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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
ALL AMERICAN COMMUNICATIONS, INC.
(NAME OF SUBJECT COMPANY)
PEARSON MERGER COMPANY, INC.
PEARSON PLC
(Bidders)
COMMON STOCK, $.0001 PAR VALUE
AND
CLASS B COMMON STOCK, $.0001 PAR VALUE
(Title of Class of Securities)
016480105 (COMMON STOCK)
016480204 (COMMON STOCK)
016480402 (CLASS B COMMON STOCK)
(CUSIP Number of Class of Securities)
DAVID M. VEIT
PEARSON INC.
30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112
(212) 713-1919
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on behalf of Bidders)
Copy to:
MICHAEL S. HOBEL
ROBERT D. HAYMER
O'MELVENY & MYERS LLP
1999 AVENUE OF THE STARS, SUITE 700
LOS ANGELES, CALIFORNIA 90067
(310) 553-6700
OCTOBER 7, 1997
(Date of Event Which Requires Filing of this Statement)
CALCULATION OF FILING FEE
TRANSACTION VALUATION* $310,314,779
AMOUNT OF FILING FEE $62,063
* Estimated for purposes of calculating the amount of the filing fee only. The
amount assumes the purchase of 7,019,557 Shares of Common Stock, $.0001 par
value, and 5,149,650 Shares of Class B Common Stock, $.0001 par value
(collectively, the "Shares") of All American Communications, Inc. (the
"Company") at a price per Share of $25.50 in cash (the "Offer Price"). Such
number of Shares represents all the Shares outstanding as of September 30,
1997. Such number does not include any Shares issuable upon exercise of
employee stock options or warrants.
[_] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing.
<TABLE>
<S> <C>
Amount previously paid: none Filing party: n/a
Form or registration no.: n/a Date filed: n/a
</TABLE>
(Continued on following pages)
(Exhibit Index is located on Page 6)
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14D-1 AND 13D
CUSIP No. 016480105 (Common Stock)
CUSIP No. 016480204 (Common Stock)
CUSIP No. 016480402 (Class B Common Stock)
1. Name of Reporting Persons
S.S. or I.R.S. Identification Nos. of Above Persons
PEARSON MERGER COMPANY, INC
2. Check the Appropriate Box if a Member of a Group
(a) /x/
(b) / /
3. SEC Use Only
4. Sources of Funds
WC, AF
5. Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(e)
or 2(f)
/ /
6. Citizenship or Place of Organization
DELAWARE
7. Aggregate Amount Beneficially Owned by Each Reporting Person
3,502,759 shares of Common Stock
2,470,000 shares of Class B Common Stock
8. Check if the Aggregate Amount in Row 7 Excludes Certain Shares
/ /
9. Percent of Class Represented by Amount in Row 7
Approximately 49.9% Common Stock
Approximately 48.0% Class B Common Stock
10. Type of Reporting Person
CO
<PAGE>
14D-1 AND 13D
CUSIP No. 016480105 (Common Stock) Page 3
CUSIP No. 016480204 (Common Stock)
CUSIP No. 016480402 (Class B Common Stock)
1. Name of Reporting Persons
S.S. or I.R.S. Identification Nos. of Above Persons
PEARSON plc
2. Check the Appropriate Box if a Member of a Group
(a) /x/
(b) / /
3. SEC Use Only
4. Sources of Funds
WC, BK
5. Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(e)
or 2(f)
/ /
6. Citizenship or Place of Organization
ENGLAND
7. Aggregate Amount Beneficially Owned by Each Reporting Person
3,502,759 shares of Common Stock
2,470,000 shares of Class B Common Stock
8. Check if the Aggregate Amount in Row 7 Excludes Certain Shares
/ /
9. Percent of Class Represented by Amount in Row 7
Approximately 49.9% Common Stock
Approximately 48.0% Class B Common Stock
10. Type of Reporting Person
CO
<PAGE>
TENDER OFFER
This Tender Offer Statement on Schedule 14D-1 relates to the offer by
Pearson Merger Company, Inc., a Delaware corporation ("Purchaser") and an
indirect wholly owned subsidiary of Pearson plc, a corporation incorporated
under the laws of England ("Parent"), to purchase all outstanding Shares of
Common Stock, par value $.0001 per share (the "Common Stock") and all
outstanding shares of Class B Common Stock, par value $.0001 per share (the
"Class B Common Stock," and together with the Common Stock, the "Shares"), of
All American Communications, Inc., a Delaware corporation, at $25.50 per
Share, net to the seller in cash, on the terms and subject to the conditions
set forth in the Offer to Purchase dated October 7, 1997 (the "Offer to
Purchase") and in the related Letter of Transmittal, copies of which are
attached hereto as Exhibits (a)(1) and (a)(2), respectively (which, as amended
or supplemented from time to time, together constitute the "Offer"). This
Tender Offer Statement on Schedule 14D-1 also constitutes a Statement on
Schedule 13D with respect to the acquisition by Purchaser of a beneficial
ownership of the Shares subject to an Agreement and Plan of Merger, dated as
of October 1, 1997 (the "Merger Agreement"), by and among the Company, Parent
and Purchaser, and a Stockholders Agreement, dated as of October 1, 1997, by
and among Parent, Purchaser, Anthony J. Scotti, Benjamin Scotti, Myron Roth,
Thomas Bradshaw, Sydney D. Vinnedge, Lawrence Lamattina and The Interpublic
Group of Companies, Inc. (the "Stockholders Agreement"). The item numbers and
responses thereto below are in accordance with the requirements of Schedule
14D-1.
ITEM 1. SECURITY AND SUBJECT COMPANY
(a) The name of the subject company is All American Communications, Inc., a
Delaware corporation (the "Company"). The address of the Company's principal
executive offices is 808 Wilshire Boulevard, Santa Monica, California 90404.
(b) The information set forth in the Introduction of the Offer to Purchase
is incorporated herein by reference.
(c) The information set forth in Section 6 "Price Range of Shares;
Dividends" of the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND
(a)-(d), (g) This Statement is filed by Purchaser and Parent. The
information set forth in the Introduction, in Section 8--"Certain Information
Concerning Parent and Purchaser" and in Schedule I of the Offer to Purchase is
incorporated herein by reference.
(e)-(f) During the last five years, neither Parent nor Purchaser nor, to
their knowledge, any of the persons listed in Schedule I (Directors and
Executive Officers) of the Offer to Purchase, (i) has been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) or
(ii) has been a party to a civil proceeding of a judicial or administrative
body of competent jurisdiction and as a result of such proceeding was or is
subject to a judgment, decree or final order enjoining future violations of,
or prohibiting activities subject to, federal or state securities laws or
finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY
(a)-(b) The information set forth in Section 8 "Certain Information
Concerning Parent and Purchaser," Section 10--"Background of the Offer;
Contacts with the Company" and Section 11--"The Offer and Merger; Merger
Agreement; Other Agreements" of the Offer to Purchase is incorporated herein
by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
(a)-(b) The information set forth in Section 9 "Sources and Amounts of
Funds" of the Offer to Purchase is incorporated herein by reference.
1
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(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDERS
(a)-(g) The information set forth in the Introduction, in Section 11 "The
Offer and Merger; Merger Agreement; Other Agreements," in Section 12 "Purpose
of the Offer and the Merger; Plans for the Company" and in Section 13 "Effect
of the Offer on the Market for the Shares; Exchange Act Registration; Margin
Regulations; Voting" of the Offer to Purchase is incorporated herein by
reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY
(a)-(b) Pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934,
the information set forth in Section 8 "Certain Information Concerning Parent
and Purchaser" and in Section 11 "The Offer and Merger; Merger Agreement;
Other Agreements" of the Offer to Purchase is incorporated herein by
reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESECT
TO THE SUBJECT COMPANY'S SECURITIES
The information set forth in the Introduction, in Section 8 "Certain
Information Concerning Parent and Purchaser," in Section 10 "Background of the
Offer; Contacts with the Company," in Section 11 "The Offer and Merger; Merger
Agreement; Other Agreements" and in Section 12 "Purpose of the Offer and the
Merger; Plans for the Company" of the Offer to Purchase is incorporated herein
by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The information set forth in the Introduction, in Section 17 "Fees and
Expenses" and in Section 18 "Miscellaneous" of the Offer to Purchase is
incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS
The Purchaser and Parent do not believe that any of the financial statements
of either of them or of any of their affiliates is material to a decision by
stockholders of the Company whether to sell, tender or hold Shares. However,
as supplemental material not required to be included in the Offer to Purchase
or this Tender Offer Statement, the financial information with respect to the
financial statements of Parent set forth in Section 8 "Certain Information
Concerning Purchaser and Parent -- Summary Consolidated Financial Information
for Parent" of the Offer to Purchase and Exhibit (g) attached to this Schedule
14D-1 are incorporated herein by reference.
ITEM 10. ADDITIONAL INFORMATION
(a) The information set forth in the Introduction, in Section 8 "Certain
Information Concerning Parent and Purchaser," in Section 10 "Background of the
Offer; Contacts with the Company," in Section 11 "The Offer and Merger; Merger
Agreement; Other Agreements" and in Section 12 "Purpose of the Offer and the
Merger; Plans for the Company" of the Offer to Purchase is incorporated herein
by reference.
(b)-(c) The information set forth in Section 1 "Terms of the Offer," in
Section 11 "The Offer and Merger; Merger Agreement; Other Agreements," in
Section 15 "Conditions to the Offer" and in Section 16 "Certain Legal Matters;
Regulatory Approvals" of the Offer to Purchase is incorporated herein by
reference.
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(d) The information set forth in Section 13 "Effect of the Offer on the
Market for the Shares; Exchange Act Registration; Margin Regulations; Voting"
and in Section 16 "Certain Legal Matters; Regulatory Approvals" of the Offer
to Purchase is incorporated herein by reference.
(e) Not applicable.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and
(a)(2), respectively, is incorporated herein by reference in its entirety.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS
(a)(1) Offer to Purchase, dated October 7, 1997.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Text of Press Release issued by Parent, dated October 1, 1997.
(b) Multicurrency Multi-Option Facility Agreement with Parent, Pearson
Inc., Midland Bank plc and Union Bank of Switzerland on
Arrangers, Samuel Montagu & Co. Limited as Facility Agent
and Sterling Swing-Line Agent, Midland Bank as Dollar-
Swing-Line Agent and certain other financial institutions.
(c)(1) Agreement and Plan of Merger dated as of October 1, 1997 by and
among Parent, Purchaser and the Company.
(c)(2) Stockholders Agreement dated as of October 1, 1997, by and among
Parent, Purchaser, Anthony J. Scotti, Benjamin Scotti,
Myron Roth, Thomas Bradshaw, Sydney D. Vinnedge, Lawrence
Lamattina and The Interpublic Group of Companies, Inc.
(c)(3) Confidentiality Agreement dated November 20, 1995 by and between
Pearson Television Limited and the Company.
(c)(4) Termination of November 20, 1995 Confidentiality Agreement dated
December 7, 1995.
(c)(5) February 16, 1996 Letter by and between Pearson Television Limited
and the Company reinstating November 20, 1995
Confidentiality Agreement.
(c)(6) Agreement Not to Compete dated as of October 1, 1997, by and
between the Company and Anthony J. Scotti.
3
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(c)(7) Fifth Amendment to Employment Agreement dated as of October 1,
1997, by and between the Company and Anthony J. Scotti.
(c)(8) Letter dated as of October 1, 1997 regarding Confidentiality
Agreement and Standstill Provisions.
(d)None.
(e)Not applicable.
(f)None.
(g)Pearson plc Report and Accounts 1996.
(h)Power of Attorney dated October 7, 1997.
4
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SIGNATURES
After due inquiry and to the best of my knowledge and belief, the
undersigned certify that the information set forth in this statement is true,
complete and correct.
Dated: October 7, 1997
Pearson plc
/s/ JOHN DAVIS
By___________________________________
Name: John Davis
Title: Authorized Signatory
Pearson Merger Company, Inc.
/s/ JOHN DAVIS
By___________________________________
Name: John Davis
Title: Vice President
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
(a)(1) Offer to Purchase, dated October 7, 1997
(a)(2) Letter of Transmittal
(a)(3) Notice of Guaranteed Delivery
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies
and Other Nominees
(a)(6) Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9
(a)(7) Text of Press Release issued by Parent, dated October 1, 1997
(b) Multicurrency Multi-Option Facility Agreement with Parent,
Pearson Inc., Midland Bank plc and Union Bank of Switzerland on
Arrangers, Samuel Montagu & Co. Limited as Facility Agent and
Sterling Swing-Line Agent, Midland Bank as Dollar-Swing-Line
Agent and certain other financial institutions.
(c)(1) Agreement and Plan of Merger dated as of October 1, 1997 by and
among Parent,
Purchaser and the Company
(c)(2) Stockholders Agreement dated as of October 1, 1997, by and
among Parent, Purchaser, Anthony J. Scotti, Benjamin Scotti,
Myron Roth, Thomas Bradshaw, Sydney D. Vinnedge, Lawrence
Lamattina and The Interpublic Group of Companies, Inc.
(c)(3) Confidentiality Agreement dated November 20, 1995 by and
between Pearson Television Limited and the Company
(c)(4) Termination of November 20, 1995 Confidentiality Agreement
dated December 7, 1995
(c)(5) February 16, 1996 Letter by and between Pearson Television
Limited and the Company reinstating November 20, 1995
Confidentiality Agreement
(c)(6) Agreement Not to Compete dated as of October 1, 1997, by and
between the Company and Anthony J. Scotti.
(c)(7) Fifth Amendment to Employment Agreement dated as of October 1,
1997, by and between the Company and Anthony J. Scotti.
(c)(8) Letter dated as of October 1, 1997 regarding Confidentiality
Agreement and Standstill Provisions.
(d) None
(e) Not applicable
(f) None
(g) Pearson plc Report and Accounts 1996
(h) Power of Attorney dated October 7, 1997.
</TABLE>
<PAGE>
EXHIBIT 99(a)(1)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK AND CLASS B COMMON STOCK
OF
ALL AMERICAN COMMUNICATIONS, INC.
AT
$25.50 NET PER SHARE
BY
PEARSON MERGER COMPANY, INC.
A WHOLLY OWNED SUBSIDIARY OF
PEARSON PLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON TUESDAY, NOVEMBER 4, 1997, UNLESS EXTENDED.
THE BOARD OF DIRECTORS OF ALL AMERICAN COMMUNICATIONS, INC. (THE "COMPANY")
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE OFFER AND THE MERGER,
DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS
OF THE STOCKHOLDERS OF THE COMPANY, AND UNANIMOUSLY RECOMMENDS ACCEPTANCE OF
THE OFFER AND APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER BY
THE STOCKHOLDERS OF THE COMPANY.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE A NUMBER OF SHARES OF
COMMON STOCK, $.0001 PAR VALUE PER SHARE (THE "COMMON STOCK"), AND CLASS B
COMMON STOCK, $.0001 PAR VALUE PER SHARE (THE "CLASS B COMMON STOCK", AND
TOGETHER WITH THE COMMON STOCK, THE "SHARES"), WHICH CONSTITUTES AT LEAST A
MAJORITY OF THE TOTAL NUMBER OF SHARES OF COMMON STOCK AND A MAJORITY OF THE
TOTAL NUMBER OF SHARES OUTSTANDING ON THE EXPIRATION DATE (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) (THE "MINIMUM CONDITION"). BENEFICIAL OWNERS OF
APPROXIMATELY 55.79% OF THE TOTAL NUMBER OF OUTSTANDING SHARES OF COMMON STOCK
AND CLASS B COMMON STOCK (EXCLUDING, IN EACH CASE, OPTIONS AND WARRANTS) HAVE
AGREED TO TENDER SHARES OF THEIR COMMON STOCK EQUAL TO 49.9% OF THE
OUTSTANDING SHARES OF COMMON STOCK AND ALL (APPROXIMATELY 48% OF THE
OUTSTANDING SHARES OF CLASS B COMMON STOCK) OF THEIR SHARES OF CLASS B COMMON
STOCK (WHICH ASSUMING NO EXERCISE OF OPTIONS OR WARRANTS CONSTITUTES 3,502,759
SHARES OF COMMON STOCK AND 2,470,000 SHARES OF CLASS B COMMON STOCK, OR
APPROXIMATELY 49% OF THE OUTSTANDING SHARES) PURSUANT TO THE OFFER. SEE
SECTION 11. THE OFFER IS ALSO CONDITIONED UPON EXPIRATION OR TERMINATION OF
ANY APPLICABLE WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST
IMPROVEMENTS ACT OF 1976 AND RECEIPT OF ANY APPROVAL REQUIRED BY THE GERMAN
FEDERAL CARTEL OFFICE. SEE SECTION 16.
---------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such holder's
Shares (as defined herein) should either (a) complete and sign the Letter of
Transmittal (or a facsimile thereof) in accordance with the instructions in
the Letter of Transmittal and mail or deliver it together with the
certificate(s) evidencing the tendered Shares and all other required documents
to the Depositary, or tender such Shares pursuant to the procedure for book-
entry transfer set forth in Section 3 of this Offer to Purchase or (b) request
such stockholder's broker, dealer, commercial bank, trust company or other
nominee to effect the transaction for such stockholder. A stockholder whose
Shares are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee must contact such broker, dealer, commercial bank,
trust company or other nominee if such stockholder desires to tender such
Shares.
Any stockholder who desires to tender Shares and whose certificates
evidencing such Shares are not immediately available or who cannot comply with
the procedures for book-entry transfer on a timely basis may tender such
Shares by following the procedures for guaranteed delivery set forth in
Section 3 of this Offer to Purchase.
Questions and requests for assistance and for additional copies of this
Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed
Delivery and other related materials may be directed to the Information Agent
or the Dealer Manager at their respective addresses and telephone numbers set
forth on the back cover of this Offer to Purchase. Additional copies of this
Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed
Delivery and the other tender offer materials may also be obtained from
brokers, dealers, commercial banks or trust companies.
---------------
THE DEALER MANAGER FOR THE OFFER IS:
LAZARD FRERES & CO. LLC
---------------
October 7, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
----
<C> <S> <C>
INTRODUCTION............................................................. 3
1. Terms of the Offer.................................................. 4
2. Acceptance for Payment and Payment.................................. 6
3. Procedures for Tendering Shares..................................... 7
4. Withdrawal Rights................................................... 9
5. Certain Tax Considerations.......................................... 9
6. Price Range of Shares; Dividends.................................... 11
7. Certain Information Concerning the Company.......................... 12
8. Certain Information Concerning Parent and Purchaser................. 15
9. Sources and Amounts of Funds........................................ 18
10. Background of the Offer; Contacts with the Company.................. 19
11. The Offer and Merger; Merger Agreement; Other Agreements............ 21
12. Purpose of the Offer and the Merger; Plans for the Company.......... 33
13. Effect of the Offer on the Market for the Shares; Exchange Act
Registration; Margin Regulations; Voting........................... 33
14. Dividends and Distributions......................................... 34
15. Conditions to the Offer............................................. 34
16. Certain Legal Matters; Regulatory Approvals......................... 36
17. Fees and Expenses................................................... 39
18. Miscellaneous....................................................... 39
Schedule I--Directors and Executive Officers of Pearson Merger Company,
Inc. and Pearson plc.................................................... S-1
</TABLE>
2
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To the Holders of Common Stock
and Class B Common Stock of
All American Communications, Inc.:
INTRODUCTION
Pearson Merger Company, Inc., a Delaware corporation ("Purchaser") and an
indirect wholly owned subsidiary of Pearson plc, a corporation incorporated
under the laws of England ("Parent" or "Pearson"), hereby offers to purchase
all of the outstanding shares of Common Stock, $.0001 par value per share (the
"Common Stock"), and all of the outstanding shares of Class B Common Stock,
$.0001 par value per share (the "Class B Common Stock," and together with the
Common Stock, "Shares"), of All American Communications, Inc., a Delaware
corporation (the "Company"), at $25.50 per Share, net to the seller in cash
(the "Offer Price"), upon the terms and subject to the conditions set forth in
this Offer to Purchase and in the related Letter of Transmittal (which, as
amended or supplemented from time to time, together constitute the "Offer").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by Purchaser
pursuant to the Offer. Purchaser or Parent will pay all charges and expenses
of Lazard Freres & Co. LLC ("Lazard"), which is acting as the Dealer Manager
(in such capacity, the "Dealer Manager"), ChaseMellon Shareholder Services
(the "Depositary"), and D.F. King & Co., Inc. (the "Information Agent"),
incurred in connection with the Offer in accordance with the terms of
agreements entered into between Purchaser and/or Parent and such persons. See
Section 17. For purposes of this Offer to Purchase, references to "Section"
are references to a section of this Offer to Purchase, unless the context
otherwise requires.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE A NUMBER OF SHARES
WHICH CONSTITUTES AT LEAST A MAJORITY OF THE TOTAL NUMBER OF SHARES OF COMMON
STOCK AND A MAJORITY OF THE TOTAL NUMBER OF SHARES OUTSTANDING ON THE
EXPIRATION DATE (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).
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of October 1, 1997 (the "Merger Agreement"), by and among the Company,
Parent and Purchaser. The Merger Agreement provides, among other things, that
as promptly as practicable following the completion of the Offer and the
satisfaction or waiver of certain conditions, including the purchase of Shares
pursuant to the Offer (the "consummation" of the Offer) and the approval and
adoption of the Merger Agreement by the stockholders of the Company, if
required by applicable law, Purchaser will be merged with and into the Company
(the "Merger"), with the Company as the surviving corporation (the "Surviving
Corporation"). In the Merger, each issued and outstanding Share (other than
Dissenting Shares (as hereinafter defined)) not owned by Parent, Purchaser, or
any of the wholly owned subsidiaries of Parent (collectively, "Parent
Companies") or shares held in the treasury of the Company will be converted
into and represent the right to receive $25.50 in cash or any higher price
that may be paid per Share in the Offer, without interest (the "Merger
Price"). See Section 11.
Simultaneously with entering into the Merger Agreement, Anthony J. Scotti,
Benjamin Scotti, Myron Roth, Thomas Bradshaw, Sydney D. Vinnedge, Lawrence E.
Lamattina and The Interpublic Group of Companies, Inc. (the "Selling
Stockholders"), entered into a stockholders agreement, dated as of October 1,
1997, with Parent and Purchaser (the "Stockholders Agreement"). The Selling
Stockholders beneficially own 4,319,260 shares of Common Stock (61.53% of the
Common Stock) and 2,470,000 shares of Class B Common Stock (excluding, in each
case, options and warrants) representing 55.79% of the total outstanding
Shares. Pursuant to the Stockholders Agreement, the Selling Stockholders have
agreed, among other things, to validly tender and sell into the Offer all such
Shares which are owned of record or beneficially by such Selling Stockholders
prior to the Expiration Date (as hereinafter defined) and vote such Shares in
favor of the Merger, in each case upon the
3
<PAGE>
terms and subject to conditions and limitations set forth in the Stockholders
Agreement, including the limitation that the shares of Common Stock that are
subject to such agreements shall be limited to 49.9% of the outstanding Common
Stock (including shares of Common Stock issued upon exercise of any stock
options or warrants). Based upon the number of Shares outstanding as of
September 23, 1997, and assuming no exercise of options or warrants to
purchase Shares, the agreement described above would be applicable to
3,502,759 shares of Common Stock and 5,972,759 Shares overall. The
Stockholders Agreement is more fully described in Section 11.
The Company has advised the Purchaser and Parent that as of September 23,
1997 there were (i) 7,019,557 shares of Common Stock and 5,149,650 of Class B
Common Stock issued and outstanding, (ii) 80,000 of Common Stock and 578,200
shares of Class B Common Stock held in the treasury of the Company,
(iii) 3,617,706 shares of Common Stock and Class B Common Stock subject to
outstanding options, warrants or other rights to acquire Shares, and (iv)
30,000 shares of Common Stock awarded but not issued. As a result, as of such
date, the Minimum Condition would be satisfied if Purchaser acquired 3,509,779
shares of Common Stock and 6,084,605 Shares overall (7,020 shares of Common
Stock and 111,846 Shares overall in addition to those covered by the
Stockholders Agreement), assuming none of such warrants or options or other
rights to acquire Shares are exercised and such options, warrants or other
rights are settled as described in Section 11. If the Minimum Condition is
satisfied and Purchaser accepts for payment Shares tendered pursuant to the
Offer, Purchaser will be able to elect a majority of the Company's Board of
Directors and to effect the Merger without the affirmative vote of any other
stockholder of the Company.
Options to purchase Shares which are unvested will become accelerated as a
result of the acceptance of the Offer, so as to permit the exercise of any
such unvested options and the tender of the underlying Shares.
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
Company's Restated Certificate of Incorporation). Parent and Purchaser believe
that the execution of the Stockholders Agreement does not result in a Change
of Control.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD" OR "BOARD OF DIRECTORS")
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE OFFER AND THE MERGER,
DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS
OF THE STOCKHOLDERS OF THE COMPANY, AND UNANIMOUSLY RECOMMENDS ACCEPTANCE OF
THE OFFER AND APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER BY
THE STOCKHOLDERS OF THE COMPANY. ACCORDINGLY, SECTION 203 OF THE DELAWARE
GENERAL CORPORATION LAW ("DELAWARE LAW") (WHICH RESTRICTS THE ABILITY OF AN
"INTERESTED STOCKHOLDER" FROM ENGAGING IN A "BUSINESS COMBINATION" WITH A
DELAWARE CORPORATION FOR A PERIOD OF THREE YEARS FOLLOWING THE DATE ON WHICH
SUCH STOCKHOLDER BECAME AN "INTERESTED STOCKHOLDER") IS INAPPLICABLE TO THE
OFFER AND THE MERGER AND THE STOCKHOLDERS AGREEMENT. SEE SECTION 16.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION AND SHOULD BE READ IN THEIR ENTIRETY BEFORE ANY DECISION
IS MADE WITH RESPECT TO THE OFFER.
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer, Purchaser will
accept for payment and pay for all Shares which are validly tendered on or
prior to the Expiration Date and not withdrawn in accordance with Section 4.
The term "Expiration Date" means 12:00 midnight, New York City time, on
Tuesday, November 4,
4
<PAGE>
1997, unless and until Purchaser, subject to the terms of the Merger
Agreement, shall have extended the period of time during which the Offer is
open, in which event the term "Expiration Date" shall refer to the latest time
and date at which the Offer, as so extended by Purchaser, shall expire.
The Offer is subject to certain conditions set forth in Section 15,
including satisfaction of the Minimum Condition and the expiration or
termination of any waiting period 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. If any such condition is not satisfied prior to
the expiration of the Offer, Purchaser may, subject to the terms of the Merger
Agreement, (i) terminate the Offer and return all tendered Shares to tendering
stockholders, (ii) extend the Offer and, subject to withdrawal rights as set
forth in Section 4, retain all such Shares until the expiration of the Offer
as so extended, (iii) waive such condition (other than the Minimum Condition)
and, subject to any requirement to extend the period of time during which the
Offer is open, purchase all Shares validly tendered and not withdrawn by the
Expiration Date or (iv) delay acceptance for payment of (whether or not the
Shares have theretofore been accepted for payment), or payment for, any Shares
tendered and not withdrawn, subject to applicable law, until satisfaction or
waiver of the conditions to the Offer. Any extension, amendment or termination
will be followed as promptly as practicable by public announcement thereof,
the announcement in the case of an extension to be issued no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date in accordance with Rules 14d-4(c), 14d-6(d) and 14e-
1(d) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Without limiting the obligation of Purchaser under such rules or the
manner in which Purchaser may choose to make any public announcement,
Purchaser currently intends to make announcements by issuing a release to the
Dow Jones News Service.
Parent 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 the Merger Agreement provides 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 Section 15 or which extends the Offer (except as
set forth in the following sentence). Notwithstanding the foregoing, Parent
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 Parent'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 Commission 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 Parent'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% and (y)
Parent reasonably believes that such extension would cause the number of
validly tendered and not withdrawn shares to exceed 90% of the outstanding
Shares. Notwithstanding the foregoing, the Company may terminate the Merger
Agreement if Parent or Purchaser shall not have 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 HSR Act and any required approvals in connection with any pre-merger
notification filing with the German Federal Cartel Office have been obtained.
If Purchaser extends the Offer, or if Purchaser (whether before or after its
acceptance for payment of Shares) is delayed in its purchase of or payment for
Shares or is unable to pay for Shares pursuant to the Offer for any reason,
then, without prejudice to Purchaser's rights under the Offer, the Depositary
may retain tendered Shares on behalf of Purchaser, and such Shares may not be
withdrawn except to the extent tendering stockholders are entitled to
withdrawal rights as described in Section 4. However, the ability of Purchaser
to delay the payment for Shares which Purchaser has accepted for payment is
limited by Rule 14e-1(c) under the Exchange Act, which
5
<PAGE>
requires that a bidder pay the consideration offered or return the securities
deposited by or on behalf of holders of securities promptly after the
termination or withdrawal of the Offer.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
subject to the Merger Agreement, Purchaser will disseminate additional tender
offer materials and extend the Offer if and to the extent required by Rules
14d-4(c) and 14d-6(d) under the Exchange Act. The minimum period during which
the Offer must remain open following material changes in the terms of the
Offer or information concerning the Offer, other than a change in the Offer
Price or a change in percentage of securities sought, will depend upon the
facts and circumstances, including the relative materiality of the terms or
information. With respect to a change in the Offer Price or a change in
percentage of securities sought, a minimum ten business day period is required
to allow for adequate dissemination to stockholders and investor response. If,
prior to the Expiration Date, Purchaser should decide to increase the Offer
Price, such increase will be applicable to all stockholders whose Shares are
accepted for payment pursuant to the Offer. As used in this Offer to Purchase,
"business day" means any day other than a Saturday, Sunday or a federal
holiday and consists of the time period from 12:01 AM through 12:00 midnight,
New York City time, as computed in accordance with Rule 14d-1 under the
Exchange Act.
The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase and the related Letter of
Transmittal will be mailed to record holders of Shares and will be furnished
to brokers, banks and similar persons whose names, or the names of whose
nominees, appear on the stockholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT
Upon the terms and subject to the terms and conditions of the Merger
Agreement and the conditions of the Offer, Purchaser will accept for payment
and pay for all Shares validly tendered and not withdrawn prior to the
Expiration Date as soon as practicable after the later of (i) the Expiration
Date and (ii) satisfaction or waiver of the conditions to the Offer set forth
in Section 15 in accordance with the terms of the Merger Agreement. For a
description of Purchaser's right to terminate the Offer and not accept for
payment or pay for Shares or to delay acceptance for payment or payment for
Shares, see Section 1.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment tendered Shares if, as and when Purchaser gives oral or written notice
to the Depositary of its acceptance of the tenders of such Shares. Payment for
Shares purchased pursuant to the Offer will be made by deposit of the Offer
Price with the Depositary, which will act as agent for tendering stockholders
for the purpose of receiving payment from Purchaser and transmitting such
payments to tendering stockholders. In all cases, payment for Shares accepted
for payment pursuant to the Offer will be made only after timely receipt by
the Depositary of (i) certificates evidencing such Shares ("Stock
Certificates") or confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Shares into the Depositary's account at one of the
Book-Entry Transfer Facilities (as defined in Section 3), (ii) a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), or
in the case of a book-entry transfer, an Agent's Message (as defined in
Section 3) and (iii) any other required documents. For a description of the
procedure for tendering Shares pursuant to the Offer, see Section 3.
Accordingly, payment may be made to tendering stockholders at different times
if delivery of the Shares and other required documents occur at different
times. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY PURCHASER ON THE
CONSIDERATION PAID FOR SHARES PURSUANT TO THE OFFER, REGARDLESS OF ANY DELAY
IN MAKING SUCH PAYMENT.
If Purchaser increases the consideration to be paid for Shares pursuant to
the Offer, Purchaser will pay such increased consideration for all Shares
purchased pursuant to the Offer.
Purchaser reserves the right to transfer or assign, in whole or from time to
time in part, to one or more of its affiliates the right to purchase Shares
tendered pursuant to the Offer, but any such transfer or assignment will
6
<PAGE>
not relieve Purchaser of its obligations under the Offer or prejudice the
rights of tendering stockholders to receive payment for Shares validly
tendered and accepted for payment.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, or if Stock Certificates are submitted for more Shares than are
tendered, Stock Certificates for Shares not purchased or tendered will be
returned (or, in the case of Shares tendered by book-entry transfer, such
Shares will be credited to an account maintained at one of the Book-Entry
Transfer Facilities (as defined in Section 3)), without expense to the
tendering stockholder, as promptly as practicable after the expiration or
termination of the Offer.
3. PROCEDURES FOR TENDERING SHARES
Valid Tender. To tender Shares pursuant to the Offer, either (a) a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees or an Agent's Message (in the case of any
book-entry transfer), and any other documents required by the Letter of
Transmittal must be received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase prior to the Expiration Date
and either (i) the Stock Certificates evidencing such Shares to be tendered
must be received by the Depositary along with the Letter of Transmittal or
(ii) such Shares must be delivered to the Depositary pursuant to the
procedures for book-entry transfer described below and a Book-Entry
Confirmation must be received by the Depositary including an Agent's Message,
in each case prior to the Expiration Date, or (b) the tendering stockholder
must comply with the guaranteed delivery procedures described below. The term
"Agent's Message" means a message transmitted by a Book-Entry Transfer
Facility to and received by the Depositary and forming a part of a Book-Entry
Confirmation, which states that such Book-Entry Transfer Facility has received
an express acknowledgement from the participant in such Book-Entry Transfer
Facility tendering the Shares which are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that Purchaser may enforce such
agreement against such participant.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at each of The Depository Trust Company and the Philadelphia
Depository Trust Company (collectively referred to as the "Book-Entry Transfer
Facilities") for purposes of the Offer within two business days after the date
of this Offer to Purchase, and any financial institution that is a participant
in the system of any Book-Entry Transfer Facility may make book-entry delivery
of Shares by causing a Book-Entry Transfer Facility to transfer such Shares
into the Depositary's account at a Book-Entry Transfer Facility in accordance
with the procedures of such Book-Entry Transfer Facility. However, although
delivery of Shares may be effected through book-entry transfer, the Letter of
Transmittal (or facsimile thereof) properly completed and duly executed,
together with any required signature guarantees and any other required
documents, must, in any case, be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase prior to the
Expiration Date, or the guaranteed delivery procedures described below must be
complied with. DELIVERY OF THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED
DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY.
Signature Guarantees. Generally, signatures on all Letters of Transmittal
must be guaranteed by a recognized member of a Medallion Signature Guarantee
Program or by any other "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Exchange Act (each of the foregoing, an "Eligible
Institution"). Signatures on a Letter of Transmittal need not be guaranteed
(a) if the Letter of Transmittal is signed by the registered holder of the
Shares tendered therewith and such holder has not completed the box entitled
"Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (b) if such Shares are tendered
for the account of an Eligible Institution.
If a Stock Certificate is registered in the name of a person other than the
signer of the Letter of Transmittal, or if payment is to be made, or a Stock
Certificate not accepted for payment or not tendered is to be returned, to a
person other than the registered holder(s), then the Stock Certificate must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear on the Stock
Certificate, with the signature(s) on such Stock Certificate or stock powers
guaranteed as described above. See Instructions 1 and 5 of the Letter of
Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Stock Certificates are not immediately
available or time will not permit all required documents to reach the
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<PAGE>
Depositary on or prior to the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, such Shares may nevertheless
be tendered if all the following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser, is received by
the Depositary prior to the Expiration Date as provided below; and
(iii) the Stock Certificates for such Shares, in proper form for transfer
(or a Book-Entry Confirmation), together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees (or in the case of a book-entry transfer, an Agent's
Message) and any other documents required by the Letter of Transmittal, are
received by the Depositary within three trading days after the date of
execution of the Notice of Guaranteed Delivery. A "trading day" is any day
on which the New York Stock Exchange (the "NYSE") is open for business.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile transmission or mailed to the Depositary and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS, INCLUDING THROUGH BOOK-ENTRY TRANSFER FACILITIES, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED.
Back-Up Federal Income Tax Withholding. Under the federal income tax laws,
the Depositary will be required to withhold 31% of the amount of any payments
made to certain stockholders pursuant to the Offer. In order to avoid such
backup withholding, each tendering stockholder must provide the Depositary
with such stockholder's correct taxpayer identification number and certify
that such stockholder is not subject to back-up federal income tax withholding
by completing the Substitute Form W-9 included in the Letter of Transmittal
(see Instruction 10 of the Letter of Transmittal) or by filing a Form W-9 with
the Depositary prior to any such payments. If the stockholder is a nonresident
alien or foreign entity not subject to backup withholding, the stockholder
must give the Depositary a completed Form W-8 Certificate of Foreign Status
prior to receipt of any payments.
Other Requirements. By executing a Letter of Transmittal as set forth above,
a tendering stockholder irrevocably appoints designees of Purchaser as the
stockholder's attorneys-in-fact and proxies, in the manner set forth in the
Letter of Transmittal, each with full power of substitution, to the full
extent of the stockholder's rights with respect to the Shares tendered by the
stockholder and accepted for payment by Purchaser (and any and all other
Shares or other securities or property issued or issuable in respect of such
Shares on or after the date of the Merger Agreement). All such proxies and
powers of attorney shall be irrevocable and coupled with an interest in the
tendered Shares. Such appointment is effective only upon acceptance for
payment of the Shares by Purchaser. Upon such acceptance for payment, all
prior proxies and consents given by the stockholder with respect to such
Shares and other securities will, without further action, be revoked, and no
subsequent proxies may be given nor any subsequent written consent executed by
such stockholder (and, if given or executed, will not be deemed to be
effective) with respect thereto. The designees of Purchaser will, with respect
to the Shares and other securities, be empowered to exercise all voting and
other rights of such stockholder as they in their sole discretion may deem
proper at any annual, special or adjourned meeting of the Company's
stockholders, by written consent or otherwise. Purchaser reserves the right to
require that, in order for Shares to be deemed validly tendered, immediately
upon Purchaser's acceptance for payment of such Shares, Purchaser is able to
exercise full voting and other rights with respect to such Shares (including
voting at any meeting of stockholders then scheduled or acting by written
consent without a meeting).
A tender of Shares pursuant to any one of the procedures described above
will constitute the tendering stockholder's acceptance of the terms and
conditions of the Offer, as well as the tendering stockholder's
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<PAGE>
representation and warranty that such stockholder has the full power and
authority to tender and assign the Shares tendered, as specified in the Letter
of Transmittal. Purchaser's acceptance for payment of Shares tendered pursuant
to the Offer will constitute a binding agreement between the tendering
stockholder and Purchaser upon the terms and subject to the conditions of the
Offer.
Determination of Validity. All questions as to the form of documents and the
validity, eligibility (including time of receipt) and acceptance for payment
of any tendered Shares will be determined by Purchaser in its sole discretion,
which determination shall be final and binding. Purchaser reserves the
absolute right to reject any or all tenders of any Shares determined by it not
to be in proper form or the acceptance for payment of, or payment for which
may, in the opinion of Purchaser's counsel, be unlawful. Purchaser also
reserves the absolute right to waive any defect or irregularity in any tender
of Shares. No tender of Shares will be deemed to have been properly made until
all defects and irregularities relating thereto have been cured or waived.
Purchaser's interpretation of the terms and conditions of the Offer in this
regard (including the Letter of Transmittal and the Instructions thereto) will
be final and binding. None of Purchaser, Parent, the Depositary, the Dealer
Manager, the Information Agent or any other person will be under any duty to
give notification of any defects or irregularities in tenders or will incur
any liability for failure to give any such notification.
4. WITHDRAWAL RIGHTS
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn at any time after December 6, 1997 if they have not
previously been accepted for payment as provided in this Offer to Purchase.
To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Depositary at one of its addresses
set forth on the back cover of this Offer to Purchase. Any such notice of
withdrawal must specify the name of the person who tendered the Shares to be
withdrawn, the number of Shares to be withdrawn and the name of the registered
holder, if different from that of the person who tendered such Shares. If
Stock Certificates evidencing Shares to be withdrawn have been delivered to
the Depositary, a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution (except in the case of Shares tendered by an Eligible
Institution), must be submitted prior to the release of such Shares. In
addition, such notice must specify, in the case of Shares tendered by delivery
of Stock Certificates, the name of the registered holder (if different from
that of the tendering stockholder) and the serial numbers shown on the
particular Stock Certificates evidencing the Shares to be withdrawn, or, in
the case of Shares tendered by book-entry transfer, the name and number of the
account at one of the Book-Entry Transfer Facilities to be credited with the
withdrawn Shares.
Withdrawals may not be rescinded, and Shares withdrawn will thereafter be
deemed not validly tendered for purposes of the Offer. However, withdrawn
Shares may be retendered by again following one of the procedures described in
Section 3 at any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Purchaser, in its sole discretion,
whose determination will be final and binding. None of Purchaser, Parent, the
Depositary, the Dealer Manager, the Information Agent or any other person will
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
5. CERTAIN TAX CONSIDERATIONS
The summary of tax consequences set forth below is for general information
only and is based on the federal income tax law as currently in effect,
including modifications made by the Taxpayer Relief Act of 1997. The summary
does not address all aspects of federal income taxation that may be relevant
to particular holders of Shares and thus, for example, may not be applicable
to holders of Shares who are not citizens or residents of the United States,
who are employees and who acquired their Shares pursuant to the exercise of
compensatory stock
9
<PAGE>
options, or who are entities that are otherwise subject to special tax
treatment under the Internal Revenue Code of 1986, as amended (the "Code")
(such as insurance companies, tax-exempt entities and regulated investment
companies); nor does this summary address the effect of any applicable
foreign, state, local or other tax laws. The discussion assumes that each
holder of Shares holds such Shares as a capital asset within the meaning of
Section 1221 of the Code. The precise tax consequences of the Offer or the
Merger will depend on the particular circumstances of the holder. STOCKHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO THEM OF THE PROPOSED TRANSACTION.
The receipt of cash for Shares pursuant to the Offer or the Merger will be a
taxable transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local or foreign tax laws. In general, a
stockholder who receives cash for Shares pursuant to the Offer or the Merger
will recognize gain or loss for federal income tax purposes equal to the
difference between the amount of cash received in exchange for the Shares sold
and such stockholder's adjusted tax basis in such Shares. Such gain or loss
will be capital gain or loss, and will be long-term capital gain or loss if
the holder has held the Shares for more than one year at the time of sale.
Gain or loss will be calculated separately for each Share tendered pursuant to
the Offer.
Pursuant to the Tax Relief Act of 1997, long-term capital gains recognized
after July 28, 1997, on marketable securities such as the Shares, will be
taxable at a maximum rate of 20% for individuals if the individual's holding
period is more than 18 months and 28% if the holding period is more than one
year but not more than 18 months. Short term capital gain for individuals is
taxed at the same rate as ordinary income or, a maximum rate of 39.6%.
Corporations are taxed at a maximum rate of 35% on both ordinary income and
capital gain.
Withholding. Unless a stockholder complies with certain reporting and/or
certification procedures, or is an exempt recipient under applicable
provisions of the Code (and regulations promulgated thereunder), such
stockholder may be subject to a "backup" withholding tax of 31% with respect
to any payments received in the Offer, the Merger or as a result of the
exercise of the holder's dissenters' rights. Stockholders should contact their
brokers to ensure compliance with such procedures. Foreign stockholders should
consult with their tax advisors regarding U.S. withholding taxes in general.
Dissenters. A stockholder who does not sell Shares in the Offer or the
Merger and who exercises and perfects such stockholder's rights under Delaware
Law to demand fair value for such Shares will recognize capital gain or loss
(and may recognize an amount of interest income) attributable to any payment
received pursuant to the exercise of such rights based upon the principles
described above. See Section 16.
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6. PRICE RANGE OF SHARES; DIVIDENDS
The Common Stock is traded on the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ") National Market ("NNM")
under the symbol AACI. The Class B Common Stock is traded on the NNM under the
symbol AACIB. The following table sets forth, for the periods indicated, the
high and low closing sale prices per Share for the Common Stock and the Class
B Common Stock. For the period prior to December 14, 1995, the table sets
forth the high and low bid price quotations per Share of the Common Stock as
reported on the NASDAQ SmallCap Market. The sale prices per Share set forth
below are as reported in published financial sources and do not include
commissions.
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK COMMON STOCK
--------------- ---------------
LOW HIGH LOW HIGH
------- ------- ------- -------
<S> <C> <C> <C> <C>
YEAR ENDING DECEMBER 31, 1997
First Quarter................................ $12.500 $15.250 $ 8.750 $11.875
Second Quarter............................... 12.375 15.250 10.875 13.906
Third Quarter................................ 14.250 24.375 12.250 22.750
YEAR ENDED DECEMBER 31, 1996
First Quarter................................ 9.625 12.250 7.750 9.125
Second Quarter............................... 10.000 11.875 7.370 9.125
Third Quarter................................ 8.875 11.250 5.250 8.875
Fourth Quarter............................... 11.500 14.375 8.620 10.750
YEAR ENDED DECEMBER 31, 1995
First Quarter................................ 6.250 10.000 -- --
Second Quarter............................... 8.250 11.500 -- --
Third Quarter................................ 9.750 13.688 -- --
Fourth Quarter (through December 13, 1995)... 9.875 13.375 -- --
Fourth Quarter (commencing December 14,
1995)....................................... 9.250 10.625 8.375 10.625
</TABLE>
On September 29, 1997, the last full trading day prior to a news release on
Reuters identifying that Parent might be making an offer to acquire the
Company, and indicating the price range for the offer, the reported closing
sale price per share of Common Stock and Class B Common Stock (as reported in
The Wall Street Journal on September 30, 1997) was $23.375 and $20.125,
respectively. On September 30, 1997, the last full day of trading prior to the
public announcement of the execution of the Merger Agreement, the reported
closing sale price per Share of Common Stock and Class B Common Stock (as
reported in The Wall Street Journal on October 1, 1997) was $24.375 and
$22.75, respectively. On October 3, 1997, two trading days prior to
commencement of the Offer, the reported closing sale price per Share of Common
Stock and Class B Common Stock (as reported in The Wall Street Journal on
October 6, 1997) was $25.25 and $24.9375, respectively. STOCKHOLDERS ARE URGED
TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES.
Dividends.
The Purchaser has been advised by the Company that the Company did not pay
dividends on its Common Stock or Class B Common Stock during the years ended
December 31, 1996, 1995 or 1994. The Merger Agreement prohibits the Company
from declaring or paying any dividends until the effectiveness of the Merger.
Further, the Company's Credit Facility and Senior Subordinated Notes (both as
hereinafter defined) restrict the payment of dividends to holders of the
Common Stock or Class B Common Stock.
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<PAGE>
7. CERTAIN INFORMATION CONCERNING THE COMPANY
The following information concerning the Company has been taken from or
based upon publicly available documents on file with the Securities and
Exchange Commission (the "Commission"), other publicly available information
and information provided by the Company. Although neither Purchaser nor Parent
has any knowledge that would indicate that such information is untrue, neither
Purchaser nor Parent takes any responsibility for, or makes any representation
with respect to, the accuracy or completeness of such information or for any
failure by the Company to disclose events that may have occurred and may
affect the significance or accuracy of any such information but which are
unknown to Purchaser or Parent.
General. The Company is a Delaware corporation with its headquarters located
at 808 Wilshire Boulevard, Santa Monica, California 90401. The Company is a
diversified entertainment company with operations in television and recorded
music production and distribution. The Company is a leading independent
producer and distributor of television programming and believes it is the
largest supplier of game show programming in multiple formats and languages
worldwide.
Available Information. The Company is subject to the information
requirements of the Exchange Act, and is required to file reports and other
information with the Commission relating to its business, financial condition
and other matters. Information, as of particular dates, concerning the
Company's directors and officers, their remuneration, options granted to them,
the principal holders of the Company's securities and any material interest of
such persons in transactions with the Company is required to be described in
periodic statements filed with the Commission. These reports, proxy
statements, and other information, including the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 (the "Company 10-K"),
the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997 and June 30, 1997 and the Schedule 14D-9, are available for inspection
and copying at the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located
at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of this material may also be obtained by mail, upon payment of the
Commission's customary fees, from the Commission's principal office. The
Commission also maintains an Internet site on the World Wide Web at
http://www.sec.gov that contains reports and other information.
A copy of this Offer to Purchase, and certain of the agreements referred to
herein, are attached to Purchaser's Tender Offer Statement on Schedule 14D-1,
dated October 7, 1997 (the "Schedule 14D-1"), which has been filed with the
Commission. The Schedule 14D-1 and the exhibits thereto, along with such other
documents as may be filed by Purchaser with the Commission, may be examined
and copied at the offices of the Commission in the manner set forth above.
Certain Financial Information for the Company. The following table sets
forth certain summary consolidated financial information with respect to the
Company and its subsidiaries excerpted or derived from the audited financial
statements contained in the Company 10-K and the unaudited financial
information contained in the Company's Quarterly Reports on Form 10-Q for the
six months ended June 30, 1996 and 1997. More comprehensive financial
information is included in such reports and other documents filed by the
Company with the Commission, and the following summary is qualified in its
entirety by reference to such documents (which may be inspected and obtained
as described above), including the financial statements and related notes
contained therein. Neither Parent nor Purchaser assumes any responsibility for
the accuracy of the financial information set forth below.
12
<PAGE>
ALL AMERICAN COMMUNICATIONS, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
($ IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------- -----------------
1995 1996 1996 1997
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Television............................... $206,734 $210,874 $ 71,673 $ 94,707
Recorded music and merchandising......... 22,026 25,584 15,815 9,810
-------- -------- -------- --------
228,760 236,458 87,488 104,517
-------- -------- -------- --------
Expenses:
Television............................... 164,764 152,252 51,465 68,845
Recorded music and merchandising......... 15,803 17,903 11,551 5,348
Selling, general and administrative...... 24,102 26,197 13,293 14,337
Goodwill amortization.................... 2,399 4,602 2,186 2,271
-------- -------- -------- --------
207,068 200,954 78,495 90,801
-------- -------- -------- --------
Operating income........................... 21,692 35,504 8,993 13,716
-------- -------- -------- --------
Income from continuing operations, before
extraordinary charge...................... 7,248 14,106 2,223 3,573
-------- -------- -------- --------
Net income from continuing operations...... $ 7,248 $ 12,686 $ 2,223 $ 3,573
======== ======== ======== ========
Income per share from continuing operations
(1):
Before extraordinary charge.............. $ 0.87 $ 1.18 $ 0.19 $ 0.27
======== ======== ======== ========
After extraordinary charge............... $ 0.87 $ 1.06 $ 0.19 $ 0.27
======== ======== ======== ========
Income per share........................... $ 0.87 $ 1.06 $ 0.19 $ 0.27
======== ======== ======== ========
BALANCE SHEET DATA:
Receivables, net........................... $115,581 $109,982 $ 74,560 $ 83,784
Television program costs, net.............. 74,644 94,031 95,392 110,781
Total assets............................... 301,582 359,735 306,502 357,216
-------- -------- -------- --------
Notes payable.............................. 134,982 179,000 143,352 174,000
Total liabilities.......................... 233,302 271,765 234,923 268,511
-------- -------- -------- --------
Stockholders' equity....................... 68,280 87,970 71,579 88,705
======== ======== ======== ========
</TABLE>
- --------
(1) Fully diluted earnings per share for 1994 through 1996 were restated to
reflect the November 1996 redemption of the Company's 6 1/2% Convertible
Subordinated Notes. As a result of such restatement, the presentation of
fully diluted earnings per share is no longer required for the periods
1993 through 1996.
13
<PAGE>
Projected Financial Information. In connection with Parent's review of the
Company and in the course of the negotiations described in Section 10, the
Company and its representatives provided Parent with certain business and
financial information relating to the projected potential performance of the
Company over the next 10 years which Parent and Purchaser believe is not
publicly available. Following is a summary of the material forecast and
financial model information which was prepared by the Company in connection
with the discussion of a possible transaction.
SUMMARY FINANCIAL OUTLOOK (AS OF JANUARY 1997)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Television............................... $265,039 $294,974 $289,971 $320,035
Recorded music and merchandising......... 25,617 29,461 33,873 38,960
-------- -------- -------- --------
Total Revenues............................. $290,656 $324,435 $323,844 $358,995
Expenses, excluding
amortization of goodwill
Television............................... 216,207 231,388 225,042 241,554
Recorded music and merchandising......... 23,862 29,351 32,280 35,514
Corporate and depreciation............... 7,000 7,500 7,800 8,100
-------- -------- -------- --------
Total Expenses............................. $247,069 $268,239 $265,122 $285,168
Operating income before amortization,
interest and taxes........................ $ 43,587 $ 56,196 $ 58,722 $ 73,827
Free cash flow (before interest but after
tax)...................................... $ 35,901 $ 32,396 $ 62,529 $ 44,148
</TABLE>
In addition to the above information, the forecasts which the Company
provided to Parent estimated the following results for the years 2001 through
2006: total revenues ranging from approximately $376.5 million to $512.5
million, operating income ranging from approximately $80.0 million to $128.6
million and free cash flow ranging from approximately $60.9 million to $82.9
million. Subsequent to providing such projections, members of the Company's
management advised Parent that poor ratings received by the Company with
respect to its television show "Arthel & Fred" launched in September 1997
could result in a reduction in operating income of $4.0 million to $6.0
million for the year ending December 31, 1997. In reaching its decision to
acquire the Company, Parent made certain assumptions of its own with regard to
revenues, operations and costs of the Company's businesses as a wholly-owned
subsidiary including expense reductions based on integration with similar
businesses now owned by Parent, which assumptions are not reflected in the
above financial information.
FURTHER, THE COMPANY HAS ADVISED PARENT AND PURCHASER THAT THE FOREGOING
FORECAST AND FINANCIAL MODEL INFORMATION (THE "PROJECTIONS") WERE NOT PREPARED
WITH A VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH THE PUBLISHED GUIDELINES
OF THE COMMISSION OR THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS. THE COMPANY DID NOT MAKE
ANY REPRESENTATIONS TO THE PARENT OR THE PURCHASER CONCERNING THE PROJECTIONS.
THE PROJECTIONS HAVE NOT BEEN UPDATED BY THE COMPANY. THE PROJECTIONS ARE
INCLUDED IN THIS OFFER TO PURCHASE ONLY BECAUSE THEY WERE PROVIDED TO PARENT.
PARENT DID AN INDEPENDENT ASSESSMENT OF THE COMPANY'S VALUE AND DID NOT RELY
TO ANY MATERIAL DEGREE UPON THE FOREGOING PROJECTIONS. NONE OF PARENT,
PURCHASER, THE COMPANY OR ANY OF THEIR RESPECTIVE ADVISORS OR ANY OTHER PARTY
WHO RECEIVED SUCH INFORMATION ASSUMES ANY RESPONSIBILITY FOR THE VALIDITY,
REASONABLENESS, ACCURACY OR COMPLETENESS OF THE PROJECTIONS. THE PROJECTIONS
ARE BASED UPON A VARIETY OF ASSUMPTIONS RELATING TO THE BUSINESSES OF THE
COMPANY, INDUSTRY PERFORMANCE, GENERAL BUSINESS AND ECONOMIC CONDITIONS AND
OTHER MATTERS, ALL OF WHICH MAY NOT BE REALIZED
14
<PAGE>
AND ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH
ARE BEYOND THE CONTROL OF THE COMPANY. THERE CAN BE NO ASSURANCE THAT THE
PROJECTIONS SET FORTH ABOVE WILL BE REALIZED, AND ACTUAL RESULTS MAY VARY
MATERIALLY FROM THOSE SHOWN. THE PROJECTIONS HAVE NOT BEEN EXAMINED OR
COMPILED BY THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS. FOR THESE REASONS,
AS WELL AS THE BASES ON WHICH SUCH PROJECTIONS WERE COMPILED, THERE CAN BE NO
ASSURANCE THAT ACTUAL RESULTS WILL NOT DIFFER MATERIALLY FROM THOSE ESTIMATED.
THE INCLUSION OF SUCH PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS AN
INDICATION THAT PARENT, PURCHASER, THE COMPANY, ANY OF THEIR RESPECTIVE
ADVISORS OR ANY OTHER PARTY WHO RECEIVED SUCH INFORMATION CONSIDERS IT AN
ACCURATE PREDICTION OF FUTURE EVENTS. NONE OF THE COMPANY, PARENT, PURCHASER
OR ANY OTHER PARTY INTENDS PUBLICLY TO UPDATE OR OTHERWISE PUBLICLY REVISE THE
PROJECTIONS SET FORTH ABOVE EVEN IF EXPERIENCE OR FUTURE CHANGES MAKE IT CLEAR
THAT SUCH PROJECTIONS WILL NOT BE REALIZED.
THE PROJECTIONS SET FORTH ABOVE CONSTITUTE FORWARD-LOOKING INFORMATION. FOR
A DISCUSSION OF CERTAIN FACTORS REGARDING SUCH FORWARD-LOOKING INFORMATION SEE
"--CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION" BELOW.
Cautionary Statement Regarding Forward-Looking Information. Parent and
Purchaser have identified the following important factors which could cause
the Company's actual results to differ materially from the foregoing
projections:
(a) The Company's ability to (i) further develop, produce and distribute
programming for the international and domestic market, (ii) continue to
license formats for future exploitation and production, (iii) continue to
identify and consummate suitable acquisition or expansion opportunities and
the risks of such growth and (iv) maintain its sources of quality programming,
(b) audience reaction to current and future Company programming, (c)
sufficiency of the Company's working capital, availability of borrowings and
cash flow from operating activities for the Company's future operating and
capital expenditures, (d) competition from major entertainment companies and
others, (e) dependence on a limited number of continuing and new projects,
(f) fluctuations in ratings and advertising rates, (g) other risks detailed in
the Company's filings with the Commission, (h) the speculative nature of the
television and recorded music businesses; and (i) significant fluctuations on
results of operations from period to period depending on, among other things,
the delivery or availability dates of certain programs.
8. CERTAIN INFORMATION CONCERNING PARENT AND PURCHASER
General. Parent is an international media group with a diverse range of
skills in newspaper, magazine and book publishing, on-line and software
services, television and visitor attractions. Parent focuses these core
skills, through separate business divisions, on three markets worldwide:
information, education and entertainment. Parent also has significant
interests in investment banking. For a description of the Company's investment
in Lazard, see Section 17. Parent's principal executive office is located at 3
Burlington Gardens, London W1X 1LE.
The Purchaser, a Delaware corporation, was recently incorporated for the
purpose of acquiring the Company. The Purchaser has not conducted any other
business. The principal executive office of the Purchaser is located at 30
Rockefeller Plaza (50th Floor), New York, New York 10112. All outstanding
shares of common stock of Purchaser are indirectly owned by Parent.
The name, business address, present principal occupation or employment,
five-year employment history and citizenship of each of the directors and
executive officers of the Purchaser and Parent as well as the name, principal
business and address of the corporation or other organization in which such
present occupation or employment is carried on are set forth in Schedule I
hereto.
15
<PAGE>
Summary Financial Information for Parent. Set forth below is a summary of
certain selected financial information with respect to Parent for the years
ended December 31, 1994, 1995 and 1996. The selected consolidated financial
data are stated in pounds sterling. On October 1, 1997, The Wall Street
Journal reported that, as of September 30, 1997, one pound sterling equaled
1.6154 U.S. dollars.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION FOR PARENT
((Pounds) IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
PROFIT AND LOSS:
Revenue
Continuing operations... (Pounds)1,413 (Pounds)1,687 (Pounds)2,049
Discontinued operations. 137 143 137
------------- ------------- -------------
Total revenue............. (Pounds)1,550 (Pounds)1,830 (Pounds)2,186
============= ============= =============
Operating profit
Continuing operations... (Pounds) 257 (Pounds) 238 (Pounds) 146
Discontinued operations. 16 22 35
------------- ------------- -------------
Total operating profit.... 273 260 181
Non-operating items*...... 41 129 215
Interest.................. (16) (24) (40)
------------- ------------- -------------
Profit before tax......... 298 365 356
Taxation.................. (74) (93) (108)
Minority interest......... (1) (11) (8)
------------- ------------- -------------
Profit after tax and
minorities............... (Pounds) 223 (Pounds) 261 (Pounds) 240
============= ============= =============
</TABLE>
- --------
* Includes profits/(losses) on disposal of fixed assets and businesses.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
BALANCE SHEET:
Tangible fixed assets..... (Pounds) 543 (Pounds) 530 (Pounds) 484
Working capital*.......... 289 410 390
Investments and other net
assets**................. 613 113 138
------------- ------------- -------------
Net trading assets........ (Pounds)1,445 (Pounds)1,053 (Pounds)1,012
============= ============= =============
Shareholders funds........ (Pounds)1,036 (Pounds) 833 (Pounds) 389
Provisions and minorities. 263 157 193
Net debt***............... 146 63 430
------------- ------------- -------------
Capital employed.......... 1,445 1,053 1,012
------------- ------------- -------------
Cumulative goodwill
written off.............. (Pounds)1,042 (Pounds)1,438 (Pounds)1,896
============= ============= =============
</TABLE>
- --------
* Includes trading receivables, plus inventories less trading payables.
** Includes investments, taxation, dividends payable and non-trading
receivables and payables.
*** The split of net debt between cash and borrowings is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
------------ ----------- ------------
<S> <C> <C> <C>
Cash.............................. (Pounds) 367 (Pounds)672 (Pounds) 299
Borrowings........................ (513) (735) (729)
------------ ----------- ------------
Net debt.......................... (Pounds)(146) (Pounds)(63) (Pounds)(430)
============ =========== ============
</TABLE>
16
<PAGE>
Pearson's selected consolidated financial data included herein have been
prepared in accordance with applicable United Kingdom ("UK") accounting
standards, including the Companies Act of 1985, FRS 1 (Revised 1996) "Cash
Flow Statements" and FRS 8 "Related Party Disclosures," which represent
generally accepted accounting principles in the UK ("U.K. GAAP"). The
Directors' Report & Accounts 1996 (the "Annual Report"), a copy of which has
been filed with the Commission as Exhibit (g) to the Schedule 14D-1, is
incorporated herein by reference. The Annual Report may be examined and copies
may be obtained at the places and in the manner set forth under the heading
"--Available Information" in Section 7 of this Offer to Purchase. U.K. GAAP
differs in certain significant respects from United States generally accepted
accounting principles ("U.S. GAAP"). Pearson has not determined its financial
position or results of operations for any period under U.S. GAAP. A general
summary of the significant differences between UK GAAP and U.S. GAAP is set
forth below under "--Summary of Certain Significant Differences Between U.K.
and U.S. GAAP." Pearson, however, believes that the differences between UK
GAAP and U.S. GAAP are not material to a decision by a holder of Shares
whether to sell, tender or hold any Shares.
Parent is partially exempt from the informational filing requirements of the
Exchange Act but furnishes to the Commission the information which it files
with the London Stock Exchange.
Summary of Certain Significant Differences Between U.K. and U.S. GAAP
The consolidated accounts of Parent are prepared in accordance with U.K.
GAAP, which differs in certain respects from U.S. GAAP. The following is a
general summary of the significant differences:
Goodwill. The excess of the cost of shares in subsidiaries and associates
over the fair value of underlying separable net assets at the date of
acquisition and other purchased goodwill is deducted from Pearson's
consolidated stockholders' equity in the year of acquisition. Under U.S. GAAP,
goodwill is capitalized and amortized over its estimated useful life, but not
more than 40 years.
Property. Freehold and long leasehold property may be revalued, and the
surplus or deficit arising on such revaluation is included in Parent's
consolidated reserves which form part of ordinary stockholders' equity.
Revaluation of freehold and long leasehold property is not permitted under
U.S. GAAP.
Inventory. Inventory is valued at the lower of cost or realizable value. In
the UK, cost of inventory, other than long-term work in progress, is
calculated using FIFO (first in first out) or average. U.S. GAAP allows LIFO
(last in first out) to be used in addition to the two former methods.
Disposal of businesses. Profits and losses on disposal of a subsidiary or
associate under U.K. GAAP are calculated as the net of the proceeds over (i)
carrying value plus (ii) amounts with respect to goodwill previously charged
to stockholders' equity. U.S. GAAP reflects the unamortized element of
goodwill in the calculation.
Dividends. Ordinary share dividends are provided in the financial year in
respect of which they are declared by the board of directors. Under U.S. GAAP,
such dividends are not provided for until the date declared.
Deferred Taxation. Deferred taxation is provided where it is probable that a
taxation liability will crystallize. Under U.S. GAAP, as provided by Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes", full
provision must generally be made for all potential taxation liabilities.
Pensions. Pension costs, based on actuarial assumptions and methods, are
charged in the accounts so as to allocate the cost of providing benefits over
the service lives of employees in a consistent manner approved by the actuary.
U.S. GAAP prescribes the method of actuarial valuation and also requires
assets to be assessed at fair value and the assessment of liabilities to be
based on current interest rates.
17
<PAGE>
Interest in Shares; Contracts and Relationships With Respect to Company
Securities. Except as described in this Offer to Purchase, none of Purchaser,
Parent or, to the best of their knowledge, any of the persons listed on
Schedule I or any associate or wholly-owned or majority-owned subsidiary of
the Purchaser, Parent or any of the persons so listed, beneficially owns or
has a right to acquire directly or indirectly any Shares. Except as described
in this Offer to Purchase, none of Purchaser, Parent or, to the best of their
knowledge, any of the persons or entities referred to above, or any of the
respective executive officers, directors or subsidiaries of any of the
foregoing, has effected any transactions in the Shares during the past sixty
(60) days.
Except as described in this Offer to Purchase, none of Purchaser nor Parent
nor, to the best of their knowledge, any of the persons listed on Schedule I,
has any contract, arrangement, understanding or relationship with any other
person with respect to any securities of the Company, including but not
limited to contracts, arrangements, understandings or relationships concerning
the transfer or voting of such securities, joint ventures, loan or option
arrangements, puts or calls, guarantees of loans, guarantees against loss or
the giving or withholding of proxies. Except as set forth in this Offer to
Purchase, since January 1, 1994, none of Purchaser nor Parent nor, to the best
of their knowledge, any of the persons listed on Schedule I, has had any
business relationships or transactions with the Company or any of its
executive officers, directors or affiliates that are required to be reported
under the rules and regulations of the Commission applicable to the Offer.
Except as set forth in this Offer to Purchase, since January 1, 1994, there
have been no contacts, negotiations or transactions between any of Parent, the
Purchaser or, to the best of their knowledge, any of the persons listed on
Schedule I, on the one hand, and the Company or its affiliates, on the other
hand, concerning a merger, consolidation or acquisition, a tender offer or
other acquisition of securities, an election of directors, or a sale or other
transfer of a material amount of assets.
9. SOURCES AND AMOUNTS OF FUNDS
The total amount of funds required by the Purchaser and Parent to consummate
the Offer and the Merger (including the cash out of stock options and warrants
as described in Section 11) and to pay related fees and expenses
(approximately $4 million) is estimated to be approximately $377 million. 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 Facility"), 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 constitute a Change of Control, Chase orally agreed to waive any
right it may have to consider such event 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 Facility would permit the noteholders or the trustee under the
Indenture to accelerate the Senior Subordinated Notes and take the other
remedies provided therein. The aggregate amount of debt outstanding under the
Credit Facility and the Senior Subordinated Notes was approximately $182
million (excluding accrued interest) at October 3, 1997. If any such
indebtedness is accelerated or such offer to repurchase is accepted, the
Purchaser and Parent will require additional funds to repay such indebtedness.
The total amount required for the Offer, Merger, related fees and expenses
and the refinancing of indebtedness described above, net of estimated cash of
approximately $37 million, would total approximately $522 million. This amount
will be provided to Purchaser by Parent, both directly and indirectly, via
other wholly owned subsidiaries, through loans, advances or capital
contributions.
Approximately $300 million of the total amount to make such loans, advances
or contributions will be obtained by Parent from its working capital; the
remainder will be obtained by Parent from bank borrowings.
18
<PAGE>
Such bank borrowings are expected to be made pursuant to a (Pounds)325 million
multicurrency Multi-Option Facility (the "Facility") among Parent, Pearson
Inc., Samuel Montagu & Co. Limited as Facility Agent, Midland Bank PLC as
Dollar Swing-Line Agent and certain other financial institutions. A copy of
the Facility agreement has been filed with the Commission as Exhibit (b) to
the Schedule 14D-1. Such borrowings will be unsecured and repayable (with a
right to reborrow) on the last day of each advance period of up to six months,
with full and final repayment and termination of the Facility on August 25,
2002. Borrowed amounts will bear interest payable at the end of each advance
period, at a rate not exceeding the relevant London Interbank Offered Rate
plus 0.11 percent per annum. The Facility includes customary covenants by
Pearson, Inc. and Parent including an interest coverage covenant. No plans
have been made to refinance any such borrowings under the Facility.
Parent may, if more advantageous financial terms are available, choose to
borrow under one or more credit facilities other than the Facility.
THE OFFER IS NOT CONDITIONED UPON THE PURCHASER OBTAINING FINANCING.
10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY
Parent's indirect, wholly owned subsidiary, Grundy International Operations,
Ltd. ("Grundy") has had substantial contacts with the Company since the
Company's acquisition of a 50% interest in Mark Goodson Productions, L.P.
("Goodson") in October 1995 (which was completed as to the remaining 50%
interest in January 1996). Grundy had entered into an agreement as of June 28,
1991 with an affiliate of Goodson pursuant to which such Goodson affiliate
licensed to Grundy in certain territories the right to distribute game shows
and to produce new episodes based on game show formats for a period of five
years, subject to extension. In 1994 and 1995, prior to the Company's
acquisition of Goodson, Grundy had discussions and negotiations with respect
to the possible acquisition of Goodson but did not proceed with such
acquisition.
In late October 1995, Greg Dyke, Chief Executive and Chairman of Pearson
Television Limited, an indirect, wholly owned subsidiary of Parent ("Pearson
TV") and as of March 1996 a Director of Parent, and other representatives of
Pearson TV met with Anthony J. Scotti, President and Chief Executive Officer
of the Company, and other representatives of the Company to have preliminary
discussions concerning the Company's business and a potential transaction.
Additional discussions between representatives of Pearson TV and the Company
concerning a potential transaction took place through early December 1995.
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 informed Pearson TV that the
Company desired not to proceed with any further discussions with Pearson TV or
its affiliates. At the Company's request, all discussions were terminated and
Pearson TV returned to the Company all information it was provided by the
Company.
On February 16, 1996, following renewed contact between Parent and the
Company, the Company sent a letter to Pearson TV reinstating the
Confidentiality Agreement. In March and April 1996, the Company provided
additional information to Parent and representatives of the Company had
several meetings with representatives of Parent and Pearson TV to further
discuss a potential transaction. Discussions between the two companies came to
a standstill in April 1996.
During May 1996 and August 1996, representatives of Pearson TV met on
several occasions with representatives of the Company to express Pearson TV's
interest in resuming discussions between the two companies.
In a meeting on February 12, 1997, Media Finance Inc. ("Media Finance"),
acting on behalf of the Company, provided an information book concerning the
Company to representatives of Pearson TV.
In January 1997, discussions between the Company and Pearson TV resumed once
again.
19
<PAGE>
Throughout February and March 1997 discussions continued between the two
companies and the Company provided Pearson TV with financial and certain other
information. Discussions came to a standstill once again in late March 1997.
During May, June and August 1997 representatives of Pearson TV spoke with
representatives of the Company several times to relay Pearson TV's continued
interest in a potential transaction between the two companies.
In late May 1997, representatives of Goldman Sachs, acting on behalf of the
Company, contacted representatives of Lazard to offer Parent an 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
it did not desire to bid within the range which the Company indicated it then
considered preemptive.
Company has informed Parent that in June through August 1997, the Company
and Goldman Sachs contacted multiple potential bidders and began negotiating
and executing confidentiality agreements with interested qualified parties in
order to conduct an auction process to identify potential purchasers of the
Company. The Company provided to Parent an information book prepared by
Goldman Sachs based upon information provided by the Company.
On September 3, 1997, Goldman Sachs, on behalf of the Company, invited
Parent to submit a proposal by September 22, 1997 to acquire the Company.
Immediately, Parent contacted Lazard to provide financial services and
O'Melveny & Myers LLP ("O'Melveny") to serve as Parent's and Purchaser's
counsel, for the purpose of engaging in a potential acquisition transaction
with respect to the Company.
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. Parent also received a letter from
representatives of the Company transmitting a draft of the Merger Agreement.
Between September 9 and September 30, 1997, representatives of Parent,
O'Melveny, Lazard and Parent's accountants met with representatives of the
Company, their legal counsel, financial advisors and accountants at the
offices of the Company and its counsel to conduct their due diligence
investigation of the Company, including to discuss the business and financial
conditions of the Company, and to discuss the possible terms of an acquisition
transaction. During this period, representatives of the Company made various
presentations to the representatives of Parent with respect to the Company's
business plan. The Company provided to representatives of Parent access to a
data room containing contracts and other documents relating to the Company.
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.
On September 22, 1997, the Board of Directors of each of Parent and
Purchaser approved a proposal to acquire the Company with a purchase price of
$25.50 per Share (the "Proposal"), which included proposed changes to the
draft Merger Agreement that had been provided by the Company and a proposed
Stockholders Agreement, and authorized a committee of Parent's Board of
Directors (the "Standing Committee") to approve the final terms of the
proposed acquisition transaction and the documents relating thereto. On
September 23, 1997, Lazard, on behalf of Parent and Purchaser, submitted the
Proposal to the Company through Goldman Sachs. On September 25, 1997, Goldman
Sachs, on behalf of the Company, responded to the Proposal.
Between September 25 and September 30, 1997, representatives of Pearson and
the Company negotiated with respect to the terms of the Proposal and reached
agreement on the definitive terms of the proposed acquisition. Representatives
of Pearson, the Company and Mr. Scotti negotiated and reached agreement on the
terms of the Agreement Not to Compete and the Amendment to Employment
Agreement (See Section 11).
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Interpublic owns 1% of Fremantle International, Inc., the other 99% of which
is owned by the Company. In connection with the negotiations related 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 but discussions may continue.
The Company has informed Parent that the following events occurred on
September 30, 1997. The Company's Board of Directors held a special meeting at
its offices in Los Angeles, California to consider the Merger Agreement, the
Offer, the Merger and the transactions contemplated thereby. At the meeting,
the Company's Board of Directors reviewed the Merger Agreement, the Offer, the
Merger and the transactions contemplated thereby with the Company's
management, representatives of Kaye, Scholer, Fierman, Hays & Handler, LLP,
the Company's legal counsel, and representatives of Goldman Sachs and Media
Finance. The Company's Board of Directors heard a presentation by its legal
counsel regarding the members' fiduciary duties and the terms of the proposed
Offer and Merger, and by representatives of Goldman Sachs regarding the
financial terms of the proposed Offer and Merger. The Board of Directors of
the Company discussed together 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 Company's Board
of Directors (subsequently confirmed in writing) to the effect that as of the
date of such opinion the $25.50 in cash to be received by the holders of
shares of the Common Stock and Class B Common Stock pursuant to the Offer and
the Merger was fair from a financial point of view to such holders (other than
the Parent and its subsidiaries).
On September 30, 1997, the Standing Committee approved the terms of the
proposed acquisition, including the proposed Merger and Offer and the
documents relating thereto. On October 1, 1997, Parent, Purchaser and the
Company executed the Merger Agreement, Parent and the Selling Stockholders
executed the Stockholders Agreement and the Company and Mr. Scotti executed
the Agreement Not to Compete and the Amendment to the Employment Agreement.
Thereafter, Pearson and the Company issued press releases announcing the
transaction.
To the extent any of the foregoing information described events to which
neither Parent nor Purchaser or their advisors were a party, it is based on
information provided by the Company.
11. THE OFFER AND MERGER; MERGER AGREEMENT; OTHER AGREEMENTS
The Merger Agreement
The following is a summary of certain provisions of the Merger Agreement, a
copy of which is filed with the Commission as Exhibit (c)(1) to the Schedule
14D-1 and which is incorporated herein by reference. The following summary is
qualified in its entirety by reference to the Merger Agreement.
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 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 the Expiration Date, 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 Expiration Date if, at
the Expiration Date, any of the conditions to Parent'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
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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 Parent'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) Parent 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.
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 Merger. The Merger Agreement provides that, subject to the terms and
conditions thereof, at such time as the Certificate of Merger or Certificate
of Ownership is filed with the Secretary of State of Delaware (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, 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 greater of (x) $25.50 per Share 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 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 Delaware Law.
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 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 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
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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 Delaware Law, as soon as reasonably
practicable after such acquisition, without a meeting of the stockholders of
the Company.
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 by 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 execution of the Merger Agreement or
amend any Benefit Plan in existence on the date of the execution 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
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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.
No Solicitation of Transactions. The Merger Agreement provides that, prior
to the execution of the Merger 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 Merger
Agreement further 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 described above 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 hereinafter defined), or
(ii) complying with Rule 14e-2 promulgated under 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
any holder of more than 5% of the Shares (as of the date of the execution 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 Director 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 its Schedule 14D-9. 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 as described in this
paragraph) 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 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 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 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 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 Delaware Law (and shall pay expenses in advance of the final
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disposition of any such action or proceeding to each Indemnified Party to the
fullest extent permitted under Delaware Law, upon receipt from the Indemnified
Party to whom expenses are advanced of the undertaking to repay such advances
contemplated by Section 145(e) of Delaware Law).
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 maintained by the Company as of the date of the Merger
Agreement with respect to matters occurring prior to the Effective Time.
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 and warrants disclosed by
the Company and that the vesting of such options will therefore become
accelerated as a result of the Transactions. Parent acknowledges 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.
Employee Benefit Plans. Pursuant to the Merger Agreement, Parent agrees to
cause the Surviving Corporation (and any successor thereto) to honor, without
modification, all disclosed 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 options), 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.
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
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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.
Use of Name. The Merger Agreement provides that, pursuant to a pre-existing
obligation, effective as of the Effective Time, the Company confirms the
assignment 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,
Parent agrees 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 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 Parent 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.
Conditions of the Offer. The Merger Agreement provides that Parent and
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, any
Shares tendered (subject to Rule 14e-1(c) of the Exchange Act), in the
circumstances described in Section 15 below.
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
Delaware Law, the Merger Agreement shall have been approved and adopted by the
stockholders of the Company in accordance with Delaware Law, the Company's
Restated Certificate of Incorporation and its Bylaws, (b) any waiting period
(and any extensions 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 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 hereto) 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 (i) 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
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Agreement such that any of the conditions set forth in clause (f) or (g) of
Section 15 below would not be satisfied, (ii) 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 shall
have recommended to the stockholders of the Company any Competing Transaction
(as hereinafter defined) or (iii) 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 (ii) and (iii) 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, 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 shall 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 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 Section 15 below 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 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
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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 Contacts with the Company;
Background of the Offer the, fifth) full business day after notice of such
termination to Parent; or
(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 the
Merger Agreement and three business days after the expiration or
termination of any waiting periods (and any extensions 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 has 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 shall terminate 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 the Parent at least 5 business days advance written
notice thereof (the "Issuance Notice"). Parent 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 defined below) in full. If
Purchaser has exercised the Option the Company shall not thereafter issue any
such shares unless the 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% of the
voting securities of the Company on a fully diluted basis, the provisions
restricting issuance of shares shall immediately terminate and be of no
further force or effect with respect to any issuances of shares by the
Company.
Effect of Termination and Abandonment. Except as set forth in Section 10.1
of the Merger Agreement, in the event of termination of the Merger Agreement
and abandonment of the Merger pursuant to Article VIII of the Merger
Agreement, no party (or any of its directors or officers) will have any
liability or further obligation to any other party to the Merger Agreement,
except that nothing herein will relieve the Company, Parent or Purchaser from
liability for any breach of the Merger Agreement.
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 can be no assurance as to the timing of the Merger.
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Stockholders Agreement
The following is a summary of certain provisions of the Stockholders
Agreement. 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 (C)(2) to the Schedule
14D-1. The Stockholders Agreement may be examined and copies may be obtained
at the places and in the manner set forth in Section 8.
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), 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, her or its fiduciary duties as a member of such Board of
Directors.
Agreement to Tender. Each Selling Stockholder severally agrees to tender its
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 hereby 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 Section 15 having been satisfied or (other than
the Minimum Condition) waived, 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 Purchaser or any affiliate thereof as of the date of the
Merger Agreement. In the Merger Agreement, Parent has 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 issued
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 provides that the Class B Common Stock, which is non-
voting stock, automatically converts to Common Stock which is voting stock,
upon a Change in Control (as defined in the Company's Restated Certificate of
Incorporation). Parent and Purchaser believe that the execution of the
Stockholder Agreement does not result in a Change in Control until the Shares
are purchased.
Option. Each Selling Stockholder has also granted to Purchaser an
irrevocable option (collectively, the "Option") to purchase all but not less
than all 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 shall be subject to the expiration of any
applicable waiting periods under the HSR Act and the ARC or, as the case may
be, receipt of a clearance letter from the German Federal Cartel Office.
Agreement not to Transfer. Each Selling Stockholder agrees that prior to the
termination of the Stockholders Agreement that such Selling Stockholder shall
not (i) transfer or consent to any transfer of any or all of such Selling
Stockholder's Shares; (ii) enter into any contract, option or other agreement
or understanding
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with respect to any transfer of any or all of such Selling Stockholder's
Shares or any interest therein; (iii) except as described below, grant any
proxy, power-of-attorney or other authorization or consent with respect to
such Selling Stockholder's Shares; or (iv) 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 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 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 (i) as necessary to avoid the expiration of such option or warrant or
(ii) in connection with the tender or sale of the underlying Shares to
Purchaser or its affiliates.
Agreement to Vote and Grant of Proxy. Each Selling Stockholder agrees 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, such Stockholder will appear at the meeting or otherwise cause the
Proxy Shares (as 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 Proxy Shares (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 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.
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 is otherwise terminated in accordance
with its terms or (b) the Effective Time.
Scotti Agreement Not to Compete and Fifth Amendment to Employment Agreement
The following is a summary of certain provisions of an agreement relating to
noncompetition, nonsolicitation, nondisclosure and other matters by and
between Company and Anthony J. Scotti (the "Agreement Not to Compete") and
Amendment to Employment Agreement by and between Company and Anthony J. Scotti
(the "Amendment to Employment Agreement") entered into in connection with the
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 Exhibits (c)(6) and (c)(8), respectively to the Schedule
14D-1. The
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Agreement Not to Compete and Amendment to Employment Agreement may be examined
and copies may be obtained at the places and in the manner set forth in
Section 8.
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 Mr. Scotti entered into the Agreement Not to
Compete and Amendment to Employment Agreement. Under the Amendment to
Employment Agreement, Mr. Scotti has agreed to report certain income under the
Agreement Not to Compete and his employment agreement in accordance with the
Form W-2 to be provided by the Company with respect thereto, and the Company
has agreed to indemnify Mr. Scotti for any interest and penalties payable to
any taxing authority as a result thereof. Pursuant to the Agreement Not to
Compete, effective as of the time Purchaser purchases more than 50% of the
Shares (the "Non-Compete Time"), Mr. Scotti has agreed that: (i) he will
resign (a) as Chief Executive Officer of Company, (b) from the Board of
Directors of the Company (and all committees thereof), (c) the Boards of
Directors (and all committees thereof) of all Company Subsidiaries of which he
is a member, and (d) 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 vested benefits; and (ii) during the period commencing at the Non-
Compete Time and continuing until December 1, 1999, (a) he will not engage in
any activity which is competitive with the Company's game show business or
music business (subject to certain exceptions relating to musical compositions
or performances of family members of Mr. Scotti); (b) he will not solicit or
entice away any employee or independent contractor of the Company or performer
engaged by the Company; (c) he will not discuss or negotiate with respect to
television projects which were submitted to or in development with the Company
prior to Non-Compete Time, unless they are resubmitted to the Company after
the Non-Compete Time; and (d) 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 of 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 Transition 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 foregoing, the Company has
agreed to pay to Mr. Scotti approximately $2.9 million, subject to adjustment
if the Non-Compete Time does not occur by December 1, 1997.
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 T.V. 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
(c)(6) to the Schedule 14D-1. The Confidentiality Agreement contains customary
provisions pursuant to which, among other matters, Pearson T.V. 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 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 on the Merger Agreement, or after the
earlier to occur of (i) a Fiduciary Termination, (ii) a Competing Transaction
Termination, (iii) November 20, 1997, or (iv) the Transition Time.
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12. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY
The purpose of the Offer, the Merger and the Merger Agreement is to enable
Parent to acquire control of the entire equity interest of the Company. Upon
consummation of the Merger, the Company will become a wholly owned indirect
subsidiary of Parent. The Offer is being made pursuant to the Merger
Agreement.
After consummation of the Offer, Parent and Purchaser plan to assess various
aspects of the Company's business and operations to identify how best to
maximize the Company's strengths in implementing Parent's long-term strategy.
Parent will consider taking certain actions to integrate certain operations of
the Company (many of which are located in the foreign jurisdictions) with the
existing television operations of the Purchaser and its affiliates (some of
which are in the United States). Parent is considering a number of
alternatives in order to facilitate these objectives. No decision has been
made concerning the structure of such alternatives.
13. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; EXCHANGE ACT
REGISTRATION; MARGIN REGULATIONS; VOTING
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and may reduce the number of
holders of Shares, which could adversely affect the liquidity and market value
of the remaining Shares held by stockholders other than Purchaser. Purchaser
cannot predict whether the reduction in the number of Shares that might
otherwise trade publicly would have an adverse or beneficial effect on the
market price for or marketability of the Shares or whether it would cause
future market prices to be greater or less than the Offer Price.
Depending upon the aggregate market value and per Share price of any Shares
not purchased pursuant to the Offer, following the Offer the Shares may no
longer meet the standards for continued listing on the NNM which requires an
issuer to have at least 750,000 publicly held Shares and net tangible assets
of at least $4,000,000 or at least 1.1 million publicly held Shares with a
market capitalization, total assets or total revenue of at least $75 million.
Shares held by directors and officers (or their immediate families) of the
Company and other concentrated holdings of 10% or more of the Shares
outstanding generally will not be considered to be publicly held for the
purpose of the foregoing standards. If the Shares were no longer quoted on the
NNM, it is possible that the Shares could continue to trade in the over-the-
counter market and that quotations would continue to be reported through other
sources. The extent of the public market for the Shares and the availability
of such quotations would, however, depend upon the number of stockholders
remaining at such time, the interest in maintaining a market in the Shares on
the part of securities firms, the possible termination of registration of the
Shares under the Exchange Act, as described below, and other factors.
If, as a result of the purchase of Shares pursuant to the Offer, the Shares
no longer meet the requirements of the NNM for continued listing and the
listing of Shares is discontinued, the market for the Shares could be
adversely affected.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), which has the effect, among other things, of allowing brokers to
extend credit on the collateral of the Shares. Depending upon factors similar
to those described above regarding listing and market quotations, it is
possible that, following the Offer, the Shares would no longer constitute
"margin securities" for the purposes of the margin regulations of the Federal
Reserve Board and therefore could no longer be used as collateral for loans
made by brokers.
The Shares are currently registered under the Exchange Act. Registration of
the Shares under the Exchange Act may be terminated upon application of the
Company to the Commission if the Shares are neither listed on a national
securities exchange nor held by 300 or more holders of record. Termination of
registration of the Shares under the Exchange Act would substantially reduce
the information required to be furnished by the Company to its stockholders
and to the Commission and would make certain provisions of the Exchange Act no
longer applicable to the Company, such as the short-swing profit recovery
provisions of Section 16(b) of the Exchange
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Act, the requirement of furnishing a proxy statement pursuant to Section 14(a)
of the Exchange Act in connection with stockholders' meetings and the related
requirement of furnishing an annual report to stockholders and the
requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions. Furthermore, the ability of "affiliates" of the Company
and persons holding "restricted securities" of the Company to dispose of such
securities pursuant to Rule 144 or 144A promulgated under the Securities Act
may be impaired or eliminated. It is the current intention of Parent to seek
to cause the Company to deregister the Shares after consummation of the Offer
if the requirements for termination of registration are met.
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
Certificate of Incorporation). Parent and Purchaser believe that the execution
of the Stockholders Agreement does not result in a Change of Control.
14. DIVIDENDS AND DISTRIBUTIONS
As described above, the Merger Agreement provides that, prior to the
Effective Time, the Company will not, among other things, declare, set aside
or pay (unless declared prior to September 30, 1997) any dividend payable in
cash, stock or property with respect to the Shares.
In addition, pursuant to the provisions of the Merger Agreement, the Company
may 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
facility); (ii) amend its Restated Certificate of Incorporation or Bylaws or
the similar organizational documents of any of the Company Subsidiaries; or
(iii) split, combine or reclassify the outstanding Shares.
Pursuant to the Merger Agreement, the Company also may not (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.
The Merger Agreement prohibits the Company from taking any of the foregoing
actions without the prior written consent of Purchaser.
15. CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Parent or Purchaser, 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: (a) the
Minimum Condition shall not have been satisfied prior to the expiration of the
Offer; (b) 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 (c) 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) there shall be threatened or pending any suit, action or proceeding
brought by any Governmental Authority 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
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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 Parent, or render the Parent
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
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 or any event or series of events which would result in a Company
Material Adverse Effect (as hereinafter defined);
(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 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 Merger Agreement or as of the expiration of the
Offer except for (i) changes specifically contemplated by 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 Merger 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 foregoing conditions (other than the Minimum Condition) may be waived by
either Parent or Purchaser in its 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
35
<PAGE>
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.
The term "Company Material Adverse Effect" means 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
the Merger Agreement, (iv) general economic conditions or (v) any changes
generally affecting the industries in which the Company and its subsidiaries
operate.
16. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS
General. Except as described in this Section 16, based upon a review of
publicly available filings by the Company with the Commission and other
publicly available information concerning the Company, neither Parent nor
Purchaser is aware of any license or regulatory permit that appears to be
material to the business of the Company and its subsidiaries, taken as a
whole, that might be adversely affected by the acquisition of Shares by
Purchaser or Parent pursuant to the Offer, the Merger or otherwise or, except
as set forth below, of any approval or other action by any governmental,
administrative or regulatory agency or authority, domestic or foreign, that
would be required prior to the acquisition of Shares by Purchaser pursuant to
the Offer, the Merger or otherwise. Should any such approval or other action
be required, Purchaser and Parent currently contemplate that it will be
sought, except as described below under "State Takeover Statutes." While
Purchaser does not currently intend to delay the acceptance for payment of
Shares tendered pursuant to the Offer pending the outcome of any such matter,
there can be no assurance that any such approval or other action, if needed,
would be obtained or would be obtained without substantial conditions or that
adverse consequences might not result to the Company's business or that
certain parts of the business of the Company or Parent might not have to be
disposed of in the event that such approvals were not obtained or any other
actions were not taken. Purchaser's obligation under the Offer to accept for
payment and pay for Shares is subject to certain conditions, including
conditions relating to certain of the legal matters discussed in this Section
16. See Section 15.
The Merger; Dissenters' Rights. No appraisal rights are available in
connection with the Offer. However, if the Merger is consummated, stockholders
of the Company would have certain rights to dissent and demand appraisal of
their Shares under Section 262 of Delaware Law. Dissenting stockholders who
comply with the requisite statutory procedures under Delaware Law would be
entitled to a judicial determination and payment of the "fair value" of their
Shares as of the close of business on the day prior to the date of stockholder
authorization of the Merger, together with interest thereon, at such rate as
the court finds equitable, from the date the Merger is consummated until the
date of payment. Under Delaware Law, in fixing the fair value of the Shares, a
court would consider the nature of the transaction giving rise to the
stockholders' right to receive payment for Shares and its effects on the
Company and its stockholders, the concepts and methods then customary in the
relevant securities and financial markets for determining fair value of Shares
of a corporation engaging in a similar transaction under comparable
circumstances, and all other relevant factors. Shares which are held by
stockholders exercising appraisal rights under Section 262 of the Delaware Law
shall be referred to herein as "Dissenting Shares".
Going Private Transactions. The Commission has adopted Rule 13e-3 under the
Exchange Act, which is applicable to certain "going private" transactions and
which may under certain circumstances be applicable to the Merger or another
business combination following the purchase of Shares pursuant to the Offer in
which Purchaser seeks to acquire the remaining Shares not held by it.
Purchaser believes, however, that if the Merger
36
<PAGE>
is consummated within one year of its purchase of Shares pursuant to the
Offer, Rule 13e-3 will not be applicable to the Merger. Purchaser believes
that if the Merger is not consummated within one year of its purchase of
Shares pursuant to the Offer, Rule 13e-3 will be applicable to the Merger.
Rule 13e-3 requires, among other things, that certain financial information
concerning the Company and certain information relating to the fairness of the
proposed transaction and the consideration offered to minority stockholders in
such transaction be filed with the Commission and disclosed to stockholders
prior to consummation of the transaction.
State Takeover Statutes. The Company is incorporated under the laws of the
State of Delaware. In general, Section 203 of Delaware Law prevents an
"interested stockholder" (generally a person who owns or has the right to
acquire 15% or more of a corporation's outstanding voting stock, or an
affiliate or associate thereof) from engaging in a "business combination"
(defined to include mergers and certain other transactions) with a Delaware
corporation for a period of three (3) years following the date such person
became an interested stockholder unless, among other things, prior to such
date the Board of Directors of the corporation approved either the business
combination or the transaction in which the interested stockholder became an
interested stockholder. In connection with the review of the proposed
transaction, the Company's Board of Directors prior to the execution of the
Merger Agreement (i) unanimously approved the Offer, the Merger and the
transactions contemplated by the Stockholders Agreement, (ii) determined that
the terms of the Offer and the Merger including the Offer price of $25.50 per
Share in cash, are in the best interest of, the stockholders of the Company,
and (iii) recommended that the stockholders of the Company accept the Offer
and tender their Shares pursuant to the Offer. Accordingly, the Purchaser and
Parent believe that Section 203 of Delaware Law is inapplicable to the Merger
Agreement, the Offer, the Merger or the Stockholders Agreement because its
provisions have been satisfied.
A number of other states have also adopted takeover laws and regulations
which purport to varying degrees to be applicable to attempts to acquire
securities of corporations which are incorporated in such states or which have
or whose business operations have substantial economic effects in such states,
or which have substantial assets, security holders, principal executive
offices or principal places of business therein. In 1982, the Supreme Court of
the United States, in Edgar v. MITE Corp., invalidated on constitutional
grounds the Illinois Business Takeovers Act, which, as a matter of state
securities law, made takeovers of corporations meeting certain requirements
more difficult. However, in 1987, in CTS Corp. v. Dynamics Corp. of America,
the Supreme Court of the United States held that the State of Indiana could,
as a matter of corporate law and in particular those aspects of corporate law
concerning corporate governance, constitutionally disqualify a potential
acquiror from voting on the affairs of a target corporation without the prior
approval of the remaining stockholders, provided that such laws were
applicable only under certain conditions. Subsequently, a number of federal
courts have ruled that various state takeover statutes were unconstitutional
insofar as they apply to corporations incorporated outside the state of
enactment.
The Company, directly or through subsidiaries, conducts business in a number
of states throughout the United States, some of which have enacted takeover
laws. The Purchaser does not know whether any of these laws will, by their
terms, apply to the Offer or the Merger and has not taken any action to comply
with any such laws. Should any person seek to apply any state takeover law,
the Purchaser will take reasonable efforts to resist such application, which
may include challenging the validity or applicability of any such statute in
appropriate court proceedings. In the event it is asserted that one or more
state takeover laws is applicable to the Offer or the Merger, and an
appropriate court does not determine that it is inapplicable or invalid as
applied to the Offer, the Purchaser might be required to file certain
information with, or receive approvals from, the relevant state authorities.
In addition, if enjoined, the Purchaser might be unable to accept for payment
or pay for any Shares tendered pursuant to the Offer or be delayed in
continuing or consummating the Offer and the Merger. In such case, the
Purchaser may not be obligated to accept for payment, or pay for, any Shares
tendered. See Section 15.
Short-Form Merger. Delaware Law would permit the Merger to occur without a
vote of the Company's stockholders (a "short-form merger") if the Purchaser
were to acquire at least 90% of the outstanding Shares. If, however, the
Purchaser does not acquire at least 90% of the then outstanding shares of each
outstanding class of shares of the Company pursuant to the Offer or otherwise,
and a vote of the Company's stockholders is required under Delaware Law, a
longer period of time will be required to effect the Merger.
37
<PAGE>
Antitrust. Under the provisions of the HSR Act applicable to the Offer, the
acquisition of Shares under the Offer may be consummated following the
expiration of a 15-calendar day waiting period following the filing by Parent
of a Notification and Report Form with respect to the Offer, unless Parent
receives a request for additional information or documentary material from the
Antitrust Division of the Department of Justice (the "Antitrust Division") or
the Federal Trade Commission (the "FTC") or unless early termination of the
waiting period is granted. If, within the initial 15-calendar day waiting
period, either the Antitrust Division or the FTC requests additional
information or material from Parent concerning the Offer, the waiting period
will be extended and would expire at 11:59 p.m., New York City time, on the
tenth calendar day after the date of substantial compliance by Parent with
such request. Only one extension of the waiting period pursuant to a request
for additional information is authorized by the HSR Act. Thereafter, such
waiting period may be extended only by court order or with the consent of
Parent. In practice, complying with a request for additional information or
material can take a significant amount of time.
The provisions of the HSR Act would similarly apply to any purchase, other
than pursuant to the Offer, of the Shares subject to the Stockholders
Agreement, except that the initial waiting period for any purchase of such
Shares (other than purchases effected through a tender pursuant to the Offer)
would expire 30 calendar days following the filing of HSR Act Notification and
Report Forms by Purchaser and the Company and a request for additional
information or material from Purchaser or the Company during the initial 30-
day waiting period would extend the waiting period until 11:59 p.m. New York
City time on the 20th calendar day after the date of substantial compliance by
Purchaser and the Company with such request. If the purchase of Shares
pursuant to the Stockholders Agreement is effected through a tender of such
Shares pursuant to the Offer, the HSR requirements applicable to the Offer
described in the prior paragraph would apply rather than the requirements
described in this paragraph.
The Merger would not require an additional filing under the HSR Act if the
Purchaser owns 50% or more of the outstanding Shares at the time of the Merger
or if the Merger occurs within one year after the HSR Act waiting period
applicable to the Offer expires or is terminated.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as Purchaser's acquisition of the
Shares pursuant to the Offer and the Merger Agreement. At any time before or
after Purchaser's acquisition of Shares, the Antitrust Division or the FTC
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the acquisition
of Shares pursuant to the Offer or otherwise or seeking divestiture of Shares
acquired by Purchaser or divestiture of substantial assets of Parent or its
subsidiaries. Private parties and state attorneys general may also bring legal
action under the antitrust laws in certain circumstances. There can be no
assurance that a challenge to the Offer or other acquisition of Shares by
Purchaser on antitrust grounds will not be made or, if such challenge is made,
of the result. See Section 15 for certain conditions to the Offer, including
conditions with respect to litigation and certain governmental actions.
Federal Reserve Board Regulations. The margin regulations promulgated by the
Federal Reserve Board place restrictions on the amount of credit that may be
extended for the purpose of purchasing margin stock (including the Shares) if
such credit is secured directly or indirectly by margin stock. Purchaser and
Parent believe that the financing of the acquisition of the Shares will not be
subject to the margin regulations.
Germany. The Company has informed the Purchaser that the Company conducts
certain operations in Germany. The acquisition of the Company by the Purchaser
would therefore 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 German
Federal Cartel Office ("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,
38
<PAGE>
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.
Other Foreign Laws. The Company has informed the Purchaser that the Company
and certain of its subsidiaries conduct business in certain other foreign
countries where regulatory filings or approvals may be required in connection
with the consummation of the Offer. Certain of such filings, if required, may
not be completed and certain of such approvals, if required, may not be
obtained, prior to the expiration of the Offer. However, there is no present
intention to delay the acceptance for payment of or the payment for Shares
pursuant to the Offer pending the completion of such filings and the obtaining
of such approvals. There is no assurance that any such approvals would be
obtained or that adverse consequences to Parent's or the Company's business
might not result from a failure to obtain such approvals or conditions that
might be imposed in connection therewith.
17. FEES AND EXPENSES
Purchaser and Parent have retained Lazard to act as the Dealer Manager and
to provide certain financial advisory services in connection with the proposed
acquisition of the Company. In connection with such services Parent has agreed
to pay Lazard up to an aggregate fee of $3,000,000. Parent will also reimburse
Lazard for certain reasonable out-of-pocket expenses, including fees and
expenses of its counsel. Purchaser and Parent will also indemnify Lazard
against certain liabilities and expenses in connection with its services,
including certain liabilities and expenses under the federal securities laws.
Parent owns beneficially approximately 8.9% of Lazard and also owns a
substantial beneficial interest in a Lazard affiliate. Michel David-Weill,
Chairman of Lazard, is a director of Parent and director of various companies
associated with Lazard Freres el Cie, Paris which, in the aggregate, control
an approximately 8.4% interest in Parent. Lazard provides general investment
banking and other advisory services to Parent in consideration for an annual
retainer.
Purchaser and Parent have retained D.F. King & Co., Inc. to act as the
Information Agent and ChaseMellon Shareholder Services to serve as the
Depositary in connection with the Offer. The Information Agent and the
Depositary each will receive reasonable and customary compensation for their
services, be reimbursed for certain reasonable out-of-pocket expenses and be
indemnified against certain liabilities and expenses in connection therewith,
including certain liabilities and expenses under the federal securities laws.
Neither Purchaser nor Parent will pay any fees or commissions to any broker
or dealer or other person or entity (other than the Dealer Manager and as
described in the preceding paragraph) in connection with the solicitation of
tenders of Shares pursuant to the Offer. Brokers, dealers, banks and trust
companies will be reimbursed by Purchaser upon request for customary mailing
and handling expenses incurred by them in forwarding material to their
customers.
18. MISCELLANEOUS
Purchaser is not aware of any jurisdiction in which the making of the Offer
is not in compliance with applicable law. If Purchaser becomes aware of any
jurisdiction in which the making of the Offer would not be in compliance with
applicable law, Purchaser will make a good faith effort to comply with any
such law. If, after such good faith effort, Purchaser cannot comply with any
such law, the Offer will not be made to (nor will tenders be accepted from or
on behalf of) the holders of Shares residing in such jurisdiction. In those
jurisdictions whose securities or blue sky laws require the Offer to be made
by a licensed broker or dealer, the Offer is being made on behalf of Purchaser
by one or more registered brokers or dealers which are licensed under the laws
of such jurisdiction.
39
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER NOT CONTAINED IN THIS OFFER TO PURCHASE
OR THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Purchaser and Parent have filed with the Commission the Tender Offer
Statement on Schedule 14D-1 pursuant to Rule 14d-3 under the Exchange Act,
together with exhibits, furnishing certain additional information with respect
to the Offer, and may file amendments thereto. Such Schedule 14D-1 and any
amendments thereto, including exhibits, should be available for inspection and
copies should be obtainable in the manner set forth in Section 8 (except that
such material will not be available at the regional offices of the
Commission).
Pearson Merger Company, Inc.
October 7, 1997
40
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PEARSON MERGER COMPANY, INC.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL
OCCUPATION
OR EMPLOYMENT AND
FIVE-YEAR EMPLOYMENT
NAME AND BUSINESS ADDRESS OFFICE(S) HISTORY CITIZENSHIP
------------------------- --------- -------------------- -----------
<C> <C> <S> <C>
David M. Veit............... Director 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............... Director 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.............. Director 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.
William H. Cowan............ Assistant Secretary Partner of Cowan & United States
30 Rockefeller Plaza Minetz Chartered(2)
New York, New York 10112 since 1989.
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS OF PEARSON PLC
<TABLE>
<CAPTION>
PRESENT PRINCIPAL
OCCUPATION OR
EMPLOYMENT AND
FIVE-YEAR EMPLOYMENT
NAME AND BUSINESS ADDRESS OFFICE(S) HISTORY CITIZENSHIP
------------------------- --------- -------------------- -----------
<C> <C> <S> <C>
David C.M. Bell............. Director Executive Director of United Kingdom
3 Burlington Gardens Pearson plc since 1996.
London W1X 1LE Chief Executive of The
England Financial Times(3) from
1993 to 1996. Director
of The Financial Times
from 1989 to 1993.
Michel David-Weill.......... Director Non-executive Director France
30 Rockefeller Plaza of Pearson plc since
New York, New York 10020 1970. Chairman and Chief
Executive of Lazard
Freres & Co. LLC(4)
since 1995. General
Partner from 1977 to
1995 in Lazard Freres &
Co. General Partner in
Lazard Freres et Cie.
Chairman of Lazard
Freres & Co., Limited.
Deputy Chairman of
Lazard Brothers & Co.,
Limited.
</TABLE>
S-1
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF PEARSON PLC
(CONTINUED)
<TABLE>
<CAPTION>
PRESENT PRINCIPAL
OCCUPATION OR
EMPLOYMENT AND
FIVE-YEAR EMPLOYMENT
NAME AND BUSINESS ADDRESS OFFICE(S) HISTORY CITIZENSHIP
------------------------- -------- -------------------- -----------
<C> <C> <S> <C>
Gregory Dyke................ Director 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(5).
Chief Executive of
London Weekend
Television from 1987 to
1994.
Pehr Gustaf Gyllenhammar.... Director Non-executive Director Sweden
21 Moorfields of Pearson plc since
London EC2P 2HT 1983. Senior Advisor to
England Lazard Freres & Co.
LLC(4) since 1996.
Chairman of MC
Securities Limited from
1994 to 1995(6).
Chairman of the Board
and Chief Executive
Officer of AB Volvo from
1982 to 1993(7).
Gillian M. Lewis............ Director Non-executive Director United Kingdom
100 Piccadilly of Pearson plc since
London W1 1992. Managing Partner
England of Heidrick &
Struggles(8) since 1995.
Senior Vice-President at
Nestle SA from 1992 to
1994(9).
John C. Makinson............ Director 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(3).
Partner of Makinson
Cowell from 1989 to
1994(10).
Reuben Mark................. Director Non-executive Director United States
300 Park Avenue of Pearson plc since
New York, New York 10022 1988. Chairman since
Director 1986 and Chief Executive
Officer since 1984 of
Colgate-Palmolive
Company(11).
Vernon L. Sankey............ Director Non-executive Director United Kingdom
One Burlington Lane of Pearson plc since
London W4 2RW 1993. Chief Executive at
England Reckitt & Colman plc(12)
since 1991.
Marjorie M. Scardino........ Director 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(13).
</TABLE>
S-2
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF PEARSON PLC
(CONTINUED)
<TABLE>
<CAPTION>
PRESENT PRINCIPAL
OCCUPATION OR
EMPLOYMENT AND
FIVE-YEAR EMPLOYMENT
NAME AND BUSINESS ADDRESS OFFICE(S) HISTORY CITIZENSHIP
------------------------- -------- -------------------- -----------
<C> <C> <S> <C>
Henry Dennistoun Stevenson
C.B.E...................... Chairman of the Chairman of the Board of United Kingdom
78-80 St. John's Street Board of Directors 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
(14) and of the Trustees
of the Tate Gallery.
David M. Veit............... Director Executive Director of United States
30 Rockefeller Plaza Pearson Inc since 1981.
New York, New York 10112 Chairman of the Board of
Directors since 1987 and
President since 1985 of
Pearson Inc.
David J. Verey.............. Director Non-executive Director United Kingdom
21 Moorfields of Pearson plc since
London EC2P 2HT 1996. Chairman of Lazard
England Brothers & Co.,
Limited(15) since 1992.
Anette V. Lawless........... Secretary Company Secretary of Denmark
3 Burlington Gardens Pearson plc since 1992.
London W1X 1LE
England
</TABLE>
- -------
(1) EMAP plc has its principal office located at 1 Lincoln Court, Lincoln
Road, Petersborough, London PE1 2RF, England.
(2) Cowan & Minetz Chartered has its principal office located at 180 N.
LaSalle No. 2901, Chicago, Illinois 60601.
(3) The Financial Times has its principal office located at 1 Southwark
Bridge, London SE1 9HL, England.
(4) Lazard Freres & Co. LLC has its principal office located at 30
Rockefeller Plaza, New York, New York 10020.
(5) Channel 5 Broadcasting Limited has its principal office located at 22
Long Acre, London WL2E 9LY, England.
(6) MC Securities Limited has its principal office located at 1 Undershaft,
London EC3A 8CH, England.
(7) AB Volvo has its principal office located at AB Volvo, S-405 08 Goteberg,
Sweden.
(8) Heidrick & Struggles has its principal office located at 100 Piccadilly,
London W1V 9FN, England.
(9) Nestle SA has its principal office located at Avenue Nestle 55, CH-180
Vevey, Switzerland.
(10) Makinson Cowell has its principal office located at 16-18 St. John Lane,
London EC1M 4BS, England.
(11) Colgate-Palmolive Company has its principal office at 300 Park Avenue,
New York, New York 10022.
(12) Reckitt & Colman plc has its principal office at One Burlington Lane,
London W4 2RW, England.
(13) The Economist Group Ltd. has its principal office located at 25 St.
James's Street, London SW1A 1HG, England.
(14) GPA: Aircraft Leasing Company has its principal office located at G.P.A.
House, Shannon, Co. Clare, Ireland.
(15) Lazard Brothers & Co., Limited has its principal offices located at
21 Moorfields, London EC2P 2HT, England.
S-3
<PAGE>
The Letter of Transmittal, certificates for Shares and any other required
documents should be sent or delivered by each stockholder of the Company or
his broker, dealer, commercial bank or other nominee to the Depositary at one
of its addresses set forth below.
The Depositary for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Delivery: By Hand:
ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C.
Post Office Box 3305 85 Challenger Road, Mail Drop-Reorg 120 Broadway
South Hackensack, NJ 07606 Ridgefield Park, NJ 07660 13th Floor
Attn: Reorganization Department Attn: Reorganization Department New York, New York 10271
Attn: Reorganization Department
</TABLE>
<TABLE>
<S> <C>
Facsimile Transmission Confirm Facsimile by Telephone:
(For Eligible Institutions Only) (201) 296-4860
(201) 329-8936
</TABLE>
Any questions or requests for assistance or additional copies of this Offer
to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery
may be directed to the Information Agent at its telephone numbers and location
listed below. You may also contact your broker, dealer, commercial bank or
trust company or nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street, 20th Floor
New York, New York 10005
(212) 269-5550 (Call Collect)
or
CALL TOLL FREE: (800) 755-3105
The Dealer Manager for the Offer is:
LAZARD FRERES & CO. LLC
30 Rockefeller Plaza
New York, New York 10020
(212) 632-6000 (Call Collect)
<PAGE>
EXHIBIT 99(a)(2)
LETTER OF TRANSMITTAL
TO TENDER SHARES OF
COMMON STOCK
AND
CLASS B COMMON STOCK
OF
ALL AMERICAN COMMUNICATIONS, INC.
AT $25.50 NET PER SHARE
PURSUANT TO THE OFFER TO PURCHASE
DATED OCTOBER 7, 1997
BY
PEARSON MERGER COMPANY, INC.
A WHOLLY OWNED SUBSIDIARY OF
PEARSON PLC
THE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME,
ON TUESDAY, NOVEMBER 4, 1997, UNLESS THE OFFER IS EXTENDED.
The Letter of Transmittal, certificates for Shares and any other required
documents should be sent or delivered by each stockholder of the Company or
his broker, dealer, commercial bank or other nominee to the Depositary at one
of its addresses set forth below.
The Depositary for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Overnight Delivery: By Hand:
ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C.
Post Office Box 3305 85 Challenger Road, Mail Drop-Reorg 120 Broadway
South Hackensack, NJ 07606 Ridgefield Park, NJ 07660 13th Floor
Attn: Reorganization Department Attn: Reorganization Department New York, New York 10271
Attn: Reorganization Department
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Facsimile Transmission Confirm Facsimile by Telephone:
(For Eligible Institutions Only) (201) 329-8936
(201) 296-4860
</TABLE>
---------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
<PAGE>
This Letter of Transmittal is to be completed by stockholders either if
certificates are to be forwarded herewith or if delivery is to be made by
book-entry transfer to the Depositary's account at The Depository Trust
Company ("DTC") or the Philadelphia Depository Trust Company ("PDTC") (each, a
"Book-Entry Transfer Facility" and collectively, the "Book-Entry Transfer
Facilities") pursuant to the procedures set forth in Section 3 of the Offer to
Purchase (as defined below).
Stockholders whose certificates evidencing Shares ("Share Certificates") are
not immediately available or who cannot deliver their Share Certificates and
all other documents required hereby to the Depositary prior to the Expiration
Date (as defined in the Introduction to the Offer to Purchase) or who cannot
comply with the book-entry transfer procedures on a timely basis must tender
their Shares according to the guaranteed delivery procedure set forth in
Section 3 of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS
TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE
DEPOSITARY.
BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH ONE OF THE BOOK-ENTRY
TRANSFER FACILITIES AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
Check Box of Book-Entry Transfer Facility (Check one):
[_] The Depository Trust Company [_] Philadelphia Depository
Trust Company
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY SENT TO THE DEPOSITARY PRIOR TO THE DATE HEREOF AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s): ____________________________________________
Window Ticket Number (if any): _____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Institution that Guaranteed Delivery: ______________________________
Check Box of Book-Entry Transfer Facility if Delivered by Book-Entry
Transfer (check one):
[_] The Depository Trust Company [_] Philadelphia Depository
Trust Company
Account Number (if delivered by Book-Entry Transfer):_______________________
Transaction Code Number: ___________________________________________________
2
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Pearson Merger Company, Inc., a Delaware
corporation ("Purchaser") and an indirect wholly owned subsidiary of Pearson
plc, a company incorporated under the laws of England ("Parent"), the above-
described shares of Common Stock, $.0001 par value per share (the "Common
Stock") and/or shares of Class B Common Stock, $.0001 par value per share (the
"Class B Common Stock," and together with the Common Stock, the "Shares"), of
All American Communications, Inc., a Delaware corporation (the "Company"), at
$25.50 per Share, net to the seller in cash, without interest, upon the terms
and subject to the conditions set forth in the Offer to Purchase dated October
7, 1997 (the "Offer to Purchase"), receipt of which is hereby acknowledged,
and in this Letter of Transmittal (which, as amended or supplemented from time
to time, together constitute the "Offer"). The undersigned understands that
Purchaser reserves the right to transfer or assign, in whole or in part from
time to time to Parent or one or more direct or indirect wholly owned
subsidiaries of Parent, the right to purchase Shares tendered pursuant to the
Offer.
Subject to and effective upon acceptance for payment of the Shares tendered
herewith in accordance with the terms and subject to the conditions of the
Offer, the undersigned hereby sells, assigns and transfers to, or upon the
order of, Purchaser all right, title and interest in and to all of the Shares
that are being tendered hereby and all other Shares or other securities or
property issued or issuable in respect thereof on or after October 1, 1997
(such other Shares, securities or property other than the Shares being
referred to herein as the "Other Securities") and irrevocably appoints the
Depositary the true and lawful agent and attorney-in-fact of the undersigned
with respect to such Shares and all Other Securities with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (a) deliver Share Certificates evidencing such
Shares and all Other Securities, or transfer ownership of such Shares and all
Other Securities on the account books maintained by any of the Book-Entry
Transfer Facilities, together, in either case, with all accompanying evidences
of transfer and authenticity, to or upon the order of Purchaser, upon receipt
by the Depositary, as the undersigned's agent, of the purchase price
(adjusted, if appropriate, as provided in the Offer to Purchase), (b) present
such Shares and all Other Securities for transfer on the books of the Company,
and (c) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Shares and all Other Securities, all in accordance with the
terms of the Offer.
The undersigned hereby irrevocably appoints Purchaser, its officers and
designees, and each of them, the attorneys and proxies of the undersigned,
each with full power of substitution, to the full extent of the undersigned's
rights, including to exercise such voting and other rights as each such
attorney and proxy or his (or her) substitute shall, in his (or her) sole
discretion, deem proper, and otherwise act (including pursuant to written
consent), with respect to all of the Shares tendered hereby which have been
accepted for payment by Purchaser (and any and all Other Securities issued or
issuable in respect thereof on or after October 1, 1997), which the
undersigned is entitled to vote at any meeting of stockholders of the Company
(whether annual or special and whether or not an adjourned meeting), or
written consent in lieu of such meeting, or otherwise. This proxy and power of
attorney is coupled with an interest in the Shares tendered hereby and is
irrevocable and is granted in consideration of, and is effective upon, the
acceptance for payment of such Shares by Purchaser in accordance with the
terms of the Offer. Such acceptance for payment shall, without further action,
revoke all prior proxies and consents granted by the undersigned with respect
to such Shares (and all Shares and other securities issued in Other Securities
in respect of such Shares), and no subsequent proxy or power of attorney or
written consent shall be given (and if given or executed, shall be deemed not
to be effective) with respect thereto by the undersigned. Purchaser reserves
the right to require that, in order for Shares to be deemed validly tendered,
immediately upon Purchaser's acceptance for payment of such Shares, Purchaser
is able to exercise full voting and other rights with respect to such Shares
(including voting at any meeting of stockholders then scheduled or acting by
written consent without a meeting).
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Other Securities, and that when such Shares are accepted for
payment by Purchaser, Purchaser will acquire good, marketable and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances, and that none of such Shares and Other Securities will be
subject to any adverse claim. The undersigned, upon request, shall execute and
deliver any signature guarantees or additional documents deemed by the
Depositary or Purchaser to be necessary or desirable to complete the sale,
assignment and transfer of the Shares tendered
3
<PAGE>
hereby and all Other Securities. In addition, the undersigned shall promptly
remit and transfer to the Depositary for the account of Purchaser all Other
Securities in respect of the Shares tendered hereby, accompanied by
appropriate documentation of transfer, and pending such remittance or
appropriate assurance thereof, Purchaser shall be entitled to all rights and
privileges as owner of such Other Securities and may withhold the entire
purchase price or deduct from the purchase price the amount or value thereof,
as determined by Purchaser in its sole discretion.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned. Except as stated
in the Offer to Purchase, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the
undersigned and Purchaser upon the terms and subject to the conditions of the
Offer. The undersigned recognizes that under certain circumstances set forth
in the Offer to Purchase, Purchaser may not be required to accept for payment
any of the Shares tendered hereby.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any Share
Certificates evidencing Shares not tendered or not accepted for payment in the
name(s) of the registered holder(s) appearing under "Description of Shares
Tendered." Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail the check for the purchase price and/or return any
Share Certificates evidencing Shares not tendered or accepted for payment (and
accompanying documents, as appropriate) to the address(es) of the registered
holder(s) appearing under "Description of Shares Tendered." If both the
Special Delivery Instructions and the Special Payment Instructions are
completed, please issue the check for the purchase price and/or return any
Share Certificates evidencing Shares not purchased (together with accompanying
documents as appropriate) in the name(s) of, and deliver said check and/or
return such Share Certificates to, the person or persons so indicated.
Stockholders tendering Shares by book-entry transfer may request that any
Shares not accepted for payment be returned by crediting such account
maintained at DTC or PDTC as such stockholder may designate by making an
appropriate entry under "Special Payment Instructions." The undersigned
recognizes that Purchaser has no obligation pursuant to the Special Payment
Instructions to transfer any Shares from the name of the registered holder(s)
thereof if Purchaser does not accept for payment any of the Shares so
tendered.
4
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS (SEE SPECIAL DELIVERY INSTRUCTIONS (SEE
INSTRUCTIONS 1, 5, 6, AND 7) INSTRUCTIONS 5 AND 7)
To be completed ONLY if the To be completed ONLY if the
check for the purchase price of check for the purchase price of
Shares purchased or Share Certif- Shares purchased or Share Certif-
icates evidencing Shares not ten- icates evidencing Shares not ten-
dered or not purchased are to be dered or not purchased are to be
issued in the name of someone mailed to someone other than the
other than the undersigned. undersigned, or to the under-
signed at an address other than
that shown under "Description of
Shares Tendered."
<TABLE>
<CAPTION>
<S> <C>
Issue Mail
[_] Check and/or [_] Certificate(s) [_] Check and/or [_] Certificate(s)
To:
---------------------------------- To:
---------------------------------- ----------------------------------
NAME(S) (PLEASE PRINT) NAME (PLEASE PRINT)
Address Address
---------------------------------- ----------------------------------
---------------------------------- ----------------------------------
---------------------------------- ----------------------------------
(INCLUDE ZIP CODE) (INCLUDE ZIP CODE)
----------------------------------
(TAXPAYER IDENTIFICATION OR
SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9)
[_]CHECK HERE IF ANY OF THE SHARE CERTIFICATES THAT YOU OWN AND WISH TO TENDER
HAVE BEEN LOST, DESTROYED OR STOLEN. (SEE INSTRUCTION 11.)
Number of Shares represented by lost, destroyed or stolen certificates:
</TABLE>
<PAGE>
STOCKHOLDERS SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9)
X __________________________________________________________________________
X __________________________________________________________________________
SIGNATURE(S) OF STOCKHOLDER(S)
Dated:_____________ 1997
(Must be signed by registered holder(s) as name(s) appear(s) on share
certificate(s) or on a security position listing or by person(s) authorized
to become registered holder(s) by certificates and documents transmitted
herewith. If signature is by trustee, executor, administrator, guardian,
attorney-in-fact, agent, officer of a corporation or any other person
acting in a fiduciary or representative capacity, please provide the
following information. See Instruction 5.)
----------------------------------------------------------------------------
(NAME(S))
----------------------------------------------------------------------------
(PLEASE PRINT OR TYPE)
----------------------------------------------------------------------------
CAPACITY (FULL TITLE)
----------------------------------------------------------------------------
ADDRESS
----------------------------------------------------------------------------
ZIP CODE
---------------------------------- ----------------------------------
AREA CODE AND TELEPHONE NUMBER TAX IDENTIFICATION OR SOCIAL
(HOME) SECURITY NUMBER (COMPLETE
SUBSTITUTE FORM W-9 BELOW)
---------------------------------- ----------------------------------
AREA CODE AND TELEPHONE NUMBER
(BUSINESS)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTIONS 1 AND 5)
X __________________________________________________________________________
AUTHORIZED SIGNATURE
----------------------------------------------------------------------------
NAME (PLEASE PRINT OR TYPE)
---------------------------------- ----------------------------------
FULL TITLE NAME OF FIRM
----------------------------------------------------------------------------
ADDRESS
----------------------------------------------------------------------------
INCLUDE ZIP CODE
----------------------------------
AREA CODE AND TELEPHONE NUMBER
Date_____________ 1997
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. All signatures on this Letter of Transmittal
must be guaranteed by a participant in the Security Transfer Agents Medallion
Program or any other "eligible guarantor institution" as defined in Rule 17Ad-
15 under the Securities Exchange Act of 1934, as amended (each, an "Eligible
Institution"), unless (i) this Letter of Transmittal is signed by the
registered holder(s) of Shares (which term, for the purposes of this document,
shall include any participant in a Book-Entry Transfer Facility whose name
appears on a security position listing as the owner of Shares) tendered hereby
and such holder(s) has (have) not completed either the box entitled "Special
Delivery Instructions" or the box entitled "Special Payment Instructions" on
this Letter of Transmittal or (ii) such Shares are tendered for the account of
an Eligible Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Certificates; Guaranteed Delivery
Procedures. This Letter of Transmittal is to be completed by stockholders
either if Share Certificates are to be forwarded herewith or if a tender of
Shares is to be made pursuant to the procedures for delivery by book-entry
transfer set forth in Section 3 of the Offer to Purchase. Share Certificates
evidencing all physically tendered Shares, or confirmation ("Book-Entry
Confirmation") of any book-entry transfer into the Depositary's account at a
Book-Entry Transfer Facility of Shares delivered by book-entry transfer as
well as a properly completed and duly executed Letter of Transmittal, must be
received by the Depositary, at one of the addresses set forth herein prior to
the Expiration Date (as defined in Section 1 of the Offer to Purchase). If
Share Certificates are forwarded to the Depositary in multiple deliveries, a
properly completed and duly executed Letter of Transmittal must accompany each
such delivery. Stockholders whose Share Certificates are not immediately
available, who cannot deliver their Share Certificates and all other required
documents to the Depositary prior to the Expiration Date or who cannot comply
with the book-entry transfer procedures on a timely basis may tender their
Shares by properly completing and duly executing a Notice of Guaranteed
Delivery pursuant to the guaranteed delivery procedure set forth in Section 3
of the Offer to Purchase. Pursuant to such procedure, (i) such tender must be
made by or through an Eligible Institution, (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form provided by
Purchaser, must be received by the Depositary prior to the Expiration Date and
(iii) the Share Certificates evidencing all physically tendered Shares (or
Book-Entry Confirmation with respect to such Shares), as well as a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) with
any required signature guarantees and any other documents required by this
Letter of Transmittal, must be received by the Depositary within three New
York Stock Exchange trading days after the date of execution of such Notice of
Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARES AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT SUCH CERTIFICATES AND DOCUMENTS BE
SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted. All
tendering stockholders, by execution of this Letter of Transmittal (or
facsimile thereof), waive any right to receive any notice of the acceptance of
their Shares for payment.
3. Inadequate Space. If the space provided herein under "Description of
Shares Tendered" is inadequate, the certificate numbers and/or the number of
Shares tendered should be listed on a separate signed schedule and attached
hereto.
4. Partial Tenders. (Not applicable to stockholders who tender by book-entry
transfer.) If fewer than all the Shares evidenced by any Share Certificate
submitted are to be tendered, fill in the number of Shares which are to be
tendered in the box entitled "Number of Shares Tendered." In such case, new
Share Certificate(s) evidencing the remainder of the Shares that were
evidenced by the old Share Certificate(s) will be sent to the registered
holder, unless otherwise provided in the appropriate box on this Letter of
Transmittal, as soon as practicable after the Expiration Date. All Shares
represented by Share Certificates delivered to the Depositary will be deemed
to have been tendered unless otherwise indicated.
7
<PAGE>
5. Signatures on Letter of Transmittal, Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond exactly with the name(s) as
written on the face of the Share Certificate(s) without alteration,
enlargement or any change whatsoever. If any of the Shares tendered hereby are
held of record by two or more persons, all such persons must sign this Letter
of Transmittal.
If any tendered Shares are registered in different names on several Share
Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of such
Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares evidenced by Share Certificates listed and transmitted hereby, no
endorsements of Share Certificates or separate stock powers are required
unless payment is to be made to or Share Certificates evidencing Shares not
tendered or purchased are to be issued in the name of a person other than the
registered holder(s), in which case the Share Certificate(s) evidencing the
Shares tendered hereby must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name(s) of the registered
holder(s) appear(s) on such Share Certificate(s). Signatures on such
certificates and stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name or names
of the registered holder or holders appear on the Share Certificate(s).
Signatures on such Share Certificate(s) or stock powers must be guaranteed by
an Eligible Institution.
If this Letter of Transmittal or any Share Certificates or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
agent, officer of a corporation or any person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to Purchaser of such person's authority so to act
must be submitted.
6. Stock Transfer Taxes. Except as set forth in this Instruction 6,
Purchaser will pay or cause to be paid any stock transfer taxes with respect
to the transfer and sale of Shares to it or its order pursuant to the Offer.
If, however, payment of the purchase price is to be made to, or if Share
Certificates evidencing Shares not tendered or purchased are to be registered
in the name of, any person other than the registered holder(s), or if Share
Certificates evidencing tendered Shares are registered in the name of any
person other than the person(s) signing this Letter of Transmittal, the amount
of any stock transfer taxes (whether imposed on the registered holder(s) or
such other person) payable on account of the transfer to such person will be
deducted from the purchase price unless satisfactory evidence of the payment
of such taxes or exemption therefrom is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) LISTED IN THIS LETTER
OF TRANSMITTAL.
7. Special Payment and Delivery Instructions. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name
of a person other than the person(s) signing this Letter of Transmittal or if
such check or any such Share Certificate is to be sent and/or any Share
Certificates are to be returned to someone other than the signer above, or to
the signer above but at an address other than that shown in the box entitled
"Description of Shares Tendered" above, the appropriate boxes on this Letter
of Transmittal should be completed. Stockholders tendering Shares by book-
entry transfer may request that Shares not purchased be credited to such
account maintained at any of the Book-Entry Transfer Facilities as such
stockholder may designate under "Special Delivery Instructions." If no such
instructions are given, any such Shares not purchased will be returned by
crediting the account at the Book-Entry Transfer Facilities designated above.
8. Request for Assistance or Additional Copies. Requests for assistance may
be directed to, or additional copies of the Offer to Purchase, this Letter of
Transmittal and the Notice of Guaranteed Delivery may be obtained from, the
Information Agent or the Dealer Manager at the telephone numbers and address
set forth below. Stockholders may also contact their broker, dealer,
commercial bank or trust company.
9. Waiver of Conditions. Except as otherwise provided in the Offer to
Purchase, Purchaser reserves the right in its sole discretion to waive in
whole or in part at any time or from time to time any of the specified
conditions of the Offer or any defect or irregularity in tender with regard to
any Shares tendered.
8
<PAGE>
10. Substitute Form W-9. The tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN"),
generally the stockholder's social security or employer identification number,
on Substitute Form W-9, which is provided under "Important Tax Information"
below, and to certify, under penalties of perjury, whether he or she is
subject to backup withholding of federal income tax. If a tendering
stockholder is subject to backup withholding, he or she must cross out item
(2) of the Certification Box on Substitute Form W-9. Failure to provide the
information on Substitute Form W-9 may subject the tendering stockholder to
31% federal income tax withholding on the payment of the purchase price. If
the tendering stockholder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, he or she should
write "Applied For" in the space provided for the TIN in Part I, sign and date
the Substitute Form W-9 and sign and date the Certificate of Awaiting Taxpayer
Identification Number. If "Applied For" is written in Part I and the
Depositary is not provided with a TIN within 60 days, the Depositary will
withhold 31% of payments for surrendered Shares thereafter until a TIN is
provided to the Depositary.
11. Mutilated, Lost, Stolen or Destroyed Certificates. Any holder of a Share
Certificate whose certificate(s) has been mutilated, lost, stolen or destroyed
should (i) complete this Letter of Transmittal and check the appropriate box
on this Letter of Transmittal and (ii) complete and return to the Depositary
any additional documentation, including the posting of any indemnity bond,
requested by the Depositary. If required by Purchaser, the holder will be
required to post a bond in such reasonable amount as Purchaser may direct as
indemnity against any claim that may be made against Parent, Purchaser or any
of their respective affiliates with respect to such certificate(s).
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED, OR AN AGENT'S MESSAGE IN THE CASE OF A BOOK-ENTRY
DELIVERY, TOGETHER WITH CERTIFICATES (OR BOOK-ENTRY CONFIRMATION) AND ALL
OTHER REQUIRED DOCUMENTS OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE
EXPIRATION DATE.
9
<PAGE>
IMPORTANT TAX INFORMATION
Under federal tax law, a stockholder whose tendered Shares are accepted for
payment is required to provide the Depositary (as payor) with such
stockholder's correct TIN on Substitute Form W-9 below. If such stockholder is
an individual, the TIN is such stockholder's Social Security Number. If the
Depositary is not provided with the correct TIN or an adequate basis for
exemption, the stockholder may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, payments that are made to such
stockholder with respect to Shares purchased pursuant to the Offer may be
subject to backup withholding in an amount equal to 31% of the gross proceeds
resulting from the Offer.
Certain stockholders (including, among others, certain corporations and
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that stockholder must submit an IRS Form W-8, signed under
penalties of perjury, attesting to that individual's exempt status. Such
statements can be obtained from the Depositary. See the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will
be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained from the Internal Revenue
Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of his or her correct TIN by completing the
Substitute Form W-9 contained herein, certifying that the TIN provided on the
Substitute Form W-9 is correct (or that such stockholder is awaiting a TIN)
and that (1) the stockholder is exempt from backup withholding, (2) the
stockholder has not been notified by the Internal Revenue Service that he or
she is subject to backup withholding as a result of failure to report all
interest or dividends, or (3) the Internal Revenue Service has notified the
stockholder that he or she is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the record owner of the Shares. If
the Shares are in more than one name or are not in the name of the actual
owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on which
number to report. If the tendering stockholder has not been issued a TIN and
has applied for a number or intends to apply for a number in the near future,
he or she should write "Applied For" in the space provided for the TIN in Part
I, sign and date the Substitute Form W-9 and sign and date the Certificate of
Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I
and the Depositary is not provided with a TIN within 60 days, the Depositary
will withhold 31% of all payments of the purchase price until a TIN is
provided to the Depositary.
10
<PAGE>
PAYOR'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS DEPOSITARY
<TABLE>
<CAPTION>
<S> <C> <C>
PART I--PLEASE PROVIDE YOUR SOCIAL SECURITY
SUBSTITUTE TIN IN THE BOX AT RIGHT AND OR EMPLOYER
FORM W-9 CERTIFY BY SIGNING AND IDENTIFICATION NUMBER
DATING BELOW.
----------------------
DEPARTMENT OF (IF AWAITING TIN WRITE
THE TREASURY "APPLIED FOR")
INTERNAL REVENUE --------------------------------------------------------
SERVICE
PAYER'S REQUEST FOR ------------------------------------------------------
TAXPAYER NAME (PLEASE PRINT)
IDENTIFICATION
NUMBER (TIN) ------------------------------------------------------
AND CERTIFICATION ADDRESS
------------------------------------------------------
CITY STATE ZIP CODE
- --------------------------------------------------------------------------------
</TABLE>
PART II--For Payees NOT subject to backup withholding, see the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 and complete as instructed therein.
CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
1. The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
2. I am not subject to backup withholding because either (a) I am exempt
from backup withholding, (b) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2). (Also see instructions in the
enclosed Guidelines.)
Signature: ______________________________ Dated: _____________ 1997
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR"
IN PART I OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within
sixty (60) days, 31% of all reportable payments made to me thereafter will be
withheld until I provide a number.
Signature(s): ___________________________ Dated: __________________________
11
<PAGE>
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street, 20th Floor
New York, New York 10005
(212) 269-5550 (collect)
or
Call Toll Free: (800) 755-3105
The Dealer Manager for the Offer is:
LAZARD FRERES & CO. LLC
30 Rockefeller Plaza
New York, New York 10020
(212) 632-6000 (Call Collect)
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S)
SHARE CERTIFICATE(S) AND SHARE(S) TENDERED APPEAR(S) ON SHARE CERTIFICATE(S) AND SHARE(S)
(ATTACH ADDITIONAL LIST IF NECESSARY) TENDERED)
- --------------------------------------------------------------------------------------------------
TOTAL NUMBER
SHARE OF SHARES NUMBER
CERTIFICATE REPRESENTED OF SHARES
NUMBER(S)* BY CERTIFICATES* TENDERED**
<S> <C> <C> <C>
- -------------------------------------------------
- -------------------------------------------------
- -------------------------------------------------
- -------------------------------------------------
- -------------------------------------------------
- -------------------------------------------------
TOTAL SHARES:
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed by stockholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares evidenced
by each Share Certificate delivered to the Depositary are being tendered
hereby. See Instruction 4.
<PAGE>
EXHIBIT 99(a)(3)
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF
COMMON STOCK
AND
CLASS B COMMON STOCK
OF
ALL AMERICAN COMMUNICATIONS, INC.
TO
PEARSON MERGER COMPANY, INC.
A WHOLLY OWNED SUBSIDIARY OF
PEARSON PLC
As set forth in Section 3 of the Offer to Purchase (as defined below), this
form, or a form substantially equivalent to this form, must be used to accept
the Offer (as defined below) if the certificates representing shares of Common
Stock, $.0001 par value per share (the "Common Stock") and shares of Class B
Common Stock, $.0001 par value per share (the "Class B Common Stock," and
together with the Common Stock, the "Shares"), of All American Communications,
Inc. are not immediately available or time will not permit all required
documents to reach the Depositary prior to the Expiration Date (as defined in
the Offer to Purchase) or the procedures for book-entry transfer cannot be
completed on a timely basis. Such form may be delivered by hand or transmitted
by facsimile transmission or mail to the Depositary and must include a
guarantee by an Eligible Institution (as defined in Section 3 of the Offer to
Purchase). See Section 3 of the Offer to Purchase.
THE DEPOSITARY FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Overnight Delivery: By Hand:
ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C.
Post Office Box 3305 85 Challenger Road 120 Broadway
South Hackensack, NJ 07606 Mail Drop-Reorg 13th Floor
Attn: Reorganization Department Ridgefield Park, NJ 07660 New York, New York 10271
Attn: Reorganization Department Attn: Reorganization Department
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Facsimile Transmission Confirm Facsimile by Telephone:
(For Eligible Institutions Only) (201) 296-4860
(201) 329-8936
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER
OTHER THAN AS LISTED ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Pearson Merger Company, Inc., a Delaware
corporation and an indirect wholly owned subsidiary of Pearson plc, a company
incorporated under the laws of England, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated October 7, 1997 (the
"Offer to Purchase") and the related Letter of Transmittal (which, as amended
or supplemented from time to time, together constitute the "Offer"), receipt
of which is hereby acknowledged, the number of Shares indicated below pursuant
to the guaranteed delivery procedure set forth in Section 3 of the Offer to
Purchase.
Number of Shares: _________________ Name(s) of Record Holder(s):
Share Certificate Numbers (if ___________________________________
available): ___________________________________
___________________________________ PLEASE TYPE OR PRINT
___________________________________ Address(es): ______________________
If Shares will be delivered by ZIP CODE
book-entry transfer, check one Area Code and Telephone Number:
box: ___________________________________
___________________________________ ___________________________________
[_] The Depository Trust Company ___________________________________
[_] Philadelphia Depository Trust ___________________________________
Company SIGNATURE(S)
Account Dated: , 1997
Number: ___________________________
Date: ______________________ , 1997
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in the Security Transfer Agents Medallion
Program or any other eligible guarantor institution as defined in Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended (each, an "Eligible
Institution"), hereby guarantees that either the certificates representing the
Shares tendered hereby in proper form for transfer, or timely confirmation of
a book-entry transfer of such Shares into the Depositary's account at The
Depository Trust Company or the Philadelphia Depository Trust Company
(pursuant to procedures set forth in Section 3 of the Offer to Purchase),
together with a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) with any required signature guarantees (or, in the case of
a book-entry transfer, an Agent's Message (as defined in the Offer to
Purchase)) and any other documents required by the Letter of Transmittal, will
be received by the Depositary at one of its addresses set forth above within
three (3) New York Stock Exchange trading days after the date of execution
hereof.
2
<PAGE>
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal,
certificates for Shares and any other required documents to the Depositary
within the time period shown herein. Failure to do so could result in a
financial loss to such Eligible Institution.
Name of Firm:
Address: ______________________________________________________________________
________________________________________________________________________
ZIP CODE
Area Code and
Telephone Number: _____________________________________________________________
AUTHORIZED SIGNATURE
Name: _________________________________________________________________________
PLEASE TYPE OR PRINT
Title: ________________________________________________________________________
Dated: ________________________________________________________________ , 1997
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE OF GUARANTEED
DELIVERY. CERTIFICATES FOR SHARES ARE TO BE DELIVERED WITH THE LETTER OF
TRANSMITTAL.
3
<PAGE>
EXHIBIT 99(a)(4)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF
COMMON STOCK
AND
CLASS B COMMON STOCK
OF
ALL AMERICAN COMMUNICATIONS, INC.
BY
PEARSON MERGER COMPANY, INC.
A WHOLLY OWNED SUBSIDIARY OF
PEARSON PLC
AT
$25.50 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON TUESDAY, NOVEMBER 4, 1997, UNLESS THE OFFER IS EXTENDED.
October 7, 1997
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by Pearson Merger Company, Inc., a Delaware
corporation ("Purchaser") and an indirect wholly owned subsidiary of Pearson
plc, a company incorporated under the laws of England ("Parent"), to act as
Dealer Manager in connection with its offer to purchase all outstanding shares
of Common Stock, $.0001 par value per share (the "Common Stock"), and all
outstanding shares of Class B Common Stock, $.0001 par value per share (the
"Class B Common Stock," and together with the Common Stock, the "Shares"), of
All American Communications, Inc., a Delaware corporation (the "Company"), at
$25.50 per Share, net to the seller in cash, without interest, upon the terms
and subject to the conditions set forth in the Purchaser's Offer to Purchase
dated October 7, 1997 (the "Offer to Purchase") and in the related Letter of
Transmittal (which, as amended or supplemented from time to time, together
constitute the "Offer"), copies of which are enclosed herewith.
For your information and for forwarding to your clients for whose accounts
you hold Shares registered in your name or in the name of your nominee, we are
enclosing the following documents:
1. Offer to Purchase;
2. Letter of Transmittal for your use and for the information of your
clients, together with Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 providing information relating
to backup federal income tax withholding;
3. Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents cannot be delivered to the
Depositary by the Expiration Date (as defined in the Offer to Purchase);
4. A form of letter which may be sent to your clients for whose accounts
you hold Shares registered in your name or in the name of your nominee,
with space provided for obtaining such clients' instructions with regard to
the Offer; and
5. A letter to stockholders of the Company from the Company's Chairman
and Chief Executive Officer together with a Solicitation/Recommendation
Statement on Schedule 14D-9 issued by the Company.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of October 1, 1997 (the "Merger Agreement"), by and among Parent, Purchaser
and the Company. The Merger Agreement provides
<PAGE>
that, among other things, following the consummation of the Offer and the
satisfaction or (other than the Minimum Condition, as defined in the Merger
Agreement) waiver of the other conditions set forth in the Merger Agreement,
Purchaser will be merged with and into the Company (the "Merger"). At the
effective time of the Merger, each outstanding Share (other than Shares held
in the treasury of the Company, owned by Parent, Purchaser or any other wholly
owned subsidiary of Parent or held by stockholders who perfect their
dissenters' rights under Delaware law) will be converted into the right to
receive the per Share price paid in the Offer, without interest.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE OFFER AND THE MERGER, HAS DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE
COMPANY AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER, TENDER
THEIR SHARES PURSUANT TO THE OFFER AND APPROVE THE MERGER.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment), Purchaser will be deemed to have accepted for payment, and will
pay for, all Shares validly tendered and not properly withdrawn by the
Expiration Date (as defined in the Offer to Purchase) if, as and when the
Purchaser gives oral or written notice to the Depositary of the Purchaser's
acceptance of the tenders of such Shares for payment pursuant to the Offer.
Payment for Shares purchased pursuant to the Offer will be made only after
timely receipt by the Depositary of (i) certificates evidencing such Shares or
timely confirmation of a book-entry transfer of such Shares into the
Depositary's account at one of the Book-Entry Transfer Facilities (as defined
in the Offer to Purchase), (ii) a properly completed and duly executed Letter
of Transmittal (or facsimile thereof) or, in the case of a book-entry
transfer, an Agent's Message (as defined in the Offer to Purchase), and (iii)
any other documents required by the Letter of Transmittal.
In order to tender Shares pursuant to the Offer, a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or an Agent's Message (in the case of any book-entry
transfer), and any other documents required by the Letter of Transmittal,
should be sent to the Depositary, and either certificates representing the
tendered Shares should be delivered or such Shares must be delivered to the
Depositary pursuant to the procedures for book-entry transfers, all in
accordance with the instructions set forth in the Letter of Transmittal and
the Offer to Purchase.
If holders of Shares wish to tender their Shares, but it is impracticable
for them to deliver their certificates on or prior to the Expiration Date or
to comply with the book-entry transfer procedures on a timely basis, a tender
may be effected by following the guaranteed delivery procedures specified in
Section 3 of the Offer to Purchase.
Neither Parent nor Purchaser will pay any fees or commissions to any broker,
dealer or other person (other than the Dealer Manager, the Information Agent
and the Depositary as described in the Offer to Purchase) in connection with
the solicitation of tenders of Shares pursuant to the Offer. Purchaser will,
however, upon request, reimburse brokers, dealers, commercial banks and trust
companies for reasonable expenses incurred by them in forwarding the enclosed
materials to their customers. Purchaser will pay any stock transfer taxes
applicable to its purchase of Shares pursuant to the Offer, subject to
Instruction 6 of the Letter of Transmittal.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 4, 1997, UNLESS THE OFFER
IS EXTENDED.
<PAGE>
Any inquiries you may have with respect to the Offer may be addressed to the
Information Agent or the undersigned at the addresses and telephone numbers
set forth on the back cover page of the Offer to Purchase. Requests for
additional copies of the enclosed materials may be directed to the Information
Agent or the Dealer Manager.
Very truly yours,
LAZARD FRERES & CO. LLC
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR
ANY PERSON THE AGENT OF PURCHASER, PARENT, THE COMPANY, ANY AFFILIATE OF THE
COMPANY, LAZARD FRERES & CO. LLC, THE DEALER MANAGER, THE INFORMATION AGENT
OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT
OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER
OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED
THEREIN.
<PAGE>
EXHIBIT 99(a)(5)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF
COMMON STOCK
AND
CLASS B COMMON STOCK
OF
ALL AMERICAN COMMUNICATIONS, INC.
AT
$25.50 NET PER SHARE
BY
PEARSON MERGER COMPANY, INC.
A WHOLLY OWNED SUBSIDIARY OF
PEARSON PLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON TUESDAY, NOVEMBER 4, 1997 UNLESS THE OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration are the Offer to Purchase dated October 7,
1997 (the "Offer to Purchase") and the related Letter of Transmittal (which,
as amended or supplemented from time to time, together constitute the "Offer")
and other materials relating to the Offer by Pearson Merger Company, Inc., a
Delaware corporation ("Purchaser") and an indirect wholly owned subsidiary of
Pearson plc, a company incorporated under the laws of England ("Parent"), to
purchase all of the outstanding shares of Common Stock, $.0001 par value per
share (the "Common Stock"), and all outstanding shares of Class B Common
Stock, $.0001 par value per share (the "Class B Common Stock," and together
with the Common Stock, the "Shares"), of All American Communications, Inc., a
Delaware corporation (the "Company"), at $25.50 per Share, net to the seller
in cash, without interest, upon the terms and subject to the conditions set
forth in the Offer. Also enclosed is the letter to stockholders of the Company
from the Chairman and Chief Executive Officer of the Company accompanied by
the Company's Solicitation/Recommendation Statement on Schedule 14D-9. This
material is being sent to you as the beneficial owner of Shares held by us for
your account but not registered in your name. A TENDER OF SUCH SHARES CAN BE
MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE
LETTER OF TRANSMITTAL ACCOMPANYING THIS LETTER IS FURNISHED TO YOU FOR YOUR
INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR
YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender any or all
of the Shares held by us for your account, upon the terms and subject to the
conditions set forth in the Offer.
Your attention is directed to the following:
1. The tender price is $25.50 per Share, net to the seller in cash,
without interest, upon the terms and subject to the conditions of the
Offer.
2. The Offer and withdrawal rights will expire at 12:00 midnight, New York
City time, on Tuesday, November 4, 1997, unless the Offer is extended.
3. The Offer is being made pursuant to an Agreement and Plan of Merger,
dated as of October 1, 1997 (the "Merger Agreement"), by and among Parent,
Purchaser and the Company. The Merger Agreement provides that, among other
things, following the consummation of the Offer and the satisfaction or
(other than the Minimum Condition, as defined below) waiver of the other
conditions set forth in the Merger Agreement, Purchaser will be merged with
and into the Company (the "Merger"). At the effective time of the Merger,
each outstanding Share (other than Shares held in the treasury of the
Company, owned by Parent, Purchaser or any other wholly owned subsidiary of
Parent or held by stockholders who perfect their dissenters' rights under
Delaware law) will be converted into the right to receive the per Share
price paid in the Offer, without interest.
<PAGE>
4. The Board of Directors of the Company has unanimously approved the
Merger Agreement, the Offer and the Merger, has determined that the Offer
and the Merger are fair to and in the best interests of the stockholders of
the Company and unanimously recommends that stockholders accept the Offer,
tender their shares pursuant to the Offer and approve the Merger.
5. The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the expiration of the Offer, that
number of Shares which constitutes at least a majority of the total number
of shares of Common Stock and a majority of the total number of Shares
outstanding on the date of expiration of the Offer (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) (the "Minimum Condition"). Subject to the terms of
the Merger Agreement, the Offer is also subject to other terms and
conditions, including receipt of certain regulatory approvals, set forth in
the Offer to Purchase. Any or all conditions to the Offer (other than the
Minimum Condition) may be waived by Purchaser.
6. Any stock transfer taxes applicable to the sale of Shares to Purchaser
pursuant to the Offer will be paid by Purchaser, except as otherwise
provided in Instruction 6 of the Letter of Transmittal.
In order to tender Shares pursuant to the Offer, a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or (in the case of any book-entry transfer) an Agent's
Message (as defined in the Offer to Purchase) and any other documents required
by the Letter of Transmittal, should be sent to ChaseMellon Shareholder
Services, LLC, the Depositary, and either certificates representing the
tendered Shares should be delivered or such Shares must be delivered to the
Depositary pursuant to the procedures for book-entry transfers, all in
accordance with the instructions set forth in the Letter of Transmittal and
the Offer to Purchase.
The Offer is being made to all holders of Shares. The Offer is not being
made to, nor will tenders be accepted from or on behalf of, holders of Shares
in any jurisdiction in which the making of the Offer or acceptance thereof
would not be in compliance with the laws of such jurisdiction. In any
jurisdiction where the securities, blue sky or other laws require the Offer to
be made by a licensed broker or dealer, the Offer shall be deemed to be made
on behalf of Purchaser by Lazard Freres & Co. LLC or one or more registered
brokers or dealers licensed under the laws of such jurisdictions.
If you wish to have us tender any or all of the Shares held by us for your
account, please so instruct us by completing, executing and returning to us
the instruction form set forth below. Please forward your instructions to us
in ample time to permit us to submit a tender on your behalf prior to the
expiration of the Offer. If you authorize the tender of your Shares, all such
Shares will be tendered unless otherwise specified on the instruction form set
forth below.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF
COMMON STOCK
AND
CLASS B COMMON STOCK
OF
ALL AMERICAN COMMUNICATIONS, INC.
BY
PEARSON MERGER COMPANY, INC.
A WHOLLY OWNED SUBSIDIARY OF
PEARSON PLC
The undersigned acknowledge(s) receipt of your letter and the enclosed Offer
to Purchase dated October 7, 1997 and the related Letter of Transmittal in
connection with the offer by Pearson Merger Company, Inc., a Delaware
corporation and an indirect wholly owned subsidiary of Pearson plc, a company
incorporated under the laws of England, to purchase for cash all outstanding
shares of Common Stock, $.0001 par value per share, and all outstanding shares
of Class B Common Stock, $.0001 par value per share (collectively, the
"Shares"), of All American Communications, Inc., a Delaware corporation.
This will instruct you to tender the number of Shares indicated below (or if
no number is indicated below, all Shares) that are held by you for the account
of the undersigned, upon the terms and subject to the conditions set forth in
the Offer and the related Letter of Transmittal.
Dated: , 1997
NUMBER OF SHARES TO BE TENDERED:
________________SHARES*
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Signature(s)
- -------------------------------------------------------------------------------
Please Print Name(s)
- -------------------------------------------------------------------------------
Please Print Address(es)
- -------------------------------------------------------------------------------
Area Code and Telephone Number(s)
- -------------------------------------------------------------------------------
Tax Identification or Social Security Number(s)
- --------
* I (We) understand that if I (we) sign this instruction form without
indicating a lesser number of Shares in the space above, all Shares held by
you for my (our) account will be tendered.
3
<PAGE>
EXHIBIT 99(a)(6)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE
FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the payer.
- --------------------------------------------
<TABLE>
<CAPTION>
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- --------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, any one
of the
individuals(1)
3. Husband and wife (joint The actual owner
account) of the account
or, if joint
funds, either
person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if
account) the minor is the
only
contributor, the
minor(1)
6. Account in the name of The ward, minor,
guardian or committee or incompetent
for a designated ward, person(3)
minor, or incompetent
person
7. a. The usual revocable The grantor-
savings trust trustee(1)
account (grantor is
also trustee)
b. So-called trust The actual
account that is owner(1)
not a legal or
valid trust under
State law
8. Sole proprietorship The owner(4)
account
- --------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- --------------------------------------------
<S> <C>
9. A valid trust, estate, The legal entity
or pension trust (Do not furnish
the identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account The partnership
held in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or
nominee nominee
15. Account with the The public
Department of entity
Agriculture in the name
of a public entity
(such as a State or
local government,
school district, or
prison) that receives
agricultural program
payments
- --------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE
FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1). An entity registered at all times under the Investment
Company Act of 1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT
TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer.
Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING LNFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
EXHIBIT (a)(7)
PRESS RELEASE
FOR IMMEDIATE RELEASE
1 OCTOBER 1997
ACQUISITION OF ALL AMERICAN BY PEARSON TO CREATE THE WORLD'S LARGEST
INTERNATIONAL TELEVISION PRODUCER
Pearson television is poised to become the world's leading international
producer of entertainment and serial drama following the announcement by
Pearson plc today that it is to launch a recommended $25.50 per share cash
tender offer worth $373m ((Pounds)233m) for All American Communications, Inc.,
a major international television producer and distributor.
All American is the world's largest owner and distributor of game shows with
more than 90 shows currently on the air in 29 countries including Blind Date,
The Price is Right and Family Fortunes in the UK. In the US it owns a number
of US drama series, including Baywatch, which is one of the most watched shows
in the world, having been sold to more than 100 countries. All American has
grown rapidly in the last few years and in 1996 achieved revenues of $237m
((Pounds)148m) and an operating profit of $40m ((Pounds)25m) on a UK GAAP
basis.
Pearson Television is already one of the largest producers of serial dramas
with 12 shows in 6 languages in 8 different countries. It also produces well-
known British programmes such as The Bill, Birds of a Feather, Wish You Were
Here.........?, This is Your Life and Goodnight Sweetheart. It owns a number of
production companies, including Grundy Worldwide, Alomo and Thames Television;
a 24% stake in Channel 5 and an international distribution company which sells
programmes worldwide. Pearson Television revenues were (Pounds)257m with an
operating profit of (Pounds)45m in 1996.
In addition to the acquisition of shares, Pearson will assume All American's
net debt which totaled $136m at June 30,1997. Net assets, excluding net debt,
are estimated to be $63m at the date of acquisition. This excludes goodwill in
All American's balance sheet. After taking account of expenses, goodwill is
estimated at $451m ((Pounds)282m).
Pearson has received binding commitments to accept the tender offer from
holders of 49% of All American's shares and the Board of All American has
unanimously approved the tender offer.
Pearson will be funding the acquisition from its existing cash resources.
Already this year Pearson Television has raised (Pounds)134m from the sale of
minority stakes in TVB, the Hong Kong broadcaster and in Flextech.
Marjorie Scardino, Chief Executive of Pearson plc said:
"This major expansion of our worldwide television business is absolutely in
line with our strategy to own high volume, highly rated programming. We expect
it to be earnings enhancing in the first year, helping us achieve our group
goal of double-digit earnings growth, and it will add value for Pearson
shareholders."
Greg Dyke, Chairman and Chief Executive of Pearson Television said:
"We have long admired All American's creative achievements and
entrepreneurial culture, knowing it would make an exceptional fit with our
existing businesses. The combination of the two companies will result in
significant efficiencies and will strengthen our position in Europe and the
USA as well as in the emerging markets of Latin America, Eastern Europe and
Asia."
For further information:
<TABLE>
<S> <C> <C> <C>
Marjorie Scardino, Chief Executive Pearson plc 0171 411 2000
John Makinson, Finance Director
Clare Chalmers, Public Affairs
Greg Dyke, Chief Executive Pearson Television 0171 691 6000
Roy Addison, Communications
</TABLE>
1
<PAGE>
IN THE UNITED STATES
<TABLE>
<S> <C> <C>
Pearson plc
Lucas van Praag, Brunswick Group Inc 212 333 3810
Pearson Television
Dick Lippin The Lippin Group 213 965 1990
</TABLE>
NOTES TO EDITORS
BACKGROUND TO ALL AMERICAN
All American consists of a number of companies around the world including
Premantle (entertainment production and licensing), Goodson (entertainment
production and format ownership), Baywatch (drama production and distribution)
and a US domestic syndication operation.
It also owns an international television programme sales company, a music
business, and an international talkshow production company.
Sixty per cent of All American's television profits now come from its
businesses outside the US. It is a major producer and licenser in key European
countries such as the UK, Germany and France as well as in emerging markets in
Asia, Latin America and Eastern Europe.
For example, in the UK it either produces or licenses programmes such as
Blind Date, The Price Is Right, Family Fortunes, Play Your Cards Right and
Strike It Rich. In Germany it is responsible for $25,000 Pyramid, The Price Is
Right, Jeopardy, Card Shark and Family Fortunes, and in France The Price Is
Right and Family Feud.
All American owns, produces or distributes more than 50% of the television
game shows now on air worldwide. Many of these formats are long-running
international classics. The Price is Right first went on the air in America in
1971 and is still one of the most successful in the CBS schedule.
All American is also known for productions such as Baywatch, the beach
lifeguard drama series, which has been on the air in the US since 1991.
Baywatch has been sold to more than 100 countries and is one of the most
widely watched television programmes in the world. It is now in production for
the 1997/8 season. All American is also responsible for other series such as
Sinbad, Ghost Stories and for a television movie-of-the-week production
operation.
In addition All American has one of the largest US domestic syndication
operations outside the major studios.
ALL AMERICAN FINANCIAL BACKGROUND
The table below summarises All American's recent financial performance, as
published under US GAAP. Operating income has been shown before and after
goodwill amortisation, the only material difference between US and UK GAAP
which affects these figures. Also a pro forma earnings per share has been
calculated which excludes goodwill amortization, an extraordinary charge for
redemption of debt in 1996 and adjusts tax to a rate that is expected to be
achieved under Pearson ownership.
2
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED 31
DECEMBER
-----------------
1994 1995 1996
----- ----- -----
$M $M $M
<S> <C> <C> <C>
Sales....................................................... 114.9 228.8 236.5
Operating income before goodwill amortization............... 7.4 24.1 40.1
Operating income after goodwill amortization................ 6.5 21.7 35.5
Income before tax and extraordinary charge.................. 0.8 12.5 24.3
Net income.................................................. 0.5 7.2 12.7
EPS ($)..................................................... 0.07 0.87 1.06
Pro forma EPS ($)........................................... 0.20 1.25 1.68
(adjusted for goodwill amortisation, tax rate and extraordi-
nary charge)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED 30
JUNE
----------
1996 1997
---- -----
$M $M
<S> <C> <C>
Sales................................................................ 87.5 104.5
Operating income before goodwill amortization........................ 11.2 16.0
Operating income after goodwill amortization......................... 9.0 13.7
Income before tax.................................................... 3.8 6.0
Net income........................................................... 2.2 3.6
EPS ($).............................................................. 0.19 0.27
Pro forma EPS ($).................................................... 0.35 0.43
(adjusted for goodwill amortization and tax rate)
</TABLE>
PEARSON TELEVISION BACKGROUND
Pearson Television already owns a number of production companies, including
Grundy Worldwide, Thames Television, Alomo and Witzend, and distributes
programmes worldwide through Pearson Television International. In the US it
owns a small television production company and ACI, which distributes movies
of the week.
Pearson Television specialises, through Grundy Worldwide, in the production
of serial dramas and entertainment shows. It is currently producing abound 60
programmes in 20 countries in Western and Eastern Europe, Australasia, South
America and Asia.
The portfolio includes long established formats still attracting large
audiences in many countries and newer formats which are being adapted
successfully for new territories. In the past five years, Grundy has launched
four new daily drama series in Germany and, only two weeks ago, launched a
German version of Prisoner Cell Block H. Neighbours, produced in Australia, is
now in its twelfth year of production, and has been seen in over 120 countries
worldwide, including 11 years on BBC in the UK. Grundy is producing, a new
daily serial, its twelfth in the world in Hungary, for transmission in spring
next year. All Grundy's productions are made in the local language.
Other international successes include in Australia, Sale of the Century
which recently celebrated 17 years on air and Wheel of Fortune into its
sixteenth year of production. In France, Questions Pour Un Champion (Going For
Gold) is in its ninth year, and is still the highest rated show in peak times.
In Indonesia, Famili Seratus (Family Feud) is running daily. Night Fever which
is currently Channel 5's most successful gameshow has, as a result, been
launched in Italy and is being piloted in Spain and Germany.
Among Pearson Television's best-known UK productions are The Bill, Birds of a
Feather, Goodnight Sweetheart, Des O'Connor Tonight, This Is Your Life and
Wish You Were Here..? Other productions currently
3
<PAGE>
on air in Britain include Family Affairs, Wing and a Prayer, and a re-run of
The Sweeney, all among the many Pearson Television productions on Channel 5.
Part of Pearson Television's strategy is to own stakes in broadcasters to
which we can sell programming or services. Pearson Television has a 24%
interest in the UK broadcaster. Channel 5; 20% in UKTV, an Australian cable
and satellite channel; 20% in M-RTL, a new Hungarian terrestrial channel; 45%
in ECM, a joint venture with BBC; and 15% in Home TV, an Indian satellite
channel. It also has investments in Flextech (3%), Phoenix Pictures (15%), a
Hollywood movie producer and in SES (7.6%), the owner of the Astra satellite
system.
The strategic alliance between Recoletos and Antena 3, announced at the end
of September, will provide new programming opportunities for Pearson
Television which will be represented on the Antena 3 board.
Pearson Television has a growing UK transmission business based at its
London headquarters in Stephen Street, from where it transmits a dozen
different channels, including Channel 5, the Disney Channels, Discovery
Europe, and several Flextech channels.
4
<PAGE>
EXHIBIT (b)
Pounds 325,000,000
MULTICURRENCY MULTI-OPTION FACILITY AGREEMENT
between
PEARSON PLC
and
PEARSON INC.
as Original Borrowers
PEARSON PLC
as Guarantor
MIDLAND BANK PLC
and
UNION BANK OF SWITZERLAND
as Arrangers
SAMUEL MONTAGU & CO. LIMITED
as Facility Agent
and
Sterling Swing-Line Agent
MIDLAND BANK PLC
as
Dollar Swing-Line Agent
and
OTHERS
Clifford Chance
London
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
CLAUSE PAGE NO.
PART 1
INTERPRETATION
<S> <C>
1. Interpretation............................................. 1
PART 2
THE FACILITY
2. The Facility............................................... 16
3. Purpose.................................................... 16
4. Conditions Precedent....................................... 16
5. Nature of Banks' Obligations............................... 16
PART 3
UTILISATION OF THE FACILITY
6. Utilisation of the Facility................................ 17
7. Advances Option in lieu of Bills........................... 19
8. Competitive Bid Option..................................... 20
PART 4
THE BILLS
9. Acceptance and Discount of Bills........................... 24
10. Acceptance Commission...................................... 25
11. The Bills.................................................. 26
12. Payment of Bills........................................... 27
PART 5
THE ADVANCES
13. Making of Advances......................................... 28
14. Interest................................................... 29
15. Repayment and Prepayment................................... 30
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART 6
CANCELLATION
<S> <C>
16. Cancellation............................................... 31
PART 7
CHANGES IN CIRCUMSTANCES
17. Taxes...................................................... 32
18. Tax Receipts and Tax Credits............................... 34
19. Increased Costs............................................ 34
20. Illegality and Mitigation.................................. 36
21. Market Disruption.......................................... 37
PART 8
REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT
22. Representations............................................ 39
23. Financial Information...................................... 40
24. Financial Condition........................................ 43
25. Covenants.................................................. 43
26. Events of Default.......................................... 46
PART 9
GUARANTEE
27. Guarantee.................................................. 50
28. Preservation of Rights..................................... 50
PART 10
DEFAULT INTEREST AND INDEMNITY
29. Default Interest and Indemnity............................. 53
PART 11
PAYMENTS
30. Currency of Account and Payment............................ 55
31. Payments................................................... 55
32. Set-Off.................................................... 57
33. Redistribution of Payments................................. 57
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART 12
FEES, COSTS AND EXPENSES
<S> <C>
34. Fees....................................................... 59
35. Costs and Expenses......................................... 59
PART 13
AGENCY PROVISIONS
36. The Agents, the Arrangers and the Banks.................... 61
PART 14
ASSIGNMENTS AND TRANSFERS
37. Benefit of Agreement....................................... 65
38. Assignments and Transfers by the Borrowers................. 65
39. Assignments and Transfers by Banks......................... 65
40. Disclosure of Information.................................. 66
PART 15
MISCELLANEOUS
41. Acceding and Seceding Borrowers............................ 67
42. Calculations and Evidence of Debt.......................... 67
43. Remedies and Waivers....................................... 68
44. Partial Invalidity......................................... 68
45. Amendments................................................. 68
46. Notices.................................................... 69
47. Counterparts............................................... 70
PART 16
LAW AND JURISDICTION
48. Law........................................................ 71
49. Jurisdiction............................................... 71
</TABLE>
<PAGE>
THE SCHEDULES
<TABLE>
<S> <C>
The First Schedule
Part I : The Banks
Part II : The Swing-Line Banks
The Second Schedule : Form of Transfer Certificate
The Third Schedule : Conditions Precedent
The Fourth Schedule : Form of Utilisation Request
The Fifth Schedule : Timetables
The Sixth Schedule : Associated Costs Rate
The Seventh Schedule : Form of Borrower Accession Memorandum
The Eighth Schedule : Documents to Accompany Borrower Accession Memorandum
The Ninth Schedule : Form of Borrower Secession Memorandum
The Tenth Schedule : Existing Encumbrances
The Eleventh Schedule
Part I : Form of Competitive Bid Request
Part II : Form of Invitation for Competitive Bid
Part III : Form of Competitive Bid
Part IV : Form of Competitive Bid Utilisation Confirmation Letter
The Twelfth Schedule : Form of Power of Attorney
</TABLE>
<PAGE>
THIS AGREEMENT is made the 25th day of August 1995
BETWEEN
(1) PEARSON PLC ("PLC");
(2) PEARSON INC. (together with PLC, the "ORIGINAL BORROWERS");
(3) MIDLAND BANK PLC and UNION BANK OF SWITZERLAND as arrangers of the Facility
(the "ARRANGERS");
(4) SAMUEL MONTAGU & CO. LIMITED in its capacity as facility agent for the
Banks (the "FACILITY AGENT");
(5) MIDLAND BANK PLC, NEW YORK BRANCH in its capacity as dollar swing-line
agent for the Banks (the "DOLLAR SWING-LINE AGENT")
(6) SAMUEL MONTAGU & CO. LIMITED in its capacity as sterling swing-line agent
for the Banks (the "STERLING SWING-LINE AGENT"); and
(7) THE FINANCIAL INSTITUTIONS named in the First Schedule (the "BANKS").
NOW IT IS HEREBY AGREED as follows:
PART 1
INTERPRETATION
1. INTERPRETATION
1.1 In this Agreement:
"ACCEDING BORROWER" means any company which has executed and delivered a
Borrower Accession Memorandum, and which has not subsequently ceased to be an
Acceding Borrower, pursuant to Clause 41;
"ACCEPTANCE COMMISSION RATE" means:
(i) in the case of any Bill accepted pursuant to Clause 6 hereof:
(a) at all times up to and including the fifth anniversary of the date
hereof, an acceptance commission rate of 0.11 per cent. per annum;
and
(b) at all times after and excluding the fifth anniversary of the
date hereof, an acceptance commission rate of 0.135 per cent. per
annum; and
1
<PAGE>
(ii) in the case of any Competitive Bill accepted pursuant to Clause 8
hereof, the relevant Competitive Bid Rate for such Bill;
"ADVANCE" means, save as otherwise provided herein, an advance made or to be
made by a Bank pursuant to the terms hereof including (unless otherwise
provided), without limitation, a Swing-Line Advance and a Competitive Advance;
"AGENTS" means the Dollar Swing-Line Agent, the Sterling Swing-Line Agent and
the Facility Agent and "AGENT" means, as the context may require, any one of
them;
"APPLICABLE MARGIN" means:
(i) in relation to any Advance other than a Swing-Line Advance and a
Competitive Advance:
(a) at all times up to and including the fifth anniversary of the
date hereof, 0.11 per cent. per annum; and
(b) at all times after and excluding the fifth anniversary of the
date hereof, 0.135 per cent. per annum; and
(ii) in relation to any Competitive Advance, the relevant Competitive Bid
Rate relating thereto;
"ASSOCIATED COSTS RATE" means, in relation to any Advance or unpaid sum
denominated in sterling, the rate determined in accordance with the Sixth
Schedule;
"AVAILABLE COMMITMENT" means, in relation to a Bank at any time and save as
otherwise provided herein, its Commitment at such time LESS its share of the
Outstandings at such time and adjusted, for the purposes of a proposed
Utilisation only, so as to take into account:
(i) any reduction in the Commitment of a Bank which will occur prior to
or during the Term or Tenor relating to the proposed Utilisation
consequent upon a cancellation of the whole or any part of the
Commitment of such Bank pursuant to the terms hereof;
(ii) the aggregate Sterling Amount of any Advances and/or Bills which,
pursuant to any other Utilisation, such Bank is then obliged to make
or, as the case may be, accept on or before the proposed Utilisation
Date relating to such proposed Utilisation; and
(iii) the aggregate Sterling Amount of any Advances and/or Bills which were
made or, as the case may be, accepted by such Bank pursuant hereto
and which are due to be repaid or, as the case may be, mature on or
before the proposed Utilisation Date relating to such Utilisation,
Provided that such amount shall not be less than zero;
2
<PAGE>
"AVAILABLE FACILITY" means at any time, the aggregate of the Commitments at such
time LESS the Outstandings at such time, and adjusted, in the case of a proposed
Utilisation only, so as to take into account:
(i) any reduction in the Commitment of a Bank which will occur prior to
or during the Term or Tenor relating to the proposed Utilisation
consequent upon a cancellation of the whole or any part of the
Commitment of such Bank pursuant to the terms hereof;
(ii) the aggregate Sterling Amount of any Advances and/or Bills which,
pursuant to any other Utilisation, any Banks are then obliged to make
or, as the case may be, accept on or before the proposed Utilisation
Date relating to such proposed Utilisation; and
(iii) the aggregate Sterling Amount of any Advances and/or Bills which were
made or, as the case may be, accepted by any Banks pursuant hereto
and which are due to be repaid or, as the case may be, mature on or
before the proposed Utilisation Date relating to such Utilisation;
"AVAILABLE SWING-LINE COMMITMENT" means, in relation to a Swing-Line Bank at any
time and save as otherwise provided herein, the lesser of (a) its Swing-Line
Commitment LESS its share of the Swing-Line Outstandings at such time and (b)
its Available Commitment at such time adjusted (in either case), for the
purposes of a proposed Utilisation only, so as to take into account:-
(i) any reduction in the Swing-Line Commitment or Commitment of a Swing-
Line Bank which will occur prior to or during the Term relating to
the proposed Utilisation consequent upon a cancellation of the whole
or any part of the Swing-Line Commitment or Commitment of such Swing-
Line Bank pursuant to the terms hereof;
(ii) the aggregate Sterling Amount of any Advances or Bills which,
pursuant to any other Utilisation, such Swing-Line Bank is then
obliged to make or, as the case may be, accept on or before the
proposed Utilisation Date relating to such proposed Utilisation; and
(iii) the aggregate Sterling Amount of any Advances or Bills which were
made or, as the case may be, accepted, by such Swing-Line Bank
pursuant hereto and which are due to be repaid or, as the case may
be, mature on or before the proposed Utilisation Date relating to
such Utilisation,
Provided that such amount shall not be less than zero;
"AVAILABLE SWING-LINE FACILITY" means at any time, the lesser of (a) the
aggregate of the Swing-Line Commitments LESS the Swing-Line Outstandings at such
time and (b) the aggregate of the Available Commitments of the Swing-Line Banks
at such time adjusted (in either case), in the case of a proposed Utilisation
only, so as to take into account:
3
<PAGE>
(i) any reduction in the Swing-Line Commitment or Commitment of a Swing-
Line Bank which will occur prior to or during the Term or Tenor
relating to the proposed Utilisation consequent upon a cancellation
of the whole or any part of the Swing-Line Commitment or Commitment
of such Swing-Line Bank pursuant to the terms hereof;
(ii) the aggregate Sterling Amount of any Advances and/or Bills which,
pursuant to any other Utilisation, any of the Swing-Line Banks are
then obliged to make or, as the case may be, accept on or before the
proposed Utilisation Date relating to such proposed Utilisation; and
(iii) the aggregate Sterling Amount of any Advances and/or Bills which were
made or, as the case may be, accepted by the Swing-Line Banks
pursuant hereto and which are due to be repaid or, as the case may
be, mature on or before the proposed Utilisation Date relating to
such Utilisation;
"AUTHORISED SIGNATORY" means, in relation to PLC or any other Borrower, any
person whose name and signature appears in any of (a) a certificate referred to
in paragraph 1(iii) of the Third Schedule, (b) the certificate referred to in
paragraph 3 of the Eighth Schedule and (c) a certificate delivered to the
Facility Agent at any time after the date hereof duly executed by a director,
the Secretary or any Authorised Signatory of PLC or such Borrower (as the case
may be) setting out the names and signatures of person(s) authorised to sign on
behalf of PLC or that Borrower (as the case may be) any documents to be
delivered by PLC or such Borrower (as the case may be) pursuant hereto or in
connection herewith and to make Utilisations hereunder and whose authority has
not been revoked by a certificate duly executed by two directors (or any other
Authorised Signatory) of PLC or such Borrower (as the case may be) to that
effect and delivered to the Facility Agent;
"AUTHORISED VERIFIER" means, in relation to PLC or any other Borrower, any
person described as such whose name appears in any of (a) a certificate referred
to in paragraph 1(iii) of the Third Schedule, (b) the certificate referred to in
paragraph 3 of the Eighth Schedule and (c) a certificate delivered to the
Facility Agent at any time after the date hereof duly executed by a director,
the Secretary or any Authorised Signatory of PLC or such Borrower (as the case
may be) setting out the names of person(s) authorised to verify any notice or
communication delivered pursuant to Clause 46.1 by PLC or that Borrower (as the
case may be) and whose authority has not been revoked by a certificate duly
executed by two directors (or any Authorised Signatory) of PLC or such Borrower
(as the case may be) to that effect and delivered to the Facility Agent;
"BILL" means a sterling bill of exchange accepted, or to be accepted, by a Bank
hereunder including (unless otherwise provided), without limitation, a
Competitive Bill;
"BORROWER ACCESSION MEMORANDUM" means a memorandum to be delivered to the
Facility Agent pursuant to Clause 41.1 by PLC and any Acceding Borrower
substantially in the form set out in the Seventh Schedule;
"BORROWER SECESSION MEMORANDUM" means a memorandum to be delivered to the
Facility Agent pursuant to Clause 41.3 by PLC substantially in the form set out
in the Ninth Schedule;
4
<PAGE>
"BORROWERS" means each of the Original Borrowers and any Acceding Borrower and
"BORROWER" means any one of them;
"COMMITMENT" means, in relation to a Bank at any time and save as otherwise
provided herein, the amount set opposite its name in Part I of the First
Schedule;
"COMPETITIVE ADVANCE" means an Advance made or to be made by a Bank pursuant to
the bidding procedure described in Clause 8;
"COMPETITIVE BID" means an offer by a Bank to make a Competitive Advance or, as
the case may be, accept a Competitive Bill, pursuant to Clause 8 in the form of
Part III of the Eleventh Schedule;
"COMPETITIVE BID RATE" means, in relation to any Competitive Bid made by a Bank
pursuant to Clause 8, in the case of a Competitive Advance, the applicable
margin or, in the case of a Competitive Bill, the acceptance commission rate
offered by the Bank making such Competitive Bid;
"COMPETITIVE BID REQUEST" means a request made pursuant to Clause 8 in the form
of Part I of the Eleventh Schedule;
"COMPETITIVE BID UTILISATION CONFIRMATION LETTER" means a confirmation made by a
Borrower pursuant to Clause 8 in the form of Part IV of the Eleventh Schedule;
"COMPETITIVE BILL" means a bill accepted or to be accepted by a Bank pursuant to
the bidding procedure described in Clause 8;
"CONSOLIDATED INTEREST" means at any time, the net interest payable by the Group
as shown in the consolidated profit and loss account included in the latest
audited consolidated financial statements of PLC delivered pursuant to Clause
23.1(i) (or, if none, the Original Financial Statements);
"CONSOLIDATED MARKET VALUE" means, in respect of any financial year of PLC (the
"RELEVANT YEAR") the sum of A+B where:
A= (OS X P) + (CS X S)
where:
"OS" means the aggregate number of ordinary shares in PLC in issue as at
the end of the financial year of PLC immediately preceding the
Relevant Year (the "PRECEDING YEAR") as shown in the audited
consolidated financial statements of the Group for the Preceding
Year;
"P" means the mid-market closing price for ordinary shares of PLC on the
last business day of the Preceding Year (as published in the
Financial Times or in such other source as is agreed between PLC and
the Facility Agent);
"CS" means the aggregate number of securities (of whatever kind) issued by
any member of the Group which are convertible into ordinary shares of
PLC and which are in
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<PAGE>
issue as at the end of the Preceding Year as shown in the audited
consolidated financial statements of the Group for the Preceding
Year; and
"S" means the weighted average of the mid-market closing prices of each
type of convertible security referred to in the definition of "CS"
above on the last business day of the Preceding Year (as published in
the Financial Times or in such other source as is agreed between PLC
and the Facility Agent); and
B= AB - ACLF
where:
"AB" means the aggregate amount of borrowings (short, medium and long
term) of the Group as at the end of the Preceding Year as shown in
the audited consolidated balance sheet of the Group contained in the
audited consolidated financial statements of the Group for the
Preceding Year; and
"ACLF" means the aggregate amount of cash and liquid funds of the Group as
at the end of the Preceding Year as shown in the audited consolidated
balance sheet of the Group contained in the audited consolidated
financial statements of the Group for the Preceding Year.
"CONSOLIDATED NET TANGIBLE WORTH" means at any time the sum (as determined from
the latest audited consolidated financial statements of PLC delivered pursuant
to Clause 23.1(i) or, if none, the Original Financial Statements) of the total
amount paid up on the share capital of PLC plus or minus the aggregate amount
standing to the credit or debit of the consolidated reserves of the Group
(including the profit and loss account and any share premium account, but after
deducting the amount of all assets of PLC and its subsidiaries which would in
accordance with generally accepted accounting principles in the United Kingdom
be classified as intangible assets), and (for the avoidance of doubt) excluding
(a) the amount of provisions made in respect of deferred taxation on a
consolidated basis and (b) any amounts attributable to minority interests in
subsidiaries;
"CONSOLIDATED OPERATING PROFIT" means in respect of any period the operating
profit of the Group for such period (as determined from the latest audited
consolidated financial statements of PLC delivered pursuant to Clause 23.1(i)
or, if none, the Original Financial Statements);
"DOLLAR SWING-LINE ADVANCE" means any dollar advance made or to be made by a
Swing-Line Bank pursuant to a Utilisation Request under Clause 6.4;
"DOLLAR SWING-LINE RATE" means at any time, the higher of:-
(i) the Dollar Swing-Line Agent's Prime Rate; and
(ii) the Federal Funds Rate at that time plus 0.25% per annum;
"ELIGIBLE BANK" means a bank whose acceptance of a bill of exchange would, if
such bill of exchange was otherwise so eligible, make such bill of exchange
eligible for rediscount at the Bank of England;
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<PAGE>
"ELIGIBLE BILL" means a sterling bill of exchange eligible for rediscount at the
Bank of England;
"ELIGIBLE BILL DISCOUNT RATE" means, in respect of any Utilisation Date, the
rate (as conclusively determined by the Facility Agent (in the absence of
manifest error) at or about 11.00 a.m. on such Utilisation Date) at which
Eligible Bills of an equivalent aggregate face amount and a tenor equivalent to
the Tenor of the Bills to be discounted by the Facility Agent pursuant to Clause
9.2 can be discounted in the London Discount Market on such Utilisation Date;
"EVENT OF DEFAULT" means any of those events specified in Clause 26.1;
"EXISTING ENCUMBRANCE" means an encumbrance listed in the Tenth Schedule hereto;
"FACILITY" means the multicurrency multi-option facility granted to the
Borrowers in this Agreement;
"FACILITY OFFICE" means:
(i) in relation to the Facility Agent or any Bank (other than in such
Bank's capacity as a Swing-Line Bank), each office identified in Part
I of the First Schedule (or, in the case of a Transferee, at the end
of the Transfer Certificate to which it is a party as Transferee) or
such other office as it may from time to time select; and
(ii) in relation to the Dollar Swing-Line Agent or any Swing-Line Bank (in
relation to a Utilisation by means of Dollar Swing-Line Advances),
its office in the United States of America (or the associated
offshore office of its office in the United States of America) in the
same time zone as New York City identified in Part II of the First
Schedule (or in the case of a Transferee, at the end of the Transfer
Certificate to which it is a party as Transferee), or such other
office in the United States of America (or associated offshore
office) in the same time zone as New York City as it may from time to
time select; and
(iii) in relation to the Sterling Swing-Line Agent or any Swing-Line Bank
(in relation to a Utilisation by means of Sterling Swing-Line
Advances), its office in the United Kingdom identified in Part II of
the First Schedule (or in the case of a Transferee, at the end of the
Transfer Certificate to which it is a party as Transferee) or such
other office in the United Kingdom as it may from time to time
select;
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to:
(a) the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by
federal funds brokers as published for such day (or, if such day is
not a business day, for the next preceding business day) by the
Federal Reserve Bank of New York; or
(b) if such rate is not so published for any day which is a business day,
the average of the quotations for such transactions received by the
Dollar Swing-Line Agent from three federal funds brokers of
recognised standing selected by it;
7
<PAGE>
"FINANCE DOCUMENTS" means each of this Agreement, the Bills and any Borrower
Accession Memorandum;
"GROUP" means PLC and its subsidiaries from time to time;
"INDICATIVE AMOUNT" means, in relation to any Competitive Bid Request, the
aggregate principal amount of the Advances or, as the case may be, the aggregate
face amount of the Bills therein requested;
"INSTRUCTING GROUP" means:
(i) for the purposes of Clauses 26.2 and 26.3 at any time when there are
no Advances or Bills outstanding other than Competitive Advances
and/or Competitive Bills and an Event of Default has occurred, a Bank
or group of Banks to whom an amount in excess of 66 2/3% of the
Outstandings is then due or to become due; and
(ii) at all other times, and save as otherwise provided herein, a Bank or
group of Banks whose Commitments amount (or, if each Bank's
Commitment has been reduced to zero, did immediately before such
reduction to zero, amount) in aggregate to more than 66 2/3% of the
Total Commitments;
"INVITATION FOR COMPETITIVE BIDS" means an invitation for competitive bids made
by a Borrower pursuant to Clause 8 in the form of Part II of the Eleventh
Schedule;
"LIBOR" means, in relation to any Advance (other than a Dollar Swing-Line
Advance) or unpaid sum, the rate per annum determined by the Facility Agent to
be (i) the Screen Rate for the specified period or (ii) (in the event that LIBOR
cannot be determined by reference to the Screen Rate) the rate per annum
determined by the Facility Agent to be equal to the arithmetic mean (rounded
upwards, if not already such a multiple, to the nearest 0.00001 per cent.) of
the rates (as notified to the Facility Agent) at which each of the Reference
Banks was offering to prime banks in the London Interbank Market deposits in the
currency in which such Advance or unpaid sum is to be denominated and for the
specified period at or about 11.00 a.m. on the Quotation Date therefor and, for
the purposes of this definition, "SPECIFIED PERIOD" means the Term of such
Advance or, as the case may be, the relevant period in respect of which LIBOR
falls to be determined in relation to such unpaid sum;
"LIMITED RECOURSE LOAN" means any moneys borrowed or raised for the purpose of
financing expenditure on or in connection with any project forming part of the
business of any member of the Group, such moneys borrowed or raised not being
guaranteed by any member of the Group and only being secured on the assets
forming part of, or constituting, the relevant project on terms which provide,
inter alia, that:-
(i) in the event of any default thereunder the creditor(s) shall not be
entitled to have recourse for the payment or recovery of any moneys
owing thereunder or in respect thereof, to any present or future
assets of the member(s) of the Group borrowing or raising such moneys
not forming part of the assets so secured; and
8
<PAGE>
(ii) except for enforcing such security the creditor(s) shall not have any
right to take any action against the member(s) of the Group borrowing
or raising such moneys or in relation to such member's assets, by
proceedings in any court or otherwise, to recover any amounts owing
thereunder or in respect thereof;
"MATURITY DATE" means, in relation to any Bill, the last day of the Tenor
thereof;
"OPTIONAL CURRENCY" means, any currency (other than sterling and the european
currency unit) which is freely transferable and freely convertible into sterling
and is available to banks in the London Interbank Market;
"ORIGINAL FINANCIAL STATEMENTS" means, the audited consolidated financial
statements of PLC for its financial year ended 31st December 1994;
"OUTSTANDINGS" means, at any time, the aggregate of the Sterling Amounts of:
(i) each outstanding Advance; and
(ii) each outstanding Bill;
"PERMITTED ENCUMBRANCE" means any Existing Encumbrance and any other
encumbrance:
(i) created after the date hereof by a member of the Group incorporated
outside the United Kingdom over any property of such member outside
the United Kingdom solely for the purpose of securing financial
indebtedness incurred by such member for the purpose of its business
or that of its subsidiaries but only if the amount of such borrowings
(or the equivalent thereof in sterling at the relevant time) when
aggregated with the total amount secured by any other subsisting
encumbrances permitted by this sub-paragraph (i) does not exceed
Pounds 50,000,000;
(ii) created by a member of the Group to secure any Limited Recourse Loan
made to such member or any other member of the Group;
(iii) created by a member of the Group in respect of which the prior
written consent of an Instructing Group has been obtained;
(iv) arising by virtue of any right on the part of any bank to apply any
part of any credit balance(s) representing any moneys standing to the
credit of any bank account of any member of the Group in the books of
such bank in discharge or satisfaction of any part of any debit
balance(s) of any bank account of any member of the Group in the
books of such bank;
(v) any encumbrance:-
(a) created by a member of the Group prior to its becoming a member
of the Group; or
9
<PAGE>
(b) created over an asset acquired by a member of the Group prior to
its acquisition and subject to which such acquisition was made
Provided that (1) such encumbrance was not created in contemplation
of such company becoming a member of the Group or, as the case may
be, the acquisition of such asset and (2) the amount thereby secured
was not increased in contemplation of such company becoming a member
of the Group or, as the case may be, the acquisition of such asset;
and
(vi) any other encumbrance created after 31st December, 1994 over any
property of a member of the Group but only if the amount of financial
indebtedness secured thereby (or its equivalent in sterling at the
relevant time) when aggregated with the total amount secured by any
other subsisting encumbrances permitted by this sub-paragraph (vi)
does not exceed the greater of:-
(a) 15% of Consolidated Net Tangible Worth; and
(b) Pounds 75,000,000;
"POTENTIAL EVENT OF DEFAULT" means, any event which would become (with the
passage of time, the giving of notice, the making of any determination hereunder
or any combination thereof), if not remedied or waived within any applicable
time limit, an Event of Default;
"PRIME RATE" means, for any day, the rate per annum which is the prime rate of
the Dollar Swing-Line Agent in New York City, from time to time, in force on
such date;
"PRINCIPAL SUBSIDIARY" means at any time:-
(i) any subsidiary of PLC whose unconsolidated profit before interest,
tax and extraordinary items (as determined by reference to the latest
audited financial statements of that subsidiary) is not less than
five per cent (5%) of Consolidated Operating Profit; and
(ii) Pearson Inc;
"PROPORTION" means, in relation to a Bank either:-
(i) the proportion borne by its Commitment to the Total Commitments; or
(ii) at any time when the Total Commitments are zero, the proportion borne
by its share of the Outstandings to the Outstandings;
"QUALIFYING BANK" means a person which is recognised by the Inland Revenue as
carrying on a bona fide banking business in the United Kingdom for the purposes
of Section 349 of the Income and Corporation Taxes Act 1988;
10
<PAGE>
"QUOTATION DATE" means, in relation to any period for which an interest rate is
to be determined hereunder, the day on which quotations would ordinarily be
given by prime banks in the London Interbank Market for deposits in the currency
in relation to which such rate is to be determined for delivery on the first day
of that period Provided that, if for any such period quotations would
ordinarily be given on more than one date, the Quotation Date for that period
shall be the last of those dates;
"REFERENCE BANKS" means the principal London offices of Midland Bank PLC, Union
Bank of Switzerland and Deutsche Bank AG or such other bank or banks as may from
time to time be agreed between PLC and an Instructing Group;
"REPAYMENT DATE" means, in relation to any Advance, the last day of the Term
thereof;
"REQUESTED AMOUNT" means, in relation to any Utilisation Request or Competitive
Bid Utilisation Confirmation Letter, the aggregate principal amount of the
Advances or, as the case may be, the aggregate face amount of the Bills therein
requested;
"SCREEN RATE" means either (i) the arithmetic mean (rounded upwards if not
already such a multiple, to the nearest 0.00001 per cent.) of the offered rates
(if any) appearing on page 3740 or page 3750 of the Telerate Screen (or such
other page or service as may replace such pages on such system for this purpose)
which displays British Bankers Association Interest Settlement Rates for
deposits in the currency in which the relevant Advance or unpaid sum is to be
denominated at or about 11.00 a.m. on the Quotation Date therefor or (ii) (in
the case of an Advance or unpaid sum denominated in Hong Kong Dollars) the
arithmetic mean (rounded upwards if not already such a multiple, to the nearest
0.00001 per cent.) of the offered rates (if any) appearing on page HIBO of the
Reuters Screen (or such other page or service as may replace such page on such
system for this purpose) which displays Hong Kong Interbank Offered Rates for
deposits in Hong Kong dollars at or about 11.00 a.m. on the Quotation Date
therefor;
"STERLING AMOUNT" means:
(i) in relation to any Advance, Indicative Amount or Requested Amount,
the principal amount thereof or, if such Advance, Indicative Amount
or Requested Amount is not denominated in sterling, the equivalent of
such amount in sterling calculated as at the date of the relevant
Utilisation Request, Competitive Bid Request or, as the case may be,
Competitive Bid Utilisation Letter; and
(ii) in relation to any Bill, the face amount thereof;
"STERLING SWING-LINE ADVANCE" means any sterling advance made or to be made by a
Sterling Swing-Line Bank pursuant to a Utilisation Request under Clause 6.4;
"STERLING SWING-LINE RATE" means, at any time, the aggregate of:
(i) LIBOR;
(ii) 0.25% per annum; and
11
<PAGE>
(iii) the Associated Costs Rate applicable thereto;
"SWING-LINE ADVANCE" means a Dollar Swing-Line Advance or a Sterling Swing-Line
Advance as the context may require;
"SWING-LINE BANK" means a Bank whose name appears in Part II of the First
Schedule;
"SWING-LINE COMMITMENT" means, in relation to a Swing-Line Bank at any time and
save as otherwise provided herein, the amount set opposite its name in Part II
of the First Schedule;
"SWING-LINE OUTSTANDINGS" means, at any time, the aggregate of the Sterling
Amounts of the outstanding Swing-Line Advances;
"SWING-LINE RATE" means the Dollar Swing-Line Rate or the Sterling Swing-Line
Rate as the context may require;
"TENOR" means, in relation to any Bill, the period from the Utilisation Date on
which it is accepted until its maturity as specified in the Utilisation Request
or Competitive Bid Request relating thereto;
"TERM" means, save as otherwise provided herein, in relation to any Advance, the
period for which such Advance is borrowed as specified in the Utilisation
Request or Competitive Bid Request relating thereto;
"TERMINATION DATE" means the seventh anniversary of the date hereof;
"TOTAL COMMITMENTS" means, at any time, the aggregate of the Banks' Commitments
at such time;
"TRANSFER CERTIFICATE" means a certificate substantially in the form set out in
the Second Schedule signed by a Bank and a Transferee whereby:
(i) such Bank seeks to procure the transfer to such Transferee of all or
a part of such Bank's rights and obligations hereunder upon and
subject to the terms and conditions set out in Clause 39; and
(ii) such Transferee undertakes to perform the obligations it will assume
as a result of delivery of such certificate to the Facility Agent as
is contemplated in Clause 39.3;
"TRANSFER DATE" means, in relation to any Transfer Certificate, the date for the
making of the transfer as specified in the schedule to such Transfer
Certificate;
"TRANSFEREE" means a bank or other financial institution to which a Bank seeks
to transfer all or part of such Bank's rights and obligations hereunder in
accordance with Clause 39;
"UTILISATION" means a utilisation of the Facility hereunder;
"UTILISATION DATE" means the date of a Utilisation being the date on which the
Advances in respect thereof are to be made or the Bills in respect thereof are
to be accepted;
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<PAGE>
"UTILISATION REQUEST" means a notice given to the Facility Agent pursuant to
Clause 6.1 or, as the case may be, Clause 6.4 substantially in the form set out
in the Fourth Schedule; and
"1988 FACILITY" means the transferable multi-option facility agreement dated
10th February, 1988 between Pearson plc and Pearson Inc. as borrowers, Samuel
Montagu & Co. Limited as agent and others.
1.2 Any reference in this Agreement to:
an "AGENT", an "ARRANGER" or any "BANK" shall be construed so as to include its
and any subsequent successors, Transferees and assigns in accordance with their
respective interests;
a "BUSINESS DAY" shall be construed as a reference to a day (other than a
Saturday or Sunday) on which banks are generally open for business in London or,
in the case of any Dollar Swing-Line Advance, in London and New York City or if
such reference relates to a date for the payment or purchase of any sum
denominated in an Optional Currency, in London and the principal financial
centre of the country of such Optional Currency;
a "CLAUSE" shall, subject to any contrary indication, be construed as a
reference to a clause hereof;
an "ENCUMBRANCE" shall be construed as a reference to a mortgage, charge,
pledge, lien (other than a lien arising by operation of law), security interest,
conditional sale or other title retention agreement or other encumbrance
securing any obligation of any person;
the "EQUIVALENT" on any given date in one currency (the "FIRST CURRENCY") of an
amount denominated in another currency (the "SECOND CURRENCY") is a reference to
the amount of the first currency which could be purchased with the amount of the
second currency at the spot rate of exchange quoted by the Facility Agent at or
about 9.15 a.m. on such date for the purchase of the first currency with the
second currency;
"FINANCIAL INDEBTEDNESS" shall be construed as a reference to any indebtedness
for or in respect of moneys borrowed or raised by whatever means (including,
without limitation, by means of acceptances, deposits and finance leases and any
liability evidenced by bonds, debentures, notes or similar instruments);
a "HOLDING COMPANY" of a company or corporation shall be construed as a
reference to any company or corporation of which the first-mentioned company or
corporation is a subsidiary;
"INDEBTEDNESS" shall be construed so as to include any obligation (whether
incurred as principal or as surety) for the payment or repayment of money,
whether present or future, actual or contingent;
a "MONTH" is a reference to a period starting on one day in a calendar month and
ending on the numerically corresponding day in the next succeeding calendar
month save that, where any such period would otherwise end on a non-business
day, it shall end on the next business day unless that day falls in the calendar
month succeeding that in which it would otherwise have ended, in which case it
shall end on the preceding business day Provided that, if a period starts on the
last business day
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<PAGE>
in a calendar month or if there is no numerically corresponding day in the
calendar month in which that period ends, that period shall end on the last
business day in that later month;
a "PART" shall, subject to any contrary indication, be construed as a reference
to a part hereof;
a "PERSON" shall be construed as a reference to any person, firm, company,
corporation, government, state or agency of a state or any association or
partnership (whether or not having separate legal personality) of two or more of
the foregoing;
a "SCHEDULE" shall, subject to any contrary indication, be construed as a
reference to a schedule hereto;
a "SUBSIDIARY" of a person means any other person which:
(a) is a subsidiary of that person within the meaning of Section 736 of
the Companies Act 1985; and
(b) for the purposes of Clauses 22.1(vii), 23 and 24, the defined terms
used therein and all other references herein to the Original
Financial Statements or any other financial statements of PLC and its
subsidiaries or of the Group, is a subsidiary undertaking of that
person within the meaning of Section 258 of the Companies Act 1985;
"TAX" shall be construed so as to include any tax, levy, impost, duty or other
charge of a similar nature (including, without limitation, any penalty or
interest payable in connection with any failure to pay or any delay in paying
any of the same);
"VAT" shall be construed as a reference to value added tax including any similar
tax which may be imposed in place thereof from time to time;
a "WHOLLY-OWNED SUBSIDIARY" of a company or corporation shall be construed as a
reference to any company or corporation which has no other members except that
other company or corporation and that other company's or corporation's wholly-
owned subsidiaries or persons acting on behalf of that other company or
corporation or its wholly-owned subsidiaries; and
the "WINDING-UP", "DISSOLUTION", "ADMINISTRATION" or "ADMINISTRATIVE
RECEIVERSHIP" of a company or corporation shall be construed so as to include
any equivalent or analogous proceedings under the law of the jurisdiction in
which such company or corporation is incorporated or any jurisdiction in which
such company or corporation carries on business.
1.3 "$" and "DOLLARS" denote lawful currency of the United States of America,
"(Pounds)" and "STERLING" denote lawful currency of the United Kingdom.
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<PAGE>
1.4 Save where the contrary is indicated, any reference in this Agreement to:
(i) this Agreement or any other agreement or document shall be
construed as a reference to this Agreement or, as the case may
be, such other agreement or document as the same may have been,
or may from time to time be, amended, varied, novated or
supplemented;
(ii) a statute shall be construed as a reference to such statute as
the same may have been, or may from time to time be, amended or
re-enacted; and
(iii) a time of day shall be construed as a reference to London
time.
1.5 Clause, Part and Schedule headings are for ease of reference only.
1.6 There are set out in the Fifth Schedule timetables of certain of the
procedures provided for in this Agreement. For the purpose of construction, any
reference herein to a "specified time" shall be construed as a reference to the
relevant time set forth in the relevant timetable.
1.7 All expressions used in the definitions contained in Clause 24 which are
not otherwise defined herein shall be construed in accordance with generally
accepted accounting principles in the United Kingdom (as used in the Group's
latest audited consolidated financial statements delivered pursuant to Clause
23.1(i) hereof, or, if none, the Original Financial Statements).
15
<PAGE>
PART 2
THE FACILITY
2. THE FACILITY
The Banks grant to the Borrowers, upon the terms and subject to the conditions
hereof, a multicurrency multi-option facility (incorporating a competitive bid
option) in an aggregate amount of (Pounds)325,000,000 or its equivalent from
time to time in Optional Currencies, a maximum amount of (Pounds)150,000,000 (or
its equivalent) of which is available as dollar swing-line advances or sterling
swing-line advances.
3. PURPOSE
3.1 The Facility is intended for general corporate purposes including (without
limitation) the refinancing of amounts outstanding under existing facilities
(including the 1988 Facility) and the provision of back-up financing in relation
to dollar and sterling commercial paper facilities and accordingly, each of the
Borrowers shall apply all amounts raised by it hereunder in or towards
satisfaction of such general corporate purposes.
3.2 Without prejudice to the obligations of the Borrowers under Clause 3.1,
none of the Agents, the Arrangers and the Banks shall be obliged to concern
themselves with the application of amounts raised by any of the Borrowers
hereunder.
4. CONDITIONS PRECEDENT
None of the Borrowers may deliver any Utilisation Request or Competitive Bid
Request hereunder unless the Facility Agent has confirmed to PLC and the Banks
that it has received all of the documents and other evidence listed in the Third
Schedule and that each is, in form and substance, satisfactory to the Facility
Agent.
5. NATURE OF BANKS' OBLIGATIONS
5.1 The obligations of each Bank hereunder are several.
5.2 The failure by a Bank to perform its obligations hereunder shall not affect
the rights of any Borrower against such Bank in relation to such failure or the
obligations of PLC or any of the other Borrowers towards any other party hereto
nor shall any other party be liable for the failure by such Bank to perform that
Bank's obligations hereunder.
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PART 3
UTILISATION OF THE FACILITY
6. UTILISATION OF THE FACILITY
6.1 Save as otherwise provided herein, any Borrower (being, in the case of a
Utilisation by means of Bills, incorporated in the United Kingdom) may from time
to time utilise the Facility by means of Advances (other than Swing-Line
Advances which are dealt with in Clause 6.4 and Competitive Advances which are
dealt with in Clause 8) or Bills (other than Competitive Bills which are dealt
with in Clause 8) by delivering to the Facility Agent by no later than the
specified time a duly completed Utilisation Request therefor.
6.2 Each Utilisation Request delivered to the Facility Agent pursuant to Clause
6.1 shall be irrevocable and shall specify:
(i) whether the Utilisation is to be by means of Advances or Bills;
(ii) the proposed Utilisation Date which shall be a business day;
(iii) in the case of a Utilisation Request for Advances, the currency of
denomination of the proposed Advances, which shall be sterling or an
Optional Currency;
(iv) the Requested Amount which shall be:
(a) in the case of a Utilisation by means of Advances denominated in
sterling or Bills, an amount which does not exceed the Available
Facility for such Utilisation and which, if less than the
Available Facility for such Utilisation, is a minimum amount of
(Pounds)10,000,000 and an integral multiple of (Pounds)1,000,000
(or such other integral multiple as PLC and the Facility Agent
may agree); and
(b) in the case of a Utilisation by means of Advances denominated in
an Optional Currency, an amount in such Optional Currency, the
Sterling Amount of which does not exceed the Available Facility
for such Utilisation, and which, if the Sterling Amount is less
than the Available Facility for such Utilisation, is in a minimum
Sterling Amount of (Pounds)10,000,000 and is an integral multiple
of 1,000,000 of the largest currency unit of such Optional
Currency (or such other integral multiple as PLC and the Facility
Agent may agree);
(v) the Term or Tenor in question, being:
(a) in respect of Advances (and subject to Clause 7.2), a period of 14
days, one, two, three, four, five or six months (or such other
period as may be agreed between the Banks and the relevant
Borrower);
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<PAGE>
(b) in respect of Bills, a period of between 7 days and 187 days,
which will begin on the proposed Utilisation Date and end on a
business day which is or precedes the Termination Date; and
(vi) the account to which the proceeds of the proposed Utilisation are to
be paid.
6.3 If and whenever, on the occasion of a Utilisation, the Banks are required
to make Advances or accept Bills pursuant to the foregoing Clauses of this
Clause 6, the aggregate principal Sterling Amount of the Advances to be so made
or, as the case may be, the aggregate face amount of the Bills to be so accepted
shall be allocated to, and apportioned among, the Banks rateably to their
respective Available Commitments for such Utilisation.
6.4 Save as otherwise provided herein, any Borrower may from time to time
request the making of a Dollar Swing-Line Advance or a Sterling Swing-Line
Advance under the Facility by delivering to the Facility Agent (with a copy to
the Dollar Swing-Line Agent or, as the case may be, the Sterling Swing-Line
Agent) a duly completed Utilisation Request therefor by no later than the
specified time.
6.5 Each Utilisation Request delivered pursuant to Clause 6.4 shall be
irrevocable and shall specify:
(i) whether the Utilisation is to be by means of Dollar Swing-Line
Advances or Sterling Swing-Line Advances;
(ii) the proposed Utilisation Date which shall be a business day;
(iii) the Requested Amount (a) the Sterling Amount of which shall be an
amount which does not exceed the Available Swing-Line Facility for
such Utilisation and (b) which shall be a minimum of
Pounds 10,000,000 (or, in the case of a Dollar Swing-Line Advance,
$10,000,000) and an integral multiple of Pounds 1,000,000 (or, in
the case of a Dollar Swing-Line Advance, $1,000,000) (or, in each
case, such other integral multiple as PLC and the Facility Agent may
agree);
(iv) the Term (which shall not exceed 7 days and which shall begin on the
proposed Utilisation Date and end on a business day which is or which
precedes the Termination Date); and
(v) the account to which the proceeds of the proposed Utilisation are to
be paid.
6.6 In respect of each Utilisation by means of Dollar Swing-Line Advances, each
Swing-Line Bank shall (subject as provided in Clause 13), no later than the
specified time on the Utilisation Date relating thereto:
(i) through its Facility Office make, or procure to be made, its Dollar
Swing-Line Advance available to the Dollar Swing-Line Agent in
accordance with Clause 6.8; and
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(ii) advise the Dollar Swing-Line Agent by telephone or telex of the
Federal Reserve Bank wire number effecting the transfer required by
(i) above.
6.7 In respect of each Utilisation by means of Sterling Swing-Line Advances,
each Swing-Line Bank shall (subject as provided in Clause 13), no later than the
specified time on the Utilisation Date relating thereto through its Facility
Office make, or procure to be made, its Sterling Swing-Line Advance available to
the Sterling Swing-Line Agent in accordance with Clause 6.8.
6.8 Each Swing-Line Bank will participate through its Facility Office in each
Swing-Line Advance made pursuant to this Clause 6 in the proportion borne by its
Available Swing-Line Commitment to the Available Swing-Line Facility immediately
prior to making the Swing-Line Advance.
6.9 Each Bank shall in respect of any Utilisation hereunder, subject to the
terms hereof, be obliged, through its Facility Office, to make an Advance or,
subject to Clause 7, accept a Bill on the proposed Utilisation Date in a
principal amount or, as the case may be, a face amount equal to the amount
allocated to it pursuant to this Clause 6.
6.10 The Facility Agent in the case of Advances (other than Swing-Line Advances)
and Bills, the Dollar Swing-Line Agent in the case of Dollar Swing-Line Advances
and the Sterling Swing-Line Agent in the case of Sterling Swing-Line Advances,
shall not later than the specified time notify each Bank of the principal amount
or, as the case may be, the face amount allocated to it pursuant to this Clause
6.
6.11 If a Bank has been notified pursuant to Clause 6.10 that it is to accept
Bills, it may, no later than the specified time, notify the Facility Agent that
it does not wish the Facility Agent to arrange for the discounting of the Bills
in question.
6.12 If a Bank's Commitment or Swing-Line Commitment is reduced, in accordance
with the terms hereof, after the Facility Agent has received a Utilisation
Request or made an allocation hereunder then such part of the proposed
Utilisation as is attributable to that Bank and exceeds its Available Commitment
or, as the case may be, its Available Swing-Line Commitment, (as so reduced)
shall not be made and the amount of such Utilisation shall be reduced
accordingly.
7. ADVANCES OPTION IN LIEU OF BILLS
7.1 Notwithstanding that any Borrower has in any Utilisation Request delivered
pursuant to Clause 6 made a request for a Utilisation by means of Bills, any
Bank may by no later than the specified time notify the Facility Agent by
telephone (to be confirmed no later than the specified time by telex, telefax or
letter) that it is unable to accept such Bills by virtue of any Bank of England
restriction relating to the acceptance of bills of exchange placed on it and, as
a result, wishes to elect to make an Advance instead, in which case it shall, if
it would otherwise be required to accept Bills pursuant to Clause 9, not be
obliged to do so, but instead be required to make an Advance (other than a
Swing-Line Advance) in accordance with Clause 7.2. If the Facility Agent is not
so notified by any Bank by the specified time then such Bank shall (and the
Facility Agent may assume that it shall), if required to do so under Clause 9,
be obliged to accept Bills in respect of the Utilisation in question.
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7.2 A Bank required to make an Advance under Clause 7.1 shall make such Advance
in an amount equal to the aggregate face amount of the Bills which it would,
except for Clause 7.1, be required to accept hereunder and having a Term equal
to the Tenor of such Bills.
8. COMPETITIVE BID OPTION
8.1 In addition to Advances and Bills requested under Clause 6.1, a Borrower
(being in the case of a Utilisation by means of Competitive Bills, incorporated
in the United Kingdom) may, as set forth in this Clause 8 request the Banks to
make offers to make Competitive Advances or to accept Competitive Bills. The
Banks may, but shall have no obligation to, make such offers, and the relevant
Borrower may, but shall have no obligation to, accept any such offers in the
manner set forth in the following provisions of this Clause 8 (and may, by
notice to the Banks through the Facility Agent given by the specified time as
provided in Clause 8.9, require the Banks to make Advances and/or accept Bills
in lieu of any Competitive Advances or Competitive Bills requested).
8.2 If a Borrower wishes to request offers to make Competitive Advances or to
accept Competitive Bills under this Clause 8, it shall deliver a Competitive
Bid Request to the Facility Agent, to be received by the Facility Agent no later
than the specified time, specifying:
(i) whether the request relates to Competitive Advances or
Competitive Bills;
(ii) the proposed Utilisation Date, which shall be a business day;
(iii) in the case of a request relating to Competitive Advances, the
currency of denomination of the proposed Competitive Advances,
which shall be sterling or an Optional Currency;
(iv) the Indicative Amount which shall be:
(a) in the case of Competitive Advances denominated in sterling
or Bills, an amount which does not exceed the Available
Facility for such Utilisation and which, if less than the
Available Facility for such Utilisation is a minimum amount
of Pounds 10,000,000 and an integral multiple of
Pounds 1,000,000 (or such other integral multiple as PLC
and the Facility Agent may agree); and
(b) in the case of a Utilisation by means of Competitive
Advances denominated in an Optional Currency, an amount in
such Optional Currency the Sterling Amount of which does not
exceed the Available Facility for such Utilisation, and
which, if the Sterling Amount is less than the Available
Facility for such Utilisation, is in a minimum Sterling
Amount of Pounds 10,000,000 and is an integral multiple of
1,000,000 of the largest currency unit of such Optional
Currency (or such other integral multiple as PLC and the
Facility Agent may agree); and
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(v) the Term or Tenor in question being:
(a) in respect of Competitive Advances, a period of 14 days,
one, two, three, four, five or six months or such other
period as may be required; and
(b) in respect of Competitive Bills, a period of between 7 days
and 187 days;
which will begin on the proposed Utilisation Date and end on a
business day which is or which precedes the Termination Date.
8.3 Promptly after its receipt of a Competitive Bid Request conforming to the
requirements of Clause 8.2 (but, in any event, no later than the specified time)
the Facility Agent shall send to each of the Banks an Invitation for Competitive
Bids which shall constitute an invitation by the relevant Borrower to each such
Bank to bid, on the terms and conditions of this Agreement, to make Competitive
Advances or, as the case may be, accept Competitive Bills pursuant to the
Competitive Bid Request.
8.4 Each Bank may submit a Competitive Bid containing an offer to make
Competitive Advances or, as the case may be, accept Competitive Bills in
response to such Invitation for Competitive Bids. Each Competitive Bid must
comply with the requirements of this Clause 8.4 and must be submitted to the
Facility Agent not later than the specified time PROVIDED that any Competitive
Bid submitted by the Facility Agent in its capacity as a Bank may only be
submitted if the Facility Agent notifies the relevant Borrower of the terms of
the offer contained therein not later than the close of business on the business
day preceding the deadline for the other Banks. A Competitive Bid submitted by a
Bank pursuant to this Clause 8.4 shall be irrevocable and shall specify:-
(i) the date of the proposed Utilisation;
(ii) the aggregate principal amount of the Competitive Advances or,
as the case may be, Competitive Bills for which such offer is
being made, which principal amount (a) may be an amount the
Sterling Amount of which is greater than the Available Commitment
of the bidding Bank but may not be greater than the Indicative
Amount and (b) must be in a minimum principal amount of
Pounds 1,000,000 or a multiple of Pounds 1,000,000 in excess
thereof (or, in the case of a Utilisation by means of Competitive
Advances denominated in an Optional Currency, must be in a
minimum Sterling Amount of Pounds 1,000,000 and be an integral
multiple of 1,000,000 of the largest currency unit of such
Optional Currency (or such other integral multiple as PLC and the
Facility Agent may agree));
(iii) the Competitive Bid Rate offered for the relevant Competitive
Advance or Competitive Bills; and
(iv) the identity of the bidding Bank.
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8.5 The Facility Agent shall promptly (and, in any event, by no later than the
specified time) notify the relevant Borrower, by telephone (confirmed by
telefax), whether or not any Competitive Bids have been received and of all of
the valid Competitive Bids (if any) made in response to such Invitation for
Competitive Bids (excluding any bids disregarded by reason of not complying with
Clause 8.4), listing the Competitive Bid Rate and the principal amount of each
Competitive Advance or, as the case may be, the Competitive Bid Rate and the
face amount of each Competitive Bill in respect of which a Competitive Bid was
made and the identity of the Bank that made each bid.
8.6 The relevant Borrower shall at its sole discretion and after it has
received the information referred to in Clause 8.5 notify the Facility Agent no
later than the specified time by telephone confirmed immediately thereafter by
telefax in the form of a Competitive Bid Utilisation Confirmation Letter,
whether or not it wishes to proceed with a Utilisation in respect of the
relevant Competitive Bid Request and if so the Requested Amount thereof provided
that:
(i) if the relevant Borrower fails to give such notice by the specified
time it shall be deemed to have elected not to proceed with a
Utilisation in respect of the relevant Competitive Bid Request and to
have rejected all the bids referred to in Clause 8.5; and
(ii) the Requested Amount specified in any Competitive Bid Utilisation
Confirmation Letter shall be an amount which complies with the
requirements of Clause 8.2(iv) and may not exceed the Indicative
Amount specified in the relevant Competitive Bid Request.
A notice given by a Borrower pursuant to this Clause 8.6 shall be irrevocable.
8.7 After receipt of a Competitive Bid Utilisation Confirmation Letter
indicating that the relevant Borrower wishes to proceed with a Utilisation in
respect of the relevant Competitive Bid Request, Competitive Bids (if any) made
by the Banks whose Competitive Bid Rates are less than or equal to the
Applicable Margin or, as the case may be, the Acceptance Commission Rate shall
be accepted by the Facility Agent on behalf of the relevant Borrower in
ascending order of the Competitive Bid Rates bid for the Competitive Bills or
Competitive Advances (as the case may be) the subject of the relevant
Competitive Bid Request up to an aggregate amount equal to the Requested Amount
specified in the relevant Competitive Bid Utilisation Confirmation Letter
Provided that:
(i) if there is a Competitive Bid which would not on this basis be
accepted in full then such Competitive Bid shall be partially
accepted in an amount which when aggregated with the amount of all
other Competitive Bids accepted is equal to the Requested Amount or,
where such partially accepted Competitive Bid relates to Competitive
Bills, in such other amount as the Facility Agent considers necessary
to ensure that the face amount of each such Competitive Bill is not
less than Pounds 250,000 (or such lesser amount as PLC and the
Facility Agent may agree), an integral multiple of Pounds 50,000 (or
such other amount as PLC and the Facility Agent may agree) and does
not exceed Pounds 1,000,000; or
(ii) if there are two or more Competitive Bids with the same Competitive
Bid Rates which would not on this basis be accepted in full then each
such Competitive Bid
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shall be partially accepted by the Facility Agent on behalf of the
relevant Borrower in the proportion which the Competitive Bid in
question bears to the aggregate of such Competitive Bids and, where
such partially accepted Competitive Bids relate to Competitive Bills,
with such rounding upwards or downwards as the Facility Agent
considers necessary in order to ensure that the face amount of each
Competitive Bill is not less than Pounds 250,000 (or such other
amount as PLC and the Facility Agent may agree), an integral multiple
of Pounds 50,000 (or such other amount as PLC and the Facility Agent
may agree) and does not exceed Pounds 1,000,000.
8.8 The Facility Agent shall promptly (and, in any event, by no later than the
specified time) notify each bidding Bank whether or not its Competitive Bid has
been accepted (and if so, in what amount and at what Competitive Bid Rate), and
each successful bidder will thereupon become bound, subject to the other
applicable conditions hereof, to make the Competitive Advance or, as the case
may be, to accept the Competitive Bills in respect of which its bid has been
accepted.
8.9 In the event that no Competitive Bids are accepted under Clause 8.7 or the
aggregate amount of the Competitive Bids accepted under Clause 8.7 is less than
the Requested Amount specified in such Competitive Bid Utilisation Confirmation
Letter, such Competitive Bid Utilisation Confirmation Letter shall automatically
and without the requirement for any further action by the relevant Borrower be
deemed to constitute a Utilisation Request made by the relevant Borrower
requiring the Banks to make Advances or, as the case may be, to accept Bills
(with the same Utilisation Date, currency and Term or Tenor as specified in the
relevant Competitive Bid Request) in an aggregate amount equal to the shortfall
between such Requested Amount and the aggregate of the principal or face amounts
of the Competitive Advances or, as the case may be, the Competitive Bills in
respect of which Competitive Bids have been accepted under Clause 8.7 (or, in
such lesser amount in the case of Bills, as the Facility Agent considers
necessary to ensure that the face amount of each such Bill is not less than
Pounds 250,000 (or such lesser amounts as PLC and the Facility Agent may
agree), an integral multiple of Pounds 50,000 (or such other amount as PLC and
the Facility Agent may agree) and does not exceed Pounds 1,000,000). Such a
Utilisation Request shall be treated as if it were delivered in accordance with
the provisions of Clause 6.1 and the making of such Advances or the acceptance
of such Bills (as the case may be) shall accordingly proceed as provided for in
Clause 6 provided that the provisions of Clause 6.2(iv) relating to minimum
amounts and integral multiples shall not apply thereto.
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PART 4
THE BILLS
9. ACCEPTANCE AND DISCOUNT OF BILLS
9.1 If the Facility Agent notifies any Bank in accordance with Clause 6.10 or
Clause 8.8 that it is to accept any Bills (and such Bank does not elect to make
an Advance pursuant to Clause 7), the Facility Agent shall, by the specified
time, deliver to such Bank Bills in the requisite amount duly drawn by the
Borrower whose Bills are to be accepted and duly completed on behalf of such
Borrower in accordance with Clause 11. Such Bank shall endorse and accept such
Bills and shall, subject to Clause 9.4, return the same to the Facility Agent
(or, if so specified by the Facility Agent, to the Facility Agent's account with
the Central Moneymarkets Office) at such Bank's own risk by the specified time.
9.2 If on the proposed Utilisation Date relating to any Bills:
(i) sterling bills of exchange drawn on and accepted by Eligible Banks
can then be discounted in the London Discount Market;
(ii) the Facility Agent has been able to determine the Eligible Bill
Discount Rate applicable thereto or, if applicable, an alternative
basis rate in substitution therefor pursuant to Clause 21.1(c);
(iii) no Event of Default or Potential Event of Default has occurred which
has not been remedied or waived pursuant to Clause 45;
(iv) the representations set out in Clause 22 are true on and as of such
Utilisation Date; and
(v) the proposed Utilisation would not result in there being Advances and
Bills outstanding which have been made or accepted pursuant to
fifteen (15) or more Utilisations under the Facility,
the Facility Agent shall, subject to Clauses 9.3 and 9.4, either offer such
Bills for discount in the London Discount Market at the Eligible Bill Discount
Rate for such Utilisation Date or, at the Facility Agent's discretion, elect, no
later than the specified time, to purchase all or any of such Bills as principal
for an amount equal to the amount which it would have received had it arranged
for the discounting of such Bills at such Eligible Bill Discount Rate. The
Facility Agent will notify such Eligible Bill Discount Rate by no later than the
specified time to the Borrower whose Bills are being accepted and each Bank
which is to discount Bills pursuant to Clause 9.3 or 9.4. If, on any proposed
Utilisation Date, the conditions set forth in Clause 9.2(i) to (v) have not been
complied with, then the proposed Utilisation shall not be made and any Bills
accepted by the Banks in respect of such proposed Utilisation shall be cancelled
and the respective obligations of the parties in relation thereto shall be
terminated.
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9.3 If, on any occasion, the Facility Agent does not exercise its discretion to
purchase any or all of the Bills accepted by any Bank and it is unable to
arrange for such Bills to be discounted in the London Discount Market at the
Eligible Bill Discount Rate, it shall promptly notify such Bank to such effect
and with an accompanying notice to such Bank, it will instruct the Central
Moneymarkets Office at the Bank of England to transfer such Bills to the account
of such Bank or such Bank's agent and return such Bills to such Bank, whereupon:
(i) such Bank shall itself discount or arrange for the discounting of
such Bills and such Bills shall be deemed to have been so discounted
at the Eligible Bill Discount Rate notified by the Facility Agent
pursuant to Clause 9.2 (whether or not such Bank is able so to
discount such Bills); and
(ii) such Bank shall, in relation to such Bills, pay to the Facility Agent
on the relevant Utilisation Date an amount equal to the amount which
the Facility Agent would have received had the Facility Agent itself
arranged for the discounting of such Bills at such rate (but after
deducting and retaining for its own account all acceptance commission
payable by the relevant Borrower to such Bank pursuant to Clause 10).
9.4 If, on any occasion, a Bank has specified in a notice given by it to the
Facility Agent pursuant to Clause 6.11 that it does not wish the Facility Agent
to arrange for the discounting of the Bills in question, such Bank shall not
return such Bills to the Facility Agent in accordance with Clause 9.1 and, if
the conditions set forth in Clause 9.2(i) to (v) have been complied with:
(i) such Bills shall be deemed to have been so discounted at the Eligible
Bill Discount Rate notified pursuant to Clause 9.2 (whether or not
such Bank is able so to discount such Bills); and
(ii) such Bank shall, in relation to such Bills, pay to the Facility Agent
on the relevant Utilisation Date an amount equal to the amount which
the Facility Agent would have received had the Facility Agent itself
arranged for the discounting of such Bills at such Eligible Bill
Discount Rate (but after deducting and retaining for its own account
all acceptance commission payable by the relevant Borrower to the
Facility Agent for the account of such Bank pursuant to Clause 10).
9.5 The Facility Agent will account to the relevant Borrower for all proceeds
of deemed discounting or discounting received by it pursuant to Clauses 9.2, 9.3
and 9.4 and, if applicable, the purchase price payable by the Facility Agent as
principal pursuant to Clause 9.2 but after deducting and paying to the Banks the
acceptance commission payable to them pursuant to Clause 10 (to the extent not
already deducted and retained by them pursuant to Clause 9.3 or Clause 9.4).
10. ACCEPTANCE COMMISSION
The relevant Borrower whose Bills are accepted hereunder shall be obliged, on
the day such Bills are accepted, to pay to the Facility Agent for the account of
each Bank which accepts its Bills under Clause 9.1 an acceptance commission in
sterling at the Acceptance Commission Rate on the face amount thereof and for
the Tenor thereof.
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11. THE BILLS
11.1 The relevant Borrower shall ensure upon delivery of any Utilisation Request
for a Utilisation by means of Bills that the Facility Agent has a sufficient
stock of blank unsigned Bills to enable it to proceed with such Utilisation.
Such Borrower shall also, prior to delivery by it of its first Utilisation
Request for Bills, provide the Facility Agent with a power of attorney in the
form of the Twelfth Schedule or in such other form as the Facility Agent may
require authorising the Facility Agent to prepare, complete and sign Bills
consistently with any proposed Utilisation (subject as provided herein) and on
such Borrower's behalf to present the same to the Banks for acceptance.
11.2 Each Bill supplied to the Facility Agent by the relevant Borrower for the
purpose set out in Clause 11.1 shall:
(i) be claused in such manner as to comply with the Bank of England's
requirements for Eligible Bills current at the time;
(ii) be undated; and
(iii) have the maturity date, amount and drawee left blank.
11.3 The Facility Agent shall (i) prepare and complete Bills on behalf of the
relevant Borrower by (a) dating such Bills with the issue and maturity dates,
(b) signing such Bills on behalf of such Borrower, (c) inserting the name of the
relevant Bank as drawee and (d) inserting the face amount of each Bill in a
manner consistent with allocations under Clause 6 or Clause 8, as the case may
be, and (ii) deliver the same to Banks for acceptance Provided that the face
amount of each Bill shall not exceed Pounds 1,000,000.
11.4 The relevant Borrower shall give to the Facility Agent and each Bank which
has accepted a Bill on its request such information relating to the underlying
trade transaction to which such Bill relates as the Facility Agent or such Bank,
through the Facility Agent, may reasonably request to confirm that such Bill is
an Eligible Bill.
11.5 The Facility Agent hereby agrees:-
(i) only to prepare, complete and sign the Bills in accordance with
Clause 11.3; and
(ii) to indemnify each Borrower and hold it harmless against all or any
proceedings, actions, claims and demands which may be brought or made
against such Borrower and all losses, costs, charges, damages and
expenses which such Borrower may incur or sustain or for which such
Borrower may become liable by reason of the completion by the
Facility Agent of Bills otherwise than in accordance with Clause
11.3.
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12. PAYMENT OF BILLS
On the Maturity Date of each Bill the Borrower which drew such Bill shall pay to
the Facility Agent, for account of the Bank which accepted such Bill, an amount
in sterling equal to the face amount of such Bill.
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PART 5
THE ADVANCES
13. MAKING OF ADVANCES
13.1 If any of the Facility Agent, the Dollar Swing-Line Agent or the Sterling
Swing-Line Agent notifies any Bank in accordance with Clause 6 or Clause 8.8
that it is to make any Advance (or if any Bank notifies the Facility Agent in
accordance with Clause 7 that it wishes to make an Advance), and if on the
proposed Utilisation Date relating to such an Advance:
(i) the event mentioned in Clause 21.1(i) has not occurred or an
alternative basis rate in substitution for LIBOR has been
determined pursuant to Clause 21.1(c);
(ii) no Event of Default or Potential Event of Default has occurred
which has not been remedied or waived pursuant to Clause 45;
(iii) the representations set out in Clause 22 are true on and as of
such Utilisation Date;
(iv) the proposed Utilisation would not result in there being
Advances and Bills outstanding which have been made or accepted
pursuant to fifteen (15) or more Utilisations under the Facility;
and
(v) in the case of a Dollar Swing-Line Advance, no other Utilisation
Request has been delivered to the Dollar Swing-Line Agent for a
Utilisation on that Utilisation Date,
then, on such Utilisation Date, such Bank shall, save as otherwise provided
herein, make such Advance through its Facility Office to the Borrower that
requested such Advance.
13.2 If on the proposed Utilisation Date on which any Advances are to be made to
any Borrower by any of the Banks, any Bank does not wish to make an Advance to
such Borrower by reason of such Borrower being incorporated in a jurisdiction
other than within the United Kingdom where such Borrower would be obliged to
make a payment hereunder after making a deduction or withholding for or on
account of tax, and where in the reasonable opinion of such Bank it would be
unlawful for such Borrower to comply fully with the provisions of Clause 17.1
hereof, such Bank may by no later than 5.00 p.m. on the day prior to the
Quotation Date for such Advance notify the Facility Agent by telephone (to be
confirmed no later than 9.30 a.m. on the Quotation Date by telex, telefax or
letter) that it does not wish to do so, in which case it shall not be obliged to
do so, but instead shall be required to make an Advance to PLC in accordance
with Clause 13.3.
13.3 A Bank required to make an Advance to PLC under Clause 13.2 shall make such
Advance in otherwise identical terms (as to amount, currency and duration), to
the Advance to such other Borrower which it would, except for Clause 13.2, be
required to make.
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14. INTEREST
14.1 On the Repayment Date relating to each Advance (and, in the case of an
Advance which has a Term in excess of six months, on the expiry of each period
of six months during such Term) the Borrower to which such Advance has been made
shall pay accrued interest on that Advance.
14.2 The rate of interest applicable to an Advance (other than a Swing-Line
Advance) made by a Bank hereunder during the Term of such Advance shall be the
rate per annum determined by the Facility Agent to be the sum of:
(i) LIBOR for such Advance;
(ii) the Applicable Margin; and
(iii) if the Advance is to be denominated in sterling, the Associated Costs
Rate applicable thereto.
14.3 The rate of interest applicable to a Dollar Swing-Line Advance shall be the
rate per annum determined by the Dollar Swing-Line Agent in accordance with this
Agreement to be the Dollar Swing-Line Rate from time to time during its Term.
14.4 The rate of interest applicable to a Sterling Swing-Line Advance shall be
the rate per annum determined by the Sterling Swing-Line Agent in accordance
with this Agreement to be the Sterling Swing-Line Rate from time to time during
its Term.
14.5 Each Agent shall promptly notify the relevant Borrower and the relevant
Banks of each determination of LIBOR or a Swing-Line Rate made by it pursuant to
this Clause 14.
14.6 (i) If any Bank which is actually required to maintain reserves with
respect to Eurocurrency Liabilities (as defined in Regulation D of
the Board of Governors of the Federal Reserve System, or any
successor thereto ("Regulation D") in connection with any Advance,
the related Borrower with respect to such Advance shall pay to such
Bank additional interest on the unpaid principal amount of such
Advance of such Bank from the date of such Advance until such
principal amount is paid in full, payable as provided in paragraph
(ii) of this Clause 14.6, at an interest rate per annum equal to the
excess of (a)(1) LIBOR as calculated in respect of such Advance,
divided by (2) 1.00 minus the Reserve Percentage during the Term of
such Advance over (b) the rate specified in (a)(1). For the purposes
of the preceding sentence, "Reserve Percentage" means, for each day
of the Term, that percentage (expressed as a decimal) which is in
effect on such day, for determining the maximum reserve requirement
for such Bank under Regulation D for Eurocurrency Liabilities.
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(ii) A certificate of any Bank entitled to payment under paragraph (i) of
this Clause 14.6 setting forth such amount as shall be necessary to
compensate such Bank in accordance with such Clause and identifying
with reasonable specificity the basis for calculating such amount
shall be delivered through the Facility Agent to the appropriate
Borrower within six months after the last day of the Term of the
Advance with respect to which such compensation is requested. Such
Borrower shall pay to the Facility Agent for account of such Bank the
amount shown as due on such certificate within ten days after such
Borrower's receipt thereof Provided however, that such Borrower
shall not be obliged to pay any such amount with respect to such Term
if such Borrower shall have received such certificate more than six
months after the last day of such Term.
15. REPAYMENT AND PREPAYMENT
15.1 Each Borrower shall repay each Advance made to it in full on the Repayment
Date relating thereto.
15.2 If:
(a) PLC gives notice of cancellation pursuant to Clause 16.3 it may at
the same time give notice to the Facility Agent of the intention of
the Borrowers to prepay all outstanding Advances made by such Bank
together with accrued interest thereon and/or to comply prematurely
with their obligations under Clause 12 in respect of all outstanding
Bills accepted by such Bank in either case upon such date as may be
specified in such notice; or
(b) PLC so elects it may at any time give not less than 10 business days'
notice to the Facility Agent of the intention of the Borrowers to
prepay all outstanding Advances made by the Banks or any part of
outstanding Advances made by the Banks together with accrued interest
thereon and/or to comply prematurely with their obligations under
Clause 12 in respect of all outstanding Bills accepted by the Banks
or any part of outstanding Bills accepted by the Banks in each case
upon such date as may be specified in such notice Provided that (i)
any prepayment of part shall be an amount such that the Sterling
Amount of such Advances and/or Bills shall be reduced by a minimum
amount of Pounds 10,000,000 and an integral multiple of Pounds
1,000,000 and (ii) any prepayment shall reduce the Outstandings of
the Banks rateably.
Any such notice shall be irrevocable and shall oblige each Borrower to make
the repayments or payments in question on the date specified therein together
with all other sums due from it under any of the Finance Documents in respect of
the Advances or Bills in question. If a Bank receives an amount pursuant to
this Clause 15.2 or Clause 20.1 in relation to a Bill then, on the Maturity Date
of such Bill, such Bank shall account to the Borrower which made such payment
for an amount equal to interest thereon for the period from and including the
date of such payment to but excluding such maturity date at the rate (as
determined by such Bank) at which it pays interest to its corporate customers
for time deposits of comparable term and amount in the relevant currency.
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PART 6
CANCELLATION
16. CANCELLATION
16.1 PLC may, by giving to the Facility Agent (copied to the Dollar Swing-Line
Agent and the Sterling Swing-Line Agent) not less than ten (10) days' prior
notice to that effect, cancel the whole or any part (if part, being a minimum
amount of Pounds 10,000,000 and integral multiple of Pounds 1,000,000) of the
Available Facility. Any such cancellation shall reduce the Available Commitment
and Available Swing-Line Commitment of each Bank in the proportion which its
Commitment bears to the Total Commitments.
16.2 Any notice of cancellation given by PLC pursuant to Clause 16.1 shall be
irrevocable and shall specify the date upon which such cancellation is to be
made and the amount of such cancellation.
16.3 If (i) by reason of (a) any change after the date hereof in law
(including any modification or revocation of an applicable tax
treaty) or in its interpretation or administration and/or (b)
compliance with any request from or requirement of any central
bank or other fiscal, monetary or other authority which is of a
general nature and compliance with which is in accordance with the
reasonable practice of banks to which it applies and which request
or requirement is made, imposed, renewed or modified at any time
after the date hereof (including, without limitation, a change,
request or requirement which affects the manner in which a Bank
allocates capital resources to underwriting commitments in
compliance with any such change, request or requirement):-
(1) the amount of any payment to be made to or for the account of
any Bank by any Borrower is increased under Clause 17.1; or
(2) it becomes apparent that any such payment will be required to
be so increased; or
(ii) any representation made by a Bank pursuant to Clause 17.7 is
untrue; or would at any time, if it were to be repeated at such
time, be untrue; or
(iii) any Bank claims indemnification from any Borrower under Clauses
17.8 or 19.1,
then PLC may, within sixty days thereafter and by not less than ten (10) days'
prior written notice to the Facility Agent, cancel such Bank's Available
Commitment whereupon such Bank shall cease to be obliged to accept any further
Bills or to make Advances hereunder and its Available Commitment shall be
reduced to zero.
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PART 7
CHANGES IN CIRCUMSTANCES
17. TAXES
17.1 All payments to be made by any of the Borrowers to any person hereunder
shall be made free and clear of and without deduction for or on account of tax
unless such Borrower is required to make such a payment subject to the deduction
or withholding of tax, in which case (subject only to Clauses 17.2, 17.6 and
19.3) the sum payable by such Borrower in respect of which such deduction or
withholding is required to be made shall be increased to the extent necessary to
ensure that, after the making of the required deduction or withholding, such
person receives and retains (free from any liability in respect of any such
deduction or withholding) a net sum equal to the sum which it would have
received and so retained had no such deduction or withholding been made or
required to be made. If, on behalf of the relevant Borrower, the Facility Agent
or any Bank pays any amount in respect of any tax which the relevant Borrower
has agreed to pay pursuant to this Clause 17.1, the relevant Borrower shall
reimburse the Facility Agent or such Bank (as the case may be) for such payment
on demand.
17.2 No Borrower resident in the United Kingdom for United Kingdom tax purposes
shall be obliged to make any additional payment pursuant to Clause 17.1 to any
Bank if the obligation to make such an additional payment has arisen (i) by
reason of such Bank (acting through a Facility Office for the purpose of
Utilisations by that Borrower) not being a Qualifying Bank otherwise than by
reason of any change in any law or regulation or in its interpretation or
administration or any change in any extra-statutory or Inland Revenue concession
or (ii) by reason of the failure by such Bank to bring into account payments of
interest made to that Facility Office by such Borrower as trading receipts of a
bona fide banking business carried on by such Bank in the United Kingdom.
17.3 Each Bank that is not a US Person (as such term is defined in Section
7701(a) (30) of the United States Internal Revenue Code of 1986, as amended)
shall submit to PLC, within 60 days of becoming a party to this Agreement (but
in no event later than the earliest date on which payments are to be made to
such Bank under this Agreement by a Borrower organised in or under the laws of
the United States of America), two duly completed and signed copies of either US
Internal Revenue Service Form 1001, entitling it to complete exemption from
withholding (or such reduced rate of withholding as may be available to it) on
all amounts to be received by such Bank hereunder from any Borrower that is
organised in the United States of America, or US Internal Revenue Service Form
4224 entitling it to complete exemption from withholding on all amounts to be
received by such Bank hereunder from any such Borrower. Thereafter and from
time to time, each such Bank shall submit to PLC such additional duly completed
and signed copies of one or the other of such forms (or such successor forms as
shall be adopted from time to time by the relevant United States taxing
authorities) as may be notified by PLC to such Bank and required under then
current United States law or regulations to avoid or reduce United
States withholding taxes on payments in respect of all amounts to be received by
such Bank hereunder. Within 60 days after becoming a party to this Agreement
(but in no event later than the earliest date on which payments are to be made
to such Bank under this Agreement by a Borrower organised in or under the laws
of the United States of America), each Bank that is a US Person (as such term is
defined in Section 7701(a)(30) of the United States Internal Revenue Code of
1986, as amended) shall submit to PLC a certificate to the effect that it is
such a
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US Person. Notwithstanding the foregoing, no Bank shall be required to submit
any such forms or certificates if such Bank is not allowed validly to file any
of such forms or certificates and has taken reasonable steps to obtain such
United States withholding tax exemption (if any) as is available to it in the
circumstances.
17.4 Each Bank shall use reasonable endeavours to enable any Borrower to make
payments hereunder without withholding or deduction for or on account of tax
(such action to include the giving of any direction or certificate as may be
required by the Facility Agent to enable it to effect any payment without such
withholding or deduction) except that nothing herein shall oblige any Bank to
take any action which within the sole opinion of such Bank is prejudicial to its
interests.
17.5 If any Bank determines, as a result of any change in any law, regulation or
treaty or in its official application or interpretation, that it is unable to
submit to PLC any form or certificate that such Bank is obliged to submit
pursuant to Clause 17.3, or that such Bank is required to withdraw or cancel any
such form or certificate previously submitted, such Bank shall promptly notify
PLC of such fact.
17.6 No Borrower that is organised in the United States of America shall be
obliged to make any additional payment pursuant to Clause 17.1 to any Bank (i)
to the extent that such obligation existed on the date hereof, (ii) to the
extent that any Bank has failed to provide the forms or certificates, as the
case may be, described in Clause 17.3 (except where such Bank is not allowed
validly to file any of such forms or certificates, and has taken reasonable
steps to obtain such United States withholding tax exemption (if any) as is
available to it in the circumstances), or (iii) if any amount of interest
payable to it under this Agreement is not beneficially owned by it, in each case
for a reason that is not related to a change in United States federal income tax
law, including any regulations, amendments thereto, or official interpretation
thereof, any modification or revocation of an applicable tax treaty or any
change in the official position regarding the application or interpretation
thereof, occurring after the date hereof. No such Borrower shall be obligated
to make any additional payment pursuant to Clause 17.1 to any Bank that is
organised in the United States of America or any political subdivision or taxing
authority thereof or therein.
17.7 Each Bank represents to each Borrower resident in the United Kingdom for
tax purposes that, as at the date hereof, such Bank is, acting through its
Facility Office for the purpose of Utilisations (other than by way of Dollar
Swing-Line Advances) by that Borrower, a Qualifying Bank and that it presently
intends that all amounts of interest payable to that Facility Office under this
Agreement by that Borrower will be brought into account as a trading receipt of
a bona fide banking business carried on by it in the United Kingdom. Each Bank
undertakes that it will, as soon as reasonably practicable after it becomes
aware of the same, inform PLC if such representation was untrue at the time it
was made or if it ceases to be a Qualifying Bank at any time after the date
hereof.
17.8 Without prejudice to the provisions of Clause 17.1 but subject to the
provisions of Clause 19.3, if any Bank or any Agent on its behalf is required by
law or otherwise to make any payment on account of tax on or in relation to any
sum received or receivable hereunder by such Bank or an Agent on its behalf
(including, without limitation, any sum received or receivable under this Clause
17) or any liability in respect of any such payment is imposed, levied or
assessed against such Bank or the Facility Agent on its behalf, it shall deliver
to PLC through the Facility Agent a certificate to that effect setting out in
reasonable detail the basis and computation of such claim. PLC
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will, upon demand of the Facility Agent (made by it promptly after delivery by
it to PLC of such certificate) promptly indemnify such Bank or Agent (as the
case may be) against such payment or liability, together with any interest,
penalties and expenses payable or incurred in connection therewith.
18. TAX RECEIPTS AND TAX CREDITS
18.1 If, at any time, any of the Borrowers is required by law to make any
deduction or withholding from any sum payable by it hereunder (or if thereafter
there is any change in the rates at which or the manner in which such deductions
or withholdings are calculated), such Borrower shall promptly notify the
Facility Agent of such requirement.
18.2 If any of the Borrowers makes any payment hereunder in respect of which it
is required to make any deduction or withholding, it shall pay the full amount
required to be deducted or withheld to the relevant taxation or other authority
within the time allowed for such payment under applicable law and promptly (if
such is obtainable) shall deliver to the Facility Agent for each Bank an
original receipt (or a certified copy thereof) evidencing the payment to such
authority of all amounts so required to be deducted or withheld in respect of
that Bank's share of such payment.
18.3 If any Borrower makes a payment under Clause 17.1 for account of any person
and such person, in its sole opinion, determines that it has received or been
granted a credit against or relief or remission for, or repayment of, any tax
paid or payable by it in respect of or calculated with reference to the
deduction or withholding giving rise to such payment, such person shall, to the
extent that it can do so without prejudice to the retention of the amount of
such credit, relief, remission or repayment, pay to such Borrower such amount as
such person shall, in its sole opinion, have determined to be attributable to
such deduction or withholding and which will leave such person (after such
payment) in no better or worse position that it would have been in if such
Borrower had not been required to make such deduction or withholding. Any
payment made by a person under this Clause 18.3 shall be conclusive evidence of
the amount due to such Borrower hereunder and shall be accepted by such Borrower
in full and final settlement of its rights of reimbursement hereunder in respect
of the relevant deduction or withholding. Nothing herein contained shall
interfere with the right of a person to arrange its tax affairs in whatever
manner it thinks fit nor oblige any person to disclose any information relating
to its tax affairs or any computations in respect hereof.
19. INCREASED COSTS
19.1 Subject to Clause 19.3 if, by reason of (i) any change after the date
hereof in law or in its interpretation or administration and/or (ii) compliance
with any request from or requirement of any central bank or other fiscal,
monetary or other authority which is of a general nature and compliance with
which is in accordance with the reasonable practice of banks to which it applies
and which request or requirement is made, imposed, reviewed or modified at any
time after the date hereof (including, without limitation, a change, request or
requirement which affects the manner in which a Bank is required to or does
maintain capital resources to underwriting commitments in compliance with any
such change, request or requirement):
(a) a Bank suffers a cost (including, without limitation, the cost of
complying with any reserve, special deposit, liquidity, cash ratio or
other requirement) as a result of its
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having entered into and/or performing its obligations under this
Agreement and/or maintaining its Commitment hereunder and/or its
accepting one or more Bills and/or its having outstanding to it one
or more Advances or unpaid sums hereunder;
(b) a Bank suffers a reduction in the rate of return on its overall
capital as a result of a change in the manner in which such Bank is
required to allocate resources to its obligations hereunder;
(c) there is any increase in the cost to a Bank of funding or maintaining
all or any of the advances comprised in a class of advances formed by
or including the Advances made or to be made by such Bank hereunder;
(d) a Bank becomes liable to make any payment on or calculated by
reference to the amount of any acceptances made or to be made by it
hereunder and/or any Advances or unpaid sums owed to it and/or to any
sum received or receivable by it hereunder,
then and in any such event, PLC shall, from time to time within ten (10) days of
receipt by it of a demand by the Facility Agent, pay to the Facility Agent for
the account of that Bank amounts sufficient to indemnify that Bank against, as
the case may be:
(i) such cost (or such proportion of such cost as is in the reasonable
opinion of such Bank attributable to this Agreement);
(ii) such proportion of such reduction as is in the reasonable opinion of
such Bank attributable to this Agreement;
(iii) such increased cost (or such proportion of such increased cost as is
in the reasonable opinion of that Bank attributable to its funding or
maintaining such Advances or unpaid sums hereunder); or
(iv) such liability,
Provided that any such demand by the Facility Agent shall not be made more than
six months after such cost, reduction, increased cost or liability in respect of
which such claim is made is actually suffered by such Bank.
19.2 A Bank intending to make a claim pursuant to Clause 19.1 shall notify the
Facility Agent of the event by reason of which it is entitled to do so setting
out in reasonable detail the computation of such claim whereupon the Facility
Agent shall notify PLC thereof Provided that nothing herein shall require such
Bank to disclose any confidential information relating to the funding of its
obligations hereunder or generally.
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19.3 Clauses 17.1, 17.8 and 19.1 shall not apply to:-
(i) any cost or amount included in the Associated Costs Rate or payable
pursuant to Clause 14.6; or
(ii) any amount attributable to any Bank complying with any law,
regulation, treaty or official directive or request (whether or not
having the force of law) in existence at the date such Bank first
became a party to this Agreement, where such Bank was not in
compliance with the same at such date and was required to be in
compliance with the same at such date; or
(iii) any cost that is a tax based on, or computed by reference to, (a)
the overall profit or net income (or any part thereof) of any Bank or
the Facility Office through which it is acting, or any tax imposed on
branch profits under section 884 of the United States Internal
Revenue Code of 1986 or (b) the capital of any Bank.
20. ILLEGALITY AND MITIGATION
20.1 If, at any time, it is unlawful or contrary to any request from, or
requirement of, any fiscal, monetary or other authority (which request or
requirement is of a general nature and compliance with which is the normal
practice of banks to which it applies) for a Bank to make, fund or allow to
remain outstanding all or any of the Advances made or to be made by it hereunder
or to accept or allow to remain outstanding all or any of the Bills accepted or
to be accepted by it hereunder, then that Bank shall, promptly after becoming
aware of the same, deliver to PLC through the Facility Agent a certificate to
that effect and, unless such illegality is avoided in accordance with Clause
20.2:
(i) such Bank shall not thereafter be obliged to make any Advances or to
accept any Bills and the amount of its Available Commitment shall be
immediately reduced to zero; and
(ii) if the Facility Agent on behalf of such Bank so requires, PLC shall
procure that the relevant Borrower or Borrowers shall on such date as
the Facility Agent shall have specified (being the latest date on
which the relevant law requires that the same be repaid):
(a) repay each outstanding Advance together with accrued interest
thereon and all other amounts owing to such Bank hereunder;
and/or
(b) comply prematurely with its obligations under Clause 12 in
respect of any Bills drawn by it and accepted by such Bank.
20.2 If, in respect of any Bank, circumstances arise which would or would upon
the giving of notice result in:-
(i) the reduction of its Commitment to zero pursuant to Clause 20.1;
<PAGE>
(ii) an increase in the amount of any payment to be made to it or for its
account pursuant to Clause 17.1; or
(iii) a claim for indemnification pursuant to Clauses 17.8 or 19.1,
then, without in any way limiting, reducing or otherwise qualifying the
obligations of any of the Borrowers under any of the Clauses referred to in (i),
(ii) or (iii) above, such Bank shall promptly upon becoming aware of the same
notify the Facility Agent thereof and, in consultation with the Facility Agent
and PLC take such reasonable steps as may be reasonably open to it to mitigate
the effects of such circumstances including the transfer of its Facility Office
or the transfer of its rights and obligations hereunder to another financial
institution acceptable to PLC and willing to participate in the Facility
Provided that such Bank shall be under no obligation to take any such action if,
in the reasonable opinion of such Bank, to do so would have an adverse effect
upon its (or any part of its) business, operations or financial condition.
21. MARKET DISRUPTION
21.1 If, in relation to any Utilisation:
(i) by way of Advances (other than Dollar Swing-Line Advances) the
Facility Agent determines that at or about 11.00 a.m. on the
Quotation Date in respect of such Advances, LIBOR cannot be
determined (by reason of the failure of all the Reference Banks to
supply the quotations necessary to make such determination); or
(ii) by way of Advances denominated in Hong Kong Dollars, the Facility
Agent is notified by a group of Banks whose Commitments together
amount to 50% or more of the Total Commitments at or about 11.00 a.m.
on the Quotation Date in respect of such Advances that the Screen
Rate is materially different to the cost to such Banks of funding
such Advances; or
(iii) in relation to any Utilisation by way of Bills, the Facility Agent is
unable to make any determination of an applicable Eligible Bill
Discount Rate,
then, notwithstanding the provisions of Clause 13:
(a) the Facility Agent shall promptly notify the other parties hereto of
such event;
(b) such Advances or such Bills (as the case may be) shall not be made or
accepted (as the case may be) unless a substitute basis has been
agreed pursuant to Clause 21.1(c); and
(c) the Facility Agent shall, if so required by PLC, enter into
negotiations with PLC in good faith with a view to agreeing an
alternative means for determining a basis rate in substitution for
LIBOR (in the case of Clause 21.1(i)), the Screen Rate (in the case
of Clause 21.1(ii)) or, as the case may be, the Eligible Bill
Discount Rate (in the case of Clause 21.1(iii)) for in the future and
if such a substitute basis is
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agreed by PLC the Facility Agent and an Instructing Group, it shall
take effect in accordance with its terms.
21.2 If, in relation to any Utilisation by way of Dollar Swing-Line Advances,
the Dollar Swing-Line Agent determines that the Federal Funds Rate cannot be
determined on the first day of the Term of such Advance, the Dollar Swing-Line
Agent shall notify the other parties hereto of that event and each Swing-Line
Bank's proportion of such Dollar Swing-Line Advance shall bear interest during
its Term at the higher of (i) the Prime Rate and (ii) the rate per annum
determined by the Dollar Swing-Line Agent to be the sum of the cost to such
Swing-Line Bank of funding such portion of such Dollar Swing-Line Advance from
whatever sources it may reasonably select and 0.25 per cent. per annum.
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PART 8
REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT
22. REPRESENTATIONS
22.1 Each of the Borrowers represents that, subject to the same reservations
(but not the assumptions) stated in the legal opinions of English and U.S.
counsel referred to in the Third Schedule when and as actually delivered:
(i) it is duly incorporated and validly existing under the laws of
the country in which it is incorporated and has power, and is
able lawfully, to execute and deliver each of the Finance
Documents to which it is or is to be party and to exercise its
rights and perform its obligations thereunder and all corporate
or other action required to authorise the execution and delivery
of each such Finance Document by it and the performance by it of
its obligations thereunder has been duly taken;
(ii) each of the Finance Documents to which it is or is to be party
constitutes (or will, when completed, executed and delivered in
the manner contemplated hereby, constitute) its legal, valid,
binding and enforceable obligation;
(iii) the execution and delivery by it of the Finance Documents and
the performance by it of its obligations thereunder will not:
(a) contravene any provisions of any law, statute, decree, rule
or regulation to which it or any of its assets or revenues
is subject, or of any order, judgment, injunction, decree,
resolution, determination or award of any court or other
judicial, administrative or other governmental authority or
organisation having applicability to it or any of its assets
or revenues;
(b) violate any provision of its constitutive documents;
(c) contravene the provisions of any agreement, indenture,
mortgage, deed of trust, bond or other obligation to which
it is a party or by which it or any of its assets or
revenues may be bound or affected; or
(d) oblige it to create any encumbrance other than a Permitted
Encumbrance over all or any of its present or future
revenues or assets,
in circumstances where (in the case of (a) or (c)) such
contravention would reasonably be expected to have a material
adverse effect on such Borrower's ability to meet its obligations
under the Finance Documents to which it is a party;
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(iv) it has obtained (and there are in full force and effect) all
governmental or other authorisations, approvals or consents
required by it for the execution and delivery by it of any of the
Finance Documents, for the exercise by it of its rights and the
observance and performance by it of all of its obligations and
duties thereunder and for all other matters and things therein
contemplated;
(v) no utilisation of the Facility by it will cause any limit or
restriction on its borrowing or other powers (whether imposed by
law, decree, rule, regulation, agreement, its corporate
constitutional documents or otherwise howsoever) or on the right
or ability of its directors to exercise any such powers to be
exceeded or breached;
(vi) no Event of Default or Potential Event of Default has occurred
and is continuing;
(vii) the Original Financial Statements and (if different) the most
recently published annual consolidated financial statements of
PLC give a true and fair view of the state of affairs of PLC and
the Group as at the dates as of which the same were prepared and,
since the date as at which the Original Financial Statements were
prepared, there has been no change in the financial condition of
the Group taken as a whole as would materially and adversely
affect the ability of PLC to meet its payment obligations under
the Finance Documents;
(viii) no litigation or dispute is current, pending or to its
knowledge threatened against it or any of its subsidiaries, or
any of their respective assets, which would reasonably be
expected to have a material adverse effect upon the ability of
PLC to perform its payment obligations under the Finance
Documents; and
(ix) none of the transactions contemplated in this Agreement
(including, without limitation, the borrowings hereunder and the
use of the proceeds thereof) will violate or result in a
violation of Section 7 of the Securities Exchange Act of 1934 (or
any regulations issued pursuant thereto, including, without
limitation, Regulations G, U and X of the Board of Governors of
the Federal Reserve System).
22.2 Each of the representations contained in Clause 22.1 shall be deemed to be
repeated by PLC and the Borrower making the relevant Utilisation on and as of
each Utilisation Date by reference to the facts and circumstances then existing.
23. FINANCIAL INFORMATION
23.1 PLC shall:
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(i) as soon as the same become available, but in any event within 180
days after the end of each of its financial years, deliver to the
Facility Agent in sufficient copies for the Facility Agent, the
Dollar Swing-Line Agent and the Sterling Swing-Line Agent and the
Banks the audited consolidated financial statements of the Group for
such financial year;
(ii) as soon as the same become available, but in any event within 180
days after the end of each financial year of each Borrower (other
than PLC) in respect of which the Facility Agent shall have so
requested, deliver to the Facility Agent sufficient copies for the
Facility Agent and the Banks of the audited financial statements of
such Borrower;
(iii) as soon as practicable but in any event within 30 days of the same
becoming available deliver to the Facility Agent in sufficient copies
for the Facility Agent and the Banks the interim financial statements
(whether audited or not and whether consolidated or not) provided by
PLC to its shareholders;
(iv) supply such other information concerning the business, operations and
condition (financial or otherwise) of it and its subsidiaries as the
Facility Agent or any Bank, through the Facility Agent, may from time
to time reasonably request, but so that all information provided to
the Facility Agent or any Bank pursuant to this sub-paragraph (iv)
shall be confidential to the Facility Agent and the Banks, their
servants and their legal advisers and other consultants and auditors
except:
(a) to the extent to which disclosure is required by law or any other
official directive or request (whether or not having the force of
law);
(b) where such information is generally available; or
(c) where and to the extent that disclosure is necessary in
connection with the enforcement, or preservation, of any rights
hereunder; and
(v) promptly upon receipt of a written request from the Facility Agent
confirm to the Facility Agent that during the Tenor of any Bills
accepted under the Facility the value of such items as may from time
to time be specified in the clausing of Bills pursuant to Clause 11.2
(excluding such goods which were the subject of any other financing
arrangement) exceeded the aggregate face amount of such Bills drawn
against such items.
23.2 PLC shall ensure that each set of financial statements delivered by it
pursuant to Clauses 23.1(i), 23.1(ii) and 23.1(iii) is prepared (subject to
Clause 23.3) on the same basis as was used in the preparation of its Original
Financial Statements and in accordance with accounting principles generally
accepted in the United Kingdom in the case of PLC and the Group or, in relation
to any other Borrower, accounting principles generally accepted in the
jurisdiction of incorporation of that Borrower.
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23.3 If, at any time, there is a change in accounting principles generally
accepted in the United Kingdom or PLC changes, or PLC's Board of Directors
resolves to change, the basis, or one or more of the accounting policies, upon
which its audited annual consolidated financial statements are prepared (in
circumstances where any such change would have a material effect on such
financial statements) or its Accounting Reference Date then:
(i) PLC shall promptly notify the Facility Agent of such change or
proposed change;
(ii) PLC and the Facility Agent shall enter into negotiations in good
faith with a view to agreeing:
(a) whether or not such change or proposed change might result in any
material alteration in the compliance by PLC with the financial
ratios set out herein or the determination of which of PLC's
subsidiaries is a Principal Subsidiary;
(b) if so, any amendments to this Agreement which may be necessary in
order to ensure that such change or proposed change does not
result in any material alteration in such matters,
and, if any such amendments are agreed, they shall take effect and be
binding upon the parties hereto in accordance with their terms; and
(iii) if within a period of 60 days after such notification PLC and the
Facility Agent have failed to reach agreement then:
(a) PLC shall procure that within a further period of 60 days its
auditors certify to the Facility Agent what changes to the
provisions referred to in sub-paragraph (ii) (a) above are, in
the opinion of the auditors, necessary to ensure that any test
imposed by those provisions (as amended) by reference to the
financial statements prepared on the new basis shall be
substantially similar (and, in so far as practicable, identical)
in effect to the relevant test imposed by the existing provisions
by reference to financial statements prepared on the old basis;
any change certified by the auditors pursuant to this sub-
paragraph (iii) (a) shall, if circumstances permit, consist of an
adjustment to the percentage, figure or ratio contained in the
relevant test proportionate to the change in the results or
financial position disclosed on the new basis compared to those
prepared on the old basis;
(b) the Banks may, at their own cost, appoint a firm of independent
accountants to produce a certificate to the same effect, such
certificate to be produced no later than three months after the
certificate of PLC's auditors;
(c) such amendments shall thereafter be made to this Agreement as may
be necessary to reflect:
(1) the amendments certified by PLC's auditors; or
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(2) if a further certificate has been produced pursuant to (b)
above and there is a discrepancy between the two
certificates, the mid-point between the two certificates;
and
(d) pending the finalisation of such amendments PLC shall procure
that each set of financial statements prepared on the new basis
is accompanied by a certificate of its auditors certifying the
information necessary to enable the Facility Agent to determine
whether, if such financial statements had been prepared on the
old basis, the provisions of this Agreement are being complied
with and the provisions of this Agreement shall, in such event,
be applied by reference to the financial statements prepared on
the new basis,
Provided that the Facility Agent shall not be entitled to agree any of the
matters referred to in (ii) above without the prior consent of all the Banks.
24. FINANCIAL CONDITION
PLC shall ensure that, at all times:
(i) either Consolidated Net Tangible Worth is equal to or greater than
Pounds 250,000,000 or (in the event that Consolidated Net Tangible
Worth is less than Pounds 250,000,000) that the ratio of
Consolidated Operating Profit to Consolidated Interest is not less
than 3:1; and
(ii) the ratio of Consolidated Operating Profit to Consolidated Interest
is equal to or greater than 2:1.
25. COVENANTS
25.1 PLC shall:
(i) comply, and ensure that its subsidiaries comply, with the
requirements of all applicable laws, rules, regulations, orders and
decrees of any administrative or governmental authority or
organisation, non-compliance with which would materially and
adversely affect the ability of any Borrower to perform its
obligations under any of the Finance Documents;
(ii) give to the Facility Agent at least 28 days' prior written notice in
reasonable detail of any corporate action or other steps which are
intended to be taken by it or its subsidiaries, or of any legal
proceedings intended to be taken by it or its subsidiaries, in either
case for (a) the liquidation or winding-up or dissolution of any of
its Principal Subsidiaries or (b) for the appointment of a receiver,
administrator, administrative receiver, trustee or similar officer to
any Principal Subsidiary or any of its revenues or assets (other
than, in each case, for the purposes of an amalgamation or
reconstruction);
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(iii) promptly inform the Facility Agent of the occurrence of any Event of
Default or Potential Event of Default and, upon receipt of a written
request to that effect from the Facility Agent, confirm to the
Facility Agent that, save as previously notified to the Facility
Agent or as notified in such confirmation, no Event of Default or
Potential Event of Default has occurred; and
(iv) ensure that (save to the extent provided by general law in relation
to the rights of creditors generally) at all times the claims of the
Banks against each Borrower under each of the Finance Documents rank
at least pari passu with the claims of all its other unsecured and
unsubordinated creditors.
25.2 PLC shall ensure that no member of the Group shall:
(i) create or allow to subsist over all or any of its present or future
revenues or assets any encumbrance (other than a Permitted
Encumbrance) to secure borrowings which are shown as such in the
consolidated balance sheet of PLC included in the latest audited
consolidated financial statements of PLC delivered pursuant to Clause
23.1(i) (or, if none, the Original Financial Statements) or which
would, if such borrowings remained outstanding at the relevant time,
fall to be included in the next such balance sheet Provided, however,
that this Clause 25.2(i) shall not apply to any encumbrance with
respect to Margin Stock (as such term is defined in Regulation U of
the United States Board of Governors of the Federal Reserve System)
to the extent such Margin Stock represents more than 25% of the value
(determined with reference to the latest audited consolidated
financial statements of PLC delivered pursuant to Clause 23.1(i)) or,
if none, the Original Financial Statements) of the assets subject to
this Clause;
(ii) (either in a single transaction or in a series of transactions,
whether related or not) sell, convey, transfer or otherwise dispose
of the whole or any part of its undertaking or assets, (including any
of its subsidiaries) if to do so would cause the sum of the aggregate
consideration received in respect of all assets of the Group so
disposed of in the then current financial year of PLC and the
aggregate net debt (being borrowings, short, medium and long term,
less cash and liquid funds) for which the Group ceases at the time of
such disposals to be liable as a result of such disposals during such
financial year to exceed the higher of (Pounds)500,000,000 or 15% of
Consolidated Market Value in respect of such financial year. For the
purposes of determining the amount of aggregate net debt attributable
to such disposals in any financial year, the Facility Agent may
request and PLC, shall if so requested, provide the Facility Agent
with the contract of sale entered into by any member of the Group in
connection with such disposal or the management accounts of PLC
prepared at or around the time of such disposal or such other
information or records as may be agreed between the Facility Agent
and PLC.
This Clause 25.2(ii) shall not apply with respect to sales,
conveyances, transfers or other dispositions of Margin Stock (as such
term is defined in Regulation U of the United States Board of
Governors of the Federal Reserve System) to the extent such Margin
Stock represents more than 25% of the value (determined with
reference to
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the then most recent audited consolidated financial statements
delivered pursuant to Clause 23.1 or, if none, the Original Financial
Statements) of the assets subject to this Clause 25.2(ii) and
Provided Further that:
(a) neither disposals by members of the Group to other members of the
Group nor disposals in the ordinary course of business at market
value shall be taken into account in determining if the terms of this
Clause 25.2(ii) are breached; and
(b) for the purposes of this Clause 25.2(ii), none of the following shall
be deemed to be a sale, conveyance, transfer or disposal:-
(i) the exchange of assets for assets of a similar nature and of
approximately equal value;
(ii) the payment of cash howsoever acquired (other than the
proceeds of sale falling within Clauses 25.2(ii)(b)(iv) or
(v)) by any member of the Group in the ordinary course of
business of such member or as consideration or part
consideration for the acquisition (whether by way of
subscription, purchase, loan or otherwise) of any undertaking
or business or part of any undertaking or business or any
assets;
(iii) the temporary application of funds not immediately required
for the purposes of the business of any member of the Group in
the purchase of investments and the subsequent sale thereof;
(iv) the sale of assets (other than companies or businesses) for
cash and the application within a period of one year (or such
longer period as the Banks may agree), of a sum approximately
equal to the net proceeds less the expenses relating thereto
(after taking into account any taxation arising as a
consequence of such sale except in so far as this would result
in such sum being less than the book value as at 31st
December, 1994, or when the asset was first acquired if later,
of the assets being sold) in the acquisition of assets of a
similar nature or immovable property whether or not to be
employed in the same type of business Provided that in the
case of a sale of immovable property the end proceeds are
reinvested in the acquisition of immovable property of a
similar nature;
(v) the sale of a company or business for cash and the application
within a period of one year (or such longer period as the
Banks may agree) of a sum approximately equal to the net
proceeds of sale less the expenses relating thereto (after
taking into account any taxation as described in Clause
25.2(ii)(b)(iv)) in the acquisition of a company or business
of a similar nature thereto;
(vi) the sale of shares or securities in bodies corporate in which
PLC and/or any of its subsidiaries is interested but which are
not subsidiaries of PLC;
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(vii) the application of the proceeds of an issue of share or loan
capital for the purpose for which such issue is intended;
(viii) the distribution in a winding up of a subsidiary of any of
its assets to minority shareholders in accordance with their
rights;
(ix) the repayment of any loan; and
(x) the payment of dividends in the ordinary course of business.
25.3 For the purposes of determining the shares of Margin Stock, if any, to
which Clause 25.2 is not applicable, shares of Margin Stock shall be allocated
such that the shares most recently acquired by PLC or any of its subsidiaries
are the shares, if any, to which Clause 25.2 is not applicable.
26. EVENTS OF DEFAULT
26.1 Each of the events set out below is an Event of Default (whether or not
caused by any reason whatsoever outside the control of PLC, any other Borrower
or any other person):
(i) any Borrower does not pay for value within four (4) business days of
the relevant due date any amount of interest or principal payable by
it under any of the Finance Documents at the place and in the
currency expressed to be payable; or
(ii) any Borrower fails to comply with any other provision of any of the
Finance Documents and does not remedy such failure (if capable of
remedy within twenty-one (21) days in the opinion of the Facility
Agent) within twenty-one (21) days of notice to remedy such failure
from the Facility Agent; or
(iii) any representation, warranty or statement made, deemed to be made, or
repeated under any of the Finance Documents or in any accounts,
certificate, notice, instrument, written statement or opinion
delivered by any Borrower under any of the Finance Documents or in
connection therewith is incorrect in any material adverse respect
when made, deemed to be made or repeated; or
(iv) either (i) any financial indebtedness in excess of (Pounds)15,000,000
(whether singularly or in aggregate) of members of the Group becomes
prematurely due and payable as a result of a default thereunder (and
such prepayment or default is not waived by the creditor in respect
thereof or a trustee for such creditor) and is not paid by such
company or any other person; or (ii) any such financial indebtedness
or any sum payable in respect thereof is not paid when due or within
any applicable period of grace provided for by agreement prior to the
due date for such payment; or
(v) PLC, any of its Principal Subsidiaries or any other Borrower:
(a) is unable, deemed by applicable statute to be unable or
admits its inability to pay its debts as they mature; or
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(b) makes a general assignment for the benefit of creditors; or
(c) becomes insolvent; or
(d) files a petition for liquidation or a petition or an answer
seeking reorganisation or an arrangement with creditors
Provided that this sub-paragraph (d) shall not apply to (1)
any reconstruction or amalgamation on terms previously
approved by an Instructing Group (such approval not to be
unreasonably withheld) or (2) any liquidation of a solvent
subsidiary of PLC where the assets are distributed to PLC,
any of its Principal Subsidiaries or any other Borrower to
the extent of such company's interest therein immediately
prior to such liquidation; or
(vi) PLC or any of its Principal Subsidiaries or any Borrower applies for
or consents to the appointment of a receiver, official manager,
administrator, trustee, liquidator or similar officer of itself or
of all or a substantial part of its undertaking, assets or revenues
(including uncalled capital), or any such receiver, official
manager, administrator, trustee, liquidator or similar officer is
appointed, or any order is made or resolution passed for the
liquidation, winding-up or dissolution of PLC, any of its Principal
Subsidiaries or any Borrower Provided that this paragraph (vi) shall
not apply to (1) any reconstruction or amalgamation on terms
previously approved by any Instructing Group (such approval not to
be unreasonably withheld), or (2) any liquidation of a solvent
subsidiary of PLC where the assets are distributed to PLC, any of
its Principal Subsidiaries or any Borrower to the extent of such
company's interest therein immediately prior to such liquidation; or
(vii) any distress, execution, attachment, sequestration or other process
directly attaches or applies to any asset of PLC, any of its
Principal Subsidiaries or any Borrower and remains undischarged and
not stayed for a period of twenty-one (21) days; or
(viii) anything analogous to or having a substantially similar effect to
any of the events specified in paragraphs (v) to (vii) inclusive
shall occur under the laws of any applicable jurisdiction; or
(ix) except with the prior written consent of an Instructing Group, PLC
or any of its Principal Subsidiaries ceases to carry on all or
substantially all of its business otherwise than (a) as a result of
a transfer of all or any part of its business to PLC or to any other
member of the Group which, at the time of such transfer is, or upon
such transfer becomes, a Principal Subsidiary or (b) in accordance
with the provisions of Clause 25.2(ii); or
(x) any authorisation, approval, consent, licence, exemption, filing,
registration or notarisation or other requirement necessary to
enable any Borrower to comply with any of its obligations under any
of the Finance Documents is modified in any manner which could
adversely affect the ability of any Borrower or PLC to perform its
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obligations hereunder, revoked or withheld or does not remain in
full force and effect; or
(xi) at any time it is unlawful for any Borrower to perform any of its
obligations under any of the Finance Documents; or
(xii) the authority of PLC or any Principal Subsidiary in the conduct of
its business is wholly or substantially curtailed by any seizure or
intervention by or on behalf of any authority,
Provided that, except in the case of:
(1) paragraph (i); or
(2) (insofar as such paragraphs apply to PLC) paragraphs (v), (vi),
(viii) (insofar as it incorporates paragraphs (v) and (vi)) and
(ix),
an Instructing Group has determined that such event may have a material
adverse effect on the ability of PLC to comply with all or any of its
obligations hereunder.
26.2 If an Event of Default occurs, then, and in any such case and at any time
thereafter, the Facility Agent may (and, if so instructed by an Instructing
Group, shall) by written notice to the Borrowers:
(i) declare the Advances to be immediately due and payable (whereupon the
same shall become so payable together with accrued interest thereon
and any other sums then owed by the relevant Borrower or Borrowers
hereunder) or declare the Advances to be due and payable on demand of
the Facility Agent; and/or
(ii) declare that an amount equal to the aggregate face amount of all
outstanding Bills shall become immediately due and payable by the
relevant Borrower or Borrowers (whereupon such Borrower or Borrowers
shall be obliged to pay such amount to the Facility Agent for the
account of the Banks which accepted such Bills forthwith instead of
on the dates provided for in Clause 12) or declare that such an
amount be due and payable on demand of the Facility Agent; and/or
(iii) declare that the Facility shall be cancelled, whereupon the same
shall be cancelled and the Commitment of each Bank shall be reduced
to zero.
26.3 If, pursuant to Clause 26.2, the Facility Agent declares the Advances
and/or the aggregate face amount of the Bills to be due and payable on demand of
the Facility Agent, then, and at any time thereafter, the Facility Agent may
(and, if so instructed by an Instructing Group, shall) by written notice to the
Borrowers:
(i) call for repayment of the Advances on such date as it may specify in
such notice (whereupon the same shall become due and payable on such
date together with accrued interest thereon and any other sums then
owed by the relevant Borrower or
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Borrowers hereunder) or withdraw its declaration with effect from
such date as it may specify in such notice; and/or
(ii) call for payment of an amount equal to the aggregate face amount of
all outstanding Bills on such date as it may specify in such notice
(whereupon the same shall become due and payable on such date).
26.4 If, pursuant to Clause 26.2, the Facility Agent declares the Advances to be
due and payable on demand of the Agent, the Term in respect of any such Advance
shall, if the Facility Agent subsequently demands payment before the scheduled
Repayment Date in respect of such Advance, be deemed (except for the purposes of
Clause 29.4) to be of such length that it ends on the date that such demand is
made.
26.5 If an Event of Default occurs and the Facility Agent has notified the Banks
of the occurrence of such Event of Default and within a period of three business
days thereafter the relevant Instructing Group shall not have instructed the
Facility Agent to take the actions referred to in paragraphs (i) and (ii) of
Clause 26.2, the Facility Agent shall thereupon notify the Banks to that effect
and, at any time thereafter and so long as the Event of Default in question is
continuing, the Facility Agent shall (without prejudice to Clauses 26.2 or 26.3)
take the actions referred to in those paragraphs if so instructed by a Bank or
group of Banks to whom an amount in excess of 50% of the Outstandings is then
due or to become due hereunder.
26.6 If any Bank receives an amount pursuant to Clause 26.3(ii) in relation to a
Bill accepted by it, then on the Maturity Date of such Bill such Bank shall pay
to the Borrower which made such payment an amount equal to interest thereon for
the period from and including the date of such payment to but excluding such
Maturity Date at the rate (as determined by such Bank) at which it pays interest
to its corporate customers for time deposits of comparable term and amount in
the relevant currency.
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PART 9
GUARANTEE
27. GUARANTEE
PLC hereby irrevocably and unconditionally:
(i) guarantees to the Agents and the Banks the due and punctual
observance and performance of all the terms, conditions and covenants
on the part of each Borrower (other than PLC) contained in any of the
Finance Documents and agrees to pay on demand to any Agent any and
every sum or sums of money which any such Borrower shall at any time
be liable to pay to the Agents, the Arrangers and the Banks or any of
them under or pursuant to any of the Finance Documents and which are
not duly and punctually paid in accordance with the terms thereof;
and
(ii) agrees as a primary obligation to indemnify the Agents and the Banks
from time to time on demand by any Agent from and against any loss
incurred by the Agents, the Arrangers and the Banks or any of them as
a result of any of the obligations of any Borrower under or pursuant
to any of the Finance Documents being or becoming void, voidable,
unenforceable or ineffective as against such Borrower for any reason
whatsoever, whether or not known to the Agents, the Arrangers and the
Banks or any of them or any other person, the amount of such loss
being the amount which the person or persons suffering it would
otherwise have been entitled to recover from such Borrower.
28. PRESERVATION OF RIGHTS
28.1 The obligations of PLC herein contained shall be in addition to and
independent of every other security which the Agents, the Arrangers and the
Banks or any of them may at any time hold in respect of any obligations of any
Borrower under any of the Finance Documents.
28.2 The obligations of PLC herein contained shall constitute and be continuing
obligations notwithstanding any settlement of account or other matter or thing
whatsoever, and in particular but without limitation, shall not be considered
satisfied by any intermediate payment or satisfaction of all or any of the
obligations of any Borrower under any of the Finance Documents and shall
continue in full force and effect until final payment in full of all amounts
owing by any Borrower thereunder and total satisfaction of all the Borrowers'
actual and contingent obligations thereunder.
28.3 Neither the obligations of PLC herein contained nor the rights, powers and
remedies conferred in respect of PLC upon the Agents, the Arrangers and the
Banks or any of them by any of the Finance Documents or by law shall be
discharged, impaired or otherwise affected by:
(i) the winding-up, dissolution, administration or re-organisation of any
Borrower or any other person or any change in its status, function,
control or ownership;
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(ii) any of the obligations of any Borrower or any other person under any
of the Finance Documents or under any other security taken in respect
of any of its obligations thereunder being or becoming illegal,
invalid, unenforceable or ineffective in any respect;
(iii) time or other indulgence being granted or agreed to be granted to any
Borrower in respect of its obligations under any of the Finance
Documents or under any such other security;
(iv) any amendment to, or any variation, waiver or release of, any
obligation of any Borrower under any of the Finance Documents or
under any such other security whether pursuant to Clause 45 or
otherwise;
(v) any failure to take, or fully to take, any security contemplated
hereby or otherwise agreed to be taken in respect of any Borrower's
obligations under any of the Finance Documents;
(vi) any failure to realise or fully to realise the value of, or any
release, discharge, exchange or substitution of, any security taken
in respect of any Borrower's obligations under any of the Finance
Documents; or
(vii) any other act, event or omission (including, without limitation, any
amendment, waiver, supplement or modification to this Agreement made
pursuant to Clause 45) which, but for this Clause 28.3, might operate
to discharge, impair or otherwise affect any of the obligations of
PLC herein contained or any of the rights, powers or remedies
conferred upon the Agents, the Arrangers and the Banks or any of them
by this Agreement or by law.
28.4 Any settlement or discharge between PLC and the Agents, the Arrangers and
the Banks or any of them shall be conditional upon no security or payment to the
Agents, the Arrangers and the Banks or any of them by any Borrower or any other
person on behalf of such Borrower being avoided or reduced by virtue of any
provisions or enactments relating to bankruptcy, insolvency, liquidation or
similar laws of general application for the time being in force and, if any such
security or payment is so avoided or reduced, the Agents, the Arrangers and the
Banks shall each be entitled to recover the value or amount of such security or
payment from PLC subsequently as if such settlement or discharge had not
occurred.
28.5 No Agent, Arranger or Bank shall be obliged before exercising any of the
rights, powers or remedies conferred upon it in respect of PLC by this Agreement
or by law:
(i) to make any demand of any Borrower;
(ii) to take any action or obtain judgment in any court against any
Borrower;
(iii) to make or file any claim or proof in a winding-up or dissolution of
any Borrower; or
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(iv) to enforce or seek to enforce any other security taken in respect of
any of the obligations of any Borrower under any of the Finance
Documents.
28.6 PLC agrees that, so long as any amounts are or may be owed by any Borrower
under any of the Finance Documents or any Borrower is under any actual or
contingent obligations thereunder, it shall not exercise any rights which it may
at any time have by reason of performance by it of its obligations hereunder:
(i) to be indemnified by any Borrower; and/or
(ii) to claim any contribution from any other guarantor of any such
Borrower's obligations under any of the Finance Documents; and/or
(iii) to take the benefit (in whole or in part and whether by way of
subrogation or otherwise) of any rights of the Agents, the Arrangers
and the Banks under any of the Finance Documents or of any other
security taken pursuant to, or in connection with, any of the Finance
Documents by all or any of the Agents, the Arrangers and the Banks.
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PART 10
DEFAULT INTEREST AND INDEMNITY
29. DEFAULT INTEREST AND INDEMNITY
29.1 If any sum due and payable by any of the Borrowers under any of the Finance
Documents is not paid on the due date therefor in accordance with the provisions
of Clause 31 or if any sum due and payable by any of the Borrowers under any
judgment of any court in connection herewith is not paid on the date of such
judgment, the period beginning on such due date or, as the case may be, the date
of such judgment and ending on the date upon which the obligation of such
Borrower to pay such sum (the balance thereof for the time being unpaid being
herein referred to as an "UNPAID SUM") is discharged shall be divided into
successive periods, each of which (other than the first) shall start on the last
day of the preceding such period and the duration of each of which shall (except
as otherwise provided in this Clause 29) be selected by the Facility Agent but
which shall not exceed three months.
29.2 During each such period relating thereto as is mentioned in Clause 29.1 an
unpaid sum shall bear interest at the rate per annum which is the sum from time
to time of one per cent., the Applicable Margin at such time (and, in the case
of any such sum denominated in sterling, the Associated Costs Rate in respect
thereof at such time) and LIBOR on the first day of the Term thereof Provided
that:
(i) if, for any such period, LIBOR cannot be determined, the rate of
interest applicable to such unpaid sum shall be the sum from time to
time of one per cent., the Applicable Margin at such time (and, in
the case of any such sum denominated in sterling, the Associated
Costs Rate in respect thereof at such time) and the rate per annum
determined by the Facility Agent to be the arithmetic mean (rounded
upwards, if not already such a multiple, to the nearest 0.00001 per
cent.) of the rates notified by each Reference Bank to the Facility
Agent before the last day of such period to be those which express as
a percentage rate per annum the cost to it of funding from whatever
sources it may select its portion of such unpaid sum for such period;
and
(ii) if such unpaid sum is all or part of an Advance which became due and
payable on a day other than the last day of the Term thereof, the
first such period applicable thereto shall be of a duration equal to
the unexpired portion of that Term and the rate of interest
applicable thereto from time to time during such period shall be that
which exceeds by one per cent. the rate which would have been
applicable to it had it not so fallen due, and
(iii) if such unpaid sum is all or part of a Dollar Swing-Line Advance or
any interest which shall have accrued hereunder in relation thereto,
then each Swing-Line Bank's portion of such unpaid sum shall bear
interest at the rate per annum determined by the Facility Agent to be
the sum of one per cent. and the Dollar Swing-Line Rate (or, if the
Federal Funds Rate cannot be determined, the higher of the cost to
such Swing-Line Bank of funding its portion of such unpaid sum from
whatever sources it may reasonably select and the Prime Rate) from
time to time.
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29.3 Any interest which shall have accrued under Clause 29.2 in respect of an
unpaid sum shall be due and payable and shall be paid by the Borrower owing such
unpaid sum at the end of the period by reference to which it is calculated or on
such other date or dates as the Facility Agent may specify by written notice to
such Borrower.
29.4 If any Bank or an Agent on its behalf receives or recovers all or any part
of an Advance made by such Bank otherwise than on the last day of the Term
thereof, the Borrower to which such Advance was made shall pay to the Facility
Agent on demand for account of such Bank an amount equal to the amount (if any)
by which (i) the additional interest which would have been payable on the amount
so received or recovered had it been received or recovered on the last day of
the Term thereof exceeds (ii) the amount of interest which in the reasonable
opinion of the Facility Agent would have been payable to the Facility Agent on
the last day of the Term thereof in respect of a deposit in the currency of the
amount so received or recovered equal to the amount so received or recovered
placed by it with a prime bank in London for a period starting on the business
day (or, in the case of an Optional Currency, the second business day) following
the date of such receipt or recovery and ending on the last day of the Term
thereof.
29.5 PLC undertakes to indemnify:
(i) each of the Agents, the Arrangers and the Banks against any cost,
loss or expense (including, without limitation, legal fees) together
with any VAT thereon, which any of them may properly sustain or incur
as a consequence of the occurrence of any Event of Default or any
default by any of the Borrowers in the performance of any of the
obligations expressed to be assumed by it in the Finance Documents;
(ii) any Agent against any loss it may suffer as a result of its entering
into, or performing, any foreign exchange contract for the purposes
of, and in accordance with, Part 11; and
(iii) each Bank against any loss it may suffer as a result of its funding
an Advance or accepting Bills requested by any of the Borrowers
hereunder but not made or, as the case may be, discounted or deemed
to be discounted by reason of the operation of any one or more of the
provisions hereof other than as a result of a breach by such Bank of
its obligations hereunder.
29.6 Any unpaid sum shall (for the purposes of this Clause 29, Clause 19.1 and
the Sixth Schedule) be treated as an advance and accordingly in this Clause 29,
Clause 19.1 and the Sixth Schedule the term "Advance" includes any unpaid sum
and "Term", in relation to an unpaid sum, includes each such period relating
thereto as is mentioned in Clause 29.1.
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PART 11
PAYMENTS
30. CURRENCY OF ACCOUNT AND PAYMENT
30.1 Sterling is the currency of account and payment for each and every sum at
any time due from any of the Borrowers under the Finance Documents Provided
that:
(i) each repayment of an Advance or a part thereof shall be made in the
currency in which such Advance is denominated at the time of that
repayment;
(ii) each payment of interest shall be made in the currency in which the
sum in respect of which such interest is payable is denominated;
(iii) each payment in respect of costs and expenses shall be made in the
currency in which the same were incurred;
(iv) each payment pursuant to Clause 17.8 or Clause 19.1 shall be made in
the currency in which the relevant loss, cost, reduction, increased
cost or liability (as the case may be) was suffered or incurred by
the Bank; and
(v) any amount expressed to be payable in a currency other than sterling
shall be paid in that other currency.
30.2 If any sum due from any of the Borrowers under the Finance Documents or any
order or judgment given or made in relation thereto has to be converted from the
currency (the "FIRST CURRENCY") in which the same is payable thereunder or under
such order or judgment into another currency (the "SECOND CURRENCY") for the
purpose of (i) making or filing a claim or proof against such Borrower, (ii)
obtaining an order or judgment in any court or other tribunal or (iii) enforcing
any order or judgment given or made in relation thereto, PLC shall indemnify and
hold harmless each of the persons to whom such sum is due from and against any
loss suffered as a result of any discrepancy between (a) the rate of exchange
used for such purpose to convert the sum in question from the first currency
into the second currency and (b) the rate or rates of exchange at which such
person may in the ordinary course of business purchase the first currency with
the second currency upon receipt of a sum paid to it in satisfaction, in whole
or in part, of any such order, judgment, claim or proof.
31. PAYMENTS
31.1 On each date on which this Agreement requires an amount to be paid by any
of the Borrowers or any of the Banks under any of the Finance Documents, such
Borrower or, as the case may be, such Bank shall make the same available to the
Facility Agent or, as the case may be the relevant Swing-Line Agent:
(i) in relation to Advances (other than Swing-Line Advances); and where
such amount is denominated in sterling, by payment in sterling and in
immediately available,
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freely transferable, cleared funds to the account of Samuel Montagu &
Co. Limited, 10 Lower Thames Street, London EC3R 6AE, CHAPS Sort Code
40-48-05 (or such other account or bank as the Facility Agent may
have specified for this purpose); or
(ii) in the case of a Sterling Swing-Line Advance, by payment in sterling
and immediately available, freely transferable, cleared funds to the
account of Samuel Montagu & Co. Limited, 10 Lower Thames Street,
London EC3R 6AE, CHAPS Sort Code 40-48-05 (or such other account or
bank as the Sterling Swing-Line Agent may have specified for this
purpose); or
(iii) in the case of a Dollar Swing-Line Advance, by payment in dollars and
in same day funds (or such other funds as may for the time being be
customary in New York City for the settlement in New York City of
international banking transactions in dollars) to the Dollar Swing-
Line Agent's account with such bank in New York as the Dollar Swing-
Line Agent may have specified for this purpose); or
(iv) where such amount is denominated in an Optional Currency, by payment
in such Optional Currency and in immediately available, freely
transferable, cleared funds to such account with such bank in the
principal financial centre of the country of such Optional Currency
as the Facility Agent shall have specified for this purpose.
31.2 If, at any time, it shall become impracticable (by reason of any action of
any governmental authority or any change in law, exchange control regulations or
any similar event) for any or all of the Borrowers to make any payments
hereunder in the manner specified in Clause 31.1, then such Borrower may agree
with each or any of the Banks alternative arrangements for the payment direct to
such Bank of amounts due to such Bank hereunder Provided that, in the absence
of any such agreement with any Bank, such Borrower shall be obliged to make all
payments due to such Bank in the manner specified herein. Upon reaching such
agreement such Borrower and such Bank shall immediately notify the Facility
Agent or, as the case may be, the relevant Swing-Line Agent thereof and shall
promptly thereafter notify the Facility Agent, or as the case may be, the
relevant Swing-Line Agent of all payments made direct to such Bank.
31.3 Save as otherwise provided herein, each payment received by an Agent for
the account of another person pursuant to Clause 31.1 shall:
(i) in the case of a payment received for the account of any Borrower, be
made available by the relevant Agent to such Borrower by application:
(a) first, in or towards payment (on the date, and in the currency
and funds, of receipt) of any amount then due from such Borrower
hereunder to the person from whom the amount was so received or
in or towards the purchase of any amount of any currency to be so
applied; and
(b) secondly, in or towards payment (on the date, and in the currency
and funds, of receipt) to such account with such bank in the
principal financial
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centre of the country of the currency of such payment as such
Borrower shall have previously notified to the relevant Agent for
this purpose; and
(ii) in the case of any other payment, be made available by an Agent to
the person for whose account such payment was received (in the case
of a Bank, for the account of its Facility Office) for value the same
day by transfer to such account of such person with such bank in the
principal financial centre of the country of the currency of such
payment as such person shall have previously notified to the relevant
Agent.
31.4 All payments required to be made by any of the Borrowers under the Finance
Documents shall be calculated without reference to any set-off or counterclaim
and shall be made free and clear of and without any deduction for or on account
of any set-off or counterclaim.
31.5 All moneys received, recovered or realised by a Bank by virtue of Clause 27
may, in that Bank's discretion, be credited to a suspense or impersonal account
bearing interest and may be held in such account for so long as such Bank thinks
fit pending the application from time to time (as such Bank may think fit) of
such moneys in or towards the payment and discharge of any amounts owing by any
of the Borrowers to such Bank hereunder.
31.6 Where a sum is to be paid hereunder to an Agent for account of another
person, the relevant Agent shall not be obliged to make the same available to
that other person or to enter into or perform any exchange contract in
connection therewith until it has been able to establish to its satisfaction
that it has actually received such sum, but if it does so and it proves to be
the case that it had not actually received such sum, then the person to whom
such sum or the proceeds of such exchange contract was so made available shall
on request refund the same to the relevant Agent, together with an amount
sufficient to indemnify the relevant Agent against any cost or loss it may have
suffered or incurred by reason of its having paid out such sum or the proceeds
of such exchange contract prior to its having received such sum.
32. SET-OFF
Each of the Borrowers authorises each Bank to apply any credit balance to which
such Borrower is entitled on any account of such Borrower with that Bank in
satisfaction of any sum due and payable from such Borrower to such Bank
hereunder but unpaid; for this purpose, each Bank is authorised to purchase with
the moneys standing to the credit of any such account such other currencies as
may be necessary to effect such application. No Bank shall be obliged to
exercise any right given to it by this Clause 32 but any Bank which does so
shall promptly notify the Facility Agent thereof. Nothing in this Clause 32
shall confer on any Bank a security interest over any property of any Borrower.
33. REDISTRIBUTION OF PAYMENTS
33.1 If, at any time, the proportion which any Bank (a "RECOVERING BANK") has
received or recovered (whether by payment, the exercise of a right of set-off or
combination of accounts or otherwise) in respect of its portion of any payment
(a "RELEVANT PAYMENT") to be made under this Agreement by any of the Borrowers
for account of such Recovering Bank and one or more other Banks is greater (the
portion of such receipt or recovery giving rise to such excess proportion being
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herein called an "EXCESS AMOUNT") than the proportion thereof so received or
recovered by the Bank or Banks so receiving or recovering the smallest
proportion thereof, then:
(i) such Recovering Bank shall pay to the Facility Agent an amount equal
to such excess amount;
(ii) there shall thereupon fall due from such Borrower to such Recovering
Bank an amount equal to the amount paid out by such Recovering Bank
pursuant to paragraph (i) above, the amount so due being, for the
purposes hereof, treated as if it were an unpaid part of such
Recovering Bank's portion of such relevant payment; and
(iii) the Facility Agent shall treat the amount received by it from such
Recovering Bank pursuant to paragraph (i) above as if such amount had
been received by it from such Borrower in respect of such relevant
payment and shall pay the same to the persons entitled thereto
(including such Recovering Bank) pro rata to their respective
entitlements thereto,
Provided that to the extent that any excess amount is attributable to a payment
to a Bank pursuant to Clause 31.3(i)(a) such portion of such excess amount as is
so attributable shall not be required to be shared pursuant hereto.
33.2 Nothing in this Clause 33 shall confer on any Bank a security interest over
any property of any Borrower and the obligations and liabilities of each
Borrower arising under this Clause 33 shall have effect accordingly.
33.3 If any sum (a "RELEVANT SUM") received or recovered by a Recovering Bank in
respect of any amount owing to it by any of the Borrowers becomes repayable and
is repaid by such Recovering Bank, then:
(i) each Bank which has received a share of such relevant sum by reason
of the implementation of Clause 33.1 shall, upon request of the
Facility Agent pay to the Facility Agent for account of such
Recovering Bank an amount equal to its share of such relevant sum;
and
(ii) there shall thereupon fall due from such Borrower to each such Bank
an amount equal to the amount paid out by it pursuant to paragraph
(i) above, the amount so due being, for the purposes hereof, treated
as if it were the sum payable to such Bank against which such Bank's
share of such relevant sum was applied.
33.4 Without prejudice to the preceding provisions of this Clause 33, if the
Facility Agent shall receive from PLC or any other Borrower hereunder funds
which are insufficient to satisfy in full the obligations of such person under
the Finance Documents then due to be discharged, the Facility Agent shall
allocate the funds so received in or towards discharging the amounts then so due
from such person pro rata to the amounts of such obligations and each party
hereto irrevocably authorises and directs the Facility Agent so to act.
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PART 12
FEES, COSTS AND EXPENSES
34. FEES
34.1 PLC shall pay to the Facility Agent for account of each Bank a facility fee
on the amount of such Bank's Commitment from day to day during the period
beginning on the date on which the Facility Agent has confirmed to PLC that it
has received all of the documents and other evidence listed in the Third
Schedule and that each is, in form and substance, satisfactory to it and ending
on the Termination Date, such facility fee to be calculated at the rate of 0.09
per cent. per annum and payable in arrear on the last day of each successive
period of three months which ends during such period and on the Termination
Date.
34.2 PLC shall pay to each of the Arrangers the fees specified in the letters of
even date herewith from each Arranger to PLC at the time, and in the amount,
specified in such letters.
34.3 PLC shall pay to:
(i) each Agent for its own account the agency fees specified in the
letter of even date herewith from the Facility Agent on behalf of the
Agents to PLC at the times, and in the amounts specified in such
letter; and
(ii) the Facility Agent, on behalf of the Banks, the participation fees
specified in the letter of even date herewith from the Facility Agent
to PLC at the times and in the amounts specified in such letter.
35. COSTS AND EXPENSES
35.1 PLC shall, from time to time on demand of any Agent, reimburse that Agent
and each of the Arrangers for all reasonable costs and expenses (including,
without limitation, legal fees) subject to any limitations specified in a letter
of even date from the Facility Agent to PLC together with any VAT thereon
incurred by it in connection with the negotiation, preparation and execution of
the Finance Documents and the completion of the transactions therein
contemplated.
35.2 PLC shall, from time to time on demand of any Agent, reimburse that Agent,
the Arrangers and the Banks for all reasonable costs and expenses (including,
without limitation, legal fees) together with any VAT thereon incurred in or in
connection with the preservation and/or enforcement of any of the rights of that
Agent, the Arrangers and the Banks under any of the Finance Documents.
35.3 PLC shall pay all stamp, registration and other taxes to which any of the
Finance Documents or any judgment given in connection therewith is or at any
time may be subject and shall, from time to time on demand of any Agent,
indemnify the Agents, the Arrangers and the Banks against any liabilities,
costs, claims and expenses resulting from any failure to pay or any delay in
paying any such tax.
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35.4 If PLC fails to perform any of its obligations under this Clause 35, each
Bank shall, in its Proportion, indemnify the Agents and the Arrangers against
any loss incurred by any of them as a result of such failure and PLC shall
forthwith reimburse each Bank for any payment made by it pursuant to this Clause
35.4.
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PART 13
AGENCY PROVISIONS
36. THE AGENTS, THE ARRANGERS AND THE BANKS
36.1 Each Bank hereby appoints each of the Agents to act as its agent in
connection with the Finance Documents and authorises the Agents to exercise such
rights, powers, authorities and discretions as are specifically delegated to the
Agents by the terms of any of the Finance Documents together with all such
rights, powers, authorities and discretions as are reasonably incidental
thereto.
36.2 Each Agent may:
(i) assume that:
(a) any representation made by any of the Borrowers in connection
with any of the Finance Documents is true;
(b) no Event of Default or Potential Event of Default has occurred;
(c) none of the Borrowers is in breach of or default under its
obligations under any of the Finance Documents; and
(d) any right, power, authority or discretion vested in any of the
Finance Documents upon an Instructing Group, the Banks or any
other person or group of persons has not been exercised,
unless it has, in its capacity as agent for the Banks, received
notice to the contrary from any other party hereto;
(ii) assume that the relevant Facility Office of each Bank is that
identified with its signature below (or, in the case of a Transferee,
at the end of the Transfer Certificate to which it is a party as
Transferee) until it has received from such Bank a notice designating
some other office of such Bank to replace its Facility Office and act
upon any such notice until the same is superseded by a further such
notice;
(iii) engage and pay for the advice or services of any lawyers,
accountants, surveyors or other experts whose advice or services may
to it seem necessary, expedient or desirable and rely upon any advice
so obtained;
(iv) rely as to any matters of fact which might reasonably be expected to
be within the knowledge of any of the Borrowers upon a certificate
signed by or on behalf of such Borrower;
(v) rely upon any communication or document believed by it to be genuine;
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(vi) refrain from exercising any right, power or discretion vested in it
as agent under any of the Finance Documents unless and until
instructed by an Instructing Group as to whether or not such right,
power or discretion is to be exercised and, if it is to be exercised,
as to the manner in which it should be exercised; and
(vii) refrain from acting in accordance with any instructions of an
Instructing Group to begin any legal action or proceeding arising out
of or in connection with any of the Finance Documents until it shall
have received such security as it may require (whether by way of
payment in advance or otherwise) for all costs, claims, losses,
expenses (including, without limitation, legal fees) and liabilities
together with any VAT thereon which it will or may expend or incur in
complying with such instructions.
36.3 Each Agent shall:
(i) promptly inform each Bank of the contents of any notice or document
received by it in its capacity as an Agent from any of the Borrowers
hereunder;
(ii) promptly notify each Bank of the occurrence of any Event of Default
or any default by any of the Borrowers in the due performance of or
compliance with its obligations under any of the Finance Documents of
which it has notice in its capacity as an Agent hereunder from any
other party hereto;
(iii) save as otherwise provided herein, act in accordance with any
instructions given to it by an Instructing Group, which instructions
shall be binding on all of the Arrangers and the Banks; and
(iv) if so instructed by an Instructing Group, refrain from exercising any
right, power or discretion vested in it as agent under any of the
Finance Documents.
36.4 Notwithstanding anything to the contrary expressed or implied herein,
neither the Agents nor any of the Arrangers shall:
(i) be bound to enquire as to:
(a) whether or not any representation made by any of the Borrowers in
connection with any of the Finance Documents is true;
(b) the occurrence or otherwise of any Event of Default or Potential
Event of Default;
(c) the performance by any of the Borrowers of its obligations under
any of the Finance Documents; or
(d) any breach of or default by any of the Borrowers of or under its
obligations under any Finance Document;
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(ii) be bound to account to any Bank for any sum or the profit element of
any sum received by it for its own account (including without
limitation any sum received by it in respect of any Bills purchased
by it pursuant to Clause 9.2);
(iii) be bound to disclose to any other person any information relating to
any member of the Group if such disclosure would or might in its
opinion constitute a breach of any law or regulation or be otherwise
actionable at the suit of any person; or
(iv) be under any obligations other than those for which express provision
is made in any of the Finance Documents.
36.5 Each Bank shall, in its Proportion, from time to time on demand by any
Agent, indemnify that Agent, against any and all costs, claims, losses, expenses
(including, without limitation, legal fees) and liabilities together with any
VAT thereon which that Agent may incur, otherwise than by reason of its own
fraud, gross negligence or wilful misconduct, in acting in its capacity as agent
under the Finance Documents.
36.6 No Agent or Arranger accepts any responsibility for the accuracy and/or
completeness of any information supplied by any of the Borrowers in connection
herewith or for the legality, validity, effectiveness, adequacy or
enforceability of any of the Finance Documents and no Agent or Arranger shall be
under any liability as a result of taking or omitting to take any action in
relation to any of the Finance Documents, save in the case of fraud, gross
negligence or wilful misconduct.
36.7 Each of the Banks agrees that it will not assert or seek to assert against
any director, officer or employee of any Agent or any Arranger any claim it
might have against any of them in respect of the matters referred to in Clause
36.6.
36.8 Any Agent and each of the Arrangers may accept deposits from, lend money to
and generally engage in any kind of banking or other business with any member of
the Group.
36.9 Any Agent may resign its appointment hereunder at any time without
assigning any reason therefor by giving not less than thirty days' prior written
notice to that effect to each of the other parties hereto, in which case an
Instructing Group (or, in the circumstances referred to in Clause 26.5, such
group as is referred to therein), subject always to PLC's consent (not to be
unreasonably withheld or delayed), may appoint a successor during such period
but if none does so the relevant Agent shall appoint as its successor a
reputable and experienced financial institution with offices in London (in the
case of the Facility Agent or the Sterling Swing-Line Agent) or New York (in the
case of the Dollar Swing-Line Agent). Any such appointment shall take effect
upon notice thereof (and, in the case of the Facility Agent and the Sterling
Swing-Line Agent, upon notice of the bank in London to which payments to the
Facility Agent should thereafter be made, being given to PLC and each Bank,
subject always to PLC's consent (not to be unreasonably withheld or delayed)
Provided that no such resignation shall be effective until a successor for the
relevant Agent is appointed in accordance with the provisions of this Clause 36.
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36.10 If a successor to an Agent is appointed under the provisions of Clause
36.9, then (i) the relevant retiring Agent shall be discharged from any further
obligations hereunder but shall remain entitled to the benefit of the provisions
of this Clause 36 and (ii) its successor and each of the other parties hereto
shall have the same rights and obligations amongst themselves as they would have
had if such successor had been a party hereto.
36.11 It is understood and agreed by each Bank that it has itself been, and
will continue to be, solely responsible for making its own independent appraisal
of and investigations into the financial condition, creditworthiness, condition,
affairs, status and nature of each member of the Group and, accordingly, each
Bank warrants to the Agents and the Arrangers that it has not relied on and will
not hereafter rely on any Agent or Arranger:
(i) to check or enquire on its behalf into the adequacy, accuracy or
completeness of any information provided by any of the Borrowers in
connection with this Agreement or the transactions herein
contemplated (whether or not such information has been or is
hereafter circulated to such Bank by the Facility Agent and the
Arrangers or any of them); or
(ii) to assess or keep under review on its behalf the financial condition,
creditworthiness, condition, affairs, status or nature of any member
of the Group.
36.12 In acting as agent and/or Arrangers for the Banks, the agency division of
each Agent and each Arranger shall be treated as a separate entity from any
other of its divisions or departments and, notwithstanding the foregoing
provisions of this Clause 36, in the event that an Agent or, as the case may be,
any Arranger should act for any member of the Group in any capacity in relation
to any other matter, any information given by such member of the Group to that
Agent or, as the case may be, such Arranger in such other capacity may be
treated as confidential by that Agent or, as the case may be, such Arranger.
36.13 Each Agent shall supply such information to each other Agent as is
necessary or desirable for the purposes of this Agreement. In particular, the
Facility Agent shall provide each other Agent with copies of all financial
statements delivered to it pursuant to Clause 23.1 promptly after receipt of the
same and shall notify each other Agent of any breach of Clause 25 or the
occurrence of any Event of Default promptly upon becoming aware of the same.
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PART 14
ASSIGNMENTS AND TRANSFERS
37. BENEFIT OF AGREEMENT
This Agreement shall be binding upon and enure to the benefit of each party
hereto and its or any subsequent successors, Transferees and assigns.
38. ASSIGNMENTS AND TRANSFERS BY THE BORROWERS
None of the Borrowers shall be entitled to assign or transfer all or any of its
rights, benefits and obligations hereunder.
39. ASSIGNMENTS AND TRANSFERS BY BANKS
39.1 Any Bank may, at any time, assign all or any of its rights and benefits
hereunder or transfer in accordance with Clause 39.3 all or any of its rights,
benefits and obligations hereunder. Provided that the transferee is a Qualifying
Bank and an Eligible Bank and (save in the case of an assignment of rights and
benefits, or a transfer, to (i) any subsidiary or holding company, or to any
subsidiary of any holding company, of such Bank or (ii) any other Bank) no such
assignment or transfer may be made without the prior written consent of PLC. No
Bank may enter into a sub-participation agreement in relation to any of its
rights and/or obligations under any Finance Document without the prior written
consent of PLC thereto.
39.2 If any Bank assigns all or any of its rights and benefits hereunder in
accordance with Clause 39.1, then, unless and until the assignee has undertaken
in favour of the Agents, the Arrangers and the other Banks that it shall be
under the same obligations towards each of them as it would have been under if
it had been an original party hereto as a Bank, the Agents, the Arrangers and
the other Banks shall not be obliged to recognise such assignee as having the
rights against each of them which it would have had if it had been such a party
hereto.
39.3 If any Bank wishes to transfer all or any of its rights, benefits and/or
obligations hereunder as contemplated in Clause 39.1, then such transfer may be
effected by the delivery to the Facility Agent (copied to PLC, the Dollar Swing-
Line Agent and the Sterling Swing-Line Agent) of a duly completed and duly
executed Transfer Certificate in which event, on the later of the Transfer Date
specified in such Transfer Certificate and the fifth business day after (or such
earlier business day endorsed by the Facility Agent on such Transfer Certificate
falling on or after) the date of delivery of such Transfer Certificate to the
Facility Agent:
(i) to the extent that in such Transfer Certificate the Bank party
thereto seeks to transfer its rights, benefits and obligations
hereunder, each of the Borrowers and such Bank shall be released from
further obligations towards one another hereunder and their
respective rights and benefits against one another shall be cancelled
(such rights, benefits and obligations being referred to in this
Clause 39.3 as "DISCHARGED RIGHTS AND OBLIGATIONS");
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(ii) each of the Borrowers and the Transferee party thereto shall assume
obligations towards one another and/or acquire rights and benefits
against one another which differ from such discharged rights and
obligations only insofar as such Borrower and such Transferee have
assumed and/or acquired the same in place of such Borrower and such
Bank; and
(iii) the Agents, the Arrangers, such Transferee and the other Banks shall
acquire the same rights and benefits and assume the same obligations
between themselves as they would have acquired and assumed had such
Transferee been an original party hereto as a Bank with the rights,
benefits and/or obligations acquired or assumed by it as a result of
such transfer.
39.4 On the date upon which a transfer takes effect pursuant to Clause 39.3, the
Transferee in respect of such transfer shall pay to the Facility Agent for its
own account a transfer fee of (Pounds)300.
40. DISCLOSURE OF INFORMATION
No Bank may disclose to a proposed assignee or Transferee or other person
proposing to enter or having entered into a contract with such Bank in relation
to this Agreement any information in the possession of such Bank relating to PLC
and its subsidiaries except:
(i) information which is generally available; or
(ii) information which has been approved by PLC for the purpose of
such disclosure; or
(iii) to a proposed assignee or Transferee named in a consent of PLC
to an assignment or transfer contemplated by Clause 39, where
such disclosure is in connection with the proposed assignment
or transfer.
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PART 15
MISCELLANEOUS
41. ACCEDING AND SECEDING BORROWERS
41.1 If the Facility Agent has confirmed to PLC that the conditions set forth in
the Third Schedule have been satisfied, PLC may request that any of its wholly-
owned subsidiaries becomes an Acceding Borrower for the purposes of utilising
the Facility by delivering, or procuring the delivery to, the Facility Agent
(copied to the Dollar Swing-Line Agent and the Sterling Swing-Line Agent) of a
Borrower Accession Memorandum duly executed by PLC and such subsidiary.
41.2 Upon delivery of a Borrower Accession Memorandum, the Acceding Borrower
shall, subject to the terms and conditions of this Agreement, acquire all the
rights and assume all the obligations of a Borrower hereunder Provided that the
Facility Agent has confirmed to PLC that it has received, in a form satisfactory
to it, all the documents set out in the Eighth Schedule.
41.3 If at any time a Borrower (other than PLC) is under no actual or contingent
obligation under or pursuant to any Finance Document, PLC may declare that such
Borrower shall cease to be a Borrower hereunder by delivering to the Facility
Agent a Borrower Secession Memorandum to that effect in which event such
Borrower shall forthwith cease to be a Borrower upon receipt by the Facility
Agent of such notice.
42. CALCULATIONS AND EVIDENCE OF DEBT
42.1 Interest and facility fees shall accrue from day to day and shall be
calculated on the basis of a year of 365 days (or, in the case of any Advance
denominated in an Optional Currency (other than Hong Kong dollars and Belgian
francs) 360 days) and the actual number of days elapsed (or, in any case where
market practice differs, in accordance with market practice).
42.2 Acceptance commission in respect of any Bill shall be calculated on the
basis of a year of 365 days and the actual number of days in the Tenor thereof
(or, in any case where market practice differs, in accordance with market
practice).
42.3 If on any occasion a Reference Bank or Bank fails to supply any Agent with
a quotation required of it under the foregoing provisions of this Agreement, the
rate for which such quotation was required shall be determined from those
quotations which are supplied to such Agent.
42.4 Each Bank shall maintain in accordance with its usual practice accounts
evidencing the amounts from time to time lent by and owing to it hereunder.
42.5 The Facility Agent shall maintain on its books a control account or
accounts in which shall be recorded (i) the amount of any Advance made or
arising hereunder and the face amount of any Bill accepted and, in each case,
the name of the Bank to which such sum relates, (ii) the amount of all
principal, interest and other sums due or to become due from any of the
Borrowers to any of the Banks hereunder and each Bank's share therein and (iii)
the amount of any sum received or recovered by the Agents hereunder and each
Bank's share therein.
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42.6 In any legal action or proceeding arising out of or in connection with this
Agreement, the entries made in the accounts maintained pursuant to Clauses 42.4
and 42.5 shall be prima facie evidence of the existence and amounts of the
obligations of the Borrowers therein recorded.
42.7 A certificate of a Bank as to (i) the amount by which a sum payable to it
hereunder is to be increased under Clause 17.1 or (ii) the amount for the time
being required to indemnify it against any such cost, reduction, increased cost,
payment or liability as is mentioned in Clause 17.8 or 19.1 shall, in the
absence of manifest error, be conclusive for the purposes of this Agreement and
prima facie evidence in any legal action or proceeding arising out of or in
connection with this Agreement.
42.8 A certificate of any Agent as to the amount at any time due from any
Borrower hereunder or the amount which, but for any of the obligations of any
Borrower hereunder being or becoming void, voidable, unenforceable or
ineffective, at any time would have been due from such Borrower hereunder shall,
in the absence of manifest error, be conclusive for the purposes of Part 9 and
prima facie evidence in any legal action or proceeding arising out of or in
connection with this Agreement.
43. REMEDIES AND WAIVERS
No failure to exercise, nor any delay in exercising, on the part of the Agents,
the Arrangers and the Banks or any of them, any right or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right or remedy prevent any further or other exercise thereof or the exercise of
any other right or remedy. The rights and remedies herein provided are
cumulative and not exclusive of any rights or remedies provided by law.
44. PARTIAL INVALIDITY
If, at any time, any provision of any Finance Document is or becomes illegal,
invalid or unenforceable in any respect under the law of any jurisdiction,
neither the legality, validity or enforceability of the remaining provisions of
the Finance Documents nor the legality, validity or enforceability of such
provision under the law of any other jurisdiction shall in any way be affected
or impaired thereby.
45. AMENDMENTS
45.1 Any amendment, waiver, modification, variation or consent in respect hereof
which is agreed to in writing by PLC on behalf of the Borrowers, the Agents and
an Instructing Group (or, in the circumstances referred to in Clause 26.5, such
group as is referred to therein) shall be binding upon all the other parties
hereto Provided that:
(i) any amendment, waiver, modification or variation of Clause 46 agreed
to in writing by PLC on behalf of the Borrowers and any Agent in
respect of their respective rights and obligations to each other
under such Clause shall be binding on all the other parties hereto;
(ii) this Clause 45 shall not authorise (without the prior written consent
of all the Banks) any amendment, waiver, modification, variation or
consent which would have the effect of:-
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<PAGE>
(a) changing the rate at which interest is payable under this
Agreement;
(b) extending the date for, or altering the amount or currency of,
any payment of principal, interest, fee, commission or any other
amount payable under this Agreement;
(c) increasing any Bank's participation in the Facility, the
Available Facility or the Available Swing-Line Facility;
(d) changing the Termination Date;
(e) waiving or changing any of the conditions under which a
Competitive Advance or Competitive Bill is to be made or accepted
hereunder; or
(f) varying (i) the definition of Instructing Group; (ii) any of
Clauses 26.5, 27 and 28; (ii) this Clause 45; or (iv) any other
provision of this Agreement which requires the consent of all the
Banks; and
(iii) notwithstanding any other provision hereof, none of the Agents shall
be obliged to agree any such amendment, waiver, modification,
variation or consent if the same would otherwise have the effect of
amending, modifying, or waiving any of the Agents' rights under this
Agreement or subjecting any of the Agents to any additional
obligations hereunder.
45.2 If PLC requests any amendment, waiver, modification, variation or consent
in accordance with Clause 45.1, then PLC shall, within five business days of
demand of any Agent, reimburse that Agent for all costs and expenses (including,
without limitation, legal fees) together with any VAT thereon incurred by that
Agent in the negotiation, preparation and execution of any written instrument
contemplated by Clause 45.1.
46. NOTICES
46.1 Each communication to be made hereunder shall, unless otherwise stated, be
made in writing by telex, telefax or letter. Communications made by telefax by
PLC or any other Borrower to any Agent shall be confirmed by a telephone call
from the relevant Agent to an Authorised Verifier of PLC or such other Borrower
(as the case may be) (and if not so confirmed, the original telefax
communication will be void) and by letter. A failure to confirm such telefax
communication by letter will not affect the validity of the original telefax
communication. Communications made by telefax to any Agent by any person other
than PLC or any other Borrower shall be confirmed by letter, but a failure to do
so will not affect the validity of the original telefax communication.
46.2 Any communication or document to be made or delivered by one person to
another pursuant to this Agreement shall (unless that other person has by
fifteen days' written notice to the Facility Agent specified otherwise) be made
or delivered to that other person at the address (in the case of a letter),
telefax number (in the case of a telefax), telex number (in the case of a telex)
and if applicable, to the person and department identified with its signature
below (or, in the case of a Transferee, at the end of the Transfer Certificate
to which it is a party as Transferee or, in the case
69
<PAGE>
of an Acceding Borrower, in the Borrower Accession Memorandum to which it is a
party). Any communication or document to be made or delivered under this
Agreement shall be effective only when received at the address, letter or
telefax number and, if applicable, person and department, to which it is to be
sent pursuant to Clause 46.2.
46.3 Each communication and document made or delivered by one party to another
pursuant to this Agreement shall be in the English language or accompanied by a
translation thereof into English certified (by an officer of the person making
or delivering the same) as being a true and accurate translation thereof.
47. COUNTERPARTS
This Agreement may be executed in any number of counterparts and by different
parties hereto on separate counterparts each of which, when executed and
delivered, shall constitute an original, but all the counterparts shall together
constitute but one and the same instrument.
70
<PAGE>
PART 16
LAW AND JURISDICTION
48. LAW
This Agreement shall be governed by, and shall be construed in accordance with,
English law.
49. JURISDICTION
49.1 Each of the parties hereto irrevocably agrees for the benefit of the
Agents, the Arrangers and the Banks that the courts of England shall have
jurisdiction to hear and determine any suit, action or proceeding, and to settle
any disputes, which may arise out of or in connection with the Finance Documents
and, for such purposes, irrevocably submits to the jurisdiction of such courts.
49.2 Without prejudice to Clause 49.1, each Borrower further irrevocably agrees
for the benefit of the Agents, the Arrangers and the Banks that any proceedings
arising out of or in connection with this Agreement may be brought in the New
York State Supreme Court, First Department, or the United States District Court
for the Southern District of New York, in each case sitting in the Borough of
Manhattan, the City of New York, State of New York and for such purposes
irrevocably submits to the non-exclusive jurisdiction of such courts.
49.3 Each of the Borrowers irrevocably waives any objection which it might now
or hereafter have to the courts referred to in Clause 49.1 or 49.2 being
nominated as the forum to hear and determine any suit, action or proceeding, and
to settle any disputes, which may arise out of or in connection with this
Agreement and agrees not to claim that any such court is not a convenient or
appropriate forum.
49.4 Each of the Borrowers which is not incorporated in England and Wales agrees
that the process by which any suit, action or proceeding is begun in England may
be served on it by being delivered to Pearson plc at 3 Burlington Gardens,
London W1X 1LE or other its registered office for the time being. Each of the
Borrowers which is not incorporated in New York agrees that the process by which
any suit, action or proceedings begin in New York may be served on it by being
delivered to Pearson Inc. at One Rockefeller Plaza, New York, NY 10020, USA or
other its principal place of business in New York for the time being. If the
appointment of the person mentioned in this Clause 49.4 ceases to be effective
in respect of any or all of the Borrowers, such Borrower or Borrowers shall
immediately appoint a further person in England or, New York, as the case may
be, to accept service of process on its behalf in England and, failing such
appointment within 15 days, the Facility Agent shall be entitled to appoint such
a person by notice to such Borrower or Borrowers. Nothing contained herein
shall affect the right to serve process in any other manner permitted by law.
49.5 The submission to the jurisdiction of the courts referred to in Clauses
49.1 and 49.2 shall not (and shall not be construed so as to) limit the right of
the Agents, the Arrangers and the Banks or any of them to take proceedings
against any of the Borrowers in any other court of competent jurisdiction nor
shall the taking of proceedings in any one or more jurisdictions preclude the
taking of proceedings in any other jurisdiction (whether concurrently or not) if
and to the extent permitted by applicable law.
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<PAGE>
49.6 Each of the Borrowers hereby consents generally in respect of any legal
action or proceeding arising out of or in connection with this Agreement to the
giving of any relief or the issue of any process in connection with such action
or proceeding including, without limitation, the making, enforcement or
execution against any property whatsoever (irrespective of its use or intended
use) of any order or judgment which may be made or given in such action or
proceeding.
AS WITNESS the hands of the duly authorised representatives of the parties
hereto the day and year first before written.
72
<PAGE>
THE FIRST SCHEDULE
PART I
THE BANKS
<TABLE>
<CAPTION>
BANK FACILITY OFFICE(S) COMMITMENT (Pounds)
<S> <C> <C>
Midland Bank plc Midland Bank plc 27,500,000
27-32 Poultry
London
EC2P 2BX
Tel: 0171 260 8000
Fax: 0171 260 4800
Telex: 8954744
Union Bank of Switzerland Union Bank of Switzerland 27,500,000
P O Box 428
100 Liverpool Street
London
EC2M 2RH
Tel: 0171 901 3333
Fax: 0171 901 3903
Telex: 941 3848/3944 UBS COR G
</TABLE>
73
<PAGE>
<TABLE>
<S> <C> <C>
Australia and New Zealand Banking Group Limited Australia and New Zealand Banking Group Limited 27,000,000
Minerva House
P O Box 7
Montague Close
London
SE1 9DH
Tel: 0171 378 2121
Fax: 0171 378 2880/2378
Telex: 8812741 Anzbka g
885043-6 Grndly g
Banque Nationale de Paris, Banque Nationale de Paris, London Branch 27,000,000
London Branch P O Box 781
8-13 King William Street
London
EC4N 7QJ
Tel: 0171 895 7070
Fax: 0171 929 0310
Telex: 883412 BNPLNX G
</TABLE>
74
<PAGE>
<TABLE>
<S> <C> <C>
Barclays Bank PLC Barclays Bank PLC 27,000,000
Murray House
1 Royal Mint Court
London
EC3N 4HH
Tel: 0171 488 1144
Fax: 0171 696 3048
Telex: 934148 BBSAIO G
Credit Lyonnais Credit Lyonnais 27,000,000
P O Box 81
84-94 Queen Victoria Street
London
EC4P 4LX
Tel: 0171 634 8000
Fax: 0171 489 1559/1909
Telex: 885479
</TABLE>
75
<PAGE>
<TABLE>
<S> <C> <C>
Deutsche Bank AG, London Deutsche Bank AG, London 27,000,000
6 Bishopsgate
London
EC2P 2AT
Tel: 0171 971 7000
Fax: 0171 971 7455
Telex: 9401 5555
National Westminster Bank Plc National Westminster Bank Plc 27,000,000
135 Bishopsgate
London
EC2M 3UR
Tel: 0171 334 1000
Fax: 0171 375 5524
Telex: 882121
</TABLE>
76
<PAGE>
<TABLE>
<S> <C> <C> <C>
Royal Bank of Canada Royal Bank of Canada Royal Bank of Canada 27,000,000
71 Queen Victoria Street Grand Cayman
London (North America No. 1)
EC4V 4DE Branch
c/o New York Branch
Financial Square
23rd Floor
New York
NY 10005-3531
Tel: 0171 489 1188 Tel: 00 1 212 428 6200
Fax: 0171 248 6322 Fax: 00 1 212 428 2372
Telex: 929111 RBCCTY Telex: MCT 625219 ROYBAN
The Sumitomo Bank, Limited The Sumitomo Bank, Limited 27,000,000
Temple Court
11 Queen Victoria Street
London
EC4N 4TA
Tel: 0171 786 1000
Fax: 0171 236 0049
Telex: 887667
</TABLE>
77
<PAGE>
<TABLE>
<S> <C> <C>
Toronto-Dominion Bank Toronto-Dominion Bank 27,000,000
Triton Court
14/18 Finsbury Square
London
EC2A 1DB
Tel: 0171 920 0272
Fax: 0171 638 0006
Telex: 886142
Westdeutsche Landesbank Girozentrale Westdeutsche Landesbank Girozentrale, London Branch 27,000,000
51 Moorgate
London
EC2R 6AE
Tel: 0171 638 6141
Fax: 0171 374 8546
Telex: 887984/5
TOTAL 325,000,000
</TABLE>
78
<PAGE>
PART II
THE SWING-LINE BANKS
<TABLE>
<CAPTION>
BANK FACILITY OFFICE SWING-LINE COMMITMENT
(STERLING) (DOLLARS) EXPRESSED AS A PERCENTAGE
OF THE TOTAL SWING-LINE
COMMITMENTS OF Pounds 150,000,000
<S> <C> <C> <C>
Midland Bank plc 27-32 Poultry 140 Broadway 8.4615
London New York
EC2P 2BX NY 10005
USA
Tel: 0171 260 8000 Tel: 00 1 212 658 2700
Fax: 0171 260 4800 Fax: 00 1 212 658 1344
Telex: 8954744 Telex: 62390
Union Bank of Switzerlan Union Bank of Switzerland Union Bank of Switzerland 8.3077
P O Box 428 299 Park Avenue
100 Liverpool Street New York
London NY 10171
EC2M 2RH USA
Tel: 0171 901 3333 Tel: 00 1 212 230 4000
Fax: 0171 901 3903 Fax: 00 1 212 821 3891
Telex: 941 3848/3944 Telex: 620 317
COR G
</TABLE>
79
<PAGE>
<TABLE>
<S> <C> <C> <C>
Australia and New Zealand Australia and New Zealand Australia and New Zealand 8.3077
Banking Group Limited Banking Group Limited Banking Group Limited
Minerva House 1177 Avenue of the Americas
P O Box 7 New York
Montague Close New York 10036-2798
London USA
SE1 9DH
Tel: 0171 378 2121 Tel: 00 1 212 801 9800
Fax: 0171 378 2880/2378 Fax: 00 1 212 801 9131
Telex: 8812741 Anzbka g Telex: 667 559
885043-6 Grndly g
Banque Nationale de Paris, Banque Nationale de Paris, Banque Nationale de Paris 8.3077
London Branch London Branch 499 Park Avenue
P O Box 781 New York
8-13 King William Street NY 10022
London USA
EC4N 7QJ
Tel: 0171 895 7070 Tel: 00 1 212 415 9700
Fax: 0171 929 0310 Fax: 00 1 212 415 9696
Telex: 883412 BNPLNX G Telex: 824209 ABNPWFC UF
</TABLE>
80
<PAGE>
<TABLE>
<S> <C> <C> <C>
Barclays Bank PLC Barclays Bank PLC Barclays Bank PLC 8.3077
Murray House Murray House
1 Royal Mint Court 1 Royal Mint Court
London London
EC3N 4HH EC3N 4HH
Tel: 0171 488 1144 Tel: 0171 488 1144
Fax: 0171 696 3048 Fax: 0171 696 3048
Telex: 934148 BBSAIO G Telex: 934148 BBSAIO G
Credit Lyonnais Credit Lyonnais Credit Lyonnais
P O Box 81 1301 Avenue of the 8.3077
84-94 Queen Victoria Street Americas
London New York 10019
EC4P 4LX USA
Tel: 0171 634 8000 Tel: 00 1 212 261 7150
Fax: 0171 489 1559/1909 Fax: 00 1 212 459 3174
Telex: 885479 Telex: 62410
</TABLE>
81
<PAGE>
<TABLE>
<S> <C> <C> <C>
Deutsche Bank AG, Deutsche Bank AG, London Deutsche Bank AG, 8.3077
London 6 Bishopsgate New York Branch
London 31 West 52nd Street
EC2P 2AT New York
NY 10019
USA
Tel: 0171 971 7000 Tel: 00 1 212 474 8000
Fax: 0171 971 7455 Fax: 00 1 212 474 8115
Telex: 9401 5555 Telex: 429166
National Westminster Bank Plc National Westminster National Westminster 8.3077
Bank Plc Bank Plc
135 Bishopsgate New York Branch
London 175 Water Street
EC2M 3UR New York
NY 10038
USA
Tel: 0171 334 1000 Tel: 00 1 212 602 4000
Fax: 0171 375 5524 Fax: 00 1 212 602 4118
Telex: 882121 Telex: 232222 NWB KUR
</TABLE>
82
<PAGE>
<TABLE>
<S> <C> <C> <C>
Royal Bank of Canada Royal Bank of Canada Royal Bank of Canada 8.3077
71 Queen Victoria Street Grand Cayman
London (North America No. 1)
EC4V 4DE Branch
c/o New York Branch
Financial Square
23rd Floor
New York
NY 10005-3531
USA
Tel: 0171 489 1188 Tel: 00 1 212 428 6200
Fax: 0171 248 6322 Fax: 00 1 212 428 2372
Telex: 929111 RBCCTY Telex: MCT 625219 ROYBAN
The Sumitomo Bank, Limited The Sumitomo Bank, Limited The Sumitomo Bank, Limited 8.3077
Temple Court 277 Park Avenue
11 Queen Victoria Street New York
London NY 10172
EC4N 4TA USA
Tel: 0171 786 1000 Tel: 00 1 212 224 4441
Fax: 0171 236 0049 Fax: 00 1 212 539 9522
Telex: 887667 Telex: 420515
</TABLE>
83
<PAGE>
<TABLE>
<S> <C> <C> <C>
Toronto-Dominion Bank Toronto-Dominion Bank Toronto-Dominion Bank 8.3077
Triton Court Houston Agency
14/18 Finsbury Square 909 Fannin Street
London 17th Floor
EC2A 1DB Houston
Texas 77010
Tel: 0171 920 0272 Tel: 00 1 713 653 8208
Fax: 0171 638 0006 Fax: 00 1 713 951 9921
Telex: 886142 Telex: N/A
Westdeutsche Landesbank Westdeutsche Landesbank Westdeutsche Landesbank 8.3077
Girozentrale Girozentrale, Girozentrale,
London Branch New York Branch
51 Moorgate 1211 Avenue of the Americas
London New York
EC2R 6AE NY 10036
USA
Tel: 0171 638 6141 Tel: 00 1 212 852 6000
Fax: 0171 374 8546 Fax: 00 1 212 852 6300
Telex: 887984/5 Telex: N/A
TOTAL 100.00
</TABLE>
84
<PAGE>
THE SECOND SCHEDULE
FORM OF TRANSFER CERTIFICATE
To: [Facility Agent] as Facility Agent for the Banks and on behalf of the
Borrowers
cc: [Dollar Swing-Line Agent and Sterling Swing-Line Agent]
TRANSFER CERTIFICATE
relating to the agreement (as from time to time amended, varied, novated or
supplemented, the "Facility Agreement") dated [ ] 199[ ] whereby a
Pounds 325,000,000 multicurrency multi-option credit facility was made
available to Pearson plc ("PLC") and Pearson Inc as original borrowers under the
guarantee of PLC as guarantor by a group of banks on whose behalf Samuel Montagu
& Co. Limited acted as facility agent in connection therewith.
1. Terms defined in the Facility Agreement shall, subject to any contrary
indication, have the same meanings herein. The terms Bank and Transferee are
defined in the schedule hereto.
2. The Bank (i) confirms that the details in the schedule hereto under the
heading "BANK'S COMMITMENT" or "ADVANCE(S)" accurately summarises its Commitment
and/or, as the case may be, the Term and Repayment Date of one or more existing
Advances made by it and (ii) requests the Transferee to accept and procure the
transfer to the Transferee of the portion specified in the schedule hereto of,
as the case may be, its Commitment and/or such Advance(s) by counter-signing and
delivering this Transfer Certificate to the Facility Agent at its address for
the service of notices specified in the Facility Agreement.
3. The Transferee hereby requests the Facility Agent to accept this Transfer
Certificate as being delivered to the Facility Agent pursuant to and for the
purposes of Clause 39.3 of the Facility Agreement so as to take effect in
accordance with the terms thereof on the Transfer Date or on such later date as
may be determined in accordance with the terms thereof.
4. The Transferee confirms that it has received a copy of the Facility
Agreement together with such other information as it has required in connection
with this transaction and that it has not relied and will not hereafter rely on
the Bank to check or enquire on its behalf into the legality, validity,
effectiveness, adequacy, accuracy or completeness of any such information and
further agrees that it has not relied and will not rely on the Bank to assess or
keep under review on its behalf the financial condition, creditworthiness,
condition, affairs, status or nature of any of the Borrowers.
5. Execution of this Transfer Certificate by the Transferee constitutes:
(i) its representation to the Transferor and/or other parties to the
Facility Agreement that it has power to become a party to the
Facility Agreement as a Bank on the terms herein and therein set out
and has taken all necessary steps to authorise execution and delivery
of this transfer certificate; and
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<PAGE>
(ii) a representation to each Borrower resident in the United Kingdom for
tax purposes that, as at the date hereof, such Bank is, acting
through its Facility Office for the purpose of Utilisations (other
than by way of Dollar Swing-Line Advances) by that Borrower, a
Qualifying Bank and that it presently intends that all amounts of
interest payable to that Facility Office under the Facility Agreement
by that Borrower will be brought into account as a trading receipt of
a bona fide banking business carried on by it in the United Kingdom.
6. The Transferee hereby undertakes with the Bank and each of the other
parties to the Facility Agreement that it will perform in accordance with their
terms all those obligations which by the terms of the Facility Agreement will be
assumed by it after delivery of this Transfer Certificate to the Facility Agent
and satisfaction of the conditions (if any) subject to which this Transfer
Certificate is expressed to take effect.
7. The Bank makes no representation or warranty and assumes no responsibility
with respect to the legality, validity, effectiveness, adequacy or
enforceability of the Facility Agreement or any document relating thereto and
assumes no responsibility for the financial condition of any of the Borrowers or
for the performance and observance by such Borrower of any of its obligations
under the Facility Agreement or any document relating thereto and any and all
such conditions and warranties, whether express or implied by law or otherwise,
are hereby excluded.
8. The Bank hereby gives notice that nothing herein or in the Facility
Agreement (or any document relating thereto) shall oblige the Bank to (i) accept
a re-transfer from the Transferee of the whole or any part of its rights,
benefits and/or obligations under the Facility Agreement transferred pursuant
hereto or (ii) support any losses directly or indirectly sustained or incurred
by the Transferee for any reason whatsoever including, without limitation, the
non-performance by any of the Borrowers or any other party to the Facility
Agreement (or any document relating thereto) of its obligations under any such
document. The Transferee hereby acknowledges the absence of any such obligation
as is referred to in (i) or (ii) above.
9. This Transfer Certificate and the rights and obligations of the parties
hereunder shall be governed by and construed in accordance with English law.
THE SCHEDULE
1. Bank:
2. Transferee:
3. Transfer Date:
4. Commitment: Portion Transferred
5. Advance(s):
Term and Repayment Date Portion Transferred
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<PAGE>
6. Bill(s):
Tenor and Maturity Date Portion Transferred
[Transferor Bank] [Transferee Bank]
By: By:
Date: Date:
ADMINISTRATIVE DETAILS OF TRANSFEREE
London Facility Office Address: New York Facility Office Address:
Contact Name: Contact Name:
Telex: Telex:
Telefax: Telefax:
Telephone: Telephone:
Account for Payments Account for Payments
in sterling: in dollars:
87
<PAGE>
THE THIRD SCHEDULE
CONDITIONS PRECEDENT
1. In relation to each of the Original Borrowers:
(i) a copy, certified a true copy by a duly authorised officer of such
Original Borrower, of the constitutive documents of such Original
Borrower;
(ii) a copy, certified a true copy by a duly authorised officer of such
Original Borrower, of a resolution of the Board of Directors of such
Original Borrower (or a duly authorised committee thereof) approving
the execution, delivery and performance of the Finance Documents and
the terms and conditions hereof and authorising a named person or
persons to sign the Finance Documents and any documents to be
delivered by such Original Borrower pursuant hereto or in connection
herewith and to make Utilisations hereunder;
(iii) a certificate of a duly authorised officer of such Original Borrower
setting out the names of persons authorised to verify notices and
communications as contemplated in Clause 46.1 and the names and
signatures of the persons authorised to sign, on behalf of such
Original Borrower, the Finance Documents and any documents to be
delivered by such Original Borrower pursuant hereto or in connection
herewith and to make Utilisations hereunder; and
(iv) if the resolution (referred to in (ii) above) is that of a committee
of the Board of Directors, a copy, certified by the Secretary or an
Authorised Signatory of such Original Borrower, to be a true,
complete and up to date resolution of the Board of Directors of such
Original Borrower appointing such committee with authority to
authorise the matters referred to in (ii) above.
2. A certificate addressed to the Facility Agent and signed by an officer of
each Original Borrower stating that the execution by such Original Borrower of
the Finance Documents, the performance by it of its obligations thereunder and
the utilisation by it of the Facility are within its corporate powers, have been
duly approved by all necessary corporate action and will not cause any limit or
restriction on any of its powers (whether imposed by law, decree, rule,
regulation, its Memorandum or Articles of Association (or other equivalent
constitutive documents), agreement or otherwise) or on the right or ability of
its Directors to exercise such powers, to be exceeded or breached.
3. For Pearson Inc., an opinion of Pearson Inc.'s counsel in the jurisdiction
of incorporation of Pearson Inc. in a form satisfactory to the Facility Agent.
4. An opinion of Clifford Chance, solicitors to the Agents, in substantially
the form distributed to the Banks prior to the execution hereof.
5. Evidence that PLC has agreed to act as the agent of the Borrowers (other
than itself) for the service of process in England.
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<PAGE>
6. Evidence that Pearson Inc. has agreed to act as the agent of the Borrowers
(other than itself) for the service of process in New York.
7. Evidence that a notice cancelling the commitments under the 1988 Facility
has been delivered to the Agent thereunder and evidence satisfactory to the
Facility Agent that such commitments will be cancelled and all outstandings
under the 1988 Facility reduced to zero on or prior to the Utilisation Date of
the first Utilisation hereunder.
8. A power of attorney substantially in the form of the Twelfth Schedule
issued by PLC.
89
<PAGE>
THE FOURTH SCHEDULE
UTILISATION REQUEST
From: [Name of Borrower]
To: [Facility Agent]
cc: [each other Agent]
Dated:
Dear Sirs,
1. Reference is made to the multi-currency multi-option facility agreement,
dated [ ] August, 1995 (as the same may be amended, varied, novated or
supplemented from time to time, the "AGREEMENT"), between Pearson plc and
Pearson Inc. as original borrowers, the Banks as defined therein, Samuel Montagu
& Co. Limited as agent and others.
2. We hereby give you notice that, pursuant to the Facility Agreement, we wish
the Banks to *[make Advances/Dollar Swing-Line Advances/Sterling Swing-Line
Advances/accept Bills] as follows:
(i) Currency
(ii) Aggregate *[principal/face] amount:
(iii) Utilisation Date:
(iv) *[Term/Tenor]:
(v) *[Repayment Date/Maturity Date]:
3. We confirm that, at the date hereof, the representations set out in Clause
22 of the Facility Agreement are true and no Event of Default or Potential Event
of Default has occurred which has not been remedied or waived pursuant to Clause
45.
- -------------------------------------------------------------------------------
* Delete as appropriate
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4. The proceeds of this Utilisation should be credited to [insert account
details].
Yours faithfully
.............................
for and on behalf of
[NAME OF BORROWER]
91
<PAGE>
THE FIFTH SCHEDULE
TIMETABLES
UTILISATION BY MEANS OF ADVANCES
"D" = Utilisation Date
"D-x" = x business days prior to Utilisation Date
"Bs" = Banks
"SLA" = Relevant Swing-Line Agent
"SLBs" = Swing-Line Banks
"FA" = Facility Agent
"( )" = Clause number of Agreement
ADVANCES OTHER THAN SWING-LINE ADVANCES AND COMPETITIVE ADVANCES
STERLING OPTIONAL CURRENCY
ADVANCES ADVANCES
(LONDON TIME) (LONDON TIME)
1. Utilisation Request to FA (6.1) D-1 10.00 a.m. D-3 10.00 a.m.
2. FA to notify Bs of D-1 Noon D-3 Noon
allocations (6.10)
3. LIBOR fixing (1.1) D 11.00 a.m. D-2 11.00 a.m.
SWING-LINE ADVANCES
STERLING SWING-LINE DOLLAR SWING-LINE
ADVANCES ADVANCES
(LONDON TIME) (NEW YORK TIME)
1. Utilisation Request to FA D 9.45 a.m. D 11.00 a.m.
with copy to SLA (6.4)
2. SLA to notify Bs of D 10.30 a.m. D Noon
allocations (6.10)
3. Rate Fixing D 11.00 a.m. N/A
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<PAGE>
4. SLBs to advise SLA of wire number N/A D 2.00 p.m.
effecting transfer (6.6)
5. SLA to advise Borrower of
wire number effecting transfer N/A D 2.00 p.m.
6. Payment by SLBs to SLA D 1.00 p.m. D 2.00 p.m.
7. Payment by SLA to relevant Borrower D 2.00 p.m. D 2.30 p.m.
COMPETITIVE ADVANCES
<TABLE>
<CAPTION>
STERLING OPTIONAL CURRENCY
COMPETITIVE ADVANCES COMPETITIVE ADVANCES
(LONDON TIME) (LONDON TIME)
<S> <C> <C>
1. Competitive Bid Request to FA (8.2) D-2 11.00 a.m. D-4 11.00 a.m.
2. FA to send Invitation for Competitive D-2 2.00 p.m. D-4 2.00 p.m.
Bids to Bs (8.3)
3. Bs send Competitive Bids to FA (8.4) D-1 9.00 a.m. D-3 9.00 a.m.
4. FA to notify relevant Borrower of D-1 10.30 a.m. D-3 10.30 a.m.
Competitive Bids (8.5)
5. Borrower to confirm to FA the D-1 Noon D-3 Noon
Requested Amount
6. FA to notify Bs of acceptance/rejection D-1 3.00 p.m. D-3 3.00 p.m.
and allocations (8.8)
7. LIBOR fixing (1.1) D 11.00 a.m. D-2 11.00 a.m.
</TABLE>
93
<PAGE>
UTILISATION BY MEANS OF BILLS
"D" = Utilisation Date
"D-x" = x business days prior to Utilisation Date
"Bs" = Banks
"FA" = Facility Agent
"( )" = Clause number of Agreement
BILLS OTHER THAN COMPETITIVE BILLS
1. Utilisation Request to FA (6.1) D-1 10.00 a.m.
2. FA to notify Bs of allocations (6.10) D-1 Noon
3. If applicable Bs to notify FA D-1 3.00 p.m.
of election to make an Advance (7.1)
4. If applicable Bs to notify FA D-1 3.00 p.m.
that FA will not be required to
discount Bills (6.11)
5. FA to elect whether or not to D 11.00 a.m.
purchase any Bills (9.2)
6. Eligible Bill Discount Rate D 11.00 a.m.
Fixing (1.1 and 9.2)
7. If applicable Bills to be delivered D 11.00 a.m.
by FA to relevant Bs (9.1)
8. FA to notify relevant Borrower and relevant D 11.30 a.m.
Bs to which Clause 9.3 or 9.4 applies of
Eligible Bill Discount Rate (9.2)
9. If applicable Bills to be returned D 1.00 p.m.
to FA (9.1)
94
<PAGE>
COMPETITIVE BILLS
<TABLE>
<CAPTION>
<S> <C>
1. Competitive Bid request to FA (8.2) D-2 11.00 a.m.
2. FA to send Invitation for Competitive Bids to Bs (8.3) D-2 2.00 p.m.
3. Bs send Competitive Bids to FA (8.4) D-1 9.00 a.m.
4. FA to notify relevant Borrower of Competitive Bids (8.5) D-1 10.30 a.m.
5. Borrower to notify FA of Requested Amount (8.6) D-1 Noon
6. FA to notify Bs of acceptance/rejection and D-1 3.00
allocation (8.8) p.m.
7. If applicable Bs to notify FA that FA will not be D-1 5.00 p.m.
required to discount Bills (6.10)
8. If applicable Bills to be delivered by FA to relevant D 11.00 a.m.
Bs (9.1)
9. Eligible Bill Discount Rate Fixing (1.1 and 9.2) D 11.00 a.m.
10. FA to notify the relevant Borrower and relevant Bs to which D 11.30 a.m.
Clause 9.3 or 9.4 applies of Eligible Bill Discount Rate (9.2)
11. If applicable Bills to be returned to FA (9.1) D 1.00 p.m.
</TABLE>
95
<PAGE>
THE SIXTH SCHEDULE
ASSOCIATED COSTS RATE
1. For the purposes of this Agreement, the cost of compliance with existing
requirements of the Bank of England in respect of Advances denominated in
sterling will be calculated by the Facility Agent in relation to each Advance on
the basis of rates to be supplied by each of the Reference Banks by reference to
the circumstances existing on the first day of the Term in respect of such
Advance and, if such Term exceeds three months, at three calendar monthly
intervals from the first day of such Term during its duration in accordance with
the following formula:
AB + C(B - E) + D(B - F) per cent. per annum
------------------------
100 - (A + D)
Where:
A is the percentage of eligible liabilities which such Reference Bank is
from time to time required to maintain as an interest free cash deposit
with the Bank of England to comply with cash ratio requirements.
B is the percentage rate per annum at which sterling deposits are offered
by such Reference Bank, in accordance with its normal practice, for a
period equal to (i) the Term (or, as the case may be, remainder of such
Term) in respect of the relevant Advance or (ii) three months,
whichever is the shorter, to a leading bank in the London Interbank
Market at or about 11.00 a.m. in a sum approximately equal to the
amount of such Advance.
C is the percentage of eligible liabilities which such Reference Bank is
from time to time required by the Bank of England to maintain as
secured money with members of the London Discount Market Association
("LDMA") and/or as secured call money with money brokers and gilt edged
market makers.
D is the percentage of eligible liabilities which such Reference Bank is
required from time to time to maintain as interest bearing special
deposits with the Bank of England.
E is the percentage rate per annum at which members of the LDMA are
offered sterling deposits in a sum approximately equal to the amount of
the relevant Advance as a callable fixture from such Reference Bank for
such period as determined in accordance with B above at or about 11.00
a.m.
F is the percentage rate per annum payable by the Bank of England to such
Reference Bank on interest bearing special deposits.
2. For the purposes of this Schedule "ELIGIBLE LIABILITIES" and "SPECIAL
DEPOSITS" shall bear the meanings ascribed to them from time to time by the Bank
of England.
96
<PAGE>
3. The percentages used in A, C and D above shall be those required to be
maintained on the first day of the relevant period as determined in accordance
with B above.
4. In application of the above formula, A, B, C, D, E and F will be included
in the formula as figures and not as percentages e.g. if A is 0.5 per cent. and
B is 12 per cent., AB will be calculated as 0.5 x 12 and not as 0.5 per cent. x
12 per cent.
5. Calculations will be made on the basis of a 365 day year (or, if market
practice differs, in accordance with market practice).
6. A negative result obtained by subtracting E from B or F from B shall be
taken as zero.
7. The arithmetic mean of the resulting figures for each Reference Bank shall
be calculated and shall then be rounded upwards, if not already such a multiple,
to the nearest 0.0001 per cent. per annum.
8. Additional amounts calculated in accordance with this Schedule are payable
on the last day of the Term to which they relate.
9. The Facility Agent's determination of the Associated Costs Rate in relation
to any period shall, in the absence of manifest error, be conclusive and binding
on all of the parties hereto.
10. The Facility Agent may from time to time, after consultation with PLC and
the Banks, determine and notify to all the parties hereto any amendments or
variations which are required to be made to the formula set out above in order
to comply with any requirements from time to time imposed by the Bank of England
in relation to Advances denominated in sterling (including without limitation,
any requirements relating to sterling primary liquidity) and, any such
determination shall, in the absence of manifest error, be conclusive and binding
on all the parties hereto.
97
<PAGE>
THE SEVENTH SCHEDULE
FORM OF BORROWER ACCESSION MEMORANDUM
To: [Facility Agent]
CC: [Dollar Swing-Line Agent and Sterling Swing-Line Agent]
From: [PLC and Subsidiary]
Dated:
Dear Sirs,
1. We refer to an agreement (the "Facility Agreement") dated [ ], August
1995 and made between Pearson plc ("PLC") and Pearson Inc as original borrowers,
PLC as guarantor, Midland Bank plc and Union Bank of Switzerland as arrangers,
Samuel Montagu & Co. Limited as facility agent, the financial institutions
defined therein as Banks and others.
2. Terms defined in the Facility Agreement shall bear the same meaning herein.
3. PLC hereby requests that [Subsidiary] become an Acceding Borrower pursuant
to Clause 41.1 of the Facility Agreement.
4. [Subsidiary] is a corporation duly organised under the laws of [Name of
Relevant Jurisdiction].
5. [Subsidiary] undertakes to deliver the documents listed in the Eighth
Schedule to the Facility Agreement.
6. [Subsidiary] hereby agrees to such request and accordingly undertakes, upon
its becoming a Borrower, to perform all the obligations expressed to be
undertaken under the Facility Agreement by a Borrower in all respects as if it
had been an original party thereto as an Original Borrower.
7. PLC confirms that it will guarantee in accordance with Clause 27 of the
Facility Agreement all the obligations of [Subsidiary] under the Finance
Documents in all respects in accordance with the terms of the Facility
Agreement.
8. PLC (on behalf of itself and each other Borrower):
(i) hereby makes, for the benefit of the Agents and each of the
Banks, each of the representations set out in Clause 22 of the
Facility Agreement; and
(ii) confirms that no Event of Default or Potential Event of Default
has occurred and is continuing.
98
<PAGE>
9. [Subsidiary's] administrative details as follows:
Address:
Telephone No.:
Telex No.:
Telefax No.:
10. This memorandum shall be governed by and construed in all respects in
accordance with English law.
Pearson plc [Subsidiary]
By: ..................... By: .....................
99
<PAGE>
THE EIGHTH SCHEDULE
DOCUMENTS TO ACCOMPANY BORROWER ACCESSION MEMORANDUM
1. A copy, certified a true copy by a duly authorised officer of the proposed
Borrower of the constitutive documents of such proposed Borrower.
2. A copy, certified a true copy by a duly authorised officer of the proposed
Borrower, of a board resolution of such proposed Borrower approving the
execution and delivery of a Borrower Accession Memorandum, the accession of such
proposed Borrower to the Facility Agreement and the performance of its
obligations under the Finance Documents and authorising a person or persons
(specified by name or office) on behalf of such proposed Borrower to sign such
Borrower Accession Memorandum, any other Finance Document and any other
documents to be delivered by such proposed Borrower pursuant thereto or in
connection herewith and to make Utilisations hereunder.
3. A certificate of a duly authorised officer of the proposed Borrower setting
out the names and signatures of the person or persons mentioned in the
resolution referred to in paragraph 2 above and the names of persons authorised
to verify notices and communications as contemplated in Clause 46.1.
4. Where the proposed Borrower is not incorporated in England and Wales, a
copy, certified a true copy by or on behalf of the proposed Borrower, of each
such law, decree, consent, licence, approval, registration or declaration as is,
in the opinion of counsel to the Banks, necessary to render the relevant
Borrower Accession Memorandum legal, valid, binding and enforceable, to make
such Borrower Accession Memorandum admissible in evidence in the proposed
Borrower's jurisdiction of incorporation and to enable the proposed Borrower to
perform its obligations thereunder and under the other Finance Documents.
5. Legal opinions of English solicitors and, where such proposed Borrower is
not incorporated in England and Wales, counsel in the proposed Borrower's
jurisdiction of incorporation in a form satisfactory to the Facility Agent.
100
<PAGE>
THE NINTH SCHEDULE
FORM OF BORROWER SECESSION MEMORANDUM
To: [the Facility Agent]
CC: [The Dollar Swing-Line Agent and the Sterling Swing-Line Agent]
From: Pearson plc
Dated:
Dear Sirs,
1. We refer to an agreement (the "Facility Agreement") dated [ ], August
1995 and made between Pearson plc ("PLC") and Pearson Inc as original borrowers,
PLC as guarantor, Midland Bank plc and Union Bank of Switzerland as arrangers,
Samuel Montagu & Co. Limited as facility agent, the financial institutions
defined therein as Banks and others.
2. Terms defined in the Facility Agreement shall bear the same meaning herein.
3. We hereby declare that [name of Borrower other than PLC] is under no actual
or contingent obligation under or pursuant to any Finance Document in its
capacity as a Borrower.
4. Accordingly, pursuant to Clause 41.3 of the Facility Agreement and with
effect from receipt of this notice, [name of relevant Borrower] shall cease to
be a Borrower under the Facility Agreement.
Yours faithfully
For and on behalf of
Pearson plc
101
<PAGE>
THE TENTH SCHEDULE
EXISTING ENCUMBRANCES
1. A first charge created by S. Pearson & Son Limited over the net earnings of
the Partnership and a further charge on the undertaking and all property and
assets present and future, including uncalled capital dated 4th December, 1901,
in order to secure an issue of debentures totalling Pounds 750,000; and
2. a charge created by Mindscape Bordeaux SA (formerly Atreid Concept SA) in
April 1993 over the revenues of the company from two software products to secure
obligations under a FRF1,500,000 loan agreement between the company and UFB
Locabail dated April 1993.
102
<PAGE>
THE ELEVENTH SCHEDULE
PART I
FORM OF COMPETITIVE BID REQUEST
To: Samuel Montagu & Co. Limited as Facility Agent for
the Banks referred to below,
From:
Attention: [ ], 199[ ]
Dear Sirs
We refer to the multicurrency multi-option facility agreement, dated [ ]
August, 1995 (as amended, varied, novated or supplemented from time to time, the
"AGREEMENT"), between Pearson plc and Pearson Inc as original borrowers, the
Banks as defined therein, yourselves as Facility Agent and others.
Terms defined in the Agreement shall have the same meaning herein. We hereby
give you notice pursuant to Clause 8 of the Agreement that we request a
competitive bidding under the Agreement, and in that connection set forth below
the terms on which such competitive bidding is requested to be made:
(A) Utilisation Date
--------------------
(B) Advances/Bills
--------------------
(C) Aggregate amount and currency for which
Competitive Bids are requested
--------------------
(D) Term/Tenor
--------------------
Yours faithfully
The proceeds of any bids made and accepted in due course should be credited to
[insert account details]
[ BORROWER ]
By: ___________________________________
Name:
Title:
103
<PAGE>
PART II
FORM OF INVITATION FOR COMPETITIVE BID
[Name of Bank]
[Address]
Attention: [ ] [ ], 199[ ]
Dear Sirs
Reference is made to the multi-currency multi-option facility agreement,
dated [ ] August, 1995 (as the same may be amended, varied, novated or
supplemented from time to time, the "AGREEMENT"), between Pearson plc and
Pearson Inc. as original borrowers, the Banks as defined therein, Samuel Montagu
& Co. Limited as agent and others.
Terms defined in the Agreement shall have the same meanings herein.
[Borrower] made a Competitive Bid Request on [ ], pursuant to Clause 8 of
the Agreement, and in that connection you are invited to submit a Competitive
Bid by [Date]/[Time]. Your Competitive Bid must comply with Clause 8 of the
Agreement and the terms set forth below on which the Competitive Bid Request was
made:
(A) Utilisation Date ----------------------
(B) Advances/Bills ----------------------
(C) Aggregate amount and currency for which
Competitive Bids are requested ----------------------
(D) Term/Tenor ----------------------
Yours faithfully
Samuel Montagu & Co. Limited
as Facility Agent
By: ___________________________________
Name:
Title:
104
<PAGE>
PART III
FORM OF COMPETITIVE BID
Samuel Montagu & Co. Limited as Facility Agent
for the Banks referred to below
Attention: [ ] [ ], 199[ ]
Dear Sirs
We refer to the multi-currency multi-option facility agreement, dated [
] August, 1995 (as the same may be amended, varied, novated or supplemented from
time to time, the "AGREEMENT"), between Pearson plc and Pearson Inc. as original
borrowers, the Banks as defined therein, yourselves as Facility Agent and
others.
Terms defined in the Agreement shall have the same meanings herein. We hereby
make a Competitive Bid pursuant to Clause 8 of the Agreement, in response to the
Competitive Bid Request made by the Borrower on [ ] and in that
connection set forth below the terms on which such competitive Bid is made:
(A) Utilisation Date -------------------
(B) Advances/Bills -------------------
(C) Principal Amount and currency -------------------
(D) Competitive Bid Rate -------------------
(E) Tenor/Term -------------------
We hereby confirm that we are prepared, subject to the conditions set forth
in the Agreement, to extend credit to the Borrower upon acceptance by the
Borrower of this bid in accordance with Clause 8 of the Agreement.
Yours faithfully,
[NAME OF BANK]
By: ___________________________________
Name:
105
<PAGE>
PART IV
FORM OF COMPETITIVE BID - UTILISATION CONFIRMATION LETTER
Samuel Montagu & Co. Limited as Facility Agent for the Banks referred to below
Attention: [Date]
Dear Sirs
1. We refer to the multi-currency multi-option facility agreement, dated [ ]
August, 1995, (as the same may be amended, varied, novated or supplemented from
time to time, the "AGREEMENT"), between Pearson plc and Pearson Inc as original
borrowers, the Banks as defined therein, yourselves as Facility Agent and
others. Terms defined in the Agreement shall have the same meaning when used
herein.
2. In relation to the Competitive Bid Request dated [ ], we hereby give you
notice pursuant to Clause 8.6 of the Agreement that [we wish to proceed with a
Utilisation in respect thereof and the Requested Amount thereof is [ ]] **[we
do not wish to proceed with a Utilisation in respect thereof].
***3. We confirm that, at the date hereof, the representations set out in
Clause 22 of the Agreement are true and no Event of Default or Potential Event
of Default has occurred which has not been remedied or waived pursuant to Clause
45.
***The proceeds of the Utilisation the subject of this letter should be credited
to [insert accounts details].
.........................
for and on behalf of
[NAME OF BORROWER]
By:
Name:
Title:
- -------------------------------------------------------------------------------
*Delete whichever is inapplicable
***Delete if no Utilisation is to be proceeded with
106
<PAGE>
THE TWELFTH SCHEDULE
FORM OF POWER OF ATTORNEY
THIS POWER OF ATTORNEY is made as a deed the day of 199 by
[insert na me of company] of [insert registered address of company] (the
"COMPANY") for the purposes of Clause 11 of the multi currency multi-option
facility agreement dated [ ], 1995 (the "FACILITY AGREEMENT") made between
Pearson plc[/the Company*] Pearson Inc. [/the Company/*/] [and the
Company/*/], Samuel Montagu & Co. Limited as Facility Agent, the financial
institutions defined therein as Banks and others [to which the Company has
become a party pursuant to the borrower accession memorandum dated [ ] a
copy of which is attached hereto/*/].
1. Terms defined in the Facility Agreement have the same meanings when used in
this Power of Attorney.
2. The Company hereby appoints Samuel Montagu & Co. Limited to be the true and
lawful attorney of the Company, on behalf of and in the name of the Company
(i) to complete Bills on behalf of the Company by (a) dating such Bills
with the issue and maturity dates, (b) inserting the name of the relevant
Bank as drawee, (c) inserting the face amount of each Bill in a manner
consistent with allocations under Clause 6 of the Facility Agreement and
(d) signing such Bills and (ii) to deliver the same to Banks for acceptance
(Provided that the face amount of each Bill shall not exceed
(Pounds)1,000,000) as provided in Clause 11 of the Facility Agreement in
accordance with the following provisions of this Power of Attorney.
3. The powers conferred on Samuel Montagu & Co. Limited under paragraph 2 of
this Power of Attorney shall be exercisable jointly by any two persons who
are for the time being authorised signatories of, and appear in, the
Signatures List of Samuel Montagu & Co. Limited.
4. In exercising those powers, such authorised signatories shall:
(i) act as the agents of Samuel Montagu & Co. Limited in its
capacity as the Company's attorney under this Power of Attorney;
and
(ii) sign on behalf of Samuel Montagu & Co. Limited and the Company
as follows:
"For and on behalf of [ ] by Samuel Montagu & Co. Limited as
Attorney.
........................
Authorised Signatory"
- --------------------------------------------------------------------------------
*Delete as appropriate
107
<PAGE>
5. Any authorised signatory of Samuel Montagu & Co. Limited may make such
arrangements as appear to him or her, as the case may be, proper for the
Bills drawn and endorsed under this Power of Attorney to be delivered in
accordance with the Facility Agreement.
6. Any Bills drawn, endorsed and delivered in accordance with this Power of
Attorney shall be binding upon the Company for all purposes and the Company
hereby (i) declares that each act, deed, matter and thing which shall be
made, executed or done by any Attorney pursuant to its powers hereunder
shall be as good, valid and effectual as if the Company had made, executed
or done the same and (ii) agrees to ratify any and all acts, deeds, matters
and things made, executed or done by or on behalf of Samuel Montagu & Co.
Limited in accordance with the terms of this Power of Attorney.
7. The Company hereby agrees to indemnify Samuel Montagu & Co. Limited and
each other Attorney in respect of all and any costs, losses and or expenses
which it may suffer as a result of the exercise of any of its powers
hereunder other than as a result of a breach by any one of them of Clause
11.3 or Clause 11.5(i) of the Facility Agreement.
8. This Power of Attorney shall remain in full force and effect and may be
acted upon until the receipt by Samuel Montagu & Co. Limited of a notice in
writing which is signed by a director or the secretary of the Company, is
addressed to the Specialised Financing Department of Samuel Montagu & Co.
Limited, is left at (not posted to) the offices of Sa muel Montagu & Co.
Limited at 10 Lower Thames Street, London EC3R 6AE and expressly revokes
this Power of Attorney.
9. Notwithstanding the foregoing such revocation shall not take effect with
respect to any Bills in relation to which a Utilisation Request has been
made prior to the time of receipt by Samuel Montagu & Co. Limited of the
notice of revocation referred to in paragraph 8 above and in relation to
which the powers of Samuel Montagu & Co. Limited contained in this Power of
Attorney shall remain in full force and effect.
10. This Power of Attorney shall be governed by English law.
IN WITNESS whereof the Company has executed and delivered this Power of Attorney
as a deed on the date first before written.
Executed as a deed )
)
on behalf of )
[ ] )
by:
........................
director
........................
director/secretary
108
<PAGE>
THE ORIGINAL BORROWERS
PEARSON PLC
By: /s/ D.H. COLVILLE
Address: 3 Burlington Gardens
London
W1X 1LE
Telephone: 0171 411 2000
Fax: 0171 411 2390/2299
Telex: 8953869
PEARSON INC.
By: /s/ D.H. COLVILLE
Address: One Rockefeller Plaza
New York
NY 10020
USA
Telephone: 00 1 212 713 1919
Fax: 00 1 212 247 4616
Telex: N/A
THE ARRANGERS
MIDLAND BANK PLC
By: /s/ P.C. BULL
Address: 27-32 Poultry
London
EC2P 2BX
Telephone: 0171 260 4615
Fax: 0171 260 4800
Telex: 895 4744
109
<PAGE>
UNION BANK OF SWITZERLAND
By: /s/ K. TRIBLEY
Address: P O Box 428
100 Liverpool Street
London
EC2M 2RH
Telephone: 0171 901 3333
Fax: 0171 901 3903
Telex: 941 3848/3944 UBS COR G
THE FACILITY AGENT
SAMUEL MONTAGU & CO. LIMITED
By: /s/ T.D REID
Address: 10 Lower Thames Street
London
EC3R 6AE
Telephone: 0171 260 9000
Fax: 0171 260 9809
Telex: 919316 SMTPUT G
Attention: Specialised Financing Support
THE DOLLAR SWING-LINE AGENT
MIDLAND BANK PLC, NEW YORK BRANCH
By: /s/ MARTIN BROWN
Address: 140 Broadway
New York
NY 10005
USA
Telephone: 00 1 212 658 2738
Fax: 00 1 212 658 2586
Telex: 426423 MID BK
Attention: Martin Brown
110
<PAGE>
THE STERLING SWING-LINE AGENT
SAMUEL MONTAGU & CO. LIMITED
By: /s/ T.D. REID
Address: 10 Lower Thames Street
London
EC3R 6AE
Telephone: 0171 260 9000
Fax: 0171 260 9809
Telex: 919316 SMTPUT G
Attention: Specialised Financing Support
THE BANKS
MIDLAND BANK PLC
By: /s/ P.C. BULL
Address: 27-32 Poultry
London
EC2P 2BX
Telephone: 0171 260 8000
Fax: 0171 260 4800
Telex: 8954744
UNION BANK OF SWITZERLAND
By: /s/ K. TRIBLEY
Address: P O Box 428
100 Liverpool Street
London
EC2M 2RH
Telephone: 0171 901 3333
Fax: 0171 901 3903
Telex: 941 3848/3944 UBS COR G
111
<PAGE>
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
By: /s/ ROBERT S. RUSSELL
Address: Minerva House
P O Box 7
Montague Close
London
SE1 9DH
Telephone: 0171 378 2121
Fax: 0171 378 2880/2378
Telex: 8812741 Anzbka g
885043-6 Grndly g
BANQUE NATIONALE DE PARIS, LONDON BRANCH
By: /s/ N.J. SAINT
Address: P O Box 781
8-13 King William Street
London
EC4N 7QJ
Telephone: 0171 895 7070
Fax: 0171 929 0310
Telex: 883412 BNPLNX G
BARCLAYS BANK PLC
By: /s/ C.B. EVANS
Address: for Credit Matters: for Administration Matters:
Murray House Central Loans Administration
1 Royal Mint Court Department (CLAD) UK
London 5th Floor, St Swithin's House
EC3N 4HH St Swithin's Lane
London
EC4N 8AS
Telephone: 0171 488 1144 Telephone: 0171 621 4000
Fax: 0171 696 3048 Facsimile: 0171 621 4583
Telex: 934148 BBSAIO G Telex: 8950821 BARIBG G
112
<PAGE>
CREDIT LYONNAIS
By: /s/ CECILE VERROEST
Address: P O Box 81
84-94 Queen Victoria Street
London
EC4P 4LX
Telephone: 0171 634 8000
Fax: 0171 489 1559/1909
Telex: 885479
DEUTSCHE BANK AG, LONDON
By: /s/ GARTH M. HARLOW
Address: 6 Bishopsgate
London
EC2P 2AT
Telephone: 0171 971 7000
Fax: 0171 971 7455
Telex: 9401 5555
NATIONAL WESTMINSTER BANK PLC
By: /s/ BERNARD J. SKIVINGTON
Address: 135 Bishopsgate
London
EC2M 3UR
Telephone: 0171 334 1000
Fax: 0171 375 5524
Telex: 882121
113
<PAGE>
ROYAL BANK OF CANADA
By: /s/ C. VIRAG
Address: 71 Queen Victoria Street
London
EC4V 4DE
Telephone: 0171 489 1188
Fax: 0171 248 6322
Telex: 929111 RBCCTY
THE SUMITOMO BANK, LIMITED
By: /s/ K.D. HARBER
Address: Temple Court
11 Queen Victoria Street
London
EC4N 4TA
Telephone: 0171 786 1000
Fax: 0171 236 0049
Telex: 887667
TORONTO-DOMINION BANK
By: /s/ H.M. BAKER
Address: Triton Court
14/18 Finsbury Square
London
EC2A 1DB
Telephone: 0171 920 0272
Fax: 0171 638 0006
Telex: 886142
114
<PAGE>
WESTDEUTSCHE LANDESBANK GIROZENTRALE, LONDON BRANCH
By: T.D. REID
Address: 51 Moorgate
London
EC2R 6AE
Telephone: 0171 638 6141
Fax: 0171 374 8546
Telex: 887984/5
115
<PAGE>
Exhibit (c)(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
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<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
7
<PAGE>
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
8
<PAGE>
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,
9
<PAGE>
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
---
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.
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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.
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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
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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
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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
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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.
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EXHIBIT (C)(2)
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 (C)(3)
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>
EXHIBIT (C)(4)
[Letter on All American Communications letterhead]
December 7, 1995
Pearson Television Limited
Teddington Studios
Teddington Lock
Middlesex TW11 9NT
England
Dear Sirs and Madams:
Reference is made to the letter agreement (the "Agreement") dated November 20,
1995, between you and All American Communications, Inc. (The "Company") in
connection with your consideration of a possible transaction with the Company.
Capitalized terms used herein without definition shall have the respective
meanings set forth in the Agreement.
Please be advised that we are not proceeding with and are hereby terminating and
abandoning any discussions concerning a transaction as contemplated in the
Agreement. Pursuant to the Agreement, we hereby request that you redeliver to
the Company all written Evaluation Material and deliver or promptly destroy
(which destruction should be certified to the Company in writing) any other
written material containing or reflecting any information in the Evaluation
Material and not retain any copies, extracts or other reproductions thereof
except as expressly permitted by the Letter Agreement.
Notwithstanding the foregoing, as provided in the Letter Agreement, the
obligations of the parties under the Letter Agreement shall remain in full force
and effect in accordance with the terms thereof.
Very truly yours,
ALL AMERICAN COMMUNICATIONS, INC.
By: /s/ Thomas Bradshaw
-----------------------------
Thomas Bradshaw
Senior Vice President,
Chief Financial Officer
<PAGE>
EXHIBIT (C)(5)
[Letter on All American Communications, Inc. letterhead]
February 16, 1996
Pearson Television Limited
Teddington Studios
Teddington Lock
Middlesex TW11 9NT
England
Dear Sirs and Madams:
Reference is made to the letter agreement (the "Letter Agreement") dated
November 20, 1995, between All American Communications, Inc. (The "Company") and
Pearson Television Limited ("Pearson"). Capitalized terms used herein without
definition shall have the respective meanings set forth in the Letter Agreement.
This will confirm our understanding and agreement that the Letter Agreement
remains in full force and effect and that, notwithstanding the Company's prior
termination of all discussions concerning a possible transaction referenced in
the Letter Agreement, all Evaluation Material furnished to you or to your
Representatives, whether prior to the date hereof, now or in the future, has
been and shall be furnished pursuant to and shall be subject to the provisions
of the Letter Agreement.
Very truly yours,
ALL AMERICAN COMMUNICATIONS, INC.
By: /s/ Thomas Bradshaw
-----------------------------
Confirmed and Agreed to:
PEARSON TELEVISION LIMITED
By: /s/ Sara Tingay
-----------------------------
<PAGE>
EXHIBIT (C)(6)
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 (C)(7)
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 (c)(8)
[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
1
<PAGE>
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
----------------------------
2
<PAGE>
EXHIBIT (g)
[LOGO OF PEARSON]
Annual Report 1996
ANNUAL REPORT
<PAGE>
1 Pearson plc - an introduction
2 Pearson at a glance
4 Chairman's statement
6 Managing Director's review
Business reviews
9 Information
13 Education
17 Entertainment
22 Investment banking
23 Pearson and the community
24 Board of Directors
26 Finance Director's review
29 Summary Directors' report
30 Summary Remuneration Committee report
32 Profit and loss account
33 Cash flow statement
34 Balance sheet and Auditors' report
35 Five year summary
36 Shareholder information
ibc Principal offices
<PAGE>
Pearson plc an introduction
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 worldwide: information, education and
entertainment.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1996 1995 Change
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Pounds 2,186.0 million Pounds 1,830.4 million +19%
- ------------------------------------------------------------------------------------------------------------------
Operating profit before charge for improper
accounting at Penguin USA* Pounds 281.3 million Pounds 259.6 million +8%
- ------------------------------------------------------------------------------------------------------------------
Operating profit Pounds 181.3 million Pounds 259.6 million -30%
- ------------------------------------------------------------------------------------------------------------------
Profit before tax Pounds 356.8 million Pounds 365.1 million -2%
- ------------------------------------------------------------------------------------------------------------------
Earnings per share 42.9 pence 47.1 pence -9%
- ------------------------------------------------------------------------------------------------------------------
Adjusted earnings per share 30.6 pence 28.8 pence +6%
- ------------------------------------------------------------------------------------------------------------------
Dividends per share 18.0 pence 16.5 pence +9%
- ------------------------------------------------------------------------------------------------------------------
*See Finance Director's review
</TABLE>
[BAR GRAPHS APPEAR HERE]
1
<PAGE>
Pearson at a glance
[LOGO OF PEARSON]
Pearson is an international media group with a diverse range of skills in
newspaper, magazine and book publishing, on-line and software services,
television and visitor attractions. The Group focuses these core skills, through
separate business divisions, on three markets worldwide: information, education
and entertainment. Pearson also has significant interests in investment banking.
Investment Banking
The Group has a 50% stake in Lazard Brothers, one of London's pre-eminent
merchant banks, and interests in Lazard Freres of New York and Lazard Freres of
Paris.
<TABLE>
<CAPTION>
Sales (pounds in million) 1996 1995 %
<S> <C> <C> <C>
[PIE CHART APPEARS HERE] United Kingdom 738.5 687.3 7
Continental Europe 419.4 351.6 19
North America 798.3 591.4 35
Asia Pacific 185.2 163.0 14
Rest of World 44.6 37.1 20
-------- -------- ---
Total 2,186.0 1,830.4 19
</TABLE>
The Information division encompasses a wide portfolio of information services
worldwide. Its printed products include national and international business
newspapers, professional books, magazines and periodicals. It also provides
electronic information services.
The Education division is one of the world's top three educational publishers,
selling books, multimedia and learning programmes in the school, higher
education, professional and English language teaching markets throughout the
world.
The Entertainment division produces, distributes and broadcasts television
programmes, is a leading international trade book publisher, runs visitor
attractions and produces consumer magazines, videos and software.
2
<PAGE>
Pearson at a glance
<TABLE>
<CAPTION>
[PIE CHART APPEARS HERE]
Operating Profit (pounds in millions) 1996 1995 %
<S> <C> <C> <C>
Information 134.4 105.3 28
Education 68.1 31.8 114
Entertainment* 52.5 110.9 (53)
Investment Banking 40.8 39.9 2
Corporate Expenses (14.5) (28.3) 49
------ ------ ---
Total* 281.3 259.6 8
</TABLE>
* Excludes pounds 100 million charge for improper accounting at Penguin USA
Financial Times Newspaper publishes the Financial Times, printed in ten centres
covering Europe, North America and Asia.
Financial Times Information provides comprehensive electronic business and
specialist financial information worldwide.
Les Echos is France's leading business daily newspaper and the flagship of a
group which includes many other business and professional titles.
Recoletos is one of Spain's leading newspapers and magazine publishers. Its
titles include the country's premier business daily and sports daily.
Pearson Professional publishes books, periodicals and screen-based services for
professional communities worldwide.
Addison Wesley Longman publishes teaching products in many major markets in the
US and throughout the world for elementary and secondary schools, colleges, and
computer science and engineering professionals. AWL is also the world's largest
publisher of American and British English language teaching materials.
Penguin publishes English language consumer books, fiction and non-fiction, in
hardcover and paperback.
The Tussauds Group is the largest European operator of leading visitor
attractions specialising in exhibitions and theme parks.
Pearson New Entertainment publishes special-interest consumer magazines, videos
and related new media.
Mindscape develops and publishes consumer software for personal computers and
video game systems.
Pearson Television is the UK's largest international television producer. It
sells its formats worldwide and also has interests in distribution and
broadcasting.
3
<PAGE>
CHAIRMAN'S STATEMENT
The foundations of an international media company have been laid and 1996 saw
Pearson building its strengths in the information, education and entertainment
markets. In the Information division we increased the availability of the
Financial Times newspaper in key world financial centres and developed further
our electronic information services. In Education Addison Wesley Longman
expanded through the acquisition of HarperCollins Educational Publishing,
substantially increasing the range of our US educational products and
reinforcing our position as a leading world educational publisher. In our
Entertainment division the purchase of Putnam Berkley did very much the same for
Penguin and Pearson Television consolidated its position as the UK's foremost
international production company.
Our 1996 profits were badly hit by the results at Mindscape and the events at
Penguin. Before taking into account the exceptional pounds 100 million charge in
relation to unauthorised behaviour at Penguin USA (which is detailed in the
Finance Director's Review) our operating profits for the year nonetheless
increased by 8% and a 6% rise was achieved in adjusted earnings per share. These
included the loss of pounds 45 million relating to Mindscape, which although
large and disappointing, was nonetheless in line with what we forecast at the
time of the last Annual General Meeting. Pearson has made a satisfactory start
to the year with operating profits in line with expectations and I will report
further to shareholders at the AGM in May. In the meantime your board is
recommending a final dividend of 11.1 pence, which would take the total dividend
to 18 pence, representing a 9% increase for the year as a whole.
In addition to building on the strengths of the company, the other important
development that has been taking place in the Group over the past year is the
orderly transfer of executive power from one generation to another. David Bell,
Greg Dyke and John Makinson became Pearson executive directors in March last
year, Marjorie Scardino became chief executive in January this year and Dennis
Stevenson will replace me as chairman after the AGM on 2 May. They will make a
formidable team, with great individual skills, strong beliefs and the ability to
create growing long term value for shareholders.
4
<PAGE>
In wishing success to the new team I would also like to thank and acknowledge
the achievements of the previous team of Frank Barlow, Mark Burrell, James Joll
and David Veit, all of whom, with the exception of David who forms part of the
new team, will have retired by the end of the AGM. I have worked with them on a
daily basis since I became chairman of Pearson in September 1983. The market
capitalisation of the company that September stood at Pounds 313 million. At the
time of writing (mid-March 1997) it stands at Pounds 4.4 billion, the adjusted
share price has multiplied by more than nine and a half times and Pearson shares
have outperformed the FTSE All Share Index by over 100%. The FTSE 100 Index was
started in January 1984. Since then 51 of the original companies have dropped
out of the index and of the remainder only three companies have improved their
ranking by more places than Pearson. In this period the nature of the company
has been changed from that of a widespread conglomerate to a leading
international media company. During the course of this change three additional
successful public companies have been established in their own right, Fairey,
Camco and Royal Doulton, and the value of the latter's shares distributed by
scrip dividend to Pearson shareholders.
The philosophy of Pearson is to take a long term view; to take risk and
sometimes substantial risk against a background of financial security; to deal
fairly and honestly and to promote quality; and in doing so to create a company
with a culture which attracts and motivates entrepreneurial and talented people
and makes it attractive for other companies to join.
Throughout this period the executives have been advised and encouraged by a
strong group of internationally minded non-executive directors and I would like
to thank them and the chief executives of the operating companies and everyone
working in the Group for their enthusiasm and support throughout the good times
and bad. In addition to immediate colleagues, of whom Frank Barlow has played an
outstanding leadership role, I would also like to pay special tributes, as they
leave the Group, to Peter Mayer who has over nineteen years taken Penguin from
the position of a threatened UK paperback publisher to the international
publishing house it is today, and to Sir Simon Hornby, who in addition to
chairing the Remuneration Committee has been a valued contributor to the Pearson
board for many years.
I want to conclude by emphasising that Pearson as a company has gone through a
transformation. We are now well positioned with our leading international
franchises to take advantage of the exciting prospects of the new media age, and
as the pace of change quickens, I intend to enjoy watching the new management
team do just that.
/s/ Michael Blakenham
MICHAEL BLAKENHAM, Chairman
5
<PAGE>
[PHOTO APPEARS HERE]
Managing Director's review
Pearson, as an international media group, is now organised into three business
divisions. David Bell is responsible for the Information division worldwide, and
J Larry Jones directs all our Education activities. David Veit co-ordinates our
Entertainment businesses, with the exception of Pearson Television, which is run
by Greg Dyke. This year, for the first time, in the divisional review on pages
9-21 of this annual report, each of them writes personally about the key issues
and events of 1996 as he sees them.
Results
The majority of Pearson's operating companies continued to make significant
progress during the year. Sales increased by 19% and exceeded Pounds 2 billion
for the first time. We reported an operating profit of Pounds 181 million but
this was after taking a charge of Pounds 100 million in relation to improper
accounting at Penguin USA. Setting this and the operating losses at Mindscape
aside, profits increased by 23%.
A global strategy for Information
The Information division had a good year in 1996, expanding sales to Pounds 829
million from Pounds 759 million in 1995, and also generated excellent growth in
operating profits. The division is establishing its strategic direction for the
future, a position to be built firmly on the brand values associated with the
Financial Times newspaper. In publishing, whether in newspapers or in
professional areas, there is great potential for international growth. In
electronic information, key opportunities lie in supplying the expanding demand
for high-quality financial and business information.
The Information portfolio will therefore be focused on markets where the
division can build a significant international position. Consequently,
Westminster Press, one of the UK's largest regional newspaper groups and a
valued member of the Group for many years, no longer fitted this strategy, and
its sale was completed in 1996.
All the Information division's companies saw a steady advance in sales in 1996.
Growth in the UK economy created an uplift in financial and trade advertising,
and the FT and Pearson Professional both increased their operating profit.
Despite the difficult economic climate in France, Les Echos also improved its
trading profitability, although this performance was
6
<PAGE>
outweighed by the closure costs of our personal finance magazine Argent. In
Spain, Recoletos continued to perform well, and we made further investment for
its future. Financial Times Information enjoyed a strong contribution from
Interactive Data Corporation which, in its first full year as part of Pearson,
benefited from the rapid growth of mutual funds in the US.
Now a world-scale player in Education
The major event of the year was the acquisition in April of HarperCollins
Educational Publishing, part of the HarperCollins publishing group. This has
increased Pearson's turnover in Education from Pounds 359 million in 1995 to
Pounds 554 million in 1996, making it one of the world's top three educational
publishers, and positioned it for further global development.
Profit for the combined business in 1996 was Pounds 68 million compared with
Pounds 32 million in 1995. This is a good result during a year when management
was heavily absorbed in a major integration exercise - the second in two years,
following the merger of Addison-Wesley and Longman. Substantial operational
efficiencies should be achieved from 1997, with the most significant benefits of
the acquisition becoming apparent as we near 2000 and new, larger publishing
programmes are launched.
[PHOTO APPEARS HERE]
In the US school market, the Scott Foresman.Addison Wesley School Publishing
Group has seen significant increases in the sales of its maths programme. The US
college business continued to expand and international higher education is also
growing healthily. The English language teaching (ELT) market remains buoyant.
AWL is number one in the world in ELT, a market where continuing growth is
expected for the foreseeable future.
New international talent in Entertainment
The Entertainment division achieved a 13% increase in sales in 1996 to Pounds
803 million compared to Pounds 712 million in 1995. 1996 has been a year of
international expansion for Pearson Television, with particular success in
developing and selling worldwide the Grundy programme formats acquired in 1995.
As part of the acquisition of SelectTV, we acquired the Alomo and Witzend
programme makers, and all Pearson's television production activities were
brought together at a single location in Central London in March 1997.
In consumer books, Penguin USA's strong publishing programme produced a good
result, and Penguin UK achieved a healthy profit recovery. The acquisition of
Putnam Berkley brings together two of the most successful trade publishers in
the US and makes Penguin the second largest English language trade book
publisher in the world.
At the end of 1996, we bade farewell to Peter Mayer, who had been chief
executive of the Penguin Group since 1978 and who had
7
<PAGE>
Managing Director's review
[PHOTO APPEARS HERE]
built it from a loss-making British company to one of the leading international
publishing houses. He was succeeded by Michael Lynton, who joins Penguin from
Hollywood Pictures and Disney Publishing, bringing us the benefit of experience
with one of the world's leading consumer brands.
The Tussauds Group produced a year of solid profit growth from its visitor
attractions, against increased competition in the UK market, and continued to
apply its management skills worldwide. Excellent performances came from Port
Aventura in Spain, which has now completed a second successful year; Madame
Tussaud Scenerama in Amsterdam; and the new Alton Towers Hotel, opened in March.
Pearson New Entertainment (PNE), which produces magazines, videos and other
media for 'boys of all ages', also advanced into profit in 1996. Future
Publishing had an outstanding year, concluding with a welcome recovery in the
computer and video games magazine market.
Following an extremely difficult year in 1995, our software publishing company,
Mindscape, has been reorganised and refocused in 1996 under its new chief
executive, John Moore.
Excellent prospects for the future
When this Annual Report is published, I will have retired as Managing Director
after nearly 30 years with Pearson, seven as its managing director. The past few
years have been personally very fulfilling and particularly momentous for the
company. Pearson has been transformed from a broadly-based conglomerate to a
coherent and increasingly cohesive media group.
I feel confident that the Group is now in a position to go from strength to
strength, gaining further benefits from greater integration and global
development of its portfolio. The prospects for 1997 are excellent, and I wish
my successor Marjorie Scardino and her team every success in continuing
Pearson's progress.
/s/ Frank Barlow
FRANK BARLOW, Managing Director
8
<PAGE>
[FINANCIAL TIMES LOGO APPEARS HERE]
Financial Times Newspapers publishes the Financial Times, widely regarded as one
of the world's great newspapers, and a journal of record for the business
community. It is printed in ten centres across the world.
Recoletos is one of Spain's leading newspaper and magazine publishers. Its
titles include Expansion, the country's premier business daily, Marca, the
leading sports newspaper and Diario Medico, a daily newspaper for doctors.
INFORMATION
GROUPE
Pearson Professional publishes books, periodicals, reports and screen-based
services for professional communities worldwide, under brand names which include
the Financial Times, Pitman Publishing and Churchill Livingstone.
[PEARSON PROFESSIONAL LOGO APPEARS HERE]
Les Echos Group is France's leading business daily newspaper and the flagship of
a group which also includes amongst its many titles a monthly business magazine,
Enjeux les Echos, and a twice-weekly medical newspaper, Panorama du Medecin.
[FINANCIAL TIMES LOGO APPEAR HERE]
Financial Times Information provides electronic business and specialist
financial information to the asset management, investment research and general
business information markets worldwide.
9
<PAGE>
Information
[PIE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1996 1995
SALES (pounds in millions)
<S> <C> <C>
TOTAL SALES 828.7 759.1
OPERATING PROFIT:
[ ] FT Newspaper 28.6 19.4
[ ] FT Information 17.3 11.4
Les Echos (0.3) 3.2
Recoletos 34.9 37.8
[ ] Pearson Professional 18.6 11.5
[ ] Westminster Press 35.3 22.0
--------------------------------------------
TOTAL 134.4 105.3
</TABLE>
THE INFORMATION REVOLUTION
[PHOTO APPEARS HERE]
The value of the worldwide information market - encompassing both the printed
word and electronic media - is estimated at nearly Pounds 40 billion. Over the
next ten years, it should double, driven by changes in technology. David Bell
talks about Pearson's position and prospects.
We are in the midst of a global revolution in electronic data, as open systems
like the Internet, or more localised 'intranets', provide access to all on an
equal basis. This is opening up huge opportunities to sell business and
financial information, and we are seeing value shift from the technology itself
10
<PAGE>
to the content of the information it delivers - in which Pearson excels. Ours
has become a universal industry, as information requirements around the world
converge. Fund managers everywhere, for example, need the same timely access to
dependable pricing data; business people in Asia, like those in the UK, want to
wake up to the world's leading financial newspaper. During the past few years,
Pearson has substantially strengthened its position in this exciting global
market and we are developing a portfolio of information services for management
communities worldwide.
[LOGO APPEARS HERE]
THE POWER OF THE PRINTED WORD
The Financial Times itself serves the world's key financial centres: it is
published in ten centres in eight countries worldwide. For reliability,
authority and integrity in financial publishing, its reputation is unsurpassed.
Overseas circulation continues to grow - the paper attracts more than half of
its circulation revenue and approaching half of its advertising revenue from
outside the UK. The FT is now read by over a million people in over 140
countries worldwide.
CLUB FANTASTICO MARCA
Recoletos continues to capitalise on the success of the leading Spanish sports
newspaper Marca with the introduction of Club Fantastico - a readers' club -
which in its first year already has over 1,300,000 members.
The Financial Times Web site, http://www.FT.com. demonstrates the FT's
commitment to electronic publishing and the delivery of business news, comment
and analysis around the world in a variety of formats. The Web site combines
articles from the newspaper with material specially prepared and updated by a
team of dedicated journalists. New users are registering to use the site at a
rate of over 1,000 per day.
As well as being a global financial newspaper, the Financial Times is the UK's
major national business newspaper. Its sisters are Les Echos, which has remained
one of very few profitable national newspapers in the difficult French market;
and Expansion, part of Recoletos, the market leader in Spain for both
circulation and advertising. This year we invested in both, increasing our
holding in Recoletos to an effective 94% and installing new presses for Les
Echos. The three papers benefit from sharing content - as, for example, in the
highly successful Mastering Management series. Beyond Europe, we extended our
services to Spanish language markets by taking a preliminary stake in El Diario,
a leading Chilean business newspaper. In February 1997 we acquired a 50%
interest in Business Day and Financial Mail, the leading daily and weekly
financial and business publications in South Africa.
While our national daily papers paint the broader business picture, we also
provide a range of information products and services to more focused business
communities. Pearson Professional publishes data, comment and analysis, in the
form of newsletters, management reports, journals, magazines, directories and
screen-based products, for the legal community and for specialists in the
finance,
[PHOTO APPEARS HERE]
Mastering Management began as a 20-part weekly supplement in the Financial
Times. Circulation of the newspaper increased dramatically and it has had a
similar impact on the 13 other newspapers, including Les Echos and Expansion, in
which Mastering Management has been published worldwide. Now it has gone on to
become a book published by Pitman Publishing (a division of Pearson
Professional) which sold 10,000 copies in the first six weeks.
11
<PAGE>
energy, healthcare, media and telecommunications, advertising and marketing
industries. During 1996, six specialist companies were acquired in these fields.
Pitman Publishing has established itself as Europe's leading provider of
management development materials in a range of paper-based and screen formats.
Two excellent pieces of news from Les Echos in the French specialist publishing
field were the rapid growth in market share of Enjeux les Echos to become the
second-ranking business magazine in the country and the turnaround of Panorama
du Medecin, our specialist magazine for doctors.
Information in depth - the electronic media
The Financial Times and other business titles give Pearson a highly visible
presence as a quality information provider across diverse geographical markets
and professional sectors. They also help to generate interest in the wide range
of on-line information services which benefit from association with the
Financial Times brand. There is much talk of electronic data overtaking the
written word, but in reality the world needs both; they occupy different, but
equally important, positions in the information hierarchy.
Our electronic information services, whether text or number-based, are designed
to provide selected data to specific users, with the emphasis on our unrivalled
quality, authority and reliability. In the past year, we have invested
substantially in database development and acquisition. Financial Times
Information is co-operating with Dow Jones and Knight-Ridder Information to
build a global news database, which will be the most comprehensive global
collection of news available. In Asia, we acquired Asia Intelligence Wire, the
region's leading on-line news and business database, and opened a new data
collection centre in Manila.
[KNIGHT-RIDDER INFORMATION LOGO APPEARS HERE]
[DOW JONES LOGO APPEARS HERE]
[FINANCIAL TIMES LOGO APPEARS HERE]
Financial Times Information is leading the team who are working together to
build the world's largest, truly international database.
[PHOTO APPEARS HERE]
The Register Group, the advertising and marketing information division of
Pearson Professional, acquired SHOTS Ltd which publishes a bi-monthly video and
magazine for the international advertising community.
Added value through quality of content
Pearson now has one of the best financial data sets in the world. Success,
however, depends on quality as much as quantity. Raw data means nothing until it
is refined and presented in a form which meets the needs of its recipients. In
the written word, this means excellence of comment and analysis for which the
Financial Times and our other publications are already renowned. In electronic
media, we are building a similar reputation providing timely, accurate, value-
added data for the end-user.
For example, this year Financial Times Information signed a global strategic
agreement with Verity to co-develop a new generation of on-line information
products, including the re-engineering of FT Profile, the on-line market leader
in English-language business information in Europe. This will enable not only
text, but also audio and video, to be available worldwide, on demand. The
Register Group, part of Pearson Professional, has developed a new, highly
automated system to monitor television and press advertising across Europe. Most
important of all, we have embarked on a major new development which will
integrate all our databases and make them easily accessible, whether via the
Internet or a dial-up phone line. The project has already excited interest
worldwide.
The information business, like any other, succeeds by managing its assets
effectively. Pearson, over the past few years, has extended the powerful
position of the Financial Times brand into the global arena; we have invested in
high-quality information databases and high-technology delivery systems; and we
have developed and honed our ability to add value to information. We know where
and how to focus our efforts, and expect to see the benefit of that knowledge
coming through in sustained, profitable future growth.
12
<PAGE>
EDUCATION
[LOGO ADDISON WESLEY LONGMAN APPEARS HERE]
Addison Wesley Longman (AWL) is a global educational publisher, selling books,
multimedia and learning programmes in major academic disciplines to the primary,
secondary, higher education and professional markets throughout the world. Its
main imprints include Addison-Wesley, Longman, Scott Foresman.Addison Wesley and
Benjamin Cummings. AWL is also the world's largest publisher of English language
teaching (ELT) books and materials.
<PAGE>
[PHOTO APPEARS HERE]
LEARNING THE BUSINESS
1996 1995
[PIE GRAPH APPEARS HERE] (pounds in millions)
Total sales 554.3 358.9
Total operating profit 68.1 31.8
[ ] US School [ ] ELT
US College Consumer
International
With the addition of the HarperCollins Educational business in 1996, Addison
Wesley Longman (AWL) is now one of the world's biggest educational publishers,
with a significant share of the US market and a massive international presence.
J Larry Jones discusses the global market for high-quality educational
resources.
Education, by its very nature, is a growth market. As economies develop around
the world, governments, schools, colleges and individuals wish to invest
increasing amounts in education for the future. AWL is in an excellent position
to secure a significant share of the demand, and the acquisition of
HarperCollins Educational in April has greatly extended our global franchise in
educational publishing. There were compelling reasons for making this
acquisition. The US educational publishing market is consolidating and those
companies that will
<PAGE>
compete successfully into the next century need to offer their customers a broad
range of products and secure economies of scale in selling, distribution and
administration. The acquisition achieves this critical mass: AWL now has
enviable, highly ranked positions in both the US school and college markets. It
has, equally, enhanced our credibility and will ensure we can continue to
attract the best authors and editorial talent for the future.
The process of integrating the HarperCollins operation has been remarkably
smooth and our customers are already benefiting from the combination. New key
executives in Corporate Services, School, and Higher Education, as well as our
ongoing strong management team, have provided the experience and leadership to
guide the company successfully through the integration and to maintain business
performance. This has been a tremendous achievement by all concerned, and is a
major reason for this year's much improved results.
[PHOTOGRAPH APPEARS HERE]
1996 was a particularly strong year for the merged Scott Foresman.Addison-Wesley
science lines. Strong state adoption sales secured the lead market position for
two elementary science programmes: Destinations in Science and Discover the
Wonder. In the secondary school market, both the new fourth edition of
Addison-Wesley Chemistry and the new third edition of Conceptual Physics had
record revenues and are outstanding market leaders.
A major player in US school publishing
The acquisition has had its most immediate effect on our school publishing
programme in the US. It brings into our portfolio the highly respected Scott
Foresman business, which includes titles in reading, language arts, mathematics
and science. The school sales force can now add many popular, established
programmes like Discover the Wonder, Literature and Integrated Studies and
Celebrate Reading! to its bookbag.
Having this extended range will assist AWL in achieving a more even revenue
stream throughout the US school book adoption cycle. Under this system, about
half the states, after evaluating many offerings, select titles from which their
schools must choose for the next five to seven years. The HarperCollins
acquisition is well timed to take advantage of opportunities offered by the
cycle; a number of major subject adoptions are forthcoming in 1998 and 1999,
with another important adoption year in 2001. Success in securing places on the
adoption lists, particularly in significant markets like California, Florida and
Texas, will depend on the excellence of our publishing. Our priority, now that
the integration with HarperCollins is complete, is for our editorial teams to
ensure that Scott Foresman.Addison Wesley books and other teaching materials
fully meet - or exceed - the requirements of students, teachers and school
boards.
Apart from mainstream book publishing, this year we have extended our school
product by offering the Waterford Early Reading Program, a software-based
programme for children in pre-school through grade two. We are very pleased with
the results of this innovative programme to date.
New initiatives - home education, Electronic Commerce Center, expansion in Asia
Home education is an increasingly important market as families seek to
supplement their children's formal studies with out-of-school learning
activities, and there is increasingly an overlap between educational and
consumer publishing. To respond to this market, we acquired BrightIdeas, a
company that sells directly to parents, helping them to choose appropriate
software to supplement their children's formal educational curriculum. Other
products and methods to reach this market are in the pipeline.
The ability of customers to purchase our products and services via the worldwide
web took a step closer in 1996, with the decision to establish an Electronic
Commerce Center (ECC).
Through an innovative use of technology the Waterford Early Reading Program
provides a proven way to enable all children to learn to read regardless of
level of literacy. The program was developed by the Waterford Institute, a
non-profit making educational research center.
[PHOTO APPEARS HERE]
15
<PAGE>
[PHOTO APPEARS HERE]
The success of Michael Parkin's Economics has been driven by the joint
commitment of author and publisher. In 1990, it was the most successful entry
into the competitive US principles-of-economics textbook market in two decades.
It is a market leader worldwide with bestselling adaptations in the UK,
Australia, Canada and Mexico.
In addition to being a new source of business, the ECC will provide a new
publishing platform for many of our groups and invaluable customer data for
direct marketing. AWL already has a substantial presence in Hong Kong. Now we
have established a beachhead in China, a vast new market, with offices in
Shanghai and Beijing that will permit visibility for many of our publications.
This exciting initiative sprang from the AWL China Development Group, made up of
members from the International and English language teaching groups. They also
initiated Korean co-publishing programmes in computer science and higher
education and planned a reprint programme for developing countries.
A global franchise in higher education, technology and computer
sciences/engineering
AWL's strong global franchise in higher education has been further strengthened
by the HarperCollins College list, which includes titles such as Psychology by
Wade and Tavris, the Lial/Hornsby/Miller maths series and Economics by Miller.
Internationally, the higher education market is growing rapidly as the American
education model exercises an increasing influence as far afield as Japan,
Australia and, in some subjects, Europe and the UK. Our college products have
shown themselves capable of travelling well, proving highly acceptable in
different cultures and languages. Technology has an especially important place
in higher education. This year, Addison Wesley Interactive (AWI) has published
four new CD-ROM products that support interactive learning approaches to maths
and science subjects. Through an arrangement with Netscape, a leading Internet
software provider, we now offer students the ability to work seamlessly between
AWI's multimedia products and worldwide web resources. It is a small, but
important, step to ensure that AWL is ready for on-line teaching which, we
believe, will inevitably follow interactive study as a force in education.
[PHOTO APPEARS HERE]
Longman Malaysia launched the monthly newspaper The Malaysian Student in May.
The newspaper, according to Datin Hajjaj Aidah Ghani (representing the Deputy
Director General of Education), "can play a significant role in helping to
create a world-class youth for a 21st century Malaysia".
We are particularly strong around the world in computer sciences and engineering
education which, in a technology-driven world, has created an important
bridgehead for entering new international markets. In recognition of our
publishing strengths in these subjects, we created the Computer and Engineering
Publishing Group, whose charter is to publish a broad range of computer and
engineering products, both print and new media, for the professional, academic
and consumer markets. This concentrated focus will strengthen our acquisition,
development and delivery capabilities, as well as taking advantage of scale and
resources.
English language teaching - a world force
English is the mother tongue of some 370 million people and an official language
for a further 250 million. It has been estimated that there are 350 million
people in the world studying English, and that they spend nearly Pounds 1
billion on books and other published materials to help them. Whereas the
traditional education market for English language teaching (ELT) in western
Europe has matured, in the high-growth economies of the world, demand for
English is accelerating. AWL is already strongly represented in Latin America
and the tiger economies of south-east Asia and is well positioned to secure
business in the huge Chinese market.
AWL offers a full range of innovative global programmes in both British and
American English. We have the financial strength to develop new products and
recoup the investment through worldwide sales. In particular, we have been
highly successful in meeting the shift in demand from grammar-based learning to
more sophisticated programmes centred on communication skills.
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The Tussauds Group is the leading operator in Europe of paid-for visitor
attractions, including Madame Tussaud's, Madame Tussaud Scenerama Amsterdam,
Warwick Castle, Chessington World of Adventures, Alton Towers theme park and
hotel and a 40% stake in Port Aventura, a major new theme park near Barcelona.
[LOGO OF PEARSON NEW ENTERTAINMENT APPEARS HERE]
Pearson New Entertainment is a consumer entertainment company with a growing
stake in the market for special-interest magazines, videos and related new media
products. It is the parent company of Future Publishing, the UK's fifth largest
consumer magazine publisher.
ENTERTAINMENT
[LOGO OF PEARSON TELEVISION APPEARS HERE]
Pearson Television is the UK's largest international television producer,
selling programmes and formats under Thames, Grundy, Alomo and Witzend and ACI
brands. It also has interests in distribution and broadcasting, including a 24%
stake in the UK's Channel 5.
[LOGO OF PENGUIN BOOKS]
Penguin Books is one of the world's foremost publishers of English-language
consumer books, in both hardback and paperback. It owns a wide range of imprints
and trademarks in addition to its own name, and also produces maps, audio books
and other media products.
Mindscape develops and publishes consumer software for personal computers and
video game systems, focusing primarily on entertainment, educational and
reference titles.
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ENTERTAINING IDEA
The world of consumer entertainment is fast-moving and demanding. Behind the
entertainment value of a paperback novel or a TV serial, an exhibition or a
theme park, a consumer magazine or a computer game, lies a great store of
business skill and acumen. David Veit and Greg Dyke explain.
[PIE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1996 1995
(pounds in millions)
<S> <C> <C>
Total sales 803.0 712.4
Operating profit:
[ ] Penguin* 31.0 33.6
Tussauds 22.2 18.3
[ ] Mindscape (45.5) (6.9)
[ ] Pearson
New Entertainment 2.4 (0.1)
[ ] Pearson Television 42.4 66.0
-----------------------------------------------
Total* 52.5 110.9
</TABLE>
*Excludes Pounds 100 million charge for improper accounting at Penguin USA
18
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Entertainment and leisure today are big business, global business - a company
has to know where it is going and why. Pearson is clear about its products and
markets, and has invested in top talent to direct its chosen businesses. Each of
our businesses has, in different ways, successfully strengthened its management
and strategy this year.
Penguin - a story of our times
Defying the predictions that television would eclipse book publishing, the
consumer's appetite for a good read is growing. Competition for the attention of
both adult and young readers is fierce, so even with a brand as powerful as
Penguin, we must innovate constantly. In recent years we have produced some
outstanding new publishing ideas, the pocket-sized Penguin 60s and serial
partworks. This year, Stephen King's six-part thriller The Green Mile has been a
runaway success on both sides of the Atlantic. So too have books which tie in
with television dramatisations - especially the Jane Austen revival - and with
children's films like Babe, James and the Giant Peach, and Matilda.
[PHOTO APPEARS HERE]
Dick Francis' To the Hilt was his best-selling novel ever for Penguin UK, and PD
James' Original Sin was her strongest-selling novel yet. Other UK successes were
Pat Barker's Regeneration trilogy, including her Booker Prize winner, The Ghost
Road, and Fergal Keane's Letter to Daniel. In the US, hardback triumphs included
Terry McMillan's How Stella got her Groove Back and Jacquelyn Mitchard's The
Deep End of the Ocean, as well as the highly successful simultaneous publication
of Stephen King's Desperation and The Regulators (under his pseudonym Richard
Bachman). Best-selling paperbacks were The Road Ahead by Bill Gates and The Song
of Solomon by Toni Morrison.
[PHOTO APPEARS HERE]
Penguin published Stephen King's latest thriller The Green Mile which was
notable for two reasons: it was published in six monthly instalments and it was
the first time that the author had been published by Penguin in the UK.
Michael Lynton, who joined Penguin in October and took over as chief executive
from Peter Mayer at the year end, will have the task of developing our
publishing lists still further. Michael's first major contribution has been the
acquisition of the US trade publisher Putnam Berkley, whose front list includes
authors such as Tom Clancy, Patricia Cornwell, Dick Francis, Robin Cook, Amy
Tan, Lawrence Sanders and Nora Roberts. Such names - each of whom produced a
book included on the New York Times best-seller lists in 1996 - form a powerful
fit with Penguin's renowned back list. The acquisition doubles Penguin's share
of total US trade book sales, and makes us the second largest English language
trade book publisher in the world.
Since the year end we have made an accounting provision of up to pound 100
million (included in the 1996 figures) pending investigation of improper
accounting at Penguin USA. This should not, however, detract from the trading
performance in 1996.
19
<PAGE>
[PHOTO APPEARS HERE]
In December Penguin acquired the US trade publisher, Putnam Berkley, for Pounds
200 million. Its authors include Amy Tan, Tom Clancy, Patricia Cornwell and, in
the US only, Dick Francis.
International expertise in visitor attractions
Managing large-scale exhibitions and theme parks has become a specialised
business involving a complex mix of planning, project management and operational
skills. Tussauds owns and operates its enterprises in the UK, but our strategy
is gradually shifting from capital-intensive investment in fixed assets towards
contract-based projects. An example of our new approach to financing is for a
proposed development at Stonehenge, in partnership with English Heritage, to
attract Millennium Commission funding.
[PHOTO APPEARS HERE]
Alton Towers opened The Tussauds Group's first-ever hotel in March, since when
it has acheived an outstanding 90% occupancy during the season. The Tussauds
Group studios designed the themed areas to reflect the magic of the park itself.
This new direction is being driven by Tussauds' young, talented management -
whose resources extend from a brilliant studio team to experts in people flow
and visitor management. Their success in managing our existing portfolio of
strong, branded visitor attractions is opening up wider opportunities for
Tussauds. In the UK, we opened our first hotel at Alton Towers, which has had an
outstanding year. We have proved our international capability as operators of
the new Port Aventura theme park in Spain. Now, our skills in long-term planning
and project management have resulted in negotiations with developers and
investors as far afield as Thailand, where we are undertaking a feasibility
study for a world-class theme park near Bangkok. Projects such as these make us
increasingly aware of our potential as an attractive partner worldwide.
In exhibitions, of course, the Tussauds name needs no introduction. This year we
have made excellent progress towards the opening of a new Madame Tussaud's on
New York's 42nd Street, in the heart of this regenerated and dynamic part of the
city. In Australia, plans are well advanced for a touring exhibition to be
launched in autumn 1997. This innovative project is intended as a profitable
enterprise in its own right, and a vehicle for raising awareness of The Tussauds
Group as awhole.
Market-first: a formula for success
Pearson New Entertainment (PNE) is a business defined by its market - hobbyists,
enthusiasts, and especially 'boys of all ages'. This approach gives us the
freedom to develop the business across media boundaries: from magazines, at
present our principal medium, to video and software. Our Web site, FutureNet, is
one of Europe's busiest on-line services. Future Publishing, which produces over
50 magazines on computing, music, crafts, sports and entertainment, has directed
a formidable array of creative, editorial and commercial talent into meeting
readers' and advertisers' aspirations. As just one example, Official PlayStation
Magazine, launched only at the end of 1995, recorded massive growth in its first
year, dwarfing competitors despite its premium cover price.
20
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[PHOTO APPEARS HERE]
Future Publishing is the UK's fifth largest magazine publisher using the latest
techniques to publish over 50 titles. These skills not only produce excellent
magazines but have won Chris Stocker and Richard Davies a Pounds 500 first prize
in a photographic competition open to all Pearson employees.
Future also acquired two specialist publishing groups, Music Maker and Litharne,
a craft publisher. Meanwhile, PNE has continued to explore the potential for
transferring its approach overseas, moving further into the Spanish and French
markets.
[LOGO APPEARS HERE]
Mindscape moves forward
After last year's difficulties, encountered throughout the industry, our
software publishing company Mindscape has taken a more positive direction in
1996. The management team has concentrated on developing and marketing proven
products such as the successful 'evergreens' Chessmaster 5000, Mavis Beacon
Teaches Typing, and a range of games like Steel Panthers, a contemporary
wargame, Azrael's Tear, a state-of-the-art adventure game and Warwind, a
critically acclaimed strategy game.
In the home creativity market, they have built on the success of Printmaster
Publishing Suite, launching new products including the Mindscape Student
Reference Library and Mindscape Home Office Assistant which received excellent
reviews. We also launched a partnership with National Geographic which, as its
first project, will deliver a compendium of the National Geographic magazine's
images and stories going back more than 100 years.
The UK's largest international television production company
The television industry worldwide is changing fast. As the means of delivery
proliferate through cable, satellite and now digital technology, shareholder
value is gradually shifting from broadcasting to content. The winners will be
those companies which make, own or have rights to successful formats and brands,
and can exploit them worldwide. 1996 has been a year of just such international
expansion for Pearson, as we have concentrated on adapting formats from the
Grundy, Thames, Alomo and Witzend libraries, to suit local markets. This year we
have secured our leadership in the European daily serial market, launching new
'soaps' in Germany (where we now run four), Italy and Sweden. We are also
gearing up to produce Britain's first five-day-a-week serial for Channel 5, the
UK's last terrestrial channel, launched in March 1997. We have had great success
in transferring game show formats across international boundaries. Two thirds of
our profits and half of our revenues already come from outside the UK. We now
aim to achieve the same international acceptability for re-formatted situation
comedy programmes as we have in daily serial and light entertainment
programming. Pearson's investments in distribution and broadcasting are also
important, especially for their longer-term value as a means of distributing our
own productions. We already sell programmes worldwide from the libraries owned
by Thames, Grundy, Alomo and Witzend and ACI. In the UK, we have already sold
Pounds 24m worth of new programming to Channel 5, in which Pearson has a 24%
stake. The business plan for the new channel looks even more successful than it
was when we submitted our bid, because since then the channel has been given an
additional frequency, bringing in up to three million more viewers.
[PHOTO APPEARS HERE]
Pearson Television is making a daily drama called Family Affairs for Channel 5,
the new terrestrial television franchise in the UK, as part of a package of
programming which also includes an afternoon magazine programme, drama and
several game shows.
21
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INVESTMENT BANKING
Through its shareholding in Lazard Partners, Pearson has a 50% interest in
Lazard Brothers, and a 9% stake in the partnership profits of Lazard Freres,
Paris, and Lazard Freres, New York.
<TABLE>
<CAPTION>
1996 1995 Change
(pounds in millions) %
----------------------------
<S> <C> <C> <C>
Attributable profit 40.8 39.9 2
</TABLE>
Together, the Lazard Houses occupy a unique position in the international
merchant and investment banking community: a combination of three strong,
indigenous operations each based in one of the world's principal capital
markets. In 1996, Lazard Partners introduced a system which will enable each
bank to share in the financial performance of all three, while preserving the
Houses' independence and separate cultures. This will strengthen further the
potential for cooperation and collaboration in their major business activities.
Corporate Finance/Mergers & Acquisitions
The essence of the Houses' work in corporate finance is to advise some of the
largest companies in the industrialised world, principally on acquisitions and
mergers. Corporate finance is a dominant business for the Lazard Houses which,
unlike many other merchant banks, have remained independent and focused on their
corporate advisory business and have not integrated into large-scale equity
distribution and market-making activities. This has enhanced Lazard's powerful
reputation for working in close partnership with its clients, and for providing
objective and highly professional advice. In 1996, all three Houses again
produced very strong performances in their domestic and international corporate
finance markets. Notable transactions for Lazard Brothers included the high-
profile takeovers of Forte by Granada and BET by Rentokil, the flotation of
British Energy and advice to the Council of Lloyd's of London on the Lloyd's
reconstruction. Transactions by Lazard Freres, New York included the huge, US
$23 billion acquisition by SBC Communications of Pacific Telesis and, in
collaboration with Lazard Brothers, the US $25 billion negotiations between MCI
and BT and the merger of Lucas and Varity. Lazard Freres, Paris advised on the
first tranches of privatisation for both France Telecom and Aerospatiale.
Capital Markets
Since March 1995, the Lazard Houses have worked in partnership in capital
markets, the business of issuing capital securities to investors. 1996, the
first full year of this arrangement, was extremely successful, particularly as a
result of business referred to the partnership by Corporate Finance partners.
Over the year, the three Houses acted as lead, co-lead or joint lead manager to
their clients on more than 50 managed offerings with a combined value in excess
of US $10 billion.
Asset Management
The Lazard Houses manage funds for institutional investors, mutual funds and
private investors. Together, the Houses had funds under management in excess of
US $50 billion at the end of 1996. Lazard Freres, New York and Lazard Freres,
Paris enjoyed a very successful year in asset management. Lazard Brothers made a
good recovery after two difficult years, achieving sales of over Pounds 100
million from the first year of its mutual funds business and launching a
personal portfolio service for individuals investing over Pounds 20,000. Early
in 1997 Lazard announced that the US and UK asset management operations would be
combined into a new entity - Lazard Asset Management.
22
<PAGE>
PEARSON AND THE COMMUNITY
[PHOTO APPEARS HERE]
Pearson is sponsoring an exhibition about Seurat's masterpiece, the Bathers at
Asineres, at the National Gallery in London from 2 July to 28 September.
Corporate sponsorship
Pearson has sponsored 16 major art exhibitions since 1982, including, last year,
an exhibition about the work of William Morris, the great Victorian designer,
poet, businessman and radical. It was staged at the Victoria and Albert Museum
in London to mark the centenary of Morris's death, and attracted well over
200,000 visitors - including 2,000 Pearson employees and shareholders.
In 1997 we will be sponsoring Seurat and the Bathers, which will run from July
to September at the National Gallery in London. It will bring together for the
first time the preparatory drawings and oil sketches for Seurat's masterpiece,
The Bathers at Asnieres.
The Financial Times sponsored a design competition for a new Millennium bridge
across the river Thames, linking St Paul's Cathedral with the south bank
development of the Globe Theatre and the new Tate Gallery of Modern Art at
Bankside. The competition was won by a consortium including Foster and Partners.
[PHOTO APPEARS HERE]
Andy Anderson, deputy managing editor, Financial Times, is part of the staff who
support reading schemes in local schools and also act as 'mentors' to individual
pupils.
Charitable donations
Each year, Pearson aims to donate approximately one half of one per cent of the
previous year's adjusted earnings to charitable causes. In 1996, we gave
Pounds 808,000, again focusing on education and young people.
Approximately half our donations are made by operating companies, many of which
take an active role in their local communities. For example, last year staff
from the Financial Times and FT Information were involved in mentoring pupils
from local schools; AWL supported the Victoria Hall Performing Arts Association
in Harlow; and Mindscape employees helped provide Christmas gifts for
underprivileged children through the Human Needs Center of Novato. Staff around
the world ran, walked and biked to raise money for good causes, including
charities to combat multiple sclerosis, AIDS, hunger and cancer.
At the centre, Pearson plc continued to support the Bodleian Library and helped
a wide range of educational charities including the National Literacy Trust and
the British Dyslexia Association.
The environment
Pearson no longer operates in industries where there is potential for serious
industrial pollution. However, we recognise our responsibility to be aware of,
and take steps to control and minimise, any damage our businesses may cause to
the environment. For example, we buy paper, ink and packaging from renewable
sources.
23
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BOARD OF DIRECTORS
[PHOTOS APPEAR HERE]
Michael Blakenham Chairman aged 59, became a director of Pearson in 1971, chief
executive in 1978 and chairman in 1983 and will retire at the AGM in May 1997.
He is also chairman of MEPC plc and a director of a number of other companies.
Frank Barlow Managing Director until 31 December, aged 67, joined Pearson in
1968, where his many posts have included chief executive of Westminster Press,
chief executive of the Financial Times and, since 1986, director of Pearson. He
became managing director of Pearson in 1990 and will retire from the board after
the 1997 AGM. He will continue to be a director of The Economist and chairman of
Logica plc.
David Bell Information division aged 49, became an executive director of Pearson
in March 1996, with responsibility for the Group's information businesses,
having previously been chief executive of the Financial Times Group since 1993.
He joined Pearson as a trainee journalist on the Oxford Mail and Times before
moving to the Financial Times in 1972 where his career ranged from Washington
correspondent to managing editor before leaving editorial in 1989 on his
appointment as advertisement director.
Mark Burrell Development Director aged 60, joined Pearson in 1963 and was
involved with the company's industrial subsidiaries. In 1970 he joined Lazard
Brothers. He has been a director of Pearson since 1977 and will retire at the
AGM. He is also non-executive chairman of Royal Doulton plc.
Michel David-Weill aged 64, is chairman of Lazard Partners, deputy chairman of
Lazard Brothers and chairman of Lazard Freres, New York and managing director of
Lazard Freres, Paris. He is the longest serving non-executive director of
Pearson having joined the board in 1970.
Greg Dyke Television aged 49, chairman and chief executive of Pearson Television
since 1995. He became an executive director of Pearson plc, responsible for the
Group's television interests, in March 1996. He is currently chairman of Channel
5 Broadcasting. He was previously the chief executive of London Weekend
Television which he left in February 1994. He started in television as a
journalist in 1977 (also with LWT) held senior executive positions with TV-am
and TVS, (other companies within the ITV network) during the 1980s and was
chairman of ITV for two years. He is also a former director of both ITN and
Channel Four.
Pehr Gyllenhammar aged 61, is a senior adviser to Lazard Freres & Co LLC, New
York and former chairman of AB Volvo. He has been a non-executive director of
Pearson since 1983.
24
<PAGE>
[PHOTOS APPEAR HERE]
Jean-Claude Haas aged 71, retired at the AGM in 1996. He is a partner of Lazard
Freres, Paris and is a non-executive managing director of Lazard Brothers. He
was appointed a non-executive director of Pearson in 1990.
Sir Simon Hornby+ aged 62, is a director of Lloyds Bank and the former
chairman of W H Smith and Lloyds Abbey Life plc. He became a non-executive
director of Pearson in 1978 and will retire at the AGM this year.
James Joll aged 60, retired as finance director in April 1996 and as an
executive director of Pearson at the end of 1996. He joined Pearson in 1980 and
became finance director in 1985. Prior to Pearson he was a director of NM
Rothschild and Sons and before then a journalist at the Financial Times.
Gill Lewis+ aged 53, became a non-executive director of Pearson in 1992. She
is a director and managing partner of the consumer practice of Heidrick &
Struggles in Europe.
John Makinson Finance Director aged 42, joined the board in March 1996 and
succeeded James Joll as finance director on 1 April 1996. Prior to joining
Pearson he was managing director of the Financial Times.
Reuben Mark+* aged 58, is chairman and chief executive of Colgate-Palmolive
Company. He became a non-executive director of Pearson in 1988.
Vernon Sankey* aged 47, is chief executive of Reckitt & Colman plc which he
joined in 1971. He became a non-executive director of Pearson in 1993.
Marjorie Scardino Chief Executive aged 50, became a director and chief executive
on 1 January 1997. Marjorie Scardino trained and practised as a lawyer before
publishing a weekly newspaper in the USA. In 1985 she joined The Economist as
president of its North American operations and became its chief executive in
1993.
Dennis Stevenson* Deputy Chairman aged 51, is chairman of GPA Group plc and
of the Trustees of the Tate Gallery. He has been a non-executive director of
Pearson since 1986. He became deputy chairman in October 1996 and will succeed
Michael Blakenham as chairman after the AGM in May 1997.
David Veit aged 58, joined Lazard Brothers in 1961. He remained there until
1973, apart from a break of two years when he obtained an MBA at Stanford
University. Over the past 20 years he has been the senior Pearson executive in
the US, becoming a director in 1981 and president of Pearson Inc. in 1985. In
March 1996 he assumed responsibility for Pearson's entertainment businesses
(excluding television).
David Verey aged 46, joined Lazard Brothers in 1972 and became chairman in 1992.
He was appointed an alternate director of Pearson in 1995 and became a non-
executive director in 1996.
Anette Lawless FCIS Secretary, Pearson plc.
* The Audit Committee, chaired by Vernon Sankey and made up entirely of non-
executive directors, provides the board with the means to appraise Pearson's
financial management and reporting, and to assess the integrity of the Group's
accounting procedures and financial controls. The Group's internal and
external auditors have direct access to the audit committee to raise any
matter of concern and to report the results of work directed by the committee.
The committee itself reports to the full board of Pearson.
+ The Remuneration Committee is chaired by Sir Simon Hornby and consists of non-
executive directors. It meets regularly to decide the remuneration and
benefits packages of the executive directors and approve the recommended
remuneration and benefits packages of the chief executives of the main
operating subsidiaries.
25
<PAGE>
FINANCE DIRECTOR'S REVIEW
[PHOTO APPEARS HERE]
This is my first report to shareholders as Pearson's finance director and it
spans a period of exceptional activity for the company. While the past 12 months
have presented their problems, the reorganisation of Mindscape and the discovery
of improper accounting at Penguin USA being the most challenging, they have also
yielded progress and opportunity. The underlying operating performance of many
Pearson companies has markedly improved, we have narrowed our focus on media
businesses which can deliver strong and secure growth, and we have a new
management committed to making the business perform to the maximum of its
potential.
Operating performance
Pearson's sales exceeded Pounds 2 billion for the first time last year, with
acquisitions made over the past two years contributing the majority of the 19%
increase over 1995 levels. The underlying sales growth of the Group remains
disappointing and the generation of additional revenue from our established
businesses is an important priority for this year and beyond.
We reported an operating profit for 1996 of Pounds 181 million but this was
after taking a charge of Pounds 100 million in relation to the improper
accounting at Penguin. I discuss this issue in more detail later but, in
considering the Group's operating profit, it is important to remember that the
1996 charge was to cover problems dating back to 1991 and had little impact on
Penguin's ongoing sales or profits. This charge has been treated as a one-off
item and therefore excluded from the calculation of adjusted earnings. If the
Penguin item is set aside, profit before interest emerges at Pounds 281 million,
which compares favourably with the 1995 figure of Pounds 260 million. Even this
comparison needs to be made with care, however, as 1996 suffered the damaging
impact of significant non-trading losses from Mindscape, as well as start-up
costs at Channel 5 and the absence of income from the shares in BSkyB which we
sold in September 1995. Conversely, we saw the benefit of acquisitions made in
each of the past two years and experienced a lower overall level of
restructuring costs. If allowance is made for all these factors, underlying
operating profits were Pounds 18 million higher than in 1995.
The net interest charge increased from Pounds 24 million to Pounds 30 million
during the year, reflecting the higher average level of debt which resulted from
acquisition
26
<PAGE>
[BAR GRAPH APPEARS HERE]
activity in 1996. Despite this increase, net interest was covered almost 10
times by operating profit before the Penguin charge. The profit before tax of
Pounds 357 million was, by coincidence, very similar to the previous year's
level. This figure was boosted, however, by the book profit of Pounds 231
million on the sale of Westminster Press and does not provide a useful guide to
our underlying performance.
The tax rate attributable to our adjusted earnings was again held below 30% and
we believe that this remains a realistic target for the next several years given
the significant level of tax losses available to the Group in the USA. Over the
past year we have undertaken a thorough review of Pearson's tax structure and
this review will be helpful to us in realising our tax rate objectives.
Adjusted earnings per share for the year were 30.6 pence, an increase of 6% on
the previous year's number. The recommended dividend was increased at a slightly
faster rate of 9% to 18 pence, reducing adjusted earnings cover fractionally to
1.7 times. While earnings cover is a useful indicator of a company's
distribution capacity, we need to focus strongly in future on the generation of
sufficient cash from the business, after payment of interest and tax, to meet
our responsibilities to shareholders. The proposed 1996 dividend was fully
funded on that basis although we would aim over time to strengthen the cash
cover for the payment.
Operating cash flow grew much more strongly than operating profit last year, as
several of the factors that depressed our profit performance had no bearing on
our cash position. At Pounds 219 million, operating cash flow was almost 50%
higher than in the previous year and represented around 80% of operating profit,
adjusting for the Penguin charge and for income from associates. We will be
giving this ratio more weight in future as we strive to improve further the
underlying cash performance of the Group.
Portfolio changes
The balance sheet reflects the changes in the portfolio over the course of the
year. In total we spent Pounds 769 million on acquisitions, the most significant
being HarperCollins Educational, for which we paid Pounds 369 million in April,
and Putnam Berkley, which was acquired in December for Pounds 201 million. The
goodwill which arose on these acquisitions has been charged directly to
reserves, in line with our normal practice. This was the principal reason for
the fall in total shareholders' funds from Pounds 855 million to Pounds 392
million.
Almost half of our acquisition spending was financed by the sale of Westminster
Press for Pounds 305 million. The balance was funded by an increase in our net
debt from Pounds 63 million at the end of 1995 to Pounds 430 million at the 1996
balance sheet date. Since the year end we have reduced our borrowing by Pounds
111 million through the sale of our 10% investment in TVB, the Hong Kong
broadcaster. We are examining other minority investments which the Group holds,
to establish whether the capital could be more productively redeployed in
managed businesses. The acquisition of two
[BAR GRAPHS APPEAR HERE]
27
<PAGE>
[PIE GRAPH APPEARS HERE]
sizeable US publishing companies, together with the disposal of the regional
newspaper business in the UK, combined to increase the proportion of the Group's
total capital employed in the US, as well as the sales and profits generated by
those assets. We reflected that change in the shape of our dollar balance sheet
through the creation of a $750 million medium term note (MTN) programme in the
US debt market. We have so far issued $250 million of this programme, which
provides us with a flexible and cost-effective source of dollar capital for the
future.
Financial strategy
The MTN issue formed an element of a comprehensive review of Pearson's financial
strategy which we undertook last year. One outcome was the creation of a
Treasury Committee, comprising the finance director and two other members of the
Pearson board, to consider treasury policies and controls on a regular basis.
In June last year we appointed Price Waterhouse as our new worldwide auditors.
Since their appointment they have been working actively with the finance
function throughout Pearson to reassess our risk exposures and to consider ways
of refining our approach to performance measurement.
Improper accounting at Penguin USA
This work has been given an added urgency by the discovery of improper
accounting practices at Penguin USA. The losses which have been reflected in the
1996 figures stemmed from an unauthorised practice of offering discounts to
certain customers in exchange for early payment of invoices. This practice was
concealed through an extremely intricate pattern of misleading accounting
entries. As far as we can judge, and our investigation into the matter is not
complete, this was an isolated incident involving a very small number of people.
Nonetheless, we have initiated an urgent analysis of Pearson systems, procedures
and controls, the importance of which has been communicated to everyone in the
Group.
The future
This analysis is being undertaken in conjunction with an important project to
improve back office services across our publishing companies. The Shared
Services Project is expected to yield considerable cost savings, as well as an
improvement in the quality of information and service, by combining
transactional activities - such as payroll and the processing of purchase
orders - which can more efficiently be conducted under one roof.
The Shared Services Project, like much else that we are studying at Pearson with
a fresh eye, will not show an instant return on investment. We are mindful of
the need to generate the profits and cash which, year by year, will fund a
rising stream of dividends to our shareholders. But, at the same time, we cannot
afford to neglect the financial investment needed to make Pearson a truly
competitive media company in the next century.
/s/ John Makinson
John Makinson, Finance Director
28
<PAGE>
SUMMARY DIRECTORS' REPORT
Important note
The summary financial statements on pages 32 to 35 of this document do not
contain sufficient information to allow for a full understanding of the results
of the Group and of the state of affairs of the Group. For further information,
the full Annual Accounts, the Directors' Report and the Auditors' Report on
those accounts, should be consulted. If you have not received the Directors'
Report and Accounts, but wish to do so, please return the request for these
which is attached to your proxy form for the Annual General Meeting. If however,
you are happy to receive this Annual Report only (which does include summary
financial statements) you need take no action.
Summary directors' report
The full Directors' Report is set out on pages 14 to 16 of the Directors' Report
and Accounts.
Business review and future development
The principal activities of the Group are carried out in three main sectors:
information, education and entertainment. More details of these and other
activities, the development of the Group and likely future developments are set
out on pages 4 to 28 of this Annual Report and in the Operating and Financial
Review on pages 1 to 13 in the Directors' Report and Accounts.
Post balance sheet events
In February 1997 Pearson acquired a 50% stake in Business Day and Financial Mail
in South Africa for a consideration of Pounds 11.5 million and sold its 10%
stake in Television Broadcasts Ltd in Hong Kong for Pounds 111.1 million. In
March Pearson agreed to sell its interests in the satellite and cable channels,
UK Gold (20%) and UK Living (25%), to Flextech as part of joint venture
agreements between Flextech and the BBC. The sale of these interests involves
the payment by Flextech, between now and December 1998, of Pounds 7.8 million
representing the repayment of UK Living loan stock, and Pearson Television
receiving 8.8m Flextech ordinary shares - a total consideration of approximately
Pounds 76 million based on a Flextech share price of 772 pence. Following
completion of the transaction, Pearson will own 5.6% of the enlarged share
capital of Flextech.
Further details are given on page 56 of the Directors' Report and Accounts.
Directors
Information about the directors of the Company is set out on pages 24 and 25 of
this document and an extract of the Report of the Remuneration Committee
containing details of directors' emoluments and share interests is set out on
pages 30 and 31. Six directors will retire by rotation at the Annual General
Meeting. Of these David Veit, Reuben Mark and Gill Lewis, being eligible, will
offer themselves for re-election for a further three years. In addition, Lord
Blakenham, Frank Barlow and Mark Burrell retire by rotation but will not seek
re-election. Sir Simon Hornby will also retire at the end of the Annual General
Meeting. Marjorie Scardino, who was appointed to the board on 1 January 1997,
retires from office in accordance with article 77 of the Company's articles of
association and, being eligible, offers herself for re-appointment.
No director was materially interested in any contract of significance to the
Company's business.
Full details of these and related matters are set out on pages 14 to 16 of the
Directors' Report and Accounts.
Report of the auditors
The report of the auditors on the annual accounts of the Group for the year
ended 31 December 1996 was unqualified and did not contain a statement under
either s.237(2) or s.237(3) of the Companies Act 1985.
Dividend
A final dividend of 11.1 pence per share is proposed for the year to 31 December
1996. This, with the interim already paid, makes a total for the year of 18.0
pence. The final dividend will be paid on 6 June 1997 to shareholders on the
register at the close of business on 11 April 1997 (the record date).
The Company operates a scrip dividend scheme. Details of the scrip dividend
alternative will be posted to shareholders on 28 April 1997.
If you would like further information about the scheme please contact our
Registrar whose address and telephone number are on page 36.
Annual General Meeting
The notice convening the Annual General Meeting to be held on Friday 2 May 1997
is contained in the enclosed circular.
Anette Lawless, Secretary
17 March 1997
29
<PAGE>
EXTRACTS FROM THE REPORT OF THE REMUNERATION COMMITTEE
Remuneration policy for executive directors
The committee's policy is designed to attract, retain and motivate high calibre
senior executives through pay and other arrangements which are competitive and
represent best practice, while also relating reward to performance and aligning
the interests of directors and senior management with the interests of
shareholders. The main components are base salary, an annual cash bonus plan,
long-term incentives and pension benefits. In addition, the Company provides
company car and health care benefits. The Company also provides housing for
Marjorie Scardino who is a US national. Further details of Marjorie Scardino's
remuneration can be found below the following table. The full Remuneration
Committee Report is set out on pages 17 to 23 of the Directors' Report and
Accounts.
Excluding contributions to approved pension funds, and compensation for early
termination of contract, directors remuneration was as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1996 3-year 1996 1995 3-year 1995
Salary/fees Bonus Other ISP Total Salary/fees Bonus Other ISP Total*
Name (Pounds in thousands)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Executive directors
Michael Blakenham 315 - 38 - 353 300 - 37 413 750
Frank Barlow 380 - 41 - 421 330 - 40 413 783
David Bell+ 179 12 10 - 201 - - - - -
Mark Burrell 207 - 42 - 249 200 - 42 287 529
Greg Dyke+ 183 100 108 - 391 - - - - -
James Joll 250 - 38 - 288 230 - 37 287 554
John Makinson+ 179 61 16 - 256 - - - - -
David Veit 303 - 10 - 313 323 - 11 287 621
Non-executive directors
Michel David-Weill 25 - - - 25 25 - - - 25
Pehr Gyllenhammar 25 - - - 25 30 - - - 30
Jean-Claude Haas+ 11 - - - 11 32 - - - 32
Sir Simon Hornby 25 - - - 25 25 - - - 25
Gill Lewis 25 - - - 25 30 - - - 30
Reuben Mark 32 - - - 32 32 - - - 32
Vernon Sankey 25 - - - 25 25 - - - 25
Dennis Stevenson 25 - - - 25 25 - - - 25
David Verey+ 17 - - - 17 - - - - -
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The incentive share plan release relating to the three-year period 1993-
1995 is included in the total 1995 remuneration figure.
+ David Bell, Greg Dyke and John Makinson were appointed to the board on 15
March 1996. David Verey became a non-executive director on 3 May 1996.
Jean-Claude Haas retired from the board on 3 May 1996. In the case of David
Bell, Greg Dyke and John Makinson, the emoluments shown relate to the ten-
month period from March to December 1996, with the exception of bonus,
which relates to the full year.
A sum of Pounds 250,000 was paid to James Joll as compensation for early
termination of his contract, which had a three-year notice period. In addition
his pension was augmented with effect from his retirement date at a capital cost
of Pounds 250,000.
Marjorie Scardino joined the board and became chief executive on 1 January
1997, at a base salary of Pounds 396,500, although for pension and bonus
purposes, her salary is deemed to be Pounds 425,000 (so as to include an element
of the housing benefit referred to below). She received a joining bonus of
Pounds 130,000 in consideration of the loss of potential benefits with her
previous employer. She participates in the annual bonus plan and the incentive
share plan, under which she will be conditionally awarded shares to the value of
Pounds 300,000 in 1997, Pounds 200,000 in 1998 and Pounds 200,000 in 1999.
Housing is provided at an initial annual cost to the Company of Pounds 60,500
and she receives a pension supplement of 25% of salary to provide for benefits
in excess of the pensions earnings cap.
Dennis Stevenson will receive annual fees of Pounds 240,000 on becoming
chairman on 2 May 1997. He will also participate in the incentive share plan,
under which he will be conditionally awarded shares to the value of Pounds
300,000 upon appointment and Pounds 200,000 one year later, each vesting over
five years. Dennis Stevenson's fees for 1996 were paid to SRU Limited.
Frank Barlow was the highest paid director in 1996. His total remuneration,
including pension contributions, amounted to Pounds 421,346. The chairman's
total remuneration, including pension contributions, amounted to Pounds 352,979.
30
<PAGE>
Extracts from the Report of the Remuneration Committee
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum number
of shares in lieu of
Options - Incentive share plan ++ - adjustment on
Interests of Ordinary shares Ordinary shares Ordinary shares Royal Doulton
directors were: 31.12.96* 1.1.96** 31.12.96* 1.1.96** 31.12.96* 1.1.96** demerger
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael Blakenham 138,214 101,580 417,454 417,454 31,926 72,919 12,908
(non-beneficial) 129,040 129,040 - - - - -
Frank Barlow 38,750 6,939 419,794 419,794 25,107 72,919 11,235
David Bell 9,303 8,348 111,156 85,469 6,790 6,620 628
Mark Burrell 791,674 1,032,504 283,339 282,799 15,222 50,276 9,840
(non-beneficial) 65,040 65,040 - - - - -
Michel David-Weill+ 48,129,727 48,129,727 - - - - -
Greg Dyke - - 106,900 73,300 6,790 6,620 -
Pehr Gyllenhammar - - - - - - -
Jean-Claude Haas 29,537 29,537 - - - - -
Sir Simon Hornby 4,000 4,000 - - - - -
James Joll 25,494 2,093 155,846 155,847 9,160 50,276 4,541
Gill Lewis - - - - - - -
John Makinson 1,000 - 103,784 68,000 - - -
Rueben Mark 7,600 7,600 - - - - -
Vernon Sankey - - - - - - -
Dennis Stevenson 38,000 8,000 - - - - -
David Veit 253,602 107,712 245,380 348,869 31,892 50,276 -
David Verey - - - - - - -
</TABLE>
- ----------------------
+ Mr David-Weill's interests include 48,088,523 ordinary shares owned by
companies associated with Lazard Freres et Cie., Paris.
* Or date of retirement, if earlier.
** Or date of appointment, if later.
++ A full explanation of this plan is given on page 17 of the Directors' Report
and Accounts. The number of shares shown represents the maximum number of
shares, plus accumulated scrip dividend shares, comprised in the original
award which may be transferred to the individual concerned.
Executive directors of the Company, as possible beneficiaries, are also deemed
to be interested in the Pearson Employee Share Trust, the trustee of which held
149,933 Pearson ordinary shares of 25 pence each at 31 December 1996 and 148,395
ordinary shares at 17 March 1997, the latest practicable date prior to the
printing of this report.
Marjorie Scardino was appointed to the board with effect from 1 January 1997,
at which date she had no interests in Pearson securities. On 16 January 1997,
she acquired 10,000 ordinary shares of 25 pence each in the Company. Also on 16
January 1997, John Makinson acquired a further 2,000 ordinary shares of 25 pence
each, taking his total holding to 3,000 shares.
31
<PAGE>
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 December 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1996 1995
Operating Other Operating Other
activities items Total activities items Total
(Pounds in millions)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales
Continuing operations 1,845.9 - 1,845.9 1,687.1 - 1,687.1
Acquisitions 203.0 - 203.0 - - -
- ----------------------------------------------------------------------------------------------------------------------------
2,048.9 - 2,048.9 1,687.1 - 1,687.1
Discontinued operations 137.1 - 137.1 143.3 - 143.3
- ----------------------------------------------------------------------------------------------------------------------------
Total sales 2,186.0 - 2,186.0 1,830.4 - 1,830.4
Cost of sales (1,064.1) - (1,064.1) (939.7) - (939.7)
- ----------------------------------------------------------------------------------------------------------------------------
Gross profit 1,121.9 - 1,121.9 890.7 - 890.7
Net operating expenses - normal (853.3) - (853.3) (627.7) - (627.7)
Net operating expenses - exceptional (40.4) (100.0) (140.4) (46.7) - (46.7)
Net income from partnerships and
associated undertakings 53.1 - 53.1 43.3 - 43.3
- ----------------------------------------------------------------------------------------------------------------------------
Operating profit
Continuing operations 219.9 (100.0) 119.9 237.6 - 237.6
Acquisitions 26.1 - 26.1 - - -
- ----------------------------------------------------------------------------------------------------------------------------
246.0 (100.0) 146.0 237.6 - 237.6
Discontinued operations 35.3 - 35.3 22.0 - 22.0
- ----------------------------------------------------------------------------------------------------------------------------
Total operating profit 281.3 (100.0) 181.3 259.6 - 259.6
Continuing operations:
Profit/(loss) on sale of fixed assets - (14.1) (14.1) - 123.4 123.4
Profit/(loss) on sale of businesses - (1.9) (1.9) - 6.0 6.0
Discontinued operations:
Profit on sale of Westminster Press - 231.3 231.3 - - -
- ----------------------------------------------------------------------------------------------------------------------------
Profit before interest 281.3 115.3 396.6 259.6 129.4 389.0
Net interest payable (29.5) - (29.5) (23.9) - (23.9)
Loan stock redemption premium - (10.3) (10.3) - - -
- ----------------------------------------------------------------------------------------------------------------------------
Profit before taxation 251.8 105.0 356.8 235.7 129.4 365.1
Taxation (72.6) (36.0) (108.6) (64.8) (28.0) (92.8)
- ----------------------------------------------------------------------------------------------------------------------------
Profit after taxation 179.2 69.0 248.2 170.9 101.4 272.3
Equity minority interests (7.7) - (7.7) (11.3) - (11.3)
- ----------------------------------------------------------------------------------------------------------------------------
Profit for the financial year 171.5 69.0 240.5 159.6 101.4 261.0
Dividends on equity shares (102.7) - (102.7) (91.8) - (91.8)
- ----------------------------------------------------------------------------------------------------------------------------
Profit retained 68.8 69.0 137.8 67.8 101.4 169.2
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Adjusted earnings/total earnings per
equity share 30.6 pence 12.3 pence 42.9 pence 28.8 pence 18.3 pence 47.1 pence
- ----------------------------------------------------------------------------------------------------------------------------
Dividends per equity share 18.0 pence - 18.0 pence 16.5 pence - 16.5 pence
- ----------------------------------------------------------------------------------------------------------------------------
Average number of shares (millions) 560.8 560.8 560.8 554.4 554.4 554.4
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
In order to show results from operating activities an adjusted earnings per
equity share has been calculated which excludes profits on the sale of fixed
assets and businesses, the loan stock redemption premium, the Pounds 100 million
charge for improper accounting at Penguin USA and the tax consequences of these
items.
32
<PAGE>
SUMMARY CASH FLOW STATEMENT
for the year ended 31 December 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1996 1995
(pounds in millions)
- ----------------------------------------------------------------------------
<S> <C> <C>
Net cash inflow from operating activities 291.2 236.4
Returns on investments and servicing of finance (36.5) (40.8)
Taxation (80.8) (69.7)
Capital expenditure and financial investment (56.4) 441.8
Acquisitions and disposals (427.7) (405.5)
Equity dividends paid (96.0) (86.3)
- ----------------------------------------------------------------------------
Cash (outflow)/inflow before management of
liquid resources and financing (406.2) 75.9
Management of liquid resources 351.4 (225.0)
Financing 21.6 266.7
- ----------------------------------------------------------------------------
(Decrease)/increase in cash in the year (33.2) 117.6
- ----------------------------------------------------------------------------
</TABLE>
SUMMARY RECONCILIATION OF NET CASH FLOW
TO MOVEMENT IN NET DEBT
for the year ended 31 December 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1996 1995
(pounds in millions)
- -----------------------------------------------------------------------------
<S> <C> <C>
Change in net debt resulting from cash flows (33.2) 117.6
Change in net debt from management of liquid resources (351.4) 225.7
Change in net debt from other borrowings (18.9) (256.6)
Exchange differences 36.5 (3.7)
- -----------------------------------------------------------------------------
Movement in net debt in the year (367.0) 83.0
Net debt at 1 January (63.4) (146.4)
- -----------------------------------------------------------------------------
Net debt at 31 December (430.4) (63.4)
- -----------------------------------------------------------------------------
</TABLE>
33
<PAGE>
SUMMARY CONSOLIDATED BALANCE SHEET
as at 31 December 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1996 1995
(pounds in millions)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Fixed assets 908.6 925.6
- -----------------------------------------------------------------------------------
Current assets 1,337.4 1,642.2
Creditors due within one year (1,094.0) (1.087.7)
- -----------------------------------------------------------------------------------
Net current assets 243.4 554.5
- -----------------------------------------------------------------------------------
Total assets less current liabilities 1,152.0 1,480.1
Creditors due after more than one year (570.3) (490.3)
Provisions for liabilities and charges (189.4) (134.4)
- -----------------------------------------------------------------------------------
Net assets 392.3 855.4
- -----------------------------------------------------------------------------------
Capital and reserves 388.6 833.2
Equity minority interests 3.7 22.2
- -----------------------------------------------------------------------------------
392.3 855.4
- -----------------------------------------------------------------------------------
</TABLE>
This summary financial statement was approved by the board of directors on 17
March 1997 and signed on its behalf by
Blakenham
J Makinson
STATEMENT BY THE AUDITORS TO THE MEMBERS OF PEARSON PLC
We have examined the summary financial statement set out on pages 32 to 34.
Respective Responsibilities of Directors and Auditors
The summary financial statement is the responsibility of the directors. Our
responsibility is to report to you our opinion on its preparation and
consistency with the annual financial statements and Directors' Report.
Basis of Opinion
We conducted our work in accordance with Auditing Guideline "The auditors'
statement on the summary financial statement" adopted by the Auditing Practices
Board.
Opinion
In our opinion the summary financial statement is consistent with the annual
financial statements and the Directors' Report of Pearson plc for the year ended
31 December 1996 and complies with the requirements of section 251 of the
Companies Act 1985 and the regulations made thereunder, applicable to summary
financial statements.
Price Waterhouse
Chartered Accountants and Registered Auditors
Southwark Towers,
London SE1 9SY
17 March 1997
34
<PAGE>
FIVE YEAR SUMMARY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
(pounds in millions)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales
- -------------------------------------------------------------------------------------------------------------------
Continuing operations 1,022.3 1,193.8 1,413.3 1,687.1 2,048.9
Discontinued operations 613.4 676.3 136.8 143.3 137.1
- -------------------------------------------------------------------------------------------------------------------
1,635.7 1,870.1 1,550.1 1,830.4 2,186.0
- -------------------------------------------------------------------------------------------------------------------
Profits
Information 39.9 31.1 69.0 83.3 99.1
Education 42.5 55.8 51.2 31.8 68.1
Entertainment 41.6 62.2 129.5 110.9 (47.5)
Investment Banking 23.7 36.4 30.2 39.9 40.8
Corporate expenses less other income (4.5) (4.3) (23.2) (28.3) (14.5)
- -------------------------------------------------------------------------------------------------------------------
Continuing operations 143.2 181.2 256.7 237.6 146.0
Discontinued operations 12.4 34.9 15.7 22.0 35.3
- -------------------------------------------------------------------------------------------------------------------
Operating profit 155.6 216.1 272.4 259.6 181.3
Profit/(loss) on sale of businesses - (68.4) 15.2 6.0 229.4
Profit/(loss) on sale of fixed assets 8.8 4.4 26.4 123.4 (14.1)
Provision on investment in BSkyB - 71.4 - - -
- -------------------------------------------------------------------------------------------------------------------
Profit before interest 164.4 223.5 314.0 389.0 396.6
Net interest payable (13.6) (14.9) (16.2) (23.9) (29.5)
Loan stock redemption premium - - - - (10.3)
- -------------------------------------------------------------------------------------------------------------------
Profit before taxation 150.8 208.6 297.8 365.1 356.8
Taxation (44.4) (60.3) (74.3) (92.8) (108.6)
- -------------------------------------------------------------------------------------------------------------------
Profit after taxation 106.4 148.3 223.5 272.3 248.2
Equity minority interests (1.1) (0.3) (0.6) (11.3) (7.7)
- -------------------------------------------------------------------------------------------------------------------
Profit for the financial year 105.3 148.0 222.9 261.0 240.5
- -------------------------------------------------------------------------------------------------------------------
Earnings per equity share 19.3 pence 27.0 pence 40.4 pence 47.1 pence 42.9 pence
Adjusted earnings per equity share+ 17.3 pence 27.9 pence 34.1 pence 28.8 pence 30.6 pence
Dividends per equity share 12.0 pence 13.0 pence 15.0 pence 16.5 pence 18.0 pence
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Adjusted to eliminate the distortions caused by including abnormal items in
accordance with page 25 of the Directors' Report and Accounts.
35
<PAGE>
SHAREHOLDER INFORMATION
Registered office and telephone
3 Burlington Gardens, London W1X 1LE
Telephone no: 0171 411 2000, Fax no: 0171 411 2390
email: [email protected]
Registered number 53723 (England)
Web site
Pearson has a Web site which is regularly updated with information about the
Company and our operating companies. The address is: http://www.pearson.com
Financial calendar for 1997
Ex-dividend date: Monday 7 April
Record date: Friday 11 April
Despatch of scrip
dividend information: Monday 28 April
Annual General Meeting: Friday 2 May
Last date for scrip election: Tuesday 20 May
Share entitlement under
scrip dividend posted: Thursday 5 June
Payment date for dividend: Friday 6 June
Interim results: Monday 5 August
Payment of dividends to mandated accounts
Where shareholders have given instruction for payment to be made direct into a
bank or building society account, this is done through the Bankers Automated
Clearing System (BACS), with the associated tax voucher showing the tax credit
attributable to the dividend payment sent direct to the shareholder at the
address shown on our register. If you wish the tax voucher to be sent to another
address, please inform our Registrar.
UK tax on capital gains
At 31 March 1982, the base date for capital gains tax, the value of each of the
Company's ordinary shares (adjusted for the one for one capitalisation issues in
May 1985 and June 1992), was 62 pence.
The market quotations of Pearson plc ordinary shares and Royal Doulton plc
ordinary shares on the first day of dealing in Royal Doulton shares, following
the demerger in 1993, as calculated in accordance with s. 272(3) of the Taxation
of Chargeable Gains Act 1992 and as derived from The Stock Exchange Daily
Official List on 2 December 1993 were:
Pearson plc ordinary shares of 25 pence 592 pence
Royal Doulton plc ordinary shares of Pound 1 203.5 pence
Personal Equity Plans (PEPs)
Pearson operates a Corporate PEP and a Single Company PEP. Both are open to
existing and prospective shareholders in Pearson. For further information,
please ring the Halifax helpline on freephone 0800 371769.
Low cost share dealing facility
A postal facility, which provides a simple, low cost way of buying and selling
Pearson shares, is available through the Company's stockbrokers, Cazenove & Co,
12 Tokenhouse Yard, London EC2R 7AN. Telephone 0171 588 2828.
Information about the Pearson share price
The current price of Pearson ordinary shares can be obtained from Financial
Times CityLine on telephone 0836 433620. Calls are charged at 40 pence per
minute cheap rate and 50 pence per minute at all other times, inclusive of VAT.
American Depository Receipts (ADRs)
Pearson introduced a sponsored Level One ADR programme in March 1995. Each ADR
represents one ordinary share. The programme is administered by the Bank of New
York, ADR Department, 101 Barclay Street, New York, NY 10286, telephone 1 800
524 4458. However, as holders of ADRs are not registered shareholders, they do
not automatically have the right to receive the Pearson report and accounts or
other communications nor are they able to attend or vote at Company shareholder
meetings. For further information, please contact the Bank of New York at the
above address.
CREST
Last year we advised shareholders that we would be joining CREST. We have now
entered the CREST system. Under the new system those shareholders who wish to do
so can retain their share certificates.
Pearson employee magazine
Pearson produces a magazine for all its employees, which is also available to
shareholders. It deals with people and events within the Group. If you wish to
receive copies of the magazine when it is published, please return the enclosed
form to the Registrars.
Advisers
Registrar: Lloyds Bank Plc, Lloyds Bank Registrars,
The Causeway, Worthing,
West Sussex BN99 6DA.
Auditors: Price Waterhouse
Broker: Cazenove & Co
Bankers: Midland Bank plc
National Westminster Bank Plc
Solicitors: Freshfields
Herbert Smith
Financial Advisers: Lazard Brothers & Co., Limited
J. Henry Schroder & Co. Limited
36
<PAGE>
Principal offices
Group Head Office:
Pearson plc
3 Burlington Gardens, London W1X 1LE
Tel: 0171 411 2000, Fax: 0171 411 2390
Web site: http://www.pearson.com
E-mail: [email protected]
Overseas Offices
Pearson Inc
50th Floor, 30 Rockefeller Plaza
New York, NY 10112-5095 USA
Tel: 001 212 641 2400, Fax: 001 212 641 2500
E-mail: [email protected]
Pearson KK
13th Floor, AIG Building, 1-3 Marunouchi 1-Chome
Chiyoda-ku,
Tokyo-100, Japan
Tel: 00 81 3 3211 1331, Fax: 00 81 3 3211 8616
Major Subsidiaries
Information
Financial Times Limited
Number One, Southwark Bridge, London SE1 9HL
Tel: 0171 873 3000, Fax: 0171 407 5495
E-mail: [email protected]
Financial Times Information
Fitzroy House, 13-17 Epworth Street
London EC2A 4DL
Tel: 0171 825 8000, Fax: 0171 251 2725
E-mail: [email protected]
Les Echos SA
46 rue la Boetie, Paris, 75008 France
Tel: 00 331 4953 6565, Fax: 00 331 4289 1400
E-mail: [email protected]
Recoletos Compania Editorial SA
Paseo Recoletos 14-7, 28001 Madrid, Spain
Tel: 00 341 337 3220, Fax: 00 341 337 3825
E-mail: [email protected]
Pearson Professional Limited
Maple House, 149 Tottenham Court Road
London W1P 9LL
Tel: 0171 896 2000, Fax: 0171 896 2099
E-mail: [email protected]
Education
Addison Wesley Longman Inc
One Jacob Way
Reading, Massachusetts 01867-3999, USA
Tel: 001 617 944 3700, Fax: 001 617 944 9338
E-mail: [email protected]
Addison Wesley Longman Ltd
Edinburgh Gate, Harlow, Essex CM20 2JE
Tel: 01279 623623, Fax: 01279 431059
E-mail: [email protected]
Entertainment
Penguin Putnum Inc
375 Hudson Street, New York, NY 10014, USA
Tel: 001 212 366 2000, Fax: 001 212 366 2666
E-mail: [email protected]
Penguin Publishing Co Ltd
27 Wrights Lane, London W8 5TZ
Tel: 0171 416 3000, Fax: 0171 416 3099
E-mail: [email protected]
The Tussauds Group Limited
Maple House, 149 Tottenham Court Road
London W1P 0DX
Tel: 0171 312 1131, Fax: 0171 465 0864
E-mail: [email protected]
Mindscape Inc
88 Rowland Way, Novato, California 94945, USA
Tel: 001 415 897 9900, Fax: 001 415 897 2747
E-mail: [email protected]
Pearson New Entertainment Limited
Kingsgate House, 536 Kings Road, London SW10 0TE
Tel: 0171 331 3920, Fax: 0171 331 3929
E-mail: [email protected]
Pearson Television Limited
1 Stephen Street, London W1P 1PS
Tel: 0171 691 6000, Fax: 0171 691 6100
E-mail: [email protected]
50% Associates
Lazard Brothers & Co., Limited
21 Moorfields, London EC2P 2HT
Tel: 0171 588 2721, Fax: 0171 628 2485
The Economist Group Limited
25 St James's Street, London SW1A 1HG
Tel: 0171 830 7000, Fax: 0171 839 2968
Designed and produced by Michael Peters Limited. Type origination by Wordwork
plc. Printed in England by CTD Printers Limited.
<PAGE>
PEARSON
Directors' Report
& Accounts 1996
accounts
<PAGE>
This document contains detailed financial and statutory information that will
provide a full understanding of the results and state of affairs of Pearson. It
should, however, be read in conjunction with the Annual Report, which contains
the Chairman's Statement, Managing Director's Review and a review of the
business divisions.
1 Operating and financial review
14 Report of the Directors
17 Report of the Remuneration Committee
24 Reports of the Auditors
25 Consolidated profit and loss account
26 Consolidated balance sheet
27 Consolidated statement of cash flows
28 Statement of total recognised gains and losses
28 Note of historical cost profits and losses
28 Reconciliation of movements in equity
shareholders' funds
29 Notes to the accounts
57 Principal subsidiary and associated
undertakings and investments
58 Five year summary
60 Index to the financial statements
<PAGE>
Operating and Financial Review
The following review is divided into two parts. The Operating Review analyses
the performance of the Group and each of the three divisions into which it is
organised, looking at sales and operating profit, and highlighting significant
factors that have contributed to the results. The Financial Review looks at
Group interest, tax, earnings and cash flow, treasury management and accounting
policies.
OPERATING REVIEW
A fuller discussion on the markets in which the Group operates and likely future
developments can be found in the Business Reviews in the 1996 Annual Report.
Group summary
Sales increased by Pounds 355.6 million to Pounds 2,186.0 million. Acquisitions
during the year contributed Pounds 203.0 million of sales, the most significant
of which was the acquisition of HarperCollins Educational by Addison Wesley
Longman which contributed Pounds 166.9 million, or 8% of sales. Discontinued
operations relate to the withdrawal of the Group from the UK regional newspaper
business following the sale of Westminster Press in December 1996 for Pounds 305
million. During the year Westminster Press contributed Pounds 137.1 million in
sales, Pounds 35.3 million in operating profit and Pounds 35.6 million in
operating cash flow. Of total sales 38% relates to the Information Division, 25%
to the Education Division and 37% to the Entertainment Division.
<TABLE>
<CAPTION>
- ------------------------------------------------------
1996 1995 Change
<S> <C> <C> <C>
(Pounds in million) %
- ------------------------------------------------------
Sales 2,186.0 1,830.4 19
......................................................
Operating profit (continuing):
Information 99.1 83.3 19
Education 68.1 31.8 114
Entertainment* 52.5 110.9 (53)
Investment Banking 40.8 39.9 2
Corporate expenses and
other income (14.5) (28.3) 49
- ------------------------------------------------------
Continuing 246.0 237.6 4
Discontinued 35.3 22.0 60
- ------------------------------------------------------
Total* 281.3 259.6 8
......................................................
Operating cash flow 219.0 146.5 49
- ------------------------------------------------------
</TABLE>
*Excludes Pounds 100 million charge for improper accounting at Penguin USA (see
page 2).
Operating profit from continuing operations, excluding the Pounds 100 million
charge for improper accounting at Penguin USA, increased by Pounds 8.4
million or 4%. Excluding both the Pounds 100 million charge at Penguin USA and
operating losses at Mindscape of Pounds 45.5 million, total operating profits
increased by 23%.
1
<PAGE>
Operating and financial review
[CHART APEARS HERE]
The change in operating profits in 1996, when compared with 1995, is due to a
number of factors which are analysed in the table below. The increase in
operating profits from acquisitions made in 1995 is primarily attributable to
Grundy, acquired in May 1995, and Interactive Data Corporation, acquired in
August 1995.
<TABLE>
<CAPTION>
Group Group
excluding including
Mindscape Mindscape Mindscape
(Pounds in million)
.............................................................
<S> <C> <C> <C>
1995 operating profit 266.5 (6.9) 259.6
Acquisitions in 1995 24.6 0.9 25.5
Acquisitions in 1996 45.5 - 45.5
Discontinued 8.4 - 8.4
Decrease BSkyB income (30.1) - (30.1)
Channel 5 losses (5.8) - (5.8)
Decrease restructuring 11.7 (5.4) 6.3
Other (12.1) (19.6) (31.7)
Underlying increase 18.1 (14.5) 3.6
............................................................
1996 pre improper
accounting 326.8 (45.5) 281.3
% increase 23% 8%
............................................................
Improper accounting (100.0) - (100.0)
1996 operating profit 226.8 (45.5) 181.3
</TABLE>
The increase from acquisitions made in 1996 relates primarily to HarperCollins
Educational, acquired in April 1996. The increase attributable to the
discontinued business relates to Westminster Press.
Following the disposal of its direct stake in BSkyB in 1995, the Group's income
from this investment is now derived from interest on its loan stock in BSB
Holdings Ltd (BSBH). This amounted to Pounds 2.4 million in 1996 compared with
total income of Pounds 32.5 million in 1995.
Other, excluding Mindscape, includes the increase in profits arising on the
disposal of the Group's remaining interest in Cedar Fair (see 'Corporate
expenses and other income'), losses on Argent, a French personal finance
publication launched in January 1996 but closed in August 1996, and increased
costs of the Shared Services initiative (see page 3). Excluding Mindscape, all
three divisions contributed to the underlying increase in operating profit.
In 1996 Mindscape underwent substantial refocusing and restructuring of its
operations. In addition, the accounting treatment in respect of royalty advances
and development costs was changed to charge these costs earlier. Prior year
figures have not been restated for the change in accounting treatment as the
amounts involved are not material to the Group. Of the operating loss for the
year of Pounds 45.5 million, Pounds 11.2 million relates to the write-off of
abandoned product, Pounds 5.4 million to restructuring costs and Pounds 7.4
million to the change in accounting treatment.
On 13 February 1997 the Group announced that it had uncovered improper
accounting at Penguin USA. The problems, dating back to 1991, relate to
unauthorised discounts given to customers in return for early payments which had
not been
2
<PAGE>
Operating and financial review
[Graph appears here]
correctly recognised in the accounts. This unauthorised practice has had little
impact on ongoing sales and operating profits. The charge has been treated as a
one-off item and therefore has been excluded from the calculation of adjusted
earnings.
Interest payable of Pounds 29.5 million was Pounds 5.6 million higher than
in 1995. The increase reflects the acquisitions made during the year, in
particular the Pounds 369.2 million acquisition of HarperCollins Educational
in April 1996. In addition, a premium of Pounds 10.3 million was paid on the
redemption of the Pounds 25 million (13.625%) 2007 Unsecured Loan Stock.
The taxation charge of Pounds 108.6 million represents an effective rate of
30.4%. The effective rate on adjusted earnings of 28.8% is below the UK tax rate
due mainly to consortium relief recognised following renegotiation with other
partners in BSkyB/BSBH.
At the end of 1995 a decision was made to proceed with a major initiative to
combine back office functions across the Group, and a provision for Pounds
16.7 million was set up to cover restructuring costs. This provision will be
utilised when the restructuring costs are incurred upon implementation, the main
part of which is planned for 1998. During 1996 Pounds 6.9 million was incurred
on the Shared Services initiative, of which Pounds 1.9 million was expensed
and Pounds 5.0 million was capitalised.
Information Division
<TABLE>
<CAPTION>
1996 1995 Change
(Pounds in million) %
...........................................................
<S> <C> <C> <C>
Sales 828.7 759.1 9
...........................................................
Operating profit (continuing):
FT Newspaper 16.5 7.4 123
FT Information 17.3 11.4 52
Les Echos (0.3) 3.2 -
Recoletos 34.9 37.8 (8)
Pearson Professional 18.6 11.5 62
The Economist 12.1 12.0 1
Westminster Press (discontinued) 35.3 22.0 60
...........................................................
Total 134.4 105.3 28
...........................................................
Operating cash flow 122.0 77.3 58
...........................................................
Operating margin 15% 12% 25
</TABLE>
Financial Times Newspaper
Advertisement revenues grew by 7% overall and circulation revenues were up 8%,
helped by a cover price rise in the UK and record overseas circulation. Average
daily copy sales reached 299,000 in 1996 of which 42% were sold overseas. A new
web site was opened in April and has already attracted over 250,000 registered
users. Cost savings also played an important role in improving trading profits
which increased by almost 50%. The closure of the East India Dock printing
operation resulted in significant savings that were reinvested in the expanded
network of print sites. The tenth such site, in Hong Kong, was opened in March
1996. Further significant cost savings were realised during 1996 resulting in an
exceptional charge of Pounds 5.8 million. Despite this exceptional charge,
[Graph appears here.]
3
<PAGE>
Operating and financial review
[Graph appears here.]
operating profits before associates increased by 123%.
Financial Times Information
Sales from Financial Times Information's financial and business information
services increased by 45% in 1996. This included the first full year of sales of
Pounds 50.6 million from Interactive Data Corporation, a leading supplier of
price data in the capital and securities market, which was acquired in late
1995, and which contributed to strong results from the Asset Management
business. Electronic Business Information and Research Products both increased
revenue, but the benefit from this was offset by considerable development
expenditure, particularly within Research Products. This investment will be
continuing in 1997. Overall operating profit was up 52%, mainly reflecting the
benefit from Interactive Data Corporation.
Les Echos Group
Overall advertising revenues for Les Echos fell by 2% in depressed advertising
markets although financial advertising held up well and Les Echos improved its
market share. Circulation grew by 5% and Les Echos is currently the only
profitable French business paper. Enjeux, the monthly business magazine,
increased revenues by 16% and significantly reduced its losses, and Panorama du
Medecin is now operating profitably. Argent, a personal finance publication
launched in January, was closed in August because news-stand sales were below
initial assumptions. The loss on this venture led to the Les Echos group showing
a small loss for the year; without Argent, it would have produced a profit 66%
up on 1995.
Recoletos
Pearson increased its stake in Recoletos from 56.7% to 94.2% during 1996. At an
average paid circulation of 486,000, the sports paper Marca is the most widely
read newspaper in Spain and continues to grow. Advertising pages expanded by 15%
as demand for space outstripped supply. Recoletos' margin, however, fell from
33% in 1995 to 27% in 1996, as investments were made in Marca to counteract
competitor activity. Developments included a fantasy football league and club,
which now has 1.3 million members, new printing centres in Spain and Holland,
and regional editions. Expansion continued to be Spain's leading business
newspaper, with circulation up 8% in 1996.
Pearson Professional
Sales increased by 8% overall, helped by strong performances from publishing in
finance, energy and media. US sales for Churchill Livingstone, the health
publishing business, were affected by the squeeze on physicians' incomes which
is making trading conditions very difficult for wholesale publishers. Operating
profits for Pearson Professional improved by 62% as the medical communications
business in Japan, which was disrupted by the Kobe earthquake in 1995, was re-
organised and as Pearson Professional focused on growing higher margin
activities,
4
<PAGE>
Operating and financial review
[Chart appears here.]
whilst reducing the cost base through efficiencies in its core businesses.
Meanwhile, a small number of margin-enhancing acquisitions were made.
The Economist (50%)
The Economist had another excellent year. Pearson's share of profits amounted to
(Pounds) 12.1 million, slightly ahead of last year's record figure. Average
circulation reached 640,385 by December 1996 compared to 621,201 in December
1995, an increase of 3%.
Education Division
The Education division consists of Addison Wesley Longman (AWL), Pearson's
educational publishing business, which comprises five business units: US School,
US College, International, English Language Teaching (ELT) and Consumer.
<TABLE>
<CAPTION>
1996 1995 Change
(Pounds in million) %
<S> <C> <C> <C>
Sales 554.3 358.9 54
...................................................
Operating profit 68.1 31.8 114
...................................................
Operating cash flow 28.3 6.8 316
...................................................
Operating margin 12% 8% 50
</TABLE>
AWL achieved sales of Pounds 554.3 million in 1996, against Pounds 358.9
million in 1995, an increase of 54%. Pounds 166.9 million of sales or 85% of
growth resulted from the acquisition of HarperCollins Educational Publishing,
which chiefly impacted US School and US College publishing. The business,
excluding HarperCollins Educational, also achieved a healthy organic growth of
9%.
HarperCollins Educational was purchased at the beginning of April 1996 and has
now been successfully integrated into Addison Wesley Longman. The operating
profit of HarperCollins Educational of Pounds 45.1 million, before
restructuring costs of Pounds 15.0 million, is not representative of a full 12
months performance as it excludes the loss making first quarter. However, this
loss broadly equates to the charge for restructuring costs, and therefore the
operating profit after restructuring costs is approximately equivalent to one
full year's trading. The operating cash flow of Pounds 4.5 million, on the
other hand, has been reduced by restructuring expenditure and the exclusion of
the first quarter, a strong period for collections, and is less than
representative of a full year's cash flow.
[Graph appears here.]
US School
Sales of Pounds 192.9 million were Pounds 113.6 million up on 1995,
including Pounds 102.3 million from HarperCollins Educational titles. Sales,
excluding HarperCollins Educational, were also up by Pounds 11.3 million or
14%, driven by growth in the school publishing market, by significant increases
in sales of elementary maths and science products first published in 1995, and
by the introduction of the Waterford Early Reading Program. Profit, excluding
HarperCollins Educational, was higher than in 1995 and margins improved through
reduced pre-publication cost amortisation.
US College
Sales in the US college market increased by 123% over 1995, to Pounds 112.0
million. Pounds 54.0 of this was
[Graph appears here.]
5
<PAGE>
Operating and financial review
[Graph appears here]
attributable to HarperCollins Educational titles. Growth in sales elsewhere was
also achieved, together with improved profits and margins through tight control
on headcount and other discretionary expenses. This was partially offset by
higher provisions for obsolescence.
International
The International business comprises all school and college products locally
published and/or distributed outside the USA, including the UK. Sales for the
business in 1996 were Pounds 125.6 million, up by 29% over 1995 and all
international areas contributed to the growth. Profits and margin percentages
also rose. HarperCollins Educational accounted for incremental sales of Pounds
9.5 million.
English Language Teaching (ELT)
Worldwide sales of ELT products were Pounds 92.8 million, an increase of
Pounds 11.1 million or 13% over 1995. Most of this growth resulted from the
first full year's results from Nelson titles, acquired in 1995. Profits improved
over 1995 as a result of the Nelson contribution and reduced operating expenses.
Consumer Publishing
Sales for 1996 were Pounds 47.8 million, representing growth of 11% over 1995.
A major contributor was computer-related learning materials, where the increased
importance of the Internet and associated programming languages such as JAVA
helped to offset the decline in demand of Apple-related products. Take Care of
Yourself continued to sell well, reflecting the US focus on health care. Profit
and margin for consumer publishing declined because of higher obsolescence
reserves and an unfavourable movement in the mix towards higher cost product.
Entertainment Division
<TABLE>
<CAPTION>
1996 1995 Change
(Pounds in million) %
...........................................................
<S> <C> <C> <C>
Sales 803.0 712.4 13
...........................................................
Operating profit:
Penguin* 31.0 33.6 (8)
Tussauds 22.2 18.3 21
Mindscape (45.5) (6.9) -
Pearson New Entertainment 2.4 (0.1) -
Pearson Television 42.4 66.0 (36)
...........................................................
Total* 52.5 110.9 (53)
...........................................................
Operating cash flow 56.5 56.2 1
...........................................................
Operating margin 5% 11% (55)
</TABLE>
*Excludes Pounds 100 million charge for improper accounting at Penguin USA.
Penguin
Penguin acquired Putnam Berkley, one of the leading US publishers of best-
selling fiction, for Pounds 201.0 million in December 1996. The acquisition
added Pounds 8.5 million in sales during December. In addition to the
operating loss of Pounds 1.1 million, a charge of Pounds 4.4 million was
made to cover the cost of restructuring in 1997. Putnam Berkley also added
Pounds 12.2 million in operating cash flow in the period.
1996 sales of Pounds 380.2 million were up by 3% on a highly successful 1995.
A strong list of titles on both sides of the Atlantic contributed to the
success.
6
<PAGE>
Operating and financial review
[Graph appears here.]
Operating profit was down 8% overall, although most of this was due to the
absence of any contribution from Eden Toys, which was sold at the end of 1995,
and the inclusion of the Putnam Berkley loss mentioned above.
A charge of Pounds 100 million has been made in 1996 to cover the cost of
improper accounting at Penguin USA (see page 2).
Tussauds Group
Sales rose 10%, to Pounds 104.6 million, compared with 1995. Admissions to the
Group's attractions rose 3% to a record 12.3 million visitors. Madame Tussaud
Scenerama in Amsterdam had a record year and saw admissions rise 13%, while in
Spain, Port Aventura's second season produced a rise of 11% to over 3 million
visits. Increases in visitor spending, notably at Alton Towers and Chessington
World of Adventures, was the primary driver in 1996 producing record profits
from the existing portfolio of locations.
The new Alton Towers hotel, which opened in the spring of 1996, enjoyed
significantly higher occupancy and average room rates than expected in its
maiden year. The Group's management contract with, and 40% stake in, Port
Aventura contributed with profits of over Pounds 3.1 million in 1996.
Mindscape
Mindscape's sales fell by 12% in 1996, to Pounds 50.3 million, as new
management focused on a smaller number of more successful software products in
an extremely difficult and competitive market. As foreshadowed at the Annual
General Meeting of the Group in May 1996, the company reported an operating loss
for the year of Pounds 45.5 million compared with a loss of Pounds 6.9
million in 1995. Pounds 24.0 million of this loss was attributable to the
costs associated with restructuring, write-offs of obsolete titles and a change
in the accounting treatment of development expenditure, leaving a loss of
Pounds 21.5 million for the ongoing business.
Pearson New Entertainment
Sales at Pearson New Entertainment (PNE) grew sharply in 1996, up 26% to
Pounds 63.6 million on 1995. Of this sales growth, 40% came from a number of
small acquisitions, on which the division spent Pounds 13.8 million, and 60%
from existing operations. Future Publishing, the UK's fifth largest magazine
publisher, accounted for Pounds 53.7 million of sales. PNE as a whole moved
into profit in 1996, with over 60% of profit improvement coming from existing
operations, again the remainder coming from acquisitions.
Pearson Television
Sales of Pounds 204.3 million were up 45% on 1995. The international
production business accounted for over 70% of sales revenues, benefiting from a
full year's contribution from Grundy and the early impact of Alomo and Witzend
acquired as part of SelecTV. Television distribution activities were boosted by
ACI- also delivering its first full year's returns. Broadcasting operations in
the UK and elsewhere continued to provide a valuable contribution, although
results were mixed.
[Graph appears here.]
7
<PAGE>
Operating and financial review
Operating profits for the television business increased by 37%, excluding
Pearson's share of Channel 5 start-up costs of Pounds 5.8 million in 1996, and
income from BSkyB.
The Group has a 24% economic interest in Channel 5 and has decided to amortise
its share of certain Channel 5 initial costs by the end of the 10 year licence
period. The Group will equity account for its share of other profits and losses.
As a result of this policy the charge to profits in 1996 was Pounds 5.8
million out of a total investment of Pounds 23.8 million.
In February 1997 Pearson Television sold its 10% interest in Television
Broadcasts Limited for Pounds 111.1 million, realising a profit of Pounds
6.3 million.
Investment Banking
<TABLE>
<CAPTION>
1996 1995 Change
<S> <C> <C> <C>
(Pounds in million) %
...............................................
Attributable profit 40.8 39.9 2
</TABLE>
Lazard
Attributable profits amounted to Pounds 40.8 million following high levels of
Corporate Finance activity in the UK together with good performances from Asset
Management and Asset Trading. Sustained levels of Corporate Finance activity in
New York, as well as growth in Corporate Trading in bonds, equities, high yields
and emerging markets and strong Asset Management results, led to another good
performance.
Corporate expenses and other income
Corporate expenses and other income at Pounds 14.5 million were Pounds
13.8 million lower than in 1995. This reflects two main factors. First, the
increase in income from the sale of the balance of the Group's investment in
Cedar Fair, the US theme park company, from Pounds 8.0 million in 1995 to
Pounds 15.4 million in 1996. Second, the lower charge relating to the Shared
Services initiative, down from Pounds 16.7 million in 1995 to Pounds 1.9
million in 1996.
FINANCIAL REVIEW
Exchange rates
The Group earns a significant proportion of its profits in overseas currencies.
The currencies which have the greatest impact on the Group through the
translation of overseas profits into sterling are the US dollar and the Spanish
peseta (see treasury management below for a discussion on the hedging of capital
employed and transactional cash flows). The relevant exchange rates are as
follows:
<TABLE>
<CAPTION>
Pounds versus US$ Pounds versus peseta
1996 1995 1996 1995
.............................................................
<S> <C> <C> <C> <C>
Weighted average for
operating profits 1.58 1.57 199.6 194.9
.............................................................
Year end rate 1.71 1.55 222.6 188.4
</TABLE>
The strengthening of sterling towards the year end had a minimal impact on 1996
results, but if year end rates had prevailed throughout 1996, profit before tax
would have been lower by an estimated Pounds 5 million. If the loss at
Mindscape is excluded, profit before tax would have been lower by Pounds
10 million.
8
<PAGE>
Operating and financial review
Interest
Net interest payable increased by Pounds 5.6 million to Pounds 29.5 million.
In addition a Pounds 10.3 million premium was paid to redeem the Pounds 25
million (13.625%) Unsecured Loan Stock 2007 in April. The size of this premium
reflected the entitlement of the holders of the Stock to receive a fixed rate of
interest well in excess of current fixed rates for a further eleven years.
Redeeming this Stock terminated the last remaining requirement for the Group to
comply with a Trust Deed which had imposed limitations on borrowings that were
inconsistent with (and potentially more restrictive than) all of the Group's
other borrowing documents.
The principal reason for the increase in net interest payable was a Pounds
132 million increase in average net debt to Pounds 430 million in 1996. This
increase reflected the effect of acquisitions made during 1996 (principally the
purchase of HarperCollins Educational in April for Pounds 369 million), as
well as the effect of financing for a full year the Pounds 570 million of
businesses and investments which were acquired during 1995. These were, however,
substantially offset by the interest benefit for a full year of the Pounds
560 million proceeds of the September 1995 disposal of the Group's direct
holding in BSkyB.
The effects of changes in interest rates were comparatively small. Lower US
dollar interest rates had a small favourable impact on interest payable, which
was partly offset by the effect of lower sterling interest rates on the interest
receivable from sterling net cash.
The Group's policy is to maintain its annual consolidated net interest cover
ratio at a level between 5 and 9 times. For the 1996 financial year this ratio,
after deducting the Pounds 100 million charge for improper accounting at
Penguin USA from operating profit, was 6.1 times.
Taxation
<TABLE>
<CAPTION>
1996 1995
........................................................
<S> <C> <C>
% %
UK tax rate 33.0 33.0
Effect of BSkyB/BSBH income (3.5) (3.8)
Other items (0.7) (1.7)
........................................................
Tax rate reflected in adjusted earnings 28.8 27.5
Effect of profits/(losses) excluded
from adjusted earnings 1.6 (2.1)
........................................................
Tax rate reflected in earnings 30.4 25.4
</TABLE>
[Graph appears here.]
The tax charge of Pounds 108.6 million represents an effective rate of 30.4%
compared with 25.4% in 1995. The 1995 rate was reduced by the release of
Pounds 8.8 million consortium relief to offset tax payable on BSBH income. The
1996 tax rate reflected in adjusted earnings has also been reduced by several
one-off factors: the rate reflected in adjusted earnings has been reduced by
Pounds 8.8 million of consortium relief now recognised in the profit and loss
account following renegotiation with the other partners in BSBH; there is no tax
payable on the profit of Pounds 231.3 million arising on the sale of
Westminster Press; the Group has tax losses,
[Graph appears here.]
9
<PAGE>
Operating and financial review
[PIE CHART APPEARS HERE]
arising in the US, which have not been utilised or recognised in 1996 but are
available to carry forward against taxable profits in future years. Accordingly
the Group has decided not to recognise tax relief on the Pounds 100 million
charge for improper accounting at Penguin USA and has also written off to profit
deferred tax assets totalling Pounds 36.6 million.
A comprehensive worldwide tax review was carried out during 1996 aimed at
further developing tax strategy and tax planning opportunities.
Minority interests
Minority interests decreased from Pounds 11.3 million in 1995 to Pounds 7.7
million in 1996 due to the acquisition of an additional stake in Recoletos
taking the Group's holding to 94.2%.
Adjusted earnings and dividends
Adjusted earnings per equity share excludes the profits and losses on the sale
of fixed assets and businesses, the loan stock redemption premium, the Pounds
100 million charge for improper accounting at Penguin USA and the tax
consequences of these items.
The weighted average number of shares in issue has increased from 554.4 million
in 1995 to 560.8 million in 1996 due to the issue of shares under Executive and
Save as you Earn share option schemes and the issue of shares on the acquisition
of the additional stake in Recoletos.
Adjusted earnings increased from Pounds 159.6 million in 1995 to Pounds 171.5
million in 1996; adjusted earnings per share increased by 1.8 pence from 28.8p
to 30.6 pence in 1996.
An interim dividend of 6.9 pence per ordinary share was paid in November 1996. A
final dividend of 11.1 pence per ordinary share is proposed giving a total
dividend for the year of 18.0 pence, a 9% increase on 1995. Dividend cover
decreased from 2.8 times in 1995 to 2.3 times in 1996 (1.7 times on adjusted
earnings).
Cash flow
The table below summarises the Group's main cash flows and is in the format used
by management to monitor Group cash flow. The main difference to the FRS1 cash
flow presented on page 27 is that operating cash flow, the main measure used, is
calculated after the deduction of capital expenditure.
<TABLE>
<CAPTION>
1996 1995
(Pounds in million)
........................................................
<S> <C> <C>
Operating activities 291.2 236.4
Net movement in fixed assets (84.0) (69.8)
Other 11.8 (20.1)
........................................................
Operating cash flow 219.0 146.5
Interest, taxation and dividends (213.3) (196.8)
........................................................
Funds from operations 5.7 (50.3)
Acquisitions, disposals and non
operating activities (409.2) 137.0
........................................................
Net movement of funds (403.5) 86.7
Net debt at the start of year (63.4) (146.4)
Exchange 36.5 (3.7)
........................................................
Net debt at the end of year (430.4) (63.4)
</TABLE>
10
<PAGE>
Operating and financial review
[PIE CHART APPEARS HERE]
Operating cash flow grew much more strongly than operating profit, as several of
the factors that depressed profit performance had no bearing on the cash
position. At Pounds 219.0 million, operating cash flow was almost 50% higher
than in 1995 and represented around 80% of operating profit, after adjusting for
the Penguin charge and income from associates. The increase in operating cash
flow is due to a number of factors. 1996 saw both profit and cash generation
increase at Addison Wesley Longman, helped by a Pounds 4.5 million operating
cash inflow from the HarperCollins Educational acquisition. Overall, the
Information Division improved cash collections and saw operating cash flow
increase from Pounds 77.3 million to Pounds 122.0 million. Penguin benefited
from the receipt of Pounds 12.2 million following the acquisition of Putnam
Berkley in December.
Capital expenditure reduced as the new hotel at Alton Towers became operational,
but 1996 was absent the cash received in 1995 on the sale of Edinburgh Gate, the
UK headquarters of Addison Wesley Longman, giving a net increase in the cash
outflow relating to fixed assets.
Dividends paid increased by Pounds 5.0 million reflecting both the larger
number of shares in issue and the increase in the dividend amount per share.
The cash outflow due to acquisitions, disposals and non operating activities
reflects the purchases of HarperCollins Educational for cash of Pounds 369.2
million, Putnam Berkley for Pounds 200.9 million and Recoletos for Pounds
31.0 million, offset in part by the disposal of Westminster Press for net cash
of Pounds 297.0 million.
Treasury management
Treasury policy
The treasury activities of the Group are carried out in accordance with treasury
policies which are approved by the board and implemented by the finance
director. The treasury department is not operated as a profit centre and is
subject to audit. A structure was put in place in 1996 whereby the finance
director and a treasury committee of the board receive reports and review and
comment upon the treasury policies of the Group.
Borrowings
The Group's policy is to manage the amount of its net debt (i.e. total
borrowings less cash and liquid funds) and the level of interest cover in a
manner which is consistent with the maintenance of its credit ratings at, or
near, their current levels. The Group's current ratings from Standard & Poor's
and Moody's are A and A2 respectively for long-term debt and A1 and P1
respectively for short-term debt. The Group's credit ratings for long-term debt
were reduced from A+ and A1 respectively following the acquisition of Putnam
Berkley in December 1996.
At 31 December 1996, total borrowings amounted to Pounds 729 million,
comprising Pounds 379 million of US dollar borrowings and Pounds 210 million
of sterling
11
<PAGE>
Operating and financial review
[GRAPH APPEARS HERE]
borrowings, with the remainder in a variety of other currencies.
The Group uses foreign currency debt to hedge a proportion of the value of its
overseas assets. The aim is to reduce fluctuations in shareholders' funds
resulting from changes in foreign exchange rates.
Net borrowings in a particular currency may be varied if there is some other
element of risk for operational reasons, but the normal aim is to hedge around
20% of capital employed in each principal foreign currency.
Long-term financing requirements are met through sterling and US dollar debt
issues in the capital markets. A guideline is in place whereby between 25% and
75% (with a norm of 50%) of core borrowings should come from non-bank sources.
During 1996 a $750 million medium term note ('MTN') programme was set up in the
United States, under which a $250 million 10 year MTN was issued in September
1996. The proceeds from this issue, which was swapped from fixed to floating
rates, were used to repay short-term commercial paper borrowings.
The group aims to have a diversity of debt maturity dates to avoid a
concentration of refinancing risk in any single period. The guideline is that
the weighted average maturity of our core gross borrowings is between three and
eight years. It currently stands at 7.2 years.
Short-term funding requirements are met through committed or uncommitted bank
facilities and through the US commercial paper programme. At 31 December 1996,
committed bank facilities amounted to Pounds 487 million, of which Pounds
325 million had a maturity of over five years. The general guideline is that
available undrawn committed bank facilities should be above Pounds 200
million.
Cash
At 31 December 1996, total cash and liquid funds amounted to Pounds 299
million, consisting mainly of sterling and US dollars. Funds which are
temporarily surplus to business requirements are invested in a range of money
market instruments, including AAA-rated asset-backed securities, with a view to
maximising after-tax returns while preserving liquidity and managing
counterparty risk. In order to ensure that the portfolio is appropriately
diversified, limits for individual issuers and assets are regularly reviewed,
having regard inter alia to published credit ratings, and these limits are
subject to approval by the finance director.
Interest rate management
Pearson's interest rate exposure arises principally in relation to sterling and
the US dollar. Interest rate exposure is managed within parameters agreed by the
board, with the principal policy guideline being that the interest rate on at
least one third of core sterling and US dollar borrowings should be fixed or
capped for around the next five years. Some of this is achieved by borrowing on
a fixed rate basis, but in addition
12
<PAGE>
Operating and financial review
the Group enters into interest rate swaps and forward rate agreements to modify
the interest rate reset profile of its borrowing portfolio. At 31 December 1996,
43% of US dollar borrowings were fixed at a weighted average rate of 5.95% and
24% of sterling borrowings were fixed at a weighted average rate of 10.5%. In
June 1997 the pro forma proportion of sterling borrowings on a fixed or capped
basis will rise to 48%, taking into account the expiration of Pounds 50 million
of sterling interest rate swap contracts at that date. In broad terms, a 1% rise
in US dollar interest rates would increase the net interest charge by Pounds 2
million, while a 1% rise in sterling interest rates would increase the net
interest charge by Pounds 1 million.
Foreign exchange
Foreign currency transactional cash flows are normally hedged on the basis of
rolling forecasts for periods of up to twelve months, but unremitted profits are
not hedged. Cross border trading flows and other recurring items, such as
dividends, giving rise to transactional foreign exchange exposure in the UK
amounted to the equivalent of approximately Pounds 84 million in 1996.
Accounting policies and standards
The accounting policies of the Group are shown on pages 29 and 30. These
policies remain unchanged and have been applied consistently throughout the
year.
During the year FRS1 (Revised 1996) 'Cash Flow Statements' was published by the
Accounting Standards Board. The new format of presentation of the cash flow
statement contained within the revised Standard has been adopted in these
financial statements.
In addition, compliance with FRS8 'Related Party Disclosures' became mandatory
during the year. Disclosure of related party transactions and balances is shown
in note 28 to the Accounts.
Share price and market capitalisation
The share price ended the year at 749.5 pence, close to its high during the year
of 760 pence and well above 1996's low of 601 pence. This represents an increase
of 20% on the closing share price of 624 pence at the end of 1995 compared with
an increase of nearly 12% in the FTSE 100 index and 25% in the FTSE Media index.
Based on the year end share price of 749.5 pence the market capitalisation of
the Group was Pounds 4,280 million.
13
<PAGE>
REPORT OF THE DIRECTORS
The directors have pleasure in presenting their report to shareholders, together
with the financial statements for the year to 31 December 1996 on pages 25 to
57. The principal activities of the Group are carried out in three main sectors:
information, education and entertainment. More details of these and other
activities, the development of the Group and its subsidiaries and likely future
developments are given in the Operating and Financial Review on pages 1 to 13
and on pages 4 to 22 of the Annual Report. Sales and profits of the different
sectors and geographical markets are given on pages 31 and 32 of this report.
RESULTS AND DIVIDENDS
The profit for the financial year to 31 December 1996 was pound 240.5 million
(1995: pound 261.0 million. The profit retained for the year was pound 137.8
million (1995: pound 169.2 million) and has been transferred to reserves. A
final dividend of 11.1p per share is proposed for the year to 31 December 1996.
This, together with the interim dividend already paid, makes a total for the
year of 18.0 pence (1995: 16.5 pence). The final dividend will be paid on 6 June
1997 to shareholders on the register at the close of business on 11 April 1997,
the record date.
SIGNIFICANT ACQUISITIONS AND DISPOSALS
During the year, Pearson acquired HarperCollins Educational Publishers and
Putnam Berkley in the USA and SelecTV plc in the UK, of which the Alomo and
Witzend production businesses have been retained. Pearson also increased its
holding in Recoletos from 56.7% to 94.2%. Further disclosure of these
transactions can be found in note 23 to the accounts and on pages 1 to 13 of
this report.
In December 1996, Pearson disposed of Westminster Press.
TRANSACTIONS WITH RELATED PARTIES
For transactions with related parties which are reportable under FRS8, including
the increase in Pearson's holding in Recoletos, please refer to note 28 to the
accounts.
POST BALANCE SHEET EVENTS
In February 1997 Pearson acquired a 50% stake in Business Day and Financial Mail
in South Africa for a consideration of pound 11.5 million and sold its 10% stake
in Television Broadcasts Ltd in Hong Kong for pound 111.1 million.
In March Pearson agreed to sell its interests in the satellite and cable
channels, UK Gold (20%) and UK Living (25%), to Flextech as part of joint
venture agreements between Flextech and the BBC. The sale of these interests
involves the payment by Flextech, between now and December 1998, of pound 7.8
million representing the repayment of UK Living loan stock, and Pearson
Television receiving 8.8 million Flextech ordinary shares - a total
consideration of approximately pound 76 million based on a Flextech share price
of 772 pence. Following completion of the transaction, Pearson will own 5.6% of
the enlarged share capital of Flextech.
Further details are given in note 31.
CORPORATE GOVERNANCE
The board has reviewed the Company's procedures in the light of the Code of Best
Practice published by the Committee on Financial Aspects of Corporate Governance
and, in the opinion of the directors, the Company fully complies with it and has
done so throughout the year.
INTERNAL FINANCIAL CONTROL - the board of directors has overall responsibility
for the Group's system of internal financial control which it exercises through
an organisational structure with clearly defined levels of responsibility and
authority and appropriate reporting procedures. This structure includes an audit
committee, comprising three non-executive directors, which, with the finance
director, has reviewed the effectiveness of the internal financial control
environment of the Group. The audit committee meets regularly and considers,
inter alia, reports from internal and external auditors covering such matters.
On 13 February 1997 we announced the discovery of the breakdown of certain
internal controls at Penguin USA, which allowed the unauthorised practice of
offering discounts to certain customers in exchange for early payment of
invoices. Swift action was taken to stop this irregular practice and to
determine how and why the accounting irregularities, which are described in
greater detail in the Finance Director'ss Review on pages 26 to 28 of the Annual
Report, were not detected. A thorough review of the Group'ss control procedures
is currently being undertaken in order to ensure, as far as possible, that such
an event cannot recur. On the evidence presented so far, both the directors and
the auditors believe that the systems and controls in the Group are generally of
high quality. However, it must be recognised that no internal control system can
provide absolute assurance against misstatement or loss.
The following are the main elements of the Group's control systems:
FINANCIAL REPORTING - there is a comprehensive budgeting system with an annual
budget approved by the directors. Monthly trading results and indebtedness are
reported against the corresponding figures for the budget and the previous year
with corrective action taken by the directors as appropriate. More detailed
financial information, including balance sheets and cash flow statements, is
provided quarterly.
14
<PAGE>
TREASURY MANAGEMENT - the treasury department operates within board approved
policies. Major transactions are authorised outside the department at the
requisite level and there is an appropriate segregation of duties. Frequent
reports are made to the group finance director and quarterly summaries are
prepared for the board.
RISK MANAGEMENT - the identification of major business risks is carried out in
conjunction with operating management and steps are taken to mitigate or
eliminate these where possible. In addition the Group provides insurance cover
either through its captive insurance subsidiary or externally depending on the
scale of the risk in question.
OPERATING COMPANY SYSTEMS - each operating company maintains financial controls
and procedures appropriate to its own business environment and carries out local
treasury activities, in both cases conforming to overall standards and
guidelines.
SELF ASSESSMENT - each year relevant senior executives and chief executives of
operating units are required to confirm in writing compliance with appropriate
standards of internal financial control in their respective areas.
INTERNAL AUDIT - the Group has a centralised internal audit department with
operations located both in the UK and the US, which reviews systems and
procedures in all major operating companies and reports regularly to the audit
committee.
GOING CONCERN - having reviewed the Group's liquid resources and borrowing
facilities and the 1997 and 1998 cash flow forecasts contained in the Group
budget for 1997, the directors believe that the Group has adequate resources to
continue as a going concern for the foreseeable future. For this reason, the
financial statements have, as usual, been prepared on a going concern basis.
AUDITORS - the report of the auditors on corporate governance matters is set out
on page 24.
DIRECTORS
The directors are shown in the Report of the Remuneration Committee on pages 17
to 23 together with details of their interests in ordinary shares and options of
Pearson plc. Six directors will retire by rotation at the Annual General
Meeting. Of these, David Veit, Reuben Mark and Gill Lewis, being eligible, will
offer themselves for re-election for a further three years. In addition, Lord
Blakenham, Frank Barlow and Mark Burrell retire by rotation but will not seek
re-election. Sir Simon Hornby will also retire at the end of the AGM. Marjorie
Scardino, who was appointed to the board on 1 January 1997, retires from office
in accordance with article 77 of the Company's articles of association and,
being eligible, offers herself for re-appointment. For details of directors'
service contracts, see page 18.
No director was materially interested in any contract of significance to the
Company's business.
NOMINATION PROCESS FOR NON-EXECUTIVE DIRECTORS
The nomination and appointment of non-executive directors is included in the
items reserved for the full board.
INSURANCE OF OFFICERS OF THE COMPANY
During the year to 31 December 1996 the Company continued to provide liability
insurance for its officers.
SUPPLIER PAYMENT POLICY
The Company aims to pay all of its suppliers within a reasonable period of their
invoices being received and in any case within the supplier's own standard
payment period. Operating companies are responsible for agreeing the terms and
conditions under which business transactions with their suppliers are conducted.
EMPLOYMENT
The Group employs 20,745 people, of whom 10,851 are employed in the UK. The
employment policies of the Group embody the principles of equal opportunity and
are designed to meet the needs of operating companies and comply with local
regulations in their areas of operation. This means that the sole criterion for
selection and promotion is the individual's suitability for the position of
employment offered, including consideration of disabled persons for employment,
training, career development and promotion on the basis of their aptitudes and
abilities.
TRAINING AND DEVELOPMENT - the Group is committed to the continuous improvement
of employee performance by developing skills and expertise through training and
development. Each operating company has developed its own in-house programmes
and courses to meet the needs of its employees and its business. Pearson also
encourages employees to develop their careers by taking up opportunities in
other parts of the Group.
ALL-EMPLOYEE SHARE OPTION SCHEME - the Pearson plc `Save As You Earn' Share
Option Scheme, introduced for UK employees in 1982 and renewed in 1992, attracts
a high level of interest and participation. The most recent grant was taken up
by over 1,500 employees, and a cumulative total of more than 23.8 million
15
<PAGE>
REPORT OF THE DIRECTORS
options over ordinary shares has been granted, of which about 6.1 million were
outstanding at the end of the year.
COMMUNICATIONS - communications with employees continue to be developed through
the distribution of the Pearson magazine, the Chairman's Report to Employees,
the introduction of an intranet and the Report to Members of the UK Pension
Plan. The various operating companies also have their own channels such as
briefing groups, videos, magazines and newsletters.
EUROPEAN EMPLOYEE FORUM - in 1996, Pearson established a European Employee Forum
with elected representatives for each of the Pearson Group companies based in
Europe. The Forum is intended to provide an arena for the exchange of relevant
and appropriate information and the establishment of a constructive dialogue
between management and employees on transnational issues which affect them.
CONTRIBUTIONS FOR CHARITABLE AND POLITICAL PURPOSES
In 1996, charitable donations in the UK amounted to pound 568,000 (1995: pound
792,000) and overseas to pound 240,000 (1995: pound 258,000). Political
contributions of pound 25,000 were made to each of the Conservative Party and
the Labour Party. A contribution of pound 10,000 was made to the Centre for
Policy Studies. For further information, see page 23 of the Annual Report.
SHARE CAPITAL
Details of share issues are given in note 21.
At the Extraordinary General Meeting held on 3 May 1996, the Company was
authorised, subject to certain conditions, to acquire up to 55.7 million of its
ordinary shares by market purchase. This authority expires on the date of the
forthcoming Annual General Meeting. Although circumstances have not merited
using it and there are no plans at present to do so, shareholders are being
asked to renew this authority.
At 17 March 1997, beneficial interests amounting to 3% or more of the issued
ordinary share capital of the Company notified to the Company comprised:
<TABLE>
<CAPTION>
No. of Shares %
<S> <C> <C>
Companies associated with
Lazard Freres et Cie., Paris 48,129,727 8.42
</TABLE>
SCRIP DIVIDEND ALTERNATIVE
The Company operates a scrip dividend scheme under which a total of 868,318 new
ordinary shares were issued in respect of the last two dividends in response to
elections for shares instead of cash, made by around 5,000 shareholders on each
occasion, saving approximately pound 5.7 million in cash and deferring
approximately pound 1.4 million of corporation tax. Details of the scrip
dividend alternative for the final dividend for 1996 will be sent out to
shareholders on 28 April 1997.
CLOSE COMPANY STATUS
The Company is not a close company within the terms of the Income and
Corporation Taxes Act 1988.
CAPITAL EXPENDITURE
The analysis of capital expenditure and details of capital commitments are shown
in note 10.
ANNUAL GENERAL MEETING
The notice convening the Annual General Meeting to be held at 12 noon on Friday,
2 May 1997 is contained in the enclosed circular.
REGISTERED AUDITORS
In accordance with sections 384 and 390A of the Companies Act 1985 (the Act)
resolutions proposing the re-appointment of Price Waterhouse as auditors to the
Company, at a level of remuneration to be agreed by the directors, will be put
to the shareholders at the Annual General Meeting, special notice having been
given pursuant to sections 379 and 391A of the Act.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
Company and Group as at the end of the year and of the profit or loss of the
Group for that period. In preparing those financial statements, the directors
are required to select suitable accounting policies and apply them consistently
and make judgements and estimates that are reasonable and prudent.
The directors must also state whether applicable accounting standards have
been followed and disclose and explain any material departures in the financial
statements which must be prepared on the going concern basis unless it is
inappropriate to presume that the Group will continue in business. The directors
are responsible for the maintenance of adequate accounting records in compliance
with the Companies Act 1985, for safeguarding the assets of the Group, and for
preventing and detecting fraud and other irregularities.
ANETTE LAWLESS SECRETARY
17 March 1997
16
<PAGE>
REPORT OF THE REMUNERATION COMMITTEE
The committee, which is composed of non-executive directors, is chaired by Sir
Simon Hornby. Other members in 1996 were Dennis Stevenson, Gill Lewis and Reuben
Mark. In view of his forthcoming appointment as chairman, Dennis Stevenson
ceased to be a member of the committee in December 1996.
The terms of reference of the committee are to decide the remuneration and
benefits packages of the executive directors and approve the recommended
remuneration and benefits packages of the chief executives of the main operating
subsidiaries. The committee determines the annual guidelines for executive long-
term incentive plans and recommends the awards to be made under these plans.
The committee also recommends the chairman's remuneration to the board for its
decision.
The committee confirms that the Company has complied throughout the year with
Section A and that it has taken into account Section B annexed to the Listing
Rules of the Stock Exchange.
REMUNERATION POLICY FOR EXECUTIVE DIRECTORS
The committee's policy is designed to attract, retain and motivate high calibre
senior executives through pay and other arrangements which are competitive and
represent best practice, while also relating reward to performance and aligning
the interests of directors and senior management with the interests of
shareholders.
The main components are base salary, an annual cash bonus plan, long-term
incentives and pension benefits. In addition, the Company provides company car
and health care benefits. The Company also provides housing for Marjorie
Scardino, who is a US national. Further details of Marjorie Scardino's
remuneration can be found below table 2 on page 19.
BASE SALARY - the committee aims to set base salaries in the region of the upper
quartile of the range paid to directors and executives in similar positions in
comparable companies, in return for above-average performance. This policy was
established five years ago when annual bonuses, which had previously been
unlimited, were capped. The committee believes salaries should reflect the
experience, responsibilities, effectiveness and market value of the individual
executives concerned.
ANNUAL BONUS - under the annual bonus plan, bonuses of up to 50% of annual base
salary can be earned by reference to performance against financial targets
determined by the committee. The committee may also award individual
discretionary bonuses. Annual bonuses do not form part of pensionable earnings.
In 1996, the bonus target for directors was related to the Company's adjusted
earnings per share and operating cash flow, with the exception of David Bell and
Greg Dyke, part of whose targets were related to the performance of their
individual divisions.
LONG-TERM INCENTIVES
The committee considers that long-term incentive plans align the personal
interests of directors and executives with those of shareholders.
The operation of long-term incentive plans for executives is subject to on-
going review by the committee taking into account legislative and regulatory
developments, particularly with regard to the establishment of performance
conditions and evolving best practice.
SHARE OPTION SCHEMES - the Company operates a UK Inland Revenue approved and two
United States executive share option schemes. The UK scheme was amended in 1996
to allow unapproved options to be granted in addition to options granted within
the new Inland Revenue limit of pound 30,000, but within the normal limit of
four times earnings authorised by shareholders.
Executive options are granted to eligible executives under the 1988 Executive
Share Option Scheme and the 1992 United States Executive Share Option Scheme
based on guidelines established by the committee on the total number of options
which may be granted, the frequency of awards and the progression towards these
maxima.
A `Save As You Earn' share option scheme is also open to all eligible
employees in the UK.
INCENTIVE SHARE PLAN - the incentive share plan (the Plan), first introduced on
the recommendation of the committee in 1993, is designed to reward executives of
the Group in such a way that their total remuneration reflects the relative
performance of the Company in terms of the total return received by shareholders
over the medium to longer term.
Under the Plan, participants are conditionally awarded a certain number of
Pearson shares which are held in an employee share trust for a specified period,
currently three years. At the end of this period, the shares, together with the
dividends on these shares, which are taken in the form of scrip and rolled up,
can be released depending upon the extent to which previously determined
performance conditions, both absolute and in relation to the FTSE 100 index, are
met. For existing awards the maximum release of shares is made if the total
return to Pearson shareholders exceeds the equivalent average FTSE 100 figure by
25% over the period. The performance criteria are reviewed from time to time to
ensure that they remain appropriate. Details of directors' awards under the Plan
are set out in table 6 on page 23 of this report.
To the extent that the Company has provided funds to the trust for the
purchase of shares, provision has been made in the accounts for the costs
associated with the Plan.
17
<PAGE>
REPORT OF THE REMUNERATION COMMITTEE
SERVICE CONTRACTS
All executive directors have agreements which can be terminated by the Company
on 12 months notice, although the earliest expiry date of Marjorie Scardino's
employment is 31 December 1999. The committee considered that this initial fixed
notice period was appropriate and necessary in order to attract her to the
Company as its chief executive. In the event of early termination by the Company
without cause of the service agreements of those directors appointed since
January 1996, the contracts provide for liquidated damages to be payable,
equivalent to 12 months base salary, benefits and a proportion of annual bonus.
In the case of Marjorie Scardino, the amount of liquidated damages payable is
equivalent to 15 months and 18 months base salary, benefits and a proportion of
bonus should her employment be terminated without cause in the first or second
year respectively. The committee feels that these provisions for liquidated
damages are adequate, but not excessive, compensation for loss of office.
NON-EXECUTIVE DIRECTORS' REMUNERATION
Fees for non-executive directors' duties are determined by the full board with
regard to market practice and within the restrictions contained in the articles
of association. Fees are reviewed annually with the help of outside advice. Non-
executive directors receive no other pay or benefits (other than re-imbursement
for expenses incurred in connection with their directorship of the Company) and
do not participate in the Company's share option schemes or incentive share
plan.
Since January 1995, non-executive directors have received an annual fee of
pound 25,000 each. One overseas-based director is paid a supplement of pound
7,000.
PENSION BENEFITS
Michael Blakenham, Frank Barlow, Mark Burrell and James Joll are members of the
non-contributory Pearson Section of the Pearson Group Pension Plan, which is now
closed to new membership.
They are entitled to pensions of two thirds of final base salary at the normal
retirement age of 62 and like all other plan members may retire with company
consent at age 60 without any early retirement reduction. In 1988 (on the
formation of the Pearson Group Pension Plan) all former members of the S.
Pearson & Son Pension Scheme, including Michael Blakenham, James Joll and Mark
Burrell, received pension enhancements equivalent to 40% of accrued service to 1
August 1988. The combined pension benefits are within Inland Revenue limits.
The Company contributed a total of Pound 97,965 in matching the additional
voluntary contributions (AVCs) made by the above directors.
The pensions of James Joll and Frank Barlow are augmented with effect from
their retirement dates of 31 December 1996 (James Joll) and 2 May 1997 (Frank
Barlow). The costs of these augmentations are pound 250,000 for James Joll and
pound 253,333 for Frank Barlow.
David Veit's pension arrangements are based in the United States and $239,967
was allocated in respect of his pension plan in 1996.
David Bell, John Makinson and Greg Dyke are members of the Final Pay Section
of the Pearson Group Pension Plan, which has a member contribution rate of 5% of
pensionable salary. David Bell is eligible for a pension from the plan of two
thirds of final base salary at normal retirement date, due to his transferred
service from the Financial Times. Both John Makinson and Greg Dyke are subject
to the pensions earnings cap introduced by the Finance Act 1989. It is
anticipated that John Makinson will receive a pension of two thirds of capped
salary at normal retirement date (inclusive of benefits transferred from his
previous pension scheme).
John Makinson and Greg Dyke are entitled to supplements of 31.1% and 50% of
annual base salary respectively to compensate them for pension benefits which
cannot be provided from the plan because of the pensions cap regulations.
All the executive directors are also eligible for dependants' pensions and a
lump sum payment on death in service.
Details of directors' pension arrangements are set out in table 3 on page 20
of this report.
<TABLE>
<CAPTION>
Table 1
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
pound pound pound pound pound pound pound
DIRECTORS EMOLUMENTS: 000's 000's 000's 000's 000's 000's 000's
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Base salaries 1,996 1,383 1,270 1,186 1,057 1,007 953
Bonus 173 - 635 593 55 60 -
Three year incentive share plan - 1,687 - - - - -
Other emoluments 945 287 353 392 292 251 224
Fees to non-executive directors 210 224 212 219 141 124 122
TOTAL 3,324 3,581 2,470 2,390 1,545 1,442 1,299
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other emoluments comprised any pension contributions and augmentations,
compensation for early termination of contract and company car and health care
benefits.
The shares awarded in 1993 under the Company's three year incentive share plan
were released on 8 August 1996. The share price on 8 August was lower than the
price reported in the 1995 Directors' Report and Accounts. However, this
decrease was not deemed to be material.
18
<PAGE>
Table 2
REMUNERATION OF THE DIRECTORS:
Excluding contributions to approved pension funds and compensation for early
termination of contract, directors' remuneration was as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1996 3-year 1996 1995 3-year 1995
Salary/fees Bonus Other ISP Total Salary/fees Bonus Other ISP Total*
pound pound pound pound pound pound pound pound pound pound
NAME: 000's 000's 000's 000's 000's 000's 000's 000's 000's 000's
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Executive directors:
Michael Blakenham 315 - 38 - 353 300 - 37 413 750
Frank Barlow 380 - 41 - 421 330 - 40 413 783
David Bell+ 179 12 10 - 201 - - - - -
Mark Burrell 207 - 42 - 249 200 - 42 287 529
Greg Dyke+ 183 100 108 - 391 - - - - -
James Joll 250 - 38 - 288 230 - 37 287 554
John Makinson+ 179 61 16 - 256 - - - - -
David Veit 303 - 10 - 313 323 - 11 287 621
Non-executive directors:
Michel David-Weill 25 - - - 25 25 - - - 25
Pehr Gyllenhammar 25 - - - 25 30 - - - 30
Jean-Claude Haas+ 11 - - - 11 32 - - - 32
Sir Simon Hornby 25 - - - 25 25 25 - - 25
Gill Lewis 25 - - - 25 30 - - - 30
Reuben Mark 32 - - - 32 32 - - - 32
Vernon Sankey 25 - - - 25 25 - - - 25
Dennis Stevenson 25 - - - 25 25 - - - 25
David Verey+ 17 - - - 17 - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*The incentive share plan release relating to the three-year period 1993-1995 is
included in the total 1995 remuneration figure.
+David Bell, Greg Dyke and John Makinson were appointed to the board on 15 March
1996. David Verey became a non-executive director on 3 May 1996. Jean-Claude
Haas retired from the board on 3 May 1996. In the case of David Bell, Greg Dyke
and John Makinson, the emoluments shown relate to the ten-month period from
March to December 1996, with the exception of bonus, which relates to the full
year.
A sum of pound 250,000 was paid to James Joll as compensation for early
termination of his contract, which had a three-year notice period. In addition
his pension was augmented with effect from his retirement date at a capital cost
of pound 250,000.
Marjorie Scardino joined the board and became chief executive on 1 January
1997, at a base salary of pound 396,500, although for pension and bonus
purposes, her salary is deemed to be pound 425,000 (so as to include an element
of the housing benefit referred to below). She received a joining bonus of pound
130,000 in consideration of the loss of potential benefits with her previous
employer. She participates in the annual bonus plan and the incentive share
plan, under which she will be conditionally awarded shares to the value of pound
300,000 in 1997, pound 200,000 in 1998 and pound 200,000 in 1999. Housing is
provided at an initial annual cost to the Company of pound 60,500 and she
receives a pension supplement of 25% of salary to provide for benefits in excess
of the pensions earnings cap.
Dennis Stevenson will receive annual fees of pound 240,000 on becoming
chairman on 2 May 1997. He will also participate in the incentive share plan,
under which he will be conditionally awarded shares to the value of pound
300,000 upon appointment and pound 200,000 one year later, each vesting over
five years. Dennis Stevenson's fees for 1996 were paid to SRU Limited.
Frank Barlow was the highest paid director in 1996. His total remuneration,
including pension contributions, amounted to pound 421,346. The chairman's total
remuneration, including pension contributions, amounted to pound 352,979.
19
<PAGE>
REPORT OF THE REMUNERATION COMMITTEE
<TABLE>
<CAPTION>
Table 3
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in
Accrued pension accrued pension
Years of 31.12.95* 31.12.96 over the period
pensionable pound pound pound
DIRECTORS' PENSIONS: service 000's pa 000's pa 000's pa
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael Blakenham 31 231.1 248.7 17.6
Frank Barlow 29 216.9 250.1 33.2
David Bell 24 91.6 95.6 4.0
Mark Burrell 34 157.4 166.3 8.9
Greg Dyke 2 1.2 2.3 1.1
James Joll 17 185.0 205.6 20.6
John Makinson 3 5.7 7.1 1.4
David Veit 35 116.8 128.2 11.4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Or date of director's appointment, if later.
The accrued pension figures in the above table relate only to the normal
entitlements (excluding the effect of augmentations and supplements paid to
`capped' directors) from the Pearson Group Pension Plan in respect of each of
the directors other than David Veit, whose pension arrangements are based in the
United States.
For further information relating to pensions generally, please refer to page
18 of this report.
20
<PAGE>
<TABLE>
<CAPTION>
Table 4
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum number
of shares in lieu of
Options Incentive share plan+- adjustment on
INTERESTS OF Ordinary shares Ordinary shares Ordinary shares Royal Doulton
DIRECTORS WERE: 31.12.96* 1.1.96** 31.12.96* 1.1.96** 31.12.96* 1.1.96** Demerger
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael Blakenham 138,214 101,580 417,454 417,454 31,926 72,919 12,908
(non beneficial) 129,040 129,040 - - - - -
Frank Barlow 38,750 6,939 419,794 419,794 25,107 72,919 11,235
David Bell 9,303 8,348 111,156 85,469 6,790 6,620 628
Mark Burrell 791,674 1,032,504 283,339 282,799 15,222 50,276 9,840
(non beneficial) 65,040 65,040 - - - - -
Michel David-Weill+ 48,129,727 48,129,727 - - - - -
Greg Dyke - - 106,900 73,300 6,790 6,620 -
Pehr Gyllenhammar - - - - - - -
Jean-Claude Haas 29,537 29,537 - - - - -
Sir Simon Hornby 4,000 4,000 - - - - -
James Joll 25,494 2,093 155,846 155,847 9,160 50,276 4,541
Gill Lewis - - - - - - -
John Makinson 1,000 - 103,784 68,000 - - -
Reuben Mark 7,600 7,600 - - - - -
Vernon Sankey - - - - - - -
Dennis Stevenson 38,000 8,000 - - - - -
David Veit 253,602 107,712 245,380 348,869 31,892 50,276 -
David Verey - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+Mr David-Weill's interests include 48,088,523 ordinary shares owned by
companies associated with Lazard Freres et Cie., Paris.
*Or date of retirement, if earlier.
**Or date of appointment, if later.
++A full explanation of this plan is given on page 17. The number of shares
shown represents the maximum number of shares, plus accumulated scrip dividend
shares, comprised in the original award which may be transferred to the
individual concerned.
Executive directors of the Company, as possible beneficiaries, are also deemed
to be interested in the Pearson Employee Share Trust, the trustee of which held
149,933 Pearson ordinary shares of 25 pence each at 31 December 1996 and 148,395
ordinary shares at 17 March 1997, the latest practicable date prior to the
printing of this report.
Marjorie Scardino was appointed to the board with effect from 1 January 1997,
at which date she had no interests in Pearson securities. On 16 January 1997,
she acquired 10,000 ordinary shares of 25 pence each in the Company. Also on 16
January 1997, John Makinson acquired a further 2,000 ordinary shares of 25 pence
each, taking his total holding to 3,000 shares.
21
<PAGE>
REPORT OF THE REMUNERATION COMMITTEE
<TABLE>
<CAPTION>
Table 5
- -------------------------------------------------------------------------------------------------------------------
Options Exercise Market price* OPTIONS
MOVEMENTS IN DIRECTORS' Date of held price Options Options on day of HELD AT
INTERESTS IN SHARE OPTIONS Grant at 1.1.96 (pence)+ granted exercised exercise 31.12.96
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael Blakenham 21.04.89 150,000 353 - - - 150,000
UK Executive 24.04.90 220,000 329 - - - 220,000
06.05.94 4,300 635 - - - 4,300
20.04.95 39,400 545 - - - 39,400
SAYE 04.10.91 3,754 299 - - - 3,754
- -------------------------------------------------------------------------------------------------------------------
417 454 417,454
- -------------------------------------------------------------------------------------------------------------------
Frank Barlow
UK Executive 21.04.89 100,000 353 - - - 100,000
24.04.90 220,000 329 - - - 220,000
06.05.94 63,900 635 - - - 63,900
20.04.95 29,800 545 - - - 29,800
SAYE 04.10.91 3,754 299 - - - 3,754
08.10.92 1,549 242 - - - 1,549
19.05.95 791 436 - - - 791
- -------------------------------------------------------------------------------------------------------------------
419,794 419,794
- -------------------------------------------------------------------------------------------------------------------
David Bell 06.05.94 50,000 635 - - - 50,000
UK Executive 24.04.95 29,300 545 - - - 29,300
08.08.96 - 654 26,500 - - 26,500
SAYE 12.10.90 1,409 265 - 1,409 728 -
04.10.91 1,250 299 - - - 1,250
08.10.92 2,324 242 - - - 2,324
19.05.95 1,186 436 - - - 1,186
23.05.96 - 578 596 - - 596
- -------------------------------------------------------------------------------------------------------------------
85,469 111,156
- -------------------------------------------------------------------------------------------------------------------
Mark Burrell 21.04.89 100,000 353 - - - 100,000
UK Executive 24.04.90 180,000 329 - - - 180,000
SAYE 04.10.91 1,250 299 - 1,250 711 -
08.10.92 1,549 242 - - - 1,549
23.05.96 - 578 1,790 - - 1,790
- -------------------------------------------------------------------------------------------------------------------
282,799 283,339
- -------------------------------------------------------------------------------------------------------------------
Greg Dyke 20.04.95 73,300 545 - - - 73,300
UK Executive 08.08.96 - 654 33,600 - - 33,600
- -------------------------------------------------------------------------------------------------------------------
73,300 106,900
- -------------------------------------------------------------------------------------------------------------------
James Joll 24.04.90 120,000 329 - 1 717 119,999
UK Executive 06.05.94 2,400 635 - - - 2,400
20.04.95 25,700 545 - - - 25,700
SAYE 08.10.92 7,747 242 - - - 7,747
- -------------------------------------------------------------------------------------------------------------------
155,847 155,846
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Table 5 continued
- -------------------------------------------------------------------------------------------------------------------
Options Exercise Market price* OPTIONS
MOVEMENTS IN DIRECTORS' Date of held price Options Options on day of HELD AT
INTERESTS IN SHARE OPTIONS Grant at 1.1.96 (pence)+ granted exercised exercise 31.12.96
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John Makinson 06.05.94 50,000 635 - - - 50,000
UK Executive 20.04.95 18,000 545 - - - 18,000
08.08.96 - 654 32,800 - - 32,800
SAYE 23.05.96 - 578 2,984 - - 2,984
- -------------------------------------------------------------------------------------------------------------------
68,000 103,784
- -------------------------------------------------------------------------------------------------------------------
David Veit 21.04.89 103,489 341 - 103,489 661 -
US Executive 24.04.90 103,489 317 - - - 103,489
11.05.90 82,791 334 - - - 82,791
20.04.95 59,100 545 - - - 59,100
- -------------------------------------------------------------------------------------------------------------------
348,869 245,380
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
+The exercise prices have been rounded down to the nearest whole penny for ease
of reference.
*Mid-market quotation at close of business on the date of exercise, rounded down
to the nearest whole penny.
No options lapsed during the year. The mid-market price of the shares at 31
December 1996 was 749p and the range during 1996 was 601p to 760p.
Outstanding UK executive options become exercisable on the third anniversary
of the grant and lapse if they remain unexercised after the tenth.
Outstanding US executive options granted before May 1990 became exercisable on
the third anniversary of the grant and lapse if they remain unexercised after
the seventh. Options granted from May 1990 onwards become exercisable on the
third anniversary of the grant and lapse if they remain unexercised after the
tenth.
SAYE options become exercisable on the fifth or seventh anniversary of the
grant and lapse if not exercised within six months of that anniversary.
In all the above cases, special rules apply if a director ceases to be
employed by the Company.
<TABLE>
<CAPTION>
Table 6
- -------------------------------------------------------------------------------------------------------------------
Maximum
conditional
MOVEMENTS IN No. of awards in No. of Market NO. OF
DIRECTORS' INTERESTS shares 1996 including shares No. of price on SHARES
UNDER THE INCENTIVE outstanding scrip dividend vested and shares date of OUTSTANDING
SHARE PLAN at 1.1.96* on Plan shares+ released lapsed release AT 31.12.96
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael Blakenham 72,919 19,139 60,132 - 648p 31,926
Frank Barlow 72,919 12,320 60,132 - 648p 25,107
David Bell 6,620 170 - - - 6,790
Mark Burrell 50,276 6,705 41,759 - 648p 15,222
Greg Dyke 6,620 170 - - - 6,790
James Joll 50,276 643 41,759 - 648p 9,160
John Makinson - - - - - -
David Veit 50,276 23,375 41,759 - 648p 31,892
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
*Or the date of appointment, if later.
+The award as stated is the maximum number of shares which may vest, subject to
various performance conditions as described on page 17 being fulfilled.
23
<PAGE>
REPORT OF THE AUDITORS ON CORPORATE GOVERNANCE MATTERS
TO THE DIRECTORS OF PEARSON PLC
In addition to our audit of the financial statements we have reviewed your
statements in the Directors' Report on pages 14 and 15 concerning the Group's
compliance with the paragraphs of the Cadbury Code of Best Practice specified
for our review by the London Stock Exchange and the adoption of the going
concern basis in preparing the financial statements. The objective of our review
is to draw attention to non-compliance with Listing Rules 12.43(j) and 12.43(v),
if not otherwise disclosed.
BASIS OF OPINION
We carried out our review having regard to guidance issued by the Auditing
Practices Board. That guidance does not require us to perform the additional
work necessary to, and we do not, express any opinion on the effectiveness of
either the Group's system of internal financial control or corporate governance
procedures nor on the ability of the Group to continue in operational existence.
OPINION
In our opinion, your statements on internal financial control and on going
concern on pages 14 and 15 have provided the disclosures required by the Listing
Rules referred to above and are consistent with the information which came to
our attention as a result of our audit work on the financial statements.
In our opinion, based on enquiry of certain directors and officers of the
Company and examination of relevant documents, your statement on page 14
appropriately reflects the Group's compliance with the other aspects of the Code
specified for our review by Listing Rule 12.43(j).
PRICE WATERHOUSE
Chartered Accountants
London, 17 March 1997
REPORT OF THE AUDITORS TO THE MEMBERS OF PEARSON PLC
We have audited the financial statements on pages 25 to 57 (including the
additional disclosures on pages 17 to 23 relating to the remuneration of the
directors of Pearson plc specified for our review by the London Stock Exchange)
which have been prepared under the historical cost convention and the accounting
policies set out on pages 29 and 30.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 16, the Company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the Company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and the Group at 31 December 1996 and of the profit
and cash flows of the Group for the year then ended and have been properly
prepared in accordance with the Companies Act 1985.
PRICE WATERHOUSE
Chartered Accountants and Registered Auditors
London, 17 March 1997
24
<PAGE>
Financial statements
Consolidated Profit and Loss Account
for the year ended 31 December 1996
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
________________________________ 1996 ______________ ________________________ 1995 ________________
OPERATING OTHER Operating Other
ACTIVITIES ITEMS TOTAL activities items Total
Notes POUNDS MILLION POUNDS MILLION POUNDS MILLION Pounds million Pounds million Pounds million
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SALES
Continuing operations 1,845.9 -- 1,845.9 1,687.1 -- 1,687.1
Acquisitions 203.0 -- 203.0 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
2,048.9 -- 2,048.9 1,687.1 -- 1,687.1
Discontinued operations 137.1 -- 137.1 143.3 -- 143.3
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SALES 2 2,186.0 -- 2,186.0 1,830.4 -- 1,830.4
Cost of sales 3 (1,064.1) -- (1,064.1) (939.7) -- (939.7)
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 1,121.9 -- 1,121.9 890.7 -- 890.7
Net operating expenses - normal 3 (853.3) -- (853.3) (627.7) -- (627.7)
Net operating expenses -
exceptional 3 (40.4) (100.0) (140.4) (46.7) -- (46.7)
Net income from partnerships and
associated undertakings 11 53.1 -- 53.1 43.3 -- 43.3
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT
Continuing operations 219.9 (100.0) 119.9 237.6 -- 237.6
Acquisitions 26.1 -- 26.1 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
246.0 (100.0) 146.0 237.6 -- 237.6
Discontinued operations 35.3 -- 35.3 22.0 -- 22.0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING PROFIT 2 281.3 (100.0) 181.3 259.6 -- 259.6
Continuing operations:
Profit/(loss) on sale of fixed
assets 4 -- (14.1) (14.1) -- 123.4 123.4
Profit/(loss) on sale of
businesses 5 -- (1.9) (1.9) -- 6.0 6.0
Discontinued operations:
Profit on sale of Westminster
Press 5 -- 231.3 231.3 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
PROFIT BEFORE INTEREST 281.3 115.3 396.6 259.6 129.4 389.0
NET INTEREST PAYABLE 6 (29.5) -- (29.5) (23.9) -- (23.9)
Loan stock redemption premium 6 -- (10.3) (10.3) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
PROFIT BEFORE TAXATION 251.8 105.0 356.8 235.7 129.4 365.1
Taxation 7 (72.6) (36.0) (108.6) (64.8) (28.0) (92.8)
- ------------------------------------------------------------------------------------------------------------------------------------
PROFIT AFTER TAXATION 179.2 69.0 248.2 170.9 101.4 272.3
Equity minority interests (7.7) -- (7.7) (11.3) -- (11.3)
- ------------------------------------------------------------------------------------------------------------------------------------
PROFIT FOR THE FINANCIAL YEAR 171.5 69.0 240.5 159.6 101.4 261.0
DIVIDENDS ON EQUITY SHARES 8 (102.7) -- (102.7) (91.8) -- (91.8)
- ------------------------------------------------------------------------------------------------------------------------------------
PROFIT RETAINED 22 68.8 69.0 137.8 67.8 101.4 169.2
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
ADJUSTED EARNINGS/
TOTAL EARNINGS PER EQUITY SHARE 30.6 pence 12.3 pence 42.9 pence 28.8 pence 18.3 pence 47.1 pence
- ------------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS PER EQUITY SHARE 18.0 pence -- 18.0 pence 16.5 pence -- 16.5 pence
- ------------------------------------------------------------------------------------------------------------------------------------
Average number of shares (millions) 560.8 560.8 560.8 554.4 554.4 554.4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In order to show results from operating activities an adjusted earnings per
equity share has been calculated which excludes profits on the sale of fixed
assets and businesses (see notes 4 and 5), the loan stock redemption premium
(see note 6), the Pounds 100 million charge for improper accounting at Penguin
USA (see note 2) and the tax consequences of these items.
25
<PAGE>
Financial statements
Consolidated Balance Sheet
as at 31 December 1996
<TABLE>
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995
Notes POUNDS MILLION Pounds million
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets 10 484.0 530.1
Investments:
Partnerships and associated undertakings 11 182.6 167.3
Other 12 242.0 228.2
- ---------------------------------------------------------------------------------------------------------
908.6 925.6
- ---------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Stocks 13 360.7 289.9
Debtors 14 669.8 672.0
Investments 15 7.9 8.3
Cash and liquid funds 16 299.0 672.0
- ---------------------------------------------------------------------------------------------------------
1,337.4 1,642.2
- ---------------------------------------------------------------------------------------------------------
Creditors - amounts falling due within one year:
Short-term borrowing 17 (174.2) (261.0)
Other creditors 18 (919.8) (826.7)
- ---------------------------------------------------------------------------------------------------------
(1,094.0) (1,087.7)
- ---------------------------------------------------------------------------------------------------------
NET CURRENT ASSETS 243.4 554.5
- ---------------------------------------------------------------------------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 1,152.0 1,480.1
Creditors - amounts falling due after more than one year:
Medium and long-term borrowing 17 (555.2) (474.4)
Other creditors 18 (15.1) (15.9)
- ---------------------------------------------------------------------------------------------------------
(570.3) (490.3)
Deferred taxation 19 (30.3) (0.6)
Other provisions for liabilities and charges 20 (159.1) (133.8)
- ---------------------------------------------------------------------------------------------------------
Net assets 392.3 855.4
- ---------------------------------------------------------------------------------------------------------
CAPITAL AND RESERVES
Called up share capital 21 142.8 139.1
Share premium account 22 129.5 48.7
Revaluation reserve 22 5.4 6.9
Other reserves 22 1.2 1.4
Profit and loss account 22 109.7 637.1
- ---------------------------------------------------------------------------------------------------------
EQUITY SHAREHOLDERS' FUNDS 388.6 833.2
EQUITY MINORITY INTERESTS 3.7 22.2
- ---------------------------------------------------------------------------------------------------------
392.3 855.4
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The financial statements were approved by the board of directors on 17 March
1997 and signed on its behalf by
BLAKENHAM
J MAKINSON
26
<PAGE>
Financial statements
Consolidated Statement of Cash Flows
for the year ended 31 December 1996
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
1996 1995
restated
Notes POUNDS MILLION Pounds million
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES 25 291.2 236.4
- -----------------------------------------------------------------------------------------------------------------------------
Interest received 45.6 37.7
Interest paid (76.0) (67.7)
Dividends paid to minority interests (6.1) (10.8)
- -----------------------------------------------------------------------------------------------------------------------------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (36.5) (40.8)
- -----------------------------------------------------------------------------------------------------------------------------
TAXATION (80.8) (69.7)
- -----------------------------------------------------------------------------------------------------------------------------
Purchase of tangible fixed assets (89.8) (100.2)
Sale of tangible fixed assets 13.2 40.2
Purchase of investments (33.5) (132.1)
Sale of investments 53.7 633.9
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (56.4) 441.8
- -----------------------------------------------------------------------------------------------------------------------------
Purchase of subsidiary undertakings (697.9) (359.8)
Net cash acquired with subsidiary undertakings 4.5 8.6
Purchase of associated undertakings (36.0) (57.1)
Sale of businesses 307.2 3.9
Net cash disposed with subsidiary undertakings (5.5) (1.1)
- -----------------------------------------------------------------------------------------------------------------------------
ACQUISITIONS AND DISPOSALS 23/24 (427.7) (405.5)
- -----------------------------------------------------------------------------------------------------------------------------
EQUITY DIVIDENDS PAID (96.0) (86.3)
- -----------------------------------------------------------------------------------------------------------------------------
Cash (outflow)/inflow before management of liquid resources and financing (406.2) 75.9
Disposal/(purchase) of asset backed securities 204.1 (172.7)
Liquid resources acquired (65.1) (304.3)
Liquid resources disposed 212.4 252.0
- -----------------------------------------------------------------------------------------------------------------------------
MANAGEMENT OF LIQUID RESOURCES 25 351.4 (225.0)
- -----------------------------------------------------------------------------------------------------------------------------
Issue of equity share capital 14.1 11.8
Loan stock redemption premium (10.3) --
Capital element of finance lease rentals (1.1) (1.7)
US medium term notes - repayable 1999 157.8 --
Net movement in other borrowings (138.9) 256.6
- -----------------------------------------------------------------------------------------------------------------------------
FINANCING 21.6 266.7
- -----------------------------------------------------------------------------------------------------------------------------
(DECREASE)/INCREASE IN CASH IN THE YEAR 25 (33.2) 117.6
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Financial statements
Statement of Total Recognised Gains and Losses
for the year ended 31 December 1996
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
1996 1995
POUNDS MILLION Pounds million
- --------------------------------------------------------------------------------
<S> <C> <C>
Profit for the financial year 240.5 261.0
Other net gains and losses recognised
in reserves:
Unrealised surplus on revaluations -- 2.0
Exchange translation effect on:
Profit for the financial year (0.4) 1.8
Foreign currency net assets (35.5) 5.7
- --------------------------------------------------------------------------------
(35.9) 9.5
- --------------------------------------------------------------------------------
TOTAL RECOGNISED GAINS AND LOSSES RELATING TO
THE YEAR 204.6 270.5
- --------------------------------------------------------------------------------
</TABLE>
Note of Historical Cost Profits and Losses
for the year ended 31 December 1996
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
1996 1995
POUNDS MILLION Pounds million
- --------------------------------------------------------------------------------
<S> <C> <C>
Reported profit before taxation 356.8 365.1
Realisation of fixed investment revaluations -- 458.3
Realisation of property revaluations (1.2) 0.9
- --------------------------------------------------------------------------------
Historical cost profit on ordinary activities
before taxation 355.6 824.3
- --------------------------------------------------------------------------------
Deferred tax on fixed investment revaluations -- (150.8)
- --------------------------------------------------------------------------------
HISTORICAL COST PROFIT RETAINED AFTER TAXATION,
EQUITY MINORITY INTERESTS AND DIVIDENDS 136.6 477.6
- --------------------------------------------------------------------------------
</TABLE>
Reconciliation of Movements in Equity Shareholders' Funds
for the year ended 31 December 1996
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
1996 1995
POUNDS MILLION Pounds million
- --------------------------------------------------------------------------------
<S> <C> <C>
Profit for the financial year 240.5 261.0
Dividends on equity shares (102.7) (91.8)
- --------------------------------------------------------------------------------
137.8 169.2
Other net recognised gains and losses
relating to the year (see above) (35.9) 9.5
Goodwill arising (632.4) (393.4)
Goodwill written back 1.4 --
Shares issued 84.5 11.8
- --------------------------------------------------------------------------------
Net movement for the year (444.6) (202.9)
Equity shareholders' funds at
beginning of year 833.2 1,036.1
- --------------------------------------------------------------------------------
EQUITY SHAREHOLDERS' FUNDS AT END OF YEAR 388.6 833.2
- --------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
Financial statements
Notes to the Accounts
1 ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Accounting policies have been consistently applied. FRS 1 (Revised 1996) "Cash
Flow Statements" has been adopted early and comparative figures, including
associated notes, have been restated. FRS 8 "Related Party Disclosures" has been
adopted. Comparative figures in the profit and loss account have been restated
to reflect the revised presentation of results. Balance sheet presentation has
been restated to show advance corporation tax recoverable in debtors rather than
in deferred taxation.
A BASIS OF ACCOUNTING
The accounts are prepared under the historical cost convention, modified by the
revaluation of certain land and buildings and investments, and in accordance
with applicable accounting standards. A summary of the significant accounting
policies is set out below.
B BASIS OF CONSOLIDATION
(i) The consolidated accounts include the accounts of all subsidiary
undertakings made up to 31 December. Where companies have become or
ceased to be subsidiary or associated undertakings during the year the
Group profit includes profits for the period during which they were
subsidiary or associated undertakings.
(ii) Goodwill - Goodwill, being either the net excess of the cost of shares
in subsidiary undertakings, partnerships and associated undertakings
over the value attributable to their net tangible assets on acquisition
or the cost of other goodwill by purchase, is deducted from reserves in
the year of acquisition. On disposal or closure, goodwill previously
charged to reserves is written back and the profit or loss is adjusted
accordingly.
(iii) Partnerships and associated undertakings - The profit of the Group
includes the Group's share of the profit of partnerships and associated
undertakings, and the consolidated balance sheet includes the Group's
interest in partnerships and associated undertakings at the book value
of attributable net tangible assets. The figures included in the
financial statements have been based on audited accounts, adjusted where
necessary by reference to unaudited management accounts for the
subsequent period to 31 December.
C SALES
Sales represent amounts invoiced during the period, net of valued added tax and
other sales taxes, and excluding trade discounts, to external customers and
associated undertakings for the provision of goods and services.
D FOREIGN CURRENCIES
Profit and loss accounts in overseas currencies are translated into sterling at
weighted average rates. Balance sheets are translated into sterling at the rates
ruling at 31 December. Exchange differences arising on consolidation are taken
directly to reserves. Other exchange differences are taken to the profit and
loss account where they relate to trading transactions and directly to reserves
where they relate to investments. The principal overseas currencies for the
Group affecting these translations are the US dollar and the Spanish peseta. The
weighted average rates for the year against sterling were $1.58 and Pts 199.6
(1995: $1.57 and Pts 194.9) and the year end rates were $1.71 and Pts 222.6
(1995: $1.55 and Pts 188.4).
E PENSION COSTS
The regular pension cost of the Group's defined benefit pension schemes is
charged to the profit and loss account in order to apportion the cost of
pensions over the service lives of employees in the schemes. Variations arising
from a significant reduction in the number of employees are adjusted in the
profit and loss account to the extent that the year's regular pension cost,
reduced by other variations, exceeds contributions payable for that year. Other
variations are apportioned over the expected service lives of current employees
in the schemes.
F POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
Post-retirement benefits other than pensions are accounted for on an accruals
basis to recognise this obligation over the expected working lives of the
employees concerned.
G CHANNEL 5
The Group's share of certain Channel 5 initial costs will be amortised by the
end of the 10 year licence period. The Group's share of other profits and losses
is being equity accounted.
29
<PAGE>
Financial statements
Notes to the Accounts
1 ACCOUNTING POLICIES continued
- --------------------------------------------------------------------------------
H TANGIBLE FIXED ASSETS
The cost or subsequent valuation of tangible fixed assets other than freehold
land and investment properties is depreciated over estimated economic lives in
equal annual amounts at the rates indicated in note 10.
I LEASES
Finance lease rentals are capitalised at the total amount of rentals payable
under the leasing agreement (excluding finance charges) and depreciated in
accordance with policy H above. Finance charges are written off over the period
of the lease in reducing amounts in relation to the written down carrying cost.
Operating lease rentals are written off as incurred.
J FIXED ASSET INVESTMENTS
Fixed asset investments are stated at cost less provisions for diminution in
value, or as revalued by the directors.
K STOCKS
Stocks and work in progress are valued at the lower of cost and net realisable
value, after deducting progress payments. Stocks and work in progress include
direct costs incurred in the development of product prior to its publication
which are amortised over their estimated economic lives not exceeding four
years.
L DEFERRED TAXATION
Deferred taxation is provided, using the liability method, at the expected
applicable rates, on all timing differences between accounting and taxation
treatments, including those arising from the revaluation of fixed assets, which
are expected to reverse in the foreseeable future. Deferred taxation relief is
accounted for in full on long-term timing differences in respect of provisions
for unfunded retirement benefits.
M CAPITAL INSTRUMENTS
Capital instruments are included at cost, adjusted for discount accretion or
premium amortisation where the intention is to hold them to maturity. Interest
receivable thereon and the premium or discount where relevant is taken to the
profit and loss account so as to produce a constant rate of return over the
period to the date of expected redemption.
Forward foreign exchange contracts and other off-balance sheet instruments
are valued at the market prices prevailing at the balance sheet date.
Borrowing is classified according to the maturity date of the respective
individual holdings.
N LIQUID RESOURCES
Liquid resources comprise short-term deposits of less than one year and
investments which are readily realisable and held on a short-term basis.
O RETAINED PROFITS OF OVERSEAS SUBSIDIARY AND
ASSOCIATED UNDERTAKINGS
No provision is made for any additional taxation, less double taxation relief,
which would arise on the remittance of profits retained.
30
<PAGE>
Financial statements
Notes to the Accounts
2(a) ANALYSIS OF SALES AND OPERATING PROFIT
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
---------- Sales ------------ ----------------------- Operating profit ----------------------
BEFORE AFTER Before After
EXCEPTIONAL EXCEPTIONAL exceptional exceptional
ITEMS ITEMS items items
1996 1995 1996 1996 1995 1995
BUSINESS SECTORS POUNDS MILLION Pounds million POUNDS MILLION POUNDS MILLION Pounds million Pounds million
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Information 691.6 615.8 108.3 99.1 95.0 83.3
Education 554.3 358.9 83.7 68.1 33.9 31.8
Entertainment 803.0 712.4 65.1 (47.5) 116.7 110.9
Investment Banking -- -- 40.8 40.8 39.9 39.9
Corporate expenses less
other income -- -- (12.3) (14.5) (6.9) (28.3)
- ---------------------------------------------------------------------------------------------------------------------------------
Continuing operations 2,048.9 1,687.1 285.6 146.0 278.6 237.6
Discontinued operations 137.1 143.3 36.1 35.3 27.7 22.0
- ---------------------------------------------------------------------------------------------------------------------------------
2,186.0 1,830.4 321.7 181.3 306.3 259.6
- ---------------------------------------------------------------------------------------------------------------------------------
GEOGRAPHICAL MARKETS SUPPLIED
UK 601.4 544.0 90.7 80.7 112.9 89.1
Continental Europe 419.4 351.6 73.4 71.5 72.1 69.9
North America 798.3 591.4 96.6 (30.5) 76.1 63.2
Asia Pacific 185.2 163.0 20.6 20.0 11.3 9.2
Rest of World 44.6 37.1 4.3 4.3 6.2 6.2
- ---------------------------------------------------------------------------------------------------------------------------------
Continuing operations 2,048.9 1,687.1 285.6 146.0 278.6 237.6
Discontinued operations 137.1 143.3 36.1 35.3 27.7 22.0
- ---------------------------------------------------------------------------------------------------------------------------------
2,186.0 1,830.4 321.7 181.3 306.3 259.6
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exceptional items comprise restructuring costs for both 1995 and 1996 (see
below) and the Pounds 100 million charge to profits in 1996 arising from
improper accounting at Penguin USA. Entertainment profits in 1996 include
BSkyB/BSBH income of Pounds 2.4 million (1995: Pounds 32.5 million).
Discontinued operations relate to the withdrawal of the Group from the UK
regional newspaper business upon its disposal of Westminster Press in December
1996. Prior year figures have been restated to seperately identify discontinued
operations.
Analyses of the profits of partnerships and associated undertakings are
shown in note 11.
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995
RESTRUCTURING COSTS POUNDS MILLION Pounds million
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Post acquisition:
HarperCollins Educational 15.0 --
Putnam Berkley 4.4 --
Grundy -- 2.0
Mindscape 5.4 --
Shared Services initiative -- 16.7
Financial Times cost cutting measures (including the closure of the Financial Times
printing facility at East India Dock in 1995) 5.8 7.9
Cost cutting measures at Westminster Press 0.8 5.7
Other 9.0 14.4
- ---------------------------------------------------------------------------------------------------------------------------------
40.4 46.7
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
Financial statements
Notes to the Accounts
2(a) ANALYSIS OF SALES AND OPERATING PROFIT CONTINUED
- --------------------------------------------------------------------------------
The table on page 31 shows sales and operating profit analysed by the
destination to which products and services are supplied. The table below
analyses sales by the geographic region from which the products and services
originate. Inter-regional sales are those made between the Group companies in
different regions.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
------ Total by source ------- ------- Inter-regional ------- ----------- Sales ------------
1996 1995 1996 1995 1996 1995
GEOGRAPHICAL SOURCE OF SALES POUNDS MILLION Pounds million POUNDS MILLION Pounds million POUNDS MILLION Pounds million
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Continuing operations:
UK 822.7 754.2 (51.2) (51.6) 771.5 702.6
Continental Europe 330.2 284.6 (9.0) (11.8) 321.2 272.8
North America 820.8 599.1 (20.0) (12.6) 800.8 586.5
Asia Pacific 149.0 123.3 (4.4) (5.6) 144.6 117.7
Rest of World 10.9 7.5 (0.1) -- 10.8 7.5
- ------------------------------------------------------------------------------------------------------------------------------------
2,133.6 1,768.7 (84.7) (81.6) 2,048.9 1,687.1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2(b) ANALYSIS OF CAPITAL EMPLOYED
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-------- Capital employed --------
1996 1995
Business Sectors POUNDS MILLION Pounds million
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Information 142.7 156.6
Education 354.3 260.9
Entertainment 454.5 470.2
Investment Banking 113.9 122.1
Corporate expenses less other income (53.3) (22.1)
- ------------------------------------------------------------------------------------------------------------------------------------
Continuing operations 1,012.1 987.7
Discontinued operations -- 65.5
- ------------------------------------------------------------------------------------------------------------------------------------
1,012.1 1,053.2
- ------------------------------------------------------------------------------------------------------------------------------------
LOCATION OF CAPITAL EMPLOYED
UK 342.4 299.8
Continental Europe 106.6 105.8
North America 411.4 423.6
Asia Pacific 144.2 150.6
Rest of World 7.5 7.9
- ------------------------------------------------------------------------------------------------------------------------------------
Continuing operations 1,012.1 987.7
Discontinued operations -- 65.5
- ------------------------------------------------------------------------------------------------------------------------------------
1,012.1 1,053.2
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
RECONCILIATION OF CAPITAL EMPLOYED TO NET ASSETS POUNDS MILLION Pounds million
- ------------------------------------------------------------------------------------------------------------------------------------
Capital employed 1,012.1 1,053.2
Less: deferred taxation (30.3) (0.6)
other provisions (159.1) (133.8)
net debt (430.4) (63.4)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets 392.3 855.4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
Financial statements
Notes to the Accounts
3 ANALYSIS OF CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CONTINUING DISCONTINUED TOTAL Continuing Discontinued Total
1996 1996 1996 1995 1995 1995
POUND MILLION POUND MILLION POUND MILLION Pound million Pound million Pound million
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COST OF SALES (982.0) (82.1) (1,064.1) (850.4) (89.3) (939.7)
- ------------------------------------------------------------------------------------------------------------------------------------
Distribution costs (114.3) (12.5) (126.8) (105.9) (16.9) (122.8)
Administration and other expenses (932.6) (8.9) (941.5) (641.2) (17.6) (658.8)
Other operating income (see below) 72.9 1.7 74.6 104.7 2.5 107.2
- ------------------------------------------------------------------------------------------------------------------------------------
NET OPERATING EXPENSES (974.0) (19.7) (993.7) (642.4) (32.0) (674.4)
- ------------------------------------------------------------------------------------------------------------------------------------
Analysed as:
Net operating expenses - normal (834.4) (18.9) (853.3) (601.4) (26.3) (627.7)
- exceptional expense (139.6) (0.8) (140.4) (41.0) (5.7) (46.7)
- ------------------------------------------------------------------------------------------------------------------------------------
NET OPERATING EXPENSES (974.0) (19.7) (993.7) (642.4) (32.0) (674.4)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following amounts relating to acquisitions included in the 1996 totals are:
cost of sales Pound 8.2 million and net operating expenses of Pound 88.7
million. The exceptional expense of Pound 140.4 million is included in
administration and other expenses in 1996 which comprises restructuring costs
and the Pound 100 million Penguin USA charge for improper accounting (see
note 2).
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
OTHER OPERATING INCOME POUND MILLION Pound million
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income from other investments:
Listed 2.9 2.3
Unlisted 8.5 8.5
BSkyB dividend -- 5.2
BSBH loan stock interest 2.4 27.3
Other operating income (mainly royalties, rights and commission income) 60.8 63.9
- ------------------------------------------------------------------------------------------------------------------------------------
74.6 107.2
- ------------------------------------------------------------------------------------------------------------------------------------
PROFIT BEFORE TAXATION IS ARRIVED AT AFTER CHARGING:
Depreciation 63.2 61.5
Operating lease rentals:
Plant and machinery 16.5 13.8
Properties 32.7 29.3
Auditors' remuneration:
Audit (Company Pound 0.1 million; 1995: Pound 0.1 million) 1.6 2.2
Non-audit - UK (Company Pound nil; 1995: Pound nil) 0.4 0.9
- Other 0.2 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
Financial statements
NOTES TO THE ACCOUNTS
<TABLE>
<CAPTION>
4 PROFIT/(LOSS) ON SALE OF FIXED ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
POUND MILLION Pound million
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONTINUING OPERATIONS:
Loss on fixed assets at East India Dock (8.0) (24.9)
Net (loss)/profit on other investments and property interests (6.1) 5.6
Sale of direct investment in BSkyB and redemption of BSBH loan stock -- 133.3
Sale of investment in Yorkshire-Tyne Tees Television (YTTV) -- 9.4
- ------------------------------------------------------------------------------------------------------------------------------------
(14.1) 123.4
- ------------------------------------------------------------------------------------------------------------------------------------
5 PROFIT/(LOSS) ON SALE OF BUSINESSES
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
POUND MILLION Pound million
- ------------------------------------------------------------------------------------------------------------------------------------
CONTINUING OPERATIONS:
Other (1.9) 6.0
- ------------------------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS:
Sale of Westminster Press (see note 24) 231.3 --
- ------------------------------------------------------------------------------------------------------------------------------------
6 NET INTEREST PAYABLE
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
POUND MILLION Pound million
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST PAYABLE:
On borrowing repayable wholly within five years not by instalments (18.4) (18.0)
On borrowing repayable wholly or partly after five years (52.2) (51.3)
Partnerships and associated undertakings (0.3) --
Finance lease charges (0.1) (0.2)
Interest capitalised 0.2 2.0
- ------------------------------------------------------------------------------------------------------------------------------------
(70.8) (67.5)
INTEREST RECEIVABLE:
On deposits and liquid funds 38.8 41.1
Amortisation of swap proceeds (see note 18) 2.5 2.5
- ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST PAYABLE (29.5) (23.9)
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST COVER x6 x11
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1995 interest payable has been restated to reflect the interest on the 9.5%
Euro-sterling Bonds 2004 in borrowing repayable wholly or partly after five
years rather than wholly within five years.
Interest cover is calculated by dividing net interest payable into operating
profit.
A Pound 10.3 million premium was paid on the redemption of the Pounds 25 million
(13.625%) 2007 Unsecured Loan Stock.
34
<PAGE>
Notes to the Accounts
<TABLE>
<CAPTION>
7 Taxation
- --------------------------------------------------------------------------------
1996 1995
Taxation on profit on ordinary activities (Pounds in millions)
- --------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom:
Corporation tax at 33% 46.8 217.1
Deferred taxation (5.5) (156.1)
BSkyB consortium relief (8.8) (8.8)
Double taxation relief (2.2) (3.4)
Partnerships and associated undertakings 10.2 10.6
Tax on franked investment income 0.2 1.8
Overseas:
Overseas tax 25.3 32.6
Deferred taxation 41.2 (3.6)
Partnerships and associated undertakings 1.4 2.6
- --------------------------------------------------------------------------------
108.6 92.8
- --------------------------------------------------------------------------------
1996 1995
Tax rate reconciliation % %
- --------------------------------------------------------------------------------
UK tax rate 33.0 33.0
Effect of BSkyB/BSBH income (3.5) (3.8)
Other items (0.7) (1.7)
- --------------------------------------------------------------------------------
Tax rate reflected in adjusted earnings 28.8 27.5
Effect of profits/(losses) excluded from adjusted earnings 1.6 (2.1)
- --------------------------------------------------------------------------------
Tax rate reflected in earnings 30.4 25.4
- --------------------------------------------------------------------------------
</TABLE>
The 1996 tax rate has been affected by several significant factors:
a) The rate reflected in adjusted earnings has been reduced by Pounds 8.8
million of consortium relief now recognised in the profit and loss account
following renegotiation with the other partners in BSBH.
b) There is no tax payable on the profit of Pounds 231.3 million arising on
the sale of Westminster Press.
c) The Group has tax losses, arising in the US, which have not been utilised or
recognised in 1996 but are available to carry forward against taxable profits
in future years. Accordingly the Group has decided not to recognise tax
relief on the Pounds 100 million charge for improper accounting at Penguin
USA and has also written off to profit deferred tax assets totalling
Pounds 36.6 million.
The 1995 tax rate was reduced by two significant factors:
a) Consortium relief of Pounds 8.8 million was released to offset tax payable
on BSBH income.
b) The disposal of YTTV resulted in a write back of a deferred tax provision of
Pounds 4.5 million.
<TABLE>
<CAPTION>
8 Dividends
- ------------------------------------------------------------------------------------------------------
1996 1996 1995 1995
pence per pence per
share (Pounds in millions) share (Pounds in millions)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interim paid 6.9 39.4 6.325 35.1
Final proposed 11.1 63.3 10.175 56.7
- ------------------------------------------------------------------------------------------------------
Dividends per equity share 18.0 102.7 16.5 91.8
- ------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
Notes to the Accounts
9 Employee information
- --------------------------------------------------------------------------------
The details of the emoluments of the directors of Pearson plc are shown on pages
17 to 23 and form part of these audited financial statements.
- --------------------------------------------------------------------------------
1996 1995
Staff costs (Pounds in millions)
- --------------------------------------------------------------------------------
Wages and salaries 454.1 408.3
Social security costs 47.5 45.1
Post-retirement costs 6.1 8.9
- --------------------------------------------------------------------------------
507.7 462.3
- --------------------------------------------------------------------------------
Discontinued operations total staff costs were Pounds 38.7 million (1995:
Pounds 50.7 million.
- --------------------------------------------------------------------------------
Average number employed 1996 UK USA Other Total
- --------------------------------------------------------------------------------
Information 3,078 903 1,786 5,767
Education 823 2,352 1,348 4,523
Entertainment 4,272 1,607 1,080 6,959
Other 114 19 1 134
- --------------------------------------------------------------------------------
Continuing operations 8,287 4,881 4,215 17,383
- --------------------------------------------------------------------------------
Average number employed 1995 UK USA Other Total
- --------------------------------------------------------------------------------
Information 3,072 592 1,669 5,333
Education 787 1,651 1,247 3,685
Entertainment 4,179 1,738 960 6,877
Other 91 19 3 113
- --------------------------------------------------------------------------------
Continuing operations 8,129 4,000 3,879 16,008
- --------------------------------------------------------------------------------
Discontinued operations employed on average 2,564 (1995: 3,414) in the UK
(Information sector).
- --------------------------------------------------------------------------------
1996 1995
Post-retirement costs (Pounds in millions)
- --------------------------------------------------------------------------------
Defined benefit pension schemes:
UK Group plan:
Regular pension cost 12.6 13.1
Amortisation of surplus (17.1) (13.1)
- --------------------------------------------------------------------------------
Net pension credit (4.5) -
Other defined benefit pension schemes 5.0 3.9
Defined contribution pension schemes 4.4 3.8
Medical benefits 1.2 1.2
- --------------------------------------------------------------------------------
6.1 8.9
- --------------------------------------------------------------------------------
36
<PAGE>
Notes to the Accounts
9 Employee information continued
- --------------------------------------------------------------------------------
Pension schemes
The Group operates a number of pension schemes throughout the world. The major
schemes are self-administered and the schemes' assets are held independently of
the Group's finances. Pension costs are assessed in accordance with the advice
of independent qualified actuaries.
The principal schemes are primarily of the defined benefit type. There is also
a closed defined benefit scheme in the UK, which now receives neither employers'
nor members' contributions, and a number of non-UK defined contribution schemes.
The results of the most recent actuarial valuation, using the projected unit
method of valuation, of the principal funded UK scheme, are shown in the table
below. The principal assumptions used are also shown in the table below. The net
assets of the UK Group plan at 31 December 1996 are included in the pension plan
accounts at Pounds 848 million (unaudited).
<TABLE>
<CAPTION>
UK Group plan
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Assets at market value at latest full actuarial valuation on 1 January 1996* Pounds 774 million
Real return on investments per annum 4.8%
Real increase in earnings per annum 1.9%
Real increase in pensions in payment per annum 0%
Level of funding** 122%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Stated after a transfer of Pounds 2 millions to the scheme of a former
subsidiary.
**Actuarial value of assets expressed as a percentage of the actuarial value of
the liabilities.
In view of these results, all employers' contributions remain suspended for the
time being and the valuation surplus is being apportioned, in accordance with
SSAP24, over the expected remaining service lives of the current employees,
resulting in a credit to the profit and loss account of Pounds 4.5 million
(1995: Pounds nil).
The total market value of the assets of the non UK defined benefit schemes
(mainly in the United States), valued this year, was Pounds 40.3 million
(1995: Pounds 38.0 million).
Other post-retirement benefits
The principal assumptions affecting the provision for other post retirement
benefits were: medical inflation rates of between 5.5% and 10.0% and a discount
rate of 7.25%.
37
<PAGE>
Notes to the Accounts
<TABLE>
<CAPTION>
10 Tangible fixed assets
- -----------------------------------------------------------------------------------------
Freehold Assets in
and leasehold Plant and course of
property equipment construction Total
(Pounds in millions)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cost or as valued
At 31 December 1995 324.5 487.3 29.9 841.7
Exchange differences (10.3) (16.9) (1.4) (28.6)
Reclassifications 9.0 10.9 (19.9) -
Permanent diminution in value (4.4) (5.0) - (9.4)
Owned by subsidiary undertakings
acquired 14.7 9.7 - 24.4
Capital expenditure 14.0 65.7 10.4 90.1
Capitalised interest 0.2 - - 0.2
Disposals (5.2) (22.5) - (27.7)
Owned by subsidiary undertakings
disposed (30.2) (70.2) (0.9) (101.3)
- -----------------------------------------------------------------------------------------
At 31 December 1996 312.3 459.0 18.1 789.4
- -----------------------------------------------------------------------------------------
Depreciation
At 31 December 1995 60.1 251.5 - 311.6
Exchange differences (2.4) (9.8) - (12.2)
Permanent diminution in value (0.2) - - (0.2)
Provided in the year 10.0 53.2 - 63.2
Subsidiary undertakings acquired 2.4 4.0 - 6.4
Disposals (0.5) (15.7) - (16.2)
Owned by subsidiary undertakings
disposed (6.0) (41.2) - (47.2)
- -----------------------------------------------------------------------------------------
At 31 December 1996 63.4 242.0 - 305.4
- -----------------------------------------------------------------------------------------
Net book value
At 31 December 1995 264.4 235.8 29.9 530.1
- -----------------------------------------------------------------------------------------
At 31 December 1996 248.9 217.0 18.1 484.0
- -----------------------------------------------------------------------------------------
</TABLE>
Freehold and leasehold property
Net book value includes: short leases of Pounds 23.1 million (1995:
Pounds 17.8 millions) and long leases of Pounds 4.8 million (1995: Pounds
17.4 million). On an original cost basis, cost would have been included at
Pounds 319.4 million, and accumulated depreciation at Pounds 54.1 million.
The net book value included at valuation is Pounds 8.0 million.
Permanent diminution in value
Freehold and leasehold property and plant and equipment include Pounds 8.4
million and Pounds 5.0 million respectively of assets held for sale. Of the
charge for permanent diminution in value, Pounds 8.0 million (1995: Pounds 36.6
million and Pounds 11.7 million in depreciation) in cost relates to the loss on
assets at East India Dock. At 31 December 1996 the provision for permanent
diminution in value amounted to Pounds 66.0 million in cost and Pounds 11.9
million in depreciation.
Depreciation
Except for Pounds 70.7 million of land, fixed assets are depreciated over their
estimated economic lives in equal annual amounts. Generally, freeholds are
depreciated at 1% to 5% per annum, leaseholds at 2% per annum, or over the
period of the lease if shorter, and plant and equipment at various rates between
5% and 33% per annum.
Capital commitments
The Group had capital commitments for fixed assets, including finance leases,
amounting to Pounds 126.7 million at 31 December 1996. This represented Pounds
22.0 million already under contract and Pounds 104.7 million authorised but not
yet contracted.
Other notes
The net book value of Group tangible fixed assets includes Pounds 1.8 million
in respect of assets held under finance leases. Depreciation on these assets
charged in 1995 was Pounds 1.0 million. The net book value of Group tangible
fixed assets includes Pounds 4.2 million in respect of capitalised interest.
38
<PAGE>
Notes to the Accounts
11 Partnerships and associated undertakings
- -------------------------------------------------------------------------------
Valuations Book values
1996 1995 1996 1995
(Pounds in millions)
- -------------------------------------------------------------------------------
Analysis
Partnership interests 200.0 200.0 113.9 122.1
Unlisted associated undertakings 122.6 104.7 3.9 (4.1)
Loans 64.8 49.3 64.8 49.3
- -------------------------------------------------------------------------------
387.4 354.0 182.6 167.3
- -------------------------------------------------------------------------------
Principal associated undertakings are listed on page 57. The valuations of
unlisted partnerships and associated undertakings are at directors' valuations
as at 31 December 1996. If realised at these values there would be an estimated
liability for taxation, at year end rates, of Pounds 42.9 million. The Group
had no capital commitments to subscribe for further capital and loan stock.
- -------------------------------------------------------------------------------
Share of
Equity loans Reserves Total
Summary of movements (Pounds in millions)
- -------------------------------------------------------------------------------
At 31 December 1995 97.9 49.3 20.1 167.3
Exchange differences (7.8) (2.2) (8.9) (18.9)
Additions 11.8 24.2 - 36.0
Goodwill written off (0.6) - - (0.6)
Transfer from fixed asset investments - (6.5) 5.0 (1.5)
Retained profit for the year - - 0.5 0.5
Provision for losses and diminution
in value (0.2) - - (0.2)
- -------------------------------------------------------------------------------
At 31 December 1996 101.1 64.8 16.7 182.6
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Profit Net assets
1996 1995 1996 1995
Analysis of partnerships and associated undertakings (Pounds in millions)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Business sectors
Information 10.9 10.9 (7.1) (13.8)
Education 3.0 4.2 5.1 6.4
Entertainment (1.6) (11.7) 70.7 52.6
Investment Banking 40.8 39.9 113.9 122.1
- --------------------------------------------------------------------------------------------
53.1 43.3 182.6 167.3
- --------------------------------------------------------------------------------------------
Geographical markets supplied and location of net assets
UK 20.6 18.6 103.9 85.1
Continental Europe 12.9 7.1 38.1 35.7
North America 17.2 14.0 36.7 42.0
Rest of World 2.4 3.6 3.9 4.5
- --------------------------------------------------------------------------------------------
53.1 43.3 182.6 167.3
- --------------------------------------------------------------------------------------------
1996
Reconciliation to retained profit (Pounds in millions)
- --------------------------------------------------------------------------------------------
Net income from partnerships and associated undertakings 53.1
UK taxation (10.2)
Overseas taxation (1.4)
Distributions receivable in respect of the year from partnership interests (34.2)
Dividends (including tax credits) from unlisted associated undertakings (6.8)
- --------------------------------------------------------------------------------------------
Retained profit for the year 0.5
- --------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
Notes to the Accounts
11 Partnerships and associated undertakings continued
- --------------------------------------------------------------------------------
Interests in Lazard Partners Limited Partnership and the three Lazard Houses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net assets
1996 1995
restated*
A summary of the aggregate net tangible assets at 31 December is as follows: (Pounds in millions)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total assets 8,013 5,573
Total liabilities (7,632) (5,179)
- -----------------------------------------------------------------------------------------------------------
Net tangible assets 381 394
- -----------------------------------------------------------------------------------------------------------
Attributable to Pearson 114 122
- -----------------------------------------------------------------------------------------------------------
</TABLE>
During 1995 Lazard Freres & Co. became a New York Limited Liability Company and
Pearson's indirect general partnership interest with unlimited liability
interest is now restricted to Lazard Freres et Cie and Maison Lazard et Cie held
directly and indirectly through Lazard Partners Limited Partnership. Pearson
holds these partnership interests through a subsidiary undertaking registered in
England, with no other material assets. The aggregate liabilities of these
partnerships included above are Pounds 831 million (1995: Pounds 863 million).
Pearson also holds direct interests in Lazard Freres & Co.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Country of Share
incorporation Beneficial Class capital
Interests in the Lazard Houses of registration interest % of share million
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lazard Partners Limited Partnership (which, with direct
interests in the US and French partnerships gives the
following interests in the Lazard Houses): USA 50 Partnership
Lazard Brothers & Co., Ltd England 37.2 Ord Pound 1 25.3
80 Def Pound 1 5.0
50 Sw Fr 1 0.4
Lazard Freres & Co., 'LLC' USA 11.6 Limited
Liability
Company
Lazard Freres et Cie
Maison Lazard et Cie France 9.6 Partnership
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The beneficial percentages held for the investment banking partnership interests
are interests in partnership profits.
With effect from 1 January 1996, Lazard Freres & Co., 'LLC', Lazard Freres et
Cie, Maison Lazard et Cie and Lazard Brothers & Co Limited (together known as
the three Lazard Houses) created a new system of inter-house profit sharing
through the establishment of the Three Houses Pooling Partnership (the 'Pool')
which became a limited partner of Lazard Partners Limited Partnership. As a
result, in 1996 the members, directors or partners in a particular Lazard House
received a greater interest in the profits of the other Lazard Houses in
exchange for part of their existing profit entitlement in their own House.
Pearson received additional income (the 'Pearson Adjustment') to reflect the
reduction in its profit entitlements from its direct holding in Lazard Freres &
Co., 'LLC', Lazard Freres et Cie and Maison Lazard et Cie, and accordingly did
not receive any income through the Pool. The share of net distributable profits
of Lazard Partners Limited Partnership (after the Pools profit share and the
Pearson adjustment) is divided in accordance with the respective capital
interests of the original partners (Pearson plc - 50%).
*Following the introduction of the open gilt repo market on 2 January 1996,
there has been a shift in Lazard Brothers & Co. Ltd money markets business from
gilt stock borrowing to gilt repo contracts which has led to an increase in the
balance sheet footings and a restatement of the 1995 comparatives on the balance
sheet to show the cash loan elements of stock loans gross, when previously they
were shown net.
Interest in The Economist Newspaper Ltd
The net liabilities of The Economist Newspaper Ltd as at 31 March 1996 were
Pounds 33.3 million (1995: net assets Pounds 26.5 million); profit before
taxation amounted to Pounds 24.0 million (1995: Pounds 19.8 million).
40
<PAGE>
Notes to the Accounts
12 Other fixed asset investments
- --------------------------------------------------------------------------------
Valuations Book values
1996 1995 1996 1995
(Pounds in millions)
- --------------------------------------------------------------------------------
Listed abroad 111.8 112.2 100.2 110.6
Unlisted 355.0 266.8 141.8 117.6
- --------------------------------------------------------------------------------
466.8 379.0 242.0 228.2
- --------------------------------------------------------------------------------
Subsequent to the year end, Pearson's 10% equity share investment in Television
Broadcasts Limited (TVB) was sold for Pounds 111.1 million (see note 31). If
all investments were realised at valuation there would be no liability for
taxation. Details of the principal investments in which the Group held more than
10% of the equity share capital are shown on page 57.
- --------------------------------------------------------------------------------
BSBH TVB Other Total
Summary of movements (Pounds in millions)
- --------------------------------------------------------------------------------
At 31 December 1995 67.2 109.2 51.8 228.2
Exchange differences - (10.2) (3.0) (13.2)
Additions 26.5 - 6.0 32.5
Owned by subsidiary undertakings acquired - - 30.2 30.2
Transfer to partnerships and associated
undertakings - - 1.5 1.5
Provisions for permanent diminution in
value and losses - - (6.4) (6.4)
Disposals and redemptions - - (30.8) (30.8)
- --------------------------------------------------------------------------------
Book value at 31 December 1996 93.7 99.0 49.3 242.0
- --------------------------------------------------------------------------------
Valuation at 31 December 1996 280.0 111.1 75.7 466.8
- --------------------------------------------------------------------------------
13 Stocks
- --------------------------------------------------------------------------------
1996 1995
(Pounds in millions)
- --------------------------------------------------------------------------------
Raw materials 22.3 29.4
Work in progress 79.6 72.6
Finished stock 258.8 187.9
- --------------------------------------------------------------------------------
360.7 289.9
- --------------------------------------------------------------------------------
The replacement cost of stocks and work in progress is not materially different
from book value.
14 Debtors
- --------------------------------------------------------------------------------
1996 1995
(Pounds in millions)
- --------------------------------------------------------------------------------
Amounts falling due within one year
Trade debtors 382.3 408.7
Partnerships and associated undertakings 14.1 8.3
Other debtors 179.8 158.2
Prepayments and accrued income 53.5 61.2
- --------------------------------------------------------------------------------
629.7 636.4
Amounts falling due after one year
Other debtors 23.8 21.1
Prepayments and accrued income 0.4 0.3
ACT recoverable 15.9 14.2
- --------------------------------------------------------------------------------
40.1 35.6
- --------------------------------------------------------------------------------
669.8 672.0
- --------------------------------------------------------------------------------
The Pearson Employee Share Trust holds 149,933 (1995: 293,800) Pearson plc
ordinary shares with a market value of Pounds 1.1 million (1995: Pounds 1.8
million) inclusive of accumulated scrip dividend shares. Amounts included within
other debtors for own shares are Pounds 0.6 million (1995: Pounds 0.4 million).
41
<PAGE>
Notes to the Accounts
15 Current asset investments
- --------------------------------------------------------------------------------
Valuations Book values
1996 1995 1996 1995
(Pounds in millions)
- --------------------------------------------------------------------------------
Listed abroad - 16.1 - -
Unlisted 7.9 9.8 7.9 8.3
- --------------------------------------------------------------------------------
7.9 25.9 7.9 8.3
- --------------------------------------------------------------------------------
Listed investment valuations are at middle market quotation and unlisted
investments are at directors' valuations. If all investments were realised at
valuation there would be no liability for taxation.
Details of the principal investments in which the Group held more than 10% of
the equity share capital are shown on page 57.
- --------------------------------------------------------------------------------
Summary of movements (Pounds in millions)
- --------------------------------------------------------------------------------
At 31 December 1995 8.3
Exchange differences (0.7)
Additions 1.0
Disposals (0.7)
- --------------------------------------------------------------------------------
At 31 December 1996 7.9
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
16 Cash and liquid funds
- ------------------------------------------------------------------------------------------
Group Company
1996 1995 1996 1995
(Pounds in millions)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash, bank current accounts and overnight deposits 138.8 155.5 24.5 54.3
Certificates of deposit and commercial paper 6.0 63.9 - 50.4
Money market fund units - 8.4 - 8.4
UK government securities 1.0 22.6 - 21.6
Listed sterling asset backed floating rate notes 45.9 156.5 15.3 105.2
Listed US dollar asset backed floating rate notes 42.1 139.7 42.1 139.8
Other listed securities - 60.1 - 50.1
Term bank deposits 51.2 49.7 1.4 40.4
Other 14.0 15.6 14.0 15.5
- ------------------------------------------------------------------------------------------
299.0 672.0 97.3 485.7
- ------------------------------------------------------------------------------------------
Listed securities, dealt on recognised Stock
Exchanges, included above:
Cost 89.0 378.9 57.4 316.7
Market value 89.0 378.8 57.4 316.6
- ------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
Notes to the Accounts
<TABLE>
<CAPTION>
17 Borrowings
- --------------------------------------------------------------------------------------------
Group Company
1996 1995 1996 1995
Borrowing summary (by maturity) (Pounds in millions)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short term
Loans or instalments due within one year 8.5 12.1 3.0 7.3
Bank loans, overdrafts and commercial paper 165.7 248.9 167.3 282.0
- --------------------------------------------------------------------------------------------
Total due within one year 174.2 261.0 170.3 289.3
Medium and long term
Loans or instalments thereof repayable:
From one to two years 7.8 0.1 - -
From two to five years 6.3 24.5 4.8 14.4
After five years not by instalments 541.1 449.8 184.3 224.8
- --------------------------------------------------------------------------------------------
Total due after more than one year 555.2 474.4 189.1 239.2
- --------------------------------------------------------------------------------------------
Total borrowing 729.4 735.4 359.4 528.5
- --------------------------------------------------------------------------------------------
</TABLE>
In the absence of enforceable contracts from the relevant lenders to refinance
current advances as they fall due, at the balance sheet date Pounds 84.3 of
debt currently classified from two to five years and after five years would be
repayable within one year.
- --------------------------------------------------------------------------------
Group
1996 1995
Borrowing summary (by currency) (Pounds in millions)
- --------------------------------------------------------------------------------
US dollars 379.3 340.5
Sterling 210.2 239.1
Hong Kong dollars 56.1 61.3
Spanish pesetas 33.7 36.2
French francs 19.1 24.0
Canadian dollars 16.5 19.2
Other currencies 14.5 15.1
- --------------------------------------------------------------------------------
729.4 735.4
- --------------------------------------------------------------------------------
Group Company
1996 1995 1996 1995
Borrowing summary (by instrument) (Pounds in millions)
- --------------------------------------------------------------------------------
Secured
Bank loans and overdrafts 0.1 0.1 - -
Unsecured
10.5% Euro-sterling Bonds 2008 100.0 100.0 100.0 100.0
13.625% fixed rate loan stock 2007 (see note 6) - 25.0 - 25.0
9.5% Euro-sterling Bonds 2004 113.2 124.9 - -
10.75% Euro-sterling Bonds 2002 100.0 100.0 - -
Other unsecured borrowings 8.5 12.8 3.0 7.8
Unsecured bank loans and overdrafts, commercial
paper and medium term notes 407.6 372.6 256.4 395.7
- --------------------------------------------------------------------------------
Total borrowing 729.4 735.4 359.4 528.5
- --------------------------------------------------------------------------------
43
<PAGE>
Notes to the Accounts
17 Borrowings continued
- --------------------------------------------------------------------------------
Forward foreign exchange contracts
Foreign currency transactional cash flows are hedged using forward foreign
exchange contracts. At 31 December 1996, the UK Group had contracted to exchange
the equivalent of Pounds 22 million and the estimated mark-to-market loss on
these contracts at 31 December 1996 was Pounds 0.8 million. In addition, the UK
Group enters into foreign exchange swaps in order to hedge surplus cash invested
in US dollars back into sterling. At 31 December 1996, Pounds 50 million of
these contracts were held with a mark-to-market gain of Pounds 1.2 million.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Mark-to
Notional Weighted market
principal average rate value
Interest rate hedging transactions (Pounds in millions) % (Pounds in millions)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Swaps in force at 31 December 1996
US dollars: converting fixed debt
to floating 146 7.23 6
US dollars: converting floating debt
to fixed 156 5.77 2
Sterling: converting fixed debt to
floating 150 7.86 4
Converting fixed sterling debt to
floating US dollars 113 10.41 11
- -----------------------------------------------------------------------------------------------
23
- -----------------------------------------------------------------------------------------------
</TABLE>
Of the total mark-to-market gain on the above transactions of Pounds 23 million,
Pounds 17 million arises from transactions that hedge debt issues for their
entire lives. There is a mark-to-market loss on those issues of Pounds 32
million included in the footnote below.
The following shows the amount of these contracts which are in force at the end
of each year.
- --------------------------------------------------------------------------------
1996 1997 1998 1999
(Pounds in millions)
- --------------------------------------------------------------------------------
US dollars: converting fixed debt to floating 146 146 146 146
US dollars: converting floating debt to fixed 156 135 117 117
Sterling: converting fixed debt to floating 150 100 100 100
Converting fixed sterling debt to floating US
dollars 113 113 113 113
- --------------------------------------------------------------------------------
During the year, a cap setting a maximum cost of 9% on $50 million of variable
US dollar borrowings for the period 1998 to 2001 was terminated.
As a result of the above transactions, the interest rate exposure of the
borrowings of the Group at 31 December 1996 was as follows:
- --------------------------------------------------------------------------------
Total gross
borrowing Fixed rate Floating rate
(Pounds in millions)
- --------------------------------------------------------------------------------
Sterling 210 50 160
US dollars 379 164 215
Other currencies 140 - 140
- --------------------------------------------------------------------------------
729 214 515
- --------------------------------------------------------------------------------
Of this total, Pounds 541 million relates to long-term borrowings with a
maturity of over five years. The current value of this debt at 31 December 1996,
considering only the movements in risk-free interest rates, is Pounds 573
million. The difference between the current and book values of these borrowings
is partially offset by the mark-to-market gain on the related swaps detailed
above.
44
<PAGE>
Notes to the Accounts
18 Other creditors
- --------------------------------------------------------------------------------
1996 1995
Amounts falling due within one year (Pounds in millions)
- --------------------------------------------------------------------------------
Trade creditors 288.2 222.6
Taxation 232.3 245.6
Social security and other taxes 26.7 27.5
Other creditors 72.4 89.5
Accruals and deferred income 230.5 177.2
Obligations under finance leases 0.8 1.5
Payments received on account 5.1 3.6
Dividends 63.8 59.2
- --------------------------------------------------------------------------------
919.8 826.7
- --------------------------------------------------------------------------------
Amounts falling due after one year
Obligations under finance leases 0.6 1.1
Other creditors 3.2 1.0
Accruals and deferred income 11.3 13.8
- --------------------------------------------------------------------------------
15.1 15.9
- --------------------------------------------------------------------------------
Accruals and deferred income includes Pounds 12.6 million (1995: Pounds 15.1
million) relating to the unamortised profit arising out of the unwinding of a
sterling interest rate swap in 1994. The swap was arranged in 1992 in connection
with the issue of Pounds 100 million 10.75% Euro-sterling Bonds 2002. The profit
is being amortised over the remaining life of the Bonds. Pounds 10.2 million is
due after one year, within which the amount falling due after five years is
Pounds 0.2 million.
19 Deferred taxation
- --------------------------------------------------------------------------------
Summary of movements (Pounds in millions)
- --------------------------------------------------------------------------------
At 31 December 1995 0.6
Exchange differences 2.7
Subsidiary undertakings acquired/disposed (6.8)
Net charge for the year 35.7
Transfer to current taxation (1.9)
- --------------------------------------------------------------------------------
At 31 December 1996 30.3
- --------------------------------------------------------------------------------
1996 1995
Deferred taxation derives from (Pounds in millions)
- --------------------------------------------------------------------------------
Capital allowances 21.6 27.6
Revalued assets 1.1 1.1
Other timing differences 7.6 (28.1)
- --------------------------------------------------------------------------------
30.3 0.6
- --------------------------------------------------------------------------------
Deferred taxation not provided
Relating to revalued assets and timing differences 7.2 13.0
Relating to gains subject to rollover relief 18.9 20.1
- --------------------------------------------------------------------------------
26.1 33.1
- --------------------------------------------------------------------------------
45
<PAGE>
Notes to the Accounts
<TABLE>
<CAPTION>
20 Other provisions for liabilities and charges
- -------------------------------------------------------------------------------------------------------------------------------
Post-retirement Other Total
(Pounds in millions) (Pounds in million) (Pounds in million)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
At 31 December 1995 32.8 101.0 133.8
Exchange differences (3.5) (10.5) (14.0)
Subsidiary undertakings acquired/disposed 6.7 24.9 31.6
Deferred consideration arising on acquisitions - 12.9 12.9
Transfers (0.2) (4.0) (4.2)
Released (5.8) (4.3) (10.1)
Provided 11.9 45.4 57.3
Utilised (6.8) (41.4) (48.2)
- -------------------------------------------------------------------------------------------------------------------------------
At 31 December 1996 35.1 124.0 159.1
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Post-retirement provisions are in respect of pensions, Pounds 21.9 million and
post-retirement medical benefits, Pounds 13.2 million. Other provisions are
mainly in respect of future costs relating to the purchase of subsidiary and
associated undertakings Pounds 57.4 million, litigation Pounds 3.5 million,
reorganisations and redundancies Pounds 37.5 million, disposals and closures
Pounds 1.6 million, and lease commitments Pounds 12.5 million. Amounts utilised
include Pounds 9.3 million, and amounts released Pounds 2.1 million, in respect
of provisions relating to subsidiary undertakings acquired.
<TABLE>
<CAPTION>
21 Share capital of Pearson plc
- -------------------------------------------------------------------------------------------------------------------------------
Number
Authorised (000's) (Pounds in million)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ordinary shares of 25 pence each 816,000 204.0
- -------------------------------------------------------------------------------------------------------------------------------
816,000 204.0
- -------------------------------------------------------------------------------------------------------------------------------
Called up and allotted
Ordinary shares of 25 pence each fully paid 31 December 1995 556,164 139.1
Issued on acquisition of Recoletos 11,314 2.8
Issued under share option and employee share schemes 2,655 0.7
Issued under scrip dividend scheme 868 0.2
- -------------------------------------------------------------------------------------------------------------------------------
At 31 December 1996 571,001 142.8
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Ordinary shares issued on the acquisition of the increased shareholding in
Recoletos were issued for aggregate consideration of Pounds 70.4 million based
on a share price of 622.6 pence per share.
The ordinary shares referred to above, as defined in the memorandum and
articles of association of the Company, are equivalent to equity shares as
defined by FRS 4. The consideration received in respect of shares issued during
the year was Pounds 84.5 million (1995: Pounds 11.8 million).
Options granted under certain of the Company's employee share option schemes
were adjusted following the demerger of Royal Doulton plc. In the case of those
'Save As You Earn' and Executive share options which were not adjustable,
compensation is to take the form of additional Pearson shares distributed from
an employee share trust, when the options are exercised. If all these options
are exercised the maximum amount of equity shares to be issued is estimated at
97,839 under the 'Save As You Earn' scheme and 51,603 under the Executive
schemes.
46
<PAGE>
Notes to the Accounts
<TABLE>
<CAPTION>
21 Share capital of Pearson plc continued
- -------------------------------------------------------------------------------------------------------------------------------
Number Original
When of shares subscription Exercise
Options outstanding at 31 December 1996 granted (000's) price (pence) period
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
'Save As You Earn' share option schemes 1989 129 301 1994-1997
1990 453 265 1995-1998
1991 640 299 1996-1999
1992 2,103 242 1997-2000
1994 833 509 1999-2002
1995 1,043 436 2000-2003
1996 883 578 2001-2004
- -------------------------------------------------------------------------------------------------------------------------------
Executive share option schemes 1988 66 342 1991-1998
1989 405 341-376 1992-1999
1990 1,045 307-334 1993-2000
1991 245 364-377 1994-2001
1992 684 327-379 1995-2002
1993 150 396-410 1996-2003
1994 1,779 629-635 1997-2004
1995 1,683 545-606 1998-2005
1996 1,769 654-682 1999-2006
- -------------------------------------------------------------------------------------------------------------------------------
13,910
- -------------------------------------------------------------------------------------------------------------------------------
The subscription prices have been rounded down to the nearest whole penny.
22 Reserves
- -------------------------------------------------------------------------------------------------------------------------------
Share Profit
premium Revaluation Other and loss
account reserve reserves account Total
Summary of movements (Pounds in million)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
At 31 December 1995 48.7 6.9 1.4 637.1 694.1
Exchange differences - (0.3) (0.2) (35.4) (35.9)
Premium on issue of 3.5m equity shares 13.2 - - - 13.2
Premium arising on equity shares issued on Recoletos acquisition 67.6 - - - 67.6
Goodwill arising (see note 23) - - - (632.4) (632.4)
Goodwill written back (see note 24) - - - 1.4 1.4
Realisation of revaluation reserve - (1.2) - 1.2 -
Profit retained for the year - - - 137.8 137.8
- -------------------------------------------------------------------------------------------------------------------------------
At 31 December 1996 129.5 5.4 1.2 109.7 245.8
- -------------------------------------------------------------------------------------------------------------------------------
Analysed as:
Partnerships and associated undertakings - 0.2 1.2 15.3 16.7
Group excluding partnerships and associated undertakings 129.5 5.2 - 94.4 229.1
- -------------------------------------------------------------------------------------------------------------------------------
The cumulative net goodwill written off is Pounds 1,896.4 million.
</TABLE>
47
<PAGE>
Financial Statements
Notes to the Accounts
23 Acquisitions
- --------------------------------------------------------------------------------
On 1 April 1996 the Group acquired HarperCollins Educational and, on 1 December
1996, Putnam Berkley. During the year the Group increased its shareholding in
Recoletos from 56.7% at 31 December 1995 to 94.2%. All acquisitions have been
consolidated applying acquisition accounting principles.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Harper
Collins Putnam 1996 1995
Acquisition analysis of subsidiary undertakings Educational Berkley Recoletos Other Total Total
and businesses (Pounds in millions)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tangible fixed assets 6.0 9.9 - 2.1 18.0 4.3
Investments - - - 30.2 30.2 -
Associated undertakings - - - - - 2.8
Stocks 86.4 21.8 - 3.3 111.5 5.1
Debtors 12.4 67.8 - 11.1 91.3 45.9
Creditors (29.4) (60.4) - (16.4) (106.2) (43.9)
Provisions (27.3) (3.3) - (2.0) (32.6) (1.0)
Deferred taxation - - - 0.3 0.3 9.2
Equity minority interests - - 19.6 0.7 20.3 (0.9)
Net cash/(borrowing) acquired - (0.2) - 4.7 4.5 8.6
Net assets acquired at fair value 48.1 35.6 19.6 34.0 137.3 30.1
Fair value of consideration:
Cash (369.2) (200.9) (31.0) (84.6) (685.7) (348.6)
Shares issued - - (70.4) - (70.4) -
Deferred cash consideration - 0.7 (7.9) (5.7) (12.9) (28.2)
Costs accrued - (0.8) - (0.4) (1.2) -
Net prior year adjustments - - - 1.1 1.1 (1.4)
- -------------------------------------------------------------------------------------------------------------------------------
Total consideration (369.2) (201.0) (109.3) (89.6) (769.1) (378.2)
- -------------------------------------------------------------------------------------------------------------------------------
Goodwill arising 321.1 165.4 89.7 55.6 631.8 348.1
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Shares issued consisted of 11,313,908 ordinary shares (see note 21).
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Harper
Collins Putnam
Educational Berkley Recoletos Other Total
Acquisition goodwill and fair values (Pounds in million)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Acquisition cost 369.2 201.0 109.3 89.6 769.1
- -------------------------------------------------------------------------------------------------------------------------------
Book value of net tangible assets acquired 253.7 65.7 19.6 12.5 351.5
- -------------------------------------------------------------------------------------------------------------------------------
Fair value adjustments (205.6) (30.1) - 21.5 214.2)
- -------------------------------------------------------------------------------------------------------------------------------
Fair value to the Group 48.1 35.6 19.6 34.0 137.3
- -------------------------------------------------------------------------------------------------------------------------------
Goodwill arising written off to reserves 321.1 165.4 89.7 55.6 631.8
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other fair value adjustments comprise the revaluation of the investment in
Meridian following the acquisition of SelecTV of Pounds 22.7 million and other
sundry adjustments of Pounds 1.2 million.
48
<PAGE>
Financial Statements
Notes to the Accounts
<TABLE>
<CAPTION>
23 Acquisitions continued
- -------------------------------------------------------------------------------------------------------------------------------
Accounting Revaluations
Book policy and other Fair
value alignment adjustments value
HarperCollins Educational Note (Pounds in millions)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tangible fixed assets 5.5 - 0.5 6.0
Stocks a 240.9 (124.7) (29.8) 86.4
Debtors b 38.4 (18.9) (7.1) 12.4
Creditors c (25.4) - (4.0) (29.4)
Provisions d (5.7) - (21.6) (27.3)
- -------------------------------------------------------------------------------------------------------------------------------
Net assets acquired 253.7 (143.6) (62.0) 48.1
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Provisional fair value adjustments:
Accounting policy alignment
a) Pre-publication expenditure for still to be published and published books has
been reduced by Pounds 124.7 million to comply with the Pearson accounting
policy which capitalises fewer internal costs and also amortises this
expenditure over a shorter time period.
b) The reserve for returns has been increased by Pounds 3.9 million, and
Pounds 15.0 million of capitalised promotion and complimentary product cost has
been written off in line with Pearson accounting policy. Revaluations and other
adjustments
a) Inventory has been written down by Pounds 15.0 million to net realisable
value. A further adjustment of Pounds 14.8 million has been made to write pre-
publication expenditure down to net realisable value.
b) The reserve against debtors has been increased by Pounds 0.8 million to
reflect potential bad debts; the reserve for royalty advances has been increased
by Pounds 3.6 million to reflect net realisable value; capitalised software
costs amounting to Pounds 2.7 million have been written down to their net
realisable value.
c) Additional accruals have been made for sundry liabilities identified at the
time of purchase.
d) Aprovision has been recognised for onerous property related liabilities.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Accounting Revaluations
Book policy and other Fair
value alignment adjustments value
Putnam Berkley Note (Pounds in millions)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tangible fixed assets 10.1 - (0.2) 9.9
Stocks 21.8 - - 21.8
Debtors a 81.6 (5.4) (8.4) 67.8
Creditors b (47.6) - (12.8) (60.4)
Provisions c - - (3.3) (3.3)
Net cash acquired (0.2) - - (0.2)
- -------------------------------------------------------------------------------------------------------------------------------
Net assets acquired 65.7 (5.4) (24.7) 35.6
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Provisional fair value adjustments:
Accounting policy alignment
a) To establish a backlist reserve for returns in line with existing Pearson
accounting policy.
Revaluations and other adjustments
a) A provision of Pounds 7.1 million has been made against irrecoverable
royalty advances and the reserve against debtors has been increased by Pounds
1.3 million to reflect potential bad debts.
b) A provision of Pounds 9.3 million has been established against
irrecoverable royalty advances, committed prior to purchase, and Pounds 3.5
million has been provided for sundry liabilities identified at the time of
purchase.
c) A provision has been recognised for onerous property related liabilities.
49
<PAGE>
Notes to the Accounts
<TABLE>
<CAPTION>
23 Acquisitions continued
- -------------------------------------------------------------------------------------------------------------------------------
1 July 1995 to Year to
31 March 30 June
1996 1995
HarperCollins Educational financial information (Pounds in million)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Profit and loss
Sales 107.7 204.1
Gross profit 52.4 104.0
Operating profit - 32.9
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The above results are shown using the accounting policies of HarperCollins
Educational prior to acquisition. Profit before taxation and taxation numbers
are not available, as the taxation of HarperCollins Educational was accounted
for as part of a larger group. Accordingly no statement of total recognised
gains and losses is presented. Operating profit for the period 1 July 1995 to 31
March 1996 is not available.
The profit after tax of Putnam Berkley from 1 July 1996, the beginning of its
financial year, to 1 December 1996, the effective date of acquisition was
Pounds 8.2 million (1996 financial year Pounds 12.8 million). These results are
based on the accounting policies of Putnam Berkley prior to acquisition.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Net assets
Cost acquired Goodwill
Total goodwill arising on acquisitions (Pounds in million)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Subsidiary undertakings and businesses (see page 48) 769.1 137.3 631.8
Associated undertakings 36.0 35.4 0.6
- -------------------------------------------------------------------------------------------------------------------------------
805.1 172.7 632.4
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995
<S> <C> <C>
Cash flow from acquisitions (Pounds in million)
- -------------------------------------------------------------------------------------------------------------------------------
Cash - current year acquisitions (see page 48) 685.7 348.6
Deferred payments for prior year acquisitions and other items 12.2 11.2
- -------------------------------------------------------------------------------------------------------------------------------
Net cash outflow 697.9 359.8
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Contributions to the cash flow from acquisitions in 1996 are as follows: net
cash inflow from operating activities Pounds 18.7 million, returns on
investments and servicing of finance Pounds 20.5 million, taxation Pounds nil;
and investing activities Pounds 30.1 million.
<PAGE>
Notes to the Accounts
<TABLE>
<CAPTION>
24 Disposals
- -------------------------------------------------------------------------------------------------------------------------------
Westminister 1996
Press Other Total 1995
Disposals of subsidiary undertakings and businesses (Pounds in millions)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tangible fixed assets (53.7) (0.4) (54.1) (0.7)
Goodwill written back - (1.4) (1.4) -
Stocks (1.9) - (1.9) (6.4)
Debtors (24.5) (0.4) (24.9) (4.2)
Creditors and taxation 6.9 0.5 7.4 3.6
Provisions 1.0 - 1.0 (0.2)
Deferred tax 6.5 - 6.5 -
Net cash (5.0) (0.5) (5.5) (1.1)
- -------------------------------------------------------------------------------------------------------------------------------
Net assets (70.7) (2.2) (72.9) (9.0)
- -------------------------------------------------------------------------------------------------------------------------------
Proceeds 305.0 0.8 305.8 15.0
Costs paid (3.0) (0.5) (3.5) -
- -------------------------------------------------------------------------------------------------------------------------------
Profit/(loss) on sale 231.3 (1.9) 229.4 6.0
- -------------------------------------------------------------------------------------------------------------------------------
Cash flow:
Cash - current year disposals 302.3 3.9
Deferred receipts from prior year disposals 4.9 -
- -------------------------------------------------------------------------------------------------------------------------------
307.2 3.9
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Contributions to the cash flow from disposals in 1996 are as follows: Net cash
inflow from operating activities Pounds 38.4 million, returns on investments and
servicing of finance Pounds 0.8 million, taxation Pounds 14.1 million and
capital expenditure and financial investment Pounds 7.5 million.
<TABLE>
<CAPTION>
25 Notes to consolidated statement of cash flows
- --------------------------------------------------------------------------------------------------------------------------------
Continuing Discontinued Total Continuing Discontinued Total
a) Reconciliation of operating profit to net 1996 1996 1996 1995 1995 1995
cash inflow from operating activities (Pounds in million)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating profit 146.0 35.3 181.3 237.6 22.0 259.6
Depreciation charges 56.8 6.4 63.2 54.7 6.8 61.5
Share of profit of partnerships and associated undertakings (53.1) - (53.1) (43.3) - (43.3)
Dividends from partnerships and associated undertakings 33.5 - 33.5 30.7 - 30.7
Decrease/(increase) in stocks 4.6 1.9 6.5 (34.6) (1.9) (36.5)
Decrease/(increase) in debtors 21.8 (1.0) 20.8 (80.3) (0.2) (80.5)
Increase/(decrease) in creditors 59.9 1.0 60.9 20.2 (2.0) 18.2
(Decrease)/increase in operating provisions 1.6 (3.5) (1.9) 29.2 (0.2) 29.0
Exchange adjustments (7.7) - (7.7) 2.8 - 2.8
Other (10.6) (1.7) (12.3) (5.1) - (5.1)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash inflow from operating activities* 252.8 38.4 291.2 211.9 24.5 236.4
- ---------------------------------------------------------------------------------------------------------------------------------
Purchase of fixed assets and finance leases (85.9) (5.0) (90.9) (97.6) (4.3) (101.9)
Sale of operating tangible fixed assets 6.5 0.4 6.9 31.6 0.5 32.1
Other 10.0 1.8 11.8 (20.1) - (20.1)
- ---------------------------------------------------------------------------------------------------------------------------------
Operating cash flow 183.4 35.6 219.0 125.8 20.7 146.5
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Cash inflow for 1996 includes a Pounds 20.9 million outflow relating to
exceptional items charged in 1996 and a Pounds 12.5 million outflow relating to
exceptional items charged in prior years.
<PAGE>
Notes to the Accounts
<TABLE>
<CAPTION>
25 Notes to consolidated statement of cash flows continued
- ------------------------------------------------------------------------------------------------------------------------------------
Cash at Current Debt due Debt due
bank and asset within after
in hand Overdrafts Sub total investments one year one year Total
b) Analysis of net debt (Pounds in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
At 31 December 1995 155.5 (50.7) 104.8 516.5 (210.3) (474.4) (63.4)
Exchange differences (8.2) 6.8 (1.4) (4.9) 19.6 23.2 36.5
Net cash flow (8.5) (24.7) (33.2) (351.4) 85.1 (104.0) (403.5)
- ------------------------------------------------------------------------------------------------------------------------------------
At 31 December 1996 138.8 (68.6) 70.2 160.2 (105.6) (555.2) (430.4)
- ------------------------------------------------------------------------------------------------------------------------------------
At 31 December 1994 75.8 (85.3) (9.5) 290.8 (70.5) (357.2) (146.4)
Exchange differences (0.3) (3.0) (3.3) - (0.3) (0.1) (3.7)
Net cash flow 80.0 37.6 117.6 225.0 (139.5) (117.1) 86.0
Deferred cash flow - - - 0.7 - - 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
At 31 December 1995 155.5 (50.7) 104.8 516.5 (210.3) (474.4) (63.4)
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
c) Reconciliation of net cash flow to movement in net debt (Pounds in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
(Increase)/decrease in net debt from cash flows (33.2) 117.6
(Increase)/decrease in net debt from management of liquid resources (351.4) 225.7*
(Increase)/decrease in net debt from other borrowings (18.9) (256.6)
Exchange differences 36.5 (3.7)
- ------------------------------------------------------------------------------------------------------------------------------------
Movement in net debt in the year (367.0) 83.0
Net debt at 1 January (63.4) (146.4)
- ------------------------------------------------------------------------------------------------------------------------------------
Net debt at 31 December (430.4) (63.4)
</TABLE>
*Net cash flow of Pounds 225.0 million and deferred cash flow of Pounds 0.7
million.
d) Tax paid
Tax paid includes Pounds 30.1 million (1995: Pounds 2.5 million of credits)
relating to items excluded from operating profit.
<TABLE>
<CAPTION>
26 Commitments under leases
- ------------------------------------------------------------------------------------------------------------------------------------
At 31 December 1996, the Group had commitments under leases, other than finance leases, to make payments in 1997 as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Land and
buildings Other
For leases expiring: (Pounds in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
In 1997 5.2 0.6
Between 1998 and 2001 9.1 8.3
Thereafter 19.7 6.8
- ------------------------------------------------------------------------------------------------------------------------------------
34.0 15.7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27 Contingent liabilities
- --------------------------------------------------------------------------------
There are contingent Group and Company liabilities in respect of indemnities,
warranties and guarantees in relation to former subsidiary undertakings and in
respect of guarantees in relation to subsidiary and associated undertakings. In
addition there are contingent liabilities of the Group in respect of legal
claims and general partnership interests (see note 11). None of these claims is
expected to result in a material gain or loss to the Group.
52
<PAGE>
Notes to the Accounts
28 Related parties
- --------------------------------------------------------------------------------
Partnerships and associated undertakings
Loans and equity advanced to associated undertakings during the year and at the
balance sheet date are shown in note 11. Amounts falling due from partnerships
and associated undertakings are set out in note 14. Dividends received from
partnerships and associated undertakings are set out in note 11. Details of
individually significant transactions are shown below.
Troll Communications Inc
The Group has a 44% interest in the equity of Troll Communications Inc. During
the year Pounds 2.5 million in interest income was received on the subordinated
debt and Pounds 1.4 million dividend income was received on the preferred stock.
As at 31 December 1996 Pounds 3.6 million (1995: Pounds 1.4 million) in interest
was outstanding and Pounds 2.1 million (1995: Pounds 0.8 million) in dividend
was outstanding.
Port Aventura SA
The Group has a 40% interest in the equity of Port Aventura SA. During the year
Pounds 5.2 million equity was provided. Management fees of Pounds 2.5 million
were earned during the year of which Pounds 1.0 million (1995: Pounds 1.2
million) was outstanding at the year end.
Channel 5 Television Group Ltd
The Group has a 24% economic interest in the equity of Channel 5 Television
Group Ltd. During the year Pounds 4.6 million equity was provided and Pounds
19.2 million loans advanced.
It is intended that the Group will provide programming to Channel 5
Broadcasting Ltd, a wholly owned subsidiary of Channel 5 Television Group Ltd,
and undertake transmission for Channel 5 Engineering Services Ltd, a subsidiary
of Channel 5 Television Group Ltd. In 1996 the Group contracted to provide
programming to the value of Pounds 24.0 million for transmission in 1997 and
beyond.
European Channel Management Ltd
The Group has a 45% interest in the redeemable unsecured loan stock of European
Channel Management Ltd. During the year Pounds 4.1 million loans were advanced.
In addition the Group paid Pounds 3.1 million during the year for Pounds 10.3
million of start up tax losses.
UK Gold/UK Living
The Group has 20% and 25% economic interests respectively in the equity of UK
Gold and UK Living. During the year the Group provided programmes and services
to the value of Pounds 5.4 million and Pounds 9.4 million respectively to UK
Gold and UK Living of which Pounds 1.4 million and Pounds 0.4 million were
outstanding at the year end (see note 31).
Grundy associated undertakings
During the year the Group received Pounds 4.4 million for management fees,
format rights and royalties from a number of associated undertakings of Grundy
Worldwide Ltd, of which Pounds 0.4 million was outstanding at the year end. No
individual transactions were material to the Group.
Lazard Partnership
Details of the ownership structure and profit sharing arrangements are set out
in note 11.
The Group periodically places funds on deposit with the Lazard Houses. The
investments are made on an arm's length basis and no transactions are
individually material in the context of the group treasury transactions. The
Group also uses the Lazard Houses to provide professional advice. Fees for such
services for the year to 31 December 1996 totalled Pounds 4.4 million.
Recoletos
Transactions with directors and officers of the company are set out on page 15
of the Directors' Report.
In September 1996, Pearson purchased approximately 30% of the issued share
capital of Recoletos Compania Editorial SA (Recoletos) from five Recoletos
directors (Juan Kindelan Jaquotot, Alejandro Kindelan Jaquotot, Jose Maria
Garcia-Hoz Rosales, Luis Infante Brave and Jaime Castellanos Borreo). The
consideration totalled Pounds 17.6 million in cash and 11.3 million new Pearson
ordinary shares. An agreement exists between the five Recoletos directors and
Union Bank of Switzerland (UBS) whereby UBS will compensate the directors as
shareholders if, by 5 October 1999, the Pearson share price is lower than 95% of
the share price on 16 January 1997 (the date the transaction was entered into).
Similarly the directors as shareholders will compensate UBS if the share price
is greater than 111% of the share price on the date of the transaction. This can
be settled in cash or Pearson shares.
<PAGE>
Notes to the Accounts
<TABLE>
<CAPTION>
29 COMPANY BALANCE SHEET AS AT 31 DECEMBER 1996
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
Notes (Pounds in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets - 0.4
Investments:
Subsidiary undertakings 1,798.4 1,742.9
- ------------------------------------------------------------------------------------------------------------------------------------
1,798.4 1,743.3
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Debtors:
Advance corporation tax recoverable 15.9 14.2
Subsidiary undertakings - due within one year 696.9 627.8
- due after one year 521.6 557.7
Other debtors 6.8 6.6
Prepayments and accrued income 5.6 10.7
Investments 0.7 0.7
Cash and liquid funds 16 97.3 485.7
- ------------------------------------------------------------------------------------------------------------------------------------
1,344.8 1,703.4
- ------------------------------------------------------------------------------------------------------------------------------------
CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR:
Short term borrowing 17 (170.3) (289.3)
Subsidiary undertakings (958.7) (1,394.8)
Taxation (23.1) (19.6)
Other creditors (0.2) (2.6)
Accruals and deferred income (11.0) (13.8)
Dividends (63.3) (56.7)
- ------------------------------------------------------------------------------------------------------------------------------------
(1,226.6) (1,776.8)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CURRENT ASSETS/(LIABILITIES) 118.2 (73.4)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 1,916.6 1,669.9
Creditors - amounts falling due after more than one year:
Medium and long term borrowing 17 (189.1) (239.2)
Subsidiary undertakings (225.0) (225.0)
Accruals and deferred income (10.2) (13.5)
Deferred taxation (0.6) (3.8)
Other provisions for liabilities and charges (10.5) (2.0)
- ------------------------------------------------------------------------------------------------------------------------------------
(435.4) (483.5)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS 1,481.2 1,186.4
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL AND RESERVES
Called up share capital 21 142.8 139.1
Share premium 129.5 48.7
Special reserve 397.2 397.2
Other reserves 50.1 50.1
Profit and loss account 761.6 551.3
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY SHAREHOLDERS' FUNDS 1,481.2 1,186.4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The financial statements were approved by the board of directors on 17 March
1997 and signed on its behalf by
BLAKENHAM
J MAKINSON
54
<PAGE>
Financial Statements
Notes to the Accounts
<TABLE>
<CAPTION>
30 NOTES TO THE COMPANY BALANCE SHEET
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
(Pounds in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TANGIBLE FIXED ASSETS (LEASEHOLD PROPERTY)
Cost 0.6 0.6
Depreciation (0.6) (0.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net book value - 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
There were no capital commitments for fixed assets at 31 December 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT IN SUBSIDIARY UNDERTAKINGS (Pounds in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
At 31 December 1995 1,742.9
Acquisition from subsidiary undertaking 234.4
Disposals to subsidiary undertaking (30.9)
Subscription for additional share capital in subsidiary undertaking 87.9
Repayment of capital by subsidiary undertaking (211.0)
External disposal (23.0)
Revaluations (1.9)
- ------------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 1996 1,798.4
- ------------------------------------------------------------------------------------------------------------------------------------
Shares are stated at cost less provisions for diminution in value or directors' 1969 valuations.
- ------------------------------------------------------------------------------------------------------------------------------------
DEFERRED TAXATION (Pounds in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF MOVEMENTS
At 31 December 1995 (3.8)
Charge for the year 3.2
- ------------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 1996 (0.6)
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
DEFERRED TAXATION DERIVES FROM (Pounds in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER TIMING DIFFERENCES (0.6) (3.8)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Current investments
The investments are unlisted, valued by the directors at book value and if
realised at valuation there would be no liability for taxation on disposal.
ACCRUALS AND DEFERRED INCOME Accruals and deferred income includes Pounds 12.6
million (1995: Pounds 15.1 million relating to the unamortised profit arising
out of the unwinding of a sterling interest rate swap in 1994. The swap was
arranged in 1992 in connection with the issue of Pounds 100 mllion 10.75% Euro-
sterling Bonds 2002. The profit is being amortised over the remaining life of
the Bonds. Pounds 10.2 million is due after one year, within which the amount
falling due after five years is Pounds 0.2 million.
55
<PAGE>
Notes to the Accounts
<TABLE>
<CAPTION>
30 NOTES TO THE COMPANY BALANCE SHEET CONTINUED
- ------------------------------------------------------------------------------------------------------------------------------------
Share Profit
premium Special Other and loss
account reserve reserves account Total
RESERVES (Pounds in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF MOVEMENTS
At 31 December 1995 48.7 397.2 50.1 551.3 1,047.3
Premium on issue of 3.5 million equity shares 13.2 - - - 13.2
Premium arising on equity shares issued on Recoletos acquisition 67.6 - - - 67.6
Profit for the financial year - - - 313.0 313.0
Dividends - - - (102.7) (102.7)
- ------------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 1996 129.5 397.2 50.1 761.6 1,338.4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The special reserve represents the cumulative effect of cancellation of the
Company's share premium account. As permitted by Section 230(4) of the Companies
Act 1985, only the Group's profit and loss account has been presented.
31 POST BALANCE SHEET EVENTS
- --------------------------------------------------------------------------------
DISPOSAL OF INVESTMENT IN TELEVISION BROADCASTS LIMITED
On 27 February 1997 Pearson sold its 10% interest in Television Broadcasts
Limited ("TVB") for Pounds 111.1 million. Pearson originally purchased this
investment for Pounds 106.2 million but the carrying value has subsequently
been reduced as a result of exchange rate fluctuations. The profit on disposal,
to be recognised in 1997, is Pounds 6.3 million. In 1996 operating profit
included Pounds 2.8 million (1995: Pounds 0.7 million) in respect of TVB
dividends.
ACQUISITION OF STAKE IN SOUTH AFRICAN BUSINESS NEWSPAPERS
On 1 February 1997 Pearson acquired a 50% stake in Business Day and Financial
Mail, the leading daily and weekly financial and business publications in South
Africa for Pounds 11.5 million.
FLEXTECH
On 17 March 1997 Pearson agreed to sell its interests in the satellite and cable
channels, UK Gold (20%) and UK Living (25%), to Flextech as part of joint
venture agreements between Flextech and the BBC. The sale of these interests
involves the payment by Flextech, between now and December 1998, of Pounds 7.8
million representing the repayment of UK Living loan stock, and Pearson
Television receiving 8.8 million Flextech ordinary shares - a total
consideration of approximately Pounds 76 million based on a Flextech share
price of 772 pence. Following completion of the transaction, Pearson will own
5.6% of the enlarged share capital of Flextech.
56
<PAGE>
Principal Subsidiary and Associated Undertakings
and Investments
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Country of
incorporation or Business
Subsidiary undertakings registration sector
- ------------------------------------------------------------------------------------------------------------------------------
The principal operating subsidiary undertakings are listed below.
They operate mainly in the countries of incorporation or
registration, the investments are in equity share capital and they are
all 100% owned unless stated otherwise.
<S> <C> <C>
Financial Times Group Ltd* England Information
Interactive Data Corporation USA
Les Echos SA France
Recoletos Compania Editorial SA (94.2%) Spain
Pearson Professional Ltd England
Addison-Wesley Publishing Co Inc USA Education
Addison Wesley Longman Ltd England
HarperCollins Educational Publishers USA
Penguin Putnam Inc USA Entertainment
The Penguin Publishing Co Ltd England
Mindscape Inc USA
Future Publishing Ltd England
Pearson Television Limited* England
Grundy Worldwide Limited Australia
Thames Television Ltd England
The Tussauds Group Ltd* England
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Share
Country of capital
incorporation or Beneficial pound Accounting
Associated undertakings registration interest % Class of share million year end
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Information
The Economist Newspaper Ltd England 50 Ord 5p 1.1 March
100 `B' 5p) 0.1
)
Nil `A' 5p)
Nil Trust 5p -
Entertainment
Port Aventura SA Spain 40 Pts 10,000 52.8 December
Troll Communications Inc USA 44 Common 0.6 December
equity
Channel 5 Television Group Ltd England 24 Ord 1p - December
Def 1p -
Pref 1p -
- ------------------------------------------------------------------------------------------------------------------------------
Investments
- ------------------------------------------------------------------------------------------------------------------------------
The Group held 10% or more of the following:
Entertainment
Television Broadcasts Limited (sold February 1997) Hong Kong 10.0 Ord HK 5c 1.8 December
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The principal partnerships are shown on page 40.
* Direct investment of Pearson plc
57
<PAGE>
Five Year Summary
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
pound pound pound pound pound
million million million million million
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales
Continuing operations 1,022.3 1,193.8 1,413.3 1,687.1 2,048.9
Discontinued operations 613.4 676.3 136.8 143.3 137.1
- ------------------------------------------------------------------------------------------------------------------------------
1,635.7 1,870.1 1,550.1 1,830.4 2,186.0
- ------------------------------------------------------------------------------------------------------------------------------
Profits
Information 39.9 31.1 69.0 83.3 99.1
Education 42.5 55.8 51.2 31.8 68.1
Entertainment 41.6 62.2 129.5 110.9 (47.5)
Investment Banking 23.7 36.4 30.2 39.9 40.8
Corporate expenses less other income (4.5) (4.3) (23.2) (28.3) (14.5)
- ------------------------------------------------------------------------------------------------------------------------------
Continuing operations 143.2 181.2 256.7 237.6 146.0
Discontinued operations 12.4 34.9 15.7 22.0 35.3
- ------------------------------------------------------------------------------------------------------------------------------
Operating profit 155.6 216.1 272.4 259.6 181.3
Profit/(loss) on disposals of businesses - (68.4) 15.2 6.0 229.4
Profit/(loss) on sales of fixed assets 8.8 4.4 26.4 123.4 (14.1)
Provision on investment in BSkyB - 71.4 - - -
- ------------------------------------------------------------------------------------------------------------------------------
Profit before interest 164.4 223.5 314.0 389.0 396.6
Net interest payable (13.6) (14.9) (16.2) (23.9) (29.5)
Loan stock redemption premium - - - - (10.3)
- ------------------------------------------------------------------------------------------------------------------------------
Profit before taxation 150.8 208.6 297.8 365.1 356.8
Taxation (44.4) (60.3) (74.3) (92.8) (108.6)
- ------------------------------------------------------------------------------------------------------------------------------
Profit after taxation 106.4 148.3 223.5 272.3 248.2
Equity minority interests (1.1) (0.3) (0.6) (11.3) (7.7)
- ------------------------------------------------------------------------------------------------------------------------------
Profit for the financial year 105.3 148.0 222.9 261.0 240.5
- ------------------------------------------------------------------------------------------------------------------------------
Earnings per equity share 19.3p 27.0p 40.4p 47.1p 42.9p
- ------------------------------------------------------------------------------------------------------------------------------
Adjusted earnings per equity share 17.3p 27.9p 34.1p 28.8p 30.6p
- ------------------------------------------------------------------------------------------------------------------------------
Dividends per equity share 12.0p 13.0p 15.0p 16.5p 18.0p
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+Adjusted in accordance with page 25.
58
<PAGE>
Five Year Summary
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
pound pound pound pound pound
Capital employed million million million million million
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets 1,058.3 1,000.1 1,051.9 855.4 392.3
Deferred tax and other provisions 85.6 67.6 233.8 34.4 189.4
Net debt 121.3 1.3 146.4 63.4 430.4
- ------------------------------------------------------------------------------------------------------------------------------
Capital employed 1,265.2 1,069.0 1,432.1 1,053.2 1,012.1
- ------------------------------------------------------------------------------------------------------------------------------
Cumulative goodwill written off 670.7 700.2 1,042.5 1,437.8 1,896.4
- ------------------------------------------------------------------------------------------------------------------------------
Gearing
Debt/equity 11% N/A 14% 7% 110%
Debt/adjusted equity (including goodwill) 7% N/A 7% 3% 19%
Interest cover x11 x15 x17 x11 x6
- ------------------------------------------------------------------------------------------------------------------------------
Share statistics
Equity shares - weighted average 545.5m 547.6m 551.6m 554.4m 560.8m
Share price - Year end 390p 608p 555p 624p 750p
Share price - High 459p 614p 725p 684p 760p
Share price - Low 302p 356p 554p 543p 601p
- ------------------------------------------------------------------------------------------------------------------------------
Average number employed
Continuing operations 11,534 11,823 13,562 16,008 17,383
Discontinued operations 16,432 15,453 3,653 3,414 2,564
- ------------------------------------------------------------------------------------------------------------------------------
27,966 27,276 17,215 19,422 19,947
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Index to the Financial Statements
<S> <C>
Accounting policies pp29 Geographical analysis pp31, 32, 36,
Acquisitions pp48, 49, 50 Goodwill pp48, 50
Adjusted earnings per share p25 Historical cost profits and losses p28
Auditors Interest p34
Remuneration p33 Interest rate hedging p44
Report to members p24 Investments pp41, 42
Balance sheets Leases p52
Company p54 Net cash inflow from operating activities p51
Group p26 Net debt p52
Borrowings p43, 44 Other income p33
Capital commitments p38 Partnerships and associates pp39
Capital employed p32 Pensions pp36, 37
Capital expenditure p38 Post balance sheet events p56
Cash flow pp27, 51, 52 Post-retirement costs pp36, 37
Cash and liquid funds p42 Principal group companies p57
Contingent liabilities p53 Profit and loss account p25
Creditors, other p45 Provisions p46
Debtors p41 Recognised gains and losses p28
Deferred taxation p45 Related parties p53
Depreciation p38 Reserves p47
Disposals p51 Sales pp31,32
Dividends p35 Sector analysis pp31, 32, 36, 39
Earnings per share p25 Share capital and options pp46,
Employee information pp36, 37 Shareholders funds p28
Fair value pp48, 49 Stocks p41
Forward exchange p44 Subsidiaries p57
Five year summary pp58, 59 Taxation pp35, 45
Fixed assets, tangible p38 Treasury information pp43, 44
</TABLE>
Designed and produced by Michael Peters Limited. Type origination by Wordwork
plc. Printed in England by CTD Printers Limited.
<PAGE>
EXHIBIT (h)
POWER OF ATTORNEY
-----------------
A POWER OF ATTORNEY made on the 7/th/ day of October 1997 by PEARSON plc, a
company registered in England whose registered office is at 3 Burlington
Gardens, London W1X 1LE (the "Company").
1. (i) The Deed is governed by English law
(ii) In this Deed:-
"Attorney" means the persons named in Clause 2
"person" includes a corporation and an unincorporated body of persons;
the singular includes the plural and vice versa.
2. The Company hereby appoints any one director of the Company, John Davis of
50th Floor, 30 Rockefeller Plaza, New York, NY 10112-5095, USA, Tom Wharton,
also of 50th Floor, 30 Rockefeller Plaza, New York, NY 10112-5095, USA and Paul
Vickers of 3 Burlington Gardens, London W1X 1LE, severally, as its Attorney on
its behalf and in its name or otherwise to do all acts and to approve, execute,
deliver and/or file all agreements and other documents which any such Attorney
considers necessary or desirable in connection with an offer to purchase for
cash all of the outstanding shares of common stock of All American
Communications Inc., including without limitation filings on Schedule 14D-1 and
13D required to be made pursuant to the Securities Exchange Act 1934 and all
amendments thereto.
IN WITNESS whereof the Company has executed this Deed in accordance with its
constitution and the laws of England the day and year first before written.
THE COMMON SEAL of )
PEARSON plc )
was hereunto affixed in the presence of:- )
/s/ Marjorie Scardino
--------------------------
Director
/s/ Anette Lawless
--------------------------
Secretary
