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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14A-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
KING WORLD PRODUCTIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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August 13, 1999
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[LOGO] [LOGO]
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PROXY STATEMENT/PROSPECTUS
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
Dear Stockholder:
King World Productions, Inc. has agreed to merge with a subsidiary of CBS
Corporation. Following the merger, King World will be a wholly-owned subsidiary
of CBS.
If the merger is completed, you, as a King World stockholder, will have the
right to receive .81 of a share of CBS common stock for each King World share
you own. The value you receive in the merger for each share of your King World
stock will depend upon the value of CBS common stock at the effective time of
the merger. On August 6, 1999, the last trading day before the date of this
proxy statement/ prospectus, the closing sales price of CBS common stock was
$47.0625 per share and the closing sales price of King World common stock was
$37.1875 per share. CBS's shares are traded on the New York Stock Exchange under
the symbol "CBS." King World's shares are traded on the New York Stock Exchange
under the symbol "KWP."
Our board of directors has unanimously approved the merger and recommends
that you vote in favor of the adoption of the merger agreement.
We cannot complete the merger without the approval of King World
stockholders who hold a majority of the King World common stock. Holders of
approximately 19% of King World common stock have already agreed to vote for the
merger.
We have scheduled a special meeting to vote on the merger. If you were a
stockholder of record on July 28, 1999, you may vote at the meeting. Whether or
not you plan to attend, please take the time to complete and mail the enclosed
proxy form to us.
The date, time and place of the special meeting is as follows:
SEPTEMBER 7, 1999, 9:00 A.M. LOCAL TIME
RIHGA ROYAL HOTEL
151 WEST 54TH ST.
NEW YORK, NY 10019
This proxy statement/prospectus provides you with detailed information about
the merger. This document is also the prospectus of CBS for the CBS common stock
that will be issued to you in the merger. We encourage you to read this entire
document carefully.
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/s/ Michael King /s/ Roger King
Michael King Roger King
Vice Chairman and Chairman
Chief Executive Officer
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE 12 AS WELL AS OTHER FACTORS INCLUDED IN
"FORWARD-LOOKING STATEMENTS" ON PAGE 13 FOR A DISCUSSION OF RISKS THAT SHOULD BE
CONSIDERED BY STOCKHOLDERS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR
ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE CBS COMMON STOCK
TO BE ISSUED IN THE MERGER OR DETERMINED THAT THIS DOCUMENT IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus is dated August 9, 1999, and is first being
mailed to stockholders on August 9, 1999
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KING WORLD PRODUCTIONS, INC.
12400 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90025
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
------------------------
TO BE HELD ON SEPTEMBER 7, 1999
As a stockholder of King World Productions, Inc., you are hereby notified of
and cordially invited to attend a Special Meeting of Stockholders of King World
to be held at the Rihga Royal Hotel, located at 151 West 54th Street, New York,
New York 10019, on Tuesday, September 7, 1999 at 9:00 a.m., local time to
consider and vote upon a proposal to adopt the Agreement and Plan of Merger,
dated as of March 31, 1999, by and among King World, CBS Corporation and K
Acquisition Corp., a wholly-owned subsidiary of CBS.
The Agreement and Plan of Merger provides for the merger of K Acquisition
Corp. into King World. Following the merger, King World would become a
wholly-owned subsidiary of CBS. If the merger is completed, King World
stockholders will have the right to receive .81 of a share of CBS common stock
at the effective time of the merger. The value you receive in the merger for
each share of your King World stock will depend upon the value of CBS common
stock at the effective time of the merger.
The Board of Directors has fixed the close of business on July 28, 1999 as
the record date for the determination of the holders of King World common stock
entitled to notice of and to vote at the meeting. Only holders of record of King
World common stock at the close of business on July 28, 1999 will be entitled to
vote at the special meeting or any adjournment or postponement of the meeting.
We hope that you will be present at the meeting. If you cannot attend and
you are a holder of King World common stock, please date and sign the enclosed
proxy card and return it at your earliest convenience in the envelope provided
so that your shares will be represented. The envelope requires no postage if
mailed in the United States.
August 9, 1999
By Order of the Board of Directors
Jonathan Birkhahn
General Counsel and
Assistant Secretary
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE CBS/KING WORLD MERGER...................................................... 1
SUMMARY.................................................................................................... 2
What You Will Receive in the Merger...................................................................... 3
Reasons for the Merger................................................................................... 3
Stockholder Agreement.................................................................................... 3
Recommendation of the Board.............................................................................. 3
Opinion of King World's Financial Advisor................................................................ 3
Interests of Directors and Officers in the Merger........................................................ 3
No Dissenters' Rights to Appraisal....................................................................... 4
Conditions to the Merger................................................................................. 4
Termination of the Merger Agreement...................................................................... 4
Termination Payments..................................................................................... 4
Income Tax Consequences of the Merger.................................................................... 4
CBS Dividends............................................................................................ 5
Accounting Treatment..................................................................................... 5
Comparison of Stockholder Rights......................................................................... 5
Forward-Looking Statements............................................................................... 5
Selected Historical and Pro Forma Combined Condensed Financial Information............................... 6
CBS Selected Consolidated Historical Financial Data...................................................... 6
King World Selected Consolidated Historical Financial Data............................................... 7
Selected Unaudited Pro Forma Combined Condensed Financial Information.................................... 9
Notes to Selected Unaudited Pro Forma Combined Condensed Financial Information........................... 11
Comparative Per Share Market Information................................................................. 11
RISK FACTORS............................................................................................... 12
Fixed Exchange Ratio May Result in Lower Value of Merger Consideration................................... 12
King World Officers and Directors May Have Conflicts of Interest That May Influence Their Decision to
Support or Approve the Merger.......................................................................... 12
CBS is Subject to Federal Regulation With Respect to the Licensing and Ownership of its Broadcast
Properties............................................................................................. 12
CBS Competes With Other Media for its Audiences and Advertising Revenues................................. 13
In Recent Years, Broadcast Television Has Seen a Decline in Total Audience Viewership.................... 13
Pending Litigation Against CBS Seeks Substantial Monetary Damages........................................ 13
FORWARD-LOOKING STATEMENTS................................................................................. 13
THE SPECIAL MEETING........................................................................................ 14
Time and Place of Special Meeting........................................................................ 14
Purposes of the Special Meeting; The Merger.............................................................. 14
Record Date.............................................................................................. 14
Required Votes........................................................................................... 15
Revocation............................................................................................... 15
Solicitation of Proxies.................................................................................. 15
No Dissenters' Rights to Appraisal....................................................................... 15
Accountants.............................................................................................. 15
THE MERGER................................................................................................. 16
Background............................................................................................... 16
Recommendation of the Board; King World's Reasons for the Merger......................................... 17
Opinion of Financial Advisor to King World............................................................... 18
Federal Income Tax Consequences to Holders of King World Common Stock.................................... 27
Accounting Treatment..................................................................................... 29
Dividend Policy.......................................................................................... 29
Interests of Directors and Officers in the Merger........................................................ 29
Regulatory Approvals..................................................................................... 30
Stock Exchange Listing................................................................................... 31
Federal Securities Law Consequences...................................................................... 31
</TABLE>
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THE MERGER AGREEMENT....................................................................................... 32
Terms of the Merger...................................................................................... 32
Issuance of New Stock Certificates....................................................................... 32
Representations and Warranties........................................................................... 34
Covenants................................................................................................ 34
No Solicitation of Transactions.......................................................................... 36
Employment Matters....................................................................................... 36
Indemnification and Insurance............................................................................ 37
Conditions to the Merger................................................................................. 37
Termination.............................................................................................. 38
Termination Fees and Expenses............................................................................ 39
BUSINESS OF CBS............................................................................................ 40
BUSINESS OF KING WORLD..................................................................................... 40
DESCRIPTION OF K ACQUISITION CORP.......................................................................... 40
SUMMARY OF OTHER SIGNIFICANT AGREEMENTS ENTERED INTO AS PART OF THE MERGER................................. 41
Amended Employment Agreements............................................................................ 41
Stockholder Agreement.................................................................................... 44
Loan..................................................................................................... 44
COMPARISON OF RIGHTS OF HOLDERS OF CBS COMMON STOCK AND
KING WORLD COMMON STOCK.................................................................................. 45
Dividend Rights.......................................................................................... 46
Fiduciary Duties of Directors............................................................................ 46
Liability of Directors................................................................................... 47
Indemnification of Directors and Officers................................................................ 47
Anti-Takeover Provisions................................................................................. 48
Rights of Inspection..................................................................................... 50
Liquidation Rights....................................................................................... 50
Case Law and Court Systems............................................................................... 50
LEGAL MATTERS.............................................................................................. 50
EXPERTS.................................................................................................... 50
INDEX TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION...................................... F-1
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION............................................... F-2
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF MARCH 31, 1999.................................. F-3
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999... F-4
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998........ F-5
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS....................................... F-6
APPENDIX A--THE MERGER AGREEMENT
APPENDIX B--OPINION OF ALLEN & COMPANY INCORPORATED
</TABLE>
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WHERE YOU CAN FIND MORE INFORMATION
We each file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document that we file at the Securities and Exchange Commission's
Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. Please
call 1-800-SEC-0330 for further information on the operation of the Public
Reference Room. Reports, proxy statements and other information regarding
issuers that file electronically with the Securities and Exchange Commission,
including our filings, are also available to the public from the Securities and
Exchange Commission's Web site at "http://www.sec.gov."
CBS has filed with the Securities and Exchange Commission a registration
statement on Form S-4. This proxy statement/prospectus is a part of the
registration statement and constitutes a prospectus of CBS for the CBS common
stock to be issued to you in the merger. As allowed by the Securities and
Exchange Commission rules, this proxy statement/prospectus does not contain all
the information you can find in the registration statement or the exhibits to
the registration statement.
THE SECURITIES AND EXCHANGE COMMISSION ALLOWS US TO "INCORPORATE BY
REFERENCE" THE INFORMATION WE FILE WITH THEM, WHICH MEANS THAT WE CAN DISCLOSE
IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT US TO YOU THAT IS NOT
INCLUDED IN OR DELIVERED WITH THIS PROXY STATEMENT/PROSPECTUS BY REFERRING YOU
TO THOSE DOCUMENTS.
The information incorporated by reference is considered to be part of this
proxy statement/prospectus. Information that we file later with the Securities
and Exchange Commission will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
filing we will make with the Securities and Exchange Commission under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 following the
date of this proxy statement/prospectus and prior to the date of the special
meeting:
CBS
1. Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended
December 31, 1998;
2. Current Reports on Form 8-K dated January 29, 1999, February 5, 1999, April
1, 1999, April 13, 1999, April 30, 1999, June 4, 1999, June 28, 1999, July
30, 1999 and August 4, 1999;
3. Quarterly Report on Form 10-Q, as amended by Form 10-Q/A, for the quarter
ended March 31, 1999; and
4. The description of CBS common stock contained in CBS's registration
statement on Form 10 dated May 15, 1935.
References within this document to:
- the Form 10-K for the year ended December 31, 1998, refer to that Form
10-K as amended by the Form 10-K/A, and
- the Form 10-Q for the quarter ended March 31, 1999, refer to that Form
10-Q as amended by the Form 10-Q/A.
King World
1. Annual Report on Form 10-K for the fiscal year ended August 31, 1998;
2. Quarterly Report on Form 10-Q for the period ended November 30, 1998 and the
related Quarterly Report on Form 10-Q/A;
3. Quarterly Report on Form 10-Q for the period ended February 28, 1999;
4. Quarterly Report on Form 10-Q for the period ended May 31, 1999;
5. Current Report on Form 8-K, dated April 1, 1999; and
6. The description of King World common stock in King World's registration
statement on Form S-1.
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YOU MAY REQUEST A COPY OF THESE FILINGS, AT NO COST, BY WRITING OR
TELEPHONING US AT THE FOLLOWING ADDRESS:
IN THE CASE OF CBS TO:
LOUIS J. BRISKMAN, ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
CBS CORPORATION
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
TELEPHONE REQUESTS MAY BE DIRECTED TO (212) 975-4321.
IN THE CASE OF KING WORLD TO:
JONATHAN BIRKHAHN, ESQ.
SENIOR VICE PRESIDENT BUSINESS AFFAIRS AND GENERAL COUNSEL
KING WORLD PRODUCTIONS, INC.
1700 BROADWAY, 33RD FLOOR
NEW YORK, NEW YORK 10019
TELEPHONE REQUESTS MAY BE DIRECTED TO (212) 315-4000.
IN ORDER TO ENSURE TIMELY DELIVERY OF THESE DOCUMENTS, YOU SHOULD MAKE SUCH
REQUEST BY SEPTEMBER 1, 1999.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ABOUT THE MERGER OR ABOUT US THAT DIFFERS FROM OR ADDS TO THE
INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS OR IN OUR DOCUMENTS OR THE
DOCUMENTS THAT WE PUBLICLY FILE WITH THE SECURITIES AND EXCHANGE COMMISSION.
THEREFORE, IF ANYONE DOES GIVE YOU DIFFERENT OR ADDITIONAL INFORMATION, YOU
SHOULD NOT RELY ON IT.
IF YOU ARE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO EXCHANGE OR
SELL, OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS
PROXY STATEMENT/PROSPECTUS OR TO ASK FOR PROXIES, OR IF YOU ARE A PERSON TO WHOM
IT IS UNLAWFUL TO DIRECT SUCH ACTIVITIES, THEN THE OFFER PRESENTED BY THIS PROXY
STATEMENT/ PROSPECTUS DOES NOT EXTEND TO YOU.
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS SPEAKS ONLY AS
OF ITS DATE UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE
APPLIES.
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QUESTIONS AND ANSWERS ABOUT THE CBS/KING WORLD MERGER
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We are working towards completing the merger as quickly as possible and
expect to complete it by September 7, 1999.
Q. WHAT DO I NEED TO DO NOW?
A. After carefully reading and considering the information contained in this
document, please indicate on the enclosed proxy form how you want to vote and
mail your signed and dated proxy in the enclosed return envelope as soon as
possible.
Q. WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A. Send in a later-dated, signed proxy form or revocation of proxy to the
Secretary of King World before the special meeting or attend the meeting in
person, notify the Secretary and vote.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. After the merger is completed, the exchange agent will send you written
instructions for exchanging your stock certificates.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME WITHOUT MY INSTRUCTIONS?
A. No. Your broker will vote your shares only if you provide instructions on how
to vote. To properly instruct your broker, follow the directions provided by
your broker. Failure to instruct your broker to vote your shares will be the
equivalent of voting against the adoption of the merger agreement.
Q. WHAT IF I PLAN TO ATTEND THE SPECIAL MEETING IN PERSON?
A. We recommend that you send in your proxy in any event. You may request a
ticket for admission to the special meeting by marking the appropriate box on
the proxy and returning it no later than September 2, 1999. If you hold King
World shares through a third party, such as a broker, you should send an
account statement or similar documentation of ownership to MacKenzie
Partners, Inc., the proxy solicitors, and request a ticket.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. If you have more questions about the merger, you should contact:
[LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
(800) 322-2885 (Call Toll-Free)
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ THIS ENTIRE DOCUMENT CAREFULLY, INCLUDING THE APPENDICES
AND THE OTHER DOCUMENTS LISTED IN THE SECTION "WHERE YOU CAN FIND MORE
INFORMATION" (SEE PAGE I). WE HAVE INCLUDED PAGE REFERENCES PARENTHETICALLY TO
DIRECT YOU TO MORE COMPLETE DESCRIPTIONS OF THE TOPICS PRESENTED IN THIS
SUMMARY.
KING WORLD PRODUCTIONS, INC.
12400 Wilshire Blvd.
Suite 1200
Los Angeles, CA 90025
(310) 826-1108
King World is one of the leading producers and distributors of television
programming in the world. King World was founded in 1964 by Charles and Lucille
King. King World was reincorporated in Delaware in 1984.
For further information on King World, see "Business of King World" on page
40.
------------------------
CBS CORPORATION
51 West 52nd Street
New York, NY 10019
(212) 975-4321
CBS is one of the largest radio and television broadcasters in the United
States. CBS operates its businesses through its Radio, Television and Cable
segments. The Television segment consists of CBS's 14 owned and operated
television stations and the CBS television network, which includes CBS's
Internet businesses. The Cable segment consists of CBS's cable networks.
The Radio segment business is conducted by Infinity Broadcasting
Corporation, a majority-owned subsidiary of CBS, and TDI Worldwide, Inc., a
wholly-owned subsidiary of Infinity.
For further information on CBS, see "Business of CBS" on page 40.
------------------------
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WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 32)
You will have the right to receive in the merger .81 of a share of CBS
common stock for each of your King World shares.
You will not receive any fractional shares of CBS common stock. Instead you
will have the right to receive cash equal to the value of the fractional shares.
REASONS FOR THE MERGER (PAGE 17)
The King World board considered a number of factors in approving the merger
agreement and recommending it to you, including:
- the ability of King World after the merger to more easily obtain, develop
and produce television programming for distribution by the King World
sales force;
- King World's desire to lessen its dependence on several key television
programs;
- the fact that the value of .81 of a share of CBS common stock to be
received as consideration in the merger represented approximately a 10.5%
premium over the trading value of a share of King World common stock on
March 30, 1999, the day before the King World board approved the merger;
- the opportunity for you to hold CBS stock, which the board believed would
have greater liquidity and less volatility than King World's stock;
- potential reductions in overhead costs from elimination of duplicative
administrative and operational facilities; and
- the March 31, 1999 opinion of Allen & Company Incorporated, financial
advisor to the board, that as of that date the consideration to be
received by the King World stockholders in the merger was fair from a
financial point of view to King World's stockholders.
As a result, the King World board believes that the merger should provide
increased value to you as a King World stockholder.
STOCKHOLDER AGREEMENT (PAGE 44)
Roger King, Michael King, Richard King and Diana King have all agreed to
vote for the adoption of the merger agreement. They hold approximately 19% of
King World common stock. This means that the holders of only 31.1% more of King
World common stock must vote for the adoption of the merger agreement to ensure
its approval by stockholders, which approval is required under Delaware law.
RECOMMENDATION OF THE BOARD
(PAGE 17)
The King World board has unanimously determined that the merger agreement
and the merger are advisable and in your best interests. The board recommends
that you vote for the adoption of the merger agreement.
OPINION OF KING WORLD'S FINANCIAL ADVISOR (PAGE 18)
Allen & Company Incorporated, as financial advisor to the board, has
delivered its written opinion to the board that, as of March 31, 1999, the
consideration to be received by the King World stockholders in the merger was
fair from a financial point of view to King World stockholders. The full text of
the opinion of Allen & Company is attached as Appendix B. The opinion includes
important assumptions and limitations and is not a recommendation as to how you
should vote on the merger.
WE URGE YOU TO READ THE ALLEN & COMPANY OPINION CAREFULLY IN ITS ENTIRETY.
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER (PAGE 29)
In considering the board's recommendation that you vote for the adoption of
the merger agreement, you should be aware that a number of King World's
directors and officers have interests in the merger that are different from or
in addition to yours as a King World stockholder.
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These interests include:
- King World and CBS have entered into an amended employment agreement with
each of Roger King and Michael King, which provide for their continued
employment after the merger;
- officers of King World will remain officers of King World following the
merger;
- King World will continue to indemnify and, for six years after the merger,
provide liability insurance for King World's directors and officers; and
- the vesting of stock options held by King World's non-employee directors
will accelerate as a result of the merger.
NO DISSENTERS' RIGHTS TO APPRAISAL (PAGE 15)
Under Delaware law, you do not have dissenters' rights of appraisal with
respect to the merger.
CONDITIONS TO THE MERGER (PAGE 37)
The merger will not be completed unless a number of conditions are satisfied
or waived. These include:
- holders of a majority of the King World common stock must approve the
merger agreement;
- King World's distribution agreements relating to the shows Jeopardy!,
Wheel of Fortune and The Oprah Winfrey Show must remain in effect at the
time of the merger;
- the amended employment agreements among Michael King, Roger King, CBS and
King World must still be in effect at the time of the merger and Michael
King and Roger King must be available to perform under their agreements at
that time; and
- each of King World and CBS must receive legal opinions confirming the
tax-free nature of the merger.
TERMINATION OF THE MERGER AGREEMENT (PAGE 38)
King World and CBS can jointly agree to terminate the merger agreement
without completing the merger. Either company can terminate the merger
agreement:
- if the merger is not completed on or before December 31, 1999; or
- if the other company has made significant misrepresentations or has failed
to perform its significant obligations under the merger agreement.
In addition, King World can terminate the merger agreement if its board of
directors decides to accept a superior acquisition proposal and pays the
termination fee described below. King World and CBS also can terminate the
merger agreement under the circumstances described on page 38.
TERMINATION PAYMENTS (PAGE 39)
King World is required to pay CBS a termination fee of $90 million, plus
reimburse CBS for up to $10 million of its expenses, if the merger agreement is
terminated under the circumstances described on page 39.
INCOME TAX CONSEQUENCES OF THE MERGER (PAGE 27)
In the opinion of Weil, Gotshal & Manges LLP, counsel to CBS, and Paul,
Weiss, Rifkind, Wharton & Garrison, counsel to King World, for federal income
tax purposes, the merger will qualify as a tax-free reorganization. Accordingly,
if you are a King World stockholder, the exchange of your shares of King World
common stock for CBS common stock will not cause you to recognize any gain or
loss. You may, however, have to recognize gain in connection with any cash you
receive instead of fractional shares.
THIS TAX TREATMENT MAY NOT APPLY TO EVERY KING WORLD STOCKHOLDER. DETERMINING
THE ACTUAL TAX CONSEQUENCES OF THE MERGER TO YOU MAY BE VERY COMPLICATED AND
DEPEND ON YOUR SPECIFIC SITUATION. YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISOR
FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO YOU.
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CBS DIVIDENDS (PAGE 29)
CBS does not currently pay quarterly dividends and does not expect to pay
regular quarterly dividends.
ACCOUNTING TREATMENT (PAGE 29)
The merger is expected to be accounted for under the purchase method of
accounting. This means that, after the merger, CBS will be required to record
the excess of the consideration paid over the estimated fair value of net assets
acquired and will subsequently amortize this cost against earnings.
COMPARISON OF STOCKHOLDER RIGHTS (PAGE 45)
King World and CBS are incorporated in different states having differing
corporation laws. In addition, the governing documents of each company vary. As
a result, you will have different rights as a CBS stockholder from the rights
you currently have as a King World stockholder.
FORWARD-LOOKING STATEMENTS (PAGE 13)
Statements in this document and in the documents incorporated by reference
in this document other than historical facts are or may be forward-looking
statements that involve risks and uncertainties. Actual results may differ
significantly from those expressed in such statements depending on a variety of
factors. You should carefully review all information, including the financial
statements and the notes to the financial statements, included or incorporated
by reference into this document.
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SELECTED HISTORICAL AND PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
We are providing the following historical financial information to help with
your analysis of the financial aspects of the merger. The information is only a
summary and you should read it together with the consolidated financial
statements of CBS and King World and other financial information contained in
the most recent annual and quarterly reports of CBS and King World, which are
incorporated in this document by reference and from which we derived this
information. See "Where You Can Find More Information" on page i.
CBS SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The selected consolidated historical financial data presented below have
been derived from, and should be read together with, the CBS audited
consolidated financial statements and the accompanying notes included in CBS's
Annual Report on Form 10-K for the year ended December 31, 1998 and the
unaudited interim consolidated financial statements and the accompanying notes
included in CBS's quarterly report on Form 10-Q for the quarter ended March 31,
1999, which is incorporated by reference in this proxy statement/prospectus. The
historical financial data presented below include the results of American Radio
Systems Corporation after its acquisition by CBS on June 4, 1998, the results of
The Nashville Network and Country Music Television, Gaylord Entertainment
Company's two major cable networks, after its acquisition by CBS on September
30, 1997, the results of Infinity Media Broadcasting Corporation, formerly known
as Infinity Broadcasting Corporation, after its acquisition by CBS on December
31, 1996 and the results of CBS Inc. after its acquisition by CBS, formerly
Westinghouse Electric Corporation, on November 24, 1995.
STATEMENT OF OPERATIONS DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------
1999 1998 1998 1997 1996 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues.................................................... $ 1,768 $ 1,949 $ 6,805 $ 5,367 $ 4,143 $ 1,074
Operating profit............................................ 118 136 482 253 54 160
Other income (expense) net.................................. 13 5 43 74 55 152
Interest expense............................................ (51) (75) (370) (386) (401) (184)
Income (loss) from Continuing Operations before income taxes
and minority interest..................................... 80 66 155 (59) (292) 128
Income tax (expense) benefit................................ (46) (47) (161) (73) 71 (75)
Income (loss) from Continuing Operations.................... 25 19 (12) (131) (221) 47
Income (loss) from Discontinued Operations.................. 366 -- -- 680 409 (57)
Extraordinary item, net of income taxes..................... (4) -- (9) -- (93) --
Net income (loss)........................................... 387 19 (21) 549 95 (10)
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Continuing Operations....................................... $ 0.04 $ 0.03 $ (0.02) $ (0.24) $ (0.67) $ (0.09)
Discontinued Operations..................................... 0.53 -- -- 1.08 1.02 (0.16)
Extraordinary item.......................................... (0.01) -- (0.01) -- (0.23) --
--------- --------- --------- --------- --------- ---------
Basic earnings (loss) per common share...................... $ 0.56 $ 0.03 $ (0.03) $ 0.84 $ 0.12 $ (0.25)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing Operations....................................... $ 0.04 $ 0.03 $ (0.02) $ (0.24) $ (0.67) $ (0.09)
Discontinued Operations..................................... 0.52 -- -- 1.08 1.02 (0.16)
Extraordinary item.......................................... (0.01) -- (0.01) -- (0.23) --
--------- --------- --------- --------- --------- ---------
Diluted earnings (loss) per common share.................... $ 0.55 $ 0.03 $ (0.03) $ 0.84 $ 0.12 $ (0.25)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Dividends per common share.................................. -- 0.05 $ 0.05 $ 0.20 $ 0.20 $ 0.20
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Average common and common equivalent shares (if dilutive)... 708 718 696 629 401 370
<CAPTION>
1994
---------
<S> <C>
Revenues.................................................... $ 744
Operating profit............................................ 151
Other income (expense) net.................................. (131)
Interest expense............................................ (26)
Income (loss) from Continuing Operations before income taxes
and minority interest..................................... (6)
Income tax (expense) benefit................................ 1
Income (loss) from Continuing Operations.................... (10)
Income (loss) from Discontinued Operations.................. 58
Extraordinary item, net of income taxes..................... --
Net income (loss)........................................... 48
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Continuing Operations....................................... $ (0.27)
Discontinued Operations..................................... 0.16
Extraordinary item.......................................... --
---------
Basic earnings (loss) per common share...................... $ (0.11)
---------
---------
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing Operations....................................... $ (0.27)
Discontinued Operations..................................... 0.16
Extraordinary item.......................................... --
---------
Diluted earnings (loss) per common share.................... $ (0.11)
---------
---------
Dividends per common share.................................. $ 0.20
---------
---------
Average common and common equivalent shares (if dilutive)... 355
</TABLE>
6
<PAGE>
BALANCE SHEET DATA
(IN MILLIONS)
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, -----------------------------------------------------
1999 1998 1997 1996 1995 1994
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Total assets--Continuing Operations................. $ 20,526 $ 20,139 $ 16,503 $ 15,406 $ 10,391 $ 2,524
Total assets--Discontinued Operations............... 1,014 1,919 4,101 5,710 8,157 9,273
----------- --------- --------- --------- --------- ---------
TOTAL ASSETS........................................ $ 21,540 $ 22,058 $ 20,604 $ 21,116 $ 18,548 $ 11,797
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
Long-term debt--Continuing Operations............... $ 2,315 $ 2,506 $ 3,236 $ 5,147 $ 7,222 $ 1,865
Long-term debt--Discontinued Operations............. 353 382 440 419 161 589
----------- --------- --------- --------- --------- ---------
TOTAL LONG-TERM DEBT................................ $ 2,668 $ 2,888 $ 3,676 $ 5,566 $ 7,383 $ 2,454
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
Total debt--Continuing Operations................... $ 2,442 $ 2,665 $ 3,387 $ 5,635 $ 7,840 $ 2,471
Total debt--Discontinued Operations................. 409 428 543 439 528 1,266
----------- --------- --------- --------- --------- ---------
TOTAL DEBT.......................................... $ 2,851 $ 3,093 $ 3,930 $ 6,074 $ 8,368 $ 3,737
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
SHAREHOLDERS' EQUITY................................ $ 9,702 $ 9,054 $ 8,080 $ 5,731 $ 1,453 $ 1,789
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
</TABLE>
KING WORLD SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The selected consolidated historical financial data presented below have
been derived from, and should be read together with, the King World audited
consolidated financial statements and the accompanying notes included in King
World's Annual Report on Form 10-K for the fiscal year ended August 31, 1998,
and the unaudited interim consolidated financial statements and the accompanying
notes included in King World's Quarterly Report on Form 10-Q for the quarterly
period ended May 31, 1999, which are incorporated by reference in this document.
STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31, YEARS ENDED AUGUST 31,
---------------------- -------------------------------------------------------------
1999 1998 1998 1997 1996 1995(1) 1994(1)
---------- ---------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues......................... $ 584,487 $ 514,810 $ 683,869 $ 671,277 $ 663,426 $ 574,186 $ 480,659
Income from operations........... 157,865 132,651 176,267 192,281 191,585 162,416 127,578
Income before provision for
income taxes................... 185,374 154,343 205,407 221,926 231,610(2) 183,258 140,839
Net income....................... 120,474 102,149 136,048 143,382 150,000(2) 117,312 88,300
BASIC AND DILUTED EARNINGS PER
SHARE(3):
Basic earnings per share....... $ 1.69 $ 1.40 $ 1.86 $ 1.93 $ 2.02(2) $ 1.60 $ 1.19
Diluted earnings per share..... $ 1.62 $ 1.34 $ 1.79 $ 1.91 $ 1.99(2) $ 1.57 $ 1.17
Special dividend per share..... -- -- -- $ 1.00 -- -- --
Weighted average basic shares.... 71,263 73,193 73,157 74,180 74,343 73,320 74,202
Weighted average diluted
shares......................... 74,403 76,458 76,078 74,992 75,368 74,686 75,724
</TABLE>
7
<PAGE>
BALANCE SHEET DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF
MAY 31, AS OF AUGUST 31,
------------ ------------------------------------------------------------
1999 1998 1997 1996 1995(1) 1994(1)
------------ ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash and investments................ $ 794,725 $ 747,509 $ 730,049 $ 644,380 $ 529,025 $ 430,048
Advances to producers............... 140,000 130,000 65,000 130,000 60,000 60,000
Working capital..................... 461,971 310,941 586,075 519,613 477,972 294,336
Total assets........................ 1,106,293 1,023,598 902,067 854,141 686,786 569,562
Stockholders' equity................ 963,585 881,211 784,082 737,885 575,737 459,077
</TABLE>
- ------------------------
(1) The results of operations for fiscal 1995 and 1994 reflect a change in
accounting for revenue recognition adopted prospectively in the fourth
quarter of fiscal 1994. The one-time impact of adopting such change was to
cause revenues, income from operations, income before provision for income
taxes, net income, basic earnings per share and diluted earnings per share
in the fourth quarter of fiscal 1994 to be approximately $60.7 million,
$20.6 million, $20.6 million, $12.9 million, $.17 and $.17, lower,
respectively, than they would have been under our prior revenue recognition
practice. Revenues were recognized in fiscal 1995 under the modified
accounting practice. The results of operations for fiscal 1995 would have
been substantially the same as that actually reported if our prior revenue
recognition practice had been in effect for all of fiscal 1995.
(2) Income before provision for income taxes, net income, basic earnings per
share and diluted earnings per share include a nonrecurring gain of
approximately $14.1 million, $10.3 million, $.14 and $.14, respectively, as
a result of our sale of Buffalo Broadcasting Co. Inc. to LIN Television
Corporation in October 1995.
(3) Adjusted to reflect a two-for-one stock split paid in February 1998.
8
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following selected unaudited pro forma combined condensed financial data
are derived from the Unaudited Pro Forma Combined Condensed Financial
Information included elsewhere in this proxy statement/prospectus and should be
read together with that data and with the notes to that data. These selected
unaudited pro forma combined condensed financial data are based upon the
historical financial statements of CBS, King World, American Radio, and Outdoor
Systems. The unaudited pro forma combined condensed balance sheet as of March
31, 1999 is presented as if the merger of CBS and King World, and the Outdoor
Systems acquisition had occurred on March 31, 1999. The unaudited pro forma
combined condensed statement of operations for the quarter ended March 31, 1999
and the year ended December 31, 1998 is presented as if the merger of CBS and
King World, the acquisition of American Radio by CBS, the probable acquisition
of Outdoor Systems by Infinity, and the Infinity Broadcasting Corporation
initial public offering had occurred on January 1, 1998.
These selected unaudited pro forma combined condensed financial data are for
illustrative purposes only and do not necessarily indicate the operating results
or financial position that would have been achieved had the merger of King World
and CBS, and the Other CBS Events been completed as of the dates indicated or of
the results that may be obtained in the future. In addition, the data does not
reflect synergies that might be achieved from combining these operations.
SELECTED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS DATA
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
UNAUDITED
Revenues................................................................... $ 2,127 $ 8,361
Operating Profit........................................................... 121 508
Interest Expense, Net...................................................... (73) (363)
Income from Continuing Operations before income taxes and minority interest
in income of consolidated subsidiaries................................... 62 183
Loss from Continuing Operations............................................ (14) (172)
Basic and diluted loss per share........................................... (0.02) (0.23)
Weighted average Basic and Diluted shares outstanding...................... 750 754
</TABLE>
SELECTED PRO FORMA BALANCE SHEET DATA
(IN MILLIONS)
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
-----------------
<S> <C>
Total assets--Continuing Operations............................................................ $ 31,575
Long-term debt--Continuing Operations.......................................................... 3,411
Total debt--Continuing Operations.............................................................. 3,685
Shareholders' equity........................................................................... 14,882
</TABLE>
9
<PAGE>
COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
ESTIMATED
PRO FORMA
COMBINED KING WORLD
CBS KING WORLD AS ADJUSTED FOR PRO FORMA
QUARTER ENDED MARCH 31, 1999 HISTORICAL HISTORICAL OTHER CBS EVENTS EQUIVALENT
- --------------------------------------------------------- ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
Income (loss) per common share from Continuing
Operations:
Basic.................................................. $ 0.04 $ 0.55 $ (0.02) $ (0.02)
Diluted................................................ 0.04 0.53 (0.02) (0.02)
Book value per common share:
Basic.................................................. 13.94 13.01 19.76 16.00
Diluted................................................ 13.62 12.51 19.76 16.00
Cash dividends per common share:
Basic and diluted...................................... -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
PRO FORMA
COMBINED KING WORLD
CBS KING WORLD AS ADJUSTED FOR PRO FORMA
YEAR ENDED DECEMBER 31, 1998 HISTORICAL HISTORICAL OTHER CBS EVENTS EQUIVALENT
- --------------------------------------------------------- ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
Income (loss) per common share from Continuing
Operations:
Basic.................................................. $ (0.02) $ 1.97 $ (0.23) $ (0.18)
Diluted................................................ (0.02) 1.89 (0.23) (0.18)
Book value per common share:
Basic.................................................. 13.12 12.62 19.05 15.43
Diluted................................................ 13.12 12.12 19.05 15.43
Cash dividends per common share:
Basic and diluted...................................... 0.05 -- 0.05 0.04
</TABLE>
10
<PAGE>
NOTES TO SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION
The average common shares outstanding used in calculating pro forma loss per
common share from Continuing Operations, as adjusted for Other CBS Events, are
calculated assuming that the estimated number of shares of CBS common stock to
be issued in the merger were outstanding from January 1, 1998. Options to
purchase shares of common stock as well as shares of common stock issuable under
deferred compensation arrangements were not included in computing pro forma
diluted earnings per common share because their inclusion would result in a
smaller loss per common share. For the quarter ended March 31, 1999 and the year
ended December 31, 1998, options to purchase shares of common stock as well as
shares of common stock issuable under deferred compensation arrangements
approximated 22 million and 21 million, respectively.
The book value per share amounts of CBS were calculated by dividing
shareholders' equity by the number of common shares outstanding, excluding
treasury shares, at the end of the period. The common shares outstanding used in
calculating pro forma combined book value per share are 695,935,000 and
690,327,000 of CBS common shares outstanding at March 31, 1999 and December 31,
1998, respectively, plus 57,311,821 shares representing the estimated number of
common shares to be issued in the merger. See Note 2 to the Unaudited Pro Forma
Combined Condensed Financial Statements.
King World pro forma equivalent amounts are calculated by multiplying the
respective pro forma combined per share amounts by the exchange ratio of .81.
COMPARATIVE PER SHARE MARKET INFORMATION
CBS common stock is traded on the New York Stock Exchange, Pacific Stock
Exchange, Chicago Stock Exchange, Boston Stock Exchange and Philadelphia Stock
Exchange under the symbol "CBS". King World common stock is traded on the New
York Stock Exchange under the symbol "KWP".
Set forth below are the last reported sales prices of CBS common stock and
King World common stock on March 31, 1999, the last trading day before the date
of the public announcement of the execution of the merger agreement, as reported
on the New York Stock Exchange Composite Transaction Tape, and the equivalent
pro forma sale price of King World common stock on that date. This was
determined by multiplying the last reported sale price of CBS common stock by
the exchange ratio of .81:
<TABLE>
<S> <C>
CBS common stock share price...................................... $ 40.8125
King World common stock share price............................... $ 30.5625
King World share equivalent value................................. $ 33.0581
</TABLE>
On August 6, 1999, the last trading day before the date of this document,
the last reported sale prices of CBS common stock and King World common stock,
as reported on the New York Stock Exchange Composite Transaction Tape, were
$47.0625 per share and $37.1875 per share, respectively. The King World share
equivalent value on that date was $38.1206 per share. There were 71,276,485
shares of King World common stock outstanding on that date.
We urge you to obtain current market quotations for King World common stock
and CBS common stock before voting on the adoption of the merger agreement.
11
<PAGE>
RISK FACTORS
FIXED EXCHANGE RATIO MAY RESULT IN LOWER VALUE OF MERGER CONSIDERATION
Upon completion of the merger, each share of King World may be exchanged for
.81 of a share of CBS common stock. This exchange ratio is fixed and will not be
adjusted as a result of any increase or decrease in the price of either CBS
common stock or King World common stock. Any change in the price of CBS common
stock will affect the value you receive in the merger. Because the merger will
be completed only after all the conditions to the merger are satisfied or
waived, including the holding of the special meeting of King World stockholders,
there is no way to be sure that the price of CBS common stock or King World
common stock on the date of the special meeting will be the same as their prices
at the time the merger is completed. The price of CBS common stock or King World
common stock at the time the merger is completed may be higher or lower than its
price on the date of this document. Changes in the business, operations or
prospects of CBS or King World, regulatory considerations, general market and
economic conditions, and other factors may affect the prices of CBS common
stock, King World common stock or both. Most of those factors are beyond our
control. You are encouraged to obtain current market quotations for both CBS
common stock and King World common stock.
KING WORLD OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTEREST THAT MAY
INFLUENCE THEIR DECISION TO SUPPORT OR APPROVE THE MERGER
The directors and executive officers of King World have interests in the
merger that are different from, or in addition to, the interests of stockholders
of King World generally. Specifically, two senior executive officers and
directors of King World have entered into amended employment agreements with
King World and CBS that will become effective upon completion of the merger. In
addition, all unvested stock options to acquire King World common stock held by
non-employee members of King World's board of directors will vest in full upon
consummation of the merger. CBS has also agreed to cause King World from and
after the effective time of the merger to indemnify the present and former
directors and officers of King World with respect to events occuring at or prior
to the effective time of the merger and to maintain directors' and officers'
liability insurance for these individuals for six years after consummation of
the merger. As a result, it is possible that these directors and executive
officers may be more likely to vote to approve the merger agreement than if they
did not hold these interests. King World stockholders should consider whether
these interests may have influenced the decision of these directors and
executive officers to support or recommend the merger. See "The
Merger--Interests of Directors and Officers in the Merger."
CBS IS SUBJECT TO FEDERAL REGULATION WITH RESPECT TO THE LICENSING AND OWNERSHIP
OF ITS BROADCAST PROPERTIES
CBS is subject to extensive federal regulation that may limit its ability to
conduct its business, require it to divest certain of its assets or otherwise
adversely affect CBS's business, operations or financial results. These
regulations, among other things, require approval by the Federal Communications
Commission for the issuance, renewal, transfer and assignment of broadcast
station operating licenses and limits the number of broadcast properties CBS may
own in any market. CBS's broadcasting business is dependent upon maintaining
broadcast licenses issued by the Federal Communications Commission, which are
issued for a maximum term of eight years. There can be no assurance that the
Federal Communications Commission will approve future renewal applications, and
it is possible that any renewals will include conditions or qualifications that
could adversely affect CBS's operations, including requiring CBS to divest
itself of some of its broadcast stations. In addition, the Telecommunications
Act of 1996, which became law on February 8, 1996, created uncertainties as to
how the Federal Communications Commission and the courts will enforce and
interpret numerous existing provisions of the telecommunications laws.
12
<PAGE>
CBS COMPETES WITH OTHER MEDIA FOR ITS AUDIENCES AND ADVERTISING REVENUES
CBS cannot predict the extent to which competition may affect its television
and radio broadcasting businesses and there can be no assurance that competitive
developments will not adversely affect CBS's future broadcasting audience and
advertising revenues. CBS faces significant competition for audiences and
advertising revenues from other over-the-air broadcast networks and stations,
programming alternatives and other forms of media. CBS's broadcast operations
have experienced increased competition from programming alternatives such as
cable television, wireless cable, in-home satellite distribution services and
pay-per-view and home video entertainment services. Future technological
developments also may adversely affect CBS's competitive standing. CBS, as well
as its competitors, currently are working to develop means to provide
broadcasting quality superior to that currently provided by CBS's television and
radio stations.
IN RECENT YEARS, BROADCAST TELEVISION HAS SEEN A DECLINE IN TOTAL AUDIENCE
VIEWERSHIP
Broadcast television, including CBS, has experienced a decline in total
audience viewership in recent years. And, among the major networks, CBS delivers
an audience that has an older demographic. An older demographic may result in
lower revenue for an advertising spot. There can be no assurance that this
declining audience will not continue or that CBS programming will appeal to an
audience having a younger demographic.
PENDING LITIGATION AGAINST CBS SEEKS SUBSTANTIAL MONETARY DAMAGES
CBS is a party to lawsuits relating to its continuing and discontinued
operations. Some of these lawsuits seek substantial monetary damages from CBS.
Although management believes that the litigation pending against CBS should not
have a material adverse effect on its financial condition, litigation is
inherently uncertain and always difficult to predict. Adverse judgments against
CBS in these lawsuits could have a material adverse effect on CBS's results of
operations.
FORWARD-LOOKING STATEMENTS
This document and the documents incorporated by reference in this document
contain both historical and forward-looking statements. All statements other
than statements of historical fact are, or may be deemed to be, forward-looking
statements within the meaning of section 27A of the Securities Act of 1933 and
section 21E of the Securities Exchange Act of 1934. These forward-looking
statements are not based on historical facts, but rather reflect CBS' current
expectations concerning future results and events. These forward-looking
statements generally can be identified by use of statements that include phrases
such as "believe," "expect," "anticipate," "intend," "plan," "foresee,"
"likely," "will" or other similar words or phrases. Similarly, statements that
describe our objectives, plans or goals are or may be forward-looking
statements. These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of CBS and King World to be different from any future results,
performance and achievements expressed or implied by these statements. You
should review carefully all information, including the financial statements and
the notes to the financial statements, included or incorporated by reference
into this document.
In addition to the risk factors described in the previous section, the
following important factors could affect future results, causing these results
to differ materially from those expressed in our forward-looking statements:
- the timing, impact and other uncertainties related to future acquisitions
by CBS;
- changes in tax requirements, including tax rate changes, new tax laws and
revised tax law interpretations;
- interest rate fluctuations and other capital market conditions;
- the ability of CBS to develop and acquire television programming and to
attract and retain advertisers;
13
<PAGE>
- the ability of CBS to increase audience share for its programs,
particularly in key demographic segments;
- the ability of CBS to renew existing programming, licensing and
distribution agreements and to enter into new agreements;
- the success of CBS and its suppliers and customers in achieving year 2000
compliance;
- the impact of significant competition from both the over-the-air broadcast
stations and programming alternatives such as cable television, wireless
cable, in-home satellite distribution services and pay-per-view and home
video entertainment services;
- the impact of new technologies; and
- changes in laws or rules or regulations of a governmental agency,
including the Federal Communications Commission regulations.
These factors and the risk factors described in the previous section are not
necessarily all of the important factors that could cause actual results to
differ materially from those expressed in any of our forward-looking statements.
Other unknown or unpredictable factors also could have material adverse effects
on our future results. The forward-looking statements included in this proxy
statement/prospectus are made only as of the date of this proxy
statement/prospectus and under section 27A of the Securities Act and section 21E
of the Exchange Act we do not have any obligation to publicly update any
forward-looking statements to reflect subsequent events or circumstances. We
cannot assure you that projected results or events will be achieved.
THE SPECIAL MEETING
TIME AND PLACE OF SPECIAL MEETING
We are sending this document to you as part of the solicitation of proxies
by the King World board for use at the special meeting of King World
stockholders to be held on September 7, 1999, at 9:00 a.m., local time, at the
Rihga Royal Hotel, 151 W. 54th St., New York, NY 10019. We are first mailing
this document, which constitutes a notice of special meeting of stockholders and
the enclosed proxy form, to you on August 9, 1999.
PURPOSES OF THE SPECIAL MEETING; THE MERGER
At the special meeting, King World stockholders will consider and vote upon
a proposal to adopt the Agreement and Plan of Merger, dated as of March 31,
1999, by and among CBS, K Acquisition Corp., a wholly-owned subsidiary of CBS,
and King World. This agreement provides for the merger of K Acquisition Corp.
into King World, with King World continuing as the surviving corporation. Upon
completion of the merger, King World will become a wholly-owned subsidiary of
CBS.
We know of no matter to be brought before the special meeting other than the
merger. However, if any other matters are properly presented for action at the
King World special meeting, including a motion to adjourn the meeting to another
time or place, the persons named in the enclosed proxy form will have the
discretion, unless otherwise noted on the proxy form, to vote on those matters,
subject to applicable federal and state securities and corporate law. No proxy
form that is voted against the merger will be voted in favor of any adjournment
or postponement of the King World special meeting.
THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT.
RECORD DATE
The board has fixed the close of business on July 28, 1999 as the record
date for the special meeting. Only record holders of King World common stock on
the record date will be entitled to vote at the special meeting and any
adjournments or postponements thereof. At the record date, 71,276,485 shares of
King World common stock were outstanding and entitled to vote. The presence, in
person or by proxy, of a majority of these shares of King World common stock is
necessary to constitute a quorum at the special
14
<PAGE>
meeting. Abstentions and broker non-votes will be included in the determination
of shares present at the special meeting for purposes of determining a quorum.
REQUIRED VOTES
All properly executed proxy forms delivered and not properly revoked will be
voted at the special meeting as specified in the proxy forms. If you do not
specify a choice, your shares represented by a signed proxy form will be voted
for the adoption of the merger agreement.
The affirmative vote of the holders of record of a majority of the shares of
King World common stock outstanding and entitled to vote on the record date is
required to adopt the merger agreement. Directors holding approximately 19% of
King World common stock already have agreed to vote for the adoption of the
merger agreement. This means that holders of only 31.1% more of King World
common stock must vote for the adoption of the merger agreement to ensure its
adoption by stockholders as required by Delaware law. Non-voting shares,
including broker non-votes and abstentions, will have the effect of a vote
against adoption of the merger agreement. As of the record date, the directors,
executive officers and affiliates of King World held approximately 19% of the
outstanding shares of King World common stock. See "Summary of Other Significant
Agreements Entered into as Part of the Merger--Stockholder Agreement."
REVOCATION
You may revoke your proxy at any time prior to its being voted by filing an
instrument of revocation with the Secretary of King World c/o King World
Productions, Inc., 830 Morris Turnpike, Short Hills, New Jersey 07078. You may
also revoke your proxy by filing a duly executed proxy bearing a later date or
by appearing at the special meeting in person, notifying the Secretary and
voting by ballot at the special meeting. If you attend the meeting, you may vote
in person whether or not you have previously given a proxy, but your presence
alone at the meeting will not revoke a previously given proxy. In addition, if
you beneficially hold shares of King World common stock that are not registered
in your own name, you will need additional documentation from the record holder
of such shares to attend and vote personally at the meeting.
SOLICITATION OF PROXIES
King World and CBS will each pay one-half of the expense of printing and
mailing this document. Proxies will be solicited through the mail and directly
by officers, directors and regular employees of King World not specifically
employed for such purpose, without additional compensation. King World will
reimburse banks, brokerage houses and other custodians, nominees and fiduciaries
for their reasonable expenses in forwarding these proxy materials to their
principals. King World has engaged MacKenzie Partners, Inc. to represent it in
connection with the solicitations of proxies at a cost of approximately $12,000
plus expenses.
NO DISSENTERS' RIGHTS TO APPRAISAL
Under Delaware law, you will not have dissenters' rights to appraisal in
connection with the merger.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO YOU. WE URGE YOU TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN
THIS DOCUMENT, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED
PROXY FORM IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
ACCOUNTANTS
Members of Arthur Andersen LLP, King World's independent public accountants,
are expected to attend the meeting, will have the opportunity to make a
statement at the meeting if they so desire and are expected to be available to
respond to appropriate questions.
15
<PAGE>
THE MERGER
BACKGROUND
Over the last five years, the King World board of directors reviewed from
time to time its strategic alternatives for King World with the goal of
increasing stockholder value. The board of directors believed that the U.S.
equity markets had failed to value King World in line with other television
production and distribution companies because of concerns about King World's
continuing ability to renew its rights to distribute The Oprah Winfrey Show,
Wheel of Fortune and Jeopardy!, which had collectively accounted for
approximately 80% of the company's revenues and net income. As a result, the
board focused in part on strategies to build the company and broaden it into a
more diversified media and entertainment company through acquisitions. At the
same time, however, King World also pursued the idea of creating additional
stockholder value through either locating a strategic partner that would make a
significant investment in King World or engaging in a business combination with
a larger, more diversified media and entertainment company. Due to these
efforts, at various times during the past five years, King World officers and
advisors entered into discussions regarding all of these alternatives but none,
before the proposed merger with CBS, led to a definitive agreement.
In March of 1998, the board of directors engaged Allen & Company
Incorporated, a well-known investment bank with acknowledged expertise in the
media and entertainment fields. Allen & Company was hired to aid the board in
its pursuit of strategic acquisition targets and/or a business combination.
Throughout calendar 1998 and into early 1999, King World and its financial
advisors engaged in various discussions with approximately 15 companies in the
media and entertainment industries, including CBS, to determine whether there
was interest in a potential transaction. After having numerous discussions of
varying depths with these parties, Allen & Company advised the board in March of
1999 that it had engaged in discussions regarding the economic parameters of a
proposed transaction with two of these companies, including CBS, that were the
most viable. The board then authorized Allen & Company to continue discussing
potential transactions with both CBS and the other company and to report back to
the board.
Between March 15, 1999 and March 31, 1999, CBS, through its legal and
finance departments and its outside legal counsel, accountants and financial
advisor, conducted due diligence on King World and its assets. While the due
diligence effort was underway, the parties began to focus concurrently on
preparing and negotiating a definitive merger agreement. The other interested
party presented Allen & Company with a proposal which contemplated the
contribution of its business and the King World business to a newly formed
entity in which King World's stockholders would continue to own a significant
percentage of the combined entity based upon preliminary indications of value
for King World and the entity. Based on these preliminary indications, the other
interested party's proposal valued King World at less than the CBS offer. No
formal offer was made by this other party to King World, and between March 15,
1999 and March 31, 1999, as negotiations intensified with CBS, Allen & Company's
discussions on behalf of King World with this other party slowed and eventually
terminated on March 31, 1999, when King World entered into the merger agreement
with CBS.
On March 22, 1999, King World delivered an initial draft of the merger
agreement to CBS. From March 22, 1999, to March 31, 1999, King World, CBS and
their respective legal advisors negotiated the terms of definitive agreements.
During this time, the parties discussed various issues related to the proposed
merger, including potential exchange ratios and the amount of, and terms and
conditions upon which CBS would be entitled to receive, a termination fee. The
exchange ratio was the result of extensive negotiations between senior
executives of King World and representatives of Allen & Company on the one hand,
and CBS, on the other hand. The exchange ratio was formulated in order to
provide King World stockholders with what King World believed was fair value for
their shares of King World common stock, based upon the historical trading
prices for both CBS and King World stock. The exchange ratio was
16
<PAGE>
originally proposed by CBS and following the negotiations noted above, which
resulted in an increase to the exchange ratio, was accepted by King World.
On March 30, 1999, the board of directors of King World held a meeting at
which the King World legal advisors made a preliminary presentation of the
principal terms of the proposed agreement with CBS, as well as legal analyses of
the transaction. In anticipation of the meeting, each board member was provided
with, among other information, the most current draft of the merger agreement as
well as financial analyses prepared by Allen & Company. Representatives of Allen
& Company also presented their financial analyses and delivered their oral
opinion that, as of that date, the consideration to be received by the King
World stockholders was fair to them from a financial point of view. Following
the meeting, representatives of King World and CBS met to finalize the terms of
the merger agreement. Also, extensive negotiations took place between
representatives of CBS and representatives of Roger King and Michael King
concerning amendments to their existing employment agreements. These amendments
were a condition to CBS's willingness to enter into the merger agreement. See
"Summary of Other Significant Agreements Entered into as Part of the
Merger--Amended Employment Agreements."
The negotiation of the merger agreement continued through the morning of
March 31, 1999. On that date, at a special meeting of the King World board, King
World management updated the board on the status and terms of the proposed
transaction with CBS. King World's legal advisors also reviewed the final terms
of the merger agreement, including the changes made to the merger agreement from
the draft given to the board for the March 30, 1999 meeting. Representatives of
Allen & Company again discussed their financial analyses and delivered a written
opinion that, as of that date, the consideration to be received by the King
World stockholders was fair to them from a financial point of view. See
"--Opinion of Financial Advisor to King World." After discussion, the board
unanimously determined that the merger agreement and the merger with CBS are
advisable and in the best interests of King World's stockholders and the board
approved the merger agreement. The board also unanimously resolved to recommend
that King World's stockholders vote to adopt the merger agreement.
RECOMMENDATION OF THE BOARD; KING WORLD'S REASONS FOR THE MERGER
In deciding to approve the merger, the board concluded that holding a
portion of a share of CBS common stock equal to the exchange ratio represented a
more favorable investment opportunity than holding one share of King World
common stock. The board took into account the risks inherent in holding King
World common stock versus CBS common stock. In evaluating the merger, the board
considered all relevant factors and information, including the following:
- the ability of King World after the merger to more easily obtain, develop
and produce television programming for distribution by its sales force;
- King World's desire to expand its strategic focus in order to lessen its
dependence on several key television programs;
- the increased growth potential that may result from a combination of CBS
and King World, including the greater marketing capabilities, financial
stability and strength of the combined company;
- the fact that the value of .81 of a share of CBS common stock to be
received as consideration in the merger represented approximately a 10.5%
premium over the trading value of a share of King World common stock on
March 30, 1999;
- the opportunity for you to hold CBS stock, which the board believed would
have greater liquidity and less volatility than King World's stock;
17
<PAGE>
- the March 31, 1999 opinion of Allen & Company to the effect that as of
that date the consideration to be received by the King World stockholders
was fair from a financial point of view to King World's stockholders;
- the financial analyses presented to the board by Allen & Company in
connection with the delivery of its opinion;
- the advice of Paul, Weiss, Rifkind, Wharton & Garrison, outside counsel to
King World, that the merger is expected to be treated as a tax-free
reorganization for federal income tax purposes;
- the terms and conditions of the merger agreement, including:
- the nature of the parties' representations, warranties, covenants and
agreements, which the board believed would provide a reasonable degree
of certainty that the merger would be completed; and
- the provisions that permit King World, subject to the conditions and
procedures described in the merger agreement, (1) to consider
additional bona fide third-party offers to acquire King World, (2) to
provide information and negotiate with third parties in response to
those offers and (3) to terminate the merger agreement with CBS to
accept a superior proposal subject to the payment to CBS of a
termination fee;
- the regulatory approvals required to complete the merger and the prospects
for receiving those approvals; and
- the potential adverse effects on King World's business, operations and
financial condition if the merger was not completed following public
announcement of the merger agreement.
This discussion is not intended to be exhaustive, but King World believes
the above includes all significant factors considered by the board all of which
weighed in favor of entering into the merger. The board of directors of King
World also considered the continued operation of King World as an independent
company, but in light of the favorable factors set forth above, it decided that
the merger agreement provided a more advisable alternative. In light of the
number and variety of information and factors the board considered, the board
did not find it practicable to, and did not, assign any specific or relative
weights to the factors listed above. In addition, individual directors may have
given differing weights to different factors. For a discussion of the interests
of members of King World's management and the board in the merger, see
"--Interests of Directors and Officers in the Merger" on page 29. The board
recognized these interests and determined that they neither supported nor
detracted from the advisability of the merger to King World's stockholders.
OPINION OF FINANCIAL ADVISOR TO KING WORLD
At the meeting of the King World board on March 30, 1999, Allen & Company
delivered its oral opinion, later confirmed in writing on March 31, 1999, to the
effect that, as of that date, the consideration to be received by holders of
King World common stock in the merger was fair to the holders from a financial
point of view.
The full text of the written opinion of Allen & Company, dated March 31,
1999, is set forth as Appendix B to this proxy statement/prospectus and
describes the assumptions made, matters considered and limits on the review
undertaken. King World stockholders are urged to read the opinion carefully and
in its entirety. Allen & Company's opinion is directed only to the fairness,
from a financial point of view, of the consideration to be received by the
holders of King World common stock in the merger and does not constitute a
recommendation of the merger over other courses of action that may be available
to King World or constitute a recommendation to any King World stockholder on
how to vote with respect to the merger. The summary of the opinion of Allen &
Company set forth in this proxy statement/prospectus is qualified in its
entirety by reference to the full text of such opinion.
18
<PAGE>
In arriving at its opinion, Allen & Company:
- reviewed the terms and conditions of the merger agreement and the related
draft agreements;
- analyzed publicly available historical business and financial information
relating to King World and CBS, as presented in documents filed with the
Securities and Exchange Commission;
- reviewed financial, operating and budgetary data given to Allen & Company
by King World and CBS relating to their businesses;
- conducted discussions with members of the senior management of King World
and CBS concerning the financial condition, business, operations,
strategic objectives and prospects of King World and CBS, as well as
prevailing industry trends;
- reviewed and analyzed public information, including stock market data and
financial information relating to selected public companies in lines of
business which Allen & Company deemed generally comparable to King World
and CBS, as well as analysts' reports and estimates for King World and
CBS;
- reviewed the trading history of King World's common stock and CBS's common
stock, including each company's performance in comparison to market
indices and to selected companies in comparable businesses;
- reviewed the trading history of Infinity's common stock and reviewed and
analyzed stock market data and financial information relating to Infinity
and selected public companies in lines of business which Allen & Company
deemed generally comparable to Infinity;
- reviewed public financial and transaction information relating to merger
and acquisition transactions which Allen & Company deemed to be comparable
to the merger; and
- conducted other financial analyses and investigations as Allen & Company
deemed necessary or appropriate for the purposes of the opinion expressed
therein.
In giving its opinion, Allen & Company assumed and relied on the accuracy
and completeness of the information it reviewed for the purpose of its opinion.
It did not assume any responsibility for independent verification of the
information or for any independent evaluation or appraisal of the assets of King
World or CBS. Allen & Company assumed that the financial, operating and
budgetary data referred to above for King World and CBS had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of King World and CBS. Allen & Company also
expressed no opinion with regard to the financial, operating and budgetary data
or the assumptions on which they were based. Allen & Company's opinion was
necessarily based upon business, market, economic and other conditions as they
existed on, and could be evaluated as of, the date of its opinion. Allen &
Company's opinion does not imply any conclusion as to the likely trading range
of the CBS common stock following the consummation of the merger. This may vary
depending on, among other factors, changes in interest rates, dividend rates,
market conditions, general economic conditions and other factors that generally
influence the price of securities.
Allen & Company also assumed in its analysis that, in all material respects:
- the representations and warranties of King World and CBS contained in the
merger agreement were true and correct, King World and CBS will perform
all of the covenants to be performed by them under the merger agreement
and all conditions to the consummation of the merger by King World and CBS
will be satisfied;
- the merger will be free from federal tax for King World's stockholders
except for cash received instead of fractional shares;
19
<PAGE>
- all material governmental, regulatory or other approvals and consents
required for the merger will be obtained;
- obtaining the required approvals or consents or amendments, modifications
or waivers to any agreements to which either King World or CBS is a party
would not impose any limitations, restrictions or conditions or
amendments, modifications or waivers that would have a material adverse
effect on King World or CBS or materially reduce the contemplated benefits
of the merger to King World.
The following is a summary of the presentations Allen & Company made to the
King World board while giving its fairness opinion:
TRANSACTION OVERVIEW. Before delivering its opinion to King World's board
of directors, Allen & Company presented an overview of the proposed transaction,
reviewed information with the board relating to King World and CBS, including
the information reviewed and analyzed in connection with rendering its opinion,
the financial terms of the merger and the financial analyses summarized below.
Allen & Company reviewed the estimated pro forma financial information for the
combined company, based on the 1999 calendar year budgets provided by King World
and CBS. Allen & Company noted that, on a pro forma basis based on then current
valuations, the combined company would have a fully diluted equity market
capitalization of approximately $31.2 billion, a strong balance sheet,
substantial excess debt capacity and significant financial flexibility. As a
result, Allen & Company noted that the combined company would be in a position
to invest in growth opportunities and further de-lever its balance sheet.
Allen & Company also analyzed the value of the consideration payable to the
King World stockholders in the merger, using the March 29, 1999 CBS common stock
price of $40.38, as a multiple of the combined company's pro forma 1999
operating cash flow, defined as earnings before interest, taxes, depreciation
and amortization. Allen & Company observed that, at a CBS common stock closing
price of $40.38 on March 29, 1999, the pro forma multiples of operating cash
flow for the combined company would fall within the range of multiples of
comparable companies.
OVERVIEW OF CBS. Allen & Company presented an overview of CBS including a
description of the various segments in which CBS operates: radio and outdoor
advertising, TV station group, television network, cable network, program
production and syndicated distribution and other operations. Allen & Company
commented on the opportunities presented in each of CBS's business segments, as
well as the challenges present in those segments, including the ongoing need for
CBS to effectively manage the integration of multiple media platforms and
businesses. Allen & Company reviewed CBS's historical operating results for the
fiscal years ended December 31, 1995 through 1998 and its budgeted operating
results for fiscal 1999. Allen & Company also reviewed CBS's historical and 1999
budgeted operating results by each CBS business segment.
20
<PAGE>
Allen & Company also reviewed stock price and trading volume data for CBS
common stock and Infinity common stock. Allen & Company noted that CBS's and
Infinity's general trading patterns were in line with those of the S&P
Broadcasting Index and S&P 500 Index over the period from December 1997 to March
1999 for CBS, and from December 1998 to March 1999 for Infinity. Allen & Company
also reviewed for the King World board the effects of selected public
announcements on CBS's and Infinity's stock prices and the perspective of
industry analysts on those stocks. Allen & Company noted the following trading
information for the CBS common stock:
<TABLE>
<CAPTION>
PERIOD HIGH LOW AVERAGE
- ----------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Calendar 1998.................................................... $ 36.19 $ 20.50
1/1/99 to 3/29/99................................................ $ 40.38 $ 31.88
20 trading days through 3/29/99.................................. $ 40.38 $ 36.25 $ 37.46
10 trading days through 3/29/99.................................. $ 40.38 $ 36.25 $ 38.31
</TABLE>
Allen & Company commented that CBS's and Infinity's stocks were freely and
actively traded on the New York Stock Exchange and that, in Allen & Company's
opinion, their closing prices as of March 29, 1999 were representative prices
for these securities.
Allen & Company also compared selected multiples derived from the March 29,
1999 closing price of CBS common stock to multiples derived from recent trading
prices of the following:
- a selected group of publicly traded radio broadcasting and outdoor
advertising companies comprised of Chancellor Media Corporation, Citadel
Communications Corporation, Clear Channel Communications, Cox Radio, Emmis
Communications, Heftel Broadcasting Corporation, Lamar Advertising
Company, Outdoor Systems and Saga Communications;
- a selected group of publicly traded diversified entertainment companies
comprised of Fox Entertainment Group, The Seagram Company, Time Warner,
USA Networks, Viacom, and The Walt Disney Company;
- a selected group of publicly traded television broadcasting companies
comprised of The Ackerley Group, BHC Communications, Hearst-Argyle
Television, Granite Broadcasting Corporation, Sinclair Broadcast Group,
United Television, Univision Communications, and Young Broadcasting;
- USA Networks, a publicly-traded cable broadcasting company;
- a selected group of publicly traded television production and distribution
companies comprised of dick clark productions, Endemol Entertainment, The
Kushner-Locke Company and Spelling Entertainment Group.
Allen & Company selected the companies in these business segments because
Allen & Company considered them to have operations similar to the operations of
CBS in these segments. Allen & Company commented that the closing price of the
CBS common stock on March 29, 1999 of $40.38 represented multiples of sales and
operating cash flow which were within the range found for the CBS-comparable
21
<PAGE>
companies set forth above. To illustrate, Allen & Company highlighted the
following multiples of total market capitalization to last twelve month sales
and last twelve month operating cash flows:
<TABLE>
<CAPTION>
TOTAL MARKET CAPITALIZATION
TOTAL MARKET CAPITALIZATION TO LAST TWELVE MONTH
COMPANY/GROUP OF CBS-COMPARABLE COMPANIES TO LAST TWELVE MONTH SALES OPERATING CASH FLOW
- -------------------------------------------------------- --------------------------- -------------------------------
<S> <C> <C>
CBS..................................................... 5.1x 28.5x
Radio Broadcasters/Outdoor
Average............................................... 8.4x 22.1x
Low................................................... 3.4x 11.5x
High.................................................. 13.5x 35.3x
Diversified Entertainment Companies:
Average............................................... 3.6x 17.0x
Low................................................... 1.6x 13.7x
High.................................................. 6.6x 21.1x
TV Broadcasters:
Average............................................... 4.8x 14.3x
Low................................................... 2.0x 10.9x
High.................................................. 10.9x 32.0x
Cable Networks.......................................... 3.6x 21.1x
Production and Distribution Companies
Average............................................... 2.3x 16.6x
Low................................................... 1.1x 7.0x
High.................................................. 3.5x 25.5x
</TABLE>
Allen & Company also compared selected multiples derived from the March 29,
1999 closing price of Infinity common stock to multiples derived from recent
trading prices of the selected group of publicly traded radio broadcasting and
outdoor advertising companies described above. Allen & Company selected these
companies because Allen & Company considered them to have operations in the
radio broadcasting and outdoor advertising markets similar to the operations of
Infinity in these markets. Allen & Company commented that the closing price of
Infinity common stock on March 29, 1999 of $25.06 represented multiples of sales
and operating cash flow which were within the range found for the
Infinity-comparable companies. For instance, Allen & Company highlighted the
following multiples of total market capitalization to last twelve month sales
and last twelve month operating cash flows:
<TABLE>
<CAPTION>
TOTAL MARKET CAPITALIZATION
TOTAL MARKET CAPITALIZATION TO LAST TWELVE MONTH
COMPANY/GROUP OF INFINITY-COMPARABLE COMPANIES TO LAST TWELVE MONTH SALES OPERATING CASH FLOW
- -------------------------------------------------------- --------------------------- -------------------------------
<S> <C> <C>
Infinity................................................ 11.3x 27.1x
Radio Broadcasters/Outdoor
Average............................................... 8.4x 22.1x
Low................................................... 3.4x 11.5x
High.................................................. 13.5x 35.3x
</TABLE>
These analyses, as they related to the CBS common stock, allowed Allen &
Company to conclude that the closing price of the CBS common stock on March 29,
1999 of $40.38 was representative for that security. Therefore, Allen & Company
determined that the use of this market price as part of the analyses discussed
later in its presentation was reasonable for purposes of evaluating the implied
value of the merger.
22
<PAGE>
OVERVIEW OF KING WORLD. Allen & Company presented an overview of King
World's business, highlighting the opportunities and challenges facing King
World. Allen & Company cited the current market expectation that one of King
World's most profitable programs, The Oprah Winfrey Show, may cease production
following the 2001-2002 television season. In addition, Allen & Company noted
that although a number of strategic opportunities had been identified in the
past, King World has been unable to successfully complete any transaction that
would productively use its significant cash balance and that this fact has
negatively affected the company's market valuation. Allen & Company also
reviewed King World's historical operating results for the fiscal years 1995
through 1998 and its budgeted operating results for fiscal 1999.
Allen & Company also reviewed stock price and trading volume data for King
World common stock. In so doing, Allen & Company noted that its general trading
patterns were in line with those of the S&P Entertainment Index and S&P 500
Index over the period from December 1989 to March 1999. Allen & Company also
reviewed for the King World board the effects selected public announcements have
had on the market prices of the King World common stock and the perspective of
industry analysts on the King World common stock.
Allen & Company commented that press reports regarding the merger were first
published on March 17, 1999 and that the average price of the King World common
stock for the 20 days immediately preceding that date of $25.85 was a
representative price for that security. Therefore, Allen & Company determined
that the use of this price as part of the analyses discussed later in its
presentation was reasonable for purposes of evaluating the implied value of the
merger. Allen & Company noted the following trading information for the King
World common stock:
<TABLE>
<CAPTION>
AT THE CLOSE OF BUSINESS
-------------------------------
PERIOD HIGH LOW AVERAGE
- ----------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Calendar 1998.................................................... $30.25 $ 21.00
1/1/99 to 3/29/99................................................ $30.94 $ 24.44
20 trading days through 3/29/99.................................. $30.94 $ 24.44 $ 26.69
10 trading days through 3/29/99.................................. $30.94 $ 24.44 $ 28.23
20 trading days preceding 3/17/99................................ $27.88 $ 24.44 $ 25.85
10 trading days preceding 3/17/99................................ $25.44 $ 24.44 $ 24.96
</TABLE>
Allen & Company also compared selected multiples derived from the March 29,
1999 closing price of King World common stock to multiples derived from recent
trading prices of the following:
- a selected group of publicly traded television production and distribution
companies comprised of dick clark productions, Endemol Entertainment, The
Kushner-Locke Company and Spelling Entertainment Group.
- a selected group of publicly traded diversified entertainment companies
comprised of CBS Corporation, Fox Entertainment Group, The Seagram
Company, Time Warner, USA Networks, Viacom, and The Walt Disney Company.
Allen & Company selected the companies in these business segments because
Allen & Company considered them to have operations similar to the operations of
King World in these segments. Allen & Company also analyzed the King World
multiples (a) on a pro forma basis by adjusting King World's market
capitalization and operating results to eliminate the effects of King World's
significant cash balance and tax-affected interest income and (b) on an adjusted
pro forma basis by further adjusting King World's market capitalization and
operating cash flow; in addition to the adjustment in clause (a); to eliminate
the effect of The Oprah Winfrey Show from market capitalization and operating
cash flow. Allen & Company stated that these pro forma and adjusted pro forma
comparisons were appropriate given the need to account for King World's
significant cash balance and for the fact that The Oprah Winfrey Show, which may
cease production after the 2001-2002 television season, has been a significant
source of King World's
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<PAGE>
historical earnings stream. Allen & Company commented that the closing price of
the King World common stock on March 29, 1999 of $30.94 represented multiples of
sales and operating cash flow which were consistent with the range found for the
King World-comparable companies referred to above and which were within the
historical range of multiples for the King World common stock for the past five
years. To illustrate, Allen & Company highlighted the following multiples of
total market capitalization to last twelve month sales and last twelve month
operating cash flows:
<TABLE>
<CAPTION>
TOTAL MARKET CAPITALIZATION
TOTAL MARKET CAPITALIZATION TO LAST TWELVE MONTH
COMPANY/GROUP OF KING WORLD-COMPARABLE COMPANIES TO LAST TWELVE MONTH SALES OPERATING CASH FLOW
- -------------------------------------------------------- ----------------------------- -------------------------------
<S> <C> <C>
King World:
As Reported........................................... 2.1x 8.1x
Pro Forma............................................. 2.1x 8.1x
Adjusted Pro Forma.................................... 3.2x 15.1x
Production and Distribution Companies:
Average............................................... 2.3x 16.6x
Low................................................... 1.1x 7.0x
High.................................................. 3.5x 25.5x
Diversified Entertainment Companies:
Average............................................... 3.8x 18.7x
Low................................................... 1.6x 13.7x
High.................................................. 6.6x 28.8x
</TABLE>
Allen & Company also commented that the total market capitalization based on
the average price of $25.85 for the King World common stock for the 20 days
prior to March 17, 1999, the date on which published reports first appeared
regarding the merger, represented multiples of sales and operating cash flow
which were generally consistent with the ranges found for King World-comparable
companies:
<TABLE>
<CAPTION>
TOTAL MARKET CAPITALIZATION TO
TOTAL MARKET CAPITALIZATION LAST TWELVE MONTH
COMPANY/GROUP OF KING WORLD-COMPARABLE COMPANIES TO LAST TWELVE MONTH SALES OPERATING CASH FLOW
- -------------------------------------------------------- ----------------------------- -------------------------------
<S> <C> <C>
King World:
As Reported........................................... 1.5x 5.8x
Pro Forma............................................. 1.5x 5.8x
Adjusted Pro Forma.................................... 2.2x 10.4x
Production and Distribution Companies:
Average............................................... 2.3x 16.6x
Low................................................... 1.1x 7.0x
High.................................................. 3.5x 25.5x
Diversified Entertainment Companies:
Average............................................... 3.8x 18.7x
Low................................................... 1.6x 13.7x
High.................................................. 6.6x 28.8x
</TABLE>
Allen & Company also performed a discounted cash flow analysis of King World
based upon projections provided by King World management and using other
assumptions made by Allen & Company. Discounted cash flow analysis is generally
used to ascribe a present value to an anticipated future stream of cash flow,
based upon certain assumptions relating to, among other things, prevailing
market conditions, including costs of capital. The discounted cash flow
valuation of King World was determined by adding (a) the present value as of
March 31, 1999 of projected unlevered cash flow of King World through 2002 and
(b) the present value of King World's projected terminal value in the year 2002.
The range of terminal values for King World was calculated by applying a range
of perpetual growth rates to the 2002 free cash
24
<PAGE>
flows associated with each of King World's shows. The cash flows and terminal
values of King World were discounted to present value using a range of discount
rates, from 10.0% to 12.0%, which were chosen to reflect various assumptions
regarding costs of capital. Allen & Company assumed $723 million of King World
cash balance as of February 28, 1999 and approximately $113 million as the
present value of advance receivables from The Oprah Winfrey Show, utilizing a 6%
discount rate. In addition, Allen & Company assumed approximately 86.79 million
fully-diluted shares outstanding, including 16.04 million options outstanding at
an average exercise price of $18.96. Based upon this analysis, Allen & Company
derived a range of equity values for King World of between approximately $23.81
per share to $28.91 per share. Allen & Company noted that this estimated range
was less than the implied per share value of the merger consideration of $32.70
based upon the CBS common stock closing price on March 29, 1999 of $40.38. As a
result, Allen & Company commented that its discounted cash flow analysis
supported a fairness determination concerning the merger.
TRANSACTION ANALYSIS. Based on the implied per share value of the merger
consideration, Allen & Company calculated the premiums represented by this value
as of March 29, 1999 over the closing price of the King World common stock on
March 16, 1999, the date prior to the date on which published reports first
appeared regarding the merger, and over the closing price as of March 29, 1999,
the day prior to Allen & Company's presentation to the King World board. Allen &
Company also calculated the premiums by adjusting the King World stock prices to
reflect the estimated per share cash balance of King World. Set forth below are
the results of Allen & Company's analysis:
<TABLE>
<CAPTION>
ADJUSTED ADJUSTED
STOCK PRICE PREMIUM STOCK PRICE PREMIUM
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Prior to Announcement:
March 29, 1999.................................................... $ 30.94 5.7% $ 21.54 8.5%
Avg. 10 Prior Trading Days........................................ $ 28.23 15.8% $ 18.72 24.8%
Avg. 20 Prior Trading Days........................................ $ 26.69 22.5% $ 17.09 36.7%
Unaffected Stock Price:
March 16, 1999.................................................... $ 24.44 33.8% $ 14.71 58.7%
Avg. 10 Prior Trading Days........................................ $ 24.96 31.0% $ 15.27 53.0%
Avg. 20 Prior Trading Days........................................ $ 25.85 26.5% $ 16.21 44.1%
</TABLE>
Allen & Company compared these premiums to premiums paid in selected all
stock, all cash and cash and stock merger and acquisition transactions. For this
analysis, Allen & Company utilized approximately 105 transactions involving
business combination transactions since 1997 in all types of industries and
involving participants with combined market values of at least $1 billion. Allen
& Company noted that the average premium for all stock transactions was 31.6%
and the range was (5.4%) to 120.8% and that the premiums implied by the merger
as of March 16, 1999 and March 29, 1999 were within the range of multiples paid
in the selected transactions. As a result, Allen & Company commented that these
analyses of premiums supported a fairness determination concerning the merger.
Allen & Company also analyzed the value to be received by the King World
stockholders in the merger as multiples of King World's last twelve month sales
and last twelve month operating cash flow and compared these multiples to
multiples of last twelve month sales and last twelve month operating cash flow
paid in the following selected mergers and acquisitions of diversified
entertainment companies within the last ten years:
- Universal Television/Home Shopping Network
- Capital Cities-ABC/The Walt Disney Company
- CBS/Westinghouse
- Turner Broadcasting/Time Warner
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- RHI Entertainment/Hallmark Entertainment
- Republic Pictures/Spelling Entertainment
- Paramount Communications/Viacom Inc.
- New Line Cinema/Turner Broadcasting
- MCA Inc./Matsushita Electric
- Columbia Pictures/Sony USA Inc.
Allen & Company also performed this analysis for the following selected
mergers and acquisitions involving television program producers and distributors
within the last five years:
- Lancit Media/RCN Corp.
- Universal Television/Home Shopping Network
- All American Communications/Pearson PLC
- Bohbot Entertainment/undisclosed investor group
- Mark Goodson Productions/All American Communications
- International Family Entertainment/The News Corp.
Allen & Company selected these transactions because they involved companies
in business segments in which CBS and King World have operations. Allen &
Company also analyzed the King World multiples (a) on a pro forma basis by
adjusting King World's market capitalization and operating results to eliminate
the effects of King World's significant cash balance and tax-affected interest
income and (b) on an adjusted pro forma basis by further adjusting King World's
market capitalization and operating cash flow, in addition to the adjustment in
clause (a), to eliminate the effect of The Oprah Winfrey Show from market
capitalization and operating cash flow. Allen & Company noted that the multiples
implied by the merger as of March 29, 1999 were within the range of multiples
paid in comparable transactions, and, therefore, that these analyses of
multiples supported a fairness determination concerning the merger.
<TABLE>
<CAPTION>
TRANSACTION VALUE AS A MULTIPLE OF
--------------------------------------
LAST TWELVE LAST TWELVE MONTH
COMPANY/GROUP MONTH SALES OPERATING CASH FLOW
- ------------------------------------------------------------------------- --------------- ---------------------
<S> <C> <C>
Merger Offer for King World:
As Reported............................................................ 2.3x 8.9x
Pro Forma.............................................................. 2.3x 8.9x
Adjusted Pro Forma..................................................... 3.6x 16.7x
Comparable Transactions: Diversified Entertainment Cos.:
Average................................................................ 2.4x 18.4x
Low.................................................................... 1.4x 13.0x
High................................................................... 4.1x 25.8x
Television Production & Distribution Cos.:
Average................................................................ 3.5x 17.8x
Low.................................................................... 1.9x 11.1x
High................................................................... 5.0x 26.9x
</TABLE>
No company used in the comparable company analyses summarized above is
identical to King World or CBS, and no transaction used in the comparable
transaction analysis summarized above is identical to the merger. Accordingly,
any analysis of the fairness of the consideration to be received by the holders
of King World common stock in the merger involves complex considerations and
judgments concerning differences in the potential financial and operating
characteristics of the comparable companies and
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transactions and other factors in relation to the trading and acquisition values
of the comparable companies.
The preparation of a fairness opinion is not susceptible to partial analysis
or summary description. Allen & Company believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all analyses and factors, could create an incomplete view of the processes
underlying the analysis set forth in its opinion. Allen & Company has not
indicated that any of the analyses which it performed had a greater significance
than any other.
In determining the appropriate analyses to conduct and when performing those
analyses, Allen & Company made numerous assumptions with respect to industry
performance, general business, financial, market and economic conditions and
other matters, many of which are beyond the control of King World or CBS. The
analyses which Allen & Company performed are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than suggested by the analyses. The analyses were prepared solely as
part of Allen & Company's analysis of the fairness, from a financial point of
view, of the consideration to be received by the holders of King World common
stock in the merger. The analyses are not appraisals and do not reflect the
prices at which a company might actually be sold or the prices at which any
securities may trade at the present time or at any time in the future.
Allen & Company is a nationally recognized investment banking firm that is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwriting, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. King World
retained Allen & Company based on such qualifications as well as its familiarity
with King World and CBS. Allen & Company provided various investment banking and
financial advisory services to CBS Inc. in connection with its acquisition by
Westinghouse in 1995, and Allen & Company served as an underwriter in connection
with the December 1998 initial public offering of Infinity. Also, Allen &
Company and certain of its officers and directors own securities of King World
and CBS. From time to time in the ordinary course of its business as a
broker-dealer, Allen & Company may also hold positions and trade in securities
of King World and CBS, and Allen & Company acted on behalf of King World in
connection with its 1999 stock repurchase program.
King World entered into an engagement letter agreement with Allen & Company
as of March 1, 1998, as amended as of February 19, 1999, in which Allen &
Company agreed to act as King World's financial advisor in connection with King
World's efforts to identify a strategic acquisition target and/or a business
combination and to render an opinion as to the fairness of the transaction from
a financial point of view to the King World stockholders. Under the engagement
letter, King World agreed to pay Allen & Company a fee equal to $15,000,000 upon
the completion of the merger. Whether or not the merger is completed, King World
has agreed, under the engagement letter, to reimburse Allen & Company for all
its reasonable out-of-pocket expenses, including the fees and disbursements of
its counsel, incurred in connection with its engagement by King World and to
indemnify Allen & Company against certain liabilities and expenses in connection
with its engagement.
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF KING WORLD COMMON STOCK
GENERAL
The following, which is based on the opinions of Weil, Gotshal & Manges LLP,
counsel to CBS, and Paul, Weiss, Rifkind, Wharton & Garrison, counsel to King
World, describes the material federal income tax consequences of the merger to
King World stockholders generally. However, this discussion does not address all
aspects of taxation that may be relevant to particular stockholders in light of
their personal investment or tax circumstances. Nor does this discussion address
all the tax consequences for stockholders subject to special treatment under the
federal income tax laws, such as insurance companies, financial
27
<PAGE>
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States. In addition, this discussion does
not give a detailed discussion of any state, local or foreign tax
considerations. This discussion may not be applicable to holders who acquired
King World common stock pursuant to the exercise of options or warrants or
otherwise as compensation. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF THE MERGER.
This discussion is based on the Internal Revenue Code of 1986, as amended,
applicable Department of Treasury regulations, judicial authority, and
administrative rulings and practice, all as of the date of this proxy
statement/prospectus. Future legislative, judicial, or administrative changes or
interpretations may adversely affect the accuracy of the statements and
conclusions described in this document. Any such changes or interpretations
could be applied retroactively and could affect the tax consequences of the
merger to you.
CBS has received from its counsel, Weil, Gotshal & Manges LLP, an opinion to
the effect that the merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code. King World has
received from its counsel, Paul, Weiss, Rifkind, Wharton & Garrison, an opinion
to the effect that the merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code. In rendering
their opinions, counsel to each of CBS and King World have relied upon
representations made by CBS and King World.
MATERIAL TAX CONSEQUENCES OF THE MERGER
The material federal income tax consequences of the merger will be as
follows:
(a) The merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code for United States federal
income tax purposes;
(b) No gain or loss will be recognized by CBS, the CBS subsidiary
participating in the merger, or King World as a result of the merger;
(c) No gain or loss will be recognized by you upon your receipt of CBS
common stock in exchange for your King World common stock, except with
respect to cash received instead of fractional shares of CBS common
stock;
(d) The aggregate tax basis of the shares of CBS common stock that you
receive in exchange for your King World common stock in the merger,
including fractional shares for which cash is received, will be the same
as the aggregate tax basis of your King World common stock exchanged;
(e) The holding period for shares of CBS common stock that you receive in
the merger will include the holding period of the King World common stock
exchanged, but only if you hold the King World common stock as a capital
asset at the time we complete the merger; and
(f) If you receive cash instead of a fractional share of CBS common stock,
you will recognize gain or loss equal to the difference, if any, between
your tax basis in the fractional share, as described in (d) above, and
the amount of cash received.
King World's obligation to complete the merger is conditioned upon, among
other things, its receipt of an opinion from Paul, Weiss, Rifkind, Wharton &
Garrison that the merger will be treated as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code. The obligation of CBS and the
CBS subsidiary participating in the merger to complete the merger is conditioned
upon, among other things, CBS's receipt of an opinion from Weil, Gotshal &
Manges LLP that the merger will be treated as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code. These opinions of
counsel will be based in part upon representations, made as of the effective
time of the merger, by King World, CBS and the CBS subsidiary participating in
the merger, which each counsel will assume to be true, correct and complete. If
the representations are inaccurate, the opinions of counsel could be
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adversely affected. No ruling has been sought from the Internal Revenue Service
as to the United States federal income tax consequences of the merger, and the
opinions of counsel will not be binding upon the Internal Revenue Service or any
court.
BACKUP WITHHOLDING
Noncorporate holders of King World common stock may be subject to backup
withholding at a rate of 31% on cash payments received instead of a fractional
share interest in CBS common stock. Backup withholding will not apply, however,
to a stockholder who:
- furnishes a correct taxpayer identification number and certifies, under
penalties of perjury, that he or she is not subject to backup withholding
on a Form W-9;
- provides a certificate of foreign status on Form W-8; or
- is otherwise exempt from backup withholding.
A stockholder who fails to provide the correct taxpayer identification
number on Form W-9 may be subject to penalties imposed by the Internal Revenue
Service. We will provide a Form W-9 to you after the merger.
REPORTING REQUIREMENTS
You will be required to attach a statement to your tax returns for the
taxable year in which the merger is completed that contains the information set
forth in Section 1.368-3(b) of the Department of Treasury regulations. The
statement must include your tax basis in the King World common stock surrendered
and a description of the CBS common stock received in the merger.
ACCOUNTING TREATMENT
The merger is expected to be accounted for under the purchase method under
generally accepted accounting principles of accounting. This means that after
the merger, CBS will be required to record on its balance sheet the excess of
the consideration paid over the estimated fair value of net assets acquired and
will subsequently amortize this cost against earnings.
DIVIDEND POLICY
CBS does not currently pay quarterly dividends and does not expect to pay
regular quarterly dividends. Future dividends will be at the discretion of CBS
and will be determined after consideration of a number of factors including,
among others, CBS's earnings, financial condition, cash flows from operations,
current and anticipated cash needs and expansion plans.
Both King World and CBS have agreed not to declare, set aside, make or pay
any dividend on its common stock from March 31, 1999, the date the merger
agreement was signed, to the completion of the merger.
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER
GENERAL
Members of the board and King World management may be deemed to have
interests in the merger that are different from or in addition to your interests
as King World stockholders. The board recognized these interests and determined
that these interests neither supported nor detracted from the fairness of the
merger to you.
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<PAGE>
EMPLOYMENT AGREEMENTS
Messrs. Roger King and Michael King have entered into amended employment
agreements with King World and CBS which will become effective upon the
completion of the merger and end on December 31, 2006, unless terminated prior
to that date or extended as provided in their amended employment agreements. In
addition, Mr. Robert King has entered into an amended employment agreement with
King World and CBS which will become effective upon completion of the merger and
will expire on August 31, 2002, unless terminated prior to that date or extended
as provided in the amended employment agreement. Mr. Robert King is a brother of
Roger King and Michael King. For a discussion of the terms of these agreements,
see "Summary of Other Significant Agreements Entered Into as Part of the
Merger-- Amended Employment Agreements."
COMMITTEE ARRANGEMENT
On January 28, 1999, the King World board appointed Fredric Rosen, a
non-employee director of King World, to its Acquisition Committee at a fee of
$40,000 per month. In his capacity as a member of the Acquisition Committee, Mr.
Rosen considered and advised the King World board of directors about strategic
alternatives that King World might pursue to enhance stockholder value. As of
May 1, 1999, Mr. Rosen was no longer entitled to these payments.
INDEMNIFICATION
CBS has agreed to cause King World, from and after the effective time of the
merger, to indemnify the present and former directors and officers of King World
and has agreed to maintain directors' and officers' liability insurance for
these individuals in place for six years following completion of the merger. For
further details regarding these arrangements, see "The Merger Agreement--
Indemnification and Insurance."
ACCELERATED VESTING OF OPTIONS
CBS agreed to assume all outstanding employee stock options of King World,
vested or unvested, and that these options would vest in accordance with the
vesting schedule in place immediately before the merger. According to the terms
of King World's employee, I.E., non-director, stock option plans, none of the
options will automatically vest as a result of the merger. The outstanding
options held by non-employee directors of King World will accelerate upon
completion of the merger. The following table discloses for each King World
non-employee director the number of options that will be subject to accelerated
vesting upon the merger:
<TABLE>
<CAPTION>
NUMBER OF
NON-VESTED
NAME AND TITLE OPTIONS EXERCISE PRICES
- ------------------------------------------------------------------ ------------- ---------------
<S> <C> <C>
Raymond Chambers.................................................. -- --
Joel Chaseman..................................................... 3,333 $ 27.75
Richard King...................................................... 3,333 $ 18.82
Avram Miller...................................................... 3,333 $ 27.75
Fredric Rosen..................................................... 6,666 $ 27.22
</TABLE>
REGULATORY APPROVALS
Federal antitrust laws prohibit us from completing the merger until a
required notification and report form is filed and a required waiting period has
expired or been terminated. On April 9, 1999, we filed the required notification
and report forms. The waiting period for the filings terminated on April 19,
1999. Even though the waiting period has terminated, the Antitrust Division of
the Department of Justice or the Federal Trade Commission could take action
under the antitrust laws that could adversely affect the
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<PAGE>
merger. However, we do not believe that the completion of the merger will result
in the violation of any applicable antitrust laws.
We do not believe that any additional material governmental filings in the
United States are required with respect to the merger, other than the filing of
the certificate of merger with the Delaware Secretary of State.
STOCK EXCHANGE LISTING
The CBS common stock to be issued to you in the merger will be listed on the
New York Stock Exchange, subject to official notice of issuance. The completion
of the merger is conditioned upon the authorization for listing on the New York
Stock Exchange of such CBS common stock.
FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of CBS common stock received by King World stockholders in the
merger will be freely transferable under the federal securities laws, except for
shares received by persons who are deemed to be "affiliates" of King World prior
to the completion of the merger. These shares may be resold by them only in
transactions permitted by the resale provisions of Rule 145 of the Securities
Act of 1933, or Rule 144 in the case of persons who become affiliates of CBS, or
as otherwise permitted under the Securities Act of 1933. Persons who may be
deemed to be affiliates of CBS or King World generally include individuals or
entities that control, are controlled by, or are under common control with,
those parties.
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THE MERGER AGREEMENT
The following is a brief summary of the significant provisions of the merger
agreement. A copy of the merger agreement is attached as Appendix A to this
document and is incorporated in this document by reference. WE URGE YOU TO READ
THE MERGER AGREEMENT CAREFULLY AND IN ITS ENTIRETY.
TERMS OF THE MERGER
GENERAL
The merger agreement contemplates the merger of a CBS subsidiary into King
World. After the merger, King World will survive as a wholly-owned subsidiary of
CBS. The merger will be completed once we file the certificate of merger with
the Delaware Secretary of State. We believe that this filing will occur at the
same time as the closing under the merger agreement which, unless we otherwise
agree, will occur no later than the first business day after the satisfaction or
waiver of the conditions set forth in the merger agreement.
CONVERSION OF SECURITIES
Unless described differently below in the sections labeled "--Fractional
Shares" and "--Dividends and Distributions," once we complete the merger, each
of your shares will be converted into the right to receive .81 of a share of CBS
common stock.
FRACTIONAL SHARES
CBS will not issue any fractional shares of its stock in the merger. Each
King World stockholder will instead receive cash, without interest, equal to the
closing price of CBS's common stock on The New York Stock Exchange on the
closing date of the merger multiplied by the fraction of a share to which the
stockholder would otherwise be entitled. Upon the surrender for exchange of King
World shares, as promptly as practicable after CBS completes this calculation,
CBS's transfer agent for its common stock, or another mutually acceptable bank
or trust company, will pay each stockholder this amount, subject to any
backup-withholding, in cash in lieu of issuing fractional shares.
STOCK OPTIONS AND OTHER STOCK RIGHTS
At the time we complete the merger, each option to purchase shares of King
World common stock issued under King World's stock option plans will be assumed
by CBS. This means that each King World stock option will be converted into an
option to acquire shares of CBS common stock and, except for options held by
non-employee directors of King World, will continue to vest in accordance with
current vesting schedules. The number of shares of CBS common stock to be
subject to the option will be equal to the product of (a) the number of shares
of King World common stock subject to the original option and (b) .81. The
exercise price per share of CBS common stock under the option will be equal to
(a) the aggregate exercise price of the option divided by (b) the number of
shares of CBS stock that the option will be exercisable for after the merger.
After we complete the merger, CBS will deliver to the holders of King World
stock options notices setting forth these adjustments.
ISSUANCE OF NEW STOCK CERTIFICATES
EXCHANGE AGENT
Once we complete the merger, CBS will deposit with the exchange agent for
the merger, for your benefit, the certificates representing the shares of CBS
common stock, and any related dividends or distributions, issuable pursuant to
the merger in exchange for outstanding shares of King World common stock.
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<PAGE>
As soon as possible after we complete the merger, the exchange agent will
mail a letter of transmittal and instructions explaining how to surrender your
King World shares to the exchange agent. Upon surrender of your King World stock
certificate(s) to the exchange agent, you will be entitled to receive a
certificate representing that number of whole shares of CBS common stock and
cash instead of any fractional share of CBS common stock, plus any dividends,
which you have the right to receive in the merger.
DIVIDENDS AND DISTRIBUTIONS
NO DIVIDENDS OR OTHER DISTRIBUTIONS DECLARED OR MADE AFTER THE MERGER WITH
RESPECT TO CBS COMMON STOCK WITH A RECORD DATE AFTER THE DATE WE COMPLETE THE
MERGER WILL BE PAID TO YOU UNTIL YOU SURRENDER YOUR KING WORLD SHARES. NO CASH
PAYMENT INSTEAD OF FRACTIONAL SHARES WILL BE PAID TO YOU UNTIL YOU SURRENDER
SUCH CERTIFICATE(S).
Following your surrender of any shares, as a record holder of certificates
representing whole shares of CBS common stock, you will be paid, without
interest:
- the amount of any cash payable instead of a fractional share of CBS common
stock to which you are entitled;
- the amount of dividends or other distributions, with a record date after
the date we complete the merger, already paid with respect to your whole
shares of CBS common stock to which you are entitled; and
- at the appropriate payment date, the amount of dividends or other
distributions, with a record date after the date we complete the merger
but prior to surrender and a payment date subsequent to surrender, payable
with respect to your whole shares of CBS common stock to which you are
entitled.
TRANSFERS
As soon as we complete the merger, the stock transfer books of King World
will be closed, and there will be no further registration of transfers of King
World common stock.
TERMINATION OF EXCHANGE FUND
At its request, CBS will receive any portion of CBS common stock which
remains undistributed to King World stockholders six months after the date we
complete the merger. Any King World stockholder who has not previously complied
with the exchange procedures may then look only to CBS for payment.
NO LIABILITY
Neither King World nor CBS will be liable to any King World or CBS
stockholder for any undistributed CBS common stock or cash which is delivered to
a public official according to any applicable abandoned property or similar
laws.
NO INTEREST
No interest will be paid or accrued on cash paid to King World stockholders
instead of fractional shares. In addition, no interest will be paid or accrued
on unpaid dividends and distributions, if any, which may be payable upon
surrender of King World stock certificates.
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<PAGE>
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties by King
World relating to, among other things:
- its organization and qualification and its subsidiaries;
- its certificate of incorporation and by-laws;
- capitalization;
- its authority relative to the merger agreement;
- receipt of consents and approvals for the merger;
- compliance with laws and no defaults or violations under material
agreements of King World;
- filings with the Securities and Exchange Commission and its financial
statements;
- absence of changes or events;
- absence of litigation;
- correctness of information provided for inclusion in this proxy
statement/prospectus;
- employee benefit plans;
- receipt of King World board of director approval;
- the necessary stockholder approval for the adoption of the merger
agreement;
- receipt of fairness opinion of Allen & Company, King World's financial
advisor;
- absence of brokers fees;
- taxes;
- real property;
- labor matters;
- inapplicability of restrictions on business combinations set forth in
Section 203 of the Delaware General Corporation Law;
- status of material contracts;
- insurance; and
- intellectual property and year 2000 compliance.
The merger agreement also contains various representations and warranties
made by CBS and its merger subsidiary as to, among other things:
- their organization and qualification;
- their certificates of incorporation and by-laws;
- capitalization;
- their authority relative to the merger agreement;
- absence of changes or events;
- absence of litigation;
- receipt of board approval;
- absence of required shareholder vote;
- receipt of consents and approvals for the merger;
- compliance with laws and other agreements;
- filings with the Securities and Exchange Commission and CBS's financial
statements;
- correctness of information provided for this document;
- absence of brokers fees;
- absence of any arrangement triggering Section 203 of the Delaware General
Corporation Law;
- year 2000 compliance; and
- activities conducted by the merger subsidiary.
COVENANTS
Each of CBS and King World has agreed to, among other things:
- cooperate in preparing and filing this document;
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<PAGE>
- notify the other of any action that would likely result in its failure to
comply with any covenant, condition or agreement contained in the merger
agreement or any actual failure;
- use commercially reasonable efforts to cause our accountants to deliver
"comfort" letters;
- use commercially reasonable efforts to ensure that the merger is completed
in the most timely fashion possible;
- take any actions and refrain from taking any actions as is reasonably
necessary to cause the transaction to qualify as a tax-free
reorganization; and
- not take any actions that would reasonably be expected to result in the
failure of the conditions to the other party's obligations to close.
King World has agreed, until the completion of the merger, to conduct its
business in the ordinary course of business and consistent with past practice.
King World will seek to preserve its goodwill and business relationships with
key officers and directors, suppliers, distributors and customers; maintain its
cash management policies; and maintain existing insurance to the extent
available on commercially reasonable terms. Without the consent of CBS, King
World will not:
- amend its certificate of incorporation or by-laws, except as required by
applicable law;
- issue additional equity securities except that it may:
- issue securities under outstanding stock options;
- grant stock options for up to 75,000 shares to persons who are not
executive officers or directors; and
- issue securities in permitted acquisitions;
- purchase, redeem, or acquire any of its shares of common stock;
- declare any dividends or repurchase any shares of its common stock;
- incur any debt or incur any contingent liabilities outside of the ordinary
course of business;
- increase compensation to executive officers or grant severance or
termination benefits to employees, other than executive officers, except
in the ordinary course of business or according to existing agreements;
- take any action under any collective bargaining agreement, benefit plan,
permanent arrangement or policy, except as required by law or the merger
agreement;
- make any changes with respect to accounting policies, except as required
by generally accepted accounting principals;
- make acquisitions of a substantial equity interest in, or a substantial
portion of the assets of, other entities for purchase prices in excess of
$10 million in the aggregate;
- mortgage or otherwise subject to a lien any property or assets, except in
the ordinary course;
- extend or otherwise amend any contract that would be materially adverse to
King World as a whole;
- extend or otherwise amend the distribution agreements for the television
shows The Oprah Winfrey Show, Wheel of Fortune or Jeopardy!;
- except for expenditures on The Martin Short Show, authorize any new
development, production or distribution project or expenditure that
exceeds $50,000 individually or $1,000,000 in the aggregate;
- settle or compromise any pending or threatened lawsuit relating to the
merger;
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<PAGE>
- enter into any agreement that would limit or restrict King World or any
affiliate from engaging or competing in any business in any area; or
- make any loan to or other investment in any person in excess of $500,000,
except for specific exceptions.
CBS has agreed that, until completion of the merger, absent King World's
consent, it will not:
- amend its certificate of incorporation in a manner materially adverse to
King World;
- repurchase stock, including stock options and securities convertible or
exchangeable into capital stock, in excess of its existing repurchase
program, except for transactions between CBS and its wholly-owned
subsidiaries; or
- declare any dividends with respect to its capital stock other than
dividends by its subsidiaries.
NO SOLICITATION OF TRANSACTIONS
King World has agreed that unless and until the merger agreement is
terminated, it will not:
- take any action which could be reasonably expected to lead to a third
party making a proposal to acquire an interest in King World; or
- propose, enter into or participate in any discussions or negotiations
regarding any proposal of this nature or provide any information to the
person making the proposal.
However, this does not prohibit King World from, before the special meeting,
responding to an unsolicited bona fide written proposal by:
- entering into a definitive agreement involving a proposal superior to the
merger if King World simultaneously terminates the merger agreement and
pays CBS a termination fee--see "The Merger Agreement--Termination" for
conditions to King World's right to terminate;
- furnishing non-public information, entering into a customary
confidentiality agreement and/or negotiating with the third party, if the
King World board determines in good faith after consultation with a
nationally recognized independent financial advisor that the proposal will
constitute or could reasonably lead to a proposal superior to the merger;
or
- following receipt of the unsolicited proposal, taking and disclosing to
its stockholders a position with respect to such proposal.
For any third party proposal to be considered "superior" to the merger, the
King World board must determine in good faith, following consultation with a
nationally recognized independent financial advisor, that, after taking into
account all material aspects of the proposal, the person making the proposal,
the strategic benefits of the proposal and the long-term prospects of CBS, such
proposal is more favorable financially to King World's stockholders than the
merger and that the person making the proposal has committed financing or
financing is reasonably available.
If King World receives an inquiry, a request for information or a proposal,
then King World will promptly inform CBS of the material terms and conditions
of, and the identity of the person making, the inquiry, request for information
or proposal and will keep CBS fully informed regarding the status of the
inquiry, request or proposal and any subsequent actions.
EMPLOYMENT MATTERS
For a period of one year after the merger, CBS will either maintain King
World's existing benefit plans or provide employees, and former employees to the
extent applicable, of King World or its subsidiaries with benefits that are
comparable to the benefits provided under the King World benefit plans, other
than
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any stock option plans. CBS will honor all vacation, holiday, sickness and
personal days accrued by the employees of King World and its subsidiaries. If
after the merger, any employee of King World is transferred to CBS or one of its
affiliates or becomes a participant in a CBS employee benefit plan, CBS will
give that employee full credit for his or her service to King World or its
subsidiaries, to the extent that prior service is recognized under the King
World plans, for purposes of determining the employee's eligibility for, vesting
in or entitlement to, benefits under the CBS benefit plans. In addition, CBS
will waive any pre-existing condition limitation. CBS also agreed to recognize
the amounts incurred by employees, or, to the extent applicable, former
employees, of King World during 1999 for purposes of satisfying 1999
deductibles, co-payment limitations and lifetime maximums.
INDEMNIFICATION AND INSURANCE
After the merger, CBS will cause King World, as its wholly-owned subsidiary,
to indemnify all of its current and former directors, officers and employees
against all liabilities or any claim arising out of their positions at King
World. CBS has agreed to cause King World to keep in effect, following the
merger, provisions in King World's certificate of incorporation and by-laws with
respect to indemnification to the fullest extent permitted by Delaware law.
For six years after the date we complete the merger, CBS will cause King
World to obtain directors' and officers' liability insurance for acts or
omissions occurring prior to the merger covering each person now covered by King
World's directors' and officers' liability insurance. However, King World will
not be required to pay more than 200% of the current annual premiums it pays for
such insurance.
CONDITIONS TO THE MERGER
The obligations of CBS and King World to complete the merger depend on the
following conditions being fulfilled:
- the adoption of the merger agreement by holders of a majority of King
World common stock;
- the receipt of all required consents, approvals and actions of
governmental entities;
- the registration statement on Form S-4 to register the CBS common stock to
be issued to King World stockholders in the merger becoming effective;
- the absence of any law, rule, order, judgment, decree or injunction that
enjoins or prohibits the merger or that would materially adversely affect
CBS;
- the New York Stock Exchange approving for listing the shares of CBS common
stock to be issued in the merger, subject to official notice of issuance;
and
- completion of the merger on or before December 31, 1999.
CBS's and King World's obligations to complete the merger also depend on the
following conditions being satisfied or waived:
- the representations and warranties made by the other party will have been
true and correct in all significant respects as of the date of the merger
agreement and at and as of the date the merger is completed;
- the other party will have performed all of its significant obligations
required to be performed by it under the merger agreement before the
merger is completed; and
- each of CBS and King World will have received a tax opinion from its
outside counsel that the merger will qualify as a tax-free reorganization.
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The obligation of CBS to complete the merger depends on the satisfaction or
waiver of the following conditions:
- CBS will have received a Rule 145 Affiliate Agreement from each person who
may be deemed to be an affiliate of King World;
- the amended employment agreements among King World, CBS and each of Roger
King and Michael King will be in full force and effect at completion of
the merger, and both Roger King and Michael King will at that time be
available to perform under their agreements;
- the absence of any suit, action or proceeding by any governmental entity
having a reasonable likelihood of success that would prohibit or restrain
the merger, limit or prohibit ownership of King World's assets, require
CBS or King World to sell or hold separate some of their businesses or
assets or otherwise materially adversely affect CBS or King World; and
- the distribution agreements for The Oprah Winfrey Show, Jeopardy! and
Wheel of Fortune will continue to be in full force and effect; no facts
will exist that will result in termination of these agreements or permit
nonperformance by any person other than King World; each party will have
continued to materially perform under these agreements; and no action will
have been taken that will materially impair the value of these agreements
to King World.
TERMINATION
The merger agreement may be terminated and abandoned, at any time before we
complete the merger whether before or after you approve the adoption of the
merger agreement, in the following circumstances:
(a) by CBS's and King World's mutual written consent;
(b) by either CBS or King World, if we do not complete the merger on or
before December 31, 1999. However, neither party may terminate the merger
agreement under this circumstance if the failure to complete the merger
has been caused by that party's material breach of the merger agreement;
(c) by either CBS or King World, if a governmental entity or court of
competent jurisdiction has taken any action hindering the completion of
the merger and that action has become final and non-appealable;
(d) by either CBS or King World, if King World's stockholders holding a
majority of the King World common stock do not vote for the adoption of
the merger agreement;
(e) by either CBS or King World, if the other party has significantly
breached any representation or agreement that has not been cured within
30 business days of notice of the breach, but only if the terminating
party is not then itself in significant breach of any representation or
agreement; and
(f) by King World if, before you approve and adopt the merger agreement,
King World enters into a definitive agreement providing for a superior
proposal but only if:
(1) King World is not then in breach of its non-solicitation obligation;
(2) King World is authorized by its board to enter into a binding written
agreement with a third party for a transaction that constitutes a
superior proposal;
(3) King World gives CBS written notice that it intends to enter into an
agreement with the third party and attaches the most current version
of the proposed agreement to the notice;
(4) King World gives CBS two business days to renegotiate the merger so
as to match or exceed the terms of the third party proposal and CBS
fails in the board's judgment to do so; and
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(5) King World pays to CBS a $90 million termination fee plus CBS's
actual expenses up to a maximum of $10 million.
(g) by King World, within 45 days of the date that CBS notifies it that CBS
will not complete the merger due to the failure of the closing condition
relating to the employment of Roger King and Michael King;
(h) by CBS, if King World has not terminated the merger agreement as
described in clause (g) above.
TERMINATION FEES AND EXPENSES
Except as otherwise stated in the merger agreement, each party will pay all
expenses it incurs in the merger.
King World has agreed to pay CBS a $90 million termination fee and up to a
$10 million expense reimbursement if any of the following occurs:
(a) the merger agreement is terminated by CBS due to a breach of any
representation or agreement by King World that is not cured within 30
business days of notice of such breach and King World has received an
unsolicited bona fide written proposal from a third party at the time of
termination and, within 16 months thereafter, King World enters into an
agreement providing for a combination of King World with, or the sale of
a significant portion of King World to, a third party; or
(b) the merger agreement is terminated by either CBS or King World as a
result of the failure of King World stockholders to adopt the merger
agreement and King World has received an unsolicited bona fide written
proposal from a third party at the time of the special meeting, and,
within 16 months after termination of the merger agreement, King World
enters into an agreement providing for a combination of King World with,
or the sale of a significant portion of King World to, a third party; or
(c) the merger agreement is terminated by King World in connection with its
right to terminate the merger agreement, prior to the approval and
adoption of the merger agreement by the holders of King World common
stock, in connection with entering into a binding written agreement with
a third party for a transaction which constitutes a superior proposal, as
more fully described under the section "--Termination".
No termination fee will be payable, however, if on the date the merger
agreement is terminated under the circumstances described in clauses (a), (b),
or (c), King World is entitled to terminate the merger agreement due to:
- non-completion of the merger by December 31, 1999;
- governmental action;
- judicial action; or
- a significant breach of any representation or agreement by CBS.
In addition, if King World terminates the merger agreement because its
stockholders fail to adopt the merger agreement, and at the time of the special
meeting a third party has made or announces its intention to make a bona fide
acquisition proposal, King World promptly will reimburse all of the expenses of
CBS up to $10 million.
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BUSINESS OF CBS
CBS is one of the largest radio and television broadcasters in the United
States. CBS operates its businesses through its Radio, Television and Cable
segments. The Television segment consists of CBS's 14 owned and operated
television stations, which are located in seven of the nation's ten largest
markets, and the CBS television network. The CBS television network operations
are subdivided into five areas: entertainment, news, sports, enterprises, which
produces, distributes and markets first-run and off-network programming, and new
media consisting of CBS's Internet businesses. CBS's Cable segment consists of
CBS's cable networks, including The Nashville Network, Country Music Television,
two regional sports networks, and an equity interest in a Spanish-language cable
news network, and a global provider of satellite services to broadcast, cable
and corporate networks.
The Radio segment business is conducted by Infinity Broadcasting
Corporation, a majority-owned subsidiary of CBS, and TDI Worldwide, Inc., a
wholly-owned subsidiary of Infinity. Infinity owns and operates approximately
160 AM and FM radio stations located in 34 markets. TDI is one of the largest
outdoor advertising companies in the United States and sells space on various
media, including buses, trains, train platforms and terminals throughout
commuter rail systems and on painted billboards and phone kiosks.
CBS's principal executive offices are located at 51 West 52nd Street, New
York, New York 10019.
BUSINESS OF KING WORLD
King World operates primarily as a producer and distributor of first-run
strip television programming to network-owned and network-affiliated stations in
the United States, as well as to telecasters in Canada and a number of other
foreign countries. As of August 31, 1998, King World was distributing
programming to approximately 400 television stations in over 200 of the 211
designated television markets in the United States.
King World's revenues are derived principally from the distribution in
first-run strip syndication of the television series The Oprah Winfrey Show,
Wheel of Fortune and Jeopardy! King World also co-produces and distributes the
Hollywood Squares and The Roseanne Show series, and produces and distributes
Inside Edition.
King World was founded in 1964 by the late Charles and Lucille King to
distribute or syndicate feature length films and television programs to
television stations. Its principal executive offices are located at 12400
Wilshire Boulevard, Suite 1200, Los Angeles, California 90025.
DESCRIPTION OF K ACQUISITION CORP.
K Acquisition Corp. is a wholly-owned subsidiary of CBS organized under the
laws of the State of Delaware. It was incorporated in March 1999 solely for use
in the merger, and is engaged in no other business. Its executive offices are
located at CBS's executive offices.
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SUMMARY OF OTHER SIGNIFICANT AGREEMENTS ENTERED INTO
AS PART OF THE MERGER
AMENDED EMPLOYMENT AGREEMENTS
AMENDED EMPLOYMENT AGREEMENTS WITH ROGER KING AND MICHAEL KING
In anticipation of the merger and as a condition to CBS's willingness to
enter into the merger agreement, on March 31, 1999, CBS and King World entered
into Amended Employment Agreements with each of Michael King and Roger King. The
following is a summary of the material terms of the amended agreements.
TERM
The amended employment agreements provide for the employment of Michael King
and Roger King from the completion of the merger until December 31, 2006. The
agreements may, however, be further extended by King World for successive
one-year periods.
POSITIONS
Michael King and Roger King will act as co-Chief Executive Officers, and as
Vice Chairman and Chairman, respectively, from the date the merger is completed
until August 31, 2000. Thereafter, Roger King will act as Chief Executive
Officer of King World, while Michael King will be employed as an advisor to King
World. In these capacities, Michael King and Roger King will remain primarily
responsible for sales and distribution decisions for Wheel of Fortune and
Jeopardy! during the entire term of their employment agreements. After August
31, 2000, Michael King will also be allowed to perform other business activities
outside of King World so long as they do not interfere in any significant manner
with his responsibilities for King World, provided that he affords King World
and CBS, for a reasonable period of time, the first opportunity to negotiate for
the rights to any television programming development concept developed or
proposed by him.
COMPENSATION
The amended agreements provide for an annual base salary of $1.5 million
each and continuation of their existing "net income bonus" structure through
December 31, 1999, for Roger King, and August 31, 2000, for Michael King. The
"net income bonus" is equal to 1.5% of King World's first $50,000,000 of
modified consolidated net income, 2.0% of the next $50,000,000 and 2.5% of any
excess over $100,000,000.
For the purpose of determining the net income bonus, King World's "modified
consolidated net income" means the net income of King World and its consolidated
subsidiaries after taxes but before extraordinary items calculated as if the
merger had not occurred except that, to the extent that any revenues and
expenses may be included in "new show profits" for purposes of determining the
"new show profits bonus" for any fiscal period, as described below, they will be
excluded in the determination of the net income bonus for that fiscal period,
whether or not a net show profits bonus is in fact payable concerning that
fiscal period.
In addition, the amended employment agreements provide for a "new series
bonus" of $750,000 to each of Roger King and Michael King for each new first-run
"strip", I.E., Monday through Friday, syndicated series that:
- is developed by King World during the term of his amended agreement;
- premieres in a television season that commences within eighteen months
after the termination of that amended agreement;
- is produced or co-produced by King World; and
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- is cleared over the course of any such season in domestic television
markets covering at least 70% of the domestic television viewing
households, based on Nielsen ratings.
The new series bonus will be payable, if at all, only one time with respect
to each new series, no matter how many television seasons during which the new
series is aired. A new series bonus will be payable once the criteria set forth
above are satisfied, even if the new series is canceled at any time thereafter.
The amended employment agreements also provide that King World will pay each
of Michael King and Roger King a "new show profits bonus" for each "new show",
including, but not limited to, each show as to which a new series bonus has been
paid, if any, that is developed by King World during the term of his amended
agreement, premieres within eighteen months after the termination of that
amended agreement, and is produced or co-produced by King World. The new show
profits bonuses payable to Michael King and Roger King with respect to any new
show for any fiscal year of King World shall equal the excess, if any, of (a)
2.5% of the excess of the cumulative revenues derived by King World, CBS or any
other affiliate of CBS from the new show, including merchandising, theatrical
and other commercial rights, through the end of the fiscal year for which the
determination is being made over the cumulative production and development
costs, including producers' fees, direct selling, marketing, promotional and
other distribution expenses, all third-party participations and other payments,
and all other direct out-of-pocket costs, in all cases to the extent
attributable to the new show; over (b) all payments of the new show profits
bonus made with respect to the new show for all prior fiscal years, provided
that the payment of a new series bonus with respect to the new show, if any,
will be treated as an expense of the new show but will not be an offset against
the new show profits bonus. Any new show profits bonus owed to Michael King or
Roger King for any fiscal year will be paid as soon as practicable after the
audited financial statements for the subject fiscal year become available. The
new show profits bonus for any new show will be payable by King World only for
so long as King World, CBS or any other affiliate of CBS derives any revenues
from the new show. Any profits realized by King World, CBS or any CBS affiliate
upon any direct or indirect disposition of a new show will be subject to the new
show profits bonus. The Oprah Winfrey Show will prospectively be considered a
"new show" if King World, CBS or any CBS affiliate obtains the distribution
rights for telecasts after August 31, 2002. In that event and after that date,
the new show profits bonus with respect to The Oprah Winfrey Show shall be
calculated by substituting 3.0% for the 2.5% amount in clause (a) above. The new
show profits bonus with respect to The Martin Short Show shall be calculated by
substituting 5.0% for the 2.5% amount in clause (a) above.
STOCK OPTIONS AND OTHER PROVISIONS
Each of Michael King and Roger King will also receive, upon completion of
the merger, stock options to purchase 600,000 shares of CBS common stock. The
options will have 10-year terms and will vest at the rate of 200,000 shares per
year on each of the first three anniversaries of the date of grant. The exercise
price of the options will equal the fair market value of CBS common stock on the
date the options are granted.
The amended employment agreements also provide that both Roger King and
Michael King will receive $127,000 on September 1, 1999, if the merger is
completed by that date, in the form of a supplemental bonus payment. After this
payment, neither Roger King nor Michael King will be entitled to receive any
supplemental bonus payments.
The amended employment agreement for Roger King also provides that Roger
King will be entitled to receive, for each CBS fiscal year from January 1, 2000
through the end of the term, annual incentive compensation equal to 2.5% of King
World's pre-tax earnings, commonly known as "EBITDA", measured as if the merger
had not occurred and also excluding EBITDA attributable to a new show for which
a new show profits bonus is payable. Roger King is also entitled to receive a
commission equal to 3.0% of the distribution fees received by King World, CBS or
any CBS affiliate, other than from any CBS
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owned-and-operated station, for Hollywood Squares for any season beyond
2000-2001 if that series is extended beyond that season.
TERMINATION
King World may terminate the employment agreement of either Roger King or
Michael King in the event of his death or disability or for cause. If Roger
King's or Michael King's employment agreement is terminated for cause, then he
will be entitled to receive only his base salary through the date of termination
and any previously accrued and unpaid incentive compensation, new series bonus
and new show profit bonus. If Roger King's or Michael King's employment
agreement is terminated for any other reason, including disability, then he will
be entitled to base salary plus other incentive compensation and bonus
arrangements until the date on which his employment agreement would have expired
by its terms.
INSURANCE
King World and CBS will continue to be obligated to provide Michael King and
Roger King with life insurance coverage, each in the face amount of $15,000,000,
on terms that are not materially less favorable than the policies currently in
effect.
NON-COMPETITION PROVISIONS
Roger King's amended employment agreement subjects him to a two-year
restriction against working for, rendering services to or lending his name to
any business in the entertainment industry that involves the development,
production or distribution of shows. The restriction will begin if and when
Roger King is terminated for cause or terminates the agreement without legal
justification, and will last for two years from that date. The restriction does
not, however, prevent Roger King from owning less than 1% of the stock of such a
business if the stock is publicly traded.
AMENDED EMPLOYMENT AGREEMENT WITH ROBERT KING
In connection with the merger agreement, CBS and King World entered into an
amended employment agreement with Robert King. Robert King is a brother of
Michael King and Roger King. The following is a summary of the material terms of
the amended agreement.
Robert King's amended employment agreement provides for his employment from
the completion of the merger until August 31, 2002. The agreement may, however,
be further extended by King World for successive dependent one-year periods.
From the completion of the merger until August 31, 2000, Robert King will have
those responsibilities as are designated by the Chairman and Co-Chief Executive
Officer of King World, including having primary responsibility for making sales
and distribution decisions for the Wheel of Fortune and Jeopardy! series. For
the duration of the term of the amended employment agreement, Robert King will
be primarily responsible for making sales and distribution decisions for Wheel
of Fortune and Jeopardy! for as long as King World or CBS, or any of its other
operating units, retains the distribution rights for those series.
Robert King's amended employment agreement provides for an annual base
salary of $400,000 from the completion of the merger until August 31, 2000, and
for an annual base salary of $500,000 thereafter. The amended agreement
preserves Robert King's option under the 1996 Amended and Restated Stock Option
and Restricted Stock Purchase Plan to purchase 200,000 shares of King World
common stock at $17.13 per share, with the number of shares and exercise price
adjusted upon completion of the merger for the applicable exchange ratio in the
merger.
King World may terminate Robert King's amended employment agreement for
death, disability or for cause and Robert King may terminate the agreement only
upon a significant breach by King World or CBS of the amended employment
agreement as long as the breach has not been cured within 30 days. If the
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merger is not consummated, the existing employment agreement of Robert King will
continue until August 31, 2002. If King World terminates Robert King's amended
employment agreement (other than for cause), or Robert King validly terminates
his agreement, then he will be entitled to receive his base salary
until the date on which his employment agreement would have expired by its
terms. If King World terminates Robert King's amended employment for cause or if
Robert King invalidly terminates his employment agreement, then he will only
receive his base salary through the date of termination.
STOCKHOLDER AGREEMENT
As a condition to CBS's willingness to enter into the merger agreement, CBS
required that Roger King, Michael King, Richard King and Diana King enter into a
Stockholder Agreement with CBS. As part of the Stockholder Agreement, Roger
King, Michael King, Richard King and Diana King agreed that, so long as that
agreement remains in effect, they will vote their shares of King World common
stock in favor of the merger with CBS. Collectively, they own approximately 19%
of all outstanding King World common stock. In addition, they also agreed that,
while the merger agreement remains in effect, (a) they would vote against any
other merger proposal presented to the stockholders of King World and (b) they
would not solicit or encourage any other merger proposal, not sell their shares
of King World common stock to anyone other than CBS, and use their reasonable
efforts to ensure that the merger with CBS is completed in the most timely
manner possible.
In addition, each of Roger King and Michael King agreed that for 18 months
after the merger is completed he will not sell more than 25% of the sum of (a)
the shares of CBS common stock he receives in the merger and (b) the number of
CBS shares issuable at any time after the effective time upon the exercise of
any of his King World stock options that are assumed by CBS as part of the
merger.
LOAN
On May 3, 1999, King World lent Michael King $8,269,531 to purchase shares
of King World common stock that were subject to options held by Mr. King set to
expire on May 4, 1999 and to enable Mr. King to pay the related tax liabilities
arising out of the exercise of these options. The loan bears interest at an
annual rate equal to 7.75% and is secured by the shares of common stock so
purchased. The loan, plus all accrued and unpaid interest, will be repayable on
the fifteenth day after Mr. King is permitted under applicable securities laws
to sell a sufficient amount of King World stock to make the payment.
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COMPARISON OF RIGHTS OF HOLDERS OF
CBS COMMON STOCK AND KING WORLD COMMON STOCK
The rights of King World stockholders are governed by Delaware law,
including the Delaware General Corporation Law, and by the King World
certificate of incorporation and the King World by-laws. The rights of CBS
stockholders are governed by Pennsylvania law, including the Pennsylvania
Business Corporation Law, and by the CBS articles of incorporation and the CBS
by-laws. Upon consummation of the merger, stockholders of King World will become
holders of CBS common stock. Consequently, their rights will be governed by
Pennsylvania law, the CBS articles of incorporation and the CBS by-laws.
The following is a summary of the differences between the rights of the
holders of King World common stock and the rights of the holders of CBS common
stock that King World and CBS considered significant. For a full description of
the rights of the holders of King World common stock and CBS common stock,
holders must refer to Delaware law, Pennsylvania law, the King World certificate
of incorporation, the King World by-laws, the CBS articles of incorporation and
the CBS by-laws. Copies of the King World certificate of incorporation, the King
World by-laws, the CBS articles of incorporation and the CBS by-laws have been
filed with the Securities and Exchange Commission and will be sent to the
holders of King World and CBS common stock upon request. See "Where You Can Find
More Information" on page i.
<TABLE>
<CAPTION>
STOCKHOLDER RIGHTS KING WORLD CBS
<S> <C> <C>
Approval of Mergers and A merger or sale of all or A merger or sale of all or
Certain Asset Sales substantially all of the substantially all of the
assets of the company assets of the company
requires the approval of requires the approval of a
holders of 66 2/3% of the majority of the votes cast.
shares entitled to vote. However, the CBS articles of
However, if 2/3 of the entire incorporation requires that
board approves the some transactions with an
transaction, then the affiliate or 5% stockholder
approval of holders of only a require (1) the approval of
majority of the shares holders of 80% of all shares
entitled to vote is required. entitled to vote and (2) the
approval of a majority of
shares held by all
disinterested stockholders;
unless in either case the
transaction is first approved
by (1) a majority of
disinterested directors OR
(2) certain fairness criteria
are satisfied. Amendment of
these provisions requires the
approval of a majority of the
shares held by disinterested
stockholders.
Members of the Board of All directors are elected All directors are elected
Directors annually. The certificate of annually. The articles of
incorporation does not incorporation expressly state
provide for cumulative that no shares carry
voting. cumulative voting rights.
Removal of Directors Directors may be removed, Directors may be removed for
with or without cause, by the cause by the affirmative vote
affirmative vote of the of a majority of votes cast
holders of a majority of the and without cause by the
shares entitled to vote. affirmative vote of holders
of 80% of shares entitled to
vote.
</TABLE>
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<TABLE>
<CAPTION>
STOCKHOLDER RIGHTS KING WORLD CBS
<S> <C> <C>
Amendment to By-laws The stockholders may amend The stockholders may amend
the by-laws with the the by-laws with the
affirmative vote of holders affirmative vote of holders
of 66 2/3 of the shares of 80% of shares entitled to
entitled to vote. The board vote. The board may amend the
may amend the by-laws by by-laws by majority vote of
majority vote. the entire board.
Calling of Special Meeting of Special meetings of Special meetings of
Stockholders stockholders of King World stockholders of CBS cannot be
cannot be called by called by stockholders.
stockholders.
Amendments to certificate of Amendments to the certificate Amendments to the articles of
incorporation of incorporation generally incorporation must be
require the approval of proposed by the board and
holders of a majority of the also require the approval of
outstanding shares entitled holders of a majority of the
to vote. However, amendments shares entitled to vote.
to some provisions of the However, amendments to some
certificate of incorporation, provisions of the articles of
including those related to incorporation, including
the nomination and election those related to the board,
of directors, the adoption or the by-laws and the removal
amendment of by-laws and the of directors, require the
approval of business approval of holders of 80% of
combinations, require the the shares entitled to vote.
approval of holders of
66 2/3% of the shares
entitled to vote.
</TABLE>
DIVIDEND RIGHTS
KING WORLD. Under Delaware law, a corporation may pay dividends out of
surplus or, if no surplus exists, out of net profits for the fiscal year in
which the dividends are declared and/or its preceding fiscal year. However,
dividends may not be declared out of net profits if the capital of the
corporation is less than the aggregate amount of capital represented by any
issued and outstanding preferred stock.
CBS. Under Pennsylvania law, a corporation may pay dividends unless the
payment would leave the corporation unable to pay its debts as they become due
in the usual course of business, or unless the payment would leave the
corporation with total assets that were less than the sum of its total
liabilities plus the amount that would be distributable upon dissolution to
stockholders having senior rights.
FIDUCIARY DUTIES OF DIRECTORS
KING WORLD. Under Delaware law, the business and affairs of a corporation
are managed by or under the direction of its board of directors. In exercising
their powers, directors are charged with the fiduciary duties of loyalty and
care to both the corporation and the stockholders. A party challenging the
decision of a board of directors generally bears the burden of rebutting the
applicability of the so-called "business judgment rule", a presumption that, in
making a business decision, directors acted on an informed basis, in good faith
and in the honest belief that the action was taken in the best interests of the
corporation. Unless this presumption is rebutted, the business judgment
exercised by directors in making their decisions is not subject to judicial
review. To rebut this presumption, a party must demonstrate that, in reaching
their decision, the directors breached one or more of their fiduciary duties. If
the presumption is so rebutted, the directors bear the burden of demonstrating
the entire fairness of the relevant transaction. Notwithstanding the foregoing,
Delaware courts may subject directors' defensive actions taken in response to a
threat to corporate control or their approval of a change-of-control transaction
to enhanced scrutiny.
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CBS. Under Pennsylvania law, directors have a fiduciary duty to their
corporation and are required to perform their duties in good faith, in a manner
they reasonably believe to be in the best interests of the corporation, and with
the care, including reasonable inquiry, skill and diligence, that a person of
ordinary prudence would use under similar circumstances. Directors may, in
considering the best interests of their corporation, consider the effects of any
action upon employees, suppliers and customers of the corporation, and upon
communities in which offices or other establishments of the corporation are
located and all other pertinent factors. Absent a breach of fiduciary duty, a
lack of good faith or self-dealing, any act of the board of directors, a
committee of the board or an individual director is presumed to be in the best
interests of the corporation. Unlike Delaware law, Pennsylvania law does not
impose any heightened obligations on directors to justify their conduct in the
context of a potential or proposed acquisition of control.
LIABILITY OF DIRECTORS
KING WORLD. Delaware law permits a corporation to include in its
certificate of incorporation a provision that limits or eliminates the liability
of its directors to the corporation or its stockholders for monetary damages
arising from a breach of fiduciary duty, except under certain circumstances.
Some of these circumstances would include a breach of the duty of loyalty to the
corporation or its stockholders, acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, an unlawful
declaration of a dividend or unlawful authorization of the repurchase or
redemption of stock or any transaction from which the director derived an
improper personal benefit. The King World certificate of incorporation
eliminates director liability to the fullest extent permitted by Delaware law.
CBS. Under Pennsylvania law, a corporation may include in its by-laws a
provision, adopted by vote of its stockholders, which eliminates the liability
of its directors for monetary damages for any action taken or the failure to
take any action, unless (a) the directors have breached or failed to perform
their duties and (b) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness. However, a Pennsylvania corporation may not
eliminate the liability of directors where the responsibility or liability of a
director arises under any criminal statute or is for the payment of federal,
state or local taxes. The CBS by-laws eliminate director liability to the
fullest extent permitted by Pennsylvania law.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
KING WORLD. Under Delaware law, a corporation may indemnify a director or
officer of the corporation against expenses, including attorneys' fees,
judgments, fines and settlement amounts actually and reasonably incurred in a
civil or criminal action, suit or proceeding by reason of being or having been a
representative of or serving at the request of the corporation. This
indemnification is available if the person acted in good faith and reasonably
believed that his or her actions were in or not opposed to the best interests of
the corporation and, in a criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful. In a derivative action brought on
behalf of the corporation, this indemnification is limited to expenses incurred.
Delaware law also provides that a corporation may advance a director or officer
the expenses incurred in defending any action, if it receives an undertaking
from the officer or director to repay the amount advanced if it is ultimately
determined that the person is not entitled to indemnification. A determination
of the amount of the indemnification to be paid in any circumstance must be made
by a majority of the directors who are not parties to the action, even though
less than a quorum, by a committee of such disinterested directors or, if there
are no such directors or if such directors so direct, by independent legal
counsel. No indemnification for expenses in derivative actions is permitted
under Delaware law if the person is found to be liable to the corporation,
unless a court finds him or her entitled to such indemnification. If, however,
that person is successful, on the merits or otherwise, in defending a
third-party or derivative action, indemnification for expenses incurred is
mandatory. The indemnification provisions of Delaware law are not exclusive of
any other rights to which the party may be
47
<PAGE>
entitled under any by-law, agreement or vote of stockholders or disinterested
directors. The King World by-laws provide for indemnification of directors and
officers to the fullest extent permitted by law.
CBS. The provisions of Pennsylvania law regarding indemnification are
substantially similar to those of Delaware law. Unlike Delaware law, however,
Pennsylvania law expressly permits indemnification in connection with any
action, including a derivative action, unless a court determines that the acts
or omissions giving rise to the claim constituted willful misconduct or
recklessness. The CBS by-laws provide for indemnification of directors and
officers to the fullest extent permitted by law. However, the CBS by-laws
specifically state that there will be no indemnification where the indemnitee
initiates the claim, except for a claim to enforce by-law indemnification
rights. The CBS by-laws provide for the advancement of certain expenses if the
person seeking indemnification agrees to repay all amounts advanced if it is
later ultimately determined that such person is not entitled to be indemnified.
ANTI-TAKEOVER PROVISIONS
KING WORLD. Under Delaware law, a corporation is prohibited from engaging
in any "business combination" with an "interested stockholder", which is defined
as a person who, together with affiliates or associates, owns, or within a
three-year period did own, 15% or more of the corporation's voting stock for a
period of three years following the date on which the stockholder became an
interested stockholder, unless:
- the certificate of incorporation provides otherwise;
- prior to the date on which the person became an interested stockholder,
the board of directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder;
- the interested stockholder owned 85% or more of the voting stock of the
corporation, excluding specified shares, upon completion of the
transaction as the result of which he became an interested stockholder; or
- on or after the date on which such person became an interested
stockholder, the business combination is approved by the board of
directors and the affirmative vote, at a special meeting and not by
written consent, of at least 66 2/3% of the outstanding voting shares of
the corporation, excluding shares held by such interested stockholder. A
"business combination" includes:
- mergers, consolidations and sales or other dispositions of 10% or more
of the assets of a corporation to or with an interested stockholder;
- certain transactions resulting in the issuance or transfer to an
interested stockholder of any stock of such corporation or its
subsidiaries; and
- other transactions resulting in a disproportionate financial benefit to
an interested stockholder.
Delaware law does not contain a "control-share acquisition" statute similar
to that contained in Pennsylvania law.
CBS. Pennsylvania law contains several anti-takeover provisions which apply
to "registered" corporations like CBS.
TRANSACTIONS WITH INTERESTED STOCKHOLDERS. Pennsylvania law provides that
the types of transactions listed below must be approved by the affirmative vote
of at least a majority of the votes that all stockholders are entitled to cast
with respect to such transactions, excluding all voting shares owned by an
interested stockholder. An interested stockholder is defined in the Pennsylvania
Business Corporation Law
48
<PAGE>
and generally means someone who owns 20% or more of the stock entitled to elect
directors of a corporation. The following types of transactions require the
special vote described above:
- in a merger or consolidation, a share exchange or certain sales of assets
involving a corporation or its subsidiary, if an interested stockholder is
a party to the transaction;
- in a division of the corporation, if an interested stockholder is to
receive a disproportionate amount of any of the securities of any
corporation surviving or resulting from the division;
- in a voluntary dissolution of the corporation, if any stockholder is to be
treated differently from others holding shares of the same class; or
- in a reclassification, if any stockholder's percentage of voting or
economic share interest in the corporation is materially increased
relative to substantially all other stockholders.
The special voting requirement with respect to the above types of transactions
does not apply if:
- the transaction being proposed has been approved by a majority of the
corporation's board of directors, excluding directors affiliated with or
nominated by the interested stockholder,
- the consideration received for each class of stock owned by the interested
stockholder is at least as high as the highest consideration paid for that
class by the interested stockholder or
- the transaction involves a parent corporation which owns at least 80% of
the stock.
Pennsylvania law also prohibits a corporation from engaging in a business
combination, such as a merger, consolidation, share exchange or division, sale,
disposition of property, or issuance of shares for a specified percentage of the
value of the corporation, with an interested stockholder unless:
- the board of directors of the corporation gives prior approval to the
proposed transaction or gives prior approval to the interested
stockholder's acquisition of 20% of the shares entitled to vote in an
election of directors of the corporation;
- the interested stockholder owns at least 80% of the stock of the
corporation entitled to vote in an election of directors and, no earlier
than three months after the interested stockholder reaches the 80% level,
the majority of the remaining stockholders approves the proposed
transaction and stockholders receive a minimum "fair price" for their
shares in the transaction and some other conditions are met;
- holders of all outstanding common stock approve the transaction;
- no earlier than five years after the interested stockholder acquired the
20%, a majority of the remaining shares entitled to vote in an election of
directors approve the transaction; or
- no earlier than five years after the interested stockholder acquired the
20%, a majority of all the shares approve the transaction, all
stockholders receive a minimum "fair price" for their shares and some
other conditions are met.
STOCKHOLDER RIGHT TO HAVE SHARES PURCHASED IN CONTROL TRANSACTIONS. Under
Pennsylvania law, when a person or group of persons acting together holds 20% of
the shares entitled to vote in the election of directors, any other stockholder
of the registered corporation who objects can, within a reasonable time after
the control person or group of persons acquires the 20% stake, under procedures
set forth in Pennsylvania law statutes, require the control group to purchase
his or her shares at a fair value.
CORPORATION MAY HAVE RIGHT TO REDEEM SHARES, REMOVE VOTING RIGHTS AND
REQUIRE DISGORGEMENT. Pennsylvania law also contains provisions which, under
specified circumstances, permit a corporation to redeem the shares owned by a
group of individuals who own more than 20% of the voting power. The corporation
also may remove the voting rights of those shares and require the disgorgement
of profits
49
<PAGE>
received through the ownership of those shares. The CBS by-laws expressly
provide that each such provision is not applicable to CBS.
RIGHTS OF INSPECTION
Under both Pennsylvania law and Delaware law, every stockholder, upon proper
written demand stating the purpose, may inspect the corporate books and records
as long as the inspection is for a proper purpose and during normal business
hours. Under both statutes, a "proper purpose" is any purpose reasonably related
to the interest of the inspecting person as a stockholder.
LIQUIDATION RIGHTS
The rights of the holders of King World common stock upon the liquidation or
dissolution of King World are substantially the same as those of the holders of
CBS common stock upon the liquidation or dissolution of CBS.
CASE LAW AND COURT SYSTEMS
There is a substantial body of case law in Delaware interpreting the
corporation laws of that state. Delaware also has established a system of
Chancery Courts to adjudicate matters arising under the Delaware General
Corporation Law. The body of case law interpreting the corporation law of
Pennsylvania is not as significantly developed as in Delaware. In Pennsylvania,
matters arising under Pennsylvania law are adjudicated by the general state
courts. As a result of these factors, there may be less certainty as to the
outcome of matters governed by Pennsylvania law, and, therefore, it may be more
difficult to obtain legal guidance as to such matters than would be the case
under Delaware law.
LEGAL MATTERS
The validity of the shares of CBS common stock to be issued pursuant to the
terms of the merger agreement will be passed upon for CBS by Louis J. Briskman,
Executive Vice President and General Counsel of CBS. As of August 9, 1999, Mr.
Briskman beneficially owned 350,129 shares of CBS common stock, including
347,800 shares issuable upon the exercise of stock options.
EXPERTS
The consolidated financial statements and the related financial statement
schedules of CBS, as of December 31, 1998 and 1997 and for each of the years in
the three year period ended December 31, 1998, incorporated by reference in this
proxy statement/prospectus from CBS's Form 10-K for the year ended December 31,
1998, have been audited by KPMG LLP, independent auditors, as stated in their
reports, which are incorporated in this document by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements incorporated in this proxy
statement/prospectus by reference from King World's Form 10-K for the fiscal
year ended August 31, 1998, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto and is incorporated in this document by reference in reliance upon the
authority of said firm as experts in giving said report.
50
<PAGE>
INDEX TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
Unaudited Pro Forma Combined Condensed Financial Information....................................... F-2
Unaudited Pro Forma Combined Condensed Balance Sheet as of March 31, 1999.......................... F-3
Unaudited Pro Forma Combined Condensed Statement of Operations for the three months ended March 31,
1999............................................................................................. F-4
Unaudited Pro Forma Combined Condensed Statement of Operations for the Year Ended December 31,
1998............................................................................................. F-5
Notes to Unaudited Pro Forma Combined Condensed Financial Statements............................... F-6 to F-11
</TABLE>
F-1
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
GENERAL
The following unaudited pro forma combined condensed financial statements
are presented using the purchase method of accounting for the merger of CBS and
King World, the June 4, 1998 acquisition of CBS Radio, Inc., formerly American
Radio Systems Corporation, by CBS and the probable acquisition of Outdoor
Systems, Inc. by Infinity which was announced on May 27, 1999. These financial
statements also reflect the combination of consolidated historical financial
data of CBS, King World, American Radio, and Outdoor Systems.
The unaudited pro forma combined condensed balance sheet as of March 31,
1999 is presented as if the merger of CBS and King World, and the Outdoor
Systems acquisition had occurred on March 31, 1999. The unaudited pro forma
combined condensed statement of operations for the quarter ended March 31, 1999
and the year ended December 31, 1998 is presented as if the merger of CBS and
King World, the acquisition of American Radio by CBS, the probable acquisition
of Outdoor Systems by Infinity, and the Infinity Broadcasting Corporation
initial public offering had occurred on January 1, 1998. In the opinion of CBS
management, all adjustments considered necessary for a fair presentation of the
pro forma data have been made.
These unaudited pro forma combined condensed financial statements should be
read in conjunction with: (i) CBS's consolidated financial statements and the
notes thereto as of and for the year ended December 31, 1998 and Management's
Discussion and Analysis included in CBS's Annual Report on Form 10-K for the
year ended December 31, 1998, which is incorporated by reference in this proxy
statement/prospectus; (ii) King World's consolidated financial statements and
the notes thereto as of and for the year ended August 31, 1998 and Management's
Discussion and Analysis included in King World's Annual Report on Form 10-K for
the fiscal year ended August 31, 1998, which is incorporated by reference in
this proxy statement/prospectus; (iii) CBS's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1999, and (iv) King World's Quarterly
Reports on Form 10-Q for the quarterly periods ended November 30, 1998, February
28, 1999, and May 31, 1999, which are incorporated by reference in this proxy
statement/prospectus. These unaudited pro forma combined condensed financial
statements are presented for illustrative purposes only and are not necessarily
indicative of the operating results or financial position that would have been
achieved had the CBS and King World merger, the acquisition of American Radio by
CBS, the probable acquisition of Outdoor Systems by Infinity, or the Infinity
initial public offering been consummated as of the dates indicated, or of the
results that may be obtained in the future.
F-2
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1999
(IN MILLIONS)
<TABLE>
<CAPTION>
CBS KING WORLD ESTIMATED
CORPORATION PRODUCTIONS, INC. ESTIMATED ESTIMATED ADJUSTMENTS
MARCH 31, FEBRUARY 28, PRO FORMA PRO FORMA FOR OTHER CBS
1999 1999 ADJUSTMENTS COMBINED EVENTS (8)
------------- ----------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents.................. $ 987 $ 338 $ -- $ 1,325 $ (627)
Short-term investments..................... -- 27 -- 27 --
Customer receivables, net.................. 1,272 107 (5)(4) 1,374 142
Program rights............................. 562 -- -- 562 --
Deferred income taxes...................... 217 -- -- 217 13
Prepaid and other current assets........... 170 91 -- 261 80
------------- ------ ------------- ----------- ------
Total current assets....................... 3,208 563 (5) 3,766 (392)
Long-term investments...................... -- 358 -- 358 --
Property and equipment, net................ 1,132 20 -- 1,152 1,900
FCC licenses, net.......................... 4,220 -- -- 4,220 --
Goodwill, net.............................. 10,299 -- 1,773(3) 12,072 6,639
Other intangible and noncurrent assets..... 1,667 95 -- 1,762 98
------------- ------ ------------- ----------- ------
TOTAL ASSETS................................. $ 20,526 $ 1,036 $ 1,768 $ 23,330 $ 8,245
------------- ------ ------------- ----------- ------
------------- ------ ------------- ----------- ------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current maturities of long-term debt....... $ 127 $ -- $ -- $ 127 $ 147
Liabilities for talent and program rights.. 592 -- -- 592 --
Accounts payable, accrued and other
liabilities.............................. 1,135 115 25(3) 1,270 100
(5)(4)
------------- ------ ------------- ----------- ------
Total current liabilities.................. 1,854 115 20 1,989 247
Long-term debt............................. 2,315 -- -- 2,315 1,096
Pension liability.......................... 878 -- -- 878 --
Postretirement benefit liability........... 1,020 -- -- 1,020 --
Net liabilities of Discontinued 1,078 -- -- 1,078 --
Operations...............................
Other noncurrent liabilities............... 2,055 -- -- 2,055 130
------------- ------ ------------- ----------- ------
TOTAL LIABILITIES............................ 9,200 115 20 9,335 1,473
------------- ------ ------------- ----------- ------
Minority interest in equity of consolidated
subsidiaries............................... 1,624 -- -- 1,624 4,261
SHAREHOLDERS' EQUITY:
Preferred stock............................ -- -- -- -- --
Common stock............................... 740 1 57(3) 797 --
(1)(3) --
Capital in excess of par value............. 9,082 146 2,282(3) 11,694 2,511
330(3)
(146)(3)
Common stock held in treasury, at cost..... (1,265) (444) 444(3) (1,265) --
Retained earnings.......................... 1,815 1,218 (1,218)(3) 1,815 --
Accumulated other comprehensive loss....... (670) -- -- (670) --
------------- ------ ------------- ----------- ------
TOTAL SHAREHOLDERS' EQUITY................... 9,702 921 1,748 12,371 2,511
------------- ------ ------------- ----------- ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... $ 20,526 $ 1,036 $ 1,768 $ 23,330 $ 8,245
------------- ------ ------------- ----------- ------
------------- ------ ------------- ----------- ------
<CAPTION>
ESTIMATED
PRO FORMA
COMBINED
AS ADJUSTED
FOR OTHER
CBS EVENTS
------------
<S> <C>
ASSETS:
Cash and cash equivalents.................. $ 698
Short-term investments..................... 27
Customer receivables, net.................. 1,516
Program rights............................. 562
Deferred income taxes...................... 230
Prepaid and other current assets........... 341
------------
Total current assets....................... 3,374
Long-term investments...................... 358
Property and equipment, net................ 3,052
FCC licenses, net.......................... 4,220
Goodwill, net.............................. 18,711
Other intangible and noncurrent assets..... 1,860
------------
TOTAL ASSETS................................. $ 31,575
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current maturities of long-term debt....... $ 274
Liabilities for talent and program rights.. 592
Accounts payable, accrued and other
liabilities.............................. 1,370
------------
Total current liabilities.................. 2,236
Long-term debt............................. 3,411
Pension liability.......................... 878
Postretirement benefit liability........... 1,020
Net liabilities of Discontinued 1,078
Operations...............................
Other noncurrent liabilities............... 2,185
------------
TOTAL LIABILITIES............................ 10,808
------------
Minority interest in equity of consolidated
subsidiaries............................... 5,885
SHAREHOLDERS' EQUITY:
Preferred stock............................ --
Common stock............................... 797
--
Capital in excess of par value............. 14,205
Common stock held in treasury, at cost..... (1,265)
Retained earnings.......................... 1,815
Accumulated other comprehensive loss....... (670)
------------
TOTAL SHAREHOLDERS' EQUITY................... 14,882
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... $ 31,575
------------
------------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
F-3
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ESTIMATED
THREE MONTHS ENDED ESTIMATED PRO FORMA
------------------------------------- ADJUSTMENTS COMBINED
FEBRUARY 28, 1999 ESTIMATED ESTIMATED FOR AS ADJUSTED
MARCH 31, 1999 KING WORLD PRO FORMA PRO FORMA OTHER CBS FOR OTHER
CBS CORPORATION PRODUCTIONS, INC. ADJUSTMENTS COMBINED EVENTS (8) CBS EVENTS
---------------- ------------------- ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $ 1,768 $ 197 $ (10)(4) $ 1,955 $ 172 $ 2,127
Operating expenses............ (1,160) (120) 10(4) (1,270) (83) (1,353)
Marketing, general and
administrative.............. (301) (23) -- (324) (10) (334)
Depreciation and
amortization................ (149) (1) (44)(5) (194) (85) (279)
Residual costs of discontinued
businesses.................. (40) -- -- (40) -- (40)
-------- ----- ----------- ----------- ----- -----------
Operating profit (loss)....... 118 53 (44) 127 (6) 121
Other income and expense,
net......................... 13 -- -- 13 1 14
Interest expense, net......... (51) 7 -- (44) (29) (73)
-------- ----- ----------- ----------- ----- -----------
Income (loss) from Continuing
Operations before income
taxes and minority interest
in income of consolidated
subsidiaries................ 80 60 (44) 96 (34) 62
Income tax expense............ (46) (21) -- (67) (6) (73)
Minority interest in (income)
loss of consolidated
subsidiaries................ (9) -- -- (9) 6 (3)
-------- ----- ----------- ----------- ----- -----------
Income (loss) from Continuing
Operations.................. $ 25 $ 39 $ (44) $ 20 $ (34) $ (14)
-------- ----- ----------- ----------- ----- -----------
-------- ----- ----------- ----------- ----- -----------
Weighted average shares
outstanding (in thousands):
Basic....................... 693,006 57,312 750,318 750,318
-------- ----------- ----------- -----------
Diluted..................... 708,250 60,312 768,562 750,318
-------- ----------- ----------- -----------
Basic and diluted income
(loss) per share............ $ 0.04 $ 0.03 $ (0.02)
-------- ----------- -----------
-------- ----------- -----------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
F-4
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ESTIMATED
TWELVE MONTHS ENDED PRO FORMA
-------------------------------------- ESTIMATED COMBINED
NOVEMBER 30, 1998 ADJUSTMENT AS ADJUSTED
KING WORLD ESTIMATED ESTIMATED FOR FOR
DECEMBER 31, 1998 PRODUCTIONS, INC. PRO FORMA PRO FORMA OTHER CBS OTHER CBS
CBS CORPORATION (7) ADJUSTMENTS COMBINED EVENTS (8) EVENTS
----------------- ------------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... $ 6,805 $ 705 $ (23)(4) $ 7,487 $ 874 $ 8,361
Operating expenses........... (4,373) (442) 23(4) (4,792) (450) (5,242)
Marketing, general and
administrative............. (1,216) (78) -- (1,294) (41) (1,335)
Depreciation and
amortization............... (571) (2) (177)(5) (750) (363) (1,113)
Residual costs of
discontinued businesses.... (163) -- -- (163) -- (163)
-------- -------- ----------- ----------- ----- -----------
Operating profit (loss)...... 482 183 (177) 488 20 508
Other income and expense,
net........................ 43 -- -- 43 (5) 38
Interest expense, net........ (370) 34 -- (336) (27) (363)
-------- -------- ----------- ----------- ----- -----------
Income (loss) from Continuing
Operations before income
taxes and minority interest
in income of consolidated
subsidiaries............... 155 217 (177) 195 (12) 183
Income tax expense........... (161) (74) -- (235) (85) (320)
Minority interest in income
of consolidated
subsidiaries............... (6) -- -- (6) (29) (35)
-------- -------- ----------- ----------- ----- -----------
Income (loss) from Continuing
Operations................. $ (12) $ 143 $ (177) $ (46) $ (126) $ (172)
-------- -------- ----------- ----------- ----- -----------
-------- -------- ----------- ----------- ----- -----------
Weighted average Basic and
diluted shares outstanding
(in thousands)(6).......... 696,435 -- 57,312(2) 753,747 -- 753,747
-------- -------- ----------- ----------- ----- -----------
Basic and diluted income
(loss) per share........... $ (0.02) $ (0.06) $ (0.23)
-------- ----------- -----------
-------- ----------- -----------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
F-5
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
(1) BASIS OF PRESENTATION
The purchase method of accounting has been used in the preparation of the
accompanying unaudited pro forma combined condensed financial statements. Under
this method of accounting, the purchase price is allocated to assets acquired
and liabilities assumed based on their estimated fair values as of the effective
time of the merger. The excess of consideration paid over the estimated fair
value of net assets acquired will be recorded as goodwill and amortized as a
charge to earnings. For purposes of the unaudited pro forma combined condensed
financial statements, the preliminary fair values of King World's assets and
liabilities were estimated by CBS management based primarily on information
furnished by the management of King World. The final allocation of the purchase
price will be determined after the consummation of the merger and will be based
on appraisals and a comprehensive final evaluation of the fair value of assets
acquired and liabilities assumed of King World.
(2) PURCHASE PRICE INFORMATION
Pursuant to the merger agreement, stockholders of King World will receive
.81 of a share of CBS common stock for each King World share issued and
outstanding at the consummation of the merger. The total number of King World
shares issued and outstanding during the period subsequent to the merger
announcement but prior to its consummation is not anticipated to fluctuate out
of the ordinary course. For the purpose of the pro forma combined condensed
financial statements the value of the per share CBS common stock to be issued
was calculated based upon the market price per share at the close of business on
March 31, 1999.
<TABLE>
<S> <C>
Total estimated King World common shares outstanding............................. 70,755,335
Exchange Ratio................................................................... 0.81
----------
Estimated CBS common shares to be issued......................................... 57,311,821
CBS common stock per share market value.......................................... $ 40.8125
Purchase Price:
Estimated value of CBS common stock to be issued in connection with the merger... $ 2,339
Estimated fair value of stock options assumed.................................... 330
----------
Estimated net increase in CBS equity............................................. $ 2,669
----------
----------
</TABLE>
F-6
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
(3) PURCHASE PRICE AND ELIMINATION OF HISTORICAL BALANCES
To record the purchase price paid in connection with the merger as described
in Note 1 and Note 2 above and to eliminate certain historical King World
balances.
<TABLE>
<S> <C>
Issuance of new CBS equity (per Note 2) (57,311,821 shares at $40.8125) allocated as
follows:
Common stock, $1.00 par value (57,311,821 shares).................................. $ 57
Capital in excess of par value:
Issuance of new CBS stock........................................................ 2,282
Fair value of King World stock options assumed by CBS............................ 330
---------
Increase in CBS equity (see Note 2)................................................ 2,669
Less: Shareholders' equity of King World at March 31, 1999
Common stock....................................................................... (1)
Capital in excess of par value..................................................... (146)
Common stock held in treasury...................................................... 444
Retained earnings.................................................................. (1,218)
Adjustments:
Add: Estimated accrued transaction costs........................................... 25
---------
Excess purchase price over fair value of net assets acquired....................... $ 1,773
---------
---------
</TABLE>
The above pro forma adjustments are based on preliminary estimates. The
final allocation of the purchase price will be determined after the consummation
of the merger and will be based on appraisals and a comprehensive final
evaluation of the fair value of assets acquired and liabilities assumed of King
World. As further analysis is performed, these estimates may be revised at a
later date.
(4) EXISTING RELATIONSHIP BETWEEN CBS AND KING WORLD
Through an existing agreement with King World, CBS's owned-and-operated
television stations pay for certain programming from King World. The following
adjustments have been made to eliminate the balances associated with the
transactions between CBS and King World:
<TABLE>
<S> <C>
BALANCE SHEET
Customer receivables/Accounts payable as of March 31, 1999...................................... $ 5
STATEMENT OF OPERATIONS
Revenue/operating expenses for the three months ended March 31, 1999............................ $ 10
Revenue/operating expenses for the year ended December 31, 1998................................. 23
</TABLE>
(5) AMORTIZATION OF GOODWILL
The pro forma adjustments are based on preliminary estimates. The final
allocation of the purchase price will be determined after the consummation of
the merger and will be based on appraisals and a comprehensive final evaluation
of the fair value of assets acquired and liabilities assumed of King World. As
further analysis is performed, including obtaining appraisals for identifiable
intangible assets and programming commitments acquired, these estimates may be
significantly revised, including the estimated amortization periods. Estimated
goodwill amortization is computed on a straight-line basis over a 10-year
period. If goodwill amortization had been computed assuming a 20-year period pro
forma operating results for the quarter ended March 31, 1999 and for the year
ended December 31, 1998 on a pre and post tax basis would have improved by $22
million and $89 million, respectively, or approximately $0.03 and $0.12 per
share, respectively, on a basic and diluted basis.
F-7
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
(6) AVERAGE SHARES OUTSTANDING
The average CBS common shares outstanding used in calculating pro forma loss
per common share from Continuing Operations, as adjusted for Other CBS Events,
are calculated assuming that the estimated number of shares of CBS common stock
to be issued in connection with the merger were outstanding from January 1,
1998. Options to purchase shares of common stock as well as shares of common
stock issuable under deferred compensation arrangements were not included in
computing pro forma diluted earnings per common share because their inclusion
would result in a smaller loss per common share. For the quarter ended March 31,
1999 and the year ended December 31, 1998 options to purchase shares of CBS
common stock as well as shares of CBS common stock issuable under deferred
compensation arrangements approximated 22 million and 21 million, respectively.
(7) KING WORLD CONDENSED STATEMENT OF OPERATIONS
The King World condensed statement of operations for the twelve month period
ended November 30, 1998 is calculated by adding the King World first quarter
statement of operations as filed in its Quarterly Report on Form 10-Q for the
three month period ended November 30, 1998, and subtracting the prior year first
quarter statement of operations as filed in their Quarterly Report on Form 10-Q
for the period ended November 30, 1997, from its total year 1998 statement of
operations as filed in its Annual Report on Form 10-K for the fiscal year ended
August 31, 1998.
(8) OTHER CBS EVENTS
The unaudited pro forma combined condensed financial statements are
presented after giving effect to the following Other CBS Events:
ACQUISITION OF AMERICAN RADIO BY CBS
On June 4, 1998, CBS acquired the radio operations of American Radio for
$1.4 billion in cash plus the assumption of debt with a fair value of
approximately $1.3 billion. This acquisition has been accounted for under the
purchase method of accounting.
PROBABLE ACQUISITION OF OUTDOOR SYSTEMS BY INFINITY
On May 27, 1999, Infinity signed a definitive agreement to acquire Outdoor
Systems for approximately $8.7 billion which includes the assumption of debt
with a fair value of approximately $1.9 billion. This acquisition will be
accounted for under the purchase method of accounting. In connection with this
acquisition Infinity will issue approximately 231 million shares of its Class A
common stock which will dilute CBS's equity ownership in Infinity to
approximately 62.5 percent. The consummation of the acquisition is subject to
certain conditions, including the expiration or termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act and the approval
of Outdoor Systems and Infinity shareholders.
INFINITY INITIAL PUBLIC OFFERING
In 1998, CBS formed a new company, named Infinity, comprising the radio and
outdoor advertising operations of CBS. In December 1998, Infinity sold 18.2
percent of its common stock in an initial public offering, generating proceeds
of approximately $3 billion. These proceeds were utilized to pay down
F-8
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
existing debt under the CBS revolving credit facility and other debt of CBS as
well as to make investments in short-term marketable securities.
The following table sets forth the estimated adjustments effecting CBS's
consolidated financial statements for the inclusion of the probable acquisition
of Outdoor Systems by Infinity. In that regard the historical statement of
position at March 31, 1999 has been incorporated into the pro forma financials
and is adjusted to reflect the acquisition purchase price as well as certain
other items such as: the repayment of long-term debt; the step up in value of
certain long-term debt instruments; the elimination of existing debt financing
costs; the accrual for the estimated transaction costs; and the recognition of
the estimated excess purchase price over the fair value of assets acquired as
goodwill. As further analysis is performed, including appraisals on identifiable
tangible and intangible assets acquired and liabilities assumed, these estimates
may be significantly revised including the estimated amortization periods.
Minority interest in equity of consolidated subsidiaries has also been adjusted
to reflect Infinity's distribution of its stock in connection with the
acquisition of Outdoor Systems and thus the reduction of CBS's equity interest
in Infinity from 81.8 percent to 62.5 percent.
<TABLE>
<CAPTION>
ESTIMATED
OUTDOOR ADJUSTMENTS
SYSTEMS ESTIMATED FOR
MARCH 31, PRO FORMA OTHER CBS
1999 ADJUSTMENTS EVENTS
----------- ------------- -------------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents.................................................. $ 14 $ (641) $ (627)
Customer receivables....................................................... 142 -- 142
Deferred income taxes...................................................... 13 -- 13
Prepaid and other current assets........................................... 80 -- 80
----------- ------ ------
Total current assets....................................................... 249 (641) (392)
Property and equipment, net................................................ 1,900 -- 1,900
Goodwill, net.............................................................. 592 6,047 6,639
Other intangible and noncurrent assets..................................... 51 47 98
----------- ------ ------
TOTAL ASSETS............................................................... $ 2,792 $ 5,453 $ 8,245
----------- ------ ------
----------- ------ ------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current maturities of long-term debt....................................... $ 147 $ -- $ 147
Accounts payable and other liabilities..................................... 85 15 100
----------- ------ ------
Total current liabilities.................................................. 232 15 247
Long-term debt............................................................. 1,662 (566) 1,096
Other noncurrent liabilities............................................... 110 20 130
----------- ------ ------
TOTAL LIABILITIES.......................................................... 2,004 (531) 1,473
Minority interest.......................................................... -- 4,261 4,261
SHAREHOLDERS' EQUITY:
Common stock............................................................... 2 (2) --
Capital in excess of par value............................................. 763 1,748 2,511
Common stock held in treasury, at cost..................................... (4) 4 --
Retained earnings.......................................................... 36 (36) --
Accumulated other comprehensive loss....................................... (9) 9 --
----------- ------ ------
TOTAL SHAREHOLDERS' EQUITY................................................. 788 1,723 2,511
----------- ------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................. $ 2,792 $ 5,453 $ 8,245
----------- ------ ------
----------- ------ ------
</TABLE>
F-9
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
The following table combines the above mentioned Other CBS Events as if
these transactions had occurred as of January 1, 1999 and were reflected in
CBS's results of operations for the three month period ended March 31, 1999:
<TABLE>
<CAPTION>
ESTIMATED
OUTDOOR ADJUSTMENTS
SYSTEMS ESTIMATED FOR
MARCH 31, PRO FORMA OTHER CBS
1999 ADJUSTMENTS EVENTS
------------- ------------- ---------------
<S> <C> <C> <C>
Revenues................................................................ $ 172 $ -- $ 172
Operating expenses...................................................... (83) -- (83)
Marketing, general and administrative................................... (10) -- (10)
Depreciation and amortization........................................... (35) (50)(d) (85)
----- ----- -----
Operating profit........................................................ 44 (50) (6)
Other income and expense, net........................................... 1 -- 1
Interest expense........................................................ (37) 8(e) (29)
----- ----- -----
Income from Continuing Operations before income taxes and minority
interest in income of consolidated subsidiaries....................... 8 (42) (34)
Income tax expense...................................................... (3) (3)(c) (6)
Minority interest in income of consolidated subsidiaries................ -- 6(f) 6
----- ----- -----
Income from Continuing Operations....................................... $ 5 $ (39) $ (34)
----- ----- -----
----- ----- -----
</TABLE>
The following table combines the above mentioned Other CBS Events as if
these transactions had occurred as of January 1, 1998 and were reflected in
CBS's results of operations for the year ended December 31, 1998:
<TABLE>
<CAPTION>
OUTDOOR SYSTEMS
AMERICAN RADIO ACQUISITION ACQUISITION
------------------------------------------- ---------------
AMERICAN ESTIMATED
RADIO AMERICAN OUTDOOR
THROUGH ESTIMATED RADIO SYSTEMS
JUNE 4, PRO FORMA PRO FORMA INFINITY DECEMBER 31,
1998 ADJUSTMENTS COMBINED IPO 1998
----------- --------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 168 $ -- $ 168 $ -- $ 706
Operating expenses....................... (119) -- (119) -- (331)
Marketing, general and administrative.... (4) -- (4) -- (37)
Depreciation and amortization............ (28) (10)(a) (38) -- (123)
----- --- ----- ----- -----
Operating profit......................... 17 (10) 7 -- 215
Other income and expenses, net........... -- -- -- (5)
Interest expense......................... (30) (45)(b) (75) 169(g) (138)
----- --- ----- ----- -----
Income from Continuing Operations before
income taxes and minority interest in
income of consolidated subsidiaries.... (13) (55) (68) 169 72
Income tax expense....................... 9 10(c) 19 (67)(c) (31)
Minority interest in income of
consolidated subsidiaries.............. -- -- -- (13)(f) --
----- --- ----- ----- -----
Income from Continuing Operations........ $ (4) $ (45) $ (49) $ 89 $ 41
----- --- ----- ----- -----
----- --- ----- ----- -----
<CAPTION>
ESTIMATED ESTIMATED
OUTDOOR ADJUSTMENTS
ESTIMATED SYSTEMS FOR
PRO FORMA PRO FORMA OTHER CBS
ADJUSTMENTS COMBINED EVENTS
--------------- ------------- ---------------
<S> <C> <C> <C>
Revenues................................. $ -- $ 706 $ 874
Operating expenses....................... -- (331) (450)
Marketing, general and administrative.... -- (37) (41)
Depreciation and amortization............ (202)(d) (325) (363)
----- ----- -----
Operating profit......................... (202) 13 20
Other income and expenses, net........... -- (5) (5)
Interest expense......................... 17(e) (121) (27)
----- ----- -----
Income from Continuing Operations before
income taxes and minority interest in
income of consolidated subsidiaries.... (185) (113) (12)
Income tax expense....................... (6)(c) (37) (85)
Minority interest in income of
consolidated subsidiaries.............. (16)(f) (16) (29)
----- ----- -----
Income from Continuing Operations........ $ (207) $ (166) $ (126)
----- ----- -----
----- ----- -----
</TABLE>
Pro forma adjustments giving effect to the Other CBS Events in the unaudited
pro forma combined condensed financial statements reflect the following:
(a) American Radio acquisition--amortization of goodwill and identifiable
intangible assets, including FCC licenses on a straight-line basis over 40
years.
F-10
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
(b) Increase in interest expense resulting from borrowings under CBS's credit
facility to finance the acquisition of American Radio including the
repayment of certain American Radio revolver borrowings in conjunction with
the consummation of the acquisition.
(c) Income tax expense on the pro forma results of operations and the pro forma
adjustments, excluding non-deductible goodwill amortization, is calculated
at a 40 percent marginal tax rate.
(d) Outdoor Systems acquisition--amortization of goodwill and identifiable
intangible assets on a straight-line basis over 30 years.
(e) Reduction in interest expense resulting from the repayment of Outdoor
Systems' credit facility with credit facility borrowings of Infinity where
average borrowing rates are more favorable than previously experienced by
Outdoor Systems. In addition, the reduction of interest expense reflects the
recording of all debt instruments assumed at fair value within the pro forma
financial statements. These reductions were partially offset by incremental
interest expense recognized during the year ended December 31, 1998, as a
result of the assumed deconsolidation of Infinity from the CBS consolidated
income tax return.
(f) The adjustment to minority interest in (income) loss of consolidated
subsidiaries reflects CBS's ownership interest dilution resulting from
Infinity's assumed issuance of common stock to acquire Outdoor Systems. In
addition, for the year ended December 31, 1998 the adjustment reflects the
impact of Infinity's initial public offering. As a result of the December
1998 initial public offering CBS's equity ownership in Infinity was reduced
to approximately 81.8 percent and will be further reduced to approximately
62.5 percent after Infinity's probable acquisition of Outdoor Systems.
(g) Reduction in the interest expense represents savings resulting from the
assumed repayment of debt with the proceeds received from the Infinity
public offering.
F-11
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 31, 1999
BY AND AMONG
KING WORLD PRODUCTIONS, INC.,
CBS CORPORATION
AND
K ACQUISITION CORP.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I THE MERGER..................................................................................... A-1
SECTION 1.1
The Merger......................................................................... A-1
SECTION 1.2
Effective Time of the Merger....................................................... A-1
SECTION 1.3
Closing............................................................................ A-2
SECTION 1.4
Effects of the Merger.............................................................. A-2
SECTION 1.5
Certificate of Incorporation and By-Laws........................................... A-2
SECTION 1.6
Directors.......................................................................... A-2
SECTION 1.7
Officers........................................................................... A-2
ARTICLE II CONVERSION OF SHARES.......................................................................... A-2
SECTION 2.1
Conversion of Capital Stock........................................................ A-2
SECTION 2.2
Exchange of Certificates........................................................... A-3
SECTION 2.3
Closing of Transfer Books.......................................................... A-5
SECTION 2.4
Exchange Ratio for Company Stock Options........................................... A-5
SECTION 2.5
Adjustments to Prevent Dilution.................................................... A-6
SECTION 2.6
Lost Certificates.................................................................. A-6
SECTION 2.7
Withholding Rights................................................................. A-6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................ A-7
SECTION 3.1
Organization and Qualifications; Subsidiaries...................................... A-7
SECTION 3.2
Certificate of Incorporation and Bylaws............................................ A-7
SECTION 3.3
Capitalization..................................................................... A-7
SECTION 3.4
Authority Relative to This Agreement............................................... A-8
SECTION 3.5
No Conflict; Required Filings and Consents; Certain Contracts...................... A-9
SECTION 3.6
Compliance......................................................................... A-9
SECTION 3.7
SEC Reports and Financial Statements; Undisclosed Liabilities...................... A-10
SECTION 3.8
Absence of Certain Changes or Events............................................... A-11
SECTION 3.9
Litigation......................................................................... A-12
SECTION 3.10
Registration Statement and Statement/Prospectus.................................... A-12
SECTION 3.11
Employee Benefit Plans............................................................. A-12
SECTION 3.12
Board Approval..................................................................... A-13
SECTION 3.13
Vote Required...................................................................... A-13
SECTION 3.14
Opinion of Financial Advisor....................................................... A-13
SECTION 3.15
Brokers............................................................................ A-14
SECTION 3.16
Taxes.............................................................................. A-14
SECTION 3.17
Real Property...................................................................... A-15
SECTION 3.18
Labor Matters...................................................................... A-15
SECTION 3.19
State Takeover Statutes............................................................ A-15
SECTION 3.20
Material Contracts................................................................. A-15
SECTION 3.21
Insurance.......................................................................... A-17
SECTION 3.22
Intellectual Property.............................................................. A-17
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PARENT AND
MERGER SUB.................................................................................. A-18
SECTION 4.1
Organization and Qualifications; Subsidiaries...................................... A-18
SECTION 4.2
Certificate of Incorporation and Bylaws............................................ A-18
SECTION 4.3
Capitalization..................................................................... A-19
SECTION 4.4
Authority Relative to This Agreement............................................... A-19
SECTION 4.5
No Conflict; Required Filings and Consents......................................... A-20
SECTION 4.6
Compliance......................................................................... A-20
SECTION 4.7
SEC Reports and Financial Statements; Undisclosed Liabilities...................... A-21
SECTION 4.8
Absence of Certain Changes or Events............................................... A-21
SECTION 4.9
Litigation......................................................................... A-21
SECTION 4.10
Registration Statement and Proxy Statement/Prospectus.............................. A-22
SECTION 4.11
Board Approval..................................................................... A-22
SECTION 4.12
Vote Required...................................................................... A-22
SECTION 4.13
Brokers............................................................................ A-22
SECTION 4.14
No Arrangements Triggering Section 203 of the DGCL................................. A-22
SECTION 4.15
Y2K Compliance..................................................................... A-22
SECTION 4.16
Merger Sub......................................................................... A-22
ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER......................................................... A-23
SECTION 5.1
Conduct of Business of the Company Pending the Merger.............................. A-23
SECTION 5.2
Conduct of Business of the Parent Pending the Merger............................... A-25
ARTICLE VI ADDITIONAL COVENANTS.......................................................................... A-25
SECTION 6.1
Access to Information.............................................................. A-25
SECTION 6.2
No Solicitation.................................................................... A-26
SECTION 6.3
Directors and Officers Indemnification and Insurance............................... A-27
SECTION 6.4
Notification of Certain Matters.................................................... A-28
SECTION 6.5
Tax Treatment...................................................................... A-28
SECTION 6.6
Company Stockholder Meeting........................................................ A-28
SECTION 6.7
Registration Statement, Proxy Statement/Prospectus................................. A-28
SECTION 6.8
Letters of Accountants............................................................. A-29
SECTION 6.9
Further Action, Reasonable Efforts................................................. A-29
SECTION 6.10
Public Announcements............................................................... A-29
SECTION 6.11
Blue Sky........................................................................... A-30
SECTION 6.12
NYSE............................................................................... A-30
SECTION 6.13
Affiliates......................................................................... A-30
SECTION 6.14
Employee Benefits.................................................................. A-30
SECTION 6.15
Tax Matters........................................................................ A-31
ARTICLE VII CONDITIONS TO THE MERGER..................................................................... A-31
SECTION 7.1
Conditions to Each Party's Obligation to Effect the Merger......................... A-31
SECTION 7.2
Conditions to Obligations of the Company to Effect the Merger...................... A-31
SECTION 7.3
Conditions to Obligations of the Parent and Merger Sub to Effect the Merger........ A-32
</TABLE>
A-iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE VIII TERMINATION WAIVER, AMENDMENT AND CLOSING................................................... A-34
SECTION 8.1
Termination........................................................................ A-34
SECTION 8.2
Effect of Termination.............................................................. A-35
SECTION 8.3
Termination Fee.................................................................... A-35
SECTION 8.4
Amendment or Supplement............................................................ A-36
SECTION 8.5
Extension of Time, Waiver, Etc..................................................... A-36
ARTICLE IX MISCELLANEOUS................................................................................. A-36
SECTION 9.1
No Survival of Representations and Warranties...................................... A-36
SECTION 9.2
Expenses........................................................................... A-36
SECTION 9.3
Counterparts....................................................................... A-36
SECTION 9.4
Governing Law...................................................................... A-36
SECTION 9.5
Notices............................................................................ A-37
SECTION 9.6
Miscellaneous...................................................................... A-37
SECTION 9.7
Severability....................................................................... A-38
SECTION 9.8
Specific Performance............................................................... A-38
</TABLE>
A-iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 31, 1999, by and among CBS
Corporation, a Pennsylvania corporation (the "PARENT"), King World Productions,
Inc., a Delaware corporation (the "COMPANY"), and K Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of the Parent ("MERGER SUB").
WHEREAS, the respective Boards of Directors of the Parent, the Company and
Merger Sub have determined that the merger of Merger Sub with and into the
Company on the terms and subject to the conditions set forth in this Agreement
(the "MERGER"), with the Company surviving as a wholly owned subsidiary of the
Parent, is advisable and in the best interest of their respective corporations
and stockholders and have approved this Agreement;
WHEREAS, as a condition to the willingness of the Parent to enter into this
Agreement, those individuals (the "PRINCIPAL STOCKHOLDERS") set forth on
Schedule A attached to the Stockholders Agreement (as defined below), have
entered into the Stockholders Agreement dated as of the date hereof (the
"STOCKHOLDERS AGREEMENT") with Parent, which provides, among other things, that,
subject to the terms and conditions thereof, each Principal Stockholder will
vote his or her shares of Company Common Stock (as defined in Section 2.1
hereof) in favor of the adoption of this Agreement;
WHEREAS, the Board of Directors of the Company has approved the terms of the
Stockholders Agreement; and
WHEREAS, for Federal income tax purposes it is intended that the Merger
qualify as a reorganization within the meaning of section 368(a) of the Internal
Revenue Code of 1986, as amended, and the rules and regulations promulgated
thereunder (the "CODE").
NOW, THEREFORE, in consideration of the mutual representations, warranties
and agreements contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. (a) Upon the terms and subject to the conditions
of this Agreement, at the Effective Time (as defined in Section 1.2), in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), Merger Sub shall be merged with and into the Company in accordance with
this Agreement and the separate existence of Merger Sub shall cease. The Company
shall be the surviving corporation in the Merger (hereinafter sometimes referred
to as the "SURVIVING CORPORATION").
(b) At the election of the Parent, any direct wholly owned Parent
Subsidiary (as defined in Section 4.1(b)) may be substituted for Merger Sub as a
constituent corporation in the Merger. In such event, the parties agree to
execute an appropriate amendment to this Agreement in order to reflect such
substitution.
SECTION 1.2 EFFECTIVE TIME OF THE MERGER. Upon the terms and subject to
the conditions hereof, a certificate of merger (the "CERTIFICATE OF MERGER")
shall be duly prepared, executed and acknowledged by the Surviving Corporation
and thereafter filed with the Secretary of State of the State of Delaware on the
Closing Date (as defined in Section 1.3). The Merger shall become effective as
of the date and at such time as the Certificate of Merger pursuant to Section
251 of the DGCL and any other documents necessary to effect the Merger in
accordance with the DGCL are duly filed (the "MERGER FILING") with the Secretary
of State of the State of Delaware or at such subsequent date or time as shall be
agreed by the Company and the Parent and specified in the Certificate of Merger
and in accordance with the DGCL (the time the Merger becomes effective pursuant
to the DGCL being referred to herein as the "EFFECTIVE TIME").
A-1
<PAGE>
SECTION 1.3 CLOSING. Subject to the satisfaction or waiver of all of the
conditions to closing contained in Article VII hereof, the closing of the Merger
(the "CLOSING") will take place at 10:00 a.m., New York City time, on a date to
be specified by the parties, which shall be no later than the Business Day (as
defined below) after the satisfaction or waiver of the conditions to Closing
contained in Article VII (other than those conditions that by their nature are
to be satisfied at the Closing, but subject to the fulfillment or waiver of
those conditions), at the offices of Weil, Gotshal & Manges LLP, 767 Fifth
Avenue, New York, New York 10153, unless another date or place is agreed to in
writing by the parties hereto. The date and time at which the Closing occurs is
referred to herein as the "CLOSING DATE." BUSINESS DAY shall mean any day other
than a Saturday, a Sunday or a day on which banking institutions in New York
City are not required to be open.
SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the DGCL, including Section 259 of the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers and franchises of the Company and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
SECTION 1.5 CERTIFICATE OF INCORPORATION AND BY-LAWS.
(a) The Certificate of Incorporation of the Company shall be amended at the
Effective Time so as to read in its entirety as specified in Exhibit A and as so
amended shall be the Certificate of Incorporation of the Surviving Corporation,
until further amended in accordance with the terms thereof and with applicable
law.
(b) The By-Laws of Merger Sub in effect at the Effective Time, shall be the
By-Laws of the Surviving Corporation until amended in accordance with the terms
thereof and with applicable law.
SECTION 1.6 DIRECTORS. The directors of Merger Sub immediately prior to
the Effective Time shall be the directors of the Surviving Corporation, each to
hold office from the Effective Time in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation and until his or her
successor is duly elected and qualified.
SECTION 1.7 OFFICERS. The officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, each to hold
office from the Effective Time in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation and until his or her
successor is duly appointed and qualified.
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 CONVERSION OF CAPITAL STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of common stock, par value $.01 per share (the "COMPANY COMMON STOCK"),
of the Company or of the holder of any shares of capital stock of Merger Sub:
(a) CAPITAL STOCK OF MERGER SUB. Each issued and outstanding share of
common stock, par value $.01 per share, of Merger Sub shall be converted
into and become one validly issued, fully paid and nonassessable share of
common stock, par value $.01 per share, of the Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK. All shares
of Company Common Stock that are owned by the Company as treasury stock and
any shares of Company Common Stock owned by the Parent or Merger Sub shall
automatically be cancelled and shall cease to exist and no shares of capital
stock of Parent or other consideration shall be delivered in exchange
therefor.
(c) EXCHANGE RATIO FOR COMPANY COMMON STOCK. Subject to Section
2.2(e), each issued and outstanding share of Company Common Stock (other
than shares to be cancelled in accordance with
A-2
<PAGE>
Section 2.1(b)) shall be converted into the right to receive .81 (the
"EXCHANGE RATIO") validly issued, fully paid and nonassessable shares of
common stock, par value $1.00 per share (the "PARENT COMMON STOCK"), of the
Parent (the "MERGER CONSIDERATION"). As of the Effective Time, all such
shares of Company Common Stock shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist, and each holder of a
certificate that, immediately prior to the Effective Time, represented
outstanding shares of Company Common Stock (the "CERTIFICATES") shall cease
to have any rights with respect thereto, except the right to receive, upon
the surrender of such Certificate, the whole shares of Parent Common Stock
to which such holder is entitled pursuant to this Section 2.1(c), as
represented by one or more certificates, and any cash in lieu of fractional
shares of Parent Common Stock to be issued or paid in consideration therefor
in accordance with Section 2.2(e) and any dividends or distributions to
which such holder is entitled pursuant to Section 2.2(c), in each case
without interest.
SECTION 2.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time, the Parent shall deposit
with the Parent's transfer agent for its shares of Parent Common Stock, or
with such other bank or trust company designated by the Parent prior to the
Effective Time and reasonably acceptable to the Company with an office or
agency in the City of New York, New York (the "EXCHANGE AGENT"), for the
benefit of the holders of Certificates, for exchange in accordance with this
Article II, through the Exchange Agent, certificates representing the number
of shares of Parent Common Stock (such shares of Parent Common Stock,
together with any dividends or distributions with respect thereto to which
the holders of Certificates may be entitled pursuant to Section 2.2(c),
being hereinafter referred to as the "EXCHANGE FUND") issuable pursuant to
Section 2.1(c) in exchange for outstanding shares of Company Common Stock.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, the Parent shall cause the Exchange Agent to mail to each
holder of 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 delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other customary provisions as the Parent
may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing
shares of the Parent Common Stock which such holder has the right to receive
pursuant to the provisions of this Article II. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by the Parent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor certificates representing that whole number
of shares of Parent Common Stock which such holder has the right to receive
pursuant to the provisions of this Article II, and the Certificate so
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of shares of Company Common Stock which is not registered in the
transfer records of the Company, certificates representing the proper number
of shares of Parent Common Stock may be issued to a transferee if the
Certificate representing such shares of Company 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 2.2,
each Certificate shall be deemed, at any time after the Effective Time, to
represent only the right to receive upon such surrender certificates
representing the shares of Parent Common Stock, dividends or distributions
with respect thereto and any cash in lieu of fractional shares of Parent
Common Stock, as contemplated by this Section 2.2. No interest will be paid
or will accrue on any cash paid or payable in lieu of any fractional shares
of Parent Common Stock.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED COMPANY COMMON STOCK. No
dividends or other distributions declared or made after the Effective Time
with respect to shares of Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered
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Certificate with respect to the shares of Parent Common Stock issuable
hereunder in respect thereof, and no cash payment in lieu of fractional
shares of Parent Common Stock shall be paid to any such holder pursuant to
Section 2.2(e), until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of applicable Laws (as
defined in Section 3.5(a)), following surrender of any such Certificate
there shall be paid to the record holder of the certificates representing
shares of Parent Common Stock issued in exchange therefor, without interest,
(i) at the later of (A) the time of such surrender and (B) the fifth
Business Day following the Effective Time, the amount of any cash payable in
lieu of a fractional share of Parent Common Stock to which such holder is
entitled pursuant to Section 2.2(e) and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Parent Common Stock, and (ii) if the
payment date for any dividend or distribution payable with respect to such
whole shares of Parent Common Stock has not occurred prior to the surrender
of such Certificate, at the appropriate payment date therefor, the amount of
dividends or other distributions with a record date after the Effective Time
but prior to the surrender of such Certificate.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the surrender for exchange of Certificates
in accordance with the terms hereof (including any cash paid pursuant to
Section 2.2(c) or 2.2(e)) shall be deemed to have been issued (and paid for)
in full satisfaction of all rights pertaining to the shares of Company
Common Stock formerly represented by such Certificates, subject, however, to
the Surviving Corporation's obligation to pay any dividends or make any
other distributions with a record date prior to the Effective Time which may
have been declared or made by the Company on such shares of Company Common
Stock in accordance with the terms of this Agreement or prior to the date
hereof and which remain unpaid at the Effective Time, and from and after the
Effective Time there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Common Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be cancelled and exchanged for shares
of Parent Common Stock, together with any cash in lieu of fractional shares
of Parent Common Stock and any dividends or distributions with respect to
shares of Parent Common Stock, as provided in this Article II, except as
otherwise provided by law.
(e) NO FRACTIONAL SHARES. (i) No fractional shares, and no certificate
or scrip representing fractional shares, of Parent Common Stock shall be
issued upon the surrender for exchange of Certificates, and such fractional
share interests shall not entitle the owner thereof to any rights as a
security holder of the Parent.
(ii) Notwithstanding any other provision of this Agreement, each holder
of shares of Company Common Stock converted pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Parent
Common Stock (after taking into account all Certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of Parent Common Stock multiplied
by the closing price of a share of Parent Common Stock on the New York Stock
Exchange ("NYSE") Composite Transactions List (as reported by the WALL
STREET JOURNAL or, if not reported thereby, any other authoritative source)
on the Closing Date.
(iii) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Certificates in lieu of any
fractional share interests, the Parent shall cause the Exchange Agent to
distribute such amounts to such holders of Certificates entitled to such
amounts.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
which remains undistributed to the holders of Certificates for six months
after the Effective Time shall be delivered to the Parent, upon demand, and
any holders of Certificates who have not theretofore delivered all of their
Certificates in accordance with Section 2.2 shall thereafter look only to
the Parent for payment of
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their claim for shares of Parent Common Stock, any cash in lieu of
fractional shares of Parent Common Stock and any dividends or distribution,
with respect to shares of Parent Common Stock.
(g) NO LIABILITY. Neither the Parent, the Company nor the Exchange
Agent shall be liable to any holder of Certificates or shares of Parent
Common Stock, as the case may be, for any shares of Parent Common Stock (or
dividends or distribution with respect thereto) or cash payable pursuant to
this Article II delivered to a public official pursuant to any applicable
abandoned property, escheat, or similar Law. If any Certificate shall not
have been surrendered prior to seven years after the Effective Time (or
immediately prior to such earlier date on which any Merger Consideration,
any cash payable to the holder of such Certificate pursuant to this Article
II or any dividends or distributions payable to the holder of such
Certificate would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 3.5(b)), any such Merger
Consideration or cash shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all
claims or interest of any person previously entitled thereto.
SECTION 2.3 CLOSING OF TRANSFER BOOKS. From and after the Effective Time,
the stock transfer books of the Company shall be closed and no transfer of
shares of Company Common Stock shall thereafter be made. If, after the Effective
Time, Certificates are presented to the Parent, they shall be cancelled and
exchanged for shares of Parent Common Stock, together with any cash in lieu of
fractional shares of Parent Common Stock and any dividends or distributions with
respect to shares of Parent Common Stock, as provided in this Article II.
SECTION 2.4 EXCHANGE RATIO FOR COMPANY STOCK OPTIONS. (a) The Parent and
the Company shall take such actions as are necessary to provide that at the
Effective Time each outstanding Company Stock Option (as defined in Section
3.3(a)) shall be assumed by the Parent and adjusted in accordance with the terms
thereof and this Agreement to be exercisable to purchase shares of Parent Common
Stock, as provided below. Following the Effective Time, each Company Stock
Option shall continue to have, and shall be subject to, the same terms and
conditions set forth in the Company Option Plans (as defined in Section 3.3(a))
or any other agreement pursuant to which such Company Stock Option was subject
immediately prior to the Effective Time, except as set forth in this Section 2.4
and except that (i) each such Company Stock Option shall be exercisable for that
number of shares of Parent Common Stock equal to the product of (x) the
aggregate number of shares of Company Common Stock for which such Company Stock
Option was exercisable and (y) the Exchange Ratio, rounded, in the case of any
Company Stock Options other than an "incentive stock option" (within the meaning
of Section 422 of the Code), up, and, in the case of any incentive stock option,
down, to the nearest whole share, if necessary, and (ii) the exercise price per
share of such Company Stock Option shall be equal to the aggregate exercise
price of such Company Stock Option immediately prior to the Effective Time
divided by the number of shares of Parent Common Stock for which such Company
Stock Option shall be exercisable as determined in accordance with the preceding
clause (i), rounded to the nearest cent, if necessary. Except as otherwise
agreed to by the Parent and the Company, all restrictions or limitations on
transfer and vesting with respect to Company Stock Options, to the extent that
such restrictions or limitations shall not have already lapsed, shall remain in
full force and effect with respect to such options after giving effect to the
Merger and the assumption by Parent as set forth above.
(b) As soon as practicable following the Effective Time, the Parent shall
(i) deliver to the holders of Company Stock Options appropriate notices setting
forth such holders' rights pursuant to the Company Option Plans after giving
effect to the Merger and the provisions set forth above and (ii) subject to the
Parent's receipt of evidence of a holder's agreement, if necessary, to the
adjustment of his or her Company Stock Options as set forth in this Section 2.4,
enter into an assumption agreement with respect to each Company Stock Option,
which shall provide for the Parent's assumption of the obligations of the
Company under the Company Option Plans or other agreement under which such
Company Stock Option was granted, which agreement will be in a form approved by
the Board of Directors of the Company prior to the Effective Time. Prior to the
Effective Time, the Company shall make such amendments and take such
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other actions, if any, to the Company Option Plans as shall be necessary to
permit the assumption and adjustment referred to in this Section 2.4.
(c) It is the intention of the parties that, to the extent that any Company
Stock Option constituted an incentive stock option immediately prior to the
Effective Time, such option continue to qualify as an incentive stock option to
the maximum extent permitted by Section 422 of the Code, and that the assumption
of the Company Stock Options provided by this Section 2.4 satisfy the conditions
of Section 424(a) of the Code. The Parent shall comply with the terms of the
Company Option Plans and ensure, to the extent required by, and subject to the
provisions of, such Company Option Plans, that the Company Stock Options that
qualified as incentive stock options prior to the Effective Time continue to
qualify as incentive stock options after the Effective Time.
(d) The Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of Company Stock Options under the Company Options Plans assumed in
accordance with Section 2.4(a). The Parent shall file a registration statement
on Form S-8 as of or prior to the Effective Time with respect to the shares of
Parent Common Stock subject to Company Stock Options and shall use commercially
reasonable efforts to maintain the effectiveness of such registration statement
(and maintain the current status of the prospectus or prospectuses contained
therein) for so long as such options remain outstanding. With respect to those
individuals who subsequent to the Merger will be subject to the reporting
requirements under Section 16(a) of the Exchange Act, where applicable, the
Parent shall administer the Company Option Plans assumed pursuant to Section 2.4
(a) in a manner that complies with Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), to the extent the
applicable Company Option Plans complied with such rule prior to the Merger.
SECTION 2.5 ADJUSTMENTS TO PREVENT DILUTION. In the event that prior to
the Effective Time there is a change in the number of shares of Company Common
Stock or shares of Parent Common Stock or securities convertible or exchangeable
into or exercisable for shares of Company Common Stock or shares of Parent
Common Stock issued and outstanding as a result of a reclassification, stock
split (including a reverse stock split), stock dividend or distribution or
similar transaction, the Exchange Ratio shall be equitably adjusted to eliminate
the effects of that event.
SECTION 2.6 LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will deliver in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration with respect to the shares of Company
Common Stock formerly represented thereby, any cash in lieu of fractional shares
of Parent Common Stock and unpaid dividends and distributions on shares of
Parent Common Stock deliverable in respect thereof, pursuant to this Agreement.
SECTION 2.7 WITHHOLDING RIGHTS. Each of the Surviving Corporation and
Parent shall be entitled to deduct and withhold from any amounts otherwise
payable pursuant to this Agreement to any holder of a Certificate such amounts
as it is required to deduct and withhold with respect to the making of such
payment under the Code, or any provisions of Law (as defined in Section 3.5). To
the extent that amounts are so withheld by the Surviving Corporation or Parent,
as the case may be, such withheld amounts shall be treated for purposes of this
Agreement as having been paid to the holder of a Certificate in respect to which
such deduction and withholding was made by the Surviving Corporation or Parent,
as the case may be.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Parent and Merger Sub
that:
SECTION 3.1 ORGANIZATION AND QUALIFICATIONS; SUBSIDIARIES. (a) The Company
and each Material Company Subsidiary (as defined below) is a corporation,
partnership or other legal entity duly incorporated or 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 to own,
lease and operate its properties and to carry on its business as it is now being
conducted, except, with respect to each Material Company Subsidiary, where the
failure to be so organized, existing or in good standing or to have such power
and authority, individually or in the aggregate, would not or would not
reasonably be expected to have a Company Material Adverse Effect (as defined
below). The Company and each Material Company Subsidiary is duly qualified or
licensed as a foreign corporation to transact business, and is in good standing,
in each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed and
in good standing that, individually or in the aggregate, would not or would not
reasonably be expected to have a Company Material Adverse Effect. For purposes
of this Agreement, a "COMPANY MATERIAL ADVERSE EFFECT" shall mean any change,
effect, event or occurrence (i) that is materially adverse to the business,
assets, properties, financial or other condition, or results of operations of
the Company and the Company Subsidiaries, taken as a whole, or (ii) that
adversely affects the ability of the Company to consummate the transactions
contemplated by this Agreement in any material respect, or that would prevent or
delay in any material respect the consummation of the Merger.
(b) Section 3.1(b) of the letter from the Company, dated the date hereof,
addressed to the Parent (the "COMPANY DISCLOSURE LETTER") sets forth all
Subsidiaries of the Company, the jurisdictions under which they are organized
and the ownership or other interest therein of the Company and each Subsidiary
of the Company (each a "COMPANY SUBSIDIARY"). Each Company Subsidiary, other
than inactive Subsidiaries which are designated as such in said Section 3.1(b),
is referred to herein as a "MATERIAL COMPANY SUBSIDIARY." No such inactive
Company Subsidiary conducts any material operations or has any material
liabilities. For purposes of this Agreement, a "SUBSIDIARY" means, with respect
to the Parent, the Company or any other person, any entity of which the Parent,
the Company or such other person, as the case may be (either alone or through or
together with any other Subsidiary), owns, directly or indirectly, stock or
other equity interests the holders of which are generally entitled to more than
50% of the vote for the election of the board of directors or other governing
body of such corporation or other legal entity.
SECTION 3.2 CERTIFICATE OF INCORPORATION AND BYLAWS. The Company has
heretofore made available to the Parent a complete and correct copy of the
certificate of incorporation and the bylaws or equivalent organizational
documents, each as amended to the date hereof, of the Company and each Material
Company Subsidiary. Such certificates of incorporation, bylaws and equivalent
organizational documents are in full force and effect. The Company is not in
violation of any provision of its certificate of incorporation or bylaws. No
Material Company Subsidiary is in violation of any provision of its certificate
of incorporation, bylaws or equivalent organizational documents, except for such
violations that, individually or in the aggregate, would not or would not
reasonably be expected to have a Company Material Adverse Effect.
SECTION 3.3 CAPITALIZATION. (a) The authorized capital stock of the
Company consists of 150,000,000 shares of Company Common Stock and 5,000,000
shares of preferred stock, par value $.01 per share (the "COMPANY PREFERRED
STOCK"). As of March 18, 1999, (i)(A) 70,745,131 shares of Company Common Stock
were issued and outstanding, all of which were validly issued, fully paid and
nonassessable, and (B) no shares of Company Preferred Stock were issued or
outstanding; and (ii)(A) 11,100,006 shares of Company Common Stock were reserved
for issuance upon the exercise of outstanding stock options (the "PLAN OPTIONS")
granted pursuant to the Company's 1998 Stock Option and Restricted Stock
Purchase
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Plan, the Company's 1996 Amended and Restated Stock Option and Restricted Stock
Purchase Plan, the Company's Incentive Equity Plan for Senior Executives and the
Salesforce Bonus Plan (the "COMPANY OPTION PLANS"), (B) 2,000,000 shares of
Company Common Stock were reserved for issuance pursuant to options available
for grant under the Company Option Plans and (C) 4,940,000 shares of Company
Common Stock were reserved for issuance upon exercise of outstanding options
listed in Section 3.3 of the Company Disclosure Letter (the "THIRD PARTY
OPTIONS" and, together with the Plan Options, the "COMPANY STOCK OPTIONS").
Section 3.3(a) of the Company Disclosure Letter sets forth a complete and
correct list as of March 18, 1999 of the holders of all Company Stock Options,
the number of shares subject to each option and the exercise price thereof.
Except as set forth above, as of March 18, 1999, no shares of capital stock or
other voting securities of the Company were issued, reserved for issuance or
outstanding and, since such date, no shares of capital stock or other voting
securities or options in respect thereof have been issued except upon the
exercise of the Company Stock Options outstanding on March 18, 1999. Except for
(i) the Company Option Plans and agreements granting options thereunder and (ii)
the agreements granting the Third Party Options, there are no options, warrants,
calls, rights, subscriptions, convertible or exchangeable securities or other
rights, agreements, arrangements or commitments of any kind or character to
which the Company or any Company Subsidiary is a party (collectively, "OPTIONS")
relating to the issued or unissued capital stock of the Company or any Company
Subsidiary, or obligating the Company or any Company Subsidiary to issue,
transfer, grant or sell any shares of capital stock of, or other equity
interests in, or securities convertible into or exchangeable for any capital
stock or other equity interests in, the Company or any Company Subsidiary. All
shares of Company 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. There are no outstanding contractual obligations of the Company
or any Company Subsidiary to repurchase, redeem or otherwise acquire any shares
of Company Common Stock or any other shares of capital stock of the Company or
any Company Subsidiary, or make any material investment (in the form of a loan,
capital contribution or otherwise) in any Company Subsidiary or any other
person, other than a wholly owned Company Subsidiary.
(b) Each outstanding share of capital stock of each Material Company
Subsidiary is duly authorized, validly issued, fully paid and nonassessable and
each such share owned by the Company or another Company Subsidiary is free and
clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on voting rights, charges and other
encumbrances of any nature whatsoever (collectively, "Liens"). Except for the
capital stock of the Company Subsidiaries and as otherwise disclosed in Section
3.3(b) of the Company Disclosure Letter, as of the date hereof, the Company does
not own, directly or indirectly, any capital stock or other ownership interest
in any corporation, limited liability company, partnership, joint venture or
other entity.
SECTION 3.4 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and, subject to adoption of this Agreement
by the Required Company Vote (as defined in Section 3.13), to consummate the
transactions contemplated hereby (the "TRANSACTIONS"). The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the Transactions have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the Transactions
(other than (i) the Required Company Vote (as defined in Section 3.13) and (ii)
the Merger Filing). This Agreement has been duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery thereof by the Parent and Merger Sub, constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium or other similar laws relating to creditors rights generally and by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
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SECTION 3.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS; CERTAIN
CONTRACTS. (a) Except as set forth in Section 3.5(a) of the Company Disclosure
Letter, the execution and delivery of this Agreement by the Company do not, and
the performance of its obligations under this Agreement and the consummation of
the Transactions by the Company will not, (i) conflict with or violate the
certificate of incorporation or bylaws or equivalent organizational documents of
the Company or any Material Company Subsidiary, (ii) subject to the making of
the filings and obtaining the approvals identified in Section 3.5(b), conflict
with or violate any law, rule, regulation, order, judgment or decree
(collectively, "LAWS") applicable to the Company or any Company Subsidiary or by
which any property or asset of the Company or any Company Subsidiary is bound or
affected, or (iii) conflict with or 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 (by the Company, any such Company Subsidiary
or the Surviving Corporation) or modification in a manner adverse to the Company
and the Company Subsidiaries of any material right or benefit under, or give to
others any right of termination, amendment, acceleration, repurchase or
repayment, increased payments or cancellation of, or result in the creation of a
Lien or other encumbrance on any property or asset of the Company or any Company
Subsidiary pursuant to, any (A) Material Distribution Agreement (as defined in
Section 3.20 of the Company Disclosure Letter) or (B) note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise, or other
instrument or obligation, whether written or oral including, without limitation,
the Program Licenses (as defined in Section 3.20) (collectively with the
Distribution Agreements (as defined in Section 3.20), "CONTRACTS") or (C)
Company Plans (as defined in Section 3.11), to which the Company or any Company
Subsidiary is a party or by which the Company or any Company Subsidiary or any
property or asset of the Company or any Company 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, individually or in
the aggregate, would not or would not reasonably be expected to have a Company
Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company do not, and
the performance of its obligations under this Agreement and the consummation of
the Transactions by the Company will not, require any consent, order, approval,
authorization or permit of, or filing with or notification to, any federal,
state or local governmental or regulatory agency, authority, commission or
instrumentality, whether domestic or foreign (each a "GOVERNMENTAL ENTITY"),
except (i) for (A) applicable requirements of the Exchange Act, the Securities
Act of 1933, as amended (the "SECURITIES ACT"), and state securities or "blue
sky" laws ("BLUE SKY 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"), and (C) the Merger Filing, and (ii)
where the failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, individually or in the aggregate,
would not or would not reasonably be expected to have a Company Material Adverse
Effect.
(c) Except as set forth in Section 3.5(c) of the Company Disclosure Letter,
there are no Contracts to which the Company or any Company Subsidiary is a party
or by which the Company or any Company Subsidiary or any asset of the Company or
any Company Subsidiary is bound, which by its terms limits in any material
respect the ability of the Company or any Company Subsidiary or, after
consummation of the Transactions, would by its terms limit in any material
respect the ability of the Parent or any of its affiliates, to engage in any
business in any area or for any period.
SECTION 3.6 COMPLIANCE. Except as set forth in Section 3.6 of the Company
Disclosure Letter or in the Company SEC Reports, neither the Company nor any
Company Subsidiary is in conflict with, or in default or violation of (nor to
the Company's knowledge does there exist any condition which upon the passage of
time or the giving of notice or both would cause such a conflict with or a
default or violation of), (i) any Law applicable to the Company or any Company
Subsidiary or by which any property or asset of the Company or any Company
Subsidiary is bound or affected, including Laws relating to the protection of
natural resources, the environment and public and employee health and safety or
pollution or the release of or exposure to hazardous materials, (ii) any
Material Distribution Agreement or (iii) any other Contract
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to which the Company or any Company Subsidiary is a party or by which the
Company or any Company Subsidiary or any property or asset of the Company or any
Company Subsidiary is bound or affected, except for any such conflicts, defaults
or violations that, individually or in the aggregate, would not or would not
reasonably be expected to have a Company Material Adverse Effect. The Company
and each Company Subsidiary has in effect all federal, state and local
governmental approvals, authorizations, certificates, filings, franchises,
licenses, notices, permits and rights ("PERMITS") necessary for it to own, lease
or operate its properties and assets and to carry on its business as now
conducted, and there has occurred no default under any such Permit, except for
the lack of Permits and for defaults under Permits which lack or default
individually or in the aggregate would not or would not reasonably be expected
to have a Company Material Adverse Effect.
SECTION 3.7 SEC REPORTS AND FINANCIAL STATEMENTS; UNDISCLOSED
LIABILITIES. (a) Each form, report, schedule, registration statement and
definitive proxy statement filed by the Company with the Securities and Exchange
Commission ("SEC") since August 31, 1996 and prior to the date hereof (as such
documents have been amended prior to the date hereof, the "COMPANY SEC
REPORTS"), as of their respective dates, complied in all material respects with
the applicable requirements of the Securities Act and the Exchange Act and the
rules and regulations thereunder. None of the Company SEC Reports, as of their
respective dates, contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Company has made available to the Parent true,
accurate and complete copies of all of the Company SEC Reports. The consolidated
financial statements of the Company and the Company Subsidiaries included in
such reports comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited interim financial statements, as permitted by Form 10-Q of
the SEC) and fairly present in all material respects (subject, in the case of
the unaudited interim financial statements, to normal, year-end audit
adjustments) the consolidated financial position of the Company and its
Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended. Since August 31, 1998,
neither the Company nor any of the Company Subsidiaries has incurred any
material liabilities or obligations (whether absolute, accrued, fixed,
contingent, liquidated, unliquidated or otherwise and whether due or to become
due) of any nature, except liabilities, obligations or contingencies (a) which
are reflected on the audited balance sheet of the Company and its Subsidiaries
as at August 31, 1998 (including the notes thereto), or (b) which (i) were
incurred in the ordinary course of business after August 31, 1998 and consistent
with past practices, or (ii) are disclosed or reflected in the Company SEC
Reports filed after August 31, 1998. Since August 31, 1996, the Company has
timely filed with the SEC all forms, reports and other documents required to be
filed prior to the date hereof, and no Company Subsidiary has filed, or been
required to file, any form, report or other document with the SEC, in each case,
pursuant to the Securities Act, the Exchange Act or the rules and regulations
thereunder. From the date hereof until the Effective Time, the Company will
timely file all forms, reports, schedules and registration statements required
to be filed by the Securities Act or Exchange Act and the rules and regulations
thereunder ("FUTURE COMPANY SEC REPORTS"). All such Future Company SEC Reports
and the consolidated financial statements included therein shall comply in all
material respects with the representations and warranties made by the Company in
this Section 3.7 with respect to the Company SEC Reports.
(b) (i) The accounts receivable reflected on the Company's latest
consolidated balance sheet furnished or otherwise made available to the Parent
arose from, and the accounts receivable existing on the Effective Time will have
arisen from, bona fide transactions and except for reserves reflected on such
balance sheet or taken in the future in the ordinary course consistent with past
practice, to the Company's knowledge, such accounts receivable constitute or
will constitute, as the case may be, only valid claims of the Company and the
Company Subsidiaries, not subject to valid claims of set-off or other defenses
or
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counterclaims, except to the extent that the failure to have so arisen or the
failure to be valid claims, individually or in the aggregate, would have or
would reasonably be expected to have a Company Material Adverse Effect. The
Company is not aware as of the date hereof of any events, facts or other
circumstances that would result in a material adverse change in the aggregate
amount of accounts receivable reflected on the Company's consolidated balance
sheet at November 30, 1998.
(ii) The producer advances reflected on the Company's latest
consolidated balance sheet furnished or otherwise made available to the Parent
arose from, and the producer advances existing at the Effective Time will have
arisen from, bona fide transactions consistent with the applicable provisions of
the Contracts pursuant to which such producer advances have been or will be
made, as the case may be, and, to the Company's knowledge, the Company has and
will have rights of recoupment in respect of such producer advances in
accordance with the applicable provisions of the Contracts pursuant to which
such producer advances have been or will be made, except in each case to the
extent that not more than 10% in aggregate principal amount of such producer
advances have not so arisen, do not so arise or are not subject to such rights
of recoupment.
SECTION 3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. (a) Except as set forth
in Section 3.8 of the Company Disclosure Letter, as contemplated by this
Agreement or as disclosed in any Company SEC Report, since August 31, 1998, (i)
the Company and the Company Subsidiaries have conducted their respective
businesses only in the ordinary course, consistent with past practice and (ii)
there has not occurred or arisen any change, effect, event or occurrence that,
individually or in the aggregate, has had or would reasonably be expected to
have a Company Material Adverse Effect excluding any change, effect, event or
occurrence resulting primarily from (A) changes in general economic, financial,
regulatory, political or market conditions or (B) events or developments
generally affecting the industry in which the Company operates.
(b) Except as set forth in Section 3.8(b) of the Company Disclosure Letter
or as permitted pursuant to Section 5.1, since August 31, 1998, there has not
been:
(i) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or
any repurchase, redemption or other acquisition by the Company or any
Company Subsidiary of any Company securities;
(ii) (A) any incurrence or assumption by the Company or any Company
Subsidiary of any indebtedness for borrowed money or (B) any guarantee,
endorsement or other incurrence or assumption of material liability (whether
directly, contingently or otherwise) by the Company or any Company
Subsidiary for the obligations of any other person (other than any wholly
owned Company Subsidiary), other than in the ordinary course of business
consistent with past practice;
(iii) any creation or assumption by the Company or any Company
Subsidiary of any Lien on any material asset of the Company or any Company
Subsidiary, other than in the ordinary course of business, consistent with
past practice;
(iv) any making of any loan, advance or capital contribution to or
investment in any person by the Company or any Company Subsidiary, other
than in the ordinary course of business, consistent with past practice and
in any event in excess of $100,000;
(v) (A) any contract or agreement entered into by the Company or any
Company Subsidiary on or prior to the date hereof relating to any material
acquisition or disposition of any assets or business, (B) any modification,
amendment, assignment or termination of or relinquishment by the Company or
any Company Subsidiary of any rights under any Material Distribution
Agreement or (C) any modification, amendment, assignment or termination of
or relinquishment by the Company or any Company Subsidiary of any rights
under any other Contract (including any insurance policy naming it as a
beneficiary or a loss payable payee) that does or would reasonably be
expected to have, individually or in the aggregate, a Company Material
Adverse Effect other than in the case of (A) and
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(C), transactions, commitments, contracts or agreements in the ordinary
course of business consistent with past practice or those contemplated by
this Agreement;
(vi) any material change in any method of accounting or accounting
principles or practice by the Company or any Company Subsidiary, except for
any such change required by reason of a change in GAAP; or
(vii) any (A) grant of any severance or termination pay to any
director, officer or employee of the Company or any Company Subsidiary; (B)
entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any
director, officer or employee of the Company or any Company Subsidiary; (C)
increase in benefits payable under any existing severance or termination pay
policies or employment agreements; or (D) increase in compensation, bonus or
other benefits payable to directors, officers or employees of the Company or
any Company Subsidiary who are not parties to employment agreements with the
Company or any Company Subsidiary in effect prior to such date, other than,
in the case of clauses (A) through (D), with respect to any directors,
officers and employees that are not parties to employment agreements with
the Company or any Company Subsidiary, in the ordinary course of business
consistent with past practices or, in the case of clauses (A) through (D)
with respect to any directors, officers or employees who are parties to
employment agreements, in accordance with their respective employment
agreements.
SECTION 3.9 LITIGATION. Except as disclosed in Section 3.9 of the Company
Disclosure Letter or in the Company SEC Reports, there are no claims, suits,
actions or proceedings pending or, to the Company's knowledge, threatened or
contemplated, nor are there any investigations or reviews by any Governmental
Entity pending or, to the Company's knowledge, threatened or contemplated,
against, relating to or affecting the Company or any of the Company
Subsidiaries, which, individually or in the aggregate, would have or would
reasonably be expected to have a Company Material Adverse Effect, nor is there
any judgment, decree, order, injunction, writ or rule of any court or
Governmental Entity outstanding against the Company or any Company Subsidiary
which has or would reasonably be expected to have any Company Material Adverse
Effect.
SECTION 3.10 REGISTRATION STATEMENT AND STATEMENT/PROSPECTUS. The
information supplied or to be supplied by the Company for inclusion in (i) the
Registration Statement (as defined in Section 6.7) will not, either at the time
the Registration Statement is filed with the SEC, at the time any amendment
thereof or supplement thereto is filed with the SEC, at the time it becomes
effective under the Securities Act or at 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 to make the statements therein not misleading and
(ii) the Proxy Statement/Prospectus (as defined in Section 6.7), including any
amendments and supplements thereto, will not, either at the date mailed to the
Company's stockholders or at the time of the Company Meeting (as defined in
Section 6.6), contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Proxy Statement/Prospectus, as to information supplied
by the Company, any Company Subsidiary or their respective Representatives, will
comply in all material respects with all applicable provisions of the Securities
Act and the Exchange Act and the rules and regulations promulgated thereunder,
and the Registration Statement will comply in all material respects with the
provisions of the Securities Act and the rules and regulations promulgated
thereunder.
SECTION 3.11 EMPLOYEE BENEFIT PLANS. (a) Section 3.11 of the Company
Disclosure Letter sets forth a list of each material pension, retirement,
savings, disability, dental, health, life, death benefit, group insurance,
profit-sharing, deferred compensation, stock option, bonus, incentive, severance
pay or other employee benefit plan, trust, arrangement, contract, commitment,
agreement or policy (collectively, "BENEFIT PLANS") sponsored or maintained by
the Company or its Subsidiaries, in which present or former employees of the
Company or any Subsidiary participate (collectively, the "COMPANY PLANS").
Correct and
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complete copies of the following documents, which are correct and complete in
all material respects, with respect to each of the Company Plans (other than a
multiemployer plan (as defined below)), have been made available to Parent, to
the extent applicable: (i) any plans, all material amendments thereto and
related trust documents, and amendments thereto; (ii) the most recent Forms 5500
and all schedules thereto and the most recent actuarial report, if any; (iii)
the most recent IRS determination letter; (iv) summary plan descriptions; (v)
material written communications to employees relating to the Company Plans; and
(vi) written descriptions of all material non-written agreements relating to the
Company Plans.
(b) No Company Plan is subject to Title IV of ERISA (as defined below).
Except as set forth in Section 3.11 of the Company Disclosure Letter and except
as, individually or in the aggregate, would not or would not reasonably be
expected to have a Company Material Adverse Effect: (A) the Company Plans have
been administered and are in compliance with the terms of such plan and all
applicable Laws, (B) no "reportable event" (as such term is used in Section 4043
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
(other than those events for which the 30 day notice has been waived pursuant to
the regulations), "prohibited transaction" (as such term is used in Section 406
of ERISA or Section 4975 of the Code) or "accumulated funding deficiency" (as
such term is used in Section 412 or 4971 of the Code) has heretofore occurred
with respect to any Company Plan and (C) each Company Plan intended to qualify
under Section 401(a) of the Code has received a favorable determination from the
IRS regarding its qualified status and no notice has been received from the IRS
with respect to the revocation of such qualification. None of the Company Plans
provides for post-employment life or health insurance, benefits or coverage for
any participant or any beneficiary of a participant, except as may be required
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
and at the expense of the participant or the participant's beneficiary.
(c) There is no litigation or administrative or other proceeding involving
any Company Plan nor has the Company or any Company Subsidiary received notice
that any such proceeding is threatened, in each case that would have or would
reasonably be expected to have a Company Material Adverse Effect. Neither the
Company nor any Company Subsidiary has incurred, nor, to the Company's
knowledge, is reasonably likely to incur any withdrawal liability with respect
to any "multiemployer plan" (within the meaning of section 3(37) of ERISA) which
remains unsatisfied in an amount which would have a Company Material Adverse
Effect. The termination of, or withdrawal from, any Company Plan or
multiemployer plan to which the Company or any Company Subsidiaries contributes,
on or prior to the Closing Date, will not subject the Company or any Company
Subsidiary to any liability under Title IV of ERISA that would have a Company
Material Adverse Effect.
SECTION 3.12 BOARD APPROVAL. The Board of Directors of the Company by
resolutions duly adopted by a unanimous vote of the entire Board of Directors at
a meeting duly called and held, has approved and declared advisable this
Agreement and the Stockholders Agreement and, subject to Section 6.6,
recommended that the stockholders of the Company adopt this Agreement.
SECTION 3.13 VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote (the
"REQUIRED COMPANY VOTE") is the only vote or approval of the holders of any
class or series of the Company's capital stock necessary to adopt this Agreement
(assuming that neither Parent nor any of its affiliates or associates (as
defined in Section 203 of the DGCL) are "interested stockholders" of the Company
under Section 203 of the DGCL immediately before the execution and delivery of
this Agreement and the Stockholders Agreement).
SECTION 3.14 OPINION OF FINANCIAL ADVISOR. The Company's Board of
Directors has received the opinion of Allen & Company Incorporated, dated March
31, 1999, to the effect that, as of such date, the Merger Consideration to be
received by the stockholders of the Company is fair, from a financial point of
view, to such stockholders. The Company has delivered to the Parent true and
correct copies of its engagement agreement with Allen & Company Incorporated.
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SECTION 3.15 BROKERS. Except as set forth in Section 3.15 of the Company
Disclosure Letter, no broker, finder or investment banker (other than Allen &
Company) is entitled to any brokerage, finder's or other fee or commission in
connection with the Transaction, based upon arrangements made by or on behalf of
the Company.
SECTION 3.16 TAXES. (a) Except as set forth in Section 3.16(a) of the
Company Disclosure Letter:
(i) The Company and each Company Subsidiary have timely filed (or have
had timely filed on their behalf) or, with respect to Tax Returns not yet
due, will file or cause to be timely filed, all material Tax Returns
required by applicable Law to be filed by any of them prior to or as of the
Effective Time. All such Tax Returns and amendments thereto are, or with
respect to Tax Returns not yet due, will be true, complete and correct in
all material respects.
(ii) The Company and each Company Subsidiary have paid (or have had
paid on their behalf), or have established (or have had established on their
behalf and for their sole benefit and recourse), or where payment is not yet
due, will establish or cause to be established on or before the Effective
Time, an adequate accrual for the payment of, all material Taxes due, with
respect to any period ending prior to or as of the Effective Time.
(iii) The Federal income Tax Returns of the Company for periods ending
on or prior to August 31, 1995 have been audited and all assessments arising
therefrom have been fully satisfied. Section 3.16(a)(iii) of the Company
Disclosure Letter sets forth the taxable years that are currently under
Audit, and the Company has not been notified that any other Audit by a
Taxing Authority will commence with respect to any material Taxes due from
the Company or any Company Subsidiary. There are no outstanding waivers
extending the statutory period of limitations relating to the payment of
material Taxes due from the Company or any Company Subsidiary for any
taxable period ending prior to the Effective Time which are expected to be
outstanding as of the Effective Time.
(iv) No deficiency or adjustment for any material Taxes has been
proposed, asserted or assessed against the Company or any Company Subsidiary
that has not been resolved or paid or for which an adequate accrual has not
been established in accordance with generally accepted accounting
principles. There are no material Liens for Taxes upon the assets of the
Company or any Company Subsidiary, except Liens for current Taxes not yet
due.
(v) Section 3.16(a)(v) of the Company Disclosure Letter sets forth all
Tax sharing agreements, Tax indemnity agreements and similar agreements to
which the Company or any Company Subsidiary is a party.
(vi) No "consent" within the meaning of Section 341(f) of the Code has
been filed with respect to the Company or any Company Subsidiary.
(vii) Neither the Company nor any Company Subsidiary has constituted
either a "distributing corporation" or a "controlled corporation" (within
the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock
qualifying for tax-free treatment under Section 355 of the Code (i) in the
two years prior to the date of this Agreement or (ii) in a distribution
which could otherwise constitute part of a "plan" or "series of related
transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
(viii) Neither the Company nor any Company Subsidiary is a party to any
contract, agreement or other arrangement currently in effect (or which will
be in effect prior to the Effective Time) which provides (or will provide)
for the payment of any amount which would not be deductible by reason of
Section 280G or Section 162(m) of the Code, solely taking into account the
Transactions contemplated by this Agreement.
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(b) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "AUDIT" shall mean any audit, assessment of Taxes, other
examination by any Tax Authority, proceeding or appeal of such proceeding
relating to Taxes.
(ii) "TAXES" shall mean all Federal, state, local and foreign
taxes, and other assessments of a similar nature (whether imposed
directly or through withholding), including any interest, additions to
tax, or penalties applicable thereto.
(iii) "TAX AUTHORITY" shall mean the Internal Revenue Service and
any other domestic or foreign governmental authority responsible for the
administration of any Taxes.
(iv) "TAX RETURNS" shall mean all Federal, state, local and foreign
tax returns, declarations, statements, reports, schedules, forms and
information returns and any amended tax return relating to Taxes.
SECTION 3.17 REAL PROPERTY. Neither the Company nor any Company Subsidiary
owns any fee interest in real estate.
SECTION 3.18 LABOR MATTERS. (a) Section 3.18 of the Company Disclosure
Letter sets forth a list of all employment agreements currently in effect
providing for annual base salary in excess of $200,000 and any labor or
collective bargaining agreements to which the Company or any Company Subsidiary
is a party. The Company has heretofore made available to Parent true and
complete copies of (i) the employment agreements listed on Section 3.18 of the
Company Disclosure Letter and (ii) the labor or collective bargaining agreements
listed on Section 3.18 of the Company Disclosure Letter, together with all
amendments, modifications, supplements and side letters affecting the duties,
rights and obligations of any party thereunder.
(b) Neither the Company nor any Company Subsidiaries are the subject of any
suit, action or proceeding which is pending or, to the knowledge of the Company,
threatened, asserting that the Company or any Company Subsidiaries have
committed an unfair labor practice (within the meaning of the National Labor
Relations Act or applicable state statutes) or seeking to compel the Company or
any Company Subsidiaries to bargain with any labor organization as to wages and
conditions of employment, in any such case, that is reasonably expected to
result in a material liability of the Company and the Company Subsidiaries. No
strike or other labor dispute involving the Company or any Company Subsidiaries
is pending or, to the knowledge of the Company, threatened, and, to the
knowledge of the Company, there is no activity involving any employees of the
Company or any Company Subsidiaries seeking to certify a collective bargaining
unit or engaging in any other organizational activity, except for any such
dispute or activity which would not have or would not reasonably be expected to
have a Company Material Adverse Effect.
SECTION 3.19 STATE TAKEOVER STATUTES. The Company Board has approved the
terms of this Agreement and the Stockholders Agreement and the consummation of
the Merger and the other Transactions contemplated by this Agreement and the
Stockholders Agreement, and such approval is sufficient to render inapplicable
to the Merger and the other transactions contemplated by this Agreement and the
Stockholders Agreement the restrictions on "business combinations" (as defined
in Section 203 of the DGCL) set forth in Section 203 of the DGCL.
SECTION 3.20 MATERIAL CONTRACTS. (a) The Company has heretofore made
available to Parent correct and complete copies in all material respects of all
Contracts (and all amendments, modifications and supplements thereto and all
side letters to which the Company or any Company Subsidiary is a party affecting
the obligations of any party thereunder) to which the Company or any Company
Subsidiary is a party or by which any of its properties or assets are bound that
are material to the business, properties or assets of the Company and its
subsidiaries taken as a whole, including, without limitation, all: (i)
agreements relating to the development, production and distribution of
television programming
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("DISTRIBUTION AGREEMENTS") and all Program Licenses (as defined below); (ii)
partnership or joint venture agreements; (iii) agreements for the acquisition,
sale or lease of material properties or assets of the Company (by merger,
purchase or sale of assets or stock or otherwise) entered into since August 31,
1996; (iv) contracts or agreements with any Governmental Entity other than those
entered into in the ordinary course of business consistent with past practice;
(v) loan or credit agreements, mortgages, indentures or other agreements or
instruments evidencing indebtedness of the Company or any Company Subsidiary for
borrowed money or any such agreement pursuant to which indebtedness for borrowed
money may be incurred; (vi) agreements that purport to limit, curtail or
restrict in any material respect the ability of the Company or any Company
Subsidiaries to compete in any geographic area or line of business other than
those entered into in the ordinary course of business consistent with past
practice under Program Licenses or Distribution Agreements; (vii) contracts or
agreements that would be required to be filed as an exhibit to a Form 10-K filed
by the Company with the SEC on the date hereof; and (viii) commitments and
agreements to enter into any of the foregoing (collectively, the "MATERIAL
CONTRACTS").
(b) Each of the Material Contracts constitutes the valid and legally
binding obligation of the Company or Company Subsidiaries, enforceable in
accordance with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar Laws of general applicability relating to or affecting creditors' rights
or by general equity principles), and is in full force and effect, except to the
extent the failure to be so valid, binding or enforceable, individually or in
the aggregate, would not and would not reasonably be expected to have a Company
Material Adverse Effect. There is no default under any Material Contract either
by the Company or, to the Company's knowledge, by any other party thereto, and,
to the Company's knowledge, no event has occurred that with the lapse of time or
the giving of notice or both would constitute a default thereunder by the
Company or, to the Company's knowledge, any other party, except any such default
or defaults that individually or in the aggregate would not and would not
reasonably be expected to have a Company Material Adverse Effect. Section
3.20(b) of the Company Disclosure Letter sets forth a list of each of the
Material Distribution Agreements and the Distribution Agreement pursuant to
which the Company acquired "Hollywood Squares" from Orion Pictures Corporation
(and its successor-in-interest to such agreement, Metro-Goldwyn-Mayer, Inc.),
together with a list of each modification, supplement or other amendment to any
such Distribution Agreement that materially affects the obligations of any party
to any such Distribution Agreement. As of the date hereof, the Company has
received no written or, to the knowledge of Company senior management listed in
Section 3.20(b) of the Company Disclosure Letter, oral notice from any party to
a Material Distribution Agreement that, solely as a result of or in connection
with the execution of this Agreement or the consummation of the Merger, (i) such
party intends to terminate such Material Distribution Agreement, (ii) such party
has a right to terminate such Material Distribution Agreement or (iii) such
party's consent is required.
(c) Attached to Section 3.20 of the Company Disclosure Letter is a schedule
dated March 22, 1999 (the "PROGRAM LICENSE SCHEDULE") that has been prepared and
maintained by the Company in the ordinary course of business and that lists
certain information regarding Program Licenses (as defined below) pursuant to
which programs distributed by the Company pursuant to the Material Distribution
Agreements or the television series "Hollywood Squares," "Inside Edition" and
"The Roseanne Show" are licensed to broadcasters in the United States. For
purposes of this Agreement, "PROGRAM LICENSE" shall mean any executory agreement
pursuant to which the Company grants to any broadcaster a license, right or
privilege to broadcast via over-the-air television any program distributed by
the Company. As of March 22, 1999, (x) the Company is not aware of any material
inaccuracies on the Program License Schedule and (y) there are no inaccuracies
in the Program License Schedule that, individually or in the aggregate, would
have or would reasonably be expected to have a Company Material Adverse Effect.
As of the date hereof, the number of units of barter advertising time that the
Company retains under the Program Licenses for any broadcast season of any
television series are not less than the number of units of such time that the
Company retains under the Program Licenses for the preceding broadcast season of
that television series.
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(d) Neither the Company nor any Company Subsidiary is in breach under one
or more Program Licenses which breaches are reasonably likely to result in a
loss of revenues in excess of 10% of all revenues generated by all Program
Licenses.
(e) The Company has furnished to the Parent an accurate description of all
claims or other disputes that remain unresolved arising from any Program License
that are known to the Company on the date hereof except for disputes involving
amounts of less than $5,000,000 on an individual basis with any one party or
$15,000,000 on an aggregate basis.
SECTION 3.21 INSURANCE. Section 3.21 of the Company Disclosure Letter sets
forth a list of insurance policies maintained by the Company or any Company
Subsidiary, which policies have been issued by insurers, which, to the Company's
knowledge, are reputable and financially sound and the Company has heretofore
made available to Parent complete and correct copies in all material respects of
such policies.
SECTION 3.22 INTELLECTUAL PROPERTY. (a) The Company and Company
Subsidiaries own or possess adequate licenses or other valid rights to use (in
each case, free and clear of any Liens) all Intellectual Property used or held
for use in connection with the business of the Company and the Company
Subsidiaries as currently conducted or as contemplated to be conducted and that
are material to the business and operation of the Company and the Company
Subsidiaries as a whole.
(b) The use of any Intellectual Property by the Company and Company
Subsidiaries does not infringe on or otherwise violate the rights of any person
and is in accordance with any applicable license pursuant to which the Company
or any Company Subsidiary acquired the right to use any Intellectual Property,
except for any such infringement or violation that, individually or in the
aggregate, would not or would not reasonably be expected to have a Company
Material Adverse Effect.
(c) No person is challenging, infringing on or otherwise violating any
right of the Company or any Company Subsidiary with respect to any Intellectual
Property owned by and/or licensed to the Company or Company Subsidiaries, except
for such challenges, infringements or violations that, individually or in the
aggregate, would not or would not reasonably be expected to have a Company
Material Adverse Effect.
For purposes of this Agreement, "INTELLECTUAL PROPERTY" means (i) all
trademarks, trademark rights, trade names, trade name rights, trade dress and
other indications of origin, corporate names, brand names, logos, certification
rights, service marks, applications for trademarks and for service marks,
know-how and other proprietary rights and information, the goodwill associated
with the foregoing and registration in any jurisdiction of, and applications in
any jurisdictions to register, the foregoing, including any extension,
modification or renewal of any such registration or application; (ii) all
inventions, discoveries and ideas (whether patentable or unpatentable and
whether or not reduced to practice), in any jurisdiction, all improvements
thereto, and all patents, patent rights, applications for patents (including,
without limitation, divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction; (iii) non-public information, trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any person; (iv) writings and other works, whether copyrightable or
not, in any jurisdiction, and all registrations or applications for registration
of copyrights in any jurisdiction, and any renewals or extensions thereof; (v)
all mask works and all applications, registrations and renewals in connection
therewith, in any jurisdiction; (vi) all computer software (including data and
related documentation); (vii) any similar intellectual property or proprietary
rights; and (viii) all copies and tangible documentation thereof and any claims
or causes of action arising out of or relating to any infringement or
misappropriation of any of the foregoing.
(d) The Company has developed a plan (the "COMPANY Y2K PLAN") intended to
ensure that all computer hardware and software used in and material to the
business of the Company and the Company Subsidiaries is designed to be Year 2000
Compliant. The Company Y2K Plan includes reasonable steps to determine whether
the failure of any suppliers or customers with which the Company or any Company
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Subsidiary has a material relationship to be Year 2000 Compliant would have or
would reasonably be expected to have a Company Material Adverse Effect and
assuming the consummation of the Company Y2K Plan, the occurrence of calendar
year 2000 will not cause or will not reasonably be expected to have a Company
Material Adverse Effect. For purposes of this Agreement, "DATE DATA" means any
data of any kind that includes date information or which is otherwise derived
from, dependent on or related to date information; "DATE-SENSITIVE SYSTEM" means
any software, microcode or hardware system or component, including any
electronic or electronically controlled system or component that processes any
Date Data and that is installed, in development or on order, for internal or
external use, or the provision or operation of which provides a benefit to
customers, vendors, suppliers or any other party; and "YEAR 2000 COMPLIANT"
means (i) with respect to Date Data, that such data is in proper format and
accurate for all dates in the twentieth and twenty-first centuries, and (ii)
with respect to Date-Sensitive Systems, that each such system accurately
processes all Date Data, including for the twentieth and twenty-first centuries,
without loss of any functionality or performance, including, without limitation,
calculating, comparing, sequencing, storing and displaying such Date Data
(including all leap year considerations), when used as a stand-alone system or
in combination with other software or hardware. The matters set forth in this
subsection (d) are subject to disclosures relating to Year 2000 matters in the
Company SEC Reports.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB
The Parent and Merger Sub hereby represent and warrant to the Company that:
SECTION 4.1 ORGANIZATION AND QUALIFICATIONS; SUBSIDIARIES. (a) Each of the
Parent and each Material Parent Subsidiary (as defined below) is a corporation,
partnership or other legal entity duly incorporated or 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 to own,
lease and operate its properties and to carry on its business as it is now being
conducted, except where the failure for any Material Parent Subsidiary to be so
organized, existing or in good standing or to have such power, authority and
governmental approvals, individually or in the aggregate, would not or would not
reasonably be expected to have a Parent Material Adverse Effect (as defined
below). The Parent and each Material Parent Subsidiary is duly qualified or
licensed as a foreign corporation to transact business, and is in good standing,
in each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed and
in good standing that, individually or in the aggregate, would not or would not
reasonably be expected to have a Parent Material Adverse Effect. For purposes of
this Agreement, a "PARENT MATERIAL ADVERSE EFFECT" shall mean any change,
effect, event or occurrence (i) that is materially adverse to the business,
assets, financial or other condition, or results of operations of the Parent and
the Parent's Subsidiaries, taken as a whole, or (ii) that adversely affects the
ability of the Parent to consummate the transactions contemplated by this
Agreement in any material respect, or that would prevent or delay in any
material respect consummation of the Merger.
(b) Merger Sub and each other Subsidiary of the Parent (each, a "PARENT
SUBSIDIARY") that (i) constitutes a Significant Subsidiary of the Parent within
the meaning of Rule 1-02 of Regulation S-X of the SEC, or (ii) is otherwise
material to the business and operations of the Parent and the Parent
Subsidiaries, taken as a whole, is referred to herein as a "MATERIAL PARENT
SUBSIDIARY."
SECTION 4.2 CERTIFICATE OF INCORPORATION AND BYLAWS. The Parent has
heretofore made available to the Company a complete and correct copy of the
certificate of incorporation and the bylaws or equivalent organizational
documents, each as amended to the date hereof, of the Parent and each Material
Parent Subsidiary. Such certificates of incorporation, bylaws and equivalent
organizational documents are in full force and effect. The Parent is not in
violation of any provision of its certificate of incorporation or bylaws.
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No Material Parent Subsidiary, is in violation of any provision of its
certificate of incorporation, bylaws or equivalent organizational documents,
except for such violations as, individually or in the aggregate, would not or
would not reasonably be expected to have a Parent Material Adverse Effect.
SECTION 4.3 CAPITALIZATION. (a) The authorized capital stock of the Parent
consists of 1,100,000,000 shares of Parent Common Stock, and 25,000,000 shares
of preferred stock, par value of $1.00 per share (the "PARENT PREFERRED STOCK").
As of March 26, 1999, (i)(A) 695,524,666 shares of Parent Common Stock were
issued and outstanding, all of which were validly issued, fully paid and
nonassessable, (B) 695,524,666 common stock purchase rights issued pursuant to a
Rights Agreement dated as of December 28, 1995, between Parent and First Chicago
Trust Company of New York, as Rights Agent ("RIGHTS AGREEMENT") were issued and
outstanding and (C) no shares of Preferred Stock were issued or outstanding; and
(ii) (A) 57,105,516 shares of Parent Common Stock were reserved for issuance
with respect to stock option plans set forth in the Parent SEC Reports (as
defined in Section 4.7) (collectively, the "PARENT STOCK OPTION PLANS") and
other stock-based plans of Parent and (B) 5,304,657 shares were reserved for
issuance upon exercise of options available for grant under the Parent Stock
Option Plans. Except as set forth above, except upon the exercise of the Parent
stock options outstanding on March 26, 1999 and except the 5,000,000 shares of
Parent Preferred Stock denominated as Series A Participating Preferred Stock
(subject to increase and adjustment as set forth in the Rights Agreement and the
Certificate of Designation attached as an Exhibit thereto), and the shares
reserved with respect to the Parent's Dividend Reinvestment Plan, as of the date
hereof, no shares of capital stock or other voting securities of the Parent were
issued, reserved for issuance or outstanding. Except as set forth in this
Section 4.3 or in Section 4.3 of the Disclosure Letter previously delivered by
the Parent to the Company (the "PARENT DISCLOSURE LETTER"), as of the date
hereof, there are no options relating to the issued or unissued capital stock of
the Parent or any Parent Subsidiary (other than Infinity Broadcasting
Corporation), or obligating the Parent, or any Parent Subsidiary (other than
Infinity Broadcasting Corporation) to issue, transfer, grant or sell any shares
of capital stock of, or other equity interests in, or securities convertible
into or exchangeable for any capital stock or other equity interests in, the
Parent or any Parent Subsidiary (other than Infinity Broadcasting Corporation).
All shares of Parent 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 4.3 of the Parent Disclosure
Letter, as of the date hereof, there are no outstanding contractual obligations
of the Parent or any Parent Subsidiary other than Infinity Broadcasting
Corporation to repurchase, redeem or otherwise acquire any shares of Parent
Common Stock or Parent Preferred Stock or any other shares of capital stock of
the Parent or any Parent Subsidiary other than Infinity Broadcasting
Corporation, or make any material investment (in the form of a loan, capital
contribution or otherwise) in, any Parent Subsidiary (other than a wholly-owned
Parent Subsidiary) or any other person.
(b) Each outstanding share of capital stock of each Material Parent
Subsidiary is duly authorized, validly issued, fully paid and nonassessable and
each such share owned by the Parent or another Parent Subsidiary is free and
clear of all Liens.
(c) Each share of Parent Common Stock included in the Merger Consideration
will be, when issued, in accordance with the terms of this Agreement, duly
authorized, validly issued, fully paid and nonassessable.
SECTION 4.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of the Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Transactions. The execution and delivery of this Agreement by the Parent and
Merger Sub and the consummation by the Parent and Merger Sub of the Transactions
have been duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of the Parent or Merger Sub are
necessary to authorize this Agreement or to consummate the Transactions (other
than the Merger Filing). This Agreement has been duly and validly executed and
delivered by the Parent and Merger Sub and, assuming the due authorization,
execution and delivery
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thereof by the Company, constitutes the legal, valid and binding obligation of
the Parent and Merger Sub, enforceable against the Parent and Merger Sub in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to creditors rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
SECTION 4.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The execution
and delivery of this Agreement by the Parent and Merger Sub do not, and the
performance of their respective obligations under this Agreement and the
consummation of the Transactions by the Parent and Merger Sub will not, (i)
conflict with or violate the articles of incorporation or bylaws or equivalent
organizational documents of the Parent or any Material Parent Subsidiary, (ii)
subject to making the filings and obtaining the approvals identified in Section
4.5(b), conflict with or violate any Law applicable to the Parent or any Parent
Subsidiary or by which any property or asset of the Parent or any Parent
Subsidiary is bound or affected, or (iii) subject to making the filings and
obtaining the approvals identified in Section 4.5(b), conflict with or 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 or modification
in a manner adverse to the Parent and the Parent Subsidiaries of a material
right or benefit under, or give to others any right of termination, amendment,
acceleration, repurchase or repayment, increased payments or cancellation of, or
result in the creation of a Lien or other encumbrance on any property or asset
of the Parent or any Parent Subsidiary pursuant to, any Contract to which the
Parent or any Parent Subsidiary is a party or by which the Parent or any Parent
Subsidiary or any property or asset of the Parent or any Parent Subsidiary is
bound, except, in the case of clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which, individually or in
the aggregate, would not or would not reasonably be expected to have a Parent
Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Parent and Merger
Sub do not, and the performance of their respective obligations under this
Agreement and the consummation of the Transactions by the Parent and Merger Sub
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, the Securities Act or the Blue Sky
laws, (B) the premerger notification requirements of the HSR Act, and (C) the
Merger Filing, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not,
individually or in the aggregate, prevent or delay in any material respect the
consummation of the Merger, or otherwise prevent the Parent or Merger Sub from
performing its respective obligations under this Agreement in any material
respect, and, individually or in the aggregate, would not or would not
reasonably be expected to have a Parent Material Adverse Effect.
SECTION 4.6 COMPLIANCE. Except as set forth in Section 4.6 of the Parent
Disclosure Letter or the Parent SEC Reports, neither the Parent nor any Parent
Subsidiary is in conflict with, or in default or violation of (nor to the
Parent's knowledge does there exist any condition which upon the passage of time
or the giving of notice would cause such a conflict with or default or violation
of) (i) any Law applicable to the Parent or any Parent Subsidiary or by which
any property or asset of the Parent or any Parent Subsidiary is bound or
affected, including Laws relating to the protection of natural resources, the
environment and public and employee health and safety or pollution for the
release of or exposure to hazardous materials, or (ii) any Contract to which the
Parent or any Parent Subsidiary is a party or by which the Parent or any Parent
Subsidiary or any property or asset of the Parent or any Parent Subsidiary is
bound, except for any such conflicts, defaults or violations that would not,
individually or in the aggregate, have a Parent Material Adverse Effect. Each of
the Parent and each Material Parent Subsidiary has in effect all federal, state
and local governmental Permits necessary for it to own, lease or operate its
properties and assets and to carry on its business as now conducted, and there
has occurred no default under any such Permit, except for the lack of Permits
and for defaults under Permits which lack or default
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individually or in the aggregate would not or would not reasonably be expected
to have a Parent Material Adverse Effect.
SECTION 4.7 SEC REPORTS AND FINANCIAL STATEMENTS; UNDISCLOSED
LIABILITIES. Each form, report, schedule, registration statement and definitive
proxy statement filed by the Parent with the SEC since December 31, 1996 and
prior to the date hereof (as such documents have been amended prior to the date
hereof, the "PARENT SEC REPORTS"), as of their respective dates, complied in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act and the rules and regulations thereunder. None of the Parent SEC
Reports, as of their respective dates, contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The Parent has made available to the
Company true, accurate and complete copies of all of the Parent SEC Reports. The
consolidated financial statements of the Parent and the Parent Subsidiaries
included in such reports comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited interim financial statements, as permitted by Form 10-Q of
the SEC) and fairly present in all material respects (subject, in the case of
the unaudited interim financial statements, to normal, year-end audit
adjustments) the consolidated financial position of the Parent and its
Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended. Since December 31, 1998,
neither the Parent nor any of its Subsidiaries has incurred any material
liabilities or obligations (whether absolute, accrued, fixed, contingent,
liquidated, unliquidated or otherwise and whether due or to become due) of any
nature, except material liabilities, obligations or contingencies (a) which are
reflected on the audited balance sheet of the Parent and its Subsidiaries as at
December 31, 1998 (including the notes thereto), or (b) which (i) were incurred
in the ordinary course of business after December 31, 1998 and consistent with
past practices, or (ii) are disclosed in the Parent SEC Reports filed after
December 31, 1998. Since December 31, 1996, the Parent has timely filed with the
SEC all forms, reports and other documents required to be filed by the Parent
prior to the date hereof, and no Parent Subsidiary has filed, or been required
to file, any form, report or other document with the SEC, in each case, pursuant
to the Securities Act, the Exchange Act or the rules and regulations thereunder.
Prior to the Effective Time, the Parent will timely file all forms, reports,
schedules and registration statements required to be filed by the Securities Act
or Exchange Act and the rules and regulations thereunder ("FUTURE PARENT SEC
REPORTS"). All such Future Parent SEC Reports and the consolidated financial
statements included therein shall comply in all material respects with the
representations and warranties made by the Parent in this Section 4.7 with
respect to the Parent SEC Reports.
SECTION 4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 4.8 of the Parent Disclosure Letter, as contemplated by this Agreement,
or as disclosed in any Parent SEC Report, since December 31, 1998, (i) the
Parent and the Parent Subsidiaries have conducted their respective businesses
only in the ordinary course, consistent with past practice, and (ii) there has
not occurred or arisen any change, effect, event or occurrence that,
individually or in the aggregate, has had or would reasonably be expected to
have a Parent Material Adverse Effect excluding any change, effect, event or
occurrence resulting primarily from (A) changes in general economic, financial,
regulatory, political or market conditions or (B) events or developments
generally affecting the industry in which the Parent operates.
SECTION 4.9 LITIGATION. Except as disclosed in Section 4.9 of the Parent
Disclosure Letter or in the Parent SEC Reports, there are no claims, suits,
actions or proceedings pending or, to the Parent's knowledge, threatened or
contemplated, nor are there any investigations or reviews by any Governmental
Entity pending or, to the Parent's knowledge, threatened or contemplated,
against, relating to or affecting the Parent or any of the Parent Subsidiaries,
which, individually or in the aggregate, would have or would
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reasonably be expected to have a Parent Material Adverse Effect, nor is there
any judgment, decree, order, injunction, writ or rule of any Governmental Entity
outstanding against the Parent or any Parent Subsidiary which has or would
reasonably be expected to have any such Parent Material Adverse Effect.
SECTION 4.10 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS. The
information supplied or to be supplied by the Parent or any Parent Subsidiary
for inclusion in (i) the Registration Statement will not, either at the time the
Registration Statement is filed with the SEC, at the time any amendment thereof
or supplement thereto is filed with the SEC, at the time it becomes effective
under the Securities Act or at 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 to make the statements therein not misleading and (ii) the
Proxy Statement/Prospectus, including any amendments and supplements thereto,
will not, either at the date mailed to the Company stockholders, or at the time
of the Company Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. The Proxy Statement/Prospectus, as to information supplied
by the Parent or any Parent Subsidiary, will comply as to form in all material
respects with all applicable provisions of the Securities Act and the Exchange
Act and the rules and regulations promulgated thereunder, and the Registration
Statement will comply in all material respects with the provisions of the
Securities Act and the rules and regulations promulgated thereunder.
SECTION 4.11 BOARD APPROVAL. Each of the Board of Directors of the Parent
and the Merger Sub, by resolutions duly adopted at a meeting duly called and
held or by unanimous written consent in lieu of a meeting, has approved this
Agreement, the Merger and the other transactions contemplated hereby.
SECTION 4.12 VOTE REQUIRED. No vote of the holders of any class or series
of the Parent's capital stock is necessary to adopt this Agreement and approve
the transactions contemplated hereby.
SECTION 4.13 BROKERS. No broker, finder or investment banker (other than
Chase Securities 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 the Parent.
SECTION 4.14 NO ARRANGEMENTS TRIGGERING SECTION 203 OF THE DGCL. Assuming
the accuracy of the Company's representation and warranty set forth in Section
3.12, neither the Parent nor, to the best of Parent's knowledge, any of its
affiliates or associates (each as defined in Section 203 of the DGCL) is the
"owner" (as defined in Section 203 of the DGCL) of Company Common Stock or is
party to any contract, agreement or other arrangement, that would cause Section
203 of the DGCL to apply to this Agreement or the Merger.
SECTION 4.15 Y2K COMPLIANCE. The Parent has developed a plan (the "PARENT
Y2K PLAN") intended to ensure that all computer hardware and software used in
and material to the business of the Parent and the Parent Subsidiaries is
designed to be Year 2000 Compliant. The Parent Y2K Plan includes reasonable
steps to determine whether the failure of any suppliers or customers with which
the Company or any Company Subsidiary has a material relationship to be Year
2000 Compliant would have or would reasonably be expected to have a Parent
Adverse Material Effect and, assuming the consummation of the Parent Y2K Plan,
the occurrence of calendar year 2000 will not or will not reasonably be expected
to cause a Parent Material Adverse Effect. The matters set forth in this Section
4.15 are subject to the disclosures relating to Year 2000 matters in the Parent
SEC Reports.
SECTION 4.16 MERGER SUB. Neither Merger Sub nor any assignee of Merger Sub
permitted by Section 1.1(b) has conducted any activities other than in
connection with its organization, the negotiation and execution of this
Agreement, and the consummation of the transactions contemplated hereby. Neither
Merger Sub nor such entity has any Subsidiaries.
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ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 CONDUCT OF BUSINESS OF THE COMPANY PENDING THE MERGER. The
Company covenants and agrees that, except as expressly permitted by this
Agreement or as set forth in Section 5.1 of the Company Disclosure Letter, until
the Effective Time, unless the Parent shall otherwise agree in writing prior to
the taking of any action otherwise prohibited by the terms of this Section 5.1,
the Company shall, and shall cause each Company Subsidiary to, conduct its
operations and business in the ordinary and usual course of business and
consistent with past practice and, to the extent consistent therewith, with no
less diligence and effort than would be applied in the absence of this
Agreement, seek to preserve intact its business organizations' goodwill, keep
available the services of its present officers and key employees, and preserve
the goodwill and business relationships with suppliers, distributors, customers
and others having business relationships with it, with the intent that such
goodwill and ongoing business relationships shall be unimpaired in all material
respects at the Effective Time. The Company agrees that it will maintain its
cash management policies in effect on the date hereof in the ordinary course of
business consistent with past practice and that it will continue to maintain
insurance of the types and in the amounts in effect on the date hereof as long
as such insurance is available to the Company on commercially reasonable terms,
including at comparable rates. Without limiting the generality of the foregoing,
and except as otherwise expressly permitted by this Agreement or as set forth in
Section 5.1 of the Company Disclosure Letter, prior to the Effective Time,
without the prior written consent of the Parent, the Company will not, and will
cause each Company Subsidiary not to:
(a) except to the extent required by Law or the rules and regulations
of the NYSE, amend or otherwise change the certificate of incorporation or
bylaws of the Company;
(b) issue or authorize or propose the issuance of, sell, pledge or
dispose of, grant or otherwise create, or agree to issue or authorize or
propose the issuance, sale, pledge or disposition of, grant or otherwise
create any additional shares of, or any options to acquire any shares of,
its capital stock or any debt or equity securities convertible into or
exchangeable for such capital stock or, except as otherwise agreed to by
Parent or except pursuant to their terms in effect on the date hereof,
accelerate the vesting schedule of or make any other modification to the
terms of any Company Stock Option outstanding on the date thereof, other
than (i) any such issuance pursuant to the exercise of Company Stock Options
granted prior to the date hereof under the Company Option Plans or the
agreements pursuant to which certain Company Stock Options were issued, in
accordance with their respective terms as in effect on the date hereof, (ii)
the issuance of shares of capital stock of a Company Subsidiary to the
Company or any wholly owned Company Subsidiary, (iii) the issuance in the
ordinary course of business consistent with past practice to persons other
than directors or executive officers of the Company of Options to purchase
in the aggregate up to 75,000 shares of Company Common Stock pursuant to the
Company Option Plans as in effect on the date hereof or (iv) the issuance of
shares of Company Common Stock in connection with acquisitions permitted by
Section 5.1(h);
(c) purchase, redeem or otherwise acquire or retire, or offer to
purchase, redeem or otherwise acquire or retire, (i) any shares of its
capital stock (including any Options with respect to its capital stock and
any security convertible or exchangeable into its capital stock), other than
transactions between the Company and its wholly owned Subsidiaries, or (ii)
any long-term debt;
(d) 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 dividends declared and paid by a wholly owned Company
Subsidiary or subdivide, reclassify, recapitalize, split, combine or
exchange any of its shares of capital stock;
(e) incur or become contingently liable with respect to any
indebtedness for borrowed money or guarantee any such indebtedness or issue
any debt securities;
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(f) except as may be required by applicable Law, or as contemplated by
this Agreement, (i) increase the compensation payable or to become payable
to, or enter into any employment agreement with any of its executive
officers or employees, except, with respect to any such executive officer in
accordance with the terms of any such agreement, or with respect to any
other employees in the ordinary course of business consistent with past
practice; (ii) grant any severance or termination pay to any employee (other
than an executive officer) of the Company or any Company Subsidiary, except
in the ordinary course of business or pursuant to practices listed in
Section 3.11 of the Company Disclosure Letter or to any executive officer or
director, except as provided in any agreement with such executive officer or
director; (iii) enter into any severance agreement with any employee (other
than an executive officer), except in the ordinary course of business or
pursuant to practices listed in Section 3.11 of the Company Disclosure
Letter or with any executive officer or director, except as provided in any
agreement with such executive officer or director; or (iv) establish, adopt,
enter into, terminate, withdraw from or amend or take action to accelerate
any rights or benefits under any collective bargaining agreement, any stock
option plan, any employee benefit plan, parachute arrangement or policy;
(g) take any action, including making any change in the ordinary course
of business and consistent with past practice, with respect to accounting
policies or procedures (including Tax accounting policies, procedures and
elections relating to Taxes), except as may be required by GAAP, or settle
any material Audit or, except as required by Law, amend in any material
respect any material Tax Return; PROVIDED, that, in any such case the
Company shall consult with Parent prior to taking any such action that it
reasonably believes is required by GAAP or applicable Law;
(h) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business entity, involving purchase prices
for all transactions that, in the aggregate, are in excess of $10.0 million;
(i) mortgage or otherwise encumber or subject to any Lien, or sell,
lease, license, transfer or otherwise dispose of, any of its properties or
assets, other than encumbrances and Liens that are incurred in the ordinary
course of business and consistent with past practice and sales, leases,
licenses, transfers and dispositions of properties and assets in the
ordinary course of business and consistent with past practice;
(j) (i) extend or otherwise amend or waive any rights under any
Material Distribution Agreement or (ii) extend or otherwise amend on terms
less favorable to the Company or waive any rights under any Contract if, but
only with respect to this clause (ii), such extensions or amendments,
individually or in the aggregate, would be or would reasonably be expected
to be materially adverse to the business of the Company and the Company
Subsidiaries taken as a whole;
(k) take any action that would reasonably be expected to result in the
conditions contained in Section 7.2(a) or 7.2(b) not to be satisfied;
(l) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any Company Subsidiaries (other than the
Merger);
(m) alter through merger, liquidation, reorganization, restructuring or
in any other fashion the corporate structure or ownership of any Company
Subsidiary;
(n) except as set forth in Section 5.1 of the Company Disclosure
Letter, authorize any new development, production or distribution projects
or capital expenditures or similar expenditures which, individually, is in
excess of $50,000 or, in the aggregate, are in excess of $1,000,000;
(o) (i) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise) other than in the ordinary course of business
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consistent with past practices, or (ii) waive the benefits of, or agree to
modify in any manner any confidentiality, standstill or similar agreement to
which the Company or any Company Subsidiary is a party with any third party
which relates to the Company Common Stock or a transaction having effects
substantially similar to the Merger;
(p) settle or compromise any pending or threatened suit, action or
claim relating to the Transactions contemplated hereby, without Parent's
prior written consent, which will not be unreasonably withheld, delayed or
conditioned;
(q) enter into any agreement or arrangement that materially limits or
otherwise restricts the Company or any Company Subsidiary or any successor
thereto, or that would, after the Effective Time, limit or restrict the
Surviving Corporation and its affiliates (including Parent) or any successor
thereto, from engaging or competing in any line of business or in any
geographic area, other than in the ordinary course of business consistent
with past practices;
(r) make any loan to or other investment in any person which, in the
aggregate, is in excess of $500,000; or
(s) authorize any of, or commit or agree to take any of, the foregoing
actions.
SECTION 5.2 CONDUCT OF BUSINESS OF THE PARENT PENDING THE MERGER. Prior to
the Effective Time, without the prior written consent of the Company, the Parent
will not, and will cause each Parent Subsidiary not to:
(a) except to the extent required by Law or the rules and regulations
of NYSE, amend its certificate of incorporation or bylaws in any manner that
would be materially adverse to the holders of Parent Common Stock;
(b) purchase, redeem or otherwise acquire or retire, or offer to
purchase, redeem or otherwise acquire or retire, any shares of its capital
stock (other than any shares of capital stock of any Parent Subsidiary) in
excess of the publicly announced Parent Common Stock repurchase program
currently in effect, except for other transactions between the Parent and
its wholly owned Subsidiaries;
(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, other than dividends or distributions by Parent Subsidiaries;
(d) liquidate or adopt a plan of liquidation, except for liquidations
of any wholly owned Parent Subsidiaries;
(e) take any action that would reasonably be expected to result in the
conditions contained in Section 7.3(a) or 7.3(b) not to be satisfied; or
(f) authorize any of, or commit or agree to take any of, the foregoing
actions.
ARTICLE VI
ADDITIONAL COVENANTS
SECTION 6.1 ACCESS TO INFORMATION. (a) From the date hereof to the
Effective Time, the Company shall (and shall cause the Company Subsidiaries and
officers, directors, employees, auditors, counsel and agents to) afford the
officers, employees, auditors, counsel and agents (the "REPRESENTATIVES") of the
other party reasonable access at all reasonable times to its officers,
employees, agents, properties, offices, plants and other facilities, books,
records and Tax Returns, and shall furnish such Representatives with all
financial, operating and other data and information as may be reasonably
requested.
(b) From the date hereof to the Effective Time, the Parent shall comply
with the reasonable requests of the Company to make officers available to
respond to the reasonable inquiries of the Company in
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connection with the Transactions and to make available information regarding
Parent and the Material Parent Subsidiaries as the Company may reasonably
request.
(c) All information obtained pursuant to (a) or (b) will be subject to the
Confidentiality Agreement, dated January 14, 1999, between the Company and the
Parent (the "CONFIDENTIALITY AGREEMENT").
(d) No investigation prior to the date hereof or 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 NO SOLICITATION. (a) From the date hereof until the
termination of this Agreement, except as permitted hereby, the Company shall
not, nor shall it permit any Company Subsidiary, or any officer, director,
employee, agent or Representative of the Company or a Company Subsidiary
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or a Company Subsidiary), to, directly or indirectly,
(i) initiate, solicit or knowingly encourage any inquiries, offers or proposals
that constitute, or could reasonably be expected to lead to, a proposal or offer
for (x) any merger, consolidation, share exchange, recapitalization, business
combination or similar transaction, (y) any sale, lease, exchange, mortgage,
transfer or other disposition, in a single transaction or series of related
transactions, of assets representing a material portion of the assets of the
Company and the Company Subsidiaries, taken as a whole, or (z) sale of shares of
capital stock representing, individually or in the aggregate, 15% or more of the
voting power of the Company other than to the Company or a Company Subsidiary,
including, without limitation, by way of a tender offer or exchange offer by any
person (other than the Company or a Company Subsidiary) for shares of capital
stock representing 15% or more of the voting power of the Company, other than
the Transactions (any of the foregoing inquiries, offers or proposals being
referred to in this Agreement as an "ACQUISITION PROPOSAL"), (ii) engage in
negotiations or discussions concerning, or provide to any person or entity any
information or data relating to the Company or any Company Subsidiary for the
purposes of making, or take any other action to facilitate, any Acquisition
Proposal, (iii) agree to, approve or recommend any Acquisition Proposal or (iv)
take any other action materially inconsistent with the obligations and
commitments assumed by the Company pursuant to this Section 6.2; PROVIDED,
HOWEVER, that, subject to the Company's compliance with this Section 6.2,
nothing contained in this Agreement shall prevent the Company or its Board of
Directors from, prior to receipt of the Required Company Vote, (A) entering into
a definitive agreement providing for the implementation of a Superior Proposal
(as defined below) if the Company or the Board of Directors is simultaneously
terminating this Agreement pursuant to Section 8.1(f), (B) furnishing non-public
information to, entering into customary confidentiality agreements with, or
entering into discussions or negotiations with, any person or entity in
connection with an unsolicited bona fide written Acquisition Proposal to the
Company or its stockholders, if the Board of Directors of the Company, by action
of a majority of the entire Board of Directors of the Company, determines in
good faith after consultation with nationally-recognized independent financial
advisors that such Acquisition Proposal, if accepted, constitutes, or is
reasonably likely to lead to, a Superior Proposal or (C) taking and disclosing
to its stockholders a position with respect to such Acquisition Proposal
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or making any
other public disclosure that, in the opinion of the Company's counsel, is
required by applicable Law, PROVIDED, FURTHER, that except as otherwise
permitted in this Section 6.2, the Company does not withdraw or modify, or
propose to withdraw or modify, its position with respect to the Merger or
approve or recommend, or propose to approve or recommend, an Acquisition
Proposal. For purposes of this Agreement, "SUPERIOR PROPOSAL" means a bona fide
written Acquisition Proposal on terms which a majority of the members of the
Board of Directors of the Company determine in their good faith judgment (after
consultation with nationally-recognized independent financial advisors) and
after taking into account all legal, financial, regulatory and other material
aspects of the Acquisition Proposal, the person making the proposal, the
strategic benefits to be derived from the Merger and the long-term prospects of
Parent and its Subsidiaries, to be more favorable from a financial point of view
to the Company's stockholders than the Merger, and for which the Board of
Directors of the Company determines in their good faith judgment (after such
consultation) that financing, to the extent
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required, is then committed or reasonably available. The Company will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations by the Company or its Representatives with any
parties conducted heretofore with respect to any of the foregoing, and will
promptly inform the individuals or entities referred to in the first sentence of
this Section 6.2(a) of the obligations undertaken in this Section 6.2(a). For
purposes of this Agreement, an Acquisition Proposal shall not be deemed to exist
solely as a result of a person filing a report on Schedule 13G to report
ownership of the Company Common Stock.
(b) The Company shall (i) promptly notify the Parent orally and in writing
after receipt by the Company (or its advisors) of any Acquisition Proposal or
any inquiries indicating that any person is considering making or wishes to
make, or which could reasonably be expected to lead to, an Acquisition Proposal,
including the material terms and conditions thereof and the identity of the
person making it, (ii) promptly notify the Parent orally and in writing after
receipt of any request for non-public information relating to it or any of the
Company Subsidiaries or for access to its or any of the Company Subsidiaries'
properties, books or records by any person that, to the Company's knowledge, may
be considering making, or has made, an Acquisition Proposal, (iii) receive from
any person who may make or has made an Acquisition Proposal and that requests
non-public information relating to the Company and/or any Company Subsidiary, an
executed confidentiality letter in reasonably customary form and containing
terms that are as stringent in all material respects as those contained in the
Confidentiality Agreement prior to delivery of any such non-public information,
and (iv) keep the Parent advised on a prompt basis of the status of any such
Acquisition Proposal, indication or request (including any material changes to
the terms and conditions of any Acquisition Proposal).
(c) The Company Board will not withdraw or modify, or propose to withdraw
or modify, in any manner adverse to Parent, its approval or recommendation of
this Agreement or the Merger except in connection with a Superior Proposal and
then only upon or after the termination of this Agreement pursuant to Section
8.1(f).
SECTION 6.3 DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE. (a) From
and after the Effective Time, the Parent shall cause the Surviving Corporation
to and the Surviving Corporation shall indemnify, defend and hold harmless the
present and former officers, directors, employees and agents of the Company
(each a "COVERED PERSON") against all losses, expenses, claims, damages,
liabilities or amounts ("LOSSES") that are paid in settlement (provided that,
with respect to amounts paid in settlement, such settlement has been approved by
the Parent, such approval not to be unreasonably withheld or delayed) of, 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, officer, employee or agent of the Company and arising out
of actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the Transactions), in each case to the full extent permitted
under the DGCL and the Company's certificate of incorporation and bylaws as in
effect on the date of this Agreement. The Surviving Corporation shall pay, when
and as such expenses are incurred by a Covered Person, any expenses in advance
of the final disposition of any such Claim to each Covered Person to the fullest
extent permitted under the DGCL upon receipt from the Covered Person to whom
expenses are advanced of any undertaking to repay such advances required under
the DGCL. The Surviving Corporation shall cooperate in the defense of any such
matter.
(b) The Parent shall cause the Surviving Corporation to keep in effect
provisions in its certificate of incorporation and bylaws providing for
exculpation of director liability, advancement of expenses prior to disposition
of any Claim and indemnification of the Covered Persons, in each case to the
fullest extent permitted under the DGCL, which provisions shall not be amended
except as required by applicable Law or except to make changes permitted by law
that would enlarge the right of indemnification of the Covered Persons.
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(c) For a period of six (6) years after the Effective Time, the Parent
shall cause the Surviving Corporation to maintain in effect the current policies
of directors and officers liability insurance maintained by the Company covering
persons who are currently covered by the Company's directors and officers
liability insurance policies with respect to actions or omissions occurring at
or prior to the Effective Time to the extent that such policies are available;
PROVIDED, that policies of at least the same coverage containing terms and
conditions which are no less advantageous to the insureds may be substituted
therefor, PROVIDED, FURTHER, that in no event shall the Surviving Corporation be
required to expend amounts for premiums per annum in excess of 200% of the
annual premiums prevailing during the twelve-month period ended August 31, 1998
(such annual premiums, the "MAXIMUM PREMIUM") to maintain or procure insurance
coverage pursuant to this Section 6.3, or, if the cost of such coverage exceeds
the Maximum Premium, the maximum amount of coverage that can be purchased for
the Maximum Premium. The Company represents to the Parent that the Maximum
Premium is $441,452.
(d) The provisions of this Section 6.3 shall survive the consummation of
the Merger and expressly are intended to benefit each of the Covered Persons.
SECTION 6.4 NOTIFICATION OF CERTAIN MATTERS. The Parent shall give prompt
notice to the Company, and the Company shall give prompt notice to the Parent,
of (a) the occurrence or nonoccurrence of any event, the occurrence or
nonoccurrence of which would be likely to cause any covenant, condition or
agreement contained in this Agreement not to be complied with or satisfied, (b)
any failure of the Parent or the Company, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder and (c) the receipt of a notice of the type described in the last
sentence of Section 3.20(b) or the occurrence of a dispute arising after the
date hereof of the type and amounts described in Section 3.20(e); 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 the Parent and the Company shall take
such actions, or refrain from taking such actions, as may be reasonably
necessary so that the Merger will qualify as a reorganization under the
provisions of Section 368(a) of the Code and to obtain the opinions of counsel
referred to in Sections 7.2(d) and 7.3(h).
SECTION 6.6 COMPANY STOCKHOLDER MEETING. Subject to Section 6.2, the
Company shall, as promptly as practicable following the date of this Agreement,
duly call, give notice of and convene and hold a meeting of its stockholders
(the "COMPANY MEETING") for the purpose of considering and voting upon the
adoption of this Agreement. The vote required for such approval shall be the
affirmative vote of the holders of a majority of the outstanding shares of
Company Common Stock. Without limiting the generality of the foregoing, the
Company agrees that, subject to Section 6.2, its obligations pursuant to the
first sentence of this Section 6.6 shall not be affected by the commencement,
public proposal, public disclosure or communication to the Company of any
Acquisition Proposal. The Company will, through its Board of Directors,
recommend to its stockholders the adoption of this Agreement, except to the
extent that the Company Board shall have withdrawn or modified its approval or
recommendation of this Agreement or the Merger and terminated this Agreement in
accordance with Sections 6.2(c) and 8.1(f).
SECTION 6.7 REGISTRATION STATEMENT, PROXY STATEMENT/PROSPECTUS. (a) As
promptly as practicable after the execution of this Agreement, (i) the Company
shall prepare and file with the SEC a proxy statement relating to the Company
Meeting to be held in connection with the Transactions (together with any
amendments thereof or supplements thereto, the "PROXY STATEMENT/PROSPECTUS") and
(ii) the Parent shall prepare and file with the SEC a registration statement
(together with all amendments thereto, the "REGISTRATION STATEMENT") in which
the Proxy Statement/Prospectus shall be included as a prospectus, in connection
with the registration under the Securities Act of the shares of Parent Common
Stock to be issued pursuant to the Merger. Each of the Parent and the Company
(i) shall cause the Proxy Statement/ Prospectus and the Registration Statement
to comply as to form in all material respects with the applicable provisions of
the Securities Act, the Exchange Act and the rules and regulations thereunder,
(ii) shall use
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commercially reasonable efforts to have or cause the Registration Statement to
become effective as promptly as practicable, and (iii) shall take all or any
action required under any applicable federal or state securities laws in
connection with the issuance of shares of Parent Common Stock in connection with
the Merger. The Company and the Parent shall furnish to the other all
information concerning the Company and the Parent as the other may reasonably
request in connection with the preparation of the documents referred to herein.
As promptly as practicable after the Registration Statement shall have become
effective, the Parent and the Company shall mail the Proxy Statement/Prospectus
to stockholders of the Company.
(b) The information supplied by each of the Company and the Parent for
inclusion in the Registration Statement and the Proxy Statement/Prospectus shall
not, at (i) the time the Registration Statement is declared effective, (ii) the
time the Proxy Statement/Prospectus (or any amendment thereof or supplement
thereto) is first mailed to the stockholders of the Company, (iii) the time of
the Company Meeting, or (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 the
Company, any Company Subsidiary, the Parent, any Parent Subsidiary, or their
respective officers or directors, should be discovered by such party which
should be set forth in an amendment or a supplement to the Registration
Statement or Proxy Statement/Prospectus, such party shall promptly inform the
other thereof and take appropriate action in respect thereof.
SECTION 6.8 LETTERS OF ACCOUNTANTS. The Parent and the Company shall use
their commercially reasonable efforts to cause to be delivered to the other
"comfort" letters of KPMG Peat Marwick LLP, the Parent's independent public
accountants, and of Arthur Andersen LLP, the Company's independent public
accountants, in each case, dated and delivered on the date on which the
Registration Statement shall become effective and as of the Effective Time, and
addressed to the Boards of Directors of the Company and the Parent, in form and
substance reasonably satisfactory to the other 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 FURTHER ACTION, REASONABLE EFFORTS. (a) Upon the terms and
subject to the conditions hereof, each of the parties hereto shall (i) make
promptly its respective filings, and thereafter make any other required
submissions, under the HSR Act with respect to the Transactions, and (ii) use
commercially reasonable 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 in the most expeditious manner practicable, including, without
limitation, using commercially reasonable efforts to obtain all licenses,
permits, consents, approvals, authorizations, qualifications and orders of
Governmental Entities (such filings under the HSR Act to be made by the parties
no later than ten (10) days after the date hereof), making all filings and
required submissions with Governmental Entities, including foreign filings and
submissions, obtaining all consents and approvals from parties to Contracts with
the Company and the Parent and their respective Subsidiaries as are necessary
for the consummation of the Transactions and defending any lawsuit or legal
challenges, whether judicial or administrative, challenging this Agreement or
the Transactions. In case at any time after the Effective Time any other 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 efforts to take all such action.
(b) Each party shall use its reasonable commercial efforts not to take any
action, or enter into any transaction, which would result in a breach of any
covenant made by it in this Agreement.
SECTION 6.10 PUBLIC ANNOUNCEMENTS. The Company and the Parent shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to this Agreement or any of the Transactions and
shall not issue any such press release or make any such public statement without
the prior consent of the other party, which consent shall not be unreasonably
withheld or delayed; PROVIDED, HOWEVER, that a party may, without the prior
consent of the other party, issue such press release or
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make such public statement as may be required by Law or any listing agreement or
arrangement to which the Company or the Parent is a party with a national
securities exchange 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 6.11 BLUE SKY. The Parent shall use its best efforts to obtain
prior to the Effective Time all approvals or permits required to carry out the
transactions contemplated hereby under applicable Blue Sky Laws in connection
with the issuance of shares of Parent Common Stock in connection with the Merger
and as contemplated by this Agreement; PROVIDED, HOWEVER, that with respect to
such qualifications neither the Parent nor the Company shall be required to
register or qualify as a foreign corporation or to take any action which would
subject it to general service of process or taxation in any jurisdiction where
any such entity is not now so subject.
SECTION 6.12 NYSE. The Parent shall promptly prepare and submit to the
NYSE applications covering the shares of Parent Common Stock to be issued in
connection with the Merger, and shall use commercially reasonable efforts to
cause such shares to be approved for listing on the NYSE prior to the Effective
Time, subject to official notice of issuance.
SECTION 6.13 AFFILIATES. Within 30 days after the date of this Agreement,
(a) the Company shall deliver to the Parent a letter identifying all persons who
may be deemed to be affiliates of the Company under Rule 145 of the Securities
Act as of the record date for the Company Meeting, including, without
limitation, all of its directors and executive officers (the "RULE 145
AFFILIATES") and (b) the Company shall advise the persons identified in such
letter of the resale restrictions imposed by applicable securities laws and
shall use commercially reasonable efforts to obtain from each person identified
in such letter a written agreement, substantially in the form of Exhibit A
hereto (a "RULE 145 AFFILIATE AGREEMENT").
SECTION 6.14 EMPLOYEE BENEFITS. For a period of one year after the
Effective Time, the Parent will (a) cause to remain in effect for the benefit of
the employees of the Company and the Company Subsidiaries (and, to the extent
applicable, former employees) all Company Plans in effect on the date of this
Agreement or (b) provide each employee (and, to the extent applicable, former
employees) of the Surviving Corporation and its Subsidiaries with benefits that,
with respect to such employee (or former employee), are at least substantially
equivalent on an aggregate basis to the benefits of such Company Benefit Plans
(other than any stock option plans). Without limiting the generality of the
foregoing, all vacation, holiday, sickness and personal days accrued by the
employees of the Company and of the Company Subsidiaries shall be honored. In
the event that any employee of the Surviving Corporation or one of its
Subsidiaries is at any time after the Effective Time transferred to the Parent
or any affiliate of the Parent or becomes a participant in an employee benefit
plan, program or arrangement maintained by or contributed by the Parent or any
affiliate of the Parent, the Parent shall cause such plan, program or
arrangement to treat the prior service of such employee with the Company and the
Company Subsidiaries, to the extent prior service is generally recognized under
the comparable plan, program or arrangement of the Company, as service rendered
to the Parent or such affiliates for purposes of eligibility, vesting or
entitlement to early retirement benefits, vacation time or severance benefits
under such plans. The Parent shall cause to be waived any pre-existing condition
limitation under their welfare plans that might otherwise apply to such employee
or, to the extent applicable, a former employee. The Parent agrees to recognize
(or cause to be recognized) the dollar amount of all expenses incurred by such
employees or, to the extent applicable, former employees, during the calendar
year in which the Effective Time occurs for purposes of satisfying the calendar
year deductibles, co-payment limitations and lifetime maximums for such year
under the relevant benefit plans of the Parent and their respective
Subsidiaries. Nothing contained in this Section 6.14 shall be construed as
requiring Parent to continue any specific Company Plan or to continue the
employment of any Employee, PROVIDED, HOWEVER, that any changes that Parent may
make to any such Company Plan are consistent with the prior parts of this
Section 6.14, and are permitted by the terms of the Company Plan and under any
applicable law.
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SECTION 6.15 TAX MATTERS. The parties hereto agree to (i) prepare or cause
to be prepared all Tax Returns or other governmental filings and reports and
applicable books and records in accordance with the treatment of the Merger as a
reorganization under section 368(a) of the Code, unless otherwise required by
Law, and (ii) take such other actions, or refrain from taking any action, as may
be reasonably necessary so that the Merger will qualify for such treatment;
PROVIDED, HOWEVER, that such actions or inactions must be consistent with the
terms of this Agreement.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the following conditions:
(a) The Company shall have received the Required Company Vote.
(b) All consents, approvals and action of any Governmental Entity
required to permit the consummation of the Transactions shall have been
obtained or made, free of any condition that would have or reasonably would
be expected to have a Parent Material Adverse Effect or a Company Material
Adverse Effect.
(c) No statute, rule, regulation, executive order, judgment, decree, or
injunction shall have been enacted, entered, promulgated or enforced (and
not repealed, superseded, lifted or otherwise made inapplicable), by any
court of competent jurisdiction or Government Entity which restrains,
enjoins or otherwise prohibits the consummation of the Transactions
contemplated by this Agreement (each party agreeing to use its commercially
reasonable efforts to avoid the effect of any such statute, rule, regulation
or order or to have any such order, judgment, decree or injunction lifted)
or that would have or would reasonably be expected to have a Parent Material
Adverse Effect.
(d) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
pending such effectiveness shall have been issued and remain in effect. The
Parent shall have received all state securities or "blue sky" permits and
other authorizations necessary to issue the Parent Common Stock pursuant to
this Agreement.
(e) The shares of Parent Common Stock to be issued as Merger
Consideration shall have been approved for listing on the NYSE, subject only
to official notice of issuance.
(f) Any applicable waiting period under the HSR Act shall have expired
or been terminated.
(g) The Effective Time shall have occurred at or before the close of
business in New York City on December 31, 1999 (the "OUTSIDE DATE").
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY TO EFFECT THE
MERGER. The obligations of the Company to effect the Merger are subject to the
satisfaction of the following conditions, unless waived by the Company:
(a) (i) The representations and warranties of the Parent and Merger Sub
set forth in this Agreement (other than Section 4.3) shall be true and
correct (for all purposes of this Section 7.2(a)(i) without giving effect to
any "materiality" or "material adverse effect" limitations contained
therein) as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except to the extent a
representation or warranty expressly relates to an earlier date (in which
case as of such date), and except to the extent the failure of any such
representation and warranty to be true and correct, in the aggregate, would
not or would not reasonably be expected to have a Parent Material Adverse
Effect and (ii) the representations and warranties of the Parent set forth
in Section 4.3 shall be true and correct in all material respects as of the
date of this Agreement
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and as of the Closing Date as though made on and as of the Closing Date,
except to the extent a representation and warranty expressly relates to an
earlier date (in which case as of such date).
(b) The Parent and Merger Sub shall have performed, in all material
respects, all obligations and complied in all material respects, with all
covenants required by this Agreement to be performed or complied with by
them prior to the Effective Time.
(c) The Parent shall have delivered to the Company a certificate, dated
the Effective Time and signed by an executive officer of Parent, evidencing
compliance with Sections 7.2(a) and (b).
(d) The Company shall have received an opinion from Paul, Weiss,
Rifkind, Wharton & Garrison, based upon representation letters and
certificates substantially in the form previously agreed upon by the Parent
and the Company and dated the Closing Date, to the effect that the Merger
will qualify as a reorganization under the provisions of section 368(a) of
the Code.
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF THE PARENT AND MERGER SUB TO
EFFECT THE MERGER. The obligations of the Parent and Merger Sub to effect the
Merger are subject to the satisfaction of the following conditions, unless
waived by the Parent and Merger Sub:
(a) (i) The representations and warranties of the Company set forth in
this Agreement (other than Sections 3.3, 3.7(b), 3.8(b)(i) and 3.20(d))
shall be true and correct (for all purposes of this Section 7.3(a)(i)
without giving effect to any "materiality" or "material adverse effect"
limitations contained therein) as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date, except to the
extent a representation and warranty expressly relates to an earlier date
(in which case as of such date), and except to the extent the failure of
such representations and warranties to be true and correct, in the
aggregate, would not or would not reasonably be expected to have a Company
Material Adverse Effect, (ii) the representations and warranties of the
Company set forth in Sections 3.3, 3.7(b)(i) and 3.8(b)(i) shall be true and
correct in all material respects as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date, except to the
extent a representation and warranty expressly relates to an earlier date
(in which case as of such date) and (iii) the representations and warranties
of the Company set forth in Section 3.7(b)(ii) and 3.20(d) shall be true and
correct as of the date of this Agreement and the Closing Date as though made
on and as of the Closing Date.
(b) The Company shall have performed, in all material respects, all
obligations and complied, in all material respects, with all covenants
required by this Agreement to be performed or complied with by it prior to
the Effective Time.
(c) The Company shall have delivered to the Parent a certificate, dated
the Effective Time and signed by an executive officer of the Company,
evidencing compliance with Sections 7.3(a) and (b).
(d) The Parent shall have received from each Rule 145 Affiliate of the
Company an executed copy of a Rule 145 Affiliate Agreement from each Rule
145 Affiliate as contemplated by Section 6.13 hereof.
(e) The employment agreements entered into between the Company and each
of Mr. Michael King and Mr. Roger King, as amended on the date hereof, shall
be in full force and effect on the Closing Date and neither Mr. Michael King
nor Mr. Roger King shall have died, become incapacitated or otherwise not be
in a position to perform his obligations thereunder; PROVIDED, HOWEVER, that
if as a result of any event, change or occurrence, Parent determines that
this condition cannot or will not be satisfied by the Closing Date, it shall
promptly and in any event within five (5) Business Days after it receives
written notice from the Company of the happening of any such event, change
or occurrence, so notify the Company of its determination whether or not it
will waive the condition set forth in this subsection (e) or, if no such
notification is furnished to the Company within such time period, the Parent
shall be deemed to have waived the failure of this condition to be satisfied
prior to
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the Closing Date as a result of such event, change or occurrence; PROVIDED,
FURTHER, that if the Parent shall so notify the Company that it will not
consummate the Merger, the Company shall have the right, exercisable at any
time within 45 days of its receipt of such a notice from the Parent, to
terminate this Agreement by written notice to the Parent and further, if the
Company does not exercise such termination right, the Parent shall have the
right to terminate this Agreement following the expiration of such 45-day
period by written notice to the Company.
(f) There shall not be pending by any Governmental Entity any suit,
action or proceeding which has a reasonable likelihood of success (i)
seeking to restrain or prohibit the consummation of the Merger or that would
materially adversely effect the Transactions contemplated by this Agreement
taken as a whole or seeking to obtain from the Company or Parent any damages
that are material in relation to the Company and the Company Subsidiaries
taken as a whole or Parent and the Parent Subsidiaries taken as a whole, as
applicable (ii) seeking to prohibit or limit the ownership or operation by
the Company, Parent or any of their respective Subsidiaries of any material
portion of the business or assets of the Company and Company Subsidiaries,
taken as a whole, or Parent and the Parent Subsidiaries, taken as a whole,
as applicable, or to compel the Company, Parent or any of their respective
Subsidiaries to dispose of or hold separate any material portion of the
business or assets of the Company and Company Subsidiaries, taken as a
whole, or Parent and the Parent Subsidiaries, taken as a whole, as
applicable, as a result of the Merger or any of the other Transactions
contemplated by this Agreement, (iii) seeking to impose limitations on the
ability of Parent to acquire or hold, or exercise full rights of ownership
of, any shares of capital stock of the Company or the Surviving Corporation,
including the right to vote the Company Common Stock, or common stock of the
Surviving Corporation, on all matters properly presented to the stockholders
of the Company or the Surviving Corporation, respectively, (iv) seeking to
prohibit Parent and its subsidiaries from effectively controlling in any
material respect the business or operations of the Company and Company
Subsidiaries, taken as a whole, or (v) which otherwise would have or would
reasonably be expected to have a Company Material Adverse Effect or a Parent
Material Adverse Effect.
(g) As of the Closing (i) each of the Material Distribution Agreements
shall be, in all material respects, in full force and effect and
enforceable, (ii) there shall exist no fact or circumstance that
individually or in the aggregate is reasonably likely to result in a
termination of any Material Distribution Agreement or to permit any party
other than the Company to withhold or refrain from performance by it of any
material covenant in any material respect, (iii) except as set forth in
Section 7.3(g) of the Company Disclosure Letter, each of the parties to such
Material Distribution Agreement shall have performed all material
obligations required to have theretofore been performed by it in accordance
with the terms of such Material Distribution Agreement, as of such date in
all material respects, and (iv) no party to any Material Distribution
Agreement (other than the Company) shall have taken any action or omitted to
take any action that, individually or in the aggregate, has resulted in or
is reasonably likely to result in a material impairment of the value of such
Material Distribution Agreement to the Company or the Surviving Corporation.
(h) Parent shall have received an opinion from Weil, Gotshal & Manges
LLP, based upon representation letters and certificates substantially in the
form previously agreed upon by the Parent and the Company and dated the
Closing Date, to the effect that the Merger will qualify as a reorganization
under the provisions of section 368(a) of the Code.
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<PAGE>
ARTICLE VIII
TERMINATION WAIVER, AMENDMENT AND CLOSING
SECTION 8.1 TERMINATION. This Agreement may be terminated and abandoned at
any time prior to the Effective Time, whether before or after approval of this
Agreement, the Merger and the other Transactions by the stockholders of the
Company:
(a) by the mutual written consent of the Company and the Parent;
(b) by the Company or the Parent, if (i) the Effective Time shall not
have occurred on or before the Outside Date, (ii) any Governmental Entity,
the consent of which is a condition to the obligations of the Company and
the Parent to consummate the Transactions, shall have determined not to
grant its consent and all appeals of such determination shall have been
taken and have been unsuccessful or (iii) any court of competent
jurisdiction shall have issued an order, judgment or decree (other than a
temporary restraining order) restraining, enjoining or otherwise prohibiting
the Merger and such order, judgment or decree shall have become final and
nonappealable; PROVIDED, HOWEVER, that the right to terminate this Agreement
pursuant to clause (i) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such
date and PROVIDED FURTHER, HOWEVER, that the passage of such period shall be
tolled for any part thereof (but not exceeding 60 calendar days in the
aggregate) during which any party shall be subject to a nonfinal order,
injunction, decree, ruling or action restraining, enjoining or otherwise
prohibiting the consummation of the Merger or the calling or holding of the
Company Meeting;
(c) by the Company or the Parent, if, upon a vote at the Company
Meeting (including any adjournment or postponement thereof) called pursuant
to Section 6.7 hereof, the Required Company Vote shall not have been
obtained;
(d) by the Company, if there has been a material breach by the Parent
of any representation, warranty, covenant or agreement set forth in this
Agreement which (x) would give rise to the failure of a condition set forth
in Section 7.2(a) or (b) and (y) which breach has not been cured within
thirty (30) Business Days following receipt by the Parent of written notice
of such breach from the Company; PROVIDED, HOWEVER, that the right to
terminate this Agreement pursuant to this Section 8.1(d) shall not be
available to the Company if the Company, at such time, is in material breach
of any representation, warranty, covenant or agreement set forth in this
Agreement;
(e) by the Parent, if there has been a material breach by the Company
of any representation, warranty, covenant or agreement set forth in this
Agreement which (x) would give rise to a failure of a condition set forth in
Section 7,.3(a) or (b) and (y), which breach has not been cured within
thirty (30) Business Days following receipt by the Company of written notice
of such breach from the Parent; PROVIDED, HOWEVER, that the right to
terminate this Agreement pursuant to this Section 8.1(e) shall not be
available to the Parent if the Parent, at such time, is in material breach
of any representation, warranty, covenant or agreement set forth in this
Agreement;
(f) by the Company, if prior to the Required Company Vote the Board of
Directors of the Company shall concurrently approve, and the Company shall
concurrently enter into, a definitive agreement providing for the
implementation of a Superior Proposal; PROVIDED, HOWEVER, that (i) the
Company is not then in breach of Section 6.2, (ii) the Company's Board of
Directors authorizes the Company, subject to complying with the terms of
this Agreement, to enter into a binding written agreement concerning a
transaction that constitutes a Superior Proposal and the Company notifies
the Parent in writing that it intends to enter into such an agreement,
attaching the most current version of such agreement to such notice, (iii)
during the two-Business Day period after the Company's notice, (A) the
Company shall have offered to negotiate with (and, if accepted, negotiate
with), and shall have caused its respective financial and legal advisors to
have offered to negotiate with (and, if
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<PAGE>
accepted, negotiate with) Parent to attempt to make such commercially
reasonable adjustments in the terms and conditions of this Agreement as
would enable the Company to proceed with the Merger and the other
Transactions and (B) the Board of Directors of the Company shall have
concluded, after considering the results of such negotiations and the
revised proposals made by the Parent, if any, that any Superior Proposal
giving rise to the Company's notice continues to be a Superior Proposal;
(iv) such termination is within five (5) Business Days following the two (2)
Business Day period referred to above, and (v) no termination pursuant to
this Section 8.1(f) shall be effective unless the Company shall
simultaneously make the payment required by Section 8.3; and
(g) by the Company or the Parent, pursuant to Section 7.3(e) of this
Agreement.
SECTION 8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by the Company or the Parent as provided in Section 8.1 hereof, this
Agreement shall forthwith become void (except for (A) the last sentence of
Section 6.1(a), (B) Sections 8.3, 9.2, 9.4, 9.6 and 9.7 and (C) this Section
8.2) and there shall be no liability on the part of the Company, the Parent,
Merger Sub or their respective officers or directors, except for any breach of a
party's obligations under the last sentence of Section 6.1(a), Sections 8.3,
9.2, 9.4, 9.6 and 9.7 and this Section 8.2. Notwithstanding the foregoing, no
party hereto shall be relieved from liability for any willful breach of this
Agreement.
SECTION 8.3 TERMINATION FEE. (a) If this Agreement is to be terminated
pursuant to Section 8.1(c), Section 8.1(e) or Section 8.1(f), and if the Company
is not entitled to terminate this Agreement by reason of Section 8.1(b) or
8.1(d), then, the Company shall (x) on the date specified in the penultimate
sentence of this Section 8.3 in the case of a termination of this Agreement
pursuant to Section 8.1(c) or 8.1(e), or (y) simultaneously with a termination
of this Agreement by the Company pursuant to Section 8.1(f), pay to the Parent
(by wire transfer of immediately available funds to an account designated by the
Parent) a termination fee of $90,000,000 plus, subject to the last sentence of
this Section 8.3(a), the reimbursement of all of Parent's actual and documented
out-of-pocket expenses (including all investment banking, legal, accounting and
other similar expenses) up to a maximum reimbursable amount of $10,000,000 (the
"PARENT EXPENSES"); PROVIDED, HOWEVER, that the Company shall not be obligated
to pay such fee to the Parent if this Agreement is terminated pursuant to
Section 8.1(c) or Section 8.1(e) unless (i) at the time of the Company Meeting
in the case of termination pursuant to Section 8.1(c) or on the date the Parent
terminates this Agreement pursuant to Section 8.1(e), the Company has received a
bona fide alternative Acquisition Proposal or a third party has made or publicly
announced its intention to make a bona fide Acquisition Proposal, and (ii)
within sixteen months after the termination of this Agreement, the Company
enters into a definitive agreement providing for an alternative Acquisition
Proposal with any third party or an alternative Acquisition Proposal is
consummated with any third party. If a termination fee becomes payable as a
result of a termination pursuant to Section 8.1(c) or 8.1(e), then in either
such case, such termination fee shall be paid promptly (and in any event within
two (2) days of receipt by Company of a written notice from Parent) following
the earlier of the execution of such definitive agreement providing for an
alternative Acquisition Proposal or the consummation of an alternative
Acquisition Proposal, as the case may be. In addition, in the event the Company
terminates this Agreement pursuant to Section 8.1(c) and at the time of the
Company Meeting the Company has received a bona fide alternative Acquisition
Proposal or a third party has made or publicly announced its intention to make a
bona fide Acquisition Proposal, the Company shall promptly on demand reimburse
all of the Parent Expenses and thereafter be obligated to pay the termination
fee only in the event such fee is payable pursuant to this Section 8.3(a).
(b) The Company acknowledges that the agreements contained in Section 8.3
are an integral part of the transactions contemplated by this Agreement, and
that, without these agreements, Parent and Merger Sub would not have entered
into this Agreement. Accordingly, if the Company fails to pay promptly any
amounts due pursuant to Section 8.3, and, in order to obtain such payment,
Parent commences a suit which results in a judgment against the Company for the
fee or expense reimbursement set forth in this Section 8.3, the Company shall
pay to Parent its costs and expenses (including attorneys' fees) in connection
with such suit, together with interest from the date of termination of this
Agreement on the
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<PAGE>
amounts so owed at the prime rate of Chase Manhattan Bank in effect from time to
time during such period plus four percent (4%).
SECTION 8.4 AMENDMENT OR SUPPLEMENT. At any time before or after approval
of this Agreement by the stockholders of the Company and prior to the Effective
Time, this Agreement may be amended or supplemented in writing by the Company
and the Parent with respect to any of the terms contained in this Agreement,
except that following approval by the stockholders of the Company there shall be
no amendment or supplement which by Law requires further approval by such
stockholders without further approval by the stockholders of the Company.
SECTION 8.5 EXTENSION OF TIME, WAIVER, ETC. At any time prior to the
Effective Time, the Company and the Parent may:
(a) extend the time for the performance of any of the obligations or
acts of the other party;
(b) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered pursuant hereto;
or
(c) waive compliance with any of the agreements or conditions of the
other party contained herein; PROVIDED, HOWEVER, that no failure or delay by
the Company or the Parent in exercising any right hereunder shall operate as
a waiver thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right
hereunder.
Any agreement on the part of a party hereto to any extension or waiver
contemplated by this Section 8.5 shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Merger or the termination of this
Agreement pursuant to Article VIII.
SECTION 9.2 EXPENSES. Except as provided in Article VIII, whether or not
the Merger is consummated, all costs and expenses incurred in connection with
this Agreement and the Transactions shall be paid by the party incurring such
expenses, except that the expenses incurred in connection with printing the
Proxy Statement/Prospectus and any expenses incurred by the Parent relating to
the issuance and registration of the Parent Common Stock to be issued in the
Merger and the qualification thereof under Blue Sky laws, shall be paid in equal
shares by the Company and the Parent.
SECTION 9.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered the same agreement.
SECTION 9.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of laws thereof.
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<PAGE>
SECTION 9.5 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered by hand, mailed by
registered or certified mail (return receipt requested) or sent by prepaid
overnight courier (with proof of service) or confirmed to facsimile to the
parties as follows (or at such other addresses for a party as shall be specified
by like notice) and shall be deemed given on the date on which so
hand-delivered, mailed, delivered or sent by confirmed telecopier:
To the Parent or Merger Sub:
CBS Corporation
51 West 52nd Street
35th Floor
New York, NY 10019
Facsimile: (212) 597-4031
Attn: Louis J. Briskman, Esq.
with a copy (which shall not constitute notice) to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Facsimile: (212) 310-8007
Attn: Howard Chatzinoff
Raymond O. Gietz
To the Company:
King World Productions, Inc.
1700 Broadway
33rd Floor
New York, NY 10019
Facsimile: (212) 974-0310
Attn: Jonathan Birkhahn, Esq.
with a copy (which shall not constitute notice) to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Facsimile: (212) 757-3990
Attn: Robert B. Schumer
Douglas A. Cifu
SECTION 9.6 Miscellaneous. This Agreement:
(a) together with the Confidentiality Agreement, the Exhibits, the
Company Disclosure Letter and the Parent Disclosure Letter constitutes the
entire agreement, and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to
the subject matter hereof and thereof, and
(b) except for the provisions of Sections 2.4 and 6.3, is not intended
to and shall not confer upon any person other than the parties hereto any
rights or remedies hereunder or by reason hereof, and
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<PAGE>
(c) shall not, nor shall any of the rights or interests hereunder, be
assigned by any party hereto or assignable by operation of law or otherwise
without the prior written consent of the other parties.
The headings contained in this Agreement are for reference purposes and
shall not affect in any way the meaning or interpretation of this Agreement. Any
references to the "date hereof" shall mean the date of this Agreement.
SECTION 9.7 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
SECTION 9.8 SPECIFIC PERFORMANCE. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of Delaware or in Delaware state court, this
being in addition to any other remedy to which they are entitled at Law or in
equity. In addition, each of the parties hereto (a) consents to submit itself to
the personal jurisdiction of any federal court located in the State of Delaware
or any Delaware state court in the event any dispute arises out of this
Agreement or any of the Transactions contemplated hereby, (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the Transactions contemplated hereby
in any court other than a federal or state court sitting in the State of
Delaware.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.
<TABLE>
<S> <C> <C>
KING WORLD PRODUCTIONS,INC.
By: /s/ JONATHAN BIRKHAHN
-----------------------------------------
Name: Jonathan Birkhahn
Title: Senior Vice President Business
Affairs and General Counsel
CBS CORPORATION
By: /s/ FREDRIC G. REYNOLDS
-----------------------------------------
Name: Fredric G. Reynolds
Title: Executive Vice President and Chief
Financial Officer
K ACQUISITION CORP.
By: /s/ FREDRIC G. REYNOLDS
-----------------------------------------
Name: Fredric G. Reynolds
Title: Executive Vice President
</TABLE>
A-38
<PAGE>
APPENDIX B
ALLEN & COMPANY INCORPORATED
711 FIFTH AVENUE
NEW YORK, N.Y. 10022
(212) 832-8000
March 31, 1999
Members of the Board of Directors
King World Productions, Inc.
12400 Wilshire Boulevard
Suite 1200
Los Angeles, California 90025
Ladies and Gentlemen:
You have requested our opinion, as of this date, as to the fairness, from a
financial point of view, to the holders of the outstanding shares of Common
Stock, par value $0.01 per share (the "Company's Common Stock"), of King World
Productions, Inc., a Delaware corporation (the "Company"), of the consideration
to be received by such holders in connection with the Proposed Transaction
hereinafter referred to.
Pursuant to the Agreement and Plan of Merger (the "Merger Agreement"), to be
entered into as of March 31, 1999, by and between the Company and CBS
Corporation, a Pennsylvania corporation (the "Purchaser"), the Company will
enter into a business combination transaction pursuant to which a newly-formed
wholly owned subsidiary of the Purchaser ("Merger Sub") will merge with and into
the Company (the "Proposed Transaction"). Unless otherwise specifically defined
herein, all capitalized terms used herein shall have the meanings ascribed to
such terms in the Merger Agreement. Pursuant to the terms, and subject to the
conditions contained in, the Merger Agreement, among other things, each share of
the Company's Common Stock issued and outstanding as of the Effective Time will
be converted into the right to receive 0.81 shares of common stock, par value
$1.00 of the Purchaser (the "Purchaser's Common Stock").
We understand that all approvals required for the consummation of the
Proposed Transaction have been or, prior to consummation of the Proposed
Transaction, will be obtained. As you know Allen & Company Incorporated
("Allen") will receive a fee for its services to the Company pursuant to the
Engagement Letter Agreement dated as of March 1, 1998, as amended by an
amendment thereto dated as of February 19, 1999, by and between the Company and
Allen. In addition, as you know, Allen provided various investment banking and
financial advisory services to CBS, Inc. in connection with its acquisition by
Westinghouse in 1995, and Allen served as an underwriter in connection with the
December 1998 initial public offering of Infinity Broadcasting Corporation
("Infinity"), a controlled subsidiary of the Purchaser. Also, Allen and certain
of its officers and directors own securities of the Company and the Purchaser.
From time to time in the ordinary course of its business as a broker-dealer,
Allen may also hold positions and trade in securities of the Company and the
Purchaser, and Allen has acted on behalf of the Company in connection with the
Company's 1999 stock repurchase program.
In arriving at our opinion, we have among other things:
- reviewed the terms and conditions of the Merger Agreement and the draft
agreements ancillary thereto (which prior to the delivery of this opinion
have not been executed by the parties);
- analyzed publicly available historical business and financial information
relating to the Company and the Purchaser, as presented in documents filed
with the Securities and Exchange Commission;
B-1
<PAGE>
- reviewed certain financial, operating and budgetary data provided to us by
the Company and the Purchaser relating to their respective businesses;
- conducted discussions with certain members of the senior management of the
Company and the Purchaser with respect to the financial condition,
business, operations, strategic objectives and prospects of the Company
and the Purchaser, respectively, as well as industry trends prevailing in
their businesses;
- reviewed and analyzed public information, including certain stock market
data and financial information relating to selected public companies in
lines of business which we deemed generally comparable to the Company and
the Purchaser, as well as analysts' reports and estimates for the Company
and the Purchaser;
- reviewed the trading history of the Company's Common Stock and the
Purchaser's Common Stock, including each company's respective performance
in comparison to market indices and to selected companies in comparable
businesses;
- reviewed the trading history of Infinity's common stock and reviewed and
analyzed certain stock market data and financial information relating to
Infinity and selected public companies in lines of business which we
deemed generally comparable to Infinity;
- reviewed public financial and transaction information relating to merger
and acquisition transactions we deemed to be comparable to the Proposed
Transaction; and
- conducted such other financial analyses and investigations as we deemed
necessary or appropriate for the purposes of the opinion expressed herein.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information respecting the Company and
the Purchaser and any other information provided to us, and we have not assumed
any responsibility for any independent verification of such information or any
independent valuation or appraisal of any of the assets of the Company. With
respect to the financial, operating and budgetary data referred to above, we
have assumed that they have been reasonably prepared on a basis reflecting the
best currently available judgments of the management of the Company and the
Purchaser as to the future financial performance of the Company and the
Purchaser, respectively.
In addition to our review and analysis of the specific information set forth
above, our opinion herein reflects and gives effect to our assessment of general
economic, monetary and market conditions existing as of the date hereof as they
may affect the business and prospects of the Company.
We have prepared this opinion at the request and for the benefit of the
Board of Directors of the Company, and consent to its inclusion in filings the
Company may be required to make with the Securities and Exchange Commission. The
opinion rendered herein does not constitute a recommendation that the Company
pursue the Proposed Transaction or that any stockholder of the Company vote to
approve the Proposed Transaction.
Based on and subject to the foregoing, we are of the opinion that, as of
this date, the consideration to be received by the holders of the Company's
Common Stock pursuant to the Proposed Transaction is fair to such holders from a
financial point of view.
Very truly yours,
<TABLE>
<S> <C> <C>
ALLEN & COMPANY INCORPORATED
By: /s/ NANCY B. PERETSMAN
-----------------------------------------
Name: Nancy B. Peretsman
Title: Managing Director
</TABLE>
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<PAGE>
- ------------------------------------------------------------------------------
PROXY KING WORLD PRODUCTIONS, INC.
12400 WILSHIRE BOULEVARD
SUITE 1200
LOS ANGELES, CALIFORNIA 90025
SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 7, 1999
(THE "SPECIAL MEETING")
The undersigned hereby appoints Roger King, Michael King and Jonathan
Birkhahn, or any of them, each with full power of substitution, as proxies or
proxy of the undersigned and hereby authorizes them to represent and vote as
designated below all shares of common stock, par value $.01 per share, of
King World Productions, Inc. (the "Corporation") held of record by the
undersigned at the close of business on July 28, 1999 at the Special Meeting,
or any adjournment or postponement thereof, and, in their discretion, upon
all matters incident to the conduct of the Special Meeting and such other
matters as may properly be brought before the Special Meeting.
This signed Proxy Form revokes all proxies previously given by the
undersigned to vote at the Special Meeting of Stockholders or any adjournment
or postponement thereof. The undersigned hereby acknowledges receipt of the
Notice of Special Meeting of Stockholders and the Proxy Statement/Prospectus
relating to the Special Meeting.
WHEN PROPERLY EXECUTED, THIS PROXY FORM WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN, THIS PROXY FORM WILL BE VOTED FOR THE FOREGOING PROPOSAL.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES,
SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXY COMMITTEE
CANNOT VOTE YOUR SHARE UNLESS YOU SIGN AND RETURN THIS CARD.
PLEASE MARK YOUR VOTE ON THE REVERSE SIDE, SIGN, DATE AND RETURN PROMPTLY IN
THE ENCLOSED ENVELOPE.
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
/x/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE FOLLOWING PROPOSAL.
For Against Abstain
To approve and adopt the Agreement and Plan of / / / / / /
Merger, dated as of March 31, 1999, among CBS
Corporation, K Acquisition Corp. and the
Corporation.
________________________________________________
Signature(s)________________________________________________
Note: Please sign exactly as name appears above. When shares
are held in name of joint holders, each should sign.
When signing as attorney, executor, trustee, guardian,
etc., please so indicate. If a corporation, please sign
in full corporate name by an authorized officer. If a
partnership, please sign in partnership name by an
authorized person.
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE
KING WORLD PRODUCTIONS, INC.
Dear Stockholder:
King World Productions, Inc. encourages you to take advantage of new and
convenient ways to vote your shares. You can vote your shares electronically
through the Internet or the telephone 24 hours a day, 7 days a week. This
eliminates the need to return the proxy card.
To vote your shares electronically you must use the control number printed in
the box above, just below the perforation. The series of numbers that appear
in the box above must be used to access the system.
1. To vote over the Internet:
- Log on the Internet and go to the website
www.vote-by-net.com
2. To vote over the telephone:
- On a touch-tone telephone call
1-800-OK2-VOTE
- Outside of the U.S. and Canada call
(201) 324-0377
Your electronic vote authorizes the named proxies in the same manner as if
you marked, signed, dated and returned the proxy card.
If you choose to vote your shares over the Internet or telephonically, there
is no need for you to mail back your proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING
