<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1998
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary proxy statement
[_] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
TELEMUNDO GROUP, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN REGISTRANT)
Payment of filing fee (Check the appropriate box):
[_] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies: SERIES
A COMMON STOCK, PAR VALUE $.01 PER SHARE; SERIES B COMMON STOCK, PAR
VALUE $.01 PER SHARE
(2) Aggregate number of securities to which transaction applies: 7,180,827
SHARES OF SERIES A COMMON STOCK; 3,086,498 SHARES OF SERIES B COMMON
STOCK
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $44.00 PER
SHARE
(4) Proposed maximum aggregate value of transaction: $538,497,696*
(5) Total fee paid: $107,699.54**
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: NOT APPLICABLE
(2) Form, Schedule or Registration Statement No.: NOT APPLICABLE
(3) Filing Party: NOT APPLICABLE
(4) Date Filed: NOT APPLICABLE
* For purposes of calculation of the filing fee only. Assumes the purchase,
at a purchase price of $44.00 per share of common stock, of 12,238,584
shares of common stock of the Registrant, representing all of such common
stock outstanding on a fully diluted basis (assuming the exercise of
options and warrants to acquire shares of common stock and excluding shares
of common stock owned by the Registrant). The above calculation is based
upon the most recent publicly available data for the Registrant.
** The amount of the filing fee equals 1/50th of 1% of the transaction value.
<PAGE>
[LOGO OF TELEMUNDO GROUP, INC]
TELEMUNDO GROUP, INC.
2290 WEST 8TH AVENUE
HIALEAH, FLORIDA 33010
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
To our Stockholders:
You are cordially invited to attend the special meeting of stockholders of
Telemundo Group, Inc. to be held on June 16, 1998 at The Rihga Royal Hotel, 151
West 54th Street, New York, New York 10019 at 10:00 a.m. local time.
At the stockholder meeting, you will vote on two separate proposals. The
first proposal is to approve and adopt a merger agreement which provides for
the acquisition of all the equity interests in Telemundo by TLMD Station Group,
Inc. through a merger of Telemundo into a wholly owned subsidiary of TLMD
Station Group, Inc. TLMD Station Group, Inc. is a newly-formed corporation
which will be beneficially owned by Apollo Investment Fund III, L.P., Bastion
Capital Fund, L.P., Liberty Media Corporation and Sony Pictures Entertainment
Inc. The second proposal is to approve and adopt an incentive plan which
provides that certain of Telemundo's executive officers may be granted annual
bonuses in the future based upon the achievement of certain performance goals
related to Telemundo's cash flow. The proposal to approve and adopt the
incentive plan is separate from, and is in no way conditioned upon the outcome
of the vote on, the approval and adoption of the merger agreement.
If the merger is completed, each outstanding share of Telemundo common stock
(other than those held by stockholders who exercise and perfect their statutory
appraisal rights under Delaware law) will be converted into the right to
receive a payment of $44.00 in cash plus, if the merger is not completed by
July 30, 1998 and subject to certain conditions, an additional amount per share
equal to 8% per annum on $44.00 (approximately $0.29 per share per month)
accruing during the period beginning on July 30, 1998 and ending on the day
before the date on which the merger is completed.
THE BOARD OF DIRECTORS OF TELEMUNDO, RELYING UPON THE UNANIMOUS
RECOMMENDATION OF A SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS, COMPRISED OF
DIRECTORS WHO HAVE NO FINANCIAL INTEREST IN THE PURCHASER OR ITS AFFILIATES,
HAS DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF
TELEMUNDO'S STOCKHOLDERS, OTHER THAN STOCKHOLDERS AFFILIATED WITH THE PURCHASER
OR ITS AFFILIATES. ACCORDINGLY, THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS
THAT YOU VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AT THE STOCKHOLDER MEETING. IN ADDITION, THE
BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE INCENTIVE PLAN AND RECOMMENDS
THAT YOU VOTE FOR THE APPROVAL AND ADOPTION OF THE INCENTIVE PLAN AT THE
STOCKHOLDER MEETING.
The merger cannot occur unless stockholders holding a majority of Telemundo's
outstanding shares of common stock approve it. YOUR VOTE IS VERY IMPORTANT.
Whether or not you plan to attend the stockholder meeting in person, I urge you
to complete, date, sign and promptly return the enclosed proxy card to ensure
that your shares will be represented at the meeting. Returning a signed proxy
card will not prevent you from attending the stockholder meeting and voting in
person. If you sign, date and mail your proxy card without indicating how you
want to vote, your proxy will be counted as a vote FOR the approval and
adoption of the merger agreement and the transactions contemplated thereby and
FOR the approval and adoption of the incentive plan. If you fail to return your
proxy card, the effect will be the same as a vote AGAINST the approval and
adoption of the merger agreement and the transactions contemplated thereby and
AGAINST the approval and adoption of the incentive plan. This Proxy Statement
provides you with detailed information about the merger and incentive plan. We
encourage you to read this entire document carefully.
By: /s/ Roland A. Hernandez
--------------------------------------
Roland A. Hernandez
President and Chief Executive Officer
Telemundo Group, Inc.
Hialeah, Florida
May 13, 1998
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS
OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
This Proxy Statement is dated May 13, 1998 and is first being mailed to
stockholders on or about May 14, 1998.
<PAGE>
TELEMUNDO GROUP, INC.
2290 WEST 8TH AVENUE
HIALEAH, FL 33010
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 16, 1998
----------------
To the Stockholders of Telemundo Group, Inc.:
YOU ARE HEREBY NOTIFIED that a special meeting of stockholders of Telemundo
Group, Inc., a Delaware corporation ("Telemundo"), will be held on June 16,
1998 at The Rihga Royal Hotel, 151 West 54th Street, New York, New York 10019,
at 10:00 a.m. local time (the "Special Meeting"), for the following purposes:
(a) to consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of November 24, 1997 (the "Merger
Agreement"), by and among TLMD Station Group, Inc., a newly-formed
Delaware corporation (the "Purchaser"), TLMD Acquisition Co., a newly-
formed Delaware corporation and wholly owned subsidiary of the
Purchaser ("Sub"), and Telemundo, and the transactions contemplated
thereby, pursuant to which, among other things, (i) Sub will merge with
and into Telemundo (the "Merger"), with the result that Telemundo will
become a wholly owned subsidiary of the Purchaser and (ii) each issued
and outstanding share of common stock of Telemundo (other than shares
held by the Purchaser, Sub or any other wholly owned subsidiary of the
Purchaser, or in the treasury of Telemundo or by any wholly owned
subsidiary of Telemundo, all of which will be canceled with no payment
being made with respect thereto, or by stockholders of Telemundo who
properly exercise and perfect their statutory appraisal rights under
Delaware law), will be converted into the right to receive a payment of
$44.00 in cash plus, if the Merger is not completed by July 30, 1998
and subject to certain conditions, an additional amount per share equal
to 8% per annum on $44.00 (approximately $0.29 per share per month)
accruing during the period beginning on July 30, 1998 and ending on the
day before the date on which the Merger is completed;
(b) to consider and vote on a proposal to approve and adopt the Management
Incentive Compensation Plan (the "Incentive Plan"), pursuant to which
certain executive officers of Telemundo may be granted annual bonuses
in the future based upon the achievement of certain performance goals
related to Telemundo's cash flow; and
(c) to consider and vote upon such other matters which may properly come
before the Special Meeting and any adjournments or postponements
thereof.
The proposal to approve and adopt the Incentive Plan is separate from, and
is in no way conditioned upon the outcome of the vote on, the proposal to
approve and adopt the Merger Agreement and the transactions contemplated
thereby.
THE BOARD OF DIRECTORS OF TELEMUNDO (THE "BOARD"), RELYING UPON THE
UNANIMOUS RECOMMENDATION OF A SPECIAL COMMITTEE OF THE BOARD, COMPRISED OF
DIRECTORS WHO HAVE NO FINANCIAL INTEREST IN THE PURCHASER OR ITS AFFILIATES,
HAS DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE
STOCKHOLDERS OF TELEMUNDO, OTHER THAN STOCKHOLDERS AFFILIATED WITH THE
PURCHASER OR ITS AFFILIATES. ACCORDINGLY, THE BOARD HAS UNANIMOUSLY APPROVED
AND RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AT THE SPECIAL MEETING. IN
ADDITION, THE BOARD HAS UNANIMOUSLY APPROVED AND RECOMMENDS THAT YOU VOTE FOR
THE APPROVAL AND ADOPTION OF THE INCENTIVE PLAN AT THE SPECIAL MEETING.
The Merger, the Incentive Plan and other important matters are described in
the accompanying Proxy Statement (the "Proxy Statement"), which you are urged
to read carefully and in its entirety. A copy of the Merger Agreement is
attached as Annex A to the Proxy Statement. A copy of the Incentive Plan is
attached as Annex D to the Proxy Statement.
<PAGE>
Only holders of record of Telemundo's common stock at the close of business
on May 12, 1998 are entitled to notice of, and to vote at, the Special Meeting
or any adjournments or postponements thereof. A list of such stockholders will
be available for review at the principal executive offices of Telemundo listed
below during normal business hours for a period of 10 days prior to the
Special Meeting.
We welcome your attendance at the Special Meeting. Whether or not you expect
to attend the Special Meeting in person, we urge you to complete, sign, date
and promptly return the enclosed proxy card in the accompanying return
envelope. Your proxy is revocable and will not affect your right to vote in
person if you decide to attend the Special Meeting. Simply attending the
Special Meeting, however, will not revoke your proxy. For an explanation of
the procedures for revoking your proxy, see the section of the Proxy Statement
captioned "The Special Meeting--Voting, Revocation, and Solicitation of
Proxies." Returning your proxy card without indicating how you want to vote
will have the same effect as a vote FOR the approval and adoption of the
Merger Agreement and the transactions contemplated thereby and FOR the
approval and adoption of the Incentive Plan. FAILURE TO RETURN A PROPERLY
EXECUTED PROXY CARD OR VOTE IN PERSON AT THE SPECIAL MEETING WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND A VOTE AGAINST THE
APPROVAL AND ADOPTION OF THE INCENTIVE PLAN.
Our principal executive offices are located at 2290 West 8th Avenue,
Hialeah, Florida 330l0. Our telephone number is (305) 884-8200.
By: /s/ Osvaldo F. Torres
----------------------------
Osvaldo F. Torres
Vice President,
General Counsel and Secretary
Hialeah, Florida
May 13, 1998
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD
AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
DO NOT SEND ANY STOCK
CERTIFICATES WITH YOUR PROXY CARD.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE INCENTIVE PLAN............. 1
WHO CAN HELP ANSWER YOUR QUESTIONS........................................ 4
SUMMARY................................................................... 5
The Companies........................................................... 5
Our Recommendations to Stockholders..................................... 6
Record Date; Voting Power............................................... 6
Share Ownership of Certain Stockholders and Management.................. 7
The Merger.............................................................. 8
Appraisal Rights........................................................ 8
Current Relationships and Transactions; Interests of Certain Persons ... 8
Background of the Merger................................................ 9
Recommendations; Fairness of the Merger................................. 9
Fairness Opinions of Financial Advisors................................. 10
Certain Effects of the Merger; Plans for Telemundo After the Merger..... 10
Conditions to the Merger................................................ 11
Termination of the Merger Agreement..................................... 11
What Happens if Telemundo Receives a Better Offer....................... 12
Payment of Fees Upon Other Termination Events........................... 12
Amending or Waiving Terms of the Merger Agreement....................... 12
Regulatory Approvals.................................................... 13
Financing for the Merger................................................ 13
Certain Federal Income Tax Consequences................................. 13
Litigation Related to the Merger........................................ 14
Price Range of Common Stock and Warrants................................ 14
The Management Incentive Compensation Plan.............................. 14
Projections and Forward-Looking Statements.............................. 15
SUMMARY SELECTED HISTORICAL FINANCIAL DATA................................ 16
THE COMPANIES............................................................. 17
THE SPECIAL MEETING....................................................... 19
General................................................................. 19
Record Date and Voting.................................................. 19
Voting, Revocation and Solicitation of Proxies.......................... 21
Appraisal Rights........................................................ 21
SPECIAL FACTORS........................................................... 22
Background of the Merger................................................ 22
Recommendations of the Special Committee and the Board of Directors;
Fairness of the Merger................................................. 30
Opinion of Lazard Freres & Co. LLC...................................... 35
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
Opinion of Salomon Brothers Inc.......................................... 37
Certain Projected Financial Information and Forward-Looking Statements... 41
Purpose and Structure of the Merger...................................... 45
Certain Effects of the Merger; Plans for Telemundo After the Merger...... 45
Risk that the Merger Will Not Be Consummated............................. 47
Current Relationships and Transactions................................... 47
Interests of Certain Persons............................................. 50
Financing for the Merger................................................. 58
Certain Litigation Related to the Merger................................. 61
Accounting Treatment of the Merger....................................... 61
Year 2000 Issue.......................................................... 61
Certain Federal Regulatory Matters....................................... 62
Certain Federal Income Tax Consequences.................................. 64
Appraisal Rights......................................................... 65
EXECUTIVE COMPENSATION..................................................... 69
THE MERGER AGREEMENT....................................................... 71
The Merger............................................................... 71
Consideration to be Received in the Merger............................... 72
Exchange of Stock Certificates........................................... 72
Representations and Warranties........................................... 73
Certain Covenants........................................................ 74
Conditions to Obligations to Effect the Merger........................... 79
Termination; Termination Fees and Expenses............................... 81
Amendment and Waiver..................................................... 82
EXPENSES................................................................... 83
SELECTED HISTORICAL FINANCIAL DATA......................................... 84
PRICE RANGE OF COMMON STOCK AND WARRANTS................................... 85
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 86
DIRECTORS AND EXECUTIVE OFFICERS OF TELEMUNDO.............................. 89
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER AND SUB.................. 92
PROPOSAL TO APPROVE MANAGEMENT INCENTIVE COMPENSATION PLAN................. 93
Management Incentive Compensation Plan................................... 93
Recommendation of the Board of Directors................................. 93
EXPERTS.................................................................... 94
OTHER MATTERS.............................................................. 94
WHERE YOU CAN FIND MORE INFORMATION........................................ 95
</TABLE>
ii
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<S> <C>
ANNEXES
Agreement and Plan of Merger............................................. A-1
Opinion of Lazard Freres & Co. LLC....................................... B-1
Opinion of Salomon Brothers Inc.......................................... C-1
Management Incentive Compensation Plan................................... D-1
Section 262 of the General Corporation Law of the State of Delaware...... E-1
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Q: WHY IS TELEMUNDO PROPOSING TO common stock. In addition, if
MERGE? the merger is not completed
before July 30, 1998, you
A: The board of directors of QUESTIONS AND ANSWERS ABOUT THE
Telemundo, relying upon the MERGER AND THE INCENTIVE PLAN
unanimous recommendation of a will receive, subject to certain
special committee of directors conditions, an additional amount
who have no financial interest per share equal to 8% per annum
in TLMD Station Group, Inc., the on the $44.00 per share purchase
purchaser of Telemundo in the price (approximately $0.29 per
merger, or its affiliates, share per month) for the period
believes that the merger from July 30, 1998 to the day
represents the best alternative before the date on which the
available at this time for merger is completed.
maximizing the value of your
investment in Telemundo. The Q: WHEN DO YOU EXPECT THE MERGER TO
price of $44 per share, which BE COMPLETED?
you will receive if the merger
is completed, represents a 76% A: We are working towards
premium over the price for the completing the merger as quickly
Series A Common Stock of as possible. In addition to
Telemundo on July 16, 1997, the stockholder approvals, we must
day before Telemundo issued a also obtain certain regulatory
press release confirming that it approvals. Although we cannot
was pursuing discussions with predict exactly when such
potential strategic programming regulatory approvals will be
partners for purposes of received, we hope to complete
expanding its programming the merger by the end of the
options and enhancing third quarter of 1998.
stockholder value and announcing
that it had retained Lazard Q: WILL I OWE ANY FEDERAL INCOME
Freres & Co. LLC to assist it in TAX AS A RESULT OF THE MERGER?
such process.
A: The receipt of cash for shares
Q: DOES THE BOARD OF DIRECTORS of common stock in the merger
RECOMMEND VOTING IN FAVOR OF THE will be a taxable transaction
MERGER? for federal income tax purposes
and may also be a taxable
A: The board of directors of transaction under applicable
Telemundo, relying upon the state, local, foreign or other
unanimous recommendation of the tax laws. Generally, you will
special committee, has recognize gain or loss for such
unanimously determined that the purposes equal to the difference
merger is fair to and in the between the cash received in
best interests of the connection with the merger and
stockholders, other than your tax basis for the shares of
stockholders affiliated with the common stock that you owned
purchaser or its affiliates, and immediately prior to the merger.
unanimously recommends that For federal income tax purposes,
stockholders vote FOR the such gain or loss generally
approval and adoption of the would be a capital gain or loss
merger agreement and the if you held the shares of common
transactions contemplated stock as a capital asset.
thereby.
TAX MATTERS ARE VERY COMPLICATED
Q: WHAT WILL I RECEIVE IN THE AND THE TAX CONSEQUENCES OF THE
MERGER? MERGER TO YOU WILL DEPEND ON THE
FACTS OF YOUR OWN SITUATION. YOU
A: If the merger is completed, you SHOULD CONSULT YOUR TAX ADVISOR FOR
will have the right to receive a A FULL UNDERSTANDING OF THE
payment of $44.00 in cash for TAX CONSEQUENCES OF THE MERGER TO
each share of your Telemundo YOU.
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1
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<TABLE>
<S> <C>
Q: WHEN AND WHERE IS THE SPECIAL David E. Yurkerwich, both of
STOCKHOLDER MEETING? whom are directors of
Telemundo, have also expressed
A: The special meeting of an intent to vote their shares
Telemundo's stockholders will in favor of the merger. As of
be held on June 16, 1998 at The the record date, the total
Rihga Royal Hotel, 151 West number of shares with respect
54th Street, New York, New York to which an intent to vote in
10019 at 10:00 a.m. local time. favor of the approval and
adoption of the merger
Q: WHO CAN VOTE ON THE MERGER AND agreement has been expressed,
THE INCENTIVE PLAN? or with respect to which a vote
in favor of the merger is
A: Holders of Telemundo's Series A required, was an aggregate of
Common Stock and Series B 4,104,084 shares, representing
Common Stock at the close of approximately 40.0% of the
business on May 12, 1998, the total number of shares of
record date relating to the common stock outstanding as of
stockholder meeting, may vote such date.
on the merger and the incentive
plan at the stockholder The incentive plan must be
meeting. approved by the affirmative
vote of at least a majority of
Q: WHAT VOTE IS REQUIRED? the outstanding shares of
Series A and Series B Common
A: The merger must be approved by Stock, voting together as a
the affirmative vote of at single class.
least a majority of the
outstanding shares of Series A The persons who have expressed
and Series B Common Stock, an intent to vote their shares
voting together as a single in favor of the merger, as
class. Certain stockholders of described above, have also
Telemundo have already expressed an intent to vote
expressed an intent to vote in their shares in favor of the
favor of the approval and incentive plan.
adoption of the merger
agreement and the transactions As of the record date, the
contemplated thereby. total number of shares of
Furthermore, the merger common stock with respect to
agreement requires that certain which an intent to vote in
stockholders affiliated with favor of the approval and
the purchaser vote their shares adoption of the incentive plan
in favor of the merger. has been expressed was
4,104,084 shares, representing
Bastion Capital Fund, L.P., approximately 40.0% of the
TLMD Partners II, L.L.C. and total number of shares of
Mr. Leon Black, a director of common stock outstanding as of
Telemundo, each of whom may be such date.
deemed to be an affiliate of
the purchaser, and Hernandez Q: WHAT DO I NEED TO DO NOW?
Partners, an affiliate of Mr.
Roland A. Hernandez, A: After you have carefully
Telemundo's chief executive reviewed this Proxy Statement,
officer, have agreed pursuant please indicate how you want to
to a shareholders agreement to vote on your proxy card and
have their shares voted by a sign and mail it in the
three-member voting committee enclosed return envelope as
acting by a majority vote. A soon as possible, in order that
majority of the members of the your shares will be represented
voting committee has expressed at the stockholder meeting. If
an intention to vote in favor you sign and send in the proxy
of the merger. In addition, Mr. card and do not indicate how
Donald J. Tringali, an you want to vote, your proxy
executive officer of Telemundo, will be voted FOR the approval
and Messrs. Alan Kolod and and adoption of the
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
merger agreement and the submit your notice of revocation
transactions contemplated or your new proxy card to the
thereby and FOR the approval and General Counsel and Secretary of
adoption of the incentive plan. Telemundo at 2290 West 8th
If you do not vote by either Avenue, Hialeah, Florida 33010.
sending in your proxy card or Telemundo must receive the
voting in person at the notice or new proxy card before
stockholder meeting, it will the vote is taken at the
have the same effect as a vote stockholder meeting. Third, you
AGAINST the approval and can attend the stockholder
adoption of the merger agreement meeting and vote in person.
and the transactions Simply attending the stockholder
contemplated thereby and AGAINST meeting, however, will not
the approval and adoption of the revoke your proxy. If you have
incentive plan. instructed a broker to vote your
shares, you must follow the
Q: IF MY SHARES ARE HELD IN "STREET directions received from your
NAME" BY MY BROKER, WILL MY broker as to how to change your
BROKER VOTE MY SHARES FOR ME? vote.
A: Your broker will vote your Q: SHOULD I SEND IN MY STOCK
shares only if you provide CERTIFICATES NOW?
instructions as to how to vote
your shares. You should follow A: No. After the merger is
the directions provided by your completed, we will send you
broker regarding how to instruct written instructions for sending
your broker to vote your shares. in your stock certificates and
Without instructions, your receiving the cash payment for
shares will not be voted by that your shares.
broker and the failure to vote
will have the same effect as a Q: WHAT OTHER MATTERS WILL BE VOTED
vote AGAINST the approval and ON AT THE STOCKHOLDER MEETING?
adoption of the merger agreement
and the transactions A: In addition to the merger, you
contemplated thereby and AGAINST will be asked to approve and
the approval and adoption of the adopt an incentive plan which
incentive plan. may provide four of our
executive officers, Messrs.
Q: CAN I CHANGE MY VOTE AFTER I Roland A. Hernandez, Stephen J.
HAVE MAILED MY SIGNED PROXY Levin, Donald J. Tringali and
CARD? Peter J. Housman II, with annual
bonuses in the future based upon
A: Yes. You can change your vote at the achievement of certain
any time before the vote is performance goals related to
taken at the stockholder cash flow. The proposal to
meeting. You can do this in one approve and adopt the incentive
of three ways. First, you can plan is separate from, and is in
send a written notice dated no way conditioned upon the
later than your proxy card outcome of the vote on, the
stating that you would like to proposal to approve and adopt
revoke your current proxy. the merger agreement and the
Second, you can complete and transactions contemplated
submit a new proxy card dated thereby. We do not expect to ask
later than your original proxy you to vote on any other matters
card. If you choose either of at the stockholder meeting.
these two methods, you must
</TABLE>
3
<PAGE>
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the merger or the incentive plan you should
contact:
Telemundo Group, Inc.
2290 West 8th Avenue
Hialeah, Florida 33010
Attention: Secretary
Phone Number: (305) 884-8200
If you would like additional copies of this Proxy Statement, or if you have
questions about how to complete and return your proxy card, you should contact:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Attention: Jeanne Carr
Phone Number: (800) 322-2885
4
<PAGE>
SUMMARY
This summary only highlights selected information from this Proxy Statement
and may not contain all of the information that is important to you. To fully
understand the merger and incentive plan, and for a description of the legal
terms of the merger, you should read carefully this entire Proxy Statement and
the documents to which we have referred you. See "Where You Can Find More
Information" on page 89.
<TABLE>
<S> <C>
THE COMPANIES APOLLO INVESTMENT FUND III, L.P.
c/o Two Manhattanville Road
(SEE PAGES 17 AND 18) Purchase, New York 10577
(914) 694-8000
TELEMUNDO GROUP, INC.
2290 West 8th Avenue Apollo Investment Fund III, L.P.,
Hialeah, Florida 33010 a Delaware limited partnership, is
(305) 884-8200 principally engaged in the business
of investment in securities. Apollo
Telemundo Group, Inc., together Investment Fund III, L.P. may be
with its subsidiaries, is one of deemed to be an affiliate of TLMD
two Spanish-language television Partners II, L.L.C., which is a
broadcast networks currently significant stockholder in
operating in the United States. The Telemundo. TLMD Partners II, L.L.C.
Telemundo network provides and Mr. Leon Black, who may be
programming 24-hours per day, deemed to be an affiliate of Apollo
serving 61 markets in the United Investment Fund III, L.P., directly
States, including the 37 largest owned an aggregate of 1,753,400
Hispanic markets, and reaches shares on May 12, 1998, the record
approximately 85% of all U.S. date, representing approximately
Hispanic households. The Telemundo 17.1% of the total number of shares
network offers a variety of of common stock outstanding as of
entertainment and news programs, such date.
including movies, telenovelas, talk
and entertainment shows, national BASTION CAPITAL FUND, L.P.
and international news, music and 1999 Avenue of the Stars
sporting events. Suite 2960
Los Angeles, California 90067
TLMD STATION GROUP, INC. AND TLMD (310) 788-5700
ACQUISITION CO.
c/o Two Manhattanville Road Bastion Capital Fund, L.P., a
Purchase, New York 10577 Delaware limited partnership, is
(914) 694-8000 principally engaged in the business
TLMD Acquisition Co. is a wholly of making and holding investments.
owned subsidiary of TLMD Station Bastion Capital Fund, L.P. is a
Group, Inc., the purchaser of significant stockholder in, and may
Telemundo in the merger. These be deemed to be an affiliate of,
corporations were organized solely Telemundo and owned 1,847,685
for the purpose of acquiring shares as of the record date,
Telemundo in the merger, and have representing approximately 18.0% of
not carried on any activities to the total number of shares of
date other than activities incident common stock outstanding as of such
to their formation and as date.
contemplated by the merger
agreement. At the time the merger
is completed, TLMD Station Group,
Inc. will be beneficially owned by
Apollo Investment Fund III, L.P.,
Bastion Capital Fund, L.P., Liberty
Media Corporation, and Sony
Pictures Entertainment Inc.
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LIBERTY MEDIA CORPORATION purchaser or its affiliates, has
determined that the merger is fair
8101 East Prentice Avenue to and in the best interests of the
Suite 500 stockholders, other than
Englewood, Colorado 80111 stockholders affiliated with the
(303) 721-5400 purchaser or its affiliates, and
unanimously recommends that you
Liberty Media Corporation is the vote FOR the approval and adoption
programming unit of Tele- of the merger agreement and the
Communications, Inc., and owns transactions contemplated thereby.
interests in numerous globally-
branded entertainment and The special committee was formed
electronic retailing networks. on November 21, 1997 at the meeting
Liberty, through its subsidiaries of Telemundo's board following the
and affiliates, is a provider of receipt of three transaction
satellite-delivered video proposals, including a proposal
entertainment, information and home from the purchaser, to acquire
shopping programming services to Telemundo. The special committee
various distribution media, was constituted because of the
including cable television systems, participation by Apollo Investment
broadcast television stations and Fund III, L.P. and Bastion Capital
home satellite dishes. Fund, L.P. in the purchaser's
proposal. The special committee was
SONY PICTURES ENTERTAINMENT INC. comprised of Messrs. Roland A.
10202 West Washington Boulevard Hernandez, Alan Kolod, Barry W.
Culver City, California 90232 Ridings and David E. Yurkerwich,
(310) 244-4000 the members of Telemundo's board
who have no financial interest in
Sony Pictures Entertainment is a the purchaser or its affiliates.
global entertainment company which The special committee was delegated
has operations including motion exclusive authority for
picture production and consideration of the transaction
distribution, television channels, proposals that had been received by
production and syndication, home Telemundo. Prior to the formation
video acquisition and distribution, of the special committee, no member
operation of studio facilities and of Telemundo's board who was, or
development of new entertainment may be deemed to be, affiliated
products, services and with the purchaser conducted any
technologies. Sony Pictures negotiations on behalf of Telemundo
Entertainment is a subsidiary of with respect to any transaction
Sony Corporation, one of the proposal. For additional
world's leading manufacturers of information regarding the special
audio, video, television and committee, see "Special Factors--
information products and electronic Background of the Merger."
components. With its music, filmed
entertainment and video game The board of directors of
businesses, Sony Corporation is one Telemundo also unanimously
of the world's leading recommends that you vote FOR the
entertainment companies. approval and adoption of the
incentive plan.
OUR RECOMMENDATIONS TO STOCKHOLDERS
RECORD DATE; VOTING POWER
(SEE PAGES 30 THROUGH 35)
(SEE PAGES 19 AND 20)
The board of directors of
Telemundo, relying upon the At the stockholder meeting, you
unanimous recommendation of a are entitled to one vote for each
special committee of directors who share of
have no financial interest in the
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Telemundo common stock you hold of As of the record date, these
record as of the record date. As of significant stockholders (including
the record date, there were the stockholders which may be
10,267,325 shares of Telemundo deemed to be affiliates of the
common stock which are entitled to purchaser referred to above) owned
vote at the stockholder meeting. an aggregate of 4,101,084 shares,
representing approximately 39.9% of
The merger agreement and the the total number of shares of
incentive plan must each be common stock outstanding as of such
approved by the affirmative vote of date.
at least a majority of the
outstanding shares of Telemundo's The directors and executive
Series A and Series B Common Stock, officers of Telemundo who own
voting together as a single class. common stock have indicated that
they intend to vote all of their
We do not expect to ask common stock in favor of the
stockholders to vote on any other approval and adoption of the merger
matters at the stockholder meeting. agreement and the transactions
However, if any other matters are contemplated thereby. As of the
properly presented at the record date, the directors and
stockholder meeting for executive officers (other than the
consideration, the persons named by significant stockholders and
the stockholders to be their affiliates of the purchaser
proxies will have discretion to referred to above) were entitled to
vote on such matters in accordance vote an aggregate of 3,000 shares
with their best judgment. Proxies of Telemundo's common stock,
voting against a specific proposal representing less than 1% of the
may not be used by such persons to total number of shares of common
vote for adjournment of the meeting stock outstanding as of such date.
for the purpose of giving
management additional time to As of the record date, the total
solicit votes in favor of such number of shares with respect to
proposal. which an intent to vote in favor of
the approval and adoption of the
SHARE OWNERSHIP OF CERTAIN merger agreement has been
STOCKHOLDERS AND MANAGEMENT expressed, or with respect to which
a vote in favor of the merger is
(SEE PAGE 20) required, was an aggregate of
4,104,084 shares, representing
The merger agreement requires approximately 40.0% of the total
that all shares of common stock number of shares of common stock
owned by the purchaser or its outstanding as of such date.
affiliates be voted in favor of the
merger. The persons who have expressed an
intent to vote their shares in
Bastion Capital Fund, L.P., TLMD favor of the merger, as described
Partners II, L.L.C., Mr. Leon Black above, have also expressed an
and Hernandez Partners, each a intent to vote their shares in
significant stockholder of favor of the incentive plan. As of
Telemundo, have agreed pursuant to the record date, the total number
a shareholders agreement to have of shares with respect to which an
their shares voted by a three- intent has been expressed to vote
member voting committee acting by in favor of the approval and
majority vote. A majority of the adoption of the incentive plan was
members of the voting committee has 4,104,084, representing
expressed an intention to vote in approximately 40.0% of the total
favor of the approval and adoption number of shares of common stock
of the merger agreement and the outstanding as of such date.
transactions contemplated thereby.
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THE MERGER certain directors and members of
the existing senior management of
(SEE PAGES 71 THROUGH 82) Telemundo may be designated as
members of the initial board of
The merger agreement is described directors and senior management of
on pages 71 through 82 and attached Telemundo following the merger. The
as Annex A to this Proxy Statement. merger agreement provides that the
We encourage you to read carefully directors of TLMD Acquisition Co.
the merger agreement in its will be the directors of Telemundo
entirety as it is the legal following the completion of the
document that governs the merger. merger. Presently, Mr. Edward M.
Yorke, a director of Telemundo, is
APPRAISAL RIGHTS a director of TLMD Acquisition Co.
and it is contemplated that
(SEE PAGES 65 THROUGH 68) Mr. Yorke will continue to be a
director of Telemundo following the
Telemundo is a corporation completion of the merger. For a
organized under Delaware law. Under list of the executive officers of
Delaware law, if you do not vote in Telemundo who are expected to
favor of the merger and you follow continue to be executive officers
all of the procedures for demanding at the time of the merger, see page
your appraisal rights described on 46.
pages 65 through 68 and in Annex E,
you may receive a cash payment for Certain officers and directors of
the "fair value" of your shares of Telemundo have employment and stock
common stock instead of the amount option agreements that will provide
to be received by the other them with certain benefits if the
stockholders pursuant to the merger merger occurs. For example, certain
agreement. If you properly exercise officers of Telemundo have
and perfect your appraisal rights, employment agreements that entitle
the fair value of your shares will them to compensation if their
be determined by the Delaware Court employment with Telemundo is
of Chancery and may be more than, terminated under certain specified
the same as or less than the amount conditions following a change of
you would have received in the control transaction. The merger
merger if you had not exercised constitutes such a transaction.
your appraisal rights. IF YOU WANT Telemundo estimates that the
TO EXERCISE YOUR APPRAISAL RIGHTS, maximum aggregate payments required
YOU ARE URGED TO READ AND CAREFULLY to be paid under such employment
FOLLOW THE PROCEDURES ON PAGES 65 agreements would be approximately
THROUGH 68 AND IN ANNEX E. FAILURE $5,592,000, assuming all such
TO TAKE ANY OF THE STEPS REQUIRED officers' employment with Telemundo
UNDER DELAWARE LAW WILL RESULT IN is terminated as of July 1, 1998
THE LOSS OF YOUR APPRAISAL RIGHTS. under such conditions and that the
performance goals for such year
CURRENT RELATIONSHIPS AND have not been achieved.
TRANSACTIONS; INTERESTS OF CERTAIN Additionally, certain officers and
PERSONS directors will receive cash in
exchange for outstanding stock
(SEE PAGES 47 THROUGH 50 AND options, including stock options
PAGES 50 THROUGH 58) which will vest as a result of the
merger. The aggregate amount to be
You should note that a number of paid to such officers and directors
directors and executive officers of for their stock options will be
Telemundo have interests in approximately $26,106,675. For the
approving the merger as employees aggregate value of benefits to be
and/or directors that are different received by each named executive
from, or in addition to, the officer and director of Telemundo
interests of Telemundo's as a result of the merger, see the
stockholders generally. For table on page 56, and the notes
example, certain directors have thereto.
interests in the purchaser and
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Messrs. Hernandez, Tringali, see "Special Factors--Background of
Levin and Housman, each an the Merger."
executive officer of Telemundo,
would be eligible to receive annual BACKGROUND OF THE MERGER
bonuses in the future based upon
Telemundo's achievement of certain (SEE PAGES 22 THROUGH 30)
performance objectives related to
cash flow if the incentive plan is For a description of the events
approved and adopted by the leading to the approval of the
stockholders. As of the record merger agreement by the board of
date, such officers were entitled directors, see "Special Factors--
to vote an aggregate of 1,500 Background of the Merger."
shares, representing less than 1%
of the outstanding common stock on At the effective time of the
such date. Such shares do not merger, Apollo Investment
include shares owned by Hernandez Fund III, L.P., which may be deemed
Partners, L.P., an affiliate of Mr. to be an affiliate of TLMD
Hernandez, which are voted as Partners II, L.L.C. and Mr. Leon
determined by a voting committee. Black, both significant
stockholders of Telemundo, and
In addition, certain of the Bastion Capital Fund, L.P., a
stockholders of Telemundo or their significant stockholder of
affiliates have interests in Telemundo, will indirectly own, in
approving the proposed merger which the aggregate, 50.1% of the
are different from, or in addition purchaser. Following the merger,
to, the interests of Telemundo's the purchaser will own 100% of
stockholders generally. In Telemundo's capital stock and will
particular, at the effective time be the sole beneficiary of any
of the merger, Apollo Investment future earnings and growth of
Fund III, L.P., which may be deemed Telemundo and any divestitures,
to be an affiliate of TLMD Partners acquisitions and other corporate
II, L.L.C. and Mr. Leon Black, both opportunities. Upon completion of
significant stockholders of the merger, Telemundo's current
Telemundo, and Bastion Capital stockholders, other than those
Fund, L.P., a significant affiliated with the purchaser or
stockholder of Telemundo, will its affiliates, will cease to have
indirectly own, in the aggregate, a any further ownership interest in,
50.1% interest in the purchaser. or rights as stockholders of,
Telemundo. For more information on
For more information on the the interests of certain directors
interests of certain officers, and stockholders in the merger
directors and stockholders in the which may be different from, or in
merger which may be different from, addition to, the interests of
or in addition to, the interests of Telemundo's stockholders generally,
Telemundo's stockholders generally, see "Special Factors--Current
see "Special Factors--Current Relationships and Transactions" and
Relationships and Transactions" and "--Interests of Certain Persons."
"--Interests of Certain Persons."
RECOMMENDATIONS; FAIRNESS OF THE
In light of the participation by MERGER
Apollo Investment Fund III, L.P.
and Bastion Capital Fund, L.P. in (SEE PAGES 30 THROUGH 35)
the purchaser's proposal, the board
constituted a special committee The special committee's decision
comprised of directors of Telemundo to recommend that the board of
who have no financial interest in directors approve and the board of
the purchaser or its affiliates, directors' decision to approve the
and delegated exclusive authority merger agreement and the
to the special committee for transactions contemplated thereby
consideration of the transaction was based upon a number of factors
proposals that had been received by which are described in "Special
Telemundo. In addition, the special Factors--Recommendations of the
committee retained and was assisted Special Committee and the Board of
by a separate financial advisor. Directors; Fairness of the Merger."
For additional information
regarding the special committee,
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IN CONSIDERING THE CONCLUSIONS OF purchaser and their affiliates.
THE BOARD OF DIRECTORS WITH RESPECT Lazard Freres & Co. LLC will
TO THE MERGER, YOU SHOULD BE AWARE receive a fee for its services as
THAT CERTAIN OF THE DIRECTORS AND financial advisors to Telemundo,
OFFICERS OF TELEMUNDO HAVE including, the rendering of its
INTERESTS IN APPROVING THE MERGER opinion. Telemundo has paid Lazard
THAT ARE DIFFERENT FROM, OR IN quarterly retainer fees totaling
ADDITION TO, THE INTERESTS OF $500,000, which will be credited
TELEMUNDO'S STOCKHOLDERS GENERALLY. against the $3.5 million payable to
Lazard upon consummation of the
For example, Messrs. Black, merger. The special committee
Spector and Yorke, each of whom are received an opinion from Salomon
directors of Telemundo, may be Brothers Inc that, based upon and
deemed to be affiliates or subject to the various
associates of the purchaser or its considerations set forth in the
affiliates. Further, Messrs. Bron opinion, the consideration to be
and Villanueva, each of whom are received in the merger was fair,
directors of Telemundo, are from a financial point of view, to
affiliates of Bastion Capital Fund, the holders of common stock, other
L.P., which may be deemed to be an than the stockholders affiliated
affiliate of the purchaser. For with the purchaser or its
more information concerning the affiliates. Telemundo has agreed to
interests of officers and directors pay Salomon a fee of $750,000 upon
in approving the merger that are delivery of its opinion, which fee
different from, or in addition to, is not contingent upon the
the interests of Telemundo's consummation of the merger. The
stockholders generally, see full text of these opinions is
"Special Factors--Current attached as Annexes B and C to this
Relationships and Transactions" and document. WE URGE YOU TO READ THESE
"--Interests of Certain Persons." OPINIONS CAREFULLY.
In light of the participation by CERTAIN EFFECTS OF THE MERGER;
Apollo Investment Fund III, L.P. PLANS FOR TELEMUNDO AFTER THE
and Bastion Capital Fund, L.P. in MERGER
the purchaser's proposal, the board
constituted a special committee (SEE PAGES 45 THROUGH 47)
comprised of directors of Telemundo
who have no financial interest in Following the merger, the
the purchaser or its affiliates, purchaser will own 100% of
and delegated exclusive authority Telemundo's capital stock and will
to the special committee for be the sole beneficiary of any
consideration of the transaction future earnings and growth of
proposals that had been received by Telemundo and any divestitures,
Telemundo. For additional acquisitions and other corporate
information regarding the special opportunities. Apollo Investment
committee, see "Special Factors-- Fund III, L.P., which may be deemed
Background of the Merger." to be an affiliate of TLMD Partners
II, L.L.C. and Mr. Leon Black, both
FAIRNESS OPINIONS OF FINANCIAL significant stockholders of
ADVISORS Telemundo, and Bastion Capital
Fund, L.P., a significant
(SEE PAGES 35 THROUGH 41) stockholder of Telemundo, will
indirectly own, in the aggregate,
The board of directors and the 50.1% of the purchaser. Upon
special committee received an completion of the merger,
opinion from Lazard Freres & Co. Telemundo's current stockholders,
LLC that, based upon and subject to other than those affiliated with
various considerations set forth in the purchaser or its affiliates,
the opinion, the $44.00 base will cease to have any ownership
consideration to be received in the interests in, or rights as
merger was fair, stockholders of, Telemundo.
from a financial point of view, to
the holders of common stock, other
than the beneficial owners of the
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After the merger, Telemundo will CONDITIONS TO THE MERGER
be a closely-held corporation.
There will be no public market for (SEE PAGES 79 AND 80)
Telemundo's common stock or
warrants and the Series A Common The merger will be completed only
Stock, and the Series A Common if a number of conditions are met
Stock Purchase Warrants will cease or waived, including the following:
to be quoted on the National Market
Tier and Small Cap Market Tier, . the required approval of
respectively, of the Nasdaq Stock Telemundo's stockholders has
Market. The registration of its been obtained,
Series A Common Stock and Series A
Common Stock Purchase Warrants . all necessary approvals, including
under the Securities Exchange Act the approval of the Federal
of 1934, as amended, will be Communications Commission which
terminated and does not contain certain conditions
Telemundo will no longer be or restrictions, have been obtained
required to file periodic reports and remain in effect,
with the Securities and Exchange
Commission in connection with its . the waiting period imposed by the
common stock or warrants. Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as
Contemporaneously with or amended, has expired or been
immediately following completion of terminated,
the merger, the purchaser intends
to sell Telemundo's network . no law, injunction or order
operations to a newly formed restrains or prohibits the
company to be equally owned by completion of the merger, and
Liberty Media Corporation and Sony
Pictures Entertainment Inc. The . the purchaser has obtained the
consideration to be paid for financing necessary to complete
Telemundo's network operations will the merger and to provide
be $73.2 million, subject to upward working capital for Telemundo's
adjustment under certain business.
circumstances. The new company will
enter into an affiliation agreement TERMINATION OF THE MERGER AGREEMENT
with television stations owned and
operated by Telemundo pursuant to (SEE PAGES 81 AND 82)
which it will provide network
programming to the television Telemundo and the purchaser may
stations and share local, national agree to terminate the merger
spot and network advertising agreement at any time. In addition,
revenues with Telemundo. either party may terminate the
merger agreement if:
In connection with the strategic
transaction process, Telemundo's . a court or other government
board considered a broad range of body issues a final order
potential transaction structures or ruling that restrains
involving a variety of parties. or prohibits the merger,
These structures included, in
addition to the sale of 100% of . Telemundo's stockholders
Telemundo, strategic programming do not approve the merger
transactions and sales of all or a agreement, or
portion of Telemundo's stock or
assets. Based on the information . the merger is not completed
provided by the entities which by December 31, 1998 (other
expressed an interest in pursuing a than because the terminating
transaction with Telemundo, the party breached the merger
board determined that the sale of agreement).
100% of Telemundo was the structure
most likely to meet Telemundo's
objective of maximizing stockholder
value. See "Special Factors--
Background of the Merger."
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Telemundo may also terminate the PAYMENT OF FEES UPON OTHER
merger agreement under the TERMINATION EVENTS
circumstances described under "What
Happens if Telemundo Receives a (SEE PAGES 81 AND 82)
Better Offer" below.
In addition to the termination
Termination of the merger fees and expense reimbursement
agreement by either party may be described above:
before or after stockholder
approval, except as described . if the merger agreement is terminated
below. Under certain circumstances, by either party because Telemundo's
Telemundo or the purchaser will be stockholders do not approve it, and
required to pay fees and expenses at the time of the stockholder meeting
to the other as a result of the Telemundo has received a proposal for
termination, as described below. another transaction or prior to
termination of the merger agreement
WHAT HAPPENS IF TELEMUNDO RECEIVES Telemundo's board of directors has
A BETTER OFFER withdrawn or modified its approval or
recommendation of the merger agreement,
(SEE PAGES 81 AND 82) and within one year of the termination
of the merger agreement Telemundo enters
If someone other than the into any agreement for another proposal
purchaser proposes to acquire or completes another proposal, then
Telemundo in a transaction which is Telemundo must pay the purchaser a
superior to the merger from a termination fee of $15 million and
financial point of view to reimburse the purchaser for up to $2.5
Telemundo's stockholders, Telemundo million of expenses incurred in
may terminate the merger agreement connection with the merger; or
if it simultaneously enters into an
agreement for the other . if the merger agreement is terminated
transaction. by either Telemundo or the purchaser
because the merger has not been
Telemundo must notify the completed by December 31, 1998, and
purchaser and wait for five the delay was due solely to the
business days before it enters into failure by the purchaser to obtain
an agreement for the other from the Federal Communications
transaction. In determining whether Commission an order regarding the
to terminate the merger agreement, transfer of Telemundo's broadcast
Telemundo's board of directors must licenses that satisfies certain
decide that the other offer is conditions, then the purchaser must
still superior from a financial pay Telemundo a termination fee of
point of view to Telemundo's $17.5 million.
stockholders in light of any
revised proposal made by the AMENDING OR WAIVING TERMS OF THE
purchaser. MERGER AGREEMENT
If Telemundo terminates the (SEE PAGE 82)
merger agreement as described
above, it must pay the purchaser a Telemundo and the purchaser may
$15 million termination fee. amend the merger agreement by
Telemundo must also reimburse the mutual consent before or after
purchaser for up to $2.5 million of Telemundo's stockholders approve
expenses incurred in connection the merger. Also, either the
with the merger. purchaser or Telemundo may waive
conditions that, under the merger
agreement, would allow it to
terminate the merger agreement.
Once Telemundo's stockholders
approve the merger,
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however, applicable law or the Federal Trade Commission. A waiting
merger agreement may require that period must expire or be terminated
certain subsequent amendments or before the merger may be completed.
waivers also be approved by the The purchaser, Telemundo and
stockholders, in which case certain affiliates of the purchaser
Telemundo will re-solicit proxies made the required filings with the
from the stockholders. Under the Antitrust Division and the Federal
merger agreement, any amendment Trade Commission on February 20,
which decreases the price per 1998. Notice of early termination
share, changes the form of of all applicable HSR waiting
consideration to be paid to periods has been received.
stockholders in the merger or which
adversely affects the rights of the FINANCING FOR THE MERGER
stockholders requires the approval
of Telemundo's stockholders and (SEE PAGES 58 THROUGH 61)
would require Telemundo to
resolicit proxies. If neither The purchaser estimates that
applicable law nor the merger approximately $776.4 million will
agreement requires such re- be required to complete the merger
solicitation, Telemundo will not and pay related fees and expenses,
re-solicit proxies. assuming that the purchaser decides
to refinance Telemundo's existing
REGULATORY APPROVALS senior notes. The purchaser
(SEE PAGES 62 AND 63) currently contemplates that it will
The purchaser and Telemundo may refinance the senior notes,
not complete the merger until the although no final determination has
Federal Communications Commission been made either to do so or of the
approves the transfer of control of material terms thereof were such
the FCC licenses held by Telemundo. refinancing to occur. There can be
The parties filed applications no assurance that the senior notes
requesting the FCC's consent to the will, in fact, be refinanced. The
transfer of Telemundo's broadcast purchaser expects to fund these
licenses on December 30, 1997. On amounts through new credit
February 18, 1998, Univision facilities with a syndicate of
Communications, Inc. filed a banks, public or private offerings
Petition to Deny with the FCC with of debt securities, equity
respect to the FCC's consideration contributions from its stockholders
of the merger and the resulting and the sale of certain assets of
change of control of Telemundo's Telemundo. The purchaser has
FCC broadcast licenses. On March 4, received commitments from financial
1998, Telemundo and the purchaser institutions and its stockholders
separately filed Oppositions to the in an amount sufficient to fund
Univision Petition to Deny with the these amounts.
FCC. On March 16, 1998, Univision
filed a consolidated Reply to the CERTAIN FEDERAL INCOME TAX
Oppositions. On March 31, 1998, the CONSEQUENCES
purchaser filed a response to
Univision's Reply, and on April 10, (SEE PAGES 64 AND 65)
1998 Univision filed a Rebuttal to
the purchaser's response. Although The receipt of cash for shares of
Telemundo's regulatory counsel common stock in the merger will be
believes that the FCC will approve a taxable transaction for federal
the transfers, the timing or income tax purposes and may also be
outcome of the FCC approval process a taxable transaction under
cannot be predicted. applicable state, local, foreign or
other tax laws. Generally, you will
The Hart-Scott-Rodino Antitrust recognize gain or loss for federal
Improvements Act of 1976, as income tax purposes equal to the
amended, requires the purchaser, difference between the cash
Telemundo and certain affiliates of received in connection with the
the purchaser to give information merger and your tax basis for the
to the Antitrust Division of the shares of common stock that you
Department of Justice and the owned immediately prior to the
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merger. For federal income tax intend to contest the actions
purposes, such gain or loss vigorously. We do not believe that
generally would be a capital gain these matters will have any
or loss if you held the shares of significant impact on the timing or
common stock as a capital asset. completion of the merger; however,
there can be no assurance that a
TAX MATTERS ARE VERY COMPLICATED, motion to enjoin the transactions
AND THE TAX CONSEQUENCES OF THE contemplated by the merger
MERGER TO YOU WILL DEPEND ON THE agreement will not be made and, if
FACTS OF YOUR OWN SITUATION. YOU made, that it would not be granted.
SHOULD CONSULT YOUR TAX ADVISOR FOR
A FULL UNDERSTANDING OF THE TAX On March 5, 1998, the six actions
CONSEQUENCES OF THE MERGER TO YOU. were consolidated for all purposes.
To date none of the defendants has
LITIGATION RELATED TO THE MERGER been required to answer, move or
otherwise respond to the complaints
(SEE PAGE 61) and no discovery has been taken.
As of the date of this Proxy PRICE RANGE OF COMMON STOCK AND
Statement, we are aware of six WARRANTS
lawsuits that have been filed
relating to the merger. Telemundo (SEE PAGE 85)
and its directors are defendants in
all of the lawsuits. Certain Telemundo's Series A Common Stock
stockholders of Telemundo who may and certain of the Series A Common
be deemed to be affiliates of the Stock Purchase Warrants are quoted
purchaser or its affiliates are on the National Market Tier and the
also defendants in two of the Small Cap Market Tier,
lawsuits. The lawsuits were filed respectively, of the Nasdaq Stock
by various securities holders Market. The high and low sales
claiming to represent all prices on Nasdaq for the Series A
stockholders of Telemundo. Common Stock were $25 1/2 per share
and $24 3/4 per share,
While the allegations of each respectively, on July 16, 1997 and
complaint are not identical, all of the high and low sales prices for
the lawsuits generally assert that certain of the Series A Common
the $44.00 per share price to be Stock Purchase Warrants were both
paid to the stockholders of $19 per warrant on July 9, 1997,
Telemundo not affiliated with the the last respective dates on which
purchaser or its affiliates is trades were made for such
inadequate and does not represent securities prior to the date on
the value of the assets and future which Telemundo publicly announced
prospects of Telemundo and that the that it was pursuing discussions
merger agreement serves no with strategic programming partners
legitimate business purpose. The for purposes of expanding its
complaints also allege that the programming options and enhancing
defendants engaged in self-dealing stockholder value. On November 21,
without regard to conflicts of 1997, the last trading day prior to
interest and that the defendants Telemundo's public announcement of
breached their fiduciary duties in the execution of the merger
approving the merger agreement. agreement, the Series A Common
Stock and certain of the Series A
All of the complaints seek to Common Stock Purchase Warrants
prohibit, among other things, closed at $39 3/8 per share and $32
completion of the merger. To date per warrant, respectively. On the
no motion to enjoin any of the record date, the Series A Common
proceedings contemplated by the Stock and certain of the Series A
merger agreement has been made. The Common Stock Purchase Warrants
complaints also seek unspecified closed at $42 3/4 per share and $34
damages, attorneys' fees and other 7/8 per warrant, respectively. WE
relief. We believe that the URGE YOU TO OBTAIN CURRENT MARKET
allegations contained in the QUOTATIONS.
complaints are without merit and
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
THE MANAGEMENT INCENTIVE concerning our possible or assumed
COMPENSATION PLAN results of operations. Also, when
we use words such as "believe,"
(SEE PAGE 93) "expect," "anticipate" or similar
expressions, we are making forward-
In addition to the proposal to looking statements. YOU SHOULD NOTE
approve and adopt the merger THAT MANY FACTORS COULD AFFECT OUR
agreement and the transactions FUTURE FINANCIAL RESULTS AND COULD
contemplated thereby, you will also CAUSE THESE RESULTS TO DIFFER
vote on a separate proposal to MATERIALLY FROM THOSE EXPRESSED IN
approve and adopt an incentive OUR FORWARD-LOOKING STATEMENTS AND
plan, which provides that certain PROJECTIONS. These factors include
of our executive officers may be the following:
granted annual bonuses in the
future based upon the achievement . the effect of economic conditions;
of certain performance goals
related to Telemundo's cash flow. . Telemundo's outstanding indebtedness
The proposal to approve and adopt and leverage;
the incentive plan is separate
from, and in no way conditioned . restrictions imposed by the terms of
upon the outcome of, the proposal Telemundo's indebtedness;
to approve and adopt the merger
agreement. A copy of the incentive . changes in advertising revenue
plan is attached as Annex D to this which are caused by changes in
Proxy Statement and we encourage national and local economic
you to read the incentive plan in conditions, the relative popularity
its entirety. of Telemundo's programming, the
demographic characteristics of
The board of directors of Telemundo's markets and other factors
Telemundo recommends that you vote outside Telemundo's control;
FOR the approval and adoption of
the incentive plan. . future capital requirements;
PROJECTIONS AND FORWARD-LOOKING . the impact of competition,
STATEMENTS including its impact on market
share and advertising revenue in
(SEE PAGES 41 THROUGH 44) each of Telemundo's markets;
We have made certain projections . the loss of key employees;
and forward-looking statements in
this Proxy Statement (and in . the modification or termination
documents that are incorporated by of network affiliation agreements;
reference) that are subject to
risks and uncertainties. Forward- . the availability of cost-effective
looking statements are not programming;
guarantees of performance. YOU ARE
CAUTIONED NOT TO PLACE UNDUE . the impact of litigation;
RELIANCE ON OUR PROJECTIONS AND
FORWARD-LOOKING STATEMENTS. . the impact of current or
TELEMUNDO DOES NOT NORMALLY pending legislation and
PUBLICLY DISCLOSE INTERNAL regulations, including FCC
MANAGEMENT PROJECTIONS OF THE TYPE rulemaking proceedings; and
INCLUDED IN THIS PROXY STATEMENT
AND, ACCORDINGLY, SUCH PROJECTIONS . other factors which may be
WERE NOT PREPARED WITH A VIEW described from time to time
TOWARD PUBLIC DISCLOSURE. YOU in filings of Telemundo with
SHOULD BE AWARE THAT WE MADE the Securities and Exchange
CERTAIN ASSUMPTIONS IN CALCULATING Commission.
THE PROJECTIONS, WHICH MAY PROVE
NOT TO HAVE BEEN, OR MAY NO LONGER
BE, ACCURATE. Forward-looking
statements include the information
</TABLE>
15
<PAGE>
SUMMARY SELECTED HISTORICAL FINANCIAL DATA
Set forth below is selected consolidated financial data of Telemundo as of
and for each of the five years in the period ended December 31, 1997. The data
should be read in conjunction with the historical consolidated financial
statements of Telemundo, and the notes thereto. Telemundo's consolidated
financial statements for the year ended December 31, 1997, which have been
audited by Deloitte & Touche LLP, independent auditors, are incorporated by
reference in this Proxy Statement from Telemundo's Annual Report on Form 10-K
for the year ended December 31, 1997. Prior to 1995, net income (loss) was
significantly impacted in certain years by nonrecurring income and expense
items related to Telemundo's financial restructuring. Telemundo was
recapitalized and adopted fresh start reporting as of December 31, 1994.
Consequently, for the years prior to 1995, Telemundo is referred to as the
Predecessor and net income (loss) per share is not applicable. See "Where You
Can Find More Information."
SELECTED HISTORICAL FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
PREDECESSOR
---------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............... $197,588 $202,713 $169,148 $183,894 $177,809
Operating income.......... 16,114 29,292 14,379 13,176 16,597
Reorganization items...... -- -- -- 76,255 (2,543)
Interest expense--net of
interest income.......... (20,849) (18,920) (14,489) (645) (24,411)
Loss from investment in
and disposal of
TeleNoticias............. -- (5,561) (6,355) (1,314) --
Income (loss) before
extraordinary item....... (13,444) (1,179) (10,088) 84,049 (14,059)
Extraordinary item--
extinguishment of debt... -- (17,243) -- 130,482 --
Net income (loss)......... (13,444) (18,422) (10,088) 214,531 (14,059)
Per share data:
Basic net loss per share:
Loss before
extraordinary item..... $ (1.32) $ (.12) $ (1.01)
Extraordinary item...... -- (1.71) --
-------- -------- --------
Net loss.............. $ (1.32) $ (1.83) $ (1.01) n/a n/a
======== ======== ======== ======== ========
Dividends declared on
common shares............ -- -- -- -- --
======== ======== ======== ======== ========
<CAPTION>
DECEMBER 31,
---------------------------------------------------
PREDECESSOR
-----------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........... $ 44,576 $ 44,769 $ 35,541 $ 32,325 $ 65,691
Broadcast licenses and
reorganization value in
excess of amounts
allocable to
identifiable assets,
net...................... 128,366 132,831 90,200 92,792 --
Total assets.............. 290,086 295,560 224,459 232,024 169,657
Long-term debt
(liabilities subject to
settlement prior to
1994).................... 189,081 179,695 108,032 100,724 326,784
Common stockholders'
equity (deficiency)...... 29,909 42,893 60,251 70,000 (214,816)
</TABLE>
16
<PAGE>
THE COMPANIES
TELEMUNDO GROUP, INC.
2290 West 8th Avenue
Hialeah, Florida 33010
(305) 884-8200
Telemundo Group, Inc., together with its subsidiaries (collectively,
"Telemundo"), is one of two Spanish- language television broadcast networks
currently operating in the United States. The Telemundo network provides
programming 24-hours per day, serving 61 markets in the United States,
including the 37 largest Hispanic markets, and reaches approximately 85% of
all U.S. Hispanic households. Telemundo has seven full-power owned and
operated UHF stations serving the seven largest Hispanic markets in the U.S.
- -- Los Angeles, New York, Miami, San Francisco, Chicago, San Antonio and
Houston. Telemundo also owns and operates the leading full-power VHF
television station and related production facilities in Puerto Rico. The
Telemundo network offers a variety of entertainment and news programs,
including movies, telenovelas, talk and entertainment shows, national and
international news, music and sporting events.
TLMD STATION GROUP, INC. AND TLMD ACQUISITION CO.
c/o Two Manhattanville Road
Purchase, New York 10577
(914) 694-8000
TLMD Station Group, Inc. (the "Purchaser") is a Delaware corporation which
will be beneficially owned by Apollo Investment Fund III, L.P. ("Apollo
Investment"), Bastion Capital Fund, L.P. ("Bastion"), Liberty Media
Corporation ("Liberty"), and Sony Pictures Entertainment Inc. ("SPE"). Apollo
Investment will indirectly own 34.06% of the Purchaser, Bastion will
indirectly own 16.04% of the Purchaser and Liberty and SPE will each own
24.95% of the Purchaser. Station Partners, LLC, an entity to be formed by
Apollo Investment and Bastion and to be owned approximately 68% by Apollo
Investment (or its affiliates) and approximately 32% by Bastion (or its
affiliates) ("Station Partners"), will be the record holder of an aggregate
50.1% ownership interest in the Purchaser. TLMD Acquisition Co. ("Sub") is a
Delaware corporation and a wholly owned subsidiary of the Purchaser. The
Purchaser and Sub were organized solely for the purpose of acquiring all of
the equity interests in Telemundo pursuant to the Agreement and Plan of
Merger, dated as of November 24, 1997 (the "Merger Agreement"), by and among
the Purchaser, Sub and Telemundo and have not carried on any activities to
date other than activities incident to their formation and contemplated by the
Merger Agreement.
APOLLO INVESTMENT FUND III, L.P.
c/o Two Manhattanville Road
Purchase, New York 10577
(914) 694-8000
Apollo Investment, a Delaware limited partnership, is principally engaged in
the business of investment in securities. Apollo Investment may be deemed to
be an affiliate of TLMD Partners II, L.L.C. ("TLMD II"), which is a
significant stockholder of Telemundo. As of the Record Date (as defined
herein), TLMD II and Mr. Leon Black, a director of Telemundo who may be deemed
to be an affiliate of Apollo Investment, owned an aggregate of 1,753,400
shares of common stock of Telemundo, representing approximately 17.1% of the
total number of shares of common stock outstanding as of such date. See
"Security Ownership of Certain Beneficial Owners and Management."
17
<PAGE>
BASTION CAPITAL FUND, L.P.
1999 Avenue of the Stars
Suite 2960
Los Angeles, California 90067
(310) 788-5700
Bastion, a Delaware limited partnership, is principally engaged in the
business of making and holding investments. Bastion is a significant
stockholder in, and may be deemed to be an affiliate of, Telemundo and owned
1,847,685 shares of common stock of Telemundo as of the Record Date,
representing approximately 18.0% of the total number of shares of common stock
outstanding as of such date. See "Security Ownership of Certain Beneficial
Owners and Management."
LIBERTY MEDIA CORPORATION
8101 East Prentice Avenue
Suite 500
Englewood, Colorado 80111
(303) 721-5400
Liberty is the programming unit of Tele-Communications, Inc., and owns
interests in numerous globally-branded entertainment and electronic retailing
networks. Liberty, through its subsidiaries and affiliates, is a provider of
satellite-delivered video entertainment, information and home shopping
programming services to various distribution media, including cable television
systems, broadcast television stations and home satellite dishes.
SONY PICTURES ENTERTAINMENT INC.
10202 West Washington Boulevard
Culver City, California 90232-3195
(310) 244-4000
Sony Pictures Entertainment is a global entertainment company which has
operations including motion picture production and distribution, television
channels, production and syndication, home video acquisition and distribution,
operation of studio facilities and development of new entertainment products,
services and technologies. Sony Pictures Entertainment is a subsidiary of Sony
Corporation, one of the world's leading manufacturers of audio, video,
television and information products and electronic components. With its music,
filmed entertainment and video game businesses, Sony Corporation is one of the
world's leading entertainment companies.
18
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to stockholders of Telemundo
("Stockholders") as part of the solicitation of proxies by the board of
directors of Telemundo (the "Board") for use at a special meeting of
Stockholders to be held on June 16, 1998 at The Rihga Royal Hotel, 151 West
54th Street, New York, New York 10019 at 10:00 a.m. local time, or any
adjournment or postponement thereof (the "Special Meeting"). This Proxy
Statement and the enclosed form of proxy are first being mailed to the
Stockholders on or about May 14, 1998.
The purpose of the Special Meeting is:
(a) to consider and vote on a proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereby (the "Merger
Proposal"), pursuant to which, among other things, at the effective time of
the Merger (the "Effective Time"), (i) Sub will merge with and into
Telemundo (the "Merger"), with Telemundo being the surviving corporation
and a wholly owned subsidiary of the Purchaser and (ii) each issued and
outstanding share of Series A Common Stock of Telemundo, par value $.01 per
share (the "Series A Common Stock"), and Series B Common Stock of
Telemundo, par value $.01 per share (the "Series B Common Stock" and,
together with the Series A Common Stock, the "Common Stock") (other than
shares of Common Stock held by the Purchaser, Sub or any other wholly owned
subsidiary of the Purchaser, or in the treasury of Telemundo or by any
wholly owned subsidiary of Telemundo, all of which will be canceled with no
payment being made with respect thereto, or by Stockholders who properly
exercise and perfect their statutory appraisal rights under Delaware law)
will be converted into the right to receive a payment in cash of $44.00 per
share (the "Base Consideration"), plus, if the Merger is not consummated
before July 30, 1998 and subject to certain conditions, an additional
amount per share equal to 8% per annum on $44.00 (approximately $0.29 per
share per month) accruing during the period beginning on July 30, 1998 and
ending on the day before the date on which the Merger is consummated (the
"Additional Amount" and, together with the Base Consideration, the "Merger
Consideration");
(b) to consider and vote on a proposal to approve and adopt the
Management Incentive Compensation Plan (the "Incentive Plan"), pursuant to
which certain executive officers of Telemundo may be granted annual bonuses
in the future based upon the achievement of certain performance goals
related to cash flow; and
(c) to consider and vote upon such other matters that may properly come
before the Special Meeting and any postponements or adjournments thereof.
The proposal to approve and adopt the Incentive Plan is separate from, and
is in no way conditioned upon the outcome of the vote on, the Merger Proposal.
The Merger Proposal is separate from, and is in no way conditioned upon the
outcome of the vote on, the proposal to approve and adopt the Incentive Plan.
Each copy of this Proxy Statement mailed to Stockholders is accompanied by a
form of proxy for use at the Special Meeting.
The Board, relying upon the unanimous recommendation of a special committee
comprised of directors who have no financial interest in the Purchaser or its
affiliates, has unanimously approved the Merger Proposal and recommends that
Stockholders vote FOR the approval and adoption of the Merger Proposal. In
addition, the Board has unanimously approved and recommends that Stockholders
vote FOR the approval and adoption of the Incentive Plan.
RECORD DATE AND VOTING
The Board has set May 12, 1998 as the Record Date. Only holders of record of
the Common Stock as of the close of business on the Record Date will be
entitled to notice of and to vote at the Special Meeting. Telemundo's only
class of voting securities is the Common Stock, which is divided into two
series, Series A Common Stock and Series B Common Stock. As of the Record
Date, there were outstanding and entitled to vote 7,180,827 shares of Series A
Common Stock and 3,086,498 shares of Series B Common Stock, which shares were
held by approximately 85 holders of record. Each share of Common Stock
entitles the holder thereof to one vote, which may be cast either in person or
by properly executed proxy at the Special Meeting. The Series A Common Stock
and the Series B Common Stock will vote together as a single class at the
Special Meeting.
19
<PAGE>
The approval and adoption of each of the Merger Proposal and the Incentive
Plan will require the affirmative vote of at least a majority of the shares of
Common Stock outstanding on the Record Date.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the
Special Meeting is necessary to constitute a quorum at the Special Meeting.
Shares that are entitled to vote but that are not voted at the direction of
the beneficial owner ("abstentions") and votes withheld by brokers in the
absence of instruction from beneficial holders ("broker nonvotes") will be
counted for the purpose of determining whether there is a quorum for the
transaction of business at the Special Meeting. Abstentions and broker
nonvotes will have the same effect as a vote AGAINST the approval and adoption
of the Merger Proposal and AGAINST the approval and adoption of the Incentive
Plan. FAILURE EITHER TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE IN
PERSON AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
APPROVAL AND ADOPTION OF THE MERGER PROPOSAL AND A VOTE AGAINST THE APPROVAL
AND ADOPTION OF THE INCENTIVE PLAN.
The Merger Agreement requires that all shares of Common Stock owned by the
Purchaser or its affiliates be voted in favor of the Merger.
As of the Record Date, TLMD II, which may be deemed to be an affiliate of
Apollo Investment, Mr. Black, a director of Telemundo who may be deemed to be
an affiliate of Apollo Investment, and Bastion directly owned, in the
aggregate, 3,601,085 shares of Common Stock, representing approximately 35.1%
of the total number of shares of Common Stock outstanding as of such date.
TLMD II, Mr. Black, and their respective affiliates are sometimes referred to
herein collectively as "Apollo." As of the Record Date, Hernandez Partners, a
California general partnership ("Hernandez Partners") of which Roland A.
Hernandez, the chief executive officer and a director of Telemundo, is a
general partner, owned 499,999 shares of Common Stock, representing
approximately 4.9% of the Common Stock outstanding as of such date.
Hernandez Partners, TLMD II, Mr. Black and Bastion (sometimes referred to
herein as the "Major Stockholders") agreed, pursuant to a shareholders
agreement, dated as of December 20, 1994 (as amended, the "Shareholders
Agreement"), that the Common Stock held by them, an aggregate of 4,101,084
shares of Common Stock (including shares required to be voted in favor of the
Merger referred to above), as of the Record Date, representing approximately
39.9% of the Common Stock outstanding as of such date, would be voted by a
three-member voting committee acting by majority vote. See "Current
Relationships and Transactions." A majority of the members of the voting
committee have indicated their present intention to vote the shares of Common
Stock subject to the Shareholders Agreement in favor of the approval and
adoption of the Merger Proposal.
In addition, as of the Record Date, directors and executive officers of
Telemundo owned, in the aggregate, 3,000 shares of Common Stock (excluding
shares required to be voted in favor of the Merger pursuant to the Merger
Agreement and shares subject to the Shareholders Agreement), representing less
than 1% of the Common Stock outstanding as of such date. Such directors and
officers have expressed their present intent to vote their shares in favor of
the approval and adoption of the Merger Proposal.
As of the Record Date, the total number of shares of Common Stock with
respect to which an intent to vote in favor of the Merger Proposal has been
expressed, and/or with respect to which a vote in favor of the approval and
adoption of the Merger Agreement is required pursuant to the Merger Agreement,
was 4,104,084 shares, representing approximately 40.0% of the total number of
shares of Common Stock outstanding as of such date.
A majority of the members of the voting committee have also indicated their
present intention to vote in favor of the approval and adoption of the
Incentive Plan.
The directors and executive officers of Telemundo have also expressed their
present intent to vote their shares in favor of the approval and adoption of
the Incentive Plan.
As of the Record Date, the total number of shares of Common Stock with
respect to which an intent to vote in favor of the approval and adoption of
the Incentive Plan has been expressed was 4,104,084 shares of Common Stock,
representing approximately 40.0% of the total number of shares of Common Stock
outstanding as of such date.
20
<PAGE>
VOTING, REVOCATION AND SOLICITATION OF PROXIES
All shares of Common Stock which are entitled to vote at the Special Meeting
and are represented at the Special Meeting by properly executed proxies that
are received prior to the Special Meeting, and are not revoked, will be voted
at the Special Meeting in accordance with the instructions indicated on such
proxies. If no instructions are indicated (other than in the case of broker
non-votes), such proxies will be voted in favor of the approval and adoption
of the Merger Proposal and the Incentive Plan.
The Board does not know of any matters to be presented at the Special
Meeting other than those described in the Notice of the Special Meeting of
Stockholders.
If any other matters are properly presented at the Special Meeting for
consideration, including, among other things, consideration of a motion to
adjourn such meeting to another time and/or place (including, without
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the Merger), the persons
named in the enclosed forms of proxy and acting thereunder generally will have
discretion to vote on such matters in accordance with their best judgment.
Notwithstanding the foregoing, proxies voting against a specific proposal may
not be used by the persons named in the proxies to vote for adjournment of the
meeting for the purpose of giving management additional time to solicit votes
to approve such proposal.
The grant of a proxy on the enclosed form does not preclude a Stockholder
from attending the Special Meeting and voting in person. Stockholders may
revoke a proxy at any time before it is voted. Proxies may be revoked by (i)
delivering to the General Counsel and Secretary of Telemundo, before the vote
is taken at the Special Meeting, a written notice of revocation bearing a
later date than the proxy, (ii) duly executing a later dated proxy relating to
the same shares of Common Stock and delivering it to the General Counsel and
Secretary of Telemundo before the vote is taken at the Special Meeting or
(iii) attending the Special Meeting and voting in person. Attendance at the
Special Meeting will not in and of itself constitute a revocation of a proxy.
Any written notice of revocation or subsequent proxy should be sent to
Telemundo Group, Inc., 2290 West 8th Avenue, Hialeah, Florida 33010,
Attention: General Counsel and Secretary, or hand delivered to the General
Counsel and Secretary of Telemundo before the vote is taken at the Special
Meeting.
All expenses of Telemundo's solicitation of proxies for the Special Meeting
will be borne by Telemundo. In addition to solicitation by use of the mails,
proxies may be solicited from the Stockholders by directors, officers and
employees of Telemundo in person or by telephone, telefax or other means of
communication. Such directors, officers and employees will not be additionally
compensated, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Telemundo has retained MacKenzie Partners,
Inc., a proxy solicitation firm, for assistance in connection with the
solicitation of proxies for the Special Meeting at a cost of approximately
$6,500 plus reimbursement of reasonable out-of-pocket expenses. Arrangements
may be made with brokerage houses, custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of shares of
Common Stock held of record by such brokerage houses, custodians, nominees and
fiduciaries, and Telemundo will reimburse such brokerage houses, custodians,
nominees and fiduciaries for their reasonable expenses incurred in connection
therewith.
APPRAISAL RIGHTS
Stockholders who do not vote in favor of the approval and adoption of the
Merger Proposal and who otherwise comply with the applicable statutory
procedures of Section 262 of the General Corporation Law of the State of
Delaware (the "DGCL") summarized herein, will be entitled to seek appraisal of
their shares of Common Stock under Section 262 of the DGCL. Holders of Series
A Common Stock Purchase Warrants ("Warrants") will not be entitled to
appraisal rights with respect to the Warrants. See "Special Factors--Appraisal
Rights."
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS. IF
THE MERGER IS COMPLETED, TRANSMITTAL FORMS AND INSTRUCTIONS WILL BE SENT TO
STOCKHOLDERS FOR THE SURRENDER OF THEIR SHARES OF COMMON STOCK.
21
<PAGE>
SPECIAL FACTORS
BACKGROUND OF THE MERGER
Telemundo operates one of the two Spanish-language broadcast television
networks in the United States. Telemundo has faced significant competition
from Univision Communications, Inc. ("Univision"), which operates the other
Spanish-language broadcast television network in the United States and has a
substantially greater audience share than Telemundo. Univision reaches more
than 92% of all U.S. Hispanic households and, in 1997, had approximately an
82% share of the U.S. Spanish-language television network audience (as
reported by Nielsen Media Research ("Nielsen")). Over the past two years,
Univision's share of the U.S. Spanish-language television network audience has
increased and Telemundo's viewership and financial performance have declined.
According to Nielsen, Telemundo's audience share has fallen from 26% in the
first quarter of 1996 to 18% in the third quarter of 1997. Telemundo believes
that such decline has been the consequence of a number of factors, including
Telemundo's capital constraints since it emerged from bankruptcy on December
30, 1994, and the resultant difficulties it encountered in acquiring and
developing programming to compete effectively with Univision's prime-time
programming.
Telemundo believes that its competitive position also has been complicated
by its lack of a programming partner. Over the past few years there has been a
growing trend towards integration in the television broadcast industry, with
studios and other content providers increasingly entering into broad strategic
alliances with programming distribution outlets, often combined with the
purchase of equity ownership interests in such distribution outlets.
In light of such factors, beginning in mid-1996 Telemundo's senior
management determined that Telemundo would be likely to compete more
effectively by allying itself with one or more strategic partners who could
provide it with the programming, capital and other resources that would be
required to pursue aggressively the U.S. Spanish-language television network
audience. As part of this effort, in May of 1996 Telemundo entered into an
agreement to co-produce television programming with TV Azteca, S.A. de C.V.
("Azteca"). During the remainder of 1996 and into 1997, Telemundo continued to
seek out parties it believed could assist it in co-developing programming and
continued considering strategic initiatives to stem the decline in, and
improve, its audience share. As part of this process, Telemundo contacted SPE
and a number of other parties that it believed might have an interest in such
a programming relationship, and confidentiality agreements with certain of
such parties were executed. On April 30, 1997, Telemundo and SPE entered into
a confidentiality agreement. In May 1997, Telemundo, SPE and Azteca agreed to
jointly produce certain Spanish-language television programming. The first of
these programs is currently in pre-production and is planned to be broadcast
on the Telemundo network.
To further this effort, in mid-1997, Telemundo sought to engage a financial
advisor to assist it in, among other things, identifying and contacting
entities likely to have an interest in discussing strategic programming and
other alternatives with Telemundo. On July 11, 1997, a special meeting of the
Board was held at which representatives of the investment banking firm of
Lazard Freres & Co. LLC ("Lazard") made a presentation concerning Telemundo's
strategic position and a broad range of potential alternatives which Telemundo
might pursue. Thereafter, Telemundo formally retained Lazard as its investment
banker and, on July 17, 1997, issued a press release announcing both that
retention and a series of strategic initiatives aimed to position Telemundo to
compete more effectively in the U.S. Spanish-language television market. In
the press release, Telemundo confirmed that it was pursuing discussions with
potential strategic programming partners for purposes of expanding its
programming options and enhancing stockholder value and stated that Lazard had
been retained to assist it in such process. On July 16, 1997, the last trading
day prior to the dissemination of the press release, Telemundo's Series A
Common Stock, which trades on the Nasdaq Stock Market's ("Nasdaq") National
Market Tier, closed at $25.00 per share. Both Telemundo's retention of Lazard
and the fact that Telemundo had announced that it was seeking to expand its
programming options and enhance stockholder value were widely reported.
Pursuant to its engagement, Lazard contacted a variety of parties whom it
had identified as likely to have an interest in a potential transaction with
Telemundo. Included among those contacted were entities in the
22
<PAGE>
entertainment and media industries who had been identified by Lazard as
potential strategic programming partners, as well as entities in other
industries (including buy-out firms) whom Lazard had identified as likely to
have an interest in working with such potential strategic programming partners
or acquiring all or a portion of Telemundo or its business. Concurrently with
making such contacts, Lazard, in conjunction with Telemundo, prepared a
confidential information memorandum concerning Telemundo and its business to
be distributed to interested parties, subject to their execution of acceptable
confidentiality agreements.
As part of this process, SPE and Liberty were contacted. In July 1997,
Telemundo and SPE entered into an amendment to SPE's existing confidentiality
agreement effective as of July 25, 1997. On July 23, 1997, Liberty and
Telemundo also entered into a confidentiality agreement. Telemundo agreed to
permit SPE and Liberty to work together and exchange information with respect
to a potential transaction involving Telemundo.
During July and August of 1997, Lazard continued to identify and engage in
discussions with parties it believed might have an interest in a transaction
with Telemundo or who contacted Lazard in response to the press release and,
together with attorneys from Latham & Watkins, Telemundo's special outside
counsel for corporate matters ("Latham"), negotiated confidentiality
agreements with certain of such parties. The confidential information
memorandum was provided to parties who executed confidentiality agreements,
and representatives of Lazard and Telemundo had discussions with a number of
such parties regarding their interest in pursuing a transaction. In addition,
representatives of Telemundo, Lazard and Latham provided certain additional
information to a number of parties and discussed with such parties the various
transaction structures they were considering.
On September 10, 1997, Lazard gave a presentation to a special meeting of
the Board summarizing the status of its discussions with potential transaction
partners. Lazard informed the Board that as of that date, Telemundo had
entered into separate confidentiality agreements with approximately 20
parties, and noted that approximately 12 of the parties who had been provided
with the confidential information memorandum continued to express an interest
in pursuing a transaction with Telemundo. The parties had indicated to Lazard
that their interests in transactions with Telemundo ranged from programming
alliances to acquisitions of all of Telemundo. Lazard summarized for the Board
the range of interests that it had discussed with the parties and informed the
Board that seven of the entities, including several of the programming
providers that Telemundo's senior management and Lazard had identified as the
most promising prospective partners (based on the level of interest expressed
by such prospective partner, and Telemundo's senior management's and Lazard's
view of such prospective partner's perceived ability, financial or otherwise,
to consummate a transaction of the nature contemplated and such prospective
partner's competitive position in the industry), had made clear that their
preferred form of transaction would be the acquisition of all of Telemundo.
Representatives of Lazard also informed the Board that it had received
informal expressions of interest from two parties with respect to programming
alliances, including discussion, in some instances, of the purchase of a
limited equity interest in Telemundo. Representatives of Lazard further
informed the Board that none of the parties had expressed an interest in
buying only Telemundo's network operations or any other portion of its assets.
After discussing Lazard's presentation, the Board, based in part on the
information presented by Lazard, determined that the proposals involving
programming alliances or acquisitions of some portion of Telemundo did not
appear to offer the broad strategic alliance that Telemundo's senior
management believed would be necessary to enhance Telemundo's competitive
position and enhance stockholder value. The Board also determined that, if
properly structured and priced, a transaction involving the acquisition of all
of the equity interest of Telemundo appeared to be the structure most likely
to meet Telemundo's objective of maximizing stockholder value. Thereafter, the
Board directed Lazard to continue its discussions with the interested parties
and, based in part upon Lazard's input, to focus its attention on acquisition
transactions while not precluding discussion of other types of transactions
with prospective partners.
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Following the September 10, 1997 Board meeting, Lazard notified those
entities that it believed continued to have an interest in pursuing a
transaction with Telemundo that Telemundo had instructed it to seek
preliminary, non-binding indications of interest with respect to the nature of
the transactions such parties were interested in pursuing. Lazard informed the
entities that it had been directed to present the expressions of interest it
received to the Board at its next meeting.
During this period, representatives of Apollo and Bastion each indicated to
Telemundo's senior management, Lazard and Latham that they or one or more of
their respective affiliates would consider participating with persons
interested in pursuing a transaction with Telemundo. Apollo and Bastion each
made clear, however, that it had not yet made any definitive decision to do
so.
Lazard thereafter informed those entities that it believed continued to have
an interest in pursuing a transaction with Telemundo that Apollo and Bastion
could be available to participate in such a transaction. The members of the
Board discussed with Latham certain procedures to be established if Apollo
and/or Bastion determined to participate in a transaction involving Telemundo.
These procedures included delegating exclusive authority for directing the
Board's consideration of strategic transactions to a special committee of
directors who have no financial interest in Apollo, Bastion or their
respective affiliates. Such committee would be empowered to review and analyze
the transaction proposals received by Telemundo, to retain advisors to assist
it in carrying out its responsibilities, to negotiate on Telemundo's behalf
with entities making such proposals and to provide a recommendation to the
Board with respect to any proposed transaction.
Through late October 1997, Lazard and members of Telemundo's senior
management engaged in discussions with various entities with respect to the
structural and economic terms of the transactions that such entities were
considering, as well as regulatory and other issues related to such
transactions. Representatives of Lazard and Telemundo updated certain
information contained in the confidential information memorandum and provided
the updates to such parties. Lazard also identified additional entities it
believed could be interested in pursuing a transaction with Telemundo, and
provided such entities with the confidential information memorandum and other
information about Telemundo upon their execution of confidentiality
agreements.
On October 23, 1997, representatives of Lazard made a presentation to a
special meeting of the Board regarding its discussions with various entities
and advised the Board that it had received a number of preliminary written and
oral expressions of interest. Representatives of Lazard noted that a majority
of the proposed transactions involved the purchase of 100% of Telemundo's
capital stock for cash, including those submitted by the entities that
Telemundo's senior management and Lazard had identified as being among the
most promising transaction partners. Representatives of Lazard also informed
the Board that it had continued to receive indications of interest with
respect to programming alliances. The Board discussed the variety of
transaction alternatives and concluded that indications of interest involving
programming alliances still did not appear to offer the broad strategic
alliance that Telemundo's senior management believed would be necessary to
enhance Telemundo's competitive position and enhance stockholder value and
that, although it remained willing to consider any reasonable transaction
proposal, the proposals that contemplated the purchase of 100% of Telemundo's
outstanding capital stock appeared the most likely to achieve its objective of
maximizing stockholder value.
The Board discussed various transaction matters with Lazard and sought, in
particular, to obtain additional information about the acquisition proposals
and to implement a process designed to maximize stockholder value.
Representatives of Lazard indicated to the Board that potential acquirors
would most likely require an opportunity to conduct a diligence review of
Telemundo in order to deliver more definitive acquisition proposals. The
Board, therefore, established a process to facilitate such review and set a
schedule which contemplated that final transaction proposals would be
submitted to Telemundo in writing by Monday, November 17, 1997. The Board also
scheduled a meeting of the Board (or, if appropriate, a special committee) on
November 21, 1997 to review the submitted proposals.
Following the October 23, 1997 meeting, at Telemundo's request, Lazard
notified those entities that it believed continued to have an interest in
pursuing a transaction with Telemundo of the process established by the Board.
Such parties were also notified that Telemundo had organized two data rooms,
one in Miami and one
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in Los Angeles, containing materials relating to Telemundo for their review,
and Lazard thereafter established a schedule enabling all parties so desiring
to be provided access to the data rooms. Lazard also invited interested
parties to meet Telemundo's management and visit Telemundo's facilities.
On October 30, 1997, Lazard circulated a letter to such parties notifying
them that all transaction proposals should be delivered to Telemundo by
November 17, 1997, and that such proposals should remain open for acceptance
until December 5, 1997. The letter indicated that although all types of
transaction proposals would be considered, an acquisition of the entire equity
interest in Telemundo was the preferred structure for a transaction. The
letter also informed recipients that a form of acquisition agreement would be
distributed to all parties and that all acquisition proposals should be
accompanied by a mark-up of such agreement in a form the recipient would be
prepared to execute.
Over the next several weeks, a number of entities conducted additional
diligence of Telemundo and representatives of Telemundo, Lazard and Latham
responded to requests for additional information from such parties. On
November 10, 1997, Lazard distributed a form of acquisition agreement to the
recipients of the October 30 letter.
In early November, representatives of Apollo and Bastion indicated to
members of Telemundo's senior management and to Latham and Lazard that they
were engaged in preliminary discussions with a number of parties with respect
to a transaction involving Telemundo, and were encouraged, in particular, by
their discussions with Liberty and SPE.
At a special meeting of the Board on November 14, 1997, representatives of
Apollo and Bastion notified the Board of the possibility that they would
submit a proposal with Liberty and SPE. The members of the Board thereupon
discussed the formation of, and delegation of exclusive authority to direct
the Board's consideration of strategic transactions to, a special committee of
directors who have no financial interest in Apollo, Bastion or their
respective affiliates, consisting of Messrs. Roland A. Hernandez, Alan Kolod,
Barry W. Ridings and David E. Yurkerwich (the "Special Committee"). Following
discussion of these and related matters, the members of the Board affiliated
with Apollo and Bastion excused themselves from the remainder of the meeting,
leaving only members of the Board who would comprise the Special Committee to
continue the meeting.
The remaining members of the Board then discussed the procedures they would
follow if and when the Special Committee was formally constituted and the
retention, in such event, of a financial advisor to report to the members of
the Special Committee. Because of the prior familiarity of Salomon Brothers
Inc (such entity and any successor being referred to herein as "Salomon") with
Telemundo, the remaining Board members discussed the possible retention of
Salomon and of approaching Salomon to determine if that firm would be in a
position to advise the Special Committee. After the meeting's conclusion,
Salomon was contacted, and agreed to undertake the engagement if and when the
Special Committee was formed.
On November 17, 1997, the date on which the Board had indicated final
proposals were to be submitted, Telemundo received two transaction proposals.
One proposal, from the Purchaser, proposed the acquisition of 100% of
Telemundo's outstanding capital stock for $39.00 per share in cash. Another
bidder ("Bidder A") proposed the acquisition of 100% of Telemundo's
outstanding capital stock for $42.00 per share in cash.
The Purchaser's proposal contained a mark-up of the form of acquisition
agreement that had been provided by Telemundo, and stated that the Purchaser
was prepared to execute the agreement in the form delivered, subject to the
conditions contained in such proposal. Bidder A's proposal stated that its
mark-up of the acquisition agreement was preliminary in nature and that its
proposal was conditioned on the satisfactory completion of further diligence.
Bidder A's proposal also indicated that its obligation to consummate the
acquisition of Telemundo was not conditioned upon the availability of
financing. By contrast, the Purchaser's proposal, while it was accompanied by
debt commitment letters executed by each of Credit Suisse First Boston
Corporation and CIBC Oppenheimer Corp. containing customary conditions, was
contingent upon the availability of financing.
25
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During the next three days, Telemundo's senior management and its legal and
financial advisors made themselves available to Bidder A and the Purchaser and
to other entities expressing an interest in participating in a transaction
with Telemundo. On November 19 and November 20, 1997, separate meetings and
conference calls were held between the financial advisors, corporate legal
advisors and regulatory counsel representing Telemundo and the Purchaser,
respectively, for the purpose of clarifying the financial, legal and
regulatory contingencies and other issues relevant to understanding the
Purchaser's proposal. Telemundo's representatives sought to engage in similar
discussions with Bidder A, and Lazard attempted to determine the degree of
additional diligence that would be required by Bidder A in order for it to
eliminate the diligence condition contained in its proposal and to enable it
to prepare a form of acquisition agreement that it would be prepared to
execute. Representatives of Bidder A did not respond to Lazard until November
20, 1997, and at that time did not provide Lazard with definitive information
about, or a time schedule for, the additional diligence investigation it would
require and failed to clarify its position with respect to its mark-up of the
form of acquisition agreement. Throughout this period, Lazard continued to
seek additional proposals from other parties it thought might be interested in
participating in a transaction with Telemundo, and news organizations reported
that Telemundo was considering a variety of proposals related to its sale.
On Thursday evening, November 20, 1997, another bidder ("Bidder B")
delivered a proposal to Lazard for the acquisition of 100% of Telemundo's
outstanding capital stock for $42.00 per share in cash. This proposal also
contained a mark-up of the form of acquisition agreement which Bidder B
indicated it was prepared to execute, subject to the conditions contained in
such proposal. Bidder B's proposal, however, expired at 5:00 p.m. on Friday,
November 21, unless negotiations were commenced with it by that time with
respect to a definitive agreement. Upon receipt of Bidder B's proposal, Lazard
contacted Bidder B to discuss its proposal and to obtain an extension of the
5:00 p.m. expiration, but was informed by Bidder B that such deadline would
not be extended.
A meeting of the Board convened on the morning of November 21, 1997. At such
meeting, in light of the participation by Apollo Investment and Bastion in the
Purchaser's proposal, the Board formally constituted the Special Committee and
delegated exclusive authority to the Special Committee for consideration of
the transaction proposals that had been received by Telemundo. The Board
meeting then adjourned and a meeting of the Special Committee was convened
with all members present.
At the Special Committee meeting, the members of the Special Committee
retained Lazard and Latham to assist the Special Committee in reviewing the
proposals. The Special Committee also retained Salomon as an additional
financial advisor to assist the Special Committee in carrying out its
responsibilities. Lazard then informed the members of the Special Committee
that Telemundo had received proposals from the Purchaser, Bidder A and Bidder
B. Lazard also informed the Special Committee that two other parties had
indicated their interest in acquiring 100% of Telemundo's capital stock for
cash within a range of prices between $35.00 and $39.00 per share, but that
such expressions of interest did not contain a mark-up of the acquisition
agreement provided by Telemundo or set forth the conditions to such proposals.
Based upon its discussions with such parties, Lazard stated its belief that
these expressions of interest were of a preliminary nature and were unlikely
to be significantly raised in price. After discussing each of the proposals
and expressions of interest that had been presented to Lazard, the Special
Committee decided that its deliberations should focus on the proposals from
the Purchaser, Bidder A and Bidder B.
The Special Committee discussed the terms of the three proposals. The
Purchaser's proposal contemplated a price that was lower than the price
contained in the proposals made by Bidder A and Bidder B and, notwithstanding
the executed debt commitment letters delivered with such proposal, was subject
to a financing contingency. Bidder A's proposal, while at a higher price level
than the Purchaser's proposal and the same price level as Bidder B's proposal
and not subject to a financing condition, was conditioned on additional
diligence and was not accompanied by an acquisition agreement that Bidder A
was prepared to execute. As a result, the Special Committee was unable to
determine to what degree Bidder A's proposal was ultimately subject to
additional conditions and uncertainties or other terms that could be of
material consequence. Bidder B's proposal
26
<PAGE>
was also at a higher price level than the Purchaser's proposal and the same
price level as Bidder A's proposal and was not subject to a financing
condition. It did, however, require expedited review as it expired at 5:00
p.m. that day.
Since an acquisition transaction with any party would require the consent of
the Federal Communications Commission (the "FCC"), each proposal required
further review by Telemundo's regulatory counsel Hogan & Hartson L.L.P.
("Hogan"). The Special Committee solicited input from Hogan with respect to
each of the transaction proposals and instructed Hogan to review the FCC
implications of each such proposal.
Lazard and Latham then discussed with the Special Committee the issues
raised by each of the proposals and Lazard, at the instruction of the Special
Committee, (i) proposed to each of the Purchaser, Bidder A and Bidder B that
the remaining stages of the evaluation process be conducted openly with the
details (other than the identity of the participants) of all proposals
disclosed to each of the participants, and (ii) discussed with each of the
Purchaser, Bidder A and Bidder B the Special Committee's concerns regarding
their respective proposals.
The Purchaser responded to Lazard that it would consider participating in an
open process. Bidder A responded to Lazard by reaffirming its $42.00 per share
proposal and by stating that it also would consider participating in an open
process. Bidder B, however, indicated to Lazard that its proposal was fully
priced and that it would not participate or allow its proposal to be disclosed
in such a process, although it agreed to extend its proposal for an additional
hour until 6:00 p.m. that evening. Because of Bidder B's refusal to
participate in an open process, the Special Committee concluded that such
process would not be implemented and that any revised proposals should be
submitted prior to the 6:00 p.m. expiration of Bidder B's proposal.
Following notification to each of the participants of such conclusion, the
Purchaser informed Lazard that it was raising the offer price of its proposal
to $43.00 per share in cash, but that its revised proposal expired at 6:00
p.m. that evening, unless negotiations were commenced with it with respect to
a definitive agreement. After discussing the proposals, the Special Committee
instructed Lazard to notify each of Bidder A and Bidder B that the price
contemplated by their respective proposals was not competitive and that each
should submit, before 6:00 p.m., any additional proposals that it desired to
have the Special Committee consider. When so notified by Lazard, each of
Bidder A and Bidder B at that time declined to increase or otherwise revise
its proposal and Lazard notified the Special Committee of such fact.
Thereafter, the Special Committee and its legal and financial advisors again
reviewed the terms of the submitted acquisition agreements, and discussed the
various contingencies contained therein, including diligence, certainty of
closing, financing, required regulatory approvals and termination provisions.
As a result of those discussions and the pending expiration of the proposals
from the Purchaser and Bidder B, and in light of the $43.00 per share proposal
from the Purchaser as compared to the $42.00 per share proposals from Bidder A
and Bidder B, shortly before 6:00 p.m. the Special Committee instructed
Telemundo's senior management and the legal and financial advisors of the
Special Committee to negotiate a definitive merger agreement with the
Purchaser on an expedited basis. At the same time, the Special Committee
instructed Telemundo's senior management and Lazard and Salomon to notify
Bidders A and B that the Special Committee had instructed its advisors to
commence negotiations with the party which had offered it the highest price
per share, but that such advisors remained available to engage in further
discussions with Bidders A and B should further proposals be forthcoming.
Following such discussion and instruction, the Special Committee adjourned the
meeting with the understanding that it would meet again when apprised by its
representatives and advisors that circumstances warranted such a meeting.
Over the next 60 hours, extensive negotiations took place between the
Purchaser and Telemundo and their respective advisors and representatives
concerning the terms and conditions of a definitive merger agreement and
related arrangements.
On the morning of November 23, 1997, Bidder B contacted Lazard to renew its
proposal to acquire Telemundo for $42.00 per share in cash, and indicated that
it was considering making a new proposal at a higher price. Lazard informed
Bidder B that while the Special Committee would welcome receiving a revised
proposal,
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<PAGE>
Telemundo was currently engaged in substantive discussions with the party that
had offered it the highest price per share and that any revised proposal from
Bidder B should be delivered as promptly as practicable. By late in the
afternoon on November 23, the Special Committee's advisors were reporting that
significant progress was being made in discussions with the Purchaser.
Accordingly, the Special Committee's representatives instructed Lazard to
notify Bidder B that the time in which to submit a revised proposal was
running out, and that agreement regarding another proposal could quickly be
reached with another bidder. In response to Lazard, Bidder B orally informed
Lazard that a new proposal to acquire Telemundo for $44.00 per share in cash
would be forthcoming and would be formalized in a letter which would soon be
submitted.
Telemundo received Bidder B's revised written proposal at approximately 8:00
p.m. on November 23, 1997, and Telemundo's senior management and the Special
Committee's legal and financial advisors engaged in discussions with Bidder B
and its representatives related to its revised proposal. Bidder B's revised
proposal remained subject to the same conditions as the proposal it had
submitted on November 20, 1997, but offered a price per share of $44.00 in
cash. The offer expired at 10:00 a.m. on Monday, November 24. Bidder B's
proposal contemplated that 50% of the total capital contributed to Bidder B's
acquisition vehicle and 50% of the venture's economic gains or losses would be
attributable to a foreign corporation, which, according to Hogan, raised
significant issues under applicable statutory provisions and FCC rules,
regulations and policies. Hogan also advised that if a negative determination
on such structure was made by the FCC, there was substantial doubt that the
FCC would exercise its discretion to forego enforcement of the applicable
statutory provisions in order that the transaction with Bidder B could be
completed. Late in the evening of November 23, 1997, the Special Committee's
advisors notified the Purchaser that Telemundo had received a new proposal
from another bidder and confirmed its intentions to continue negotiating with
both the Purchaser and such other bidder until a definitive merger agreement
which the Special Committee could recommend to the Board had been negotiated
with one or the other. Thereafter, in light of the 10:00 a.m. expiration of
Bidder B's proposal and in order to provide its advisors with sufficient time
to negotiate with both the Purchaser and Bidder B, the Special Committee
scheduled a special meeting for 7:00 a.m. on Monday, November 24, 1997.
Early on the morning of November 24, 1997, the Special Committee's advisors
continued their negotiations with Bidder B, and Hogan discussed Bidder B's
proposed ownership structure with Bidder B's regulatory counsel. Following
such discussions, Hogan continued to advise the Special Committee that Bidder
B's proposed ownership structure was likely to be a significant issue in
obtaining FCC approval, and that there was substantial doubt that the FCC
would exercise its discretion under applicable law in order to permit the
completion of Bidder B's proposed transaction. As a result, Hogan advised that
there was a significant risk that the transaction as proposed by Bidder B
could not be consummated, and recommended notifying Bidder B that it would
either need to revise its ownership structure or make a commitment to modify
its structure if the FCC later objected to it.
After separate meetings with the Purchaser and Bidder B were concluded in
the early morning hours of November 24, 1997, the Special Committee's advisors
had (i) been provided with a general outline of the business arrangement being
proposed by Bidder B, and (ii) concluded negotiation of the terms of a
definitive agreement with the Purchaser, which agreement had been executed by
the Purchaser and Sub. After comparing the terms of the two proposals, the
Special Committee's advisors once again contacted Bidder B, identified the
significant terms suggested by Bidder B that they believed were inferior to
the terms that had been secured from the Purchaser (including a higher
termination fee to be paid by Telemundo if Telemundo were to accept an
alternative proposal, a lower termination fee to be paid to Telemundo in the
event Bidder B's ownership structure did not receive FCC approval and a lower
rate for the additional amount component to be added to the base consideration
offered by Bidder B), stressed their concerns with Bidder B's proposed
ownership structure, and requested that Bidder B submit its best proposal in
advance of the 7:00 a.m. meeting of the Special Committee. Bidder B responded
by offering to change certain (but not all) of the terms of its proposal to be
more consistent with the terms secured from the Purchaser, but continued to
refuse to make any change in its ownership structure to alleviate FCC-related
concerns or to commit to make any such change if required to obtain FCC
approval of its proposed transaction.
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On the morning of November 24, 1997, a special meeting of the Special
Committee was convened. Representatives of Lazard, Salomon and Latham
summarized the discussions and negotiations that had ensued over the previous
60 hours. Lazard informed the Special Committee that despite its availability
to continue discussions with Bidder A, it had not had any further contact with
Bidder A. Representatives of Lazard, Latham and Salomon reviewed the terms of
the proposals from the Purchaser and Bidder B. Bidder B's proposal
contemplated an acquisition of Telemundo for $44.00 per share in cash and had
no financing contingency. Hogan, however, continued to express substantial
doubt about whether the ownership structure on which such proposal was based
would receive FCC approval. The Purchaser's proposal contemplated an
acquisition of Telemundo for $43.00 per share in cash. Although the
Purchaser's proposal was subject to a financing condition, Apollo Investment,
Bastion, Liberty and SPE had agreed to contribute significant equity to the
transaction and the Purchaser had secured commitment letters from prospective
lenders to provide the funding required for the Merger. With respect to FCC
matters, Hogan advised that the Purchaser's structure appeared to be
consistent with FCC rules, regulations and policies applicable to transactions
of this type and that the Purchaser had agreed to make certain changes to its
equity structure if required in order to obtain the FCC approval. Finally, the
Purchaser had reached final agreement with the Special Committee's advisors on
the terms of a definitive merger agreement.
Following discussion of the proposals, Lazard and Salomon notified the
Purchaser that the price contained in its proposal was not competitive and
would need to be increased if the Purchaser wanted its proposal to continue to
be considered by the Special Committee. Lazard and Salomon also contacted
Bidder B and reiterated the Special Committee's concerns about its ownership
structure and informed Bidder B that the Special Committee would be unlikely
to accept its proposal without an express commitment by Bidder B to modify its
ownership structure if the FCC objected to it.
In response to Lazard and Salomon, (i) Bidder B informed Lazard and Salomon
that its proposed ownership structure was a crucial component of its proposal
and would not be changed, and (ii) the Purchaser increased the offer price of
its proposal to $44.00 per share. The Purchaser also informed Lazard that such
proposal expired at 10:00 that morning if not previously accepted. As a result
of the Purchaser's revised proposal, Lazard and Salomon notified Bidder B that
its proposal was not competitive in light of the Special Committee's
regulatory concerns regarding its proposed ownership structure, and that
Bidder B should immediately submit any improvements to its proposal to the
Special Committee prior to the 10:00 a.m. deadline. In response, Bidder B
reiterated that it would not revise its ownership structure to address the
Special Committee's regulatory concerns and that it did not intend to increase
the economic terms of its proposal.
Lazard and Salomon reported the results of the foregoing discussions to the
Special Committee and again reviewed the proposals. Hogan reaffirmed its
analysis of Bidder B's proposed ownership structure. Accordingly, the Special
Committee believed that without a commitment from Bidder B to modify its
ownership structure if necessary to secure FCC approval of its proposed
transaction, Bidder B's ability to complete the acquisition as contemplated by
its proposal was subject to significant uncertainty. Hogan also reaffirmed its
analysis that the Purchaser's proposed ownership structure and transaction
appeared to be consistent with applicable FCC rules, regulations and policies.
Finally, the Special Committee considered the fact that although the
Purchaser's proposal was subject to a financing condition, (i) Telemundo's
advisors had reviewed executed equity and debt financing commitments for the
full amount of the capital required to consummate the transactions
contemplated by such proposal, and (ii) the commitment letters provided by the
Purchaser contained conditions to funding that appeared to be usual and
customary for commitments in similar types of transactions.
At the request of the Special Committee, Lazard made a presentation on
financial information and comparative analyses with respect to Telemundo to
the Special Committee and delivered its oral opinion to the Special Committee,
which was subsequently confirmed orally and in writing to the Board in letters
dated November 24, 1997 and the date hereof, to the effect that, as of such
dates, the $44.00 base consideration to be received in the Merger was fair,
from a financial point of view, to the holders of Common Stock (other than the
beneficial owners of the Purchaser and their affiliates). See "Special
Factors--Opinion of Lazard Freres & Co. LLC." Salomon then made a presentation
on financial information and comparative analyses with respect to
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<PAGE>
Telemundo and delivered its oral opinion to the Special Committee, which was
subsequently confirmed in writing to the Special Committee in letters dated
November 24, 1997 and the date hereof, to the effect that, the consideration
to be received in the Merger was fair, from a financial point of view, to the
holders of Common Stock (other than Stockholders affiliated with the Purchaser
or its affiliates). See "Special Factors--Opinion of Salomon Brothers Inc."
Following such discussions and based in part upon the advice of Lazard and
Salomon, the Special Committee unanimously determined that the Merger was fair
to and in the best interests of the Stockholders, other than Stockholders
affiliated with the Purchaser or its affiliates (the "Public Stockholders"),
and unanimously recommended that the Board approve the merger agreement with
the Purchaser and recommend to the Stockholders that they vote in favor of
approval and adoption of the Merger Proposal. Because the Creditors' Warrants
(as defined herein) represent the right to purchase Series A Common Stock, the
Special Committee also believed that the Merger was fair to the holders of the
Creditors' Warrants (other than holders affiliated with the Purchaser or its
affiliates). The meeting of the Special Committee was then adjourned.
Immediately thereafter, a special meeting of the Board was convened at which
the Board was advised of the recommendation of the Special Committee and the
reasons for such recommendation. At the request of the Board, Lazard delivered
its oral opinion to the Board, which was subsequently confirmed in writing to
the Board in letters dated November 24, 1997 and the date hereof, to the
effect that, as of such dates, the $44.00 base consideration to be received in
the Merger was fair, from a financial point of view, to the holders of Common
Stock (other than the beneficial owners of the Purchaser and their
affiliates). See "Special Factors--Opinion of Lazard Freres & Co. LLC." The
Board then adopted the recommendation of the Special Committee that the Merger
was fair to and in the best interests of the Public Stockholders, and voted
unanimously to approve the Merger Proposal and to recommend to the
Stockholders that they vote in favor of approval and adoption of the Merger
Proposal. Because the Creditors' Warrants represent the right to purchase
Series A Common Stock, the Board believed that the Merger was fair to the
holders of the Creditors' Warrants (other than the beneficial owners of the
Purchaser and their affiliates). The Board meeting concluded and the Merger
Agreement was executed by Telemundo. Pursuant to the Board's instructions,
Lazard and Salomon notified Bidder B of Telemundo's decision and, Telemundo
and the Purchaser issued press releases announcing the execution of the Merger
Agreement.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS; FAIRNESS
OF THE MERGER
The Special Committee
At a meeting held on November 24, 1997, the Special Committee unanimously
(a) determined that the Merger is fair to and in the best interests of the
Public Stockholders, and (b) recommended that the Board approve the Merger
Proposal and recommend to Stockholders that they vote in favor of approval and
adoption of the Merger Proposal. See "Special Factors--Background of the
Merger."
In making the determination and recommendation set forth above, the members
of the Special Committee considered various factors, including, but not
limited to, the following:
(i) The Special Committee considered Telemundo's business, financial
condition, results of operations, and future prospects. The Special
Committee was familiar with the historical operating results of Telemundo.
See "Selected Historical Financial Data." The Special Committee considered
that from the first quarter of 1996 to the third quarter of 1997,
Univision's share of the U.S. Spanish-language television network audience
(as reported by Nielsen) had increased to 82% and Telemundo's share had
fallen to 18% during such period. The Special Committee further considered
what it believed to be a growing trend toward integration in the television
broadcast industry, with studios and other content providers increasingly
entering into broad strategic alliances with programming distribution
outlets, often combined with the purchase of equity interests in such
distribution outlets. The Special Committee believed that competitive
advantages currently enjoyed by Univision, including its access to
programming and capital, could continue to place Telemundo at a competitive
disadvantage, possibly resulting in a continuing reduction in viewership
and erosion in value of Telemundo's assets.
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(ii) The Special Committee considered the relationship between the Merger
Consideration and the historical market prices and recent trading activity
of the Series A Common Stock. The Special Committee considered that the
$44.00 base consideration represented a premium of approximately 76% over
the $25 closing price on Nasdaq for the Series A Common Stock on July 16,
1997, the day prior to the date of the public announcement of Telemundo's
pursuit of discussions with potential strategic programming partners for
purposes of expanding its programming options and enhancing stockholder
value and its retention of Lazard in connection therewith. The Special
Committee further considered that despite the significant publicity
garnered by the strategic transaction process, the $44.00 base
consideration also represented a premium of more than 10% over the $39 3/8
closing price on Nasdaq for the Series A Common Stock on November 21, 1997,
the last trading day prior to the announcement on November 24, 1997, that
Telemundo and the Purchaser had entered into the Merger Agreement. See
"Price Range of Common Stock And Warrants." Stockholders are urged to
obtain current market quotations for the Series A Common Stock.
(iii) The Special Committee considered the opinion delivered by Lazard.
At the November 24, 1997 meeting of the Special Committee, Lazard made a
presentation on financial information and comparative analyses with respect
to Telemundo and delivered its oral opinion to the Special Committee, which
was subsequently confirmed orally and in writing to the Board in letters
dated November 24, 1997 and the date hereof, to the effect that, as of such
dates, the $44.00 base consideration to be received in the Merger was fair,
from a financial point of view, to the holders of Common Stock (other than
the beneficial owners of the Purchaser and their affiliates). See "Special
Factors--Opinion of Lazard Freres & Co. LLC." The Special Committee found
reasonable and relied upon the analyses presented and opinion delivered by
Lazard. The written opinion of Lazard dated the date hereof is included as
Annex B of this Proxy Statement. Stockholders are urged to read such
opinion in its entirety.
(iv) The Special Committee considered the opinion delivered by Salomon.
At the November 24, 1997 meeting of the Special Committee, Salomon made a
presentation on financial information and comparative analyses with respect
to Telemundo and delivered its oral opinion to the Special Committee, which
was subsequently confirmed in writing in letters dated November 24, 1997
and the date hereof, to the effect that, as of such dates, the
consideration to be received in the Merger was fair, from a financial point
of view, to the holders of Common Stock (other than Stockholders affiliated
with the Purchaser or its affiliates). See "Special Factors--Opinion of
Salomon Brothers Inc." The Special Committee found reasonable and relied
upon the analyses presented and opinion delivered by Salomon. The written
opinion of Salomon dated the date hereof is included as Annex C of this
Proxy Statement. Stockholders are urged to read such opinion in its
entirety.
(v) The Special Committee considered the manner in which the strategic
transaction process was conducted. The Special Committee considered that
Lazard had contacted those parties that it believed were likely to have an
interest in a potential transaction with Telemundo and that the strategic
transaction process was widely reported. The Special Committee also
considered that no additional parties had expressed an interest in a
transaction with Telemundo and that it had received the best and final
offers that each of the remaining parties in the transaction process was
prepared to make. The Special Committee also considered that the failure to
accept one of the proposals prior to the deadline of 10:00 a.m. on Monday,
November 24, 1997, set by the Purchaser and Bidder B could cause one or
both of such proposals to be withdrawn. The Special Committee also
considered that the Special Committee was delegated exclusive authority for
conducting all aspects of the strategic transaction process in its final
stages. These responsibilities included, among other things, the review and
analysis of transaction proposals, the engagement of advisors, the
negotiation with potential transaction partners and the ultimate
determination with respect to the recommendation to the Board of a
definitive merger agreement. The Special Committee also considered the fact
that the terms of the Merger Agreement (including the Merger Consideration)
were determined through extensive arms-length negotiations between its
advisors, on the one hand, and the Purchaser and its advisors, on the
other. See "Special Factors--Background of the Merger."
(vi) The Special Committee considered the terms of the Merger Agreement,
including the ability of the Board, in the exercise of its fiduciary duties
to Stockholders, to consider competing proposals. See "The
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Merger Agreement--Certain Covenants--No Solicitation" and "--Termination;
Termination Fees and Expenses." The Special Committee considered that the
Merger Agreement permits the Board, following consultation with its
advisors and in the exercise of its fiduciary obligations under applicable
law, to furnish information to and participate in negotiations with persons
making bona fide unsolicited offers and permits the Board to terminate the
Merger Agreement and accept a financially superior proposal under certain
conditions, subject to a payment to the Purchaser of a termination fee of
$15 million plus up to $2.5 million for the reimbursement of fees and
expenses.
(vii) The Special Committee considered the conditions to the obligations
of the Purchaser to consummate the Merger. With respect to the financing
contingency, the Special Committee considered that the Purchaser's proposal
was accompanied by an equity commitment executed by Apollo Investment,
Bastion, Liberty and SPE and a debt commitment executed by financial
institutions and certain of the Purchaser's stockholders for the full
amount of equity and debt financing required to consummate the transactions
contemplated by such proposal. The Special Committee also considered that
Latham and Lazard had reviewed the binding commitment letters related to
the equity and debt financing of the Merger and certain related
transactions and confirmed to the Special Committee that the conditions to
funding contained therein appeared to be usual and customary for
commitments in similar transactions. The Special Committee also considered
the capitalization and solvency of Telemundo after giving effect to the
Merger and the transactions contemplated thereby. See "Special Factors--
Financing for the Merger." With respect to the condition requiring FCC
approval of the transfer of Telemundo's FCC broadcast licenses, the Special
Committee considered the analysis and advice of Hogan, which concluded that
the Purchaser's proposed transaction and ownership structure appeared to be
consistent with applicable FCC rules, regulations and policies. The Special
Committee further considered that in the Merger Agreement the Purchaser and
Sub agreed to make certain modifications in order to obtain an approval by
the FCC of the change in control of Telemundo's broadcast licenses.
(viii) The Special Committee considered the terms and conditions of the
alternative proposals received by Telemundo. The Special Committee
considered the two other proposals received by Telemundo which contained
forms of acquisition agreements to be not as favorable to Telemundo as the
Purchaser's proposal. Bidder A's proposal contemplated a price that was $2
less than the Merger Consideration and was conditioned on further
diligence. The Special Committee also considered that Bidder A had made no
attempt to provide further information concerning its proposal or to revise
its proposal after delivering such proposal on November 17, 1997, despite
Lazard's attempts to engage it in discussions in that regard. Bidder B's
proposal matched the Purchaser's $44.00 price per share, contained an
additional amount component (similar to the Purchaser's proposal) in the
event the transaction was not completed by a certain date and did not
contain a financing contingency. Based upon the advice of Hogan, however,
the Special Committee was concerned that Bidder B's contemplated ownership
structure would not receive the required FCC approval. Accordingly, the
Special Committee believed that without a commitment from Bidder B to
modify its ownership structure if required by the FCC, Bidder B's ownership
structure raised substantial doubt that required FCC approvals could be
obtained and, consequently, that the transaction as proposed by Bidder B
could be completed. Furthermore, at the time of the November 24, 1997
Special Committee meeting, the Special Committee considered that a merger
agreement with the Purchaser had been fully negotiated, while a definitive
merger agreement had not been fully negotiated with Bidder B and both
proposals expired that morning. See "Special Factors--Background of the
Merger."
(ix) The Special Committee was fully aware of and considered the possible
conflicts of interest of certain directors and members of management of
Telemundo. See "Special Factors--Background of the Merger," "--Current
Relationships and Transactions" and "--Interests of Certain Persons." The
Special Committee considered in this regard that its composition,
consisting of members of the Board with no financial interest in the
Purchaser or its affiliates, permitted it to represent effectively the
interests of the Public Stockholders.
(x) The Special Committee considered the ability of Stockholders who may
not support the Merger to obtain "fair value" for their shares if they
properly perfect and exercise their appraisal rights under the
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DGCL. The Special Committee felt that it was important that the DGCL
provides Stockholders with the opportunity to exercise appraisal rights and
to seek a determination of the Delaware Court of Chancery of the fair value
of their shares of Common Stock. See "Special Factors--Appraisal Rights."
(xi) The Special Committee also considered the fact that the adoption of
the Merger Agreement is not conditioned upon receiving the approval of a
majority of Stockholders unaffiliated with the Purchaser or any of its
affiliates. The Special Committee believed, however, that the interests of
the Public Stockholders had been effectively represented since (a) it was
comprised of directors with no financial interest in the Purchaser or its
affiliates, (b) it had been delegated exclusive authority for consideration
of the proposals that had been received by Telemundo, (c) it had retained
and been advised during the process of negotiating a definitive transaction
by a separate financial advisor and (d) it had relied upon the opinion of
such financial advisor. The Special Committee also considered that no
unaffiliated representative had been retained to act solely on behalf of
the Public Stockholders for purposes of negotiating the terms of the Merger
Agreement or preparing a report concerning the fairness of the Merger, but
in light of the factors set forth in clauses (a)-(d) above, believed that
the interests of the Public Stockholders had been represented effectively.
In view of the variety of factors considered in connection with its
evaluation of the Merger Agreement, the Special Committee found it
impracticable to, and did not, quantify, rank or otherwise assign relative
weights to the factors considered or determine that any factor was of
particular importance in reaching its determination that the Merger is fair
to, and in the best interests of, the Public Stockholders. Rather, the Special
Committee viewed its recommendations as being based upon its judgment, in
light of the totality of the information presented and considered, of the
overall effect of the Merger on the Public Stockholders compared to any
alternative transaction or the likely effect of rejecting all of the proposed
transactions.
The Special Committee did not consider the book value of the Common Stock
because a significant portion of Telemundo's value is comprised of
intangibles. Thus, the Special Committee does not believe that book value is
an appropriate measure of Telemundo's value. Further, the Special Committee
did not consider the liquidation value of Telemundo in making a fairness
determination because it believed that the sale of Telemundo as a going
concern would be more likely to maximize stockholder value.
The foregoing discussion of the information and factors considered and given
weight by the Special Committee is not intended to be exhaustive but is
believed to include the factors given primary consideration by the Special
Committee. The Special Committee did not analyze the fairness of the Merger
Consideration in isolation from the other considerations referred to above.
The Special Committee did not attempt to distinguish between factors that
support a determination that the Merger is "fair" and factors that support a
determination that the Merger is in the "best interests" of the Public
Stockholders.
Because the Creditors' Warrants represent the right to purchase Series A
Common Stock, the Special Committee also considered the foregoing information
and factors in formulating the belief that the Merger is fair to the holders
of the Creditors' Warrants (other than holders affiliated with the Purchaser
or its affiliates).
The Board of Directors
At a special meeting held on November 24, 1997, the Board, relying upon the
unanimous recommendation of the Special Committee, unanimously (a) determined
that the Merger is fair to and in the best interests of the Public
Stockholders, (b) approved the Merger Proposal and (c) recommended that
Stockholders vote to approve and adopt the Merger Proposal. See "Special
Factors--Background of the Merger." The Merger was approved by all of the
directors of Telemundo who are not employees of Telemundo.
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In making the determination and recommendation set forth above, the members
of the Board considered and relied upon the unanimous determination and
recommendations to the Board of the Special Committee in conjunction with the
factors relied upon by the Special Committee in making such determination and
recommendations. See "Special Factors--Recommendations of the Special
Committee and the Board of Directors; Fairness of the Merger--The Special
Committee." The Board also considered the opinion delivered by Lazard to the
Board at its November 24, 1997 meeting. At such meeting, Lazard delivered its
oral opinion to the Board, which was subsequently confirmed in writing to the
Board in letters dated November 24, 1997 and the date hereof, to the effect
that, as of such dates, the $44.00 base consideration to be received in the
Merger was fair, from a financial point of view, to the holders of Common
Stock (other than the beneficial owners of the Purchaser and their
affiliates). See "Special Factors--Opinion of Lazard Freres & Co. LLC." The
written opinion of Lazard dated the date hereof is included as Annex B of this
Proxy Statement. Stockholders are urged to read such opinion in its entirety.
In view of the variety of factors considered in connection with its
evaluation of the Merger Agreement, the Board found it impracticable to, and
did not, quantify, rank or otherwise assign relative weights to, the factors
considered or determine that any factor was of particular importance in
reaching its determination that the Merger is fair to and in the best
interests of the Public Stockholders. Rather, the Board viewed its
recommendations as being based upon its judgment, in light of the totality of
the information presented to and considered by it, of what the overall effect
of the Merger would be on the Public Stockholders compared to any alternative
transaction or the likely effect of rejecting all of the proposed
transactions.
The Board did not consider the book value of the Common Stock because a
significant portion of Telemundo's value is comprised of intangibles. Thus,
the Board does not believe that book value is an appropriate measure of
Telemundo's value. Further, the Board did not consider the liquidation value
of Telemundo in making a fairness determination because it believed that the
sale of Telemundo as a going concern would be more likely to maximize
stockholder value.
The foregoing discussion of the information and factors considered and given
weight by the Board is not intended to be exhaustive but is believed to
include the factors given primary consideration by the Board. The Board did
not analyze the fairness of the Merger Consideration in isolation from the
other considerations referred to above. The Board did not attempt to
distinguish between factors that support a determination that the Merger is
"fair" and factors that support a determination that the Merger is in the
"best interests" of the Public Stockholders.
Because the Creditors' Warrants represent the right to purchase Series A
Common Stock, the Board also considered the foregoing information and factors
in formulating the belief that the Merger is fair to the holders of the
Creditors' Warrants (other than holders affiliated with the Purchaser or its
affiliates).
THE BOARD, RELYING UPON THE UNANIMOUS RECOMMENDATION OF THE SPECIAL
COMMITTEE, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND HAS DETERMINED
THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, TELEMUNDO'S PUBLIC
STOCKHOLDERS. THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL AND
ADOPTION OF THE MERGER PROPOSAL.
The Purchaser, Apollo Investment and Bastion
None of the Purchaser, Apollo Investment or Bastion has undertaken any
formal evaluation of the fairness of the Merger to the Public Stockholders.
Based, however, upon its consideration of, among other things, (i) the matters
considered by and the conclusions of the Special Committee and the Board, (ii)
the fact that the Board has received the written opinion of Lazard, to the
effect that, as of the date of such opinion, the $44.00 base consideration to
be received in the Merger is fair, from a financial point of view, to the
holders of Common Stock (other than the beneficial owners of the Purchaser and
their affiliates), and (iii) the fact that the Special Committee has received
the written opinion of Salomon to the effect that, as of the date of such
opinion, the
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consideration to be received in the Merger is fair, from a financial point of
view, to the holders of Common Stock (other than Stockholders affiliated with
the Purchaser or its affiliates), each of the Purchaser, Apollo Investment and
Bastion believes that the Merger is fair to the Public Stockholders. Because
the Creditors' Warrants represent the right to purchase Series A Common Stock,
each of the Purchaser, Apollo Investment and Bastion also considered the
foregoing information and factors in formulating a belief that the Merger is
fair to the holders of the Creditors' Warrants (other than holders affiliated
with the Purchaser or its affiliates).
OPINION OF LAZARD FRERES & CO. LLC
On November 24, 1997, Lazard delivered its oral opinion to the Special
Committee, which was subsequently confirmed orally and in writing to the Board
in letters dated November 24, 1997 and the date hereof, to the effect that, as
of such dates, the $44.00 base consideration to be received in the Merger was
fair, from a financial point of view, to the holders of Common Stock (other
than the beneficial owners of the Purchaser and their affiliates). The full
text of the written opinion of Lazard dated the date hereof (the "Lazard
Opinion") is attached hereto as Annex B.
In requesting the Lazard Opinion, the Board did not give any special
instructions to Lazard or impose any limitations upon the scope of the
investigation that Lazard deemed necessary to enable it to deliver its
opinion. The Lazard Opinion attached hereto as Annex B sets forth the
assumptions made, matters considered and limitations on the review undertaken
in connection with such opinion. Lazard has consented to the inclusion of its
opinion as Annex B hereto, and to the references to such opinion in this Proxy
Statement. This discussion of the Lazard Opinion describes the material
aspects of the Lazard Opinion and is qualified in its entirety by reference to
the full text of such opinion. The engagement of Lazard and the oral opinion
of Lazard are for the benefit of the Board and the Special Committee in
connection with the Merger. The written opinions of Lazard are for the benefit
of the Board in connection with the Merger. The Lazard Opinion is directed
only to the fairness, from a financial point of view, of the $44.00 base
consideration to be received in the Merger to the holders of Common Stock
(other than the beneficial owners of the Purchaser and their affiliates) and
does not address any other aspects of the Merger. THE LAZARD OPINION IS NOT
INTENDED TO, AND DOES NOT CONSTITUTE, A RECOMMENDATION TO ANY STOCKHOLDER AS
TO WHETHER SUCH STOCKHOLDER SHOULD VOTE FOR THE MERGER. STOCKHOLDERS ARE URGED
TO READ THE LAZARD OPINION IN ITS ENTIRETY.
In connection with rendering the Lazard Opinion, Lazard: (i) reviewed the
financial terms and conditions of the Merger Agreement; (ii) analyzed certain
historical business and financial information relating to Telemundo; (iii)
reviewed various financial forecasts and other data provided to Lazard by
Telemundo relating to its business; (iv) held discussions with members of the
senior management of Telemundo with respect to the business and prospects of
Telemundo, and the strategic objectives of Telemundo; (v) reviewed public
information with respect to certain other companies in lines of business
Lazard believed to be generally comparable to the business of Telemundo;
(vi) reviewed the financial terms of certain business combinations involving
companies in lines of business Lazard believes to be generally comparable to
those of Telemundo; (vii) reviewed the historical stock prices and trading
volumes of the Series A Common Stock; and (viii) conducted such other
financial studies, analyses and investigations as Lazard deemed appropriate.
Lazard relied upon the accuracy and completeness of the information
described in the preceding paragraph and did not assume any responsibility for
any independent verification of such information or any independent valuation
or appraisal of any of the assets or liabilities of Telemundo. With respect to
financial forecasts, Lazard assumed that they were reasonably prepared on
bases reflecting the best currently available estimates and judgments of
management of Telemundo as to the future financial performance of Telemundo.
Lazard assumed no responsibility for and expressed no view as to such
forecasts or the assumptions on which they were based.
Telemundo does not publicly disclose internal management projections of the
type provided to Lazard in connection with their engagement and, accordingly,
such projections were not prepared with a view toward public disclosure. The
projections so provided were based upon numerous variables and assumptions
which are inherently uncertain, including, without limitation, factors related
to general economic and competitive conditions. Accordingly, actual results
could vary significantly from those set forth in such projections. See
"Special Factors--Certain Projected Financial Information and Forward-Looking
Statements."
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The Lazard Opinion was necessarily based upon economic, monetary, market and
other conditions as in effect on, and the information made available to it as
of the date of this Proxy Statement. The opinion also stated that Lazard
understood that proposals from other potential transaction partners were also
considered by the Board. Lazard has informed the Board that it customarily
does not, and accordingly in rendering its opinion, Lazard did not, address
the relative merits of the Merger, Bidder B's proposal and any alternative
potential transaction or Telemundo's underlying decision to effect the Merger.
In rendering the Lazard Opinion, Lazard assumed that the Merger would be
consummated on the terms described in the Merger Agreement, without any waiver
of any material term or condition by Telemundo, and that obtaining the
necessary regulatory approvals for the Merger would not have an adverse effect
on Telemundo.
The following is a summary of the material financial and comparative
analyses performed by Lazard in order to provide its opinion to the Special
Committee and the Board on November 24, 1997.
Comparable Publicly Traded Companies Analysis. Lazard reviewed and compared
certain actual and estimated financial, operating and stock market information
of companies in lines of businesses believed to be generally comparable to
those of Telemundo. Such companies included Clear Channel Communications,
Granite Broadcasting Corp., Hearst-Argyle Television Inc., Sinclair Broadcast
Group, Inc., and Young Broadcasting, Inc. (collectively, the "Selected
Broadcasting Comparables"). In addition, Lazard also reviewed and compared
certain actual and estimated financial, operating and stock market information
of Azteca and Univision. The analysis indicated that the enterprise values
(determined as the market value of common equity plus net debt) of the
Selected Broadcasting Comparables as a multiple of 1997 estimated earnings
before interest, taxes, depreciation and amortization ("EBITDA") ranged from
10.3x to 20.3x, with a median of 12.6x and a mean of 13.5x, compared to 23.7x
for Telemundo, and as a multiple of 1998 estimated EBITDA ranged from 9.5x to
18.1x, with a median of 11.1x and a mean of 12.1x, compared to 16.2x for
Telemundo. Lazard also noted that the enterprise values of Azteca and
Univision as a multiple of 1997 estimated EBITDA were 14.1x and 24.8x,
respectively, and as a multiple of 1998 estimated EBITDA were 10.2x and 20.8x,
respectively, reflecting the different underlying market in which Azteca
operates and the different market position Univision occupies. When applying
the multiples for the Selected Broadcasting Comparables to Telemundo, using
its 1997 and 1998 estimated EBITDA, this methodology indicates an implied
price per share of Common Stock which ranged from approximately $11.00 to
$36.00, with a median value of approximately $17.00 and a mean value of
approximately $19.00 (or $11.00 to $47.00, with a median value of
approximately $17.00 and a mean value of approximately $23.00, including
Univision and Azteca) and $20.00 to $51.00, with a median value of
approximately $26.00 and a mean value of approximately $29.00 (or $20.00 to
$61.00, with a median value of approximately $26.00 and a mean value of
approximately $33.00, including Univision and Azteca), respectively.
Selected Precedent Transactions Analysis. Lazard reviewed selected
financial, operating and stock market information relating to selected
acquisition transactions in the television broadcasting sector since February
1995. Lazard focused on the most recent transactions which included Hicks,
Muse, Tate & Furst Inc./LIN Television Corp., Sinclair Broadcast Group,
Inc./Heritage Media Radio & TV, Hearst Corp./Argyle Television Inc., Meredith
Corp./First Media Television LP and Cox Broadcasting Inc./KSTW-TV (Seattle)
(collectively, the "Selected Broadcasting Comparable Transactions"). The
analysis indicated that the transaction values in the Selected Broadcasting
Transactions as a multiple of latest twelve months EBITDA ranged from 14.1x to
16.3x, with a median of 14.8x and a mean of 14.9x, compared to 21.1x for
Telemundo. When applying the multiples for the Selected Broadcasting
Comparable Transactions to Telemundo's latest twelve months EBITDA, this
methodology indicates an implied price per share which ranged from
approximately $26.00 to $33.00, with a median value of approximately $26.00
and a mean value of approximately $29.00.
Discounted Cash Flow Analysis. Based upon forecasts provided by the
management of Telemundo, Lazard estimated the net present value of the future
free cash flows of Telemundo. The forecasts provided were based, among other
things, on the assumption that Telemundo's ratings would increase. The
forecasts, however, were made at a time when Telemundo's ratings had not been
increasing. For this analysis, Lazard used discount rates ranging from 11.0%
to 12.0% and multiples of estimated EBITDA in year 2002 ranging from 11.0x to
12.0x.
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This analysis indicated implied per share equity values for the Common Stock
ranging from approximately $39.00 to $46.00 (excluding debt breakage costs of
approximately $2.00 per share of Common Stock).
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or the summary set forth above without considering
the analyses as a whole, could create an incomplete or misleading view of the
process underlying the opinion of Lazard. No company or transaction used in
the above analyses as a comparison is identical to Telemundo or the
transaction contemplated by the Merger Agreement. The analyses were prepared
solely for the purpose of Lazard's providing its opinion to the Board in
connection with its consideration of the Merger and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold, which may be significantly more or less favorable than
as set forth in these analyses. Similarly, any estimate of values or forecast
of future results contained in the analyses is not necessarily indicative of
actual values or actual future results, which may be significantly more or
less favorable than suggested by such analyses.
In performing its analyses, Lazard made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters. Because such analyses are inherently subject to uncertainty, being
based upon numerous factors or events beyond the control of the parties or
their respective advisors, future results or actual values could differ
materially from those forecasts or estimates contained in the analyses. See
"Certain Projected Financial Information and Forward-Looking Statements."
Lazard is an internationally recognized investment banking firm and is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, leveraged
buyouts, and valuations for estate, corporate and other purposes. Lazard was
selected to act as financial advisor to the Board because of its expertise and
its reputation in investment banking and mergers and acquisitions and because
of its reputation as one of the country's preeminent media and entertainment
investment banking firms.
In connection with Lazard's services as financial advisor to Telemundo,
including its rendering of the Lazard Opinion, Telemundo has paid Lazard
quarterly retainer fees totaling $500,000, which will be credited against the
$3.5 million payable to Lazard upon consummation of the Merger. Telemundo also
has agreed to reimburse Lazard for all of its reasonable out-of-pocket
expenses (including fees and expenses of its legal counsel) and will indemnify
Lazard and certain related parties against certain liabilities, including
certain liabilities arising under the federal securities laws. Lazard has in
the past provided financial advisory services for Apollo for which it has
received usual and customary compensation.
In the ordinary course of its business, Lazard and its affiliates may
actively trade in the securities of Telemundo for their own account and for
the account of their customers and, accordingly, may at any time hold a long
or short position in such securities.
OPINION OF SALOMON BROTHERS INC
Salomon was retained by Telemundo to act as financial advisor to the Special
Committee in connection with the Merger. Salomon delivered its oral opinion to
the Special Committee on November 24, 1997, which was subsequently confirmed
in writing to the Special Committee in letters dated November 24, 1997 and the
date hereof, to the effect that, based upon and subject to various
considerations set forth in the Salomon Opinion, the consideration to be
received in the Merger is fair, from a financial point of view, to the holders
of Common Stock (other than Stockholders affiliated with the Purchaser or its
affiliates). The full text of the written opinion of Salomon dated the date
hereof (the "Salomon Opinion") is attached hereto as Annex C.
In requesting the Salomon Opinion, the Special Committee did not give any
special instructions to Salomon or impose any limitation upon the scope of the
investigation that Salomon deemed necessary to enable it to deliver its
opinion. The Salomon Opinion attached hereto as Annex C, sets forth the
assumptions made, general
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procedures followed, matters considered and limitations on the review
undertaken by Salomon. THE SALOMON OPINION SHOULD BE READ CAREFULLY AND IN ITS
ENTIRETY BY STOCKHOLDERS. The Salomon Opinion is directed only to the
fairness, from a financial point of view, of the consideration contained in
the Purchaser's proposal to the holders of Common Stock (other than
Stockholders affiliated with the Purchaser or its affiliates) and does not
address Telemundo's underlying business decision to effect the Merger or
constitute a recommendation to any Stockholder as to how such Stockholder
should vote with respect to the Merger. The summary of the Salomon Opinion set
forth in this Proxy Statement describes the material aspects of the Salomon
Opinion and is qualified in its entirety by reference to the full text of the
Salomon Opinion attached hereto as Annex C.
In connection with rendering the Salomon Opinion, Salomon, among other
things: (i) reviewed the Merger Agreement in the form provided to Salomon;
(ii) reviewed certain publicly available business and financial information
concerning Telemundo; (iii) reviewed certain publicly available information
concerning the industry in which Telemundo operates; (iv) reviewed and
analyzed certain financial forecasts and other non-public financial and
operating data concerning the business and operations of Telemundo that were
provided to or reviewed for Salomon by management of Telemundo; (v) reviewed
certain publicly available business and financial information with respect to
certain other companies that Salomon believed to be comparable in certain
respects to Telemundo and the trading markets for such companies' securities;
(vi) reviewed and analyzed certain publicly available and other information
concerning the trading of, and the trading market for, the Series A Common
Stock; (vii) reviewed the financial terms of certain business combination and
acquisition transactions Salomon deemed reasonably comparable to the Merger
and otherwise relevant to its inquiry; (viii) reviewed the results of the
process that resulted in the negotiation, execution and delivery of the Merger
Agreement that were provided to or reviewed for Salomon by management or
advisors of Telemundo; and (ix) considered such other information, financial
studies, analyses, investigations and financial, economic, market and trading
criteria as Salomon deemed relevant to its inquiry. Salomon also discussed the
foregoing with certain officers, employees and advisors of Telemundo,
including the past and current operations, financial condition and prospects
of Telemundo, as well as other matters they believed relevant to their
inquiry. While Salomon has reviewed the results of the strategic transaction
process that resulted in the negotiation, execution and delivery of the Merger
Agreement, it should also be noted that, within the context of Salomon's
engagement, Salomon was not authorized to and did not solicit alternative
offers for Telemundo or its assets. The Salomon Opinion was necessarily based
upon conditions as they existed and could be evaluated as of the date of the
Salomon Opinion.
In connection with rendering the Salomon Opinion, Salomon assumed and relied
upon, without assuming any responsibility for verification, the accuracy and
completeness of all of the financial and other information provided to,
discussed with, or reviewed by or for Salomon or publicly available. With
respect to the financial projections for Telemundo, Salomon assumed that they
were reasonably prepared on bases reflecting the best currently available
estimates and judgments on the part of the management of Telemundo as to the
future financial performance of Telemundo. Salomon expressed no view as to
such projections or information or the assumptions on which they are based.
Salomon did not assume any responsibility for making or obtaining any
independent evaluations or appraisals of any of the assets (including
properties and facilities) or liabilities of Telemundo. For purposes of
rendering the Salomon Opinion, Salomon assumed, in all respects material to
its analysis, that the representations and warranties of each party contained
in the Merger Agreement are true and correct, that each party will perform all
of the covenants and agreements required to be performed by it under the
Merger Agreement and that all conditions to the consummation of the Merger
will be satisfied without waiver thereof.
In connection with rendering its opinion to the Special Committee on
November 24, 1997, Salomon performed a variety of financial analyses, the
material portions of which are summarized below. The summary of such analyses
set forth below does not purport to be a complete description of the analyses
underlying its opinion or of its presentation to the Special Committee. In
addition, Salomon believes that its analyses must be considered as a whole and
that selecting portions of such analyses and the factors considered therein,
without considering all such analyses and factors, could create an incomplete
view of the analyses and the processes underlying its opinion. The preparation
of a fairness opinion is a complex process involving subjective judgments
38
<PAGE>
and is not necessarily susceptible to partial analysis or summary description.
Analyses and estimates of the values of companies do not purport to be
appraisals or necessarily reflect the prices at which companies or their
securities actually may be sold. The range of valuation for any particular
analysis should not be taken to be the view of Salomon of the actual value of
Telemundo.
The projections furnished to Salomon and used in formulating its opinion
were provided to or reviewed for Salomon by the management of Telemundo.
Telemundo does not normally publicly disclose internal management projections
of the type provided to Salomon in connection with the review of the Merger
and, accordingly, such projections were not prepared with a view toward public
disclosure. The projections so provided were based upon numerous variables and
assumptions which are inherently uncertain, including, without limitation,
factors related to general economic and competitive conditions. Accordingly,
actual results could vary significantly from those set forth in such
projections. See "Special Factors--Certain Projected Financial Information and
Forward-Looking Statements."
Financial Overview and Trading Analysis. Salomon reviewed historical
financial information of Telemundo and certain estimates of projected
financial information for Telemundo. Salomon reviewed the daily closing market
price per share and trading volume of the Series A Common Stock for the period
beginning January 1, 1996 and ending November 21, 1997. Salomon determined the
firm value (defined as the price per share times the number of fully diluted
shares outstanding, less option proceeds, plus debt (including capitalized
lease obligations), less cash) of Telemundo using the closing market price as
of July 16, 1997 (the trading day immediately preceding the date of
Telemundo's announcement that it was seeking a strategic programming
alternative) and as of November 21, 1997 and using the $44.00 per share Merger
Consideration. Salomon calculated the multiples of Telemundo's management's
estimates of 1997 and 1998 earnings before interest, income taxes,
depreciation and amortization less required payments to the holder of a
minority interest in Telemundo's WSNS station ("Adjusted EBITDA") that these
firm values represented. Salomon calculated the multiples of Telemundo's
management's 1997 and 1998 estimates of BCF less required payments to the
holder of a minority interest in Telemundo's WSNS station ("Adjusted BCF").
Based on the Merger Consideration, the firm value represented multiples of
1997 and 1998 estimated Adjusted BCF of 21.9x and 14.9x, respectively. Based
upon the Merger Consideration, the firm value represented multiples of 1997
and 1998 estimated Adjusted EBITDA of 26.0x and 17.4x, respectively.
Comparable Company Trading Analysis. Salomon analyzed the ratio of firm
value to 1997 and 1998 publicly available Salomon equity research estimates of
BCF for each of the following broadcasting companies: Hearst-Argyle
Television, Inc., Clear Channel Communications, Granite Broadcasting Corp.,
Gray Communications Systems, Inc., LIN Television Corp., Sinclair Broadcast
Group, Inc., United Television, Inc. and Young Broadcasting, Inc.
(collectively, the "Broadcasting Comparables"). Salomon found that the firm
value to 1997 estimated BCF multiples ranged from 10.0x to 14.6x, with a
median of 11.5x and that the firm value to 1998 estimated BCF ranged from 9.0x
to 11.4x, with a median of 10.3x. Salomon also analyzed these multiples for
each of the following Spanish-language broadcasting companies: Azteca and
Univision (the "Spanish Language Comparables"). Salomon found that for the
Spanish Language Comparables, the firm value to 1997 estimated BCF multiples
ranged from 12.3x to 23.1x, with a median of 14.6x and that the firm value to
1998 estimated BCF multiples ranged from 10.0x to 19.2x, with a median of
11.4x. Salomon noted that the median 1997 and 1998 estimated BCF multiples for
the Broadcasting Comparables and the Spanish Language Comparables were 12.3x
and 10.5x, respectively.
Salomon also reviewed the 1997 estimated BCF margin for each Broadcasting
Comparable and each Spanish Language Comparable, as well as each such
comparable company's BCF growth rate based upon its estimated 1997 BCF and
1998 BCF, and compared these data to comparable data for Telemundo.
Based upon these analyses, Salomon established reference range multiples for
firm value to 1997 and 1998 BCF of 12.0x to 15.0x and 11.0x to 13.5x,
respectively. When applied to Telemundo using its 1997 and 1998 estimated
Adjusted BCF, this methodology indicated an implied price per share of Common
Stock which ranged from $18.00 to $26.00 and from $29.00 to $38.00,
respectively.
39
<PAGE>
Precedent Transaction Analysis. Using publicly available information,
Salomon analyzed twenty-one transactions involving acquisitions of
broadcasting and media companies (the "Precedent Transactions"). The Precedent
Transactions and the date each such transaction was announced are as follows:
Viacom Inc./WNDY-TV (Indianapolis) (October 27, 1997); Hicks, Muse, Tate &
Furst Inc./LIN Television Corp. (August 12, 1997); Hearst Corp./Argyle
Television Inc. (March 27, 1997); Sinclair Broadcast Group, Inc./KUPN-TV (Las
Vegas) (January 31, 1997); Meredith Corp./First Media Television LP (January
24, 1997); Nexstar Broadcasting Group/TCS Television Partners LP (January 3,
1997); Granite Broadcasting Corp./WXON-TV (Detroit) (December 3, 1996); Hicks,
Muse, Tate & Furst Inc./The Jupiter Partners LP (November 6, 1996); Granite
Broadcasting Corp./WLAJ-TV (Lansing) (October 21, 1996); A.H. Belo
Corporation/The Providence Journal Company (September 26, 1996); Raycom Media
Inc./AFLAC Inc. (August 14, 1996); Media General Inc./Park Acquisitions, Inc.
(July 22, 1996); Tribune Company/Renaissance Communications Corp. (July 1,
1996); General Electric Company/KNSD-TV (San Diego) and WVTM-TV (Birmingham)
(May 22, 1996); Raycom Media Inc./Ellis Communications Inc. (May 15, 1996);
The New York Times Company/Palmer Communications Inc. (May 14, 1996); Young
Broadcasting, Inc./The Walt Disney Company (May 13, 1996); Sinclair Broadcast
Group, Inc./River City Broadcasting LP (April 11, 1996); Sinclair Broadcast
Group, Inc./Superior Communications Inc. (March 5, 1996); Argyle Television
Inc./Sigma Broadcasting Inc. (February 5, 1996); and Young Broadcasting,
Inc./Midcontinent Media Inc. (January 12, 1996). Salomon reviewed the amount
of the consideration paid in each of the Precedent Transactions and determined
the estimated forward multiple of firm value to BCF (based upon such
consideration). This analysis resulted in a low multiple of 9.0x and a high
multiple of 16.7x, with a median of 12.8x from which Salomon determined a
reference range of from 12.0x to 14.0x. When applied to Telemundo's estimated
1998 Adjusted BCF, this methodology indicated an implied price per share of
Common Stock which ranged from $33.00 to $40.00.
Discounted Cash Flow Analysis. Salomon performed a discounted cash flow
("DCF") analysis of Telemundo using management's projections for the fiscal
years ending December 31, 1997 through December 31, 2002. The DCF analysis is
a method of estimating the present value of the stand-alone unlevered cash
flows that Telemundo would be expected to generate if it performed in
accordance with certain projections. The DCF value was calculated assuming
discount rates ranging from 11.5% to 12.5% and was comprised of the sum of the
net present values of (1) the projected unlevered free cash flows for
Telemundo for the years 1997 through 2002 plus (2) the terminal value in the
year 2002 based upon multiples of estimated Adjusted BCF in such year ranging
from 9.5x to 10.5x. Utilizing the DCF method, Salomon determined an implied
price per share of Common Stock which ranged from $36.00 to $42.00 per share.
Salomon is an internationally recognized investment banking firm that
regularly engages in the valuation of companies and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities
and corporate, estate and other purposes. Salomon was retained as a financial
advisor because of its reputation, expertise in the valuation of companies and
substantial experience in transactions such as the Merger, as well as its
prior familiarity with Telemundo.
Salomon has rendered certain investment banking and financial advisory
services to Telemundo in the past for which Salomon has been paid fees,
including acting as lead manager of the February 1996 offering of debt
securities of Telemundo and the related repurchase offer and consent
solicitation with respect to certain outstanding debt of Telemundo. In
addition, in the ordinary course of Salomon's business, Salomon or its
affiliates may actively trade the securities of Telemundo for its own account
and for the accounts of customers and, accordingly, may at any time hold a
long or short position in such securities. Salomon has in the past provided
financial advisory services for Apollo and Bastion and their respective
affiliates for which it has received usual and customary compensation,
including for Apollo and its affiliates, having acted as joint lead manager on
an offering of Senior Subordinated Notes for Alliance Imaging, Inc., as lead
manager of a secondary offering of Common Stock for Zale Corporation, as co-
manager of an initial public offering of Vail Resorts, Inc. and as co-manager
of a secondary offering of Common Stock of Furniture Brands International,
Inc.
40
<PAGE>
Telemundo and Salomon entered into a letter agreement, dated as of November
20, 1997 (the "Salomon Engagement Letter"), relating to the services to be
provided by Salomon in connection with the Merger. Pursuant to the Salomon
Engagement Letter, Telemundo has agreed to pay Salomon a fee of $750,000 upon
delivery of the Salomon Opinion, which fee is not contingent upon the
consummation of the Merger. Telemundo also agreed to reimburse Salomon for the
reasonable fees and disbursements of Salomon's counsel (in an aggregate amount
not to exceed $5,000) and Salomon's reasonable travel and other out-of-pocket
expenses and to indemnify Salomon against certain liabilities, including
liabilities under federal securities laws, relating to or arising out of its
engagement.
CERTAIN PROJECTED FINANCIAL INFORMATION AND FORWARD-LOOKING STATEMENTS
Telemundo does not, as a matter of course, make public forecasts or
projections as to future sales, earnings or other income statement data, cash
flows or balance sheet and financial position information. However, as
mentioned above, in connection with the evaluation of Telemundo by entities
interested in pursuing a potential transaction and Lazard and Salomon's review
of the fairness, from a financial point of view, of the Merger Consideration,
Telemundo furnished such potential partners, Lazard and Salomon with certain
projections (the "Projections") prepared by Telemundo's management and,
therefore, the Projections are included herein.
The Projections were not prepared with a view toward public disclosure or
compliance with published guidelines of the Securities and Exchange Commission
(the "SEC") or the American Institute of Certified Public Accountants
regarding forward-looking information or generally accepted accounting
principles. Neither Telemundo's independent auditors, nor any other
independent accountants, have compiled, examined, or performed any procedures
with respect to the prospective financial information contained herein, nor
have they expressed any opinion or given any form of assurance on such
information or its achievability, and assume no responsibility for, and
disclaim any association with, the prospective financial information.
Furthermore, the Projections necessarily make numerous assumptions, some (but
not all) of which are set forth below and many of which are beyond the control
of Telemundo and may prove not to have been, or may no longer be, accurate.
Additionally, this information, except as otherwise indicated, does not
reflect revised prospects for Telemundo's businesses, changes in general
business and economic conditions, or any other transaction or event that has
occurred or that may occur and that was not anticipated at the time such
information was prepared. Accordingly, such information is not necessarily
indicative of current values or future performance, which may be significantly
more favorable or less favorable than as set forth below, and should not be
regarded as a representation that they will be achieved.
Telemundo has also made certain forward-looking statements in this Proxy
Statement and the documents incorporated by reference herein. These statements
are based on Telemundo's management's beliefs and assumptions, based on
information available to it at the time such statements were prepared.
Forward-looking statements include the information concerning Telemundo's
possible or assumed results of operations referred to under the captions
titled "Summary," "Special Factors--Background of the Merger," "--
Recommendations of the Special Committee and the Board of Directors; Fairness
of the Merger," "--Opinion of Lazard Freres & Co. LLC," "--Opinion of Salomon
Brothers Inc" and "Purpose and Structure of the Merger." These statements may
be identified by the use of forward-looking words or phrases such as
"believe," "expect," "may," "anticipate," "intend," "could," "plan,"
"estimate," "potential" or similar expressions. FORWARD-LOOKING STATEMENTS ARE
NOT GUARANTEES OF PERFORMANCE. THEY INVOLVE RISKS, UNCERTAINTIES AND
ASSUMPTIONS. THE FUTURE RESULTS AND STOCKHOLDER VALUES OF TELEMUNDO MAY
MATERIALLY DIFFER FROM THOSE EXPRESSED IN THESE FORWARD-LOOKING STATEMENTS.
MANY OF THE FACTORS THAT WILL DETERMINE THESE RESULTS AND VALUES ARE BEYOND
TELEMUNDO'S ABILITY TO CONTROL OR PREDICT. STOCKHOLDERS ARE CAUTIONED NOT TO
PUT UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS.
Stockholders should understand that the following important factors, in
addition to those discussed elsewhere in the documents which are incorporated
by reference into this Proxy Statement, could affect the future results of
Telemundo and could cause results to differ materially from those expressed in
such forward-looking statements and the Projections: (i) the effect of
economic conditions; (ii) Telemundo's outstanding indebtedness
41
<PAGE>
and leverage; (iii) restrictions imposed by the terms of Telemundo's
indebtedness; (iv) changes in advertising revenue which are caused by changes
in national and local economic conditions, the relative popularity of
Telemundo's programming, the demographic characteristics of Telemundo's
markets and other factors outside Telemundo's control; (v) future capital
requirements; (vi) the impact of competition, including its impact on market
share and advertising revenue in each of Telemundo's markets; (vii) the loss
of key employees; (viii) the modification or termination of network
affiliation agreements; (ix) the availability of cost-effective programming;
(x) the impact of litigation; (xi) the impact of current or pending
legislation and regulations, including FCC rulemaking proceedings; and (xii)
other factors that may be described from time to time in filings of Telemundo
with the SEC.
The Projections included herein have been prepared by Telemundo based upon
estimates of the total television market development and Telemundo's own
performance through 2002, which Telemundo believed to be reasonable at the
time they were made. The Projections do not, and were not intended to, include
the benefits of any strategic transaction. The estimates which follow for 1997
were based upon actual results through May 31, 1997 and management forecasts
for the remainder of the year. In the Projections: (i) total net U.S.
broadcast television advertising expenditures are assumed to increase at a
compounded annual growth rate of 5.8% through 2002; (ii) net U.S. Spanish-
language network television advertising expenditures are assumed to grow at an
annual rate of 7.8% through 2002; (iii) in the U.S., Telemundo anticipates
participating in the overall growth of the Spanish-language television market
as well as gradually increasing its overall share of the Spanish-language
television audience, increasing approximately one share point per year from an
assumed 1997 base of 20%; (iv) since Puerto Rico is a mature market, the
revenues of Telemundo's Puerto Rican subsidiary are assumed to grow only in
line with the growth of the overall U.S. broadcast television market; (v) in
1998 and 1999, network programming, production and promotion costs are assumed
to grow 15.0% and 12.5%, respectively, and thereafter, these expenditures are
projected to grow 10% per annum; (vi) as the network provides substantially
all of the programming and significant marketing support to the stations,
station group expenses are assumed to increase less than network expenses;
(vii) amortization primarily results from Telemundo's reorganization and
acquisition of station WSNS in Chicago; (viii) net interest expense results
primarily from interest on and amortization of deferred debt expense relating
to Telemundo's 10.5% senior notes, as well as fees and interest related to its
revolving credit facility (interest income on Telemundo's projected cash
balance, assumed to yield 5%, is netted against interest expense); (ix) income
taxes relate primarily to taxes paid in Puerto Rico, withholding taxes related
to foreign operations and certain federal and state income and franchise
taxes; the projected income tax provision reflects the utilization of net
operating losses for both the U.S., subject to limitations under Section 382
of the Internal Revenue Code, and Puerto Rico; (x) minority interest relates
to its 25.5% partner's interest in station WSNS-Chicago; (xi) working capital
requirements are assumed to increase by 20% of the annual increase in net
revenues; and (xii) future capital expenditures are projected to include the
general replacement and upgrade of equipment and facilities as well as a
provision for the phasing in of the conversion to digital broadcast
transmission at owned and operated stations. It should be noted that the
assumption in clause (iii) above was made despite the fact that Telemundo's
ratings had decreased since the first quarter of 1996.
THE PROJECTIONS ARE NOT GUARANTEES OF PERFORMANCE. THEY INVOLVE RISKS,
UNCERTAINTIES AND ASSUMPTIONS. THE FUTURE RESULTS AND STOCKHOLDER VALUE OF
TELEMUNDO MAY MATERIALLY DIFFER FROM THOSE EXPRESSED IN THE PROJECTIONS. MANY
OF THE FACTORS THAT WILL DETERMINE THESE RESULTS AND VALUES ARE BEYOND
TELEMUNDO'S ABILITY TO CONTROL OR PREDICT. STOCKHOLDERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THE PROJECTIONS. THERE CAN BE NO ASSURANCE THAT THE
PROJECTIONS WILL BE REALIZED OR THAT TELEMUNDO'S FUTURE FINANCIAL RESULTS WILL
NOT MATERIALLY VARY FROM THE PROJECTIONS. TELEMUNDO DOES NOT INTEND TO UPDATE
OR REVISE THE PROJECTIONS.
The Projections set forth on page 43 and on the top of page 44 summarize
certain of the information that was prepared by Telemundo in July, 1997 and
provided in the confidential information memorandum distributed by Lazard to
potential transaction partners who executed confidentiality agreements. For
purposes of this data, EBITDA is operating income before depreciation and
amortization. Although EBITDA, under generally accepted accounting principles,
is not intended to represent cash flow or any other measure of financial
performance, Telemundo believes it is helpful in understanding cash flow
generated from operations that is available for debt service, taxes, working
capital requirements and capital expenditures.
42
<PAGE>
FINANCIAL HIGHLIGHTS
($ IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
-----------------------------------------------------------------------
COMPOUNDED
ANNUAL
GROWTH RATE
1996 1997E 1998P 1999P 2000P 2001P 2002P (1997 TO 2002)
------ ------ ------ ------ ------ ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net U.S. Spanish-Lang.
TV Advertising
Expenditures........... $508.0 $580.0 $638.0 $669.9 $736.9 $788.5 $843.7 7.8%
Estimated Audience Share
....................... 20% 21% 22% 23% 24% 25%
Share of Total U.S.
Spanish-Lang. TV
Advertising............ 26.1% 22.1% 23.1% 24.6% 24.7% 25.4% 26.1%
Net Revenues............ $205.6 $203.6 $227.7 $249.9 $272.8 $294.4 $319.7 9.4%
Growth................. 10.4% (1.0%) 11.8% 9.8% 9.1% 7.9% 8.6%
Broadcast Cash Flow..... $ 49.3 $ 41.8 $ 53.6 $ 63.8 $ 75.1 $ 84.3 $ 96.2 18.2%
Margin................. 24.0% 20.5% 23.5% 25.5% 27.5% 28.6% 30.1%
EBITDA.................. $ 44.2 $ 36.7 $ 46.9 $ 56.9 $ 68.0 $ 77.0 $ 88.6 19.3%
Margin................. 21.5% 18.0% 20.6% 22.8% 24.9% 26.1% 27.7%
</TABLE>
FINANCIAL PROJECTIONS STATEMENT OF OPERATIONS
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
-----------------------------------------------
1997E 1998P 1999P 2000P 2001P 2002P
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net U.S. Spanish-Language TV
Advertising Expenditures..... $580.0 $638.0 $669.9 $736.9 $788.5 $843.7
Estimated Audience Share...... 20% 21% 22% 23% 24% 25%
Share of Total U.S. Spanish-
Lang. TV Advertising......... 22.1% 23.1% 24.6% 24.7% 25.4% 26.1%
Net Revenues
Station Group................ 91.2 100.4 108.0 115.5 122.7 130.4
Network...................... 64.6 77.1 89.2 101.0 114.2 129.2
Puerto Rico.................. 47.8 50.2 52.7 56.3 57.5 60.1
------ ------ ------ ------ ------ ------
Total........................ 203.6 227.7 249.9 272.8 294.4 319.7
Growth....................... (1.0%) 11.8% 9.8% 9.1% 7.9% 8.6%
Broadcast Cash Flow........... 41.8 53.6 63.8 75.1 84.3 96.2
Margin....................... 20.5% 23.5% 25.5% 27.5% 28.6% 30.1%
Corporate Expenses............ 5.1 6.7 6.9 7.1 7.4 7.6
------ ------ ------ ------ ------ ------
EBITDA........................ 36.7 46.9 56.9 68.0 77.0 88.6
Margin....................... 18.0% 20.6% 22.8% 24.9% 26.1% 27.7%
Depreciation & Amortization... 13.8 15.0 16.2 17.3 16.5 15.6
------ ------ ------ ------ ------ ------
EBIT ......................... 22.8 31.8 40.7 50.7 60.5 73.1
Net Interest Expense.......... 19.1 19.3 19.0 18.1 16.7 14.9
Income Taxes.................. 4.3 3.2 3.6 5.2 8.0 9.1
Minority Interest............. 2.8 3.1 3.4 3.7 4.1 4.5
------ ------ ------ ------ ------ ------
Net Income.................... $ (3.4) $ 6.2 $ 14.7 $ 23.6 $ 31.6 $ 44.5
====== ====== ====== ====== ====== ======
E.P.S......................... $(0.33) $ 0.55 $ 1.29 $ 2.04 $ 2.70 $ 3.76
====== ====== ====== ====== ====== ======
</TABLE>
43
<PAGE>
FINANCIAL PROJECTIONS
STATEMENT OF CASH FLOWS
($ IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
----------------------------------------------
1997E 1998P 1999P 2000P 2001P 2002P
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
EBITDA.......................... $ 36.7 $ 46.9 $ 56.9 $ 68.0 $ 77.0 $ 88.6
Capital Expenditures............ (9.7) (9.0) (9.2) (9.2) (9.2) (9.2)
Changes in Working Capital...... (5.7) (4.8) (4.4) (4.6) (4.3) (5.0)
Cash Interest................... (13.5) (13.2) (15.0) (18.1) (16.7) (14.9)
Taxes........................... (2.5) (3.2) (3.6) (5.2) (8.0) (9.1)
Other(a)........................ (9.5) (6.3) (6.7) (7.0) (7.4) (7.8)
------ ------ ------ ------ ------ ------
Net Free Cash Flow.............. $ (4.4) $ 10.5 $ 18.0 $ 23.8 $ 31.3 $ 42.6
====== ====== ====== ====== ====== ======
</TABLE>
- --------
(a) Includes net capitalized programming expenditures, cash payment to
minority interest holder and cash used for capital lease obligations.
On October 20, 1997, Telemundo provided to Lazard the revised Projections in
the chart below which thereafter were distributed by Lazard to entities who
continued to express an interest in a potential transaction with Telemundo.
The revisions to the Projections resulted primarily from a shortfall in net
revenue, a result of Telemundo not having achieved its projected audience
share of 20% during the third quarter of 1997. Telemundo also slightly reduced
its projected EBITDA for 1998 (from $46.9 million to $43.9 million),
reflecting the carryover effect of the delay in the assumed improvement in
audience share.
1997 REVISED PROJECTION VS. ORIGINAL PROJECTION
($ IN MILLIONS)
<TABLE>
<CAPTION>
1997 1997
REVISED PROJECTION ORIGINAL PROJECTION
------------------ -------------------
<S> <C> <C>
Net Revenue:
Continental U.S.:
Station Group....................... $ 86.3 $ 91.2
Network............................. 62.8 64.6
------ ------
149.1 155.8
Puerto Rico.......................... 48.4 47.8
------ ------
197.5 203.6
------ ------
Operating Expenses:
Continental U.S.:
Station Group....................... 59.6 61.1
Network............................. 76.8 75.3
------ ------
136.4 136.4
Puerto Rico.......................... 31.0 30.5
------ ------
167.4 166.9
------ ------
EBITDA:
Continental U.S.:
Station Group....................... 26.7 30.1
Network............................. (14.0) (10.7)
------ ------
12.7 19.4
Puerto Rico.......................... 17.4 17.3
------ ------
EBITDA................................ $ 30.1 $ 36.7
====== ======
Minority Interest..................... $ (2.8) $ (2.8)
====== ======
</TABLE>
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PURPOSE AND STRUCTURE OF THE MERGER
Telemundo entered into the Merger Agreement because the Board concluded,
relying upon the unanimous recommendation of the Special Committee, that the
Merger is fair to and in the best interests of the Public Stockholders. In
particular, the Board believed, based upon the unanimous recommendation of the
Special Committee, that the Merger presented the Public Stockholders with the
most attractive opportunity available at the current time to maximize the
value of their Common Stock by selling their shares at a substantial premium
to historical and current market prices for the Series A Common Stock. For a
discussion of the various factors considered by the Special Committee and the
Board in reaching their conclusions, see "Special Factors--Recommendations of
the Special Committee and the Board of Directors; Fairness of the Merger."
The purpose for the Purchaser to proceed with the Merger is for the
Purchaser to acquire the entire equity interest in Telemundo. See "Special
Factors--Interest of Certain Persons" and "--Current Relationships and
Transactions."
In order to provide a prompt and orderly transfer of ownership of Telemundo
from the Stockholders to the Purchaser, in light of relevant financial, legal,
tax and other considerations, and to facilitate the required financing for the
transaction, the acquisition has been structured as a merger pursuant to
which, if the Merger Agreement is adopted by the requisite vote of the
Stockholders and the remaining conditions to the consummation of the Merger
are satisfied or waived, Sub will be merged with and into Telemundo and all of
the outstanding shares of Common Stock (other than shares held by the
Purchaser or any wholly owned subsidiary of the Purchaser, or in the treasury
of Telemundo or by any wholly owned subsidiary of Telemundo, all of which will
be canceled with no payment made with respect thereto, or by Stockholders who
properly exercise and perfect their statutory appraisal rights under the DGCL)
will be converted into the right to receive the Merger Consideration.
Stockholders who perfect their statutory appraisal rights under and in
accordance with Section 262 of the DGCL may seek appraisal of their Common
Stock. See "Special Factors--Appraisal Rights."
CERTAIN EFFECTS OF THE MERGER; PLANS FOR TELEMUNDO AFTER THE MERGER
Following the Effective Time, the Purchaser will own 100% of Telemundo's
outstanding capital stock. The Purchaser will be the sole beneficiary of any
future earnings and growth of Telemundo after the Effective Time (until shares
of capital stock, if any, are issued to other stockholders) and will have the
ability to benefit from any divestitures (including the planned sale of
Telemundo's network operations to affiliates of the Purchaser), strategic
acquisitions or other corporate opportunities that may be pursued by Telemundo
in the future. The common stock of the Purchaser will be owned 24.95% by SPE,
24.95% by Liberty and 50.1% by Station Partners. In addition, Liberty will
grant Station Partners a proxy to vote all of its shares of common stock of
the Purchaser, and Liberty will not be entitled to vote any of the outstanding
common stock of the Purchaser. At the Effective Time, the Public Stockholders
will cease to have any ownership interests in, or rights as, stockholders of
Telemundo. Following the Effective Time, the Public Stockholders will not
benefit from any increase in the value of Telemundo or any payment of
dividends on the Common Stock of Telemundo and will not bear the risk of any
decrease in the value of Telemundo. Following the Effective Time, the holders
of the Creditors' Warrants (other than holders affiliated with the Purchaser
or its affiliates) will not benefit from any increase in the value of
Telemundo and will not bear the risk of any decrease in the value of
Telemundo.
As a result of the Merger, Telemundo will be a privately held corporation
and a wholly owned subsidiary of the Purchaser and there will be no public
market for its Common Stock or Warrants. At the Effective Time, the Series A
Common Stock and the Creditors' Warrants will cease to be quoted on the
National Market Tier and the Small Cap Market Tier, respectively, of Nasdaq
and price quotations with respect to sales of shares of Series A Common Stock
and the Creditors' Warrants in the public market will no longer be available.
In addition, registration of the Series A Common Stock and the Creditors'
Warrants under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), will be terminated. This termination will make certain provisions of
the Exchange Act, such as the short-swing profit recovery provisions of
Section 16(b) and the
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requirement under the proxy rules of Regulation 14A of furnishing a proxy or
information statement in connection with stockholders meetings no longer
applicable to Telemundo. After the Effective Time, Telemundo will no longer be
required to file periodic reports with the SEC in connection with the Series A
Common Stock and the Creditors' Warrants.
The directors of Sub at the Effective Time will be the directors of
Telemundo after the Merger and will hold office from the Effective Time until
the next annual meeting of the Stockholders of Telemundo and until their
successors are elected or appointed and are duly qualified.
The officers of Telemundo at the Effective Time shall be the initial
officers of Telemundo following the Merger and will hold office from the
Effective Time until their respective successors are duly elected or appointed
and qualified in the manner provided in Telemundo's Restated Certificate of
Incorporation and Amended and Restated By-laws, as in effect at the Effective
Time, or as otherwise provided by law. Specifically, at the Effective Time,
the following officers of Telemundo are expected to continue in their existing
capacities as officers of Telemundo: (i) Roland A. Hernandez, President and
Chief Executive Officer, (ii) Jose C. Cancela, Executive Vice President, (iii)
Stephen J. Levin, Executive Vice President, (iv) Donald J. Tringali, Executive
Vice President, (v) Peter J. Housman II, Chief Financial Officer and
Treasurer, (vi) G. Stuart Livingston, Senior Vice President, Operations, and
(vii) Osvaldo F. Torres, Vice President, General Counsel and Secretary. See
"Special Factors--Interests of Certain Persons."
Contemporaneously with, or immediately following, the Effective Time, the
Purchaser intends to cause Telemundo to sell all of its network operations to
a company to be equally owned by SPE and Liberty (the "Network Company"). The
Network Company will enter into an affiliation agreement pursuant to which it
will provide programming to Telemundo and Telemundo and the Network Company
will share local, national spot and network advertising revenues on a
predetermined basis. The consideration to be paid for Telemundo's network
operations shall be $73.2 million, subject to upward adjustment in certain
circumstances.
Station Partners will receive rights from the Network Company with respect
to interests in the Network Company (the "Network Interests") that represent
the right to receive the value of 10% of the Network Interests outstanding at
the Effective Time for an amount equal to 10% of the aggregate equity
contributed by SPE and Liberty to the Network Company (subject to adjustment
in the future for subsequent equity investments made by SPE and Liberty in the
Network Company and for certain distributions made by Network Company to SPE
and Liberty (as adjusted, the "Strike Price")).
In general, common stock of the Purchaser held by a stockholder may not be
transferred without the consent of the other stockholders of the Purchaser.
After the fifth anniversary of the Effective Time, and subject to regulatory
approval, including FCC approval, Station Partners shall have the right to
sell its ownership interest in the Purchaser to SPE and Liberty. Each of SPE
and Liberty shall be severally obligated to purchase 50% of such ownership
interest for a price (the "Station Partners Purchase Price") equal to a
proportional amount, based upon Station Partners' then ownership interest in
the Purchaser, of the price that an unrelated third party would pay to acquire
the entire ownership of the Purchaser, in an arm's-length transaction.
Notwithstanding the foregoing, if the Station Partners Purchase Price is lower
than the amount that would be required to be paid to Station Partners such
that Station Partners' internal rate of return with respect to such payment,
equals an annual return of 10% (the "Minimum Value"), then the price to be
paid for Station Partners' ownership interest in the Purchaser shall be the
Minimum Value. If the Station Partners Purchase Price is higher than the
amount that would be required to be paid to Station Partners such that Station
Partners' internal rate of return with respect to such payment equals an
annual return of 40% (the "Maximum Value"), then the price to be paid for
Station Partners' ownership interest in the Purchaser shall be the Maximum
Value. If Station Partners exercises its right to sell to SPE and Liberty its
ownership interest in the Purchaser, SPE and Liberty shall also purchase the
Rights at an amount equal to the difference (which shall not be less than
zero) between (x) the price equal to a proportional amount, based upon the
proportion of the total Network Interest represented by the Rights, that an
unrelated third party would pay to acquire all of the equity interests
(including the Rights) of the Network Company, in an arm's-length transaction
and (y) the aggregate Strike Price of the Rights (the "Network Company
Purchase Price").
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After the fifth anniversary of the Effective Time, and subject to regulatory
approval, including FCC approval, SPE and Liberty shall jointly have the right
to purchase all of Station Partners' ownership interest in the Purchaser for a
purchase price equal to the Station Partners Purchase Price or, if applicable,
the Minimum Value or Maximum Value. If SPE and Liberty exercise their joint
right to purchase Station Partners' ownership interest in the Purchaser, then
SPE and Liberty shall also purchase the Rights at an amount equal to the
Network Company Purchase Price.
RISK THAT THE MERGER WILL NOT BE CONSUMMATED
Consummation of the Merger is subject to various conditions, including
approval by the FCC of the transfer of Telemundo's FCC broadcast licenses
without the imposition of certain specified conditions or restrictions that
are not acceptable to the Purchaser, approval of the Merger by the holders of
a majority of the outstanding Series A Common Stock and Series B Common Stock
(voting together as a single class), Telemundo's securing certain consents to
the Merger from third parties, the Purchaser's securing the financing
necessary to consummate the Merger and other related transactions, and the
expiration of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Although the
Purchaser has obtained binding commitments for the required financing, these
commitments contain several conditions. See "Special Factors--Financing for
the Merger." As a result of the various conditions to the completion of the
Merger, even if the requisite Stockholder approval is obtained, there can be
no assurance that the Merger will be consummated.
It is expected that if the Merger Agreement is not approved and adopted by
Stockholders, or if the Merger is not consummated for any other reason,
Telemundo's current management, under the direction of the Board, will
continue to manage Telemundo as an on-going business. Although other potential
transaction partners were identified during the strategic transaction process,
no other transaction is currently being considered by Telemundo as an
alternative to the Merger. If the Merger Agreement is not approved and adopted
or if the Merger is not consummated, there can be no assurance that the
transactions previously offered to Telemundo will remain available to
Telemundo on the same or similar terms, that any other transaction acceptable
to Telemundo will be offered or that Telemundo's operations will not be
adversely impacted.
CURRENT RELATIONSHIPS AND TRANSACTIONS
TLMD II, which may be deemed to be an affiliate of Apollo Investment, Mr.
Black, a director of Telemundo who may be deemed to be an affiliate of Apollo
Investment, and Bastion directly owned, in the aggregate, 3,601,085 shares of
Common Stock, as of the Record Date, representing approximately 35.1% of the
total number of shares of Common Stock outstanding as of such date. At the
Effective Time, Apollo Investment, which may be deemed to be an affiliate of
TLMD II and Mr. Black, and Bastion will indirectly own, through Station
Partners, a 50.1% interest, in the aggregate, in the Purchaser. See "The
Companies." In addition, Apollo Investment and Bastion, through Station
Partners, will receive rights with respect to Network Interests. Station
Partners will have the right to vote 75.05% of the common stock of the
Purchaser as a result of the grant by Liberty of a proxy to vote all of its
shares of the common stock of the Purchaser. See "Special Factors--Certain
Effects of the Merger; Plans for Telemundo After the Merger."
TLMD II is a Delaware limited liability company of which AIF II, L.P., a
Delaware limited partnership ("AIF II"), is the manager. The managing general
partner of AIF II is Apollo Advisors, L.P., a Delaware limited partnership
("Advisors"). Apollo Capital Management, Inc., a Delaware corporation ("Apollo
Capital"), is the sole general partner of Advisors. Mr. Black, a director of
Telemundo, is the President, a director and a stockholder of Apollo Capital.
Apollo Investment is a Delaware limited partnership of which Apollo Advisors
II, L.P., a Delaware limited partnership ("Advisors II"), is the managing
general partner. Apollo Capital Management II, Inc., a Delaware corporation
("Apollo Capital II"), is the general partner of Advisors II. Apollo
Management L.P., a Delaware limited partnership ("Apollo Management"), serves
as manager of Apollo Investment. AIF III Management, Inc., a Delaware
corporation ("AIM"), is the general partner of Apollo Management. Mr. Black is
a director and a stockholder of Apollo Capital II, a director of AIM and one
of the founding principals and a limited partner of Apollo Investment.
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Mr. Black also is a founding principal of Lion Advisors, L.P., a Delaware
limited partnership ("Lion Advisors"), which acts as financial advisor to and
representative for certain institutional investors with respect to securities
investments. Creditors' Warrants to purchase 29,242 shares of Series A Common
Stock are beneficially owned by Lion Advisors for the benefit of an investment
account under management over which Lion Advisors has exclusive voting,
dispositive and investment power. Creditors' Warrants to purchase 12,532
shares of Series A Common Stock are beneficially owned by AIF II. AIF II is
the manager of TLMD II and has sole dispositive power with respect to the
securities held by TLMD II. See "Security Ownership of Certain Beneficial
Owners and Management."
Mr. Edward Yorke, a director of Telemundo, is a principal of Apollo
Management, Advisors II and Lion Advisors and is Vice President of Apollo
Capital. Mr. Bruce Spector, a director of Telemundo, is a principal of Apollo
Management, Advisors II and Lion Advisors and is Vice President of Apollo
Capital.
Bastion is a Delaware limited partnership. The sole general partner of
Bastion is Bastion Partners, L.P., a Delaware limited partnership ("Bastion
Partners"). The only general partners of Bastion Partners are Bron Corp., a
Delaware corporation ("BC") and Villanueva Investments, Inc., a Delaware
corporation ("VII"). The sole holder of voting stock and the sole director and
officer of BC is Mr. Bron. The sole holder of voting stock of VII is the
Daniel Villanueva Living Trust, a trust created under the laws of California,
the co-trustees of which are Daniel D. Villanueva and Myrna E. Villanueva. Mr.
Villanueva is the sole director and principal officer of VII. Messrs. Bron and
Villanueva are the managing directors of Bastion Capital Corp., which manages
the affairs of Bastion pursuant to a management agreement.
In 1996, Bastion purchased an aggregate of 590,000 shares of Series A Common
Stock. In January 1996, 490,000 of such shares were purchased for $15.25 per
share and in July 1996, 100,000 of such shares were purchased for $23.13 per
share.
The Reorganization. In connection with the consummation on December 30, 1994
(the "Consummation Date") of its plan of reorganization (the "Plan") under
chapter 11 of the United States Code, Telemundo entered into a number of
agreements with certain persons, including TLMD II and certain of its
affiliates, relating to the securities of Telemundo and defining certain
aspects of the ongoing relationship between Telemundo and such persons.
Pursuant to the Plan, as of the Consummation Date, holders of certain claims
against and interests in Telemundo received cash, 10.25% Senior Notes due
December 30, 2001, Common Stock, and/or five-year Warrants to purchase Series
A Common Stock at $7.00 per share (the "Creditors' Warrants"). Pursuant to
Telemundo's Restated Certificate of Incorporation, the holders of the Series B
Common Stock have the right until December 30, 1998 (or for a shorter period
upon the occurrence of certain events) to elect a majority of the Board. Of
the 10,000,000 shares of Common Stock distributed under the Plan, 4,388,394
were shares of Series A Common Stock and 5,611,606 were shares of Series B
Common Stock, of which 3,011,885 were distributed in the aggregate to Apollo
and Bastion.
Warrants. Prior to the Consummation Date, Reliance Insurance Company
("Reliance") directly owned or controlled 58.4% of the then outstanding common
stock of Telemundo. Pursuant to the Plan, all of the common stock previously
owned by Reliance was canceled. Following the Consummation Date and pursuant
to the Plan, Reliance's holdings totaled approximately 10.2% of the total
outstanding Common Stock of Telemundo, all of which was Series A Common Stock.
Reliance and its affiliates received Creditors' Warrants pursuant to the Plan
to purchase 38 shares of Series A Common Stock. In addition, Reliance received
Warrants to purchase 416,667 shares of Series A Common Stock at $7.19 per
share (the "Reliance Warrants"), which Reliance Warrants are exercisable
beginning one, two and three years after the Consummation Date and for a
period of five years from the date they become exercisable. The Reliance
Warrants contain certain antidilution provisions in the event of a change in
Telemundo's capitalization. As of the Record Date, there were 416,667 Reliance
Warrants outstanding, which warrants were held by Reliance and its affiliates.
See "Registration Rights Agreement" below.
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Also pursuant to the Plan and as described above, an aggregate of 639,750
Creditors' Warrants were issued to the holders of certain claims against and
interests in Telemundo. The Creditors' Warrants are exercisable for a period
of five years and expire on December 30, 1999. As of the Record Date, there
were 522,427 Creditors' Warrants outstanding, which warrants were held by
approximately 300 holders of record.
Pursuant to the agreements governing the Warrants, Telemundo has the right
to redeem the Warrants on three days' prior written notice to the holders
thereof in connection with a sale transaction such as the Merger. Pursuant to
the Merger Agreement, each holder of a then outstanding and unexercised
Warrant will, in connection with the Merger, receive from Telemundo, in
settlement of such Warrant, a cash payment (subject to any required
withholding of taxes) equal to the product of (a) the total number of shares
of Common Stock subject to each such Warrant times (b) the excess of the
Merger Consideration over the exercise price per share subject to such
Warrant.
Shareholders Agreement. The Major Stockholders entered into the Shareholders
Agreement pursuant to which each of them agreed, during the term of the
Shareholders Agreement and subject to the provisions thereof, among other
things, to use its reasonable best efforts to cause Mr. Black (or his
nominee), two nominees of TLMD II, a nominee of Bastion and a nominee of
Hernandez Partners to be elected to the Board. TLMD II
selected Bruce Spector and Edward Yorke, Mr. Black selected himself, Bastion
selected Guillermo Bron and Hernandez Partners selected Roland A. Hernandez.
Pursuant to the Shareholders Agreement, the shares of Common Stock
beneficially owned by each of the Major Stockholders will be voted by a voting
committee comprised of three members, one of whom is appointed by TLMD II, one
of whom is appointed by Bastion, and the third of whom is an Independent
Member (as defined in the Shareholders Agreement). The parties to the
Shareholders Agreement have appointed the voting committee as their attorney-
in-fact and proxy to vote all shares owned by such parties as to which a vote
of the Stockholders is required. Currently, the members of the voting
committee are John J. Hannan, a principal and limited partner of Apollo
Management, Mr. Bron, a director of Telemundo who may be deemed to be an
affiliate of Bastion, and Alan Abramson, a private investor. A majority of the
members of the voting committee have indicated their present intention to vote
the shares of Common Stock subject to the Shareholders Agreement in favor of
the approval and adoption of the Merger Proposal.
The Shareholders Agreement (other than certain provisions relating to the
rights of Major Stockholders other than TLMD II to participate in certain
sales of Common Stock by TLMD II and specified transferees) will terminate on
the earlier of the date when no shares of Series B Common Stock are
outstanding and the date when TLMD II ceases to own at least 245,003 shares of
Series B Common Stock. The Shareholders Agreement may also be terminated as of
the date specified by TLMD II in a written notice delivered to the other Major
Stockholders, subject to the receipt of any regulatory approvals.
Registration Rights Agreement. On the Consummation Date, in connection with
the Plan, Telemundo, Advisors and Reliance entered into a registration rights
agreement (the "Registration Rights Agreement") pursuant to which Telemundo
agreed to register Common Stock held by Advisors and its affiliates or
Reliance and its affiliates, or their respective transferees (each a "Holder"
and collectively, the "Holders"), under the Securities Act of 1933, as amended
(the "Securities Act"). Under the Registration Rights Agreement, Telemundo is
obligated, subject to certain terms and conditions and upon demand by a
Holder, to use reasonable diligence to effect and to maintain for not more
than 90 days the registration under the Securities Act of Telemundo's 10.25%
Senior Notes due December 30, 2001 and the Common Stock owned by such Holder
(the "Registrable Securities"). A demand for registration under the
Registration Rights Agreement must be made by a Holder within five years of
the date of the Registration Rights Agreement in the case of (a) Common Stock
acquired other than through the exercise of Warrants and (b) Telemundo's
10.25% Senior Notes due December 30, 2001, and within the later of five years
from the date of the Registration Rights Agreement and two years after the
exercise of Warrants in the case of Common Stock acquired through the exercise
of Warrants. In addition, so long as any of the Registrable Securities are
outstanding, if Telemundo proposes to register any of its securities under the
Securities Act, whether or not for its own account, the Holders have the right
to request that Telemundo include the Holders' Registrable Securities in such
registration, subject to certain terms and conditions. During the term of the
Registration Rights Agreement, Telemundo is not required to effect (i) more
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than one registration of the 10.25% Senior Notes due December 30, 2001 held by
Advisors and its affiliates, (ii) more than two registrations of the Common
Stock held by Advisors and its affiliates and (iii) more than two
registrations of Common Stock held by Reliance and its affiliates. Reliance
previously demanded one registration of its Common Stock and has advised
Telemundo that it desires to register all of its remaining Common Stock,
including Common Stock subject to the Reliance Warrants. In accordance with
the Registration Rights Agreement, Telemundo will effect a registration for
such Common Stock as promptly as practicable.
On October 15, 1997, Reliance requested that Telemundo file a registration
statement for the 416,705 shares of Series A Common Stock beneficially owned
by Reliance and its affiliates. On November 5, 1997, Telemundo informed
Reliance that it was exercising its rights under the Registration Rights
Agreement to postpone the filing of a registration statement with respect to
such securities for a reasonable period of time (not to exceed 135 days).
During such period, Telemundo negotiated and executed the Merger Agreement and
prepared and filed a preliminary proxy statement. On February 24, 1998,
Telemundo informed Reliance and its affiliate that it would be unable to file
a registration statement complying with the requirements of Rule 3-01 of
Regulation S-X promulgated by the Commission until it had completed its audit
for the year ended December 31, 1997 and filed its Annual Report on Form 10-K
for such year, and that upon completion of such actions it would promptly file
the requested registration statement. On March 2, 1998 Reliance filed a
complaint in the United States District Court for the Southern District of New
York alleging that Telemundo had breached the Registration Rights Agreement by
failing to file a registration statement for the 416,667 shares of Series A
Common Stock which Reliance is entitled to purchase by virtue of its ownership
of its Warrants. The complaint alleged damages in an amount not less than
$14,504,178.27. On March 25, 1998 Telemundo filed an answer to Reliance's
complaint denying the allegations set forth therein. On March 31, 1998,
Telemundo filed its Annual Report on Form 10-K for the year ended December 31,
1997 and filed the requested registration statement. On May 11, 1998, such
registration statement was declared effective, and on May 12, 1998 Telemundo
was notified by Reliance that it intended to exercise its Warrants. Limited
discovery is currently proceeding. Telemundo believes that it has meritorious
defenses to the allegations contained in the complaint and intends to contest
the action vigorously.
Telemundo Transactions with SPE
In May 1997, Telemundo, SPE and Azteca agreed to jointly produce certain
Spanish-language television programming. The first of these programs is
currently in pre-production and is planned to be broadcast on the Telemundo
network. Telemundo and SPE have reached an agreement in principle regarding a
business arrangement pursuant to which SPE has agreed to license to Telemundo
for broadcast on the Telemundo network certain motion pictures, develop and
produce for broadcast on the Telemundo network television serial programming
and provide to Telemundo certain advertising sales, consulting and marketing
assistance. Definitive agreements are expected to be executed in early May
1998 and will be subject to the approval of the Special Committee.
INTERESTS OF CERTAIN PERSONS
In considering the recommendations of the Board, Stockholders should be
aware that certain members of Telemundo's management, certain Stockholders and
the Board have interests that are different from, or in addition to, the
interests of Telemundo's Stockholders generally. Each of the Board and the
Special Committee was aware of such interests and considered them, among other
matters, in approving the Merger Agreement and the Incentive Plan.
Directors. A majority of Telemundo's present directors may be deemed to be
affiliates or associates of the Purchaser or its affiliates or Stockholders
who have an interest in the Merger different from, or in addition to, the
interests of Telemundo's Stockholders generally. See "Special Factors--Current
Relationships and Transactions." At the Effective Time, pursuant to the terms
of the Merger Agreement, Sub's directors will become the directors of
Telemundo. Presently, Mr. Edward M. Yorke, a director of Telemundo, is a
director of TLMD Acquisition Co. and it is contemplated that Mr. Yorke will
continue to be a director of Telemundo following the completion of the Merger.
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On June 12, 1996, each of the non-employee directors of Telemundo, which
includes all directors except for Mr. Hernandez, was granted an option to
purchase 2,500 shares of Series A Common Stock at $24.75 per share and such
option is fully vested and currently exercisable with respect to 833 shares.
On June 12, 1997 the non-employee directors were also granted a separate
option to purchase 2,500 shares of Series A Common Stock at $24.375 per share.
No part of this option is currently exercisable. If the Merger is consummated,
all of the options of the non-employee directors, whether or not otherwise
exercisable, would become immediately exercisable.
Executive Officers. At the Effective Time, pursuant to the terms of the
Merger Agreement, Telemundo's officers will become the initial officers of
Telemundo. Each such person will continue to be an officer of Telemundo until
his successor is duly elected or appointed and qualified in the manner
provided in the Restated Certificate of Incorporation and Amended and Restated
By-laws of Telemundo in effect at the Effective Time, or as otherwise provided
by law.
Employment Agreements and Stock Option Agreements of Executive Officers.
Telemundo has entered into certain employment agreements, which will remain in
effect after the consummation of the Merger, and stock option agreements with
its executive officers which may confer upon such officers certain benefits
relating to the consummation of the Merger. These agreements are summarized
below.
Mr. Hernandez's employment agreement, dated as of March 9, 1995, as amended,
remains in effect until February 28, 2001. The amended employment agreement
provides for an annual base salary of $700,000 until February 28, 1998 and
$800,000 during the remainder of his term of employment. If the Incentive Plan
is approved and adopted by the Stockholders, Mr. Hernandez will be eligible
for annual bonuses for each of the 1998, 1999, 2000 and 2001 fiscal years of
up to 100% of his base salary, in each case, if Telemundo achieves certain
EBITDA targets.
Under a stock option agreement, dated as of March 9, 1995, as amended, Mr.
Hernandez was granted options to purchase 512,500 shares of Series A Common
Stock at an exercise price of $10.00 per share. The options have fully vested
and become immediately exercisable with respect to 416,407 shares. On each of
December 31, 1998, December 31, 1999 and December 31, 2000, an additional
32,032, 32,032 and 32,029 shares, respectively, will, in each case, become
exercisable, so long as Mr. Hernandez is employed with Telemundo on such date.
However, all options that are not otherwise exercisable will become
immediately exercisable upon a "change of control transaction" (as defined in
the amended stock option agreement) if Mr. Hernandez is still employed with
Telemundo on such date. Under a separate stock option agreement, dated as of
September 10, 1997, Mr. Hernandez, was granted options to purchase an
additional 30,000 shares of Series A Common Stock at an exercise price of
$33.75 per share. These options become exercisable in three equal installments
on each of February 28, 1999, February 28, 2000 and February 28, 2001, in each
case, if Mr. Hernandez is employed by Telemundo on such date. However, all
options granted on September 10, 1997 that are not otherwise exercisable will
become immediately exercisable upon the occurrence of a "change of control
transaction" (as defined in the stock option agreement) if Mr. Hernandez is
still employed with Telemundo on such date. The consummation of the Merger
would constitute a "change of control transaction" under both of Mr.
Hernandez's stock option agreements.
Mr. Levin's employment agreement, dated as of February 27, 1995, as amended,
remains in effect until February 28, 2001. The agreement provides for an
annual base salary of $350,000 until February 28, 1998 and $400,000 from March
1, 1998 through the remainder of his term of employment. If the Incentive Plan
is approved and adopted by the Stockholders, Mr. Levin will be eligible for
annual bonuses for each of the 1998, 1999, 2000 and 2001 fiscal years of up to
100% of his base salary, in each case, if Telemundo achieves certain EBITDA
targets.
Under two stock option agreements, both dated as of February 27, 1995, as
amended, Mr. Levin was granted options to purchase an aggregate of 50,000
shares of Series A Common Stock. The first stock option agreement granted Mr.
Levin options to purchase 30,000 shares at an exercise price of $10.00 per
share, and the second
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option agreement granted additional options to purchase 20,000 shares at an
exercise price of $13.00 per share. The options have fully vested and are
exercisable with respect to 24,375 and 16,250 shares of the first and second
option grants, respectively. On each of December 31, 1998, December 31, 1999
and December 31, 2000, an additional 1,875 and 1,250 shares from each of the
first and second option grants, respectively, will, in each case, become
exercisable so long as Mr. Levin is employed with Telemundo on such date.
However, all options that are not otherwise exercisable will become
exercisable upon a "change of control transaction" (as defined in the amended
stock option agreement) if Mr. Levin is still employed with Telemundo on such
date. Under a third stock option agreement dated September 10, 1997, Mr. Levin
was granted options to purchase an additional 30,000 shares of Series A Common
Stock at an exercise price of $33.75 per share. These options become
exercisable in three equal installments on each of February 28, 1999, February
28, 2000 and February 28, 2001, in each case, if Mr. Levin is employed by
Telemundo on such date. However, all options granted on September 10, 1997
that are not otherwise exercisable will become immediately exercisable upon
the occurrence of a "change of control transaction" (as defined in the stock
option agreement) if Mr. Levin is still employed with Telemundo on such date.
The consummation of the Merger would constitute a "change of control
transaction" under all of Mr. Levin's stock option agreements.
Mr. Tringali's employment agreement, dated as of June 11, 1996, as amended,
remains in effect until February 28, 2001. The agreement provides for an
annual base salary of $350,000 until February 28, 1998 and $400,000 from March
1, 1998 through the remainder of his term of employment. If the Incentive Plan
is approved and adopted by the Stockholders, Mr. Tringali will be eligible for
annual bonuses for each of the 1998, 1999, 2000 and 2001 fiscal years of up to
100% of his base salary, in each case, if Telemundo achieves certain EBITDA
targets.
Under a stock option agreement, dated as of June 11, 1996, as amended, Mr.
Tringali was granted options to purchase 75,000 shares of Series A Common
Stock at an exercise price of $23.375 per share. The options have fully vested
and are immediately exercisable with respect to 56,250 shares. On each of
December 31, 1998, December 31, 1999 and December 31, 2000, an additional
6,250 shares will, in each case, become exercisable so long as Mr. Tringali is
employed with Telemundo on such date. However, all options that are not
otherwise exercisable will become exercisable upon a "change of control
transaction" (as defined in the amended stock option agreement) if Mr.
Tringali is still employed with Telemundo on such date. Under a separate stock
option agreement dated September 10, 1997, Mr. Tringali was granted options to
purchase an additional 30,000 shares of Series A Common Stock at an exercise
price of $33.75 per share. These options become exercisable in three equal
installments on each of February 28, 1999, February 28, 2000 and February 28,
2001, in each case, if Mr. Tringali is employed by Telemundo on such date.
However, all options granted on September 10, 1997 that are not otherwise
exercisable will become immediately exercisable upon the occurrence of a
"change of control transaction" (as defined in the stock option agreement) if
Mr. Tringali is still employed with Telemundo on such date. The consummation
of the Merger would constitute a "change of control transaction" under both of
Mr. Tringali's stock option agreements.
Mr. Cancela's employment agreement, dated as of March 7, 1997, expired on
December 31, 1997. Telemundo is currently in the process of renegotiating Mr.
Cancela's employment agreement. Mr. Cancela continues to be employed by
Telemundo and is presently being paid an annual base salary of $325,000.
Under a stock option agreement, dated as of June 30, 1995, Mr. Cancela was
granted options to purchase 50,000 shares of Series A Common Stock at an
exercise price of $14.625 per share. These options become exercisable in three
equal installments on each of June 30, 1998, June 30, 1999 and June 30, 2000,
in each case, if Mr. Cancela is employed by Telemundo on such date. However,
all options that are not otherwise exercisable will become exercisable upon a
"change of control" (as defined in the 1994 Stock Option Plan) if Mr. Cancela
is still employed with Telemundo on such date.
Mr. Housman's employment agreement, dated as of March 7, 1997, as amended,
remains in effect until February 28, 2001. The agreement provides for an
annual base salary of $325,000 until February 28, 1998 and $400,000 from March
1, 1998 through the remainder of his term of employment. If the Incentive Plan
is
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<PAGE>
approved and adopted by the Stockholders, Mr. Housman will be eligible for
annual bonuses of up to 100% of his base salary for the 1998, 1999, 2000 and
2001 fiscal years, in each case, if Telemundo achieves certain EBITDA targets.
Under a stock option agreement, dated as of June 30, 1995, as amended, Mr.
Housman was granted options to purchase 50,000 shares of Series A Common Stock
at an exercise price of $14.625 per share. The options have fully vested and
are exercisable with respect to 16,667 shares. On each of June 30, 1999 and
June 30, 2000, options with respect to an additional 16,667 and 16,666 shares,
respectively, will, in each case, become exercisable so long as Mr. Housman is
employed with Telemundo on such date. However, all options that are not
otherwise exercisable will become exercisable upon a "change of control
transaction" (as defined in the amended stock option agreement) if Mr. Housman
is still employed with Telemundo on such date. Under a separate stock option
agreement dated September 10, 1997, Mr. Housman was granted options to
purchase an additional 30,000 shares of Series A Common Stock at an exercise
price of $33.75 per share. These options become exercisable in three equal
installments on each of February 28, 1999, February 28, 2000 and February 28,
2001, in each case, if Mr. Housman is employed by Telemundo on such date.
However, all options granted on September 10, 1997 that are not otherwise
exercisable will become immediately exercisable upon the occurrence of a
"change of control transaction" (as defined in the stock option agreement) if
Mr. Housman is still employed with Telemundo on such date. The consummation of
the Merger would constitute a "change of control transaction" under both of
Mr. Housman's stock option agreements.
In addition to the specific provisions described above, the employment
agreements, as amended, for Messrs. Hernandez, Levin, Tringali and Housman
each contain the provisions set forth below. If such executive's employment is
terminated because of death, disability or other event rendering the
applicable executive unable to perform his duties and obligations under the
agreement, in addition to his base salary and certain benefits through the
date of termination, Telemundo is obligated to pay such executive a bonus, if
earned, for the year in which such termination occurred. If such an executive
is terminated for "cause" (as defined in the applicable employment agreement)
or such an executive resigns without "good reason" (as defined in the
applicable employment agreement) pursuant to a resignation that is not a
"specified resignation" (as defined in the applicable employment agreement),
Telemundo is obligated to pay such executive only his base salary and certain
other benefits through the date of termination or resignation. The agreements
provide that if the executive is terminated by Telemundo "without cause" or by
an executive for "good reason" (each as defined in the applicable employment
agreement), the executive will be entitled to receive through an entitlement
date that is the later of February 28, 2001 or the first anniversary of the
date of termination of the executive's employment, (i) his base salary, (ii)
his bonus for the fiscal year in which such termination occurs and (iii) his
benefits (or reimbursement of the cost thereof) under his employment
agreement. These employment agreements also provide that if (a) there is a
"change of control transaction" (as defined in the applicable employment
agreement), (b) the applicable executive is offered a position allowing him to
keep his title with the successor to all or any part of Telemundo's business
and (iii) a "diminution in duty" (as defined in the applicable employment
agreement) would have occurred but for the offer of a position as described in
clause (b) above, then the applicable executive will have the option of
declining the position offered as described in clause (b) above and instead
modifying his position to a position (but not senior to that offered) that has
such work location, time commitment, duties, responsibilities and terms as the
applicable executive officer may specify in his sole and absolute discretion
after consultation with Telemundo. In addition, the employment agreements
provide for "specified resignation rights" (as defined in the applicable
employment agreement) which allow the executive, during the one-month period
beginning 14 months after a change of control transaction, to terminate his
employment for any reason whatsoever; any such termination will be treated as
if it were a termination for "good reason" (the consequences of which are
described above).
Mr. Torres' employment agreement, dated as of September 10, 1997 remains in
effect until December 31, 1999. The agreement provides for an annual base
salary of $150,000 for the period beginning on November 15, 1997 and ending on
May 13, 1998. For each of the periods beginning on May 14, 1998 and ending on
May 13, 1999, and beginning on May 14, 1999 and ending on December 31, 1999,
the base salary will be mutually agreed upon by Mr. Torres and Telemundo, but
in no event will the base salary increase be less than ten percent of the
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then current base salary. In addition, for the 1997 fiscal year Mr. Torres is
entitled to a performance bonus equal to twenty percent of his base salary.
For the 1998 and 1999 fiscal years, Mr. Torres is entitled to a performance
bonus equal to fifteen percent of his base salary. The performance bonus is
awarded based solely upon an assessment of Mr. Torres' performance of his
duties, without regard to the financial condition or performance of Telemundo.
For the 1998 and 1999 fiscal years, Mr. Torres is also entitled to a bonus
equal to an additional ten percent of his base salary, based upon Telemundo's
achievement with respect to EBITDA targets. Mr. Torres has the right to resign
without "good reason" (as defined in the employment agreement) and terminate
the employment agreement at any time within six months after a "change of
control transaction" (as defined in the employment agreement) occurs and is
entitled to receive (i) his base salary earned up to the date of resignation
and (ii) all benefits due up to the date of resignation. The consummation of
the Merger would constitute a "change of control transaction."
Under two stock option agreements, dated as of June 12, 1997 and September
10, 1997, respectively, Mr. Torres was granted options to purchase an
aggregate of 15,000 shares of Series A Common Stock. The first agreement
grants Mr. Torres options to purchase 5,000 shares at an exercise price of
$24.375. On June 12, 1998, options with respect to 1,668 shares will vest and
become exercisable, and on each of June 12, 1999 and June 12, 2000, 1,666
shares will vest and become exercisable. The second agreement grants Mr.
Torres options to purchase 10,000 shares at an exercise price of $33.75 per
share. On September 10, 1998, options with respect to 3,334 shares will vest
and become exercisable, and on each of September 10, 1999 and September 10,
2000, options with respect to 3,333 shares will vest and become exercisable,
in each case, if Mr. Torres is employed with Telemundo on such date. However,
all options that are not otherwise exercisable will become exercisable
immediately upon a "change of control transaction" (as defined in the stock
option agreement) if Mr. Torres is still employed with Telemundo on such date.
The consummation of the Merger would constitute a "change of control
transaction" under both of Mr. Torres' stock option agreements.
Mr. Livingston's employment agreement, dated as of February 28, 1996,
expired on February 27, 1998. Telemundo is currently in the process of
renegotiating Mr. Livingston's employment agreement. Mr. Livingston continues
to be employed by Telemundo and is presently being paid an annual base salary
of $240,000.
Under Mr. Livingston's two stock option agreements, dated as of March 9,
1995 and November 15, 1996, respectively, he was granted options to purchase
an aggregate of 20,000 shares of Series A Common Stock. The first agreement
grants Mr. Livingston options to purchase 10,000 shares at an exercise price
of $10.00 per share. This option has a four year vesting schedule and is
subject to Telemundo achieving certain performance levels for each fiscal year
ending 1995 through 1998. One-half of these options have fully vested and are
exercisable, one-fourth of the options will no longer be outstanding or
exercisable when the Compensation Committee certifies that certain performance
objectives were not met in 1997, and the remaining one-fourth of the options
become exercisable in 1999 if Telemundo achieves certain performance levels
for 1998. The second agreement grants Mr. Livingston options to purchase
10,000 shares at an exercise price of $29.875 per share. These options have a
three year vesting schedule and are subject to Telemundo achieving certain
performance levels for each fiscal year ending 1996 through 1998. One-third of
these options have fully vested and become immediately exercisable, one-third
of the options will no longer be outstanding or exercisable when the
Compensation Committee certifies that certain performance objectives were not
met in 1997, and the remaining one-third of the options become exercisable in
1999 if Telemundo achieves certain performance levels for 1998. In the event
of a "change of control" (i) all options outstanding on the date of such
change of control will fully vest and become immediately exercisable and (ii)
upon termination of Mr. Livingston's employment with Telemundo following a
"change of control," options held by Mr. Livingston will remain exercisable
for one year after termination; provided, however, that if Mr. Livingston is
terminated following a "change of control" prior to the expiration of his
employment agreement, then the portion of the options that would have been
exercisable had employment continued until the next vesting date, will,
regardless of whether the EBITDA targets were met, be deemed to have been
exercisable on the date of such termination of employment. The consummation of
the Merger would constitute a "change of control."
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Under certain circumstances, options granted pursuant to certain of the
stock option agreements referred to above that are not otherwise exercisable
will fully vest and become immediately exercisable upon the termination of the
applicable employee's employment with Telemundo.
Telemundo estimates that the maximum aggregate payments required to be paid
under the above-mentioned employment agreements would be approximately
$5,592,000, assuming all such officers' employment with Telemundo is
terminated as of July 1, 1998 under the conditions specified in such
agreements for payment of severance following a change of control, including
the Merger and that the performance goals for such year have not been met. The
aggregate amount to be paid to the above-mentioned officers for their
outstanding stock options, including stock options which will vest as a result
of the Merger, will be approximately $25,329,171.
Indemnification of Directors and Officers; Directors and Officers Insurance.
The Merger Agreement provides that Telemundo shall and, from and after the
Effective Time, the Purchaser and Telemundo shall maintain the right to
indemnification and exculpation of officers and directors provided for in
Telemundo's Restated Certificate of Incorporation and Amended and Restated By-
laws as in effect on the date of the Merger Agreement, with respect to
indemnification and exculpation for acts and omissions occurring prior to the
Effective Time. The Merger Agreement also provides that, to the fullest extent
permitted by applicable law, Telemundo will indemnify and hold harmless, each
present and former director and officer of Telemundo for acts and omissions
occurring prior to the Effective Time. Telemundo has also agreed to advance
expenses to each such indemnified person and to cooperate fully in the defense
of any such matter. The Merger Agreement further provides that for a period of
six years after the Effective Time, the Purchaser or Telemundo will maintain
officers' and directors' liability insurance covering the persons who, on the
date of the Merger Agreement, were covered by Telemundo's officers' and
directors' liability insurance policies with respect to acts and omissions
occurring prior to the Effective Time. The persons benefiting from these
provisions include all of Telemundo's current executive officers and
directors. See "The Merger Agreement--Certain Covenants--Director and Officers
Indemnification and Insurance."
Common Stock, Options and Warrants. As of the Record Date, Telemundo's
executive officers and directors owned directly an aggregate of 205,933 shares
of Common Stock and certain entities which may be deemed to be affiliates of
Telemundo's executive officers and directors directly owned an aggregate of
3,898,151 shares of Common Stock. Each share of Common Stock outstanding
immediately prior to the Effective Time will be converted into the right to
receive the Merger Consideration if the Merger is consummated.
As of the Record Date, Telemundo's executive officers and directors directly
owned options to purchase an aggregate of 926,667 shares of Common Stock and
certain entities which may be deemed to be affiliates of Telemundo's executive
officers and directors directly owned Warrants to purchase an aggregate of
41,774 shares of Common Stock. The vesting of such options will become
immediately accelerated upon the consummation of the Merger. Pursuant to the
Merger Agreement, holders of options outstanding immediately prior to the
Effective Time granted under Telemundo's 1994 Stock Plan and Telemundo's 1996
Non-Employee Director Stock Option Plan will, in connection with the Merger,
receive in settlement of such options a cash payment from Telemundo (subject
to any required withholding of taxes) equal to the product of (i) the total
number of shares of Common Stock subject to each such option (whether or not
such option is then exercisable) times (ii) the excess of the Merger
Consideration over the exercise price per share subject to such option. The
aggregate amount to be paid to Telemundo's officers and directors for their
outstanding stock options, including stock options which will vest as a result
of the Merger, will be approximately $26,106,675. Each holder of an
unexercised Warrant outstanding immediately prior to the Effective Time, will,
in connection with the Merger, receive in settlement of such Warrant a cash
payment from Telemundo (subject to any required withholding of taxes) equal to
the product of (a) the total number of shares of Common Stock subject to each
such Warrant times (b) the excess of the Merger Consideration over the
exercise price per share subject to such Warrant.
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The following table sets forth, to the knowledge of Telemundo, based upon
information provided by the Stockholders and holders of options and Warrants
set forth below or publicly available filings, information regarding the
ownership of the Common Stock, options and Warrants at the Record Date, by,
and the effect of the Merger on, executive officers of Telemundo holding
options, each director and certain affiliated stockholders.
<TABLE>
<CAPTION>
NUMBER OF
SHARES ESTIMATED
SUBJECT TO ESTIMATED CASH FOR
NUMBER OF OPTIONS/ CASH FOR OPTIONS/ ESTIMATED
SHARES(1) WARRANTS(2) SHARES(3) WARRANTS(4) TOTAL CASH
EXECUTIVE OFFICERS --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Roland A. Hernandez(5).. -- (5) 542,500(6) $ -- $17,732,500 $17,732,500
Stephen J. Levin........ -- 80,000(7) -- 1,947,500 1,947,500
Donald J. Tringali...... 1,500 105,000(8) 66,000 1,854,375 1,920,375
Jose C. Cancela(10)..... -- 50,000(9) -- 1,468,750 1,468,750
Peter J. Housman II..... -- 80,000(11) -- 1,776,250 1,776,250
Stuart Livingston....... -- 14,167(12) -- 349,171 349,171
Osvaldo F. Torres....... -- 15,000(13) -- 200,625 200,625
DIRECTORS
Leon D. Black(14)....... 202,933(14) 5,000(15) 8,929,052 97,188 9,026,240
Guillermo Bron(16)...... -- (16) 5,000(15) -- 97,188 97,188
Alan Kolod.............. 500 5,000(15) 22,000 97,188 119,188
Barry W. Ridings........ -- 5,000(15) -- 97,188 97,188
Bruce H. Spector(14).... -- (14) 5,000(15) -- 97,188 97,188
Daniel D.
Villanueva(16)......... -- (16) 5,000(15) -- 97,188 97,188
Edward M. Yorke(14)..... -- (14) 5,000(15) -- 97,188 97,188
David E. Yurkerwich..... 1,000 5,000(15) 44,000 97,188 141,188
CERTAIN AFFILIATES
Bastion Capital Fund,
L.P.(16)............... 1,847,685 -- (16) 81,298,140 -- 81,298,140
TLMD Partners, II,
L.L.C.(17)............. 1,550,467 41,774(18) 68,220,548 1,545,638 69,766,186
Hernandez Partners(5)... 499,999 -- (5) 21,999,956 -- 21,999,956
</TABLE>
- --------
(1) For purposes of presentation, this column (a) includes shares of both the
Series A Common Stock and the Series B Common Stock and (b) does not
include any shares issuable upon exercise of any options or Warrants.
(2) For purposes of presentation, this column includes all unexercised options
and Warrants to purchase shares of Common Stock, whether or not such
options and Warrants are currently exercisable.
(3) For purposes of presentation, this column assumes that the total Merger
Consideration will be $44.00 per share and will not include the Additional
Amount. This column does not reflect any information as to the price that
was paid by the applicable Stockholder for its shares.
(4) For purposes of presentation, the estimated value of stock options and
Warrants is equal to the product of (i) the total number of unexercised
shares subject to each such option or Warrant, times (ii) the excess of
$44.00 over the exercise price per share of each such option or Warrant.
(5) Mr. Hernandez is a director of Telemundo and a general partner of
Hernandez Partners. The other general partner of Hernandez Partners is the
brother of Roland Hernandez, Enrique Hernandez, Jr. The number of shares
listed for Mr. Hernandez excludes shares owned by Hernandez Partners. The
number of shares subject to options and Warrants listed for Hernandez
Partners does not include options to purchase 542,500 shares of Series A
Common Stock held by Mr. Hernandez.
(6) Includes an option to purchase 512,500 shares of Series A Common Stock at
$10.00 per share (absent a "change of control transaction" or other
accelerating event, this option is currently exercisable with respect to
416,407 shares) and an option to purchase 30,000 shares of Series A Common
Stock at $33.75 per share (absent a "change of control transaction" or
other accelerating event, no part of this option is currently
exercisable).
(7) Includes an option to purchase 30,000 shares of Series A Common Stock at
$10.00 per share (absent a "change of control transaction" or other
accelerating event, this option is currently exercisable with respect to
24,375 shares), an option to purchase 20,000 shares of Series A Common
Stock at $13.00 per share (absent a "change of control transaction" or
other accelerating event, this option is currently exercisable with
respect to 16,250 shares) and an option to purchase 30,000 shares of
Series A Common Stock at $33.75 per share (absent a "change of control
transaction" or other accelerating event, no part of this option is
currently exercisable).
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<PAGE>
(8) Includes an option to purchase 75,000 shares of Series A Common Stock at
$23.375 per share (absent a "change of control transaction" or other
accelerating event, this option is currently exercisable with respect to
56,250 shares) and an option to purchase 30,000 shares of Series A Common
Stock at $33.75 per share (absent a "change of control transaction" or
other accelerating event, no part of this option is currently
exercisable).
(9) Includes an option to purchase 50,000 shares of Series A Common Stock at
$14.625 per share. These options become exercisable in three equal
installments on each of June 30, 1998, June 30, 1999 and June 30, 2000, in
each case, if Mr. Cancela is employed by Telemundo on such date. However,
options that are not otherwise exercisable will become exercisable upon a
"change of control" (as defined in the 1994 Stock Option Plan.) The
consummation of the Merger would constitute a "change of control."
(10) Telemundo is currently in the process of renegotiating Mr. Cancela's
employment agreement. In the event Mr Cancela's employment with Telemundo
terminates, all of his options will no longer be exercisable.
(11) Includes an option to purchase 50,000 shares of Series A Common Stock at
$14.625 per share (absent a "change of control transaction" or other
accelerating event, one-third of this option is currently exercisable)
and an option to purchase 30,000 shares of Series A Common Stock at
$33.75 per share (absent a "change of control transaction" or other
accelerating event, no part of this option is currently exercisable).
(12) Includes two options to purchase an aggregate of 20,000 shares of Series
A Common Stock. The first agreement grants Mr. Livingston options to
purchase 10,000 shares at an exercise price of $10.00 per share. This
option has a four year vesting schedule and is subject to Telemundo
achieving certain performance levels for each fiscal year ending 1995
through 1998. One-half of these options have fully vested and become
immediately exercisable, one-fourth of the options will no longer be
outstanding or exercisable when the Compensation Committee certifies that
certain performance objectives were not met in 1997, and the remaining
one-fourth of the options (absent a "change of control transaction" or
other accelerating event) become exercisable in 1999 if Telemundo
achieves certain performance levels for 1998. The second agreement grants
Mr. Livingston options to purchase 10,000 shares at an exercise price of
$29.875 per share. This option has a three year vesting schedule and is
subject to Telemundo achieving certain performance levels for each fiscal
year ending 1996 through 1998. Options with respect to one-third of the
shares are currently exercisable, options with respect to one-third of
these shares will no longer be outstanding or exercisable when the
Compensation Committee certifies that certain performance objectives were
not met in 1997, and (absent a "change of control transaction" or other
accelerating event) the remaining options with respect to one-third of
the shares become exercisable in 1999 if Telemundo achieves certain
performance levels for 1998. Assumes that one-fourth of the options under
Mr. Livingston's first stock option agreement and one-third of the
options under Mr. Livingston's second stock option agreement are no
longer exercisable or outstanding.
(13) Includes options to purchase 5,000 shares of Series A Common Stock at
$24.375 per share and options to purchase 10,000 shares of Series A
Common Stock at $33.75 per share (absent a "change of control
transaction" or other accelerating event, no part of any of these options
is currently exercisable).
(14) Messrs. Black, Spector and Yorke may be deemed to be affiliates or
associates of entities which may be deemed to be affiliates of the
Purchaser. See "Special Factors--Current Relationships and Transactions."
The number of shares listed for Messrs. Black, Spector and Yorke excludes
shares owned by TLMD II.
(15) Includes an option to purchase 2,500 shares of Series A Common Stock at
$24.75 per share (absent a "change in control" or other accelerating
event, one-third of this option is currently exercisable), and an option
to purchase 2,500 shares of Series A Common Stock at $24.375 per share
(absent a "change in control" or other accelerating event, no part of
this option is currently exercisable). At Telemundo's next annual
stockholders meeting, the non-employee directors will be entitled to an
additional grant of an option to purchase 2,500 shares of Series A Common
Stock at the then-current fair market value per share.
(16) Messrs. Bron and Villanueva may be deemed to be affiliates of the
Purchaser. The number of shares listed for Messrs. Bron and Villanueva
excludes shares owned by Bastion. The number of shares subject to options
or Warrants listed for Bastion does not include options to purchase 5,000
shares of Series A Common Stock held by each of Messrs. Bron and
Villanueva. See "Special Factors--Current Relationships and
Transactions."
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(17) TLMD II may be deemed to be an affiliate of the Purchaser. See "Special
Factors--Current Relationships and Transactions." The number of shares
listed for TLMD II excludes shares owned by Messrs. Black, Spector and
Yorke.
(18) Includes a Warrant, which is currently exercisable, to purchase 41,774
shares of Series A Common Stock at $7.00 per share. Creditors' Warrants
to purchase 29,242 shares of Series A Common Stock are beneficially owned
by Lion Advisors for the benefit of an investment account under
management over which Lion Advisors has exclusive voting, dispositive and
investment power. The remaining Creditors' Warrants to purchase 12,532
shares of Series A Common Stock are owned by AIF II. AIF II is the
manager of TLMD II and has sole dispositive power with respect to the
securities held by TLMD II. The number of shares subject to options or
Warrants listed for TLMD II does not include options to purchase 5,000
shares of Series A Common Stock held by each of Messrs. Black, Spector
and Yorke.
For additional information, including the beneficial ownership of such
persons, see "Security Ownership of Certain Beneficial Owners and Management."
Affiliation Agreement. Interspan Communications ("Interspan") owns and
operates television station KFWD, Channel 52, Telemundo's Dallas/Fort Worth
network affiliate. Mr. Hernandez and his family own Interspan and Mr.
Hernandez serves as an executive officer and director of Interspan. The
affiliate relationship between Telemundo and Interspan is governed by a
Network Affiliation and Representation Agreement dated as of August 31, 1993,
as amended (the "Affiliation Agreement"). Telemundo and Interspan entered into
a Modification Agreement, dated as of September 10, 1997 (the "Modification
Agreement"), which modified the Affiliation Agreement. The Compensation
Committee, pursuant to authority delegated to it by the Board, negotiated the
terms of the Modification Agreement on behalf of Telemundo. Among other
things, the Modification Agreement extended the term of the Affiliation
Agreement through February 28, 2001 and provided Interspan with the right to
terminate the Affiliation Agreement for any reason by giving Telemundo six
months' written notice of such termination during the 12-month period
following the termination, for any reason, of Mr. Hernandez's employment
relationship with Telemundo. Under the Affiliation Agreement, as modified by
the Modification Agreement, Telemundo will pay to Interspan $1,500,000,
$1,612,000 and $1,733,438 during the 12-month periods ending on August 31,
1998, 1999 and 2000, respectively, and at the rate of $1,863,445 on an
annualized basis during the period beginning on September 1, 2000 and ending
on February 28, 2001. In addition, Interspan may be entitled to an amount up
to $120,500 of bonus compensation based upon ratings performance of the
station during any 12-month period.
Stockholders. For a description of the interests that certain Stockholders
have which are different from, or in addition to, the interests of Telemundo's
Stockholders generally, see "Special Factors--Current Relationships and
Transactions."
Incentive Plan. Messrs. Hernandez, Tringali, Levin and Housman would be
eligible to receive annual bonuses in the future based upon Telemundo's
achievement of certain performance objectives related to cash flow if the
Incentive Plan is approved and adopted by the Stockholders. Such officers are
entitled to vote, in the aggregate, 1,500 shares as of the Record Date,
representing less than 1% of the outstanding Common Stock on such date.
FINANCING FOR THE MERGER
The consummation of the Merger is subject to, among other things, the
Purchaser having obtained funds from financings sufficient, together with
equity contributions from Station Partners, Liberty and SPE, to perform its
obligations under the Merger Agreement, to provide working capital and to
consummate the transactions contemplated by the Merger Agreement, including
the payment of related fees and expenses. The total amount expected to be
required is $776.4 million, as described below.
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The expected sources and uses of funds in connection with the Merger and
related transactions are as follows:
SOURCES AND USES OF FUNDS
(IN MILLIONS OF U.S. DOLLARS)
(ALL FIGURES ARE APPROXIMATE)
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
---------------- -------------
<S> <C> <S> <C>
Credit Facilities....... $324.4(b)(c)(f) Acquisition................... $538.8
Assumed Capital Leases.. 5.6 Options Proceeds.............. (25.0)(e)
Debentures.............. 100.0(c) ------
Equity Contribution..... 273.2 513.8
Network Sale............ 73.2 Refinance Existing Revolver... 5.0(d)
------ Assumed Capital Leases........ 5.6
Total Sources........... $776.4 Refinancing of 10 1/2% Notes.. 192.0(a)
====== Fees and Expenses............. 60.0
------
Total Uses.................... $776.4
======
</TABLE>
- --------
(a) Assumes refinancing of approximately $192.0 million aggregate principal
amount of Telemundo's 10 1/2% Senior Notes due 2006 ("Senior Notes"). If
the Senior Notes are not refinanced, consent of Credit Suisse First Boston
Corporation and CIBC Oppenheimer Corp. under the Debentures Commitment
Letter (as defined herein) and of Credit Suisse First Boston and Canadian
Imperial Bank of Commerce under the Credit Facilities Commitment Letter
(as defined herein) would be required. The Purchaser currently
contemplates that it will refinance the Senior Notes. The Purchaser has
not made a final determination whether it will, in fact, refinance the
Senior Notes or, if it were to do so, of the material terms of such
refinancing. There can be no assurance that the Senior Notes will, in
fact, be refinanced.
(b) Excludes additional availability of up to $25.6 million under the
Revolving Credit Facility (as defined herein).
(c) Sub, at its option, may replace up to $25.0 million of borrowings under
the Tranche A Facility (as defined herein) or the Revolving Credit
Facility used to fund the transactions with proceeds from issuance of the
Debentures (as defined herein) in excess of $100 million.
(d) Assumes that the outstanding principal balance of Telemundo's existing
working capital facility will be $5.0 million at the Effective Time. Also
assumes Telemundo's existing working capital facility will be refinanced
with the proceeds of advances under the Revolving Credit Facility.
(e) Reflects cashless exercise.
(f) Although no agreement has been reached, it is expected that the Credit
Facilities will provide that Sub, at its option, may issue up to $100
million of senior subordinated debentures, the proceeds of which would be
used to reduce the Tranche A Facility dollar for dollar.
Equity Contributions
Apollo Investment and Bastion have committed to have Station Partners make,
and Liberty and SPE have committed to make, equity contributions to the
Purchaser in the amounts of $136.8 million (of which $93.0 million will be
funded by Apollo Investment and $43.8 million will be funded by Bastion),
$68.2 million and $68.2 million, respectively. Additional Amounts (as defined
herein), if any, required under the Merger Agreement and certain other amounts
will be funded 50% by an increase in the price to be paid pursuant to the sale
of Telemundo's network operations (the "Network Sale") and 50% by increased
equity contributions to be funded by the Purchasers' owners as follows: (a)
SPE--24.95%; (b) Liberty 24.95%; and (c) Station Partners--50.1% (of which
Apollo Investment will fund 34.06% and Bastion will fund 16.04%). The
commitment to make the foregoing equity contributions is conditioned upon all
conditions to the Purchaser's obligations to consummate the Merger having been
fulfilled or waived and the expiration or termination of the waiting period
under the HSR Act.
Whether or not the Merger is consummated, each of Apollo Investment,
Bastion, Liberty and SPE shall contribute to, or cause to be contributed to,
the Purchaser, if, as and when required, 22.67%, 10.67%, 33.33%, and 33.33%,
respectively, of any amounts payable to Telemundo to satisfy the obligations
of the Purchaser and
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Sub under the Merger Agreement (such contributions of equity being the
"Liability Contributions"). Notwithstanding the foregoing, in no event shall
the Liability Contributions (absent obligations to make other contributions)
exceed $100 million in the aggregate. There are no conditions to the Liability
Contributions.
Debentures
Pursuant to a letter agreement (the "Debentures Commitment Letter"), Credit
Suisse First Boston Corporation and CIBC Oppenheimer Corp. have committed to
underwrite, place or purchase senior discount debentures (the "Debentures")
issued by Purchaser in an amount such that the gross proceeds are not less
than $100 million nor more than $125 million. The Debentures will mature ten
years from the date of issuance (the "Closing Date"), and will be issued at a
substantial discount from their principal at maturity and will accrete to par
by the fifth anniversary of the Closing Date. Thereafter, interest will accrue
and be payable semi-annually. The Debentures Commitment Letter provides that
the yield on the Debentures will equal the greater of 12 1/2% per annum and
650 basis points over the yield on the Treasury Note maturing on the tenth
anniversary of the day preceding the Closing Date.
There is no scheduled redemption of the Debentures prior to maturity, nor is
there any sinking fund. Up to 35% of the aggregate principal amount at
maturity of Debentures originally issued may be redeemed at a premium to
accreted value with the proceeds of one or more public common equity offerings
prior to the third anniversary of the Closing Date. Otherwise, the Debentures
are non-callable prior to the fifth anniversary of the Closing Date.
Thereafter the Debentures are redeemable at a premium (declining to par on the
eighth anniversary of the Closing Date) plus accrued and unpaid interest.
The Debentures will be unsecured and contain a 101% of accreted value change
of control put. If the Debentures are not sold pursuant to an underwritten
public offering, Purchaser will be obligated to make certain filings relevant
to the exchange or sale of the Debentures.
Credit Facilities
Pursuant to a letter agreement (the "Credit Facilities Commitment Letter"),
Credit Suisse First Boston and Canadian Imperial Bank of Commerce have
committed to make loans to Sub, and to act as exclusive advisors and arrangers
under credit facilities consisting of a $150 million reducing revolving credit
facility (the "Revolving Credit Facility"), a $100 million tranche A term loan
facility (the "Tranche A Facility") and a $100 million tranche B term loan
facility (the "Tranche B Facility" and, together with the Revolving Credit
Facility and the Tranche A Facility, the "Credit Facilities") upon the terms
and conditions set forth in such Credit Facilities Commitment Letter. To the
extent that the gross proceeds of the Debentures exceed $100 million, the
amount of the Tranche A Facility shall be reduced or funded debt repaid, as
Sub elects. The Revolving Credit Facility will be available until the seventh
anniversary of the Closing Date and the commitment thereunder will be reduced
pursuant to a schedule and upon other terms to be agreed.
The Revolving Credit Facility and the Tranche A Facility will mature seven
years from the Closing Date. The Tranche B Facility will mature eight and one-
half years from the Closing Date. Both the Tranche A Facility and the Tranche
B Facility will amortize in quarterly installments on schedules, and be
mandatorily prepaid upon certain terms to be agreed. Subject to customary
conditions precedent, amounts repaid on the Revolving Credit Facility prior to
maturity may be reborrowed up to $150 million as such amount is reduced
pursuant to a schedule. Amounts repaid on the Tranche A Facility and the
Tranche B Facility may not be reborrowed.
The Credit Facilities will be obligations of Telemundo following the Merger,
will be unconditionally guaranteed by Purchaser and by each subsidiary of
Purchaser which is a domestic entity for U.S. federal income tax purposes
(each a "Domestic Sub"), and will be secured as fully as permitted by
applicable law by substantially all of the assets of Purchaser and each
Domestic Sub (other than as may be permitted by the lenders). Telemundo's
Puerto Rican Subsidiary (the "PRSub") will grant a security interest to
Telemundo in its assets to secure certain existing indebtedness of PRSub to
Telemundo, and Telemundo will pledge 65% of the voting stock and 100% of the
nonvoting stock of PRSub as security for the Credit Facilities. Loans under
the Credit Facilities will bear interest at Telemundo's option at either (i)
Adjusted LIBOR plus the Applicable Margin or (ii) an agreed upon base rate
(the "Base Rate") plus the Applicable Margin. The Applicable Margin for the
Revolving Credit Facility and the Tranche A Facility will be determined by a
grid based upon the ratio of
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total debt of Telemundo to EBITDA and will initially be (a) 187.5 basis points
for Adjusted LIBOR loans and (b) 87.5 basis points for Base Rate loans. The
Applicable Margin for the Tranche B Facility will be (a) 212.5 basis points
for adjusted LIBOR loans and (b) 112.5 basis points for Base Rate Loans.
Funding of the Credit Facilities and purchase of the Debentures will be
subject to the execution of definitive agreements and the satisfaction of
customary conditions and certain other conditions, including (i) the
contemporaneous closing of the Merger, refinancing of certain indebtedness of
Telemundo, making of the equity contributions to the Purchaser, purchase of
the Debentures or funding of the Credit Facilities, as applicable, and the
consummation of the Network Sale, (ii) receipt of governmental consents and
approvals, (iii) receipt of a solvency opinion as to Telemundo and the
Purchaser and its Subsidiaries, and (iv) satisfaction of certain financial
conditions. The terms of the definitive documentation to be entered into in
connection with the Credit Facilities and the Debentures may vary upon
agreement of the parties thereto from the terms described herein.
Network Sale
The consideration to be paid by Network Company pursuant to the Network Sale
shall be $73.2 million subject to adjustment to finance 50% of the excess, if
any, of the Additional Amount.
CERTAIN LITIGATION RELATED TO THE MERGER
As of the date of this Proxy Statement, Telemundo is aware of six lawsuits
that have been filed relating to the Merger. Telemundo and its directors are
defendants in all of the lawsuits. TLMD II, Bastion, and Hernandez Partners
are defendants in two of the lawsuits. All of the lawsuits were filed by
various Public Stockholders seeking to represent a putative class of all
Public Stockholders. All of the lawsuits were filed in the Delaware Court of
Chancery.
While the allegations of each complaint are not identical, all of the
lawsuits assert that the $44.00 per share price to be paid to the Public
Stockholders is inadequate and does not represent the value of the assets and
future prospects of Telemundo and that the Merger Agreement serves no
legitimate business purpose. The complaints also allege that the defendants
engaged in self-dealing without regard to conflicts of interest and that the
defendants breached their fiduciary duties in approving the Merger Agreement.
All of the complaints seek preliminary and permanent injunctive relief
prohibiting Telemundo from, among other things, consummating the Merger. To
date no motion to enjoin any of the proceedings contemplated by the Merger
Agreement has been made. The complaints also seek unspecified damages,
attorneys' fees and other relief. Telemundo believes that the allegations
contained in the complaints are without merit and intends to contest the
actions vigorously. The individual defendants have advised Telemundo that they
also believe that the allegations in the complaints are without merit and that
they intend to contest the actions vigorously. Telemundo does not believe that
these matters will have any significant impact on the timing or completion of
the Merger; however, there can be no assurance that a motion to enjoin the
transactions contemplated by the Merger Agreement will not be made and, if
made, that it would not be granted.
On March 5, 1998, the six actions were consolidated for all purposes, and
the Mimona Capital complaint in CA No. 16052-NC was designated as the sole
operative complaint for the consolidated action. To date none of the
defendants has been required to answer, move or otherwise respond to the
complaints and no discovery has been taken.
ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for as a "purchase," as such term is used under
generally accepted accounting principles, for accounting and financial
reporting purposes.
YEAR 2000 ISSUE
Telemundo has developed plans, utilizing internal resources, to ensure its
information systems are capable of properly utilizing dates beyond December
31, 1999 (the "Year 2000" issue). During the past year, Telemundo
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upgraded or replaced many of its accounting and traffic computer systems,
including the conversion to new software which is Year 2000 compliant, at a
total cost of approximately $450,000. Additionally, Telemundo has evaluated
its other principal computer systems and determined they are substantially
Year 2000 compliant. Telemundo is also seeking to work with its relevant
customers, suppliers and other service providers to ensure their systems are
Year 2000 compliant. Although the impact on Telemundo caused by the failure of
its significant customers, suppliers and other service providers to achieve
Year 2000 compliance in a timely and effective manner is uncertain,
Telemundo's business and results of operations could be materially adversely
affected by such failure.
CERTAIN FEDERAL REGULATORY MATTERS
The HSR Act and the rules and regulations promulgated thereunder require
that Telemundo, the Purchaser and certain affiliates of Purchaser file with
the Antitrust Division of the Department of Justice (the "Antitrust Division")
and the Federal Trade Commission (the "FTC") Notification and Report Forms
("Forms") with respect to the Merger and the related transactions. The parties
thereafter are required to observe a waiting period before consummating the
reported transaction. In compliance with the HSR Act, Telemundo, the Purchaser
and certain affiliates of the Purchaser filed Forms on February 20, 1998 with
the Antitrust Division and the FTC with respect to the Merger. Notice of early
termination of all applicable HSR waiting periods has been received. The
Antitrust Division, the FTC, state antitrust authorities or a private person
or entity could seek to enjoin the Merger under the antitrust laws at any time
prior to its consummation or to compel recission or divestiture at any time
subsequent to the Merger.
The Communications Act of 1934, as amended (the "Communications Act"), and
the rules, regulations and policies of the FCC (the "FCC Rules") prohibit the
transfer of control of an entity that holds television broadcast and certain
other communications licenses without the prior approval of the FCC.
Therefore, the prior approval by the FCC of the transfer of control of
Telemundo and its subsidiaries holding FCC licenses is a condition to the
consummation of the Merger. Applications requesting the FCC's consent to the
transfers of control of Telemundo's broadcast licenses (the "FCC
Applications") were filed with the FCC on December 30, 1997.
The Communications Act and the FCC Rules provide an opportunity for the
filing of petitions to deny or informal objections to transfer of control
applications. After reviewing such applications and any petitions to deny or
informal objections, the FCC has the authority to approve or deny the
applications, or to condition its approvals in any manner it believes would
best serve the public interest. The FCC's decision may be appealed to the U.S.
Court of Appeals for the District of Columbia Circuit. In addition, under
certain circumstances, the FCC may reconsider its decision at the request of a
third party or on its own motion.
On February 18, 1998, Univision filed a Petition to Deny with the FCC with
respect to the FCC Applications. On March 4, 1998, Telemundo and the Purchaser
separately filed Oppositions to the Univision Petition to Deny with the FCC.
On March 16, 1998, Univision filed a consolidated Reply to the Oppositions. On
March 31, 1998, the Purchaser filed a response to Univision's Reply, and on
April 10, 1998 Univision filed a Rebuttal to the Purchaser's response.
Telemundo anticipates that the FCC will approve the FCC Applications, but
there can be no assurance that such approval will be forthcoming. It is
possible that the FCC could deny one or more of the FCC Applications, or
otherwise attach conditions to its approvals. If the FCC denies one or more of
these applications or attaches certain conditions to their approval, the
Merger Agreement provides that the Purchaser is not obligated to consummate
the Merger. Telemundo cannot predict the timing or outcome of the FCC approval
process.
The Communications Act prohibits the issuance of broadcast licenses (and
certain other FCC licenses) to, or the holding of a broadcast license by, any
corporation of which more than 20% of the capital stock is beneficially or
nominally owned or voted by foreign nationals, foreign governments, the
representatives of either or by non-U.S. corporations. The Communications Act
also authorizes the FCC, under a public interest review, to prohibit the
issuance of a broadcast license to, or the holding of a broadcast license by,
any corporation that is
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controlled, directly or indirectly, by any other corporation of which more
than 25% of the capital stock is beneficially or nominally owned or voted by
foreign nationals, foreign governments, the representatives of either or by
non-U.S. corporations. Telemundo's television broadcast stations will be held
indirectly by the Purchaser. Notwithstanding certain foreign ownership of the
Purchaser, the Purchaser has represented to Telemundo in the Merger Agreement
that it is fully qualified to control the FCC licenses held by Telemundo's
subsidiaries and will not require any waiver, other than continuation of
existing waivers, of any FCC Rule or policy in connection with the grant of
the FCC Applications. The Merger Agreement requires Purchaser and Sub to make
certain modifications to their respective relationships and arrangements among
Purchaser's stockholders that are required to obtain an approval by the FCC of
a change in control of Telemundo's broadcast licenses.
The FCC Rules contain restrictions regarding the multiple ownership in
certain situations of "attributable interests" in broadcast licensees,
newspapers and cable television systems (collectively, "media companies") on
both the national and local levels. Generally, ownership is attributed to
officers, directors and shareholders of a media company who own five percent
or more of the outstanding voting stock thereof (except for certain
institutional shareholders, who may own up to ten percent), and to general and
noninsulated limited partners. There is a general exception to the attribution
requirement, however, which provides that ownership is not attributed to
minority shareholders of corporations controlled by a single majority
shareholder. Under the FCC Rules, an individual or entity may hold
attributable interests in an unlimited number of television stations
nationwide, subject to the restriction that no individual or entity may have
an attributable interest in television stations reaching more than 35% of the
national television viewing audience (subject to a 50% discount in the number
of television households attributed to any UHF station). Locally, unless
applicable waiver standards are met, an individual or entity may not hold
attributable interests in (i) newspapers and radio or television stations,
(ii) radio and television stations, and (iii) cable television systems and
broadcast television stations.
Telemundo is advised that the Purchaser does not have any attributable
interests in other broadcast stations or newspapers. However, one of the
investors in the Purchaser, Liberty, is a wholly owned subsidiary of Tele-
Communications, Inc., which, in turn, directly or indirectly, owns or controls
or has attributable interests in cable television systems located throughout
the United States, including systems operating within each of the television
markets served by Telemundo's television stations. In addition, Liberty has a
non-attributable ownership interest in HSN, Inc., which in turn controls
television stations located throughout the United States, including stations
operating within five of the television markets served by Telemundo's
television stations.
If Liberty's interest in the Purchaser is deemed attributable, it could
place Liberty in violation of the cable/broadcast cross-ownership rule, which
generally prohibits the common ownership of attributable interests in a cable
television system and a television station whose Grade B contour overlaps the
service area of that cable system. However, in view of the fact that Liberty's
limited equity interest in the Purchaser will include a voting proxy to
Station Partners for Liberty's entire voting interest in the outstanding
common stock in the Purchaser, Telemundo has been advised by Hogan that
Liberty's interest in the Purchaser should be deemed non-attributable under
FCC Rules.
In addition, the FCC's "cross-interest" policy generally prohibits the
common ownership of an attributable interest in one media company and certain
nonattributable, but "meaningful" interests, including substantial
nonattributable equity interests, in another media company serving
"substantially the same area." If Liberty's ownership interest in the
Purchaser is deemed a significant economic interest, and therefore a
"meaningful" interest under the FCC's cross-interest policy, Liberty's
investment in the Purchaser will be prohibited under the cross-interest policy
in the absence of a waiver or an FCC determination that such ownership
interest is in the public interest. Nonetheless, the FCC has held previously
that non-voting equity interests below 33% are not deemed by it to be
"meaningful" under the policy and, therefore, Hogan believes that Liberty's
interest in the Purchaser is not "meaningful."
The FCC is currently engaged in an extensive review of its broadcast
ownership rules, including the cross-interest policy, the cable/broadcast
cross-ownership rules, and the broadcast attribution rules and Telemundo
cannot predict what impact such revisions, if adopted, could have on the FCC's
consideration of the FCC Applications.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain anticipated federal income tax consequences
to a holder of Common Stock or Creditors' Warrants in connection with the
Merger is based upon current provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), currently applicable Treasury regulations and
judicial and administrative rulings and decisions as of the date hereof.
Legislative, judicial or administrative changes may be forthcoming that could
alter or modify the statements set forth herein, possibly on a retroactive
basis. The summary does not purport to deal with all aspects of federal income
taxation that may affect particular holders of Common Stock or Creditors'
Warrants in light of their individual circumstances, nor with certain types of
holders subject to special treatment under the federal income tax laws (e.g.,
life insurance companies, tax-exempt organizations, financial institutions or
broker-dealers, holders owning stock as part of a "straddle," "hedge" or
"conversion transaction," holders who acquired their Common Stock pursuant to
the exercise of an employee stock option or otherwise as compensation, and
holders who are neither citizens nor residents of the United States, or that
are foreign corporations, foreign partnerships or foreign estates or trusts
for U.S. federal income tax purposes). In addition, the summary assumes that
any Common Stock or Creditors' Warrants exchanged in or in connection with the
Merger is held as a capital asset. CONSEQUENTLY, EACH STOCKHOLDER AND HOLDER
OF CREDITORS' WARRANTS SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE
TAX CONSEQUENCES OF THE MERGER IN LIGHT OF SUCH HOLDER'S OWN SITUATION,
INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND
OTHER TAX LAWS.
Tax Treatment of Holders of Common Stock. THE CONVERSION OF COMMON STOCK IN
THE MERGER WILL BE FULLY TAXABLE TO STOCKHOLDERS. Accordingly, except to the
extent provided otherwise below, a Stockholder who, pursuant to the Merger,
converts such holder's Common Stock into cash will recognize a gain or loss
equal to the difference between (i) the amount of cash received in the Merger
and (ii) such Stockholder's tax basis in the Common Stock. In the case of a
Stockholder who is an individual, estate or trust, such capital gain or loss
will be taxable at a maximum capital gain rate of 20% if the holder held the
Common Stock for more than eighteen months at the time of the Merger and will
be taxable at a maximum capital gains rate of 28% if the Stockholder held the
Common Stock for more than one year but not more than eighteen months at the
time of the Merger.
For federal income tax purposes, the source of a portion of the cash
consideration issued in the Merger will be deemed to be Telemundo (including
the proceeds from debt used to fund the Merger that is assumed by Telemundo in
the Merger). Therefore, to the extent that the cash received by a Stockholder
is from such sources, the receipt of cash in exchange for such Stockholder's
Common Stock in the Merger will be treated as a redemption of Common Stock for
federal income tax purposes. If a Stockholder's interest in Telemundo will
terminate as a result of the Merger, taking into account the constructive
ownership rules of Section 318 of the Code, then the Stockholder will continue
to receive sale or exchange treatment, and consequently the Stockholder will
recognize a gain or loss equal to the difference between (i) the amount of
cash received and (ii) such Stockholder's tax basis in the Common Stock, as
described in the preceding paragraph. However, if a Stockholder's interest in
Telemundo, taking into account the constructive ownership rules of Section 318
of the Code, is not terminated as a result of the Merger, then the Stockholder
will recognize gain or loss as described above only if the deemed redemption
is either "not essentially equivalent to a dividend" or "substantially
disproportionate" within the meaning of Section 302 of the Code. Whether or
not a Stockholder qualifies for sale or exchange treatment under these
provisions depends on the Stockholder's individual facts and circumstances.
Stockholders are urged to consult their tax advisors with respect to the
potential applicability of these provisions.
If, for the foregoing reasons, a portion of the cash received by a
Stockholder in the Merger does not qualify for sale or exchange treatment as
described in the preceding paragraph, such portion of the cash will instead be
treated as a distribution by Telemundo with respect to its stock, taxable as a
dividend (without any reduction for the holder's basis in the stock) and,
hence, as ordinary income, to the extent that Telemundo has current or
accumulated earnings and profits for federal income tax purposes. If the
amount of such distribution exceeds
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Telemundo's earnings and profits, it will be treated first as a return of
capital (thereby reducing basis) and then, to the extent of any excess, as
gain from the sale or exchange of the stock. For purposes of determining the
amount of such distribution which is a return of capital and gain from the
sale or exchange of the stock, the Stockholder would use a portion of his or
her tax basis in the Common Stock based upon the ratio of (i) the portion of
cash treated as a distribution to (ii) the Merger Consideration. With respect
to the balance of the cash consideration received in the Merger, the
Stockholder would receive sale or exchange treatment on that component, and
the gain or loss on such component would equal the difference between (a) the
balance of the cash received and (b) a portion of the Stockholder's tax basis
in the Common Stock based upon the ratio of (i) the balance of cash received
to (ii) the Merger Consideration.
Tax Treatment of Holders of Creditors' Warrants. THE CONVERSION OF
CREDITORS' WARRANTS IN CONNECTION WITH THE MERGER WILL BE FULLY TAXABLE TO
HOLDERS OF CREDITORS' WARRANTS. In connection with the Merger, holders of
Creditors' Warrants will receive a cash payment equal to the difference
between the Merger Consideration and the exercise price of the Creditors'
Warrants in cancellation of such Creditors' Warrants. A holder of Creditors'
Warrants will recognize capital gain or loss equal to the difference between
(i) the amount of cash received by such holder in connection with the Merger
and (ii) such holder's tax basis in the Creditors' Warrants. Any such
recognized capital gain or loss will be taxed at the rates described above
with respect to the tax treatment to holders of Common Stock.
Backup Withholding. In order to avoid "backup withholding" of federal income
tax on payments of cash to a Stockholder who exchanges his or her Common Stock
in the Merger, a Stockholder must, unless an exception applies under the
applicable law and regulations, provide the payor of such cash with such
Stockholder's correct taxpayer identification number ("TIN") on a Form W-9 and
certify under penalties of perjury that such number is correct and that such
Stockholder is not subject to backup withholding. A Form W-9 is included as
part of the letter of transmittal to be sent to Stockholders by the exchange
agent. If the correct TIN and certifications are not provided, a penalty may
be imposed on a Stockholder by the Internal Revenue Service (the "IRS") and
the cash payments received by a Stockholder in consideration for shares of
Common Stock in the Merger may be subject to backup withholding tax at a rate
of 31%.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER OR HOLDER OF CREDITORS' WARRANTS,
IT IS RECOMMENDED THAT STOCKHOLDERS AND HOLDERS OF CREDITORS' WARRANTS CONSULT
THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND ANY STATE, LOCAL AND FOREIGN)
TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
APPRAISAL RIGHTS
Stockholders who do not vote for the approval and adoption of the Merger
Agreement at the Special Meeting and who otherwise comply with the applicable
statutory procedures of Section 262 of the DGCL summarized herein may be
entitled to appraisal rights under Section 262 of the DGCL. Holders of
Warrants will not be entitled to appraisal rights with respect to the
Warrants. In order to exercise and perfect appraisal rights, the record holder
of Common Stock must follow the steps summarized below properly and in a
timely manner. A person having a beneficial interest in shares of Common Stock
held of record in the name of another person, such as a broker or nominee,
must act promptly to cause the record holder to follow the steps summarized
below properly and in a timely manner to perfect appraisal rights.
SECTION 262 OF THE DGCL IS REPRINTED IN ITS ENTIRETY AS ANNEX E TO THIS
PROXY STATEMENT. SET FORTH BELOW IS A SUMMARY DESCRIPTION OF SECTION 262. THE
FOLLOWING SUMMARY DESCRIBES THE MATERIAL ASPECTS OF SECTION 262 AND THE LAW
RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
ANNEX E. ALL REFERENCES IN SECTION 262 AND THIS SUMMARY TO "STOCKHOLDER" ARE
TO THE RECORD HOLDER OF THE SHARES OF COMMON STOCK IMMEDIATELY PRIOR TO THE
EFFECTIVE TIME AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED. FAILURE TO COMPLY
STRICTLY WITH THE PROCEDURES SET FORTH IN SECTION 262 OF THE DGCL WILL RESULT
IN THE LOSS OF APPRAISAL RIGHTS.
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<PAGE>
Under the DGCL, holders of Common Stock who follow the procedures set forth
in Section 262 will be entitled to have their shares appraised by the Delaware
Court of Chancery (the "Delaware Court") and to receive payment in cash of the
"fair value" of such shares, exclusive of any element of value arising from
the accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, as determined by such court.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, as in the case of the Special Meeting, the
corporation, not less than 20 days prior to such meeting, must notify each of
its stockholders who was a stockholder on the record date with respect to such
shares for which appraisal rights are available, that appraisal rights are so
available, and must include in each such notice a copy of Section 262. This
Proxy Statement constitutes such notice to the holders of Common Stock and
Section 262 of the DGCL are attached to this Proxy Statement as Annex E. Any
Stockholder who wishes to exercise such appraisal rights or who wishes to
preserve his right to do so should review the following discussion and Annex E
carefully, because failure to timely and properly comply with the procedures
specified will result in the loss of appraisal rights under the DGCL.
A STOCKHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS (A) MUST NOT VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND (B) MUST DELIVER TO
TELEMUNDO, BEFORE THE VOTE ON THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT, A WRITTEN DEMAND FOR APPRAISAL OF SUCH HOLDER'S SHARES OF COMMON
STOCK. A STOCKHOLDER WHO SIGNS AND RETURNS A PROXY CARD WITHOUT EXPRESSLY
DIRECTING THAT HIS OR HER SHARES OF COMMON STOCK BE VOTED AGAINST THE MERGER
AGREEMENT WILL EFFECTIVELY WAIVE HIS, HER OR ITS APPRAISAL RIGHTS BECAUSE SUCH
SHARES REPRESENTED BY THE PROXY CARD WILL BE VOTED FOR THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT. ACCORDINGLY, A STOCKHOLDER WHO DESIRES TO
EXERCISE AND PERFECT APPRAISAL RIGHTS WITH RESPECT TO ANY OF HIS OR HER SHARES
OF COMMON STOCK MUST EITHER (I) REFRAIN FROM EXECUTING AND RETURNING THE
ENCLOSED PROXY CARD AND FROM VOTING IN PERSON IN FAVOR OF THE PROPOSAL TO
APPROVE THE MERGER AGREEMENT, OR (II) CHECK EITHER THE "AGAINST" OR THE
"ABSTAIN" BOX NEXT TO THE PROPOSAL ON SUCH CARD OR AFFIRMATIVELY VOTE IN
PERSON AGAINST THE PROPOSAL OR REGISTER IN PERSON AN ABSTENTION WITH RESPECT
THERETO. A VOTE OR PROXY AGAINST THE MERGER AGREEMENT SHALL NOT, IN AND OF
ITSELF, CONSTITUTE A DEMAND FOR APPRAISAL.
A demand for appraisal will be sufficient if it reasonably informs Telemundo
of the identity of the Stockholder and that such Stockholder intends thereby
to demand appraisal of such Stockholder's shares of Common Stock. This written
demand for appraisal must be separate from any proxy or vote abstaining from
or voting against the approval and adoption of the Merger Agreement. A
Stockholder wishing to exercise appraisal rights must be the record holder of
such shares of Common Stock on the date the written demand for appraisal is
made and must continue to hold such shares through the Effective Time.
Accordingly, a Stockholder who is the record holder of shares of Common Stock
on the date the written demand for appraisal is made, but who thereafter
transfers such shares prior to the Effective Time, will lose any right to
appraisal in respect of such shares.
Only a holder of record of shares of Common Stock is entitled to assert
appraisal rights for the shares of Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder
of record, fully and correctly, as the holder's name appears on the stock
certificates and must state that such person intends thereby to demand
appraisal of his, her or its shares of Common Stock. If the shares are owned
of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, execution of the demand for appraisal should be made in that
capacity, and if the shares are owned of record by more than one person, as in
a joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including one for two or more
joint owners, may execute the demand for appraisal on behalf of a holder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, he or she is acting
as agent for such owner or owners.
A record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares of
Common Stock held for one or more beneficial owners while not
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<PAGE>
exercising such rights with respect to the shares held for other beneficial
owners; in such case, the written demand should set forth the number of shares
as to which appraisal is sought. Where the number of shares of Common Stock is
not expressly stated, the demand will be presumed to cover all shares held in
the name of the record owner. Stockholders who hold their shares in brokerage
accounts or other nominee form and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the appropriate procedures
for the making of a demand for appraisal by such nominee.
ALL WRITTEN DEMANDS FOR APPRAISAL OF SHARES MUST BE MAILED OR DELIVERED TO:
TELEMUNDO GROUP, INC., ATTENTION: SECRETARY, 2290 WEST 8TH AVENUE, HIALEAH,
FLORIDA 33010, OR SHOULD BE DELIVERED TO THE SECRETARY AT THE SPECIAL MEETING,
PRIOR TO THE VOTE ON THE MERGER AGREEMENT.
Within ten days after the Effective Time, Telemundo will notify each
Stockholder who properly asserted appraisal rights under Section 262 and has
not voted for the approval and adoption of the Merger Agreement as of the
Effective Time.
Within 120 days after the Effective Time, but not thereafter, Telemundo or
any Stockholder who has complied with the statutory requirements summarized
above may file a petition in the Delaware Court demanding a determination of
the fair value of the shares held by such Stockholder. If no such petition is
filed, appraisal rights will be lost for all Stockholders who had previously
demanded appraisal of their shares. Telemundo is not under any obligation, and
has no present intention, to file a petition with respect to appraisal of the
value of the shares. Accordingly, Stockholders who wish to exercise their
appraisal rights should regard it as their obligation to take all steps
necessary to perfect their appraisal rights in the manner prescribed in
Section 262.
Within 120 days after the Effective Time, any Stockholder who has complied
with the provisions of Section 262 will be entitled, upon written request, to
receive from Telemundo a statement setting forth the aggregate number of
shares of Common Stock not voted in favor of the approval and adoption of the
Merger Agreement and with respect to which demands for appraisal were received
by Telemundo, and the number of holders of such shares. Such statement must be
mailed within ten days after the written request therefore has been received
by Telemundo.
If a petition for an appraisal is timely filed and a copy thereof served
upon Telemundo, Telemundo will then be obligated within 20 days to file with
the Delaware Register in Chancery a duly verified list containing the names
and addresses of the Stockholders who have demanded appraisal of their shares
and with whom agreements as to the value of their shares have not been
reached. After notice to the Stockholders as required by the Delaware Court,
the Delaware Court is empowered to conduct a hearing on such petition to
determine those Stockholders who have complied with Section 262 and who have
become entitled to appraisal rights thereunder. The Delaware Court may require
the Stockholders who demanded appraisal rights of their shares of Common Stock
to submit their stock certificates to the Register in Chancery for notation
thereon of the pendency of the appraisal proceeding; and if any Stockholder
fails to comply with such direction, the Delaware Court may dismiss the
proceedings as to such Stockholder.
After determining which Stockholders are entitled to appraisal, the Delaware
Court will appraise the "fair value" of their shares of Common Stock,
exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. Holders considering
seeking appraisal should be aware that the fair value of their shares as
determined under Section 262 could be more than, the same as or less than the
consideration they are entitled to receive pursuant to the Merger Agreement if
they did not seek appraisal of their shares and that investment banking
opinions as to fairness from a financial point of view are not necessarily
opinions as to fair value under Section 262. In determining "fair value" of
shares, the Delaware Court shall take into account all relevant factors. In
Weinberger v. UOP, Inc., the Delaware Supreme Court has stated that such
factors include "market value, asset value, dividends, earnings prospects, the
nature of the enterprise and any other facts which were known or which could
be ascertained as of the date of the merger which throw any light on future
prospects of the merged corporation." In Weinberger, the Delaware Supreme
Court stated, among other things, that "proof
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<PAGE>
of value by any techniques or methods generally considered acceptable in the
financial community and otherwise admissible in court" should be considered in
an appraisal proceeding. In addition, the Delaware Court has decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a dissenter's exclusive remedy.
The Delaware Court will also determine the amount of interest, if any, to be
paid on the amounts to be received by persons whose shares of Common Stock
have been appraised. The costs of the action may be determined by the Delaware
Court and taxed upon the parties as the Delaware Court deems equitable. The
Delaware Court may also order that all or a portion of the expenses incurred
by any Stockholder in connection with an appraisal, including without
limitation, reasonable attorneys' fees and the fees and expenses of experts
utilized in the appraisal proceeding, be charged pro rata against the value of
all of the shares entitled to appraisal. In the absence of such determination
or assessment, each party bears its own expenses.
Any Stockholder who has duly demanded and perfected an appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote his or her shares for any purpose or be entitled to the payment of
dividends or other distributions thereon, except dividends or other
distributions payable to holders of record of shares of Common Stock as of a
date prior to the Effective Time.
At any time within 60 days after the Effective Time, any Stockholder will
have the right to withdraw his or her demand for appraisal and to accept the
Merger Consideration. After this period, a Stockholder may withdraw his or her
demand for appraisal only with the written consent of Telemundo. If no
petition for appraisal is filed with the Delaware Court within 120 days after
the Effective Time, a Stockholder's right to appraisal will cease and he or
she will be entitled to receive the Merger Consideration, without interest, as
if he or she had not demanded appraisal of his or her shares. No petition
timely filed in the Delaware Court demanding appraisal will be dismissed as to
any Stockholder without the approval of the Delaware Court, and such approval
may be conditioned on such terms as the Delaware Court deems just.
If any Stockholder who properly demands appraisal of his or her shares of
Common Stock under Section 262 fails to perfect, or effectively withdraws or
loses, his right to appraisal, as provided in the DGCL, the shares of such
Stockholder will be converted into the right to receive the consideration
receivable with respect to such shares in accordance with the Merger
Agreement. A Stockholder will fail to perfect, or effectively lose or
withdraw, his right to appraisal if, among other things, no petition for
appraisal is filed within 120 days after the Effective Time, or if the
Stockholder delivers to Telemundo a written withdrawal of his demand for
appraisal. Any such attempt to withdraw an appraisal demand more than 60 days
after the Effective Time will require the written approval of Telemundo.
STOCKHOLDERS DESIRING TO EXERCISE THEIR APPRAISAL RIGHTS MUST NOT VOTE FOR
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND MUST STRICTLY COMPLY
WITH THE PROCEDURES SET FORTH IN SECTION 262 OF THE DGCL.
FAILURE TO TAKE ANY REQUIRED STEP IN CONNECTION WITH THE EXERCISE OF
APPRAISAL RIGHTS WILL RESULT IN THE TERMINATION OR WAIVER OF SUCH RIGHTS.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the compensation for
services in all capacities to Telemundo for the years ended December 31, 1997,
1996, and 1995 paid to (a) the Chief Executive Officer and (b) the other four
most highly compensated executive officers of Telemundo during 1997
(collectively, the "Named Executive Officers"). Roland A. Hernandez became the
Chief Executive Officer of Telemundo and Stephen J. Levin became an executive
officer of Telemundo in early 1995. Mr. Tringali became an executive officer
in 1996. The amounts shown in the table for 1995, with respect to Messrs.
Hernandez and Levin, and for 1996, with respect to Mr. Tringali, reflect
payments from the dates they became executive officers.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS(#)
------------------ ------------
ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING COMPENSATION
DURING 1997(1) YEAR ($) ($)(2) OPTIONS(#) ($)(3)
- --------------------------- ---- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Roland A. Hernandez......... 1997 700,000 0 30,000 8,438
President and Chief 1996 700,000 913,889 0 8,615
Executive Officer 1995 616,799 624,400 512,500 962
Stephen J. Levin............ 1997 344,900 0 30,000 6,233
Executive Vice President 1996 315,500 331,566 0 7,733
1995 247,610 174,870 50,000 2,250
Donald J. Tringali.......... 1997 344,900 0 30,000 3,502
Executive Vice President 1996 177,000(4) 261,486 75,000 742(4)
1995 -- (4) -- -- -- (4)
Jose C. Cancela............. 1997 342,300 0 0 6,233
Executive Vice President 1996 400,000 229,620 0 7,733
1995 400,000 0 50,000 7,391
Peter J. Housman II......... 1997 325,000 0 30,000 6,233
Chief Financial Officer and 1996 325,000 186,506 0 7,733
Treasurer 1995 325,000 50,000 50,000 7,391
</TABLE>
- --------
(1) For the aggregate value of the stock and options owned by each Named
Executive Officer and director of Telemundo, see table on page 56.
(2) Bonus amounts represent compensation for services rendered for the
respective years shown and were paid at the beginning of the subsequent
year.
(3) The following amounts are included in the above table. Retirement
contributions and matching 401(k) contributions: Mr. Hernandez--$4,750 for
1997, $6,250 for 1996 and $0 for 1995; Mr. Levin--$4,750 for 1997, $6,250
for 1996 and $1,288 for 1995; Mr. Tringali--$2,019 for 1997 and $0 for
1996 and 1995; Mr. Cancela--$4,750 for 1997, $6,250 for 1996 and $5,908
for 1995; Mr. Housman--$4,750 for 1997, $6,250 for 1996, and $5,908 for
1995. Life insurance premiums paid by Telemundo: Mr. Hernandez--$3,688 for
1997, $3,848 in 1996 and $962 in 1995; Mr. Levin--$1,483 in each of 1997,
1996 and 1995; Mr. Tringali--$1,483 in 1997, $742 in 1996 and $0 for 1995;
Mr. Cancela--$1,483 in each of 1997, 1996 and 1995; and Mr. Housman--
$1,483 in each of 1997, 1996 and 1995.
(4) From May 1995 through May 1996, Mr. Tringali served as a consultant to
Telemundo. Consulting fees paid to Mr. Tringali in 1996 and 1995 amounted
to $130,800 and $163,100, respectively.
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<PAGE>
Option Grants in 1997
The following table sets forth certain information with respect to the grant
of options to purchase Series A Common Stock made during 1997 to each of the
Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
NUMBER OF % OF TOTAL PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM($)(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------
NAME GRANTED(#) FISCAL YEAR SHARE($) DATE 5% 10%
---- ---------- ------------ --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Roland A. Hernandez..... 30,000(1) 12.7% 33.75 9/10/2007 636,800 1,613,700
Stephen J. Levin........ 30,000(1) 12.7% 33.75 9/10/2007 636,800 1,613,700
Donald J. Tringali...... 30,000(1) 12.7% 33.75 9/10/2007 636,800 1,613,700
Peter J. Housman II..... 30,000(1) 12.7% 33.75 9/10/2007 636,800 1,613,700
</TABLE>
- --------
(1) These options have a three year vesting schedule, becoming exercisable in
three equal installments on each of February 28, 1999, February 28, 2000,
and February 28, 2001, in each case if the applicable executive is
employed by Telemundo on such date. These options also become fully
exercisable upon the occurrence of a "change of control transaction" (as
defined in the applicable stock option agreement) or other accelerating
event.
(2) Amounts represent the future market price of the Series A Common Stock,
assuming the market price at the grant date appreciates at compound
annualized rates of 5% and 10% (prescribed by the SEC rules) over the 10
year term of the options, less the exercise price, multiplied by the
number of shares under grant. These amounts are not intended to forecast
possible future appreciation, if any, of Telemundo's stock price. However,
if the Merger Agreement is approved and adopted by the Stockholders and
the Merger is consummated, all of the unexercised options outstanding
immediately prior to the Effective Time (whether or not such option is
then presently exercisable) will be converted into the right to receive,
subject to any required withholding taxes, a cash payment equal to the
product of (a) the total number of shares then subject to each such option
multiplied by (ii) the excess of the Merger Consideration over the
exercise price per share subject to such option. By virtue of the
foregoing treatment of such options, at the Effective Time all such
options will cease to exist.
Aggregated Option Exercises in 1997 and Year-End Option Value
The following table sets forth the number of shares of Series A Common Stock
covered by stock options held by the Named Executive Officers at December 31,
1997 and also shows the value of "in-the-money" options at that date. No Named
Executive Officers exercised stock options during 1997. For more information
regarding the stock option agreements of certain officers of Telemundo, see
"Special Factors--Interests of Certain Persons."
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT YEAR-END(#) OPTIONS AT YEAR-END($)(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Roland A. Hernandez........ 416,407 126,093 12,856,500 3,180,700
Stephen J. Levin........... 40,625 39,375 1,205,600 492,000
Donald J. Tringali......... 56,250 48,750 984,400 541,900
Jose C. Cancela............ 0 50,000 0 1,312,500
Peter J. Housman II........ 16,667 63,333 437,500 1,088,700
</TABLE>
- --------
(1) Based upon the closing sale price of Telemundo's Series A Common Stock of
$40.875 per share on December 31, 1997, less the exercise price. However,
if the Merger Agreement is approved and adopted by the Stockholders and
the Merger is consummated, all of the unexercised options outstanding
immediately prior to the Effective Time (whether or not such option is
then presently exercisable) will be converted into the right to receive,
subject to any required withholding taxes, a cash payment equal to the
product of (a) the total number of shares then subject to each such option
multiplied by (ii) the excess of the Merger Consideration over the
exercise price per share subject to such option. By virtue of the
foregoing treatment of such options, at the Effective Time all such
options will cease to exist.
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Directors Compensation
Each of the directors, other than Mr. Hernandez, serving on the Board
receives for services as a director (i) $10,000 as an annual retainer, (ii)
$2,500 for each regularly scheduled Board meeting attended, (iii) $1,000
annual fee for serving on each committee such director serves on, (iv) $1,000
for each extraordinary meeting of the Board attended and (v) an annual grant
of options to purchase 2,500 shares of Series A Common Stock, which options
are granted on the date of Telemundo's annual meeting, vest over a period of
three years and are exercisable at the market price on the grant date. Upon
the consummation of the Merger, all such options shall become immediately
exercisable. See "Special Factors--Interests of Certain Persons."
Compensation Committee Interlocks and Insider Participation
The current members of the Compensation Committee are Messrs. Ridings,
Spector and Yorke. None of the members of the Compensation Committee has ever
served as an officer or employee of Telemundo, nor has any such member served
as a member of a compensation committee or other board of directors' committee
performing similar functions of any other entity in 1997.
Employment Agreements
For a description of the employment and stock option agreements of the Named
Executive Officers, see "Special Factors--Interests of Certain Persons."
THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement, a
copy of which is attached as Annex A to this Proxy Statement and is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the Merger Agreement. Stockholders are urged to read the Merger
Agreement in its entirety for a more complete description of the terms and
conditions of the Merger. For the purposes of this section, "Telemundo" shall
mean Telemundo Group, Inc. and shall not include its subsidiaries.
THE MERGER
The Merger Agreement provides that, following the approval of the Merger by
the Stockholders and the satisfaction or waiver of the other conditions to the
Merger Agreement, Sub will be merged with and into Telemundo with Telemundo
surviving the Merger as a wholly owned subsidiary of the Purchaser. The
Stockholders will receive the Merger Consideration and the Purchaser, as the
holder of the common stock of Sub, will become the sole stockholder of
Telemundo after the Effective Time. Pursuant to the Merger Agreement: (i) the
Restated Certificate of Incorporation and Amended and Restated By-laws of
Telemundo in effect at the Effective Time shall be the certificate of
incorporation and by-laws of Telemundo after the Merger until they are
thereafter amended in accordance with their respective terms and applicable
law; (ii) the directors of Sub at the Effective Time will become the directors
of Telemundo after the Merger until their respective successors are elected or
appointed and qualified; and (iii) the officers of Telemundo at the Effective
Time shall be the officers of Telemundo after the Merger until their
respective successors are duly elected or appointed and qualified.
If the Merger Agreement is approved by the Stockholders, and the other
conditions to the Merger Agreement are satisfied or waived, the Merger shall
be consummated by and shall be effective at the time of acceptance for filing
immediately prior to the Effective Time of a certificate of merger (the
"Certificate of Merger") to be filed with the Secretary of State of the State
of Delaware as provided by the relevant provisions of the DGCL. See "The
Merger Agreement--Conditions to Obligations to Effect the Merger."
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<PAGE>
CONSIDERATION TO BE RECEIVED IN THE MERGER
Consideration and Appraisal Rights. At the Effective Time: (i) each share of
Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares that are canceled as described in clause (ii) and Appraisal
Shares (as defined below), if any, which will be treated as described below)
will be converted into the right to receive, by virtue of the Merger and
without any further action from the Purchaser, the Merger Consideration,
subject to applicable withholding or back-up withholding taxes, if any,
payable by the holder thereof, without interest thereon, upon surrender of the
certificate formerly representing such share; (ii) each share that is held by
the Purchaser, Sub or any other of the Purchaser's wholly owned subsidiaries,
or in the treasury of Telemundo or by any wholly owned subsidiary of
Telemundo, will be canceled and will cease to exist and no payment will be
made with respect thereto; and (iii) each issued and outstanding share of
common stock of Sub will be converted into the right to receive one share of
common stock of Telemundo after the Merger.
The Merger Agreement further provides that any shares of Common Stock which
are issued and outstanding immediately prior to the Effective Time and held by
a Stockholder who has not voted (such shares, the "Appraisal Shares") in favor
of or consented to the Merger in writing and who complies with all the
provisions of the DGCL concerning the right of holders of shares of capital
stock to dissent from the Merger and require appraisal of their shares (a
"Dissenting Stockholder") will not be converted into or represent the right to
receive the Merger Consideration as described above but instead will be
converted, at the Effective Time, into the right to receive any consideration
that may be determined to be due to the Dissenting Stockholder pursuant to the
DGCL; provided, however, that the shares of Common Stock outstanding
immediately before the Effective Time and held by a Dissenting Stockholder
who, after the Effective Time, fails to establish his entitlement to appraisal
rights as provided in Section 262 of the DGCL or withdraws or forfeits the
Dissenting Stockholder's right to appraisal, in either case pursuant to the
DGCL, will be deemed to be converted as of the Effective Time into the right
to receive the Merger Consideration, without interest. Telemundo may not,
without the prior written consent of the Purchaser, voluntarily make any
payment with respect to any demands for appraisal or offer to settle or settle
any such demands.
Treatment of Options and Warrants. The Merger Agreement provides that
immediately prior to the Effective Time, each holder of a then outstanding and
unexercised option issued pursuant to Telemundo's 1994 Stock Plan or its 1996
Non-Employee Director Stock Option Plan that entitles the holder thereof to
purchase shares of Common Stock (each such option being, an "Option"), whether
or not such Option is then presently exercisable, will be entitled to receive,
in settlement of such Option, subject to any required withholding of taxes, a
cash payment equal to the product of (i) the total number of shares then
subject to each such Option with an exercise price per share that is less than
the Merger Consideration multiplied by (ii) the excess of the Merger
Consideration over the exercise price per share subject to such Option. By
virtue of the foregoing treatment of such Options, at the Effective Time all
such Options will cease to exist.
The Merger Agreement also provides that immediately prior to the Effective
Time, each holder of a then outstanding and unexercised Warrant will be
entitled to receive, in settlement of such Warrant, subject to any required
withholding of taxes, a cash payment equal to the product of (i) the total
number of shares then subject to each such Warrant with an exercise price per
share that is less than the Merger Consideration multiplied by (ii) the excess
of the Merger Consideration over the exercise price per share subject to such
Warrant. By virtue of the foregoing treatment of such Warrants, at the
Effective Time all such Warrants will cease to exist.
EXCHANGE OF STOCK CERTIFICATES
Prior to the Effective Time, the Purchaser will designate a bank or trust
company reasonably satisfactory to Telemundo to act as Exchange Agent (the
"Exchange Agent") in the Merger and take all steps necessary to enable and
cause Telemundo to provide such Exchange Agent with funds necessary to make
payments to the holders of shares of Common Stock of the Merger Consideration.
Promptly after the Effective Time, the Exchange Agent will mail to each record
holder of certificates which immediately prior to the Effective Time
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<PAGE>
represented outstanding shares a letter of transmittal and instructions for
use in effecting the surrender of such certificates in exchange for the Merger
Consideration, subject to any required back-up withholding taxes. Upon
surrender of a certificate for cancellation to the Exchange Agent, together
with such letter of transmittal, duly executed, the holder of such certificate
will be entitled to receive in exchange therefor an amount equal to the
product of the number of shares represented by such certificate multiplied by
the Merger Consideration, subject to any withholding taxes, without any
interest thereon, and the certificates so surrendered will promptly be
canceled.
No Further Ownership Rights in Telemundo. At and after the Effective Time,
each holder of a certificate that represented issued and outstanding shares of
Common Stock immediately prior to the Effective Time shall cease to have any
rights as a Stockholder of Telemundo, except for the right to surrender his or
her certificates in exchange for the Merger Consideration or to perfect his or
her right to receive payment for his or her shares pursuant to Section 262 of
the DGCL and Section 2.9 of the Merger Agreement and there shall be no further
transfers on the stock transfer books of Telemundo of the shares that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates that formerly represented shares of Common Stock are
presented to Telemundo, such certificates will be canceled and exchanged for
cash in the manner described above, subject to applicable law with respect to
Dissenting Shares.
Failure to Exchange. Any cash which remains undistributed to the former
stockholders of Telemundo for six months after the Effective Time will be
delivered by the Exchange Agent to Telemundo, and Telemundo shall thereafter
act as the Exchange Agent.
No Liability. Notwithstanding anything to the contrary contained in the
Merger Agreement, none of Telemundo, the Purchaser, Sub or the Exchange Agent
will be liable to any holder of shares of Common Stock for any Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. Each of the Purchaser, the
Exchange Agent and Telemundo, as applicable, will be entitled to deduct and
withhold from the Merger Consideration otherwise payable to any holder of
certificates which prior to the Effective Time represented shares such amounts
as it is required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of state, local or foreign tax law.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, Telemundo has made to the Purchaser and Sub various
customary representations and warranties, subject to identified exceptions,
with respect to, among other things: (i) due organization, valid existence and
good standing of Telemundo and certain of its subsidiaries and certain similar
corporate matters; (ii) the capital structure of Telemundo and certain of its
subsidiaries; (iii) the authorization, execution, delivery and enforceability
of the Merger Agreement; (iv) conflicts under Telemundo's Restated Certificate
of Incorporation or Amended and Restated By-laws, required consents or
approvals and violations of instruments or law; (v) documents and financial
statements filed by Telemundo with the SEC and the accuracy of information
contained therein; (vi) the accuracy of the information, other than
information supplied by the Purchaser or Sub, included in this Proxy
Statement; (vii) the possession of certain permits, licenses and other
approvals, including those related to the Communications Act or the FCC;
(viii) the absence of certain material adverse events or changes; (ix) the
absence of certain broker and other similar fees; (x) the absence of certain
facts or circumstances related to Telemundo that are likely to prevent or
delay consent to certain transfer of control applications and the issuance of
the FCC Order; (xi) the inapplicability of certain provisions of the DGCL;
(xii) litigation; (xiii) intellectual property; (xiv) labor matters; (xv)
employee benefits plans; (xvi) taxes and tax returns; (xvii) affiliation
agreements; and (xviii) environmental matters. In the Merger Agreement, the
Purchaser and Sub have made to Telemundo various customary representations and
warranties, subject to identified exceptions, with respect to, among other
things: (a) due organization, valid existence and good standing and certain
similar corporate matters; (b) the authorization, execution, delivery and
enforceability of the Merger Agreement; (c) conflicts under articles of
incorporation or by-laws, required consents or approvals and violations of
instruments or law; (d) the accuracy of the information supplied by the
Purchaser, Sub and their respective affiliate, included in this Proxy
Statement and certain other documents; (e) financing arrangements; (f) the
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absence of certain prior activities and liabilities; (g) the financial
condition of Telemundo; (h) the absence of certain fees; and (i) the absence
of certain facts or circumstances related to the Purchaser or Sub, including
facts or circumstances related to the ownership of the Purchaser, that are
likely to prevent consent to certain transfer of control applications and the
issuance of the FCC Order. None of the representations and warranties in the
Merger Agreement will survive the Effective Time.
CERTAIN COVENANTS
Conduct of Business. Pursuant to the Merger Agreement, Telemundo has agreed
that, during the period from the date of the Merger Agreement to the Effective
Time, except as contemplated by the Merger Agreement, each of Telemundo and
its subsidiaries will carry on its respective operations according to its
ordinary and usual course of business and consistent with past practices and
use reasonable efforts to: (i) preserve intact its business organizations'
goodwill; (ii) keep available the services of its present officers and key
employees; and (iii) preserve the goodwill and business relationships with
suppliers, distributors and others having business relationships with it. In
addition, except as contemplated by the Merger Agreement or as otherwise
consented to in writing by the Purchaser (such consent, except in the case of
clauses (a), (h), and (i) below, not to be unreasonably withheld) or as
contemplated by the Merger Agreement, prior to the Effective Time neither
Telemundo nor its subsidiaries will: (a) issue, sell, pledge or otherwise
dispose, grant or otherwise create any additional shares of, or authorize or
propose the issuance, sale, pledge, disposal, grant or creation of, any shares
of capital stock of Telemundo and its subsidiaries or securities convertible
into or exchangeable for such shares of its capital stock, or any rights,
Warrants or options to acquire such shares or other convertible or
exchangeable securities (subject to certain exceptions, including the issuance
of shares of Common Stock pursuant to the exercise of Options or Warrants
outstanding on the date of the Merger Agreement or otherwise issuable to
directors pursuant to the automatic grant provisions of the 1996 Plan as in
effect on the date of the Merger Agreement); (b) purchase, redeem or otherwise
acquire or retire, or offer to purchase, redeem or otherwise acquire or
retire, any shares of its capital stock, other than in transactions between
Telemundo and its wholly owned subsidiaries and any required repurchases of
options or stock upon termination of employment to the extent required by
agreements in effect on the date of the Merger Agreement; (c) declare, set
aside, make or pay any dividend or distribution, payable in cash, stock,
property or otherwise, on any shares of its capital stock (other than
dividends paid by wholly owned subsidiaries of Telemundo to Telemundo); (d)
other than with respect to intercompany payables and receivables and
intercompany debt, incur or become contingently liable with respect to any
indebtedness or guarantees of any indebtedness or any debt securities other
than indebtedness incurred to finance working capital requirements in the
ordinary course of business consistent with past practice; (e) merge,
consolidate with or consummate any other business combination with any person
or acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner any business or any person; (f) sell, lease,
license (other than exhibition licenses entered into in the ordinary course of
business consistent with past practice), mortgage, transfer or otherwise
dispose of any properties or assets which are material to Telemundo and its
subsidiaries, taken as a whole; (g) except as contemplated by the Merger
Agreement or as may be required by applicable law or by contracts existing as
of the date of the Merger Agreement, (1) increase the compensation payable to
its officers or employees (except increases in the ordinary course of business
consistent with past practice for non-officer employees and production and
talent personnel), (2) enter into any written employment agreement with any
employee (except for employment agreements that are entered into in the
ordinary course of business and that are terminable, without penalty, on not
more than six months notice), (3) grant any severance or termination pay to
any director, officer or employee inconsistent with Telemundo policy; or (4)
establish, adopt, enter into, terminate, withdraw from or amend in any
material respect or take any action to accelerate any rights or benefits under
any collective bargaining agreement, stock option plan, or material benefit
plan; (h) enter into any programming commitment other than in the ordinary
course of business consistent with past practice; (i) enter into any local
marketing, joint marketing or similar agreements or modify or amend any such
existing agreements on terms less favorable to Telemundo than such existing
agreements, if such terms would, individually or in the aggregate, have a
material adverse effect on the financial condition, results of operations or
business of
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Telemundo and its subsidiaries, taken as a whole; (j) incur any commitments
for capital expenditures in excess of $10,000,000 in any twelve month period;
(k) incur any obligations to make any payment of, or in respect of, any tax,
except in the ordinary course of business consistent with past practice,
settle any material tax audit, make or change any tax election or file any
amended tax returns, in each case other than (1) in connection with the audit
pending as of the date of the Merger Agreement of Telemundo's Federal income
tax returns for 1994 and 1995 and (2) obligations and actions which action
would not result in a material adverse effect on the financial condition,
results of operations or business of Telemundo and its subsidiaries, taken as
a whole; (l) cancel or waive any claim or right of substantial value or settle
any material pending litigation; (m) enter into any paid programming or
infomercial agreement or any agreement granting any person the right to
program any block of network or local time, in each case which is not
terminable at Telemundo's discretion upon not more than 30 days notice or
which does not extend beyond June 1998; (n) except as contemplated by the
Merger Agreement or in the ordinary course of business consistent with past
practice, pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) before they are due
or fail to pay accounts payable in accordance with their terms; (o) propose or
adopt any amendments to its certificate of incorporation or by-laws; (p) agree
to take any of the actions set forth in clauses (a) through (o) above; or (q)
take, or agree or commit to take, any action that would make any
representation or warranty of Telemundo under the Merger Agreement inaccurate
in any respect at, or as of any time prior to, the Effective Time or result in
any of the conditions to the Merger set forth in the Merger Agreement not
being satisfied.
No Solicitation. The Merger Agreement provides that Telemundo will not, nor
will Telemundo permit its subsidiaries, or any officer, director, employee,
representative of Telemundo or any of its subsidiaries (including, without
limitation, any investment banker, attorney or accountant retained by
Telemundo or any of its subsidiaries) directly or indirectly to (i) initiate,
solicit or encourage any inquiries or proposals that constitute, or could
reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, business combination, sale of assets representing a substantial
portion of the assets of Telemundo and its subsidiaries, taken as a whole, or
a sale of shares representing 20% or more of the capital stock of Telemundo
(including, without limitation, by way of a tender or exchange offer) or
similar transaction involving such party or any of its subsidiaries, other
than the transactions contemplated by the Merger Agreement (any of the
foregoing inquiries or proposals being referred to as an "Alternative
Proposal"), (ii) engage in negotiations or discussions concerning, or provide
to any person or entity any non-public information or data relating to
Telemundo or its subsidiaries for the purposes of, or otherwise cooperate with
or assist or participate in, facilitate or encourage, any inquiries relating
to or the making of, any Alternative Proposal, (iii) agree to, approve or
recommend any Alternative Proposal or (iv) take any other action inconsistent
with the obligations and commitments of Telemundo pursuant to the foregoing
clauses (i) through (iii); provided, however, that nothing contained in the
Merger Agreement will prevent Telemundo or the Board from (a) furnishing non-
public information to, or entering into discussions or negotiations with, any
person or entity in connection with an unsolicited bona fide written
Alternative Proposal (for which financing, to the extent required, is then
committed or which in the good faith judgment of the Board after consultation
with Telemundo's financial advisor, is reasonably capable of being obtained)
to Telemundo or its stockholders from persons other than the Purchaser and its
affiliates (a "Third Party"), if and only to the extent that (1) the Board, by
action of a majority of the members of the Board who are not affiliated with
either the Purchaser or the person making such Alternative Proposal or their
respective affiliates, determines in good faith, after consultation with
Telemundo's outside counsel and financial advisors that (x) such Alternative
Proposal is more favorable from a financial point of view to Telemundo's
stockholders than the Merger and the transactions contemplated by the Merger
Agreement and (y) failure by the Board to furnish such information to or enter
into discussions or negotiations with such Third Party could reasonably be
expected to result in a breach of its fiduciary duties to Telemundo's
Stockholders under applicable law, and (2) prior to furnishing such non-public
information to, or entering into discussions or negotiations with, such Third
Party, the Board receives from such person or entity an executed
confidentiality agreement with terms no less favorable to such party than
those contained in certain existing confidentiality agreements; or (b)
complying with Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act
with regard to an Alternative Proposal or making any other public disclosure
that, based upon advice of Telemundo's outside counsel, the Board determines
in its good faith judgment is required by applicable law, rule or regulation;
provided, that prior to making any such other public
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disclosure Telemundo shall to the extent reasonably practicable inform the
Purchaser that it intends to make such disclosure. In the Merger Agreement,
Telemundo has also agreed to cease and cause to be terminated any activities,
discussions or negotiations by Telemundo or its representatives with any
parties conducted before the date of the Merger Agreement with respect to any
of the foregoing.
Telemundo has further agreed to (i) promptly notify the Purchaser in writing
after receipt by Telemundo or its representatives of any Alternative Proposal
or any inquiries indicating that any person is considering making or wishes to
make an Alternative Proposal, (ii) promptly notify the Purchaser in writing
after receipt of any request for non-public information relating to Telemundo
or any of its subsidiaries or for access to Telemundo's or any of its
subsidiaries' properties, books or records by any person that, to Telemundo's
knowledge, may be considering making, or has made, an Alternative Proposal and
(iii) keep the Purchaser advised of the status and principal terms of any such
Alternative Proposal, indication or request.
Stockholders' Meetings. The Merger Agreement provides that Telemundo shall
call a meeting of its Stockholders to be held as promptly as practicable for
the purpose of voting upon the Merger Agreement. Subject to fiduciary duties
under applicable law as advised in writing by counsel, Telemundo has agreed
that the Board would recommend to its Stockholders in this Proxy Statement,
the adoption of the Merger Agreement and the transactions contemplated
thereby. Telemundo has also agreed to use its reasonable best efforts (i) (a)
to obtain and furnish the information required to be included by it in this
Proxy Statement, (b) to file this Proxy Statement with the SEC, (c) to respond
promptly to any comments made by the SEC with respect to this Proxy Statement
and (d) to cause this Proxy Statement to be mailed to its Stockholders at the
earliest practicable time and (ii) subject to fiduciary duties under
applicable law as advised in writing by counsel, to obtain the necessary
approval of the Merger Agreement by the affirmative vote of a majority of the
outstanding shares of Telemundo's Series A Common Stock and Series B Common
Stock, voting together as a single class ("Stockholder Approval").
Director and Officers Indemnification and Insurance. The Merger Agreement
provides that, Telemundo shall and, from and after the Effective Time, the
Purchaser and Telemundo shall, maintain the right to indemnification and
exculpation of officers and directors provided for in Telemundo's Restated
Certificate of Incorporation and Amended and Restated By-laws as in effect on
the date of the Merger Agreement with respect to indemnification and
exculpation for acts and omissions occurring prior to the Effective Time,
including, without limitation, the transactions contemplated by the Merger
Agreement. Further, the Purchaser agreed that for six years after the
Effective Time, the Purchaser or Telemundo will maintain officers' and
directors' liability insurance covering the persons who, on the date of the
Merger Agreement, were covered by Telemundo's officers' and directors'
liability insurance policies with respect to actions and omissions occurring
prior to the Effective Time, on terms which are not materially less favorable,
in the aggregate, than the terms of such insurance in effect for Telemundo on
the date of the Merger Agreement.
The Merger Agreement also provides that Telemundo shall, (i) to the fullest
extent permitted under applicable law, indemnify and hold harmless each
present and former director and officer of Telemundo (collectively, the
"Indemnified Parties") against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any pending, threatened or completed claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or
omission occurring prior to the Effective Time (including, without limitation,
any claim, action, suit, proceeding or investigation arising out of or
pertaining to the transactions contemplated by the Merger Agreement (a
"Claim")), (ii) in the event of any such Claim (whether arising before or
after the Effective Time), upon receipt from the Indemnified Party to whom
expenses are advanced of an undertaking to repay such advances required under
the DGCL, advance expenses to each such Indemnified Party, including the
payment of the fees and expenses of counsel selected by such Indemnified
Party, which counsel shall be reasonably satisfactory to Telemundo, promptly
after statements therefor are received, provided, that Telemundo shall not, in
connection with any one Claim or separate but substantially similar or related
Claims, be liable for the fees and expenses of more than one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Indemnified Parties, and provided, further, that Telemundo shall be entitled
to participate in the defense thereof, and (iii) cooperate fully in the
defense of any such matter.
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The Merger Agreement further provides that Telemundo shall not be liable for
any settlement effected without its written consent (which consent shall not
be unreasonably withheld).
The Merger Agreement also provides that notwithstanding any provision to the
contrary contained in the Certificate of Incorporation or Restated By-Laws of
Telemundo as in effect on the date of the Merger Agreement, any determination
required to be made with respect to whether an Indemnified Party's conduct
complies with the standards set forth under the DGCL, under such charter
provisions shall be made by independent counsel selected by the Indemnified
Party and reasonably acceptable to Telemundo, the Purchaser, or Sub, which
shall pay such counsel's fees and expenses (it being agreed that neither
Telemundo, nor the Purchaser or Sub shall challenge any such determination by
such independent counsel which is favorable to an Indemnified Party).
FCC Covenants. Pursuant to the Merger Agreement, each of the Purchaser and
Sub has agreed to use its reasonable best efforts to take, or cause to be
taken, all actions and to do or satisfy, or cause to be done and satisfied,
all things and conditions necessary, proper or advisable to obtain an order or
decision of the FCC or its staff which grants all consents or approvals
required under the Communications Act for the transfer of control of all FCC
licenses held by Telemundo to the Purchaser and/or Sub and the consummation of
the Merger and the other transactions contemplated by the Merger Agreement,
whether or not any appeal or request for reconsideration or review of such
order is pending, or whether the time for filing any such appeal or request
for reconsideration or review, or for any sua sponte action by the FCC or its
staff with similar effect, has expired (such order or decision being, the "FCC
Order") and to satisfy all conditions and take all actions required thereby,
in each case so as to come into compliance with FCC requirements and to
consummate the Merger as promptly as practicable; provided, however, the
foregoing shall not be interpreted as obligating the Purchaser, Sub, any
stockholder of the Purchaser or any affiliates thereof, to consent to the
imposition of certain specified conditions or restrictions; provided, further,
that the Purchaser and Sub will make all reasonable modifications and
adjustments to their respective relationships and arrangements among the
stockholders of the Purchaser (including the grant of proxies to other
stockholders of the Purchaser with respect to general voting rights) with
respect to the Purchaser that are required in order to obtain an Acceptable
FCC Order (as defined below), so long as such modifications and adjustments do
not modify in any material respect the contemplated minority stockholder
protective provisions or modify in any material respect the economic
arrangement among and between the Purchaser's stockholders. Telemundo will
also use such efforts, but is not required to take any action that would be
effective prior to the Effective Time.
The Merger Agreement also provides that as promptly as practicable,
following the date of the Merger Agreement (and in no event later than January
1, 1998), Telemundo, the Purchaser and Sub shall prepare and file with the FCC
all necessary applications, including applications on FCC Form 315, for
approval of the Merger and the other transactions contemplated by the Merger
Agreement. Applications requesting the FCC's consent to the foregoing
transfers of control were filed with the FCC on December 30, 1997.
Employee Benefits. In the Merger Agreement, the Purchaser agreed to honor,
and from and after the Effective Time, to cause Telemundo to honor after the
Effective Time, in accordance with their respective terms as in effect on the
date of the Merger Agreement, the employment, severance, bonus, and commission
agreements and similar arrangements to which Telemundo is a party which are
contemplated by the Merger Agreement.
Access to Information and Confidentiality. So long as the Merger Agreement
has not been terminated, between the date of the Merger Agreement and the
Effective Time, Telemundo has agreed to (i) give the Purchaser and its
authorized representatives reasonable access during normal business hours to
all offices, stations, studios, production facilities and other facilities and
to all books and records of it and its subsidiaries and (ii) permit the
Purchaser to make such inspections as Purchaser may reasonably require and
cause Telemundo's officers and those of its subsidiaries to furnish the
Purchaser (at such time as it would otherwise become available in the ordinary
and usual course of business and consistent with past practice) with such
financial and operating data and other information (consistent with that which
is currently being prepared by Telemundo) with respect to the business and
properties of Telemundo and its subsidiaries as the Purchaser may from time to
time reasonably request.
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Subject to any additional requirements of law (including, without
limitation, FCC Rules) and the terms of certain confidentiality agreements,
the Merger Agreement also provides that the Purchaser and Sub (i) will hold
and will cause their respective representatives, advisors and financing
sources to hold in strict confidence, unless compelled to disclose by judicial
or administrative process, or, in the written opinion of its counsel with a
copy sent to Telemundo, by other requirements of law, all documents and
information concerning Telemundo and its subsidiaries furnished to the
Purchaser, Sub or any of their respective representatives, advisors and
financing sources in connection with the transactions contemplated by the
Merger Agreement, provided, however, that, prior to any disclosure pursuant to
the foregoing, the Purchaser (except in certain limited cases) shall notify
Telemundo and afford Telemundo an opportunity to obtain a protective order
against such disclosure and (ii) will not release or disclose such information
to any other person, except in connection with the Merger Agreement to (a) its
auditors, attorneys, financial advisors and other representatives and advisors
with a need to know such information and (b) responsible financial
institutions in connection with obtaining the financing contemplated by the
Merger Agreement, provided that such person shall have first been advised of
the confidentiality provisions of the Merger Agreement and certain other
confidentiality agreements and agreed to be bound thereby. Pursuant to the
Merger Agreement, if the transactions contemplated by the Merger Agreement are
not consummated, such confidence shall continue to be maintained except in
certain limited cases.
Cooperation. Subject to the terms and conditions in the Merger Agreement,
each of the parties to the Merger Agreement agreed to use its reasonable best
efforts (i) to take, or cause to be taken, all action, and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
the Merger Agreement, including, without limitation, (a) promptly making their
respective filings, and thereafter using their reasonable best efforts
promptly to make any required submissions, under the HSR Act and (b) promptly
making any filings that are required to be made or seeking any consents,
approvals, permits or authorizations that are required to be obtained under
any other federal, state or foreign law or regulation (including those
required under the Communications Act and by the FCC) and (ii) to refrain from
taking, directly or indirectly, any action that would result in a breach of
the Merger Agreement. The Merger Agreement also provides that the Purchaser
will notify Telemundo and keep it reasonably apprised of developments relating
to its ability to satisfy certain conditions to consummation of the Merger.
Pursuant to the Merger Agreement, if, at any time after the Effective Time,
any further action is necessary or desirable to carry out the purposes of the
Merger Agreement, the proper officers and directors of each party to the
Merger Agreement shall use their respective reasonable best efforts to take
all such necessary action.
Public Announcements. The Merger Agreement provides that the Purchaser, Sub
and Telemundo will consult with each other before issuing any press release or
otherwise making any public statements with respect to the Merger and shall
not issue any such press release or make any such public statement prior to
such consultation, except as may be required by law or any securities exchange
or similar authority (in which case prior notice of at least 24 hours by
Telemundo to the Purchaser or by the Purchaser or Sub to Telemundo, as
applicable, of such issuance of a press release or making of a public
statement shall be required).
Notification of Certain Matters. Pursuant to the Merger Agreement, between
the date of the Merger Agreement and the Effective Time, Telemundo will
promptly notify the Purchaser and Sub in writing if it becomes aware of any
fact or condition that causes or constitutes a breach of its representations
and warranties as of the date of the Merger Agreement, or if it becomes aware
of the occurrence after the date of the Merger Agreement of any fact or
condition which would (except as expressly contemplated by the Merger
Agreement) cause or constitute a breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Notwithstanding the foregoing sentence,
no party to the Merger Agreement shall be required to give notice with respect
to events that are reported in the financial or general interest newspapers
that do not specifically relate to such party or the transactions contemplated
by the Merger Agreement.
Acknowledgment of the Purchaser and Sub. In the Merger Agreement, the
Purchaser and Sub acknowledged that any projections prepared by Telemundo and
provided to the Purchaser and/or Sub as part of the due diligence
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process were and are merely estimates made by Telemundo as of the time they
were provided and the Purchaser and Sub have in no way relied on any such
projections. The Purchaser and Sub agree and acknowledge that neither
Telemundo nor any of its affiliates has made or is making any representation
or warranty as to the accuracy or completeness of the confidential information
memorandum furnished by Telemundo or its representatives or any supplement
thereto provided by such person. The Purchaser and Sub further agreed and
acknowledged in the Merger Agreement that the only representations and
warranties made by Telemundo with respect to the transactions contemplated by
the Merger Agreement are those representations and warranties contained in the
Merger Agreement (together with the exceptions to such representations and
warranties set forth in the disclosure schedules to the Merger Agreement) and
only those representations and warranties have and will have any legal effect
following the date of the Merger Agreement, which effect will continue solely
to the extent specifically set forth in the Merger Agreement.
CONDITIONS TO OBLIGATIONS TO EFFECT THE MERGER
The respective obligations of Telemundo, the Purchaser and Sub to effect the
Merger are subject to the satisfaction or waiver, where legally permissible,
of the following conditions: (i) Stockholder Approval of the Merger Agreement
shall have been obtained; (ii) no statute, rule, regulation, order, decree or
injunction shall have been enacted, entered, promulgated or enforced by any
court or governmental authority of competent jurisdiction which restrains,
enjoins or otherwise prohibits the consummation of the Merger; provided,
however, that Telemundo, the Purchaser and Sub shall use their reasonable best
efforts to have any such order, decree or injunction vacated; (iii) the
applicable waiting period under the HSR Act shall have expired or been
terminated; and (iv) the FCC Order shall have been obtained without the
imposition of any conditions or restrictions that (a) seek to prohibit or
limit the ownership or operation by any of the Purchaser's stockholders or
Telemundo of any portion of its or their respective businesses or assets, or
to compel Telemundo or any stockholder of the Purchaser to dispose of or hold
separate any portion of their business or assets, (b) seek to impose material
limitations on the ability of any stockholder of the Purchaser to acquire or
hold equity interests of the Purchaser, exercise the minority protective
provisions contemplated by the Purchaser or modify in any material respect the
economic arrangement among and between the stockholders of the Purchaser, (c)
seek to prohibit any stockholder of the Purchaser from effectively controlling
in any respect any of the business or operations of such stockholder of the
Purchaser, or (d) which otherwise is reasonably likely to adversely affect the
financial condition, results of operations or business of any stockholder of
the Purchaser, the Purchaser or Telemundo, that, in the case of conditions or
restrictions of the type referred to in clauses (a), (b) or (c), are not
acceptable to the Purchaser in its sole discretion ("Acceptable FCC Order").
The obligations of the Purchaser and Sub to effect the Merger are subject to
the satisfaction or waiver, where legally permissible, prior to the Effective
Time of the following conditions: (i) the representations and warranties of
Telemundo set forth in the Merger Agreement shall be true and correct as of
the date of the Merger Agreement and (except to the extent such
representations and warranties speak as of an earlier date or as specifically
set forth below) as of immediately before the Effective Time, except as
otherwise contemplated by the Merger Agreement, and Telemundo shall have
performed all obligations required to be performed by it at or prior to the
Effective Time, except to the extent the failure of such representations and
warranties to be true and correct as of immediately before the Effective Time
or the failure to perform obligations thereunder would not, individually or in
the aggregate, have a material adverse effect on the financial condition,
results of operations or business of Telemundo and its subsidiaries, taken as
a whole; (ii) the Purchaser shall have received a certificate signed on behalf
of Telemundo by the chief executive officer and the chief financial officer of
Telemundo to the effect of clause (i) above; (iii) subject to compliance with
the provisions of the Merger Agreement, with respect to certain affiliation
agreements, Telemundo shall have exercised its option to extend any such
agreement which Telemundo or any of its subsidiaries has the option to extend
and which expires (or which requires notice to be given or other action to be
taken in order to so extend such agreement) prior to the Effective Time, or,
after consulting with the Purchaser, shall have executed an agreement in such
market with a comparable affiliate; (iv) the FCC Order shall not have been
reversed, stayed, enjoined, annulled or suspended; and (v) the Purchaser shall
have obtained funds pursuant to certain debt commitment letters (or such
alternative financing as is reasonably
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acceptable to the Purchaser) sufficient, together with certain equity
commitments (the provision of which is not a condition to the respective
obligations of the Purchaser and Sub to effect the Merger), to perform its
obligations under the Merger Agreement, to provide working capital for the
business of Telemundo and to consummate the transactions contemplated by the
Merger Agreement, including the payment of related fees and expenses.
Notwithstanding anything to the contrary contained in clause (i) of the
immediately preceding paragraph, on June 30, 1998, Telemundo shall deliver a
certificate signed on behalf of Telemundo by the chief financial officer of
Telemundo certifying that, in the good faith judgment of such officer upon
inquiry of the other officers of Telemundo (Vice President level and above),
on such date such officer believes that the representation and warranty of
Telemundo with respect to the absence of certain changes is true and correct,
as if made at that date (a "Company Complying Certificate") or, if such
representation and warranty is not true and correct, then stating with
specificity in what respect such representation is not true and correct (a
"Non-Complying Certificate"). If, on June 30, 1998, Telemundo shall have
delivered a Company Complying Certificate, then, from and after June 30, 1998,
the representation with respect to the absence of certain changes shall be
deemed to be true and correct, except as may be specifically set forth below.
If Telemundo shall have delivered a Non-Complying Certificate, then the
applicable representation and warranty with respect to the absence of certain
changes shall, to the extent of the matters so noticed, be deemed not to be
satisfied unless such matters shall have been cured. Notwithstanding the
foregoing, if (i) within 15 days of the delivery of a Company Complying
Certificate or a Company Non-Complying Certificate, as applicable, the chief
financial officer of the Purchaser delivers a certificate to Telemundo
certifying that in the good faith judgment of such officer upon reasonable
inquiry, such officer believes, as of June 30, 1998, that the representation
and warranty of Telemundo with respect to the absence of certain changes is
not true and correct, stating with specificity in what respect such
representation is not true and correct (the "Purchaser Response") and (ii)
Telemundo shall confirm in writing that such matter renders such
representation not true and correct (an "Affirmed Condition"), then the
representation and warranty of Telemundo with respect to the absence of
certain changes shall be deemed not to be satisfied, to the extent of the
Affirmed Condition, unless the Affirmed Condition shall be cured. If Telemundo
does not confirm in writing that any matter contained in the Purchaser
Response renders the representation and warranty with respect to the absence
of certain changes not true and correct (a "Non-Affirmed Condition"), each of
the parties under the Merger Agreement shall retain its right to exercise any
and all remedies and/or defenses available to it with respect to such Non-
Affirmed Condition. If cured prior to December 31, 1998, no matter set forth
in a Company Non-Complying Certificate or a Purchaser Response shall
thereafter render the representation and warranty of Telemundo with respect to
the absence of certain changes to be not true and correct, and upon cure, each
such matter shall be deemed waived. In no event shall any matter arising after
June 30, 1998 or not set forth in a Company Non-Complying Certificate or
Purchaser Response be deemed to render the representation and warranty of
Telemundo with respect to the absence of certain changes not true and correct.
No Additional Amount shall accrue or be payable with respect to any period
beginning on the date on which all of the conditions set forth in the
preceding two paragraphs have been finally satisfied and ending on the date on
which all matters that are specified in any Non-Complying Certificate or are
Affirmed Conditions are cured.
The obligation of Telemundo to effect the Merger is subject to the
satisfaction or waiver, where legally permissible, prior to the Effective Time
of the following conditions: (i) the representations and warranties of the
Purchaser and Sub set forth in the Merger Agreement shall be true and correct
as of the date of the Merger Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of immediately
before the Effective Time, except as otherwise contemplated by the Merger
Agreement, and the Purchaser and Sub shall have performed all obligations
required to be performed by them at or prior to the Effective Time, except to
the extent the failure of such representations and warranties to be true and
correct as of immediately before the Effective Time or the failure to perform
obligations thereunder would not, individually or in the aggregate, have a
Material Adverse Effect (as defined in the Merger Agreement); and (ii)
Telemundo shall have received a certificate signed on behalf of the Purchaser
and Sub by their respective chief executive officers and chief financial
officers to the effect of clause (i) above.
80
<PAGE>
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated and the Merger contemplated thereby
may be abandoned at any time prior to the Effective Time, whether before or
after Stockholder Approval:
(i) if the boards of directors of Telemundo and the Purchaser both
consent in writing; or
(ii) subject to the payment of a termination fee, by Telemundo or the
Purchaser if the Effective Time shall not have occurred on or before
December 31, 1998; provided, however, that the right of Telemundo or the
Purchaser to terminate the Merger Agreement pursuant to the foregoing
provision shall not be available in the event that Telemundo's or the
Purchaser's, as the case may be, failure to fulfill any obligation under
the Merger Agreement has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date; or
(iii) by the Purchaser or Telemundo if any court of competent
jurisdiction in the United States or other United States governmental body
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable;
or
(iv) by Telemundo or the Purchaser, if, at the Special Meeting (including
any adjournment or postponement thereof), the Stockholder Approval shall
not have been obtained; or
(v) by Telemundo, subject to certain other provisions of the Merger
Agreement, if the Board of Directors of Telemundo shall concurrently
approve, and Telemundo shall concurrently enter into, a definitive
agreement providing for the implementation of a Superior Offer (as defined
below), provided, however, that (a) Telemundo is not then in breach of its
non-solicitation covenant, (b) the Board of Directors of Telemundo shall
have complied with the other terms of the Merger Agreement in connection
with such Superior Offer, and (c) Telemundo shall simultaneously make the
termination fee payments required by the Merger Agreement. "Superior Offer"
means an Alternative Proposal which is superior from a financial point of
view to Telemundo's Public Stockholders to the Merger and the other
transactions contemplated thereby and for which financing, to the extent
required, is then committed or which, in the good faith judgment of
Telemundo's Board after consultation with Telemundo's financial advisors,
is reasonably capable of being obtained.
The Merger Agreement provides that if Telemundo intends to terminate the
Merger Agreement pursuant to paragraph (v) above, Telemundo shall provide to
the Purchaser written notice of its intention to terminate the Merger
Agreement pursuant to such provision, advising the Purchaser (a) that the
Board has determined, by action of a majority of the members of the Board who
are not affiliated with either the Purchaser or the person making such
Alternative Proposal or their respective affiliates, that such Alternative
Proposal is a Superior Offer and that, in the exercise of its good faith
judgment as to fiduciary duties to stockholders under applicable law, after
consultation with Telemundo's outside legal counsel, failure by the Board to
terminate the Merger Agreement could reasonably be expected to result in a
breach of such duties and (b) as to the material terms of any such Alternative
Proposal. At any time after the fifth business day following receipt of such
notice, Telemundo may terminate the Merger Agreement as provided in paragraph
(v) above only if the Board determines, by action of a majority of the members
of the Board who are not affiliated with either the Purchaser or the person
making such Alternative Proposal or their respective affiliates, that failure
by the Board to terminate the Merger Agreement continues to be reasonably
expected to result in a breach of its fiduciary duties to stockholders under
applicable law (which determination shall be made in light of any revised
proposal made by the Purchaser prior to the expiration of such five business
day period) and concurrently enters into a definitive agreement providing for
the implementation of such Alternative Proposal.
In the event of termination of the Merger Agreement by Telemundo or the
Purchaser as provided in the Merger Agreement, the Merger Agreement shall
forthwith become void, except as otherwise provided in the Merger Agreement,
provided that no party thereto shall be relieved from liability for any breach
of the Merger Agreement.
81
<PAGE>
If the Merger Agreement is terminated under the circumstances described in
paragraphs (iv) or (v) above, and if Telemundo is not at that time entitled to
terminate the Merger Agreement because of the circumstances described in
paragraphs (ii) or (iii) above, then Telemundo shall promptly (and in any
event within two days of receipt by Telemundo of written notice from the
Purchaser) pay to the Purchaser (by wire transfer of immediately available
funds to an account designated by the Purchaser) concurrently with the
execution of a definitive agreement with respect to any Alternative Proposal,
a termination fee of $15,000,000 plus an amount equal to documented fees and
expenses incurred by or on behalf of the Purchaser and its affiliates and
investors in connection with the Merger Agreement and the transactions
contemplated thereby up to an aggregate maximum amount of $2,500,000;
provided, however, that Telemundo shall not be obligated to pay such fee to
the Purchaser if the Merger Agreement is terminated under the circumstances
described in paragraph (iv) above unless (a)(1) at the time of the Special
Meeting, Telemundo has received an Alternative Proposal or (2) prior to the
termination of the Merger Agreement the Board shall have withdrawn, or
modified in a manner adverse to the Purchaser, its approval or recommendation
of the Merger and the other transactions contemplated thereby, and (b) within
one year after the termination of the Merger Agreement, Telemundo enters into
a definitive agreement or otherwise consummates with any person such or any
other Alternative Proposal, and, provided, further, that if such termination
fee becomes payable as a result of a termination under the circumstances
described in paragraph (iv) above, then such termination fee shall be paid
promptly following the earlier of the execution of such definitive agreement
providing for an Alternative Proposal and the consummation of an Alternative
Proposal, as the case may be.
If (i) the Merger Agreement is terminated under the circumstances described
in paragraph (ii) above, and (ii) the Purchaser is not at that time entitled
to terminate the Merger Agreement because of the circumstances described in
paragraphs (iii) or (iv) above, and (iii) the Purchaser has not received an
Acceptable FCC Order, and (iv) certain conditions to consummation of the
Merger have been, or if the FCC Order had been obtained, would have been,
otherwise satisfied, then the Purchaser shall promptly (and in any event
within two days of receipt by the Purchaser of written notice from Telemundo)
pay to Telemundo (by wire transfer of immediately available funds to an
account designated by Telemundo) a termination fee of $17,500,000; provided,
however, that the Purchaser shall not be obligated to pay such fee to
Telemundo if the sole reason that the Purchaser and Sub have failed to obtain
the Acceptable FCC Order is due to changes, after the date of the Merger
Agreement, in the Communications Act or the rules and regulations of the FCC,
in effect as of the date of the Merger Agreement (except those which have been
proposed in formal rulemaking proceedings and have been subject to public
comment prior to the date of the Merger Agreement).
AMENDMENT AND WAIVER
The Merger Agreement provides that, to the extent permitted by applicable
law, the Merger Agreement may be amended by action taken by Telemundo, the
Purchaser and Sub (and the Stockholders, if required by applicable law) at any
time before or after adoption of the Merger Agreement by the Stockholders;
provided, however, that after the adoption of the Merger Agreement by the
Stockholders, no amendment shall be made which decreases the price per share,
changes the form of consideration to be received by the holders of Common
Stock in the Merger or which adversely affects the rights of stockholders of
Telemundo thereunder without the approval of the Stockholders. The Merger
Agreement further provides that it may not be amended, except by an instrument
in writing signed on behalf of all the parties. Under the terms of the Merger
Agreement, at any time prior to the Effective Time, the parties thereto may
(a) extend the time for the performance of any of the obligations or other
acts of the other parties thereto, (b) waive any inaccuracies in the
representations and warranties contained in the Merger Agreement or in any
document, certificate or writing delivered pursuant thereto or (c) waive
compliance with any of the agreements or conditions contained in the Merger
Agreement unless such waiver is unlawful or specifically prohibited. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
82
<PAGE>
EXPENSES
It is estimated that, if the Merger is consummated, expenses incurred in
connection therewith will be approximately as follows:
<TABLE>
<CAPTION>
TELEMUNDO PURCHASER
---------- -----------
<S> <C> <C>
Financial advisory fees and expenses........ $4,370,000 $ --
SEC filing fees............................. 110,000 --
Legal fees and expenses..................... 1,950,000 5,000,000
Accounting fees and expenses................ 450,000 1,000,000
Printing costs.............................. 250,000 --
Proxy solicitation, distribution and
exchange agent fees and expenses........... 30,000 30,000
Miscellaneous............................... 2,240,000 6,570,000
---------- -----------
Total..................................... $9,400,000(a) $12,600,000(a)
========== ===========
</TABLE>
- --------
(a) The above chart does not include an aggregate $38 million of fees and
expenses estimated to be incurred in connection with the Credit
Facilities, the issuance of the Debentures and the contemplated
refinancing of Telemundo's existing debt. See "Special Factors--Financing
for the Merger."
All costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby will be paid by the party incurring such
expenses.
83
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
Set forth below is selected historical financial data of Telemundo as of and
for each of the five years in the period ended December 31, 1997. The data
should be read in conjunction with the historical consolidated financial
statements of Telemundo, and the notes thereto. Telemundo's consolidated
financial statements for the year ended December 31, 1997, which have been
audited by Deloitte & Touche LLP, independent auditors, are incorporated by
reference in this Proxy Statement from Telemundo's Annual Report on Form 10-K
for the year ended December 31, 1997. See "Where You Can Find More
Information."
SELECTED HISTORICAL FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
PREDECESSOR(A)
------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............ $197,588 $202,713 $169,148 $183,894 $ 177,809
Operating income....... 16,114 29,292 14,379 13,176 16,597
Reorganization items... -- -- -- 76,255 (2,543)
Interest expense--net
of interest income.... (20,849) (18,920) (14,489) (645) (24,411)
Loss from investment
in and disposal of
TeleNoticias.......... -- (5,561) (6,355) (1,314) --
Income (loss) before
extraordinary item.... (13,444) (1,179) (10,088) 84,049 (14,059)
Extraordinary item--
extinguishment of
debt.................. -- (17,243) -- 130,482 --
Net income (loss)(a)... (13,444) (18,422) (10,088) 214,531 (14,059)
Per share data:
Basic net loss per
share:
Loss before
extraordinary item.. $ (1.32) $ (.12) $ (1.01)
Extraordinary item... -- (1.71) --
-------- -------- --------
Net loss........... $ (1.32) $ (1.83) $ (1.01) (a) (a)
======== ======== ======== ======== =========
Dividends declared on
common shares......... -- -- -- -- --
======== ======== ======== ======== =========
<CAPTION>
DECEMBER 31,
------------------------------------------------------
PREDECESSOR(A)
--------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $ 44,576 $ 44,769 $ 35,541 $ 32,325 $ 65,691
Broadcast licenses and
reorganization value
in excess of amounts
allocable to
identifiable assets,
net................... 128,366 132,831 90,200 92,792 --
Total assets........... 290,086 295,560 224,459 232,024 169,657
Long-term debt
(liabilities subject
to settlement prior
to 1994).............. 189,081 179,695 108,032 100,724 326,784
Common stockholders'
equity (deficiency)... 29,909 42,893 60,251 70,000 (214,816)
</TABLE>
- --------
(a) Prior to 1995, net income (loss) was significantly impacted in certain
years by nonrecurring income and expense items related to Telemundo's
financial restructuring. Telemundo was recapitalized and adopted fresh
start reporting as of December 31, 1994. Consequently, for the years prior
to 1995, Telemundo is referred to as the Predecessor and net income (loss)
per share is not applicable.
84
<PAGE>
PRICE RANGE OF COMMON STOCK AND WARRANTS
Telemundo's Series A Common Stock and Creditors' Warrants are quoted on the
National Market Tier and the Small Cap Market Tier, respectively, of Nasdaq
under the symbols "TLMD" and "TLMDW," respectively. The following table sets
forth, for the fiscal quarters indicated, the range of high and low sale
prices of the Series A Common Stock and Creditors' Warrants as reported by
Nasdaq.
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
--------------- ----------------
HIGH LOW HIGH LOW
------- ------- -------- -------
SALES PRICE SALES PRICE
--------------- ----------------
<S> <C> <C> <C> <C>
Year Ending December 31, 1998
2nd Quarter (as of May 12, 1998).............. $42 3/4 $41 3/8 $35 1/8 $34 1/8
1st Quarter................................... 42 1/4 40 7/8 35 34
Year Ended December 31, 1997
4th Quarter................................... $42 3/8 $31 3/8 $36 $24 1/2
3rd Quarter................................... 36 1/2 23 5/8 28 3/8 18
2nd Quarter................................... 28 7/8 18 1/2 20 1/2 13
1st Quarter................................... 32 5/8 27 3/8 25 1/4 20
Year Ended December 31, 1996
4th Quarter................................... $34 1/2 $26 3/8 $27 1/2 $20 1/8
3rd Quarter................................... 35 3/8 20 1/2 28 1/16 15 1/4
2nd Quarter................................... 25 5/8 17 20 1/2 10 1/4
1st Quarter................................... 21 13 3/4 13 5/8 6 3/4
</TABLE>
The high and low sales prices on Nasdaq for the Series A Common Stock were
$25 1/2 per share and $24 3/4 per share, respectively, on July 16, 1997 and
the high and low sales prices for the Creditors' Warrants were both $19 per
warrant, respectively on July 9, 1997, the last respective dates on which
trades were made for such securities prior to the date on which Telemundo
publicly announced that it was pursuing discussions with strategic programming
partners for purposes of expanding its programming options and enhancing
stockholder value. The closing prices of the Series A Common Stock and
Creditors' Warrants on November 21, 1997, the last trading day prior to the
public announcement that Telemundo executed the Merger Agreement, were $39 3/8
and $32, respectively. The closing prices of the Series A Common Stock and
Creditors' Warrants on the Record Date were $42 3/4 and $34 7/8, respectively.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SERIES A
COMMON STOCK AND CREDITORS' WARRANTS.
Telemundo has never declared or paid any dividends with respect to the
Common Stock. Telemundo's credit facility, Senior Notes due 2001 and Senior
Notes due 2006 contain certain restrictions with respect to the payment of
dividends to Stockholders. Any determination to pay dividends in the future
will be at the discretion of Telemundo's board of directors and will be
dependent upon Telemundo's results of operations, financial condition, capital
expenditures, working capital requirements, any contractual restrictions and
other factors deemed relevant by Telemundo's board of directors. Telemundo
does not anticipate that any cash dividends will be paid on the Common Stock
in the foreseeable future if, for any reason, the Merger is not consummated.
85
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At the Record Date, there were approximately 85 holders of record of the
Common Stock, which is the only class of capital stock of Telemundo
outstanding and 300 holders of record of Warrants. At the Record Date, there
were 7,180,827 shares of Series A Common Stock, 3,086,498 shares of Series B
Common Stock and 939,094 Warrants outstanding.
The following table sets forth, to the knowledge of Telemundo, based upon
information provided by the Stockholders set forth below or publicly available
filings, information regarding the ownership of the Common Stock at the Record
Date, by (a) all persons known to Telemundo to be the beneficial owners of
more than 5% of Telemundo's Series A Common Stock or Series B Common Stock
outstanding, (b) each director and Named Executive Officer of Telemundo, and
(c) all directors and executive officers of Telemundo as a group. Except as
noted below, to Telemundo's knowledge, each such owner has sole voting and
investment power for the shares indicated as beneficially owned by them.
<TABLE>
<CAPTION>
SERIES A COMMON STOCK SERIES B COMMON STOCK TOTAL COMMON STOCK
-------------------------------- ---------------------------- --------------------------------------
AMOUNT & AMOUNT & AMOUNT &
NATURE OF PERCENTAGE NATURE OF NATURE OF PERCENTAGE
BENEFICIAL OF BENEFICIAL PERCENTAGE BENEFICIAL OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS(1) OWNERSHIP OF CLASS OWNERSHIP TOTAL(1)
- ------------------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
5% OR GREATER
STOCKHOLDERS
Bastion Capital Fund,
L.P.(2)................ 1,017,930(3)(4) 14.2% 3,083,154(5) 99.9% 4,101,084(3)(6) 39.9%
Suite 2960
1999 Avenue of the
Stars
Los Angeles, CA 90067
TLMD Partners, II,
L.L.C.(2).............. 1,059,704(4)(7) 14.7% 3,083,154(5) 99.9% 4,142,858(6)(7) 40.2%
c/o Apollo Management,
L.P.
1301 Avenue of the
Americas
38th Floor
New York, NY 10019
Canyon Capital
Management LP.......... 432,375 6.0% -- -- 432,375 4.2%
Suite 200
9665 Wilshire Boulevard
Beverly Hills, CA 90212
Morgan Stanley, Dean
Witter,
Discover & Co. ........ 400,900 5.6% -- -- 400,900 3.9%
1585 Broadway
New York, NY 10036
Westchester Capital
Management............. 815,300 11.4% -- -- 815,300 7.9%
100 Summit Lake Drive
Valhalla, NY 10595
Hernandez Partners(2)... 1,017,930(4)(8) 14.2% 3,083,154(5) 99.9% 4,101,084(6)(8) 39.9%
900 S. Garfield Avenue
Alhambra, CA 91801
Reliance Group Holdings,
Inc.................... 416,705(9) 5.5% -- -- 416,705(9) 3.9%
55 East 52nd Street
New York, NY 10055
DIRECTORS AND NOMINEES
FOR DIRECTOR
Leon D. Black(2)........ 1,018,763(4)(10) 14.2% 3,083,154(5) 99.9% 4,101,917(6)(10) 39.9%
Guillermo Bron.......... 1,018,763(4)(10)(11) 14.2% 3,083,154(5)(11) 99.9% 4,101,917(2)(6)(10)(11) 39.9%
Alan Kolod.............. 1,333(10) * -- -- 1,333(10) *
Barry W. Ridings........ 833(10) * -- -- 833(10) *
Bruce H. Spector........ 833(10) * -- -- 833(10) *
Daniel D. Villanueva.... 1,018,763(4)(10)(12) 14.2% 3,083,154(5)(12) 99.9% 4,101,917(2)(6)(10)(12) 39.9%
Edward M. Yorke......... 833(10) * -- -- 833(10) *
David E. Yurkerwich..... 1,833(10)(13) * -- -- 1,833(10)(13) *
NAMED EXECUTIVE OFFICERS
Roland A. Hernandez(14). 1,434,337(8)(15)(16) 18.9% 3,083,154(5)(16) 99.9% 4,517,491(2)(6)(8)(15)(16) 42.3%
Stephen J. Levin........ 40,625(15) * -- -- 40,625(15) *
Donald J. Tringali...... 57,750(15) * -- -- 57,750(15) *
Jose C. Cancela......... -- (15) -- -- -- -- (15) --
Peter J. Housman II..... 16,667(15) * -- -- 16,667(15) *
ALL DIRECTORS AND
EXECUTIVE OFFICERS
AS A GROUP............. 1,565,874 20.3% 3,083,154 99.9% 4,649,028 43.0%
</TABLE>
- -------
* Less than 1%
86
<PAGE>
(1) Chart includes only those options and Warrants currently exercisable as
of the Record Date. All percentages assume that the options or Warrants
of the particular person or group in question, and of no other person or
group, have been exercised to the extent such options or Warrants are
exercisable as of the Record Date or within 60 days thereafter.
(2) The Major Stockholders have entered into a Shareholders Agreement dated
as of December 20, 1994 pursuant to which each of them has agreed, among
other things, to use its reasonable best efforts to cause Mr. Black (or
his nominee), two nominees of TLMD II, a nominee of Bastion and a nominee
of Hernandez Partners to be elected to the Board of Directors of
Telemundo. Pursuant to the Shareholders Agreement, the Major Stockholders
have agreed that all of the shares owned by each of them will be voted by
a voting committee comprised of three members. Each Major Stockholder
disclaims beneficial ownership of any shares of Common Stock which it
does not directly own. See "Special Factors--Current Relationships and
Transactions."
(3) The sole general partner of Bastion is Bastion Partners. The only general
partners of Bastion Partners are BC and VII. The sole holder of voting
stock and the sole director and officer of BC is Mr. Bron. The sole
holder of voting stock of VII is the Daniel Villanueva Living Trust, a
trust created under the laws of California, the co-trustees of which are
Daniel D. Villanueva and Myrna E. Villanueva. Mr. Villanueva is the sole
director and principal officer of VII. Messrs. Bron and Villanueva are
the managing directors of Bastion Capital Corp., which manages the
affairs of Bastion pursuant to a management agreement. Messrs. Bron and
Villanueva have shared voting power as to 1,847,685 shares of Common
Stock.
(4) Includes 964,997 shares of Series A Common Stock owned by Bastion,
constituting 13.4% of the Series A Common Stock outstanding, 2 shares of
Series A Common Stock owned by TLMD II, constituting less than 1% of the
Series A Common Stock outstanding, 49,998 shares of Series A Common Stock
owned by Hernandez Partners, constituting less than 1% of the Series A
Common Stock outstanding, and 2,933 shares of Series A Common Stock owned
by Mr. Black, constituting less than 1% of the Series A Common Stock
outstanding. Each of Bastion, TLMD II, Hernandez Partners and Mr. Black
disclaims beneficial ownership of any shares of Series A Common Stock
which such Stockholder does not directly own. See "Special Factors--
Current Relationships and Transactions."
(5) Includes 882,688 shares of Series B Common Stock owned by Bastion,
constituting 28.6% of the Series B Common Stock outstanding, 1,550,465
shares of Series B Common Stock owned by TLMD II, constituting 50.2% of
the Series B Common Stock, 450,001 shares of Series B Common Stock owned
by Hernandez Partners, constituting 14.6% of the Series B Common Stock
outstanding, and 200,000 shares of Series B Common Stock owned by Mr.
Black, constituting 6.5% of the Series B Common Stock outstanding. Each
of Bastion, TLMD II, Hernandez Partners and Mr. Black disclaims
beneficial ownership of any shares of Series B Common Stock which such
Stockholder does not directly own. See "Special Factors--Current
Relationships and Transactions."
(6) Includes 1,847,685 shares of Common Stock owned by Bastion, constituting
18.0% of the Common Stock outstanding, 1,550,467 shares of Common Stock
owned by TLMD II, constituting 15.1% of the Common Stock outstanding,
499,999 shares of Common Stock owned by Hernandez Partners, constituting
4.9% of the Common Stock outstanding and 202,933 shares of Common Stock
owned by Mr. Black, constituting 2.0% of the Common Stock outstanding.
Each of Bastion, TLMD II, Hernandez Partners and Mr. Black disclaims
beneficial ownership of any shares of Common Stock which such Stockholder
does not directly own. See "Special Factors--Current Relationships and
Transactions."
(7) Includes Creditors' Warrants expiring December 30, 1999 representing the
immediate right to purchase 41,774 shares of Series A Common Stock.
Creditors' Warrants to purchase 29,242 shares of Series A Common Stock
are beneficially owned by Lion Advisors for the benefit of an investment
account under management over which Lion Advisors has exclusive voting,
dispositive and investment power. The remaining Creditors' Warrants to
purchase 12,532 shares of Series A Common Stock are owned by AIF II. AIF
II is the manager of TLMD II and has sole dispositive power with respect
to the securities held by TLMD II. TLMD II, Mr. Black, Mr. Spector and
Mr. Yorke disclaim beneficial ownership of all securities not held
directly by any of them. See "Special Factors--Current Relationships and
Transactions."
87
<PAGE>
(8) The general partners of Hernandez Partners are Roland A. Hernandez and,
his brother, Enrique Hernandez, Jr. Each of the general partners of
Hernandez Partners has voting and dispositive power with respect to the
shares held by Hernandez Partners, except as described in footnote (2).
Amounts for Mr. Hernandez include options representing the immediate
right to purchase 416,407 shares of Series A Common Stock.
(9) Includes Creditors' Warrants to purchase 32 shares of Series A Common
Stock owned by Reliance and Creditors' Warrants to purchase six shares of
Series A Common Stock owned by Reliance Group Holdings, Inc., both at an
exercise price of $7.00 per share, which Creditors' Warrants are
immediately exercisable until December 30, 1999. Also includes Reliance
Warrants beneficially owned by Reliance to purchase 416,667 shares of
Series A Common Stock at an exercise price of $7.19 per share, which
Reliance Warrants are immediately exercisable and one-third of which
expire on each of December 30, 2000, 2001 and 2002.
(10) Includes an option to purchase 833 shares of Series A Common Stock at
$24.75 per share which is currently exercisable.
(11) Although Mr. Bron is not a party to the Shareholders Agreement described
in footnote (2), Mr. Bron may be deemed to beneficially own those shares
of Series A Common Stock and/or Series B Common Stock, as applicable,
beneficially owned by Bastion, which is a party to the Shareholders
Agreement. Mr. Bron disclaims beneficial ownership of any shares of
Series A Common Stock and/or Series B Common Stock, as applicable, which
Mr. Bron or Bastion does not directly own. See "Special Factors--Current
Relationships and Transactions."
(12) Although Mr. Villanueva is not a party to the Shareholders Agreement
described in footnote (2), Mr. Villanueva may be deemed to beneficially
own those shares of Series A Common Stock and/or Series B Common Stock,
as applicable, beneficially owned by Bastion, which is a party to the
Shareholders Agreement. Mr. Villanueva disclaims beneficial ownership of
any shares of Series A Common Stock and/or Series B Common Stock, as
applicable, which Mr. Villanueva or Bastion does not directly own. See
"Special Factors--Current Relationships and Transactions."
(13) Mr. Yurkerwich has shared voting power with his wife Victoria Yurkerwich
as to 1,000 shares of Series A Common Stock.
(14) Mr. Hernandez is also a director of Telemundo.
(15) Messrs. Hernandez, Levin, Tringali, Cancela and Housman are named in the
"Summary Compensation Table" under the section captioned "Executive
Compensation." Messrs. Hernandez, Levin, Tringali, Cancela and Housman
are presently executive officers of Telemundo. Shares held include
options representing the immediate right to purchase the following shares
of Series A Common Stock: Messrs. Hernandez--416,407, Levin--40,625,
Tringali--56,250, Cancela--0 and Housman--16,667.
(16) Although Mr. Hernandez is not a party to the Shareholders Agreement
described in footnote (2), Mr. Hernandez may be deemed to beneficially
own those shares of Series A Common Stock and/or Series B Common Stock,
as applicable, beneficially owned by Hernandez Partners, which is a party
to the Shareholders Agreement. Mr. Hernandez disclaims beneficial
ownership of any shares of Series A Common Stock and/or Series B Common
Stock, as applicable, which Mr. Hernandez or Hernandez Partners does not
directly own. See "Special Factors--Current Relationships and
Transactions."
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DIRECTORS AND EXECUTIVE OFFICERS OF TELEMUNDO
The name, business address and principal occupation or employment during the
last five years of the directors and executive officers of Telemundo are set
forth below. Unless otherwise indicated, the business address of each person
is and has been for the past five years, that of Telemundo at 2290 West 8th
Avenue, Hialeah, Florida 33010. Each person listed below is a citizen of the
United States.
PRINCIPAL OCCUPATIONS OR
NAME AND BUSINESS ADDRESS POSITIONS DURING THE PAST FIVE YEARS
- ------------------------- ------------------------------------
Leon D. Black....................... Mr. Black became Chairman of the Board of
Apollo Management, L.P. Directors of Telemundo as of December 30,
1301 Avenue of the Americas, 1994. Mr. Black is one of the founding
38th Floor principals and a limited partner of
New York, NY 10019 Apollo Management which, together with an
affiliate, acts as managing general
partner of Apollo Investment Fund, L.P.,
AIF II and Apollo Investment, private
securities investment funds. AIF II is
the manager of TLMD Partners. Mr. Black
also is a founding principal of Lion
Advisors which acts as financial advisor
to and representative for certain
institutional investors with respect to
securities investments. Mr. Black is also
a director of Converse, Inc., Culligan
Water Technologies, Inc., Samsonite
Corporation, and Vail Resorts, Inc.
Guillermo Bron...................... Mr. Bron became a director of Telemundo
Bastion Capital Fund, L.P. as of December 30, 1994. From July 1994
1999 Avenue of the Stars, to present, Mr. Bron has been an officer,
Suite 2960 director and principal stockholder of the
Los Angeles, CA 90067 corporate general partner of Bastion
Partners, which is the general partner of
Bastion, an investment fund and a
principal stockholder of Telemundo. Mr.
Bron is a director of United PanAm
Financial Corp.
Roland A. Hernandez................. Mr. Hernandez has been a director of
Telemundo since 1989, and has been
President and Chief Executive Officer of
Telemundo since March 1995. Since 1987,
Mr. Hernandez has been an executive
officer of the corporate general partner
of Interspan Communications, a California
limited partnership that owns Spanish-
language television station KFWD, Channel
52, a Telemundo affiliate serving the
Dallas/Fort Worth market. Mr. Hernandez
is a director of Beneficial Corporation
and has been nominated to be a director
of Wal-Mart Stores, Inc.
Bruce H. Spector.................... Mr. Spector became a director of
Apollo Management, L.P. Telemundo as of December 30, 1994. Since
1999 Avenue of the Stars, October 1992, Mr. Spector has been a
Suite 1900 consultant to Apollo Management. In March
Los Angeles, CA 90067 1995, Mr. Spector became a principal of
Apollo Management. For 25 years prior to
1992, Mr. Spector was a member of the Los
Angeles law firm of Stutman Triester &
Glatt. Mr. Spector is also a director of
Metropolis Realty Trust, Inc.,
Nexthealth, Inc., United International
Holdings, Inc. and Vail Resorts, Inc.
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<PAGE>
PRINCIPAL OCCUPATIONS OR
NAME AND BUSINESS ADDRESS POSITIONS DURING THE PAST FIVE YEARS
- ------------------------- ------------------------------------
Edward M. Yorke..................... Mr. Yorke became a director of Telemundo
Apollo Management, L.P. as of June 1995. Since 1992, Mr. Yorke
1301 Avenue of the Americas has been a principal of Apollo Management
New York, NY 10019 and Lion Advisors and since March 1995 of
Advisors II. Mr. Yorke is also a director
of Aris Industries, Inc. and Salant
Corporation.
Alan Kolod.......................... Mr. Kolod became a director of Telemundo
Moses & Singer as of December 30, 1994. Mr. Kolod has
1301 Avenue of the Americas, been a member of the New York law firm
40th Floor Moses & Singer LLP since December 1989.
New York, NY 10019
Barry W. Ridings.................... Mr. Ridings became a director of
BT Alex. Brown Incorporated Telemundo as of March 1995. Mr. Ridings
1290 Avenue of the Americas, has been a Managing Director of the
10th Floor investment banking firm of BT Alex. Brown
New York, NY 10104 Incorporated since March 1990. Mr.
Ridings is a director of the American
Stock Exchange, Noodle Kidoodle, Inc.,
New Valley Corporation, Norex Industries,
Inc., SubMicron Systems Corporation,
Search Capital Group, Inc. and TransCor
Waste Services Inc.
Daniel D. Villanueva................ Mr. Villanueva became a director of
Bastion Capital Fund, L.P. Telemundo as of April 1996. From July
1999 Avenue of the Stars 1994 to the present, Mr. Villanueva has
Suite 2960 been an officer, director and principal
Los Angeles, CA 90067 stockholder of the corporate general
partner of Bastion Partners, which is the
general partner of Bastion, an investment
fund and a principal stockholder of
Telemundo. Since 1990, Mr. Villanueva
also has been Chairman of Bastion Capital
Corp., a financial advisory firm. Mr.
Villanueva has over 25 years of
experience as an executive in Spanish-
language television, having served in
various capacities at the Univision Group
or its predecessor from 1964 to 1990. Mr.
Villanueva is a director of Renaissance
Cosmetics, Inc. and is a trustee of
Metropolitan West Group of mutual funds.
David E. Yurkerwich................. Mr. Yurkerwich became a director of
Peterson Consulting LLC Telemundo as of March 1995. Mr.
450 Lexington Avenue Yurkerwich is a founder and Vice Chairman
Suite 1920 of Peterson Consulting LLC, a litigation,
New York, NY 10017 dispute and economic consulting firm of
which Mr. Yurkerwich has been a member
since 1980.
Stephen J. Levin.................... Mr. Levin has been an Executive Vice
President of Telemundo since April 1995.
From November 1993 to March 1995, Mr.
Levin was Sales Manager for National
Cable Advertising Inc., a broadcast time
sales company. From February 1993 to
October 1993, Mr. Levin was a marketing
consultant to various radio and
television broadcasting companies.
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<PAGE>
PRINCIPAL OCCUPATIONS OR
NAME AND BUSINESS ADDRESS POSITIONS DURING THE PAST FIVE YEARS
- ------------------------- ------------------------------------
Donald J. Tringali.................. Mr. Tringali has been an Executive Vice
President of Telemundo since June 1996.
From May 1995 to May 1996 Mr. Tringali
served as a consultant to Telemundo. From
March 1993 to April 1994 Mr. Tringali was
a consultant to various entities involved
in media and entertainment businesses.
Jose C. Cancela..................... Mr. Cancela has been an Executive Vice
President of Telemundo since April 1995.
From June 1992 to April 1995, Mr. Cancela
served as President, Station Group of
Telemundo.
Peter J. Housman II................. Mr. Housman has been the Chief Financial
Officer and Treasurer of Telemundo since
February 1987.
Stuart Livingston................... Mr. Livingston has been Senior Vice
President, Operations and Business
Affairs of Telemundo since November 1996.
From April 1995 to November 1996, Mr.
Livingston was Senior Vice President,
Operations and Administration of
Telemundo. From January 1994 to March
1995, Mr. Livingston was Vice President
of Affiliate Relations for Univision.
From September 1989 to December 1993,
Mr. Livingston was Vice President of
Broadcast Operations of Univisa, Inc., a
U.S. subsidiary of Grupo Televisa, S.A.,
a Mexican media company.
Osvaldo F. Torres................... Mr. Torres has been Vice President,
General Counsel and Secretary of
Telemundo since May 1997. From May 1996
to May 1997, Mr. Torres served as
Associate General Counsel and Secretary
of Telemundo. From February 1995 to May
1996, Mr. Torres served as an associate
in the law firm of Gunster, Yoakley,
Valdes-Fauli & Stewart, P.A., in West
Palm Beach, Florida. From February 1989
to February 1995, Mr. Torres served as an
associate in the law firm of Schulte Roth
& Zabel in New York City.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER AND SUB
Messrs. Edward M. Yorke, Alan Sokol and David Koff comprise the current
Board of Directors of each of the Purchaser and Sub. Mr. Yorke is President,
Treasurer and Secretary of each of the Purchaser and Sub. Mr. Koff will resign
as a director of the Purchaser and Sub before the Effective Time.
The name, business address, and principal occupation or employment during
the last five years of the directors and executive officers of the Purchaser
and Sub are set forth below. Each person listed below is a citizen of the
United States.
PRINCIPAL OCCUPATIONS OR
NAME AND BUSINESS ADDRESS POSITIONS DURING THE PAST FIVE YEARS
- ------------------------- ------------------------------------
Edward M. Yorke..................... Since 1992, Mr. Yorke has been a
1301 Avenue of the Americas principal of Apollo Management and Lion
New York, NY 10019 Advisors, and since March 1995 a
principal of Advisors II. Mr. Yorke is a
director of Telemundo, Aris Industries,
Inc. and Salant Corporation.
Alan Sokol.......................... Mr. Sokol has been Senior Vice President
10202 West Washington Boulevard -- Corporate Development of SPE since
Culver City, CA 90232 June 1996. From April 1995 to June 1996,
Mr. Sokol was Senior Vice President of
Savoy Pictures, Inc. From March 1991 to
April 1995, Mr. Sokol was a partner in
the law firm, Jeffer, Mangels, Butler &
Marmaro in Los Angeles, California.
David B. Koff....................... Mr. Koff has been Senior Vice President
8101 East Prentice Avenue of Liberty since February 1998. From
Suite 500 August 1994 to February 1998, Mr. Koff
Englewood, CO 80111 was Vice President--Corporate Development
of Liberty. From 1993 to August 1994, Mr.
Koff was a special counsel to Liberty.
Mr. Koff has been a director of TCI Music
Inc. since May 1997 and served as interim
President and Chief Executive Officer of
TCI Music Inc. from May 1997 to January
1998.
92
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PROPOSAL TO APPROVE MANAGEMENT INCENTIVE COMPENSATION PLAN
MANAGEMENT INCENTIVE COMPENSATION PLAN
Telemundo's Board has adopted the Incentive Plan under which Telemundo's
President and Chief Executive Officer and three other selected key employees,
including executive officers, may be granted future incentive compensation in
the form of annual bonuses based upon the attainment of certain performance
objectives related to cash flow. The Incentive Plan is intended to tie the
goals and interests of eligible officers to those of Telemundo and its
stockholders and to enable Telemundo to attract and retain highly qualified
employees. The current executive officers eligible to receive bonus payments
under the Incentive Plan are Messrs. Hernandez, Tringali, Levin and Housman.
The Incentive Plan will be administered by a committee of the Board, which
may be the Compensation Committee, consisting solely of two or more members of
Telemundo's Board who qualify as "outside directors" under Code Section 162(m)
(the "Bonus Committee"). The Bonus Committee appointed to administer the
Incentive Plan will have the sole discretion and authority to administer and
interpret the Incentive Plan.
An eligible employee may receive a bonus payment in the future based upon
the attainment of performance objectives and targets to be established by the
Bonus Committee and related to the business criteria of Telemundo's cash flow
(which may be measured by EBITDA); provided that EBITDA targets shall not be
higher than Telemundo's budget for EBITDA for the applicable fiscal year. The
actual amount of future bonus payments to be paid under the Incentive Plan is
not presently determinable because the performance objectives and targets have
not yet been established by the Bonus Committee. However, the Incentive Plan
provides that the maximum bonus for any single eligible employee shall not
exceed 100% of the base salary for such employee with respect to any fiscal
year of Telemundo.
The Incentive Plan is designed to ensure that the annual bonus paid
thereunder to eligible officers of Telemundo is deductible by Telemundo
without limit under Code Section 162(m). Section 162(m) places a limit of $1
million on the amount of compensation that may be deducted by a company in any
tax year with respect to the chief executive officer and each of such
company's four most highly paid executives, other than the chief executive
officer ("Covered Employees"). However, certain performance-based compensation
is not subject to the deduction limit. The Incentive Plan is designed to
provide this type of performance-based compensation to Covered Employees who
have been designated as "Section 162(m) Employees" (as defined in the
Incentive Plan) by the Bonus Committee pursuant to the Incentive Plan.
Bonuses paid to Section 162(m) Employees will be based upon bonus formulas
that tie bonuses to Telemundo's EBITDA. Bonus formulas for Section 162(m)
Employees will be adopted in each performance period by the Bonus Committee no
later than the latest time permitted by Code Section 162(m); provided that
EBITDA targets shall not be higher than Telemundo's budget for EBITDA for the
applicable fiscal year. No bonuses will be paid to Section 162(m) Employees
unless and until the Bonus Committee makes a certification in writing with
respect to the attainment of the objective performance standards as required
by Code Section 162(m). The Bonus Committee has no discretion to increase the
amount of a Section 162(m) Employee's bonus. The Bonus Committee has the
discretion to apply or not apply the foregoing provisions to bonuses paid to
eligible officers who have not been designated as Section 162(m) Employees.
Employees who receive bonuses under the Incentive Plan will be taxed on such
bonuses when paid, and Telemundo will obtain a tax deduction for such bonuses.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends that Stockholders vote FOR
approval and adoption of the Incentive Plan. The proposal must be approved by
the affirmative vote of at least a majority of the outstanding shares of
Common Stock as of the Record Date. Approval of the Incentive Plan is not
conditioned upon approval of the Merger.
93
<PAGE>
EXPERTS
The audited consolidated financial statements and the related financial
statement schedule incorporated in this Proxy Statement by reference from the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, as
amended by Form 10-K/A filed on May 8, 1998, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report which is
incorporated herein by reference, and have been so included in reliance upon
the reports of such firm given upon their authority as experts in accounting
and auditing. It is expected that a representative of Deloitte & Touche will
be present at the Special Meeting to respond to appropriate questions of
Stockholders and to make a statement if such representative desires.
OTHER MATTERS
As of the date of the Proxy Statement, the Board of Directors is not aware
of any matters to be presented at the Special Meeting other than those
described in this Proxy Statement. If other matters should properly come
before the Special Meeting or any adjournments or postponements thereof and be
voted upon, the enclosed proxies will be deemed to confer discretionary
authority on the individuals named as proxies therein to vote the shares
represented by such proxies as to any such matters. The persons named as
proxies intend to vote or not to vote in accordance with the recommendations
of the management of Telemundo.
94
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WHERE YOU CAN FIND MORE INFORMATION
Telemundo and the Purchaser filed a Rule 13e-3 Transaction Statement
(including any amendments thereto, the "Schedule 13E-3") under the Exchange
Act concurrently with the filing of this Proxy Statement. This Proxy Statement
does not contain all of the information set forth in the Schedule 13E-3 and
the exhibits thereto.
Telemundo files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any such reports,
statements or other information, including the Schedule 13E-3, Telemundo files
at the SEC's public reference rooms in Washington, D.C., New York, New York
and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Telemundo's SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at "http://www.sec.gov." All documents related
to any of the pending litigation described herein are also available to the
public upon request to the court before which such litigation is pending.
The SEC allows us to "incorporate by reference" information into this Proxy
Statement, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this Proxy
Statement, except for any information superseded by information in this Proxy
Statement. This Proxy Statement incorporates by reference the documents set
forth below that we have previously filed with the SEC. These documents
contain important information about our company and its finances.
<TABLE>
<CAPTION>
TELEMUNDO SEC FILINGS (FILE NO. 0-16099) PERIOD
- ---------------------------------------- ------
<S> <C>
Annual Report on Form 10-K, as Year ended December 31, 1997
amended by Form 10-K/A
filed on May 8, 1998
</TABLE>
In addition, each document filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference in this Proxy Statement and to be a part hereof from
the date such document is filed with the Commission.
Telemundo has supplied all information contained or incorporated by
reference in this Proxy Statement relating to Telemundo and the Purchaser or
its affiliates has supplied all information contained in this Proxy Statement
relating to the Purchaser or its affiliates.
If you are a Stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the
SEC. Documents incorporated by reference are available from us without charge,
excluding all exhibits, unless we have specifically incorporated by reference
an exhibit in this Proxy Statement. Stockholders may obtain documents
incorporated by reference in this Proxy Statement by requesting them in
writing or by telephone at the following address:
Telemundo Group, Inc.
2290 West 8th Avenue
Hialeah, Florida 33010
Telephone: (305) 884-8200
Attn: Vincent L. Sadusky
If you would like to request documents from us, please do so by June 2, 1998
in order to ensure timely receipt before the Special Meeting.
You should rely only on the information contained or incorporated by
reference in this Proxy Statement to vote on the Merger. We have not
authorized anyone to provide you with information that is different from what
is contained in this Proxy Statement. This Proxy Statement is dated May 13,
1998. You should not assume that the information contained in this Proxy
Statement is accurate as of any date other than May 13, 1998, and the mailing
of this Proxy Statement to Stockholders shall not create any implication to
the contrary.
95
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TLMD STATION GROUP, INC.
TLMD ACQUISITION CO.
AND
TELEMUNDO GROUP, INC.
DATED AS OF NOVEMBER 24, 1997
A-1
<PAGE>
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. DEFINITIONS..................................................... 4
Section 1.1. Definitions................................................ 4
ARTICLE II. THE MERGER..................................................... 8
Section 2.1. The Merger................................................. 8
Section 2.2. Effective Time............................................. 8
Section 2.3. Effects of the Merger...................................... 8
Section 2.4. Certificate of Incorporation and By-Laws................... 8
Section 2.5. Directors.................................................. 8
Section 2.6. Officers................................................... 8
Section 2.7. Conversion of Shares....................................... 8
Section 2.8. Conversion of Sub Common Stock............................. 9
Section 2.9. Dissenting Shares.......................................... 9
Section 2.10. Payment for Shares......................................... 10
Section 2.11. No Further Rights or Transfers............................. 11
Section 2.12. Stock Options.............................................. 11
Section 2.13. Warrants................................................... 11
Section 2.14. Adjustments................................................ 11
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. 12
Section 3.1. Organization............................................... 12
Section 3.2. Capitalization............................................. 12
Section 3.3. Authority Relative to This Agreement....................... 13
Section 3.4. No Violation............................................... 13
Section 3.5. SEC Reports; No Undisclosed Liabilities.................... 14
Section 3.6. Proxy Statement; Other Information......................... 14
Section 3.7. Compliance................................................. 15
Section 3.8. Absence of Certain Changes................................. 15
Section 3.9. Certain Fees............................................... 16
Section 3.10. FCC Qualifications......................................... 16
Section 3.11. Section 203................................................ 16
Section 3.12. Litigation................................................. 16
Section 3.13. Intellectual Property...................................... 16
Section 3.14. Labor Matters.............................................. 17
Section 3.15. Employee Benefit Plans: ERISA.............................. 17
Section 3.16. Taxes...................................................... 18
Section 3.17. Affiliation Agreements..................................... 18
Section 3.18. Environmental Matters...................................... 18
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB............... 19
Section 4.1. Organization............................................... 19
Section 4.2. Authority Relative to This Agreement....................... 19
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
Section 4.3. No Violation............................................... 19
Section 4.4. Proxy Statement............................................ 20
Section 4.5. Financing.................................................. 20
Section 4.6. No Prior Activities........................................ 21
Section 4.7. Surviving Corporation after the Merger...................... 21
Section 4.8. Certain Fees................................................ 21
Section 4.9. FCC Qualifications.......................................... 21
ARTICLE V. COVENANTS....................................................... 21
Section 5.1. Conduct of Business of the Company.......................... 21
Section 5.2. Access to Information....................................... 23
Section 5.3. No Solicitation............................................. 24
Section 5.4. Stockholders' Meeting....................................... 25
Section 5.5. Cooperation................................................. 26
Section 5.6. Public Announcements........................................ 26
Section 5.7. Indemnification and Insurance............................... 26
Section 5.8. FCC Covenants............................................... 28
Section 5.9. Notification of Certain Matters............................. 28
Section 5.10.Employee Benefits........................................... 28
Section 5.11.Acknowledgment of Parent and Sub............................ 29
Section 5.12.Renewal..................................................... 29
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE MERGER....................... 29
Section 6.1. Conditions to Each Party's Obligation To Effect the Merger.. 29
Section 6.2. Conditions to the Obligation of Parent and Sub to Effect the
Merger.................................................................. 30
Section 6.3. Conditions to the Obligation of the Company to Effect the
Merger.................................................................. 31
ARTICLE VII. TERMINATION; AMENDMENT; WAIVER................................ 31
Section 7.1. Termination................................................. 31
Section 7.2. Certain Actions Prior to Termination........................ 32
Section 7.3. Effect of Termination....................................... 32
Section 7.4. Termination Fees............................................ 32
Section 7.5. Amendment................................................... 33
Section 7.6. Extension; Waiver........................................... 33
ARTICLE VIII. MISCELLANEOUS................................................ 33
Section 8.1. Non-Survival of Representations, Warranties and Agreements.. 33
Section 8.2. Entire Agreement; Assignment................................ 34
Section 8.3. Validity.................................................... 34
Section 8.4. Notices..................................................... 34
Section 8.5. Governing Law............................................... 36
Section 8.6. Interpretation.............................................. 36
Section 8.7. Parties in Interest......................................... 36
Section 8.8. Counterparts................................................ 36
Section 8.9. Expenses.................................................... 36
Section 8.10.Obligation of Parent........................................ 36
Section 8.11.Sale of the Company......................................... 37
Section 8.12.Actions by the Company...................................... 37
SIGNATURES................................................................. S-1
</TABLE>
A-3
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement"), is dated as of November
24, 1997, by and among TLMD Station Group, Inc., a Delaware corporation
("Parent"), TLMD Acquisition Co., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Sub"), and Telemundo Group, Inc., a Delaware
corporation (the "Company").
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. As used herein, the terms below shall have the
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending on the reference.
"Acceptable FCC Order" shall have the meaning set forth in Section 6.1.
"Additional Amount" shall have the meaning set forth in Section 2.7.
"Affiliation Agreements" shall have the meaning set forth in Section 3.17.
"Affirmed Condition" shall have the meaning set forth in Section 6.2(a).
"Agreement" shall have the meaning set forth in the Preamble.
"Alternative Proposal" shall have the meaning set forth in Section 5.3(a).
"Benefit Plan" shall have the meaning set forth in Section 3.15(a).
"By-Laws" shall mean the Amended and Restated By-Laws of the Company in
effect as of the date hereof.
"Certificate of Incorporation" shall mean the Restated Certificate of
Incorporation of the Company in effect as of the date hereof.
"Certificate of Merger" shall have the meaning set forth in Section 2.2.
"Certificates" shall have the meaning set forth in Section 2.10(b).
"Claim" shall have the meaning set forth in Section 5.7(c).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Communications Act" shall mean the Communications Act of 1934, as amended,
and the rules, regulations and policies of the FCC thereunder.
"Company" shall have the meaning set forth in the Preamble.
"Company Complying Certificate" shall have the meaning set forth in Section
6.2(a).
"Company Disclosure Schedule" shall mean the schedule prepared and delivered
by the Company to and for Parent and Sub and dated as of the date hereof,
which sets forth the exceptions to the representations and warranties of the
Company contained herein and certain other information called for by this
Agreement.
"Company Material Adverse Effect" shall mean a material adverse effect on
the financial condition, results of operations or business of the Company and
its Subsidiaries, taken as a whole.
A-4
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"Confidentiality Agreement" shall mean, collectively, the confidentiality
agreements between the Financial Advisor, acting on behalf of the Company, and
Liberty Media Corporation, dated as of July 23, 1997, between the Financial
Advisor, acting on behalf of the Company, and Sony Pictures Entertainment
Inc., dated as of April 30, 1997 and as amended as of July 25, 1997, and
between the Financial Advisor, acting on behalf of the Company, and Apollo
Management, L.P., dated as of November 12, 1997.
"Debt Commitment Letters" shall have the meaning set forth in Section 4.5.
"DGCL" shall mean the General Corporation Law of the State of Delaware.
"Dissenting Shares" shall have the meaning set forth in Section 2.9(a).
"Effective Time" shall have the meaning set forth in Section 2.2.
"Environmental Laws" shall have the meaning set forth in Section 3.18.
"Equity Commitments" shall have the meaning set forth in Section 4.5.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" shall have the meaning set forth in Section 3.15(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Agent" shall have the meaning set forth in Section 2.10(a).
"FCC" shall mean the Federal Communications Commission or any successor
agency thereto.
"FCC Order" shall mean an order or decision of the FCC which grants all
consents or approvals required under the Communications Act for the transfer
of control of all FCC licenses held by the Company to Parent and/or Sub and
the consummation of the Merger and the other Transactions, whether or not any
appeal or request for reconsideration or review of such order is pending, or
whether the time for filing any such appeal or request for reconsideration or
review, or for any sua sponte action by the FCC with similar effect, has
expired. For purposes of this definition, the "FCC" shall mean the FCC or its
staff.
"FCC Permits" shall have the meaning set forth in Section 3.7(a).
"Filed SEC Reports" shall have the meaning set forth in Section 3.7(a).
"Financial Advisor" shall mean Lazard Freres & Co. LLC.
"Fund" shall have the meaning set forth in Section 2.10(a).
"Governmental Entity" shall mean any federal, state or local government or
regulatory agency, authority, commission or instrumentality.
"Hazardous Substance" shall have the meaning set forth in Section 3.18.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnified Parties" shall have the meaning set forth in Section 5.7(c).
"Intellectual Property" shall mean: (i) registered and unregistered
trademarks, service marks, slogans, trade names, domain names, logos and trade
dress; (ii) registered and unregistered copyrights, including, but not limited
to, copyrights in software programs, databases, and the content contained on
any Internet site(s); (iii)
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software programs and databases; (iv) rights in names, likenesses, images and
other attributes of individuals; and (v) agreements pursuant to which the
Company has obtained the right to use any of the foregoing (together with
other agreements to which the Company or any Subsidiary is a party relating to
the development, acquisition or use of Intellectual Property, "License
Agreements").
"knowledge" shall mean the knowledge, after reasonable inquiry, of the
officers of the Company, Parent or Sub, as applicable, with the title of Vice
President or higher and, with respect to the Company, the general managers of
each of the Stations.
"Letter of Transmittal" shall have the meaning set forth in Section 2.10(b).
"Merger" shall have the meaning set forth in Section 2.1.
"Merger Consideration" shall have the meaning set forth in Section 2.7.
"NMS" shall mean the Nasdaq National Market.
"Non-Affirmed Condition" shall have the meaning set forth in Section 6.2(a).
"Non-Complying Certificate" shall have the meaning set forth in Section
6.2(a).
"Option" shall have the meaning set forth in Section 2.12.
"Parent" shall have the meaning set forth in the Preamble.
"Parent Disclosure Documents" shall have the meaning set forth in Section
5.4(b).
"Parent Response" shall have the meaning set forth in Section 6.2(a).
"Parent Stockholder" shall mean each of the persons who, at the date hereof,
are, and as of the Effective Time will be, stockholders of Parent.
"Pending Proposal" shall have the meaning set forth in Section 7.4.
"Preferred Stock" shall have the meaning set forth in Section 3.2(a).
"Proxy Statement" shall have the meaning set forth in Section 3.6.
"Representatives" shall have the meaning set forth in Section 5.3(a).
"SBI" shall mean Salomon Brothers Inc.
"SEC" shall mean the Securities and Exchange Commission or any successor
thereto.
"SEC Reports" shall have the meaning set forth in Section 3.5.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series A Common Stock" shall mean the Series A common stock, $.01 par
value, of the Company.
"Series B Common Stock" shall mean the Series B common stock, $.01 par
value, of the Company.
"Share" shall mean a share of Stock.
"Significant Subsidiaries" shall mean any Subsidiary which (i) is a
"significant subsidiary," as defined in Rule 1-02 of Regulation S-X under the
Exchange Act; (ii) holds any FCC Permits; (iii) owns, directly or indirectly,
any interest in any Subsidiary included in clause (i) or (ii); or (iv) is
otherwise material to the Company and its Subsidiaries, taken as a whole.
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"Special Meeting" shall have the meaning set forth in Section 5.4(a)(i).
"Stations" shall mean the full-power and low-power television stations owned
and operated by the Company.
"Stock" shall mean, collectively, the Series A Common Stock, par value $.01,
of the Company together with the Series B Common Stock, par value $.01, of the
Company.
"Stock Option Plans" shall have the meaning set forth in Section 2.12.
"Sub" shall have the meaning set forth in the Preamble.
"Subsidiary" shall mean, with respect to any person, (A) (i) a corporation
in which such person, a subsidiary of such person, or such person and one or
more subsidiaries of such person, directly or indirectly, at the date of
determination, has either (a) a 50% or greater ownership interest or (b) the
power, under ordinary circumstances, to elect or to direct the election of 50%
or more of the board of directors of such corporation, (ii) a partnership in
which such person, a subsidiary of such person or such person and one or more
subsidiaries of such person (a) is, at the date of determination, general
partner or (b) has a 50% or greater ownership interest in such partnership or
the right to elect, or direct the election of, 50% or more of the governing
body of such partnership and (iii) any other person (other than corporation or
a partnership) in which such person, directly or indirectly, at the date of
determination, has either (a) a 50% or greater ownership interest or (b) the
power to elect, or direct the election of 50% or more of the directors or
other governing body of such other person and (B) any other person which is
consolidated with such person in accordance with generally accepted accounting
principles. For purposes of this Agreement, the term "parent," when not
capitalized, means, with respect to any person, any other person of which such
person is, directly or indirectly, a Subsidiary.
"Superior Offer" shall have the meaning set forth in Section 7.1(e).
"Surviving Corporation" shall have the meaning set forth in Section 2.1.
"Third Parties" shall have the meaning set forth in Section 5.3(a).
"Transactions" shall have the meaning set forth in Section 5.3(a).
"Trigger Date" shall mean the date which is seven months after the date on
which Parent and Sub shall have initially filed with the FCC the FCC Form 315
for approval of the changes of control of the FCC Permits; provided, however,
that if it has not earlier occurred, such date shall be deemed to be August 1,
1998.
"Warrants" shall mean, collectively, (i) those certain warrants dated
December 30, 1994 issued to the Company's bondholders and general unsecured
creditors as of such date entitling the holder of each such warrant to
purchase one share of Series A Common Stock at a price equal to $7.00 per
share (of which 624,094 of such warrants were outstanding as of November 12,
1997 (ii) that certain warrant dated as of December 30, 1994 issued to
Reliance Insurance Company and its subsidiaries entitling the holder of each
such warrant to purchase one share of Series A Common Stock at a price equal
to $7.19 per share (of which 416,667 of such warrants were outstanding as of
November 12, 1997).
"1994 Plan" shall have the meaning set forth in Section 2.12.
"1996 Plan" shall have the meaning set forth in Section 2.12.
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ARTICLE II.
THE MERGER
Section 2.1. The Merger. At the Effective Time (as hereinafter defined),
upon the terms and subject to the conditions hereof, and in accordance with
the DGCL, Sub shall be merged with and into the Company (the "Merger") as soon
as practicable following the satisfaction of the conditions set forth in
Article VI hereof. Following the Merger, the Company shall continue as the
surviving corporation (the "Surviving Corporation") and the separate corporate
existence of Sub shall cease.
Section 2.2. Effective Time. The Merger shall be consummated by and shall be
effective at the time of acceptance for filing by the Delaware Secretary of
State of a certificate of merger (the "Certificate of Merger") in such form as
is required by, and executed in accordance with, the relevant provisions of
the DGCL, and such other documents as shall be required by the provisions of
the DGCL (the time of such filing being the "Effective Time").
Section 2.3. Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. As of the Effective Time, the Company shall be a wholly-
owned subsidiary of Parent.
Section 2.4. Certificate of Incorporation and By-Laws. Subject to Section
5.7 hereof, the Certificate of Incorporation and By-Laws of the Company as in
effect at the Effective Time shall be the Certificate of Incorporation and By-
Laws of the Surviving Corporation and thereafter may be amended in accordance
with their respective terms, the DGCL and Section 5.7 hereof.
Section 2.5. Directors. The directors of Sub at the Effective Time shall be
the directors of the Surviving Corporation and will hold office from the
Effective Time until the next annual stockholders' meeting of the Surviving
Corporation and until their successors shall be elected or appointed and shall
be duly qualified.
Section 2.6. Officers. The officers of the Company at the Effective Time
shall be the initial officers of the Surviving Corporation and will hold
office from the Effective Time until their respective successors are duly
elected or appointed and qualified in the manner provided in the certificate
of incorporation and by-laws of the Surviving Corporation, or as otherwise
provided by law.
Section 2.7. Conversion of Shares. Each Share issued and outstanding
immediately prior to the Effective Time (other than Shares held by Parent, Sub
or any other wholly-owned subsidiary of Parent, or in the treasury of the
Company or by any wholly-owned subsidiary of the Company, all of which shall
be canceled and no payment will be made with respect thereto, and Dissenting
Shares, as hereinafter defined) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right to
receive from Parent the Merger Consideration (as defined below), subject to
applicable withholding or back-up withholding taxes, if any, payable by the
holder thereof, without interest thereon, upon surrender of the certificate
formerly representing such Share. As used in this Agreement, the term "Merger
Consideration" shall mean the sum, in cash, of $44.00 plus the Additional
Amount (as defined below). As used in this Agreement, the term "Additional
Amount" shall mean, subject to Section 6.1(a), an amount equal to the product
of: (a) $44.00; multiplied by (b) 8%, multiplied by (c) a fraction, the
numerator of which shall be the number of days in the period from and
including the Trigger Date to but excluding the date on which the Effective
Time of the Merger occurs, and the denominator of which shall be 365.
Section 2.8. Conversion of Sub Common Stock. Each share of common stock, par
value $.01 per share, of Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and represent the right to
receive one share of common stock of the Surviving Corporation, which
thereafter will constitute all of the issued and outstanding common stock of
the Surviving Corporation.
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Section 2.9. Dissenting Shares.
(a) General. Notwithstanding anything in this Agreement to the contrary,
Shares which are issued and outstanding immediately prior to the Effective
Time and which are held by stockholders who have not voted such Shares in
favor of the Merger, who shall have delivered a written demand for appraisal
of such Shares in the manner provided in the DGCL and who, as of the Effective
Time, shall not have effectively withdrawn or lost such right to appraisal
("Dissenting Shares") shall not be converted into or represent a right to
receive the Merger Consideration pursuant to Section 2.7 hereof, but the
holders thereof shall be entitled only to such rights as are granted by
Section 262 of the DGCL. Each holder of Dissenting Shares who becomes entitled
to payment for such Shares pursuant to Section 262 of the DGCL shall receive
payment therefor from the Surviving Corporation in accordance with the DGCL;
provided, however, that (i) if any such holder of Dissenting Shares shall have
failed to establish his entitlement to appraisal rights as provided in Section
262 of the DGCL, (ii) if any such holder of Dissenting Shares shall have
effectively withdrawn his demand for appraisal of such Shares or lost his
right to appraisal and payment for his Shares under Section 262 of the DGCL or
(iii) if neither any holder of Dissenting Shares nor the Surviving Corporation
shall have filed a petition demanding a determination of the value of all
Dissenting Shares within the time provided in Section 262 of the DGCL, such
holder or holders (as the case may be) shall forfeit the right to appraisal of
such Shares and each such Share shall thereupon be deemed to have been
converted, as of the Effective Time, into and represent the right to receive
payment from the Surviving Corporation of the Merger Consideration, without
interest thereon, as provided in Section 2.7 hereof.
(b) Notice of Appraisal Demands. The Company shall give Parent and Sub (i)
prompt notice of any written demands for appraisal, withdrawals of demands for
appraisal and any other instruments served pursuant to Section 262 of the DGCL
received by the Company and (ii) the opportunity to direct all negotiations
and proceedings with respect to demands for appraisal under Section 262 of the
DGCL. The Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to any demands for appraisal or
offer to settle or settle any such demands.
Section 2.10. Payment for Shares.
(a) Exchange Mechanics. Prior to the Effective Time, Parent shall designate
a bank or trust company reasonably satisfactory to the Company to act as
Exchange Agent in the Merger (the "Exchange Agent"). At or prior to the
Effective Time, Parent will, or will take all steps necessary to enable and
cause the Surviving Corporation to, provide the Exchange Agent funds (the
"Fund") necessary to make the payments contemplated by Section 2.7. Out of the
Fund, the Exchange Agent shall, pursuant to irrevocable instructions, make the
payments referred to in Section 2.7. The Fund shall not be used for any other
purpose. The Exchange Agent may invest portions of the Fund, as directed by
Parent (so long as such directions do not impair the Exchange Agent's ability
to make the payments referred to in Section 2.7 hereof or otherwise impair the
rights of holders of Shares), provided that no such investments may be made
other than in direct obligations of the United States of America, obligations
for which the full faith and credit of the United States of America is pledged
to provide for the payment of principal and interest, commercial paper rated
of the highest quality by Moody's Investors Services, Inc. or Standard &
Poor's Corporation, or certificates of deposit issued by a commercial bank
having capital exceeding $500,000,000. Any net earnings resulting from, or
interest or income produced by, such investments shall be paid to the
Surviving Corporation as and when requested by Parent. The Surviving
Corporation shall replace any monies lost through any investment made pursuant
to this Section 2.10. Deposit of funds pursuant hereto shall not relieve
Parent or the Surviving Corporation of their obligations to make payments in
respect of Shares and Parent hereby guarantees the Surviving Corporation's
obligations in respect thereof.
(b) Letter of Transmittal. Promptly after the Effective Time, the Surviving
Corporation shall cause the Exchange Agent to mail to each record holder, as
of the Effective Time, of an outstanding certificate or certificates which
immediately prior to the Effective Time represented Shares (the
"Certificates") a form letter of transmittal (the "Letter of Transmittal") for
return to the Exchange Agent (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
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Certificates to the Exchange Agent) and instructions for use in effecting the
surrender of the Certificates, for payment therefor. Upon surrender to the
Exchange Agent of a Certificate, together with the 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 the number of
Shares represented by such Certificate multiplied by the Merger Consideration
subject to any required withholding taxes, 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 shall 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 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 2.10, each
Certificate (other than Certificates representing Shares held by Parent, Sub
or any other wholly-owned subsidiary of Parent, the Company or any wholly-
owned subsidiary of the Company which shall have been canceled, or 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) Return of Unclaimed Funds. Any cash provided to the Exchange Agent
pursuant to this Section 2.10 and not exchanged for Certificates within six
months after the Effective Time will be returned by the Exchange Agent to the
Surviving Corporation, which thereafter will act as Exchange Agent.
Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto
shall be liable to a holder of Shares for any Merger Consideration delivered
to a public official pursuant to applicable abandoned property, escheat and
similar laws.
Section 2.11. No Further Rights or Transfers. At and after the Effective
Time, each holder of a Certificate that represented issued and outstanding
Shares immediately prior to the Effective Time shall cease to have any rights
as a stockholder of the Company, except for the right to surrender his or her
Certificate or Certificates in exchange for the payment provided pursuant to
Sections 2.7 and 2.10 hereof or to perfect his or her right to receive payment
for his or her Shares pursuant to Section 262 of the DGCL and Section 2.9
hereof if such holder has validly exercised and perfected and not withdrawn
his or her right to receive payment for his or her Shares, and there shall be
no transfers on the stock transfer books of the Surviving Corporation of the
Shares which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates formerly representing Shares are
presented to the Surviving Corporation, they shall be canceled and exchanged
for cash as provided in this Article II, subject to applicable law in the case
of Dissenting Shares.
Section 2.12. Stock Options. Immediately prior to the Effective Time, each
holder of a then-outstanding Company stock option issued pursuant to either
(a) the Company's 1994 Stock Plan, as amended (the "1994 Plan"), or (b) the
Company's 1996 Non-Employee Director Stock Option Plan (the "1996 Plan" and,
collectively, with the 1994 Plan, the "Stock Option Plans"), whether or not
then presently exercisable, to purchase Shares (an "Option") will be entitled
to receive, and shall receive, in settlement of such Option a cash payment
from the Company equal to the product of (i) the total number of Shares then
subject to each such Option with an exercise price per Share less than the
Merger Consideration multiplied by (ii) the excess of the Merger Consideration
over the exercise price per Share subject to such Option, subject to any
required withholding of taxes. If necessary or appropriate under the Stock
Option Plans, the Company will, upon the request of Parent, use its reasonable
best efforts to obtain the written acknowledgment of each person holding an
Option that the payment of the amount of cash referred to above will satisfy
in full the Company's obligation to such person pursuant to such Option. By
virtue of the foregoing treatment of the Options, at the Effective Time all
Options shall be canceled and shall cease to exist. Prior to the Effective
Time, the Company shall make any amendments to the terms of the Stock Option
Plans that are necessary to give effect to the transactions contemplated by
this Section 2.12.
Section 2.13. Warrants. Immediately prior to the Effective Time, each holder
of a then-outstanding Warrant will be entitled to receive, and shall receive,
in settlement of such Warrant a cash payment from the Company equal to the
product of (i) the total number of Shares then subject to each such Warrant
with an
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exercise price per Share less than the Merger Consideration multiplied by (ii)
the excess of the Merger Consideration over the exercise price per Share
subject to such Warrant, subject to any required withholding of taxes. If
necessary or appropriate under the terms of such Warrant, the Company will,
upon the request of Parent, use its reasonable best efforts to obtain the
written acknowledgment of each person holding a Warrant that the payment of
the amount of cash referred to above will satisfy in full the Company's
obligation to such person pursuant to such Warrant. By virtue of the foregoing
treatment of the Warrants, at the Effective Time all Warrants shall be
canceled and shall cease to exist. Prior to the Effective Time, the Company
shall make any amendments to the terms of the Warrants that are necessary and
give effect to the transactions contemplated by this Section 2.13.
Section 2.14. Adjustments. If, between the date of this Agreement and the
Effective Time, the outstanding Shares shall be changed into a different
number of shares or a different class by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment,
or a stock dividend thereon shall be declared with a record date prior to the
Effective Time, the amount of consideration to be received pursuant to this
Article II in exchange for each outstanding Share, Option, or Warrant shall be
correspondingly adjusted.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents, warrants and, with respect to the covenants
contained in Section 3.6 only, covenants to Parent and Sub as follows:
Section 3.1. Organization. Except as set forth in Section 3.1 of the Company
Disclosure Schedule, the Company and each of its Significant Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of its state or jurisdiction of incorporation and is in good standing as
a foreign corporation in each jurisdiction where the properties owned, leased
or operated, or the business conducted, by it require such qualification and
where failure to be in good standing or to so qualify would, individually or
in the aggregate, have a Company Material Adverse Effect. The Company has made
available to Parent true and correct copies of the certificate of
incorporation and By-Laws or equivalent organizational documents, each as
amended to the date hereof, of the Company and each Significant Subsidiary.
Such certificates of incorporation, by-laws and equivalent organizational
documents are in full force and effect. The Company is not in violation of its
Certificate of Incorporation or By-Laws. No Significant Subsidiary is in
violation of its certificate of incorporation, by-laws or equivalent
organizational documents, except for violations that would not, individually
or in the aggregate, have a Company Material Adverse Effect.
Section 3.2. Capitalization.
(a) Company Capitalization. The authorized capital stock of the Company
consists of 14,388,394 shares of Series A Common Stock, 5,611,606 shares of
Series B Common Stock and 1,000,000 shares of preferred stock ("Preferred
Stock"). As of September 30, 1997, there were (i) 6,966,895 shares of Series A
Common Stock issued and outstanding and (ii) 3,198,761 shares of Series B
Common Stock issued and outstanding and (iii) no shares of Preferred Stock
issued and outstanding. Since September 30, 1997, no Shares have been issued
(except for (x) the issuance of Shares pursuant to the exercise of Options
outstanding under the Stock Option Plans at such date, the issuance of Shares
pursuant to the exercise of the Warrants outstanding on such date, and (y) the
issuance pursuant to the terms of the Certificate of Incorporation of Shares
of Series A Common Stock upon the sale of Shares of Series B Common Stock
issued and outstanding on such date), and no shares of Preferred Stock have
been issued. Except as set forth in Section 3.2(a) of the Company Disclosure
Schedule and except for 2,080,761 shares of Series A Common Stock issuable (i)
upon exercise of Options outstanding as of September 30, 1997 or issued in
compliance with Section 5.1 issued pursuant to the Stock Option Plans and (ii)
upon exercise of the Warrants, there are not now, and at the Effective Time
there will not be, any existing options, warrants, calls, subscriptions,
convertible or exchangeable securities, or other rights, or other agreements
or
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commitments, obligating the Company or any of its Subsidiaries to issue,
transfer or sell or cause to be issued, transferred or sold any shares of
capital stock of the Company or any of its Subsidiaries. All issued and
outstanding Shares are validly issued, fully paid, nonassessable and free of
preemptive rights. None of the outstanding shares of capital stock of the
Company is held by the Company or any of its Subsidiaries.
(b) Subsidiary Capitalization. Except as set forth in Section 3.2(b) of the
Company Disclosure Schedule, all of the outstanding shares of capital stock of
each of the Significant Subsidiaries have been validly issued and are fully
paid and non-assessable and are owned directly or indirectly by the Company
free and clear of all liens, charges, claims or encumbrances or as imposed by
applicable securities laws. Except as set forth in Section 3.2(b) of the
Company Disclosure Schedule, there are no outstanding options, warrants,
calls, subscriptions, or other rights, or other agreements or commitments,
obligating any Significant Subsidiary of the Company to issue, transfer or
sell any shares of its capital stock. There are no proxies outstanding with
respect to any shares of capital stock of the Company's Subsidiaries.
(c) Except as set forth in Section 3.2(c) of the Company Disclosure Schedule
and interests in the Subsidiaries, neither the Company nor any Significant
Subsidiary owns directly or indirectly any interest or investment (whether
equity or debt) in any corporation, partnership, joint venture, business,
trust or entity (other than non-controlling investments in the ordinary course
of business and corporate partnering, development, cooperative marketing and
similar undertakings and arrangements entered into in the ordinary course of
business).
Section 3.3. Authority Relative to This Agreement.
(a) Company Approvals. The Company has full corporate power and authority to
execute and deliver this Agreement and, subject to obtaining the necessary
approval of this Agreement by the affirmative vote of a majority of the
outstanding shares of Class A Common Stock and Class B Common Stock, voting
together as a single class (the "Stockholder Approval"), to consummate the
Transactions. The execution and delivery of this Agreement by the Company and
the consummation of the Transactions have been duly authorized by the Board of
Directors of the Company, and no other corporate proceedings on the part of
the Company are necessary for the execution and delivery of this Agreement by
the Company and, subject to the filing of the Certificate of Merger pursuant
to Section 2.2 and obtaining the Stockholder Approval, the performance by the
Company of its obligations hereunder and the consummation by the Company of
the Transactions. This Agreement has been duly executed and delivered by the
Company and, assuming this Agreement constitutes a valid and binding
obligation of each of Parent and Sub, this Agreement constitutes a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except to the extent that its enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of creditors rights generally or by general
equitable principles.
(b) Other Authorizations. Except as set forth in Section 3.3(b) of the
Company Disclosure Schedule, other than in connection with, or in compliance
with, applicable requirements of (i) the DGCL with respect to the filing of
the Certificate of Merger, (ii) the Exchange Act (including, without
limitation, the filing of the Proxy Statement), (iii) the requirements of the
NMS, (iv) the HSR Act and (v) the Communications Act (including, without
limitation, requirements related to the transfer of control licenses in
connection with the operation of the Stations), no authorization, consent or
approval of, or filing with, any court or any public body or authority is
necessary for the execution and delivery of this Agreement and the
consummation by the Company of the Transactions other than authorizations,
consents and approvals the failure to obtain, or filings the failure to make,
which would not, in the aggregate, have a Company Material Adverse Effect.
Section 3.4. No Violation. None of the execution or delivery of this
Agreement by the Company, the performance by the Company of its obligations
hereunder or the consummation by the Company of the Transactions will (a)
subject to obtaining the Stockholder Approval, constitute a breach or
violation of any provision of the Certificate of Incorporation or By-Laws of
the Company, (b) except as set forth in Section 3.4 of the Company Disclosure
Schedule, constitute a breach, violation or default (or any event which, with
notice
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or lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the payment or performance required by, or
result in the creation of any lien or encumbrance upon any of the properties
or assets of the Company or any of its Subsidiaries or permit any person to
require the Company or any Subsidiary to repurchase or repay any obligation
under, any note, bond, mortgage, indenture, deed of trust, license, agreement
or other instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which they or any of their respective properties
or assets are bound, (c) constitute a violation of any order, writ,
injunction, decree, statute, rule or regulation of any court or governmental
authority applicable to the Company, any of its Subsidiaries or any of their
properties or assets, or (d) except as set forth in Section 3.4 of the Company
Disclosure Schedule, give any person the right to require the Company or any
Subsidiary to purchase any assets from, or sell any assets to, such person or
trigger any "change of control" provisions in any agreement to which the
Company or any of its Subsidiaries is a party, other than, in the case of
clauses (b), (c) and (d) above, such breaches, violations, defaults,
terminations, accelerations or creation of liens and encumbrances or rights to
require the Company or any Subsidiary to purchase or sell any assets or
trigger any "change of control" provisions which, in the aggregate, would not
have a Company Material Adverse Effect or as set forth in Section 3.4 of the
Company Disclosure Schedule.
Section 3.5. SEC Reports; No Undisclosed Liabilities. Since September 30,
1995, the Company has filed all forms, reports and documents ("SEC Reports")
with the SEC required to be filed by it pursuant to the Securities Act, and
the Exchange Act and the SEC rules and regulations promulgated thereunder.
True and correct copies of all such SEC Reports have been made available to
Parent by the Company. All of the SEC Reports complied (as of their respective
filing dates) in all material respects with the applicable requirements of the
Securities Act, the Exchange Act and the SEC rules and regulations promulgated
thereunder. None of such SEC Reports (as of their respective filing dates)
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited and unaudited consolidated financial statements of
the Company included in the SEC Reports have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as otherwise stated in such financial statements included in the Filed SEC
Reports, including the related notes, and except that the interim financial
statements do not contain all of the footnote disclosures required by
generally accepted accounting principles) and fairly present in all material
respects the financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the results of their operations and
their cash flows for the periods then ended, subject, in the case of the
interim unaudited financial statements, to normal year-end audit adjustments,
which, except as disclosed in the Filed SEC Reports, would not be material in
amount or effect. Neither the Company nor any of its Subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on, or
reserved against in, the consolidated financial statements of the Company or
in the notes thereto, prepared in accordance with generally accepted
accounting principles consistently applied, except for (i) liabilities or
obligations that were so reserved on, or reflected in (including the notes
to), the consolidated balance sheet of the Company as of December 31, 1996 or
September 30, 1997; (ii) liabilities or obligations arising in the ordinary
course of business consistent with past practice since September 30, 1997;
(iii) liabilities or obligations which would not, individually or in the
aggregate, have a Company Material Adverse Effect; (iv) liabilities or
obligations related to this Agreement or the Transactions; and (v) payments
required as a result of the consummation of the Merger under the acceleration
provisions of the terms existing on the date hereof of the Company's
employment agreements, severance agreements or Benefit Plans which would not,
individually or in the aggregate, have a Company Material Adverse Effect. No
Subsidiary of the Company is required to file any report or form with the SEC.
Section 3.6. Proxy Statement; Other Information. None of the information
included or incorporated by reference in the letter to stockholders, notice of
meeting, proxy statement and form of proxy, or the information statement
(including, without limitation, the proxy or information statement containing
information required by Regulation 14A under the Exchange Act, and, if
applicable, Rule 13e-3 and Schedule 13E-3 under the Exchange Act), as the case
may be, to be distributed to stockholders of the Company in connection with
the Merger, or any schedules required to be filed with the SEC in connection
therewith (collectively referred to herein as the
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"Proxy Statement"), if required, except information supplied by Parent or Sub
in writing for inclusion in the Proxy Statement or in such schedules (as to
which the Company makes no representation), will, as of the date the Proxy
Statement is first mailed to such stockholders, and on the date of the Special
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. No representation is made by the Company with respect to any
forward-looking information which may have been supplied by the Company
whether or not included in the Proxy Statement. The Proxy Statement will
comply (at the time of its mailing) as to form in all material respects with
the Exchange Act and the rules and regulations thereunder. The Company will
promptly correct any statements in the Proxy Statement that to its knowledge
have become false or misleading and take all steps necessary to cause such
Proxy Statement as so corrected to be filed with the SEC and disseminated to
the stockholders of the Company in accordance with applicable law.
Section 3.7. Compliance.
(a) Except as disclosed by the Company in the SEC Reports filed with the SEC
prior to the date hereof (the "Filed SEC Reports") or as set forth in Section
3.7(a) of the Company Disclosure Schedule, the Company and its Subsidiaries
hold all permits, licenses, waivers, exemptions, orders, franchises and
approvals necessary for the lawful conduct of their respective businesses in
the manner in which they are currently being conducted (including, but not
limited to, those required under the Communications Act or the rules and
regulations of the FCC (the "FCC Permits")), except where the failure to
possess the same would not, individually or in the aggregate, have a Company
Material Adverse Effect. The Company and its Subsidiaries are in compliance
with the terms of all FCC Permits, except where the failure to so comply would
not have a Company Material Adverse Effect.
(b) The FCC Permits are in full force and effect unimpaired by any condition
that could have a material adverse effect on the financial condition, results
of operations, or business of the Stations. Except as set forth in the Filed
SEC Reports or identified in Section 3.7(b) of the Company Disclosure
Schedule, no application, action or proceeding is pending for the renewal or
modification of any of the FCC Permits and, except for actions or proceedings
affecting television broadcast stations generally, no application, complaint,
action or proceeding is pending or, to the Company's knowledge, threatened
that is reasonably likely to result in (i) the denial of an application for
renewal, (ii) the revocation, modification, non-renewal or suspension of any
of the Station licenses and other material FCC Permits, (iii) the issuance of
a cease-and-desist order, or (iv) the imposition of any administrative or
judicial sanction with respect to any of the Stations, individually or in the
aggregate, with respect to this clause (iv) that would have a Company Material
Adverse Effect.
(c) The Stations, their respective physical facilities, electrical and
mechanical systems and transmitting and studio equipment (i) are being
operated in all material respects in compliance with the specification of the
applicable Station licenses and other material FCC Permits, and (ii) are being
operated in all material respects in compliance with all material requirements
of the Communications Act. The Company and the Stations have complied in all
material respects with all requirements of the FCC and the Federal Aviation
Administration with respect to the construction and/or alteration of the
Company's antenna structures and "no hazard" determinations for each antenna
structure owned by the Stations have been obtained.
Section 3.8. Absence of Certain Changes. Except as set forth in the Filed
SEC Reports or identified in Section 3.8 of the Company Disclosure Schedule,
since September 30, 1997 there has not been any material adverse change in the
financial condition, results of operations or business of the Company and its
Subsidiaries, taken as a whole.
Section 3.9. Certain Fees. With the exception of the fees payable to the
Financial Advisor and SBI pursuant to the respective engagement letters dated
July 17, 1997 and November 20, 1997 which have been delivered to Parent,
neither the Company, any of its Subsidiaries nor any of their officers,
directors or employees has employed any broker or finder or incurred any
liability for any financial advisory, brokerage or finder's fees or
commissions to any brokers or finders in connection with the Transactions.
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Section 3.10. FCC Qualifications. After due investigation, except for
matters described in Section 3.10 of the Company Disclosure Schedule, the
Company is not aware of any facts or circumstances related to the Company that
are likely to prevent or delay prompt consent to the transfer of control
applications (as described in Section 5.8(b)) to a qualified purchaser and the
issuance of the FCC Order.
Section 3.11. Section 203. The Board of Directors of the Company has
approved this Agreement and the Merger. Section 203 of the DGCL has been
rendered inapplicable to the consummation of the Merger and the other
Transactions.
Section 3.12. Litigation. Except as disclosed in the Filed SEC Reports or
identified in Section 3.12 of the Company Disclosure Schedule, there are no
civil, criminal or administrative actions, suits, claims, hearings,
investigations or proceedings pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries at law or in equity,
or before or by any federal or state commission, board, bureau, agency or
instrumentality, that could reasonably be expected, individually or together
with any other action, suit, claim, hearing, investigation or proceeding
arising out of or based upon the same or substantially the same facts or
circumstances, to have a Company Material Adverse Effect.
Section 3.13. Intellectual Property. Except as disclosed in the Filed SEC
Reports or identified in Section 3.13 of the Company Disclosure Schedules and
except to the extent that the inaccuracy of any of the following (or the
circumstances giving rise to such inaccuracy), individually or in the
aggregate, could not reasonably be expected to have a Company Material Adverse
Effect:
(a) The Company or its Subsidiaries own or have the valid right to use
all Intellectual Property used in or necessary for the conduct of their
businesses as currently conducted or proposed by the Company to be
conducted, free and clear of all liens, charges, claims or encumbrances and
the Company has not granted to any third party a license to use the
trademark "Telemundo" or any related logo, except as displayed or embedded
as part of video programming licensed for exhibition to third parties or
pursuant to the Affiliation Agreements or for customary cross-promotional
or advertising purposes.
(b) To the knowledge of the Company, (i) neither the Company's nor any
Subsidiary's use of any Intellectual Property nor the conduct of the
Company's nor any Subsidiary's business infringes any Intellectual Property
rights of any third party, and no such claims have been asserted against
the Company or any Subsidiary which have not been resolved, and (ii) no
third party is materially infringing any of the Company's or any
Subsidiary's Intellectual Property rights, and no such claims are pending
or threatened by the Company or any Subsidiary against any third party.
Section 3.14. Labor Matters. Except as set forth in the Filed SEC Reports or
identified in Section 3.14 of the Company Disclosure Schedules, there is no
labor strike, dispute, slowdown, work stoppage or lockout actually pending or,
to the knowledge of the Company, threatened against or affecting the Company
or any Subsidiary and, since January 1, 1995, there has not been any such
action. Except as set forth in the Filed SEC Reports or identified in Section
3.14 of the Company Disclosure Schedule, neither the Company nor any
Subsidiary is a party to or bound by any collective bargaining, guild 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 Subsidiary. The Company and its Subsidiaries
have at all times been in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment,
wages, hours of work, and occupational safety and health, except where any
failure to be in compliance could not reasonably be expected to have a Company
Material Adverse Effect, and are not engaged in any unfair labor practices as
defined in the National Labor Relations Act or other applicable law, ordinance
or regulation which could reasonably be expected to have a Company Material
Adverse Effect. There is no grievance or arbitration proceeding arising out of
any collective bargaining or guild agreement or other grievance procedure
relating to the Company or its Subsidiaries which could reasonably be expected
to have a Company Material Adverse Effect.
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Section 3.15. Employee Benefit Plans: ERISA
(a) Section 3.15(a) of the Company Disclosure Schedule sets forth a true and
complete list of each material compensation plan and each other material
"employee benefit plan" (within the meaning of Section 3(2) of ERISA) that is
maintained or contributed to, or was maintained or contributed to, at any time
since January 1, 1995, by the Company, any Subsidiary or by any trade or
business, whether or nor incorporated, which together with the Company would
be deemed a "single employer" within the meaning of Section 4001(b) of ERlSA
(an "ERISA Affiliate") for the benefit of any employee, former employee,
consultant, officer, or director of the Company or any Subsidiary (a "Benefit
Plan").
(b) Except as set forth in the Filed SEC Reports or identified in Section
3.15(b) of the Company's Disclosure Schedule: (i) no Benefit Plan is a
"multiemployer plan," as such term is defined in Section (3)(37) of ERISA, or
a "multiple employer plan" within the meaning of Section 413(c) of the Code;
(ii) each of the Benefit Plans is, and has always been, operated in all
respects in accordance with the requirements of all applicable law; (iii) each
of the Benefit Plans intended to be "qualified" within the meaning of Section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service to that effect; (iv) no Benefit Plan has an
accumulated or waived funding deficiency within the meaning of Section 412 of
the Code; (v) neither the Company nor any ERISA Affiliate has incurred,
directly or indirectly, any liability (including any material contingent
liability) to or on account of a Benefit Plan pursuant to Title IV of ERISA;
(vi) no proceedings have been instituted to terminate any Benefit Plan that is
subject to Title IV of ERISA; (vii) no "reportable event," as such term is
defined in Section 4043(b) of ERISA, has occurred with respect to any Benefit
Plan that is not reflected on an applicable annual report filed on behalf of
such plan; and (viii) no condition exists that presents a risk to the Company
or any ERISA Affiliate of incurring a liability to or on account of a Benefit
Plan pursuant to Title IV of ERISA; provided, however, that the
representations made in the foregoing clauses (ii) through (viii) of this
Section 3.15(b) shall be deemed to be true and correct except to the extent
that their untruth would, individually or in the aggregate, have a Company
Material Adverse Effect.
(c) Except as would not, individually or in the aggregate, have a Company
Material Adverse Effect, (i) there are no pending, or to the knowledge of the
Company, threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of the Benefit Plans, or any trusts
related thereto or any trustee or administrator thereof, and (ii) no
litigation or administrative or other proceeding (including, without
limitation, any litigation or proceeding under Title IV of ERlSA) has occurred
or, to the knowledge of the Company, is threatened involving any Benefit Plan
or any trusts related thereto or any trustee or administrator thereof.
Section 3.16. Taxes Except as set forth in Section 3.16 of the Company
Disclosure Schedule:
(a) Each of the Company and its Subsidiaries has filed all material tax
returns and reports required to be filed by it, or requests for extensions to
file such returns or reports have been timely filed and granted and have not
expired, and all tax returns and reports are complete and accurate in all
respects, except to the extent that such failures to file, have extensions
granted that remain in effect or be complete and accurate in all respects, as
applicable, would not, individually or in the aggregate, have a Company
Material Adverse Effect. The Company and each of its Subsidiaries has paid (or
the Company has paid on its behalf) all taxes shown as currently due on such
tax returns and reports. The most recent financial statements contained in the
SEC Reports reflect an adequate reserve for all taxes payable by the Company
and its Subsidiaries for all taxable periods and portions thereof accrued
through the date of such financial statements in accordance with generally
accepted accounting principles, and no deficiencies for any taxes have been
proposed, asserted or assessed against the Company or any Subsidiary that are
not adequately reserved for, except for inadequately reserved taxes and
inadequately reserved deficiencies that would not, individually or in the
aggregate, have a Company Material Adverse Effect. No requests for waivers of
the time to assess any taxes against the Company or any Subsidiary have been
granted and are pending, except for requests with respect to such taxes that
have been adequately reserved for in the most recent financial statements
contained in the SEC Reports, or, to the extent not adequately reserved, the
assessment of which would not, individually or in the aggregate, have a
Company Material Adverse Effect.
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(b) As used in this Section 3.16 and in Section 5.1, "taxes" shall include
all Federal, state, local and foreign income, franchise, property, sales, use,
excise and other taxes, including obligations for withholding taxes from
payments due or made to any other person and any interest, penalties or
additions to tax.
Section 3.17. Affiliation Agreements. The Company has provided Parent with
access to true and correct copies of all affiliation agreements between the
Company or any of its Subsidiaries and a television broadcast station pursuant
to which such station has agreed to broadcast the network programming of the
Company (the "Affiliation Agreements"). Each of the Affiliation Agreements is
in full force and effect, is the valid and binding obligation of the parties
thereto and is enforceable in accordance with its terms. The Company is not
and, to the knowledge of the Company, no other party to any Affiliation
Agreement is in material breach or default with respect to its obligations
thereunder, or has given notice of, or, to the Company's knowledge, has any
basis for, any action to terminate, cancel, rescind or procure a judicial
reformation thereof.
Section 3.18. Environmental Matters. The Company and its Subsidiaries are in
material compliance with all federal, state, and local laws governing
pollution or the protection of human health or the environment ("Environmental
Laws"), except in each case where noncompliance with Environmental Laws would
not reasonably be expected to have a Company Material Adverse Effect. Neither
the Company nor any of its Subsidiaries has received any written notice with
respect to the business of, or any property owned or leased by, the Company or
any of its Subsidiaries from any Governmental Entity or third party alleging
that the Company or any of its Subsidiaries is not in material compliance with
any Environmental Law. To the knowledge of the Company, there has been no
release of a "Hazardous Substance," as that term is defined in the
Comprehensive Environmental Response, Compensation, and Liability Act, 42
U.S.C. (S) 9601 et seq., in excess of a reportable quantity on any real
property owned or leased by the Company or any of its Subsidiaries.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUB
Parent and Sub represent and warrant and, with respect to the covenants
contained in Section 4.4 only, covenant to the Company as follows:
Section 4.1. Organization. Each of Parent and Sub is a corporation duly
organized, validly existing and in good standing under the laws of its state
or jurisdiction of incorporation and is in good standing as a foreign
corporation in each other jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification and
where failure to be in good standing or so to qualify would, individually or
in the aggregate, have a material adverse effect on the financial condition,
results of operations or businesses of Parent and Sub, taken as a whole.
Section 4.2. Authority Relative to This Agreement.
(a) Parent and Sub Approvals. Each of Parent and Sub has full corporate
power and authority to execute and deliver this Agreement and to consummate
the Transactions. The execution and delivery of this Agreement by Parent and
Sub and the consummation of the Transactions have been duly authorized by the
respective Boards of Directors of Parent and Sub, and by Parent as the sole
stockholder of Sub, and no other corporate proceedings on the part of Parent
or Sub are necessary for the execution and delivery of this Agreement by each
of Parent and Sub, the performance by each of Parent and Sub of their
respective obligations hereunder and the consummation by each of Parent and
Sub of the transactions so contemplated. This Agreement has been duly executed
and delivered by each of Parent and Sub and, assuming this Agreement
constitutes a valid and binding obligation of the Company, this Agreement
constitutes a valid and binding agreement of each of Parent and Sub,
enforceable against each of Parent and Sub in accordance with its terms,
except to the extent that its enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors rights generally or by general equitable principles.
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(b) Other Authorizations. Other than in connection with, or in compliance
with, applicable requirements of (i) the DGCL with respect to the
Transactions, (ii) the Exchange Act (including, without limitation, the filing
of the Proxy Statement), (iii) the HSR Act and (iv) the Communications Act
(including, without limitation, requirements related to the transfer of
licenses in connection with the operation of the television stations owned and
operated by the Company), no authorization, consent or approval of, or filing
with, any court or any public body or authority is necessary for the
consummation by Parent and Sub of the Transactions other than authorizations,
consents and approvals the failure to obtain, or filings the failure to make,
would not, in the aggregate, have a material adverse effect on the financial
condition, results of operations or business of Parent and its Subsidiaries,
taken as a whole, or on the ability of Parent and Sub to consummate the
Transactions.
Section 4.3. No Violation. Neither the execution or delivery of this
Agreement by Parent and Sub, the performance by Parent and Sub of their
respective obligations hereunder nor the consummation by them of the
Transactions will (a) constitute a breach or violation under the certificate
of incorporation or by-laws of Parent or Sub or (b) constitute a breach,
violation or default (or any event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation of any lien
or encumbrance upon any of the properties or assets of Parent or any of its
Subsidiaries under, any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument to which Parent or any of its
Subsidiaries is a party or by which they or any of their respective properties
or assets are bound or (c) constitute a violation of any order, writ,
injunction, decree, statute, rule or regulation of any court or governmental
authority applicable to Parent or Sub or any of their respective properties or
assets, give any person the right to require Parent or Sub to purchase any
assets from, or sell any assets to, such person or trigger any "change of
control" provisions in any material agreement to which Parent or Sub is a
party other than, in the case of clauses (b), (c) and (d) above, such
breaches, violations, defaults, terminations, accelerations or creation of
liens and encumbrances which, in the aggregate, would not, individually or in
the aggregate, have a material adverse effect on the financial condition,
results of operations or business of Parent and Sub, taken as a whole, or on
the ability of Parent and Sub to consummate the Transactions.
Section 4.4. Proxy Statement.
(a) None of the information supplied in writing by Parent, Sub or their
respective affiliates specifically for inclusion in the Proxy Statement will,
at the time the Proxy Statement is mailed or at the time of the Special
Meeting (as defined in Section 5.4) or at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. If at any time prior to the Special Meeting any event with respect
to Parent or Sub, or with respect to information supplied by Parent or Sub for
inclusion in the Proxy Statement, shall occur which is required to be
described in an amendment of, or a supplement to, such documents, such event
shall be so described to the Company in a timely manner.
(b) Parent Disclosure. The Parent Disclosure Documents, will (as of their
respective filing dates) comply in as to form in all material respects with
the applicable requirements of the Securities Act and the Exchange Act and the
SEC rules and regulations promulgated thereunder. None of Parent Disclosure
Documents will, at the time they are filed, at the time of any distribution
thereof or at the time of the Special Meeting, contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
will not apply to statements or omissions in the Parent Disclosure Documents
based solely upon information furnished to Parent in writing by the Company
specifically for use therein.
Section 4.5. Financing. Parent has received binding written commitments (the
"Equity Commitments") from its stockholders to contribute equity capital to
the Parent in the aggregate amount of $273,200,000 plus additional amounts
necessary to fund the Additional Amount (if any) hereunder and Sub has
received from Parent a binding written commitment from Parent that Parent will
immediately thereafter contribute the Equity Commitments to Sub. The Equity
Commitments include an unconditional commitment from each of the Parent
Stockholders that an aggregate of $100,000,000 will be contributed to Parent,
whether or not the Merger is
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consummated, to satisfy the obligations of Parent and Sub hereunder, including
without limitation, claims made as a result of any breaches by Parent or Sub
of the terms of this Agreement. Parent and Sub have or have access to the
funds, or have, at the date hereof, binding written commitments from
responsible financial institutions to provide Parent or Sub with the funds
(the "Debt Commitment Letters") necessary, together with the Equity
Commitments, to consummate the Merger and the other Transactions and to
provide working capital for the business of the Company, and to consummate the
Transactions, including the payment of related fees and expenses. True and
correct copies of all such financing commitments have previously been
furnished to the Company along with letters from each of Parent Stockholders
stating that the Company may rely on the Equity Commitments as if they were
addressed to the Company. As of the date hereof, none of the Equity
Commitments or commitments represented by the Debt Commitment Letters has been
withdrawn and Parent and Sub do not know of any facts or circumstances
existing at the date hereof that would result in any of the conditions
contained in the Debt Commitment Letters not being satisfied.
Section 4.6. No Prior Activities. Sub has not incurred, directly or
indirectly, any material liabilities or obligations, except those incurred in
connection with its organization or with the negotiation of this Agreement and
the Transactions. Sub has not engaged, directly or indirectly, in any business
or activity of any type or kind, or entered into any agreement or arrangement
with any person or entity, and is not subject to or bound by any material
obligation or undertaking, that is not contemplated by or in connection with
this Agreement and the Transactions.
Section 4.7. Surviving Corporation after the Merger. At the Effective Time
and after giving effect to any changes in the Surviving Corporation's assets
and liabilities as a result of the Merger and after giving effect to the
financing for the Merger and the use of proceeds therefrom, the Surviving
Corporation will not (a) be insolvent (either because its financial condition
is such that the sum of its debts is greater than the fair market value of its
assets or because the present fair saleable value of its assets will be less
than the amount required to pay its debts as they become due), (b) have
unreasonably small capital with which to engage in its business or (c) have
incurred or plan to incur debts beyond its ability to pay as they become
absolute and matured.
Section 4.8. Certain Fees. Neither the Parent or Sub nor any affiliates
thereof nor any of their respective officers, directors or employees has
employed any broker or finder or incurred any liability required to be paid by
the Company prior to the Closing for any financial advisory, brokerage or
finder's fees or commissions to any brokers or finders in connection with the
Transactions.
Section 4.9. FCC Qualifications. Parent and Sub, to their knowledge after
consulting with regulatory counsel and based on the FCC's current practice and
precedent, are, for purposes of obtaining the FCC Order, legally, technically,
financially and otherwise qualified to acquire control of the Company, and
Parent and Sub are not aware of any facts or circumstances related to Parent
or Sub that are likely to prevent consent to the transfer of control
applications (as described in Section 5.8(b)) and issuance of the FCC Order.
Parent's equity ownership is structured as described in the bid letter dated
November 17, 1997 and delivered by Parent and Sub to the Financial Advisor on
behalf of the Company. Parent and Sub, to their knowledge after consulting
with regulatory counsel, are not aware, except for the continuation of
existing waivers, that any waiver of any FCC rule or policy is necessary to be
obtained for the grant of the applications for transfer of control of the
Company to Parent and Sub, nor will processing pursuant to any exception to
any rule of general applicability be requested or required in connection with
the consummation of the Transactions.
ARTICLE V.
COVENANTS
Section 5.1. Conduct of Business of the Company. Except as expressly
contemplated by this Agreement or as set forth in Section 5.1 of the Company
Disclosure Schedule, during the period from the date of this Agreement to the
Effective Time, the Company will, and will cause each of its Subsidiaries to,
conduct its respective operations according to its ordinary and usual course
of business and consistent with past practice and
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use reasonable efforts to (i) preserve intact its business organizations'
goodwill, (ii) keep available the services of its present officers and key
employees, and (iii) preserve the goodwill and business relationships with
suppliers, distributors and others having business relationships with it.
Without limiting the generality of the foregoing, and except as expressly
contemplated by this Agreement or as set forth in Section 5.1 of the Company
Disclosure Schedule, prior to the Effective Time, the Company will not, and
the Company will cause its Subsidiaries not to, without the prior written
consent of Parent (such consent, except in the cases of clauses (a), (h) and
(i) below, not to be unreasonably withheld):
(a) issue, sell, pledge or otherwise dispose of, grant or otherwise
create any additional shares of, or authorize or propose the issuance,
sale, pledge, disposal, grant or creation of any shares of capital stock of
the Company and its Subsidiaries, or securities convertible into or
exchangeable for such shares, or any rights, warrants or options to acquire
such shares or other convertible or exchangeable securities, other than the
issuance of Shares pursuant to the exercise of Options or Warrants as
outstanding on the date hereof or otherwise issuable pursuant to the
automatic grant provisions of the 1996 Plan as in effect on the date
hereof, relating to director options;
(b) purchase, redeem or otherwise acquire or retire, or offer to
purchase, redeem or otherwise acquire or retire, any shares of its capital
stock, other than in transactions between the Company and its wholly-owned
subsidiaries and any required repurchases of options or stock upon
termination of employment to the extent required by agreements in effect on
the date hereof;
(c) declare, set aside, make or pay any dividend or distribution, payable
in cash, stock, property or otherwise, on any shares of its capital stock
(other than dividends paid by wholly-owned Subsidiaries of the Company to
the Company);
(d) other than with respect to intercompany payables and receivables and
intercompany debt, incur or become contingently liable with respect to any
indebtedness or guarantee of any indebtedness or issue any debt securities
other than indebtedness incurred to finance working capital requirements in
the ordinary course of business consistent with past practice;
(e) merge, consolidate with or consummate any other business combination
with any person or acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business entity;
(f) sell, lease, license (other than exhibition licenses entered into in
the ordinary course of business consistent with past practice), mortgage,
transfer or otherwise dispose of any properties or assets which are
material to the Company and its Subsidiaries, taken as a whole;
(g) except as disclosed in Section 5.1 of the Company Disclosure Schedule
or as may be required by applicable law or by contracts existing as of the
date hereof, (i) increase the compensation payable or to become payable to
its officers or employees, except for non-officer employees and production
and talent personnel, increases in the ordinary course of business
consistent with past practice; (ii) enter into any written employment
agreement with any employee, except in the ordinary course of business
which, in any event, shall be terminable, without penalty, on not more than
six months notice; (iii) grant any severance or termination pay to any
director, officer or employee inconsistent with Company policy; or (iv)
establish, adopt, enter into, terminate, withdraw from or amend in any
material respect or take any action to accelerate any rights or benefits
under any collective bargaining agreement, any stock option plan, or any
material Benefit Plan;
(h) enter into any programming commitment other than in the ordinary
course of business consistent with past practice;
(i) enter into any local marketing, joint marketing or similar
agreements, modify or amend any such existing agreements on terms less
favorable to the Company than such existing agreements, if such terms
would, individually or in the aggregate, have a Company Material Adverse
Effect;
(j) incur any commitments for capital expenditures (as such term is used
in accordance with generally accepted accounting principles) in excess of
$10,000,000 in any twelve month period.
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(k) incur any obligations to make any payment of, or in respect of, any
tax, except in the ordinary course of business consistent with past
practice, settle any material tax audit, make or change any tax election or
file any amended tax returns; in each case other than (i) in connection
with the current audit of the Company's federal income tax returns for the
years ended December 31, 1994 and December 31, 1995, details of which have
previously been provided to representatives of Parent or Sub and (ii)
obligations and actions which action would not result in a Company Material
Adverse Effect;
(l) cancel or waive any claim or right of substantial value or settle any
material pending litigation;
(m) enter into any paid programming or infomercial agreement or any
agreement granting any person the right to program any block of network or
local time, in each case which is not terminable at the Company's
discretion upon not more than 30 days notice or which does not extend
beyond June 30, 1998;
(n) except as set forth in Section 5.1 of the Company Disclosure Schedule
or in the ordinary course of business consistent with past practice, pay,
discharge or satisfy any material claims, liabilities or obligations
(absolute, accrued, contingent or otherwise) before they are due or fail to
pay accounts payable in accordance with their terms;
(o) propose or adopt any amendments to its certificate of incorporation
or by-laws;
(p) agree, in writing or otherwise, to take any of the foregoing actions;
or
(q) take, or agree or commit to take, any action that would make any
representation or warranty of the Company hereunder inaccurate in any
respect at, or as of any time prior to, the Effective Time or result in any
of the conditions to the Merger set forth in this Agreement not being
satisfied.
Section 5.2. Access to Information.
(a) General. So long as this Agreement has not been terminated, between the
date of this Agreement and the Effective Time, the Company will give Parent
and its authorized representatives reasonable access during normal business
hours to all offices, stations, studios, production facilities and other
facilities and to all books and records of it and its Subsidiaries, will
permit Parent to make such inspections as it may reasonably require and will
cause its officers and those of its Subsidiaries to furnish Parent (at such
time as it would otherwise become available in the ordinary and usual course
of business and consistent with past practice) with such financial and
operating data and other information (consistent with that which is currently
being prepared by the Company) with respect to the business and properties of
the Company and its Subsidiaries as Parent may from time to time reasonably
request.
(b) Confidentiality. Subject to any additional requirements of law
(including, without limitation, FCC regulations) and the terms of the
Confidentiality Agreement, Parent and Sub (i) will hold and will cause their
respective representatives, advisors and financing sources to hold in strict
confidence, unless compelled to disclose by judicial or administrative
process, or, in the written opinion of its counsel with a copy sent to the
Company, by other requirements of law, all documents and information
concerning the Company and its Subsidiaries furnished to Parent, Sub or any of
their respective representatives, advisors and financing sources in connection
with the Transactions, provided, however, that, prior to any disclosure
pursuant to the foregoing, Parent shall notify the Company and afford the
Company an opportunity to obtain a protective order against such disclosure
(except to the extent that such information can be shown to have been (x)
previously known by Parent, (y) in the public domain through no fault of
Parent, its representatives or advisors or (z) later lawfully acquired by
Parent from other sources, unless Parent knows that such other sources are not
entitled to disclose such information) and (ii) will not release or disclose
such information to any other person, except in connection with this Agreement
to (1) its auditors, attorneys, financial advisors and other representatives
and advisors with a need to know such information and (2) responsible
financial institutions in connection with obtaining the financing contemplated
by Section 4.5 hereof, provided that such person shall have first been advised
of the confidentiality provisions of this Section 5.2 and the Confidentiality
Agreement and agreed to be bound thereby. If the Transactions are not
consummated, such confidence shall be maintained except to the extent such
information can be shown to have been (i) previously known by Parent, (ii) in
the public domain through no
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fault of Parent, its representatives or advisors or (iii) later lawfully
acquired by Parent from other sources, unless Parent knows that such other
sources are not entitled to disclose such information and, if requested by the
Company, Parent will return to the Company all copies of information furnished
by the Company to Parent or its agents, representatives, advisors or financing
sources, or derived therefrom, or shall in writing confirm the destruction of
such information.
Section 5.3. No Solicitation.
(a) The Company shall not, nor shall it permit any of its Subsidiaries, or
any officer, director, employee, agent or representative of the Company or any
of its Subsidiaries (including, without limitation, any investment banker,
attorney or accountant retained by the Company or any of its Subsidiaries)
(collectively, "Representatives"), directly or indirectly, to (i) initiate,
solicit or encourage any inquiries or proposals that constitute, or could
reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, business combination, sale of assets representing a substantial
portion of the assets of the Company and its Subsidiaries, taken as a whole,
or a sale of shares representing 20% or more of the capital stock of the
Company, including, without limitation, by way of a tender offer or exchange
offer by any person for 20% or more of the shares of capital stock of the
Company, other than the Merger and the other transactions contemplated by this
Agreement (the "Transactions") (any of the foregoing inquiries or proposals
being referred to in this Agreement as an "Alternative Proposal"), (ii) engage
in negotiations or discussions concerning, or provide to any person or entity
any non-public information or data relating to the Company or any of its
Subsidiaries for the purposes of, or otherwise cooperate with or assist or
participate in, facilitate or encourage, any inquiries relating to or the
making of any Alternative Proposal, (iii) agree to, approve or recommend any
Alternative Proposal or (iv) take any other action inconsistent with the
obligations and commitments of the Company pursuant to this Section 5.3;
provided, however, that nothing contained in this Agreement shall prevent the
Company or its Board of Directors from (A) furnishing non-public information
to, or entering into discussions or negotiations with, any person or entity in
connection with an unsolicited bona fide written Alternative Proposal (for
which financing, to the extent required, is then committed or which, in the
good faith judgment of the Company's board of directors after consultation
with the Company's financial advisor, is reasonably capable of being obtained)
to the Company or its stockholders from persons other than Parent and its
affiliates (a "Third Party"), if and only to the extent that (1) the Board of
Directors of the Company, by action of a majority of the members of the Board
of Directors who are not affiliated with either the Parent or the person
making such Alternative Proposal or their respective affiliates, determines in
good faith, after consultation with the Company's outside counsel and its
financial advisors, that (x) such Alternative Proposal is more favorable from
a financial point of view to the Company's stockholders than the Merger and
the other Transactions and (y) failure by the Board of Directors to furnish
such information to or enter into discussions or negotiations with such Third
Party could reasonably be expected to result in a breach of its fiduciary
duties to the Company's stockholders under applicable law, and (2) prior to
furnishing such non-public information to, or entering into discussions or
negotiations with, such Third Party, the Board of Directors of the Company
receives from such person or entity an executed confidentiality agreement with
terms no less favorable to such party than those contained in the
Confidentiality Agreement; or (B) complying with Rule 14d-9 or Rule 14e-2
promulgated under the Exchange Act with regard to an Alternative Proposal or
making any other public disclosure that, based upon advice of the Company's
outside counsel, the Board of Directors determines in its good faith judgment
is required by applicable law, rule or regulation; provided, that prior to
making any such other public disclosure the Company shall to the extent
reasonably practicable inform the Parent that it intends to make such
disclosure. The Company will immediately cease and cause to be terminated any
existing activities, discussions or negotiations by the Company or its
Representatives with any parties conducted heretofore with respect to any of
the foregoing.
(b) The Company shall (i) promptly notify the Parent in writing after
receipt by the Company or its Representatives of any Alternative Proposal or
any inquiries indicating that any person is considering making or wishes to
make an Alternative Proposal, (ii) promptly notify the Parent in writing after
receipt of any request for non-public information relating to the Company or
any of its Subsidiaries or for access to the Company's or any of its
Subsidiaries' properties, books or records by any person that, to the
Company's knowledge, may be considering making, or has made, an Alternative
Proposal and (iii) keep the Parent advised of the status and principal terms
of any such Alternative Proposal, indication or request.
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Section 5.4. Stockholders' Meeting.
(a) General. The Company shall, in accordance with its charter documents:
(i) duly call, give notice of, convene and hold an annual or special
meeting (the "Special Meeting") of its stockholders as soon as practicable
for the purpose of considering and taking action upon this Agreement;
(ii) subject to its fiduciary duties under applicable law as advised in
writing by counsel, include in the Proxy Statement the recommendation of
its Board of Directors that stockholders of the Company vote in favor of
the approval and adoption of this Agreement and the Transactions
contemplated hereby; and
(iii) use its reasonable best efforts (x) (1) to obtain and furnish the
information required to be included by it in the Proxy Statement, (2) to
file the Proxy Statement with the SEC, (3) to respond promptly to any
comments made by the SEC with respect to the Proxy Statement and any
preliminary version thereof and (4) to cause the Proxy Statement to be
mailed to its stockholders at the earliest practicable time and (y) subject
to its fiduciary duties under applicable law as advised in writing by
counsel, to obtain the Stockholder Approval.
(b) Parent Disclosure Documents. As soon as practicable after the date of
this Agreement, Parent and/or Sub shall file (separately, or as part of the
Proxy Statement) with the SEC, if required, a Rule 13E-3 Transaction Statement
with respect to the Merger (together with any supplements or amendments
thereto, the "Parent Disclosure Documents"). Each of Sub and Parent agrees to
correct any information provided by it for use in the Sub Disclosure Documents
if and to the extent that it shall have become false or misleading in any
material respect. Sub agrees to take all steps necessary to cause the Sub
Disclosure Documents as so corrected to be filed with the SEC and to be
disseminated to holders of Shares, in each case as and to the extent required
by applicable federal securities laws. The Company and its counsel shall be
given reasonable opportunity to review and comment on each Sub Disclosure
Document prior to its being filed with the SEC.
(c) Voting of Shares by Parent and Sub. Parent agrees that, at the Special
Meeting, all Shares owned by Parent, Sub or any other affiliate of Parent will
be voted in favor of the Merger.
Section 5.5 Cooperation. Subject to the terms and conditions herein provided
(including, without limitation, Section 5.8), each of the parties hereto
agrees to use its reasonable best efforts (a) to take, or cause to be taken,
all action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the Transactions including, without limitation, (i) promptly making
their respective filings, and thereafter using their reasonable best efforts
promptly to make any required submissions, under the HSR Act and (ii) promptly
making any filings that are required to be made or seeking any consents,
approvals, permits or authorizations that are required to be obtained under
any other federal, state or foreign law or regulation (including those
required under the Communications Act and by the FCC as are more fully
described in Section 5.8 of this Agreement) and (b) to refrain from taking,
directly or indirectly, any action that would result in a breach of this
Agreement. Parent shall notify the Company and keep it reasonably apprised of
developments relating to its ability to satisfy the conditions set forth in
Sections 6.1(d), 6.2(d) and 6.2(e). In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers and directors of each party to this
Agreement shall use their respective reasonable best efforts to take all such
necessary action.
Section 5.6 Public Announcements. Parent, Sub and the Company will consult
with each other before issuing any press release or otherwise making any
public statements with respect to the Merger and shall not issue any such
press release or make any such public statement prior to such consultation,
except as may be required by law or any securities exchange or similar
authority (in which case prior notice of at least 24 hours by the Company to
Parent or by Parent or Sub to the Company, as applicable, of such issuance of
a press release or making of a public statement shall be required).
Section 5.7 Indemnification and Insurance.
(a) Continuation of Charter Obligations. The Company shall and from and
after the Effective Time, Parent and the Surviving Corporation shall, maintain
the right to indemnification and exculpation of officers and
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directors provided for in the Certificate of Incorporation and By-Laws of the
Company as in effect on the date hereof, with respect to indemnification and
exculpation for acts and omissions occurring prior to the Effective Time,
including, without limitation, the Transactions.
(b) Continuation of D&O Insurance. For six years after the Effective Time,
Parent or the Surviving Corporation shall maintain officers' and directors'
liability insurance covering the persons who are presently covered by the
Company's officers' and directors' liability insurance policies (copies of
which have heretofore been delivered to Parent) with respect to actions and
omissions occurring prior to the Effective Time, on terms which are not
materially less favorable, in the aggregate, than the terms of such current
insurance in effect for the Company on the date hereof.
(c) Indemnification. The Company shall and from and after the Effective
Time, the Surviving Corporation shall, (i) to the fullest extent permitted
under applicable law, indemnify and hold harmless, each present and former
director and officer of the Company (collectively, the "Indemnified Parties")
against any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any pending, threatened or completed claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to any action or omission
occurring prior to the Effective Time (including, without limitation, any
claim, action, suit, proceeding or investigation arising out of or pertaining
to the Transactions (a "Claim")) and (ii) in the event of any such Claim
(whether arising before or after the Effective Time), upon receipt from the
Indemnified Party to whom expenses are advanced of an undertaking to repay
such advances required under the DGCL, advance expenses to each such
Indemnified Party, including the payment of the fees and expenses of counsel
selected by such Indemnified Party, which counsel shall be reasonably
satisfactory to the Company or the Surviving Corporation, as the case may be,
promptly after statements therefor are received, provided, that the Company
shall not, in connection with any one Claim or separate but substantially
similar or related Claims, be liable for the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) at any time
for all such Indemnified Parties, and provided, further, that the Company
shall be entitled to participate in the defense thereof, and (iii) cooperate
fully in the defense of any such matter. Promptly after receipt by an
Indemnified Party of notice of any Claim as to which such persons intends to
seek indemnification hereunder, such person shall give notice thereof to the
Company; except that the failure to promptly give notice of any such Claim to
the Company shall not affect such persons right to indemnification, unless the
Company's ability to defend the Claim is materially impaired as a result.
Neither the Company nor the Surviving Corporation shall be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld).
(d) Eligibility for Indemnification. Notwithstanding any provision to the
contrary contained in the Certificate of Incorporation or By-Laws of the
Company as in effect on the date hereof, any determination required to be made
with respect to whether an Indemnified Party's conduct complies with the
standards set forth under the DGCL, under such charter provisions shall be
made by independent counsel selected by the Indemnified Party and reasonably
acceptable to the Company, Parent, Sub or the Surviving Corporation, which
shall pay such counsel's fees and expenses (it being agreed that neither the
Company, Parent, Sub nor the Surviving Corporation shall challenge any such
determination by such independent counsel which is favorable to an Indemnified
Party).
(e) Survival. This Section 5.7 shall survive the Closing, is intended to
benefit the Company, Parent, Sub or the Surviving Corporation and each of the
Indemnified Parties (each of whom shall be entitled to enforce this Section
5.7 against the Company, Parent or the Surviving Corporation, as the case may
be) and shall be binding on all successors and assigns of Parent and the
Surviving Corporation.
(f) Merger, Assignment, etc. In the event Parent, the Surviving Corporation
or any of their respective successors or assigns (i) consolidates with or
merges into any other person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any person, then, and in
each such case, proper provision shall be made so that the successors and
assigns of Parent or the Surviving Corporation assume the obligations set
forth in this Section 5.7.
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Section 5.8. FCC Covenants.
(a) Each of Parent and Sub shall use its reasonable best efforts to take, or
cause to be taken, all action and to do or satisfy, or cause to be done or
satisfied, all things and conditions necessary, proper or advisable to obtain
the FCC Order and to satisfy all conditions and take all actions required
thereby, in each case so as to come into compliance with FCC requirements and
to consummate the Merger as promptly as practicable; provided, however, this
Section 5.8 shall not be interpreted as obligating Parent, Sub, any Parent
Stockholder or any affiliates thereof, to consent to the imposition of any
condition or restriction set forth in Section 6.1(d) hereof; provided,
further, that Parent and Sub shall make all reasonable modifications and
adjustments to their respective relationships and arrangements among the
Parent Stockholders (including the grant of proxies to other Parent
Stockholders with respect to general voting rights) with respect to Parent
that are required in order to obtain an Acceptable FCC Order, so long as such
modifications and adjustments do not modify in any material respect the
contemplated minority stockholder protective provisions or modify in any
material respect the economic arrangement among and between the Parent
Stockholders. The Company shall also use such efforts, but shall not be
required to take any action that would be effective prior to the Effective
Time.
(b) As promptly as practicable, following the date of this Agreement (but in
no event later than January 1, 1998), the Company and Parent and Sub shall
prepare and file with the FCC all necessary applications for approval of the
Merger and the other Transactions. Without limiting the foregoing, the
Company, Parent and Sub shall submit to the FCC an application to be filed on
FCC Form 315 pursuant to the Communications Act.
Section 5.9. Notification of Certain Matters. Between the date of this
Agreement and the consummation of the Merger, the Company will promptly notify
Parent and Sub in writing if it becomes aware of any fact or condition that
causes or constitutes a breach of its representations and warranties as of the
date of this Agreement, or if it becomes aware of the occurrence after the
date of this Agreement of any fact or condition which would (except as
expressly contemplated by this Agreement) cause or constitute a breach of any
such representation or warranty had such representation or warranty been made
as of the time of occurrence or discovery of such fact or condition.
Notwithstanding the foregoing provisions of this Section 5.9, no party shall
be required to give notice with respect to events that are reported in the
financial or general interest newspapers that do not specifically relate to
such party or the Transactions.
Section 5.10. Employee Benefits. Parent agrees to honor, and from and after
the Effective Time shall cause the Surviving Corporation to honor, in
accordance with their respective terms as in effect on the date hereof, the
employment, severance, bonus, and commission agreements and similar
arrangements to which the Company is a party which are set forth in Section
5.10 of the Company Disclosure Schedule.
Section 5.11. Acknowledgment of Parent and Sub. Parent and Sub acknowledge
that any projections prepared by the Company and provided to Parent and/or Sub
as part of the due diligence process were and are merely estimates made by the
Company as of the time they were provided and Parent and Sub have in no way
relied on any such projections. Parent and Sub agree and acknowledge that
neither the Company nor any of its affiliates has made or is making any
representation or warranty as to the accuracy or completeness of the
Confidential Information Memorandum furnished by the Financial Advisor on
behalf of the Company or any supplement thereto provided by such person.
Without limiting the foregoing, Parent and Sub agree and acknowledge that the
only representations and warranties made by the Company with respect to the
Transactions are those representations and warranties contained in this
Agreement (together with the exceptions to such representations and warranties
set forth in the Company Disclosure Schedule) and only those representations
and warranties have and will have any legal effect following the date hereof
which effect will continue solely to the extent specifically set forth herein.
Section 5.12. Renewal. To the extent permitted by FCC regulations, with
respect to each Affiliation Agreement which requires that a notice be given,
or other action be taken, prior to the Effective Time in order to exercise the
Company's option to extend the scheduled expiration date of, or otherwise
renew, such Affiliation Agreement, the Company shall consult with Parent with
respect thereto and shall give such notice and shall take such other action
unless, after such consultation, Parent shall otherwise agree in writing.
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ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 6.1. Conditions to Each Party's Obligation To Effect the Merger. The
respective obligations of each party to effect the Merger are subject to the
satisfaction or waiver, where legally permissible, prior to the Effective Time
of the following conditions:
(a) Stockholder Approval of this Agreement shall have been obtained;
(b) No statute, rule, regulation, order, decree or injunction shall have
been enacted, entered, promulgated or enforced by any court or governmental
authority of competent jurisdiction which restrains, enjoins or otherwise
prohibits the consummation of the Merger; provided, however, that the
Company, Parent and Sub shall use their reasonable best efforts to have any
such order, decree or injunction vacated;
(c) The applicable waiting period under the HSR Act shall have expired or
been terminated; and
(d) The FCC Order shall have been obtained without the imposition of any
conditions or restrictions that (i) seek to prohibit or limit the ownership
or operation by any of the Parent Stockholders or the Surviving Corporation
or any portion of its or their respective businesses or assets, or to
compel any Parent Stockholder or the Surviving Corporation to dispose of or
hold separate any portion of their business or assets, (ii) seek to impose
material limitations on the ability of any Parent Stockholder to acquire or
hold equity interests of the Parent, exercise the minority protective
provisions contemplated by the Parent or modify in any material respect the
economic arrangement among and between the Parent Stockholders, (iii) seek
to prohibit any Parent Stockholder from effectively controlling in any
respect any of the business or operations of such Parent Stockholder, or
(iv) which otherwise is reasonably likely to adversely effect the financial
condition, results of operations or business of any Parent Stockholder, the
Parent or the Surviving Corporation, that, in the case of conditions or
restrictions of the type referred to in clauses (i), (ii) or (iii), are not
acceptable to Parent in its sole discretion ("Acceptable FCC Order").
Section 6.2. Conditions to the Obligation of Parent and Sub to Effect the
Merger. The obligation of Parent and Sub to effect the Merger are subject to
the satisfaction or waiver, where legally permissible, prior to the Effective
Time of the following conditions:
(a) The representations and warranties of the Company set forth in this
Agreement shall be true and correct as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an
earlier date or as specifically set forth below) as of immediately before
the Effective Time, except as otherwise contemplated by this Agreement, and
the Company shall have performed all obligations required to be performed
by it at or prior to the Effective Time, except to the extent the failure
of such representations and warranties to be true and correct as of
immediately before the Effective Time or the failure to perform obligations
hereunder would not, individually or in the aggregate, have a Company
Material Adverse Effect. Notwithstanding the foregoing, on June 30, 1998,
the Company shall deliver a certificate signed on behalf of the Company by
the chief financial officer of the Company certifying that, in the good
faith judgment of such officer upon inquiry of the other officers of the
Company (Vice President level and above), on such date such officer
believes that the representation and warranty of the Company contained in
Section 3.8 hereof is true and correct, as if made at that date (a "Company
Complying Certificate") or, if such representation and warranty is not true
and correct, then stating with specificity in what respect such
representation is not true and correct (a "Non-Complying Certificate"). If
on June 30, 1998, the Company shall have delivered a Complying Certificate,
then, from and after June 30, 1998, the representation in Section 3.8 shall
be deemed to be true and correct, except as may be specifically set forth
below. If the Company shall have delivered a Non-Complying Certificate then
the representation and warranty contained in Section 3.8 shall, to the
extent of the matters so noticed, be deemed not to be satisfied unless such
matters shall have been cured. Notwithstanding the foregoing, if (i) within
15 days of the delivery of a Company Complying Certificate or a Company
Non-Complying Certificate, as applicable, the chief financial officer of
Parent delivers a certificate to the Company certifying that in the good
faith judgment of such officer upon reasonable inquiry, such officer
believes, as of June 30, 1998, that the
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representation and warranty of the Company set forth in Section 3.8 is not
true and correct, stating with specificity in what respect such
representation is not true and correct (the "Parent Response") and (ii) the
Company shall confirm in writing that such matter renders such
representation not true and correct (an "Affirmed Condition"), then the
representation and warranty of the Company contained in Section 3.8 shall
be deemed not to be satisfied, to the extent of the Affirmed Condition,
unless the Affirmed Condition shall be cured. If the Company does not
confirm in writing that any matter contained in the Parent Response renders
the representation and warranty made in Section 3.8 not true and correct (a
"Non-Affirmed Condition"), each of the parties hereby reaffirms that it
shall retain its right to exercise any and all remedies and/or defenses
available to it with respect to such Non-Affirmed Condition. If cured prior
to December 31, 1998, no matter set forth in a Company Non-Complying
Certificate or a Parent Response shall thereafter render the representation
and warranty of the Company set forth in Section 3.8 to be not true and
correct, and upon cure, each such matter shall be deemed waived. In no
event shall any matter arising after June 30, 1998 or not set forth in a
Company Non-Complying Certificate or Parent Response be deemed to render
the representation and warranty of the Company set forth in Section 3.8 not
true and correct. No Additional Amount shall accrue or be payable with
respect to any period beginning on the date on which all of the conditions
set forth in Section 6.1 and 6.2 hereof have been finally satisfied and
ending on the date on which all matters that are specified in any Non-
Complying Certificate or are Affirmed Conditions are cured.
(b) Parent shall have received a certificate signed on behalf of the
Company by the chief executive officer and the chief financial officer of
the Company to the effect of clause (a) above;
(c) Subject to the provisions of Section 5.12 of this Agreement, the
Company shall have exercised its option to extend any Affiliation Agreement
which the Company or any Subsidiary has the option to extend and which
expires (or which requires notice to be given or other action to be taken
in order to so extend such Affiliation Agreement) prior to the Effective
Time, or, after consulting with Parent, shall have executed an Affiliation
Agreement in such market with a comparable affiliate;
(d) The FCC Order shall not have been reversed, stayed, enjoined,
annulled or suspended; or
(e) The Parent shall have obtained funds pursuant to the Debt Commitment
Letters (or such alternative financing as is reasonably acceptable to the
Parent) sufficient, together with the Equity Commitments (the provision of
which is not a condition to the respective obligations of Parent and Sub to
effect the Merger), to perform its obligations under this Agreement, to
provide working capital for the business of the Company, and to consummate
the Transactions, including the payment of related fees and expenses.
Section 6.3. Conditions to the Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger are subject to the
satisfaction or waiver, where legally permissible, prior to the Effective Time
of the following conditions:
(a) The representations and warranties of Parent and Sub set forth in
this Agreement shall be true and correct as of the date of this Agreement
and (except to the extent such representations and warranties speak as of
an earlier date) as of immediately before the Effective Time, except as
otherwise contemplated by this Agreement, and Parent and Sub shall have
performed all obligations required to be performed by them at or prior to
the Effective Time, except to the extent the failure of such
representations and warranties to be true and correct as of immediately
before the Effective Time or the failure to perform obligations hereunder
would not, individually or in the aggregate, have a Company Material
Adverse Effect;
(b) The Company shall have received a certificate signed on behalf of
Parent and Sub by their respective chief executive officers and the chief
financial officers to the effect of clause (a) above.
ARTICLE VII.
TERMINATION; AMENDMENT; WAIVER
Section 7.1. Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the Company:
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(a) by mutual written consent duly authorized by the boards of directors
of Parent and the Company;
(b) subject to Section 7.4(b), by the Company or the Parent if the
Effective Time shall not have occurred on or before December 31, 1998;
provided, however, that the right of the Company or the Parent to terminate
this Agreement pursuant to this Section 7.1(b) shall not be available in
the event that the Company's or the Parent's, as the case may be, failure
to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such
date;
(c) by Parent or the Company if any court of competent jurisdiction in
the United States or other United States governmental body shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and nonappealable;
(d) by the Company or the Parent, if, at the Special Meeting (including
any adjournment or postponement thereof) called pursuant to Section 5.4
hereof, the Stockholder Approval shall not have been obtained; or
(e) by the Company, subject to Section 7.2, if the Board of Directors of
the Company shall concurrently approve, and the Company shall concurrently
enter into, a definitive agreement providing for the implementation of a
Superior Offer, provided, however, that (i) the Company is not then in
breach of Section 5.3, (ii) the Board of Directors of the Company shall
have complied with Section 7.2 in connection with such Superior Offer, and
(iii) the Company shall simultaneously make the payments required by
Section 7.4(a). For purposes of this Agreement, "Superior Offer" means an
Alternative Proposal which is superior from a financial point of view to
the Company's stockholders (other than any stockholders affiliated with the
Parent) to the Merger and the other Transactions contemplated hereby and
for which financing, to the extent required, is then committed or which, in
the good faith judgment of the Company's board of directors after
consultation with the Company's financial advisors is reasonably capable of
being obtained.
Section 7.2. Certain Actions Prior to Termination. The Company shall provide
to the Parent written notice of its intention to terminate this Agreement
pursuant to Section 7.1(e) advising the Parent (a) that the Board of Directors
of the Company has determined, by action of a majority of the members of the
Board of Directors of the Company who are not affiliated with either the
Parent or the person making such Alternative Proposal or their respective
affiliates, that such Alternative Proposal is a Superior Offer and that, in
the exercise of its good faith judgment as to fiduciary duties to stockholders
under applicable law, after consultation with the Company's outside legal
counsel, failure by the Board of Directors to terminate this Agreement could
reasonably be expected to result in a breach of such duties and (b) as to the
material terms of any such Alternative Proposal. At any time after the fifth
business day following receipt of such notice, the Company may terminate this
Agreement as provided in Section 7.1(e) only if the Board of Directors of the
Company determines, by action of a majority of the members of the Board of
Directors of the Company who are not affiliated with either the Parent or the
person making such Alternative Proposal or their respective affiliates, that
failure by the Board of Directors to terminate this Agreement continues to be
reasonably expected to result in a breach of its fiduciary duties to
stockholders under applicable law (which determination shall be made in light
of any revised proposal made by the Parent prior to the expiration of such
five business day period) and concurrently enters into a definitive agreement
providing for the implementation of such Alternative Proposal.
Section 7.3. Effect of Termination. In the event of termination of this
Agreement by the Company or the Parent as provided in Section 7.1 hereof, this
Agreement shall forthwith become void (except as set forth (i) in the last
sentence of Section 5.2(b), (ii) in Sections 7.4, 8.2, 8.3, 8.4 and 8.9 and
(iii) in this Section 7.3); provided that no party hereto shall be relieved
from liability for any breach of this Agreement.
Section 7.4. Termination Fees.
(a) If this Agreement is terminated pursuant to (a) Section 7.1(d) or (b)
Section 7.1(e), and if the Company is not at that time entitled to terminate
this Agreement by reason of Section 7.1(b) or 7.1(c), then the Company shall
promptly (and in any event within two days of receipt by the Company of
written notice from the Parent)
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pay to the Parent (by wire transfer of immediately available funds to an
account designated by the Parent) concurrently with the execution of a
definitive agreement with respect to any Alternative Proposal, a termination
fee of $15,000,000 plus an amount equal to documented fees and expenses
incurred by or on behalf of the Parent and its affiliates and investors in
connection with this Agreement and the Transactions up to an aggregate maximum
amount of $2,500,000; provided, however, that the Company shall not be
obligated to pay such fee to the Parent if this Agreement is terminated
pursuant to Section 7.1(d) unless (a)(i) at the time of the Company Meeting,
the Company has received an Alternative Proposal (a "Pending Proposal") or
(ii) prior to the termination of this Agreement the Board of Directors of the
Company shall have withdrawn, or modified in a manner adverse to the Parent,
its approval or recommendation of the Merger and the other Transactions, and
(b) within one year after the termination of this Agreement, the Company
enters into a definitive agreement or otherwise consummates with any person
such or any other Alternative Proposal, and, provided, further, that if such
termination fee becomes payable as a result of a termination pursuant to
Section 7.1(d), then such termination fee shall be paid promptly following the
earlier of the execution of such definitive agreement providing for an
Alternative Proposal and the consummation of an Alternative Proposal, as the
case may be.
(b) If (i) this Agreement is terminated pursuant to (i) Section 7.1(b) and
(ii) Parent is not at that time entitled to terminate this Agreement by reason
of Section 7.1(c) or 7.1(d), and (iii) Parent has not received an Acceptable
FCC Order, and (iv) the conditions set forth in Sections 6.1(c) and 6.2(a),
(b), (c) and (e) have been, or if the FCC Order had been obtained, would have
been, otherwise satisfied, then Parent shall promptly (and in any event within
two days of receipt by Parent of written notice from the Company) pay to the
Company (by wire transfer of immediately available funds to an account
designated by the Company) a termination fee of $17,500,000; provided,
however, that Parent shall not be obligated to pay such fee to the Company if
the sole reason that Parent and Sub have failed to obtain the Acceptable FCC
Order is due to changes, after the date hereof, in the Communications Act or
the rules and regulations of the FCC, in effect as of the date hereof (except
those which have been proposed in formal rulemaking proceedings and have been
subject to public comment prior to the date hereof).
Section 7.5. Amendment. To the extent permitted by applicable law, this
Agreement may be amended by action taken by the Company, Parent and Sub (and
the stockholders of the Company, if required by applicable law) at any time
before or after adoption of this Agreement by the Company's stockholders;
provided, however, that after the adoption of this Agreement by the Company's
stockholders, no amendment shall be made which decreases the price per Share,
changes the form of consideration to be received by the holders of Shares in
the Merger or which adversely affects the rights of stockholders of the
Company hereunder without the approval of such stockholders. This Agreement
may not be amended except by an instrument in writing signed on behalf of all
the parties.
Section 7.6. Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document,
certificate or writing delivered pursuant hereto or (c) waive compliance with
any of the agreements or conditions contained herein unless waiver is unlawful
or specifically prohibited. Any agreement on the part of any party to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1. Non-Survival of Representations, Warranties and Agreements. The
representations and warranties made herein shall terminate at the Effective
Time or the earlier termination of this Agreement pursuant to Section 7.1 as
the case may be; provided, however, that if the Merger is consummated,
Sections 2.10, 2.11, 5.5 (with respect to the last sentence thereof), 5.7 and
5.10 will survive the Effective Time to the extent contemplated by such
sections, and provided further that the last sentence of Section 5.2(b) and
Sections 7.3, 7.4 and 8.9 will in all events survive the termination of this
Agreement.
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Section 8.2. Entire Agreement; Assignment. This Agreement, the Annexes and
Schedules referred to herein, the letter(s) contemplated by Section 4.5 hereof
and the Confidentiality Agreement (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all other
prior agreements and understandings, both written and oral, among the parties
or any of them with respect to the subject matter hereof and (b) shall not be
assigned by operation of law or otherwise, provided that Parent may assign its
rights and obligations or those of Sub to any wholly-owned, direct or
indirect, Subsidiary of Parent, but no such assignment shall relieve Parent of
its obligations hereunder if such assignee does not perform such obligations.
Section 8.3. Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
Section 8.4. Notices. All notices and other communications among the parties
shall be in writing and shall be deemed to have been duly given when (i)
delivered in person, or (ii) one business day after delivery to a reputable
overnight courier service (i.e., Federal Express), postage pre-paid, or (iii)
delivered by telecopy and promptly confirmed by telephone and by delivery of a
copy in person or overnight as aforesaid, in each case with postage prepaid,
addressed as follows:
If to Parent or Sub:
TLMD Station Co.
c/o Apollo Management, L.P.
1301 Avenue of the Americas, 38th Floor
New York, New York 10013
Facsimile: (212) 261-4102
Attention: Michael Weiner
with a copy to:
Liberty Media Corporation
8101 East Prentice Avenue, Suite 500
Englewood, Colorado 80111
Facsimile: (303) 721-5443
Attention: David B. Koff
Sony Pictures Entertainment, Inc.
10202 West Washington Boulevard
Culver City, California 90232-3195
Facsimile: (310) 244-1818
Attention: Alan Sokol
Apollo Management, L.P.
1301 Avenue of the Americas, 38th Floor
New York, New York 10019
Facsimile: (212) 261-4102
Attention: Michael Weiner
Bastion Capital Corporation
1999 Avenue of the Stars, Ste. 2960
Los Angeles, California 90067
Facsimile: (31) 277-7582
Attention: Guillermo Bron
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<PAGE>
With a courtesy copy to (which shall not constitute notice):
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071-3144
Facsimile: (213) 687-5600
Attention: Thomas C. Janson, Jr.
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard, Suite 800
Los Angeles, California 90024-3902
Facsimile: (310) 443-8512
Attention: C.N. Franklin Reddick III
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
Facsimile: (212) 872-1002
Attention: Patrick Dooley
Irell & Manella, LLP
333 South Hope Street
Suite 3300
Los Angeles, California 90071
Facsimile: (213) 872-1002
Attention: Edmund Kaufman
If to the Company:
Telemundo Group, Inc.
2290 West 8th Avenue
Hialeah, Florida 33010
Telecopy: 310/306-7313
Attention: Osvaldo F. Torres, General Counsel
with a courtesy copy to (which shall not constitute notice):
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Telecopy: 213/891-8763
Attention: Paul D. Tosetti, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 8.5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF.
Section 8.6. Interpretation. For purposes of this Agreement neither the
Company nor any Subsidiary of the Company shall be deemed to be an affiliate
or Subsidiary of Sub or Parent. 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. Inclusion of information in the Company
Disclosure Schedule, does not constitute an admission or acknowledgment of the
materiality of such information. If an ambiguity or question of intent or
interpretation arises, then this Agreement will be construed as if drafted
jointly by the parties to this Agreement, and no presumption or burden of
proof will arise favoring or disfavoring any party to this Agreement by virtue
of the authorship of any of the provisions of this Agreement.
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<PAGE>
Section 8.7. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and except for the
provisions of Sections 2.7, 2.12, 2.13, 5.7 and 5.10 (which are intended to be
for the benefit of the persons referred to therein and their beneficiaries,
and may be enforced by such persons as intended third-party beneficiaries),
nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by
reason of this Agreement.
Section 8.8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 8.9. Expenses. All costs and expenses incurred in connection with
the Transactions shall be paid by the party incurring such expenses.
Section 8.10. Obligation of Parent. Whenever this Agreement requires Sub to
take any action, such requirement will be deemed to include an undertaking on
the part of Parent to cause Sub to take such action.
Section 8.11. Sale of the Company. The parties hereto agree and acknowledge
that for the purposes of this Agreement no "sale" of the Company shall be
deemed to have occurred until the consummation of the Merger at the Effective
Time.
Section 8.12. Actions by the Company. Any action or decision requiring the
approval of the Board of Directors of the Company which is to be taken or
which is made or required to be taken or made by or for the benefit of the
Company pursuant to, in connection with or in furtherance of this Agreement
(including, without limitation, with respect to Sections 7.5 and 7.6 hereof)
shall be made or taken, as applicable, at the discretion and with the approval
of the members of the Board of Directors of the Company who are not affiliated
with Parent or Sub or their respective affiliates or stockholders.
In Witness Whereof, each of the parties has caused this Agreement and Plan
of Merger to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first above written.
TLMD Station Group, Inc.
("Parent")
By: /s/ Edward Yorke
__________________________________
Name: Edward Yorke
Title: President
TLMD Acquisition Co.
("Sub")
By: /s/ Edward Yorke
__________________________________
Name: Edward Yorke
Title: President
Telemundo Group, Inc.
("Company")
By: /s/ Roland A. Hernandez
__________________________________
Name: Roland A. Hernandez
Title: President and Chief
Executive Officer
A-32
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ANNEX B
[LETTERHEAD OF LAZARD FRERES & CO. LLC]
May 13, 1998
The Board of Directors
Telemundo Group, Inc.
2290 West 8th Avenue
Hialeah, Florida 33010
Dear Members of the Board:
We understand that Telemundo Group, Inc. (the "Company"), TLMD Station
Group, Inc. ("Parent"), formed and owned by (i) affiliates of Apollo
Management, L.P. ("Apollo"), (ii) affiliates of Bastion Capital Fund, L.P.
("Bastion"), (iii) a subsidiary of Liberty Media Corporation and (iv) a
subsidiary of Sony Pictures Entertainment Inc. (collectively the "Purchasers")
and TLMD Acquisition, a wholly owned subsidiary of Parent ("Sub") have entered
into an Agreement and Plan of Merger, dated as of November 24, 1997 (the
"Agreement"), pursuant to which Sub will be merged with and into the Company
(the "Merger") as a result of which the Company will become a wholly-owned
subsidiary of Parent. Pursuant to the Agreement, each share of Series A Common
Stock, par value $.01 per share, of the Company (the "Series A Common Stock")
and Series B Common Stock, par value $.01 per share, of the Company (together
with the Series A Common Stock, the "Common Stock") (other than shares of
Common Stock held by Parent, Sub, or any other wholly-owned subsidiary of
Parent, or in the treasury of the Company or by any wholly-owned subsidiary of
the Company and shares of Common Stock held by stockholders who properly
exercise and perfect stockholders' appraisal rights, if any, under the
Delaware General Corporation Law) outstanding immediately prior to the
effective time of the Merger will be converted into the right to receive cash
in an amount of $44.00 (the "Merger Consideration"). We also understand that
Apollo and Bastion currently own approximately 34% of the Common Stock.
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of Common Stock (other than the Purchasers and their
affiliates) of the Merger Consideration. In connection with this opinion, we
have among other things:
(i) Reviewed the financial terms and conditions of the Agreement;
(ii) Analyzed certain historical business and financial information
relating to the Company;
(iii) Reviewed various financial forecasts and other data provided to us
by the Company relating to its business;
(iv) Held discussions with members of the senior management of the
Company with respect to the business and prospects of the Company and the
strategic objectives of the Company;
(v) Reviewed public information with respect to certain other companies
in lines of business we believe to be generally comparable to the business
of the Company;
(vi) Reviewed the financial terms of certain business combinations
involving companies in lines of business we believe to be generally
comparable to those of the Company;
(vii) Reviewed the historical stock prices and trading volumes of the
Series A Common Stock; and
(viii) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
B-1
<PAGE>
[LOGO OF LAZARD FRERES & CO. LLC]
We have relied upon the accuracy and completeness of the foregoing
information and have not assumed any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company. With respect to financial
forecasts, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of management
of the Company as to the future financial performance of the Company. We
assume no responsibility for and express no view as to such forecasts or the
assumptions on which they are based.
Further, our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. We understand that another person (the "Third Party") has
made a bid at a cash price per share that is equal to the Merger
Consideration. In rendering our opinion, we did not address the relative
merits of the Merger, the Third Party bid and any alternative potential
transaction or the Company's underlying decision to effect the Merger.
In rendering our opinion, we have assumed that the Merger will be
consummated on the terms described in the Agreement without any waiver of any
material term or condition by the Company and that obtaining the necessary
regulatory approvals for the Merger will not have a material adverse effect on
the Company.
Lazard Freres & Co. LLC is acting as financial advisor to the Company in
connection with the Merger and will receive a fee for our services, a
substantial portion of which is contingent upon the closing of the Merger. We
have in the past provided financial advisory services to Apollo, for which we
received usual and customary compensation. In addition, the Company has agreed
to indemnify us for certain liabilities that may arise out of the rendering of
this opinion.
Our engagement and the opinion expressed herein are for the benefit of the
Company's Board of Directors and our opinion is rendered to the Company's
Board in connection with its consideration of the Merger. This opinion is not
intended to and does not constitute a recommendation to any holder of Common
Stock of the Company as to whether such stockholder should vote for the
Merger. It is understood that this letter may not be disclosed or otherwise
referred to without our prior consent, except as may otherwise be required by
law or by a court of competent jurisdiction.
Based on and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Merger Consideration is fair to the holders of Common Stock
(other than the Purchasers and their affiliates) from a financial point of
view.
Very truly yours,
Lazard Freres & Co. LLC
/s/ Steven Rattner
By: Steven Rattner
Deputy Chief Executive
B-2
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ANNEX C
[LOGO OF SALOMON SMITH BARNEY]
May 13, 1998
The Special Committee
of the Board of Directors of
Telemundo Group, Inc.
2290 West 8th Avenue
Hialeah, Florida 33010
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to the fairness, from
a financial point of view, to the holders of the Series A Common Stock, par
value $.01 per share (the "Series A Common Stock"), and the Series B Common
Stock, par value $.01 per share (the "Series B Common Stock" and, together
with the Series A Common Stock, the "Common Stock"), of Telemundo Group, Inc.
(the "Company"), other than stockholders affiliated with TLMD Station Group,
Inc. ("Parent") or its affiliates, of the Merger Consideration (as defined
below) to be received by such holders pursuant to the Agreement and Plan of
Merger dated as of November 24, 1997 by and among the Parent, TLMD Acquisition
Co., a wholly owned subsidiary of Parent ("Merger Sub"), and the Company (the
"Merger Agreement"). The Merger Agreement provides for, among other things,
the merger (the "Merger") of Merger Sub with and into the Company, pursuant to
which each share of Common Stock issued and outstanding immediately prior to
the effective time of the Merger will be converted into the right to receive
$44.00 in cash plus, if the Merger is not consummated before the Trigger Date
(as defined in the Merger Agreement) and subject to certain conditions
contained in the Merger Agreement, the Additional Amount (as defined in the
Merger Agreement) (the "Merger Consideration").
In connection with rendering our opinion, we have, among other things: (i)
reviewed the Merger Agreement in the form provided to us; (ii) reviewed
certain publicly available business and financial information concerning the
Company; (iii) reviewed certain publicly available information concerning the
industry in which the Company operates; (iv) reviewed and analyzed certain
financial forecasts and other non-public financial and operating data
concerning the business and operations of the Company that were provided to or
reviewed for us by management of the Company; (v) reviewed certain publicly
available business and financial information with respect to certain other
companies that we believe to be comparable in certain respects to the Company
and the trading markets for such companies' securities; (vi) reviewed and
analyzed certain publicly available and other information concerning the
trading of, and the trading market for, the Series A Common Stock; (vii)
reviewed the financial terms of certain business combination and acquisition
transactions we deem reasonably comparable to the Merger and otherwise
relevant to our inquiry; (viii) reviewed the results of the process that
resulted in the negotiation, execution and delivery of the Merger Agreement
that were provided to or reviewed for us by management or advisors of the
Company; and (ix) considered such other information, financial studies,
analyses, investigations and financial, economic, market and trading criteria
as we deemed relevant to our inquiry. We have also discussed with certain
officers, employees and advisors of the Company the foregoing, including the
past and current operations, financial condition and prospects of the Company,
as well as other matters we believe relevant to our inquiry. While we have
reviewed the results of the process that resulted in the negotiation,
execution and delivery of the Merger Agreement, it should also be noted that,
within the context of our current engagement by the Company, we have not been
authorized to and have not solicited alternative offers for the Company or its
assets.
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<PAGE>
In our review and analysis and in arriving at our opinion, we have assumed and
relied upon, without assuming any responsibility for verification, the accuracy
and completeness of all of the financial and other information provided to,
discussed with, or reviewed by or for us or publicly available. With respect to
the financial projections for the Company, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments on the part of the management of the Company as to the future
financial performance of the Company. We express no view as to such projections
or information or the assumptions on which they are based. We have not assumed
any responsibility for making or obtaining any independent evaluations or
appraisals of any of the assets (including properties and facilities) or
liabilities of the Company.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof, and we assume no responsibility to update or
revise our opinion based upon circumstances or events occurring after the date
hereof. Our opinion does not address the Company's underlying business decision
to effect the Merger.
For purposes of rendering our opinion, we have assumed, in all respects
material to our analysis, that the representations and warranties of each party
contained in the Merger Agreement are true and correct, that each party will
perform all of the covenants and agreements required to be performed by it
under the Merger Agreement and that all conditions to the consummation of the
Merger will be satisfied without waiver thereof.
As you are aware, we have been retained by the Company to render an opinion to
the Special Committee of the Board of Directors of the Company as to the
fairness, from a financial point of view, to the holders of Common Stock of the
Company, other than stockholders affiliated with Parent or its affiliates, of
the Merger Consideration and will receive a fee from the Company for our
services. The Company has also agreed to indemnify us for certain liabilities
arising out of our engagement. Additionally, we have rendered certain
investment banking and financial advisory services to the Company in the past
for which we have been paid fees. In addition, in the ordinary course of our
business, we or our affiliates may actively trade the securities of the Company
for our own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Merger Consideration is fair, from a financial point of view,
to the holders of Common Stock of the Company, other than stockholders
affiliated with Parent or its affiliates.
Very truly yours,
/s/ Salomon Brothers Inc
SALOMON BROTHERS INC
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ANNEX D
THE TELEMUNDO GROUP, INC.
MANAGEMENT INCENTIVE COMPENSATION PLAN
1.PURPOSE AND DESIGN
This Management Incentive Compensation Plan (the "Incentive Plan") is
intended to tie the goals and interests of eligible officers of The Telemundo
Group, Inc. ("Telemundo") to those of Telemundo and its stockholders and to
enable Telemundo to attract and retain highly qualified employees. The
Incentive Plan is for the benefit Telemundo's President and Chief Executive
Officer and up to three additional top senior officers which senior officers
may or may not be Section 162(m) Employees (as defined below). The Incentive
Plan is designed to ensure that the bonuses paid hereunder to Section 162(m)
Employees are deductible without limit under Section 162(m) of the Internal
Revenue Code of 1986, as amended, and the regulations and interpretations
promulgated thereunder (the "Code").
2.ELIGIBLE EMPLOYEES
The Bonus Committee (as described below) shall select Telemundo's President
and Chief Executive Officer and up to three additional key employees who are
the top three senior officers of Telemundo other than the President and Chief
Executive Officer and who hold the titles of Executive Vice President, Chief
Financial Officer and Treasurer or who hold other senior management positions
and who are or may be "covered employees" (as defined in Section 162(m)(3) of
the Code) (the "Section 162(m) Employees") to be eligible to receive bonuses
under this Plan. The employees covered by the Incentive Plan are hereinafter
referred to as the "Eligible Employees."
3.THE COMMITTEE
The "Bonus Committee" shall administer the Incentive Plan and shall consist
of a committee of the Board of Directors of Telemundo, which may be the
Compensation and Stock Option Committee of the Board of Directors, which
committee will be comprised solely of two or more members of Telemundo's Board
of Directors all of whom shall qualify as "outside directors" under Code
Section 162(m). The Bonus Committee that is appointed to administer the
Incentive Plan shall have the sole discretion and authority to administer and
interpret the Incentive Plan.
4.BONUSES
An Eligible Employee may receive a bonus payment hereunder based upon the
attainment of performance objectives and targets established by the Bonus
Committee and related to the following corporate business criteria: cash flow
(which may be measured by earnings before interest, taxes, depreciation and
amortization ("EBITDA")); provided, however, that EBITDA targets shall not be
higher than Telemundo's budget for EBITDA for the applicable fiscal year.
Any bonuses paid to Section 162(m) Employees shall be based upon bonus
formulas that tie such bonuses to Telemundo's cash flow. Bonus formulas for
Section 162(m) Employees shall be adopted in each performance period by the
Bonus Committee no later than the latest time permitted by Code Section
162(m). No bonuses shall be paid to Section 162(m) Employees unless and until
the Bonus Committee makes a certification in writing with respect to the
attainment of the objective performance standards as required by Code Section
162(m). The Bonus Committee shall have no discretion to increase the amount of
a Section 162(m) Employee's bonus.
The maximum bonus payable to a Section 162(m) Employee shall not exceed 100%
of such Section 162(m) Employee's base salary with respect to any fiscal year
of Telemundo.
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The Bonus Committee shall have the discretion to apply or not apply the
foregoing provisions of this Section 4 to bonuses payable to Eligible
Employees, if any, who are Non-Section 162(m) Employees.
The payment of a bonus to an Eligible Employee with respect to a performance
period shall be conditioned upon the Eligible Employee's employment by
Telemundo on the last day of the performance period; provided, however, that
the Bonus Committee may make exceptions to this requirement, in its sole
discretion, in the case of an Eligible Employee's retirement, death or
disability; provided further, however, that if an Eligible Employee has a
written employment agreement with Telemundo and such Eligible Employee's
employment by the Telemundo is terminated by Telemundo without "cause" or by
the Eligible Employee for "good reason" or by the Eligible Employee pursuant
to "specified resignation rights" available to such Eligible Employee after a
change of control transaction involving Telemundo (in each case as described
in the Eligible Employee's employment agreement), then such Eligible Employee
shall be entitled to his or her bonus for the year in which such termination
of employment occurred.
5.AMENDMENT AND TERMINATION
Telemundo reserves the right to amend or terminate this Incentive Plan at
any time in its sole discretion. Any amendments to the Incentive Plan shall
require stockholder approval only to the extent required by Code Section
162(m).
6.STOCKHOLDER APPROVAL
No bonuses shall be paid under this Incentive Plan to Section 162(m)
Employees unless and until Telemundo's stockholders shall have approved this
Incentive Plan as required by Section 162(m) of the Code.
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ANNEX E
DELAWARE GENERAL CORPORATION LAW
SECTION 262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to (S)228 of this title shall be
entitled to an appraisal by the Court of Chancery of the fair value of the
stockholder's shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word "stockholder"
means a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and
include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely
of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
(S)251(g) of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of
this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
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date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as
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the Court may direct. Payment shall be so made to each such stockholder, in
the case of holders of uncertificated stock forthwith, and the case of holders
of shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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TELEMUNDO GROUP, INC.
2290 WEST 8TH AVENUE
HIALEAH, FLORIDA 33010
SPECIAL MEETING OF STOCKHOLDERS--JUNE 16, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF TELEMUNDO GROUP,
INC.
The undersigned stockholder of Telemundo Group, Inc. (the "Company") hereby
appoints Peter J. Housman II and Osvaldo F. Torres and each of them, the true
and lawful attorneys, agents and proxies of the undersigned, with full power of
substitution to each of them, to represent and vote as set forth herein all the
shares of Common Stock held of record by the undersigned on May 12, 1998 at the
Special Meeting of Stockholders of the Company to be held on June 16, 1998 at
The Rihga Royal Hotel, 151 West 54th Street, New York, New York 10019 at 10:00
a.m. local time and at any postponements or adjournments thereof.
PLEASE MARK YOUR CHOICES LIKE THIS [X] IN BLUE OR BLACK INK
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1 AND FOR PROPOSAL 2
1. APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND THE TRANSACTIONS
CONTEMPLATED THEREBY
FOR [_] AGAINST [_] ABSTAIN [_]
2. APPROVAL OF THE MANAGEMENT INCENTIVE COMPENSATION PLAN
FOR [_] AGAINST [_] ABSTAIN [_]
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENTS OR
ADJOURNMENTS THEREOF.
(see reverse side)
(continued from other side)
This Proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 AND FOR
PROPOSAL 2.
Dated: ____________________, 1998
---------------------------------
Signature
---------------------------------
Signature if held jointly
Please sign exactly as name
appears on stock certificate.
Each joint owner must sign.
Executors, administrators,
trustees or guardians must give
full title as such. If a
corporation, please sign in full
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
Please mark, sign, date and return this Proxy promptly using the enclosed
envelope.
