AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (VIA EDGAR) ON AUGUST 29,
1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VIACOM INC.
(Exact name of registrant as specified in its charter)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 4841 04-2949533
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
200 ELM STREET
DEDHAM, MASSACHUSETTS 02026
(617) 461-1600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
PHILIPPE P. DAUMAN, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL,
CHIEF ADMINISTRATIVE OFFICER AND SECRETARY
VIACOM INTERNATIONAL INC.
1515 BROADWAY
NEW YORK, NEW YORK 10036
(212) 258-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
CREIGHTON O'M. CONDON, ESQ. ROGER S. AARON, ESQ.
PHILLIP L. JACKSON, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM
SHEARMAN & STERLING 919 THIRD AVENUE
599 LEXINGTON AVENUE NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10022 (212) 735-3000
(212) 848-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after this Registration Statement becomes effective
and all other conditions to the business combination transaction (the "Merger"),
pursuant to which Blockbuster Entertainment Corporation, a Delaware corporation
("Blockbuster"), will merge with and into Viacom Inc., a Delaware corporation
("Viacom"), described in the enclosed Joint Proxy Statement/Prospectus have been
satisfied or waived (but in no event earlier than the 20th business day
following the date on which the enclosed Joint Proxy Statement/Prospectus has
been given or sent to stockholders of Blockbuster).
------------------------
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE><CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED(1) BE REGISTERED PER UNIT OFFERING PRICE FEE(3)
<S> <C> <C> <C> <C>
Class A Common Stock...................... 22,134,256
Class B Common Stock(4)................... 205,970,317 (2) (2) $2,486,526
Variable Common Rights.................... 276,678,196
</TABLE>
(1) This Registration Statement relates to securities of Viacom issuable to
holders of Common Stock, par value $0.10 per share, of Blockbuster
("Blockbuster Common Stock") in the Merger.
(2) Not applicable.
(3) Pursuant to Rule 457(f) of the Securities Act of 1933, the registration fee
for all the securities registered hereunder, $2,486,526, has been calculated
as follows: one-twentyninth of one percent of (a) $26.0625, the average of
the high and low prices of shares of Blockbuster Common Stock as reported on
the New York Stock Exchange Composite Transaction Tape on August 26, 1994,
multiplied by (b) 276,678,196, the maximum number of shares of Blockbuster
Common Stock to be exchanged in the Merger. Pursuant to Rule 457(b) of the
Securities Act of 1933, the amount of the registration fee has been reduced
by $1,268,587, which was already paid with respect to this transaction
pursuant to Section 14(g) of the Securities Exchange Act of 1934. On August
25, 1994, $1,217,939 was wired to the Securities and Exchange Commission's
lockbox. Viacom's account number for fees is 0000813828.
(4) Of the 205,970,317 shares of Class B Common Stock, par value $.01 per share,
of Viacom being registered hereunder, 38,261,828 are issuable, under certain
circumstances, pursuant to the variable common rights of Viacom being
registered hereunder. No separate consideration will be received for such
shares of Class B Common Stock in the event any such issuance occurs.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
VIACOM INC.
Cross Reference Sheet pursuant to Rule 404(a) of the Securities Act and
Item 501(b) of Regulation S-K, showing the location or heading in the Joint
Proxy Statement/Prospectus of the information required by Part I of Form S-4.
LOCATION OR HEADING IN
S-4 ITEM NUMBER AND CAPTION JOINT PROXY STATEMENT/PROSPECTUS
- ------------------------------------------ -----------------------------------
A. Information About the Transaction
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus......................... Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus.............. Available Information;
Incorporation of Certain Documents
by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other
Information........................ Summary
4. Terms of the Transaction........... Summary; Introduction; The
Meetings; The Merger; Certain
Provisions of the Merger
Agreement; Certain Transactions
Between Viacom and Blockbuster
and With Their Stockholders;
Description of Viacom Capital
Stock; Comparison of Stockholder
Rights; Financial Matters after
the Merger
5. Pro Forma Financial Information.... Summary; Unaudited Pro Forma
Combined Condensed Financial
Statements Viacom/Combined
Company; Blockbuster, Super Club
and Spelling Entertainment
Unaudited Pro Forma Condensed
Consolidated Statements of
Operations; Paramount, Macmillan
and Other Businesses Acquired
Unaudited Pro Forma Condensed
Consolidated Financial Statements
6. Material Contacts with the Company
Being Acquired................... Summary; The Merger; Certain
Provisions of the Merger Agreement;
Certain Transactions Between
Viacom and Blockbuster and With
Their Stockholders
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters.......... Not Applicable
8. Interests of Named Experts and
Counsel............................ Not Applicable
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities.................. Not Applicable
B. Information about the Registrant
10. Information with Respect to S-3
Registrants........................ Available Information;
Incorporation of Certain Documents
by Reference
11. Incorporation of Certain
Information by Reference......... Incorporation of Certain Documents
by Reference
12. Information with Respect to S-2 or
S-3 Registrants.................. Not Applicable
<PAGE>
13. Incorporation of Certain
Information by Reference......... Not Applicable
14. Information with Respect to
Registrants other than S-3 or S-2
Registrants........................ Not Applicable
C. Information About the Company Being
Acquired
15. Information with Respect to S-3
Companies.......................... Available Information;
Incorporation of Certain Documents
by Reference
16. Information with Respect to S-2 or
S-3 Companies.................... Not Applicable
17. Information with Respect to
Companies Other than S-3 or S-2
Companies.......................... Not Applicable
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be
Solicited.......................... Incorporation of Certain Documents
by Reference; Summary; The
Meetings; The Merger; Certain
Provisions of the Merger
Agreement; Management Before and
After the Merger; Security
Ownership of Certain Beneficial
Owners and Management; Dissenting
Stockholders' Rights of
Appraisal; Proposal to Amend the
Blockbuster 1991 Non-Employee
Director Plan; Stockholder
Proposals
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange
Offer.............................. Not Applicable
<PAGE>
VIACOM INC.
AND
BLOCKBUSTER ENTERTAINMENT CORPORATION
JOINT PROXY STATEMENT
------------------------
VIACOM INC.
PROSPECTUS
This Joint Proxy Statement/Prospectus (this "Proxy Statement/Prospectus")
is being furnished to stockholders of Viacom Inc. ("Viacom") and Blockbuster
Entertainment Corporation ("Blockbuster") in connection with the solicitation of
proxies by the respective Boards of Directors of such corporations for use at
their respective Special Meetings of Stockholders (including any adjournments or
postponements thereof) to be held on September 29, 1994. This Proxy
Statement/Prospectus relates to the proposed merger of Blockbuster with and into
Viacom (the "Merger") pursuant to the Agreement and Plan of Merger dated as of
January 7, 1994, as amended as of June 15, 1994 (the "Merger Agreement"),
between Viacom and Blockbuster, a copy of which is attached hereto as Annex I.
This Proxy Statement/Prospectus also constitutes a prospectus of Viacom
with respect to (i) 22,134,256 shares of the Class A Common Stock, par value
$.01 per share, of Viacom ("Viacom Class A Common Stock"), (ii) 205,970,317
shares of the Class B Common Stock, par value $.01 per share, of Viacom ("Viacom
Class B Common Stock" and, together with Viacom Class A Common Stock, "Viacom
Common Stock") and (iii) 276,678,196 variable common rights of Viacom ("VCRs"),
each representing the right to receive up to an additional 0.13829 of a share of
Viacom Class B Common Stock, issuable to the holders of the Common Stock, par
value $.10 per share, of Blockbuster ("Blockbuster Common Stock") in the Merger.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of Viacom and Blockbuster on or about August
31, 1994.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement/Prospectus is August 29, 1994.
<PAGE>
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY VIACOM OR BLOCKBUSTER. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF VIACOM OR BLOCKBUSTER SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
Viacom, Blockbuster and Paramount Communications Inc., a wholly owned
subsidiary of Viacom ("Paramount"), are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
reports, proxy statements and other information filed by Viacom, Blockbuster and
Paramount with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and should be available at the
Commission's Regional Offices at Seven World Trade Center, 13th Floor, New York,
New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material also can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, material filed by
Viacom can be inspected at the offices of the American Stock Exchange, Inc. (the
"AMEX"), 86 Trinity Place, New York, New York 10006, material filed by
Blockbuster may be inspected at the offices of the New York Stock Exchange, Inc.
(the "NYSE"), 20 Broad Street, New York, New York 10005, and the London Stock
Exchange, Old Broad Street, London, England EC2N 1HP, and material filed by
Paramount may be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005. As a result of Paramount becoming a wholly owned
subsidiary of Viacom on July 7, 1994, Paramount may no longer be required to
file reports, proxy statements and other information pursuant to the
requirements of the Exchange Act.
Viacom has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Viacom Common Stock and VCRs to be issued pursuant to the Merger
Agreement. This Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement and the exhibits thereto. Such
additional information may be obtained from the Commission's principal office in
Washington, D.C. Statements contained in this Proxy Statement/Prospectus or in
any document incorporated in this Proxy Statement/Prospectus by reference as to
the contents of any contract or other document referred to herein or therein are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
(i)
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Viacom (File No.
1-9553), Blockbuster (File No. 1-12700) or Paramount (File No. 1-5404) pursuant
to the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus:
1. Viacom's Annual Report on Form 10-K for the year ended December 31,
1993, as amended by Form 10-K/A Amendment No. 1 dated May 2, 1994;
2. Viacom's Current Reports on Form 8-K dated January 12, 1994, March
18, 1994, March 28, 1994, July 7, 1994 and July 22, 1994;
3. Viacom's Quarterly Reports on Form 10-Q for the three months ended
March 31, 1994 and the six months ended June 30, 1994;
4. Blockbuster's Annual Report on Form 10-K for the year ended
December 31, 1993;
5. Blockbuster's Current Reports on Form 8-K dated November 5, 1993
(filed November 5, 1993), January 7, 1994 (filed January 12, 1994),
February 15, 1994 (filed February 22, 1994), March 10, 1994 (filed March
11, 1994), May 5, 1994 (filed May 5, 1994), July 18, 1994 (filed July 19,
1994), August 23, 1994 (filed August 25, 1994) and August 18, 1994
(filed August 26, 1994);
6. Blockbuster's Quarterly Reports on Form 10-Q for the three months
ended March 31, 1994 and the six months ended June 30, 1994;
7. Paramount's Transition Report on Form 10-K for the eleven-month
period ended March 31, 1994, as amended by Form 10-K/A Amendment No. 1
dated July 29, 1994 and as further amended by Form 10-K/A Amendment No. 2
dated August 12, 1994;
8. Paramount's Current Report on Form 8-K dated July 22, 1994; and
9. Paramount's Quarterly Report on Form 10-Q for the three months
ended June 30, 1994.
All documents and reports filed by Viacom, Blockbuster and Paramount
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Proxy Statement/Prospectus and prior to the date of the special meetings
of stockholders of Blockbuster and Viacom shall be deemed to be incorporated by
reference in this Proxy Statement/Prospectus and to be a part hereof from the
dates of filing of such documents or reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON
WRITTEN OR ORAL REQUEST, IN THE CASE OF DOCUMENTS RELATING TO VIACOM OR
PARAMOUNT, TO VIACOM INTERNATIONAL INC., 1515 BROADWAY, NEW YORK, NEW YORK 10036
(TELEPHONE NUMBER (212) 258-6000), ATTENTION: JOHN H. BURKE OR, IN THE CASE OF
DOCUMENTS RELATING TO BLOCKBUSTER, TO BLOCKBUSTER ENTERTAINMENT CORPORATION, ONE
BLOCKBUSTER PLAZA, FORT LAUDERDALE, FLORIDA 33301-1860 (TELEPHONE NUMBER (305)
832-3000), ATTENTION: WALLACE M. KNIEF. IN ORDER TO ENSURE DELIVERY OF THE
DOCUMENTS PRIOR TO THE APPLICABLE STOCKHOLDER MEETING, REQUESTS SHOULD BE
RECEIVED BY SEPTEMBER 14, 1994.
(ii)
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
- ------------------------------------------------------------------------ ----
AVAILABLE INFORMATION................................................... i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......................... ii
DEFINITION CROSS-REFERENCE SHEET........................................ v
SUMMARY................................................................. 1
The Companies......................................................... 1
The Meetings.......................................................... 4
The Merger............................................................ 6
Certain Transactions Between Viacom and Blockbuster and With Their
Stockholders........................................................ 11
Certain Considerations................................................ 12
Executive Officers and Directors After the Merger..................... 13
Financial Matters After the Merger.................................... 13
Trademarks and Trade Names............................................ 13
Selected Historical Consolidated Financial Data and Unaudited Pro Forma
Financial Data, Unaudited Pro Forma Combined Financial Data and Other
Data................................................................ 14
INTRODUCTION............................................................ 27
THE COMPANIES........................................................... 27
Viacom................................................................ 27
Blockbuster........................................................... 36
THE MEETINGS............................................................ 38
Matters To Be Considered at the Meetings.............................. 38
Votes Required........................................................ 38
Voting of Proxies..................................................... 39
Revocability of Proxies............................................... 39
Record Date; Stock Entitled To Vote; Quorum........................... 39
Appraisal Rights...................................................... 40
Solicitation of Proxies............................................... 40
THE MERGER.............................................................. 41
General............................................................... 41
Background of the Merger.............................................. 41
Reasons for the Merger; Recommendation of the Boards of Directors..... 49
Form of the Merger.................................................... 53
Merger Consideration.................................................. 53
Ownership of Viacom Common Stock Immediately After the Merger......... 55
Opinions of Financial Advisors........................................ 55
Effective Time........................................................ 73
Stock Exchange Listing................................................ 73
Certain Federal Income Tax Consequences............................... 73
Treatment of Blockbuster Warrants and Employee Stock Options.......... 79
Interests of Certain Persons in the Merger............................ 80
CERTAIN PROVISIONS OF THE MERGER AGREEMENT.............................. 81
Procedure for Exchange of Blockbuster Certificates.................... 81
Certain Representations and Warranties................................ 82
Conduct of Businesses Pending the Merger.............................. 82
Conditions to Consummation of the Merger.............................. 84
Restrictions On Going Private Transactions............................ 85
Resales by Blockbuster Affiliates..................................... 85
Indemnification; Insurance............................................ 85
Termination........................................................... 86
Expenses.............................................................. 87
Amendment and Waiver.................................................. 88
CERTAIN TRANSACTIONS BETWEEN VIACOM AND BLOCKBUSTER AND WITH THEIR
STOCKHOLDERS.......................................................... 89
Blockbuster Purchase of Series A Preferred Stock...................... 89
Blockbuster Purchase of Viacom Class B Common Stock................... 89
Voting Agreement...................................................... 90
Stockholders Stock Option Agreement................................... 91
(iii)
<PAGE>
SECTION PAGE
- ------------------------------------------------------------------------ ----
Proxy Agreement....................................................... 91
CERTAIN CONSIDERATIONS.................................................. 93
MANAGEMENT BEFORE AND AFTER THE MERGER.................................. 94
Executive Officers and Directors of Viacom............................ 94
Executive Officers and Directors of Blockbuster....................... 97
Executive Officers and Directors After the Merger..................... 100
Blockbuster Employment Agreements..................................... 100
FINANCIAL MATTERS AFTER THE MERGER...................................... 100
Accounting Treatment.................................................. 100
Common Stock Dividend Policy After the Merger......................... 100
CAPITALIZATION.......................................................... 101
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
VIACOM/COMBINED COMPANY............................................... 102
PARAMOUNT, MACMILLAN AND OTHER BUSINESSES ACQUIRED UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........................... 111
BLOCKBUSTER, SUPER CLUB AND SPELLING ENTERTAINMENT
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS......................................................... 115
DESCRIPTION OF VIACOM CAPITAL STOCK..................................... 118
Viacom Class A Common Stock........................................... 118
Viacom Class B Common Stock........................................... 118
Viacom Three-Year Warrants............................................ 119
Viacom Five-Year Warrants............................................. 120
Voting and Other Rights of the Viacom Common Stock.................... 120
Viacom Preferred Stock................................................ 121
Series C Preferred Stock.............................................. 122
COMPARISON OF STOCKHOLDER RIGHTS........................................ 125
Stockholder Vote Required for Certain Transactions.................... 125
Special Meetings of Stockholders; Stockholder Action by Written
Consent................................................................. 126
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......... 127
Viacom Capital Stock.................................................. 127
Blockbuster Capital Stock............................................. 128
OTHER MATTERS........................................................... 130
Antitrust Approvals................................................... 130
Regulatory Matters.................................................... 131
Stockholder Litigation................................................ 131
DISSENTING STOCKHOLDERS' RIGHTS OF APPRAISAL............................ 133
PROPOSAL TO AMEND THE BLOCKBUSTER 1991 NON-EMPLOYEE DIRECTOR PLAN....... 136
EXPERTS................................................................. 137
Financial Statements.................................................. 137
Legal Opinions........................................................ 137
STOCKHOLDER PROPOSALS................................................... 138
LIST OF ANNEXES
Annex I Merger Agreement
Annex II Voting Agreement
Annex III Stockholders Stock Option Agreement
Annex IV Proxy Agreement
Annex V Opinion of Smith Barney Shearson Inc.
Annex VI Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
Annex VII Excerpt from the Delaware General Corporation Law Relating to
Dissenters' Rights
Annex VIII Form of Certificate of Merger
(iv)
<PAGE>
DEFINITION CROSS-REFERENCE SHEET
Set forth below is a list of certain defined terms used in this Proxy
Statement/Prospectus and the page on which each such term is defined:
<TABLE><CAPTION>
TERM PAGE TERM PAGE
---- ---- ---- ----
<S> <C> <C> <C>
Agency 130 Merger Consideration 6
AMEX (i) Merrill Lynch 9
Antitrust Division 130 Merrill Lynch Opinion 66
ARC 130 Merrill Lynch Report 68
August 10 Credit Facility 37 MFJ 35
Average Price 89 MGM 29
Blockbuster Cover Miami Dolphins 97
Blockbuster Certificates 81 MSG Sale 2
Blockbuster Commitment Letter 37 MTVN 27
Blockbuster Common Stock Cover NAI 5
Blockbuster Comparable Group 68 New Blockbuster Facility 37
Blockbuster Credit Agreement 37 NewLeaf 131
Blockbuster Management 41 Nielsen Report 27
Blockbuster Plan Proposal 5 1991 Non-employee Director Plan 136
Non-employee Directors 47
Blockbuster Pro Forma Events 22 NYNEX 33
Blockbuster Special Meeting 4 NYSE (i)
BOCs 34 Offer 15
Business Combination Comparables 69 Option Stockholders 6
Cable Systems Sale 2 Owned Shares 90
Cityvision 21 Paramount (i)
Class B Value 7 Paramount Common Stock 2
Code 73 Paramount Merger 2
combined company 6 Paramount Merger Consideration 2
Commission (i) Paramount Offer to Purchase 56
Communications Act 34 Parity Stock 123
Competing Transaction 88 Parks Business 90
Complaint 131 PCW 111
Conversion Ratio 9 Pessin Complaint 132
CVRs 2 Philips 92
DBS 29 Preferred Stock Subscription
Agreement 89
DCF 59 Pro Forma Events 23
Delaware Court 133 Proposed Regulations 77
DGCL 6 Proxy Agreement 6
Director 130 Proxy Statement/Prospectus Cover
Discovery Zone 4 Proxy Stockholders 6
Discovery Zone FunCenters 4 PSG 18
Divestitures 70
Effective Time 6 Psychemedics 98
Erol's 21 qualifying property 11
Exchange Act (i) QVC 42
Exchange Agent 81 Registration Statement (i)
Expenses 87 RHC 34
Extension Amendment 136 Section 262 133
FCC 30 Securities Act (i)
February 22nd Regulations 34 Series A Preferred Stock 11
First Anniversary 90 Series B Preferred Stock 33
first run 29 Series C Preferred Stock 120
Going Private Transaction 85 SFAS 17
Holdings 97 Show Industries 21
HSR Act 84 Showtime/Encore Joint Venture 3
ICA 130 Significant Stockholder 85
Initial VCR Holder 76 Smith Barney 9
June 30 Credit Facility 37 SNI 3
Kidder, Peabody 47 Significant Stockholder 85
LATAs 35 Sold Shares 90
Macmillan 17 Sound Warehouse 21
Macmillan Acquisition 17
Major Video 21
MCA 28
Merger Cover
Merger Agreement Cover
</TABLE>
(v)
<PAGE>
<TABLE><CAPTION>
TERM PAGE TERM PAGE
---- ---- ---- ----
<S> <C> <C> <C>
Special Meetings 4 Viacom Credit Agreement 2
Viacom 5% Debentures 120
Spelling Entertainment 4 Viacom 8% Debentures 2
Stockholder Shares 85 Viacom Five-Year Warrants 2
Stockholders Stock Option Agreement 6 Viacom International 1
Subscription Agreement 11 Viacom International Credit
Agreement 2
Super Club 21 Viacom Preferred Stock 33
TCI 2 Viacom Pro Forma Events 19
telco 34 Viacom Special Meeting 4
Termination Date 90 Viacom Three-Year Warrants 2
Time Warner 31 Virgin 3
TIN 76 Voting Agreement 5
VCR Class B Common Stock 75 VSMLP 21
VCR Conversion Date 7 WJB 21
VCR Valuation Period 7 WKBD 111
VCRs Cover WMX 97
Viacom Cover
Viacom-Blockbuster 61
Viacom Class A Common Stock Cover
Viacom Class B Common Stock Cover
Viacom Common Stock Cover
</TABLE>
(vi)
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained or
incorporated by reference in this Proxy Statement/Prospectus and the Annexes
hereto. Stockholders are urged to read this Proxy Statement/Prospectus and the
Annexes hereto, and in particular the section herein entitled "Certain
Considerations", in their entirety.
THE COMPANIES
VIACOM INC. Viacom's principal assets are its 100%
200 Elm Street ownership of Viacom International Inc.
Dedham, Massachusetts 02026 ("Viacom International") and Paramount.
(617) 461-1600
Viacom International......... Viacom International is a diversified
entertainment and communications company
with operations in four principal
segments: Networks, Entertainment, Cable
Television and Broadcasting.
Networks. Viacom Networks operates three
basic cable services in the U.S.: MTV:
MUSIC TELEVISION, VH-1/VIDEO HITS ONE and
NICKELODEON/NICK AT NITE. Viacom Networks
also operates three premium services:
SHOWTIME, THE MOVIE CHANNEL and FLIX.
Viacom International also participates as
a joint venturer in COMEDY CENTRALTM and
ALL NEWS CHANNELTM. Internationally, MTV
Networks operates MTV EUROPE and MTV
LATINO and participates as a joint
venturer in NICKELODEON UK.
Entertainment. Viacom Entertainment is
comprised principally of (i) Viacom
Enterprises, which distributes off-network
programming and feature films for
television exhibition in various markets
throughout the world and also distributes
television programs for initial U.S.
television exhibition on a non-network
basis and for international television
exhibition; (ii) Viacom Productions, which
produces television series and other
television properties independently and in
association with others primarily for
initial exhibition on U.S. prime time
network television; and (iii) Viacom New
Media, which develops, produces,
distributes and markets interactive
software for the stand-alone and other
multimedia marketplaces.
Cable Television. Viacom Cable owns and
operates cable television systems
servicing approximately 1,117,000
customers as of June 30, 1994 in
California, the Pacific Northwest and the
Midwest. Among other projects, Viacom
Cable has constructed a fiber optic cable
system in Castro Valley, California to
accommodate testing of new interactive
services. In connection with this test,
Viacom International has entered into an
agreement with AT&T to test and further
develop such services.
Broadcasting. Viacom Broadcasting owns and
operates five network-affiliated
television stations and 14 radio stations
(two of which are under contract to be
sold) in six of the top eight radio
markets, including duopolies (i.e.,
ownership of two or more AM or two or more
FM stations in the same market) in each of
Los Angeles, Seattle and Washington, D.C.
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Paramount.................... The businesses of Paramount are
entertainment and publishing.
Entertainment. Entertainment includes the
production, financing and distribution of
motion pictures, television programming
and prerecorded videocassettes and the
operation of motion picture theaters,
seven independent television stations (two
of which are under contract to be sold),
regional theme parks and Madison Square
Garden.
Publishing. Publishing includes the
publication and distribution of hardcover
and paperback books for the general
public, textbooks for elementary schools,
high schools and colleges, and the
provision of information services for
business and professions.
Recent Developments.......... On August 27, 1994, Viacom entered into a
definitive agreement pursuant to which
Viacom agreed to sell the Madison Square
Garden Corporation (which includes the
Madison Square Garden Arena, The Paramount
theater, the New York Knickerbockers, the
New York Rangers and the Madison Square
Garden Network) (the "MSG Sale") to a
joint venture between ITT Corporation and
Cablevision Systems Corporation for gross
proceeds of approximately $1,075,000,000.
The closing of the transaction is subject
to customary closing conditions, including
the expiration of the waiting period under
the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and
the approval of each of the National
Basketball Association and the National
Hockey League.
On July 7, 1994, Viacom Sub Inc., a wholly
owned subsidiary of Viacom, was merged
(the "Paramount Merger") with and into
Paramount. As a result of the Paramount
Merger, Paramount is now a wholly owned
subsidiary of Viacom. In connection with
the Paramount Merger, assuming that all
outstanding shares of the Common Stock,
par value $1.00 per share, of Paramount
("Paramount Common Stock") were exchanged,
Viacom issued (i) 56,895,733 shares of
Viacom Class B Common Stock, (ii)
$1,069,870,000 principal amount of
Viacom's 8% exchangeable subordinated
debentures due 2006 ("Viacom 8%
Debentures"), (iii) 56,895,733 contingent
value rights ("CVRs") of Viacom, (iv)
30,567,739 three-year warrants ("Viacom
Three-Year Warrants") to purchase one
share of Viacom Class B Common Stock at
$60 per share and (v) 18,340,643 five-year
warrants ("Viacom Five-Year Warrants") to
purchase one share of Viacom Class B
Common Stock at $70 per share
(collectively, the "Paramount Merger
Consideration").
On July 1, 1994, Viacom entered into an
aggregate $6.489 billion credit agreement
(the "Viacom Credit Agreement") and Viacom
International and certain of its
subsidiaries entered into a $311 million
credit agreement (the "Viacom
International Credit Agreement").
Viacom has recently had preliminary
discussions regarding the sale of its
cable television systems (the "Cable
Systems Sale").
Viacom and Tele-Communications, Inc.
("TCI") have recently held preliminary
discussions regarding a settlement of
Viacom's pending lawsuit against TCI which
alleges
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certain violations of U.S. antitrust laws.
Such discussions involved, together with
other consideration, the establishment of
a joint venture (the "Showtime/Encore
Joint Venture") to which Viacom would
contribute the assets of Showtime Networks
Inc. ("SNI") and TCI would contribute the
assets of its ENCORE premium subscription
program service, including its STARZ!
premium subscription program service and
certain other related assets. The venture
would be owned equally.
The discussions concerning the Cable
Systems Sale and the Showtime/Encore Joint
Venture have not sufficiently advanced to
indicate what the definitive terms of any
agreement would ultimately be and
significant differences in position remain
between each of the parties. Accordingly,
there can be no assurance that any such
agreements will be entered into or that
any of such transactions would ultimately
be consummated. The Unaudited Pro Forma
Combined Condensed Financial Statements
Viacom/Combined Company included in this
Proxy Statement/Prospectus do not make any
assumptions concerning either the Cable
Systems Sale or the Showtime/Encore Joint
Venture as agreement on definitive terms
has not sufficiently advanced for Viacom
to consider either transaction probable
for accounting purposes at this time.
BLOCKBUSTER ENTERTAINMENT
CORPORATION Blockbuster is an international
One Blockbuster Plaza entertainment company with businesses
Fort Lauderdale, Florida 33301 operating in the home video, music
(305) 832-3000 retailing and filmed and interactive
entertainment industries.
Blockbuster also has investments in other
entertainment related businesses.
Home Video Retailing. Blockbuster owns,
operates and franchises Blockbuster Video
videocassette rental and sales stores.
According to a survey published in the
December 1993 issue of Video Store
Magazine, Blockbuster's and its franchise
owners' systemwide revenue from the rental
and sale of prerecorded videocassettes is
greater than that of any other video
specialty chain in the United States. As
of June 30, 1994, there were 3,755 video
stores operating in Blockbuster's system,
of which 2,829 were Blockbuster-owned and
926 were franchise-owned.
Blockbuster-owned video stores at June 30,
1994 included 761 stores operating under
the "Ritz" and "Blockbuster Video Express"
trade names in the United Kingdom and 54
stores operating under the "Video Towne",
"Alfalfa", "Movies at Home" and
"Movieland" trade names in the United
States. The Blockbuster Video system
operates in 49 states and 10 foreign
countries.
Music Retailing. Through music stores
operating under various trade names,
including "Blockbuster Music", "Sound
Warehouse", "Music Plus", "Record Bar",
"Tracks", "Turtles" and "Rhythm and
Views", Blockbuster is one of the largest
specialty retailers of prerecorded music
in the United States, with 521 stores
operating throughout the United States as
of June 30, 1994. Blockbuster is also a
partner in an international joint venture
with Virgin Retail Group Limited
("Virgin") to develop music "Megastores"
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in Continental Europe, Australia and the
United States. The joint venture currently
owns interests in and operates 20
"Megastores."
Filmed and Interactive Entertainment.
Blockbuster has interests in the filmed
and interactive entertainment industries
through investments in Spelling
Entertainment Group Inc. (together with
its subsidiaries, "Spelling
Entertainment"), which operates in a broad
range of filmed entertainment businesses,
supported by an extensive library of
television series, feature films,
television movies, mini-series and
specials and is a leading developer,
publisher and distributor of interactive
entertainment software. Blockbuster
currently owns approximately 78% of
Spelling Entertainment's outstanding
shares of common stock.
Other Entertainment. As of June 30, 1994,
Blockbuster owned approximately 19% of the
outstanding shares of common stock of
Discovery Zone, Inc. ("Discovery Zone").
Discovery Zone owns, operates and
franchises indoor recreational facilities
for children ("Discovery Zone
FunCenters"). Blockbuster currently
operates 57 Discovery Zone facilities as a
franchisee of Discovery Zone and has
rights to develop additional Discovery
Zone facilities, directly and in a joint
venture with Discovery Zone.
On July 18, 1994, Blockbuster reached an
agreement in principle with Discovery Zone
regarding a transaction in which Discovery
Zone would acquire all of the franchised
Discovery Zone facilities and territories
currently owned by Blockbuster in exchange
for 4,500,000 shares of Discovery Zone's
common stock (subject to adjustment in
certain circumstances). In addition,
Blockbuster agreed in principle to
exercise its option from DKB Investments,
L.P., pursuant to which Blockbuster would
increase its ownership of Discovery Zone's
outstanding common stock to approximately
51%. Consummation of the foregoing
transactions is subject, among other
things, to (i) such approvals by a special
committee of the Blockbuster Board as such
committee shall deem to be necessary; (ii)
receipt by such committee of an opinion
from its financial advisor that such
transactions are fair to Blockbuster's
stockholders from a financial point of
view; (iii) negotiation and execution of
definitive agreements; and (iv) other
customary conditions.
THE MEETINGS
Meetings of Stockholders........ Viacom. A Special Meeting of Stockholders
of Viacom will be held at the Museum of
Television & Radio, 25 West 52nd Street,
New York, New York, on September 29, 1994,
at 10:30 a.m., New York time (the "Viacom
Special Meeting").
Blockbuster. A Special Meeting of
Stockholders of Blockbuster will be held
at the Broward Center for the Performing
Arts, Fort Lauderdale, Florida, on
September 29, 1994, at 11:00 a.m., local
time (the "Blockbuster Special Meeting"
and, together with the Viacom Special
Meeting, the "Special Meetings").
Matters to Be Considered at the
Meetings...................... Viacom. At the Viacom Special Meeting,
holders of Viacom
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Class A Common Stock will consider and
vote upon (i) a proposal to approve and
adopt the Merger Agreement, including the
issuance of the Merger Consideration (as
defined below) and (ii) such other
proposals as may be properly brought
before the meeting.
Blockbuster. At the Blockbuster Special
Meeting, holders of Blockbuster Common
Stock will (i) consider and vote upon a
proposal to approve and adopt the Merger
Agreement; (ii) consider and vote upon a
proposal to amend Blockbuster's 1991
Non-employee Director Stock Option Plan
(the "Blockbuster Plan Proposal"); and
(iii) transact such other business as may
properly come before the meeting.
Security Ownership of Management
and Certain Affiliates........ Viacom. As of June 30, 1994, directors and
executive officers of Viacom and their
affiliates (other than Sumner M. Redstone,
Chairman of the Board of Viacom) were
beneficial owners of less than 1% of the
outstanding shares of Viacom Class A
Common Stock and less than 1% of the
outstanding shares of Viacom Class B
Common Stock. National Amusements, Inc.
("NAI"), which is controlled by Sumner M.
Redstone, owned approximately 85% of the
outstanding shares of Viacom Class A
Common Stock and 32% of the outstanding
shares of Viacom Class B Common Stock on
June 30, 1994. All percentages of
ownership of Viacom Common Stock shown
above in this paragraph give effect to the
closing of the Paramount Merger, assuming
that all outstanding shares of Paramount
Common Stock were exchanged in the
Paramount Merger.
Blockbuster. As of July 31, 1994,
directors and executive officers of
Blockbuster were beneficial owners of
approximately 12.7% of the outstanding
shares of Blockbuster Common Stock.
Votes Required.................. Viacom. In order to effect the Merger, the
Merger Agreement must be approved by the
affirmative vote of the holders of a
majority of the outstanding shares of
Viacom Class A Common Stock. The failure
to vote shares, either by abstention or
non-vote, will have the same effect as a
vote against the Merger Agreement.
Pursuant to a Voting Agreement dated as of
January 7, 1994 (the "Voting Agreement")
between NAI and Blockbuster, a copy of
which is attached as Annex II, NAI has
agreed to vote all of its shares of Viacom
Class A Common Stock in favor of approval
of the Merger Agreement. The vote of NAI
in accordance with the Voting Agreement
would be sufficient to approve the Merger
Agreement without any action on the part
of any other holder of Viacom Class A
Common Stock.
Blockbuster. In order to effect the
Merger, the Merger Agreement must be
approved by the affirmative vote of the
holders of a majority of the outstanding
shares of Blockbuster Common Stock
entitled to vote thereon. The failure to
vote shares, either by abstention or
non-vote, will have the same effect as a
vote against the Merger Agreement.
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Pursuant to (i) an Amended and Restated
Stockholders Stock Option Agreement dated
as of January 7, 1994 (the "Stockholders
Stock Option Agreement") among Viacom and
certain stockholders of Blockbuster (the
"Option Stockholders") and (ii) an Amended
and Restated Proxy Agreement dated as of
January 7, 1994 (the "Proxy Agreement")
among Viacom and certain stockholders of
Blockbuster (the "Proxy Stockholders"),
the Option Stockholders and the Proxy
Stockholders have granted to Viacom
proxies to vote shares owned by such
stockholders representing approximately
22% of the outstanding shares of
Blockbuster Common Stock as of August 26,
1994 in favor of the Merger Agreement and
against any competing business combination
proposal.
In order to adopt the Blockbuster Plan
Proposal, the Blockbuster Plan Proposal
must be approved by the affirmative vote
of the holders of a majority of the shares
of Blockbuster Common Stock present in
person or represented by proxy and
entitled to vote thereon. Abstentions will
have the same effect as a vote against the
Blockbuster Plan Proposal. Broker
non-votes will have no such effect and
will not be counted.
Record Date..................... Viacom. The record date for the Viacom
Special Meeting is August 31, 1994.
Accordingly, holders of record of Viacom
Common Stock as of such date will be
entitled to notice of, and holders of
record of Viacom Class A Common Stock will
be entitled to vote at, the Viacom Special
Meeting.
Blockbuster. The record date for the
Blockbuster Special Meeting is August 31,
1994. Accordingly, holders of record of
Blockbuster Common Stock as of such date
will be entitled to notice of, and to vote
at, the Blockbuster Special Meeting.
THE MERGER
Form of the Merger.............. At the effective time of the Merger (the
"Effective Time"), Blockbuster will merge
with and into Viacom, with Viacom being
the surviving corporation, which is
referred to in this Proxy
Statement/Prospectus as the "combined
company."
Conversion of the Blockbuster
Common Stock.................. Pursuant to the Merger Agreement, at the
Effective Time, each outstanding share of
Blockbuster Common Stock (other than
shares of Blockbuster Common Stock owned
by Viacom or any direct or indirect wholly
owned subsidiary of Viacom or of
Blockbuster and other than shares of
Blockbuster Common Stock held by
stockholders who have demanded and
perfected appraisal rights, if available,
under the Delaware General Corporation Law
(the "DGCL")) will be converted into the
right to receive (i) 0.08 of a share of
Viacom Class A Common Stock, (ii) 0.60615
of a share of Viacom Class B Common Stock
and (iii) up to an additional 0.13829 of a
share of Viacom Class B Common Stock, with
such number of shares depending on market
prices of Viacom Class B Common Stock
during the year following the Effective
Time, evidenced by one VCR (collectively,
the "Merger Consideration"). No fractional
securities will be issued in connection
with the Merger.
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Based upon the closing market prices of
Viacom Class A Common Stock and Viacom
Class B Common Stock on the date of the
Merger Agreement (January 7, 1994), the
aggregate market value of the Merger
Consideration to be received by
Blockbuster stockholders ranged between
$28.54 per share and $30.97 per share,
depending upon the value attributed to the
VCRs. Based upon the closing market prices
of Viacom Class A Common Stock and Viacom
Class B Common Stock on August 26, 1994,
the aggregate value of the Merger
Consideration to be received by
Blockbuster stockholders ranged between
$23.44 per share and $28.09 per share,
depending upon the value attributed to the
VCRs. See "The Merger--Merger
Consideration."
Viacom Common Stock.......... The rights and privileges of the holders
of Viacom Class A Common Stock and Viacom
Class B Common Stock are identical except
that holders of Viacom Class A Common
Stock are entitled to vote on all matters
brought before stockholders of Viacom and,
other than as required under Delaware law,
holders of Viacom Class B Common Stock
have no voting rights.
The VCRs represent the right to receive
shares of Viacom Class B Common Stock
under certain circumstances on the first
anniversary of the Effective Time (the
"VCR Conversion Date"). The number of
shares of Viacom Class B Common Stock into
which the VCRs will convert will generally
be based upon the value of Viacom Class B
Common Stock (the "Class B Value")
determined during the 90 trading day
period (the "VCR Valuation Period")
immediately preceding the VCR Conversion
Date. The Class B Value will be equal to
the average closing price of a share of
Viacom Class B Common Stock during the 30
consecutive trading days in the VCR
Valuation Period which yields the highest
average closing price of a share of Viacom
Class B Common Stock. In the event that
the Class B Value is more than $40 per
share but less than $48 per share, each
VCR will convert into 0.05929 of a share
of Viacom Class B Common Stock on the VCR
Conversion Date. If the Class B Value is
$40 per share or below, the number of
shares of Viacom Class B Common Stock into
which each VCR will convert on the VCR
Conversion Date will increase ratably from
0.05929 of a share to the maximum of
0.13829 of a share of Viacom Class B
Common Stock, which will occur if the
Class B Value is $36 per share or below.
If the Class B Value is $48 per share or
above, the number of shares of Viacom
Class B Common Stock into which the VCR
will convert on the VCR Conversion Date
will decrease ratably from 0.05929 of a
share to zero, which will occur if the
Class B Value is $52 per share or above.
The number of shares of Viacom Class B
Common Stock into which each VCR will
convert on the VCR Conversion Date will
not exceed 0.05929 of a share of Viacom
Class B Common Stock if the average of the
closing prices for a share of Viacom Class
B Common Stock exceeds $40 per share
during any 30 consecutive trading day
period
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following the Effective Time and prior to
the VCR Conversion Date. In the event that
during any such period such average price
exceeds $52 per share, the VCRs will
terminate and have no value and holders
thereof will have no further rights with
respect to the VCRs. The dollar amounts
are subject to certain downward
adjustments in connection with substantial
declines in the Standard & Poor's 400
Index. Certain days are not included as
"trading days" if the number of shares of
Viacom Class B Common Stock traded on such
days is below specified levels.
Ownership of Viacom Common Stock
After the Merger.............. NAI will own approximately 60% of the
voting Viacom Class A Common Stock and
approximately 25% of the aggregate Viacom
Common Stock immediately following
consummation of the Merger. Former
stockholders of Blockbuster will own
approximately 30% of the voting Viacom
Class A Common Stock and approximately 52%
of the aggregate Viacom Common Stock
immediately following consummation of the
Merger. (All percentages of ownership of
common stock shown above in this paragraph
(i) are calculated based on the number of
shares of the relevant class or classes of
stock outstanding as of August 26, 1994,
(ii) give effect to the closing of the
Paramount Merger, assuming that all
outstanding shares of Paramount Common
Stock were exchanged in the Paramount
Merger, (iii) give effect to the expected
issuance of shares of Blockbuster Common
Stock pursuant to the Discovery Zone
transaction (see "The Companies--
Blockbuster--Other Entertainment") and
(iv) give effect to potential dilution
related to outstanding Blockbuster options
and warrants.
Recommendations of the Boards of
Directors...................... Viacom. The Board of Directors of Viacom,
by unanimous vote (with H. Wayne Huizenga
absent as he recused himself from the
meeting), (i) determined that the Merger
is consistent with, and in furtherance of,
the long-term business strategy of Viacom
and is fair to, and in the best interests
of, Viacom and its stockholders, (ii)
approved and adopted the Merger Agreement
and approved the Merger and the other
transactions contemplated by the Merger
Agreement and (iii) recommended approval
and adoption of the Merger Agreement by
the holders of Viacom Class A Common
Stock.
Blockbuster. On January 7, 1994, the Board
of Directors of Blockbuster, by unanimous
vote, (i) determined that the Merger is
consistent with, and in furtherance of,
the long-term business strategy of
Blockbuster and is fair to, and in the
best interests of, the holders of
Blockbuster Common Stock, (ii) approved
and adopted the Merger Agreement, (iii)
approved the Merger and the other
transactions contemplated by the Merger
Agreement and (iv) recommended approval
and adoption of the Merger Agreement by
the holders of Blockbuster Common Stock.
On August 23, 1994, the Blockbuster Board
unanimously reaffirmed its approval of the
Merger and its recommendation that
Blockbuster stockholders vote to approve
and adopt the Merger Agreement.
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Opinions of Financial
Advisors...................... Viacom. Smith Barney Inc. (formerly Smith
Barney Shearson Inc.) ("Smith Barney") has
delivered its opinion to the Board of
Directors of Viacom that, as of January 6,
1994, the Merger Consideration is fair,
from a financial point of view, to Viacom
and its stockholders.
Blockbuster. Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch") has
delivered its oral opinions (which it
subsequently confirmed in writing) to the
Board of Directors of Blockbuster to the
effect that, as of January 7, 1994, and
as of August 23, 1994, the
Conversion Ratio (as defined below) is
fair to the holders of Blockbuster Common
Stock (other than Viacom and its
affiliates) from a financial point of
view. For purposes of Merrill Lynch's
opinions, the term "Conversion Ratio"
collectively refers to the ratios at which
Blockbuster Common Stock is converted into
Viacom Class A Common Stock, Viacom Class
B Common Stock and VCRs, in accordance
with the Merger Agreement.
For information on the assumptions made,
matters considered and limits of the
reviews by Smith Barney and Merrill Lynch,
stockholders are urged to read in their
entirety the opinions of Smith Barney and
Merrill Lynch, copies of which are
attached as Annexes V and VI,
respectively, to this Proxy
Statement/Prospectus.
Conditions to the Merger and
Termination................... The obligations of Viacom and Blockbuster
to consummate the Merger are subject to
various conditions, including obtaining
requisite stockholder approvals and
receipt of opinions of counsel.
The Merger Agreement may be terminated at
any time prior to the Effective Time by
mutual consent of Viacom and Blockbuster,
or by either party if (i) any permanent
injunction or action by any governmental
entity preventing consummation of the
Merger becomes final and nonappealable,
(ii) the Merger has not been consummated
before September 30, 1994; provided,
however, that the Merger Agreement may be
extended by written notice of either
Blockbuster or Viacom to a date not later
than November 30, 1994 if the Merger has
not been consummated as a direct result of
Viacom or Blockbuster having failed by
September 30, 1994 to receive all required
regulatory approvals or consents with
respect to the Merger, (iii) any approval
of stockholders of Viacom or Blockbuster
required for consummation of the Merger
has not been obtained at the applicable
meeting or (iv) the other party has
breached any representation, warranty,
covenant or agreement in the Merger
Agreement such that the closing conditions
relating to its representations,
warranties, covenants and agreements would
be incapable of being satisfied by
September 30, 1994, or as otherwise
extended.
In addition, the Merger Agreement may be
terminated by Viacom under certain
circumstances, including (i) a withdrawal
by the Blockbuster Board of its
recommendation to vote for the Merger
Agreement or the Merger, (ii) a
recommendation by the Blockbuster Board of
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a competing transaction or in favor of a
tender offer for 25% or more of
Blockbuster's capital stock or (iii) a
third party obtaining beneficial ownership
of 25% or more of Blockbuster's
outstanding capital stock.
Blockbuster may also terminate the Merger
Agreement if the Blockbuster Board, in
order to comply with its fiduciary
responsibilities to stockholders, (i)
fails to make or withdraws or modifies its
recommendation of the Merger if there
exists at such time a tender offer or
exchange offer or a proposal by a third
party to acquire Blockbuster or (ii)
recommends to Blockbuster stockholders
approval or acceptance of any of the
foregoing.
In the event the Merger Agreement is
terminated under certain circumstances,
Blockbuster will be obligated to pay to
Viacom an amount equal to Viacom's
out-of-pocket costs and expenses incurred
in connection with the Merger, up to a
maximum of $50 million. Pursuant to the
Stockholders Stock Option Agreement, the
Option Stockholders have granted to Viacom
options to purchase approximately 15.6
million shares of Blockbuster Common Stock
owned by the Option Stockholders (plus
shares subsequently acquired by the Option
Stockholders) at a price of $30.125 per
share in the event the Merger Agreement is
terminated under certain circumstances.
Stock Exchange Listing.......... Viacom has filed an application to list
the shares of Viacom Common Stock and the
VCRs to be issued in connection with the
Merger on the AMEX, subject to stockholder
approval of the Merger Agreement and
official notice of issuance. The shares of
Viacom Class A Common Stock and Viacom
Class B Common Stock are traded on the
AMEX under the symbols "VIA" and "VIAB",
respectively, and the VCRs are expected to
be traded under the symbol "VIAVR".
Dividends....................... The Merger Agreement prohibits Viacom and
Blockbuster and their subsidiaries from
declaring, setting aside, making or paying
dividends until the Effective Time, except
for (i) Blockbuster's regular quarterly
dividends, not to exceed $.025 per share,
(ii) Spelling Entertainment's regular
quarterly dividends, not to exceed $.020
per share and (iii) dividends paid and
declared by other subsidiaries of Viacom
and Blockbuster consistent with past
practice.
Regulatory Approvals Required... Certain aspects of the Merger will require
notifications to, and/or approvals from,
certain Federal authorities as well as in
certain of the foreign jurisdictions in
which Viacom and/or Blockbuster currently
operate.
Appraisal Rights................ It is uncertain, and counsel to
Blockbuster is unable to express a
definite view, as to whether appraisal
rights are available to holders of
Blockbuster Common Stock in connection
with the Merger. Although the VCRs
evidence only the right to receive shares
of Viacom Class B Common Stock under
certain circumstances, the VCRs could be
characterized as consideration other than
shares of stock of Viacom. If the VCRs are
considered to be "shares of stock" of
Viacom under Section 262(b) of the DGCL,
then the holders of Blockbuster Common
Stock will not have
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appraisal rights. However, if the VCRs are
not considered to be "shares of stock",
then appraisal rights will be available to
those stockholders of Blockbuster who
demand and perfect appraisal rights in
accordance with the requirements of
Section 262 of the DGCL. Regardless of the
ultimate availability of appraisal rights,
Blockbuster stockholders who wish to seek
appraisal must demand and perfect
appraisal rights in accordance with the
requirements of Section 262 of the DGCL, a
copy of which is set forth in full in
Annex VII hereto.
Holders of Viacom Common Stock will not
have appraisal rights in connection with
the Merger.
Certain Federal Income Tax
Consequences.................. No ruling has been (or will be) sought
from the Internal Revenue Service as to
the anticipated Federal income tax
consequences of the Merger. It is a
condition to the consummation of the
Merger that Viacom receive an opinion of
its counsel, Shearman & Sterling, and
Blockbuster receive an opinion of its
counsel, Skadden, Arps, Slate, Meagher &
Flom, that, based upon certain facts,
assumptions, and representations, the
Merger will constitute a reorganization
for Federal income tax purposes. Neither
Blockbuster nor Viacom will recognize any
gain or loss as a result of the Merger. A
holder of Blockbuster Common Stock will
not recognize any gain or loss from the
exchange of Blockbuster Common Stock for
Viacom Common Stock and VCRs pursuant to
the Merger if the VCRs are treated as
qualifying contingent rights to additional
shares of Viacom Class B Common Stock
("qualifying property"). However, if the
VCRs are treated as "other property"
(rather than "qualifying property") for
Federal income tax purposes, a holder will
recognize gain, if any, as taxable income,
but only to the extent of the fair market
value of the VCRs received by such holder.
CERTAIN TRANSACTIONS BETWEEN
VIACOM AND BLOCKBUSTER AND WITH
THEIR STOCKHOLDERS
Blockbuster Purchase of Series A
Preferred Stock............... On October 22, 1993, Blockbuster purchased
from Viacom 24 million shares of Series A
Cumulative Convertible Preferred Stock,
par value $.01 per share, of Viacom (the
"Series A Preferred Stock") for an
aggregate purchase price of $600 million.
The Series A Preferred Stock pays a 5%
annual cash dividend, is convertible into
Viacom Class B Common Stock at a
conversion price of $70 per share and will
be redeemable by Viacom at declining
redemption premiums after October 22,
1998. Upon consummation of the Merger, the
Series A Preferred Stock owned by
Blockbuster will cease to be outstanding.
Blockbuster Purchase of Viacom
Class B Common Stock.......... Pursuant to the Subscription Agreement
dated as of January 7, 1994 between
Blockbuster and Viacom (the "Subscription
Agreement"), Blockbuster purchased on
March 10, 1994 approximately 22.7 million
shares of Viacom Class B Common Stock for
an aggregate purchase
11
<PAGE>
price of approximately $1.25 billion, or
$55 per share. Upon consummation of the
Merger, the shares of Viacom Class B
Common Stock owned by Blockbuster will
cease to be outstanding. If the Merger
Agreement is terminated, Viacom may be
obligated to make certain payments to
Blockbuster or to sell certain assets to
Blockbuster in the event that Viacom Class
B Common Stock trades (for a specified
period) at levels below $55 per share
during the one year period after such
termination.
Voting Agreement................ Pursuant to the Voting Agreement, NAI has
agreed to vote its shares of Viacom Class
A Common Stock in favor of approval of the
Merger Agreement and against any competing
business combination proposal. Approval of
the Merger Agreement by the stockholders
of Viacom is therefore assured.
Stockholders Stock Option
Agreement..................... Pursuant to the Stockholders Stock Option
Agreement, the Option Stockholders have
granted to Viacom (i) options to purchase
an aggregate of approximately 15.6 million
shares of Blockbuster Common Stock
(representing approximately 6% of the
outstanding Blockbuster Common Stock as of
August 26, 1994), and shares subsequently
acquired by the Option Stockholders, at a
price of $30.125 per share under certain
circumstances in the event the Merger
Agreement is terminated and (ii) proxies
to vote such shares in favor of the Merger
and against any competing business
combination proposal.
Proxy Agreement................. The Proxy Stockholders have granted to
Viacom proxies to vote shares of
Blockbuster Common Stock owned by such
stockholders in favor of the Merger
Agreement and against any competing
business combination proposal, which
shares, together with the shares subject
to the Stockholders Stock Option
Agreement, represent approximately 22% of
the outstanding shares of Blockbuster
Common Stock as of August 26, 1994.
CERTAIN CONSIDERATIONS
STOCKHOLDERS OF VIACOM AND BLOCKBUSTER
SHOULD CAREFULLY EVALUATE THE MATTERS SET
FORTH UNDER "CERTAIN CONSIDERATIONS."
FACTORS TO BE CONSIDERED, AMONG OTHER
THINGS, INCLUDE THE POTENTIAL FOR
FLUCTUATIONS IN THE VALUE OF THE MERGER
CONSIDERATION AND BLOCKBUSTER COMMON STOCK
AS WELL AS THE POTENTIAL FOR CHANGES IN
THE BUSINESSES AND BUSINESS CONDITIONS OF
VIACOM AND BLOCKBUSTER PRIOR TO THE
EFFECTIVE TIME. STOCKHOLDERS SHOULD ALSO
CONSIDER THE TOTAL INDEBTEDNESS OF THE
COMBINED COMPANY, INCLUDING THE MATURITY
OF SUCH DEBT, AS WELL AS THE CHANGING
COMPETITIVE ENVIRONMENT OF THE
ENTERTAINMENT AND TELECOMMUNICATIONS
INDUSTRIES. IN ADDITION, BLOCKBUSTER
STOCKHOLDERS SHOULD CONSIDER THAT,
FOLLOWING CONSUMMATION OF THE MERGER,
VOTING CONTROL OF THE COMBINED COMPANY
WILL BE HELD BY A SINGLE STOCKHOLDER
(ALTHOUGH CERTAIN PROVISIONS OF THE MERGER
AGREEMENT RESTRICT THE ABILITY OF CERTAIN
LARGE STOCKHOLDERS FROM ENGAGING IN GOING
PRIVATE TRANSACTIONS).
12
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS
AFTER THE MERGER
Executive Officers.............. Sumner M. Redstone, currently the Chairman
of the Board of Viacom, will remain
Chairman of the Board of the combined
company. H. Wayne Huizenga, currently the
Chairman of the Board and Chief Executive
Officer of Blockbuster and a Director of
Viacom, will become Vice Chairman of the
combined company. Frank J. Biondi, Jr.,
currently Chief Executive Officer and a
Director of Viacom, will become Chief
Executive Officer of the combined company.
Directors....................... The combined company will initially have a
mutually agreed upon Board of Directors
consisting of (i) six Directors designated
by Viacom, (ii) three Directors designated
by Blockbuster, who are to be Mr.
Huizenga, Steven R. Berrard, currently
Vice Chairman of the Board, President and
Chief Operating Officer of Blockbuster, and
George D. Johnson, Jr., currently
President--Domestic Consumer Division of
Blockbuster, (iii) two Directors designated
by NYNEX, who are to be William C. Ferguson,
Chairman of NYNEX, and Frederic V. Salerno,
Vice Chairman--Finance and Business
Development of NYNEX, and (iv) one
unaffiliated Director mutually agreed to by
Viacom and Blockbuster. Messrs. Huizenga,
Ferguson and Salerno are current Directors
of Viacom. Messrs. Huizenga, Berrard and
Johnson are current Directors of
Blockbuster.
FINANCIAL MATTERS AFTER THE MERGER
Accounting Treatment............ The Merger will be accounted for by Viacom
under the "purchase" method of accounting
in accordance with generally accepted
accounting principles. Therefore, the
aggregate consideration paid by Viacom in
connection with the Merger will be
allocated to Blockbuster's assets and
liabilities based on their fair values,
with any excess being treated as goodwill.
The assets and liabilities and results of
operations of Blockbuster will be
consolidated into the assets and
liabilities and results of operations of
Viacom subsequent to the Effective Time.
Common Stock Dividend Policy
After the Merger.............. It is the current intention of the Viacom
Board not to pay cash dividends on the
Viacom Class A Common Stock or Viacom
Class B Common Stock following the Merger.
Future dividends will be determined by the
combined company's Board of Directors in
light of the combined company's
alternative opportunities for investment
and the earnings and financial condition
of the combined company and its
subsidiaries, among other factors.
TRADEMARKS AND TRADE NAMES The trademarks, trade names and service
marks used in this Proxy
Statement/Prospectus in connection with
Viacom and Blockbuster and their
respective subsidiaries and businesses are
proprietary or licensed to Viacom or
Blockbuster or their subsidiaries, as the
case may be.
13
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF
VIACOM
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following table sets forth certain selected historical consolidated
financial data of Viacom and has been derived from and should be read in
conjunction with the audited consolidated financial statements of Viacom,
including the notes thereto, and the unaudited interim consolidated financial
statements of Viacom, including the notes thereto, which are incorporated by
reference in this Proxy Statement/Prospectus. See "Incorporation of Certain
Documents by Reference." The notes to the audited consolidated financial
statements and unaudited interim consolidated financial statements disclose,
among other matters, certain business acquisitions and dispositions, certain
other transactions, and accounting changes. Unaudited interim data for the six
month periods ended June 30, 1994 and 1993 reflect, in the opinion of management
of Viacom, all adjustments (consisting only of normal recurring adjustments,
except for the merger-related charges associated with the Paramount Merger)
considered necessary for a fair presentation of such data. Results of operations
for the six months ended June 30, 1994 are not necessarily indicative of results
which may be expected for any other interim or annual period.
<TABLE><CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1994(A) 1993 1993(B) 1992(C) 1991 1990 1989(D)
--------- --------- --------- --------- --------- --------- ---------
RESULTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................... $ 2,606.8 $ 966.4 $ 2,004.9 $ 1,864.7 $ 1,711.6 $ 1,599.6 $ 1,436.2
Earnings (loss) from operations........ (116.2) 196.7 385.0 347.9 312.2 223.8 144.7
Earnings (loss) before income taxes.... (2.9) 183.0 301.8 155.6 8.3 (70.4) 144.9
Net earnings (loss) before
extraordinary items and cumulative
effect of change in accounting
principle............................ (167.0) 112.2 169.5 66.1 (46.6) (89.8) 131.1
Net earnings (loss).................... (187.4) 122.6 171.0 49.0 (49.7) (89.8) 131.1
Net earnings (loss) attributable to
common stock......................... $ (232.4) $ 122.6 $ 158.2 $ 49.0 $ (49.7) $ (89.8) $ 113.6
Net earnings (loss) per common share:
Net earnings (loss) before
extraordinary items and cumulative
effect of change in accounting
principle.......................... $ (1.57) $ .93 $ 1.30 $ .55 $ (.41) $ (.84) $ 1.06
Extraordinary items.................. (.15) -- (.07) (.14) (.03) -- --
Cumulative effect of change in
accounting principle............... -- .09 .08 -- -- -- --
Net earnings (loss).................. $ (1.72) $ 1.02 $ 1.31 $ .41 $ (.44) $ (.84) $ 1.06
</TABLE>
<TABLE><CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------- -----------------------------------------------------
1994 1993 1992 1991 1990 1989
----------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Total assets.................................. $16,345.3 $ 6,416.9 $ 4,317.1 $ 4,188.4 $ 4,027.9 $ 3,753.0
Total debt, including current
maturities.................................. 7,245.7 2,433.3 2,397.0 2,321.0 2,537.3 2,283.2
Stockholders' equity.......................... 3,730.8 2,718.1 756.5 699.5 366.2 455.9
Book value per common share................... $ 13.45 $ 7.60 $ 6.28 $ 5.82 $ 3.43 $ 4.27
</TABLE>
SEE NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF VIACOM.
14
<PAGE>
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF VIACOM
<TABLE>
<S> <C>
(a) Results of operations for the six months ended June 30, 1994 reflect the results of Paramount and
merger-related charges of $332.1 million which principally relate to adjustments of programming assets based
upon new management strategies and additional programming sources resulting from the merger with Paramount.
Results of operations for the six months ended June 30, 1994 also include a pre-tax gain of $267.4 million on
the sale of the Company's one-third partnership interest in Lifetime and an after-tax extraordinary loss of
$20.4 million (net of a tax benefit of $11.9 million) from the extinguishment of debt.
(b) During the first quarter of 1993, Viacom adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," on a prospective basis and recognized a cumulative benefit from a change in
accounting principle of $10.3 million.
As part of the settlement of the Time Warner antitrust lawsuit, Viacom sold the stock of Viacom Cablevision
of Wisconsin, Inc. to Warner Communications Inc., effective January 1, 1993, resulting in a pre-tax gain of
approximately $55 million.
During the third quarter of 1993, Viacom International recognized an after-tax extraordinary loss from the
early extinguishment of debt of $8.9 million (net of a tax benefit of approximately $6.1 million) related to
the redemption, on July 15, 1993, of the $298 million principal amount outstanding of the 11.8% Senior
Subordinated Notes.
(c) Results of operations for the year ended December 31, 1992 reflect a reserve for litigation of approximately
$33 million related to a summary judgment against Viacom in a dispute with CBS Inc. Additionally, a gain of
approximately $35 million related to the Time Warner antitrust lawsuit was recognized in the third quarter of
1992.
Results of operations for the year ended December 31, 1992 also include an after-tax extraordinary loss of
$17.1 million (net of a tax benefit of $11.3 million) from the early extinguishment of the 11.5% Senior
Subordinated Reset Notes and 14.75% Senior Subordinated Discount Debentures.
(d) The results of operations for the year ended December 31, 1989 reflect a pre-tax gain of $313.1 million on
the sale of the Long Island and Cleveland cable systems.
Certain Acquisitions and Dispositions
On July 7, 1994, a wholly owned subsidiary of Viacom was merged with and into Paramount, with Paramount being
the surviving corporation and becoming a wholly owned subsidiary of Viacom.
Pursuant to the terms of its tender offer (the "Offer"), on March 11, 1994, Viacom completed its purchase of
61,657,432 shares of Paramount Common Stock, constituting a majority of the shares outstanding, at a price of
$107 per share in cash, or an aggregate cash consideration of approximately $6.6 billion.
In April 1994, Viacom sold its one-third partnership interest in LIFETIME for approximately $317.6 million.
On August 30, 1991, Viacom increased its interest in MTV Europe to 100% through the purchase of the 50.01%
interest held by an affiliate of Mirror Group Newspapers. As consideration for the purchase, which was valued
at approximately $65 million, Viacom issued 2,210,884 shares of Viacom Class B Common Stock.
During 1990, Viacom purchased five radio stations for approximately $121.3 million in the aggregate. These
stations included: KOFY-FM (now KSOL-FM), San Francisco, California; KLRS-FM (now KYLZ-FM), Santa Cruz/San
Jose, California; KJOI-FM (now KYSR-FM), Los Angeles, California; and KHOW-AM and KSYY-FM (now KHOW-FM),
Denver, Colorado (which were exchanged for KNDD-FM, Seattle, Washington during 1992).
Cash Dividends
Viacom has not declared cash dividends with respect to the Viacom Common Stock for any of the periods
presented.
Viacom Class B Common Stock
Pursuant to the Subscription Agreement, on March 10, 1994, Viacom sold 22,727,273 shares of Viacom Class B
Common Stock to Blockbuster at a price of $55.00 per share.
Cancellation of Series A Preferred Stock and Viacom Class B Common Stock Owned by Blockbuster
If the Merger is consummated, the Series A Preferred Stock and Viacom Class B Common Stock then owned by
Blockbuster will be cancelled and will no longer be outstanding.
</TABLE>
15
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF
PARAMOUNT
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following table sets forth certain selected historical consolidated
financial data of Paramount and has been derived from and should be read in
conjunction with the audited consolidated financial statements of Paramount,
including the notes thereto, and the unaudited interim consolidated financial
statements of Paramount, including the notes thereto, which are incorporated by
reference in this Proxy Statement/Prospectus. See "Incorporation of Certain
Documents by Reference." The notes to the audited consolidated financial
statements and unaudited interim consolidated financial statements disclose,
among other matters, certain business acquisitions and dispositions, certain
other transactions and accounting changes. Unaudited interim data for the three
months ended June 30, 1994 and June 30, 1993, for the eleven months ended March
31, 1993 and for the six months ended April 30, 1992 reflect, in the opinion of
management of Paramount, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation of such data. Results
of operations for the three months ended June 30, 1994, the eleven months ended
March 31, 1994 and the six months ended April 30, 1993 are not necessarily
indicative of results which may be expected for any other interim or annual
period of comparable length. In 1993, Paramount changed its fiscal year end from
October 31 to April 30. In 1994, Paramount changed its fiscal period to the
eleven-month period ended March 31, 1994. Subsequently, Paramount's fiscal year
end will be December 31 to conform with that of Viacom.
<TABLE><CAPTION>
ELEVEN MONTHS ENDED
THREE MONTHS ENDED SIX MONTHS ENDED YEAR ENDED OCTOBER
JUNE 30, MARCH 31, APRIL 30, 31,
-------------------- -------------------- -------------------- --------------------
1994* 1993* 1994(A) 1993* 1993(B) 1992* 1992 1991(C)
--------- --------- --------- --------- --------- --------- --------- ---------
RESULTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............................. $ 1,198.6 $ 1,109.6 $ 4,433.5 $ 3,753.2 $ 1,898.1 $ 1,998.5 $ 4,264.9 $ 3,895.4
Earnings (loss) from operations....... 75.0 33.2 100.8 301.8 (10.1) 77.8 396.1 157.8
Earnings (loss) from continuing
operations before income taxes...... 52.1 26.1 8.8 308.1 (16.8) 68.7 397.3 179.7
Net earnings (loss) from continuing
operations before extraordinary item
and cumulative effect of changes in
accounting principles............... 33.8 17.2 5.7 213.7 (9.1) 48.7 274.2 127.6
Net earnings (loss)................... $ 33.8 $ 17.2 $ 5.7 $ 138.0 $ (76.0) $ 48.7 $ 265.4 $ 127.6
Net earnings (loss) per share:
Net earnings (loss) from continuing
operations before extraordinary
item and cumulative effect of
changes in accounting
principles........................ $ 0.28 $ 0.14 $ .05 $ 1.80 $ (.08) $ .41 $ 2.31 $ 1.08
Discontinued operations............. -- -- -- -- -- -- -- --
Extraordinary item.................. -- -- (.07) -- (.08) --
Cumulative effect of changes in
accounting principles............. -- -- -- (.57) (.57) -- -- --
Net earnings (loss)................. $ 0.28 $ 0.14 $ .05 $ 1.16 $ (.65) $ .41 $ 2.23 $ 1.08
Cash dividends declared per common
share............................... -- $ 0.20 $ .60 $ .80 $ .40 $ .375 $ .775 $ .70
<CAPTION>
1990 1989(D)
--------- ---------
RESULTS OF OPERATIONS DATA:
Revenues.............................. $ 3,869.0 $ 3,391.6
Earnings (loss) from operations....... 304.2 192.9
Earnings (loss) from continuing
operations before income taxes...... 381.0 19.1
Net earnings (loss) from continuing
operations before extraordinary item
and cumulative effect of changes in
accounting principles............... 264.4 17.3
Net earnings (loss)................... $ 264.4 $ 1,414.7
Net earnings (loss) per share:
Net earnings (loss) from continuing
operations before extraordinary
item and cumulative effect of
changes in accounting
principles........................ $ 2.20 $ .14
Discontinued operations............. -- 12.12
Extraordinary item.................. --
Cumulative effect of changes in
accounting principles............. -- (.48)
Net earnings (loss)................. $ 2.20 $ 11.78
Cash dividends declared per common
share............................... $ .70 $ .70
</TABLE>
<TABLE><CAPTION>
AT MARCH AT APRIL
AT JUNE 30, 31, 30, AT OCTOBER 31,
----------- ----------- ----------- ------------------------------------------
1994 1994 1993 1992 1991 1990 1989
----------- ----------- ----------- --------- --------- --------- ---------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets.............................. $ 7,794.5 $ 7,608.8 $ 6,874.8 $ 7,057.0 $ 6,654.7 $ 6,541.0 $ 7,060.0
Long-term debt, including current
maturities................................ 1,237.8 1,034.0 817.1 822.1 718.2 733.8 744.4
Stockholders' equity...................... 4,108.3 4,073.1 3,902.1 4,015.5 3,854.8 3,783.8 3,666.8
Book value per common share............... $ 33.46 $ 33.17 $ 33.01 $ 34.19 $ 32.73 $ 32.24 $ 30.56
</TABLE>
- ---------------
* Derived from unaudited interim data.
SEE NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF PARAMOUNT.
16
<PAGE>
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF PARAMOUNT
Effective May 1, 1993, Paramount adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes," by restating its
prior period financial statements beginning November 1, 1988. The cumulative
effect of this accounting change was a charge of $56.5 million, which is
included in net earnings for the year ended October 31, 1989.
<TABLE>
<S> <C>
(a) Includes a pre-tax gain of $11.0 million, related to the sale of securities received as a non cash
distribution from an unconsolidated affiliate.
Includes pre-tax charges of $27.2 million for costs incurred in the Paramount Merger, consisting principally
of finance, legal, consulting and other fees and an $18.8 million increase in reserves previously established
for discontinued operations.
Reflects operating losses at USA Networks, Paramount's 50%-owned cable networks, due largely to a $78 million
pre-tax charge, the majority of which was recorded in December 1993, to adjust the carrying value of certain
broadcast rights to net realizable value because of the under performance of certain series programming of
which Paramount recorded its share.
(b) Includes an after-tax charge of $26.0 million, related to the write-down to net realizable value of certain
Publishing operations real estate, expected to be sold, and a provision for relocation costs in connection
with Paramount's planned move of its Publishing operations and Paramount's corporate headquarters.
Effective November 1, 1992, Paramount adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." Paramount has elected to record the cumulative effect of the accounting change
as a charge against income as of November 1, 1992, resulting in a one-time charge of $66.9 million, net of
income taxes of $34.5 million.
(c) Net earnings for the year ended October 31, 1991 includes a $35.4 million after-tax charge, the majority of
which was related to a provision for write-downs of certain motion picture and television development
commitments and entertainment reorganization costs.
(d) During the year ended October 31, 1989, Paramount completed a major reevaluation of its Publishing business
and, as a result, recorded an $84.3 million after-tax charge, a portion of which was related to the
write-down of obsolete inventory and the carrying value of pre-publication costs to reflect a more
conservative estimate of the life cycle of various publishing products. Further, this charge included
provisions related to certain royalty advances, book returns and capitalized database costs, as well as a
charge related to a restructuring plan to modify certain publishing systems and other adjustments to the
carrying value of certain assets and liabilities on Publishing's balance sheet.
Includes an after-tax gain of approximately $1.2 billion on the sale of Associates First Capital Corporation,
Paramount's former consumer/commercial finance business. In addition, Paramount recorded an after-tax charge
of $30.8 million to provide for additional costs applicable to certain operations previously discontinued.
Earnings for fiscal 1989 also include an after-tax charge of $48.3 million for costs incurred in Paramount's
bid to acquire Time Incorporated. In addition, in fiscal 1989 Paramount sold Prentice Hall Information
Services and Prentice Hall Information Network, two units of its Publishing operations, resulting in an
after-tax gain of $7.4 million.
In December 1988, Paramount completed the sale of a 50% interest in its domestic motion picture theater
operations for approximately half of Paramount's purchase price. The results for fiscal 1989 reflect the gain
on this sale of $5.6 million, net of income taxes of $3.3 million.
Certain Acquisitions and Dispositions
In February 1994, Paramount acquired Macmillan Publishing Company and certain other publishing assets of
Macmillan, Inc. (together, "Macmillan") for approximately $553 million (the "Macmillan Acquisition").
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
In September 1993, Paramount purchased television station WKBD-TV in Detroit from Cox Enterprises Inc. for
approximately $105 million.
In May 1993, Paramount purchased the remaining 80% it did not own of Canada's Wonderland, Inc., later renamed
Paramount Canada's Wonderland, Inc., a Canadian theme park, for approximately $52 million.
In August and October 1992, Paramount acquired Kings Entertainment Company and Kings Island Company,
respectively, later renamed Paramount Parks, which own and operate regional theme parks, for a total of
approximately $400 million.
In November 1991, Paramount acquired Macmillan Computer Publishing, later renamed Prentice Hall Computer
Publishing, a leading publisher of personal computer and related technical books, for approximately $158
million.
In March 1990, Paramount acquired Computer Curriculum Corporation, which develops and markets computer-based
learning systems, for approximately $75 million.
In December 1989, Paramount acquired a preferred and common stock equity interest in Paramount Stations Group
("PSG"), formerly TVX Broadcast Group Inc., which owns and operates independent television stations, for
approximately $110 million. Paramount also acquired PSG debt obligations for approximately $34 million. In
April 1990, Paramount was granted the right by the FCC to assume control of PSG. Paramount did so by
converting preferred stock into common stock and, consequently, began reflecting its operations on a
consolidated basis. In July and October 1990, Paramount purchased additional shares of PSG stock for $3.5
million and $4.3 million, respectively. In February 1991, Paramount, through a merger, acquired the remaining
outstanding shares of PSG for approximately $62 million.
In October 1989, Paramount sold Associates First Capital Corporation, its former consumer/commercial finance
business, for $3.35 billion. Paramount realized net proceeds of approximately $2.6 billion and reported a
gain of approximately $1.2 billion, net of income taxes of $763.4 million. In addition, in fiscal 1989
Paramount sold Prentice Hall Information Services and Prentice Hall Information Network, two units of its
Publishing operations, resulting in an after-tax gain of $7.4 million.
</TABLE>
18
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA OF
VIACOM
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following selected unaudited pro forma financial data of Viacom for the
six months ended or at June 30, 1994 and the twelve months ended December 31,
1993 gives effect to (i) the Paramount Merger, which is accounted for under the
purchase method of accounting, (ii) the elimination of the outstanding Paramount
Common Stock, (iii) the issuance of the Paramount Merger Consideration, (iv) the
sale of Viacom's one-third partnership interest in LIFETIME and (v) certain
acquisitions by Paramount, including the Macmillan Acquisition (collectively,
the "Viacom Pro Forma Events") as if such events occurred at the beginning of
the periods presented for results of operations data. The unaudited pro forma
statement of operations data for the six months ended June 30, 1994 and the year
ended December 31, 1993 was based upon the statements of operations of Viacom
for the six months ended June 30, 1994 and year ended December 31, 1993,
respectively, and of Paramount for the two months ended February 28, 1994 and
the nine months ended January 31, 1994 combined with the three months ended
April 30, 1993, respectively. Financial information for Paramount subsequent to
the completion of the Offer is included in Viacom's historical information. Such
unaudited pro forma balance sheet data gives effect to the Viacom Pro Forma
Events as if they had occurred on June 30, 1994. The selected unaudited pro
forma combined financial data was derived from, and should be read in
conjunction with, the unaudited pro forma combined condensed financial
statements and the notes thereto appearing elsewhere in the Proxy
Statement/Prospectus. See "Unaudited Pro Forma Combined Condensed Financial
Statements Viacom/Combined Company." The unaudited pro forma data are not
necessarily indicative of the combined results of operations or financial
position that would have occurred if the Viacom Pro Forma Events had been in
effect at the beginning of the period nor are they necessarily indicative of
future operating results.
<TABLE><CAPTION>
SIX MONTHS
ENDED OR AT YEAR ENDED
JUNE 30, 1994 DECEMBER 31, 1993
--------------- ------------------
RESULTS OF OPERATIONS DATA:
<S> <C> <C>
Revenues.................................................................... $ 3,324.0 $ 7,028.9
Earnings from operations.................................................... 137.1 547.3
Loss before extraordinary item, cumulative effect of change in accounting
principle and preferred stock dividend requirements......................... (262.0) (4.2)
Loss attributable to common stock before extraordinary item and cumulative
effect of change in accounting principle.................................... (307.0) (94.2)
Loss per common share before extraordinary item and cumulative effect of
change in accounting principle.............................................. $ (1.47) $ (0.47)
BALANCE SHEET DATA:
Total assets................................................................ $ 17,618.6 NA
Long-term debt, including current maturities................................ 7,934.4 NA
Stockholders' equity:
Preferred................................................................. 1,800.0 NA
Common.................................................................... 3,241.8 NA
Book value per common share................................................. $ 16.17 NA
</TABLE>
19
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF
BLOCKBUSTER
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following table sets forth certain selected historical consolidated
financial data of Blockbuster and has been derived from and should be read in
conjunction with the audited consolidated financial statements of Blockbuster,
including the notes thereto, and the unaudited interim consolidated financial
statements of Blockbuster, including the notes thereto, which are incorporated
by reference in this Proxy Statement/Prospectus. See "Incorporation of Certain
Documents by Reference." The notes to the audited consolidated financial
statements and unaudited interim consolidated financial statements disclose,
among other matters, certain business acquisitions and certain other
transactions. Unaudited interim data for the six months ended June 30, 1994 and
1993 reflect, in the opinion of management of Blockbuster, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation of such data. Results of operations for the six months ended
June 30, 1994 are not necessarily indicative of results which may be expected
for any other interim or annual period.
<TABLE><CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------------------
1994 1993 1993(A) 1992(B) 1991(C) 1990 1989(D)
--------- --------- ---------- --------- --------- --------- ---------
RESULTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue........................................ $ 1,372.8 $ 925.9 $ 2,227.0 $ 1,315.8 $ 961.6 $ 699.7 $ 421.9
Earnings from operations....................... 238.5 158.7 423.0 242.9 161.1 122.1 76.9
Earnings before income taxes................... 215.2 145.9 389.8 231.2 141.0 103.7 67.5
Net earnings................................... $ 135.6 $ 92.7 $ 243.6 $ 148.3 $ 89.1 $ 65.9 $ 42.7
Net earnings per share--assuming full
dilution(e).................................... $ .53 $ .44 $ 1.10 $ .76 $ .51 $ .39 $ .26
Cash dividends declared per common share....... $ .05 $ .045 $ .095 $ .06 -- -- --
</TABLE>
<TABLE><CAPTION>
AT DECEMBER 31,
AT JUNE 30, ------------------------------------------------------
1994 1993 1992 1991 1990 1989
------------ ---------- --------- --------- --------- ---------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Total assets.................................... $ 4,814.7 $ 3,521.0 $ 1,540.7 $ 893.3 $ 702.1 $ 468.9
Total debt, including current maturities........ 2,152.0 612.6 373.5 214.2 253.9 178.0
Stockholders' equity............................ 2,020.1 2,123.4 787.3 480.5 319.4 210.2
Book value per common share..................... $ 8.11 $ 8.58 $ 3.98 $ 2.84 $ 2.04 $ 1.39
</TABLE>
SEE NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF BLOCKBUSTER.
20
<PAGE>
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF
BLOCKBUSTER
Financial data for all periods presented is restated to reflect
Blockbuster's merger with WJB Video Limited Partnership and certain of its
affiliates ("WJB") in August 1993, which was accounted for under the pooling of
interests method of accounting.
<TABLE>
<S> <C>
(a) In April 1993, Blockbuster acquired a majority of Spelling Entertainment's outstanding common stock. In
November 1993, Blockbuster acquired all of the outstanding capital stock of Super Club Retail Entertainment
Corporation and subsidiaries ("Super Club"). These transactions were accounted for under the purchase method
of accounting and, accordingly, the results of operations of Spelling Entertainment and Super Club subsequent
to their acquisition are included in Blockbuster's consolidated financial statements. At December 31, 1993,
Blockbuster owned 45,658,640 shares of common stock of Spelling Entertainment, representing approximately
70.5% of its outstanding shares.
(b) In February 1992, Blockbuster acquired substantially all of the outstanding ordinary shares of Cityvision plc
("Cityvision"). The transaction was accounted for under the purchase method of accounting and, accordingly,
the results of operations of Cityvision subsequent to that time are included in Blockbuster's consolidated
financial statements. In November 1992, Blockbuster acquired all of the outstanding common stock of Sound
Warehouse, Inc. (together with its subsidiary, "Sound Warehouse") and Show Industries, Inc. ("Show
Industries"). These transactions were accounted for under the purchase method of accounting and, accordingly,
the results of operations of Sound Warehouse and Show Industries subsequent to that time are included in
Blockbuster's consolidated financial statements.
(c) Effective April 1991, Blockbuster acquired all of the outstanding shares of capital stock of Erol's Inc.
("Erol's"). The transaction was accounted for under the purchase method of accounting and, accordingly, the
results of operations of Erol's subsequent to that time are included in Blockbuster's consolidated financial
statements.
(d) In January 1989, a wholly owned subsidiary of Blockbuster was merged into Major Video Corp. ("Major Video").
In August 1989, Blockbuster acquired Video Superstore Master Limited Partnership ("VSMLP"), then its largest
franchise owner. These transactions were accounted for under the pooling of interests method of accounting.
Accordingly, financial data has been restated as if Blockbuster, Major Video and VSMLP had operated as one
entity since inception.
(e) Net earnings per share has been adjusted to reflect two-for-one splits of Blockbuster Common Stock in May
1989 and March 1991.
</TABLE>
21
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA OF
BLOCKBUSTER
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following selected unaudited pro forma financial data of Blockbuster
for the year ended December 31, 1993, gives effect to (i) the acquisition of
Super Club, (ii) the acquisition of a majority of the outstanding common stock
of Spelling Entertainment, (iii) a $600 million and a $1.25 billion investment
in Viacom and related borrowings to finance such investments and (iv) the sale
of 14.65 million shares of Blockbuster Common Stock (collectively, the
"Blockbuster Pro Forma Events"). The acquisitions referred to in (i) and (ii)
above were accounted for under the purchase method of accounting. The unaudited
pro forma statement of operations data for the year ended December 31, 1993, was
prepared based upon the results of operations of Blockbuster for the year ended
December 31, 1993, Super Club for the eleven months ended November 20, 1993, and
Spelling Entertainment for the three months ended March 31, 1993. Financial
information subsequent to the acquisition of Super Club and the acquisition
of a majority of the outstanding common stock of Spelling Entertainment is
included in the Blockbuster historical financial information. The unaudited pro
forma statement of operations data presents the Blockbuster Pro Forma Events as
if they had occurred at the beginning of the period presented. The Blockbuster
historical balance sheet at June 30, 1994 and statement of operations for the
six months ended June 30, 1994 reflect substantially all of the Blockbuster Pro
Forma Events. The selected unaudited pro forma financial data was derived from,
and should be read in conjunction with, the Unaudited Pro Forma Condensed
Consolidated Statement of Operations of Blockbuster and the notes thereto
appearing elsewhere in this Proxy Statement/Prospectus. See "Blockbuster, Super
Club and Spelling Entertainment Unaudited Pro Forma Condensed Consolidated
Statement of Operations." The unaudited pro forma financial data is not
necessarily indicative of the results of operations that would have occurred if
the Blockbuster Pro Forma Events had been in effect at the beginning of the
period indicated nor are they necessarily indicative of future operating results
or financial position.
<TABLE><CAPTION>
YEAR ENDED
DECEMBER 31,
1993
-------------
RESULTS OF OPERATIONS DATA:
<S> <C>
Revenue....................................................................... $ 2,595.2
Earnings from operations...................................................... 434.9
Net earnings from continuing operations....................................... 224.8
Net earnings per share from continuing operations--assuming full dilution..... $ 0.92
</TABLE>
22
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF
THE COMBINED COMPANY
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following selected unaudited pro forma combined financial data gives
effect to (i) the Viacom Pro Forma Events, (ii) the Merger, which will be
accounted for under the purchase method of accounting, (iii) the elimination of
all of the outstanding Blockbuster Common Stock, (iv) the elimination of all the
Series A Preferred Stock and Viacom Class B Common Stock held by Blockbuster,
(v) the issuance of the Merger Consideration, (vi) the Blockbuster Pro Forma
Events (collectively, the "Pro Forma Events") and (vii) the MSG Sale, as if such
Pro Forma events and MSG Sale occurred at the beginning of the periods presented
for results of operations data. The unaudited pro forma statement of operations
data for the six months ended June 30, 1994 was prepared based upon the
statements of operations of Viacom and Blockbuster for the six months ended June
30, 1994 and of Paramount for the two months ended February 28, 1994. The
unaudited pro forma statements of operations data for the year ended December
31, 1993 was prepared based upon the statements of operations data of Viacom and
Blockbuster for the year ended December 31, 1993 and of Paramount for the nine
months ended January 31, 1994 combined with the three months ended April 30,
1993. The following selected unaudited pro forma combined balance sheet data was
prepared based upon the balance sheet data of Viacom and Blockbuster at June 30,
1994. Financial information for Paramount subsequent to the completion of the
Offer is included in Viacom's historical information. Such unaudited pro forma
balance sheet data give effect to the Pro Forma Events as if they occurred on
June 30, 1994. The selected unaudited pro forma combined financial data was
derived from, and should be read in conjunction with, the unaudited pro forma
combined condensed financial statements and the notes thereto appearing
elsewhere in this Proxy Statement/Prospectus. See "Unaudited Pro Forma Combined
Condensed Financial Statements Viacom/Combined Company." The unaudited pro forma
data are not necessarily indicative of the combined results of operations or
financial position that would have occurred if the Pro Forma Events had been in
effect at the beginning of the period or on the date indicated nor are they
necessarily indicative of future operating results or financial position of the
combined company.
<TABLE><CAPTION>
COMBINED COMPANY AND
COMBINED COMPANY MSG SALE
-------------------------------- --------------------------------
SIX MONTHS SIX MONTHS
ENDED OR AT YEAR ENDED OR AT ENDED OR AT YEAR ENDED OR AT
JUNE 30, 1994 DECEMBER 31, 1993 JUNE 30, 1994 DECEMBER 31, 1993
------------- ----------------- ------------- -----------------
RESULTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Revenues................................................. $ 4,696.8 $ 9,624.1 $ 4,457.6 $ 9,290.2
Earnings from operations................................. 303.4 837.9 293.4 845.0
Earnings (loss) before extraordinary item, cumulative
effect of change in accounting principle and preferred
stock dividend requirements............................ (215.0) 57.9 (207.8) 87.5
Earnings (loss) attributable to common stock before
extraordinary item and cumulative effect of change in
accounting principle................................... (245.0) (2.1) (237.8) 27.5
Primary earnings (loss) per common share before
extraordinary item and cumulative
effect of change in accounting principle............... $ (0.68) $ (0.01) $ (0.66) $ 0.07
BALANCE SHEET DATA:
Total assets............................................. $ 26,592.0 NA $ 25,514.6 NA
Long-term debt, including current maturities............. 10,086.4 NA 9,376.4 NA
Stockholders' equity:
Preferred.............................................. 1,200.0 NA 1,200.0 NA
Common................................................. 10,020.6 NA 9,745.6 NA
Book value per common share.............................. $ 26.98 NA $ 26.24 NA
</TABLE>
23
<PAGE>
COMPARATIVE STOCK PRICES
Viacom Common Stock is listed on the AMEX. Blockbuster Common Stock is
listed on the NYSE. The following table sets forth, for the periods indicated,
the high and low sales prices per share of Viacom Common Stock and Blockbuster
Common Stock as reported on the AMEX and NYSE Composite Transaction Tape,
respectively.
<TABLE><CAPTION>
VIACOM VIACOM BLOCKBUSTER
CLASS A CLASS B COMMON
COMMON STOCK(A) COMMON STOCK(A) STOCK
-------------------- -------------------- ---------
HIGH LOW HIGH LOW HIGH
--------- --------- --------- --------- ---------
1992
<S> <C> <C> <C> <C> <C>
First Quarter..................................................... $ 37 1/4 $ 32 1/8 $ 36 1/2 $ 31 1/4 $ 15
Second Quarter.................................................... 38 1/2 32 3/8 36 7/8 30 1/2 15 7/8
Third Quarter..................................................... 34 7/8 30 7/8 32 7/8 29 13 3/4
Fourth Quarter.................................................... 44 28 1/8 41 7/8 27 19 1/2
1993
First Quarter..................................................... $ 46 1/2 $ 37 1/2 $ 44 1/8 $ 35 1/4 $ 20 1/8
Second Quarter.................................................... 52 5/8 37 1/8 49 1/2 36 21 7/8
Third Quarter..................................................... 67 1/2 50 1/2 61 1/4 45 3/4 30 1/8
Fourth Quarter.................................................... 66 1/2 47 60 1/2 40 3/8 34 1/4
1994
First Quarter..................................................... $ 49 3/4 $ 28 1/8 $ 45 $ 23 3/4 $ 31 3/8
Second Quarter.................................................... 34 1/4 24 1/2 32 1/2 21 3/4 29
Third Quarter through August 26................................... 41 1/4 33 7/8 36 5/8 30 1/4 28 1/2
<CAPTION>
LOW
---------
1992
First Quarter..................................................... $ 11 7/8
Second Quarter.................................................... 12 1/8
Third Quarter..................................................... 11 1/8
Fourth Quarter.................................................... 12 3/8
1993
First Quarter..................................................... $ 15 3/4
Second Quarter.................................................... 16 3/4
Third Quarter..................................................... 21 3/8
Fourth Quarter.................................................... 24 1/2
1994
First Quarter..................................................... $ 23 3/8
Second Quarter.................................................... 23 7/8
Third Quarter through August 26................................... 25
<CAPTION>
</TABLE>
- ---------------
(a) For the first through fourth quarters of 1992, NAI purchased 40,500, 19,000,
35,900 and 76,200 shares of Viacom Class A Common Stock, and 35,700, 32,100,
44,100 and 139,900 shares of Viacom Class B Common Stock, in each case
respectively. For the first through third quarters of 1993, NAI purchased
55,300, 121,800 and 113,100 shares of Viacom Class A Common Stock, and
47,600, 135,100 and 413,600 shares of Viacom Class B Common Stock, in each
case respectively. Since the end of the third quarter of 1993, NAI has not
purchased any shares of Viacom Common Stock. All purchases were made
pursuant to a publicly reported buying program initiated by NAI in August
1987 which has been designed to comply with applicable securities
regulations.
On January 6, 1994, the last trading day before the announcement of the
Merger Agreement, the last sales prices of Viacom Class A Common Stock, Viacom
Class B Common Stock and Blockbuster Common Stock, as reported on the AMEX and
the NYSE Composite Transactions Tape, were $47 per share, $42 3/4 per share and
$29 7/8 per share, respectively.
On August 26, 1994, the last trading day before the printing of this Proxy
Statement/Prospectus, the last sales prices of Viacom Class A Common Stock,
Viacom Class B Common Stock and Blockbuster Common Stock, as reported on the
AMEX and the NYSE Composite Transactions Tape, were $38 1/4 per share, $33 5/8
per share and $26 per share, respectively.
The market prices of shares of Viacom Class A Common Stock, Viacom Class B
Common Stock and Blockbuster Common Stock are subject to fluctuation. As a
result, Viacom and Blockbuster stockholders are urged to obtain current market
quotations.
On August 18, 1994, there were approximately 6,998 holders of record of
Viacom Class A Common Stock and approximately 14,957 holders of record of Viacom
Class B Common Stock. On August 12, 1994, there were approximately 13,068
holders of record of Blockbuster Common Stock.
24
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are historical earnings (loss) before extraordinary item
and cumulative effect of change in accounting principle, cash dividends declared
and book value per common share data of Viacom and Blockbuster and the
respective unaudited pro forma per common share data for the combined company.
Pro forma equivalent per share information of Blockbuster is also presented
below. The combined company unaudited pro forma data gives effect to (i) the Pro
Forma Events and (ii) the Pro Forma Events and the MSG Sale, as if such events
occurred for balance sheet purposes at the balance sheet date and for statement
of operations purposes at the beginning of the periods presented. Unaudited pro
forma data for the combined company was prepared based upon (i) Viacom and
Blockbuster statement of operations and balance sheet data for the six months
ended or at June 30, 1994 and the respective statement of operations data for
the twelve months ended December 31, 1993, and (ii) Paramount's statement of
operations data for the two months ended February 28, 1994, and for the nine
months ended or at January 31, 1994 and the three months ended April 30, 1993
combined. The information set forth below should be read in conjunction with the
respective audited and unaudited consolidated financial statements of Viacom,
Paramount and Blockbuster, including the notes thereto, and the Combined Company
Unaudited Pro Forma Combined Condensed Financial Statements appearing elsewhere
in this Proxy Statement/Prospectus.
<TABLE><CAPTION>
SIX MONTHS
ENDED OR AT YEAR ENDED OR AT
JUNE 30, 1994 DECEMBER 31, 1993
--------------- -------------------
BLOCKBUSTER--HISTORICAL:
<S> <C> <C>
Earnings per share before extraordinary
item and cumulative effect of change
in accounting principle--assuming full dilution........................... $ 0.53 $ 1.10
Cash dividends declared per common share.................................... $ 0.05 $ 0.095
Book value per common share................................................. $ 8.11 $ 8.58
VIACOM--HISTORICAL:
Earnings (loss) per share before extraordinary item and cumulative effect of
change in accounting principle.............................................. $ (1.57) $ 1.30
Cash dividends declared per common share(a)................................. -- --
Book value per common share................................................. $ 13.45 $ 7.60
</TABLE>
<TABLE><CAPTION>
COMBINED COMPANY AND
COMBINED COMPANY MSG SALE
---------------------------------- ------------------------------------
SIX MONTHS SIX MONTHS
ENDED OR AT YEAR ENDED OR AT ENDED OR AT YEAR ENDED OR AT
JUNE 30, 1994 DECEMBER 31, 1993 JUNE 30, 1994 DECEMBER 31, 1993
------------- ------------------- --------------- -------------------
PRO FORMA:
<S> <C> <C> <C> <C>
Earnings (loss) per share attributable to
common stock before extraordinary item and
cumulative effect of change in accounting
principle.................................. $ (0.68) $ (0.01) $ (0.66) $ 0.07
Cash dividends declared per common
share(a)................................... -- -- -- --
Book value per common share.................. $ 26.98 NA $ 26.24 NA
BLOCKBUSTER--PRO FORMA EQUIVALENT PER SHARE
INFORMATION:
Earnings (loss) per share attributable to
common stock before extraordinary item and
cumulative effect of change in accounting
principle(b)............................... $ (0.46) -- $ (0.45) $ 0.05
Cash dividends declared per common share..... -- -- -- --
Book value per common share(b)............... $ 18.51 -- $ 18.00 NA
Equivalent market value(c)................... $ 30.05 $ 30.05 $ 30.05 $ 30.05
</TABLE>
(Footnotes on following page)
25
<PAGE>
(Footnotes for preceding page)
- ---------------
<TABLE>
<S> <C>
(a) Cash dividends declared per common share does not reflect dividends paid on the preferred stock of Viacom.
(b) Blockbuster pro forma per share amounts were calculated assuming the issuance of 0.08 of a share of Viacom
Class A Common Stock and 0.60615 of a share of Viacom Class B Common Stock in exchange for each of the
approximately 249.2 million shares of Blockbuster Common Stock outstanding as of June 30, 1994 (other than
shares owned by Viacom or any direct or indirect wholly owned subsidiary of Blockbuster or Viacom) in
accordance with the Merger Agreement. This exchange results in stockholders of Blockbuster receiving
approximately 0.69 of a share of the combined company in exchange for each share of Blockbuster Common Stock.
This factor of 0.69 is applied to the combined company pro forma earnings and book value per common share
amounts.
(c) Blockbuster equivalent market value was calculated by (i) applying the 0.08 and 0.60615 share exchange ratios
to the closing prices of the Viacom Class A Common Stock and Viacom Class B Common Stock, respectively and
(ii) applying the assumed exchange ratio of 0.13544 of a share of Viacom Class B Common Stock per VCR to the
closing price of Viacom Class B Common Stock. The VCR market value described in the foregoing clause (ii)
represents $4.89 of the equivalent market value. Closing prices of Viacom Class A Common Stock and Viacom
Class B Common Stock were based on closing sales prices on the AMEX Composite Transactions Tape on August 15,
1994.
</TABLE>
26
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to stockholders of
Viacom in connection with the solicitation of proxies by the Board of Directors
of Viacom for use at the Viacom Special Meeting to be held at the Museum of
Television & Radio, 25 West 52nd Street, New York, New York, on September 29,
1994, at 10:30 a.m., New York time, and at any adjournment or postponement
thereof.
This Proxy Statement/Prospectus is also being furnished to stockholders of
Blockbuster in connection with the solicitation of proxies by the Board of
Directors of Blockbuster for use at the Blockbuster Special Meeting to be held
at the Broward Center for the Performing Arts, Fort Lauderdale, Florida, on
September 29, 1994, at 11:00 a.m., local time, and at any adjournment or
postponement thereof.
This Proxy Statement/Prospectus also constitutes a prospectus of Viacom
with respect to 22,134,256 shares of Viacom Class A Common Stock, 205,970,317
shares of Viacom Class B Common Stock and 276,678,196 VCRs, each representing
the right to receive up to an additional 0.13829 of a share of Viacom Class B
Common Stock, issuable to the holders of Blockbuster Common Stock in the Merger.
THE COMPANIES
VIACOM
Viacom's principal assets are its 100% ownership of Viacom International
and Paramount.
See "--Recent Developments." The principal executive offices of Viacom are
located at 200 Elm Street, Dedham, Massachusetts 02026.
VIACOM INTERNATIONAL
Viacom International is a diversified entertainment and communications
company with operations in four principal segments: Networks, Entertainment,
Cable Television and Broadcasting.
VIACOM NETWORKS. Viacom Networks is comprised of MTV Networks ("MTVN") and
SNI.
MTV Networks. MTVN operates three 24 hours-a-day, advertiser-supported,
------------
basic cable services in the U.S.: MTV: MUSIC TELEVISION, VH-1/VIDEO HITS ONE,
and NICKELODEON/NICK AT NITE. Internationally, MTVN operates MTV EUROPE and MTV
LATINO. In September 1993, MTVN launched Nickelodeon UK, a joint venture with a
subsidiary of British Sky Broadcasting Limited. MTVN has licensing arrangements
covering the distribution of regionally specific program services called MTV:
MUSIC TELEVISION in Asia, Japan and Brazil.
MTV. At June 30, 1994, MTV was licensed to approximately 52.4 million
domestic cable subscribers (based on subscriber counts provided by each cable
system). According to the June 1994 sample reports issued by the A.C. Nielsen
Company (the "Nielsen Report"), MTV reached approximately 58.6 million
subscriber households. In addition to music videos, MTV offers regularly
scheduled youth-oriented programming such as the animated BEAVIS & BUTT-HEAD
SHOW and specials such as the Annual MTV Video Music Awards and the MTV Movie
Awards, public affairs campaigns and series such as UNPLUGGED. MTV successfully
merchandised BEAVIS & BUTT-HEAD in 1993 featuring an album released by Geffen
Records and a book published by a division of Simon & Schuster. MTV's CHOOSE OR
LOSE political awareness campaign, which included studio interviews with
candidates Bill Clinton and Al Gore, extensively promoted the registration of
hundreds of thousands of new young voters. MTV's UNPLUGGED features live
acoustical performances by artists such as Eric Clapton, Rod Stewart and 10,000
Maniacs. MTV licenses the distribution of UNPLUGGED home video versions of these
performances. MTV Productions was formed in 1993 to develop and produce
theatrical motion pictures and television programs, including the joint
development of a theatrical motion picture based on JOE'S APARTMENT with Geffen
Pictures for distribution by Warner Bros.
27
<PAGE>
Nickelodeon. At June 30, 1994, NICKELODEON was licensed to approximately
53.9 million cable subscribers and NICK AT NITE was licensed to approximately
53.6 million cable subscribers (based on subscriber counts provided by each
cable system). According to the Nielsen Report, NICKELODEON and NICK AT NITE
each reached approximately 60.6 million subscriber households. In 1993,
NICKELODEON, the first network for kids, expanded its successful NICKTOONS,
NICKELODEON's original animated programming, with the introduction of ROCKO'S
MODERN LIFE in addition to THE REN & STIMPY SHOW, DOUG and RUGRATS. NICKELODEON
also exhibits, on Saturday nights, SNICK, its first prime-time block of original
NICKELODEON programming. MTVN, in cooperation with MCA Inc. ("MCA"), operates
NICKELODEON STUDIOS FLORIDA at Universal Studios in Orlando, Florida, which
combines state-of-the-art television production facilities with interactive
features that demonstrate the operation of NICKELODEON's studios from a kid's
perspective. In June 1993, NICKELODEON launched NICKELODEON MAGAZINE, a
bi-monthly children's magazine. In April 1993, NICKELODEON and Sony Music
entered into an agreement for Sony to manufacture and distribute NICKELODEON
audio and video products in the U.S. and Canada through its Sony Wonder
Children's label.
VH-1. At June 30, 1994, VH-1 was licensed to approximately 45.4 million
cable subscribers (based on subscriber counts provided by each cable system).
According to the Nielsen Report, VH-1 reached approximately 49.1 million
subscriber households. Created in 1985 to reach viewers aged 25 to 49, VH-1
provides music and lifestyle programming. VH-1 offers programs such as original
and acquired comedy programming including STAND-UP SPOTLIGHT and Gallagher
specials; FT: FASHION TELEVISION; and the ONE-TO-ONE series which profiles pop
artists.
MTVN has agreements with some U.S. record companies which, in exchange for
cash and advertising time, license the availability of such companies' music
videos for exhibition on MTV and on MTVN's other basic cable networks; a number
of other record companies provide MTVN with music videos in exchange for
promotional consideration only. The agreements generally provide that the videos
are available for debut by MTVN and, in some cases, that videos are subject to
exclusive periods on MTV. These record companies provide a substantial portion
of the music videos exhibited on MTV and VH-1. MTVN is currently in negotiations
for the renewal and extension of certain of its record company agreements.
Although MTVN believes that these agreements will be renewed, there can be no
assurance that the terms of such renewals will be as favorable as existing
arrangements.
A number of record companies have announced plans to launch music-based
program services in the U.S. and internationally. For example, Sony Corp.'s Sony
Music and Time Warner Inc.'s Time Warner Music Group are discussing the
formation of a world wide music video program service with such other major
record companies as EMI Music, a unit of Thorn EMI PLC, and Polygram.
Comedy Central. Viacom International and HBO, through a 50-50 joint
venture, operate COMEDY CENTRAL, a 24-hours-a-day, seven-days-a-week program
service targeted to audiences ranging from the ages of 18 to 34. The format
consists primarily of comedy programming, including movies, series, situation
comedies, stand-up and sketch comedy, commentary, promotions, specials, game
shows, talk shows and other original and acquired comedy programming. According
to the Nielsen Report, COMEDY CENTRAL reached approximately 30.7 million
subscriber households.
Showtime Networks. SNI operates three 24-hours-a-day, commercial-free,
-----------------
premium subscription services offered to cable television operators and other
distributors: SHOWTIME, offering theatrically released feature films, comedy
specials, dramatic series, boxing events, family programs and original movies;
THE MOVIE CHANNEL, offering feature films and related programming including film
festivals; and FLIX, an added-value premium subscription service featuring
movies primarily from the 1960s, '70s and '80s which was launched on August 1,
1992. As of June 30, 1994, SHOWTIME, THE MOVIE CHANNEL and FLIX in the aggregate
had approximately 12.4 million subscribers.
SNI also provides special events, such as sports events, and feature films
to licensees on a pay-per-view basis through its operation of SET Pay-Per-View,
a division of Viacom International.
28
<PAGE>
Showtime Satellite Networks Inc., a subsidiary of SNI, packages for
distribution to home satellite dish owners (on a direct retail basis) SHOWTIME,
THE MOVIE CHANNEL, FLIX, Viacom Networks' basic cable program services, ALL NEWS
CHANNEL, a 24-hour satellite-delivered news service which is a joint venture
between Viacom Satellite News Inc., a subsidiary of Viacom International, and
Conus Communications Company Limited Partnership, a limited partnership whose
managing general partner is Hubbard Broadcasting, Inc., and certain third-party
program services. Also, SNI offers SHOWTIME, THE MOVIE CHANNEL and FLIX to
third-party licensees for subdistribution to home satellite dish owners.
In addition to SNI's other motion picture licensing agreements, SNI and
Sony Pictures Entertainment Inc. recently entered into a five-year agreement
under which SNI has agreed to acquire the exclusive premium television rights to
TriStar Pictures feature films. A continuation of SNI's previous three-year
arrangement with TriStar, this new agreement includes all qualifying TriStar
films theatrically released from 1994 through 1998, up to a maximum of 75
pictures.
SNI has also recently entered into a seven-year agreement with
Metro-Goldwyn-Mayer Inc. ("MGM") under which SNI has agreed to acquire the
exclusive premium television rights to MGM and United Artists feature films. The
agreement includes all qualifying pictures theatrically released from September
1, 1994 through August 31, 2001, up to a maximum of 150 pictures. The agreement
also calls for SNI and MGM to co-finance the production of certain exclusive
original movies to be produced for a U.S. premiere on SNI's program services.
The cost of acquiring premium television rights to programming, including
exclusive rights, is the principal expense of SNI. At December 31, 1993, in
addition to such commitments reflected in Viacom's financial statements, SNI had
commitments to acquire such rights at a cost of approximately $1.8 billion. Most
of the $1.8 billion is payable within the next seven years as part of normal
programming expenditures of SNI. These commitments are contingent upon delivery
of motion pictures which are not yet available for premium television exhibition
and, in many cases, have not yet been produced.
SNI also arranges for the development and production of original programs
and motion pictures that premiere on SHOWTIME through its operation of the
Showtime Entertainment Group. The Showtime Entertainment Group's activities also
now include operating Viacom Pictures, a division of Viacom International, which
arranges for the development and production of motion pictures that are
exhibited theatrically in foreign markets and premiere domestically on SHOWTIME.
In addition to exhibiting the Showtime Entertainment Group's original
programs and motion pictures on SNI's premium subscription services, SNI
distributes certain Showtime Entertainment Group programming for foreign
theatrical exhibition and exploitation in various other media worldwide.
Viacom Networks has entered into an agreement as of August 27, 1992 with
United States Satellite Broadcasting, Inc., a subsidiary of Hubbard
Broadcasting, Inc., for the direct broadcast high-powered Ku-band satellite
distribution ("DBS") of each of Viacom Networks' wholly owned basic cable and
premium networks, expected to be offered beginning in 1994.
See "--Recent Developments" below.
ENTERTAINMENT. Viacom Entertainment is comprised of (i) Viacom Enterprises,
which distributes television series such as ROSEANNE, THE COSBY SHOW, A
DIFFERENT WORLD and various classic CBS network series such as I LOVE LUCY,
feature films, made-for-television movies, mini-series and specials for
television exhibition in various markets throughout the world, and also
distributes television programs such as THE MONTEL WILLIAMS SHOW and NICK NEWS
for initial United States television exhibition on a non-network ("first run")
basis and for international television exhibition; (ii) Viacom Productions,
which produces television series such as MATLOCK, starring Andy Griffith, and
DIAGNOSIS MURDER, starring Dick Van Dyke, and other television properties both
independently and in association with others primarily for initial exhibition on
United States prime
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time network television; (iii) Viacom New Media, which develops, produces,
distributes and markets interactive software for the stand-alone and other
multimedia marketplaces, and includes ICOM Simulations, Inc. (predecessor to
VNM, Inc.) an interactive software development company acquired by Viacom in May
1993. Viacom New Media released an interactive horror movie on CD-ROM entitled
DRACULA UNLEASHED in the fourth quarter 1993 and is in the process of developing
cartridge video games based on certain MTV Networks programs, such as BEAVIS &
BUTT-HEAD and ROCKO'S MODERN LIFE, as well as original CD-ROM products and
expects to participate in the development of interactive programming for the
Viacom International/AT&T Castro Valley cable system project (described below);
and (iv) Viacom World Wide, which explores and develops business opportunities
in international markets primarily in cable and premium television. Viacom
Enterprises and Viacom Productions have been consolidated with Paramount's
television operations.
CABLE TELEVISION. Viacom Cable owns and operates cable television systems
serving approximately 1,117,000 customers as of June 30, 1994 in three regions
of the United States: California, the Pacific Northwest and the Midwest. Viacom
Cable has constructed a fiber optic cable system in Castro Valley, California to
provide more channels with significantly better picture quality, and to
accommodate testing of new services including an interactive on-screen
programming guide known as StarSight (in which a consolidated affiliate of
Viacom International currently has a 21.4% equity interest and has the right to
increase its equity interest to 35% and in which Spelling Entertainment has a
5.8% equity interest), other interactive programs with Viacom New Media,
video-on-demand premium services, multiplexed premium services, and advanced
interactive video and data services. Viacom International has entered into an
agreement with AT&T to test and further develop such services. As part of
Viacom's strategic relationship with NYNEX, Viacom has granted NYNEX a right of
first refusal with respect to providing telephony service upgrade expertise to
Viacom Cable. See "--Recent Developments" below.
BROADCASTING. Viacom Broadcasting owns and operates five network affiliated
television stations. Viacom Broadcasting also operates 14 radio stations (two of
which are under contract to be sold) in six of the top eight radio markets, with
duopolies in Los Angeles, Seattle and Washington, D.C. Viacom Broadcasting owns
and operates the following five television properties: KMOV-TV (CBS), St. Louis,
MO; WVIT-TV (NBC), Hartford-New Haven, CT; WNYT-TV (NBC), Albany, NY; KSLA-TV
(CBS), Shreveport, LA; WHEC-TV (NBC), Rochester, NY and the following 14 radio
stations: WLTW-FM, New York, NY; KXEZ-FM and KYSR-FM, Los Angeles, CA; WLIT-FM,
Chicago, IL; WLTI-FM, Detroit, MI; WMZQ-AM/FM, WCXR-FM and WCPT-AM, Washington,
D.C.; KBSG-AM/FM and KNDD-FM, Seattle, WA; KSOL-FM, San Francisco, CA; and
KYLZ-FM, Santa Cruz/San Jose, CA. On November 1, 1993, Viacom Broadcasting
exchanged KIKK-AM/FM, Houston, TX, for Westinghouse Broadcasting Company, Inc.'s
WCXR-FM and WCPT-AM, Washington, D.C., and cash. Pursuant to the consent granted
by the Federal Communications Commission ("FCC") to the transfer of control of
the broadcast licenses of Paramount to Viacom, Viacom has undertaken to dispose
of one of its two AM stations and one of its two FM stations serving Washington,
D.C. See "--Recent Developments" below.
PARAMOUNT
The businesses of Paramount are entertainment and publishing. Entertainment
includes the production, financing and distribution of motion pictures,
television programming and prerecorded videocassettes and the operation of
motion picture theaters, independent television stations, regional theme parks
and Madison Square Garden. Publishing includes the publication and distribution
of hardcover and paperback books for the general public, textbooks for
elementary schools, high schools and colleges, and the provision of information
services for business and professions.
ENTERTAINMENT. Theatrical Motion Pictures. Paramount Pictures produces
and/or finances feature motion pictures for exhibition in theaters and on
television and for distribution by videocassettes and video discs. Motion
pictures are produced by Paramount Pictures, produced by independent producers
and financed in whole or in part by Paramount Pictures, or produced by others
and acquired
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by Paramount Pictures. Each picture is, in effect, a separate and distinct
product with its financial success dependent upon many factors, among which cost
and public response are of fundamental importance. In the eleven-month period
ended March 31, 1994, Paramount Pictures released 14 feature motion pictures.
Paramount Pictures distributes its motion pictures for theatrical release
outside the United States and Canada through United International Pictures, a
company owned by Paramount Pictures, MCA and MGM.
Most motion pictures are also licensed for exhibition on television, with
fees generally collected in installments. License fees are recorded as revenue
in the period that the films are available for telecast, which, among other
reasons, may cause substantial fluctuation in Paramount Picture's operating
results. At March 31, 1994, unrecognized revenues attributable to licensing of
completed films from Paramount Pictures' license agreements were $579 million.
Paramount Pictures has an exclusive pay television license agreement with
HBO which includes new Paramount Pictures' motion pictures released theatrically
through December 1997. Paramount Pictures also licenses its motion pictures to
home and hotel/motel pay-per-view, airlines, schools and universities. Paramount
Pictures also distributes its motion pictures for pay television release outside
the United States and Canada through United International Pictures. In 1993,
Paramount acquired a joint venture interest in HBO Pacific Partners, C.V. and
granted to it a license to carry Paramount Pictures' motion pictures on pay
television in Singapore, Thailand, the Philippines and other territories through
1999. Paramount Pictures has approximately 900 motion pictures in its library.
United International Pictures and United Cinemas International (as described
below) are the subject of various governmental inquiries by the Commission of
the European Community and the Monopolies and Mergers Commission of the United
Kingdom. Such inquiries are not expected to have a material effect on the
business of Paramount.
Television Programs. Paramount Pictures is engaged in the production and
-------------------
istribution of series, mini-series, specials and made-for-television movies for
network television, first-run syndication, pay and basic cable, videocassettes
and video discs, and live television programming. The receipt and recognition of
revenues for license fees for completed television programming in syndication is
similar to that of feature films exhibited on television and, consequently,
operating results are subject to substantial fluctuation. At March 31, 1994, the
unrecognized revenues from such television license agreements were $188 million.
Certain programs are licensed in exchange for cash and/or advertising time which
Paramount Pictures retains and sells through its wholly owned affiliate, Premier
Advertiser Sales. Premier Advertiser Sales also sells advertising time in
programming distributed by third parties. Paramount Pictures' foreign television
revenues include the licensing of series, mini-series and specials made for U.S.
television and theatrical and made-for-television movies that are part of its
television library. In addition, foreign television revenues also include
revenues derived from distribution of television product acquired from
independent producers.
Home Video. Paramount Pictures sells videocassettes for the home video
----------
market, featuring its motion picture and television program library,
acquisitions from third parties and programs made originally for the home video
market. It also licenses this product for distribution on video disc. Paramount
Pictures distributes its home video products outside the United States and
Canada through Cinema International B.V., a joint venture with MCA.
Theatrical Exhibition. Famous Players operates 461 screens in 113 theaters
---------------------
throughout Canada. Cinamerica, a joint venture with Time Warner Inc. ("Time
Warner"), includes Mann and Festival Theaters and operates 341 screens in 66
theaters in California, Colorado, Arizona and Alaska. United Cinemas
International, a joint venture with MCA, operates 247 screens in 26 theaters in
the United Kingdom and Ireland, 42 screens in three theaters in Germany and 78
screens in 24 theaters in Spain. United Cinemas International plans to construct
and operate additional theaters in the United Kingdom, Germany, Austria and
Spain. It also manages, in six countries, 31 screens in 17 theaters which are
owned by Cinema International Corporation, a joint venture with MCA.
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Television Broadcasting and Cable Television Networks. PSG owns and
-----------------------------------------------------
operates seven television stations (two of which are under contract to be sold):
WTXF(TV), Philadelphia; KRRT(TV), San Antonio; WLFL(TV), Raleigh/Durham;
WDCA-TV, Washington, D.C.; KTXA(TV), Dallas; KTXH(TV), Houston; and WKBD(TV),
Detroit. Paramount and MCA jointly own USA Networks, which operates two national
advertiser-supported basic cable television networks, USA Network and the Sci-Fi
Channel. USA Network is one of the largest of its kind in the United States,
reaching 62.2 million households. The Sci-Fi Channel reached 15.8 million
households. Under the joint venture agreement for USA Networks between
subsidiaries of Paramount and MCA, such subsidiaries and certain of their
affiliates are restricted, subject to certain exceptions and unless the other
party consents, from engaging outside of USA Networks in the business of
providing to cable television systems national, video, advertiser-supported,
basic cable entertainment networks or providing national video entertainment
programming services to cable television systems and/or other entities on a
pay-per-view basis. Although Paramount does not believe that these restrictions
were violated by its business combination with Viacom, there can be no assurance
that MCA might not seek damages or other relief in connection with the
consummation of the Paramount Merger or the business activities that may be
engaged in thereafter.
Paramount and BHC Communications, Inc., which is majority-owned by
Chris-Craft Industries, Inc., have formed the United Paramount Television
Network which will provide prime-time television programming primarily to
broadcast affiliates nationwide in competition with the three major networks and
the Fox Broadcasting Network. The network is expected to begin operations in
January 1995.
Theme Parks. Paramount Parks owns and operates five regional theme parks:
-----------
Paramount's Carowinds, in Charlotte, North Carolina; Paramount's Great America,
in Santa Clara, California; Paramount's Kings Dominion, located near Richmond,
Virginia; Paramount's Kings Island, located near Cincinnati, Ohio; and Paramount
Canada's Wonderland, located near Toronto, Ontario. In May 1993, Paramount Parks
acquired the 80% interest in Paramount Canada's Wonderland which it did not
previously own. The majority of the theme parks' operating income is generated
from May through September.
Madison Square Garden. Madison Square Garden's activities include the
---------------------
operation of the Madison Square Garden Arena, which seats approximately 20,000
people, The Paramount, a theater which seats approximately 5,600 people, the New
York Knickerbockers Basketball Club of the National Basketball Association and
the New York Rangers Hockey Club of the National Hockey League. It also supplies
and distributes television programming for cable systems principally in New
York, New Jersey and Connecticut through the Madison Square Garden Network. Its
programming includes its own sporting events and rights to the New York Yankees
baseball games through the year 2000. In addition, Madison Square Garden
produces, promotes and/or presents live entertainment, which includes television
event production of the Miss Universe, Miss USA and Miss Teen USA pageants and
auto thrill shows through SRO Motorsports. See "--Recent Developments" below.
PUBLISHING. Paramount Publishing, which was renamed Simon & Schuster in May
1994, includes well-known imprints such as Simon & Schuster, Pocket Books,
Prentice Hall, Silver Burdett Ginn and Computer Curriculum Corporation, among
others. In February 1994, Paramount completed the acquisition of Macmillan for
approximately $553 million. Macmillan Publishing, which includes such imprints
as "Macmillan" and "Scribner's," published books and materials through five
divisions-- College, Children's Books, Adult Trade, Reference and The Free
Press, a publisher of scholarly social, political, behavioral and management
science books--as well as Jossey-Bass, a publisher of books and periodicals for
select professionals.
Educational Publishing. The Elementary, Secondary, Higher Education and
----------------------
Educational Technology groups publish elementary, secondary and college
textbooks and related materials, computer-based educational products,
audiovisual products and vocational and technical materials under such imprints
as "Prentice Hall," "Silver Burdett Ginn," "Silver Burdett Press," "Dillon
Press," "New Discovery," "Crestwood House," "Julian Messner," "Allyn & Bacon,"
"Globe Fearon," "Modern Curriculum
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Press," "Coronet/MTI Film & Video," "Computer Curriculum Corporation," "Simon &
Schuster Workplace Resources," "Academic Reference," "Prentice Hall Regents,"
"Prentice Hall PTR," "American Teaching Aids," "Judy/Instructo," "Good Apple,"
"Ginn Press," "Alemany" and "Cambridge."
Consumer Publishing. Simon & Schuster's Consumer group publishes and
-------------------
distributes hardcover, trade paperback and mass market books and audio tapes and
electronic products such as CD-ROMs. It publishes its hardcover trade books
principally under the "Simon & Schuster," "Pocket Books," "Poseidon Press,"
"Little Simon," "Simon & Schuster Books for Young Readers," "Green Tiger",
"Picture Book Studios" and "Rabbit Ears" imprints; its trade paperback books
under the "Fireside" and "Touchstone" imprints; and its mass market paperbacks
under the "Pocket Books," "Pocket Star," "Archway," "Washington Square Press"
and "Minstrel" imprints. Audio cassettes are sold under the imprints "Audio
Works" and "Sound Ideas." Books of other publishing companies, including
"Harlequin" and "Silhouette" romance novels, books published under the imprints
of "Baen," "Meadowbrook," "Picture Book Studios" and "Rabbit Ears," and audio
cassettes under the "Nightingale Conant Audio" imprint are also distributed.
The Consumer group also publishes or distributes consumer information and
special-interest books, including "Prentice Hall" reference books; "Arco"
college entrance and civil service test preparation material; "J.K. Lasser" tax
guides; "Webster's New World," "Cassell's" and "Harrap's" bilingual
dictionaries; travel books under the "Frommer's," "American Express," "Baedeker"
and "Mobil" imprints; cookbooks under the "Betty Crocker" imprint; gardening
books under the "Burpee" and "Horticulture" imprints; maps under the "Gousha"
imprint; and "Monarch Notes" study guides.
Business, Technical and Professional. The Business, Technical and
------------------------------------
Professional group publishes books, newsletters, looseleaf services and software
for a variety of professional groups, including lawyers, accountants, tax
professionals, business executives and the medical community. These materials
are published under the "Prentice Hall," "Bureau of Business Practice,"
"Parker," "Prentice Hall Law and Business," "Appleton & Lange" and "New York
Institute of Finance" imprints. It publishes Prentice Hall Computer Publishing
computer reference books under the "Que," "Brady," "Sams," "New Riders," "Alpha
Books" and "Hayden" imprints. In May 1994, Prentice Hall Computer Publishing was
renamed Macmillan Computer Publishing. It also provides information and services
to corporate attorneys and lending institutions, provides professional tax
preparation and practice management software to accounting firms and law firms,
licenses software designed to manage and maintain trademark and patent
registrations for law firms and large corporations and provides business
training programs to corporations. In May 1994, Simon & Schuster announced plans
to divest certain units within this group.
International. The international operations include publishing in Canada,
-------------
the United Kingdom, Australia, Brazil, Mexico, Singapore, Japan and India
primarily under the "Prentice Hall" and "Simon & Schuster" names as well as
distribution of Simon & Schuster's products worldwide. Paramount also publishes
German language computer books and software in Germany under the Markt & Technik
name.
STRATEGIC RELATIONSHIPS
Viacom has entered into a strategic relationship with NYNEX Corporation
("NYNEX") pursuant to which NYNEX (i) invested $1.2 billion in the Series B
Cumulative Convertible Preferred Stock, par value $.01 per share, of Viacom (the
"Series B Preferred Stock" and, together with the Series A Preferred Stock, the
"Viacom Preferred Stock") and (ii) agreed to explore strategic partnership
opportunities with Viacom. See "Description of Viacom Capital Stock--Viacom
Preferred Stock." Viacom has also entered into a similar strategic relationship
with Blockbuster. See "Certain Transactions Between Viacom and Blockbuster and
With Their Stockholders."
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REGULATORY MATTERS
The 1992 Cable Act amended the Communications Act of 1934. Rate regulations
adopted in April 1993 by the FCC govern rates charged to subscribers for
regulated tiers of cable service and became effective on September 1, 1993. On
February 22, 1994, the FCC adopted additional rules (the "February 22nd
Regulations") which were published by the FCC on March 30, 1994. The "benchmark"
formula adopted as part of the regulations establishes an "initial permitted
rate" which may be charged by cable operators for specified tiers of cable
service. The regulations also establish the prices which may be charged for
equipment used to receive these services. Based upon the February 22nd
Regulations, the new formula may require up to approximately a 17% reduction of
rates from those charged on September 30, 1992, rather than the 10% reduction
required by the April 1993 regulations. The February 22nd Regulations also
adopted interim standards governing "cost-of-service" proceedings pursuant to
which a cable operator would be permitted to charge rates in excess of rates
which it would otherwise be permitted to charge under such regulations, provided
that the operator substantiates that its costs in providing services justify
such rates.
Based on its implementation of the April 1993 regulations and the February
22nd Regulations, including the use of cost-of-service proceedings in systems
serving approximately 70,000 customers, Viacom estimates that it will recognize
a reduction to revenue ranging from $42 million to $47 million on an annualized
basis, substantially all of which will be reflected as a reduction in earnings
from operations of its cable division. These estimates account for permitted
rate increases scheduled to be implemented in September 1994. Viacom's ability
to mitigate the effects of these new rate regulations by employing techniques
such as the pricing and repricing of new or currently offered unregulated
program services and ancillary services is uncertain. No such potential
mitigating factors are reflected in the estimated reductions to revenues. The
stated reduction to revenues has been mitigated to a small extent by higher
customer growth due to lower primary service rates. Any required further
reduction in rates could be similarly mitigated. Viacom also cannot predict the
effect, if any, of cable system rate regulation on license fee rates payable by
cable systems to program services such as those owned by Viacom.
In a recent decision by the U.S. District Court for the Eastern District of
Virginia, the Court declared the restrictions contained in the Communications
Act of 1934, as amended (the "Communications Act"), on the provision of video
programming by a telephone company in its local service area to be
unconstitutional and has enjoined enforcement of these provisions. The Court has
held that this decision is limited to the plaintiff in the case and does not
apply to geographic areas outside of its jurisdiction. An appeal of the Court's
holding of the unconstitutionality of such restrictions has been filed. The U.S.
District Court for the Western District of the state of Washington has issued a
similar decision, which is also limited in effect to the plaintiff in such case.
Several similar suits have recently been filed in different jurisdictions by
regional Bell Operating Companies (including NYNEX) ("BOCs") challenging the
very same restrictions. In an interpretation of the current restrictions
contained in the Communications Act, the FCC in 1992 established its "Video Dial
Tone" policy. The Video Dial Tone policy is being challenged in court by cable
interests as violating the Communications Act. It is also being challenged by
telephone interests as not being liberal enough. The policy permits
in-service-area delivery of video programming by a telephone company (a "telco",
as further defined below) and exempts telcos from the Communications Act's
franchising requirements so long as their facilities are capable of two-way
video and are used for transmission of video programming on a common carrier
basis, i.e., use of the facilities must be available to all programmers and
program packagers on a non-discriminatory, first-come first-served basis. Telcos
are also permitted to provide to facilities users additional "enhanced" services
such as video gateways, video processing services, customer premises equipment
and billing and collection. These can be provided on a non-common carrier basis.
There are currently pending in Congress two principal bills (in the Senate,
S. 1822, the Communications Act of 1994 and in the House, H.R. 3626, the
Antitrust and Communications Reform Act of 1994) which would, among other
things, permit a BOC or a Regional Holding Company ("RHC"; a BOC or RHC, a
"telco") to offer cable service under certain stated conditions including
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providing safeguards and transition rules designed to protect against
anti-competitive activity by the telcos and cross-subsidization of a telco's
cable business by the telco's charges to its telephone customers. These bills
also generally eliminate state and local entry barriers which currently either
prohibit or restrict an entity's (including a cable operator's) capacity to
offer telecommunications services (including telephone exchange service) in
competition with telcos and to interconnect on a non-discriminatory basis with
telcos and utilize certain telco facilities in order to provide service in
competition with a telco.
The Modification of Final Judgment (the "MFJ") is the consent decree
pursuant to which AT&T was reorganized and was required to divest its local
telephone service monopolies. As a result, seven regional holding companies were
formed (including NYNEX) comprised of operating companies within their regions.
In addition, all territory in the continental United States served by the BOCs
was divided into geographical areas termed Local Access and Transport Areas
("LATAs"). The MFJ restricts the RHCs, the BOCs and their affiliates from
engaging in inter-LATA telecommunications services and from manufacturing
telecommunications products. As a result of NYNEX's investment in Viacom, Viacom
arguably could be considered an affiliate of an RHC for MFJ purposes. As a
result, Viacom transferred certain of its operations and properties to an
affiliated entity which will be consolidated into Viacom for financial reporting
purposes. Neither the transfer nor the operations of the affiliate as an entity
separate from Viacom will have a material effect on the financial condition or
the results of operations of Viacom. S. 1822 and HR 3626 would, if enacted into
law, eliminate the MFJ restrictions as they pertain to Viacom. Should the MFJ
restrictions be eliminated or waived by the U.S. District Court for the District
of Columbia, Viacom intends to retransfer the assets and operations, and any
future appreciation in the value of such assets after such retransfer will be
for the benefit of the holders of Viacom Common Stock.
RECENT DEVELOPMENTS
On August 27, 1994, Viacom entered into a definitive agreement pursuant to
which Viacom agreed to sell the Madison Square Garden Corporation (which
includes the Madison Square Garden Arena, The Paramount theater, the New York
Knickerbockers, the New York Rangers and the Madison Square Garden Network)
to a joint venture between ITT Corporation and Cablevision Systems
Corporation for gross proceeds of approximately $1,075,000,000. The closing of
the transaction is subject to customary closing conditions, including the
expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the approval of each of the National
Basketball Association and the National Hockey League.
On July 7, 1994, the Paramount Merger was completed. As a result of the
Paramount Merger, Paramount has become a wholly owned subsidiary of Viacom. In
connection with the Paramount Merger, assuming that all outstanding shares of
Paramount Common Stock were exchanged, Viacom issued (i) 56,895,733 shares of
Viacom Class B Common Stock, (ii) $1,069,870,000 principal amount of Viacom 8%
Debentures, (iii) 56,895,733 CVRs, (iv) 30,567,739 Viacom Three-Year Warrants
and (v) 18,340,643 Viacom Five-Year Warrants. See "Description of Viacom Capital
Stock."
On July 1, 1994, Viacom entered into the Viacom Credit Agreement, and
Viacom International and certain of its subsidiaries entered into the Viacom
International Credit Agreement.
The Viacom Credit Agreement is comprised of (i) a $2.5 billion senior
unsecured 2 1/2-year revolving short-term loan maturing December 31, 1996, (ii)
a $1.8 billion senior unsecured 8-year reducing revolving loan maturing July 1,
2002 and (iii) a $2.189 billion 8-year term loan maturing July 1, 2002, and is
guaranteed by Viacom International and Paramount. The Viacom International
Credit Agreement is comprised of a $311 million 8-year term loan to Viacom
International and certain of its subsidiaries maturing July 1, 2002, and is
guaranteed by Viacom and Paramount.
On April 4, 1994, Viacom sold its one-third partnership interest in
LIFETIME to its partners The Hearst Corporation and Capital Cities/ABC Inc. for
approximately $317.6 million.
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Viacom is currently considering the sale of the Famous Music publishing
companies.
Viacom has recently had preliminary discussions regarding the sale of its
cable television systems.
Viacom and TCI have recently held preliminary discussions regarding a
settlement of Viacom's pending lawsuit against TCI which alleges certain
violations of U.S. antitrust laws. Such discussions involved, together with
other consideration, the establishment of the Showtime/Encore Joint Venture to
which Viacom would contribute the assets of SNI and TCI would contribute the
assets of its ENCORE premium subscription program service, including its STARZ!
premium subscription program service, and certain other related assets. The
joint venture would be owned equally.
The discussions concerning the Cable Systems Sale and the Showtime/Encore
Joint Venture have not sufficiently advanced to indicate what the definitive
terms of any agreement would ultimately be and significant differences in
position remain between each of the parties. Accordingly, there can be no
assurance that any such agreements will be entered into or that any of such
transactions would ultimately be consummated. The Unaudited Pro Forma Combined
Condensed Financial Statements Viacom/Combined Company included in this Proxy
Statement/Prospectus do not make any assumptions concerning either the Cable
Systems Sale or the Showtime/Encore Joint Venture as agreement on definitive
terms has not sufficiently advanced for Viacom to consider either transaction
probable for accounting purposes at this time.
BLOCKBUSTER
Blockbuster is an international entertainment company with businesses
operating in the home video, music retailing and filmed and interactive
entertainment industries. Blockbuster also has investments in other
entertainment related businesses. The principal executive offices of Blockbuster
are located at One Blockbuster Plaza, Fort Lauderdale, Florida 33301 (telephone:
(305) 832-3000).
HOME VIDEO RETAILING. Blockbuster owns, operates and franchises Blockbuster
Video videocassette rental and sales stores. Blockbuster believes that
Blockbuster Video stores, which range in size from approximately 3,800 to 11,500
square feet, are generally larger than most videocassette rental and sales
stores. Blockbuster Video stores generally carry a comprehensive selection of
7,000 to 13,000 prerecorded videocassettes, consisting of more than 5,000
titles. Blockbuster believes, based on industry trade publications and its
informal inspection of competitors, that Blockbuster Video stores generally
include a greater number of copies of the more popular titles, have greater
selection, stay open for longer hours and have faster and more convenient
computerized check-in/check-out procedures than most of Blockbuster's
competitors. The proprietary computer software used in Blockbuster Video stores
has been designed and developed by Blockbuster and is available only to
Blockbuster-owned and franchise-owned Blockbuster Video stores and to other
video stores which are to be converted to the Blockbuster Video format.
Blockbuster's home video stores do not sell video hardware at retail, although
video hardware is typically included in store equipment sold at wholesale to
franchise owners. Blockbuster Video stores, however, offer customers a limited
number of video hardware units for rental. According to a survey published in
the December 1993 issue of Video Store Magazine, Blockbuster's and its franchise
owners' systemwide revenue from the rental and sale of prerecorded
videocassettes is greater than that of any other video specialty chain in the
United States.
Since February 1992, Blockbuster has operated video stores under the
tradename "Ritz" in the United Kingdom and Austria through Cityvision. These
stores average 1,100 square feet in size with, on average, approximately 3,000
prerecorded videocassettes available for rental and sale.
As of June 30, 1994, there were 3,755 video stores operating in
Blockbuster's system, of which 2,829 were Blockbuster-owned and 926 were
franchise-owned. Blockbuster-owned video stores at June 30, 1994 included 761
stores operating under the "Ritz" and "Blockbuster Video Express" trade names in
the United Kingdom and 54 stores operating under the "Video Towne", "Alfalfa",
"Movies at Home" and "Movieland" trade names in the United States. The
Blockbuster Video system operates in 49 states and 10 foreign countries.
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MUSIC RETAILING. Through music stores operating under various tradenames,
including "Blockbuster Music", "Sound Warehouse", "Music Plus", "Record Bar",
"Tracks", "Turtles" and "Rhythm and Views", Blockbuster is among the largest
specialty retailers of prerecorded music in the United States, with 521 stores
operating throughout the country as of June 30, 1994. Blockbuster is also a
partner in an international joint venture with Virgin to develop music
"Megastores" in continental Europe, Australia and the United States. The joint
venture currently owns interests in and operates 20 "Megastores."
FILMED AND INTERACTIVE ENTERTAINMENT. Blockbuster has interests in the
filmed and interactive entertainment industries through investments in Spelling
Entertainment, which operates in a broad range of filmed entertainment
businesses, supported by an extensive library of television series, feature
films, television movies, mini-series and specials and is a leading developer,
publisher and distributor of interactive entertainment software. Blockbuster
currently owns approximately 78% of Spelling Entertainment's outstanding shares
of common stock.
OTHER ENTERTAINMENT. As of June 30, 1994, Blockbuster owned approximately
19% of the outstanding common stock of Discovery Zone. Discovery Zone owns,
operates and franchises Discovery Zone FunCenters. Blockbuster currently
operates 57 Discovery Zone facilities as a franchisee of Discovery Zone and has
rights to develop additional Discovery Zone facilities directly and in a joint
venture with Discovery Zone.
On July 18, 1994, Blockbuster reached an agreement in principle with
Discovery Zone regarding a transaction in which Discovery Zone would acquire all
of the franchised Discovery Zone facilities and territories currently owned by
Blockbuster in exchange for 4,500,000 shares of Discovery Zone's common stock
(subject to adjustment in certain circumstances). In addition, Blockbuster
agreed in principle to exercise its option from DKB Investments, L.P., pursuant
to which Blockbuster would increase its ownership of Discovery Zone's
outstanding common stock to approximately 51%. Consummation of the foregoing
transaction is subject, among other things, to (i) such approvals by a special
committee of the Blockbuster Board as such committee shall deem to be necessary;
(ii) receipt by such committee of an opinion from its financial advisor that
such transactions are fair to Blockbuster's stockholders from a financial point
of view; (iii) negotiation and execution of definitive agreements; and (iv)
other customary conditions.
RECENT DEVELOPMENTS. On June 30, 1994, Blockbuster entered into a $25
million credit agreement (the "June 30 Credit Facility") and on August 10, 1994,
Blockbuster entered into a $25 million credit agreement (the "August 10 Credit
Facility"), each with NationsBank of Florida, N.A., under terms substantially
the same as the Blockbuster Amended and Restated Credit Agreement dated as of
December 22, 1993 (the "Blockbuster Credit Agreement") with certain banks named
therein and Bank of America, for itself and as agent. Blockbuster, as of August
17, 1994, had $25 million outstanding under the June 30 Credit Facility and no
amount outstanding under the August 10 Credit Facility. The June 30 Credit
Facility and the August 10 Credit Facility each expires on the earlier of
September 30, 1994 or the date on which a new credit facility is established
pursuant to the Blockbuster Commitment Letter (as defined below).
If the Merger is not consummated, Blockbuster currently intends to
refinance all amounts outstanding under (i) the credit agreement dated as of
February 15, 1994 (the "New Blockbuster Facility") between Blockbuster and
certain banks named therein, Bank of America, as Agent and BA Securities Inc.,
as Arranger, (ii) the Blockbuster Credit Agreement, (iii) the June 30 Credit
Facility and (iv) the August 10 Credit Facility pursuant to a new $2.5 billion
credit facility to be established in accordance with the terms of a commitment
letter dated June 30, 1994 ("Blockbuster Commitment Letter") with Bank of
America National Trust and Savings Association, NationsBank of Florida, N.A.,
and a syndicate of other banks arranged by BA Securities, Inc. and NationsBank
Capital Markets, Inc. The Blockbuster Commitment Letter provides that $1 billion
of the revolving credit facility will expire 364 days after the closing date of
the facility, with the option to convert any outstanding amount to a two-year
term loan. The remaining $1.5 billion of the revolving credit facility will
expire four years after the closing date of the facility. The rate of interest
for amounts outstanding will vary at certain margins above the average London
interbank offered rate for 1-, 2-, 3-, or if available, 6-month Eurodollar
deposits. The establishment of the credit facility pursuant to the Blockbuster
Commitment Letter is subject to customary conditions.
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THE MEETINGS
MATTERS TO BE CONSIDERED AT THE MEETINGS
Viacom. At the Viacom Special Meeting, holders of Viacom Class A Common
Stock will consider and vote upon approval and adoption of of the Merger
Agreement (including the issuance of the Merger Consideration). Such
stockholders will also consider and vote upon such other matters as may properly
be brought before the meeting.
THE BOARD OF DIRECTORS OF VIACOM (WITH H. WAYNE HUIZENGA ABSENT AS HE
RECUSED HIMSELF FROM THE MEETING) HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Blockbuster. At the Blockbuster Special Meeting, holders of Blockbuster
Common Stock will consider and vote upon a proposal to approve and adopt the
Merger Agreement and approve the Blockbuster Plan Proposal and to transact such
other business as may properly come before the meeting.
THE BOARD OF DIRECTORS OF BLOCKBUSTER HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE BLOCKBUSTER PLAN PROPOSAL AND RECOMMENDS A VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE BLOCKBUSTER PLAN
PROPOSAL.
VOTES REQUIRED
Viacom. Each share of Viacom Class A Common Stock is entitled to one vote.
Except as required by Delaware law, holders of Viacom Class B Common Stock are
not entitled to vote on any matter, including approval and adoption of the
Merger Agreement.
The affirmative vote of the holders of a majority of the outstanding shares
of Viacom Class A Common Stock is required to approve and adopt the Merger
Agreement. Because approval and adoption of the Merger Agreement requires the
affirmative vote of a majority of the outstanding shares of Viacom Class A
Common Stock, abstentions, failures to vote and broker non-votes will have the
same effect as votes against the Merger Agreement.
NAI, which is controlled by Sumner M. Redstone, owned approximately 85% of
the Viacom Class A Common Stock and 32% of the Viacom Class B Common Stock as of
June 30, 1994 (after giving effect to the completion of the Paramount Merger).
NAI has agreed to vote all of its shares of Viacom Class A Common Stock in favor
of approval and adoption of the Merger Agreement pursuant to the terms of the
Voting Agreement, a copy of which is attached as Annex II. See "Certain
Transactions Between Viacom and Blockbuster and With Their Stockholders--Voting
Agreement." Such action by NAI in accordance with the Voting Agreement would be
sufficient to approve and adopt the Merger Agreement without any action on the
part of any other holder of Viacom Class A Common Stock.
Blockbuster. The affirmative vote of the holders of a majority of the
outstanding shares of Blockbuster Common Stock is required to approve and adopt
the Merger Agreement. Because approval of the Merger Agreement requires the
affirmative vote of a majority of the outstanding shares of Blockbuster Common
Stock, abstentions and failures to vote (including broker non-votes) will have
the same effect as votes against the Merger Agreement. The affirmative vote of
the holders of a majority of the shares of Blockbuster Common Stock present in
person or represented by proxy and entitled to vote thereon is required to adopt
the Blockbuster Plan Proposal. Abstentions will have the same effect as a vote
against the Blockbuster Plan Proposal and broker non-votes will not be counted.
Each share of Blockbuster Common Stock is entitled to one vote.
Pursuant to the Stockholders Stock Option Agreement and the Proxy
Agreement, copies of which are attached as Annex III and Annex IV, respectively,
the Option Stockholders and the Proxy Stockholders have granted to Viacom
proxies to vote shares of Blockbuster Common Stock (representing approximately
22% of the outstanding shares of Blockbuster Common Stock as of August 26, 1994)
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owned by the Option Stockholders and Proxy Stockholders in favor of the Merger
Agreement and against any competing business combination proposal. See "Certain
Transactions Between Viacom and Blockbuster and With Their Stockholders--Proxy
Agreement" and "--Stockholders Stock Option Agreement."
At July 31, 1994, Blockbuster's directors and executive officers may be
deemed to be beneficial owners of approximately 33,159,634 shares (including
shares underlying certain options and warrants) of Blockbuster Common Stock, or
approximately 12.7% of the then outstanding shares of Blockbuster Common Stock.
See "Security Ownership of Certain Beneficial Owners and Management."
VOTING OF PROXIES
Shares represented by properly executed proxies received in time for the
Special Meetings will be voted at such meetings in the manner specified by the
holders thereof. Proxies which are properly executed but which do not contain
voting instructions will be voted in favor of approval and adoption of the
Merger Agreement and, in the case of proxies for Blockbuster Common Stock, in
favor of approval of the Blockbuster Plan Proposal.
It is not expected that any matter other than those referred to herein will
be brought before either of the Special Meetings. If, however, other matters are
properly presented, the persons named as proxies will vote in accordance with
their judgment with respect to such matters.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed Viacom or Blockbuster form does not
preclude a stockholder from voting in person. A stockholder may revoke a proxy
at any time prior to its exercise by submitting a new proxy at a later date, by
filing with the Secretary of Viacom (in the case of a Viacom stockholder) or the
Secretary of Blockbuster (in the case of a Blockbuster stockholder) a duly
executed revocation of proxy bearing a later date or by voting in person at the
meeting. Attendance at the relevant Special Meeting will not of itself
constitute revocation of a proxy.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Viacom. Only holders of record of Viacom Class A Common Stock and Viacom
Class B Common Stock at the close of business on August 31, 1994 will be
entitled to receive notice of the Viacom Special Meeting, and only holders of
record of Viacom Class A Common Stock at the close of business on August 31,
1994 will be entitled to vote on approval and adoption of the Merger Agreement.
As of August 26, 1994, the most recent practicable date prior to the printing of
this Proxy Statement/Prospectus, Viacom had outstanding 53,451,525 shares of
Viacom Class A Common Stock and 146,986,491 shares of Viacom Class B Common
Stock.
Shares representing a majority of the voting power of the outstanding
shares of Viacom Class A Common Stock entitled to vote must be represented in
person or by proxy at the Viacom Special Meeting in order for a quorum to be
present with respect to the Viacom Class A Common Stock for purposes of
approving and adopting the Merger Agreement. As NAI has agreed to vote its
shares of Viacom Class A Common Stock in favor of the Merger pursuant to the
Voting Agreement, the presence of the requisite quorum is assured. Holders of
Viacom Class B Common Stock are not entitled to vote on approval of the Merger
Agreement.
Blockbuster. Only stockholders of record of Blockbuster at the close of
business on August 31, 1994 will be entitled to receive notice of the
Blockbuster Special Meeting, and only holders of record of Blockbuster Common
Stock at that time will be entitled to vote at the Blockbuster Special Meeting.
As of August 26, 1994, the most recent practicable date prior to the printing of
this Proxy Statement/Prospectus, Blockbuster had outstanding 254,840,766 shares
of Blockbuster Common Stock. A
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majority of the outstanding shares of Blockbuster Common Stock must be
represented in person or by proxy at the Blockbuster Special Meeting in order
for a quorum to be present.
APPRAISAL RIGHTS
Blockbuster. It is uncertain, and counsel to Blockbuster is unable to
express a definite view, as to whether appraisal rights are available to holders
of Blockbuster Common Stock in connection with the Merger. Although the VCRs
evidence only the right to receive shares of Viacom Class B Common Stock under
certain circumstances, the VCRs could be characterized as consideration other
than shares of stock of Viacom. If the VCRs are considered to be "shares of
stock" of Viacom under Section 262(b) of the DGCL, then the holders of
Blockbuster Common Stock will not have appraisal rights. However, if the VCRs
are not considered to be "shares of stock," then appraisal rights will be
available to those stockholders of Blockbuster who demand and perfect appraisal
rights in accordance with the requirements of Section 262 of the DGCL.
Stockholders who wish to seek appraisal are advised to consult with their legal
counsel regarding whether appraisal rights would be available and how to demand
and perfect such appraisal rights, if available. Regardless of the ultimate
availability of appraisal rights, in order to exercise appraisal rights
dissenting stockholders must demand and perfect appraisal rights in accordance
with the requirements of Section 262 of the DGCL, a description of which is
provided in "Dissenting Stockholders' Rights of Appraisal" and the full text of
which is attached to this Proxy Statement/Prospectus as Annex VII. Failure to
take any of the steps required under Section 262 of the DGCL on a timely basis
may result in the loss of appraisal rights. Except as set forth above,
stockholders of Blockbuster will have no appraisal rights in connection with the
Merger.
If it were determined that appraisal rights were available, dissenting
stockholders would have the right to obtain a cash payment for the "fair value"
of their shares (excluding any element of value arising from the accomplishment
or expectation of the Merger). Such "fair value" would be determined in judicial
proceedings, the result of which cannot be predicted.
Viacom. Stockholders of Viacom will have no appraisal rights in connection
with the Merger.
SOLICITATION OF PROXIES
Each of Viacom and Blockbuster will bear the cost of the solicitation of
proxies from its own stockholders, except that Viacom and Blockbuster will share
equally the cost of printing this Proxy Statement/Prospectus. In addition to
solicitation by mail, the directors, officers and employees of each company and
its subsidiaries may solicit proxies from stockholders of such company by
telephone or telegram or in person. Arrangements will also be made with
brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of stock held of
record by such persons, and Viacom and Blockbuster will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
in connection therewith.
Corporate Investors Communications, Inc. will assist in the solicitation of
proxies by Blockbuster for a fee of $12,500, plus reasonable out-of-pocket
expenses. Blockbuster may engage a second firm to assist Blockbuster in the
solicitation of proxies. Smith Barney has been engaged by Viacom as a financial
advisor in connection with the Merger, and it may also assist Viacom in the
solicitation of proxies.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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THE MERGER
GENERAL
The discussion in this Proxy Statement/Prospectus of the Merger and the
description of the Merger's principal terms are subject to and qualified in
their entirety by reference to the Merger Agreement, a copy of which is attached
to this Proxy Statement/Prospectus as Annex I and which is incorporated herein
by reference.
BACKGROUND OF THE MERGER
Blockbuster and Viacom have established premier franchises in different
segments of the entertainment and communications industries and share a vision
of building a company with the resources to operate across the spectrum of
businesses in these industries on a worldwide basis. Both Blockbuster and Viacom
have recognized the trend toward consolidation in such industries and the
potential strengths and synergies of a fully integrated, global entertainment
and communications company.
Blockbuster's efforts toward developing such an enterprise grew out of
several discussions during 1992 between the Blockbuster Board and members of
Blockbuster's senior management ("Blockbuster Management") concerning the
current and future state of the entertainment industry and Blockbuster's
strategic position and prospects. As a result of such discussions, the
Blockbuster Board determined that the strength of Blockbuster's home video
retailing business would permit continued expansion of that business,
development of complementary new businesses and strategic acquisitions to build
a multifaceted, integrated entertainment and communications company. The
Blockbuster Board believed such a course would enable Blockbuster to continue to
compete effectively in its existing markets and participate in rapidly growing
domestic and international entertainment markets. In furtherance of the goals of
the Blockbuster Board, Blockbuster Management met on several occasions during
1992 to discuss specific acquisition and investment opportunities with Charles
A. Lewis and James K. Mason, each of whom is a Managing Director of Merrill
Lynch. In August 1992, Blockbuster Management identified Republic Pictures,
Spelling Entertainment and Viacom as three highly complementary potential
partners. Shortly thereafter, Blockbuster Management embarked on a strategy of
expansion into various segments of the entertainment industry, both in the
United States and internationally, including music retailing, through the
acquisitions of Sound Warehouse, Show Industries and Super Club as well as the
Virgin joint venture, filmed and interactive entertainment, through substantial
investments in Republic Pictures, Spelling Entertainment and Virgin Interactive
Entertainment, plc, and out-of-home entertainment, through an investment in
Discovery Zone and the development of Discovery Zone FunCenters and Blockbuster
family entertainment centers.
In the course of carrying out Blockbuster's expansion strategy, Blockbuster
Management also considered the possibility of a combination of Blockbuster's
businesses with one or more other diversified entertainment companies. In this
regard, during the spring and summer of 1993, Merrill Lynch and Blockbuster
Management discussed the strategic benefits to Blockbuster of a business
combination with Viacom and other leading entertainment companies. At various
meetings of the Blockbuster Board held throughout 1993, Blockbuster Management
reported on their progress and discussed their views with respect to competitive
trends and opportunities in the entertainment industry.
In early June 1993, at the suggestion of a third party investment advisory
firm, Frank J. Biondi, Jr., President and Chief Executive Officer of Viacom,
Neil S. Braun, then Senior Vice President of Viacom and Viacom International and
Chairman and Chief Executive Officer of Viacom Entertainment, and Thomas E.
Dooley, then Senior Vice President, Corporate Development of Viacom, met with H.
Wayne Huizenga, Chairman of the Board and Chief Executive Officer of
Blockbuster, and Steven R. Berrard, Vice Chairman, President and Chief Operating
Officer of Blockbuster, to discuss, on a preliminary basis, various possible
joint business opportunities for Viacom International and Blockbuster,
principally in television production and syndication. Such discussions continued
sporadically through telephone calls between Messrs. Braun and Berrard
throughout the summer.
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In connection with Blockbuster's prior discussions with Merrill Lynch and
in light of Blockbuster's ongoing dialogue with Viacom, in late June 1993
Merrill Lynch provided Blockbuster Management with preliminary analyses of
various potential strategic alliances with other entertainment companies,
including Viacom and Paramount. Such preliminary analyses were not solicited by
Blockbuster and were based solely upon selected publicly available historical
and estimated future financial results for such entertainment companies'
industry, and compared, among other things, these companies in terms of sales
and growth, market multiples, profitability, and leverage and liquidity. Such
analyses also presented summary pro forma combination results based upon
revenue, operating income, market value and market capitalization, for business
combinations between Blockbuster and one or more of these companies.
On June 29, 1993, Mr. Biondi met with Mr. Huizenga to discuss various joint
business opportunities including, on a very preliminary basis, the possibility
of a business combination involving Viacom and Blockbuster. No specific terms
for such a transaction were discussed at that time. Shortly thereafter,
Blockbuster and Viacom entered into a confidentiality agreement. Following
execution of such agreement, Viacom provided Blockbuster with certain non-public
information concerning Viacom Enterprises, Viacom's television syndication
division.
On July 9, 1993, during an industry conference attended by, among others,
Messrs. Redstone, Biondi, Huizenga and Berrard, additional conversations took
place concerning various joint business opportunities, including the possibility
of a business combination involving Viacom and Blockbuster. As with the meeting
on June 29, no specific terms for such a transaction were discussed.
On July 27, 1993, Messrs. Biondi, Braun and Dooley met with Messrs.
Huizenga and Berrard to explore further the previously discussed joint business
opportunities. The possibility of a business combination between Blockbuster and
Viacom was not discussed at such meeting.
On September 12, 1993, Viacom announced that it had entered into a merger
agreement pursuant to which it would acquire Paramount. After the announcement,
representatives of Viacom had several preliminary and confidential discussions
with various parties, including Blockbuster, which Viacom believed might be
interested in providing capital to Viacom to assist it in the Paramount
acquisition.
On September 20, 1993, QVC Network, Inc. ("QVC") announced its desire to
enter into an alternative business combination involving Paramount. On the same
day, Robert Greenhill, Chairman and Chief Executive Officer of Smith Barney,
initiated a conversation with Mr. Huizenga, subsequently joined by Mr. Biondi,
in which Messrs. Biondi and Greenhill raised with Mr. Huizenga the possibility
of Blockbuster providing capital to Viacom in connection with the Paramount
transaction. The following week each of Messrs. Huizenga, Berrard, Lewis, Mason
and Redstone and Philippe P. Dauman, then Senior Vice President and General
Counsel of Viacom, Mr. Greenhill and Michael Levitt, Managing Director of Smith
Barney, and Thomas H. Patrick, Vice Chairman of Merrill Lynch, participated in
one or more of a series of discussions concerning such an investment. The nature
of the investment as a non-voting preferred stock, the size of the investment, a
mechanism for reducing the size of the investment in the event that Viacom did
not acquire Paramount and the technical terms of the preferred stock itself were
negotiated in such discussions over the next week and resulted in the form and
terms for such an investment proposed to the respective Boards of Directors of
Viacom and Blockbuster. On September 29, 1993, the Blockbuster Board met and
reviewed business and financial information related to the business of Viacom
and heard a report from Blockbuster Management on the terms of the proposed
investment in Viacom. The Blockbuster Board viewed the investment in the Series
A Preferred Stock as a means to establish a strategic business relationship
(other than a business combination) with Viacom, particularly in the areas of
joint opportunities for television program production and of film and television
distribution. The Board of Directors of Viacom also met that day to discuss the
Blockbuster investment. The Viacom Board also viewed the investment by
Blockbuster as a means to establish a strategic business relationship (other
than a business combination) with Blockbuster. Later that day, Viacom and
Blockbuster entered into a preferred stock purchase agreement pursuant to
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which, among other things, Blockbuster agreed to invest $600 million in Viacom
by purchasing Series A Preferred Stock of Viacom. See "Description of Viacom
Capital Stock--Viacom Preferred Stock."
On October 4, 1993, Viacom announced that NYNEX had agreed to invest in
Viacom by purchasing $1.2 billion in Series B Preferred Stock of Viacom.
On October 21, 1993, QVC announced its intention to commence a tender offer
for 51% of the outstanding shares of Paramount Common Stock, with shares of QVC
common stock proposed to be paid in a second-step merger.
On October 22, 1993, Blockbuster consummated its Series A Preferred Stock
investment and Mr. Huizenga was elected to the Board of Directors of Viacom.
From that date through December 9, 1993, representatives of Viacom met with
representatives of Blockbuster on several occasions to consider in detail joint
business opportunities in the entertainment industry. At the end of October
1993, representatives of Viacom made a presentation to Blockbuster Management
regarding the business and operations of Viacom Enterprises.
On October 24, 1993, Viacom and Paramount amended their merger agreement to
provide for a first-step tender offer for 51% of the outstanding shares of
Paramount Common Stock, with Viacom common stock and convertible preferred stock
payable in a second-step merger. On October 25, 1993, Viacom commenced the
tender offer.
On October 27, 1993, QVC commenced its previously announced tender offer.
On November 8, 1993, Viacom and Paramount amended the merger agreement to
increase the consideration payable in the offer and the second-step merger.
On November 19, 1993, NYNEX consummated its acquisition of Viacom Series B
Preferred Stock, and William C. Ferguson, Chairman and Chief Executive Officer
of NYNEX, was elected to the Board of Directors of Viacom.
On December 9, 1993, the Delaware Supreme Court affirmed a November 24,
1993 preliminary injunction issued by the Delaware Chancery Court which, among
other things, enjoined Paramount from amending its Rights Agreement to permit
the consummation of the proposed Viacom/Paramount merger. Following the Delaware
Supreme Court decision, members of Viacom management and Smith Barney met with
representatives of Blockbuster and NYNEX to consider various alternatives with
respect to Viacom's proposed acquisition of Paramount, including seeking an
additional equity investment from Blockbuster or NYNEX.
During the next several weeks, various structures for such an investment
were discussed in general terms in a series of discussions, one or more of which
included Messrs. Huizenga, Berrard, Redstone, Biondi, Dauman, Dooley, Greenhill,
Levitt, George Smith, Chief Financial Officer of Viacom, and Conrad Bringsjord,
Director of Smith Barney. From and after December 17, 1993, at Blockbuster's
request Messrs. Lewis and Mason and Jack Levy, a Managing Director of Merrill
Lynch, became involved in the discussions. The investment structures discussed
as possibilities included (i) Blockbuster and Viacom pursuing a joint bid for
Paramount, (ii) an additional equity investment by Blockbuster in exchange for
certain assets of Viacom, and (iii) an equity investment by Blockbuster followed
by a merger of Viacom and Blockbuster. In these discussions, each of these
possibilities was discussed only in general terms to determine which warranted
further discussion. The third alternative was considered superior because it
avoided complex governance issues that arise in a joint bid context, provided a
surviving entity with the greatest degree of financing flexibility and permitted
the opportunity for realization of the synergies between the businesses and
operations of Blockbuster, Viacom and, potentially, Paramount. Accordingly, on
December 16, 1993, at the initial suggestion of Mr. Berrard, preliminary
discussions commenced concerning a possible merger between Viacom and
Blockbuster.
During the period of December 16 through December 20, 1993, senior
management of each of Blockbuster and Viacom conducted due diligence interviews
with one another. The parties discussed certain non-public information
concerning their respective businesses, prospects and strategic objectives
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as well as the implications of a business combination between the two companies,
including new business opportunities, operating efficiencies and potential
synergies. Blockbuster Management and senior management of Viacom then
separately conducted internal analyses of the results of their due diligence
reviews, and discussed, in a general manner, the strategic, financial and
operational benefits of a possible combination and the associated risks, the
relative contribution of each company based on various methods of analysis, and
the possible structures and terms of a proposed business combination. At various
times during this period, Blockbuster Management reported the status of such
analyses and discussions with Viacom management to the Blockbuster Board as well
as statements made by Viacom concerning its plans with respect to its offer for
Paramount.
On December 20, 1993, the Board of Directors of Viacom met and reviewed at
length business and financial information related to the business of
Blockbuster. On December 21, 1993, Blockbuster Management advised the
Blockbuster Board that they had been unable to reach agreement with Viacom as to
the terms of the proposed transaction, primarily because Blockbuster and Viacom
were unable to agree on the price to be paid for shares of Blockbuster Common
Stock, as well as on contractual protections for Blockbuster stockholders in the
event that either (i) the share price of Viacom Common Stock declined in value
or (ii) the proposed common stock equity investment by Blockbuster in Viacom was
made but a subsequent business combination between Viacom and Blockbuster did
not occur. Accordingly, Blockbuster Management terminated the negotiations at
that time.
On December 22, 1993, Paramount terminated its merger agreement with Viacom
and entered into a merger agreement with QVC. On that date, Paramount also
entered into a separate agreement with Viacom setting forth bidding procedures
to govern any future proposals by Viacom to acquire Paramount. Similar bidding
procedures were set forth in the Paramount/QVC merger agreement.
During late December 1993, Viacom and Blockbuster renewed their discussions
regarding a potential business combination. The renewed discussions were
initially between Mr. Berrard and Mr. Levitt at the initiation of Mr. Levitt.
Thereafter, Mr. Berrard and Mr. Levitt exchanged several telephone calls.
Further discussions involved, at different times, Messrs. Biondi, Dauman,
Greenhill, Levitt, Huizenga, Berrard, Lewis, Levy and Mason. The primary focus
of these discussions was the price to be paid to Blockbuster stockholders, the
possible inclusion of a mechanism to provide protection to Blockbuster's
stockholders against decreases in the market price for shares of Viacom Common
Stock after the date of the Merger Agreement and the inclusion of a provision to
reduce Blockbuster's exposure with respect to its investment in Viacom Common
Stock in the event the Merger were not consummated. Also, during this period,
Blockbuster Management had numerous conversations with directors of Blockbuster
concerning the status of such negotiations.
Between January 4, 1994 and January 6, 1994, senior management of each of
Viacom and Blockbuster and their respective financial and legal advisors
continued their due diligence and negotiated the terms of the Subscription
Agreement (including the exact Viacom securities to be purchased, the exact size
of the investment and the details of the "make whole" provisions), the Merger
Agreement and related agreements (including details of the price protection
provisions). On January 6, all remaining issues in the Subscription Agreement,
the Merger Agreement and the related agreements were resolved. In particular,
all of the terms of the "make whole" provisions of the Subscription Agreement
were finalized, including the means by which Viacom could satisfy any "make
whole amount," as were the precise terms of the Merger Consideration and the
financial and legal terms of the VCRs.
On January 6, 1994, the Viacom Board met and received presentations from
the management of Viacom, Smith Barney and Viacom's legal advisors and discussed
the results of the negotiations with Blockbuster, the operations, condition,
results and prospects of Blockbuster's business and considered at length the
advantages and disadvantages of a business combination with Blockbuster. See
"--Reasons for the Merger; Recommendation of the Boards of Directors--Viacom."
During such discussion, the
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Viacom Board considered such information under the following scenarios: (i)
consummation of the Merger assuming Viacom did not acquire Paramount; (ii)
consummation of the Merger assuming Viacom acquired Paramount; and (iii)
consummation of the purchase of shares of Viacom Class B Common Stock
contemplated by the Subscription Agreement assuming the Merger was not
consummated. See "--Opinions of Financial Advisors."
The Viacom Board reviewed in detail at such meeting with the management of
Viacom, the Merger Agreement, the Subscription Agreement and other related
agreements and matters. For a description of the Merger and the Subscription
Agreement, see "Certain Provisions of the Merger Agreement" and "Certain
Transactions Between Viacom and Blockbuster and With Their
Stockholders--Blockbuster Purchase of Viacom Class B Common Stock,"
respectively. Also at such meeting, Smith Barney delivered its opinion to the
effect that, as of January 6, 1994, whether or not the Paramount Merger is
consummated, (i) the consideration to be paid by Viacom pursuant to the Merger
Agreement for each outstanding share of Blockbuster Common Stock and (ii) the
consideration to be received by Viacom for shares of Viacom Class B Common Stock
pursuant to the Subscription Agreement are fair, from a financial point of view,
to Viacom and its stockholders. The opinion of Smith Barney is set forth in full
as Annex V of this Proxy Statement/Prospectus. See "--Opinions of Financial
Advisors."
After consideration of the presentations of the management of Viacom, Smith
Barney and Viacom's legal advisors, the Viacom Board unanimously (with Mr.
Huizenga absent as he recused himself from such meeting) approved the Merger,
the Subscription Agreement, the Stockholders Stock Option Agreement and the
Proxy Agreement and the transactions contemplated thereunder.
At the same meeting of the Viacom Board, the management of Viacom and Smith
Barney delivered presentations concerning the status of Viacom's tender offer
for Paramount and a proposal to amend and supplement such tender offer.
Following such presentations and discussion, the Viacom Board approved the
proposed amendments to a tender offer and Viacom amended and supplemented its
tender offer, providing for (i) an additional amount of cash to be paid for each
share of Paramount Common Stock in the tender offer and (ii) a revised package
of securities to be issued for each outstanding share of Paramount Common Stock
in the proposed second-step merger.
Mr. Huizenga negotiated only on behalf of Blockbuster and recused himself
from those Viacom Board meetings or portions of meetings in which the Viacom
Board discussed the Merger Agreement and Subscription Agreement. No discussions
concerning Mr. Huizenga's employment arrangements with the combined company were
held during the negotiations of the Merger Agreement.
On January 6, 1994, and January 7, 1994, the Blockbuster Board met and
received presentations from Blockbuster Management and Merrill Lynch and
discussed at length the results of the negotiating process and the prospects for
Blockbuster and its stockholders under four principal scenarios: (i) continuing
to operate Blockbuster as an independent company pursuing Blockbuster's existing
expansion strategy; (ii) consummation of the Merger assuming Viacom did not
acquire Paramount; (iii) consummation of the Merger assuming Viacom acquired
Paramount; and (iv) consummation of the investment in Viacom contemplated by the
Subscription Agreement assuming the Paramount Merger was consummated but the
Merger was not. Merrill Lynch also presented financial and operating information
concerning Viacom and Paramount and information with respect to the valuation of
Blockbuster, Viacom and Paramount shares calculated using various methodologies,
as well as factors relating to the valuation of entertainment businesses in
general. The analyses discussed with the Blockbuster Board with respect to
scenarios (i), (ii) and (iii) are more fully discussed below under "--Opinions
of Financial Advisors--Blockbuster." Reference is made to "Reasons for the
Merger; Recommendation of the Boards of Directors--Blockbuster" for additional
information regarding the Blockbuster Board's beliefs with respect to scenarios
(i), (ii) and (iii). With respect to scenario (iv), the Blockbuster Board, based
on discussions with Blockbuster Management, believed that Blockbuster could
continue to expand and operate its business even if the investment pursuant to
the Subscription
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Agreement were consummated and the Merger were not consummated. In this regard,
the Blockbuster Board considered the "make whole" protections afforded by the
Subscription Agreement and believed that Blockbuster possesses sufficient
resources to refinance the indebtedness incurred in consummating the
Subscription Agreement through bank financing and access to public and private
debt and equity markets. Merrill Lynch was not requested to address, nor does
the opinion of Merrill Lynch so address, the fairness of the terms of the
Subscription Agreement.
The Blockbuster Board reviewed in detail with Blockbuster Management,
Merrill Lynch and its legal advisors the provisions of the proposed Merger
Agreement, the Subscription Agreement (the terms of each of which are described
more fully elsewhere in this Proxy Statement/Prospectus) and certain related
matters with respect to the proposed transaction. Merrill Lynch delivered its
oral opinion (which it subsequently confirmed in writing) to the Blockbuster
Board to the effect that, on and as of January 7, 1994, the Conversion Ratio is
fair to the holders of Blockbuster Common Stock (other than Viacom and its
affiliates) from a financial point of view. Representatives of Merrill Lynch
answered questions raised by members of the Blockbuster Board on numerous
topics, including: the composition of the Merger Consideration; the operation of
the VCRs; theoretical projected blended stock prices of Viacom Common Stock with
respect to scenarios (ii) and (iii) in the immediately preceding paragraph
assuming that current EBITDA multiples of the Viacom Common Stock applied to
estimates of the combined company's future operating results prepared by Viacom
and its financial advisor; theoretical projected stock prices of Blockbuster
Common Stock if neither the Merger nor the transactions contemplated by the
Subscription Agreement were consummated assuming that current price-to-earnings
multiples of the Blockbuster Common Stock applied to estimates of future
operating results prepared by the Blockbuster Management; and the operation of
the "make whole" provisions under the Subscription Agreement. Representatives of
Merrill Lynch responded to such questions regarding such projected stock prices
in a manner consistent with its presentation to the Blockbuster Board of
Directors described below under "--Opinions of Financial Advisors--Blockbuster."
The opinion of Merrill Lynch is set forth as Annex VI of this Proxy
Statement/Prospectus. Certain of the matters considered by the Blockbuster Board
are more fully discussed below under "--Reasons for the Merger; Recommendation
of the Boards of Directors--Blockbuster." Following these reports and
discussions, the Blockbuster Board unanimously approved the Merger and the
Subscription Agreement and the matters contemplated thereby. During the course
of its negotiations with Viacom, neither Blockbuster nor its representatives
solicited indications of interest from third parties for the acquisition of
Blockbuster.
Upon such approvals by the Viacom Board and the Blockbuster Board, (i)
Viacom and Blockbuster entered into the Subscription Agreement and the Merger
Agreement, (ii) Viacom and the Option Stockholders and the Proxy Stockholders
entered into the Stockholders Stock Option Agreement and the Proxy Agreement and
(iii) Blockbuster and NAI entered into the Voting Agreement. Later that day,
Blockbuster and Viacom publicly announced the proposed merger of Blockbuster
with and into Viacom pursuant to the Merger Agreement and the proposed
investment by Blockbuster in shares of Viacom Class B Common Stock pursuant to
the Subscription Agreement. In the same public announcement, Viacom announced an
amendment and supplement to its offer for Paramount, providing for an additional
amount of cash to be paid for each share of Paramount Common Stock in Viacom's
offer and a revised package of securities to be paid in the second-step merger.
On January 12, 1994, the Paramount Board of Directors reaffirmed its
recommendation of the then existing offer and merger proposal by QVC. On January
18, 1994, Viacom amended its offer to purchase shares of Paramount Common Stock
to increase the cash consideration offered and to make certain changes to the
consideration payable in the second-step merger. On January 21, 1994, the
Paramount Board of Directors terminated its merger agreement with QVC and
entered into a merger agreement with Viacom.
On February 1, 1994, Viacom revised its offer for Paramount by changing the
securities to be offered in the second-step merger, and QVC also revised its
offer for Paramount. On February 4, 1994,
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the Paramount Board recommended that Paramount's stockholders accept the Offer,
and Viacom and Paramount entered into a merger agreement.
On February 15, 1994, Viacom announced that a majority of the shares of
Paramount Common Stock had been tendered into the Offer as of the February 14
expiration date of the Offer. In accordance with bidding procedures established
by the Paramount Board, Viacom extended the Offer until March 1, 1994, and QVC
terminated its offer.
On March 2, 1994, Viacom announced that it accepted for payment 61,657,432
shares of Paramount Common Stock, representing a majority of the shares of
Paramount Common Stock outstanding as of the expiration of the Offer.
On March 10, Blockbuster consummated its investment in Viacom Class B
Common Stock pursuant to the Subscription Agreement.
On March 11, 1994, Viacom purchased 61,657,432 shares of Paramount Common
Stock pursuant to the Offer.
In March 1994, three major diversified communications and entertainment
companies contacted Blockbuster to express a preliminary interest in a possible
business combination, strategic joint venture or alliance, or some combination
thereof. In these discussions, Blockbuster's management indicated its desire to
engage in a transaction involving the transfer of the entire equity of
Blockbuster. These preliminary discussions did not result in any proposals.
Since March 1994, there have been no proposals regarding a possible business
combination involving Blockbuster.
In March 1994, at a time when the market price for shares of Viacom Class A
Common Stock and Viacom Class B Common Stock had declined to levels which gave
rise to concerns about the viability of the Merger, the Blockbuster Board
authorized its non-employee directors, Messrs. Allen, Croghan, Flynn and Melk
(the "Non-employee Directors"), to make a recommendation to the full Blockbuster
Board with respect to the Merger. The Non-employee Directors engaged
independent counsel and their own financial advisor, Kidder, Peabody & Co.
Incorporated ("Kidder, Peabody").
In a series of informal discussions in early April 1994, representatives of
Viacom and Blockbuster explored various opportunities for joint ventures, asset
sales and other transactions between the companies. In this context, such
representatives also discussed the possibility of terminating the Merger
Agreement. No formal negotiations concerning such matters took place and these
general discussions were of a preliminary nature and were suspended in mid-April
1994.
In April 1994, Viacom commenced exploration of a sale of the assets of
Madison Square Garden Corporation, and issued a press release to that effect on
May 3, 1994.
In response to inquiries by Blockbuster stockholders concerning the status
of the Merger, Mr. Huizenga, in a letter to stockholders dated May 4, 1994,
stated that Blockbuster was unable to say whether or not the Merger would go
forward or whether or not any special meeting of Blockbuster stockholders would
be called to vote on the Merger. Mr. Huizenga also stated, among other things,
that although Blockbuster continues to believe that the combination of
Blockbuster with Viacom and Paramount represents an excellent strategic
opportunity, given the prices of shares of Viacom Common Stock as of the date of
his letter, there could be no assurance that the Blockbuster Board would be able
to recommend the Merger Agreement to the Blockbuster stockholders at the time of
any stockholder meeting called to vote on the Merger.
On June 15, 1994, Viacom and Blockbuster executed an amendment to the
Merger Agreement in order to allow for (i) an increase in the amount of
permitted asset dispositions and (ii) an increase in the amount of permitted
asset acquisitions by Viacom and Blockbuster pending the Merger.
On July 7, 1994, the Paramount Merger was completed.
In early August 1994, Viacom informed Blockbuster of the possibility of the
Cable Systems Sale and the Showtime/Encore Joint Venture.
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On August 23, 1994, the Blockbuster Board met to reconsider its approval
and recommendation of the Merger in light of the fluctuations in Viacom's stock
prices since the Merger was first announced on January 7, 1994. Blockbuster's
legal advisors were present at the meeting as were representatives of Merrill
Lynch, legal counsel for the Non-employee Directors and Kidder, Peabody for
portions of the meeting. At the meeting, the Blockbuster Board received
presentations from Blockbuster Management, Merrill Lynch and Blockbuster's legal
advisors and discussed at length various developments since the Blockbuster
Board had approved the Merger in January, including Viacom's completion of its
acquisition of Paramount, the progress Viacom was making in consolidating the
operations of the two companies, its strong second quarter results and the
status of its proposed divestitures of certain assets (see "The
Companies--Viacom--Recent Developments"), the decline in Viacom's stock prices
from January to April 1994 and their subsequent improvement, as well as various
developments affecting the telecommunications and media industries generally,
including the effects of cable re-regulation pursuant to the February 22nd
Regulations and the increased merger and joint venture activity within the
industries. Merrill Lynch also presented updated information with respect to the
valuation of Blockbuster and Viacom shares calculated using various
methodologies. The presentation made by Merrill Lynch is more fully discussed
below under "--Opinions of Financial Advisors--Blockbuster."
The Blockbuster Board also reexamined the strategic benefits of the
proposed combination with Viacom and Paramount and the long-term prospects of
the combined company and concluded that the combination continues to represent
an excellent strategic opportunity that will create a fully integrated, global
entertainment and communications company with extraordinary resources and
opportunities for future growth.
At the meeting, Merrill Lynch delivered its oral opinion (which it
subsequently confirmed in writing) to the Blockbuster Board to the effect that,
as of August 23, 1994, the Conversion Ratio is fair to the holders of
Blockbuster Common Stock (other than Viacom and its affiliates) from a financial
point of view. Representatives of Merrill Lynch answered questions raised by
members of the Blockbuster Board on numerous topics, including: the manner in
which Paramount was being integrated into Viacom; the status of the negotiations
concerning potential divestitures by Viacom; fluctuations in trading prices of
shares of Viacom Common Stock since the signing of the Merger Agreement;
theoretical, projected stock prices of Viacom Common Stock and Blockbuster
Common Stock; and the operation of the VCRs. Representatives of Merrill Lynch
responded to such questions in a manner consistent with its presentations to the
Blockbuster Board described below under "--Opinions of Financial
Advisors--Blockbuster." The updated opinion of Merrill Lynch is set forth as
Annex VI of this Proxy Statement/Prospectus.
Following these reports and discussions, the Non-employee Directors met
separately with their legal advisors and Kidder, Peabody to consider their
position with respect to the Merger and to make a recommendation to the full
Blockbuster Board. Kidder, Peabody was not engaged to render, was not requested
by the Non-employee Directors to render and, accordingly, did not render, an
opinion with respect to any aspect of the Merger. While Kidder, Peabody did not
make a presentation to the Non-employee Directors at the meeting, Kidder,
Peabody participated in a discussion regarding the Merrill Lynch opinion with
the Non-employee Directors. After discussing the matter with their legal
advisors and Kidder, Peabody, the Non-employee Directors unanimously determined
to recommend that the full Blockbuster Board reaffirm its approval of the
Merger. In arriving at their recommendation, the Non-employee Directors
considered the presentations made to the full Blockbuster Board, including
Merrill Lynch's presentation, Merrill Lynch's updated opinion as described under
"Opinions of Financial Advisors--Blockbuster", the discussion with Kidder,
Peabody with respect to the Merrill Lynch presentation, the factors considered
by the full Blockbuster Board described under "Reasons for the
Merger--Blockbuster," and the views of the Non-employee Directors' legal
advisors as to the fiduciary duties of the Non-employee Directors under the
circumstances. The full Blockbuster Board then reconvened and, based on the
recommendation of the Non-employee Directors, unanimously reaffirmed its
approval of the Merger and its recommendation that Blockbuster stockholders vote
to approve and adopt the Merger Agreement.
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REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARDS OF DIRECTORS
Viacom. At the meeting of the Board of Directors of Viacom held on December
20, 1993, the Viacom Board received a presentation from Viacom management
regarding the business and prospects of Blockbuster. On January 6, 1994, the
Viacom Board, at a special meeting, received further presentations regarding the
business and prospects of Blockbuster, and received presentations regarding, and
reviewed the terms of, the Merger Agreement, the Stockholders Stock Option
Agreement, the Proxy Agreement and the Voting Agreement with members of Viacom
management and its financial and legal advisors. In making its determination set
forth below at such special meeting, the Viacom Board reviewed and discussed
with Smith Barney its financial analyses, with a view to understanding the bases
of its analyses and opinion, and reviewed and discussed with management the
results of management's due diligence investigations, the business opportunities
discussed above and risks associated with the transaction (including risks
arising from the changing competitive environment facing the entertainment and
telecommunications industries, in particular those related to evolving
distribution technologies, and in combining the operations of Viacom,
Blockbuster and Paramount). See "Certain Considerations." By the unanimous vote
of directors (with Mr. Huizenga absent as he recused himself from the meeting)
at a special meeting of the Board of Directors of Viacom held on January 6,
1994, the Viacom Board determined that the Merger is fair to, and in the best
interests of, Viacom and its stockholders, approved the Merger, the Merger
Agreement, the Stockholders Stock Option Agreement and the Proxy Agreement, and
resolved to recommend that the stockholders of Viacom vote FOR approval and
adoption of the Merger Agreement.
In reaching its conclusion on January 6, 1994 to enter into the Merger
Agreement, the Stockholders Stock Option Agreement and the Proxy Agreement, the
Viacom Board considered the following material factors:
1. The history of rapid growth of revenues and profits of Blockbuster,
its strong presence in retail videocassette rentals and music retailing,
the strength of its management and trademarks, the value of its consumer
databases, and the anticipated ability of Blockbuster to utilize its
strengths to adapt to changing entertainment delivery technologies and
other competitive challenges;
2. The fact that Blockbuster and Viacom have businesses that are
highly complementary to each other and those of Paramount and the fact that
such businesses consist of many well-known entertainment and media
franchises; in particular, that:
. the combined company will have the ability to bring together the
managerial resources, trademarks, retail presence and expertise of
Blockbuster and Viacom and to bring these together with the creative
talent and intellectual property of Paramount and Viacom;
. each company would add enhanced and complementary distribution
capabilities;
. combining Blockbuster and Viacom would create a company that
would have varied relationships with vendors of rights to theatrical
motion pictures and recorded music, thereby providing greater
flexibility in the negotiation of transactions with such vendors; and
. as a result of all of the foregoing, combining Blockbuster with
Viacom and Paramount would create a company better positioned than each
of the companies would be separately to adapt to and benefit from
technological and other developments in the distribution and form of
entertainment programming and to successfully meet competitive
challenges;
3. The terms of the proposed transaction, including the terms of the
VCRs to be issued in such transaction; the fact that at market prices on
January 6, 1994 the transaction would result in Blockbuster stockholders
receiving a 10% premium to the price of Blockbuster shares on such date;
and the fact that the Viacom Board believes for the reasons discussed in
paragraphs 1, 2, 5 and 6, that the prospects for earnings before interest,
taxes, depreciation and amortization and earnings per share will be
enhanced by the Merger;
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4. The fact that the combined company is expected to have a financial
condition superior to that of Viacom or Viacom and Paramount on a
stand-alone basis and, accordingly, will have an enhanced ability to meet
its financial obligations and to secure financing on favorable terms to
pursue future growth through acquisition or the development of existing or
new or complementary businesses;
5. The fact that the combination of Blockbuster with Viacom and
Paramount is expected to result in significant opportunities for increased
revenues from (i) cross-promotion and utilization of Viacom's and
Blockbuster's well-known brand names, such as the Showtime and Blockbuster
names in connection with the distribution of filmed entertainment, and such
as the MTV and Nickelodeon brands, which could be used to enhance
Blockbuster's music retailing business and Blockbuster's and Paramount's
live entertainment businesses, and (ii) the cross-promotion of existing
businesses of Viacom and Paramount (for example, the possible use of
Viacom's MTV and Nickelodeon brands and characters in certain motion
picture products at Paramount's studios and theme parks), the utilization
of distribution capabilities of each company to distribute products of the
other (for example, the distribution of Paramount's theatrical motion
picture library on an existing or new cable network of Viacom or the
development of a broadcast network), and the development of new businesses
based upon the management and creative skills of the combined company (for
example, the development of retail stores based on the combined characters
and trademarks of Viacom and Paramount); and the fact that Blockbuster,
Viacom and Paramount could achieve cost reductions through the combination
of similar businesses and economies of scale;
6. The fact that Blockbuster, Viacom and Paramount are each pursuing
international business strategies and that the combination is expected to
result in a strongly enhanced international presence and to enable the
sharing of knowledge of international markets;
7. Smith Barney's opinion to the effect that, as of January 6, 1994,
the proposed Merger Consideration was fair, from a financial point of view,
to Viacom and its stockholders (in this respect, while the Viacom Board did
not explicitly adopt Smith Barney's financial analyses, the Viacom Board
took such analyses into account in its overall evaluation of the Merger);
8. The fact that NAI is the owner of approximately 85% of the
outstanding voting stock of Viacom, the fact that, as a result of the
proposed Merger, NAI would continue to hold approximately 62% of the
outstanding voting stock of the combined company, and the fact that the
Merger Consideration consists of fewer shares of Viacom Class A Common
Stock than Viacom Class B Common Stock and rights to receive Viacom Class B
Common Stock; in this regard, the Viacom Board noted, among other things,
that the rights and privileges of the holders of Viacom Class A Common
Stock and Viacom Class B Common Stock are the same in all material respects
except that, except as otherwise required by the DGCL, the holders of
outstanding shares of Viacom Class B Common Stock are not entitled to vote
upon any questions presented to stockholders of Viacom. The Viacom Board
also noted that the economic interests of NAI and Viacom's public
stockholders are aligned in connection with the Merger, which is a
transaction negotiated at arm's length with an unaffiliated third party;
and
9. Certain risks associated with the proposed transaction, as set
forth under "Certain Considerations."
In view of the wide variety of factors considered by the Viacom Board of
Directors, the Viacom Board did not find it practicable to quantify or otherwise
attempt to assign relative weights to the specific factors considered in making
its determination. Consequently, the Viacom Board did not quantify the
assumptions and results of its analysis in reaching its determination that the
Merger is fair to, and in the best interests of, Viacom and its stockholders.
However, as a general matter, the Viacom Board believed that the factors
discussed in paragraphs 1 through 7 supported its decision to approve the Merger
and outweighed the risks associated therewith referred to in paragraph 9.
THE BOARD OF DIRECTORS OF VIACOM (WITH MR. HUIZENGA ABSENT AS HE RECUSED
HIMSELF FROM THE MEETING) UNANIMOUSLY RECOMMENDS THAT HOLDERS OF VIACOM CLASS A
COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
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Blockbuster. At a special meeting of the Blockbuster Board of Directors
held on January 6, 1994 and January 7, 1994, Blockbuster management and
representatives of Merrill Lynch made presentations concerning the business and
prospects of Blockbuster, Viacom and Paramount, and the potential combination of
Blockbuster and Viacom and of Blockbuster, Viacom and Paramount. The Blockbuster
Board also received presentations concerning, and reviewed the terms of, the
Merger Agreement, the Subscription Agreement and the Voting Agreement, as well
as the Stockholders Stock Option Agreement and the Proxy Agreement with members
of Blockbuster management and its financial and legal advisors. By unanimous
vote, the Blockbuster Board determined that the Merger is consistent with and in
furtherance of the long-term business strategy of Blockbuster and is fair to,
and in the best interests of, the stockholders of Blockbuster, approved and
adopted the Merger Agreement and the transactions contemplated thereby, approved
and adopted the Subscription Agreement and the Voting Agreement, and recommended
that the stockholders of Blockbuster vote for approval and adoption of the
Merger Agreement and approval of the Merger.
The Blockbuster Board believed that the Merger provides an opportunity for
Blockbuster stockholders to be equity holders in a fully integrated
entertainment and communications company with substantial potential for
long-term appreciation. Blockbuster, Viacom and Paramount combined will be
competitive globally and better positioned for strategic growth in many
significant fields of the entertainment and communications industries. The
combined company will have the resources to take advantage of new opportunities
and meet competitive challenges as these industries continue to consolidate in
the future. The Merger is an effective means to accomplish the integration of
Blockbuster into these industries on an accelerated basis.
The Blockbuster Board also believed that the Merger offers significant
opportunities for new revenues, efficiencies and economies of scale as the
operations of Blockbuster and Viacom are integrated. The synergies anticipated
from the Merger include the following: the ability of the combined company to
produce and distribute a broader range of entertainment programming;
efficiencies in acquiring rights and programming; added financial strength and
creative talent to expand existing businesses, develop new businesses and
coordinate future acquisitions; a strongly enhanced international presence with
greater opportunities for expansion; the ability of the combined company to
consolidate the retail presence, managerial resources, creative talent,
trademarks and expertise of Blockbuster, Viacom and Paramount; the ability of
the combined company to benefit from the sharing of technological expertise of
each of Blockbuster, Viacom and Paramount; the ability to launch new
entertainment networks and create new entertainment retail experiences using the
intellectual property of Blockbuster, Viacom and Paramount; the potential to
exploit Blockbuster's database in the development of programming and offering
new entertainment products and services to consumers; and cost savings through
consolidation of administration and operations, as well as through certain
combinations of complementary operations. The Blockbuster Board also believed
that the combination of Blockbuster and Viacom (including Paramount) will also
result in significant opportunities for cross-promotion and utilization of each
company's well-known brand names, including the Showtime and Blockbuster names
in connection with the distribution of filmed entertainment, the Discovery Zone
and Nickelodeon brands in connection with providing products and entertainment
to children, and the MTV and VH-1 brands in connection with Blockbuster's music
retailing business as well as the live entertainment businesses of Blockbuster
and Paramount.
In addition to the foregoing, in making its determination with respect to
the Merger, the Blockbuster Board considered the following material factors: (i)
the terms of the proposed transaction, including the Conversion Ratio and the
terms of the VCRs to be issued in such transaction, (ii) information relating to
the business, assets, management, competitive position and prospects of
Blockbuster, Viacom and Paramount on a combined basis, as well as the prospects
of Blockbuster if it were to continue as an independent company, (iii) the
financial condition, cash flows and results of operations of Blockbuster, Viacom
and Paramount, both on an historical and on a prospective basis, as well as
revenues and EBITDA of each company, individually and on a combined basis, (iv)
historical
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market prices and trading information with respect to Blockbuster Common Stock
and Viacom Common Stock, (v) the percentage of equity in the combined company
that would be received by Blockbuster stockholders in relation to the
contribution to revenue, EBITDA and capitalization of the combined company by
Paramount, Viacom and Blockbuster, (vi) the opinion, analyses and presentations
of Merrill Lynch described under "--Opinions of Financial Advisors--Blockbuster"
(in this respect, while the Blockbuster Board did not explicitly adopt Merrill
Lynch's financial analyses, the Blockbuster Board took such analyses into
account in its overall evaluation of the Merger) including the opinion of
Merrill Lynch that the Conversion Ratio is fair to holders of Blockbuster Common
Stock (other than Viacom and its affiliates) from a financial point of view,
(vii) the increased need for capital resources to remain competitive in the
consolidating global entertainment industry, and anticipated improved access to
capital markets for the combined company, (viii) the expected enhancement of the
strategic and market positions of the combined company, and the new business
opportunities, potential efficiencies, economies of scale and other synergies
that may be realized as a result of the combination of Blockbuster, Viacom and
Paramount operations, (ix) the absence of substantial "lockup" provisions which
would impede a competing bid or restrict the Blockbuster Board's ability to
consider a competing bid, if one were to emerge, and the Blockbuster Board's
right to terminate the Merger Agreement in order to accept a higher bid required
by their fiduciary duties, (x) the protections afforded by the Merger Agreement
with respect to any future "going private transaction" with a substantial
stockholder of Viacom, (xi) the protection offered by the VCRs against the
possibility that the Viacom Class B Common Stock may trade below anticipated
levels following the Merger, (xii) the structure of the Merger which will enable
Blockbuster stockholders to have all of their shares of Blockbuster Common Stock
converted into shares of Viacom Common Stock and VCRs on a tax-free or
substantially tax-free basis, and (xiii) representation on the combined
company's Board and management team by Blockbuster directors and officers which
is expected to help ensure realization of the benefits of the Merger (see
"Management Before and After the Merger--Executive Officers and Directors After
the Merger" and "--Blockbuster Employment Agreements").
The Blockbuster Board also considered a number of potentially negative
factors in its deliberations concerning the Merger, including: (i) the risk that
the VCRs would not fully protect Blockbuster stockholders against a possible
decline in the value of the Viacom Class B Common Stock; (ii) the risk that the
anticipated benefits of the Merger might not be fully realized, including
potentially as a result of difficulties in integrating Blockbuster with Viacom
and Paramount and the possible additional debt burden incurred in connection
with consummation of the Offer; (iii) the absence of voting rights with respect
to the Viacom Class B Common Stock to be issued in the Merger and the voting
control of the combined company by Mr. Redstone after the Merger, which will
enable him to control the election of the Board of Directors and the direction
of the business affairs of the combined company; (iv) the possibility that
Blockbuster may be required, under certain circumstances, to pay up to $50
million of Viacom's out-of-pocket expenses; and (v) the risk that if the
purchase of shares of Viacom Class B Common Stock pursuant to the Subscription
Agreement were consummated and the Merger were not consummated, Blockbuster
would hold a $1.25 billion investment in shares of Viacom Class B Common Stock
which might not be readily marketable (although this risk would be mitigated in
part by the "make-whole" provisions of the Subscription Agreement) in addition
to a $600 million investment in Series A Preferred Stock. In the Blockbuster
Board's view, these considerations were not sufficient, either individually or
collectively, to outweigh the advantages of the proposed combination of the
businesses of Viacom and Blockbuster and, potentially, Paramount on the terms
proposed by Viacom.
In view of the wide variety of factors, both positive and negative,
considered by the Blockbuster Board, the Blockbuster Board did not quantify or
otherwise attempt to assign relative weights to the specific factors considered
in making its determination. Consequently, the Blockbuster Board did not
quantify the assumptions and results of its analysis in reaching its
determination that the Merger Consideration was fair to, and in the best
interest of, the stockholders of Blockbuster. However, as a general matter, the
Blockbuster Board believed that the positive factors heretofore described
supported
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its decision to approve the Merger and outweighed the potentially negative
factors described in the immediately preceding paragraph.
After the signing of the Merger Agreement, the market prices of Viacom
Common Stock declined to levels that caused the Blockbuster Board to become
concerned about the viability of the Merger. These concerns gave rise to Mr.
Huizenga's letter to Blockbuster stockholders on May 4, 1994. By August 1994,
however, the market prices of Viacom Common Stock had improved significantly
(although they remained below the levels at which the shares had traded prior to
the time the Merger Agreement was approved in January). Given the fluctuations
in the market prices of Viacom Common Stock, the Blockbuster Board met again on
August 23, 1994, to reconsider its recommendation with respect to the Merger. At
this meeting, the Blockbuster Board considered a number of factors in reaching
its decision to reaffirm its approval of the Merger, including: Viacom's
completion of its acquisition of Paramount; the progress Viacom was making in
consolidating the operations of the two companies; its strong second quarter
results and the status of the negotiations relating to its proposed divestitures
of certain assets (see "The Companies--Viacom--Recent Developments"); the
presentation of Blockbuster's legal advisors as to the fiduciary duties of the
Blockbuster Board under the circumstances; the updated opinion of Merrill Lynch
that, as of August 23, 1994, the Conversion Ratio is fair to the holders of
Blockbuster Common Stock (other than Viacom and its affiliates) from a financial
point of view; the continuing belief of Blockbuster Management that the
strategic benefits of the proposed combination with Viacom and Paramount were
consistent with and in furtherance of Blockbuster's long-term business strategy
of diversifying into the entertainment industry; that the combined company's mix
of assets was unique and could not be easily replicated and that the combined
company would have extraordinary resources and opportunities for future growth;
and the recommendation of the Non-Employee Directors. The Blockbuster Board also
acknowledged that, although the market prices of the Viacom Common Stock had
improved significantly from the levels at which the shares had traded in April
1994, they remained below the prices at which the shares had traded prior to the
time the Merger Agreement was first approved in January 1994 and below the level
at which the VCRs offered downside protection to Blockbuster stockholders. In
this respect, however, the Blockbuster Board considered the fact that the VCR
Conversion Date would not occur until the first anniversary of the Merger; the
fact that the Merger Consideration consisted of a combination of securities, the
market value of which would inevitably fluctuate from day-to-day; the views of
Merrill Lynch as to the theoretical projected blended stock prices of the Viacom
Common Stock assuming the Merger was consummated as described under "Opinions of
Financial Advisors--Blockbuster"; and the updated opinion of Merrill Lynch. In
view of the number of factors, both positive and negative, considered by the
Blockbuster Board, the Blockbuster Board did not quantify or otherwise attempt
to assign relative weights to the specific factors considered in reaching its
decision to reaffirm its approval of the Merger.
IN LIGHT OF THE FOREGOING, THE BOARD OF DIRECTORS OF BLOCKBUSTER
UNANIMOUSLY RECOMMENDS THAT HOLDERS OF BLOCKBUSTER COMMON STOCK VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
FORM OF THE MERGER
If all required stockholder approvals are obtained and all other conditions
to the Merger are satisfied or waived, then Blockbuster will be merged with and
into Viacom, with Viacom being the surviving corporation.
MERGER CONSIDERATION
At the Effective Time, each share of Blockbuster Common Stock that is
issued and outstanding immediately prior to the Effective Time (other than
shares of Blockbuster Common Stock owned by Viacom or any direct or indirect
wholly owned subsidiary of Viacom or of Blockbuster and other than shares of
Blockbuster Common Stock held by stockholders who shall have demanded and
perfected appraisal rights, if available, under the DGCL) will be automatically
converted into the right to receive (i) 0.08 of a share of Viacom Class A Common
Stock, (ii) 0.60615 of a share of Viacom Class B
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Common Stock and (iii) up to an additional 0.13829 of a share of Viacom Class B
Common Stock, with such number of shares depending on market prices of Viacom
Class B Common Stock during the one-year period following the Effective Time,
and with such right evidenced by one VCR. No fractional securities will be
issued in the Merger.
Based upon the closing market prices of Viacom Class A Common Stock and
Viacom Class B Common Stock on the date of the Merger Agreement (January 7,
1994), the aggregate market value of the Merger Consideration to be received by
Blockbuster stockholders ranged between $28.54 per share and $30.97 per share,
depending upon the value attributed to the VCRs. Based upon the closing market
prices of Viacom Class A Common Stock and Viacom Class B Common Stock on August
26, 1994, the aggregate value of the Merger Consideration to be received by
Blockbuster stockholders ranged between $23.44 per share and $28.09 per share,
depending upon the value attributed to the VCRs. However, no assurances can be
given with respect to the prices at which the Viacom Class A Common Stock and
Viacom Class B Common Stock will trade after the date hereof or after the
Effective Time or the prices at which the VCRs will trade after the Effective
Time. There has been no public trading market for the VCRs and there can be no
assurances that an active market for such securities will develop or continue
after the Merger.
The VCRs represent the right to receive shares of Viacom Class B Common
Stock under certain circumstances on the first anniversary of the Effective Time
(the "VCR Conversion Date"). The number of shares of Viacom Class B Common Stock
into which the VCRs will convert will generally be based upon the value of
Viacom Class B Common Stock (the "Class B Value") determined during the 90
trading day period (the "VCR Valuation Period") immediately preceding the VCR
Conversion Date. The Class B Value will be equal to the average closing price of
a share of Viacom Class B Common Stock during the 30 consecutive trading days in
the VCR Valuation Period which yields the highest average closing price of a
share of Viacom Class B Common Stock. In the event that the Class B Value is
more than $40 per share but less than $48 per share, each VCR will convert into
0.05929 of a share of Viacom Class B Common Stock on the VCR Conversion Date. If
the Class B Value is $40 per share or below, the number of shares of Viacom
Class B Common Stock into which each VCR will convert on the VCR Conversion Date
will increase ratably from 0.05929 of a share to the maximum of 0.13829 of a
share of Viacom Class B Common Stock, which will occur if the Class B Value is
$36 per share or below. If the Class B Value is $48 per share or above, the
number of shares of Viacom Class B Common Stock into which the VCR will convert
on the VCR Conversion Date will decrease ratably from 0.05929 of a share to
zero, which will occur if the Class B Value is $52 per share or above.
The number of shares of Viacom Class B Common Stock into which each VCR
will convert on the VCR Conversion Date will not exceed 0.05929 of a share of
Viacom Class B Common Stock if the average of the closing prices for a share of
Viacom Class B Common Stock exceeds $40 per share during any 30 consecutive
trading day period following the Effective Time and prior to the VCR Conversion
Date. In the event that during any such period such average price exceeds $52
per share, the VCRs will terminate and have no value and the holders thereof
will have no further rights with respect to the VCRs. The dollar amounts will be
reduced by a percentage equal to any percentage decline in excess of 25% in the
Standard & Poor's 400 Index from the Effective Time until the VCR Conversion
Date. Certain days are not included as "trading days" if the number of shares of
Viacom Class B Common Stock traded on such days is below specified levels. See
"Description of Viacom Capital Stock-- Viacom Common Stock."
Due to lack of an existing market for the VCRs, it is impracticable to
determine an actual value for the VCRs at this time. The market value of the
VCRs after the Effective Time may be discounted for the time value inherent in
the future delivery of the shares of Viacom Class B Common Stock underlying the
VCRs at any particular time as well as the uncertainty as to whether such shares
will ultimately be issued to the holders of VCRs on the VCR Conversion Date
pursuant to the terms of the VCRs. While the VCRs will be listed for trading on
the AMEX, there are no assurances that a liquid public market reflecting the
fundamental value of the VCRs will develop. Accordingly, for purposes of
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this Proxy Statement/Prospectus, on any particular date, the VCRs are treated as
having a value within a range from 0% to 100% of the market value of the shares
of Viacom Class B Common Stock into which each VCR would be converted if the
VCRs were so converted on such date, rather than on the VCR Conversion Date.
For a description of the provisions with respect to fractional shares, see
"Certain Provisions of the Merger Agreement--Procedure for Exchange of
Blockbuster Certificates." Any shares of Blockbuster Common Stock owned by
Viacom or any direct or indirect wholly owned subsidiary of Blockbuster or
Viacom will be cancelled.
The Merger Consideration was determined through negotiations between Viacom
and Blockbuster, each of which was advised with respect to such negotiations by
its respective financial advisor.
Any shares of Viacom Class A Common Stock, shares of Viacom Class B Common
Stock or VCRs issued as part of the Merger Consideration, or shares of Viacom
Class B Common Stock issued upon the maturity of the VCRs, to residents of
Canada may be subject to certain resale restrictions, including that they may be
required to be resold outside of Canada or pursuant to an available exemption
under applicable Canadian securities laws.
OWNERSHIP OF VIACOM COMMON STOCK IMMEDIATELY AFTER THE MERGER
PERCENTAGE OWNERSHIP OF VIACOM COMMON STOCK*
<TABLE><CAPTION>
FOLLOWING CONSUMMATION OF
THE MERGER
--------------------------------
VIACOM CLASS A VIACOM
COMMON STOCK COMMON STOCK
--------------- ---------------
<S> <C> <C>
NAI............................................................................. 59.9% 24.8%
Pre-Merger stockholders of Viacom (other than NAI).............................. 10.4% 23.0%
Former stockholders of Blockbuster.............................................. 29.7% 52.2%
</TABLE>
- ---------------
* All percentages of ownership of common stock shown above in this section are
calculated based on the number of shares of the relevant class or classes of
stock outstanding as of August 26, 1994. Percentages of ownership (i) give
effect to the closing of the Paramount Merger, assuming that all outstanding
shares of Paramount Common Stock were exchanged in the Paramount Merger, (ii)
do not give effect to potential dilution related to the Series B Preferred
Stock, Series C Preferred Stock, VCRs, CVRs, Viacom Three-Year Warrants and
Viacom Five-Year Warrants, (iii) give effect to the expected issuance of
shares of Blockbuster Common Stock pursuant to the Discovery Zone transaction
(see "The Companies--Blockbuster--Other Entertainment") and (iv) give effect
to potential dilution related to outstanding Blockbuster options and warrants.
OPINIONS OF FINANCIAL ADVISORS
Viacom. Smith Barney delivered its written opinion to the Viacom Board
that, as of January 6, 1994, (i) the Merger Consideration was fair, from a
financial point of view, to Viacom and its stockholders and (ii) the
consideration to be received by Viacom pursuant to the Subscription Agreement
was fair, from a financial point of view, to Viacom and its stockholders. VIACOM
STOCKHOLDERS ARE URGED TO READ THE SMITH BARNEY OPINION IN ITS ENTIRETY FOR
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF REVIEW BY SMITH BARNEY. Smith
Barney did not make or seek to obtain an appraisal of Viacom's, Blockbuster's or
Paramount's assets in rendering its opinion. No limitations were imposed by the
Viacom Board upon Smith Barney with respect to the investigations made or
procedures followed by it in rendering its opinion.
THE FULL TEXT OF THE OPINION OF SMITH BARNEY, DATED AS OF JANUARY 6, 1994,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN BY SMITH BARNEY, IS ATTACHED
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HERETO AS ANNEX V TO THIS PROXY STATEMENT/PROSPECTUS. SMITH BARNEY'S OPINION IS
DIRECTED ONLY TO THE FINANCIAL TERMS OF THE MERGER AND THE SUBSCRIPTION
AGREEMENT AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY VIACOM STOCKHOLDER AS
TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE VIACOM SPECIAL MEETING. THE SUMMARY
OF THE OPINION OF SMITH BARNEY SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, Smith Barney (i) reviewed the Merger Agreement,
as well as the Subscription Agreement, in each case in the form presented to the
Viacom Board; (ii) reviewed the revised Offer to Purchase of Viacom used in
connection with the Offer (the "Paramount Offer to Purchase"); (iii) met with
certain senior officers of Viacom, Blockbuster and Paramount to discuss the
business, operations, assets, financial condition and prospects of their
respective companies; (iv) examined certain publicly available business and
financial information relating to Viacom, Blockbuster and Paramount, and certain
financial forecasts and other data for Viacom, Blockbuster and Paramount which
were provided to Smith Barney by the senior management of Viacom, Blockbuster
and Paramount, respectively, which were not then publicly available and which
financial information included EBIT for Viacom for the years 1992 through 2000,
EBITDA for Blockbuster for the years 1993 through 1997 and EBITDA for Paramount
for the years 1991 through 2000, income statements, cash flow statements, and
balance sheets for Viacom (for the years 1992 through 2000), Blockbuster (for
the years 1993 through 1997) and Paramount (for the years 1991 through 2000);
(v) took into account certain long-term strategic benefits of the Merger and the
Paramount Merger, both operational and financial, that were described to Smith
Barney by Viacom, Blockbuster and Paramount senior management; and (vi) reviewed
the financial terms of the Merger as set forth in the Merger Agreement and the
Paramount Merger as set forth in the Paramount Offer to Purchase in relation to,
among other things, current and historical market prices and trading volumes of
Viacom Common Stock, Blockbuster Common Stock and Paramount Common Stock; the
earnings and book value per share of each of Viacom, Blockbuster and Paramount;
and the capitalization and financial condition of each of Viacom, Blockbuster
and Paramount. Smith Barney also considered, to the extent publicly available,
the financial terms of certain other business combination transactions which
Smith Barney considered relevant in evaluating the Merger and the Paramount
Merger and analyzed certain financial, stock market and other publicly available
information relating to the businesses of other companies that they considered
relevant in evaluating Viacom, Blockbuster and Paramount. Smith Barney also
evaluated the pro forma financial impact of the Merger and the Paramount Merger
on Viacom. In addition to the foregoing, Smith Barney conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as it deemed necessary in arriving at its opinion. The financial
information referred to in clause (iv) furnished to Smith Barney (a) by Viacom
relating to Viacom, included historical or projected EBIT (in millions of
dollars) of $346.2 in fiscal year 1992, $388.4 in fiscal year 1993, $418.6 in
fiscal year 1994, $489.7 in fiscal year 1995, $584.8 in fiscal year 1996, $675.0
in fiscal year 1997, $764.0 in fiscal year 1998, $868.0 in fiscal year 1999 and
$987.0 in fiscal year 2000, (b) by Blockbuster included projected EBITDA (in
millions of dollars) of $456.0 in fiscal year 1993, $653.0 in fiscal year 1994,
$836.0 in fiscal year 1995, $1,021.0 in fiscal year 1996 and $1,175.0 in fiscal
year 1997 and (c) by Viacom relating to Paramount included historical or
projected EBITDA (in millions of dollars) of $256.1 in fiscal year 1991, $512.2
in fiscal year 1992, $599.1 in fiscal year 1993, $686.7 in fiscal year 1994,
$737.0 in fiscal year 1995, $790.8 in fiscal year 1996, $848.4 in fiscal year
1997, $910.1 in fiscal year 1998, $976.1 in fiscal year 1999 and $1,046.8 in
fiscal year 2000. Such projections were made with respect to the anticipated
future performance of Viacom, Blockbuster and Paramount. No representations are
made as to the accuracy of the projections based thereon.
PROJECTED INFORMATION OF THIS TYPE IS BASED ON ESTIMATES AND ASSUMPTIONS
THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO PREDICT AND MANY
OF WHICH ARE BEYOND THE CONTROL OF VIACOM AND BLOCKBUSTER. ACCORDINGLY, THERE
CAN BE NO ASSURANCE THAT THE PROJECTED RESULTS WOULD BE REALIZED OR THAT ACTUAL
RESULTS WOULD NOT BE SIGNIFICANTLY HIGHER OR LOWER THAN THOSE SET FORTH ABOVE.
IN ADDITION, THESE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC
DISCLOSURE OR COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE COMMISSION OR THE
GUIDELINES
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ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
PROJECTIONS AND FORECASTS AND ARE INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS
ONLY BECAUSE SUCH INFORMATION WAS MADE AVAILABLE TO SMITH BARNEY BY VIACOM AND
BLOCKBUSTER. NONE OF SMITH BARNEY, VIACOM, BLOCKBUSTER OR ANY OTHER PARTY
ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OR VALIDITY OF THE FOREGOING
PROJECTIONS.
In arriving at its opinion, Smith Barney relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise discussed with it.
With respect to financial forecasts and other information provided to or
otherwise discussed with it, Smith Barney assumed that such forecasts and other
information were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective senior managements of
Viacom, Blockbuster and Paramount as to the expected future financial
performance of Viacom, Blockbuster and Paramount. Smith Barney expressed no
opinion as to what the value of the Viacom Common Stock or VCRs will be when
issued to Blockbuster stockholders pursuant to the Merger or the price at which
the Viacom Common Stock or VCRs will trade subsequent to the Merger. Smith
Barney has not made or been provided with an independent evaluation or appraisal
of the assets or liabilities (contingent or otherwise) of Viacom, Blockbuster or
Paramount nor have they made any physical inspection of the properties or assets
of Viacom, Blockbuster or Paramount. Its opinion was based upon financial, stock
market and other conditions and circumstances existing and disclosed to it as of
the date of its opinion.
January 6, 1994 Viacom Board Presentation
At the January 6, 1994 meeting of the Viacom Board of Directors, Smith
Barney presented information and materials relating to the following matters:
(i) the proposed Merger, (ii) the proposed Offer and Paramount Merger, (iii) the
pro forma impact to Viacom of three different business combination scenarios (a
combined Viacom and Blockbuster, a combined Viacom and Paramount and a combined
Viacom, Paramount and Blockbuster), and (iv) quantitative analyses relating to
the foregoing matters.
THE MERGER
Transaction Overview
Smith Barney reviewed the following information regarding the proposed
Merger with the Viacom Board:
. An overview of the key elements of the transaction, including the
terms of the Merger and the consideration to be issued in connection
therewith.
. A breakdown of the aggregate (approximately $8.43 billion) and per
share consideration ($32.78) to be offered to Blockbuster stockholders in
the Merger.
. An overview of the terms of Blockbuster's purchase of the Viacom
Class B Common Stock pursuant to the Subscription Agreement.
Business Overview of Blockbuster
Smith Barney reviewed with the Viacom Board certain information concerning
Blockbuster:
. An analysis of the current businesses of Blockbuster and the
composition of its current senior corporate management and operating
management.
. An analysis of relative estimated 1994 EBIT and actual revenue and
EBITDA for 1991 and 1992 and estimated revenue and EBITDA for the years
1993 through 1996.
. An analysis of the historical price and volume performance of
Blockbuster Common Stock for the period January 5, 1993 through January 4,
1994, for a one year (short term) comparison.
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. A comparison of Blockbuster Common Stock to the Dow Jones Media
Index and to the S&P 400 Index for the period October 20, 1987 through
January 4, 1994, for an analysis of how Blockbuster Common Stock performed
versus these indices since the October 1987 stock market crash.
. A comparison of Blockbuster Common Stock to the Dow Jones Media
Index and to the S&P 400 Index for the period January 4, 1991 through
January 4, 1994, for a three year (longer term) comparison.
. An analysis of selected analysts' research reports on Blockbuster.
Valuation Analyses
Smith Barney also reviewed with the Viacom Board various analyses relating
to the valuation of Blockbuster.
Public Market Valuation
. Smith Barney reviewed with the Viacom Board public market trading
statistics for selected companies that Smith Barney deemed comparable in
material respects to Blockbuster. Specifically, Smith Barney examined and
compared the financial performance and trading levels of music retailing,
which included Musicland Stores Corp. and "category killer" retailers
including Autozone, Inc., Circuit City Stores, Inc., The Home Depot Inc.,
Office Depot, Inc., Price/Costco, Inc., Staples, Inc., Toys "R" Us Inc.,
and Wal Mart Stores, Inc. Musicland Stores Corp. is a music retailer whose
operations are directly comparable to Blockbuster's music retailing
operations. The "category killer" companies examined are large retailers
which are highly competitive in the segments in which they operate, proving
similar to Blockbuster, which is highly competitive in the video retailing
segment and has no direct comparable company within that segment. This
analysis generated a value range of approximately $30.96 to $37.64. Smith
Barney also discussed hypothetical implied per share values of Blockbuster
at various premiums, which analysis was provided for illustrative purposes
only.
. Smith Barney compared market values as multiples to, among other
things, latest 12 months after-tax cash flow, book value, and estimated
calendar 1993 and 1994 net income for both the music retailing industry
segment and the "category killer" industry segment. The respective
multiples of the music retailing comparable company Musicland Stores Corp.
were (i) latest 12 months after-tax cash flow: 13.0x; (ii) book value:
3.2x; and (iii) estimated calendar 1993 and 1994 net income: 21.7x and
18.2x, respectively. The respective multiples for the "category killers"
comparable companies were between the following ranges: (i) latest 12
months after-tax cash flow: 12.1x to 23.0x (with a mean of 17.4x and a
median of 19.3x); (ii) book value: 2.3x to 10.2x (with a mean of 5.3x and a
median of 4.9x); (iii) estimated calendar 1993 net income: 13.4x to 54.6x
(with a mean of 29.9x and a median of 28.8x); and (iv) estimated calendar
1994 net income: 13.4x to 40.4x (with a mean of 25.0x and a median of
23.8x).
. Smith Barney compared adjusted market capitalization to, among other
things, historical revenues, EBITDA and EBIT of the comparable companies.
The respective multiples for the music retailing comparable company were
(i) revenue: 0.9x; (ii) EBITDA: 10.0x; and (iii) EBIT: 13.9x. The
respective multiples for the "category killers" comparable companies were
between the following ranges: (i) revenues: 0.3x to 3.3x (with a mean of
1.4x and a median of 1.3x); (ii) EBITDA: 8.9x to 29.3x (with a mean of
17.4x and a median of 14.3x); and (iii) EBIT: 10.7x to 37.5x (with a mean
of 21.3x and a median of 19.1x).
. Smith Barney also presented an analysis of operating statistics of
the comparable companies including, among other things, operating margins
(in relation to EBITDA, EBIT and after-tax cash flow), three-year
historical revenue growth, three-year average EBITDA and EBIT margins, and
debt to capitalization ratios, in each case as compared to Blockbuster.
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. No company, transaction or business used in the comparable company
analysis is identical to Viacom or Blockbuster. Accordingly, an analysis of
the results of the foregoing is not entirely mathematical; rather, it
involves complex considerations and judgments concerning the differences in
financial and operating characteristics and other factors that can affect
the public trading value of the comparable companies or the business
segment to which they are being compared.
Analysis of Selected Transactions
. Smith Barney presented to the Viacom Board an analysis of selected
acquisitions involving Blockbuster as well as certain other acquisitions.
Smith Barney discussed with the Viacom Board that these transactions, taken
as a whole, were not comparable to the proposed Merger; accordingly, Smith
Barney did not present a numerical valuation analysis based on these
transactions. Such transactions, taken as a whole, were not comparable to
the proposed Merger because such transactions were smaller than the
contemplated Merger in size and the target companies in such transactions
were not highly competitive in their respective business segments.
. The transactions that Smith Barney reviewed included the acquisition
of WJB Video LP by Blockbuster, the acquisitions of Spelling Entertainment
by Blockbuster, the acquisition of UI Video Holdings by Blockbuster, the
acquisition of Republic Pictures by Blockbuster, the acquisition of Sound
Warehouse by Blockbuster, the acquisition of Wherehouse Entertainment, Inc.
by Grammy Corp., the acquisition of Cityvision by Blockbuster, the
acquisition of Rio Grande Inc. by Blockbuster, the acquisition of Erol's by
Blockbuster, the acquisition of Video Superstores of America, Inc. by
Blockbuster, the acquisition of Major Video by Blockbuster, and the
acquisition of Sound Warehouse by Shamrock Holdings Inc.
Discounted Cash Flow Analysis
. Smith Barney discussed with the Viacom Board its discounted cash
flow ("DCF") analysis of Blockbuster. Smith Barney reviewed with the Viacom
Board certain projections contained in the DCF analysis and the assumptions
underlying such projections. It noted that such projections were based upon
internal Blockbuster 1993 estimates as well as 1994-1998 estimates
contained in the research reports described above. In its DCF analysis,
Smith Barney applied discount rates ranging between 10% and 14%, and
applied terminal value multiples ranging between 8.0x and 12.0x EBITDA.
This analysis generated a value range of approximately $30.57 to $48.13 per
share.
It was noted that each of the foregoing analyses may be subject to change
depending on the availability of any new information which may have the effect
of changing the ascribed valuation per share.
Multiple Analysis, Proposed Transaction Value
. Smith Barney presented a comparison of relative ratios of adjusted
market capitalization and market capitalization for Viacom, Blockbuster and
Paramount to their respective estimated 1993 and 1994 EBITDA and after tax
cash flow, respectively, and five year projected EBITDA compounded annual
growth for the years 1993 through 1998.
Strategic Benefits
. Smith Barney discussed with the Viacom Board the strategic benefits
identified to it by senior management of Viacom and Blockbuster, including
the factors discussed under "--Reasons for the Merger; Recommendation of
the Boards of Directors--Viacom."
VCR Exchange Ratio Analysis
. Smith Barney presented to the Viacom Board an exchange ratio
analysis of the VCRs contemplated to be issued in the Merger at a range of
Viacom Class B Common Stock prices between $35 and $55 in increments of
$0.50.
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THE OFFER AND THE PARAMOUNT MERGER
Transaction Overview
Smith Barney presented to the Viacom Board a summary of the Offer and the
Paramount Merger, including the following:
. An overview of the key elements of the Offer and the Paramount
Merger, including the tender offer and back-end merger.
. A comparison of the per share consideration at face value of the
November 8, 1993 offer and the proposed January 7, 1994 offer ($78.68
compared to $79.87).
. An overview of the aggregate consideration at face value
(approximately $9.74 billion) of the proposed January 7, 1994 offer.
. A summary of the sources of financing for the Offer.
Valuation Analyses
Smith Barney also reviewed with the Viacom Board the analyses discussed
below relating to the valuation of Paramount which reflected the significant
changes that occurred in the valuation being placed on the entertainment
companies since Viacom and Paramount announced the proposed original merger in
September 1993.
Public and Precedent Private Market Breakdown
Smith Barney reviewed with the Viacom Board its updated public and private
market breakdown analysis of Paramount. Smith Barney explained to the Viacom
Board that this analysis consisted of the valuation of each of Paramount's
significant component business segments, which valuation consists of an analysis
of the multiples at which companies in lines of businesses comparable to such
Paramount business segments trade in the public market (including appropriate
acquisition premiums) as well as the multiples at which such businesses have
been acquired in private market transactions. Smith Barney reviewed with the
Viacom Board public market trading statistics for selected companies that Smith
Barney deemed comparable in material respects to Paramount. This analysis
generated a value range of approximately $53.13 to $90.95 per share.
Discounted Cash Flow Analysis.
Smith Barney discussed with the Viacom Board its updated DCF analysis of
Paramount, identifying the difficulty of preparing long term forecasts with
respect to Paramount's business due to the "hit driven" nature of the business.
Smith Barney also reviewed with the Viacom Board certain projections contained
in the DCF analysis and the assumptions underlying such projections. In its DCF
analysis, Smith Barney applied discount rates ranging between 10% and 12%, and
applied terminal value multiples ranging between 14.0x and 16.0x EBITDA. This
analysis generated a value range of approximately $9.0 billion to $11.0 billion
in the aggregate, or approximately $73.22 to $89.53 per share.
Smith Barney noted that each of the foregoing analyses may be subject to
change depending upon the availability of new information which may have the
effect of changing the ascribed valuation per share.
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PRO FORMA IMPACT
Pro forma Impact of the Merger and the Paramount Merger.
Smith Barney reviewed with the Viacom Board certain pro forma impacts of a
combined Viacom, Blockbuster and Paramount, including:
. A comparison of the 1994 estimated cash flow and EBITDA for Viacom,
Paramount, Blockbuster and the combined company.
. A comparison of the relative market capitalization and adjusted
market capitalization of Viacom, Paramount, Blockbuster and the combined
company.
. A comparison of estimated earnings per share, cash flow per share,
and pro forma EBITDA, both on a stand-alone basis and a pro forma basis for
1993, 1994 and 1995.
. An analysis of relative estimated ratios of total debt to EBITDA,
EBITDA to net interest and total debt to capitalization of Viacom,
Paramount and Blockbuster and the combined company, on a stand-alone basis
with and without giving effect to the conversion of the Viacom Preferred
Stock for 1993, and on a pro forma basis for 1993, 1994 and 1995.
. An analysis of the relative economic and voting ownership of Viacom
by Viacom's management, other current Viacom stockholders, Paramount
stockholders, Blockbuster stockholders and NYNEX, both on a Viacom
stand-alone basis and on a combined company pro forma basis.
Pro forma Impact of the Merger.
Smith Barney reviewed with the Viacom Board certain pro forma impacts of a
combined Viacom and Blockbuster (excluding Paramount) ("Viacom-Blockbuster"),
including:
. A comparison of the relative market capitalization and adjusted
market capitalization of Viacom, Blockbuster and Viacom-Blockbuster.
. A comparison of adjusted market capitalization to EBITDA and market
capitalization to cash flow for both Viacom and Blockbuster, estimated for
1993 and 1994.
. A comparison of the 1994 estimated EBITDA and cash flow for Viacom,
Blockbuster and Viacom-Blockbuster.
. A comparison of the estimated earnings per share, cash flow per
share and pro forma EBITDA for Viacom and Viacom-Blockbuster for 1993, 1994
and 1995.
. An analysis of relative estimated ratios of pro forma total debt to
EBITDA, EBITDA to net interest and total debt to capitalization of Viacom
and Viacom-Blockbuster, on a Viacom stand-alone basis with and without
giving effect to the conversion of the Viacom Preferred Stock for 1993 and
on a pro forma basis for Viacom-Blockbuster for 1993, 1994 and 1995.
. An analysis of the relative economic and voting ownership of Viacom
by Viacom's management, other current Viacom stockholders, Paramount
stockholders, Blockbuster stockholders and NYNEX, both on a Viacom
stand-alone basis and on a pro forma basis for Viacom-Blockbuster.
Pro forma Impact of the Paramount Merger.
Smith Barney reviewed with the Viacom Board certain pro forma impacts of a
combined Viacom and Paramount (excluding Blockbuster), including:
. A comparison of the 1994 estimated EBITDA and cash flow for Viacom,
Paramount and the Viacom/Paramount combination.
. A comparison of the relative market capitalization and adjusted
market capitalization of Viacom, Paramount and the Viacom/Paramount
combination.
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. A comparison of the estimated earnings per share, cash flow per
share and pro forma EBITDA for Viacom and the Viacom/Paramount combination
for 1993, 1994 and 1995.
. An analysis of relative estimated ratios of pro forma total debt to
EBITDA, EBITDA to net interest and total debt to capitalization of Viacom
and the Viacom/Paramount combination, on a Viacom stand-alone basis with
and without giving effect to the conversion of the Viacom Preferred Stock
for 1993 and on a pro forma basis for the Viacom/Paramount combination for
1993, 1994 and 1995.
. An analysis of the relative economic and voting ownership of Viacom
by Viacom's management, other current Viacom stockholders, Paramount
stockholders, Blockbuster stockholders and NYNEX, both on a Viacom
stand-alone basis and on a pro forma basis for the Viacom/Paramount
combination.
The pro forma impact summaries were based upon the detailed quantitative
analysis discussed below.
Quantitative Analysis
Combined Company.
Smith Barney presented to the Viacom Board an analysis of the Merger
(assuming consummation of the Paramount Merger (assuming exercise of VCRs
resulting in a weighted Class B exchange ratio of 0.66544), the expiration of
the CVRs without liability and the exercise of the Viacom Three-Year Warrants)
that included:
. A transaction structure and an analysis of the Merger and Paramount
Merger setting forth the kind and amount of securities to be issued in the
Merger and Paramount Merger, the source and use of funds and the per share
consideration to be paid to Blockbuster and Paramount stockholders in the
Merger and Paramount Merger. Smith Barney also discussed the impact of the
use of convertible preferred stock as part of the consideration in the
Paramount Merger.
. An analysis of the pro forma impact of the Merger and Paramount
Merger to Viacom (with and without giving effect to the impact on Viacom of
the sale of Series B Preferred Stock to NYNEX if the Offer and Paramount
Merger were not consummated), Blockbuster and Paramount on stand-alone
bases, including with respect to estimated 1994 revenue, cash flow and net
income, estimated 1993 and 1994 leverage and estimated earnings per share,
cash flow per share and EBITDA for 1993, 1994 and 1995. Smith Barney noted
that the 1993 pro forma EBITDA for the combined company was $1,471 million
(assuming no impact of potential synergies), the 1993 pro forma combined
total debt was $8,058 million (does not include Viacom Preferred Stock
issued to NYNEX) and 1993 pro forma combined total cash was $584 million
(includes estimated deductions for merger transaction fees). The accretive
impact of the Merger and Paramount Merger for 1994 and 1995 when compared
against Viacom on a stand-alone basis (assuming sale of Viacom Preferred
Stock to NYNEX) was as follows: (i) estimated earnings per share: 0.1% and
16.3%, respectively; (ii) cash flow per share: 19.5% and 22.8%,
respectively; and (iii) EBITDA (calculated by applying Viacom's percent (on
a stand-alone basis) of the pro forma adjusted market valuation to the
total pro forma EBITDA of the combined company): 11.9% and 16.3%,
respectively. The pro forma analysis assumed a certain level of long-term
strategic benefits which was based upon the views of management of Viacom,
Blockbuster and Paramount.
. An analysis of the combined company's compliance with certain bank
covenants and an analysis of relative ratios of debt to EBITDA, debt and
preferred stock to EBITDA, EBITDA to net interest and EBITDA to net
interest and preferred dividends.
. An analysis of the share ownership of Viacom by Viacom's management,
Paramount stockholders, and Blockbuster stockholders and NYNEX, both on
stand-alone bases and pro forma
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giving effect to the Merger and the Paramount Merger with and without
giving effect to the conversion of the Series B Preferred Stock.
. An analysis of the estimated 1993 through 1998 Viacom implied pro
forma stock prices, assuming consummation of the Merger and the Paramount
Merger.
. A summary of refinancings of existing debt and new borrowings by
Viacom, Paramount and Blockbuster, on stand-alone bases and pro forma
giving effect to the Merger and the Paramount Merger, both actual and
estimated through December 31, 1993.
. An estimated 1993 and 1994 pro forma combined income statement
comparison of Viacom both on stand-alone bases with and without giving
effect to the conversion of Viacom Preferred Stock, and pro forma giving
effect to the Merger and the Paramount Merger, as well as a pro forma
combined income statement of the combined company for the years 1994 to
2003.
. A comparison of estimated 1993 and 1994 earnings per share of Viacom
both on stand-alone bases with and without giving effect to the conversion
of Viacom Preferred Stock, and with pro forma earnings per share giving
effect to the Merger and the Paramount Merger, as well as an earnings per
share dilution analysis for the combined company for the years 1994 to
2003.
. A comparison of estimated 1993 and 1994 cash flow of Viacom both on
stand-alone bases with and without giving effect to the conversion of
Viacom Preferred Stock, and with pro forma cash flow giving effect to the
Merger and the Paramount Merger, as well as a cash flow dilution/accretion
analysis for the combined company for the years 1994 to 2003.
. A pro forma EBITDA analysis (including projected synergies), income
tax calculation and pro forma combined cash flow statement and a debt
amortization schedule, all estimated for the years 1993 to 2003.
. A pro forma interest expense table of the estimated combined
company, estimated for the years 1994 to 2003, and a pro forma balance
sheet for the combined company.
Viacom-Blockbuster.
Smith Barney presented to the Viacom Board an analysis of the Merger
(assuming the Class B Value is $40-48 and that the addition of the VCRs
therefore results in an overall exchange ratio of Viacom Class B Common Stock of
0.66544) that included:
. A transaction structure and an analysis of the Merger setting forth
the kind and amount of securities to be issued in the Merger, the source
and use of funds and the per share consideration to be paid to Blockbuster
stockholders in the Merger.
. An analysis of the pro forma impact of the Merger to Viacom (with
and without giving effect to the impact on Viacom of the sale of Viacom
Preferred Stock to NYNEX and Blockbuster if the Offer and Paramount Merger
were not consummated), and Blockbuster on stand-alone bases, including with
respect to estimated 1994 revenue, estimated 1993 and 1994 leverage and
estimated earnings per share, cash flow per share and EBITDA for 1993, 1994
and 1995. Smith Barney noted that the 1993 pro forma EBITDA for
Viacom-Blockbuster was $1,016 million (assuming no impact of potential
synergies), the 1993 pro forma combined total debt was $1,663 million (does
not include Viacom Preferred Stock issued to NYNEX) and 1993 pro forma
combined total cash was $338 million (includes estimated deductions for
merger transaction fees). The accretive impact of the Merger for 1994 and
1995 when compared against Viacom on a stand-alone basis (assuming sale of
Viacom Preferred Stock to NYNEX) was as follows: (i) estimated earnings per
share: 17.2% and 25.2%, respectively; (ii) cash flow per share: 3.4% and
9.5%, respectively; and (iii) EBITDA (calculated by applying Viacom's
percent (on a stand-alone basis) of the pro forma adjusted market valuation
to the total pro forma EBITDA of the combined company): 19.5% and 32.0%,
respectively. The pro forma analysis assumed a certain level of long-
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term strategic benefits which was based upon the views of management of
Viacom and Blockbuster.
. An analysis of the share ownership of Viacom by Viacom's management,
NYNEX and Blockbuster, both on stand-alone bases and pro forma giving
effect to the Merger and also both with and without giving effect to the
conversion of the Viacom Preferred Stock.
. An analysis of the estimated 1993 through 1998 Viacom implied pro
forma stock prices.
. A summary of refinancings of existing debt and new borrowings by
both Viacom and Blockbuster, on stand-alone bases and pro forma giving
effect to the Merger, both actual and estimated through December 31, 1993.
. An estimated 1993 and 1994 pro forma combined income statement
comparison of Viacom both on stand-alone bases with and without giving
effect to the conversion of Viacom Preferred Stock, and pro forma giving
effect to the Merger, as well as a pro forma combined income statement of
Viacom-Blockbuster for the years 1994 to 2003.
. A comparison of estimated 1993 and 1994 earnings per share of Viacom
both on stand-alone bases with and without giving effect to the conversion
of Viacom Preferred Stock, and with pro forma earnings per share giving
effect to the Merger, as well as an earnings per share dilution analysis
for Viacom-Blockbuster for the years 1994 to 2003.
. A comparison of estimated 1993 and 1994 cash flow of Viacom both on
stand-alone bases with and without giving effect to the conversion of
Viacom Preferred Stock, and with pro forma cash flow giving effect to the
Merger, as well as a cash flow dilution/accretion analysis for Viacom-
Blockbuster for the years 1994 to 2003.
. A pro forma EBITDA analysis (including projected synergies), income
tax calculation and pro forma combined cash flow statement and a debt
amortization schedule, all estimated for the years 1993 to 2003.
. A pro forma interest expense table of Viacom-Blockbuster, estimated
for the years 1994 to 2003, and a pro forma balance sheet for
Viacom-Blockbuster.
Viacom/Paramount.
Smith Barney presented to the Viacom Board an analysis of the Paramount
Merger (assuming the expiration of the CVRs without liability and the exercise
of the Viacom Three-Year Warrants) that included:
. A transaction structure and an analysis of the Paramount Merger
setting forth the kind and amount of securities to be issued in the
Paramount Merger, the source and use of funds and the per share
consideration to be paid to Paramount stockholders in the Paramount Merger.
Smith Barney also discussed the impact of the use of convertible preferred
stock as part of the consideration in the Paramount Merger.
. An analysis of the pro forma impact of the Paramount Merger to
Viacom (with and without giving effect to the impact on Viacom of the sale
of Viacom Preferred Stock to NYNEX and Blockbuster if the Offer and
Paramount Merger were not consummated), Paramount and Blockbuster on
stand-alone bases, including with respect to estimated 1994 revenue, cash
flow and net income, estimated 1993 and 1994 leverage and estimated
earnings per share, cash flow per share and EBITDA for 1993, 1994 and 1995.
Smith Barney noted that the 1993 pro forma EBITDA for the Viacom/Paramount
entity was $1,015 million (assuming no impact of potential synergies), the
1993 pro forma combined total debt was $6,318 million (does not include
Viacom Preferred Stock issued to NYNEX and Blockbuster) and 1993 pro forma
combined total cash was $294 million (includes estimated deductions for
merger transaction fees). The accretive/(dilutive) impact of the Paramount
Merger for 1994 and 1995 when compared against Viacom on a stand-alone
basis (assuming sale of Viacom Preferred Stock to NYNEX and Blockbuster)
was as follows:
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(i) estimated earnings per share: (25.6)% and (16.7)%, respectively; (ii)
cash flow per share: 22.3% and 16.4%, respectively; and (iii) EBITDA
(calculated by applying Viacom's percent (on a stand-alone basis) of the
pro forma adjusted market valuation to the total pro forma EBITDA of the
Viacom/Paramount entity): 4.3% and 0.4%, respectively. The pro forma
analysis assumed a certain level of long-term strategic benefits which was
based upon the views of management of Viacom and Paramount.
. An analysis of the Viacom/Paramount entity's compliance with certain
bank covenants and an analysis of relative ratios of debt to EBITDA, debt
and preferred stock to EBITDA, EBITDA to net interest and EBITDA to net
interest and preferred dividends.
. An analysis of the share ownership of Viacom by Viacom's management,
Paramount stockholders, and Blockbuster and NYNEX, both on stand-alone
bases and pro forma giving effect to the Paramount Merger and also both
with and without giving effect to the conversion of the Viacom Preferred
Stock.
. An analysis of the estimated 1993 through 1998 Viacom implied pro
forma stock prices, assuming the use of warrants in the Paramount Merger.
. A summary of refinancings of existing debt and new borrowings by
Viacom, Paramount and Blockbuster, on stand-alone bases and pro forma
giving effect to the Paramount Merger both actual and estimated through
December 31, 1993.
. An estimated 1993 and 1994 pro forma combined income statement
comparison of Viacom both on stand-alone bases with and without giving
effect to the conversion of Viacom Preferred Stock, and pro forma giving
effect to the Paramount Merger, as well as a pro forma combined income
statement of the Viacom/Paramount entity for the years 1994 to 2003.
. A comparison of estimated 1993 and 1994 earnings per share of Viacom
both on stand-alone bases with and without giving effect to the conversion
of Viacom Preferred Stock, and with pro forma earnings per share giving
effect to the Paramount Merger, as well as an earnings per share dilution
analysis for the Viacom/Paramount entity for the years 1994 to 2003.
. A comparison of estimated 1993 and 1994 cash flow of Viacom both on
stand-alone bases with and without giving effect to the conversion of
Viacom Preferred Stock, and with pro forma cash flow giving effect to the
Paramount Merger, as well as a cash flow dilution/accretion analysis for
the Viacom/Paramount entity for the years 1994 to 2003.
. A pro forma EBITDA analysis (including projected synergies), income
tax calculation and pro forma combined cash flow statement and a debt
amortization schedule, all estimated for the years 1993 to 2003.
. A pro forma interest expense table of the Viacom/Paramount entity,
estimated for the years 1994 to 2003, and a pro forma balance sheet for the
Viacom/Paramount entity.
In arriving at its opinion, Smith Barney performed a variety of financial
analyses, the material portions of which are summarized above. The summary set
forth above does not purport to be a complete description of the analyses
performed by Smith Barney. In addition, Smith Barney believes that its analyses
must be considered as a whole and that selecting portions of its analyses and of
the factors considered by it, without considering all such factors and analyses,
could create a misleading view of the process underlying its analyses set forth
in its opinion. The matters considered by Smith Barney in arriving at its
opinion are based on numerous macroeconomic, operating and financial assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond Viacom's or Blockbuster's control.
Any estimates incorporated in the analyses performed by Smith Barney are not
necessarily indicative of actual past or future results or values, which may be
significantly more or less favorable than such estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at which
businesses or companies may be sold in the future, and such estimates are
inherently subject to uncertainty. Arriving at a fairness
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opinion is a complex process, not necessarily susceptible to partial or summary
description. No company utilized as a comparison is identical to Viacom,
Blockbuster, Paramount or the business segment for which a comparison is being
made. Accordingly, an analysis of comparable companies and comparable business
combinations resulting from the transactions is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the comparable companies and other
factors that could affect the value of the comparable companies or company to
which they are being compared.
The Viacom Board selected Smith Barney as its financial advisor because it
is a nationally recognized investment banking firm and the members of senior
management of Smith Barney have substantial experience in transactions similar
to the Merger and are familiar with Viacom and its business. Smith Barney is an
investment banking firm engaged, among other things, in the valuation of
businesses and their securities in connection with mergers and acquisitions.
Smith Barney has rendered from time to time various investment banking services
to Viacom, including acting as a financial advisor in the Paramount Merger, and
to StarSight Telecast, Inc., a company in which Viacom holds a significant
interest, for which it received customary compensation.
Pursuant to the terms of an engagement letter dated January 6, 1994, Viacom
has agreed to pay Smith Barney a fee of $12.5 million upon consummation of the
Merger. Whether or not the Merger is consummated, Viacom has also agreed to
reimburse Smith Barney for its reasonable out-of-pocket expenses, including all
reasonable fees and disbursements of counsel, and to indemnify Smith Barney and
certain related persons against certain liabilities relating to or arising out
of its engagement, including certain liabilities under the Federal securities
laws.
Blockbuster. On January 7, 1994, Merrill Lynch delivered its oral opinion
(which it subsequently confirmed in writing) to the Board of Directors of
Blockbuster to the effect that, as of January 7, 1994, and based upon the
assumptions made, matters considered and limits of the review, as set forth in
such opinion, the Conversion Ratio (as defined below) is fair to the holders of
Blockbuster Common Stock (other than Viacom and its affiliates) from a financial
point of view. On August 23, 1994, Merrill Lynch delivered its oral opinion
(which it subsequently confirmed in writing) (the "Merrill Lynch Opinion") to
the Board of Directors of Blockbuster to the effect that, as of August
23, 1994, and based upon the assumptions made, matters considered and limits of
the review, as set forth in the Merrill Lynch Opinion, the Conversion Ratio is
fair to the holders of Blockbuster Common Stock (other than Viacom and its
affiliates) from a financial point of view.For purposes of the Merrill Lynch
opinions, the term "Conversion Ratio" refers collectively to the ratios at which
Blockbuster Common Stock is converted into Viacom Class A Common Stock, Viacom
Class B Common Stock and VCRs, in accordance with the Merger Agreement.
A COPY OF THE MERRILL LYNCH OPINION IS ATTACHED TO THIS PROXY
STATEMENT/PROSPECTUS AS ANNEX VI. BLOCKBUSTER STOCKHOLDERS ARE URGED TO READ THE
MERRILL LYNCH OPINION IN ITS ENTIRETY FOR THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND THE LIMITS OF THE REVIEW BY MERRILL LYNCH. THE MERRILL LYNCH
OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE CONVERSION RATIO FROM A
FINANCIAL POINT OF VIEW, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
BLOCKBUSTER STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE. THE SUMMARY OF
THE MERRILL LYNCH OPINION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other
things, (i) reviewed the Merger Agreement, the Stockholders Stock Option
Agreement, the Proxy Agreement, the Blockbuster Voting Agreement and the
Subscription Agreement; (ii) reviewed (a) Blockbuster's Annual Reports, Forms
10-K and related financial information for the three years ended December 31,
1993 and Blockbuster's Forms 10-Q and the related unaudited financial
information for the quarterly periods ended March 31, 1994 and June 30, 1994;
(b) Viacom's Annual Reports, Forms 10-K and related financial information for
the three years ended December 31, 1993 and Viacom's Forms 10-Q and the related
unaudited financial information for the quarterly periods ended March 31, 1994
and June 30, 1994; (c) Paramount's Annual Reports, Forms 10-K and related
financial information for the two years
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ended October 31, 1992, the Transition Reports on Form 10-K for the six-month
period ended April 30, 1993, as amended by Form 10-K/A Amendment No. 1 dated
September 28, 1993, as further amended by Form 10-K/A Amendment No. 2 dated
September 30, 1993, and as further amended by Form 10-K/A Amendment No. 3 dated
March 21, 1994 and for the eleven-month period ended March 31, 1994, as amended
by Form 10-K/A Amendment No. 1 dated July 29, 1994 and as further amended by
Form 10-K/A Amendment No. 2 dated August 12, 1994, and the Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1994; (d) the preliminary
Joint Proxy Statement/Prospectus of Viacom and Blockbuster as filed with the
Commission on August 19, 1994 and the Joint Proxy Statement/Prospectus of Viacom
and Paramount dated May 25, 1994; and (e) certain other filings with the
Commission made by Blockbuster, Viacom and Paramount, including proxy
statements, Forms 8-K and registration statements, during the last three years;
(iii) reviewed certain information, including financial forecasts relating to
the business, earnings, cash flows, assets and prospects of Blockbuster
furnished to Merrill Lynch by Blockbuster and adjusted by Merrill Lynch based on
information provided by Blockbuster, for transactions that occurred subsequent
to the date of such information and of Viacom furnished to Merrill Lynch by
Viacom and adjusted by Merrill Lynch based on information provided by Viacom,
which financial information included EBITDA for Blockbuster for the years 1994
through 1998 and EBITDA for Viacom for the years 1994 through 1996 (which, for
1994, gave pro forma effect to the Paramount Merger), and a detailed breakdown
of the major business segments for the income statements for Blockbuster for the
years 1994 through 1998 and segment revenues and EBITDA for Viacom for the years
1994 through 1996 (which, for 1994, gave pro forma effect to the Paramount
Merger); (iv) conducted discussions with members of senior management of
Blockbuster and Viacom concerning their respective businesses, prospects and
strategic objectives as well as the strategic implications and operating
efficiencies and possible synergies that might be realized following
consummation of the Merger; (v) reviewed the historical market prices and
trading activity for Blockbuster Common Stock and Viacom Class B Common Stock
and compared them with the Standard & Poor's 500 Index and selected other
indices; (vi) compared the results of operations of Blockbuster and Viacom with
those of certain companies which Merrill Lynch deemed to be similar in certain
respects to Blockbuster and Viacom, respectively; (vii) reviewed the financial
terms of certain business combinations involving companies in lines of business
which Merrill Lynch deemed to be similar in certain respects to Blockbuster and
in other industries generally; (viii) analyzed the relative valuation of
Blockbuster Common Stock, Viacom Common Stock and the blended value of the
Viacom Common Stock and VCRs (including the theoretical trading value of the
VCRs) to be received by the holders of Blockbuster Common Stock in the Merger
using various valuation methodologies which Merrill Lynch deemed appropriate;
(ix) analyzed the pro forma effect of the Merger on the combined company's
coverage and leverage ratios following consummation of the Merger; (x) analyzed
the economic interests of the Company's stockholders in the combined company and
the relative contributions of the respective parties' financial performance,
including the contribution of revenues and EBITDA as well as the relative
contribution of implied market capitalization, of Blockbuster and Viacom to the
combined company following consummation of the Merger; and (xi) reviewed such
other financial studies and performed such other investigations and analyses and
took into account such other matters as Merrill Lynch deemed necessary or
appropriate. The financial information referred to in clause (iii) above
furnished to Merrill Lynch (A) by Blockbuster, as adjusted based on information
provided by Blockbuster, included projected EBITDA (which does not include
certain investments that will be consolidated with Blockbuster's financial
results but which were treated by Merrill Lynch for purposes of such projections
under the equity accounting method) (in millions of dollars) of $699.0 in fiscal
1994, $930.0 in fiscal 1995, $1,122.0 in fiscal 1996, $1,345.0 in fiscal 1997
and $1,543.0 in fiscal 1998 and (B) by Viacom, as adjusted based on information
provided by Viacom, included, on a pro forma basis after giving effect to the
Paramount Merger, projected EBITDA (in millions of dollars) of $1,128.5 in
fiscal 1994, $1,403.7 in fiscal 1995 and $1,660.7 in fiscal 1996. The EBITDA
information provided to Merrill Lynch by Blockbuster includes adjustments for
ongoing tape purchase expense. Such projections were made with respect to the
anticipated future performance of Blockbuster and Viacom. No representations are
made as to the accuracy of the projections based thereon.
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PROJECTED INFORMATION OF THIS TYPE IS BASED ON ESTIMATES AND ASSUMPTIONS
THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO PREDICT AND MANY
OF WHICH ARE BEYOND THE CONTROL OF BLOCKBUSTER AND VIACOM. ACCORDINGLY, THERE
CAN BE NO ASSURANCE THAT THE PROJECTED RESULTS WOULD BE REALIZED OR THAT ACTUAL
RESULTS WOULD NOT BE SIGNIFICANTLY HIGHER OR LOWER THAN THOSE SET FORTH ABOVE.
IN ADDITION, THESE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC
DISCLOSURE OR COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE COMMISSION OR THE
GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
REGARDING PROJECTIONS AND FORECASTS AND ARE INCLUDED IN THIS PROXY
STATEMENT/PROSPECTUS ONLY BECAUSE SUCH INFORMATION WAS MADE AVAILABLE TO MERRILL
LYNCH BY BLOCKBUSTER AND VIACOM. NONE OF MERRILL LYNCH, BLOCKBUSTER, VIACOM OR
ANY OTHER PARTY ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OR VALIDITY OF THE
FOREGOING PROJECTIONS.
Merrill Lynch relied upon the accuracy and completeness of all information
supplied or otherwise made available to it by Blockbuster and Viacom and assumed
that financial forecasts and estimates of operating efficiencies and potential
synergies reflected the best currently available estimates and judgments of the
managements of Blockbuster and Viacom as to the expected future financial
performance of their respective companies. Merrill Lynch did not independently
verify such information or assumptions, conduct a physical inspection of the
properties or facilities of Blockbuster or Viacom, or undertake any independent
appraisal or evaluation of the assets or liabilities of Blockbuster or Viacom.
The Merrill Lynch Opinion is based upon market, economic, financial and other
conditions as they existed and could be evaluated as of the date of the Merrill
Lynch Opinion. In that regard, it should be noted that the summary set forth
below of the Merrill Lynch Report (as defined below) reflects Merrill Lynch's
analysis of Viacom after giving effect to the Paramount Merger. Merrill Lynch
expressed no opinion as to what the value of Viacom Common Stock or VCRs
actually will be when issued to the holders of Blockbuster Common Stock upon
consummation of the Merger. Merrill Lynch was not authorized by Blockbuster or
the Board of Directors of Blockbuster to solicit third-party indications of
interest for the acquisition of all or any part of Blockbuster, nor did Merrill
Lynch solicit any such offers. In addition, Merrill Lynch has not been contacted
since the announcement of the execution of the Merger Agreement by any entity
indicating an interest in acquiring or merging with Blockbuster.
In arriving at the Merrill Lynch Opinion and making its presentation to the
Board of Directors of Blockbuster at the meeting held on August 23, 1994,
Merrill Lynch considered and discussed certain financial analyses and other
factors. In connection with its presentation, Merrill Lynch provided the Board
of Directors of Blockbuster with a summary of valuation results obtained by
using several different valuation methods as well as other materials concerning
Blockbuster Common Stock and Viacom Common Stock (the "Merrill Lynch Report"),
the material portions of which are summarized below.
The following paragraphs describe Merrill Lynch's analysis of Blockbuster.
Stock Trading History. Merrill Lynch reviewed the performance of the per
share market price and trading volume of Blockbuster Common Stock for certain
periods, and compared such per share market price movements to the Standard &
Poor's 500 Index and selected other indices.
Comparable Public Company Analysis. Merrill Lynch compared certain publicly
available financial and operating data and projected financial performance
(reflecting a composite of research analysts' estimates) of selected publicly
traded specialty retail companies with similar financial and operating data and
projected financial performance of Blockbuster (as estimated by the management
of Blockbuster). The selected specialty retail companies reviewed in this
analysis (collectively, the "Blockbuster Comparable Group") were: Circuit City
Stores, Inc., The Home Depot, Inc., Musicland Stores Corp., Office Depot, Inc.
and Toys "R" Us, Inc. Merrill Lynch analyzed, among other things, the market
values and capitalizations (defined to be the market value of the common stock
plus the liquidation value of the preferred stock (in the case of Blockbuster,
the market value of the preferred stock) plus total debt and minority interests
less cash, cash equivalents and other investments) and historical and projected
EBITDA, sales and growth rates and earnings per share of Blockbuster and the
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Blockbuster Comparable Group. Merrill Lynch then compared the results of such
analyses for the Blockbuster Comparable Group to the corresponding results for
Blockbuster. Applying a range of multiples for earnings per share of 20x to 26x,
which multiples were derived from the historical and projected earnings per
share multiples and growth rates of Blockbuster and the Blockbuster Comparable
Group analyzed by Merrill Lynch, to Blockbuster's 1994 expected earnings per
share, Merrill Lynch calculated the implied value of Blockbuster Common Stock.
Utilizing this methodology, the implied value of Blockbuster Common Stock was
calculated by Merrill Lynch at between approximately $25.00 and $33.00 per
share.
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow analysis of Blockbuster based upon estimates of projected financial
performance prepared by Blockbuster for the years 1995-1998 and estimated by
Merrill Lynch on the basis of its review of Blockbuster's historical
performance, discussions with management and analysts' estimates for the years
1999-2001 and applied two methodologies to compute terminal values. In the first
case, utilizing these projections, Merrill Lynch calculated a range of values
based upon the discounted net present value of the sum of (i) the projected
stream of unlevered free cash flows of Blockbuster to the year 1999, (ii) the
projected terminal value of Blockbuster at such year based upon a range of
multiples of projected EBITDA and (iii) an assumed cash balance (including other
investments) net of debt (based upon full conversion and/or exercise of all
derivative securities). Merrill Lynch applied several discount rates (ranging
from 14% to 16%) and multiples of EBITDA (ranging from 8.5x to 9.5x). Utilizing
this methodology, the equity value of Blockbuster Common Stock was calculated by
Merrill Lynch at between approximately $35.00 and $41.00 per share on a fully
diluted basis. In the second case, utilizing the same assumptions and
calculations as used in the method described above except that Merrill Lynch
calculated the projected terminal value of Blockbuster based on a free cash flow
growth rate from 2001 to perpetuity of 4% to 6%, Merrill Lynch calculated the
equity value of Blockbuster Common Stock at between approximately $26.50 and
$36.50 per share on a fully diluted basis.
Comparable Acquisition Transaction Analysis. Merrill Lynch reviewed certain
publicly available information regarding ten selected business combinations of
retail companies announced since March 1991. For each such transaction, Merrill
Lynch reviewed the offer value (defined to be the consideration per share
multiplied by the fully diluted number of shares) of each such transaction as a
multiple of net income and the transaction value (defined to be the offer value
plus liquidation value of preferred stock plus total debt and minority interests
less cash, cash equivalents and other investments) of each such transaction as a
multiple of earnings before interest and taxes, EBITDA and sales for certain
periods prior to the announcements thereof, and compared such multiples to the
multiples of such financial results for Blockbuster implied by the Conversion
Ratio. The ten business combinations reviewed in this analysis (collectively,
the "Business Combination Comparables") and the dates such acquisitions were
announced were: the acquisition of PACE Membership Warehouses, Inc. by Sam's
Wholesale Club Division of Wal-Mart Stores, Inc. (announced November 8, 1993);
Blockbuster's acquisition of Super Club Retail Entertainment Corporation
(announced October 6, 1993); Investcorp International's acquisition of Camelot
Music, Inc. (announced October 4, 1993); Blockbuster's acquisition of WJB Video
Limited Partnership (announced July 16, 1993); Costco Wholesale Corporation's
merger with The Price Company (announced June 16, 1993); Blockbuster's
acquisition of Sound Warehouse (announced October 19, 1992); Merrill Lynch
Capital Partners, Inc.'s acquisition of Wherehouse Entertainment Inc. (announced
May 6, 1992); OfficeMax's (Kmart Corp.) acquisition of OW Office Warehouse Inc.
(announced March 25, 1992); Blockbuster's acquisition of Cityvision (announced
January 22, 1992); and Office Depot Inc.'s acquisition of Office Club, Inc.
(announced March 15, 1991). Applying a range of multiples for EBITDA of 8x to
11x, which multiples were derived from the Business Combination Comparables
information analyzed by Merrill Lynch, to Blockbuster's 1994 expected EBITDA,
Merrill Lynch calculated the implied value of Blockbuster's Common Stock.
Utilizing this methodology, the implied value of Blockbuster Common Stock was
calculated by Merrill Lynch at between approximately $23.00 and $30.00 per
share.
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Merrill Lynch then compared the results of each of the foregoing analyses
to the consideration to be received by the holders of Blockbuster Common Stock
in the Merger assuming that the per share price of the Viacom Class B Common
Stock equals $35.50, the closing price on the date prior to the delivery of the
Merrill Lynch Opinion, and VCR values of zero (the "Minimum VCR") and full
nominal value (the "Maximum VCR"). Merrill Lynch calculated the implied value of
the consideration to be received by the Blockbuster stockholders at between
$24.78 per share assuming the Minimum VCR and $29.69 per share assuming the
Maximum VCR.
The following paragraphs describe Merrill Lynch's analysis of Viacom, after
giving effect to the Paramount Merger. For purposes of this section, all
references to Viacom relating to a circumstance or event existing or occurring
after the consummation of the Paramount Merger include references to Paramount.
Stock Trading History. Merrill Lynch reviewed the performance of the per
share market price and trading volume of Viacom Class B Common Stock for certain
periods, and compared such per share market price movements to the Standard &
Poor's 500 Index and selected other indices.
Comparable Public Company Analysis. Merrill Lynch compared certain publicly
available financial and operating data and projected financial performance
(reflecting a composite of research analysts' estimates) of selected diversified
entertainment companies with similar financial and operating data and projected
financial performance of Viacom (as estimated by the management of Viacom). The
selected diversified entertainment companies (collectively, the "Viacom
Comparable Group") were: The News Corporation, Time Warner Inc., Turner
Broadcasting System, Inc. and The Walt Disney Company. Merrill Lynch analyzed,
among other things, the market values and capitalizations (defined to be the
market value of the common stock plus the liquidation value of the preferred
stock plus total debt and minority interests less cash, cash equivalents and
other investments) and historical and projected EBITDA and sales of Viacom and
the Viacom Comparable Group. Merrill Lynch then compared the results of such
analyses for the Viacom Comparable Group to the corresponding results for
Viacom. Applying a range of multiples of 11x to 13x for EBITDA, which were
derived from the Viacom Comparable Group information analyzed by Merrill Lynch,
to Viacom's 1995 expected EBITDA, Merrill Lynch calculated the equity value of
Viacom Common Stock at January 1, 1995. Utilizing this methodology, the equity
value of Viacom Common Stock was calculated by Merrill Lynch at between
approximately $27.00 and $41.00 per share assuming no divestitures of any Viacom
assets and between approximately $30.50 and $42.00 per share assuming certain
Viacom divestitures, including the Cable Systems Sale, the MSG Sale, the sale of
the Famous Music publishing companies and the sale of certain other smaller
assets (the "Divestitures"). Viacom provided Merrill Lynch with estimated sale
prices for the Divestitures, certain tax assumptions related thereto including
the acquisition of certain assets by a purchaser which could provide Viacom with
tax deferral of the recognition of any gain, and estimates of loss of associated
EBITDA, as well as the proposed timing of the Divestitures (from which Merrill
Lynch derived a range of values of $2.755 billion to $3.695 billion in the
aggregate on an after-tax basis). Merrill Lynch has relied on Viacom for
information relating to the Divestitures and the resulting effect on Viacom and
has not independently verified any such information.
Weighted Average by Segment Public Comparables Analysis. Merrill Lynch
analyzed the equity value of Viacom based upon estimates of Viacom's projected
1995 financial performance prepared by Viacom and certain publicly available
market information for publicly traded companies comparable in certain respects
to Viacom. Utilizing these projections, Merrill Lynch estimated a range of
values for each of Viacom's business segments (including segments acquired in
the Paramount Merger) and its proportionate interests in certain cable
television programming businesses. An implied range of values for Viacom was
calculated by subtracting from the values of such business segments debt and
preferred stock (net of cash, cash equivalents and other investments). Utilizing
this methodology, the equity value of Viacom Common Stock was calculated by
Merrill Lynch at between approximately $25.00 and $44.00 per share assuming the
Divestitures do not occur and approximately $26.00 and $48.00 per share assuming
the Divestitures do occur.
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Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow analysis of Viacom based upon estimates of projected financial performance
prepared by Viacom for the years 1995 and 1996 and estimated by Merrill Lynch
for the years 1997-2000 on the basis of its review of Viacom's historical
performance, analysts' estimates and industry forecasts. Utilizing these
projections, Merrill Lynch calculated a range of values based upon the
discounted net present value of the sum of (i) the projected stream of unlevered
free cash flows of Viacom to the year 1999, (ii) the projected terminal value of
Viacom at the year 2000 based upon a range of multiples of projected EBITDA and
(iii) an assumed cash balance (including other investments) net of debt (based
upon full conversion and/or exercise of all derivative securities). Merrill
Lynch applied several discount rates (ranging from 12.5% to 14.5%) and multiples
of EBITDA (ranging from 11.5x to 12.5x). Utilizing this methodology, the equity
value of Viacom Common Stock was calculated by Merrill Lynch at between
approximately $40.00 and $53.00 per share on a fully diluted basis assuming the
Divestitures do not occur and approximately $44.50 and $55.50 per share assuming
the Divestitures do occur.
Implied Exchange Ratios. Merrill Lynch compared the equity values for
Blockbuster Common Stock (based on a terminal multiple of EBITDA) and Viacom
Common Stock based on the foregoing discounted cash flow analyses and calculated
an implied exchange ratio for Blockbuster Common Stock ranging from
approximately 0.66 to 1.01 assuming the Divestitures do not occur and
approximately 0.63 to 0.92 assuming the Divestitures do occur. In addition,
utilizing the same assumptions except that Merrill Lynch used the equity values
for Blockbuster Common Stock determined on a perpetuity basis, Merrill Lynch
calculated an implied exchange ratio for Blockbuster Common Stock ranging from
approximately 0.50 to 0.90 assuming the Divestitures do not occur and
approximately 0.48 to 0.82 assuming the Divestitures do occur. Such ranges of
exchange ratios compared to a blended exchange ratio contemplated by the Merger
Agreement ranging from approximately 0.69 to 0.82, depending on the number of
shares of Viacom Class B Common Stock issued in exchange for the VCRs.
In addition to the foregoing analyses with respect to Blockbuster and
Viacom, Merrill Lynch performed the following analyses with respect to the
impact of the Merger.
Implied Blockbuster Value. Merrill Lynch calculated the implied Viacom
Class B Common Stock price at January 1, 1995 by applying a range of multiples
for EBITDA of 11x to 13x, to the combined company's 1995 estimated EBITDA
assuming four scenarios: the Divestitures do not occur and the Maximum VCR, the
Divestitures do occur and the Maximum VCR, the Divestitures do not occur and the
Minimum VCR and the Divestitures do occur and the Minimum VCR. Merrill Lynch
then calculated the value of the consideration to be received in the Merger for
each share of Blockbuster Common Stock implied by the blended exchange ratio
contemplated in the Merger under the four scenarios described above using the
implied Viacom Class B Common Stock price calculated as described above assuming
a $4.00 per share premium for the Viacom Class A Common Stock over the Viacom
Class B Common Stock. Utilizing such methodology, Merrill Lynch calculated a
range of values of the consideration to be received in the Merger for each share
of Blockbuster Common Stock implied by the blended exchange ratio at January 1,
1995 of (i) $34.78 to $44.75 assuming the Divestitures do not occur and the
Maximum VCR, (ii) $36.22 to $45.28 assuming the Divestitures do occur and the
Maximum VCR, (iii) $32.01 to $41.19 assuming the Divestitures do not occur and
the Minimum VCR and (iv) $33.34 to $41.67 assuming the Divestitures do not occur
and the Minimum VCR. Merrill Lynch compared such results to the implied range of
values per share of Blockbuster Common Stock at January 1, 1995, without giving
effect to the Merger (by applying a range of multiples of 18x to 22x to
Blockbuster's 1995 earnings per share) of $31.04 to $37.94.
Merrill Lynch then compared (i) the implied range of values per share of
Blockbuster Common Stock, without giving effect to the Merger, utilizing the
assumptions described above and applying multiple ranges over time of 18x to 22x
in 1995 to 14x to 18x in 1999, for the years 1995 through 1999 to (ii) the range
of values of the consideration to be received in the Merger for each share of
Blockbuster Common Stock implied by the blended exchange ratio for the years
1995 through 1999 utilizing the methodology described above assuming the
Divestitures do not occur and assuming the Minimum VCR
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and the Maximum VCR. The implied range of values per share of Blockbuster Common
Stock ranged from $31.04 to $37.94 in 1995 to $50.77 to $65.28 in 1999 compared
to the range of values of the consideration to be received in the Merger for
each share of Blockbuster Common Stock implied by the blended exchange ratio
assuming the Minimum VCR of $32.01 to $41.19 in 1995 to $80.07 to $95.19 in 1999
and assuming the Maximum VCR of $34.78 to $44.75 in 1995 to $87.88 to $104.51 in
1999.
Contribution Analysis. Merrill Lynch analyzed and compared the respective
contribution of revenues and EBITDA as well as the relative contribution of
implied market capitalization of Blockbuster and Viacom to the combined company
following consummation of the proposed Merger on an historical basis and on a
projected basis based upon forecasts provided by Viacom, in the case of the
combined company and, in the case of each of Blockbuster and Viacom alone,
forecasts provided by the respective companies and estimates developed by
Merrill Lynch for each company as described in the discounted cash flow analysis
description for each company summarized above, and without taking into account
any potential synergies resulting from the Merger and assuming the Divestitures
occur. This analysis showed that Blockbuster stockholders would own, excluding
the effects of the CVRs, the Viacom Three-Year Warrants and the Viacom Five-Year
Warrants, approximately 52% and 57% assuming the Minimum VCR and the Maximum
VCR, respectively, of the economic interests of the combined company, and
Blockbuster would contribute an estimated 26% and 31% assuting the exercise of
the Minimum VCR and the Maximum VCR, respectively, of the implied market
capitalization of the combined company. In addition, Blockbuster would
contribute to the combined company an estimated 25%, 32%, 34%, 35%, 37%, 38% and
39% of revenues for the years 1993-1999, respectively, and an estimated 29%,
38%, 40%, 40%, 40%, 41% and 41% of EBITDA for the years 1993-1999.
In arriving at the Merrill Lynch Opinion and in presenting the Merrill
Lynch Report, Merrill Lynch performed a variety of financial analyses, the
material portions of which are summarized above. The summary set forth above
does not purport to be a complete description of the analyses performed by
Merrill Lynch. In addition, Merrill Lynch believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all such factors and analyses,
could create a misleading view of the process underlying its analyses set forth
in the Merrill Lynch Opinion and the Merrill Lynch Report. The matters
considered by Merrill Lynch in arriving at the Merrill Lynch Opinion that, as of
the date of such opinion, the Conversion Ratio is fair to the holders of
Blockbuster Common Stock (other than Viacom and its affiliates), from a
financial point of view, are based on numerous macroeconomic, operating and
financial assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond Blockbuster's or
Viacom's control. Any estimates incorporated in the analyses performed by
Merrill Lynch are not necessarily indicative of actual past or future results or
values, which may be significantly more or less favorable than such estimates.
Estimated values do not purport to be appraisals and do not necessarily reflect
the prices at which businesses or companies may be sold in the future, and such
estimates are inherently subject to uncertainty. Arriving at a fairness opinion
is a complex process not necessarily susceptible to partial or summary
description. No public company utilized as a comparison is identical to
Blockbuster, Viacom or the business segment for which a comparison is being
made, and none of the Business Combination Comparables or other business
combinations utilized as a comparison is identical to the proposed Merger.
Accordingly, an analysis of publicly traded comparable companies and comparable
business combinations resulting from the transactions is not mathematical;
rather it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of the comparable companies
or company to which they are being compared.
The Board of Directors of Blockbuster selected Merrill Lynch to render
fairness opinions because Merrill Lynch is an internationally recognized
investment banking firm with substantial experience in transactions similar to
the Merger and because it is familiar with Blockbuster and its business. Merrill
Lynch acted as underwriter to Blockbuster in connection with a public offering
of common stock by
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Blockbuster in November 1993, advised Blockbuster in connection with its
investments in Spelling Entertainment and Republic Pictures, and has from time
to time rendered other investment banking, financial advisory and other services
to Blockbuster, for which it has received customary compensation. Mr. Charles A.
Lewis, Managing Director of Merrill Lynch, his wife, Penny A. Sebring, and their
family beneficially own 1,001,788 shares of Blockbuster Common Stock. As part of
its investment banking business, Merrill Lynch is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions. Merrill Lynch has rendered from time to time various investment
banking and financial advisory services to Viacom and Paramount for which it has
received customary compensation.
Fees Payable to Merrill Lynch. Blockbuster has agreed to pay Merrill Lynch
$3 million and will become obligated to pay Merrill Lynch a fee of $10 million
upon the consummation of the Merger; provided that the initial $3 million fee
shall be credited against the $10 million fee payable to Merrill Lynch upon
consummation of the Merger. Blockbuster has also agreed to reimburse Merrill
Lynch for its reasonable out-of-pocket expenses, including fees and expenses of
its legal counsel, and to indemnify Merrill Lynch and certain related persons
against certain liabilities in connection with its engagement, including certain
liabilities under the federal securities laws.
EFFECTIVE TIME
The Merger will become effective upon the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware or such later time as is
specified in such certificate, a form of which is attached as Annex VIII. Such
filing will be made as promptly as practicable after satisfaction or waiver of
the conditions to the Merger unless another date is agreed to by the parties.
The Merger Agreement may be terminated by either party if, among other reasons,
the Merger is not consummated on or before September 30, 1994; provided,
however, that the Merger Agreement may be extended by written notice of either
Viacom or Blockbuster to a date not later than November 30, 1994, if the Merger
is not consummated as a direct result of Viacom or Blockbuster having failed by
September 30, 1994 to receive all required regulatory approvals or consents with
respect to the Merger. See "Certain Provisions of the Merger
Agreement--Termination" and "--Conditions to Consummation of the Merger."
STOCK EXCHANGE LISTING
Viacom has filed an application to list the shares of Viacom Common Stock
and the VCRs to be issued in connection with the Merger on the AMEX, subject to
stockholder approval of the Merger Agreement and official notice of issuance.
The shares of Viacom Class A Common Stock and Viacom Class B Common Stock are
traded on the AMEX under the symbols "VIA" and "VIAB," respectively, and the
VCRs are expected to be traded under the symbol "VIAVR".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary, based upon current law, is a general discussion of
certain Federal income tax consequences of the Merger to Viacom, Blockbuster and
holders of Blockbuster Common Stock assuming the Merger is consummated as
contemplated herein. This summary is based upon the Internal Revenue Code of
1986, as amended (the "Code"), applicable Treasury regulations thereunder and
administrative rulings and judicial authority as of the date hereof, all of
which are subject to change, possibly with retroactive effect. Any such change
could affect the continuing validity of this summary. This summary applies to
holders of Blockbuster Common Stock who hold their shares of Blockbuster Common
Stock as capital assets. This summary does not discuss all aspects of income
taxation that may be relevant to a particular holder of Blockbuster Common Stock
in light of such holder's specific circumstances or to certain types of holders
subject to special treatment under the Federal income tax
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laws (for example, foreign persons, dealers in securities, banks and other
financial institutions, insurance companies, tax-exempt organizations and
holders who acquired shares of Blockbuster Common Stock pursuant to the exercise
of options or otherwise as compensation or through a tax-qualified retirement
plan), and it does not discuss any aspect of state, local, foreign or other tax
laws. No ruling has been (or will be) sought from the Internal Revenue Service
as to the anticipated tax consequences of the Merger. Skadden, Arps, Slate,
Meagher & Flom, counsel to Blockbuster, has advised Blockbuster and Shearman &
Sterling, counsel to Viacom, has advised Viacom that, in their opinions, the
following discussion, insofar as it relates to matters of Federal income tax
law, is a fair and accurate summary of such matters. HOLDERS OF BLOCKBUSTER
COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS AS TO THE TAX CONSEQUENCES TO
THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE,
LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
The Merger. It is a condition to the consummation of the Merger that Viacom
receive an opinion of its counsel, Shearman & Sterling, and Blockbuster receive
an opinion of its counsel, Skadden, Arps, Slate, Meagher & Flom, that the merger
of Blockbuster with and into Viacom in accordance with the terms of the Merger
Agreement will constitute a reorganization qualifying under the provisions of
Section 368(a) of the Code. The opinions of Shearman & Sterling and Skadden,
Arps, Slate, Meagher & Flom will be expressly based upon the accuracy of
certain assumptions and the representations made to such counsel by Viacom,
Blockbuster and certain holders of Blockbuster Common Stock.
Neither Blockbuster nor Viacom will recognize any gain or loss as a result
of the Merger.
A holder of Blockbuster Common Stock will not recognize any gain or loss
from the exchange of Blockbuster Common Stock for Viacom Common Stock and the
VCRs pursuant to the Merger if the VCRs are treated as qualifying contingent
rights to additional shares of Viacom Class B Common Stock ("qualifying
property"). However, since the VCRs will be transferable and listed on the AMEX,
the law is unclear as to whether gain of a holder of Blockbuster Common Stock
from such exchange should be recognized to the extent of the fair market value
of the VCRs received by such holder. Based on its prior rulings regarding
transferable contingent rights to receive additional stock, the Internal Revenue
Service is likely to view the VCRs as "other property" (i.e., property other
than Viacom stock or "qualifying property"). However, the decision of the U.S.
Court of Appeals for the Eighth Circuit in Carlberg v. United States, 281 F.2d
507 (8th Cir. 1960), is contrary to the Internal Revenue Service's treatment of
transferable contingent rights to receive additional stock as "other property."
If the VCRs are treated as "other property" for Federal income tax purposes, a
holder of Blockbuster Common Stock will recognize gain (the amount equal to the
excess, if any, of (i) the sum of the fair market value of the Viacom Common
Stock received (including a fractional share treated as received) and the fair
market value of the VCRs received by such holder over (ii) such holder's tax
basis in the Blockbuster Common Stock converted in the Merger) as taxable
income, but only to the extent of the fair market value of the VCRs received by
such holder.
Character of Gain. If the VCRs are treated as "other property," in general,
any gain recognized by a holder of Blockbuster Common Stock whose relative stock
interest in Viacom after the Merger is minimal and who exercises no control over
the affairs of Viacom should be treated as a capital gain. However, depending on
the particular circumstances of a holder of Blockbuster Common Stock, any gain
recognized by such holder could be treated as ordinary dividend income.
Constructive ownership rules under the Code will apply to determine the stock
ownership of a holder of Blockbuster Common Stock for these purposes.
Tax Basis and Holding Period if VCRs Treated as "Qualifying Property." If
the VCRs are treated as "qualifying property," a holder of Blockbuster Common
Stock will have an aggregate tax basis in the shares of Viacom Common Stock
received (including a fractional share treated as received) and the VCRs
received in the Merger equal to the tax basis of such holder in the Blockbuster
Common Stock exchanged therefor. Based upon the approach taken by the Internal
Revenue Service in situations
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involving contingent and escrowed stock arrangements, such aggregate tax basis
should be allocated among the holder's Viacom Class A Common Stock, Viacom Class
B Common Stock and the VCRs received based on their relative fair market values,
but valuing the VCRs for this purpose at an amount equal to the maximum number
of shares of Viacom Class B Common Stock that may be issued upon maturity of the
VCRs ("VCR Class B Common Stock") times the fair market value per share of such
stock on the date of the Merger.
Upon maturity of the VCRs, the tax basis of the holder in the VCRs should
be allocated to the shares of VCR Class B Common Stock actually issued in
proportion to the number of such shares actually issued over the maximum number
of shares of VCR Class B Common Stock that might have been issued. Any remaining
tax basis of the holder in the VCRs should increase the holder's tax basis in
the remaining shares of Viacom Class A Common Stock and Viacom Class B Common
Stock actually received (either in the Merger or as VCR Class B Common Stock).
This readjustment of tax basis should occur no later than the time at which the
number of shares of VCR Class B Common Stock to be issued becomes fixed. In
addition, if the maximum number of shares of VCR Class B Common Stock that might
be issued is adjusted downward after the Effective Time but before the maturity
or termination of the VCRs, the holder's tentative tax basis in the remaining
shares of Viacom Class A Common Stock and Viacom Class B Common Stock actually
received in the Merger and in the adjusted maximum number of shares of VCR Class
B Common Stock should be recalculated at such time.
If the holder does not receive any VCR Class B Common Stock upon the
maturity of the VCRs or if the VCRs terminate prior to maturity, and if the
holder owns no remaining shares of Viacom Class A Common Stock or Viacom Class B
Common Stock at such time, the holder should recognize a capital loss in an
amount equal to the tax basis that had been allocated to the VCRs. If a holder
of Blockbuster Common Stock disposes of any shares of Viacom Class A Common
Stock or Viacom Class B Common Stock received in the Merger prior to the
maturity or termination of the VCRs, such holder should compute gain or loss
upon such disposition using the tentative tax basis determined in accordance
with the rules described above.
The holding period of any Viacom Common Stock received in the Merger or as
VCR Class B Common Stock and of any VCRs received in the Merger will include the
holding period of the holder's Blockbuster Common Stock surrendered in exchange
therefor.
Tax Basis and Holding Period if VCRs Treated as "Other Property." If the
VCRs are treated as "other property," a holder of Blockbuster Common Stock will
have an aggregate tax basis in the shares of Viacom Common Stock received
(including a fractional share treated as received) in the Merger equal to the
tax basis of such holder in the Blockbuster Common Stock exchanged therefor,
increased by the amount of any gain recognized (including any gain treated as
ordinary dividend income but excluding any gain with respect to a fractional
share), and decreased by the fair market value of the VCRs received. Such tax
basis will be allocated among the holder's Viacom Class A Common Stock and
Viacom Class B Common Stock received in accordance with their relative fair
market values on the date of the Blockbuster Merger. A holder of Blockbuster
Common Stock will have a tax basis in the VCRs received equal to their fair
market value on the date of the Merger.
The holding period of any Viacom Common Stock received in the Merger by a
holder of Blockbuster Common Stock will include the holding period of such
holder's Blockbuster Common Stock exchanged therefor, except possibly in certain
circumstances if the straddle rules discussed below under "Ownership of
VCRs--Straddle Rules" apply. The holding period of the VCRs received by such
holder will begin on the day following the Merger, unless the straddle rules
discussed below under "Ownership of VCRs--Straddle Rules" apply.
Fractional Shares. A holder of Blockbuster Common Stock who receives cash
in lieu of a fractional share of Viacom Common Stock in the Merger generally
will be treated as if the fractional share had been distributed to such holder
as part of the Merger and then redeemed by Viacom in exchange for the cash
distributed in lieu of the fractional share in a transaction qualifying as an
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exchange under Section 302 of the Code. As a result, a holder of Blockbuster
Common Stock generally will recognize capital gain or loss with respect to the
cash payment received in lieu of a fractional share.
Backup Withholding. To prevent "backup withholding" of Federal income tax
on payments of cash in lieu of a fractional share of Viacom Common Stock to a
holder of Blockbuster Common Stock in the Merger, a holder of Blockbuster Common
Stock must, unless an exception applies under the applicable law and
regulations, provide the payor of such cash with such holder's correct taxpayer
identification number ("TIN") on a Substitute Form W-9 and certify under
penalties of perjury that such number is correct and that such holder is not
subject to backup withholding. A Substitute Form W-9 will be provided to each
holder of Blockbuster Common Stock in the letter of transmittal to be mailed to
each holder after the Effective Time. If the correct TIN and certifications are
not provided, a $50 penalty may be imposed on a holder of Blockbuster Common
Stock by the Internal Revenue Service, and cash in lieu of a fractional share of
Viacom Common Stock received by such holder may be subject to backup withholding
at a rate of 31%.
Tax Considerations Regarding the Ownership of the VCRs if Treated as "Other
Property". If the VCRs are treated as "other property," the Federal income tax
consequences resulting from the maturity, lapse, or disposition of the VCRs
received by a holder of Blockbuster Common Stock in the Merger (an "Initial VCR
Holder") will depend upon how the VCRs are characterized for Federal income tax
purposes. Neither the Internal Revenue Service nor any court has addressed the
proper characterization of instruments which are identical to the VCRs for
Federal income tax purposes. Based on prior Internal Revenue Service rulings,
the Internal Revenue Service could take the position that the VCRs are
sufficiently similar economically to cash settlement put options to be treated
as such for Federal income tax purposes. It also is possible that the VCRs might
be treated as debt instruments for Federal income tax purposes. The following
discussion examines the Federal income tax consequences if the VCRs were to be
treated as cash settlement put options or as debt instruments. It should be
noted, however, that the VCRs might be treated in some other manner, and that
subsequent legislation, regulations, court decisions and revenue rulings could
affect the Federal income tax treatment of the VCRs.
Treatment of the VCRs as Cash Settlement Put Options. If the VCRs were
treated as cash settlement put options, an Initial VCR Holder would realize
capital gain or loss upon the lapse, payment at maturity or sale or exchange of
such holder's VCRs in an amount equal to the difference between the amount
realized, if any, and such holder's tax basis for such VCRs. Upon payment at
maturity, the amount realized would be the fair market value of the VCR Class B
Common Stock received in satisfaction of the VCRs. However, some or all of any
loss so realized might be deferred, or an Initial VCR Holder's holding period
might be adjusted, under the straddle rules described below.
Straddle Rules. Section 1092 of the Code provides special rules concerning
the recognition of losses and the determination of holding periods with respect
to positions that are part of a "straddle." The term "straddle" means offsetting
positions with respect to personal property. The term "position" means an
interest (including an option) in personal property. For this purpose, "personal
property" includes stock only if such stock is part of a straddle where one of
the offsetting positions is either an option with respect to such stock or
substantially identical stock or securities or, under regulations which have
been proposed but have not yet been finalized, a position with respect to
substantially similar or related property (other than stock) (for example, a
debt instrument). Positions are treated as "offsetting" where the risk of loss
from holding one position is substantially diminished by reason of holding
another position.
It is possible that the holding of VCRs and the Viacom Class A Common
Stock, the Viacom Class B Common Stock, the Viacom Three-Year Warrants, the
Viacom Five-Year Warrants or another class of Viacom security by an Initial VCR
Holder (regardless of whether the holder acquired any such shares of Viacom
Common Stock or any other security of Viacom in the Merger or otherwise) would
be a straddle if the VCRs were treated as cash settlement put options. It should
be noted that the Code
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directs the Secretary of the Treasury to issue regulations prescribing the
method for determining the portion of a position that is subject to the straddle
rules when the size of the position exceeds the size of the offsetting position.
No such regulations have been issued to date.
If holding the VCRs and Viacom Common Stock or another security of Viacom
were treated as a straddle, then any loss realized in a taxable year by an
Initial VCR Holder upon a sale or other disposition (including retirement) of
either the VCRs or Viacom Common Stock or another security of Viacom would be
recognized only to the extent it exceeds the unrecognized gain (as of the end of
such year) with respect to the retained position. The unrecognized portion of
such loss would be deferred and would be treated as a loss incurred in a later
taxable year, the recognition of which would continue to be subject to the
straddle rules.
In addition, if the VCRs and Viacom Common Stock or another security of
Viacom were treated as a straddle, special rules would apply to determine
whether capital gain or loss upon the disposition of such stock or security and
the VCRs would be treated as long term or short term. If an Initial VCR Holder
would not have a long-term holding period (i.e., a holding period of more than
one year) for Viacom Common Stock or another security of Viacom when such holder
receives a VCR that is part of a straddle including such stock or security (for
example, because such holder had held Blockbuster Common Stock for one year or
less at the time of the Merger), then such holder's holding period for any such
stock or security before the acquisition of the VCR would be disregarded, and
instead his holding period for any such stock or security and the VCR would
begin only upon the disposition, if any, of the other. As a result of this rule,
any capital gain or loss recognized upon the disposition of any such share or
the disposition of the VCR, whichever occurred first, would be short term, and
any capital gain or loss recognized upon the disposition of the second position
would be long term or short term, depending on whether a long-term holding
period would have been acquired commencing with the disposition of the first
position. However, because the VCRs will mature on the first anniversary of the
Merger, any gain or loss upon the maturity, or upon the earlier termination or
disposition of the VCR, would be short term.
If an Initial VCR Holder were treated as having held Viacom Common Stock or
another security of Viacom for more than one year when such holder receives a
VCR that is part of a straddle including such stock or security (for example,
because such holder had held Blockbuster Common Stock for more than one year at
the time of the Merger), then such holder would retain the long-term holding
period for such stock or security. Thus, any capital gain or loss recognized by
the Initial VCR Holder on the disposition of such stock or security would be
long term. Because the VCRs will mature on the first anniversary of the Merger,
any gain upon the maturity, or upon the earlier termination or disposition of
the VCR, would be short term. However, any capital loss recognized by the
Initial VCR Holder upon maturity, or upon an earlier termination or disposition
of the VCR, would be treated as long term, regardless of the holder's holding
period for the VCR.
Section 263(g) of the Code disallows a deduction for interest and carrying
charges allocable to a position that is a part of a straddle and requires such
amounts to be added to the tax basis of such position.
Treatment of the VCRs as Debt Instruments. The following discussion of the
treatment of the VCRs as debt instruments for Federal income tax purposes is
based principally on Sections 1271 and 1281 through 1283 of the Code and, by
analogy, certain proposed Treasury regulations regarding contingent-payment
obligations (the "Proposed Regulations") under the original issue discount
provisions of the Code. The application of these Code provisions and, by
analogy, the Proposed Regulations to the VCRs cannot be predicted with certainty
without further guidance from the Internal Revenue Service, because they do not
specifically contemplate a debt instrument as to which all of the payments are
contingent, such as the VCRs would be if they were treated as debt. Further,
there can be no assurance that the ultimate Federal income tax treatment under
final Treasury regulations would not differ materially from the discussion
below. For example, the Internal Revenue Service issued revised
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proposed Treasury regulations in January 1993, which were withdrawn shortly
thereafter, that would have provided, by analogy, for different Federal income
tax treatment of the VCRs as debt instruments from that discussed below.
If the VCRs are treated as debt obligations, no interest income (including
in the form of original issue discount or acquisition discount) should accrue to
an Initial VCR Holder prior to maturity. At maturity, the portion of the fair
market value of the VCR Class B Common Stock, if any, issued to an Initial VCR
Holder pursuant to a VCR equal to the "issue price" of the VCR (i.e., the
holder's tax basis in the VCR) should be treated as a payment of principal, and
any excess amount of fair market value should be treated as ordinary interest
income. If the fair market value of the VCR Class B Common Stock issued pursuant
to a VCR was less than the issue price, or if no VCR Class B Common Stock was
issued at maturity, the Initial VCR Holder should recognize a short-term capital
loss equal to the amount by which the holder's tax basis in the VCR would exceed
the fair market value of the VCR Class B Common Stock issued, if any.
If an Initial VCR Holder sold or otherwise disposed of a VCR prior to
maturity, the holder should recognize ordinary income to the extent that the
amount realized on such sale or disposition exceeded the holder's tax basis in
the VCR. If the amount realized was less than the tax basis, the holder should
recognize a short-term capital loss equal to the difference.
Corporate Dividends-Received Deduction. If the VCRs were treated as cash
settlement put options, it appears that a corporate Initial VCR Holder's holding
period for Viacom Class B Common Stock for purposes of the dividends-received
deduction under Sections 243 to 246 of the Code would not include any days on
which it holds a VCR. This treatment might render such Initial VCR Holder
ineligible for the dividends-received deduction in respect of dividend income on
Viacom Class B Common Stock. If the VCRs were treated as debt instruments,
proposed Treasury regulations also would treat the VCRs as having the same
effect on the dividends-received deduction with respect to Viacom Class B Common
Stock. In addition, the VCRs also might have the same effect on the
dividends-received deduction with respect to Viacom Class A Common Stock or
another class of Viacom stock held by an Initial VCR Holder if any such stock
and Viacom Class B Common Stock are "substantially identical stock" for this
purpose or, if they are not, if the holding of VCRs and Viacom Class A Common
Stock or another class of Viacom stock would be treated as diminishing such
holder's risk of loss under proposed Treasury regulations.
Treatment of Capital Losses. For Federal income tax purposes, capital
losses of individuals may be offset against capital gains and, to the extent
such losses exceed capital gains, against up to $3,000 of ordinary income
($1,500 for a married individual filing a separate return). Capital losses of
corporations may only be offset against capital gains. Capital losses not used
in the year recognized may, within certain limitations, be carried over to other
taxable years.
An Initial VCR Holder should note that, if the VCRs were treated as cash
settlement put options, any gain on the VCRs would be treated as capital gain
which could be offset by any corresponding capital loss on the Initial VCR
Holder's Viacom Class A Common Stock, Viacom Class B Common Stock or another
Viacom security (if such stock or security was sold and such loss was realized).
However, the ordinary income that the VCRs may generate if they were treated as
debt instruments could not be offset for Federal income tax purposes by any such
capital loss. An Initial VCR Holder should be aware that, if the VCRs fall in
value, this issue will not arise since any loss on the VCRs will be treated as
capital loss regardless of whether the VCRs are treated as cash settlement put
options or debt obligations.
As the use of capital losses by an Initial VCR Holder will depend upon
multiple factors, including such holder's particular circumstances, and upon the
issue of whether the VCRs are treated as cash settlement put options or debt
instruments for Federal income tax purposes, Initial VCR Holders should consult
their tax advisors regarding the use of capital losses.
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THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE BASED UPON PRESENT
LAW, ARE FOR GENERAL INFORMATION ONLY AND DO NOT PURPORT TO BE A COMPLETE
ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS WHICH MAY APPLY TO A HOLDER OF
BLOCKBUSTER COMMON STOCK. THE TAX EFFECTS AS APPLICABLE TO A PARTICULAR HOLDER
OF BLOCKBUSTER COMMON STOCK MAY BE DIFFERENT FROM THE TAX EFFECTS AS APPLICABLE
TO OTHER HOLDERS OF BLOCKBUSTER COMMON STOCK, INCLUDING THE APPLICATION AND
EFFECT OF STATE, LOCAL AND OTHER TAX LAWS, AND THUS, HOLDERS OF BLOCKBUSTER
COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS.
TREATMENT OF BLOCKBUSTER WARRANTS AND EMPLOYEE STOCK OPTIONS
The Merger Agreement provides that, at the Effective Time, Viacom will
assume Blockbuster's obligations with respect to each outstanding stock option
to purchase shares of Blockbuster Common Stock, subject to the following
modification. The Blockbuster stock options assumed by Viacom will have the same
terms and conditions as those of the applicable stock option plans and
agreements pursuant to which the Blockbuster stock options were issued except
that each Blockbuster stock option will be exercisable for (A) that number of
whole shares of (i) Viacom Class A Common Stock equal to the product of the
number of shares of Blockbuster Common Stock covered by such Blockbuster stock
option multiplied by 0.08 and (ii) Viacom Class B Common Stock equal to the
product of the number of shares of Blockbuster Common Stock covered by such
Blockbuster stock option multiplied by 0.60615 and (B) that number of VCRs equal
to the number of shares of Blockbuster Common Stock covered by such Blockbuster
stock option (or, on or after the VCR Conversion Date, the number of shares of
Viacom Class B Common Stock (if any) into which the VCRs were converted).
At June 30, 1994, an aggregate of approximately 15,753,450 shares of
Blockbuster Common Stock were subject to options granted to employees and
directors of Blockbuster under various stock option plans. Such plans generally
provide that the options granted thereunder become immediately exercisable in
the event Blockbuster participates in a Business Combination with a Substantial
Stockholder (each as defined under the Blockbuster Certificate of
Incorporation). The Merger would constitute a Business Combination of
Blockbuster with a Substantial Stockholder and, accordingly, options granted
under those stock plans will become immediately exercisable upon consummation of
the Merger.
At June 30, 1994, 3,488,859 shares of Blockbuster Common Stock were subject
to warrants held beneficially by employees or directors of Blockbuster. Warrants
held by employees or directors of Blockbuster will be converted into Viacom
warrants on the same terms and conditions except that each such warrant will be
exercisable for (A) that number of whole shares of (i) Viacom Class A Common
Stock equal to the product of the number of shares of Blockbuster Common Stock
covered by such Blockbuster warrant multiplied by 0.08 and (ii) Viacom Class B
Common Stock equal to the product of the number of shares of Blockbuster Common
Stock covered by such Blockbuster warrant multiplied by 0.60615 and (B) that
number of VCRs equal to the number of shares of Blockbuster Common Stock covered
by such Blockbuster warrant (or, on or after the VCR Conversion Date, the number
of shares of Viacom Class B Common Stock (if any) into which the VCRs were
converted). Warrants of Blockbuster which are not held by employees or directors
of Blockbuster will be treated in accordance with their terms.
Viacom has reserved for issuance the number of shares of Viacom Common
Stock that will become issuable upon the exercise of the Blockbuster stock
options and warrants. Viacom has also agreed to deliver instruments of
assumption to the holders of any warrants of Blockbuster which expressly require
such assumption in order for the Merger to comply with the terms of such
warrants.
Under certain of Blockbuster's stock option plans, for a period of 30 days
after the consummation of the Merger, any officer who is an option holder has
the right to require Blockbuster to purchase from him or her any option or
options at a purchase price equal to (i) the excess of the "Per Share Value"
over
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the exercise price (ii) multiplied by the number of shares for purchase in a
written notice to Blockbuster. "Per Share Value" is defined as the average of
the highest sales price per share of Blockbuster Common Stock on each of the
five trading days immediately preceding the date on which the optionee so
notifies Blockbuster.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Boards of Directors of Viacom and
Blockbuster with respect to the Merger, stockholders should be aware that
certain members of Viacom's and Blockbuster's management and Boards of Directors
have certain interests in the Merger that are in addition to the interests of
stockholders of Viacom and Blockbuster generally. The Board of Directors of each
of Viacom and Blockbuster was aware of these interests and considered them,
among other matters, in approving the Merger Agreement and the transactions
contemplated thereby.
Board of Directors. The combined company will initially have a mutually
agreed upon Board of Directors consisting of (i) six Directors designated by
Viacom, (ii) three Directors designated by Blockbuster, including Messrs.
Huizenga and Berrard, (iii) two Directors designated by NYNEX, who shall be
Messrs. Ferguson and Salerno and (iv) one unaffiliated Director mutually agreed
to by Viacom and Blockbuster. Messrs. Huizenga, Ferguson and Salerno are current
Directors of Viacom. Messrs. Huizenga and Berrard are current Directors of
Blockbuster.
Certain Blockbuster Warrants and Stock Option Plans. For a discussion of
the effect of the Merger upon certain warrants and stock options granted
pursuant to employee benefit stock option plans of Blockbuster, see "--Treatment
of Blockbuster Warrants and Employee Stock Options."
Indemnification. The Merger Agreement provides that from and after the
Effective Time, the combined company will indemnify the present and former
officers and directors of Blockbuster against all losses, expenses, claims,
damages, liabilities or amounts paid in settlement or otherwise in connection
with any claim, action, suit, proceeding or investigation based in whole or in
part on the fact that such person is or was an officer or director of
Blockbuster and arising out of actions or omissions occurring at or prior to the
Effective Time, including, without limitation, the transactions contemplated by
the Merger Agreement, to the full extent permitted by the DGCL. The Merger
Agreement also contains provisions relating to the maintenance by the combined
company of Viacom's existing charter and by-law provisions with respect to
indemnification of officers and directors and Blockbuster's existing policies of
directors' and officers' liability insurance. See "Certain Provisions of the
Merger Agreement--Indemnification; Insurance."
Resales by Blockbuster Affiliates. For a discussion of Viacom's obligation
under the Merger Agreement to register pursuant to the Securities Act certain
shares of Viacom Common Stock to be held by certain affiliates of Blockbuster
upon consummation of the Merger, see "Certain Provisions of the Merger
Agreement--Resales by Blockbuster Affiliates."
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement not summarized elsewhere in this Proxy Statement/Prospectus. The
Merger Agreement is attached as Annex I to this Proxy Statement/Prospectus and
is incorporated herein by reference. The following summary does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement.
PROCEDURE FOR EXCHANGE OF BLOCKBUSTER CERTIFICATES
As soon as reasonably practicable after the Effective Time, Viacom will
instruct First Union National Bank of North Carolina, N.A. in its capacity as
Exchange Agent (the "Exchange Agent") to mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
evidenced outstanding shares of Blockbuster Common Stock (other than Dissenting
Shares, if applicable) (the "Blockbuster Certificates") (i) a letter of
transmittal and (ii) instructions to effect the surrender of the Blockbuster
Certificates in exchange for the certificates evidencing shares of Viacom Common
Stock and the VCRs and cash in lieu of fractional shares, if any. Upon surrender
of a Blockbuster Certificate for cancellation to the Exchange Agent together
with such letter of transmittal, duly executed, and such other customary
documents as may be required pursuant to such instructions, the holder of such
Blockbuster Certificate shall be entitled to receive in exchange therefor (i)
certificates evidencing that number of whole shares of Viacom Common Stock and
VCRs that such holder has the right to receive in respect of the shares of
Blockbuster Common Stock formerly evidenced by such Blockbuster Certificate,
(ii) any dividends or other distributions to which such holder is entitled as
described below and (iii) cash in lieu of fractional shares of Viacom Common
Stock, and the Blockbuster Certificate so surrendered shall forthwith be
cancelled. In the event of a transfer of ownership of shares of Blockbuster
Common Stock that is not registered in the transfer records of Blockbuster,
shares of Viacom Common Stock and VCRs may be issued and paid to a transferee if
the Blockbuster Certificate evidencing such shares of Blockbuster Common Stock
is presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered, each Blockbuster Certificate
shall be deemed at any time after the Effective Time to evidence only the right
to receive upon such surrender the certificates evidencing Viacom Common Stock,
VCRs, cash in lieu of fractional shares and any dividends and other
distributions to which such holder is entitled.
No fraction of a share of Viacom Common Stock shall be issued in the
Merger. In lieu of any such fractional shares, each holder of Blockbuster Common
Stock upon surrender of a Blockbuster Certificate for exchange shall be paid an
amount in cash (without interest), rounded to the nearest cent, determined by
multiplying (i) the per share closing price on the AMEX of Viacom Class A Common
Stock or Viacom Class B Common Stock, as the case may be, on the date of the
Effective Time by (ii) the fractional interest to which such holder would
otherwise be entitled (after taking into account all shares of Blockbuster
Common Stock then held of record by such holder).
No dividends or other distributions declared or made after the Effective
Time with respect to Viacom Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Blockbuster Certificate
with respect to the shares of Viacom Common Stock they are entitled to receive
until the holder of such Blockbuster Certificate has surrendered such
Blockbuster Certificate.
Neither Viacom nor Blockbuster shall be liable to any holder of shares of
Blockbuster Common Stock for any such shares of Viacom Common Stock (or
dividends or distributions with respect thereto) or VCRs delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
After the Effective Time, there will be no transfers on the stock transfer
books of Blockbuster of shares of Blockbuster Common Stock.
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BLOCKBUSTER STOCKHOLDERS SHOULD NOT FORWARD THEIR STOCK CERTIFICATES TO THE
EXCHANGE AGENT WITHOUT A LETTER OF TRANSMITTAL AND SHOULD NOT RETURN THEIR STOCK
CERTIFICATES WITH THE ENCLOSED PROXY.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Viacom and Blockbuster relating to, among other things, the following matters
(which representations and warranties are subject, in certain cases, to
specified exceptions): (i) the due organization, existence and good standing of,
and similar corporate matters with respect to, each of Viacom, Blockbuster, the
Material Viacom Subsidiaries, and the Material Blockbuster Subsidiaries (as such
terms are defined in the Merger Agreement); (ii) each of Viacom's and
Blockbuster's organizational documents; (iii) each of Viacom's and Blockbuster's
capital structure; (iv) the authorization, execution, delivery, performance by
and enforceability of the Merger Agreement and the transactions contemplated
thereby; (v) the absence of any governmental or regulatory authorization,
consent or approval required to consummate the Merger, other than as disclosed;
(vi) the absence of any conflict with such party's Certificate of Incorporation
or By-laws, or with applicable law, or with certain contracts, other than as
disclosed; (vii) required filings, permits and consents to effectuate the
Merger; (viii) compliance with applicable laws; (ix) reports and other documents
filed with the Commission and other regulatory authorities and the accuracy of
the information contained therein; (x) the absence of certain changes or events
having a material adverse effect on the financial condition of Viacom or
Blockbuster, as the case may be, but excluding changes caused by changes in
general economic conditions or generally affecting such company's industry; (xi)
the absence of material pending or threatened litigation; (xii) the
qualification, operation and liability under certain employee benefit plans of
Viacom and its subsidiaries and Blockbuster and its subsidiaries, as the case
may be; (xiii) the right to use all material patents, trademarks or copyrights
for use in connection with the business of Viacom and its subsidiaries or
Blockbuster and its subsidiaries, as the case may be; (xiv) certain tax matters
and the payment of taxes; (xv) the opinion of the respective financial advisors
of Viacom and Blockbuster as to the fairness of the financial terms of the
Merger to their respective stockholders; (xvi) the absence of any brokerage,
finder's or other fee due in connection with the Merger (except, in the case of
Viacom, to Smith Barney and, in the case of Blockbuster, to Merrill Lynch); and
(xvii) the votes required by the stockholders of Viacom and Blockbuster to
approve the Merger.
CONDUCT OF BUSINESSES PENDING THE MERGER
Each of Viacom and Blockbuster has agreed that prior to the Effective Time,
unless otherwise consented to by the other party, the businesses of each of
Blockbuster and Viacom and their respective subsidiaries shall in all material
respects be conducted in, and each of Blockbuster and Viacom and their
respective subsidiaries shall not take any material action except in, the
ordinary course of business, consistent with past practice, subject to certain
exceptions. In addition, each of Blockbuster and Viacom will use its reasonable
best efforts to preserve substantially intact its business organization, to keep
available the services of its and its subsidiaries' current officers, employees
and consultants and to preserve its and its subsidiaries' relationships with
customers, suppliers and other persons with which it or any of its subsidiaries
has significant business relations. By way of amplification and not limitation,
Viacom and Blockbuster have agreed that, except (i) as contemplated by the
Merger Agreement, (ii) for any actions taken by Viacom relating to the Paramount
Merger, (iii) for any actions taken by Blockbuster in its capacity as the
controlling stockholder of Spelling Entertainment that are necessary due to
applicable fiduciary duties or (iv) as disclosed in the Merger Agreement,
neither Viacom nor Blockbuster nor any of their respective subsidiaries will,
prior to the Effective Time, directly or indirectly do, or propose or agree to
do, any of the following without the prior written consent of the other
(provided that the following restrictions do not apply to any subsidiaries which
Blockbuster or Viacom, as the case may be, does not control): (i) amend the
Certificate of Incorporation or By-laws of Viacom or Blockbuster (except, with
respect to Viacom, the amendments to its Restated Certificate of Incorporation
contemplated by the Merger Agreement); (ii) issue, sell, pledge, dispose of,
grant,
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encumber or authorize the issuance, sale, pledge, disposition, grant or
encumbrance of (a) any shares of capital stock of any class of it or any of its
subsidiaries, or any options (other than the grant of options in the ordinary
course of business consistent with past practice to employees who are not
executive officers of Blockbuster or Viacom or the grant of options previously
disclosed by Blockbuster to Viacom prior to the date of the Merger Agreement),
warrants, convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest (including,
without limitation, any phantom interest), of it or any of its subsidiaries
(other than the issuance of shares of capital stock in connection with (x) any
dividend reinvestment plan or by any Blockbuster benefit plan with an employee
stock fund or employee stock ownership plan feature, consistent with applicable
securities laws, (y) the exercise of options, warrants or other similar rights
outstanding as of the date of the Merger Agreement and in accordance with the
terms of such options, warrants or rights in effect on the date of the Merger
Agreement or otherwise permitted to be granted pursuant to the Merger Agreement
or (z) any acquisition by Blockbuster permitted as described below) or (b) any
assets of it or any of its subsidiaries, except for sales in the ordinary course
of business or which, individually or in the aggregate, do not exceed $50
million; (iii) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock, except (a) in the case of Blockbuster, the regular
quarterly dividends in amounts not in excess of $.025 per share of Blockbuster
Common Stock per quarter and payable consistent with past practice, (b) in the
case of Spelling Entertainment, regular quarterly dividends of $.020 per share
per quarter and payable consistent with past practice and (c) dividends declared
and paid by a subsidiary of either Blockbuster (other than Spelling
Entertainment) or Viacom, each such dividend to be declared and paid in the
ordinary course of business consistent with past practice; (iv) reclassify,
combine, split, subdivide or redeem, purchase or otherwise acquire, directly or
indirectly, any of its capital stock other than acquisitions by a dividend
reinvestment plan or by any Blockbuster benefit plan with an employee stock fund
or employee stock ownership plan feature, consistent with applicable securities
laws; (v) (a) acquire for cash or shares of stock (including, without
limitation, by merger, consolidation, or acquisition of stock or assets) any
corporation, partnership, other business organization or any division thereof or
any assets, except for such acquisitions which, individually or in the
aggregate, do not exceed $50 million; (b) incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse, or otherwise
as an accommodation become responsible for, the obligations of any person, or
make any loans or advances, except (1) indebtedness incurred by Viacom in
connection with the Offer and Paramount Merger and in connection with the Merger
Agreement and the transactions contemplated thereby, (2) indebtedness incurred
by Blockbuster in connection with the performance of its obligations under the
Subscription Agreement, (3) the refinancing of existing indebtedness, (4) in
connection with the Merger Agreement and the transactions contemplated thereby,
borrowings under commercial paper programs in the ordinary course of business,
(5) borrowings under existing bank lines of credit in the ordinary course of
business, (6) in the case of Blockbuster, indebtedness resulting from the
issuance of debt securities registered pursuant to the Registration Statement on
Form S-3, registration number 33-56154 or (7) indebtedness which, in the
aggregate, does not exceed $25 million; or (c) enter into or amend any contract,
agreement, commitment or arrangement with respect to any matter described in
this clause (v); (vi) increase the compensation payable or to become payable to
its executive officers or employees, except for increases in the ordinary course
of business in accordance with past practice, or grant any severance or
termination pay to, or enter into any employment or severance agreement with any
director or executive officer of it or any of its subsidiaries, or establish,
adopt, enter into or amend in any material respect or take action to accelerate
any rights or benefits under any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any director,
executive officer or employee; or (vii) take any action, other than reasonable
and usual actions in the ordinary course of business and consistent with past
practice, with respect to accounting policies or procedures. In the period
following the execution of the Merger Agreement, each of Viacom and Blockbuster
has consented in writing to the other taking certain actions that, in the
absence of such consent, might not be permitted by the foregoing restrictions on
the conduct of their respective businesses.
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CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Viacom and Blockbuster to consummate the Merger are
subject to the satisfaction or, where legally permissible, waiver of various
conditions, including (i) the effectiveness of the Registration Statement and
the absence of any stop order suspending the effectiveness thereof and any
proceedings for that purpose initiated or, to the knowledge of Viacom or
Blockbuster, threatened by the Commission; (ii) the approval and adoption of the
Merger Agreement and the Merger by the requisite holders of Blockbuster Common
Stock and the approval of the Merger Agreement by the requisite holders of
Viacom Class A Common Stock; (iii) no governmental entity having enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which materially restricts,
prevents or prohibits consummation of the Merger or any transaction contemplated
by the Merger Agreement; provided, however, that the parties have agreed to use
their reasonable best efforts to cause any such decree, judgment, injunction or
other order to be vacated or lifted; (iv) the applicable waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations thereunder (the "HSR Act") having expired or been
terminated; and (v) the receipt of all authorizations, consents, waivers, orders
or approvals required to be obtained from, and all filings (other than the
filing of merger documents in accordance with the DGCL) notices or declarations
required to be made with, all required governmental entities, by Viacom and
Blockbuster prior to the consummation of the Merger and the transactions
contemplated by the Merger Agreement, except for such authorizations, consents,
waivers, orders, approvals, filings, notices or declarations the failure to
obtain or make which would not have a material adverse effect, at or after the
Effective Time, on the financial condition (as existing immediately prior to the
consummation of the Merger) of (a) Blockbuster and its subsidiaries, taken as a
whole, or (b) Viacom and its subsidiaries, taken as a whole.
The obligations of Viacom to effect the Merger and the transactions
contemplated by the Merger Agreement are also subject to the following
conditions: (i) each of the representations and warranties of Blockbuster
contained in the Merger Agreement being true and correct as of the Effective
Time as though made on and as of the Effective Time, except (a) for changes
specifically permitted by the Merger Agreement and (b) that those
representations and warranties which address matters only as of a particular
date are required to remain true and correct as of such date, except in any case
for such failures to be true and correct which would not, individually or in the
aggregate, have a material adverse effect on the financial condition of
Blockbuster and its subsidiaries, taken as a whole, but excluding changes caused
by changes in general economic conditions or generally affecting Blockbuster's
industry; (ii) Blockbuster having performed or complied in all material respects
with all agreements and covenants required by the Merger Agreement to be
performed or complied with by it on or prior to the Effective Time; and (iii)
Viacom having received the opinion of Shearman & Sterling, dated on or about the
date that is two business days prior to the date this Proxy Statement/Prospectus
is first mailed to stockholders of Viacom and Blockbuster, to the effect that
the Merger will be treated for federal income tax purposes as a reorganization
qualifying under the provisions of Section 368(a) of the Code, which opinion
shall not have been withdrawn or modified in any material respect, the issuance
of such opinion being conditioned on the receipt of certain representation
letters in form and substance satisfactory to each of Shearman & Sterling and
Skadden, Arps, Slate, Meagher & Flom from each of Viacom, Blockbuster and
certain stockholders of Blockbuster.
The obligations of Blockbuster to effect the Merger and the other
transactions contemplated by the Merger Agreement are also subject to the
following conditions: (i) each of the representations and warranties of Viacom
contained in the Merger Agreement being true and correct as of the Effective
Time, as though made on and as of the Effective Time, except (a) for changes
specifically permitted by the Merger Agreement and (b) that those
representations and warranties which address matters only as of a particular
date are required to remain true and correct as of such date, except in any case
for such failures to be true and correct which would not, individually or in the
aggregate, have a material adverse effect on the financial condition of Viacom
and its subsidiaries, taken as a whole, but excluding changes
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caused by changes in general economic conditions or generally affecting Viacom's
industry; (ii) Viacom having performed or complied in all material respects with
all agreements and covenants required by the Merger Agreement to be performed or
complied with by it on or prior to the Effective Time; and (iii) Blockbuster
having received the opinion of Skadden, Arps, Slate, Meagher & Flom, dated on or
about the date that is two business days prior to the date this Proxy
Statement/Prospectus is first mailed to stockholders of Viacom and Blockbuster,
to the effect that the Merger will be treated for federal income tax purposes as
a reorganization qualifying under the provisions of Section 368(a) of the Code,
which opinion shall not have been withdrawn or modified in any material respect,
and the issuance of such opinion is conditioned on the receipt of certain
representation letters in form and substance satisfactory to each of Shearman &
Sterling and Skadden, Arps, Slate, Meagher & Flom from each of Viacom,
Blockbuster and certain stockholders of Blockbuster.
RESTRICTIONS ON GOING PRIVATE TRANSACTIONS
From and after the Effective Time and until the tenth anniversary of the
Effective Time, the combined company shall not enter into any agreement with any
stockholder (a "Significant Stockholder") who beneficially owns more than 35% of
the then outstanding securities entitled to vote at a meeting of the
stockholders of Viacom that would constitute a Rule 13e-3 transaction under the
Exchange Act (a "Going Private Transaction"), unless Viacom provides in any
agreement pursuant to which such Going Private Transaction shall be effected
that, as a condition to the consummation of such Going Private Transaction, (a)
the holders of a majority of the shares not beneficially owned by the
Significant Stockholder that are voted and present at the meeting of
stockholders called to vote on such Going Private Transaction shall have voted
in favor thereof and (b) a special committee of independent directors shall have
(i) approved the terms and conditions of the Going Private Transaction and shall
have recommended that the stockholders vote in favor thereof and (ii) received
from its financial advisor a written fairness opinion for inclusion in the proxy
statement to be delivered to the stockholders. Such restrictions shall not apply
to any Significant Stockholder if there exists another stockholder who
beneficially owns a greater percentage of outstanding securities entitled to
vote at the meeting than such Significant Stockholder.
RESALES BY BLOCKBUSTER AFFILIATES
If any affiliate of Blockbuster reasonably determines that such stockholder
will not be eligible to sell all of the shares (the "Stockholder Shares") of
Viacom Common Stock received by such stockholder in the Merger pursuant to Rule
145(d)(1) promulgated under the Securities Act in the three month period
immediately following the Effective Time, Viacom has agreed, if requested by
such stockholder, to either, at Viacom's option, (i) take such actions
reasonably necessary to register the Stockholder Shares for resale pursuant to
the Registration Statement or (ii) promptly after the Effective Time, register
the Stockholder Shares pursuant to a registration statement on Form S-3.
Viacom's obligations to take such action shall terminate on the second
anniversary of the Effective Time. Viacom will file a registration statement on
Form S-3 to register such resales.
INDEMNIFICATION; INSURANCE
Viacom and Blockbuster have agreed in the Merger Agreement that the
Certificate of Incorporation and By-laws of the combined company will contain
the provisions with respect to indemnification set forth in the Restated
Certificate of Incorporation and By-laws of Viacom on the date of the Merger
Agreement, which provisions will not be amended, repealed or otherwise modified
for a period of six years after the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who at any time prior to
the Effective Time were directors or officers of Blockbuster in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by the Merger Agreement),
unless such modification is required by law. The parties have also agreed in the
Merger Agreement that after the Effective Time, Viacom-Blockbuster will
indemnify, defend and hold harmless the present and former officers and
directors of
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Blockbuster against all losses, expenses, claims, damages, liabilities or
amounts that are paid in settlement of, with the approval of the combined
company (which approval shall not unreasonably be withheld), or otherwise in
connection with any claim, action, suit, proceeding or investigation, based in
whole or in part on the fact that such person is or was a director or officer of
Blockbuster and arising out of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
the Merger Agreement), in each case to the full extent permitted under the DGCL.
Viacom and Blockbuster have agreed in the Merger Agreement that the combined
company will advance expenses as incurred to the fullest extent permitted by the
DGCL, provided that the recipient thereof provides the undertaking to repay such
advances contemplated by the DGCL if it is ultimately determined that such
recipient was not entitled to the advances. Viacom and Blockbuster have also
agreed in the Merger Agreement that if any such claim, action or proceeding is
brought against any indemnified party (whether arising prior to or after the
Effective Time) after the Effective Time, the combined company will pay all
reasonable fees and expenses of counsel selected by such indemnified party and
will use its reasonable best efforts to assist in the vigorous defense of such
matter.
The Merger Agreement further provides that, with respect to matters
occurring prior to the Effective Time, the combined company will cause to be
maintained for three years after the Effective Time the current policies of
directors' and officers' liability insurance maintained by Blockbuster, or may
substitute therefor policies of at least the same coverage, containing terms and
conditions which are no less advantageous to former officers and directors of
Blockbuster. The combined company will not be required to pay premiums for such
insurance in excess of an amount equal to 200% of current annual premiums paid
by Blockbuster for such insurance.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger Agreement and the Merger by
the stockholders of Blockbuster or the approval of the issuance of the shares of
Viacom Common Stock in accordance with the Merger Agreement by the stockholders
of Viacom, (a) by mutual consent of Blockbuster and Viacom; (b) by Viacom or
Blockbuster, upon a breach by the other party of any of its representations,
warranties, covenants or agreements set forth in the Merger Agreement, or if any
representation or warranty of the other party shall have become untrue, in
either case such that the conditions relating to such other party's
representations, warranties, agreements or covenants would be incapable of being
satisfied by September 30, 1994 (or as otherwise extended); provided that, in
any case, a wilful breach will be deemed to cause such conditions to be
incapable of being satisfied; (c) by either Viacom or Blockbuster, if any
permanent injunction or action by any governmental entity preventing the
consummation of the Merger shall have become final and nonappealable; (d) by
either Viacom or Blockbuster, if the Merger shall not have been consummated
before September 30, 1994; provided, however, that the Merger Agreement may be
extended by written notice of either Viacom or Blockbuster to a date not later
than November 30, 1994, if the Merger shall not have been consummated as a
direct result of Viacom or Blockbuster having failed by September 30, 1994 to
receive all required regulatory approvals or consents with respect to the
Merger; and (e) by either Viacom or Blockbuster, if the Merger Agreement and the
Merger shall fail to receive the requisite vote for approval and adoption by the
stockholders of Blockbuster or, with respect to Blockbuster only, Viacom at the
Special Meetings.
Viacom may also terminate the Merger Agreement if (i) the Blockbuster Board
withdraws, modifies or changes its recommendation of the Merger Agreement or the
Merger in a manner adverse to Viacom or resolves to do so; (ii) the Blockbuster
Board recommends to the stockholders of Blockbuster a Competing Transaction (as
defined below under "--Expenses"); (iii) a tender offer or exchange offer for
25% or more of the outstanding shares of capital stock of Blockbuster is
commenced, and the Blockbuster Board recommends that the stockholders of
Blockbuster tender their shares in such tender or exchange offer; or (iv) any
person acquires beneficial ownership or the right to acquire beneficial
ownership of or any "group" (as such term is defined under Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder) is formed
which beneficially owns, or has the right to
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acquire beneficial ownership of, more than 25% of the then outstanding shares of
capital stock of Blockbuster.
Blockbuster may also terminate the Merger Agreement if the Blockbuster
Board (i) fails to make or withdraws or modifies its recommendation of the
Merger if there exists at such time a tender offer or exchange offer or a
proposal by a third party to acquire Blockbuster pursuant to a merger,
consolidation, share exchange, business combination, tender or exchange offer or
other similar transaction or (ii) recommends to Blockbuster's stockholders
approval or acceptance of any of the foregoing, in each case only if the
Blockbuster Board, after consultation with and based upon the advice of
independent legal counsel, determines in good faith that such action is
necessary for the Blockbuster Board to comply with its fiduciary duties to
stockholders under applicable law.
In the event of termination of the Merger Agreement by either Viacom or
Blockbuster, the Merger Agreement will become void and there will be no
liability or obligation on the part of Viacom or Blockbuster other than under
certain provisions of the Merger Agreement relating to any breach of the Merger
Agreement or confidential treatment of non-public information and the payment of
fees and expenses, as described under "--Expenses."
EXPENSES
Under the Merger Agreement, except as described below, all out-of-pocket
costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred by Viacom and Blockbuster
will be borne solely and entirely by the party which has incurred such costs and
expenses (with respect to such party, its "Expenses"); provided, however, that
all costs and expenses related to printing, filing and mailing the Registration
Statement and this Proxy Statement/Prospectus and all Commission and other
regulatory filing fees incurred in connection with the Registration Statement
and this Proxy Statement/Prospectus will be borne equally by Blockbuster and
Viacom.
Blockbuster has agreed in the Merger Agreement that if (A) the Merger
Agreement is terminated (i) by Viacom if there has occurred a breach of any
representation, warranty, covenant or agreement of Blockbuster set forth in the
Merger Agreement or any representation or warranty shall have become untrue, in
either case such that the closing conditions relating to its representations,
warranties, covenants and agreements would be incapable of being satisfied by
September 30, 1994; (ii) by either Viacom or Blockbuster if the Merger Agreement
and the Merger failed to receive the requisite vote for approval and adoption by
the stockholders of Blockbuster at the Blockbuster Special Meeting and at the
time of the Blockbuster Special Meeting there exists a Competing Transaction; or
(iii) (a) by Viacom if the Blockbuster Board has withdrawn, modified or changed
its recommendation of the Merger Agreement or the Merger in a manner adverse to
Viacom or has resolved to do so; (b) by Viacom if the Blockbuster Board
recommended to the stockholders of Blockbuster a Competing Transaction; (c) by
Viacom if a tender offer or exchange offer for 25% or more of the outstanding
shares of capital stock of Blockbuster is commenced, and the Blockbuster Board
recommends that the stockholders of Blockbuster tender their shares in such
tender or exchange offer; or (d) by Blockbuster if the Blockbuster Board, after
consulting with and based upon the advice of independent legal counsel, and upon
determining in good faith that such action is necessary for the Blockbuster
Board to comply with its fiduciary duties to stockholders under applicable law,
(x) fails to make or withdraws or modifies its recommendation of the Merger, and
if there exists at such time a tender offer or exchange offer or a proposal by a
third party to acquire Blockbuster pursuant to a merger, consolidation, share
exchange, business combination, tender or exchange offer or other similar
transaction or (y) recommends to Blockbuster's stockholders approval or
acceptance of any of the foregoing and at the time of such termination there
exists a Competing Transaction and the terms of such Competing Transaction
provide that Blockbuster's stockholders shall receive consideration having a
higher blended weighted average price per share value than the blended weighted
average price per share value of the consideration payable to Blockbuster's
stockholders under the Merger Agreement; then (B) Blockbuster shall pay to
Viacom an amount equal to Viacom's
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Expenses; provided, however, that in no such event shall Blockbuster be
obligated to pay any of Viacom's Expenses exceeding $50 million.
"Competing Transaction" means any of the following (other than the
transactions contemplated under the Merger Agreement) involving a party to the
Merger Agreement or any of its subsidiaries: (i) any merger, consolidation,
share exchange, business combination, or other similar transaction; (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of 25% or
more of the assets of such party and its subsidiaries, taken as a whole, in a
single transaction or series of transactions; (iii) any tender offer or exchange
offer for 25% or more of the outstanding shares of capital stock of such party
or the filing of a registration statement under the Securities Act in connection
therewith; (iv) any person having acquired beneficial ownership or the right to
acquire beneficial ownership of, or any "group" (as such term is defined under
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder) having been formed which beneficially owns or has the right to
acquire beneficial ownership of, 25% or more of the then outstanding shares of
capital stock of such party; or (v) any public announcement of a proposal, plan
or intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
AMENDMENT AND WAIVER
Subject to applicable law, the Merger Agreement may be amended by action
taken by or on behalf of the respective Boards of Directors of Viacom or
Blockbuster at any time prior to the Effective Time. After approval of the
Merger by the stockholders of Blockbuster or Viacom, no amendment which under
applicable law may not be made without the approval of the stockholders of
Blockbuster or Viacom may be made without such approval.
At any time prior to the Effective Time, either Blockbuster or Viacom may
(i) extend the time for the performance of any of the obligations or other acts
of the other party, (ii) waive any inaccuracies in the representations and
warranties of the other party contained in the Merger Agreement or in any
document delivered pursuant thereto and (iii) waive compliance by the other
party with any of the agreements or conditions contained therein.
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CERTAIN TRANSACTIONS BETWEEN VIACOM AND BLOCKBUSTER AND WITH
THEIR STOCKHOLDERS
BLOCKBUSTER PURCHASE OF SERIES A PREFERRED STOCK
On October 22, 1993, pursuant to an amended and restated subscription
agreement dated October 21, 1993 between Viacom and Blockbuster (the "Preferred
Stock Subscription Agreement"), Blockbuster purchased the Series A Preferred
Stock from Viacom for an aggregate purchase price of $600 million, representing
a purchase price equal to the per share liquidation preference of $25 per share.
Upon consummation of the Merger, all of the Series A Preferred Stock held by
Blockbuster will be cancelled. The terms of the Series A Preferred Stock are
described under "Description of Viacom Capital Stock--Viacom Preferred Stock."
The following description and that set forth under "Description of Viacom
Capital Stock--Viacom Preferred Stock" are qualified in their entirety by
reference to the Certificate of Designation of the Series A Preferred Stock and
the Preferred Stock Subscription Agreement.
The Preferred Stock Subscription Agreement provides that for so long as
Blockbuster and its affiliates beneficially own at least $300 million, based on
liquidation preference, of the Series A Preferred Stock initially purchased or
the equivalent in number of shares of Series A Preferred Stock and shares of
Viacom Class B Common Stock issued on conversion of Series A Preferred Stock,
Blockbuster will be entitled to designate one representative to the Board of
Directors of Viacom. The Director currently designated by Blockbuster is H.
Wayne Huizenga, Chairman of the Board and Chief Executive Officer of
Blockbuster.
The Preferred Stock Subscription Agreement provides Blockbuster with
registration rights with respect to the Series A Preferred Stock and the Viacom
Class B Common Stock issued upon conversion thereof and, for so long as
Blockbuster beneficially owns all of the Series A Preferred Stock initially
purchased by it, the right to participate in certain extraordinary dividends or
distributions by Viacom on the same basis as if Blockbuster had converted the
Series A Preferred Stock into Viacom Class B Common Stock, subject to certain
adjustments being made to the terms of the Series A Preferred Stock.
In the Preferred Stock Subscription Agreement, Blockbuster and Viacom
agreed to discuss and explore in good faith forming a joint venture to exploit
potential opportunities and synergies among their existing businesses and to
pursue additional entertainment and technology opportunities employing the
assets of each.
BLOCKBUSTER PURCHASE OF VIACOM CLASS B COMMON STOCK
Pursuant to the Subscription Agreement, Blockbuster purchased on March 10,
1994 from Viacom 22,727,273 shares of Viacom Class B Common Stock for an
aggregate purchase price of approximately $1.25 billion, or $55 per share. The
Subscription Agreement has been filed with the Commission and is incorporated
herein by reference. The following summary of the principal terms of the
Subscription Agreement does not purport to be complete and such summary is
subject to and qualified in its entirety by reference to the Subscription
Agreement.
In the event the Merger Agreement is terminated (other than by Viacom as a
result of a breach of a representation, warranty, covenant or agreement of
Blockbuster contained therein), the Subscription Agreement grants to Blockbuster
certain rights in the event that Viacom Class B Common Stock trades at levels
below $55 per share during the one year period after such termination. In the
event that the highest average trading price of the Viacom Class B Common Stock
during any consecutive 30 trading day period prior to the first anniversary of
such termination of the Blockbuster Merger Agreement (the "Average Price") is
below $55 per share, Blockbuster shall be entitled to satisfaction by Viacom of
a make-whole amount.
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Such make-whole amount shall be equal to the sum of:
(a) 50% of the product of (x) $55 less the Average Price, up to a
maximum of $4.40, multiplied by (y) the sum of (I) the number of shares of
Viacom Class B Common Stock beneficially owned by Blockbuster and not
subject to contracts of sale (the "Owned Shares") on the first anniversary
(the "First Anniversary") of the date of termination of the Merger
Agreement (the "Termination Date"), plus (II) the number of shares of
Viacom Class B Common Stock (up to a maximum of 4,547,454) sold by
Blockbuster after the Termination Date and prior to the First Anniversary
at a price per share less than $55.00 (the "Sold Shares") plus
(b) 50% of the product of (x) $55 less the Average Price, up to a
maximum of $19.80, multiplied by (y) the sum of (I) the number of Owned
Shares, plus (II) the number of Sold Shares;
provided that such make-whole amount shall in no event exceed $275 million.
Under the Subscription Agreement, Viacom is entitled to satisfy its
obligation with respect to any such make-whole amount, at Viacom's option,
either through the payment to Blockbuster of cash or marketable equity or debt
securities of Viacom, or a combination thereof, with an aggregate value equal to
the make-whole amount or through the sale to Blockbuster of the theme parks
currently owned and operated by Paramount (the "Parks Business").
In the event that Viacom were to elect to fulfill its obligation to satisfy
the make-whole amount through the sale of the Parks Business to Blockbuster, the
purchase price would be $750 million, subject to adjustment for certain capital
expenditures, payable through delivery to Viacom of shares of Viacom Class B
Common Stock valued at $55 per share. If the Parks Business were so purchased by
Blockbuster, the Subscription Agreement provides that Blockbuster would grant an
option to Viacom, exercisable for a period of two years after the date of grant,
to purchase a 50% equity interest in the Parks Business at a purchase price of
$375 million, subject to adjustment for certain capital expenditures, payable in
cash.
Pursuant to the Subscription Agreement, Viacom has granted Blockbuster
customary registration rights under the Securities Act with respect to the
shares of Viacom Class B Common Stock purchased thereunder. Until the earlier of
the termination of the Merger Agreement, if any, and September 30, 1994, the
Subscription Agreement prohibits the offer, sale, transfer, pledge or
hypothecation of the shares of Viacom Class B Common Stock purchased thereunder
by Blockbuster, other than a pledge in connection with the financing of the
purchase price for such shares.
The Subscription Agreement requires each party to indemnify the other and
its affiliates, officers, directors, employees, agents, successors and assigns
for liabilities, losses, damages, claims, costs and expenses, interest, awards,
judgments and penalties arising out of or resulting from a breach of any of such
party's representations, warranties or covenants contained therein.
VOTING AGREEMENT
The following is a summary of the material provisions of the Voting
Agreement, which is attached as Annex II to this Proxy Statement/Prospectus and
is incorporated herein by reference. The following summary does not purport to
be complete and is qualified in its entirety by reference to the Voting
Agreement.
Pursuant to the Voting Agreement, NAI agreed to vote the shares of Viacom
Class A Common Stock held by it (a) in favor of the Merger, the Merger Agreement
and the transactions contemplated by the Merger Agreement and (b) against any
proposal for any recapitalization, merger, sale of assets or other business
combination involving Viacom (other than the Merger and the Paramount Merger) or
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any other action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of Viacom under
the Merger Agreement or which could result in any of the conditions to Viacom's
obligations under the Merger Agreement not being fulfilled.
As of the date of this Proxy Statement/Prospectus, NAI owns 45,547,214
shares of Viacom Class A Common Stock, representing approximately 85% of the
outstanding voting shares of capital stock of Viacom. The vote of NAI in
accordance with the Voting Agreement will be sufficient to approve the Merger
Agreement without any action on the part of any other stockholder of Viacom.
STOCKHOLDERS STOCK OPTION AGREEMENT
The following is a summary of the material provisions of the Stockholders
Stock Option Agreement, which is attached as Annex III to this Proxy
Statement/Prospectus and is incorporated herein by reference. The following
summary does not purport to be complete and is qualified in its entirety by
reference to the Stockholders Stock Option Agreement.
Pursuant to the Stockholders Stock Option Agreement, the Option
Stockholders have granted to Viacom options to purchase approximately 15.6
million shares of Blockbuster Common Stock (representing an aggregate of
approximately 6% of Blockbuster Common Stock outstanding as of August 26, 1994)
owned by such holders and any shares thereafter acquired by the Option
Stockholders at the purchase price of $30.125 per share under certain
circumstances in the event that the Merger Agreement is terminated (other than
by Blockbuster as a result of a breach of a representation, warranty, covenant
or agreement of Viacom contained therein). The options are only exercisable if
(i) the waiting period under the HSR Act has expired or is terminated, (ii) no
governmental entity has enacted any order which prohibits the exercise of the
options and (iii) at the time of exercise there exists a Competing Transaction
(as defined in the Merger Agreement) with respect to Blockbuster. The options
expire on the 120th day following termination of the Merger Agreement.
In addition, pursuant to the Stockholders Stock Option Agreement, the
Option Stockholders have granted to Viacom proxies to vote their shares. See
"--Proxy Agreement."
The Option Stockholders consist of: H. Wayne Huizenga; Steven R. Berrard;
John J. Melk; Donald F. Flynn; and G. Harry Huizenga and Jean Huizenga. Mr. H.
Wayne Huizenga, Mr. Berrard, Mr. Melk and Mr. Flynn are directors and/or
officers of Blockbuster. See "Management Before and After the Merger--Executive
Officers and Directors of Blockbuster." G. Harry Huizenga and Jean Huizenga are
the parents of H. Wayne Huizenga.
PROXY AGREEMENT
The following is a summary of the material provisions of the Proxy
Agreement, which is attached as Annex IV to this Proxy Statement/Prospectus and
is incorporated herein by reference. The following summary does not purport to
be complete and is qualified in its entirety by reference to the Proxy
Agreement.
Pursuant to the Stockholders Stock Option Agreement and the Proxy
Agreement, the Option Stockholders (including H. Wayne Huizenga and Steven
Berrard) and the Proxy Stockholders have granted to Viacom proxies to vote
shares of Blockbuster Common Stock (representing an aggregate of approximately
22% of the shares of Blockbuster Common Stock outstanding as of August 26, 1994)
owned by such Option Stockholders and Proxy Stockholders and shares thereafter
acquired by the Option Stockholders and Proxy Stockholders in favor of the
Merger and against any competing business combination proposal. The term of such
proxies shall run from the date of the Merger Agreement until the termination of
the Merger Agreement, and following termination of the Merger Agreement (other
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than by Blockbuster as a result of a breach of a representation, warranty,
covenant or agreement of Viacom contained therein), during such time as a
Competing Transaction (as defined in the Merger Agreement) exists with respect
to Blockbuster, provided that the term shall not extend beyond the 120th day
following termination of the Merger Agreement.
The Proxy Stockholders consist of: Philips Electronics N.V. ("Philips");
Westbury (Bermuda) Ltd.; John J. Melk; Donald F. Flynn; George D. Johnson, Jr.;
Scott A. Beck; Harris W. Hudson; Bonnie J. Hudson; Peter Huizenga, as Trustee of
the Peter H. Huizenga Sr. Testamentary Trust; Peter Huizenga; Peter Huizenga, as
Trustee of the Elizabeth I. Huizenga Trust; Peter Huizenga, as Trustee of the
Betsy Huizenga Trust; Peter Huizenga, as Trustee of the Greta Huizenga Trust;
Heidi Huizenga, as Trustee of the Peter Huizenga Jr. Trust; Heidi Huizenga, as
Trustee of the Timothy Huizenga Trust; Dean L. Buntrock; Rosemarie Buntrock; and
Rosemarie Buntrock, as Trustee of the Buntrock Family Video Trust. Mr. Melk, Mr.
Johnson and Mr. Flynn are directors and/or officers of Blockbuster. See
"Management Before and After the Merger--Executive Officers and Directors of
Blockbuster." The remaining Proxy Stockholders (other than Philips) are
relatives or business associates of H. Wayne Huizenga.
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CERTAIN CONSIDERATIONS
Stockholders of Viacom and Blockbuster should consider carefully all of the
information contained in this Proxy Statement/Prospectus and, in particular, the
following:
Financial Terms of the Merger. Smith Barney has delivered its opinion
to the Board of Directors of Viacom that, as of January 6, 1994, the Merger
Consideration was fair, from a financial point of view, to Viacom and its
stockholders. Merrill Lynch has delivered its oral opinions (which it
subsequently confirmed in writing) to the Board of Directors of Blockbuster
to the effect that, as of January 7, 1994, and as of August 23, 1994, the
Conversion Ratio is fair to the holders of Blockbuster Common Stock (other
than Viacom and its affiliates) from a financial point of view. However,
no assurances can be given with respect to the prices at which the Viacom
Class A Common Stock and Viacom Class B Common Stock will trade after
the date hereof or after the Effective Time or the price at
which the VCRs will trade after the Effective Time. There can be no
assurances that the Viacom Common Stock and the Blockbuster Common Stock
will not trade at values which are lower than those at which they traded on
January 6, 1994. Prior to the Merger, there will not have been any public
trading market for the VCRs and there can be no assurances that an active
market for the VCRs will develop or continue after the Merger. The VCRs may
have no value, in certain circumstances, at the VCR Conversion Date.
Controlling Stockholder. Immediately after completion of the Merger,
NAI (which is controlled by Sumner M. Redstone) will own approximately 62%
of the voting stock and approximately 25% of the total (voting and
non-voting) common stock of the combined company. As such, Mr. Redstone
will be in a position to control the election of the Board of Directors as
well as the direction and future operations of the combined company
(although certain provisions of the Merger Agreement restrict the ability
of certain large stockholders from engaging in going private transactions).
See "The Merger--Ownership of Viacom Common Stock Immediately After the
Merger" and "Certain Provisions of the Merger Agreement--Restrictions On
Going Private Transactions."
Total Indebtedness and Certain Refinancing. After completion of the
Merger, the combined company will have outstanding total indebtedness of
approximately $10.0 billion and 5% Series A Preferred Stock with a
liquidation preference of $1.2 billion. The Viacom Credit Agreement
includes a $2.5 billion senior unsecured revolving term loan which matures
December 31, 1996. In addition, the $1.0 billion borrowed by Blockbuster
pursuant to the New Blockbuster Facility must be repaid by February 14,
1995. The Blockbuster Credit Agreement, the New Blockbuster Facility, the
June 30 Credit Facility and the August 10 Credit Facility, under which
agreements an aggregate of approximately $2.025 billion was outstanding as
of August 17, 1994, contain certain covenants and events of default,
including a change of control default, which will require either a waiver
in connection with the Merger or the refinancing of the indebtedness
incurred under such facilities prior to the Merger. After consummation of
the Merger, a refinancing of the credit agreements of Blockbuster (or a
waiver granted by the banks party to such agreements) may require an
amendment to the Viacom Credit Agreement.
Changing Competitive Environment. The entertainment and
telecommunications industries of which the combined company will be a part
are rapidly changing as a result of evolving distribution technologies,
particularly the advent of digital compression, and related ongoing and
anticipated changes to regulation of the communications industry. The
future success of the combined company will be affected by such changes,
the nature of which cannot be forecast with certainty. Although management
believes that such technological developments are likely to enhance the
value of the combined company's entertainment properties and trademarks,
there can be no assurance that such developments will not limit the
combined company's access to certain
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distribution channels or create additional competitive pressures on some or
all of the combined company's businesses.
Combining the Companies. Viacom and Blockbuster are large, diversified
enterprises, with operations and sales worldwide. Although management of
the companies believe that their respective operations are complementary
and that integration of the companies will be accomplished promptly and
without substantial difficulty, there can be no assurance that future
results will improve as a result of the Merger. If the Merger is
consummated, the combined company, on a pro forma basis, will be
substantially more leveraged than Blockbuster immediately prior to the
Merger. See "Unaudited Pro Forma Combined Condensed Financial Statements
Viacom/Combined Company."
MANAGEMENT BEFORE AND AFTER THE MERGER
EXECUTIVE OFFICERS AND DIRECTORS OF VIACOM
GEORGE S. ABRAMS, Director of Viacom, Viacom International and Paramount,
62. Mr. Abrams was elected a Director of Viacom and Viacom International in 1987
and is Chairman of the Audit Committee and a member of the Compensation
Committee. Mr. Abrams became a Director of Paramount in 1994. Mr. Abrams has
been associated with Winer & Abrams, a law firm located in Boston,
Massachusetts, for more than five years. Mr. Abrams is the former General
Counsel and Staff Director of the United States Senate Judiciary Committee on
Refugees. He became a Director of NAI in 1992. Mr. Abrams is also a member of
the Boards of Trustees and Visiting Committees of a number of art museums,
art-related organizations and educational institutions.
FRANK J. BIONDI, JR., Director and President, Chief Executive Officer of
Viacom, Viacom International and Paramount, 49. Mr. Biondi was elected a
Director of Viacom and Viacom International in 1987 and of Paramount in 1994. He
assumed his present position in March 1994. From July 1987 to March 1994, Mr.
Biondi was Director and President, Chief Executive Officer of Viacom and Viacom
International. From November 1986 to July 1987, Mr. Biondi was Chairman, Chief
Executive Officer of Coca-Cola Television and, from 1985, Executive Vice
President of the Entertainment Business Sector of The Coca-Cola Company. Mr.
Biondi joined Home Box Office in 1978 and held various positions there until his
appointment as President, Chief Executive Officer in 1983. In 1984, he was
elected to the additional position of Chairman and continued to serve in such
capacities until October 1984. Mr. Biondi is a director of Maybelline Inc.
RAYMOND A. BOYCE, Senior Vice President, Corporate Relations of Viacom,
Viacom International and Paramount, 58. Mr. Boyce assumed his present position
with Viacom and Viacom International in 1988 and with Paramount in 1994. Prior
to that, he served as Vice President, Public Relations of the Entertainment
Business Sector of The Coca-Cola Company from 1982 to 1987. In 1979, Mr. Boyce
joined Columbia Pictures Industries, Inc. and served first as Director,
Corporate Communications and later as Vice President, Corporate Communications
until The Coca-Cola Company's acquisition of Columbia Pictures Industries, Inc.
in 1982.
VAUGHN A. CLARKE, Senior Vice President, Treasurer of Viacom, Viacom
International and Paramount, 41. Mr. Clarke assumed his present position in July
1994. From April 1993 to July 1994, he served as Vice President, Treasurer of
Viacom and Viacom International. Prior to that, he spent 12 years at Gannett
Co., Inc., where he held various management positions, most recently as
Assistant Treasurer.
PHILIPPE P. DAUMAN, Director and Executive Vice President, General Counsel,
Chief Administrative Officer and Secretary of Viacom, Viacom International and
Paramount, 40. Mr. Dauman was elected a Director of Viacom and Viacom
International in 1987 and of Paramount in 1994. He assumed his present position
in March 1994. From February 1993 to March 1994, Mr. Dauman served as Senior
Vice President, General Counsel and Secretary of Viacom and Viacom
International. Prior to that,
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Mr. Dauman was a partner in the law firm of Shearman & Sterling in New York,
which he joined in 1978. Mr. Dauman became a Director of NAI in 1992.
THOMAS E. DOOLEY, Executive Vice President, Finance, Corporate Development
and Communications of Viacom, Viacom International and Paramount, 37. Mr. Dooley
was elected to his present position in March 1994. From July 1992 to March 1994,
he served as Senior Vice President, Corporate Development of Viacom and Viacom
International. From August 1993 to March 1994, he also served as President,
Interactive Television of Viacom International. Prior to that, he served as Vice
President, Treasurer of Viacom and Viacom International since 1987. In December
1990, he was named Vice President, Finance of Viacom and Viacom International.
Mr. Dooley joined Viacom International in 1980 in the corporate finance area and
held various positions in the corporate and divisional finance areas, including
Director of Business Analysis from 1985 to 1986.
WILLIAM C. FERGUSON, Director of Viacom, Viacom International and
Paramount, 63. Mr. Ferguson was elected a Director of Viacom and Viacom
International in 1993 and is a member of the Audit and Compensation Committees.
Mr. Ferguson became a Director of Paramount in 1994. Mr. Ferguson assumed his
present position as Chairman of the Board and Chief Executive Officer of NYNEX
in October 1989. Prior to that, he served as Vice Chairman of the Board of NYNEX
from 1987 to 1989 and as President and Chief Executive Officer from June to
September 1989. He has served as a Director of NYNEX since 1987. Mr. Ferguson is
a Director of General Re Corporation and CPC International, Inc.
MICHAEL D. FRICKLAS, Senior Vice President, Deputy General Counsel of
Viacom, Viacom International and Paramount, 34. Mr. Fricklas was elected to his
present position with Viacom and Viacom International in March 1994 and with
Paramount in April 1994. From July 1993 to March 1994, he served as Vice
President, Deputy General Counsel of Viacom and Viacom International. He served
as Vice President, General Counsel and Secretary of Minorco (U.S.A.) Inc. from
1990 to 1993. Prior to that, Mr. Fricklas was an attorney in private practice at
the law firm of Shearman & Sterling.
RUDOLPH L. HERTLEIN, Senior Vice President of Viacom, Viacom International
and Paramount, 54. Mr. Hertlein assumed his present position in July 1994. Prior
to that, he served as Senior Vice President and Controller of Paramount from
September 1993 to July 1994 and as Senior Vice President, Internal Audit and
Special Projects of Paramount from September 1992 to September 1993 and, before
that, as Vice President, Internal Audit and Special Projects of Paramount.
EDWARD D. HOROWITZ, Senior Vice President, Technology of Viacom, Viacom
International and Paramount and Chairman, Chief Executive Officer of New Media
and Interactive Television, 46. Mr. Horowitz became Senior Vice President of
Viacom and Viacom International in April 1989 and served as Chairman, Chief
Executive Officer of Viacom Broadcasting from July 1992 to March 1994. He was
elected to his present position with Viacom and Viacom International in March
1994 and with Paramount in July 1994. From 1974 to April 1989, Mr. Horowitz held
various positions with Home Box Office, most recently as Senior Vice President,
Technology and Operations. Prior to that, he held several other management
positions with Home Box Office, including Senior Vice President, Network
Operations and New Business Development and Vice President, Affiliate Sales.
H. WAYNE HUIZENGA, see "--Executive Officers and Directors of Blockbuster."
KEVIN C. LAVAN, Senior Vice President, Controller and Chief Accounting
Officer of Viacom, Viacom International and Paramount, 42. Mr. Lavan was elected
to his present position in July 1994. Mr. Lavan was elected Vice President of
Viacom and Viacom International in May 1989. He was elected Controller, Chief
Accounting Officer of Viacom and Viacom International in December 1987. In
December 1990, he assumed the added responsibilities of oversight of tax
matters. From 1991 to 1992, he also served as Senior Vice President, Chief
Financial Officer of Viacom Pictures. Mr. Lavan joined Viacom International in
1984 as Assistant Controller.
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HENRY J. LEINGANG, Senior Vice President, Chief Information Officer of
Viacom, Viacom International and Paramount, 45. He was elected to his present
position with Viacom and Viacom International in May 1993 and with Paramount in
July 1994. Prior to that, he served as Vice President, Chief Information Officer
when he joined Viacom in 1990. Mr. Leingang was Vice President, Information
Services of the Trian Group (formerly Triangle Industries) from 1984 to 1990.
From 1982 to 1984, he served as Corporate Director, MIS, and Manager, MIS
Planning and Control for Interpace Corporation. Prior to that, he held positions
with Touche Ross & Company, McGraw-Hill Book Company and General Electric Credit
Corp.
KEN MILLER, Director of Viacom, Viacom International and Paramount, 51. Mr.
Miller was elected a Director of Viacom and Viacom International in 1987 and is
a member of the Audit and Compensation Committees. Mr. Miller became a Director
of Paramount in 1994. He became Vice Chairman of C.S. First Boston in July 1994.
From 1988 to July 1994, he was President and Chief Executive Officer of The
Lodestar Group, an investment firm. He was Vice Chairman of Merrill Lynch
Capital Markets during 1987 and a Managing Director of Merrill Lynch Capital
Markets for more than the preceding five years. Mr. Miller is Chairman of the
Board of Directors of Kinder-Care Learning Centers, Inc.
BRENT D. REDSTONE, Director of Viacom, Viacom International and Paramount,
44. Mr. Redstone was elected a Director of Viacom and Viacom International in
1991 and is a member of the Compensation Committee. Mr. Redstone became a
Director of Paramount in 1994. Mr. Redstone was Assistant District Attorney for
Suffolk County, Massachusetts from 1976 to October 1991, serving from 1988
through 1991 on the Homicide Unit responsible for the investigation and trial of
homicide cases. Mr. Redstone became a Director of NAI in 1992. Mr. Redstone is
the son of Sumner Redstone.
SUMNER M. REDSTONE, Chairman of the Board of Viacom, Viacom International
and Paramount, 71. Mr. Redstone was elected a Director of Viacom in 1986 and
assumed his present position with Viacom and Viacom International in June 1987
and with Paramount in April 1994. Mr. Redstone is Chairman of the Compensation
Committee. Mr. Redstone served as President of Viacom from its formation until
June 1987. He has served as Chairman of the Board of NAI since 1986 and
President, Chief Executive Officer of NAI since 1967. Mr. Redstone is the former
Chairman of the Board of the National Association of Theater Owners and is
currently a member of its Executive Committee. During the Carter Administration,
Mr. Redstone was appointed a member of the Presidential Advisory Committee on
the Arts for the John F. Kennedy Center for the Performing Arts and, in 1984, he
was appointed a Director of the Kennedy Presidential Library Foundation. Since
1982, Mr. Redstone has been a member of the faculty of Boston University Law
School, where he has lectured in entertainment law. Mr. Redstone graduated from
Harvard University in 1944 and received an LL.B from Harvard University School
of Law in 1947. Upon graduation, Mr. Redstone served as Law Secretary with the
United States Court of Appeals, and then as a Special Assistant to the United
States Attorney General.
WILLIAM A. ROSKIN, Senior Vice President, Human Resources and
Administration of Viacom, Viacom International and Paramount, 52. Mr. Roskin was
elected to his present position with Viacom and Viacom International in July
1992 and with Paramount in July 1994. Prior to that, he served as Vice
President, Human Resources and Administration of Viacom and Viacom International
from April 1988. From May 1986 to April 1988, he was Senior Vice President,
Human Resources at Coleco Industries, Inc. From 1976 to 1986, he held various
executive positions at Warner Communications, serving most recently as Vice
President, Industrial and Labor Relations.
FREDERIC V. SALERNO, Director of Viacom, Viacom International and
Paramount, 51. Mr. Salerno was elected a Director of Viacom, Viacom
International and Paramount in 1994 and is a member of the Audit and
Compensation Committees. Mr. Salerno was appointed Vice Chairman--Finance and
Business Development of NYNEX in March 1994. Mr. Salerno was Vice Chairman of
the Board of NYNEX and President of the Worldwide Services Group from 1991 to
1994 and President and Chief Executive Officer of New York Telephone Company
from 1987 to 1991. He also serves as a Director of NYNEX, The Bear Stearns
Companies Inc. and Avnet, Inc.
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WILLIAM SCHWARTZ, Director of Viacom, Viacom International and Paramount,
61. Mr. Schwartz was elected a Director of Viacom and Viacom International in
1987 and is a member of the Audit and Compensation Committees. Mr. Schwartz
became a director of Paramount in 1994. Mr. Schwartz was appointed Vice
President for Academic Affairs (the chief academic officer) of Yeshiva
University in 1992 and has served as University Professor of Law at Yeshiva
University and the Benjamin N. Cardozo School of Law since 1991. He has been Of
Counsel to Cadwalader, Wickersham & Taft since 1988. Mr. Schwartz was Dean of
the Boston University School of Law from 1980 to 1988, a professor of law at
Boston University from 1955 to 1991 and Director of the Feder Center for Estate
Planning at Boston University School of Law from 1988 to 1991. He has served as
Vice Chairman of the Board of Directors of UST Corporation since 1985 and as a
Director of UST Corporation for more than five years. Mr. Schwartz is a trustee
of several educational and charitable organizations and an honorary member of
the National College of Probate Judges. He served as Chairman of the Boston
Mayor's Special Commission on Police Procedures and was formerly a member of the
Legal Advisory Board of the NYSE.
GEORGE S. SMITH, JR., Senior Vice President, Chief Financial Officer of
Viacom, Viacom International and Paramount, 45. Mr. Smith was elected to his
present position with Viacom and Viacom International in November 1987 and with
Paramount in 1994. In May 1985, Mr. Smith was elected Vice President, Controller
of Viacom International. From 1983 until May 1985, he served as Vice President,
Finance and Administration of Viacom Broadcasting and from 1981 until 1983, he
served as Controller of Viacom Radio. Mr. Smith joined Viacom International in
1977 in the Corporate Treasurer's office and until 1981 served in various
financial planning capacities.
MARK M. WEINSTEIN, Senior Vice President, Government Affairs of Viacom,
Viacom International and Paramount, 52. He was elected to his present position
with Viacom and Viacom International in February 1993 and with Paramount in July
1994. Mr. Weinstein served as Senior Vice President, General Counsel and
Secretary of Viacom and Viacom International from 1987 to February 1993. In
January 1986, Mr. Weinstein was appointed Vice President, General Counsel of
Viacom International. From 1976 through 1985, he was Deputy General Counsel of
Warner Communications and in 1980 became Vice President. Previously, Mr.
Weinstein was an attorney in private practice at the law firm of Paul, Weiss,
Rifkind, Wharton & Garrison.
EXECUTIVE OFFICERS AND DIRECTORS OF BLOCKBUSTER
H. WAYNE HUIZENGA, age 56, became a director of Blockbuster in February
1987, was elected as Chairman of the Board and Chief Executive Officer of
Blockbuster in April 1987 and is Chairman of the Executive Committee. Mr.
Huizenga served as President of Blockbuster from April 1987 to June 1988. He is
a cofounder of Waste Management, Inc. (now WMX Technologies, Inc. ("WMX")), a
waste disposal and collection company, where he served in various capacities,
including President, Chief Operating Officer and a director, until May 1984.
From May 1984 to present, Mr. Huizenga has been an investor in other businesses
and is the sole stockholder and Chairman of the Board of Huizenga Holdings, Inc.
("Holdings"), a holding and management company with various business interests.
In connection with these business interests, Mr. Huizenga has been actively
involved in strategic planning for, and executive management of, these
businesses. He also has a majority ownership interest in Florida Marlins
Baseball, Ltd., a Major League Baseball sports franchise, owns the Florida
Panthers Hockey Club, Ltd., a National Hockey League sports franchise, owns the
Miami Dolphins, Ltd. (the "Miami Dolphins"), a National Football League sports
franchise, and owns Joe Robbie Stadium in South Florida. Mr. Huizenga became a
Director of Viacom and Viacom International in 1993 and Paramount in 1994 and is
a member of the Audit and Compensation Committees. Mr. Huizenga is Chairman of
the Board of Directors of Spelling Entertainment. He is also a member of the
Board of Directors of Discovery Zone.
STEVEN R. BERRARD, age 40, joined Blockbuster in June 1987 as Senior Vice
President, Treasurer and Chief Financial Officer and became a director of
Blockbuster in May 1989. Mr. Berrard became
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Vice Chairman of the Board in November 1989 and President and Chief Operating
Officer in January 1993. He served as Treasurer of Blockbuster from June 1987
until February 1989, as Senior Vice President of Blockbuster from June 1987
until November 1989 and as Chief Financial Officer of Blockbuster from June 1987
to June 1992. Mr. Berrard is President, Chief Executive Officer and a director
of Spelling Entertainment. He is also a limited partner of Florida Marlins
Baseball, Ltd. Prior to his tenure with Blockbuster, Mr. Berrard served as
President of Holdings, which was known prior to June 1988 as Waco Services, Inc.
From January 1983 to April 1985, Mr. Berrard served in various positions with
Waco Leasing Company and Port-O-Let International, Inc., including President,
Chief Financial Officer, Treasurer and Secretary. Prior to January 1983, Mr.
Berrard was employed by Coopers & Lybrand, an international public accounting
firm, for over five years.
GEORGE D. JOHNSON, JR., age 52, became a director and President--Domestic
Consumer Division of Blockbuster in August 1993. From 1987 until August 1993,
Mr. Johnson was managing general partner of WJB, which prior to its
consolidation with Blockbuster in August 1993 was Blockbuster's largest
franchise owner. From 1967 through 1987, Mr. Johnson served as counsel to the
law firm of Johnson, Smith, Hibbard & Wildman in Spartanburg, South Carolina.
Mr. Johnson is a member of the Board of Directors of Duke Power Company.
A. CLINTON ALLEN, III, age 50, became a director of Blockbuster in July
1986 and is Chairman of the Compensation Committee. Since October 1988, Mr.
Allen has served as Chairman and Chief Executive Officer of A.C. Allen &
Company, a financial services consulting firm. He also is a director and Vice
Chairman of both Psychemedics Corporation ("Psychemedics") and the DeWolfe
Companies, Inc. He is also a director of the Forschner Group. Prior to October
1988, Mr. Allen was Executive Vice President of Advest Group, Inc., an
investment banking firm. Mr. Allen was Chairman and Chief Executive Officer of
Burgess and Leith, an NYSE member firm from 1984 through 1986.
JOHN W. CROGHAN, age 64, became a director of Blockbuster in July 1987 and
is Chairman of the Audit and Finance Committee. He is also a director of Lindsay
Manufacturing Company and the Morgan Stanley Emerging Markets Fund. Mr. Croghan
is and has been for more than the past five years the Chairman of Lincoln
Capital Management Company, an investment advisory firm.
DONALD F. FLYNN, age 54, became a director of Blockbuster in February 1987
and is Chairman of the Nominating Committee. He is Chairman and Chief Executive
Officer of Flynn Enterprises, Inc., a business consulting and venture capital
company, and since July 1992 has been Chairman and Chief Executive Officer of
Discovery Zone, a franchisor and operator of fun and fitness centers for
children. Mr. Flynn also currently serves as a director of WMX, Chemical Waste
Management, Inc., Waste Management International, plc., Wheelabrator
Technologies, Inc., Psychemedics and H2O Plus Inc. From 1972 to 1990, Mr. Flynn
served in various positions with WMX, including Senior Vice President and Chief
Financial Officer.
JOHN J. MELK, age 57, was re-elected a director of Blockbuster in May 1993.
Since 1988, Mr. Melk has been Chairman and Chief Executive Officer of H2O Plus,
Inc., which develops and manufactures health and beauty aid products. Mr. Melk
has been a private investor in various businesses since March 1984 and prior to
March 1984, he held various positions with WMX and its subsidiaries, including
President of Waste Management International, plc. Mr. Melk also currently serves
as a director of Psychemedics and Discovery Zone. From February 1987 until March
1989, Mr. Melk served as a director and Vice Chairman of Blockbuster.
H. SCOTT BARRETT, age 33, became Senior Vice President of Information
Services of Blockbuster in February 1994. He joined Blockbuster in July 1989 as
Vice President, Information Services. From January 1983 until July 1989, he was
a management consultant with Andersen Consulting in Dallas, Texas.
JAMES J. BLOSSER, age 56, joined Blockbuster in January 1991 as Assistant
to the Chairman and became President--Blockbuster Park Division in June 1994.
Since 1990, Mr. Blosser has also served as
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General Counsel to Holdings. From 1989 to 1990, Mr. Blosser was Of Counsel to
the law firm of Ruden, Barnett, McClosky, Smith, Schuster & Rusell, P.A. in Fort
Lauderdale, Florida.
J. RONALD CASTELL, age 56, joined Blockbuster in February 1989 as Senior
Vice President of Programming and Merchandising and became Senior Vice President
of Programming and Communications in August 1991. From October 1985 to February
1989, he was Vice President of Marketing and Merchandising at Erol's, then a
chain of two hundred video stores headquartered in the Washington, D.C. area.
From October 1984 to October 1985, Mr. Castell was the President and sole
stockholder of Big Think, Inc., a marketing consulting company. Mr. Castell is
also Vice President of Spelling Entertainment.
ALBERT J. DETZ, age 46, joined Blockbuster in January 1991 as Assistant
Corporate Controller and became Vice President and Corporate Controller in
February 1992. From 1980 until he joined Blockbuster, Mr. Detz served in various
finance related positions with Encore Computer Corporation, including Vice
President and Corporate Controller. Prior to 1980, Mr. Detz was employed by
Coopers & Lybrand, an international public accounting firm, for four years.
GREGORY K. FAIRBANKS, age 40, joined Blockbuster in June 1992 as Senior
Vice President and Chief Financial Officer and became Treasurer of Blockbuster
in March 1993. From October 1980 until the time he joined Blockbuster, Mr.
Fairbanks served in a number of finance related capacities, including Executive
Vice President and Chief Financial Officer of Waste Management International,
plc. Prior to October 1980, Mr. Fairbanks was employed by Arthur Andersen & Co.,
an international public accounting firm, for approximately four years. Mr.
Fairbanks is also Senior Vice President of Spelling Entertainment.
GERALD R. GEDDIS, age 44, joined Blockbuster in August 1988 as Regional
Manager, became Zone Vice President in January 1990, was promoted to Vice
President--International Operations in April 1992 and became Senior Vice
President--Domestic Video Division in 1994.
ROBERT A. GUERIN, age 51, became Senior Vice President of Domestic
Franchising of Blockbuster in January 1992. From October 1989 until December
1991, Mr. Guerin was Senior Vice President of Administration and Development for
Blockbuster. He joined Blockbuster as a Vice President in March 1988. From March
1986 to March 1988, he served as Vice President and Region Manager of Waste
Management of North America, Inc., a subsidiary of Waste Management, where he
was responsible for operations with over 6,000 employees. From June 1982 to
March 1986, he served as President of Wells Fargo Armored Service Corp., a
transporter of currency and valuables with over 7,000 employees.
THOMAS W. HAWKINS, age 33, became Senior Vice President, General Counsel
and Secretary of Blockbuster in February 1994. He joined Blockbuster as Senior
Corporate Counsel in November 1989, became Associate General Counsel and
Secretary in August 1991 and Vice President, General Counsel and Secretary in
February 1993. From May 1986 until October 1989, he was associated with the law
firm of Bell, Boyd & Lloyd in Chicago, Illinois.
ROBERT J. HENNINGER, age 45, joined Blockbuster in July 1994 as Senior Vice
President and Chief Administrative Officer. Prior to July 1994, Mr. Henninger
was employed by Arthur Andersen & Co., an international public accounting firm,
for 23 years, and had been Managing Partner of the firm's Fort Lauderdale,
Florida office since 1984.
RAMON MARTIN-BUSUTIL, age 60, joined Blockbuster in July 1992 as
President--International Division. From 1981 to 1992, Mr. Martin-Busutil held
various positions with Cadbury-Schweppes, including President of Cadbury
Beverages in Europe. From 1961 to 1981, Mr. Martin-Busutil served in a number of
international management and marketing-related capacities with General Foods.
GERALD W.B. WEBER, age 43, joined Blockbuster in January 1988 as Regional
Manager, became Zone Vice President in May 1989, was promoted to Vice President
of Operations in June 1990, became Senior Vice President of Operations in
February 1991 and became President--Domestic Music in 1994.
99
<PAGE>
From January 1986 to December 1987, he was President and Chief Operating Officer
of Spirits, Inc., a Ft. Lauderdale, Florida company. From 1982 to January 1986,
he held the position of Vice President of the Gray/Drug Fair Division of
Sherwin-Williams Co. Prior to that, Mr. Weber held various management positions
with the Shoppers Drug Mart division of the Imasco Corporation.
EXECUTIVE OFFICERS AND DIRECTORS AFTER THE MERGER
Upon the completion of the Merger, Sumner M. Redstone, currently the
Chairman of the Board of Viacom, will continue as Chairman of the Board of the
combined company. H. Wayne Huizenga, currently the Chairman of the Board and
Chief Executive Officer of Blockbuster, will become Vice Chairman of the
combined company. Frank J. Biondi, Jr., currently Chief Executive Officer and a
Director of Viacom, will become Chief Executive Officer of the combined company.
It is anticipated that Mr. Huizenga will continue as a member of the combined
company's senior management for an appropriate transition period following the
completion of the Merger.
The combined company will initially have a mutually agreed upon Board of
Directors consisting of (i) six Directors designated by Viacom, (ii) three
Directors designated by Blockbuster, who are to be Mr. Huizenga, Steven R.
Berrard, currently Vice Chairman of the Board, President and Chief Operating
Officer of Blockbuster, and George D. Johnson, Jr., currently
President--Domestic Consumer Division of Blockbuster, (iii) two Directors
designated by NYNEX, who are to be William C. Ferguson, Chairman of NYNEX, and
Frederic V. Salerno, Vice Chairman--Finance and Business Development of NYNEX,
and (iv) one unaffiliated Director mutually agreed to by Viacom and Blockbuster.
Messrs. Huizenga, Ferguson and Salerno are current Directors of Viacom. Messrs.
Huizenga, Berrard and Johnson are current Directors of Blockbuster.
BLOCKBUSTER EMPLOYMENT AGREEMENTS
In connection with the Merger, Viacom intends to offer three-year
employment agreements to all of Blockbuster's officers and certain other members
of its current management.
FINANCIAL MATTERS AFTER THE MERGER
ACCOUNTING TREATMENT
The Merger will be accounted for by Viacom under the "purchase" method of
accounting in accordance with generally accepted accounting principles.
Therefore, the aggregate consideration paid by Viacom in connection with the
Merger will be allocated to Blockbuster's assets and liabilities based on their
fair values with any excess being treated as goodwill. The assets and
liabilities and results of operations of Blockbuster will be consolidated into
the assets and liabilities and results of operations of Viacom subsequent to the
Effective Time.
COMMON STOCK DIVIDEND POLICY AFTER THE MERGER
It is the current intention of the Viacom Board not to pay cash dividends
on the Viacom Class A Common Stock or Viacom Class B Common Stock following the
Merger. Future dividends will be determined by the combined company's Board of
Directors in light of the combined company's alternative opportunities for
investment and the earnings and financial condition of the combined company and
its subsidiaries, among other factors.
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CAPITALIZATION
(DOLLARS IN MILLIONS)
The following table sets forth: (i) the historical capitalization of Viacom
and Blockbuster, (ii) the pro forma capitalization of Viacom after giving effect
to the Viacom Pro Forma Event, (iii) the combined company after giving effect to
the Pro Forma Events and (iv) the combined company after giving effect to the
Pro Forma Events and the MSG Sale.
<TABLE><CAPTION>
PRO FORMA
COMBINED
HISTORICAL COMPANY
---------------------------- PRO FORMA PRO FORMA AND
VIACOM BLOCKBUSTER VIACOM COMBINED MSG
JUNE 30, 1994 JUNE 30, 1994 JUNE 30, 1994 COMPANY SALE
------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total debt:
Current maturities........... $ 17.5 $ 1,000.0 $ 17.5 $ 17.5 $ 17.5
------------- ------------- ------------- ----------- -----------
Due after one year:
Senior..................... 6,596.8 1,152.0 6,596.8 8,748.8(d) 8,038.8(e)
Senior subordinated........ 450.0 -- 450.0 450.0 450.0
Subordinated............... 181.4 -- 870.1(b) 870.1 870.1
------------- ------------- ------------- ----------- -----------
Due after one year...... 7,228.2 1,152.0 7,916.9 10,068.9 9,358.9
------------- ------------- ------------- ----------- -----------
Total debt, including
current
maturities.......... 7,245.7 2,152.0 7,934.4 10,086.4 9,376.4
------------- ------------- ------------- ----------- -----------
Stockholders' equity:
Preferred.................... 1,800.0 -- 1,800.0 1,200.0(f) 1,200.0(f)
Common....................... 1,930.8(a) 2,020.1 3,241.8(c) 10,020.6(g) 9,745.6(g)
------------- ------------- ------------- ----------- -----------
Total stockholders'
equity.............. 3,730.8 2,020.1 5,041.8 11,220.6 10,945.6
------------- ------------- ------------- ----------- -----------
Total capitalization.. $ 10,976.5 $ 4,172.1 $ 12,976.2 $21,307.0 $20,322.0
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) On June 30, 1994, there were 53,450,625 outstanding shares of Viacom Class A Common Stock (100,000,000 shares
authorized) and 90,088,042 outstanding shares of Viacom Class B Common Stock (150,000,000 shares authorized);
there were approximately 221,735 unissued shares of Viacom Class A Common Stock and 29,396,844 unissued
shares of Viacom Class B Common Stock reserved principally for exercise of stock options granted under the
Viacom Long-Term Incentive Plan and conversion of Viacom Preferred Stock.
(b) The Pro Forma Viacom debt capitalization reflects the issuance of approximately $688.7 million, net of
unamortized discount of $381.1 million, of Viacom 8% Debentures in connection with the Paramount Merger.
(c) The pro forma common equity capitalization reflects the assumed conversion of the Paramount Common Stock not
then owned by Viacom into the Paramount Merger Consideration.
(d) The pro forma debt capitalization reflects the reclassification of the Blockbuster current maturities to
long-term debt based upon the assumed refinancing by the combined company.
(e) The Pro Forma Combined Company debt capitalization reflects the assumed
repayment of approximately $.7 billion of Senior debt with after-tax proceeds from the MSG Sale.
(f) The pro forma preferred equity capitalization reflects the assumed cancellation of $600 million of Series A
Preferred Stock upon consummation of the Merger. The proceeds from the sale of Viacom Preferred Stock have
been used to finance a portion of the cash paid in the Offer.
(g) The pro forma common equity capitalization reflects (i) the assumed conversion of Blockbuster Common Stock
into the Merger Consideration and (ii) the assumed cancellation of $1.25 billion of Viacom Class B Common
Stock held by Blockbuster in consolidation as a result of the assumed Merger.
</TABLE>
101
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
VIACOM/COMBINED COMPANY
The following unaudited pro forma combined condensed balance sheet at June
30, 1994 gives effect to the completion of the Paramount Merger, the Merger and
the MSG Sale as if these events had occurred on such date, and was prepared
based upon the balance sheet of Viacom and Blockbuster at June 30, 1994. Balance
sheet information for Paramount at June 30, 1994 is consolidated in Viacom's
historical balance sheet. Viacom's balance sheet also contains pro forma
adjustments for the sale of Viacom's one-third partnership interest in LIFETIME.
(See Note 1 herein.)
The following unaudited pro forma combined condensed statements of
operations for the six months ended June 30, 1994 and for the year ended
December 31, 1993 give effect to the completion of the Offer, the Paramount
Merger, the Merger, the issuance of Viacom Preferred Stock, the sale of Viacom's
one-third partnership interest in LIFETIME, certain acquisitions by Paramount
and Blockbuster and the MSG Sale as if they had occurred simultaneously at the
beginning of each period presented. The unaudited pro forma combined condensed
statement of operations for the six months ended June 30, 1994 was prepared
based upon the statements of operations of Viacom and Blockbuster for the six
months ended June 30, 1994 and of Paramount for the two months ended February
28, 1994. The unaudited pro forma combined condensed statement of operations for
the year ended December 31, 1993 was prepared based upon the statements of
operations of Viacom and Blockbuster for the year ended December 31, 1993 and of
Paramount for the nine months ended January 31, 1994 and three months ended
April 30, 1993 combined. Financial information for Paramount subsequent to the
Offer is included in the Viacom historical information. Paramount's historical
results of operations for the month of January 1994 are included in the
unaudited pro forma statements of operations for the six months ended June 30,
1994 and year ended December 31, 1993. Revenues and earnings from operations for
the month of January 1994 were $394 million and $38.7 million, respectively.
These unaudited pro forma combined condensed financial statements should be read
in conjunction with the audited financial statements and the unaudited interim
financial statements, including the notes thereto, of Viacom, Paramount and
Blockbuster, which are incorporated by reference in this Proxy
Statement/Prospectus. See "Incorporation of Certain Documents by Reference."
The unaudited pro forma data are not necessarily indicative of the results
of operations or financial position of Viacom or the combined company that would
have occurred if the completion of the Offer, the Paramount Merger, the Merger
and the MSG Sale had occurred at the beginning of the period or the date
indicated, nor are they necessarily indicative of future operating results or
financial position.
The pro forma adjustments are based upon available information and certain
assumptions set forth herein, including the notes to the unaudited pro forma
combined condensed financial statements, which each of the companies believe are
reasonable under the circumstances. The pro forma adjustments reflect issuance
of the Paramount Merger Consideration, the Merger Consideration and the MSG
Sale. The Unaudited Combined Financial Data of the combined company included in
this Proxy Statement/Prospectus do not make any assumptions concerning either
the Cable Systems Sale or the Showtime/Encore Joint Venture as agreement on
definitive terms has not sufficiently advanced for Viacom to consider either
transaction probable for accounting purposes at this time. The Paramount and
Blockbuster historical information have been adjusted for certain acquisitions,
and certain significant transactions which have occurred (see Paramount and
Blockbuster Unaudited Pro Forma Condensed Consolidated Financial Information).
The Paramount Merger has been, and the Merger will be, accounted for by the
purchase method of accounting. Accordingly, Viacom's cost to acquire Paramount
as of July 6, 1994 and Blockbuster as of August 15, 1994, calculated to be
approximately $9.6 billion and $7.8 billion, respectively, will be allocated to
the assets and liabilities acquired according to their respective fair values
with the excess to goodwill. Viacom's cost to acquire Blockbuster pursuant to
the Merger Agreement is subject to change based primarily upon the market value
of Viacom Common Stock at the time of the Merger. A change
102
<PAGE>
based primarily upon the market value of Viacom Common Stock at the time of the
Merger. A change in the fair market value of Viacom Common Stock will result in
a corresponding change in the excess of unallocated acquisition cost over the
net assets acquired and the related amortization thereof. The valuations and
other studies, which will provide the basis for the allocation of the excess
purchase price over net assets acquired of Paramount and Blockbuster, have not
yet progressed to a stage where there is sufficient information to make an
allocation in the accompanying unaudited pro forma combined condensed financial
statements. Accordingly, the purchase accounting adjustments made in connection
with the development of the unaudited pro forma combined condensed financial
information are preliminary and have been made solely for the purposes of
developing such unaudited pro forma combined condensed financial information.
For the Paramount Merger, the approximate $5.5 billion pro forma excess of
unallocated acquisition costs as of June 30, 1994 is being amortized over 40
years at a rate of $137.2 million per year. For the Merger, the approximate $5.8
billion pro forma excess of unallocated acquisition costs as of June 30, 1994 is
also being amortized over 40 years at a rate of $144.3 million per year. Such
amortization period is based on Viacom's belief that the combined company has
substantial potential for achieving long-term appreciation as a fully
integrated, global entertainment and communications company. The Merger will
permit the continued expansion of current lines of business, as well as the
development of new businesses, via the cross-promotion of the well known
franchises, trademarks and products of Viacom, Blockbuster and Paramount.
Additionally, the combined company will have enhanced and complementary product
distribution capabilities which can be used to strategically exploit its
franchise trademarks and products on an accelerated basis. Viacom believes that
the combined company will benefit from the Merger for an indeterminable period
of time of at least 40 years, and, therefore, a 40-year amortization period is
appropriate.
Viacom will evaluate the amortization period of goodwill arising from the
Merger on an ongoing basis in light of any business conditions, events or
circumstances subsequent to the Merger that may indicate potential impairment of
this goodwill. Such evaluation will consider, among other things, the fair value
of the Company as a going concern as compared to the fair value of identifiable
net assets.
After the consummation of the Merger, Viacom will arrange for independent
appraisal of the significant assets, liabilities and business operations of
Blockbuster. Using this information, Viacom will make a final allocation of the
excess purchase price, including allocation to intangibles other than goodwill.
Viacom believes that any significant allocation of excess purchase price to
intangibles will be amortized over 40 years, and so any such allocation would
not cause a material difference in pro forma results.
The future results of operations of the combined company will reflect
increased amortization of goodwill (see Notes 5b and 6b), increased interest
expense (see Notes 5c and 6c), and preferred stock dividend requirements (see
Notes 4e and 6d). The following unaudited pro forma combined condensed statement
of operations does not reflect potential cost savings attributable to
consolidation of certain operating and administrative functions including the
elimination of duplicate facilities and personnel. The future financial position
of the combined company will reflect increased goodwill as described above,
increased long-term debt as described in Notes 1b and 2c, and increased common
stockholders' equity resulting from the issuance of Viacom Common Stock to
stockholders of Paramount and Blockbuster.
103
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1994
VIACOM/COMBINED COMPANY/COMBINED COMPANY AND MSG SALE
(IN MILLIONS)
<TABLE><CAPTION>
PARAMOUNT BLOCKBUSTER
HISTORICAL MERGER PRO FORMA HISTORICAL MERGER
VIACOM ADJUSTMENTS VIACOM BLOCKBUSTER ADJUSTMENTS
--------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash & short term investments.................................... $ 413.9 $ 413.9 $ 62.5 $ (30.0)(2a)
Other current assets............................................. 3,734.9 3,734.9 734.2
--------- ----------- --------- ----------- -----------
Total current assets......................................... 4,148.8 4,148.8 796.7 (30.0)
--------- ----------- --------- ----------- -----------
Property and equipment, net...................................... 2,072.2 2,072.2 633.2
Intangible assets, at amortized cost............................. 7,832.3 $ 903.1(1c) 8,735.4 903.9 5,770.4 (2a)
Investments in Viacom, Inc....................................... 1,581.7 (1,581.7)(2b)
Other assets..................................................... 2,292.0 370.2(1d) 2,662.2 899.2
--------- ----------- --------- ----------- -----------
$16,345.3 $ 1,273.3 $17,618.6 $ 4,814.7 $ 4,158.7
--------- ----------- --------- ----------- -----------
--------- ----------- --------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.............................................. $ 3,524.7 $ 3,524.7 $ 1,470.2 $(1,000.0)(2c)
Long-term debt................................................... 7,228.2 $ 688.7(1b) 7,916.9 1,152.0 1,000.0 (2c)
Other liabilities................................................ 836.3 298.9(1d) 1,135.2 172.4
Minority interest in Paramount................................... 1,025.3 (1,025.3)(5e)
Stockholders' equity:
Preferred...................................................... 1,800.0 1,800.0 (600.0)(2b)
Common......................................................... 1,930.8 1,311.0(1) 3,241.8 2,020.1 4,758.7(2a,b)
--------- ----------- --------- ----------- -----------
Total stockholders' equity................................... 3,730.8 1,311.0 5,041.8 2,020.1 4,158.7
--------- ----------- --------- ----------- -----------
$16,345.3 $ 1,273.3 $17,618.6 $ 4,814.7 $ 4,158.7
--------- ----------- --------- ----------- -----------
--------- ----------- --------- ----------- -----------
<CAPTION>
PRO FORMA
COMBINED
PRO FORMA MSG COMPANY
COMBINED SALE AND MSG
COMPANY (3) SALE
--------- --------- ---------
ASSETS
Cash & short term investments.................................... $ 446.4 $ 446.4
Other current assets............................................. 4,469.1 $ (88.8) 4,380.3
--------- --------- ---------
Total current assets......................................... 4,915.5 (88.8) 4,826.7
--------- --------- ---------
Property and equipment, net...................................... 2,705.4 (316.9) 2,388.5
Intangible assets, at amortized cost............................. 15,409.7 (593.0) 14,816.7
Investments in Viacom, Inc.......................................
Other assets..................................................... 3,561.4 (78.7) 3,482.7
--------- --------- ---------
$26,592.0 $(1,077.4) $25,514.6
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.............................................. $ 3,994.9 $ (71.6) $ 3,923.3
Long-term debt................................................... 10,068.9 (710.0) 9,358.9
Other liabilities................................................ 1,307.6 (20.8) 1,286.8
Minority interest in Paramount...................................
Stockholders' equity:
Preferred...................................................... 1,200.0 1,200.0
Common......................................................... 10,020.6 (275.0) 9,745.6
--------- --------- ---------
Total stockholders' equity................................... 11,220.6 (275.0) 10,945.6
--------- --------- ---------
$26,592.0 $(1,077.4) $25,514.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
104
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1994
VIACOM/COMBINED COMPANY/COMBINED COMPANY AND MSG SALE
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
OTHER PARAMOUNT
HISTORICAL PRO FORMA PRO FORMA MERGER PRO FORMA
VIACOM ADJUSTMENTS PARAMOUNT* ADJUSTMENTS VIACOM
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues............................................... $ 2,606.8 $ 717.2 $ 3,324.0
Expenses
Operating............................................. 1,778.9 562.2 $ (297.9)(5a) 2,043.2
Selling, general and administrative................... 777.0 192.6 (34.2)(5a) 935.4
Depreciation and amortization......................... 167.1 16.7 24.5(5b) 208.3
----------- ----------- ----------- ----------- -----------
Total expenses...................................... 2,723.0 771.5 (307.6) 3,186.9
----------- ----------- ----------- ----------- -----------
Earnings (loss) from operations........................ (116.2) (54.3) 307.6 137.1
Interest expense...................................... (150.0) $ 2.7(4a) (17.1) (98.7)(5c) (263.1)
Interest and other investment income.................. 8.2 8.2
Other items, net...................................... 263.3 (267.4)(4b) (21.3) 27.2(5a) 1.8
----------- ----------- ----------- ----------- -----------
Total other income (expense)........................ 113.3 (264.7) (30.2) (71.5) (253.1)
----------- ----------- ----------- ----------- -----------
Earnings (loss) before income taxes.................... (2.9) (264.7) (84.5) 236.1 (116.0)
Provision for income taxes............................. 186.1 (102.0)(4c) (28.8) 90.8(5d) 146.1
Equity in earnings (loss) of affiliated companies, net
of tax................................................. 3.7 (3.6)(4d) 0.1
Minority interest...................................... 18.3 (18.3)(5e)
----------- ----------- ----------- ----------- -----------
Earnings (loss) before extraordinary item, cumulative
effect of change in accounting principle and preferred
stock dividend requirements........................... (167.0) (166.3) (55.7) 127.0 (262.0)
Preferred stock dividend requirements.................. 45.0 45.0
----------- ----------- ----------- ----------- -----------
Earnings (loss) attributable to common stock before
extraordinary item and cumulative effect of change in
accounting principle................................... $ (212.0) $ (166.3) $ (55.7) $ 127.0 $ (307.0)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average number of common shares or common
shares and common share equivalents................... 135.0 17.4 56.9 209.3
Earnings (loss) per common share before extraordinary
item and cumulative effect of change in accounting
principle(10).......................................... $ (1.57 ) $(1.47)
<CAPTION>
PRO FORMA
COMBINED
BLOCKBUSTER PRO FORMA COMPANY
HISTORICAL MERGER COMBINED MSG AND MSG
BLOCKBUSTER ADJUSTMENTS COMPANY SALE(7) SALE
----------- ----------- ----------- --------- -----------
Revenues............................................... $ 1,372.8 $ 4,696.8 $ (239.2) $ 4,457.6
Expenses
Operating............................................. 1018.9 $ (235.0)(6a) 2,827.1 (207.3) 2,619.8
Selling, general and administrative................... 115.4 1,050.8 (7.1) 1,043.7
Depreciation and amortization......................... 72.2(6b) 515.5 (14.8) 500.7
235.0(6a)
----------- ----------- ----------- --------- -----------
Total expenses...................................... 1,134.3 72.2 4,393.4 (229.2) 4,164.2
----------- ----------- ----------- --------- -----------
Earnings (loss) from operations........................ 238.5 (72.2) 303.4 (10.0) 293.4
Interest expense...................................... (39.9) (10.4)(6c) (313.4) 18.2 (295.2)
Interest and other investment income.................. 2.5 10.7 10.7
Other items, net...................................... 14.1 (15.0)(6d) 0.9 0.9
----------- ----------- ----------- --------- -----------
Total other income (expense)........................ (23.3) (25.4) (301.8) 18.2 (283.6)
----------- ----------- ----------- --------- -----------
Earnings (loss) before income taxes.................... 215.2 (97.6) 1.6 8.2 9.8
Provision for income taxes............................. 79.6 (9.0)(6e) 216.7 1.0 217.7
Equity in earnings (loss) of affiliated companies, net
of tax................................................. 0.1 0.1
Minority interest......................................
----------- ----------- ----------- --------- -----------
Earnings (loss) before extraordinary item, cumulative
effect of change in accounting principle and preferred
stock dividend requirements........................... 135.6 (88.6) (215.0) 7.2 (207.8)
Preferred stock dividend requirements.................. (15.0)(6d) 30.0 30.0
----------- ----------- ----------- --------- -----------
Earnings (loss) attributable to common stock before
extraordinary item and cumulative effect of change in
accounting principle.................................. $ 135.6 $ (73.6) $ (245.0) $ 7.2 $ (237.8)
----------- ----------- ----------- --------- -----------
----------- ----------- ----------- --------- -----------
Weighted average number of common shares or common
shares and common share equivalents................... 153.6 362.9 362.9
Earnings (loss) per common share before extraordinary
item and cumulative effect of change in accounting
principle(10)......................................... (0.68) $(0.66)
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
- ---------------
* See Unaudited Pro Forma Condensed Consolidated Statements of Operations of
Paramount.
105
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
VIACOM/COMBINED COMPANY/COMBINED COMPANY AND MSG SALE
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
OFFER
AND
OTHER PARAMOUNT
HISTORICAL PRO FORMA PRO FORMA MERGER PRO FORMA PRO FORMA
VIACOM ADJUSTMENTS PARAMOUNT(9)* ADJUSTMENTS VIACOM BLOCKBUSTER**
--------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.......................................... $ 2,004.9
$ 5,024.0 $ 7,028.9 $ 2,595.2
Expenses
Operating........................................ 877.6
3,315.7 4,193.3 1,948.3
Selling, general and administrative.............. 589.2
1,243.7 1,832.9 212.0
Depreciation and amortization.................... 153.1
165.1 $ 137.2(5b) 455.4
--------- ----------- ------------- ----------- ----------- -----------
Total expenses................................. 1,619.9
4,724.5 137.2 6,481.6 2,160.3
--------- ----------- ------------- ----------- ----------- -----------
Earnings from operations.......................... 385.0
299.5 (137.2) 547.3 434.9
Interest expense................................. (145.0) $ 9.2(4a) (94.3) (282.3)(5c) (512.4) (98.7)
Interest and other investment income.............
43.9 43.9 7.2
Other items, net(8).............................. 61.8
(7.4) 54.4 16.3
--------- ----------- ------------- ----------- ----------- -----------
Total other income (expense)................... (83.2) 9.2 (57.8) (282.3) (414.1) (75.2)
--------- ----------- ------------- ----------- ----------- -----------
Earnings before income taxes...................... 301.8 9.2 241.7 (419.5) 133.2 359.7
Provision for income taxes........................ 129.8 3.2(4c) 88.6 (99.6)(5d) 122.0 134.9
Equity in loss of affiliated companies, net of
tax............................................... (2.5) (12.9)(4d)
(15.4)
--------- ----------- ------------- ----------- ----------- -----------
Earnings before extraordinary item, cumulative
effect of change in accounting principle and
preferred stock dividend requirements............ 169.5 (6.9) 153.1 (319.9) (4.2) 224.8
Preferred stock dividend requirements............. 12.8 77.2(4e)
90.0
--------- ----------- ------------- ----------- ----------- -----------
Earnings (loss) attributable to common stock
before extraordinary item and cumulative effect
of change in accounting principle................ $ 156.7 $ (84.1) $ 153.1 $ (319.9) $ (94.2) $ 224.8
--------- ----------- ------------- ----------- ----------- -----------
--------- ----------- ------------- ----------- ----------- -----------
Weighted average number of common shares or common
shares and common share equivalents............... 120.6 22.7
56.9 200.2
Primary earnings (loss) per common share before
extraordinary item and cumulative effect of
change in accounting principle(10)............... $ 1.30
$ (0.47)
<CAPTION>
PRO FORMA
COMBINED
BLOCKBUSTER PRO FORMA COMPANY
MERGER COMBINED MSG AND MSG
ADJUSTMENTS COMPANY SALE(7) SALE
----------- ----------- --------- -----------
Revenues..........................................
$ 9,624.1 $ (333.9) $ 9,290.2
Expenses
Operating........................................
$ (411.5)(6a) 5,730.1 (297.5) 5,432.6
Selling, general and administrative..............
2,044.9 (13.0) 2,031.9
Depreciation and amortization....................
144.3(6b) 1,011.2 (30.5) 980.7
411.5(6a)
----------- ----------- --------- -----------
Total expenses.................................
144.3 8,786.2 (341.0) 8,445.2
----------- ----------- --------- -----------
Earnings from operations..........................
(144.3) 837.9 7.1 845.0
Interest expense.................................
(611.1) 30.7 (580.4)
Interest and other investment income.............
51.1 51.1
Other items, net(8)..............................
(30.0)(6d) 40.7 40.7
----------- ----------- --------- -----------
Total other income (expense)................... (30.0) (519.3) 30.7 (488.6)
----------- ----------- --------- -----------
Earnings before income taxes...................... (174.3) 318.6 37.8 356.4
Provision for income taxes........................ (11.6)(6e) 245.3 8.2 253.5
Equity in loss of affiliated companies, net of
tax...............................................
(15.4) (15.4)
----------- ----------- --------- -----------
Earnings before extraordinary item, cumulative
effect of change in accounting principle and
preferred stock dividend requirements............ (162.7) 57.9 29.6 87.5
Preferred stock dividend requirements.............
(30.0)(6d) 60.0 60.0
----------- ----------- --------- -----------
Earnings (loss) attributable to common stock
before extraordinary item and cumulative effect
of change in accounting principle................ $ (132.7) $ (2.1) $ 29.6 $ 27.5
----------- ----------- --------- -----------
----------- ----------- --------- -----------
Weighted average number of common shares or common
shares and common share equivalents...............
148.3 348.5 58.7 407.2
Primary earnings (loss) per common share before
extraordinary item and cumulative effect of
change in accounting principle(10)...............
$ (0.01) $ 0.07
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
- ---------------
* See Unaudited Pro Forma Condensed Consolidated Statements of Operations of
Paramount.
** See Unaudited Pro Forma Condensed Consolidated Statement of Operations of
Blockbuster.
106
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
VIACOM/COMBINED COMPANY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(1) The cost to acquire Paramount pursuant to the Offer and the Paramount
Merger, the financing of such cost and the determination of the unallocated
excess of acquisition cost over the net assets acquired are as set forth below.
In furtherance of the Paramount Merger, on March 11, 1994, Viacom, pursuant to
the terms of the Offer, completed its purchase of 61,657,432 shares of Paramount
Common Stock, representing a majority of the shares of Paramount Common Stock
outstanding as of the expiration of the Offer. In the Paramount Merger, each
remaining outstanding share of Paramount Common Stock has been converted into
the right to receive the Paramount Merger Consideration. As of July 6, 1994, the
last trading day before the completion of the Paramount Merger the closing price
of shares of Viacom Class B Common Stock on the AMEX was $31 1/2. As of July 6,
1994 there were 122.8 million shares of Paramount Common Stock outstanding.
(a) Total acquisition costs:
<TABLE>
<S> <C>
Cash.................................................................. $ 6,597.3
Viacom 8% Debentures, net of unamortized discount of $381.1........... 688.7
Viacom Class B Common Stock........................................... 1,792.2
CVRs.................................................................. 291.7
Viacom Three-Year Warrants............................................ 40.1
Viacom Five-Year Warrants............................................. 67.6
Paramount Merger costs................................................ 90.0
----------
Acquisition costs financed............................................ $ 9,567.6
Excess value of exchange ratio over exercise price of Paramount
employee stock options................................................ 50.0
----------
Total acquisition costs............................................... $ 9,617.6
----------
----------
</TABLE>
(b) Financing of the Offer and the Paramount Merger:
<TABLE>
<S> <C>
Cash.................................................................. $ 2,987.3
Credit Agreement...................................................... 3,700.0
Viacom 8% Debentures, net of unamortized discount of $381.1........... 688.7
Viacom Class B Common Stock........................................... 1,792.2
CVRs.................................................................. 291.7
Viacom Three-Year Warrants............................................ 40.1
Viacom Five-Year Warrants............................................. 67.6
----------
Total financing of the Offer and the Paramount Merger................. $ 9,567.6
----------
----------
</TABLE>
(c) The unallocated excess of acquisition costs over the net assets
acquired pursuant to the Paramount Merger.
(d) Establishes deferred taxes related to temporary differences created by
purchase price adjustments.
(2) The cost to acquire Blockbuster pursuant to the Merger, the financing
of such cost and the determination of the unallocated excess of acquisition cost
over the net assets acquired are set forth below. Pursuant to the Merger,
holders of shares of Blockbuster Common Stock will be entitled to
107
<PAGE>
receive the Merger Consideration for each of such holder's shares. As of August
15, 1994, the closing price of shares of Viacom Class A Common Stock and Viacom
Class B Common Stock on the AMEX was $40.75 and $36.125, respectively. As of
June 30, 1994, there were 249.2 million shares of Blockbuster Common Stock
outstanding.
(a) Total acquisition costs and financing:
Viacom Class A Common Stock........................................ $ 812.5
Viacom Class B Common Stock........................................ 5,457.5
VCRs............................................................... 1,219.5
----------
Acquisition costs financed......................................... $ 7,489.5
Excess value of exchange ratio over exercise price of
Blockbuster stock options and warrants........................... 271.0
Merger costs....................................................... 30.0
----------
Total acquisition costs............................................ $ 7,790.5
Blockbuster pro forma net assets as of June 30, 1994............... 2,020.1
----------
Excess of acquisition costs over net assets acquired............... $ 5,770.4
----------
----------
(b) Eliminates Blockbuster's $600 million investment in Series A Preferred
Stock and $1.25 billion investment in Viacom Class B Common Stock, net
of an unrealized holding loss.
(c) Assumes additional borrowings incurred by Blockbuster, which were used
to finance the purchase of Viacom Class B Common Stock, will be
refinanced on a long-term basis as part of an overall refinancing of
indebtedness of the combined company. Viacom believes based on
discussions with a number of bank lenders and investment banking
institutions and the pro forma financial position and results of
operations of the combined company, that it will have the ability to
refinance Blockbuster's indebtedness on a long-term basis.
(3) Represents deconsolidation of the historical balance sheet of Madison
Square Garden adjusted for the following:
. Repayment of debt from the after tax proceeds of $710 million from the
sale of Madison Square Garden, net of costs associated with the
transaction.
. A non-recurring tax charge of approximately $275 million. (See Note 7)
(4) Pro forma adjustments made to Viacom's historical results reflect the
following:
(a) A decrease in interest expense of $2.7 million for the six months ended
June 30, 1994 and $9.2 million for the year ended December 31, 1993
resulting from the repayment of bank debt of approximately $215
million.
(b) Eliminates the gain on the sale of the one third partnership interest
in Lifetime.
(c) Pro forma income tax adjustments reflect the income tax effects
calculated at the statutory tax rate in effect during the period
presented.
(d) Eliminates Viacom's equity in earnings, net of tax, of LIFETIME.
(e) The additional 5% cumulative dividend requirement of the $1.8 billion
of Viacom Preferred Stock sold to NYNEX and Blockbuster in the amount
of $77.2 million for the year ended December 31, 1993 as if the
transactions had occurred at the beginning of the year.
(5) Other pro forma adjustments related to the Offer and the Paramount
Merger reflect the following:
108
<PAGE>
(a) A reversal of merger-related charges principally related to adjustments
of programming assets based upon new management strategies and
additional programming sources and other costs incurred related to the
merger with Paramount.
(b) An increase in amortization expense resulting from the increase in
intangibles.
(c) An increase in interest expense resulting from additional debt
financing of approximately $3.7 billion under the Credit Agreement, the
issuance of Viacom 8% Debentures and a decrease of interest income
resulting from the use of cash to finance the Offer. The assumed
interest rate on the debt financing under the Credit Agreement of 5.1%
for the six months ended June 30, 1994 and 4.3% for the year ended
December 31, 1993 was calculated based on average historical London
Interbank Offered Rates. A change in the assumed interest rate of 1/8%
will result in a change in interest expense of $4.5 million on an
annual basis.
(d) Pro forma income tax adjustments reflect the income tax effects
calculated at the statutory tax rate in effect during the period
presented. The effective income tax rate on a pro forma basis is
adversely affected by amortization of excess acquisition costs, which
are assumed to be not deductible for tax purposes.
(e) Eliminates minority interest in Paramount.
(f) Intercompany transactions were immaterial in each of the statements
presented.
(6) Other pro forma adjustments related to the Merger reflect the
following:
(a) Reclassification of the historical presentation of depreciation and
amortization to conform the presentations of Viacom and Blockbuster
financial statements.
(b) An increase in amortization expense resulting from the increase in
intangibles.
(c) Reflects additional interest expense resulting from Blockbuster's
additional borrowings used to fund its investment in Viacom.
(d) Eliminates the 5% cumulative annual dividend on the $600 million
intercompany Series A Preferred Stock investment by Blockbuster.
(e) Reflects the income tax effects of certain pro forma adjustments
calculated at the statutory tax rate in effect during the periods
presented. The effective income tax rate on a pro forma basis is
adversely affected by amortization of excess acquisition costs, which
are assumed to be not deductible for tax purposes.
(f) Intercompany transactions were immaterial in each of the statements
presented.
(7) Represents the deconsolidation of the statement of operations of
Madison Square Garden adjusted for the following:
. A decrease in goodwill amortization expense resulting from the sale of
Madison Square Garden.
. A decrease in interest expense resulting from the repayment of debt (see
Note 3 above). The assumed interest rates on the debt under the Credit
Agreement are as stated in Note 5 above.
. Reflects the income tax effect on the interest adjustment calculated at
the statutory tax rate in effect during the periods presented.
Note: This transaction will not result in a pretax book gain but, due to a
difference in the book basis versus tax basis of Madison Square
Garden net assets, will result in a taxable gain. The related
non-recurring tax charge is approximately $275 million, which has not
been reflected in the pro forma statement of operations.
109
<PAGE>
(8) Other items, net, of Viacom for the year ended December 31, 1993
reflects a net gain of $61.8 million due to the sale of the Viacom Cablevision
of Wisconsin, Inc. system and other non-recurring transactions.
(9) Reflects operating losses at USA Networks, Paramount's 50%-owned cable
networks, due largely to a $78 million pre-tax charge, the majority of which was
recorded in December 1993, to adjust the carrying value of certain broadcast
rights to net realizable value because of the under performance of certain
series programming of which Paramount recorded its share.
(10) Pro forma primary earnings per common share is calculated based on the
weighted average number of shares of Viacom Common Stock outstanding, the number
of shares of Viacom Common Stock to be issued in connection with the Paramount
Merger and Merger and respective common share equivalents as if these
transactions occurred at the beginning of the period presented. Common share
equivalents would have an antidilutive effect on losses per common share and
therefore are not included in such calculation. Conversion of the Series B
Preferred Stock would have an antidilutive effect on earnings per common share
and therefore fully diluted earnings per common share is not presented.
110
<PAGE>
PARAMOUNT, MACMILLAN AND OTHER BUSINESSES ACQUIRED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma Paramount condensed consolidated statements of
operations for the two months ended February 28, 1994 and twelve months ended
January 31, 1994 give effect, on a purchase accounting basis, to the acquisition
of Macmillan. The unaudited pro forma condensed consolidated statement of
operations for the twelve months ended January 31, 1994 also includes the
acquisitions of television station WKBD-TV in Detroit ("WKBD") in September 1993
and the remaining 80% interest in Paramount Canada's Wonderland ("PCW") theme
park in May 1993. The acquisitions of WKBD and PCW are included in the
applicable unaudited pro forma condensed consolidated statement of operations in
"Other Businesses Acquired and Pro Forma Adjustments."
The unaudited pro forma Paramount condensed consolidated statement of operations
for the two months ended February 28, 1994 and the twelve months ended January
31, 1994 include the unaudited historical consolidated statement of operations
of Paramount for the two months ended February 28, 1994 and the twelve months
ended January 31, 1994 and of Macmillan for the two months ended February 28,
1994 and the twelve months ended December 31, 1993. The unaudited pro forma
condensed consolidated statement of operations for the twelve months ended
January 31, 1994 also includes the historical statement of operations of WKBD
for the seven months ended August 31, 1993; and of PCW for the three months
ended April 30, 1993. Financial information of WKBD and PCW subsequent to their
acquisitions are included in Paramount's historical financial statements.
Macmillan's fiscal year-end was March 31, PCW's fiscal year-end was February 28,
and WKBD's fiscal year-end was December 31; their pro forma periods described
above have been derived by accumulating monthly and quarterly financial
information for the respective entities.
The unaudited pro forma Paramount condensed consolidated statements of
operations are not necessarily indicative of the results which actually would
have occurred if the acquisitions had been in effect since the beginning of each
period presented, nor are they necessarily indicative of future results.
Adjustments have been made to reflect the acquisitions, on a purchase accounting
basis, as if such transactions had taken place at the beginning of each period
presented, for the purpose of presenting the unaudited pro forma Paramount
condensed consolidated statement of operations.
111
<PAGE>
PARAMOUNT AND MACMILLAN
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWO MONTHS ENDED FEBRUARY 28, 1994
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
HISTORICAL
----------------- MACMILLAN
TWO ACQUISITION AND
MONTHS ENDED PRO FORMA
FEBRUARY 28, 1994 ADJUSTMENTS(1) PRO FORMA
----------------- --------------- ---------
<S> <C> <C> <C>
Revenues............................................................ $ 680.6 $ 36.6 $ 717.2
Expenses:
Operating......................................................... 530.8 31.4 562.2
Selling, general and
administrative................................................. 176.6 16.0 192.6
Depreciation and amortization..................................... 14.1 2.6 16.7
-------- --------------- ---------
Total expenses............................................... 721.5 50.0 771.5
-------- --------------- ---------
Earnings (loss) from operations..................................... (40.9) (13.4) (54.3)
-------- --------------- ---------
Other income (expense):
Interest expense.................................................. (17.1) (17.1)
Interest and other investment
income......................................................... 11.1 (2.9) 8.2
Other items, net.................................................. (19.0) (2.3) (21.3)
-------- --------------- ---------
Total other expense.......................................... (25.0) (5.2) (30.2)
-------- --------------- ---------
Earnings (loss) before income taxes................................. (65.9) (18.6) (84.5)
Provision (benefit) for income taxes................................ (23.0) (5.8) (28.8)
-------- --------------- ---------
Net earnings (loss)................................................. $ (42.9) $ (12.8) $ (55.7)
-------- --------------- ---------
-------- --------------- ---------
Weighted average number of
common shares..................................................... 122.1 122.1
Net earnings (loss) per common
share............................................................. $ (.35) $ (.46)
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
112
<PAGE>
PARAMOUNT, MACMILLAN AND OTHER BUSINESSES ACQUIRED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JANUARY 31, 1994
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
HISTORICAL OTHER
-------------------------------- MACMILLAN BUSINESSES
NINE THREE ACQUISITION ACQUIRED AND
MONTHS ENDED MONTHS ENDED AND PRO FORMA PRO FORMA
JANUARY 31, 1994 APRIL 30, 1993 ADJUSTMENTS(1) ADJUSTMENTS(2) PRO FORMA
---------------- -------------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues...................................... $ 3,757.0 $ 954.4 $ 287.7 $ 24.9 $ 5,024.0
Expenses:
Operating................................... 2,499.1 628.3 167.0 21.3 3,315.7
Selling, general and
administrative........................... 835.4 315.8 92.5 1,243.7
Depreciation and amortization............... 124.5 22.2 16.3 2.1 165.1
---------------- -------------- -------------- ------- ----------
Total expenses......................... 3,459.0 966.3 275.8 23.4 4,724.5
---------------- -------------- -------------- ------- ----------
Earnings (loss) from operations............... 298.0 (11.9) 11.9 1.5 299.5
---------------- -------------- -------------- ------- ----------
Other income (expense):
Interest expense............................ (70.6) (23.7) (94.3)
Interest and other investment
income................................... 53.1 22.2 (26.4) (5.0) 43.9
Other items, net............................ (2.7) (2.2) (2.6) 0.1 (7.4)
---------------- -------------- -------------- ------- ----------
Total other expense.................... (20.2) (3.7) (29.0) (4.9) (57.8)
---------------- -------------- -------------- ------- ----------
Earnings (loss) before income taxes........... 277.8 (15.6) (17.1) (3.4) 241.7
Provision (benefit) for income taxes.......... 97.2 (6.4) (1.5) (0.7) 88.6
---------------- -------------- -------------- ------- ----------
Net earnings (loss)........................... $ 180.6 $ (9.2) $ (15.6) $ (2.7) $ 153.1
---------------- -------------- -------------- ------- ----------
---------------- -------------- -------------- ------- ----------
Weighted average number of
common shares............................... 120.3 118.8 119.9
Net earnings (loss) per common
share....................................... $ 1.50 $ (0.08) $ 1.28
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
113
<PAGE>
PARAMOUNT, MACMILLAN AND OTHER BUSINESSES ACQUIRED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(1) The Macmillan Acquisition includes the following pro forma adjustments:
Estimated amortization of intangible assets of $2.1 million for the two months
ended February 28, 1994 and $12.8 million for the twelve months ended January
31, 1994 over a 40-year life.
Estimated reduction of interest income of $2.9 million for the two months ended
February 28, 1994 and $26.4 million for the twelve months ended January 31, 1994
at Paramount's average interest rates in effect during the respective periods,
due to the use of cash and cash equivalents and short-term investments for the
acquisition.
Estimated income tax benefit of $(5.8) million for the two months ended February
28, 1994 and $(1.5) million for the twelve months ended January 31, 1994, based
upon pro forma adjustments, along with an adjustment to provide for Macmillan
Federal income taxes at the statutory rate.
(2) Other Businesses Acquired include the following pro forma adjustments for
the twelve months ended January 31, 1994:
Decrease estimated combined annual amortization of intangible assets over a
40-year life and depreciation expense, based on a preliminary purchase price
allocation analysis, of $(0.2) million.
Elimination of historical interest expense related to debt not acquired from, or
prepaid upon acquisition of, the Other Businesses.
Estimated reduction to interest income, at Paramount's average interest rates in
effect during the twelve-month period, of $5.0 million due to the use of cash
and cash equivalents and short-term investments for the acquisitions.
Conform the Other Businesses' accounting policies related to the accrual of
certain operating expenses to that of Paramount and to eliminate the effect of
intercompany transactions between the Other Businesses and Paramount. The effect
of these adjustments is to reduce operating expenses by $2.9 million.
Estimated income tax benefit of $(2.4) million, based upon pro forma
adjustments, along with an adjustment to provide for Federal income taxes at the
statutory rate.
114
<PAGE>
BLOCKBUSTER, SUPER CLUB AND
SPELLING ENTERTAINMENT
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
The historical financial statements of Blockbuster include the financial
position and results of operations of WJB, with which Blockbuster merged in
August 1993. This transaction has been accounted for under the pooling of
interests method of accounting and, accordingly, all of Blockbuster's historical
financial data has been restated as if the companies had operated as one entity
since inception.
The following unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1993 presents the pro forma results
of continuing operations of Blockbuster as if the acquisition of Super Club and
the majority of the outstanding common stock of Spelling Entertainment had been
consummated at January 1, 1993. The aforementioned unaudited pro forma statement
of operations also contains pro forma adjustments for certain significant
transactions which occurred during 1993 or 1994 in connection with the Offer and
the Paramount Merger. These transactions include a $600 million and a $1.25
billion investment in Viacom, additional borrowings of $600 million and $1.25
billion, and the sale of 14,650,000 shares of Blockbuster Common Stock, and are
reflected in the unaudited pro forma condensed consolidated statement of
operations as if these transactions had been consummated as of January 1, 1993.
Income from continuing operations per common and common equivalent share is
based on the combined weighted average number of common shares and common share
equivalents outstanding which include, where appropriate, the assumed exercise
or conversion of warrants and options. In computing income from continuing
operations per common and common equivalent share, Blockbuster utilizes the
treasury stock method.
The unaudited pro forma condensed consolidated statement of operations was
prepared utilizing the accounting policies of the respective entities as
outlined in their historical financial statements except as described in the
accompanying notes. The unaudited pro forma condensed consolidated financial
statement reflects Blockbuster's preliminary allocations of purchase prices
which will be subject to further adjustments as Blockbuster finalizes the
allocations of the purchase prices in accordance with generally accepted
accounting principles. All of the aforementioned acquisitions, excluding WJB,
were accounted for under the purchase method of accounting. The unaudited pro
forma condensed consolidated statement of operations does not necessarily
reflect actual results which would have occurred if the aforementioned
acquisitions and certain significant transactions had taken place on the
assumed dates, nor are they indicative of the results of future combined
operations. The unaudited pro forma condensed consolidated statement of
operations should be read in conjunction with the respective historical
statements of operations and notes thereto of Blockbuster, Super Club
and Spelling Entertainment.
115
<PAGE>
BLOCKBUSTER, SUPER CLUB AND SPELLING ENTERTAINMENT
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
SPELLING PRO FORMA
SUPER CLUB ENTERTAINMENT ADJUSTMENTS
ELEVEN MONTHS THREE MONTHS --------------------
BLOCKBUSTER ENDED 11/20/93 ENDED 3/31/93 COMBINED DEBIT CREDIT
----------- --------------- --------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Rental revenue........................... $ 1,285.4 $ 58.7 $ 1,344.1
Product sales............................ 658.1 254.6 912.7
Other revenue............................ 283.5 3.4 $ 51.5 338.4
----------- ------- ------ --------- --------- ---------
2,227.0 316.7 51.5 2,595.2
Operating Costs and Expenses:
Cost of product sales.................... 430.2 185.8 616.0
Operating expenses....................... 1,195.5 119.3 38.0 1,352.8 $ 20.5(c-g)
Selling, general and administrative...... 178.3 26.0 7.7 212.0
----------- ------- ------ --------- --------- ---------
Operating income (loss).................... 423.0 (14.4) 5.8 414.4 20.5
Interest expense........................... (33.8) (2.6) (2.5) (38.9) $ 60.3(a) .5(h)
Interest income............................ 6.8 .2 .2 7.2
Other income (expense), net................ (6.2) .1 (.9) (7.0) .9(b) 24.2(i)
----------- ------- ------ --------- --------- ---------
Income (loss) before taxes................. 389.8 (16.7) 2.6 375.7 61.2 45.2
Provision for income taxes................. 146.2 .1 1.7 148.0 13.1(j)
----------- ------- ------ --------- --------- ---------
Income (loss) from continuing operations... $ 243.6 $ (16.8) $ .9 $ 227.7 $ 61.2 $ 58.3
----------- ------- ------ --------- --------- ---------
----------- ------- ------ --------- --------- ---------
Weighted average common and common
equivalent shares outstanding.............. 220.2
-----------
-----------
Income from continuing operations per
common and common equivalent share......... $ 1.11
-----------
-----------
Weighted average common and common
equivalent shares outstanding-- assuming
full dilution.............................. 221.5
-----------
-----------
Income from continuing operations per
common and common equivalent
share--assuming full dilution.............. $ 1.10
-----------
-----------
<CAPTION>
PRO
FORMA
---------
Revenue:
Rental revenue........................... $ 1,344.1
Product sales............................ 912.7
Other revenue............................ 338.4
---------
2,595.2
Operating Costs and Expenses:
Cost of product sales.................... 616.0
Operating expenses....................... 1,332.3
Selling, general and administrative...... 212.0
---------
Operating income (loss).................... 434.9
Interest expense........................... (98.7)
Interest income............................ 7.2
Other income (expense), net................ 16.3
---------
Income (loss) before taxes................. 359.7
Provision for income taxes................. 134.9
---------
Income (loss) from continuing operations... $ 224.8
---------
---------
Weighted average common and common
equivalent shares outstanding.............. 242.8
---------
---------
Income from continuing operations per
common and common equivalent share......... $ 0.93
---------
---------
Weighted average common and common
equivalent shares outstanding-- assuming
full dilution.............................. 244.0
---------
---------
Income from continuing operations per
common and common equivalent
share--assuming full dilution.............. $ 0.92
---------
---------
</TABLE>
The accompanying notes are an integral part of this statement.
116
<PAGE>
BLOCKBUSTER, SUPER CLUB AND
SPELLING ENTERTAINMENT
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
<TABLE>
<S> <C>
(a) Represents additional interest expense resulting from Blockbuster's additional borrowings used to fund its
investment in Viacom.
(b) Represents the recording of the minority interest resulting from Blockbuster's purchase of the majority of
the outstanding common stock of Spelling Entertainment.
(c) Represents a net adjustment related to the elimination of the historical amortization of intangible assets
and the recording of amortization, on a straight-line basis, on the intangible assets resulting from the
preliminary purchase price allocations of the acquired entities. Intangible assets resulting from the
purchase of Super Club and Spelling Entertainment are being amortized over a 40-year life which approximates
the useful life.
(d) Represents a reduction to videocassette rental inventory amortization expense due to adjustments to the
carrying value of Super Club's videocassette rental inventory as a result of the preliminary purchase price
allocation and the assignment of remaining useful lives.
(e) Represents a reduction to property and equipment depreciation expense resulting from adjustments to the
carrying value of Super Club's property and equipment as a result of the preliminary purchase price
allocation and the assignment of remaining useful lives.
(f) Represents reductions to occupancy expense resulting from preliminary purchase price allocations which
reflect the fair market value of certain lease liabilities related to Super Club.
(g) Represents reductions to amortization of film costs and program rights, depreciation and rent expenses
resulting from preliminary purchase price allocations which reflect the fair market value of various assets
and liabilities related to Spelling Entertainment.
(h) Represents the reduction in interest expense resulting from the revaluation of outstanding indebtedness of
Spelling Entertainment by Blockbuster at current interest rates.
(i) Represents dividend income related to a portion of Blockbuster's investment in Viacom.
(j) Represents the incremental change in the combined entity's provision for income taxes as a result of the
pre-tax earnings (loss) of Super Club and Spelling Entertainment and all pro forma adjustments as described
above.
</TABLE>
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DESCRIPTION OF VIACOM CAPITAL STOCK
The authorized capital stock of Viacom consists of 200 million shares of
Viacom Class A Common Stock, one billion shares of Viacom Class B Common Stock
and 200 million shares of preferred stock, par value $0.01 per share issuable in
series. The following description of Viacom's capital stock does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
the DGCL, Viacom's Restated Certificate of Incorporation, as amended (the
"Viacom Restated Certificate of Incorporation"), the Certificate of Designations
for the Series A Preferred Stock, the Certificate of Designations for the Series
B Preferred Stock, the Form of Certificate of Designations for the Series C
Preferred Stock, the Three-Year Warrant Agreement dated July 1, 1994 (the
"Three-Year Warrant Agreement") between Viacom and Harris Trust and Savings
Bank, as Warrant Agent, the Five-Year Warrant Agreement dated July 1, 1994 (the
"Five-Year Warrant Agreement") between Viacom and Harris Trust and Savings Bank,
as Warrant Agent and the Merger Agreement.
VIACOM CLASS A COMMON STOCK
As of August 26, 1994, the most recent practicable date prior to the
printing of this Proxy Statement/Prospectus, there were 53,451,525 shares of
Viacom Class A Common Stock issued and outstanding. All outstanding shares of
Viacom Class A Common Stock are fully paid and non-assessable. Shares of Viacom
Class A Common Stock do not have conversion rights and are not redeemable.
VIACOM CLASS B COMMON STOCK
Viacom Class B Common Stock has rights, privileges, limitations,
restrictions and qualifications identical to Viacom Class A Common Stock except
that shares of Viacom Class B Common Stock have no voting rights other than
those required by law. As of August 26, 1994, the most recent practicable date
prior to the printing of this Proxy Statement/Prospectus, there were 146,986,491
shares of Viacom Class B Common Stock issued and outstanding. All outstanding
shares of Viacom Class B Common Stock are fully paid and non-assessable. Shares
of Viacom Class B Common Stock do not have conversion rights and are not
redeemable.
VCRs evidence the right to receive Viacom Class B Common Stock:
Number. As part of the Merger Consideration, each share of Blockbuster
Common Stock issued and outstanding at the Effective Time, and shares of
Blockbuster Common Stock subject to outstanding employee stock options and
warrants (other than shares of Blockbuster Common Stock owned by Viacom or any
direct or indirect wholly owned subsidiary of Viacom or of Blockbuster and other
than shares of Blockbuster Common Stock held by stockholders who have demanded
and perfected appraisal rights, if available, under the DGCL) will be converted
into the right to receive, among other securities, up to an additional 0.13829
of a share of Viacom Class B Common Stock, with such right evidenced by one VCR.
Trading/Listing. The VCRs will be certificated and trade separately from
Viacom Common Stock. Viacom will file an application to list the shares of
Viacom Common Stock and the VCRs to be issued in connection with the Merger on
the AMEX, subject to stockholder approval of the Merger Agreement and official
notice of issuance. The VCRs will be traded under the symbol "VIAVR".
Maturity/Valuation Period. The VCRs mature on the first anniversary of the
Effective Time (the "VCR Conversion Date"). In the 90 trading day period
immediately preceding the VCR Conversion Date (the "VCR Valuation Period"), a
value for Viacom Class B Common Stock (the "Class B Value") will be determined.
The Class B Value will equal the average closing price on the AMEX (or such
other exchange on which the Viacom Class B Common Stock is then listed) for one
share of Viacom Class B Common Stock during the 30 consecutive trading days in
the VCR Valuation Period which yield the
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highest such average closing price. Certain trading days will not be included
for this purpose, as described below under "--Determination of any Trading
Period".
Valuation of VCRs. Subject to the dilution protection described below, each
VCR will represent the right to receive a fraction of one share of Viacom Class
B Common Stock on the VCR Conversion Date, such fraction to be determined based
upon the Class B Value, as set forth below:
<TABLE><CAPTION>
CLASS B VALUE CONVERSION VALUE OF A VCR
- --------------------------------------------------- -----------------------------------------
<S> <C> <C>
(EXPRESSED AS A FRACTION OF ONE SHARE OF
VIACOM CLASS B COMMON STOCK)
$0 to $35.99....................................... 0.13829
$36 to $40......................................... 30 - 0.32 - 0.08 - 0.60615
-------------
Class B Value
$40.01 to $47.99................................... 0.05929
$48 to $52......................................... 36 - 0.32 - 0.08 - 0.60615
-------------
Class B Value
$52.01 and above................................... 0 (Zero)
</TABLE>
The maximum conversion value of each VCR is 0.13829 of one share of Viacom
Class B Common Stock. The minimum conversion value is zero.
General Market Adjustment. The dollar amounts set forth in the above table
under the caption entitled "Class B Value" will be reduced by a percentage equal
to any percentage decline in excess of 25% in the Standard & Poor's 400 Index
from the Effective Time until the VCR Conversion Date.
Limitation on Conversion Value. Notwithstanding any conversion ratios
described in the table above, if at any time during the period from the
Effective Time until the VCR Conversion Date the average closing price for a
share of Viacom Class B Common Stock on the AMEX (or such other exchange on
which such shares are then listed) for any 30 consecutive trading days is:
(a) above $40, then the maximum conversion value for each VCR will
equal 0.05929 of one share of Viacom Class B Common Stock or
(b) above $52, then the VCRs will have no value and will automatically
terminate.
Dilution Protection. The number of shares of Viacom Class B Common Stock
represented by each VCR will be adjusted appropriately to reflect distributions
or dividends paid in Viacom Class B Common Stock and combinations, splits or
reclassifications of Viacom Class B Common Stock.
Determination of any Trading Period. For the purposes of determining any
period of consecutive trading days, trading days shall not be included if (i)
with respect to a day during the first month following the Effective Time, fewer
than 400,000 shares of Viacom Class B Common Stock trade on such day, (ii) with
respect to a day during the second month following the Effective Time, fewer
than 300,000 shares of Viacom Class B Common Stock trade on such day, (iii) with
respect to a day during the third month following the Effective Time, fewer than
250,000 shares of Viacom Class B Common Stock trade on such day and (iv) with
respect to a day from and after the first day of the fourth month following the
Effective Time, fewer than 200,000 shares of Viacom Class B Common Stock trade
on such day.
Prohibition on Viacom or NAI trading. Neither Viacom, NAI nor any of their
affiliates is permitted to trade in Viacom Class B Common Stock during the
period from the Effective Time until the VCR Conversion Date, except for benefit
plan purposes.
VIACOM THREE-YEAR WARRANTS
Viacom issued an aggregate of up to 30,567,739 Viacom Three-Year Warrants
in connection with the Paramount Merger. Each whole Viacom Three-Year Warrant
entitles the holder thereof to purchase
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one share of Viacom Class B Common Stock per whole Viacom Three-Year Warrant at
any time prior to July 7, 1997 at a price of $60, payable in cash. The terms of
the Viacom Three-Year Warrants include customary anti-dilution (with respect to
stock splits, stock dividends, reverse stock splits or other similar
subdivisions or combinations of stock) and other provisions. The foregoing
summary of the terms of the Viacom Three-Year Warrants does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Three-Year Warrant Agreement which has been filed with the Commission under the
Exchange Act and is incorporated by reference herein. The Viacom Three-Year
Warrants trade on the AMEX under the symbol "VIA.WS.C".
VIACOM FIVE-YEAR WARRANTS
Viacom issued an aggregate of up to 18,340,643 Viacom Five-Year Warrants in
connection with the Paramount Merger. Each whole Viacom Five-Year Warrant
entitles the holder thereof to purchase one share of Viacom Class B Common Stock
per whole Viacom Five-Year Warrant at any time prior to July 7, 1999 at a price
of $70, payable in cash or, at Viacom's option, by exchanging either shares of
Series C Cumulative Exchangeable Redeemable Preferred Stock, par value $.01 per
share, of Viacom ("Series C Preferred Stock") with a liquidation preference
equal to the exercise price (if Series C Preferred Stock has been issued upon
the exchange of Viacom 8% Debentures) or the 5% subordinated debentures due 2014
of Viacom ("Viacom 5% Debentures") with a principal amount equal to the exercise
price (if Viacom 5% Debentures have been issued upon the exchange of Series C
Preferred Stock). The terms of the Viacom Five-Year Warrants include customary
anti-dilution (with respect to stock splits, stock dividends, reverse stock
splits or other similar subdivisions or combinations of stock) and other
provisions. The foregoing summary of the terms of the Viacom Five-Year Warrants
does not purport to be complete and is subject to and qualified in its entirety
by reference to the Five-Year Warrant Agreement which has been filed with the
Commission under the Exchange Act and is incorporated by reference herein. The
Viacom Five-Year Warrants trade on the AMEX under the symbol "VIA.WS.E".
VOTING AND OTHER RIGHTS OF THE VIACOM COMMON STOCK
Voting Rights. Under the Viacom Restated Certificate of Incorporation,
except as noted below or otherwise required by Delaware law, the holders of the
outstanding shares of Viacom Class A Common Stock vote together with the holders
of the outstanding shares of all other classes of capital stock of Viacom
entitled to vote, without regard to class. At the present time, however, there
are no outstanding shares of any other class of capital stock of Viacom entitled
to vote. Each holder of an outstanding share of Viacom Class A Common Stock is
entitled to cast one vote for each such share registered in the name of such
holder. The affirmative vote of the holders of a majority of the outstanding
shares of Viacom Class A Common Stock is necessary to approve any consolidation
or merger of Viacom with or into another corporation pursuant to which shares of
Viacom Class A Common Stock would be converted into or exchanged for any
securities or other consideration.
A holder of an outstanding share of Viacom Class B Common Stock is not
entitled, except as may be required by Delaware law, to vote on any question
presented to the stockholders of Viacom, including both the election of
directors and certain amendments to the Viacom Restated Certificate of
Incorporation which might affect Viacom Class B Common Stock or the holders
thereof. Under Delaware law and the Viacom Restated Certificate of
Incorporation, holders of shares of Viacom Class B Common Stock are entitled to
vote, as a class, only with respect to any proposed amendment to the Viacom
Restated Certificate of Incorporation which would (i) increase or decrease the
par value of a share of Viacom Class B Common Stock or (ii) alter or change the
powers, preferences or special rights of the shares of Viacom Class B Common
Stock so as to affect them adversely. Any future change in the number of
authorized shares of Viacom Class B Common Stock or any consolidation or merger
of Viacom with or into another corporation pursuant to which shares of Viacom
Class B Common Stock would be converted into or exchanged for any securities or
other consideration could be consummated with the
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approval of the holders of a majority of the outstanding shares of Viacom Class
A Common Stock and without any action by the holders of shares of Viacom Class B
Common Stock.
Dividends. Subject to the rights and preferences of any outstanding
preferred stock, dividends on Viacom Class A Common Stock and Viacom Class B
Common Stock would be payable out of the funds of Viacom legally available
therefor when, as and if declared by the Viacom Board. However, no dividend may
be paid or set aside for payment and no distribution may be made on either class
of Viacom Common Stock unless at the same time and in respect of the same
declaration date and record date a ratable dividend is paid or set aside for
payment or a distribution is made on the other class of Viacom Common Stock.
Rights in Liquidation. In the event Viacom is liquidated, dissolved or
wound up, whether voluntarily or involuntarily, the net assets of Viacom would
be divided ratably among the holders of the then outstanding shares of Viacom
Class A Common Stock and Viacom Class B Common Stock after payment or provision
for payment of the full preferential amounts to which the holders of any series
of preferred stock of Viacom then issued and outstanding would be entitled.
Split, Subdivision or Combination. If Viacom splits, subdivides or combines
the outstanding shares of Viacom Class A Common Stock or Viacom Class B Common
Stock, the outstanding shares of the other class of Viacom Common Stock shall be
proportionally split, subdivided or combined in the same manner and on the same
basis as the outstanding shares of the other class of Viacom Common Stock have
been split, subdivided or combined.
Preemptive Rights. Shares of Viacom Class A Common Stock and shares of
Viacom Class B Common Stock do not entitle a holder to any preemptive rights
enabling a holder to subscribe for or receive shares of stock of any class or
any other securities convertible into shares of stock of any class of Viacom.
The Viacom Board possesses the power to issue shares of authorized but unissued
Viacom Class A Common Stock and Viacom Class B Common Stock without further
stockholder action, subject, so long as shares of Viacom Class A Common Stock
and Viacom Class B Common Stock are listed on the AMEX, to the requirements of
such exchange. The number of authorized shares of Viacom Class A Common Stock
and Viacom Class B Common Stock could be increased with the approval of the
holders of a majority of the outstanding shares of Viacom Class A Common Stock
and without any action by the holders of shares of Viacom Class B Common Stock.
Trading Market. The outstanding shares of Viacom Class A Common Stock and
Viacom Class B Common Stock are listed for trading on the AMEX. The Registrar
and Transfer Agent for Viacom Common Stock is The Bank of New York.
Alien Ownership. The Viacom Restated Certificate of Incorporation provides
that Viacom may prohibit the ownership or voting of a percentage of its equity
securities in order to ensure compliance with the requirements of the
Communications Act.
VIACOM PREFERRED STOCK
The Viacom Board, without further action by the stockholders, is authorized
to issue up to 200 million shares of preferred stock in one or more series and
to designate as to any such series the dividend rate, redemption prices and
terms, preferences on liquidation or dissolution, rights in the event of a
merger, consolidation, distribution or sale of assets, conversion rights, voting
rights and any other powers, preferences, and relative, participating, optional
or other special rights and qualifications, limitations or restrictions. The
rights of the holders of Viacom Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of Viacom Preferred Stock, the
Series C Preferred Stock (if issued) and any preferred stock of Viacom that may
be issued in the future. The Viacom Preferred Stock ranks senior to Viacom
Common Stock with respect to dividends and distribution of assets upon
liquidation or winding up. Issuance of a new series of preferred stock, while
providing desirable flexibility in connection with possible acquisitions or
other corporate purposes, could
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have the effect of making it more difficult for a third party to acquire, or
discouraging a third party from acquiring, a majority of the outstanding voting
stock of Viacom.
Viacom has issued 24 million shares of Series A Preferred Stock to
Blockbuster and 24 million shares of Series B Preferred Stock to NYNEX, both of
which classes have identical rights and restrictions and rank equally as to
dividends and distribution of assets upon liquidation. Upon consummation of the
Merger, the Series A Preferred Stock owned by Blockbuster will cease to be
outstanding. Pursuant to the Paramount Merger, Viacom reserved for issuance a
new series of preferred stock, the Series C Preferred Stock. The Series C
Preferred Stock can only be issued if the Merger is not consummated. See
"--Series C Preferred Stock".
Holders of shares of Viacom Preferred Stock will be entitled to receive
cumulative cash dividends at the rate per annum of $1.25 per share of Series A
Preferred Stock and $2.50 per share of Series B Preferred Stock, payable
quarterly. So long as any shares of Viacom Preferred Stock are outstanding,
Viacom may not (i) declare or pay any dividend or distribution on any junior
stock of Viacom or (ii) redeem or set apart funds for the purchase or redemption
of any junior stock unless all accrued and unpaid dividends with respect to the
Viacom Preferred Stock have been paid or funds have been set apart for payment
through the current dividend period.
Shares of Viacom Preferred Stock may not be redeemed by Viacom prior to
October 1, 1998, after which date such stock will be redeemable at Viacom's
option for an aggregate redemption price of at least $100 million, at declining
redemption prices annually until October 1, 2003. In the event of any
liquidation, dissolution or winding up of Viacom, whether voluntary or
involuntary, holders of shares of Viacom Preferred Stock will receive $25.00 per
share of Series A Preferred Stock and $50.00 per share of Series B Preferred
Stock plus an amount per share equal to all dividends accrued and unpaid thereon
to the date of final distribution to such holders.
The holders of shares of Viacom Preferred Stock will have no voting rights,
unless dividends payable on Series A Preferred Stock or Series B Preferred Stock
fall in arrears for dividend periods totalling at least 360 days, in which case
the number of directors of Viacom will be increased by two in respect of each
such series and the holders of shares of each such series will have the right to
elect two additional directors to the Viacom Board at Viacom's next annual
meeting of stockholders and at each subsequent annual meeting until all such
dividends have been paid in full.
Changes to the Viacom Restated Certificate of Incorporation which adversely
affect the rights of the holders of Series A Preferred Stock or Series B
Preferred Stock require two-thirds approval of the outstanding shares of such
series. The Certificate of Designation of the Series A Preferred Stock may not
be amended without the consent of Blockbuster as long as Blockbuster remains the
owner of all outstanding shares of such series. The Certificate of Designation
of the Series B Preferred Stock may not be amended without the consent of NYNEX
as long as NYNEX remains the owner of all outstanding shares of such series.
Shares of Viacom Preferred Stock will be convertible at any time at the
option of the holders thereof into shares of Viacom Class B Common Stock at a
conversion price of $70 per share of Viacom Class B Common Stock (equivalent to
a conversion rate of 0.3571 shares of Viacom Class B Common Stock for each share
of Series A Preferred Stock and 0.7143 for each share of Series B Preferred
Stock), subject to customary adjustments. Holders of Viacom Preferred Stock will
have no preemptive rights with respect to any shares of Viacom Common Stock or
any other Viacom securities convertible into or carrying rights or options to
purchase any such shares.
SERIES C PREFERRED STOCK
Pursuant to the Paramount Merger and the terms of the Viacom 8% Debentures,
Viacom has reserved for issuance a new series of preferred stock, the Series C
Preferred Stock. The holders of the Series C Preferred Stock, if issued, will
have no preemptive rights with respect to any shares of Viacom
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Common Stock or any other securities of Viacom convertible into or carrying
rights or options to purchase any such shares.
Issuance. The Viacom 8% Debentures, which were issued in the Paramount
Merger, are exchangeable, at the option of Viacom, in whole but not in part,
into the Series C Preferred Stock on or after the earlier of (i) January 1,
1995, but only if the Merger has not been consummated by such date and (ii) the
acquisition by a third party of beneficial ownership of a majority of the then
outstanding voting securities of Blockbuster, into the Series C Preferred Stock
at the rate of one share of Series C Preferred Stock for each $50 in principal
amount of Viacom 8% Debentures exchanged.
Ranking. If issued, the Series C Preferred Stock will rank senior to the
Viacom Common Stock with respect to dividends and upon liquidation or winding
up. If issued, the Series C Preferred Stock would rank equally with the Series A
Preferred Stock and the Series B Preferred Stock as to dividends and the
distribution of assets upon liquidation or winding up.
Dividends. Holders of shares of Series C Preferred Stock, if issued, would
be entitled to receive, when, as and if declared by the Viacom Board, out of
funds legally available for payment, cumulative cash dividends at the rate per
annum of $2.50 per share until July 7, 2004, and at the rate per annum of $5.00
per share thereafter. At the time of the exchange of the Viacom 8% Debentures
for the Series C Preferred Stock, all accrued and unpaid interest on the Viacom
8% Debentures will not be paid and instead dividends will accrue from the later
of July 7, 1994 and the latest date through which interest has been paid on the
Viacom 8% Debentures.
So long as any shares of Series C Preferred Stock are outstanding Viacom
may not (i) declare or pay any dividend or distribution on any junior stock of
Viacom or (ii) redeem or set apart funds for the purchase or redemption of any
junior stock unless all accrued and unpaid dividends with respect to the Series
C Preferred Stock and any of the stock ranking on a parity with such stock as to
dividends or upon liquidation ("Parity Stock") have been paid or funds have been
set apart for payment thereon through the current dividend period with respect
to the Series C Preferred Stock and any Parity Stock.
Redemption. Shares of Series C Preferred Stock may not be redeemed by
Viacom prior to July 7, 1999, after which date such shares will be redeemable at
the option of Viacom, in whole or in part, at any time or from time to time, out
of funds legally available therefor, at the redemption prices set forth below,
plus in each case an amount equal to accrued and unpaid dividends, if any, to
the redemption date, whether or not earned or declared.
<TABLE><CAPTION>
REDEMPTION PRICE FOR
IF REDEEMED DURING THE 12-MONTH PERIOD SERIES C PREFERRED
BEGINNING ON THE DATE INDICATED BELOW STOCK
- ----------------------------------------------------------------------------------------- -----------------------
<S> <C>
July 7, 1999............................................................................. $ 52.50
July 7, 2000............................................................................. $ 52.00
July 7, 2001............................................................................. $ 51.50
July 7, 2002............................................................................. $ 51.00
July 7, 2003............................................................................. $ 50.50
July 7, 2004 and thereafter.............................................................. $ 50.00
</TABLE>
Liquidation Preference. Holders of shares of Series C Preferred Stock, if
issued, will be entitled to a liquidation preference of $50.00 per share. Shares
of Series C Preferred Stock, if issued, would rank equally as to dividends and
distribution of assets upon liquidation with shares of Series A Preferred Stock
and Series B Preferred Stock.
Voting Rights. The holders of shares of Series C Preferred Stock, if
issued, will have no voting rights, unless dividends payable on Parity Stock
fall in arrears for dividend periods totalling at least 360 days, in which case
the number of directors of Viacom will be increased by two in respect of such
series and the holders of shares of such series will have the right to elect two
additional directors to the Viacom Board at Viacom's next annual meeting of
stockholders and at each subsequent annual meeting until all such dividends have
been paid in full.
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Changes to the Viacom Restated Certificate of Incorporation which adversely
affect the rights of the holders of Series C Preferred Stock require two-thirds
approval of the outstanding shares of such series.
Exchangeability of Series C Preferred Stock. The Series C Preferred Stock,
if issued, will be exchangeable in whole or in part, at the option of Viacom,
for Viacom 5% Debentures on any scheduled dividend payment date beginning on or
after July 7, 1997. Holders of Series C Preferred Stock so exchanged will be
entitled to receive $50.00 principal amount of Viacom 5% Debentures for each
share of Series C Preferred Stock held by such holders at the time of exchange
plus an amount per share in cash equal to all accrued and unpaid dividends
thereon to the date of exchange.
If full cumulative dividends on the shares of Series C Preferred Stock to
be exchanged have not been paid to the date of exchange, or funds set aside to
provide for payment in full of the dividends, Viacom may not exchange the Series
C Preferred Stock for the Viacom 5% Debentures.
Listing. Viacom has agreed to use its reasonable best efforts to cause the
shares of Series C Preferred Stock to be approved for listing on the AMEX prior
to the issuance thereof.
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COMPARISON OF STOCKHOLDER RIGHTS
The following is a summary of material differences between the rights of
holders of Viacom Common Stock and the rights of holders of Blockbuster Common
Stock. As each of Viacom and Blockbuster is organized under the laws of
Delaware, these differences arise principally from provisions of the charter and
by-laws of each of Viacom and Blockbuster.
The following summaries do not purport to be complete statements of the
rights of Viacom stockholders under the Viacom Restated Certificate of
Incorporation and Viacom's By-laws as compared with the rights of Blockbuster
stockholders under Blockbuster's Certificate of Incorporation and Amended and
Restated By-laws or a complete description of the specific provisions referred
to herein. The identification of specific differences is not meant to indicate
that other equal or more significant differences do not exist. These summaries
are qualified in their entirety by reference to the DGCL and governing corporate
instruments of Viacom and Blockbuster, to which stockholders are referred. The
terms of Viacom's capital stock are described in greater detail under
"Description of Viacom Capital Stock."
STOCKHOLDER VOTE REQUIRED FOR CERTAIN TRANSACTIONS
Powers and Rights of Viacom Class A Common Stock and Viacom Class B Common
Stock. Except as otherwise described below, all issued and outstanding shares of
Viacom Class A Common Stock and Viacom Class B Common Stock are identical and
entitle the holders to the same rights and privileges. With respect to all
matters upon which stockholders are entitled to vote, holders of outstanding
shares of Viacom Class A Common Stock vote together with the holders of any
other outstanding shares of capital stock of Viacom entitled to vote, without
regard to class, and every holder of outstanding shares of Viacom Class A Common
Stock is entitled to cast one vote in person or by proxy for each share of
Viacom Class A Common Stock outstanding in such stockholder's name. EXCEPT AS
OTHERWISE REQUIRED BY THE DGCL, THE HOLDERS OF OUTSTANDING SHARES OF VIACOM
CLASS B COMMON STOCK ARE NOT ENTITLED TO VOTE UPON ANY QUESTIONS PRESENTED TO
STOCKHOLDERS OF VIACOM.
Blockbuster Common Stock is not divided into classes and entitles holders
thereof to one vote for each share on each matter upon which stockholders have
the right to vote.
Certain Business Combinations. The Viacom Restated Certificate of
Incorporation and Viacom's By-laws do not contain any supermajority voting
provisions or any other provisions relating to the approval of business
combinations and other transactions by holders of Viacom Class A Common Stock.
Blockbuster's Certificate of Incorporation contains provisions that require
approval of holders of 67% of the voting power of the outstanding shares of
Blockbuster entitled to vote generally for specified transactions involving
Blockbuster unless such transactions are approved by a majority of Blockbuster's
disinterested directors at a meeting at which a quorum of disinterested
directors is present. Such transactions include: (i) any merger or consolidation
of Blockbuster or any subsidiary with any beneficial owner of 15% or more of the
outstanding voting stock of Blockbuster (a "Substantial Stockholder"); (ii) the
sale or disposition by Blockbuster of assets or securities having a value of
$1,000,000 or more if a Substantial Stockholder is a party to the transaction;
(iii) the issuance or transfer of any securities of Blockbuster or any
subsidiary to a Substantial Stockholder or affiliate thereof in exchange for
cash, securities or other property having an aggregate fair market value of
$1,000,000 or more; (iv) the adoption of any plan or proposal for the
liquidation or dissolution of Blockbuster proposed by or on behalf of a
Substantial Stockholder; or (v) any reclassification of securities,
recapitalization, merger with a subsidiary or other transaction which has the
effect, directly or indirectly, of increasing a Substantial Stockholder's
proportionate interest in the outstanding capital stock of Blockbuster. A
similar 67% vote would be required to amend such provisions.
Removal of Directors. Viacom's By-laws provide that any director may be
removed with or without cause at any time by the affirmative vote of the holders
of record of a majority of all the issued and outstanding stock entitled to vote
for the election of directors at a special meeting of the
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stockholders called for that purpose. Viacom's By-laws also provide that any
director may be removed for cause by the affirmative vote of a majority of the
entire board of directors.
Blockbuster's Amended and Restated By-laws provide that stockholders
holding a majority of the issued and outstanding Blockbuster Common Stock
entitled to vote may, at any time, terminate the term of office of all or any of
the directors, with or without cause, by a vote at any annual or special
meeting, or by written statement, signed by the holders of all of such stock,
and filed with the Secretary or, in his absence, with any other officer. Such
removal shall be effective immediately upon such stockholder action even if
successors are not elected simultaneously, and the vacancies on the Board of
Directors caused by such action shall be filled only by election by the
stockholders.
Amendments of Certificate of Incorporation. The Viacom Restated Certificate
of Incorporation does not contain any supermajority voting provisions for the
amendment thereof. Under the DGCL, unless otherwise specified in a corporation's
certificate of incorporation, all amendments to such certificate of
incorporation must be approved by the affirmative vote of holders of a majority
of the shares of capital stock entitled to vote thereon, unless a class vote is
required under the DGCL.
Blockbuster's Certificate of Incorporation provides that the affirmative
vote of the holders of at least 67% of the voting power of all the shares of
Blockbuster entitled to vote generally in the election of directors, voting
together as a single class, is required to alter, amend or repeal Section 6
thereof regarding business combinations (described above); provided that such
67% vote shall not be required for any amendment, repeal or adoption unanimously
recommended by the Blockbuster Board if all of such directors are disinterested
directors.
SPECIAL MEETINGS OF STOCKHOLDERS; STOCKHOLDER ACTION BY WRITTEN CONSENT
Special Meetings. Viacom's By-laws provide that a special meeting of
stockholders may be called by the affirmative vote of a majority of its Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board or the
President and shall be called by the Chairman of the Board, the Vice Chairman of
the Board, the President or Secretary at the request in writing of the holders
of record of at least 50.1% of the aggregate voting power of all outstanding
shares of capital stock of Viacom entitled to vote generally in the election of
directors, acting together as a single class.
Blockbuster's Amended and Restated By-laws provide that a special meeting
of the stockholders of Blockbuster may be called at any time by the Chairman of
the Board or the Board of Directors, and shall be called by the Chairman of the
Board or the Secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of the holders of not less than ten
percent of all the stock issued, outstanding and entitled to vote at the
meeting. Such request shall state the purpose or purposes of the proposed
meeting. Business transacted at special meetings shall be confined to the
purposes stated in the notice of the meeting.
Action by Written Consent. Viacom's By-laws provide that any action
required to be taken at any annual or special meeting of stockholders of Viacom,
or any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by stockholders representing not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of such action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
Blockbuster's Amended and Restated By-laws provide that any action required
to be taken at a meeting of the stockholders of Blockbuster may be taken without
a meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the stockholders entitled to vote with respect to the subject
matter thereof.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
VIACOM CAPITAL STOCK
Set forth below, as of July 31, 1994 (and without giving effect to the
transactions contemplated by the Merger), is certain information concerning
beneficial ownership of Viacom Common Stock by (i) each director of Viacom, (ii)
each of the executive officers named below, (iii) all executive officers and
directors of Viacom as a group, and (iv) holders of 5% or more of the
outstanding Viacom Common Stock. The following table excludes shares of Viacom
Class B Common Stock issuable upon conversion of the Viacom Preferred Stock.
<TABLE><CAPTION>
SHARES OF VIACOM COMMON STOCK BENEFICIALLY OWNED
TITLE OF CLASS
OF COMMON NUMBER OF OPTION PERCENT OF
NAME STOCK SHARES SHARES(1) CLASS
- ----------------------------------------------------- -------------- -------------------- --------- -----------
<S> <C> <C> <C> <C>
George S. Abrams..................................... Class A --(2) -- --
Class B 200(2) 5,000 (6)
Frank J. Biondi, Jr.................................. Class A 453(3) 24,000 (6)
Class B 178,361(3)(4) 204,000 (6)
Blockbuster.......................................... Class A 0 -- (6)
Class B 22,727,273 -- 25.2%
Philippe P. Dauman................................... Class A 1,060(3) -- (6)
Class B 8,365(3) 20,000 (6)
William C. Ferguson.................................. Class A -- -- (6)
Class B 3,000 -- (6)
H. Wayne Huizenga.................................... -- -- -- --
Ken Miller........................................... Class A --(2) -- --
Class B --(2) 5,000 (6)
National Amusements, Inc............................. Class A 45,547,214(5) -- 85.2%
Class B 46,565,414(5) -- 51.7%
Brent D. Redstone.................................... -- -- -- --
Sumner M. Redstone................................... Class A 45,547,294(5) -- 85.2%
Class B 46,565,494(5) -- 51.7%
Frederic V. Salerno.................................. -- -- -- --
William Schwartz..................................... Class A --(2) -- --
Class B --(2) 5,000 (6)
Mark M. Weinstein.................................... Class A 392(3) 7,500 (6)
Class B 405(3) 62,500 (6)
All Directors and executive officers as a group other
than Mr. Sumner Redstone (20 persons).............. Class A 10,241(3) 54,590 (6)
Class B 199,188(3) 536,257 (6)
</TABLE>
- ---------------
(1) Reflects shares of Viacom Class A Common Stock or Viacom Class B Common
Stock subject to options to purchase such shares which on July 31, 1994 were
unexercised but were exercisable within a period of 60 days from that date.
These shares are excluded from the column headed "Number of Shares".
(2) Messrs. Abrams, Miller and Schwartz participate in a Deferred Compensation
Plan in which their directors' fees are converted into stock units. As of
July 1, 1994, Messrs. Abrams, Miller and Schwartz had been credited with
3,479, 3,194 and 3,197 Viacom Class A Common Stock units, respectively, and
3,669, 3,356 and 3,356 Viacom Class B Common Stock units, respectively.
(3) Includes shares held through Viacom International's 401(k) plan as of May
31, 1994.
(4) Includes 177,897 shares held as a result of the accelerated valuation and
payment of Mr. Biondi's Long-Term Incentive Plan phantom shares in December
1992.
(5) Except for 80 shares of each class of Viacom Common Stock owned directly by
Mr. Redstone, all shares are owned of record by NAI. Mr. Redstone is the
Chairman and the controlling stockholder of NAI.
(6) Less than 1%.
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<PAGE>
BLOCKBUSTER CAPITAL STOCK
Set forth below is certain information, as of July 31, 1994, concerning
beneficial ownership of Blockbuster Common Stock by (i) each director of
Blockbuster, (ii) each of the named executive officers and (iii) all executive
officers and directors of Blockbuster as a group.
SHARES OF BLOCKBUSTER COMMON STOCK BENEFICIALLY OWNED
<TABLE><CAPTION>
NUMBER OF SHARES
OF BLOCKBUSTER
NAME COMMON STOCK(1)(2) PERCENT(2)
- ------------------------------------------------------------------------------ ------------------- -------------
<S> <C> <C>
H. Wayne Huizenga............................................................. 16,254,938 6.3%
A. Clinton Allen, III......................................................... 143,400 (3)
Steven R. Berrard............................................................. 853,685 (3)
John W. Croghan............................................................... 442,638 (3)
Gregory K. Fairbanks.......................................................... 63,571 (3)
Donald F. Flynn............................................................... 5,941,476 2.3
George D. Johnson, Jr......................................................... 2,065,745 (3)
John J. Melk.................................................................. 6,915,276 2.7
Gerald W.B. Weber............................................................. 198,970 (3)
All directors and executive officers as a group, including persons named above
(18 persons).................................................................. 33,159,634 12.7
</TABLE>
- ---------------
(1) Ownership of shares for Mr. Huizenga and for all directors and executive
officers as a group includes 300,000 shares owned by certain grantor trusts
of which Mr. Huizenga is the trustee and sole beneficiary. Ownership of
shares for Mr. Melk and for all directors and executive officers as a group
includes 6,460,942 shares owned by certain partnerships and corporations of
which Mr. Melk holds majority interests and directs the voting of such
shares. Ownership of shares for Mr. Johnson, Mr. Flynn, Mr. Melk and Mr.
Weber and for all directors and executive officers as a group does not
include 35,400 shares, 2,320 shares, 163,128 shares and 540 shares not held
directly by Mr. Johnson, Mr. Flynn, Mr. Melk or Mr. Weber, respectively, but
held by or for the benefit of their respective spouses, as to which they
have neither investment power nor voting power. Mr. Johnson, Mr. Flynn, Mr.
Melk and Mr. Weber disclaim any beneficial ownership of such shares.
Ownership of shares shown for Mr. Johnson and for all directors and
executive officers as a group includes 78,881 shares owned by a corporation
of which Mr. Johnson owns a majority interest and 53,326 shares held by a
corporation of which Mr. Johnson owns a one-third interest. Mr. Johnson
disclaims beneficial ownership as to 35,196 of the shares held by such
corporation of which he owns a one-third interest.
(2) The named directors and executive officers and all directors and executive
officers as a group have sole voting and investment power over shares
listed, except for 7,028,120 shares covered by certain warrants and stock
options exercisable within 60 days of July 31, 1994 and except to the extent
any such shares are subject to the Stockholders Stock Option Agreement or
the Proxy Agreement. See "Certain Transactions Between Viacom and
Blockbuster and With Their Stockholders". The numbers and percentages of
shares owned by each director and executive officer and by all directors and
executive officers as a group assume that such outstanding warrants and
stock options had been exercised or converted as follows: Mr.
Huizenga--4,617,452; Mr. Allen--90,000; Mr. Berrard-- 848,715; Mr.
Croghan--260,000; Mr. Fairbanks--63,571; Mr. Flynn--20,000; Mr. Melk--
316,411; Mr. Weber--198,970; and all directors and executive officers as a
group (including such individuals)--7,028,120. Such persons and the members
of such group disclaim any beneficial ownership of the shares subject to
such warrants and stock options.
(3) Less than one percent.
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<PAGE>
STOCKHOLDERS BENEFICIALLY OWNING MORE THAN 5% OF BLOCKBUSTER COMMON STOCK
As of July 31, 1994, no one is known to own beneficially more than 5% of
the outstanding Blockbuster Common Stock, except:
<TABLE><CAPTION>
SHARES OF
BENEFICIAL OWNER OF MORE THAN 5% BLOCKBUSTER COMMON STOCK PERCENT
- ----------------------------------------------------------------------- -------------------------- -----------
<S> <C> <C>
Philips Electronics N.V. 18,895,211 7.4%(a)
H. Wayne Huizenga 16,254,938 6.3%(b)
Viacom 55,816,077 22.0%(c)
</TABLE>
- ---------------
(a) Includes 1,650,000 shares of Blockbuster Common Stock underlying warrants.
The information regarding Philips' ownership of Blockbuster Common Stock is
based upon information disclosed by Philips in its Statement on Schedule
13D, as amended, relating to its ownership of Blockbuster Common Stock.
(b) Includes 4,617,452 shares of Blockbuster Common Stock underlying options and
warrants. Also includes 300,000 shares of Blockbuster Common Stock owned by
certain grantor trusts of which Mr. Huizenga is the trustee and sole
beneficiary.
(c) Represents shares of Blockbuster Common Stock currently subject to the
Stockholders Stock Option Agreement and the Proxy Agreement, including
11,204,077 shares of Blockbuster Common Stock owned by Mr. Huizenga and
17,245,211 shares of Blockbuster Common Stock owned by Philips.
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<PAGE>
OTHER MATTERS
ANTITRUST APPROVALS
Under the HSR Act, certain acquisition transactions may not be consummated
unless notice has been given and certain information has been furnished to the
Antitrust Division of the United States Department of Justice (the "Antitrust
Division") and the FTC and specified waiting period requirements have been
satisfied. Viacom and Blockbuster each filed with the Antitrust Division and the
FTC a Notification and Report Form with respect to the Merger on January 21,
1994. Certain other HSR filings were also made by Viacom on January 21, 1994 in
respect of "secondary acquisitions" by Viacom of certain Blockbuster holdings
that would be deemed to be secondarily acquired pursuant to the Merger. The
waiting period for each of these filings expired at 11:59 p.m. on February 20,
1994. The expiration of the HSR Act waiting period does not preclude the
Antitrust Division or the FTC from challenging the Merger on antitrust grounds.
H. Wayne Huizenga and Viacom each filed Notification and Report forms in
connection with the shares of Viacom Class A Common Stock Mr. Huizenga will
receive as a result of the Merger. The waiting period applicable to these
filings was terminated by the FTC and the DOJ on March 4, 1994. Additional
filings under the HSR Act may also be required of certain significant
stockholders of Blockbuster who will be receiving a "notifiable amount" of
Viacom Class A Common Stock in exchange for their shares of Blockbuster Common
Stock pursuant to the Merger. Any such additional filings will be made as
required.
State Attorneys General and private parties may also bring legal actions
under the federal or state antitrust laws under certain circumstances. Based
upon an examination of information available to Viacom and Blockbuster relating
to the businesses in which Viacom, Blockbuster and their respective subsidiaries
are engaged, Viacom and Blockbuster believe that the consummation of the Merger
will not violate the antitrust laws.
Competition Act of Canada and Investment Canada Act. Subject to certain
exemptions, Canada's Competition Act requires prenotification to the Director of
Investigation and Research (the "Director") of an acquisition of voting shares
in a corporation that directly or through subsidiaries conducts an operating
business in Canada where certain thresholds are met. On August 12, 1994, the
Director issued an advance ruling certificate ("ARC") in respect of the Merger
in which he stated that he will not challenge the implementation of the Merger.
The issuance of the ARC relieves Viacom from the obligation to make the
prenotification filing referred to above in respect of the Merger.
The Investment Canada Act (the "ICA") requires that notice of the
acquisition of "control" by "non-Canadians" (as defined in the ICA) be furnished
to Investment Canada, a Canadian governmental agency (the "Agency"), and that
certain of these investments to acquire control of a Canadian business be
reviewed and approved by the Minister (as defined in the ICA) as investments
that are "likely to be of net benefit" to Canada based upon criteria set forth
in the ICA. Transactions which involve the acquisition of control of a "cultural
business" will be subject to review and approval under the ICA. Some of
Blockbuster's Canadian businesses are engaged primarily in "cultural businesses"
as defined in the ICA so the acquisition is reviewable. An indirect acquisition
of a corporation in Canada carrying on a Canadian business through the purchase
of voting shares of a corporation incorporated outside of Canada may be
implemented without prior approval but the application for review must be filed
not later than 30 days after the acquisition. Where the Minister does not
approve an acquisition, he shall issue to the investor a notice which will have
the effect of precluding the completion of the acquisition or, if the
acquisition has been implemented, requiring divestiture of the acquisition.
Viacom intends to comply with the ICA which will not result in any delay in
completion of the Merger.
130
<PAGE>
Foreign Approvals. In connection with the Merger, Viacom has made mandatory
pre-acquisition notification filings with the relevant authorities in Germany
and Austria. Viacom has been informed in writing by these authorities that
neither will take action against the Merger. Accordingly, with Viacom having
complied with the relevant pre-merger filing requirements in these
jurisdictions, the laws of such jurisdictions do not prohibit the consummation
of the Merger. Viacom and Blockbuster conduct operations in a number of foreign
countries, some of which have voluntary merger notification systems. It is
recognized that certain of such filings and certain of such approvals may not be
made or obtained prior to the date of the Blockbuster Special Meeting, the
Viacom Special Meeting or the Effective Time. In those countries in which
filings or approvals are not as a matter of practice required to be made or
obtained prior to the consummation of a merger transaction, the failure to
obtain any such approvals is not anticipated to have a material effect on the
Merger or on the combined company.
REGULATORY MATTERS
Blockbuster currently holds an equity interest in NewLeaf Entertainment
Corporation ("NewLeaf"), a development stage joint venture with International
Business Machines Corporation. As discussed above in "The
Companies--Viacom--Regulatory Matters," following the Merger, the combined
company arguably could be considered an affiliate of an RHC for MFJ purposes. In
addition, the proposed operations of NewLeaf could be determined to be within
the scope of activities restricted under the MFJ. As a result, immediately prior
to the Merger, Blockbuster intends to transfer its equity interest in NewLeaf to
an affiliated entity of Viacom (which will be consolidated into the combined
company for financial reporting purposes). The terms of such transfer shall
provide that, should the MFJ restriction be modified or waived, such equity
investment shall be retransferred to the combined company and any appreciation
in the value of such interest will be for the benefit of the holders of Viacom
Common Stock. Any transfer of Blockbuster's interest in NewLeaf is subject to
the consent of NewLeaf and its stockholders other than Blockbuster.
STOCKHOLDER LITIGATION
Seven putative class action complaints were filed by alleged Blockbuster
stockholders in the Delaware Court of Chancery against Blockbuster, the members
of its Board of Directors, Viacom and Sumner M. Redstone. By Order dated January
31, 1994, the seven actions were consolidated under the caption In re
Blockbuster Entertainment Corp. Shareholders' Litigation, Consolidated Civil
Action No. 13319. To Blockbuster's knowledge, the plaintiffs who initiated the
Stockholder Litigation own of record, in the aggregate, substantially less than
1% of the outstanding shares of Blockbuster Common Stock as of March 14, 1994.
On February 18, 1994, plaintiffs filed the Consolidated and Amended Class Action
Complaint (the "Complaint"). The Complaint generally alleges that Blockbuster's
directors have violated their fiduciary duties of loyalty and fair dealing by
allegedly failing to ensure the maximization of stockholder value in the sale of
control of Blockbuster, including the alleged failure to authorize and direct
that a process designed to secure the best value available for Blockbuster
stockholders be undertaken, and by implementing measures such as the
Subscription Agreement which allegedly were designed solely to thwart or impede
other competing transactions. Among other things, the plaintiffs seek to (i)
preliminarily and permanently enjoin the purchase by Blockbuster of shares of
Viacom Class B Common Stock pursuant to the Subscription Agreement; (ii)
preliminarily and permanently enjoin the Merger or any anti-takeover devices
designed to facilitate the Merger; (iii) require the Blockbuster directors to
maximize stockholder value by exploring third party interest; and/or (iv)
recover damages from the Blockbuster directors for their alleged breaches of
fiduciary duty. The defendants believe that plaintiffs' allegations are without
merit and intend to defend themselves vigorously.
131
<PAGE>
On February 28, 1994, plaintiffs filed motions in the Delaware Court of
Chancery seeking expedited discovery, a temporary restraining order enjoining
consummation of the Subscription Agreement and the scheduling of a preliminary
injunction hearing. On March 1, 1994, Vice Chancellor Carolyn Berger issued an
order denying plaintiffs' motions. Following issuance of the above-described
order, plaintiffs filed a Motion for Clarification or, in the alternative, for
Certification on Interlocutory Appeal, requesting that the Chancery Court
clarify whether its order also refers to a hearing for a preliminary injunction.
Plaintiffs requested that, if the order is limited to a hearing for a temporary
restraining order, the Chancery Court schedule a hearing on plaintiffs' motion
for a preliminary injunction. On March 2, 1994, plaintiffs informed the Chancery
Court that they had decided not to seek an interlocutory appeal and indicated
their understanding that the order precluded preliminary injunctive relief as to
the Subscription Agreement.
On March 7, 1994, the plaintiffs filed a motion for a preliminary
injunction, seeking an order preliminarily enjoining the defendants from (i)
taking any steps to effectuate or enforce the Merger Agreement, the Subscription
Agreement and the Stockholders Stock Option Agreement; (ii) making any payment
to Viacom of its fees and expenses pursuant to Section 8.05(b) of the Merger
Agreement; and (iii) entering into any competing transaction with a party other
than Viacom, which transaction includes a stock component unless adequate price
protection for the stockholders of Blockbuster is provided. Plaintiffs have also
moved for an injunction requiring the Blockbuster defendants to investigate all
bona fide offers to acquire Blockbuster and to provide such bona fide offerors
access to information concerning Blockbuster in order to facilitate such offers.
No schedule has been set for a hearing on the motion.
On March 10, 1994, Defendant Sumner Redstone filed a motion to dismiss the
Complaint as to him, on the grounds of lack of personal jurisdiction,
insufficiency of process, and insufficiency of service of process. Also on March
10, 1994, defendant Viacom filed a motion to dismiss the Complaint as to itself,
for failure to state a claim against Viacom upon which relief can be granted. No
schedule has been set for a hearing on these motions.
On March 30, 1994, one of the shareholder plaintiffs, Kathleen Pessin,
purported to withdraw from the consolidated action, and on April 8, 1994, filed
a separate complaint in the Delaware Court of Chancery, styled Pessin v.
Huizenga, et al., Civil Action No. 13456 (the "Pessin Complaint"), against
Blockbuster, six members of its Board of Directors, former director Scott A.
Beck, and Viacom. The Pessin Complaint generally alleges that Blockbuster's
directors have violated their fiduciary duties of loyalty and fair dealing by
purportedly engaging in certain transactions which allegedly constituted a waste
of corporate assets and a usurpation of corporate opportunities. The Pessin
Complaint also alleges that as a result of these transactions, the merger
consideration to be obtained for Blockbuster's stockholders in the Merger has
been unfairly lessened, in breach of the directors' fiduciary duties. The
defendants believe that Ms. Pessin's allegations are without merit and intend to
defend themselves vigorously.
On June 6, 1994, Blockbuster and the six members of its Board of Directors
named as defendants in the Pessin Complaint filed a motion to dismiss the Pessin
Complaint on the following grounds: (i) failure to make a demand upon the Board
of Directors; (ii) failure to allege specific facts which would excuse such a
demand; and (iii) failure to state a claim upon which relief can be granted.
Viacom also has filed a motion to dismiss the Pessin Complaint. No date has been
set for a hearing on the motions.
132
<PAGE>
DISSENTING STOCKHOLDERS' RIGHTS OF APPRAISAL
Blockbuster. It is uncertain, and counsel to Blockbuster is unable to
express a definite view, as to whether appraisal rights are available to holders
of Blockbuster Common Stock in connection with the Merger. Although the VCRs
evidence only the right to receive shares of Viacom Class B Common Stock under
certain circumstances, the VCRs could be characterized as consideration other
than shares of stock of Viacom. If the VCRs are considered to be "shares of
stock" of Viacom under Section 262(b) of the DGCL, then the holders of
Blockbuster Common Stock will not have appraisal rights. However, if the VCRs
are not considered to be "shares of stock", then appraisal rights will be
available to those stockholders of Blockbuster who demand and perfect appraisal
rights in accordance with the requirements of Section 262 of the DGCL.
Stockholders who wish to seek appraisal are advised to consult with their legal
counsel regarding whether such appraisal rights would be available and how to
demand and perfect such appraisal rights, if available. Regardless of the
ultimate availability of appraisal rights, in order to exercise appraisal
rights, dissenting stockholders must demand and perfect appraisal rights in
accordance with the conditions established by Section 262 of the DGCL ("Section
262").
SECTION 262 IS REPRINTED IN ITS ENTIRETY AS ANNEX VII TO THIS PROXY
STATEMENT/PROSPECTUS. THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF
THE LAW RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO ANNEX VII. THIS DISCUSSION AND ANNEX VII SHOULD BE REVIEWED
CAREFULLY BY ANY HOLDER WHO WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS, IF
AVAILABLE, OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO, AS FAILURE TO COMPLY
WITH THE PROCEDURES SET FORTH HEREIN OR THEREIN WILL RESULT IN THE LOSS OF
APPRAISAL RIGHTS, IF AVAILABLE.
A record holder of shares of Blockbuster Common Stock who makes the demand
described below with respect to such shares, who continuously is the record
holder of such shares through the Effective Time, who otherwise complies with
the statutory requirements of Section 262 and who neither votes in favor of the
Merger Agreement nor consents thereto in writing may be entitled to an appraisal
by the Delaware Court of Chancery (the "Delaware Court") of the fair value of
his or her shares of Blockbuster Common Stock. All references in this summary of
appraisal rights to a "stockholder" or "holders of shares of Blockbuster Common
Stock" are to the record holder or holders of shares of Blockbuster Common
Stock. Except as set forth herein, stockholders of Blockbuster will not be
entitled to appraisal rights in connection with the Merger. Stockholders of
Viacom will have no appraisal rights in connection with the Merger.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the Blockbuster Special Meeting, not less than 20
days prior to the meeting, each constituent corporation must notify each of the
holders of its stock for which appraisal rights are available that such
appraisal rights are available and include in each such notice a copy of Section
262. This Proxy Statement/Prospectus shall constitute such notice to the record
holders of Blockbuster Common Stock.
Holders of shares of Blockbuster Common Stock who desire to exercise their
appraisal rights must not vote in favor of the Merger Agreement or the Merger
and must deliver a separate written demand for appraisal to Blockbuster prior to
the vote by the stockholders of Blockbuster on the Merger Agreement and the
Merger. A stockholder who signs and returns a proxy without expressly directing
by checking the applicable boxes on the reverse side of the proxy card enclosed
herewith that his or her shares of Blockbuster Common Stock be voted against the
proposal or that an abstention be registered with respect to his or her shares
of Blockbuster Common Stock in connection with the proposal will effectively
have thereby waived his or her appraisal rights as to those shares of
Blockbuster Common Stock because, in the absence of express contrary
instructions, such shares of Blockbuster Common Stock will be voted in favor of
the proposal. See "The Meetings--Voting of Proxies." Accordingly, a stockholder
who desires to perfect appraisal rights with respect to any of his or her shares
of Blockbuster Common Stock must, as one of the procedural steps involved in
such perfection, 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
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<PAGE>
proposal on such card or affirmatively vote in person against the proposal or
register in person an abstention with respect thereto. A demand for appraisal
must be executed by or on behalf of the stockholder of record and must
reasonably inform Blockbuster of the identity of the stockholder of record and
that such record stockholder intends thereby to demand appraisal of the
Blockbuster Common Stock. A person having a beneficial interest in shares of
Blockbuster Common Stock that are held of record in the name of another person,
such as a broker, fiduciary or other nominee, must act promptly to cause the
record holder to follow the steps summarized herein properly and in a timely
manner to perfect whatever appraisal rights are available. If the shares of
Blockbuster Common Stock are owned of record by a person other than the
beneficial owner, including a broker, fiduciary (such as a trustee, guardian or
custodian) or other nominee, such demand must be executed by or for the record
owner. If the shares of Blockbuster Common Stock are owned of record by more
than one person, as in a joint tenancy or tenancy in common, such demand must be
executed by or for all joint owners. An authorized agent, including an agent for
two or more joint owners, may execute the demand for appraisal for a stockholder
of record; however, the agent must identify the record owner and expressly
disclose the fact that, in exercising the demand, such person is acting as agent
for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of Blockbuster Common Stock as a nominee for others, may exercise
appraisal rights with respect to the shares held for all or less than all
beneficial owners of shares as to which such person is the record owner. In such
case, the written demand must set forth the number of shares covered by such
demand. Where the number of shares is not expressly stated, the demand will be
presumed to cover all shares of Blockbuster Common Stock outstanding in the name
of such record owner.
A stockholder who elects to exercise appraisal rights, if available, should
mail or deliver his or her written demand to: Blockbuster Entertainment
Corporation, One Blockbuster Plaza, Fort Lauderdale, Florida 33301-1860,
Attention: Thomas W. Hawkins, Secretary.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of Blockbuster Common Stock owned, and
that the stockholder is thereby demanding appraisal of his or her shares. A
proxy or vote against the Merger Agreement will not by itself constitute such a
demand. Within ten days after the Effective Time, the surviving corporation must
provide notice of the Effective Time to all stockholders who have complied with
Section 262.
Within 120 days after the Effective Time, either the surviving corporation
or any stockholder who has complied with the required conditions of Section 262
may file a petition in the Delaware Court, with a copy served on the surviving
corporation in the case of a petition filed by a stockholder, demanding a
determination of the fair value of the shares of all dissenting stockholders.
There is no present intent on the part of Viacom to file an appraisal petition
and stockholders seeking to exercise appraisal rights should not assume that the
surviving corporation will file such a petition or that the surviving
corporation will initiate any negotiations with respect to the fair value of
such shares. Accordingly, Blockbuster stockholders who desire to have their
shares appraised should initiate any petitions necessary for the perfection of
their appraisal rights within the time periods and in the manner prescribed in
Section 262. If appraisal rights are available, within 120 days after the
Effective Time, any stockholder who has theretofore complied with the applicable
provisions of Section 262 will be entitled, upon written request, to receive
from the surviving corporation a statement setting forth the aggregate number of
shares of Blockbuster Common Stock not voting in favor of the Merger Agreement
and with respect to which demands for appraisal were received by Blockbuster and
the number of holders of such shares. Such statement must be mailed within 10
days after the written request therefor has been received by the surviving
corporation.
If a petition for an appraisal is timely filed and assuming appraisal
rights are available, at the hearing on such petition, the Delaware Court will
determine which stockholders, if any, are entitled to appraisal rights. The
Delaware 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
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Register in Chancery for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such direction, the
Delaware Court may dismiss the proceedings as to such stockholder. Where
proceedings are not dismissed, the Delaware Court will appraise the shares of
Blockbuster Common Stock owned by such stockholders, determining 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, to
be paid upon the amount determined to be the fair value. In determining fair
value, the Delaware Court is to take into account all relevant factors. In
Weinberger v. UOP Inc., the Delaware Supreme Court discussed the factors that
could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered, and that "fair price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court stated that in making this determination of fair value
the court must consider market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts which could be
ascertained as of the date of the merger which throw light on future prospects
of the merged corporation. In Weinberger, the Delaware Supreme Court stated that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered." Section 262, however, provides that fair
value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
Holders of shares of Blockbuster Common Stock considering seeking appraisal
should recognize that the fair value of their shares 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 do not seek
appraisal of their shares. The cost of the appraisal proceeding may be
determined by the Delaware Court and taxed against the parties as the Delaware
Court deems equitable in the circumstances. Upon application of a dissenting
stockholder of Blockbuster, the Delaware Court may order that all or a portion
of the expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorney's fees
and the fees and expenses of experts, be charged pro rata against the value of
all shares of stock entitled to appraisal.
Any holder of shares of Blockbuster Common Stock who has duly demanded
appraisal in compliance with Section 262 will not, after the Effective Time, be
entitled to vote for any purpose any shares subject to such demand or to receive
payment of dividends or other distributions on such shares, except for dividends
or distributions payable to stockholders of record at 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 such demand for appraisal and to accept the terms
offered in the Merger; after this period, the stockholder may withdraw such
demand for appraisal only with the consent of the surviving corporation. If no
petition for appraisal is filed with the Delaware Court within 120 days after
the Effective Time, stockholders' rights to appraisal shall cease, and all
holders of shares of Blockbuster Common Stock will be entitled to receive the
consideration offered pursuant to the Merger Agreement. Inasmuch as the
surviving corporation has no obligation to file such a petition, and Viacom has
no present intention to do so, any holder of shares of Blockbuster Common Stock
who desires such a petition to be filed is advised to file it on a timely basis.
Any stockholder may withdraw such stockholder's demand for appraisal by
delivering to the surviving corporation a written withdrawal of his or her
demand for appraisal and acceptance of the Merger, except (i) that any such
attempt to withdraw made more than 60 days after the Effective Time will require
written approval of the surviving corporation and (ii) that no appraisal
proceeding in the Delaware Court shall be dismissed as to any stockholder
without the approval of the Delaware Court, and such approval may be conditioned
upon such terms as the Delaware Court deems just.
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PROPOSAL TO AMEND THE BLOCKBUSTER 1991 NON-EMPLOYEE DIRECTOR PLAN
In 1991, the Blockbuster Board adopted, and the Blockbuster stockholders
ratified at the Blockbuster 1991 Annual Meeting, the Blockbuster 1991
Non-employee Director Stock Option Plan (the "1991 Non-employee Director Plan")
under which 200,000 shares of Blockbuster Common Stock are currently authorized
for issuance pursuant to the exercise of stock options granted thereunder. In
January 1994, the Blockbuster Board amended the 1991 Non-employee Director Plan,
subject to ratification by the stockholders of Blockbuster at the Blockbuster
Special Meeting, to provide that, from and after the Merger, if a non-employee
director shall cease to be a director of Blockbuster, the options granted under
the 1991 Non-employee Director Plan will remain exercisable pursuant to their
terms until the second anniversary of the Effective Time; provided, however,
that in no event shall the existing maximum term of any option be extended (the
"Extension Amendment").
The 1991 Non-employee Director Plan was adopted to make service on the
Blockbuster Board more attractive to present and future non-employee directors,
since continued service of qualified non-employee directors is considered
essential to the management, growth and financial success of Blockbuster. The
Extension Amendment is being proposed to eliminate the forfeiture effect of the
Merger on options granted under the 1991 Non-employee Director Plan. As
currently drafted, the 1991 Non-employee Director Plan provides generally that
termination of status as a director (other than for death or disability) will
result in the expiration of options granted to such director. Pursuant to the
Extension Amendment, the Merger will not penalize Blockbuster's non-employee
directors who, as a consequence of the Merger, will no longer serve as directors
of Blockbuster. The extension of exercisability will not, however, result in an
extension of the underlying terms of the options.
Under the 1991 Non-employee Director Plan, a non-employee director receives
an initial automatic grant at the time of initial election or appointment to the
Blockbuster Board for a number of shares determined by multiplying 10,000 by a
percentage derived by dividing the number of days remaining in the calendar year
of such initial election or appointment by the number of days in that calendar
year. Commencing with the first business day of the calendar year 1992 and
continuing in effect for the first business day of each subsequent calendar
year, each individual who is at the time serving as a non-employee director
receives a grant of 10,000 shares under the 1991 Non-employee Director Plan. As
of December 31, 1993, four non-employee directors were eligible to participate
in the 1991 Non-employee Director Plan.
The exercise price per share under the 1991 Non-employee Director Plan will
be the Closing Selling Price of the Blockbuster Common Stock as of the date of
each automatic grant. The Closing Selling Price is the lesser of (i) the closing
selling price per share on the date in question on the stock exchange upon which
the Blockbuster Common Stock is listed, or if there is no reported closing
selling price on such exchange on the last preceding date for which such
quotation exists, or (ii) the average of the closing selling prices per share of
Blockbuster Common Stock on such exchange for the ten trading days immediately
preceding the date in question or such fewer number of days during such ten-day
period for which a closing selling price quotation on such exchange exists. Each
option under the 1991 Non-employee Director Plan has a term of ten years from
the automatic grant date and will be immediately exercisable.
The 1991 Non-employee Director Plan contains provisions regarding
antidilution and business combinations.
If the amendment to the 1991 Non-employee Director Plan is ratified at the
Blockbuster Special Meeting and the Merger is consummated, options granted under
the 1991 Non-employee Director Plan shall not terminate prior to the second
anniversary of the Effective Time, if the optionee ceases to be a Board member
prior to such time, other than by reason of death or disability; provided,
however, that the maximum term of the option shall not be extended. In the event
of the optionee's death or disability, the personal representative of each
optionee or the optionee's estate, or the person inheriting the option
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will have three years after the date of the optionee's death or disability, to
exercise the option in full, but under no circumstances may the option be
exercised after the specified expiration date of the option term.
EXPERTS
FINANCIAL STATEMENTS
The financial statements incorporated in this Proxy Statement/Prospectus by
reference to the Annual Report on Form 10-K of Viacom for the year ended
December 31, 1993, as amended by Form 10-K/A Amendment No. 1 dated May 2, 1994,
have been so incorporated in reliance on the reports of Price Waterhouse LLP,
independent accountants, given on the authority of such firm as experts in
auditing and accounting.
The financial statements incorporated in this Proxy Statement/Prospectus by
reference to the Transition Report on Form 10-K of Paramount for the eleven
months ended March 31, 1994, as amended by Form 10-K/A Amendment No. 1 dated
July 29, 1994, and as further amended by Form 10-K/A Amendment No. 2 dated
August 12, 1994, have been so incorporated in reliance on the reports of Price
Waterhouse LLP, independent accountants, given on the authority of such firm as
experts in auditing and accounting.
The consolidated financial statements of Paramount incorporated by
reference in this Proxy Statement/Prospectus at April 30, 1993 and at October
31, 1992, and for the six-month period ended April 30, 1993, and for each of the
two years in the period ended October 31, 1992 included in its Transition Report
on Form 10-K for the eleven months ended March 31, 1994, as amended by Form 10-
K/A Amendment No. 1, and as further amended by Form 10-K/A Amendment No. 2, have
been audited by Ernst & Young, independent auditors, as set forth in their
reports thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements and schedules of Blockbuster
Entertainment Corporation and subsidiaries as of December 31, 1993 and 1992 and
for each of the three years in the period ended December 31, 1993 incorporated
by reference in this Proxy Statement/Prospectus have been audited by Arthur
Andersen & Co., independent certified public accountants, as indicated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
The consolidated financial statements of Super Club as of April 3, 1993,
and for the fifty-two week period then ended, incorporated by reference in this
Proxy Statement/Prospectus and included in Blockbuster's Current Report on Form
8-K dated November 5, 1993, have been incorporated by reference herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
refers to a change in the method of depreciating certain new release copies of
video rental cassettes.
LEGAL OPINIONS
The legality of the Viacom Class A Common Stock, Viacom Class B Common
Stock and the VCRs being offered hereby will be passed upon for Viacom by
Shearman & Sterling, New York, New York. Skadden, Arps, Slate, Meagher & Flom,
counsel to Blockbuster, and Shearman & Sterling, counsel to Viacom, will render
certain opinions with respect to matters of Federal income tax law. See
discussion under "The Merger--Certain Federal Income Tax Consequences."
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STOCKHOLDER PROPOSALS
Any Viacom stockholder who wishes to submit a proposal for presentation to
the 1995 Annual Meeting of Stockholders must submit the proposal to Viacom, 1515
Broadway, New York, New York 10036, Attention: Secretary, not later than
December 30, 1994, for inclusion, if appropriate, in Viacom's proxy statement
and the form of proxy relating to the 1995 Annual Meeting.
The date by which stockholder proposals must be received by Blockbuster for
inclusion in the proxy statement for its 1995 Annual Meeting of Stockholders, if
the Merger has not been consummated prior to the date the meeting is to be held,
is November 30, 1994.
By Order of the Board of Directors,
VIACOM INC.
PHILIPPE P. DAUMAN
Secretary
By Order of the Board of Directors,
BLOCKBUSTER ENTERTAINMENT CORPORATION
THOMAS W. HAWKINS
Secretary
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PRELIMINARY
COPIES ANNEX I
CONFIDENTIAL, FOR USE OF
THE COMMISSION ONLY
MERGER AGREEMENT
<PAGE>
[CONFORMED COPY]
AGREEMENT AND PLAN OF MERGER
BETWEEN
VIACOM INC.
AND
BLOCKBUSTER ENTERTAINMENT CORPORATION
DATED AS OF JANUARY 7, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PAGE
-----------
ARTICLE I
THE MERGER
1.01 The Merger......................................................................................... 1
1.02 Closing............................................................................................ 1
1.03 Effective Time..................................................................................... 2
1.04 Effect of the Merger............................................................................... 2
1.05 Certificate of Incorporation; By-Laws.............................................................. 2
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
2.01 Conversion of Securities........................................................................... 2
2.02 Exchange of Certificates and Cash.................................................................. 3
2.03 Stock Transfer Books............................................................................... 4
2.04 Stock Options...................................................................................... 4
2.05 Dissenting Shares.................................................................................. 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BLOCKBUSTER
3.01 Organization and Qualification; Subsidiaries....................................................... 6
3.02 Certificate of Incorporation and By-Laws........................................................... 6
3.03 Capitalization..................................................................................... 7
3.04 Authority Relative to this Agreement............................................................... 7
3.05 No Conflict; Required Filings and Consents......................................................... 8
3.06 Compliance......................................................................................... 8
3.07 SEC Filings; Financial Statements.................................................................. 8
3.08 Absence of Certain Changes or Events............................................................... 9
3.09 Absence of Litigation.............................................................................. 10
3.10 Employee Benefit Plans............................................................................. 10
3.11 Trademarks, Patents and Copyrights................................................................. 11
3.12 Taxes.............................................................................................. 11
3.13 Opinion of Financial Advisor....................................................................... 12
3.14 Vote Required...................................................................................... 12
3.15 Brokers............................................................................................ 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VIACOM
4.01 Organization and Qualification; Subsidiaries....................................................... 12
4.02 Certificate of Incorporation and By-Laws........................................................... 12
4.03 Capitalization..................................................................................... 13
4.04 Authority Relative to this Agreement............................................................... 13
4.05 No Conflict; Required Filings and Consents......................................................... 14
4.06 Compliance......................................................................................... 15
4.07 SEC Filings; Financial Statements.................................................................. 15
4.08 Absence of Certain Changes or Events............................................................... 16
4.09 Absence of Litigation.............................................................................. 16
4.10 Employee Benefit Plans............................................................................. 16
4.11 Trademarks, Patents and Copyrights................................................................. 17
4.12 Taxes.............................................................................................. 17
4.13 Opinion of Financial Advisor....................................................................... 18
4.14 Vote Required...................................................................................... 18
4.15 Brokers............................................................................................ 18
</TABLE>
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<TABLE>
<S> <C> <C>
PAGE
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ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
5.01 Conduct of Respective Businesses by Blockbuster and Viacom Pending the Merger...................... 18
ARTICLE VI
ADDITIONAL COVENANTS
6.01 Access to Information; Confidentiality............................................................. 20
6.02 Directors' and Officers' Indemnification and Insurance............................................. 20
6.03 Notification of Certain Matters.................................................................... 21
6.04 Tax Treatment...................................................................................... 21
6.05 Registration Statement; Joint Proxy Statement...................................................... 21
6.06 Stockholders' Meetings............................................................................. 22
6.07 Letters of Accountants............................................................................. 23
6.08 [Intentionally Deleted]............................................................................ 23
6.09 Further Action; Reasonable Best Efforts............................................................ 23
6.10 Debt Instruments................................................................................... 23
6.11 Public Announcements............................................................................... 24
6.12 Listing of Shares of Viacom Common Stock and VCRs.................................................. 24
6.13 Affiliates of Blockbuster.......................................................................... 24
6.14 Conveyance Taxes................................................................................... 24
6.15 Assumption of Debt and Leases...................................................................... 24
6.16 Transactions with Significant Stockholder After the Effective Time................................. 25
ARTICLE VII
CLOSING CONDITIONS
7.01 Conditions to Obligations of Each Party to Effect the Merger....................................... 25
7.02 Additional Conditions to Obligations of Viacom..................................................... 26
7.03 Additional Conditions to Obligations of Blockbuster................................................ 26
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.01 Termination........................................................................................ 27
8.02 Effect of Termination.............................................................................. 28
8.03 Amendment.......................................................................................... 29
8.04 Waiver............................................................................................. 29
8.05 Fees, Expenses and Other Payments.................................................................. 29
ARTICLE IX
GENERAL PROVISIONS
9.01 Effectiveness of Representations, Warranties and Agreements........................................ 29
9.02 Notices............................................................................................ 30
9.03 Certain Definitions................................................................................ 31
9.04 Headings........................................................................................... 31
9.05 Severability....................................................................................... 31
9.06 Entire Agreement................................................................................... 31
9.07 Assignment......................................................................................... 31
9.08 Parties in Interest................................................................................ 32
9.09 Governing Law...................................................................................... 32
9.10 Counterparts....................................................................................... 32
</TABLE>
<TABLE>
<S> <C>
ANNEX A VCRs Term Sheet
EXHIBIT 6.13 Form of Affiliate Letter
</TABLE>
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INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
SECTION
-------------------
affiliate.................................................................................... SECTION 9.03
Agreement.................................................................................... PREAMBLE
AMEX......................................................................................... SECTION 2.02
beneficial owner............................................................................. SECTION 9.03
Blockbuster.................................................................................. PREAMBLE
Blockbuster Common Stock..................................................................... SECTION 2.01
Blockbuster Disclosure Schedule.............................................................. SECTION 3.03
Blockbuster Material Adverse Effect.......................................................... SECTION 3.01
Blockbuster 1992 Balance Sheet............................................................... SECTION 3.12
Blockbuster Plans............................................................................ SECTION 3.10
Blockbuster Preferred Stock.................................................................. SECTION 3.03
Blockbuster SEC Reports...................................................................... SECTION 3.07
Blue Sky Laws................................................................................ SECTION 3.05
Blockbuster Stock Option..................................................................... SECTION 3.03
Blockbuster Subsidiary....................................................................... SECTION 3.01
business day................................................................................. SECTION 9.03
Certificate of Merger........................................................................ SECTION 1.03
Certificates................................................................................. SECTION 2.02
Class A Exchange Ratio....................................................................... SECTION 2.01
Class B Exchange Ratio....................................................................... SECTION 2.01
Code......................................................................................... RECITALS
Communications Act........................................................................... SECTION 3.05
Competing Transaction........................................................................ SECTION 8.01
Confidentiality Agreements................................................................... SECTION 6.01
control...................................................................................... SECTION 9.03
Delaware Law................................................................................. RECITALS
Dissenting Shares............................................................................ SECTION 2.05
Effective Time............................................................................... SECTION 1.03
ERISA........................................................................................ SECTION 3.10
Exchange Act................................................................................. SECTION 3.05
Exchange Agent............................................................................... SECTION 2.02
Exchange Fund................................................................................ SECTION 2.02
Exchange Ratios.............................................................................. SECTION 2.01
FCC.......................................................................................... SECTION 6.09
Governmental Entity.......................................................................... SECTION 3.05
HSR Act...................................................................................... SECTION 3.05
IRS.......................................................................................... SECTION 3.10
Material Blockbuster Subsidiary.............................................................. SECTION 3.01
Material Viacom Subsidiary................................................................... SECTION 4.01
Merger....................................................................................... RECITALS
Merger Consideration......................................................................... SECTION 2.02
Merrill Lynch................................................................................ SECTION 3.13
</TABLE>
iii
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<TABLE>
<S> <C>
SECTION
-------------------
Parent Voting Agreement...................................................................... RECITALS
Paramount.................................................................................... SECTION 5.01
Paramount Offer Documents.................................................................... SECTION 6.05
Proxy Statement.............................................................................. SECTION 6.05
Registration Statement....................................................................... SECTION 6.05
Respective Representatives................................................................... SECTION 6.01
SEC.......................................................................................... SECTION 3.01
Securities Act............................................................................... SECTION 3.05
Smith Barney................................................................................. SECTION 4.13
Spelling..................................................................................... SECTION 3.07
Stockholders' Meetings....................................................................... SECTION 6.06
subsidiary................................................................................... SECTION 9.03
Surviving Corporation........................................................................ SECTION 1.01
VCRs......................................................................................... SECTION 2.01
VCR Exchange Ratio........................................................................... SECTION 2.01
Viacom....................................................................................... PREAMBLE
Viacom Certificate Amendments................................................................ SECTION 4.04
Viacom Class A Common Stock.................................................................. RECITALS
Viacom Class B Common Stock.................................................................. SECTION 2.01
Viacom Common Stock.......................................................................... SECTION 2.01
Viacom Disclosure Schedule................................................................... SECTION 4.03
Viacom International......................................................................... SECTION 4.07
Viacom Material Adverse Effect............................................................... SECTION 4.01
Viacom 1992 Balance Sheet.................................................................... SECTION 4.12
Viacom Plans................................................................................. SECTION 4.10
Viacom Preferred Stock....................................................................... SECTION 4.03
Viacom SEC Reports........................................................................... SECTION 4.07
Viacom Subsidiary............................................................................ SECTION 4.01
Viacom Vote Matter........................................................................... SECTION 4.04
WARN......................................................................................... SECTION 3.10
</TABLE>
iv
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AGREEMENT AND PLAN OF MERGER, dated as of January 7, 1994 (this
"Agreement"), between VIACOM INC., a Delaware corporation ("Viacom"), and
BLOCKBUSTER ENTERTAINMENT CORPORATION, a Delaware corporation ("Blockbuster").
WITNESSETH:
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the General Corporation Law of the State of Delaware
("Delaware Law"), Blockbuster and Viacom will enter into a business combination
transaction pursuant to which Blockbuster will merge with and into Viacom (the
"Merger");
WHEREAS, the Board of Directors of Blockbuster has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of Blockbuster and is fair to, and in the best interests of, Blockbuster and the
holders of Blockbuster Common Stock (as defined in Section 2.01(a)) and has
approved and adopted this Agreement and has approved the Merger and the other
transactions contemplated hereby and recommended approval and adoption of this
Agreement and approval of the Merger by the stockholders of Blockbuster;
WHEREAS, the Board of Directors of Viacom has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of Viacom
and is fair to, and in the best interests of, Viacom and its stockholders and
has approved and adopted this Agreement and has approved the Merger and the
other transactions contemplated hereby and recommended approval and adoption of
this Agreement and approval of the Merger by the holders of the Class A Common
Stock, par value $.01 per share, of Viacom (the "Viacom Class A Common Stock");
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the United
States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Blockbuster to enter into this Agreement, National Amusements,
Inc., a Maryland corporation and the majority stockholder of Viacom ("Parent"),
and Blockbuster have entered into a Voting Agreement (the "Parent Voting
Agreement") pursuant to which Parent shall, among other things, vote its shares
of Viacom Class A Common Stock (as defined in Section 2.01(a)) in favor of the
Merger and the other transactions contemplated by this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with Delaware Law, at the Effective
Time (as defined in Section 1.03), Blockbuster shall be merged with and into
Viacom. As a result of the Merger, the separate corporate existence of
Blockbuster shall cease and Viacom shall continue as the surviving corporation
of the Merger (the "Surviving Corporation").
SECTION 1.02. Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 8.01 and subject to the satisfaction or waiver of the conditions set
forth in Article VII, the consummation of the Merger will take place as promptly
as practicable (and in any event within two business days) after satisfaction or
waiver of the
I-1
<PAGE>
conditions set forth in Article VII at the offices of Shearman & Sterling, 599
Lexington Avenue, New York, New York, unless another date, time or place is
agreed to in writing by the parties hereto.
SECTION 1.03. Effective Time. As promptly as practicable after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VII, the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware in such form as required by, and executed in accordance
with the relevant provisions of, Delaware Law (the date and time of such filing,
or such later date or time as set forth therein, being the "Effective Time").
SECTION 1.04. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise provided herein, all the property, rights,
privileges, powers and franchises of Viacom and Blockbuster shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Viacom and
Blockbuster shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.05. Certificate of Incorporation; By-Laws. At the Effective Time
the Certificate of Incorporation and the By-Laws of Viacom, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation and the By-Laws of the Surviving Corporation.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Viacom, Blockbuster or the
holders of any of the following securities:
(a) Each share of common stock, par value $.10 per share, of
Blockbuster ("Blockbuster Common Stock"), issued and outstanding
immediately prior to the Effective Time (other than any shares of
Blockbuster Common Stock to be canceled pursuant to Section 2.01(b) and any
Dissenting Shares (if applicable and as defined in Section 2.05)), shall be
converted, subject to Section 2.02(d), into the right to receive (x) .08 of
one share of Viacom Class A Common Stock (the "Class A Exchange Ratio"),
(y) .60615 of one share of Class B Common Stock, par value $.01 per share
("Viacom Class B Common Stock", and together with the Viacom Class A Common
Stock, the "Viacom Common Stock"), of Viacom (the "Class B Exchange Ratio")
and (z) up to an additional .13829 of one share of Viacom Class B Common
Stock, with such amount to be determined in accordance with, and the right
to receive such shares to be evidenced by, one variable common right (a
"VCR") issued by Viacom having the principal terms described in Annex A
(the "VCR Exchange Ratio"; together with the Class A and Class B Exchange
Ratios, the "Exchange Ratios"); provided, however, that, in any event, if
between the date of this Agreement and the Effective Time the outstanding
shares of Viacom Common Stock or Blockbuster Common Stock shall have been
changed into a different number of shares or a different class, by reason
of any stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares, the Exchange Ratios shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares. All such shares of Blockbuster Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each certificate previously evidencing any such shares shall
thereafter represent the right to receive, upon the surrender of such
certificate in accordance with the provisions of Section 2.02, certificates
evidencing (i) such number of whole shares of Viacom Common Stock into
which such Blockbuster Common Stock was converted in accordance with the
Class A and Class B Exchange Ratios and (ii) such number of VCRs into which
such Blockbuster Common Stock was converted in accordance with the VCR
Exchange
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Ratio. The holders of such certificates previously evidencing such shares
of Blockbuster Common Stock outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such shares of
Blockbuster Common Stock except as otherwise provided herein or by law. No
fractional share of Viacom Common Stock shall be issued; and, in lieu
thereof, a cash payment shall be made pursuant to Section 2.02(d).
(b) Each share of Blockbuster Common Stock held in the treasury of
Blockbuster and each share of Blockbuster Common Stock owned by Viacom or
any direct or indirect wholly owned subsidiary of Viacom or of Blockbuster
immediately prior to the Effective Time shall automatically be canceled and
extinguished without any conversion thereof and no payment shall be made
with respect thereto.
SECTION 2.02. Exchange of Certificates and Cash. (a) Exchange Agent. Viacom
shall deposit, or shall cause to be deposited, with or for the account of a bank
or trust company designated by Viacom, which shall be reasonably satisfactory to
Blockbuster (the "Exchange Agent"), for the benefit of the holders of shares of
Blockbuster Common Stock (other than Dissenting Shares, if applicable), for
exchange in accordance with this Article II, through the Exchange Agent, at the
Effective Time, (i) certificates evidencing the shares of Viacom Common Stock
and the VCRs issuable pursuant to Section 2.01 in exchange for outstanding
shares of Blockbuster Common Stock and (ii) upon the request of the Exchange
Agent, cash in an amount sufficient to make any cash payment due under Section
2.02(d) (such certificates for shares of Viacom Common Stock, together with any
dividends or distributions with respect thereto, the VCRs and cash being
hereafter collectively referred to as the "Exchange Fund"). The Exchange Agent
shall, pursuant to irrevocable instructions, deliver the Viacom Common Stock and
VCRs contemplated to be issued pursuant to Section 2.01 out of the Exchange Fund
to holders of shares of Blockbuster Common Stock. Except as contemplated by
Section 2.02(d) hereof, the Exchange Fund shall not be used for any other
purpose. Any interest, dividends or other income earned on the investment of
cash or other property held in the Exchange Fund shall be for the account of
Viacom.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Viacom will instruct the Exchange Agent to mail to each holder
of record of a certificate or certificates which immediately prior to the
Effective Time evidenced outstanding shares of Blockbuster Common Stock (other
than Dissenting Shares, if applicable) (the "Certificates") (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Viacom may reasonably specify) and (ii) instructions to effect the
surrender of the Certificates in exchange for the certificates evidencing shares
of Viacom Common Stock and the VCRs and cash (if any). Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed, and such other customary documents as may be
required pursuant to such instructions, the holder of such Certificate shall be
entitled to receive in exchange therefor (A) certificates evidencing that number
of whole shares of Viacom Common Stock and VCRs that such holder has the right
to receive in accordance with the Exchange Ratios in respect of the shares of
Blockbuster Common Stock formerly evidenced by such Certificate, (B) any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.02(c) and (C) cash in lieu of fractional shares of Viacom Common Stock
to which such holder is entitled pursuant to Section 2.02(d) (the shares of
Viacom Common Stock, the VCRs and the dividends, distributions and cash
described in clauses (A), (B) and (C) being, collectively, the "Merger
Consideration"), and the Certificate so surrendered shall forthwith be canceled.
In the event of a transfer of ownership of shares of Blockbuster Common Stock
that is not registered in the transfer records of Blockbuster, shares of Viacom
Common Stock and VCRs may be issued and paid in accordance with this Article II
to a transferee if the Certificate evidencing such shares of Blockbuster Common
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.02,
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each Certificate shall be deemed at any time after the Effective Time to
evidence only the right to receive upon such surrender the Merger Consideration.
(c) Distributions with Respect to Unexchanged Shares of Viacom Common
Stock. No dividends or other distributions declared or made after the Effective
Time with respect to Viacom Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of Viacom Common Stock they are entitled to receive until the
holder of such Certificate shall surrender such Certificate.
(d) Fractional Shares. No fraction of a share of Viacom Common Stock shall
be issued in the Merger. In lieu of any such fractional shares, each holder of
Blockbuster Common Stock upon surrender of a Certificate for exchange pursuant
to this Section 2.02 shall be paid an amount in cash (without interest), rounded
to the nearest cent, determined by multiplying (i) the per share closing price
on the American Stock Exchange ("AMEX") of Viacom Class A Common Stock or Viacom
Class B Common Stock, as the case may be, on the date of the Effective Time (or,
if shares of Viacom Class A Common Stock or Viacom Class B Common Stock, as the
case may be, do not trade on the AMEX on such date, the first date of trading of
such Viacom Common Stock on the AMEX after the Effective Time) by (ii) the
fractional interest to which such holder would otherwise be entitled (after
taking into account all shares of Blockbuster Common Stock then held of record
by such holder).
(e) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the holders of Blockbuster Common Stock for six months
after the Effective Time shall be delivered to Viacom, upon demand, and any
holders of Blockbuster Common Stock who have not theretofore complied with this
Article II shall thereafter look only to Viacom for the Merger Consideration to
which they are entitled pursuant to this Article II.
(f) No Liability. Neither Viacom nor Blockbuster shall be liable to any
holder of shares of Blockbuster Common Stock for any such shares of Viacom
Common Stock (or dividends or distributions with respect thereto) or VCRs from
the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(g) Withholding Rights. Viacom or the Exchange Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Blockbuster Common Stock such amounts as
Viacom or the Exchange Agent 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. To the extent that amounts are so withheld by Viacom or the
Exchange Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Blockbuster Common
Stock in respect of which such deduction and withholding was made by Viacom or
the Exchange Agent.
SECTION 2.03. Stock Transfer Books. At the Effective Time, the stock
transfer books of Blockbuster shall be closed, and there shall be no further
registration of transfers of shares of Blockbuster Common Stock thereafter on
the records of Blockbuster. On or after the Effective Time, any Certificates
presented to the Exchange Agent or Viacom for any reason shall be converted into
the Merger Consideration.
SECTION 2.04. Stock Options. At the Effective Time, Blockbuster's
obligations with respect to each outstanding Blockbuster Stock Option (as
defined in Section 3.03) to purchase shares of Blockbuster Common Stock, as
amended in the manner described in the following sentence, shall be assumed by
Viacom. The Blockbuster Stock Options so assumed by Viacom shall continue to
have, and be subject to, the same terms and conditions as set forth in the stock
option plans and agreements pursuant to which such Blockbuster Stock Options
were issued as in effect immediately prior to the Effective Time, except that
each such Blockbuster Stock Option shall be exercisable for (A) that number of
whole shares of (i) Viacom Class A Common Stock equal to the product of the
number of shares of Blockbuster Common Stock covered by such Blockbuster Stock
Option immediately prior to the
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Effective Time multiplied by the Class A Exchange Ratio and rounded up to the
nearest whole number of shares of Viacom Class A Common Stock and (ii) Viacom
Class B Common Stock equal to the product of the number of shares of Blockbuster
Common Stock covered by such Blockbuster Stock Option immediately prior to the
Effective Time multiplied by the Class B Exchange Ratio and rounded up to the
nearest whole number of shares of Viacom Class B Common Stock and (B) that
number of VCRs equal to the product of the number of shares of Blockbuster
Common Stock covered by such Blockbuster Stock Option immediately prior to the
Effective Time multiplied by the VCR Exchange Ratio. Each warrant held by
employees or directors of Blockbuster shall be converted into a Viacom warrant
on the same terms and conditions except that each such warrant shall be
exercisable for (A) that number of whole shares of (i) Viacom Class A Common
Stock equal to the product of the number of shares of Blockbuster Common Stock
covered by such warrant immediately prior to the Effective Time multiplied by
the Class A Exchange Ratio and rounded up to the nearest whole number of shares
of Viacom Class A Common Stock and (ii) Viacom Class B Common Stock equal to the
product of the number of shares of Blockbuster Common Stock covered by such
warrant immediately prior to the Effective Time multiplied by the Class B
Exchange Ratio and rounded up to the nearest whole number of shares of Viacom
Class B Common Stock and (B) that number of VCRs equal to the product of the
number of shares of Blockbuster Common Stock covered by such warrant immediately
prior to the Effective Time multiplied by the VCR Exchange Ratio. Viacom shall
(i) reserve for issuance the number of shares of Viacom Common Stock that will
become issuable upon the exercise of such Blockbuster Stock Options pursuant to
this Section 2.04 and (ii) promptly after the Effective Time issue to each
holder of an outstanding Blockbuster Stock Option a document evidencing the
assumption by Viacom of Blockbuster's obligations with respect thereto under
this Section 2.04. Nothing in this Section 2.04 shall affect the schedule of
vesting with respect to the Blockbuster Stock Options to be assumed by Viacom as
provided in this Section 2.04; provided, however, that Blockbuster and Viacom
shall use their best efforts to secure from each of the executives previously
identified by mutual agreement of Blockbuster and Viacom (the "Designated
Executives"), as promptly as practicable following the execution of this
Agreement, a waiver of (i) the accelerated vesting of Blockbuster Stock Options
held by such Designated Executive (such waiver to lapse (and vesting of such
Blockbuster Stock Option to occur if such option has not already vested in
accordance with the applicable vesting schedule) upon the termination of such
Designated Executive's employment with Blockbuster or Viacom for any reason) and
(ii) the triggering of the right of such Designated Executive to cause
Blockbuster to acquire his Blockbuster Stock Options for cash, in each case
resulting from the execution of this Agreement and the transactions contemplated
hereby, in consideration for Blockbuster entering into an employment agreement
acceptable to Blockbuster and Viacom with such Designated Executive. In addition
to the adjustment provided by Section 2.04, effective as of the Effective Time,
the terms of each Blockbuster Stock Option held by a Blockbuster employee who as
of the date hereof is not subject to the reporting requirements of Section 16(a)
of the Exchange Act, and, subject, at Blockbuster's discretion, to any
stockholder approvals it determines are necessary, any non employee director,
shall be amended to provide that, if such Blockbuster employee's employment is
terminated without cause, or such directorship shall cease, such Blockbuster
Stock Option shall not expire prior to the second anniversary of the Effective
Time; provided, however, that in no event shall the maximum term of such
Blockbuster Stock Option be extended.
SECTION 2.05. Dissenting Shares. (a) If provided for under Delaware Law,
notwithstanding any other provision of this Agreement to the contrary, shares of
Blockbuster Common Stock that are outstanding immediately prior to the Effective
Time and which are held by stockholders who shall have not voted in favor of the
Merger or consented thereto in writing and who shall have demanded properly in
writing appraisal for such shares in accordance with Section 262 of Delaware Law
and who shall not have withdrawn such demand or otherwise have forfeited
appraisal rights (collectively, the "Dissenting Shares") shall not be converted
into or represent the right to receive the Merger Consideration. Such
stockholders shall be entitled to receive payment of the appraised value of such
shares of Blockbuster Common Stock held by them in accordance with the
provisions of such Section 262, except that all
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Dissenting Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
shares of Blockbuster Common Stock under such Section 262 shall thereupon be
deemed to have been converted into and to have become exchangeable, as of the
Effective Time, for the right to receive, without any interest thereon, the
Merger Consideration, upon surrender, in the manner provided in Section 2.02, of
the certificate or certificates that formerly evidenced such shares of
Blockbuster Common Stock.
(b) Blockbuster shall give Viacom (i) prompt notice of any demands for
appraisal received by Blockbuster, withdrawals of such demands, and any other
instruments served pursuant to Delaware Law and received by Blockbuster and (ii)
the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under Delaware Law. Blockbuster shall not, except with the
prior written consent of Viacom, make any payment with respect to any demands
for appraisal, or offer to settle, or settle, any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BLOCKBUSTER
Blockbuster hereby represents and warrants to Viacom that:
SECTION 3.01. Organization and Qualification; Subsidiaries. (a) Each of
Blockbuster and each Material Blockbuster Subsidiary (as defined below) is a
corporation, partnership or other legal entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
organization and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
Blockbuster Material Adverse Effect (as defined below). Blockbuster and each
Material Blockbuster Subsidiary are duly qualified or licensed as foreign
corporations to do business, and are in good standing, in each jurisdiction
where the character of the properties owned, leased or operated by them or the
nature of their business makes such qualification or licensing necessary, except
for such failures to be so qualified or licensed and in good standing that would
not, individually or in the aggregate, have a Blockbuster Material Adverse
Effect. The term "Blockbuster Material Adverse Effect" means any change or
effect that is or would be materially adverse to the business, results of
operations or financial condition of Blockbuster and the Blockbuster
Subsidiaries, taken as a whole; provided that from and after the date on which
the issuance and sale of shares of Viacom Class B Common Stock contemplated by
the Subscription Agreement (the "Subscription Agreement") dated as of the date
of this Agreement between Viacom and Blockbuster is consummated (the
"Subscription Date"), the term "Blockbuster Material Adverse Effect", for
purposes of Article III and Section 7.02(a) only, shall be changed to mean any
change or effect that is or would be materially adverse to the financial
condition of Blockbuster and the Blockbuster Subsidiaries, taken as a whole,
excluding any changes or effects caused by changes in general economic
conditions or changes generally affecting Blockbuster's industry.
(b) Each subsidiary of Blockbuster (a "Blockbuster Subsidiary") that
constitutes a Significant Subsidiary of Blockbuster within the meaning of Rule
1-02 of Regulation S-X of the Securities and Exchange Commission (the "SEC") is
referred to herein as a "Material Blockbuster Subsidiary".
SECTION 3.02. Certificate of Incorporation and By-Laws. Blockbuster has
heretofore made available to Viacom a complete and correct copy of the
Certificate of Incorporation and the By-Laws or equivalent organizational
documents, each as amended to date, of Blockbuster and each Material Blockbuster
Subsidiary. Such Certificates of Incorporation, By-Laws and equivalent
organizational documents are in full force and effect. Neither Blockbuster nor
any Material Blockbuster Subsidiary is in violation of any provision of its
Certificate of Incorporation, By-Laws or equivalent organizational
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documents, except for such violations that would not, individually or in the
aggregate, have a Blockbuster Material Adverse Effect.
SECTION 3.03. Capitalization. The authorized capital stock of Blockbuster
consists of 300,000,000 shares of Blockbuster Common Stock and 500,000 shares of
Preferred Stock, par value $1.00 per share ("Blockbuster Preferred Stock"). As
of December 31, 1993, (i) 247,487,375 shares of Blockbuster Common Stock were
issued and outstanding, all of which were validly issued, fully paid and
nonassessable, (ii) no shares were held in the treasury of Blockbuster, (iii)
18,564,443 shares were reserved for future issuance pursuant to outstanding
employee stock options granted pursuant to Blockbuster's 1987 Stock Option Plan,
as amended, 1989 Stock Option Plan, as amended, 1990 Stock Option Plan, as
amended, 1991 Employee Director Stock Option Plan, 1991 Non-Employee Director
Stock Option Plan and any other employee stock option plan or program (any
employee or director stock option issued under any such plan being a
"Blockbuster Stock Option") and (iv) 7,138,859 shares were reserved for future
issuance pursuant to the terms of outstanding warrants to purchase shares of
Blockbuster Common Stock. As of the date hereof, no shares of Blockbuster
Preferred Stock are issued and outstanding. Except as set forth in Section 3.03
of the Disclosure Schedule previously delivered by Blockbuster to Viacom (the
"Blockbuster Disclosure Schedule"), or except as set forth in this Section 3.03,
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
Blockbuster or any Material Blockbuster Subsidiary or obligating Blockbuster or
any Material Blockbuster Subsidiary to issue or sell any shares of capital stock
of, or other equity interests in, Blockbuster or any Material Blockbuster
Subsidiary. All shares of Blockbuster Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in Section
3.03 of the Blockbuster Disclosure Schedule, there are no material outstanding
contractual obligations of Blockbuster or any Blockbuster Subsidiary to
repurchase, redeem or otherwise acquire any shares of Blockbuster Common Stock
or any capital stock of any Material Blockbuster Subsidiary, or make any
material investment (in the form of a loan, capital contribution or otherwise)
in, any Blockbuster Subsidiary or any other person. Each outstanding share of
capital stock of each Material Blockbuster Subsidiary is duly authorized,
validly issued, fully paid and nonassessable and each such share owned by
Blockbuster or another Blockbuster Subsidiary is free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on Blockbuster's or such other Blockbuster Subsidiary's voting
rights, charges and other encumbrances of any nature whatsoever.
SECTION 3.04. Authority Relative to this Agreement. Blockbuster has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by Blockbuster and the
consummation by Blockbuster of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Blockbuster are necessary to authorize this
Agreement or to consummate the transactions contemplated herein (other than,
with respect to the Merger, the approval and adoption of this Agreement by the
holders of a majority of the then outstanding shares of Blockbuster Common Stock
and the filing and recordation of appropriate merger documents as required by
Delaware Law). This Agreement has been duly and validly executed and delivered
by Blockbuster and, assuming the due authorization, execution and delivery by
Viacom, constitutes a legal, valid and binding obligation of Blockbuster,
enforceable against Blockbuster in accordance with its terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and subject, as to
enforceability, to the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
Blockbuster has taken all appropriate actions so that the restrictions on
business combinations contained in Section 203 of Delaware Law and Article 6 of
Blockbuster's Certificate of Incorporation will not apply with respect to or as
a result of the transactions contemplated herein or related hereto.
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SECTION 3.05. No Conflict; Required Filings and Consents. (a) Except as set
forth in Section 3.05 of the Blockbuster Disclosure Schedule, the execution and
delivery of this Agreement by Blockbuster do not, and the performance of the
transactions contemplated herein by Blockbuster will not, (i) conflict with or
violate the Certificate of Incorporation or By-Laws or equivalent organizational
documents of Blockbuster or any Material Blockbuster Subsidiary, (ii) conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to Blockbuster or any Blockbuster Subsidiary or by which any property or asset
of Blockbuster or any Blockbuster Subsidiary is bound or affected, or (iii)
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, result in the loss of a
material benefit under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of Blockbuster or any Blockbuster
Subsidiary pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Blockbuster or any Blockbuster Subsidiary is a party or by which
Blockbuster or any Blockbuster Subsidiary or any property or asset of
Blockbuster or any Blockbuster Subsidiary is bound or affected, except, in the
case of clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults or other occurrences which would not prevent or delay consummation of
the Merger in any material respect, or otherwise prevent Blockbuster from
performing its obligations under this Agreement in any material respect, and
would not, individually or in the aggregate, have a Blockbuster Material Adverse
Effect.
(b) The execution and delivery of this Agreement by Blockbuster do not, and
the performance of this Agreement by Blockbuster will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign (each a "Governmental
Entity"), except (i) for (A) applicable requirements, if any, of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act of
1933, as amended (the "Securities Act"), state securities or "blue sky" laws
("Blue Sky Laws") and state takeover laws, (B) the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"), (C)
applicable requirements of the Investment Canada Act of 1985 and the Competition
Act (Canada), (D) filing and recordation of appropriate merger documents as
required by Delaware Law and (E) any non-United States competition, antitrust
and investment laws and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the Merger in any material respect, or
otherwise prevent Blockbuster from performing its obligations under this
Agreement in any material respect, and would not, individually or in the
aggregate, have a Blockbuster Material Adverse Effect.
SECTION 3.06. Compliance. Except as set forth in Section 3.06 of the
Blockbuster Disclosure Schedule, neither Blockbuster nor any Blockbuster
Subsidiary is in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree (including, without limitation,
laws, rules and regulations relating to franchises) applicable to Blockbuster or
any Blockbuster Subsidiary or by which any property or asset of Blockbuster or
any Blockbuster Subsidiary is bound or affected, or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Blockbuster or any Blockbuster
Subsidiary is a party or by which Blockbuster or any Blockbuster Subsidiary or
any property or asset of Blockbuster or any Blockbuster Subsidiary is bound or
affected, except for any such conflicts, defaults or violations that would not,
individually or in the aggregate, have a Blockbuster Material Adverse Effect.
SECTION 3.07. SEC Filings; Financial Statements. (a) Blockbuster has filed
all forms, reports and documents required to be filed by it with the SEC since
December 31, 1990 and has heretofore made available to Viacom, in the form filed
with the SEC (excluding any exhibits thereto), (i) its Annual Reports on Form
10-K for the years ended December 31, 1990, 1991 and 1992, respectively, (ii)
its Quarterly Reports on Form 10-Q for the periods ended March 30, 1993, June
30, 1993 and September 30, 1993, (iii) all proxy statements relating to
Blockbuster's meetings of stockholders
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(whether annual or special) held since January 1, 1991 and (iv) all other forms,
reports and other registration statements (other than Quarterly Reports on Form
10-Q not referred to in clause (ii) above and preliminary materials) filed by
Blockbuster with the SEC since December 31, 1990 (the forms, reports and other
documents referred to in clauses (i), (ii), (iii) and (iv) above being referred
to herein, collectively, as the "Blockbuster SEC Reports"). The Blockbuster SEC
Reports and any forms, reports and other documents filed by Blockbuster with the
SEC after the date of this Agreement (x) were or will be prepared in accordance
with the requirements of the Securities Act and the Exchange Act, as the case
may be, and the rules and regulations thereunder and (y) did not at the time
they were filed, or will not at the time they are filed, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of circumstances under which they were made, not misleading. No Material
Blockbuster Subsidiary, except for Spelling Entertainment Group Inc., a Florida
corporation ("Spelling"), is required to file any form, report or other document
with the SEC.
(b) Spelling has filed all forms, reports and documents required to be
filed by it with the SEC since June 30, 1992 and Blockbuster has heretofore made
available to Viacom, in the form filed with the SEC (excluding any exhibits
thereto), (i) Spelling's Quarterly Reports on Form 10-Q for the periods ended
June 30, 1993 and September 30, 1993, (ii) all proxy statements relating to
Spelling's meetings of stockholders (whether annual or special) held since May
1, 1993 and (iii) all other forms, reports and other registration statements
(other than Quarterly Reports on Form 10-Q not referred to in clause (ii) above
and preliminary materials) filed by Spelling with the SEC since May 1, 1992 (the
forms, reports and other documents referred to in clauses (i), (ii) and (iii)
above being referred to herein, collectively, as the "Spelling SEC Reports").
The Spelling SEC Reports and any forms, reports and other documents filed by
Spelling with the SEC after the date of this Agreement (x) were or will be
prepared in accordance with the requirements of the Securities Act and the
Exchange Act, as the case may be, and the rules and regulations thereunder and
(y) did not at the time they were filed, or will not at the time they are filed,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(c) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Blockbuster SEC Reports and Spelling SEC
Reports was prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto) and each fairly presented the financial
position, results of operations and cash flows of Blockbuster and the
consolidated Blockbuster Subsidiaries or Spelling and its subsidiaries, as the
case may be, as at the respective dates thereof and for the respective periods
indicated therein (subject, in the case of unaudited statements, to normal and
recurring year-end adjustments which were not and are not expected, individually
or in the aggregate, to be material in amount).
(d) Except as set forth in Section 3.07 of the Blockbuster Disclosure
Schedule or except as and to the extent set forth in the Blockbuster SEC Reports
filed with the SEC prior to the date of this Agreement, Blockbuster and the
Blockbuster Subsidiaries do not have any liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise) other than liabilities and
obligations which would not, individually or in the aggregate, have a
Blockbuster Material Adverse Effect.
SECTION 3.08. Absence of Certain Changes or Events. Since December 31,
1992, except as set forth in Section 3.08 of the Blockbuster Disclosure
Schedule, contemplated by this Agreement or disclosed in any Blockbuster SEC
Report filed since December 31, 1992 and prior to the date of this Agreement,
Blockbuster and the Blockbuster Subsidiaries have conducted their businesses
only in the ordinary course and in a manner consistent with past practice and,
since December 31, 1992, there has not been (i) any Blockbuster Material Adverse
Effect, (ii) any damage, destruction or loss (whether or not covered by
insurance) with respect to any property or asset of Blockbuster or any
Blockbuster Subsidiary and having, individually or in the aggregate, a
Blockbuster Material Adverse Effect,
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(iii) any change by Blockbuster in its accounting methods, principles or
practices, (iv) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of Blockbuster or any Blockbuster
Subsidiary or any redemption, purchase or other acquisition of any of their
respective securities other than (A) regular quarterly dividends on the shares
of Blockbuster Common Stock not in excess of $0.025 per share, (B) regular
quarterly dividends on the shares of the common stock of Spelling not in excess
of $.020 per share, (C) dividends by a Blockbuster Subsidiary to Blockbuster and
(D) to fund pre-established dividend reinvestment plans or (v) other than as set
forth in Section 3.03 and pursuant to the plans, programs or arrangements
referred to in Section 3.10 and other than in the ordinary course of business
consistent with past practice, any increase in or establishment of any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards, or restricted stock
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any officers or key employees
of Blockbuster or any Blockbuster Subsidiary.
SECTION 3.09. Absence of Litigation. Except as set forth in Section 3.09 of
the Blockbuster Disclosure Schedule or except as disclosed in the Blockbuster
SEC Reports filed with the SEC prior to the date of this Agreement, there is no
claim, action, proceeding or investigation pending or, to the best knowledge of
Blockbuster, threatened against Blockbuster or any Blockbuster Subsidiary, or
any property or asset of Blockbuster or any Blockbuster Subsidiary, before any
court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, which, individually or in the aggregate, would have a
Blockbuster Material Adverse Effect. Except as disclosed in the Blockbuster SEC
Reports filed with the SEC prior to the date of this Agreement, neither
Blockbuster nor any Blockbuster Subsidiary nor any property or asset of
Blockbuster or any Blockbuster Subsidiary is subject to any order, writ,
judgment, injunction, decree, determination or award which would have,
individually or in the aggregate, a Blockbuster Material Adverse Effect.
SECTION 3.10. Employee Benefit Plans. With respect to all the employee
benefit plans, programs and arrangements maintained or contributed to by
Blockbuster or any Blockbuster Subsidiary for the benefit of any current or
former employee, officer or director of Blockbuster or any Blockbuster
Subsidiary (the "Blockbuster Plans"), except as set forth in Section 3.10 of the
Blockbuster Disclosure Schedule or the Blockbuster SEC Reports and except as
would not, individually or in the aggregate, have a Blockbuster Material Adverse
Effect: (i) each Blockbuster Plan intended to be qualified under Section 401(a)
of the Code has received a favorable determination letter from the Internal
Revenue Service (the "IRS") that it is so qualified and nothing has occurred
since the date of such letter that could reasonably be expected to affect the
qualified status of such Blockbuster Plan; (ii) each Blockbuster Plan has been
operated in all material respects in accordance with its terms and the
requirements of applicable law; (iii) neither Blockbuster nor any Blockbuster
Subsidiary has incurred any direct or indirect liability under, arising out of
or by operation of Title IV of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), in connection with the termination of, or withdrawal
from, any Blockbuster Plan or other retirement plan or arrangement, and no fact
or event exists that could reasonably be expected to give rise to any such
liability; and (iv) Blockbuster and the Blockbuster Subsidiaries have not
incurred any liability under, and have complied in all material respects with,
the Worker Adjustment Retraining Notification Act ("WARN"), and no fact or event
exists that could give rise to liability under such act. Except as set forth in
Section 3.10 of the Blockbuster Disclosure Schedule, none of the Blockbuster
Plans currently maintained by or contributed to by Blockbuster nor any Plan
maintained by any entity that together with Blockbuster or the Blockbuster
Subsidiaries would be deemed a "single employer" within the meaning of Section
4001(b) of ERISA (a "Blockbuster Affiliate Plan") is subject to Title IV of
ERISA. No Blockbuster Plan or Blockbuster Affiliate Plan has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived as of the most recently completed plan
year of such plan.
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SECTION 3.11. Trademarks, Patents and Copyrights. Blockbuster and the
Blockbuster Subsidiaries own, or possess adequate licenses or other valid rights
to use, all material patents, patent rights, trademarks, trademark rights, trade
names, trade name rights, copyrights, service marks, service mark rights, trade
secrets, applications to register, and registrations for, the foregoing
trademarks, service marks, know-how and other proprietary rights and information
used in connection with the business of Blockbuster and the Blockbuster
Subsidiaries as currently conducted, and no assertion or claim has been made in
writing challenging the validity of any of the foregoing which, individually or
in the aggregate, would have a Blockbuster Material Adverse Effect. To the best
knowledge of Blockbuster, the conduct of the business of Blockbuster and the
Blockbuster Subsidiaries as currently conducted does not conflict in any way
with any patent, patent right, license, trademark, trademark right, trade name,
trade name right, service mark or copyright of any third party that,
individually or in the aggregate, would have a Blockbuster Material Adverse
Effect.
SECTION 3.12. Taxes. Except as set forth in Section 3.12 of the Disclosure
Schedule, Blockbuster and the Blockbuster Subsidiaries have timely filed all
federal, state, local and foreign tax returns and reports required to be filed
by them through the date hereof and shall timely file all returns and reports
required on or before the Effective Time, except for such returns and reports
the failure of which to file timely would not, individually or in the aggregate,
have a Blockbuster Material Adverse Effect. Such reports and returns are and
will be true, correct and complete, except for such failures to be true, correct
and complete as would not, individually or in the aggregate, have a Blockbuster
Material Adverse Effect. Blockbuster and the Blockbuster Subsidiaries have paid
and discharged all federal, state, local and foreign taxes due from them, other
than such taxes that are being contested in good faith by appropriate
proceedings and are adequately reserved as shown in the audited consolidated
balance sheet of Blockbuster dated December 31, 1992 (the "Blockbuster 1992
Balance Sheet") and its most recent quarterly financial statements, except for
such failures to so pay and discharge which would not, individually or in the
aggregate, have a Blockbuster Material Adverse Effect. Neither the IRS nor any
other taxing authority or agency, domestic or foreign, is now asserting or, to
the best knowledge of Blockbuster, threatening to assert against Blockbuster or
any Blockbuster Subsidiary any deficiency or material claim for additional taxes
or interest thereon or penalties in connection therewith which, if such
deficiencies or claims were finally resolved against Blockbuster and the
Blockbuster Subsidiaries would, individually or in the aggregate, have a
Blockbuster Material Adverse Effect. The accruals and reserves for taxes
(including interest and penalties, if any, thereon) reflected in the Blockbuster
1992 Balance Sheet and the most recent quarterly financial statements are
adequate in accordance with generally accepted accounting principles, except
where the failure to be adequate would not have a Blockbuster Material Adverse
Effect. Blockbuster and the Blockbuster Subsidiaries have withheld or collected
and paid over to the appropriate governmental authorities or are properly
holding for such payment all taxes required by law to be withheld or collected,
except for such failures to have so withheld or collected and paid over or to be
so holding for payment which would not, individually or in the aggregate, have a
Blockbuster Material Adverse Effect. There are no material liens for taxes upon
the assets of Blockbuster or the Blockbuster Subsidiaries, other than liens for
current taxes not yet due and payable and liens for taxes that are being
contested in good faith by appropriate proceedings. Neither Blockbuster nor any
Blockbuster Subsidiary has agreed to or is required to make any adjustment under
Section 481(a) of the Code. Neither Blockbuster nor any Blockbuster Subsidiary
has made an election under Section 341(f) of the Code. For purposes of this
Section 3.12, where a determination of whether a failure by Blockbuster or a
Blockbuster Subsidiary to comply with the representations herein has a
Blockbuster Material Adverse Effect is necessary, such determination shall be
made on an aggregate basis with all other failures within this Section 3.12.
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SECTION 3.13. Opinion of Financial Advisor. Blockbuster has received the
opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
dated January 7, 1994, to the effect that, as of such date, the Exhange Ratios,
taken as a whole, are fair to the stockholders of Blockbuster from a financial
point of view, a copy of which opinion has been delivered to Viacom.
SECTION 3.14. Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Blockbuster Common Stock is the only vote
of the holders of any class or series of Blockbuster capital stock necessary to
approve the Merger.
SECTION 3.15. Brokers. No broker, finder or investment banker (other than
Merrill Lynch) is entitled to any brokerage, finder's or other fee or commission
in connection with the transactions contemplated herein based upon arrangements
made by or on behalf of Blockbuster. Blockbuster has heretofore furnished to
Viacom a complete and correct copy of all agreements between Blockbuster and
Merrill Lynch pursuant to which such firm would be entitled to any payment
relating to the transactions contemplated herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VIACOM
Viacom hereby represents and warrants to Blockbuster that:
SECTION 4.01. Organization and Qualification; Subsidiaries. (a) Each of
Viacom and each Material Viacom Subsidiary (as defined below) is a corporation,
partnership or other legal entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has the requisite power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing or in good standing or to have such power, authority and governmental
approvals would not, individually or in the aggregate, have a Viacom Material
Adverse Effect (as defined below). Viacom and each Material Viacom Subsidiary is
duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that would not, individually or in the aggregate, have a
Viacom Material Adverse Effect. The term "Viacom Material Adverse Effect" means
any change or effect that is or would be materially adverse to the business,
results of operations or financial condition of Viacom and the Viacom
Subsidiaries, taken as a whole; provided that from and after the Subscription
Date, the term "Viacom Material Adverse Effect", for purposes of Article IV and
Section 7.03(a) only, shall be changed to mean any change or effect that is or
would be materially adverse to the financial condition of Viacom and the Viacom
Subsidiaries, taken as a whole, excluding any changes or effects caused by
changes in general economic conditions or changes generally affecting Viacom's
industry.
(b) Each subsidiary of Viacom (a "Viacom Subsidiary") that constitutes a
Significant Subsidiary of Viacom within the meaning of Rule 1-02 of Regulation
S-X of the SEC is referred to herein as a "Material Viacom Subsidiary".
SECTION 4.02. Certificate of Incorporation and By-Laws. Viacom has
heretofore made available to Blockbuster a complete and correct copy of the
Certificate of Incorporation and the By-Laws or equivalent organizational
documents, each as amended to date, of Viacom and each Material Viacom
Subsidiary. Such Certificates of Incorporation, By-Laws and equivalent
organizational documents are in full force and effect. Neither Viacom nor any
Material Viacom Subsidiary is in violation of any provision of its Certificate
of Incorporation, By-Laws or equivalent organizational documents, except for
such violations that would not, individually or in the aggregate, have a Viacom
Material Adverse Effect.
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SECTION 4.03. Capitalization. The authorized capital stock of Viacom
consists of 100,000,000 shares of Viacom Class A Common Stock, 150,000,000
shares of Viacom Class B Common Stock and 100,000,000 shares of Preferred Stock,
par value $.01 per share ("Viacom Preferred Stock"), of which 24,000,000 shares
have been designated Series A Preferred Stock (the "Series A Preferred Stock")
and 24,000,000 shares have been designated Series B Preferred Stock (the "Series
B Preferred Stock"). As of November 30, 1993, (i) 53,449,125 shares of Viacom
Class A Common Stock and 67,345,982 shares of Viacom Class B Common Stock were
issued and outstanding, all of which were validly issued, fully paid and
nonassessable, (ii) no shares were held in the treasury of Viacom, (iii) no
shares were held by the Viacom Subsidiaries, and (iv) 224,610 shares of Viacom
Class A Common Stock and 3,760,297 shares of Viacom Class B Common Stock were
reserved for future issuance pursuant to outstanding employee stock options or
stock incentive rights granted pursuant to Viacom's 1989 Long-Term Management
Incentive Plan, the Viacom Inc. Stock Option Plan for Outside Directors and any
other employee stock option plan or program. Since December 1, 1993 to the date
of this Agreement, stock options were granted pursuant to which no shares of
Viacom Class A Common Stock and no shares of Viacom Class B Common Stock are
subject to issuance. As of the date hereof, 24,000,000 shares of Viacom Series A
Preferred Stock and 24,000,000 shares of Viacom Series B Preferred Stock are
issued and outstanding. Except as set forth in this Section 4.03 and as
contemplated by this Agreement, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of Viacom or any Material Viacom Subsidiary or
obligating Viacom or any Material Viacom Subsidiary to issue or sell any shares
of capital stock of, or other equity interests in, Viacom or any Material Viacom
Subsidiary, except for (i) options granted since November 30, 1993 in the
ordinary course consistent with past practice, (ii) the reservation of 8,570,400
shares of Class B Common Stock for issuance upon conversion of shares of Viacom
Series A Preferred Stock and (iii) the reservation of 17,140,800 shares of Class
B Common Stock for issuance upon conversion of shares of Series B Preferred
Stock. All shares of Viacom Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, will be duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in Section 4.03 of the Disclosure Schedule
previously delivered by Viacom to Blockbuster (the "Viacom Disclosure
Schedule"), there are no material outstanding contractual obligations of Viacom
or any Viacom Subsidiary to repurchase, redeem or otherwise acquire any shares
of Viacom Common Stock or any capital stock of any Material Viacom Subsidiary,
or make any material investment (in the form of a loan, capital contribution or
otherwise) in, any Viacom Subsidiary or any other person. Each outstanding share
of capital stock of each Material Viacom Subsidiary is duly authorized, validly
issued, fully paid and nonassessable and each such share owned by Viacom or
another Viacom Subsidiary is free and clear of all security interests, liens,
claims, pledges, options, rights of first refusal, agreements, limitations on
Viacom's or such other Viacom Subsidiary's voting rights, charges and other
encumbrances of any nature whatsoever. The VCRs to be issued pursuant to the
Merger will be duly and validly authorized by Viacom and, when issued and
delivered pursuant to the terms of this Agreement, will be duly and validly
issued, fully paid and nonassessable. The shares of Viacom Class B Common Stock
(if any) issuable pursuant to the terms of the VCRs will be duly authorized,
validly issued, fully paid and nonassessable. The VCRs constitute legal, valid
and binding obligations of Viacom, enforceable against Viacom in accordance with
their terms, subject to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to the effect of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
SECTION 4.04. Authority Relative to this Agreement. Viacom has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
herein. The execution and delivery of this Agreement by Viacom and the
consummation by Viacom of the transactions contemplated herein have been duly
and validly authorized by all necessary corporate action and the Parent Voting
Agreement has been approved by the Viacom Board of Directors for purposes of
Section 203 of Delaware Law and no other corporate
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proceedings on the part of Viacom are necessary to authorize this Agreement or
to consummate the transactions contemplated herein (other than, with respect to
the Merger, the approval by the holders of a majority of the then outstanding
shares of Viacom Class A Common Stock of (i) this Agreement and the Merger and
(ii) to the extent necessary, the amendment to Viacom's Certificate of
Incorporation necessary to increase (x) the shares of authorized Viacom Class B
Common Stock to a number not less than the number sufficient to consummate the
issuance of Shares of Viacom Class B Common Stock contemplated under this
Agreement and (y) the size of the Board of Directors of Viacom to a number not
less than 12 (collectively, the "Viacom Vote Matter"; and the amendments to
Viacom's Certificate of Incorporation described in clauses (x) and (y) being,
collectively, the "Viacom Certificate Amendments"), and the filing and
recordation of the foregoing amendment to Viacom's Certificate of Incorporation
and appropriate merger documents as required by Delaware Law). This Agreement
has been duly and validly executed and delivered by Viacom and, assuming the due
authorization, execution and delivery by Blockbuster, constitutes a legal, valid
and binding obligation of Viacom, enforceable against Viacom in accordance with
its terms, subject to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to the effect of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
SECTION 4.05. No Conflict; Required Filings and Consents. (a) Except as set
forth in Section 4.05 of the Viacom Disclosure Schedule, the execution and
delivery of this Agreement by Viacom do not, and the performance of the
transactions contemplated herein by Viacom will not, (i) conflict with or
violate the Certificate of Incorporation or By-Laws or equivalent organizational
documents of Viacom or any Material Viacom Subsidiary, (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to
Viacom or any Viacom Subsidiary or by which any property or asset of Viacom or
any Viacom Subsidiary is bound or affected, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, result in the loss of a material benefit under or
give to others any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or other encumbrance on any property or
asset of Viacom or any Viacom Subsidiary pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Viacom or any Viacom Subsidiary is a party or
by which Viacom or any Viacom Subsidiary or any property or asset of Viacom or
any Viacom Subsidiary is bound or affected, except in the case of clauses (ii)
and (iii), for any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or delay consummation of the Merger in any
material respect, or otherwise prevent Viacom from performing its obligations
under this Agreement in any material respect, and would not, individually or in
the aggregate, have a Viacom Material Adverse Effect.
(b) The execution and delivery of this Agreement by Viacom do not, and the
performance of this Agreement by Viacom will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Entity, except (i) for (A) applicable requirements, if any, of the Exchange Act,
Securities Act, state securities or Blue Sky Laws and state takeover laws, (B)
the pre-merger notification requirements of the HSR Act, (C) applicable
requirements, if any, of the Communications Act, and of state and local
governmental authorities, including state and local authorities granting
franchises to operate cable systems, (D) applicable requirements of the
Investment Canada Act of 1985 and the Competition Act (Canada), (E) filing and
recordation of appropriate merger documents and the Viacom Certificate
Amendments as required by Delaware Law and (F) any non-United States
competition, antitrust and investment laws and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the Merger in any
material respect, or otherwise prevent Viacom from performing its obligations
under this Agreement in any material respect, and would not, individually or in
the aggregate, have a Viacom Material Adverse Effect.
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SECTION 4.06. Compliance. Neither Viacom nor any Viacom Subsidiary is in
conflict with, or in default or violation of, (i) any law, rule, regulation,
order, judgment or decree applicable to Viacom or any Viacom Subsidiary or by
which any property or asset of Viacom or any Viacom Subsidiary is bound or
affected, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Viacom or any Viacom Subsidiary is a party or by which Viacom or any Viacom
Subsidiary or any property or asset of Viacom or any Viacom Subsidiary is bound
or affected, except for any such conflicts, defaults or violations that would
not, individually or in the aggregate, have a Viacom Material Adverse Effect.
SECTION 4.07. SEC Filings; Financial Statements. (a) Viacom has filed all
forms, reports and documents required to be filed by it with the SEC since
December 31, 1990, and has heretofore made available to Blockbuster, in the form
filed with the SEC (excluding any exhibits thereto), (i) its Annual Reports on
Form 10-K for the fiscal years ended December 31, 1990, 1991 and 1992,
respectively, (ii) its Quarterly Reports on Form 10-Q for the periods ended
March 31, 1993, June 30, 1993 and September 30, 1993, (iii) all proxy statements
relating to Viacom's meetings of stockholders (whether annual or special) held
since January 1, 1991 and (iv) all other forms, reports and other registration
statements (other than Quarterly Reports on Form 10-Q not referred to in clause
(ii) above and preliminary materials) filed by Viacom with the SEC since
December 31, 1990 (the forms, reports and other documents referred to in clauses
(i), (ii), (iii), and (iv) above being referred to herein, collectively, as the
"Viacom SEC Reports"). The Viacom SEC Reports and any other forms, reports and
other documents filed by Viacom with the SEC after the date of this Agreement
(x) were or will be prepared in accordance with the requirements of the
Securities Act and the Exchange Act, as the case may be, and the rules and
regulations thereunder and (y) did not at the time they were filed, or will not
at the time they are filed, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. No Material Viacom Subsidiary (other
than Viacom International Inc., a Delaware corporation ("Viacom International"))
is required to file any form, report or other document with the SEC.
(b) Viacom International has filed all forms, reports and documents
required to be filed by it with the SEC since December 31, 1992 and Viacom has
heretofore made available to Blockbuster, in the form filed with the SEC
(excluding any exhibits thereto), (i) Viacom International's Annual Report on
Form 10-K for the year ended December 31, 1992, (ii) Viacom International's
Quarterly Reports on Form 10-Q for the periods ended March 31, 1993, June 30,
1993 and September 30, 1993, (iii) all proxy statements relating to Viacom
International's meetings of stockholders (whether annual or special) held since
January 1, 1993 and (iv) all other forms, reports and other registration
statements (other than Quarterly Reports on Form 10-Q not referred to in clause
(ii) above and preliminary materials) filed by Viacom International with the SEC
since December 31, 1992 (the forms, reports and other documents referred to in
clauses (i), (ii), (iii) and (iv) above being referred to herein, collectively,
as the "Viacom International SEC Reports"). The Viacom International SEC Reports
and any forms, reports and other documents filed by Viacom International with
the SEC after the date of this Agreement (x) were or will be prepared in
accordance with the requirements of the Securities Act and the Exchange Act, as
the case may be, and the rules and regulations thereunder and (y) did not at the
time they were filed, or will not at the time they are filed, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
(c) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Viacom SEC Reports and the Viacom
International SEC Reports was prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto) and each fairly
presented the consolidated financial position, results of operations and cash
flows of Viacom and the consolidated Viacom Subsidiaries or Viacom International
or the subsidiaries of Viacom International, as the case
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may be, as at the respective dates thereof and for the respective periods
indicated therein (subject, in the case of unaudited statements, to normal and
recurring year-end adjustments which were not and are not expected, individually
or in the aggregate, to be material in amount).
(d) Except as and to the extent set forth in the Viacom SEC Reports filed
with the SEC prior to the date of this Agreement, Viacom and the Viacom
Subsidiaries do not have any liability or obligation of any nature (whether
accrued, absolute, contingent or otherwise) other than liabilities and
obligations which would not, individually or in the aggregate, have a Viacom
Material Adverse Effect.
SECTION 4.08. Absence of Certain Changes or Events. Since December 31,
1992, except as contemplated by this Agreement, as set forth in Section 4.08 of
the Disclosure Schedule or disclosed in any Viacom SEC Report filed since
December 31, 1992 and prior to the date of this Agreement, Viacom and the Viacom
Subsidiaries have conducted their businesses only in the ordinary course and in
a manner consistent with past practice and, since December 31, 1992 there has
not been (i) any Viacom Material Adverse Effect, (ii) any damage, destruction or
loss (whether or not covered by insurance) with respect to any property or asset
of Viacom or any Viacom Subsidiary and having, individually or in the aggregate,
a Viacom Material Adverse Effect, (iii) any change by Viacom in its accounting
methods, principles or practices, (iv) any declaration, setting aside or payment
of any dividend or distribution in respect of any capital stock of Viacom or any
Viacom Subsidiary or any redemption, purchase or other acquisition of any of
their respective securities other than dividends by a Viacom Subsidiary to
Viacom or (v) other than as set forth in Section 4.03 and pursuant to the plans,
programs or arrangements referred to in Section 4.10, other than in the ordinary
course of business consistent with past practice, any increase in or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any officers or key employees of Viacom or any Viacom
Subsidiary, except for the establishment of the Viacom Inc. Stock Option Plan
for Outside Directors and the grant of options to purchase an aggregate of
25,000 shares thereunder.
SECTION 4.09. Absence of Litigation. Except as disclosed in the Viacom SEC
Reports filed with the SEC prior to the date of this Agreement, there is no
claim, action, proceeding or investigation pending or, to the best knowledge of
Viacom, threatened against Viacom or any Viacom Subsidiary, or any property or
asset of Viacom or any Viacom Subsidiary, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, which, individually or in the aggregate, would have a Viacom Material
Adverse Effect. Except as disclosed in the Viacom SEC Reports filed with the SEC
prior to the date of this Agreement, neither Viacom nor any Viacom Subsidiary
nor any property or asset of Viacom or any Viacom Subsidiary is subject to any
order, writ, judgment, injunction, decree, determination or award which would
have, individually or in the aggregate, a Viacom Material Adverse Effect.
SECTION 4.10. Employee Benefit Plans. With respect to all the employee
benefit plans, programs and arrangements maintained or contributed to by Viacom
or any Viacom Subsidiary for the benefit of any current or former employee,
officer or director of Viacom or any Viacom Subsidiary (the "Viacom Plans"),
except as set forth in Section 4.10 of the Viacom Disclosure Schedule or the
Viacom SEC Reports and except as would not, individually or in the aggregate,
have a Viacom Material Adverse Effect: (i) none of the Viacom Plans is a
multiemployer plan within the meaning of ERISA; (ii) none of the Viacom Plans
promises or provides retiree medical or life insurance benefits to any person;
(iii) each Viacom Plan intended to be qualified under Section 401(a) of the Code
has received a favorable determination letter from the IRS that it is so
qualified and nothing has occurred since the date of such letter that could
reasonably be expected to affect the qualified status of such Viacom Plan; (iv)
each Viacom Plan has been operated in all material respects in accordance with
its terms and the requirements of applicable law; (v) neither Viacom nor any
Viacom Subsidiary has incurred any direct
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or indirect liability under, arising out of or by operation of Title IV of ERISA
in connection with the termination of, or withdrawal from, any Viacom Plan or
other retirement plan or arrangement, and no fact or event exists that could
reasonably be expected to give rise to any such liability; and (vi) Viacom and
the Viacom Subsidiaries have not incurred any liability under, and have complied
in all respects with, WARN, and no fact or event exists that could give rise to
liability under such act. Except as set forth in Section 4.10 of the Viacom
Disclosure Schedule or the Viacom SEC Reports, the aggregate accumulated benefit
obligations of each Viacom Plan subject to Title IV of ERISA (as of the date of
the most recent actuarial valuation prepared for such Viacom Plan) do not exceed
the fair market value of the assets of such Viacom Plan (as of the date of such
valuation).
SECTION 4.11. Trademarks, Patents and Copyrights. Viacom and the Viacom
Subsidiaries own, or possess adequate licenses or other valid rights to use, all
material patents, patent rights, trademarks, trademark rights, trade names,
trade name rights, copyrights, service marks, service mark rights, trade
secrets, applications to register, and registrations for, the foregoing
trademarks, service marks, know-how and other proprietary rights and information
used in connection with the business of Viacom and the Viacom Subsidiaries as
currently conducted, and no assertion or claim has been made in writing
challenging the validity of any of the foregoing which, individually or in the
aggregate, would have a Viacom Material Adverse Effect. To the best knowledge of
Viacom, the conduct of the business of Viacom and the Viacom Subsidiaries as
currently conducted does not conflict in any way with any patent, patent right,
license, trademark, trademark right, trade name, trade name right, service mark
or copyright of any third party that, individually or in the aggregate, would
have a Viacom Material Adverse Effect.
SECTION 4.12. Taxes. Viacom and the Viacom Subsidiaries have timely filed
all federal, state, local and foreign tax returns and reports required to be
filed by them through the date hereof and shall timely file all returns and
reports required on or before the Effective Time, except for such returns and
reports the failure of which to file timely would not, individually or in the
aggregate, have a Viacom Material Adverse Effect. Such reports and returns are
and will be true, correct and complete, except for such failures to be true,
correct and complete as would not, individually or in the aggregate, have a
Viacom Material Adverse Effect. Viacom and the Viacom Subsidiaries have paid and
discharged all federal, state, local and foreign taxes due from them, other than
such taxes that are being contested in good faith by appropriate proceedings and
are adequately reserved as shown in the audited consolidated balance sheet of
Viacom dated December 31, 1992 (the "Viacom 1992 Balance Sheet") and its most
recent quarterly financial statements, except for such failures to so pay and
discharge which would not, individually or in the aggregate, have a Viacom
Material Adverse Effect. Neither the IRS nor any other taxing authority or
agency, domestic or foreign, is now asserting or, to the best knowledge of
Viacom, threatening to assert against Viacom or any Viacom Subsidiary any
deficiency or material claim for additional taxes or interest thereon or
penalties in connection therewith which, if such deficiencies or claims were
finally resolved against Viacom and the Viacom Subsidiaries, would, individually
or in the aggregate, have a Viacom Material Adverse Effect. The accruals and
reserves for taxes (including interest and penalties, if any, thereon) reflected
in the Viacom 1992 Balance Sheet and the most recent quarterly financial
statements are adequate in accordance with generally accepted accounting
principles, except where the failure to be adequate would not have a Viacom
Material Adverse Effect. Viacom and the Viacom Subsidiaries have withheld or
collected and paid over to the appropriate governmental authorities or are
properly holding for such payment all taxes required by law to be withheld or
collected, except for such failures to have so withheld or collected and paid
over or to be so holding for payment which would not, individually or in the
aggregate, have a Viacom Material Adverse Effect. There are no material liens
for taxes upon the assets of Viacom or the Viacom Subsidiaries, other than liens
for current taxes not yet due and payable and liens for taxes that are being
contested in good faith by appropriate proceedings. Neither Viacom nor any
Viacom Subsidiary has agreed to or is required to make any adjustment under
Section 481(a) of the Code. Neither Viacom nor any Viacom Subsidiary has made an
election under Section 341(f) of the Code. For purposes of this Section 4.12,
where a
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determination of whether a failure by Viacom or a Viacom Subsidiary to comply
with the representations herein has a Viacom Material Adverse Effect is
necessary, such determination shall be made on an aggregate basis with all other
failures within this Section 4.12.
SECTION 4.13. Opinion of Financial Advisor. Viacom has received the opinion
of Smith Barney Shearson Inc. ("Smith Barney"), dated January 6, 1994, to the
effect that, as of such date, the Merger is fair to the stockholders of Viacom
from a financial point of view, a copy of which opinion has been delivered to
Blockbuster.
SECTION 4.14. Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Viacom Class A Common Stock is the only
vote of the holders of any class or series of Viacom capital stock necessary to
approve the Viacom Vote Matter.
SECTION 4.15. Brokers. No broker, finder or investment banker (other than
Smith Barney) is entitled to any brokerage, finder's or other fee or commission
in connection with the transactions contemplated herein based upon arrangements
made by or on behalf of Viacom. Viacom has heretofore furnished to Blockbuster a
complete and correct copy of all agreements between Viacom and Smith Barney
pursuant to which such firm would be entitled to any payment relating to the
transactions contemplated herein.
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.01. Conduct of Respective Businesses by Blockbuster and Viacom
Pending the Merger. Each of Blockbuster and Viacom covenants and agrees that,
between the date of this Agreement and the Effective Time, unless the other
party shall have consented in writing (such consent not to be unreasonably
withheld), the businesses of each of Blockbuster and Viacom and their respective
subsidiaries shall, in all material respects, be conducted in, and each of
Blockbuster and Viacom and their respective subsidiaries shall not take any
material action except in, the ordinary course of business, consistent with past
practice; and each of Blockbuster and Viacom shall use its reasonable best
efforts to preserve substantially intact its business organization, to keep
available the services of its and its subsidiaries' current officers, employees
and consultants and to preserve its and its subsidiaries' relationships with
customers, suppliers and other persons with which it or any of its subsidiaries
has significant business relations. By way of amplification and not limitation,
except (i) as contemplated by this Agreement, (ii) for any actions taken by
Viacom relating to the proposed acquisition by Viacom of Paramount
Communications Inc., a Delaware corporation ("Paramount"), (iii) for any actions
taken by Blockbuster in its capacity as the controlling stockholder of Spelling
that are necessary due to the applicable fiduciary duties to Spelling and the
other stockholders of Spelling, as determined by Blockbuster in good faith after
consultation with and based upon the advice of independent legal counsel (who
may be Blockbuster's regularly engaged independent legal counsel) or (iv) as set
forth on Section 5.01 of the Blockbuster Disclosure Schedule or Section 5.01 of
the Viacom Disclosure Schedule, neither Viacom nor Blockbuster nor any of their
respective subsidiaries shall, between the date of this Agreement and the
Effective Time, directly or indirectly do, or propose or agree to do, any of the
following without the prior written consent of the other (provided that the
following restrictions shall not apply to any subsidiaries which Blockbuster or
Viacom, as the case may be, do not control):
(a) amend or otherwise change the Certificate of Incorporation or
By-Laws of Viacom or Blockbuster (except, with respect to Viacom, the
Viacom Certificate Amendments);
(b) issue, sell, pledge, dispose of, grant, encumber, or authorize the
issuance, sale, pledge, disposition, grant or encumbrance of, (i) any
shares of capital stock of any class of it or any of its subsidiaries, or
any options (other than the grant of options in the ordinary course of
business consistent with past practice to employees who are not executive
officers of Blockbuster or Viacom
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or the grant of options previously disclosed by Blockbuster to Viacom prior
to the date of this Agreement), warrants, convertible securities or other
rights of any kind to acquire any shares of such capital stock, or any
other ownership interest (including, without limitation, any phantom
interest), of it or any of its subsidiaries (other than the issuance of
shares of capital stock in connection with (A) any dividend reinvestment
plan or by any Blockbuster Plan with an employee stock fund or employee
stock ownership plan feature, consistent with applicable securities laws,
(B) the exercise of options, warrants or other similar rights outstanding
as of the date of this Agreement and in accordance with the terms of such
options, warrants or rights in effect on the date of this Agreement, (C)
otherwise permitted to be granted pursuant to this Agreement or (D) any
acquisition by Blockbuster permitted by paragraph (e)(i) of this Section
5.01) or (ii) any assets of it or any of its subsidiaries, except for sales
in the ordinary course of business or which, individually, do not exceed
$10,000,000 or which, in the aggregate, do not exceed $25,000,000;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock except, (i) in the case of Blockbuster, the
regular quarterly dividend payable on or about April 1, 1994 in an amount
not to exceed $.025 per share of Blockbuster Common Stock, (ii) in the case
of Blockbuster, other regular quarterly dividends in amounts not in excess
of $.025 per share per quarter and payable consistent with past practice,
(iii) in the case of Spelling, regular quarterly dividends of $.020 per
share per quarter and payable consistent with past practice and (iv)
dividends declared and paid by a subsidiary of either Blockbuster (other
than Spelling) or Viacom (each such dividend to be declared and paid in the
ordinary course of business consistent with past practice);
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock other
than acquisitions by a dividend reinvestment plan or by any Blockbuster
Plan with an employee stock fund or employee stock ownership plan feature,
consistent with applicable securities laws;
(e) (i) acquire (for cash or shares of stock) (including, without
limitation, by merger, consolidation, or acquisition of stock or assets)
any corporation, partnership, other business organization or any division
thereof or any assets, except for such acquisitions which, individually, do
not exceed $10,000,000 or which, in the aggregate, do not exceed
$25,000,000; (ii) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, or
make any loans or advances, except (A) indebtedness incurred by Viacom in
connection with the proposed acquisition by Viacom of Paramount and in
connection with this Agreement and the transactions contemplated hereby,
(B) indebtedness incurred by Blockbuster in connection with the performance
of its obligations under the Subscription Agreement, (C) the refinancing of
existing indebtedness, (D) in connection with this Agreement and the
transactions contemplated hereby, borrowings under commercial paper
programs in the ordinary course of business, (E) borrowings under existing
bank lines of credit in the ordinary course of business, (F) in the case of
Blockbuster, indebtedness resulting from the issuance of debt securities
registered pursuant to the Registration Statement on Form S-3, registration
number 33-56154, or (G) indebtedness which, in the aggregate, does not
exceed $25,000,000; or (iii) enter into or amend any contract, agreement,
commitment or arrangement with respect to any matter set forth in this
Section 5.01(e);
(f) increase the compensation payable or to become payable to its
executive officers or employees, except for increases in the ordinary
course of business in accordance with past practice, or grant any severance
or termination pay to, or enter into any employment or severance agreement
with any director or executive officer of it or any of its subsidiaries, or
establish, adopt, enter into or amend in any material respect or take
action to accelerate any rights or benefits under any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan,
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agreement, trust, fund, policy or arrangement for the benefit of any
director, executive officer or employee; or
(g) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect
to accounting policies or procedures.
ARTICLE VI
ADDITIONAL COVENANTS
SECTION 6.01. Access to Information; Confidentiality. (a) From the date
hereof to the Effective Time, each of Blockbuster and Viacom shall (and shall
cause its subsidiaries and officers, directors, employees, auditors and agents
to) afford the officers, employees and agents of the other party (the
"Respective Representatives") reasonable access at all reasonable times to its
officers, employees, agents, properties, offices, plants and other facilities,
books and records, and shall furnish such Respective Representatives with all
financial, operating and other data and information as may be reasonably
requested.
(b) All information obtained by Blockbuster or Viacom pursuant to this
Section 6.01 shall be kept confidential in accordance with the confidentiality
agreement, dated July 1, 1993 (the "Confidentiality Agreement"), between
Blockbuster and Viacom.
(c) No investigation pursuant to this Section 6.01 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
SECTION 6.02. Directors' and Officers' Indemnification and Insurance. (a)
The Certificate of Incorporation and By-Laws of the Surviving Corporation shall
contain the provisions with respect to indemnification set forth in the
Certificate of Incorporation and By-Laws of Viacom on the date of this
Agreement, which provisions shall not be amended, repealed or otherwise modified
for a period of six years after the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who at any time prior to
the Effective Time were directors or officers of Blockbuster in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by this Agreement), unless
such modification is required by law.
(b) From and after the Effective Time, the Surviving Corporation shall
indemnify, defend and hold harmless the present and former officers and
directors of Blockbuster (collectively, the "Indemnified Parties") against all
losses, expenses, claims, damages, liabilities or amounts that are paid in
settlement of, with the approval of the Surviving Corporation (which approval
shall not unreasonably be withheld), or otherwise in connection with any claim,
action, suit, proceeding or investigation (a "Claim"), based in whole or in part
on the fact that such person is or was a director or officer of Blockbuster and
arising out of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by this
Agreement), in each case to the full extent permitted under Delaware Law (and
shall pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted under
Delaware Law, upon receipt from the Indemnified Party to whom expenses are
advanced of the undertaking to repay such advances contemplated by Section
145(e) of Delaware Law).
(c) Without limiting the foregoing, in the event any Claim is brought
against any Indemnified Party (whether arising before or after the Effective
Time) after the Effective Time (i) the Indemnified Parties may retain
Blockbuster's regularly engaged independent legal counsel or other independent
legal counsel satisfactory to them, provided that such other counsel shall be
reasonably acceptable to the Surviving Corporation, (ii) the Surviving
Corporation shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received and (iii) the
Surviving Corporation will use its reasonable best efforts to assist in the
vigorous defense of any such matter, provided that the Surviving Corporation
shall not be liable for any settlement of any Claim effected
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without its written consent, which consent shall not be unreasonably withheld.
Any Indemnified Party wishing to claim indemnification under this Section 6.02
upon learning of any such Claim shall notify the Surviving Corporation (although
the failure so to notify the Surviving Corporation shall not relieve the
Surviving Corporation from any liability which the Surviving Corporation may
have under this Section 6.02, except to the extent such failure materially
prejudices the Surviving Corporation's position with respect to such claim), and
shall deliver to the Surviving Corporation the undertaking contemplated by
Section 145(e) of Delaware Law. The Indemnified Parties as a group may retain no
more than one law firm (in addition to local counsel) to represent them with
respect to each such matter unless there is, under applicable standards of
professional conduct (as determined by counsel to the Indemnified Parties), a
conflict on any significant issue between the positions of any two or more
Indemnified Parties, in which event such additional counsel as may be required
may be retained by the Indemnified Parties.
(d) For a period of three years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by Blockbuster (provided
that the Surviving Corporation may substitute therefor policies of at least the
same coverage and amounts containing terms and conditions which are no less
advantageous to former officers and directors of Blockbuster) with respect to
claims arising from facts or events which occurred before the Effective Time;
provided, however, that in no event shall the Surviving Corporation be required
to expend pursuant to this Section 6.02(d) more than an amount equal to 200% of
current annual premiums paid by Blockbuster for such insurance (which premiums
Blockbuster represents and warrants to be $756,000 in the aggregate).
(e) This Section 6.02 is intended to be for the benefit of, and shall be
enforceable by, the Indemnified Parties, their heirs and personal
representatives and shall be binding on the Surviving Corporation and its
respective successors and assigns.
SECTION 6.03. Notification of Certain Matters. Blockbuster shall give
prompt notice to Viacom, and Viacom shall give prompt notice to Blockbuster, of
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause (x) any representation or
warranty contained in this Agreement to be untrue or inaccurate or (y) any
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied and (ii) any failure of Blockbuster or Viacom, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 6.03 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
SECTION 6.04. Tax Treatment. Each of Blockbuster and Viacom will use its
reasonable best efforts to cause the Merger to qualify as a reorganization under
the provisions of Section 368(a) of the Code and to obtain the opinions of
counsel referred to in Sections 7.02(c) and 7.03(c).
SECTION 6.05. Registration Statement; Joint Proxy Statement. (a) As
promptly as practicable after the execution of this Agreement, (i) Viacom and
Blockbuster shall prepare and file with the SEC a joint proxy statement relating
to the meetings of Blockbuster's stockholders and holders of Viacom Class A
Common Stock to be held in connection with the Merger (together with any
amendments thereof or supplements thereto, the "Proxy Statement") and (ii)
Viacom shall prepare and file with the SEC a registration statement on Form S-4
(together with all amendments thereto, the "Registration Statement") in which
the Proxy Statement shall be included as a prospectus, in connection with the
registration under the Securities Act of the shares of Viacom Common Stock and
the VCRs to be issued to the stockholders of Blockbuster pursuant to the Merger.
Each of Blockbuster and Viacom shall use all reasonable efforts to have or cause
the Registration Statement to become effective as promptly as practicable, and
shall take all or any action required under any applicable federal or state
securities laws in connection with the issuance of shares of Viacom Common Stock
and VCRs pursuant to the Merger. Each of Blockbuster and Viacom shall furnish
all information concerning itself to the other as
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the other may reasonably request in connection with such actions and the
preparation of the Registration Statement and Proxy Statement. As promptly as
practicable after the Registration Statement shall have become effective, each
of Viacom and Blockbuster shall mail the Proxy Statement to its respective
stockholders. The Proxy Statement shall include the recommendation of the Board
of Directors of each of Viacom and Blockbuster in favor of the Merger, unless
otherwise necessary due to the applicable fiduciary duties of the respective
directors of Viacom and Blockbuster, as determined by such directors in good
faith after consultation with and based upon the advice of independent legal
counsel (who may be such party's regularly engaged independent legal counsel).
(b) The information supplied by Viacom for inclusion in the Registration
Statement and the Proxy Statement shall not, at (i) the time the Registration
Statement is declared effective, (ii) the time the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to the stockholders of
Viacom and Blockbuster, (iii) the time of each of the Stockholders' Meetings (as
defined in Section 6.06), and (iv) the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. If at any time prior to the Effective Time any event or circumstance
relating to Viacom or any of the Viacom Subsidiaries, or their respective
officers or directors, should be discovered by Viacom which should be set forth
in an amendment or a supplement to the Registration Statement or Proxy
Statement, Viacom shall promptly inform Blockbuster.
(c) The information supplied by Blockbuster for inclusion in the
Registration Statement and the Proxy Statement shall not, at (i) the time the
Registration Statement is declared effective, (ii) the time the Proxy Statement
(or any amendment thereof or supplement thereto) is first mailed to the
stockholders of Blockbuster and Viacom, (iii) the time of each of the
Stockholders' Meetings, and (iv) the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. If at any time prior to the Effective Time any event or circumstance
relating to Blockbuster or any of the Blockbuster Subsidiaries, or their
respective officers or directors, should be discovered by Blockbuster which
should be set forth in an amendment or a supplement to the Registration
Statement or Proxy Statement, Blockbuster shall promptly inform Viacom.
(d) Viacom represents and warrants to Blockbuster that the information
supplied by and relating to Viacom for inclusion in the Paramount Offer
Documents (as defined below) will not, at the time the Paramount Offer Documents
are filed with the SEC or are first published, sent or given to stockholders of
Paramount, as the case may be, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading. The Paramount Offer Documents shall
comply in all material respects as to form with the requirements of the Exchange
Act and the rules and regulations thereunder.
(e) Blockbuster represents and warrants to Viacom that the information
supplied by and relating to Blockbuster for inclusion in the Paramount Offer
Documents will not, at the time the Paramount Offer Documents are filed with the
SEC or are first published, sent or given to stockholders of Paramount, as the
case may be, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements made therein, in the light of the circumstances under which they
are made, not misleading.
(f) For the purposes of this Section 6.05, the term "Paramount Offer
Documents" shall mean the Tender Offer Statement on Schedule 14D-1 relating to
the tender offer by Viacom for shares of common stock of Paramount, the offer to
purchase incorporated by reference therein and forms of the related letter of
transmittal and any related summary advertisement, together with all supplements
and amendments to the foregoing.
SECTION 6.06. Stockholders' Meetings. Blockbuster shall call and hold a
meeting of its stockholders and Viacom shall call and hold a meeting of the
holders of the Viacom Class A Common Stock
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(collectively, the "Stockholders' Meetings") as promptly as practicable for the
purpose of voting upon the approval, in the case of Blockbuster, of the Merger
and, in the case of Viacom, of the Viacom Vote Matter, and Viacom and
Blockbuster shall use their reasonable best efforts to hold the Stockholders'
Meetings on the same day and as soon as practicable after the date on which the
Registration Statement becomes effective. Blockbuster shall use its reasonable
best efforts to solicit from its stockholders proxies in favor of the approval
of the Merger, and shall take all other action necessary or advisable to secure
the vote or consent of stockholders required by Delaware Law to obtain such
approvals, unless otherwise necessary under the applicable fiduciary duties of
the respective directors of Blockbuster, as determined by such directors in good
faith after consultation with and based upon the advice of independent legal
counsel (who may be such party's regularly engaged independent legal counsel).
SECTION 6.07. Letters of Accountants. (a) Blockbuster shall use its
reasonable best efforts to cause to be delivered to Viacom "comfort" letters of
Arthur Andersen, Blockbuster's independent public accountants, dated and
delivered the date on which the Registration Statement shall become effective
and as of the Effective Time, and addressed to Viacom, in form and substance
reasonably satisfactory to Viacom and reasonably customary in scope and
substance for letters delivered by independent public accountants in connection
with transactions such as those contemplated by this Agreement.
(b) Viacom shall use its reasonable best efforts to cause to be delivered
to Blockbuster "comfort" letters of Price Waterhouse, Viacom's independent
public accountants, dated the date on which the Registration Statement shall
become effective and as of the Effective Time, and addressed to Blockbuster, in
form and substance reasonably satisfactory to Blockbuster and reasonably
customary in scope and substance for letters delivered by independent public
accountants in connection with transactions such as those contemplated by this
Agreement.
SECTION 6.08. [Intentionally Deleted]
SECTION 6.09. Further Action; Reasonable Best Efforts. (a) Upon the terms
and subject to the conditions hereof, each of the parties hereto shall (i) make
promptly its respective filings, and thereafter make any other required
submissions under the HSR Act with respect to the transactions contemplated
herein, (ii) make promptly filings with or applications to the Federal
Communications Commission (the "FCC") with respect to the transactions
contemplated herein, if required and (iii) use its reasonable best efforts to
take, or cause to be taken, all appropriate action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
herein, including, without limitation, using its reasonable best efforts to
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of Governmental Entities and parties to contracts with
Viacom and Blockbuster and their respective subsidiaries as are necessary for
the consummation of the transactions contemplated herein. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and directors of each
party to this Agreement shall use their reasonable best efforts to take all such
action.
(b) Each party shall use its best efforts not to take any action, or enter
into any transaction, which would cause any of its representations or warranties
contained in this Agreement to be untrue or result in a breach of any covenant
made by it in this Agreement.
SECTION 6.10. Debt Instruments. Prior to or at the Effective Time,
Blockbuster and each Blockbuster Subsidiary shall use its reasonable best
efforts to prevent the occurrence, as a result of the Merger and the other
transactions contemplated by this Agreement, of a change in control or any event
which constitutes a default (or an event which with notice or lapse of time or
both would become a default) under any debt instrument of Blockbuster or any
Blockbuster Subsidiary, including, without limitation, debt securities
registered under the Securities Act.
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SECTION 6.11. Public Announcements. Viacom and Blockbuster shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or any transaction contemplated herein
and shall not issue any such press release or make any such public statement
without the prior consent of the other party, which shall not be unreasonably
withheld; provided, however, that a party may, without the prior consent of the
other party, issue such press release or make such public statement as may be
required by law or any listing agreement with a national securities exchange to
which Viacom or Blockbuster is a party if it has used all reasonable efforts to
consult with the other party and to obtain such party's consent but has been
unable to do so in a timely manner.
SECTION 6.12. Listing of Shares of Viacom Common Stock and VCRs. Viacom
shall use its reasonable best efforts to cause the shares of Viacom Common Stock
and the VCRs to be issued in the Merger to be approved for listing on the AMEX
prior to the Effective Time.
SECTION 6.13. Affiliates of Blockbuster. (a) Within 30 days after the date
of this Agreement, (a) Blockbuster shall deliver to Viacom a letter identifying
all persons who may be deemed affiliates of Blockbuster under Rule 145 of the
Securities Act ("Rule 145"), including, without limitation, all directors and
executive officers of Blockbuster and (b) Blockbuster shall advise the persons
identified in such letter of the resale restrictions imposed by applicable
securities laws. Blockbuster shall use its reasonable best efforts to obtain as
soon as practicable from any person who may be deemed to have become an
affiliate of Blockbuster after Blockbuster's delivery of the letter referred to
above and prior to the Effective Time, a written agreement substantially in the
form of Exhibit 6.13.
(b) If any stockholder of Blockbuster who is identified by Blockbuster as
an affiliate of Blockbuster in accordance with paragraph (a) of this Section
6.13 reasonably determines that such stockholder will not be eligible to sell
all of the shares (the "Stockholder Shares") of Viacom Common Stock received by
such stockholder in the Merger pursuant to Rule 145(d)(1) in the three month
period immediately following the Effective Time, Viacom agrees, if requested by
such stockholder, to either, at Viacom's option, (i) take such actions
reasonably necessary to register the Stockholder Shares for resale pursuant to
the Registration Statement or (ii) promptly after the Effective Time, register
the Stockholder Shares pursuant to a registration statement on Form S-3. Viacom
shall maintain the effectiveness of any such registration statement (subject to
Viacom's right to convert to a Form S-3 registration from the Registration
Statement at any time) until such time as Viacom reasonably determines that such
stockholder will be eligible to sell all of the Stockholder Shares then owned by
the Stockholder pursuant to Rule 145(d)(1) in the three month period immediately
following the termination of the effectiveness of the applicable registration
statement. Viacom's obligations contained in this paragraph (b) shall terminate
on the second anniversary of the Effective Time.
SECTION 6.14. Conveyance Taxes. Viacom and Blockbuster shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable in connection with the transactions contemplated hereby that are
required or permitted to be filed on or before the Effective Time.
SECTION 6.15. Assumption of Debt and Leases. With respect to debt issued by
Blockbuster under indentures qualified under the Trust Indenture Act of 1939
("Indentures"), Viacom shall execute and deliver to the trustees, under the
respective Indentures, Supplemental Indentures, in form satisfactory to the
respective trustees, expressly assuming the obligations of Blockbuster with
respect to the due and punctual payment of the principal of (and premium, if
any) and interest, if any, on all debt securities issued by Blockbuster under
the respective Indentures and the due and punctual performance of all the terms,
covenants and conditions of the respective Indentures to be kept or performed by
Blockbuster, and shall deliver such Supplemental Indentures to the respective
trustees under the Indenture. Viacom shall similarly deliver instruments of
assumption to the holders of any debt
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<PAGE>
obligations of, holders of warrants of, and the lessors of any real property to,
Blockbuster, which debt obligations, warrants or leases expressly require such
assumption in order for the Merger to comply with the debt instrument, warrant
or lease.
SECTION 6.16. Transactions with Significant Stockholder After the Effective
Time. From and after the Effective Time and until the tenth anniversary of the
Effective Time, the Surviving Corporation shall not enter into any agreement
with any stockholder (the "Significant Stockholder") who beneficially owns more
than 35% of the then outstanding securities entitled to vote at a meeting of the
stockholders of Viacom that would constitute a Rule 13e-3 (as such rule is in
effect today) transaction under the Exchange Act with respect to any class of
common stock of Viacom (any such transaction being a "Going Private
Transaction"), unless Viacom provides in any agreement pursuant to which such
Going Private Transaction shall be effected that, as a condition to the
consummation of such Going Private Transaction, (a) the holders of a majority of
the shares not beneficially owned by the Significant Stockholder that are voted
and present (whether in person or by proxy) at the meeting of stockholders
called to vote on such Going Private Transaction shall have voted in favor
thereof and (b) a special committee (the "Special Committee") of the Board of
Directors of Viacom comprised solely of the independent directors of Viacom
shall have (i) approved the terms and conditions of the Going Private
Transaction and shall have recommended that the stockholders vote in favor
thereof and (ii) received from its financial advisor a written opinion addressed
to the Special Committee, for inclusion in the proxy statement to be delivered
to the stockholders, and dated the date thereof, substantially to the effect
that the consideration to be received by the stockholders (other than the
majority stockholder) in the Going Private Transaction is fair to them from a
financial point of view. Notwithstanding anything to the contrary in this
Section 6.16, the restrictions contained in this Section 6.16 shall not apply to
any Significant Stockholder if there exists another stockholder who beneficially
owns a greater percentage of outstanding securities entitled to vote at the
meeting than the Significant Stockholder.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. Conditions to Obligations of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger and the
other transactions contemplated herein shall be subject to the satisfaction at
or prior to the Effective Time of the following conditions, any or all of which
may be waived, in whole or in part, to the extent permitted by applicable law:
(a) Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings
for that purpose shall have been initiated or, to the knowledge of Viacom
or Blockbuster, threatened by the SEC.
(b) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of
Blockbuster and the Viacom Vote Matter shall have been approved and adopted
by the requisite vote of the holders of Viacom Class A Common Stock.
(c) No Order. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction
or other order (whether temporary, preliminary or permanent) which is in
effect and which materially restricts, prevents or prohibits consummation
of the Merger or any transaction contemplated by this Agreement; provided,
however, that the parties shall use their reasonable best efforts to cause
any such decree, judgment, injunction or other order to be vacated or
lifted.
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(d) HSR Act. The applicable waiting period under the HSR Act shall
have expired or been terminated.
(e) Approvals. Other than the filing of merger documents in accordance
with Delaware Law, all authorizations, consents, waivers, orders or
approvals required to be obtained, and all filings, notices or declarations
required to be made, by Viacom and Blockbuster prior to the consummation of
the Merger and the transactions contemplated hereunder shall have been
obtained from, and made with, all required Governmental Entities except for
such authorizations, consents, waivers, orders, approvals, filings, notices
or declarations the failure to obtain or make which would not have a
material adverse effect, at or after the Effective Time, on the financial
condition (as existing immediately prior to the consummation of the Merger)
of (i) Blockbuster and the Blockbuster Subsidiaries, taken as a whole, or
(ii) Viacom and the Viacom Subsidiaries, taken as a whole.
SECTION 7.02. Additional Conditions to Obligations of Viacom. The
obligations of Viacom to effect the Merger and the transactions contemplated
herein are also subject to the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Blockbuster contained in this Agreement (including, without
limitation, Section 6.05), without giving effect to any notification to
Viacom delivered pursuant to Section 6.03, shall be true and correct as of
the Effective Time as though made on and as of the Effective Time, except
(i) for changes specifically permitted by this Agreement and (ii) that
those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date, except in
any case for such failures to be true and correct which would not,
individually or in the aggregate, have a Blockbuster Material Adverse
Effect. Viacom shall have received a certificate of the Chief Executive
Officer and Chief Financial Officer of Blockbuster to such effect.
(b) Agreement and Covenants. Blockbuster shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time. Viacom shall have received a certificate of
the Chief Executive Officer and Chief Financial Officer of Blockbuster to
that effect.
(c) Tax Opinion. Viacom shall have received the opinion of Shearman &
Sterling, dated on or about the date that is two business days prior to the
date the Proxy Statement is first mailed to stockholders of Viacom and
Blockbuster, to the effect that the Merger will be treated for federal
income tax purposes as a reorganization qualifying under the provisions of
Section 368(a) of the Code, which opinion shall not have been withdrawn or
modified in any material respect. The issuance of such opinion shall be
conditioned on the receipt of representation letters from each of Viacom,
Blockbuster, and certain stockholders of Blockbuster. The specific
provisions of each such representation letter shall be in form and
substance satisfactory to each of Shearman & Sterling and Skadden, Arps,
Slate, Meagher & Flom, and each such representation letter shall be dated
on or before the date of such opinion and shall not have been withdrawn or
modified in any material respect.
SECTION 7.03. Additional Conditions to Obligations of Blockbuster. The
obligation of Blockbuster to effect the Merger and the other transactions
contemplated in this Agreement are also subject to the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Viacom contained in this Agreement (including, without
limitation, Section 6.05), without giving effect to any notification made
by Viacom to Blockbuster pursuant to Section 6.03, shall be true and
correct as of the Effective Time, as though made on and as of the Effective
Time, except (i) for changes specifically permitted by this Agreement and
(ii) that those representations and warranties which address matters only
as of a particular date shall remain true and correct as of such date,
except in
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any case for such failures to be true and correct that would not,
individually or in the aggregate, have a Viacom Material Adverse Effect.
Blockbuster shall have received a certificate of the Chief Executive
Officer and Chief Financial Officer of Viacom to such effect.
(b) Agreements and Covenants. Viacom shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the
Effective Time. Blockbuster shall have received a certificate of the Chief
Executive Officer and Chief Financial Officer of Viacom to that effect.
(c) Tax Opinion. Blockbuster shall have received the opinion of
Skadden, Arps, Slate, Meagher & Flom, dated on or about the date that is
two business days prior to the date the Proxy Statement is first mailed to
stockholders of Viacom and Blockbuster, to the effect that the Merger will
be treated for federal income tax purposes as a reorganization qualifying
under the provisions of Section 368(a) of the Code, which opinion shall not
have been withdrawn or modified in any material respect. The issuance of
such opinion shall be conditioned on the receipt of representation letters
from each of Viacom, Blockbuster, and certain stockholders of Blockbuster.
The specific provisions of each such representation letter shall be in form
and substance satisfactory to each of Shearman & Sterling and Skadden,
Arps, Slate, Meagher & Flom, and each such representation letter shall be
dated on or before the date of such opinion and shall not have been
withdrawn or modified in any material respect.
(d) Amendments to Viacom's Certificate of Incorporation. Viacom shall
have filed with the Secretary of State of the State of Delaware a
Certificate of Amendment to Viacom's Certificate of Incorporation pursuant
to which the Viacom Certificate Amendments shall have become effective.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of this Agreement
and the Merger by the stockholders of Blockbuster or the approval by the
stockholders of Viacom of the issuance of the shares of Viacom Common Stock in
accordance with Article II:
(a) by mutual consent of Blockbuster and Viacom;
(b) by Viacom, upon a breach of any representation, warranty, covenant
or agreement on the part of Blockbuster set forth in this Agreement, or if
any representation or warranty of Blockbuster shall have become untrue, in
either case such that the conditions set forth in Section 7.02(a) or
Section 7.02(b), as the case may be, would be incapable of being satisfied
by September 30, 1994 (or as otherwise extended); provided that, in any
case, a wilful breach shall be deemed to cause such conditions to be
incapable of being satisfied for purposes of this Section 8.01(b);
(c) by Blockbuster, upon a breach of any representation, warranty,
covenant or agreement on the part of Viacom set forth in this Agreement, or
if any representation or warranty of Viacom shall have become untrue, in
either case such that the conditions set forth in Section 7.03(a) or
Section 7.03(b), as the case may be, would be incapable of being satisfied
by September 30, 1994 (or as otherwise extended); provided that, in any
case, a wilful breach shall be deemed to cause such conditions to be
incapable of being satisfied for purposes of this Section 8.01(c);
(d) by either Viacom or Blockbuster, if any permanent injunction or
action by any Governmental Entity preventing the consummation of the Merger
shall have become final and nonappealable;
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(e) by either Viacom or Blockbuster, if the Merger shall not have been
consummated before September 30, 1994; provided, however, that this
Agreement may be extended by written notice of either Viacom or Blockbuster
to a date not later than November 30, 1994, if the Merger shall not have
been consummated as a direct result of Viacom or Blockbuster having failed,
by September 30, 1994, to receive all required regulatory approvals or
consents with respect to the Merger;
(f) by either Viacom or Blockbuster, if this Agreement and the Merger
shall fail to receive the requisite vote for approval and adoption by the
stockholders of Blockbuster or, with respect to Blockbuster only, Viacom at
the Stockholders' Meetings;
(g) by Viacom, if (i) the Board of Directors of Blockbuster shall
withdraw, modify or change its recommendation of this Agreement or the
Merger in a manner adverse to Viacom or shall have resolved to do any of
the foregoing; (ii) the Board of Directors of Blockbuster shall have
recommended to the shareholders of Blockbuster a Competing Transaction (as
defined below); (iii) a tender offer or exchange offer for 25% or more of
the outstanding shares of capital stock of Blockbuster is commenced, and
the Board of Directors of Blockbuster recommends that the stockholders of
Blockbuster tender their shares in such tender or exchange offer; or (iv)
any person shall have acquired beneficial ownership or the right to acquire
beneficial ownership of or any "group" (as such term is defined under
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder) shall have been formed which beneficially owns, or has the
right to acquire beneficial ownership of, more than 25% of the then
outstanding shares of capital stock of Blockbuster; and
(h) by Blockbuster, if the Board of Directors of Blockbuster (x) fails
to make or withdraws or modifies its recommendation referred to in Section
6.05(a) if there exists at such time a tender offer or exchange offer or a
proposal by a third party to acquire Blockbuster pursuant to a merger,
consolidation, share exchange, business combination, tender or exchange
offer or other similar transaction or (y) recommends to Blockbuster's
stockholders approval or acceptance of any of the foregoing, in each case
only if the Board of Directors of Blockbuster, after consultation with and
based upon the advice of independent legal counsel (who may be such party's
regularly engaged independent legal counsel), determines in good faith that
such action is necessary for the Board of Directors of Blockbuster to
comply with its fiduciary duties to stockholders under applicable law.
The right of any party hereto to terminate this Agreement pursuant to this
Section 8.01 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement. For purposes of this
Agreement, "Competing Transaction" shall mean any of the following (other than
the transactions contemplated under the Agreement) involving a party hereto or
any of its subsidiaries: (i) any merger, consolidation, share exchange, business
combination, or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 25% or more of the assets of
such party and its subsidiaries, taken as a whole, in a single transaction or
series of transactions; (iii) any tender offer or exchange offer for 25% or more
of the outstanding shares of capital stock of such party or the filing of a
registration statement under the Securities Act in connection therewith; (iv)
any person having acquired beneficial ownebship or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder)
having been formed which beneficially owns or has the right to acquire
beneficial ownership of, 25% or more of the then outstanding shares of capital
stock of such party; or (v) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
SECTION 8.02. Effect of Termination. Except as provided in Section 8.05 or
Section 9.01, in the event of the termination of this Agreement pursuant to
Section 8.01, this Agreement shall forthwith become void, there shall be no
liability on the part of Blockbuster or Viacom or any of their respective
officers or directors to the other and all rights and obligations of any party
hereto shall cease; provided,
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however, that nothing herein shall relieve any party from liability for the
wilful breach of any of its representations, warranties, covenants or agreements
set forth in this Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after approval
of the Merger by the stockholders of Blockbuster or Viacom, no amendment, which
under applicable law may not be made without the approval of the stockholders of
Blockbuster or Viacom, may be made without such approval. This Agreement may not
be amended except by an instrument in writing signed by the parties hereto.
SECTION 8.04. Waiver. At any time prior to the Effective Time, either party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto and (c) waive compliance by the other party
with any of the agreements or conditions contained herein. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby.
SECTION 8.05. Fees, Expenses and Other Payments. (a) Subject to paragraph
(b) of this Section 8.05, all out-of-pocket costs and expenses, including,
without limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred by the parties hereto shall be borne solely and entirely
by the party which has incurred such costs and expenses (with respect to such
party, its "Expenses"); provided, however, that all costs and expenses related
to printing, filing and mailing the Registration Statement and the Proxy
Statement and all SEC and other regulatory filing fees incurred in connection
with the Registration Statement and the Proxy Statement shall be borne equally
by Blockbuster and Viacom.
(b) Blockbuster agrees that if this Agreement shall be terminated pursuant
to (i) Section 8.01(b); (ii) Section 8.01(f) because this Agreement and the
Merger shall fail to receive the requisite vote for approval and adoption by the
stockholders of Blockbuster at the meeting of stockholders of Blockbuster called
to vote thereon and at the time of such meeting there shall exist a Competing
Transaction; or (iii) Section 8.01(g)(i), (ii) or (iii) or Section 8.01(h) and
at the time of such termination there shall exist a Competing Transaction and
the terms of such Competing Transaction provide that Blockbuster's stockholders
shall receive consideration having a higher per share value than the
consideration per share payable to Blockbuster's stockholders under this
Agreement then in any such event Blockbuster shall pay to Viacom an amount equal
to Viacom's Expenses; provided, however, that in no event shall Blockbuster be
obligated to pay any of Viacom's Expenses exceeding $50,000,000. For purposes of
this Section 8.05(b), the per share value of the consideration payable to the
Blockbuster stockholders under this Agreement and under the terms of the
Competing Transaction shall be the blended weighted average price per share
determined as of the close of business on the business day prior to the date
this Agreement is terminated.
(c) Any payment required to be made pursuant to Section 8.05(b) shall be
made as promptly as practicable but not later than five business days after the
delivery by Viacom to Blockbuster of a statement setting forth any of Viacom's
Expenses in reasonable detail and shall be made by wire transfer of immediately
available funds to an account designated by Viacom.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Effectiveness of Representations, Warranties and
Agreements. (a) Except as set forth in Section 9.01(b), the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect, regardless of any investigation made by or on behalf of
any
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other party hereto, any person controlling any such party or any of their
officers or directors, whether prior to or after the execution of this
Agreement.
(b) The representations, warranties and agreements in this Agreement shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Article VIII; except that the agreements set forth in Articles I, II
and IX and Sections 6.02 and 6.16 shall survive the Effective Time and those set
forth in Sections 6.01(b), 8.02 and 8.05 and Article IX hereof shall survive
termination.
(c) Notwithstanding anything to the contrary in this Agreement, no action
taken by Viacom in connection with the acquisition of Paramount, or effect
thereof, shall cause any breach of a representation, warranty or covenant under
this Agreement.
SECTION 9.02. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered, mailed or transmitted, and shall be effective
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the facsimile numbers
specified below:
<TABLE>
<S> <C>
(a) If to Viacom:
Viacom Inc.
1515 Broadway
New York, New York 10036
Attention: Senior Vice President,
General Counsel and Secretary
Facsimile No.: (212) 258-6134
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Attention: Stephen R. Volk, Esq.
Facsimile No.: (212) 848-7179
(b) If to Blockbuster:
Blockbuster Entertainment Corporation
One Blockbuster Plaza
Fort Lauderdale, Florida 33301-1860
Attention: Vice President,
General Counsel and Secretary
Facsimile No.: (305) 852-3939
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Roger S. Aaron, Esq.
Facsimile No.: (212) 735-2001
</TABLE>
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<PAGE>
SECTION 9.03. Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" means a person that, directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) "beneficial owner", with respect to any shares of Blockbuster
Common Stock, means, unless otherwise defined herein, a person who shall be
deemed to be the beneficial owner of such shares (i) which such person or
any of its affiliates or associates (as such term is defined in Rule 12b-2
promulgated under the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates
has, directly or indirectly, (A) the right to acquire (whether such right
is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon the
exercise of consideration rights, exchange rights, warrants or options, or
otherwise or (B) the right to vote pursuant to any agreement, arrangement
or understanding or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or associates, or any person with whom such person or any of its
affiliates or associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares;
(c) "business day" means any day other than a day on which (i) banks
in the State of New York are authorized or obligated to be closed or (ii)
the New York Stock Exchange is closed;
(d) "control" (including the terms "controlled", "controlled by" and
"under common control with") means the possession, directly or indirectly
or as trustee or executor, of the power to direct or cause the direction of
the management or policies of a person, whether through the ownership of
stock or as trustee or executor, by contract or credit arrangement or
otherwise; and
(e) "subsidiary" or "subsidiaries" of Blockbuster, Viacom, the
Surviving Corporation or any other person means any corporation,
partnership, joint venture or other legal entity of which Blockbuster,
Viacom, the Surviving Corporation or such other person, as the case may be
(either alone or through or together with any other subsidiary), owns,
directly or indirectly, 50% or more of the stock or other equity interests,
the holders of which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other
legal entity.
SECTION 9.04. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 9.06. Entire Agreement. This Agreement (together with the Exhibit,
the Blockbuster Disclosure Schedule, the Viacom Disclosure Schedule and the
other documents delivered pursuant hereto) and the Confidentiality Agreement
constitute the entire agreement of the parties and supersede all prior
agreements and undertakings, both written and oral, between the parties, or any
of them, with respect to the subject matter hereof.
SECTION 9.07. Assignment. This Agreement shall not be assigned by operation
of law or otherwise.
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SECTION 9.08. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied (other than the provisions of Sections 6.02 and 6.16), is
intended to or shall confer upon any person any right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
SECTION 9.09. Governing Law. Except to the extent that Delaware Law is
mandatorily applicable to the Merger and the rights of the stockholders of
Blockbuster and Viacom, this Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law.
SECTION 9.10. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Viacom and Blockbuster have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
VIACOM INC.
By: /s/ SUMNER M. REDSTONE
..................................
Name: Sumner M. Redstone
Title: Chairman of the Board
ATTEST:
By: /s/ PHILIPPE P. DAUMAN
..................................
Name: Philippe P. Dauman
Title: Senior Vice President,
General Counsel and Secretary
BLOCKBUSTER ENTERTAINMENT CORPORATION
By: /s/ H. WAYNE HUIZENGA
..................................
Name: H. Wayne Huizenga
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
By: /s/ THOMAS W. HAWKINS
..................................
Name: Thomas W. Hawkins
Title: Vice President, General
Counsel and Secretary
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ANNEX A
VARIABLE COMMON RIGHTS ("VCRS")
TERM SHEET
<TABLE><CAPTION>
ISSUER: VIACOM INC.
------- -----------
<S> <C>
No. of VCRs to be issued:........... One VCR per Blockbuster Share issued and outstanding at the time of the
Merger, including Blockbuster Shares subject to outstanding employee
stock options.
Maturity:........................... First anniversary of Merger.
Trading/Listing:.................... VCRs will be certificated and trade separately from Viacom Common Shares.
Viacom will use best efforts to list VCRs on AMEX or such other exchange
on which its shares are then listed.
Payout:............................. In the ninety trading day period immediately preceding Maturity (the
"Valuation Period"), a value for Viacom B Common Shares ("B Share Value")
will be determined. The B Share Value will equal the average closing
price on the AMEX (or such other exchange on which such shares are then
listed) for a Viacom B Common Share during any 30 consecutive trading
days in the Valuation Period which yield the highest such average closing
price.
Subject to the dilution protection mentioned below, each VCR will represent
a fraction of one Viacom B Common Share, such fraction to be determined
based upon the B Share Value, as set forth below:
B Share Value....................... Value of VCR*
$0 to $35.99........................ .13829
</TABLE>
<TABLE>
<S> <C> <C>
$36 to $40.......................... 30 -.32 - .08 - .60615
-------------
B Share Value
</TABLE>
<TABLE>
<S> <C>
$40.01 to $47.99.................... .05929
</TABLE>
<TABLE>
<S> <C> <C>
$48 to $52.......................... 36 -.32 - .08 - .60615
-------------
B Share Value
</TABLE>
<TABLE>
<S> <C>
$52.01 and above.................... 0
Maximum Payout:..................... .13829 of one Viacom B Common Share.
Minimum Payout:..................... 0
General Market Adjustment:.......... The dollar amounts set forth in the table above under "B Share Value" will
be reduced by a percentage equal to any percentage decline in excess of
25% in the S&P 400 Index from the Merger to Maturity.
Limitation on Payout:............... Notwithstanding the table above, if at any time during the period from the
Merger to Maturity the average closing price for a Viacom B Common Share
on AMEX (or such other exchange on which such shares are then listed) for
any 30 consecutive trading days is:
(a) above $40, then the maximum payout, if any, for each VCR will equal
.05929 of one Viacom B Common Share; or
</TABLE>
- ---------------
* Expressed as a fraction of one Viacom B Common Share
I-33
<PAGE>
<TABLE>
<S> <C>
(b) above $52, then the VCRs will have no value and will automatically
terminate.
Dilution Protection................. The number of Viacom B Shares represented by each VCR will be adjusted to
appropriately reflect any distribution or dividend paid in Viacom B
Shares and any combination, split or reclassification of Viacom B Shares.
Determination of Trading Period..... For purposes of determining any period of consecutive trading days, trading
days shall not be included if, (i) during the first month following the
Effective Time, fewer than 400,000 shares of Viacom B Shares trade, (ii)
during the second month following the Effective Time, fewer than 300,000
shares of Viacom B Shares trade, (iii) during the third month following
the Effective Time, fewer than 250,000 shares of Viacom B Shares trade
and (iv) from and after the first day of the fourth month following the
Effective Time, fewer than 200,000 shares of Viacom B Shares trade.
Neither Viacom Inc., National Amusements Inc. nor any of their affiliates
shall trade in Viacom B Shares during the period from the Merger to
Maturity, except for benefit plan purposes.
</TABLE>
I-34
<PAGE>
EXHIBIT 6.13
FORM OF AFFILIATE LETTER
Viacom Inc.
1515 Broadway
New York, NY 10036
Gentlemen:
I have been advised that as of the date of this letter I may be deemed to
be an "affiliate" of Blockbuster Entertainment Corporation, a Delaware
corporation (the "Company"), as the term "affiliate" is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"). Pursuant to the terms of the
Agreement and Plan of Merger dated as of January 7, 1994 (the "Agreement"),
between Viacom Inc., a Delaware corporation ("Viacom"), and the Company, the
Company will be merged with and into Viacom (the "Merger").
As a result of the Merger, I may receive (A) shares of (i) Class A Common
Stock, par value $.01 per share, of Viacom (the "Viacom Class A Common Stock")
and (ii) Class B Common Stock, par value $.01 per share, of Viacom (the "Viacom
Class B Common Stock"; and, together with the Viacom Class A Common Stock, the
"Viacom Common Stock") and (B) VCRs (as defined in the Agreement) (the VCRs,
together with the Viacom Common Stock, being the "Viacom Securities"). I would
receive such Viacom Securities in exchange for, respectively, shares (or options
for shares) owned by me of common stock, par value $.10 per share, of the
Company (the "Company Common Stock").
I represent, warrant and covenant to Viacom that in the event I receive any
Viacom Securities as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the
Viacom Securities in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed
the requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of Viacom Common Stock to
the extent I felt necessary, with my counsel or counsel for the Company.
C. I have been advised that the issuance of Viacom Securities to me
pursuant to the Merger has been registered with the Commission under the
Act on a Registration Statement Form S-4. However, I have also been advised
that, because at the time the Merger is submitted for a vote of the
stockholders of the Company, (a) I may be deemed to be an affiliate of the
Company and (b) the distribution by me of the Viacom Securities has not
been registered under the Act, I may not sell, transfer or otherwise
dispose of Viacom Securities issued to me in the Merger unless (i) such
sale, transfer or other disposition is made in conformity with the volume
and other limitations of Rule 145 promulgated by the Commission under the
Act, (ii) such sale, transfer or other disposition has been registered
under the Act or (iii) in the opinion of counsel reasonably acceptable to
Viacom, such sale, transfer or other disposition is otherwise exempt from
registration under the Act.
D. I understand that Viacom is under no obligation to register the
sale, transfer or other disposition of the Viacom Securities by me or on my
behalf under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available solely as a
result of the Merger.
I-35
<PAGE>
E. I also understand that there will be placed on the certificates for
the Viacom Securities issued to me, or any substitutions therefor, a legend
stating in substance:
"THE [SHARES] [RIGHTS] REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE [SHARES] [RIGHTS] REPRESENTED BY THIS CERTIFICATE MAY
ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
, 1994 BETWEEN THE REGISTERED HOLDER HEREOF AND
VIACOM INC., A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICES OF VIACOM INC."
F. I also understand that unless a sale or transfer is made in
conformity with the provisions of Rule 145, or pursuant to a registration
statement, Viacom reserves the right to put the following legend on the
certificates issued to my transferee:
"THE [SHARES] [RIGHTS] REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A
PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145
PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE [SHARES]
[RIGHTS] HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING
OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in paragraphs E and
F above shall be removed by delivery of substitute certificates without such
legend if the undersigned shall have delivered to Viacom a copy of a letter from
the staff of the Commission, or an opinion of counsel reasonably satisfactory to
Viacom in form and substance reasonably satisfactory to Viacom, to the effect
that such legend is not required for purposes of the Act.
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of the Company as described in the first paragraph of
this letter, or as a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter.
Very truly yours,
......................................
Name:
Accepted this day of
, 1994, by
VIACOM INC.
By ...................................
Name:
Title:
I-36
<PAGE>
[CONFORMED COPY]
AMENDMENT
THIS AMENDMENT is made and entered into this 15th day of June, 1994 by and
between VIACOM INC., a Delaware corporation ("Viacom"), and BLOCKBUSTER
ENTERTAINMENT CORPORATION, a Delaware corporation ("Blockbuster").
RECITALS:
A. Viacom and Blockbuster entered into that certain Agreement and Plan of
Merger, dated as of January 7, 1994 (the "Merger Agreement"), between Viacom and
Blockbuster. Unless otherwise defined herein, the terms defined in the Merger
Agreement shall be used herein as therein defined.
B. The parties desire to make certain amendments to Sections 5.01(b)(ii)
and (e)(i) of the Merger Agreement.
C. The parties desire to enter into this Amendment.
AGREEMENT:
For and in consideration of the foregoing Recitals, the mutual covenants
set forth below and other good and valuable consideration, receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. The parties hereby each agree to amend Section 5.01 of the Merger
Agreement by deleting the phrase "$10,000,000, or which, in the aggregate, do
not exceed $25,000,000" in each of Subsections 5.01(b)(ii) and 5.01(e)(i) and
replacing it with "$50,000,000 individually or in the aggregate".
2. Except as specifically referenced herein, no other provision of the
Merger Agreement shall be affected by this Amendment.
3. This Amendment shall become effective as of the date first above written
when a counterpart of this Amendment shall have been executed by each of the
parties hereto. This Amendment may be executed and delivered (including by
facsimile transmission) in any number of counterparts, each of which
counterparts shall be an original and all of which taken together shall
constitute one and the same Amendment.
4. The terms "this agreement", "hereof", "herein" or words of like import
contained in the Merger Agreement shall be deemed to refer to the Merger
Agreement as amended hereby.
5. This Amendment shall be governed by, and construed in accordance with,
the laws of the State of New York, regardless of the laws that might otherwise
govern under applicable principles of conflicts of law.
I-37
<PAGE>
IN WITNESS WHEREOF, Viacom and Blockbuster have executed this Amendment as
of the date first written above.
VIACOM INC.
By: /s/ FRANK J.BIONDI
Title: President and Chief Executive
Officer
BLOCKBUSTER ENTERTAINMENT
CORPORATION
By: /s/ H. WAYNE HUIZENGA
Title: Chairman
I-38
<PAGE>
PRELIMINARY
COPIES ANNEX II
CONFIDENTIAL, FOR USE OF
THE COMMISSION ONLY
VOTING AGREEMENT
<PAGE>
[CONFORMED COPY]
VOTING AGREEMENT
VOTING AGREEMENT, dated as of January 7, 1994 (this "Agreement"), between
NATIONAL AMUSEMENTS, INC., a Maryland corporation (the "Stockholder"), and
BLOCKBUSTER ENTERTAINMENT CORPORATION, a Delaware corporation ("Blockbuster").
WHEREAS, Viacom Inc., a Delaware corporation ("Viacom"), and Blockbuster
propose to enter into an Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), which provides, among other things, that
Blockbuster will merge with Viacom pursuant to the merger contemplated by the
Merger Agreement (the "Merger");
WHEREAS, as of the date hereof, the Stockholder owns (i) 45,547,214 shares
of Class A Common Stock, par value $.01 per share, of Viacom ("Viacom Class B
Common Stock") and (ii) 46,565,414 shares of Class B Common Stock, par value
$.01 per share, of Viacom ("Viacom Class B Common Stock"; together with the
Viacom Class A Common Stock, the "Viacom Common Stock"); and
WHEREAS, as a condition to the willingness of Blockbuster to enter into the
Merger Agreement, Blockbuster has required that the Stockholder agree, and in
order to induce Blockbuster to enter into the Merger Agreement, the Stockholder
has agreed, to enter into this Agreement with respect to all the shares of
Viacom Class A Common Stock now owned and which may hereafter be acquired by the
Stockholder (the "Shares").
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I
VOTING OF SHARES
SECTION 1.01. Voting Agreement. The Stockholder hereby agrees that during
the time this Agreement is in effect, at any meeting of the stockholders of
Viacom, however called, and in any action by consent of the stockholders of
Viacom, the Stockholder shall vote the Shares: (a) in favor of the Merger, the
Merger Agreement (as amended from time to time) and the transactions
contemplated by the Merger Agreement, including, but not limited to, the
amendments to the Certificate of Incorporation of Viacom contemplated thereby,
and (b) against any proposal for any recapitalization, merger, sale of assets or
other business combination between Viacom and any person or entity (other than
the Merger) or any other action or agreement that would result in a breach of
any covenant, representation or warranty or any other obligation or agreement of
Viacom under the Merger Agreement or which could result in any of the conditions
to Viacom's obligations under the Merger Agreement not being fulfilled. The
Stockholder acknowledges receipt and review of a copy of the Merger Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Blockbuster as follows:
SECTION 2.01. Authority Relative to This Agreement. The Stockholder has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Stockholder and the
consummation by the Stockholder of the transactions contemplated hereby
II-1
<PAGE>
have been duly and validly authorized by the Board of Directors of the
Stockholder, and no other corporate proceedings on the part of the Stockholder
are necessary to authorize this Agreement or to consummate such transactions.
This Agreement has been duly and validly executed and delivered by the
Stockholder and, assuming the due authorization, execution and delivery by
Blockbuster, constitutes a legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its terms.
SECTION 2.02. No Conflict. (a) The execution and delivery of this Agreement
by the Stockholder do not, and the performance of this Agreement by the
Stockholder shall not, (i) conflict with or violate the Certificate of
Incorporation or By-Laws or equivalent organizational documents of the
Stockholder, (ii) conflict with or violate any law, rule, regulation, order,
judgement or decree applicable to the Stockholder or by which the Shares are
bound or affected or (iii) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Shares pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Stockholder is a party or by which the Stockholder or the Shares
are bound or affected, except, in the case of clauses (ii) and (iii), for any
such conflicts, violations, breaches, defaults or other occurrences which would
not prevent or delay the performance by the Stockholder of its obligations under
this Agreement.
(b) The execution and delivery of this Agreement by the Stockholder do not,
and the performance of this Agreement by the Stockholder shall not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity (as such term is defined in the Merger Agreement)
except for applicable requirements, if any, of the Securities Exchange Act of
1934, as amended, and except where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or delay the performance by the Stockholder of its obligations
under this Agreement.
SECTION 2.03. Title to the Shares. As of the date hereof, the Stockholder
is the record and beneficial owner of 45,547,214 shares of Viacom Class A Common
Stock. Other than 46,565,414 shares of Viacom Class B Common Stock of which the
Stockholder is the record and beneficial owner, such Shares are all the
securities of Viacom owned, either of record or beneficially, by the
Stockholder. The Shares are owned free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the Stockholder's voting rights, charges and other encumbrances
of any nature whatsoever. The Stockholder has not appointed or granted any
proxy, which appointment or grant is still effective, with respect to the
Shares.
ARTICLE III
COVENANTS OF THE STOCKHOLDERS
SECTION 3.01. No Inconsistent Agreements. The Stockholder hereby covenants
and agrees that, except as contemplated by this Agreement, the Merger Agreement
and the Voting Agreement, dated as of September 12, 1993, as amended, between
the Stockholder and Paramount Communication Inc., the Stockholder shall not
enter into any voting agreement or grant a proxy or power of attorney with
respect to the Shares which is inconsistent with this Agreement.
SECTION 3.02. Transfer of Title. The Stockholder hereby covenants and
agrees that the Stockholder shall not transfer record or beneficial ownership of
any of the Shares unless the transferee agrees in writing to be bound by the
terms and conditions of this Agreement.
II-2
<PAGE>
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. Termination. This Agreement shall terminate upon the
termination of the Merger Agreement.
SECTION 4.02. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 4.03. Entire Agreement. This Agreement constitutes the entire
agreement between Blockbuster and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Blockbuster and the Stockholder with respect to the
subject matter hereof.
SECTION 4.04. Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 4.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable or being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible to the fullest extent permitted by applicable law
in a mutually acceptable manner in order that the terms of this Agreement remain
as originally contemplated to the fullest extent possible.
SECTION 4.06. Governing Law. Except to the extent that the General
Corporation Law of the State of Delaware is mandatorily applicable to the rights
of the stockholders of Viacom, this Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
IN WITNESS WHEREOF, the Stockholder and Blockbuster have caused this
Agreement to be duly executed on the date hereof.
NATIONAL AMUSEMENTS, INC.
By: /s/ SUMNER M. REDSTONE
..................................
Name: Sumner M. Redstone
Title: Chairman of the Board,
President and Chief
Executive Officer
BLOCKBUSTER ENTERTAINMENT CORPORATION
By: /s/ H. WAYNE HUIZENGA
..................................
Name: H. Wayne Huizenga
Title: Chairman of the Board and
Chief Executive Officer
II-3
<PAGE>
PRELIMINARY
COPIES ANNEX III
CONFIDENTIAL, FOR USE OF
THE COMMISSION ONLY
STOCKHOLDERS STOCK OPTION AGREEMENT
<PAGE>
[CONFORMED COPY]
AMENDED AND RESTATED
STOCKHOLDERS STOCK OPTION AGREEMENT
AMENDED AND RESTATED STOCKHOLDERS STOCK OPTION AGREEMENT, dated as of
January 7, 1994, among VIACOM INC., a Delaware corporation ("Viacom"), and each
other person and entity listed on the signature pages hereof (each, a
"Stockholder").
WHEREAS, as of the date hereof each Stockholder owns (either beneficially
or of record) the number of shares of common stock, par value $0.10 per share
("Blockbuster Common Stock"), of Blockbuster Entertainment Corporation, a
Delaware corporation ("Blockbuster"), set forth opposite such Stockholder's name
on Exhibit A hereto (all such shares and any shares hereafter acquired by the
Stockholders prior to the termination of this Agreement being referred to herein
as the "Shares");
WHEREAS, Viacom and Blockbuster propose to enter into an Agreement and Plan
of Merger, dated as of the date hereof (as the same may be amended from time to
time, the "Merger Agreement"), which provides, upon the terms and subject to the
conditions thereof, for the merger of Blockbuster with and into Viacom (the
"Merger"); and
WHEREAS, as a condition to the willingness of Viacom to enter into the
Merger Agreement, Viacom has requested that each Stockholder agree, and, in
order to induce Viacom to enter into the Merger Agreement, each Stockholder has
agreed, severally and not jointly, to grant Viacom options to purchase such
Stockholder's Shares;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
ARTICLE I
THE OPTIONS
SECTION 1.01. Grant of Options. Each Stockholder hereby grants to Viacom an
irrevocable option (each, an "Option") to purchase such Stockholder's Shares at
a price per Share equal to $30.125 (the "Purchase Price"). Each Option shall
expire if not exercised prior to the close of business on the 120th day
following termination of the Merger Agreement. Each Option shall also expire if
the Merger Agreement is terminated pursuant to Section 8.01(c) thereof.
SECTION 1.02. Exercise of Options. Provided that (a) to the extent
necessary, any applicable waiting periods (and any extension thereof) under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976 and the rules and
regulations promulgated thereunder (the "HSR Act") with respect to the exercise
of an Option shall have expired or been terminated and (b) no preliminary or
permanent injunction or other order, decree or ruling issued by any court or
governmental or regulatory authority, domestic or foreign, of competent
jurisdiction prohibiting the exercise of an Option or the delivery of Shares
shall be in effect, Viacom may exercise any or all of the Options at any time
following termination of the Merger Agreement (other than a termination pursuant
to Section 8.01(c) thereof) until the expiration of such Options, provided that
at the time of exercise of the Options there exists a Competing Transaction (as
defined in the Merger Agreement) with respect to Blockbuster. In the event that
Viacom wishes to exercise an Option, Viacom shall give written notice (the date
of such notice being herein called the "Notice Date"), to the Stockholder who
granted such Option specifying a place and date (not later than ten Business
Days (as defined below) and not earlier than three Business Days following the
Notice Date) for closing such purchase (the "Closing"). For the purposes of this
III-1
<PAGE>
Agreement, the term "Business Day" shall mean a Saturday, a Sunday or a day on
which banks are not required or authorized by law or executive order to be
closed in the City of New York.
SECTION 1.03. Payment for and Delivery of Certificates. At the Closing, (a)
Viacom shall pay the aggregate Purchase Price for the Shares being purchased
from each Stockholder by wire transfer in immediately available funds of the
total amount of the Purchase Price for such Shares to an account designated by
such Stockholder by written notice to Viacom, and (b) each Stockholder whose
Shares are being purchased shall deliver to Viacom a certificate or certificates
evidencing such Stockholder's Shares, and such Stockholder agrees that such
Shares shall be transferred free and clear of all liens. All such certificates
shall be duly endorsed in blank, or with appropriate stock powers, duly executed
in blank, attached thereto, in proper form for transfer, with the signature of
such Stockholder thereon guaranteed, and with all applicable taxes paid or
provided for.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder, severally and not jointly, hereby represents and warrants
to Viacom as follows:
SECTION 2.01. Due Organization, etc. Such Stockholder (if it is a
corporation, partnership or other legal entity) is duly organized and validly
existing under the laws of the jurisdiction of its incorporation or
organization. Such Stockholder has full power and authority (corporate or
otherwise) to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary action (corporate or otherwise) on the part of such
Stockholder. This Agreement has been duly executed and delivered by or on behalf
of such Stockholder and, assuming its due authorization, execution and delivery
by Viacom, constitutes a legal, valid and binding obligation of such
Stockholder, enforceable against such Stockholder in accordance with its terms,
subject to the effect of any applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally and subject, as
to enforceability, to the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 2.02. No Conflicts; Required Filings and Consents. (a) The
execution and delivery of this Agreement by such Stockholder do not, and the
performance of this Agreement by such Stockholder will not, (i) conflict with or
violate the Certificate of Incorporation or By-Laws or similar organizational
document of such Stockholder (in the case of a Stockholder that is a
corporation, partnership or other legal entity), (ii) conflict with or violate
any law, rule, regulation, order, judgment or decree applicable to such
Stockholder or by which it or any of its properties is bound or affected, or
(iii) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or encumbrance on any of the property or assets of
such Stockholder or (if such Stockholder purports to be a corporation) any of
its subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which such Stockholder is a party or by which such Stockholder or any of its
properties is bound or affected, except for any such breaches, defaults or other
occurrences that would not cause or create a material risk of non-performance or
delayed performance by such Stockholder of its obligations under this Agreement.
(b) The execution and delivery of this Agreement by such Stockholder do
not, and the performance of this Agreement by such Stockholder will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or
III-2
<PAGE>
foreign, except (i) for applicable requirements, if any, of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), and the HSR Act and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay the performance by such Stockholder of
its obligations under this Agreement.
SECTION 2.03. Title to Shares. At the Closing such Stockholder will deliver
good and valid title to its Shares free and clear of any pledge, lien, security
interest, charge, claim, equity, option, proxy, voting restriction, right of
first refusal or other limitation on disposition or encumbrance of any kind,
other than pursuant to this Agreement. Subject to Permitted Liens (as defined
below), which will be eliminated prior to or at the Closing, such Stockholder
has full right, power and authority to sell, transfer and deliver its Shares
pursuant to this Agreement. Upon delivery of such Shares and payment of the
Purchase Price therefor as contemplated herein, Viacom will receive good and
valid title to such Shares, free and clear of any pledge, lien, security
interest, charge, claim, equity, option, proxy, voting restriction or
encumbrance of any kind.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF VIACOM
Viacom hereby represents and warrants to each Stockholder as follows:
SECTION 3.01. Due Organization, etc. Viacom is a corporation duly organized
and validly existing under the laws of the State of Delaware. Viacom has all
necessary corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by Viacom have been duly authorized by all necessary corporate action on
the part of Viacom. This Agreement has been duly executed and delivered by
Viacom and, assuming its due authorization, execution and delivery by each
Stockholder, constitutes a legal, valid and binding obligation of Viacom,
enforceable against Viacom in accordance with its terms.
SECTION 3.02. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by Viacom do not, and the performance of this
Agreement by Viacom will not, (i) conflict with or violate the Certificate of
Incorporation or By-laws of Viacom, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Viacom or by which Viacom or
any of its properties is bound or affected, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the property or assets of Viacom pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Viacom is a party or by
which it or any of its properties is bound or affected, except for any such
breaches, defaults or other occurrences that would not cause or create a
material risk of non-performance or delayed performance by Viacom of its
obligations under this Agreement.
(b) The execution and delivery of this Agreement by Viacom do not, and the
performance of this Agreement by Viacom will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, except (i) for applicable
requirements, if any, of the Exchange Act and the HSR Act and (ii) where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or delay the performance
by Viacom of its obligations under this Agreement.
SECTION 3.03. Investment Intent. The purchase of Shares from any
Stockholder pursuant to this Agreement is for the account of Viacom for the
purpose of investment and not with a view to or for sale
III-3
<PAGE>
in connection with any distribution thereof within the meaning of the Securities
Act, and the rules and regulations promulgated thereunder.
ARTICLE IV
TRANSFER AND VOTING OF SHARES
SECTION 4.01. Transfer of Shares. During the term of the Options, and
except as otherwise provided herein, each Stockholder shall not (a) sell, pledge
(other than Permitted Liens (as defined below)) or otherwise dispose of any of
its Shares, (b) deposit its Shares into a voting trust or enter into a voting
agreement or arrangement with respect to such Shares or grant any proxy with
respect thereto or (c) enter into any contract, option or other arrangement or
undertaking with respect to the direct or indirect acquisition or sale,
assignment, transfer or other disposition of any Blockbuster Common Stock (other
than, in the case of John J. Melk and Donald F. Flynn, the Amended and Restated
Proxy Agreement, dated as of January 7, 1994, among Viacom and each other person
and entity listed on the signature pages thereof). Exercise of rights or
remedies pursuant to bona fide pledges of Shares to banks or other financial
institutions ("Permitted Liens") are not restricted by this Agreement; provided
that in the case of Permitted Liens granted after the date of this Agreement,
such Shares continue to be subject to the Options.
SECTION 4.02. Voting of Shares; Further Assurances. (a) Each Stockholder,
by this Agreement, with respect to those Shares that it owns of record, does
hereby constitute and appoint Viacom, or any nominee of Viacom, with full power
of substitution, during and for the term of the Option granted by such
Stockholder hereunder (or, following termination of the Merger Agreement, during
such periods as the Options are exercisable), as its true and lawful attorney
and proxy, for and in its name, place and stead, to vote each of such Shares as
its proxy, at every annual, special or adjourned meeting of the stockholders of
Blockbuster (including the right to sign its name (as stockholder) to any
consent, certificate or other document relating to Blockbuster that the law of
the State of Delaware may permit or require) (i) in favor of the adoption of the
Merger Agreement and approval of the Merger and the other transactions
contemplated by the Merger Agreement, (ii) against any proposal for any
recapitalization, merger, sale of assets or other business combination between
Blockbuster and any person or entity (other than the Merger) or any other action
or agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of Blockbuster under the Merger
Agreement or which could result in any of the conditions to Blockbuster's
obligations under the Merger Agreement not being fulfilled, and (iii) in favor
of any other matter relating to consummation of the transactions contemplated by
the Merger Agreement. Each Stockholder further agrees to cause the Shares owned
by it beneficially to be voted in accordance with the foregoing. Each
Stockholder acknowledges receipt and review of a copy of the Merger Agreement.
(b) If Viacom shall exercise any Option in accordance with the terms of
this Agreement, and without additional consideration, the Stockholder who
granted such Option shall execute and deliver further transfers, assignments,
endorsements, consents and other instruments as Viacom may reasonably request
for the purpose of effectively carrying out the transactions contemplated by
this Agreement and the Merger Agreement, including the transfer of any and all
of such Stockholder's Shares to Viacom and the release of any and all liens,
claims and encumbrances covering such Shares.
(c) Each Stockholder shall perform such further acts and execute such
further documents and instruments as may reasonably be required to vest in
Viacom the power to carry out the provisions of this Agreement.
III-4
<PAGE>
ARTICLE V
GENERAL PROVISIONS
SECTION 5.01. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered, mailed or transmitted, and shall be effective
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier number
specified below:
(a) If to Viacom:
Viacom Inc.
1515 Broadway
New York, New York 10036
Attention: Senior Vice President,
General Counsel and Secretary
Telecopier No.: 212-258-6134
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Attention: Stephen R. Volk, Esq.
Telecopier No.: (212) 848-7179
(b) If to a Stockholder, to the address set forth below such
Stockholder's name on the signature pages hereof.
with a copy to:
Blockbuster Entertainment Corporation
One Blockbuster Plaza
Fort Lauderdale, Florida 33301
Attention: Vice President, General
Counsel and Secretary
Telecopier No.: 305-832-3929
SECTION 5.02. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 5.03. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 5.04. Entire Agreement. This Agreement constitutes the entire
agreement of the parties and supersedes all prior agreements and undertakings,
both written and oral, between the parties, or any of them, with respect to the
subject matter hereof.
III-5
<PAGE>
SECTION 5.05. Assignment. This Agreement shall not be assigned by operation
of law or otherwise.
SECTION 5.06. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any person any right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 5.07. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 5.08. Governing Law. Except to the extent that Delaware Law is
mandatorily applicable to the rights of the stockholders of Blockbuster, this
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York applicable to contracts executed and to be performed
entirely within that state.
SECTION 5.09. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
III-6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
VIACOM INC.
By: /s/ SUMNER M. REDSTONE
..................................
Name: Sumner M. Redstone
Title: Chairman of the Board
/s/ H. WAYNE HUIZENGA
..................................
H. Wayne Huizenga
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ STEVEN R. BERRARD
..................................
Steven R. Berrard
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ JOHN J. MELK
..................................
John J. Melk
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ DONALD F. FLYNN
..................................
Donald F. Flynn
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ G. HARRY HUIZENGA
..................................
G. Harry Huizenga
for G. Harry Huizenga
and Jean Huizenga
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
III-7
<PAGE>
EXHIBIT A
LIST OF STOCKHOLDERS
<TABLE><CAPTION>
NUMBER OF SHARES OF
NAME OF STOCKHOLDER BLOCKBUSTER COMMON STOCK
- ------------------- --------------------------
<S> <C>
H. Wayne Huizenga..................................................................... 10,905,885
Steven R. Berrard..................................................................... 4,970
John J. Melk.......................................................................... 1,547,058
Donald F. Flynn....................................................................... 1,547,057
Harry and Jean Huizenga............................................................... 1,572,241
</TABLE>
III-8
<PAGE>
PRELIMINARY
COPIES ANNEX IV
CONFIDENTIAL, FOR USE OF
THE COMMISSION ONLY
PROXY AGREEMENT
<PAGE>
[CONFORMED COPY]
AMENDED AND RESTATED PROXY AGREEMENT
AMENDED AND RESTATED PROXY AGREEMENT, dated as of January 7, 1994, among
VIACOM INC., a Delaware corporation ("Viacom"), and each other person and entity
listed on the signature pages hereof (each, a "Stockholder").
WHEREAS, as of the date hereof each Stockholder owns (either beneficially
or of record) the number of shares of common stock, par value $0.10 per share
("Blockbuster Common Stock"), of Blockbuster Entertainment Corporation, a
Delaware corporation ("Blockbuster"), set forth opposite such Stockholder's name
on Exhibit A hereto (all such shares and any shares hereafter acquired by the
Stockholders prior to the termination of this Agreement being referred to herein
as the "Shares");
WHEREAS, Viacom and Blockbuster propose to enter into an Agreement and Plan
of Merger, dated as of the date hereof (as the same may be amended from time to
time, the "Merger Agreement"), which provides, upon the terms and subject to the
conditions thereof, for the merger of Blockbuster with and into Viacom (the
"Merger"); and
WHEREAS, as a condition to the willingness of Viacom to enter into the
Merger Agreement, Viacom has requested that each Stockholder agree, and, in
order to induce Viacom to enter into the Merger Agreement, each Stockholder has
agreed, severally and not jointly, to grant Viacom proxies to vote such
Stockholder's Shares;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder, severally and not jointly, hereby represents and warrants
to Viacom as follows:
SECTION 1.01. Due Organization, etc. Such Stockholder (if it is a
corporation, partnership or other legal entity) is duly organized and validly
existing under the laws of the jurisdiction of its incorporation or
organization. Such Stockholder has full power and authority (corporate or
otherwise) to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary action (corporate or otherwise) on the part of such
Stockholder. This Agreement has been duly executed and delivered by or on behalf
of such Stockholder and, assuming its due authorization, execution and delivery
by Viacom, constitutes a legal, valid and binding obligation of such
Stockholder, enforceable against such Stockholder in accordance with its terms,
subject to the effect of any applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally and subject, as
to enforceability, to the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
IV-1
<PAGE>
SECTION 1.02. Title to Shares. Such Stockholder is the record or beneficial
owner of its Shares free and clear of any proxy or voting restriction other than
pursuant to this Agreement.
ARTICLE II
TRANSFER AND VOTING OF SHARES
SECTION 2.01. Transfer of Shares. During the Proxy Term (as defined below),
and except as otherwise provided herein, each Stockholder shall not (a) sell,
pledge (other than Permitted Liens (as defined below)) or otherwise dispose of
any of its Shares, (b) deposit its Shares into a voting trust or enter into a
voting agreement or arrangement with respect to such Shares or grant any proxy
with respect thereto or (c) enter into any contract, option or other arrangement
or undertaking with respect to the direct or indirect acquisition or sale,
assignment, transfer or other disposition of any Blockbuster Common Stock (other
than, in the case of John J. Melk and Donald F. Flynn, the Amended and Restated
Stockholders Stock Option Agreement, dated as of January 7, 1994, among Viacom
and each other person and entity listed on the signature pages thereof).
Exercise of rights or remedies pursuant to bona fide pledges of Shares to banks
or other financial institutions ("Permitted Liens") are not restricted by this
Agreement. Viacom acknowledges that 575,000 of the Shares owned by Dean L.
Buntrock are subject to a pre-existing option and related pledge agreement
granted to an unrelated third party.
SECTION 2.02. Voting of Shares; Further Assurances. (a) Each Stockholder,
by this Agreement, with respect to those Shares that it owns of record, does
hereby constitute and appoint Viacom, or any nominee of Viacom, with full power
of substitution, during and for the Proxy Term, as its true and lawful attorney
and proxy, for and in its name, place and stead, to vote each of such Shares as
its proxy, at every annual, special or adjourned meeting of the stockholders of
Blockbuster (including the right to sign its name (as stockholder) to any
consent, certificate or other document relating to Blockbuster that the law of
the State of Delaware may permit or require) (i) in favor of the adoption of the
Merger Agreement and approval of the Merger and the other transactions
contemplated by the Merger Agreement, (ii) against any proposal for any
recapitalization, merger, sale of assets or other business combination between
Blockbuster and any person or entity (other than the Merger) or any other action
or agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of Blockbuster under the Merger
Agreement or which could result in any of the conditions to Blockbuster's
obligations under the Merger Agreement not being fulfilled, and (iii) in favor
of any other matter relating to consummation of the transactions contemplated by
the Merger Agreement. Each Stockholder further agrees to cause the Shares owned
by it beneficially to be voted in accordance with the foregoing.
(b) For the purposes of this Agreement, "Proxy Term" shall mean the period
from the execution of this Agreement until the termination of the Merger
Agreement, and following termination of the Merger Agreement (other than a
termination pursuant to Section 8.01(c) thereof), during such time as a
Competing Transaction (as defined in the Merger Agreement) exists with respect
to Blockbuster; provided that in no event shall the Proxy Term extend beyond the
close of business on the 120th day following termination of the Merger
Agreement.
(c) Each Stockholder shall perform such further acts and execute such
further documents and instruments as may reasonably be required to vest in
Viacom the power to carry out the provisions of this Agreement.
IV-2
<PAGE>
ARTICLE III
GENERAL PROVISIONS
SECTION 3.01. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 3.02. Entire Agreement. This Agreement constitutes the entire
agreement of the parties and supersedes all prior agreements and undertakings,
both written and oral, between the parties, or any of them, with respect to the
subject matter hereof.
SECTION 3.03. Assignment. This Agreement shall not be assigned by operation
of law or otherwise.
SECTION 3.04. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any person any right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 3.05. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 3.06. Governing Law. Except to the extent that Delaware Law is
mandatorily applicable to the rights of the stockholders of Blockbuster, this
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York applicable to contracts executed and to be performed
entirely within that state.
SECTION 3.07. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
IV-3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
VIACOM INC.
By: /s/ SUMNER M. REDSTONE
..................................
Name: Sumner M. Redstone
Title: Chairman of the Board
PHILIPS ELECTRONICS N.V.
By: /s/ D.G. EUSTACE
..................................
Name: D.G. Eustace
Title: Executive Vice President
Groenewoudseweg 1
5621 BA
Eindhoven, The Netherlands
WESTBURY (BERMUDA) LTD.
By: /s/ JAMES WATT
..................................
Name: James Watt
Title: Vice President
Victoria Hall
11 Victoria Street
P.O. Box HM 1065
Hamilton HM EX
Bermuda
/s/ JOHN J. MELK
..................................
John J. Melk
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ DONALD F. FLYNN
..................................
Donald F. Flynn
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ GEORGE D. JOHNSON, JR.
..................................
George D. Johnson, Jr.
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ SCOTT A. BECK
..................................
Scott A. Beck
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
IV-4
<PAGE>
/s/ HARRIS W. HUDSON
..................................
Harris W. Hudson
529 Bontana Avenue
Fort Lauderdale, FL 33301
/s/ BONNIE J. HUDSON
..................................
Bonnie J. Hudson
529 Bontana Avenue
Fort Lauderdale, FL 33301
/s/ PETER HUIZENGA
..................................
Peter Huizenga Trustee,
Peter H. Huizenga Sr.
Testamentary Trust
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ PETER HUIZENGA
..................................
Peter Huizenga
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ PETER HUIZENGA
..................................
Peter Huizenga Trustee,
Elizabeth I. Huizenga Trust
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ PETER HUIZENGA
..................................
Peter Huizenga Trustee,
Betsy Huizenga Trust
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ PETER HUIZENGA
..................................
Peter Huizenga Trustee,
Greta Huizenga Trust
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ HEIDI HUIZENGA
..................................
Heidi Huizenga Trustee,
Peter Huizenga Jr. Trust
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
IV-5
<PAGE>
/s/ HEIDI HUIZENGA
..................................
Heidi Huizenga Trustee,
Timothy Huizenga Trust
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ DEAN L. BUNTROCK
..................................
Dean L. Buntrock
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ ROSEMARIE BUNTROCK
..................................
Rosemarie Buntrock
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ ROSEMARIE BUNTROCK
..................................
Rosemarie Buntrock Trustee,
Buntrock Family Video Trust
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
IV-6
<PAGE>
EXHIBIT A
LIST OF STOCKHOLDERS
<TABLE><CAPTION>
NUMBER OF SHARES OF
NAME OF STOCKHOLDERS BLOCKBUSTER COMMON STOCK
- -------------------- --------------------------
<S> <C>
Philips Electronics N.V............................................................... 17,245,211
Westbury (Bermuda) Inc................................................................ 1,400,000
John J. Melk.......................................................................... 5,217,196
Donald F. Flynn....................................................................... 4,398,119
George D. Johnson, Jr................................................................. 2,827,465
Scott A. Beck......................................................................... 3,290,819
Harris W. Hudson and Bonnie J. Hudson................................................. 821,388
Peter Huizenga, as trustee for Peter H. Huizenga Sr. Testamentary Trust............... 1,771,296
Peter Huizenga........................................................................ 431,390
Peter Huizenga, as trustee for Elizabeth I. Huizenga Trust............................ 50,000
Peter Huizenga, as trustee for Betsy Huizenga Trust................................... 20,800
Peter Huizenga, as trustee for Greta Huizenga Trust................................... 20,800
Heidi Huizenga, as trustee for Peter Huizenga Jr. Trust............................... 20,800
Heidi Huizenga, as trustee for Timothy Huizenga Trust................................. 20,800
Dean L. Buntrock...................................................................... 1,993,984
Rosemarie Buntrock.................................................................... 382,150
Rosemarie Buntrock, as trustee for Buntrock Family Video Trust........................ 355,506
</TABLE>
IV-7
<PAGE>
PRELIMINARY
COPIES ANNEX V
CONFIDENTIAL, FOR USE OF
THE COMMISSION ONLY
OPINION OF SMITH BARNEY SHEARSON INC.
<PAGE>
SMITH BARNEY SHEARSON
January 6, 1994
The Board of Directors
Viacom Inc.
1515 Broadway
New York, New York 10036
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to Viacom Inc. ("Viacom") and its stockholders, of (i) the Per Share
Consideration (as defined hereunder) to be paid by Viacom pursuant to the terms
and subject to the conditions set forth in the draft Agreement and Plan of
Merger, dated January 6, 1994 (the "Merger Agreement"), by and between
Blockbuster Entertainment Corporation ("Blockbuster") and Viacom, and (ii) the
$1,250,000,015 of proceeds to be received by Viacom from Blockbuster through the
sale of 22,727,273 shares of Class B Common Stock, par value $0.01 per share
("Class B Common Stock") pursuant to the draft Subscription Agreement, dated
January 6, 1994, between Viacom and Blockbuster (the "Subscription Agreement").
As more fully described in the Merger Agreement, and subject to the terms and
conditions set forth therein, (i) Blockbuster and Viacom will enter into a
business combination transaction pursuant to which Blockbuster shall be merged
with and into Viacom (the "Merger"), and (ii) each share of common stock, par
value $0.10 per share, of Blockbuster ("Blockbuster Common Stock"), issued and
outstanding at the effective time of the Merger and subject to adjustment as
specified in the Merger Agreement, will be converted into the right to receive
(a) 0.0800 of one share of Class A Common Stock, par value $.01 per share of
Viacom ("Class A Common Stock") (the "Class A Exchange Ratio"), (b) 0.60615 of
one share of Class B Common Stock (the "Class B Exchange Ratio") (the Class B
Common Stock together with the Class A Common Stock, the "Viacom Common Stock"),
and (c) 1.000 variable contingent rights (a "VCR") issued by Viacom which, as
more fully described in the Merger Agreement, provides for up to a maximum of
0.13829 shares of Class B Common Stock to be issued subsequent to the
consummation of the Merger for each VCR held (the "VCR Exchange Ratio") (the VCR
Exchange Ratio, together with the Class A Exchange Ratio and Class B Exchange
Ratio, the "Exchange Ratio"). The total number of shares of Class A Common Stock
and Class B Common Stock to be received per share of Blockbuster Common Stock
pursuant to the Exchange Ratio hereinafter are collectively referred to as the
"Per Share Consideration".
We understand further that Viacom intends to increase the price of its
currently outstanding tender offer (the "Offer") for shares of common stock par
value $1.00 per share ("Paramount Common
V-1
<PAGE>
Stock"), of Paramount Communications Inc. ("Paramount"), to $105 per share and
that, if the Offer is consummated, Viacom intends to effect a merger of
Paramount with and into Viacom or, alternatively, a merger of a new subsidiary
of Viacom with and into Paramount (the "Paramount Merger"), with each share of
Paramount Common Stock outstanding as of the effective time of such merger being
converted into the right to receive (a) 0.93065 shares of Class B Common Stock
and (b) 0.30408 shares of a new series of 5.00% Convertible Exchangeable
Preferred Stock, par value $.01 per share with a liquidation value of $50.00, of
Viacom containing the principal terms described in the Offer to Purchase, dated
October 25, 1993, relating to the Offer, as amended and supplemented by the
Supplement thereto, dated November 8, 1993, and the Second Supplement thereto,
to be filed with the Securities and Exchange Commission on January 7, 1994 (the
"Offer to Purchase").
In arriving at our opinion, we have (i) reviewed the Merger Agreement and
Subscription Agreement in the form presented to the Board of Directors of
Viacom; (ii) revised the Offer to Purchase; (iii) met with certain senior
officers of Viacom, Blockbuster and Paramount to discuss the business,
operations, assets, financial condition and prospects of their respective
companies; (iv) examined certain publicly available business and financial
information relating to Viacom, Blockbuster and Paramount, and certain financial
forecasts and other data for Viacom, Blockbuster and Paramount, and certain
financial forecasts and other data for Viacom and Blockbuster which were
provided to us by the senior management of Viacom, Blockbuster and Paramount,
respectively, which are not publicly available; (v) taken into account certain
long-term strategic benefits of the Merger and the Paramount Merger, both
operational and financial, that were described to us by Viacom, Blockbuster and
Paramount senior management; and (vi) reviewed the financial terms of the Merger
as set forth in the Merger Agreement and the Paramount Merger as set forth in
the Offer to Purchase in relation to, among other things, current and historical
market prices and trading volumes of Viacom Common Stock, Blockbuster Common
Stock and Paramount Common Stock; the earnings and book value per share of each
of Viacom, Blockbuster and Paramount; and the capitalization and financial
condition of each of Viacom, Blockbuster and Paramount. We have also considered,
to the extent publicly available, the financial terms of certain other business
combination transactions which we considered relevant in evaluating the Merger
and analyzed certain financial, stock market and other publicly available
information relating to the businesses of other companies that we considered
relevant in evaluating Viacom, Blockbuster and Paramount. We have also evaluated
the pro forma financial impact of the Merger and the Paramount Merger on Viacom.
In addition to the foregoing, we conducted such other analyses and examinations
and considered such other financial, economic and market criteria as we deemed
necessary in arriving at our opinion.
In arriving at our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise discussed with us.
With respect to financial forecasts and other information provided to or
otherwise discussed with us prepared by the senior managements of Viacom,
Blockbuster and Paramount with respect to the expected future financial
performance of Viacom, Blockbuster and Paramount, we assumed that such forecasts
and other information were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the respective senior managements
of Viacom, Blockbuster and Paramount. We express no opinion as to what the value
of the Viacom Common Stock or the VCR will be when issued to Blockbuster
stockholders pursuant to the Merger or the price at which the Viacom Common
Stock or the VCR will trade subsequent to the Merger. We have not made or been
provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Viacom, Blockbuster or Paramount nor
have we made any physical inspection of the properties or assets of Viacom,
Blockbuster or Paramount. Our opinion herein is necessarily based upon
financial, stock market and other conditions and circumstances existing and
disclosed to us as of the date hereof.
Smith Barney Shearson Inc. has acted as financial advisor to Viacom in
connection with this transaction and will receive a fee for such services. In
the ordinary course of our business, we may
V-2
<PAGE>
actively trade the equity or debt securities of Viacom or Blockbuster for our
own account or for the account of our customers and, accordingly, may at any
time hold a long or short position in such securities.
Our advisory services and the opinion expressed herein are provided solely
for the use of Viacom's Board of Directors in evaluating the Merger and are not
on behalf of, and are not intended to confer rights or remedies upon,
Blockbuster, any stockholder of Viacom or Blockbuster or any person other than
Viacom's Board of Directors. It is understood that this opinion letter is for
the information of the Board of Directors of Viacom only and, without our prior
written consent, is not to be quoted or referred to, in whole or in part, in
connection with the offering or sale of securities, nor shall this letter be
used for any other purpose, other than in connection with the Joint Proxy
Statement/Prospectus of Viacom and Blockbuster relating to the Merger and the
Registration Statement of which such Proxy Statement/Prospectus forms a part.
Based upon and subject to the foregoing, our experience as investment
bankers and other factors we deemed relevant, we are of the opinion that, as of
the date hereof, whether or not the Paramount Merger is consummated, (i) the Per
Share Consideration payable by Viacom to Blockbuster and (ii) the consideration
to be received by Viacom for shares of its Class B Common Stock pursuant to the
Subscription Agreement are fair, from a financial point of view, to Viacom and
its stockholders.
Very truly yours,
/s/ SMITH BARNEY SHEARSON INC.
...............................
SMITH BARNEY SHEARSON INC.
V-3
<PAGE>
PRELIMINARY
COPIES ANNEX VI
CONFIDENTIAL, FOR USE OF
THE COMMISSION ONLY
OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
<PAGE>
Investment Banking Group
World Financial Center
North Tower
New York, New York 10281-1330
[Logo] Merrill Lynch
August 23, 1994
The Board of Directors
Blockbuster Entertainment Corporation
One Blockbuster Plaza
200 South Andrews Avenue
Fort Lauderdale, FL 33301
Dear Members of the Board:
Blockbuster Entertainment Corporation (the "Company") and Viacom Inc.
("Viacom") have entered into an agreement, dated as of January 7, 1994 (the
"Merger Agreement"), pursuant to which, among other things, the Company will be
merged with and into Viacom in a transaction (the "Merger") in which each
outstanding share (other than any shares of Company Stock referred to below
owned by the Company as treasury stock or by Viacom or any direct or indirect
wholly-owned subsidiary of Viacom or of the Company, all of which will be
canceled, and other than any shares of Company Stock held by stockholders who
properly exercise and perfect stockholder appraisal rights, if any, under the
General Corporation Law of the State of Delaware) of the Company's common stock,
par value $.10 per share (the "Company Stock"), will be converted into the right
to receive (i) 0.08 of one share of Class A Common Stock, par value $.01 per
share, of Viacom (the "Viacom Class A Common Stock"), (ii) 0.60615 of one share
of Class B Common Stock, par value $.01 per share, of Viacom (the "Viacom Class
B Common Stock" and, together with the Viacom Class A Common Stock, the "Viacom
Common Stock"), and (iii) up to an additional 0.13829 of one share of Viacom
Class B Common Stock, with such amount to be determined in accordance with, and
the right to receive such shares to be evidenced by, one variable common right
(individually, a "Variable Common Right", and collectively, the "Variable Common
Rights") issued by Viacom and having the terms described in the Merger
Agreement. The ratios at which the Company Stock are converted into Viacom
Common Stock and the Variable Common Rights, in accordance with the Merger
Agreement, are referred to herein collectively as the "Conversion Ratio".
Consummation of the Merger will be subject to the terms and conditions set forth
in the Merger Agreement. We understand that it is intended that the Company and
Viacom will recognize no gain or loss for federal income tax purposes as a
result of the Merger.
We understand that Viacom acquired all of the outstanding shares of common
stock of Paramount Communications Inc. ("Paramount"), par value $1.00 per share
(the "Paramount Common Stock"), by means of a cash tender offer by Viacom
followed by a second-step merger of Paramount and Viacom (the "Paramount
Merger"). All references to Viacom herein relating to a circumstance or event
existing or occurring after the consummation of the Paramount Merger include
references to Paramount.
You have asked us whether, in our opinion, the proposed Conversion Ratio
contemplated by the Merger Agreement is fair to the holders of the Company Stock
(other than Viacom and its affiliates) from a financial point of view.
VI-1
<PAGE>
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Merger Agreement, the Amended and Restated
Stockholders Stock Option Agreement dated as of January 7, 1994
among Viacom and each other person and entity a signatory thereto,
the Amended and Restated Proxy Agreement dated as of January 7,
1994 among Viacom and each other person and entity a signatory
thereto, the Voting Agreement dated as of January 7, 1994 between
National Amusements, Inc. and Blockbuster and the Subscription
Agreement dated as of January 7, 1994 between Blockbuster and
Viacom;
(2) Reviewed (a) the Company's Annual Reports, Forms 10-K and related
financial information for the three years ended December 31, 1993
and the Company's Forms 10-Q and the related unaudited financial
information for the quarterly periods ended March 31, 1994 and June
30, 1994; (b) Viacom's Annual Reports, Forms 10-K and related
financial information for the three years ended December 31, 1993
and Viacom's Forms 10-Q and the related unaudited financial
information for the quarterly periods ended March 31, 1994 and June
30, 1994; (c) Paramount's Annual Reports, Forms 10-K and related
financial information for the two years ended October 31, 1992, the
Transition Reports on Form 10-K for the six-month period ended
April 30, 1993, as amended, and the eleven-month period ended March
31, 1994, as amended, and the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1994; (d) the preliminary joint
proxy statement/prospectus on Schedule 14A of Viacom and
Blockbuster as filed with the Securities and Exchange Commission on
August 19, 1994 and the joint proxy statement/prospectus on
Schedule 14A of Viacom and Paramount dated May 25, 1994; and (e)
certain other filings with the Securities and Exchange Commission
made by the Company, Viacom and Paramount, including proxy
statements, Forms 8-K and registration statements, during the last
three years;
(3) Reviewed certain information, including financial forecasts
relating to the business, earnings, cash flows, assets and
prospects of the Company furnished to us by the Company and
adjusted by us, based on information provided by the Company, for
transactions that occurred subsequent to the date of such
information and of Viacom furnished to us by Viacom and adjusted by
us, based on information provided by Viacom;
(4) Conducted discussions with members of senior management of the
Company and Viacom concerning their respective businesses,
prospects and strategic objectives as well as the strategic
implications and operating efficiencies and possible synergies that
might be realized following consummation of the Merger;
(5) Reviewed the historical market prices and trading activity for
Company Stock and Viacom Class B Common Stock and compared them
with the Standard & Poor's 500 Index and selected other indices;
(6) Compared the results of operations of the Company and Viacom with
those of certain companies which we deemed to be similar in certain
respects to the Company and Viacom, respectively;
(7) Reviewed the financial terms of certain business combinations
involving companies in lines of business which we deemed to be
similar in certain respects to the Company and in other industries
generally;
(8) Analyzed the relative valuation of Company Stock, Viacom Common
Stock and the blended value of the Viacom Common Stock and Variable
Common Rights (including the theoretical trading value of the
Variable Common Rights) to be received by the
VI-2
<PAGE>
holders of the Company Stock in the Merger using various valuation
methodologies which we deemed appropriate;
(9) Analyzed the pro forma effect of the Merger on the combined
company's coverage and leverage ratios following consummation of
the Merger;
(10) Analyzed the economic interests of the Company's stockholders in
the combined company and the relative contributions of the
respective parties' financial performance, including the relative
contribution to revenues and earnings before interest, taxes,
depreciation and amortization as well as the relative contribution
of implied market capitalization, of the Company and Viacom to the
combined company following consummation of the Merger; and
(11) Reviewed such other financial studies and performed such other
investigations and analyses and took into account such other
matters as we deemed necessary or appropriate.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company and
Viacom and assumed that financial forecasts and estimates of operating
efficiencies and potential synergies reflected the best currently available
estimates and judgments of the managements of the Company and Viacom as to the
expected future financial performance of their respective companies. We have not
independently verified such information or assumptions, conducted a physical
inspection of the properties or facilities of the Company or Viacom, or
undertaken any independent appraisal or evaluation of the assets or liabilities
of the Company or Viacom. Our opinion is based upon market, economic, financial
and other conditions as they exist and can be evaluated as of the date hereof.
We express no opinion as to what the value of the Viacom Common Stock or the
Variable Common Rights actually will be when issued to the holders of the
Company Stock upon consummation of the Merger.
In connection with the preparation of this opinion, we have not been
authorized by the Company or its Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of the Company. In addition, since the announcement of the execution of the
Merger Agreement, no entity has contacted us to indicate an interest in
acquiring or merging with the Company.
We have, in the past, provided investment banking and financial advisory
services to the Company, Viacom and Paramount and have received fees for the
rendering of such services. We have acted as financial advisor to the Company's
Board of Directors in connection with the Merger and will receive a fee for our
services upon consummation of the Merger.
This opinion has been prepared for the confidential use of the Company's
Board of Directors and may not be reproduced, summarized, described or referred
to without Merrill Lynch's prior written consent.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Conversion Ratio contemplated by the Merger Agreement
is fair to the holders of the Company Stock (other than Viacom and its
affiliates) from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH, INCORPORATED
By: /s/ JAMES K. MASON
..................................
Managing Director
Investment Banking Group
VI-3
<PAGE>
PRELIMINARY
COPIES ANNEX VII
CONFIDENTIAL, FOR USE OF
THE COMMISSION ONLY
EXCERPT FROM THE DELAWARE
GENERAL CORPORATION LAW
RELATING TO DISSENTERS' RIGHTS
<PAGE>
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Sec. 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 the provisions of
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 the provisions of subsection (d) of this Section and
who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to 228 of this Chapter shall be entitled to an
appraisal by the Court of Chancery of the fair value of his 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 non-stock 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 non-stock
corporation.
(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 Sections 251, 252, 254, 257, 258, 263 or 264 of this
Chapter:
(1) Provided, however, that no appraisal rights under this Section
shall be available for the shares of any class or series of stock which, 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 stockholders; 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 Section 251 of this
Chapter.
(2) Notwithstanding the provisions of subsection (b)(1) of this
Section, 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 Sections 251, 252, 254, 257, 258, 263 and 264 of
this Chapter to accept for such stock anything except: (i) shares of stock
of the corporation surviving or resulting from such merger or
consolidation; (ii) shares of stock of any other corporation which 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 stockholders;
(iii) cash in lieu of fractional shares of the corporations described in
the foregoing clauses (i) and (ii); or (iv) any combination of the shares
of stock and cash in lieu of fractional shares described in the foregoing
clauses (i), (ii) and (iii) of this subsection.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this Chapter 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.
(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), shall apply as nearly as is practicable.
VII-1
<PAGE>
(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 the
provisions of 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 Section
228 or Section 253 of this Chapter, the surviving or resulting corporation,
either before the effective date of the merger or consolidation or within
10 days thereafter, shall notify each of the stockholders entitled to
appraisal rights of the effective date of the merger or consolidation and
that appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
Section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
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.
(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 the provisions of 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
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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 one
or more publications at least one 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 the provisions of 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 the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and in 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 other 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 of
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
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<PAGE>
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 into which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
VII-4
<PAGE>
PRELIMINARY
COPIES ANNEX VIII
CONFIDENTIAL, FOR USE OF
THE COMMISSION ONLY
FORM OF CERTIFICATE OF MERGER
<PAGE>
CERTIFICATE OF MERGER
MERGING
BLOCKBUSTER ENTERTAINMENT CORPORATION
WITH AND INTO
VIACOM INC.
PURSUANT TO SECTION 251 OF THE
DELAWARE GENERAL CORPORATION LAW
The undersigned, being the [Title] of Viacom Inc., a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware ("Viacom"), DOES HEREBY CERTIFY AS FOLLOWS:
FIRST: That the name of and the state of incorporation of each of the
constituent corporations in the merger is as follows:
<TABLE><CAPTION>
STATE OF
NAME INCORPORATION
---- -------------
<S> <C>
Blockbuster Entertainment Corporation ................................ Delaware
Viacom Inc. .......................................................... Delaware
</TABLE>
SECOND: That an Agreement and Plan of Merger dated as of January 7, 1994,
as amended as of June 15, 1994 (the "Merger Agreement"), between Blockbuster
Entertainment Corporation ("Blockbuster") and Viacom has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with Section 251 of the General Corporation Law of the State of
Delaware.
THIRD: That Viacom shall be the surviving corporation (the "Surviving
Corporation").
FOURTH: The certificate of incorporation of Viacom will be the certificate
of incorporation of the Surviving Corporation.
FIFTH: That an executed copy of the Merger Agreement is on file at the
principal place of business of the Surviving Corporation at the following
address:
1515 Broadway
New York, New York 10036
SIXTH: That a copy of the Merger Agreement will be furnished by the
Surviving Corporation, on request, and without cost, to any stockholder of any
constituent corporation.
IN WITNESS WHEREOF, Viacom has caused this Certificate of Merger to be
signed by , its [Title of Officer], and attested by ,
its [Assistant] Secretary, this day of [ ], 19 .
VIACOM INC.
By:
..................................
Title:
ATTEST:
.....................................
[Assistant] Secretary
VIII-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the DGCL empowers a Delaware corporation to indemnify any
person who was or is, or is threatened to be made, a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, such person had no reasonable cause to believe
his conduct was unlawful. A Delaware corporation may indemnify such persons
against expenses (including attorneys' fees) in actions brought by or in the
right of the corporation to procure a judgment in its favor under the same
conditions, except that no indemnification is permitted in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and to the extent the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses as the Court of
Chancery or other such court shall deem proper. To the extent such person has
been successful on the merits or otherwise in defense of any action referred to
above, or in defense of any claim, issue or matter therein, the corporation must
indemnify such person against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith. The indemnification
and advancement of expenses provided for in, or granted pursuant to, Section 145
is not exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 145 also provides that a corporation may maintain insurance against
liabilities for which indemnification is not expressly provided by the statute.
Article VI of the Viacom Restated Certificate of Incorporation provides for
indemnification of the directors, officers, employees and agents of Viacom to
the full extent currently permitted by the DGCL.
In addition, the Viacom Restated Certificate of Incorporation, as permitted
by Section 102(b) of the DGCL, limits directors' liability to Viacom and its
stockholders by eliminating liability in damages for breach of fiduciary duty.
Article VII of the Viacom Restated Certificate of Incorporation provides that
neither Viacom nor its stockholders may recover damages from Viacom's directors
for breach of their fiduciary duties in the performance of their duties as
directors of Viacom. As limited by Section 102(b), this provision cannot,
however, have the effect of indemnifying any director of Viacom in the case of
liability (i) for a breach of the director's duty of loyalty, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the DGCL or (iv) for
any transactions for which the director derived an improper personal benefit.
PART II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<S> <C>
2.1 --Agreement and Plan of Merger dated as of January 7, 1994, as amended as of June 15, 1994,
between Viacom Inc. and Blockbuster Entertainment Corporation (included as Annex I to the
Joint Proxy Statement/Prospectus)
2.2 --Voting Agreement dated as of January 7, 1994 between National Amusements, Inc. and
Blockbuster Entertainment Corporation (included as Annex II to the Joint Proxy
Statement/Prospectus)
2.3 --Amended and Restated Stockholders Stock Option Agreement dated as of January 7, 1994 among
Viacom Inc. and each person listed on the signature pages thereto (included as Annex III to
the Joint Proxy Statement/Prospectus)
2.4 --Amended and Restated Proxy Agreement dated as of January 7, 1994 among Viacom Inc. and each
person listed on the signature pages thereto (included as Annex IV to the Joint Proxy
Statement/Prospectus)
3.1 --Restated Certificate of Incorporation of Viacom Inc. as filed with the Secretary of State of
the State of Delaware on May 21, 1992 (incorporated by reference to Exhibit 3(a) to the
Annual Report on Form 10-K for fiscal year ended December 31, 1992, as amended by Form 10-K/A
Amendment No. 1 dated November 29, 1993 and as further amended by Form 10-K/A Amendment No. 2
dated December 9, 1993, File No. 1-9553)
3.2 --Amendment to Restated Certificate of Incorporation of Viacom Inc. as filed with the Secretary
of State of the State of Delaware on July 7, 1994.
3.3 --Form of Certificate of Merger merging Blockbuster Entertainment Corporation with and into
Viacom Inc. (included as Annex VIII to the Joint Proxy Statement/Prospectus)
3.4 --By-laws of Viacom Inc. (incorporated by reference to Exhibit 3.3 to the Registration
Statement on Form S-4 filed by Viacom Inc., File No. 33-13812)
4.1 --Specimen Certificate representing the Viacom Inc. Class A Voting Common Stock (incorporated
by reference to Exhibit 4.1 to the Registration Statement on Form S-4 filed by Viacom Inc.,
File No. 33-13812)
4.2 --Specimen Certificate representing the Viacom Inc. Class B Non-Voting Common Stock
(incorporated by reference to Exhibit 4(a) to the Quarterly Report on Form 10-Q of Viacom
Inc., for the quarter ended June 30, 1993, File No. 1-9553)
4.3 --Form of certificate representing the Variable Common Rights of Viacom Inc.
5 --Opinion of Shearman & Sterling as to the legality of the securities being registered
8.1 --Opinion of Shearman & Sterling as to tax matters described in the Joint Proxy
Statement/Prospectus
8.2 --Opinion of Skadden, Arps, Slate, Meagher & Flom as to tax matters described in the Joint
Proxy Statement/Prospectus
10.1 --Stock Purchase Agreement dated as of October 4, 1993 between Viacom Inc. and NYNEX
Corporation, as amended as of November 19, 1993 (incorporated by reference to Exhibit 10(t)
to the Annual Report on Form 10-K of Viacom Inc. for the fiscal year ended December 31, 1993,
as amended by Form 10-K/A Amendment No. 1 dated May 2, 1994 (File No. 1-9553))
10.2 --Amended and Restated Stock Purchase Agreement dated as of October 21, 1993 between Viacom
Inc. and Blockbuster Entertainment Corporation (incorporated by reference to Exhibit 10(u) to
the Annual Report on Form 10-K of Viacom Inc. for the fiscal year ended December 31, 1993, as
amended by Form 10-K/A Amendment No. 1 dated May 2, 1994 (File No. 1-9553))
10.3 --Subscription Agreement dated as of January 7, 1994 between Viacom Inc. and Blockbuster
Entertainment Corporation (incorporated by reference to Exhibit 99(c)(8) to Viacom Inc.
Schedule 14D-1 Tender Offer Statement (Amendment No. 20) dated January 7, 1994)
</TABLE>
PART II-2
<PAGE>
<TABLE>
<S> <C>
10.4 --Credit Agreement, dated as of July 1, 1994, among Viacom Inc.; the Bank parties thereto; The
Bank of New York ("BNY"), Citibank N.A. ("Citibank"), Morgan Guaranty Trust Company of New
York and Bank of America NT&SA, as Managing Agents; BNY, as Documentation Agent; Citibank, as
Administrative Agent; JP Morgan Securities Inc., as Syndication Agent; and the Agents and Co-
Agents named therein (incorporated by reference to Exhibit 4.1 of the Current Report on Form
8-K of Viacom Inc. dated July 22, 1994)
10.5 --Agreement and Plan of Merger dated as of August 27, 1994 among Viacom Inc., Paramount
Communications Realty Corporation, ITT Corporation, Rainbow Garden Corporation and MSG
Holdings, L.P.
23.1 --Consent of Price Waterhouse LLP as to financial statements of Viacom Inc.
23.2 --Consent of Arthur Andersen & Co. as to financial statements of Blockbuster Entertainment
Corporation
23.3 --Consent of Price Waterhouse LLP as to financial statements of Paramount Communications Inc.
23.4 --Consent of Ernst & Young LLP as to financial statements of Paramount Communications Inc.
23.5 --Consent of KPMG Peat Marwick LLP as to financial information of Super Club Retail
Entertainment Corporation
23.6 --Consent of Shearman & Sterling (contained in Exhibits 5 and 8.1)
23.7 --Consent of Skadden, Arps, Slate, Meagher & Flom (contained in Exhibit 8.2)
23.8 --Consent of Smith Barney Inc.
23.9 --Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
23.10 --Consents of Steven R. Berrard and George D. Johnson, Jr. to be named as a director of
Viacom Inc. in the Joint Proxy Statement/Prospectus
24 --Powers of Attorney
99.1 --Opinion of Smith Barney Shearson Inc. dated January 6, 1994 (included as Annex V to the Joint
Proxy Statement/Prospectus)
99.2 --Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated dated August 23, 1994 (included
as Annex VI to the Joint Proxy Statement/Prospectus)
99.3 --Form of Proxy for Viacom Inc.
99.4 --Form of Proxy for Blockbuster Entertainment Corporation
99.5 --Form of Chairman's Letter to the stockholders of Blockbuster Entertainment Corporation
99.6 --Form of Notice of Special Meeting of Stockholders to the stockholders of Blockbuster
Entertainment Corporation
99.7 --Form of Chairman's Letter to the stockholders of Viacom Inc.
99.8 --Form of Notice of Special Meeting of Stockholders to the stockholders of Viacom Inc.
</TABLE>
(b) No financial statement schedules are required to be filed herewith
pursuant to Item 21(b) or (c) of this Form.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
PART II-3
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and in the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
PART II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 29, 1994.
VIACOM INC.
By: /s/ PHILIPPE P. DAUMAN
Name: Philippe P. Dauman
Title: Executive Vice President,
General Counsel,
Chief Administrative Officer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on August 29,
1994.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
- --------------------------------------------------- ---------------------------------------
* Director
...................................................
George S. Abrams
* President, Chief Executive Officer and
................................................... Director (Principal Executive
Frank J. Biondi, Jr. Officer)
/s/ PHILIPPE P. DAUMAN Director
...................................................
Philippe P. Dauman
* Director
...................................................
William C. Ferguson
* Director
...................................................
H. Wayne Huizenga
* Director
...................................................
Ken Miller
* Director
...................................................
Brent D. Redstone
* Director
...................................................
Sumner M. Redstone
* Director
...................................................
Frederick V. Salerno
* Director
...................................................
William Schwartz
/s/ GEORGE S. SMITH, JR. Senior Vice President and Chief
................................................... Financial Officer (Principal
George S. Smith, Jr. Financial Officer)
/s/ KEVIN C. LAVAN Senior Vice President, Controller and
................................................... Chief Accounting Officer (Principal
Kevin C. Lavan Accounting Officer)
*By: /s/ PHILIPPE P. DAUMAN August 29, 1994
...................................................
Attorney-in-fact under Powers of Attorney filed as
Exhibit 24 to this Registration Statement
</TABLE>
PART II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE><CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- --------- ----------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
2.1 --Agreement and Plan of Merger dated as of January 7, 1994, as amended as of June 15, 1994,
between Viacom Inc. and Blockbuster Entertainment Corporation (included as Annex I to the
Joint Proxy Statement/Prospectus)
2.2 --Voting Agreement dated as of January 7, 1994 between National Amusements, Inc. and
Blockbuster Entertainment Corporation (included as Annex II to the Joint Proxy
Statement/Prospectus)
2.3 --Amended and Restated Stockholders Stock Option Agreement dated as of January 7, 1994 among
Viacom Inc. and each person listed on the signature pages thereto (included as Annex III to
the Joint Proxy Statement/Prospectus)
2.4 --Amended and Restated Proxy Agreement dated as of January 7, 1994 among Viacom Inc. and each
person listed on the signature pages thereto (included as Annex IV to the Joint Proxy
Statement/Prospectus)
3.1 --Restated Certificate of Incorporation of Viacom Inc. as filed with the Secretary of State of
the State of Delaware on May 21, 1992 (incorporated by reference to Exhibit 3(a) to the
Annual Report on Form 10-K for fiscal year ended December 31, 1992, as amended by Form 10-K/A
Amendment No. 1 dated November 29, 1993 and as further amended by Form 10-K/A Amendment No. 2
dated December 9, 1993, File No. 1-9553)
3.2 --Amendment to Restated Certificate of Incorporation of Viacom Inc. as filed with the Secretary
of State of the State of Delaware on July 7, 1994.
3.3 --Form of Certificate of Merger merging Blockbuster Entertainment Corporation with and into
Viacom Inc. (included as Annex VIII to the Joint Proxy Statement/Prospectus)
3.4 --By-laws of Viacom Inc. (incorporated by reference to Exhibit 3.3 to the Registration
Statement on Form S-4 filed by Viacom Inc., File No. 33-13812)
4.1 --Specimen Certificate representing the Viacom Inc. Class A Voting Common Stock (incorporated
by reference to Exhibit 4.1 to the Registration Statement on Form S-4 filed by Viacom Inc.,
File No. 33-13812)
4.2 --Specimen Certificate representing the Viacom Inc. Class B Non-Voting Common Stock
(incorporated by reference to Exhibit 4(a) to the Quarterly Report on Form 10-Q of Viacom
Inc., for the quarter ended June 30, 1993, File No. 1-9553)
4.3 --Form of certificate representing the Variable Common Rights of Viacom Inc.
5 --Opinion of Shearman & Sterling as to the legality of the securities being registered
8.1 --Opinion of Shearman & Sterling as to tax matters described in the Joint Proxy
Statement/Prospectus
8.2 --Opinion of Skadden, Arps, Slate, Meagher & Flom as to tax matters described in the Joint
Proxy Statement/Prospectus
10.1 --Stock Purchase Agreement dated as of October 4, 1993 between Viacom Inc. and NYNEX
Corporation, as amended as of November 19, 1993 (incorporated by reference to Exhibit 10(t)
to the Annual Report on Form 10-K of Viacom Inc. for the fiscal year ended December 31, 1993,
as amended by Form 10-K/A Amendment No. 1 dated May 2, 1994 (File No. 1-9553))
10.2 --Amended and Restated Stock Purchase Agreement dated as of October 21, 1993 between Viacom
Inc. and Blockbuster Entertainment Corporation (incorporated by reference to Exhibit 10(u) to
the Annual Report on Form 10-K of Viacom Inc. for the fiscal year ended December 31, 1993, as
amended by Form 10-K/A Amendment No. 1 dated May 2, 1994 (File No. 1-9553))
10.3 --Subscription Agreement dated as of January 7, 1994 between Viacom Inc. and Blockbuster
Entertainment Corporation (incorporated by reference to Exhibit 99(c)(8) to Viacom Inc.
Schedule 14D-1 Tender Offer Statement (Amendment No. 20) dated January 7, 1994)
</TABLE>
<PAGE>
<TABLE><CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- --------- ----------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
10.4 --Credit Agreement, dated as of July 1, 1994, among Viacom Inc.; the Bank parties thereto; The
Bank of New York ("BNY"), Citibank N.A. ("Citibank"), Morgan Guaranty Trust Company of New
York and Bank of America NT&SA, as Managing Agents; BNY, as Documentation Agent; Citibank, as
Administrative Agent; JP Morgan Securities Inc., as Syndication Agent; and the Agents and Co-
Agents named therein (incorporated by reference to Exhibit 4.1 of the Current Report on Form
8-K of Viacom Inc. dated July 22, 1994)
10.5 --Agreement and Plan of Merger dated as of August 27, 1994 among Viacom Inc., Paramount
Communications Realty Corporation, ITT Corporation, Rainbow Garden Corporation and MSG
Holdings, L.P.
23.1 --Consent of Price Waterhouse LLP as to financial statements of Viacom Inc.
23.2 --Consent of Arthur Andersen & Co. as to financial statements of Blockbuster Entertainment
Corporation
23.3 --Consent of Price Waterhouse LLP as to financial statements of Paramount Communications Inc.
23.4 --Consent of Ernst & Young LLP as to financial statements of Paramount Communications Inc.
23.5 --Consent of KPMG Peat Marwick LLP as to financial information of Super Club Retail
Entertainment Corporation
23.6 --Consent of Shearman & Sterling (contained in Exhibits 5 and 8.1)
23.7 --Consent of Skadden, Arps, Slate, Meagher & Flom (contained in Exhibit 8.2)
23.8 --Consent of Smith Barney Inc.
23.9 --Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
23.10 --Consents of Steven R. Berrard and George D. Johnson, Jr. to be named as a director of
Viacom Inc. in the Joint Proxy Statement/Prospectus
24 --Powers of Attorney
99.1 --Opinion of Smith Barney Shearson Inc. dated January 6, 1994 (included as Annex V to the Joint
Proxy Statement/Prospectus)
99.2 --Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated dated August 23, 1994 (included
as Annex VI to the Joint Proxy Statement/Prospectus)
99.3 --Form of Proxy for Viacom Inc.
99.4 --Form of Proxy for Blockbuster Entertainment Corporation
99.5 --Form of Chairman's Letter to the stockholders of Blockbuster Entertainment Corporation
99.6 --Form of Notice of Special Meeting of Stockholders to the stockholders of Blockbuster
Entertainment Corporation
99.7 --Form of Chairman's Letter to the stockholders of Viacom Inc.
99.8 --Form of Notice of Special Meeting of Stockholders to the stockholders of Viacom Inc.
</TABLE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
VIACOM INC.
Pursuant to Section 242 of the
Delaware General Corporation Law
The undersigned, being the Executive Vice President, General Counsel and
Chief Administrative Officer of Viacom Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware ("Viacom"), DOES HEREBY CERTIFY AS FOLLOWS:
FIRST: At a meeting of the Board of Directors of Viacom duly called and
held on May 26, 1994, resolutions were duly adopted setting forth proposed
amendments (which are set forth herein in Articles SECOND and THIRD) to the
Restated Certificate of Incorporation of Viacom, declaring such amendments to be
advisable and directing that such amendments be submitted to the stockholders of
Viacom for approval at the Special Meeting of Stockholders to held on July 7,
1994.
SECOND: That Section 1(a) of Article IV of the Restated Certificate of
Incorporation of Viacom be, and the same hereby is, amended in full to read as
follows:
"(a) The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 1,400,000,000. The classes and the
aggregate number of shares of stock of each class which the Corporation shall
have authority to issue are as follows:
(i) 200,000,000 shares of Class A Common Stock, $0.01 par value
("Class A Common Stock").
(ii) 1,000,000,000 shares of Class B Common Stock, $0.01 par value
("Class B Common Stock").
(iii) 200,000,000 shares of Preferred Stock, $0.01 par value
("Preferred Stock")."
THIRD: That the first sentence of Section (2) of Article V of the Restated
Certificate of Incorporation of Viacom be, and the same hereby is, amended by
deleting the number "twelve" and replacing such number with the number "twenty".
FOURTH: That such amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, this Certificate has been executed by Philippe P.
Dauman, Executive Vice President, General Counsel and Chief Administrative
Officer of Viacom, and attested by Michael D. Fricklas, Assistant Secretary of
Viacom, this 7th day of July, 1994.
VIACOM INC.
By: /s/ Philippe P. Dauman
....................................
Title: Executive Vice President,
General Counsel and
Chief Administrative Officer
ATTEST:
/s/ Deborah Chapin
................................
Assistant Secretary
CUSIP No. 925524142
VIACOM INC.
No. Certificate for Variable Common Rights
This certifies that ,
or registered assigns (the "Holder"), is the owner of the number
of Variable Common Rights ("VCRs") of Viacom Inc., a Delaware
corporation (the "Company"), set forth above. Each VCR entitles
the Holder, subject to the provisions contained herein, to
convert such VCR into shares of the Class B Common Stock, par
value $.01 per share (the "Class B Common Stock"), of the Company
or any other capital stock of the Company into which the Class B
Common Stock may be converted or reclassified or that may be
issued in respect of, in exchange for, or in substitution of, the
Class B Common Stock. Such number of shares of Class B Common
Stock, if any, into which each VCR will convert shall be
determined by the Company pursuant to the provisions set forth on
the reverse hereof and written notice thereof shall be provided
to the Holders of the VCRs promptly after the VCR Conversion Date
(as defined below). The Company's determination of the number of
shares, if any, of Class B Common Stock into which each VCR will
convert shall be conclusive and binding absent manifest error.
Such conversion shall be made on _________ , 1995 (the "VCR
Conversion Date"). Under certain circumstances, as described on
the reverse hereof, the Holders of VCRs will not be entitled to
any additional shares of Class B Common Stock on the VCR
Conversion Date and this VCR Certificate and the VCRs represented
hereby will expire on the VCR Conversion Date.
The transfer of the VCRs represented by this VCR
Certificate is registerable on the Security Register of the
Company, upon surrender of this VCR Certificate for registration
of transfer at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan, The City of New York,
which initially shall be ____________, or at any other office or
agency maintained by the Company for such purpose, duly endorsed
by, or accompanied by a written instrument of transfer in form
satisfactory to the Company duly executed by, the Holder hereof
or his attorney duly authorized in writing, and thereupon one or
more new VCR Certificates, for the same number of VCRs, will be
issued to the designated transferee or transferees. In no case,
however, shall the Company be required to issue fractional VCRs.
Conversion of the VCRs represented hereby into shares
of Class B Common Stock, if any, pursuant to this VCR Certificate
shall be made only upon presentation and surrender of this VCR
Certificate by the Holder hereof, in person or by duly authorized
attorney, at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan, The City of New York,
or at any other office or agency maintained by the Company for
such purpose.
<PAGE>
2
This VCR Certificate and the rights evidenced hereby
are issued and held subject to the laws of the State of Delaware,
the Restated Certificate of Incorporation of the Company, as
amended to the date hereof and as the same may be further amended
and restated from time to time, and the By-Laws of the Company,
as amended to the date hereof and as the same may be further
amended and restated from time to time. Reference is hereby made
to the further provisions of this VCR Certificate set forth on
the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this VCR
Certificate to be executed and attested by the facsimile
signatures of its duly authorized officers under its corporate
seal.
Dated: VIACOM INC.
Attest: By
----------------------------
[SEAL]
------------------------------
Authorized Signature
<PAGE>
REVERSE OF VCR CERTIFICATE
Each VCR represents the right to receive, subject to
the provisions contained herein, shares of Class B Common Stock
on the VCR Conversion Date. Such number of shares, if any, will
be determined by the Company in accordance with the provisions
herein and, under certain circumstances, as described below, the
Holders of VCRs will not be entitled to any additional shares of
Class B Common Stock and this VCR Certificate and the VCRs
represented hereby will expire on the VCR Conversion Date.
The number of shares of Class B Common Stock, if any,
into which each VCR shall be convertible will be calculated as
follows:
Determination of Conversion Value. Subject to the
limitation on conversion value described below, a value for
Viacom Class B Common Stock (the "Class B Value") will be
determined in the 90 qualified trading day period immediately
preceding the VCR Conversion Date (the "Alternative VCR Valuation
Period"). The Class B Value will equal the average closing price
on the American Stock Exchange (or such other exchange on which
shares of Class B Common Stock are then listed) for one share of
Class B Common Stock during any 30 consecutive qualified trading
days in the Alternative VCR Valuation Period which yield the
highest such average closing price.
The Class B Value will determine the number of shares, if any,
into which each VCR shall be converted (a "VCR Conversion
Value"), as set forth below:
Class B Value VCR Conversion Value
------------- --------------------
(expressed as a fraction of one share of
Class B Common Stock)
$0 to $35.99 . . . 0.13829
$35 to $40 . . . . 30 - 0.32 minus 0.08 minus 0.60615
---------------
Class B Value
$40.01 to $47.99 . 0.05929
$48 to $52 . . . . 36 - 0.32 minus 0.08 minus 0.60615
---------------
Class B Value
$52.01 and above . 0 (Zero)
The dollar amounts set forth in the above table under the caption
entitled "Class B Value" are each a "Class B Conversion Value".
The number of shares of Class B Common Stock issuable upon
conversion of the VCRs and collectively, the numbers in the
formula used to determine such amount, each as set forth under
the caption entitled "VCR Conversion Value" are each a "VCR
Conversion Value". Each such Class B Conversion Value and VCR
Conversion Value, as it may have been previously adjusted, shall
be adjusted upon each occurrence of an event described below
under "Adjustments".
Limitation on Conversion Value. Notwithstanding the
determination of VCR Conversion Value described above, if at any
time during the period from _______, 1994 (the
<PAGE>
2
"Issue Date") until the VCR Conversion Date the average closing
price for a share of Class B Common Stock on the American Stock
Exchange (or such other exchange on which shares of Class B
Common Stock are then listed) for any 30 qualified consecutive
trading days is: (a) above $40 (a "Class B Conversion Value"),
then the maximum conversion value for each VCR will equal 0.05929
(a "VCR Conversion Value") of one share of Class B Common Stock
or (b) above $52 (a "Class B Conversion Value"), then the VCRs
will have no value and will automatically terminate. Each such
Class B Conversion Value and VCR Conversion Value, as it may have
been previously adjusted, shall be adjusted upon each occurrence
of an event as described below under "Adjustments".
For the purposes of determining any period of qualified
trading days, a trading day is not qualified if (i) with respect
to a day during the first month following the Issue Date, fewer
than 400,000 shares of Class B Common Stock trade on such day,
(ii) with respect to a day during the second month following the
Issue Date, fewer than 300,000 shares of Class B Common Stock
trade on such day, (iii) with respect to a day during the third
month following the Issue Date, fewer than 250,000 shares of
Class B Common Stock trade on such day and (iv) with respect to a
day from and after the first day of the fourth month following
the Issue Date, fewer than 200,000 shares of Class B Common Stock
trade on such day. Otherwise, each trading day will be qualified.
In the event that the Company determines that the VCRs
are not convertible into any shares of Class B Common Stock on
the VCR Conversion Date, the Company shall give to the Holders of
the VCRs notice of such determination. Upon making such
determination, absent manifest error, this VCR Certificate shall
terminate and become null and void and the Holder hereof shall
have no further rights with respect hereto. The failure to give
such notice or any defect therein shall not affect the validity
of such determination.
Prior to the time of due presentment of this VCR
Certificate for registration of transfer, the Company and any
agent of the Company may treat the person in whose name this VCR
Certificate is registered as the owner hereof for all purposes,
and neither the Company nor any agent of the Company shall be
affected by notice to the contrary.
The Company may, but shall not be required to, issue
fractional shares of Class B Common Stock on conversion of the
VCRs. In lieu of a fractional share, the Company may, at its
option, make a cash payment for the fraction based on the
average closing prices of the Class B Common Stock for the 15
consecutive trading day period, the first day of which shall be
the twentieth trading day prior to the conversion.
Except as set forth herein with respect to adjustments,
this VCR Certificate confers no rights with respect to any
dividends declared by the Company on the Class B Common Stock to
holders of record on a record date prior to the VCR Conversion
Date.
Adjustments
Each Class B Conversion Value will be reduced by a
percentage equal to any percentage decline in excess of 25% in
the Standard & Poor's 400 Index from the Issue Date until the VCR
Conversion Date.
<PAGE>
3
The Class B Conversion Values and the VCR Conversion
Values shall be subject to adjustment from time to time in
certain events, including (i) the payment of a dividend or other
distribution by the Company to its stockholders in shares of
Class B Common Stock, (ii) the sub-division (by stock split,
stock dividend or otherwise) or combination (by reverse stock
split or otherwise) of the outstanding Class B Common Stock or
(iii) the issuance by reclassification of shares of Class B
Common Stock. Upon each such event, the Company shall
appropriately adjust the Class B Conversion Values and VCR
Conversion Values. Whenever an adjustment is made as provided
herein, the Company shall (i) promptly prepare a certificate
setting forth such adjustment and a brief statement of the facts
accounting for such adjustment and (ii) mail a brief summary
thereof to each Holder of a VCR. Such adjustment, absent
manifest error, shall be final and binding on the Holder hereof.
Each outstanding VCR Certificate shall thereafter be deemed to be
amended to provide for the adjusted Class B Conversion Values and
VCR Conversion Values. No adjustment to the Class B Conversion
Values and VCR Conversion Values is required unless such
adjustment would require an increase or decrease of at least 1%
in such values, but any adjustments which are not required to be
made shall be carried forward and taken into account in any
subsequent adjustment.
THE COMPANY WILL FURNISH WITHOUT CHARGE, TO EACH HOLDER WHO
SO REQUESTS, THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF
STOCK OR SERIES THEREOF OF THE COMPANY, AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
RESTRICTIONS ON TRANSFER AND VOTING OF COMMON STOCK: THE
RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED, OF
THE COMPANY PROVIDES THAT, SO LONG AS THE COMPANY OR ANY OF ITS
SUBSIDIARIES HOLDS ANY AUTHORIZATION FROM THE FEDERAL
COMMUNICATIONS COMMISSION (OR ANY SUCCESSOR THERETO), IF THE
COMPANY HAS REASON TO BELIEVE THAT THE OWNERSHIP, OR PROPOSED
OWNERSHIP, OF SHARES OF CAPITAL STOCK OF THE COMPANY BY ANY
STOCKHOLDER OR ANY PERSON PRESENTING ANY SHARES OF CAPITAL STOCK
OF THE COMPANY FOR TRANSFER INTO HIS NAME (A "PROPOSED
TRANSFEREE") MAY BE INCONSISTENT WITH, OR IN VIOLATION OF, ANY
PROVISION OF THE FEDERAL COMMUNICATIONS LAWS (AS HEREINAFTER
DEFINED), SUCH HOLDER OR PROPOSED TRANSFEREE, UPON REQUEST OF THE
COMPANY, SHALL FURNISH PROMPTLY TO THE COMPANY SUCH INFORMATION
(INCLUDING, WITHOUT LIMITATION, INFORMATION WITH RESPECT TO
CITIZENSHIP, OTHER OWNERSHIP INTERESTS AND AFFILIATIONS) AS THE
COMPANY SHALL REASONABLY REQUEST TO DETERMINE WHETHER THE
OWNERSHIP OF, OR THE EXERCISE OF ANY RIGHTS WITH RESPECT TO
SHARES OF CAPITAL STOCK OF THE COMPANY BY SUCH STOCKHOLDER OR
PROPOSED TRANSFEREE IS INCONSISTENT WITH, OR IN VIOLATION OF, THE
FEDERAL COMMUNICATIONS LAWS. AS USED HEREIN, THE TERM "FEDERAL
<PAGE>
4
COMMUNICATIONS LAWS" SHALL MEAN ANY LAW OF THE UNITED STATES
NOW OR HEREAFTER IN EFFECT (AND ANY REGULATION THEREUNDER)
PERTAINING TO THE OWNERSHIP OF, OR THE EXERCISE OF RIGHTS OF
OWNERSHIP WITH RESPECT TO, CAPITAL STOCK OF CORPORATIONS HOLDING,
DIRECTLY OR INDIRECTLY, FEDERAL COMMUNICATIONS COMMISSION
AUTHORIZATIONS, INCLUDING, WITHOUT LIMITATION, THE COMMUNICATIONS
ACT OF 1934, AS AMENDED (THE "COMMUNICATIONS ACT"), AND
REGULATIONS THEREUNDER PERTAINING TO THE OWNERSHIP, OR THE
EXERCISE OF THE RIGHTS OF OWNERSHIP, OF CAPITAL STOCK OF
CORPORATIONS HOLDING, DIRECTLY OR INDIRECTLY, FEDERAL
COMMUNICATIONS COMMISSION AUTHORIZATIONS, BY (I) ALIENS, AS
DEFINED IN OR UNDER THE COMMUNICATIONS ACT, AS IT MAY BE AMENDED
FROM TIME TO TIME, (II) PERSONS OR ENTITIES HAVING INTERESTS IN
TELEVISION OR RADIO STATIONS, DAILY NEWSPAPERS AND CABLE
TELEVISION SYSTEMS OR (III) PERSONS OR ENTITIES, UNILATERALLY OR
OTHERWISE, SEEKING DIRECT OR INDIRECT CONTROL OF THE COMPANY, AS
CONSTRUED UNDER THE COMMUNICATIONS ACT, WITHOUT HAVING OBTAINED
ANY REQUISITE PRIOR FEDERAL REGULATORY APPROVAL OF SUCH CONTROL.
IF ANY STOCKHOLDER OR PROPOSED TRANSFEREE FROM WHOM INFORMATION
IS REQUESTED AS DESCRIBED ABOVE SHOULD FAIL TO RESPOND TO SUCH
REQUEST OR THE COMPANY SHALL CONCLUDE THAT THE OWNERSHIP, OR THE
EXERCISE OF ANY RIGHTS OF OWNERSHIP WITH RESPECT TO, SHARES OF
CAPITAL STOCK OF THE COMPANY BY SUCH STOCKHOLDER OR PROPOSED
TRANSFEREE COULD RESULT IN ANY INCONSISTENCY WITH, OR VIOLATION
OF, THE FEDERAL COMMUNICATIONS LAWS, THE COMPANY MAY REFUSE TO
PERMIT THE TRANSFER OF SHARES OF CAPITAL STOCK OF THE COMPANY
TO SUCH PROPOSED TRANSFEREE, OR MAY SUSPEND THOSE RIGHTS OF STOCK
OWNERSHIP THE EXERCISE OF WHICH WOULD RESULT IN ANY INCONSISTENCY
WITH, OR VIOLATION OF, THE FEDERAL COMMUNICATIONS LAWS, SUCH
REFUSAL OF TRANSFER OR SUSPENSION TO REMAIN IN EFFECT UNTIL THE
REQUESTED INFORMATION HAS BEEN RECEIVED AND THE COMPANY HAS
DETERMINED THAT SUCH TRANSFER OR THE EXERCISE OF SUCH SUSPENDED
RIGHTS, AS THE CASE MAY BE, IS PERMISSIBLE UNDER THE FEDERAL
COMMUNICATIONS LAWS, AND THE COMPANY MAY EXERCISE ANY AND ALL
APPROPRIATE REMEDIES, AT LAW OR IN EQUITY, IN ANY COURT OF
COMPETENT JURISDICTION, AGAINST ANY SUCH STOCKHOLDER OR PROPOSED
TRANSFEREE, WITH A VIEW TOWARDS OBTAINING SUCH INFORMATION OR
PREVENTING OR CURING ANY SITUATION WHICH WOULD CAUSE ANY
INCONSISTENCY WITH, OR VIOLATION OF, ANY PROVISION OF THE FEDERAL
COMMUNICATIONS LAWS, AS USED HEREIN, THE WORD "PERSON" SHALL
INCLUDE NOT ONLY NATURAL PERSONS BUT PARTNERSHIPS, ASSOCIATIONS,
CORPORATIONS, JOINT VENTURES, AND OTHER ENTITIES AND THE
"REGULATION" SHALL INCLUDE NOT ONLY REGULATIONS BUT RULES,
PUBLISHED POLICIES AND PUBLISHED CONTROLLING INTERPRETATIONS BY
AN ADMINISTRATIVE AGENCY OR BODY
<PAGE>
5
EMPOWERED TO ADMINISTER A STATUTORY PROVISION OF THE FEDERAL
COMMUNICATIONS LAWS.
[LETTERHEAD OF SHEARMAN & STERLING]
August 25, 1994
Viacom Inc.
200 Elm Street
Dedham, Massachusetts 02026
Ladies and Gentlemen:
We have acted as counsel for Viacom Inc., a Delaware
corporation (the "Company"), in connection with the Registration
Statement on Form S-4 (the "Registration Statement") filed with
the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Securities Act"), relating to the
solicitation of proxies in connection with the merger of Blockbuster
Entertainment Corporation ("Blockbuster") with and into the Company
(the "Merger") and to the registration under the Securities Act of
(i) 22,134,256 shares of the Company's Class A Common Stock, par
value $.01 per share (the "Class A Common Stock"), (ii) 205,970,317
shares of the Company's Class B Common Stock, par value $.01 per
share (the "Class B Common Stock"), which includes 38,261,828 shares
of Class B Common Stock (the "Additional Class B Common Stock")
which may become issuable pursuant to the Company's variable common
rights (the "VCRs") and (iii) 276,678,196 VCRs to be issued in the
Merger. Capitalized terms used but not defined herein shall have
the meanings assigned to such terms in the Registration Statement.
The VCRs will be governed by a certificate (the "VCR
Certificate") in the form included in the Registration Statement
as Exhibit 4.3.
In so acting, we have examined the Registration
Statement including the joint proxy statement/prospectus (the
"Joint Proxy Statement/Prospectus") contained therein and the VCR
Certificate. We have also examined and relied as to factual
matters upon the representations and warranties contained in
originals, or copies certified or otherwise identified to our
satisfaction, of such records, documents, certificates and other
instruments as in our judgment are necessary or appropriate to
enable us to render the opinions expressed below. In such
examination, we have assumed the genuineness of all signatures,
the
<PAGE>
Viacom Inc. 2 August 25, 1994
authenticity of all documents, certificates and instruments
submitted to us as originals and the conformity with originals of
all documents submitted to us as copies.
In connection with these opinions, we have assumed that
each of the following shall occur on or prior to the issuance of
the Class A Common Stock, the Class B Common Stock, the VCRs and
the Additional Class B Common Stock: (a) the holders of shares
of Viacom Class A Common Stock approve and adopt the Merger
Agreement (including the issuance of the Merger Consideration) at
the Viacom Special Meeting; (b) the holders of shares of
Blockbuster Common Stock approve and adopt the Merger Agreement
at the Blockbuster Special Meeting; and (c) there shall be filed
with the Secretary of State of the State of Delaware the
"Certificate of Merger Merging Blockbuster Entertainment
Corporation with and into Viacom Inc." in the form set forth in
Annex VIII to the Joint Proxy Statement/Prospectus.
The opinions expressed below are limited to the law of
the State of New York, the General Corporation Law of Delaware
and the federal law of the United States, and we do not express
any opinion herein concerning any other law.
Based upon the foregoing, and having regard for such
legal considerations as we have deemed relevant, we are of the
opinion that:
1. The Class A Common Stock and the Class B Common
Stock will be duly authorized by the Company and, when
issued by the Company in accordance with the terms of the
Merger Agreement, the Class A Common Stock and the Class B
Common Stock will be validly issued, fully paid and non-
assessable.
2. The VCRs will be duly authorized by the Company,
and when (a) the VCR Certificates have been duly executed
and delivered by the Company and (b) the VCRs have been duly
issued by the Company as contemplated by the Merger
Agreement in accordance with the provisions of the VCR
Certificates, the VCRs will be validly issued and will
constitute valid and binding obligations of the Company
enforceable against the Company in accordance with the terms
of the VCR Certificates.
3. The Additional Class B Common Stock will be duly
authorized by the Company and, when issued by the Company in
accordance with the provisions of the VCR Certificates, the
Additional Class B Common Stock will be validly issued,
fully paid and non-assessable.
The opinion set forth in paragraph 2 above is subject
to (i) the effect of any applicable bankruptcy, insolvency
(including, without limitation, all laws relating to
<PAGE>
Viacom Inc. 3 August 25, 1994
fraudulent transfers), reorganization, moratorium or similar laws
affecting creditors' rights generally and (ii) the effect of
general principles of equity (regardless of whether considered in
a proceeding in equity or at law).
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to us
under the headings "The Merger -- Certain Federal Income Tax
Consequences" and "Experts -- Legal Opinions" contained in the
Joint Proxy Statement/Prospectus.
Very truly yours,
/s/ SHEARMAN & STERLING
TC/AS/SK/SG
[LETTERHEAD OF SHEARMAN & STERLING]
August 26, 1994
Viacom Inc.
200 Elm Street
Dedham, Massachusetts 02026
Merger of
Blockbuster Entertainment Corporation
with and into Viacom Inc.
----------------------------------------
Gentlemen:
We have acted as counsel to Viacom Inc. in connection
with (i) the proposed merger pursuant to the Agreement and Plan
of Merger, dated as of January 7, 1994, as amended as of June 15,
1994, between Viacom Inc., a Delaware corporation ("Viacom"), and
Blockbuster Entertainment Corporation, a Delaware corporation
("Blockbuster") and (ii) the preparation and filing of the Joint
Proxy Statement/Prospectus, dated August 29, 1994, of Viacom and
Blockbuster (the "Joint Proxy Statement/Prospectus"). Unless
otherwise defined, capitalized terms used herein have the
meanings assigned to them in the Merger Agreement.
The Merger Agreement provides that at the Effective
Time, Blockbuster will be merged with and into Viacom in
accordance with Delaware law. As a result of the Merger the
separate corporate existence of Blockbuster will cease and Viacom
will continue as the surviving corporation of the Merger. By
virtue of the Merger, each share of Blockbuster Common Stock
issued and outstanding immediately prior to the Effective Time
(other than shares of Blockbuster Common Stock held in the
treasury of Blockbuster, owned by Viacom or any direct or
indirect wholly-owned subsidiary of Viacom or of Blockbuster and
other than any Dissenting Shares) will be converted into the
right to receive (i) 0.08 of one share of Viacom Class A Common
Stock, (ii) 0.60615 of one share of Viacom Class B Common Stock
and (iii) up to an additional 0.13829 of one share of Viacom
Class B Common Stock, with such amount to be determined in
accordance with, and the right to receive such shares to be
evidenced by, one VCR.
In delivering our opinion, we have reviewed the Merger
Agreement and have assumed that the representations and
warranties therein are and will remain true, correct and
<PAGE>
2
complete and that the parties have complied with and will continue to
comply with the covenants therein. In addition, we have reviewed
the Joint Proxy Statement/Prospectus and have assumed that the
statements therein are and will remain true, correct and
complete. We have also relied on the representations made by
Viacom and Blockbuster in letters to us dated August 25, 1994.
We have also assumed, based upon discussions with the management
of Viacom or Blockbuster, as appropriate, that (i) neither Viacom
nor Blockbuster is an investment company within the meaning of
Section 368(a)(2)(F)(iii) of the Code; (ii) the sum of the amount
of cash, if any, paid to stockholders with respect to Dissenting
Shares and the value of the VCRs exchanged in the Merger will be
less than 50% of the total value of the Blockbuster Common Stock
outstanding as of the date of the Merger; (iii) the total
adjusted tax basis of the assets of Blockbuster transferred to
Viacom will equal or exceed the sum of the liabilities assumed by
Viacom plus the amount of the liabilities, if any, to which the
transferred assets are subject; and (iv) that the Merger will be
consummated in accordance with the Merger Agreement.
Based on the Internal Revenue Code of 1986, as amended
(the "Code"), the Treasury Regulations promulgated thereunder and
our consideration of other pertinent authorities, all as in
effect on the date hereof, we are of the opinion that the
discussion in the Joint Proxy Statement/Prospectus under the
caption "THE MERGER -- Certain Federal Income Tax Consequences,"
insofar as it relates to matters of federal income tax law, is a
fair and accurate summary of such matters. We express no opinion
(i) as to whether such description addresses all of the U.S.
federal income tax consequences of the Merger that may be
applicable to Viacom, Blockbuster or any particular Blockbuster
stockholder or (ii) as to the U.S. federal, state, local, foreign
or other tax consequences, other than as set forth in the Joint
Proxy Statement/Prospectus under the caption "THE MERGER --
Certain Federal Income Tax Consequences."
We consent to the filing of this opinion as an exhibit
to the Joint Proxy Statement/Prospectus and to the reference to
Shearman & Sterling under the caption "THE MERGER -- Certain
Federal Income Tax Consequences" in the Joint Proxy
Statement/Prospectus.
Very truly yours,
/s/ SHEARMAN & STERLING
EBH
[LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM]
August 26, 1994
Blockbuster Entertainment Corporation
One Blockbuster Plaza
Fort Lauderdale, Florida 33301
Gentlemen:
We have acted as counsel to Blockbuster Enter-
tainment Corporation ("Blockbuster"), a Delaware corpora-
tion, in connection with (i) the Merger, as defined and
described in the Agreement and Plan of Merger between
Viacom Inc. ("Viacom"), a Delaware corporation, and
Blockbuster, dated as of January 7, 1994, as amended as
of June 15, 1994 (the "Merger Agreement") and (ii) the
preparation and filing of the Joint Proxy State-
ment/Prospectus, filed with the Securities and Exchange
Commission on August 29, 1994 (the "Joint Proxy State-
ment/Prospectus"), under the Securities Act of 1933 and
the Securities Exchange Act of 1934, as amended. Unless
otherwise indicated, each defined term has the meaning
ascribed to it in the Merger Agreement.
In the Merger, each share of Common Stock, par
value $.10 per share, of Blockbuster (other than shares
held by Viacom, Blockbuster and, if appraisal rights are
available under Delaware Law, those holders who demand
and perfect appraisal rights) will be converted into the
right to receive 0.08 of a share of Class A Common Stock,
par value $.01 per share, of Viacom, 0.60615 of a share
of Class B common Stock, par value $.01 per share, of
Viacom and up to an additional 0.13829 of a share of
Viacom Class B Common Stock evidenced by one variable
common right of Viacom (a "VCR").
In connection with this opinion, we have exam-
ined and are familiar with originals and copies, certi-
<PAGE>
Blockbuster Entertainment Corporation
One Blockbuster Plaza
Fort Lauderdale, Florida 33301
August 26, 1994
Page 2
fied or otherwise identified to our satisfaction, of (i)
the Joint Proxy Statement/Prospectus and (ii) such other
documents as we have deemed necessary or appropriate in
order to enable us to render the opinion below. In our
examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the
authenticity of all documents submitted to us as origi-
nals, the conformity to original documents of all docu-
ments submitted to us as certified or photostatic copies,
and the authenticity of the originals of such latter
documents.
We have assumed, based upon discussions with
Blockbuster management, that (i) neither Viacom nor Blockbuster
is an investment company within the meaning of Section 368(a)
(2)(F)(iii) of the Code, (ii) the sum of the amount of cash, if
any, paid to stockholders with respect to Dissenting Shares and
the value of VCRs exchanged in the Merger will be less than 50%
of the total value of the Blockbuster Common Stock outstanding
as of the date of the Merger, and (iii) the total adjusted tax
basis of the assets of Blockbuster transferred to Viacom will
equal or exceed the sum of the liabilities assumed by Viacom
plus the amount of liabilities, if any, to which the transferred
assets are subject. Based upon these assumptions and subject
to (i) the Merger being consummated in the manner de-
scribed in the Merger Agreement, (ii) the accuracy of the
facts concerning the Merger that have come to our atten-
tion during our engagement and (iii) certain representa-
tions made by Blockbuster and Viacom in connection with
the issuance of our opinion, including the representa-
tions contained in their respective letters to us, dated
August 25, 1994, we are of the opinion that the discus-
sion in the Joint Proxy Statement/Prospectus under the
heading "Certain Federal Income Tax Consequences," inso-
far as it relates to matters of federal income tax law
applicable to Blockbuster or to holders of Blockbuster
Common Stock, is a fair and accurate summary of such mat-
ters. We express no opinion as to whether such descrip-
tion addresses all of the U.S. federal income tax conse-
quences of the Merger that may be
<PAGE>
Blockbuster Entertainment Corporation
One Blockbuster Plaza
Fort Lauderdale, Florida 33301
August 26, 1994
Page 3
applicable to any particular stockholder or Blockbuster. In
addition, we express no opinion as to the U.S. federal, state,
or local, or foreign or other tax consequences, other than
as set forth in the Joint Proxy Statement/Prospectus
under the heading "Certain Federal Income Tax Consequenc-
es."
This letter is furnished to you solely for use
in connection with the Merger, as described in the Merger
Agreement, and is not to be used, circulated, quoted, or
otherwise referred to for any other purposes without our
express written permission.
We hereby consent to the use of this opinion as
an exhibit to the Joint Proxy Statement/Prospectus and to
the reference to our firm under the heading "Certain
Federal Income Tax Consequences" in the Joint Proxy
Statement/Prospectus. In giving such consent, we do not
thereby admit that we are in the category of persons
whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM
=================================================================
----------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
----------------------------------------------------------
dated as of August 27, 1994
among
VIACOM INC.,
PARAMOUNT COMMUNICATIONS REALTY CORPORATION,
ITT CORPORATION,
RAINBOW GARDEN CORPORATION
and
MSG HOLDINGS, L.P.
=================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
1.01. Certain Defined Terms . . . . . . . . . . . . . . 1
ARTICLE II
THE MERGER
2.01. The Merger . . . . . . . . . . . . . . . . . . . 5
2.02. Effective Time of the Merger . . . . . . . . . . 5
2.03. The Closing . . . . . . . . . . . . . . . . . . . 5
2.04. Conversion of Shares; Payment of Merger
Consideration . . . . . . . . . . . . . . . . . 6
2.05. Post-Closing Adjustment . . . . . . . . . . . . . 6
2.06. Organization . . . . . . . . . . . . . . . . . . 8
2.07. Merger of Subsidiaries . . . . . . . . . . . . . 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF VIACOM AND THE SELLER
3.01. Incorporation and Authority of Viacom and the
Seller . . . . . . . . . . . . . . . . . . . . 8
3.02. Incorporation and Qualification of MSG . . . . . 9
3.03. Capital Stock of MSG . . . . . . . . . . . . . . 9
3.04. Subsidiaries and Equity Interests . . . . . . . . 9
3.05. No Conflict . . . . . . . . . . . . . . . . . . . 10
3.06. Consents and Approvals . . . . . . . . . . . . . 10
3.07. Financial Information . . . . . . . . . . . . . . 11
3.08. Absence of Undisclosed Liabilities . . . . . . . 11
3.09. Absence of Certain Changes or Events . . . . . . 11
3.10. Absence of Litigation . . . . . . . . . . . . . . 13
3.11. Compliance with Laws . . . . . . . . . . . . . . 14
3.12. Licenses and Permits . . . . . . . . . . . . . . 14
3.13. Real Property . . . . . . . . . . . . . . . . . . 14
3.14. Employee Benefit Matters . . . . . . . . . . . . 15
3.15. Taxes . . . . . . . . . . . . . . . . . . . . . . 16
3.16. Brokers . . . . . . . . . . . . . . . . . . . . . 17
3.17. Labor Matters . . . . . . . . . . . . . . . . . . 17
3.18. Material Contracts and Assets . . . . . . . . . . 18
3.19. Intellectual Property . . . . . . . . . . . . . . 18
<PAGE>
(ii)
Page
----
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
AND EACH PARENT
4.01. Incorporation and Authority of the Purchaser . . 19
4.02. Incorporation and Authority of Each Parent . . . 19
4.03. No Conflict . . . . . . . . . . . . . . . . . . . 20
4.04. Consents and Approvals . . . . . . . . . . . . . 20
4.05. Absence of Litigation . . . . . . . . . . . . . . 20
4.06. Financing . . . . . . . . . . . . . . . . . . . . 21
4.07. Brokers . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE V
ADDITIONAL AGREEMENTS
5.01. Conduct of Business Prior to the Closing . . . . 21
5.02. Access to Information . . . . . . . . . . . . . . 23
5.03. Confidentiality . . . . . . . . . . . . . . . . . 23
5.04. Regulatory and Other Authorizations; Consent;
Yankee Guaranty . . . . . . . . . . . . . . . . 24
5.05. Investigation . . . . . . . . . . . . . . . . . . 25
5.06. Asset Transfer . . . . . . . . . . . . . . . . . 26
5.07. Intercompany Accounts . . . . . . . . . . . . . . 26
5.08. Provision of Tickets . . . . . . . . . . . . . . 26
5.09. Insurance . . . . . . . . . . . . . . . . . . . . 26
5.10. Rights to the Use of Certain Intellectual
Property . . . . . . . . . . . . . . . . . . . 27
5.11. Post-Closing Services . . . . . . . . . . . . . . 27
5.12. Christmas Show . . . . . . . . . . . . . . . . . 28
5.13. Further Action . . . . . . . . . . . . . . . . . 28
ARTICLE VI
EMPLOYEE MATTERS
6.01. Employees . . . . . . . . . . . . . . . . . . . . 28
6.02. Employment Related Matters . . . . . . . . . . . 29
6.03. Multiemployer Plans . . . . . . . . . . . . . . . 30
6.04. Paramount Communications Inc. Retirement Plan . . 30
6.05. Paramount Communications Inc. Savings Plan . . . 31
6.06. MSG Union Sponsored Pension Plans . . . . . . . . 32
6.07. Retiree Medical and Retiree Life Insurance . . . 32
6.08. Indemnity . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VII
TAX MATTERS
7.01. Tax Indemnities . . . . . . . . . . . . . . . . . 33
7.02. Refunds and Tax Benefits . . . . . . . . . . . . 34
7.03. Contests . . . . . . . . . . . . . . . . . . . . 35
7.04. Preparation of Tax Returns . . . . . . . . . . . 36
7.05. Allocation of Merger Consideration . . . . . . . 36
<PAGE>
(iii)
Page
----
7.06. Cooperation and Exchange of Information . . . . . 37
7.07. Conveyance and Sales Taxes . . . . . . . . . . . 37
7.08. Tax Treatment of Merger . . . . . . . . . . . . . 38
7.09. Miscellaneous . . . . . . . . . . . . . . . . . . 38
ARTICLE VIII
CONDITIONS TO CLOSING
8.01. Conditions to Obligations of Viacom and the
Seller . . . . . . . . . . . . . . . . . . . . 38
8.02. Conditions to Obligations of the Purchaser and
Each Parent . . . . . . . . . . . . . . . . . . 39
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.01. Termination . . . . . . . . . . . . . . . . . . . 40
9.02. Effect of Termination . . . . . . . . . . . . . . 41
9.03. Waiver . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE X
GENERAL PROVISIONS
10.01. Survival of Representations and Warranties . . . 41
10.02. Expenses . . . . . . . . . . . . . . . . . . . . 42
10.03. Notices . . . . . . . . . . . . . . . . . . . . 42
10.04. Public Announcements . . . . . . . . . . . . . . 43
10.05. Headings . . . . . . . . . . . . . . . . . . . . 43
10.06. Severability . . . . . . . . . . . . . . . . . . 43
10.07. Entire Agreement . . . . . . . . . . . . . . . . 43
10.08. Assignment . . . . . . . . . . . . . . . . . . . 44
10.09. No Third-Party Beneficiaries . . . . . . . . . . 44
10.10. Amendment . . . . . . . . . . . . . . . . . . . 44
10.11. Governing Law . . . . . . . . . . . . . . . . . 44
10.12. Counterparts . . . . . . . . . . . . . . . . . . 44
EXHIBITS
3.07 Reference Balance Sheet
8.01(d) STB Opinion
8.02(f) S&S Opinion
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of August 27,
1994, among VIACOM INC., a Delaware corporation ("Viacom"),
------
PARAMOUNT COMMUNICATIONS REALTY CORPORATION, a Delaware
corporation and an indirect wholly owned subsidiary of Viacom
(the "Seller"), ITT CORPORATION, a Delaware corporation ("ITT"),
------ ---
RAINBOW GARDEN CORPORATION, a Delaware corporation ("Rainbow",
-------
and together with ITT, each a "Parent" and collectively, the
------
"Parents"), and MSG HOLDINGS, L.P., a Delaware limited
-------
partnership (the "Purchaser").
---------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Seller owns all the issued and outstanding
shares of common stock, no par value (the "Shares"), of Madison
------
Square Garden Corporation, a Delaware corporation ("MSG");
---
WHEREAS, the Parents indirectly own all of the
partnership interests in the Purchaser; and
WHEREAS, subject to the terms and conditions of this
Agreement, the Board of Directors of each of the Seller and
Viacom, and the Board of Directors of each Parent and the general
partner of the Purchaser, have adopted resolutions approving this
Agreement pursuant to which, among other things, MSG shall be
merged with and into the Purchaser (the "Merger");
------
NOW, THEREFORE, in consideration of the premises and of
the mutual agreements and covenants hereinafter set forth, each
Parent, the Purchaser, Viacom and the Seller hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this
---------------------
Agreement, the following terms shall have the following meanings:
"Agreement" means this Agreement and Plan of Merger,
---------
dated as of August 27, 1994, among Viacom, the Seller, each
Parent and the Purchaser (including the Disclosure Schedule and
all exhibits attached hereto) and all amendments hereto made in
accordance with Section 10.10.
"Business" means the business of MSG and the
--------
Subsidiaries as conducted as of the date of this Agreement.
"Business Day" means any day that is not a Saturday, a
------------
Sunday or other day on which banks are required or authorized by
law to be closed in the City of New York.
<PAGE>
2
"Certificate of Merger" has the meaning specified in
---------------------
Section 2.02.
"Closing" has the meaning specified in Section 2.03(a).
-------
"Closing Date" has the meaning specified in Section
------------
2.03(a).
"Confidentiality Agreement" has the meaning specified
-------------------------
in Section 5.03.
"Contest" has the meaning specified in Section 7.03(b).
-------
"Continuation Period" has the meaning specified in
-------------------
Section 6.01(a).
"Covered Affiliate" means any affiliate which has
-----------------
revenues or assets (in the case of such assets, valued at fair
market value) in excess of $100 million or, in the case of
Rainbow, (i) Rainbow Programming Holdings, Inc. or any
programming affiliate of Rainbow Programming Holdings, Inc. that
serves in excess of 1,200,000 subscribers, (ii) Cablevision
Systems Corporation or any cable television affiliate of
Cablevision Systems Corporation which serves more than 50,000
subscribers, (iii) Rainbow Advertising Sales Corporation, and
(iv) the entity which controls News 12 Long Island.
"Delaware Law" has the meaning specified in
------------
Section 2.01.
"Disclosure Schedule" means the Disclosure Schedule
-------------------
dated as of the date of this Agreement delivered to the Purchaser
by the Seller and Viacom.
"Effective Time" has the meaning specified in
--------------
Section 2.02.
"Environmental Laws" means all applicable federal,
------------------
state and local statutes, rules, regulations and ordinances
relating in any manner to contamination, pollution or protection
of the environment.
"Equity Interest" means any interest in the voting
---------------
stock or other equity securities of any corporation, partnership,
joint venture, association or other entity which is held by MSG
directly or indirectly through one or more intermediaries.
"ERISA" means the Employee Retirement Income Security
-----
Act of 1974, as amended.
"Extraordinary Material Adverse Effect" means any
-------------------------------------
extraordinary change in, or an event which has an extraordinary
<PAGE>
3
effect on, the Business arising or occurring after the date of
this Agreement that is or is reasonably likely to be materially
adverse to the results of operations or the financial condition
of the Business, taken as a whole, except any such change or
effect resulting from, without limitation, (i) reasonably
foreseeable business risks in the operation or ownership of the
businesses and assets of the nature included in the Business,
(ii) changes in general economic, regulatory or political
conditions or changes that affect in general the business in
which MSG is engaged, (iii) this Agreement or the transactions
contemplated hereby or the announcement hereof or (iv) the
occurrence of any one or more of the matters listed or described
in Section 8.02(d) of the Disclosure Schedule.
"Final Net Worth" means the sum of (i) total
---------------
stockholders' equity as shown in the adjusted balance sheet
column of the Post-Closing Balance Sheet and (ii) one-half of the
depreciation and amortization for buildings, furniture and
equipment since June 30, 1994.
"Governmental Antitrust Authority" has the meaning
--------------------------------
specified in Section 5.04(b).
"HSR Act" means the Hart-Scott-Rodino Antitrust
-------
Improvements Act of 1976, as amended, and the rules and
regulations thereunder.
"Intellectual Property Assets" has the meaning
----------------------------
specified in Section 3.19.
"Internal Revenue Code" means the Internal Revenue Code
---------------------
of 1986, as amended.
"IRS" has the meaning specified in Section 3.14(a).
---
"Knicks Lease" has the meaning specified in
------------
Section 3.13(b).
"knowledge of the Seller" or "Seller's knowledge" means
----------------------- ------------------
the actual knowledge of any of the persons set forth in
Section 1.01(a) of the Disclosure Schedule.
"Leases" has the meaning specified in Section 3.13(b).
------
"Material Adverse Effect" means any change in, or
-----------------------
effect on, the Business that is or is reasonably likely to (i) be
materially adverse to the results of operations or the financial
condition of the Business, taken as a whole, or (ii) prevent
Viacom or the Seller from consummating the Merger.
"Merger" has the meaning specified in the recitals to
------
this Agreement.
<PAGE>
4
"Merger Consideration" has the meaning specified in
--------------------
Section 2.04(a).
"MSG" has the meaning specified in the recitals to this
---
Agreement.
"Multiemployer Plan" has the meaning specified in
------------------
Section 3.14(b).
"Multiple Employer Plan" has the meaning specified in
----------------------
Section 3.14(b).
"NBA" means the National Basketball Association.
---
"NHL" means the National Hockey League.
---
"Parent" and "Parents" have the meanings specified in
------ -------
the preamble to this Agreement.
"PCI" means Paramount Communications Inc., a Delaware
---
corporation and a wholly owned subsidiary of Viacom.
"Plans" has the meaning specified in Section 3.14(a).
-----
"Post-Closing Balance Sheet" has the meaning specified
--------------------------
in Section 2.05(a).
"Post-Closing Date Tax Benefit" has the meaning
-----------------------------
specified in Section 7.02(b).
"Purchaser" has the meaning specified in the preamble
---------
to this Agreement.
"Purchaser's Accountants" means Arthur Andersen & Co.,
-----------------------
KPMG Peat Marwick or the internal accountants of the Purchaser.
"Rangers Lease" has the meaning specified in
-------------
Section 3.13(b).
"Reference Balance Sheet" has the meaning specified in
-----------------------
Section 3.07.
"Retirement Plan" has the meaning specified in Section
---------------
3.14(e).
"Savings Plan" has the meaning specified in Section
------------
3.14(e).
"Seller" has the meaning specified in the preamble to
------
this Agreement.
<PAGE>
5
"Seller's Accountants" means either Price Waterhouse or
--------------------
the internal accountants of the Seller.
"Shares" has the meaning specified in the recitals to
------
this Agreement.
"Subsidiary" or "Subsidiaries" means any and all
---------- ------------
corporations, partnerships, joint ventures, associations, and
other entities in which the majority of voting common stock or
other equity interest is held by MSG directly or indirectly
through one or more intermediaries.
"Surviving Limited Partnership" has the meaning
-----------------------------
specified in Section 2.01.
"Tax" or "Taxes" means all income, gross receipts,
--- -----
sales, use, employment, franchise, profits, property, transfer or
other taxes, fees, stamp taxes and duties, assessments or charges
of any kind whatsoever (whether payable directly or by
withholding), together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing
authority with respect thereto.
"Transferred Employees" has the meaning specified in
---------------------
Section 6.01(a).
"Transferred Former Employees" has the meaning
----------------------------
specified in Section 6.01(a).
"Viacom" has the meaning specified in the preamble to
------
this Agreement.
"WARN" means the Worker Adjustment and Retraining
----
Notification Act of 1988.
"Yankee Guaranty" has the meaning specified in
---------------
Section 5.04(e).
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject
----------
to the conditions set forth in this Agreement, at the Effective
Time, MSG shall be merged with and into the Purchaser in
accordance with the General Corporation Law of the State of
Delaware and the Revised Uniform Limited Partnership Act of the
State of Delaware (collectively, "Delaware Law"). The Purchaser
------------
shall continue its existence as a limited partnership under the
laws of the State of Delaware and as the entity surviving the
Merger (the "Surviving Limited Partnership") and the separate
-----------------------------
<PAGE>
6
corporate existence of MSG shall cease. The Merger shall have
the effects set forth in Delaware Law.
SECTION 2.02. Effective Time of the Merger. The
----------------------------
Merger shall become effective when a properly executed
certificate of merger (the "Certificate of Merger") is duly filed
---------------------
with the Secretary of State of the State of Delaware in
accordance with Delaware Law. When used in this Agreement, the
term "Effective Time" shall mean the date and time at which the
--------------
Certificate of Merger is so filed.
SECTION 2.03. The Closing. (a) Subject to the terms
-----------
and conditions of this Agreement, the closing (the "Closing") of
-------
the transactions contemplated by this Agreement shall take place
at 10:00 a.m., New York City time, on the later to occur of
(i) the third Business Day following the satisfaction or waiver
of all conditions to the obligations of the parties set forth in
Article VIII and (ii) the fifth Business Day following the
earlier to occur of (A) an overt threat of an action and (B) the
commencement of an action, in each case by any United States or
state governmental authority or other agency or commission,
seeking to enjoin the Closing, at the offices of Shearman &
Sterling, 599 Lexington Avenue, New York, New York, or at such
other time or on such other date or at such other place as the
Seller and the Purchaser may mutually agree upon in writing (the
day on which the Closing takes place being the "Closing Date").
------------
(b) On the Closing Date the Certificate of Merger with
respect to the Merger shall be filed with the Secretary of State
of the State of Delaware.
SECTION 2.04. Conversion of Shares; Payment of Merger
---------------------------------------
Consideration. (a) At the Effective Time, by virtue of the
-------------
Merger and without any action on the part of Viacom, the Seller,
MSG, either Parent or the Purchaser, all of the Shares shall be
cancelled and converted automatically into the right to receive
an aggregate of $1,075,000,000 in immediately available funds
(the "Merger Consideration"), subject to later adjustment as set
--------------------
forth in Section 2.05 of this Agreement. At the Closing, the
Purchaser shall deliver to the Seller the Merger Consideration by
wire transfer of immediately available funds to an account or
accounts designated at least two Business Days prior to the
Closing Date by the Seller in a written notice to the Purchaser.
(b) Each general and limited partnership interest in
the Purchaser issued and outstanding immediately prior to the
Effective Time shall remain issued and outstanding and shall not
be altered or changed by the Merger.
SECTION 2.05. Post-Closing Adjustment. The Merger
-----------------------
Consideration shall be subject to adjustment after the Closing as
specified in this Section 2.05:
<PAGE>
7
(a) As promptly as practicable, but in any event
within 60 calendar days following the Closing Date, the Seller
shall deliver to the Purchaser a balance sheet as of the Closing
Date (the "Post-Closing Balance Sheet") prepared in the same
--------------------------
format as, and in accordance with the accounting principles and
procedures used in connection with the preparation of, the
Reference Balance Sheet, together with the calculation of the
Final Net Worth.
(b) (i) Subject to clause (ii) of this Section
2.05(b), the Post-Closing Balance Sheet delivered by the Seller
to the Purchaser shall be deemed to be and shall be final,
binding and conclusive on the parties hereto.
(ii) The Purchaser may dispute any amounts reflected on
the Post-Closing Balance Sheet to the extent that the amounts
thereon were not arrived at in accordance with the accounting
principles and procedures used in connection with the preparation
of the Reference Balance Sheet; provided, however, that the
-------- -------
Purchaser shall have notified the Seller and the Seller's
Accountants in writing of each disputed item, specifying the
amount thereof in dispute and setting forth, in reasonable
detail, the basis for such dispute, within 40 Business Days after
the Seller's delivery of the Post-Closing Balance Sheet to the
Purchaser. In the event of such a dispute, the Purchaser's
Accountants and the Seller's Accountants shall attempt to
reconcile their differences, and any resolution by them as to any
disputed amounts shall be final, binding and conclusive on the
parties hereto. If any such resolution by the Seller's
Accountants and the Purchaser's Accountants leaves in dispute
amounts which in the aggregate would not be greater than
$1,000,000, all such amounts remaining in dispute shall then be
deemed to have been resolved in favor of the Post-Closing Balance
Sheet delivered by the Seller to the Purchaser. If the
Purchaser's Accountants and the Seller's Accountants are unable
to reach a resolution with such effect within 20 Business Days
after receipt by the Seller and the Seller's Accountants of the
Purchaser's written notice of dispute, the Purchaser's
Accountants and the Seller's Accountants shall submit the items
remaining in dispute for resolution to Deloitte & Touche (or, if
such firm shall decline or is unable to act or is not, at the
time of such submission, independent of the Purchaser and the
Seller, to another independent accounting firm of international
reputation mutually acceptable to the Seller and the Purchaser)
(either Deloitte & Touche or such other accounting firm being
referred to herein as the "Independent Accounting Firm"), which
---------------------------
shall, within 30 Business Days after such submission, determine
and report to the Seller and the Purchaser upon such remaining
disputed items, and such report shall be final, binding and
conclusive on the Purchaser and the Seller. The fees and
disbursements of the Independent Accounting Firm shall be
<PAGE>
8
allocated between the Purchaser and the Seller in the same
proportion that the aggregate amount of such remaining disputed
items so submitted to the Independent Accounting Firm that is
unsuccessfully disputed by each such party (as finally determined
by the Independent Accounting Firm) bears to the total amount of
such remaining disputed items so submitted.
(iii) In acting under this Agreement, the Seller's
Accountants, the Purchaser's Accountants and the Independent
Accounting Firm shall be entitled to the privileges and
immunities of arbitrators.
(iv) No adjustment to the Merger Consideration pursuant
to Section 2.05(c) shall be made with respect to amounts disputed
by the Purchaser pursuant to this Section 2.05(b), unless the
amount successfully disputed by the Purchaser in the aggregate is
greater than $1,000,000.
(c) The Post-Closing Balance Sheet shall be deemed
final for the purposes of this Section 2.05 upon the earliest of
(A) the failure of the Purchaser to notify the Seller of a
dispute within 40 Business Days of the Seller's delivery of the
Post-Closing Balance Sheet to the Purchaser, (B) the resolution
of all disputes, pursuant to Section 2.05(b)(ii), by the Seller's
and the Purchaser's Accountants and (C) the resolution of all
disputes, pursuant to Section 2.05(b)(ii), by the Independent
Accounting Firm. Subject to the limitation set forth in Section
2.05(b)(iv), within three Business Days of the Post-Closing
Balance Sheet being deemed final, the Merger Consideration shall
be adjusted as follows:
(i) in the event that the Final Net Worth exceeds
$414,411,000, then the Merger Consideration shall be
adjusted upward in an amount equal to such excess and the
Purchaser shall pay to the Seller by wire transfer in
immediately available funds, the amount of such excess,
together with interest thereon from the Closing Date to the
date of payment at the rate of interest publicly announced
from time to time by Citibank as its "Base Rate"; or
(ii) in the event that the Final Net Worth is
less than $414,411,000, then the Merger Consideration shall
be adjusted downward in an amount equal to such shortfall
and the Seller shall pay to the Purchaser by wire transfer
in immediately available funds, the amount of such
shortfall, together with interest thereon from the Closing
Date to the date of payment at the rate of interest publicly
announced from time to time by Citibank as its "Base Rate".
SECTION 2.06. Organization. (a) Partnership
------------ -----------
Agreement; Certificate of Incorporation. The partnership
---------------------------------------
agreement and certificate of limited partnership of the Purchaser
<PAGE>
9
as in effect immediately prior to the Effective Time shall be the
partnership agreement and certificate of limited partnership of
the Surviving Limited Partnership after the Effective Time unless
and until amended in accordance with its terms or, in the case of
the certificate of limited partnership, as provided by law. The
certificate of incorporation of MSG as in effect at the Effective
Time shall be of no further force and effect following the
Effective Time.
(b) By-Laws of MSG. The by-laws of MSG as in effect
--------------
at the Effective Time shall be of no further force and effect
following the Effective Time.
SECTION 2.07. Merger of Subsidiaries. Upon the terms
----------------------
and subject to the conditions set forth herein, immediately prior
to the Effective Time, the Seller shall cause those Subsidiaries
designated in writing by the Purchaser to be merged with and into
MSG in accordance with Delaware Law and the laws of the
jurisdictions in which such Subsidiaries are organized. Subject
to Section 2.01 of this Agreement, the Seller shall cause MSG to
continue its existence as a corporation under Delaware Law and as
the surviving corporation following such mergers and the separate
existence of each of such Subsidiaries shall cease.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF VIACOM AND THE SELLER
Viacom and the Seller represent and warrant, jointly
and severally, to the Purchaser and each Parent as follows:
SECTION 3.01. Incorporation and Authority of Viacom
-------------------------------------
and the Seller. Viacom and the Seller are corporations duly
--------------
incorporated, validly existing and in good standing under the
laws of the State of Delaware and have all necessary corporate
power and authority to enter into this Agreement, to carry out
their obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement by Viacom and the Seller, the performance by Viacom and
the Seller of their obligations hereunder and the consummation by
Viacom and the Seller of the transactions contemplated hereby
have been duly authorized by all requisite corporate action on
the part of Viacom and the Seller. This Agreement has been duly
executed and delivered by Viacom and the Seller, and (assuming
due authorization, execution and delivery by the Purchaser and
each Parent) this Agreement constitutes a legal, valid and
binding obligation of Viacom and the Seller enforceable against
Viacom and the Seller in accordance with its terms, subject to
the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors'
rights generally and subject, as to enforceability, to the effect
<PAGE>
10
of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
SECTION 3.02. Incorporation and Qualification of MSG.
--------------------------------------
MSG is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and has the
corporate power and authority to own, operate or lease the
properties and assets now owned, operated or leased by MSG. MSG
is duly qualified as a foreign corporation to do business, and is
in good standing, in each jurisdiction where the character of its
properties owned, operated or leased or the nature of its
activities makes such qualification necessary, except for such
failures which, when taken together with all other such failures,
would not have a Material Adverse Effect.
SECTION 3.03. Capital Stock of MSG. The Shares
--------------------
constitute all the authorized, issued and outstanding shares of
capital stock of MSG. The Shares have been duly authorized and
validly issued and are fully paid and nonassessable and were not
issued in violation of any pre-emptive rights. There are no
options, warrants or rights of conversion or other rights,
agreements, arrangements or commitments relating to the capital
stock of MSG obligating MSG to issue or sell any of its shares of
capital stock. The Seller owns the Shares, free and clear of all
pledges, security interests and all other liens, encumbrances and
adverse claims. There are no voting trusts, stockholder
agreements, proxies or other agreements in effect with respect to
the voting or transfer of the Shares.
SECTION 3.04. Subsidiaries and Equity Interests.
---------------------------------
Section 3.04 of the Disclosure Schedule sets forth a true and
complete list, as of the date of this Agreement, of all
Subsidiaries and all Equity Interests, listing for each
Subsidiary and Equity Interest its name, type of entity, the
jurisdiction of its incorporation or organization, its authorized
capital stock, partnership capital or equivalent, the number and
type of its issued and outstanding shares of capital stock,
partnership interests or similar ownership interests and MSG's
current percentage ownership of such shares, partnership
interests or similar ownership interests. Each Subsidiary listed
in Section 3.04 of the Disclosure Schedule is duly organized and
validly existing under the laws of its respective jurisdiction of
organization and has the requisite power and authority to own,
operate or lease the properties and assets now owned, operated or
leased by such Subsidiary and to carry on its business in all
material respects as currently conducted by such Subsidiary,
except for such failures which, when taken together with all
other such failures, would not have a Material Adverse Effect and
subject to any mergers effected pursuant to Section 2.07 of this
Agreement. There are no options, warrants or rights of
conversion or other rights, agreements, arrangements or
<PAGE>
11
commitments relating to the capital stock or other equity
interests of the Subsidiaries obligating MSG or any of the
Subsidiaries to issue or sell any shares of capital stock,
partnership interests or similar ownership interests in the
Subsidiaries. MSG owns, directly or indirectly, the capital
stock, partnership interests and similar ownership interests in
the Subsidiaries and the Equity Interests free and clear of all
pledges, security interests, liens, encumbrances or adverse
claims. There are no voting trusts, stockholder agreements,
proxies or other agreements in effect to which MSG is a party
with respect to the voting of the capital stock, partnership
interests or similar ownership interests in the Subsidiaries or
the Equity Interests.
SECTION 3.05. No Conflict. Assuming all consents,
-----------
approvals, authorizations and other actions described in Section
3.06 of this Agreement have been obtained and all filings and
notifications listed in Section 3.06 of the Disclosure Schedule
have been made, and except as may result from any facts or
circumstances relating solely to the Purchaser or either Parent
or as described in Section 3.05 of the Disclosure Schedule, the
execution, delivery and performance of this Agreement by Viacom
and the Seller do not and will not (a) violate or conflict with
the certificate of incorporation or by-laws of Viacom or the
Seller, (b) conflict with or violate any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award
applicable to Viacom, the Seller, MSG, the Business or any
Subsidiary, except as would not, individually or in the
aggregate, have a Material Adverse Effect or (c) result in any
breach of, or constitute a default (or event which with the
giving of notice or lapse of time, or both, would become a
default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the
creation of any lien or other encumbrance on the Shares or on any
of the assets or properties of MSG, any Subsidiary or any Equity
Interest pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other
instrument relating to such assets or properties to which Viacom,
the Seller, MSG or any Subsidiary is a party or by which any of
such assets or properties is bound or affected, except as would
not, individually or in the aggregate, have a Material Adverse
Effect.
SECTION 3.06. Consents and Approvals. The execution
----------------------
and delivery of this Agreement by Viacom and the Seller do not,
and the performance of this Agreement by Viacom and the Seller
will not, require any consent, approval, authorization or other
action by, or filing with or notification to, any governmental or
regulatory authority, except (a) as described in Section 3.06 of
the Disclosure Schedule, (b) the notification requirements of the
HSR Act, (c) those required from the New York State Liquor
Authority, (d) where failure to obtain such consent, approval,
<PAGE>
12
authorization or action, or to make such filing or notification,
would not prevent Viacom or the Seller from performing any of its
material obligations under this Agreement and would not have a
Material Adverse Effect and (e) as may be necessary as a result
of any facts or circumstances relating solely to the Purchaser or
either Parent.
SECTION 3.07. Financial Information. The unaudited
---------------------
consolidated balance sheet of MSG and the Subsidiaries as of
July 2, 1994 (the "Reference Balance Sheet"), the unaudited
-----------------------
consolidated balance sheet of MSG and the Subsidiaries as of
December 25, 1993, the related unaudited consolidated statements
of income of MSG and the Subsidiaries for the four- and eight-
month periods ended July 2, 1994 and December 25, 1993,
respectively, and the related unaudited consolidated statements
of cash flows of MSG and the Subsidiaries for the six- and
twelve-month periods ended July 2, 1994 and December 25, 1993,
respectively, (copies of each of which are attached as
Exhibit 3.07 to this Agreement) fairly present in all material
respects the consolidated financial condition and consolidated
results of operations of MSG and the Subsidiaries as of such
dates or for the periods covered thereby and were prepared in
accordance with generally accepted accounting principles, except
as set forth in Section 3.07 of the Disclosure Schedule, applied
on a basis consistent with the past practices of MSG.
SECTION 3.08. Absence of Undisclosed Liabilities. As
----------------------------------
of the Closing, there will be no liability of MSG or any
Subsidiary except liabilities (absolute, contingent or otherwise)
(i) disclosed in the Disclosure Schedule, (ii) addressed by any
of the representations, warranties, covenants or agreements made
by Viacom and the Seller in this Agreement and (A) not required
to be disclosed in the Disclosure Schedule by the terms of such
representation or warranty or (B) permitted to be incurred by the
terms of such covenant or agreement, as the case may be, (iii)
as, and to the extent, reflected in the Reference Balance Sheet,
(iv) recoverable under insurance, indemnification, contribution
or comparable arrangements (including funded workers compensation
programs), (v) with respect to Taxes (which shall be governed
solely by the terms of Section 3.15 and Article VII),
(vi) incurred in the ordinary course of business after the date
of this Agreement and prior to the Closing and which do not have
a Material Adverse Effect and (vii) incurred after the date of
this Agreement, other than in the ordinary course of business,
which do not have a Material Adverse Effect.
SECTION 3.09. Absence of Certain Changes or Events.
------------------------------------
(a) Since the date of the Reference Balance Sheet to the date of
this Agreement, except as disclosed in Section 3.09 of the
Disclosure Schedule, the Business has been conducted in the
ordinary course and consistent with past practice.
<PAGE>
13
(b) From the date of the Reference Balance Sheet to
the date of this Agreement and except as set forth in Section
3.09 of the Disclosure Schedule or as contemplated by this
Agreement, there has not been:
(i) any material damage, destruction or loss to any of
the assets or properties of MSG or any Subsidiary;
(ii) except for carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other similar liens arising in
the ordinary course of business, any pledge, lien, security
interest, mortgage, charge, adverse claim of ownership or
use, or other encumbrance of any kind created on any
properties or assets (whether tangible or intangible) of MSG
or any Subsidiary;
(iii) any establishment or increase in any bonus,
insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option (including, without
limitation, any grant of any stock options, stock
appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plans, or
other increase in the compensation payable or to become
payable to any officer or key employee of MSG or any
Subsidiary, except, in any case described above, as may be
required by law or applicable collective bargaining
agreement;
(iv) any employment or severance agreement entered into
with any of the employees of MSG or any Subsidiary;
(v) any dividend declared (whether in cash, stock or
other property) by MSG or any other distribution or
contribution made in respect of the capital stock or
otherwise of MSG;
(vi) any execution, amendment or termination of a
material contract, arrangement or commitment, including,
without limitation, any affiliation agreement relating to
Madison Square Garden Network or collective bargaining
agreement, by MSG or any Subsidiary;
(vii) any new line of business entered into by MSG
or any Subsidiary;
(viii) any incurrence of, or commitment to incur,
any capital expenditures in excess of $1,000,000 in the
aggregate by MSG or any Subsidiary;
(ix) other than with respect to the provision of
intercompany services in the ordinary course of business
consistent with past practices, any transaction or the
<PAGE>
14
execution of any agreement, including, without limitation,
any purchase, sale, lease or exchange of property or the
rendering of any service, with Viacom or any affiliate of
Viacom;
(x) the commencement of any action or proceeding;
(xi) (A) any sale, assignment, transfer, lease or other
disposition or agreement to sell, assign, transfer, lease or
otherwise dispose of any of the fixed assets of MSG or any
Subsidiary having an aggregate value exceeding $1,000,000 or
(B) in the case of any fixed assets of MSG or any Subsidiary
having an aggregate value less than or equal to $1,000,000,
any sale, assignment, transfer, lease or other disposition
or agreement to sell, assign, transfer, lease or otherwise
dispose of such fixed assets, other than in exchange for
consideration believed in good faith to represent fair
consideration or (C) an amendment of any Lease in any
material respect;
(xii) (A) any acquisition by MSG or any Subsidiary
(by merger, consolidation, or acquisition of stock or
assets) of any corporation, partnership or other business
organization or division thereof or (B) any incurrence of
any indebtedness for borrowed money (other than intercompany
indebtedness owed to PCI) or issuance of any debt securities
or assumption, grant, guarantee or endorsement of, or other
accommodation or arrangement making MSG or any Subsidiary
responsible for, the obligations of any person, or any loans
or advances (other than by MSG to PCI or the Subsidiaries);
(xiii) any material change in any method of
accounting or accounting practice used by MSG or the
Subsidiaries;
(xiv) any issuance or sale of additional shares of
the capital stock of, or other equity interests in, MSG or
any Subsidiary, or securities convertible into or
exchangeable for such shares or equity interests, or
issuance or granting of any options, warrants, calls,
subscription rights or other rights of any kind to acquire
additional shares of such capital stock, such other equity
interests, or such securities;
(xv) any amendment to the charter or by-laws of MSG or
any Subsidiary;
(xvi) any Material Adverse Effect; or
(xvii) any agreement to take any actions specified
in this Section 3.09, except for this Agreement.
<PAGE>
15
(c) Neither MSG nor any Subsidiary is a party to any
cable affiliation agreement with any entity identified in Section
3.09(c) of the Disclosure Schedule, nor is there any outstanding
offer to any such entity which, if accepted, would create such an
agreement.
SECTION 3.10. Absence of Litigation. Except as set
---------------------
forth in Section 3.10 of the Disclosure Schedule, there are no
claims, actions, proceedings or investigations pending or, to the
knowledge of the Seller, threatened (in writing), against Viacom,
the Seller, MSG, any Subsidiary or any of the assets or
properties of MSG or any Subsidiary, before any court, arbitrator
or administrative, governmental or regulatory authority or body
that, individually or in the aggregate, are reasonably likely to
have a Material Adverse Effect. Except as set forth in Section
3.10 of the Disclosure Schedule, MSG, the Subsidiaries and their
respective assets and properties are not subject to any order,
writ, judgment, injunction, decree, determination or award having
a Material Adverse Effect.
SECTION 3.11. Compliance with Laws. Neither MSG nor
--------------------
any Subsidiary is in violation of any law, rule, permit,
regulation, order, judgment or decree applicable to MSG or any
Subsidiary or by which any of the properties of MSG or any
Subsidiary is bound or affected (including, without limitation,
Environmental Laws), except (i) as set forth in Section 3.11 of
the Disclosure Schedule and (ii) for violations the existence of
which and cost of remedying would not have a Material Adverse
Effect.
SECTION 3.12. Licenses and Permits. Except as set
--------------------
forth in Section 3.12 of the Disclosure Schedule, MSG and the
Subsidiaries have all governmental licenses, permits and
authorizations necessary to conduct the Business, except for such
governmental licenses, permits and authorizations the absence of
which and cost of obtaining would not have a Material Adverse
Effect.
SECTION 3.13. Real Property. (a) Section 3.13(a) of
-------------
the Disclosure Schedule sets forth all of the real properties
owned by MSG and all of its Subsidiaries. Section 3.13(b) of the
Disclosure Schedule sets forth all of the leasehold,
subleasehold, licensed and other similar interests in real estate
held by MSG and the Subsidiaries as of the date of this
Agreement. Except as set forth in Section 3.13(b) of the
Disclosure Schedule, the transactions contemplated by this
Agreement may be consummated without resulting in a violation of
any instrument or agreement governing such leaseholds,
subleaseholds or licenses, except for any such violation which
would not have a Material Adverse Effect. Each parcel of real
property owned by MSG or any Subsidiary is owned in fee simple,
free and clear of all title defects, liens, security interests,
<PAGE>
16
claims, tenancies (and other possessory interests), easements,
rights of way, covenants, restrictions, encroachments,
conditional sale or other title retention agreements, and other
charges and encumbrances of any kind, except: (i) as disclosed
in Section 3.13(a) or in Section 3.13(b) of the Disclosure
Schedule; (ii) liens for Taxes and assessments not yet payable;
(iii) liens for Taxes, assessments and charges and other claims
in an amount not to exceed $250,000 in the aggregate, the
validity of which are being contested in good faith; (iv)
imperfections of title, liens, security interests, claims,
easements, rights or way, covenants, restrictions, encroachments,
conditional sale or other title retention agreements and other
charges and encumbrances the existence of which, individually and
in the aggregate, do not materially adversely affect the value of
such property or impair the use of such property in the usual
conduct of business by MSG or the Subsidiaries; and (v) inchoate
mechanic's and materialmen's liens for construction in progress.
(b) MSG and the Subsidiaries have delivered to the
Purchaser a true and complete copy of each lease covering the
leased property set forth on Section 3.13(b) of the Disclosure
Schedule (the "Leases"), together with all amendments thereto.
------
To the knowledge of the Seller, as of the date of this Agreement,
neither MSG nor any Subsidiary is in material default under
(i) the New York Rangers Practice Facility Lease, dated
February 22, 1984, between the County of Westchester and the New
York Rangers Hockey Club (the "Rangers Lease") or (ii) the
-------------
Restated Agreement, dated May 5, 1993, between the State
University of New York and Madison Square Garden Center, Inc.
(the "Knicks Lease").
------------
(c) As of the date of this Agreement, neither MSG nor
any Subsidiary has received any notice of nor to the Seller's
knowledge is there any pending or threatened (in writing)
condemnation proceeding or similar taking affecting any real
property owned by MSG or any Subsidiary or the real property
subject to the Rangers Lease or the Knicks Lease (or any part
thereof) or of any sale or other disposition of such real
property or any part thereof in lieu of condemnation or similar
taking.
(d) There is no proceeding pending of which Seller has
received written notice or, to the knowledge of the Seller,
threatened (in writing) in which any taxing authority having
jurisdiction over any of the real property owned by MSG or any of
the Subsidiaries is seeking to increase the assessed value
thereof over the assessed value thereof in the current tax year.
During the period from July 15, 1982 through the date of this
Agreement, no real property taxes have been assessed with respect
to Madison Square Garden and neither the Seller nor Viacom has
received written notice of any action or proceeding intended to
<PAGE>
17
eliminate or reduce the tax exemption applicable to Madison
Square Garden.
SECTION 3.14. Employee Benefit Matters. (a) Section
------------------------
3.14 of the Disclosure Schedule contains a true and complete list
of all employee benefit plans (within the meaning of Section 3(3)
of ERISA) and all bonus, stock option, stock purchase, restricted
stock, incentive, deferred compensation, retiree medical or life
insurance, supplemental retirement, severance or other benefit
plans, programs or arrangements, and all employment, termination,
severance or other contracts or agreements with respect to which
MSG or any Subsidiary has any obligation or which are maintained,
contributed to or sponsored by MSG or any Subsidiary for the
benefit of any current employee, officer or director of MSG or
any Subsidiary or any former employee of MSG or any Subsidiary
who was previously employed in the Business, other than plans,
programs, arrangements, contracts or agreements for which no
benefits are payable after the Closing (the "Plans"). Except as
-----
disclosed in Section 3.14 of the Disclosure Schedule, each Plan
is in writing and the Seller has previously made available to the
Purchaser a true and complete copy of each Plan and a true and
complete copy of each of the following documents, to the extent
applicable, prepared in connection with each such Plan: (i) a
copy of each trust or other funding arrangement, (ii) the most
recently filed Internal Revenue Service ("IRS") Form 5500, (iii)
---
the most recently received IRS determination letter and (iv) the
most recently prepared actuarial report and financial statement.
Except as otherwise disclosed in Section 3.14 of the Disclosure
Schedule, Viacom, the Seller, MSG and the Subsidiaries have no
express or implied commitment to modify, change or terminate any
Plan, other than with respect to a modification, change or
termination required by ERISA or the Internal Revenue Code.
(b) Except as otherwise disclosed in Section 3.14 of
the Disclosure Schedule, none of the Plans (i) is a multiemployer
plan, within the meaning of Section 3(37) or 4001(a)(3) of ERISA
(a "Multiemployer Plan"), or a single employer pension plan,
------------------
within the meaning of Section 4001(a)(15) of ERISA, for which MSG
or any Subsidiary could incur liability under Section 4063 or
4064 of ERISA (a "Multiple Employer Plan"), or (ii) provides or
----------------------
promises to provide retiree medical or life insurance benefits.
(c) Viacom, the Seller, MSG and the Subsidiaries are
not liable for any tax arising under Section 4971, 4972, 4975,
4979, 4980 or 4980B of the Internal Revenue Code. Viacom, the
Seller, MSG and the Subsidiaries have not incurred any material
liability under, arising out of or by operation of Title IV of
ERISA (other than liability for premiums to the Pension Benefit
Guaranty Corporation arising in the ordinary course), including,
without limitation, any liability in connection with (i) the
termination or reorganization of any employee pension benefit
plan subject to Title IV of ERISA or (ii) the withdrawal from any
<PAGE>
18
Multiemployer Plan or Multiple Employer Plan. None of the assets
of MSG or any Subsidiary is the subject of any lien arising under
Section 302(f) of ERISA or Section 412(n) of the Internal Revenue
Code and Viacom, the Seller, MSG and the Subsidiaries have not
been required to post any security under Section 307 of ERISA or
Section 401(a)(29) of the Internal Revenue Code with respect to
any Plan.
(d) Each Plan other than a Multiemployer Plan (and to
the knowledge of the Seller, each Multiemployer Plan) is now and
has been operated in all material respects in accordance with its
terms, the requirements of all applicable laws, including,
without limitation, ERISA and the Internal Revenue Code. All
prior contributions, premiums or payments made with respect to
any Plan have been deducted for income tax purposes and no such
deduction previously claimed has been challenged by any
government entity. All employer contributions and premiums
(including Pension Benefit Guaranty Corporation premiums) with
respect to the Plans due and owing prior to the Closing have been
or will be paid prior to the Closing. With respect to any Plan,
no material actions, suits or claims (other than routine claims
for benefits in the ordinary course) are pending, or to the
knowledge of the Seller, threatened (in writing), there are no
facts or circumstances which exist that could be reasonably
likely to give rise to any such actions, suits or claims, and MSG
and the Subsidiaries will promptly notify the Purchaser in
writing of any such actions, suits or claims pending or
threatened (in writing) arising after the date of this Agreement
and prior to the Closing.
(e) The Paramount Communications Inc. Retirement Plan
(the "Retirement Plan") and the Paramount Communications Inc.
---------------
Savings Plan (the"Savings Plan") which are intended to be
------------
qualified under Section 401(a) of the Internal Revenue Code have
received favorable determination letters from the IRS that such
plans are so qualified, and the related trusts which are intended
to be exempt from federal income tax pursuant to Section 501(a)
of the Internal Revenue Code have received determination letters
from the IRS that such trusts are so exempt.
SECTION 3.15. Taxes. (a) Except as set forth in
-----
Section 3.15 of the Disclosure Schedule, each of MSG and the
Subsidiaries has paid and discharged all Taxes currently due for
any period ending on or before the Closing Date and MSG and each
Subsidiary have filed all Tax returns required to be filed, and
all such Tax returns were complete in all material respects.
Except as set forth in Section 3.15 of the Disclosure Schedule,
neither MSG nor any Subsidiary has executed or filed with the
Internal Revenue Service or any other taxing authority, domestic
or foreign, any extension or agreement extending the period for
the assessment or collection of any Taxes, except for permitted
statutory extensions. Except as set forth in Section 3.15 of the
<PAGE>
19
Disclosure Schedule, neither MSG nor any Subsidiary is a party to
any pending action or proceeding and, to the knowledge of the
Seller, no action or proceeding is threatened by any taxing
authority for the assessment or collection of any Taxes, and
neither MSG nor any Subsidiary has received written notice of any
audit or review of any Tax return or report which could result in
the imposition of any Tax upon MSG or any Subsidiary.
(b) All material income Taxes owed by any affiliated
group (within the meaning of Section 1504 of the Internal Revenue
Code) of which PCI or any predecessor is the common parent have
been paid or reserved in accordance with generally accepted
accounting principles in the financial statements of PCI for each
taxable period during which any of the Seller, the Subsidiaries
or MSG were a member of such group.
SECTION 3.16. Brokers. Except for Allen & Company
-------
Incorporated ("Allen & Company"), no broker, finder or investment
---------------
banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of
Viacom or the Seller. Viacom is solely responsible for the fees
and expenses of Allen & Company.
SECTION 3.17. Labor Matters. Except as set forth in
-------------
Section 3.17 of the Disclosure Schedule, as of the date of this
Agreement, (a) MSG and the Subsidiaries are not a party to any
collective bargaining agreement or other contract or agreement
with any labor organization or other representative of any of the
employees of MSG or the Subsidiaries, nor is any such contract or
agreement being negotiated; (b) there is no material unfair labor
practice charge or complaint pending or, to the knowledge of the
Seller, threatened (in writing) against MSG or the Subsidiaries;
(c) there is no labor strike, slowdown, work stoppage, material
dispute, lockout or other material labor controversy in effect or
threatened (in writing) against MSG or the Subsidiaries; (d) to
the Seller's knowledge, no representation question exists
respecting any of the employees of MSG or the Subsidiaries, nor
to the knowledge of the Seller are there any campaigns being
conducted to solicit cards from employees of MSG and the
Subsidiaries to authorize representation by any labor
organization; (e) no grievance is pending or, to the knowledge of
the Seller, threatened (in writing) which, if adversely decided,
could have a Material Adverse Effect; (f) neither MSG nor any
Subsidiary is a party to, or otherwise bound by, any consent
decree with any government agency relating to employees or
employment practices; and (g) MSG and the Subsidiaries are in
compliance with all notification and bargaining obligations
arising under any collective bargaining agreement or statute,
except as would not have a Material Adverse Effect. MSG and the
Subsidiaries are in compliance with WARN. Each of the contracts
and agreements described in clause (a) above are in full force
<PAGE>
20
and effect as of the date of this Agreement unless otherwise
noted in Section 3.17 of the Disclosure Schedule.
SECTION 3.18. Material Contracts and Assets.
-----------------------------
(a) Section 3.18 of the Disclosure Schedule, together with all
other Sections of the Disclosure Schedule, contains a list of all
contracts to which MSG or any Subsidiary is a party as of the
date of this Agreement, other than contracts the termination or
violation of which would not be reasonably likely to have a
Material Adverse Effect. Except as disclosed on Section 3.18 of
the Disclosure Schedule, neither MSG nor any Subsidiary is a
party to any written agreement with the Seller, Viacom or any
affiliate of Viacom. Except as disclosed on Section 3.18 of the
Disclosure Schedule, neither MSG nor any Subsidiary is party to
any agreement relating to any extension of credit or loan to MSG,
the Subsidiaries or any affiliate of MSG or the Subsidiaries.
Except as disclosed on Section 3.18 of the Disclosure Schedule,
neither MSG nor any Subsidiary is in default (and, to the
knowledge of the Seller, there has not occurred any event that
with the lapse of time or the giving of notice or both would
constitute such a default) under any contract, agreement,
indenture, mortgage, lease, insurance policy or other instrument
to which it is a party or by which its respective properties or
assets may be bound or subject or under which it or its
respective business, properties or assets receive benefits,
except for any such defaults which would not have a Material
Adverse Effect.
(b) MSG and the Subsidiaries are in compliance in all
material respects with the Constitution, by-laws and resolutions
of the Board of Governors, as currently in effect, of each of the
National Basketball Association and the National Hockey League.
(c) PCI has performed all of its obligations required
to be performed under the Guaranty made as of November 22, 1988
by PCI (then known as Gulf + Western Inc.) to the New York
Yankees Limited Partnership.
SECTION 3.19. Intellectual Property. MSG and the
---------------------
Subsidiaries own all of the Intellectual Property Assets (as
defined below) purported to be owned by MSG or any of the
Subsidiaries and have the right to use all other Intellectual
Property Assets used by the Business, except as would not have a
Material Adverse Effect. "Intellectual Property Assets" means:
----------------------------
(i) all trademarks and service marks (including, without
limitation, all logos, symbols and other devices), trade dress,
company and trade names (as well as their initials, abbreviations
and contractions), and other proprietary identifications and
associated good will with respect to each of the foregoing;
(ii) all invention disclosures and patents; (iii) all copyrights,
software (including source code, object code and data), trade
secrets, inventions designs, processes, formulas and mask works;
<PAGE>
21
(iv) all technical information and know-how; and (v) all
agreements (including, without limitation, license agreements,
pertaining to such intellectual property). As of the date of
this Agreement, none of the Intellectual Property Assets is
subject to any outstanding order, decree, judgment, stipulation
or the like limiting the scope of the use thereof by MSG, nor
have any of such Intellectual Property Assets been knowingly
misappropriated from any third party. To the knowledge of the
Seller and except as would not have a Material Adverse Effect,
none of the activities, products or services the Business engages
in, makes, uses, sells or offers infringes upon or otherwise
violates any trademarks, service marks, company or trade names,
other proprietary identifications, copyrights, software, trade
secrets, patents, patent applications, inventions, technical
information and know-how, or other intellectual property rights
owned or exercised by any other person, firm or corporation, and,
as of the date of this Agreement, there is no claim or action or
proceeding by any such person, firm or corporation pending or
threatened (in writing) with respect thereto. Except as set
forth in Section 3.19 of the Disclosure Schedule, as of the date
of this Agreement, there is no action or proceeding instituted by
or on behalf of MSG or any of the Subsidiaries in which an act
constituting an infringement or other violation of any of the
rights to the Intellectual Property Assets is alleged to have
been committed by a third party.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
AND EACH PARENT
The Purchaser and each Parent represent and warrant,
jointly and severally, to Viacom and the Seller as follows:
SECTION 4.01. Incorporation and Authority of the
----------------------------------
Purchaser. The Purchaser is a limited partnership duly formed,
---------
validly existing and in good standing under the laws of the State
of Delaware and has all necessary partnership power and authority
to enter into this Agreement, to carry out its obligations
hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by the Purchaser,
the performance by the Purchaser of its obligations hereunder and
the consummation by the Purchaser of the transactions
contemplated hereby have been duly authorized by all requisite
action on the part of the Purchaser. This Agreement has been
duly executed and delivered by the Purchaser, and (assuming due
authorization, execution and delivery by Viacom and the Seller)
constitutes a legal, valid and binding obligation of the
Purchaser enforceable against the Purchaser in accordance with
its terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting
<PAGE>
22
creditors' rights generally and subject, as to enforceability, to
the effect of general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at
law).
SECTION 4.02. Incorporation and Authority of Each
-----------------------------------
Parent. Each Parent is a corporation duly incorporated, validly
------
existing and in good standing under the laws of the State of
Delaware and has all necessary corporate power and authority to
enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by each Parent, the
performance by each Parent of its obligations hereunder and the
consummation by each Parent of the transactions contemplated
hereby have been duly authorized by all requisite corporate
action on the part of each Parent. This Agreement has been duly
executed and delivered by each Parent, and (assuming due
authorization, execution and delivery by Viacom and the Seller)
this Agreement constitutes a legal, valid and binding obligation
of each Parent enforceable against each Parent in accordance with
its terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting
creditors' rights generally and subject, as to enforceability, to
the effect of general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at
law).
SECTION 4.03. No Conflict. Assuming all consents,
-----------
approvals, authorizations and other actions described in
Section 4.04 of this Agreement have been obtained and all filings
and notifications listed in Section 4.04 of the Disclosure
Schedule have been made, except as may result from any facts or
circumstances relating solely to Viacom or the Seller, the
execution, delivery and performance of this Agreement by the
Purchaser and each Parent do not and will not (a) violate or
conflict with the partnership agreement or certificate of limited
partnership of the Purchaser or the certificate of incorporation
or by-laws of either Parent, (b) conflict with or violate any
law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award applicable to the Purchaser or either
Parent, including, without limitation, the Modification of Final
Judgment entered by the United States District Court for the
District of Columbia on August 24, 1982, or (c) result in any
breach of, or constitute a default (or event which with the
giving of notice or lapse of time, or both, would become a
default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the
creation of any lien or other encumbrance on any of the assets or
properties of the Purchaser or either Parent pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument relating to such
assets or properties to which the Purchaser, either Parent or any
<PAGE>
23
of their subsidiaries is a party or by which any of such assets
or properties is bound or affected, except as would not,
individually or in the aggregate, have a material adverse effect
on the ability of the Purchaser or either Parent to consummate
the transactions contemplated by this Agreement.
SECTION 4.04. Consents and Approvals. The execution
----------------------
and delivery of this Agreement by the Purchaser and each Parent
do not, and the performance of this Agreement by the Purchaser
and each Parent will not, require any consent, approval,
authorization or other action by, or filing with or notification
to, any governmental or regulatory authority, except (a) the
notification requirements of the HSR Act, (b) those required from
the New York State Liquor Authority, the NHL and the NBA, (c)
where failure to obtain such consent, approval, authorization or
action, or to make such filing or notification, would not prevent
the Purchaser or either Parent from performing any of its
material obligations under this Agreement and (d) as may be
necessary as a result of any facts or circumstances relating
solely to Viacom or the Seller.
SECTION 4.05. Absence of Litigation. No claim,
---------------------
action, proceeding or investigation is pending or, to the
knowledge of the Purchaser or either Parent, threatened (in
writing), before any court, arbitrator or administrative,
governmental or regulatory authority or body which seeks to delay
or prevent the consummation of the transactions contemplated
hereby or which would be reasonably likely to materially and
adversely affect or restrict the Purchaser's or either Parent's
ability to consummate the Merger.
SECTION 4.06. Financing. The Purchaser has all funds
---------
necessary to consummate the transactions contemplated by this
Agreement.
SECTION 4.07. Brokers. Except for Bear, Stearns & Co.
-------
Inc. ("Bear Stearns"), no broker, finder or investment banker is
------------
entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Purchaser or
either Parent. The Purchaser is solely responsible for the fees
and expenses of Bear Stearns.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the
--------------------------------
Closing. (a) Unless the Purchaser otherwise agrees in writing
-------
and except as otherwise set forth herein or in the Disclosure
Schedule (including Section 5.01 thereof), between the date of
<PAGE>
24
this Agreement and the Closing Date, MSG will, and will cause the
Subsidiaries to, (i) conduct the Business only in the ordinary
course, (ii) use best efforts to preserve substantially intact
the structure of the business organization of the Business, (iii)
use reasonable efforts to keep available to the Purchaser the
services of the present officers and key employees of MSG and the
Subsidiaries, (iv) use reasonable efforts to preserve the current
relationships of MSG and the Subsidiaries with their respective
customers, suppliers, distributors and other persons with which
MSG and the Subsidiaries have significant business relationships,
and (v) use reasonable efforts to comply in all material respects
with all applicable laws.
(b) Except as expressly provided in this Agreement or
the Disclosure Schedule (including Section 5.01 thereof), between
the date of this Agreement and the Closing Date, MSG will not,
and will cause the Subsidiaries not to, do any of the following
without the prior written consent of the Purchaser (which consent
shall not be unreasonably withheld):
(i) except for carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other similar liens arising in
the ordinary course of business, grant any pledge, lien,
security interest, mortgage, charge, adverse claim of
ownership or use, or other encumbrance of any kind on any
properties or assets (whether tangible or intangible) of MSG
or any Subsidiary;
(ii) establish or increase any bonus, insurance,
severance, deferred compensation, pension, retirement,
profit sharing, stock option (including, without limitation,
the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock
purchase or other employee benefit plan, or otherwise
increase the compensation payable to or to become payable to
any officers or key employees of MSG or any Subsidiary,
except in any case described above in the ordinary course of
business or as may be required by law or applicable
collective bargaining agreement;
(iii) enter into any employment or severance
agreement with any of the employees of MSG or any Subsidiary
except in the ordinary course of business consistent with
past practice and providing for compensation not in excess
of $250,000 per year and not for a term in excess of two
years;
(iv) declare or pay any dividend (whether in cash,
stock or other property) or make any other distribution or
contribution in respect of its capital stock or otherwise,
except that any Subsidiary may declare and pay cash
<PAGE>
25
dividends, without restriction, to MSG or any of the other
Subsidiaries;
(v) except in the ordinary course of business
consistent with past practice, enter into, amend or
terminate any material contract, arrangement, or commitment,
including, without limitation, any affiliation agreement
relating to Madison Square Garden Network or collective
bargaining agreement; provided, however, that MSG will not,
-------- -------
and will cause the Subsidiaries not to, enter into or
execute any affiliation agreement (including any affiliation
agreement set forth on the Disclosure Schedule) other than
an extension of an existing affiliation agreement for a
period not to exceed six months;
(vi) enter into any new line of business;
(vii) incur, or commit to incur, any capital
expenditures in excess of $1,000,000 in the aggregate for
all such expenditures from the date of this Agreement
through and including the Closing Date, or any obligations
or liabilities in connection therewith, other than capital
expenditures listed on Section 5.01 of the Disclosure
Schedule;
(viii) other than with respect to the provision of
intercompany services in the ordinary course of business
consistent with past practice, enter into any transaction or
agreement, including, without limitation, any purchase,
sale, lease or exchange of property or the rendering of any
service, with any affiliate of Viacom;
(ix) (A) sell, assign, transfer, lease or otherwise
dispose of any fixed assets of MSG or any Subsidiary having
an aggregate value exceeding $1,000,000 or (B) amend the
Rangers Lease or the Knicks Lease in any material respect;
(x) (A) acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership
or other business organization or division thereof or
(B) incur any indebtedness for borrowed money (other than
intercompany indebtedness owed to PCI) or issue any debt
securities or assume, grant, guarantee or endorse, or
otherwise as an accommodation become responsible for, the
obligations of any person, or make loans or advances (other
than by MSG to PCI or the Subsidiaries), the aggregate value
of any matter set forth in this Section 5.01(b)(x)(B) which
exceeds $1,000,000;
(xi) materially change any method of accounting or
accounting practice used by MSG or the Subsidiaries, other
<PAGE>
26
than such changes as are required by generally accepted
accounting principles;
(xii) issue or sell any additional shares of the
capital stock of, or other equity interests in, MSG or any
Subsidiary, or securities convertible into or exchangeable
for such shares or equity interests, or issue or grant any
options, warrants, calls, subscription rights or other
rights of any kind to acquire additional shares of such
capital stock, such other equity interests, or such
securities;
(xiii) amend the charter or by-laws of MSG or any
Subsidiary; or
(xiv) enter into an agreement to do any of the
foregoing.
SECTION 5.02. Access to Information. From the date of
---------------------
this Agreement until the Closing, upon reasonable notice, Viacom
and the Seller shall, and shall cause the officers, directors,
employees, auditors and agents of Viacom, the Seller, MSG and the
Subsidiaries to, (i) afford the officers, employees and
authorized agents and representatives of the Purchaser and the
Parents reasonable access, during normal business hours, to the
offices, properties, books and records of MSG and the
Subsidiaries and (ii) furnish to the officers, employees and
authorized agents and representatives of the Purchaser and the
Parents such additional financial and operating data and other
information regarding the assets, properties, goodwill and
business of MSG and the Subsidiaries as the Purchaser and the
Parents may from time to time reasonably request; provided,
--------
however, that such investigation shall not unreasonably interfere
-------
with any of the businesses or operations of Viacom, the Seller or
MSG or any of their respective affiliates, including the
Subsidiaries.
SECTION 5.03. Confidentiality. The terms of the
---------------
letter agreement dated May 18, 1994 between PCI and ITT and the
letter agreement dated May 18, 1994 between PCI and Cablevision
Systems Corporation (collectively, the "Confidentiality
---------------
Agreement") shall both apply to the Purchaser, and are hereby
---------
incorporated herein by reference and shall continue in full force
and effect until the Closing, at which time such Confidentiality
Agreement and the obligations of the Purchaser under this Section
5.03 shall terminate; provided, however, that the Confidentiality
-------- -------
Agreement shall terminate only in respect of that portion of the
Evaluation Material (as defined in the Confidentiality Agreement)
relating solely to MSG, the Subsidiaries and the Equity
Interests. If this Agreement is, for any reason, terminated
prior to the Closing, the Confidentiality Agreement shall
continue in full force and effect.
<PAGE>
27
SECTION 5.04. Regulatory and Other Authorizations;
------------------------------------
Consent; Yankee Guaranty. (a) Subject to Section 5.04(c) of
------------------------
this Agreement, each party hereto shall use its best efforts to
obtain all authorizations, consents, orders and approvals of
(i) all Federal, state and local regulatory bodies and officials,
(ii) the NBA and (iii) the NHL, in each case, that may be or
become necessary for its execution and delivery of, and the
performance of its obligations pursuant to, this Agreement and
will cooperate fully with the other parties in promptly seeking
to obtain all such authorizations, consents, orders and
approvals. Each party hereto agrees to make an appropriate
filing of a Notification and Report Form pursuant to the HSR Act
with respect to the transactions contemplated herein as promptly
as practicable and, in any event, within ten Business Days of the
date of this Agreement, and to supply promptly any additional
information and documentary material that may be requested
pursuant to the HSR Act. The Seller shall promptly after the
date of this Agreement make a request of each of the NBA and NHL
for all necessary approvals for a transfer of the franchises of
the New York Knickerbockers Basketball Club and the New York
Rangers Hockey Club, respectively, and the parties shall
cooperate with any investigation of the NBA and NHL in connection
therewith. The parties hereto will not take any action for the
purpose of delaying, impairing or impeding the receipt of any
required approvals.
(b) Subject to Section 5.04(c) of this Agreement,
without limiting the generality of the Purchaser's and each
Parent's undertakings pursuant to Section 5.04(a) of this
Agreement, the Purchaser and each Parent shall:
(i) use its best efforts to prevent the entry in a
judicial or administrative proceeding brought under any
antitrust law by any governmental authority with
jurisdiction over the enforcement of any applicable
antitrust laws ("Governmental Antitrust Authority") or any
--------------------------------
other party of any permanent or preliminary injunction or
other order that would make consummation of the Merger
unlawful or would prevent or delay it;
(ii) take promptly, in the event that such an
injunction or order has been issued in such a proceeding,
any and all steps, including, without limitation, appeal
thereof or the posting of a bond of up to $2,000,000,
necessary to vacate, modify or suspend such injunction or
order so as to permit the consummation of the Merger on a
schedule as close as possible to that contemplated by this
Agreement; and
(iii) use its best efforts to take promptly all
other action and do all other things necessary and proper to
obtain all necessary approvals and consents of the NBA and
<PAGE>
28
NHL and to avoid or eliminate each and every impediment
under any antitrust law or rule, by-law, regulation or
agreement of the NBA or NHL that may be asserted by any
Governmental Antitrust Authority, the NBA, the NHL or any
other party to the consummation of the Merger.
(c) Notwithstanding anything to the contrary in
Sections 5.04(a) and (b) or elsewhere in this Agreement, the
Purchaser, the Parents and their respective affiliates shall not
be required to take, and may refrain from taking, any action
(including any action to amend or enter into any agreement or
business arrangement), in either case if the Purchaser determines
in good faith and with a reasonable basis that such action is
reasonably likely to (i) have a material adverse affect on the
results of operations or financial condition of the Purchaser,
either Parent or any of their respective Covered Affiliates or
(ii) be materially inconsistent with the principal business
purposes of the partners of the Purchaser in choosing to jointly
acquire and operate the Business or (iii) require any significant
change in the operations or activities of the business (or any
material assets employed therein) of the Purchaser, either Parent
or any of their respective Covered Affiliates which the Purchaser
or either Parent reasonably determines is adverse to the
operations or activities of the business (or any material assets
employed therein) of the Purchaser, either Parent or any of their
respective Covered Affiliates.
(d) Each party hereto agrees to cooperate in obtaining
any other consents and approvals which may be required in
connection with the transactions contemplated by this Agreement.
(e) Effective as of the Closing, each Parent and the
Purchaser hereby jointly and severally guarantee the obligations
of PCI arising after the Closing Date under the Guaranty made as
of November 22, 1988 by PCI (then known as Gulf + Western Inc.)
to the New York Yankees Limited Partnership (the "Yankee
------
Guaranty"). Each Parent and the Purchaser shall use their
--------
reasonable efforts to cause the Yankee Guaranty to be released
without cost or obligation on behalf of PCI or any of its
affiliates and each Parent and the Purchaser jointly and
severally agree to indemnify PCI and its affiliates for any and
all liabilities, losses, damages, claims, costs, expenses,
interest, awards, judgments and penalties (including, without
limitation, attorneys' and consultants' fees and expenses)
incurred by PCI and any of its affiliates arising after the
Closing Date from the Yankee Guaranty.
SECTION 5.05. Investigation. In connection with the
-------------
Purchaser's and each Parent's investigation of MSG, the
Subsidiaries and the Business, the Purchaser and each Parent have
received from the Seller certain projections and other forecasts
for MSG and the Subsidiaries, including, without limitation,
<PAGE>
29
projected income statement information for the fiscal year ending
December 31, 1994 and certain plan and budget information. The
Purchaser and each Parent acknowledge that there are
uncertainties inherent in attempting to make such projections,
forecasts, plans and budgets, and that the Purchaser and each
Parent are familiar with such uncertainties. Viacom and the
Seller make no representation or warranty with respect to any
estimates, projections, forecasts, plans or budgets referred to
in this Section 5.05, or any other representation or warranty
with respect to the business, operations, assets, liabilities or
financial condition of MSG or any Subsidiary other than as
specifically set forth in this Agreement.
SECTION 5.06. Asset Transfer. Viacom and the Seller
--------------
covenant and agree that, simultaneously with the Closing, (i)
they will cause the ownership of the assets (including, without
limitation, the C-4 transponder and any affiliation agreements
relating to Madison Square Garden Network) sold and assigned on
March 11, 1994 to Paramount Distribution Inc., a Delaware
corporation ("PDI"), by Madison Square Garden Productions, Inc.,
---
a Delaware corporation and a wholly owned Subsidiary of MSG
("MSGP"), set forth in Section 5.06 of the Disclosure Schedule,
----
to be transferred to MSG free and clear of all security
interests, liens and encumbrances of any kind and (ii) in
exchange therefor, the 733.33 shares of preferred stock of PDI
held by MSGP will be cancelled. In connection with such
transfer, (A) Viacom and the Seller will cause all agreements
relating to such assets with Viacom or any of its affiliates to
be terminated or amended to remove MSGP as a party and (B) the
two employees of MSGP who were transferred with such assets to
PDI shall again become employees of MSGP and shall be considered
Transferred Employees for purposes of Article VI below.
SECTION 5.07. Intercompany Accounts. Immediately
---------------------
prior to the Closing, PCI shall contribute to the capital of MSG
all amounts then owing from MSG & Affiliates to PCI & Affiliates,
less all amounts then owing from PCI & Affiliates to MSG &
Affiliates, and such debts shall be cancelled. Such contribution
and cancellation shall be accomplished without incurrence of any
liability for Taxes by MSG (other than Taxes with respect to
which Viacom and the Seller have agreed to indemnify the
Purchaser).
SECTION 5.08. Provision of Tickets. For a period of
--------------------
20 years following the Closing Date, the Purchaser will sell, or
make available to Viacom, and Viacom shall purchase, or have the
right to purchase, tickets to events held at Madison Square
Garden and The Paramount Theater (the "Tickets") as described in
-------
Section 5.08 of the Disclosure Schedule.
SECTION 5.09. Insurance. (a) Up to 12:01 a.m. on the
---------
day after the Closing Date, Viacom and the Seller will maintain
<PAGE>
30
insurance generally comparable to the insurance in place on the
date of this Agreement. Effective 12:01 a.m. on the day after
the Closing Date, MSG and the Subsidiaries shall cease to be
insured by Viacom's or its affiliates' insurance policies, such
that (i) with respect to insurance coverage written on an
"occurrence basis," Viacom and its affiliates will have no
liability for occurrences which take place on and after 12:01
a.m. on the day after the Closing Date and (ii) with respect to
insurance coverage written on a "claims made basis," Viacom and
its affiliates will have no liability for claims made after 12:01
a.m. on the day after the Closing Date. The Purchaser agrees to
indemnify and hold harmless Viacom and its affiliates in respect
to any liability, claim, damage or expense of any kind
whatsoever, which Viacom and its affiliates might incur arising
out of or relating to any such occurrences, losses or claims
under this Section 5.09 other than any such liability, claim,
damage or expense due to Viacom's breach of this Section 5.09(a).
(b) From and after the Closing Date, neither Viacom
nor any of its affiliates shall have any liability for self
insured workers' compensation claims with respect to MSG and the
Subsidiaries in existence on the Closing Date or arising from any
event or circumstance taking place or existing prior to, on or
subsequent to the Closing Date. The Purchaser shall (and each
Parent shall cause the Purchaser to) take all steps necessary
under any applicable law to assume the liability for self insured
workers' compensation pursuant to this Section 5.09 and the
Purchaser and each Parent, jointly and severally, shall fully
indemnify Viacom and its affiliates with respect to any
liability, claim, damage or expense of any kind whatsoever
arising out of or relating to any workers' compensation claim
assumed by the Purchaser hereunder. The Purchaser shall (and
each Parent shall cause the Purchaser to) cooperate with Viacom
and its affiliates in order to obtain the return or release of
bonds or securities or indemnifications given by Viacom or any of
its affiliates to any state in connection with workers'
compensation self-insurance with respect to MSG and the
Subsidiaries; and, in order to effectuate such return or release,
the Purchaser shall (and each Parent shall cause the Purchaser
to), to the extent required by any state, post its own bonds,
letters of credit, indemnifications or other securities in
substitution therefor.
SECTION 5.10. Rights to the Use of Certain
----------------------------
Intellectual Property. (a) Except as set forth in Section 5.10
---------------------
of the Disclosure Schedule, the Seller, Viacom and their
respective affiliates agree that they will retain no rights of
ownership or use in or to the Intellectual Property Assets used
primarily in the Business, including, without limitation, any
such rights in or to "Madison Square Garden," "Madison Square"
and "MSG" and any logos, symbols or other devices associated
primarily with Madison Square Garden; provided, however, that the
-------- -------
<PAGE>
31
joint venture among American Telephone & Telegraph Company
("AT&T"), Paramount Technology Group and PCI set forth in the
----
Joint Development Agreement dated as of February 1, 1994 shall be
entitled to use the name "MSG"; provided, further, that Viacom
-------- -------
shall use all reasonable efforts to cause such joint venture to
cease using such name as promptly as reasonably practicable and
that, in any event, Viacom shall cause such name to cease to be
used by the joint venture not later than one year following the
Closing Date.
(b) The Purchaser shall be entitled to continue to use
the name "Paramount Theatre" for a period of one year following
the Closing, after which time the Purchaser agrees that it shall
no longer include the word "Paramount" in the operation of the
Business.
SECTION 5.11. Post-Closing Services. (a) For a
---------------------
period of six months after the Closing, at the Purchaser's
option, Viacom and the Seller shall provide, or cause PCI to
provide, to the Purchaser such administrative (including MIS),
legal and management functions as were previously provided by PCI
and its affiliates to MSG and the Subsidiaries prior to the
Closing Date, as set forth in Section 5.11 (paragraphs 2, 3, 5
and 7 only) of the Disclosure Schedule. The Purchaser hereby
agrees to reimburse Viacom, the Seller and their affiliates from
time to time for the reasonable costs and expenses of providing
such administrative, legal and management functions.
(b) Except as provided in Section 5.11(a) of this
Agreement and except for the agreements and arrangements listed
in Section 3.18(a)(i) (paragraphs 1, 2 and 3 only) of the
Disclosure Schedule, all intercompany agreements between (i) MSG
and the Subsidiaries, on the one hand, and (ii) Viacom and any of
its other affiliates, on the other hand, shall be terminated as
of the Closing Date.
SECTION 5.12. Christmas Show. Prior to the Closing
--------------
Date, Viacom, the Seller and the Purchaser shall in good faith
negotiate a definitive joint venture agreement (the "Christmas
---------
Show Agreement") between Antics, Inc. ("Antics") and the
-------------- ------
Purchaser relating to the production, promotion and exploitation
of a musical adaptation of Charles Dickens' "A Christmas Carol"
(the "Show"). The Christmas Show Agreement shall provide, among
----
other things, that (i) Antics and the Purchaser shall form an
equal joint venture for the purpose of promoting and exploiting
the Show on a worldwide basis, (ii) such joint venture will own
(or enjoy the benefits of) all right, title and interest
currently owned by Antics and MSG in and to the Show, including,
without limitation, all lyrics, arrangements, musical scores,
talent agreements, artistic renderings, set and costume designs
and choreography arrangements relating to the Show, and
(iii) Antics will have control over all creative aspects of the
<PAGE>
32
production of the Show, provided that the Purchaser shall have
meaningful consultation rights in connection with such creative
aspects of the Show. Upon execution of the Christmas Show
Agreement, the letter agreement dated August 15, 1994 between
Antics and MSG relating to the Show shall be terminated and of no
further force and effect.
SECTION 5.13. Further Action. Each of the parties
--------------
hereto shall execute and deliver such documents and other papers
and take such further actions as may be reasonably required to
carry out the provisions hereof and give effect to the
transactions contemplated hereby.
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.01. Employees. (a) For the one-year period
---------
commencing on the Closing Date (the "Continuation Period"), the
-------------------
Purchaser agrees to provide those persons employed by MSG or any
Subsidiary immediately prior to the Closing, including those
employees on vacation, leave of absence, disability or sick leave
or layoff (whether or not such employees return to active
employment with the Purchaser) (the "Transferred Employees"),
---------------------
other than those Transferred Employees whose employment is
governed by the terms of a collective bargaining agreement, with
employee benefits that in the aggregate are substantially
equivalent in value to, and no less favorable in value than,
those provided to such Transferred Employees immediately prior to
the Closing and, with respect to those Transferred Employees
whose employment is governed by the terms of a collective
bargaining agreement, with such employee benefits as are required
by the terms of such collective bargaining agreement for the
duration thereof. During the Continuation Period, the Purchaser
further agrees to continue to provide those former employees of
MSG or the Subsidiaries (the "Transferred Former Employees"),
----------------------------
other than those Transferred Former Employees whose employment
was governed by the terms of a collective bargaining agreement,
with employee benefits that in the aggregate are substantially
equivalent in value to, and not less favorable in value than, the
benefits to which such Transferred Former Employees were entitled
under the Plans immediately prior to the Closing and, with
respect to those Transferred Former Employees whose employment
was governed by the terms of a collective bargaining agreement,
with such employee benefits as are required by the terms of such
applicable collective bargaining agreements for the duration
thereof. Nothing contained in this Agreement shall restrict or
otherwise inhibit the Purchaser's rights to terminate the
employment of any Transferred Employees on or after the Closing
Date. Notwithstanding anything to the contrary herein, the
Purchaser shall not have any obligation to provide any equity or
<PAGE>
33
equity-based compensation or benefit to any Transferred Employee
with respect to the equity of the Purchaser, either Parent or MSG
and no equity or equity-based compensation or benefits provided
to Transferred Employees immediately prior to the Closing shall
be taken into account for purposes of this Section 6.01(a) in
determining substantial equivalence.
(b) To the extent that service is relevant for
purposes of eligibility, vesting, benefit accrual, benefit
contributions, benefit calculations or allowances (including,
without limitation, entitlements to vacation and sick days) under
any employee benefit plan, program or arrangement established or
maintained by the Purchaser, MSG or the Subsidiaries for the
benefit of Transferred Employees or Transferred Former Employees,
such plan, program or arrangement shall credit such employees or
former employees for service on or prior to the Closing with the
Seller or any affiliate thereof; provided that the Purchaser
--------
shall not be obligated to give credit for such service to the
extent it (i) would result in duplication of any benefits to
which a Transferred Employee or Transferred Former Employee is
entitled to under any comparable plans, programs or arrangements
maintained by Viacom, the Seller or PCI on or prior to the
Closing Date or by the Purchaser after the Closing Date, or (ii)
was not service which was recognized for purposes of such
comparable plans, programs or arrangements. In addition, the
Purchaser shall waive any pre-existing conditions and recognize,
for purposes of annual deductible and out-of-pocket limits under
its medical and dental plans, claims of Transferred Employees and
Transferred Former Employees incurred during the year in which
the Closing Date occurs and prior to the Closing Date.
SECTION 6.02. Employment Related Matters. The
--------------------------
Purchaser agrees (i) subject to the rights of the affected
Transferred Employees regarding representation to recognize the
unions listed in Section 6.02 of the Disclosure Schedule as the
sole and exclusive collective bargaining agents for the affected
Transferred Employees and Transferred Former Employees and (ii)
to be bound by, and to comply in all respects with, the terms and
conditions of the collective bargaining agreements listed in
Section 6.02 of the Disclosure Schedule applicable to Transferred
Employees and Transferred Former Employees.
SECTION 6.03. Multiemployer Plans. With respect to
-------------------
the Multiemployer Plans listed in Section 3.14 of the Disclosure
Schedule, the Purchaser agrees to continue on and after the
Closing Date to contribute to such plans for substantially the
same number of base units as MSG and the Subsidiaries were
obligated to contribute with respect to Transferred Employees and
Transferred Former Employees immediately prior to the Closing.
The Purchaser further covenants and agrees to take all actions
that shall be necessary to avoid the acquisition of MSG and the
Subsidiaries, as contemplated by this Agreement, from resulting
<PAGE>
34
in the assessment of withdrawal liability by such plans against
Viacom or the Seller.
SECTION 6.04. Paramount Communications Inc. Retirement
----------------------------------------
Plan. (a) Effective as of the Closing Date, Transferred
----
Employees who were immediately prior to the Closing Date
participants (the "Transferred Employee Participants") in the
---------------------------------
Retirement Plan shall accrue no further benefits under the
Retirement Plan with respect to service after the Closing Date
and Viacom and the Seller shall have taken all such action prior
to the Closing Date as may be required to achieve this result.
Effective as of the Closing Date, the Purchaser shall establish a
replacement defined benefit pension plan (the "New Defined
-----------
Benefit Plan") intended to be qualified under Section 401(a) of
------------
the Internal Revenue Code, and a related trust intended to be
exempt form taxation under Section 501(a) of the Internal Revenue
Code, for the benefit of the Transferred Employee Participants
and the Transferred Former Employees who were immediately prior
to the Closing Date participants in the Retirement Plan (the
"Transferred Former Employee Participants"), the terms of which
----------------------------------------
plan and trust shall be substantially identical to the terms of
the Retirement Plan. The Purchaser agrees to apply for, and to
take all actions necessary to secure, as soon as practicable
after the Closing Date, a determination letter from the IRS to
the effect that the New Defined Benefit Plan is qualified under
the applicable provisions of the Internal Revenue Code. The
Purchaser shall recognize the service of the Transferred Employee
Participants with the Seller or any affiliate thereof prior to
the Closing Date for all purposes under the New Defined Benefit
Plan.
(b) As soon as practicable following the date of this
Agreement, Viacom shall cause its actuaries to determine
effective as of the Closing Date and in accordance with the
requirements of ERISA and Section 414(l) of the Internal Revenue
Code, an amount of assets of the Retirement Plan (the "Plan
----
Assets Amount") equal to the present value of benefits accrued to
-------------
the Closing Date for all Transferred Employee Participants and
Transferred Former Employee Participants, determined as if the
Transferred Employee Participants terminated employment with MSG
or any of the Subsidiaries as of the Closing Date and with regard
to only those benefits to which the Transferred Employee
Participants and Transferred Former Employee Participants would
be eligible based on their age and service as of the Closing
Date. Such present value shall be determined using (to the
extent applicable) the assumptions underlying the determination
of disclosure values as of March 31, 1994 for purposes of
compliance with Financial Accounting Standards Board Statement
No. 87 (FASB 87).
(c) As soon as practicable after Viacom's actuaries
determine the Plan Assets Amount, Viacom and the Seller shall
<PAGE>
35
cause the transfer of an amount equal to the Plan Assets Amount
from the Retirement Plan to the New Defined Benefit Plan,
together with interest on such Plan Assets Amount at the rate
announced by Morgan Guaranty Trust Company of New York as its
prime rate from time to time from the Closing Date to the date of
transfer.
(d) The Purchaser shall indemnify Viacom and the
Seller and hold Viacom and the Seller harmless from, any and all
liability, claims, costs and expenses (including reasonable
attorneys' fees) incurred by Viacom and the Seller by reason of
the Purchaser's failure to qualify the New Defined Benefit Plan
and related trust pursuant to the relevant provisions of the
Internal Revenue Code. Viacom and the Seller shall indemnify the
Purchaser and the Subsidiaries and hold the Purchaser and the
Subsidiaries harmless from, any and all liability, claims, costs
and expenses (including, without limitation, reasonable
attorneys' fees) incurred by the Purchaser, MSG or the
Subsidiaries for all liabilities and obligations: (i) arising
out of or relating to: (A) Viacom's or the Seller's failure to
cause assets to be transferred from the Retirement Plan to the
New Defined Benefit Plan in accordance with this Section 6.04, or
(B) the Retirement Plan, other than liabilities for accrued
benefits properly transferred to the New Defined Benefit Plan, or
(ii) with respect to the New Defined Benefit Plan arising out of
or relating to actions taken by Viacom, the Seller or PCI prior
to the Closing Date.
SECTION 6.05. Paramount Communications Inc. Savings
-------------------------------------
Plan. (a) Effective as of the Closing Date, the Transferred
----
Employees and the Transferred Former Employees who were
immediately prior to the Closing Date participants (the "Savings
-------
Plan Participants") in the Savings Plan, shall no longer accrue
-----------------
benefits under the Savings Plan and Viacom and the Seller shall
have taken all such action prior to the Closing Date as may be
required to achieve this result. As of the Closing Date, Viacom
and the Seller shall cause each Transferred Employee to be 100%
vested in his or her account balance. As soon as practicable
after the Closing Date, Viacom and the Seller shall cause the
transfer of an amount representing the entire account balances of
the Savings Plan Participants determined as of the plan valuation
date coinciding with or next following the Closing Date, adjusted
for the actual return thereon from such valuation date to the
date of account balance transfer, to the trustee, designated by
the Purchaser, of the qualified trust established or maintained
by the Purchaser in accordance with the following sentence.
After the Closing Date, the Purchaser shall establish or provide
the Savings Plan Participants with a new savings plan (the "New
---
Savings Plan") intended to be qualified under Section 401(a) and
------------
401(k) of the Internal Revenue Code, which shall provide (i) for
immediate eligibility for participation for each Savings Plan
Participant, (ii) each such Savings Plan Participant with an
<PAGE>
36
initial account balance equal to the amount transferred to the
New Savings Plan in respect of such Savings Plan Participants
interest in the Savings Plan and (iii) vesting, eligibility,
contribution levels, matching levels, investment alternatives,
participant loan and withdrawal provisions that are no less
favorable than those of the Savings Plan as in effect immediately
prior to the Closing Date, applied by aggregating service with
the Seller, MSG, the Subsidiaries and their affiliates prior to
the Closing Date with service with the Purchaser and its
affiliates on and after the Closing Date. New Savings Plan shall
accept the transfer of outstanding loans from the Savings Plan
and shall provide for the continued administration of such
transferred loans for the remainder of their terms in accordance
with the provisions thereof. Viacom, the Seller and the
Purchaser agree to cooperate fully with respect to the actions
necessary to effect the transactions contemplated in this Section
6.05(a), including, without limitation, the provision of records
and information as each may reasonably request from the other.
(b) The Purchaser shall indemnify Viacom and the
Seller and hold Viacom and the Seller harmless from any and all
liability, claims, costs and expenses (including reasonable
attorneys' fees) incurred by Viacom and the Seller by reason of
the Purchaser's failure to qualify the New Savings Plan and
related trust pursuant to the relevant provisions of the Internal
Revenue Code. Viacom and the Seller shall indemnify the
Purchaser and the Subsidiaries and hold the Purchaser and the
Subsidiaries harmless from any and all liability, claims, costs
and expenses (including, without limitation, reasonable
attorneys' fees) incurred by the Purchaser or the Subsidiaries
for all liabilities and obligations: (i) arising out of or
relating to: (A) Viacom's or the Seller's failure to cause
assets to be transferred from the Savings Plan to the New Savings
Plan in accordance with this Section 6.05, or (B) the Savings
Plan, other than liabilities for accrued benefits properly
transferred to the New Savings Plan, or (ii) with respect to the
New Savings Plan arising out of or relating to actions taken by
Viacom, the Seller or PCI prior to the Closing Date.
SECTION 6.06. MSG Union Sponsored Pension Plans.
---------------------------------
Effective as of the Closing Date, the Purchaser shall continue as
the employer under the MSG Network Retirement Plan for Bargaining
Employees, the MSG Retirement Plan for Licensed Ushers and Ticket
Takers Local Union No. 176, the 401(k) Plan and the Trust for
Madison Square Garden Network Local 1212 and the Madison Square
Garden 401(k) Plan for Collective Bargaining Unit Employees.
SECTION 6.07. Retiree Medical and Retiree Life
--------------------------------
Insurance. The Purchaser agrees to assume the liability of the
---------
Seller, if any, for the provision of retiree medical and retiree
life insurance liabilities for Transferred Employees and
<PAGE>
37
Transferred Former Employees as of the Closing Date, with respect
to claims for covered services rendered after the Closing Date.
SECTION 6.08. Indemnity. Anything in this Agreement
---------
to the contrary notwithstanding (including, without limitation,
Section 10.01) (except Section 6.04(d) and Section 6.05(b), the
Purchaser hereby agrees to indemnify Viacom and the Seller
against and hold Viacom and the Seller harmless from any and all
claims, losses, damages, expenses, obligations and liabilities
(including costs of collection, reasonable attorneys' fees and
other costs of defense) arising out of or otherwise in respect of
(i) any failure of the Purchaser or the Subsidiaries to comply
with their obligations under any collective bargaining agreement
applicable to Transferred Employees or Transferred Former
Employees, (ii) any withdrawal liability assessed against Viacom
or the Seller in respect of any Multiemployer Plan listed in
Section 3.14 of the Disclosure Schedule, (iii) any claim made by
any Transferred Employee against Viacom or the Seller for any
severance or termination benefits pursuant to the provisions of
any MSG or Subsidiary plan, program or arrangement which was
disclosed in Section 3.14 of the Disclosure Schedule, (iv) any
suit or claim of violation brought against Viacom or the Seller
under WARN for any actions taken by the Purchaser or the
Subsidiaries on or after the Closing Date with respect to any
facility, site of employment, operating unit or Transferred
Employee, (v) any action taken on or after the Closing Date by
the Purchaser or the Subsidiaries with respect to any Plan and
(vi) any claim for payments or benefits by Transferred Employees,
Transferred Former Employees or their respective beneficiaries
under any Plan which the Purchaser continues to maintain after
the Effective Time.
ARTICLE VII
TAX MATTERS
SECTION 7.01. Tax Indemnities. (a) From and after
---------------
the Closing Date, Viacom and the Seller agree to indemnify the
Purchaser and the Parents against liabilities for all Taxes (i)
imposed on any person (other than MSG and its Subsidiaries) for
which MSG or any Subsidiary would be liable under Treasury
Regulations Section 1.1502-6 (or equivalent provision of state,
local or foreign law), as transferee, or as successor of any
contract or otherwise, in each case with respect to any taxable
period that ends on or before the Closing Date or includes the
Closing Date and (ii) imposed on MSG or any of its Subsidiaries
with respect to any taxable period or portion thereof that ends
on or before the Closing Date, in excess of the amount reflected
as current Taxes payable in the Post-Closing Balance Sheet.
<PAGE>
38
(b) From and after the Closing Date, the Purchaser and
the Parents shall indemnify Viacom, the Seller and their
affiliates against liabilities for all Taxes imposed on or with
respect to the business of MSG or any of its Subsidiaries that
are not subject to indemnification pursuant to paragraph (a) of
this Section 7.01.
(c) Payment by the indemnitor of any amount due under
this Section 7.01 shall be made within ten days following written
notice by the indemnitee that payment of such amounts to the
appropriate tax authority is due, provided that the indemnitor
shall not be required to make any payment earlier than two days
before it is due to the appropriate tax authority. If Viacom or
the Seller receives an assessment or other notice of Tax due with
respect to MSG or any of its Subsidiaries for any period ending
on or before the Closing Date for which Viacom or the Seller is
not responsible, in whole or in part, pursuant to paragraph (a)
of this Section 7.01 because all or a part of such Tax does not
exceed the amount reflected as current Taxes payable in the Post-
Closing Balance Sheet, and Viacom or the Seller pays such Tax,
then the Purchaser or the Parents shall pay to Viacom or the
Seller, in accordance with the first sentence of this Section
7.01(c), the amount of such Tax for which Viacom or the Seller is
not responsible. In the case of a Tax that is contested in
accordance with the provisions of Section 7.03, payment of the
Tax to the appropriate tax authority will not be considered to be
due earlier than the date a final determination to such effect is
made by the appropriate taxing authority or a court.
(d) For purposes of this Agreement, in the case of any
Tax that is imposed on a periodic basis and is payable for a
period that begins before the Closing Date and ends after the
Closing Date, the portion of such Taxes payable for the period
ending on the Closing Date shall be (i) in the case of any Tax
other than a Tax based upon or measured by income or sales, the
amount of such Tax for the entire period multiplied by a
fraction, the numerator of which is the number of days in the
period ending on the Closing Date and the denominator of which is
the number of days in the entire period and (ii) in the case of
any Tax based upon or measured by income or sales, the amount
which would be payable if the taxable year ended on the Closing
Date. Any credit shall be prorated based upon the fraction
employed in clause (i) of the next preceding sentence. In the
case of any Tax based upon or measured by capital (including net
worth or long-term debt) or intangibles, any amount thereof
required to be allocated under this Section 7.01(d) shall be
computed by reference to the level of such items on the Closing
Date.
SECTION 7.02. Refunds and Tax Benefits. (a) The
------------------------
Purchaser or the Parents shall promptly pay to the Seller any
refund or credit (including any interest paid or credited with
<PAGE>
39
respect thereto) received by the Purchaser or a partner of the
Purchaser of Taxes (i) relating to taxable periods or portions
thereof ending on or before the Closing Date or (ii) attributable
to an amount paid by Viacom or the Seller under Section 7.01 of
this Agreement. The Purchaser or the Parents shall, if the
Seller so requests and at the Seller's expense, cause the
relevant entity to file for and obtain any refund to which the
Seller is entitled under this Section 7.02. The Purchaser or the
Parents shall permit the Seller to control (at the Seller's
expense) the prosecution of any such refund claimed, and shall
cause the relevant entity to authorize by appropriate power of
attorney such persons as the Seller shall designate to represent
such entity with respect to such refund claimed. In the event
that any refund or credit of Taxes for which a payment has been
made pursuant to this Section 7.02(a) is subsequently reduced or
disallowed, Viacom and the Seller shall indemnify and hold
harmless the payor for any Tax liability, including interest and
penalties, assessed against such payor by reason of the reduction
or disallowance.
(b) Any amount otherwise payable by an indemnitor
under Section 7.01 shall be reduced by any Tax benefit to the
indemnitee or a partner of the indemnitee for a period or portion
thereof beginning after the Closing Date (a "Post-Closing Date
-----------------
Tax Benefit") that arose in connection with any underlying
-----------
adjustment resulting in the obligation of the indemnitee to pay
Taxes for which the indemnitor is responsible under Section 7.01
(such as a timing adjustment resulting in a Tax deduction for the
indemnitee for a period after the Closing Date) or the payment of
such Taxes. If a payment is made by the indemnitor in accordance
with Section 7.01, and if in a subsequent taxable year a Post-
Closing Date Tax Benefit is realized by the indemnitee or a
partner of the indemnitee (that was not previously taken into
account pursuant to the preceding sentence to reduce an amount
otherwise payable by the indemnitor under Section 7.01), the
indemnitee shall pay to the indemnitor at the time of such
realization the amount of such Post-Closing Date Tax Benefit to
the extent that the Post-Closing Date Tax Benefit would have
resulted in a reduction in the amount paid by the indemnitor
under Section 7.01 if the Post-Closing Date Tax Benefit had been
obtained in the year of such payment. A Post-Closing Date Tax
Benefit will be considered to be realized for purposes of this
Section 7.02 in the taxable period for which such reduction in
income, deduction or credit results in a reduction (and shall
equal the amount of such reduction) in the Taxes paid or results
in an increase in any refund of Taxes received (and shall equal
the amount of such increase) for such period as compared to the
Taxes that would have been paid or the refund that would have
been received for such period in the absence of such reduction in
income, deduction or credit. Any reduction in income, deduction
or credit not resulting in a Tax benefit for the taxable period
to which it relates shall be carried forward to succeeding
<PAGE>
40
taxable years until used to the extent permitted by law. In the
event that a reduction in income, deduction or credit giving rise
to a payment to the indemnitor under this Section 7.02 is
subsequently disallowed, the tax liability resulting from such
disallowance shall be treated for all purposes as an
indemnifiable liability under Section 7.01. The determination of
whether the Purchaser realizes a Post-Closing Date Tax Benefit
will be made at the partner level of the Purchaser.
SECTION 7.03. Contests. (a) After the Closing, the
--------
Purchaser or the Parents shall promptly notify Viacom and the
Seller in writing of the commencement of any Tax audit or
administrative or judicial proceeding or of any demand or claim
on the Purchaser or the Parents which, if determined adversely to
the taxpayer or after the lapse of time would be grounds for
indemnification under Section 7.01. Such notice shall contain
factual information (to the extent known to the Purchaser and the
Parents) describing the asserted Tax liability in reasonable
detail and shall include copies of any notice or other document
received from any taxing authority in respect of any such
asserted Tax liability. If the Purchaser or the Parents fail to
give Viacom and the Seller prompt notice of an asserted Tax
liability as required by this Section 7.03, and the failure to
give prompt notice results in a detriment to Viacom or the
Seller, then any amount which Viacom or the Seller is otherwise
required to pay the Purchaser and the Parents pursuant to Section
7.01 with respect to such liability shall be reduced by the
amount of such detriment.
(b) Viacom or the Seller may elect to direct, through
counsel of its own choosing and at its own expense, any audit,
claim for refund and administrative or judicial proceeding
involving any asserted liability with respect to which indemnity
may be sought under Section 7.01 (any such audit, claim for
refund or proceeding relating to an asserted Tax liability is
referred to herein as a "Contest"). If Viacom or the Seller
-------
elects to direct a Contest, it shall within 30 calendar days of
receipt of the notice of asserted Tax liability notify the
Purchaser of its intent to do so, and the Purchaser and the
Parents shall cooperate, at the expense of Viacom or the Seller,
in each phase of such Contest. If Viacom or the Seller elects
not to direct the Contest, fails to notify the Purchaser of its
election as herein provided or contests its obligation to
indemnify under Section 7.01, the Purchaser or the Parents may
pay, compromise or contest, at its own expense, such asserted
liability. However, in such case, the Purchaser or the Parents
may not settle or compromise any asserted liability over the
objection of Viacom or the Seller; provided, however, that
-------- -------
consent to settlement or compromise shall not be unreasonably
withheld. In any event, Viacom or the Seller may participate, at
its own expense, in the Contest. If Viacom or the Seller chooses
to direct the Contest, the Purchaser shall promptly empower (by
<PAGE>
41
power of attorney and such other documentation as may be
appropriate) such representatives of Viacom or the Seller as it
may designate to represent the Purchaser in the Contest insofar
as the Contest involves an asserted Tax liability for which
Viacom or the Seller would be liable under Section 7.01.
SECTION 7.04. Preparation of Tax Returns. The Seller
--------------------------
shall prepare and file United States federal, state and local
income and franchise tax returns and schedules relating to MSG
and its Subsidiaries for any Tax period ending on or prior to the
Closing Date and which are required to be filed after the Closing
Date. With respect to any returns for which the Seller has
filing responsibility pursuant to the preceding sentence, MSG and
its Subsidiaries will be included in the consolidated, combined
or unitary tax returns of the Seller or an affiliate of the
Seller on a basis consistent with prior tax years unless a
different treatment is required by an intervening change in law.
The parties agree that if MSG or any of its Subsidiaries is
permitted, but not required, under applicable state or local
income or franchise tax laws to treat the Closing Date as the
last day of a Tax period, they will treat the Tax period as
ending on the Closing Date. The Seller shall prepare and file
all other returns of Taxes for any period ending on or prior to
the Closing Date to the extent the Seller or an affiliate of the
Seller (other than MSG or any of its Subsidiaries) previously was
responsible for the preparation and filing of such returns for
the immediately preceding Tax period. The Purchaser shall
prepare and timely file all returns of Taxes for which the Seller
is not responsible pursuant to this Section 7.04 and, where
appropriate, prepare such returns in the name of MSG or its
Subsidiaries and submit such returns to the Seller for filing.
The Purchaser will deliver to the Seller a complete and accurate
copy of each return required to be filed by the Purchaser under
this Section 7.04 for Tax periods that include the Closing Date,
and any amendment to such return, within 10 days of the date such
return is filed with the appropriate tax agency; provided,
--------
however, in the case of any returns prepared in the name of MSG
-------
or any of its Subsidiaries, the Purchaser will deliver such
returns to the Seller for review and filing at least five
Business Days before the due date of such return.
SECTION 7.05. Allocation of Merger Consideration. The
----------------------------------
Purchaser and the Seller agree to allocate the Merger
Consideration in accordance with the rules under Section 1060 of
the Internal Revenue Code and the Treasury Regulations
promulgated thereunder. Such allocation shall be prepared in
accordance with an appraisal conducted by an independent
appraiser selected by Purchaser and reasonably acceptable to
Viacom and the Seller. The Seller, Viacom and the Purchaser
agree to act in accordance with the computations and allocations
contained in such allocation (including any modifications thereto
reflecting any post-closing adjustments) in any relevant Tax
<PAGE>
42
returns or filings filed by them (including any forms or reports
required to be filed pursuant to Section 1060 of the Internal
Revenue Code, the Treasury Regulations promulgated thereunder or
any provisions of state, local and foreign law) ("1060 Forms"),
----------
and to cooperate in the preparation of any 1060 Forms and to file
such 1060 Forms in the manner required by applicable law. The
Purchaser shall make available to the Seller and Viacom copies of
all appraisals of the assets of the Business, or any portion
thereof, obtained by the Purchaser promptly upon receipt of such
appraisals by the Purchaser, but in no event later than 90 days
prior to the due date of any 1060 Forms, and the Seller and
Viacom shall have 30 days to review and consent to such
appraisal, which consent shall not be unreasonably withheld.
SECTION 7.06. Cooperation and Exchange of Information.
---------------------------------------
Viacom, the Seller, the Purchaser and the Parents will provide
each other with such cooperation and information as any of them
reasonably may request of another in filing any Tax return,
amended return or claim for refund, determining a liability for
Taxes or a right to a refund of Taxes or participating in or
conducting any audit or other proceeding in respect of Taxes.
Such cooperation and information shall include providing copies
of relevant Tax returns or portions thereof, together with
accompanying schedules and related work papers and documents
relating to rulings or other determinations by taxing
authorities. Each party shall make its employees available on a
mutually convenient basis to provide explanations of any
documents or information provided hereunder. Each party will
retain all returns, schedules and work papers and all material
records or other documents relating to Tax matters of MSG for its
taxable period first ending after the Closing Date and for all
prior taxable periods until the later of (i) the expiration of
the statute of limitations of the taxable periods to which such
returns and other documents relate, without regard to extensions
except to the extent notified by another party in writing of such
extensions for the respective Tax periods, or (ii) eight years
following the due date (without extension) for such returns. Any
information obtained under this Section 7.06 shall be kept
confidential, except as may be otherwise necessary in connection
with the filing of returns or claims for refund or in conducting
an audit or other proceeding.
SECTION 7.07. Conveyance and Sales Taxes. The
--------------------------
Purchaser and the Parents agree to assume liability for and to
pay all sales taxes incurred as a result of the Merger. The
Seller and Viacom agree to assume liability for and to pay all
transfer, stamp, real property transfer or gains and similar
Taxes incurred as a result of the Merger, other than the New York
City Real Property Transfer Tax, the liability for which shall be
paid one-half by the Purchaser and the Parents and one-half by
Viacom and the Seller. Viacom and the Seller agree to indemnify
the Purchaser, the Parents and their affiliates for any and all
<PAGE>
43
liabilities, losses, damages, claims, costs, expenses, interest,
awards, judgments and penalties (including, without limitation,
attorneys' and consultants' fees and expenses) incurred by the
Purchaser, the Parents and their affiliates arising out of the
Seller's or Viacom's failure to make timely or full payments of
the Taxes for which it is liable pursuant to this Section 7.07.
The Purchaser and the Parents agree to indemnify Viacom, the
Seller and their affiliates for any and all liabilities, losses,
damages, claims, costs, expenses, interest, awards, judgments and
penalties (including, without limitation, attorneys' and
consultants' fees and expenses) incurred by Viacom, the Seller
and their affiliates arising out of the Purchaser's or the
Parents' failure to make timely or full payments of the Taxes for
which it is liable pursuant to this Section 7.07. The Purchaser,
the Parents, Viacom and the Seller agree to cooperate and provide
each other with such information as any of them may reasonably
request of another in preparing and filing any Tax return
relating to Taxes covered by this Section 7.07 and shall provide
such other party or parties an opportunity to review such returns
prior to filing.
SECTION 7.08. Tax Treatment of Merger. The Seller,
-----------------------
Viacom, the Purchaser and the Parents hereby agree that the
Merger will be treated for tax purposes as a sale of the assets
of MSG to the Purchaser followed by a liquidation of MSG. The
Seller, Viacom, the Purchaser and the Parents hereby further
agree that any income or franchise tax liability resulting from
the sale of the assets of MSG shall be the responsibility of the
Seller.
SECTION 7.09. Miscellaneous. (a) The parties agree
-------------
to treat all indemnity payments made under this Agreement as
adjustments to the purchase price for Tax purposes.
(b) Except as expressly provided otherwise and except
for the representations contained in Section 3.15 of this
Agreement, this Article VII shall be the sole provision governing
Tax matters and indemnities therefor under this Agreement.
(c) For purposes of this Article VII, all references
to the Purchaser, the Parents, Viacom, the Seller, MSG and the
Subsidiaries include successors thereto.
(d) On or prior to the Closing Date, any tax-
indemnity, tax-sharing or tax-allocation agreement to which MSG
or any Subsidiary is a party to or bound by shall be terminated.
<PAGE>
44
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.01. Conditions to Obligations of Viacom and
---------------------------------------
the Seller. The obligations of Viacom and the Seller to
----------
consummate the transactions contemplated by this Agreement and to
effect the Merger shall be subject to the fulfillment or waiver,
at or prior to the Closing, of each of the following conditions:
(a) Representations and Warranties; Covenants.
-----------------------------------------
(i) The representations and warranties of the Purchaser and
each Parent contained in this Agreement shall be true and
correct in all material respects as of the Closing, with the
same force and effect as if made as of the Closing, other
than such representations and warranties as are expressly
made as of another date, (ii) the covenants contained in
this Agreement to be complied with by the Purchaser and each
Parent on or before the Closing shall have been complied
with in all material respects and (iii) Viacom and the
Seller shall have received a certificate of the Purchaser as
to the matters set forth in clauses (i) and (ii) signed by a
duly authorized officer thereof;
(b) HSR Act. Any waiting period (and any extension
-------
thereof) under the HSR Act applicable to the Merger shall
have expired or shall have been terminated;
(c) No Order. No United States or state governmental
--------
authority or other agency or commission or United States or
state court of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order which is in effect and
has the effect of (i) making the transactions contemplated
by this Agreement illegal or (ii) otherwise restraining or
prohibiting consummation of such transactions; and
(d) Opinion of Counsel. The Seller and Viacom shall
------------------
have received the opinion of Simpson Thacher & Bartlett,
counsel to the Purchaser, substantially in the form of
Exhibit 8.01(d) hereto, dated the Closing Date.
SECTION 8.02. Conditions to Obligations of the
--------------------------------
Purchaser and Each Parent. The obligations of the Purchaser and
-------------------------
each Parent to consummate the transactions contemplated by this
Agreement and to effect the Merger shall be subject to the
fulfillment or waiver, at or prior to the Closing, of each of the
following conditions:
(a) Representations and Warranties; Covenants.
-----------------------------------------
(i) The representations and warranties of Viacom and the
Seller contained in this Agreement shall be true and correct
<PAGE>
45
in all material respects as of the Closing, with the same
force and effect as if made as of the Closing, other than
such representations and warranties as are expressly made as
of another date, except where the failure to be so true and
correct would not have a Material Adverse Effect, (ii) the
covenants contained in this Agreement to be complied with by
Viacom or the Seller on or before the Closing shall have
been complied with in all material respects, except where
the failure to so comply would not have a Material Adverse
Effect and (iii) the Purchaser shall have received a
certificate of each of Viacom and the Seller as to the
matters set forth in clauses (i) and (ii) signed by a duly
authorized officer thereof;
(b) HSR Act. Any waiting period (and any extension
-------
thereof) under the HSR Act applicable to the Merger shall
have expired or shall have been terminated;
(c) No Order. No United States or state governmental
--------
authority or other agency or commission or United States or
state court of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order which is in effect and
has the effect of (i) making the transactions contemplated
by this Agreement illegal or (ii) otherwise restraining or
prohibiting consummation of such transactions;
(d) Extraordinary Material Adverse Effect. There
-------------------------------------
shall not have been an Extraordinary Material Adverse
Effect;
(e) NHL and NBA Approvals. The Purchaser and the
---------------------
Parents shall have received all approvals from the NBA and
the NHL necessary to enable the Parents and the Purchaser to
obtain control of the New York Knickerbockers basketball
team and the New York Rangers hockey team; and
(f) Opinion of Counsel. The Purchaser and each Parent
------------------
shall have received the opinion of Shearman & Sterling,
counsel to Viacom and the Seller, substantially in the form
of Exhibit 8.02(f) hereto, dated the Closing Date.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01. Termination. This Agreement may be
-----------
terminated at any time prior to the Closing:
(a) by the mutual written consent of Viacom and the
Purchaser; or
<PAGE>
46
(b) by either Viacom or the Purchaser, if the Closing
shall not have occurred prior to December 31, 1994;
provided, however, that Viacom or the Purchaser shall have
-------- -------
the right to extend such date to March 31, 1995, by giving
notice to the other party prior to December 31, 1994, in the
event that on or before December 31, 1994, (A) (i) the
conditions set forth in Sections 8.01(b) and 8.02(b) of this
Agreement have not been satisfied or (ii) the conditions set
forth in Sections 8.01(c) and 8.02(c) of this Agreement have
not been satisfied due to an injunction or other order
resulting from action taken by a Governmental Antitrust
Authority and (B) with respect to the Purchaser's right to
cause such extension, the Purchaser and each Parent are in
compliance with Section 5.04 of this Agreement; provided,
--------
further, that the right to terminate this Agreement under
-------
this Section 9.01(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement
shall have been the cause of, or shall have resulted in, the
failure of the Closing to occur prior to such date; or
(c) by the Purchaser, if there has been a breach by
Viacom or the Seller of any of their representations,
warranties, covenants or agreements contained in the
Agreement, such that the provisions of Section 8.02(a) of
this Agreement will be incapable of being satisfied by
December 31, 1994 (or March 31, 1995, if applicable); or
(d) by Viacom, if there has been a breach by the
Purchaser or either Parent, of any of their respective
representations, warranties, covenants or agreements
contained in this Agreement, such that the provisions of
Section 8.01(a) of this Agreement will be incapable of being
satisfied by December 31, 1994 (or March 31, 1995, if
applicable).
Time shall be of the essence in this Agreement.
SECTION 9.02. Effect of Termination. In the event of
---------------------
termination of this Agreement as provided in Section 9.01, this
Agreement shall forthwith become void and there shall be no
liability on the part of any party hereto except (i) as set forth
in Sections 5.03, 10.01 and 10.02 of this Agreement and (ii)
nothing herein shall relieve either party from liability for any
willful breach hereof.
SECTION 9.03. Waiver. At any time prior to the
------
Closing, any party may (a) extend the time for the performance of
any of the obligations or other acts of any other party hereto,
(b) waive any inaccuracies in the representations and warranties
contained in this Agreement, in the Disclosure Schedule or in any
document delivered pursuant hereto or (c) waive compliance with
any of the agreements or conditions contained herein. Any such
<PAGE>
47
extension or waiver shall be valid only if set forth in an
instrument in writing signed by the party to be bound thereby.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Survival of Representations and
-------------------------------
Warranties. (a) Subject to the limitations and other provisions
----------
of this Agreement, the representations and warranties of the
parties hereto contained herein shall survive the Closing and
shall remain in full force and effect, regardless of any
investigation made by or on behalf of any party hereto, for a
period of six months after the Closing Date; provided, however,
-------- -------
that the representations contained in Section 3.15 hereof shall
expire with, and be terminated and extinguished by, the
consummation of the Merger or the termination of this Agreement
pursuant to Article IX of this Agreement; provided further,
-------- -------
however, that the indemnities contained in Article VII of this
-------
Agreement shall survive until 60 days after the expiration of the
applicable statute of limitations.
(b) (i) Viacom and the Seller shall not be liable to
the Purchaser or either Parent and (ii) the Purchaser and the
Parents shall not be liable to Viacom or the Seller, for any
losses, liabilities, damages, claims, awards, judgments, costs
and expenses (including, without limitation, reasonable
attorneys' fees and consultants' fees) ("Losses") resulting from
------
the breach of any representations or warranties contained in this
Agreement until the aggregate amount of such Losses incurred by
Viacom and the Seller, on the one hand, or the Purchaser and the
Parents, on the other hand, exceeds $15,000,000 (the "Threshold
---------
Amount") and then only to the extent such aggregate amount
------
exceeds the Threshold Amount.
SECTION 10.02. Expenses. All costs and expenses,
--------
including, without limitation, fees and disbursements of counsel,
investment bankers, financial advisors and accountants, incurred
in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such
costs and expenses, whether or not the Closing shall have
occurred.
SECTION 10.03. Notices. All notices, request, claims,
-------
demands and other communications hereunder shall be in writing
and shall be given or made (and shall be deemed to have been duly
given or made upon receipt) by delivery in person, by courier
service, by telecopy, by telegram or by registered or certified
mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other
<PAGE>
48
address for a party as shall be specified in a notice given in
accordance with this Section 10.03):
(a) if to the Seller or Viacom:
Viacom Inc.
1515 Broadway
New York, New York 10036
Attention: General Counsel
Telecopier: (212) 258-6134
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Creighton O'M. Condon, Esq.
Telecopier: (212) 848-7179
(b) if to the Purchaser or either Parent:
ITT Corporation
1330 Avenue of the Americas
New York, New York 10019
Attention: Secretary
Telecopier: (212) 258-1463
and
Rainbow Programming Holdings, Inc.
150 Crossways Parkway West
Woodbury, New York 11797
Attention: Hank Ratner
Telecopier: (516) 364-4085
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Gary L. Sellers, Esq.
Telecopier: (212) 455-2502
SECTION 10.04. Public Announcements. No party to this
--------------------
Agreement shall make any public announcements in respect of this
Agreement or the transactions contemplated hereby or otherwise
communicate with any news media without prior notification to the
other parties, and the parties shall cooperate as to the timing
and contents of any such announcement.
<PAGE>
49
SECTION 10.05. Headings. The headings contained in
--------
this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this
Agreement.
SECTION 10.06. Severability. If any term or other
------------
provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected
in any manner adverse to any party. Upon such determination that
any term or other provision is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of
the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated hereby be
consummated as originally contemplated to the greatest extent
possible.
SECTION 10.07. Entire Agreement. This Agreement
----------------
(including the Disclosure Schedule and the exhibits hereto)
constitutes the entire agreement of the parties hereto with
respect to the subject matter hereof and supersedes all prior
agreements and undertakings, both written and oral, other than
the Confidentiality Agreement, among Viacom, the Seller and the
Purchaser with respect to the subject matter hereof.
SECTION 10.08. Assignment. This Agreement shall not
----------
be assigned by operation of law or otherwise.
SECTION 10.09. No Third-Party Beneficiaries. Except
----------------------------
as provided in Article VII, this Agreement is for the sole
benefit of the parties hereto and their permitted assigns and
nothing herein, express or implied, is intended to or shall
confer upon any other person or entity any legal or equitable
right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
SECTION 10.10. Amendment. This Agreement may not be
---------
amended or modified except by an instrument in writing signed by
Viacom, the Seller, the Purchaser and each Parent.
SECTION 10.11. Governing Law. This Agreement shall be
-------------
governed by, and construed in accordance with, the laws of the
State of New York applicable to contracts executed in and to be
performed in that State. All actions and proceedings arising out
of or relating to this Agreement shall be heard and determined in
a New York state or federal court sitting in the City of New
York, and the parties hereto hereby irrevocably submit to the
exclusive jurisdiction of such courts in any such action or
<PAGE>
50
proceeding and irrevocably waive the defense of an inconvenient
forum to the maintenance of any such action or proceeding.
SECTION 10.12. Counterparts. This Agreement may be
------------
executed in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
<PAGE>
51
IN WITNESS WHEREOF, Viacom, the Seller, the Purchaser
and each Parent have caused this Agreement to be executed as of
the date first written above by their respective officers
thereunto duly authorized.
VIACOM INC.
By /s/ FRANK J. BIONDI, JR.
--------------------------------
Name: Frank J. Biondi, Jr.
Title: President, Chief Executive
Officer
PARAMOUNT COMMUNICATIONS REALTY
CORPORATION
By /s/ DAVID H. WILLIAMSON
--------------------------------
Name: David H. Williamson
Title: President
ITT CORPORATION
By /s/ ROBERT A. BOWMAN
--------------------------------
Name: Robert A. Bowman
Title: Executive Vice President,
Chief Financial Officer
MSG HOLDINGS, L.P., by MSG Eden Corp.,
as general partner
By /s/ HARLAN W. MURRAY
--------------------------------
Name: Harlan W. Murray
Title: Vice President
RAINBOW GARDEN CORPORATION
By /s/ MARK LUSTGARTEN
--------------------------------
Name: Mark Lustgarten
Title: Vice Chairman
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of our reports dated February 4, 1994, except as to Note 2, which is as of
March 11, 1994, appearing on pages II-32 and F-2 of the Viacom Inc. Annual
Report on Form 10-K for the year ended December 31, 1993, as amended by Form
10-K/A Amendment No. 1 dated May 2, 1994. We also consent to the reference to
us under the heading "Experts" in such Proxy Statement/Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
August 24, 1994
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent
to the incorporation by reference in this registration statement of
our report dated March 23, 1994 included in Blockbuster Entertainment
Corporation's Form 10-K for the year ended December 31, 1993 and to
all references to our Firm included in this registration statement.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Fort Lauderdale, Florida
August 22, 1994
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of this Registration Statement
on Form S-4 of our reports dated June 3, 1994, which appear on pages
F-2 and 4 of the Paramount Communications Inc. Transition Report on
Form 10-K for the eleven months ended March 31, 1994, as amended by
Form 10-K/A Amendment No. 1 dated July 29, 1994 and as further amended
by Form 10-K/A Amendment No. 2 dated August 12, 1994. We also consent
to the reference to us under the heading "Experts" in such Proxy
Statement/Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
August 24, 1994
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Proxy Statement/Prospectus of
Viacom Inc. for the registration of 22,134,256 shares of Class A common stock,
205,970,317 shares of Class B common stock and 276,678,196 variable common
rights and to the incorporation by reference therein of our reports dated
August 27, 1993, except for Notes A and J, as to which the date is September
10, 1993, with respect to the consolidated financial statements and schedules
of Paramount Communications Inc. included in its Transition Report (Form 10-K)
for the eleven months ended March 31, 1994, as amended July 29, 1994 and as
further amended August 12, 1994, all filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
August 24, 1994
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Blockbuster Entertainment Corporation:
We consent to incorporation by reference in this registration
statement on Form S-4 of Blockbuster Entertainment Corporation
of our report dated June 4, 1993, except for note 5(a), which is
as of June 30, 1993, and note 1(m), which is as of November 1,
1993, relating to the consolidated balance sheet of Super Club
Retail Entertainment Corporation and subsidiaries as of
April 3, 1993, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the
fifty-two week period then ended, which report appears in the
Current Report on Form 8-K of Blockbuster Entertainment Corporation
dated November 5, 1993. Our report refers to a change in the
method of depreciating certain new release copies of video
rental cassettes.
We also consent to the reference to our Firm under the heading
"Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Dallas, Texas
August 25, 1994
CONSENT OF SMITH BARNEY INC.
Dated as of August 25, 1994
Viacom Inc.
200 Elm Street
Dedham, Massachusetts 02026
Dear Sirs:
We hereby consent to the inclusion in the Registration Statement on
Form S-4 filed with the Securities and Exchange Commission on August 29, 1994
of our opinion letter appearing as Annex V to the Joint Proxy Statement/
Prospectus of Viacom Inc. and Blockbuster Entertainment Corporation which is a
part of the Registration Statement and to the references thereto, and the use
of our name, under the captions "Summary--The Merger", "The Merger--Reasons
for the Merger; Recommendation of the Board of Directors", "The Merger--
Opinions of Financial Advisors" and "Certain Considerations" in the Joint
Proxy Statement/Prospectus.
Very truly yours,
/s/ SMITH BARNEY INC.
SMITH BARNEY INC.
Investment Banking Group
World Financial Center
North Tower
New York, New York 10281-1324
212-449-1000
MERRILL LYNCH
CONSENT OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
The Board of Directors
Blockbuster Entertainment Corporation
One Blockbuster Plaza
200 South Andrews Avenue
Fort Lauderdale, Florida 33301
Dear Members of the Board:
We hereby consent to the use of our opinion letter dated August 23, 1994
to the Board of Directors of Blockbuster Entertainment Corporation
("Blockbuster"), included as Annex VI to the Proxy Statement of Blockbuster
(which is also the Proxy Statement/Prospectus of Viacom Inc. ("Viacom")) which
forms a part of the Registration Statement dated as of the date hereof on
Form S-4 of Viacom relating to the proposed merger of Blockbuster with and
into Viacom, and to the references therein to such opinion under the captions
"Summary--The Merger--Opinions of Financial Advisors," "The Merger--Opinions
of Financial Advisors--Blockbuster" and "Certain Considerations--Financial
Terms of the Merger." In giving such consent, we do not admit and we hereby
disclaim that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, nor do we
thereby admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "experts" as used in the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
/s/ James K. Mason
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
August 29, 1994
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Steven R. Berrard, hereby consent to be named as a person about to
become a director of Viacom Inc. in the Registration Statement on Form S-4
dated August 29, 1994.
/s/ Steven R. Berrard
......................................
Steven R. Berrard
August 26, 1994
<PAGE>
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, George D. Johnson, Jr., hereby consent to be named as a person
about to become a director of Viacom Inc. in the Registration Statement on
Form S-4 dated August 29, 1994.
/s/ George D. Johnson, Jr.
......................................
George D. Johnson, Jr.
August 26, 1994
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of
VIACOM INC., a Delaware corporation (the "Company"), hereby constitutes
and appoints Philippe Dauman, Michael Fricklas and Nancy Rosenfeld
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign (1) a registration statement on Form S-4, or such other
form as may be recommended by counsel, to be filed with the Securities and
Exchange Commission (the "Commission"), and any and all amendments and post-
effective amendments thereto and supplements to the Prospectus contained
therein, and any and all instruments and documents filed as a part of or in
connection with the said registration statement or amendments thereto or
supplements or amendments to such Prospectus, covering the offering and
issuance of shares of the Company's Class A Common Stock and Class B Common
Stock and Variable Common Rights (collectively, the "Securities") to be issued
in connection with the proposed merger of Blockbuster Entertainment
Corporation, a Delaware corporation ("Blockbuster"), with and into the Company,
(2) any registration statements or reports relating to the Securities to be
filed by the Company with the Commission and/or any national securities
exchanges under the Securities Exchange Act of 1934, as amended, and any and
all amendments thereto, and any and all instruments and documents filed as part
of or in connection with such registration statements or reports or amendments
thereto, and (3) any documents in connection with the Agreement and Plan of
Merger dated as of January 7, 1994 between the Company and Blockbuster and any
transactions contemplated thereby; granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that the said
attorney-in-fact and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 25th day of
February 1994.
/s/ George S. Abrams
--------------------------------
George S. Abrams
<PAGE>
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director and
officer of VIACOM INC., a Delaware corporation (the "Company"), hereby
constitutes and appoints Philippe Dauman, Michael Fricklas and Nancy Rosenfeld
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign (1) a registration statement on Form S-4, or such other
form as may be recommended by counsel, to be filed with the Securities and
Exchange Commission (the "Commission"), and any and all amendments and post-
effective amendments thereto and supplements to the Prospectus contained
therein, and any and all instruments and documents filed as a part of or in
connection with the said registration statement or amendments thereto or
supplements or amendments to such Prospectus, covering the offering and
issuance of shares of the Company's Class A Common Stock and Class B Common
Stock and Variable Common Rights (collectively, the "Securities") to be issued
in connection with the proposed merger of Blockbuster Entertainment
Corporation, a Delaware corporation ("Blockbuster"), with and into the Company,
(2) any registration statements or reports relating to the Securities to be
filed by the Company with the Commission and/or any national securities
exchanges under the Securities Exchange Act of 1934, as amended, and any and
all amendments thereto, and any and all instruments and documents filed as part
of or in connection with such registration statements or reports or amendments
thereto, and (3) any documents in connection with the Agreement and Plan of
Merger dated as of January 7, 1994 between the Company and Blockbuster and any
transactions contemplated thereby; granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that the said
attorney-in-fact and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 28th day of
February 1994.
/s/ Frank J. Biondi, Jr.
--------------------------------
Frank J. Biondi, Jr.
<PAGE>
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of
VIACOM INC., a Delaware corporation (the "Company"), hereby constitutes and
appoints Philippe Dauman, Michael Fricklas and Nancy Rosenfeld his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign (1) a registration statement on Form S-4, or such other
form as may be recommended by counsel, to be filed with the Securities and
Exchange Commission (the "Commission"), and any and all amendments and post-
effective amendments thereto and supplements to the Prospectus contained
therein, and any and all instruments and documents filed as a part of or in
connection with the said registration statement or amendments thereto or
supplements or amendments to such Prospectus, covering the offering and
issuance of shares of the Company's Class A Common Stock and Class B Common
Stock and Variable Common Rights (collectively, the "Securities") to be issued
in connection with the proposed merger of Blockbuster Entertainment
Corporation, a Delaware corporation ("Blockbuster"), with and into the Company,
(2) any registration statements or reports relating to the Securities to be
filed by the Company with the Commission and/or any national securities
exchanges under the Securities Exchange Act of 1934, as amended, and any and
all amendments thereto, and any and all instruments and documents filed as part
of or in connection with such registration statements or reports or amendments
thereto, and (3) any documents in connection with the Agreement and Plan of
Merger dated as of January 7, 1994 between the Company and Blockbuster and any
transactions contemplated thereby; granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that the said
attorney-in-fact and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 4th day of
March 1994.
/s/ William C. Ferguson
------------------------------------
William C. Ferguson
<PAGE>
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of
VIACOM INC., a Delaware corporation (the "Company"), hereby constitutes and
appoints Philippe Dauman, Michael Fricklas and Nancy Rosenfeld his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign (1) a registration statement on Form S-4, or such other
form as may be recommended by counsel, to be filed with the Securities and
Exchange Commission (the "Commission"), and any and all amendments and post-
effective amendments thereto and supplements to the Prospectus contained
therein, and any and all instruments and documents filed as a part of or in
connection with the said registration statement or amendments thereto or
supplements or amendments to such Prospectus, covering the offering and
issuance of shares of the Company's Class A Common Stock and Class B Common
Stock and Variable Common Rights (collectively, the "Securities") to be issued
in connection with the proposed merger of Blockbuster Entertainment
Corporation, a Delaware corporation ("Blockbuster"), with and into the Company,
and (2) any registration statements or reports relating to the Securities to be
filed by the Company with the Commission and/or any national securities
exchanges under the Securities Exchange Act of 1934, as amended, and any and
all amendments thereto, and any and all instruments and documents filed as part
of or in connection with such registration statements or reports or amendments
thereto; granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that the said attorney-
in-fact and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 1st day of
March 1994.
/s/ H. Wayne Huizenga
-------------------------------
H. Wayne Huizenga
<PAGE>
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of
VIACOM INC., a Delaware corporation (the "Company"), hereby constitutes and
appoints Philippe Dauman, Michael Fricklas and Nancy Rosenfeld his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign (1) a registration statement on Form S-4, or such other
form as may be recommended by counsel, to be filed with the Securities and
Exchange Commission (the "Commission"), and any and all amendments and post-
effective amendments thereto and supplements to the Prospectus contained
therein, and any and all instruments and documents filed as a part of or in
connection with the said registration statement or amendments thereto or
supplements or amendments to such Prospectus, covering the offering and
issuance of shares of the Company's Class A Common Stock and Class B Common
Stock and Variable Common Rights (collectively, the "Securities") to be issued
in connection with the proposed merger of Blockbuster Entertainment
Corporation, a Delaware corporation ("Blockbuster"), with and into the Company,
(2) any registration statements or reports relating to the Securities to be
filed by the Company with the Commission and/or any national securities
exchanges under the Securities Exchange Act of 1934, as amended, and any and
all amendments thereto, and any and all instruments and documents filed as part
of or in connection with such registration statements or reports or amendments
thereto, and (3) any documents in connection with the Agreement and Plan of
Merger dated as of January 7, 1994 between the Company and Blockbuster and any
transactions contemplated thereby; granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that the said
attorney-in-fact and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 2nd day of
March 1994.
/s/ Ken Miller
-------------------------------
Ken Miller
<PAGE>
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of
VIACOM INC., a Delaware corporation (the "Company"), hereby constitutes and
appoints Philippe Dauman, Michael Fricklas and Nancy Rosenfeld his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign (1) a registration statement on Form S-4, or such other
form as may be recommended by counsel, to be filed with the Securities and
Exchange Commission (the "Commission"), and any and all amendments and post-
effective amendments thereto and supplements to the Prospectus contained
therein, and any and all instruments and documents filed as a part of or in
connection with the said registration statement or amendments thereto or
supplements or amendments to such Prospectus, covering the offering and
issuance of shares of the Company's Class A Common Stock and Class B Common
Stock and Variable Common Rights (collectively, the "Securities") to be issued
in connection with the proposed merger of Blockbuster Entertainment
Corporation, a Delaware corporation ("Blockbuster"), with and into the Company,
(2) any registration statements or reports relating to the Securities to be
filed by the Company with the Commission and/or any national securities
exchanges under the Securities Exchange Act of 1934, as amended, and any and
all amendments thereto, and any and all instruments and documents filed as part
of or in connection with such registration statements or reports or amendments
thereto, and (3) any documents in connection with the Agreement and Plan of
Merger dated as of January 7, 1994 between the Company and Blockbuster and any
transactions contemplated thereby; granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that the said
attorney-in-fact and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 28th day of
February 1994.
/s/ Brent D. Redstone
--------------------------------
Brent D. Redstone
<PAGE>
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or
officer of VIACOM INC., a Delaware corporation (the "Company"), hereby
constitutes and appoints Philippe Dauman, Michael Fricklas and Nancy Rosenfeld
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign (1) a registration statement on Form S-4, or such other
form as may be recommended by counsel, to be filed with the Securities and
Exchange Commission (the "Commission"), and any and all amendments and post-
effective amendments thereto and supplements to the Prospectus contained
therein, and any and all instruments and documents filed as a part of or in
connection with the said registration statement or amendments thereto or
supplements or amendments to such Prospectus, covering the offering and
issuance of shares of the Company's Class A Common Stock and Class B Common
Stock and Variable Common Rights (collectively, the "Securities") to be issued
in connection with the proposed merger of Blockbuster Entertainment
Corporation, a Delaware corporation ("Blockbuster"), with and into the Company,
(2) any registration statements or reports relating to the Securities to be
filed by the Company with the Commission and/or any national securities
exchanges under the Securities Exchange Act of 1934, as amended, and any and
all amendments thereto, and any and all instruments and documents filed as part
of or in connection with such registration statements or reports or amendments
thereto, and (3) any documents in connection with the Agreement and Plan of
Merger dated as of January 7, 1994 between the Company and Blockbuster and any
transactions contemplated thereby; granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that the said
attorney-in-fact and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 8th day of
March 1994.
/s/ Sumner M. Redstone
-------------------------------
Sumner M. Redstone
<PAGE>
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of
VIACOM INC., a Delaware corporation (the "Company"), hereby constitutes and
appoints Philippe Dauman, Michael Fricklas and Nancy Rosenfeld his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign (1) a registration statement on Form S-4, or such other
form as may be recommended by counsel, to be filed with the Securities and
Exchange Commission (the "Commission"), and any and all amendments and post-
effective amendments thereto and supplements to the Prospectus contained
therein, and any and all instruments and documents filed as a part of or in
connection with the said registration statement or amendments thereto or
supplements or amendments to such Prospectus, covering the offering and
issuance of shares of the Company's Class A Common Stock and Class B Common
Stock and Variable Common Rights (collectively, the "Securities") to be issued
in connection with the proposed merger of Blockbuster Entertainment
Corporation, a Delaware corporation ("Blockbuster"), with and into the Company,
(2) any registration statements or reports relating to the Securities to be
filed by the Company with the Commission and/or any national securities
exchanges under the Securities Exchange Act of 1934, as amended, and any and
all amendments thereto, and any and all instruments and documents filed as part
of or in connection with such registration statements or reports or amendments
thereto, and (3) any documents in connection with the Agreement and Plan of
Merger dated as of January 7, 1994 between the Company and Blockbuster and any
transactions contemplated thereby; granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that the said
attorney-in-fact and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 28th day of
February 1994.
/s/ Frederick V. Salerno
-------------------------------
Frederick V. Salerno
<PAGE>
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of
VIACOM INC., a Delaware corporation (the "Company"), hereby constitutes and
appoints Philippe Dauman, Michael Fricklas and Nancy Rosenfeld his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign (1) a registration statement on Form S-4, or such other
form as may be recommended by counsel, to be filed with the Securities and
Exchange Commission (the "Commission"), and any and all amendments and post-
effective amendments thereto and supplements to the Prospectus contained
therein, and any and all instruments and documents filed as a part of or in
connection with the said registration statement or amendments thereto or
supplements or amendments to such Prospectus, covering the offering and
issuance of shares of the Company's Class A Common Stock and Class B Common
Stock and Variable Common Rights (collectively, the "Securities") to be issued
in connection with the proposed merger of Blockbuster Entertainment
Corporation, a Delaware corporation ("Blockbuster"), with and into the Company,
(2) any registration statements or reports relating to the Securities to be
filed by the Company with the Commission and/or any national securities
exchanges under the Securities Exchange Act of 1934, as amended, and any and
all amendments thereto, and any and all instruments and documents filed as part
of or in connection with such registration statements or reports or amendments
thereto, and (3) any documents in connection with the Agreement and Plan of
Merger dated as of January 7, 1994 between the Company and Blockbuster and any
transactions contemplated thereby; granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that the said
attorney-in-fact and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 2nd day of
March 1994.
/s/ William Schwartz
-------------------------------
William Schwartz
VIACOM INC.
1515 BROADWAY
NEW YORK, NEW YORK 10036
THE UNDERSIGNED HEREBY APPOINTS FRANK J. BIONDI, JR. AND PHILIPPE P. DAUMAN,
AND EACH OF THEM, AS PROXIES WITH FULL POWER OF SUBSTITUTION, TO REPRESENT AND
TO VOTE ON BEHALF OF THE UNDERSIGNED ALL OF THE SHARES OF CLASS A COMMON STOCK
OF VIACOM INC. WHICH THE UNDERSIGNED IS ENTITLED TO VOTE AT THE SPECIAL MEETING
OF STOCKHOLDERS TO BE HELD AT THE MUSEUM OF TELEVISION & RADIO, 25 WEST 52ND
STREET, NEW YORK, NEW YORK, ON THURSDAY, SEPTEMBER 29, 1994, AT 10:30 A.M., AND
AT ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF, UPON THE FOLLOWING PROPOSALS MORE
FULLY DESCRIBED IN THE NOTICE OF SPECIAL MEETING OF STOCKHOLDERS AND THE VIACOM
INC. AND BLOCKBUSTER ENTERTAINMENT CORPORATION JOINT PROXY STATEMENT.
THE PROXIES ARE DIRECTED TO VOTE AS SPECIFIED BELOW AND IN THEIR DISCRETION ON
ALL OTHER MATTERS. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE
FOLLOWING PROPOSAL.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE FOLLOWING
PROPOSAL:
PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER, AS AMENDED,
PROVIDING FOR THE MERGER OF BLOCKBUSTER ENTERTAINMENT CORPORATION WITH AND INTO
VIACOM INC., INCLUDING THE APPROVAL OF THE ISSUANCE OF SHARES OF CLASS A COMMON
STOCK, CLASS B COMMON STOCK AND VARIABLE COMMON RIGHTS.
/ / FOR / / AGAINST / / ABSTAIN
IF YOU WISH TO ATTEND THE SPECIAL MEETING, PLEASE CHECK THIS BOX / /
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF VIACOM INC.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER.
PLEASE SIGN EXACTLY AS NAME(S)
APPEARS BELOW. WHEN SHARES ARE
HELD BY JOINT TENANTS, BOTH
SHOULD SIGN. WHEN SIGNING AS
ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE 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.
DATED: ........................
SIGNATURE: ....................
...............................
SIGNATURE IF HELD JOINTLY
BLOCKBUSTER ENTERTAINMENT CORPORATION
ONE BLOCKBUSTER PLAZA
FORT LAUDERDALE, FLORIDA 33301
THE UNDERSIGNED HEREBY APPOINTS H. WAYNE HUIZENGA, STEVEN R. BERRARD AND GEORGE
D. JOHNSON, JR., AND EACH OF THEM, AS PROXIES WITH FULL POWER OF SUBSTITUTION,
TO REPRESENT AND TO VOTE ON BEHALF OF THE UNDERSIGNED ALL OF THE SHARES OF
COMMON STOCK OF BLOCKBUSTER ENTERTAINMENT CORPORATION WHICH THE UNDERSIGNED IS
ENTITLED TO VOTE IF PERSONALLY PRESENT AT THE SPECIAL MEETING OF STOCKHOLDERS OF
BLOCKBUSTER ENTERTAINMENT CORPORATION TO BE HELD AT THE BROWARD CENTER FOR THE
PERFORMING ARTS, FORT LAUDERDALE, FLORIDA, ON THURSDAY, SEPTEMBER 29, 1994, AT
11:00 A.M., LOCAL TIME, AND AT ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF, UPON
THE FOLLOWING PROPOSAL MORE FULLY DESCRIBED IN THE NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS DATED AUGUST 31, 1994 AND THE VIACOM INC. AND BLOCKBUSTER
ENTERTAINMENT CORPORATION JOINT PROXY STATEMENT DATED AUGUST 29, 1994.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSAL (1) AND IN THE
DISCRETION OF THE PROXIES ON ALL OTHER MATTERS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING.
1. THE PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER, DATED
AS OF JANUARY 7, 1994, AS AMENDED AS OF JUNE 15, 1994, PROVIDING FOR A BUSINESS
COMBINATION TRANSACTION BETWEEN BLOCKBUSTER ENTERTAINMENT CORPORATION AND VIACOM
INC.
/ / FOR / / AGAINST / / ABSTAIN
2. THE PROPOSAL TO AMEND THE BLOCKBUSTER ENTERTAINMENT CORPORATION 1991
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
/ / FOR / / AGAINST / / ABSTAIN
3. IN THEIR DISCRETION, ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
SPECIAL MEETING.
IF YOU ARE PLANNING TO ATTEND THE SPECIAL MEETING, PLEASE CHECK THIS BOX / /
(continued on reverse side)
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BLOCKBUSTER
ENTERTAINMENT CORPORATION. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN
THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER.
DATED.................... , 1994
...............................
SIGNATURE OF STOCKHOLDER(S)--
PLEASE SIGN NAME
EXACTLY AS IMPRINTED (DO NOT
PRINT). PLEASE INDICATE ANY
CHANGES IN ADDRESS.
NOTE: EXECUTORS, ADMINISTRATORS,
TRUSTEES AND OTHERS SIGNING IN A
REPRESENTATIVE CAPACITY SHOULD
INDICATE THE CAPACITY IN WHICH
THEY SIGN. IF SHARES ARE HELD
JOINTLY, EACH HOLDER SHOULD
SIGN.
I DO / / DO NOT / / PLAN TO
ATTEND THE MEETING.
PLEASE MARK, DATE AND RETURN THIS PROXY.
[LETTERHEAD OF BLOCKBUSTER]
August 31, 1994
Dear Stockholder:
On behalf of your Board of Directors, we are pleased to invite you to
attend a Special Meeting of Stockholders of Blockbuster Entertainment
Corporation ("Blockbuster"), which will be held at the Broward Center for the
Performing Arts, Fort Lauderdale, Florida, at 11:00 a.m., local time, on
September 29, 1994.
At this meeting, stockholders will be asked to approve the merger of
Blockbuster and Viacom Inc. ("Viacom"). Viacom recently completed a business
combination with Paramount Communications Inc. ("Paramount"). Blockbuster and
Viacom, which now includes Paramount, have complementary businesses and a
commitment to innovation and creativity. The combination of these businesses
will create a fully-integrated global entertainment and communications company
with extraordinary resources.
The merger has been a long and complicated journey for all of us. At times,
the decline in the market prices of Viacom Common Stock gave us concern about
the viability of the merger--thus the reason for the letter to you in May. But
we still believe today that the combination of our businesses with the
businesses of Viacom and Paramount presents an excellent strategic opportunity.
And now that the market prices of Viacom Common Stock have rebounded, your Board
of Directors, after careful consideration of many factors, including the opinion
of Blockbuster's financial advisor, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, determined that the merger of Blockbuster and Viacom is consistent
with, and in furtherance of, the long-term business strategy of Blockbuster and
is fair to, and in the best interests of, the stockholders of Blockbuster.
Accordingly, the Board has unanimously approved the merger agreement and certain
other transactions with Viacom and recommends that you vote in favor of the
merger at the meeting.
Under the terms of the merger agreement, upon consummation of the merger,
each outstanding share of Blockbuster Common Stock will be converted into the
right to receive (i) 0.08 of a share of voting Viacom Class A Common Stock, (ii)
0.60615 of a share of non-voting Viacom Class B Common Stock and (iii) a
variable common right representing the right to receive from zero to an
additional 0.13829 of a share of Viacom Class B Common Stock depending on market
prices of Viacom Class B Common Stock during the year following the merger.
Based upon the closing market prices of Viacom Class A Common Stock and Viacom
Class B Common Stock on the date of the merger agreement (January 7, 1994), the
aggregate market value of the merger consideration to be received by Blockbuster
stockholders ranged between $28.54 per share and $30.97 per share, depending
upon the value attributed to the variable common rights. Based upon the closing
market prices of Viacom Class A Common Stock and Viacom Class B Common Stock on
August 26, 1994, the aggregate value of the merger consideration to be received
by Blockbuster stockholders ranged between $23.44 per share and $28.09 per
share, depending upon the value attributed to the variable common rights.
A Notice of the Special Meeting and a Joint Proxy Statement/Prospectus
containing detailed information concerning this merger and certain other
transactions is attached. We urge you to read this material carefully. In
addition, at this meeting, stockholders will be asked to approve an amendment to
Blockbuster's 1991 Non-employee Director Stock Option Plan. Your Board
recommends that you vote in favor of the amendment to the 1991 Non-employee
Director Stock Option Plan.
Pursuant to an Amended and Restated Proxy Agreement and an Amended and
Restated Stockholders Stock Option Agreement executed with Viacom, certain
stockholders of Blockbuster have granted to Viacom proxies to vote approximately
22% of the Blockbuster Common Stock outstanding in favor of the merger.
<PAGE>
We have come a long way. In the eight years since Blockbuster opened its
first video store, Blockbuster's market value has increased from approximately
$7 million to approximately $8.5 billion. At the same time, a share of
Blockbuster Common Stock appreciated by more than 14,000 percent. In just the
twelve months prior to signing the merger agreement, our market value increased
by more than $4 billion, or over 110%. Very few companies have ever achieved
this value in such a short period of time. We are confident that this value will
continue to be enhanced as a result of Blockbuster's combination with Viacom.
Your participation in this meeting, in person or by proxy, is important.
Please mark, date, sign and return the enclosed proxy as soon as possible,
whether or not you plan to attend the meeting.
Sincerely,
H. WAYNE HUIZENGA STEVEN R. BERRARD
Chairman of the Board and Vice Chairman of the Board
Chief Executive Officer President and Chief
Operating Officer
2
[BLOCKBUSTER LETTERHEAD]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A Special Meeting of Stockholders of Blockbuster Entertainment Corporation
will be held on September 29, 1994, at 11:00 a.m., local time, at the Broward
Center for the Performing Arts, Fort Lauderdale, Florida, for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of January 7, 1994, as amended as of
June 15, 1994 (the "Merger Agreement"), a copy of which is attached as
Annex I to the accompanying Joint Proxy Statement/Prospectus, providing for
a business combination transaction (the "Merger") between Blockbuster
Entertainment Corporation ("Blockbuster") and Viacom Inc. ("Viacom"),
pursuant to which each share of Common Stock, par value $.10 per share, of
Blockbuster ("Blockbuster Common Stock") (other than shares held by
Blockbuster, Viacom and, if appraisal rights are available under Delaware
law, those holders who demand and perfect appraisal rights) will be
converted into the right to receive (i) 0.08 of a share of Class A Common
Stock, par value $.01 per share, of Viacom, (ii) 0.60615 of a share of
Class B Common Stock, par value $.01 per share, of Viacom ("Viacom Class B
Common Stock") and (iii) up to an additional 0.13829 of a share of Viacom
Class B Common Stock evidenced by one variable common right (a "VCR"), all
as more fully described in the accompanying Joint Proxy
Statement/Prospectus;
2. To consider and vote upon a proposal to amend Blockbuster's 1991
Non-employee Director Stock Option Plan; and
3. To transact such other business as may properly come before the
Special Meeting or at any and all adjournments or postponements thereof.
The Board of Directors has fixed the close of business on August 31, 1994
as the record date for determination of stockholders entitled to notice of, and
to vote at, the Special Meeting. Only stockholders of record at that time are
entitled to notice of, and to vote at, the Special Meeting. Every holder of
outstanding shares of Blockbuster Common Stock entitled to be voted at the
Special Meeting is entitled to one vote for each such share held. The Merger
will be consummated on the date that the approvals of the stockholders of
Blockbuster and Viacom are obtained.
It is uncertain, and counsel to Blockbuster is unable to express a definite
view, as to whether appraisal rights are available to holders of Blockbuster
Common Stock in connection with the Merger. Although the VCRs evidence only the
right to receive shares of Viacom Class B Common Stock under certain
circumstances, the VCRs could be characterized as consideration other than
shares of stock of Viacom. If the VCRs are considered to be "shares of stock" of
Viacom under Section 262(b) of the Delaware General Corporation Law ("DGCL"),
then the holders of Blockbuster Common Stock will not have appraisal rights.
However, if the VCRs are not considered to be "shares of stock," then appraisal
rights will be available to those stockholders of Blockbuster who demand and
perfect appraisal rights in accordance with the requirements of Section 262 of
the DGCL. Regardless of the ultimate availability of appraisal rights, any
holder of Blockbuster Common Stock who wishes to seek appraisal must demand and
perfect appraisal rights in accordance with the requirements of Section 262 of
the DGCL, a copy of which Section 262 is attached as Annex VII to the
accompanying Joint Proxy Statement/Prospectus. Stockholders who wish to assert
appraisal rights are advised to consult with their legal counsel regarding
whether appraisal rights would be available and how to demand and perfect
appraisal rights, if available. Generally, a stockholder who desires to perfect
appraisal rights with respect to any of his or her shares of Blockbuster Common
Stock must, as two of the procedural steps involved in such perfection, deliver
a valid demand for appraisal to Blockbuster and 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. See the sections entitled "Dissenting
Stockholders' Rights of Appraisal" and "The Meetings--Appraisal Rights" in the
accompanying Joint Proxy Statement/Prospectus for a discussion of the
availability of and procedures to be followed in asserting appraisal rights.
<PAGE>
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING IN PERSON, PLEASE
MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING
ENVELOPE. IF YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE MARK THE APPROPRIATE
SPACE ON THE ENCLOSED PROXY.
By order of the Board of Directors,
THOMAS W. HAWKINS
Secretary
August 31, 1994
[LETTERHEAD OF VIACOM]
August 31, 1994
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Viacom Inc., which will be held at the Museum of Television & Radio, 25 West
52nd Street, New York, New York, at 10:30 a.m. on September 29, 1994. At the
Special Meeting, holders of Viacom Class A Common Stock will be asked to approve
the merger agreement providing for the merger of Viacom and Blockbuster
Entertainment Corporation.
The merger reflects the vision we share with Blockbuster of building a
global integrated entertainment company. The combination of our companies will
form an entertainment and communications powerhouse uniquely positioned to
exploit new opportunities in the entertainment business, domestically and around
the world.
Under the terms of the merger agreement with Blockbuster, each share of
Blockbuster Common Stock will be converted into the right to receive (i) 0.08 of
a share of voting Viacom Class A Common Stock, (ii) 0.60615 of a share of
non-voting Viacom Class B Common Stock and (iii) up to an additional 0.13829 of
a share of Viacom Class B Common Stock depending on market prices of Viacom
Class B Common Stock during the year following the merger. The proposed merger
is described in the accompanying Joint Proxy Statement/Prospectus.
The Viacom Board of Directors has determined that the merger is fair to,
and in the best interests of, Viacom and its stockholders. Accordingly, the
Board approved the merger agreement with Blockbuster and recommends that holders
of Viacom Class A Common Stock vote in favor of the merger agreement at the
meeting.
National Amusements, Inc., which owns approximately 85% of Viacom's Class A
Common Stock, has agreed to vote such shares in favor of the merger agreement
pursuant to a voting agreement executed with Blockbuster. Therefore, approval of
the merger agreement by the stockholders of Viacom is assured.
Because of the significance to Viacom of the proposed merger, your
participation in this meeting, in person or by proxy, is especially important.
I hope you will be able to attend the meeting. However, even if you
anticipate attending in person, we urge you to mark, sign and return the
enclosed proxy card promptly to ensure that your shares of Viacom Class A Common
Stock will be represented at the meeting. If you do attend, you will, of course,
be entitled to vote such shares in person.
Thank you, and I look forward to seeing you at the meeting.
Sincerely,
SUMNER M. REDSTONE
Chairman of the Board
[VIACOM LETTERHEAD]
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 29, 1994
------------------------
To Viacom Inc. Stockholders:
A Special Meeting of Stockholders of Viacom Inc. ("Viacom") will be held at
the Museum of Television & Radio, 25 West 52nd Street, New York, New York, on
September 29, 1994 at 10:30 a.m., to consider the following proposals:
(1) the approval and adoption of the Agreement and Plan of Merger
dated as of January 7, 1994, as amended as of June 15, 1994 (the "Merger
Agreement"), attached as Annex I to the accompanying Joint Proxy
Statement/Prospectus, providing for a business combination transaction
between Blockbuster Entertainment Corporation ("Blockbuster") and Viacom,
pursuant to which each share of Common Stock, par value $.10 per share, of
Blockbuster (other than shares held by Viacom, Blockbuster and, if
appraisal rights are available under Delaware Law, those holders who demand
and perfect appraisal rights) will be converted into the right to receive
0.08 of a share of Class A Common Stock, par value $.01 per share, of
Viacom ("Viacom Class A Common Stock"), 0.60615 of a share of Class B
Common Stock, par value $.01 per share, of Viacom ("Viacom Class B Common
Stock") and up to an additional 0.13829 of a share of Viacom Class B Common
Stock evidenced by one variable common right of Viacom (collectively, the
"Merger Consideration"); such approval and adoption includes, without
limitation, the approval of the issuance of the Merger Consideration; and
(2) such other business as may properly be brought before the Special
Meeting.
Pursuant to the By-laws of Viacom, the Board of Directors has fixed the
close of business on August 31, 1994 as the time for determining stockholders of
record entitled to notice of, and to vote at, the meeting.
Each share of Viacom Class A Common Stock will entitle the holder thereof
to one vote on all matters which may properly come before the meeting. Under
applicable law, holders of Viacom Class A Common Stock or Viacom Class B Common
Stock will not have appraisal rights in connection with the approval and
adoption of the Merger Agreement because Viacom will be the corporation that
survives the merger of Viacom and Blockbuster.
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING IN PERSON, PLEASE
MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING
ENVELOPE. IF YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE MARK THE APPROPRIATE
SPACE ON THE ENCLOSED PROXY.
By order of the Board of Directors,
PHILIPPE P. DAUMAN
Secretary
August 31, 1994
