agreement and authorized the execution and
delivery thereof, (ii) determined that the Current Viacom Offer and the
Current 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 Restated Viacom Merger Agreement by Paramount's
stockholders and (iv) recommended that holders of Shares tender such Shares
pursuant to the Current Viacom Offer.
The Paramount Board also unanimously recommended that stockholders
reject the Current QVC Offer (as defined below in Item 7) and not tender
any of their Shares pursuant to the Current QVC Offer.
Paramount's press release and letter to stockholders with respect to
the Paramount Board's positions are filed as Exhibit Nos. 106 and 107,
respectively, to the Schedule 14D-9 and are incorporated herein by
reference.
(b) At its February 4 meeting, the Paramount Board reviewed and
considered presentations from the Paramount Board's legal and financial
advisors with respect to the Current Viacom Offer and Current Viacom
Second-Step Merger, as well as the Current QVC Offer and Current QVC
Second-Step Merger (as defined below in Item 7).
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 February 4, 1994 stating that as of such date (A)
the aggregate consideration payable to Paramount stockholders in the
Current Viacom Offer and the Current Viacom Second-Step 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. 108 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 Current Viacom Offer
and the Current 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
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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 Revised CVRs to be issued in the Current 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 Current Viacom Second-Step Merger.
(iii) The terms and provisions of the Restated Viacom Merger
Agreement, including the following:
(A) The Bidding Procedures incorporated in the Restated Viacom
Merger Agreement (and in the QVC Exemption Agreement) that 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 Restated 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 Current 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
Current 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 has determined whether
such person presently intends to tender Shares to Viacom pursuant to the
Current Viacom 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, 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) On February 1, 1994, QVC announced a revision to its proposal for
the acquisition of Paramount, which revised proposal sets forth, among
other things, (i) the revised terms of QVC's tender offer for Paramount (as
so revised, the "Current QVC 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 $92 per Share, and which now provide for, among
other things, the purchase of such Shares at a price of $104 per Share, and
(ii) the revised terms of the second-step merger to be effected in the
event the Current QVC Offer is consummated (as so revised, the "Current QVC
Second-Step Merger"), which terms had provided for the exchange of (A) 1.43
shares of QVC Common Stock, (B) 0.32 shares of New QVC Merger Preferred
Stock and (C) 0.32 Warrants to purchase QVC Common Stock (the "QVC
Warrants") for each remaining Share and which now provide for the exchange
of (1) 1.2361 shares
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of QVC Common Stock, (2) 0.2386 shares of New QVC Merger Preferred Stock
and (3) 0.32 QVC Warrants for each remaining Share. The Current QVC Offer
is scheduled to expire at 12:00 midnight on February 14, 1994.
After receipt of the Current Viacom Offer and the Current QVC Offer
and prior to entering into the Restated Viacom Merger Agreement,
Paramount's financial and legal advisors held discussions with each of QVC
and Viacom.
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
Viacom 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) On January 27, 1994, Paramount and QVC entered into an amendment
to the QVC Exemption Agreement which had substantially the same effect as
did the January 27 amendments to the Viacom Merger Agreement and the Viacom
Exemption Agreement as described above in Item 3(b). A copy of the
amendment to the QVC Exemption Agreement was previously filed as Exhibit
No. 97 to the Schedule 14D-9 and is incorporated herein by reference. The
foregoing summary is qualified in its entirety by reference to such
amendment.
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 Viacom Offer which relate to or would
result in one or more of the matters referred to in Item 7(a).
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
The response to Item 9 is hereby supplemented and amended to add the
following:
Exhibit 105 --Amended and Restated Agreement and Plan of Merger, dated as
of February 4, 1994, between Paramount and Viacom.
Exhibit 106 --Press Release issued by Paramount on February 4, 1994.
Exhibit 107 --Letter to Stockholders of Paramount dated February 7, 1994
with respect to the Current QVC Offer and the Current Viacom
Offer.
Exhibit 108 --Opinion of Lazard dated February 4, 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 DONALD ORESMAN
...................................
Name: Donald Oresman
Title: Executive Vice President
Dated: February 7, 1994
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ANNEX A
LAZARD FRERES & CO.
One Rockefeller Plaza
New York, NY 10020
Telephone (212) 632-6000
Facsimile (212) 632-6060 NEW YORK
February 4, 1994
The Board of Directors
Paramount Communications Inc.
15 Columbus Circle
New York, NY 10023-7780
Dear Members of the Board:
You have requested our opinion, as of this date, as to the
relationship from a financial point of view of the Viacom Transaction
Consideration (as defined below) to the QVC Transaction Consideration (as
defined below).
We understand that, as set forth in Amendment Number 34 to the Tender
Offer Statement on Schedule 14D-1 filed by QVC Network, Inc. ("QVC"),
Comcast Corporation and BellSouth Corporation with the Securities and
Exchange Commission (the "Commission") on February 1, 1994 (the "QVC Tender
Offer Statement"), QVC has amended its proposal (the "Amended QVC
Proposal") to acquire Paramount Communications Inc. ("Paramount") by
amending the terms of the cash tender offer (the "QVC Offer") that QVC
commenced on October 27, 1993 and the terms of the consideration payable to
the holders (the "Stockholders") of common stock of Paramount ("Common
Stock") in the QVC Second-Step Merger (as defined below). Under the
Amended QVC Proposal, (i) QVC is offering in the QVC 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 (on a fully diluted basis), at a
purchase price of $104.00 per share in cash, and (ii) following completion
of the QVC Offer, in accordance with the form of Agreement and Plan of
Merger, between QVC and Paramount (the "Form QVC Merger Agreement") that is
attached to the Exemption Agreement, dated as of January 21, 1994, between
QVC and Paramount, as amended on January 27, 1994 (the "QVC Exemption
Agreement"), Paramount would be merged into QVC in the proposed second-step
merger between QVC and Paramount (the "QVC Second-Step Merger";
collectively with the QVC Offer, the "QVC Two-Step Transaction"), 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
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) 1.2361 shares of common stock of
QVC (the "QVC Common Stock"), (b) 0.2386 shares of a new series of 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
<PAGE>
holder prior to the tenth anniversary of the QVC Second-Step Merger (the
"QVC Warrants") (the aggregate consideration payable to the Stockholders
pursuant to the QVC Offer set forth in clause (i) and the aggregate
consideration payable to the 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 Amended QVC Proposal 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 February 1,
1994 and (ii) Amendment Number 35 to the Tender Offer Statement on Schedule
14D-1 filed by Viacom, National Amusements, Inc., Mr. Sumner M. Redstone
and Blockbuster Entertainment Corporation ("Blockbuster") with the
Commission on February 1, 1994 (the "Viacom Tender Offer Statement")
(collectively, the "Amended Viacom Proposal"), Viacom did not amend the
terms of the cash tender offer (the "Viacom Offer") that it had commenced
on October 25, 1993, but amended the terms of the consideration payable to
the Stockholders in the proposed Viacom Second-Step Merger (as defined
below). Under the Amended Viacom Proposal, (a) Viacom is continuing to
offer 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 (on a fully diluted basis), at a purchase price of $107.00 per share
in cash, and (b) following completion of the Viacom Offer, in accordance
with the Agreement and Plan of Merger, between Viacom and Paramount, dated
as of January 21, 1994, as amended on January 27, 1994 and as proposed to
be amended to reflect the Amended Viacom Proposal (the "Viacom Merger
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) $17.50 principal
amount of 8% exchangeable subordinated debentures of Viacom (the "Viacom
Exchangeable Debentures"), (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, (4) 0.3 warrants to purchase one share of Viacom Class B Common
<PAGE>
Stock at a price of $70.00 per share, exercisable at any time by the holder
prior to the fifth anniversary of the Viacom Second-Step Merger (the
"Viacom Five Year Warrants") and (5) 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), (4) and (5) of clause (b) is collectively referred to as the
"Viacom Transaction Consideration"). In addition, we understand that the
Amended Viacom Proposal provides that the Viacom Exchangeable Debentures
will mature on the twelfth anniversary of the Viacom Second-Step Merger,
will pay interest semi-annually beginning on January 1, 1995 and will be
non-callable until the fifth anniversary of the Viacom Second-Step Merger,
and thereafter may be redeemed for cash by Viacom at declining redemption
premiums. The Amended Viacom Proposal also provides that Viacom will have
the option to exchange at par the Viacom Exchangeable Debentures for the
equivalent liquidation preference of a new series of Viacom 5% cumulative
exchangeable (non-convertible) preferred stock (the "Viacom Merger
Preferred Stock") if the proposed merger between Viacom and Blockbuster
contemplated by the Agreement and Plan of Merger, dated as of January 7,
1994, between Blockbuster and Viacom (the "Blockbuster Merger Agreement")
has not been consummated by January 1, 1995, or earlier, if beneficial
ownership of a majority of the outstanding shares of common stock of
Blockbuster (the "Blockbuster Common Stock") has been acquired by a third
party prior to January 1, 1995. The Amended Viacom Proposal further
provides that the Viacom Merger Preferred Stock will be non-callable until
the fifth anniversary of the Viacom Second-Step Merger, and thereafter, may
be redeemed by Viacom for cash at declining redemption premiums and will
have a liquidation preference of $50.00 per share. In addition, the Viacom
Merger Preferred Stock will be exchangeable into Viacom's 5% subordinated
debentures (the "Viacom Subordinated Debentures") after the third
anniversary of the Viacom Second-Step Merger at an exchange rate of $50.00
principal amount of Viacom Subordinated Debentures for each share of Viacom
Merger Preferred Stock. Moreover, the dividend rate on the Viacom Merger
Preferred Stock and the interest rate on the Viacom Subordinated Debentures
will increase to 10% per annum on the tenth anniversary of the Viacom
Second-Step Merger, if not previously redeemed by Viacom. We further
understand that the Amended Viacom Proposal provides that the Viacom Five
Year Warrants will be exercisable with cash or by using an equivalent
liquidation preference of Viacom Merger Preferred Stock or principal amount
of Viacom Subordinated Debentures. 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
<PAGE>
the last day of the relevant period and is subject to a floor of $36.00 per
share of Viacom Class B Common Stock on the first anniversary of the Viacom
Second-Step Merger, a floor of $37.00 per share of Viacom Class B Common
Stock on the second anniversary of the Viacom Second-Step Merger and a
floor of $38.00 per share of Viacom Class B Common Stock on the third
anniversary of the Viacom Second-Step Merger.
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 Amended QVC
Proposal, the QVC Tender Offer Statement, and the QVC Exemption Agreement
(including the Form QVC Merger Agreement attached thereto) and (b) the
Amended Viacom Proposal, the Viacom Tender Offer Statement and the Viacom
Merger Agreement (including the form Exemption Agreement between Viacom and
Paramount attached thereto);
(ii) reviewed the terms and conditions of 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 Transition Report on Form 10-K of Paramount for the period from
November 1, 1992 through April 30, 1993 and Quarterly 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
<PAGE>
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 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 Blockbuster
Common Stock;
(ix) reviewed the procedures for bidding set forth in the Viacom
Merger Agreement and the QVC 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 Viacom Merger Agreement or the
QVC Exemption Agreement, as applicable) by Viacom or QVC, 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 Viacom
Merger Agreement and the Form QVC 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 Amended Viacom
Proposal and the Amended QVC Proposal, were made in compliance with the
terms and conditions of the Viacom Merger Agreement and the QVC Exemption
<PAGE>
Agreement, respectively. 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 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, generally favor in varying degrees the Viacom
Transaction Consideration from a financial point of view. On the basis of
recent market values, the QVC Transaction Consideration has had a somewhat
higher market valuation than the 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 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. In this
regard, we note that there is a greater percentage of cash and fixed income
securities as components of the Viacom Transaction Consideration than the QVC
Transaction Consideration, although the magnitude of the difference in the
respective percentages between the two current bids has decreased in
comparison to the most recent previous bids submitted by Viacom and QVC.
We further note the offering of the Viacom CVRs in the Amended Viacom
Proposal.
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.
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
<PAGE>
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 continue to 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
Viacom Transaction Consideration is fair to the Stockholders from a financial
point of view and (iii) the Viacom Transaction Consideration is marginally
superior to the QVC Transaction Consideration from a financial point of view.
Very truly yours,
/s/ Lazard Freres & Co.
<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* Amended and Restated Agreement and Plan of Merger, dated
as of October 24, 1993, between Paramount and Viacom.
4* Stock Option Agreement, dated as of September 12, 1993, as
amended on October 24, 1993, between Paramount and Viacom.
5* Voting Agreement, dated as of September 12, 1993, as amended
on October 24, 1993, between Paramount and Amusements.
6* Press Release issued on October 24, 1993.
7* Letter to Stockholders of Paramount dated October 25, 1993.
8* Press Release issued on November 6, 1993.
9* Letter to Stockholders of Paramount dated November 8, 1993
with respect to the Viacom Offer.
10* Amendment No. 1, dated as of November 6, 1993, to the Amended
and Restated Agreement and Plan of Merger, dated as of October
24, 1993, between Paramount and Viacom.
11* Letter to Stockholders of Paramount dated November 8, 1993
with respect to the QVC Offer.
12* Press Release issued by Viacom on November 12, 1993.
13* Press Release issued on November 15, 1993.
14* Letter to Stockholders of Paramount dated November 16, 1993
with respect to the QVC Offer.
15* Press Release issued by Viacom on November 19, 1993.
16* Press Release issued by QVC on November 20, 1993.
17* Press Release issued by Viacom on November 22, 1993.
18* Press Release issued by QVC on November 22, 1993.
19* Press Release issued by Viacom on November 23, 1993.
20* Press Release issued by QVC on November 23, 1993.
21* Press Release issued by Viacom on November 24, 1993.
22* Press Release issued by QVC on November 24, 1993.
23* Memorandum Opinion in QVC Network, Inc. v. Paramount Communications
Inc., et al., Civ. Action No. 13208 (Del. Ch. November 24, 1993).
24* Preliminary Injunction Order in QVC Network, Inc. v. Paramount
Communications Inc., et al., Civ. Action No. 13208 (Del. Ch.
November 24, 1993).
25* Press Release issued by Paramount on November 24, 1993.
26* Press Release issued by Viacom on November 24, 1993.
27* Press Release issued by Viacom on November 26, 1993.
28* Press Release issued by Viacom on November 29, 1993.
29* Order of the Delaware Supreme Court dated November 29, 1993.
30* Press Release issued by QVC on December 1, 1993.
31* Revised Memorandum Opinion in QVC Network, Inc. v. Paramount
Communications Inc., et al., Civ. Action No. 13208 (Del. Ch.
November 24, 1993).
32* Press Release issued by Viacom on December 9, 1993.
33* Press Release issued by Paramount on December 9, 1993.
34* Press Release issued by QVC on December 10, 1993.
35* Order in Paramount Communications Inc., et al. v. QVC Network,
Inc., Civ. Action No. 13208 (Del. December 9, 1993).
36* Press Release issued by QVC on December 9, 1993.
37* Letter from Richards, Layton & Finger to Vice Chancellor
Jack B. Jacobs of the Delaware Court of Chancery dated
December 10, 1993.
- ---------------
* Previously filed.
<PAGE>
EXHIBIT DESCRIPTION PAGE NO.
- --------- ----------- ---------
38* Bidding Procedures of Paramount dated December 14, 1993.
39* Press Release issued by Paramount on December 14, 1993.
40* Letter to Stockholders of Paramount dated December 14,
1993 with respect to the Viacom Offer and the QVC Offer.
41* Press Release issued by Viacom on December 14, 1993.
42* Press Release issued by QVC on December 14, 1993.
43* Letter from Wachtell, Lipton, Rosen & Katz to Lazard
dated December 14, 1993.
44* Letter from Simpson Thacher & Bartlett to Wachtell, Lipton,
Rosen & Katz dated December 15, 1993.
45* Press Release issued by Paramount on December 15, 1993.
46* Press Release issued by QVC on December 16, 1993.
47* 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.
48* 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).
49* Letter from Shearman & Sterling to Lazard dated December 15, 1993.
50* Letter from Simpson Thacher & Bartlett to Shearman & Sterling
dated December 16, 1993.
51* Letter from Simpson Thacher & Bartlett to Wachtell, Lipton,
Rosen & Katz dated December 17, 1993.
52* Press Release issued by Paramount on December 20, 1993.
53* Press Release issued by Paramount on December 22, 1993.
54* Press Release issued by QVC on December 22, 1993.
55* Notice of Termination dated December 22, 1993 delivered by
Paramount to Viacom.
56* Exemption Agreement, dated as of December 22, 1993, between
Viacom and Paramount.
57* Letter to Stockholders of Paramount dated December 23, 1993
with respect to the Revised QVC Offer and the Viacom Offer.
58* Opinion of Lazard dated December 21, 1993.
59* Agreement and Plan of Merger, dated as of December 22, 1993,
between Paramount and QVC.
60* Voting Agreement dated December 22, 1993 among BellSouth
Corporation, Comcast Corporation, Cox Enterprises, Inc.,
Advance Publications, Inc. and Arrow Investments, L.P.
61* First Amendment, dated as of December 27, 1993, to Agreement
and Plan of Merger, dated as of December 22, 1993, between
Paramount and QVC.
62* Press Release issued by Viacom on January 7, 1994.
63* Press Release issued by Viacom on January 9, 1994.
64* Press Release issued by Paramount on January 7, 1994.
65* Press Release issued by QVC on January 7, 1994.
66* Press Release issued by QVC on January 10, 1994.
67* Letter from Wachtell, Lipton, Rosen & Katz to the Paramount
Board dated January 11, 1994.
68* Letter from Shearman & Sterling to the Paramount Board dated
January 12, 1994.
69* Letter from Paramount to Wachtell, Lipton, Rosen & Katz dated
January 13, 1994.
70* Press Release issued by Paramount on January 12, 1994.
71* Letter from Simpson Thacher & Bartlett to Sherman & Sterling
and Wachtell, Lipton, Rosen & Katz dated January 13, 1994.
72* Letter to Stockholders of Paramount dated January 13, 1994
with respect to the Current QVC Offer and the Revised Viacom Offer.
- ---------------
* Previously filed.
<PAGE>
EXHIBIT DESCRIPTION PAGE NO.
- --------- ----------- ---------
73* Opinion of Lazard dated January 12, 1994.
74* Letter from Wachtell, Lipton, Rosen & Katz to Simpson
Thacher & Bartlett dated January 14, 1994.
75* Letter from Simpson Thacher & Bartlett to Wachtell, Lipton,
Rosen & Katz dated January 18, 1994.
76* Letter from the Commission to Simpson Thacher & Bartlett
dated January 15, 1994.
77* Press Release issued by Viacom on January 18, 1994.
78* Press Release issued by Paramount on January 18, 1994.
79* Press Release issued by QVC on January 19, 1994.
80* Agreement and Plan of Merger, dated as of January 21, 1994,
between Paramount and Viacom.
81* Voting Agreement, dated as of January 21, 1994, between
Paramount and Amusements.
82* Press Release issued by Paramount on January 21, 1994.
83* Letter to Stockholders of Paramount dated January 24, 1994
with respect to the Current QVC Offer and the Revised
Viacom Offer.
84* Opinion of Lazard dated January 21, 1994.
85* Notice of Termination dated January 21, 1994 delivered by
Paramount to QVC.
86* Exemption Agreement, dated as of January 21, 1994, between
QVC and Paramount.
87* Letter from Viacom to Paramount dated January 19, 1994.
88* Letter from Wachtell, Lipton, Rosen & Katz to Simpson Thacher
& Bartlett dated January 20, 1994.
89* Letter from Shearman & Sterling to Paramount dated
January 21, 1994.
90* Letter from Wachtell, Lipton, Rosen & Katz to Simpson Thacher &
Bartlett dated January 24, 1994.
91* Letter from Paramount to Wachtell, Lipton, Rosen & Katz dated
January 24, 1994.
92* Letter from Shearman & Sterling to Paramount dated January 25, 1994.
93* Letter from Paramount to Shearman & Sterling dated January 25, 1994.
94* First Amendment, dated as of January 27, 1994, to Agreement and
Plan of Merger, dated as of January 21, 1994, between Viacom and
Paramount.
95* First Amendment, dated as of January 27, 1994, to Exemption
Agreement, dated as of December 22, 1993, between Viacom and
Paramount.
96* Letter from Simpson Thacher & Bartlett to Shearman & Sterling
and Wachtell, Lipton, Rosen & Katz dated January 27, 1994.
97* First Amendment, dated as of January 27, 1994, to Exemption
Agreement, dated as of January 21, 1994, between QVC and Paramount.
98* Form of Agreement and Plan of Merger between QVC and Paramount.
99* Press Release issued by Viacom on February 1, 1994.
100* Press Release issued by QVC on February 1, 1994.
101* Press Release issued by Viacom on February 1, 1994.
102* Press Release issued by Viacom on February 1, 1994.
103* Press Release issued by Paramount on February 1, 1994.
104* Press Release issued by QVC on February 1, 1994.
105 Amended and Restated Agreement and Plan of Merger, dated as of
February 4, 1994, between Paramount and Viacom.
106 Press Release issued by Paramount on February 4, 1994.
107 Letter to Stockholders of Paramount dated February 7, 1994
with respect to the Current QVC Offer and the Current Viacom Offer.
108 Opinion of Lazard dated February 4, 1994.
- ---------------
* Previously filed.
=================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
between
VIACOM INC.
and
PARAMOUNT COMMUNICATIONS INC.
Dated as of February 4, 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 8.1
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 1.6
Debenture Exchange Ratio SECTION 1.6
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 Debenture Trustee SECTION 4.3
Exchange Fund SECTION 1.7
Exchange Ratios SECTION 1.6
Exemption Agreement SECTION 2.1(d)
Expiration Date SECTION 2.1
FCC SECTION 2.6
Final Expiration Date SECTION 2.1(c)
Financing SECTION 4.17
Five Year Warrant Exchange Ratio SECTION 1.6
Five Year Warrants SECTION 1.6
Form of Election SECTION 1.6
Forward Merger RECITALS
fully diluted basis SECTION 9.3
Gains Tax SECTION 6.18
Governmental Entity SECTION 3.5
<PAGE>
2
Index of Defined Terms (cont'd)
----------------------
Section
-------
HSR Act SECTION 4.5
Incentive Stock Option SECTION 1.9
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 Debenture Trustee SECTION 4.3
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
Offer RECITALS
Offer Documents SECTION 2.1(b)
Offer to Purchase SECTION 2.1(b)
Other Offer SECTION 2.1(c)
Other Offeror SECTION 2.1(c)
Other Exemption Agreement SECTION 2.1(d)
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
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
<PAGE>
3
Index of Defined Terms (cont'd)
----------------------
Section
-------
Securities Fraction SECTION 1.6
Significant Stockholder SECTION 6.21
Stock Election Shares 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
Three Year Warrant Exchange Ratio SECTION 1.6
Three Year Warrants SECTION 1.6
Transactions SECTION 3.4
Transfer Tax SECTION 6.18
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 Disclosure Schedule SECTION 4.3
Viacom Exchange Debenture Indenture SECTION 4.3
Viacom Exchange Debentures ANNEX B
Viacom Exchange Preferred Stock ANNEX B
Viacom International SECTION 4.7
Viacom Material Adverse Effect SECTION 4.1
Viacom Merger Debenture Indenture SECTION 4.3
Viacom Merger Debentures SECTION 1.6
Viacom Plans SECTION 4.10
Viacom Preferred Stock SECTION 4.3
Viacom SEC Reports SECTION 4.7
Viacom Series A Preferred 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
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
THE MERGER . . . . . . . . . . . 2
SECTION 1.1. The Merger . . . . . . . . . . . . . . . . 2
SECTION 1.2. Closing . . . . . . . . . . . . . . . . . 3
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 . . . . . . . . . . . 13
SECTION 1.9. Stock Options; Payment Rights . . . . . . 13
SECTION 1.10. Dissenting Shares . . . . . . . . . . . . 15
ARTICLE II
THE OFFER . . . . . . . . . . . . 16
SECTION 2.1. The Offer . . . . . . . . . . . . . . . . 16
SECTION 2.2. Action by Paramount . . . . . . . . . . . 19
SECTION 2.3. Receipt of Common Stock . . . . . . . . . 20
SECTION 2.4. Completion Certificate . . . . . . . . . . 20
SECTION 2.5. Termination of the Offer . . . . . . . . . 20
SECTION 2.6. Board of Directors; Section 14(f) . . . . 21
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARAMOUNT . . . 22
SECTION 3.1. Organization and Qualification;
Subsidiaries . . . . . . . . . . . . . . 22
SECTION 3.2. Certificate of Incorporation and By-Laws . 22
SECTION 3.3. Capitalization . . . . . . . . . . . . . . 23
SECTION 3.4. Authority Relative to This Agreement . . . 24
SECTION 3.5. No Conflict; Required Filings and
Consents . . . . . . . . . . . . . . . . 24
SECTION 3.6. Compliance . . . . . . . . . . . . . . . . 25
SECTION 3.7. SEC Filings; Financial Statements . . . . 25
SECTION 3.8. Absence of Certain Changes or Events . . . 26
SECTION 3.9. Absence of Litigation . . . . . . . . . . 27
SECTION 3.10. Employee Benefit Plans . . . . . . . . . . 27
SECTION 3.11. Trademarks, Patents and Copyrights . . . . 28
SECTION 3.12. Taxes . . . . . . . . . . . . . . . . . . 28
SECTION 3.13. Amendment to Rights Agreement . . . . . . 29
SECTION 3.14. Opinion of Financial Advisor . . . . . . . 30
SECTION 3.15. Vote Required . . . . . . . . . . . . . . 30
SECTION 3.16. Brokers . . . . . . . . . . . . . . . . . 30
<PAGE>
Page
----
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VIACOM . . . . 31
SECTION 4.1. Organization and Qualification;
Subsidiaries . . . . . . . . . . . . . . 31
SECTION 4.2. Certificate of Incorporation and By-Laws . 31
SECTION 4.3. Capitalization . . . . . . . . . . . . . . 32
SECTION 4.4. Authority Relative to This Agreement . . . 34
SECTION 4.5. No Conflict; Required Filings and
Consents . . . . . . . . . . . . . . . . 34
SECTION 4.6. Compliance . . . . . . . . . . . . . . . . 35
SECTION 4.7. SEC Filings; Financial Statements . . . . 36
SECTION 4.8. Absence of Certain Changes or Events . . . 37
SECTION 4.9. Absence of Litigation . . . . . . . . . . 37
SECTION 4.10. Employee Benefit Plans . . . . . . . . . . 38
SECTION 4.11. Trademarks, Patents and Copyrights . . . . 38
SECTION 4.12. Taxes . . . . . . . . . . . . . . . . . . 39
SECTION 4.13. Opinion of Financial Advisor . . . . . . . 40
SECTION 4.14. Vote Required . . . . . . . . . . . . . . 40
SECTION 4.15. Ownership of Paramount Common Stock . . . 40
SECTION 4.16. Brokers . . . . . . . . . . . . . . . . . 40
SECTION 4.17. Financing . . . . . . . . . . . . . . . . 40
SECTION 4.18. Purchases of Securities . . . . . . . . . 40
SECTION 4.19. Representations in Blockbuster Merger
Agreement . . . . . . . . . . . . . . . . 41
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER . . . . 41
SECTION 5.1. Conduct of Respective Businesses by
Paramount and Viacom Pending the Merger . 41
ARTICLE VI
ADDITIONAL COVENANTS . . . . . . . . . 43
SECTION 6.1. Access to Information; Confidentiality . . 43
SECTION 6.2. Intentionally omitted . . . . . . . . . . 44
SECTION 6.3. Directors' and Officers' Indemnification
and Insurance . . . . . . . . . . . . . . 44
SECTION 6.4. Notification of Certain Matters . . . . . 45
SECTION 6.5. Tax Treatment . . . . . . . . . . . . . . 45
SECTION 6.6. Registration Statement; Joint Proxy
Statement; Offer Documents and Schedule
14D-9 . . . . . . . . . . . . . . . . . . 46
SECTION 6.7. Stockholders' Meetings . . . . . . . . . . 48
SECTION 6.8. Letters of Accountants . . . . . . . . . . 48
SECTION 6.9. Employee Benefits . . . . . . . . . . . . 48
SECTION 6.10. Further Action; Reasonable Best Efforts . 49
SECTION 6.11. Debt Instruments . . . . . . . . . . . . . 50
SECTION 6.12. Public Announcements . . . . . . . . . . . 50
SECTION 6.13. Listing of Viacom Securities . . . . . . . 50
SECTION 6.14. Affiliates of Paramount . . . . . . . . . 50
SECTION 6.15. Conveyance Taxes . . . . . . . . . . . . . 51
SECTION 6.16. Rights Agreement . . . . . . . . . . . . . 51
SECTION 6.17. Assumption of Debt and Leases . . . . . . 51
SECTION 6.18. Gains Tax . . . . . . . . . . . . . . . . 51
SECTION 6.19. Reverse Merger . . . . . . . . . . . . . . 52
ii
<PAGE>
Page
----
SECTION 6.20. Post-Offer Agreements . . . . . . . . . . 52
SECTION 6.21. Transactions With Significant Stockholder
After the Effective Time . . . . . . . . 52
SECTION 6.22. Blockbuster Merger Agreement and
Subscription Agreement . . . . . . . . . 53
ARTICLE VII
CLOSING CONDITIONS . . . . . . . . . 53
SECTION 7.1. Conditions to Obligations of Each Party
to Effect the Merger . . . . . . . . . . 53
SECTION 7.2. Additional Conditions to Obligations of
Viacom . . . . . . . . . . . . . . . . . 54
SECTION 7.3. Additional Conditions to Obligations of
Paramount . . . . . . . . . . . . . . . . 55
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER . . . . . . 56
SECTION 8.1. Termination . . . . . . . . . . . . . . . 56
SECTION 8.2. Effect of Termination . . . . . . . . . . 58
SECTION 8.3. Amendment . . . . . . . . . . . . . . . . 58
SECTION 8.4. Waiver . . . . . . . . . . . . . . . . . . 59
SECTION 8.5. Fees, Expenses and Other Payments . . . . 59
ARTICLE IX
GENERAL PROVISIONS . . . . . . . . . 59
SECTION 9.1. Effectiveness of Representations,
Warranties and Agreements . . . . . . . . 59
SECTION 9.2. Notices . . . . . . . . . . . . . . . . . 60
SECTION 9.3. Certain Definitions . . . . . . . . . . . 61
SECTION 9.4. Time Period . . . . . . . . . . . . . . . 62
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 . . . . . . . . . . . 63
SECTION 9.10. Specific Performance . . . . . . . . . . . 63
SECTION 9.11. Governing Law . . . . . . . . . . . . . . 63
SECTION 9.12. Counterparts . . . . . . . . . . . . . . . 63
ANNEX A Conditions to the Offer
ANNEX B Principal Terms of Viacom Merger Debentures
ANNEX C Principal Terms of Contingent Value Rights
ANNEX D Principal Terms of Three Year Warrants
ANNEX E Principal Terms of Five Year Warrants
EXHIBIT 6.14 Form of Affiliate Letter
iii
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER,
dated as of February 4, 1994 (this "Agreement"), between VIACOM
---------
INC., a Delaware corporation ("Viacom"), and PARAMOUNT
------
COMMUNICATIONS INC., a Delaware corporation ("Paramount"),
---------
amending and restating the Agreement and Plan of Merger, dated as
of January 21, 1994, between Viacom and Paramount, as amended (the "January
-------
Merger Agreement").
- ----------------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, on January 21, 1994, Viacom and Paramount
entered into the January Merger Agreement, pursuant to which
Viacom and Paramount agreed to enter into a business combination
transaction;
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
<PAGE>
2
Paramount and agreed to continue 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
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 the January
Merger Agreement and as an inducement to Paramount to enter into
the January Merger Agreement, National Amusements, Inc., a
Maryland corporation and the majority stockholder of Viacom
("National"), and Paramount entered into a Voting Agreement (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, as amended from time to time;
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
<PAGE>
3
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
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:
<PAGE>
4
(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
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) $17.50 principal
--------------------
amount of 8% exchangeable subordinated debentures (the
"Viacom Merger Debentures") 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, (D) .50 warrants (the "Three Year
----------
Warrants") of Viacom having the principal terms described in
--------
Annex D and (E) .30 warrants (the "Five Year Warrants", and
------------------
together with the Three Year Warrants, the "Warrants") of
--------
Viacom having the principal terms described in Annex E;
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 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 Debentures, 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
(b) such number of whole CVRs, Viacom Merger Debentures 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 fractional CVR, Viacom Merger
Debenture 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
<PAGE>
5
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) $17.50 principal amount
----------------------
of Viacom Merger Debentures (the "Debenture Exchange
------------------
Ratio"); (iii) .93065 CVRs (the "CVR Exchange Ratio");
----- ------------------
(iv) .50 Three Year Warrants (the "Three Year Warrant
------------------
Exchange Ratio"); and (v) .30 Five Year Warrants (the
--------------
"Five Year Warrant Exchange Ratio", and together with
--------------------------------
the Class B Exchange Ratio, the Debenture Exchange
Ratio, the CVR Exchange Ratio and Three Year Warrant
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, CVRs, Viacom
Merger Debentures, 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 Debentures 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 (y)
such number of whole CVRs, Viacom Merger Debentures 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 fractional CVR,
Viacom Merger Debenture or Warrant shall be issued and,
in lieu thereof, a cash payment shall be made pursuant
to Section 1.7(d).
<PAGE>
6
(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
to (A) elect to receive certificates evidencing such
number of whole shares of Viacom Class B Common Stock
and (y) such number of whole CVRs, Viacom Merger
Debentures 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 CVRs,
Viacom Merger Debentures 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
<PAGE>
7
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
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, CVRs,
Viacom Merger Debentures 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 CVRs, Viacom
Merger Debentures 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, CVRs, Viacom Merger Debentures,
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 CVRs equal to the
product of (x) the CVR Exchange Ratio and (y) a
fraction equal to one minus the Cash Fraction,
(iv) a principal amount of Viacom Merger
Debentures equal to the product of (x) the
Debenture Exchange Ratio and (y) a fraction equal
to one minus the Cash Fraction, (v) a number of
Three Year Warrants equal to the product of (x)
the Three Year Warrant Exchange Ratio and (y) a
fraction equal to one minus the Cash Fraction and
(vi) a number of Five Year Warrants equal to the
<PAGE>
8
product of (x) the Five Year 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)
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, CVRs, Viacom
Merger Debentures, 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 CVRs equal to the product of (x)
the CVR Exchange Ratio and (y) the Securities
Fraction, (iii) the principal amount of Viacom
Merger Debentures equal to the product of (x) the
Debenture Exchange Ratio and (y) the Securities
Fraction, (iv) a number of Three Year Warrants
equal to the product of (x) the Three Year Warrant
Exchange Ratio and (y) the Securities Fraction,
(v) a number of Five Year Warrants equal to the
product of (x) the Five Year Warrant Exchange
Ratio and (y) the Securities Fraction and (vi) 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, CVRs, Viacom Merger Debentures
and Warrants, and the Non-Election Shares, if any,
shall be converted into the right to receive shares of
Viacom Class B Common Stock, CVRs, Viacom Merger
Debentures, 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
<PAGE>
9
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
equal to one minus the Non-Election Fraction,
(iii) 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, (iv) the
principal amount of Viacom Merger Debentures equal
to the product of (x) the Debenture Exchange Ratio
and (y) a fraction equal to one minus the Non-
Election Fraction, (v) a number of Three Year
Warrants equal to the product of (x) the Three
Year Warrant Exchange Ratio and (y) a fraction
equal to one minus the Non-Election Fraction and
(vi) a number of Five Year Warrants equal to the
product of (x) the Five Year 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
<PAGE>
10
accordance with this Article I, through the Exchange Agent, (i)
certificates evidencing the shares of Viacom Class B Common
Stock, the Viacom Merger Debentures, 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, the Viacom Merger Debentures, 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"). The
-------------
Exchange Agent shall, pursuant to irrevocable instructions,
deliver the shares of Viacom Class B Common Stock, the Viacom
Merger Debentures, 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,
the Viacom Merger Debentures, 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 that
number of whole CVRs, Viacom Merger Debentures 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 fractional
CVRs, Viacom Merger Debentures and Warrants to which such holder
is entitled pursuant to Section 1.7(d) (the shares of Viacom
Class B Common Stock, CVRs, Viacom Merger Debentures, Warrants,
dividends, distributions and cash described in clauses (A), (B),
(C) and (D) being, collectively, the "Merger Consideration"), and
--------------------
<PAGE>
11
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, CVRs, Viacom
Merger Debentures, 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 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, CVRs, Viacom Merger Debentures
- --------------------------------------------------------------
and Warrants. No dividends or other distributions declared or
- ------------
made after the Effective Time with respect to shares of Viacom
Class B Common Stock, CVRs, Viacom Merger Debentures 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, CVRs, Viacom Merger
Debentures or Warrants they are entitled to receive until the
holder of such Certificate shall surrender such Certificate.
(d) Fractional Shares, CVRs, Viacom Merger Debentures
-------------------------------------------------
and Warrants. (i) No fraction of a share of Viacom Class B
- ------------
Common Stock or fraction of a CVR, Viacom Merger Debenture or
Warrant shall be issued in the Merger. In lieu of any such
fractional shares or fractional CVRs, Viacom Merger Debentures or
Warrants, each holder of Paramount Common Stock entitled to
receive shares of Viacom Class B Common Stock, CVRs, Viacom
Merger Debentures 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 (x) 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 (y) 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 (x) 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 (y) 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 (3) an
----
amount in cash (without interest) rounded to the nearest cent,
determined by multiplying (x) the fair market value of one Three
<PAGE>
12
Year 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 (y) the
fractional interest in a Three Year Warrant 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) determined in
- ----
accordance with clause (ii) of this Section 1.7(d) in respect of
the fractional interest in a Viacom Merger Debenture 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 (5) an amount in cash (without interest)
----
rounded to the nearest cent, determined by multiplying (x) the
fair market value of one Five Year 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 (y) the fractional interest in a Five Year
Warrant 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).
(ii) The Viacom Merger Debentures shall be issued
in the Merger only in principal amounts of $1,000 or integral
multiples thereof. Holders of shares of Paramount Common Stock
otherwise entitled to fractional amounts of Viacom Merger
Debentures shall be entitled to receive promptly from the
Exchange Agent a cash payment in an amount equal to such holder's
proportionate interest (after taking into account all shares of
Paramount Common Stock then held of record by such holder) in the
proceeds from the sale or sales in the open market by the
Exchange Agent, on behalf of all such holders, of the aggregate
fractional principal amount of Viacom Merger Debentures.
(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, CVRs, Viacom
Merger Debentures, 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
<PAGE>
13
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
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 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, (iii) that number of whole Three Year
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 Three Year Warrant
Exchange Ratio and rounded up to the nearest whole number of
Three Year Warrants; provided, that, if the option holder has not
--------
exercised his or her Stock Option prior to the third anniversary
of the Effective Time, then the Three Year 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
Three Year Warrants (as determined by reference to the average
<PAGE>
14
trading price for the five-day trading period immediately prior
to the third anniversary of the Effective Time, 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;
(iv) that number of whole Five Year 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 Five Year Warrant Exchange Ratio and rounded up to the
nearest whole number of Five Year Warrants; provided, that, if
--------
the option holder has not exercised his or her Stock Option prior
to the fifth anniversary of the Effective Time, then the Five
Year 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 Five Year Warrants (as determined by
reference to the average trading price for the five-day trading
period immediately prior to the fifth anniversary of the
Effective Time, 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; and (v) that (A) principal
amount of whole Viacom Merger Debentures 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 Debenture Exchange Ratio plus an amount in cash (without
----
interest), rounded to the nearest cent, determined by multiplying
(x) the fair market value of one Viacom Merger Debenture, 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 (y) the fractional interest in a
Viacom Merger Debenture to which such option holder would
otherwise be entitled or (B) if issued, that number of whole
shares of Viacom Exchange Preferred Stock (as defined in Annex B)
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 .35 and rounded up to the nearest
whole number of shares of Viacom Exchange Preferred Stock or (C)
if issued, that principal amount of whole Viacom Exchange
Debentures (as defined in Annex B) 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
Debenture Exchange Ratio plus an amount in cash (without
----
interest), rounded to the nearest cent, determined by multiplying
(x) the fair market value of one Viacom Exchange Debenture, 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 (y) the fractional interest in a
Viacom Exchange Debenture to which such option holder would
otherwise be entitled, 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, CVRs, Viacom Merger
Debentures 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
<PAGE>
15
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 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 CVRs, Viacom Merger
Debentures 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 CVRs, Viacom Merger
Debentures 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,
<PAGE>
16
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.
ARTICLE II
THE OFFER
SECTION 2.1. The Offer. (a) Viacom has amended and
---------
supplemented the Offer to (i) provide that the purchase price
offered for shares pursuant to the Offer shall be the Per Share
Amount, (ii) 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 (iii) extend the expiration date of the Offer until Midnight
on February 14, 1994. 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
Paramount 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
<PAGE>
17
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
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 (as defined below) 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 Section 2.1(d)(ii),
Section 2.3, or as required by law to the extent that the
<PAGE>
18
extension arises due to an event outside the control of Viacom
(those events not deemed to be outside the control of the Offeror
shall include, without limitation, any change in the terms of the
Offer or the Merger) (the "Final Expiration Date"); Viacom
---------------------
agrees that it will not increase the price per share of Paramount
Common Stock payable in the Offer or the Merger or otherwise
amend the Offer or the terms of the Merger 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"). Any amendment to
-----------
the Offer or any change in the consideration offered to the
Paramount stockholders in the Merger that results in an extension
of the Expiration Date shall be publicly announced by 5:00 p.m.
on the date of such amendment or change. Viacom hereby agrees
that it shall not (a) seek to amend or waive any provision of
this Agreement that is substantially identical to the provisions
relating to the bidding procedures contained in the Other
Exemption Agreement (the "Bidding Procedures") or (b) publicly
------------------
announce an intention to take an action which is not otherwise
permitted, or refrain from taking an action which is required,
under the terms of this Agreement relating to the Bidding
Procedures.
(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, as amended (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
Viacom and the Other Offeror of the results of their respective
offers (which notification shall be required to be delivered by
Viacom and the Other Offeror no later than promptly following the
expiration of their respective offers), Paramount has notified
Viacom 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
<PAGE>
19
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 February 4, 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
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 February 4, 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.
<PAGE>
20
(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
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 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,
<PAGE>
21
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
Directors) of Paramount and of each subsidiary of Paramount to be
comprised of the designees of 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 be 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.
<PAGE>
22
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
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
<PAGE>
23
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 February 3,
-------------------------
1994, 121,937,762 shares of Paramount Common Stock were issued
and outstanding, all of which were validly issued, fully paid and
nonassessable. As of February 3, 1994, 25,924,286 shares were
held in the treasury of Paramount. As of January 31, 1994,
9,409,208 shares were reserved for future issuance pursuant to
Paramount's 1992 Stock Option Plan and 1989 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 of February 3,
1994, options to acquire 2,398,060 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.
<PAGE>
24
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
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.
<PAGE>
25
(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
Competition Act (Canada), (D) filing and recordation of
appropriate merger documents as required by Delaware Law and (E)
applicable requirements, if any, of 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,
<PAGE>
26
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
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
<PAGE>
27
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
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
<PAGE>
28
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
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
<PAGE>
29
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
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
Class B Common Stock and CVRs, Viacom Merger Debentures, Warrants
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
<PAGE>
30
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 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
February 4, 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.
<PAGE>
31
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
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.
<PAGE>
32
SECTION 4.3. Capitalization. The authorized capital
--------------
stock of Viacom consists of 100,000,000 shares of Viacom Class A
Common Stock, (together with the Viacom Class B Common Stock, the
"Viacom 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
---------------
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
other securities 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
<PAGE>
33
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 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. 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. The Viacom Merger
Debentures will be duly authorized, and when the Viacom Merger
Debentures have been duly executed, authenticated, issued and
delivered in the Merger pursuant to the terms of this Agreement
and the Indenture pursuant to which they are issued (the "Viacom
------
Merger Debenture Indenture") between Viacom and the trustee
- --------------------------
thereunder (the "Merger Debenture Trustee"), such Viacom Merger
------------------------
Debentures will then constitute valid and legal binding
obligations of Viacom entitled to the benefits provided by the
Viacom Merger Debenture Indenture. Prior to the Effective Time,
the Viacom Merger Debenture 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 Merger Debenture Trustee, will constitute a valid and binding
instrument of Viacom enforceable in accordance with its terms.
The shares of Viacom Exchange Preferred Stock initially issuable
upon the exchange of the Viacom Merger Debentures will, if
issued, be duly authorized, validly issued, fully paid, non-
assessable and free of pre-emptive rights. The Viacom Exchange
Debentures initially issuable upon exchange of the Viacom Exchange
Preferred Stock for such Viacom Exchange Debentures will be duly
authorized; and when the Viacom Exchange Debentures have been
duly executed, authenticated, issued and delivered in exchange
for the Viacom Exchange Preferred Stock in accordance with the
terms of the Viacom Exchange Debentures and the Indenture
pursuant to which they are issued (the "Viacom Exchange
---------------
Debenture Indenture") between Viacom and the trustee thereunder
- --------------------
(the "Exchange Debenture Trustee"), such Viacom Exchange
--------------------------
Debentures will then constitute valid and legal binding
obligations of Viacom entitled to the benefits provided by the
Viacom Exchange Debenture Indenture. By the date of issuance of
the Viacom Exchange Preferred Stock, the Viacom Exchange
Debenture 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 Exchange Debenture
<PAGE>
34
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
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, to the extent required by law,
the Viacom Class B Common Stock, the Viacom Merger Debentures, the
CVRs, the Warrants, the Viacom Exchange Preferred Stock and the
Viacom Exchange Debentures), 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
such matters have not been previously voted upon and approved
by the holders of the Viacom Class A Common Stock, 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
<PAGE>
35
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 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, Trust Indenture Act of 1939, 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) applicable
requirements, if any, of 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,
<PAGE>
36
except for any such conflicts, defaults or violations that would
not, individually or in the aggregate, have a Viacom Material
Adverse Effect.
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
<PAGE>
37
which would not, individually or in the aggregate, have a Viacom
Material Adverse Effect.
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
<PAGE>
38
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,
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
<PAGE>
39
Viacom 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 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
<PAGE>
40
herein has a Viacom Material Adverse Effect is necessary, such
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
February 1, 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>
41
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>
42
(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
securities or assume, guarantee or endorse, or otherwise as
<PAGE>
43
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>
44
(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
effected without its written consent, which consent shall not be
<PAGE>
45
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.
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
<PAGE>
46
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, the
CVRs, the Viacom Merger Debentures and Warrants to be issued to
the stockholders of Paramount pursuant to the Merger, the Viacom
Exchange Preferred Stock into which such Viacom Merger Debentures
are exchangeable, the Viacom Class B Common Stock issuable upon
the exercise of the Warrants and the Viacom Exchange Debentures
for which such Viacom Exchange 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, the CVRs, the Viacom Merger Debentures 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).
(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
<PAGE>
47
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
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.
<PAGE>
48
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 and Viacom, 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.
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
<PAGE>
49
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 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 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
<PAGE>
50
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 the Warrants, Viacom Merger
Debentures and CVRs to be issued in the Merger to be approved for
listing on the AMEX prior to the Effective Time and the Viacom
Exchange Preferred Stock and the Viacom Exchange Debentures to be
approved for listing on the AMEX prior to the issuance thereof.
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
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.
<PAGE>
51
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
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
<PAGE>
52
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 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
<PAGE>
53
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. 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.
(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
<PAGE>
54
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 the Warrants, Viacom Merger Debentures 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,
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.
<PAGE>
55
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
-------------
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.
<PAGE>
56
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
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;
<PAGE>
57
(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
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
<PAGE>
58
(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
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
<PAGE>
59
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
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
<PAGE>
60
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
(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
<PAGE>
61
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 conversion 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
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;
<PAGE>
62
(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,
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.
<PAGE>
63
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>
64
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/ Kathy B. Rosenberg By /s/ Philippe P. Dauman
------------------------ ------------------------
Assistant Secretary Senior Vice President,
General Counsel and
Secretary
ATTEST: PARAMOUNT COMMUNICATIONS INC.
By /s/ Earl H. Doppelt By /s/ Donald Oresman
------------------------ ------------------------
Assistant Secretary 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 DEBENTURES
Viacom Merger Debentures
Issuer . . . . . . . . . Viacom.
Interest . . . . . . . . 8% per annum, payable semi-annually,
provided that the initial interest
payment date shall be January 1,
1995.
Maturity . . . . . . . . 12 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, initially at a redemption
price of 103% of the principal
amount thereof and thereafter at
prices declining to 100% of the
principal amount thereof on the
eighth anniversary of the Effective
Time, plus, in each case, all
accrued and unpaid interest.
Mandatory Redemption . . None.
Denomination . . . . . . Issuable in minimum denominations of
$1,000 and integral multiples
thereof.
Exchange for Viacom
Exchange Preferred
Stock . . . . . . . . . Exchangeable, at the option of
Viacom, in whole but not in part, on
or after the earlier of (i)
January 1, 1995, but only if the
Blockbuster Merger has not been
consummated by such date, and (ii)
the acquisition by a third party of
beneficial ownership of a majority
of the outstanding voting securities
of Blockbuster, into shares of
Viacom's 5% Cumulative Exchangeable
Preferred Stock (the "Viacom
Exchange Preferred Stock") at the
rate of one share of Viacom Exchange
Preferred Stock for each $50 in
principal amount of Viacom Merger
Debentures exchanged. At the time
<PAGE>
2
of the exchange, dividends on the
Viacom Exchange Preferred Stock will
be deemed to have accrued from the
date of issuance of the Viacom
Merger Debentures, and no accrued
interest will be paid with respect
to the Viacom Merger Debentures.
Subordination . . . . . . Subordinated in right of payment to
all Senior Indebtedness of Viacom.
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,
including all obligations of Viacom
under its bank credit facilities,
(ii) guarantees by Viacom of
indebtedness for money borrowed by
any other person, including any
guarantees by Viacom of obligations
of Viacom International Inc., (iii)
trade credit of Viacom and
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
Viacom Merger Debentures. No
payment on account of principal or
interest on the Viacom Merger
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 Viacom Merger
<PAGE>
3
Debenture holders are entitled to
receive any payment.
Events of Default . . . . The term "Event of Default" when
used in the indenture for the Viacom
Merger Debentures will mean any of
the following: (i) failure of
Viacom to pay (whether or not
prohibited by the subordination
provisions) interest for thirty days
on the principal of or any
redemption payment on any of the
Viacom Merger 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 Viacom Merger Debentures
then outstanding) and (iii) certain
events of bankruptcy, insolvency or
reorganization. Any acceleration of
the Viacom Merger Debentures
following an Event of Default shall
not be effective until 5 business
days after notice of acceleration to
holders of Senior Indebtedness under
Viacom's bank credit facilities.
Viacom Exchange Preferred
Stock
Dividends . . . . . . . . Cumulative from the Effective Time
at the annual rate of $2.50 per
share of Viacom Exchange Preferred
Stock, payable quarterly; provided
that, from and after the tenth
anniversary of the Effective Time,
the annual rate shall increase from
$2.50 to $5.00 per share of Viacom
Exchange Preferred Stock.
Liquidation Preference . $50.00 per share of Viacom Exchange
Preferred Stock, plus accrued and
unpaid dividends.
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, initially at a per share
redemption price of $52.50 and
thereafter at prices declining to
<PAGE>
4
$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 Viacom
Exchange Debentures . . 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, for Viacom's 5%
Subordinated Debentures (the "Viacom
Exchange Debentures") at the rate of
$50.00 principal amount of Viacom
Exchange Debentures for each share
of Viacom Exchange Preferred Stock.
Viacom may effect such exchange only
if all accrued and unpaid dividends
on the Viacom Exchange Preferred
Stock have been paid.
Voting Rights . . . . . . 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
Exchange 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 Exchange 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
Exchange Preferred Stock. Such
right to elect two directors will
continue until such dividend
arrearages have been paid.
Viacom Exchange Debentures
Interest . . . . . . . . 5% per annum; provided that, from
and after the tenth anniversary of
the Effective Time, the interest
rate shall increase to 10% per
annum, payable semi-annually.
<PAGE>
5
Aggregate Principal
Amount . . . . . . . . Equal to aggregate liquidation
preference of Viacom Exchange
Preferred Stock exchanged, with the
Viacom Exchange Debentures being
issued in minimum denominations of
$1,000 and integral multiples
thereof.
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, initially 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.
Subordination . . . . . . Same as the Viacom Merger
Debentures.
Events of Default . . . . Same as the Viacom Merger
Debentures.
<PAGE>
ANNEX C
PRINCIPAL TERMS OF CONTINGENT VALUE RIGHTS ("CVRs")
----
Issuer: 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,
the average of the closing prices on the
American Stock Exchange (or such other
<PAGE>
2
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 (i) at the
-------------
Maturity Date, $36.00, (ii) at the First
Extended Maturity Date, $37.00 and (iii)
at the Second Extended Maturity Date,
$38.00. In each case, 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.
<PAGE>
3
Disposition Payment: Following the consummation of a
Disposition (as defined below), Viacom
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
<PAGE>
4
of Default shall occur after the
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
Principal Terms of Three Year Warrants
--------------------------------------
Each Three Year Warrant will entitle the holder thereof to
purchase one share of Viacom Class B Common Stock per whole Three
Year 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
Three Year 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 Three Year 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>
ANNEX E
Principal Terms of Five Year Warrants
-------------------------------------
Each Five Year Warrant will entitle the holder thereof
to purchase one share of Viacom Class B Common Stock per whole
Five Year Warrant at any time prior to the fifth anniversary of
the Merger at a price of $70.00, exercisable for cash or by
exchanging, if issued, either Viacom Exchange Preferred Stock
with an equivalent liquidation preference or an equivalent
principal amount of Viacom Exchange Debentures. The terms of the
Five Year 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 Five Year 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 Amended and Restated
---
Agreement and Plan of Merger dated as of February 4, 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)
8% exchangeable subordinated debentures 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] [DEBENTURES] [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]
[DEBENTURES] [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] [DEBENTURES] [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]
[DEBENTURES] [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:
Paramount Communications Inc.
- -----------------------------
15 Columbus Circle
New York, NY 10023-7780 NEWS
212-373-8000
Fax 212-373-8558
FOR IMMEDIATE RELEASE February 4, 1994
NEW YORK, Feb. 4 -- 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 and reject the revised QVC
tender offer by not tendering any shares to QVC.
Paramount also announced that, under the terms of the
bidding procedures initiated by the Board, the previously
negotiated merger agreement with Viacom will be revised to
reflect the financial terms of the new Viacom proposal.
Martin S. Davis, chairman and chief executive officer
of Paramount Communications, said, "the Board carefully
considered the best and final offers submitted by the two
bidders and, after consulting with its financial and legal
advisors, reaffirmed Viacom as providing the best value to
Paramount shareholders."
Mr. Davis said, "we wish to remind shareholders that,
pursuant to the bidding procedures, final bids were
submitted on February 1, and that the bidding procedures, in
order to provide for a fair and orderly process, prohibit
bidders from changing their bids. Accordingly, we urge all
<PAGE>
stockholders to tender their shares by midnight, February
14, the Expiration Date of both offers, in view of the
desirability of completing the bidding process
expeditiously."
Mr. Davis further said, "The Board has resolved that it
is in the best interests of Paramount and its stockholders to
end the auction process whether or not QVC or Viacom obtain
tenders for 50.1% of the outstanding shares. The Board
believes that failing to conclude the bidding process in a
timely manner poses material risks to Paramount
stockholders, including an adverse impact to the business of
Paramount and the related risk of termination under the
existing merger agreement with Viacom."
Mr. Davis concluded, "the bidding procedures adopted by
the Board were designed to solicit proposals that represent
the best value for Paramount stockholders available under
the circumstances. The Board believes this objective has
been achieved over a six-week process culminating in a final
round of bidding and does not believe any useful purpose
would be served by continuing the bidding process."
# # #
Contact: Jerry Sherman Jeffrey Z. Taufield
Paramount Communications Inc. Kekst and Company
(222) 373-8725 (212) 593-2655
Carl D. Folta
Paramount Communications Inc.
(212) 373-8530
PARAMOUNT COMMUNICATIONS INC.
February 7, 1994
Dear Stockholder:
On February 1, 1994, both Viacom and QVC revised their proposals for the
acquisition of Paramount. Viacom continued its tender offer for 50.1% of the
outstanding shares, on a fully diluted basis, of Paramount's Common Stock at a
purchase price of $107 per Share in cash and increased the consideration offered
in the Viacom Second-Step Merger. The revisions to the Viacom Second-Step Merger
are set forth in the Amended and Restated Viacom Merger Agreement, which
provides that 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) 0.93065 CVRs (the terms of which have been revised to afford greater value
assurance), (iii) 0.5 Three-Year Warrants to purchase Viacom Class B Common
Stock, (iv) 0.3 Five-Year Warrants to purchase Viacom Class B Common Stock and
(v) $17.50 principal amount of Viacom's 8% Exchangeable Subordinated Debentures.
Descriptions of the terms of the CVRs, the Warrants and the 8% Exchangeable
Subordinated Debentures are contained in the enclosed Schedule 14D-9's.
The revisions to QVC's acquisition proposal consisted of an increase in the
per Share cash consideration offered in the QVC Offer and a decrease in the
consideration offered in the QVC Second-Step Merger. The QVC Offer now provides
for the purchase of 50.1% of the Shares, on a fully diluted basis, at a purchase
price of $104 per Share in cash. Following completion of the QVC Offer, 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) 1.2361 shares of QVC
Common Stock, (ii) 0.2386 shares of QVC Merger Preferred Stock and (iii) 0.32
Warrants to purchase QVC Common Stock.
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
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.
<PAGE>
Pursuant to the bidding procedures adopted by the Board, final
bids were submitted on February 1, and these procedures, in order to provide for
a fair and orderly process, prohibit the bidders from changing their bids.
Accordingly, the Board urges all stockholders to tender their Shares by
midnight, February 14, the expiration date of both offers, in view of the
desirability of completing the bidding process expeditiously. The Board has
resolved that it is in the best interests of Paramount and its stockholders to
end the auction process whether or not QVC or Viacom obtains tenders for 50.1%
of the outstanding Shares. The Board believes that failing to conclude the
bidding process in a timely manner poses material risks to Paramount
stockholders, including an adverse impact to the business of Paramount and the
related risk of termination under the existing merger agreement with Viacom.
The bidding procedures adopted by the Board were designed to solicit
proposals that represent the best value for Paramount stockholders available
under the circumstances. The Board believes this objective has been achieved
over a six-week process culminating in a final round of bidding and does not
believe any useful purpose would be served by continuing the bidding process.
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.
One Rockefeller Plaza
New York, NY 10020
Telephone (212) 632-6000
Facsimile (212) 632-6060 NEW YORK
February 4, 1994
The Board of Directors
Paramount Communications Inc.
15 Columbus Circle
New York, NY 10023-7780
Dear Members of the Board:
You have requested our opinion, as of this date, as to the
relationship from a financial point of view of the Viacom Transaction
Consideration (as defined below) to the QVC Transaction Consideration (as
defined below).
We understand that, as set forth in Amendment Number 34 to the Tender
Offer Statement on Schedule 14D-1 filed by QVC Network, Inc. ("QVC"),
Comcast Corporation and BellSouth Corporation with the Securities and
Exchange Commission (the "Commission") on February 1, 1994 (the "QVC Tender
Offer Statement"), QVC has amended its proposal (the "Amended QVC
Proposal") to acquire Paramount Communications Inc. ("Paramount") by
amending the terms of the cash tender offer (the "QVC Offer") that QVC
commenced on October 27, 1993 and the terms of the consideration payable to
the holders (the "Stockholders") of common stock of Paramount ("Common
Stock") in the QVC Second-Step Merger (as defined below). Under the
Amended QVC Proposal, (i) QVC is offering in the QVC 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 (on a fully diluted basis), at a
purchase price of $104.00 per share in cash, and (ii) following completion
of the QVC Offer, in accordance with the form of Agreement and Plan of
Merger, between QVC and Paramount (the "Form QVC Merger Agreement") that is
attached to the Exemption Agreement, dated as of January 21, 1994, between
QVC and Paramount, as amended on January 27, 1994 (the "QVC Exemption
Agreement"), Paramount would be merged into QVC in the proposed second-step
merger between QVC and Paramount (the "QVC Second-Step Merger";
collectively with the QVC Offer, the "QVC Two-Step Transaction"), 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
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) 1.2361 shares of common stock of
QVC (the "QVC Common Stock"), (b) 0.2386 shares of a new series of 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
<PAGE>
holder prior to the tenth anniversary of the QVC Second-Step Merger (the
"QVC Warrants") (the aggregate consideration payable to the Stockholders
pursuant to the QVC Offer set forth in clause (i) and the aggregate
consideration payable to the 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 Amended QVC Proposal 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 February 1,
1994 and (ii) Amendment Number 35 to the Tender Offer Statement on Schedule
14D-1 filed by Viacom, National Amusements, Inc., Mr. Sumner M. Redstone
and Blockbuster Entertainment Corporation ("Blockbuster") with the
Commission on February 1, 1994 (the "Viacom Tender Offer Statement")
(collectively, the "Amended Viacom Proposal"), Viacom did not amend the
terms of the cash tender offer (the "Viacom Offer") that it had commenced
on October 25, 1993, but amended the terms of the consideration payable to
the Stockholders in the proposed Viacom Second-Step Merger (as defined
below). Under the Amended Viacom Proposal, (a) Viacom is continuing to
offer 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 (on a fully diluted basis), at a purchase price of $107.00 per share
in cash, and (b) following completion of the Viacom Offer, in accordance
with the Agreement and Plan of Merger, between Viacom and Paramount, dated
as of January 21, 1994, as amended on January 27, 1994 and as proposed to
be amended to reflect the Amended Viacom Proposal (the "Viacom Merger
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) $17.50 principal
amount of 8% exchangeable subordinated debentures of Viacom (the "Viacom
Exchangeable Debentures"), (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, (4) 0.3 warrants to purchase one share of Viacom Class B Common
<PAGE>
Stock at a price of $70.00 per share, exercisable at any time by the holder
prior to the fifth anniversary of the Viacom Second-Step Merger (the
"Viacom Five Year Warrants") and (5) 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), (4) and (5) of clause (b) is collectively referred to as the
"Viacom Transaction Consideration"). In addition, we understand that the
Amended Viacom Proposal provides that the Viacom Exchangeable Debentures
will mature on the twelfth anniversary of the Viacom Second-Step Merger,
will pay interest semi-annually beginning on January 1, 1995 and will be
non-callable until the fifth anniversary of the Viacom Second-Step Merger,
and thereafter may be redeemed for cash by Viacom at declining redemption
premiums. The Amended Viacom Proposal also provides that Viacom will have
the option to exchange at par the Viacom Exchangeable Debentures for the
equivalent liquidation preference of a new series of Viacom 5% cumulative
exchangeable (non-convertible) preferred stock (the "Viacom Merger
Preferred Stock") if the proposed merger between Viacom and Blockbuster
contemplated by the Agreement and Plan of Merger, dated as of January 7,
1994, between Blockbuster and Viacom (the "Blockbuster Merger Agreement")
has not been consummated by January 1, 1995, or earlier, if beneficial
ownership of a majority of the outstanding shares of common stock of
Blockbuster (the "Blockbuster Common Stock") has been acquired by a third
party prior to January 1, 1995. The Amended Viacom Proposal further
provides that the Viacom Merger Preferred Stock will be non-callable until
the fifth anniversary of the Viacom Second-Step Merger, and thereafter, may
be redeemed by Viacom for cash at declining redemption premiums and will
have a liquidation preference of $50.00 per share. In addition, the Viacom
Merger Preferred Stock will be exchangeable into Viacom's 5% subordinated
debentures (the "Viacom Subordinated Debentures") after the third
anniversary of the Viacom Second-Step Merger at an exchange rate of $50.00
principal amount of Viacom Subordinated Debentures for each share of Viacom
Merger Preferred Stock. Moreover, the dividend rate on the Viacom Merger
Preferred Stock and the interest rate on the Viacom Subordinated Debentures
will increase to 10% per annum on the tenth anniversary of the Viacom
Second-Step Merger, if not previously redeemed by Viacom. We further
understand that the Amended Viacom Proposal provides that the Viacom Five
Year Warrants will be exercisable with cash or by using an equivalent
liquidation preference of Viacom Merger Preferred Stock or principal amount
of Viacom Subordinated Debentures. 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
<PAGE>
the last day of the relevant period and is subject to a floor of $36.00 per
share of Viacom Class B Common Stock on the first anniversary of the Viacom
Second-Step Merger, a floor of $37.00 per share of Viacom Class B Common
Stock on the second anniversary of the Viacom Second-Step Merger and a
floor of $38.00 per share of Viacom Class B Common Stock on the third
anniversary of the Viacom Second-Step Merger.
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 Amended QVC
Proposal, the QVC Tender Offer Statement, and the QVC Exemption Agreement
(including the Form QVC Merger Agreement attached thereto) and (b) the
Amended Viacom Proposal, the Viacom Tender Offer Statement and the Viacom
Merger Agreement (including the form Exemption Agreement between Viacom and
Paramount attached thereto);
(ii) reviewed the terms and conditions of 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 Transition Report on Form 10-K of Paramount for the period from
November 1, 1992 through April 30, 1993 and Quarterly 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
<PAGE>
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 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 Blockbuster
Common Stock;
(ix) reviewed the procedures for bidding set forth in the Viacom
Merger Agreement and the QVC 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 Viacom Merger Agreement or the
QVC Exemption Agreement, as applicable) by Viacom or QVC, 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 Viacom
Merger Agreement and the Form QVC 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 Amended Viacom
Proposal and the Amended QVC Proposal, were made in compliance with the
terms and conditions of the Viacom Merger Agreement and the QVC Exemption
<PAGE>
Agreement, respectively. 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 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, generally favor in varying degrees the Viacom
Transaction Consideration from a financial point of view. On the basis of
recent market values, the QVC Transaction Consideration has had a somewhat
higher market valuation than the 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 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. In this
regard, we note that there is a greater percentage of cash and fixed income
securities as components of the Viacom Transaction Consideration than the QVC
Transaction Consideration, although the magnitude of the difference in the
respective percentages between the two current bids has decreased in
comparison to the most recent previous bids submitted by Viacom and QVC.
We further note the offering of the Viacom CVRs in the Amended Viacom
Proposal.
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.
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
<PAGE>
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 continue to 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
Viacom Transaction Consideration is fair to the Stockholders from a financial
point of view and (iii) the Viacom Transaction Consideration is marginally
superior to the QVC Transaction Consideration from a financial point of view.
Very truly yours,
/s/ Lazard Freres & Co.
