PRELIMINARY COPIES
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to
Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrants [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Sec.240.14a-11(c) or Sec.240.14a-12
VIACOM INC.
AND
PARAMOUNT COMMUNICATIONS INC.
(Name of Registrants as Specified in their Charters)
VIACOM INC.
AND
PARAMOUNT COMMUNICATIONS INC.
(Name of Persons Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party of the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Paramount Communications Inc. Common Stock, par value $1.00 per share
2) Aggregate number of securities to which transaction applies:
61,135,478 (outstanding shares of Paramount Common Stock on March 31, 1994
not owned by Viacom Inc.)
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:
$37.75, which is the average of the high and low prices per share of
Paramount Common Stock on April 13, 1994, as quoted on the New York Stock
Exchange composite tape
4) Proposed maximum aggregate value of transaction:
$2,307,864,294
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$461,573
2) Form, Schedule or Registration Statement No.:
Schedule 13E-3
3) Filing Parties:
National Amusements, Inc., Sumner M. Redstone,
Viacom Inc. and Paramount Communications Inc.
4) Date Filed:
April 15, 1994
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PRELIMINARY COPIES
[LETTERHEAD OF PARAMOUNT]
xx. 1994
Dear Stockholder:
On behalf of our Board of Directors, I am pleased to invite you to attend a
Special Meeting of Stockholders of Paramount Communications Inc., which will be
held at at a.m. (local time) on , 1994.
At this meeting, stockholders will be asked to approve the merger of a
wholly owned subsidiary of Viacom Inc. with and into Paramount. Paramount and
Viacom have complementary businesses and a commitment to innovation and
creativity. The combination of these businesses will create a global
entertainment and communications company with extraordinary resources.
On February 4, 1994 the Board of Directors of Paramount, after careful
consideration, determined that the combination with Viacom is in the best
interests of Paramount and its stockholders. Accordingly, it unanimously
approved the merger and related transactions and recommended that you vote in
favor of the merger at the meeting.
Pursuant to its successful tender offer, on March 11, 1994, Viacom
completed its purchase of a majority of the outstanding shares of Paramount
Common Stock. In the merger, each share of Paramount Common Stock not owned by
Viacom will be converted into the right to receive (i) 0.93065 of a share of
non-voting Viacom Class B Common Stock, (ii) $17.50 principal amount of 8%
exchangeable subordinated debentures of Viacom, (iii) 0.93065 of a contingent
value right, representing the right to receive (under certain circumstances)
cash or securities depending on market prices of Viacom Class B Common Stock
during a one-, two-or three-year period following the merger, (iv) 0.5 of a
three-year warrant to purchase one share of Viacom Class B Common Stock at $60
per share and (v) 0.3 of a five-year warrant to purchase one share of Viacom
Class B Common Stock at $70 per share.
A Notice of the Special Meeting and a Joint Proxy Statement/Prospectus
containing detailed information concerning the merger with the subsidiary of
Viacom and related transactions is attached. The Joint Proxy
Statement/Prospectus also contains detailed information regarding Viacom's
proposed merger with Blockbuster Entertainment Corporation. I urge you to read
this material carefully.
As Viacom has acquired a majority of the outstanding shares of Paramount
Common Stock, Viacom has sufficient voting power to approve the merger and the
related transactions, even if no other stockholder of Paramount votes in favor
of the merger.
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,
SUMNER M. REDSTONE
Chairman of the Board
<PAGE>
PRELIMINARY COPIES
[PARAMOUNT LETTERHEAD]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A Special Meeting of Stockholders of Paramount Communications Inc.
("Paramount") will be held on , 1994, at a.m. (local time),
at , for the purposes of:
1. Considering and voting upon a proposal to approve and adopt the
Second Amended and Restated Agreement and Plan of Merger dated as of
[ ], 1994 among Paramount, Viacom Inc. ("Viacom") and Viacom
Sub Inc. (the "Merger Subsidiary"), a wholly owned subsidiary of Viacom, a
copy of which is attached as Annex I to the accompanying Joint Proxy
Statement/Prospectus, providing for the merger of the Merger Subsidiary
with and into Paramount (the "Merger"), pursuant to which each share of
Common Stock, par value $1.00 ("Paramount Common Stock"), of Paramount
(other than shares held by Paramount, Viacom and their subsidiaries and by
holders who demand and perfect appraisal rights) will be converted into the
right to receive (i) 0.93065 of a share of Class B Common Stock, par value
$.01 per share, of Viacom ("Viacom Class B Common Stock"), (ii) $17.50
principal amount of 8% exchangeable subordinated debentures of Viacom,
(iii) 0.93065 of a contingent value right of Viacom, representing the right
to receive (under certain circumstances) cash or securities of Viacom
depending on market prices of Viacom Class B Common Stock during a one-,
two-or three-year period following the Merger, (iv) 0.5 of a three-year
warrant to purchase one share of Viacom Class B Common Stock at $60 per
share, and (v) 0.3 of a five-year warrant to purchase one share of Viacom
Class B Common Stock at $70 per share, all as more fully described in the
accompanying Joint Proxy Statement/Prospectus; and
2. Transacting any other business that may properly come before the
meeting or any adjournments or postponements thereof.
Only stockholders of record at the close of business on , 1994
are entitled to notice of the meeting, and only holders of Paramount Common
Stock of record at that time are entitled to vote at the meeting. Every holder
of outstanding shares of Paramount Common Stock entitled to be voted at the
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 Paramount and
Viacom are obtained.
In connection with the Merger, appraisal rights will be available to those
stockholders of Paramount who meet and comply with the requirements of Section
262 of the Delaware General Corporation Law ("DGCL"). Any holder of Paramount
Common Stock who wishes to seek appraisal rights must meet and comply with the
requirements of Section 262 of the DGCL, a copy of which Section 262 is attached
as Annex V to the accompanying Joint Proxy Statement/Prospectus. See the section
entitled "Dissenting Stockholders' Rights of Appraisal" in the accompanying
Joint Proxy Statement/Prospectus for a discussion of procedures to be followed
in asserting appraisal rights.
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE SPECIAL 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 USE THE TICKET
REQUEST FORM PRINTED ON THE LAST PAGE OF THE JOINT PROXY STATEMENT/PROSPECTUS.
By order of the Board of Directors,
PHILIPPE P. DAUMAN
Secretary
, 1994
<PAGE>
PRELIMINARY COPIES
[LETTERHEAD OF VIACOM]
, 1994
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Viacom Inc., which will be held at [ ], New York, New York at
[ ] a.m. (local time) on [ ] [ ], 1994. At the Special Meeting,
holders of Viacom Class A Common Stock will be asked to approve proposals
providing for the merger of a wholly owned subsidiary of Viacom with and into
Paramount Communications Inc.
The merger with Paramount reflects our vision of building an integrated
global entertainment company. The combination of Viacom and Paramount will form
an entertainment and communications powerhouse uniquely positioned to exploit
new opportunities in the entertainment business, domestically and around the
world. Viacom is also a party to a merger agreement with Blockbuster
Entertainment Corporation. IT IS ANTICIPATED THAT CONSIDERATION OF THE
BLOCKBUSTER MERGER WILL TAKE PLACE AT A SEPARATE SPECIAL MEETING OF VIACOM
STOCKHOLDERS FOR WHICH YOU WILL RECEIVE A SEPARATE JOINT PROXY
STATEMENT/PROSPECTUS OF VIACOM AND BLOCKBUSTER.
Pursuant to a successful tender offer, on March 11, 1994, Viacom completed
its purchase of a majority of the outstanding shares of Paramount Common Stock.
In the merger, each share of Paramount Common Stock not owned by Viacom will be
converted into the right to receive (i) 0.93065 of a share of non-voting Viacom
Class B Common Stock, (ii) $17.50 principal amount of 8% exchangeable
subordinated debentures of Viacom, (iii) 0.93065 of a contingent value right,
representing the right to receive (under certain circumstances) cash or
securities depending on market prices of Viacom Class B Common Stock during a
one-, two-or three-year period following the merger, (iv) 0.5 of a three-year
warrant to purchase one share of Viacom Class B Common Stock at $60 per share
and (v) 0.3 of a five-year warrant to purchase one share of Viacom Class B
Common Stock at $70 per share. The proposed merger with Paramount is described
in the accompanying Joint Proxy Statement/Prospectus.
The Viacom Board of Directors has determined that the merger with Paramount
is fair to, and in the best interests of, Viacom and its stockholders.
Accordingly, the Board approved the Paramount merger agreement and certain other
transactions with Paramount and recommends that holders of Viacom Class A Common
Stock vote to approve the merger with Paramount and the issuance of shares of
Viacom Class B Common Stock and other Viacom securities in connection with the
merger. To the extent such matters have not been previously approved by the
stockholders of Viacom, the Board also recommends that such holders approve
proposals to amend the Restated Certificate of Incorporation of Viacom to
increase the number of shares of Viacom Class A Common Stock authorized to be
issued from 100 million to 200 million, to increase the number of shares of
Viacom Class B Common Stock authorized to be issued from 150 million to one
billion, to increase the number of shares of preferred stock of Viacom
authorized to be issued from 100 million to 200 million and to increase the
maximum number of directors constituting the entire Board of Directors of Viacom
from 12 to 20.
National Amusements, Inc., which owns approximately 85% of Viacom's voting
stock, has agreed to vote such shares in favor of the transactions contemplated
by the Paramount merger agreement in accordance with National Amusement's
obligations under a Voting Agreement executed with Paramount. Therefore,
approval of such transactions by the stockholders of Viacom is assured.
Immediately following the Special Meeting, the 1994 Annual Meeting of
Viacom Stockholders will be convened for the purposes listed in the accompanying
Notice of Special and Annual Meetings of Stockholders. The proposals to be
considered at the Annual Meeting are described in the accompanying Joint Proxy
Statement/Prospectus.
<PAGE>
Because of the significance to Viacom of the transactions described above,
your participation in these meetings, in person or by proxy, is especially
important.
I hope you will be able to attend the meetings. 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 meetings. 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 meetings.
Sincerely,
SUMNER M. REDSTONE
Chairman of the Board
2
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[VIACOM LETTERHEAD]
------------------------
NOTICE OF SPECIAL AND ANNUAL MEETINGS OF STOCKHOLDERS
TO BE HELD ON [ ], 1994
------------------------
To Viacom Inc. Stockholders:
A Special Meeting (the "Special Meeting") of Stockholders of Viacom Inc.
("Viacom") will be held at [ ] New York, New York
at [ ] a.m. (local time) on [ ], 1994 to consider the following
proposals:
(1) the approval and adoption of the Second Amended and Restated
Agreement and Plan of Merger dated as of [ ], 1994 (the "Paramount
Merger Agreement") among Viacom, Viacom Sub Inc., a wholly owned subsidiary
of Viacom (the "Merger Subsidiary"), and Paramount Communications Inc.
("Paramount"), a copy of which is attached as Annex I to the accompanying
Joint Proxy Statement/Prospectus, providing for the merger of the Merger
Subsidiary with and into Paramount, pursuant to which each share of Common
Stock, par value $1.00 per share, of Paramount (other than shares held by
Viacom, Paramount and their subsidiaries and by holders who demand and
perfect appraisal rights) will be converted into the right to receive (i)
0.93065 of a share of Class B Common Stock, par value $.01 per share, of
Viacom ("Viacom Class B Common Stock"), (ii) $17.50 principal amount of 8%
exchangeable subordinated debentures of Viacom, (iii) 0.93065 of a
contingent value right of Viacom, representing the right to receive (under
certain circumstances) cash or securities of Viacom depending on market
prices of Viacom Class B Common Stock during a one-, two-or three-year
period following the merger, (iv) 0.5 of a three-year warrant to purchase
one share of Viacom Class B Common Stock at $60 per share, and (v) 0.3 of a
five-year warrant to purchase one share of Viacom Class B Common Stock at
$70 per share, all as more fully described in the accompanying Joint Proxy
Statement/Prospectus (collectively, the "Paramount Merger Consideration");
such approval and adoption includes, without limitation, the approval of
the issuance of the Paramount Merger Consideration;
(2) if not previously approved, the approval of an amendment to the
Restated Certificate of Incorporation of Viacom increasing the number of
shares of Viacom Class A Common Stock authorized to be issued from 100
million to 200 million;
(3) if not previously approved, the approval of an amendment to the
Restated Certificate of Incorporation of Viacom increasing the number of
shares of Viacom Class B Common Stock authorized to be issued from 150
million to one billion;
(4) if not previously approved, the approval of an amendment to the
Restated Certificate of Incorporation of Viacom increasing the number of
shares of preferred stock of Viacom authorized to be issued from 100
million to 200 million;
(5) if not previously approved, the approval of an amendment to the
Restated Certificate of Incorporation of Viacom increasing the maximum
number of directors constituting the Board of Directors of Viacom from 12
to 20; and
(6) such other business as may properly be brought before the Special
Meeting.
<PAGE>
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 Paramount Merger Agreement because, among other
reasons, Viacom is not a constituent corporation in the merger.
The 1994 Annual Meeting of Stockholders of Viacom will be held immediately
following the Special Meeting, at the same location as the Special Meeting, to
consider the following proposals:
(1) the election of 10 directors;
(2) the approval of the Viacom Senior Executive Short-Term Incentive
Plan;
(3) the approval of the Viacom 1994 Long-Term Management Incentive
Plan;
(4) the approval of the Viacom Stock Option Plan for Outside
Directors;
(5) the approval of the appointment of independent auditors for 1994;
and
(6) such other business as may properly come before the Annual Meeting
or any adjournment thereof.
Pursuant to the By-laws of Viacom, the Board of Directors has fixed the
close of business on [ ], 1994 as the time for determining stockholders of
record entitled to notice of, and to vote at, the Special Meeting and the Annual
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 meetings.
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETINGS IN PERSON, PLEASE
MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING
ENVELOPE. IF YOU PLAN TO ATTEND THE MEETINGS, PLEASE USE THE TICKET REQUEST FORM
PRINTED ON THE LAST PAGE OF THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.
By order of the Board of Directors,
PHILIPPE P. DAUMAN
Secretary
[ ], 1994
2
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PRELIMINARY COPIES
VIACOM INC.
AND
PARAMOUNT COMMUNICATIONS INC.
JOINT PROXY STATEMENT
------------------------
VIACOM INC.
PROSPECTUS
This Joint Proxy Statement/Prospectus (this "Proxy Statement/Prospectus")
is being furnished to stockholders of Viacom Inc. (together with its
consolidated subsidiaries, "Viacom") and Paramount Communications Inc. (together
with its consolidated subsidiaries, "Paramount") 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
[ ], 1994. This Proxy Statement/Prospectus relates to a business
combination transaction pursuant to which Viacom Sub Inc., a wholly owned
subsidiary of Viacom (the "Merger Subsidiary"), will merge with and into
Paramount (the "Paramount Merger"), pursuant to the Amended and Restated
Agreement and Plan of Merger dated February 4, 1994 between Viacom and Paramount
(the "February 4 Merger Agreement") as amended and restated by the Second
Amended and Restated Agreement and Plan of Merger dated as of [ ],
1994 (the "Paramount Merger Agreement") among Viacom, the Merger Subsidiary and
Paramount, a copy of which is attached hereto as Annex I.
This Proxy Statement/Prospectus is also being furnished to stockholders of
Viacom in connection with the solicitation of proxies by the Viacom Board of
Directors for use at the 1994 Annual Meeting of Stockholders of Viacom (the
"Viacom Annual Meeting"), which is to be held immediately following the Special
Meeting of Stockholders of Viacom referred to above. At the Viacom Annual
Meeting, holders of Class A Common Stock, par value $.01 per share, of Viacom
("Viacom Class A Common Stock") will be asked to consider and vote upon (i) the
election of 10 directors, (ii) the approval of the Viacom Senior Executive
Short-Term Incentive Plan, (iii) the approval of the Viacom 1994 Long-Term
Management Incentive Plan, (iv) the approval of the Viacom Stock Option Plan for
Outside Directors, (v) the approval of the appointment of independent auditors
for 1994 and (vi) such other business as may properly come before the Viacom
Annual Meeting or any adjournment thereof.
This Proxy Statement/Prospectus also constitutes a prospectus of Viacom
with respect to (i) [56,895,733] shares of the Class B Common Stock, par value
$.01 per share, of Viacom ("Viacom Class B Common Stock" and, together with the
Viacom Class A Common Stock, the "Viacom Common Stock"), (ii) [$1,069,870,865]
principal amount of 8% exchangeable subordinated debentures of Viacom (the
"Viacom Merger Debentures"), (iii) [56,895,733] contingent value rights of
Viacom ("CVRs"), representing the right to receive (under certain circumstances)
cash or securities of Viacom depending on market prices of Viacom Class B Common
Stock during a one-, two-or three-year period following the Paramount Merger,
(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" and, together with Viacom
Three-Year Warrants, the "Viacom Warrants") to purchase one share of Viacom
Class B Common Stock at $70 per share, all issuable to the holders of the Common
Stock, par value $1.00 per share, of Paramount ("Paramount Common Stock") in the
Paramount Merger.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT RELATE TO THE PROPOSED MERGER (THE
"BLOCKBUSTER MERGER" AND, TOGETHER WITH THE PARAMOUNT MERGER, THE "MERGERS")
BETWEEN VIACOM AND BLOCKBUSTER ENTERTAINMENT CORPORATION (TOGETHER WITH ITS
CONSOLIDATED SUBSIDIARIES, "BLOCKBUSTER"). IT IS EXPECTED THAT A SEPARATE JOINT
PROXY STATEMENT/PROSPECTUS OF VIACOM AND BLOCKBUSTER RELATING TO THE BLOCKBUSTER
MERGER WILL BE SENT TO STOCKHOLDERS OF VIACOM AND BLOCKBUSTER.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of Viacom and Paramount on or about
[ ], 1994.
NEITHER THIS TRANSACTION NOR THE SECURITIES COVERED BY THIS PROXY
STATEMENT/PROSPECTUS HAVE BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR
ANY STATE SECURITIES COMMISSION HAS PASSED UPON THE
FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Proxy Statement/Prospectus is [ ], 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 PARAMOUNT. 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, PARAMOUNT OR BLOCKBUSTER SINCE THE DATE HEREOF OR THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
Viacom anticipates that it will file with the Securities and Exchange
Commission (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 Class B Common Stock, the Viacom Merger Debentures, the CVRs, and the
Viacom Warrants to be issued pursuant to the Paramount Merger Agreement. Sumner
M. Redstone, National Amusements, Inc., Viacom and Paramount have filed with the
Commission a Rule 13e-3 Transaction Statement (including any amendments thereto,
the "Schedule 13E-3") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to the Paramount Merger. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits thereto and the Schedule 13E-3 and the
exhibits thereto. 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. Viacom anticipates that it will also file with the
Commission a separate Registration Statement on Form S-4 (together with any
amendments thereto, the "Blockbuster Registration Statement") under the
Securities Act with respect to the securities that will be issued to holders of
Blockbuster Common Stock in connection with the Blockbuster Merger.
Viacom, Paramount and Blockbuster are subject to the informational
requirements of the Exchange Act and in accordance therewith file reports, proxy
statements and other information with the Commission. The Schedule 13E-3 and the
reports, proxy statements and other information filed by Viacom and Paramount
and the reports, proxy statements and other information filed by Blockbuster
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 10007, 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 and Paramount
can be inspected at the offices of the American Stock Exchange, Inc. (the
"AMEX"), 86 Trinity Place, New York, New York 10006 and the New York Stock
Exchange, Inc. (the "NYSE"), 20 Broad Street, New York, New York 10005,
respectively. The Common Stock, par value $.10 per share, of Blockbuster
("Blockbuster Common Stock") is listed and traded on the NYSE and the London
Stock Exchange (the "LSE"), and certain of Blockbuster's reports, proxy
materials and other information may be available for inspection at the offices
of the NYSE, 20 Broad Street, New York, New York 10005 or the offices of the
LSE, Old Broad Street, London, England EC2N 1HP. After consummation of the
Mergers, Paramount and Blockbuster may no longer file reports, proxy statements
or other information with the Commission. Instead, such information would be
provided, to the extent required, in filings made by Viacom.
(i)
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Viacom (File No.
1-9553), Paramount (File No. 1-5404) and Blockbuster (File No. 1-12700) 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;
2. Viacom's Current Reports on Form 8-K dated January 12, 1994, March
18, 1994 and March 28, 1994;
3. Paramount's Transition Report 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;
4. Paramount's Current Reports on Form 8-K dated June 22, 1993, June
30, 1993, July 15, 1993, September 15, 1993, January 4, 1994, January 28,
1994, March 17, 1994 and March 18, 1994;
5. Paramount's Quarterly Reports on Form 10-Q for the three months
ended July 31, 1993, the six months ended October 31, 1993 and the nine
months ended January 31, 1994;
6. Blockbuster's Annual Report on Form 10-K for the year ended
December 31, 1993; and
7. Blockbuster's Current Reports on Form 8-K dated January 7, 1994
(filed January 12, 1994), February 15, 1994 (filed February 22, 1994) and
March 10, 1994 (filed March 11, 1994).
All documents and reports filed by Viacom, Paramount and Blockbuster
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 Paramount and Viacom and the Viacom Annual Meeting 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, to Viacom International Inc., 1515 Broadway, New York,
New York 10036 (telephone number (212) 258-6000), Attention: John H. Burke. In
order to ensure delivery of the documents prior to the applicable stockholder
meeting, requests should be received by , 1994.
(ii)
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TABLE OF CONTENTS
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AVAILABLE INFORMATION...................................................................................... i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ ii
DEFINITION CROSS-REFERENCE SHEET........................................................................... vi
SUMMARY.................................................................................................... 1
Business................................................................................................. 1
The Meetings............................................................................................. 3
The Paramount Merger..................................................................................... 5
The Blockbuster Merger................................................................................... 11
Certain Considerations................................................................................... 14
Management After the Mergers............................................................................. 14
Financial Matters After the Mergers...................................................................... 14
Trademarks and Trade Names............................................................................... 15
Selected Historical Consolidated Financial Data and Unaudited Pro Forma Financial Data, Unaudited Pro
Forma Combined Financial Data and Other Data............................................................... 16
INTRODUCTION............................................................................................... 29
BUSINESS................................................................................................... 29
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
SPECIAL FACTORS............................................................................................ 41
Background of the Paramount Merger....................................................................... 41
Purpose and Structure of the Paramount Merger............................................................ 49
Reasons for the Paramount Merger; Recommendations of the Board of Directors; Fairness of the
Transaction................................................................................................ 49
Opinions of Financial Advisors........................................................................... 52
Interests of Certain Persons in the Paramount Merger..................................................... 74
Paramount Voting Agreement............................................................................... 74
Certain Federal Income Tax Consequences.................................................................. 75
Real Estate Transfer Taxes............................................................................... 82
Certain Effects of the Paramount Merger; Operations After the Paramount Merger........................... 83
THE PARAMOUNT MERGER....................................................................................... 83
General.................................................................................................. 83
The Offer................................................................................................ 83
Paramount Merger Consideration........................................................................... 83
Paramount Effective Time................................................................................. 85
Stock Exchange Listing................................................................................... 85
Expenses of the Transaction.............................................................................. 86
Ownership of Viacom Common Stock Immediately After the Paramount Merger and the Mergers.................. 86
Effect on Employee Benefit Stock Plans................................................................... 87
FINANCING OF THE OFFER..................................................................................... 89
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SALE OF VIACOM PREFERRED STOCK............................................................................. 91
CERTAIN PROVISIONS OF THE PARAMOUNT MERGER AGREEMENT....................................................... 92
Procedure for Exchange of Paramount Certificates......................................................... 92
Certain Representations and Warranties................................................................... 93
Rights Agreement Amendments.............................................................................. 94
Conduct of Businesses Pending the Paramount Merger....................................................... 95
Conditions to Consummation of the Paramount Merger....................................................... 96
Restrictions On Going Private Transactions............................................................... 97
Blockbuster Merger Agreement............................................................................. 97
Indemnification; Insurance............................................................................... 97
Termination.............................................................................................. 98
Expenses................................................................................................. 98
Amendment and Waiver..................................................................................... 98
EXCHANGE ACT REGISTRATION AND TRADING OF THE PARAMOUNT COMMON STOCK........................................ 99
THE BLOCKBUSTER MERGER..................................................................................... 100
Blockbuster.............................................................................................. 100
Certain Transactions Between Viacom and Blockbuster and With Their Stockholders.......................... 101
Form of the Blockbuster Merger........................................................................... 102
Blockbuster Merger Consideration......................................................................... 102
Certain Federal Income Tax Consequences.................................................................. 103
Appraisal Rights with Respect to the Blockbuster Merger.................................................. 103
Treatment of Blockbuster Warrants and Employee Stock Options............................................. 103
CERTAIN CONSIDERATIONS..................................................................................... 105
AMENDMENTS TO THE RESTATED CERTIFICATE OF INCORPORATION OF VIACOM.......................................... 106
AMENDMENT TO THE CERTIFICATE OF INCORPORATION AND BY-LAWS OF PARAMOUNT..................................... 107
MANAGEMENT BEFORE AND AFTER THE MERGERS.................................................................... 107
Executive Officers and Directors of Viacom............................................................... 107
Executive Officers and Directors of Paramount............................................................ 111
Management After the Mergers............................................................................. 113
FINANCIAL MATTERS AFTER THE MERGERS........................................................................ 113
Accounting Treatment..................................................................................... 113
Common Stock Dividend Policy After the Paramount Merger and the Mergers.................................. 113
CAPITALIZATION............................................................................................. 114
COMBINED COMPANY UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............................... 115
PARAMOUNT, MACMILLAN AND OTHER BUSINESSES ACQUIRED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS................................................................................................. 122
BLOCKBUSTER, SUPER CLUB AND SPELLING ENTERTAINMENT UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS................................................................................................. 126
DESCRIPTION OF VIACOM CAPITAL STOCK........................................................................ 130
Viacom Class A Common Stock.............................................................................. 130
Viacom Class B Common Stock.............................................................................. 130
Contingent Value Rights.................................................................................. 131
Viacom Warrants.......................................................................................... 135
Voting and Other Rights of the Viacom Common Stock....................................................... 136
Viacom Preferred Stock................................................................................... 138
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Series C Preferred Stock................................................................................. 139
DESCRIPTION OF VIACOM DEBENTURES........................................................................... 142
COMPARISON OF STOCKHOLDER RIGHTS........................................................................... 152
Stockholder Vote Required for Certain Transactions....................................................... 152
Special Meetings of Stockholders; Stockholder Action by Written Consent.................................. 153
Rights Plans............................................................................................. 154
TRANSACTIONS BY CERTAIN PERSONS IN PARAMOUNT
COMMON STOCK............................................................................................. 156
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 157
Viacom Capital Stock..................................................................................... 157
Paramount Capital Stock.................................................................................. 158
OTHER MATTERS.............................................................................................. 159
Regulatory Approvals Required............................................................................ 159
Antitrust Approvals...................................................................................... 159
Stockholder Litigations.................................................................................. 161
Antitrust Litigation..................................................................................... 162
QVC Litigation........................................................................................... 163
DISSENTING STOCKHOLDERS' RIGHTS OF APPRAISAL............................................................... 165
EXPERTS.................................................................................................... 167
Financial Statements..................................................................................... 167
Legal Opinions........................................................................................... 168
STOCKHOLDER PROPOSALS...................................................................................... 169
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LIST OF ANNEXES
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Annex I Paramount Merger Agreement
Annex II Paramount Voting Agreement
Annex III Opinion of Smith Barney Shearson Inc.
Annex IV Opinion of Lazard Freres & Co.
Annex V Excerpt from the Delaware General Corporation Law Relating to Dissenters' Rights
Annex VI Form of Certificate of Merger for the Paramount Merger
Annex VII Form of Certificate of Amendment to the Restated Certificate of Incorporation of Viacom
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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:
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TERM PAGE
- - - - ---------------------------------------------- ---------
AMEX (i)
Amended Stock Option Agreement 45
Bidding Procedures 45
Blockbuster Cover
Blockbuster Common Stock (i)
Blockbuster Credit Agreement 90
Blockbuster Effective Time 11
Blockbuster Merger Cover
Blockbuster Merger Agreement 2
Blockbuster Merger Consideration 13
Blockbuster Option Stockholders 101
Blockbuster Preferred Stock Agreement 91
Blockbuster Proxy Agreement 101
Blockbuster Proxy Shares 101
Blockbuster Proxy Stockholders 101
Blockbuster Registration Statement (i)
Blockbuster Stockholders Stock Option Agreement 101
Blockbuster Subscription Agreement 2
Blockbuster Voting Agreement 11
CVR Agreement 131
CVRs Cover
Cityvision 23
Class B Value 13
combined company 11
Commission (i)
Communications Act 33
Credit Agreement 89
DGCL 6
Discovery Zone 13
Exchange Act (i)
FCC 32
February 4 Merger Agreement Cover
February 22nd Regulations 33
First Viacom Offer 42
First Viacom Second-Step Merger 42
Fourth Viacom Offer 47
Fourth Viacom Second-Step Merger 47
Going Private Transaction 97
Indenture 142
Macmillan 19
Macmillan Acquisition 19
Major Video 23
Merger Subsidiary Cover
Mergers Cover
MFJ 34
MTVN 29
NAI 4
NYSE (i)
NYNEX 2
NYNEX Preferred Stock Agreement 91
New Blockbuster Facility 89
Nielsen Report 29
November 6 Amendment 44
October 24 Merger Agreement 43
Offer 2
Original Merge 42
Original Merger Agreement 42
Original Stock Option Agreement 42
Original Voting Agreement 42
Outside Directors 74
Paramount Cover
Paramount Certificates 92
Paramount Common Stock Cover
Paramount Effective Time 5
Paramount Exchange Agent 92
Paramount Merger Cover
Paramount Merger Agreement Cover
Paramount Merger Consideration 6
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TERM PAGE
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Paramount Option Shares 87
Paramount Special Meeting 3
Paramount Stock Options 87
Paramount Voting Agreement 4
Parity Stock 139
Philips 100
Plan 74
Pro Forma Events 25
Preferred Stock Investors 91
Proxy Statement/Prospectus Cover
QVC 42
QVC Transaction Consideration 9
Registration Statement (i)
Republic Pictures 12
Rights 48
Rights Agreement 43
Rights Agreement Amendments Agreement 94
SNI 29
Schedule 13E-3 (i)
Second Viacom Offer 44
Second Viacom Second-Step Merger 44
Securities Act (i)
Series A Preferred Stock 2
Series B Preferred Stock 2
Series C Preferred Stock 6
Significant Stockholder 97
Sound Warehouse 23
Special Meetings 3
Spelling Entertainment 12
Super Club 23
telco 33
Third Viacom Offer 46
Third Viacom Second-Step Merger 46
VCR 13
VCR Conversion Date 13
VCR Valuation Period 13
VSMLP 23
Viacom Cover
Viacom Annual Meeting Cover
Viacom Annual Meeting Proposals 3
Viacom-Blockbuster 11
Viacom Charter Amendments 3
Viacom Class A Common Stock Cover
Viacom Class B Common Stock Cover
Viacom Common Stock Cover
Viacom Debentures 142
Viacom Exchange Debentures 6
Viacom Five-Year Warrant Agreement 135
Viacom Five-Year Warrants Cover
Viacom International 1
Viacom Merger Debentures Cover
Viacom Preferred Stock 2
Viacom Special Meeting 3
Viacom Three-Year Warrant Agreement 135
Viacom Three-Year Warrants Cover
Viacom Transaction Consideration 9
Viacom Warrant Agreements 135
Viacom Warrants Cover
Virgin 12
WJB 23
(vii)
<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.
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BUSINESS
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Viacom Inc. ............................... Viacom's principal asset is its 100% ownership of Viacom
200 Elm Street International ("Viacom International") and its majority ownership
Dedham, Massachusetts 02026 of Paramount. Viacom International is a diversified entertainment
(617) 461-1600 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
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 1,094,000 customers as of December
31, 1993 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
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
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market) in each of Los Angeles, Seattle and Washington, D.C.
Strategic Relationships. Viacom has entered into strategic
relationships with Blockbuster and NYNEX Corporation ("NYNEX")
including (i) a $600 million investment by Blockbuster in the
Series A Cumulative Convertible Preferred Stock, par value $.01
per share, of Viacom (the "Series A Preferred Stock"), (ii) a $1.2
billion investment by NYNEX 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 (iii) an agreement with
each of Blockbuster and NYNEX to explore strategic partnership
opportunities.
In addition, on March 10, 1994 Blockbuster purchased approximately
22.7 million shares of Viacom Class B Common Stock for an
aggregate purchase price of approximately $1.25 billion pursuant
to the Subscription Agreement dated as of January 7, 1994 between
Blockbuster and Viacom (the "Blockbuster Subscription Agreement").
Blockbuster Merger. Viacom and Blockbuster are parties to an
Agreement and Plan of Merger (the "Blockbuster Merger Agreement")
dated as of January 7, 1994, as described under "The Blockbuster
Merger."
Ownership of Paramount Common Stock. On March 11, 1994, pursuant
to the terms of its tender offer for shares of Paramount Common
Stock (the "Offer"), Viacom completed its purchase of 61,657,432
of such shares, representing a majority of the shares of Paramount
Common Stock outstanding. On March 11, 1994, 10 members of
Paramount's Board of Directors resigned and their positions were
filled by 10 designees of Viacom. Effective March 15, 1994,
Paramount's fiscal year was changed such that its fiscal year
(consisting of eleven calendar months) will end March 31, 1994,
following which Paramount's fiscal year will be the nine month
period ending December 31, 1994. Thereafter, Paramount's fiscal
year will be the twelve month period ending on December 31 of each
year, conforming to that of Viacom.
Recent Developments. On April 4, 1994, Viacom sold its one-third
partnership interest in LIFETIME(R) to its partners The Hearst
Corporation and Capital Cities/ABC Inc. for approximately $317.6
million.
Paramount Communications Inc. ............. The businesses of Paramount are entertainment and publishing.
15 Columbus Circle Entertainment includes the production, financing and distribution
New York, New York 10023 of motion pictures, television programming and prerecorded
(212) 373-8000 videocassettes and the operation of motion picture theaters,
independent television stations, regional theme parks and Madison
Square Garden.
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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.
THE MEETINGS
Meetings of Stockholders................... Viacom. A Special Meeting of Stockholders of Viacom will be held
at [ ], New York, New York on [ ], 1994,
at [ ] a.m., local time (the "Viacom Special Meeting").
The Viacom Annual Meeting will be held immediately following the
Viacom Special Meeting at the same location as the Viacom Special
Meeting.
Paramount. A Special Meeting of Stockholders of Paramount will be
held at [ ] on [ ], 1994, at [ ]
a.m., local time (the "Paramount 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 Class A
Common Stock will consider and vote upon (i) a proposal to approve
and adopt the Paramount Merger Agreement, including the issuance
of the Paramount Merger Consideration (as defined below); (ii) to
the extent such matters have not been previously approved by the
stockholders of Viacom, proposals to amend Viacom's Restated
Certificate of Incorporation to (1) increase the number of shares
of Viacom Class B Common Stock authorized to be issued from 150
million to one billion, (2) increase the number of shares of
Viacom Class A Common Stock authorized to be issued from 100
million to 200 million, (3) increase the number of shares of
preferred stock of Viacom authorized to be issued from 100 million
to 200 million and (4) increase the maximum number of directors
constituting the Board of Directors of Viacom from 12 to 20 (the
matters described in clauses (1) through (4) above being
hereinafter together referred to as the "Viacom Charter
Amendments") and (iii) such other proposals as may be properly
brought before the Viacom Special Meeting.
At the Viacom Annual Meeting, holders of Viacom Class A Common
Stock will consider and vote upon (i) the election of 10
directors, (ii) the approval of the Viacom Senior Executive
Short-Term Incentive Plan, (iii) the approval of the Viacom 1994
Long-Term Management Incentive Plan, (iv) the approval of the
Viacom Stock Option Plan for Outside Directors, (v) the approval
of the appointment of independent auditors for 1994 and (vi) such
other business as may properly come before the Viacom Annual
Meeting or any adjournment thereof (the matters described in
clauses (i) through (v) above being hereinafter together referred
to as the "Viacom Annual Meeting Proposals").
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Paramount. At the Paramount Special Meeting, holders of Paramount
Common Stock will consider and vote upon (i) a proposal to approve
and adopt the Paramount Merger Agreement and (ii) such other
matters as may be properly brought before the meeting.
Security Ownership of Management and
Certain Affiliates........................... Viacom. As of April 1, 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"), in which Sumner
M. Redstone beneficially owns a controlling interest, owned
approximately 85% of the outstanding shares of Viacom Class A
Common Stock and 52% of the outstanding shares of Viacom Class B
Common Stock on April 1, 1994.
Paramount. As of March 31, 1994, directors and executive officers
of Paramount were beneficial owners of approximately 1.84% of the
outstanding shares of Paramount Common Stock.
Votes Required............................. Viacom. In order to effect the Viacom Charter Amendments, the
Viacom Charter Amendments must be approved by the affirmative vote
of the holders of a majority of the outstanding shares of Viacom
Class A Common Stock. Abstentions and broker non-votes will have
the same effect as votes against the Viacom Charter Amendments.
The affirmative vote of the holders of a majority of the shares of
Viacom Class A Common Stock present in person or represented by
proxy is required for approval of the Paramount Merger Agreement
(including the issuance of the Paramount Merger Consideration) and
approval of the Annual Meeting Proposals. Abstentions will have
the same effect as a vote against approval of the Paramount Merger
Agreement and approval of Annual Meeting Proposals. Broker
non-votes will have no such effect and will not be counted.
Pursuant to a Voting Agreement dated as of January 21, 1994 (the
"Paramount Voting Agreement") between Paramount and NAI, 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 the Paramount
Merger and related transactions. The vote of NAI in accordance
with the Paramount Voting Agreement would be sufficient to approve
the Paramount Merger Agreement and the related transactions
without any action on the part of any other holder of Viacom Class
A Common Stock.
NAI has advised Viacom that it intends to vote all of its shares
of Viacom Class A Common Stock in favor of the Annual Meeting
Proposals and each of the Viacom Charter Amendments; such action
by NAI is sufficient to approve
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such proposals without any action on the part of any other holder
of Viacom Class A Common Stock.
Paramount. In order to effect the Paramount Merger, the Paramount
Merger Agreement must be approved by the affirmative vote of the
holders of a majority of the outstanding shares of Paramount
Common Stock entitled to vote thereon. Abstentions and broker
non-votes will have the same effect as votes against the Paramount
Merger Agreement. As Viacom has acquired a majority of the
outstanding shares of Paramount Common Stock pursuant to the
Offer, Viacom has sufficient voting power to approve the Paramount
Merger Agreement, even if no other stockholder of Paramount votes
in favor of the Paramount Merger Agreement.
Record Date................................ Viacom. The record date for the Viacom Special Meeting and the
Viacom Annual Meeting is [ ], 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 and the
Viacom Annual Meeting.
Paramount. The record date for the Paramount Special Meeting is
[ ], 1994. Accordingly, holders of record of Paramount
Common Stock as of such date will be entitled to notice of, and to
vote at, the Paramount Special Meeting.
THE PARAMOUNT MERGER
The Offer.................................. Pursuant to the Offer, on March 11, 1994, Viacom completed its
purchase of a majority of the shares of Paramount Common Stock
outstanding at a price of $107 per share in cash, or an aggregate
cash consideration of approximately $6.6 billion.
Form of the Paramount Merger............... The Paramount Merger Agreement provides that the Paramount Merger
will be effected by causing the Merger Subsidiary, a wholly owned
subsidiary of Viacom, to merge with and into Paramount. As a
result, Paramount will be the corporation surviving the merger and
will become a wholly owned subsidiary of Viacom after the
effective time of the Paramount Merger (the "Paramount Effective
Time").
At the Paramount Effective Time, the Restated Certificate of
Incorporation (the "Certificate of Incorporation") and By-Laws of
Paramount will be amended in their entirety to read as the Certificate
of Incorporation and By-Laws of the Merger Subsidiary.
Conversion of the Paramount Common Stock... Pursuant to the Paramount Merger Agreement, each share of
Paramount Common Stock not owned by Viacom (other than shares of
Paramount Common Stock held in the treasury of Paramount or owned
by any direct or indirect wholly owned subsidiary of Viacom or of
Paramount and other than shares of Paramount Common Stock held by
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stockholders who have demanded and perfected appraisal rights
under the Delaware General Corporation Law ("DGCL")), will be
converted into the right to receive (i) 0.93065 of a share of
Viacom Class B Common Stock, (ii) $17.50 principal amount of the
Viacom Merger Debentures, (iii) 0.93065 of a CVR, (iv) 0.5 of a
Viacom Three-Year Warrant and (v) 0.3 of a Viacom Five-Year
Warrant (collectively, the "Paramount Merger Consideration").
Paramount Merger Consideration............. 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.
The Viacom Merger Debentures will bear interest at a rate of 8%
per annum, will have a maturity of 12 years from the Paramount
Effective Time, will be redeemable by Viacom at declining
redemption premiums after the fifth anniversary of the Paramount
Effective Time and will be subordinated in right of payment to all
senior indebtedness of Viacom.
The Viacom Merger Debentures will be exchangeable, at the option
of Viacom, into the Series C Cumulative Exchangeable Preferred
Stock, par value $.01 per share, of Viacom (the "Series C
Preferred Stock"), on or after the earlier of (i) January 1, 1995,
but only if the Blockbuster 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. The Series C Preferred Stock, if issued, (i) would
accrue dividends at a rate of 5% per annum until the tenth
anniversary of the Paramount Effective Time and 10% per annum
thereafter, (ii) would have a liquidation preference of $50 per
share, (iii) would be redeemable at the option of Viacom at
declining redemption premiums after the fifth anniversary of the
Paramount Effective Time and (iv) would be exchangeable at the
option of Viacom into the 5% subordinated debentures of Viacom
(the "Viacom Exchange Debentures") after the third anniversary of
the Paramount Effective Time.
Each whole CVR will represent the right, on the first anniversary
of the Paramount Effective Time, to receive, in cash or securities
of Viacom (at the option of Viacom), the amount by which the
average trading value of Viacom Class B Common Stock over a
specified period is less than a minimum price of $48 per share.
Viacom will have the right, in its sole discretion, to extend the
payment and measurement dates of the CVR by one year, in which
case the minimum price will increase to $51 per share, and a
further one-year extension right which, if exercised by Viacom,
would increase the minimum price to $55 per share. The average
trading value will be based upon market prices during the 60
trading days ending on the last day of
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the relevant period and is subject to a floor of (i) $36 per share
if Viacom does not exercise its extension rights, (ii) $37 per
share if Viacom extends the payment and measurement dates of the
CVR by one year or (iii) $38 per share if Viacom exercises its
further one-year extension right.
If the average trading value of a share of Viacom Class B Common
Stock equals or exceeds $48 on the Maturity Date or $51 on the
First Extended Maturity Date (if the Maturity Date is extended by
Viacom to the First Extended Maturity Date) or $55 on the Second
Extended Maturity Date (if the First Extended Maturity Date is
extended by Viacom to the Second Extended Maturity Date), as the
case may be, no amount will be payable with respect to the CVRs.
Certain corporate reorganizations, in which consideration paid to
holders of shares of Viacom Class B Common Stock exceeds minimum
amounts, may also result in no value being payable with respect to
the CVRs. See "Description of Viacom Capital Stock--Contingent
Value Rights."
Each whole Viacom Three-Year Warrant will entitle the holder
thereof to purchase one share of Viacom Class B Common Stock at
any time prior to the third anniversary of the Paramount Effective
Time at a price of $60, payable in cash.
Each whole Viacom Five-Year Warrant will entitle the holder
thereof to purchase one share of Viacom Class B Common Stock at
any time prior to the fifth anniversary of the Paramount Effective
Time at a price of $70, payable in cash or, if issued, in an
equivalent amount of liquidation preference of Series C Preferred
Stock or principal amount of Viacom Exchange Debentures.
No fractional securities will be issued in connection with the
Paramount Merger. In lieu of any such fractional shares, each
holder of Paramount Common Stock will be paid an amount in cash as
described under "Certain Provisions of the Paramount Merger
Agreement--Procedure for Exchange of Paramount Certificates."
Ownership of Viacom Common Stock After the
Mergers...................................... Following the Paramount Merger. NAI will own approximately 85% of
the voting Viacom Class A Common Stock and approximately 46% of
the aggregate Viacom Common Stock immediately following
consummation of the Paramount Merger. Former stockholders of
Paramount will own approximately 28% of the aggregate Viacom
Common Stock immediately following consummation of the Paramount
Merger. (All percentages of ownership of common stock shown above
in this paragraph are calculated assuming that the Blockbuster
Merger has not yet been consummated.)
Following the Mergers. NAI will own approximately 62% of the
voting Viacom Class A Common Stock and
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approximately 25% of the aggregate Viacom Common Stock immediately
following consummation of the Mergers. Former stockholders of
Paramount will own approximately 16% of the aggregate Viacom
Common Stock immediately following consummation of the Mergers.
Former stockholders of Blockbuster will own approximately 27% of
the voting Viacom Class A Common Stock and approximately 46% of
the aggregate Viacom Common Stock immediately following
consummation of the Mergers. (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 March 31, 1994).
Recommendations of the Boards of
Directors.................................... Viacom. By a unanimous vote (with one director abstaining) of
directors at a special meeting of the Board of Directors of Viacom
held on February 1, 1994, the Viacom Board of Directors determined
that the Offer and the Paramount Merger, taken together, are fair
to, and in the best interests of, Viacom and its stockholders,
approved the Offer and the Paramount Merger and resolved to
recommend that holders of Viacom Class A Common Stock vote FOR
approval of the February 4 Merger Agreement and related
transactions.
[On April [ ], 1994, the Board of Directors of Viacom approved
certain amendments to the February 4 Merger Agreement which are
embodied in the Paramount Merger Agreement.] The Paramount Merger
Agreement amended and restated the terms of the February 4 Merger
Agreement solely to provide for a merger of a wholly owned subsidiary
of Viacom into Paramount (rather than Paramount into Viacom) and to
provide for the treatment of Paramount Stock Options in the Paramount
Merger as described under "The Paramount Merger--Effect on Employee
Benefit Stock Plans."
The Board of Directors of Viacom also recommends that the
stockholders of Viacom vote FOR the Viacom Charter Amendments and
Annual Meeting Proposals.
Paramount. On February 4, 1994, the Board of Directors of
Paramount (i) approved the terms of the February 4 Merger
Agreement and authorized its execution and delivery, (ii)
determined that the Offer and the Paramount Merger, taken
together, are fair to, and in the best interests of, the holders
of Paramount Common Stock, (iii) recommended approval and adoption
of the February 4 Merger Agreement by the stockholders of
Paramount and (iv) recommended that holders of Paramount Common
Stock tender their shares pursuant to the Offer.
[On April [ ], 1994, the reconstituted Board of Directors of
Paramount approved certain amendments to the February 4 Merger
Agreement which are embodied in the Paramount Merger Agreement.]
Opinions of Financial Advisors............. Viacom. Smith Barney Shearson Inc. ("Smith Barney") has delivered
its opinion to the Board of Directors of Viacom that, as of
February 1, 1994, the financial terms of the Offer and the
Paramount Merger, taken together, are fair, from a financial point
of view, to Viacom and its stockholders whether or not the
Blockbuster Merger is consummated.
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Paramount. Lazard Freres & Co. ("Lazard Freres"), financial
advisor to Paramount, has delivered its opinion to the Board of
Directors of Paramount that, as of February 4, 1994, (i) the
consideration to be received by the holders of Paramount Common
Stock in the Offer and the Paramount Merger, taken together (the
"Viacom Transaction Consideration"), was fair to the holders of
Paramount Common Stock from a financial point of view, (ii) the
consideration proposed to be received in the Fourth QVC Offer and
the Fourth QVC Second-Step Merger (each as defined in "Special
Factors--Opinions of Financial Advisors"), taken together (the
"QVC Transaction Consideration"), was fair to the holders of
Paramount Common Stock from a financial point of view and (iii)
the Viacom Transaction Consideration was marginally superior to
the QVC Transaction Consideration from a financial point of view.
For information on the assumptions made, matters considered and
limits of the reviews by Smith Barney and Lazard Freres,
stockholders are urged to read in their entirety the opinions of
Smith Barney and Lazard Freres attached as Annexes III and IV,
respectively, to this Proxy Statement/Prospectus.
Conditions to the Paramount Merger,
Termination.................................. The obligations of Viacom and Paramount to consummate the
Paramount Merger are subject to various conditions, including
obtaining requisite stockholder approvals and approval for listing
on the AMEX, subject to official notice of issuance, of the shares
of Viacom Class B Common Stock, the Viacom Merger Debentures, the
CVRs and the Viacom Warrants to be issued in connection with the
Paramount Merger.
The Paramount Merger Agreement may be terminated at any time prior
to the Paramount Effective Time by mutual consent of Viacom and
Paramount, or by either party if (i) any permanent injunction or
action by any governmental entity preventing consummation of the
Paramount Merger becomes final and nonappealable, (ii) the
Paramount Merger has not been consummated before July 31, 1994;
provided, however, that the Paramount Merger Agreement may be
extended by written notice of either Paramount or Viacom to a date
not later than September 30, 1994 if the Paramount Merger has not
been consummated as a direct result of Viacom or Paramount having
failed by July 31, 1994 to receive all required regulatory
approvals or consents with respect to the Paramount Merger or
(iii) any approval of stockholders of Viacom or Paramount required
for consummation of the Paramount Merger has not been obtained at
the applicable meeting.
Paramount may terminate the Paramount Merger Agreement if Viacom
has breached any representation, warranty, covenant or agreement
in the Paramount Merger Agreement such that the closing conditions
relating to its
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representations, warranties, covenants and agreements would be
incapable of being satisfied by July 31, 1994.
Stock Exchange Listing..................... It is a condition to the Paramount Merger that the shares of
Viacom Class B Common Stock, the Viacom Merger Debentures, the
CVRs and the Viacom Warrants to be issued in the Paramount Merger
as Paramount Merger Consideration be authorized for listing on the
AMEX, subject to official notice of issuance. Viacom will file an
application to list such securities on the AMEX, subject to
official notice of issuance. The shares of Viacom Class B Common
Stock are traded on the AMEX under the symbol "VIAB" and the
Viacom Debentures, CVRs, Viacom Three-Year Warrants and Viacom
Five-Year Warrants will be traded under the symbols " ",
" ", " " and " ", respectively.
Viacom has also agreed to use its reasonable best efforts to cause
the Series C Preferred Stock and the Viacom Exchange Debentures to
be approved for listing on the AMEX prior to the issuance thereof.
Dividends.................................. The Paramount Merger Agreement prohibits the declaration, setting
aside, making or payment of dividends until the Paramount
Effective Time, except for (i) Viacom's regularly scheduled
quarterly dividends to be paid on the Viacom Preferred Stock, (ii)
Paramount's regularly scheduled quarterly dividends, not to exceed
$.20 per share, after consultation with Viacom as to the timing
and advisability of declaring any such dividend and (iii)
dividends paid and declared by subsidiaries of Viacom and
Paramount consistent with past practice.
Appraisal Rights........................... In connection with the Paramount Merger, a holder of shares of
Paramount Common Stock will be entitled to demand appraisal rights
in respect of such shares under Section 262 of the DGCL, subject
to satisfaction by such stockholder of the conditions for
appraisal rights established by such Section, which is set forth
in full in Annex V hereto. Holders of Viacom Common Stock will not
have appraisal rights in connection with the Paramount 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 Paramount Merger. A Paramount stockholder will recognize gain
or loss on all Paramount Common Stock exchanged in the Paramount
Merger equal to the difference between such stockholder's basis in
the Paramount Common Stock so exchanged and the amount of cash
and/or the fair market value on the date of the Paramount Merger
of the Viacom Class B Common Stock, the Viacom Merger Debentures,
the CVRs, the Viacom Three-Year Warrants and the Viacom Five-Year
Warrants received. Neither Paramount nor Viacom will recognize any
gain or loss as a result of the Paramount Merger.
Financing of the Offer..................... The total amount of funds required by Viacom to consummate the
Offer and to pay related fees and expenses was approximately $6.7
billion.
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The Offer was financed by (i) $1.8 billion from the sale of Viacom
Preferred Stock (see "Sale of Viacom Preferred Stock"), proceeds
of which are reflected as cash and cash equivalents on Viacom's
Balance Sheet as of December 31, 1993, (ii) $1.25 billion from the
sale of Viacom Class B Common Stock to Blockbuster and (iii) $3.7
billion from borrowings under a credit agreement. Assuming the
Blockbuster Merger is consummated, the Series A Preferred Stock
and Viacom Class B Common Stock owned by Blockbuster will cease to
be outstanding and borrowings under bank facilities used by Viacom
and Blockbuster will be repaid from various sources as further
described under "Financing of the Offer."
Although Viacom expects that it will be able to refinance its
indebtedness and meet its obligations without the need to sell any
assets, Viacom is continuing to review opportunities for the sale
of non-strategic assets as such opportunities may arise.
Paramount Voting Agreement................. Pursuant to the Paramount Voting Agreement, NAI has agreed to vote
its shares of Viacom Class A Common Stock in favor of the
Paramount Merger and related transactions and against any
competing business combination proposal. Approval of the Paramount
Merger Agreement (including the issuance of the Paramount Merger
Consideration) and related transactions by the stockholders of
Viacom is therefore assured.
THE BLOCKBUSTER MERGER
The Blockbuster Merger
Agreement............................... The Blockbuster Merger Agreement provides that, subject to
stockholder approval, at the effective time of the Blockbuster
Merger (the "Blockbuster Effective Time"), Blockbuster will merge
with and into Viacom, with Viacom being the surviving corporation.
Such surviving corporation is hereinafter referred to in this
Proxy Statement/Prospectus as "Viacom-Blockbuster." Viacom-
Blockbuster, together with its consolidated subsidiaries, and
together with Paramount as its wholly owned subsidiary, is
referred to in this Proxy Statement/Prospectus as the "combined
company."
It is anticipated that the Blockbuster Merger will be considered
at separate meetings of the stockholders of Viacom and Blockbuster
to be held on [ ], 1994. Pursuant to a Voting Agreement dated
as of January 7, 1994 (the "Blockbuster Voting Agreement") between
Blockbuster and NAI, NAI has agreed to vote its shares of Viacom
Class A Common Stock in favor of the Blockbuster Merger and
against any competing business combination proposal. Approval of
the Blockbuster Merger by the stockholders of Viacom is therefore
assured. THIS PROXY STATEMENT/PROSPECTUS IS NOT A SOLICITATION
WITH RESPECT TO, NOR A PROSPECTUS RELATING TO, THE BLOCKBUSTER
MERGER.
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Blockbuster ............................... Blockbuster is an international entertainment company with
businesses operating in the home video, music retailing and filmed
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 December 31, 1993, there were
3,593 video stores operating in Blockbuster's system, of which
2,698 were Blockbuster-owned and 895 were franchise-owned.
Blockbuster-owned video stores at December 31, 1993 included 775
stores operating under the "Ritz" trade name in the United Kingdom
and Austria and 120 stores operating under the "Video Towne",
"Alfalfa", "Movies at Home" and "Movieland" trade names. The
Blockbuster Video system operates in 49 states and 9 foreign
countries.
Music Retailing. Through music stores operating under various
trade names, including "Blockbuster Music Plus", "Sound
Warehouse", "Music Plus", "Record Bar", "Tracks", "Turtle's" and
"Rhythm and Views", Blockbuster is one of the largest specialty
retailers of prerecorded music in the United States, with 511
stores operating throughout the United States as of December 31,
1993. Blockbuster is also a partner in an international joint
venture with Virgin Retail Group Limited ("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 Entertainment. Blockbuster has interests in the filmed
entertainment industry through investments in Spelling
Entertainment Group Inc. (together with its subsidiaries,
"Spelling Entertainment") and Republic Pictures Corporation
("Republic Pictures"), each of 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. Blockbuster owns approximately 70.5% of
Spelling Entertainment's outstanding shares of common stock and
approximately 39% of Republic Pictures' outstanding shares of
common stock, including shares subject to certain warrants, as of
December 31, 1993.
Spelling Entertainment and Republic Pictures have entered into an
agreement pursuant to which Spelling Entertainment will acquire
Republic Pictures, which transaction is expected to be consummated
during the second quarter of 1994.
Other Entertainment. As of December 31, 1993, Blockbuster owned
approximately 19.1% of the outstanding
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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 34 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.
Conversion of the Blockbuster Common
Stock........................................ At the Blockbuster 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 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 Blockbuster Effective Time, evidenced by
one variable common right (a "VCR" and, collectively, the
"Blockbuster Merger Consideration").
Variable Common Rights..................... The VCRs represent the right to receive shares of Viacom Class B
Common Stock under certain circumstances on the first anniversary
of the Blockbuster 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 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 to zero, which will occur if the Class B Value is
$52 per share or above.
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Notwithstanding the calculation in the above paragraph, 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
Blockbuster 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.
CERTAIN CONSIDERATIONS Stockholders of Viacom and Paramount 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 Paramount Merger Consideration.
Paramount stockholders should also consider that, following
consummation of the Paramount Merger and the Mergers, voting
control of the combined company will be held by a single
stockholder (although certain provisions of the Paramount Merger
Agreement and the Blockbuster Merger Agreement restrict the
ability of certain large stockholders from engaging in going
private transactions). Paramount stockholders should also consider
the total indebtedness of Viacom after the Paramount Merger and
the Mergers, including the maturity of such debt. Finally,
stockholders should consider the changing competitive environment
of the entertainment and telecommunications industries and the
Blockbuster Merger.
MANAGEMENT AFTER THE MERGERS
Executive Officers......................... Sumner M. Redstone, currently the Chairman of the Board of Viacom
and Paramount, will remain Chairman of the Board of the combined
company. Assuming consummation of the Blockbuster Merger, H. Wayne
Huizenga, currently the Chairman of the Board and Chief Executive
Officer of Blockbuster and a Director of Viacom and Paramount,
will become Vice Chairman of the combined company. Frank J.
Biondi, Jr., currently President, Chief Executive Officer and
Director of Viacom and Paramount, will remain President, Chief
Executive Officer of the combined company.
Directors.................................. At the Viacom Annual Meeting, holders of Viacom Class A Common
Stock will consider and vote upon the election of 10 directors.
FINANCIAL MATTERS AFTER THE MERGERS
Accounting Treatment....................... The Mergers will be accounted for by Viacom under the "purchase"
method of accounting in accordance with generally accepted
accounting principles. Therefore, the
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aggregate consideration paid by Viacom in connection with the
Mergers will be allocated to both Paramount's and 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 Paramount
(adjusted for minority ownership interests from the date of the
purchase of the shares of Paramount Common Stock pursuant to the
Offer through the Paramount Effective Time) were consolidated into
the assets and liabilities and results of operations of Viacom as
of March 1, 1994. 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
Blockbuster Effective Time.
Common Stock Dividend Policy After the
Paramount Merger
and the Mergers......................... 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 Paramount Merger and the Mergers.
Future dividends will be determined by Viacom's Board of Directors
in light of Viacom's alternative opportunities for investment and
the earnings and financial condition of Viacom and its
subsidiaries, among other factors.
TRADEMARKS AND TRADE NAMES Viacom. The following trademarks, trade names and service marks
are used in this Proxy Statement/Prospectus and are proprietary to
Viacom:
Viacom Logo(R); MTV: MUSIC TELEVISION(R); NICKELODEON(R); NICK AT
NITE(R); MTV EUROPETM; MTV LATINOTM; NICKELODEON UKTM; VH-1/VIDEO
HITS ONE(R); SHOWTIME(R); THE MOVIE CHANNELTM; FLIXTM; SHOWTIME
SATELLITE NETWORKSTM; SETTM PAY PER VIEW; THE REN & STIMPY SHOWTM;
RUGRATS(R); NICKTOONS(R); DOUGTM; BEAVIS & BUTT-HEADTM; ROCKO'S
MODERN LIFETM; DRACULA UNLEASHEDTM; and UNPLUGGEDTM.
Paramount. The trademarks and trade names used in this Proxy
Statement/Prospectus in connection with Paramount and its
businesses are proprietary or licensed to Paramount or its
subsidiaries.
Blockbuster. The following trademarks and trade names are used in
this Proxy Statement/Prospectus and are proprietary to
Blockbuster:
BLOCKBUSTER(R); BLOCKBUSTER VIDEO(R); BLOCKBUSTER ENTERTAINMENTTM;
MUSIC PLUS(R) and design; SOUND WAREHOUSE(R); TRACKS
MUSIC-VIDEO(R) and design; TURTLE'S(R); VIDEOTOWNE
ENTERTAINMENT(R) and design; RECORD BAR(R); and RHYTHM AND
VIEWS(R) and design.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF
VIACOM
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
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, 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 disclose, among other
matters, certain business acquisitions and dispositions, certain other
transactions, and accounting changes.
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993(A) 1992(B) 1991 1990 1989(C)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Revenues.................................................. $ 2,004.9 $ 1,864.7 $ 1,711.6 $ 1,599.6 $ 1,436.2
Earnings from operations.................................. 385.0 347.9 312.2 223.8 144.7
Earnings (loss) before income taxes....................... 301.8 155.6 8.3 (70.4) 144.9
Net earnings (loss) before extraordinary items and
cumulative effect of change in accounting principle..... 169.5 66.1 (46.6) (89.8) 131.1
Net earnings (loss)....................................... 171.0 49.0 (49.7) (89.8) 131.1
Net earnings (loss) attributable to common stock.......... $ 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... $ 1.30 $ .55 $ (.41) $ (.84) $ 1.06
Extraordinary items..................................... (.07) (.14) (.03) -- --
Cumulative effect of change in accounting principle..... .08 -- -- -- --
Net earnings (loss)..................................... $ 1.31 $ .41 $ (.44) $ (.84) $ 1.06
RATIO OF EARNINGS TO FIXED CHARGES........................ 2.8x 1.8x 1.0x (d) 1.4x
AT DECEMBER 31,
-----------------------------------------------------
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Total assets.............................................. $ 6,416.9 $ 4,317.1 $ 4,188.4 $ 4,027.9 $ 3,753.0
Long-term debt, including current
maturities.............................................. 2,433.3 2,397.0 2,321.0 2,537.3 2,283.2
Stockholders' equity...................................... 2,718.1 756.5 699.5 366.2 455.9
Book value per common share............................... $ 7.60 $ 6.28 $ 5.82 $ 3.43 $ 4.27
</TABLE>
See notes to selected historical consolidated financial data of Viacom.
16
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NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF VIACOM
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(a) 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.
(b) 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.
(c) 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.
(d) Earnings of Viacom were insufficient to cover fixed charges for the year ended December 31, 1990. The
additional amount of earnings required to cover fixed charges of Viacom for the year ended December 31, 1990
would have been $66.2 million.
Certain Acquisitions and Dispositions
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 KSRY-FM), San Francisco, California; KLRS-FM (now KSRI-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 Blockbuster 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 Blockbuster 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.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF
PARAMOUNT
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
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 nine
months ended January 31, 1994 and 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 six months ended
April 30, 1993 and the interim nine months ended January 31, 1994 are not
necessarily indicative of results which may be expected for any other interim or
annual period. In 1993, Paramount changed its fiscal year end from October 31 to
April 30. In 1994, Paramount caused its fiscal period to be 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>
NINE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, APRIL 30, YEAR ENDED OCTOBER 31,
-------------------- -------------------- ------------------------------------------
1994(A) 1993 1993(B) 1992 1992 1991(C) 1990 1989(D)
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Revenues.............................. $ 3,757.0 $ 3,210.1 $ 1,898.1 $ 1,998.5 $ 4,264.9 $ 3,895.4 $ 3,869.0 $ 3,391.6
Earnings (loss) from operations....... 298.0 320.1 (10.1) 77.8 396.1 157.8 304.2 192.9
Earnings (loss) from continuing
operations before income taxes...... 277.8 327.4 (16.8) 68.7 397.3 179.7 381.0 19.1
Net earnings (loss) from continuing
operations before extraordinary item
and cumulative effect of changes in
accounting principles................. 180.6 225.6 (9.1) 48.7 274.2 127.6 264.4 17.3
Net earnings (loss)................... $ 180.6 $ 149.9 $ (76.0) $ 48.7 $ 265.4 $ 127.6 $ 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............................ $ 1.50 $ 1.90 $ (.08) $ .41 $ 2.31 $ 1.08 $ 2.20 $ .14
Discontinued operations............. -- -- -- -- -- -- -- 12.12
Extraordinary item.................. -- (.07) -- -- (.08) -- -- --
Cumulative effect of changes in
accounting principles................. -- (.57) (.57) -- -- -- -- (.48)
Net earnings (loss)................. $ 1.50 $ 1.26 $ (.65) $ .41 $ 2.23 $ 1.08 $ 2.20 $ 11.78
Cash dividends declared per common
share................................. $ .60 $ .60 $ .40 $ .375 $ .775 $ .70 $ .70 $ .70
RATIO OF EARNINGS TO FIXED CHARGES.... 4.1x 4.5x (e) 2.2x 4.1x 2.3x 3.4x 1.0x
</TABLE>
1988
---------
RESULTS OF OPERATIONS DATA:
Revenues.............................. $ 3,055.9
Earnings (loss) from operations....... 375.5
Earnings (loss) from continuing
operations before income taxes...... 268.7
Net earnings (loss) from continuing
operations before extraordinary item
and cumulative effect of changes in
accounting principles................. 152.8
Net earnings (loss)................... $ 384.7
Net earnings (loss) per share:
Net earnings (loss) from continuing
operations before extraordinary
item and cumulative effect of
changes in accounting
principles............................ $ 1.27
Discontinued operations............. 1.94
Extraordinary item.................. --
Cumulative effect of changes in
accounting principles................. --
Net earnings (loss)................. $ 3.21
Cash dividends declared per common
share................................. $ .675
RATIO OF EARNINGS TO FIXED CHARGES.... 2.4x
<TABLE><CAPTION>
AT JANUARY AT APRIL
31, 30, AT OCTOBER 31,
------------ ----------- -----------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
------------ ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............... $ 7,416.8 $ 6,874.8 $ 7,057.0 $ 6,654.7 $ 6,541.0 $ 7,060.0 $ 5,378.1
Long-term debt, including
current maturities......... 1,010.7 817.1 822.1 718.2 733.8 744.4 1,507.5
Stockholders' equity....... 4,186.8 3,902.1 4,015.5 3,854.8 3,783.8 3,666.8 2,266.2
Book value per common
share.................... $ 34.35 $ 33.01 $ 34.19 $ 32.73 $ 32.24 $ 30.56 $ 19.50
</TABLE>
See notes to selected historical consolidated financial data of Paramount.
18
<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> <C>
(a) 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.
(e) Earnings for the six months ended April 30, 1993, did not cover fixed charges by $22.8 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").
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.
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
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>
20
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA OF PARAMOUNT
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIO)
The following selected unaudited pro forma financial data of Paramount for
the twelve months ended or at January 31, 1994 gives effect to, on a purchase
accounting basis, (i) the Macmillan Acquisition, (ii) the acquisition of
television station WKBD-TV in Detroit ("WKBD") in September 1993 and (iii) the
acquisition of the remaining 80% interest in Paramount Canada's Wonderland
("PCW") theme park in May 1993. The unaudited pro forma Paramount results of
operations data for the twelve months ended January 31, 1994 was prepared based
upon the historical consolidated statements of operations of (i) Paramount for
the nine months ended January 31, 1994 and three months ended April 30, 1993
combined, (ii) Macmillan for the twelve months ended December 31, 1993, (iii)
WKBD for the seven months ended August 31, 1993 and (iv) PCW for the three
months ended April 30, 1993. Financial information of WKBD and PCW subsequent to
their acquisition is included in the Paramount historical financial information.
The unaudited pro forma results of operations data present the transactions as
if they had occurred at the beginning of the period presented. The following
selected unaudited pro forma balance sheet data was prepared based upon the
balance sheet data of (x) Paramount at January 31, 1994 and (y) Macmillan at
December 31, 1993. The unaudited pro forma balance sheet data presents the
Macmillan Acquisition as if it had occurred on January 31, 1994. The selected
unaudited pro forma financial data was derived from, and should be read in
conjunction with, the Unaudited Pro Forma Condensed Consolidated Financial
Statements and the notes thereto appearing elsewhere in this Proxy
Statement/Prospectus. See "Paramount, Macmillan and Other Businesses Acquired
Unaudited Pro Forma Condensed Consolidated Financial Statements." The unaudited
pro forma data are not necessarily indicative of the results of operations or
financial position that would have occurred if the aforementioned transactions
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.
<TABLE><CAPTION>
TWELVE MONTHS
ENDED JANUARY 31,
1994
------------------
<S> <C>
RESULTS OF OPERATIONS DATA:
Revenues...................................................................................... $ 5,024.0
Earnings from operations...................................................................... 302.1
Net earnings before cumulative effect of change in accounting principle....................... 155.4
Net earnings per common share before cumulative effect of change in accounting principle...... $ 1.30
RATIO OF EARNINGS TO FIXED CHARGES............................................................ 3.0x
AT JANUARY 31,
1994
------------------
BALANCE SHEET DATA:
Total assets.................................................................................. $ 7,480.7
Long-term debt, including current maturities.................................................. 1,010.7
Stockholders' equity.......................................................................... 4,186.8
Book value per common share................................................................... $ 34.35
</TABLE>
21
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF
BLOCKBUSTER
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
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, 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 disclose, among other
matters, certain business acquisitions and certain other transactions.
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1993(A) 1992(B) 1991(C) 1990 1989(D)
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Revenues................................................ $ 2,227.0 $ 1,315.8 $ 961.6 $ 699.7 $ 421.9
Earnings from operations................................ 423.0 242.9 161.1 122.1 76.9
Earnings before income taxes............................ 389.8 231.2 141.0 103.7 67.5
Net earnings............................................ $ 243.6 $ 148.3 $ 89.1 $ 65.9 $ 42.7
Net earnings per share--assuming full dilution(e)....... $ 1.10 $ .76 $ .51 $ .39 $ .26
Cash dividends declared per common share................ $ .095 $ .06 -- -- --
RATIO OF EARNINGS TO FIXED CHARGES...................... 4.9x 4.9x 3.8x 3.6x 3.7x
AT DECEMBER 31,
------------------------------------------------------
1993 1992 1991 1990 1989
---------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Total assets............................................ $ 3,521.0 $ 1,540.7 $ 893.3 $ 702.1 $ 468.9
Long-term debt, including current maturities............ 612.6 373.5 214.2 253.9 178.0
Stockholders' equity.................................... 2,123.4 787.3 480.5 319.4 210.2
Book value per common share............................. $ 8.58 $ 3.98 $ 2.84 $ 2.04 $ 1.39
</TABLE>
See notes to selected historical consolidated financial data of Blockbuster.
22
<PAGE>
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF
BLOCKBUSTER
Financial data for all periods presented is restated to reflect
Blockbuster's consolidation 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> <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>
23
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA OF
BLOCKBUSTER
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIO)
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) the $1.25 billion investment in Viacom Class B
Common Stock pursuant to the Blockbuster Subscription Agreement and (iv)
additional borrowings of $1.25 billion. The acquisitions in (i) and (ii) above
were accounted for under the purchase method of accounting. The unaudited pro
forma results 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 the majority of the outstanding
common stock of Spelling Entertainment and the acquisition of Super Club is
included in the Blockbuster historical financial information. The unaudited pro
forma results of operations data presents the transactions above as if they had
occurred at the beginning of the period presented. The selected unaudited pro
forma balance sheet data was prepared based upon the balance sheet of
Blockbuster at December 31, 1993. The unaudited pro forma balance sheet data
presents pro forma transactions (iii) and (iv) above as if they had occurred at
December 31, 1993. The selected unaudited pro forma financial data was derived
from, and should be read in conjunction with, the Unaudited Pro Forma Condensed
Consolidated Financial Statements 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 Financial
Statements." The unaudited pro forma financial data are not necessarily
indicative of the results of operations or financial position that would have
occurred if the aforementioned transactions had been in effect at the beginning
of the period or at the date indicated nor are they necessarily indicative of
future operating results or financial position.
<TABLE><CAPTION>
YEAR ENDED
DECEMBER 31,
1993
-------------
<S> <C>
RESULTS OF OPERATIONS DATA:
Revenues........................................................................................... $ 2,595.2
Earnings from operations........................................................................... 435.6
Net earnings from continuing operations............................................................ 225.2
Net earnings per share from continuing operations--assuming full dilution.......................... $ 0.92
RATIO OF EARNINGS TO FIXED CHARGES................................................................. 3.3x
AT DECEMBER
31, 1993
-------------
BALANCE SHEET DATA:
Total assets....................................................................................... $ 4,771.0
Long-term debt, including current maturities....................................................... 1,862.6
Stockholders' equity............................................................................... 2,123.4
Book value per common share........................................................................ $ 8.58
</TABLE>
24
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF
THE COMBINED COMPANY
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
The following selected unaudited pro forma combined financial data gives
effect to (i) the Offer and the Paramount Merger, which will be accounted for
under the purchase method of accounting, (ii) the elimination of all of the
outstanding Paramount Common Stock, (iii) the issuance of the Paramount Merger
Consideration, (iv) the acquisitions by Paramount described under "Selected
Unaudited Pro Forma Financial Data of Paramount," (v) the Blockbuster Merger,
which will be accounted for under the purchase method of accounting, (vi) the
elimination of all of the outstanding Blockbuster Common Stock, (vii) the
elimination of all the Series A Preferred Stock and Viacom Class B Common Stock
held by Blockbuster, (viii) the issuance of the Blockbuster Merger
Consideration, (ix) the pro forma events of Blockbuster described under
"Selected Unaudited Pro Forma Financial Data of Blockbuster" and (x) the sale of
Viacom's one-third partnership interest in LIFETIME (items (i) through (iv)
being, collectively, the "Paramount Pro Forma Events," items (v) through (ix)
being, collectively, the "Blockbuster Pro Forma Events," and, together with the
Paramount Pro Forma Events and item (x), the "Pro Forma Events"), as if such
events occurred at the beginning of the period presented for results of
operations data. The following unaudited pro forma results of operations data
was prepared based upon the results of operations 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 December 31,
1993 and the balance sheet data of Paramount at January 31, 1994. Such
unaudited pro forma combined balance sheet data gives effect to the Pro Forma
Events as if they occurred on December 31, 1993. 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 "Combined Company Unaudited Pro Forma Combined
Condensed Financial Statements." The unaudited pro forma data are not
necessarily indicative of the combined results of operations or financial
position that would have occurred if the Paramount Pro Forma Events or the Pro
Forma Events, as the case may be, 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>
YEAR ENDED OR AT DECEMBER 31, 1993
----------------------------------------
COMBINED
VIACOM/PARAMOUNT* COMPANY
------------------- -------------------
<S> <C> <C>
RESULTS OF OPERATIONS DATA:
Revenues............................................................... $ 7,028.9 $ 9,624.1
Earnings from operations............................................... 543.3 887.9
Earnings before extraordinary item, cumulative effect of change in
accounting principle and preferred stock dividend requirements....... 12.8 128.5
Earnings attributable to common stock before extraordinary item and
cumulative effect of change in accounting principle.................. (77.2) 68.5
Primary earnings per common share before extraordinary item and
cumulative effect of change in accounting principle.................. $ (0.39) $ 0.17
RATIO OF EARNINGS TO FIXED CHARGES..................................... 1.3x 1.5x
BALANCE SHEET DATA:
Total assets........................................................... $ 17,798.5 $ 24,328.1
Long-term debt, including current maturities........................... 7,931.2 9,793.8
Stockholders' equity:
Preferred............................................................ 1,800.0 1,200.0
Common............................................................... 4,518.6 9,000.6
Book value per common share............................................ $ 25.54 $ 25.96
</TABLE>
- - - - ---------------
* Gives effect only to the Paramount Pro Forma Events and item (x) described
above.
** Gives effect to all of the Pro Forma Events.
25
<PAGE>
COMPARATIVE STOCK PRICES
Viacom Common Stock is listed on the AMEX. Paramount Common Stock and
Blockbuster Common Stock are listed on the NYSE. The following tables set forth,
for the periods indicated, the high and low sales prices per share of Viacom
Common Stock, Paramount Common Stock and Blockbuster Common Stock as reported on
the AMEX or the NYSE Composite Transaction Tape, as the case may be.
<TABLE><CAPTION>
VIACOM VIACOM
CLASS A CLASS B BLOCKBUSTER PARAMOUNT
COMMON STOCK(A) COMMON STOCK(A) COMMON STOCK COMMON STOCK(B)
-------------------- -------------------- -------------------- --------------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW QUARTER ENDED HIGH LOW
- - - - -------------------- --------- --------- --------- --------- --------- --------- -------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 1992
March 31.......... $ 37 1/4 $ 32 1/8 $ 36 1/2 $ 31 1/4 $ 15 $ 11 7/8 January 31.......... $ 43 3/8 $ 36 1/2
June 30........... 38 1/2 32 3/8 36 7/8 30 1/2 15 7/8 12 1/8 April 30............ 48 3/4 42 1/2
September 30...... 34 7/8 30 7/8 32 7/8 29 13 3/4 11 1/8 July 31............. 48 43 1/4
December 31....... 44 28 1/8 41 7/8 27 19 1/2 12 3/8 October 31.......... 46 3/8 41 1/4
1993 1993
March 31.......... $ 46 1/2 $ 37 1/2 $ 44 1/8 $ 35 1/4 $ 20 1/8 $ 15 3/4 January 31.......... $ 47 3/8 $ 41 7/8
June 30........... 52 5/8 37 1/8 49 1/2 36 21 7/8 16 3/4 April 30............ 52 5/8 45 5/8
September 30...... 67 1/2 50 1/2 61 1/4 45 3/4 30 1/8 21 3/8 July 31............. 56 5/8 49 1/2
December 31....... 66 1/2 47 60 1/2 40 3/8 34 1/4 24 1/2 October 31.......... 81 51
1994 1994
March 31.......... $ 49 3/4 $ 28 1/8 $ 45 $ 23 3/4 $ 31 3/8 $ 25 1/4 January 31.......... $ 83 1/2 $ 73 1/2
through through
April 14, 1994.... 30 5/8 25 1/4 25 5/8 21 3/4 27 23 7/8 April 14, 1994...... 80 1/4 36 5/8
</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.
(b) Paramount purchased 1,119,500 shares of Paramount Common Stock in the open
market between August 13 and October 30, 1992 at an average price of $42.86
and with a range of $42 1/8 to $43 3/4 per share, and it also purchased
479,600 shares of Paramount Common Stock in the open market between November
2, 1992 and January 21, 1993 at an average price of $42.34 and with range of
$41 7/8 to $43 per share. None of Viacom, NAI or Sumner M. Redstone have
made any purchases of Paramount Common Stock in the last two fiscal years of
Paramount.
On February 4, 1994, the last trading day before the announcement of the
February 4 Merger Agreement, the last sales prices of Viacom Class A Common
Stock and Viacom Class B Common Stock and Paramount Common Stock, as reported on
the AMEX and the NYSE Composite Transactions Tape, were 37 7/8 per share, 32 7/8
per share and 72 1/2 per share, respectively.
On January 6, 1994, the last trading day before the announcement of the
Blockbuster Merger Agreement, the last sales prices of Viacom Class A Common
Stock and Viacom Class B Common Stock, Blockbuster Common Stock and Paramount
Common Stock, as reported on the AMEX and the NYSE Composite Transactions Tape,
were $47 per share, $42 3/4 per share, $29 7/8 per share and $78 1/2 per share,
respectively.
On [ ], 1994, the last trading day before the printing of this
Proxy Statement/Prospectus, the last sales prices of Viacom Class A Common Stock
and Viacom Class B Common Stock, Paramount Common Stock and Blockbuster Common
Stock, as reported on the AMEX and the NYSE Composite Transactions Tape, were
$[ ] per share, $[ ] per share, $[ ] per share and $[ ] per
share, respectively.
The market prices of Viacom Class A Common Stock, Viacom Class B Common
Stock, Paramount Common Stock and Blockbuster Common Stock are subject to
fluctuation. As a result, Viacom and Paramount stockholders are urged to obtain
current market quotations.
On March 30, 1994, there were approximately 6,912 holders of record of
Viacom Class A Common Stock and approximately 6,861 holders of record of Viacom
Class B Common Stock. On March 31, 1994, there were approximately 24,687 holders
of record of Paramount Common Stock. On February 3, 1994, there were
approximately 12,747 holders of record of Blockbuster Common Stock.
26
<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, Paramount and Blockbuster,
individually, and the respective unaudited pro forma per common share data for
Viacom/Paramount and the combined company. Pro forma equivalent per share
information of Paramount and Blockbuster is also presented below. Viacom/
Paramount and the combined company unaudited pro forma data gives effect to the
Paramount Pro Forma Events and Pro Forma Events, respectively as if such events
occurred for balance sheet purposes at the balance sheet dates and for statement
of operations purposes at the beginning of the period presented. Unaudited pro
forma data for the combined company was prepared based upon (i) Viacom's and
Blockbuster's statement of operations and balance sheet data for the year
ended or at December 31, 1993 and (ii) Paramount's statements of operations
and balance sheet data for the nine months ended or at January 31, 1994 and
the three months ended April 30, 1993. 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>
NINE MONTHS ENDED THREE MONTHS ENDED
OR AT JANUARY 31, OR AT APRIL 30,
1994 1993
--------------------- -------------------
<S> <C> <C>
PARAMOUNT--HISTORICAL:
Earnings (loss) per share before extraordinary item and cumulative
effect of change in accounting principle.............................. $ 1.50 $ (0.08)
Cash dividends declared per common share.............................. $ 0.60 $ 0.20
Book value per common share........................................... $ 34.35 $ 33.01
</TABLE>
<TABLE>
<S> <C> <C>
YEAR ENDED OR AT DECEMBER 31, 1993
------------------------------------
BLOCKBUSTER--HISTORICAL:
Earnings per share before extraordinary item and cumulative effect of
change in accounting principle--assuming full dilution..................... $ 1.10
Cash dividends declared per common share................................... $ 0.095
Book value per common share................................................ $ 8.58
VIACOM--HISTORICAL:
Earnings per share before extraordinary item and cumulative effect of
change in accounting principle............................................. $ 1.30
Cash dividends declared per common share(a)................................ --
Book value per common share................................................ $ 7.60
VIACOM/PARAMOUNT COMBINED COMPANY
----------------- -----------------
PRO FORMA:
Earnings per share attributable to common stock before extraordinary item
and cumulative effect of change in accounting principle.................. $ (0.39) $ 0.17
Cash dividends declared per common share(a)................................ -- --
Book value per common share................................................ $ 25.54 $ 25.96
PARAMOUNT--PRO FORMA EQUIVALENT PER SHARE INFORMATION:
Earnings per share attributable to common stock before extraordinary item
and cumulative effect of change in accounting principle(b)............... $ (0.18) $ 0.08
Cash dividends declared per common share................................... -- --
Book value per common share(b)............................................. $ 11.75 $ 11.94
Equivalent market value(c)................................................. $ 80.50 $ 80.50
BLOCKBUSTER--PRO FORMA EQUIVALENT PER SHARE INFORMATION:
Earnings per share attributable to common stock before extraordinary item
and cumulative effect of change in accounting principle(d)............... NA $ 0.11
Cash dividends declared per common share................................... NA --
Book value per common share(d)............................................. NA $ 17.81
Equivalent market value(e)................................................. NA $ 22.65
(Footnotes on following page)
</TABLE>
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<PAGE>
(Footnotes for preceding page)
- - - - ---------------
<TABLE>
<S> <C> <C>
(a) Cash dividends declared per common share does not reflect actual Viacom Preferred Stock dividend payments of
$12.8 million or assumed Viacom/Paramount or combined company payments on a pro forma basis of $90 million or
$60 million, respectively, for the year ended December 31, 1993.
(b) Paramount pro forma per share amounts were calculated assuming the issuance of 0.93065 of a share of Viacom
Class B Common Stock in exchange for each of the remaining 60.3 million shares of Paramount Common Stock
outstanding (other than shares held in the treasury of Paramount or owned by Viacom or any direct or indirect
wholly owned subsidiary of Paramount or Viacom) after consummation of the Offer. This results in stockholders
of Paramount receiving approximately 0.46 of a share of the combined company in exchange for each share of
Paramount Common Stock. This factor of 0.46 is applied to the pro forma earnings and book
value per common share amounts.
(c) Paramount equivalent market value was calculated by (i) applying the approximate 0.46 exchange ratio to the
closing price of the Viacom Class B Common Stock reported on the AMEX Composite Transaction Tape on March 4,
1994 and (ii) adding to such amount (x) cash paid pursuant to the Offer and (y) $17.50 principal amount of
Viacom Merger Debentures, 0.93065 of a CVR, 0.5 of a Viacom Three-Year Warrant and 0.3 of a Viacom Five-Year
Warrant to be issued by Viacom as part of the Paramount Merger Consideration for each share remaining of
Paramount Common Stock outstanding at the Paramount Effective Time. The consideration described in the
foregoing clauses (x) and (y) represents $68.08 of the equivalent market value. The estimated trading values
as of March 4, 1994 ascribed for illustrative purposes only, and based upon various assumptions and
projections, per CVR, Viacom Three-Year Warrant and Viacom Five-Year Warrant by Viacom's financial advisor,
were approximately $10, $2 and $3, respectively.
(d) 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 247.5 million shares of Blockbuster Common Stock outstanding as of December 31, 1993 (other
than shares owned by Viacom or any direct or indirect wholly owned subsidiary of Blockbuster or Viacom) in
accordance with the Blockbuster 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.
(e) 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 0.13829 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 $3.73 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 March 4,
1994.
</TABLE>
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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
[ ], New York, New York, on [ ],
1994, at [ ] a.m., New York time, and at any adjournment or postponement
thereof.
This Proxy Statement/Prospectus is also 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 Annual Meeting which is to be held immediately
following the Viacom Special Meeting at the same location.
This Proxy Statement/Prospectus is also being furnished to stockholders of
Paramount in connection with the solicitation of proxies by the Board of
Directors of Paramount for use at the Paramount Special Meeting to be held at
, on [ ], 1994, at [ ] a.m., local time, and at
any adjournment or postponement thereof.
This Proxy Statement/Prospectus also constitutes a prospectus of Viacom
with respect to [56,895,733] shares of Viacom Class B Common Stock,
[$1,069,870,865] principal amount of Viacom Merger Debentures, [56,895,733]
CVRs, [30,567,739] Viacom Three-Year Warrants and [18,340,643] Viacom Five-Year
Warrants, issuable to the holders of Paramount Common Stock in the Paramount
Merger.
THIS PROXY STATEMENT/PROSPECTUS IS NOT A SOLICITATION OF PROXIES WITH
RESPECT TO, NOR A PROSPECTUS RELATING TO, THE BLOCKBUSTER MERGER. IT IS
ANTICIPATED THAT A SEPARATE JOINT PROXY STATEMENT/PROSPECTUS OF VIACOM AND
BLOCKBUSTER RELATING TO THE BLOCKBUSTER MERGER WILL BE SENT TO STOCKHOLDERS OF
VIACOM AND BLOCKBUSTER.
BUSINESS
Viacom's principal assets are its 100% ownership of Viacom International
and its majority ownership of Paramount. Viacom International is a diversified
entertainment and communications company with operations in four principal
segments: Networks, Entertainment, Cable Television and Broadcasting. The
principal executive offices of Viacom are located at 200 Elm Street, Dedham,
Massachusetts 02026.
VIACOM NETWORKS. Viacom Networks is comprised of MTV Networks ("MTVN") and
Showtime Networks Inc. ("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 December 31, 1993, MTV was licensed to approximately 52.2 million
domestic cable subscribers (based on subscriber counts provided by each cable
system). According to the December 1993 sample reports issued by the A.C.
Nielsen Company (the "Nielsen Report"), MTV reached approximately 59 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
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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.
Nickelodeon. At December 31, 1993, NICKELODEON was licensed to
approximately 53.4 million cable subscribers and NICK AT NITE was licensed to
approximately 53.1 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 60.9 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 December 31, 1993, VH-1 was licensed to approximately 45.5 million
cable subscribers (based on subscriber counts provided by each cable system).
According to the Nielsen Report, VH-1 reached approximately 49.5 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,
Telecommunications, Inc. and Bertelsman AG announced plans for a music
video/home shopping channel and 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.
Viacom International participates as a joint venturer in COMEDY CENTRAL.
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 30.3 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
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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 December 31, 1993, SHOWTIME, THE MOVIE CHANNEL and FLIX in the
aggregate had approximately 11.9 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.
Showtime Satellite Networks Inc. ("SSN"), 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.
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
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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 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/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 are expected to be consolidated with
Paramount's television operations during 1994.
CABLE TELEVISION. Viacom Cable owns and operates cable television systems
serving approximately 1,094,000 customers as of December 31, 1993 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 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.
BROADCASTING. Viacom Broadcasting owns and operates five network affiliated
television stations. Viacom Broadcasting also operates 14 radio stations 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; KSRY-FM, San Francisco, CA; and KSRI-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.
STRATEGIC RELATIONSHIPS. Viacom has entered into strategic relationships
with Blockbuster and NYNEX including (i) a $600 million investment by
Blockbuster in the Series A Preferred Stock, (ii) a $1.2 billion investment by
NYNEX in the Series B Preferred Stock and (iii) an agreement with each of
Blockbuster and NYNEX to explore strategic partnership opportunities. See "Sale
of Viacom Preferred Stock." In addition, on March 10, 1994 Blockbuster purchased
approximately 22.7 million shares of Viacom Class B Common Stock for an
aggregate purchase price of approximately $1.25 billion pursuant to the
Blockbuster Subscription Agreement.
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
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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 Viacom's preliminary review of the published regulations
and public statements made during the FCC's February 22nd meeting and news
releases issued thereafter, the February 22nd Regulations contain a new formula
for determining permitted rates. 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, Viacom estimates
that it will recognize a reduction to revenue ranging from $27 million to $32
million on an annualized basis substantially all of which will be reflected as a
reduction in earnings from operations of its cable television division. Viacom's
estimated reduction does not reflect further reductions to revenue which would
result from the lowering of the initial permitted rates pursuant to the February
22nd Regulations. These new and reduced initial permitted rates will apply
prospectively either from May 15, 1994 or July 14, 1994, pursuant to some
conditions. Until the February 22nd Regulations are more fully analyzed, it is
not possible to accurately predict the effects of the interim standards
governing cost-of-service proceedings; however, based on a preliminary analysis,
Viacom believes it is unlikely that it will be able to utilize such proceedings
so as to charge rates in excess of rates which it would otherwise be permitted
to charge under the regulations. 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 may also be restricted by the new regulations adopted as part of the
February 22nd Regulations. No such potential mitigating factors are reflected in
the estimated reductions to revenues. The stated reduction to revenues may be
mitigated by higher customer growth due to lower primary service rates. 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 those restrictions. The Court
has held that this decision 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. 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
four principal bills (in the Senate, S. 1086, the Telecommunications
Infrastructure Act of 1993, and S. 1822, the Communications Act of 1994 (which
is expected to
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supersede S. 1086) and in the House, H.R. 3626, the Antitrust Reform Act 1993,
and H.R. 3636, the National Communications Competition and Information
Infrastructure Act of 1993) 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 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 Clinton Administration
has indicated its intention to propose reform of federal telecommunications
legislation, although such proposal has not been finalized.
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. However, should the MFJ restrictions be
modified or waived, 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.
OWNERSHIP OF PARAMOUNT COMMON STOCK. 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. Pursuant to the Paramount Merger Agreement, a wholly owned
subsidiary of Viacom will be merged with and into Paramount and, as a result,
Paramount will become a wholly owned subsidiary of Viacom. On March 11, 1994, 10
members of Paramount's Board of Directors resigned and their positions were
filled by 10 designees of Viacom. See "Management Before and After the
Mergers--Executive Officers and Directors of Paramount." Effective March 15,
1994, Paramount's fiscal year was changed such that its fiscal year (consisting
of eleven calendar months) will end March 31, 1994, following which Paramount's
fiscal year will be the nine month period ending December 31, 1994. Thereafter,
Paramount's fiscal year will be the twelve month period ending on December 31 of
each year, conforming to that of Viacom. Effective March 14, 1994, the Paramount
Board replaced Ernst & Young with Price Waterhouse as its independent public
accountants. Price Waterhouse are the independent public accountants of Viacom.
BLOCKBUSTER MERGER. Viacom and Blockbuster are parties to the Blockbuster
Merger Agreement. See "The Blockbuster Merger." Upon consummation of the
Blockbuster Merger, the Series A Preferred Stock and the Viacom Class B Common
Stock owned by Blockbuster will cease to be outstanding.
VIACOM RECENT DEVELOPMENTS. 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.
On March 29, 1994 Viacom entered into an agreement to sell KSRY-FM and
KSRI-FM.
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,
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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 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
twelve-month period ended January 31, 1994, Paramount Pictures released fifteen
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
Metro-Goldwyn-Mayer Inc.
Most motion pictures are also licensed for exhibition on television, with
fees generally collected in installments. License fees are recorded as revenue
in the year that the films are available for telecast, which, among other
reasons, may cause substantial fluctuation in Paramount's operating results. At
January 31, 1994, unrecognized revenues attributable to licensing of completed
films from Paramount Pictures' license agreements were $575 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
distribution 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 January 31, 1994,
the unrecognized revenues from such television license agreements were $198
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 462 screens in 114 theaters
throughout Canada. Cinamerica, a joint venture with Time Warner Inc. ("Time
Warner"), includes Mann and Festival
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Theaters and operates 341 screens in 66 theaters in California, Colorado,
Arizona and Alaska. United Cinemas International, a joint venture with MCA,
operates 235 screens in 25 theaters in the United Kingdom and Ireland, 42
screens in three theaters in Germany and 76 screens in 25 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.
Television Broadcasting and Cable Television Networks. PSG owns and
operates seven television stations: 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 approximately 62.5
million households.
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, and 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.
_____Publishing. Paramount Publishing includes well-known imprints such as
Simon & Schuster, Pocket Books, Prentice Hall, Silver Burdett Ginn and Computer
Curriculum Corporation, among others.
Educational Publishing. Paramount Publishing's Elementary, Secondary and
Higher Education 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," "Allyn & Bacon," "Globe Fearon," "Modern Curriculum
Press," "Coronet/MTI Film & Video," "Computer Curriculum Corporation," "Simon &
Schuster Workplace Resources," "Academic Reference," "Regents/PH," "American
Teaching Aids," "Judy/Instructo," "Ginn Press," "Alemany" and "Cambridge."
Consumer Publishing. Paramount Publishing's Consumer group publishes and
distributes hardcover, trade paperback and mass market books and audio tapes. 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" and "Julian Messner" 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.
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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" 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. Paramount Publishing's Business,
Technical and Professional group publishes books, newsletters 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," "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.
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" imprints as well as
distribution of Paramount Publishing's products worldwide. Paramount Publishing
also publishes German language computer books and software in Germany under the
"Markt & Technik" imprint.
_____Paramount Recent Developments. In February 1994, Paramount completed the
acquisition of Macmillan Publishing Company and certain other publishing assets
of Macmillan, Inc. for approximately $553 million. Macmillan Publishing, which
includes such imprints as "Macmillan" and "Scribner's", publishes books and
materials through five divisions--College, Children's Books, Adult Trade,
Reference and The Free Press, a publisher of scholarly and professional
materials--as well as Jossey-Bass, a publisher of books and periodicals for
select professionals.
Provisions in certain consent decrees entered into by the television
networks which prohibited the networks from acquiring financial interests and
syndication rights in television programming by non-network suppliers such as
Paramount Pictures were recently vacated by a federal district court.
Accordingly, subject to certain restrictions imposed by the FCC, the networks
will be able to negotiate with program suppliers to acquire financial interests
and syndication rights in television programs that air on the networks.
Paramount and BHC Communications, Inc., which is majority owned by
Chris-Craft Industries, Inc., are forming a joint venture to be known as the
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.
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 Viacom and Paramount do not believe that these restrictions were
violated by the consummation of the Offer, there can be no assurance that MCA
might not seek damages or other relief in connection with the consummation of
the Offer or the Paramount Merger or the business activities that may be engaged
in thereafter.
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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 of the Paramount Merger Agreement
(including the issuance of the Paramount Merger Consideration) and the Viacom
Charter Amendments. The Viacom Charter Amendments will only be considered and
voted upon to the extent such matters have not been previously approved by the
holders of Viacom Class A Common Stock. Such stockholders will also consider and
vote upon such other matters as may properly be brought before the Viacom
Special Meeting.
ON FEBRUARY 1, 1994, THE BOARD OF DIRECTORS OF VIACOM UNANIMOUSLY APPROVED
THE FEBRUARY 4 MERGER AGREEMENT AND RECOMMENDED A VOTE FOR APPROVAL OF THE
FEBRUARY 4 MERGER AGREEMENT (INCLUDING THE ISSUANCE OF THE PARAMOUNT MERGER
CONSIDERATION) AND THE VIACOM CHARTER AMENDMENTS. [ON APRIL [ ], 1994, THE
BOARD OF DIRECTORS OF VIACOM UNANIMOUSLY APPROVED CERTAIN AMENDMENTS TO THE
FEBRUARY 4 MERGER AGREEMENT WHICH ARE EMBODIED IN THE PARAMOUNT MERGER
AGREEMENT.]
At the Viacom Annual Meeting, holders of Viacom Class A Common Stock will
consider and vote upon the Viacom Annual Meeting Proposals. Such stockholders
will also consider and vote upon such other matters as may properly be brought
before the Viacom Annual Meeting.
THE BOARD OF DIRECTORS OF VIACOM RECOMMENDS A VOTE FOR APPROVAL OF THE
VIACOM ANNUAL MEETING PROPOSALS, INCLUDING THE SLATE OF DIRECTORS NOMINATED BY
THE VIACOM BOARD OF DIRECTORS.
Paramount. At the Paramount Special Meeting, holders of Paramount Common
Stock will consider and vote upon a proposal to approve and adopt the Paramount
Merger Agreement and such other matters as may properly be brought before the
meeting.
ON FEBRUARY 4, 1994, THE BOARD OF DIRECTORS OF PARAMOUNT UNANIMOUSLY
APPROVED THE FEBRUARY 4 MERGER AGREEMENT AND RECOMMENDED A VOTE FOR APPROVAL AND
ADOPTION OF THE FEBRUARY 4 MERGER AGREEMENT. [ON APRIL [ ], 1994, THE
RECONSTITUTED BOARD OF DIRECTORS OF PARAMOUNT UNANIMOUSLY APPROVED CERTAIN
AMENDMENTS TO THE FEBRUARY 4 MERGER AGREEMENT WHICH ARE EMBODIED IN THE
PARAMOUNT MERGER AGREEMENT.]
THIS PROXY STATEMENT/PROSPECTUS IS NOT A SOLICITATION OF PROXIES WITH
RESPECT TO, NOR A PROSPECTUS RELATING TO, THE BLOCKBUSTER MERGER. IT IS
ANTICIPATED THAT A SEPARATE JOINT PROXY STATEMENT/PROSPECTUS OF VIACOM AND
BLOCKBUSTER RELATING TO THE BLOCKBUSTER MERGER WILL BE SENT TO STOCKHOLDERS OF
VIACOM AND BLOCKBUSTER.
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.
The affirmative vote of the holders of a majority of the outstanding shares
of Viacom Class A Common Stock is required to approve the Viacom Charter
Amendments. Because approval of the Viacom Charter Amendments requires the
affirmative vote of such holders, abstentions and broker non-votes will have the
same effect as votes against the Viacom Charter Amendments.
The affirmative vote of the holders of a majority of the shares of Viacom
Class A Common Stock present in person or represented by proxy is required for
approval of the Paramount Merger Agreement and the Viacom Annual Meeting
Proposals. Abstentions will have the same effect as a vote against such
proposals. Broker non-votes will have no such effect and will not be counted.
NAI, of which Sumner M. Redstone is the beneficial owner of a controlling
interest, owned approximately 85% of the Viacom Class A Common Stock and 52% of
the Viacom Class B Common Stock as of April 1, 1994. NAI has agreed to vote all
of its shares of Viacom Class A Common Stock in favor of the Paramount Merger
Agreement pursuant to the terms of the Paramount Voting Agreement, a copy of
which is attached as Annex II. See "Special Factors--Paramount Voting
Agreement." Such
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action by NAI in accordance with the Paramount Voting Agreement would be
sufficient to approve the Paramount Merger Agreement and related transactions
without any action on the part of any other holder of Viacom Class A Common
Stock.
NAI has advised Viacom that it intends to vote all of its shares in favor
of the Viacom Annual Meeting Proposals (including the slate of directors
nominated by the Viacom Board of Directors) and in favor of each of the Viacom
Charter Amendments; such action by NAI is sufficient to approve such proposals
without any action on the part of any other holder of Viacom Class A Common
Stock.
Paramount. The affirmative vote of the holders of a majority of the
outstanding shares of Paramount Common Stock entitled to vote thereon is
required to approve and adopt the Paramount Merger Agreement. Each share of
Paramount Common Stock is entitled to one vote. Because approval of the
Paramount Merger Agreement requires the vote of a majority of the outstanding
shares of Paramount Common Stock, abstentions and broker non-votes will have the
same effect as votes against the Paramount Merger Agreement. As Viacom has
acquired a majority of the outstanding shares of Paramount Common Stock pursuant
to the Offer, Viacom has sufficient voting power to approve the Paramount Merger
Agreement, even if no other stockholder of Paramount votes in favor of the
Paramount Merger Agreement.
At March 31, 1994, Paramount's current directors and executive officers may
be deemed to be beneficial owners of approximately 2,253,380 shares of Paramount
Common Stock, or approximately 1.84% of the then outstanding shares of Paramount
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 and the Viacom Annual Meeting, as the case may be, 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 (i) in the case of proxies for Viacom Class A Common Stock, in favor of
the Paramount Merger Agreement (including the issuance of the Paramount Merger
Consideration) and the Viacom Charter Amendments, at the Viacom Special Meeting,
and in favor of the Viacom Annual Meeting Proposals (including the slate of
directors nominated by the Viacom Board of Directors), at the Viacom Annual
Meeting, or (ii) in the case of proxies for Paramount Common Stock, in favor of
approval and adoption of the Paramount Merger Agreement.
It is not expected that any matter other than those referred to herein will
be brought before either of the Special Meetings or the Viacom Annual Meeting.
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 Paramount 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 Paramount (in the case of a Paramount 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 or the Viacom Annual 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 [ ], 1994 will be
entitled to receive notice of the Viacom Special Meeting and the Viacom Annual
Meeting, and only holders of record of Viacom Class A Common Stock on the close
of business on [ ], 1994 will be entitled to vote on the matters to
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be voted on at such meetings. As of this record date, Viacom had outstanding
[ ] shares of Viacom Class A Common Stock and [ ] 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 and the Viacom Annual Meeting
in order for a quorum to be present with respect to the Viacom Class A Common
Stock for purposes of approving the matters to be voted on at such meetings.
Abstentions and broker non-votes are counted for the purposes of establishing a
quorum. As NAI has agreed to vote its shares of Viacom Class A Common Stock in
favor of the Paramount Merger and related transactions pursuant to the Paramount
Voting Agreement and, as NAI has announced its intention to vote at the Viacom
Annual Meeting, the presence of the requisite quorums at the Viacom Special
Meeting and the Viacom Annual Meeting is assured. Holders of Viacom Class B
Common Stock are not entitled to vote on any of the matters to be voted on at
the Viacom Special Meeting or the Viacom Annual Meeting.
Paramount. Only stockholders of record of Paramount at the close of
business on [ ], 1994 will be entitled to receive notice of the
Paramount Special Meeting, and only holders of record of Paramount Common Stock
at that time will be entitled to vote at the Paramount Special Meeting. As of
this record date, Paramount had outstanding [ ] shares of Paramount
Common Stock, exclusive of shares held in its treasury. A majority of the
outstanding shares of Paramount Common Stock must be represented in person or by
proxy at the Paramount Special Meeting in order for a quorum to be present.
Abstentions and broker non-votes are counted for the purposes of establishing a
quorum.
APPRAISAL RIGHTS
Paramount. In the event the Paramount Merger is consummated, record holders
of Paramount Common Stock will be entitled to appraisal rights under Section 262
of the DGCL because such persons hold stock of a constituent corporation in the
Paramount Merger and such holders are required by the terms of the Paramount
Merger Agreement to accept for such stock consideration other than shares of the
corporation resulting from the Paramount Merger. Dissenting stockholders will
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 Paramount Merger). Such "fair value" would be determined in judicial
proceedings, the result of which cannot be predicted. In order to exercise
appraisal rights, dissenting stockholders must comply with the procedural
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 V. 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
Paramount will have no appraisal rights in connection with the Paramount Merger.
Viacom. Stockholders of Viacom will have no appraisal rights in connection
with the Paramount Merger.
SOLICITATION OF PROXIES
Each of Viacom and Paramount will bear the cost of the solicitation of
proxies from its own stockholders, except that Viacom and Paramount 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,
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nominees and fiduciaries for the forwarding of solicitation material to the
beneficial owners of stock held of record by such persons, and Viacom and
Paramount will reimburse such custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses in connection therewith.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
SPECIAL FACTORS
BACKGROUND OF THE PARAMOUNT MERGER
For several years, Sumner M. Redstone, Chairman of the Board of Directors
of Viacom, and Martin S. Davis, Chairman of the Board and Chief Executive
Officer of Paramount, held discussions from time to time concerning the
possibility of a business combination. These discussions were preliminary and
inconclusive.
On April 20, 1993, at the invitation of Robert Greenhill (the Chief
Executive Officer of Smith Barney), Messrs. Redstone and Davis met with Mr.
Greenhill and agreed to explore once again the possibility of combining the two
companies.
From April to late June 1993, the two companies engaged in preliminary
discussions concerning certain possible terms of a business combination, the
discussions involving at various times Messrs. Redstone, Davis and Greenhill,
Philippe P. Dauman, Senior Vice President and General Counsel of Viacom, and
Donald Oresman, Executive Vice President and General Counsel of Paramount. These
discussions were also inconclusive.
During the week of June 28, Messrs. Redstone and Davis decided to renew
discussions. On July 1, 1993, Viacom and Paramount executed and exchanged
confidentiality agreements in anticipation of exchanging confidential
information and conducting due diligence (however, no such information was
exchanged until the week of September 6, 1993). Discussions between the parties
continued, and on July 6, 1993, a meeting was held, including Messrs. Dauman,
Oresman and Greenhill and Felix Rohatyn of Lazard Freres. Viacom's
representatives expressed a willingness to negotiate a transaction based upon
consideration payable to Paramount's stockholders valued at $63 per share,
conditioned upon Paramount's willingness to grant to Viacom an option to acquire
from Paramount shares, representing up to 20% of Paramount's then outstanding
shares, at an exercise price of the then current market price of Paramount's
Common Stock, and pay to Viacom a fee in an amount to be negotiated, plus
expenses, in the event the transaction did not close. In addition, Viacom
proposed that the parties should explore entering into other business
transactions, including possible joint venture arrangements, simultaneously with
entering into a merger agreement. Discussions were terminated on July 7, 1993,
due to the parties' belief that they would be unable to reach agreement on
certain significant terms, including the consideration to be received by
Paramount stockholders, the consideration which would be payable to Viacom if
the transaction did not close and the proposed joint venture arrangements
between the parties, as outlined above.
On August 20, 1993, Mr. Greenhill arranged for Messrs. Davis and Redstone
to meet later that day. At the end of this meeting they agreed to authorize
their respective senior managements and advisors to again explore terms upon
which the parties might reach agreement on a business combination. However,
discussions terminated on August 25, 1993, primarily due to disagreement over
the consideration to be offered to Paramount stockholders in the combination and
Viacom's insistence on an option on 20% of Paramount's stock at market and a
termination fee in the amount of $150 million, plus expenses.
A series of discussions began again in early September. On September 7,
1993, Messrs. Dauman and Oresman and the companies' respective financial and
legal advisors met, and following that meeting Messrs. Redstone and Davis met to
review the status of the discussions between the companies. On the basis of that
review, Messrs. Redstone and Davis agreed to direct their respective senior
managements
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and advisors to conduct due diligence, exchange and negotiate transaction
documentation, and otherwise seek to reach agreement on all terms.
From September 8 through September 11, 1993, senior management of Viacom
and Paramount, assisted by their legal and financial advisors, exchanged
financial and legal due diligence materials, conducted due diligence, and
negotiated a merger agreement (the "Original Merger Agreement") and a stock
option agreement (the "Original Stock Option Agreement") between Paramount and
Viacom and a voting agreement (the "Original Voting Agreement") between
Paramount and NAI.
On September 9, 1993, at a regularly scheduled meeting, the Paramount Board
of Directors met and reviewed the status of negotiations and received an
analysis of the businesses of Viacom and Paramount and an analysis of certain
other merger transactions.
The negotiations over the principal issues in the agreements were concluded
during a meeting between Messrs. Dauman and Oresman and their respective legal
advisors in New York on September 11, 1993.
On September 12, 1993, the Viacom Board and the Paramount Board each met
and approved the proposed transactions. Paramount and Viacom entered into
certain related agreements and announced a merger of Paramount with and into
Viacom (the "Original Merger"). In the Original Merger, each share of Paramount
Common Stock was to be converted into the right to receive (i) 0.1 shares of
Viacom Class A Common Stock, (ii) 0.9 shares of Viacom Class B Common Stock and
(iii) $9.10 in cash. At the meeting of the Paramount Board, Lazard Freres
delivered a written opinion to the effect that as of September 12, 1993 the
consideration to be received by Paramount's stockholders in the Original Merger
was fair to the stockholders of Paramount from a financial point of view.
By a letter to Paramount dated September 20, 1993, QVC Network, Inc.
("QVC") proposed a business combination of Paramount and QVC under which each
outstanding share of Paramount Common Stock would be converted into the right to
receive 0.893 of a share of QVC Common Stock and $30 in cash. Under the terms of
the Original Merger Agreement, Paramount was not permitted to hold discussions
with QVC until the Paramount Board could establish that (i) the proposal was not
subject to any material financing contingency and (ii) that such discussions
were required for the Paramount Board to comply with its fiduciary duties to the
Paramount stockholders. Having made such findings, Paramount, by letter dated
October 13, 1993, requested that QVC produce, as a prelude to discussions,
information regarding QVC and the feasibility of its proposal. On October 20,
QVC delivered to Paramount certain materials. On October 21, the day after QVC
delivered these materials, QVC publicly announced that it would commence a
tender offer for 51% of the shares of Paramount Common Stock at $80 per share
(the "First QVC Offer") and, if successful, would propose a second-step merger
(the "First QVC Second-Step Merger") in which the remaining shares would be
converted into the right to receive 1.42857 shares of QVC Common Stock.
On October 21, 1993, QVC commenced an action in the Delaware Chancery Court
naming as defendants Paramount, certain of its directors and Viacom. QVC alleged
causes of action for breaches of fiduciary duty against Paramount and its Board,
and alleged that Viacom aided and abetted those breaches of duty. The action
sought to enjoin the proposed merger between Paramount and Viacom on the ground
that certain provisions of the Original Merger Agreement and the Original Stock
Option Agreement were unlawful and had been entered into in breach of the
Paramount directors' fiduciary duties. QVC's action was subsequently
consolidated with a number of class actions brought by certain Paramount
stockholders in the Delaware Chancery Court.
After QVC's October 21 announcement, Viacom proposed to modify the Original
Merger Agreement and the related agreements to increase the value of the merger
consideration to $80 per share of Paramount Common Stock (based on Viacom's
closing stock prices as of October 22, 1993) and to provide for the commencement
by Viacom of a tender offer for 51% of the Paramount Common Stock outstanding at
a price of $80 per share (the "First Viacom Offer") following which, in a
second-step merger (the "First Viacom Second-Step Merger"), holders of shares of
Paramount Common Stock not
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acquired in the First Viacom Offer would receive (i) 0.20408 shares of Viacom
Class A Common Stock, (ii) 1.08317 shares of Viacom Class B Common Stock and
(iii) 0.20408 shares of a new series of cumulative convertible exchangeable
preferred stock of Viacom (the "Viacom Merger Preferred Stock").
Following discussions between Paramount and Viacom, at a meeting of the
Paramount Board held on October 24, 1993, the Paramount Board considered (i) the
events that had transpired since Paramount and Viacom entered into the Original
Merger Agreement, including the First QVC Offer and the First QVC Second-Step
Merger to the extent of available information, and (ii) presentations from the
Paramount Board's legal and financial advisors with respect to the proposed
revisions to the Original Merger Agreement, and with respect to the First QVC
Offer and the First QVC Second-Step Merger to the extent of available
information. The Paramount Board also received the oral opinion of Lazard Freres
to the effect that as of October 24, 1993 the consideration to be received by
Paramount's stockholders in the First Viacom Offer and the First Viacom
Second-Step Merger, taken together, was fair to the stockholders of Paramount
from a financial point of view.
The Paramount Board, by unanimous vote, (i) approved the Amended and
Restated Agreement and Plan of Merger dated as of October 24, 1993 between
Viacom and Paramount (the "October 24 Merger Agreement") (to provide for the
revised acquisition structure and expanded termination rights in favor of
Paramount), (ii) determined that the First Viacom Offer and the First Viacom
Second-Step Merger were consistent with and in furtherance of the long-term
business strategy of Paramount and, taken together, were fair to, and in the
best interests of, Paramount's stockholders, (iii) recommended approval and
adoption of the October 24 Merger Agreement and (iv) agreed to recommend that
holders of Paramount Common Stock tender their shares pursuant to the First
Viacom Offer.
Late the same day, Viacom's Board of Directors, by unanimous vote, (i)
determined that the October 24 Merger Agreement was fair to, and in the best
interests of, the stockholders of Viacom, (ii) approved the October 24 Merger
Agreement and (iii) authorized the commencement of the First Viacom Offer.
After the meetings, Viacom and Paramount executed the October 24 Merger
Agreement.
The October 24 Merger Agreement provided that the Paramount Board would
amend the Rights Agreement dated as of September 7, 1988 between Paramount and
Chemical Bank, as amended (the "Rights Agreement") to permit Viacom to
consummate its tender offer unless there existed a tender offer or exchange
offer to acquire Paramount or a written, bona fide proposal to acquire Paramount
pursuant to a merger, consolidation, share exchange, business combination,
tender or exchange offer or other similar transaction and that amending the
Rights Agreement would be inconsistent with the Paramount Board's satisfaction
of its fiduciary duties to stockholders under applicable law.
On October 25, 1993, Viacom commenced the First Viacom Offer. On October
27, 1993, QVC (together with its co-bidders, Comcast Corporation ("Comcast") and
Liberty Media Corporation ("Liberty Media")) commenced the First QVC Offer.
On October 28, 1993, QVC sent a letter to Paramount requesting that
Paramount negotiate with QVC regarding a merger proposal. By letter dated
October 29, 1993, Paramount indicated that it was prepared, as it was prior to
the commencement of the First QVC Offer, to meet with QVC to discuss its
proposal. On November 1, 1993, representatives of Paramount met with
representatives of QVC to discuss QVC's proposal. At the meeting, QVC's
representatives indicated that Paramount should not assume that there would be
no further increase in the value of the consideration proposed to be paid by QVC
with respect to the First QVC Offer and First QVC Second-Step Merger. However,
QVC's representatives stated that any further increase in QVC's bid would be, in
part, a function of the adoption by Paramount of certain auction bidding
procedures requested by QVC. QVC also presented to Paramount an informational
request and a form of merger agreement. In a letter to QVC dated November 1,
1993, Paramount stated that the requested auction bidding procedures were
inappropriate and, in addition, their adoption by Paramount would be
inconsistent with Paramount's contractual
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obligations under the October 24 Merger Agreement. Paramount's letter also
referred to the provisions in the October 24 Merger Agreement (i) allowing the
Paramount Board to keep the Rights Agreement in place with respect to the First
Viacom Offer "if, in its view, the existence of a better alternative would make
an amendment to the Rights Agreement inconsistent with its fiduciary duties" and
(ii) permitting Paramount to terminate the October 24 Merger Agreement "if the
Paramount Board determines to recommend to its stockholders another transaction
in the exercise of its fiduciary duties." By letter to Paramount dated November
2, 1993, counsel for QVC expressed its displeasure at Paramount's failure to
adopt QVC's requested auction bidding procedures but was silent as to whether
any alternative proposal would be made by QVC.
On November 5, 1993, Viacom proposed an amendment (the "November 6
Amendment") to the October 24 Merger Agreement which provided that the per share
consideration in the First Viacom Offer be increased from $80 to $85 (the
"Second Viacom Offer"). In addition, the proposed amendment provided that the
consideration in the First Viacom Second-Step Merger be revised by increasing
the amount of the Viacom Merger Preferred Stock from 0.20408 to 0.30408 shares
per share of Paramount Common Stock (the "Second Viacom Second-Step Merger"),
representing an increase of $5 in the value of the liquidation preference of the
Viacom Merger Preferred Stock to be paid.
Following discussions between Paramount and Viacom with regard to the terms
of this proposal, at a meeting held on November 6, 1993, the Paramount Board
considered the terms of the proposed amendments and received the oral opinion of
Lazard Freres that as of November 6, 1993 the consideration to be received by
Paramount's stockholders in the amended Second Viacom Offer and Second Viacom
Second-Step Merger, taken together, was fair to the stockholders of Paramount
from a financial point of view.
The Paramount Board, by unanimous vote, (i) approved the November 6
Amendment, (ii) determined that the amended Second Viacom Offer and Second
Viacom Second-Step Merger were consistent with and in the furtherance of the
long-term business strategy of Paramount and, taken together, were fair to, and
in the best interests of, Paramount's stockholders, (iii) recommended approval
and adoption of the October 24 Merger Agreement, as amended by the November 6
Amendment, by Paramount's stockholders and (iv) agreed to recommend that holders
of Paramount Common Stock tender their shares pursuant to the Second Viacom
Offer.
The Board of Directors of Viacom also met on November 6, 1993. At such
meeting, the Viacom Board of Directors, by unanimous vote, (i) determined that
the October 24 Merger Agreement, as amended by the November 6 Amendment, was
fair to, and in the best interests of, the stockholders of Viacom, (ii) approved
the October 24 Merger Agreement, as amended by the November 6 Amendment, and
(iii) authorized the increase in the per share consideration to be paid in the
Second Viacom Offer.
After the meetings, the November 6 Amendment was executed, and Viacom
publicly announced the Second Viacom Offer and Second Viacom Second-Step Merger.
On November 12, 1993, QVC amended the First QVC Offer to provide for the
purchase of 51% of the shares of Paramount Common Stock at a price of $90 per
share (the "Second QVC Offer"). QVC also stated its intention, if it acquired
51% of the shares of Paramount Common Stock pursuant to the Second QVC Offer, to
effect a second-step merger on revised terms (the "Second QVC Second-Step
Merger"). The revised terms of the Second QVC Second-Step Merger provided that
each share of Paramount Common Stock remaining after the consummation of the
Second QVC Offer would be exchanged for (i) 1.43 shares of QVC Common Stock and
(ii) 0.32 shares of a new series of cumulative convertible exchangeable
preferred stock of QVC (the "QVC Merger Preferred Stock"). In addition, at this
time Liberty Media terminated its participation as a co-bidder in the Second QVC
Offer and BellSouth Corporation ("BellSouth") joined QVC as a co-bidder.
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At a meeting held on November 15, 1993, the Paramount Board considered the
terms of the Second QVC Offer and Second QVC Second-Step Merger, and the Second
Viacom Offer and Second Viacom Second-Step Merger, with its legal and financial
advisors. The Paramount Board considered, among other factors, the highly
conditional nature of the Second QVC Offer and the financing and other
uncertainties (including the then non-binding nature of BellSouth's commitments)
with respect to QVC's ability to consummate such offer. The Paramount Board also
received the written opinion of Lazard Freres that as of November 15, 1993 the
consideration to be received by Paramount's stockholders in the Second Viacom
Offer and the Second Viacom Second-Step Merger, taken together, were fair to the
stockholders of Paramount from a financial point of view.
The Paramount Board unanimously determined that the Second QVC Offer was
not in the best interests of Paramount and its stockholders and recommended that
stockholders reject the Second QVC Offer and not tender any of their shares
pursuant to the Second QVC Offer.
On November 24, 1993, the Delaware Chancery Court issued a preliminary
injunction (the "Preliminary Injuction") in connection with the Delaware
litigation commenced by QVC and certain stockholders of Paramount prohibiting
Paramount from amending the Rights Agreement to permit completion of the pending
Second Viacom Offer, and denying Viacom the ability to exercise its rights
pursuant to the amended stock option agreement of Viacom and Paramount (as
amended, the "Amended Stock Option Agreement"). However, the Chancery Court
upheld the validity of the $100 million termination fee payable to Viacom.
The Preliminary Injunction was appealed by Viacom and Paramount to the
Delaware Supreme Court. On December 9, 1993, the Delaware Supreme Court issued
an order (the "Order") which (i) affirmed the Preliminary Injunction and (ii)
remanded the proceeding to the Delaware Chancery Court for proceedings
consistent with the Order. By letter dated December 10, 1993, Paramount's
attorneys advised the Delaware Chancery Court that the Paramount Board was to
meet on December 13, 1993 to consider how to comply with the Order and the prior
order and opinion of the Delaware Chancery Court.
At a meeting held on December 13, 1993, the Paramount Board determined that
it was unable to take a position with respect to whether stockholders should
accept or reject either the Second QVC Offer or the Second Viacom Offer and
requested that Paramount stockholders take no action until they had been further
advised of the Paramount Board's positions. The Paramount Board also adopted
procedures (the "Bidding Procedures") for the purpose of considering proposals
to acquire Paramount. From December 14-17, 1993, a number of letters pertaining
to the Bidding Procedures, including proposals for their modification, were
exchanged between Paramount's financial and legal advisors and the legal
advisors of Viacom and QVC.
The Board of Directors of Viacom held a meeting on December 20, 1993. At
such meeting, the Viacom Board, by unanimous vote, approved a proposed exemption
agreement (the "Viacom Exemption Agreement") setting forth the Bidding
Procedures to be followed by Viacom in connection with the Second Viacom Offer.
Pursuant to the Bidding Procedures, on December 20, 1993, Viacom and QVC
each submitted acquisition proposals to the Paramount Board. Viacom's proposal
consisted of a continuation of the Second Viacom Offer and Second Viacom
Second-Step Merger. QVC's proposal consisted of a revision of the Second QVC
Offer to provide for the purchase of 50.1% of the outstanding Paramount shares,
on a fully diluted basis, at $92 per share (the "Third QVC Offer") to be
followed by a revised second-step merger (the "Third QVC Second-Step Merger") in
which each remaining share would be converted into the right to receive (i) 1.43
shares of QVC Common Stock, (ii) 0.32 shares of a new series of 6% cumulative
non-convertible exchangeable preferred stock (the "New QVC Merger Preferred
Stock") and (iii) 0.32 ten-year warrants to purchase QVC Common Stock.
At a meeting held on December 21 and 22, 1993, the Paramount Board
considered (i) the events that had transpired since the Paramount Board's last
meeting on December 13, 1993 and (ii) presentations from the Paramount Board's
legal and financial advisors with respect to each of the
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proposals. The Paramount Board also received the written opinion of Lazard
Freres, dated December 21, 1993, stating that as of such date the aggregate
consideration payable to Paramount stockholders in the Third QVC Offer and Third
QVC Second-Step Merger, taken together, (a) was fair to Paramount stockholders
from a financial point of view and (b) was superior from a financial point of
view to the aggregate consideration payable in the Second Viacom Offer and the
Second Viacom Second-Step Merger, taken together.
The Paramount Board thereupon unanimously (i) approved the terms of a
merger agreement (which included a form of exemption agreement; the "QVC Merger
Agreement") and a voting agreement between QVC and its principal stockholders,
(ii) determined that the Third QVC Offer and Third QVC Second-Step Merger, taken
together, were fair to and in the best interests of Paramount's stockholders,
(iii) recommended approval and adoption of the QVC Merger Agreement by
Paramount's stockholders and (iv) recommended that holders of Paramount Common
Stock tender such shares pursuant to the Third QVC Offer. The Paramount Board
also (a) recommended that stockholders reject the Second Viacom Offer and not
tender any of their shares pursuant to the Second Viacom Offer, (b) authorized
the termination of the October 24 Merger Agreement, as amended by the November 6
Amendment, and (c) approved the terms of the Viacom Exemption Agreement (which
included a form of merger agreement).
The QVC Merger Agreement and the Viacom Exemption Agreement incorporated
the Bidding Procedures previously adopted by the Paramount Board. In addition,
the QVC Merger Agreement (as well as the form of merger agreement annexed to the
Viacom Exemption Agreement) (i) permitted Paramount to terminate such agreement
in order to accept a transaction that offered better value and (ii) contained no
stock option, asset lock-up, termination fee, expense reimbursements or other
provisions that could deter a higher offer for Paramount.
After the meeting on December 22, Paramount terminated the October 24
Merger Agreement, as amended by the November 6 Amendment, and the QVC Merger
Agreement and the Viacom Exemption Agreement were executed by the respective
parties.
On January 6, 1994, the Viacom Board of Directors met to consider a
proposal to amend and supplement the Second Viacom Offer. At such meeting, the
Viacom Board of Directors (i) determined that the Second Viacom Offer, as
amended as described below, was fair to and in the best interests of the
stockholders of Viacom and (ii) authorized the proposed amendment and supplement
to the Second Viacom Offer.
Pursuant to the Bidding Procedures, on January 7, 1994, Viacom amended the
terms of the Second Viacom Offer to provide for the purchase of 50.1% of the
outstanding shares of Paramount Common Stock, on a fully diluted basis, at $105
per share (the "Third Viacom Offer") and amended the terms of the Second Viacom
Second-Step Merger to provide for the exchange of (i) 0.93065 shares of Viacom
Class B Common Stock and (ii) 0.30408 shares of Viacom Merger Preferred Stock
for each share remaining after consummation of the Third Viacom Offer (the
"Third Viacom Second-Step Merger").
At a meeting held on January 12, 1994, the Paramount Board considered
presentations from its legal and financial advisors with respect to the Third
Viacom Offer and Third Viacom Second-Step Merger, as well as the Third QVC Offer
and Third QVC Second-Step Merger. The Paramount Board also received the written
opinion of Lazard Freres, dated January 12, 1994, stating that as of such date
the aggregate consideration payable to Paramount stockholders in the Third QVC
Offer and Third QVC Second-Step Merger, taken together, (i) was fair to
Paramount stockholders from a financial point of view and (ii) was superior from
a financial point of view to the aggregate consideration payable to Paramount
stockholders in the Third Viacom Offer and Third Viacom Second-Step Merger,
taken together.
The Paramount Board unanimously (a) recommended that stockholders reject
the Third Viacom Offer and not tender any of their shares pursuant to the Third
Viacom Offer and (b) reaffirmed (1) its determination that the Third QVC Offer
and Third QVC Second-Step Merger, taken together, were
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fair to and in the best interests of Paramount's stockholders and (2) its
recommendation that holders of Paramount shares tender such shares pursuant to
the Third QVC Offer.
On January 17, 1994, the Viacom Board of Directors met to consider a
proposed amendment and supplement to the Third Viacom Offer. The Viacom Board of
Directors, at such meeting, by unanimous vote, (i) determined that the Third
Viacom Offer, as amended and supplemented as described below, was fair to, and
in the best interests of, the stockholders of Viacom and (ii) authorized the
proposed amendment and supplement to the Third Viacom Offer.
Pursuant to the Bidding Procedures, on January 18, 1994, Viacom increased
the per share purchase price in the Third Viacom Offer to $107 (the "Fourth
Viacom Offer") and amended the terms of the Third Viacom Second-Step Merger to
provide for the exchange of (i) 0.93065 shares of Viacom Class B Common Stock,
(ii) 0.30408 shares of Viacom Merger Preferred Stock, (iii) 0.93065 CVRs and
(iv) 0.5 Viacom Three-Year Warrants for each Paramount share remaining after
consummation of the Fourth Viacom Offer (the "Fourth Viacom Second-Step
Merger").
At a meeting held on January 21, 1994, the Paramount Board considered
presentations from its legal and financial advisors with respect to the Fourth
Viacom Offer and Fourth Viacom Second-Step Merger, as well as the Third QVC
Offer and Third QVC Second-Step Merger. The Paramount Board also received the
written opinion of Lazard Freres dated January 21, 1994 stating that as of such
date (i) the aggregate consideration payable to Paramount stockholders in the
Fourth Viacom Offer and Fourth Viacom Second-Step Merger, taken together, was
fair to Paramount stockholders from a financial point of view, (ii) the
aggregate consideration payable to Paramount stockholders in the Third QVC Offer
and Third QVC Second-Step Merger, taken together, was fair to Paramount
stockholders from a financial point of view and (iii) the aggregate
consideration payable to Paramount stockholders in the Fourth Viacom Offer and
Fourth Viacom Second-Step Merger, taken together, was marginally superior from a
financial point of view to the aggregate consideration payable to Paramount
stockholders in the Third QVC Offer and Third QVC Second-Step Merger, taken
together.
The Paramount Board unanimously (i) approved the terms of a new merger
agreement with Viacom (the "January 21 Merger Agreement") and the Paramount
Voting Agreement, (ii) determined that the Fourth Viacom Offer and Fourth Viacom
Second-Step Merger, taken together, were fair to and in the best interests of
Paramount's stockholders, (iii) recommended approval and adoption of the January
21 Merger Agreement by Paramount's stockholders and (iv) recommended that
holders of Paramount shares tender such shares pursuant to the Fourth Viacom
Offer. The Paramount Board also unanimously (a) recommended that stockholders
reject the Third QVC Offer and not tender any of their shares pursuant to such
offer and (b) authorized the termination of the QVC Merger Agreement.
After the meeting on January 21, 1994, Paramount terminated the QVC Merger
Agreement and entered into the January 21 Merger Agreement, the Paramount Voting
Agreement and an exemption agreement with QVC (the "QVC Exemption Agreement"),
all in substantially the form previously agreed to by the respective parties on
December 22, 1993.
On February 1, 1994, in anticipation of the submission on such date of
final bids under the Bidding Procedures, the Board of Directors of Viacom
considered a proposed amendment and supplement to the Fourth Viacom Offer
pursuant to which Viacom would revise the package of securities to be issued in
the Fourth Viacom Second-Step Merger. The Viacom Board of Directors received
presentations from the management of Viacom, Smith Barney and its legal advisors
with respect to the Fourth Viacom Offer and Fourth Viacom Second-Step Merger and
the proposed amendments thereto. The Viacom Board of Directors also received the
written opinion of Smith Barney that the Offer and the Paramount Merger, as
revised by the proposed amendment and supplement, taken together were fair, from
a financial point of view, to Viacom and its stockholders. The opinion of Smith
Barney is set forth in full as Annex III of this Proxy Statement/Prospectus. See
"--Opinions of Financial Advisors." The Viacom Board of Directors, by unanimous
vote (with one director abstaining) (i) determined that the Offer, as amended
and supplemented, was fair to, and in the best interests of, the stockholders of
Viacom and (ii) authorized the Offer.
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Pursuant to the Bidding Procedures, on February 1, 1994, both Viacom and
QVC submitted their final proposals for the acquisition of Paramount. Viacom, in
proposing the Offer and the Paramount Merger, did not alter the terms of the
Fourth Viacom Offer but revised the Fourth Viacom Second-Step Merger to provide
for the exchange of (i) 0.93065 shares of Viacom Class B Common Stock, (ii)
0.93065 CVRs, (iii) 0.5 Viacom Three-Year Warrants, (iv) 0.3 Viacom Five-Year
Warrants and (v) $17.50 in principal amount of Viacom Merger Debentures for each
Paramount share remaining after consummation of the Offer. QVC increased the per
share purchase price in the Third QVC Offer to $104 (the "Fourth QVC Offer") and
amended the terms of the Third QVC Second-Step Merger to provide for the
exchange of (a) 1.2361 shares of QVC Common Stock, (b) 0.2386 shares of New QVC
Merger Preferred Stock and (c) 0.32 ten-year warrants for each Paramount share
remaining after consummation of the Fourth QVC Offer (the "Fourth QVC
Second-Step Merger"). Both the Offer and the Fourth QVC Offer were scheduled to
expire at midnight on February 14, 1994.
At a meeting held on February 4, 1994, the Paramount Board considered
presentations from its legal and financial advisors with respect to the Offer
and the Paramount Merger, as well as the Fourth QVC Offer and Fourth QVC
Second-Step Merger. The Paramount Board also received the written opinion of
Lazard Freres dated February 4, 1994 stating that as of such date (i) the Viacom
Transaction Consideration was fair to Paramount stockholders from a financial
point of view, (ii) the QVC Transaction Consideration was fair to Paramount
stockholders from a financial point of view and (iii) the Viacom Transaction
Consideration was marginally superior from a financial point of view to the QVC
Transaction Consideration.
The Paramount Board unanimously (i) approved the terms of the February 4
Merger Agreement (which amended and restated the January 21 Merger Agreement to
provide for the terms of the Offer and the Paramount Merger), (ii) determined
that the Offer and the Paramount Merger, taken together, were fair to, and in
the best interests of, Paramount's stockholders, (iii) recommended approval and
adoption of the February 4 Merger Agreement and (iv) recommended that holders of
shares of Paramount Common Stock tender such shares pursuant to the Offer. The
Paramount Board also unanimously recommended that stockholders reject the Fourth
QVC Offer and not tender any of their shares pursuant to such offer. After the
meeting on February 4, 1994, Paramount entered into the February 4 Merger
Agreement.
At the request of Mr. Donald Oresman of Paramount on February 14, 1994,
Lazard Freres delivered a letter, dated February 14, 1994, to Mr. Oresman
advising him that, as of February 14, 1994, Lazard Freres reaffirmed its written
opinion addressed to the Paramount Board, dated February 4, 1994.
As of midnight on February 14, 1994, approximately 74.6% of the outstanding
Paramount shares had been tendered pursuant to the Offer and not withdrawn while
approximately 8.5% of the outstanding Paramount shares were validly tendered
pursuant to the Fourth QVC Offer and not withdrawn. As a result, pursuant to the
Bidding Procedures, on February 15, 1994 Viacom waived certain conditions to the
Offer and extended the offer until March 1, 1994 and QVC terminated the Fourth
QVC Offer.
By unanimous written consent, effective March 1,1994 the Paramount Board
approved an amendment to the Rights Agreement providing that the consummation of
the Offer would not cause the rights under the Rights Agreement (the "Rights")
to become exercisable. Immediately after midnight on March 1, 1994, all
conditions to the Offer were deemed to have been satisfied and Viacom accepted
for payment 61,657,432 of the shares of Paramount Common Stock validly tendered
and not withdrawn pursuant to the Offer.
[On April , 1994, the Paramount and Viacom Boards of Directors approved
certain amendments to the February 4 Merger Agreement which are embodied in the
Paramount Merger Agreement.] The Paramount Merger Agreement amended and restated
the terms of the February 4 Merger Agreement solely to provide for a merger of a
wholly owned subsidiary of Viacom into Paramount (rather than Paramount into
Viacom) and to provide for the treatment of Paramount Stock Options in the
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Paramount Merger as described under "The Paramount Merger--Effect on Employee
Benefit Stock Plans."
PURPOSE AND STRUCTURE OF THE PARAMOUNT MERGER
Viacom and NAI's purpose for the Paramount Merger is to acquire beneficial
ownership of 100% of the equity of Paramount for the reasons described in
"--Background of the Paramount Merger" and "--Reasons for the Paramount Merger;
Recommendation of the Board of Directors; Fairness of the Transaction." The
Paramount Merger is structured as a merger because it ensures that Viacom will
acquire beneficial ownership of 100% of the equity of Paramount in a single
transaction. Viacom's acquisition of the shares of Paramount Common Stock owned
by the holders of Paramount Common Stock other than Viacom and its subsidiaries
will enable Viacom to realize the benefits and bear the risks of complete
ownership of Paramount including the opportunity to (i) facilitate inter-company
activity between Viacom and Paramount, (ii) permit combinations of management
and other resources of Viacom and Paramount, including, among other things, the
consolidation and rationalization of Paramount's business and operating
structure with a view to improving operations and reducing expenses of Viacom
and Paramount (see "--Certain Effects of the Paramount Merger; Operations After
the Paramount Merger"), (iii) enable Paramount's management (or any successors
thereto) to devote itself to building long-term values for Paramount without
concern that such efforts may adversely affect short-term results and the market
price for Paramount Common Stock, and (iv) eliminate the need for Paramount to
comply with the reporting requirements of the Exchange Act, to maintain
separately audited financial statements and to maintain its current listing on
the NYSE. In addition, Viacom believes that if Paramount were to continue to
have public stockholders, Paramount would require more management time and
attention than it would as a wholly owned subsidiary of Viacom.
The Paramount Merger will be effected by causing a wholly owned subsidiary
of Viacom to merge with and into Paramount. As a result, Paramount will be the
corporation surviving the Paramount Merger and will become a wholly owned
subsidiary of Viacom after the Paramount Effective Time.
REASONS FOR THE PARAMOUNT MERGER; RECOMMENDATIONS OF THE BOARD OF DIRECTORS;
FAIRNESS OF THE TRANSACTION
Viacom. At the meetings of the Viacom Board of Directors described above in
"--Background of the Paramount Merger," the Viacom Board received presentations
from Viacom's management regarding the business and prospects of Paramount. The
Viacom Board also received further presentations regarding, and reviewed the
terms of, the February 4 Merger Agreement, as amended, and the Offer, as amended
and supplemented, with members of Viacom's management and its financial and
legal advisors. In making its determination set forth below, the Viacom Board
reviewed with Smith Barney its financial analyses, with a view to understanding
the bases of its analyses and opinions, and reviewed and discussed with
management the results of management's due diligence investigations, the
business opportunities created by a combined Viacom-Paramount and risks
associated with the transactions. By a unanimous vote (with one director
abstaining) of directors at a special meeting of the Board of Directors of
Viacom held on February 1, 1994, the Viacom Board of Directors determined that
the Offer and the Paramount Merger, taken together, are fair to and in the best
interests of Viacom and its stockholders, approved the Offer and the Paramount
Merger and resolved to recommend that the stockholders of Viacom vote FOR
approval of the February 4 Merger Agreement and related transactions.
In reaching its conclusion to enter into the February 4 Merger Agreement,
the Viacom Board of Directors considered the following material factors:
1. The fact that Paramount and Viacom have businesses that are highly
complementary to each other and the fact that such businesses consist of
many well-known entertainment and media franchises; in particular, that:
. the combination of Paramount and Viacom will bring together the
creative talent, intellectual property, managerial resources and
trademarks of Paramount and Viacom;
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. each company would add enhanced and complementary distribution
capabilities;
. the combination of Paramount with Viacom would be able to
penetrate markets and achieve business goals that would otherwise be
more difficult to achieve; and
. as a result of all of the foregoing, combining Paramount with
Viacom would create a company better positioned than each of the
companies would be separately to adapt and benefit from technological
and other developments in the distribution and form of entertainment
programming and to successfully meet competitive challenges;
2. The terms of the proposed transaction including the terms of the
securities to be issued in the Paramount Merger, and the fact that the
Viacom Board believes that for the reasons discussed in paragraphs 1, 3, 4
and 5, the prospects for earnings before interest, taxes, depreciation and
amortization and earnings per share will be enhanced by the Paramount
Merger;
3. The financial condition of a combined Viacom and Paramount, the
impact of the Paramount Merger on the ability of the resultant entity to
pursue further growth through acquisition or the development of new or
complementary businesses and the anticipated ability of a combined Viacom
and Paramount to meet its financial obligations;
4. The fact that 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;
5. The fact that the combination of Paramount and Viacom is expected
to result in significant opportunities for increased revenues from (i)
cross-promotion and utilization of Viacom's and Paramount's well-known
brand names, such as using Viacom's Showtime, MTV and Nickelodeon brands to
enhance Paramount's live entertainment businesses, (ii) 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 (iii) the development of new
businesses based upon the management and creative skills of a combined
Viacom and Paramount (for example, the development of retail stores based
on the combined characters and trademarks of Viacom and Paramount); and the
fact that Viacom and Paramount could achieve cost reductions through the
combination of similar businesses and economies of scale;
6. Smith Barney's opinion to the effect that, as of February 1, 1994,
the proposed financial terms of the Offer and the Paramount Merger were
fair, from a financial point of view, to Viacom and its stockholders,
whether or not the Blockbuster Merger is consummated (in this respect,
while the Viacom Board of Directors did not explicitly adopt Smith Barney's
financial analyses, the Viacom Board of Directors took such analyses into
account in its overall evaluation of the Offer and Paramount Merger); and
7. 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 Paramount Merger, NAI would continue to hold approximately 85% of
the outstanding voting stock of Viacom and as a result of the proposed
Mergers, NAI would continue to hold approximately 61% of the outstanding
voting stock of the combined company; and the fact that the Paramount
Merger Consideration consists of no shares of Viacom Class A Common Stock.
In this regard, the Viacom Board of Directors also noted that the economic
interests of NAI and Viacom's public stockholders are aligned in connection
with the Offer and the Paramount Merger.
8. Certain risks associated with the proposed transaction, as set
forth under "Certain Considerations."
The Viacom Board considered that the combination of Viacom and Paramount
with Blockbuster would provide additional business opportunities of the kind
specified above. However, the Viacom Board
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concluded that, even without Blockbuster, the combination of Viacom with
Paramount could be financed on a reasonable basis and would result in all of the
benefits described above.
In view of the wide variety of factors considered by the Viacom Board, 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. However, as a general matter, the Viacom Board believed that the
factors discussed in paragraphs 1, 2, 4, 5 and 6 supported its decision to
approve the Offer and the Paramount Merger and outweighed the risks associated
therewith referred to in paragraph 8.
Viacom believes that the consideration paid in the Offer and the Paramount
Merger, taken together, is fair to the stockholders of Paramount. Viacom's
belief is based upon the fact that the terms of the Offer and the February 4
Merger Agreement were the product of arm's length negotiations between Viacom,
Paramount and their respective financial and legal advisors and were approved by
the Paramount Board at a time when none of Viacom, NAI or Sumner M. Redstone (or
any of their affiliates) was a member of the Paramount Board; that the Paramount
Board received a fairness opinion from Lazard Freres; and that the terms of the
Offer and Paramount Merger were agreed to following an extensive public bidding
process.
[On April [ ], 1994, the Viacom Board approved certain amendments to the
February 4 Merger Agreement which are embodied in the Paramount Merger
Agreement.]
THE BOARD OF DIRECTORS OF VIACOM RECOMMENDS THAT HOLDERS OF VIACOM CLASS A
COMMON STOCK VOTE FOR APPROVAL OF THE PARAMOUNT MERGER AGREEMENT AND RELATED
TRANSACTIONS.
Paramount. At its February 4, 1994 meeting, the Paramount Board considered
presentations from its legal and financial advisors with respect to the Offer
and the Paramount Merger, as well as the Fourth QVC Offer and the Fourth QVC
Second-Step Merger. It unanimously (i) approved the terms of the February 4
Merger Agreement and authorized its execution and delivery, (ii) determined that
the Offer and the Paramount Merger, taken together, were fair to, and in the
best interests of, Paramount's stockholders, (iii) recommended approval and
adoption of the February 4 Merger Agreement by Paramount's stockholders and (iv)
recommended that holders of shares of Paramount Common Stock tender their shares
pursuant to the Offer. The Paramount Board also unanimously recommended that
stockholders reject the Fourth QVC Offer and not tender any of their shares
pursuant to the Fourth QVC Offer.
The Paramount Board, in reaching its conclusions, gave consideration to a
number of factors, including, without limitation, the following:
(i) The presentation by Lazard Freres to the Paramount Board and its
written opinion dated February 4, 1994 stating that as of such date (a) the
Viacom Transaction Consideration was fair to Paramount stockholders from a
financial point of view, (b) the QVC Transaction Consideration was fair to
Paramount stockholders from a financial point of view and (c) the Viacom
Transaction Consideration was marginally superior to the QVC Transaction
Consideration from a financial point of view;
(ii) The Paramount Board's determination, taking into account Lazard
Freres' presentation and written opinion, that the Offer and the Paramount
Merger, taken together, represented the best value available under the
circumstances to Paramount stockholders. This determination was also based
upon the Paramount Board's view that the Viacom Transaction Consideration
has a more certain value than the QVC Transaction Consideration because (a)
the Viacom Transaction Consideration contains a larger percentage of cash
and securities readily susceptible to valuation than the QVC Transaction
Consideration and (b) the CVRs to be issued in the Paramount Merger would
afford a degree of value assurance protection to Paramount stockholders
with respect to the Viacom Class B Common Stock to be issued in the
Paramount Merger;
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(iii) The terms and provisions of the February 4 Merger Agreement,
including the following:
(a) The bidding procedures incorporated in the February 4 Merger
Agreement (and in the QVC Exemption Agreement) that were designed to
remove the coercive element from any offer by QVC or Viacom and to
provide stockholders with a meaningful choice between a tender offer
from QVC or Viacom;
(b) Paramount's right to terminate the February 4 Merger Agreement
in order to accept a transaction that offers better value; and
(c) The absence of any stock option, asset lock-up, termination
fee, expense reimbursements or other provisions that could deter a
higher offer for Paramount; and
(iv) The conditions to the Offer and the Paramount Board's
determination that all such conditions had been satisfied or could
reasonably be expected to be satisfied by the expiration date of the Offer.
[On April [ ], 1994, the reconstituted Paramount Board approved certain
amendments to the February 4 Merger Agreement which are embodied in the
Paramount Merger Agreement.]
OPINIONS OF FINANCIAL ADVISORS
Smith Barney has delivered its written opinion to the Viacom Board that as
of February 1, 1994, the financial terms of the Offer and the Paramount Merger,
taken together, were fair, from a financial point of view, to Viacom and its
stockholders, whether or not the Blockbuster Merger is consummated. VIACOM
STOCKHOLDERS ARE URGED TO READ THIS 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, Paramount's or
Blockbuster'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.
Copies of the February 1, 1994 opinion of Smith Barney and related written
presentation to the Viacom Board have been filed as exhibits to the Schedule
13E-3 filed with the Commission with respect to the Paramount Merger and may be
inspected and copied, and obtained by mail, from the Commission as set forth in
"Available Information" and will be made available for inspection and copying at
the principal executive offices of Viacom International at 1515 Broadway, New
York, New York 10036 during regular business hours by any interested public
stockholder of Paramount or his or her representative who has been so designated
in writing.
THE FULL TEXT OF THE OPINION OF SMITH BARNEY, WHICH SETS FORTH ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN BY SMITH BARNEY, IS
ALSO ATTACHED HERETO AS ANNEX III TO THIS PROXY STATEMENT/PROSPECTUS. SMITH
BARNEY'S OPINION IS DIRECTED ONLY TO THE FINANCIAL TERMS OF THE OFFER AND
PARAMOUNT MERGER 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 Offer; (ii)
reviewed the January 21 Merger Agreement in the form presented to the Viacom
Board; (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 are not
publicly available; (v) took into account certain long-term strategic benefits
of the Paramount Merger and the Blockbuster 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 Offer
and the
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Paramount Merger as set forth in the revised Offer to Purchase of Viacom used in
connection with the Offer and of the Blockbuster Merger as set forth in the
Blockbuster Merger Agreement, in relation to, among other things, current and
historical market prices and trading volumes of Viacom Common Stock, Paramount
Common Stock and Blockbuster Common Stock; the earnings and book value per share
of each of Viacom, Paramount and Blockbuster; and the capitalization and
financial condition of each of Viacom, Paramount and Blockbuster. 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 Offer and Paramount Merger and the Blockbuster 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 Offer and Paramount Merger and
of the Blockbuster 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.
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 also relied upon
the views of the management of Viacom, Paramount and Blockbuster in assuming
that certain long-term strategic benefits, both operational and financial, will
result from each of the Offer, the Paramount Merger and the Blockbuster Merger.
Smith Barney expressed no opinion as to what the value of the Paramount Merger
Consideration will be when issued to Paramount stockholders pursuant to the
Paramount Merger or the price at which the Paramount Merger Consideration will
trade subsequent to the Paramount 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. Smith Barney's opinion was based upon financial, stock
market and other conditions and circumstances existing and disclosed to it as of
the date of its opinion.
February 1, 1994 Viacom Board Presentation
At the February 1, 1994 meeting of the Viacom Board of Directors, Smith
Barney presented information and materials relating to the following matters:
(i) the proposed Offer and Paramount Merger, (ii) the pro forma impact to Viacom
of two different business combination scenarios (a combined Viacom and Paramount
and a combined Viacom, Paramount and Blockbuster), and (iii) quantitative
analysis relating to the foregoing matters.
__The Offer and the Paramount Merger
Transaction Overview
Smith Barney presented to the Viacom Board a summary of the Offer and
Paramount Merger, including the following:
. An overview of the key elements of the Offer and the Paramount Merger.
. A comparison of the per share consideration at face value and trading
value of the Fourth Viacom Offer and the Offer.
. An overview of the aggregate consideration at face value and trading
value of the Offer.
. A summary of the sources of financing for the Paramount Merger.
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Viacom Merger Debentures
. A summary list of the terms of the Viacom Merger Debentures and the
advantages of their use in the Paramount Merger.
Valuation Analyses
Smith Barney also reviewed with the Viacom Board various analyses 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 Original Merger in September 1993.
Public and Precedent Private Market Breakdown
Smith Barney reviewed with the Viacom Board the public and private market
breakdown analysis of Paramount. Based on the comparable company and selected
transaction analyses discussed below, 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. The two industries Smith Barney
analyzed were the entertainment and publishing industries, however, such
analyses were extended into more specific segments of these industries. The
entertainment industry was divided into the film/entertainment, movie theaters,
cable programming and broadcasting segments. The publishing industry was
segmented into educational, consumer and professional publishing. The
combination of the selected comparable company and selected comparable
transactions analyses generated an equity value range of approximately $6.5
billion to $11.2 billion per share.
Analysis of Public Trading Valuation of Selected Comparable Companies.
Smith Barney presented to the Viacom Board an analysis of the public
trading valuation of selected comparable companies, including share price,
market value, adjusted market value, multiples of market value and multiples of
adjusted market value. Smith Barney also discussed a five-year estimated
earnings per share growth for such selected comparable companies. All earnings
per share figures for the Comparable Companies were based on the consensus net
income estimates of selected investment banking firms and all earnings per share
estimates for Viacom and Paramount were based on internal estimates.
Such comparable companies that Smith Barney examined included A.H. Belo
Corporation, Ackerly Communications, Inc., Capital Cities/ABC, Inc., Carmike
Cinemas, Inc., CBS Inc., Cineplex Odeon Corporation, Clear Channel
Communications, Inc., Gaylord Entertainment Co., Granite Broadcasting
Corporation, Harcourt General, Inc., Heritage Media Corporation, Houghton
Mifflin Company, International Family Entertainment, Inc., John Wiley & Sons,
Inc., King World Productions, Inc., Liberty Media Corporation, Marvel
Entertainment Group, Inc., McGraw Hill, Inc., Multimedia, Inc., New Line Cinema
Corporation, New Corporation Limited, Outlet Communications, Inc., Park
Communications Inc., Plenum Publishing Corporation, Reader's Digest Association,
Inc., Scholastic Corporations, Scripps Howard Broadcasting Co., The Walt Disney
Company, Thomas Nelson, Inc., Time Warner, Inc., Turner Broadcasting System,
Inc., United Television, Inc., Waverly, Inc. and Western Publishing Group, Inc.
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 entertainment and publishing industries. The
respective multiples of the entertainment comparable companies were between the
following ranges: (i) latest 12 months after tax cash flow: 5.6x to 67.6x (with
a mean of 16.0x and a median of 13.7x); (ii) book value: 1.0x to 12.7x (with a
mean of 5.3x and a median of 3.9x): (iii) estimated 1993 calendar net income:
14.7x to 74.5x (with a mean of 26.0x and a median of 22.4x); and (iv) estimated
calendar 1994 net income: 13.5x to 46.4x (with a mean of 20.9x and a median of
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19.1x). The respective multiples of the publishing comparable companies were
between the following ranges: (i) latest 12 months after tax cash flow: 6.3x to
44.6x (with a mean of 17.0x and a median of 11.4x); (ii) book value: 1.8x to
21.3x (with a mean of 5.1x and median of 3.4x); (iii) estimated 1993 calendar
net income: 16.1x to 44.0x) (with a mean of 23.3x and a median of 20.6x); and
(iv) estimated calendar 1994 net income: 11.7x to 32.7x (with a mean of 19.2x
and a median of 17.5x).
Smith Barney compared adjusted market capitalization to, among other
things, historical net revenues; EBITDA and EBIT of the comparable companies.
The entertainment comparable companies for the respective multiples were between
the following ranges: (i) latest 12 months net revenue: 1.0x to 5.4x (with a
mean of 2.8x and a median of 2.4x); (ii) latest 12 months EBITDA: 6.9x to 31.6x
(with a mean of 12.1x and a median of 9.9x); and (iii) latest 12 months EBIT:
7.4x to 41.4x (with a mean of 18.2x and a median of 15.2x). The publishing
comparable companies for the respective multiples were between the following
ranges: (i) latest 12 months net revenue: 0.6x to 20.0x (with a mean of 3.6x and
a median of 1.5x); (ii) latest 12 months EBITDA: 5.3x to 25.1x (with a mean of
12.2x and a median of 10.7x); and (iii) latest 12 months EBIT: 6.7x to 34.4x
(with a mean of 18.3x and a median of 16.1x).
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 Paramount.
Analysis of Selected Transactions.
Smith Barney analyzed, among other things, the purchase prices as multiples
of net income and book value of the selected mergers and acquisitions and
transaction value as a multiple of revenues, EBITDA and total assets of the
selected mergers and acquisitions and compared these multiples with the
multiples of Paramount's performance implied by the Paramount merger
consideration. As set forth above under "Analysis of Public Trading Valuation of
Selected Comparable Companies," the analysis consisted of the valuation of each
of Paramount's significant component segments business, including the
entertainment and publishing industries.
Such comparable transactions that Smith Barney reviewed included the
acquisition by Turner Broadcasting System, Inc. of New Line Cinema Corporation,
the acquisition by Turner Broadcasting System, Inc. of Castle Rock
Entertainment, the acquisition by Matsushita Acquisition Corporation of MCA
Inc., the acquisition by Sony USA Inc. of Columbia Pictures Entertainment Inc.,
the acquisition by Time Inc. of Warner Communications Inc., the acquisition by
McGraw Hill, Inc. of Macmillan-McGraw Hill School Publishing Co. and the
acquisition by General Cinema Corp. of Harcourt Brace Jovanovich, Inc.
The multiples of net income and book value for the entertainment selected
transactions were between the following ranges: (i) latest 12 months net income:
27.3x to 49.9x (with a mean of 43.1x and a median of 28.4x); and (ii) book
value: 1.7x to 11.2x (with a mean of 7.8x and a median of 4.3x). The multiples
of revenues, EBITDA and total assets for the entertainment selected transactions
were between the following ranges: (i) revenues: 0.9x to 9.9x (with a mean of
2.9x and a median of 1.9x); (ii) EBITDA: 9.3x to 21.1x (with a mean of 14.5x and
a median of 13.3x; and (iii) total assets: 0.7x to 3.3x (with a mean of 1.6x and
a median of 1.1x). The multiples of net income and book value for the publishing
selected transactions were between the following ranges: (i) latest 12 months
net income: 13.8x to 56.9x (with a mean of 31.2x and a median of 29.4x); and
(ii) book value: 5.0x to 11.2x (with a mean of 7.3x and a median of 7.0x). The
multiples of revenues, EBITDA and total assets for the publishing selected
transactions were between the following ranges: (i) revenues: 1.1x to 2.7x (with
a mean and a median of 2.0x); (ii) EBITDA: 6.2x to 14.8x (with a mean of 10.3x
and a median of 10.0x); and (iii) total assets: 0.5x to 6.6x (with a mean of
2.7x and a median of 2.1x).
No company, transaction or business used in the comparable company and
selected merger and acquisition transactions analyses as a comparison is
identical to Viacom or Paramount or the
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Viacom/Paramount merger. Accordingly, an analysis of the results of the
foregoing is not entirely mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that can affect the acquisition or public
trading value of the comparable companies or the business segment or company to
which they are being compared.
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 x and 16 x EBITDA. This
analysis generated an equity value range of approximately $9.0 billion to $11.0
billion.
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.
__Pro Forma Impact
Smith Barney presented to the Viacom Board information concerning the pro
forma impact of the Paramount Merger, including the following:
No CVR Liability
. A pro forma summary of the impact of the Paramount Merger, assuming no
payment under the CVRs (with and without giving effect to the Blockbuster
Merger), on Viacom's pro forma stock price and cash flow per share, estimated
for the years 1994 to 1996, and the ratios of debt to EBITDA and EBITDA to net
interest and preferred dividend requirements, estimated for the years 1993 to
1996.
CVR Liability
. A pro forma summary of the impact of the Fourth Viacom Offer, assuming a
$10 per share CVR payment and of the impact of the Paramount Merger to Viacom
(with and without giving effect to the Blockbuster Merger) and assuming $12 and
$7 per share CVR payments on Viacom's pro forma stock price and cash flow per
share for the years 1994 to 1996, and the ratios of debt to EBITDA and EBITDA to
net interest and preferred dividends for the years 1993 to 1996.
__Quantitative Analysis
Combined Company
Smith Barney presented to the Viacom Board an analysis of the Paramount
Merger (assuming consummation of the Blockbuster Merger (assuming the exercise
of VCRs resulting in a weighted average Class B exchange ratio of 0.66544), the
expiration of the CVRs without liability and the exercise of the Viacom
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 and convertible debt 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
convertible 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,
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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 Paramount Merger and the Blockbuster Merger was $1,471
million (assuming no impact of potential synergies, which are considered to be
substantial), the 1993 pro forma combined total debt was $9,763 million
(includes Viacom Merger Debentures issued to Paramount stockholders as part of
the Paramount Merger Consideration but does not include Viacom Preferred Stock
issued to NYNEX), and the 1993 pro forma combined total cash was $784 million
(includes estimated deductions for transactions fees).
. 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 giving effect to the Paramount Merger.
. An analysis of the estimated 1993 through 2003 Viacom implied pro forma
stock prices, assuming consummation of the Blockbuster Merger and the Offer 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 Offer and the Paramount Merger, both actual and estimated.
. 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
Blockbuster Merger and the Offer 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
Blockbuster 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 Blockbuster
Merger and the Offer 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/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 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 and convertible debt 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
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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 Paramount Merger was $1,015 million
(assuming no impact of potential synergies, which are considered to be
substantial), the 1993 pro forma combined total debt was $6,949 million (does
not include Series C Preferred Stock potentially issued to Paramount
stockholders as part of the Paramount Merger Consideration and Viacom Preferred
Stock issued to NYNEX and Blockbuster), and the 1993 pro forma combined total
cash was $494 million (includes estimated deductions for merger transactions
fees).
. 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 stockholders and NYNEX, both on
stand-alone bases and pro forma giving effect to the Paramount Merger.
. An analysis of the estimated 1993 through 2003 Viacom implied pro forma
stock prices, assuming the use of Viacom Warrants in the Paramount Merger.
. A summary of refinancings of existing debt and new borrowings by Viacom
and Paramount, on stand-alone bases and pro forma giving effect to the Paramount
Merger both actual and estimated.
. 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 the 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 the
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 the 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 estimated Viacom/Paramount
entity, estimated for the years 1994 to 2003, and a pro forma balance sheet for
the Viacom/Paramount entity.
Combined Company
Smith Barney presented to the Viacom Board an analysis of the Paramount
Merger assuming consummation of the Blockbuster Merger (assuming the exercise of
VCRs resulting in a weighted average Class B exchange ratio of 0.66544),
liability per CVR of $12 per share and the exercise of the Viacom Warrants
(although the occurrence of the exercise of the Viacom Warrants as well as
liability under the CVRs and the exercise of VCRs resulting in an increased
overall Class B exchange ratio would take place only under limited
circumstances, these assumptions were utilized to provide a conservative
analysis to the Viacom Board). The Smith Barney presentation 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 in the per share
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consideration to be paid to Paramount stockholders and the Paramount Merger.
Smith Barney also discussed the impact of the use of convertible preferred
stock, convertible debt and contingent value rights 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 Paramount Merger and the Blockbuster Merger was $1,471 million (assuming no
impact of potential synergies, which are considered to be substantial), the 1993
pro forma combined total debt was $10,448 million (includes Viacom Merger
Debentures issued to Paramount stockholders as part of the Paramount Merger
Consideration but does not include Viacom Preferred Stock issued to NYNEX), and
the 1993 pro forma combined total cash was $784 million (includes estimated
deductions for merger transactions fees).
. An analysis of the combined company's compliance with certain bank
covenants and an analysis of relative ratios 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 giving effect to the Paramount Merger.
. An analysis of the estimated 1993 through 2003 Viacom implied pro forma
stock prices, assuming consummation of the Blockbuster 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 Paramount Merger, both actual and estimated.
. 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
Blockbuster 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 the
Viacom Preferred Stock, and with pro forma earnings per share giving effect to
the Blockbuster 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 Blockbuster
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/Paramount
Smith Barney presented to the Viacom Board an analysis of the Paramount
Merger, assuming liability per CVR of $12 per share and the exercise of the
Viacom Warrants (although the occurrence of
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both the exercise of the Viacom Warrants and payment under the CVRs would take
place only under limited circumstances, these assumptions were utilized to
provide a conservative analysis to the Viacom Board). The Smith Barney
presentation included:
. A transaction structure and an analysis of the Paramount Merger setting
forth the kind an 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 contingent value rights, convertible debt and 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
convertible 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 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 Paramount Merger was $1,015 million (assuming no impact of
potential synergies, which are considered to be substantial), the 1993 pro forma
combined total debt was $7,634 million (does not include Series C Preferred
Stock potentially issued to Paramount stockholders as part of the Paramount
Merger Consideration or Viacom Preferred Stock issued to NYNEX and Blockbuster),
and the 1993 pro forma combined total cash was $494 million (includes estimated
deductions for merger transactions fees).
. An analysis of the Viacom/Paramount entity's compliance with certain bank
covenants 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 giving effect to the Paramount Merger.
. An analysis of the estimated 1993 through 2003 Viacom implied pro forma
stock prices, assuming the use of warrants in the Paramount Merger.
. A summary of refinancings of existing debt in new borrowings by Viacom
and Paramount, on stand-alone bases and pro forma giving effect to the Paramount
Merger both actual and estimated.
. An estimate 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 estimated Viacom/Paramount
entity, estimated for the years 1993 to 2003, and a pro forma balance sheet for
the Viacom/Paramount entity.
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QVC/Paramount
Smith Barney presented to the Viacom Board an analysis of a QVC/Paramount
Merger that included:
. A transaction structure and an analysis of a QVC/Paramount Merger setting
forth the kind and amount of securities to be issued in a QVC/Paramount Merger,
the source and use of funds and the per share consideration to be paid to
Paramount stockholders in a QVC/Paramount Merger. Smith Barney also discussed
the impact of the use of preferred stock with warrants as part of the
consideration in the proposed QVC/Paramount Merger.
. An analysis of the debt structure of QVC and its additional borrowing
capacity.
. A pro forma combined income statement of the combined QVC and Paramount
for the years 1993 to 1999 and relative leverage ratios.
. An earnings per share and cash flow dilution/accretion analysis of QVC
both on stand-alone bases and pro forma giving effect to a QVC/Paramount Merger
for the years 1993 to 1999.
. An income tax calculation and pro forma combined cash flow statement
estimated for the years 1993 to 1999.
. A debt paydown and interest expense table of the combined company,
estimated for the years 1994 to 1999, and a pro forma balance sheet for the
combined QVC and Paramount.
. An analysis of the economic and voting ownership of QVC assuming the
consummation of the QVC/Paramount Merger and the conversion of the QVC
convertible preferred stock.
. An analysis of the economic and voting ownership of Liberty Media.
. An analysis of the QVC implied estimated pro forma stock price from 1993
through 1998, both with and without attendant synergies.
In arriving at its opinions, 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 Paramount'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 opinion is a complex
process, not necessarily susceptible to partial or summary description. No
company utilized as a comparison is identical to Viacom, 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
judgements 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 Paramount Merger and are familiar with Viacom and its business. Smith
Barney is an investment banking firm engaged, among other things, in the
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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 an underwriter of public
offerings of certain securities of Viacom and 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 September 12, 1993,
Viacom has paid Smith Barney a fee of $3.0 million for acting as financial
advisor in connection with the Paramount Merger, including rendering its
opinion. In addition, Viacom has agreed to pay Smith Barney an additional fee of
$9.5 million in connection with consummation of the transaction. Whether or not
the Paramount 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.
Bear, Stearns & Co. Inc. ("Bear Stearns") and Goldman, Sachs & Co. have
also been engaged by Viacom as financial advisors in connection with the Offer
and the Paramount Merger.
Paramount. Paramount has retained Lazard Freres to act as its financial
advisor in connection with the Offer and the Paramount Merger. At the meeting of
the Board of Directors of Paramount held on February 4, 1994, Lazard Freres
delivered its written opinion to the Board of Directors of Paramount that, as of
February 4, 1994, (i) the Viacom Transaction Consideration was fair to the
holders of Paramount Common Stock from a financial point of view, (ii) the QVC
Transaction Consideration was fair to the holders of Paramount Common Stock from
a financial point of view, and (iii) the Viacom Transaction Consideration was
marginally superior to the QVC Transaction Consideration from a financial point
of view. PARAMOUNT STOCKHOLDERS ARE URGED TO READ THE TEXT OF THE LAZARD FRERES
OPINION IN ITS ENTIRETY FOR ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF
REVIEW BY LAZARD FRERES.
Copies of the February 4, 1994 opinion of Lazard Freres, the written
presentation of Lazard Freres to the Board of Directors of Paramount on February
4, 1994 and the February 14, 1994 Letter (as defined below) have been filed as
exhibits to the Schedule 13E-3 filed with the Commission with respect to the
Paramount Merger and may be inspected and copied, and obtained by mail, from the
Commission as set forth in "Available Information" and will be made available
for inspection and copying at the principal executive offices of Paramount at 15
Columbus Circle, New York, New York 10023 during regular business hours by any
interested public stockholder of Paramount or his or her representative who has
been so designated in writing.
A COPY OF THE FULL TEXT OF THE LAZARD FRERES OPINION WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS OF THE REVIEW UNDERTAKEN,
IS ATTACHED AS ANNEX IV HERETO. THE SUMMARY DISCUSSION OF THE OPINION OF LAZARD
FRERES SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. LAZARD FRERES' OPINION IS
DIRECTED ONLY TO LAZARD FRERES' CONCLUSIONS FROM A FINANCIAL POINT OF VIEW AS OF
FEBRUARY 4, 1994 OF THE ITEMS REFERRED TO IN SUCH OPINION, AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE AT THE PARAMOUNT SPECIAL MEETING.
In connection with rendering its opinion to the Board of Directors of
Paramount on February 4, 1994 and its delivery of the February 14, 1994 Letter,
Lazard Freres, among other things: (i) reviewed the terms and conditions of (a)
the amended proposal by QVC (the "Amended QVC Proposal") to acquire Paramount as
set forth in Amendment Number 34 to the Tender Offer Statement on Schedule 14D-1
filed by QVC, Comcast and BellSouth with the Commission on February 1, 1994 and
the QVC Exemption Agreement, including the form Agreement and Plan of Merger
between QVC and Paramount attached thereto (the "Form QVC Merger Agreement"),
and (b) the written proposal submitted to Paramount by Viacom on February 1,
1994 and Amendment Number 35 to the Tender Offer Statement on Schedule 14D-1
filed by Viacom, NAI, Mr. Sumner M. Redstone and Blockbuster with the Commission
on February 1, 1994 (collectively, the "Amended Viacom Proposal"), and the
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Agreement and Plan of Merger, dated as of January 21, 1994, as amended on
January 27, 1994 and as proposed as of February 4, 1994 to be amended to reflect
the Amended Viacom Proposal (the "Amended Viacom Merger Agreement"), including
the Form Exemption Agreement between Viacom and Paramount attached thereto; (ii)
reviewed the terms and conditions of the Blockbuster Merger Agreement and the
Blockbuster Subscription Agreement, analyzed the Amended Viacom Proposal, both
with and without giving effect to the proposed Blockbuster Merger contemplated
by the Blockbuster Merger Agreement, and observed that the proposed Blockbuster
Merger is subject to the approval of the stockholders of Blockbuster; (iii)
analyzed certain historical business and financial information relating to
Paramount, Viacom, QVC and Blockbuster; (iv) reviewed certain financial
forecasts and other data provided by Paramount, Viacom, QVC and Blockbuster
relating to their respective businesses (except in the case of Paramount,
financial forecasts for the then current fiscal year only, having been advised
that Paramount did not prepare projections beyond the then current fiscal year);
(v) reviewed public information with respect to certain public companies in
lines of businesses that Lazard Freres believed to be comparable to the
businesses of Paramount, Viacom, QVC and Blockbuster; (vi) reviewed the
financial terms of certain recent business combinations involving companies in
lines of business that Lazard Freres believed to be comparable to the businesses
of Paramount, Viacom, QVC and Blockbuster, and in other industries generally;
(vii) reviewed the historical stock prices and trading volumes of Paramount
Common Stock, Viacom Class B Common Stock, the QVC Common Stock and Blockbuster
Common Stock; and (viii) reviewed the procedures for bidding set forth in the
Amended Viacom Merger Agreement and the QVC Exemption Agreement, in particular
noting the respective provisions therein providing for extensions of the Fourth
QVC Offer or the Offer, as applicable, for 10 business days upon delivery of a
Completion Certificate (referred to in the Amended Viacom Merger Agreement or
the QVC Exemption Agreement, as applicable) by Viacom or QVC, as applicable. In
addition, Lazard Freres conducted discussions with members of the senior
management of Paramount, Viacom, QVC and Blockbuster with respect to the
business and prospects of Paramount, Viacom, QVC and Blockbuster and the
strategic objectives of each, and Lazard Freres conducted such other financial
studies, analyses and investigations as Lazard Freres deemed appropriate.
In preparing its written opinion to the Board of Directors of Paramount on
February 4, 1994, its presentation to the Board of Directors of Paramount on
February 4, 1994 and the February 14, 1994 Letter, Lazard Freres assumed and
relied upon the accuracy and completeness of the financial and other information
that was provided by Paramount, Viacom, QVC and Blockbuster, and on the
representations and warranties contained in the Amended Viacom Merger Agreement
and the Form QVC Merger Agreement. Lazard Freres did not independently verify
such information and did not undertake an independent valuation or appraisal of
any of the assets of Paramount, Viacom, QVC or Blockbuster. In addition, Lazard
Freres assumed that the financial forecasts furnished to it by Paramount,
Viacom, QVC and Blockbuster were reasonably prepared on a basis reflecting, as
of the date of its opinion, its presentation to the Board of Directors of
Paramount and the February 14, 1994 Letter, the best currently available
judgments of the management of each of Paramount, Viacom, QVC and Blockbuster as
to the future financial performance of Paramount, Viacom, QVC and Blockbuster,
respectively. Lazard Freres also assumed that the Amended Viacom Proposal and
the Amended QVC Proposal were made in compliance with the terms and conditions
of the Amended Viacom Merger Agreement and the QVC Exemption Agreement,
respectively. Lazard Freres' opinion as of February 4, 1994, its presentation to
the Board of Directors of Paramount and the February 14, 1994 Letter were also
based on economic, monetary and market conditions existing on the date of the
opinion. In accordance with the Bidding Procedures established by Paramount's
Board of Directors on December 13, 1993, Paramount's Board of Directors had
authorized Lazard Freres to respond to inquiries with respect to Paramount from
prospective bidders (in addition to QVC and Viacom) and to receive proposals
from additional bidders, if any. Lazard Freres did not, however, solicit third
party indications of interest in acquiring all or any part of Paramount.
As part of Lazard Freres' analyses in connection with rendering its opinion
on February 4, 1994 and the February 14, 1994 Letter, Lazard Freres continued to
evaluate the proposed Viacom and QVC
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transactions, as it had done in the past, not only on the basis of their then
current market values but also applying other financial valuation methodologies
generally applicable to transactions of this type. Lazard Freres noted that
these financial valuation methodologies, which are subject to certain
limitations as applied to the prospective combinations, including the lack of
projections for Paramount beyond the then current fiscal year and the
difficulties in quantifying synergies and revenue enhancements resulting from
the combinations, generally favored in varying degrees the Viacom Transaction
Consideration from a financial point of view. On the basis of recent market
values on the date of its opinion and the February 14, 1994 Letter, Lazard
Freres observed that the QVC Transaction Consideration had a somewhat higher
market valuation than the Viacom Transaction Consideration. In this connection,
Lazard Freres observed the high volatility of Viacom Class B Common Stock and
QVC Common Stock and that the market prices of the stocks seemed to be impacted
by the perception of the marketplace as to whether QVC or Viacom would be the
ultimate acquiror of Paramount.
In connection with rendering its opinion and the conclusion set forth in
the February 14, 1994 Letter, Lazard Freres also observed the express preference
of Paramount's Board of Directors in the Bidding Procedures for cash and
securities readily susceptible to valuation, such as securities with a fixed
income stream, with a liquidation preference, or in the case of equity
securities, securities which enjoy the benefits of a wide collar or other value
assurance mechanism. In this regard, Lazard Freres noted that there was a
greater percentage of cash and fixed income securities as components of the
Viacom Transaction Consideration than the QVC Transaction Consideration,
although the magnitude of the difference in the respective percentages between
the two then current bids had decreased in comparison to the then most recent
previous bids submitted by Viacom and QVC. Lazard Freres further noted the
offering of the CVRs in the Amended Viacom Proposal.
In reaching its opinion on February 4, 1994 and the conclusion set forth in
the February 14, 1994 Letter, Lazard Freres also noted that it took into account
various factors, including its assessment of the probability of consummation of
the proposed Blockbuster Merger contemplated by the Blockbuster Merger Agreement
under the circumstances existing on February 4, 1994 and February 14, 1994, as
applicable, and that, given the terms and conditions of the proposed Fourth QVC
Offer and the Fourth QVC Second-Step Merger and the proposed Offer and the
Paramount Merger and the limitations of the financial valuation methodologies
referred to above, Lazard Freres had continued to view as a favorable factor an
offer that contains a greater percentage of cash and securities readily
susceptible to valuation.
In connection with the Amended Viacom Proposal and the Amended QVC
Proposal, at the meeting of the Board of Directors of Paramount held on February
4, 1994, Lazard Freres delivered its written opinion to the Board of Directors
of Paramount that, as of the date of the opinion, (i) the Viacom Transaction
Consideration was fair to the holders of Paramount Common Stock from a financial
point of view, (ii) the QVC Transaction Consideration was fair to the holders of
Paramount Common Stock from a financial point of view, and (iii) the Viacom
Transaction Consideration was marginally superior to the QVC Transaction
Consideration from a financial point of view.
FEBRUARY 4, 1994 BOARD PRESENTATION
Prior to delivering its written opinion to the Board of Directors of
Paramount, Lazard Freres reviewed certain information with the Board of
Directors of Paramount relating to Paramount, Viacom, Blockbuster and QVC and
the financial terms of the Amended Viacom Proposal, after giving effect to the
proposed Blockbuster Merger (the "Viacom-Blockbuster Proposal"), the Amended
Viacom Proposal, without giving effect to the proposed Blockbuster Merger (the
"Viacom Alone Proposal") and the Amended QVC Proposal (the foregoing are
sometimes individually referred to herein as a "Proposal" and collectively as
the "Proposals").
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SUMMARY
. Lazard Freres described their recent contacts with QVC, Viacom and
Blockbuster and their respective advisors and a chronology of events since the
then most recent meeting of the Board of Directors of Paramount on January 21,
1994.
. Lazard Freres reviewed the financial terms of the Proposals and noted
that Viacom's agreements with Blockbuster (including the Blockbuster Merger
Agreement and the Blockbuster Subscription Agreement) had remained unchanged.
. Lazard Freres described the changes to the respective Proposals by QVC
and Viacom from their then most recent previous bids. Lazard Freres noted that
QVC had increased the cash portion of its bid by approximately $750 million,
while reducing the value of securities offered in the proposed Fourth QVC
Second-Step Merger by a substantially equivalent amount. With respect to the
Amended Viacom Proposal, Lazard Freres observed that the cash portion of its
offer had remained unchanged, but the value of the securities offered in the
proposed Paramount Merger had been improved. Lazard Freres described in detail
the changes to, and the terms of, the various securities offered by Viacom that
produced this improvement.
. Lazard Freres reviewed graphic representations that compared the Amended
QVC Proposal, the Viacom Alone Proposal and the Viacom-Blockbuster Proposal with
QVC's and Viacom's then most recent previous bids and showed the value of the
respective bids at various per share prices for QVC Common Stock and Viacom
Class B Common Stock. The comparison of the two QVC bids showed that at stock
prices for QVC Common Stock below approximately $48 per share, the then current
QVC bid was slightly higher than the then most recent previous bid by QVC, while
at stock prices higher than approximately $48 per share, the then most recent
previous bid by QVC had a slightly higher value. However, with respect to the
Amended Viacom Proposal, at all stock prices for Viacom Class B Common Stock,
the then current Viacom Alone Proposal and the Viacom-Blockbuster Proposal had
higher values than the then most recent previous Viacom bid, and with respect to
the analysis of the Viacom-Blockbuster Proposal only, the difference was even
greater, given the different securities being offered by Viacom depending upon
whether the Blockbuster Merger would be consummated.
. Lazard Freres further noted that the three-way combination of
Viacom-Blockbuster/Paramount would have the strongest credit ratios of the three
possible combinations, while the credit ratios for the Viacom/Paramount
combination would have the weakest, given Blockbuster's substantial cash flow
and relatively low level of debt and the fact that Viacom would be acquiring
Blockbuster for all stock.
. Lazard Freres noted that QVC's financing package for the Amended QVC
Proposal had been altered to provide for more cash and was less favorable from
QVC's standpoint compared to the financing package for the then most recent
previous QVC bid, while the Viacom financing package for the Amended Viacom
Proposal had remained essentially unchanged compared to the financing package
for the then most recent previous Viacom bid.
. Lazard Freres also presented an overview of its valuation of the Amended
QVC Proposal, the Viacom Alone Proposal and the Viacom-Blockbuster Proposal.
Lazard Freres expressly noted that its views of value were provided within a
framework of Bidding Procedures adopted by Paramount (and agreed to by the
bidders) that allowed the holders of Paramount Common Stock to choose between
the competing Proposals. Lazard Freres discussed with the Board of Directors of
Paramount that, based on the closing market prices of QVC Common Stock and
Viacom Class B Common Stock for February 3, 1994, and its valuation of the
non-common securities that were offered in each of the bids (which was also
based on those February 3, 1994 closing prices), the Amended QVC Proposal had a
value (on a per share of Paramount Common Stock basis) that was higher than the
Viacom-Blockbuster Proposal and
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the Viacom Alone Proposal by $5.21 and $3.40 per share, respectively. Lazard
Freres also noted that the total consideration offered in the Amended Viacom
Proposal contained a greater percentage of cash and fixed income securities than
the Amended QVC Proposal. As described in more detail below, Lazard Freres also
analyzed the respective values of the Amended QVC Proposal, the Viacom Alone
Proposal and the Viacom-Blockbuster Proposal at recent market prices for QVC
Common Stock and Viacom Class B Common Stock (ranging from a one week average to
a six month average prior to February 3, 1994).
. Lazard Freres noted that by using various financial valuation
methodologies (other than current and recent market values) to analyze the
respective Proposals (as described in more detail below), (i) both the Amended
QVC Proposal and the Amended Viacom Proposal had implied values that were lower
than the values obtained by using current market value methodology to value the
Proposals, and (ii) the Viacom Alone Proposal and the Viacom-Blockbuster
Proposal each had a higher implied value by varying amounts than the Amended QVC
Proposal (with the differences being greater for the Viacom-Blockbuster
Proposal). Lazard Freres specifically noted that it believed that these
financial valuation methodologies were useful but subject to various
limitations, including: the absence of precise and reliable quantification of
potential cost savings or revenue enhancement opportunities; the difficulty of
deriving appropriate multiples for each combination; the unavailability of
internal long-term projections for Paramount; and the difficulty of projecting
financial results of any of the combinations, in each case, particularly in
light of each bidder's strategic/merger partners.
. Lazard Freres discussed with the Board of Directors of Paramount that the
then current market prices of QVC Common Stock and Viacom Class B Common Stock
may have reflected the market's perception of cost savings, revenue enhancement
opportunities and the potential impact of the bidders' respective
strategic/merger partners, but, reiterating what Lazard Freres had indicated
previously to the Paramount Board, these current market prices may also have
been influenced by the market's views as to which bidder would likely acquire
Paramount, with Viacom having appeared to have been the leader on February 4,
1994, and, as Lazard Freres noted, this influence on these current market prices
may have been even greater at that time given the fact that the Amended Viacom
Proposal and the Amended QVC Proposal were presumably each bidder's "last and
final bid."
. Lazard Freres also reviewed its comparisons of the Amended QVC Proposal,
the Viacom Alone Proposal and the Viacom-Blockbuster Proposal using both 1993
estimated EBITDA and 1994 estimated EBITDA for each of the companies on the
basis of comparable company trading multiples, discounted cash flow analysis and
weighted average unaffected multiples. As noted above, each of these financial
valuation methodologies produced in varying degrees, in the cases of both 1993
and 1994 estimated EBITDA, higher implied total bid values for the Viacom Alone
Proposal and the Viacom-Blockbuster Proposal in comparison to the Amended QVC
Proposal. This difference was greater in the case of the Viacom-Blockbuster
Proposal.
. Lazard Freres noted that in connection with its comparable company
trading analysis, if the various proposed combined companies were to trade at
the same multiple of EBITDA, each of the Viacom Alone Proposal and the
Viacom-Blockbuster Proposal would have implied bid values higher than the
Amended QVC Proposal; however, if the QVC/Paramount combined company were to
trade at a higher multiple than the Viacom/Paramount or
Viacom-Blockbuster/Paramount combined companies, the implied value of the
Amended QVC Proposal could equal or exceed the implied values of either the
Viacom Alone Proposal or the Viacom-Blockbuster Proposal.
. As reviewed below, Lazard Freres discussed with the Board of Directors of
Paramount that although there were arguments to support (and refute) a higher
multiple for either of the proposed QVC or Viacom combinations, Lazard Freres
had no reason to conclude from a financial point of view that
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either of the proposed combinations should be assigned a higher multiple, and
thus in most instances, Lazard Freres' analysis compared the Amended QVC
Proposal, the Viacom Alone Proposal and the Viacom-Blockbuster Proposal at the
same EBITDA multiples.
. Lazard Freres also reviewed its various observations regarding the
trading activity of QVC Common Stock and Viacom Class B Common Stock noting
that, since September 13, 1993 (the date of the first public announcement of the
Original Merger), QVC Common Stock had fallen 27% and Viacom Class B Common
Stock had fallen 43%. In addition, Lazard Freres explained that it was likely
that the stock price of the apparent leader for Paramount would drop and that of
the apparent trailing bidder would rise, as the ultimate resolution of the
bidding approached, and this phenomenon may have explained the then recent
trading activity of QVC Common Stock and Viacom Class B Common Stock, with the
price of QVC Common Stock rising, and the price of Viacom Class B Common Stock
falling, amid various reports that the market favored Viacom's bid. Lazard
Freres also noted that this phenomenon could affect the outcome of the
shareholder vote of the Blockbuster stockholders on the proposed Blockbuster
Merger. However, Lazard Freres commented that, rather than comparing the implied
bid values on the basis of a "winning" and "losing" bid, the more relevant
comparison would be to compare the implied bid values of each bid assuming that
bid were the winning bid, and most importantly, Lazard Freres explained that
given the bidding process, the holders of Paramount Common Stock would have the
ability to choose between the Amended QVC Proposal and the Amended Viacom
Proposal based on their own views of value.
. Lazard Freres advised the Board of Directors of Paramount of the status
of the proposed Blockbuster Merger, including noting that it had again confirmed
with Merrill Lynch, Pierce, Fenner & Smith Incorporated, Blockbuster's financial
advisor, that Blockbuster had not received any expressions of interest from
third parties and summarizing the anticipated timetable for the Blockbuster
Merger provided to Lazard Freres by Viacom and Blockbuster.
. In addition, Lazard Freres reviewed a graphic representation of the stock
price performance of QVC Common Stock, Viacom Class B Common Stock, Blockbuster
Common Stock and Paramount Common Stock during the period from September 13,
1993 through February 3, 1994 and the stock performance of QVC Common Stock and
Viacom Class B Common Stock during the period from December 20, 1993 through
February 3, 1994.
PRO FORMA FINANCIAL AND CREDIT ANALYSIS
Lazard Freres reviewed its analysis of the pro forma financial statements
for each of the proposed QVC/Paramount combination, proposed Viacom/Paramount
combination and proposed Viacom-Blockbuster/Paramount combination using each
company's estimated fiscal year 1993 data. Lazard Freres noted that pro forma
1993 EBITDA was estimated to be $756 million (12.2% margin) for the
QVC/Paramount combination, $1,126 million (16.2% margin) for the
Viacom/Paramount combination and $1,594 million (17.3% margin) for the
Viacom-Blockbuster/Paramount combination, and due to large goodwill
amortization, interest expense and preferred dividend charges, no combination
would be expected to have a meaningful level of net earnings. As noted above, of
the three possible combinations, Lazard Freres explained that the proposed
Viacom-Blockbuster/Paramount combined company would produce the strongest credit
ratios while the proposed Viacom/Paramount combined company would have the
weakest. Lazard Freres explained that the Blockbuster Merger would significantly
improve Viacom's credit ratios because Blockbuster has substantial cash flow and
a relatively low level of debt, and Viacom would be acquiring Blockbuster in the
Blockbuster Merger for all stock. Lazard Freres further commented that while
there was no assurance that the Blockbuster Merger would be consummated, the
parties involved had informed Lazard Freres that they expected the
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proposed Blockbuster Merger to close in April 1994. In addition, Lazard Freres
noted that Viacom had attempted to reduce the credit risk by adding the exchange
feature to the Viacom Merger Debentures. Finally, Lazard Freres noted that with
respect to the potential obligation of Viacom as a result of the CVRs: the
maximum obligation for Viacom could be as much as approximately $1.0 billion if
the CVRs were not extinguished until the third anniversary of the Paramount
Merger; under the terms of the CVRs, Viacom could delay the payment of its
potential obligation for up to three years; and while Viacom could satisfy its
obligation under the CVRs by issuing shares of Viacom Class B Common Stock, such
an issuance would dilute the then existing shareholders and, hence, could put
downward pressure on Viacom's stock price.
Lazard Freres also reviewed the pro forma income statements and balance
sheets for each of the three possible combinations and selected credit ratios
for each of them.
VALUATION ANALYSIS OF AMENDED VIACOM PROPOSAL AND AMENDED QVC PROPOSAL
Lazard Freres reviewed various analyses with respect to the valuation of
the Amended Viacom Proposal and the Amended QVC Proposal and expressly noted
that Lazard Freres did not factor into its analysis any combination benefits
such as cost savings or revenue enhancement and expressly cautioned that given
the uncertainties involved in these valuation analyses, the volatility of the
stock prices of QVC and Viacom, the dynamic market conditions and the possible
changes in the complexion of any of the potential combinations, none of these
valuation analyses should be viewed as a reliable predictor of stock prices.
Current Market Analysis
Lazard Freres first reviewed its current market analysis of the equity
portion (and resulting implied total consideration) of each of the Amended QVC
Proposal, the Viacom Alone Proposal and the Viacom-Blockbuster Proposal pursuant
to which Lazard Freres calculated these values by applying the exchange ratio of
each Proposal to the then current market prices of the securities being offered.
Based on the closing price of QVC Common Stock and Viacom Class B Common Stock
on February 3, 1994, Lazard Freres analysis showed that the implied value of the
total consideration offered in (i) the Amended QVC Proposal was $86.71 per share
of Paramount Common Stock, comprised of $52.10 of cash (60.1% of total), $3.76
of New QVC Merger Preferred Stock (4.3% of total), $2.55 of the ten-year
warrants to purchase QVC Common Stock (2.9% of total) and $28.30 of QVC Common
Stock (32.6% of total); (ii) the Viacom Alone Proposal was $81.49 per share of
Paramount Common Stock, comprised of $53.61 of cash (65.8% of total), $6.01 of
Series C Preferred Stock (7.4% of total), $1.41 of Viacom Three-Year Warrants
(1.7% of total), $0.84 of Viacom Five-Year Warrants (1.0% of total), $3.84 of
CVR (4.7% of total) and $15.79 of Viacom Class B Common Stock (19.4% of total);
and (iii) the Viacom-Blockbuster Proposal was $83.31 per share of Paramount
Common Stock, comprised of $53.61 of cash (64.3% of total), $8.41 of Viacom
Merger Debentures (10.1% of total), $0.82 of Viacom Three-Year Warrants (1.0% of
total), $0.82 of Viacom Five-Year Warrants (1.0% of total), $3.87 of CVR (4.6%
of total) and $15.79 of Viacom Class B Common Stock (19.0% of total).
Lazard Freres also reviewed the implied value of the total consideration
offered in the Amended QVC Proposal, the Viacom Alone Proposal and the
Viacom-Blockbuster Proposal based on the closing market price of QVC Common
Stock and Viacom Class B Common Stock of February 1, 1994 (which was reflective
of the market immediately prior to the public announcement of the Proposals):
$85.91 per share for the Amended QVC Proposal, $81.61 per share for the Viacom
Alone Proposal and $83.35 per share for the Viacom-Blockbuster Proposal. The
relative percentages of the components of each bid were essentially identical to
the percentages for the February 3, 1994 market prices. Lazard Freres observed
that, using the respective closing market prices of QVC Common Stock and Viacom
Class B
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Common Stock on February 3, 1994, if the price of the Viacom Class B Common
Stock had remained unchanged, the price of QVC Common Stock would have to
decline by 19% for the respective implied market values of the total
consideration offered in the Amended QVC Proposal and the Viacom Alone Proposal
to be equivalent and by 12% for the respective implied market values of the
total consideration offered in the Amended QVC Proposal and the
Viacom-Blockbuster Proposal to be equivalent, and, conversely, if the price of
QVC Common Stock had remained unchanged, the price of Viacom Class B Common
Stock would have to rise by 33% for the respective implied market values of the
total consideration offered in the Amended QVC Proposal and the Viacom Alone
Proposal to be equivalent and by 21% for the respective implied market values of
the total consideration offered in the Amended QVC Proposal and the
Viacom-Blockbuster Proposal to be equivalent.
Recent Market Value Analysis
Lazard Freres next reviewed with the Board of Directors of Paramount its
recent market analysis of each Proposal by applying the exchange ratio of each
Proposal to the average prices of QVC Common Stock and Viacom Class B Common
Stock over various time periods from one week prior to February 4, 1994 up to
six months prior to February 4, 1994. Lazard Freres noted that the implied value
of the total consideration offered in the Amended QVC Proposal was higher than
the value of the Viacom Alone Proposal during each period other than one, but
lower than the Viacom-Blockbuster Proposal during each period other than with
the one and two week averages and the six month average.
Comparable Public Company Trading Analysis
Lazard Freres also discussed with the Board of Directors of Paramount that
it performed comparable public company trading multiple analysis of each of the
Proposals in which Lazard Freres applied the multiples of comparable public
companies to the estimated pro forma 1993 and 1994 EBITDA for each of the three
possible combinations to arrive at an implied value of the total consideration
offered in each Proposal. In connection with its analysis, Lazard Freres noted
that each of the pro forma QVC/Paramount, Viacom/Paramount and
Viacom-Blockbuster/Paramount combinations may be perceived in the market to be a
"diversified entertainment and intellectual property company" rather than a
"pure-play home shopping network company" (in the case of the pro forma QVC
combination) or a "pure-play cable network/programming company" (in the case of
either of the pro forma Viacom combinations). Lazard Freres further noted that
while there were no public companies with precisely the same mix of businesses
as the pro forma combined companies, perhaps the most relevant comparable
companies were Time Warner Inc. ("Time Warner"), The Walt Disney Company
("Disney") and Turner Broadcasting Systems, Inc. ("Turner"), and when Lazard
Freres applied the multiples for these companies to the estimated pro forma 1993
and 1994 EBITDA for each of three possible pro forma combinations, the implied
bid values of the total consideration offered in the Amended QVC Proposal, the
Viacom Alone Proposal and the Viacom-Blockbuster Proposal were below the then
current market values of the Proposals (based on the closing prices of QVC
Common Stock and Viacom Class B Common Stock on February 3, 1994). In addition,
Lazard Freres commented to the Board of Directors of Paramount that the
estimated 1993 and 1994 EBITDA multiples for Time Warner, Disney and Turner that
were used in its analysis were based on estimates set forth in various research
analyst reports.
Lazard Freres' analysis showed that applying Time Warner's multiples of
11.2 times 1993 estimated EBITDA and 10.4 times 1994 estimated EBITDA to the pro
forma estimated 1993 and 1994 EBITDA for each of the three possible
combinations, the implied common equity prices for the pro forma combined
QVC/Paramount company were $18.11 per share and $19.23 per share, respectively,
and the implied values of the total consideration offered in the Amended QVC
Proposal were $69.58 per share and $70.27 per share, respectively; the implied
common equity (i.e., Viacom Class B Common
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Stock) prices for the pro forma combined Viacom/Paramount company were $14.05
per share and $16.28 per share, respectively, and the implied values of the
total consideration offered in the Viacom Alone Proposal were $72.23 per share
and $73.26 per share, respectively; and the implied common equity values for the
pro forma combined Viacom-Blockbuster/Paramount company were $18.35 and $24.18
per share, respectively, and the implied values of the total consideration
offered in the Viacom-Blockbuster Proposal were $76.04 per share and $78.75 per
share, respectively. In addition, Lazard Freres reviewed its analysis that
showed that by applying Disney's multiples of 13.3 times 1993 EBITDA and 12.2
times 1994 estimated EBITDA to the pro forma estimated 1993 and 1994 EBITDA for
each of the three possible combinations, the implied common equity prices for
the pro forma combined QVC/Paramount company were $27.04 per share and $27.67
per share, respectively, and the implied values of the total consideration
offered in the Amended QVC Proposal were $75.09 per share and $75.48 per share,
respectively; the implied common equity prices for the pro forma combined
Viacom/Paramount company were $25.22 per share and $26.99 per share,
respectively, and the implied values of the total consideration offered in the
Viacom Alone Proposal were $77.41 per share and $78.24 per share, respectively;
and the implied common equity prices for the pro forma combined Viacom-
Blockbuster/Paramount company were $26.59 per share and $32.88 per share,
respectively, and the implied values of the total consideration offered in the
Viacom-Blockbuster Proposal were $79.87 per share and $82.79 per share. Finally,
Lazard Freres discussed its analysis of Turner's multiples that revealed that by
applying Turner's multiples of 14.8 times 1993 estimated EBITDA and 11.9 times
1994 estimated EBITDA to the pro forma estimated 1993 and 1994 EBITDA for each
of the three possible combinations, the implied common equity prices for the pro
forma combined QVC/Paramount company were $33.15 per share and $26.17 per share,
respectively, and the implied values of the total consideration offered in the
Amended QVC Proposal were $78.86 per share and $74.55 per share, respectively;
the implied common equity price for the pro forma combined Viacom/Paramount
company were $32.86 per share and $25.08 per share, respectively, and the
implied values of the total consideration offered in the Viacom Alone Proposal
were $80.96 per share and $77.35 per share, respectively, and the implied common
equity prices for the pro forma combined Viacom-Blockbuster/Paramount company
were $32.23 per share and $31.33 per share, respectively, and the implied values
of the total consideration offered in the Viacom-Blockbuster Proposal were
$82.49 per share and $82.07 per share, respectively.
In connection with its comparable public company trading multiple analysis,
Lazard Freres reviewed with the Board of Directors of Paramount various
historical and projected financial information regarding Time Warner, Disney and
Turner.
Discounted Cash Flow ("DCF") Analysis
Lazard Freres discussed with the Board of Directors of Paramount its DCF
analysis of each of the Proposals. In connection with preparing its DCF
analysis, Lazard Freres was provided with projections, on a stand-alone basis,
for each of QVC (covering six years), Viacom (covering three years) and
Blockbuster (covering four years). Lazard Freres noted that it had conducted due
diligence reviews of each of QVC, Viacom and Blockbuster and found that these
projections appeared to be based on reasonable assumptions, and thus Lazard
Freres did not alter the operating assumptions in performing its DCF analysis.
Lazard Freres explained that by using these projections, it generated a
hypothetical, debt-free "long-term investment value" of each of the companies
and these values were based on assumed discount rates ranging between 9% and 12%
and assumed terminal value multiples ranging between 10 times and 16 times
EBITDA for the final projected year of each of QVC and Viacom and assumed
terminal value multiples ranging between 8 times and 14 times EBITDA for the
final projected year of Blockbuster. In preparing its DCF analysis, Lazard
Freres used the third projected year for each company as the final projected
year. Since Paramount did not prepare projections beyond the then
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current fiscal year, Lazard Freres noted that it added the "unaffected" market
capitalization of Paramount (i.e., the aggregate unaffected equity market value,
plus the aggregate outstanding debt, less cash) to these discounted cash flow
values for each of the three companies in order to derive an implied pro forma
combined asset value for each of the three possible combinations. In order to
derive an implied value for the total consideration offered in each of the
Proposals, Lazard Freres explained that it used these implied pro forma combined
asset values to determine the hypothetical pro forma combined equity values of
each of the proposed combinations. Lazard Freres reviewed the results of its DCF
analysis which showed that with a terminal value multiple of 12 times EBITDA
(except in the case of Blockbuster, in which 10 times EBITDA was used) and a
discount rate of 11%, the Amended QVC Proposal had an implied value of $73.68
per share, the Viacom Alone Proposal had an implied value of $76.66 per share
and the Viacom-Blockbuster Proposal had an implied value of $81.84 per share and
that with a terminal value multiple of 14 times EBITDA (except in the case of
Blockbuster, in which 12 times EBITDA was used) and a discount rate of 10%, the
Amended QVC Proposal had an implied value of $75.52 per share, the Viacom Alone
Proposal had an implied value of $79.84 per share and the Viacom-Blockbuster
Proposal had an implied value of $85.45 per share.
Weighted Average Multiple Analysis
Finally, Lazard Freres presented its weighted average multiple analysis of
the Proposals. Lazard Freres explained that this analysis produced an implied
valuation of the total consideration offered in each Proposal by first adding
the "unaffected" EBITDA multiples of each bidder, including Blockbuster in the
proposed three-way combination (i.e., the EBITDA multiple one month prior to the
first public announcement of the proposed Paramount transactions for each
company), to that of Paramount to arrive at a weighted average multiple for each
pro forma combined company, and by then applying that multiple to the estimated
pro forma 1993 EBITDA for each of the three proposed combined companies. With
Paramount's multiple of 11.9 times estimated EBITDA, Lazard Freres noted that
the combined weighted average multiple for the proposed QVC/Paramount combined
company was 13.2 times estimated 1993 EBITDA, for the proposed Viacom/Paramount
combined company was 14.6 times estimated 1993 EBITDA and for the proposed
Viacom-Blockbuster/Paramount combined company was 14.5 times estimated 1993
EBITDA. Lazard Freres indicated that the QVC/Paramount combined multiple was
lower because Paramount's EBITDA (which on an unaffected basis commanded a lower
multiple) accounts for a greater proportion (about three-quarters) of the total
than in the Viacom/Paramount combined company (about half) or in the
Viacom-Blockbuster/Paramount combined company (about one-third). Lazard Freres
explained to the Board of Directors of Paramount that the actual stock prices
and trading multiples for any of the proposed combined companies may reflect the
market's perception of such factors as cost savings opportunities, revenue
growth opportunities, the impact of a change in management, difference in the
leverage of each combination and the loss of "pure play" investment opportunity,
and these possible factors were not taken into account in its analysis. Lazard
Freres further noted that weighted average multiple analysis was a useful tool
for further analysis because it generates pro forma stock values for each of the
possible combined companies based upon pre-transaction trading multiples;
however, Lazard Freres pointed out that neither the QVC Common Stock nor the
Viacom Class B Common Stock had been trading at the price implied by the
weighted average multiple analysis, and, in fact, both stocks were, and had
been, above these theoretical levels since the proposed transactions were
publicly announced. Lazard Freres presented to the Board of Directors of
Paramount the results of its weighted average multiple analysis that showed that
the implied value of the consideration offered for (i) the Amended QVC Proposal
was $74.51 per share (with a weighted average EBITDA multiple of 13.2 times),
(ii) the Viacom Alone Proposal was $79.36 per share (with a weighted average
EBITDA multiple of 14.6 times), and (iii) the Viacom-Blockbuster proposal was
$81.44 per share (with a weighted average EBITDA multiple of 14.5 times).
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TRADING MULTIPLE ANALYSIS
Lazard Freres also discussed with the Board of Directors of Paramount that
its analysis indicated that if each of the three proposed combined companies
traded at the same multiple of EBITDA, the total implied value of the
consideration offered in either the Viacom Alone Proposal or the Viacom-
Blockbuster Proposal would be in excess of the total implied value of the
consideration offered in the Amended QVC Proposal; however, if the proposed
QVC/Paramount combined company were to trade at a higher multiple, the total
implied value of the consideration offered in the Amended QVC Proposal would
have equaled or exceeded the total implied value of the consideration offered in
either the Viacom Alone Proposal or the Viacom-Blockbuster Proposal. Lazard
Freres reviewed various arguments that would have supported a higher multiple
for one Proposal over another Proposal, but concluded that its analysis did not
provide a reasonable basis to conclude from a financial point of view whether
any of the three proposed combined companies would in fact trade at a higher
multiple than any of the others.
In the course of its presentation at the meeting of the Board of Directors
of Paramount on February 4, 1994, Lazard Freres referred to summary materials
prepared by Lazard Freres that covered various items that Lazard Freres had
reviewed with the Paramount Board at earlier meetings at which prior bids by QVC
and Viacom were discussed. These items included a detailed overview of the
proposed Blockbuster Merger (including a description of the VCRs), the terms and
conditions of Blockbuster's commitment to purchase $1.25 billion of Viacom Class
B Common Stock pursuant to the Blockbuster Subscription Agreement, and the
"make-whole" rights offered by Viacom to Blockbuster under the Blockbuster
Subscription Agreement. In addition, Lazard Freres reviewed the pro forma
ownership profile of the surviving companies for each of three proposed combined
companies under the Proposals.
These summary materials prepared by Lazard Freres also presented an
overview of Blockbuster's business (including a summary of Blockbuster's
operations by business segment), a financial summary, a comparative analysis of
Blockbuster's multiples to comparable companies, a discussion of the risk of
obsolescence of Blockbuster's core video rental business and a stock ownership
profile of Blockbuster.
Lazard Freres had also summarized terms and conditions of the sources of
bank and strategic investor equity financing for each of the Amended QVC
Proposal and the Amended Viacom Proposal. Moreover, these materials included a
graphic representation of the stock price performance of QVC Common Stock,
Viacom Class B Common Stock, Paramount Common Stock and Blockbuster Common
Stock, as well as the S&P 400 Index over approximately 18-month and five-year
time periods and an analysis using 1993 estimated EBITDA for each of Paramount,
QVC, Blockbuster and Viacom that set forth the contribution that each company
would provide to total pro forma 1993 estimated EBITDA for each of the three
combined companies. This analysis showed that Paramount's business would
contribute approximately 75% of the EBITDA in a merger with QVC, whereas the
contribution by Viacom in the pro forma Viacom/Paramount combined company would
be approximately 50% and the contributions by each of Viacom and Blockbuster
would be approximately one-third in the pro forma Viacom-Blockbuster/Paramount
combined company. Lazard Freres also summarized each bidder's views regarding
the potential benefits that could be achieved by combining Paramount with each
of them and the views of Paramount's management regarding these possible
combination benefits. Finally, Lazard Freres described the results of various
sensitivity analyses that it performed on the implied value of the total
consideration offered in each of the Proposals that revealed that the implied
values of each of the Proposals were sensitive to changes in assumed EBITDA or
the assumed multiple at which the assumed EBITDA is capitalized.
At the request of Mr. Donald Oresman of Paramount on February 14, 1994,
Lazard Freres delivered a letter, dated February 14, 1994 (the "February 14,
1994 Letter"), to Mr. Oresman advising
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him that, as of February 14, 1994, Lazard Freres reaffirmed its written opinion
addressed to the Paramount Board, dated February 4, 1994.
THE OPINION OF LAZARD FRERES DATED FEBRUARY 4, 1994 (AND ANNEXED HERETO)
SHOULD BE READ IN ITS ENTIRETY. THE SUMMARY OF THE FINANCIAL AND COMPARATIVE
ANALYSES SET FORTH ABOVE CONTAINS INFORMATION WITH RESPECT TO ALL MATERIAL
ANALYSES EMPLOYED BY LAZARD FRERES IN REACHING ITS OPINION ON FEBRUARY 4, 1994
AND ITS CONCLUSION IN THE FEBRUARY 14, 1994 LETTER BUT DOES NOT PURPORT TO BE A
COMPLETE DESCRIPTION OF THE PRESENTATION OF LAZARD FRERES TO THE BOARD OF
DIRECTORS OF PARAMOUNT ON FEBRUARY 4, 1994 OR THE ANALYSES CONDUCTED BY LAZARD
FRERES. LAZARD FRERES BELIEVES THAT ITS ANALYSES MUST BE CONSIDERED AS A WHOLE
AND THAT SELECTING PORTIONS OF ITS ANALYSES AND THE FACTORS CONSIDERED BY IT,
WITHOUT CONSIDERING ALL FACTORS AND ANALYSES, COULD CREATE AN INCOMPLETE AND/OR
MISLEADING VIEW OF THE PROCESS UNDERLYING ITS OPINION. THE PREPARATION OF AN
OPINION IS A COMPLEX PROCESS AND IS NOT NECESSARILY SUSCEPTIBLE TO PARTIAL
ANALYSIS OR SUMMARY DESCRIPTION. IN PERFORMING ITS ANALYSES, LAZARD FRERES MADE
NUMEROUS ASSUMPTIONS WITH RESPECT TO INDUSTRY PERFORMANCE, GENERAL BUSINESS AND
ECONOMIC CONDITIONS AND OTHER MATTERS, MANY OF WHICH ARE BEYOND THE CONTROL OF
PARAMOUNT, VIACOM, QVC OR BLOCKBUSTER. ANY ESTIMATE CONTAINED IN THE ANALYSES
PERFORMED BY LAZARD FRERES IS NOT NECESSARILY INDICATIVE OF ACTUAL VALUES OR
ACTUAL FUTURE RESULTS, WHICH MAY BE SIGNIFICANTLY MORE OR LESS FAVORABLE THAN AS
SET FORTH THEREIN. ANALYSES RELATING TO THE VALUE OF ANY BUSINESS DO NOT PURPORT
TO BE APPRAISALS OR TO REFLECT THE PRICES AT WHICH ANY SUCH BUSINESS MAY
ACTUALLY BE SOLD. BECAUSE SUCH ESTIMATES ARE INHERENTLY SUBJECT TO UNCERTAINTY,
NONE OF PARAMOUNT, LAZARD FRERES OR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR
THEIR ACCURACY.
Lazard Freres is a nationally recognized investment banking firm and is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, leveraged
buyouts, and valuations for estate, corporate and other purposes. Lazard Freres
was selected to act as financial advisor to the Board of Directors of Paramount
because of its expertise and its reputation in investment banking and mergers
and acquisitions.
Pursuant to an engagement letter, dated September 12, 1993, with Lazard
Freres (the "Lazard Engagement Letter"), Paramount paid Lazard Freres for its
financial advisory services in connection with the Offer and the Paramount
Merger (i) a fee of $3.0 million upon execution of the Viacom Merger Agreement
on September 12, 1993, and (ii) an additional fee of $9.5 million upon
consummation of the Offer. In addition, the Lazard Engagement Letter provides
that Paramount will reimburse Lazard Freres for its reasonable out-of-pocket
expenses (including fees and expenses of its legal counsel) and will indemnify
Lazard Freres and certain related parties against certain liabilities arising
out of the Offer and the Paramount Merger and its engagement.
Lazard Freres has from time to time in the past provided, and is currently
providing, in matters unrelated to Paramount, financial advisory or financing
services to one or more of the respective equity investors in Viacom and QVC, or
persons engaged in pending transactions with one or more of such investors and
has received, or expects to receive, fees for the rendering of such services.
From 1985 to March 1994, Lester Pollack, a General Partner of Lazard Freres
served as a director of Paramount. As of March 28, 1994, Lazard Freres and its
affiliates held 6,990 shares of Paramount Common Stock (including 965 shares of
Paramount Common Stock held by Mr. Pollack), 1,450 shares of Viacom Class A
Common Stock, 9,260 shares of Viacom Class B Common Stock and 120 shares of
Blockbuster Common Stock in customer trading and other accounts. In the ordinary
course of its business, Lazard Freres and its affiliates may also actively trade
in securities of Paramount, Viacom or Blockbuster for its own account and for
the account of its customers and, accordingly, may at any time hold a long or
short position in such securities.
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INTERESTS OF CERTAIN PERSONS IN THE PARAMOUNT MERGER
On May 25, 1993, Viacom established a Stock Option Plan (the "Plan") for
Outside Directors (defined below). Pursuant to the Plan, members of the Viacom
Board of Directors who are not officers or employees of Viacom or NAI or members
of their immediate family ("Outside Directors") (as of May 25, 1993, George
Abrams, Ken Miller and William Schwartz) received a one-time grant of stock
options for 5,000 shares of Viacom Class B Common Stock with an exercise price
of $45.25, the closing price of the Viacom Class B Common Stock on the AMEX on
the date of grant. In addition, under the terms of the Plan, each new Outside
Director, including Outside Directors of the combined company, receive a
one-time grant of stock options for 5,000 shares of Viacom Class B Common Stock
with an exercise price equal to the closing price of the Viacom Class B Common
Stock on the AMEX on the date of such Outside Director's election or appointment
to the Board. Each grant of stock options under this Plan will vest on the first
anniversary of the date of grant. H. Wayne Huizenga (who holds such options for
the benefit of Blockbuster), William C. Ferguson (who holds such options for the
benefit of NYNEX) and Frederic V. Salerno (who holds such options for the
benefit of NYNEX) each received a one-time grant of stock options for 5,000
shares of Viacom Class B Common Stock with an exercise price set at the closing
price of the Viacom Class B Common Stock on the date of the grant as set out
below. The Plan and all outstanding grants are subject to stockholder approval
at the next annual stockholder meeting of Viacom or the combined company.
<TABLE> <CAPTION>
NAME DATE OF GRANT EXERCISE PRICE
- - - - ------------------------------------------------------------------------- ----------------------- --------------
<S> <C> <C>
H. Wayne Huizenga,
for the benefit of Blockbuster......................................... October 22, 1993 $ 53.25
William C. Ferguson,
for the benefit of NYNEX............................................... November 19, 1993 $ 42.50
Frederic V. Salerno,
for the benefit of NYNEX............................................... January 27, 1994 $ 36.75
</TABLE>
PARAMOUNT VOTING AGREEMENT
The following is a summary of the material provisions of the Paramount
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 Paramount Voting Agreement.
Pursuant to the Paramount Voting Agreement, NAI agreed to vote the shares
of Viacom Class A Common Stock held by it (a) in favor of the Paramount Merger,
the Paramount Merger Agreement and the transactions contemplated by the
Paramount Merger Agreement and (b) against any proposal for any
recapitalization, merger, sale of assets or other business combination involving
Viacom (other than the Paramount 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 Paramount Merger Agreement or
which could result in any of the conditions to Viacom's obligations under the
Paramount 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.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary, based upon current law, is a general discussion of
certain Federal income tax consequences of the Paramount Merger to Viacom,
Paramount and Paramount stockholders assuming the Paramount 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 Paramount stockholders who hold their shares of Paramount
Common Stock as capital assets. This summary does not discuss all aspects of
income taxation that may be relevant to a particular Paramount stockholder in
light of such stockholder's specific circumstances or to certain types of
stockholders subject to special treatment under the Federal income tax laws (for
example, foreign persons, dealers in securities, banks and other financial
institutions, insurance companies, tax-exempt organizations and stockholders who
acquired shares of Paramount 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. Because
of the unique nature of certain instruments to be received by Paramount
stockholders in the Paramount Merger, the Internal Revenue Service may take the
position that the Federal income tax consequences of holding such instruments
are different from those described below. No ruling has been (or will be) sought
from the Internal Revenue Service as to the anticipated tax consequences of the
Paramount Merger. Simpson Thacher & Bartlett, counsel to Paramount, has advised
Paramount 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.
PARAMOUNT STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE TAX
CONSEQUENCES TO THEM OF THE PARAMOUNT MERGER, INCLUDING THE APPLICABILITY AND
EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
The Paramount Merger. Exchanges of Paramount Common Stock pursuant to the
Paramount Merger will be taxable transactions for Federal income tax purposes. A
Paramount stockholder who exchanges Paramount Common Stock for Viacom Class B
Common Stock, Viacom Merger Debentures, CVRs, Viacom Three-Year Warrants and
Viacom Five-Year Warrants in the Paramount Merger will recognize capital gain or
loss for Federal income tax purposes equal to the difference between such
stockholder's basis in the Paramount Common Stock so exchanged and the fair
market value on the date of the Paramount Merger of the Viacom Class B Common
Stock, the Viacom Merger Debentures, the CVRs, the Viacom Three-Year Warrants
and the Viacom Five-Year Warrants received. Such gain or loss will be long-term
gain or loss if, at the time of the Paramount Merger, the Paramount Common Stock
exchanged had been held for more than one year. Under current law, long-term
capital gains of individuals are, under certain circumstances, taxed at lower
rates than items of ordinary income (including short-term capital gains).
Such Paramount stockholder will have a tax basis in the Viacom Class B
Common Stock, the Viacom Merger Debentures, the CVRs, the Viacom Three-Year
Warrants and the Viacom Five-Year Warrants received equal to their respective
fair market values on the date of the Paramount Merger. The holding period of
such stockholder in the Viacom Merger Debentures will begin on the day following
the date of the Paramount Merger. The holding period of such stockholder for
long-term capital gains purposes in the Viacom Class B Common Stock, the CVRs,
the Viacom Three-Year Warrants and the Viacom Five-Year Warrants received could
depend, in part, on the characterization of the CVRs for Federal income tax
purposes, as discussed below under "Ownership of CVRs--Straddle Rules."
Neither Paramount nor Viacom will recognize any gain or loss as a result of
the Paramount Merger.
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Backup Withholding. To prevent "backup withholding" of Federal income tax
on payments of cash in lieu of a fractional share of Viacom Class B Common
Stock, a fractional Viacom Merger Debenture, a fractional CVR, a fractional
Viacom Three-Year Warrant, and a fractional Viacom Five-Year Warrant to a
Paramount stockholder in the Paramount Merger, a Paramount stockholder must,
unless an exception applies under the applicable law and regulations, provide
the payor of such cash with such stockholder's correct taxpayer identification
number ("TIN") on a Substitute Form W-9 and certify under penalties of perjury
that such number is correct and that such stockholder is not subject to backup
withholding. A Substitute Form W-9 will be provided to each Paramount
stockholder in the letter of transmittal to be mailed to each stockholder after
the Paramount Effective Time. If the correct TIN and certifications are not
provided, a $50 penalty may be imposed on a Paramount stockholder by the
Internal Revenue Service, and cash received by such stockholder in the Paramount
Merger may be subject to backup withholding at a rate of 31%.
Tax Considerations Regarding the Ownership of Viacom Merger Debentures,
Series C Preferred Stock, Viacom Exchange Debentures, the CVRs, the Viacom
Three-Year Warrants and the Viacom Five-Year Warrants. The following is a
discussion of certain Federal income tax considerations regarding the ownership
of the Viacom Merger Debentures, the Series C Preferred Stock, the Viacom
Exchange Debentures, the CVRs, the Viacom Three-Year Warrants and the Viacom
Five-Year Warrants.
(a) Ownership of Viacom Merger Debentures. Although the proper
characterization of the Viacom Merger Debentures for Federal income tax purposes
is not free from doubt, Viacom intends to treat the Viacom Merger Debentures as
debt instruments for such purposes, and the following discussion assumes that
the Viacom Merger Debentures will be so treated. If the Viacom Merger Debentures
were treated as equity for Federal income tax purposes, then the discussion of
Federal income tax considerations under "Ownership of Series C Preferred Stock"
generally would apply to the Viacom Merger Debentures.
A holder of a Viacom Merger Debenture will be required to report as income
for Federal income tax purposes stated interest earned on the Viacom Merger
Debenture in accordance with the holder's method of tax accounting. A holder of
a Viacom Merger Debenture using the accrual method of accounting for tax
purposes is required to include stated interest in ordinary income as such
interest accrues, while a cash-basis holder must include stated interest in
income when payments are received (or made available for receipt) by such
holder.
If at the time the Viacom Merger Debentures are issued the issue price of
the Viacom Merger Debentures (i.e., the fair market value of the Viacom Merger
Debentures as of the issue date) is less than the "stated redemption price at
maturity" of the Viacom Merger Debentures, the Viacom Merger Debentures will
bear "original issue discount" equal to the amount of such difference, subject
to a de minimis exception. If the Viacom Merger Debentures bear "original issue
discount," such discount will be includible in the income of the holder on a
"yield to maturity" basis pursuant to section 1272 of the Code. Thus, the holder
will be required to report income in advance of the receipt of cash in respect
of such "original issue discount."
If at the time the Viacom Merger Debentures are issued or subsequently
acquired the holder's basis in the Viacom Merger Debentures exceeds the amount
payable at maturity with respect to such Viacom Merger Debentures, such
difference may be deducted as interest, on an economic accrual basis, over the
term of the Viacom Merger Debentures by the holder of such Viacom Merger
Debentures, at such holder's election, pursuant to section 171 of the Code. In
addition, a holder of a Viacom Merger Debenture who pays an "acquisition
premium" for a Viacom Merger Debenture bearing original issue discount will be
entitled to a reduction in the amount of original issue discount includible in
such holder's income. Furthermore, the Code provides generally that, in the case
of a holder of a Viacom Merger Debenture who purchases such Viacom Merger
Debenture at a "market discount" and thereafter recognizes a gain upon a
disposition of such Viacom Merger Debenture, the lesser of such
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gain or the portion of the market discount which accrued while the Viacom Merger
Debenture was held by the holder will generally be treated as interest income at
the time of disposition. In addition, a holder of a Viacom Merger Debenture
acquired at a market discount may be required to defer the deduction of a
portion of the interest paid or accrued on indebtedness incurred to purchase or
carry the Viacom Merger Debenture until it is disposed of in a taxable
transaction.
If the Viacom Merger Debentures are exchanged for Series C Preferred Stock,
such exchange will not be a taxable transaction. Such holder will have an
aggregate tax basis in the Series C Preferred Stock received in the exchange
equal to the aggregate basis in the Viacom Merger Debentures exchanged therefor.
The holding period of such holder in the Series C Preferred Stock received will
include the holding period of such holder in the Viacom Merger Debentures
exchanged therefor.
(b) Ownership of Series C Preferred Stock. Distributions paid on Series C
Preferred Stock will, to the extent of Viacom's current and accumulated earnings
and profits, be taxed as dividends. If the amount of a distribution on the
Series C Preferred Stock exceeds the current and accumulated earnings and
profits of Viacom, such excess first will be applied to reduce a holder's tax
basis in such holder's Series C Preferred Stock to the extent thereof. The
amount of such distribution in excess of such holder's tax basis will be treated
as gain from the sale or exchange of the Series C Preferred Stock.
In addition, generally under section 305 of the Code and the Treasury
regulations promulgated thereunder, if the redemption price of a preferred stock
exceeds its issue price (i.e., its fair market value on the date of issuance), a
portion of such excess may constitute an unreasonable redemption premium which
would be considered a constructive distribution taxable as a dividend (to the
extent of current and accumulated earnings and profits) included in income over
the period during which such preferred stock cannot be redeemed. Accordingly, if
the Series C Preferred Stock were deemed to be issued with an unreasonable
redemption premium, a holder of Series C Preferred Stock would realize taxable
income without the receipt of cash over the period from when the holder acquired
the Series C Preferred Stock to the third anniversary of the Paramount Effective
Time.
A corporate holder of Series C Preferred Stock generally will be entitled
to the 70% corporate dividends-received deduction with respect to taxable
dividends paid on such stock, provided that such corporate holder has met the
requirements imposed by section 246 of the Code regarding the holding period for
the Series C Preferred Stock (see the discussion regarding the possible impact
of the ownership of CVRs on this requirement under "Ownership of CVRs--Corporate
Dividends-Received Deduction"), is not affected by the limit on aggregate
deductions under that section and is not subject to the limitation imposed by
section 246A of the Code with respect to debt-financed portfolio stock, all of
which conditions depend upon the particular holder's own circumstances. If a
corporate holder of Series C Preferred Stock is required to include in income
constructive dividends under section 305 of the Code (as described above), it is
possible that such dividends, together with any cash dividends, would qualify as
"extraordinary dividends" within the meaning of section 1059 of the Code.
Moreover, it should be noted that, under section 1059 of the Code, a corporate
holder of Series C Preferred Stock may be required to reduce its basis in such
stock if it receives an "extraordinary dividend" with respect to such stock.
Under the terms of the Series C Preferred Stock, Viacom may, at its option
beginning on the third anniversary of the Paramount Effective Time, issue Viacom
Exchange Debentures in exchange for all or part of the Series C Preferred Stock.
Also, unless previously exchanged, Viacom may redeem all or part of the Series C
Preferred Stock at any time after the fifth anniversary of the Paramount
Effective Time. Such an exchange for Viacom Exchange Debentures or redemption of
the Series C Preferred Stock will constitute a taxable transaction.
Whether any such exchange or redemption of Series C Preferred Stock will be
taxable to holders as a capital gain or loss or be treated as a dividend
distribution to the extent of current and accumulated earnings and profits will
be determined by applying the tests of section 302 of the Code to a holder's
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particular circumstances. Capital gain or loss treatment will apply if the
exchange or redemption completely terminates the holder's actual and
constructive stock interest in Viacom or if the exchange or redemption is not
essentially equivalent to a dividend with respect to such holder. A holder whose
relative actual and constructive stock interest is minimal and who exercises no
control over corporate affairs generally will be entitled to capital gain or
loss treatment if an exchange or redemption results in a reduction in such
holder's actual and constructive stock interest. Corporate holders of Series C
Preferred Stock should note that, if the exchange or redemption is not pro rata
as to all holders and is taxable as a dividend, such dividend will be an
"extraordinary dividend" for purposes of section 1059 of the Code (see the
second immediately preceding paragraph).
(c) Ownership of Viacom Exchange Debentures. A holder of a Viacom Exchange
Debenture will be required to report as income for Federal income tax purposes
stated interest earned on the Viacom Exchange Debenture in accordance with the
holder's method of tax accounting. A holder of a Viacom Exchange Debenture using
the accrual method of accounting for tax purposes is required to include stated
interest in ordinary income as such interest accrues, while a cash-basis holder
must include stated interest in income when payments are received (or made
available for receipt) by such holder.
If at the time the Series C Preferred Stock is exchanged for Viacom
Exchange Debentures the issue price of the Viacom Exchange Debentures (i.e., the
fair market value of the Viacom Exchange Debentures if they are publicly traded
upon their issuance, or otherwise of the Series C Preferred Stock, as of the
issue date) is less than the "stated redemption price at maturity" of the Viacom
Exchange Debentures, the Viacom Exchange Debentures will bear "original issue
discount" equal to the amount of such difference, subject to a de minimis
exception. If the Viacom Exchange Debentures bear "original issue discount,"
such discount will be includible in the income of the holder on a "yield to
maturity" basis pursuant to section 1272 of the Code. Thus, the holder will be
required to report income in advance of the receipt of cash in respect of such
"original issue discount."
If at the time the Viacom Exchange Debentures are issued or subsequently
acquired the holder's basis in the Viacom Exchange Debentures exceeds the amount
payable at maturity with respect to such Viacom Exchange Debentures, such
difference may be deducted as interest, on an economic accrual basis, over the
term of the Viacom Exchange Debentures by the holder of such Viacom Exchange
Debentures, at such holder's election, pursuant to section 171 of the Code. In
addition, a holder of a Viacom Exchange Debenture who pays an "acquisition
premium" for a Viacom Exchange Debenture bearing original issue discount will be
entitled to a reduction in the amount of original issue discount includible in
such holder's income. Furthermore, the Code provides generally that, in the case
of a holder of a Viacom Exchange Debenture who purchases such Viacom Exchange
Debenture at a "market discount" and thereafter recognizes a gain upon a
disposition of such Viacom Debenture, the lesser of such gain or the portion of
the market discount which accrued while the Viacom Exchange Debenture was held
by the holder will generally be treated as interest income at the time of
disposition. In addition, a holder of a Viacom Exchange Debenture acquired at a
market discount may be required to defer the deduction of a portion of the
interest paid or accrued on indebtedness incurred to purchase or carry the
Viacom Exchange Debenture until it is disposed of in a taxable transaction.
(d) Ownership of the CVRs. The Federal income tax consequences resulting
from the maturity, lapse, or disposition of the CVRs received by a Paramount
stockholder in the Paramount Merger (an "Initial CVR Holder") will depend upon
how the CVRs are characterized for Federal income tax purposes. Although no
court has addressed the proper characterization of the CVRs for Federal income
tax purposes, the Internal Revenue Service has taken the position that rights
which were in many respects similar to the CVRs should be treated as cash
settlement put options for Federal income tax purposes. It also is possible that
the CVRs might be treated as debt instruments for Federal income tax purposes.
The following discussion examines the Federal income tax consequences if the
CVRs were treated as cash settlement put options or as debt instruments. It
should be noted, however, that the
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CVRs 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 CVRs.
Treatment of the CVRs as Cash Settlement Put Options. If the CVRs were
treated as cash settlement put options, an Initial CVR Holder would realize
capital gain or loss upon the lapse, payment at maturity or sale or exchange of
such holder's CVRs in an amount equal to the difference between the amount
realized, if any, and such holder's tax basis for CVRs. Upon payment at
maturity, the amount realized would be the cash or the fair market value of the
Viacom securities received in satisfaction of the CVRs. However, some or all of
any loss so realized might be deferred, or an Initial CVR 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 CVRs and the Viacom Class A Common
Stock, the Viacom Class B Common Stock or another security of Viacom (e.g., the
Viacom Three-Year Warrants, the Viacom Five-Year Warrants or another class of
Viacom security) by an Initial CVR Holder (regardless of whether the holder
acquired any such shares of Viacom Common Stock or other security of Viacom in
the Paramount Merger or otherwise) would be a straddle if the CVRs were treated
as cash settlement put options. It should be noted that the Code 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 CVRs 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 CVR Holder upon a sale or other disposition (including retirement) of
either the CVRs 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 CVRs 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 CVRs would be treated as long term or short term. If an Initial CVR 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 CVR that is part of a straddle including such stock or security, then
such holder's holding period for any such stock or security before the
acquisition of the CVR would be disregarded, and instead his holding period for
any such stock or security and the CVR 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 CVR, 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.
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If an Initial CVR Holder were treated as having held Viacom Common Stock or
another security of Viacom for more than one year when such holder receives a
CVR that is part of a straddle including such stock or security, 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 CVR Holder on the
disposition of such stock or security would be long term. The Initial CVR
Holder's holding period for the CVR for purposes of determining the term of any
capital gain will begin only when (if ever) such holder disposes of such stock
or security. However, any capital loss recognized by the Initial CVR Holder upon
maturity, or upon an earlier termination or disposition of the CVR, would be
treated as long term, regardless of the holder's holding period for the CVR.
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 CVRs as Debt Instruments. The following discussion of the
treatment of the CVRs as debt instruments is based principally on sections 1271
through 1275 of the Code and 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 the Proposed Regulations to the CVRs 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 CVRs 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 proposed
Treasury regulations in January 1993, which were withdrawn shortly thereafter,
that would have provided for different Federal income tax treatment of the CVRs
as debt instruments from that discussed below.
If the CVRs are treated as debt obligations, no interest income (including
in the form of original issue discount) should accrue to an Initial CVR Holder
prior to maturity. At maturity, the amount of cash or the portion of the fair
market value of the Viacom security, if any, received by an Initial CVR Holder
pursuant to a CVR equal to the "issue price" of the CVR (i.e., the holder's tax
basis in the CVR) should be treated as a payment of principal, and any excess
amount of cash or fair market value should be treated as ordinary interest
income. If the amount of cash or the fair market value of the Viacom security
received by an Initial CVR Holder pursuant to a CVR was less than the issue
price, or if no cash or Viacom security was received at maturity, the Initial
CVR Holder should recognize a capital loss equal to the amount by which the
holder's tax basis in the CVR exceeded the amount of cash or the fair market
value of the Viacom security, if any, received by the holder.
If an Initial CVR Holder sold or otherwise disposed of a CVR 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 CVR. 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 CVRs were treated as cash
settlement put options, it appears that a corporate Initial CVR Holder's holding
period for Viacom Class B Common Stock for purposes of the dividends-received
deduction under section 243 to 246 of the Code would not include any days on
which it holds a CVR. This treatment might render such Initial CVR Holder
ineligible for the dividends-received deduction in respect of dividend income on
Viacom Class B Common Stock. If the CVRs were treated as debt instruments,
proposed Treasury regulations also would treat the CVRs as having the same
effect on the dividends-received deduction with respect to Viacom Class B Common
Stock. In addition, the CVRs 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 CVR 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 CVRs and Viacom
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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 CVR Holder should note that, if the CVRs were treated as cash
settlement put options, any gain on the CVRs would be treated as capital gain
which could be offset by any corresponding capital loss on the Initial CVR
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 CVRs may generate if they were treated as
debt instruments could not be offset for Federal income tax purposes by any such
capital loss (except to the extent discussed in the preceding paragraph with
respect to individuals). An initial CVR Holder should be aware that, if the
value of CVRs decrease, this issue will not arise since any loss on the CVRs
will be treated as capital loss regardless of whether the CVRs are treated as
cash settlement put options or debt obligations.
As the use of capital losses by an Initial CVR Holder will depend upon
multiple factors, including such holder's particular circumstances, and upon the
issue of whether the CVRs are treated as cash settlement put options or debt
instruments for Federal income tax purposes, Initial CVR Holders should consult
their tax advisors regarding the use of capital losses.
(e) Ownership of the Viacom Three-Year and Five-Year Warrants. If a holder
exercises a Viacom Three-Year Warrant or Viacom Five-Year Warrant solely by the
delivery of cash, the holder will not recognize gain or loss on the exercise,
except with respect to cash, if any, received in lieu of a fractional share of
Viacom Class B Common Stock. The tax basis of the Viacom Class B Common Stock
acquired (including a fractional share deemed acquired) as a result of such
exercise of a Viacom Three-Year Warrant or Viacom Five-Year Warrant will equal
the sum of (i) the holder's tax basis in the Viacom Three-Year Warrant or Viacom
Five-Year Warrant exercised and (ii) the exercise price. The holding period for
such Viacom Class B Common Stock will commence upon the date of exercise.
It is not clear whether the delivery of Series C Preferred Stock or Viacom
Exchange Debentures to pay the exercise price on the exercise of a Viacom
Five-Year Warrant will be considered a taxable disposition of such Series C
Preferred Stock or Viacom Exchange Debentures or will qualify generally as a
tax-free exchange. If the delivery by a holder qualifies as a taxable
disposition of Series C Preferred Stock or Viacom Exchange Debentures, the
holder will recognize (1) gain or loss equal to the difference, if any, between
(i) the exercise price, which will equal the liquidation preference of the
Series C Preferred Stock or the principal amount of the Viacom Exchange
Debentures so delivered and (ii) the holder's tax basis in them, plus (2) gain
or loss with respect to cash, if any, received in lieu of a fractional share of
Viacom Class B Common Stock. The tax basis of the Viacom Class B Common Stock
acquired (including a fractional share deemed acquired) as a result of such
exercise of a Viacom Five-Year Warrant will equal the sum of (i) the holder's
tax basis in the Viacom Five-Year Warrant exercised and (ii) the exercise price.
The holding period for such Viacom Class B Common Stock will commence upon the
date of exercise.
If the delivery of Series C Preferred Stock or Viacom Exchange Debentures
by a holder qualifies generally as a tax-free exchange, no gain or loss will be
recognized by the holder, except (1) with respect to cash, if any, received in
lieu of a fractional share of Viacom Class B Common Stock, and (2) as to a
cash-basis holder, ordinary income equal to the lesser of (i) the amount of
accrued interest not previously includible in income by the holder on Viacom
Exchange Debentures so delivered or (ii) the excess of the fair market value of
the Viacom Class B Common Stock acquired (including a fractional share deemed
acquired) by the holder over the principal amount of such Viacom Exchange
Debentures.
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Except as discussed in the following sentence, the tax basis for the Viacom
Class B Common Stock acquired (including a fractional share deemed acquired) as
a result of such exercise of a Viacom Five-Year Warrant should equal the sum of
(i) the holder's tax basis for the Series C Preferred Stock or Viacom Exchange
Debentures so delivered (less the tax basis, if any, for such Viacom Exchange
Debentures attributable to any original issue discount thereon previously
includible in income by the holder) and (ii) the holder's tax basis for the
Warrant, and the holding period for such Viacom Class B Common Stock will
include the holding period of such Series C Preferred Stock or Viacom Exchange
Debentures. The tax basis for the Viacom Class B Common Stock, if any, deemed
acquired by the holder in exchange for any original issue discount or accrued
interest previously or then includible in income by the holder on Viacom
Exchange Debentures so delivered should equal the fair market value of such
Viacom Class B Common Stock at the time of the exchange, and the holding period
for such Viacom Class B Common Stock should commence on the day after the
exchange.
A holder's receipt of cash lieu of a fractional share of Viacom Class B
Common Stock upon an exercise of a Viacom Three-Year Warrant or Viacom Five-Year
Warrant generally will result in the recognition of capital gain or loss equal
to the difference, if any, between the cash received and the holder's tax basis
in the Viacom Class B Common Stock acquired upon such exercise allocable to such
fractional share.
In general, the sale or exchange of a Viacom Three-Year or Five-Year
Warrant will result in a capital gain or loss, if any, equal to the difference
between the amount realized from such sale or exchange and the holder's tax
basis in the Viacom Three-Year or Five-Year Warrant. The expiration of a Viacom
Three-Year or Five-Year Warrant will result in a capital loss to the holder
thereof equal to the holder's tax basis therein.
Under the terms of each of the Viacom Three-Year and Five-Year Warrants,
the number of shares of Viacom Class B Common Stock that may be acquired upon
exercise of a Viacom Three-Year or Five-Year Warrant will be adjusted upon the
happening of certain events. Section 305(c) of the Code and the Treasury
regulations thereunder provide that, if such adjustments result in a
constructive increase in a holder's proportionate interest in Viacom's earnings
and profits or assets, such increase will be treated as a deemed distribution to
the holder taxable under the dividend provisions of section 301 of the Code.
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 PARAMOUNT
STOCKHOLDER. THE TAX EFFECTS AS APPLICABLE TO A PARTICULAR PARAMOUNT STOCKHOLDER
MAY BE DIFFERENT FROM THE TAX EFFECTS AS APPLICABLE TO OTHER PARAMOUNT
STOCKHOLDERS, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER TAX
LAWS, AND THUS PARAMOUNT STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS.
REAL ESTATE TRANSFER TAXES
The New York State Real Property Transfer Gains Tax, the New York State
Real Estate Transfer Tax, and the New York City Real Property Transfer Tax
(collectively, the "Real Estate Transfer Taxes") apply to the transfer or
acquisition, directly or indirectly, of controlling interests in an entity which
owns interests in real property located in New York State or New York City, as
the case may be. The Offer and the Paramount Merger will result in the transfer
of controlling interests in entities which own New York State or New York City
real property for purposes of the Real Estate Transfer Taxes. Although any Real
Estate Transfer Taxes could be imposed directly on the Paramount stockholders,
Viacom and Paramount will complete and file any necessary tax returns and will
pay all Real Estate Transfer Taxes that are imposed as a result of the Offer and
the Paramount Merger. Upon receipt of the consideration for either the Offer or
the Paramount Merger, each Paramount stockholder will be
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deemed to have agreed to be bound by the Real Estate Transfer Tax returns filed
by Viacom and Paramount.
CERTAIN EFFECTS OF THE PARAMOUNT MERGER; OPERATIONS AFTER THE PARAMOUNT MERGER
As a result of the Paramount Merger, there will be no public market for
Paramount Common Stock. Upon consummation of the Paramount Merger, the Paramount
Common Stock will cease to be quoted on the NYSE, the registration of the
Paramount Common Stock under the Exchange Act will be terminated and such stock
will no longer constitute "margin securities" under the rules of the Board of
Governors of the Federal Reserve System. See "Exchange Act Registration and
Trading of the Paramount Common Stock."
Viacom is considering various plans to restructure Paramount and its
subsidiaries following the Paramount Merger in order to, among other things,
simplify Paramount's corporate structure, improve operating efficiencies, save
expenses and make cash flow from operating subsidiaries more available to
Viacom. While engaged in this process, Viacom has identified substantial amounts
of redundancies in corporate overhead and is currently in the process of
implementing overhead reductions, including personnel reductions. Viacom expects
to take additional steps in this regard prior to and following the Paramount
Merger.
Except for the Mergers and except as otherwise described in this Proxy
Statement/Prospectus, none of Sumner M. Redstone, NAI, Viacom or Paramount have
any present plans or proposals which relate to or would result in (i) an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation involving Paramount or any of its subsidiaries, (ii) a sale or
transfer of a material amount of assets of Paramount or any of its subsidiaries,
(iii) any material change in the present dividend rate or policy or indebtedness
or capitalization of Paramount or (iv) any other material change in Paramount's
corporate structure or business. See "Financing of the Offer," "Certain
Considerations" and "Financial Matters After the Mergers."
THE PARAMOUNT MERGER
GENERAL
The discussion in this Proxy Statement/Prospectus of the Paramount Merger
and the description of the Paramount Merger's principal terms are subject to and
qualified in their entirety by reference to the Paramount Merger Agreement, a
copy of which is attached to this Proxy Statement/Prospectus as Annex I and
which is incorporated herein by reference.
THE OFFER
Pursuant to the Offer, on March 11, 1994 Viacom completed its purchase of a
majority of the shares of Paramount Common Stock at a price of $107 per share
net to the seller in cash, or aggregate cash consideration of approximately $6.6
billion.
PARAMOUNT MERGER CONSIDERATION
At the Paramount Effective Time, each outstanding share of Paramount Common
Stock issued and outstanding immediately prior to the Paramount Effective Time
(other than shares of Paramount Common Stock held by Paramount, Viacom or any
direct or indirect wholly owned subsidiary of Viacom or of Paramount and by
holders who shall have demanded and perfected appraisal rights under the DGCL)
will be converted into the right to receive (i) 0.93065 of a share of Viacom
Class B Common Stock, (ii) $17.50 principal amount of the Viacom Merger
Debentures, (iii) 0.93065 of a CVR, (iv) 0.5 of a Viacom Three-Year Warrant and
(v) 0.3 of a Viacom Five-Year Warrant.
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The Viacom Merger Debentures will bear interest (unless exchanged for
Series C Preferred Stock as described below) at a rate of 8% per annum from the
Paramount Effective Time, payable semi-annually beginning January 1, 1995, will
have a maturity of 12 years from the Paramount Effective Time, will be
redeemable, at the option of Viacom, in whole or in part, at declining
redemption premiums after the fifth anniversary of the Paramount Effective Time
and will be subordinated in right of payment to all senior indebtedness of
Viacom.
The Viacom Merger Debentures will be exchangeable, at the option of Viacom,
in whole but not in part, on or after the earlier of (i) January 1, 1995, but
only if the Blockbuster 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 Merger Debentures exchanged. The Series C Preferred
Stock, if issued, (i) would accrue dividends from the date of issuance at a rate
of 5% per annum until the tenth anniversary of the Paramount Effective Time and
10% per annum thereafter, (ii) would have a liquidation preference of $50 per
share, (iii) would be redeemable at the option of Viacom in whole or in part at
declining redemption premiums after the fifth anniversary of the Paramount
Effective Time and (iv) would be exchangeable in whole or in part at the option
of Viacom into the Viacom Exchange Debentures after the third anniversary of the
Paramount Effective Time. The Viacom Exchange Debentures would be subordinated
obligations of Viacom, would bear interest at the rate of 5% per annum until the
tenth anniversary of the Paramount Effective Time and 10% per annum thereafter,
would be redeemable at the option of Viacom, in whole or in part, at declining
redemption premiums after the fifth anniversary of the Paramount Effective Time,
and would mature on the twentieth anniversary of the Paramount Effective Time.
Each whole CVR will represent the right, on the first anniversary of the
Paramount Effective Time, to receive, in cash or securities (at the option of
Viacom), the amount by which the average trading value of Viacom Class B Common
Stock is less than a minimum price of $48 per share. Viacom will have the right,
in its sole discretion, to extend the payment and measurement dates of the CVR
by one year, in which case the minimum price will increase to $51 per share, and
a further one-year extension right which, if exercised by Viacom, would increase
the minimum price to $55 per share. The average trading value will be based upon
market prices during the 60 trading days ending on the last day of the relevant
period and is subject to a floor of (i) $36 per share if Viacom does not
exercise its extension rights, (ii) $37 per share if Viacom extends the payment
and measurement dates of the CVR by one year or (iii) $38 per share if Viacom
exercises its further one-year extension right.
If the Average Trading Value of a share of Viacom Class B Common Stock
equals or exceeds $48 on the Maturity Date or $51 on the First Extended Maturity
Date (if the Maturity Date is extended by Viacom to the First Extended Maturity
Date) or $55 on the Second Extended Maturity Date (if the First Extended
Maturity Date is extended by Viacom to the Second Extended Maturity Date), as
the case may be, no amount will be payable with respect to the CVRs. Certain
corporate reorganizations, in which consideration paid to holders of shares of
Viacom Class B Common Stock exceeds minimum amounts may also result in no value
breing payable with respect to the CVRs.
Each whole Viacom Three-Year Warrant will entitle the holder thereof to
purchase one share of Viacom Class B Common Stock at any time prior to the third
anniversary of the Paramount Effective Time at a price of $60, payable in cash.
Each whole Viacom Five-Year Warrant will entitle the holder thereof to purchase
one share of Viacom Class B Common Stock at any time prior to the fifth
anniversary of the Paramount Effective Time at a price of $70, payable in cash
or by exchanging, if issued, either Series C Preferred Stock with an equivalent
liquidation preference or an equivalent principal amount of Viacom Exchange
Debentures. The terms of the Viacom Warrants will 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.
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Due to a lack of an existing market for the CVRs and Viacom Warrants, it is
impracticable to determine an actual value for the CVRs and Viacom Warrants at
this time. While the CVRs and Viacom Warrants will be listed for trading on the
AMEX, there are no assurances that a liquid public market reflecting the
fundamental value of the CVRs and Viacom Warrants will develop.
For a more detailed description of the Paramount Merger Consideration, see
"Description of Viacom Capital Stock" and "Description of Viacom Debentures."
For a description of the provisions with respect to fractional shares see
"Certain Provisions of the Paramount Merger Agreement-- Procedure for Exchange
of Paramount Certificates." Any shares of Paramount Common Stock held by
Paramount, Viacom or any direct or indirect wholly owned subsidiary of Paramount
or Viacom will be cancelled.
The financial terms of the Paramount Merger were determined through
negotiations between Viacom and Paramount, each of which was advised with
respect to such negotiations by its respective legal and financial advisors.
Any shares of Viacom Class B Common Stock, Viacom Merger Debentures, CVRs,
Viacom Three-Year Warrants, or Viacom Five-Year Warrants issued in connection
with the Paramount Merger, or shares of Series C Preferred Stock issued upon the
exchange (if any) of Viacom Merger Debentures, Viacom Exchange Debentures issued
upon the exchange (if any) of shares of Series C Preferred Stock, securities
issued pursuant to the CVRs, or shares of Viacom Class B Common Stock issued
upon exercise of the Viacom Three-Year Warrants or Viacom Five-Year Warrants, 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.
No fractional securities will be issued in connection with the Paramount
Merger. In lieu of any such fractional shares each holder of Paramount Common
Stock will be paid an amount in cash as described under "Certain Provisions of
the Paramount Merger Agreement--Procedure for Exchange of Paramount
Certificates."
PARAMOUNT EFFECTIVE TIME
The Paramount 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
VI. Such filing will be made as promptly as practicable after satisfaction or
waiver of the conditions to the Paramount Merger unless another date is agreed
to by Paramount and Viacom. The Paramount Merger Agreement may be terminated by
either party if, among other reasons, the Paramount Merger shall not have been
consummated on or before July 31, 1994; provided, however, that the Paramount
Merger Agreement may be extended by written notice of either Viacom or Paramount
to a date not later than September 30, 1994, if the Paramount Merger shall not
have been consummated as a direct result of Viacom or Paramount having failed by
July 31, 1994, to receive all required regulatory approvals or consents with
respect to the Paramount Merger. See "Certain Provisions of the Paramount Merger
Agreement--Termination" and "Certain Provisions of the Paramount Merger
Agreement--Conditions to Consummation of the Paramount Merger."
STOCK EXCHANGE LISTING
It is a condition to the Paramount Merger that the shares of Viacom Class B
Common Stock, the Viacom Merger Debentures, the CVRs and the Viacom Warrants to
be issued in the Paramount Merger as Paramount Merger Consideration be
authorized for listing on the AMEX, subject to official notice of issuance.
Viacom will file an application to list such securities on the AMEX, subject to
official notice of issuance. The shares of Viacom Class B Common Stock are
traded on the AMEX under the symbol "VIAB" and the Viacom Debentures, CVRs,
Viacom Three-Year Warrants and Viacom Five-Year Warrants will be traded under
the symbols " ", " ", " " and " ", respectively.
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Viacom has also agreed to use its reasonable best efforts to cause the
Series C Preferred Stock and the Viacom Exchange Debentures to be approved for
listing on the AMEX prior to the issuance thereof.
EXPENSES OF THE TRANSACTION
It is estimated that, if the Paramount Merger is consummated, expenses
incurred in connection with the Offer and the Paramount Merger will be
approximately as follows:
<TABLE> <CAPTION>
VIACOM, NAI AND
PARAMOUNT SUMNER M. REDSTONE
------------- --------------------
<S> <C> <C>
Financial advisory fees......................................................
Commission filing fees.......................................................
Legal fees...................................................................
Accounting fees..............................................................
Printing costs...............................................................
Proxy solicitation, distribution and Paying Agent fees.......................
Blue Sky fees................................................................
Miscellaneous................................................................
------------- --------------------
Total...........................................................
------------- --------------------
------------- --------------------
</TABLE>
All costs and expenses incurred in connection with the Paramount Merger
Agreement and the transactions contemplated thereby will be paid by the party
incurring such expenses, except that expenses incurred in connection with
printing, filing and mailing this Proxy Statement/Prospectus and all Commission
and other regulatory filing fees in connection therewith will be shared equally
by Viacom and Paramount.
OWNERSHIP OF VIACOM COMMON STOCK IMMEDIATELY AFTER THE PARAMOUNT MERGER AND THE
MERGERS
PERCENTAGE OWNERSHIP OF VIACOM COMMON STOCK*
<TABLE> <CAPTION>
FOLLOWING CONSUMMATION OF FOLLOWING CONSUMMATION OF
THE PARAMOUNT MERGER** THE MERGERS
------------------------------------ ------------------------------------
VIACOM CLASS A VIACOM VIACOM CLASS A VIACOM
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NAI............................................... 85.2% 46.0% 62.1% 24.8%
Pre-Merger(s) stockholders of Viacom (other than
NAI).............................................. 14.8% 25.6% 10.8% 13.9%
Former stockholders of Blockbuster................ --% --% 27.1% 46.0%
Former stockholders of Paramount.................. -- 28.4 -- 15.3%
</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 March 31, 1994. Percentages of ownership do not give
effect to potential dilution related to employee or director stock options or
warrants, Viacom Preferred Stock, VCRs, CVRs and Viacom Warrants.
** All percentages of ownership of common stock shown in this column are
calculated assuming the Blockbuster Merger has not yet been consummated.
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EFFECT ON EMPLOYEE BENEFIT STOCK PLANS
Assumption of Paramount Stock Options. The Paramount Merger Agreement
amended the February 4 Merger Agreement to modify the treatment of outstanding
options to purchase shares of Paramount Common Stock granted under Paramount's
employee stock option plans ("Paramount Stock Options"). In general, the
principal effect of such amendment was to adjust the terms of the Paramount
Stock Options outstanding at the Paramount Effective Time so that the holders of
such options receive additional value, based upon the price per share paid in
the Offer, with respect to one half of the Paramount Common Stock subject to
such options. Pursuant to the Paramount Merger Agreement, at the Paramount
Effective Time, Paramount's obligations with respect to Paramount Stock Options
will be assumed by Viacom. The Paramount Stock Options will continue to have the
same terms and conditions as in effect immediately prior to the Paramount
Effective Time, except that such Paramount Stock Options will be exercisable for
(i) that number of whole shares of Viacom Class B Common Stock equal to the
product of the number of shares of Paramount Common Stock covered by such
Paramount Stock Option immediately prior to the Effective Time (the "Paramount
Option Shares") multiplied by 0.5 and multiplied further by 0.93065, rounded up
to the nearest whole number of shares of Viacom Class B Common Stock, (ii) that
number of whole CVRs equal to the product of the number of Paramount Option
Shares multiplied by 0.5 and multiplied further by 0.93065, rounded up to the
nearest whole number of CVRs, provided that, if the option holder has not
exercised his or her Paramount Stock Option prior to the maturity of the CVRs,
then the CVRs described above shall be replaced by that number of shares of
Viacom Class B Common Stock equal in value to the amount by which the "Target
Price" exceeds the greater of the "Current Market Value" and the "Minimum Price"
all as defined in "Description of Viacom Capital Stocks--CVRs," on the
applicable maturity date multiplied by the number of such CVRs, rounded up to
the nearest whole number of shares, (iii) that number of whole Viacom Three-Year
Warrants equal to the product of the number of Paramount Option Shares
multiplied by 0.5 and multiplied further by 0.5 and rounded up to the nearest
whole number of Viacom Three-Year Warrants, provided that, if the option holder
has not exercised his or her Paramount Stock Option prior to the third
anniversary of the Paramount Effective Time, then the Viacom Three-Year Warrants
described above shall be replaced by that number of shares of Viacom Class B
Common Stock equal in value to the fair market value of such Viacom Three-Year
Warrants (as determined by reference to the average trading price for the
five-day trading period immediately prior to the third anniversary of the
Paramount Effective Time, if available, or, if not available, in the reasonable
judgment of the Viacom Board), rounded up to the nearest whole number of shares,
(iv) that number of whole Viacom Five-Year Warrants equal to the product of the
number of Paramount Option Shares multiplied by 0.5 and multiplied further by
0.3 and rounded up to the nearest whole number of Viacom Five-Year Warrants,
provided that, if the option holder has not exercised his or her Paramount Stock
Option prior to the fifth anniversary of the Paramount Effective Time, then the
Viacom Five-Year Warrants described above shall be replaced by that number of
shares of Viacom Class B Common Stock equal in value to the fair market value of
such Viacom Five-Year Warrants (as determined by reference to the average
trading price for the five-day trading period immediately prior to the fifth
anniversary of the Paramount Effective Time, if available, or if not available,
in the reasonable judgment of the Viacom Board), rounded up to the nearest whole
number of shares, (v) that (A) principal amount of whole Viacom Merger
Debentures equal to the product of the number of shares of Paramount Common
Stock covered by such Paramount Stock Option immediately prior to the Paramount
Effective Time multiplied by 0.5 and multiplied further by $17.50 plus an amount
in cash (without interest), rounded to the nearest cent, determined by
multiplying (x) the fair market value of one Viacom Merger Debenture, as
determined by reference to a five-day average trading price, if available, or if
not available, in the reasonable judgment of the Viacom Board by (y) the
fractional interest in a Viacom Merger Debenture to which such option holder
would otherwise be entitled or (B) if issued, that number of whole shares of
Series C Preferred Stock equal to the product of the number of shares of
Paramount Common Stock covered by such Paramount Stock Option immediately prior
to the Paramount Effective Time multiplied by 0.5 and multiplied further by .35
and rounded up to the nearest whole number of
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shares of Series C Preferred Stock or (C) if issued, that principal amount of
whole Viacom Exchange Debentures equal to the product of the number of shares of
Paramount Common Stock covered by such Paramount Stock Option immediately prior
to the Paramount Effective Time multiplied by 0.5 and multiplied further by
$17.50 plus an amount in cash (without interest), rounded to the nearest cent,
determined by multiplying (x) the fair market value of one Viacom Exchange
Debenture, as determined by reference to a five-day average trading price, if
available, or if not available, in the reasonable judgment of the Viacom Board
by (y) the fractional interest in a Viacom Exchange Debenture to which such
option holder would otherwise be entitled, and (vi) that number of whole shares
of Viacom Class B Common Stock equal to the result of the number of Paramount
Option Shares multiplied by 0.5 and multiplied further by $107, with such
product being divided by the First Year Anniversary Average Trading Price (as
defined below) and rounded up to the nearest whole number, provided that, if the
option holder exercises his or her Paramount Stock Options prior to the first
anniversary of the Paramount Effective Time, then the whole shares of Viacom
Class B Common Stock shall be replaced by a right to receive such shares on the
first anniversary of the Paramount Effective Time. In addition, pursuant to the
Paramount Merger Agreement, Viacom agrees to provide each holder of a Paramount
Stock Option not less than ten days' advance notice of any involuntary
termination of employment (other than by reason of death or disability) in order
to permit such holder to exercise his or her then exercisable Paramount Stock
Options during such ten-day period. As used above, the "First Year Anniversary
Average Trading Price" means the average closing price on the AMEX (or such
other exchange on which such shares are then listed) for a share of Viacom Class
B Common Stock during the 30 consecutive trading days immediately preceding the
first anniversary of the Paramount Effective Time. The Paramount Merger
Agreement requires Viacom to reserve for issuance the shares underlying such
assumed Paramount Stock Options and to promptly issue to each holder of such
Paramount Stock Options evidence of the assumption thereof.
Other Effects of the Paramount Merger. Where permitted under the terms of
any Paramount benefit plan or employment agreement, the Paramount Merger
Agreement requires that the Paramount Board approve the transactions
contemplated by the Paramount Merger Agreement prior to the Paramount Effective
Time so that the transactions contemplated by the Paramount Merger Agreement do
not accelerate or trigger changes to benefits or the terms of any such plan or
agreement. The Paramount Merger Agreement also provides that Paramount will not
terminate its annual or long-term performance plans prior to the Paramount
Effective Time, and will delay the establishment of future performance targets
under its annual plan and the implementation of a new performance cycle under
its long-term plan until Paramount and Viacom review the terms of such plans
after the Paramount Effective Time. Pursuant to the Paramount Merger Agreement
and where permitted under the terms of any Viacom benefit plan or employment
agreement, Viacom also will insure that the transactions contemplated by the
Paramount Merger Agreement will not accelerate or trigger changes to benefits or
the terms of any such plan or agreement.
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FINANCING OF THE OFFER
The total amount of funds required by Viacom to consummate the Offer and to
pay related fees and expenses was approximately $6.7 billion. The Offer was
financed by (i) $1.8 billion from the sale of Viacom Preferred Stock (see "Sale
of Viacom Preferred Stock"), proceeds of which are reflected as cash and cash
equivalents on Viacom's balance sheet as of December 31, 1993, (ii) $1.25
billion from the sale of Viacom Class B Common Stock to Blockbuster and (iii)
$3.7 billion from the Credit Agreement dated as of November 19, 1993, as amended
as of January 4, 1994 and as further amended as of February 15, 1994, among
Viacom, the Banks named therein (the "Banks"), and The Bank of New York,
Citibank, N.A. and Morgan Guaranty Trust Company of New York, as Managing Agents
(as so amended, the "Credit Agreement"). After the Blockbuster Merger, the
Series A Preferred Stock and the Viacom Class B Common Stock owned by
Blockbuster will cease to be outstanding and bank facilities used by Viacom and
Blockbuster will be repaid or refinanced as described below. The following is a
summary of the principal terms of the bank agreements of Viacom and Blockbuster
which have been filed with the Commission under the Exchange Act and are
incorporated by reference herein. Such summary does not purport to be complete
and is subject to and qualified in its entirety by reference to such bank
agreements.
The Credit Agreement provides that, in order to pay for the Offer and
related expenses, up to $3.7 billion may be borrowed, repaid and reborrowed
until November 18, 1994, at which time all amounts outstanding will become due
and payable.
The Credit Agreement provides that Viacom may elect to borrow at either the
Base Rate or the Eurodollar Rate, subject to certain limitations. The "Base
Rate" will be the higher of (i) Citibank, N.A.'s Base Rate and (ii) the Federal
Funds Rate plus 0.50%. The "Eurodollar Rate" will be the London Interbank
Offered Rate plus (i) 0.9375%, until Viacom's senior unsecured long-term debt is
rated by Standard & Poor's Corporation ("S&P") or Moody's Investors Service,
Inc. ("Moody's"), and (ii) thereafter, a variable rate ranging from 0.2500% to
0.9375% dependent on the senior unsecured long-term debt ratings assigned to
Viacom. The Eurodollar Rate is available for one, two, three or six month
borrowings. Interest on Base Rate borrowings will be payable quarterly in
arrears. Interest on Eurodollar Rate borrowings will be payable in arrears (i)
at the end of each applicable interest period and (ii) in the case of a period
longer than three months, every three months.
The Credit Agreement provides that Viacom will pay each of the Banks a
facility fee on such Bank's commitment in effect from time to time (whether or
not utilized) from November 19, 1993 until November 18, 1994 payable quarterly
in arrears, at the rate of (i) 0.3750% per annum, until Viacom's senior
unsecured long-term debt is rated by S&P or Moody's and (ii) thereafter, a
variable rate ranging from 0.1000% to 0.3750% dependent on the senior unsecured
long-term debt ratings assigned to Viacom.
The Credit Agreement contains representations, warranties and covenants
customary in facilities of this type. The Credit Agreement requires, among other
things, that Viacom maintain certain financial ratios and comply with certain
financial covenants.
Under the Credit Agreement, Viacom has agreed to indemnify each of the
Banks and certain related persons against certain liabilities.
Blockbuster obtained a portion of the funds necessary to purchase the
shares of Viacom Class B Common Stock under the Blockbuster Subscription
Agreement pursuant to a credit agreement dated as of February 15, 1994 (the "New
Blockbuster Facility"), with certain banks named therein, Bank of America, as
Agent, and BA Securities Inc., as Arranger, for the aggregate amount of $1
billion. The New Blockbuster Facility has a 364-day term and bears interest at
Blockbuster's option at the Reference Rate or at LIBOR plus a margin ranging
from 0.50% up to 1.0% (based upon Blockbuster's public debt rating) for the
first six months after the initial borrowing and plus 1.25% thereafter. Under
the New Blockbuster Facility, the Reference Rate is generally defined as the
higher of (i) the rate of
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interest publicly announced from time to time by the Bank of America in San
Francisco, California as its reference rate, or (ii) 0.5% per annum above the
latest Federal Funds Rate in effect on such day. LIBOR is generally defined as
the average London interbank offered rate for 1-, 2-, 3-or 6-month Eurodollar
deposits.
Blockbuster obtained the remainder of such funds from its 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, pursuant to which such banks have agreed to advance Blockbuster on
an unsecured basis an aggregate of $1 billion for a term of 40 months.
Outstanding advances, if any, become due at the expiration of the 40-month term.
The Blockbuster Credit Agreement and the New Blockbuster Facility require, among
other things, that Blockbuster maintain certain financial ratios and comply with
certain financial covenants. Borrowings under the Blockbuster Credit Agreement
shall bear interest at either the Reference Rate, the Offshore Rate, the CD Rate
or a rate submitted by any Bank presenting a Competitive Bid Offer to
Blockbuster. The "Reference Rate" will be the higher of (i) the rate of interest
publicly announced from time to time by the Bank of America in San Francisco,
California as its Reference Rate, and (ii) 0.5% per annum above the Federal
Funds Rate. The "Offshore Rate" will be the London Interbank Offered Rate plus a
variable rate ranging from 0.3125% to 0.6500% depending on Blockbuster's public
debt rating and outstanding borrowings under the Blockbuster Credit Agreement.
The "CD Rate" will be based upon a formula of the interest rates chargeable on
certificates of deposit plus a variable rate ranging from 0.4375% to 0.7750%
depending on Blockbuster's public debt rating and outstandings under the
Blockbuster Credit Agreement.
The Blockbuster Credit Agreement and the New Blockbuster Facility contain
certain covenants and events of default, including a change of control default,
which will require either a waiver in connection with the Blockbuster Merger or
the refinancing of the indebtedness under such facilities prior to the
Blockbuster Merger.
Accordingly, assuming consummation of the Blockbuster Merger, the foregoing
facilities, together with other current maturities, may require Viacom to
refinance up to $5.7 billion ($4.0 billion if the Blockbuster Merger is not
consummated) within the next 7 months. No decision has been made concerning the
method Viacom/Paramount will, or the combined company would, employ to repay
such indebtedness. Such decision will be made based on Viacom/Paramount's or the
combined company's review from time to time of the advisability of the
particular actions, as well as on prevailing interest rates and financial and
other economic conditions and such other factors as Viacom/Paramount or the
combined company, as the case may be, may deem appropriate. Although Viacom
expects that it will be able to refinance its indebtedness and meet its
obligations without the need to sell any assets, Viacom is continuing to review
opportunities for the sale of non-strategic assets as such opportunities may
arise.
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SALE OF VIACOM PREFERRED STOCK
On October 22, 1993, Blockbuster purchased $600 million of Series A
Preferred Stock pursuant to an amended and restated subscription agreement (the
"Blockbuster Preferred Stock Agreement") dated October 21, 1993 between Viacom
and Blockbuster. On November 19, 1993, NYNEX (NYNEX and Blockbuster are
hereinafter collectively referred to as the "Preferred Stock Investors")
purchased $1.2 billion of Series B Preferred Stock pursuant to a subscription
agreement (the "NYNEX Preferred Stock Agreement") dated October 4, 1993, as
amended as of November 19, 1993, between Viacom and NYNEX. Additional terms of
the Viacom 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" is qualified in its entirety by reference
to the respective Certificate of Designations of the Series A Preferred Stock
and the Series B Preferred Stock.
Each of the Blockbuster Preferred Stock Agreement and the NYNEX Preferred
Stock Agreement provides that for so long as the Preferred Stock Investor and
its affiliates beneficially own at least $300 million, based on liquidation
preference, of the Viacom Preferred Stock initially purchased or the equivalent
in number of shares of Viacom Preferred Stock and shares of Viacom Class B
Common Stock issued on conversion of Viacom Preferred Stock, the Preferred Stock
Investor will be entitled to designate one representative to the Board of
Directors of Viacom. The Director designated by Blockbuster is H. Wayne
Huizenga, Chairman and Chief Executive Officer of Blockbuster, and the Director
designated by NYNEX is William C. Ferguson, Chairman of the Board of NYNEX. See
"Management Before and After the Mergers."
Each of the Blockbuster Preferred Stock Agreement and the NYNEX Preferred
Stock Agreement provides the Preferred Stock Investors with registration rights
with respect to the Viacom Preferred Stock and the Viacom Class B Common Stock
issued upon conversion thereof and, for so long as the Preferred Stock Investor
beneficially owns all of the series of Viacom Preferred Stock initially
purchased by it, the right to participate in certain extraordinary dividends or
distributions by Viacom on the same basis as if such Preferred Stock Investor
had converted the Viacom Preferred Stock into Viacom Class B Common Stock,
subject to certain adjustments being made to the terms of the Viacom Preferred
Stock. The NYNEX Preferred Stock Agreement also provides for Viacom to
repurchase from NYNEX the Series B Preferred Stock and Viacom Class B Common
Stock issued upon conversion thereof in the event that continued beneficial
ownership by NYNEX would be in violation of the MFJ. Under the MFJ, neither
NYNEX nor any "affiliated enterprise," which, as of and after the purchase of
the Series B Preferred Stock by NYNEX, may include Viacom and certain of its
affiliates, may provide interexchange telecommunications service, interexchange
access and information access services and certain other activities. See
"Business."
In their agreements with Viacom, Blockbuster and NYNEX each agreed to
pursue appropriate strategic partnership opportunities in the domestic and
international media, entertainment, video transport and telecommunications
sectors. The foregoing summaries of the material provisions of the Blockbuster
Preferred Stock Agreement and the NYNEX Preferred Stock Agreement do not purport
to be complete and are qualified in their entirety by reference to the
Blockbuster Preferred Stock Agreement and the NYNEX Preferred Stock Agreement,
respectively. The Blockbuster Preferred Stock Agreement and the NYNEX Preferred
Stock Agreement have been filed with the Commission under the Exchange Act by
each of Viacom and Blockbuster or NYNEX, as the case may be, and are
incorporated herein by reference.
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CERTAIN PROVISIONS OF THE PARAMOUNT MERGER AGREEMENT
The following is a summary of the material provisions of the Paramount
Merger Agreement not summarized elsewhere in this Proxy Statement/Prospectus.
The Paramount 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 Paramount Merger Agreement.
PROCEDURE FOR EXCHANGE OF PARAMOUNT CERTIFICATES
As soon as reasonably practicable after the Paramount Effective Time,
Viacom will instruct Paramount's transfer agent, Chemical Bank, to mail to each
holder of record of a certificate or certificates which immediately prior to the
Paramount Effective Time evidenced outstanding shares of Paramount Common Stock
(other than Dissenting Shares) (the "Paramount Certificates") (i) a letter of
transmittal and (ii) instructions to effect the surrender of the Paramount
Certificates in exchange for the certificates evidencing shares of Viacom Class
B Common Stock, the Viacom Merger Debentures, CVRs, Viacom Warrants and cash in
lieu of fractional shares. Upon surrender of a Paramount Certificate for
cancellation to the bank or trust company designated in its capacity as Exchange
Agent (the "Paramount 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 Paramount Certificate shall be entitled to
receive in exchange therefor (i) certificates evidencing that number of whole
shares of Viacom Class B Common Stock and that number of whole CVRs, Viacom
Merger Debentures and Viacom Warrants which such holder has the right to receive
in respect of the shares of Paramount Common Stock formerly evidenced by such
Paramount 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 Class B Common Stock and fractional CVRs, Viacom Merger
Debentures and Viacom Warrants, and the Paramount Certificate so surrendered
shall forthwith be cancelled. In the event of a transfer of ownership of shares
of Paramount Common Stock which is not registered in the transfer records of
Paramount, shares of Viacom Class B Common Stock, CVRs, Viacom Merger
Debentures, Viacom Warrants and cash in lieu of fractional shares may be issued
and paid to a transferee if the Paramount Certificate evidencing such shares of
Paramount Common Stock is presented to the Paramount 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
Paramount Certificate shall be deemed at any time after the Paramount Effective
Time to evidence only the right to receive upon such surrender the certificates
evidencing Viacom Class B Common Stock, CVRs, Viacom Merger Debentures, Viacom
Warrants, cash in lieu of fractional shares, any dividends and other
distributions to which such holder is entitled and cash in lieu of fractional
shares as described above.
PARAMOUNT 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 OR FORM OF ELECTION.
No dividends or other distributions declared or made after the Paramount
Effective Time with respect to shares of Viacom Class B Common Stock and the
CVRs, Viacom Merger Debentures and Viacom Warrants with a record date after the
Paramount Effective Time shall be paid to the holder of any unsurrendered
Paramount Certificate with respect to the shares of Viacom Class B Common Stock
and the CVRs, Viacom Merger Debentures or Viacom Warrants they are entitled to
receive until the holder of such Paramount Certificate shall surrender such
Paramount Certificate.
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No fraction of a share of Viacom Class B Common Stock or fraction of a CVR,
Viacom Merger Debenture or Viacom Warrant will be issued in the Paramount
Merger. In lieu of any such fractional shares or fractional CVRs, Viacom Merger
Debentures or Viacom Warrants, each holder of Paramount Common Stock upon
surrender of a Paramount Certificate for exchange will be paid (1) an amount in
cash (without interest), rounded to the nearest cent, determined by multiplying
(x) the per share closing price on the AMEX of Viacom Class B Common Stock on
the date of the Paramount Effective Time by (y) the fractional interest to which
such holder would otherwise be entitled (after taking into account all shares of
Paramount Common Stock then held of record by such holder) plus (2) an amount in
cash (without interest), rounded to the nearest cent, determined by multiplying
(x) the fair market value of one CVR, as determined by reference to a five-day
average trading price, if available, or if not available, in the reasonable
judgment of the Viacom Board by (y) the fractional interest in a CVR to which
such holder would otherwise be entitled (after taking into account all shares of
Paramount Common Stock then held of record by such holder) plus (3) an amount in
cash (without interest) rounded to the nearest cent, determined by multiplying
(x) the fair market value of one Viacom Three-Year Warrant, as determined by
reference to a five-day average trading price, if available, or if not
available, in the reasonable judgment of the Viacom Board by (y) the fractional
interest in a Viacom Three-Year Warrant to which such holder would otherwise be
entitled (after taking into account all shares of Paramount Common Stock then
held of record by such holder) plus (4) an amount in cash (without interest)
determined as described below in respect of the fractional interest in a Viacom
Merger Debenture to which such holder would otherwise be entitled (after taking
into account all shares of Paramount Common Stock then held of record by such
holder) plus (5) an amount in cash (without interest) rounded to the nearest
cent, determined by multiplying (x) the fair market value of one Viacom
Five-Year Warrant, as determined by reference to a five-day average trading
price, if available, or if not available, in the reasonable judgment of the
Viacom Board by (y) the fractional interest in a Viacom Five-Year Warrant to
which such holder would otherwise be entitled (after taking into account all
shares of Paramount Common Stock then held of record by such holder).
The Viacom Merger Debentures will be issued in the Paramount Merger only in
principal amounts of $1,000 or integral multiples thereof. Holders of shares of
Paramount Common Stock otherwise entitled to fractional amounts of Viacom Merger
Debentures will be entitled to receive promptly from the Exchange Agent a cash
payment in an amount equal to such holder's proportionate interest (after taking
into account all shares of Paramount Common Stock then held of record by such
holder) in the proceeds from the sale or sales in the open market by the
Exchange Agent, on behalf of all such holders, of the aggregate fractional
principal amount of Viacom Merger Debentures.
Neither Viacom nor Paramount will be liable to any holder of shares of
Paramount Common Stock for any such shares of Viacom Class B Common Stock, CVRs,
Viacom Merger Debentures, Viacom Warrants (or dividends or distributions with
respect thereto) or cash in respect of shares of Paramount Common Stock or cash
in lieu of fractional shares of Viacom Class B Common Stock, CVRs, Viacom Merger
Debentures or Viacom Warrants delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
After the Paramount Effective Time, there will be no transfers on the stock
transfer books of Paramount of shares of Paramount Common Stock.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Paramount Merger Agreement contains various representations and
warranties of Viacom and Paramount 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,
Paramount, the Viacom Material Subsidiaries, and the Paramount Material
Subsidiaries (as such terms are defined in the
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Paramount Merger Agreement); (ii) each of Viacom's and Paramount's
organizational documents; (iii) each of Viacom's and Paramount's capital
structure; (iv) the authorization, execution, delivery, performance by and
enforceability of the Paramount Merger Agreement against Viacom and Paramount;
(v) the absence of any governmental or regulatory authorization, consent or
approval required to consummate the Paramount 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
Paramount 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 prior to the date of the Paramount Merger Agreement having a
material adverse effect on the financial condition, business or operations of
Viacom and its subsidiaries or Paramount and its subsidiaries, as the case may
be, except for any actions taken by Viacom in connection with the Blockbuster
Merger or the Blockbuster Subscription Agreement; (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 Paramount 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 Paramount and its subsidiaries, as
the case may be; (xiv) certain tax matters and payment of taxes; (xv) the
opinion of the respective financial advisors of Viacom and Paramount as to the
fairness of the financial terms of the Offer and the Paramount Merger to their
respective stockholders; (xvi) the absence of any brokerage, finder's or other
fee due in connection with the Paramount Merger (except, in the case of Viacom,
to Smith Barney and, in the case of Paramount, to Lazard Freres); and (xvii) the
votes required by the stockholders of Viacom and Paramount to approve the
transaction. In addition, Paramount represented and warranted to Viacom that all
necessary action was taken to amend the Rights Agreement, so that (a) none of
the transactions contemplated by the Paramount Merger Agreement will lead to (1)
the exercise of the Rights, (2) Viacom or a Viacom subsidiary being deemed an
"Acquiring Person" (as defined in the Rights Agreement) or (3) the "Stock
Acquisition Date" (as defined in the Rights Agreement) occurring upon any such
event and (b) the "Expiration Date" (as defined in the Rights Agreement) of the
Rights will occur immediately prior to the Paramount Effective Time. Viacom has
represented and warranted (i) that as of the date of the Paramount Merger
Agreement and based on the number of issued and outstanding shares of Paramount
Common Stock as of September 3, 1993 set forth in the Merger Agreement, Viacom
and its affiliates beneficially owned, in the aggregate, less than 5% of the
issued and outstanding shares of Paramount Common Stock, (ii) that, since
September 12, 1993, neither Viacom nor, to Viacom's knowledge, its affiliates
have purchased or sold shares of Viacom Class A Common Stock or Viacom Class B
Common Stock and neither Viacom nor, to Viacom's knowledge, its affiliates have
any knowledge of any such trading and (iii) that the representations and
warranties of Viacom contained in the Blockbuster Merger Agreement are true and
correct as of the date of the Paramount Merger Agreement and the date of
consummation of the Offer, except as would not have a material adverse effect on
the financial condition of the combined company.
RIGHTS AGREEMENT AMENDMENTS
Pursuant to the Paramount Merger Agreement, on March 1, 1994, Paramount
amended the Rights Agreement so that the acquisition of Paramount Common Stock
pursuant to the Offer or the Paramount Merger does not cause the Rights issued
thereunder to become exercisable, and on January 21, 1994, Paramount amended the
Rights Agreement so that the Rights will expire immediately prior to the
Paramount Effective Time (the "Rights Agreement Amendments"). For a complete
description of the Rights Agreement, as amended, see "Comparison of Stockholder
Rights--Rights Plans."
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CONDUCT OF BUSINESSES PENDING THE PARAMOUNT MERGER
Each of Viacom and Paramount has agreed that prior to the Paramount
Effective Time, unless otherwise consented to in writing by the other party and
except, in the case of Viacom, for actions taken by Viacom in order to
consummate the Blockbuster Merger, the businesses of each of Paramount and
Viacom and their respective subsidiaries will in all material respects be
conducted in, and each of Paramount and Viacom and their respective subsidiaries
will not take any material action except in, the ordinary course of business,
consistent with past practice. In addition, each of Paramount 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 Paramount have agreed that,
except as contemplated by the Paramount Merger Agreement and for any actions
taken by Viacom in order to consummate the Blockbuster Merger, neither Viacom
nor Paramount nor any of their respective subsidiaries will, prior to the
Paramount 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 Paramount
or Viacom, as the case may be, do not control): (i) amend the Certificate of
Incorporation or By-laws of Viacom or Paramount (except, with respect to Viacom,
any amendments to its Restated Certificate of Incorporation contemplated by the
Paramount Merger Agreement and the filing of the Certificate of Designation for
the Series C Preferred Stock); (ii) issue, sell, pledge, dispose of, grant,
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 Paramount or Viacom), 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 any dividend reinvestment plan or by any Paramount
benefit plan with an employee stock fund or employee stock ownership plan
feature, consistent with applicable securities laws or the exercise of options,
warrants or other similar rights or conversion of convertible preferred stock
outstanding as of the date of the Paramount Merger Agreement and in accordance
with the terms of such options, warrants or rights in effect on the date of the
Paramount Merger Agreement or otherwise permitted to be granted pursuant to the
Paramount Merger Agreement) or (b) 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 million or which, in the aggregate, do not exceed $25 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 Viacom, with respect to the Viacom
Preferred Stock, (b) in the case of Paramount, regular quarterly dividends in
amounts not in excess of $.20 per share of Paramount Common Stock, per quarter
and payable consistent with past practice; provided that, prior to the
declaration of any such dividend, Paramount shall consult with Viacom as to the
timing and advisability of declaring any such dividend, and (c) dividends
declared and paid by a subsidiary of either Paramount 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 Paramount
benefit plan with an employee stock fund or employee stock ownership plan
feature, consistent with applicable securities laws; (v) (a) acquire (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 million or which, in the aggregate, do not exceed $25 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) for any such indebtedness incurred by Viacom in connection with the
Paramount Merger or the Offer, (2) the
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refinancing of existing indebtedness, (3) borrowings under commercial paper
programs in the ordinary course of business, (4) borrowings under existing bank
lines of credit in the ordinary course of business, or (5) which, in the
aggregate, do 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 practices, 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.
CONDITIONS TO CONSUMMATION OF THE PARAMOUNT MERGER
The obligations of Viacom and Paramount to consummate the Paramount 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 by the Commission; (ii) the approval of
the Paramount Merger Agreement by the requisite holders of Paramount Common
Stock and the approval of the Paramount Merger Agreement and related
transactions 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 Paramount Merger
or any transaction contemplated by the Paramount 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; and (iv) the shares of Viacom Class B Common Stock and the Viacom
Warrants, Viacom Merger Debentures and CVRs issuable to stockholders of
Paramount in accordance with the terms of the Paramount Merger Agreement being
authorized for listing on AMEX upon official notice of issuance.
The obligations of Paramount to effect the Paramount Merger and the other
transactions contemplated by the Paramount Merger Agreement are also subject to
the following conditions: (i) each of the representations and warranties of
Viacom contained in the Paramount Merger Agreement being true and correct as of
the Paramount Effective Time, as though made on and as of the Paramount
Effective Time, except (a) for changes specifically permitted by the Paramount
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
Viacom and its subsidiaries, taken as a whole; (ii) Viacom having performed or
complied in all material respects with all agreements and covenants required by
the Paramount Merger Agreement to be performed or complied with by it on or
prior to the Paramount Effective Time; (iii) since the date of the Paramount
Merger Agreement, there being no change, occurrence or circumstance in the
business, results of operations or financial condition of Viacom or any of its
subsidiaries having or reasonably likely to have, individually or in the
aggregate, a material adverse effect on the business, results of operations or
financial condition of Viacom and its subsidiaries, taken as a whole; and (iv)
Viacom having filed with the Secretary of State of the State of Delaware a
certificate of amendment to Viacom's Restated Certificate of Incorporation
pursuant to which certain amendments required by the Paramount Merger Agreement
became effective (to the extent not previously voted upon and approved by the
holders of Viacom Class A Common Stock).
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RESTRICTIONS ON GOING PRIVATE TRANSACTIONS
From and after the Paramount Effective Time and until the tenth anniversary
of the Paramount Effective Time, Viacom 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 financial 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.
BLOCKBUSTER MERGER AGREEMENT
Viacom has agreed that the terms of the Blockbuster Merger Agreement shall
not, without the consent of Paramount, be amended or waived in any manner that
would have a material adverse effect on the value of the Paramount Merger
Consideration and the consideration paid pursuant to the Offer, taken together.
INDEMNIFICATION; INSURANCE
Viacom and Paramount have agreed in the Paramount Merger Agreement that the
Certificate of Incorporation and By-laws of Paramount 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 Paramount Merger
Agreement, which provisions will not be amended, repealed or otherwise modified
for a period of six years after the Paramount Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at any time
prior to the Paramount Effective Time were directors or officers of Paramount in
respect of actions or omissions occurring at or prior to the Paramount Effective
Time (including, without limitation, the transactions contemplated by the
Paramount Merger Agreement), unless such modification is required by law. The
parties have also agreed in the Paramount Merger Agreement that after the
Paramount Effective Time, Paramount will indemnify, defend and hold harmless the
present and former officers and directors of Paramount (collectively, the
"Indemnified Parties") 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 (a "Claim"), based in whole or in part on the fact that such
person is or was a director or officer of Paramount and arising out of actions
or omissions occurring at or prior to the Paramount Effective Time (including,
without limitation, the transactions contemplated by the Paramount Merger
Agreement), in each case to the full extent permitted under the DGCL. Viacom and
Paramount have agreed in the Paramount Merger Agreement that Paramount 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. Viacom and Paramount have also agreed in the
Paramount Merger Agreement that if any such claim, action or proceeding is
brought against any indemnified party (whether arising prior to or after the
Paramount Effective Time) after the Paramount Effective Time, Paramount will pay
the 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.
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The Paramount Merger Agreement further provides that, with respect to
matters occurring prior to the Paramount Effective Time, Paramount will cause to
be maintained for three years after the Paramount Effective Time the current
policies of directors' and officers' liability insurance maintained by
Paramount, or may substitute therefor policies of at least the same coverage,
containing terms and conditions which are no less advantageous. Paramount will
not be required to pay premiums for such insurance in excess of an amount equal
to 200% of current annual premiums paid by Paramount for such insurance.
TERMINATION
The Paramount Merger Agreement may be terminated at any time prior to the
Paramount Effective Time, whether before or after approval of the Paramount
Merger Agreement by the stockholders of Paramount or the approval of the
issuance of the shares of Viacom Common Stock in accordance with the Paramount
Merger Agreement by the stockholders of Viacom (a) by mutual consent of
Paramount and Viacom; (b) by Paramount, upon a breach by Viacom of any of its
representations, warranties, covenants or agreements set forth in the Paramount
Merger Agreement, or if any representation or warranty of Viacom 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 July 31, 1994 (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 Paramount, if any permanent injunction or action by any
governmental entity preventing the consummation of the Paramount Merger shall
have become final and nonappealable; (d) by either Viacom or Paramount, if the
Paramount Merger shall not have been consummated before July 31, 1994; provided,
however, that the Paramount Merger Agreement may be extended by written notice
of either Viacom or Paramount to a date not later than September 30, 1994, if
the Paramount Merger shall not have been consummated as a direct result of
Viacom or Paramount having failed by July 31, 1994 to receive all required
regulatory approvals or consents with respect to the Paramount Merger; and (e)
by either Viacom or Paramount, if the Paramount Merger Agreement shall fail to
receive the requisite vote for approval and adoption by the stockholders of
Paramount or Viacom at their respective Special Meeting.
In the event of termination of the Paramount Merger Agreement by either
Viacom or Paramount, the Paramount Merger Agreement will become void and there
will be no liability or obligation on the part of Viacom or Paramount other than
under certain provisions of the Paramount Merger Agreement relating to any
breach of the Paramount Merger Agreement or confidential treatment of non-public
information.
EXPENSES
Under the Paramount Merger Agreement all costs and expenses, including,
without limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred by Viacom and Paramount will be borne solely and entirely
by the party which has incurred such costs and 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 Paramount and
Viacom.
AMENDMENT AND WAIVER
Subject to applicable law, the Paramount Merger Agreement may be amended by
action taken by or on behalf of the respective Boards of Directors of Viacom or
Paramount at any time prior to the Paramount Effective Time. After approval of
the Paramount Merger by the stockholders of Paramount
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or Viacom, no amendment, which under applicable law may not be made without the
approval of the stockholders of Paramount or Viacom, may be made without such
approval.
At any time prior to the Paramount Effective Time, either Paramount 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 Paramount
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.
EXCHANGE ACT REGISTRATION AND TRADING
OF THE PARAMOUNT COMMON STOCK
Paramount Common Stock is currently registered under the Exchange Act,
which requires, among other things, that Paramount furnish certain information
to its stockholders and to the Commission and comply with the Commission's proxy
rules in connection with meetings of stockholders. Registration of the Paramount
Common Stock also makes certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b), applicable to Paramount
and its officers and directors. Registration of the Paramount Common Stock under
the Exchange Act may be terminated upon the application of Paramount to the
Commission if the Paramount Common Stock is not quoted through the inter-dealer
quotation system of a registered national securities association and there are
fewer than 300 holders of record of such class, which conditions will be
satisfied upon consummation of the Paramount Merger. Paramount intends to file
with the Commission a notice of termination of registration of Paramount Common
Stock as soon as practicable after the Paramount Effective Time. As a result of
the filing of such notice of termination, Paramount may no longer be required to
file annual and quarterly reports with the Commission, comply with the proxy
rules or send annual reports to stockholders. In addition, upon the
effectiveness of the termination of registration, Paramount, its officers and
directors and certain of its stockholders will no longer be required to make any
other filing with the Commission with respect to the Paramount Common Stock. It
is expected that, after the effective date of the Paramount Merger, Paramount
Common Stock will cease to be traded on the NYSE.
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THE BLOCKBUSTER MERGER
BLOCKBUSTER
Blockbuster is an international entertainment company with businesses
operating in the home video, music retailing and filmed 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. 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 trade
name "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.
Since acquiring all of the outstanding capital stock of Super Club from
subsidiaries of Philips Electronics N.V. ("Philips") in November 1993,
Blockbuster has operated video stores under the trade names "Video Towne",
"Alfalfa", "Movies at Home" and "Movieland" in the United States. These stores
average 6,700 square feet in size with, on average, approximately 5,000
prerecorded videocassettes available for rental and sale.
As of December 31, 1993, there were 3,593 video stores operating in
Blockbuster's system, of which 2,698 were Blockbuster-owned and 895 were
franchise-owned. Blockbuster-owned video stores at December 31, 1993 included
775 stores operating under the "Ritz" trade name in the United Kingdom and
Austria and 120 stores operating under the "Video Towne", "Alfalfa", "Movies at
Home" and "Movieland" trade names. The Blockbuster Video system operates in 49
states and 9 foreign countries.
MUSIC RETAILING. Through music stores operating under various trade names,
including "Blockbuster Music Plus", "Sound Warehouse", "Music Plus", "Record
Bar", "Tracks", "Turtle's" and "Rhythm and Views", Blockbuster is among the
largest specialty retailers of prerecorded music in the United States, with 511
stores operating throughout the country as of December 31, 1993. 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 ENTERTAINMENT. Blockbuster has interests in the filmed entertainment
industry through investments in Spelling Entertainment and Republic Pictures,
each of 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. Blockbuster owns approximately
70.5% of Spelling Entertainment's outstanding shares of common stock and
approximately 39% of Republic Pictures' outstanding shares of common stock,
including shares subject to certain warrants, as of December 31, 1993.
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Spelling Entertainment and Republic Pictures have entered into an agreement
pursuant to which Spelling Entertainment will acquire Republic Pictures, which
transaction is expected to be consummated during the second quarter of 1994.
OTHER ENTERTAINMENT. As of December 31, 1993, Blockbuster owned
approximately 19.1%, of the outstanding common stock of Discovery Zone.
Discovery Zone owns, operates and franchises Discovery Zone FunCenters.
Blockbuster currently operates 34 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.
CERTAIN RECENT DEVELOPMENTS. For a description of Blockbuster's purchase of
Series A Preferred Stock see "Sale of Viacom Preferred Stock." For a description
of Blockbuster's purchase of Viacom Class B Common Stock, see "--Certain
Transactions Between Viacom and Blockbuster and With Their Stockholders."
CERTAIN TRANSACTIONS BETWEEN VIACOM AND BLOCKBUSTER AND WITH THEIR STOCKHOLDERS
Blockbuster Subscription Agreement.
On March 10, 1994 Blockbuster purchased approximately 22.7 million shares
of Viacom Class B Common Stock for an aggregate purchase price of approximately
$1.25 billion, or $55 per share pursuant to the Blockbuster Subscription
Agreement. If the Blockbuster 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.
Blockbuster Voting Agreement.
Pursuant to the Blockbuster Voting Agreement, NAI has agreed to vote its
shares of Viacom Class A Common Stock in favor of the Blockbuster Merger
Agreement and against any competing business combination proposal. Approval of
the Blockbuster Merger Agreement by the stockholders of Viacom is therefore
assured.
Blockbuster Stockholders Stock Option Agreement.
Pursuant to the Amended and Restated Stockholders Stock Option Agreement
dated as of January 7, 1994 (the "Blockbuster Stockholders Stock Option
Agreement"), among Viacom and certain stockholders of Blockbuster (the
"Blockbuster Option Stockholders"), the Blockbuster Option Stockholders have
granted to Viacom (i) options to purchase an aggregate of approximately 15.6
million shares of Blockbuster Common Stock (representing approximately 6.3% of
the outstanding Blockbuster Common Stock as of January 7, 1994), and shares
subsequently acquired by the Blockbuster Option Stockholders, at a price of
$30.125 per share under certain circumstances in the event the Blockbuster
Merger Agreement is terminated and (ii) proxies to vote such shares in favor of
the Blockbuster Merger and against any competing business combination proposal.
Blockbuster Proxy Agreement.
Pursuant to the Amended and Restated Proxy Agreement dated as of January 7,
1994 (the "Blockbuster Proxy Agreement") among Viacom and certain stockholders
of Blockbuster (the "Blockbuster Proxy Stockholders"), the Blockbuster Proxy
Stockholders have granted to Viacom proxies to vote shares of Blockbuster Common
Stock owned by such stockholders in favor of the Blockbuster Merger Agreement
and against any competing business combination proposal, which shares, together
with the shares subject to the Blockbuster Stockholders Stock Option Agreement
(collectively, the "Blockbuster Proxy Shares"), represent approximately 22.3% of
the outstanding shares of Blockbuster Common Stock as of January 7, 1994.
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FORM OF THE BLOCKBUSTER MERGER
If all required stockholder approvals are obtained and all other conditions
to the Blockbuster Merger are satisfied or waived, then Blockbuster will be
merged with and into Viacom, with Viacom being the surviving corporation.
BLOCKBUSTER MERGER CONSIDERATION
At the Blockbuster Effective Time, each share of Blockbuster Common Stock
that is issued and outstanding immediately prior to the Blockbuster 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 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 Blockbuster Effective Time, evidenced by one
VCR. No fractional securities will be issued in the Blockbuster Merger.
The VCRs represent the right to receive shares of Viacom Class B Common
Stock under certain circumstances on the first anniversary of the Blockbuster
Effective Time (the "VCR Conversion Date"). 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 Blockbuster
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.
If the calculation in the above paragraph is inapplicable, 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 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 to zero, which
will occur if the Class B Value is $52 per share or above.
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 Blockbuster
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."
Upon consummation of the Blockbuster Merger, any shares of Blockbuster
Common Stock owned by Viacom or any direct or indirect wholly owned subsidiary
of Blockbuster or Viacom will be cancelled.
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The Blockbuster 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 Blockbuster 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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Blockbuster Merger will constitute a reorganization within the meaning
of section 368(a)(1)(A) of the Code. Neither Blockbuster nor Viacom will
recognize any gain or loss as a result of the Blockbuster Merger. No ruling has
been (or will be) sought from the Internal Revenue Service as to the tax
consequences of the Blockbuster Merger.
APPRAISAL RIGHTS WITH RESPECT TO THE BLOCKBUSTER MERGER
It is uncertain whether appraisal rights are available to holders of
Blockbuster Common Stock under the DGCL in connection with the Blockbuster
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 meet
and comply with the requirements of Section 262 of the DGCL. Stockholders of
Viacom will have no appraisal rights in connection with the Blockbuster Merger.
TREATMENT OF BLOCKBUSTER WARRANTS AND EMPLOYEE STOCK OPTIONS
The Blockbuster Merger Agreement provides that, at the Blockbuster
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 January 31, 1994, an aggregate of 18,163,772 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 Blockbuster 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 Blockbuster Merger. However, Viacom and Blockbuster have agreed to use their
best efforts to secure from each executive of Blockbuster who enters into an
employment agreement with Blockbuster an
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agreement that such executive will waive such acceleration of exercisability,
which waiver will lapse (resulting in the executive's options becoming
immediately exercisable if they have not already done so in accordance with the
applicable vesting schedule) upon a termination of the executive's employment
for any reason.
Under the Blockbuster Merger Agreement, Blockbuster has the right to adopt
one or more additional stock option plans covering up to an additional 4,500,000
shares of Blockbuster Common Stock. On February 7, 1994, the Board of Directors
of Blockbuster adopted, subject to stockholder approval, Blockbuster's 1994
Stock Option Plan and an amendment to Blockbuster's 1991 Non-employee Director
Stock Option Plan.
At March 3, 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 Common Stock which are not held by employees
or directors of Blockbuster will be treated in accordance with their terms.
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CERTAIN CONSIDERATIONS
Stockholders of Viacom and Paramount should consider carefully all of the
information contained in this Proxy Statement/Prospectus and, in particular, the
following:
Financial Terms of the Offer and the Paramount Merger. Smith Barney
has delivered its opinions to the Board of Directors of Viacom that, as of
February 1, 1994 and the date of this Proxy Statement/Prospectus, the
financial terms of the Offer and the Paramount Merger, taken together, were
fair, from a financial point of view, to Viacom and its stockholders,
whether or not the Blockbuster Merger is consummated. Lazard Freres has
delivered its opinion to the Board of Directors of Paramount that, as of
February 4, 1994 (i) the Viacom Transaction Consideration was fair to the
holders of Paramount Common Stock from a financial point of view, (ii) the
QVC Transaction Consideration was fair to the holders of Paramount Common
Stock from a financial point of view and (iii) the Viacom Transaction
Consideration was marginally superior to the QVC Transaction Consideration
from a financial point of view. However, no assurances can be given with
respect to the prices at which the Viacom Class B Common Stock will trade
after the date hereof or after the Paramount Effective Time or the prices
at which the Viacom Merger Debentures (or, if issued, the Series C
Preferred Stock and the Viacom Exchange Debentures), the CVRs and the
Viacom Warrants will trade after the Paramount Effective Time. There has
been no public trading market for the Viacom Merger Debentures, CVRs or
Viacom Warrants and there can be no assurances that an active market for
such securities will develop or continue after the Paramount Merger.
Controlling Stockholder. Immediately after completion of the Paramount
Merger and before the completion of the Blockbuster Merger, NAI (in which
Sumner M. Redstone beneficially owns a controlling interest) will own
approximately 85% of the voting stock and 46% of the total (voting and
non-voting) common stock of Viacom. Immediately after completion of the
Mergers, NAI will own approximately 62% of the voting stock and
approximately 25% of the total (voting and non-voting) common stock of
Viacom. 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
Viacom (although certain provisions of the Paramount Merger Agreement and
the Blockbuster Merger Agreement restrict the ability of certain large
stockholders from engaging in going private transactions). See "The
Paramount Merger--Ownership of Viacom Common Stock After the Mergers" and
"Certain Provisions of the Paramount Merger Agreement--Restrictions On
Going Private Transactions."
Total Indebtedness and Certain Refinancing. Viacom anticipates that,
following the Mergers, the combined company will have outstanding total
indebtedness of approximately $10.0 billion ($8.0 billion if the
Blockbuster Merger is not consummated) and 5% Viacom Preferred Stock with a
liquidation preference of $1.2 billion ($1.8 billion if the Blockbuster
Merger is not consummated). Of such $10.0 billion, $3.7 billion was
borrowed under Viacom's Credit Agreement and must be repaid by November 18,
1994. In addition, the $1.0 billion borrowed under the New Blockbuster
Facility must be repaid by February 14, 1995 and both the New Blockbuster
Facility and the Blockbuster Credit Agreement contain certain covenants and
events of default, including a change of control default, which will
require either a waiver in connection with the Blockbuster Merger or the
refinancing of the indebtedness incurred under such facilities prior to the
Blockbuster Merger.
Accordingly, assuming consummation of the Blockbuster Merger, the
foregoing facilities, together with other current maturities, may require
Viacom to refinance up to $5.7 billion ($4.0 billion if the Blockbuster
Merger is not consummated) within the next 7 months. No decision has been
made concerning the method Viacom/Paramount will, or the combined company
would, employ to repay such indebtedness. Such decision will be made based
on Viacom/Paramount's or the combined company's review from time to time of
the advisability of the particular actions, as well as on prevailing
interest rates and financial and other economic conditions and such other
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factors as Viacom/Paramount or the combined company, as the case may be,
may deem appropriate. Although Viacom expects that it will be able to
refinance its indebtedness and meet its obligations without the need to
sell any assets, Viacom is continuing to review opportunities for the sale
of non-strategic assets as such opportunities may arise.
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 distribution channels or create
additional competitive pressures on some or all of the combined company's
businesses.
Combining the Companies. Viacom, Paramount 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, assuming approval by the stockholders of
Blockbuster, 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 Mergers. If the Mergers are
consummated, the combined company, on a pro forma basis, will be
substantially more leveraged than any of Paramount, Viacom or Blockbuster
immediately prior to the Mergers. See "Combined Company Unaudited Pro Forma
Combined Condensed Financial Statements."
Consummation of the Blockbuster Merger. Although Viacom and
Blockbuster have entered into the Blockbuster Merger Agreement and Viacom
has the right to vote the Blockbuster Proxy Shares, representing
approximately 22.3% of the outstanding shares of Blockbuster Common Stock
as of January 7, 1994, the Blockbuster Merger remains subject to
stockholder approval. As such, there can be no assurance that the
Blockbuster Merger will be consummated. In considering the Mergers, the
Viacom Board of Directors concluded that, even without Blockbuster, the
combination of Viacom with Paramount could be financed on a reasonable
basis and would result in all of the benefits described under "Special
Factors--Reasons for the Paramount Merger; Recommendations of the Board of
Directors; Fairness of the Transaction."
AMENDMENTS TO THE RESTATED CERTIFICATE OF INCORPORATION OF VIACOM
To the extent such matters have not been previously approved by the
stockholders of Viacom, Viacom's Board of Directors is proposing to amend
Viacom's Restated Certificate of Incorporation to (i) increase the number of
shares of Viacom Class A Common Stock authorized to be issued from 100 million
to 200 million, (ii) increase the number of shares of Viacom Class B Common
Stock authorized to be issued from 150 million to one billion, (iii) increase
the number of shares of the preferred stock of Viacom authorized to be issued
from 100 million to 200 million and (iv) increase the maximum number of
directors constituting the Board of Directors of Viacom from 12 to 20. The form
of such amendment to the Viacom Restated Certificate of Incorporation is
included in the Form of Certificate of Amendment, a copy of which is attached as
Annex VII to this Proxy Statement/Prospectus.
The additional shares of Viacom Class A Common Stock, Viacom Class B Common
Stock and preferred stock of Viacom to be authorized would be available not only
to consummate the Paramount Merger, but also for possible future financing and
acquisition transactions, stock dividends or splits and other corporate
purposes. The additional shares of Viacom Class A Common Stock, Viacom Class B
Common Stock and preferred stock of Viacom would be available for issuance
without further action by the stockholders of Viacom unless such action is
required by applicable law or the rules of the AMEX, on which the issued shares
of Viacom Class A Common Stock and Viacom Class B Common Stock are
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listed. The AMEX requires stockholder approval as a prerequisite to listing
shares in certain instances, including in connection with acquisition
transactions where the present or potential issuance of shares could result in
an increase in the number of shares of common stock outstanding by 20% or more.
On March 31, 1994 there were 53,449,525 issued and outstanding shares of
Viacom Class A Common Stock and 90,078,203 issued and outstanding shares of
Viacom Class B Common Stock. As of March 31, there were 61,135,478 outstanding
shares of Paramount Common Stock not owned by Viacom. Based on this number,
56,895,733 shares of Viacom Class B Common Stock will be issued in the Paramount
Merger at the Paramount Effective Time. As of March 18, 1994, there were
249,049,687 shares of Blockbuster Common Stock outstanding. Based on this
number, 19,923,975 shares of Viacom Class A Common Stock and 150,961,468 shares
of Viacom Class B Common Stock will be issued in connection with the Blockbuster
Merger at the Blockbuster Effective Time. Accordingly, 126,626,500 shares of
Viacom Class A Common Stock and 702,064,596 shares of Viacom Class B Common
Stock will be authorized but unissued immediately following the Mergers. For
further information regarding Viacom Common Stock, see "Description of Viacom
Capital Stock" and "Capitalization."
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
AND BY-LAWS OF PARAMOUNT
Upon consummation of the Paramount Merger, the Certificate of Incorporation
and By-Laws of Paramount shall be amended in their entirety to read as the
Certificate of Incorporation and By-Laws of the Merger Subsidiary. The form of
the proposed amendment to the Certificate of Incorporation and By-Laws of
Paramount is included in the Form of Certificate of Merger for the Paramount
Merger, a copy of which is attached as Annex VI to this Proxy
Statement/Prospectus.
MANAGEMENT BEFORE AND AFTER THE MERGERS
EXECUTIVE OFFICERS AND DIRECTORS OF VIACOM
GEORGE S. ABRAMS, Director of Viacom, Viacom International and Paramount,
61. Mr. Abrams was elected a Director of Viacom and Viacom International in 1987
and of Paramount in March 1994 and is Chairman of Viacom's and Paramount's Audit
Committees and a member of Viacom's and Paramount's Compensation Committees. 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 March
1994 and was elected to his present position at Viacom and Viacom International
in July 1987 and at Paramount in March 1994. 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.
RAYMOND A. BOYCE, Senior Vice President, Corporate Relations of Viacom and
Viacom International, 58. Mr. Boyce assumed his present position in 1988. 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
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Communications and later as Vice President, Corporate Communications until The
Coca-Cola Company's acquisition of Columbia Pictures Industries, Inc. in 1982.
NEIL S. BRAUN, Senior Vice President of Viacom and Viacom International,
41. Mr. Braun assumed his present position in November 1987. Mr. Braun served as
Chairman, Chief Executive Officer of Viacom Entertainment from July 1992 to
March 1994. Prior to that, Mr. Braun served as Senior Vice President, Corporate
Development and Administration of Viacom and Viacom International from November
1987 to July 1992 and from October 1989 to July 1992, he also served as Chairman
of Viacom Pictures. Mr. Braun served as President, Chief Operating Officer of
Imagine Films Entertainment from May 1986 until he joined Viacom. From 1982
until 1986, Mr. Braun held various positions at Home Box Office including Senior
Vice President, Film Programming of HBO and Executive Vice President of HBO
Video, Inc.
VAUGHN A. CLARKE, Vice President, Treasurer of Viacom and Viacom
International, 40. Mr. Clarke assumed his present position in April 1993. 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 March 1994. He was elected to his
present positions at Viacom, Viacom International and Paramount in March 1994.
From February 1993 to March 1994, he served as Senior Vice President, General
Counsel and Secretary of Viacom and Viacom International. Prior to that, 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.
EARL H. DOPPELT, Senior Vice President, Deputy General Counsel of Viacom,
Viacom International and Paramount, 40. Mr. Doppelt was elected to his present
positions with Viacom and Viacom International in March 1994 and with Paramount
in 1992. Mr. Doppelt has served as Deputy General Counsel of Paramount since
1985. He joined Paramount in 1983 as Associate Litigation Counsel, and in 1985
was appointed Assistant Vice President and Deputy General Counsel. In 1986, he
became a Vice President of Paramount. From 1977 to 1983, Mr. Doppelt was an
attorney in private practice at the law firm of Paul, Weiss, Rifkind, Wharton &
Garrison.
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 of Paramount in March 1994 and is a member of Viacom's
and Paramount's Audit and Compensation Committees. 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
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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.
JOHN W. GODDARD, Senior Vice President of Viacom and Viacom International
and President, Chief Executive Officer of Viacom Cable, 52. Mr. Goddard was
elected Senior Vice President of Viacom in November 1987 and Senior Vice
President of Viacom International and President, Chief Executive Officer of
Viacom Cable Television in September 1983. In August 1980, Mr. Goddard was
appointed President of Viacom Cable and, in September 1980, he was elected Vice
President of Viacom International. From September 1978 through July 1980, Mr.
Goddard was Executive Vice President, Viacom Communications. From June 1971
until September 1978, Mr. Goddard was President and General Manager of Tele-Vue
Systems, a subsidiary of Viacom International.
EDWARD D. HOROWITZ, Senior Vice President, Technology of Viacom and Viacom
International and Chairman, Chief Executive Officer of New Media and Interactive
Television, 46. Mr. Horowitz became Senior Vice President 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 positions in March 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, Director of Viacom, Viacom International and Paramount,
56. Mr. Huizenga was elected a Director of Viacom and Viacom International in
1993 and of Paramount in March 1994 and is a member of Viacom's and Paramount's
Audit and Compensation Committees. Mr. Huizenga became a Director of Blockbuster
in February 1987, was elected as Chairman of the Board, Chief Executive Officer
and President of Blockbuster in April 1987 and is Chairman of Blockbuster's
Executive Committee. Mr. Huizenga served as President of Blockbuster until June
1988. He is a cofounder of Waste Management, Inc. (now WMX Technologies, Inc.),
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., 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, and has a
limited partnership interest in Miami Dolphins, Ltd., a National Football League
sports franchise, and an ownership interest in Robbie Stadium Corporation and
certain affiliated entities, which own and operate Joe Robbie Stadium in South
Florida. Mr. Huizenga has entered into an agreement to purchase the remaining
ownership interest in the Miami Dolphins. He is also a member of the Boards of
Directors of Republic Pictures and Discovery Zone. Mr. Huizenga is Chairman of
the Board of Directors of Spelling Entertainment.
KEVIN C. LAVAN, Vice President, Controller and Chief Accounting Officer of
Viacom and Viacom International, 41. 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.
HENRY J. LEINGANG, Senior Vice President, Chief Information Officer of
Viacom and Viacom International, 44. Mr. Leingang was elected to his present
position in May 1993. Prior to that, he served as Vice President, Chief
Information Officer when he joined Viacom in 1990. Mr. Leingang was Vice
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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 of
Paramount in March 1994 and is a member of Viacom's and Paramount's Audit and
Compensation Committees. Mr. Miller has been President and Chief Executive
Officer of The Lodestar Group, an investment firm, since 1988. Prior to that,
Mr. Miller 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. Mr. Miller is also a Director of Business Executives for
National Security, Inc., a national coalition of business executives concerned
with national security issues.
BRENT D. REDSTONE, Director of Viacom, Viacom International and Paramount,
43. Mr. Redstone was elected a Director of Viacom and Viacom International in
1991 and of Paramount in March 1994 and is a member of Viacom's and Paramount's
Compensation Committees. 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, 70. Mr. Redstone was elected a Director of Viacom in 1986 and of
Paramount in March 1994 and was elected to his present position at Viacom and
Viacom International in June 1987 and at Paramount in April 1994. Mr. Redstone
is Chairman of Viacom's and Paramount's Compensation Committees. 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 and Viacom International, 51. Mr. Roskin was elected to
his present position in July 1992. 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, 49. Mr. Salerno was elected a Director of Viacom and Viacom
International in 1994 and of Paramount in March 1994 and is a member of Viacom's
and Paramount's Audit and Compensation Committees. Mr. Salerno was appointed
Vice Chairman--Finance and Business Development of NYNEX on March 1, 1994. Prior
to that, Mr. Salerno was Vice Chairman of the Board of NYNEX and President of
the Worldwide Services Group since 1991 and President and Chief Executive
Officer of New York Telephone Company from 1987 to 1991. He has served as a
Director of NYNEX since 1991. Mr. Salerno is a Director of The Bear Stearns
Companies Inc.
WILLIAM SCHWARTZ, Director of Viacom, Viacom International and Paramount,
60. Mr. Schwartz was elected a Director of Viacom and Viacom International in
1987 and of Paramount in March 1994 and is a member of Viacom's and Paramount's
Audit and Compensation Committees. Mr. Schwartz
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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 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
Chairman of the Board of Directors of UST Corporation since 1993. He previously
served as Vice Chairman of UST Corporation from 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 April 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 and
Viacom International, 51. Mr. Weinstein was elected to his present position with
Viacom and Viacom International in February 1993. Prior to that, Mr. Weinstein
served as Senior Vice President, General Counsel and Secretary of Viacom and
Viacom International beginning in the fall of 1987. 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 PARAMOUNT
GEORGE S. ABRAMS, see "--Executive Officers and Directors of Viacom."
FRANK J. BIONDI, JR., see "--Executive Officers and Directors of Viacom."
PHILIPPE P. DAUMAN, see "--Executive Officers and Directors of Viacom."
MARTIN S. DAVIS, Director of Paramount, 67. He was elected a Director of
Paramount in 1967. Mr. Davis, who became a corporate officer of Paramount in
1969, served as Chairman from 1983 to April 1994 and as Chairman and Chief
Executive Officer of Paramount from 1983 to March 1994. He is a member of the
Board of Trustees of Montefiore Medical Center and is Chairman of the Board of
Trustees of the New York City Chapter of the National Multiple Sclerosis
Society. Mr. Davis is also a member of the FCC's Advisory Committee on Advanced
Television Service.
WILLIAM C. FERGUSON, see "--Executive Officers and Directors of Viacom."
IRVING R. FISCHER, Director of Paramount, 61. Mr. Fischer was elected a
Director of Paramount in 1984 and is a member of the Audit Committee. Mr.
Fischer is Chairman and Chief Executive Officer of HRH Construction Corporation.
Mr. Fischer joined HRH Construction Corporation in 1956 and assumed his present
position in 1981. Mr. Fischer is Vice Chairman of the New York City Chapter of
the National Multiple Sclerosis Society and a member of the New York City
Holocaust Memorial Commission. He is an Adjunct Professor of Urban Planning,
Columbia University.
H. WAYNE HUIZENGA, see "--Executive Officers and Directors of Viacom."
KEN MILLER, see "--Executive Officers and Directors of Viacom."
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RONALD L. NELSON, Director of Paramount, 41. Mr. Nelson was elected a
Director of Paramount in 1992. Mr. Nelson served as Executive Vice President and
Chief Financial Officer of Paramount from 1990 to March 1994 after having served
as Senior Vice President and Chief Financial Officer since 1987. From 1979 to
1987, he held various operating and financial positions with Paramount
Communications Entertainment Group and Paramount Pictures. Mr. Nelson is a
member of the New York Chapter of Financial Executives Institute and serves on
its CFO Advisory Board.
DONALD ORESMAN, Director of Paramount, 68. Mr. Oresman was elected a
Director of Paramount in 1976. Mr. Oresman served as Executive Vice President
and General Counsel of Paramount from 1983 to March 1994 and as Chief
Administrative Officer from 1987 to March 1994. Mr. Oresman practiced law with
Simpson Thacher & Bartlett, attorneys, from 1957 until he joined Paramount in
December 1983. He is a Director of North American Watch Corporation, a Trustee
of The New York Landmarks Conservancy, and a Councilor of the American
Antiquarian Society.
JAMES A. PATTISON, Director of Paramount, 65. Mr. Pattison was elected a
Director of Paramount in 1988 and is a member of Paramount's Audit Committee.
Mr. Pattison is Chairman and Chief Executive Officer of The Jim Pattison Group.
The Jim Pattison Group is a diversified company with operations in
communications, automotive services, food products, packaging and financial
services. Mr. Pattison founded the company in 1961 and has been its Chief
Executive Officer since then. In 1986, Mr. Pattison served as President and
Chairman of Expo '86, the World's Fair held in Vancouver, B.C. In 1986, he was
made an officer of the Order of Canada. He is a Director of the Toronto-Dominion
Bank and Canadian Pacific Ltd.
BRENT D. REDSTONE, see "--Executive Officers and Directors of Viacom."
SUMNER M. REDSTONE, see "--Executive Officers and Directors of Viacom."
FREDERIC V. SALERNO, see "--Executive Officers and Directors of Viacom."
WILLIAM SCHWARTZ, see "--Executive Officers and Directors of Viacom."
The names, business experience for the past five years and ages as of
, 1994 of all executive officers (who are not Directors) are
listed below:
THOMAS E. DOOLEY, see "--Executive Officers and Directors of Viacom."
EARL H. DOPPELT, see "--Executive Officers and Directors of Viacom."
MICHAEL D. FRICKLAS, see "--Executive Officers and Directors of Viacom."
ROBERT C. GREENBERG, Senior Vice President, Human Resources of Paramount,
36. Mr. Greenberg assumed his present position in 1993. Prior to that, he was a
principal with the consulting firm of Towers Perrin.
RUDOLPH L. HERTLEIN, Senior Vice President and Controller of Paramount, 53.
Mr. Hertlein assumed his present position in 1993. Prior to that, he served as
Senior Vice President, Internal Audit and Special Projects since 1992 and,
before that, as Vice President, Internal Audit and Special Projects.
LAWRENCE E. LEVINSON, Senior Vice President, Government Relations of
Paramount, 63.
JERRY SHERMAN, Senior Vice President, Corporate Communications of
Paramount, 63. Mr. Sherman assumed his present position in 1992. He served as a
consultant to Paramount from 1990 to 1992. Prior to that, he served as Vice
President, Corporate Communications of Paramount.
GEORGE S. SMITH, JR., see "--Executive Officers and Directors of Viacom."
The term of office of all directors is until the next annual meeting and
the term of office of all officers is for one year and until their successors
are chosen and qualify.
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MANAGEMENT AFTER THE MERGERS
Upon the completion of the Mergers, Sumner M. Redstone, currently the
Chairman of the Board of Viacom and Paramount, will continue as Chairman of the
Board of the combined company. Assuming consummation of the Blockbuster Merger,
H. Wayne Huizenga, currently the Chairman of the Board and Chief Executive
Officer of Blockbuster and a Director of Viacom and Paramount, will become Vice
Chairman of the combined company. Frank J. Biondi, Jr., currently President,
Chief Executive Officer and Director of Viacom and Paramount, will remain
President, Chief Executive Officer of the combined company. For a discussion of
the Board of Directors of the combined company, see "Viacom Annual
Meeting--Election of Viacom Directors."
FINANCIAL MATTERS AFTER THE MERGERS
ACCOUNTING TREATMENT
The Mergers 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
Mergers will be allocated to Paramount's assets and liabilities or Blockbuster's
assets and liabilities, as the case may be, based on their fair values with any
excess being treated as goodwill.
The assets and liabilities and results of operations of Paramount (adjusted
for minority ownership interests from the date of the purchase of the shares of
Paramount Common Stock pursuant to the Offer through the Paramount Effective
Time) were consolidated into the assets and liabilities and results of
operations of Viacom as of March 1, 1994. 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 Blockbuster
Effective Time.
COMMON STOCK DIVIDEND POLICY AFTER THE PARAMOUNT MERGER AND THE MERGERS
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
Paramount Merger and the Mergers. Future dividends will be determined by
Viacom's Board of Directors in light of Viacom's alternative opportunities for
investment and the earnings and financial condition of Viacom and its
subsidiaries, among other factors.
113
<PAGE>
CAPITALIZATION
(DOLLARS IN MILLIONS)
The following table sets forth the historical capitalization of Viacom,
Blockbuster and Paramount and the pro forma capitalization of the combined
company after giving effect to the Pro Forma Events.
<TABLE> <CAPTION>
PRO FORMA
HISTORICAL VIACOM-
--------------------------------------------------- PRO FORMA PARAMOUNT-
VIACOM BLOCKBUSTER PARAMOUNT VIACOM-PARAMOUNT BLOCKBUSTER
DECEMBER 31, DECEMBER 31, JANUARY 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1993 1993
---------------- ---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Long-term debt:
Current maturities..... $ 55.0 $ 9.1 $ 10.4 $ 65.4 $ 74.5
-------- -------- --------------- ---------------- ----------------
Due after one year:
Senior............... 1,928.3 603.5 820.2 6,180.8(bi) 8,034.3(bi,ii)
Senior subordinated.. 450.0 -- -- 450.0 450.0
Subordinated......... -- -- 180.1 1,235.0(c) 1,235.0(c)
-------- -------- --------------- ---------------- ----------------
Due after one
year..................... 2,378.3 603.5 1,000.3 7,865.8 9,719.3
-------- -------- --------------- ---------------- ----------------
Total long-term
debt, including
current
maturities............... 2,433.3 612.6 1,010.7 7,931.2 9,793.8
-------- -------- --------------- ---------------- ----------------
Stockholders' equity:
Preferred.............. 1,800.0 -- -- 1,800.0 1,200.0(d)
Common................. 918.1(a) 2,123.4 4,186.8 4,518.6(e) 9,000.6(f)
-------- -------- --------------- ---------------- ----------------
Total
stockholders'
equity................... 2,718.1 2,123.4 4,186.8 6,318.6 10,200.6
-------- -------- --------------- ---------------- ----------------
Total
capitalization........... $ 5,151.4 $ 2,736.0 $ 5,197.5 $ 14,249.8 $ 19,994.4
-------- -------- --------------- ---------------- ----------------
-------- -------- --------------- ---------------- ----------------
</TABLE>
- - - - ---------------
<TABLE>
<S> <C>
(a) On December 31, 1993, there were 53,449,325 outstanding shares of Viacom Class A Common Stock (100,000,000
shares authorized) and 67,347,131 outstanding shares of Viacom Class B Common Stock (150,000,000 shares
authorized); there were approximately 224,410 unissued shares of Viacom Class A Common Stock and 29,462,933
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 capitalization gives effect to (i) the borrowing of approximately $3.7 billion by Viacom under
the Credit Agreement and (ii) the additional borrowings incurred by Blockbuster which were used to finance the
$1.25 billion purchase of Viacom Class B Common Stock. The proceeds from the Credit Agreement and the $1.25
billion purchase of Viacom Class B Common Stock were used to finance a portion of the cash paid in the Offer
and related expenses. See "Financing of the Offer." Viacom believes, based on discussions with a number of
bank lenders and investment banking institutions and based on the pro forma financial position and results of
operations, that it will have the ability to refinance its indebtedness on a long-term basis.
(c) The pro forma debt capitalization reflects the issuance of approximately $1.1 billion of Viacom Merger
Debentures in connection with the Paramount Merger.
(d) The pro forma preferred equity capitalization reflects the assumed cancellation of $600 million of Series A
Preferred Stock upon consummation of the Blockbuster Merger. The proceeds of the sale of Viacom Preferred
Stock have been used to finance a portion of the cash paid in the Offer.
(e) 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.
(f) The pro forma common equity capitalization reflects (i) the assumed conversion of Blockbuster Common Stock
into the Blockbuster 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 Blockbuster Merger.
</TABLE>
114
<PAGE>
COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed balance sheet at
December 31, 1993 gives effect to the completion of the Offer, the Paramount
Merger and the Blockbuster Merger as if these events had occurred on such date,
and was prepared based upon the balance sheet of Viacom and unaudited pro forma
condensed consolidated balance sheets of Blockbuster at December 31, 1993, and
Paramount at January 31, 1994. Viacom's balance sheet also contains pro forma
adjustments for the sale of Viacom's one third partnership interest in LIFETIME
and the sale of Viacom Class B Common Stock to Blockbuster subsequent to
December 31, 1993 (See Note 1 herein).
The following unaudited pro forma combined condensed statement of
operations for the year ended December 31, 1993 gives effect to the completion
of the Offer, the Paramount Merger, the Blockbuster Merger, the issuance of
Viacom Preferred Stock and the sale of Viacom's one third partnership interest
in LIFETIME as if they had occurred simultaneously at the beginning of the
period presented. 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. These unaudited pro forma combined
condensed financial statements should be read in conjunction with the audited
financial statements, including the notes thereto, of Viacom and Blockbuster and
the audited financial statements and the unaudited interim financial statements,
including the notes thereto, of Paramount, 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 the combined company that would have
occurred if the completion of the Offer, the Paramount Merger and the
Blockbuster Merger 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 Viacom, Paramount and Blockbuster
believe are reasonable under the circumstances. The pro forma adjustments
reflect the Paramount Merger Consideration and the Blockbuster Merger
Consideration (see "Notes 2 and 3", respectively). The Paramount and Blockbuster
historical information have been adjusted for certain acquisitions, and certain
significant transactions which have occurred or which may occur (see Paramount
and Blockbuster Unaudited Pro Forma Condensed Consolidated Information.)
Both the Paramount Merger and the Blockbuster Merger will be accounted for
by the purchase method of accounting. Accordingly, Viacom's cost to acquire
Paramount and Blockbuster, calculated to be approximately $9.9 billion and $5.8
billion, respectively, as of March 4, 1994, 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 Paramount and Blockbuster pursuant to the
respective merger agreements is subject to change based primarily upon the
market value of Viacom Common Stock at the time of the respective mergers. 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 such an allocation, 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 $5.8 billion pro forma excess of
unallocated acquisition costs as of March 4,
115
<PAGE>
ing amortized over 40 years at a rate of $143.8 million per year. For
the Blockbuster Merger, the approximate $3.6 billion pro forma excess of
unallocated acquisition costs as of March 4, 1994 is also being amortized over
40 years at a rate of $91 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 Mergers 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 complimentary 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 Mergers
for an indeterminable period of time of at least 40 years, and, therefore, a 40
year amortization period is appropriate.
As is the case with all of Viacom's long-term assets and liabilities,
Viacom will perform periodic reviews of the goodwill arising from the Mergers to
ensure that this goodwill is carried at the lower of cost or market in light of
current business conditions.
After the consummation of the Mergers, Viacom will arrange for independent
appraisal of the significant assets, liabilities and business operations of
Paramount and 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 as described in notes 5a and 6b, increased
interest expense as described in note 5b, and increased preferred stock dividend
requirements as described in note 4d. 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 2b and 3c, and
increased common stockholders' equity resulting from the issuance of Viacom
Common Stock to stockholders of Paramount and Blockbuster.
116
<PAGE>
COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1993
(IN MILLIONS)
<TABLE> <CAPTION>
OFFER
VIACOM AND
----------------------------------- PARAMOUNT VIACOM/ BLOCKBUSTER
PRO FORMA PRO FORMA MERGER PARAMOUNT PRO FORMA MERGER COMBINED
HISTORICAL ADJUSTMENTS PRO FORMA PARAMOUNT* ADJUSTMENTS COMBINED BLOCKBUSTER** ADJUSTMENTS COMPANY
--------- ----------- ----------- ----------- ----------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash & short term
investments...... $ 1,882.4 $ 1,250.0(1a) $ 3,132.4 $ 328.7 $(3,050.0) (2b) $ 411.1 $ 95.3 $ (30.0)(3a) $ 476.4
Other current
assets........... 804.0 804.0 2,423.0 3,227.0 653.4 3,880.4
--------- ----------- ----------- ----------- ----------- ------------ ----------- --------- ---------
Total current
assets........... 2,686.4 1,250.0 3,936.4 2,751.7 (3,050.0) 3,638.1 748.7 (30.0) 4,356.8
--------- ----------- ----------- ----------- ----------- ------------ ----------- --------- ---------
Property and
equipment, net... 554.2 554.2 1,239.9 1,794.1 522.8 2,316.9
Videocassette
rental
inventory,
net............ 470.2 470.2
Intangible
assets, at
amortized
cost............. 2,180.6 2,180.6 1,976.6 5,750.1(2c) 9,907.3 856.3 3,638.6(3a) 14,402.2
Other assets..... 995.7 (49.2)(1b) 946.5 1,512.5 2,459.0 2,173.0 (1,850.0)(3b) 2,782.0
--------- ----------- ----------- ----------- ----------- ------------ ----------- --------- ---------
$ 6,416.9 $ 1,200.8 $ 7,617.7 $ 7,480.7 $ 2,700.1 $ 17,798.5 $ 4,771.0 $ 1,758.6 $24,328.1
--------- ----------- ----------- ----------- ----------- ------------ ----------- --------- ---------
--------- ----------- ----------- ----------- ----------- ------------ ----------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
liabilities...... $ 965.6 $ 965.6 $ 1,493.8 $ 2,459.4 $ 1,643.2 $(1,000.0)(3c) $3,102.6
Long-term debt... 2,378.3 $ (205.0)(1b) 2,173.3 1,000.3 $ 4,692.2(2b) 7,865.8 853.5 1,000.0(3c) 9,719.3
Other
liabilities...... 354.9 354.9 799.8 1,154.7 150.9 1,305.6
Stockholders'
equity:
Preferred...... 1,800.0 1,800.0 1,800.0 (600.0)(3b) 1,200.0
Common......... 918.1 1,405.8(1) 2,323.9 4,186.8 (1,992.1)(2) 4,518.6 2,123.4 2,358.6(3a,b) 9,000.6
--------- ----------- ----------- ----------- ----------- ------------ ----------- --------- ---------
Total
stockholders'
equity........... 2,718.1 1,405.8 4,123.9 4,186.8 (1,992.1) 6,318.6 2,123.4 1,758.6 10,200.6
--------- ----------- ----------- ----------- ----------- ------------ ----------- --------- ---------
$ 6,416.9 $ 1,200.8 $ 7,617.7 $ 7,480.7 $ 2,700.1 $ 17,798.5 $ 4,771.0 $ 1,758.6 $24,328.1
--------- ----------- ----------- ----------- ----------- ------------ ----------- --------- ---------
--------- ----------- ----------- ----------- ----------- ------------ ----------- --------- ---------
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
- - - - ---------------
* See Unaudited Pro Forma Condensed Consolidated Financial Statements of
Paramount.
** See Unaudited Pro Forma Condensed Consolidated Financial Statements of
Blockbuster.
117
<PAGE>
COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<TABLE> <CAPTION>
OFFER
VIACOM AND
----------------------------------- PARAMOUNT VIACOM/
PRO FORMA PRO FORMA MERGER PARAMOUNT PRO FORMA
VIACOM ADJUSTMENTS PRO FORMA PARAMOUNT(8)* ADJUSTMENTS COMBINED BLOCKBUSTER**
--------- ----------- ----------- ------------- ----------- ------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $2,004.9 $ 2,004.9 $ 5,024.0 $ 7,028.9 $ 2,595.2
Expenses
Operating............. 877.6 877.6 3,315.7 4,193.3 1,947.6
Selling, general and
administrative......... 589.2 589.2 1,243.7 1,832.9 212.0
Depreciation and
amortization........... 153.1 153.1 162.5 $ 143.8(5a) 459.4
--------- ----------- ----------- ------------- ----------- -------- -----------
Total expenses...... 1,619.9 1,619.9 4,721.9 143.8 6,485.6 2,159.6
--------- ----------- ----------- ------------- ----------- -------- -----------
Earnings from
operations............. 385.0 385.0 302.1 (143.8) 543.3 435.6
Interest expense...... (145.0) $ 8.9(4a) (136.1) (94.3) (249.3)(5b) (479.7) (98.7)
Interest and other
investment income...... 43.5 43.5 7.2
Other items, net(7)... 61.8 61.8 (7.4) 54.4 16.3
--------- ----------- ----------- ------------- ----------- -------- -----------
Total other income
(expense).............. (83.2) 8.9 (74.3) (58.2) (249.3) (381.8) (75.2)
--------- ----------- ----------- ------------- ----------- -------- -----------
Earnings before income
taxes.................. 301.8 8.9 310.7 243.9 (393.1) 161.5 360.4
Provision for income
taxes.................. 129.8 3.1(4b) 132.9 88.5 (88.1)(5c) 133.3 135.3
Equity in loss of
affiliated companies,
net of tax............. (2.5) (12.9)(4c) (15.4) (15.4)
--------- ----------- ----------- ------------- ----------- -------- -----------
Earnings before
extraordinary item,
cumulative effect of
change in accounting
principle and
preferred stock
dividend
requirements........... 169.5 (7.1) 162.4 155.4 (305.0) 12.8 225.1
Preferred stock
dividend
requirements........... 12.8 $ 77.2(4d) 90.0 90.0
--------- ----------- ----------- ------------- ----------- -------- -----------
Earnings (loss)
attributable to common
stock before
extraordinary item and
cumulative effect of
change in accounting
principle.............. $ 156.7 $ (84.3) $ 72.4 $ 155.4 $ (305.0) $ (77.2) $ 225.1
--------- ----------- ----------- ------------- ----------- -------- -----------
--------- ----------- ----------- ------------- ----------- -------- -----------
Weighted average number
of common shares or
common shares and
common share
equivalents............ 120.6 22.7 56.1 199.4
Primary earnings per
common share before
extraordinary item and
cumulative effect of
change in accounting
principle.............. $ 1.30 $ (0.39)
Ratio of Earnings to
Fixed Charges......... 2.8x 1.3x
<CAPTION>
BLOCKBUSTER
MERGER COMBINED
ADJUSTMENTS COMPANY
----------- -----------
Revenues............... $ 9,624.1
Expenses
Operating............. $ (410.7)(6a) 5,730.2
Selling, general and
administrative......... 2,044.9
Depreciation and
amortization........... 91.0(6b) 961.1
410.7(6a)
----------- -----------
Total expenses...... 91.0 8,736.2
----------- -----------
Earnings from
operations............. (91.0) 887.9
Interest expense...... (578.4)
Interest and other
investment income...... 50.7
Other items, net(7)... (30.0)(6c) 40.7
----------- -----------
Total other income
(expense).............. (30.0) (487.0)
----------- -----------
Earnings before income
taxes.................. (121.0) 400.9
Provision for income
taxes.................. (11.6)(6d) 257.0
Equity in loss of
affiliated companies,
net of tax............. (15.4)
----------- -----------
Earnings before
extraordinary item,
cumulative effect of
change in accounting
principle and
preferred stock
dividend
requirements........... (109.4) 128.5
Preferred stock
dividend
requirements........... (30.0)(6c) 60.0
----------- -----------
Earnings (loss)
attributable to common
stock before
extraordinary item and
cumulative effect of
change in accounting
principle.............. $ (79.4) $ 68.5
----------- -----------
----------- -----------
Weighted average number
of common shares or
common shares and
common share
equivalents............ 209.9 409.3(9)
Primary earnings per
common share before
extraordinary item and
cumulative effect of
change in accounting
principle.............. $ 0.17
Ratio of Earnings to
Fixed Charges......... 1.5x
<CAPTION>
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
- - - - ---------------
* See Unaudited Pro Forma Condensed Consolidated Financial Statements of
Paramount.
** See Unaudited Pro Forma Condensed Consolidated Financial Statements of
Blockbuster.
118
<PAGE>
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(1) Pro forma adjustments made to Viacom's historical balance sheet reflect
the following:
(a) The sale of Viacom Class B Common Stock to Blockbuster for $1.25
billion.
(b) The sale of Viacom's one-third partnership interest in LIFETIME.
(c)The repayment of bank debt from the after-tax proceeds from the sale of
the one-third partnership interest in LIFETIME.
(2) 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 will be converted into the
right to receive the Paramount Merger Consideration. As of March 4, 1994, the
closing price of shares of Viacom Class B Common Stock on the AMEX was $27. As
of March 30, 1994 there were 122.8 million shares of Paramount Common Stock
outstanding.
(a) Total acquisition costs:
<TABLE>
<S> <C>
Cash.................................................................. $ 6,597.3
Viacom Merger Debentures.............................................. 1,054.9
Viacom Class B Common Stock........................................... 1,514.7
CVRs.................................................................. 538.6
Viacom Three-Year Warrants............................................ 52.8
Viacom Five-Year Warrants............................................. 59.1
Paramount Merger costs................................................ 90.0
----------
Acquisition costs financed............................................ 9,907.4
Excess value of exchange ratio over exercise price of Paramount
employee stock options................................................ 29.5
----------
Total acquisition costs............................................... $ 9,936.9
----------
----------
</TABLE>
(b) Financing of the Offer and the Paramount Merger:
<TABLE>
<S> <C>
Cash.................................................................. $ 3,050.0
Credit Agreement...................................................... 3,637.3
Viacom Merger Debentures.............................................. 1,054.9
Viacom Class B Common Stock........................................... 1,514.7
CVRs.................................................................. 538.6
Viacom Three-Year Warrants............................................ 52.8
Viacom Five-Year Warrants............................................. 59.1
----------
Total financing of the Offer and the Paramount Merger................. $ 9,907.4
----------
----------
</TABLE>
(c) The unallocated excess of acquisition costs over the net assets
acquired:
<TABLE>
<S> <C>
Total acquisition costs............................................... $9,936.9
Paramount pro forma net assets as of January 31, 1994................. 4,186.8
----------
Excess of acquisition costs over net assets acquired.................. $ 5,750.1
----------
----------
</TABLE>
119
<PAGE>
(3) The cost to acquire Blockbuster pursuant to the Blockbuster 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 Blockbuster Merger, holders of shares of Blockbuster Common Stock will be
entitled to receive the Blockbuster Merger Consideration for each of such
holder's shares. As of March 4, 1994, the closing price of shares of Viacom
Class A Common Stock and Viacom Class B Common Stock on the AMEX was $31 7/8 and
$27, respectively. As of December 31, 1993, there were 247.5 million shares of
Blockbuster Common Stock outstanding.
(a) Total acquisition costs and financing:
<TABLE>
<S> <C>
Viacom Class A Common Stock........................................... $ 631.1
Viacom Class B Common Stock........................................... 4,050.4
VCRs.................................................................. 924.1
----------
Acquisition costs financed............................................ 5,605.6
Excess value of exchange ratio over exercise price of Blockbuster
stock options and warrants............................................ 126.4
Blockbuster Merger costs.............................................. 30.0
----------
Total acquisition costs............................................... 5,762.0
Blockbuster pro forma net assets as of December 31, 1993.............. 2,123.4
----------
Excess of acquisition costs over net assets acquired.................. $ 3,638.6
----------
----------
</TABLE>
(b) Eliminates Blockbuster's $600 million investment in Series A Preferred
Stock and $1.25 billion investment in Viacom Class B Common Stock.
(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 based on the pro forma financial position and results
of operations, that it will have the ability to refinance its
indebtedness on a long-term basis.
(4) Pro forma adjustments made to Viacom's historical results reflect the
following:
(a) A decrease in interest expense of $8.9 million for the year ended
December 31, 1993 resulting from the repayment of bank debt of
approximately $205 million.
(b) Pro forma income tax adjustments reflect the income tax effects
calculated at the statutory tax rate in effect during the period
presented.
(c) Eliminates Viacom's equity in earnings, net of tax, of LIFETIME for the
year ended December 31, 1993.
(d) 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:
(a) An increase in amortization expense of $143.8 million for the year
ended December 31, 1993 resulting from an increase in intangibles of
approximately $5.8 billion amortized over 40 years.
(b) Reflects an increase in interest expense of $241.4 million for the year
ended December 31, 1993 resulting from additional debt financing of
approximately $3.6 billion under the Credit Agreement, the issuance of
Viacom Merger Debentures and a decrease of interest income of $7.9
million resulting from the use of cash to finance the Offer. The
assumed interest rate on
120
<PAGE>
the debt financing under the Credit Agreement of 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.
(c) 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.
(d) Intercompany transactions were immaterial in each of the statements
presented.
(6) Other pro forma adjustments related to the Blockbuster Merger reflect
the following:
(a) Reclassification of the historical presentation of depreciation and
amortization of $410.7 million for the year ended December 31, 1993 to
conform the presentations of Viacom and Blockbuster financial
statements.
(b) An increase in amortization expense of $91 million for the year ended
December 31, 1993, resulting from an increase in intangible assets of
approximately $3.6 billion amortized over 40 years.
(c) Eliminates the 5% cumulative annual dividend on the $600 million
intercompany Series A Preferred Stock investment by Blockbuster in the
amount of $30.0 million for the year ended December 31, 1993.
(d) Reflects the income tax effects of certain pro forma adjustments
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) Intercompany transactions were immaterial in each of the statements
presented.
(7) 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.
(8) 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.
(9) 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 Blockbuster 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 Viacom/Paramount earnings
per common share and therefore are not included in the calculation of
Viacom/Paramount primary earnings per common share. 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.
121
<PAGE>
PARAMOUNT, MACMILLAN AND OTHER BUSINESSES ACQUIRED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma Paramount condensed consolidated statement of
operations and balance sheet for the twelve months ended or at January 31, 1994
give effect, on a purchase accounting basis, to the acquisition of Macmillan.
The unaudited pro forma condensed consolidated statement of operations 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
and balance sheet for the twelve months ended or at January 31, 1994 include the
unaudited historical consolidated statement of operations and balance sheet
information of Paramount for the twelve months ended or at January 31, 1994 and
of Macmillan for the twelve months ended or at December 31, 1993. The unaudited
pro forma condensed consolidated statement of operations 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 financial statements
are not necessarily indicative of the results or financial position which
actually would have occurred if the acquisitions had been in effect since
February 1, 1993, nor are they necessarily indicative of future results or
financial position.
Adjustments have been made to reflect the acquisitions, on a purchase accounting
basis, as if such transactions had taken place on January 31, 1994, for the
purpose of presenting the unaudited pro forma Paramount condensed consolidated
balance sheet, and February 1, 1993, for the purpose of presenting the unaudited
pro forma Paramount condensed consolidated statement of operations.
122
<PAGE>
PARAMOUNT AND MACMILLAN
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT JANUARY 31, 1994
(IN MILLIONS)
<TABLE> <CAPTION>
MACMILLAN
ACQUISITION
AND PRO FORMA
PARAMOUNT ADJUSTMENTS(1) PRO FORMA
----------- ------------- -----------
<S> <C> <C> <C>
ASSETS
Current assets............................................................ $ 3,181.1 $ (429.4) $ 2,751.7
Property and equipment, net............................................... 1,209.3 30.6 1,239.9
Intangible assets, at amortized cost...................................... 1,567.9 408.7 1,976.6
Other assets.............................................................. 1,458.5 54.0 1,512.5
----------- ------------- -----------
$ 7,416.8 $ 63.9 $ 7,480.7
----------- ------------- -----------
----------- ------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities....................................................... $ 1,429.9 $ 63.9 $ 1,493.8
Long-term debt............................................................ 1,000.3 1,000.3
Other liabilities......................................................... 799.8 799.8
Stockholders' equity:
Common.................................................................. 4,186.8 4,186.8
----------- -----------
Total stockholders' equity............................................ 4,186.8 4,186.8
----------- ------------- -----------
$ 7,416.8 $ 63.9 $ 7,480.7
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
123
<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(2) 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 13.7 2.1 162.5
---------------- -------------- -------------- ------- ----------
Total expenses......................... 3,459.0 966.3 273.2 23.4 4,721.9
---------------- -------------- -------------- ------- ----------
Earnings (loss) from operations............... 298.0 (11.9) 14.5 1.5 302.1
---------------- -------------- -------------- ------- ----------
Other income (expense):
Interest expense............................ (70.6) (23.7) (94.3)
Interest and other investment
income................................... 53.1 22.2 (26.8) (5.0) 43.5
Other items, net............................ (2.7) (2.2) (2.6) 0.1 (7.4)
---------------- -------------- -------------- ------- ----------
Total other expense.................... (20.2) (3.7) (29.4) (4.9) (58.2)
---------------- -------------- -------------- ------- ----------
Earnings (loss) before income taxes........... 277.8 (15.6) (14.9) (3.4) 243.9
Provision (benefit) for income taxes.......... 97.2 (6.4) (1.6) (0.7) 88.5
---------------- -------------- -------------- ------- ----------
Net earnings (loss)........................... $ 180.6 $ (9.2) $ (13.3) $ (2.7) $ 155.4
---------------- -------------- -------------- ------- ----------
---------------- -------------- -------------- ------- ----------
Weighted average number of
common shares............................... 120.3 118.8 119.9
Net earnings (loss) per common
share....................................... $ 1.50 $ (0.08) $ 1.30
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
124
<PAGE>
PARAMOUNT, MACMILLAN AND OTHER BUSINESSES ACQUIRED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(1) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED PARAMOUNT BALANCE SHEET--JANUARY
31, 1994
Use of cash and cash equivalents and short-term investments for the purchase
price for the Macmillan Acquisition of $552.8 million.
Estimated excess purchase price of the Macmillan Acquisition of $408.7 million
over the net assets acquired. Pending a further study of the estimated fair
values of the assets and liabilities, any excess cost over the estimated value
of the net assets acquired has been included in intangible assets.
(2) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED PARAMOUNT STATEMENT OF
OPERATIONS--
TWELVE MONTHS ENDED JANUARY 31, 1994
The Macmillan Acquisition includes the following pro forma adjustments:
Estimated amortization of intangible assets of $10.2 million over a 40 year
life.
Estimated reduction of interest income of $26.8 million at Paramount's average
interest rates in effect during the twelve-month period, due to the use of cash
and cash equivalents and short-term investments for the acquisition.
Estimated income tax benefit of $(1.6) million, based upon pro forma
adjustments, along with an adjustment to provide for Macmillan Federal income
taxes at the statutory rate.
Other Businesses Acquired include the following pro forma adjustments:
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.
125
<PAGE>
BLOCKBUSTER, SUPER CLUB AND
SPELLING ENTERTAINMENT
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The historical financial statements of Blockbuster include the financial
position and results of operations of WJB, with which Blockbuster consolidated
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 balance sheet
presents the pro forma financial position of Blockbuster as of December 31,
1993. The balance sheet contains pro forma adjustments for certain significant
transactions which occurred in 1994, in connection with the Offer and the
Paramount Merger. These transactions include a $1.25 billion investment in
Viacom and additional borrowings of $1.25 billion and are reflected in the
balance sheet as if these transactions had been completed as of December 31,
1993. Spelling Entertainment and Super Club are included in Blockbuster's
historical balance sheet at December 31, 1993.
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 following 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.
The following unaudited pro forma condensed consolidated statement of operations
do not give effect to the estimated cost savings to be realized from the
consolidation of certain Super Club, operational and administrative functions,
including the elimination of duplicate facilities and personnel, and management
fees previously charged by related affiliates. These unaudited pro forma
condensed consolidated financial statements should be read in conjunction with
the respective historical financial statements and notes thereto of Blockbuster,
Super Club and Spelling Entertainment.
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 financial statements were
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
statements reflect 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 had taken place on the assumed dates, nor are they indicative of
the results of future combined operations. If either the Paramount Merger or the
Blockbuster Merger were not to occur, certain pro forma adjustments included in
these unaudited pro forma condensed consolidated financial statements would
change significantly.
126
<PAGE>
BLOCKBUSTER
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE> <CAPTION>
PRO FORMA
ADJUSTMENTS
----------------------------
BLOCKBUSTER DEBIT CREDIT PRO FORMA
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents................. $ 95,254 $ 95,254
Accounts receivable, less allowance....... 135,172 135,172
Merchandise inventories................... 350,763 350,763
Film costs and program rights, net........ 117,324 117,324
Other..................................... 50,210 50,210
------------- ------------- ------------- -------------
Total Current Assets................. 748,723 748,723
Videocassette rental inventory, net......... 470,223 470,223
Property and equipment, net................. 522,745 522,745
Intangible assets, net...................... 856,318 856,318
Investment in Viacom........................ 600,000 $ 1,250,000(a) 1,850,000
Other assets................................ 322,958 322,958
------------- ------------- ------------- -------------
$ 3,520,967 $ 1,250,000 $ 4,770,967
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Current Liabilities:
Current portion of long-term debt......... $ 9,083 $ 1,000,000(b) $ 1,009,083
Accounts payable.......................... 369,815 369,815
Accrued liabilities....................... 177,695 177,695
Accrued participation expenses............ 43,013 43,013
Income taxes payable...................... 43,632 43,632
------------- ------------- ------------- -------------
Total Current Liabilities............ 643,238 1,000,000 1,643,238
Long-term debt.............................. 603,496 250,000(b) 853,496
Other liabilities........................... 59,999 59,999
Minority interest in subsidiaries........... 90,834 90,834
Shareholders' Equity:
Common stock.............................. 24,738 24,738
Capital in excess of par value............ 1,564,685 1,564,685
Cumulative foreign currency translation
adjustment.................................. (38,143) (38,143)
Retained earnings......................... 572,120 572,120
------------- ------------- ------------- -------------
Total Shareholders' Equity........... 2,123,400 2,123,400
------------- ------------- ------------- -------------
$ 3,520,967 $ 1,250,000 $ 4,770,967
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of this statement.
127
<PAGE>
BLOCKBUSTER, SUPER CLUB AND SPELLING ENTERTAINMENT
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE> <CAPTION>
SUPER CLUB SPELLING PRO FORMA
ELEVEN MONTHS ENTERTAINMENT ADJUSTMENTS
ENDED THREE MONTHS -------------------- PRO
BLOCKBUSTER 11/20/93 ENDED 3/31/93 COMBINED DEBIT CREDIT FORMA
---------- ------------- ------------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Rental revenue...................... $1,285,412 $ 58,702 $1,344,114 $1,344,114
Product sales....................... 658,097 254,544 912,641 912,641
Other revenue....................... 283,494 3,441 $ 51,509 338,444 338,444
---------- ------------- ------------- ---------- --------- --------- ----------
2,227,003 316,687 51,509 2,595,199 2,595,199
Operating Costs and Expenses:
Cost of product sales............... 430,171 185,760 615,931 615,931
Operating expenses.................. 1,195,483 119,317 38,049 1,352,849 $ 21,254(d-h) 1,331,595
Selling, general and
administrative........................ 178,322 26,029 7,737 212,088 212,088
---------- ------------- ------------- ---------- --------- --------- ----------
Operating income (loss)............... 423,027 (14,419) 5,723 414,331 21,254 435,585
Interest expense...................... (33,773) (2,612) (2,437) (38,822) $ 60,381(j) 551(i) (98,652)
Interest income....................... 6,818 179 210 7,207 7,207
Other income (expense), net........... (6,238) 81 (883) (7,040) 914(c) 24,250(k) 16,296
---------- ------------- ------------- ---------- --------- --------- ----------
Income (loss) before taxes............ 389,834 (16,771) 2,613 375,676 61,295 46,055 360,436
Provision for income taxes............ 146,188 87 1,674 147,949 12,677(l) 135,272
---------- ------------- ------------- ---------- --------- --------- ----------
Income (loss) from continuing
operations............................ $ 243,646 $ (16,858) $ 939 $ 227,727 $ 61,295 $ 58,732 $ 225,164
---------- ------------- ------------- ---------- --------- --------- ----------
---------- ------------- ------------- ---------- --------- --------- ----------
Weighted average common and common
equivalent shares outstanding......... 220,195 242,766
---------- ----------
---------- ----------
Income from continuing operations per
common and common equivalent
share................................. $ 1.11 $ 0.93
---------- ----------
---------- ----------
Weighted average common and common
equivalent shares outstanding--
assuming full dilution................ 221,476 244,047
---------- ----------
---------- ----------
Income from continuing operations per
common and common equivalent
share--assuming full dilution......... $ 1.10 $ 0.92
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
128
<PAGE>
BLOCKBUSTER, SUPER CLUB AND
SPELLING ENTERTAINMENT
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
(a) Represents Blockbuster's $1.25 billion investment in Viacom.
(b) Represents additional debt incurred by Blockbuster which was used to fund Blockbuster's investment in Viacom.
(c) Represents the recording of the minority interest resulting from Blockbuster's purchase of the majority of
the outstanding common stock of Spelling Entertainment.
(d) 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.
(e) Represents a reduction to videocassette rental inventory 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.
(f) 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.
(g) 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.
(h) 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.
(i) Represents the reduction in interest expense resulting from the revaluation of outstanding indebtedness of
Spelling Entertainment by Blockbuster at current interest rates.
(j) Represents additional interest expense resulting from Blockbuster's additional borrowings used to fund its
investment in Viacom.
(k) Represents dividend income related to a portion of Blockbuster's investment in Viacom.
(l) Represents the incremental change in the combined entity's provision for income taxes as a result of the
pretax earnings of Super Club and Spelling Entertainment and all pro forma adjustments as described above.
</TABLE>
129
<PAGE>
DESCRIPTION OF VIACOM CAPITAL STOCK
The authorized capital stock of Viacom consists of 100 million shares of
Viacom Class A Common Stock, 150 million shares of Viacom Class B Common Stock
and 100 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, the Certificate of
Designations for the Series A Preferred Stock, the Certificate of Designations
for the Series B Preferred Stock, the VCR Certificate, the Form of Certificate
of Designations for the Series C Preferred Stock, the CVR Agreement (as
described below), and the Viacom Warrant Agreements (as described below).
The following descriptions of the Viacom Common Stock, CVRs and Viacom
Warrants should be read carefully by Paramount stockholders since the Paramount
Merger Consideration includes such securities.
VIACOM CLASS A COMMON STOCK
As of the record date of the Viacom Special Meeting, there were
[ ] 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 the record date of the Viacom Special Meeting,
there were [ ] 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.
The following evidence the right to receive Viacom Class B Common Stock:
_____Variable Common Rights.
Number. As part of the Blockbuster Merger Consideration, each share of
Blockbuster Common Stock issued and outstanding at the Blockbuster Effective
Time, and shares of Blockbuster Common Stock subject to outstanding employee
stock options and warrants (but excluding 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, among other things, into the right to receive
up to an additional 0.13829 of a share of Viacom Class B Common Stock; such
right is evidenced by one VCR.
Trading/Listing. The VCRs will be certificated and trade separately from
Viacom Common Stock. On , 1994, Viacom filed an application to
cause the shares of Viacom Common Stock and the VCRs to be issued in connection
with the Blockbuster Merger to be approved for listing on the AMEX, and on
, 1994, Viacom received approval for listing, subject to official
notice of issuance. [The VCRs will be traded on the AMEX under the symbol
"VIAV".]
Maturity/Valuation Period. The VCRs mature on the first anniversary of the
Blockbuster Effective Time (the "VCR Conversion Date"). In the 90 (qualified)
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 any 30
consecutive trading days in the VCR Valuation Period which yield the highest
such average closing price.
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<PAGE>
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, 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
- - - - --------------------------------------------------- -----------------------------------------
(EXPRESSED AS A FRACTION OF ONE SHARE OF
VIACOM CLASS B COMMON STOCK)
<S> <C> <C>
$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 Blockbuster 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
Blockbuster 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 any
distribution or dividend paid in Viacom Class B Common Stock and any
combination, split or reclassification 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 Blockbuster 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
Blockbuster 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 Blockbuster 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 Blockbuster 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 shall trade in Viacom Class B Common Stock during the period from the
Blockbuster Effective Time until the VCR Conversion Date, except for benefit
plan purposes.
CONTINGENT VALUE RIGHTS
GENERAL. The CVRs will be issued under the CVR Agreement dated
[ ] (the "CVR Agreement") between Viacom and [ ], as
Trustee (the "CVR Trustee"), a form of which is filed as an exhibit to the
Registration Statement of which this Proxy Statement/Prospectus is a part. The
following summaries of certain provisions of the CVR Agreement do not purport to
be complete, and where reference is made to particular provisions of the CVR
Agreement, such provisions, including the definitions of certain terms, are
incorporated by reference as a part of such summaries or terms, which are
qualified in their entirety by such reference. References to sections in the
following summaries are
131
<PAGE>
references to sections of the CVR Agreement. The definitions of certain
capitalized terms used in the following summary are set forth below under
"Certain Definitions."
PAYMENT AT MATURITY DATE, FIRST EXTENDED MATURITY DATE OR SECOND EXTENDED
MATURITY DATE. The CVR Agreement provides that, subject to adjustment as
described under "Antidilution" below, Viacom shall pay to each holder of the
CVRs (each such person, a "CVR Holder") on the Maturity Date, unless Viacom
shall, in its sole discretion, extend the Maturity Date to the First Extended
Maturity Date, then on the First Extended Maturity Date, unless Viacom shall, in
its sole discretion, extend the First Maturity Date to the Second Extended
Maturity Date, then on the Second Extended Maturity Date, for each CVR held by
such CVR Holder an amount, if any, as determined by Viacom, by which the Target
Price (as defined below) exceeds the greater of the Current Market Value and the
Minimum Price (each as defined below). Such determination by Viacom absent
manifest error shall be final and binding on Viacom and the CVR Holders.
(Section 301(c)).
Such amount, if any, shall be payable by Viacom, at Viacom's sole
discretion, either (i) in such coin or currency of the United States of America
as at the time is legal tender for the payment of public and private debts;
provided, however, Viacom may pay such amounts by its check payable in such
money or (ii) by delivering the equivalent fair market value (as determined by
an Independent Financial Expert) of securities of Viacom, including, without
limitation, common stock, preferred stock, notes or other securities. Such
securities shall be offered pursuant to registration under the Securities Act or
under an exemption thereof and the type and the terms of such securities shall
be at Viacom's sole discretion. has been appointed as
paying agent in the Borough of Manhattan, The City of New York. (Section 307)
Viacom may at its option extend the Maturity Date to the First Extended
Maturity Date and extend the First Extended Maturity Date to the Second Extended
Maturity Date. Such options shall be exercised by (i) publishing notice of an
extension in the Authorized Newspaper and (ii) furnishing notice to the CVR
Holders of such extension, in each case, not less than one business day
preceding the Maturity Date or the First Extended Maturity Date, as the case may
be; provided, however, that no defect in any such notice shall affect the
validity of the extension of the Maturity Date to the First Extended Maturity
Date or the extension of the First Extended Maturity Date to the Second Extended
Maturity Date, and that any notice when published and mailed to a CVR Holder in
the aforesaid manner shall be conclusively deemed to have been received by such
CVR Holder whether or not actually received by such CVR Holder. (Section 301(d))
The CVRs are unsecured obligations of Viacom and will rank equally with all
other unsecured indebtedness of Viacom.
PAYMENT UPON THE OCCURRENCE OF A DISPOSITION. Upon the consummation of a
Disposition (as defined below), Viacom shall pay (in cash or securities of
Viacom) to each CVR Holder for each CVR held by such CVR Holder an amount, if
any, as determined by Viacom, by which the Discounted Target Price exceeds the
greater of (i) the fair market value as determined by an Independent Financial
Expert, of the consideration, if any, received for each share of Viacom Class B
Common Stock by the holder thereof as a result of such Disposition and assuming
that such holder did not exercise any right of appraisal granted under law with
respect to such Disposition and (ii) the Minimum Price. Such determinations by
Viacom and such Independent Financial Expert absent manifest error shall be
final and binding on Viacom and the CVR Holders. Such payment, if any, shall be
made on the Disposition Payment Date established by Viacom, which in no event
shall be more than 30 days after the date on which the Disposition was
consummated. (Section 301(e)) As soon as practicable, Viacom shall give CVR
Holders notice of such Disposition and the Disposition Payment Date. (Section
301(f))
DETERMINATION THAT NO AMOUNT IS PAYABLE WITH RESPECT TO THE CVRS. If the
average trading value of a share of Viacom Class B Common Stock equals or
exceeds $48 on the Maturity Date or $51 on the First Extended Maturity Date (if
the Maturity Date is extended by Viacom to the First Extended Maturity Date) or
$55 on the Second Extended Maturity Date (if the First Extended Maturity Date is
extended by Viacom to the Second Extended Maturity Date), as the case may be, no
amount will be
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payable with respect to the CVRs. Certain corporate reorganizations, in which
consideration paid to holders of shares of Viacom Class B Common Stock exceeds
minimum amounts may also result in no value being payable with respect to the
CVRs.
In the event that Viacom determines that no amount is payable with respect
to the CVRs to the CVR Holders on the Maturity Date, the First Extended Maturity
Date, the Second Extended Maturity Date or the Disposition Payment Date, as the
case may be, Viacom shall give to the CVR Holders notice of such determination.
Upon making such determination and absent manifest error, the CVRs shall
terminate and become null and void and the CVR Holders shall have no further
rights with respect thereto. The failure to give such notice or any defect
therein shall not affect the validity of such determination. (Section 301(j))
NO INTEREST. Notwithstanding any provision of the CVR Agreement or of the
CVRs to the contrary, other than in the case of interest on the Default Amount,
no interest shall accrue on any amounts payable on the CVRs to the CVR Holders.
(Section 301(i))
EVENTS OF DEFAULT. If an Event of Default occurs and is continuing, either
the CVR Trustee or CVR Holders of not less than 25% of the outstanding CVRs, by
notice in writing to Viacom (and to the CVR Trustee if given by CVR Holders),
may declare the CVRs to be due and payable immediately, and upon any such
declaration, Viacom shall pay to the CVR Holders (in cash or securities of
Viacom, at Viacom's option) for each CVR held by the CVR Holders, the Default
Amount with interest at the Default Interest Rate, from the Default Payment Date
through the date payment is made to the CVR Trustee. (Section 801)
If, at any time after the CVRs shall have been so declared due and payable,
and before any judgment or decree for the payment of the amounts due shall have
been obtained or entered, Viacom shall pay or shall deposit with the CVR Trustee
a sum sufficient to pay all amounts which shall have become due otherwise than
by acceleration (with interest upon such overdue amount at the Default Interest
Rate to the date of such payment or deposit) and such amount as shall be
sufficient to cover reasonable compensation to the CVR Trustee, its agents,
attorneys and counsel, and all other expenses and liabilities incurred and all
advances made by the CVR Trustee except as a result of negligence or bad faith,
and if any and all Events of Default, other than the nonpayment of the amounts
which shall have become due by acceleration, shall have been cured, waived or
otherwise remedied, then the CVR Holders holding a majority of all the CVRs then
Outstanding, by written notice to Viacom and to the CVR Trustee, may waive all
defaults with respect to the CVRs and rescind and annul such declaration and its
consequences, but no such waiver or rescission and annulment shall extend to or
shall affect any subsequent default or shall impair any right consequent
thereof. (Section 801)
CERTAIN PURCHASES AND SALES. Viacom and NAI will not, and Viacom will not
permit any of its subsidiaries or controlled affiliates (including Paramount)
to, purchase any shares of Viacom Class B Common Stock on the open market, in
private transactions or otherwise, if at the time of such purchase Current
Market Value is being determined.
ANTIDILUTION. In the event Viacom shall in any manner subdivide (by stock
split, stock dividend or otherwise) or combine (by reverse stock split or
otherwise) the number of outstanding shares of Viacom Class B Common Stock,
Viacom shall similarly subdivide or combine the CVRs and shall appropriately
adjust the Discounted Target Price, the Target Price and the Minimum Price.
Whenever such an adjustment is made, Viacom shall (i) promptly prepare a
certificate setting forth such adjustment and a brief statement of the facts
accounting for such adjustment, (ii) promptly file with the CVR Trustee a copy
of such certificate and (iii) mail a brief summary thereof to each CVR Holder.
The CVR Trustee shall be fully protected in relying on any such certificate and
on any adjustment therein contained. Such adjustment absent manifest error shall
be final and binding on Viacom and the CVR Holders. Each outstanding CVR shall
thenceforth represent that number of adjusted CVRs necessary to reflect such
subdivision or combinations, and reflect the adjusted Discounted Target Price,
Target Price and Minimum Price. (Section 301(k))
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CERTAIN DEFINITIONS.
"Authorized Newspaper" means The Wall Street Journal (Eastern Edition), or
if The Wall Street Journal (Eastern Edition) shall cease to be published, or, if
the publication or general circulation of The Wall Street Journal (Eastern
Edition) shall be suspended for whatever reason, such other English language
newspaper as is selected by Viacom with general circulation in The City of New
York, New York.
"Current Market Value" means (i) with respect to the Maturity Date and the
First Extended Maturity Date, the median of the averages of the closing prices
on the AMEX (or such other exchange on which such shares are then listed) of
shares of Viacom Class B Common Stock during each 20 consecutive trading day
period that both begins and ends in the Valuation Period and (ii) with respect
to the Second Extended Maturity Date, the average of the closing prices on the
AMEX (or such other exchange on which such shares are then listed) of the Viacom
Class B Common Stock during the 20 consecutive trading days in the Valuation
Period which yield the highest such average of the closing prices for any such
period within the Valuation Period.
"Default Amount" means the amount, if any, by which the Discounted Target
Price exceeds the Minimum Price.
"Default Interest Rate" means 8% per annum.
"Default Payment Date" means the date upon which the CVRs become due and
payable pursuant to Section 801.
"Discounted Target Price" means (i) if a Disposition or an Event of Default
shall occur prior to the Maturity Date, $48.00, discounted to the Disposition
Payment Date or the Default Payment Date, as the case may be, at the Default
Interest Rate; (ii) if a Disposition or an Event of Default shall occur after
the Maturity Date but prior to the First Extended Maturity Date, $51.00,
discounted to the Disposition Payment Date or Default Payment Date, as the case
may be, at the Default Interest Rate; or (iii) if a Disposition or an Event of
Default shall occur after the First Extended Maturity Date but prior to the
Second Extended Maturity Date, $55.00, discounted to the Disposition Payment
Date or Default Payment Date, as the case may be, at the Default Interest Rate.
In each case, upon each occurrence of an event specified under "Antidilution"
above, such amounts, as they may have been previously adjusted, shall be
adjusted as described under "Antidilution" above.
"Disposition" means (i) a merger, consolidation or other business
combination involving Viacom as a result of which no shares of Viacom Class B
Common Stock shall remain outstanding, (ii) a sale, transfer or other
disposition, in one or a series of transactions, of all or substantially all of
the assets of Viacom or (iii) a reclassification of Viacom Class B Common Stock
as any other capital stock of Viacom or any other Person; provided, however,
that a "Disposition" shall not mean, or occur upon, a merger of Viacom and any
wholly owned subsidiary of Viacom.
"Disposition Payment Date" means the date established by Viacom, which in
no event shall be more than 30 days after the date on which the disposition was
consummated, upon which Viacom shall pay in the manner provided in Section 307
of the CVR Agreement to each CVR Holder for each CVR held by such CVR Holder an
amount, if any, as determined by Viacom.
"Event of Default", with respect to the CVRs, means each of the following
which shall have occurred and be continuing: (a) default in the payment of all
or any part of the amounts payable in respect of any of the CVRs as and when the
same shall become due and payable either at the Maturity Date, the First
Extended Maturity Date, the Second Extended Maturity Date, the Disposition
Payment Date or otherwise; or (b) default in the performance, or breach of any
covenant or warranty of Viacom, and continuance of such default or breach for a
period of 90 days after written notice has been given to Viacom by the CVR
Trustee or to Viacom and the CVR Trustee by CVR Holders holding at least 25% of
the CVRs; or (c) certain events of bankruptcy, insolvency, reorganization, or
other similar events in respect of Viacom.
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"Independent Financial Expert" means a nationally recognized investment
banking firm that does not (and whose directors, officers and Affiliates do not)
have a direct or indirect financial interest in Viacom or any of its Affiliates
and that, at the time it is called upon to give independent financial advice to
Viacom, is not (and none of whose directors, officers or Affiliates is) a
director or officer of Viacom or any of its Affiliates.
The "Minimum Price" means (i) at the Maturity Date, $36.00, (ii) at the
First Extended Maturity Date, $37.00 and (iii) at the Second Extended Maturity
Date, $38.00. In each case, upon each occurrence of an event specified under
"Antidilution" above, such amounts, as they may have been previously adjusted,
shall be adjusted as described under "Antidilution" above.
The "Target Price" means (i) at the Maturity Date, $48.00, (ii) at the
First Extended Maturity Date, $51.00 and (iii) at the Second Extended Maturity
Date, $55.00. In each case, upon each occurrence of an event specified under
"Antidilution" above, such amounts, as they may have been previously adjusted,
shall be adjusted as described under "Antidilution" above.
"Valuation Period" means the 60 trading day period immediately preceding
(and including) the Maturity Date, the First Extended Maturity Date or the
Second Extended Maturity Date, as the case may be.
VIACOM WARRANTS
General. Viacom will issue an aggregate of [30,567,739] Viacom Three-Year
Warrants and [18,340,643] Viacom Five-Year Warrants in connection with the
Paramount Merger. The Viacom Three-Year Warrants are being offered pursuant to a
Warrant Agreement (the "Viacom Three-Year Warrant Agreement") that will be
entered into between Viacom and [ ], as Warrant Agent. The
Viacom Five-Year Warrants are being offered pursuant to a Warrant Agreement (the
"Viacom Five-Year Warrant Agreement" and, together with the Viacom Three-Year
Warrant Agreement, the "Viacom Warrant Agreements") that will be entered into
between Viacom and [ ], as Warrant Agent. The following summary of
certain provisions of the Viacom Warrant Agreements does not purport to be
complete and is subject to and is qualified in its entirety by reference to the
provisions of the Viacom Warrant Agreements, including the definitions of
certain terms therein. A copy of the form of the Viacom Warrant Agreements,
including the form of Viacom Warrant Certificates (as defined below), is filed
as an exhibit to the Registration Statement, to which this Proxy
Statement/Prospectus forms a part.
Each Viacom Three-Year Warrant is evidenced by a warrant certificate (the
"Viacom Three-Year Warrant Certificate") which entitles the warrantholder, at
any time prior to third anniversary of the Paramount Effective Time (the
"Three-Year Expiration Date"), to purchase one share of Viacom Class B Common
Stock at a price (the "Three-Year Exercise Price") of $60 per share, subject to
certain adjustments. Viacom Three-Year Warrants that are not exercised prior to
the Three-Year Expiration Date will expire and become void.
Each Viacom Five-Year Warrant is evidenced by a warrant certificate (the
"Viacom Five-Year Warrant Certificate" and, together with the Viacom Three-Year
Warrant Certificate, the "Viacom Warrant Certificates") which entitles the
warrantholder at any time prior to the fifth anniversary of the Paramount
Effective Time (the "Five-Year Expiration Date" and, together with the
Three-Year Expiration Date, the "Viacom Warrant Expiration Dates"), to purchase
one share of Viacom Class B Common Stock at a price (the "Five-Year Exercise
Price" and, together with the Three-Year Exercise Price, the "Viacom Warrant
Exercise Prices") of $70 per share, subject to certain adjustments. Viacom
Five-Year Warrants that are not exercised prior to the Five-Year Expiration Date
will expire and become void.
The aggregate number of shares of Viacom Class B Common Stock issuable upon
exercise of the Viacom Warrants is equal to 25% of the Viacom Class B Common
Stock to be outstanding after the Paramount Merger and 14% after the Mergers.
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Exercise of Viacom Warrants. To exercise all or any of the Viacom Warrants
represented by a Viacom Warrant Certificate, the warrantholder is required to
surrender to the Warrant Agent the Viacom Warrant Certificate, a duly executed
copy of the subscription form set forth in the Viacom Warrant Certificate, and
payment in full of the Viacom Warrant Exercise Price for each share of Viacom
Class B Common Stock as to which a Viacom Warrant is exercised. In the case of
the Viacom Three-Year Warrants, such payment may be made in cash or by certified
or official bank or bank cashier's check payable to the order of Viacom.
In the case of Viacom Five-Year Warrants, such payment may be made (i) in
cash or by certified or official bank or bank cashier's check payable to the
order of Viacom or (ii) by exchanging, if issued, either Series C Preferred
Stock with a liquidation preference equal to the Five-Year Exercise Price, or
Viacom Exchange Debentures with a principal amount equal to the Five-Year
Exercise Price. Upon the exercise of any Viacom Warrants in accordance with the
Viacom Warrant Agreement, the Viacom Warrant Agent will cause Viacom to transfer
promptly to or upon the written order of the Warrantholder appropriate evidence
of ownership of any shares of Viacom Class B Common Stock, registered or
otherwise placed in such name or names as such warrantholder may direct in
writing, and will deliver such evidence of ownership to the person or persons
entitled to receive the same and an amount in cash, in lieu of any fractional
shares, if any. All shares of Viacom Class B Common Stock issuable by Viacom
upon the exercise of the Viacom Warrants must be validly issued, fully paid and
nonassessable.
Antidilution Provisions. The number of shares of Viacom Class B Common
Stock that may be purchased upon the exercise of each Viacom Warrant, and
payment of the Viacom Warrant Exercise Price, are subject to adjustment in the
event of certain transactions, including Viacom's (a) issuing shares of Viacom
Class B Common Stock as a stock dividend to the holders of Viacom Common Stock,
(b) subdividing or combining the outstanding shares of Viacom Class B Common
Stock into a greater or lesser number of shares, (c) issuing any shares of its
capital stock in a reclassification or reorganization of the Viacom Class B
Common Stock, (d) issuing, selling, distributing or otherwise granting rights to
subscribe for or to purchase warrants or options for the purchase of Viacom
Class B Common Stock or any stock or securities convertible into or exchangeable
for Viacom Class B Common Stock, and (e) issuing, selling or otherwise
distributing certain convertible securities. No fractional shares will be issued
upon exercise of Viacom Warrants, but Viacom will pay the cash value of any
fractional shares otherwise issuable. In case of any consolidation, merger or
sale of all or substantially all of the assets of Viacom in a transaction in
which the holders of Viacom Class B Common Stock immediately prior to such
transaction do not receive securities, cash or other assets of Viacom (or any
other person), the holder of each outstanding Viacom Warrant shall have the
right to the kind and amount of securities, cash or other assets receivable by a
holder of the number of shares of Viacom Class B Common Stock into which such
Viacom Warrants were exercisable immediately prior thereto.
Trading/Listing. Viacom will file an application to list the Viacom
Warrants on the AMEX, subject to official notice of issuance. The Viacom
Three-Year Warrants and the Viacom Five-Year Warrants will be traded on the AMEX
under the symbols " " and " ", respectively.
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 the DGCL, 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.
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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 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 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 First Chicago Trust Company 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.
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VIACOM PREFERRED STOCK
The Viacom Board, without further action by the stockholders, is authorized
to issue up to 100,000,000 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 and
any preferred stock of Viacom that may be issued in the future. The Viacom
Preferred Stock will rank 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 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 indentical rights and restrictions and rank equally as to
dividends and distribution of assets upon liquidation. Upon consummation of the
Blockbuster Merger, the Series A Preferred Stock owned by Blockbuster will cease
to be outstanding. Pursuant to the Paramount Merger, Viacom is reserving for
issuance a new series of preferred stock, the Series C Preferred Stock. 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 $100,000,000, 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 shall 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 Viacom's 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 Certificates of Designation of the Series A Preferred Stock and
Series B Preferred Stock may not be amended without the consent of the purchaser
thereof as long as such outstanding shares are owned in full by Blockbuster or
NYNEX, as the case may be.
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
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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 Merger
Debentures, Viacom has reserved for issuance a new series of preferred stock,
the Series C Preferred Stock. If issued, the Series C Preferred Stock would be
fully paid and nonassessable. The holders of the Series C Preferred Stock would
have no preemptive rights with respect to any shares of Viacom Common Stock or
any other securities of Viacom convertible into or carrying rights or options to
purchase any such shares.
Ranking. If issued, the Series C Preferred Stock would 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 the tenth anniversary of the Paramount Effective
Time, and at the rate per annum of $5.00 per share thereafter. Dividends shall
accrue and be cumulative from the date of issuance, whether or not in any
dividend period or periods there shall be funds legally available for the
payment of such dividends. Dividends on the Series C Preferred Stock would be
payable quarterly on the first business day of January, April, July and October
of each year, commencing on the first such date following issuance of the Series
C Preferred Stock, or at such additional times and for such interim periods, if
any, as determined by the Viacom Board. Each such dividend will be payable in
arrears to holders of record as they appear on the stock records of Viacom at
the close of business on such record dates, not exceeding 60 days preceding the
payment dates thereof, as shall be fixed by the Viacom Board. Accrued and unpaid
dividends shall accrue interest at the Base Rate as announced from time to time
by Citibank, N.A. The amount of dividends payable on the Series C Preferred
Stock for each full dividend period shall be computed by dividing the annual
dividend rate by four. The amount of dividends payable for the initial dividend
period on the Series C Preferred Stock, or any other period shorter or longer
than a full dividend period shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.
So long as any shares of Series C Preferred Stock are outstanding, no
dividends, except as described below, may be declared or paid or set apart for
payment on any class or series of stock of Viacom ranking, as to dividends, on a
parity with the Series C Preferred Stock, nor shall any such shares be redeemed
or purchased by Viacom or any subsidiary, unless full cumulative dividends on
the Series C Preferred Stock have been declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment. When dividends
are not paid in full or a sum sufficient for such payment is not set apart on
the shares of the Series C Preferred Stock and any other class or series of
stock ranking on a parity as to dividends with the Series C Preferred Stock, all
dividends declared on the Series C Preferred Stock and on such other stock may
be declared pro rata so that the amounts of dividends per share declared on the
Series C Preferred Stock and on such other stock shall in all cases bear to each
other the same ratio that the accrued dividends per share on the shares of
Series C Preferred Stock and such other stock bear to each other.
So long as any shares of Series C Preferred Stock are outstanding, neither
Viacom nor any subsidiary may (i) declare or pay or set apart for payment any
dividend or other distribution with respect to any junior stock of Viacom or
(ii) redeem or set apart funds for the purchase, redemption or other acquisition
of any junior stock, unless (A) 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") at the time such
dividends are payable have been paid or funds have been set apart for payment of
such dividends and (B) sufficient funds have been set apart for the
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payment of the dividend for the current dividend period with respect to the
Series C Preferred Stock and any Parity Stock.
As used herein, (i) the term "dividend" does not include dividends payable
solely in shares of junior stock on junior stock, or options, warrants or rights
to holders of junior stock to subscribe for or purchase any junior stock, and
(ii) the term "junior stock" means the Viacom Common Stock and any other class
of capital stock of Viacom now or hereafter issued and outstanding that ranks
junior as to dividends and upon liquidation to the Series C Preferred Stock.
Redemption. Shares of Series C Preferred Stock may not be redeemed by
Viacom prior to the fifth anniversary of the Paramount Effective Time, after
which date the shares of such stock 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 BEGINNING ON THE SERIES C PREFERRED
ANNIVERSARY OF THE PARAMOUNT EFFECTIVE TIME INDICATED BELOW STOCK
- - - - ----------------------------------------------------------------------------------------- -----------------------
<S> <C>
Fifth.................................................................................... $ 52.50
Sixth.................................................................................... $ 52.00
Seventh.................................................................................. $ 51.50
Eighth................................................................................... $ 51.00
Ninth.................................................................................... $ 50.50
Tenth and thereafter..................................................................... $ 50.00
</TABLE>
If fewer than all of the shares of Series C Preferred Stock are to be
redeemed, the shares to be redeemed shall be selected by lot or pro rata or in
some other equitable manner determined by Viacom. If fewer than all the shares
represented by any certificate are redeemed, a new certificate will be issued
representing the unredeemed shares without cost to the holder thereof. No
fractional shares will be issued upon redemption, but an adjustment in cash will
be made in respect of any fraction of an unredeemed share which would otherwise
be issuable.
In the event that full cumulative dividends on the Series C Preferred Stock
and any other class or series of stock ranking, as to dividends, on a parity
with the Series C Preferred Stock have not been paid or declared and set apart
for payment, the Series C Preferred Stock may not be redeemed in part and Viacom
may not purchase or acquire shares of Series C Preferred Stock or such other
stock otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of shares of Series C Preferred Stock and such other stock.
On and after the date fixed for redemption, provided that the redemption
price (including any accrued and unpaid dividends to the date fixed for
redemption) has been duly paid or provided for, dividends shall cease to accrue
on the Series C Preferred Stock called for redemption, such shares shall no
longer be deemed to be outstanding and all rights of the holders of such shares
as stockholders of Viacom shall cease except the right to receive from Viacom
the redemption price without interest thereon after the redemption date and any
cash adjustment in lieu of fractional unredeemed shares.
Liquidation Preference. In the event of any liquidation, dissolution or
winding up of Viacom, whether voluntary or involuntary, before any payment or
distribution of the assets of Viacom (whether capital or surplus) shall be made
to or set apart for the holders of junior stock, upon liquidation, dissolution
or winding up, the holders of the shares of Series C Preferred Stock shall be
entitled to receive $50.00 per share (the "liquidation preference") plus an
amount equal to all dividends (whether or not earned or declared) accrued and
accumulated and unpaid thereon to the date of final distribution to such
holders; but such holders shall not be entitled to any further payment. If, upon
any liquidation, dissolution or winding up of Viacom, the assets of Viacom, or
proceeds thereof, distributable among the holders of the shares of Series C
Preferred Stock shall be insufficient to pay in full the preferential amount
aforesaid and liquidation payments on any other shares of stock ranking, as to
liquidation, dissolution or winding up, on a parity with the Series C Preferred
Stock, then such assets, or the proceeds thereof, shall be distributed among the
holders of shares of Series C Preferred Stock and any
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such other stock ratably in accordance with the respective amounts which would
be payable on such shares of Series C Preferred Stock and any such other stock
if all amounts payable thereon were paid in full. Neither a consolidation or
merger of Viacom with another corporation nor a sale or transfer of all or
substantially all of Viacom's assets nor a statutory share exchange will be
considered a liquidation, dissolution or winding up, voluntary or involuntary,
of Viacom.
Voting Rights. Except as indicated below, or except as otherwise from time
to time required by applicable law, the holders of shares of Series C Preferred
Stock will have no voting rights.
Whenever dividends payable on Series C Preferred Stock shall be in arrears
for such number of dividend periods which shall in the aggregate contain not
less than 360 days, the number of directors of Viacom will be increased by two
and the holders of Series C Preferred Stock, voting together as a class with the
holders of any other class or series of Parity Stock upon which the same voting
rights have been conferred and are exercisable, 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 on
such series have been paid in full. At elections of such directors, each holder
of Series C Preferred Stock shall be entitled to one vote per share. Upon any
termination of the right of the holders of such series to vote for directors as
provided above, the term of office of all directors then in office, elected by
such series, shall terminate immediately.
The approval of two-thirds of the outstanding shares of Series C Preferred
Stock shall be required in order to amend the Restated Certificate of
Incorporation of Viacom to affect materially and adversely the rights,
preferences or voting powers of the holders of such series of stock or to
authorize, create, issue or increase the authorized or issued amount of, any
class of stock having rights senior or superior with respect to dividends and
upon liquidation to such series; provided, however, that any increase in the
amount of authorized preferred stock or the creation and issuance of other
series of preferred stock, or any increase in the amount of authorized shares of
such series or of any other series of preferred stock, in each case ranking on a
parity with or junior to the Series C Preferred Stock with respect to the
payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up, shall not be deemed to materially and adversely
affect such rights, preferences or voting powers.
Exchangeability of Series C Preferred Stock. The Series C Preferred Stock
is exchangeable in whole, or in part, at the option of Viacom, for Viacom
Exchange Debentures on any scheduled dividend payment date beginning on or after
the third anniversary of the Paramount Effective Time. Holders of Series C
Preferred Stock so exchanged will be entitled to receive $50.00 principal amount
of Viacom Exchange 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 (the "Series C
Exchange Date"). The Viacom Exchange Debentures will be issuable only in
registered form and in denominations of $1,000 and integral multiples thereof.
See "Description of Viacom Debentures." An amount in cash will be paid to
holders for any principal amount otherwise issuable which is less than $1,000.
Viacom will mail written notice of its intention to exchange to each holder of
record of the Series C Preferred Stock not less than 10 nor more than 60 days
prior to the date fixed for exchange.
Upon the Series C Exchange Date, the rights of holders of Series C
Preferred Stock as stockholders of Viacom shall cease (except the right to
receive the Viacom Exchange Debentures, any accrued and unpaid dividends to and
including the Series C Exchange Date, and any cash adjustment in lieu of any
principal amount less than $1,000) and the shares of Series C Preferred Stock no
longer will be deemed outstanding. [If full cumulative dividends on Series C
Preferred Stock have not been paid to the Series C Exchange Date, 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 Exchange 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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DESCRIPTION OF VIACOM DEBENTURES
GENERAL. The Viacom Merger Debentures and the Viacom Exchange Debentures
(collectively, the "Viacom Debentures") will be issued under an Indenture, dated
as of , 1994 (the "Indenture"), between Viacom and , as
trustee (the "Trustee"), which will be subject to and governed by the Trust
Indenture Act of 1939, as amended (the "TIA"). The Viacom Debentures will be
general unsecured junior subordinated obligations of Viacom and will be issued
in registered form without coupons in denominations of $1,000 and integral
multiples thereof.
As indicated under "Subordination" below, the Viacom Debentures will be
subordinated and subject in right of payment to the prior payment in full of all
Senior Indebtedness of Viacom.
The following summary of certain provisions of the Indenture and the Viacom
Debentures does not purport to be complete and is subject to and qualified in
its entirety by reference to the Indenture and the Viacom Debentures, including
the definitions therein of terms not defined in this Proxy Statement/Prospectus.
The definitions of certain capitalized terms used in the following summary are
set forth below under "Certain Definitions." A copy of the Indenture, including
the form of the Viacom Merger Debentures and the form of the Viacom Exchange
Debentures, is filed as an exhibit to the Registration Statement, of which this
Proxy Statement/Prospectus forms a part. Section references used in this section
of the Proxy Statement/Prospectus refer to sections of the Indenture.
SUBORDINATION. The payment of the principal of and interest on the Viacom
Debentures is subordinated in right of payment, to the extent set forth in the
Indenture, to the prior payment in full of all Senior Indebtedness of Viacom, as
that term is defined in the Indenture. (Section 101) By reason of such
subordination, in the event of the insolvency of Viacom, creditors of Viacom who
are not holders of Senior Indebtedness may recover less ratably than holders of
Senior Indebtedness and may recover more or less ratably than Holders of the
Viacom Debentures and Viacom may be unable to make all payments due under the
Viacom Debentures. There are no restrictions in the Indenture on the amount of
Senior Indebtedness or any other indebtedness that may be issued by Viacom, and
the Viacom Debentures will be subordinated to substantially all future
indebtedness of Viacom and effectively subordinated to all indebtedness and
other liabilities of subsidiaries of Viacom. Upon any distribution of the assets
of Viacom upon any dissolution, winding up, liquidation, or reorganization of
Viacom, the holders of Senior Indebtedness will be entitled to receive payment
in full before holders of the Viacom Debentures are entitled to receive any
payment. (Section 1302)
"Senior Indebtedness" is defined in the Indenture to mean any indebtedness
which is not by its terms subordinate to any other indebtedness. (Section 101)
If (a) in the event and during the continuation of any default in the
payment of principal of (or premium, if any) or interest on any Senior
Indebtedness beyond any applicable grace period with respect thereto, or in the
event that any nonpayment event of default with respect to any Senior
Indebtedness shall have occurred and be continuing and shall have resulted in
such Senior Indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise have become due and payable, or (b) in the
event that any other nonpayment event of default with respect to any Senior
Indebtedness shall have occurred and be continuing permitting the holders of
such Senior Indebtedness (or a trustee on behalf of the holders thereof) to
declare such Senior Indebtedness due and payable prior to the date on which it
would otherwise have become due and payable, then no payment, direct or indirect
(including any payment which may be payable by reason of the payment of any
other indebtedness of Viacom being subordinated to the payment of the Viacom
Debentures), shall be made by Viacom on account of principal of (or premium, if
any) or interest on the Viacom Debentures or on account of the purchase or
redemption or other acquisition of Viacom Debentures (x) in case of any payment
or nonpayment event of default specified in (a), unless and until (A) such event
of default shall have been cured or waived or shall have ceased to exist or such
acceleration shall have been rescinded or annulled or (B) the Senior
Indebtedness in respect of which such declaration of acceleration has occurred
is discharged, (y) in case of any nonpayment event of default specified in (b),
from the earlier
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of the dates Viacom and the Trustee receive written notice of such event of
default from an Agent Bank or any other representative of a holder of Senior
Indebtedness until the earlier of (A) 180 days after such date and (B) the date,
if any, on which the Senior Indebtedness to which such default relates is
discharged or such default is waived by the holders of such Senior Indebtedness
or otherwise cured (provided that further written notice relating to the same
Senior Indebtedness received by Viacom or the Trustee within 12 months after
such receipt shall not be effective for purposes of this clause (y)) or (z) in
case of any payment or nonpayment event of default specified in clause (a) or
(b), as long as any judicial proceeding is pending with respect to such event.
(Section 1303)
If Viacom fails to make any payment on the Viacom Debentures when due or
within any applicable grace period, whether or not on account of the payment
blockage provisions referred to above, such failure would constitute an Event of
Default under the Indenture and would enable the holders of the Viacom
Debentures to accelerate the maturity thereof. See "--Events of Default."
The Viacom Debentures are obligations exclusively of Viacom. Because the
operations of Viacom are currently conducted through subsidiaries, the cash flow
and the consequent ability to service debt of Viacom, including the Viacom
Debentures, are dependent, in part, upon the earnings of its subsidiaries and
the distribution of those earnings to Viacom or upon loans or other payment of
funds by those subsidiaries to Viacom. The subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
any amounts due pursuant to the Viacom Debentures or to make any funds available
therefor, whether by dividends, loans or other payments. In addition, the
payment of dividends and the making of loans and advances to Viacom by its
subsidiaries may be subject to statutory or contractual restrictions, are
contingent upon the earnings of those subsidiaries and are subject to various
business considerations.
The Viacom Debentures will be effectively subordinated to all indebtedness
and other liabilities, including current liabilities and commitments under
leases, if any, of Viacom's subsidiaries. Any right of Viacom to receive assets
of any of its subsidiaries upon liquidation or reorganization of the subsidiary
(and the consequent right of the holders of the Viacom Debentures to participate
in those assets) will be effectively subordinated to the claims of that
subsidiary's creditors (including trade creditors), except to the extent that
Viacom is itself recognized as a creditor of such subsidiary, in which case the
claims of Viacom would still be subordinated to any security interests in the
assets of such subsidiary and any indebtedness of such subsidiary senior to that
held by Viacom.
COVENANTS. The Indenture contains covenants of Viacom with respect to the
following matters: (i) payment of principal, premium, if any, and interest
(Section 1001); (ii) maintenance of an office or agency (Section 1002); (iii)
arrangements regarding the handling of money for security payments to be held in
trust (Section 1003); (iv) maintenance of corporate existence (Section 1004);
(v) payment of taxes and other claims (Section 1005).
LIMITATION OF SENIOR INDEBTEDNESS. Except as permitted by the Credit
Agreement, so long as any Viacom Debentures are outstanding, Viacom will not,
and will not permit any Restricted Subsidiary to, directly or indirectly create,
incur, assume or guarantee (collectively "incur") any additional Senior
Indebtedness (other than Permitted Indebtedness); provided, however, that Viacom
will be permitted to incur additional Senior Indebtedness if, after giving
effect to such additional Senior Indebtedness, Viacom's Consolidated Fixed
Charge Coverage Ratio for the prior four fiscal quarters, would be at least 1.5
to 1, determined on pro forma basis as if such additional Senior Indebtedness
had been incurred, and in the case of acquisitions or asset sales, such
acquisitions or asset sales had been consummated, at the beginning of such four
quarter period.
"Permitted Indebtedness" is defined in the Indenture to mean:
(i) All Indebtedness of Viacom or any Restricted Subsidiary in
existence on the Date of Issuance, including, without limitation,
Indebtedness under the Credit Agreement and under any outstanding debt
securities of Viacom or guarantees of Viacom of Indebtedness of any
Subsidiary;
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(ii) Indebtedness evidenced by the Viacom Debentures issued under the
Indenture;
(iii) Indebtedness of Viacom to any Restricted Subsidiary or any
Restricted Subsidiary to Viacom;
(iv) Any Indebtedness of Viacom or any Restricted Subsidiary arising
under or pursuant to, or incurred in order to meet any obligation under,
any contract, agreement or arrangement in existence on the Date of
Issuance, including, without limitation, any Indebtedness arising as a
result of or in connection with Viacom's acquisition of Blockbuster and
Paramount (including Indebtedness of Blockbuster or Paramount existing at
the Date of Issuance or arising pursuant to Contracts, agreements and
arrangements in existence on the Date of Issuance);
(v) Any renewal, refunding, refinancing or extension of any of the
Indebtedness referred to in clauses (i) through (iv) above, provided that
the principal amount of such Indebtedness so issued does not exceed the
original principal amount of the Indebtedness so renewed, refunded,
refinanced or extended; and
(vi) Additional Indebtedness of Viacom not to exceed $1.0 billion in
the aggregate at any time outstanding.
EVENTS OF DEFAULT. The following are Events of Default under the Indenture:
(i) default in the payment of any interest on any Viacom Debenture
when it becomes due and payable, and continuance of such default for a
period of 30 days whether or not such payment shall be prohibited by the
subordination provisions of the Indenture; or
(ii) default in the payment of the principal of (or premium, if any,
on) any Viacom Debenture at its Maturity; upon acceleration, redemption or
when otherwise due and payable, whether or not such payment shall be
prohibited by the subordination provisions of the Indenture; or
(iii) default in the payment of any redemption payment on any Viacom
Debenture when it becomes due and payable, and continuance of such default
for a period of 30 days whether or not such payment shall be prohibited by
the subordination provisions of the Indenture; or
(iv) default in the performance, or breach, of any covenant or
warranty of Viacom in the Indenture (other than a covenant or warranty a
default in whose performance or whose breach elsewhere in the Indenture
specifically dealt with), and continuance of such default or breach for a
period of 60 days after there has been given, by registered or certified
mail, to Viacom and the Agent Bank by the Trustee or to Viacom, the Trustee
and the Agent Bank by the holders of at least 25% in principal amount of
the outstanding securities a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" under the Indenture; or
(v) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of Viacom or any Restricted
Subsidiary of Viacom in an involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or (B) a decree or order adjudging Viacom or any such
Restricted Subsidiary a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of Viacom or any such Restricted Subsidiary
under any applicable federal or state law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of Viacom or any such Restricted Subsidiary or of any substantial
part of its property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 60
consecutive days; provided that, in the case of any such Restricted
Subsidiary, the entry of such a decree or order shall not constitute an
Event of Default under the Indenture unless the claims of such Restricted
Subsidiary's creditors shall, in the aggregate, be in excess of
$[50,000,000]; or
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(vi) the commencement by Viacom or any Restricted Subsidiary of Viacom
of a voluntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by it to the entry of a decree or order for relief in respect of
Viacom or any such Restricted Subsidiary in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by it
of a petition or answer or consent seeking reorganization or relief under
any applicable federal or state law, or the consent by it to the filing of
such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar official
of Viacom or any such Restricted Subsidiary or of any substantial part of
its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due or the taking of corporate action by
Viacom or any such Restricted Subsidiary in furtherance of any such action;
provided that, in the case of any such Restricted Subsidiary, none of the
foregoing actions shall constitute an Event of Default under the Indenture
unless the claims of such Restricted Subsidiary's creditors shall, in the
aggregate, be in excess of $[50,000,000]; or
(vii) the entry by a court having jurisdiction in the premises of a
money judgment in an amount in excess of $[50,000,000] against Viacom or
any Restricted Subsidiary of Viacom which has become final and not subject
to appeal, and the continuance of any such judgment unstayed, in effect and
unpaid for a period of 60 days. (Section 501)
If an Event of Default (other than an Event of Default specified in (v) or
(vi) above) occurs and is continuing, then in every such case the Trustee or the
holders of not less than 25% in principal amount of the outstanding Viacom
Merger Debentures or Viacom Exchange Debentures may, and the Trustee at the
request of such holders shall, declare due and payable immediately the unpaid
principal of (and premium, if any) and accrued interest in respect of each
Viacom Merger Debenture or Viacom Exchange Debenture then outstanding, as the
case may be (the "Default Amount"). Upon such declaration, the Default Amount
shall become due and payable on all outstanding Viacom Debentures (i) if the
Credit Agreement is not in effect, immediately, or (ii) if the Credit Agreement
is in effect, upon the first to occur of (a) an acceleration under the Credit
Agreement and (b) the fifth business day after receipt by Viacom and by the
Agent Bank of written notice of such declaration unless (in the absence of an
acceleration under the Credit Agreement) on or prior to such fifth business day
Viacom shall have discharged the Indebtedness, if any, that is the subject of
such Event of Default or otherwise cured the default relating to such Event of
Default and shall have given written notice of such discharge or cure to the
Trustee and the Agent Bank. Notwithstanding any other provision of the Indenture
relating to acceleration of maturity, rescission and annulment, if an Event of
Default specified in (v) or (vi) above occurs, then the Default Amount shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holder. (Section 502)
At any time after such a declaration of acceleration, but before a judgment
or decree for payment of the money due has been obtained by the Trustee, the
holders of a majority in principal amount of the outstanding Viacom Merger
Debentures or Viacom Exchange Debentures may, under certain circumstances,
rescind or annul such declaration and its consequences if the Company (without
violating the subordination provisions of the Indenture) has paid or deposited
with the Trustee a sum sufficient to pay all overdue interest and other required
amounts and if all Events of Default, other than the nonpayment of accelerated
principal, premium, if any, and interest, have been cured or waived as provided
in the Indenture. (Section 502) The holders of not less than a majority in
principal amount of the Viacom Merger Debentures or Viacom Exchange Debentures
then outstanding also have the right to waive certain past Defaults under the
Indenture, except a Default (a) in the payment of principal of, premium, if any,
or interest on, any Viacom Merger Debentures or Viacom Exchange Debentures or
(b) in respect of any other provision of the Indenture that cannot be modified
or amended without the consent of the holder of each outstanding Viacom
Debenture affected thereby. (Section 513)
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No Holder of any Viacom Debentures issued under the Indenture has any right
to institute any proceeding with respect to such Indenture or for any remedy
thereunder, unless (i) such holder has previously given to the Trustee written
notice of a continuing Event of Default under the Indenture, (ii) the holders of
at least 25% in principal amount of the outstanding Viacom Merger Debentures or
Viacom Exchange Debentures, as the case may be, have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
Trustee under the Indenture and (iii) the Trustee has not received from the
holders of a majority in principal amount of the outstanding Viacom Merger
Debentures or Viacom Exchange Debentures, as the case may be, a direction
inconsistent with such request, and the Trustee has failed to institute such
proceeding within 60 days after receipt of such notice. Such limitations do not
apply, however, to a suit instituted by a holder of a Viacom Merger Debenture or
Viacom Exchange Debenture for the enforcement of payment of the principal of,
premium, if any, or interest on, such Viacom Merger Debenture or Viacom Exchange
Debenture on or after the respective due dates expressed in such Viacom Merger
Debenture or Viacom Exchange Debenture.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
is not under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders unless such holders
shall have offered the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance with
such request or direction. (Section 602) Subject to certain provisions
concerning the rights of the Trustee, the holders of a majority in principal
amount of the outstanding Viacom Merger Debentures or Viacom Exchange Debentures
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee under the Indenture. (Section 512)
Viacom is required to furnish to the Trustee annual statements as to the
performance by Viacom of its obligations under the Indenture . Viacom is also
required, so long as any of the Viacom Debentures are outstanding, to notify the
Trustee of the occurrence of any default. (Section 1007)
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE. Viacom may, at its option
and at any time, elect to defease and have the obligations of Viacom discharged
with respect to the outstanding Viacom Debentures ("defeasance"). Such
defeasance means that Viacom shall be deemed to have paid and discharged the
entire indebtedness represented by the outstanding Viacom Debentures and to have
satisfied all other obligations under the Viacom Debentures and the Indenture,
except for (i) the rights of holders of the outstanding Viacom Debentures to
receive, solely from the trust fund described below, payments in respect of the
principal of, premium, if any, and interest on such Viacom Debentures when such
payments are due, (ii) Viacom's obligations with respect to the Viacom
Debentures concerning issuing temporary Viacom Debentures, registration of
Viacom Debentures, replacement of mutilated, destroyed, lost or stolen Viacom
Debentures and the maintenance of an office or agency for payment and money for
security payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee under the Indenture, and (iv) the defeasance
provisions of the Indenture. (Section 1202) In addition, Viacom may, at its
option and at any time, elect to have its obligations released with respect to
certain covenants that are described in the Indenture with respect to the
outstanding Viacom Debentures ("covenant defeasance") and any omission to comply
with such obligations shall not constitute a Default or an Event of Default with
respect to the Viacom Debentures. (Section 1203)
In order to exercise either defeasance or covenant defeasance, (i) Viacom
shall irrevocably deposit with the Trustee, as trust funds in trust, for the
benefit of the holders of the Viacom Merger Debentures or Viacom Exchange
Debentures, money in an amount, U.S. Government Obligations (as defined in the
Indenture), or a combination thereof, in such amount as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay and discharge (a) each installment of the
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principal of (and premium, if any, on) and interest on the outstanding Viacom
Debentures to Stated Maturity (of each such installment) on the day on which
such payments are due and payable in accordance with the terms of the Indenture
and (b) any mandatory sinking fund payments or analogous payments applicable to
the outstanding Viacom Debentures on the due dates thereof; (ii) Viacom shall
have delivered to the Trustee an opinion of counsel to the effect that the
holders of the outstanding Viacom Merger Debentures or Viacom Exchange
Debentures will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance or covenant defeasance, as the case may
be, and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such defeasance or
covenant defeasance, as the case may be, had not occurred; (iii) no Default or
Event of Default shall have occurred and be continuing on the date of such
deposit or insofar as clauses (v) and (vi) under the first paragraph under
"--Events of Default" is concerned, at any time during the period ending on the
91st day after the date of deposit or, if longer, ending on the day following
the expiration of the longest preference period applicable to Viacom in respect
of such deposit; (iv) such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, the Indenture or any
other agreement or instrument to which Viacom is a party or by which it is
bound; (v) such defeasance or covenant defeasance shall not (a) cause the
Trustee to have a conflicting interest as defined in TIA Section 310(b) or
otherwise for purposes of the TIA with respect to any securities of Viacom or
(b) result in the trust arising from such deposit to constitute, unless it is
qualified as, a regulated investment company under the Investment Company Act of
1940, as amended, (vi) such defeasance or covenant defeasance shall not cause
any Viacom Debentures then listed on any registered securities exchange under
the Exchange Act to be delisted, and (vii) Viacom shall have delivered to the
Trustee an officers' certificate and an opinion of counsel, each stating that
all conditions precedent and subsequent provided for relating to either the
defeasance or the covenant defeasance, as the case may be, have been complied
with. (Section 1204)
SATISFACTION AND DISCHARGE. The Indenture will be discharged and will cease
to be of further effect (except as to surviving rights of registration of
transfer or exchange of Viacom Debentures, as expressly provided for in the
Indenture) as to all outstanding Viacom Debentures issued under the Indenture
when either (i) such Viacom Debentures theretofore authenticated and delivered
(except lost, stolen or destroyed Viacom Debentures which have been replaced or
paid and Viacom Debentures for whose payment money has theretofore been
deposited in trust and thereafter repaid or discharged from such trust as
provided in the Indenture) have been delivered to the Trustee for cancellation
or (ii) all such Viacom Debentures not theretofore delivered to the Trustee for
cancellation have become due and payable, or will become due and payable or are
to be called for redemption within one year, Viacom has irrevocably deposited or
caused to be deposited with the Trustee money or U.S. Government Obligations, or
a combination thereof, in such amounts as will be sufficient to pay the entire
indebtedness on such Viacom Debentures for principal (and premium, if any) and
interest to the date of deposit (if such Viacom Debentures are then due and
payable) or to the applicable maturity or redemption date (as the case may be),
and Viacom has paid all sums payable by it under the Indenture. In addition,
Viacom must deliver to the Trustee an officers' certificate and an opinion of
counsel stating that all conditions precedent to satisfaction and discharge have
been complied with. (Section 401)
MERGER OR CONSOLIDATION. The Indenture provides that, except as permitted
by the Credit Agreement, so long as any Viacom Debentures are outstanding,
Viacom may not enter into a transaction resulting in a consolidation merger,
sale or transfer of all or substantially all of its assets unless (i) the
successor Person is either Viacom or a U.S. Person which assumes through a
supplemental indenture all obligations under the Viacom Debentures and the
Indenture, (ii) immediately before and immediately after giving pro forma effect
to the transaction, there exists no Event of Default or event which after notice
or lapse of time or both would become an Event of Default, and (iii) after
giving pro forma effect to the transaction, Viacom could incur at least $1.00 of
Senior Indebtedness pursuant to the provisions under the Limitation of Senior
Indebtedness. The foregoing restriction does not apply to any merger,
consolidation, sale or transfer with or between Viacom and any Restricted
Subsidiary or with or between Restricted Subsidiaries. (Section 801)
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MODIFICATION OR WAIVER. Modification and amendment of the Indenture may be
made by Viacom and the Trustee with the consent of the holders of not less than
a majority in principal amount of all outstanding Viacom Debentures, provided
that no such modification or amendment may, without the consent of the holder of
each outstanding Viacom Debenture, among other things: (i) change the Stated
Maturity of the principal of or any installment of principal of or interest on
any Viacom Debenture; (ii) reduce the principal amount or the rate of interest
on, or any premium payable upon the redemption of, any Viacom Debenture; (iii)
impair the right to institute suit for the enforcement of any such payment after
the Stated Maturity thereof or any Redemption Date therefor; (iv) reduce the
above-stated percentage of holders of outstanding Viacom Debentures, as the case
may be, necessary to modify or amend the Indenture or to consent to any waiver
thereunder or (v) modify any of the provisions of the Indenture relating to the
subordination of the Viacom Debentures in a manner adverse to the holders
thereof. (Section 902)
Modification and amendment of the Indenture may be made by Viacom and the
Trustee without the consent of any holder, for any of the following purposes:
(i) to evidence the succession of another Person to Viacom as obligor under the
Indenture; (ii) to add to the covenants of Viacom for the benefit of the
holders; (iii) to add additional Events of Default; (iv) to provide for the
acceptance of appointment by a successor Trustee; or (v) to cure any ambiguity,
defect or inconsistency in the Indenture, provided such action does not
adversely affect the interest of holders in any material respect. (Section 901)
CERTAIN DEFINITIONS. Set forth below is a summary of certain defined terms
used in the Indenture. Reference is made to the Indenture for the full
definition of all such terms, as well as any other capitalized terms used herein
for which no definition is provided.
"Agent Bank" means any agent or agents from time to time under the Credit
Agreement, or any successor or successors thereto.
"Capitalized Lease" means any Indebtedness represented by a lease
obligation of a Person incurred with respect to real property or equipment
acquired or leased by such Person and used in its business that is required to
be recorded as a capital lease in accordance with generally accepted accounting
principles consistently applied as in effect from time to time (other than in
respect of telecommunications equipment, including without limitation, satellite
transponders).
"Consolidated Fixed Coverage Ratio" means [to come].
"Credit Agreement" means any credit agreement under which Viacom is a
borrower, in the principal amount of at least $100 million.
"Date of Issuance" means the day on which the Viacom Debentures are
originally issued by Viacom.
"Indebtedness" of any person means, without duplication, whether contingent
or otherwise, any (i) obligation for money borrowed, (ii) obligation evidenced
by bonds, debentures, notes or other similar instruments, (iii) reimbursement
obligations in respect of letters of credit or other similar instruments, (iv)
obligations under Capitalized Leases (other than in respect of
telecommunications equipment including, without limitation, satellite
transponders [and theme park equipment], (v) indebtedness of any third party
secured by a Lien on the assets of such Person, and (vi) indebtedness of any
Restricted Subsidiary guaranteed by Viacom or any other Restricted Subsidiary.
When used with respect to Viacom or any Restricted Subsidiary, the term
"Indebtedness" excludes (i) any Indebtedness of Viacom to a Restricted
Subsidiary or any Restricted Subsidiary to another Restricted Subsidiary or to
Viacom and (ii) any guarantee by Viacom of Indebtedness of any Restricted
Subsidiary or any guarantee by a Restricted Subsidiary of Indebtedness of Viacom
or any other Restricted Subsidiary. For the purpose of determining the
outstanding principal amount of Indebtedness at any date, the amount of
Indebtedness issued at a price less than the principal amount thereof or
represented by a
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Capitalized Lease shall be equal to the amount of the liability in respect
thereof at such date determined in accordance with generally accepted accounting
principles.
"Liens" means pledges, mortgages, liens, encumbrances and other security
interests.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof, or any other entity.
"Principal Property" means any parcel of real property, related fixtures,
plant or equipment (other than telecommunications equipment, including, without
limitation, satellite transponders) owned by Viacom or any wholly owned
Subsidiary and located in the United States, the book value of which on the date
of determination exceeds $500 million, other than any such real property,
related fixtures, plant or equipment, which, as determined in good faith by the
Board of Directors of Viacom, is not of material importance to the total
business conducted by Viacom and its Subsidiaries, taken as a whole.
"Restricted Subsidiary" means any corporation a majority of the outstanding
voting stock of which is owned, directly or indirectly, by Viacom or by one or
more of its subsidiaries, or by Viacom and one or more of its subsidiaries,
which is incorporated under the laws of a State of the United States, and which
owns a Principal Property.
"Stated Maturity", when used with respect to any Viacom Debenture or any
installment of principal thereof or interest thereon, means the date specified
in such Viacom Debenture as the fixed date on which the principal of such Viacom
Debenture or such installment of principal or interest is due and payable.
THE TRUSTEE. will serve as trustee under the
Indenture.
VIACOM MERGER DEBENTURES. The Viacom Merger Debentures will be limited to
$ in aggregate principal amount and will mature 12 years from the
Paramount Effective Time.
Interest. The Viacom Merger Debentures will bear interest from
, 1994 or from the most recent Interest Payment Date to which
interest has been paid, at a rate of 8% per annum, payable semi-annually on
January 15 and July 15 (each an "Interest Payment Date") of each year,
commencing on January 1, 1995, to holders of record at the close of business on
the January 1 and July 1 next preceding each Interest Payment Date, except that
the initial record date will be December 15, 1994. Interest will be computed on
the basis of a 360-day year of twelve 30-day months. Payment of the principal of
(and premium, if any, on) and interest on Viacom Merger Debentures will be made
at the office or agency of Viacom maintained for that purpose in The City of New
York, or at such other office or agency of Viacom as may be maintained for such
purpose, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that payment of interest may be made at the option of Viacom (i) by
check mailed to the address of the Person entitled thereto as such address shall
appear on the Security Register or (ii) by transfer to an account maintained by
the payee located in the United States.
Optional Redemption. The Viacom Merger Debentures may not be redeemed prior
to the fifth anniversary of the Paramount Effective Time. On or after that date,
Viacom may, at its option, redeem the Viacom Merger Debentures, in whole or in
part, from time to time, at the redemption prices (expressed as a percentage of
principal amount) set forth below, together with accrued and unpaid interest, if
any, to the redemption date:
<TABLE> <CAPTION>
IF REDEEMED DURING THE 12 MONTH PERIOD BEGINNING ON THE
ANNIVERSARY OF THE PARAMOUNT EFFECTIVE DATE INDICATED BELOW PERCENTAGE
- - - - ------------------------------------------------------------------------------ -------------
<S> <C>
Fifth......................................................................... 103%
Sixth......................................................................... 102%
Seventh....................................................................... 101%
Eighth and thereafter......................................................... 100%
</TABLE>
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The Viacom Merger Debentures are not subject to any mandatory redemption
and are not entitled to any sinking fund.
Notice of redemption will be mailed at least 30 days, but not more than 60
days, before the redemption date to each holder of Viacom Merger Debentures to
be redeemed. (Section 1104) If less than all of the Viacom Merger Debentures are
to be redeemed, the Trustee shall select the Viacom Merger Debentures to be
redeemed by such method that the Trustee considers fair and appropriate and
which may provide for the selection for redemption of portions of the principal
of Viacom Merger Debentures; provided, however, that no such partial redemption
shall reduce the portion of the principal amount of a Viacom Merger Debenture
not redeemed to less than $1,000. (Section 1103)
Exchange for Series C Preferred Stock. Viacom may, at its option, on or
after the earlier of (i) January 1, 1995, but only if the Blockbuster Merger has
not been consummated by such date, and (ii) the acquisition by a third party of
beneficial ownership of a majority of the outstanding voting securities of
Blockbuster, exchange the Viacom Merger Debentures, in whole but not in part,
for shares of Viacom's Series C Preferred Stock. Holders of Viacom Merger
Debentures so exchanged will be entitled to receive one fully paid and
nonassessable share of Series C Preferred Stock for each $50 in principal amount
of Viacom Merger Debentures. At the time of the exchange, dividends on the
Series C Preferred Stock will be deemed to have accrued from the date of
issuance of the Viacom Merger Debentures, and no accrued interest will be paid
with respect to the Viacom Merger Debentures. (Section 1401)
VIACOM EXCHANGE DEBENTURES. The Viacom Exchange Debentures will be limited
in aggregate principal amount to an amount equal to the aggregate liquidation
preference of the Series C Preferred Stock exchanged and will mature 20 years
from the Paramount Effective Time.
Interest. The Viacom Exchange Debentures will bear interest from the date
on which the Viacom Exchange Debentures are issued in exchange for the
outstanding shares of Series C Preferred Stock (the "Exchange Date"), payable
semi-annually on January 15 and July 15 (each an "Interest Payment Date") of
each year, commencing on the first such date after the Exchange Date, at the
rate of 5% per annum until the tenth anniversary of the Paramount Effective Time
and, thereafter, at the rate of 10% per annum, to holders of record at the close
of business on the January 1 and July 1 next preceding each Interest Payment
Date. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Payment of the principal of (and premium, if any, on) and interest on
Viacom Exchange Debentures will be made at the office or agency of Viacom
maintained for that purpose in The City of New York, or at such other office or
agency of Viacom as may be maintained for such purpose, in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public and private debts; provided, however, that payment of interest
may be made at the option of Viacom (i) by check mailed to the address of the
Person entitled hereto as such address shall appear on the Security Register or
(ii) by transfer to an account maintained by the payee located in the United
States.
Optional Redemption. The Viacom Exchange Debentures may not be redeemed
prior to the fifth anniversary of the Paramount Effective Time. On or after that
date, Viacom may, at its option, redeem the Viacom Exchange Debentures, in whole
or in part, from time to time, at the redemption prices (expressed as a
percentage of principal amount) set forth below, together with accrued and
unpaid interest, if any, to the redemption date:
<TABLE> <CAPTION>
IF REDEEMED DURING THE 12 MONTH PERIOD BEGINNING ON THE
ANNIVERSARY OF THE PARAMOUNT EFFECTIVE DATE INDICATED BELOW PERCENTAGE
- - - - ------------------------------------------------------------------------------ -------------
<S> <C>
Fifth......................................................................... 105%
Sixth......................................................................... 104%
Seventh....................................................................... 103%
Eighth........................................................................ 102%
Ninth......................................................................... 101%
Tenth and thereafter.......................................................... 100%
</TABLE>
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The Viacom Exchange Debentures are not subject to any mandatory redemption
and are not entitled to any sinking fund.
Notice of redemption will be mailed at least 30 days, but not more than 60
days, before the redemption date to each holder of Viacom Exchange Debentures to
be redeemed. (Section 1104) If less than all of the Viacom Exchange Debentures
are to be redeemed, the Trustee shall select the Viacom Exchange Debentures to
be redeemed by such method that the Trustee considers fair and appropriate and
which may provide for the selection for redemption of portions of the principal
of Viacom Exchange Debentures; provided, however, that no such partial
redemption shall reduce the portion of the principal amount of a Viacom Exchange
Debenture not redeemed to less than $1,000. (Section 1103)
TRADING/LISTING. On , 1994 Viacom filed an application to cause
the Viacom Merger Debentures to be issued in the Paramount Merger to be approved
for listing on the AMEX, and on , 1994 Viacom received approval for
listing, subject to official notice of issuance.
Viacom has agreed to use its reasonable best efforts to cause the Viacom
Exchange Debentures 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 Paramount Common
Stock. As each of Viacom and Paramount is organized under the laws of Delaware,
these differences arise principally from provisions of the charter and by-laws
of each of Viacom and Paramount, as well as the existence of Paramount's Rights
Agreement.
The following summaries do not purport to be complete statements of the
rights of Viacom stockholders under Viacom's Restated Certificate of
Incorporation and By-laws as compared with the rights of Paramount stockholders
under Paramount's Certificate of Incorporation, By-laws and Rights Agreement 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 Paramount, 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 expressly provided 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 any votes upon any questions presented
to stockholders of Viacom.
Paramount 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. Viacom's Restated Certificate of
Incorporation and 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.
Paramount's Certificate of Incorporation requires the affirmative vote of
80% of the voting power of the then outstanding shares of Voting Stock (as
defined therein) to approve any merger or other Business Combination (as defined
therein), which term includes a merger with an Interested Stockholder or an
Affiliate of an Interested Stockholder (as defined therein), the sale, issuance
or transfer of Paramount's assets or securities to an Interested Stockholder or
an Affiliate of an Interested Stockholder in exchange for cash or securities or
other property with a fair market value of $25 million or more, the adoption of
a plan of liquidation and certain similar extraordinary corporate transactions
which would have the effect of increasing the proportionate interest in
Paramount of an Interested Stockholder or an Affiliate of an Interested
Stockholder, unless (a) the transaction has been approved by a majority of the
Disinterested Directors (as defined therein) or (b) the terms of the Business
Combination and parties thereto satisfy certain specified tests and conditions.
Removal of Directors. Both Viacom's and Paramount'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
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.
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Amendments of Certificate of Incorporation. Viacom's 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.
Paramount's Certificate of Incorporation provides that the affirmative vote
of the holders of at least 80% of the voting power of all the shares of
Paramount entitled to vote generally in the election of directors, voting
together as a single class, is required to alter, amend or repeal Article XI,
regarding business combinations, or Article XII, regarding the requirement that
the holders of Paramount Common Stock can act only at annual or special
meetings. Paramount reserves the right from time to time to alter, amend or
repeal other provisions of the Paramount Certificate of Incorporation in the
manner prescribed by the DGCL.
SPECIAL MEETINGS OF STOCKHOLDERS; STOCKHOLDER ACTION BY WRITTEN CONSENT
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.
Article XII of Paramount's Certificate of Incorporation provides that a
special meeting of stockholders may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of Directors
or by the Chief Executive Officer of Paramount. The affirmative vote of 80% of
the voting power of all the shares of Paramount entitled to vote generally in
the election of directors, voting together as a single class, is required to
alter, amend or repeal Article XII or to adopt any provision inconsistent
therewith.
Viacom's Restated Certificate of Incorporation and By-laws do not set forth
procedures regarding stockholder nomination of directors.
Article III, Section 15 of Paramount's By-laws provides that any
stockholder may nominate candidates for election as directors of Paramount;
provided, however, that not less than 60 days prior to the date of the
anniversary of the annual meeting held in the prior year, in the case of an
annual meeting, or, in the case of a special meeting called for the purpose of
electing directors, not more than 10 days following the earlier of the date of
notice of such special meeting or the date on which a public announcement of
such meeting is made, any stockholder who intends to make a nomination at the
meeting delivers written notice to the Secretary of Paramount setting forth (i)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (ii) a representation that the
stockholder is a holder of record of stock of Paramount specified in such
notice, is or will be entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons specified in
the notice; (iii) a statement that the nominee (or nominees) is willing to be
nominated; and (iv) such other information concerning each such nominee as would
be required under the rules of the Commission in a proxy statement soliciting
proxies for the election of such nominee and in a Schedule 14B (or other
comparable required filing then in effect) under the Exchange Act.
In addition to any other requirements relating to amendments to Paramount's
By-laws, no proposal by any stockholder to repeal or amend Article III, Section
15 of Paramount's By-laws may be brought before any meeting of the stockholders
of Paramount unless written notice is given of (i) such proposed repeal or the
substance of such proposed amendment; (ii) the name and address of the
stockholder who intends to propose such repeal or amendment; and (iii) a
representation that the stockholder is a holder
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of record of stock of Paramount specified in such notice, is or will be entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting to make the proposal. Such notice must be given in the manner and at the
time specified in Article III, Section 15 of Paramount's By-laws.
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.
Article XII of Paramount's Certificate of Incorporation prohibits the
holders of Paramount Common Stock from acting by written consent in lieu of a
meeting.
RIGHTS PLANS
Viacom. Viacom does not have a stockholder rights plan.
Paramount. The following is a description of the Rights Agreement. By
unanimous written consent effective March 1, 1994, the Paramount Board approved
an amendment to the Rights Agreement providing that the consummation of the
Offer would not cause the Rights to become exerciseable.
On September 7, 1988, the Board of Directors of Paramount declared a
dividend distribution of one Right for each outstanding share of Paramount's
Common Stock. The distribution was paid as of September 19, 1988 to stockholders
of record on that date. Each Right entitles the registered holder to purchase
from Paramount one share of Paramount Common Stock at a purchase price of $200
per share (the "Purchase Price"). The Paramount Board has also authorized the
issuance of one Right (subject to adjustment) with respect to each share of
Paramount Common Stock that becomes outstanding between September 18, 1988 and
the Distribution Date (as defined below). The following is a description of the
Rights Agreement, as amended, and the Rights issued thereunder.
Until the close of business on the Distribution Date (which date shall not
be deemed to have occurred solely by reason of: (x) the approval, execution or
delivery of the Paramount Merger Agreement, (y) the acquisition of shares of
Paramount Common Stock pursuant to the Offer, as defined in the Paramount Merger
Agreement, or (z) the consummation of the Paramount Merger, as defined in the
Paramount Merger Agreement, which will occur on the earlier of (i) the tenth day
following a public announcement that a person or group of affiliated or
associated persons (each, an "Acquiring Person" (which term shall not include
Viacom or any of its affiliates which would otherwise become Acquiring Persons
solely by reason of: (x) the approval, execution or delivery of the Paramount
Merger Agreement, (y) the acquisition of shares of Paramount Common Stock
pursuant to the Offer, as defined in the Paramount Merger Agreement, or (z) the
consummation of the Paramount Merger, as defined in the Paramount Merger
Agreement)) has acquired, or obtained the right to acquire, beneficial ownership
of 15% or more of the outstanding Paramount Common Stock (the "Stock Acquisition
Date" (which date shall not be deemed to have occurred solely by reason of:
(x) the approval, execution or delivery of the Paramount Merger Agreement, (y)
the acquisition of shares of Paramount Common Stock pursuant to the Offer, as
defined in the Paramount Merger Agreement, or (z) the consummation of the
Paramount Merger, as defined in the Paramount Merger Agreement)) or (ii) a date
fixed by the Board of Directors of Paramount after the commencement of a tender
offer or exchange offer which would result in the ownership of 30% or more of
the outstanding Paramount Common Stock, the Rights will be represented by and
transferred with, and only with, the Paramount Common Stock. Until the
Distribution Date, new certificates issued for Paramount Common Stock after
September 19, 1988 will contain a legend incorporating the Rights Agreement by
reference, and the surrender for transfer of any
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of Paramount's Common Stock certificates will also constitute the transfer of
the Rights associated with Paramount Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
Right certificates will be mailed to holders of record of Paramount Common Stock
as of the close of business on the Distribution Date, and thereafter the
separate certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire at the earliest of (i) the close of business on September 30, 1998, (ii)
the time at which the Rights are redeemed by Paramount as described below and
(iii) immediately prior to the Effective Time of the Paramount Merger.
The Purchase Price payable, and the number of shares of Paramount Common
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of the
Paramount Common Stock, (ii) upon the grant to holders of the Paramount Common
Stock of certain rights or warrants to subscribe for Paramount Common Stock or
convertible securities at less than the current market price of the Common Stock
or (iii) upon the distribution to holders of Paramount Common Stock of evidences
of indebtedness or assets (excluding regular cash dividends and dividends
payable in Paramount Common Stock) or of subscription rights or warrants (other
than those referred to above).
Unless the Rights are earlier redeemed, in the event that, after the Stock
Acquisition Date, Paramount was to be acquired in a merger or other business
combination (in which any shares of Paramount's Common Stock are changed into or
exchanged for other securities or assets) or more than 50% of the assets or
earning power of Paramount and its subsidiaries (taken as a whole) were to be
sold or transferred in one or a series of related transactions, the Rights
Agreement provides that proper provision shall be made so that each holder of
record of a Right will from and after such date have the right to receive, upon
payment of the Purchase Price, that number of shares of common stock of the
acquiring company having a market value at the time of such transaction equal to
two times the Purchase Price.
In the event that any person becomes an Acquiring Person, each holder of a
Right, other than the Acquiring Person, will have the right to receive, upon
payment of the Purchase Price, a number of shares of Paramount Common Stock
having a market value equal to twice the Purchase Price. To the extent that
insufficient shares of Paramount Common Stock are available for the exercise in
full of the Rights, holders of Rights will receive upon exercise shares of
Paramount Common Stock to the extent available and then cash, property or other
securities of Paramount (which may be accompanied by a reduction in the Purchase
Price), in proportions determined by Paramount, so that the aggregate value
received is equal to twice the Purchase Price. Rights are not exercisable
following the Stock Acquisition Date until the expiration of the period during
which the Rights may be redeemed as described below. Notwithstanding the
foregoing, following the Stock Acquisition Date, Rights that are (and, under
certain circumstances, Rights that were) beneficially owned by an Acquiring
Person will be null and void.
No fractional shares of Paramount Common Stock or other Paramount
securities will be issued upon exercise of the Rights and, in lieu thereof, a
payment in cash will be made to the holder of such Rights equal to the same
fraction of the current market value of a share of Paramount Common Stock or
other Paramount securities.
At any time until ten days following the Stock Acquisition Date (subject to
extension by the Board of Directors), the Board of Directors may cause Paramount
to redeem the Rights in whole, but not in part, at a price of $.01 per Right,
subject to adjustment (the "Redemption Price"). Immediately upon the action of
the Board of Directors authorizing redemption of the Rights, the right to
exercise the Rights will terminate, and the holders of Rights will only be
entitled to receive the Redemption Price without any interest thereon.
For as long as the Rights are then redeemable, Paramount may, except with
respect to the Redemption Price or the final date of expiration of the Rights,
amend the Rights in any manner,
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including an amendment to extend the time period in which the Rights may be
redeemed. At any time when the Rights are not then redeemable, Paramount may
amend the Rights in any manner that does not adversely affect the interests of
holders of the Rights as such.
Until a Right is exercised, the holder, as such, will have no rights as a
stockholder of Paramount, including, without limitation, the right to vote or to
receive dividends.
TRANSACTIONS BY CERTAIN PERSONS IN PARAMOUNT COMMON STOCK
Since [ ], 1994, 60 days prior to the initial filing of the
Schedule 13E-3, through [ ], 1994, none of Sumner M. Redstone, NAI,
Viacom or Paramount, any majority-owned subsidiary thereof, any current director
or executive officer thereof and no pension, profit-sharing or similar plan of
Sumner M. Redstone, NAI, Viacom or Paramount has effected any purchases or sales
of Paramount Common Stock except for (i) the sale of 52,000 shares of Paramount
Common Stock by Ronald L. Nelson on March 22, 1994, (ii) the sale of 38,608
shares of Paramount Common Stock by James A. Pattison on March 21, 1994 and
(iii) the sale of 7,500 shares of Paramount Common Stock by Jerry Sherman on
February 25, 1994. In addition, none of Sumner M. Redstone, NAI nor Viacom has
purchased any shares of Paramount Common Stock since March 2, 1994, the day such
parties became affiliates of Paramount pursuant to the Offer. See
"Summary--Comparative Stock Prices" for a description of purchases of shares of
Paramount Common Stock by Paramount since October 31, 1991.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
VIACOM CAPITAL STOCK
Set forth below, as of April 1, 1994 (and without giving effect to the
transactions contemplated by the Mergers), 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) -- (6)
Frank J. Biondi, Jr.................................. Class A 415(3) 24,000 (6)
Class B 178,318(3)(4) 114,000 (6)
Neil S. Braun........................................ Class A 232(3) 10,000 (6)
Class B 236(3) 46,000 (6)
Philippe P. Dauman................................... Class A 1,000 -- (6)
Class B 8,300 -- (6)
William C. Ferguson.................................. -- -- -- --
John W. Goddard...................................... Class A 4,371(3) 15,000 (6)
Class B 4,377(3) 69,000 (6)
H. Wayne Huizenga.................................... -- -- -- --
Ken Miller........................................... Class A --(2) -- --
Class B --(2) -- --
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) -- --
Mark M. Weinstein.................................... Class A 318(3) 7,500 (6)
Class B 324(3) 34,500 (6)
All Directors and executive officers as a group other
than Mr. Sumner Redstone (22 persons).............. Class A 14,363(3) 76,350 (6)
Class B 200,273(3) 385,839 (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 December 31, 1993
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. Messrs.
Abrams, Miller and Schwartz have been credited with 3,306, 3,021 and 3,052
Viacom Class A Common Stock units, respectively, and 3,477, 3,164 and 3,196
Viacom Class B Common Stock units, respectively.
(3) Includes shares held through Viacom International's 401(k) plan as of
December 31, 1993.
(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 such Viacom Common Stock owned
directly by Mr. Redstone, all shares are owned of record by NAI. Mr.
Redstone is the Chairman and the beneficial owner of a controlling interest
in NAI and, accordingly, beneficially owns all such shares.
(6) Less than 1%.
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PARAMOUNT CAPITAL STOCK
The following table sets forth, as of March 31, 1994, the aggregate amount
and percentage of Paramount Common Stock beneficially owned by Sumner M.
Redstone, by each current executive officer and director of Paramount, NAI and
Viacom and by certain pension, profit-sharing and similar plans of Paramount.
Any such person whose name does not appear did not beneficially own any
Paramount Common Stock as of March 31, 1994. The table also sets forth, as of
March 31, 1994, the aggregate amount and percentage of Paramount Common Stock
beneficially owned by all current directors and executive officers, as a group,
of each of Paramount, NAI and Viacom. Except as otherwise indicated, no pension,
profit-sharing or similar plan of Paramount, Sumner M. Redstone, NAI or Viacom
owns any Paramount Common Stock.
SHARES OF PARAMOUNT COMMON STOCK BENEFICIALLY OWNED
<TABLE> <CAPTION>
NUMBER OF SHARES
OF PARAMOUNT
COMMON STOCK PERCENT
----------------- -----------
<S> <C> <C>
Martin S. Davis(1)................................................................... 824,379 0.67
Earl H. Doppelt...................................................................... 13,696 .01
Irving R. Fischer.................................................................... 2,413 *
Robert C. Greenberg.................................................................. 54 *
Rudolph L. Hertlein.................................................................. 4,502 *
Lawrence E. Levinson................................................................. 6,747 *
Ronald L. Nelson..................................................................... 86,740 0.07
Donald Oresman(2).................................................................... 1,313,696 1.07
Jerry Sherman........................................................................ 1,153 *
Paramount Employee Stock Ownership Plan.............................................. 365,946 .30
Paramount Employees' Savings Plan.................................................... 568,530 .46
Paramount Long-Term Performance Plan................................................. 64,986 .05
Prentice Hall Computer Publishing Division Retirement Plan........................... 4,255 *
Directors and Executive Officers of Paramount as a group............................. 2,253,380 1.84
Directors and Executive Officers of NAI as a group...................................
Directors and Executive Officers of Viacom as a group................................
</TABLE>
The above individuals have sole voting and investment power, unless otherwise
indicated. Ownership of less than .01% of Paramount Common Stock is shown by an
asterisk. It has been assumed that all stock options that are exercisable were
exercised.
- - - - ---------------
(1) Includes 42,968 shares owned by a charitable foundation of which he is an
officer and director and 103,454 shares owned by a charitable remainder
trust of which he is a beneficiary.
(2) As a co-trustee, Mr. Oresman shares voting and investment power over 977,592
shares owned by a trust.
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STOCKHOLDERS OWNING MORE THAN 5% OF PARAMOUNT COMMON STOCK(A)
As of March 31, 1994, to the best of Paramount's knowledge, no person
beneficially owned more than five percent of the outstanding Paramount Common
Stock.
- - - - ---------------
(a) Excludes 61,657,432 shares of Paramount Common Stock acquired by Viacom
pursuant to the Offer.
OTHER MATTERS
REGULATORY APPROVALS REQUIRED
FCC Approvals. Paramount (through subsidiaries which it controls) owns and
operates seven broadcast television stations: WKBD (TV) (Detroit), WTXF (TV)
(Philadelphia), KRRT (TV) (Kerrville, TX), WLFL (TV) (Raleigh/Durham), WDCA-(TV)
(Washington, D.C.), KTXA (TV) (Arlington, TX) and KTXH (TV) (Houston). These
stations are subject to FCC regulation under which licenses are granted when and
if the FCC finds the public interest, convenience and necessity will be served
thereby. The FCC is also empowered to modify and revoke such licenses.
Additionally, the Communications Act and FCC Regulations prohibit the
transfer of control of any license, or the assignment of any license, or the
transfer or assignment of any rights arising thereunder, without prior FCC
approval and requires that the FCC find that the proposed transfer or assignment
would serve the public interest, convenience and necessity. The FCC will
consider the applicant's legal, financial, technical and other qualifications to
operate the licensed entities for the transfer to be approved.
Consummation of the Offer resulted in the acquisition of control of
Paramount and thus required prior FCC approval. Such approval was granted on
March 8, 1994, pursuant to an application filed in September 1993 (the
"Application")
Paramount has an approximately 6.4% interest in Combined Broadcasting, Inc.
("Combined"), which owns television stations in Chicago, Philadelphia and Miami.
Because of Paramount's interest in Combined, the combined company will have an
interest in more than the 12 television stations allowed by the FCC's rules. The
combined company has taken the steps necessary to achieve compliance with the
FCC's multiple ownership rules by placing Paramount's existing interest in
Combined into an insulated voting trust, which interest, under FCC rules, is not
considered for purposes of determining compliance with the FCC's multiple
ownership requirements.
Pursuant to a transaction consummated on November 1, 1993, Viacom owns two
AM and two FM stations serving the Washington, D.C. area. The combined company
will therefore own four radio stations and a television station in Washington,
D.C. Pursuant to the FCC order granting the Application, the combined company
has a period of eighteen months following consummation of the Paramount Merger,
in which to divest two of the radio stations (one AM and one FM).
ANTITRUST APPROVALS
Under the HSR Act and the rules promulgated thereunder by the FTC, 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 Paramount
each filed with the Antitrust Division and the FTC a Notification and Report
Form with respect to the Original Merger Agreement on September 21, 1993.
Accordingly, the waiting period under the HSR Act applicable to the acquisition
of Paramount and the shares of Paramount Common Stock by Viacom expired on
October 21, 1993. The expiration of the HSR Act waiting period does not preclude
the Antitrust Division or the FTC from challenging the Paramount Merger on
antitrust
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grounds. 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 Paramount
relating to the businesses in which Viacom, Paramount and their respective
subsidiaries are engaged, Viacom and Paramount believe that the consummation of
the Paramount Merger will not violate the antitrust laws.
Competition Act of Canada and Investment Canada Act. Subject to certain
thresholds, Canada's Competition Act requires prenotification to the Director of
Investigation and Research (the "Director") of an acquisition of voting shares
of a corporation that directly or through subsidiaries conducts an operating
business in Canada where the parties to the transaction and their affiliates
have assets in Canada, or annual gross revenues from sales in, from or into
Canada, in excess of C$400 million, and where the corporation whose shares are
being acquired or its affiliates own Canadian assets the value of which exceeds
C$35 million, or the gross revenues from sales in or from Canada generated from
such assets exceeds C$35 million in the last fiscal year (a "Notifiable
Transaction").
If a transaction is a Notifiable Transaction, subject to certain
exemptions, a prescribed filing must be made with the Director, and the
transaction may not be completed prior to the expiration or earlier termination
of the applicable waiting period after such filing has been delivered to the
Director. The relevant waiting period is seven or 21 days, depending on the type
of filing that the acquiror makes with the Director. If the Director determines
that the transaction is likely to lessen competition substantially in any
relevant market, he may attempt to obtain an order preventing the completion or
implementation of the transaction.
Even if a transaction is not a Notifiable Transaction, the Director has the
right, prior to and for a period of up to three years after its implementation,
to review the transaction to determine if it is likely to lessen competition
substantially in any market in Canada. Where the Director concludes that such a
substantial lessening of competition is likely to occur, he may take steps to
prevent the completion of the transaction or to seek other relief (including
divestiture) in respect of a completed transaction.
On October 29, 1993, Viacom made the necessary prenotification filing and
the applicable seven-day waiting period has expired. On November 19, 1993,
Viacom was advised by the Director that based on his review of the information
provided by Paramount and Viacom, he did not intend to challenge the completion
of the transaction (although he may re-examine the matter within a period of
three years following implementation of the transaction).
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 "cultural
business" will be subject to review and approval under the ICA. Some of
Paramount'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. On
April 11, 1994, Viacom filed an Application for Review with the Agency in
connection with its purchase of the majority of the outstanding shares of
Paramount Common Stock. The Agency's review of Viacom's Application will not
result in any delay in completion of the Paramount Merger.
Foreign Approvals. In connection with the Paramount Merger, Viacom has made
mandatory pre-acquisition notification filings with the German Federal Cartel
Office on October 29, 1993, and with the Irish Department of Enterprise and
Employment on November 4, 1993, and a voluntary pre-acquisition
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notification filing with the Office of Fair Trading in the United Kingdom on
October 28, 1993. Viacom has been informed in writing by the relevant
governmental authority in each of these jurisdictions that such authority will
take no action against the Paramount 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 Paramount Merger. Viacom and Paramount conduct operations in a number of
other foreign countries, some of which have voluntary merger notification
systems. It is recognized that certain filings may not be made and certain
approvals may not be obtained prior to the date of the Paramount Special
Meeting, the Viacom Special Meeting or the Paramount 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 make any such filings or to obtain any such approvals is not
anticipated to have a material effect on the Paramount Merger or the combined
company.
STOCKHOLDER LITIGATIONS
On September 13, 1993, four putative class actions were filed in the Court
of Chancery in the State of Delaware on behalf of Paramount stockholders
alleging causes of action arising out of the proposed merger of Viacom and
Paramount: Isquith, et al. v. Paramount Communications Inc., et al., Civ. Action
No. 13117; Tuchman v. Paramount Communications Inc., et al., Civ. Action No.
13119; Segesta, et al. v. Paramount Communications Inc., et al., Civ. Action No.
13120; and Goldberg, et al. v. Davis, et al., Civ. Action No. 13121. Also on
September 13, 1993, two putative class action complaints were filed in New York
Supreme Court, New York County: Rubenstein v. Paramount Communications Inc., et
al., Index No. 93123169; and Tuchman, et al. v. Paramount Communications Inc.,
et al., Index No. 93123202 (the "New York Actions"). On September 14, 1993,
three additional putative class actions were filed in Delaware Chancery Court:
Sonem Partners, Ltd. v. Paramount Communications Inc., et al., Civ. Action No.
13123; Schwartz v. Davis, et al., Civ. Action No. 13124; and Soshtain, et al. v.
Paramount Communications Inc., et al., Civ. Action No. 13126. On September 17,
another putative class complaint was filed in Delaware Chancery Court:
Sorrentino, et al. v. Davis, et al., Civ. Action No. 13133. On September 20,
1993, the Isquith, et al. v. Paramount Communications Inc., et al. complaint was
amended and recaptioned Rubenstein, et al. v. Paramount Communications Inc., et
al. On September 22, 1993 and September 23, 1993, respectively, two more
putative class action complaints were filed in the Delaware Chancery Court:
Hagne v. Davis, et al., Civ. Action No. 13141; and Dwyer v. Davis, et al., Civ.
Action No. 13143. Two additional putative class action complaints were filed in
the Delaware Chancery Court on September 27, 1993: Citron v. Davis et al., Civ.
Action No. 13147; and John P. McCarthy Profit Sharing Plan v. Davis et al., Civ.
Action No. 13148. On September 28, 1993, another putative class action complaint
was filed in Delaware Chancery Court: Sonet, et al. v. Paramount Communications
Inc., et al., Civ. Action No. 13152. The defendants in these actions include
Paramount and certain of its directors and, except for the Dwyer action, Viacom,
and in the Segesta and Soshtain actions and the New York Actions, Sumner
Redstone. The New York Actions also named as a defendant Frank J. Biondi, Jr.,
President and Chief Executive Officer of Viacom. The Dwyer and Sonet actions
erroneously identified defendant James A. Nicholas as a current director of
Paramount. In addition, the New York Actions incorrectly identify defendants
Earl H. Doppelt, Rudolph L. Hertlein, Lawrence E. Levinson, Eugene I. Meyers and
Jerry Sherman (executive officers of Paramount) as Paramount directors. The
stockholder lawsuits alleged substantially similar causes of action for breaches
of fiduciary duty against Paramount and the Paramount Board, and alleged that
Viacom (and in the Segesta and Soshtain actions and the New York Actions, Mr.
Redstone) aided and abetted those breaches of duty. The New York Actions also
alleged that defendant Biondi aided and abetted purported breaches of fiduciary
duties by Paramount's directors. The stockholder actions, except for the Sonet
action, sought inter alia to enjoin the proposed merger of Viacom and Paramount
on the ground that the consideration to be paid was inadequate and unfair and
that the Paramount Board has failed to maximize stockholder value. Certain of
the shareholder actions, including the Sonet action, sought to enjoin the
operation of certain provisions of the Original Merger Agreement and the
Original Stock Option Agreement and also sought to enjoin the operation of the
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Rights Agreement. On September 27, 1993, the Delaware Chancery Court entered an
order consolidating Civ. Action Nos. 13117, 13119, 13120, 13121, 13123, 13124,
13126, 13133, 13141, and 13143 as In re Paramount Communications Inc.
Shareholders Litigation, Consolidated Civ. Action No. 13117. Also on September
27, 1993, all plaintiffs, except for plaintiffs in the Citron, John P. McCarthy
Profit Sharing Plan and Sonet actions and plaintiffs in the New York Actions,
filed a motion for preliminary injunctive relief and also filed a motion for
expedited discovery. On October 23, 1993, the Delaware Chancery Court entered a
supplemental order consolidating Citron v. Davis et al., Civ. Action No. 13147,
and John P. McCarthy Profit Sharing Plan v. Davis et al., Civ. Action No. 13148,
with and into In re Paramount Communications Inc. Shareholders Litigation,
Consolidated Civ. Action No. 13117.
On October 26, 1993, an additional putative class action and derivative
complaint was filed in Delaware Chancery Court on behalf of Paramount
stockholders: B.T.Z. Inc. v. Davis, et al., Civ. Action No. 13219. The
defendants in this case included Paramount and certain of its directors. Viacom
was not named as a defendant. Plaintiffs' derivative cause of action alleged,
inter alia, that demand had not been made on the Paramount Board because of the
circumstances of the case, or alternatively, because demand would be futile.
This lawsuit alleged causes of action for breaches of fiduciary duty against
Paramount and the Paramount Board. In addition, this lawsuit alleged a cause of
action for interference with contract and with prospective advantage on the
ground that the director defendants interfered with the plaintiffs' contractual
and common law rights to sell their shares in lawful transactions and interfered
with plaintiffs' prospective advantage in any such transactions. The action
sought, inter alia, to enjoin the operation of certain provisions of the October
24 Merger Agreement and the Amended Stock Option Agreement to enjoin the
operation of the Rights Agreement and to require that Paramount be auctioned to
the highest bidder. This action was consolidated with and into In re Paramount
Communications Inc. Shareholders Litigation, consolidated Civ. Action No. 13117.
On November 5, 1993, plaintiffs in In re Paramount Communications Inc.
Shareholders Litigation, Consolidated Civ. Action No. 13117, filed a
Consolidated and Amended Class Action Complaint (the "Amended Consolidated
Complaint"), which named Paramount, its directors and Viacom as defendants. The
Amended Consolidated Complaint alleged, inter alia, that Paramount's directors
committed various breaches of their fiduciary duties and that Viacom aided and
abetted those purported breaches. Plaintiffs in the consolidated action sought,
inter alia, an injunction against the operation of the October 24 Merger
Agreement and the Amended Stock Option Agreement on the ground that Paramount's
directors failed to maximize shareholder value, and an order preventing
defendants from consummating a merger with Viacom or from withdrawing measures
such as the Rights Agreement unless Paramount conducted an auction for
Paramount.
The request for injunctive relief raised in these stockholder actions was
addressed by the Delaware courts in conjunction with the QVC litigation, as
described below.
ANTITRUST LITIGATION
On September 23, 1993, Viacom International filed an action in the United
States District Court for the Southern District of New York styled Viacom
International Inc. v. Tele-Communications, Inc., et al., Case No. 93 Civ. 6658,
against Tele-Communications, Inc. ("TCI"), Liberty, Satellite Services, Inc.
("SSI"), Encore Media Corp., Netlink USA, and QVC. The complaint alleges
violations of Sections 1 and 2 of the Sherman Act, Section 7 of the Clayton Act,
Section 12 of the Cable Act, and New York's Donnelly Act, and tortious
interference, against all defendants, and a breach of contract claim against
defendants TCI and SSI only. In addition to other relief, Viacom International
seeks injunctive relief against defendants' anticompetitive conduct, including
enjoining the consummation of QVC's proposed acquisition of Paramount, and
damages in an amount to be determined at trial, including trebled damages and
attorneys' fees under the Sherman and Clayton Acts.
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The 19 claims for relief in the complaint are based on allegations that
defendants, controlled by John C. Malone, exert monopoly power in the U.S. cable
industry through their control over approximately one in four of all cable
households in the United States. Among other things, the complaint alleges that
defendants conspired to force SNI to enter into a merger with a
Malone-controlled pay television service; defendants have attempted to eliminate
The Movie Channel from at least 28 of TCI's systems and have plans to eliminate
The Movie Channel from another 27 such systems; defendants have conspired with
General Instrument Corporation ("GI") to entrench GI's monopoly power in the
markets for digital compression and encryption systems and to use such monopoly
power to weaken and eliminate the defendants' competitors; and TCI's
construction of a central authorization center to illegally control the
distribution of programming services through refusals to deal and denial of
direct access. On November 9, 1993, Viacom International amended its complaint
in Viacom International Inc. v. Tele-Communications, Inc., et al., Case No. 93
Civ. 6658, to add Comcast Corporation as an additional defendant and to
incorporate into the allegations additional anticompetitive activities by the
defendants. Viacom plans to pursue all of its claims vigorously.
QVC LITIGATION
On October 21, 1993, QVC commenced an action in the Court of Chancery for
the State of Delaware styled QVC Network, Inc. v. Paramount Communications Inc.,
et al., Civ. Action No. 13208. This lawsuit alleged causes of action arising out
of the Original Merger Agreement, the QVC proposal made to the Paramount Board
on September 20, 1993, and the announcement of the First QVC Offer. The suit
alleged various breaches of fiduciary duties against Paramount and certain
members of the Paramount Board, and alleged that Viacom aided and abetted those
breaches of duty.
The suit sought to enjoin: (i) various provisions of the Original Merger
Agreement; (ii) consummation of the merger of Viacom and Paramount; (iii) the
payment of any money or issuance of any stock by Paramount pursuant to the
Original Merger Agreement; (iv) any actions by the Paramount Board designed to
impede a bidding contest for Paramount; and (v) any actions by Viacom intended
to cause Paramount to forgo any transaction other than the merger of Viacom and
Paramount. The suit also sought a declaratory judgment that: (i) various
provisions of the Original Merger Agreement were unlawful; (ii) Paramount's
refusal to negotiate a merger with QVC was a breach of the fiduciary duties of
the directors of Paramount; (iii) any rights purportedly acquired by Viacom
pursuant to the Original Merger Agreement were null and void; and (iv)
consummation of the merger of Viacom and Paramount, as contemplated by the
Original Merger Agreement, was unlawful. In addition, the suit sought rescission
of any transaction consummated pursuant to the Original Merger Agreement prior
to a final judgment of the Chancery Court and damages flowing therefrom.
On October 28, 1993, QVC filed a motion in Delaware Chancery Court for
leave to file a First Amended and Supplemental Complaint to amend and supplement
the QVC Network action. On October 29, 1993, defendants consented to the filing
of this amended complaint, and on that date, the First Amended and Supplemented
Complaint was filed with the court. The named defendants in the First Amended
and Supplemental Complaint were identical to the named defendants in the initial
complaint, with the exception that one named defendant in the initial complaint,
Ronald L. Nelson, was no longer a named defendant. QVC alleged causes of action
for breaches of fiduciary duties against Paramount and the Paramount Board and
alleged that Viacom aided and abetted certain of those breaches of duty. The
amended complaint alleged one additional breach of fiduciary duty claim against
Paramount and the named directors of Paramount. The action sought, inter alia,
to enjoin any steps to carry out the October 24 Merger Agreement on the ground
that certain provisions of the October 24 Merger Agreement and the Amended Stock
Option Agreement were allegedly unlawful and purportedly were entered into in
breach of Paramount's directors' fiduciary duties. QVC also filed a motion for
preliminary injunctive relief. Oral argument on such motion was heard on
November 16, 1993.
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On November 24, 1993, the Delaware Court of Chancery issued the Preliminary
Injunction Order (the "Preliminary Injunction Order") sought by QVC and certain
stockholders of Paramount pursuant to which:
(1) Paramount was preliminarily enjoined absent further order of the
Court from amending the Rights Agreement, redeeming the rights under
the Rights Agreement or taking any other action under the Rights
Agreement to facilitate the Second Viacom Offer or the merger of
Viacom and Paramount.
(2) Paramount and Viacom were enjoined from (i) taking any action to
exercise, cash out, enforce, effectuate or consummate any term or
provision of the Amended Stock Option Agreement or (ii) causing
Paramount or its subsidiaries or affiliates to pay money, transfer
assets or issue securities of Paramount to Viacom or any of its
affiliates or subsidiaries other than in the ordinary course of
business or pursuant to the termination fee contemplated by the
Amended Stock Option Agreement.
(3) QVC's motion to enjoin payment of the termination fee contemplated
by the Amended Stock Option Agreement was denied.
In addition to the Preliminary Injunction Order, the Delaware Court of
Chancery issued on November 24, 1993 a separate order certifying an appeal from
the Preliminary Injunction Order to the Supreme Court of the State of Delaware.
On the same day, Paramount and Viacom filed a notice of appeal with respect
to the Preliminary Injunction Order. The Supreme Court of the State of Delaware,
pursuant to an Order dated November 29, 1993, accepted the appeal and scheduled
oral argument on the appeal for December 9, 1993.
On December 9, 1993, the Supreme Court of the State of Delaware issued an
order (the "Order") pursuant to which the Court, among other things: (1)
affirmed the order of the Delaware Chancery Court entered November 24, 1993; and
(2) remanded the proceeding to the Delaware Chancery Court for proceedings
consistent with the Order.
These cases are still pending; however, Viacom believes the issues to be
moot. The only issue outstanding relates to the payment of attorneys' fees and
Paramount and Viacom have agreed that any fees awarded by the Delaware Chancery
Court will be paid by Paramount or Viacom, subject to Paramount's and Viacom's
right to contest any fee requests that may be made and to appeal any decision
made on such requests to the Delaware Supreme Court. Plaintiffs' counsel has
acknowledged the right of Paramount and Viacom to assert in opposition to such
requests any argument that would have been available to Paramount stockholders
had attorneys' fees and expenses been sought directly from them.
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DISSENTING STOCKHOLDERS' RIGHTS OF APPRAISAL
If the Paramount Merger is consummated, holders of shares of Paramount
Common Stock are entitled to appraisal rights under Section 262 of the DGCL
("Section 262"), provided that they comply with the conditions established by
Section 262.
SECTION 262 IS REPRINTED IN ITS ENTIRETY AS ANNEX V 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 V. THIS DISCUSSION AND ANNEX V SHOULD BE REVIEWED CAREFULLY
BY ANY HOLDER WHO WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS 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.
A record holder of shares of Paramount Common Stock who makes the demand
described below with respect to such shares, who continuously is the record
holder of such shares through the Paramount Effective Time, who otherwise
complies with the statutory requirements of Section 262 and who neither votes in
favor of the Paramount Merger Agreement nor consents thereto in writing will be
entitled to an appraisal by the Delaware Court of Chancery (the "Delaware
Court") of the fair value of his or her shares of Paramount Common Stock. All
references in this summary of appraisal rights to a "stockholder" or "holders of
shares of Paramount Common Stock" are to the record holder or holders of shares
of Paramount Common Stock. Except as set forth herein, stockholders of Paramount
will not be entitled to appraisal rights in connection with the Paramount
Merger. Stockholders of Viacom will have no appraisal rights in connection with
the Paramount Merger.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the Paramount Special Meeting, not less than 20
days prior to the meeting, a 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 Paramount Common Stock.
Holders of shares of Paramount Common Stock who desire to exercise their
appraisal rights must not vote in favor of the Paramount Merger Agreement and
must deliver a separate written demand for appraisal to Paramount prior to the
vote by the stockholders of Paramount on the Paramount Merger Agreement. 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 Paramount Common Stock be voted against the
proposal or that an abstention be registered with respect to his or her shares
of Paramount Common Stock in connection with the proposal will effectively have
thereby waived his or her appraisal rights as to those shares of Paramount
Common Stock because, in the absence of express contrary instructions, such
shares of Paramount 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 Paramount
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 Paramount Merger
Agreement, or (ii) check either the "Against" or the "Abstain" box next to the
proposal on such card or affirmatively vote in person against the proposal or
register in person an abstention with respect thereto. A demand for appraisal
must be executed by or on behalf of the stockholder of record and must
reasonably inform Paramount of the identity of the stockholder of record and
that such record stockholder intends thereby to demand appraisal of the
Paramount Common Stock. A person having a beneficial interest in shares of
Paramount 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
Paramount 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 Paramount Common Stock are owned of record by more than one
person, as in a
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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 Paramount 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 Paramount Common Stock outstanding in the name of such
record owner.
A stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to: Viacom International Inc., 1515 Broadway,
New York, New York 10036, Attention: Philippe P. Dauman, Secretary.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of Paramount Common Stock owned, and that
the stockholder is thereby demanding appraisal of his or her shares. A proxy or
vote against the Paramount Merger Agreement will not by itself constitute such a
demand. Within ten days after the Paramount Effective Time, the combined company
must provide notice of the Paramount Effective Time to all stockholders who have
complied with Section 262.
Within 120 days after the Paramount Effective Time, either the combined
company 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
combined company 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
combined company will file such a petition or that the combined company will
initiate any negotiations with respect to the fair value of such shares.
Accordingly, Paramount 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.
Within 120 days after the Paramount 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 combined company a statement
setting forth the aggregate number of shares of Paramount Common Stock not
voting in favor of the Paramount Merger Agreement and with respect to which
demands for appraisal were received by Paramount 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 combined company.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine which stockholders 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 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 Paramount 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 Paramount 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
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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 Paramount 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 Paramount 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 Paramount, 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 Paramount Common Stock who has duly demanded
appraisal in compliance with Section 262 will not, after the Paramount 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 Paramount Effective Time.
At any time within 60 days after the Paramount Effective Time, any
stockholder will have the right to withdraw such demand for appraisal and to
accept the terms offered in the Paramount Merger; after this period, the
stockholder may withdraw such demand for appraisal only with the consent of the
combined company. If no petition for appraisal is filed with the Delaware Court
within 120 days after the Paramount Effective Time, stockholders' rights to
appraisal shall cease, and all holders of shares of Paramount Common Stock will
be entitled to receive the consideration offered pursuant to the Paramount
Merger Agreement. Inasmuch as the combined company has no obligation to file
such a petition, and Viacom has no present intention to do so, any holder of
shares of Paramount 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 combined company a
written withdrawal of his or her demand for appraisal and acceptance of the
Paramount Merger, except (i) that any such attempt to withdraw made more than 60
days after the Paramount Effective Time will require written approval of the
combined company and (ii) that no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
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 have been so incorporated in reliance on the reports of Price
Waterhouse, 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 and Registration Statement at April
30, 1993 and at October 31, 1992 and 1991, and for the six-month period ended
April 30, 1993, and for each of the three years in the period ended October 31,
1992 included in its Transition Report on Form 10-K for the six months ended
April 30,
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1993, as amended by Form 10-K/A Amendments No. 1, 2 and 3 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 as of
December 31, 1993 and 1991 and for the three years 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 reports 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 reports.
The consolidated financial statements at May 31, 1992 and 1991 and for each
of the three years in the period ended May 31, 1992 of Sound Warehouse, Inc. and
subsidiary and the financial statements at December 31, 1991 and 1990 and for
each of the three years in the period ended December 31, 1991 of Show
Industries, Inc. incorporated by reference in this Proxy Statement/Prospectus
have been audited by Price Waterhouse, independent accountants, as set forth in
their reports thereon. The financial statements of Sound Warehouse, Inc. and
Show Industries, Inc. incorporated by reference in this Proxy
Statement/Prospectus have been so incorporated in reliance on the reports of
Price Waterhouse, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
The consolidated financial statements of Spelling Entertainment Group Inc.
incorporated by reference in this Proxy Statement/Prospectus and Registration
Statement and included in Blockbuster Entertainment Corporation's Current Report
on Form 8-K dated March 31, 1993, have been audited by Ernst & Young,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
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, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in auditing and accounting. The report of KPMG Peat Marwick
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 B Common Stock, the Viacom Merger
Debentures, the CVRs and the Viacom Warrants being offered hereby will be passed
upon for Viacom by Shearman & Sterling, New York, New York. Simpson Thacher &
Bartlett, counsel to Paramount, and Shearman & Sterling, counsel to Viacom, will
render certain opinions with respect to matters of Federal income tax law. See
discussion under "Special Factors--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.
By Order of the Board of Directors
VIACOM INC.
PHILIPPE P. DAUMAN
Secretary
By Order of the Board of Directors
PARAMOUNT COMMUNICATIONS INC.
PHILIPPE P. DAUMAN
Secretary
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PRELIMINARY COPIES
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 [ ], New York, New York on
[DAY], [DATE], at [TIME], and at any adjournments or postponements thereof, upon
the following proposal more fully described in the Notice of Special Meeting of
Stockholders and the VIACOM INC. and PARAMOUNT COMMUNICATIONS INC. Joint Proxy
Statement/Prospectus.
The proxies are directed to vote as specified below and in their discretion on
all other matters.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR (1), (2), (3), (4) and (5).
1. PROPOSAL TO APPROVE AND ADOPT THE SECOND AMENDED AND RESTATED AGREEMENT AND
PLAN OF MERGER PROVIDING FOR A BUSINESS COMBINATION TRANSACTION BETWEEN
PARAMOUNT COMMUNICATIONS INC. AND VIACOM INC., INCLUDING THE APPROVAL OF THE
ISSUANCE OF SHARES OF SECURITIES OF VIACOM INC. IN CONNECTION THEREWITH.
/ / FOR / / AGAINST / / ABSTAIN
2. IF NOT PREVIOUSLY APPROVED, PROPOSAL TO APPROVE THE ADOPTION OF AN AMENDMENT
TO THE RESTATED CERTIFICATE OF INCORPORATION OF VIACOM INC. TO INCREASE THE
AUTHORIZED NUMBER OF SHARES OF CLASS A COMMON STOCK.
/ / FOR / / AGAINST / / ABSTAIN
3. IF NOT PREVIOUSLY APPROVED, PROPOSAL TO APPROVE THE ADOPTION OF AN AMENDMENT
TO THE RESTATED CERTIFICATE OF INCORPORATION OF VIACOM INC. TO INCREASE THE
AUTHORIZED NUMBER OF SHARES OF CLASS B COMMON STOCK.
/ / FOR / / AGAINST / / ABSTAIN
4. IF NOT PREVIOUSLY APPROVED, PROPOSAL TO APPROVE THE ADOPTION OF AN AMENDMENT
TO THE RESTATED CERTIFICATE OF INCORPORATION OF VIACOM INC. TO INCREASE THE
AUTHORIZED NUMBER OF SHARES OF PREFERRED STOCK.
/ / FOR / / AGAINST / / ABSTAIN
continued on reverse side
<PAGE>
5. IF NOT PREVIOUSLY APPROVED, PROPOSAL TO APPROVE THE ADOPTION OF AN AMENDMENT
TO THE RESTATED CERTIFICATE OF INCORPORATION OF VIACOM INC. TO INCREASE THE
MAXIMUM NUMBER OF DIRECTORS CONSTITUTING THE ENTIRE BOARD FROM 12 TO 20.
/ / FOR / / AGAINST / / ABSTAIN
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
<PAGE>
[ANNUAL MEETING PROXY CARD TO COME]
<PAGE>
PRELIMINARY COPIES
PARAMOUNT COMMUNICATIONS INC.
15 COLUMBUS CIRCLE
NEW YORK, NEW YORK 10023-7780
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 COMMON STOCK OF PARAMOUNT
COMMUNICATIONS INC. WHICH THE UNDERSIGNED IS ENTITLED TO VOTE AT THE SPECIAL
MEETING OF STOCKHOLDERS TO BE HELD AT [PLACE] ON [DAY], [DATE], AT [TIME], AND
AT ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF, UPON THE FOLLOWING PROPOSAL MORE
FULLY DESCRIBED IN THE NOTICE OF SPECIAL MEETING OF STOCKHOLDERS AND THE VIACOM
INC. AND PARAMOUNT COMMUNICATIONS INC. JOINT PROXY STATEMENT/PROSPECTUS.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE BOX, BUT
YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATION.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE PROPOSAL TO APPROVE
THE SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER PROVIDING FOR A
BUSINESS COMBINATION TRANSACTION BETWEEN PARAMOUNT COMMUNICATIONS INC. AND
VIACOM INC., AND IN THE DISCRETION OF THE PROXIES ON ALL OTHER MATTERS.
YOUR SIGNATURE ON THE PROXY IS YOUR ACKNOWLEDGEMENT OF RECEIPT OF THE NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS AND THE JOINT PROXY STATEMENT, BOTH DATED
[DATE].
THE SIGNER HEREBY REVOKES ALL PROXIES HERETOFORE GIVEN BY THE SIGNER TO VOTE AT
SAID MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF.
THE PROXIES ARE DIRECTED TO VOTE AS SPECIFIED BELOW AND IN THEIR DISCRETION ON
ALL OTHER MATTERS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE SECOND
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER PROVIDING FOR A BUSINESS
COMBINATION TRANSACTION BETWEEN PARAMOUNT COMMUNICATIONS INC. AND VIACOM INC.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PARAMOUNT
COMMUNICATIONS 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
<PAGE>
PRELIMINARY COPIES ANNEX I
PARAMOUNT MERGER AGREEMENT
<PAGE>
ANNEX I
[Conformed Copy]
=================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
between
VIACOM INC.
and
PARAMOUNT COMMUNICATIONS INC.
Dated as of February 4, 1994
=================================================================
<PAGE>
Index of Defined Terms
----------------------
Section
-------
affiliate SECTION 9.3
Agreement PREAMBLE
AMEX SECTION 1.7
beneficial owner SECTION 9.3
Blockbuster SECTION 4.3
Blockbuster Merger Agreement SECTION 4.8
Blockbuster Subscription Agreement SECTION 4.3
Blue Sky Laws SECTION 3.5
Business Combination SECTION 8.5
business day SECTION 9.3
Cash Election SECTION 1.6
Cash Election Number SECTION 1.6
Cash Election Shares SECTION 1.6
Cash Fraction SECTION 1.6
Certificate of Merger SECTION 1.3
Certificates SECTION 1.7
Claim SECTION 6.3
Class A Exchange Ratio SECTION 1.6
Class B Exchange Ratio SECTION 1.6
Code RECITALS
Communications Act SECTION 3.5
Competing Transaction SECTION 8.1
Confidentiality Agreements SECTION 6.1
control SECTION 9.3
controlled SECTION 9.3
controlled by SECTION 9.3
CVRs SECTION 1.6
CVR Exchange Ratio SECTION 1.6
Debenture Exchange Ratio SECTION 1.6
Delaware Law RECITALS
Dissenting Shares SECTION 1.10
ERISA SECTION 3.10
Effective Time SECTION 1.3
Exchange Act SECTION 2.2
Exchange Agent SECTION 1.7
Exchange Cash Consideration SECTION 1.7
Exchange Debenture Trustee SECTION 4.3
Exchange Fund SECTION 1.7
Exchange Ratios SECTION 1.6
Exemption Agreement SECTION 2.1(d)
Expiration Date SECTION 2.1
FCC SECTION 2.6
Final Expiration Date SECTION 2.1(c)
Financing SECTION 4.17
Five Year Warrant Exchange Ratio SECTION 1.6
Five Year Warrants SECTION 1.6
Form of Election SECTION 1.6
Forward Merger RECITALS
fully diluted basis SECTION 9.3
Gains Tax SECTION 6.18
Governmental Entity SECTION 3.5
i
<PAGE>
2
Index of Defined Terms (cont'd)
----------------------
Section
-------
HSR Act SECTION 4.5
Incentive Stock Option SECTION 1.9
Indemnified Parties SECTION 6.3
Indenture SECTION 4.3
IRS SECTION 3.10
Material Paramount Subsidiary SECTION 3.1
Material Viacom Subsidiary SECTION 4.1
Merger RECITALS
Merger Consideration SECTION 1.7
Merger Debenture Trustee SECTION 4.3
Merger Subsidiary RECITALS
Minimum Condition SECTION 2.1
National RECITALS
Non-Election SECTION 1.6
Non-Election Fraction SECTION 1.6
Non-Election Shares SECTION 1.6
Offer RECITALS
Offer Documents SECTION 2.1(b)
Offer to Purchase SECTION 2.1(b)
Other Offer SECTION 2.1(c)
Other Offeror SECTION 2.1(c)
Other Exemption Agreement SECTION 2.1(d)
Other Expiration Date SECTION 2.1(d)
Paramount PREAMBLE
Paramount 1992 Balance Sheet SECTION 3.12
Paramount Common Stock RECITALS
Paramount Disclosure Schedule SECTION 3.3
Paramount Indentures SECTION 6.17
Paramount Material Adverse Effect SECTION 3.1
Paramount Plans SECTION 3.10
Paramount Preferred Stock SECTION 3.3
Paramount SEC Reports SECTION 3.7
Paramount Subsidiary SECTION 3.1
Paramount Triggering Event SECTION 6.9
Per Share Amount RECITALS
Per Share Cash Amount SECTION 1.6
Proxy Statement SECTION 6.6
Registration Statement SECTION 6.6
Representatives SECTION 1.6
Respective Representatives SECTION 6.1
Reverse Merger RECITALS
Rights SECTION 3.13
Rights Agreement SECTION 3.13
Rights Condition SECTION 2.1
Schedule 14D-1 SECTION 2.1
Schedule 14D-9 SECTION 2.2
SEC SECTION 2.1
Securities Act SECTION 3.5
Securities Election SECTION 1.6
Securities Election Number SECTION 1.6
ii
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3
Index of Defined Terms (cont'd)
----------------------
Section
-------
Securities Fraction SECTION 1.6
Significant Stockholder SECTION 6.21
Stock Election Shares SECTION 1.6
Stock Option SECTION 3.3
Stockholders' Meetings SECTION 6.7
subsidiaries SECTION 9.3
subsidiary SECTION 9.3
Surviving Corporation SECTION 1.1
Three Year Warrant Exchange Ratio SECTION 1.6
Three Year Warrants SECTION 1.6
Transactions SECTION 3.4
Transfer Tax SECTION 6.18
under common control with SECTION 9.3
Viacom PREAMBLE
Viacom Certificate Amendments SECTION 4.4
Viacom 1992 Balance Sheet SECTION 4.12
Viacom Class A Common Stock RECITALS
Viacom Class B Common Stock SECTION 1.6
Viacom Disclosure Schedule SECTION 4.3
Viacom Exchange Debenture Indenture SECTION 4.3
Viacom Exchange Debentures ANNEX B
Viacom Exchange Preferred Stock ANNEX B
Viacom International SECTION 4.7
Viacom Material Adverse Effect SECTION 4.1
Viacom Merger Debenture Indenture SECTION 4.3
Viacom Merger Debentures SECTION 1.6
Viacom Plans SECTION 4.10
Viacom Preferred Stock SECTION 4.3
Viacom SEC Reports SECTION 4.7
Viacom Series A Preferred SECTION 4.3
Viacom Subsidiary SECTION 4.1
Viacom Triggering Event SECTION 6.9
Viacom Vote Matter SECTION 4.4
Voting Agreement RECITALS
Warrants SECTION 1.6
iii
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TABLE OF CONTENTS
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Page
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ARTICLE I
THE MERGER . . . . . . . . . . . 2
SECTION 1.1. The Merger . . . . . . . . . . . . . . . . 2
SECTION 1.2. Closing . . . . . . . . . . . . . . . . . 3
SECTION 1.3. Effective Time . . . . . . . . . . . . . . 3
SECTION 1.4. Effect of the Merger . . . . . . . . . . . 3
SECTION 1.5. Certificate of Incorporation; By-Laws . . 3
SECTION 1.6. Conversion of Securities . . . . . . . . . 3
SECTION 1.7. Exchange of Certificates and Cash . . . . 9
SECTION 1.8. Stock Transfer Books . . . . . . . . . . . 13
SECTION 1.9. Stock Options; Payment Rights . . . . . . 13
SECTION 1.10. Dissenting Shares . . . . . . . . . . . . 15
ARTICLE II
THE OFFER . . . . . . . . . . . . 16
SECTION 2.1. The Offer . . . . . . . . . . . . . . . . 16
SECTION 2.2. Action by Paramount . . . . . . . . . . . 19
SECTION 2.3. Receipt of Common Stock . . . . . . . . . 20
SECTION 2.4. Completion Certificate . . . . . . . . . . 20
SECTION 2.5. Termination of the Offer . . . . . . . . . 20
SECTION 2.6. Board of Directors; Section 14(f) . . . . 21
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARAMOUNT . . . 22
SECTION 3.1. Organization and Qualification;
Subsidiaries . . . . . . . . . . . . . . 22
SECTION 3.2. Certificate of Incorporation and By-Laws . 22
SECTION 3.3. Capitalization . . . . . . . . . . . . . . 23
SECTION 3.4. Authority Relative to This Agreement . . . 24
SECTION 3.5. No Conflict; Required Filings and
Consents . . . . . . . . . . . . . . . . 24
SECTION 3.6. Compliance . . . . . . . . . . . . . . . . 25
SECTION 3.7. SEC Filings; Financial Statements . . . . 25
SECTION 3.8. Absence of Certain Changes or Events . . . 26
SECTION 3.9. Absence of Litigation . . . . . . . . . . 27
SECTION 3.10. Employee Benefit Plans . . . . . . . . . . 27
SECTION 3.11. Trademarks, Patents and Copyrights . . . . 28
SECTION 3.12. Taxes . . . . . . . . . . . . . . . . . . 28
SECTION 3.13. Amendment to Rights Agreement . . . . . . 29
SECTION 3.14. Opinion of Financial Advisor . . . . . . . 30
SECTION 3.15. Vote Required . . . . . . . . . . . . . . 30
SECTION 3.16. Brokers . . . . . . . . . . . . . . . . . 30
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----
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VIACOM . . . . 31
SECTION 4.1. Organization and Qualification;
Subsidiaries . . . . . . . . . . . . . . 31
SECTION 4.2. Certificate of Incorporation and By-Laws . 31
SECTION 4.3. Capitalization . . . . . . . . . . . . . . 32
SECTION 4.4. Authority Relative to This Agreement . . . 34
SECTION 4.5. No Conflict; Required Filings and
Consents . . . . . . . . . . . . . . . . 34
SECTION 4.6. Compliance . . . . . . . . . . . . . . . . 35
SECTION 4.7. SEC Filings; Financial Statements . . . . 36
SECTION 4.8. Absence of Certain Changes or Events . . . 37
SECTION 4.9. Absence of Litigation . . . . . . . . . . 37
SECTION 4.10. Employee Benefit Plans . . . . . . . . . . 38
SECTION 4.11. Trademarks, Patents and Copyrights . . . . 38
SECTION 4.12. Taxes . . . . . . . . . . . . . . . . . . 39
SECTION 4.13. Opinion of Financial Advisor . . . . . . . 40
SECTION 4.14. Vote Required . . . . . . . . . . . . . . 40
SECTION 4.15. Ownership of Paramount Common Stock . . . 40
SECTION 4.16. Brokers . . . . . . . . . . . . . . . . . 40
SECTION 4.17. Financing . . . . . . . . . . . . . . . . 40
SECTION 4.18. Purchases of Securities . . . . . . . . . 40
SECTION 4.19. Representations in Blockbuster Merger
Agreement . . . . . . . . . . . . . . . . 41
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER . . . . 41
SECTION 5.1. Conduct of Respective Businesses by
Paramount and Viacom Pending the Merger . 41
ARTICLE VI
ADDITIONAL COVENANTS . . . . . . . . . 43
SECTION 6.1. Access to Information; Confidentiality . . 43
SECTION 6.2. Intentionally omitted . . . . . . . . . . 44
SECTION 6.3. Directors' and Officers' Indemnification
and Insurance . . . . . . . . . . . . . . 44
SECTION 6.4. Notification of Certain Matters . . . . . 45
SECTION 6.5. Tax Treatment . . . . . . . . . . . . . . 45
SECTION 6.6. Registration Statement; Joint Proxy
Statement; Offer Documents and Schedule
14D-9 . . . . . . . . . . . . . . . . . . 46
SECTION 6.7. Stockholders' Meetings . . . . . . . . . . 48
SECTION 6.8. Letters of Accountants . . . . . . . . . . 48
SECTION 6.9. Employee Benefits . . . . . . . . . . . . 48
SECTION 6.10. Further Action; Reasonable Best Efforts . 49
SECTION 6.11. Debt Instruments . . . . . . . . . . . . . 50
SECTION 6.12. Public Announcements . . . . . . . . . . . 50
SECTION 6.13. Listing of Viacom Securities . . . . . . . 50
SECTION 6.14. Affiliates of Paramount . . . . . . . . . 50
SECTION 6.15. Conveyance Taxes . . . . . . . . . . . . . 51
SECTION 6.16. Rights Agreement . . . . . . . . . . . . . 51
SECTION 6.17. Assumption of Debt and Leases . . . . . . 51
SECTION 6.18. Gains Tax . . . . . . . . . . . . . . . . 51
SECTION 6.19. Reverse Merger . . . . . . . . . . . . . . 52
v
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SECTION 6.20. Post-Offer Agreements . . . . . . . . . . 52
SECTION 6.21. Transactions With Significant Stockholder
After the Effective Time . . . . . . . . 52
SECTION 6.22. Blockbuster Merger Agreement and
Subscription Agreement . . . . . . . . . 53
ARTICLE VII
CLOSING CONDITIONS . . . . . . . . . 53
SECTION 7.1. Conditions to Obligations of Each Party
to Effect the Merger . . . . . . . . . . 53
SECTION 7.2. Additional Conditions to Obligations of
Viacom . . . . . . . . . . . . . . . . . 54
SECTION 7.3. Additional Conditions to Obligations of
Paramount . . . . . . . . . . . . . . . . 55
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER . . . . . . 56
SECTION 8.1. Termination . . . . . . . . . . . . . . . 56
SECTION 8.2. Effect of Termination . . . . . . . . . . 58
SECTION 8.3. Amendment . . . . . . . . . . . . . . . . 58
SECTION 8.4. Waiver . . . . . . . . . . . . . . . . . . 59
SECTION 8.5. Fees, Expenses and Other Payments . . . . 59
ARTICLE IX
GENERAL PROVISIONS . . . . . . . . . 59
SECTION 9.1. Effectiveness of Representations,
Warranties and Agreements . . . . . . . . 59
SECTION 9.2. Notices . . . . . . . . . . . . . . . . . 60
SECTION 9.3. Certain Definitions . . . . . . . . . . . 61
SECTION 9.4. Time Period . . . . . . . . . . . . . . . 62
SECTION 9.5. Headings . . . . . . . . . . . . . . . . . 62
SECTION 9.6. Severability . . . . . . . . . . . . . . . 62
SECTION 9.7. Entire Agreement . . . . . . . . . . . . . 62
SECTION 9.8. Assignment . . . . . . . . . . . . . . . . 62
SECTION 9.9. Parties in Interest . . . . . . . . . . . 63
SECTION 9.10. Specific Performance . . . . . . . . . . . 63
SECTION 9.11. Governing Law . . . . . . . . . . . . . . 63
SECTION 9.12. Counterparts . . . . . . . . . . . . . . . 63
ANNEX A Conditions to the Offer
ANNEX B Principal Terms of Viacom Merger Debentures
ANNEX C Principal Terms of Contingent Value Rights
ANNEX D Principal Terms of Three Year Warrants
ANNEX E Principal Terms of Five Year Warrants
EXHIBIT 6.14 Form of Affiliate Letter
vi
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER,
dated as of February 4, 1994 (this "Agreement"), between VIACOM
---------
INC., a Delaware corporation ("Viacom"), and PARAMOUNT
------
COMMUNICATIONS INC., a Delaware corporation ("Paramount"),
---------
amending and restating the Agreement and Plan of Merger, dated as
of January 21, 1994, between Viacom and Paramount, as amended (the "January
-------
Merger Agreement").
- - - - ----------------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, on January 21, 1994, Viacom and Paramount
entered into the January Merger Agreement, pursuant to which
Viacom and Paramount agreed to enter into a business combination
transaction;
WHEREAS, Viacom and Paramount have determined that it
is in the best interest of their respective shareholders to enter
into this Agreement so as to facilitate the business combination
of the two companies through a first-step cash tender offer and a
second-step merger, while preserving the ability to proceed with
a single-step merger in appropriate circumstances, and in
accordance with the General Corporation Law of the State of
Delaware ("Delaware Law"), Paramount and Viacom have agreed to
------------
enter into a business combination transaction pursuant to which
Paramount will merge with and into Viacom (the "Forward Merger")
--------------
or alternatively, a subsidiary of Viacom ("Merger Subsidiary")
-----------------
will merge with and into Paramount (the "Reverse Merger" and,
--------------
together with the Forward Merger, the "Merger");
------
WHEREAS, in furtherance of the Merger, Viacom has
amended and supplemented its outstanding tender offer (as amended
and supplemented in accordance with this Agreement, the "Offer")
-----
to acquire 61,657,432 shares of common stock, par value $1.00 per
share, of Paramount ("Paramount Common Stock"), or such greater
----------------------
number of shares as equals 50.1% of the shares of Paramount
Common Stock outstanding on a fully diluted basis (as defined in
Section 9.3 herein), for $107.00 per Paramount share (the
consideration per share of Paramount Common Stock to be paid
pursuant to the Offer being referred to as the "Per Share
---------
Amount"), upon the terms and subject to the conditions of this
- - - - ------
Agreement and the Offer;
WHEREAS, the Board of Directors of Paramount has
determined that the Merger and the Offer are consistent with and
in furtherance of the long-term business strategy of Paramount
and are fair to, and in the best interests of, Paramount and the
holders of Paramount Common Stock and has approved and adopted
this Agreement and has approved the Merger and the other
transactions contemplated hereby (including, without limitation,
the Offer) and recommended approval and adoption of this
Agreement and approval of the Merger by the stockholders of
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2
Paramount and agreed to continue to recommend that stockholders
of Paramount tender their shares of Paramount Common Stock
pursuant to the Offer;
WHEREAS, the Board of Directors of Viacom has
determined that the Merger and the Offer are consistent with and
in furtherance of the long-term business strategy of Viacom and
are 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 (including, without limitation, the making of the Offer)
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 Forward 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 the January
Merger Agreement and as an inducement to Paramount to enter into
the January Merger Agreement, National Amusements, Inc., a
Maryland corporation and the majority stockholder of Viacom
("National"), and Paramount entered into a Voting Agreement (the
--------
"Voting Agreement") pursuant to which National shall, among other
----------------
things, vote its shares of Viacom Class A Common Stock in favor
of the Merger and the other transactions contemplated by this
Agreement, as amended from time to time;
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 1.1. 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 1.3), Paramount shall be merged with and into Viacom;
provided, however, that if, after consulting with Paramount and
- - - - -------- -------
its professional advisors in good faith, Shearman & Sterling,
counsel to Viacom, is unable to deliver an opinion in form and
substance reasonably satisfactory to Viacom (such opinion to be
based on customary assumptions and representations) that the
Forward Merger will qualify as a reorganization under Section
368(a) of the Code, Viacom may elect to cause a subsidiary of
Viacom to merge with and into Paramount. As a result of the
Forward Merger, the separate corporate existence of Paramount
(or, in the case of the Reverse Merger, Merger Subsidiary) shall
I-2
<PAGE>
3
cease and Viacom (or, in the case of the Reverse Merger,
Paramount) shall continue as the surviving corporation of the
Merger (the "Surviving Corporation").
---------------------
SECTION 1.2. Closing. Unless this Agreement shall
-------
have been terminated and the transactions herein contemplated
shall have been abandoned pursuant to Section 8.1 and subject to
the satisfaction or, if permissible, 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 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 1.3. 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 1.4. 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
(or, in the case of the Reverse Merger, Merger Subsidiary) and
Paramount shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Viacom (or, in the case of the Reverse
Merger, Merger Subsidiary) and Paramount shall become the debts,
liabilities and duties of the Surviving Corporation.
SECTION 1.5. Certificate of Incorporation; By-Laws.
-------------------------------------
(a) At the Effective Time of the Forward Merger, 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.
(b) Alternatively, at the Effective Time of the Reverse
Merger, the Certificate of Incorporation and By-Laws,
respectively, of the Surviving Corporation shall be amended and
restated in their entirety to read as the Certificate of
Incorporation and By-Laws of Merger Subsidiary.
SECTION 1.6. Conversion of Securities. At the
------------------------
Effective Time, by virtue of the Merger and without any action on
the part of Viacom, Paramount or the holders of any
of the following securities:
I-3
<PAGE>
4
(a) In the event that the Offer has been consummated
prior to the Effective Time, each share of Paramount Common
Stock issued and outstanding immediately prior to the
Effective Time (other than any shares of Paramount Common
Stock to be canceled pursuant to Section 1.6(c) and any
Dissenting Shares (as defined in Section 1.10)) shall be
converted into the right to receive (A) .93065 shares of
Class B common stock, par value $0.01 per share ("Viacom
------
Class B Common Stock"), of Viacom, (B) $17.50 principal
--------------------
amount of 8% exchangeable subordinated debentures (the
"Viacom Merger Debentures") of Viacom having the principal
------------------------
terms described in Annex B, (C) .93065 contingent value
rights of Viacom (the "CVRs") having the principal terms
----
described in Annex C, (D) .50 warrants (the "Three Year
----------
Warrants") of Viacom having the principal terms described in
--------
Annex D and (E) .30 warrants (the "Five Year Warrants", and
------------------
together with the Three Year Warrants, the "Warrants") of
--------
Viacom having the principal terms described in Annex E;
provided, however, that, in any event, if between the date
-------- -------
of this Agreement and the Effective Time the outstanding
shares of Viacom Class B Common Stock or Paramount 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 amounts of
Viacom Class B Common Stock, Viacom Merger Debentures, CVRs
and Warrants specified above shall be correspondingly
adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or
exchange of shares. All such shares of Paramount 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 1.7 certificates evidencing (a) such
number of whole shares of Viacom Class B Common Stock and
(b) such number of whole CVRs, Viacom Merger Debentures and
Warrants into which such Paramount Common Stock was
converted in accordance herewith. The holders of such
certificates previously evidencing such shares of Paramount
Common Stock outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such
shares of Paramount Common Stock except as otherwise
provided herein or by law. No fractional share of Viacom
Class B Common Stock or fractional CVR, Viacom Merger
Debenture or Warrant shall be issued and, in lieu thereof, a
cash payment shall be made pursuant to Section 1.7(d).
(b) In the event that the Offer has not been
consummated prior to the Effective Time:
(i) subject to the further provisions of this
Section 1.6, each share of Paramount Common Stock
issued and outstanding immediately prior to the
I-4
<PAGE>
5
Effective Time (other than any shares of Paramount
Common Stock to be canceled pursuant to Section 1.6(c)
and any Dissenting Shares), shall be converted, subject
to Section 1.7(d), into the right to receive (A)(i)
.93065 of a share of Viacom Class B Common Stock (the
"Class B Exchange Ratio"); (ii) $17.50 principal amount
----------------------
of Viacom Merger Debentures (the "Debenture Exchange
------------------
Ratio"); (iii) .93065 CVRs (the "CVR Exchange Ratio");
----- ------------------
(iv) .50 Three Year Warrants (the "Three Year Warrant
------------------
Exchange Ratio"); and (v) .30 Five Year Warrants (the
--------------
"Five Year Warrant Exchange Ratio", and together with
--------------------------------
the Class B Exchange Ratio, the Debenture Exchange
Ratio, the CVR Exchange Ratio and Three Year Warrant
Exchange Ratio, the "Exchange Ratios"), (B) $107.00 in
---------------
cash (the "Per Share Cash Amount") or (C) a combination
---------------------
of shares of Viacom Class B Common Stock, CVRs, Viacom
Merger Debentures, Warrants and cash determined in
accordance with Sections 1.6(b)(iv), (v) and (vi);
provided, however, that, in any event, if between the
-------- -------
date of this Agreement and the Effective Time the
outstanding shares of Viacom Class B Common Stock,
Viacom Merger Debentures or Paramount 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 and Per Share Cash Amount
shall be correspondingly adjusted to reflect such stock
dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of
shares. All such shares of Paramount 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 1.7 and in accordance with
the allocation procedures set forth in this Section
1.6, (i) certificates evidencing (x) such number of
whole shares of Viacom Class B Common Stock and (y)
such number of whole CVRs, Viacom Merger Debentures and
Warrants into which such Paramount Common Stock was
converted in accordance with the Exchange Ratios and/or
(ii) the Per Share Cash Amount multiplied by the number
of shares of Paramount Common Stock previously
evidenced by the canceled certificate. The holders of
such certificates previously evidencing such shares of
Paramount Common Stock outstanding immediately prior to
the Effective Time shall cease to have any rights with
respect to such shares of Paramount Common Stock except
as otherwise provided herein or by law. No fractional
share of Viacom Class B Common Stock or fractional CVR,
Viacom Merger Debenture or Warrant shall be issued and,
in lieu thereof, a cash payment shall be made pursuant
to Section 1.7(d).
I-5
<PAGE>
6
(ii) Subject to the election and allocation
procedures set forth in this Section 1.6, each holder
of record of shares of Paramount Common Stock as of the
record date for the meeting of stockholders of
Paramount referred to in Section 6.7 will be entitled
to (A) elect to receive certificates evidencing such
number of whole shares of Viacom Class B Common Stock
and (y) such number of whole CVRs, Viacom Merger
Debentures and Warrants into which such number of
shares of Paramount Common Stock would be converted in
accordance with the Exchange Ratios (a "Securities
----------
Election"), (B) elect to receive the Per Share Cash
--------
Amount multiplied by such number of shares of Paramount
Common Stock (a "Cash Election"), or (C) indicate that
-------------
such holder has no preference as to the receipt of cash
or shares of Viacom Class B Common Stock and CVRs,
Viacom Merger Debentures and Warrants in exchange for
such shares of Paramount Common Stock (a
"Non-Election"). All such elections shall be made on a
------------
form designed for that purpose and mutually acceptable
to Viacom and Paramount (a "Form of Election") and
----------------
mailed to holders of record of shares of Paramount
Common Stock as of the record date for the meeting of
stockholders of Paramount referred to in Section 6.7.
Holders of record of shares of Paramount Common Stock
who hold such shares as nominees, trustees or in other
representative capacities ("Representatives") may
---------------
submit multiple Forms of Election, provided that such
Representative certifies that each such Form of
Election covers all the shares of Paramount Common
Stock held by such Representative for a particular
beneficial owner entitled to so elect pursuant to the
first sentence of this Section 1.6(b)(ii). Elections
shall be made by holders of Paramount Common Stock by
mailing to the Exchange Agent (as defined in Section
1.7) properly completed and signed Forms of Election.
In order to be effective, a Form of Election must be
received by the Exchange Agent no later than the close
of business on the last business day prior to the
Effective Time. All elections may be revoked until the
last business day prior to the Effective Time. Viacom
shall have the discretion, which it may delegate in
whole or in part to the Exchange Agent, to determine
whether Forms of Election have been properly completed
and signed and properly and timely submitted or revoked
and to disregard immaterial defects in Forms of
Election, and any good faith decision of Viacom or the
Exchange Agent in such matters shall be binding and
conclusive. Neither Viacom nor the Exchange Agent
shall be under any obligation to notify any person of
any defect in a Form of Election. Any holder of shares
of Paramount Common Stock who fails to make an election
and any holder who fails to submit to the Exchange
Agent a properly completed and signed and properly and
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<PAGE>
7
timely submitted Form of Election shall be deemed to
have made a Non-Election.
(iii) The aggregate number of shares of Paramount
Common Stock to be converted into the right to receive
cash in the Merger (the "Cash Election Number") shall
--------------------
be equal to 50.1% of the number of shares of Paramount
Common Stock outstanding immediately prior to the
Effective Time, and the aggregate number of shares of
Paramount Common Stock to be converted into the right
to receive shares of Viacom Class B Common Stock, CVRs,
Viacom Merger Debentures and Warrants in the Merger
(the "Securities Election Number") shall be equal to
--------------------------
49.9% of the number of shares of Paramount Common Stock
outstanding immediately prior to the Effective Time.
(iv) If the aggregate number of shares of
Paramount Common Stock with respect to which Cash
Elections have been made plus Dissenting Shares (the
"Cash Election Shares") exceeds the Cash Election
--------------------
Number, all shares of Paramount Common Stock with
respect to which Securities Elections have been made
(the "Securities Election Shares") and all shares of
--------------------------
Paramount Common Stock with respect to which
Non-Elections have been made (the "Non-Election
------------
Shares") shall be converted into the right to receive
------
shares of Viacom Class B Common Stock and CVRs, Viacom
Merger Debentures and Warrants, and the Cash Election
Shares (other than Dissenting Shares) shall be
converted into the right to receive shares of Viacom
Class B Common Stock, CVRs, Viacom Merger Debentures,
Warrants and cash in the following manner:
each Cash Election Share (other than Dissenting
Shares) shall be converted into the right to
receive (i) an amount in cash, without interest,
equal to the product of (x) the Per Share Cash
Amount and (y) a fraction (the "Cash Fraction"),
-------------
the numerator of which shall be the Cash Election
Number and the denominator of which shall be the
total number of Cash Election Shares, (ii) a
number of shares of Viacom Class B Common Stock
equal to the product of (x) the Class B Exchange
Ratio and (y) a fraction equal to one minus the
Cash Fraction, (iii) a number of CVRs equal to the
product of (x) the CVR Exchange Ratio and (y) a
fraction equal to one minus the Cash Fraction,
(iv) a principal amount of Viacom Merger
Debentures equal to the product of (x) the
Debenture Exchange Ratio and (y) a fraction equal
to one minus the Cash Fraction, (v) a number of
Three Year Warrants equal to the product of (x)
the Three Year Warrant Exchange Ratio and (y) a
fraction equal to one minus the Cash Fraction and
(vi) a number of Five Year Warrants equal to the
I-7
<PAGE>
8
product of (x) the Five Year Warrant Exchange
Ratio and (y) a fraction equal to one minus the
Cash Fraction.
(v) If the aggregate number of Securities
Election Shares exceeds the Securities Election Number,
all Cash Election Shares (other than Dissenting Shares)
and all Non-Election Shares shall be converted into the
right to receive cash, and all Securities Election
Shares shall be converted into the right to receive
shares of Viacom Class B Common Stock, CVRs, Viacom
Merger Debentures, Warrants and cash in the following
manner:
each Securities Election Share shall be converted
into the right to receive (i) a number of shares
of Viacom Class B Common Stock equal to the
product of (x) the Class B Exchange Ratio and (y)
a fraction (the "Securities Fraction"), the
-------------------
numerator of which shall be the Securities
Election Number and the denominator of which shall
be the total number of Securities Election Shares,
(ii) a number of CVRs equal to the product of (x)
the CVR Exchange Ratio and (y) the Securities
Fraction, (iii) the principal amount of Viacom
Merger Debentures equal to the product of (x) the
Debenture Exchange Ratio and (y) the Securities
Fraction, (iv) a number of Three Year Warrants
equal to the product of (x) the Three Year Warrant
Exchange Ratio and (y) the Securities Fraction,
(v) a number of Five Year Warrants equal to the
product of (x) the Five Year Warrant Exchange
Ratio and (y) the Securities Fraction and (vi) an
amount in cash, without interest, equal to the
product of (x) the Per Share Cash Amount and (y) a
fraction equal to one minus the Securities
Fraction.
(vi) In the event that neither Section 1.6(b)(iv)
nor Section 1.6(b)(v) above is applicable, all Cash
Election shares shall be converted into the right to
receive cash, all Securities Election Shares shall be
converted into the right to receive shares of Viacom
Class B Common Stock, CVRs, Viacom Merger Debentures
and Warrants, and the Non-Election Shares, if any,
shall be converted into the right to receive shares of
Viacom Class B Common Stock, CVRs, Viacom Merger
Debentures, Warrants and cash in the following manner:
each Non-Election Share shall be converted into
the right to receive (i) an amount in cash,
without interest, equal to the product of (x) the
Per Share Cash Amount and (y) a fraction (the
"Non-Election Fraction"), the numerator of which
---------------------
shall be the excess of the Cash Election Number
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<PAGE>
9
over the total number of Cash Election Shares and
the denominator of which shall be the excess of
(A) the number of shares of Paramount Common Stock
outstanding immediately prior to the Effective
Time over (B) the sum of the total number of Cash
Election Shares and the total number of Securities
Election Shares, (ii) a number of shares of Viacom
Class B Common Stock equal to the product of (x)
the Class B Exchange Ratio and (y) a fraction
equal to one minus the Non-Election Fraction,
(iii) a number of CVRs equal to the product of (x)
the CVR Exchange Ratio and (y) a fraction equal to
one minus the Non-Election Fraction, (iv) the
principal amount of Viacom Merger Debentures equal
to the product of (x) the Debenture Exchange Ratio
and (y) a fraction equal to one minus the Non-
Election Fraction, (v) a number of Three Year
Warrants equal to the product of (x) the Three
Year Warrant Exchange Ratio and (y) a fraction
equal to one minus the Non-Election Fraction and
(vi) a number of Five Year Warrants equal to the
product of (x) the Five Year Warrant Exchange
Ratio and (y) a fraction equal to one minus the
Non-Election Fraction.
(vii) The Exchange Agent shall make all
computations contemplated by this Section 1.6 and all
such computations shall be binding and conclusive on
the holders of Paramount Common Stock.
(c) Each share of Paramount Common Stock held in the
treasury of Paramount and each share of Paramount Common
Stock owned by Viacom or any direct or indirect wholly owned
subsidiary of Viacom or of Paramount 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.
(d) In the Reverse Merger, each share of common stock
of Merger Subsidiary issued and outstanding immediately
prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and
nonassessable share of common stock of the Surviving
Corporation.
SECTION 1.7. Exchange of Certificates and Cash.
---------------------------------
(a) Exchange Agent. As of the Effective Time (in the case
--------------
of a Merger to which Section 1.6(a) applies) or promptly after
completion of the allocation procedures set forth in Section 1.6
(in the case of a Merger to which Section 1.6(b) applies), 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 Paramount (the "Exchange
--------
Agent"), for the benefit of the holders of shares of Paramount
- - - - -----
Common Stock (other than Dissenting Shares), for exchange in
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10
accordance with this Article I, through the Exchange Agent, (i)
certificates evidencing the shares of Viacom Class B Common
Stock, the Viacom Merger Debentures, the Warrants and the CVRs
issuable pursuant to Section 1.6 in exchange for outstanding
shares of Paramount Common Stock and (ii) cash, if any, in the
aggregate amount required to be exchanged for shares of Paramount
Common Stock pursuant to Section 1.6 (the "Exchange Cash
-------------
Consideration") (such certificates for shares of Viacom Class B
- - - - -------------
Common Stock, the Viacom Merger Debentures, the Warrants and the
CVRs, together with any dividends or distributions with respect
thereto, and the Exchange Cash Consideration, if any, being
hereafter collectively referred to as the "Exchange Fund"). The
-------------
Exchange Agent shall, pursuant to irrevocable instructions,
deliver the shares of Viacom Class B Common Stock, the Viacom
Merger Debentures, Warrants, CVRs and cash, if any, contemplated
to be issued pursuant to Section 1.6 out of the Exchange Fund to
holders of shares of Paramount Common Stock. Except as
contemplated by Section 1.7(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 Paramount Common Stock (other
than Dissenting Shares) (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 Class B Common Stock,
the Viacom Merger Debentures, CVRs, Warrants and cash. 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 Class B Common Stock and that
number of whole CVRs, Viacom Merger Debentures and Warrants which
such holder has the right to receive in accordance with Section
1.6 in respect of the shares of Paramount Common Stock formerly
evidenced by such Certificate, (B) cash, if any, which such
holder has the right to receive in accordance with Section 1.6,
(C) any dividends or other distributions to which such holder is
entitled pursuant to Section 1.7(c), and (D) cash in lieu of
fractional shares of Viacom Class B Common Stock and fractional
CVRs, Viacom Merger Debentures and Warrants to which such holder
is entitled pursuant to Section 1.7(d) (the shares of Viacom
Class B Common Stock, CVRs, Viacom Merger Debentures, Warrants,
dividends, distributions and cash described in clauses (A), (B),
(C) and (D) being, collectively, the "Merger Consideration"), and
--------------------
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<PAGE>
11
the Certificate so surrendered shall forthwith be canceled. In
the event of a transfer of ownership of shares of Paramount
Common Stock which is not registered in the transfer records of
Paramount, shares of Viacom Class B Common Stock, CVRs, Viacom
Merger Debentures, Warrants and cash may be issued and paid in
accordance with this Article I to a transferee if the Certificate
evidencing such shares of Paramount 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 1.7, 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 Class B Common Stock, CVRs, Viacom Merger Debentures
- - - - --------------------------------------------------------------
and Warrants. No dividends or other distributions declared or
- - - - ------------
made after the Effective Time with respect to shares of Viacom
Class B Common Stock, CVRs, Viacom Merger Debentures and Warrants
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 Class B Common Stock, CVRs, Viacom Merger
Debentures or Warrants they are entitled to receive until the
holder of such Certificate shall surrender such Certificate.
(d) Fractional Shares, CVRs, Viacom Merger Debentures
-------------------------------------------------
and Warrants. (i) No fraction of a share of Viacom Class B
- - - - ------------
Common Stock or fraction of a CVR, Viacom Merger Debenture or
Warrant shall be issued in the Merger. In lieu of any such
fractional shares or fractional CVRs, Viacom Merger Debentures or
Warrants, each holder of Paramount Common Stock entitled to
receive shares of Viacom Class B Common Stock, CVRs, Viacom
Merger Debentures and Warrants in the Merger, upon surrender of a
Certificate for exchange pursuant to this Section 1.7, shall be
paid (1) an amount in cash (without interest), rounded to the
nearest cent, determined by multiplying (x) the per share closing
price on the American Stock Exchange ("AMEX") of Viacom Class B
----
Common Stock on the date of the Effective Time (or, if shares of
Viacom Class B Common Stock do not trade on the AMEX on such
date, the first date of trading of such Viacom Class B Common
Stock on the AMEX after the Effective Time) by (y) the fractional
interest in Viacom Class B Stock to which such holder would
otherwise be entitled (after taking into account all shares of
Paramount Common Stock then held of record by such holder) plus
----
(2) an amount in cash (without interest), rounded to the nearest
cent, determined by multiplying (x) the fair market value of one
CVR, as determined by reference to a five day average trading
price, if available, or if not available, in the reasonable
judgment of the Viacom Board of Directors by (y) the fractional
interest in a CVR to which such holder would otherwise be
entitled (after taking into account all shares of Paramount
Common Stock then held of record by such holder) plus (3) an
----
amount in cash (without interest) rounded to the nearest cent,
determined by multiplying (x) the fair market value of one Three
I-11
<PAGE>
12
Year Warrant, as determined by reference to a five day average
trading price, if available, or if not available, in the
reasonable judgment of the Viacom Board of Directors by (y) the
fractional interest in a Three Year Warrant to which such holder
would otherwise be entitled (after taking into account all shares
of Paramount Common Stock then held of record by such holder)
plus (4) an amount in cash (without interest) determined in
- - - - ----
accordance with clause (ii) of this Section 1.7(d) in respect of
the fractional interest in a Viacom Merger Debenture to which
such holder would otherwise be entitled (after taking into
account all shares of Paramount Common Stock then held of record
by such holder) plus (5) an amount in cash (without interest)
----
rounded to the nearest cent, determined by multiplying (x) the
fair market value of one Five Year Warrant, as determined by
reference to a five day average trading price, if available, or
if not available, in the reasonable judgment of the Viacom Board
of Directors by (y) the fractional interest in a Five Year
Warrant to which such holder would otherwise be entitled (after
taking into account all shares of Paramount Common Stock then
held of record by such holder).
(ii) The Viacom Merger Debentures shall be issued
in the Merger only in principal amounts of $1,000 or integral
multiples thereof. Holders of shares of Paramount Common Stock
otherwise entitled to fractional amounts of Viacom Merger
Debentures shall be entitled to receive promptly from the
Exchange Agent a cash payment in an amount equal to such holder's
proportionate interest (after taking into account all shares of
Paramount Common Stock then held of record by such holder) in the
proceeds from the sale or sales in the open market by the
Exchange Agent, on behalf of all such holders, of the aggregate
fractional principal amount of Viacom Merger Debentures.
(e) Termination of Exchange Fund. Any portion of the
----------------------------
Exchange Fund which remains undistributed to the holders of
Paramount Common Stock for six months after the Effective Time
shall be delivered to Viacom, upon demand, and any holders of
Paramount Common Stock who have not theretofore complied with
this Article I shall thereafter look only to Viacom for the
Merger Consideration to which they are entitled pursuant to this
Article I.
(f) No Liability. Neither Viacom nor Paramount shall
------------
be liable to any holder of shares of Paramount Common Stock for
any such shares of Viacom Class B Common Stock, CVRs, Viacom
Merger Debentures, Warrants (or dividends or distributions with
respect thereto) or cash 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 Paramount Common Stock such amounts as Viacom or the
Exchange Agent is required to deduct and withhold with respect to
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<PAGE>
13
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 Paramount Common
Stock in respect of which such deduction and withholding was made
by Viacom or the Exchange Agent.
SECTION 1.8. Stock Transfer Books. At the Effective
--------------------
Time, the stock transfer books of Paramount shall be closed, and
there shall be no further registration of transfers of shares of
Paramount Common Stock thereafter on the records of Paramount.
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 1.9. Stock Options; Payment Rights. (a) At
-----------------------------
the Effective Time, Paramount's obligations with respect to each
outstanding Stock Option (as defined in Section 3.3) to purchase
shares of Paramount Common Stock, as amended in the manner
described in the following sentence, shall be assumed by Viacom.
The 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
Stock Options were issued as in effect immediately prior to the
Effective Time, except that each such Stock Option shall be
exercisable for (i) that number of whole shares of Viacom Class B
Common Stock equal to the product of the number of shares of
Paramount Common Stock covered by such 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, (ii) that number of whole CVRs equal
to the product of the number of shares of Paramount Common Stock
covered by such Stock Option immediately prior to the Effective
Time multiplied by the CVR Exchange Ratio and rounded up to the
nearest whole number of CVRs; provided, that, if the option
--------
holder has not exercised his or her Stock Option prior to the
maturity of the CVRs, then the CVRs described above shall be
replaced by that number of shares of Viacom Class B Common Stock
equal in value to the amount by which the Target Price (as
defined in Annex C hereto) exceeds the greater of the Current
Market Value (as defined in Annex C hereto) and the Minimum Price
(as defined in Annex C hereto) on the applicable maturity date
multiplied by the number of such CVRs, rounded up to the nearest
whole number of shares, (iii) that number of whole Three Year
Warrants equal to the product of the number of shares of
Paramount Common Stock covered by such Stock Option immediately
prior to the Effective Time multiplied by the Three Year Warrant
Exchange Ratio and rounded up to the nearest whole number of
Three Year Warrants; provided, that, if the option holder has not
--------
exercised his or her Stock Option prior to the third anniversary
of the Effective Time, then the Three Year Warrants described
above shall be replaced by that number of shares of Viacom Class
B Common Stock equal in value to the fair market value of such
Three Year Warrants (as determined by reference to the average
I-13
<PAGE>
14
trading price for the five-day trading period immediately prior
to the third anniversary of the Effective Time, if available, or,
if not available, in the reasonable judgment of the Viacom Board
of Directors), rounded up to the nearest whole number of shares;
(iv) that number of whole Five Year Warrants equal to the product
of the number of shares of Paramount Common Stock covered by such
Stock Option immediately prior to the Effective Time multiplied
by the Five Year Warrant Exchange Ratio and rounded up to the
nearest whole number of Five Year Warrants; provided, that, if
--------
the option holder has not exercised his or her Stock Option prior
to the fifth anniversary of the Effective Time, then the Five
Year Warrants described above shall be replaced by that number of
shares of Viacom Class B Common Stock equal in value to the fair
market value of such Five Year Warrants (as determined by
reference to the average trading price for the five-day trading
period immediately prior to the fifth anniversary of the
Effective Time, if available, or if not available, in the
reasonable judgment of the Viacom Board of Directors), rounded up
to the nearest whole number of shares; and (v) that (A) principal
amount of whole Viacom Merger Debentures equal to the product of
the number of shares of Paramount Common Stock covered by such
Stock Option immediately prior to the Effective Time multiplied
by the Debenture Exchange Ratio plus an amount in cash (without
----
interest), rounded to the nearest cent, determined by multiplying
(x) the fair market value of one Viacom Merger Debenture, as
determined by reference to a five day average trading price, if
available, or if not available, in the reasonable judgment of the
Viacom Board of Directors by (y) the fractional interest in a
Viacom Merger Debenture to which such option holder would
otherwise be entitled or (B) if issued, that number of whole
shares of Viacom Exchange Preferred Stock (as defined in Annex B)
equal to the product of the number of shares of Paramount Common
Stock covered by such Stock Option immediately prior to the
Effective Time multiplied by .35 and rounded up to the nearest
whole number of shares of Viacom Exchange Preferred Stock or (C)
if issued, that principal amount of whole Viacom Exchange
Debentures (as defined in Annex B) equal to the product of the
number of shares of Paramount Common Stock covered by such Stock
Option immediately prior to the Effective Time multiplied by the
Debenture Exchange Ratio plus an amount in cash (without
----
interest), rounded to the nearest cent, determined by multiplying
(x) the fair market value of one Viacom Exchange Debenture, as
determined by reference to a five day average trading price, if
available, or if not available, in the reasonable judgment of the
Viacom Board of Directors by (y) the fractional interest in a
Viacom Exchange Debenture to which such option holder would
otherwise be entitled, provided that there shall be no such
--------
rounding up with respect to Incentive Stock Options (as defined
below). Viacom shall (i) reserve for issuance the number of
shares of Viacom Class B Common Stock, CVRs, Viacom Merger
Debentures and Warrants that will become issuable upon the
exercise of such Stock Options pursuant to this Section 1.9 and
(ii) promptly after the Effective Time, issue to each holder of
an outstanding Stock Option a document evidencing the assumption
by Viacom of Paramount's obligations with respect thereto under
I-14
<PAGE>
15
this Section 1.9. Nothing in this Section 1.9 shall affect the
schedule of vesting with respect to the Stock Options to be
assumed by Viacom as provided in this Section 1.9. In the case
of any Stock Option to which Section 421 of the Code applies by
reason of its qualification under Section 422 of the Code (an
"Incentive Stock Option"), the option price, the number and type
----------------------
of shares purchasable pursuant to such Incentive Stock Option and
the terms and conditions of exercise of such Incentive Stock
Option shall be determined immediately after the Effective Time
in such manner as to comply with Section 424(a) of the Code. To
preserve the qualification of all Incentive Stock Options under
Section 422 of the Code, (i) in addition to the Viacom Class B
Common Stock and (ii) in lieu of all CVRs, Viacom Merger
Debentures or Warrants for which an Incentive Stock Option would
otherwise become exercisable pursuant to the foregoing provisions
of this Section 1.9, such Incentive Stock Option shall become
exercisable for that number of shares of Viacom Class B Common
Stock equal to the fair market value of such CVRs, Viacom Merger
Debentures or Warrants (determined, at the time of the Merger, by
reference to a five-day average trading price of such securities,
if available, or if not available, in the reasonable judgment of
the Viacom Board of Directors).
SECTION 1.10. Dissenting Shares. (a) Notwithstanding
-----------------
any other provision of this Agreement to the contrary, shares of
Paramount 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 Paramount Common Stock held by them in accordance with the
provisions of such Section 262, except that all 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 Paramount 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 (as if such Shares were Non-Election Shares in the
case of a Merger to which section 1.6(b) applies), upon
surrender, in the manner provided in Section 1.7, of the
certificate or certificates that formerly evidenced such shares
of Paramount Common Stock.
(b) Paramount shall give Viacom (i) prompt notice of
any demands for appraisal received by Paramount, withdrawals of
such demands, and any other instruments served pursuant to
Delaware Law and received by Paramount and (ii) the opportunity
to direct all negotiations and proceedings with respect to
demands for appraisal under Delaware Law. Paramount shall not,
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<PAGE>
16
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 II
THE OFFER
SECTION 2.1. The Offer. (a) Viacom has amended and
---------
supplemented the Offer to (i) provide that the purchase price
offered for shares pursuant to the Offer shall be the Per Share
Amount, (ii) provide that the obligation of Viacom to accept for
payment and pay for Shares tendered pursuant to the Offer shall
be subject to the condition (as such condition may be amended in
accordance with the terms hereof, the "Minimum Condition") that
-----------------
at least 61,657,432 shares of Paramount Common Stock (or such
greater number of shares as equals 50.1% of the shares of
Paramount Common Stock then outstanding on a fully diluted basis)
shall have been validly tendered and not withdrawn prior to the
expiration of the Offer, that the Board of Directors of
Paramount, in accordance with Section 3.13 of this Agreement,
shall have amended the Rights Agreement to make the Rights (such
terms being used as defined in Section 3.13) inapplicable to the
Offer and the Merger as contemplated by Section 3.13 or the
Rights shall be otherwise inapplicable to the Offer and the
Merger (the "Rights Condition"), and also shall be subject to the
----------------
satisfaction of the other conditions set forth in Annex A hereto
and (iii) extend the expiration date of the Offer until Midnight
on February 14, 1994. Viacom expressly reserves the right to
waive any such condition (other than the Minimum Condition), to
increase the aggregate cash consideration to be paid pursuant to
the Offer and to increase the number of shares of Paramount
Common Stock sought in the Offer; provided, however, that no
-------- -------
change may be made without the prior written consent of Paramount
which decreases the number of shares of Paramount Common Stock
sought in the Offer below 50.1% of the outstanding shares of
Paramount Common Stock on a fully diluted basis; which decreases
the aggregate cash consideration payable in the Offer or changes
the form of consideration payable in the Offer (except to the
extent the Other Offeror (as defined below) has made such changes
with the consent of Paramount); or which imposes conditions to
the Offer in addition to those set forth in Annex A hereto.
Notwithstanding the foregoing sentence, so long as the Other
Offeror is bound by substantially identical restrictions made for
the benefit of Paramount, Viacom shall not amend the Offer in
order to increase by less than $60 million the aggregate cash
consideration to be paid pursuant to the Offer or increase the
number of shares of Paramount Common Stock for which tenders are
sought by less than 2% of the outstanding shares of Paramount
Common Stock. The Per Share Amount shall, subject to applicable
withholding of taxes, be net to the seller in cash, upon the
terms and subject to the conditions of the Offer. Subject to the
terms and conditions of the Offer (including, without limitation,
the Minimum Condition and the terms of this Agreement), Viacom
I-16
<PAGE>
17
shall pay, as promptly as practicable after expiration of the
Offer, for all shares of Paramount Common Stock validly tendered
and not withdrawn at the earliest such time following expiration
of the Offer that all conditions to the Offer shall have been
waived or satisfied by Viacom.
(b) Viacom has filed with the Securities and Exchange
Commission (the "SEC") an amendment to its Tender Offer Statement
---
on Schedule 14D-1 (together with all amendments and supplements
thereto, the "Schedule 14D-1") with respect to the Offer. The
--------------
Schedule 14D-1 contains or incorporates by reference an amendment
and supplement to the offer to purchase (the "Offer to Purchase")
-----------------
and forms of the related letter of transmittal and any related
summary advertisement (the Schedule 14D-1, the Offer to Purchase
and such other documents, together with all supplements and
amendments thereto, being referred to herein collectively as the
"Offer Documents"). Viacom and Paramount agree to correct
---------------
promptly any information provided by any of them for use in the
Offer Documents which shall have become false or misleading, and
Viacom further agrees to take all steps necessary to cause the
Schedule 14D-1 as so corrected to be filed with the SEC and the
other Offer Documents as so corrected to be disseminated to
holders of shares of Paramount Common Stock, in each case as and
to the extent required by applicable federal securities laws.
(c) (i) Notwithstanding the amendment of the Offer,
Viacom shall be free to terminate the Offer at any time subject
to its continuing obligations to consummate the Merger, including
without limitation pursuant to Sections 6.6 and 6.10, provided
--------
that prior to such termination of the Offer, Viacom shall have
determined in good faith that either (x) terminating the Offer
will facilitate the earlier consummation of the Merger in
accordance with the terms of this Merger Agreement or (y) the
conditions to the Offer (other than the Minimum Condition and the
Rights Condition) are unlikely to be satisfied. Notwithstanding
the foregoing, Viacom hereby agrees that, without the written
consent of Paramount, it may not terminate the Offer unless
required to terminate pursuant to Section 2.5 hereof or extend
the Expiration Date (as defined below) except for failure to
satisfy a condition at the Expiration Date, at any time that all
of the conditions to the Offer have been satisfied or that there
exists no material risk that the conditions will not be satisfied
by such Expiration Date, provided, Viacom may extend the
--------
Expiration Date pursuant to this Section 2.1(c), Sections 2.1(a),
2.1(d) and 2.3 hereof or any such extension required by Federal
securities laws.
(ii) No extension of the expiration date (such
expiration date as extended from time to time shall be defined
herein to mean the "Expiration Date") permitted pursuant to this
---------------
Agreement shall be for a period of less than three business days,
and the Expiration Date shall not be extended for any reason
beyond 12:00 midnight on February 14, 1994, or such later date in
accordance with the last parenthetical of Section 2.1(d)(ii),
Section 2.3, or as required by law to the extent that the
I-17
<PAGE>
18
extension arises due to an event outside the control of Viacom
(those events not deemed to be outside the control of the Offeror
shall include, without limitation, any change in the terms of the
Offer or the Merger) (the "Final Expiration Date"); Viacom
---------------------
agrees that it will not increase the price per share of Paramount
Common Stock payable in the Offer or the Merger or otherwise
amend the Offer or the terms of the Merger primarily to extend
the expiration date of the tender offer by QVC Network, Inc.
("QVC") (the "Other Offeror") to purchase the outstanding shares
--- -------------
of Paramount Common Stock (the "Other Offer"). Any amendment to
-----------
the Offer or any change in the consideration offered to the
Paramount stockholders in the Merger that results in an extension
of the Expiration Date shall be publicly announced by 5:00 p.m.
on the date of such amendment or change. Viacom hereby agrees
that it shall not (a) seek to amend or waive any provision of
this Agreement that is substantially identical to the provisions
relating to the bidding procedures contained in the Other
Exemption Agreement (the "Bidding Procedures") or (b) publicly
------------------
announce an intention to take an action which is not otherwise
permitted, or refrain from taking an action which is required,
under the terms of this Agreement relating to the Bidding
Procedures.
(d) In order to cause the Offer and the Other Offer to
remain on the same time schedule, Viacom hereby agrees that if
the Other Offeror remains subject to an agreement (the "Other
-----
Exemption Agreement"), containing terms for the benefit of
- - - - -------------------
Paramount substantially similar to the form of exemption
agreement between Viacom and Paramount dated as of December 22,
1993, as amended (the "Exemption Agreement"), and (i) extends the
-------------------
expiration date of the Other Offer (such expiration date, as
extended from time to time, the "Other Expiration Date") in
---------------------
accordance with the Other Exemption Agreement, then the
Expiration Date shall be extended (as soon as practicable, but
not later than one business day following the announcement of the
extension of the Other Expiration Date) by Viacom to the Other
Expiration Date, or (ii) if upon notification to Paramount by
Viacom and the Other Offeror of the results of their respective
offers (which notification shall be required to be delivered by
Viacom and the Other Offeror no later than promptly following the
expiration of their respective offers), Paramount has notified
Viacom and the Other Offeror (which notification shall be
required to be delivered by Paramount promptly) that a number of
shares of Paramount Common Stock that would satisfy the Minimum
Condition or the minimum condition defined in the Other Offer
(which under no circumstances may be less than 50.1% of the
outstanding shares of Paramount Common Stock on a fully diluted
basis) (the "Other Minimum Condition") shall not have been
-----------------------
validly tendered (and not withdrawn) pursuant to either the Offer
or the Other Offer, respectively, at the Expiration Date (or a
number of shares of Paramount Common Stock that would satisfy the
Minimum Condition and the Other Minimum Condition shall have been
validly tendered and not withdrawn pursuant to both the Offer and
the Other Offer at the Expiration Date), then Viacom shall extend
I-18
<PAGE>
19
the Expiration Date of the Offer for a period of 10 business
days.
(e) Viacom shall be subject to the obligations of
Sections 2.1(c)(ii), 2.1(d) and 2.5 for so long as the Other
Offeror remains subject to the obligations set forth in the Other
Exemption Agreement; provided, however, that Viacom shall not be
-------- -------
subject to Sections 2.1(c)(ii), 2.1(d) and 2.5 in the event that
the Other Offeror has not performed or complied in all material
respects with the Other Exemption Agreement.
SECTION 2.2. Action by Paramount. (a) Paramount
-------------------
hereby approves of and consents to the making of the Offer and
represents that (i) the Board of Directors of Paramount, at a
meeting duly called and held on February 4, 1994, has unanimously
(A) determined that the Offer and the Merger, taken together, are
fair to and in the best interests of the holders of shares of
Paramount Common Stock, (B) approved and adopted this Agreement
and the transactions contemplated hereby and (C) recommended that
the stockholders of Paramount approve and adopt this Agreement
and the transactions contemplated hereby and accept the Offer,
and (ii) Lazard Freres & Co. has delivered to the Board an
opinion on February 4, 1994, to the effect that, as of such date,
the consideration to be received by the holders of shares of
Paramount Common Stock pursuant to the Offer and the Merger,
taken together, is fair to the holders of shares of Paramount
Common Stock from a financial point of view. Subject to the
fiduciary duties of the Board of Directors of Paramount under
applicable law as advised by independent legal counsel (who may
be such party's regularly engaged legal counsel), Paramount
hereby consents to the inclusion in the Offer Documents prepared
in connection with the Offer of the recommendation of the Board
of Directors of Paramount described in the immediately preceding
sentence.
(b) As soon as reasonably practicable after the date
hereof, Paramount shall file with the SEC an amendment to its
Solicitation/Recommendation Statement on Schedule 14D-9 (together
with all amendments and supplements thereto, the "Schedule
--------
14D-9") containing, subject to the fiduciary duties of the Board
- - - - -----
of Directors of Paramount under applicable law as advised by
independent legal counsel (who may be such party's regularly
engaged legal counsel), the recommendation of the Board of
Directors of Paramount described in Section 2.2(a) and shall
disseminate the Schedule 14D-9 to the extent required by Rule
14e-2 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and any other applicable federal
------------
securities laws. Paramount and Viacom agree to correct promptly
any information provided by any of them for use in the Schedule
14D-9 which shall have become false or misleading, and Paramount
further agrees to take all steps necessary to cause the Schedule
14D-9 as so corrected to be filed with the SEC and disseminated
to holders of shares of Paramount Common Stock, in each case as
and to the extent required by applicable federal securities laws.
I-19
<PAGE>
20
(c) Paramount shall promptly furnish Viacom with
mailing labels containing the names and addresses of all record
holders of shares of Paramount Common Stock and with security
position listings of shares of Paramount Common Stock held in
stock depositories, each as of a recent date, together with all
other available listings and computer files containing names,
addresses and security position listings of record holders and
beneficial owners of shares of Paramount Common Stock. Paramount
shall furnish Viacom with such additional information, including,
without limitation, updated listings and computer files of
stockholders, mailing labels and security position listings, and
such other assistance as Viacom or its agents may reasonably
request. Subject to the requirements of applicable law, and
except for such steps as are necessary to disseminate the Offer
Documents and any other documents necessary to consummate the
Merger or the Offer, Viacom shall hold in confidence the
information contained in such labels, listings and files, shall
use such information only in connection with the Merger and the
Offer, and, if this Agreement shall be terminated in accordance
with Section 8.1, shall deliver to Paramount all copies of such
information then in its possession.
SECTION 2.3. Receipt of Common Stock. Unless the
-----------------------
event referred to in the last parenthetical of Section 2.1(d)(ii)
that would satisfy the Minimum Condition occurs, in the event
that a number of shares of Paramount Common Stock shall have been
validly tendered and not withdrawn in the Offer at the Expiration
Date and, as of such Expiration Date, Viacom has waived all
conditions to the Offer (other than the Minimum Condition and the
conditions relating to the Rights Agreement, Article XI of the
Paramount Certificate of Incorporation, Section 203 of Delaware
Law and judicial or governmental injunction, each as set forth
therein), then Viacom shall extend the Expiration Date to a date
10 business days from the then scheduled Expiration Date;
provided, that such extension shall be for a period of 5 business
- - - - --------
days in the event that the Other Offer has been terminated prior
to the foregoing Expiration Date.
SECTION 2.4. Completion Certificate. At such time as
----------------------
Viacom has fulfilled the terms of Section 2.3 above, Viacom shall
deliver to the Board of Directors of Paramount a certificate (the
"Completion Certificate"), executed by an authorized officer of
----------------------
Viacom, certifying that all the terms of Section 2.3 have been
fulfilled.
SECTION 2.5. Termination of the Offer. Unless the
------------------------
event referred to in the last parenthetical of Section 2.1(d)(ii)
occurs, Viacom hereby agrees to terminate the Offer at such time
as Viacom has been notified pursuant to a certificate executed by
an authorized officer of Paramount that (i) a number of shares of
Paramount Common Stock that would satisfy the Other Minimum
Condition shall have been validly tendered to the Other Offer and
not withdrawn at the Other Expiration Date of the Other Offer,
(ii) all conditions to the Other Offer, except the Other Minimum
Condition and the conditions relating to the Rights Agreement,
I-20
<PAGE>
21
Article XI of the Paramount Certificate of Incorporation, Section
203 of the Delaware Law and judicial or governmental injunction,
each as set forth therein, shall have been waived and (iii) a
completion certificate from the Other Offeror has been delivered
to Paramount; provided, however, that Viacom shall not be
-------- -------
required to terminate the Offer in the event that the Other
Offeror has not performed or complied in all material respects
with the Other Exemption Agreement.
SECTION 2.6. Board of Directors; Section 14(f). (a)
---------------------------------
If requested by Viacom, Paramount shall, promptly following the
acceptance for payment of the shares of Paramount Common Stock to
be purchased pursuant to the Offer, and from time to time
thereafter, take all actions necessary to cause a majority of
directors (and of members of each committee of the Board of
Directors) of Paramount and of each subsidiary of Paramount to be
comprised of the designees of Viacom (whether, at the request of Viacom,
by means of increasing the size of the Board of Directors of Paramount or
seeking the resignation of directors and causing Viacom's
designees to be elected); provided, that prior to receipt by Viacom
--------
of long-form approval by the Federal Communications Commission
(the "FCC") permitting Viacom to control Paramount, Paramount
---
shall take all actions necessary to elect the Viacom voting
trustee approved by the FCC to the Paramount Board of Directors
and to otherwise act in a manner consistent with the voting trust
agreement approved by the FCC.
(b) Paramount's obligations to cause designees of
Viacom to be elected or appointed to the Board of Directors of
Paramount shall be subject to Section 14(f) of the Exchange Act
and Rule 14f-1 promulgated thereunder. Paramount shall promptly
take all actions required pursuant to Section 14(f) and Rule 14f-
1 in order to fulfill its obligations under this Section, and
shall include in the Schedule 14D-9 such information with respect
to Viacom and its officers and directors as is required under
Section 14(f) and Rule 14f-1. Viacom will supply to Paramount
any information with respect to it and its nominees, officers,
directors and affiliates required by Section 14(f) and
Rule 14f-1.
(c) Following the election or appointment of Viacom's
designees pursuant to this Section and prior to the Effective
Time, any amendment or termination of this Agreement, extension
for the performance or waiver of the obligations or other acts of
Viacom or waiver of Paramount's rights hereunder, will require
the concurrence of a majority of directors of Paramount then in
office who are directors on the date hereof or are designated by
a majority of the directors of Paramount who are directors on the
date hereof.
I-21
<PAGE>
22
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARAMOUNT
Paramount hereby represents and warrants to Viacom
that:
SECTION 3.1. Organization and Qualification;
-------------------------------
Subsidiaries. (a) Each of Paramount and each Material Paramount
- - - - ------------
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 Paramount Material Adverse Effect (as defined
below). Paramount and each Material Paramount 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 Paramount Material Adverse Effect. The term "Paramount
---------
Material Adverse Effect" means any change or effect that is or is
- - - - -----------------------
reasonably likely to be materially adverse to the business,
results of operations or financial condition of Paramount and the
Paramount Subsidiaries, taken as a whole; provided, however,
-------- -------
where such term qualifies a representation or warranty contained
in this Article III during the period beginning after the date
hereof and until the Effective Time, then such term shall mean
any change or effect that is or is reasonably likely to be
materially adverse to the business or financial condition of
Paramount and the Paramount Subsidiaries, taken as a whole.
(b) Each subsidiary of Paramount (a "Paramount
---------
Subsidiary") that constitutes a Significant Subsidiary of
- - - - ----------
Paramount within the meaning of Rule 1-02 of Regulation S-X of
the SEC is referred to herein as a "Material Paramount
------------------
Subsidiary".
- - - - ----------
SECTION 3.2. Certificate of Incorporation and By-Laws.
----------------------------------------
Paramount 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 Paramount and each Material Paramount Subsidiary. Such
Certificates of Incorporation, By-Laws and equivalent
organizational documents are in full force and effect. Neither
Paramount nor any Material Paramount Subsidiary is in violation
of any provision of its Certificate of Incorporation, By-Laws or
equivalent organizational documents, except for such violations
I-22
<PAGE>
23
that would not, individually or in the aggregate, have a
Paramount Material Adverse Effect.
SECTION 3.3. Capitalization. The authorized capital
--------------
stock of Paramount consists of 600,000,000 shares of Paramount
Common Stock and 75,000,000 shares of Preferred Stock, par value
$.01 per share ("Paramount Preferred Stock"). As of February 3,
-------------------------
1994, 121,937,762 shares of Paramount Common Stock were issued
and outstanding, all of which were validly issued, fully paid and
nonassessable. As of February 3, 1994, 25,924,286 shares were
held in the treasury of Paramount. As of January 31, 1994,
9,409,208 shares were reserved for future issuance pursuant to
Paramount's 1992 Stock Option Plan and 1989 Stock Option Plan
(any employee stock option issued under any such plan being a
"Stock Option") and reserved for future issuance under the
------------
Long-Term Incentive Plan. Between August 31, 1993 and the date
of this Agreement, awards have been made under the Long-Term
Performance Plan as indicated on Schedule 3.3. As of February 3,
1994, options to acquire 2,398,060 shares of Paramount Common
Stock were outstanding. As of the date hereof, no shares of
Paramount Preferred Stock are issued and outstanding. Except as
set forth in Section 3.3 of the Disclosure Schedule previously
delivered by Paramount to Viacom (the "Paramount Disclosure
--------------------
Schedule"), or except as set forth in this Section 3.3, and
- - - - --------
except pursuant to the Rights Agreement (as defined in Section
3.13), there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating
to the issued or unissued capital stock of Paramount or any
Material Paramount Subsidiary or obligating Paramount or any
Material Paramount Subsidiary to issue or sell any shares of
capital stock of, or other equity interests in, Paramount or any
Material Paramount Subsidiary. All shares of Paramount 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 3.3
of the Paramount Disclosure Schedule, there are no material
outstanding contractual obligations of Paramount or any Paramount
Subsidiary to repurchase, redeem or otherwise acquire any shares
of Paramount Common Stock or any capital stock of any Material
Paramount Subsidiary, or make any material investment (in the
form of a loan, capital contribution or otherwise) in, any
Paramount Subsidiary or any other person. Each outstanding share
of capital stock of each Material Paramount Subsidiary is duly
authorized, validly issued, fully paid and nonassessable and each
such share owned by Paramount or another Paramount Subsidiary is
free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on
Paramount's or such other Paramount Subsidiary's voting rights,
charges and other encumbrances of any nature whatsoever. Set
forth in Section 3.3 of the Disclosure Schedule is Paramount's
percentage interest in the outstanding capital stock or
partnership interests of USA Networks, United Cinemas
International Multiplex B.V., United International Pictures and
Cinamerica Theatres, L.P.
I-23
<PAGE>
24
SECTION 3.4. Authority Relative to This Agreement.
------------------------------------
Paramount has all necessary power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and
to consummate the transactions (including, without limitation,
the Offer) contemplated hereby (the "Transactions"). The
------------
execution and delivery of this Agreement by Paramount and the
consummation by Paramount 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
Paramount are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby (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 Paramount 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 Paramount and, assuming the due authorization, execution and
delivery by Viacom, constitutes a legal, valid and binding
obligation of Paramount, enforceable against Paramount in
accordance with its terms. Paramount has taken all appropriate
actions so that the restrictions on business combinations
contained in Section 203 of Delaware Law and Article XI of
Paramount's Certificate of Incorporation will not apply with
respect to or as a result of the Transactions.
SECTION 3.5. No Conflict; Required Filings and
---------------------------------
Consents. (a) Except as set forth in Section 3.05 of the
- - - - --------
Disclosure Schedule, the execution and delivery of this Agreement
by Paramount does not, and the performance by Paramount of its
obligations under this Agreement will not, (i) conflict with or
violate the Certificate of Incorporation or By-Laws or equivalent
organizational documents of Paramount or any Material Paramount
Subsidiary, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Paramount or
any Paramount Subsidiary or by which any property or asset of
Paramount or any Paramount 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 Paramount
or any Paramount Subsidiary pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Paramount or
any Paramount Subsidiary is a party or by which Paramount or any
Paramount Subsidiary or any property or asset of Paramount or any
Paramount 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 or the Offer in any material
respect, or otherwise prevent Paramount from performing its
obligations under this Agreement in any material respect, and
would not, individually or in the aggregate, have a Paramount
Material Adverse Effect.
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<PAGE>
25
(b) The execution and delivery of this Agreement by
Paramount does not, and the performance of this Agreement by
Paramount 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 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)
-------------
applicable requirements of the Communications Act of 1934, as
amended (the "Communications Act"), and of state and local
------------------
governmental authorities, including state and local authorities
granting franchises to operate cable systems, (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)
applicable requirements, if any, of 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 or the Offer in any material respect,
or otherwise prevent Paramount from performing its obligations
under this Agreement in any material respect, and would not,
individually or in the aggregate, have a Paramount Material
Adverse Effect.
SECTION 3.6. Compliance. Except as set forth in
----------
Section 3.6 of the Paramount Disclosure Schedule, neither
Paramount nor any Paramount Subsidiary is in conflict with,
or in default or violation of, (i) any law, rule, regulation,
order, judgment or decree applicable to Paramount or any
Paramount Subsidiary or by which any property or asset of
Paramount or any Paramount 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 Paramount or any Paramount Subsidiary is a
party or by which Paramount or any Paramount Subsidiary or any
property or asset of Paramount or any Paramount Subsidiary is
bound or affected, except for any such conflicts, defaults or
violations that would not, individually or in the aggregate, have
a Paramount Material Adverse Effect.
SECTION 3.7. SEC Filings; Financial Statements.
---------------------------------
Except as set forth in Section 3.7 of the Paramount Disclosure
Schedule, (a) Paramount has filed all forms, reports and
documents required to be filed by it with the SEC since October
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 fiscal years ended October
31, 1990, 1991 and 1992, respectively, (ii) its Transition Report
on Form 10-K for the six months ended April 30, 1993, as amended,
(iii) its Quarterly Reports on Form 10-Q for the periods ended
July 31, 1993 and October 31, 1993, (iv) all proxy statements
relating to Paramount's meetings of stockholders (whether annual
or special) held since October 31, 1990, and (v) all other forms,
I-25
<PAGE>
26
reports and other registration statements (other than Quarterly
Reports on Form 10-Q not referred to in clause (iii) above and
preliminary materials) filed by Paramount with the SEC since
October 31, 1990 (the forms, reports and other documents referred
to in clauses (i), (ii), (iii), (iv) and (v) above being referred
to herein, collectively, as the "Paramount SEC Reports"). The
---------------------
Paramount SEC Reports and any forms, reports and other documents
filed by Paramount 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
Paramount Subsidiary is required to file any form, report or
other document with the SEC.
(b) Each of the consolidated financial statements
(including, in each case, any notes thereto) contained in the
Paramount 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 Paramount and
the consolidated Paramount Subsidiaries 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).
(c) Except as set forth in Section 3.7 of the
Paramount Disclosure Schedule or except as and to the extent set
forth in the Paramount SEC Reports filed with the SEC prior to
the date of this Agreement, Paramount and the Paramount
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 Paramount Material Adverse Effect.
SECTION 3.8. Absence of Certain Changes or Events.
------------------------------------
Since April 30, 1993, except as contemplated by this Agreement or
as set forth in Section 3.8 of the Paramount Disclosure Schedule,
contemplated by this Agreement or disclosed in any Paramount SEC
Report filed since April 30, 1993 and prior to the date of this
Agreement, Paramount and the Paramount Subsidiaries have
conducted their businesses only in the ordinary course and in a
manner consistent with past practice and, since April 30, 1993,
there has not been (i) as of the date hereof, any change,
occurrence or circumstance in the business, results of operations
or financial condition of Paramount or any Paramount Subsidiary
having, individually or in the aggregate, a Paramount Material
Adverse Effect, (ii) any damage, destruction or loss (whether or
I-26
<PAGE>
27
not covered by insurance) with respect to any property or asset
of Paramount or any Paramount Subsidiary and having, individually
or in the aggregate, a Paramount Material Adverse Effect, (iii)
any change by Paramount 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
Paramount or any Paramount Subsidiary or any redemption, purchase
or other acquisition of any of their respective securities other
than regular quarterly dividends on the shares of Paramount
Common Stock not in excess of $.20 per share and dividends by a
Paramount Subsidiary to Paramount and other than to fund pre-
established Paramount Plans and dividend reinvestment plans, or
(v) other than as set forth in Section 3.3 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
Paramount or any Paramount Subsidiary.
SECTION 3.9. Absence of Litigation. Except as set
---------------------
forth in Section 3.9 of the Paramount Disclosure Schedule or
except as disclosed in the Paramount 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 Paramount, threatened against Paramount or any
Paramount Subsidiary, or any property or asset of Paramount or
any Paramount Subsidiary, before any court, arbitrator or
administrative, governmental or regulatory authority or body,
domestic or foreign, which, individually or in the aggregate, is
reasonably likely to have a Paramount Material Adverse Effect.
Except as disclosed in the Paramount SEC Reports filed with the
SEC prior to the date of this Agreement, neither Paramount nor
any Paramount Subsidiary nor any property or asset of Paramount
or any Paramount Subsidiary is subject to any order, writ,
judgment, injunction, decree, determination or award having or
reasonably likely to have, individually or in the aggregate, a
Paramount Material Adverse Effect.
SECTION 3.10. Employee Benefit Plans. With respect to
----------------------
all the employee benefit plans, programs and arrangements
maintained for the benefit of any current or former employee,
officer or director of Paramount or any Paramount Subsidiary (the
"Paramount Plans"), except as set forth in Section 3.10 of the
---------------
Paramount Disclosure Schedule or the Paramount SEC Reports and
except as would not, individually or in the aggregate, have a
Paramount Material Adverse Effect: (i) each Paramount 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
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28
be expected to affect the qualified status of such Paramount
Plan; (ii) each Paramount Plan has been operated in all respects
in accordance with its terms and the requirements of applicable
law; (iii) neither Paramount nor any Paramount 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 Paramount 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) Paramount and the Paramount Subsidiaries have
not incurred any liability under, and have complied in all
material respects with, the Worker Adjustment Retraining
Notification Act, 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 Paramount Disclosure Schedule or the Paramount SEC
Reports, the aggregate accumulated benefit obligations of each
Paramount Plan subject to Title IV of ERISA (as of the date of
the most recent actuarial valuation prepared for such Paramount
Plan) do not exceed the fair market value of the assets of such
Paramount Plan (as of the date of such valuation).
SECTION 3.11. Trademarks, Patents and Copyrights.
----------------------------------
Paramount and the Paramount 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, trade secrets,
applications for trademarks and for service marks, know-how and
other proprietary rights and information used or held for use in
connection with the business of Paramount and the Paramount
Subsidiaries as currently conducted or as contemplated to be
conducted, and Paramount is unaware of any assertion or claim
challenging the validity of any of the foregoing which,
individually or in the aggregate, would have a Paramount Material
Adverse Effect. The conduct of the business of Paramount and the
Paramount 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 Paramount Material Adverse Effect. To
the best knowledge of Paramount, there are no infringements of
any proprietary rights owned by or licensed by or to Paramount or
any Paramount Subsidiary which, individually or in the aggregate,
would have a Paramount Material Adverse Effect.
SECTION 3.12. Taxes. Paramount and the Paramount
-----
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 Paramount Material
Adverse Effect. Such reports and returns are and will be true,
correct and complete, except for such failure to be true, correct
and complete as would not, individually or in the aggregate, have
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29
a Paramount Material Adverse Effect. Paramount and the Paramount
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 Paramount dated October 31, 1992 (the "Paramount 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
Paramount 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 Paramount, threatening to assert
against Paramount or any Paramount 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 Paramount and the Paramount
Subsidiaries would, individually or in the aggregate, have a
Paramount Material Adverse Effect. The accruals and reserves for
taxes (including interest and penalties, if any, thereon)
reflected in the Paramount 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 Paramount Material
Adverse Effect. Paramount and the Paramount 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 Paramount Material Adverse Effect. There
are no material liens for taxes upon the assets of Paramount or
the Paramount 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
Paramount nor any Paramount Subsidiary has agreed to or is
required to make any adjustment under Section 481(a) of the Code.
Neither Paramount nor any Paramount 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
Paramount or a Paramount Subsidiary to comply with the
representations herein has a Paramount Material Adverse Effect is
necessary, such determination shall be made on an aggregate basis
with all other failures within this Section 3.12.
SECTION 3.13. Amendment to Rights Agreement. (a) The
-----------------------------
Board of Directors of Paramount has taken all necessary action to
amend the Rights Agreement, dated as of September 7, 1988, as
amended, between Paramount and Manufacturers Hanover Trust
Company, as Rights Agent (the "Rights Agreement") so that (i)
----------------
none of the execution or delivery of this Agreement, the exchange
of the shares of Paramount Common Stock for the shares of Viacom
Class B Common Stock and CVRs, Viacom Merger Debentures, Warrants
and cash in accordance with Article II or the making of the Offer
will cause (A) the rights (the "Rights") issued pursuant to the
------
Rights Agreement to become exercisable under the Rights
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<PAGE>
30
Agreement, (B) Viacom or any of the Viacom Subsidiaries to be
deemed an "Acquiring Person" (as defined in the Rights
Agreement), or (C) the "Stock Acquisition Date" (as defined in
the Rights Agreement) to occur upon any such event and (ii) the
"Expiration Date" (as defined in the Rights Agreement) of the
Rights shall occur immediately prior to the Effective Time.
Paramount agrees to take all necessary action to amend the Rights
Agreement so that the consummation of the Offer, on the terms
permitted hereunder, will not cause any of the effects referred
to in Section 3.13 (a)(i)(A), (B) or (C) to occur; provided,
--------
however, that Paramount shall not be required to make such
- - - - -------
amendments to the Rights Agreement if (i) Viacom has not
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 consummation
of the Offer or (ii) Paramount obtains and there is in force from
the Delaware Court of Chancery an order permanently,
preliminarily or temporarily declaring that the making of such
amendments to the Rights Agreement would be contrary to the
fiduciary duties of the Board of Directors of Paramount.
Notwithstanding anything else contained herein, in no event shall
the Board of Directors of Paramount make an amendment of the
Rights Agreement in favor of the Other Offeror or any other
person without making such amendments in favor of Viacom;
provided that Paramount will not be obligated to make such
amendments for Viacom if Viacom has become obligated to terminate
its Offer pursuant to Section 2.5 of this Agreement.
(b) The "Distribution Date" (as defined in the Rights
Agreement) has not occurred.
SECTION 3.14. Opinion of Financial Advisor. Paramount
----------------------------
has received the opinion of Lazard Freres & Co., dated
February 4, 1994, to the effect that, as of such date, the
consideration to be received by the stockholders of Paramount
pursuant to the offer and the Merger, taken together, is fair to
such stockholders from a financial point of view, a copy of which
opinion will be delivered to Viacom promptly upon receipt.
SECTION 3.15. Vote Required. The affirmative vote of
-------------
the holders of a majority of the outstanding shares of Paramount
Common Stock is the only vote of the holders of any class or
series of Paramount capital stock necessary to approve the
Merger.
SECTION 3.16. Brokers. No broker, finder or
-------
investment banker (other than Lazard Freres & Co.) is entitled to
any brokerage, finder's or other fee or commission in connection
with the Transactions based upon arrangements made by or on
behalf of Paramount. Paramount has heretofore furnished to
Viacom a complete and correct copy of all agreements between
Paramount and Lazard Freres & Co. pursuant to which such firm
would be entitled to any payment relating to the Transactions.
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31
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VIACOM
Viacom hereby represents and warrants to Paramount
that:
SECTION 4.1. 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 is
- - - - --------------
reasonably likely to be materially adverse to the business,
results of operations or financial condition of Viacom and the
Viacom Subsidiaries, taken as a whole; provided, however, where
-------- -------
such term qualifies a representation or warranty contained in
this Article IV during the period beginning after the date hereof
and until the Effective Time, then such term shall mean any
change or effect that is or is reasonably likely to be materially
adverse to the business or financial condition of Viacom and the
Viacom Subsidiaries, taken as a whole.
(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 4.2. Certificate of Incorporation and By-Laws.
----------------------------------------
Viacom has heretofore made available to Paramount 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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32
SECTION 4.3. Capitalization. The authorized capital
--------------
stock of Viacom consists of 100,000,000 shares of Viacom Class A
Common Stock, (together with the Viacom Class B Common Stock, the
"Viacom 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 Viacom Series A Preferred Stock (the "Viacom
------
Series A Preferred Stock") and 24,000,000 shares have been
- - - - ------------------------
designated Viacom Series B Preferred Stock (the "Viacom 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
non-assessable, (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 employee stock options or stock incentive
rights granted pursuant to Viacom's 1989 Long-Term Management
Incentive Plan and the Viacom Inc. Stock Option Plan for Outside
Directors. 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 4.3 or 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
17,140,800 shares of Viacom Class B Common Stock for issuance
upon conversion of shares of Viacom Series B Preferred Stock,
(iii) the reservation of 8,570,400 shares of Viacom Class B
Common Stock for issuance upon conversion of shares of Viacom
Series A Preferred Stock, (iv) the issuance of any securities in
connection with the acquisition of Blockbuster Entertainment
Corporation, a Delaware corporation ("Blockbuster"), and (v) the
-----------
reservation of 22,727,273 shares of Viacom Class B Common Stock
for issuance upon the consummation of the transactions
contemplated by the Subscription Agreement, dated as of January
7, 1994 (the "Blockbuster Subscription Agreement"), between
----------------------------------
Blockbuster and Viacom. All shares of Viacom Common Stock and
other securities subject to issuance as aforesaid, upon issuance
on the terms and conditions specified in the instruments pursuant
to which they are issuable, will be duly authorized, validly
issued, fully paid and nonassessable. Except as set forth in
Section 4.3 of the Disclosure Schedule previously delivered by
Viacom to Paramount (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
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33
Viacom Subsidiary or any other person, other than the amended and
restated subscription agreement dated as of October 21, 1993
between Viacom and Blockbuster, the subscription agreement dated
as of October 4, 1993, as amended, between Viacom and NYNEX
Corporation and the Blockbuster Subscription Agreement. 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. If and when the Warrants are exercised for
Viacom Class B Common Stock in accordance with the terms of the
Warrants, such shares of Viacom Class B Common Stock issued upon
such exercise will be duly authorized, validly issued, fully paid
and non-assessable, and the holders of outstanding shares of
capital stock of Viacom are not entitled to any preemptive or
other rights with respect to the Warrants or the Viacom Class B
Common Stock issued upon such exercise. The Viacom Merger
Debentures will be duly authorized, and when the Viacom Merger
Debentures have been duly executed, authenticated, issued and
delivered in the Merger pursuant to the terms of this Agreement
and the Indenture pursuant to which they are issued (the "Viacom
------
Merger Debenture Indenture") between Viacom and the trustee
- - - - --------------------------
thereunder (the "Merger Debenture Trustee"), such Viacom Merger
------------------------
Debentures will then constitute valid and legal binding
obligations of Viacom entitled to the benefits provided by the
Viacom Merger Debenture Indenture. Prior to the Effective Time,
the Viacom Merger Debenture Indenture will have been duly
authorized by Viacom, duly qualified under the Trust Indenture
Act of 1939 and, when duly executed and delivered by Viacom and
the Merger Debenture Trustee, will constitute a valid and binding
instrument of Viacom enforceable in accordance with its terms.
The shares of Viacom Exchange Preferred Stock initially issuable
upon the exchange of the Viacom Merger Debentures will, if
issued, be duly authorized, validly issued, fully paid, non-
assessable and free of pre-emptive rights. The Viacom Exchange
Debentures initially issuable upon exchange of the Viacom Exchange
Preferred Stock for such Viacom Exchange Debentures will be duly
authorized; and when the Viacom Exchange Debentures have been
duly executed, authenticated, issued and delivered in exchange
for the Viacom Exchange Preferred Stock in accordance with the
terms of the Viacom Exchange Debentures and the Indenture
pursuant to which they are issued (the "Viacom Exchange
---------------
Debenture Indenture") between Viacom and the trustee thereunder
- - - - --------------------
(the "Exchange Debenture Trustee"), such Viacom Exchange
--------------------------
Debentures will then constitute valid and legal binding
obligations of Viacom entitled to the benefits provided by the
Viacom Exchange Debenture Indenture. By the date of issuance of
the Viacom Exchange Preferred Stock, the Viacom Exchange
Debenture Indenture will have been duly authorized by Viacom,
duly qualified under the Trust Indenture Act of 1939, and, when
duly executed and delivered by Viacom and the Exchange Debenture
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<PAGE>
34
Trustee, will constitute a valid and binding instrument of Viacom
enforceable in accordance with its terms. Upon their issuance,
the Warrants and the CVRs shall each constitute legal, valid and
binding obligations of Viacom enforceable in accordance with
their terms.
SECTION 4.4. 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 hereby. The
execution and delivery of this Agreement by Viacom and the
consummation by Viacom of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate
action and the Voting Agreement has been approved by the Viacom
Board of Directors for purposes of Section 203 of Delaware Law
and no other corporate proceedings on the part of Viacom are
necessary to authorize this Agreement or to consummate the
transactions contemplated hereby (other than, with respect to the
Merger (including the issuance of, to the extent required by law,
the Viacom Class B Common Stock, the Viacom Merger Debentures, the
CVRs, the Warrants, the Viacom Exchange Preferred Stock and the
Viacom Exchange Debentures), 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
such matters have not been previously voted upon and approved
by the holders of the Viacom Class A Common Stock, the amendment
to Viacom's certificate of incorporation necessary to increase
(x) the shares of authorized Class B Viacom Common Stock to
a number not less than the number sufficient to consummate the
issuance of shares of Viacom Common Stock contemplated under this
Agreement (including such shares issuable upon the exercise of
the Warrants and, if applicable, in connection with the CVRs)
and (y) the size of the Board of Directors of Viacom to a number
not less than 13 (collectively,the "Viacom Vote Matter"; and
------------------
the amendments to Viacom's Restated Certificate of Incorporation
described in clauses (ii)(x) and (y) above being, collectively,
the "Viacom Certificate Amendments"), and the filing and
-----------------------------
recordation of the foregoing amendment to Viacom's Restated
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 Paramount, constitutes a
legal, valid and binding obligation of Viacom, enforceable against
Viacom in accordance with its terms.
SECTION 4.5. No Conflict; Required Filings and
---------------------------------
Consents. (a) The execution and delivery of this Agreement by
- - - - --------
Viacom does not, and the performance of the transactions
contemplated hereby 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
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<PAGE>
35
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) of this Section 4.5, 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 does 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, Trust Indenture Act of 1939, state
securities or 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 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) applicable
requirements, if any, of 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.
SECTION 4.6. 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,
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<PAGE>
36
except for any such conflicts, defaults or violations that would
not, individually or in the aggregate, have a Viacom Material
Adverse Effect.
SECTION 4.7. 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 Paramount, 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 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) Each of the consolidated financial statements
(including, in each case, any notes thereto) contained in the
Viacom 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 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).
(c) 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
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37
which would not, individually or in the aggregate, have a Viacom
Material Adverse Effect.
SECTION 4.8. Absence of Certain Changes or Events.
------------------------------------
Since December 31, 1992, except as contemplated by this
Agreement, any actions taken by Viacom in order to consummate the
acquisition of Blockbuster, or any actions taken by Viacom in
order to consummate the transactions contemplated by the
Blockbuster Subscription Agreement, as set forth in Section 4.8
of the Viacom 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) as of the date hereof, any change, occurrence or
circumstance in the business, results of operations or financial
condition of Viacom or any Viacom Subsidiary having, individually
or in the aggregate, a 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 4.3 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 and
other than as contemplated by the Agreement and Plan of Merger,
dated as of January 7, 1994 (the "Blockbuster Merger Agreement"),
----------------------------
between Blockbuster and Viacom, 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 5,000 shares thereunder.
SECTION 4.9. 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, is reasonably likely to have a Viacom Material
Adverse Effect. Except as disclosed in the Viacom SEC Reports
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38
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 having or
reasonably likely to 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 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 respects in accordance with its terms and the requirements of
applicable law; (v) neither Viacom nor any Viacom Subsidiary has
incurred any direct 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, the
Worker Adjustment Retraining Notification Act, 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, trade secrets,
applications for trademarks and for service marks, know-how and
other proprietary rights and information used or held for use in
connection with the business of Viacom and the Viacom
Subsidiaries as currently conducted or as contemplated to be
conducted, and Viacom is unaware of any assertion or claim
challenging the validity of any of the foregoing which,
individually or in the aggregate, would have a Viacom Material
Adverse Effect. The conduct of the business of Viacom and the
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39
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 determination of whether a failure by
Viacom or a Viacom Subsidiary to comply with the representations
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<PAGE>
40
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., dated
February 1, 1994, to the effect that, as of such date, the
financial terms of the proposed acquisition by Viacom of
Paramount are fair from a financial point of view to Viacom and
its stockholders. A copy of such opinion will be delivered to
Paramount promptly.
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. Ownership of Paramount Common Stock. As
-----------------------------------
of the date of this Agreement and based on the number of issued
and outstanding shares of Paramount Common Stock as of September
3, 1993 set forth in Section 3.3, Viacom and its affiliates
beneficially own, in the aggregate, less than five percent of the
issued and outstanding shares of Paramount Common Stock.
SECTION 4.16. Brokers. No broker, finder or
-------
investment banker (other than Smith Barney Shearson Inc., Goldman
Sachs & Co. and Bear, Stearns & Co. Inc.) is entitled to any
brokerage, finder's or other fee or commission in connection with
the Transactions based upon arrangements made by or on behalf of
Viacom. Viacom has heretofore furnished to Paramount a complete
and correct copy of all agreements between Viacom and each of
Smith Barney Shearson Inc., Goldman Sachs & Co. and Bear, Stearns
& Co. Inc. pursuant to which each such firm would be entitled to
any payment relating to the Transactions.
SECTION 4.17. Financing. Viacom has delivered to
---------
Paramount binding commitments or agreements to obtain the
financing in contemplation of the Transactions (the "Financing")
---------
in an amount sufficient, together with the Viacom Class B Common
Stock, the Viacom Merger Preferred Stock, the CVRs and Warrants,
to acquire all the shares of Paramount Common Stock in the Offer
and the Merger and to pay all related contemplated fees and
expenses. Viacom knows of no fact or circumstance (including the
obligations of Viacom under this Agreement) that is reasonably
likely to result in the inability of Viacom to receive the
proceeds from such Financing.
SECTION 4.18. Purchases of Securities. Since September
-----------------------
12, 1993, neither Viacom nor, to Viacom's knowledge, its
affiliates have purchased or sold shares of Viacom Class A Common
Stock or Viacom Class B Common Stock and neither Viacom nor, to
Viacom's knowledge, its affiliates have any knowledge of any such
trading.
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41
SECTION 4.19. Representations in Blockbuster Merger
-------------------------------------
Agreement. Viacom hereby confirms that the representations and
- - - - ---------
warranties contained in Sections 3.07, 3.08 and 3.09 of the
Blockbuster Merger Agreement shall be true and correct as of the
date hereof and as of the date of consummation of the Offer,
except as would not have a material adverse effect on the
financial condition of Paramount, Viacom and Blockbuster and
their subsidiaries taken as a whole.
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.1. Conduct of Respective Businesses by
-----------------------------------
Paramount and Viacom Pending the Merger. Each of Paramount 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) and, except, in the case of Viacom, for actions taken
by Viacom in order to consummate (x) the acquisition of
Blockbuster and (y) the transactions contemplated by the
Blockbuster Subscription Agreement, the businesses of each of
Paramount and Viacom and their respective subsidiaries shall, in
all material respects, be conducted in, and each of Paramount 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 Paramount 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 (including, without
limitation, the making of the Offer and Section 6.16), (ii) for
any actions taken by Viacom in order to consummate the
acquisition of Blockbuster, (iii) for any actions taken by Viacom
in order to consummate the transactions contemplated by the
Blockbuster Subscription Agreement or (iv) as set forth on
Section 5.1 of the Paramount Disclosure Schedule or Section 5.1
of the Viacom Disclosure Schedule, neither Viacom nor Paramount
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 Paramount
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 Paramount (except,
with respect to Viacom, the Viacom Certificate Amendments
and the Certificate of Designations to be filed with the
Secretary of State of the State of Delaware in respect of
the Viacom Merger Preferred Stock);
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42
(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 Paramount or Viacom), 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 any dividend reinvestment plan or by any Paramount Plan
with an employee stock fund or employee stock ownership plan
feature, consistent with applicable securities laws or the
exercise of options, warrants or other similar rights, or
conversion of convertible preferred stock 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 or otherwise permitted to be granted pursuant
to this Agreement) 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 Viacom, with respect to the Series A
Preferred Stock and the Series B Preferred Stock, and in the
case of Paramount, regular quarterly dividends in amounts
not in excess of $.20 per quarter and payable consistent
with past practice; provided that, prior to the declaration
--------
of any such dividend, Paramount shall consult with Viacom as
to the timing and advisability of declaring any such
dividend and (ii) dividends declared and paid by a
subsidiary of either Paramount 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 Paramount Plan with an employee
stock fund or employee stock ownership plan feature,
consistent with applicable securities laws;
(e) (i) acquire (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
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43
an accommodation become responsible for, the obligations of
any person, or make any loans or advances, except (A) for
any such indebtedness incurred by Viacom in connection with
the Merger or the Offer, (B) the refinancing of existing
indebtedness, (C) borrowings under commercial paper programs
in the ordinary course of business, (D) borrowings under
existing bank lines of credit in the ordinary course of
business, (E) which, in the aggregate, do 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 5.1(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 practices, 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
(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 6.1. Access to Information; Confidentiality.
--------------------------------------
(a) From the date hereof to the Effective Time, each of
Paramount 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 Paramount or Viacom
pursuant to this Section 6.1 shall be kept confidential in
accordance with the confidentiality agreements, dated July 1,
1993 (the "Confidentiality Agreements"), between Paramount and
--------------------------
Viacom.
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44
(c) No investigation pursuant to this Section 6.1
shall affect any representation or warranty in this Agreement of
any party hereto or any condition to the obligations of the
parties hereto.
SECTION 6.2. Intentionally omitted.
---------------------
SECTION 6.3. 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 Paramount 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 Paramount (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 Paramount 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 Paramount'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 without its written consent, which consent shall not be
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45
unreasonably withheld. Any Indemnified Party wishing to claim
indemnification under this Section 6.3 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 6.3, except to the extent
such failure prejudices the Surviving Corporation), 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 Paramount (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) 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 6.3(d) more than an
amount equal to 200% of current annual premiums paid by Paramount
for such insurance (which premiums Paramount represents and
warrants to be $850,000 in the aggregate).
(e) This Section 6.3 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 6.4. Notification of Certain Matters.
-------------------------------
Paramount shall give prompt notice to Viacom, and Viacom shall
give prompt notice to Paramount, of (i) the occurrence, or
nonoccurrence, of any event the occurrence, or nonoccurrence, 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
Paramount 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 6.4 shall not
limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
SECTION 6.5. Tax Treatment. Each of Paramount and
-------------
Viacom will use its reasonable best efforts to cause the Forward
Merger to qualify as a reorganization under the provisions of
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46
Section 368(a) of the Code and to deliver, in connection with the
legal opinion referred to in Section 1.1, letters of
representation reasonable under the circumstances as to their
present intentions and present knowledge.
SECTION 6.6. Registration Statement; Joint Proxy
-----------------------------------
Statement; Offer Documents and Schedule 14D-9. (a) As promptly
- - - - ---------------------------------------------
as practicable after the execution of this Agreement, Viacom and
Paramount shall prepare and file with the SEC an amendment to the
joint proxy statement previously filed with the SEC relating to
the meetings of Paramount'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, as promptly as practicable following
---------------
consummation of the Offer (or expiration or termination of the
Offer without any purchase of shares thereunder), Viacom shall
prepare and file with the SEC a registration statement on Form
S-4 (together with any 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 Class B Common Stock, the
CVRs, the Viacom Merger Debentures and Warrants to be issued to
the stockholders of Paramount pursuant to the Merger, the Viacom
Exchange Preferred Stock into which such Viacom Merger Debentures
are exchangeable, the Viacom Class B Common Stock issuable upon
the exercise of the Warrants and the Viacom Exchange Debentures
for which such Viacom Exchange Preferred Stock is exchangeable.
Each of Paramount 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 Class B Common
Stock, the CVRs, the Viacom Merger Debentures and Warrants
pursuant to the Merger. Paramount shall furnish all information
concerning Paramount as Viacom 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 Paramount shall mail the Proxy
Statement to its respective stockholders; provided that no such
--------
mailing shall be required while the Offer remains outstanding.
The Proxy Statement shall include the recommendation of the Board
of Directors of each of Viacom and Paramount in favor of the
Merger, unless otherwise necessary due to the applicable
fiduciary duties of the respective directors of Viacom and
Paramount, 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
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47
and Paramount, (iii) the time of each of the Stockholders'
Meetings (as defined in Section 6.7), 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 Paramount.
(c) The information supplied by Paramount 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 Paramount 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
Paramount or any of the Paramount Subsidiaries, or their
respective officers or directors, should be discovered by
Paramount which should be set forth in an amendment or a
supplement to the Registration Statement or Proxy Statement,
Paramount shall promptly inform Viacom.
(d) Viacom represents and warrants to Paramount that
the Offer Documents will not, at the time the 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 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) Paramount represents and warrants to Viacom that
neither the Schedule 14D-9 nor any information supplied by
Paramount for inclusion in the Offer Documents shall, at the
respective times the Schedule 14D-9, the Offer Documents or any
amendments or supplements thereto are filed with the SEC or are
first published, sent or given to stockholders of Paramount, as
the case may be, shall 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 Schedule 14D-9 shall comply in all
material respects as to form with the requirements of the
Exchange Act and the rules and regulations thereunder.
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48
SECTION 6.7. Stockholders' Meetings. Paramount 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 (collectively, the "Stockholders' Meetings") as promptly as
----------------------
practicable for the purpose of voting upon the approval, in the
case of Paramount, of the Merger and, in the case of Viacom, of
the Viacom Vote Matter (to the extent such matters have not been
previously voted upon and approved by the holders of the Viacom
Class A Common Stock), and Viacom and Paramount 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; provided that neither
--------
Paramount nor Viacom shall be required to call or hold a
stockholders meeting while the Offer remains outstanding.
Paramount shall use its reasonable best efforts to solicit from
its stockholders proxies in favor of the approval of the Merger,
and Viacom shall use its reasonable best efforts to solicit from
its stockholders proxies in favor of the Viacom Vote Matter and
each of Paramount and Viacom 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 Paramount and Viacom, 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 6.8. Letters of Accountants. (a) Paramount
----------------------
shall use its reasonable best efforts to cause to be delivered to
Viacom "comfort" letters of Ernst & Young, Paramount'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 Paramount "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 Paramount, in form
and substance reasonably satisfactory to Paramount and reasonably
customary in scope and substance for letters delivered by
independent public accountants in connection with transactions
such as those contemplated by this Agreement.
SECTION 6.9. Employee Benefits. The "Continuing
-----------------
Directors" (as such term is defined in certain Paramount Plans,
including, without limitation, Paramount's Corporate Annual
Performance Plan, Corporate Long-Term Performance Plan,
Supplemental Executive Retirement Plan, Non-Qualified Retirement
Plan, Retirement Plan for Non-Employee Directors, Deferred
Compensation Plan for Directors and employment agreements with
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49
Messrs. Doppelt, Greenberg, Hertlein, Levinson, Meyers and
Sherman) prior to the Effective Time shall approve the
transactions contemplated by this Agreement, and prior to the
Effective Time Paramount and its officers and directors shall
take such other actions, or shall forbear from taking any action,
as may be necessary to insure that such transactions shall not
constitute a "Change in Control" (or other similar event
accelerating or triggering changes to benefits or the terms of
any Paramount Plan (a "Paramount Triggering Event")) for purposes
--------------------------
of any Paramount Plan under which a Change in Control (or other
Paramount Triggering Event) may be avoided by action or inaction,
as the case may be, by Paramount or any of its officers or
directors. Paramount shall not terminate either Paramount's
Corporate Annual Performance Plan or Paramount's Long-Term
Performance Plan prior to the Effective Time, and shall (a) delay
the establishment and announcement of targets for awards under
Paramount's Corporate Annual Performance Plan with respect to
Paramount's 1994 fiscal year until after the Effective Time, and
(b) delay the implementation of a new performance cycle under
Paramount's Corporate Long-Term Performance Plan, in each case,
until Paramount and Viacom shall review the terms of such Plans
after the Effective Time and make such changes as they deem
appropriate taking into consideration the effects of the Merger.
Viacom shall take or forbear from taking such action as may be
necessary to insure that the transactions contemplated by this
Agreement shall not constitute a change in ownership or control
(or other similar event accelerating or triggering changes to
benefits or the terms of any Viacom Plan (a "Viacom Triggering
-----------------
Event")) for purposes of any Viacom Plan under which any such
- - - - -----
change in ownership or control (or other Viacom Triggering Event)
may be avoided by action or inaction, as the case may be, by
Viacom or any of its officers or directors.
SECTION 6.10. Further Action; Reasonable Best Efforts.
---------------------------------------
(a) Upon the terms and subject to the conditions hereof, each of
the parties hereto shall (i) make promptly any filings with or
applications to the FCC with respect to the Transactions and (ii)
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,
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 Paramount and
their respective subsidiaries as are necessary for the
consummation of the Transactions. 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 to not take
any action, or enter into any transaction, which would cause any
of its representations or warranties contained in this Agreement
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50
to be untrue or result in a breach of any covenant made by it in
this Agreement.
SECTION 6.11. Debt Instruments. Prior to or at the
----------------
Effective Time, Paramount and each Paramount Subsidiary shall use
its reasonable best efforts to prevent the occurrence, as a
result of the Merger, the Offer 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 Paramount or any Paramount Subsidiary, including,
without limitation, debt securities registered under the
Securities Act.
SECTION 6.12. Public Announcements. Viacom and
--------------------
Paramount shall consult with each other before issuing any press
release or otherwise making any public statements with respect to
this Agreement or any Transaction 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
Paramount 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 6.13. Listing of Viacom Securities. Viacom
----------------------------
shall use its reasonable best efforts to cause the shares of
Viacom Class B Common Stock and the Warrants, Viacom Merger
Debentures and CVRs to be issued in the Merger to be approved for
listing on the AMEX prior to the Effective Time and the Viacom
Exchange Preferred Stock and the Viacom Exchange Debentures to be
approved for listing on the AMEX prior to the issuance thereof.
SECTION 6.14. Affiliates of Paramount. Paramount
-----------------------
represents and warrants to Viacom that Paramount will promptly
deliver to Viacom a letter identifying all persons who may be
deemed affiliates of Paramount under Rule 145 of the Securities
Act, including, without limitation, all directors and executive
officers of Paramount, and Paramount represents and warrants to
Viacom that Paramount has advised the persons identified in such
letter of the resale restrictions imposed by applicable
securities laws. Paramount shall use its reasonable best efforts
to obtain from each person identified in such letter a written
agreement, substantially in the form of Exhibit 6.14. Paramount
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 Paramount after Paramount's delivery of the letter
referred to above and prior to the Effective Time, a written
agreement substantially in the form of Exhibit 6.14.
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51
SECTION 6.15. Conveyance Taxes. Viacom and Paramount
----------------
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 6.16. Rights Agreement. Except as
----------------
contemplated by this Agreement, the Board of Directors of
Paramount shall not amend or modify the Rights Agreement or
redeem the Rights prior to the Effective Time except pursuant to
the Other Exemption Agreement.
SECTION 6.17. Assumption of Debt and Leases. With
-----------------------------
respect to debt issued by Paramount under indentures qualified
under the Trust Indenture Act of 1939 ("Paramount Indentures"),
--------------------
Viacom shall execute and deliver to the trustees under the
respective Paramount Indentures, Supplemental Indentures, in form
satisfactory to the respective trustees, expressly assuming the
obligations of Paramount 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 Paramount under the
respective Indentures and the due and punctual performance of all
the terms, covenants and conditions of the respective Paramount
Indentures to be kept or performed by Paramount and shall deliver
such Supplemental Indentures to the respective trustees under the
Paramount Indenture. Viacom shall similarly deliver instruments
of assumption to the holders of any debt obligations of, and the
lessors of any real property to, Paramount, which debt
obligations or leases expressly require such assumption in order
for the Merger to comply with the debt instrument or lease.
SECTION 6.18. Gains Tax. Except as provided in
---------
Section 1.7(b), Viacom shall pay any New York State Tax on Gains
Derived from Certain Real Property Transfers (the "Gains Tax"),
---------
New York State Real Estate Transfer Tax and New York City Real
Property Transfer Tax (the "Transfer Taxes") and any similar
--------------
taxes in any other jurisdiction (and any penalties and interest
with respect to such taxes), which become payable in connection
with the Offer and the Merger, on behalf of the stockholders of
Paramount. Viacom and Paramount shall cooperate in the
preparation, execution and filing of any required returns with
respect to such taxes (including returns on behalf of the
stockholders of Paramount) and in the determination of the
portion of the consideration allocable to the real property of
Paramount and the Paramount Subsidiaries in New York State and
City (or in any other jurisdiction, if applicable). The terms of
the Offer to Purchase and of the Proxy Statement shall provide
that the stockholders of Paramount shall be deemed to have agreed
to be bound by the allocation established pursuant to this
Section 6.18 in the preparation of any return with respect to the
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52
Gains Tax and the Transfer Taxes and any similar taxes, if
applicable.
SECTION 6.19. Reverse Merger. In the event that a
--------------
decision is made to structure the Merger as a Reverse Merger
pursuant to Section 1.1, Viacom agrees to form Merger Subsidiary
as promptly as practicable following such decision and to cause a
merger agreement conforming to Section 251 of the Delaware Law
and effecting the terms hereof to be adopted by Merger
Subsidiary. Paramount agrees in such case to enter into such
merger agreement.
SECTION 6.20. Post-Offer Agreements. In the event
---------------------
that the Offer is consummated and subject to any applicable
requirements of the FCC: (a) the affirmative vote of a majority
of the directors of Paramount who are directors on the date
hereof and continue as directors on the date of the actions
described below will be required to amend, modify or waive any
provisions of this Agreement, or to approve any other action by
Paramount with respect to the transactions contemplated hereby
which adversely affect the interests of the stockholders of
Paramount; (b) Viacom shall not directly or indirectly cause
Paramount to breach its obligations hereunder; and (c) at the
Paramount Stockholders' Meeting, Viacom shall cause all shares of
Paramount Common Stock then owned by it or its subsidiaries to be
voted in favor of the approval and adoption of this Agreement and
the transactions contemplated hereby.
SECTION 6.21. Transactions With Significant
-----------------------------
Stockholder After the Effective Time. From and after the
- - - - ------------------------------------
Effective Time and until the tenth anniversary of the Effective
Time, Viacom 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 of each class of common stock
subject to such Going Private Transaction and 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
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53
consideration to be received by the stockholders (other than the
Significant Stockholder) in the Going Private Transaction is fair
to them from a financial point of view. Notwithstanding anything
to the contrary in this Section 6.21, the restrictions contained
in this Section 6.21 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.
SECTION 6.22. Blockbuster Merger Agreement and
--------------------------------
Subscription Agreement. Viacom hereby agrees that, from and
- - - - ----------------------
after the date of this Agreement, the terms of (i) the
Blockbuster Merger Agreement and (ii) the Blockbuster
Subscription Agreement shall not, without the consent of
Paramount, be amended or waived in any manner that would have a
material adverse effect on the value of the aggregate
consideration to be received by the Paramount stockholders
pursuant to the terms of the Offer and the Merger taken together.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.1. 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
Paramount, 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 Paramount and the Viacom Vote
Matter (to the extent not previously voted upon and approved
by the holders of Viacom Class A Common Stock) shall have
been approved and adopted by the requisite vote of the
stockholders of Viacom.
(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
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54
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.
(d) AMEX Listing. The shares of Viacom Class B Common
------------
Stock and the Warrants, Viacom Merger Debentures and CVRs
issuable to stockholders of Paramount in accordance with
Article II shall have been authorized for listing on the
AMEX upon official notice of issuance.
SECTION 7.2. 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 Paramount contained in
this Agreement (including, without limitation,
Section 6.06), without giving effect to any notification to
Viacom delivered pursuant to Section 6.4, 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 Paramount Material Adverse Effect. Viacom
shall have received a certificate of the Chief Executive
Officer and Chief Financial Officer of Paramount to such
effect.
(b) Agreement and Covenants. Paramount 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
Paramount to that effect.
(c) Material Adverse Change. Since the date of this
-----------------------
Agreement, there shall have been no change, occurrence or
circumstance in the business, results of operations or
financial condition of Paramount or any Paramount Subsidiary
having or reasonably likely to have, individually or in the
aggregate, a material adverse effect on the business,
results of operations or financial condition of Paramount
and the Paramount Subsidiaries, taken as a whole. Viacom
shall have received a certificate of the Chief Executive
Officer and Chief Financial Officer of Paramount to such
effect.
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55
Notwithstanding the foregoing, the obligations of Viacom to
effect the Merger and the other transactions contemplated herein
following prior consummation of the Offer shall not be subject to
the conditions set forth in Sections 7.2(a), (b) and (c).
SECTION 7.3. Additional Conditions to Obligations of
---------------------------------------
Paramount. The obligation of Paramount 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 6.6),
without giving effect to any notification made by Viacom to
Paramount pursuant to Section 6.4, 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 Viacom Material Adverse Effect. Paramount
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. Paramount shall have received a certificate
of the Chief Executive Officer and Chief Financial Officer
of Viacom to that effect.
(c) No Material Adverse Change. Since the date of
--------------------------
this Agreement, there shall have been no change, occurrence
or circumstance in the business, results of operations or
financial condition of Viacom or any Viacom Subsidiary
having or reasonably likely to have, individually or in the
aggregate, a material adverse effect on the business,
results of operations or financial condition of Viacom and
the Viacom Subsidiaries, taken as a whole. Paramount shall
have received a certificate of the Chief Executive Officer
and Chief Financial Officer of Viacom to such effect.
(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.
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56
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1. 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 Paramount 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 Paramount and Viacom;
(b) by Viacom, prior to consummation of the Offer,
upon a breach of any representation, warranty, covenant
or agreement on the part of Paramount set forth in this
Agreement, or if any representation or warranty of Paramount
shall have become untrue, in either case such that the
conditions set forth in Section 7.2(a) or Section 7.2(b),
as the case may be, would be incapable of being satisfied
by July 31, 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 8.1(b);
(c) by Paramount, 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 7.3(a) or
Section 7.3(b), as the case may be, would be incapable of
being satisfied by July 31, 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 8.1(c);
(d) by either Viacom or Paramount, if any permanent
injunction or action by any Governmental Entity preventing
the consummation of the Merger shall have become final and
nonappealable;
(e) by either Viacom or Paramount, if the Merger shall
not have been consummated before July 31, 1994; provided,
--------
however, that this Agreement may be extended by written
-------
notice of either Viacom or Paramount to a date not later
than September 30, 1994, if the Merger shall not have been
consummated as a direct result of Viacom or Paramount having
failed by July 31, 1994, to receive all required regulatory
approvals or consents with respect to the Merger;
(f) by either Viacom or Paramount, if this Agreement
and the Merger shall fail to receive the requisite vote for
approval and adoption by the stockholders of Paramount or
Viacom at the Stockholders' Meetings;
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57
(g) by Viacom, if (i) the Board of Directors of
Paramount shall withdraw, modify or change its
recommendation of this Agreement, the Merger or the Offer in
a manner adverse to Viacom or shall have resolved to do any
of the foregoing; provided, that a statement by the Board of
--------
Directors of Paramount that it is neutral or unable to take
a position with respect to the Offer after the commencement
or amendment of a tender offer by a third party shall not be
deemed to constitute a withdrawal, modification or change of
its recommendation of this Agreement if the
Solicitation/Recommendation Statement on Schedule 14D-9
relating to such third party tender offer recommends
rejection of such tender offer and the Board of Directors of
Paramount reconfirms its recommendation of the Offer on the
date of the filing thereof; (ii) the Board of Directors of
Paramount shall have recommended to the stockholders of
Paramount a Competing Transaction (as defined below); (iii)
Viacom has not consummated the Offer and a tender offer or
exchange offer for 30% or more of the outstanding shares of
capital stock of Paramount is commenced, and the Board of
Directors of Paramount recommends that the stockholders of
Paramount tender their shares in such tender or exchange
offer; or (iv) Viacom has not consummated the Offer and 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" (as defined in the Rights
Plan) of, more than 30% of the then outstanding shares of
capital stock of Paramount;
(h) by Paramount, if the Board of Directors of
Paramount (x) fails to make or withdraws or modifies its
recommendation referred to in Section 2.2(a) or Section
6.6(a) if there exists at such time a tender offer or
exchange offer or a proposal by a third party to acquire
Paramount pursuant to a merger, consolidation, share
exchange, business combination, tender or exchange offer or
other similar transaction or (y) recommends to Paramount's
stockholders approval or acceptance of any of the foregoing
in each case only if the Board of Directors of Paramount,
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
Paramount to comply with its fiduciary duties to
stockholders under applicable law; and
(i) by Paramount, if due to the occurrence or
circumstance that would result in a failure to satisfy any
of the conditions set forth in Annex A or otherwise, (A) the
Offer shall have expired without the purchase of shares of
Paramount Common Stock thereunder or Viacom shall be
obligated to terminate the Offer pursuant to Section 2.5 or
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58
(B) Viacom shall have failed to accept for payment shares of
Paramount Common Stock pursuant to the Offer prior to 9:00
a.m. on the first business day following the Final
Expiration Date, unless such failure to accept for payment
shares of Paramount Common Stock shall have been caused by
or resulted from the failure of Paramount to perform in any
material respect its material covenants and agreements
contained in this Agreement or resulted from the termination
of the Offer pursuant to Section 2.1(c).
The right of any party hereto to terminate this Agreement
pursuant to this Section 8.1 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 involving Paramount or any Paramount Subsidiaries: (i)
any merger, consolidation, share exchange, business combination,
or other similar transaction; (ii) any disposition of 30% or more
of the assets of Paramount and the Paramount Subsidiaries, taken
as a whole in the single transaction or series of transactions;
(iii) any tender offer or exchange offer for 30% or more of the
outstanding shares of capital stock of Paramount 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, 30% or more of the then outstanding
shares of capital stock of Paramount; 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 8.2. Effect of Termination. Except as
---------------------
provided in Section 9.1, in the event of the termination of this
Agreement pursuant to Section 8.1, this Agreement shall forthwith
become void, there shall be no liability on the part of Paramount
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, however, that (i) 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 and (ii) if Viacom or Paramount shall terminate
this Agreement in accordance with the provisions of Section 8.1,
and if Viacom shall continue the Offer, the exemption agreement
between the parties dated as of December 22, 1993 shall again
become effective.
SECTION 8.3. 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, further, that, after approval of the Merger by
-------- -------
the stockholders of Paramount or Viacom, no amendment, which
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59
under applicable law may not be made without the approval of the
stockholders of Paramount 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 8.4. 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 8.5. Fees, Expenses and Other Payments. All
---------------------------------
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;
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 Paramount and Viacom.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1. Effectiveness of Representations,
---------------------------------
Warranties and Agreements. (a) Except as set forth in Section
- - - - -------------------------
9.1(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 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 6.3 and 6.21 shall survive the Effective Time and those
set forth in Sections 2.2(c), 2.3, 6.1(b), 8.2 and 8.5 and
Article IX hereof shall survive termination.
(c) Each of the representations and warranties made
in Article III shall be deemed to be made on September 12, 1993
and not made on the date hereof, except for representations and
warranties which address matters as of a particular date,
provided, that the representations set forth in the last sentence
- - - - --------
of Section 3.4, Sections 3.13, 3.14, 4.13 and 4.17 and any
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60
representations and warranties with respect to this Agreement,
the Merger and the Offer are made on the date hereof.
(d) Each of Paramount and Viacom agree that nothing
herein shall constitute a waiver of any rights, claims or
defenses of Viacom or Paramount created by or arising under the
Amended and Restated Agreement and Plan of Merger, dated as of
October 24, 1993, as subsequently amended, or the Stock Option
Agreement, dated as of September 12, 1993, between Paramount and
Viacom, as amended by Amendment No. 1 thereto, dated as of
October 24, 1993, all of which rights, claims and defenses are
hereby expressly reserved.
SECTION 9.2. 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, NY 10036
Attention: Senior Vice President,
General Counsel
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 Paramount:
Paramount Communications Inc.
15 Columbus Circle
New York, NY 10023
Attention: Executive Vice President and
General Counsel
Telecopier No.: (212) 373-8184
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61
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: Joel S. Hoffman
Telecopier No.: (212) 455-2502
SECTION 9.3. 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
----------------
Paramount 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 conversion 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" shall have the meaning set forth in
------------
Rule 14d-1(c)(6) as promulgated under the Exchange Act;
(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;
(e) The parties agree that the term "fully diluted
-------------
basis" as used herein, shall mean giving effect to the
-----
shares of Paramount Common Stock then outstanding plus the
shares of Paramount Common Stock issuable upon the exercise
of the then exercisable stock options;
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62
(f) The parties agree that the term "Merger", as used
------
herein, may refer to, consistent with the context of such
usage, each of the single step merger, the second step
merger following the Offer, or both. The parties hereto
agree to promptly amend this Agreement subsequent to the
execution and delivery thereof to provide for more precise
defined terms and usage thereof; and
(g) "subsidiary" or "subsidiaries" of Paramount,
---------- ------------
Viacom, the Surviving Corporation or any other person means
any corporation, partnership, joint venture or other legal
entity of which Paramount, 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 9.4. Time Period. In computing any time
-----------
period hereunder, the computation shall be governed by Rule
14d-1(c)(6) as promulgated under the Exchange Act.
SECTION 9.5. 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 9.6. 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 9.7. Entire Agreement. This Agreement
----------------
(together with the Exhibits, the Paramount Disclosure Schedule,
the Viacom Disclosure Schedule and the other documents delivered
pursuant hereto) and the Confidentiality Agreements 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 9.8. Assignment. This Agreement shall not be
----------
assigned by operation of law or otherwise.
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63
SECTION 9.9. 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 Section 6.3), 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, including
to confer third party beneficiary rights; provided, however,
-------- -------
nothing in the foregoing shall be deemed to derogate from any
rights of the Other Offeror (other than as a third party
beneficiary) as against Paramount or its Board with respect to
any amendment of this Agreement or failure to enforce the
Agreement.
SECTION 9.10. 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 9.11. Governing Law. Except to the extent
-------------
that Delaware Law is mandatorily applicable to the Merger and the
rights of the stockholders of Paramount 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 9.12. 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.
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64
IN WITNESS WHEREOF, Viacom and Paramount have caused
this Agreement to be executed as of the date first written above
by their respective officers thereunto duly authorized.
ATTEST: VIACOM INC.
By /s/ Katherine B. Rosenberg By /s/ Philippe P. Dauman
-------------------------- ------------------------
Assistant Secretary Senior Vice President,
General Counsel and
Secretary
ATTEST: PARAMOUNT COMMUNICATIONS INC.
By /s/ Earl H. Doppelt By /s/ Donald Oresman
------------------------ ------------------------
Assistant Secretary Executive Vice
President
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<PAGE>
ANNEX A
CONDITIONS TO THE OFFER
-----------------------
Notwithstanding any other provision of the Offer,
Viacom shall not be required to accept for payment or pay for any
shares of Paramount Common Stock tendered pursuant to the Offer,
and may terminate or amend the Offer and may postpone the
acceptance for payment of and payment for shares of Paramount
Common Stock tendered, if (i) the Minimum Condition shall not
have been satisfied, (ii) the Rights Condition shall not have
been satisfied, or (iii) at any time on or after the date of this
Agreement, and prior to the acceptance for payment of shares of
Paramount Common Stock, any of the following conditions shall not
exist:
(a) 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 Offer, the Merger or any
transaction contemplated by the Agreement; provided that
--------
Viacom shall have used its reasonable best efforts to cause
any such decree, judgment, injunction or other order to be
vacated or lifted;
(b) Each of the representations and warranties of
Paramount contained in the Agreement (including, without
limitation, Section 6.6), without giving effect to any
notification to Viacom delivered pursuant to Section 6.4,
shall be true and correct as of the date of consummation of
the Offer as though made on and as of such date, except (i)
for changes specifically permitted by the 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 Paramount Material
Adverse Effect;
(c) Paramount shall have performed or complied in all
material respects with all agreements and covenants required
by the Agreement to be performed or complied with by it on
or prior to the date of consummation of the Offer;
(d) Since December 22, 1993, there shall have been no
change, occurrence or circumstance in the business, results
of operations or financial condition of Paramount or any
Paramount Subsidiary having or reasonably likely to have,
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2
individually or in the aggregate, a material adverse effect
on the business, results of operations or financial
condition of Paramount and the Paramount Subsidiaries, taken
as a whole;
(e) The Agreement shall not have been terminated in
accordance with its terms;
(f) Viacom shall not have terminated the Offer under
Sections 2.1(c) or 2.5 of the Agreement;
(g) Viacom and Paramount shall not have agreed that
Viacom shall terminate the Offer or postpone the acceptance
for payment of or payment for shares of Paramount Common
Stock thereunder;
and, in the reasonable judgment of Viacom in any such case, and
regardless of the circumstances (including any action or inaction
by Viacom or any of its affiliates) giving rise to any such
condition, it is inadvisable to proceed with such acceptance for
payment or payment.
The foregoing conditions are for the sole benefit of
Viacom and may be asserted by Viacom regardless of the
circumstances giving rise to any such condition or may be waived
by Viacom in whole or in part at any time and from time to time
in their sole discretion, subject to the terms of this Agreement.
The failure by Viacom at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right;
the waiver of any such right with respect to particular facts and
other circumstances shall not be deemed a waiver with respect to
any other facts and circumstances; and each such right shall be
deemed an ongoing right that may be asserted at any time and from
time to time.
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ANNEX B
PRINCIPAL TERMS OF VIACOM MERGER DEBENTURES
Viacom Merger Debentures
Issuer . . . . . . . . . Viacom.
Interest . . . . . . . . 8% per annum, payable semi-annually,
provided that the initial interest
payment date shall be January 1,
1995.
Maturity . . . . . . . . 12 years from the Effective Time.
Optional Redemption . . . Not redeemable prior to the fifth
anniversary of the Effective Time.
On and after that date, redeemable,
in whole or in part, at the option
of Viacom, initially at a redemption
price of 103% of the principal
amount thereof and thereafter at
prices declining to 100% of the
principal amount thereof on the
eighth anniversary of the Effective
Time, plus, in each case, all
accrued and unpaid interest.
Mandatory Redemption . . None.
Denomination . . . . . . Issuable in minimum denominations of
$1,000 and integral multiples
thereof.
Exchange for Viacom
Exchange Preferred
Stock . . . . . . . . . Exchangeable, at the option of
Viacom, in whole but not in part, on
or after the earlier of (i)
January 1, 1995, but only if the
Blockbuster Merger has not been
consummated by such date, and (ii)
the acquisition by a third party of
beneficial ownership of a majority
of the outstanding voting securities
of Blockbuster, into shares of
Viacom's 5% Cumulative Exchangeable
Preferred Stock (the "Viacom
Exchange Preferred Stock") at the
rate of one share of Viacom Exchange
Preferred Stock for each $50 in
principal amount of Viacom Merger
Debentures exchanged. At the time
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of the exchange, dividends on the
Viacom Exchange Preferred Stock will
be deemed to have accrued from the
date of issuance of the Viacom
Merger Debentures, and no accrued
interest will be paid with respect
to the Viacom Merger Debentures.
Subordination . . . . . . Subordinated in right of payment to
all Senior Indebtedness of Viacom.
Senior Indebtedness of Viacom will
be defined as (a) the principal of,
premium, if any, and accrued and
unpaid interest on (i) indebtedness
of Viacom for money borrowed,
including all obligations of Viacom
under its bank credit facilities,
(ii) guarantees by Viacom of
indebtedness for money borrowed by
any other person, including any
guarantees by Viacom of obligations
of Viacom International Inc., (iii)
trade credit of Viacom and
indebtedness evidenced by notes,
debentures, bonds or other
instruments of indebtedness for
payment of which Viacom is
responsible or liable, by guarantees
or otherwise, and (iv) obligations
of Viacom under capital leases, and
(b) modifications, renewals,
extensions and refunding of any such
indebtedness, obligations or
guarantees, unless it is provided
that such indebtedness, obligations
or guarantees, or such
modifications, renewals, extensions
or refundings thereof, are not
superior in right of payment to the
Viacom Merger Debentures. No
payment on account of principal or
interest on the Viacom Merger
Debentures may be made if at the
time of such payment there exists a
payment default with respect to any
Senior Indebtedness. Upon any
distribution of the assets of Viacom
upon any dissolution, total or
partial liquidation or
reorganization of or similar
proceeding relating to Viacom, the
holders of its Senior Indebtedness
will be entitled to receive payment
in full before the Viacom Merger
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Debenture holders are entitled to
receive any payment.
Events of Default . . . . The term "Event of Default" when
used in the indenture for the Viacom
Merger Debentures will mean any of
the following: (i) failure of
Viacom to pay (whether or not
prohibited by the subordination
provisions) interest for thirty days
on the principal of or any
redemption payment on any of the
Viacom Merger Debentures, (ii)
failure to perform any other
covenant contained in the Indenture
for sixty days after notice to
Viacom by the trustee (or to Viacom
and the trustee by the holders of at
least 25% in aggregate principal
amount of Viacom Merger Debentures
then outstanding) and (iii) certain
events of bankruptcy, insolvency or
reorganization. Any acceleration of
the Viacom Merger Debentures
following an Event of Default shall
not be effective until 5 business
days after notice of acceleration to
holders of Senior Indebtedness under
Viacom's bank credit facilities.
Viacom Exchange Preferred
Stock
Dividends . . . . . . . . Cumulative from the Effective Time
at the annual rate of $2.50 per
share of Viacom Exchange Preferred
Stock, payable quarterly; provided
that, from and after the tenth
anniversary of the Effective Time,
the annual rate shall increase from
$2.50 to $5.00 per share of Viacom
Exchange Preferred Stock.
Liquidation Preference . $50.00 per share of Viacom Exchange
Preferred Stock, plus accrued and
unpaid dividends.
Optional Redemption . . . Not redeemable prior to the fifth
anniversary of the Effective Time.
On and after that date, redeemable
in whole or in part, at the option
of Viacom, initially at a per share
redemption price of $52.50 and
thereafter at prices declining to
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$50.00 on and after the tenth
anniversary of the Effective Time,
plus, in each case, all accrued and
unpaid dividends.
Mandatory Redemption . . None.
Exchange for Viacom
Exchange Debentures . . Exchangeable in whole or in part, at
the option of Viacom, on any
dividend payment date beginning on
and after the third anniversary of
the Effective Time, for Viacom's 5%
Subordinated Debentures (the "Viacom
Exchange Debentures") at the rate of
$50.00 principal amount of Viacom
Exchange Debentures for each share
of Viacom Exchange Preferred Stock.
Viacom may effect such exchange only
if all accrued and unpaid dividends
on the Viacom Exchange Preferred
Stock have been paid.
Voting Rights . . . . . . No voting rights except (i) as
otherwise required by law and (ii)
for the right to elect two
additional directors to Viacom's
Board of Directors in the event that
Viacom has failed to pay dividends
payable on the shares of Viacom
Exchange Preferred Stock for such
number of dividend periods which
shall in the aggregate contain not
less than 360 days. In any such
election, the holders of shares of
Viacom Exchange Preferred Stock will
vote separately as a class with the
holders of shares of any one or more
other shares of preferred stock
ranking on a parity with the Viacom
Exchange Preferred Stock. Such
right to elect two directors will
continue until such dividend
arrearages have been paid.
Viacom Exchange Debentures
Interest . . . . . . . . 5% per annum; provided that, from
and after the tenth anniversary of
the Effective Time, the interest
rate shall increase to 10% per
annum, payable semi-annually.
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Aggregate Principal
Amount . . . . . . . . Equal to aggregate liquidation
preference of Viacom Exchange
Preferred Stock exchanged, with the
Viacom Exchange Debentures being
issued in minimum denominations of
$1,000 and integral multiples
thereof.
Maturity . . . . . . . . 20 years from the Effective Time.
Optional Redemption . . . Not redeemable prior to the fifth
anniversary of the Effective Time.
On and after that date, redeemable,
in whole or in part, at the option
of Viacom, initially at a redemption
price of 105% of the principal
amount thereof and thereafter at
prices declining to 100% of the
principal amount thereof on and
after the tenth anniversary of the
Effective Time, plus, in each case,
all accrued and unpaid interest.
Mandatory Redemption . . None.
Subordination . . . . . . Same as the Viacom Merger
Debentures.
Events of Default . . . . Same as the Viacom Merger
Debentures.
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<PAGE>
ANNEX C
PRINCIPAL TERMS OF CONTINGENT VALUE RIGHTS ("CVRs")
----
Issuer: Viacom.
Payment at Maturity: Following the maturity of a CVR, the
holder of such CVR (the "CVR Holder")
----------
shall have the right to receive the
amount, if any, by which the Target
Price exceeds the greater of the Current
Market Value and the Minimum Price (each
as defined below). The CVRs shall
mature on the Maturity Date unless
otherwise extended to the First Extended
Maturity Date or the Second Extended
Maturity Date, as the case may be (each
as defined below).
Form of Payment: Viacom, at its option, may pay any
amount due under the terms of the CVRs
to the CVR Holders in cash or in the
equivalent fair market value (as
determined by an independent nationally
recognized investment bank) of
registered securities of Viacom,
including, without limitation, common
stock, preferred stock, notes or other
securities.
Target Price: "Target Price" means (i) at the Maturity
------------
Date, $48.00, (ii) at the First Extended
Maturity Date, $51.00 and (iii) at the
Second Extended Maturity Date, $55.00.
In each case, such Target Prices shall
be adjusted upon the occurrence of any
event described in the Section entitled
"Antidilution" set forth below.
Current Market Value: "Current Market Value" means (i) with
--------------------
respect to the Maturity Date and the
First Extended Maturity Date, the median
of the averages of the closing prices on
the American Stock Exchange (or such
other exchange on which such shares are
then listed) of shares of Viacom's Class
B Common Stock, par value $.01 per share
(the "Class B Common Stock"), during
--------------------
each 20 consecutive trading day period
that both begins and ends in the
Valuation Period and (ii) with respect
to the Second Extended Maturity Date,
the average of the closing prices on the
American Stock Exchange (or such other
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exchange on which such shares are then
listed) of the Class B Common Stock
during the 20 consecutive trading days
in the Valuation Period which yield the
highest such average of the closing
prices for any such 20 consecutive
trading day period within the Valuation
Period. "Valuation Period" means the 60
----------------
trading day period immediately preceding
(and including) the Maturity Date, the
First Extended Maturity Date or the
Second Extended Maturity Date, as the
case may be.
Minimum Price: "Minimum Price" means (i) at the
-------------
Maturity Date, $36.00, (ii) at the First
Extended Maturity Date, $37.00 and (iii)
at the Second Extended Maturity Date,
$38.00. In each case, subject to
adjustment upon the occurrence of any
event described in the Section entitled
"Antidilution" set forth below.
Maturity Date;
Extensions Thereof: "Maturity Date" means the first
-------------
anniversary of the effective time (the
"Effective Time") of the merger between
--------------
Viacom and Paramount Communications Inc.
(the "Merger"); provided, however, that
------ -------- -------
Viacom, at its option, may (i) extend
the Maturity Date to the second
anniversary of the Effective Time (the
"First Extended Maturity Date") and (ii)
----------------------------
extend the First Extended Maturity Date
to the third anniversary of the
Effective Time (the "Second Extended
---------------
Maturity Date"). Viacom shall exercise
-------------
either such option to extend by
publishing notice of such exercise in
the Wall Street Journal (Eastern
-------------------
Edition), or if the Wall Street Journal
-------------------
is not then published, such other
newspaper with general circulation in
the City of New York, New York no later
than one business day preceding the
Maturity Date or First Extended Maturity
Date, as the case may be.
No Interest: Other than in the case of interest on
the Default Amount (as defined below),
no interest shall accrue on any amounts
payable to the CVR Holders pursuant to
the terms of CVRs.
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Disposition Payment: Following the consummation of a
Disposition (as defined below), Viacom
shall pay to each CVR Holder for each
CVR held by such CVR Holder an amount,
if any, by which the Discounted Target
Price (as defined below) exceeds the
greater of (a) the fair market value (as
determined by an independent nationally
recognized investment banking firm) of
the consideration, if any, received by
holders of Class B Common Stock for each
share of Class B Common Stock held by
such holder as a result of such
Disposition and (b) the Minimum Price.
Dispositions: "Disposition" means (a) a merger,
-----------
consolidation or other business
combination involving Viacom as a result
of which no shares of Class B Common
Stock shall remain outstanding, (b) a
sale, transfer or other disposition, in
one or a series of transactions, of all
or substantially all of the assets of
Viacom or (c) a reclassification of
Class B Common Stock as any other
capital stock of Viacom or any other
person.
Acceleration Upon
Event of Default: If an Event of Default (as defined
below) occurs and is continuing, either
the bank or trust company acting as the
trustee (the "Trustee") or CVR Holders
-------
holding at least 25% of the outstanding
CVRs, by notice to Viacom (and to the
Trustee if given by CVR Holders), may
declare the CVRs to be due and payable,
and upon any such declaration, the
Default Amount shall become due and
payable and, thereafter, shall bear
interest at an interest rate of 8% per
annum until payment is made to the
Trustee. "Default Amount" means the
--------------
amount, if any, by which the Discounted
Target Price exceeds the Minimum Price.
Discounted Target
Price: "Discounted Target Price" means (a) if a
-----------------------
Disposition or an Event of Default shall
occur prior to the Maturity Date,
$48.00, discounted to the Disposition
Payment Date (as defined below) or the
Default Payment Date (as defined below),
as the case may be, at a per annum rate
of 8%; (b) if a Disposition or an Event
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<PAGE>
4
of Default shall occur after the
Maturity Date but prior to the First
Extended Maturity Date, $51.00
discounted to the date of the
Disposition Payment Date or Default
Payment Date, as the case may be, at a
per annum rate of 8%; or (c) if a
Disposition or an Event of Default shall
occur after the First Extended Maturity
Date but prior to the Second Extended
Maturity Date, $55.00 discounted to the
Disposition Payment Date or Default
Payment Date, as the case may be, at a
per annum rate of 8%. In each case, the
Discounted Target Price and the Minimum
Price shall be adjusted upon the
occurrence of any event described in the
Section entitled "Antidilution" set
forth below. "Disposition Payment
-------------------
Date", with respect to a Disposition,
----
means the date established by Viacom for
payment of the amount due on the CVRs in
respect of such Disposition, which in no
event shall be more than 30 days after
the date on which such Disposition was
consummated. "Default Payment Date"
--------------------
means the date on which the CVRs become
due and payable upon the declaration
thereof following an Event of Default.
Events of Default: "Event of Default", with respect to the
----------------
CVRs, means any of the following which
shall have occurred and be continuing;
(a) default in the payment of all or any
part of the amounts payable in respect
of any of the CVRs as and when the same
shall become due and payable following
the Maturity Date, the First Extended
Maturity Date or the Second Extended
Maturity Date, the Disposition Payment
Date or otherwise; (b) material default
in the performance, or material breach,
of any material covenant or warranty of
Viacom, and continuance of such material
default or breach for a period of 90
days after written notice has been given
to Viacom by the Trustee or to Viacom
and the Trustee by CVR Holders holding
at least 25% of the outstanding CVRs; or
(c) certain events of bankruptcy,
insolvency, reorganization or other
similar events in respect of Viacom.
Antidilution: If Viacom shall in any manner subdivide
(by stock split, stock dividend or
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5
otherwise) or combine (by reverse stock
split or otherwise) the number of
outstanding shares of Class B Common
Stock, Viacom shall correspondingly
subdivide or combine the CVRs and shall
appropriately adjust the Target Price,
the Minimum Price and the Discounted
Target Price.
Trading: None of Viacom, National Amusements,
Inc. or any of their affiliates shall
trade in shares of Class B Common Stock
during the period commencing 10 trading
days before the Valuation Period and
ending on the last day of the Valuation
Period, except with respect to employee
benefit plans and other incentive
compensation arrangements.
No Fractional CVRs: No fraction of a CVR will be issued in
the Merger. In lieu thereof, a cash
payment will be made in an amount
equivalent to the fair market value of
the fraction of the CVR.
CVR Agreement: The CVRs will be issued pursuant to a
CVR Agreement between Viacom and the
Trustee. Viacom shall use its
reasonable best efforts to cause the CVR
Agreement to be qualified under the
Trust Indenture Act of 1939, as amended.
Registration/Listing: The CVRs will be issued in registered
form, and Viacom shall use its
reasonable best efforts to list the CVRs
on the American Stock Exchange (or such
other securities exchange on which the
shares of Class B Common Stock are then
listed).
Nature and Ranking of
CVRs: The CVRs are unsecured obligations of
Viacom and will rank equally with all
other unsecured obligations of Viacom.
I-76
<PAGE>
ANNEX D
Principal Terms of Three Year Warrants
--------------------------------------
Each Three Year Warrant will entitle the holder thereof to
purchase one share of Viacom Class B Common Stock per whole Three
Year Warrant at any time prior to the third anniversary of the
Merger at a price of $60.00, payable in cash. The terms of the
Three Year Warrants will 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. No fraction of a Three Year Warrant will be issued
in the Merger. In lieu thereof, a cash payment will be made in
an amount determined in accordance with Section 1.7 of this
Agreement.
I-77
<PAGE>
ANNEX E
Principal Terms of Five Year Warrants
-------------------------------------
Each Five Year Warrant will entitle the holder thereof
to purchase one share of Viacom Class B Common Stock per whole
Five Year Warrant at any time prior to the fifth anniversary of
the Merger at a price of $70.00, exercisable for cash or by
exchanging, if issued, either Viacom Exchange Preferred Stock
with an equivalent liquidation preference or an equivalent
principal amount of Viacom Exchange Debentures. The terms of the
Five Year Warrants will 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. No fraction of a Five Year Warrant will be issued in
the Merger. In lieu thereof, a cash payment will be made in an
amount determined in accordance with Section 1.7 of this
Agreement.
I-78
<PAGE>
EXHIBIT 6.14
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 Paramount Communications
Inc., 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 Amended and Restated
---
Agreement and Plan of Merger dated as of February 4, 1994 (the
"Agreement"), between Viacom Inc., a Delaware corporation
---------
("Viacom"), and the Company, the Company will be merged with and
------
into Viacom or a wholly owned Subsidiary of Viacom (the
"Merger").
------
As a result of the Merger, I may receive (i) shares of
Class B common stock, par value $.01 per share, of Viacom, (ii)
8% exchangeable subordinated debentures of Viacom, (iii) CVRs (as
defined in the Agreement) and (iv) Warrants (as defined in the
Agreement) (collectively, the "Viacom Securities"). I would
-----------------
receive such securities in exchange for, respectively, shares (or
options for shares) owned by me of common stock, par value $1.00
per share, of the Company (the "Company Securities").
------------------
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 Securities 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
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<PAGE>
2
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.
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] [DEBENTURES] [WARRANTS]
REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933 APPLIES. THE [SHARES] [RIGHTS]
[DEBENTURES] [WARRANTS] REPRESENTED BY THIS
CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH
THE TERMS OF AN AGREEMENT DATED ____________ 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] [DEBENTURES] [WARRANTS]
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]
[DEBENTURES] [WARRANTS] 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."
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<PAGE>
3
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:
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<PAGE>
PRELIMINARY COPIES ANNEX II
PARAMOUNT VOTING AGREEMENT
<PAGE>
ANNEX II
[Conformed Copy]
VOTING AGREEMENT, dated as of January 21, 1994 (this
"Agreement"), between NATIONAL AMUSEMENTS, INC., a Maryland
---------
corporation (the "Stockholder"), and PARAMOUNT COMMUNICATIONS
-----------
INC., a Delaware corporation ("Paramount").
---------
WHEREAS, Viacom Inc., a Delaware corporation
("Viacom"), and Paramount 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 Paramount
- - - - ---------
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 A 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
Paramount to enter into the Merger Agreement, Paramount has
required that the Stockholder agree, and in order to induce
Paramount 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
II-1
<PAGE>
2
combination between Viacom and any person or entity (other than
the Merger and any merger of Blockbuster Entertainment
Corporation, a Delaware corporation ("Blockbuster"), with
-----------
Viacom) 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
Paramount 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 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 Paramount, 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, judgment 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
II-2
<PAGE>
3
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 (other than a voting agreement entered
into in connection with the merger of Blockbuster and Viacom).
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 STOCKHOLDER
----------------------------
SECTION 3.01. No Inconsistent Agreements. The
--------------------------
Stockholder hereby covenants and agrees that, except as
contemplated by this Agreement and the Merger Agreement, 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 (it being agreed that any
voting agreement entered into in connection with a merger of
Viacom and Blockbuster shall not be deemed to be 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.
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<PAGE>
4
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 Paramount and the
Stockholder with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both
written and oral, between Paramount 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.
II-4
<PAGE>
5
IN WITNESS WHEREOF, the Stockholder and Paramount 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
PARAMOUNT COMMUNICATIONS INC.
By /s/ Donald Oresman
-----------------------
Name: Donald Oresman
Title: Executive Vice President,
Chief Administrative Officer,
General Counsel and Secretary
II-5
<PAGE>
PRELIMINARY COPIES ANNEX III
OPINION OF SMITH BARNEY SHEARSON INC.
<PAGE>
SMITH BARNEY SHEARSON
February 1, 1994
The Board of Directors
Viacom Inc.
1515 Broadway
New York, NY 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 the terms of the
proposed acquisition (the "Acquisition") by Viacom of Paramount Communications
Inc. ("Paramount"). We understand that the Acquisition will be effected
pursuant to the terms and subject to the conditions set forth in Viacom's Offer
to Purchase, dated October 25, 1993, as amended and supplemented by the
Supplement thereto, dated November 8, 1993, the Second Supplement thereto,
dated January 7, 1994, the Third Supplement thereto, dated January 18, 1994 and
the Fourth Supplement thereto, to be filed with the Securities and Exchange
Commission on February 1, 1994 (as amended and supplemented, the "Offer to
Purchase"). The terms of the Offer to Purchase provide for the Acquisition
pursuant to a tender offer (the "Offer") by Viacom for 61,607,892 shares of
common stock, par value $1.00 per share, of Paramount ("Paramount Common
Stock"), or such greater number of shares as equals 50.1% of the shares
outstanding on a fully diluted basis, as of the expiration of the Offer, at a
price of $107.00 per share in cash, to be followed by a merger of either
Paramount with and into Viacom or a new subsidiary of Viacom with and into
Paramount (the "Merger"). In the event the Offer is consummated, each share of
Paramount Common Stock issued and outstanding at the Effective Time, subject to
adjustment as specified in the Offer to Purchase, will be converted into the
right to receive (a) 0.93065 of a share of Class B common stock, par value $.01
per share, of Viacom (the "Class B Common Stock"); (b) $17.50 face amount of 5%
exchangeable debentures of $50.00, of Viacom containing the principal terms
described in the Offer to Purchase (the "Merger Debentures"); (iii) 0.93065 of
a contingent value right issued by Viacom ("CVRs") which, as more fully
described in the Offer to Purchase, entitles the holder to consideration in
certain circumstances; (iv) 0.500 of a warrant issued by Viacom each of which,
as more fully described in the Offer to Purchase, entitle the holder to
purchase Class B Common Stock at $60.00 per share under certain circumstances
(the "$60.00 Warrants"), and (v) 0.300 of a warrant issued by Viacom each of
which, as more fully described in the Offer to Purchase, entitle the holder to
purchase Class B Common Stock at $70.00 per share under certain circumstances
(the "$70.00 Warrants") (the Merger Debentures, CVRs, $60.00 Warrants and
$70.00 Warrants, together with the Class B Common Stock, being the "Viacom
Securities"). The terms set forth in the preceding two sentences are referred
to in this letter as the "Financial Terms of the Acquisition."
<PAGE>
We understand further that Viacom and Blockbuster Entertainment
Corporation ("Blockbuster") have entered into an Agreement and Plan of Merger
(the "Blockbuster Merger Agreement") pursuant to which Blockbuster will merge
with and into Viacom (the "Blockbuster Merger"). As more fully described in the
Blockbuster Merger Agreement, and subject to the terms and conditions set forth
therein, each share of common stock, par value $.10 per share, of Blockbuster,
issued and outstanding as of the effective time of the Blockbuster Merger will
be converted into the right to receive (a) 0.0800 of a share of Class A common
stock, par value $.01 per share, of Viacom, (b) 0.60615 of a share of Class B
Common Stock and (c) 1.0000 variable contingent right ("VCRs") issued by Viacom
which, as more fully described in the Blockbuster Merger Agreement, provides
for up to a maximum of 0.13829 of a share of Class B Common Stock to be issued
subsequent to the consummation of the Blockbuster Merger for each VCR held.
We further understand that the consummation of the Acquisition will not be
conditioned upon the consummation of the Blockbuster Merger and may occur
whether or not the Blockbuster Merger is consummated.
In arriving at our opinion, we have (i) reviewed the Offer to Purchase;
(ii) reviewed the Exemption Agreement between Viacom and Paramount dated as of
December 22, 1993 and the form of Agreement and Plan of Merger attached
thereto; (iii) reviewed the Blockbuster Merger Agreement; (iv) met with certain
senior officers of Viacom, Paramount and Blockbuster to discuss the business,
operations, assets, financial condition and prospects of their respective
companies; (v) examined certain publicly available business and financial
forecasts and other data for each of Viacom, Paramount and Blockbuster which
were provided to us by the senior management of Viacom, Paramount and
Blockbuster, respectively, which are not publicly available; (vi) taken into
account certain long-term strategic benefits expected to occur from each of the
Acquisition and the Blockbuster Merger, both operational and financial, that
were described to us by Viacom, Paramount and Blockbuster senior management;
and (vii) reviewed the financial terms of the Acquisition as set forth in the
Offer to Purchase and the Blockbuster Merger as set forth in the Blockbuster
Merger Agreement in relation to, among other things, current and historical
market prices and trading volumes of the Class B Common Stock, Paramount
Common Stock and the common stock of Blockbuster; the earnings and book value
per share of each of Viacom, Paramount and Blockbuster; and the capitalization
and financial condition of each of Viacom, Paramount and Blockbuster. We have
also considered, to the extent publicly available, the financial terms of
certain other business combination transactions which we considered relevant in
evaluating each of the Acquisition and the Blockbuster 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, Paramount and Blockbuster. We have also evaluated the pro
forma financial impact of each of the Acquisition and Blockbuster Merger on
Viacom. In addition to the foregoing, we have 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
- 2 -
<PAGE>
Viacom, Paramount and Blockbuster with respect to the expected future financial
performance of Viacom, Paramount and Blockbuster, 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, Paramount and Blockbuster. We have also relied upon the
views of the management of Viacom, Paramount and Blockbuster and have assumed,
with your consent, that certain long-term strategic benefits, both operational
and financial, will result from each of the Acquisition and the Blockbuster
Merger. We express no opinion as to what the value of the Viacom Securities
will be when issued to Paramount stockholders pursuant to the Merger or the
price at which the Viacom Securities will trade subsequent to the Acquisition.
We have not made or been provided with an independent evaluation or appraisal
of the assets or liabilities (contingent or otherwise) of Viacom, Paramount or
Blockbuster nor have we made any physical inspection of the properties or
assets of Viacom, Paramount or Blockbuster. 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 the Board of
Directors of Viacom in connection with this transaction and will receive a fee
for such services. In the ordinary course of our business, we may actively
trade the equity or debt securities of Viacom, Paramount 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 Acquisition and
are not on behalf of, and are not intended to confer rights or remedies upon,
Paramount, any stockholder of Viacom or Paramount 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 Tender Offer
Statement on Schedule 14D-1 and any amendments thereto to be filed by Viacom
with the Securities and Exchange Commission in connection with the Acquisition
or the Blockbuster Merger or in connection with the respective proxy statements
of Blockbuster and Paramount or the proxy statement/prospectus of Viacom
relating to the Acquisition or any Registration Statement of which any such
proxy statement or 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, the Financial Terms of the Acquisition are fair, from a
financial point of view, to Viacom and its stockholders, whether or not the
Blockbuster Merger is consummated.
Very truly yours,
/s/ SMITH BARNEY SHEARSON INC.
SMITH BARNEY SHEARSON INC.
- 3 -
<PAGE>
PRELIMINARY COPIES ANNEX IV
OPINION OF LAZARD FRERES & CO.
<PAGE>
ANNEX IV
LAZARD FRERES & CO.
One Rockefeller Plaza
New York, NY 10020
Telephone (212) 632-6000
Facsimile (212) 632-6060 NEW YORK
February 4, 1994
The Board of Directors
Paramount Communications Inc.
15 Columbus Circle
New York, NY 10023-7780
Dear Members of the Board:
You have requested our opinion, as of this date, as to the
relationship from a financial point of view of the Viacom Transaction
Consideration (as defined below) to the QVC Transaction Consideration (as
defined below).
We understand that, as set forth in Amendment Number 34 to the Tender
Offer Statement on Schedule 14D-1 filed by QVC Network, Inc. ("QVC"),
Comcast Corporation and BellSouth Corporation with the Securities and
Exchange Commission (the "Commission") on February 1, 1994 (the "QVC Tender
Offer Statement"), QVC has amended its proposal (the "Amended QVC
Proposal") to acquire Paramount Communications Inc. ("Paramount") by
amending the terms of the cash tender offer (the "QVC Offer") that QVC
commenced on October 27, 1993 and the terms of the consideration payable to
the holders (the "Stockholders") of common stock of Paramount ("Common
Stock") in the QVC Second-Step Merger (as defined below). Under the
Amended QVC Proposal, (i) QVC is offering in the QVC Offer to purchase
61,657,432 shares of Common Stock, or such greater number as equals 50.1%
of the outstanding shares of Common Stock (on a fully diluted basis), at a
purchase price of $104.00 per share in cash, and (ii) following completion
of the QVC Offer, in accordance with the form of Agreement and Plan of
Merger, between QVC and Paramount (the "Form QVC Merger Agreement") that is
attached to the Exemption Agreement, dated as of January 21, 1994, between
QVC and Paramount, as amended on January 27, 1994 (the "QVC Exemption
Agreement"), Paramount would be merged into QVC in the proposed second-step
merger between QVC and Paramount (the "QVC Second-Step Merger";
collectively with the QVC Offer, the "QVC Two-Step Transaction"), and each
share of Common Stock not purchased in the QVC Offer (other than shares of
Common Stock held in the treasury of Paramount or owned by Paramount or any
direct or indirect wholly-owned subsidiary of Paramount or QVC or shares of
Common Stock held by those Stockholders (as defined below) who exercise and
perfect stockholders appraisal rights under Delaware law) would be
converted into the right to receive (a) 1.2361 shares of common stock of
QVC (the "QVC Common Stock"), (b) 0.2386 shares of a new series of 6%
cumulative non-convertible exchangeable preferred stock of QVC (the "QVC
Merger Preferred Stock") and (c) 0.32 warrants to purchase one share of QVC
Common Stock at a price of $70.34 per share, exercisable at any time by the
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holder prior to the tenth anniversary of the QVC Second-Step Merger (the
"QVC Warrants") (the aggregate consideration payable to the Stockholders
pursuant to the QVC Offer set forth in clause (i) and the aggregate
consideration payable to the Stockholders pursuant to the QVC Second-Step
Merger set forth in subclauses (a), (b) and (c) of clause (ii) is
collectively referred to as the "QVC Transaction Consideration"). We also
understand that the Amended QVC Proposal provides that the QVC Merger
Preferred Stock will pay cumulative quarterly dividends at a rate of $3.00
per annum per share, will have a liquidation preference of $50.00 per
share, will be redeemable for cash by QVC at declining redemption premiums
on and after the fifth anniversary of the QVC Second-Step Merger and will
be exchangeable by QVC into QVC's 6% subordinated debentures (the "QVC
Debentures") at an exchange rate of $50.00 principal amount of QVC
Debenture per share of QVC Merger Preferred Stock on and after the third
anniversary of the QVC Second-Step Merger. In addition, we understand that
the QVC Warrants will be exercisable with cash or by using an equivalent
amount of liquidation preference of QVC Merger Preferred Stock or principal
amount of QVC Debentures and will be redeemable for cash by QVC, at its
option, at $15.00 per QVC Warrant on and after the fifth anniversary of the
QVC Second-Step Merger.
In addition, we understand that, as set forth in (i) the written
proposal submitted to Paramount by Viacom Inc. ("Viacom") on February 1,
1994 and (ii) Amendment Number 35 to the Tender Offer Statement on Schedule
14D-1 filed by Viacom, National Amusements, Inc., Mr. Sumner M. Redstone
and Blockbuster Entertainment Corporation ("Blockbuster") with the
Commission on February 1, 1994 (the "Viacom Tender Offer Statement")
(collectively, the "Amended Viacom Proposal"), Viacom did not amend the
terms of the cash tender offer (the "Viacom Offer") that it had commenced
on October 25, 1993, but amended the terms of the consideration payable to
the Stockholders in the proposed Viacom Second-Step Merger (as defined
below). Under the Amended Viacom Proposal, (a) Viacom is continuing to
offer in the Viacom Offer to purchase 61,657,432 shares of Common Stock, or
such greater number as equals 50.1% of the outstanding shares of Common
Stock (on a fully diluted basis), at a purchase price of $107.00 per share
in cash, and (b) following completion of the Viacom Offer, in accordance
with the Agreement and Plan of Merger, between Viacom and Paramount, dated
as of January 21, 1994, as amended on January 27, 1994 and as proposed to
be amended to reflect the Amended Viacom Proposal (the "Viacom Merger
Agreement"), Paramount would be merged into Viacom in the proposed second-
step merger between Viacom and Paramount (the "Viacom Second-Step Merger";
collectively with the Viacom Offer, the " Viacom Two-Step Transaction"),
and each share of Common Stock not purchased in the Viacom Offer (other
than shares of Common Stock held in the treasury of Paramount or owned by
Paramount or any direct or indirect wholly-owned subsidiary of Paramount or
Viacom or shares of Common Stock held by those Stockholders who exercise
and perfect stockholders appraisal rights under Delaware law) would be
converted into the right to receive (1) 0.93065 shares of Class B common
stock of Viacom (the "Viacom Class B Common Stock"), (2) $17.50 principal
amount of 8% exchangeable subordinated debentures of Viacom (the "Viacom
Exchangeable Debentures"), (3) 0.5 warrants to purchase one share of Viacom
Class B Common Stock at a price of $60.00 per share, exercisable at any
time by the holder prior to the third anniversary of the Viacom Second-Step
Merger, (4) 0.3 warrants to purchase one share of Viacom Class B Common
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Stock at a price of $70.00 per share, exercisable at any time by the holder
prior to the fifth anniversary of the Viacom Second-Step Merger (the
"Viacom Five Year Warrants") and (5) 0.93065 contingent value rights of
Viacom (the "Viacom CVRs") having the terms described below (the aggregate
consideration payable to Stockholders pursuant to the Viacom Offer set
forth in clause (a) and the aggregate consideration payable to Stockholders
pursuant to the Viacom Second- Step Merger set forth in subclauses (1),
(2), (3), (4) and (5) of clause (b) is collectively referred to as the
"Viacom Transaction Consideration"). In addition, we understand that the
Amended Viacom Proposal provides that the Viacom Exchangeable Debentures
will mature on the twelfth anniversary of the Viacom Second-Step Merger,
will pay interest semi-annually beginning on January 1, 1995 and will be
non-callable until the fifth anniversary of the Viacom Second-Step Merger,
and thereafter may be redeemed for cash by Viacom at declining redemption
premiums. The Amended Viacom Proposal also provides that Viacom will have
the option to exchange at par the Viacom Exchangeable Debentures for the
equivalent liquidation preference of a new series of Viacom 5% cumulative
exchangeable (non-convertible) preferred stock (the "Viacom Merger
Preferred Stock") if the proposed merger between Viacom and Blockbuster
contemplated by the Agreement and Plan of Merger, dated as of January 7,
1994, between Blockbuster and Viacom (the "Blockbuster Merger Agreement")
has not been consummated by January 1, 1995, or earlier, if beneficial
ownership of a majority of the outstanding shares of common stock of
Blockbuster (the "Blockbuster Common Stock") has been acquired by a third
party prior to January 1, 1995. The Amended Viacom Proposal further
provides that the Viacom Merger Preferred Stock will be non-callable until
the fifth anniversary of the Viacom Second-Step Merger, and thereafter, may
be redeemed by Viacom for cash at declining redemption premiums and will
have a liquidation preference of $50.00 per share. In addition, the Viacom
Merger Preferred Stock will be exchangeable into Viacom's 5% subordinated
debentures (the "Viacom Subordinated Debentures") after the third
anniversary of the Viacom Second-Step Merger at an exchange rate of $50.00
principal amount of Viacom Subordinated Debentures for each share of Viacom
Merger Preferred Stock. Moreover, the dividend rate on the Viacom Merger
Preferred Stock and the interest rate on the Viacom Subordinated Debentures
will increase to 10% per annum on the tenth anniversary of the Viacom
Second-Step Merger, if not previously redeemed by Viacom. We further
understand that the Amended Viacom Proposal provides that the Viacom Five
Year Warrants will be exercisable with cash or by using an equivalent
liquidation preference of Viacom Merger Preferred Stock or principal amount
of Viacom Subordinated Debentures. We also understand that the Amended
Viacom Proposal provides that each Viacom CVR will represent the right on
the first anniversary of the Viacom Second-Step Merger to receive in cash
or securities, at Viacom's election, the amount by which the Average
Trading Value (as defined in the Amended Viacom Proposal and as described
below) of Viacom Class B Common Stock is less than a minimum price of
$48.00 per share of Viacom Class B Common Stock, and Viacom will have the
right, in its sole discretion, to extend the payment measurement dates of
the Viacom CVR by one year, in which case the minimum price will increase
to $51.00 per share of Viacom Class B Common Stock, and a further one year
extension right which, if exercised, would increase the minimum price to
$55.00 per share of Viacom Class B Common Stock. As used in the Amended
Viacom Proposal, the "Average Trading Value" will be based upon the market
prices of Viacom Class B Common Stock during the 60 trading days ending on
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the last day of the relevant period and is subject to a floor of $36.00 per
share of Viacom Class B Common Stock on the first anniversary of the Viacom
Second-Step Merger, a floor of $37.00 per share of Viacom Class B Common
Stock on the second anniversary of the Viacom Second-Step Merger and a
floor of $38.00 per share of Viacom Class B Common Stock on the third
anniversary of the Viacom Second-Step Merger.
Lazard Freres & Co. has from time to time acted as financial advisor
to Paramount and has acted as its financial advisor in connection with
proposed QVC Two-Step Transaction and proposed Viacom Two-Step Transaction.
As you know, a General Partner of our firm is a member of Paramount's Board
of Directors. In addition, we have from time to time in the past provided,
and we are currently providing, in matters unrelated to Paramount,
financial advisory or financing services to one or more of the respective
equity investors in Viacom and QVC, or persons engaged in pending
transactions with one or more of such investors, and we have received, or
expect to receive, fees for the rendering of such services. In connection
with our opinions set forth in this letter, we have, among other things:
(i) reviewed the terms and conditions of (a) the Amended QVC
Proposal, the QVC Tender Offer Statement, and the QVC Exemption Agreement
(including the Form QVC Merger Agreement attached thereto) and (b) the
Amended Viacom Proposal, the Viacom Tender Offer Statement and the Viacom
Merger Agreement (including the form Exemption Agreement between Viacom and
Paramount attached thereto);
(ii) reviewed the terms and conditions of the Blockbuster Merger
Agreement and the Subscription Agreement, dated January 7, 1994, between
Viacom and Blockbuster, analyzed the Amended Viacom Proposal both with and
without giving effect to the consummation of the proposed merger between
Viacom and Blockbuster contemplated by the Blockbuster Merger Agreement and
observed that the proposed merger between Viacom and Blockbuster is subject
to the approval of the stockholders of Blockbuster;
(iii) analyzed certain historical business and financial information
relating to Paramount, Viacom, QVC and Blockbuster, including (a) the
Annual Reports to Stockholders and the Annual Reports on Form 10-K of
Paramount for each of the fiscal years ended October 31, 1988 through 1992,
the Transition Report on Form 10-K of Paramount for the period from
November 1, 1992 through April 30, 1993 and Quarterly Reports on Form 10-Q
of Paramount for the quarters ended January 31, April 30, and July 31 for
each of the same fiscal years and for the quarters ended January 31, April
30, July 31 and October 31, 1993, (b) the Annual Reports to Stockholders
and the Annual Reports on Form 10-K of Viacom for each of the fiscal years
ended December 31, 1988 through 1992, and Quarterly Reports on Form 10-Q of
Viacom for the quarters ended March 31, June 30 and September 30 for each
of the same fiscal years, and for the quarters ended March 31, June 30, and
September 30, 1993, (c) the Annual Reports to Stockholders and the Annual
Reports on Form 10-K of QVC for each of the fiscal years ended January 31,
1989 through 1993, and Quarterly Reports on Form 10-Q of QVC for the
quarters ended April 30, July 31 and October 31 for each of the same fiscal
years, and for the quarters ended April 30, July 31 and October 31, 1993
and (d) the Annual Reports to Stockholders and the Annual Reports on Form
10-K of Blockbuster for each of the fiscal years ended December 31, 1988
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through 1992, and Quarterly Reports on Form 10-Q of Blockbuster for the
quarters ended March 31, June 30 and September 30 for each of the same
fiscal years, and for the quarters ended March 31, June 30, and September
30, 1993;
(iv) reviewed certain financial forecasts and other data provided to
us by Paramount, Viacom, QVC and Blockbuster relating to their respective
businesses (except in the case of Paramount, financial forecasts for the
current fiscal year only, having been advised that Paramount has not
prepared projections beyond the current fiscal year);
(v) conducted discussions with members of the senior management of
Paramount, Viacom, QVC and Blockbuster with respect to the business and
prospects of Paramount, Viacom, QVC and Blockbuster and the strategic
objectives of each;
(vi) reviewed public information with respect to certain other
companies in lines of businesses we believe to be comparable to the
businesses of Paramount, Viacom, QVC and Blockbuster;
(vii) reviewed the financial terms of certain business combinations
involving companies in lines of business we believe to be comparable to
those of Paramount, Viacom, QVC and Blockbuster, and in other industries
generally;
(viii) reviewed the historical stock prices and trading volumes of the
Common Stock, Viacom Class B Common Stock, QVC Common Stock and Blockbuster
Common Stock;
(ix) reviewed the procedures for bidding set forth in the Viacom
Merger Agreement and the QVC Exemption Agreement, in particular noting the
respective provisions therein providing for the extension of the QVC Offer
or the Viacom Offer, as applicable, for 10 business days upon delivery of a
Completion Certificate (referred to in the Viacom Merger Agreement or the
QVC Exemption Agreement, as applicable) by Viacom or QVC, as applicable;
and
(x) conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have assumed and relied upon the accuracy and completeness of the
financial and other information provided by Paramount, Viacom, QVC and
Blockbuster to us, and on the representations contained in the Viacom
Merger Agreement and the Form QVC Merger Agreement, and we have not
undertaken any independent verification of such information or any
independent valuation or appraisal of any of the assets of Paramount,
Viacom, QVC or Blockbuster. With respect to the financial forecasts
referred to above, we have assumed that they have been reasonably prepared
on a basis reflecting the best currently available judgments of the
managements of Paramount, Viacom, QVC or Blockbuster as to the future
financial performance of Paramount, Viacom, QVC and Blockbuster,
respectively. In addition, we have assumed that the Amended Viacom
Proposal and the Amended QVC Proposal, were made in compliance with the
terms and conditions of the Viacom Merger Agreement and the QVC Exemption
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Agreement, respectively. Further, our opinions are based on economic,
monetary and market conditions existing on this date.
We have not reviewed any proxy statement or similar document that may
be prepared for use in connection with the proposed QVC Two-Step
Transaction or the proposed Viacom Two-Step Transaction. In accordance
with the Procedures for Submissions of Proposals (the "Bidding Procedures")
established by Paramount's Board of Directors on December 13, 1993,
Paramount's Board of Directors has authorized us to respond to inquiries
with respect to Paramount from prospective bidders (in addition to QVC and
Viacom) and to receive proposals from additional bidders, if any. We have
not, however, solicited third party indications of interest in acquiring
all or any part of Paramount.
As part of our analysis, we have continued to evaluate the
transactions, as we have in the past, not only on the basis of current
market values but also applying other financial valuation methodologies
generally applicable to transactions of this type. These financial
valuation methodologies, which are subject to certain limitations as
applied to these prospective combinations, including the lack of
projections for Paramount beyond the current fiscal year and the
difficulties in quantifying synergies and revenue enhancements resulting
from the combinations, generally favor in varying degrees the Viacom
Transaction Consideration from a financial point of view. On the basis of
recent market values, the QVC Transaction Consideration has had a somewhat
higher market valuation than the Viacom Transaction Consideration; in this
connection, we observe the high volatility of Viacom Class B Common Stock
and QVC Common Stock and that the market prices of the stocks seem to be
impacted by the perception of the market-place as to whether QVC or Viacom
would be the ultimate acquiror of Paramount.
We observe the express preference of Paramount's Board of Directors in
the Bidding Procedures for cash and securities readily susceptible to
valuation, such as securities with a fixed income stream, with a liquidation
preference, or in the case of equity securities, securities which enjoy the
benefits of a wide collar or other value assurance mechanism. In this
regard, we note that there is a greater percentage of cash and fixed income
securities as components of the Viacom Transaction Consideration than the QVC
Transaction Consideration, although the magnitude of the difference in the
respective percentages between the two current bids has decreased in
comparison to the most recent previous bids submitted by Viacom and QVC.
We further note the offering of the Viacom CVRs in the Amended Viacom
Proposal.
Our engagement and the opinions expressed herein are solely for the
benefit of Paramount's Board of Directors and are not on behalf of, and are not
intended to confer rights or remedies upon, Viacom, QVC, Blockbuster, any
stockholders of Paramount, Viacom, QVC or Blockbuster or any other person
other than Paramount's Board of Directors.
In reaching our opinions expressed herein, we have taken into account
various factors, including our assessment of the probability of
consummation of the proposed merger between Viacom and Blockbuster
contemplated by the Blockbuster Merger Agreement under the circumstances
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existing on the date of this letter and that, given the terms and
conditions of the proposed QVC Two-Step Transaction and the proposed Viacom
Two-Step Transaction and the limitations of the financial valuation
methodologies referred to above, we continue to view as a favorable factor
an offer that contains a greater percentage of cash and securities readily
susceptible to valuation. Based on and subject to the foregoing and such
other factors as we deemed relevant, including our assessment of economic,
monetary and market conditions existing on the date of this letter, we are
of the opinion that, as of this date, (i) the QVC Transaction Consideration
is fair to the Stockholders from a financial point of view (ii) the
Viacom Transaction Consideration is fair to the Stockholders from a financial
point of view and (iii) the Viacom Transaction Consideration is marginally
superior to the QVC Transaction Consideration from a financial point of view.
Very truly yours,
/s/ Lazard Freres & Co.
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PRELIMINARY COPIES ANNEX V
EXCERPT FROM THE DELAWARE
GENERAL CORPORATION LAW
RELATING TO DISSENTERS' RIGHTS
<PAGE>
ANNEX V
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 Sectionshall 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 anythingexcept: (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.
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(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
V-2
<PAGE>
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
V-3
<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.
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<PAGE>
PRELIMINARY COPIES ANNEX VI
FORM OF CERTIFICATE OF MERGER FOR THE PARAMOUNT MERGER
<PAGE>
CERTIFICATE OF MERGER
MERGING
VIACOM SUB INC.
WITH AND INTO
PARAMOUNT COMMUNICATIONS INC.
PURSUANT TO SECTION 251 OF THE
DELAWARE GENERAL CORPORATION LAW
The undersigned, being the [Title] of Paramount Communications Inc., a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware ("Paramount"), 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>
Viacom Sub Inc. ...................................................... Delaware
Paramount Communications Inc. ........................................ Delaware
</TABLE>
SECOND: That a Second Amended and Restated Agreement and Plan of Merger
dated as of [ ], 1994 (the "Merger Agreement") among Paramount, Viacom
Sub Inc. (the "Merger Subsidiary") and Viacom Inc. 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 Paramount shall be the surviving corporation (the "Surviving
Corporation").
FOURTH: The Restated Certificate of Incorporation of Paramount will be
amended in its entirety to read as the Restated Certificate of Incorporation
attached hereto as Exhibit A.
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:
15 Columbus Circle
New York, New York 10023
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, Paramount has caused this Certificate of Merger to be
signed by , its [Title of Officer], and attested by ,
its [Assistant] Secretary, this day of [ ], 19 .
PARAMOUNT COMMUNICATIONS INC.
By:
..................................
Title:
ATTEST:
.....................................
[Assistant] Secretary
VI-1
<PAGE>
EXHIBIT A
RESTATED
CERTIFICATE OF INCORPORATION
OF
PARAMOUNT COMMUNICATIONS INC.
FIRST: The name of the corporation (hereinafter called the "corporation")
is
PARAMOUNT COMMUNICATIONS INC.
SECOND: The address, including street, number, city, and county, of the
registered office of the corporation in the State of Delaware is
; and the name of the registered agent of
the corporation in the State of Delaware is .
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is Two Hundred (200), all of which are without par
value. All such shares are of one class and are shares of Common Stock.
FIFTH: The corporation is to have perpetual existence.
SIXTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
SEVENTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and regulation
of the powers of the corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
VI-2
<PAGE>
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the By-Laws. The phrase "whole
Board" and the phrase "total number of directors" shall be deemed to have
the same meaning, to wit, the total number of directors which the
corporation would have if there were no vacancies. No election of directors
need be by written ballot.
2. After the original or other By-Laws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and, after the corporation has received any payment for any of
its stock, the power to adopt, amend, or repeal the By-Laws of the
corporation may be exercised by the Board of Directors of the corporation;
provided, however, that any provision for the classification of directors
of the corporation for staggered terms pursuant to the provisions of
subsection (d) of Section 141 of the General Corporation Law of the State
of Delaware shall be set forth in an initial By-Law or in a By-Law adopted
by the stockholders entitled to vote of the corporation unless provisions
for such classification shall be set forth in this certificate of
incorporation.
3. Whenever the corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever
the corporation shall be authorized to issue more than one class of stock,
no outstanding share of any class of stock which is denied voting power
under the provisions of the certificate of incorporation shall entitle the
holder thereof to the right to vote at any meeting of stockholders except
as the provisions of paragraph (2) of subsection (b) of Section 242 of the
General Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied voting
power shall entitle the holder thereof to vote upon the increase or
decrease in the number of authorized shares of said class.
EIGHTH: The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by the provisions of
paragraph (7) of subsection (b) of Section 102 of the General Corporation Law
of the State of Delaware, as the same may be amended and supplemented.
NINTH: The corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
TENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
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<PAGE>
PRELIMINARY COPIES ANNEX VII
FORM OF CERTIFICATE OF AMENDMENT
<PAGE>
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 [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: At a meeting of the Board of Directors of Viacom duly called and
held on [ ], 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 be
held on .
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 , [Title
of Officer] of Viacom, and attested by , [Assistant] Secretary of
Viacom, this day of , 1994.
VIACOM INC.
By:
..................................
Title:
ATTEST:
.....................................
[Assistant] Secretary
VII-1
