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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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ALL AMERICAN COMMUNICATIONS, INC.
(NAME OF SUBJECT COMPANY)
ALL AMERICAN COMMUNICATIONS, INC.
(NAME OF PERSON FILING STATEMENT)
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COMMON STOCK, PAR VALUE $.0001 PER SHARE
CLASS B COMMON STOCK, PAR VALUE $.0001 PER SHARE
(TITLE OF CLASS OF SECURITIES)
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016480105
016480204
016480402
(CUSIP NUMBER OF CLASS OF SECURITIES)
THOMAS BRADSHAW
CHIEF FINANCIAL OFFICER
ALL AMERICAN COMMUNICATIONS, INC.
808 WILSHIRE BOULEVARD
SANTA MONICA, CALIFORNIA 90401-1810
(310) 656-1100
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF THE PERSON FILING THIS STATEMENT)
COPY TO:
BARRY L. DASTIN, ESQ.
KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP
1999 AVENUE OF THE STARS, SUITE 1600
LOS ANGELES, CALIFORNIA 90067
(310) 788-1070
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INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 (this "Schedule
14D-9" or this "Statement") relates to an offer by Pearson Merger Company,
Inc., a Delaware corporation and wholly-owned indirect subsidiary of Pearson
plc, a corporation organized under the laws of England, to purchase all of the
Shares (as defined below) of All American Communications, Inc., a Delaware
corporation. Capitalized terms used herein and not otherwise defined shall
have the same respective meanings assigned to them in the Offer to Purchase,
dated October 7, 1997.
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is All American Communications, Inc., a
Delaware corporation (the "Company"), and the address of the principal
executive offices of the Company is 808 Wilshire Boulevard, Santa Monica,
California 90401-1810. The titles of the classes of equity securities to which
this Statement relates are the Company's Common Stock, par value $.0001 per
share (the "Common Stock"), and the Company's Class B Common Stock, par value
$.0001 per share (the "Class B Common Stock," and together with the Common
Stock, the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer (the "Offer") described in the
Tender Offer Statement on Schedule 14D-1, dated October 7, 1997 (as amended or
supplemented, the "Schedule 14D-1"), filed by Pearson Merger Company, Inc., a
Delaware corporation ("Purchaser"), which is a wholly-owned indirect
subsidiary of Pearson plc, a corporation organized under the laws of England
("Parent"), and Parent with the Securities and Exchange Commission (the
"Commission") relating to an offer by Purchaser to purchase all of the
outstanding Shares at a price of $25.50 per Share in cash, net to the seller,
without interest thereon, upon the terms and subject to the conditions set
forth in Purchaser's Offer to Purchase, dated October 7, 1997, as amended or
supplemented, and the related Letter of Transmittal (which together constitute
the "Offer Documents"). The Offer Documents indicate that the principal
executive offices of Parent are located at 3 Burlington Gardens, London W1X
1LE, England and the principal executive offices of Purchaser are located at
30 Rockefeller Plaza, New York, New York 10112.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of October 1, 1997 (the "Merger Agreement"), by and among the Company,
Parent and Purchaser. A copy of the Merger Agreement is filed as Exhibit 1 to
this Schedule 14D-9 and is incorporated herein by reference in its entirety.
Pursuant to the Merger Agreement, following the consummation of the Offer and
upon the satisfaction or waiver of certain conditions, Purchaser will be
merged with and into the Company (the "Merger"). At the Effective Time of the
Merger (as defined in the Merger Agreement), each Share issued and outstanding
immediately prior to the Effective Time (other than Shares owned by Parent,
Purchaser or any other subsidiary or affiliate of Parent (collectively, the
"Parent Companies"), or Shares held by stockholders who properly exercise
their appraisal rights (the "Dissenting Shares") pursuant to Section 262 of
the General Corporation Law of the State of Delaware (the "DGCL")) will, by
virtue of the Merger and without any action by the holder thereof, be
converted into the right to receive, in cash, the greater of (x) $25.50 or (y)
such greater amount which may be paid pursuant to the Offer, net to the
seller, without interest thereon (the "Merger Consideration"), upon the
surrender of the certificate representing such Shares. The Merger Agreement is
summarized in Item 3 of this Schedule 14D-9.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above. Unless the context otherwise
requires, references to the Company in this Schedule 14D-9 are to the
"Company" and its direct and indirect subsidiaries, viewed as a single entity.
(b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and certain of its executive officers, directors
or affiliates are described in Annex A--Information Statement
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Pursuant to Section 14(f) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Rule 14f-1 thereunder attached to this Schedule 14D-
9 and incorporated herein by reference. See "Executive Compensation and Other
Information Concerning Directors and Executive Officers" therein.
Except as described or incorporated by reference herein, to the knowledge of
the Company, as of the date hereof, there exists no material contract,
agreement, arrangement or understanding and no actual or potential material
conflict of interest between the Company or its affiliates and (i) the
Company's executive officers, directors or affiliates or (ii) Purchaser or its
executive officers, directors or affiliates. See "--Stockholders Agreement,"
"--Scotti Agreement Not to Compete and Scotti Amendment to Employment
Agreement" and "--Certain Arrangements with Respect to Interpublic" for a more
detailed description of the matters referred to therein.
MERGER AGREEMENT
The following summary of the Merger Agreement does not purport to be
complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is filed as Exhibit 1 to this Schedule 14D-9 and is
incorporated by reference herein. The Merger Agreement should be read in its
entirety for a more complete description of the matters summarized below.
The Offer. The Merger Agreement provides that as promptly as reasonably
practicable after the date of execution of the Merger Agreement, but in no
event later than five business days after the public announcement of the
execution of the Merger Agreement, Parent or Purchaser will commence the Offer
for all of the outstanding Shares at a price of not less than $25.50 per
Share, in cash, net to the seller, subject to the conditions set forth in
Exhibit A to the Merger Agreement and, subject only to the terms and
conditions of the Offer, will pay, as promptly as reasonably practicable after
expiration of the Offer, the purchase price for all Shares duly tendered and
not withdrawn. Purchaser may waive any such condition other than the Minimum
Condition (as defined below), increase the price per Share payable in the
Offer, and make any other changes in the terms and conditions of the Offer;
provided, however, that no change may be made to the Minimum Condition, and no
change may be made which decreases the price per Share payable in the Offer,
which reduces the maximum number of Shares to be purchased in the Offer, which
imposes conditions to the Offer other than those described below or which
extends the Offer (except as set forth in the following sentence).
Notwithstanding the foregoing, Purchaser may, without the consent of the
Company, (i) extend the Offer beyond the scheduled expiration date (the
initial scheduled expiration date being twenty (20) business days following
the commencement of the Offer) if, at the scheduled expiration date of the
Offer, any of the conditions to Purchaser's obligation to accept for payment,
and to pay for, the Shares, shall not have been satisfied or waived, (ii)
extend the Offer for any period required by any rule, regulation or
interpretation of the SEC or the staff thereof applicable to the Offer, or
(iii) extend the Offer for an aggregate period of not more than ten (10)
business days beyond the latest applicable date that would otherwise be
permitted under clause (i) or (ii) of this sentence, if as of such date, all
of the conditions to Purchaser's obligations to accept for payment, and to pay
for, the Shares are satisfied or waived, but (x) the number of Shares validly
tendered and not withdrawn pursuant to the Offer is less than ninety percent
(90%) and (y) Purchaser reasonably believes that such extension would cause
the number of validly tendered and not withdrawn Shares to exceed ninety
percent (90%) of the outstanding Shares. Notwithstanding the foregoing, the
Company has the right to terminate the Merger Agreement if Purchaser has not
purchased any Shares pursuant to the Offer by the later of 45 days after the
date of the Merger Agreement and three business days after the expiration or
termination of any waiting period (and any extension thereof) applicable to
the consummation of the Offer under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and any required
approvals in connection with any pre-merger notification filing with the
German Federal Cartel Office have been obtained.
For purposes hereof, the term "Minimum Condition" shall mean a majority of
the outstanding shares of Common Stock and a majority of the outstanding
Shares (including for purposes of such calculation all Shares issued upon
exercise of all stock options and warrants prior to or simultaneously with the
acceptance of the Offer) being validly tendered and not withdrawn prior to the
expiration of the Offer.
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The Merger. The Merger Agreement provides that, subject to the terms and
conditions thereof, at the Effective Time, Purchaser shall be merged with and
into the Company and the separate corporate existence of Purchaser shall
thereupon cease. The Company shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving Corporation") and shall
continue to be governed by the laws of the State of Delaware, and the separate
corporate existence of the Company with all its rights, privileges, immunities
and franchises shall continue unaffected by the Merger. At the Effective Time,
each Share issued and outstanding immediately prior to the Effective Time
(other than Shares owned by the Parent Companies or the Dissenting Shares or
Shares held in the treasury of the Company) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive, in cash, the Merger Consideration. All Shares, by virtue of
the Merger and without any action on the part of the holders thereof, shall no
longer be outstanding, shall be canceled and retired and shall cease to exist,
and each holder of a certificate representing any such Shares shall thereafter
cease to have any rights with respect to such Shares, except the right to
receive the Merger Consideration for such Shares without interest upon the
surrender of such certificate in accordance with the Merger Agreement or the
right, if any, to receive payment from the Surviving Corporation of the "fair
value" of such Shares as determined in accordance with Section 262 of the
DGCL.
Charter Documents; Initial Directors and Officers. The Merger Agreement
provides that the Restated Certificate of Incorporation of the Company in
effect at the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation, provided that, subject to the requirement that such
Certificate of Incorporation contain the provisions with respect to
indemnification, advancement of expenses and director exculpation set forth in
the Restated Certificate of Incorporation of the Company, it shall be amended
to read as set forth in Exhibit A to the Merger Agreement. The Merger
Agreement also provides that the Bylaws of the Company in effect at the
Effective Time shall be the Bylaws of the Surviving Corporation, provided
that, subject to the requirement that such Bylaws contain the provisions with
respect to indemnification, advancement of expenses and director exculpation
set forth in the Bylaws of the Company, they shall be amended to read as set
forth in Exhibit B to the Merger Agreement. Pursuant to the Merger Agreement,
the directors and officers of Purchaser at the Effective Time shall, from and
after the Effective Time, continue as the directors and officers,
respectively, of the Surviving Corporation until their successors have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
Stockholders Meeting. The Merger Agreement provides that the Company will
take all action reasonably necessary in accordance with applicable law and its
Restated Certificate of Incorporation and Bylaws to convene a meeting of its
stockholders to consider and vote upon the approval of the Merger Agreement
and the Merger and such other matters as may be necessary to effectuate the
transactions contemplated by the Merger Agreement (the "Transactions"), if
necessary to comply with applicable law, as promptly as practicable after the
expiration of the Offer. The Board of Directors of the Company shall recommend
such approval and take all lawful action to solicit such approval; provided,
however, that the Board of Directors of the Company may at any time prior to
such time as Parent's designees shall constitute a majority of the members of
the Board of Directors of the Company (the "Transition Time") withdraw, modify
or change any such recommendations to the extent that the Board of Directors
of the Company determines in good faith after consultation with independent
legal counsel that the failure to so withdraw, modify or change its
recommendation would cause the Board of Directors of the Company to breach its
fiduciary duties to the Company's stockholders under applicable law. The
Parent Companies will vote all Shares over which they exercise voting control
in favor of the Merger Agreement and the Merger.
Notwithstanding the foregoing, in the event that Parent acquires at least
ninety percent (90%) of the then outstanding Shares of each then outstanding
class of shares of the Company, the Company, Parent and Purchaser will take
all necessary and appropriate action to cause the Merger to become effective,
in accordance with Section 253 of the DGCL, as soon as reasonably practicable
after such acquisition, without a meeting of the stockholders of the Company.
Pursuant to the Company's Restated Certificate of Incorporation, at or
immediately prior to the Transition Time, shares of Class B Common Stock will
be automatically converted into shares of Common Stock.
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Conduct of Business. Pursuant to the Merger Agreement, the Company covenants
and agrees that, prior to the Transition Time (unless Parent shall otherwise
agree in writing and except as otherwise contemplated or disclosed pursuant to
the Merger Agreement).
(a) the business of the Company and any subsidiary of the Company
identified as a Company Subsidiary on the Company Disclosure Schedule (each
a "Company Subsidiary") shall be conducted only in the ordinary and usual
course and, to the extent consistent therewith, each of the Company and the
Company Subsidiaries shall use commercially reasonable efforts to preserve
its business organization and maintain its existing relations with
customers, employees and business associates;
(b) the Company shall not (i) sell or pledge or agree to sell or pledge
any stock owned by it in any of the Company Subsidiaries (except in
connection with its bank working capital facility); (ii) amend its Restated
Certificate of Incorporation or Bylaws or the similar organizational
documents of any of the Company Subsidiaries; (iii) split, combine or
reclassify the outstanding Shares; or (iv) declare, set aside or pay
(unless declared prior to the date of the Merger Agreement) any dividend
payable in cash, stock or property with respect to the Shares;
(c) neither the Company nor any of the Company Subsidiaries shall (i)
issue, deliver or sell or authorize or propose the issuance, delivery or
sale of, any shares of, or securities convertible or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire,
capital stock of any class of the Company or the Company Subsidiaries other
than Shares issuable pursuant to the agreements described in Section 3.3 of
the Company Disclosure Schedule or (ii) repurchase, redeem or otherwise
acquire, or permit any Company Subsidiary to repurchase, redeem or
otherwise acquire, any shares of capital stock of the Company;
(d) neither the Company nor any of the Company Subsidiaries shall (i)
grant any increase in the compensation of any director, officer or employee
earning in excess of $100,000 per year except for increases contemplated by
or required under employment agreements, (ii) enter into any new
employment, severance or termination agreement with any such director,
officer or employee or (iii) except as may be required to comply with
applicable law, become obligated under any bonus, deferred compensation,
severance pay, profit-sharing, retirement, insurance, stock purchase, stock
option, or other fringe benefit plan, arrangement or practice maintained,
or contributed to, by the Company or any of the Company Subsidiaries for
the benefit of any current or former employees, officers or directors of
the Company or of the Company Subsidiaries (each a "Benefit Plan") that was
not in existence on the date of the Merger Agreement or amend any Benefit
Plan in existence on the date of the Merger Agreement to enhance the
benefits thereunder;
(e) the Company shall not, and shall not permit any of the Company
Subsidiaries to, sell, lease, license, encumber or otherwise dispose of, or
agree to sell, lease, license, encumber or otherwise dispose of, any of its
material assets outside the ordinary course of business other than (i)
dispositions listed in Section 5.1 (e) of the Company Disclosure Schedule,
(ii) assets no longer used in the operation of the Company's and the
Company Subsidiaries' respective businesses and (iii) assets related to any
discontinued operations of the Company and the Company Subsidiaries;
(f) the Company shall not, and shall not permit any of the Company
Subsidiaries to, incur or enter into any agreement to incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue
or sell any debt securities or warrants or rights to acquire any debt
securities of the Company or any Company Subsidiary, except in the ordinary
course of business consistent with past practice, including, without
limitation, borrowings under the Company's existing credit agreements, as
amended from time to time in the ordinary course of business, and overnight
borrowings.
(g) the Company shall not and shall not permit any of the Company
Subsidiaries to enter into any contract or agreement or series of related
contracts or agreements which involves the expenditure by the Company of
over (i) One Hundred Thousand Dollars ($100,000) if outside the ordinary
course of business, or (ii) Five Hundred Thousand Dollars ($500,000) if
within the ordinary course of business; and
(h) neither the Company nor any of the Company Subsidiaries will enter
into an agreement to do any of the foregoing.
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The Company's Amended and Restated Credit, Security, Guaranty and Pledge
Agreement, dated as of April 13, 1995, as amended and restated as of October
23, 1996, and as in effect on the date hereof (the "Credit Agreement"),
between the Company and The Chase Manhattan Bank, as agent and fronting bank
("Chase") provides that upon a Change of Control, as defined therein, Chase
will have the right to accelerate the indebtedness outstanding thereunder and
take the other remedies provided therein. Although the execution of the
Stockholders Agreement may be deemed to constitute a Change of Control under
the Credit Agreement, Chase orally agreed to waive any right it may have to
consider the execution of such agreement to be a Change of Control and is
currently seeking a written waiver from the necessary number of lenders under
the Credit Agreement. Additionally, the Indenture with respect to the
Company's Senior Subordinated Notes due 2001 (the "Senior Subordinated Notes")
provides that the Company is required to make an offer to repurchase all of
such Senior Subordinated Notes upon a Change of Control (as defined in the
Indenture), which provision would be triggered by the purchase of Shares in
the Offer, at an amount equal to 101% of the principal amount of the Senior
Subordinated Notes plus accrued and unpaid interest thereon. The acceleration
of the Credit Agreement following or prior to the consummation of any of the
Transactions. Accordingly, upon consumation of the Offer, holders of Shares
who do not tender in the Offering may be subject to the risks of acceleration
of indebtedness prior to the consummation of the Merger would permit the
noteholders or the trustee under the Indenture to accelerate the Senior
Subordinated Notes and take the other remedies provided therein.
No Solicitation of Transactions. The Merger Agreement provides that the
Company will not, and will instruct its officers, employees, counsel,
accountants and other authorized representatives ("Representatives") not to,
initiate, solicit or encourage (including by way of furnishing information or
assistance) any Competing Transaction (as defined below), or enter into or
maintain discussions or negotiate with any person in furtherance of or
relating to or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize or permit any Representative of the
Company or any of its subsidiaries to take any such action, and the Company
shall use its reasonable best efforts to cause Representatives of the Company
and its subsidiaries not to take any such action; provided, however, that
nothing contained in this section shall prohibit the Board of Directors of the
Company prior to stockholder approval of the Merger from (i) furnishing
information to, or entering into discussions or negotiations with, any person
that makes an unsolicited bona fide proposal regarding a Competing
Transaction, if, and only to the extent that, (A) the Board of Directors of
the Company, after consultation with independent legal counsel, determines in
good faith that such action is required for the Board of Directors of the
Company to comply with its fiduciary duties to stockholders under applicable
law and (B) prior to furnishing such information to such person, the Company
receives from such person an executed confidentiality agreement with terms no
less favorable to the Company than those contained in the Confidentiality
Agreement (as defined below under "--Confidentiality Agreement") between one
of the Parent Companies and the Company; or (ii) complying with Rule 14e-2
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") with regard to a Competing Transaction. Pursuant to the Merger
Agreement, the Company shall promptly advise Parent if any such proposal or
offer, or any inquiry or contact made with any person with respect thereto, is
made.
For purposes of the Merger Agreement, a "Competing Transaction" means any of
the following involving the Company or any of its subsidiaries: (a) any
merger, consolidation, business combination, or other similar transaction
(other than the Merger) which results in a sale of the Company; (b) any sale
or other disposition outside the ordinary course of business of 30% or more of
the fair market value of the assets (other than assets held in inventory for
resale and other than the licensing of the Company's programming in the
ordinary course of business) of the Company and its subsidiaries, taken as a
whole, in a single transaction or series of transactions; or (c) any tender
offer or exchange offer for more than 50% of the outstanding Shares.
Directors. The Merger Agreement provides that, promptly upon the acceptance
for payment of, and payment for, Shares constituting a majority of the then
outstanding Shares by Parent or Purchaser, as applicable, pursuant to the
Offer, Parent from time to time shall be entitled to designate such number of
directors (rounded up to the next whole number) on the Company's Board of
Directors as will give Parent or Purchaser, as applicable, subject to
compliance with Section 14(f) of the Exchange Act, that percentage of the
total number of directors on the Company's Board of Directors (giving effect
to the election of any additional directors pursuant
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to the Merger Agreement) equal to the percentage of then outstanding Shares
owned by Parent or Purchaser (provided that such percentage of the total
number of directors shall not be less than a majority of the Company's Board
of Directors), and the Company shall, at such time, cause Parent's or
Purchaser's designees, as applicable, to be elected by the Company's existing
Board of Directors; provided, however, that in the event that such designees
are elected to the Company's Board of Directors, until the Effective Time such
Board of Directors shall have at least two directors who are directors on the
date of the Merger Agreement and who are neither officers of the Company or of
any holder of more than 5% of the Shares (as of the date of the Merger
Agreement) nor affiliates of Parent or Purchaser (the "Independent
Directors"); and provided further that if the number of Independent Directors
shall be reduced below two for any reasons whatsoever, the remaining
Independent Directors shall designate a person to fill such vacancy who shall
be deemed to be an Independent Director for purposes of the Merger Agreement
or, if no Independent Directors then remain, the other directors shall
designate two persons to fill such vacancies who shall not be officers or
affiliates of the Company or of any holder of more than 5% of the Shares (as
of the date of the Merger Agreement) or officers or affiliates of Parent or
any of its subsidiaries, and such persons shall be deemed to be Independent
Directors for purposes of the Merger Agreement.
The Merger Agreement also provides that, subject to applicable law, the
Company will take all actions requested by Parent necessary to effect any such
election, including mailing to its stockholders the Information Statement
containing the information required by Section 14(f) of the Exchange Act and
Rule 14f-1 promulgated thereunder by the Commission, and that the Company will
make such mailing with the mailing of this Schedule 14D-9. Purchaser has
informed the Company that it will choose its director-designees from the
persons listed in Schedule I to this Schedule 14D-9. Purchaser has informed
the Company that each of the persons listed in Schedule I to this Schedule
14D-9 has consented to act as a director, if so designated. In connection with
the foregoing, subject to the Independent Director requirement discussed
above, the Company has agreed to promptly, at the option of Parent, either
increase the size of the Company's Board of Directors and/or obtain the
resignation of such number of its current directors as is necessary to enable
Parent's or Purchaser's designees, as applicable, to be elected or appointed
to, and to constitute (rounded up to the next whole number) that percentage of
the total number of directors on the Company's Board of Directors (giving
effect to the election of any additional directors) equal to the percentage of
then outstanding Shares owned by Parent or Purchaser (provided that such
percentage of the total number of directors shall not be less than a majority
of the Company's Board of Directors).
The Merger Agreement also provides that following the election of Parent's
or Purchaser's designees, as applicable, pursuant to the Merger Agreement,
prior to the Effective Time, any amendment or termination of the Merger
Agreement or waiver of any of the Company's rights thereunder requires the
concurrence of a majority of the Independent Directors.
Indemnification. The Merger Agreement requires that the Certificate of
Incorporation and Bylaws of the Surviving Corporation contain the provisions
with respect to indemnification, advancement of expenses and director
exculpation set forth in the Restated Certificate of Incorporation and Bylaws
of the Company as of the date of the Merger Agreement, which provisions shall
not be amended, repealed or otherwise modified for a period of six years after
the Effective Time in any manner that would adversely affect the rights
thereunder of persons who at any time prior to the Effective Time were
entitled to indemnification, advancement of expenses or exculpation under the
Restated Certificate of Incorporation or Bylaws of the Company in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the Transactions). The Company recently amended its Bylaws
to increase the scope of indemnification to cover employees and agents, and to
mandate the advancement of expenses consistent with the provisions of the
Merger Agreement referred to in the following paragraph. A copy of the Bylaws,
as amended, are attached hereto as Exhibit 2.
The Merger Agreement further provides that from and after the Effective
Time, Parent and the Surviving Corporation shall, jointly and severally,
indemnify, defend and hold harmless the present and former officers, directors
and employees of the Company and its subsidiaries (collectively, the
"Indemnified Parties") against all losses, expenses, claims, damages,
liabilities or amounts that are paid in settlement of (with approval of Parent
and the Surviving Corporation, which approval shall not be unreasonably
withheld or delayed), or otherwise in
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connection with, any claim, action, suit, proceeding or investigation (a
"Claim"), to which any such person is or may become a party by virtue of his or
her service as a present or former director, officer or employee of the Company
and any of its subsidiaries and arising out of actual or alleged events,
actions or omissions occurring or alleged to have occurred at or prior to the
Effective Time (including, without limitation, the Transactions), in each case
to the fullest extent permitted under the DGCL (and shall pay expenses in
advance of the final disposition of any such action or proceeding to each
Indemnified Party to the fullest extent permitted under the DGCL, upon receipt
from the Indemnified Party to whom expenses are advanced of the undertaking to
repay such advances contemplated by Section 145(e) of the DGCL).
Parent has agreed to maintain in effect for not less than six years after the
Effective Time (except to the extent not generally available in the market)
directors' and officers' liability insurance and fiduciary liability insurance
that is substantially equivalent in coverage to the Company's current
insurance, with an amount of coverage of not less than 100% of the amount of
coverage (which was increased as of the most recent renewal time to
$30 million) maintained by the Company as of the date of the Merger Agreement
with respect to matters occurring prior to the Effective Time.
Use of Name. In the Merger Agreement, effective as of the Effective Time,
pursuant to pre-existing contractual obligations, the Company confirmed the
assignment to Anthony J. Scotti and Benjamin J. Scotti all of the Company's
rights, title and interest in the name "Scotti Brothers" and all variations and
derivations thereof (the "Retained Names"). Promptly after the Effective Time,
Parent agreed to cause the names of the Company and its subsidiaries which
contain the Retained Names to be changed so as not to include the Retained
Names. No Parent Company will put into use after 90 days after the Effective
Time any products, signs, television or recorded music credits and other
materials that bear any Retained Name or any name, mark or logo similar
thereto. Notwithstanding the foregoing, the Parent Companies have the right to
continue using the Retained Names in connection with the sale of inventory
which as of the Effective Time contains any Retained Name on the label
identifying such inventory.
Company Options and Warrants. In the Merger Agreement, Parent acknowledged
that the consummation of the Offer and the other Transactions will constitute
an "Event" (as defined in the Company's 1991 Incentive Stock Option Plan and
1994 Stock Incentive Plan (collectively, the "Plans")) with respect to the
options granted thereunder and certain other options granted by the Company and
other options specified in Section 3.3 of the Company Disclosure Schedule and
that the vesting of such options will therefore become accelerated as a result
of the Transactions. Parent acknowledged that the accelerated vesting will
occur simultaneously with the acceptance of the Offer so as to permit the
exercise of any such unvested options and tender of the underlying Shares. At
the Effective Time, each holder of a then outstanding option or warrant to
purchase Shares, whether or not then exercisable, shall, in settlement thereof,
except to the extent otherwise agreed to by the holder of the option or
warrant, the Company and Parent, receive from the Company (from funds provided
by Parent to the paying agent) for each Share subject to such stock option or
warrant an amount in cash equal to the excess, if any, of the Merger
Consideration over the per Share exercise price of such stock option or warrant
(such amount being hereinafter referred to as the "Option Consideration"). Upon
receipt of the Option Consideration, the stock option or warrant shall be
canceled. The surrender of any stock option or warrant to the Company in
exchange for the Option Consideration shall be deemed a release of any and all
rights the holder had or may have had in respect of such stock option or
warrant. Prior to the Effective Time, the Company shall use its best efforts to
obtain all necessary consents or releases from holders of stock options and
warrants and to take all such other lawful action as may be necessary to give
effect to the transactions contemplated above (except for such action that may
require the approval of the Company's stockholders). Except as otherwise agreed
to by the parties, (a) the Plans shall terminate, effective as of the Effective
Time, and the Company shall use its reasonable efforts to cause the provisions
in any other plan, program or arrangement providing for the issuance or grant
of any other interest in respect of the capital stock of the Company or any of
its subsidiaries to be canceled as of the Effective Time and (b) the Company
shall use its reasonable efforts to ensure that following the Effective Time no
participant in the Plans or other plans, programs or arrangements shall have
any right thereunder to acquire equity securities of the Company, the Surviving
Corporation or any subsidiary of the Company or the Surviving Corporation and
to terminate all such plans, programs or arrangements.
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Employee Benefit Plans. Pursuant to the Merger Agreement, Parent agreed to
cause the Surviving Corporation (and any successor thereto) to honor, without
modification, all employment, consulting, severance, termination or
indemnification agreements, arrangements or understandings, including
recognition of the value (either in cash, replacement options or other
consideration) of any outstanding agreement to issue a fixed number of options
in the future (up to 123,000), between the Company or any of its subsidiaries
and any current or former employee, officer or director of the Company or any
of its subsidiaries in effect on the date of the Merger Agreement except as
may be otherwise mutually agreed by the Parent and a current or former
employee, officer or director covered by such an agreement. Certain members of
the Board of Directors of the Company and certain of the directors' family
members have employment agreements with the Company for original terms of up
to five years. The aggregate remaining amount payable to such persons
(excluding Anthony J. Scotti) pursuant to such employment agreements is
approximately $6,200,000. See "--Scotti Agreement Not to Compete and Scotti
Amendment to Employment Ageement" below with respect to certain arrangements
regarding Anthony J. Scotti. Parent also agreed to cause the Surviving
Corporation and its successors to pay or provide all benefits vested as of the
Effective Time under any Benefit Plan in accordance with the terms of such
plans. Parent will for a period of at least 24 months cause the Company or the
Surviving Corporation and its successors to maintain for all employees of the
Company employee benefit plans, programs, policies and practices which, in the
aggregate, provide substantially equivalent benefits to such employees as the
benefit plans from time to time in effect for employees of the Surviving
Corporation, provided that employees covered by collective bargaining
agreements shall be provided the benefits required under such agreements. For
purposes of their participation in Parent's or the Surviving Corporation's
employee and fringe benefit plans, programs, policies and practices, Parent
will credit each Company employee with full credit for all service credited
under the comparable plan, program, policy or practice of the Company
(including service with the Company prior to the Effective Time and, where
applicable, service with prior or predecessor employers to the extent credit
is given for such service under the comparable Company plans) for purposes of
eligibility to participate and for purposes of vesting.
Conditions to the Offer. The Merger Agreement provides that, notwithstanding
any other provision of the Offer, Parent or Purchaser shall not be required to
accept for payment or pay for any Shares tendered, and may terminate or amend
the Offer (subject to the provisions of the Merger Agreement) and may postpone
the acceptance of, and payment for, subject to Rule 14e-1(c) of the Exchange
Act, any Shares tendered, if:
1. the Minimum Condition shall not have been satisfied prior to the
expiration of the Offer;
2. any applicable waiting period under the HSR Act shall not have expired
or been terminated prior to the expiration of the Offer or other approvals
required by the German Federal Cartel Office shall not have been obtained;
or
3. at any time on or after the date of the Merger Agreement, and prior to
the expiration of the Offer, any of the following conditions shall exist:
(a) (i) there shall be threatened or pending any suit, action or
proceeding brought by any Governmental Authority (as herein defined)
against the Parent, Purchaser, the Company or any Company Subsidiary
(A) seeking to prohibit or impose any material limitations on Parent's
or Purchaser's ownership or operation (or that of any of their
respective subsidiaries or affiliates) of all or a material portion of
the Company's businesses or assets, or to compel Parent or Purchaser or
their respective subsidiaries or affiliates to dispose of or hold
separate any material portion of the business or assets of the Company
or any of the Company Subsidiaries, (B) challenging the acquisition by
Parent or Purchaser of any Shares under the Offer, seeking to restrain
or prohibit the making or consummation of the Offer or the Merger or
the performance of any of the other transactions contemplated by the
Merger Agreement or the Stockholders Agreement, or seeking to obtain
from the Company, Parent or Purchaser any damages that are material in
relation to the Company and its subsidiaries taken as a whole, (C)
seeking to impose material limitations on the ability of the Purchaser,
or render the Purchaser unable, to accept for payment, pay for or
purchase some or all of the Shares pursuant to the Offer and the Merger
or (D) seeking to impose material limitations on the ability of Parent
or Purchaser effectively to exercise full rights of ownership of the
Shares, including, without limitation, the right to vote the Shares
purchased by it on all matters properly presented to the
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Company's stockholders; or (ii) any Governmental Authority or other
person or entity shall have obtained an injunction (A) prohibiting the
making of the Offer, the acceptance for payment of, or payment for, any
Shares by Parent, Purchaser, or any other affiliate of Parent or (B)
prohibiting the ownership by the Parent or any of its subsidiaries of
the Company, or compelling the Company, Parent or any of their
respective subsidiaries to dispose of or to hold separate all or any
material portion of the business or assets of the Company, Parent or
any of their respective Subsidiaries, as a result of the Transactions;
(b) there shall have been any Law enacted, entered, enforced,
promulgated, amended, issued or deemed applicable to (i) Parent, the
Company or any Subsidiary or affiliate of Parent or the Company or (ii)
any Transaction, by any government or Governmental Authority other than
the routine application of the waiting period provisions of the HSR Act
to the Offer or the Merger, which effects any of the consequences
referred to in paragraph (a) above;
(c) there shall have occurred and be continuing any Company Material
Adverse Effect (as defined below) or any event or series of events
which would result in a Company Material Adverse Effect;
(d) there shall have occurred and be continuing a declaration of a
banking moratorium or any suspension of payments in respect of banks in
the City of New York;
(e) the Board of Directors of the Company or any committee thereof
shall have withdrawn, modified or changed in a manner adverse to Parent
or Purchaser the approval or recommendation of the Offer, the Merger or
the Merger Agreement, or approved or recommended any Competing
Transaction or any other acquisition of Shares other than the Offer or
the Merger;
(f) any representation and warranty of the Company shall not be true
and correct as of the date of the Merger Agreement or as of the
expiration of the Offer except for (i) changes specifically
contemplated by the Merger Agreement and (ii) those representations and
warranties that address matters only as of a particular date (which
shall remain true and correct as of such date) and in each case except
where failure of such representation and warranty to be so true and
correct individually or together with failures of other representations
and warranties to be true and correct would not have a Company Material
Adverse Effect (other than representations and warranties that are
already so qualified or that are qualified as to the prevention or
delay of the consummation of any of the Transactions or as to the
performance by the Company of its obligations under the Merger
Agreement, which in each such case shall be true and correct as
written);
(g) the Company shall have failed to perform any obligation or to
comply with any agreement or covenant of the Company to be performed or
complied with by it under the Agreement unless such failures, would
not, individually or in the aggregate, have a Company Material Adverse
Effect;
(h) the Merger Agreement shall have been terminated in accordance
with its terms; or
(i) Parent and the Company shall have agreed that Parent or
Purchaser, as applicable, shall terminate the Offer.
The term "Company Material Adverse Effect" means, for all purposes of the
Merger Agreement, any change in the business of the Company and the Company
Subsidiaries that is materially adverse (or any group of such changes, none of
which individually is materially adverse, but which in the aggregate are
materially adverse) to the business, operations, properties, financial
position or results of operations of the Company and its subsidiaries, taken
as a whole, provided that none of the following shall constitute a Company
Material Adverse Effect: (a) a decline in the ratings of any television
programs distributed or produced by the Company or its subsidiaries or the
cancellation of any television programs distributed or produced by the Company
or its subsidiaries, (b) the filing, initiation and subsequent prosecution, by
or on behalf of stockholders of the Company, of litigation that challenges or
otherwise seeks damages with respect to the Transactions, (c) occurrences due
to a disruption of the Company's or its subsidiaries' businesses as a result
of the announcement of the execution of the Merger Agreement, (d) general
economic conditions or (e) any changes generally affecting the industries in
which the Company and its subsidiaries operate.
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The foregoing conditions (other than the Minimum Condition) may be waived by
Parent or Purchaser in whole or in part at any time and from time to time in
their sole discretion, subject in each case to the terms of the Merger
Agreement. The failure by Parent or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right; the
waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances; and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time.
Conditions to the Obligations of Each Party. The Merger Agreement provides
that the respective obligations of each party to consummate the Merger are
subject to the satisfaction of the following conditions: (a) if required by
the DGCL, the Merger Agreement shall have been approved and adopted by the
stockholders of the Company in accordance with the DGCL, the Company's
Certificate of Incorporation and its Bylaws, (b) any waiting period (and any
extension thereof) applicable to the consummation of the Merger under the HSR
Act shall have expired or been terminated, and any required approvals in
connection with any pre-merger notification filing with the German Federal
Cartel Office shall have been obtained and shall remain in full force and
effect, (c) no United States (federal, state or local) or foreign government
or governmental regulatory, administrative authority, agency, commission,
board, bureau, court or instrumentality or arbitrator of any kind
("Governmental Authority") shall have enacted, issued, promulgated, enforced
or entered any law, rule, regulation, executive order or other order, that is
then in effect and has the effect of prohibiting the consummation of the
Merger, and (d) the Offer shall not have been terminated in accordance with
its terms prior to the purchase of any Shares.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto including, but
not limited to, representations by the Company as to corporate organization
and qualification, subsidiaries, capitalization, authority to enter into the
Merger Agreement, no conflicts, required filings and consents, filings with
the Commission and other governmental authorities, financial statements, the
absence of certain changes or events, intellectual property, material
contracts, environmental matters, benefit plans, tax matters, litigation, the
opinion of the Company's financial advisors, brokers, properties and assets,
compliance with laws in general, labor matters and insurance.
Payment of Expenses. Except as otherwise set forth in the Merger Agreement,
whether or not the Merger is consummated, each party will pay its own Expenses
incident to preparing for, entering into and carrying out the Merger Agreement
and the consummation of the Merger. "Expenses" as used in the Merger Agreement
will include all reasonable out-of-pocket expenses (including, without
limitation, all fees and expenses of outside counsel, investment bankers,
experts and consultants to a party thereto) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of the Merger Agreement and all other
matters relating to the closing of the Transactions. Pursuant to the Merger
Agreement, the Company agrees that (a) if Parent terminates the Merger
Agreement as a result of a breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in the Merger Agreement such
that any of the conditions set forth in clause (f) or (g) of "--Conditions to
the Offer" above would not be satisfied, (b) if Parent terminates the Merger
Agreement because the Board of Directors of the Company withdraws, modifies or
changes its recommendation of the Merger Agreement or the Merger in a manner
adverse to Parent or Purchaser or the Board of Directors of the Company
recommends to the stockholders of the Company any Competing Transaction or (c)
if the Company terminates the Merger Agreement because the Board of Directors
of the Company withdraws, modifies or changes its recommendation of the Merger
Agreement or the Merger or recommends to the stockholders of the Company a
Competing Transaction (the termination described in these subclauses (b) and
(c) shall be referred to as a "Fiduciary Termination"), the Company will
reimburse Parent for its Expenses up to an aggregate amount not to exceed
$500,000. In addition, if the Merger Agreement is terminated pursuant to a
termination right which constitutes a Fiduciary Termination or a Competing
Transaction Termination (as defined herein), then the Company will pay Parent
$3,500,000 upon demand after such termination, and if, within twelve months
after such termination, a Competing Transaction shall be consummated, the
Company will pay Parent an additional $3,500,000 concurrently with the
consummation of such Competing Transaction. Pursuant to the Merger Agreement,
Parent agrees that if the
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Company terminates the Merger Agreement as a result of a breach of any
material representation, warranty, covenant or agreement on the part of Parent
as set forth in the Merger Agreement ("Terminating Purchaser Breach"), Parent
will reimburse the Company for its Expenses and all damages caused to the
Company as a result thereof.
Termination of the Merger Agreement. The Merger Agreement may be terminated
and the Merger and the other Transactions may be abandoned at any time prior
to the Effective Time, before or after the approval by holders of Common
Stock, by the mutual consent of Parent and the Company, by action of their
respective Boards of Directors. In addition, the Merger Agreement may be
terminated and the Merger and the other Transactions may be abandoned by
action of the Board of Directors of either Parent or the Company if (a) the
Merger has not been consummated on or before February 28, 1998, unless the
failure to consummate the Merger is the result of a material breach of the
Merger Agreement by the party seeking to terminate the Merger Agreement, (b)
there is any Law that makes consummation of the Merger illegal or otherwise
prohibited or any Order that is final and nonappealable preventing the
consummation of the Merger, or (c) Purchaser and Parent have terminated the
Offer in accordance with its terms and conditions without purchasing any
Shares pursuant thereto.
The Merger Agreement may be terminated and the Merger and the other
Transactions may be abandoned at any time prior to the Effective Time, before
or after approval of the holders of Common Stock, by action of the Board of
Directors of Parent:
(a) if, prior to the Transition Time there has been a breach of any
representation, warranty, covenant or agreement on the part of the Company
set forth in the Merger Agreement such that any of the conditions set forth
in clause (f) or (g) of "--Conditions to the Offer" above would not be
satisfied (a "Terminating Company Breach") provided, however, that, if such
Terminating Company Breach is curable by the Company through the exercise
of its reasonable best efforts and for so long as the Company continues to
exercise such reasonable best efforts (but in no event longer than 30 days
after Parent's notification to the Company of the occurrence of such
Terminating Company Breach), Parent may not terminate the Merger Agreement
as a result thereof; or
(b) if prior to the Transition Time (i) the Board of Directors of the
Company withdraws, modifies or changes its recommendation of the Merger
Agreement or the Merger or other Transactions in a manner adverse to Parent
or Purchaser or (ii) the Board of Directors of the Company shall have
recommended to the stockholders of the Company any proposal involving a
Competing Transaction.
The Merger Agreement may be terminated and the Merger and the other
Transactions may be abandoned at any time prior to the Effective Time, before
or after the approval by holders of Common Stock by action of the Board of
Directors of the Company:
(a) if there has been a Terminating Purchaser Breach; provided, however,
that, if such Terminating Purchaser Breach is curable by Parent or
Purchaser through the exercise of its reasonable best efforts and for so
long as Parent or Purchaser continue to exercise such reasonable best
efforts (but in no event longer than 30 days after the Company's
notification to Purchaser of the occurrence of such Terminating Purchaser
Breach), the Company may not terminate the Merger Agreement as a result
thereof; or
(b) if prior to the Transition Time (i) the Board of Directors of the
Company withdraws, modifies or changes its recommendation of the Merger
Agreement or the Merger or other Transactions or (ii) the Board of
Directors of the Company shall have recommended to the stockholders of the
Company any Competing Transaction, or resolved to do either of the
foregoing after consultation with independent legal counsel, having
determined in good faith that such action is required for the Board of
Directors of the Company to comply with its fiduciary duties to
stockholders under applicable law; provided, that any such termination of
this Agreement by the Company shall not be effective until the close of
business on the second (or, in the event that the party with whom the
Company proposes to engage in the Competing Transaction was a participant
in the competitive sale process described in "Item 4. Background of the
Offer," the fifth) full business day after notice of such termination to
Parent; or
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(c) if (i) Parent or Purchaser have failed to commence the Offer within
five business days after the public announcement of the execution of the
Merger Agreement, or (ii) Purchaser or Parent will not have purchased any
Shares pursuant to the Offer by the later of 45 days after the date of this
Agreement and three business days after the expiration or termination of
any waiting period (and any extension thereof) applicable to the
consummation of the Offer under the HSR Act and any required approvals in
connection with any pre-merger notification filing with the German Federal
Cartel Office have been obtained or (iii) the Offer shall have been
terminated without Parent or Purchaser having purchased any Shares pursuant
thereto.
Issuance of New or Treasury Shares. The Merger Agreement provides that if
the Merger Agreement is terminated because of a Fiduciary Termination or if
the Purchaser terminates the Offer because the Minimum Condition is not
satisfied and at or prior to such time there has been publicly announced or
the Company has received one or more proposals for a Competing Transaction
which at the time of such termination has not been absolutely or
unconditionally withdrawn or abandoned (a "Competing Transaction
Termination"), the Company will not, until the expiration of one year
following such termination, issue any new or treasury shares (other than
pursuant to commitments in effect on the date of the Merger Agreement) unless
it shall have first given Parent at least five business days advance written
notice thereof (the "Issuance Notice"). Parent may, by written notice to the
Company prior to the expiration of five business days from receipt of the
Issuance Notice, elect to exercise the Option (as defined below) in full to
acquire Shares from the stockholders party to the Stockholders Agreement. If
Purchaser has exercised the Option the Company shall not thereafter issue any
such shares unless Parent shall have consented in advance thereto, which
consent shall not be unreasonably withheld. If at any time after the exercise
of the Option, Parent beneficially owns, or if before exercise of the Option,
if the Option were fully exercised Purchaser would own, less than 30% if the
voting securities of the Company on a fully diluted basis, the above
restrictions on the issuance of shares will immediately terminate and be of no
further force or effect with respect to any issuances of shares by the
Company.
Timing. The exact timing and details of the Merger will depend upon legal
requirements and a variety of other factors, including the number of Shares
acquired by Purchaser pursuant to the Offer. Although Purchaser and Parent
have agreed to cause the Merger to be consummated on the terms set forth
above, there is no assurance as to the timing of the Merger.
Appraisal Rights. Stockholders do not have dissenters' rights as a result of
the Offer. However, if the Merger is consummated, any Dissenting Shares held
by a person (a "Dissenting Stockholder") who did not vote in favor of the
Merger or consent thereto in writing and who has demanded properly in writing
appraisal for such Dissenting Shares in accordance with Section 262 of the
DGCL will not be converted into the right to receive, in cash, the Merger
Consideration, but will become the right to receive such consideration as may
be determined to be due to such Dissenting Shareholder pursuant to the laws of
the State of Delaware. If, after the Effective Time, such Dissenting
Stockholder withdraws its demand for appraisal or fails to perfect or
otherwise loses its right of appraisal, its Shares shall be deemed to be
converted as of the Effective Time into the right to receive the Merger
Consideration without interest. The Company will give Parent prompt notice of
any demands for appraisal of shares received by the Company. The Company will
not, without the prior written consent of Parent, make any payment with
respect to, or settle, offer to settle or otherwise negotiate, any such
demands.
Under the DGCL, dissenting stockholders who comply with the applicable
statutory procedures will be entitled to receive a judicial determination of
the fair value of their Shares (exclusive of any element of value arising from
the accomplishment or expectation of the Merger) and to receive payment of
such fair value in cash, together with a fair rate of interest, if any. Any
such judicial determination of the fair value of the Shares could be based
upon considerations other than or in addition to the price paid in the Offer
(or the Merger) and the market value of the Shares. Stockholders should
recognize that the value so determined could be higher or lower than the price
per Share paid pursuant to the Offer or the Merger. Moreover, Parent or
Purchaser may argue in an appraisal proceeding that, for purposes of such a
proceeding, the fair value of the Shares is less than the price paid in the
Offer (or the Merger). THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING
STOCKHOLDERS DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF PROCEDURES TO BE
FOLLOWED BY STOCKHOLDERS DESIRING TO EXERCISE THEIR DISSENTERS' RIGHTS.
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THE STOCKHOLDERS AGREEMENT
The following is a summary of certain provisions of the Stockholders
Agreement (the "Stockholders Agreement"), dated October 1, 1997, by and among
Parent, Purchaser, Anthony J. Scotti, Benjamin J. Scotti, Myron I. Roth,
Thomas Bradshaw, Sydney D. Vinnedge, Lawrence E. Lamattina and Interpublic
(collectively, the "Selling Stockholders"). The summary is qualified in its
entirety by reference to the Stockholders Agreement which is incorporated
herein by reference and a copy of which has been filed with the Commission as
Exhibit 3 to this Schedule 14D-9.
As a condition and inducement to Parent's and Purchaser's entering into the
Merger Agreement and incurring the liabilities therein, concurrently with the
execution and delivery of the Merger Agreement, the Selling Stockholders, who
own or share voting power and dispositive power with respect to approximately
55.79% of the Shares (excluding Shares issuable upon exercise of options and
warrants), have entered into a Stockholders Agreement. In the Stockholders
Agreement, the Selling Stockholders have represented that they own, in the
aggregate, 6,789,260 Shares. The Stockholders Agreement provides that nothing
therein shall be construed to prohibit any Selling Stockholder or any
affiliate of any Selling Stockholder who is or has been designated a member of
the Board of Directors of the Company from taking any action solely in his or
her capacity as a member of the Board of Directors of the Company or from
exercising his or her fiduciary duties as a member of such Board of Directors.
Agreement to Tender. Each Selling Stockholder has severally agreed to tender
his Shares and any Shares subsequently acquired pursuant to exercises after
the date thereof of options or warrants to purchase Common Stock or Class B
Common Stock (the "Subject Shares") into the Offer in accordance with the
terms and conditions of the Offer and to not withdraw any Subject Shares so
tendered unless the Merger Agreement is terminated in accordance with its
terms. In addition, each Selling Stockholder has agreed to sell to Purchaser,
and Purchaser has agreed to purchase, all such Selling Stockholders' Subject
Shares at a price per Share equal to $25.50 or such higher price per Share as
may be offered by Purchaser in the Offer (the "Purchase Price"), provided that
such obligation to purchase is subject to Purchaser having accepted Shares for
payment under the Offer and the Minimum Condition and other conditions
described in "--Merger Agreement--Conditions to the Offer" above having been
satisfied, which conditions (other than the Minimum Condition) may be waived
by Purchaser in its sole discretion. Notwithstanding anything to the contrary
herein, the Subject Shares which are shares of Common Stock, shall not, in the
aggregate for all purposes of the Stockholders Agreement, exceed 49.9% of the
then outstanding shares of Common Stock, and the number of Subject Shares
shall be reduced on a share-for-share basis for any Shares owned by Parent or
any affiliate thereof as of the date of the Merger Agreement. In the Merger
Agreement, Parent represented to the Company that, to its knowledge, neither
Parent nor any affiliate thereof owned any Shares as of the date of the Merger
Agreement. As of September 30, 1997, there were 5,972,759 Subject Shares,
consisting of 3,502,759 shares of Common Stock and 2,470,000 shares of Class B
Common Stock (approximately 48% of the outstanding Class B Common Stock) prior
to giving effect to any Shares acquired pursuant to exercises after the date
of the Stockholders Agreement of options or warrants to purchase Common Stock
or Class B Common Stock. The Company's Restated Certificate of Incorporation
provides that the Class B Common Stock, which is non-voting stock,
automatically converts to Common Stock, which is voting stock, upon a Change
of Control (as defined in the Restated Certificate of Incorporation). The
Company believes that the execution of the Stockholders Agreement does not
result in a Change of Control.
Agreement to Vote and Grant of Proxy. Each Selling Stockholder has agreed
that at any meeting (whether annual or special and whether or not an adjourned
or postponed meeting) of the holders of Shares, however called, or in
connection with any written consent of the holders of Shares solicited by the
Board of Directors of the Company, such Selling Stockholder will appear at the
meeting or otherwise cause the Proxy Shares (as such term is hereinafter
defined) to be counted as present thereat for purposes of establishing a
quorum and vote or consent ( or cause to be voted or consented) such Selling
Stockholder's Proxy Shares (as hereinafter defined) (i) in favor of the Merger
during the term of the Merger Agreement and (ii) against any Competing
Transaction (as defined in the Merger Agreement) during the term of the
Stockholders Agreement. "Proxy Shares" shall mean (i) the Subject Shares
unless and until the Class B Common Stock shall have become voting stock, and
(ii) all
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shares of voting stock of the Company from and after the time that the Class B
Common Stock shall have become voting stock; provided, however, that unless
and until the Transition Time shall have occurred, the Proxy Shares shall not
in the aggregate exceed such amount of the then outstanding shares of voting
stock of the Company as would result in the occurrence of a Change in Control
under the Indenture with respect to the Senior Subordinated Notes.
Each Selling Stockholder has granted to, and appointed Purchaser and any
nominee thereof, its proxy and attorney-in-fact (with full power of
substitution) during the term of the Stockholders Agreement, for and in the
name, place and stead of such Selling Stockholder, to vote such Selling
Stockholder's Proxy Shares, or grant a consent or approval in respect of such
Selling Stockholder's Proxy Shares, in connection with any meeting of the
stockholders of the Company (i) in favor of the Merger during the term of the
Merger Agreement, and (ii) against any Competing Transaction during the term
of the Stockholders Agreement.
Until any such Selling Stockholder's Proxy Shares are purchased by Purchaser
pursuant to the Stockholders Agreement, such Selling Stockholder shall retain
the right to vote such Selling Stockholder's Proxy Shares (as well as any
other Shares) for the election of directors of the Company and for any other
matter other than those specified in the Stockholders Agreement.
Option. Each Selling Stockholder has also granted to Purchaser an
irrevocable option (collectively, the "Option") to purchase such Selling
Stockholder's Subject Shares at a price per Share equal to the Purchase Price,
exercisable in whole but not in part during the one year period after (i) a
Fiduciary Termination or (ii) a Competing Transaction Termination. Any such
purchase under the Option shall be subject to the expiration of any applicable
waiting period under the HSR Act and any required approvals in connection with
any pre-merger notification with the German Federal Cartel Office ("FCO").
Agreement not to Transfer. Each Selling Stockholder agreed that prior to the
termination of the Stockholders Agreement such Selling Stockholder will not
(a) transfer or consent to any transfer of any or all of such Selling
Stockholder's Shares; (b) enter into any contract, option or other agreement
or understanding with respect to any transfer of any or all of such Selling
Stockholder's Shares or any interest therein; (c) except as described below,
grant any proxy, power-of-attorney or other authorization or consent with
respect to such Selling Stockholder's Shares; or (d) deposit such Selling
Stockholder's Shares into a voting trust or enter into a voting agreement or
arrangement with respect to such Selling Stockholder's Shares. The Selling
Stockholders may transfer all or a portion of their Shares to persons or
entities who, by written instrument reasonably acceptable in form and
substance to Purchaser, agree to be bound by each of the terms of the
Stockholders Agreement, and any Selling Stockholder may sell any of such
Stockholder's Shares in a sale which complies with Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), subject to a right
of first refusal in favor of Purchaser at the Purchase Price. Prior to the
Transition Time, no Selling Stockholder shall exercise any outstanding options
or warrants to purchase Common Stock except (a) as necessary to avoid the
expiration of such option or warrant or (b) in connection with the tender or
sale of the underlying Shares to Purchaser or its affiliates.
Termination of the Stockholders Agreement. The Stockholders Agreement
terminates upon the earlier of (a) the date that is one year following a
Competing Transaction Termination or a Fiduciary Termination or immediately on
the date upon which the Merger Agreement otherwise terminates in accordance
with its terms or (b) the Effective Time.
SCOTTI AGREEMENT NOT TO COMPETE AND SCOTTI AMENDMENT TO EMPLOYMENT AGREEMENT
The following is a summary of certain provisions of the agreement relating
to noncompetition, nonsolicitation, nondisclosure and other matters by and
between the Company and Anthony J. Scotti (the "Agreement Not to Compete") and
Fifth Amendment to Employment Agreement by and between the Company and Anthony
J. Scotti (the "Amendment to Employment Agreement") entered into in connection
with the
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Merger Agreement. The summary is qualified in its entirety by reference to the
Agreement Not to Compete and Amendment to Employment Agreement which are
incorporated herein by reference and a copy each of which has been filed with
the Commission as Exhibit 4 and Exhibit 5, respectively, to this Schedule 14D-
9.
Under his employment agreement, as amended, with the Company, Anthony J.
Scotti has the right, upon a change of control of the Company, to terminate
his employment and compete with the Company. Upon the insistence of Parent and
Purchaser and to induce Parent and Purchaser to enter into the Merger
Agreement, the Company and Anthony J. Scotti entered into the Agreement Not to
Compete and Amendment to Employment Agreement.
Pursuant to the Agreement Not to Compete, effective as of and only upon the
occurrence of the time Purchaser purchases more than 50% of the Shares (the
"Non Compete Time"), Mr. Scotti has agreed that: (a) he will resign (i) as
Chief Executive Officer of Company, (ii) from the Board of Directors of the
Company (and all committees thereof), (iii) from the Boards of Directors (and
all committees thereof) of all Company Subsidiaries of which he is a member,
and (iv) any other position of employment or engagement which he may occupy in
the Company or any affiliate of the Company and waive his right to further
compensation and benefits under his employment agreement, except for certain
specified benefits; and (b) during the period commencing at the Non Compete
Time and continuing until December 1, 1999, (i) he will not engage in any
activity which is competitive with the Company's "game show business" or
"music business" (each as defined in the Agreement Not to Compete) (subject to
certain exceptions relating to musical compositions or performances of family
members of Mr. Scotti); (ii) he will not solicit or entice away any employee
or independent contractor of the Company or performer engaged by the Company;
(iii) he will not discuss or negotiate with respect to television projects
which were submitted to or in development with the Company prior to the Non
Compete Time, unless they are resubmitted to the Company after the Non Compete
Time; and (iv) he will not reveal any trade secrets or confidential
information of or about the Company. In addition, under the Agreement Not to
Compete and effective as January 1, 1998, Mr. Scotti has agreed to exercise
his existing option to sublease from the Company the Gulfstream aircraft
leased by the Company and to assume all of the Company's obligations under the
aircraft lease. After the Non Compete Time but prior to January 1, 1998, Mr.
Scotti will have the exclusive use of the aircraft but will be responsible for
all costs incurred in connection with the aircraft after the Transition Time.
In consideration of the matters described in (b,(i),(ii) and (iii) above, the
Company has agreed to pay to Mr. Scotti approximately $2,900,000 (which amount
is less than the compensation due to Mr. Scotti over the term of his
employment agreement), subject to appropriate adjustment if the Non Compete
Time does not occur by December 1, 1997.
Under the Amendment to Employment Agreement, the Company has agreed to
indemnify Mr. Scotti for any interest and penalties payable to any taxing
authority in connection with his agreement to report certain income to be
received by him as a result of the Merger and the Transactions in accordance
with the Form W-2 to be provided by the Company. The Company has also
reaffirmed its pre-existing agreement to reimburse Mr. Scotti for any federal,
state or local excise tax ("Excise Tax"), and any additional taxes to which he
may be subject, on any payments to Mr. Scotti from the Company as a result of
accelerated vesting of this option grant upon a change in control or
otherwise, up to a maximum reimbursement equal to twice the amount of such
Excise Tax.
CONFIDENTIALITY AGREEMENT
The following is a summary of certain provisions of the Confidentiality
Agreement, dated as of November 20, 1995 (terminated December 7, 1995 and
reinstated February 16, 1996), between Pearson Television Limited
("Pearson TV") and the Company (the "Confidentiality Agreement"). This summary
is qualified in its entirety by reference to the Confidentiality Agreement
which is incorporated herein by reference and a copy of which has been filed
with the Commission as Exhibit 6 to the Schedule 14D-9. The Confidentiality
Agreement contains customary provisions pursuant to which, among other
matters, Pearson TV and its affiliates, including Parent, agreed to keep
confidential all nonpublic, confidential or proprietary information furnished
to it by the Company relating to the Company, subject to certain exceptions
(the "Confidential Information"), and to use the Confidential Information
solely for the purpose of evaluating a possible transaction involving the
Company and
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Parent. The Confidentiality Agreement also contains customary non-solicitation
and standstill provisions. The Company has agreed that such standstill
provisions will not be applicable to the Offer or the Merger Agreement, or
after the earlier to occur of (a) a Fiduciary Termination, (b) a Competing
Transaction Termination, (c) November 20, 1997, or (d) the Transition Time.
CERTAIN ARRANGEMENTS WITH RESPECT TO INTERPUBLIC
Interpublic owns one percent (1%) of Fremantle International, Inc., the
other 99% of which is owned by the Company. In connection with negotiations
relating to the Merger Agreement, discussions were held with respect to the
acquisition by Purchaser or Parent of an option to acquire such minority
interest from Interpublic. No agreement was reached.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
Recommendation of the Board of Directors.
THE COMPANY'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE
BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY AND RECOMMENDS THAT ALL
STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER ALL THEIR SHARES
PURSUANT TO THE OFFER. THE BOARD OF DIRECTORS CONSIDERED A NUMBER OF FACTORS
IN REACHING ITS CONCLUSION. SEE "REASONS FOR THE RECOMMENDATION."
As set forth in the Offer Documents, Purchaser will purchase Shares tendered
prior to the close of the Offer if the Minimum Condition has been satisfied by
that time and if all other conditions to the Offer have been satisfied (or
waived). Stockholders considering not tendering their Shares in order to wait
for the Merger should note that if the Minimum Condition is not satisfied or
any of the other conditions to the Offer are not satisfied, Purchaser is not
obligated to purchase any Shares, and can terminate the Offer and the Merger
Agreement and not proceed with the Merger. Under the DGCL, the approval of the
Company's Board of Directors and the affirmative vote of the holders of a
majority of the outstanding voting shares of the Company are required to
approve the Merger. Accordingly, if the Minimum Condition is satisfied and
subsequent to such satisfaction, no options or warrants of the Company are
exercised, Purchaser will have sufficient voting power to cause the approval
of the Merger without the affirmative vote of any other stockholder. Further,
under the DGCL, if Purchaser acquires at least 90% of the then outstanding
Shares of each then outstanding class of shares of the Company, Purchaser will
be able to approve the Merger without a vote of the Company's stockholders.
The Offer is scheduled to expire at 12:00 Midnight, New York City time, on
Tuesday, November 4, 1997, unless Parent, in its sole discretion, elects to
extend the period of time for which the Offer is open. A copy of the press
release issued by the Company on October 1, 1997 announcing the Merger and the
Offer is filed as Exhibit 7 to this Schedule 14D-9 and is incorporated herein
by reference in its entirety.
Background of the Offer.
In late October 1995, at the invitation of Parent, Anthony J. Scotti,
President and Chief Executive Officer of the Company, and Thomas Bradshaw,
Executive Vice President and Chief Financial Officer, had preliminary
discussions concerning the Company's business with representatives of Pearson
TV.
On November 20, 1995, Parent and the Company executed a confidentiality
agreement (the "Confidentiality Agreement") and the Company provided to
Pearson TV certain limited confidential non-public information concerning the
Company. In early December 1995, the Company decided not to proceed with any
further discussions with Parent or its affiliates. At the Company's request,
all discussions were terminated and the Company requested that Parent return
all confidential information previously provided.
On February 16, 1996, following renewed contact between Parent and the
Company, the Company sent a letter reinstating the Confidentiality Agreement.
In March and April 1996, the Company provided additional
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information to Parent and representatives of the Company had several meetings
with representatives of Parent and Pearson TV. Discussions were subsequently
terminated in April 1996 when it became clear that Parent was not interested
in proceeding with a transaction based on a premium to the Company's then
market price at a level believed by management to be adequate.
In October 1996, in order to substantially increase its liquidity, the
Company effected a recapitalization plan which included an increase of its
secured bank facility to $155 million, and the refinancing of its outstanding
$60 million of convertible debentures with $100 million of Senior Subordinated
Notes.
In late January 1997, the Company was again contacted by representatives of
Pearson TV. The Company informally retained the services of Danielle Kadeyan
of Media Finance Inc. ("Media Finance") to act as intermediary. Media Finance
prepared an information book concerning the Company which was provided to
Pearson TV in a meeting on February 12, 1997. In March and April 1997, Ms.
Kadeyan had discussions with representatives of Pearson TV and Lazard Freres &
Co. LLC ("Lazard"), its financial advisor, and separate discussions with
representatives of several other parties that had contacted the Company
concerning a possible strategic transaction. The discussions between Ms.
Kadeyan and Lazard included discussions concerning the range of value of the
Company's Common Stock.
In May 1997, management of the Company determined to consider a possible
transaction on a more formal and competitive basis. Accordingly, on May 15,
1997, the Company retained Goldman, Sachs & Co. ("Goldman Sachs") and Media
Finance to represent the Company as financial advisors in a possible sale
transaction. Upon advice from its financial advisors, the Company determined
to conduct a competitive sale process unless Parent promptly submitted a
preemptive offer.
In late May 1997, representatives of Goldman Sachs contacted representatives
of Lazard to offer Parent a limited opportunity to submit a preemptive bid for
the Company prior to the commencement of a formal competitive sale process.
Parent declined to submit a bid at that time because its bid would not be in a
range which the Company then considered preemptive.
In June through August 1997, the Company, Goldman Sachs and Media Finance
contacted multiple potential bidders, and the Company began negotiating and
executing confidentiality agreements with interested qualified parties. The
Company provided an information book prepared by Goldman Sachs with the
assistance of Media Finance based on information provided by the Company's
management, to such parties. The Company also allowed certain of the potential
bidders to conduct preliminary due diligence examinations and provided them
with access to key members of management.
On July 30, 1997, the Company's Board of Directors held a special meeting at
its offices in Santa Monica, California in which the Board was apprised of
developments to date.
On September 3, 1997, Goldman Sachs, on behalf of the Company, invited
Pearson TV and certain other selected potential bidders to submit their best
offers to acquire the Company by September 22, 1997. The Company provided
access to a data room containing its contracts and other documents to these
selected bidders.
On September 9, 1997, representatives of Parent and Lazard met with
representatives of the Company and Goldman Sachs in Los Angeles, California to
discuss the potential transaction. Representatives of the Company mailed a
letter to Parent transmitting a draft of the Merger Agreement. On September 9
and 10, 1997, representatives of Parent, Parent's outside counsel, O'Melveny &
Myers LLP ("O'Melveny") and other representatives of Parent conducted
extensive legal and financial due diligence. Representatives of the Company
also met with and provided due diligence information to other potential
bidders.
On September 15, 1997, the Company issued a press release stating that it
was in preliminary discussions with third parties concerning a possible sale
of the Company and that it had retained Goldman Sachs and Media Finance in
connection therewith. Following such announcement, the Company received
inquiries from representatives of several additional potential bidders during
such period.
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On September 23, 1997, Parent submitted a proposal to the Company with a
purchase price of $25.50 per Share. At that time, Parent also submitted a
mark-up of the Company's form of Merger Agreement and a draft of the
Stockholders Agreement and confirmed that it would not require financing to
complete the proposed transaction.
On September 24, 1997, the Company's Board of Directors held a special
telephonic meeting to consider the bid received by Pearson and, after
reviewing the status of all alternatives, authorized the appropriate officers
of the Company to negotiate with Pearson with respect to its offer.
On September 26, 1997, revised drafts of the Merger Agreement and a revised
form of Stockholders Agreement to be executed by certain Company stockholders
were delivered to Parent, O'Melveny and Lazard for their review.
On September 28, 1997, representatives of the Company, Parent, Goldman
Sachs, Lazard, the Company's outside counsel, Kaye, Scholer, Fierman, Hays &
Handler, LLP ("Kaye, Scholer"), Stroock & Stroock & Lavan LLP ("Stroock"),
personal counsel to Anthony J. Scotti, and O'Melveny met in the offices of
Kaye, Scholer to begin negotiations of the terms of the Merger Agreement and
ancillary agreements.
On September 29, 1997, representatives of the Company, Lazard and O'Melveny
met in the offices of Kaye, Scholer and telephonically with representatives of
Parent, Goldman Sachs, Kaye, Scholer and Stroock to finalize negotiations of
the Merger Agreement and ancillary agreements.
On September 30, 1997, the Company's Board of Directors held a special
meeting at its offices in Santa Monica, California to consider the Merger
Agreement, the Offer, the Merger and the Transactions contemplated thereby.
All of the Company's directors were present at the meeting. At the meeting,
the Board reviewed the Merger Agreement, the Offer, the Merger and the
transactions contemplated thereby with the Company's management,
representatives of Kaye, Scholer and representatives of Goldman Sachs and
Media Finance. The Board heard a presentation by the Company's legal counsel
with respect to the members' fiduciary duties and the terms of the proposed
Offer and Merger (and related ancillary agreements) and by representatives of
Goldman Sachs with respect to the financial terms of the proposed Offer and
the Merger. The Board discussed among themselves and with the Company's
management and advisors alternatives reasonably available to the Company. At
the conclusion of their presentation, Goldman Sachs delivered its oral opinion
to the Board (subsequently confirmed in writing) to the effect that, as of the
date of such opinion, the $25.50 per Share in cash to be received by the
holders of Shares pursuant to the Offer and the Merger was fair from a
financial point of view to such holders (other than Parent and its
subsidiaries).
Based upon such discussions, presentations and opinion, the Board
unanimously (a) approved the Offer, the Merger and the Merger Agreement, in
the form presented to the Board, and the transactions contemplated by the
Merger Agreement, (b) recommended that the Company's stockholders accept the
Offer and tender their Shares pursuant to the Offer and approve and adopt the
Merger Agreement and the transactions contemplated thereby and (c) approved
the acquisition of Common Stock and Class B Common Stock by Parent and/or
Purchaser pursuant to the Merger or the Offer, for the purpose of exempting
Parent and/or Purchaser from Section 203 of the DGCL in connection with any
such acquisition. The Board of Directors also approved Parent as an
"Interested Stockholder" within the meaning of Section 203 of the DGCL with
respect to the Merger, any acquisition of Shares pursuant to the Stockholders
Agreement or the Offer or any of the other Transactions.
On October 1, 1997, the day following Board approval, (a) representatives of
the Company, Parent and Purchaser signed the Merger Agreement, (b)
simultaneously with the execution of the Merger Agreement representatives of
Parent and Purchaser, Anthony J. Scotti, Benjamin J. Scotti, Myron I. Roth,
Thomas Bradshaw, Sydney D. Vinnedge, Lawrence E. Lamattina and a
representative of Interpublic signed the Stockholders Agreement (c) Anthony J.
Scotti and a representative of the Company signed the Agreement Not to
Compete, (d) Anthony J. Scotti and a representative of the Company signed the
Amendment to Employment Agreement, and (e) shortly thereafter Parent and the
Company each issued a press release with respect to the Offer and the Merger.
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Reasons for the Recommendation
In reaching its conclusions described above, the Company's Board of
Directors considered a number of factors, including, without limitation, the
following:
1. the financial and other terms and conditions of the Offer and the
Merger Agreement;
2. the Company's business, financial condition, results of operations,
assets, liabilities, business strategy and prospects, as well as various
uncertainties associated with those prospects;
3. The fact that the $25.50 per Share to be paid in the Offer and the
Merger represented;
a. a 98.3% premium to the closing price per Share on May 15, 1997,
the date that Goldman Sachs and Media Finance were retained to
represent the Company in a possible sale transaction;
b. a 17.6% premium to the closing price per Share on September 15,
1997, the day that the Company issued a press release stating that it
was in preliminary discussions with third parties concerning a possible
sale of the Company;
c. an 8.0% premium to the closing price per Share on September 30,
1997, the day prior to the signing of the Merger Agreement and the
issuance of the press release with respect to the Offer and the Merger;
4. the fact that such price would be payable in cash, thus eliminating
any uncertainties in valuing the consideration to be received by the
Company's stockholders;
5. the fact that the Offer and the Merger would not be subject to any
financing condition, that Parent has represented that the funds necessary
to consummate the Offer and the Merger will be provided and has agreed to
cause Purchaser to fully perform all of Purchaser's obligations under the
Merger Agreement;
6. the opinion of Goldman Sachs, delivered on September 30, 1997, to the
effect that, as of such date, the $25.50 per Share in cash to be received
by the holders of Shares pursuant to the Offer and the Merger was fair from
a financial point of view to such holders (other than Parent and its
subsidiaries). The full text of the letter confirming Goldman Sachs' oral
opinion, which sets forth assumptions made, matters considered and
limitations on the review undertaken in connection with such opinion is
attached hereto as Exhibit 8 (also attached hereto as Annex B) and is
incorporated herein by reference. Goldman Sachs' opinion was provided for
the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Merger Agreement, and such opinion does not constitute a recommendation as
to how any holder of Shares should vote with respect to, or whether or not
any holder of Shares should tender such Shares into the Offer in connection
with, such transaction. HOLDERS OF SHARES ARE URGED TO, AND SHOULD, READ
GOLDMAN SACHS' LETTER IN ITS ENTIRETY;
7. the likelihood that the proposed Merger would be consummated,
including the terms of the Merger Agreement related thereto and the
reputation and experience of Parent;
8. a review of possible values realizable by the Company's stockholders
through other strategic alternatives;
9. the fact that, to the extent required by the fiduciary obligations of
the Company's Board of Directors to the stockholders under the DGCL, the
Company retained the legal right to terminate the Merger Agreement in order
to approve a tender offer or exchange offer for the Shares or other
proposed business combination by a third party on terms more favorable to
the Company's stockholders than the Offer and the Merger taken together,
upon the payment of $3,500,000 upon demand after such termination and if,
within 12 months after such termination, a Competing Transaction is
consummated, an additional $3,500,000 concurrently with the consummation of
such Competing Transaction and Parent's expenses associated with the Offer
and the Merger (limited to $500,000). See Item 3. "Identity and
Background--Merger Agreement-Expenses" and "--Termination of the Merger
Agreement";
10. the requirement by Parent, as a condition to entering into the Merger
Agreement, that the Selling Stockholders enter into the Stockholders
Agreement with respect to 49.9% of the outstanding Common
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Stock and approximately 48% of Class B Common Stock, including the
deleterious effect that entering into such agreement would have on
potential subsequent Competing Transactions; and
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained Goldman Sachs and Media Finance as its financial
advisors in connection with the Offer and the Merger. Pursuant to a letter
agreement dated as of May 15, 1997, the Company will pay Goldman Sachs a
transaction fee of .55% of the aggregate consideration paid and debt assumed
in the Offer and the Merger plus 1.0% of the amount paid by Purchaser in
excess of $25 per Share but less than $29 per Share, plus 2.7% of the amount
paid by Purchaser in excess of $29 per Share. In addition to the foregoing
compensation, the Company has agreed to reimburse Goldman Sachs for its out-
of-pocket expenses, including reasonable fees and expenses of its counsel and
to indemnify Goldman Sachs against certain liabilities and expenses arising
out of the engagement and the transactions in connection therewith, including
certain liabilities under the federal securities laws.
In addition, pursuant to a letter agreement dated May 15, 1997, the Company
will pay Media Finance a transaction fee of .35% of the aggregate
consideration paid and debt assumed in the Offer and the Merger plus .65% of
the amount paid by Purchaser in excess of $25 per Share but less than $29 per
Share, plus .95% of the amount paid by Purchaser in excess of $29 per Share.
In addition to the foregoing compensation, the Company has agreed to reimburse
Media Finance for its out-of-pocket expenses, including reasonable fees and
expenses of its counsel and to indemnify Media Finance against certain
liabilities and expenses arising out of the engagement and the transactions in
connection therewith, including certain liabilities under the federal
securities laws.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the stockholders of the Company on
its behalf with respect to the Offer and the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past sixty days, no transactions in the Shares have been
effected by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate, or subsidiary of the Company.
(b) To the best knowledge of the Company, all of its executive officers and
directors currently intend to tender pursuant to the Offer all Shares owned by
them. As of October 1, 1997, the executive officers and directors as a group
beneficially owned 5,099,710 shares of Common Stock (representing 61.2% of the
Common Stock) and 748,500 shares of Class B Common Stock (representing 12.69%
of the Class B Common Stock) and Interpublic beneficially owned 580,000 shares
of Common Stock (representing 8.26% of the Common Stock) and 2,470,000 shares
of Class B Common Stock (representing 47.96% of the Class B Common Stock).
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth herein, no negotiation is being undertaken or is
underway by the Company in response to the Offer which relates to or would
result in (i) an extraordinary transaction, such as a merger or
reorganization, involving the Company or any subsidiary thereof; (ii) a
purchase, sale or transfer of a material amount of assets by the Company or
any subsidiary thereof; (iii) a tender offer for or other acquisition of
securities by or of the Company; or (iv) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as set forth herein, there is no transaction, board resolution,
agreement in principle or signed contract in response to the Offer that
relates to or would result in one or more of the events referred to in
Item 7(a) above.
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ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
SECTION 203
As a Delaware corporation, the Company is subject to Section 203 of the DGCL
("Section 203"). Section 203 would prevent an "Interested Stockholder"
(generally defined as a person beneficially owning 15% or more of a
corporation's voting stock) from engaging in a "Business Combination" (as
defined in Section 203) with a Delaware corporation for three years following
the date such person became an Interested Stockholder unless: (i) before such
person became an Interested Stockholder, the board of directors of the
corporation approved the transaction in which the Interested Stockholder
became an Interested Stockholder or approved the Business Combination, (ii)
upon consummation of the transaction which resulted in the Interested
Stockholder becoming an Interested Stockholder, the Interested Stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding for purposes of determining the
number of shares of outstanding stock held by directors who are also officers
and by employee stock ownership plans that do not allow plan participants to
determine confidentially whether to tender shares), or (iii) following the
transaction in which such person became an Interested Stockholder, the
Business Combination is (x) approved by the board of directors of the
corporation and (y) authorized at a meeting of stockholders by the affirmative
vote of the holders of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder. In accordance with the
provisions of the Company's Restated Certificate of Incorporation and Section
203, the Board of Directors of the Company has approved the Merger Agreement
and the Stockholders Agreement and Purchaser's acquisition of Shares pursuant
to the Offer and the Merger and the Transactions contemplated by the Merger
Agreement and, therefore, the restrictions of Section 203 are inapplicable to
the Merger, the Offer, the Stockholders Agreement and the related
Transactions.
ANTITRUST
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), certain acquisition transactions may not be
consummated unless certain information has been furnished to the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
and the FTC, and certain waiting period requirements have been satisfied. The
acquisition of Shares by Purchaser pursuant to the Offer is subject to such
requirements.
Pursuant to the requirements of the HSR Act, Parent filed the required
Notification and Report Forms (the "Forms") with the Antitrust Division and
the FTC on October 7, 1997, and the Company expects to file the Forms with
such agencies on October 8, 1997. The statutory waiting period applicable to
the purchase of Shares pursuant to the Offer is to expire at 11:59 P.M., New
York City time, on Wednesday, October 22, 1997. However, prior to such date,
the Antitrust Division or the FTC may extend the waiting periods by requesting
additional information or documentary material relevant to the acquisition. If
such a request is made, the waiting period will be extended until 11:59 P.M.,
New York City time, on the tenth day after substantial compliance by Parent
with such request. Thereafter, such waiting periods can be extended only by
court order. A request is being made pursuant to the HSR Act for early
termination of the applicable waiting period. There is no assurance, however,
that the waiting period will be terminated early. The Merger Agreement
provides that, if by the expiration of the Offer, the applicable waiting
period under the HSR Act shall not have expired or been terminated, Parent
may, without the consent of the Company, extend the Offer for an aggregate
period of not more than 10 business days beyond the latest applicable date
that the Offer may otherwise be extended.
The Antitrust Division and the FTC frequently scrutinize the legality of
transactions under the antitrust laws. At any time before or after the
consummation of any such transactions, the Antitrust Division or the FTC
could, notwithstanding termination of the waiting period, take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of Shares pursuant to the
Offer or seeking divestiture of the Shares so acquired or divestiture of
substantial assets of Parent or the Company. Private parties may also bring
legal actions under the antitrust laws. There is no assurance that a challenge
to the Offer on antitrust grounds will not be made, or if such a challenge is
made, what the result will be. See Item 3,
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"Identity and Background--Merger Agreement--Conditions to the Obligations of
Each Party" and "--Conditions to the Obligations of Parent and Purchaser."
Germany. The Company conducts certain operations in Germany. Therefore, the
acquisition of the Company by the Purchaser would have an effect within the
area of application of the ARC pursuant to Section 98, paragraph 2 of the ARC.
Consequently, the proposed acquisition constitutes a merger subject to merger
control by the FCO. As the consolidated world-wide turnover of the Purchaser
in the financial year ended 31 December 1996 exceeded DM 2 billion, the
proposed acquisition must be notified to the FCO prior to completion and a
filing is therefore being submitted to the FCO. Under the ARC, the substantive
test for clearance is whether the notified merger will create or strengthen a
dominant market position and, if so, whether any such dominance is likely to
be outweighed by any countervailing competitive benefits from the merger.
After filing the pre-merger notification, completion of the proposed
acquisition will need to be suspended until either (i) the applicable waiting
periods under the ARC have expired without the FCO having prohibited the
acquisition, or (ii) the FCO has notified the parties that the conditions for
prohibiting the proposed acquisition are not fulfilled. The Merger Agreement
provides that the respective obligations of each party to consummate the
Merger are subject to the satisfaction of certain conditions, including that
any required approvals in connection with any pre-merger notification filing
with the FCO shall have been obtained and shall remain in full force and
effect.
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 Agreement and Plan of Merger, dated as of October 1, 1997, by and
among Parent, Purchaser and the Company
Exhibit 2 Restated Bylaws of the Company
Exhibit 3 Stockholders Agreement, dated as of October 1, 1997, by and among
Parent, Purchaser and Anthony J. Scotti, Benjamin Scotti, Myron
Roth, Thomas Bradshaw, Sydney D. Vinnedge, Lawrence E. Lamattina
and The Interpublic Group of Companies, Inc.
Exhibit 4 Agreement Not to Compete, dated October 1, 1997, by and between
the Company and Anthony J. Scotti
Exhibit 5 Fifth Amendment to Employment Agreement between All American
Communications, Inc. and Anthony J. Scotti
Exhibit 6 Confidentiality Agreement, dated as of November 20, 1995
(terminated December 7, 1995 and reinstated February 16, 1996),
between Pearson Television Limited (a subsidiary of Parent) and
the Company. Letter dated as of October 1, 1997 regarding
Confidentiality Agreement and Standstill Provisions
Exhibit 7 Press Release of the Company, issued October 1, 1997
Exhibit 8 Letter of Goldman, Sachs & Co., dated October 6, 1997, confirming
its oral opinion delivered to the Board of Directors of the
Company on September 30, 1997 (Attached to Schedule 14D-9 mailed
to stockholders as Annex B)
Exhibit 9 Letter, dated October 7, 1997, from Anthony J. Scotti to the
stockholders of the Company (included with Schedule 14D-9 mailed
to stockholders)
24
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
October 7, 1997
ALL AMERICAN COMMUNICATIONS, INC.
By: /s/ Anthony J. Scotti
___________________________________
Name:Anthony J. Scotti
Title:Chairman and Chief Executive
Officer
25
<PAGE>
ANNEX A
ALL AMERICAN COMMUNICATIONS, INC.
808 WILSHIRE BOULEVARD
SANTA MONICA, CALIFORNIA 90401
(310) 656-1100
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
GENERAL
This Information Statement is being mailed on or about October 7, 1997, with
the Solicitation/ Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") of All American Communications, Inc., a Delaware corporation,
(the"Company") with respect to the Offer to Purchase dated October 7, 1997 (as
supplemented, the "Offer to Purchase") of Pearson Merger Company, Inc.
("Purchaser"), a Delaware corporation and a wholly-owned indirect subsidiary
of Pearson plc, a corporation organized under the laws of England ("Parent").
Purchaser is offering to purchase all outstanding shares of Common Stock, par
value $.0001 per share (the "Common Stock") and Class B Common Stock, par
value $.0001 per share (the "Class B Common Stock" and with the Common Stock,
the "Shares"), of the Company at a price of $25.50 per Share, net to the
seller in cash (the "Offer"). The Offer is being made pursuant to the
Agreement and Plan of Merger, dated as of October 1, 1997 (the "Merger
Agreement"), by and among Parent, Purchaser and the Company. You are receiving
this Information Statement in connection with the possible election of persons
designated by Purchaser (the "Purchaser Designees") to at least a majority of
the seats on the Board of Directors (the "Board") of the Company pursuant to
the Merger Agreement. The Merger Agreement is more fully described under Item
3 of the Schedule 14D-9, to which this Information Statement is attached as
Annex A. Capitalized terms used and not defined herein have the same
respective meanings assigned to them in the Schedule 14D-9.
The following information is based upon the Company's Proxy Statement, dated
as of July 8, 1997, and except as indicated, such information is given as of
that date.
The information with respect to the Purchaser Designees has been supplied to
the Company by Purchaser for inclusion or incorporation by reference herein,
and the Company assumes no responsibility for the accuracy or completeness of
such information.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
promulgated thereunder. You are urged to read this Information Statement
carefully. You are not, however, required to take any action.
THE PURCHASER DESIGNEES
Pursuant to the Merger Agreement and subject to compliance with applicable
law, promptly upon the acceptance for payment of, and payment for, Shares
constituting a majority of the then outstanding Shares by Purchaser pursuant
to the Offer, Purchaser at any time and from time to time shall be entitled to
designate such number of directors (rounded up to the next whole number) on
the Board of the Company as will give Purchaser that percentage of the total
number of directors on the Board (giving effect to the election of any
additional directors) equal to the percentage of then outstanding Shares owned
by Parent or Purchaser (provided that such percentage of the total number of
directors shall not be less than a majority of the Board). The Merger
Agreement further provides that at least two directors who were directors of
the Company as of the date of the Merger Agreement and who are not officers of
the Company (each such director, an "Independent Director") shall continue to
serve on the Board until the effectiveness of the Merger; provided, however,
that if the number of Independent Directors shall be reduced below two for any
reasons whatsoever, the remaining Independent Directors or other directors, as
applicable, shall fill such vacancy or vacancies by designation of a person or
A-1
<PAGE>
persons eligible to serve pursuant to the terms of the Merger Agreement. The
Company has agreed to take all action necessary to effect the election of the
Purchaser Designees to the Board, including, in connection therewith,
increasing the size of the Board or seeking and obtaining the resignation of
such number of its current directors or both to enable the Purchaser Designees
to be elected to the Board as provided above.
Purchaser has informed the Company that it will choose the Purchaser
Designees from the persons listed in Schedule I to this Schedule 14D-9.
Purchaser has informed the Company that each of the persons listed in Schedule
I to this Schedule 14D-9 has consented to act as a director, if so designated.
The Purchaser Designees are expected to assume office at any time or from
time to time following the purchase by Purchaser of the specified minimum
number of Shares pursuant to the Offer, which purchase cannot be earlier than
November 4, 1997.
CERTAIN INFORMATION CONCERNING THE COMPANY
The authorized stock of the Company consists of (a) 40,000,000 shares of
common stock consisting of (i)20,000,000 shares of Common Stock and (ii)
20,000,000 shares of Class B Common Stock and (b) 5,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"). As of
October 1, 1997, (a) 17,981 shares of the Common Stock issued and outstanding
before the Company's March 20, 1992 4-for-1 reverse stock split but not
exchanged for certificates representing the Company's post-split Common Stock
were issued and outstanding (4,495.25 equivalent shares of post-split Common
Stock), 7,015,062 shares of Common Stock and 5,149,650 shares of Class B
Common Stock were issued and outstanding, (b) 80,000 shares of Common Stock
and 578,200 shares of Class B Common Stock were held in the treasury of the
Company, (c) 30,000 shares of restricted Common Stock were awarded in August
1994 but not issued, and (d) no shares of Preferred Stock were issued and
outstanding. The shares of Common Stock presently constitute the only class of
voting securities of the Company. Each share of Common Stock entitles its
record holder to one vote. Stockholders of the Company do not have cumulative
voting rights. The Board currently consists of ten members.
A-2
<PAGE>
THE CURRENT MEMBERS OF THE BOARD AND EXECUTIVES OFFICERS OF THE COMPANY
To the extent the Board will consist of persons who are not Purchaser
Designees, the Board is expected to continue to consist of those persons who
are currently directors of the Company who do not resign. The current
directors and executive officers of the Company and their ages, positions and
terms of office with the Company as of July 8, 1997 are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Anthony J. Scotti**.............. 57 Chairman and Chief Executive Officer
Myron I. Roth**.................. 64 President, Chief Operating Officer and
Director
Thomas Bradshaw**................ 54 Chief Financial Officer, Senior
Executive Vice
President and Director
Sydney D. Vinnedge............... 53 Senior Executive Vice President and
Director
Benjamin J. Scotti............... 60 Senior Executive Vice President,
Executive Vice
President--All American Music Group and
Director
Lawrence E. Lamattina............ 52 Chief Executive Officer, President--All
American/Fremantle Television Group and
Director
Gordon C. Luce+*................. 71 Director
R. Timothy O'Donnell+*++......... 42 Director
David A. Mount+*++............... 54 Director
Eugene P. Beard.................. 62 Director
</TABLE>
- --------
* Member of Stock Option Committee
** Member of Executive Committee
+ Member of Compensation Committee
++ Member of Audit Committee
Each of the persons listed above (other than Messrs. Lamattina, O'Donnell,
Mount and Beard) assumed their respective positions listed above on February
25, 1991, the date on which Scotti Brothers Entertainment Industries, Inc.
("SBEI") merged (the "SBEI Merger") into All American Television, Inc.
("AATV"), which was the legal predecessor to the Company. Prior to such date,
Anthony J. Scotti and Mr. Vinnedge were already directors of AATV.
ANTHONY J. SCOTTI was a co-founder of the Company and has been a director of
the Company since its inception in 1982. He became Chairman and Chief
Executive Officer on February 25, 1991. Mr. Scotti served as a consultant to
Carolco Pictures Inc. (motion picture production) and was a director of LIVE
Entertainment, Inc. (entertainment software) from November 1988 until his
resignation in May 1996. Mr. Scotti was the non-executive Chairman of the
Board of LIVE Entertainment from November 1992 until his resignation from such
position in March 1996. He is the brother of Benjamin J. Scotti.
MYRON I. ROTH joined SBEI in December 1990 as President and Chief Operating
Officer, and he assumed the same titles and became a director of the Company
on February 25, 1991. Mr. Roth is a member of the Board of Directors of the
Recording Industry Association of America.
THOMAS BRADSHAW was a director, Senior Executive Vice President and Chief
Financial Officer of SBEI from 1985 and, on February 25, 1991, he assumed the
same positions at the Company. In addition, Mr. Bradshaw was a director of
LIVE Entertainment, Inc. from December 1988 to November 1993.
SYDNEY D. VINNEDGE is a co-founder of the Company and has been a director of
the Company since its inception in 1982. Since February 25, 1991, Mr. Vinnedge
has served as Senior Executive Vice President of the Company.
A-3
<PAGE>
BENJAMIN J. SCOTTI co-founded the predecessor to SBEI in 1974 and served as
Co-Chairman of SBEI until February 25, 1991. Since February 25, 1991, Mr.
Scotti has been Senior Executive Vice President of the Company, Senior
Executive Vice President of All American Music Group (a subsidiary of the
Company) and a Director of the Company. He is the brother of Anthony J.
Scotti.
LAWRENCE E. LAMATTINA became Chief Executive Officer and President of All
American/Fremantle Television Group (an operating division of the Company) on
August 3, 1994 and a director of the Company on October 12, 1994. Since May
1989, he has been Chairman of the Board of Fremantle International, Inc. and
Chairman and Chief Executive Officer of EC TV, a division of The Interpublic
Group of Companies, Inc. ("Interpublic"). Mr. Lamattina also continues to act
as a consultant to Interpublic with respect to areas that are not competitive
with the Company.
GORDON C. LUCE is a senior advisor to Eastman & Benirschke Financial Group
(financial planning and insurance brokerage), a position which he has held
from July 1990 to the present. Mr. Luce is a member of the Board of Directors
of PS Group (a diversified investment company) and Molecular Biosystems, Inc.
(a medical research enterprise) and is currently a member of the Board of
Trustees of the University of Southern California and the Chairman of Scripps
Health. He became a director of the Company on February 25, 1991. Mr. Luce was
a director of Carolco Pictures, Inc. until his resignation in November 1995.
R. TIMOTHY O'DONNELL was elected to the Company's Board effective January 2,
1992. He is President of Jefferson Capital Group, Ltd., a privately held
investment banking group co-founded by Mr. O'Donnell in September 1989. In
February 1996, Mr. O'Donnell resigned from his directorship of LIVE
Entertainment, Inc. which he had held since 1988. Mr. O'Donnell has been a
director of Shorewood Packaging Corporation (packager for records, videos and
cassettes) since October 1991 and a director of Cinergi Pictures Entertainment
Inc. (motion picture production) since March 1994.
DAVID A. MOUNT was appointed a director of the Company on May 5, 1994. In
March 1995, Mr. Mount was named Chairman and Chief Executive Officer of WEA,
Inc. Prior to that time, Mr. Mount had been President and Chief Executive
Officer of Warner/Elektra/Atlantic Corporation, a division of Time Warner,
Inc., since October 1993. Mr. Mount was President and Chief Executive Officer
of LIVE Entertainment Inc. from December 1991 through September 1993. In
addition, Mr. Mount served as a director of LIVE Entertainment in 1989 and
from December 1991 to December 1993. On February 2, 1993, LIVE Entertainment
filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code and
emerged pursuant to a plan of reorganization on March 17, 1993. From August
1989 to June 1993, Mr. Mount was President of LIVE Home Video Inc., a
subsidiary of LIVE Entertainment. He was Chief Executive Officer of LIVE Home
Video from August 1989 to October 1993.
EUGENE P. BEARD became a member of the Board on October 12, 1994. Mr. Beard
has been the Vice Chairman--Finance and Operations of Interpublic since
October 1995, was Executive Vice President--Finance and Operations of
Interpublic prior to that time and has served as a director of Interpublic
since 1982. Mr. Beard is a member of the Board of Directors of Brown Brothers
Harriman 59 Wall Street Fund, Inc. (diversified investment fund) and
Micrografx, Inc. (computer software).
BOARD MEETINGS AND COMMITTEES
The Board has a standing Audit Committee, Compensation Committee, Stock
Option Committee and Executive Committee. The Audit Committee, which held one
meeting during fiscal 1996, consists of R. Timothy O'Donnell and David A.
Mount. The Audit Committee recommends engagement of the Company's independent
accountants and is primarily responsible for approving the services performed
by the Company's independent accountants and for reviewing and evaluating the
Company's accounting principles and its system of internal accounting
controls. The Compensation Committee consists of Gordon C. Luce, R. Timothy
O'Donnell and David A. Mount. The Compensation Committee held no formal
meetings during fiscal 1996, but it acted by unanimous written consent on one
occasion. The Compensation Committee was appointed to assist in the
establishment of executive compensation of its senior management and the
performance goals of the Company
A-4
<PAGE>
and to administer the Company's 1994 Stock Incentive Plan (the "1994 Plan").
The Stock Option Committee consists of R. Timothy O'Donnell, Gordon C. Luce
and David A. Mount. The Stock Option Committee is responsible for
administering the Company's 1991 Incentive Stock Option Plan, as amended (the
"1991 Plan"). The Stock Option Committee did not meet during fiscal 1996, but
it acted by unanimous written consent on one occasion. The Executive Committee
consists of Anthony J. Scotti, Myron Roth and Thomas Bradshaw. The Executive
Committee assists the Board in the overall management of the business and
affairs of the Company. The Executive Committee did not meet during fiscal
1996 but acted by unanimous written consent on one occasion.
During the 1996 fiscal year, the Company's Board met three times. All
members participated in one meeting, Messrs. O'Donnell and Vinnedge each were
absent from one meeting and Mr. Mount was absent from two meetings.
Additionally, the Board acted by unanimous written consent on two occasions.
A-5
<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS(/1/)
The following table sets forth information as of October 1, 1997 concerning
the beneficial ownership of certain securities of the Company by (i) each
person who is known to the Company to be a beneficial owner of more than five
percent of the outstanding Common Stock or Class B Common Stock of the
Company, (ii) each of the current directors of the Company, and (iii) all
current directors, the Chief Executive Officer and the four most highly
compensated officers of the Company who served in such capacities during the
1996 fiscal year, as a group. Unless otherwise specified, the address of each
beneficial owner listed below is 808 Wilshire Boulevard, Santa Monica,
California 90401-1810.
<TABLE>
<CAPTION>
PERCENT OF
PERCENT OF CLASS B CLASS B
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
OWNED(2) OWNED OWNED(2) OWNED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Anthony J. Scotti(3)....... 3,448,465 41.96% 450,000 8.04%
Benjamin J. Scotti(4)...... 1,445,995 20.34% 30,000 *
Myron I. Roth(5)........... 440,850 6.12% 50,000 *
Thomas Bradshaw(6)......... 385,850 5.38% 145,000 2.74%
Sydney D. Vinnedge(7)...... 153,875 2.16% 9,000 *
Lawrence E. Lamattina(8)... 155,000 2.15% 37,500 *
Gordon C. Luce(9).......... 5,000 * 9,000 *
David A. Mount(9).......... 3,000 * 9,000 *
R. Timothy O'Donnell(10)... 98,600 1.39% 9,000 *
Jefferson Capital Group,
Ltd.
One James Center
901 East Cary Street,
Suite 1400
Richmond, Virginia 23219
Eugene P. Beard(11)........ -- -- -- --
The Interpublic Group of
Companies, Inc.
1271 Avenue of the
Americas
New York, New York 10020
The Interpublic Group of
Companies, 580,000 8.17% 2,470,000 47.97%
Inc.(12)(13)..............
1271 Avenue of the
Americas
New York, New York 10020
The Capital Group -- -- 540,000 10.49%
Companies, Inc.(14).......
333 South Hope Street,
52nd Floor
Los Angeles, California
90071
FMR Corp.(15).............. 1,246,234 17.55% -- --
82 Devonshire Street
Boston, Massachusetts
02109
Janus Capital Corp.(16).... -- -- 500,000 9.71%
100 Fillmore Street, Suite
300
Denver, Colorado 80206
All Directors and Executive
Officers
as a Group (10 persons)... 5,099,710 61.20% 748,500 12.69%
</TABLE>
A-6
<PAGE>
- --------
*Less than 1%
(1) This table does not give effect to the vesting of certain options within
60 days herefrom or the execution of the Stockholders Agreement.
Similarly, this table does not take into account the consummation of the
Offer and the other transactions constituting a change of control in the
Merger Agreement, which transactions accelerate the vesting of unvested
options reflected on this table or in the footnotes hereto.
(2) Amounts include options and other securities exercisable into shares of
Common Stock or Class B Common Stock, as the case may be, held by such
beneficial owner, unless such securities are not convertible or
exercisable within 60 days.
(3) Common Stock includes 1,483,775 shares beneficially owned by Messrs. Roth,
Bradshaw, Vinnedge, Lamattina and certain other employees which Anthony J.
Scotti has a proxy to vote. See "Certain Relationships and Related
Transactions--Management Stockholders Agreement." Includes vested options
to purchase 500,000 shares of Common Stock and 450,000 shares of Class B
Common Stock. Does not include 750,000 shares of Class B Common Stock
issuable to Mr. Scotti upon exercise of options which have not vested and
are not subject to vesting within the next 60 days.
(4) Includes 10,000 time vesting Common Stock options which have vested and
vested performance options to purchase 30,000 shares of Class B Common
Stock. Does not include options to purchase 10,000 shares of Common Stock
which have not vested and are not subject to vesting within the next 60
days. Further, does not include 70,000 shares of Class B Common Stock
issuable to Benjamin J. Scotti upon exercise of options which have not
vested and are not subject to vesting within the next 60 days.
(5) 415,850 of such Common Stock shares are subject to a voting proxy granted
to Anthony J. Scotti. Includes vested performance options to purchase
100,000 shares of Common Stock and 50,000 shares of Class B Common stock.
(6) 385,850 of such Common Stock shares are subject to a voting proxy granted
to Anthony J. Scotti. Includes vested performance options to purchase
70,000 shares of Common Stock and 145,000 shares of Class B Common Stock.
Does not include 105,000 shares of Class B Common Stock issuable to Mr.
Bradshaw upon exercise of options which have not vested and are not
subject to vesting within the next 60 days.
(7) 120,225 of such Common Stock shares are subject to a voting proxy granted
to Anthony J. Scotti. Includes vested performance options to purchase
12,000 shares of Common Stock and 9,000 shares of Class B Common Stock.
Does not include 3,000 shares of Class B Common Stock issuable to Mr.
Vinnedge upon exercise of options which have not vested and are not
subject to vesting within the next 60 days.
(8) Mr. Lamattina owns 30,000 shares of restricted Common Stock which vest in
July 1998, is vested in time vesting options to purchase 75,000 shares of
Common Stock and is vested in performance options to purchase 50,000
shares of Common Stock and 37,500 shares of Class B Common Stock. All such
Common Stock shares are subject to a voting proxy granted to Anthony J.
Scotti. Excludes 50,000 time vesting Common Stock options which have not
vested and are not subject to vesting within the next 60 days. Further,
does not include 12,500 shares of Class B Common Stock issuable upon
exercise of options which have not vested and are not subject to vesting
within the next 60 days.
(9) Includes 3,000 time vesting Common Stock options which have vested and
vested options to purchase 9,000 shares of Class B Common Stock. Excludes
3,000 time vesting Common Stock options which have not vested and are not
subject to vesting within the next 60 days.
(10) Mr. O'Donnell owns 33,100 shares of Common Stock, and his affiliate,
Jefferson Capital Group, Ltd., owns 62,500 shares of Common Stock.
Includes 3,000 time vesting Common Stock options which have vested and
vested options to purchase 9,000 shares of Class B Common Stock. Excludes
3,000 time vesting Common Stock options which have not vested and are not
subject to vesting within the next 60 days.
(11) Mr. Beard was appointed to the Board on October 12, 1994 to fill a
vacancy. Mr. Beard does not own any shares of Common Stock or Class B
Common Stock directly and disclaims beneficial ownership of the 630,000
shares of Common Stock and the 2,520,000 shares of Class B Common Stock
owned by Interpublic.
(12) As disclosed on a Schedule 13D, dated August 12, 1996.
(13) Represents approximately 26% (approximately 20% on a fully-diluted basis)
of outstanding Shares.
(14) As disclosed on a Schedule 13G, dated February 12, 1997.
(15) As disclosed on a Schedule 13G, dated February 10, 1997.
(16)As disclosed on a Schedule 13G, dated February 13, 1996.
A-7
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued by the
Company to the Chief Executive Officer and the four most highly compensated
executive officers of the Company who served in such capacities during the
1996 fiscal year (the "Named Executive Officers") for services rendered during
each of the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
---------------------- ----------------------------------------
SECURITIES
RESTRICTED UNDERLYING ALL OTHER
NAME AND STOCK OPTIONS/SAR'S COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS (#) (1)
------------------ ---- -------- -------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Scotti....... 1996 $895,000 $ -- $ -- 1,500,000(2) $ --
Chairman and Chief 1995 813,000 -- -- 100,000(3) --
Executive Officer 1994 719,000 -- -- 100,000(3) --
Myron I. Roth........... 1996 425,000 -- -- 50,000(4) --
President and Chief 1995 425,000 79,000 -- 50,000(3) --
Operating Officer 1994 408,000 79,000 -- 50,000(3) --
Thomas Bradshaw......... 1996 467,000 -- -- 250,000(4) --
Chief Financial Officer 1995 419,000 43,000 -- 35,000(3) --
and Senior Executive 1994 399,000 43,000 -- 35,000(3) --
Vice President
Sydney D. Vinnedge...... 1996 273,000 -- -- 6,000(4) --
Senior Executive 1995 396,000 13,000 -- 6,000(3) --
Vice President 1994 371,000 13,000 -- 6,000(3) --
Lawrence E.
Lamattina (5).......... 1996 590,000 550,000 -- 25,000(4) --
Chief Executive Officer 1995 561,000 550,000 -- 25,000(3) --
and President, All 1994 229,000 229,000 218,000(6) 150,000(3) --
American/Fremantle
Television Group
</TABLE>
- --------
(1) The Named Executive Officers received compensation in the form of personal
benefits, including automobile allowances, premiums for health insurance,
disability insurance and life insurance, which did not exceed the lesser
of $50,000 or 10% of the total annual salary and bonus reported for each
year.
(2) Mr. Scotti was granted options to purchase 300,000 shares of Common Stock
and options to purchase 1,200,000 shares of Class B Common Stock during
1996. These grants were approved by the Company's stockholders at its 1996
Annual Meeting.
(3) Options granted to purchase shares of Common Stock.
(4) Options granted to purchase shares of Class B Common Stock.
(5) Mr. Lamattina's employment with the Company commenced on August 3, 1994.
For a discussion of Mr. Lamattina's employment agreement, including his
right to bonus payments, see "Report on Executive Compensation--Employment
Agreements."
(6) In accordance with his employment agreement dated August 3, 1994, Mr.
Lamattina was granted restricted stock awards under the 1994 Plan, as of
July 6, 1994, for 30,000 shares of Common Stock, with a vesting date of
July 5, 1998. The shares have been valued using the closing bid price on
July 6, 1994 of $7.25.
A-8
<PAGE>
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENT OF TOTAL
CAPITAL STOCK OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE PRESENT VALUE
NAME GRANTED (#) 1996 ($/SH) (1) EXPIRATION DATE (2)
---- ------------- ---------------- ----------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Anthony J. Scotti....... 50,000(3) 2.20% $10.863 February 26, 2001 $ 149,000
250,000(4) 11.01% 9.875 February 26, 2006 833,000
1,200,000(5) 52.84% 9.875 February 26, 2006 3,180,000
Myron I. Roth........... 50,000(6) 2.20% 7.875 February 26, 2006 133,000
Thomas Bradshaw......... 250,000(7) 11.01% 7.875 February 26, 2006 663,000
Sydney D. Vinnedge...... 6,000(6) 0.26% 7.875 February 26, 2006 16,000
Lawrence E. Lamattina... 25,000(6) 1.10% 7.875 February 26, 2006 66,000
</TABLE>
- --------
(1) Unless otherwise noted, the exercise price is the respective closing sales
price of the Common Stock or Class B Common Stock as the case may be on
the date of grant.
(2) Grant date present value is determined using the Black-Scholes option
valuation model with the following weighted average assumptions for 1996:
risk-free interest rate of 6.0%; dividend yield of 0%; volatility factors
of the expected market price of the Shares of 0.40; and a weighed average
expected life of the options of three years.
(3) Options to purchase shares of Common Stock which vested immediately with
an exercise price equal to 110% of the closing sales price of the Common
Stock on the date of grant.
(4) Options to purchase shares of Common Stock which vested immediately.
(5) Options to purchase 450,000 shares of Class B Common Stock vested
subsequent to December 31, 1996 upon the Company's achievement of the
specified performance targets. The remaining options to purchase 750,000
shares of Class B Common Stock are subject to vesting in tranches of
300,000 shares over each of the next three years upon the Company's
achievement of specified performance targets or nine years and nine months
from the date of grant, to the extent not previously vested, if such
specified performance targets are not achieved. The foregoing grant was
approved by the Company's stockholders at its 1996 Annual Meeting. One
half of the 1997 options vested as a result of Board recognition of
substantial overperformance by management. The other half of the 1997
options are subject to the performance goals for 1997, which management
believes have substantially been met through September 1997.
(6) These options to purchase shares of Class B Common Stock vest in varying
percentages based upon the satisfaction of certain performance targets.
None of these options had vested as of December 31, 1996. All of these
options became fully vested subsequent to December 31, 1996 upon the
Company's achievement of the specified performance targets. The foregoing
grants to Messrs. Vinnedge and Lamattina were approved by the Company's
stockholders at its 1996 Annual Meeting.
(7) Options to purchase 100,000 shares of Class B Common Stock vested on the
date of grant. Options to purchase 45,000 shares of Class B Common Stock
vested subsequent to December 31, 1996 upon the Company's achievement of
the specified performance targets. The remaining options to purchase
105,000 shares of Class B Common Stock are subject to vesting in tranches
of 30,000 shares over each of the next four years upon the Company's
achievement of specified performance targets or nine years and nine months
from the date of grant, to the extent not previously vested, if such
specified performance targets are not achieved. See "Report on Executive
Compensation--Employment Agreements." The foregoing grant was approved by
the Company's stockholders at the 1996 Annual Meeting. One half of the
1997 options are vested as a result of Board recognition of substantial
overperformance by management. The other half of the 1997 options are
subject to the performance goals for 1997, which management believes have
substantially been met through September 1997.
A-9
<PAGE>
OPTION EXERCISES IN 1996 AND YEAR END OPTION VALUES
The following table provides certain information concerning the exercise of
stock options and shows the number of shares covered by both exercisable and
non-exercisable stock options held as of the end of 1996. Also shown are
values for "in-the-money" options, which represent the positive difference
between the exercise price of such options and the per share price of the
Common Stock and Class B Common Stock at year end.
AGGREGATED OPTION EXERCISES DURING 1996 AND
OPTION VALUES ON DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF CAPITAL STOCK
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS AT
ON VALUE DECEMBER 31, 1996 DECEMBER 31, 1996
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Anthony J. Scotti....... -- -- 500,000/1,200,000 $1,850,625/$2,550,000
Myron I. Roth........... -- -- 100,000/50,000 443,750/106,250
Thomas Bradshaw......... -- -- 170,000/150,000 523,125/318,750
Sydney D. Vinnedge...... -- -- 12,000/6,000 53,250/12,750
Lawrence E. Lamattina... -- -- 100,000/100,000 525,000/475,000
</TABLE>
DIRECTORS' REMUNERATION
The Company does not pay any compensation to any person serving as a
director of the Company if such person is also an employee of the Company. All
outside directors are paid an annual fee of $25,000 for serving as a director,
except that Mr. Beard serves as a director without compensation for such
services. Non-employee directors receive automatic stock option grants of
6,000 shares of Class B Common Stock per year, with the exception of Mr. Beard
who has waived his right to stock options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the 1996 fiscal year, the Compensation Committee consisted of Gordon
C. Luce, R. Timothy O'Donnell and David A. Mount. During fiscal 1996, none of
the executive officers of the Company served on the Board or on the
compensation committee of any other entity, any of whose officers served
either on the Board or on the Compensation Committee of the Company.
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has furnished the following report on executive
compensation. This report is as of July 8, 1997, unless otherwise indicated.
COMPENSATION OVERVIEW
The Company uses a combination of salary and incentive compensation,
including cash bonus and periodic grants of stock options under the 1991 Plan
or the 1994 Plan or pursuant to other option plans or arrangements adopted by
the Board, to compensate its executive officers. Additional benefits,
including insurance benefits, are provided to executives and other key
employees that the Company believes are similar to those provided by other
companies in the entertainment industry. The Company draws most of its
executives and other key employees from the entertainment industry where
creative talent is crucial and commands a significant premium, and where
decisions made by a relatively small number of employees with an in-depth
knowledge of creative businesses
A-10
<PAGE>
can have a major impact on the performance of the Company. Persons with such
unique qualifications are rare and are being pursued by other companies both
in and out of the entertainment industry, many of whom have greater available
resources than the Company. Except as otherwise described below, each of the
Company's executive officers is currently employed pursuant to a multi-year
employment agreement, the purpose of which is to retain the services of such
executive officer for an extended period. The Company believes that its
compensation program for executive officers benefits the Company through the
continuation of expansion and new opportunities designed to enhance
stockholder value.
In May 1994, the Company amended certain of its employment agreements with
its executives following the recommendation of Towers Perrin, Inc. ("Towers"),
an executive compensation consultant retained by the Company. Towers assessed
the Company's current compensation levels for its executive officers and
reviewed the annual incentive and the long-term incentive compensation plans.
Towers compared such compensation and plans to 13 entertainment or
entertainment related companies for which data were publicly available (the
"Proxy Group"). This review was undertaken by the Company to establish
consistent yet competitive compensation arrangements that also reflect the
financial performance of the Company. Such review compared financial
performance of the Company and each of the members of the Proxy Group and cash
compensation and long-term incentives of comparable positions between such
companies. The Company had the highest return on equity and the second highest
average three-year rate of growth in the Proxy Group. Towers recommended that
the Company should target executive compensation at levels above Proxy Group
averages as an incentive to continue such level of performance. Overall,
Towers determined that the Company's cash compensation was below the Proxy
Group's median for the Chief Operating Officer and Chief Executive Officer and
above the Proxy Group's median for the Executive Vice Presidents and Chief
Financial Officer. Towers noted, however, that the Chief Financial Officer's
extensive involvement in Company operations warranted the higher base level
pay. Towers also determined that the Company fell below the competitive norms
for long-term incentive compensation. Towers recommended maintaining base
salaries (except for an increase in the Chief Executive Officer's salary) and,
for the short term, annual incentives at current levels while adopting a long-
term incentive plan, such as the 1994 Plan, that emphasizes both standard
stock options and performance-based stock options.
Towers was also retained by the Company in 1996 to review certain option
awards to the Chief Executive Officer. See "--Employment Agreements." Towers
concluded that the vesting schedule of such option awards was not unreasonable
in the context of entertainment or entertainment related companies.
SALARY
The base salary to which each of the Company's executive officers is
entitled is specified in such person's employment agreement (see "Employment
Agreements" below) and was established pursuant to arm's-length negotiations
with each executive officer, in part based on the subjective assessment of the
Company, which included a number of factors, including experience, tenure and
responsibility, and external factors, including similarly situated executives,
geographic and economic conditions, based on information drawn from a variety
of sources, including published survey data, information obtained from the
media, and the Company's own experience in recruiting and retaining
executives, although complete information is not easily obtainable. Most of
the employment agreements were entered into at the time of the SBEI Merger and
were subject to the review and approval of the financial advisors to the
parties in the SBEI Merger and ECD Corporation, an outside investor in the
Company in the SBEI Merger. Subsequent modifications to such employment
agreements have been made following negotiations with the underwriter of the
Company's Common Stock or following the report of Towers.
CASH BONUS
Arrangements for bonus compensation for the Company's executive officers are
also negotiated individually with each executive officer and are generally
fixed by contract. Bonus arrangements take various forms and may be determined
based on factors such as the Company's or a specific segment of the Company's
operations,
A-11
<PAGE>
financial performance or project developments. In 1994, each of Anthony J.
Scotti, Myron I. Roth, Thomas Bradshaw, Sidney D. Vinnedge and Benjamin J.
Scotti agreed to an amendment to their employment agreements to eliminate
bonus provisions tied to the achievement of certain financial objectives by
the Company in connection with the March 1992 public offering of the Company's
Common Stock at the request of the underwriter. The Company's executive
officers, however, are eligible to receive discretionary bonuses as may be
determined by the Board. Except for Messrs. Bradshaw, Lamattina, Roth and
Vinnedge, who are discussed below, the Chief Executive Officer develops
individual bonus recommendations following the end of each fiscal year based
on the subjective assessment of the Company's overall performance and each
executive officer's contribution to such performance. No specific formula is
used; however, factors may include improved competitive position, project
development, long-term objectives and such executive officer's leadership role
in any of the foregoing factors. Such factors are not necessarily linked to
any specific performance related targets or given any particular weight.
Messrs. Bradshaw, Roth and Vinnedge are eligible for a bonus in the discretion
of the Board. Mr. Lamattina's employment agreement provides for an annual
incentive compensation payment of up to $550,000 per year (prorated in the
case of 1994) based on the operating income of the All American/Fremantle
Television Group as compared to the operating income targets established by
the Compensation Committee. No discretionary bonuses were awarded to the
executive officers for 1994 or 1995.
OPTION GRANTS
The Company uses incentive and non-qualified stock options and other
available forms of compensation under the Plans which are intended to provide
additional long-term incentives to key employees, including the Company's
executive officers. The Board believes that stock ownership, through options
or otherwise, aligns the executive officers' interests with the stockholders'
interest. The Plans have been approved by the Company's stockholders. Grants
under the Plans generally require the executive to be employed by the Company
on the exercise date and vest over a period of years (time vesting options) or
the Company's achievement of certain performance criteria (performance
options) following the date of grant. The exercise price of such grants is
generally equal to the per share market price of the Company's Common Stock or
Class B Common Stock on the grant date; therefore, option grants will only
benefit an executive if the per Share market price of the Company's Common
Stock or Class B Common Stock is greater than on the date of the option grant.
No specific formula is used to determine grants made to any particular
employee, including executive officers, but grants are generally based on
factors such as employment agreements, and competitive norms and subjective
factors, such as promotion, contribution to performance and individual
performance related criteria. The Chief Executive Officer makes
recommendations regarding option grants and vesting to the Stock Option
Committee with respect to grants under the 1991 Plan and to the Compensation
Committee with respect to grants under the 1994 Plan. While time vesting
options typically vest equally over a five-year period, options granted to
certain executive officers may have shorter or longer vesting periods.
Performance options typically vest upon the achievement of certain performance
criteria of the operations of the Company, its subsidiaries or divisions over
a certain period of time established by the Compensation Committee. In April
1995, the executive officers received stock option grants totaling 226,000
shares of Common Stock in accordance with the Towers report which found such
grants to be within competitive norms and recommended such grants to balance
pay for performance and integrate total compensation with long-term
stockholder returns. In June 1994, five of the executive officers (including
Mr. Anthony J. Scotti) received stock option grants totaling 201,000 shares of
Common Stock. In July 1994, the Company granted to Mr. Lamattina options to
acquire an aggregate of 150,000 shares and issued 30,000 shares of restricted
Common Stock pursuant to the 1994 Plan.
CHIEF EXECUTIVE OFFICER COMPENSATION
Anthony J. Scotti, Chairman and Chief Executive Officer of the Company, is
compensated pursuant to an employment agreement described under "--Employment
Agreements" below. His original employment agreement had an initial term of
five years and was negotiated in connection with the SBEI Merger and amended
at the request of the underwriters in connection with the Company's 1992
offering of Common Stock. Mr. Scotti's employment agreement established an
annual base salary of $500,000, increasing by five percent on each anniversary
date of such agreement. The employment agreement also permits an annual bonus
in the
A-12
<PAGE>
discretion of the Board. The term of Mr. Scotti's employment agreement was
extended in May 1994 to February 1999. In connection with such extension and
as recommended by the Towers report, Mr. Scotti's annual base salary was
increased to $750,000, increasing by ten percent on each anniversary date
(subject to a maximum base salary of $1,000,000). Mr. Scotti's employment
agreement was also amended, upon the recommendation of Towers, to provide for
the annual grant of options to acquire 100,000 shares of Common Stock,
commencing in 1994, in an effort to bring Mr. Scotti's long-term incentive
compensation within the competitive norms of the Proxy Group. These options
have now vested upon the satisfaction of certain performance criteria of the
Company as established by the Compensation Committee. These recommendations
were based on the strategic importance of Mr. Scotti to the Company, the
dilutive effect of the 1994 Plan on Mr. Scotti's ownership in the Company and
the review by Towers of competitive norms for companies in the Proxy Group.
The term of Mr. Scotti's employment agreement was extended in February 1996 to
February 2001. Towers also reviewed the award of stock options granted to Mr.
Scotti in 1996 as a portion of the inducement for him to extend his employment
Agreement. See "--Employment Agreements."
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code (the "Code"), enacted in 1993,
generally limits tax deductions to public companies for compensation over
$1,000,000 paid to the corporation's chief executive officer and four other
most highly compensated executive officers. Qualifying performance based
compensation will not be subject to the deduction limit if certain
requirements are met. The Company intends to consider the provisions of
Section 162(m) in connection with the performance based portion of the
compensation of its executives (which currently consists of stock option
grants and annual bonuses described above). However, the Board does not
necessarily intend to structure compensation to its executives to avoid
disallowance of any tax deductions in the future in light of available tax
deductions to the Company and the requirements imposed by Section 162(m) and
the proposed regulations thereunder for compensation to be fully deductible
for income tax purposes.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with all of the Named
Executive Officers: Anthony J. Scotti, Thomas Bradshaw, Sydney D. Vinnedge,
Lawrence Lamattina and Myron I. Roth. The employment agreement with Mr.
Scotti, originally entered into in February 1991 and amended most recently in
February 1996, provides that Mr. Scotti shall serve as Chief Executive Officer
of the Company through February 25, 2001 (unless earlier terminated in
accordance with the terms of such agreement), commencing at a base salary of
$907,500 in 1996 ($998,250 in 1997) and increasing by 10% per year (subject to
a maximum base salary of $1,000,000 per year). Mr. Scotti is required to
render his services on a full-time basis to the Company, provided that he may
devote such reasonable amount of time, as he determines, to other business
activities which may be conducted in the entertainment industry. The term of
the agreement may be terminated by the Company for "good cause" (as defined)
or by Mr. Scotti in the event of the "Company's Material Breach" (as defined)
or a "Change in Control" or other "Event" (as defined in the 1994 Plan).
The employment agreement with Mr. Bradshaw, originally entered into in
February 1991 and amended most recently in February 1996, provides that Mr.
Bradshaw shall serve as Senior Executive Vice President, Finance and Chief
Financial Officer of the Company through February 25, 2001 (unless earlier
terminated), commencing at a base salary of $476,650 in 1996 ($505,249 in
1997) and increasing by a minimum of six percent per year. The five-year term
employment agreement with Mr. Vinnedge, originally entered into in February
1991, expired but he entered into a new employment agreement as of July 1,
1997, which provides that he will serve as a Senior Executive Vice President
of the Company through December 31, 1998, commencing at a base compensation of
$250,000 per year in the first year and increasing by 6% in the second year,
plus a discretionary bonus. The employment agreement with Mr. Lamattina,
entered into in August 1994, provides that Mr. Lamattina shall serve as the
Chief Executive Officer and President of the All American/Fremantle Television
Group through August 3, 1999 (unless earlier terminated), commencing at a base
salary of $550,000 and increasing by five percent per year. His current salary
is $636,694 for 1997. Mr. Lamattina is also entitled to receive annual
A-13
<PAGE>
incentive compensation up to $550,000 per year if certain operating income
targets are achieved by the All American/Fremantle Television Group. Under Mr.
Lamattina's employment agreement, he is entitled to annual grants of options
to purchase 25,000 shares of Common Stock. See "Security Ownership of Certain
Beneficial Owners and Management" for a description of the vesting of Mr.
Lamattina's stock options. The five-year term employment agreement for Mr.
Roth, originally entered into in February 1991, has expired, but he continues
his employment with the Company as President and Chief Operating Officer
without an employment agreement under substantially the same terms as those in
effect in the last year of his employment agreement. Mr. Roth's current salary
is $446,698 in 1997 per year. Each of the Named Executive Officers is provided
with an automobile expense reimbursement allowance and an annual allowance to
cover premiums for life, health and disability insurance.
Under his employment agreement prior to its amendment in February 1996,
Anthony J. Scotti was entitled to receive, as long-term incentive
compensation, 100,000 annual stock option grants (from 1994 to 1999). In
February 1996, subject to Mr. Scotti's relinquishment of his remaining
contractual right to future grants of 300,000 stock options in the aggregate
under his employment agreement, the Company granted to Mr. Scotti options
(under the 1994 Plan) to purchase 250,000 shares of Common Stock at the market
price ($9.875 per share) on the date of grant and options (under the 1991
Plan) to purchase 50,000 shares of Common Stock at 110% of the fair market
value ($10.8625 per share) on the date of grant. All such stock options vested
on the date of grant in February 1996.
In addition, in connection with the extension of Mr. Scotti's employment
agreement, the Compensation Committee on February 26, 1996 granted to Mr.
Scotti, subject to stockholder ratification which was subsequently obtained,
options (under the 1994 Plan) to purchase 1,200,000 shares of the Company's
Class B Common Stock at an exercise price equal to the market price
($7.875 per share) on the date of grant. These options vest subject to Mr.
Scotti's staying in the continuous employment of the Company for a period of
nine years and nine months from the date of grant, subject to accelerated
vesting upon the achievement of certain operating income targets set by the
Compensation Committee or the Board or earlier upon the occurrence of a
"Change in Control" or other "Event" (as defined in the 1994 Plan unless
(a) such Event occurred within six months of stockholder approval of the
grant, or (b) such Event was (i) the consummation of an agreement to merge at
a price of less than $15.00 per share of Class B Common Stock or (ii) the
consummation of the sale of substantially all of the Company's business and/or
assets at a price of less than $15.00 per share of Class B Common Stock). All
of Mr. Scotti's unvested options will vest as a result of consummation of the
Transactions. The Company has also agreed to reimburse Mr. Scotti for any
federal, state or local excise tax ("Excise Tax"), and any additional taxes to
which he may be subject, on any payments to Mr. Scotti from the Company as a
result of accelerated vesting of this option grant upon a "Change in Control"
or otherwise, up to a maximum reimbursement equal to twice the amount of such
Excise Tax.
The award of options to Mr. Scotti was reviewed by Towers, which concluded
that the vesting schedule of such awards was not unreasonable in the context
of entertainment or entertainment related companies.
As part of the amendment of Mr. Bradshaw's employment agreement, the Company
granted to Mr. Bradshaw options to purchase 250,000 shares of the Company's
Class B Common Stock at the market price ($7.875 per share) on the date of
grant. One hundred thousand of such stock options vested on the date of grant
in February 1996. The remainder vests in a substantially similar manner to the
vesting provisions described above with respect to Mr. Scotti's stock options
to purchase Class B Common Stock.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The disclosure set forth under "The Stockholders Agreement" and "Scotti
Agreement Not to Compete and Scotti Amendment to Employment Agreement" in Item
3 of the Schedule 14D-9 is incorporated by reference herein.
A-14
<PAGE>
THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS:
Gordon C. Luce
R. Timothy O'Donnell
David A. Mount
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act, requires executive officers, directors
and persons who beneficially own more than 10% of the Company's stock to file
initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission (the "SEC"). Executive officers, directors
and greater than 10% beneficial owners are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms filed by them.
Based solely on a review of the copies of such forms furnished to the
Company, the Company believes that all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than 10%
beneficial owners were complied with, except that (i) Jefferson Capital Group,
Ltd., an affiliate of director R. Timothy O'Donnell, failed to file a Form 4
in November 1996 relating to its exercise of a warrant for 62,500 shares of
Common Stock in October 1996, and (ii) R. Timothy O'Donnell, a director,
failed to timely file a Form 5 in February 1997 relating to the grant of 3,000
stock options in February 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1994, the Company provided a loan of $250,000 to Thomas Bradshaw.
Such loan is secured by a pledge of shares of Common Stock owned by Mr.
Bradshaw, bears interest at a rate equal to a market rate determined by
reference to the Company's working capital line (8%) and has been extended to
mature upon the expiration of Mr. Bradshaw's current employment agreement
(February 2001).
In December 1995, the Company entered into a domestic distribution agreement
for recorded music with Warner/Elektra/Atlantic Corporation, a division of
Time Warner, Inc. ("WEA Corp."). David A. Mount, a member of the Board, is
currently Chairman and Chief Executive Officer of WEA, Inc., the parent
company of WEA Corp. During the 1996 fiscal year, WEA Corp. accounted for 9%
of the Company's consolidated gross revenues and is expected to account for
approximately the same amount of such revenues in the 1997 fiscal year.
In January 1996, the Company acquired from Interpublic the remaining 50%
interest of Mark Goodson Productions, LLC (the "LLC"). As a result, the
Company is responsible for the full share of the LLC's contingent purchase
price, to the extent earned. Such contingent purchase price, which may total
$48.5 million by the fifth anniversary of the initial acquisition of the LLC
in October 1995, will be treated as an increase in goodwill and will be
amortized coterminously with the original 25 year period. Through June 30,
1997, accrued contingent purchase price totaled $14.6 million (including
Interpublic's share through December 31, 1995 of $0.9 million). As of June 30,
1997, the total remaining contingent earnout payable in connection with the
Mark Goodson acquisition, to the extent such earnout in paid within five years
from the date of acquisition, is $31.7 million.
The Company repurchased 50,000 shares of Common Stock and 50,000 shares of
Class B Common Stock from Interpublic as of July 14, 1997 at a price of $17.00
per share and $13.50 per share, respectively. Such amounts are included in the
treasury stock of the Company as of September 23, 1997.
The Company currently leases, on a month-to-month basis, a building from
Anthony J. Scotti and Benjamin J. Scotti at a cost to the Company of
approximately $4,500 per month, which the Company believes is a market rate.
This building is used for office and warehouse space for the Company's
television production operations.
The Company believes that the terms of the transactions described above are
substantially comparable to those that would have been obtainable in similar
or analogous transactions by the Company with unaffiliated parties.
The disclosure set forth under "The Stockholders Agreement" and "Scotti
Agreement Not to Compete and Scotti Amendment to Employment Agreement" in Item
3 of Schedule 14D-9 is incorporated by reference herein.
A-15
<PAGE>
MANAGEMENT STOCKHOLDERS AGREEMENT
The Company has entered into a stockholders' agreement with Anthony J.
Scotti, Benjamin J. Scotti, Thomas Bradshaw, and Sydney D. Vinnedge (the
"Management Stockholders Agreement"), pursuant to which (i) each of Messrs.
Bradshaw and Vinnedge granted (a) to Anthony J. Scotti and Benjamin J. Scotti
a right of first refusal until August 25, 2001 on all shares of the Common
Stock owned by Mr. Bradshaw and 108,225 shares of Common Stock held by Mr.
Vinnedge and a right to purchase all such shares upon termination of their
employment for a reason other than "cause" (as defined in their respective
employment agreements), and (b) to Anthony J. Scotti an irrevocable proxy to
vote substantially all such shares until February 25, 2002; and (ii) each of
the individuals was granted certain registration rights for such shares owned
by him (such shares were subsequently registered on a registration statement
which was declared effective on January 29, 1997). Additionally, Myron Roth,
effective August 26, 1996, has granted to Anthony J. Scotti an irrevocable
proxy to vote 315,850 shares of Common Stock for the lesser of five years
(August 25, 2001) or the period of Mr. Roth's employment by the Company. The
proxies granted to Anthony J. Scotti give him the ability to control the
voting of 2,334,815 shares of the 7,019,557 shares (or approximately 33%) of
the Common Stock outstanding. Additionally, Messrs. Roth, Bradshaw and
Vinnedge have granted to Anthony J. Scotti an irrevocable proxy to vote all
shares of Common Stock acquired upon exercise of their options to purchase an
aggregate of 182,000 shares of Common Stock.
Lawrence E. Lamattina and all other employees have granted to Anthony J.
Scotti an irrevocable proxy to vote all shares of Common Stock acquired upon
exercise of their options to purchase an aggregate of 474,350 shares of Common
Stock and, in Mr. Lamattina's case, 30,000 shares of restricted Common Stock
granted pursuant to the 1994 Plan.
George Back has granted to Anthony J. Scotti a proxy for 90,200 shares of
Common Stock held by Mr. Back.
In the aggregate, Anthony J. Scotti owns 1,504,690 shares of Common Stock,
has vested options to purchase 500,000 shares of Common Stock, has an
irrevocable proxy to vote 830,125 shares of Common Stock (excluding 30,000
shares of restricted Common Stock) and has irrevocable proxies to vote 623,650
shares of Common Stock when acquired upon exercise of vested options.
A-16
<PAGE>
COMPARATIVE STOCK PERFORMANCE GRAPHS
STOCK PERFORMANCE GRAPHS
The first graph below compares the stock price of the Company's Common Stock
with the performance of the Standard and Poors ("S&P") 500 Composite Index and
the S&P Entertainment Index as of the last trading date for each of 1991,
1992, 1993, 1994, 1995 and 1996. Such graph assumes that $100 was invested on
December 31, 1991 in the Company's Common Stock, and that all dividends were
reinvested. The second graph compares the stock price of the Company's Class B
Common Stock with the performance of the S&P 500 Composite Index and the S&P
Entertainment Index as of the last trading date for each of 1995 and 1996.
Such graph assumes that $100 was invested on December 11, 1995 in the
Company's Class B Common Stock, and that all dividends were reinvested. No
dividends have been declared or paid on the Company's Common Stock or Class B
Common Stock other than to holders of record of such Common Stock at February
25, 1991, who were paid an extraordinary dividend in the amount of $10.00 per
share in connection with the SBEI Merger. The historical price performance
data shown on the graph are not necessarily indicative of future price
performance.
COMPARISON OF SIX-YEAR CUMULATIVE TOTAL RETURN
AMONG ALL AMERICAN COMMUNICATONS, INC.,
S&P 500 COMPOSITE INDEX AND S&P ENTERTAINMENT INDEX
TOTAL SHAREHOLDER RETURNS--DIVIDENDS REINVESTED
<TABLE>
<CAPTION>
MEASUREMENT ALL AMERICAN
PERIOD (FISCAL YEAR COMMUNICATIONS, INC. S&P 500 COMPOSITE S&P ENTERTAINMENT
COVERED) COMMON STOCK INDEX INDEX
------------------- -------------------- ----------------- -----------------
<S> <C> <C> <C>
December 1991........... 100 100 100
December 1992........... 95.31 107.62 143.00
December 1993........... 115.83 118.46 165.28
December 1994........... 78.13 120.03 157.84
December 1995........... 125.00 165.13 189.40
December 1996........... 168.75 203.05 192.30
</TABLE>
A-17
<PAGE>
COMPARISON OF TWO-YEAR CUMULATIVE TOTAL RETURN
AMONG ALL AMERICAN COMMUNICATONS, INC.,
S&P 500 COMPOSITE INDEX AND S&P ENTERTAINMENT INDEX
TOTAL SHAREHOLDER RETURNS--DIVIDENDS REINVESTED
<TABLE>
<CAPTION>
MEASUREMENT ALL AMERICAN
PERIOD (FISCAL YEAR COMMUNICATIONS, INC. S&P 500 COMPOSITE S&P ENTERTAINMENT
COVERED) CLASS B COMMON STOCK INDEX INDEX
------------------- -------------------- ----------------- -----------------
<S> <C> <C> <C>
December 1995........... 83.33 99.42 97.46
December 1996........... 95.24 122.25 98.96
</TABLE>
A-18
<PAGE>
SCHEDULE I
DIRECTOR NOMINEES
<TABLE>
<CAPTION>
PRESENT PRINCIPAL
OCCUPATION
OR EMPLOYMENT AND
FIVE-YEAR EMPLOYMENT
NAME AND BUSINESS ADDRESS AGE HISTORY CITIZENSHIP
------------------------- --- -------------------- -----------
<C> <C> <S> <C>
David M. Veit............... 58 Chairman of the Board of United States
30 Rockefeller Plaza Directors since 1987 and
New York, New York 10112 President since 1985 of
Pearson Inc.
John G. Davis............... 35 Senior Vice President United Kingdom
30 Rockefeller Plaza and Chief Financial
New York, New York 10112 Officer of Pearson Inc.
since 1997. Various
positions at EMAP plc(1)
from 1992 to 1996
including, Director of
Treasury and Corporate
Finance and EMAP Radio
Finance Director.
Thomas Wharton.............. 50 Vice President--Taxation United States
30 Rockefeller Plaza and Secretary of Pearson
New York, New York 10112 Inc. since 1997.
Director of Tax from
1996 to 1997 of Pearson
Inc. Tax Manager from
1990 to 1996 of Pearson
Inc.
David C.M. Bell............. 51 Executive Director of United Kingdom
3 Burlington Gardens Pearson plc since 1996.
London W1X 1LE Chief Executive of The
England Financial Times from
1993 to 1996. Director
of The Financial Times
from 1989 to 1993.
Gregory Dyke................ 50 Executive Director of United Kingdom
1, Stephen Street Pearson plc since 1996.
London W1P 1PJ Chairman and Chief
England Executive of Pearson
Television since 1995.
Chairman of Channel 5
Broadcasting Limited.
Chief Executive of
London Weekend
Television from 1987 to
1994.
John C. Makinson............ 42 Finance Director of United Kingdom
3 Burlington Gardens Pearson plc since 1996.
London W1X 1LE Managing Director of The
England Financial Times Group
from 1994 to 1996.
Partner of Makinson
Cowell from 1989 to
1994.
Marjorie M. Scardino........ 50 Chief Executive of United States
3 Burlington Gardens Pearson plc since 1997.
London W1X 1LE Chief Executive of The
England Economist Group Ltd.
from 1992 to 1996.
</TABLE>
S-1
<PAGE>
DIRECTOR NOMINEES
(CONTINUED)
<TABLE>
<CAPTION>
PRESENT PRINCIPAL
OCCUPATION OR
EMPLOYMENT AND
FIVE-YEAR EMPLOYMENT
NAME AND BUSINESS ADDRESS AGE HISTORY CITIZENSHIP
------------------------- --- -------------------- -----------
<C> <C> <S> <C>
Henry Dennistoun Stevenson
C.B.E...................... 52 Chairman of the Board of United Kingdom
78-80 St. John's Street Directors of Pearson plc
London EC1M 4HR since 1997. Deputy
England Chairman of the Board of
Directors of Pearson plc
from 1996 to 1997. Non-
executive Director of
Pearson plc since 1986.
Chairman of GPA:
Aircraft Leasing Company
and of the Trustees of
the Tate Gallery.
</TABLE>
S-2
<PAGE>
ANNEX B
- -------------------------------------------------------------------------------
Goldman, Sachs & Co. | 85 Broad Street | New York, New York 10004
Tel: 212-902-1000
[LOGO OF GOLDMAN SACHS]
PERSONAL AND CONFIDENTIAL
- -------------------------------------------------------------------------------
October 6, 1997
Board of Directors
All American Communications, Inc.
808 Wilshire Boulevard
Santa Monica, California 90401
Gentlemen:
You have requested that we confirm our oral opinion, delivered September 30,
1997, as to the fairness as of such date from a financial point of view to the
holders of the outstanding shares of the Common Stock and Class B Common
Stock, par value $.0001 per share (together, the "Shares"), of All American
Communications, Inc. (the "Company") of the $25.50 per Share in cash proposed
to be paid by Pearson PLC ("Buyer") or Pearson Merger Company, Inc. ("Merger
Sub"), a wholly-owned subsidiary of Buyer, in the Tender Offer and the Merger
(as defined below) pursuant to the Agreement and Plan of Merger, dated as of
October 1, 1997, by and among Buyer, Merger Sub and the Company (the
"Agreement"). The Agreement provides for a tender offer for all of the Shares
(the "Tender Offer") pursuant to which Buyer or Merger Sub will pay $25.50 per
Share in cash for each Share accepted. The Agreement further provides that
following completion of the Tender Offer, Merger Sub will be merged with the
Company (the "Merger") and each outstanding Share (other than Shares already
owned by Buyer or Merger Sub) will be converted into the right to receive
$25.50 in cash (or such greater amount which may be paid pursuant to the
Tender Offer).
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements, and valuations for estate, corporate and other
purposes. We are familiar with the Company, having acted as lead manager in
connection with the issuance of $100 million principal amount of the Company's
10.875% senior subordinated notes due October 15, 2001 (the "10.875% Notes"),
and having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement.
Goldman, Sachs & Co. has also provided certain investment banking services to
Buyer from time to time, including having acted as joint global coordinator in
September 1995 in a secondary offering by Buyer of securities of British Sky
Broadcasting Group plc, and Goldman, Sachs & Co. may provide investment
banking services to Buyer and its subsidiaries in the
New York | London | Tokyo | Boston | Chicago | Dallas | Frankfurt | George
Town | Hong Kong | Houston | Los Angeles | Memphis
Miami | Milan | Montreal | Osaka | Paris | Philadelphia | San
Francisco | Singapore | Sydney | Toronto | Vancouver | Zurich
B-1
<PAGE>
All American Communications, Inc.
October 6, 1997
Page Two
future. Goldman, Sachs & Co. provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including
derivative securities, of the Company or Buyer for its own account and for the
accounts of customers. As of the date hereof, Goldman, Sachs & Co. accumulated
a long position of approximately $15 million principal amount of the 10.875%
Notes.
In connection with our opinion, we reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company for the five years ended December 31, 1996; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of the Company;
certain other communications from the Company to its stockholders; and certain
internal financial analyses and forecasts for the Company prepared by its
management. We also held discussions with members of the senior management of
the Company regarding its past and current business operations, financial
condition and future prospects. In addition, we reviewed the reported price
and trading activity for the Shares, compared certain financial and stock
market information for the Company with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the entertainment industry
specifically and in other industries generally and performed such other
studies and analyses as we considered appropriate.
We relied upon the accuracy and completeness of all of the financial and other
information reviewed by us and assumed such accuracy and completeness for
purposes of rendering our opinion. In addition, we did not make an independent
evaluation or appraisal of the assets and liabilities of the Company or any of
its subsidiaries and we were not furnished with any such evaluation or
appraisal. Our advisory services and the opinion confirmed herein were
provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the transaction contemplated
by the Agreement and such opinion does not constitute a recommendation as to
how any holder of Shares should vote with respect to, or whether or not any
holder of Shares should tender such Shares into the Tender Offer in connection
with, such transaction.
This letter confirms our oral opinion that, based upon and subject to the
foregoing and based upon such other matters as we considered relevant, as of
September 30, 1997, the $25.50 per Share in cash to be received by the holders
of Shares pursuant to the Tender Offer and the Merger was fair from a
financial point of view to such holders.
Very truly yours,
/s/ Goldman, Sachs & Co.
- ---------------------------------------
(GOLDMAN, SACHS & CO.)
B-2
<PAGE>
Exhibit 1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ALL AMERICAN COMMUNICATIONS, INC.,
PEARSON PLC
AND
PEARSON MERGER COMPANY, INC.
DATED AS OF OCTOBER 1, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER........................................................ 2
Section 1.1 The Merger............................................... 2
Section 1.2 Closing.................................................. 3
Section 1.3 Effective Time........................................... 3
Section 1.4 Subsequent Actions....................................... 3
Section 1.5 Certificate of Incorporation............................. 3
Section 1.6 The Bylaws............................................... 3
Section 1.7 Officers and Directors................................... 3
ARTICLE II CONVERSION OR CANCELLATION OF SHARES IN THE MERGER............... 4
Section 2.1 Conversion or Cancellation of Shares..................... 4
Section 2.2 Payment for Shares, Stock Options and
Warrants in the Merger............................................. 5
Section 2.3 Transfer of Shares After the Effective Time.............. 6
Section 2.4 No Liability............................................. 6
Section 2.5 Lost Certificates........................................ 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... 6
Section 3.1 Organization and Qualification; Subsidiaries............. 7
Section 3.2 Restated Certificate of Incorporation and
Bylaws............................................................. 7
Section 3.3 Capitalization........................................... 7
Section 3.4 Authority Relative to this Agreement..................... 8
Section 3.5 No Conflict; Required Filings and Consents............... 9
Section 3.6 SEC Filings; Financial Statements........................ 10
Section 3.7 Absence of Certain Changes or Events..................... 12
Section 3.8 Intellectual Property.................................... 12
Section 3.9 Material Contracts....................................... 13
Section 3.10 Environmental Matters.................................... 14
Section 3.11 Benefit Plans............................................ 14
Section 3.12 Tax Matters.............................................. 16
Section 3.13 Litigation............................................... 17
Section 3.14 Opinion of Financial Advisor............................. 17
Section 3.15 Brokers.................................................. 17
Section 3.16 Properties and Assets.................................... 17
Section 3.17 Compliance with Laws in General.......................... 17
Section 3.18 Labor Matters............................................ 18
Section 3.19 Insurance................................................ 18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB....... 19
Section 4.1 Organization and Qualification; Subsidiaries............. 19
Section 4.2 Certificate of Incorporation and Bylaws.................. 19
Section 4.3 Authority Relative to this Agreement..................... 20
Section 4.4 No Conflict; Required Filings and Consents............... 20
Section 4.5 Ownership of Merger Sub; No Prior Activities............. 21
Section 4.6 Litigation............................................... 21
Section 4.7 Financing................................................ 21
Section 4.8 Brokers.................................................. 21
Section 4.9 Ownership of Shares...................................... 21
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE V COVENANTS....................................................... 22
Section 5.1 Interim Operations of the Company...................... 22
ARTICLE VI ADDITIONAL AGREEMENTS.......................................... 23
Section 6.1 Meeting of the Stockholders............................ 23
Section 6.2 Filings; Other Action.................................. 24
Section 6.3 Access................................................. 24
Section 6.4 Notification of Certain Matters........................ 25
Section 6.5 Publicity.............................................. 25
Section 6.6 Indemnification........................................ 25
Section 6.7 Obligations of Merger Sub.............................. 27
Section 6.8 Stock Options and Warrants............................. 27
Section 6.9 Employee Benefit Plans................................. 28
Section 6.10 No Solicitation of Transactions........................ 28
Section 6.11 Directors.............................................. 29
Section 6.12 Use of Name............................................ 30
ARTICLE VII CONDITIONS.................................................... 30
SECTION 7.1 Conditions to the Obligations of Each Party............ 31
ARTICLE VIII TERMINATION.................................................. 31
Section 8.1 Termination by Mutual Consent.......................... 31
Section 8.2 Termination by Either Purchaser or the
Company.......................................................... 31
Section 8.3 Termination by Purchaser............................... 32
Section 8.4 Termination by the Company............................. 32
Section 8.5 Effect of Termination and Abandonment.................. 33
Section 8.6 Issuance of New or Treasury Shares..................... 33
ARTICLE IX THE OFFER...................................................... 34
Section 9.1 Tender Offer........................................... 34
ARTICLE X MISCELLANEOUS; GENERAL.......................................... 35
Section 10.1 Payment of Expenses.................................... 35
Section 10.2 Survival............................................... 36
Section 10.3 Modification or Amendment.............................. 36
Section 10.4 Counterparts........................................... 36
Section 10.5 Governing Law.......................................... 36
Section 10.6 Notices................................................ 36
Section 10.7 Entire Agreement, etc.................................. 37
Section 10.8 Captions............................................... 37
Section 10.9 Certain Definitions.................................... 37
Section 10.10 No Third Party Beneficiaries........................... 38
</TABLE>
ii
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM POSITION OF DEFINITION
- ------------ ----------------------
<S> <C>
Agreement Preamble
Benefit Plans (S) 3.11(c)
Certificate of Merger (S) 1.3
Certificates (S) 2.2(b)
Claim (S) 6.6(b)
Closing (S) 1.2
Code (S) 3.11(c)
Company Preamble
Common Stock Recitals
Company Disclosure Schedule Article
III Preamble
Company Material Adverse Effect (S) 3.1
Company Subsidiary (S) 3.1
Competing Transaction (S) 6.10(b)
Competing Transaction Termination (S) 8.6
Confidentiality Agreement (S) 6.3
Constituent Corporations Preamble
DGCL (S) 1.1
Dissenting Shares (S) 2.1(a)
Effective Time (S) 1.3
Environmental Laws (S) 3.10
ERISA (S) 3.11(b)
Exchange Act (S) 3.5(b)
Expenses (S) 10.1(a)
GAAP (S) 3.6(c)
Governmental Authority (S) 3.5(b)
HSR Act (S) 3.5(b)
Indemnified Parties (S) 6.6(b)
Independent Directors (S) 6.11(a)
Intellectual Property Rights (S) 3.8
Law (S) 3.5(a)
Merger (S) 1.1
Merger Consideration (S) 2.1(a)
Merger Sub Preamble
NASDAQ/NMS (S) 3.5(b)
Offer Recitals
Offer Documents (S) 9.1(b)
Order (S) 7.1(f)
Paying Agent (S) 2.2(a)
Payment Fund (S) 2.2(a)
Plans (S) 3.3
Proxy Statement (S) 6.1(b)
Purchaser Companies (S) 2.1(a)
Purchaser Material Adverse Effect (S) 4.1
Purchaser Preamble
Schedule 14D-9 (S) 9.1(b)
SEC (S) 3.6(a)
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
SEC Reports (S) 3.6(a)
Securities Act (S) 3.6(a)
Shares (S) 2.1(a)
Stockholders Agreement Recitals
Stockholders Meeting (S) 6.1(a)
Surviving Corporation (S) 1.1
Transactions (S) 3.4(a)
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated
as of October 1, 1997, among ALL AMERICAN COMMUNICATIONS, INC., a Delaware
corporation (the "Company"), PEARSON PLC, a corporation organized under the laws
of the United Kingdom ("Purchaser"), and PEARSON MERGER COMPANY, INC., a
Delaware corporation ("Merger Sub"), the Company and Merger Sub sometimes being
hereinafter collectively referred to as the "Constituent Corporations."
RECITALS
WHEREAS, the Company desires that Merger Sub merge with and into the
Company, all upon the terms and subject to the conditions of this Agreement;
WHEREAS, the Company, Purchaser and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with the
merger of the Company and Merger Sub;
WHEREAS, in furtherance of the Merger (as defined in Section 1.1), it is
proposed that Merger Sub commence a tender offer for all of the outstanding
Shares (as defined in Section 2.1(a)) at a price of $25.50 per share (the
"Offer"); and
WHEREAS, concurrently with the execution of this Agreement, certain
stockholders of the Company have entered into a stockholders agreement (the
"Stockholders Agreement") pursuant to which such stockholders have agreed, among
other things, to vote certain of their Shares in favor of this Agreement and the
Merger (as defined in Section 1.1), and to tender such Shares to Merger Sub in
accordance with the Offer;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements and conditions herein
contained, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.3) Merger Sub shall be
merged with and into the Company and the separate corporate existence of Merger
Sub shall thereupon cease (the "Merger"). The Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation") and shall continue to
<PAGE>
be governed by the laws of the State of Delaware, and the separate corporate
existence of the Company with all its rights, privileges, immunities and
franchises shall continue unaffected by the Merger. The Merger shall have the
effects specified in the Delaware General Corporation Law (the "DGCL").
Section 1.2 Closing. The closing of the Merger (the "Closing") shall take
place (i) at the offices of Kaye, Scholer, Fierman, Hays & Handler, LLP as
promptly as practicable but in no event later than the third business day after
which the last to be fulfilled or waived of the conditions set forth in Article
VII hereof shall be fulfilled or waived in accordance with this Agreement, at
such time as the Company and Purchaser may agree, or (ii) at such other place
and time and/or on such other date as the Company and Purchaser may agree.
Section 1.3 Effective Time. As soon as practicable following fulfillment
or waiver of the conditions specified in Article VII hereof, and provided that
this Agreement has not been terminated or abandoned pursuant to Article VIII
hereof, the Company and the Purchaser will cause a Certificate of Merger (the
"Certificate of Merger") or Purchaser shall cause a Certificate of Ownership and
Merger (the "Certificate of Ownership") to be executed and filed with the
Secretary of State of Delaware as provided in the DGCL. The Merger shall become
effective at such time as the Certificate of Merger or Certificate of Ownership
has been duly filed with the Secretary of State of Delaware, and such time is
hereinafter referred to as the "Effective Time."
Section 1.4 Subsequent Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either of the Constituent Corporations acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger or otherwise to carry out this Agreement, the officers and directors of
the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of each of the Constituent Corporations or otherwise, all
such deeds, bills of sale, assignments and assurances and to take and do, in the
name and on behalf of each of the Constituent Corporations or otherwise, all
such other actions and things as may be necessary or desirable to vest, perfect
or confirm any and all right, title and interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out this
Agreement.
Section 1.5 Certificate of Incorporation. The Certificate of
Incorporation of the Company in effect at the Effective Time shall be the
Certificate of Incorporation of the
2
<PAGE>
Surviving Corporation, provided that, subject to Section 6.6(a), it shall be
amended to read as set forth in Exhibit A.
Section 1.6 The Bylaws. The bylaws of the Company in effect at the
Effective Time shall be the bylaws of the Surviving Corporation, provided that,
subject to Section 6.6(a), they shall be amended to read as set forth in Exhibit
B.
Section 1.7 Officers and Directors. The directors and officers of Merger
Sub at the Effective Time shall, from and after the Effective Time, continue as
the directors and officers, respectively, of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and bylaws.
ARTICLE II
CONVERSION OR CANCELLATION OF SHARES IN THE MERGER
Section 2.1 Conversion or Cancellation of Shares. The manner of
converting or canceling shares of the Company and Merger Sub in the Merger shall
be as follows:
(a) At the Effective Time, each share of the Company's common stock,
par value $.0001 per share (the "Common Stock"), and each share of the Company's
Class B Common Stock, par value $.0001 per share (the "Class B Common Stock",
and together with the issued and outstanding Common Stock, the "Shares"), issued
and outstanding immediately prior to the Effective Time (other than shares owned
by Purchaser, Merger Sub or any other subsidiary or affiliate of Purchaser
(collectively, the "Purchaser Companies") or Shares which are held by
stockholders exercising appraisal rights pursuant to Section 262 of the DGCL
("Dissenting Shares")) shall, by virtue of the Merger and without any action on
the part of the holder thereof, be canceled and extinguished and converted into
the right to receive, in cash, the greater of (x) $25.50 or (y) such greater
amount which may be paid pursuant to the Offer (the "Merger Consideration").
All such Shares, by virtue of the Merger and without any action on the part of
the holders thereof, shall no longer be outstanding and shall be canceled and
retired and shall cease to exist, and each holder of a certificate representing
any such Shares shall thereafter cease to have any rights with respect to such
Shares, except the right to receive the Merger Consideration for such Shares
upon the surrender of such certificate in accordance with Section 2.2.
(b) At the Effective Time, each Share issued and outstanding at the
Effective Time and owned by any of the Purchaser Companies, and each Share
issued and held in the Company's treasury at the Effective Time, shall, by
virtue of the Merger and without any action on the part of the holder thereof,
3
<PAGE>
cease to be outstanding, be canceled and be retired without payment of any
consideration therefor and cease to exist.
(c) At the Effective Time, each share of common stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one validly issued, fully paid and nonassessable share
of Common Stock of the Surviving Corporation.
(d) Notwithstanding anything in this Agreement to the contrary, any
Dissenting Shares held by a person (a "Dissenting Stockholder") who shall not
have voted in favor of the Merger or consented thereto in writing and who shall
have demanded properly in writing appraisal for such Dissenting Shares in
accordance with Section 262 of the DGCL shall not be converted as described in
Section 2.1(a), but shall become the right to receive such consideration as may
be determined to be due to such Dissenting Shareholder pursuant to the laws of
the State of Delaware. If, after the Effective Time, such Dissenting
Stockholder withdraws its demand for appraisal or fails to perfect or otherwise
loses its right of appraisal, in any case pursuant to the DGCL, its Shares shall
be deemed to be converted as of the Effective Time into the right to receive the
Merger Consideration without interest. The Company shall give Purchaser prompt
notice of any demands for appraisal of shares received by the Company. The
Company shall not, without the prior written consent of Purchaser, make any
payment with respect to, or settle, offer to settle or otherwise negotiate, any
such demands.
Section 2.2 Payment for Shares, Stock Options and Warrants in the Merger.
The manner of making payment for Shares and outstanding options and warrants to
purchase Shares in the Merger shall be as follows:
(a) At or prior to the Effective Time, Purchaser or Merger Sub shall
deposit in trust for the benefit of the holders of Shares with a bank or trust
company designated by Purchaser and approved by the Company (the "Paying
Agent"), cash in an aggregate amount equal to the sum of (i) the product of (A)
the number of Shares issued and outstanding at the Effective Time (other than
Shares owned by the Purchaser Companies and other than Dissenting Shares) and
(B) the Merger Consideration and (ii) the amount necessary for the payment in
full of the Option Consideration (as defined in Section 6.8) (such amount being
hereinafter referred to as the "Payment Fund"). The Paying Agent shall,
pursuant to irrevocable instructions, make the payments provided for in Sections
2.1 and 6.8 of this Agreement out of the Payment Fund. The Payment Fund shall
not be used for any other purpose except as provided in this Agreement.
(b) Promptly after the Effective Time, the Paying Agent shall mail to
each record holder (other than the Purchaser Companies), as of the Effective
Time, of an outstanding
4
<PAGE>
certificate or certificates which immediately prior to the Effective Time,
represented Shares (the "Certificates") a form letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Paying Agent) and instructions for use in effecting the surrender of the
Certificates for payments therefor. Upon surrender to the Paying Agent of a
Certificate, together with such letter of transmittal duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefor cash in an
amount equal to the product of (i) the number of Shares represented by such
Certificate and (ii) the Merger Consideration, and such Certificate shall
forthwith be canceled. No interest will be paid or accrued on the cash payable
upon the surrender of the Certificates. If payment is to be made to a person
other than the person in whose name the Certificate surrendered is registered,
it may be a condition of payment that the Certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by reason
of the payment to a person other than the registered holder of the Certificate
surrendered, or that such person shall establish to the satisfaction of the
Surviving Corporation that such tax has been paid or is not applicable. Until
surrendered in accordance with the provisions of this Section 2.2, each
Certificate (other than Certificates representing shares owned by the Purchaser
Companies and other than Certificates representing Dissenting Shares) shall
represent, for all purposes, the right to receive the Merger Consideration in
cash multiplied by the number of Shares evidenced by such Certificate, without
any interest thereon.
(c) Any portion of the Payment Fund which remains unclaimed by the
stockholders of the Company for one year after the Effective Time shall be
repaid to the Surviving Corporation (or to the Purchaser if the Payment Fund was
deposited by the Purchaser), upon demand, and any stockholders of the Company
who have not theretofore complied with Section 2.2(b) shall thereafter look only
to the Purchaser and the Surviving Corporation, jointly and severally, for
payment of their claim for the Merger Consideration for Shares, without any
interest thereon. The Paying Agent shall retain the right to invest and
reinvest the Payment Fund on behalf of the Surviving Corporation (or the
Purchaser, if applicable) in securities issued or guaranteed by the United
States government or certificates of deposit of commercial banks that have, or
are members of a group of commercial banks that has, consolidated total assets
of not less than $500,000,000 and shall receive the interest earned thereon.
Section 2.3 Transfer of Shares After the Effective Time. No transfers of
Shares shall be made on the stock transfer books of the Surviving Corporation at
or after the Effective Time.
5
<PAGE>
Section 2.4 No Liability. None of Purchaser, Merger Sub, the Company or
the Paying Agent shall be liable to any person in respect of any cash delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificates shall not have been surrendered prior to seven
years after the Effective Time (or immediately prior to such earlier date on
which any payment pursuant to this Article II would otherwise escheat to or
become the property of any governmental entity), the cash payment in respect of
such Certificate shall, unless otherwise provided 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 2.5 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
Paying Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration deliverable in respect thereof pursuant to
this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule delivered by the Company to
Purchaser and Merger Sub concurrently with the execution of this Agreement (the
"Company Disclosure Schedule"), the Company hereby represents and warrants to
Purchaser and Merger Sub that:
Section 3.1 Organization and Qualification; Subsidiaries. The Company and
each Company Subsidiary (as hereinafter defined) is a corporation or limited
liability company, as the case may be, duly incorporated or formed, as the case
may be, validly existing and in good standing under the laws of the jurisdiction
of its incorporation and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted. The Company and each Company
Subsidiary is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failure to be
so qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Company Material Adverse Effect. The Company is not
subject to Section 2115 of the California General Corporation
6
<PAGE>
Law. The term "Company Material Adverse Effect" means, for all purposes of this
Agreement, any change in the business of the Company and the Company
Subsidiaries that is materially adverse (or any group of such changes, none of
which individually is materially adverse, but which in the aggregate are
materially adverse) to the business, operations, properties, financial position
or results of operations of the Company and its subsidiaries, taken as a whole,
provided that none of the following shall constitute a Company Material Adverse
Effect: (i) a decline in the ratings of any television programs distributed or
produced by the Company or its subsidiaries or the cancellation of any
television programs distributed or produced by the Company or its subsidiaries,
(ii) the filing, initiation and subsequent prosecution, by or on behalf of
stockholders of the Company, of litigation that challenges or otherwise seeks
damages with respect to the Transactions, (iii) occurrences due to a disruption
of the Company's or its subsidiaries' businesses as a result of the announcement
of the execution of this Agreement, (iv) general economic conditions or (v) any
changes generally affecting the industries in which the Company and its
subsidiaries operate. For purposes of this Agreement, the term "Company
Subsidiary" shall mean a subsidiary of the Company that is identified as such in
Section 3.1 of the Company Disclosure Schedule. Section 3.1 of the Company
Disclosure Schedule sets forth a complete list of all subsidiaries of the
Company. Except as set forth in Section 3.1 of the Company Disclosure Schedule,
the Company owns directly or indirectly all of the issued and outstanding shares
of capital stock of the Company Subsidiaries. Other than as set forth in
Section 3.1 of the Company Disclosure Schedule, as of the date of this Agreement
the Company has no other equity interest in any other entity.
Section 3.2 Restated Certificate of Incorporation and Bylaws. The Company
has heretofore furnished to Purchaser a complete and correct copy of the
Restated Certificate of Incorporation and the Bylaws of the Company. The
Restated Certificate of Incorporation and Bylaws of the Company are in full
force and effect. As of the date of this Agreement, the Company is not in
violation of any of the provisions of its Restated Certificate of Incorporation
or Bylaws.
Section 3.3 Capitalization. The authorized capital stock of the Company
consists of 40,000,000 shares of common stock, consisting of (i) 20,000,000
shares of Common Stock having a par value of $.0001 per share and (ii)
20,000,000 shares of Class B Common Stock having a par value of $.0001 per
share, and 5,000,000 shares of Preferred Stock, par value $.01 per share. As of
September 23, 1997, (i)17,981 shares of Common Stock issued before the Company's
March 20, 1992 4-for-1 reverse stock split but not exchanged for certificates
representing the Company's post-split Common Stock (4,495.25 equivalent shares
of post-split Common Stock), 7,015,062 shares of Common Stock (such amount
excludes shares held in treasury) and 5,149,650 shares of Class B
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Common Stock (such amount excludes shares held in treasury) were issued and
outstanding, all of which are validly issued, fully paid and nonassessable, (ii)
80,000 shares of Common Stock and 578,200 shares of Class B Common Stock were
held in the treasury of the Company, (iii) 30,000 shares of restricted Common
Stock were awarded in August 1994, but not issued, to Lawrence Lamattina , and
(iv) no shares of Preferred Stock were issued and outstanding. Except as
otherwise permitted by this Agreement and except for options granted pursuant to
the Company's 1991 Incentive Stock Option Plan or 1994 Stock Incentive Plan
(collectively, the "Plans") which options, including the exercise price thereof,
are set forth in Section 3.3 of the Company Disclosure Schedule or options or
warrants granted pursuant to agreements or arrangements otherwise described in
Section 3.3 of the Company Disclosure Schedule, there are no options, warrants
or other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of the Company or obligating
the Company to issue or sell any shares of capital stock of, or other equity
interests in, the Company. All Shares subject to issuance, 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. Other than as
set forth on Section 3.3 of the Company Disclosure Schedule, there are no
stockholder agreements, voting trusts or other agreements or understandings to
which the Company is a party relating to voting or disposition of any shares of
capital stock of the Company or granting to any person or group of persons the
right to elect, or to designate or nominate for election, a director to the
board of directors of the Company.
Section 3.4 Authority Relative to this Agreement.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions 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, with respect to the Merger (unless Section 253 of the
DGCL is applicable), the approval and adoption of this Agreement by the holders
of a majority of the then outstanding shares of Common Stock, and the filing and
recordation of appropriate merger documents as required by the DGCL). This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Purchaser and Merger
Sub, constitutes a legal, valid and binding obligation of the Company,
enforceable against the
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Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally and to general principles of equity.
(b) The Board of Directors of the Company has (i) approved and adopted
this Agreement and the transactions contemplated hereby, (ii) determined that
the Offer and the Merger are in the best interests of the Company and its
stockholders and that the terms of this Agreement are fair to the Company and
its stockholders and (iii) subject to the provisions of Section 6.1(a) hereof,
determined and agreed to recommend that the stockholders of the Company approve
and adopt this Agreement.
(c) The Board of Directors of the Company has approved Purchaser as an
"interested stockholder" within the meaning of Section 203 of the DGCL with
respect to the Merger, any acquisition of Shares pursuant to the Stockholders
Agreement, the Offer or any of the other Transactions.
Section 3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will not (i) conflict
with or violate the Restated Certificate of Incorporation or Bylaws of the
Company or conflict with or violate the certificate of incorporation or bylaws
or equivalent organizational documents of any Company Subsidiary, (ii) assuming
that all consents, approvals, authorizations and other actions described in
subsection (b) have been obtained and all filings and obligations described in
subsection (b) have been made or complied with, conflict with or violate any
foreign or domestic (federal, state or local) law, statute, ordinance, rule,
regulation, permit, injunction, writ, judgment, decree or order ("Law")
applicable to the Company or any Company Subsidiary or by which any asset of the
Company or any Company Subsidiary is bound or affected, or (iii) conflict with,
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any right
of termination, amendment, acceleration or cancellation of, or require any
payment under, or result in the creation of a lien, claim, security interest or
other charge or encumbrance on any asset of the Company or any Company
Subsidiary pursuant to, any contract or other instrument or obligation to which
the Company or any Company Subsidiary is a party or by which any asset of the
Company or any Company Subsidiary is bound or affected, except, with respect to
(x) clause (iii), under the Amended and Restated Credit, Security, Guaranty and
Pledge Agreement, dated as of April 13, 1995, as amended and restated as of
October 23, 1996, and as in effect on the date hereof, between the Company and
The Chase Manhattan Bank, as agent and fronting bank, the Indenture, dated as of
October 11, 1996, between the Company and U.S. Trust Company of California,
N.A., as Trustee,
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with respect to the Company's 10 7/8% Senior Subordinated Notes due 2001, and
the other agreements listed in Section 3.5(a) of the Disclosure Schedule, and
(y) clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults, or other occurrences that would not, individually or in the aggregate,
have a Company Material Adverse Effect, or prevent, materially hinder or make
materially more burdensome the Transactions.
(b) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any United States (federal, state or local) or foreign government or
governmental, regulatory or administrative authority, agency, commission, board,
bureau, court or instrumentality or arbitrator of any kind ("Governmental
Authority"), except (i) for applicable requirements, if any, of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the National Association
of Securities Dealers, Inc. Automated Quotation/National Market System
("NASDAQ/NMS") and state takeover laws, 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"), any pre-merger notification
filing with the German Federal Cartel Office and filing and recordation of
appropriate merger documents as required by the DGCL and (ii) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay consummation of the Offer
or the Merger or otherwise prevent the Company from performing its obligations
under this Agreement, and would not, individually or in the aggregate, have a
Company Material Adverse Effect.
Section 3.6 SEC Filings; Financial Statements.
(a) Since January 1, 1996, and prior to the execution and delivery of
this Agreement, the Company has filed all forms, reports, statements and other
documents required to be filed with the Securities and Exchange Commission (the
"SEC"), including, without limitation, (A) all Annual Reports on Form 10-K, (B)
all Quarterly Reports on Form 10-Q, (C) all proxy statements relating to
meetings of stockholders (whether annual or special), (D) all Reports on Form 8-
K, (E) all other reports or registration statements and (F) all amendments and
supplements to all such reports and registration statements (collectively, the
"SEC Reports"). The SEC Reports (i) were prepared in all material respects in
accordance with the requirements of the Securities Act of 1933, as amended (the
"Securities Act") and the Exchange Act and the rules and regulations of the SEC
thereunder applicable to such SEC Reports and (ii) did not at the time they
were filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or
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necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any notes thereto) contained in the SEC Reports has been prepared in all
material respects in accordance with the published rules and regulations of the
SEC and generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as may be indicated in the notes
thereto) and each fairly presents, in all material respects, the consolidated
financial position, results of operations and cash flows of the Company and its
consolidated subsidiaries as at the respective dates thereof and for the
respective periods indicated therein, except as otherwise indicated in the notes
thereto (subject, in the case of unaudited statements, to normal and recurring
year-end adjustments which were not and are not expected, individually or in the
aggregate, to have a Company Material Adverse Effect).
(c) Except as and to the extent set forth on, or reserved against on,
the consolidated balance sheet of the Company and its consolidated subsidiaries
as of June 30, 1997, including the notes thereto, none of the Company or any
Company Subsidiary has any liability or obligation of any nature (whether
accrued, absolute, contingent, fixed, liquidated, unliquidated or otherwise)
that would be required to be reflected on, or reserved against in, a balance
sheet of the Company, or in the notes thereto, prepared in accordance with the
published rules and regulations of the SEC and generally accepted accounting
principles, except for liabilities or obligations (i) disclosed in any SEC
Report filed since June 30, 1997 and prior to the execution and delivery of this
Agreement, or in the Company Disclosure Schedule or (ii) incurred in the
ordinary course of business since June 30, 1997, that would not, individually or
in the aggregate, have a Company Material Adverse Effect. Except as set forth
in Section 3.13 of the Company Disclosure Schedule, neither the Company nor any
of the Company Subsidiaries has any liability for any discontinued operations
(as such term is used in accordance with generally accepted accounting
principles ("GAAP")) or with respect to any business or assets formerly owned or
operated by the Company or any of the Company Subsidiaries or with respect to
any predecessor of the Company or any of the Company Subsidiaries, that would
individually or in the aggregate have a Company Material Adverse Effect.
Section 3.6(c) of the Company Disclosure Schedule sets forth the amount of
principal and unpaid interest outstanding as of September 30, 1997 under each
instrument evidencing Indebtedness of or borrowed money of the Company and the
Company Subsidiaries which will accelerate or become due or result in a right of
redemption or repurchase on the part of the holder of such Indebtedness (with or
without due notice or lapse of time) as a result of this Agreement, the Merger
or the other Transactions.
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(d) Except in each case as disclosed in the SEC Reports or as set
forth in Section 3.6(d) of the Company Disclosure Schedule, none of the Company
or any of the Company Subsidiaries is indebted to any director or executive
officer of the Company or any of the Company Subsidiaries (except for amounts
due as normal salaries and bonuses, in reimbursement of ordinary expenses and
directors' fees) and no such person is indebted to the Company or any of the
Company Subsidiaries, and there have been no other transactions of the type
required to be disclosed pursuant to Items 402 and 404 of Regulation S-K under
the Exchange Act.
(e) As of the date hereof, the aggregate amount of Indebtedness of the
Company and its subsidiaries does not exceed $200,000,000. Except as identified
in Section 3.6(e) of the Company Disclosure Schedule, no Indebtedness of the
Company or any of the Company Subsidiaries in excess of $100,000 contains any
restriction upon (i) the prepayment of such Indebtedness, (ii) the incurrence of
Indebtedness by the Company or any of the Company Subsidiaries or (iii) the
ability of the Company or any of the Company Subsidiaries to grant any liens on
its properties or assets. For purposes of this Agreement, "Indebtedness" shall
mean (i) all indebtedness for borrowed money or for the deferred purchase price
of property or services (other than current trade liabilities incurred in the
ordinary course of business and payable in accordance with customary practices),
(ii) any other indebtedness which is evidenced by a note, bond, debenture or
similar instrument, (iii) all obligations under financing leases (as such term
is used in accordance with GAAP), (iv) all obligations in respect of acceptances
issued or created, (v) all liabilities secured by any lien on any property, and
(vi) all guarantee obligations.
Section 3.7 Absence of Certain Changes or Events. From June 30, 1997 to
the date hereof, except as contemplated by this Agreement or as disclosed in any
SEC Report filed since June 30, 1997 and prior to the execution and delivery of
this Agreement or in the Company Disclosure Schedule, the Company and the
Company Subsidiaries have conducted their businesses only in the ordinary course
and in a manner consistent with past practice and there has not been (a) any
change by the Company in its accounting methods, principles or practices, (b)
any revaluation by the Company of any material asset (including, without
limitation, any writing down of the value of inventory or writing off of notes
or accounts receivable), other than in the ordinary course of business
consistent with past practice, (c) any entry by the Company or any Company
Subsidiary into any commitment or transaction material to the Company and the
Company Subsidiaries taken as a whole, except in the ordinary course of business
and consistent with past practice, (d) any declaration, setting aside or payment
of any dividend or distribution in respect of the Shares or any redemption,
purchase or other acquisition of any of its securities, (e) except for increases
required by existing
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employment agreements, any increase in the benefits under, or the establishment
or amendment of, any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any officers of the Company or any Company Subsidiary or any
other employee earning in excess of $100,000 per year, (f) any entry by the
Company or any Company Subsidiary into any employment, consulting, severance,
termination or indemnification agreement with any officer of the Company or any
Company Subsidiary or entry into any such agreement with any other person for an
amount in excess of $100,000 per year or outside the ordinary course of
business, (g) any Company Material Adverse Effect or (h) any agreement by the
Company or any Company Subsidiary to take any of the actions described in this
Section 3.7 except as expressly contemplated by this Agreement, other than for
such events that would not, individually or in the aggregate, have a Company
Material Adverse Effect.
Section 3.8 Intellectual Property. Except as set forth in the Company
Disclosure Schedule, the Company and each of the Company Subsidiaries own or
possess or have the enforceable right to use the licenses, copyrights, know-how
(including trade secrets and other proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names, performing
rights and literary, dramatic, musical or artistic rights (collectively, the
"Intellectual Property") presently employed by them in connection with the
operation of the businesses now operated by them, except where the failure to
own, possess or have the enforceable right to use such Intellectual Property
would not, individually or in the aggregate, have a Company Material Adverse
Effect, and neither the Company nor any of the Company Subsidiaries has received
any notice of infringement of or conflict with asserted rights of others with
respect to the foregoing which has a reasonable likelihood of resulting in an
unfavorable decision, ruling or finding, which, individually or in the
aggregate, would result in a Company Material Adverse Effect. The use of such
Intellectual Property in connection with the business and operations of the
Company and the Company Subsidiaries does not infringe on the rights of any
person, except as would not, individually or in the aggregate, taking into
account the rights of the Company against third parties, result in a Company
Material Adverse Effect. Except as provided otherwise on Schedule 3.8(a) of the
Company Disclosure Schedule, the Company or one of its subsidiaries owns, is
licensed or otherwise possesses the exclusive right to exploit, for the
remaining balance of the respective terms of copyright, existing episodes of the
television series listed in Section 3.8(a) of the Company Disclosure Schedule,
and the perpetual right to produce and exploit new episodes based on the
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formats and, to the knowledge of the Company, the titles of those television
series, in terms of television rights (whether free, pay, cable or satellite)
and in the territories listed on Section 3.8(a) of the Company Disclosure
Schedule, subject only to the licenses and grants to third parties listed or
referenced on Section 3.8(a) of the Company Disclosure Schedule, except where
the failure to have such rights would not, individually or in the aggregate,
have a Company Material Adverse Effect. Except as provided otherwise on Section
3.8(b) of the Company Disclosure Schedule, the Company or one of its
subsidiaries owns, is licensed or otherwise possesses the exclusive right to
produce and exploit new episodes based on the formats and, to the best knowledge
of the Company, the titles of the television series listed in Section 3.8(b) of
the Company Disclosure Schedule, in terms of television rights (whether free,
pay, cable or satellite) and in the territories listed or referenced on Section
3.8(b) of the Company Disclosure Schedule, subject only to the licenses and
grants to third parties listed or referenced on Section 3.8(b) of the Company
Disclosure Schedule, except where the failure to have such rights would not,
individually or in the aggregate, have a Company Material Adverse Effect.
Section 3.9 Material Contracts.
(a) Except as disclosed in Section 3.9(a) of the Disclosure Schedule,
neither the Company nor any of the Company Subsidiaries nor, to the knowledge of
the Company, any party other than the Company or any Company Subsidiary, is in
default in the performance, observance or fulfillment of any of the material
obligations, covenants or conditions contained in any Material Contracts (as
hereinafter defined) to which the Company or any such Company Subsidiary is a
party, except for any such default which would not reasonably be expected to
result in a Company Material Adverse Effect.
(b) Section 3.9(b) of the Company Disclosure Schedule sets forth a
list as of the date of this Agreement of (i) all credit agreements, indentures,
and other agreements related to any Indebtedness for borrowed money in excess of
$100,000 of the Company or any Company Subsidiaries, (ii) all joint venture
agreements to which the Company or any Company Subsidiaries are a party, (iii)
all material distribution agreements and/or licensing agreements to which the
Company or any Company Subsidiaries are party and (iv) all other contracts and
agreements which are material (as hereinafter defined) to the Company and its
subsidiaries taken as a whole (collectively, the "Material Contracts"). The
Company has made available to the Purchaser each agreement listed in Section
3.9(b) or the Company Disclosure Schedule. For purposes of this Section 3.9(b)
an agreement shall be deemed "material" if the Company reasonably expects that
the Company or any of its subsidiaries would, pursuant to the terms thereof, (x)
recognize during the current or any future fiscal year of the Company net
revenues after the
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payment of third party shares in excess of $250,000 or (y) incur during the
current or any future fiscal year of the Company liabilities or obligations (not
covered by corresponding revenues) in excess of $100,000.
(c) Except as set forth in Section 3.5 of the Company Disclosure
Schedule, no Material Contract will, by its terms, terminate as a result of the
Transactions or require any consent from any party thereto in order to remain in
full force and effect immediately after the Effective Time, except for any
Material Contracts which, if terminated, would not have a Company Material
Adverse Effect.
(d) Except as set forth in Section 3.9(d) of the Company Disclosure
Schedule, the Company has not granted any right of first refusal or similar
right in favor of any third party with respect to any material portion of its
properties or assets or entered into any non-competition agreement or similar
agreement restricting its ability to engage in any business which, in either
case, would result in a Company Material Adverse Effect.
(e) Section 3.9(e) of the Company Disclosure Schedule sets forth a
list, as of the date of this Agreement, of all agreements of the Company with
any stockholder who, to the Company's knowledge, beneficially owns 10% or more
of the outstanding Common Stock or Class B Common Stock or any executive officer
or director of the Company. Except as set forth in the Company Disclosure
Schedule, no officer or director of the Company, or any "associate" (as such
term is defined in Rule 14a-1 under the Exchange Act) of any such officer or
director, has any material interest in any material contract or property (real
or personal, tangible or intangible), used in, or pertaining to the business of
the Company.
Section 3.10 Environmental Matters. Neither the Company nor any of the
Company Subsidiaries has violated any environmental, safety or similar law or
regulation applicable to its business or property relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
waste, pollutants or contaminants ("Environmental Laws"), lacks any permits,
licenses or other approvals required of them under applicable Environmental Laws
or is violating any term or condition of any such permit, license or approval,
except in each case as would not, individually or in the aggregate, result in a
Company Material Adverse Effect.
Section 3.11 Benefit Plans.
(a) Except as disclosed in the SEC Reports or in the Company
Disclosure Schedule, there exist no material employment, consulting, severance
or termination agreements, arrangements or understandings between the Company or
any of the Company
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Subsidiaries and any individual current or former employee, officer or director
of the Company or any of the Company Subsidiaries with respect to which the
annual payments thereunder exceed $100,000.
(b) Section 3.11 of the Company Disclosure Schedule contains a list of
all (i) "employee pension benefit plans" (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
(sometimes referred to herein as "Pension Plans"), including any such Pension
Plans that are "multiemployer plans" (as such term is defined in Section
4001(a)(3) of ERISA) (collectively, the "Multiemployer Pension Plans"), (ii)
"employee welfare benefit plans" (as defined in Section 3(1) of ERISA) and all
other Benefit Plans and (iii) other bonus, deferred compensation, severance pay,
pension, profit-sharing, retirement, insurance, stock purchase, stock option, or
other fringe benefit plan, arrangement or practice maintained, or contributed
to, by the Company or any of the Company Subsidiaries for the benefit of any
current or former employees, officers or directors of the Company or any of the
Company Subsidiaries (collectively, the "Benefit Plans"). The Company has
delivered or made available to Purchaser copies of (i) each Benefit Plan, (ii)
the most recent annual report on Form 5500 filed with the Internal Revenue
Service with respect to each Benefit Plan (if any such report was required),
(iii) the most recent summary plan description for each Benefit Plan for which
such summary plan description is required and (iv) each trust agreement and
group annuity contract relating to any Benefit Plan.
(c) Except as disclosed in the Company Disclosure Schedule, all
Pension Plans intended to be qualified plans have been the subject of
determination letters from the Internal Revenue Service to the effect that such
Pensions Plans are qualified and exempt from Federal income taxes under Section
401(a) and 501(a), respectively, of the Code, and no such determination letter
has been revoked.
(d) None of the Benefit Plans is, and none of the Company or any of
the Company Subsidiaries has ever maintained or had an obligation to contribute
to (i) a "single employer plan" (as such term is defined in Section 4001(a)(15)
of ERISA) subject to Section 412 of the Code or Title I, Subtitle B, Part 3 of
ERISA, (ii) a "multiple employer plan" (as such term is defined in ERISA or the
Code), or (iii) a funded welfare benefit plan (as such term is defined in
Section 419 of the Code). There are no unpaid contributions due prior to the
date hereof with respect to any Benefit Plan that are required to have been made
under the terms of such Benefit Plan, any related insurance contract or any
applicable law. None of the Company or any of the Company Subsidiaries has
incurred any liability or taken any action, and the Company does not have any
knowledge of, any action or event that could reasonably be expected to cause any
one of them to
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incur any liability (i) under Section 412 of the Code or Title IV of ERISA with
respect to any "single-employer plan" (as such term is defined in Section
4001(a)(15) of ERISA), (ii) on account of a partial or complete withdrawal (as
such term is defined in Sections 4203 and 4205 of ERISA, respectively) with
respect to any Multiemployer Pension Plan, or (iii) on account of unpaid
contributions to any Multiemployer Pension Plan, which, in the case of clauses
(i), (ii) or (iii), would result in a Company Material Adverse Effect.
(e) None of the Company nor any of the Company Subsidiaries has
engaged in a "prohibited transaction" (as such term is defined in Section 406 of
ERISA or Section 4975 of the Code) or any other breach of fiduciary
responsibility with respect to any Benefit Plan subject to ERISA that reasonably
could be expected to subject the Company and any of the Company Subsidiaries to
any tax or penalty on prohibited transactions imposed by Section 4975 or to any
liability under Section 502(i) or (1) of ERISA except in each case as would not,
individually or in the aggregate, result in a Company Material Adverse Effect.
As of the date of this Agreement, except as disclosed in the Company Disclosure
Schedule, with respect to any Benefit Plan: (i) no filing, application or other
matter is pending with the Internal Revenue Service, the Pension Benefit
Guaranty Corporation, the United States Department of Labor or any other
governmental body, and (ii) there is no action, suit or claim pending, other
than routine claims for benefits.
(f) Except as disclosed in the Company Disclosure Schedule and except
for any obligations which would not, individually or in the aggregate, have a
Company Material Adverse Effect, none of the Company or any of the Company
Subsidiaries has any obligation to provide health benefits or other non-pension
benefits to retired or other former employees, except as specifically required
by Part 6 of Title I of ERISA ("COBRA").
Section 3.12 Tax Matters. Except as set forth in the Company Disclosure
Schedule:
(a) The Company and each of the Company Subsidiaries has filed all
Federal income Tax Returns and all other material Tax Returns required to be
filed by it prior to the date hereof. The Company and each of the Company
Subsidiaries has paid (or the Company has paid on the Company Subsidiaries'
behalf) all Taxes shown as due on such returns, and the most recent financial
statements contained in the SEC Reports reflect an adequate reserve for all
Taxes payable by the Company and the Company Subsidiaries for all taxable
periods and portions thereof through the date of such financial statements.
Neither the Company nor any Company Subsidiary has incurred any liability for
Taxes subsequent to the date of such most recent financial statement other than
in the ordinary course of such Company's or Company Subsidiary's business.
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(b) As of the date of this Agreement, except as set forth in the
Company Disclosure Schedule: (i) no material Tax Return of the Company or any of
the Company Subsidiaries is under audit or examination by any taxing authority,
and no written notice of such an audit or examination has been received by the
Company or any of the Company Subsidiaries; (ii) each material deficiency
resulting from any audit or examination relating to Taxes by any taxing
authority has been paid, except for deficiencies being contested in good faith;
and (iii) no material issues relating to Taxes were raised in writing by the
relevant taxing authority during any presently pending audit or examination, and
no material issues relating to Taxes were raised in writing by the relevant
taxing authority in any completed audit or examination that can reasonably be
expected to recur in a later taxable period, (iv) there are no material liens
for Taxes upon the assets of the Company or any Company Subsidiary except liens
relating to current Taxes not yet due and payable; and (v) the Company and each
Company Subsidiary is in substantial compliance with all applicable laws and
regulations relating to the payment of withholding Taxes, and except for amounts
which are not material, all Taxes which the Company or any Company Subsidiary
are required by law to withhold or to collect for payment have been duly
withheld and collected.
(c) As used in this Section 3.12, the terms (i) "Tax" (and, with
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correlative meaning, "Taxes") mean: (A) any federal, state, local or foreign net
-----
income, gross income, gross receipts, windfall profit, severance, property,
production, sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add-on minimum, ad valorem, value added, transfer,
stamp, or environmental tax, or any other similar tax, together with any
interest or penalty, addition to tax or additional amount imposed by any
governmental authority; and (B) any liability of the Company or any Company
Subsidiary for the payment of amounts with respect to payments of a type
described in clause (A) as a result of any obligation of the Company or any
Company Subsidiary under any tax sharing agreement or tax indemnity agreement;
and (ii) "Tax Return" means any return, report or similar statement required to
----------
be filed with respect to any Tax.
Section 3.13 Litigation. As of the date of this Agreement, except as set
forth in the Company Disclosure Schedule, there is no suit, claim, action,
proceeding or investigation pending, or, to the best knowledge of the Company,
threatened against the Company or any of the Company Subsidiaries that could
reasonably be expected to have a Company Material Adverse Effect or prevent or
materially delay the consummation of the Merger. As of the date of this
Agreement, neither the Company nor any of the Company Subsidiaries is subject to
any outstanding order, writ, injunction or decree that could reasonably be
expected to prevent or materially delay the consummation of the Merger.
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Section 3.14 Opinion of Financial Advisor. The Company has received the
opinion of Goldman, Sachs & Co. on or prior to the date of this Agreement to the
effect that the Merger Consideration to be received in the Merger by the
Company's stockholders is fair to the Company's stockholders from a financial
point of view.
Section 3.15 Brokers. No broker, finder or investment banker (other than
Goldman, Sachs & Co. and Media Finance 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 Company. Immediately prior to the
execution hereof, the Company will make available to Purchaser a complete and
correct copy of all agreements between the Company and Goldman, Sachs & Co. or
Media Finance Inc. pursuant to which such firms would be entitled to any payment
relating to the Transactions.
Section 3.16 Properties and Assets. The Company and its subsidiaries have
good and valid title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its material tangible properties and assets, real
and personal, used or held for use in its business, free and clear of any liens,
security interests or other encumbrances ("Liens"), except as reflected in the
SEC Reports and Section 3.16 of the Company Disclosure Schedule and except for
Liens for taxes not yet due and payable and except for Liens which would not
result in a Company Material Adverse Effect.
Section 3.17 Compliance with Laws in General. Except as set forth in
Section 3.17 of the Company Disclosure Schedule, the Company has not received as
of the date of this Agreement any notices of, nor to the best of its knowledge
have there been any, violations of any federal, state and local laws,
regulations and ordinances relating to its business and operations that would
have a Company Material Adverse Effect.
Section 3.18 Labor Matters. Except as set forth in Sections 3.13 and 3.18
of the Company Disclosure Schedule, insofar as the operations of the Company and
the Company Subsidiaries in the United States are concerned, as of the date of
this Agreement (i) there is no labor strike, dispute, slowdown, stoppage or
lockout actually pending, or the to the knowledge of the Company, threatened
against or affecting the Company or any of the Company Subsidiaries and during
the past five years there has not been any such action, (ii) neither the Company
nor any of the Company Subsidiaries is a party to or bound by any collective
bargaining or similar agreement with any labor organization, or work rules or
practices agreed to with any labor organization or employee association
applicable to employees of the Company or any of the Company Subsidiaries, (iii)
none of the employees of the Company or any of the Company Subsidiaries is
represented by any labor organization and the
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Company does not have any knowledge of any union organizing activities among the
employees of the Company or any of the Company Subsidiaries within the past five
years, nor does any question concerning representation exist as of the date of
this Agreement concerning such employees, (iv) there are no material written
personnel policies, rules or procedures applicable to employees of the Company
or any of the Company Subsidiaries, other than those set forth in Section 3.18
of the Company Disclosure Schedule, true and correct copies of which have
heretofore been delivered to Purchaser, (v) neither the Company nor any of the
Company Subsidiaries has received any notice that it is not in compliance, in
all material respects, with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages, hours of work
and occupational safety and health, and is not engaged in any unfair labor
practices as defined in the National Labor Relations Act or other similar laws
of any jurisdiction, (vi) there is no unfair labor practice or similar charge or
complaint against the Company or any of the Company Subsidiaries pending or, to
the knowledge of the Company, threatened before the National Labor Relations
Board or any similar state or foreign agency, (vii) there is no material
grievance arising out of any collective bargaining or similar agreement or other
grievance procedure relating to any employee of the Company or any of the
Company Subsidiaries, (viii) to the knowledge of the Company, no charges with
respect to or relating to the Company or any of the Company Subsidiaries are
pending before the Equal Employment Opportunity Commission or any other federal,
state, local or foreign agency responsible for the prevention of unlawful
employment practices, (ix) neither the Company nor any of the Company
Subsidiaries has received notice of the intent of any federal, state, local or
foreign agency responsible for the enforcement of labor or employment laws to
conduct an investigation with respect to or relating to the Company or any of
the Company Subsidiaries and no such investigation is in progress, and (x) there
are no complaints, lawsuits or other proceedings pending or, to the knowledge of
the Company, threatened in any forum by or on behalf of any present or former
employee of the Company or any of the Company Subsidiaries, any applicant for
employment or classes of the foregoing alleging breach of any express or implied
contract or employment, any laws governing employment or the termination thereof
or other discriminatory, wrongful or tortuous conduct in connection with the
employment relationship, except in each case which would not result in a Company
Material Adverse Effect.
Section 3.19 Insurance. Except as set forth in Section 3.19 of the
Company Disclosure Schedule, the Company and each of the Company Subsidiaries
have policies of insurance and bonds of the type and in amounts customarily
carried by persons conducting businesses or owning assets similar to those of
the Company and its Subsidiaries. As of the date of this Agreement, there is no
material claim pending under any of such policies or bonds as to which coverage
has been questioned, denied or disputed by the
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underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and the Company and the Company
Subsidiaries are otherwise in compliance in all material respects with the terms
of such policies and bonds. Except as set forth in Section 3.19 of the Company
Disclosure Schedule, the Company has no knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB
Except as set forth in the Disclosure Statement delivered by Purchaser and
Merger Sub to the Company concurrently with the execution of this Agreement (the
"Purchaser Disclosure Schedule"), Purchaser and Merger Sub hereby jointly and
severally represent and warrant to the Company that:
Section 4.1 Organization and Qualification; Subsidiaries. Each of
Purchaser and Merger Sub is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has the requisite power and authority and all necessary governmental approvals
to own, lease and operate its properties and to carry on its business as it is
now being conducted, except where the failure to be so organized, existing or in
good standing or to have such power, authority and governmental approvals would
not, individually or in the aggregate, have a Purchaser Material Adverse Effect
(as defined below). Purchaser is duly qualified or licensed as a foreign
corporation to do business, and is in good standing in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its business makes such qualification or licensing necessary, except for such
failure to be so qualified or licensed and in good standing that would not,
individually or in the aggregate, have a Purchaser Material Adverse Effect. The
term "Purchaser Material Adverse Effect" means any change in or effect on the
business of Purchaser and its subsidiaries that is materially adverse to the
business, operations, properties, financial position or results of operations of
Purchaser and its subsidiaries taken as a whole. For purposes of this
Agreement, the term "Purchaser Subsidiary" shall mean Merger Sub and any
subsidiary of Purchaser that constitutes a "significant subsidiary" within the
meaning of Rule 1-02 of Regulation S-X of the Securities and Exchange
Commission.
Section 4.2 Certificate of Incorporation and Bylaws. Purchaser heretofore
has provided the Company a complete and correct copy of the Certificate of
Incorporation and the Bylaws of each of Purchaser and Merger Sub. The
Certificate of Incorporation and Bylaws of each of Purchaser and Merger Sub so
provided are in full force and effect. None of Purchaser or
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Merger Sub is in violation of any of the provisions of its Certificate of
Incorporation or Bylaws.
Section 4.3 Authority Relative to this Agreement.
(a) Each of Purchaser and Merger Sub has all necessary corporate power
and authority to execute and deliver this Agreement, to perform its respective
obligations hereunder and to consummate the Transactions. The execution and
delivery of this Agreement by each of Purchaser and Merger Sub and the
consummation by each of Purchaser 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 Purchaser or Merger Sub are necessary to
authorize this Agreement or to consummate the Transactions (other than the
filing and recordation of appropriate merger documents as required by the DGCL).
No vote of Purchaser's stockholders is required to approve this Agreement or the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of Purchaser and Merger Sub and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of each of Purchaser and Merger Sub, enforceable against
each of Purchaser and Merger Sub in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally and to general principles of
equity.
(b) The Board of Directors of each of Purchaser and Merger Sub has
approved and adopted this Agreement and the transactions contemplated hereby.
Purchaser is the sole stockholder of Merger Sub and in such capacity has
approved the Transactions.
Section 4.4 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by each of Purchaser
and Merger Sub does not, and the performance of this Agreement by each of
Purchaser and Merger Sub does not, and the performance of this Agreement by each
of Purchaser and Merger Sub will not, (i) conflict with or violate the
Certificate of Incorporation or Bylaws or equivalent organizational documents of
Purchaser or any Purchaser Subsidiary, (ii) assuming that all consents,
approvals, authorizations and other actions described in subsection (b) have
been obtained and all filings and obligations described in subsection (b) have
been made or complied with, conflict with or violate any Law applicable to
Purchaser or any Purchaser Subsidiary or by which any asset of Purchaser or any
Purchaser Subsidiary is bound or affected, or (iii) conflict with, result in any
breach of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or
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require any payment under or result in the creation of a lien, claim, security
interest or other charge or encumbrance on any asset of Purchaser or any
Purchaser Subsidiary pursuant to, any contract or other instrument or obligation
to which Purchaser or any Purchaser Subsidiary is a party or by which any asset
of Purchaser or any Purchaser Subsidiary is bound or affected, except, with
respect to clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults, or other occurrences which wold not, individually or in the aggregate,
have a Purchaser Material Adverse Effect.
(b) The execution and delivery of this Agreement by each of Purchaser
and Merger Sub does not, and the performance of this Agreement by each of
Purchaser and Merger Sub will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any Governmental Authority,
except (i) for applicable requirements, if any, of the Exchange Act and state
takeover laws, the pre-merger notification requirements of the HSR Act, any pre-
merger notification filing with the German Federal Cartel Office and filing and
recordation of appropriate merger documents as required by the DGCL and (ii)
where failure to obtain such consents, approvals, authorizations or permits, or
to make such filings or notification would not prevent or delay consummation of
the Offer or the Merger, or otherwise prevent either Purchaser or Merger Sub
from performing their respective obligations under this Agreement, and would
not, individually or in the aggregate, have a Purchaser Material Adverse Effect.
Merger Sub is acquiring the Shares for investment purposes and without a view to
the distribution thereof in violation of the Securities Act.
Section 4.5 Ownership of Merger Sub; No Prior Activities. Merger Sub was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement. Merger Sub (i) has not conducted, and will not prior to the
Effective Time conduct, any business and (ii) has no, and prior to the Effective
Time will have no, assets or liabilities except in connection with the
transactions contemplated by this Agreement. As of the Effective Time, all the
outstanding capital stock of Merger Sub will be owned indirectly by Purchaser.
Section 4.6 Litigation. As of the date of this Agreement, there is no
suit, claim, action, proceeding or investigation pending, or, to the best
knowledge of Purchaser, threatened against Purchaser or any Purchaser Subsidiary
that could reasonably be expected to prevent or materially delay the
consummation of the Merger. As of the date of this Agreement, neither Purchaser
nor any of its subsidiaries is subject to any outstanding order, writ,
injunction or decree that could reasonably be expected to prevent or materially
delay the consummation of the Merger.
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Section 4.7 Financing. On the date hereof Purchaser has, and upon
consummation of the Offer and at the Effective Time Purchaser shall have,
sufficient funds available to purchase, or to cause Merger Sub to purchase, all
the Shares pursuant to the Offer and the Merger and to pay all fees and expenses
related to the Transactions and to deposit with the Paying Agent the Option
Consideration.
Section 4.8 Brokers. No broker, finder or investment banker (other than
Lazard Freres & Co. LLC) 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 Purchaser or Merger Sub.
Section 4.9 Ownership of Shares. To the knowledge of Purchaser, neither
Purchaser nor any affiliate thereof owns any Shares as of the date of this
Agreement.
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company. The Company covenants and
agrees that, prior to such time as Purchaser's designees shall constitute a
majority of the members of the Board of Directors of the Company (the
"Transition Time") (unless Purchaser shall otherwise agree in writing and except
as otherwise contemplated by this Agreement or the Company Disclosure Schedule):
(a) the business of the Company and the Company Subsidiaries shall be
conducted only in the ordinary and usual course and, to the extent consistent
therewith, each of the Company and the Company Subsidiaries shall use
commercially reasonable efforts to preserve its business organization intact and
maintain its existing relations with customers, employees and business
associates;
(b) the Company shall not (i) sell or pledge or agree to sell or
pledge any stock owned by it in any of the Company Subsidiaries (except in
connection with its bank working capital facility); (ii) amend its Restated
Certificate of Incorporation or Bylaws or the similar organizational documents
of any of the Company Subsidiaries; (iii) split, combine or reclassify the
outstanding Shares; or (iv) declare, set aside or pay (unless declared prior to
this date) any dividend payable in cash, stock or property with respect to the
Shares;
(c) neither the Company nor any of the Company Subsidiaries shall (i)
issue, deliver or sell or authorize or propose the issuance, delivery or sale
of, any shares of, or securities convertible or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, capital
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stock of any class of the Company or the Company Subsidiaries other than Shares
issuable pursuant to the agreements described in Section 3.3 of the Company
Disclosure Schedule or (ii) repurchase, redeem or otherwise acquire, or permit
any Company Subsidiary to repurchase, redeem or otherwise acquire, any shares of
capital stock of the Company;
(d) neither the Company nor any of the Company Subsidiaries shall (i)
grant any increase in the compensation of any director, officer or employee
earning in excess of $100,000 per year except for increases required under
employment agreements, (ii) enter into any new employment, severance or
termination agreement with any such director, officer or employee or (iii)
except as may be required to comply with applicable law, become obligated under
any Benefit Plan that was not in existence on the date hereof or amend any
Benefit Plan in existence on the date hereof to enhance the benefits thereunder;
(e) the Company shall not, and shall not permit any of the Company
Subsidiaries to, sell, lease, license, encumber or otherwise dispose of, or
agree to sell, lease, license, encumber or otherwise dispose of, any of its
material assets outside the ordinary course of business other than (i)
dispositions listed in Section 5.1 (e) of the Company Disclosure Schedule, (ii)
assets no longer used in the operation of the Company's and the Company
Subsidiaries' respective businesses and (iii) assets related to any discontinued
operations of the Company and the Company Subsidiaries;
(f) the Company shall not, and shall not permit any of the Company
Subsidiaries to, incur or enter into any agreement to incur any indebtedness for
borrowed money or guarantee any such indebtedness or issue or sell any debt
securities or warrants or rights to acquire any debt securities of the Company
or any Company Subsidiary, except in the ordinary course of business consistent
with past practice, including, without limitation, borrowings under the
Company's existing credit agreements, as amended from time to time in the
ordinary course of business, and overnight borrowings;
(g) the Company shall not and shall not permit any of the Company
Subsidiaries to enter into any contract or agreement or series of related
contracts or agreements which involves the expenditure by the Company of over
(i) One Hundred Thousand Dollars ($100,000) if outside the ordinary course of
business, or (ii) Five Hundred Thousand Dollars ($500,000) if within the
ordinary course of business; and
(h) neither the Company nor any of the Company Subsidiaries will enter
into an agreement to do any of the foregoing.
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ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Meeting of the Stockholders.
(a) The Company will take all action reasonably necessary in
accordance with applicable law and its Restated Certificate of Incorporation and
Bylaws to convene a meeting of its stockholders to consider and vote upon the
approval of this Agreement and the Merger and such other matters as may be
necessary to effectuate the transactions contemplated hereunder (the
"Stockholders Meeting"), if necessary to comply with applicable law, as promptly
as practicable after the expiration of the Offer. The Board of Directors of the
Company shall recommend such approval and take all lawful action to solicit such
approval; provided, however, that the Board of Directors of the Company may at
-------- -------
any time prior to the Transition Time withdraw, modify or change any such
recommendations to the extent that the Board of Directors of the Company
determines in good faith after consultation with independent legal counsel that
the failure to so withdraw, modify or change its recommendation would cause the
Board of Directors of the Company to breach its fiduciary duties to the
Company's stockholders under applicable law. The Purchaser Companies will vote
all Shares over which they exercise voting control in favor of this Agreement
and the Merger.
(b) Notwithstanding the foregoing, in the event that Purchaser shall
acquire at least 90 percent of the then outstanding Shares of each then
outstanding class of shares of the Company, the parties hereto agree, subject to
Article VII, to take all necessary and appropriate action to cause the Merger to
become effective, in accordance with Section 253 of the DGCL, as soon as
reasonably practicable after such acquisition, without a meeting of the
stockholders of the Company.
(c) If required by applicable law, as soon as practicable after the
date of this Agreement, the Company shall file with the SEC a proxy statement
(the "Proxy Statement") and form of proxy relating to the Merger, which shall
comply as to form with all applicable laws. The Company shall obtain and
furnish the information required to be included in the Proxy Statement and shall
respond promptly to any comments made by the SEC with respect to the Proxy
Statement and cause the Proxy Statement and form of proxy to be mailed to the
Company's stockholders at the earliest practicable date. Purchaser and Merger
Sub shall cooperate in the preparation of the Proxy Statement and shall as soon
as practicable following the date hereof furnish the Company with all
information for inclusion in the Proxy Statement as shall be reasonably
requested by the Company. The Company agrees, as to information with respect to
the Company, its officers, directors, stockholders and
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subsidiaries contained in the Proxy Statement, and Purchaser agrees, as to
information with respect to Purchaser, its officers, directors, stockholders and
subsidiaries contained in the Proxy Statement, that such information, at the
date the Proxy Statement is mailed and (as then amended or supplemented) at the
time of the Stockholders Meeting, will not be false or misleading with respect
to any material fact, or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. Purchaser
and its counsel shall be given an opportunity to review the Proxy Statement, and
all amendments or supplements thereof, prior to their being filed with the SEC
and the Company shall not make any such filing without the approval of Purchaser
(which shall not be unreasonably withheld). The Company will advise Purchaser,
promptly after it receives notice thereof, of the time when the Proxy Statement
has been cleared by the SEC or any request by the SEC for amendment of the Proxy
Statement or comments thereon and proposed responses thereto or requests by the
SEC for additional information.
Section 6.2 Filings; Other Action. Subject to the terms and conditions
herein provided, the Company and Purchaser shall: (a) promptly make their
respective filings and thereafter make any other required submissions under the
HSR Act with respect to the Merger; and (b) use their reasonable best efforts
promptly to take, or cause to be taken, all other action and do, or cause to be
done, all other things reasonably necessary, proper or appropriate under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, as soon as practicable.
Section 6.3 Access. Subject to restrictions contained in confidentiality
agreements to which the Company is subject, upon reasonable notice the Company
shall (and shall cause each of the Company Subsidiaries to) afford Purchaser's
officers, employees, counsel, accountants and other authorized representatives
("Representatives") access, during normal business hours throughout the period
prior to the Effective Time, to its properties, books, contracts and records,
and during such period, the Company shall (and shall cause each of its
subsidiaries to) furnish promptly to Purchaser all information concerning its
business, properties and personnel as Purchaser may reasonably request.
Purchaser will not, and will cause its Representatives not to, use any
information obtained pursuant to this Section 6.3 for any purpose unrelated to
the consummation of the Transactions. Except as otherwise agreed to by the
Company, and notwithstanding termination of this Agreement, the terms and
provisions of the Confidentiality Agreement, dated February 16, 1996, between
Pearson Television Limited and the Company (the "Confidentiality Agreement")
shall apply to all information furnished thereunder or hereunder.
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Section 6.4 Notification of Certain Matters. The Company shall give prompt
notice to Purchaser of any notice of, or other communication relating to, a
default or event which, with notice or lapse of time or both, would become a
default, received by the Company or any of its subsidiaries subsequent to the
date of this Agreement and prior to the Effective Time, under any contract
material to the financial condition, properties, businesses or results of
operations of the Company and its subsidiaries taken as a whole to which the
Company or any of its subsidiaries is a party or is subject. Each of the Company
and Purchaser shall give prompt notice to the other party of (a) any notice or
other communication from any third party alleging that the consent of such third
party is or may be required in connection with the transactions contemplated by
this Agreement or (b) any Company Material Adverse Effect or Purchaser Material
Adverse Effect, as the case may be. The Company shall give prompt notice to
Purchaser and Merger Sub, and Purchaser or Merger Sub shall give prompt notice
to the Company, of (i) any claims, actions, proceedings or governmental
investigations commenced or, to the best of its knowledge, threatened, involving
or affecting the Company or any of its subsidiaries or any of their property or
assets, that relate to the Offer or the Merger, (ii) the occurrence, or failure
to occur, of any event that would be likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect, and (iii) any material failure of the Company, Purchaser or Merger Sub,
as the case may be, or of any officer, director, employee or agent thereof, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder. No such notification shall affect the
representations or warranties of the parties or the conditions to the
obligations of the parties hereunder.
Section 6.5 Publicity. Except as otherwise required by law, the Company
and Purchaser shall consult with each other in issuing any press releases or
otherwise making public statements with respect to the Transactions and in
making any filings with any federal or state governmental or regulatory agency
or with NASDAQ or any national securities exchange with respect thereto.
Section 6.6 Indemnification.
(a) The Certificate of Incorporation and Bylaws of the Surviving
Corporation shall contain the provisions with respect to indemnification,
advancement and director exculpation set forth in the Restated Certificate of
Incorporation and Bylaws of the Company on the date of this Agreement, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years after the Effective Time in any manner that would adversely affect the
rights thereunder of persons who at any time prior to the Effective Time were
entitled to indemnification, advancement or exculpation under the Restated
Certificate of Incorporation or Bylaws of the Company in respect of actions or
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omissions occurring at or prior to the Effective Time (including, without
limitation, the Transactions).
(b) From and after the Effective Time, Purchaser and the Surviving
Company shall, jointly and severally, indemnify, defend and hold harmless the
present and former officers, directors and employees of the Company and its
subsidiaries (collectively, the "Indemnified Parties") against all losses,
expenses, claims, damages, liabilities or amounts that are paid in settlement of
(with the approval of Purchaser and the Surviving Corporation, which approval
shall not be unreasonably withheld or delayed), or otherwise in connection with,
any claim, action, suit, proceeding or investigation (a "Claim"), to which any
such person is or may become a party by virtue of his or her service as a
present or former director, officer or employee of the Company or any of its
subsidiaries and arising out of actual or alleged events, actions or omissions
occurring or alleged to have occurred at or prior to the Effective Time
(including, without limitation, the Transactions), in each case to the fullest
extent permitted under the DGCL (and shall pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
fullest extent permitted under the DGCL, upon receipt from the Indemnified Party
to whom expenses are advanced of the undertaking to repay such advances
contemplated by Section 145(e) of the DGCL).
(c) Any Indemnified Party wishing to claim indemnification under this
Section 6.6, upon learning of any such Claim, shall notify Purchaser and the
Surviving Corporation (although the failure so to notify Purchaser and the
Surviving Corporation shall not relieve either thereof from any liability that
Purchaser or the Surviving Corporation may have under this Section 6.6, except
to the extent such failure materially prejudices such party). Purchaser and the
Surviving Corporation shall have the right to assume the defense thereof and
Purchaser and the Surviving Corporation shall not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the
defense thereof, except that if Purchaser and the Surviving Corporation elect
not to assume such defense or if there is an actual or potential conflict of
interest between, or different defenses exist for Purchaser and the Surviving
Corporation and the Indemnified Parties, the Indemnified Parties may retain
counsel satisfactory to them and Purchaser and the Surviving Corporation shall
pay all reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided however, that (i)
Purchaser and the Surviving Corporation shall not, in connection with any one
such action or proceeding or separate but substantially similar actions or
proceedings arising out of the same general allegations, be liable for the fees
and expenses of more than one separate firm of attorneys in addition to any
appropriate local counsel at any time for all Indemnified Parties
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unless there is a conflict on any significant issue between the positions of any
two or more of such Indemnified Parties, in which event any additional counsel
as may be reasonably required may be retained by such Indemnified Parties at
Purchaser's expense, (ii) Purchaser, the Surviving Corporation and the
Indemnified Parties will cooperate in the defense of any such matter and (iii)
Purchaser and the Surviving Corporation shall not be liable for any settlement
effected without its prior written consent, which consent will not be
unreasonably withheld or delayed, and provided further, that the Surviving
Corporation shall not have any obligation hereunder to any Indemnified Party
when and if a court of competent jurisdiction shall ultimately determine, and
such determination shall have become final and not subject to further appeal,
that the indemnification of such Indemnified Party in the manner contemplated
hereby is prohibited by applicable law.
(d) Purchaser shall cause to be maintained in effect for not less that
six years after the Effective Time (except to the extent not generally available
in the market) directors' and officers' liability insurance and fiduciary
liability insurance that is substantially equivalent in coverage to the
Company's current insurance, with an amount of coverage of not less than 100% of
the amount of coverage maintained by the Company as of the date of this
Agreement with respect to matters occurring prior to the Effective Time.
(e) This Section 6.6 shall survive the consummation of the Merger and
is intended to be for the benefit of, and shall be enforceable by, the
Indemnified Parties referred to herein, their heirs and personal representatives
and shall be binding on Purchaser and Merger Sub and the Surviving Corporation
and their respective successors and assigns.
Section 6.7 Obligations of Merger Sub. Purchaser shall take all action
reasonably necessary to cause Merger Sub to perform its obligations under this
Agreement and to consummate the Merger on the terms and subject to conditions
set forth in this Agreement.
Section 6.8 Stock Options and Warrants. Purchaser acknowledges that the
consummation of the Offer and the other Transactions will constitute an "Event"
(as defined in the Plans) with respect to the options listed on Section 3.3 of
the Company Disclosure Schedule and the other options specified in Section 3.3
of the Company Disclosure Schedule, and that the vesting of such options shall
therefore become accelerated as a result of the Transactions, which Purchaser
acknowledges shall occur simultaneously with the acceptance of the Offer so as
to permit the exercise of any such unvested options and tender of the underlying
Shares. At the Effective Time, each holder of a then outstanding option or
warrant to purchase Shares, whether or not then exercisable, shall, in
settlement thereof, except to the
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extent otherwise agreed to by the holder of the option or warrant, the Company
and the Purchaser, receive from the Company (from funds provided by Purchaser)
for each Share subject to such stock option or warrant an amount in cash equal
to the excess, if any, of the Merger Consideration over the per Share exercise
price of such stock option or warrant (such amount being hereinafter referred to
as the "Option Consideration"). Upon receipt of the Option Consideration, the
stock option or warrant shall be canceled. The surrender of any stock option or
warrant to the Company in exchange for the Option Consideration shall be deemed
a release of any and all rights the holder had or may have had in respect of
such stock option or warrant. Prior to the Effective Time, the Company shall
use its best efforts to obtain all necessary consents or releases from holders
of stock options and warrants and to take all such other lawful action as may be
necessary to give effect to the transactions contemplated by this Section 6.8
(except for such action that may require the approval of the Company's
stockholders). Except as otherwise agreed to by the parties, (i) the Plans
shall terminate, effective as of the Effective Time and the Company shall use
its reasonable efforts to cause the provisions in any other plan, program or
arrangement providing for the issuance or grant of any other interest in respect
of the capital stock of the Company or any of its subsidiaries to be canceled as
of the Effective Time and (ii) the Company shall use its reasonable efforts to
ensure that following the Effective Time no participant in the Plans or other
plans, programs or arrangements shall have any right thereunder to acquire
equity securities of the Company, the Surviving Corporation or any subsidiary of
the Company or the Surviving Corporation and to terminate all such plans,
programs or arrangements.
Section 6.9 Employee Benefit Plans.
(a) Subject to Section 6.8, Purchaser agrees to cause the Surviving
Corporation (and any successor thereto) to honor, without modification, all
employment, consulting, severance, termination or indemnification agreements,
arrangements or understandings, including recognition of the value (either in
cash, replacement options or other consideration) of any agreement to issue a
fixed number of options in the future as described in Section 3.3(3)(e) of the
Company Disclosure Schedule, between the Company or any of its subsidiaries and
any current or former employee, officer or director of the Company or any of its
subsidiaries disclosed in the SEC Reports or in the Company Disclosure Schedule
in effect on the date hereof except as may be otherwise mutually agreed by the
Purchaser and a current or former employee, officer, director or consultant
covered by such an agreement. Purchaser agrees to cause the Surviving
Corporation and its successors to pay or provide all benefits vested as of the
Effective Time under any Benefit Plan (as defined in Section 3.11) in accordance
with the terms of such plans. Purchaser will for a period of at least 24 months
cause
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the Company or the Surviving Corporation and its successors to maintain for all
employees of the Company employee benefit plans, programs, policies and
practices which, in the aggregate, provide substantially equivalent benefits to
such employees as the benefit plans from time to time in effect for employees of
the Surviving Corporation, provided that employees covered by collective
bargaining agreements shall be provided the benefits required under such
agreements. For purposes of their participation in Purchaser's or the Surviving
Corporation's employee and fringe benefit plans, programs, policies and
practices, Purchaser shall credit each Company employee with full credit for all
service credited under the comparable plan, program, policy or practice of the
Company (including service with the Company prior to the Effective Time and,
where applicable, service with prior or predecessor employers to the extent
credit is given for such service under the comparable Company plans) for
purposes of eligibility to participate and for purposes of vesting.
Section 6.10 No Solicitation of Transactions. (a) Prior to the execution
of this Agreement, the Company, through its investment bankers, has engaged in
an auction process in which participants were offered an opportunity to submit
their best offers to purchase the Company. The Company will not, and will
instruct its Representatives not to, initiate, solicit or encourage (including
by way of furnishing information or assistance) any Competing Transaction (as
defined below), or enter into or maintain discussions or negotiate with any
person in furtherance of or relating to or to obtain a Competing Transaction, or
agree to or endorse any Competing Transaction, or authorize or permit any
Representative of the Company or any of its subsidiaries to take any such
action, and the Company shall use its reasonable best efforts to cause the
Representatives of the Company and its subsidiaries not to take any such action;
provided, however, that nothing contained in this Section 6.10 shall prohibit
the Board of Directors of the Company prior to stockholder approval of the
Merger from (i) furnishing information to, or entering into discussions or
negotiations with, any person that makes an unsolicited bona fide proposal
regarding a Competing Transaction, if, and only to the extent that, (A) the
Board of Directors of the Company, after consultation with independent legal
counsel, determines in good faith that such action is required for the Board of
Directors of the Company to comply with its fiduciary duties to stockholders
under applicable law and (B) prior to furnishing such information to such
person, the Company receives from such person an executed confidentiality
agreement with terms no less favorable to the Company than those contained in
the Confidentiality Agreement; or (ii) complying with Rule 14e-2 promulgated
under the Exchange Act with regard to a Competing Transaction. The Company shall
promptly advise Purchaser if any such proposal or offer, or any inquiry or
contact made with any person with respect thereto, is made.
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(b) For purposes of this Agreement "Competing Transaction" shall mean
any of the following involving the Company or any of its subsidiaries: (a) any
merger, consolidation, business combination, or other similar transaction (other
than the Merger) which results in a sale of the Company; (b) any sale or other
disposition outside the ordinary course of business of 30% or more of the fair
market value of the assets (other than assets held in inventory for resale and
other than the licensing of the Company's programming in the ordinary course of
business) of the Company and its subsidiaries, taken as a whole, in a single
transaction or series of transactions; or (c) any tender offer or exchange offer
for more than 50% of the outstanding Shares.
Section 6.11 Directors. (a) Promptly upon the acceptance for payment of,
and payment for, Shares constituting a majority of the then outstanding Shares
by Purchaser or Merger Sub, as applicable, pursuant to the Offer, Purchaser from
time to time shall be entitled to designate such number of directors (rounded up
to the next whole number) on the Board of Directors of the Company as will give
Purchaser or Merger Sub, as applicable, subject to compliance with Section 14(f)
of the Exchange Act, that percentage of the total number of directors on the
Board of Directors of the Company (giving effect to the election of any
additional directors pursuant to this Section) equal to the percentage of then
outstanding Shares owned by Purchaser or Merger Sub (provided that such
percentage of the total number of directors shall not be less than a majority of
the Board of Directors of the Company), and the Company shall, at such time,
cause Purchaser's or Merger Sub's designees, as applicable, to be so elected by
its existing Board of Directors; provided, however, that in the event that such
-------- -------
designees are elected to the Board of Directors of the Company, until the
Effective Time such Board of Directors shall have at least two directors who are
directors on the date of this Agreement and who are neither officers of the
Company or of any holder of more than 5% of its Shares (as of the date of this
Agreement) nor affiliates of Purchaser or Merger Sub (the "Independent
Directors"); and provided further that if the number of Independent Directors
shall be reduced below two for any reasons whatsoever, the remaining Independent
Director shall designate a person to fill such vacancy who shall be deemed to be
an Independent Director for purposes of this Agreement or, if no Independent
Directors then remain, the other directors shall designate two persons to fill
such vacancies who shall not be officers or affiliates of the Company or of any
holder of more than 5% of its Shares (as of the date of this Agreement) or
officers or affiliates of Purchaser or any of its Subsidiaries, and such persons
shall be deemed to be Independent Directors for purposes of this Agreement.
(b) Subject to applicable law, the Company shall take all actions
requested by Purchaser necessary to effect any such
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election, including mailing to its stockholders the Information Statement
containing the information required by Section 14(f) of the Exchange Act and
Rule 14f-1 promulgated thereunder by the SEC, and the Company agrees to make
such mailing with the mailing of the Schedule 14D-9 (as defined below). In
connection with the foregoing and subject to the provisions of this Section 6.11
regarding Independent Directors, the Company will promptly, at the option of
Purchaser, either increase the size of the Company's Board of Directors and/or
obtain the resignation of such number of its current directors as is necessary
to enable Purchaser's or Merger Sub's designees, as applicable, to be elected or
appointed to, and to constitute (rounded up to the next whole number) that
percentage of the total number of directors on the Board of Directors of the
Company (giving effect to the election of any additional directors pursuant to
this Section) equal to the percentage of then outstanding Shares owned by
Purchaser or Merger Sub (provided that such percentage of the total number of
directors shall not be less than a majority of the Board of Directors of the
Company).
(c) Following the election of Purchaser's or Merger Sub's designees,
as applicable, pursuant to this Section 6.11, prior to the Effective Time, any
amendment or termination of this Agreement or waiver of any of the Company's
rights hereunder shall require the concurrence of a majority of the Independent
Directors.
Section 6.12 Use of Name. As contemplated by Section 5.1(e) of the Company
Disclosure Schedule, effective as of the Effective Time, the Company hereby
assigns to Anthony J. Scotti and Benjamin J. Scotti all of its rights, title and
interest in the name "Scotti Brothers" and all variations and derivatives
thereof (the "Retained Names"). Promptly after the Effective Time Purchaser
shall cause the names of the Company and its subsidiaries which contain the
Retained Names to be changed so as not to include the Retained Names. No
Purchaser Company shall put into use after 90 days after the Effective Date any
products, signs, television or recorded music credits and other materials that
bear any Retained Name or any name, mark or logo similar thereto.
Notwithstanding the foregoing, the Purchaser Companies shall have the right to
continue using the Retained Names in connection with the sale of inventory which
as of the Effective Time contains any Retained Name on the label identifying
such inventory.
ARTICLE VII
CONDITIONS
SECTION 7.1 Conditions to the Obligations of Each Party. The obligations
of the Company, Purchaser and Merger Sub to consummate the Merger are subject to
the satisfaction of the following conditions:
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(a) Company Stockholder Approval. If required by the DGCL, this
Agreement shall have been approved and adopted by the stockholders of the
Company in accordance with the DGCL, the Company's Certificate of Incorporation
and its Bylaws.
(b) HSR; German Federal Cartel Office. Any waiting period (and any
extension thereof) applicable to the consummation of the Merger under the HSR
Act shall have expired or been terminated and any required approvals in
connection with any pre-merger notification filing with the German Federal
Cartel Office shall have been obtained and shall have remained in full force and
effect.
(c) No Order. No Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive order or
Order that is then in effect and has the effect of prohibiting the consummation
of the Merger.
(d) The Offer. The Offer shall not have been terminated in accordance
with its terms prior to the purchase of any Shares.
ARTICLE VIII
TERMINATION
Section 8.1 Termination by Mutual Consent. This Agreement may be
terminated and the Merger and the other Transactions may be abandoned at any
time prior to the Effective Time, before or after the approval by holders of
Common Stock, by the mutual consent of Purchaser and the Company, by action of
their respective Boards of Directors.
Section 8.2 Termination by Either Purchaser or the Company. This Agreement
may be terminated and the Merger and the other Transactions may be abandoned by
action of the Board of Directors of either Purchaser or the Company if (a) the
Merger shall not have been consummated on or before February 28, 1998, unless
the failure to consummate the Merger is the result of a material breach of this
Agreement by the party seeking to terminate this Agreement, or (b) there shall
be any Law that makes consummation of the Merger illegal or otherwise prohibited
or any Order that is final and nonappealable preventing the consummation of the
Merger, or (c) Merger Sub or Purchaser shall have terminated the Offer in
accordance with its terms and conditions without purchasing any Shares pursuant
thereto.
Section 8.3 Termination by Purchaser. This Agreement may be terminated and
the Merger and the other Transactions may be abandoned at any time prior to the
Effective Time, before or after approval of the holders of Common Stock, by
action of the Board of Directors of Purchaser:
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(a) if, prior to the Transition Time there has been a breach of any
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement such that any of the conditions set forth in clause (f)
or (g) of Exhibit A would not be satisfied (a "Terminating Company Breach");
provided, however, that, if such Terminating Company Breach is curable by the
- -------- -------
Company through the exercise of its reasonable best efforts and for so long as
the Company continues to exercise such reasonable best efforts (but in no event
longer than thirty days after Purchaser's notification to the Company of the
occurrence of such Terminating Company Breach), Purchaser may not terminate this
Agreement under this Section 8.3(a);
(b) if prior to the Transition Time (i) the Board of Directors of the
Company withdraws, modifies or changes its recommendation of this Agreement or
the Merger or other Transactions in a manner adverse to Purchaser or Merger Sub
or (ii) the Board of Directors of the Company shall have recommended to the
stockholders of the Company any proposal involving a Competing Transaction.
Section 8.4 Termination by the Company. This Agreement may be terminated
and the Merger and the other Transactions may be abandoned at any time prior to
the Effective Time, before or after the approval by holders of Common Stock by
action of the Board of Directors of the Company:
(a) if there has been a breach of any material representation,
warranty, covenant or agreement on the part of Purchaser or Merger Sub set forth
in this Agreement ("Terminating Purchaser Breach"); provided, however, that, if
-------- -------
such Terminating Purchaser Breach is curable by Purchaser or Merger Sub through
the exercise of its reasonable best efforts and for so long as Purchaser or
Merger Sub continue to exercise such reasonable best efforts (but in no event
longer than thirty days after the Company's notification to Purchaser of the
occurrence of such Terminating Purchaser Breach), the Company may not terminate
this Agreement under this Section 8.4(a); or
(b) if prior to the Transition Time (i) the Board of Directors of the
Company withdraws, modifies or changes its recommendation of this Agreement or
the Merger or other Transactions or (ii) the Board of Directors of the Company
shall have recommended to the stockholders of the Company any Competing
Transaction, or resolved to do either of the foregoing after consultation with
independent legal counsel, having determined in good faith that such action is
required for the Board of Directors of the Company to comply with its fiduciary
duties to stockholders under applicable law; provided, that any termination of
this Agreement by the Company pursuant to this Section 8.4(b) shall not be
effective until the close of business on the second (or, in the event that the
party with whom the Company proposes to engage in the Competing Transaction was
a participant in the
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auction process referred to in the first sentence of Section 6.10(a) hereof,
fifth) full business day after notice of such termination to Purchaser; or
(c) if (i) Purchaser or Merger Sub shall have failed to commence the
Offer within the time required in Section 9.1, or (ii) Merger Sub or Purchaser
shall not have purchased any Shares pursuant to the Offer by the later of 45
days after the date of this Agreement and 3 business days after the expiration
or termination of any waiting period (and any extension thereof) applicable to
the consummation of the Offer under the HSR Act [and any required approvals in
connection with any pre-merger notification filing with the German Federal
Cartel Office have been obtained] or (iii) the Offer shall have been terminated
without Purchaser or Merger Sub having purchased any Shares pursuant thereto.
Section 8.5 Effect of Termination and Abandonment. Except as set forth in
Section 10.1, in the event of termination of this Agreement and abandonment of
the Merger pursuant to this Article VIII, no party hereto (or any of its
directors or officers) shall have any liability or further obligation to any
other party to this Agreement, except that nothing herein will relieve the
Company, Purchaser or Merger Sub from liability for any breach of this
Agreement.
Section 8.6 Issuance of New or Treasury Shares. If this Agreement is
terminated pursuant to Section 8.3(b) or 8.4(b) hereof, or if the Purchaser
shall terminate the Offer because the Minimum Condition (as defined in Exhibit A
hereto) is not satisfied and at or prior to such time there has been publicly
announced or the Company has received one or more proposals for a Competing
Transaction which at the time of such termination has not been absolutely or
unconditionally withdrawn or abandoned (a "Competing Transaction Termination"),
the Company agrees that, until the expiration of one year following such
termination, it will not issue any new or treasury shares (other than pursuant
to commitments in effect on the date thereof) unless it shall have first given
the Purchaser at least 5 business days advance written notice thereof (the
"Issuance Notice"). The Purchaser may, by written notice to the Company prior to
the expiration of 5 business days from receipt of the Issuance Notice, elect to
exercise the Option (as such term is defined in the Stockholders Agreement) in
full. If Purchaser has exercised the Option the Company shall not thereafter
issue any such shares unless the Purchaser shall have consented in advance
thereto, which consent shall not be unreasonably withheld. If at any time after
the exercise of the Option Purchaser beneficially owns, or if before exercise of
the Option if the Option were fully exercised Purchaser would own, less than 30%
of the voting securities of the Company on a fully diluted basis, the provisions
of this Section 8.6 shall immediately terminate and be of no further
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force or effect with respect to any issuances of shares by the Company.
ARTICLE IX
THE OFFER
Section 9.1 Tender Offer.
(a) As promptly as reasonably practicable after the date hereof, but
in no event later than five business days after the public announcement of the
execution of this Agreement, Purchaser or Merger Sub will commence the Offer for
all of the outstanding Shares at a price of not less than $25.50 per Share in
cash, net to the seller, subject to the conditions set forth in Exhibit A, and,
subject only to the terms and conditions of the Offer, will pay, as promptly as
reasonably practicable after expiration of the Offer, for all Shares duly
tendered and not withdrawn. Purchaser expressly reserves the right to waive any
such condition other than the Minimum Condition, to increase the price per Share
payable in the Offer, and to make any other changes in the terms and conditions
of the Offer; provided, however, that no change may be made to the Minimum
-------- -------
Condition, and no change may be made which decreases the price per Share payable
in the Offer, which reduces the maximum number of Shares to be purchased in the
Offer, which imposes conditions to the Offer other than those set forth in
Exhibit A hereto or which extends the Offer (except as set forth in the
following sentence). Notwithstanding the foregoing, Purchaser may, without the
consent of the Company, (i) extend the Offer beyond the scheduled expiration
date (the initial scheduled expiration date being 20 business days following the
commencement of the Offer) if, at the scheduled expiration date of the Offer,
any of the conditions to Purchaser's obligation to accept for payment, and to
pay for, the Shares, shall not be satisfied or waived, (ii) extend the Offer for
any period required by any rule, regulation or interpretation of the SEC or the
staff thereof applicable to the Offer, or (iii) extend the Offer for an
aggregate period of not more than 10 business days beyond the latest applicable
date that would otherwise be permitted under clause (i) or (ii) of this
sentence, if as of such date, all of the conditions to Purchaser's obligations
to accept for payment, and to pay for, the Shares are satisfied or waived, but
(x) the number of Shares validly tendered and not withdrawn pursuant to the
Offer is less than 90 percent and (y) Purchaser reasonably believes that such
extension would cause the number of validly tendered and not withdrawn shares to
exceed 90 percent of the outstanding Shares.
(b) The Company hereby consents to the Offer and represents that the
Board of Directors of the Company has unanimously (i) determined that the Offer
is fair to the holders of the Shares and the Merger is in the best interests of
the Company and the stockholders of the Company, (ii) approved the
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making of the Offer and the purchase of the Shares pursuant to the Offer and
(iii) resolved to recommend acceptance of the Offer by the holders of the Shares
and approval of the Merger by the Company's stockholders. The Company's Board
of Directors shall recommend the Transactions, in accordance with the provisions
of Section 6.1(a) hereof, to its stockholders in a Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") to be filed with the SEC as
soon as practicable on the day the Offer is commenced. Purchaser agrees, as to
the Offer to Purchase and related Letter of Transmittal (which together
constitute the "Offer Documents") and the Company agrees, as to the Schedule
14D-9, that subject to compliance by the Purchaser with the requirements of
Section 6.1(c) hereof such documents shall, in all material respects, comply
with the requirements of the Exchange Act and other applicable laws. The
Company and its counsel, as to the Offer Documents, and the Purchaser and its
counsel, as to the Schedule 14D-9, shall be given an opportunity to review such
documents prior to their being filed with the SEC. Neither Purchaser nor the
Company shall file any of such documents with the SEC without the approval of
the other party (which shall not be unreasonably withheld).
(c) In connection with the Offer, the Company will cause the transfer
agent for the Company Common Stock to furnish promptly to Merger Sub a list, as
of a recent date, of the record holders of shares and their addresses, as well
as mailing labels containing the names and addresses of all record holders of
Shares and lists of security positions of Shares held in stock depositories.
The Company will furnish Merger Sub with such additional information (including,
without limitation, updated lists of holders of Shares and their addresses,
mailing labels and lists of security positions) and such other assistance as
Purchaser or Merger Sub or their agents may reasonably request in communicating
the Offer to the record and beneficial holders of Shares.
ARTICLE X
MISCELLANEOUS; GENERAL
Section 10.1 Payment of Expenses. (a) Except as otherwise set forth in
this Section 9.1, whether or not the Merger shall be consummated, each party
hereto shall pay its own Expenses incident to preparing for, entering into and
carrying out this Agreement and the consummation of the Merger. "Expenses" as
used in this Agreement shall include all reasonable out-of-pocket expenses
(including, without limitation, all fees and expenses of outside counsel,
investment bankers, experts and consultants to a party hereto) incurred by a
party or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this
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Agreement and all other matters relating to the closing of the Transactions.
(b) The Company agrees that (i) if Purchaser shall terminate this
Agreement pursuant to Section 8.3 or (ii) if the Company shall terminate this
Agreement pursuant to Section 8.4 (b), the Company shall reimburse Purchaser for
its Expenses up to an aggregate amount not to exceed $500,000 . If Purchaser
terminates this Agreement under Section 8.3(b) or the Company terminates this
Agreement under Section 8.4(b) or in the event of a Competing Transaction
Termination, the Company shall pay the Purchaser $3,500,000 upon demand after
such termination, and if, within twelve months after such termination, a
Competing Transaction shall be consummated, the Company shall pay the Purchaser
an additional $3,500,000 concurrently with the consummation of such Competing
Transaction.
(c) The Purchaser agrees that if the Company shall terminate this
Agreement pursuant to Section 8.4 (a), Purchaser shall reimburse the Company for
its Expenses and all damages caused to Company as a result of the Terminating
Purchaser Breach.
(d) The Company, Purchaser and Merger Sub each agree that the payment
provided for in Section 10.1 (b) shall be the sole and exclusive remedy of
Purchaser and Merger Sub against the Company and its Representatives upon a
termination of this Agreement pursuant to Sections 8.3 or 8.4 (b), and such
remedy shall be limited to the payment stipulated in Section 10.1(b), regardless
of the circumstances (including willful or deliberate conduct) giving rise to
such termination.
Section 10.2 Survival. The representations, warranties and agreements in
this Agreement and in any certificate delivered pursuant hereto shall terminate
at the Effective Time or upon the termination of this Agreement pursuant to
Article VIII, as the case may be, except that the agreements set forth in
Articles I and II and Sections 6.6, 6.7, 6.8, 6.9, 6.12 and Article X shall
survive the Effective Time and those set forth in Sections 6.3 (regarding
confidentiality), 8.5 and 8.6 and Article X shall survive termination.
Section 10.3 Modification or Amendment. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto. Subject to the
previous sentence and Section 6.11(c), the Board of Directors of the Company may
amend this Agreement at any time prior to the Effective Time, provided that an
amendment made subsequent to the adoption of this Agreement by the stockholders
of the Company shall not (1) alter or change the amount or kind of shares,
securities, cash, property and/or rights to be received in exchange for the
Shares, (2) alter or change any term of the certificate of incorporation of the
Surviving Corporation to be effected by the Merger, or (3) alter
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or change any of the terms and conditions of this Agreement if such alteration
or change would adversely affect the holders of any Shares.
Section 10.4 Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
Section 10.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflict of laws thereof.
Section 10.6 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by delivery in person, by
facsimile transmission, by registered or certified mail (postage prepaid, return
receipt requested) or courier service providing proof of delivery to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section
10.6):
If to Purchaser or Merger Sub: Pearson plc
3 Burlington Gardens
London W1X 1LE, England
Attention: Paul Vickers
Facsimile No.: 44-171-411-2329
with a copy to: Pearson Inc.
30 Rockefeller Plaza, 50th Floor
New York, New York 10112-5095
Attention: John Davis
Facsimile No.: (212) 861-2124
and: O'Melveny & Myers LLP
1999 Avenue of the Stars, Suite 700
Los Angeles, California 90067
Attention: Robert D. Haymer, Esq.
Facsimile No.: (310) 246-6779
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If to the Company: All American Communications, Inc.
808 Wilshire Boulevard
Santa Monica, California 90401
Attention: Chief Financial Officer
Facsimile No.: (310) 656-7400
with a copy to: Kaye, Scholer, Fierman, Hays & Handler,
LLP
1999 Avenue of the Stars, Suite 1600
Los Angeles, California 90067
Attention: Barry L. Dastin, Esq.
Facsimile No.: (310) 788-1200
Section 10.7 Entire Agreement, etc. This Agreement (a) constitutes the
entire agreement, and supersedes all other prior agreements and understandings,
both written and oral, among the parties, with respect to the subject matter
hereof, and (b) shall not be assignable by operation of law or otherwise except
that the Merger Sub may assign, in its sole discretion, any or all of its
rights, interests and obligations hereunder to Purchaser or to any direct or
indirect wholly-owned newly formed Delaware subsidiary of Purchaser. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
Section 10.8 Captions. The Article, Section and paragraph captions
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
Section 10.9 Certain Definitions. For purposes of this Agreement, the
term:
(a) "subsidiary" of any person means any corporation, partnership,
joint venture or other legal entity of which such person (either alone or
through or together with any subsidiary) owns, directly or indirectly, more than
50% of the stock or other equity or beneficial interests, the holders of which
are generally entitled to vote for the election of the board of governors or
other governing body of such corporation or other legal entity; and
(b) "knowledge" means, with respect to any matter in question with
respect to the Company, if any of Anthony J. Scotti, Thomas Bradshaw, Paul
Westphal, Paul Pavlis, Lawrence Lamattina or Leonard Breijo has actual knowledge
of such matter.
42
<PAGE>
Section 10.10 No Third Party Beneficiaries. Except as provided in Section
6.6 hereof, this Agreement is not intended to be for the benefit of, and shall
not be enforceable by, any person or entity not a party hereto.
43
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first hereinabove
written.
ALL AMERICAN COMMUNICATIONS, INC.
By: /s/ Anthony J. Scotti
----------------------------------
Name: Anthony J. Scotti
Title: Chief Executive Officer
PEARSON PLC
By: /s/ John Davis
----------------------------------
Name: John Davis
Title: Senior Vice President,
Chief Financial Officer
PEARSON MERGER COMPANY, INC.
By: /s/ John Davis
----------------------------------
Name: John Davis
Title: Vice President
44
<PAGE>
EXHIBIT A
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, Purchaser or Merger Sub,
as applicable, shall not be required to accept for payment or pay for any Shares
tendered, and may terminate or amend the Offer (subject to the provisions of the
Merger Agreement) and may postpone the acceptance of, and payment for, subject
to Rule 14e-1(c) of the Exchange Act, any Shares tendered, if:
1. the Minimum Condition (as defined below) shall not have been satisfied
prior to the expiration of the Offer;
2. any applicable waiting period under the HSR Act shall not have expired or
been terminated prior to the expiration of the Offer or other approvals required
by the German Federal Cartel Office shall not have been obtained; or
3. at any time on or after the date of this Agreement, and prior to the
expiration of the Offer, any of the following conditions shall exist:
(a) (i) there shall be threatened or pending any suit, action or
proceeding brought by any Governmental Authority against the Purchaser, Merger
Sub, the Company or any Company Subsidiary (A) seeking to prohibit or impose any
material limitations on Purchaser's or Merger Sub's ownership or operation (or
that of any of their respective subsidiaries or affiliates) of all or a material
portion of the Company's businesses or assets, or to compel Purchaser or Merger
Sub or their respective subsidiaries or affiliates to dispose of or hold
separate any material portion of the business or assets of the Company or any of
the Company Subsidiaries, (B) challenging the acquisition by Purchaser or Merger
Sub of any Shares under the Offer, seeking to restrain or prohibit the making or
consummation of the Offer or the Merger or the performance of any of the other
transactions contemplated by the Merger Agreement or the Stockholders Agreement,
or seeking to obtain from the Company, Purchaser or Merger Sub any damages that
are material in relation to the Company and its subsidiaries taken as a whole,
(C) seeking to impose material limitations on the ability of the Purchaser, or
render the Purchaser unable, to accept for payment, pay for or purchase some or
all of the Shares pursuant to the Offer and the Merger or (D) seeking to impose
material limitations on the ability of Purchaser or Merger Sub effectively to
exercise full rights of ownership of the Shares, including, without limitation,
the right to vote the Shares purchased by it on all matters properly presented
to the Company's shareholders; or (ii) any Governmental Authority or other
person or entity shall have obtained an injunction (A) prohibiting the making of
the Offer, the acceptance for payment of, or payment for, any Shares by
1
<PAGE>
Purchaser, Merger Sub or any other affiliate of Purchaser or (B) prohibiting the
ownership by the Purchaser or any of its subsidiaries of the Company, or
compelling the Company, Purchaser or any of their respective subsidiaries to
dispose of or to hold separate all or any material portion of the business or
assets of the Company, Purchaser or any of their respective Subsidiaries, as a
result of the Transactions;
(b) there shall have been any Law enacted, entered, enforced,
promulgated, amended, issued or deemed applicable to (i) Purchaser, the Company
or any Subsidiary or affiliate of Purchaser or the Company or (ii) any
Transaction, by any government or Governmental Authority other than the routine
application of the waiting period provisions of the HSR Act to the Offer or the
Merger, which effects any of the consequences referred to in paragraph (a)
above;
(c) there shall have occurred and be continuing any Company Material
Adverse Effect or any event or series of events which would result in a Company
Material Adverse Effect;
(d) there shall have occurred and be continuing a declaration of a
banking moratorium or any suspension of payments in respect of banks in the City
of New York;
(e) the Board of Directors of the Company or any committee thereof
shall have withdrawn, modified or changed in a manner adverse to Purchaser or
Merger Sub the approval or recommendation of the Offer, the Merger or the
Agreement, or approved or recommended any Competing Transaction or any other
acquisition of Shares other than the Offer or the Merger;
(f) any representation and warranty of the Company shall not be true
and correct as of the date of this Agreement or as of the expiration of the
Offer except for (i) changes specifically contemplated by this Agreement and
(ii) those representations and warranties that address matters only as of a
particular date (which shall remain true and correct as of such date) and in
each case except where failure of such representation and warranty to be so true
and correct individually or together with failures of other representations and
warranties to be true and correct would not have a Company Material Adverse
Effect (other than representations and warranties that are already so qualified
or that are qualified as to the prevention or delay of the consummation of any
of the Transactions or as to the performance by the Company of its obligations
under this Agreement, which in each such case shall be true and correct as
written);
(g) the Company shall have failed to perform any obligation or to
comply with any agreement or covenant of the Company to be performed or complied
with by it under the
2
<PAGE>
Agreement unless such failures, would not, individually or in the aggregate,
have a Company Material Adverse Effect;
(h) the Agreement shall have been terminated in accordance with its
terms; or
(i) Purchaser and the Company shall have agreed that Purchaser or
Merger Sub, as applicable, shall terminate the Offer.
For purposes hereof, the term "Minimum Condition" shall mean a majority of
the outstanding shares of Common Stock and a majority of the outstanding Shares
(including for purposes of such calculation all Shares issued upon exercise of
all vested and unvested stock options and warrants, prior to or simultaneously
with the acceptance of the Offer) being validly tendered and not withdrawn prior
to the expiration of the Offer.
The foregoing conditions may be waived by Purchaser or Merger Sub in whole
or in part at any time and from time to time in their sole discretion, subject
in each case to the terms of the Agreement. The failure by Purchaser or Merger
Sub at any time to exercise any of the foregoing rights shall not be deemed a
waiver of any such right; the waiver of any such right with respect to
particular facts and other circumstances shall not be deemed a waiver with
respect to any other facts and circumstances; and each such right shall be
deemed an ongoing right that may be asserted at any time and from time to time.
3
<PAGE>
EXHIBIT 2
RESTATED
BY-LAWS
FOR THE REGULATION, EXCEPT AS
OTHERWISE PROVIDED BY STATUTE OR
THE RESTATED CERTIFICATE OF INCORPORATION
OF
ALL AMERICAN COMMUNICATIONS, INC.
ARTICLE I
MEETING OF STOCKHOLDERS
-----------------------
Section 1. Place of Meeting. Meetings of the stockholders of the
----------------
Corporation shall be held at such place, either within or without the State of
Delaware as the Board of Directors may determine. In the absence of any such
designation, stockholders' meetings shall be held at the principal executive
office of the corporation.
Section 2. Notice. Except as otherwise provided by law, or unless
------
lapse of time shall be waived, written notice of the time, date and place of any
stockholders meeting, and, in the case or a special meeting, the purpose or
purposes for which the meeting is called, shall be given to each stockholder at
least ten (10) nor more than sixty (60) days before the date of such a meeting.
If mailed, notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the Corporation. An affidavit of the secretary or an assistant secretary or
of the transfer agent of the Corporation that the notice has been given shall,
in the absence of fraud, be prima facie evidence of the facts stated therein.
Section 3. Quorum. At any meeting of stockholders, the holders of
------
record, present in person or by proxy, of a majority of the Corporation's issued
and outstanding capital stock entitled to vote at such meeting shall constitute
a quorum for the transaction of business, except as otherwise provided by law.
In the absence of a quorum, any officer entitled to preside at or to act as
secretary of the meeting shall have power to adjourn the meeting from time to
time until a quorum is present.
Section 4. Voting. Except as otherwise provided by law, the
------
affirmative vote, at a meeting of stockholders duly held and at which a quorum
is present of the holders of a majority of the Corporation's capital stock
present in person or by proxy at the meeting and entitled to vote on the subject
matter, shall be the act of the stockholders.
Section 5. Adjourned Meeting. Any meeting of stockholders may be
-----------------
adjourned from time to time by the vote of a majority of the shares represented
in person or by proxy whether or not a quorum is present. When a stockholders'
meeting is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken. At the adjourned meeting, the Corporation may
transact any business which might have been transacted at the original meeting.
<PAGE>
Section 6. Record Date. In order that the Corporation may determine the
-----------
stockholders entitled to notice of or to vote at any meetings, entitled to
receive payment of any dividend or other distribution or allotment of any rights
or entitled to exercise any rights in respect of any other lawful action, the
Board of Directors may fix, in advance, a record date, which shall not be more
than sixty (60) nor less than ten (10) days prior to the date of such meeting
nor more than sixty (60) days prior to any such action. If no record date is
fixed:
A. The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held, and
B. The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting unless the
Board of Directors fixes a new record date for the adjourned meeting. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the stocklist or the books of the Corporation, or to
vote in person at any meeting of stockholders.
Section 7. Proxies. Every person entitled to vote for Directors or
-------
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the Secretary of the Corporation. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or
stockholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy
executed by, or delivered to the Corporation stating that the proxy is revoked,
or by a subsequent proxy executed by, or attendance at the meeting and voting in
person by the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the Corporation before the
vote pursuant to that death or incapacity of the maker of that proxy is received
by the Corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy, unless otherwise provided in the proxy. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the applicable provisions of the General Corporation Law of the
State of Delaware.
2
<PAGE>
ARTICLE II
DIRECTORS
---------
Section 1. Powers. Subject to the provisions of the laws of the
------
State of Delaware and the Restated Certificate of Incorporation, the business
and affairs of the Corporation shall be managed and all corporate powers shall
be exercised by or under the direction of the Board of Directors. The Board of
Directors may delegate the management of the day-to-day operations of the
business of the Corporation to a management company or other person, provided
that the business and affairs of the Corporation shall be managed and all
corporate power shall be exercised under the ultimate direction of the Board of
Directors.
Section 2. Meetings.
--------
A. Regular meetings of the Board of Directors shall be held at such
times and places as may from time to time be fixed by the Board of
Directors or as may be specified in a notice of meeting. Special meetings
of the Board of Directors may be held at any time upon the call of the
Chief Executive Officer and shall be called by the Chief Executive Officer
or Secretary if directed by the Board of Directors. Telegraphic or written
notice of each special meeting of the Board of Directors shall be sent to
each Director not less than two days before such meeting. A meeting of the
Board of Directors may be held without notice immediately after the annual
meeting of the stockholders. Notice need not be given of regular meetings
of the Board of Directors.
B. Members of the Board of Directors or any committee designated by
the Board of Directors may participate in a meeting through use of
conference telephone or similar communications equipment, so long as all
members participating in such meeting can hear each other. Such
participation constitutes presence in person at such meeting.
C. Whenever notice is required to be given to any Director pursuant
to Delaware law, the Corporation's Restated Certificate of Incorporation or
these By-Laws, a written waiver thereof, signed by such Directors, whether
before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a Director at a meeting shall constitute a waiver of
notice of such meeting except when the Director attends the meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Section 3. Quorum. A majority of the total number of Directors
------
shall constitute a quorum for the transaction of business. If a quorum is not
present at any meeting of the Board of Directors, the Directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until such a quorum is present. Except as otherwise provided by
law, the Restated Certificate of Incorporation of the Corporation, these By-Laws
or
3
<PAGE>
any contract or agreement to which the Corporation is a party, the act of a
majority of the Directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
Section 4. Committees of Directors. There shall be an Executive
-----------------------
Committee of one or more Directors. There shall be an Audit Committee of one or
more independent Directors and a Compensation Committee of one or more
independent Directors. The Board of Directors may, by resolution adopted by a
majority of the whole Board of Directors, designate one or more Directors to
constitute other committees. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another Director to act at the meeting in place of any such
absent or disqualified member. Any such committee, to the extent provided in
the resolution of the Board of Directors and subject to the provisions of the
applicable law in the State of Delaware, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the corporate seal to be
affixed to all papers which may require it, but no such committee shall have the
power or authority with respect to:
A. Amending the Restated Certificate of Incorporation (except that a
committee may, to the extent provided in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of
Directors as provided in Section 151(a) of the Delaware General Corporation
Law, fix the designations and of any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of shares
for, shares of any other class or classes of stock of the Corporation or
fix the number of shares of any series of stock or authorize the increase
or decrease of the shares of any series).
B. Adopting an agreement of merger or consolidation under Sections
251 or 252 of the Delaware General Corporation Law.
C. Recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets.
D. Recommending to the stockholders a dissolution of the Corporation
or a revocation of a dissolution.
E. Amending the By-Laws of the Corporation.
F. Unless the resolutions, By-Laws, or Restated Certificate of
Incorporation expressly so provide, declaring a dividend, authorizing the
issuance of stock or adopting a
4
<PAGE>
certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law.
Section 5. Action Without Meeting. Any action required or permitted
----------------------
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting if all members of the Board of Directors or any
committee, as the case may be, consent in writing to such action and the writing
or writings are filed with the minutes or proceedings of the Board of Directors
or committee, as the case may be.
Section 6. Fees and Compensation. Directors and members of
---------------------
committees may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
Board of Directors.
ARTICLE III
OFFICERS
--------
Section 1. Officers. The officers of the Corporation shall consist
--------
of a President, a Secretary, a Treasurer and such other additional officers with
such titles as the Board of Directors shall determine, all of whom shall be
chosen by and shall serve at the pleasure of the Board of Directors. Any number
of offices may be held by the same person. Such officers shall have the usual
powers and shall perform all the usual duties incident to their respective
offices. All officers shall be subject to the supervision and direction of the
Board of Directors. The authority, duties or responsibilities of any officer of
the Corporation may be suspended by the President with or without cause. Any
officer elected or appointed by the Board of Directors may be removed by the
Board of Directors with or without cause.
Section 2. Other Officers. The Board of Directors, at its
--------------
discretion, may appoint, or empower the President to appoint, one or more Vice
Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers,
or such other officers as the business of the Corporation may require, each of
whom shall hold office for such period, have such authority and perform such
duties as the Board of Directors or the President may from time to time
determine.
Section 3. Removal. Any officer may be removed, either with or
-------
without cause, by the Board of Directors, at any regular or special meeting
thereof, or, except in the case of an officer chosen by the Board of Directors,
by any officer upon whom such power of removal may be conferred by the Board of
Directors (subject, in each case, to the rights, if any, of an officer under an
employment contract).
Section 4. Resignation. Any officer may resign at any time by giving
-----------
written notice to the Board of Directors, the President, or to the Secretary of
the Corporation without prejudice to the rights, if any, of the Corporation
under any contract to which the officer is a party. Any such resignation shall
take effect at the date of the receipt of such notice or at any
5
<PAGE>
later time specified therein and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 5. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these By-Laws for regular appointments to such office.
ARTICLE IV
INDEMNIFICATION
---------------
Section 1. Indemnification Rights. To the fullest extent permitted
----------------------
by the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, the Corporation shall indemnify each current or former
Director, officer, employee or agent of the Corporation from and against any and
all expenses, liabilities or other matters referred to in or covered by the
General Corporation Law of the State of Delaware, including, without limitation,
by reason of his current or former position with the Corporation or by reason of
the fact that he is or was serving, at the request of the Corporation, as a
Director, officer, partner, trustee, employee or agent of another Corporation,
partnership, joint venture, trust or other enterprise.
Section 2. Nonexclusivity. The indemnification provided for herein
--------------
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any Bylaw, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a Director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such person.
Except as may otherwise be specifically provided in these Bylaws, no provision
of these Bylaws is intended by the Corporation to be construed as limiting,
prohibiting, denying or abrogating any of the general or specific powers or
rights conferred under the General Corporation Law of the State of Delaware upon
the Corporation, upon its stockholders, bondholders and security holders, and
upon its Directors, officers, employees or agents, including in particular the
power of the Corporation to furnish indemnification to Directors, officers,
employees and agents in the capacities defined and prescribed by the General
Corporation Law of the State of Delaware and prescribed rights of said persons
to indemnification as the same are conferred by the General Corporation Law of
the State of Delaware.
Section 3. Advancement of Expenses. The rights granted herein shall
-----------------------
include the right to be paid by the Corporation the expenses incurred in
defending any proceeding in advance of its final disposition, provided, however,
that the payment of such expenses shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such Director, officer,
employee or agent, to repay all amounts so advanced if it shall ultimately be
determined that such Director, officer, employee or agent is not entitled to
indemnification.
6
<PAGE>
ARTICLE V
SHARES AND STOCKHOLDERS
-----------------------
Section 1. Share Certificates.
------------------
A. The Corporation shall issue a certificate or certificates
representing shares of its capital stock. Each certificate so issued shall
be signed by or in the name of the corporation by the President or a Vice
President and by the Chief Financial Officer, Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Corporation and
shall state the name of the record owner thereof and represent the number of
shares registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent of
registrar before such certificate is issued, such certificate may be issued
by the Corporation with the same effect as if such person were an officer,
transfer agent or registrar at the date of issue.
B. There shall be set forth on the face or back of a certificate
which the Corporation shall issue to represent a class or series of stock
one of the following: (1) a statement of the powers, designations,
preferences and relative participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights, or (2) a summary of the
statement described in subsection 1.B.(1) above. If a security of the
corporation is subject to a restriction on the transfer or registration
thereof, such restriction shall be noted, in writing, conspicuously upon the
certificate representing the security.
C. The Corporation may, but shall not be required to, issue
certificates representing a fraction of a share and, in this event, the
holder thereof shall have all the rights appurtenant to ownership of that
interest in the Corporation. If the Corporation elects not to issue
certificates representing a fraction of a share to the persons entitled
thereto, it shall, at its election, either:
(1) Arrange for disposition of the fractional interest by those
entitled thereto.
(2) Pay in cash the fair value of fractions of a share as of the
time when those entitled to receive such fractions are determined.
(3) Issue scrip or warrants in registered or bearer which
entitles the holder to receive a full share upon surrender of such
scrip or warrants aggregating one or more full shares, which scrip or
warrants may, if the Board of Directors elects, either become (i) void
if not so surrendered on or before a specified date, or
7
<PAGE>
(ii) subject to such other conditions or limitations as may be
designated by the Board of Directors.
Section 2. Transfer of Certificates. Where a certificate for shares
------------------------
is presented to the Corporation or its transfer clerk or transfer agent with a
request to register a transfer of shares, the Corporation is under a duty to
register the transfer, cancel the certificate presented, and issue a new
certificate if: (a) the certificate is endorsed or the instructions were
originated by the appropriate person or persons; (b) reasonable assurance is
given that those endorsements or instructions are genuine and effective; (c) the
Corporation has no duty to inquire into adverse claims or has discharged any
such duty; (d) any applicable law relating to the collection of taxes has been
complied with; and (e) reasonable assurance is given that the transfer is in
fact rightful or is to a bona fide purchaser.
Section 3. Lost Certificates. Where a certificate is alleged to have
-----------------
been lost, destroyed or wrongfully taken, the Corporation shall issue a new
certificate in place of the original if the owner: (a) so requests, in writing,
before the Corporation has notice that the certificate has been acquired by a
bona fide purchaser; and (b) if so requested by the Board of Directors, gives
the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, destruction or wrongful taking
of such certificate or the issuance of such new certificate. Except as provided
above, no new certificate for shares shall be issued in lieu of an old
certificate unless the Corporation is ordered to do so by a court judgment in an
action brought in a court of appropriate jurisdiction.
Section 4. Registration of Shares. The Corporation shall recognize
----------------------
the person or persons registered in its stock ledger as the exclusive owner and
holder of the shares registered in his name and as the "stockholder" for all
purposes herein with the exclusive rights inter alia to vote the shares, to
----- ----
receive dividends declared with respect to the shares, to transfer the shares to
others, and to exercise any other rights of stockholders. the Corporation shall
have no obligation to recognize any equitable or other claim or interest in any
shares on the part of any person or persons other than the registered owner, as
set forth in the stock ledger, whether or not the Corporation shall have any
notice thereof, except as may otherwise be provided by the laws of the State of
Delaware. "Shares" for the purposes hereof, shall mean shares of the
Corporation's stock authorized by its Restated Certificate of Incorporation and
registered in the stock ledger as issued and outstanding, including any one or
more classes of stock so authorized and whether or not such share is deemed to
have voting or other privileges.
ARTICLE VI
GENERAL PROVISIONS
------------------
Section 1. Notices. Whenever any statute, the Restated Certificate
-------
or Incorporation or these By-Laws requires notice to be given to any Director or
stockholder, such notice may be given in writing by mail, addressed to such
Director or stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. Such notices shall
8
<PAGE>
be deemed to have been given when it is deposited in the United States mail.
Notice to Directors may also be given by telecopy.
Section 2. Fiscal Year. The fiscal year of the Corporation shall be
-----------
fixed by the Board of Directors.
Section 3. Record Date; Books and Records.
------------------------------
A. The Board of Directors may fix, in advance, a record date for the
determination of the stockholders entitled to notice of and to vote at any
meeting of stockholders, to receive any report, to receive any dividend or
distribution, or any allotment of rights, or to exercise rights in respect
to any change, conversion, or exchange of shares.
B. The Corporation shall keep adequate and correct books and records
of account and shall keep minutes of the proceedings of its stockholders,
Board of Directors and committees of the Board of Directors and shall keep
at its principal executive office or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of
all stockholders and the number and class of shares held by each. Such
minutes shall be kept in written form. Such other books and records shall
be kept either in written form or in any other form capable of being
converted into written form.
Section 4. Check, Drafts, Etc. All checks, drafts or other orders
-------------------
for payment of money, notes or other evidences of indebtedness, issued in the
name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board of Directors.
Section 5. Authority to Execute Contracts. The Board of Directors
------------------------------
may authorize any officer or officers, agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation, subject to the applicable laws of the State of Delaware. Such
authority may be general or confined to specific instances and, unless so
authorized by the Board of Directors, no officer, agent or employee shall have
any power or authority to bind the Corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or to any amount.
Section 6. Representation of Shares of Other Corporations. The
----------------------------------------------
President or any Vice President and the Secretary or any Assistant Secretary of
this Corporation are authorized to vote, represent and exercise on behalf of
this Corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this Corporation. The
authority herein granted to said officers to vote or represent on behalf of this
Corporation any and all shares held by this Corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
other person authorized so to do by proxy or power of attorney duly executed by
said officers.
9
<PAGE>
Section 7. Construction and Definitions. Unless the context
----------------------------
otherwise requires, the general provisions, rules of construction and
definitions contained in the General Corporation Laws of the State of Delaware
shall govern the construction of these By-Laws. Without limiting the generality
of the foregoing, the masculine gender includes the feminine and neuter, the
singular number includes the plural and the plural number includes the singular,
and the term "person" includes a corporation as well as a natural person.
The undersigned, being the Secretary of All American Communications, Inc.,
hereby certifies that the foregoing Bylaws were adopted as the restated Bylaws
of said corporation by its Board of Directors on February 25, 1991.
DATED: September 30, 1997
/s/ Paul Pavlis
________________________________________
Paul Pavlis, Secretary
10
<PAGE>
EXHIBIT 3
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT (this "Agreement") dated as of October 1, 1997, by
and among Pearson plc, a corporation organized under the laws of the United
Kingdom ("Purchaser"), Pearson Merger Company, Inc., a Delaware corporation and
wholly-owned indirect subsidiary of Purchaser (the "Merger Sub") and the
Stockholders named on Exhibit A hereto (each a "Stockholder").
WHEREAS, each Stockholder is, as of the date hereof, the record and
beneficial owner of the number of shares of common stock, par value $0.0001 per
share (the "Class A Common Stock") and/or the number of shares of Class B Common
Stock, par value $.0001 per share ("Class B Common Stock" and, together with the
Class A Common Stock, the "Common Stock") of All American Communications, Inc.,
a Delaware corporation (the "Company") set forth next to such Stockholder's name
on Exhibit A hereto; and
WHEREAS, Purchaser, Merger Sub and the Company concurrently herewith are
entering into an Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"), which provides, among other things, for the acquisition of
the Company by Purchaser by means of a cash tender offer (the "Offer") for any
and all of the outstanding shares of Common Stock and for the subsequent merger
(the "Merger") of Merger Sub with and into the Company upon the terms and
subject to the conditions set forth in the Merger Agreement; and
WHEREAS, as a condition to the willingness of Purchaser and Merger Sub to
enter into the Merger Agreement, and in order to induce Purchaser and Merger Sub
to enter into the Merger Agreement, each Stockholder has agreed to enter into
this Agreement.
NOW, THEREFORE, in consideration of the execution and delivery by Purchaser
and the Merger Sub of the Merger Agreement and the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein and
therein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Representations and Warranties of the Stockholders. Each
--------------------------------------------------
Stockholder hereby severally represents and warrants to Purchaser and Merger Sub
as follows as to such Stockholder:
a. Such Stockholder is the record and beneficial owner of the shares of
Common Stock ("Shares") set forth next to such Stockholder's name on Exhibit A
hereto.
<PAGE>
b. Such Stockholder, if a corporation, is duly organized, validly existing
and in good standing under the laws of its respective jurisdiction, has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby, and has taken all
necessary corporate action to authorize the execution, delivery and performance
of this Agreement.
c. This Agreement has been duly authorized, executed and delivered by such
Stockholder and constitutes the legal, valid and binding obligation of such
Stockholder, enforceable against such Stockholder in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally and (ii) the availability of the remedy of specific
performance or injunctive or other forms of equitable relief may be subject to
equitable defenses and would be subject to the discretion of the court before
which any proceeding therefor may be brought.
d. Neither the execution and delivery of this Agreement nor the
consummation by such Stockholder of the transactions contemplated hereby will
result in a violation of, or a default under, or conflict with, any contract,
trust, commitment, agreement, understanding or arrangement of any kind to which
the Stockholder is a party or bound or to which such Stockholder's Shares are
subject. Consummation by such Stockholder of the transactions contemplated
hereby will not violate, or require any consent, approval, or notice under any
provision of any judgment, order, decree, statute, law, rule or regulation
applicable to such Stockholder or such Stockholder's Shares, except for any
necessary filing under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), any pre-merger notification with the German Federal
Cartel Office or state takeover laws.
e. Such Stockholder's Shares and the certificates representing such
Stockholder's Shares are now and at all times during the term hereof will be
held by such Stockholder, or by a nominee or custodian for the benefit of such
Stockholder, free and clear of all liens, claims, security interests, proxies,
voting trusts or agreements, understandings or arrangements or any other
encumbrances whatsoever, except for any such encumbrances or proxies arising
hereunder or otherwise disclosed to the Purchaser; provided, however, that such
Stockholder may transfer all or a portion of the shares to a person or entity
who, by written instrument reasonably acceptable in form and substance to
Purchaser, agrees to be bound by each of the terms of this Agreement.
SECTION 2. Representations and Warranties of Purchaser and Merger Sub.
----------------------------------------------------------
Each of Purchaser and Merger Sub hereby, jointly
2
<PAGE>
and severally, represents and warrants to each Stockholder as follows:
a. Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the United Kingdom, has all requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, and has taken all necessary corporate action
to authorize the execution, delivery and performance of this Agreement. Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, has all requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, and has taken all necessary corporate action
to authorize the execution, delivery and performance of this Agreement.
b. This Agreement has been duly authorized, executed and delivered by each
of Purchaser and Merger Sub and constitutes the legal, valid and binding
obligation of each of Purchaser and Merger Sub, enforceable against each of them
in accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) the availability
of the remedy of specific performance or injunctive or other form of equitable
relief may be subject to equitable defenses and would be subject to the
discretion of the court before which any proceeding therefor may be brought.
c. Neither the execution and delivery of this Agreement nor the
consummation by each of Purchaser and Merger Sub of the transactions
contemplated hereby will result in a violation of, or a default under, or
conflict with, any contract, trust, commitment, agreement, understanding or
arrangement of any kind to which each of Purchaser and Merger Sub is not a party
or bound. The consummation by each of Purchaser and Merger Sub of the
transactions contemplated hereby will not violate, or require any consent,
approval, or notice under any provision of any judgment, order, decree, statute,
law, rule or regulation applicable to either Purchaser or Merger Sub, except for
any necessary filing under the HSR Act, any pre-merger notification with the
German Federal Cartel Office or state takeover laws.
SECTION 3. Purchase and Sale of the Shares.
-------------------------------
a. Purchaser hereby agrees to make the Offer. Each Stockholder hereby
severally agrees that it shall tender its Shares and any shares subsequently
acquired pursuant to exercises after the date hereof of options or warrants to
purchase Common Stock (the "Subject Shares") into the Offer in accordance with
the terms and conditions of the Offer and that it shall not withdraw any Subject
Shares so tendered unless the Merger Agreement is terminated in accordance with
its terms. In
3
<PAGE>
addition, each Stockholder hereby severally agrees to sell to Merger Sub, and
Merger Sub hereby agrees to purchase, all such Stockholder's Subject Shares at a
price per Share equal to $25.50 or such higher price per Share as may be offered
by Merger Sub in the Offer (the "Purchase Price"), provided that such obligation
to purchase is subject to Merger Sub having accepted Shares for payment under
the Offer and the Minimum Condition (as defined in Exhibit A to the Merger
Agreement) and other conditions set forth in Exhibit A of the Merger Agreement
having been satisfied, which conditions (other than the Minimum Condition) may
be waived by Merger Sub in its sole discretion. Notwithstanding anything to the
contrary herein, the Subject Shares which are shares of Class A Common Stock,
shall not, in the aggregate for all purposes of this Agreement, exceed 49.9% of
the then outstanding shares of Class A Common Stock, and the number of Subject
Shares shall be reduced on a share-for-share basis for any Shares owned by
Purchaser or any affiliate thereof as of the date hereof. The Subject Shares as
of the date hereof are set forth on Exhibit B hereto.
b. Each Stockholder hereby grants to Purchaser an irrevocable option
(collectively, the "Option") to purchase such Stockholder's Subject Shares at a
price per Share equal to the Purchase Price, exercisable in whole but not in
part during the one year period after (i) termination of the Merger Agreement
pursuant to Section 8.3(b) or 8.4(b) thereof or (ii) a Competing Transaction
Termination (as defined in the Merger Agreement). In the event Purchaser wishes
to exercise the Option, Purchaser shall send a written notice to each
Stockholder specifying the place, date and time for the closing of such purchase
at least 5 business days in advance of the date of such closing. Any such
purchase shall be subject to the expiration of any applicable waiting period
under the HSR Act and pre-merger approval required by the German Federal Cartel
Office.
SECTION 4. Transfer of the Shares; Option Exercises. Prior to the
----------------------------------------
termination of this Agreement, except as otherwise provided herein, no
Stockholder shall: (i) transfer (which term shall include without limitation,
for the purposes of this Agreement, any sale, gift, pledge or other disposition)
or consent to any transfer of any or all of such Stockholder's Shares; (ii)
enter into any contract, option or other agreement or understanding with respect
to any transfer of any or all of such Stockholder's Shares or any interest
therein; (iii) except as provided in Section 5(b) hereto, grant any proxy,
power-of-attorney or other authorization or consent or with respect to such
Stockholder's Shares; or (iv) deposit such Stockholder's Shares into a voting
trust or enter into a voting agreement or arrangement with respect to such
Stockholder's Shares; provided, however, that (x) a Stockholder may transfer all
or a portion of such Stockholder's Shares to a person or entity who, by written
instrument reasonably acceptable in form and substance to Purchaser, agrees to
be bound by each of the terms of this
4
<PAGE>
Agreement, and (y) any Stockholder may sell any of such Stockholders' Shares in
a sale which complies with Rule 144 under the Securities Act of 1933, as
amended, provided that prior to any such sale, such Stockholder shall give
notice (the "Sale Notice") to Purchaser of the number of Shares such Stockholder
desires to sell and, for a period of 5 business days after receipt of the Sale
Notice, Purchaser shall have the right to purchase such Stockholders' Shares
desired to be sold from the Stockholder at the Purchase Price. In the event
that Purchaser does not purchase such Stockholders' Shares within such 5
business days period, Stockholder will be free to sell such Stockholders' Shares
desired to be sold to any third party. Prior to the Transition Time (as defined
in the Merger Agreement), except as otherwise provided herein, no Stockholder
shall exercise any outstanding options or warrants to purchase Common Stock
except (i) as necessary to avoid the expiration of such option or warrant or
(ii) in connection with the tender or sale of the underlying Common Stock to
Purchaser or its affiliates.
SECTION 5. Voting of Shares; Grant of Irrevocable Proxy; Appointment of
------------------------------------------------------------
Proxy.
- -----
a. Each Stockholder hereby agrees that at any meeting (whether annual or
special and whether or not an adjourned or postponed meeting) of the holders of
Common Stock, however called, or in connection with any written consent of the
holders of Common Stock solicited by the Board of Directors, such Stockholder
will appear at the meeting or otherwise cause the Section 5 Shares (as such term
is hereinafter defined) to be counted as present thereat for purposes of
establishing a quorum and vote or consent (or cause to be voted or consented)
such Stockholder's Section 5 Shares (i) in favor of the Merger during the term
of the Merger Agreement and (ii) against any Competing Transaction during the
term of this Agreement. "Section 5 Shares" shall mean (i) the Subject Shares
unless and until the Class B Common Stock shall have become voting stock, and
(ii) all shares of voting stock of the Company from and after the time that the
Class B Common Stock shall have become voting stock; provided, however, that
notwithstanding anything to the contrary herein, unless and until the Transition
Time shall have occurred, the Section 5 Shares shall not in the aggregate exceed
such amount of the then outstanding shares of voting stock of the Company as
would result in the occurrence of a Change in Control under the Indenture
referred to in Section 3.5(a) of the Merger Agreement.
b. Each Stockholder hereby irrevocably grants to, and appoints Purchaser
and any nominee thereof, its proxy and attorney-in-fact (with full power of
substitution) during the term of this Agreement, for and in the name, place and
stead of such Stockholder, to vote such Stockholder's Section 5 Shares, or grant
a consent or approval in respect of such Stockholder's
5
<PAGE>
Section 5 Shares, in connection with any meeting of the stockholders of the
Company (i) in favor of the Merger during the term of the Merger Agreement, and
(ii) against any Competing Transaction (as defined in the Merger Agreement)
during the term of this Agreement.
c. Except as otherwise disclosed to Purchaser, each Stockholder represents
that any proxies heretofore given in respect of such Stockholder's Subject
Shares, if any, are not irrevocable, and that such proxies are hereby revoked.
d. Each Stockholder hereby affirms that the irrevocable proxy set forth in
this Section 5 is given in connection with the execution of the Merger Agreement
and that such irrevocable proxy is given to secure the performance of the duties
of such Stockholder under this Agreement. Each Stockholder hereby further
affirms that the irrevocable proxy is coupled with an interest and, except as
set forth in Section 5 hereof, is intended to be irrevocable in accordance with
the provisions of Section 212(e) of the Delaware General Corporation Law (the
"DGCL").
e. Purchaser agrees that, until any such Stockholder's Section 5 Shares
are purchased by Merger Sub pursuant to Section 3 hereof, such Stockholder shall
retain the right to vote such Stockholder's Section 5 Shares (as well as any
other Shares) for the election of directors of the Company and for any other
matter other than those specified in clauses (a) and (b) of this Section 5.
SECTION 6. Competing Transactions. Each Stockholder will not, and will
----------------------
instruct its Representatives during the term of the Merger Agreement not to,
initiate, solicit or encourage (including by way of furnishing information or
assistance) any Competing Transaction (as defined in the Merger Agreement), or
enter into or maintain discussions or negotiate with any person in furtherance
of or relating to or to obtain a Competing Transaction, or agree to or endorse
any Competing Transaction, or authorize or permit any Representative to take any
such action, and such Stockholder shall use its reasonable best efforts to cause
its Representatives not to take any such action. Such Stockholder shall
promptly advise Purchaser if any such proposal or offer, or any inquiry or
contact made with any person with respect thereto, is made.
SECTION 7. Further Assurances; Stockholder Capacity.
----------------------------------------
a. Each Stockholder shall, upon request of Purchaser or Merger Sub,
execute and deliver any additional documents and take such further actions as
may reasonably be deemed by Purchaser or
6
<PAGE>
Merger Sub to be necessary or desirable to carry out the provisions hereof and
to vest the power to vote the Shares as contemplated by Section 5 hereof in
Purchaser.
b. Nothing in this Agreement shall be construed to prohibit any
Stockholder or any affiliate of any Stockholder who is or has designated a
member of the Board of Directors of the Company from taking any action solely in
his capacity as a member of the Board of Directors of the Company or from
exercising his, her or its fiduciary duties as a member of such Board of
Directors.
SECTION 8. Termination. This Agreement and all rights and obligations of
-----------
the parties hereunder shall terminate immediately upon the earlier of (a) the
date (the "Termination Date") that is one year following a Competing Transaction
Termination or the date upon which the Merger Agreement is terminated in
accordance with its terms pursuant to Section 8.3(b) or 8.4(b) of the Merger
Agreement or immediately on the date upon which the Merger Agreement is
otherwise terminated in accordance with its terms or (b) the Effective Time (as
defined in the Merger Agreement). In the event that the Merger is consummated,
the provisions set forth in Section 9 shall survive any termination of this
Agreement.
SECTION 9. Expenses. Except as provided in Section 6 hereof, all fees and
--------
expenses incurred by any one party hereto shall be borne by the party incurring
such fees and expenses.
SECTION 10. Public Announcements. Each of Purchaser, Merger Sub and each
--------------------
Stockholder agrees that it will not issue any press release or otherwise make
any public statement with respect to this Agreement or the transactions
contemplated hereby without the prior consent of the other party, which consent
shall not be unreasonably withheld or delayed; provided, however, that such
disclosure can be made without obtaining such prior consent if (i) the
disclosure is required by law or regulation or by obligations imposed pursuant
to any listing agreement with the NASDAQ National Market and (ii) the party
making such disclosure has first used its reasonable best efforts to consult
with the other party about the form and substance of such disclosure.
SECTION 11. Miscellaneous.
-------------
a. Capitalized terms used and not otherwise defined in this Agreement
shall have the respective meanings assigned to such terms in the Merger
Agreement.
b. All notices and other communications hereunder shall be in writing and
shall be deemed given upon (i) transmitter's confirmation of a receipt of a
facsimile transmission, (ii) confirmed delivery by a standard overnight carrier
or when delivered by hand or (iii) the expiration of five business days
7
<PAGE>
after the day when mailed in the United States by certified or registered mail,
postage prepaid, addressed at the following addresses (or at such other address
for a party as shall be specified by like notice):
i. If to the Purchaser or Merger Sub, to the address set forth on
Exhibit C:
ii. If to any Stockholder, to the address set forth next to such
Stockholder's name on Exhibit A hereto.
c. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
d. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall be considered one and
the same agreement.
e. This Agreement (including the Merger Agreement and any other documents
and instruments referred to herein) constitutes the entire agreement and
supersedes all prior agreements and understandings, whether written or oral,
among the parties hereto with respect to the subject matter hereof.
f. This Agreement shall be governed by, and construed in accordance with
the laws of the State of Delaware without giving effect to the principles of
conflicts of laws thereof.
g. Except as provided in Section 4 hereof, neither this Agreement nor any
of the rights, interests, or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by,
the parties and their respective successors and assigns, and the provisions of
this Agreement are not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
h. If any term, provision, covenant or restriction herein is held by a
court of competent jurisdiction or other authority to be invalid, void or
unenforceable or against its regulatory policy, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
i. Each of the parties hereto acknowledges and agrees that in the event of
any breach of this Agreement, each non-breaching party would be irreparably and
immediately harmed and could not be made whole by monetary damages. It is
accordingly agreed that the parties hereto (i) will waive, in any action for
specific performance, the defense of adequacy of a remedy at law and
8
<PAGE>
(ii) shall be entitled, in addition to any other remedy to which they may be
entitled at law or in equity, to compel specific performance of this Agreement.
j. No amendment, modification or waiver in respect of this Agreement shall
be effective against any party unless it shall be in writing and signed by such
party.
9
<PAGE>
IN WITNESS WHEREOF, Purchaser, Merger Sub and each Stockholder has executed
and delivered or caused this Agreement to be duly executed and delivered as of
the date first written above.
/s/ Myron Roth
Pearson plc ---------------------------
Myron Roth
By: /s/ John Davis
-------------------------------
Name: John Davis /s/ Thomas Bradshaw
-------------------------- ---------------------------
Title: Authorized Signatory Thomas Bradshaw
-------------------------
/s/ Sydney D. Vinnedge
Pearson Merger Company, Inc. ---------------------------
Sydney D. Vinnedge
By: /s/ John Davis /s/ Lawrence E. Lamattina
------------------------------- ---------------------------
Name: John Davis Lawrence E. Lamattina
--------------------------
Title: Vice President
-------------------------
/s/ Anthony J. Scotti
- ---------------------------------- The Interpublic Group
Anthony J. Scotti of Companies, Inc.
/s/ Benjamin Scotti
- ---------------------------------- By: /s/ Eugene Beard
Benjamin Scotti --------------------------
Name: Eugene Beard
---------------------
Title: Vice Chairman
--------------------
10
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Ownership of Outstanding Shares
Name Class A Class B
- ---- ------- -------
<S> <C> <C>
Anthony J. Scotti 1,504,690 0
Benjamin Scotti 1,435,995 0
Myron Roth 340,850 0
Thomas Bradshaw 315,850 0
Sydney D. Vinnedge 141,875 0
Lawrence E. Lamattina 0 0
The Interpublic Group
of Companies, Inc. 580,000 2,470,000
</TABLE>
1
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
Subject Shares
Name Class A Class B
- ---- -------------- --------
<S> <C> <C>
Anthony J. Scotti 1,220,248 0
Benjamin Scotti 1,164,538 0
Myron Roth 276,417 0
Thomas Bradshaw 256,143 0
Sydney D. Vinnedge 115,055 0
Lawrence E. Lamattina 0 0
The Interpublic Group
of Companies, Inc. 470,358 2,470,000
</TABLE>
1
<PAGE>
EXHIBIT 4
AGREEMENT NOT TO COMPETE
This Agreement Not to Compete (this "AGREEMENT") is entered into as of
October 1, 1997, by and between All American Communications, Inc., a Delaware
corporation ("COMPANY"), on the one hand, and Anthony J. Scotti, an individual
("SCOTTI"), on the other hand.
R E C I T A L S
WHEREAS, Company, Pearson plc and Pearson Merger Company, Inc.
("MERGER SUB") have entered into an Agreement and Plan of Merger ("MERGER
AGREEMENT") dated as of October 1, 1997 relating to the merger of Merger Sub
into Company;
WHEREAS, Company and Scotti are parties to that certain letter
agreement dated February 25, 1991, as amended and extended (including, without
limitation, by that certain undated "Amendment to Employment Agreement", that
certain "Second Amendment to Employment Agreement" dated as of January 18, 1993,
that certain "Third Amendment to Employment Agreement" dated May 1, 1994, that
certain "Fourth Amendment to Employment Agreement" dated as of February 26, 1996
and that certain "Fifth Amendment to Employment Agreement" of even date
herewith) (said letter agreement, together with any and all amendments thereto
and extensions thereof, being referred to herein as the "EMPLOYMENT AGREEMENT");
WHEREAS, it is contemplated that, in connection with the Merger
Agreement and/or the Stockholders Agreement, Scotti's Shares of Company will be
acquired by Merger Sub;
WHEREAS, in connection with the purchase of Scotti's Shares by Merger
Sub, Company and Scotti each desire to set forth in this Agreement the terms and
conditions of Scotti's voluntary resignation from Company and Scotti's agreement
not to engage in certain businesses which compete with Company or Company's
Affiliates as of and after the Transition Time (as defined below);
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, receipt of which is hereby
acknowledged, and intending to be legally bound, the parties agree as follows:
A. CONDITION PRECEDENT. The rights and obligations of each of
-------------------
Company and Scotti under this Agreement shall become effective only upon the
occurrence of the Transition Time (as defined in Paragraph 2 below). In the
event the Transition Time does not occur, for whatever reason, this Agreement
shall be of no force and effect, and neither Company nor Scotti shall have any
rights or obligations hereunder.
1. TERMS/DEFINITIONS. Capitalized terms used and not defined
-----------------
herein have the meanings given to them in the Merger Agreement. For the
purposes of this Agreement: (a)
<PAGE>
"AFFILIATE" means a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
a specified Person; (b) "AREAS" means (i) the County of Los Angeles, (ii) all
counties in the State of California, the names of which are all deemed to be
specifically included herein by this reference, (iii) the County of New York,
New York, (iv) all counties in the State of New York, the names of which are all
deemed to be specifically included herein by this reference, (v) the United
States, (vi) the United Kingdom, and (vii) all communities, municipalities and
counties, wherever located throughout the world; (c) "PERSON" means an
association, a corporation, an individual, a partnership, a trust or any other
entity or organization, including a governmental entity; (d) "GAME SHOW
BUSINESS" means any business, in whole or in part, involving the development,
production, licensing, distribution, broadcast, marketing, promotion,
merchandising and/or other exploitation of game shows and/or game show formats
in any medium or media now known or hereafter devised, and/or any combination of
the foregoing; and (e) "MUSIC BUSINESS" means any business, in whole or in part,
involving (i) the development, recording, production, pressing, manufacturing,
marketing, promotion, distribution, merchandising and/or other exploitation of
musical recordings in any medium or media now known or hereafter devised
(including, without limitation, the exploitation of musical recordings by means
of CDs, cassettes, albums, music videos or any other audio or audiovisual work
or device, in any medium or media now known or hereafter devised), (ii) the
publishing, licensing, administration, merchandising and/or other exploitation
of musical compositions in any medium or media now known or hereafter devised,
(iii) the development, production, promotion, exhibition, merchandising and/or
other exploitation of live musical performances in any medium or media now known
or hereafter devised, and/or (iv) any combination of the foregoing; provided,
however, that "Music Business" shall not include any business activities to the
extent they relate to (x) musical compositions written in whole or in part by,
or musical performances of, any of Scotti's individual family members (including
family members of Scotti's spouse), or (y) musical recordings and compositions
which are a part of theatrical motion pictures or television programs (other
than game shows and music videos) produced by Scotti.
2. RESIGNATION. Reference is hereby made to Paragraph 3.2.1.A of
-----------
the Employment Agreement. Company and Scotti acknowledge and agree that the
transaction contemplated by the Merger Agreement shall constitute an "EVENT" (as
defined in the Employment Agreement and in Company's 1994 Stock Incentive Plan).
Effective as of the date on which Merger Sub purchases more than fifty percent
(50%) of the Shares of Common Stock and Class B Common Stock combined (the
"TRANSITION TIME"), Scotti (1) hereby exercises his right to terminate the Term
(as defined in the Employment Agreement), which termination shall become
effective immediately upon the Transition Time, and (2) agrees to assign and to
cause each and every Scotti Affiliate to assign to Company or any designee of
Company all equity securities of any Company Subsidiary owned by any of them.
Accordingly, effective as of the Transition Time, Scotti hereby voluntarily
resigns (i) as Chief Executive Officer of Company, (ii) from the Board of
Directors of Company (and all committees thereof), (iii) the Boards of Directors
(and all committees thereof) of all Company Subsidiaries of which Scotti is a
member, and (iv) any other position of employment or engagement which Scotti may
occupy in Company or any Affiliate of Company. Scotti hereby acknowledges and
agrees that his termination of the Term does not constitute and shall not be
deemed to constitute a termination by Company, for
2
<PAGE>
"good cause" or otherwise, or a termination by Scotti for "good cause"; and that
all of Scotti's rights under the Employment Agreement shall be determined in
accordance with Paragraph 3.2.2.(b) of the Employment Agreement. Scotti
acknowledges and agrees that he shall be entitled to no payments or benefits
pursuant to the Employment Agreement other than as set forth in said Paragraph
3.2.2.(b). In this regard, Scotti hereby (i) waives his right to receive any
further compensation and benefits from Company pursuant to the Employment
Agreement or any other agreement with Company (other than this Agreement); and
(ii agrees that all other obligations of Company pursuant to the Employment
Agreement (including, without limitation, all payment obligations pursuant to
Section 2 of the Employment Agreement, and all obligations arising out of the
termination of the Term of the Employment Agreement pursuant to Section 3 of the
Employment Agreement) are hereby discharged. In addition, Scotti acknowledges
and agrees that Paragraph 1.3.2 of the Employment Agreement has been superseded
by Section 6.12 of the Merger Agreement and is of no force and effect.
3. COVENANT NOT TO COMPETE AND NOT TO SOLICIT.
------------------------------------------
(a) COVENANT. In consideration of the Noncompetition Payment and
--------
as a material inducement to Company to enter into the Merger Agreement,
Scotti agrees as follows:
(i) During the period commencing at the Transition Time and
continuing until December 1, 1999 (the "NONCOMPETE TERM"), Scotti
shall not directly (or indirectly through an Affiliate of Scotti) in
the Areas, engage in, assist any Person in engaging in or acquire an
interest in any Person engaging in, the Game Show Business or the
Music Business, whether as an owner, shareholder, joint venturer,
partner, employee, independent contractor, agent or otherwise.
Notwithstanding the foregoing, nothing herein shall prevent Scotti
from working for, assisting or advising any Person that is engaged in
the Game Show Business or the Music Business so long as Scotti does
not render any services for such Person in connection with the Game
Show Business or the Music Business.
(ii) During and prior to the Noncompete Term, Scotti shall
not directly or indirectly (through an Affiliate of Scotti or
otherwise) solicit, entice, persuade, or induce any employee or
independent contractor of Company or any performer (whether music,
television, theatrical or otherwise) who is under contract (whether
directly or through a loanout company or other arrangement) with
Company or any Affiliate of Company prior to or during the Noncompete
Term to terminate his or her employment by, or other contract with,
Company or such Affiliate or to refrain from extending or renewing the
same (upon the same or new terms) or to become employed by or to enter
into any contract with a person or business other than Company or an
Affiliate of Company.
(iii) Scotti shall not directly or indirectly (through an
Affiliate of Scotti or otherwise) negotiate with respect to, or
otherwise discuss with any third party, any television project
(excluding those television projects relating to the
3
<PAGE>
Game Show Business, which are subject to subparagraph 3(a)(ii) above)
which was in development by Company or an Affiliate of Company, or
submitted or otherwise presented (orally, in writing or otherwise) to
Company or an Affiliate of Company prior to the Transition Time,
unless and until such time (if ever) as (x) Company, after the
Transition Time, approves such negotiation or discussion, or (y) such
television project has been re-submitted or otherwise re-presented to
Company after the Transition Time, and such television project has
thereafter been rejected in writing by Company.
The foregoing agreement contained in this subparagraph (a) is referred to
in this Agreement as the "COVENANT". Scotti represents and warrants that
Scotti has not, prior to the date hereof, acted or failed to act in a way
which would constitute a breach of the Covenant.
(b) COMPANY RELIANCE. Scotti represents that Scotti's experience and
----------------
capabilities are such that the provisions of this Paragraph 3 will not
prevent Scotti from earning a livelihood. It is understood and agreed that
this Agreement and the Merger Agreement are being made and entered into by
Company in reliance on the Covenant in view of the irreparable injury that
would befall Company should Scotti engage in any activities which are
prohibited by the Covenant during the effectiveness of the Covenant.
(c) PAYMENT FOR COVENANT. In consideration for the Covenant, and
--------------------
subject to the occurrence of the Transition Time, Company will pay to
Scotti Two Million Nine Hundred Seven Thousand Six Hundred Sixty-Five
Dollars ($2,907,665) ("NONCOMPETITION PAYMENT") within ten (10) business
days following the Transition Time; provided, however, that if the
Transition Time occurs prior to December 1, 1997, the Noncompetition
Payment shall be increased by Two Thousand Seven Hundred Thirty-Five
Dollars ($2,735) for each such day prior to December 1, 1997, and if the
Transition Time occurs after December 1, 1997, the Noncompetition Payment
shall be decreased by Two Thousand Seven Hundred Thirty-Five Dollars
($2,735) for each such day after December 1, 1997; and provided further
that any obligation of Company to make payments to Scotti will be subject
to Paragraph 6 below.
4. OWNERSHIP OF COMPANY EXCEPTION. Nothing contained in Paragraph 3
------------------------------
above shall prohibit Scotti from acquiring and/or retaining, solely as an
investment, and taking customary actions to maintain and preserve Scotti's
ownership of, securities of any corporation as long as Scotti is not part of any
control group of such corporation or legally or beneficially the direct or
indirect owner of 5% or more of the outstanding voting securities of such
corporation and so long as Scotti does not render any services for such
corporation in connection with the Game Show Business or the Music Business.
5. AIRCRAFT LEASE. Reference is hereby made to that certain Option
--------------
Agreement dated as of July 7, 1997 between Company and Scotti (the "OPTION
AGREEMENT"), and the following agreements relating to that certain Gulfstream G-
1159B Aircraft Equipped with two (2) Rolls-Royce Spey MK511-8 Engines (the
"AIRCRAFT"): (i) the Aircraft Purchase and Sale
4
<PAGE>
Agreement dated as of June 30, 1997, between Atlantic Richfield Company ("ARCO")
and Company, (ii) the Purchase Agreement Assignment Agreement, dated as of July
7, 1997, between Company, as assignor, and C.I.T. Leasing Corporation
("LESSOR"), as assignee, as consented to by ARCO in the Consent and Agreement
dated as of July 7, 1997, (iii) the Aircraft Lease Agreement dated as of July 7,
1997, between Lessor and Company) (the "LEASE AGREEMENT"), (iv) the Tax
Indemnity Agreement, dated as of July 7, 1997, between Lessor and Company, and
(v) the Management Agreement, dated as of July 7, 1997, between Company and
Bloomer de Vere Group Avia, Inc. (the agreements referred to in (i) through (v)
above being referred to collectively as the "AIRCRAFT AGREEMENTS"). Effective as
of the Transition Time and subject to payment of the Noncompetition Payment,
Scotti hereby exercises the option granted to Scotti under the Option Agreement,
subject to the terms hereof. Notwithstanding anything to the contrary contained
in the Option Agreement, Company shall (subject to obtaining all necessary
consents, unless Company in its sole discretion elects to proceed without such
consents) sublease, effective as of January 1, 1998, the Aircraft to Scotti for
a term co-terminous with the term of the Lease Agreement, in which event Scotti
shall assume all duties, obligations and liabilities of Company pursuant to the
Aircraft Agreements relating to the period after January 1, 1998, and Scotti
shall, prior to the Transition Time (unless later requested by Company, but not
in any event later than January 1, 1998), sign a sublease agreement containing
customary terms and conditions consistent with those contained in the Aircraft
Agreements. Scotti shall use reasonable best efforts to obtain any and all
necessary consents for the sublease of the Aircraft, provided that Company shall
reasonably cooperate with Scotti in obtaining such consents (unless Company in
its sole discretion elects to proceed without such consents). Commencing as of
the Transition Time and prior to January 1, 1998, Scotti shall have the
exclusive right to use the Aircraft, provided that Scotti shall pay or reimburse
Company for all costs incurred in connection with the Aircraft after the
Transition Time (including, without limitation, the payment of Basic Rent (as
defined in the Aircraft Agreements) allocable to the period after the Transition
Time); and prior to the Transition Time, Scotti shall sign an aircraft use
agreement containing standard terms and conditions consistent with those
contained in the Aircraft Agreements. Company shall pay all costs incurred in
connection with the Aircraft prior to the Transition Time. Scotti hereby agrees
to defend, indemnify and hold harmless Company and each and every Affiliate of
Company, and each of their officers, directors, employees, trustees,
shareholders, partners and principals, and the successors and assigns of all of
them, from and against any and all losses, costs (including without limitation
attorneys' fees), liabilities, damages and claims of any nature arising from or
in connection with any breach or alleged breach of the Aircraft Agreements after
January 1, 1998 or the use of the Aircraft after the Transition Time.
6. REMEDIES AND ENFORCEMENT. Company and Scotti agree that a breach
------------------------
by Scotti of any of the covenants set forth in this Agreement (including,
without limitation, the Covenant) will cause irreparable harm to Company, that
Company's remedies at law in the event of such breach are inadequate, and that,
accordingly, in the event of such breach, a restraining order or injunction or
both may be issued against Scotti or any of Scotti's Affiliates, in addition to
any other rights and remedies that are available to Company. In connection with
any such action or proceeding for injunctive relief, Scotti hereby waives the
claim or defense that a remedy at law alone is adequate and agrees, to the
maximum extent permitted by law, to have each provision of this Agreement
specifically enforced against Scotti or any of Scotti's Affiliates, and
5
<PAGE>
consents to the entry of injunctive relief against Scotti or any of Scotti's
Affiliates, enforcing or restraining any breach or threatened breach of this
Agreement. Any breach of the obligation of Company to make payments hereunder
will result solely in a right for Scotti to receive payment (or in the absence
of payment, to pursue any action solely for the amount of such payment), and
Scotti shall not in any event have any right to terminate this Agreement or seek
or be entitled to rescission, injunctive or other equitable relief.
7. SEPARATE COVENANTS. If this Agreement is more restrictive than
------------------
permitted by the laws of any jurisdiction in which Company seeks enforcement
hereof, this Agreement shall be limited to the extent required to permit
enforcement under such laws. In particular, the parties intend that the
covenants contained in this Agreement shall be construed as a series of separate
covenants, one for each community, county or city in which the businesses of
Company and Company's Affiliates have been carried on. Except for geographic
coverage, each such separate covenant shall be deemed identical in terms. If,
in any proceeding, a court shall refuse to enforce any of the separate
covenants, then such unenforceable covenant shall be deemed eliminated from this
Agreement for the purpose of those proceedings to the extent necessary to permit
the remaining separate covenants to be enforced. If the provisions of this
Agreement shall ever be deemed to exceed the duration, geographical limitations
or scope permitted by applicable law, then such provisions shall be reformed to
the maximum time or geographic limitations in scope, as the case may be,
permitted by applicable law.
8. CONFIDENTIALITY. Scotti shall, during and after the term hereof,
---------------
keep in confidence and shall not use for Scotti or others, or divulge to others
(except, on a confidential basis only, to Scotti's legal and financial advisors,
provided that Scotti shall cause such advisors to comply with this Paragraph 8),
any secret or confidential information, knowledge, or data, of Company or any
Affiliate of Company, obtained by Scotti as a result of Scotti's employment,
unless authorized by Company or required by law or regulatory agencies. Scotti
further agrees that Company shall be entitled to injunctive or other appropriate
equitable relief to prevent the disclosure of such secrets or information.
9. REPRESENTATION AND WARRANTIES. Scotti hereby represents and
-----------------------------
warrants that he is free to enter into this Agreement and that he is not subject
to any obligations or disabilities which will or might prevent or interfere with
keeping and performing all of the agreements, covenants and conditions to be
kept or performed hereunder.
10. AMENDMENTS; WAIVERS. This Agreement may be amended only by
-------------------
agreement in writing of each of the parties hereto. No waiver of any provision
nor consent to any exception to the terms of this Agreement shall be effective
unless in writing and signed by the party to be bound and then only to the
specific purpose, extent and instance so provided.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire
----------------
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior understandings and agreements of such parties pertaining
thereto.
6
<PAGE>
12. FURTHER ACTION. The parties shall execute and deliver all
--------------
documents, provide all information and take or forbear from taking all action as
may be necessary or appropriate to achieve the purposes of this Agreement.
13. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California applicable to contracts
made and performed in the State of California and without regard to conflicts of
laws doctrines, except to the extent that certain matters are preempted by
federal law or are governed by the law of the jurisdiction of incorporation of
the respective parties.
14. SUCCESSION. This Agreement shall be binding upon and enforceable
----------
by, and shall inure to the benefit of, Company and its respective successors and
assigns. The obligations and duties of Scotti hereunder are personal and not
assignable, and any attempt of assignment or transfer of Scotti's duties or
obligations shall be void.
15. HEADINGS. The headings of the several paragraphs herein are
--------
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning of this Agreement.
16. NOTICES. Any notice or other communication hereunder must be
-------
given in writing and (a) delivered in person, (b) transmitted by telex, telefax
or other telecommunications mechanism (provided that any notice so given is also
mailed as provided in clause (c)) or (c) mailed by certified or registered mail,
postage prepaid, receipt requested as follows:
IF TO COMPANY, ADDRESSED TO:
ALL AMERICAN COMMUNICATIONS, INC.
808 Wilshire Boulevard
Santa Monica, California 90401
7
<PAGE>
Attention: Chief Executive Officer
IF TO SCOTTI, ADDRESSED TO:
Anthony J. Scotti
706 North Beverly Drive
Beverly Hills, California 90210
or to such other address or to such other Person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Paragraph 16, (ii) if given by mail, three days after such communication is
deposited in the mails with first class postage prepaid, addressed as aforesaid
or (iii) if given by any other means, when actually delivered at such address.
17. ATTORNEYS' FEES. If any litigation is commenced among the
---------------
parties or their representatives concerning any provision of this Agreement, or
the rights and duties of any person or entity in relation thereto, the party
prevailing in such litigation shall be entitled, in addition to such other
relief as may be granted, to a reasonable sum for attorneys' fees reasonably
incurred in such litigation.
18. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, and by different parties in separate counterparts. All of such
counterparts shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ALL AMERICAN COMMUNICATIONS, INC.
By: /s/ Thomas Bradshaw
------------------------------
Name: Thomas Bradshaw
Title: Senior Vice President
/s/ Anthony J. Scotti
------------------------------
ANTHONY J. SCOTTI
8
<PAGE>
EXHIBIT 5
FIFTH AMENDMENT TO EMPLOYMENT AGREEMENT BETWEEN
ALL AMERICAN COMMUNICATIONS, INC. AND ANTHONY J. SCOTTI
This Fifth Amendment to Employment Agreement entered into as of this 1st
day of October, 1997, between All American Communications, Inc. (the "Company")
and Anthony J. Scotti ("Executive") hereby amends that certain Employment
Agreement, dated February 25, 1991, between the Company and Executive, as
amended by Amendments Nos. 1 through 4 (collectively, the "Employment
Agreement").
Effective as of the date hereof, Section 3.6 of the Employment Agreement is
hereby amended by the addition of the following paragraphs:
Notwithstanding any other provision of this Employment Agreement or
any other agreement between the parties, this Section 3.6 will remain in
effect following the termination of the Term of this Employment Agreement
pursuant to Section 3.2.1.A, in which event the following provisions will
apply:
(a) Company will indemnify Executive for any interest and penalties
payable to any taxing authority resulting from Executive's reporting of the
Noncompetition Payment, as defined in the Agreement Not to Compete of even
date herewith, and any income attributable to options which become vested
pursuant to the second sentence of Section 2.3.3 of this Employment
Agreement (the "Option Payment") in accordance with all provisions of the
Form W-2 provided by the Company.
(b) If Executive receives any inquiry or notice from any taxing
authority with respect to the Option Payment and/or the Noncompetition
Payment, he will notify the Company within five days of receipt of such
inquiry or notice. Company, at its cost, will take such action in response
to such notice, inquiry or further action by such taxing authority as the
Company shall determine and Executive will cooperate with such action by
Company as reasonably requested by Company.
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be duly
executed as of the date first written above.
ALL AMERICAN COMMUNICATIONS, INC.
a Delaware corporation
By: /s/ Thomas Bradshaw
-------------------------
Title: Senior Vice President
/s/ Anthony J. Scotti
------------------------------
ANTHONY J. SCOTTI
<PAGE>
EXHIBIT 6
ALL AMERICAN COMMUNICATIONS, INC.
2114 Pico Boulevard
Santa Monica, CA 90405
November 20, 1995
Pearson Television Limited
Teddington Studios
Teddington Lock, Teddington
Middlesex TW11 9NT
Attn: Ms. Sara Tingay
Dear Sirs and Madams:
In connection with your consideration of a possible transaction with All
American Communications, Inc., you have requested certain information concerning
the Company. Certain terms used herein (e.g., the "Company" and "you" or "your"
are used as defined in the last paragraph hereof). As a condition to your being
furnished such information, you agree to treat any "Evaluation Material" (as
hereinafter defined) in accordance with the provisions of this letter and to
take or abstain from taking certain other actions herein set forth.
The terms "Evaluation Material" means information concerning the Company
(whether prepared by the Company, its advisors or otherwise and irrespective of
the form of communication) which is furnished to you or to your Representatives
(as hereinafter defined) now or in the future by or on behalf of the Company,
along with all notes, analyses, studies, interpretations or other documents
prepared by you or your Representatives which contain, reflect or are based
upon, in whole or in part, the information furnished to you or your
Representatives pursuant hereto.
The term "Evaluation Material" does not include information which (i) is already
in your possession, provided that such information is not known by you after due
inquiry to be subject to another confidentiality agreement with or other
obligation of secrecy to the Company or another party, or (ii) is or becomes
generally available to the public other than as a result of a disclosure by you
or any of your directors, officers, employees, agents,
<PAGE>
Pearson Television Limited
November 20, 1995
Page 2
representatives or advisors ("Representatives"), or (iii) becomes available to
you on a non-confidential basis from a source other than the Company or its
advisors, provided that such source is not known by you after due inquiry to be
bound by a confidentiality agreement with or other obligation of secrecy to the
Company or another party.
You hereby agree that the Evaluation Material will be used solely for the
purposes of evaluating a possible transaction between the Company and you, will
not be used in any way detrimental to the Company, and that such information
will be kept confidential by you and your Representatives; provided, however,
that (i) any of such information may be disclosed to your Representatives who
need to know such information for the purpose of evaluating any such possible
transaction between the Company and you (it being understood that such
Representatives shall be informed by you of the confidential nature of such
information and shall be directed by you to treat such information
confidentially and you shall be responsible for any breach of this agreement by
any of the foregoing), (ii) any disclosure of such information may be made to
which the Company consents in writing. You agree, at your sole expense, to take
all reasonable measures (including but not limited to court proceedings) to
restrain you Representatives from prohibited or unauthorized disclosure or use
of the Evaluation Material.
In the event that you (or any other person to whom you are permitted to disclose
Evaluation Material) are requested in any proceeding or are required by
applicable law to disclose any Evaluation Material, you will give the Company
prompt notice of such request or requirement so that the Company may seek an
appropriate protective order or other appropriate remedy. If in the absence of
a protective order, or other appropriate remedy, you (or such other person) are
nonetheless compelled by law to disclose Evaluation Material, you (or such other
person) may disclose such information (but only to the extent so required)
without liability hereunder; provided, however, that you give the Company
written notice of the information to be disclosed as far in advance of its
disclosure as is practicable and, upon the Company's request and at the
Company's expense, use your best reasonable efforts to obtain reliable
assurances that confidential treatment will be accorded to such information,
<PAGE>
Pearson Television Limited
November 20, 1995
Page 3
including without limitation, by cooperating with the Company to obtain an
appropriate protection order.
You hereby acknowledge that you are aware, and that you will advise your
Representatives who are informed as to the matters which are the subject of this
letter, that the United States securities laws prohibit any person who has
received from an issuer material, non-public information concerning the issuer
or the matters which are the subject of this letter from purchasing or selling
securities of such issuer or from communicating such information to any other
person under circumstances in which it is reasonably foreseeable that such
person is likely to purchase or sell such securities.
In addition, except as required by law or regulatory authority, without the
prior written consent of the Company, you will not, and will cause your
Representatives not to, and the Company agrees that it will not, disclose to any
person that Evaluation Material has been made available to you or that
discussions or negotiations are taking place concerning a possible transaction
between the Company and you or any of the terms, conditions or other facts with
respect to any such possible transaction, including the statue thereof. You
have advised us that the regulatory authorities applicable to Pearson plc as a
quoted company may require disclosure of the possible transaction after the
parties have reached written agreement on the material terms of the transaction
in the event of significant "leaks" of the transaction; however, nothing herein
shall relieve any party from its responsibility for any breach of this letter
agreement. Without limiting the generality of the foregoing, you further agree
that prior to the execution of any definitive agreement with the Company,
without the prior written consent of the Company, you will not, directly or
indirectly, enter into any agreement, arrangement or understanding, with any
person regarding a possible transaction involving the Company (other than with
your representatives or with your banks or similar financial institutions
providing credit to you). The term "person" as used in this letter agreement
shall be broadly interpreted to include the media and any corporation,
partnership, group, individual or other entity.
<PAGE>
Pearson Television Limited
November 20, 1995
Page 4
You hereby acknowledge that the Evaluation Material is being furnished to you in
consideration of your agreement that without the prior written consent of the
Board of Directors of the company, for a period of two years from the date
hereof, you and your affiliates (as such term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) will not (and
you and they will not assist, provide or arrange financing to or for others or
encourage others to), directly or indirectly, acting alone or as part of a
group, acquire or agree, offer, seek or propose to acquire ownership (including,
but not limited to, beneficial ownership as defined in Rule 13d-3 under the
Exchange Act) of any of the assets or businesses of the Company or any
securities issued by the Company, or any rights or options to acquire such
ownership (including from a third party), or otherwise seek or propose to
influence or control (including by proxy solicitation or otherwise) the
management or policies of the Company, make any public announcement with respect
to any of the foregoing, request permission (without the Company's consent) to
do any of the foregoing or enter into any discussions, negotiation, arrangement
or understanding with any third party with respect to the foregoing.
Although the Company may include in the Evaluation Material information known to
it which it believes to be relevant for the purpose of your investigation, you
understand that neither the Company nor any of its directors, officers,
employees, representatives or advisors has made or makes any representation or
warranty as to the accuracy or completeness of the Evaluation Material. You
agree that neither the Company nor any of the directors, officers, employees,
representatives or advisors shall have any liability to you or any of your
directions, officers, employees, representatives or advisors resulting from the
use or content of the Evaluation Material.
In the event that you or we do not proceed with a transaction within a
reasonable time, and, in any event, within five days after being so requested by
the Company, you shall promptly redeliver to the Company all written Evaluation
Material and shall deliver or promptly destroy any other written material
containing or reflecting any information in the Evaluation Material (whether
prepared by the Company, its advisors or otherwise) and will not retain any
copies, extracts or other reproductions in whole or in part of such written
material. All
<PAGE>
Pearson Television Limited
November 20, 1995
Page 5
documents, memoranda, notes and other writings whatsoever prepared by you or any
of your advisors based on or including any of the information in the Evaluation
Material shall be destroyed, and such destruction shall be certified in writing
to the Company by an authorized officer supervising such destruction. For this
purpose, a "writing" includes data in computer format. Notwithstanding the
foregoing, one copy of written Evaluation Material and other written material
containing or reflecting Evaluation material may be retained in a confidential
manner by the Secretary of Pearson plc in the event such company is required to
maintain such copy as a result of the submission of such material to its Board
of Directors in connection with a determination by such Board. In addition,
notwithstanding the return or destruction (or, as provided above, the retention)
of the Evaluation material, you and your Representatives will continue to be
bound by your obligations of confidentiality hereunder.
For eighteen months from the date of this letter agreement, you agree not to (i)
initiate or maintain contact (except for those contacts made in the ordinary
course of business) with any officer, director or significant employee of the
Company or any customer, client, or account of the Company regarding the
Company's business, operation, prospects or finances, or (ii) solicit for
employment any current key management employee of the Company or breach the
provisions of Schedule I hereto, except, in either case, with the express
permission of the Company.
You agree that unless and until a definitive agreement between the Company and
you with respect to any transaction referred to in the first paragraph of this
letter has been executed and delivered, neither the Company nor you will be
under any legal obligation of any kind whatsoever with respect to such a
transaction by virtue of this or any written or oral expression with respect to
such a transaction by any of its directors, officers, employees, agents,
representatives or advisors or representatives thereof except, in the case of
this letter, for the matters specifically agreed to herein. You further
acknowledge and agree that the Company reserves the right, in its sole
discretion, to reject any and all proposals made by you or on your behalf with
regard to a transaction between the Company and you, and to terminate
discussions and negotiations with you at any time.
<PAGE>
Pearson Television Limited
November 20, 1995
Page 6
You acknowledge that any breach of this Agreement would cause irreparable harm
to the Company and the Company could not be made whole by money damages. It is
understood and agreed therefore that money damages would not be a sufficient
remedy for any breach of this letter agreement and that the Company shall be
entitled to specific performance and injunctive or other equitable relief as a
remedy for any such breach and you further agree to waive any requirement for
the security or posting of any bond in connection with such remedy. Such remedy
shall not be deemed to be the exclusive remedy for breach of this agreement but
shall be in addition to all other remedies available at law or in equity to the
Company.
It is agreed that no failure or delay by the Company in exercising any right,
power or privilege 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 right, power or privilege hereunder. The
agreements set forth in this letter agreement may be modified or waived only by
a separate writing between the Company and you expressly so modifying or waiving
such agreements.
Unless the context indicates otherwise, the term (i) "the Company" shall include
All American Communications, Inc. and its direct and indirect subsidiaries
(including Mark Goodson Productions, LLC, and the assets and business acquired
from Mark Goodson Productions, L.P. and the Child's Play Company) and the term
"you" shall include Pearson Television Limited and its direct or indirect
subsidiaries and its controlling persons, including Pearson plc and Grundy
Worldwide Limited (and members
<PAGE>
Pearson Television Limited
November 20, 1995
Page 7
of the Grundy Group). This letter shall abe governed by, and construed in
accordance with, the laws of the State of Delaware.
Very truly yours,
ALL AMERICAN COMMUNICATIONS, INC.
By: /s/ Thomas Bradshaw
-----------------------
Confirmed and Agreed to:
PEARSON TELEVISION LIMITED
By: /s/ Sara Tingay
-------------------------
<PAGE>
Pearson Television Limited
November 20, 1995
Page 8
SCHEDULE I
----------
Capitalized terms used herein without definition shall have the meaning set
forth in the attached letter agreement.
________________________________________________________________________________
1. During the eighteen months from the date of the letter agreement, you shall
not solicit for any employment David Hasselhof or Pamela Anderson.
<PAGE>
[LETTERHEAD OF ALL AMERICAN COMMUNICATIONS, INC.]
As of October
1st
1997
Pearson plc
3 Burlington Gardens
London W1X 1LE, England
Attention: Paul Vickers
Pearson Merger Company Inc.
30 Rockefeller Plaza, 50th Floor
New York, New York 10112-5095
Attention: John Davis
Gentlemen:
Reference is made to that certain confidentiality letter dated
November 20, 1995 between All American Communications, Inc. (the "Company") and
Pearson Television Limited (the "Confidentiality Letter") as reinstated by that
letter dated February 16, 1996, the Agreement and Plan of Merger dated as of
October 1, 1997 (the "Merger Agreement") among the Company, Pearson plc
("Purchaser") and Pearson Merger Company, Inc. ("Merger Sub") and the
Stockholders Agreement dated as of October 1, 1997 (the "Stockholders
Agreement") among Purchaser, Merger Sub and certain stockholders of the Company.
Terms which are defined in the Merger Agreement and are not otherwise defined
herein shall have the same meanings herein as therein. This is to confirm that
the Board of Directors of the Company has consented to and approved the
acquisition by Pearson and Merger Sub of all of the shares of Common Stock and
Class B Common Stock of the Company (the "Shares") at the price set forth in the
Merger Agreement (the "Offer Price"). Accordingly, the Company acknowledges and
agrees that until the Standstill Termination Date (as defined below), to the
extent that the Merger Agreement or the Stockholders Agreement permits the
Purchaser or Merger Sub to take any of the actions which are prohibited by the
standstill provisions set forth on page 4 of the Confidentiality Letter (the
"Standstill Provisions") and provided that the Merger Agreement has not been
terminated pursuant to Section 8.4(a) or (c) thereof, such Standstill Provisions
of the Confidentiality Letter will no longer be applicable and none of
Purchaser, Merger Sub nor any of their respective affiliates shall be prohibited
by the terms thereof from soliciting or receiving proxies with respect to any
Shares or seeking or proposing to acquire ownership of any Shares in accordance
with the terms of the Merger Agreement or
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the Stockholders Agreement. The Standstill Provisions will terminate entirely
upon the earlier of (a) a Competing Transaction Termination, (b) the date upon
which the Merger Agreement is terminated pursuant to Section 8.3(b) or 8.4(b) of
the Merger Agreement, (c) the date upon which the Transition Time occurs, or (d)
November 20, 1997 (the "Standstill Termination Date"). After the Standstill
Termination Date, none of Purchaser, Merger Sub nor any of their respective
affiliates shall be prohibited from soliciting or receiving proxies with respect
to any Shares or seeking or proposing to acquire ownership of any Shares.
Very truly yours,
All American Communications, Inc.
By: /s/ Thomas Bradshaw
-----------------------------
Its: Chief Financial Officer
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EXHIBIT 7
All American Communications to be Acquired by Pearson Plc
for $25.50 in Cash per Share
SANTA MONICA, CA & LONDON, England--Oct. 1, 1997--All American Communications,
Inc. (Nasdaq: AACI/AACIB) announced today that it has entered into a definitive
agreement with Pearson plc (London Stock Exchange: PSON) pursuant to which
Pearson will acquire All American Communications in a transaction valued at
approximately $515 million, including the net debt assumed.
Under the terms of the agreement, which has been unanimously approved by the
boards of directors of both companies, Pearson will acquire All American through
a tender offer in which All American shareholders will receive $25.50 in cash
for each Common Share and Class B Common Share they hold. Certain shareholders
have agreed to tender their shares in the offer and vote in favor of the
transaction.
Commenting on the transaction, Anthony J. Scotti said, "As All American's
largest shareholder, my long-term goal was to build our organization while
creating value for the Company's shareholders. This transaction is the
culmination of these efforts, and I am delighted that through the hard work of
all of our employees, we have distinguished All American as one of a small
number of independent entertainment companies that has delivered excellent
operating performances over the long-term to the benefit of its employees and
shareholders.
"We have great respect for the Pearson organization and management led by its
Chief Executive Officer, Marjorie Scardino and Chairman and Chief Executive
Officer of Pearson Television, Greg Dyke. The addition of All American doubles
the size of Pearson's Grundy Worldwide unit, creating a global television entity
with a broad array of worldwide game shows and other local language programming.
All American also provides Pearson with a major building block in the United
States with our development, production and distribution capabilities and high
profile programming such as Baywatch and The Price is Right."
The tender offer is intended to commence within five business days and will
initially by open for 20 business days. The closing of the transaction is
conditioned on various matters, including regulatory clearances, the majority of
the combined outstanding Common and Class B Common Shares being tendered in the
offer and certain other customary conditions. The Board of Directors of All
American has received an opinion from Goldman, Sachs & Co. that the
consideration to be received by the stockholders in the transaction is fair from
a financial point of view, and has recommended that stockholders accept the
tender offer.
Pearson plc is an international media group with interests in publishing,
television production, broadcasting, electronic and multi-media businesses. The
Group focuses on three key markets
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worldwide: information, education and entertainment.
All American Communications, Inc. is a diversified worldwide producer,
distributor and marketer of television programming and recorded music. All
American produces and/or distributes more than 100 shows in 30 countries of
which 90 are local language game shows in foreign territories including The
Price is Right, Family Feud, Match Game, Card Sharks, Let's Make a Deal and many
others. In the United States, All American's programming franchises include
Baywatch, The Price is Right and The Adventures of Sinbad.
Except for the historical information in this press release, this press release
includes forward looking statements that involve risks and uncertainties,
including but not limited to control by management, the risks that any possible
transaction will not be consummated, dependence on a limited number of
continuing and new projects, fluctuations in ratings and advertising rates,
competition and other risks detailed from time to time in the Company's
Securities and Exchange Commission filings. Actual results may differ materially
from such information set forth herein.
CONTACT: Thomas Bradshaw
Chief Financial Officer
310/656-1100
or
Joseph N. Jaffoni, David C. Collins
Jaffoni & Collins Incorporated
212/505-3015 or [email protected]
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EXHIBIT 8
- -------------------------------------------------------------------------------
Goldman, Sachs & Co. | 85 Broad Street | New York, New York 10004
Tel: 212-902-1000
[LOGO OF GOLDMAN SACHS]
PERSONAL AND CONFIDENTIAL
- -------------------------------------------------------------------------------
October 6, 1997
Board of Directors
All American Communications, Inc.
808 Wilshire Boulevard
Santa Monica, California 90401
Gentlemen:
You have requested that we confirm our oral opinion, delivered September 30,
1997, as to the fairness as of such date from a financial point of view to the
holders of the outstanding shares of the Common Stock and Class B Common
Stock, par value $.0001 per share (together, the "Shares"), of All American
Communications, Inc. (the "Company") of the $25.50 per Share in cash proposed
to be paid by Pearson PLC ("Buyer") or Pearson Merger Company, Inc. ("Merger
Sub"), a wholly-owned subsidiary of Buyer, in the Tender Offer and the Merger
(as defined below) pursuant to the Agreement and Plan of Merger, dated as of
October 1, 1997, by and among Buyer, Merger Sub and the Company (the
"Agreement"). The Agreement provides for a tender offer for all of the Shares
(the "Tender Offer") pursuant to which Buyer or Merger Sub will pay $25.50 per
Share in cash for each Share accepted. The Agreement further provides that
following completion of the Tender Offer, Merger Sub will be merged with the
Company (the "Merger") and each outstanding Share (other than Shares already
owned by Buyer or Merger Sub) will be converted into the right to receive
$25.50 in cash (or such greater amount which may be paid pursuant to the
Tender Offer).
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements, and valuations for estate, corporate and other
purposes. We are familiar with the Company, having acted as lead manager in
connection with the issuance of $100 million principal amount of the Company's
10.875% senior subordinated notes due October 15, 2001 (the "10.875% Notes"),
and having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement.
Goldman, Sachs & Co. has also provided certain investment banking services to
Buyer from time to time, including having acted as joint global coordinator in
September 1995 in a secondary offering by Buyer of securities of British Sky
Broadcasting Group plc, and Goldman, Sachs & Co. may provide investment
banking services to Buyer and its subsidiaries in the
New York | London | Tokyo | Boston | Chicago | Dallas | Frankfurt | George
Town | Hong Kong | Houston | Los Angeles | Memphis
Miami | Milan | Montreal | Osaka | Paris | Philadelphia | San
Francisco | Singapore | Sydney | Toronto | Vancouver | Zurich
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All American Communications, Inc.
October 6, 1997
Page Two
future. Goldman, Sachs & Co. provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including
derivative securities, of the Company or Buyer for its own account and for the
accounts of customers. As of the date hereof, Goldman, Sachs & Co. accumulated
a long position of approximately $15 million principal amount of the 10.875%
Notes.
In connection with our opinion, we reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company for the five years ended December 31, 1996; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of the Company;
certain other communications from the Company to its stockholders; and certain
internal financial analyses and forecasts for the Company prepared by its
management. We also held discussions with members of the senior management of
the Company regarding its past and current business operations, financial
condition and future prospects. In addition, we reviewed the reported price
and trading activity for the Shares, compared certain financial and stock
market information for the Company with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the entertainment industry
specifically and in other industries generally and performed such other
studies and analyses as we considered appropriate.
We relied upon the accuracy and completeness of all of the financial and other
information reviewed by us and assumed such accuracy and completeness for
purposes of rendering our opinion. In addition, we did not make an independent
evaluation or appraisal of the assets and liabilities of the Company or any of
its subsidiaries and we were not furnished with any such evaluation or
appraisal. Our advisory services and the opinion confirmed herein were
provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the transaction contemplated
by the Agreement and such opinion does not constitute a recommendation as to
how any holder of Shares should vote with respect to, or whether or not any
holder of Shares should tender such Shares into the Tender Offer in connection
with, such transaction.
This letter confirms our oral opinion that, based upon and subject to the
foregoing and based upon such other matters as we considered relevant, as of
September 30, 1997, the $25.50 per Share in cash to be received by the holders
of Shares pursuant to the Tender Offer and the Merger was fair from a
financial point of view to such holders.
Very truly yours,
/s/ Goldman, Sachs & Co.
- ---------------------------------------
(GOLDMAN, SACHS & CO.)
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EXHIBIT 9
[LETTERHEAD OF ALL AMERICAN COMMUNICATIONS]
October 7, 1997
Dear Stockholder:
I am pleased to report that on October 1, 1997, All American
Communications, Inc. (the "Company") entered into a merger agreement with
Pearson plc and one of its subsidiaries ("Pearson") that provides for the
acquisition of the Company by Pearson at a price of $25.50 per share in cash.
Under the terms of the proposed transaction, a Pearson subsidiary has made a
tender offer for all outstanding shares of the Company's Common Stock and Class
B Common Stock (collectively, the "Shares") at $25.50 per Share in cash.
Your Board of Directors has unanimously approved the merger agreement and
the Pearson offer, and has determined that the terms of the offer and the merger
are fair to and in the best interests of the Company's stockholders.
Accordingly, the Board of Directors unanimously recommends that all Company
stockholders accept the Pearson offer and tender their Shares to Pearson.
In arriving at its recommendations, The Board of Directors gave careful
consideration to a number of factors. These factors included the opinion of
Goldman, Sachs & Co., financial advisor to the Company, that the cash
consideration of $25.50 per Share to be received by the stockholders pursuant to
the Pearson offer and the merger is fair to the Company's stockholders from a
financial point of view.
Following the successful completion of the tender offer, upon approval by
stockholder vote, if required, the Pearson subsidiary and the Company will
merge, and all Company Shares not purchased in the tender offer will be
converted into the right to receive $25.50 per Share in cash in the merger.
Accompanying this letter is a copy of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9. Also enclosed is the
Offer to Purchase and related materials, including a Letter of Transmittal for
use in tendering Shares. We urge you to read the enclosed materials carefully.
On behalf of the Board of Directors,
Sincerely,
/s/ Anthony J. Scotti
Anthony J. Scotti
