SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
dick clark productions, inc.
----------------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies: Common
Stock, par value $0.01 per share, and Class A Common Stock, par value
$0.01 per share
2) Aggregate number of securities to which transaction applies: 9,284,016
shares of Common Stock and 909,560 shares of Class A Common Stock
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): (i) $14.50
with respect to 2,974,874 shares of Common Stock and 90,955 shares of
Class A Common Stock, (ii) the difference between $14.50 and the
exercise price of each outstanding option to purchase an aggregate of
289,589 shares of Common Stock and (iii) $12.50 with respect to
6,309,142 shares of Common Stock and 818,605 shares of Class A Common
Stock
4) Proposed maximum aggregate value of transaction: $136,143,073.88
5) Total fee paid: $12,604
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
[dcpi Logo]
dick clark productions, inc.
3003 West Olive Avenue
Burbank, California 91505-4590
__________ __, 2002
Dear Stockholders:
You are cordially invited to attend a special meeting of stockholders of
dick clark productions, inc. to be held at The Holiday Inn Burbank, 150 East
Angeleno Avenue, Burbank, CA 91502 on [_______], 2002.
At this special meeting, you will be asked to consider and vote upon a
proposal to adopt a merger agreement which provides for a merger involving dick
clark productions and DCPI Investco, Inc. Upon completion of the merger, you
will be entitled to receive $14.50 in cash for each share of dick clark
productions common stock that you own at that time, and you will no longer be a
stockholder. In the merger, my wife, Mrs. Karen W. Clark, who is also a director
of dick clark productions, Olive Enterprises, Inc., a corporation that I own,
and I will receive $12.50 per share for our dick clark productions common stock
and class A common stock.
DCPI Investco is owned by a group of investors that includes Mosaic Media
Group, Inc. and Capital Communications CDPQ Inc. Prior to the merger, Francis C.
La Maina, the president, chief operating officer and a director of dick clark
productions, and I will contribute a portion of our shares of dick clark
productions class A common stock to DCPI Investco in exchange for a minority
interest in the common stock of DCPI Investco. I have agreed to serve as the
chairman, chief executive officer and a director of DCPI Investco after the
merger. Mr. La Maina has agreed to serve as the president, chief operating
officer and a director of DCPI Investco after the merger.
On December 18, 2001, dick clark productions board of directors formed a
special committee of its independent directors to consider and evaluate the
fairness of the transaction to our public stockholders. The special committee
consists of Messrs. Robert A. Chuck and Lewis Klein, neither of whom is an
employee of, or consultant to, any of the parties in the merger, and neither of
whom has any interest in the proposed merger, except that Mr. Klein owns 1,818
shares of dick clark productions common stock.
The special committee and dick clark productions' board of directors
recommend that you vote "FOR" adoption of the merger agreement. In arriving at
their recommendations, the special committee and the board of directors gave
careful consideration to a number of factors described in the accompanying proxy
statement. Two factors were the written opinions of Allen & Company Incorporated
and Ladenburg Thalmann & Co. Inc., the financial advisors to the board of
directors, that the $14.50 per share to be received by dick clark productions'
stockholders (other than myself, my wife and Olive Enterprises) as a result of
the merger is fair from a financial point of view to our public stockholders.
Under the Delaware General Corporation Law, the affirmative vote of at
least a majority of the votes entitled to be cast by the holders of the
outstanding shares of common stock and class A common stock of dick clark
productions, voting together as a class, whether in person or by proxy, is
required to adopt the merger agreement. My wife, Olive Enterprises and I have
agreed to vote our shares in favor of the adoption of the merger agreement. In
addition, Mr. La Maina intends to vote his shares in favor of the
adoption of the merger agreement.
The accompanying proxy statement explains the proposed merger and provides
specific information concerning the special meeting. It also includes copies of
the merger agreement and the written opinions of Allen & Company and Ladenburg
Thalmann. Please read it carefully. In particular, you should carefully consider
the discussion in the section entitled "Special Factors" beginning on page __.
Whether or not you plan to attend the special meeting, we urge you to
please complete, sign and return your proxy as soon as possible in the enclosed
self-addressed envelope so that your vote will be recorded. Even if you return
your proxy card, you may still attend the special meeting and vote your common
stock in person. Your proxy may be revoked at any time before it is voted by
submitting a written revocation or a proxy bearing a later date to the secretary
of dick clark productions, or by attending and voting in person at the special
meeting. For stock held in "street name," you may revoke or change your vote by
submitting instructions to your broker or nominee.
Sincerely,
Richard W. Clark
Chief Executive Officer and Chairman of the
Board
Neither the Securities and Exchange Commission nor any state securities
regulators have approved or disapproved the merger agreement or the proposed
merger nor have they determined if the proxy statement is adequate or accurate.
Furthermore, the Securities and Exchange Commission has not determined the
fairness or merits of the proposed merger. Any representation to the contrary is
a criminal offense.
This proxy statement is dated ______ __, 2002 and is first being mailed to
stockholders of dick clark productions on or about ______ __, 2002.
dick clark productions, inc.
3003 West Olive Avenue
Burbank, California 91505-4590
____________
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD [__________], 2002
Notice is hereby given that a special meeting of stockholders of dick
clark productions, inc., a Delaware corporation, will be held at The Holiday Inn
Burbank, 150 East Angeleno Avenue, Burbank, CA 91502, on [______ __], 2002 to:
1. Consider and vote upon a proposal to adopt the Agreement and Plan
of Merger, dated as of February 13, 2002, by and among Capital
Communications CDPQ Inc., DCPI Investco, Inc., DCPI Mergerco,
Inc., a wholly owned subsidiary of DCPI Investco, and dick clark
productions, inc., pursuant to which DCPI Mergerco will merge
with and into dick clark productions, inc., as described in the
accompanying proxy statement; and
2. Consider such other matters as may properly come before the
special meeting or any adjournment or postponement thereof.
Holders of dick clark productions' common stock and class A common
stock at the close of business on [________], 2002, will be entitled to vote at
the special meeting or any adjournment or postponement thereof.
By Order of the Board of Directors,
Martin Eric Weisberg
Secretary
[__________], 2002
- --------------------------------------------------------------------------------
Whether or not you plan to attend the special meeting, we urge you to please
complete, sign and return your proxy as soon as possible in the enclosed
self-addressed envelope so that your vote will be recorded.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
SUMMARY TERM SHEET ................................................................ 1
CERTAIN QUESTIONS AND ANSWERS ABOUT VOTING AND THE MERGER ......................... 9
INTRODUCTION ...................................................................... 10
Forward-Looking Information .................................................. 10
SPECIAL FACTORS ................................................................... 11
Background of the Transaction ................................................ 11
Recommendations of the Special Committee and the Board; The Company's
Purpose and Reasons for the Merger .......................................... 25
Opinion of Allen & Co. ....................................................... 28
Opinion of Ladenburg ......................................................... 36
Interests of Messrs. Clark and La Maina in the Merger and the Company ........ 41
Effect of the Merger ......................................................... 42
Conduct of the Business of the Company if the Merger is not Consummated ...... 43
Certain United States Federal Income Tax Consequences ........................ 43
Fees and Expenses ............................................................ 44
Accounting Treatment ......................................................... 45
Financing of the Merger ...................................................... 45
Regulatory Approvals ......................................................... 45
Risks that the Merger will not be Consummated ................................ 46
Appraisal Rights ............................................................. 46
LITIGATION PERTAINING TO THE MERGER ............................................... 48
THE MERGER AGREEMENT .............................................................. 48
RELATED AGREEMENTS ................................................................ 54
BUSINESS OF DCPI MERGERCO ......................................................... 57
BUSINESS OF THE COMPANY ........................................................... 57
CERTAIN TRANSACTIONS .............................................................. 66
MARKET PRICES OF AND DIVIDENDS ON THE COMMON STOCK ................................ 67
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .................... 68
SELECTED FINANCIAL DATA OF THE COMPANY ............................................ 70
VOTE REQUIRED AND RECOMMENDATION .................................................. 71
WHERE YOU CAN FIND MORE INFORMATION ............................................... 71
AVAILABLE INFORMATION ............................................................. 72
MISCELLANEOUS ..................................................................... 73
Annex A -- Agreement and Plan of Merger ........................................... A-1
-i-
Annex B -- Fairness Opinion of Allen & Company Incorporated .............. B-1
Annex C -- Fairness Opinion of Ladenburg Thalmann & Co. Inc. ............. C-1
Annex D -- Delaware General Corporation Law Section 262 .................. D-1
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SUMMARY TERM SHEET
This summary term sheet does not contain all of the information that is
important to you. You are urged to read carefully this entire proxy statement in
order to understand fully the merger. The merger agreement is attached as Annex
A to this proxy statement. We encourage you to read the merger agreement, as it
is the legal document that governs the merger.
. The Parties
dick clark productions, inc., a Delaware corporation with its principal
executive office at 3003 West Olive Avenue, Burbank, California 91505-4590, is a
leading independent producer of a wide range of television programming for
broadcast networks, cable networks, distributors and advertisers. dick clark
productions has produced thousands of shows and specials in all genres and for
all day parts, including such perennial hits as "Dick Clark's New Year's Rockin
Eve(R)," the "American Music Awards(R)," the "Golden Globe Awards," the
"Bloopers(R)" specials and series, the "Daytime Emmy Awards," the "Academy of
Country Music Awards," and the recent "Disney's American Teacher Awards," among
others. dick clark productions also is a leading creator of award-winning
communications experiences from live events and meetings to integrated marketing
programs for major corporations. dick clark restaurants, inc., a subsidiary of
dick clark productions, licenses and operates "Dick Clark's American Bandstand"
casual dining restaurants. Due to continued declining operating results in its
restaurant operations, dick clark restaurants plans to dispose of certain units
over the next twelve (12) months and is considering the possible disposition of
the remaining operations. See "BUSINESS OF THE COMPANY."
DCPI Investco, Inc. is a Delaware corporation organized by Mosaic Media
Group, Inc., Capital Communications CDPQ Inc., Jules Haimovitz, and Henry D.
Winterstern to acquire the capital stock of dick clark productions. Upon the
consummation of the merger, Richard W. Clark, the chairman, chief executive
officer and a director of dick clark productions, and Francis C. La Maina, the
president, chief operating officer and a director of dick clark productions,
will become minority stockholders of DCPI Investco.
DCPI Mergerco, Inc. is a Delaware corporation that is wholly-owned by
DCPI Investco, Inc., and has been formed solely to effect the merger and does
not conduct any business activities.
Mosaic Media Group, Inc. is a Delaware corporation engaged in talent
management and the creation, production, distribution, exploitation and delivery
of entertainment.
Capital Communications CDPQ Inc. is a Quebec corporation and subsidiary
of Caisse de Depot et Placement du Quebec, a Canadian pension fund. In addition
to being a stockholder of DCPI Investco, Capital Communications is a stockholder
of Mosaic Media Group, Inc. and has agreed, in the absence of other
arrangements, to provide the financing necessary for DCPI Investco to consummate
the merger.
. Proposed Acquisition
Structure of the Merger. DCPI Mergerco will be merged with and into
dick clark productions, the separate existence of DCPI Mergerco will cease and
dick clark productions will continue as the surviving corporation.
Stockholder Vote. You are being asked to vote to adopt the merger
agreement. Under the Delaware General Corporation Law, the affirmative vote of a
majority of the votes entitled to be cast by the holders of the outstanding
shares of common stock and class A common stock of dick clark
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productions, voting together as a class, whether in person or by proxy, is
required to adopt the merger agreement. Mr. Clark, Mrs. Clark and Olive
Enterprises have agreed to vote their shares in favor of the adoption of the
merger agreement. In addition, Mr. La Maina intends to vote his shares in favor
of the adoption of the merger agreement. Based on their ownership of dick clark
productions common stock and class A common stock, the affirmative vote of other
dick clark productions stockholders is not required to adopt the merger
agreement.
Effectiveness of the Merger. The merger will be effective upon the
filing of a certificate of merger with the Secretary of State of the State of
Delaware in accordance with the Delaware General Corporation Law or at such
later time as is specified in the certificate of merger. See "THE MERGER
AGREEMENT -- Effective Time of the Merger."
Price for Your Stock. As a result of the merger, you will receive
$14.50 in cash for each of your shares of dick clark productions' common stock.
. dick clark productions' Common Stock Price
dick clark productions' common stock is listed on the Nasdaq National
Market under the symbol "DCPI." On February 13, 2002, the last full trading day
before the public announcement by dick clark productions of the signing of the
merger agreement, the common stock closed at $10.93 per share. The class A
common stock of dick clark productions does not trade on any exchange or
quotation system. On ________ __, 2002, the last trading day prior to the date
of this proxy statement, the common stock of dick clark productions closed at
$___ per share. See "MARKET PRICES OF AND DIVIDENDS ON THE COMMON STOCK."
. Effect of Merger on dick clark productions
Following the merger, dick clark productions will be a wholly-owned
subsidiary of DCPI Investco and its shares will no longer be traded on the
Nasdaq National Market or be registered under the Securities Exchange Act of
1934, as amended.
. Treatment of Stock Options
Immediately prior to the merger becoming effective, all outstanding
stock options are to be cancelled. In consideration of such cancellation, the
holder of each such stock option will receive, in cash and as full settlement
for such stock option, whether or not then exercisable, an amount determined by
multiplying (i) the excess, if any, of $14.50 over the applicable exercise price
per share of common stock subject to such stock option by (ii) the total number
of shares of common stock subject to such stock option. See "THE MERGER
AGREEMENT-- Stock Options."
. Special Committee and Board of Directors Recommendations; dick clark
productions' Purpose and Reasons for the Merger
Based in part upon the unanimous recommendation by the special
committee to the board of directors of dick clark productions to adopt the
merger agreement, the board of directors of dick clark productions has adopted
the merger agreement and determined that the merger is fair to, and in the best
interests of dick clark productions' stockholders.
A principal purpose of the merger is to provide the stockholders of
dick clark productions with a level of liquidity currently unavailable in the
marketplace. Between February 13, 2001 and February 13, 2002, the day
immediately preceding the announcement of the signing of the merger agreement,
the
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trading volume of dick clark productions' common stock exceeded 1,000 shares on
only 36 days, and the average trading volume during such period was
approximately 690 shares per day. Due to the small trading volume of dick clark
productions' common stock, it is reasonable to assume that any effort by a
stockholder to dispose of a significant number of shares would adversely affect
the market price.
dick clark productions' board of directors consulted with the special
committee of the board, senior management and dick clark productions' financial
and legal advisors, and considered a number of factors in reaching its decision
to adopt the merger, the merger agreement and the transactions contemplated by
the merger agreement, and to recommend that dick clark productions' stockholders
vote "FOR" adoption of the merger agreement. See "SPECIAL FACTORS -
Recommendations of the Special Committee and the Board; The Company's Purpose
and Reasons for the Merger." Included among these factors were:
(i) the financial condition, assets, results of operations,
business and prospects of dick clark productions and the risks inherent in
achieving those prospects;
(ii) changes in the television industry which are anticipated to
continue to have an adverse effect on dick clark productions and its operations,
including (a) in-house production and syndication of primetime television
programming by the major networks, (b) increased competition with other forms of
entertainment and leisure time activities involving new areas of technology, (c)
substantial competition in the first-run syndication marketplace, resulting in
fragmentation of ratings and advertising revenues, and (d) numerous
consolidations within the industry which restrict dick clark productions'
ability to sell or license its entertainment programming;
(iii) the terms and conditions of the merger agreement, including the
consideration payable to the stockholders, other than Mr. Clark, Mrs. Clark and
Olive Enterprises, who agreed to accept a price per share that is $2.00 less
than the amount to be received by the other stockholders of dick clark
productions;
(iv) the negotiations which took place between DCPI Investco, dick
clark productions and the special committee with respect to the merger
consideration and the belief by the members of the special committee that $14.50
per share (which was the last of several increased offers) was the highest price
that DCPI Investco would agree to pay or that could be obtained from any other
source;
(v) the merger was not subject to any financing contingencies;
(vi) that merger consideration to be received by the public
stockholders in the merger represents a premium of approximately 33% over the
$10.93 per share closing price on February 13, 2002, the last full trading day
before the public announcement by dick clark productions of the signing of the
merger agreement; and that during the preceding six months, the merger
consideration represented a premium ranging from approximately 30% when the
common stock traded at $11.19 per share on February 11, 2002, to approximately
73%, when the common stock traded at $8.40 per share on October 10, 2001;
(vii) the special committee and dick clark productions negotiated a
flexible no-solicitation provision in the merger agreement which provides dick
clark productions with the ability to explore and discuss unsolicited proposals
made to dick clark productions prior to the consummation of the merger and which
could result in the termination of the merger agreement as the result of the
receipt of a superior proposal;
(viii) expressions of interest from other prospective purchasers whose
proposals required financing contingencies and who offered prices for the shares
of common stock and class A common
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stock which, in all but one instance, were lower than the merger consideration
offered under the merger agreement;
(ix) the trading prices and volumes at which the common stock traded
since dick clark productions' initial public offering; in particular the fact
that the closing price of the common stock had not reached $14.50 per share
since December 30, 1999;
(x) the opinions of Allen & Company Incorporated and Ladenburg
Thalmann & Co. Inc. as to the fairness, from a financial point of view, of the
merger consideration to be received by the stockholders, other than Mr. Clark,
Mrs. Clark and Olive Enterprises, as set forth in the Allen & Company and
Ladenburg Thalmann opinions, respectively, and the analyses presented to the
board of directors of dick clark productions by the financial advisors on
February 12 and 13, 2002;
(xi) the availability of appraisal rights under Delaware law to
holders of common stock who dissent from the merger; and
(xii) The evaluation of the employment agreements for Messrs. Clark
and La Maina, and the DCPI Investco stockholders agreement, indicated no
disguised additional purchase price consideration.
Each of the foregoing factors supported the decision of dick clark
productions' special committee and board of directors. The special committee and
board of directors viewed all of the foregoing factors as important in reaching
their conclusion and did not assign any particular weight to any individual
factor. See "SPECIAL FACTORS -- Recommendations of the Special Committee and the
Board of Directors; The Company's Purpose and Reasons for the Merger."
. Fairness Opinions
Allen & Company and Ladenburg Thalmann each delivered an opinion to the
board of directors of dick clark productions, dated as of February 13, 2002,
that, based upon the assumptions made, matters considered and limits of the
review undertaken (as described in each such opinion), the consideration to be
received by the stockholders of dick clark productions, other than Mr. Clark,
Mrs. Clark and Olive Enterprises, as a result of the merger is fair from a
financial point of view to such stockholders of dick clark productions. A copy
of each of these opinions is attached to this proxy statement as Annex B and
Annex C, respectively, and should be read in its entirety. See "SPECIAL FACTORS
- - Opinion of Allen & Company" and "--Opinion of Ladenburg."
. The Special Meeting of Stockholders
Place, Date and Time. The special meeting of dick clark productions'
stockholders will be held at The Holiday Inn Burbank, 150 East Angeleno Avenue,
Burbank, CA 91502.
What Vote is Required for Adoption of the Merger Agreement. Under the
Delaware General Corporation Law, the affirmative vote of a majority of the
votes entitled to be cast by holders of the outstanding shares of common stock
and class A common stock of dick clark productions, voting together as a class,
whether in person or by proxy, is required to adopt the merger agreement. The
presence in person or by proxy of holders of one-third of the outstanding shares
of capital stock constitutes a quorum for a stockholder vote on the adoption of
the merger agreement at the special meeting. There is no separate voting or
quorum requirement for unaffiliated stockholders. Mr. Clark, the chairman, chief
executive officer and a director of dick clark productions, who beneficially
owns approximately 68% of the common stock and 90% of the class A common stock,
has advised dick clark productions that, pursuant to the terms and conditions of
a voting agreement, dated as of February 13, 2002, by and among DCPI Investco,
Mr. Clark, Mrs. Clark and Olive Enterprises, he will vote such shares of common
stock and class A common stock in favor of adoption of the merger agreement
unless the merger agreement is terminated in accordance with its terms. In
addition, Francis C. La Maina, the president, chief operating
-4-
officer and a director of dick clark productions, who beneficially owns
approximately 10% of the common stock and 10% of the class A common stock, has
advised dick clark productions that he intends to vote his shares of common
stock and class A common stock in favor of the adoption of the merger agreement
unless the merger agreement is terminated in accordance with its terms. Each
share of common stock entitles the holders thereof to one (1) vote and each
share of class A common stock entitles the holders thereof to ten (10) votes on
the merger agreement. Consequently, the principal stockholders and Mr. La Maina
hold a sufficient number of shares to adopt the merger agreement. Proxies
submitted that contain abstentions or broker non-votes will be deemed present at
the special meeting only for determining the presence of a quorum. Abstentions
and broker non-votes with respect to the vote on the merger will have the effect
of votes against for purposes of the adoption of the merger agreement vote.
Who Can Vote at the Special Meeting. You can vote at the special
meeting all of the shares of common stock that you owned of record as of ______
__, 2002, which is the record date for the special meeting. If you own shares
that are registered in someone else's name (for example, a broker), you need to
direct that person to vote those shares or obtain an authorization from them and
vote the shares yourself at the special meeting. As of the close of business on
______ __, 2002, there were ________ shares of common stock outstanding held by
approximately ____ stockholders of record and 909,560 shares of class A common
stock held by two stockholders (Messrs. Clark and La Maina).
Solicitation of Proxies. The cost of preparing, assembling, printing,
mailing and distributing the notice of special meeting, this proxy statement and
proxies shall be borne by dick clark productions. dick clark productions also
will reimburse brokers, banks and other custodians, nominees and fiduciaries,
who are holders of record of the common stock of dick clark productions, for
their reasonable out-of-pocket expenses incurred in connection with forwarding
proxy soliciting materials to the beneficial owners of shares of common stock.
In addition to the use of the mail, proxies may be solicited without extra
compensation by directors, officers and employees of dick clark productions by
personal interview, telephone, telegram, cablegram, facsimile or other means of
electronic communication.
Procedure for Voting. You can vote your shares by attending the special
meeting and voting in person, or by mailing the enclosed proxy card. You may
revoke or change your proxy at any time prior to its use at the special meeting
by submitting to the secretary of dick clark productions a new proxy or a
written direction to revoke your proxy, or attending the special meeting and
voting in person.
. Appraisal Rights
Delaware law provides you with appraisal rights in the merger. This
means that if you are not satisfied with the amount you are receiving in the
merger, you are entitled to have the "fair value" of your shares independently
determined and to receive payment based on that valuation. The ultimate amount
you receive as a dissenting stockholder in an appraisal proceeding may be more
or less than, or the same as, the amount you would have received in the merger.
To exercise your appraisal rights, you must strictly comply with the rules
governing the exercise of appraisal rights or lose those appraisal rights. For
your convenience we have described the procedures for exercising appraisal
rights in this proxy statement and we have attached the provisions of Delaware
law that govern appraisal rights as Annex D. See "SPECIAL FACTORS -- Appraisal
Rights."
. Material Federal Income Tax Consequences
The receipt of cash by you pursuant to the merger or the exercise of
appraisal rights will be a taxable event for you for federal income tax purposes
and may also be taxable events under applicable state, local and foreign tax
laws. The tax consequences to you will depend upon the facts and circumstances
applicable to you. Accordingly, you should consult your tax advisor with respect
to the
-5-
federal, state, local or foreign tax consequences of the merger. See "SPECIAL
FACTORS -- Certain United States Federal Income Tax Consequences."
. When Will the Merger Be Completed
dick clark productions and DCPI Investco are working to complete the
merger as soon as possible and anticipate completing the merger on ______ __,
2002, following the special meeting and subject to the satisfaction of certain
conditions, but in no event later than July 31, 2002.
. Conditions to Completing the Merger
The completion of the merger depends on a number of conditions being
satisfied, including the following:
The respective obligations of each party to effect the merger are
subject to the following conditions:
. a majority of the votes entitled to be cast by holders of the outstanding
shares of dick clark productions stock shall have been vote in favor of
the adoption of the merger agreement; and
. no court or governmental entity of competent jurisdiction will have
enacted, issued, promulgated, enforced or entered any law, order,
injunction or decree that is in effect and restrains, enjoins or otherwise
prohibits consummation of the merger.
The obligations of DCPI Investco, DCPI Mergerco, and Capital
Communications to effect the merger are subject to the following additional
conditions:
. dick clark productions will have performed in all material respects the
covenants and obligations required to be performed by it under the merger
agreement on or prior to the closing date of the merger;
. the representations and warranties of dick clark productions contained in
the merger agreement will be true and correct in all material respects on
and as of the closing date of the merger as if made on and as of such date;
and
. other than the filing of a certificate of merger, certain required
authorizations, consents or approvals of any governmental entity required
to be obtained prior to the consummation of the merger will have been
obtained and certain required consents will be obtained or made free of any
material condition.
The obligation of dick clark productions to effect the merger is
subject to the following additional conditions:
. DCPI Investco, DCPI Mergerco and Capital Communications will have performed
in all material respects the covenants and obligations required to be
performed by each of them under the merger agreement on or prior to the
closing date of the merger; and
. the representations and warranties of DCPI Investco, DCPI Mergerco and
Capital Communications contained in the merger agreement will be true and
correct in all material respects on and as of the closing date of the
merger as if made on and as of such date.
See "THE MERGER AGREEMENT -- Conditions to the Merger."
. Interests of Certain Persons in the Merger that Differ From Your Interests
-6-
Mr. Clark, the chairman, chief executive officer and a director of dick
clark productions, and Mr. La Maina, the president, chief operating officer and
a director of dick clark productions, have interests in the merger that are
different from, or are in addition to, their interests as stockholders of dick
clark productions, since they will become minority equity holders of DCPI
Investco, which will be the sole stockholder of dick clark productions after the
merger. See "SPECIAL FACTORS -- Interests of Messrs. Clark and La Maina in the
Merger and the Company."
. The Merger
Procedure for Receiving the Merger Consideration. Prior to the
effective time of the merger, DCPI Investco, DCPI Mergerco or Capital
Communications will designate a paying agent reasonably satisfactory to dick
clark productions to exchange certificates representing the shares of dick clark
productions' common stock entitled to the merger consideration following the
consummation of the merger. On or prior to when the merger becomes effective,
DCPI Investco or DCPI Mergerco will deposit the aggregate merger consideration
with the paying agent, and thereafter shall cause disbursements to be made from
such account to pay the merger consideration to the stockholders of dick clark
productions. See "THE MERGER AGREEMENT -- Merger Consideration; Exchange
Procedure."
Terminating the Merger Agreement. dick clark productions and DCPI
Investco, DCPI Mergerco and Capital Communications can mutually agree at any
time to terminate the merger agreement. Also, under certain circumstances,
either dick clark productions, on the one hand, or DCPI Investco, DCPI Mergerco
and Capital Communications, on the other hand, can decide to terminate the
merger agreement. If the termination of the merger agreement is due to dick
clark productions accepting a superior proposal (as defined in the merger
agreement), then dick clark productions shall pay DCPI Investco a termination
fee equal to $4,250,000, or $4,085,000 if dick clark productions accepts a
superior proposal which provides for the payment of consideration to Mr. Clark,
Mrs. Clark and Olive Enterprises in excess of $13.00 per share in respect of
their common stock and class A common stock. Either party can terminate the
merger agreement if the merger has not been consummated on or before July 31,
2002. See "THE MERGER AGREEMENT -- Termination."
Accounting Treatment. For accounting and financial reporting purposes,
the merger will be accounted for as a purchase.
. No Solicitation of Proposals
dick clark productions has agreed in the merger agreement not to
encourage, solicit, participate in or initiate (including by way of furnishing
or disclosing non-public information) or knowingly take any action designed to
facilitate any discussions, inquiries, negotiations or the making of any
proposals with respect to or concerning any merger, consolidation, share
acquisition, asset purchase, share exchange, business combination, tender offer,
exchange offer or similar transaction involving the acquisition of all or a
substantial portion of the assets of dick clark productions and its
subsidiaries, or a significant equity interest in (including by way of tender
offer), or a recapitalization or restructuring of, dick clark productions.
However, dick clark productions may furnish information (including
non-public information) to any person pursuant to appropriate confidentiality
agreements and may negotiate and participate in discussions and negotiations
with such person concerning an acquisition proposal if: (A) such entity or group
has, on an unsolicited basis, submitted a bona fide written proposal to the
board of directors of dick clark productions relating to any such transaction
which the board determines in good faith, consistent with advice of an
independent investment banker, (i) is reasonably capable of being funded on the
disclosed terms and (ii) is reasonably likely to be consummated in accordance
with its terms; and (B) in
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the opinion of the special committee of the board of directors of dick clark
productions such action is reasonably expected to be required in order to
discharge the board of directors' fiduciary duties to the stockholders of dick
clark productions under applicable law, determined only after the special
committee concludes in good faith that the acquisition proposal could reasonably
be expected to constitute a proposal that is superior, from a financial point of
view with respect to the stockholders of dick clark productions, excluding Mr.
Clark, Mrs. Clark and Olive Enterprises. See "THE MERGER AGREEMENT -- No
Solicitation of Offers; Notice of Proposals from Third Parties"
. Regulatory Filings and Approvals
dick clark productions does not believe that any material federal or
state regulatory approvals, filings or notices are required by it in connection
with the merger, except for the filing of this proxy statement and a Schedule
13E-3 with the Securities and Exchange Commission and the filing of a
certificate of merger with the Secretary of State of Delaware.
. Questions
If you have any questions about the merger you should contact Mr.
Francis C. La Maina at (818) 841-3003. If you need additional copies of the
proxy statement or the enclosed proxy card, you should contact Mellon Investor
Services, LLC at (800) 356-2017.
-8-
CERTAIN QUESTIONS AND ANSWERS ABOUT VOTING AND THE MERGER
Q: Why am I receiving these materials?
A: The board of directors of dick clark productions is providing these
proxy materials to give you information to determine how to vote in
connection with a special meeting of stockholders which will take place
on [_______], 2002.
Q: What should I do now?
A: Please vote. You are invited to attend the special meeting. However,
you should mail your signed and dated proxy card in the enclosed
envelope as soon as possible, so that your shares will be represented
at the special meeting in case you are unable to attend. No postage is
required if the proxy card is returned in the enclosed postage prepaid
envelope and mailed in the United States.
Q: What does it mean if I receive more than one proxy or voting
instruction card?
A: It means your shares are registered differently or are held in more
than one account. Please provide voting instructions for each proxy
card that you receive.
Q: How are votes counted?
A: You may vote "FOR", "AGAINST" or "ABSTAIN." If you "ABSTAIN" or do not
vote, it has the same effect as a vote "AGAINST". If you provide
specific voting instructions, your shares will be voted as you
instruct. If you sign your proxy card or broker voting instruction card
with no further instructions, your shares will be voted in accordance
with the recommendation of the board of directors to vote "FOR"
adoption of the merger agreement.
Q: What is the board of directors' recommendation?
A: The board of directors recommends that you vote your shares "FOR"
adoption of the merger agreement.
Q: Should I send in my stock certificates now?
A: No. After the merger is consummated, we will send you written
instructions that will tell you how to exchange your certificates for
$14.50 per share in cash. Please do not send in your certificates now
or with your proxies. Hold your certificates until you receive our
instructions.
Q: What are the United States federal income tax consequences of the
Merger to me?
A: Your receipt of cash in exchange for your shares in the merger will be
a taxable event for United States federal income tax purposes. To
review the federal income tax consequences to stockholders in greater
detail, see pages 43-44. Your tax consequences will depend on your
personal situation. You should consult your tax advisor for a full
understanding of the tax consequences of the merger to you.
Q: Who can answer my questions?
A: If you have more questions about the merger you should contact Mr.
Francis C. La Maina at (818) 841-3003. If you would like additional
copies of this proxy statement, you should contact Mellon Investor
Services, LLC at (800) 356-2017.
-9-
INTRODUCTION
DCPI Investco, Inc., a Delaware corporation ("DCPI Investco"), has
supplied all information in this proxy statement relating to DCPI Investco, and
DCPI Mergerco, a Delaware corporation ("DCPI Mergerco"), formed by DCPI Investco
solely for implementing the Merger (as defined below). Capital Communications
CDPQ Inc., a Quebec corporation ("Capital Communications"), has supplied all
information in this proxy statement relating to it. dick clark productions, inc.
has not independently verified any of the information relating to DCPI Investco,
DCPI Mergerco and Capital Communications. No persons have been authorized to
give any information or to make any representations other than those contained
in this proxy statement.
Forward-Looking Information
This proxy statement contains forward-looking statements, which are
generally identified by words such as "may," "should," "seeks," "believes,"
"expects," "intends," "estimates," "projects," "strategy" and similar
expressions or the negative of those words. Those statements appear in a number
of places in this proxy statement and include statements regarding the intent,
belief, expectation, strategies or projections of dick clark productions, inc.,
a Delaware corporation (the "Company"), and its subsidiaries, its directors, its
management, or others at that time. Certain statements in this proxy statement
are not historical facts or information and certain other statements in this
proxy statement are forward looking statements that involve risks and
uncertainties, including, without limitation, the Company's ability to develop
and sell television programming, to implement its strategy regarding the
disposition of certain of its restaurant operations, and to attract new
corporate communications clients, and such competitive and other business risks
as from time to time may be detailed in the Company's Securities and Exchange
Commission reports.
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SPECIAL FACTORS
Background of the Transaction
The Board of Directors of the Company (the "Board"), consisting of
Robert A. Chuck, Karen W. Clark, Richard W. Clark, Lewis Klein, Francis C. La
Maina and Enrique F. Senior, has evaluated, on a continuing basis, the business
and operations of the Company, as well as the strategic direction and prospects
of its business in light of conditions and trends in the general entertainment,
television programming and restaurant industries, as a part of the Company's
long-term strategy to maximize stockholder value. The Board and management have
explored, from time to time, various strategic alternatives in order to
encourage the growth of the Company and to place the Company in a more
competitive position.
On April 5, 1999, the Company retained Allen & Company Incorporated
("Allen & Company") to assist and advise the Company in connection with possible
transactions involving, among other things, acquisitions, strategic joint
ventures or partnerships, sales of all or substantially all of the stock or
assets of the Company, mergers, consolidations, or any other form of business
combination or similar transactions with another entity. Mr. Enrique F. Senior,
who is a managing director of Allen & Company, has been a member of the Board
since 1987. As a result of this engagement, Allen & Company regularly met with
management to discuss how to improve the value of the Company and reviewed the
Company's operating performance and financial condition. These reviews were
conducted in order to determine whether the Company's current operations were
sufficient to meet its financial requirements, whether it needed additional
capital to finance its growth, or whether an acquisition of another entity would
be a viable method to increase the Company's size and maximize stockholder
value, or whether the Company, and its stockholders, would be better served by
some form of transaction, such as a sale, merger, consolidation, strategic joint
venture or partnership, or any other form of business combination or similar
transaction.
During the period of the engagement, Allen & Company met or had
telephone conversations with numerous entities, including, but not limited to,
several television networks, large entertainment companies and significant
financial institutions, as well as some lesser known entities, in order to
explore the possibility of engaging in an acquisition by the Company, a
strategic joint venture or partnership, or a sale of all or substantially all of
the stock or assets of the Company, a merger, consolidation, or any other form
of business combination or similar transaction with the Company.
In addition to the work being performed by Allen & Company during this
time, Messrs. Clark and La Maina also, from time to time, responded to inquiries
received from potential purchasers and strategic partners. Messrs. Clark and La
Maina referred such proposals to Allen & Company to explore the contact's
intentions regarding the Company and whether the proposed transaction was
credible.
During the summer of 2000, Messrs. Clark and La Maina had discussions
regarding the future prospects of the Company, and concluded that the Company
would continue to face increasing difficulties in enhancing stockholder value as
a result of the tougher competitive market and limited interest in the Company's
common stock, par value $0.01 per share (the "Common Stock") due to the small
public float and lack of coverage by securities analysts. During the period from
June 2000 through May 2001, Messrs. Clark and La Maina contemplated a management
buy-out of the Company which would have resulted in a buy-out of all of the
stockholders of the Company other than Mr. Clark, Mrs. Clark and Olive
Enterprises, Inc., a Pennsylvania corporation, wholly-owned by Mr. Clark (the
"Public Stockholders" which, solely with respect to the Merger Consideration as
defined below, includes
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Mr. La Maina) and the Company being privately held by Messrs. Clark and
La Maina. They spoke extensively with their advisors regarding how such a
transaction would be structured and, during fall of 2000, explored the use of
possible third-party financing of such a transaction with several institutional
lenders. None of the lenders contacted were ultimately willing to provide
funding sufficient to enable Messrs. Clark and La Maina to consummate the
transaction at a per share price that they believed would have been fair to the
Public Stockholders. Primarily as a result of not receiving appropriate
financing proposals, Messrs. Clark and La Maina reviewed this concept with the
Board, Allen & Company and the Company's legal representatives, Jenkens &
Gilchrist Parker Chapin LLP ("J&G"), and discussed the possible benefits and
detriments of such a transaction, as well as the possible structure of such a
transaction without borrowed funds. During the spring of 2001, several
discussions between Messrs. Clark and La Maina and their advisors were held
regarding a going private transaction without using borrowed funds and what
premium would be appropriate. However, as a result of the significant changes in
the general economy of the United States, as well as specific changes to the
Company's competitive position in the television production market place,
Messrs. Clark and La Maina decided not to proceed with the transaction.
In April 2001, the Company was advised by one of its regular outside
attorneys, who is also a member of the board of directors of Mosaic Media Group,
Inc. ("Mosaic"), that CDP Capital Entertainment Corporation ("CDP Capital"), a
financial advisor to Capital Communications, and Mosaic were interested in
exploring a possible strategic relationship with the Company. In response to
their expressed interest, the Company agreed to forward to Mr. Allen Shapiro,
the President of Mosaic, its Annual Report on Form 10-K for the fiscal year
ended June 30, 2000, as well as the subsequent Quarterly Reports on Form 10-Q
for the quarters ended September 30, 2000 and December 31, 2000. In response to
receiving such information, Mosaic forwarded biographical information of the
executives of Mosaic to the Company. On June 5, 2001, Mosaic and the Company
entered into a mutual confidentiality agreement to govern the treatment of the
information being shared between the parties in connection with their
discussions and the evaluation of a possible transaction.
Throughout June 2001, CDP Capital and Mosaic conducted their initial
financial due diligence review with respect to the Company. During that time,
the Company's officers arranged to send CDP Capital and Mosaic various financial
information pertaining to the Company's operating performance, financial
condition and prospects. In the beginning of July 2001, Messrs. Clark and La
Maina met with Mr. Shapiro and Mr. Jules Haimovitz, a senior television
executive who was not an executive of Mosaic but was considering joining CDP
Capital and Mosaic in a possible transaction with the Company, to explore the
proposal being contemplated by the CDP/Mosaic Group (as defined below).
Throughout July 2001, representatives of CDP Capital and Mosaic met with Messrs.
Clark and La Maina, as well as other senior officers of the Company and had
numerous further conversations regarding the possibility of such proposal. Later
in July 2001, Mosaic and Mr. Henry Winterstern, co-founder and managing partner
of CDP Capital, also met with Messrs. Clark and La Maina to discuss the
proposal. For the purposes of this section, CDP Capital, Capital Communications,
Mosaic, and Messrs. Haimovitz and Winterstern, are sometimes collectively
referred to as the "CDP/Mosaic Group."
On or about August 11, 2001, the CDP/Mosaic Group made a formal written
proposal to acquire all of the Company's Common Stock and class A common stock,
par value $0.01 per share (the "Class A Common Stock" and, together with the
Common Stock, the "Capital Stock") at a purchase price of $11.00 per share, as
well as 0.3 shares of common stock of the acquisition entity (although the
Public Stockholders also had the right to convert their shares into cash). At
the time this proposal was received, the Company reviewed the proposal with
Allen & Company and J&G and discussed their reaction to the proposal. Although
the Company decided to continue discussions with the CDP/Mosaic Group, regarding
the proposal, management decided not to pursue aggressively the proposal until
the Company and its advisors could become comfortable with the ability of the
CDP/Mosaic Group to finance and consummate
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such a transaction. Management reviewed its decision with the members
of the Board, who agreed that more information was required before the Company
could seriously consider the CDP/Mosaic Group proposal.
The CDP/Mosaic Group met with members of the Company's management
several times in September 2001 in order to complete its financial due diligence
review of the operating results and financial condition of the Company.
In October 2001, Messrs. Clark and La Maina met with Messrs. Haimovitz,
Shapiro and Winterstern at the Company's offices. The purpose of the meeting was
to discuss in more detail the proposal, how it would be financed and how it
could be structured to be mutually satisfactory. In connection with the proposed
transaction, the CDP/Mosaic Group required Mr. Clark to acquire an equity
interest in DCPI Investco as a minority stockholder and anticipated that Messrs.
Clark and La Maina would enter into new employment agreements with the Company.
However, Messrs. Clark and La Maina had not yet determined whether they would be
willing to acquire an equity interest in DCPI Investco and, accordingly, advised
the CDP/Mosaic Group that they would consider its requests.
On October 25, 2001, the Company received a revised written proposal
from the CDP/Mosaic Group. The revised proposal provided for: (i) a purchase
price of $10.00 per share for all outstanding shares of the Company; (ii) a
requirement that Mr. Clark participate in the acquiring entity through a twenty
percent (20%) equity interest; and (iii) divestiture by the Company of its
restaurant business as a condition to the transaction. On November 9, 2001,
Messrs. Clark and La Maina and Allen & Company met with the CDP/Mosaic Group and
its financial advisor, BNY Capital Markets, Inc. ("BNY"), to discuss the
Company's response to the October 25th proposal, specifically to convey that the
reduction in the merger consideration was unacceptable and to ascertain why the
proposed purchase price had been reduced. The CDP/Mosaic Group responded by
saying that the change was primarily based upon the deterioration in the
Company's operating performance for the period ended September 30, 2001, as
evidenced by information provided by the Company under the confidentiality
agreement. The CDP/Mosaic Group also expressed its concern regarding the overall
decline in the United States economy, particularly the impact of the events of
September 11, 2001 on the television, advertising and restaurant industries. The
participants sought to arrive at the general terms of a proposed transaction
that might be acceptable to each of the participating parties and which would
treat the Public Stockholders fairly. Those terms included, but were not limited
to, a higher acquisition price for Public Stockholders' shares. In addition,
general terms for the employment agreements of Messrs. Clark and La Maina, and
Mr. Clark's equity investment in DCPI Investco were also discussed.
During November 2001, the Company and Allen & Company continued to
prepare and review various financial and operational analyses relating to the
potential transaction with the CDP/Mosaic Group. During November, the Company,
the CDP/Mosaic Group and their respective representatives continued to negotiate
and discuss the terms and conditions of a proposed transaction. One of Mr.
Clark's main concerns was that the Public Stockholders be treated fairly and get
the best price possible, which he raised with Mr. Senior during their
discussions. In recognizing the limitation on the total amount that the
CDP/Mosaic Group would likely be willing to pay for all of the Capital Stock of
the Company, Mr. Senior and Mr. Clark discussed the possibility of providing the
Public Stockholders with a higher purchase price for their shares than Mr. Clark
would receive for his shares. Mr. Senior reviewed a proposed pricing model and
explained that it is unusual for a controlling stockholder, like Mr. Clark, to
receive less consideration than the other stockholders. Mr. Clark indicated,
however, that he would be willing to accept a price that would be less than the
price payable to the Public Stockholders. Mr. Senior then explored with Mr.
Winterstern the possibility of restructuring the aggregate transaction price
being proposed by the CDP/Mosaic Group by increasing the price to be received by
the Public Stockholders, and reducing the amount of consideration to be received
by Mr. Clark. After a lengthy discussion, Mr. Winterstern suggested the
possibility of the Public Stockholders receiving $13.00 in cash per share and
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Mr. Clark, Mrs. Clark and Olive Enterprises, Inc., a Pennsylvania corporation,
wholly-owned by Mr. Clark ("Olive" and, collectively with Mr. Clark and Mrs.
Clark, the "Principal Stockholders") receiving $12.00 in cash per share. In
addition, the Company insisted that the financing for the transaction be in
place and not be subject to any contingency. The Company advised the CDP/Mosaic
Group that the certainty of CDP/Mosaic Group being able to close the transaction
was an extremely significant factor for the Company. In response, Mr.
Winterstern assured the Company that the CDP/Mosaic Group would be able to
satisfy the Company's concerns regarding financing.
During this period the Company received a number of unsolicited
inquiries, which were referred to Allen & Company. The majority of these
proposals included offers for the outstanding Capital Stock at a lower per share
price than the CDP/Mosaic Group's proposal, and the offers were usually subject
to a variety of contingencies, including the ability of the bidder to finance
the proposed transaction itself or through the use of third-party lenders to
consummate the transaction.
One of the groups that contacted the Company was headed by an
individual who was formerly a senior executive in the music and entertainment
business. Following the Company's Annual Meeting of Stockholders held on
November 8, 2001, Messrs. Clark and La Maina met with this individual to discuss
his interest in the Company and advised him that, if he wanted to make a formal
proposal, he should have his investment bankers discuss the matter with Allen &
Company. On November 12, 2001, the Company received a proposal from this
executive's group. This group consisted of the executive's own company, as well
as a private equity investment fund (collectively, for the purposes of this
section, the "Philly Group"). The November 12, 2001 proposal contemplated an
acquisition for cash, of all of the outstanding Capital Stock of the Company for
$12.00 per share. In addition, in its proposal, the Philly Group required, as a
condition to consummate the transaction, that Mr. Clark retain a 10% equity
interest in the surviving company and enter into an employment agreement with
the surviving company. Shortly thereafter, the Company and the Philly Group also
entered into a mutual confidentiality agreement to govern the treatment of
information to be shared.
Allen & Company reviewed the CDP/Mosaic Group proposal and the Philly
Group proposal in detail and discussed with the Company's management its view
that the two proposed transactions were comparable in an overall sense, except
that the Philly Group's proposal indicated that the Philly Group would have to
obtain financing from other third party sources in order to consummate the
transaction. As a result, the Philly Group's proposal stated that the necessary
transactional documentation between the Company and the Philly Group would
contain a condition that would allow the Philly Group to terminate its
involvement in the transaction should it not be able to obtain such required
financing. The Company and its advisors noted in their review of the Philly
Group proposal, that by its very nature, such a condition could potentially
affect and prevent the consummation of the proposed transaction. The CDP/Mosaic
Group, on the other hand, had advised Messrs. Clark and La Maina and Allen &
Company that its proposed transaction would be a fully-financed transaction and
would not contain any financing contingencies. As a result of their evaluation
of the two proposals, the Philly Group's financing contingency was considered by
the Company's management to be a material difference in the proposals.
Nevertheless, as a result of the apparent seriousness of the Philly Group's
intentions, the Company's management decided to allow the Philly Group and its
advisors access to the Company and its books and records for due diligence
purposes in order to advance its proposal during the week prior to Thanksgiving
2001.
After Thanksgiving 2001, following a series of discussions between the
CDP/Mosaic Group and Allen & Company, the CDP/Mosaic Group amended its proposal
so that the Public Stockholders would receive $13.00 per share and the Principal
Stockholders would receive $12.00 per share. From the end of November and
through the first several days of December 2001, Allen & Company and J&G
reviewed the proposal letter from the CDP/Mosaic Group and the terms contained
therein. The proposal letter set
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forth general terms regarding the merger consideration to be paid to the
stockholders, Mr. Clark's required equity investment in DCPI Investco, as well
as his employment arrangement with the surviving entity. In addition, at the
request of the Company's advisors, the proposal letter contained an attachment
indicating that financing would be available and would not be subject to any
contingencies. The proposal letter also contained an attached letter to be
executed by the Company granting the CDP/Mosaic Group exclusivity in connection
with the transaction. The Company's comments to these letters were distributed
to BNY on or about December 3, 2001 for its review. The CDP/Mosaic Group had its
legal counsel, Stikeman Elliott ("Stikeman"), Canadian counsel to Capital
Communications, and Skadden, Arps, Slate, Meagher & Flom, LLP ("Skadden Arps"),
counsel to the DCPI Investco, review the Company's comments and the proposal
documents were subsequently revised and sent back to the Company's counsel. Over
the course of the next day these documents were negotiated, revised and
exchanged between the parties. On December 4, 2001, the Company received a
proposal letter from the CDP/Mosaic Group that was satisfactory to the Company.
Also, on December 4, 2001, the Board, through Allen & Company, received
a revised formal written proposal from the Philly Group. The revised proposal
provided for merger consideration of $13.00 per share in cash to be paid to all
of the Company's stockholders. The offer was conditioned upon Mr. Clark
retaining a 10% equity interest in the surviving company as well as his
continued participation in the surviving entity pursuant to a new five-year
employment contract. The revised Philly Group proposal, however, indicated that
it continued to be subject to the ability of the Philly Group to obtain third
party financing.
On December 4, 2001, a special meeting of the Board was convened to
discuss the proposals made by the CDP/Mosaic Group and the Philly Group. The
proposal by the CDP/Mosaic Group provided for aggregate merger consideration of
$127 million, which would be allocated $13.00 for shares and options (with an
exercise price of less than $13.00 per share) held by all the Public
Stockholders and $12.00 per share for the Principal Stockholders. The proposed
transaction was not subject to the CDP/Mosaic Group obtaining financing. The
CDP/Mosaic Group's proposal also provided that in the event the Company's
balance sheet as of January 31, 2002 had more than $69.3 million in working
capital, Mr. Clark, Mrs. Clark and Olive would receive the excess up until they
each received $13.00 per share, and then all the stockholders would participate
on a pro rata basis in the excess after that point. Mr. Weisberg, secretary of
the Company, long time corporate counsel to the Company, and a member of J&G,
explained that the transaction was conditioned upon Mr. Clark contributing a
portion of his shares of the Company, at a price of $12.00 per share, for a 20%
interest in DCPI Investco. Further, the offer was supported financially by
Capital Communications, a subsidiary of a Canadian pension fund, which indicated
that members of the CDP/Mosaic Group could be expected to have the ability to
provide the financing required by the CDP/Mosaic Group to consummate the
transaction. The Board reviewed the December 31, 2000 balance sheet of Capital
Communications, which had been provided to the Company indicating that Capital
Communications has a substantial amounts of net assets that would be sufficient
to finance the transaction. As part of its offer, the CDP/Mosaic Group insisted
upon a lengthy exclusivity period during which the Company would not be able to
negotiate with any other parties, except if the Company received an unsolicited
proposal.
Although the CDP/Mosaic Group initially proposed a 45-day exclusivity
period, the Company advised that it would not agree to more than a 21-day
exclusivity period to negotiate and sign definitive transaction documents. The
CDP/Mosaic Group agreed to the proposed 21-day period.
The Board then reviewed the terms of the Philly Group's proposal, as
well as the initial drafts of proposed term sheets from certain financial
institutions which indicated that they were considering providing financing for
the Philly Group's proposal. The Philly Group's proposal did not include a
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written request for exclusivity, although the Philly Group's investment bankers
had advised Allen & Company that it would be seeking exclusivity.
At that time, the Board discussed with its advisors each of the
proposed transactions, including the Philly Group's requirement that its
proposal be subject to its ability to obtain outside financing and the lack of
material terms in the initial drafts of the term sheets, the CDP/Mosaic Group's
request for exclusivity, as well as Mr. Clark's proposed equity investment in,
and employment by, the surviving entity in each proposed transaction. After more
deliberations and additional questions had been posed to the advisors, the Board
decided to proceed with the CDP/Mosaic Group. The exclusivity request was then
further discussed, and the advisors agreed that it was not unusual in these
transactions to grant such exclusivity to one party to induce that party to
incur the costs associated with negotiating definitive transaction documents. As
Messrs. Clark and La Maina, and Mrs. Clark, were interested directors, and Mr.
Senior was affiliated with Allen & Company, the two independent members of the
Board, Mr. Robert Chuck and Mr. Lewis Klein, were asked to consider the
CDP/Mosaic Group's 21-day exclusivity period request, and after their review of
such request, they approved it. Allen & Company was then instructed to advise
the Philly Group that the Company was proceeding with another group at that time
(particularly because the other group's proposal contained no financing
contingency).
On December 11, 2001, a due diligence request was sent by Skadden Arps
to the Company, asking for access to portions of the books and records of the
Company and its Subsidiaries. During the next few weeks, lawyers at Skadden Arps
were provided access to public and non-public information relating to the
Company, which they shared with lawyers from Stikeman and with the CDP/Mosaic
Group.
In light of potential conflicts of interest due to the investment and
employment matters regarding Messrs. Clark and La Maina and in order to ensure
that the interests of the Public Stockholders were appropriately represented, on
December 18, 2001, the Board convened in order to appoint a special committee of
disinterested directors to consider, evaluate and negotiate the proposed
transaction on behalf of the Public Stockholders. At the meeting, the Board
established a committee (the "Special Committee") consisting of Lewis Klein and
Robert A. Chuck, formerly a vice president of the Company from April 1993 to May
2001. Messrs. Klein and Chuck are neither employees of, nor consultants to, any
of the parties to the Merger, and neither of whom have an interest in the
Merger, except that Mr. Klein owns 1,818 shares of Common Stock. The Special
Committee was given the authority to retain its own financial and legal advisors
to assist it in evaluating the proposed transaction.
The Special Committee was given the following responsibilities: (i) to
consider and evaluate the proposal submitted by the CDP/Mosaic Group and the
definitive agreements relating to such proposal; (ii) to assess whether it would
be in the best interests of the Public Stockholders to pursue the transaction
proposed by the CDP/Mosaic Group and make recommendations to the Board with
respect to such proposal; and (iii) to enter into and conduct discussions and
negotiations concerning such proposal and other proposals. The Board agreed to
pay each member of the Special Committee $25,000 for their services.
Immediately following the meeting of the Board, the Special Committee
convened its first meeting at which Mr. Chuck was elected as Chairman of the
Special Committee. J&G was also asked to be present at the meeting. The purpose
of the meeting was to discuss the retention of the Special Committee's financial
and legal advisors, possible negotiation strategies and its legal obligations.
The Special Committee considered several law firms and decided to retain Moses &
Singer LLP ("M&S"). In addition, due to potential conflicts of interest with the
Company and the Public Stockholders, it was decided that each of Mr. Clark and
Mr. La Maina should also be represented by separate legal counsel in connection
with the proposed transaction. Mr. Clark was represented by Winston & Strawn and
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Mr. La Maina was represented by Pavia & Harcourt LLP ("Pavia"). In addition, the
Special Committee discussed retaining a separate independent advisor due to the
fact that Mr. Enrique F. Senior, a director of the Company since 1987, is also a
Managing Director of Allen & Company.
On December 14, 2001, J&G received from Skadden Arps the initial drafts
of the Agreement and Plan of Merger, dated as of February 13, 2002, by and among
Capital Communications, DCPI Investco, DCPI Mergerco and the Company (the
"Merger Agreement") and a stock option and voting agreement among the CDP/Mosaic
Group and Mr. Clark, Mrs. Clark and Olive (the "Option Agreement"), which J&G
subsequently distributed to the Company's working group (which included the
Special Committee and lawyers at M&S). Over the next several days, J&G collected
comments from the Company's working group. The significant issues with the
Merger Agreement related to, among other things, the provision regarding no
solicitation of other bids, the Company's ability to explore unsolicited
proposals after signing the agreement, CDP/Mosaic Group's request to be able to
match a superior proposal, the amount and timing of the payment of the
termination fee, and the conduct of the Company's business between signing and
closing. Since certain provisions of the Option Agreement required the Principal
Stockholders to grant to the CDP/Mosaic Group an option to purchase their
shares, thereby virtually precluding other potential parties from considering an
acquisition of the Company, those provisions were determined by the Company to
be unacceptable.
On December 26, 2001, J&G contacted M&S to discuss the relevant issues
relating to the CDP/Mosaic Group's proposal, including how and when the
termination fee should be paid, how the Board and the Special Committee should
handle unsolicited bids and what should be the Company's negotiation position.
In addition, J&G and M&S noted that the exclusivity period negotiated by the
CDP/Mosaic Group expired that day. On December 27, 2001, the day after the
exclusivity period had expired with the CDP/Mosaic Group, Allen & Company
contacted the investment banker for the Philly Group to ascertain whether the
Philly Group was still interested in pursuing a transaction with the Company,
and the banker responded affirmatively.
The CDP/Mosaic Group, on the other hand, had requested that a new
exclusivity period be granted through January 8, 2002. After several discussions
among M&S, J&G and the Special Committee, it was decided that, as the Philly
Group still required outside financing in order to consummate the transaction
and that negotiations with the CDP/Mosaic Group had progressed significantly,
the exclusivity period with CDP/Mosaic Group should be extended. After
discussions among the Special Committee, Mr. La Maina, J&G and M&S, it was
decided that the requested exclusivity period be granted.
On December 27, 2001, J&G sent revised copies of the Merger Agreement
and Option Agreement that contained the comments of the Company's working group
to Skadden Arps. Several provisions in the Merger Agreement were still subject
to intense negotiations among the parties including, but not limited to, the
ability of the Company to respond to unsolicited bids, the limitation of the
Special Committee's ability to examine and consider an unsolicited proposal, the
right of the CDP/Mosaic Group to match a superior proposal, the termination
provisions as they relate to a superior proposal, the representations and
conditions relating to the Company's intellectual property, the conduct of the
Company's business between signing and closing, and the timing of the
termination fee payment. The Board, as well as the Special Committee, insisted
upon flexibility relating to the review process of other unsolicited offers in
order to permit the Board, consistent with its fiduciary duties, sufficient time
to explore and discuss any potential superior proposal for the Public
Stockholders, should such a proposal be received. Mr. Clark, individually, the
Company and the Special Committee would not agree to the grant of an option
proposed in the Option Agreement which could have the practical effect of
reducing the likelihood of any unsolicited offer at a higher price because it
would enable the CDP/Mosaic Group to purchase Mr. Clark's shares of Common Stock
and Class A Common Stock which represent a controlling
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interest in the Company before any unsolicited offer could be reviewed. During
this period, Skadden Arps continued to perform and make additional due diligence
requests of the Company in order to review relevant information.
On Friday, January 5, 2002, Skadden Arps distributed to J&G the initial
draft of the employment agreements for Messrs. Clark and La Maina and a
non-competition agreement for Mr. Clark, as well as the revised drafts of the
Merger Agreement and Option Agreement. After a review of the documents by the
Company, its advisors and M&S, a telephone conference among the Company, Allen &
Company and J&G was held to discuss whether the working group should travel to
Los Angeles to meet with the CDP/Mosaic Group and its advisors. The group
decided that based on the revised drafts, progress was being made and thus it
made sense for J&G and Allen & Company to travel to Los Angeles to meet with the
CDP/Mosaic Group and its advisors.
At a meeting held in Los Angeles on the night of January 6, 2002,
representatives of the CDP/Mosaic Group presented J&G with an alternative
structure contemplating a tender offer in connection with the proposed
transaction. However, on January 7, 2002, the CDP/Mosaic Group advised the
Company that it had decided against a tender offer. During the remainder of that
week, the parties continued to negotiate the transaction documents. At a general
meeting of the working groups, the CDP/Mosaic Group requested that the Company
extend the exclusivity period, but the Company advised the CDP/Mosaic Group that
it did not consider an extension of the exclusivity period to be appropriate and
that, in order to expedite the process, the parties should continue in good
faith to negotiate and finalize the documents. Therefore, no extension of
exclusivity was granted to the CDP/Mosaic Group at that time. At meetings held
at Skadden Arps' Los Angeles office, the respective working groups had further
discussions regarding the Merger Agreement, including matters relating to the
ability of the Company to respond to unsolicited bids, the limitation of the
Board's ability to examine and consider an unsolicited proposal, the termination
provisions as they related to a superior proposal, the representations and
conditions relating to the Company's intellectual property, the timing of the
termination fee payment, the required closing conditions, and the certainty of
closing. J&G (and M&S by phone) insisted that the Special Committee be given as
much flexibility as possible. In addition, J&G reiterated the Company's position
that an option on the shares of the Principal Stockholders was not acceptable
and that any amount of excess profit derived by the Principal Stockholders from
a transaction with a party other than the CDP/Mosaic Group should be limited to
50% of such excess profit. The CDP/Mosaic Group relented on requiring the grant
of an option on the shares of the Principal Stockholders, but still maintained
the need to have a voting agreement with the Principal Stockholders. The
respective working groups continued to negotiate and revise the documents
through January 9, 2002 until the representatives of J&G and Allen & Company
left Los Angeles. At that time, no formal exclusivity arrangement was in place.
On January 9, 2002, Skadden Arps distributed revised drafts of the
Merger Agreement, as well as a proposed voting agreement, stockholders'
agreement and subscription agreement relating to Mr. Clark's required investment
in DCPI Investco as well as an investment in DCPI Investco by Mr. La Maina.
These documents were circulated by J&G to the working group, including the
attorneys for Messrs. Clark and La Maina. After a careful review of all of the
documents, a series of conference calls was held among the Company's working
group, including Allen & Company, M&S, Winston & Strawn and Pavia. These calls
addressed the global concerns of each of the parties, as well as specific
concerns raised by the attorneys for the individuals. At the conclusion of these
calls, the lawyers for Messrs. Clark and La Maina, M&S and J&G, as well as Allen
& Company, felt that there were still some significant issues that had not been
adequately addressed or resolved in the drafts circulated by Skadden Arps. As a
result, J&G prepared a detailed memorandum outlining the significant business
points raised by the most recent drafts of the transaction documents distributed
by Skadden Arps. The memorandum raised, among other things, the following
concerns:
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. A request for more information as to the capitalization and estimate
initial balance sheet of DCPI Investco and contemplated funding of
the proposed transaction.
. Timing of the payment of the termination fee and amount.
. Removal or limitation of a waiting period following the acceptance by
the Board of a superior proposal.
. Limiting the proxy under the voting agreement to matters relating to
the proposed transaction.
. Numerous issues in the stockholders agreement and the employment
agreements.
The view of the Company, the Special Committee and their respective
advisors was that these issues needed to be resolved. Messrs. Clark and La Maina
also raised a variety of issues regarding the proposed DCPI Investco
stockholders agreement and employment agreements that they required to be
addressed before any more significant time was to be allocated to the CDP/Mosaic
Group transaction. On January 12, 2002, Skadden Arps responded by memorandum to
the issues raised in the Company's January 11, 2002 memorandum. After reviewing
the Skadden Arps memorandum, the Company felt that the responses did not
adequately address the concerns raised in the January 11, 2002 memorandum and
stated the same along with the reasons for its position in two memoranda dated
January 13, 2002 and January 14, 2002, from J&G. In the interim, on January 12,
2002, J&G distributed revised copies of the Merger Agreement and the voting
agreement to Skadden, Arps, which reflected the comments of the Company's
working group.
Following this exchange of memoranda, on January 15, 2002, the Board
and the Special Committee met to discuss the lack of meaningful progress with
the CDP/Mosaic Group, and whether the consummation of the proposed transaction
with the CDP/Mosaic Group was possible. As there was no exclusivity arrangement
in place with the CDP/Mosaic Group, the Company, upon authorization of the
Special Committee and the Board, contacted the Philly Group, through Allen &
Company, to determine whether the Philly Group was still interested in
proceeding with a transaction with the Company. After a lengthy discussion, the
Special Committee and the Board decided to forward a draft of a form of merger
agreement and voting agreement to the Philly Group and its lawyers that the
Company viewed as acceptable, as well as a memorandum outlining acceptable terms
for the ancillary agreements. At the request of the Special Committee, Allen &
Company instructed the investment bankers of the Philly Group that the need for
outside financing was still a significant concern of the Company and the Special
Committee and that counsel to the Philly Group should be encouraged to respond
as quickly as possible to the J&G drafts, with minimal comments.
On January 17, 2002, the Philly Group delivered a memorandum containing
its initial responses to a series of discussion points raised by the Company and
the Special Committee, as well as general comments to the drafts of the merger
agreement and voting agreement. The memorandum also stated that the revised
documents would be sent to the Company following its response.
On January 18, 2002, a conference call was held between the
representatives of the CDP/Mosaic Group and the representatives of the Company
concerning the employment agreements for Messrs. Clark and La Maina.
Representatives from J&G, Winston & Strawn and Pavia outlined the area of
concerns in each of the agreements. Included among the concerns was the basis
upon which the bonuses would be calculated, whether the agreements would have a
rolling term, what were the powers of the proposed management committee, as well
as discussions regarding change-of-control provisions. In addition, certain
points raised in connection with the non-compete agreement were resolved.
Registration rights for Messrs. Clark and La Maina relating to the stock of DCPI
Investco were also discussed.
-19-
On January 19, 2002, counsel to the Philly Group distributed revised
versions of the merger agreement and voting agreement that were forwarded to
them on January 15, 2002, as well as some general comments regarding their view
of the proposed transaction and its structure, their problems regarding the
broad fiduciary obligations of the Special Committee as drafted, and the terms
of the voting agreement. The revised documents received from the Philly Group
were considered unacceptable for various reasons, including certain restrictions
upon the Company's ability to explore unsolicited offers, the Philly Group's
right to match any superior proposal and the fact that the proposed transaction
was subject to outside financing.
On January 20, 2002, a conference call was conducted between the
CDP/Mosaic Group and its advisors and the Company and its advisors to review the
status of the proposed transaction, the terms of the merger agreement and some
employment agreement issues. At the request of the Special Committee, Mr.
Weisberg asked the CDP/Mosaic Group for further information relating to the
funding necessary to complete the proposed transaction, as the Special Committee
was concerned that, despite the prior representations of the CDP/Mosaic Group,
the Special Committee still lacked clear evidence of the CDP/Mosaic Group's
ability to consummate the merger of DCPI Mergerco with and into the Company (the
"Merger") pursuant to the Merger Agreement, with the Company as the surviving
corporation (the "Surviving Corporation"). The CDP/Mosaic Group agreed to supply
such information. Next, the actual amount of the termination fee was reviewed.
The parties agreed that the termination fee would equal approximately 3% of the
transaction value (inclusive of any and all fees and expenses). Mr. Winterstern
indicated that such amount equaled approximately $4 million. In addition, the
parties reviewed and discussed the timing of the payment of the termination fee.
A question was raised as to whether the required equity investments by Messrs.
Clark and La Maina could be structured so as to be governed by Section 351 of
the Internal Revenue Code of 1986, as amended, in order to be completed as a
tax-free reorganization. The compensation arrangements for Messrs. Clark and La
Maina were also discussed.
On January 22, 2002, J&G had a conference call with M&S to review the
status of CDP/Mosaic Group's transaction, as well as the Philly Group's revised
documents that had been received on January 19, 2002. The Special Committee
thereafter determined that the responses received by the Company from the Philly
Group were not sufficient in order to continue pursuing that transaction at that
time, particularly since its proposal still had an extremely limited right for
the Company to pursue an unsolicited offer that could result in a superior
proposal and it remained fully subject to a financing contingency.
On January 24, 2002, there was a conference call between the Special
Committee, M&S, J&G and Allen & Company. J&G discussed the status of the
negotiations with the CDP/Mosaic Group, the memorandum discussing the major deal
points sent to the CDP/Mosaic Group and the responses received from the
CDP/Mosaic Group and its advisors. The Special Committee expressed particular
concern about the availability of funds from Capital Communications to finance
the Merger, as the only financial statement information relating to any of the
members of the CDP/Mosaic Group that had been given to the Company was a balance
sheet of Capital Communications as of December 31, 2000. Therefore, the Special
Committee questioned the CDP/Mosaic Group's ability to conclude the proposed
transaction. Further, the Special Committee, with M&S, reviewed the status of
the Merger Agreement and the voting agreement, and discussed whether the
employment agreements and the stockholders agreement appeared to provide any
disguised additional purchase price consideration to Messrs. Clark and La Maina
and any potential impact on the fairness of the proposed transaction for the
Public Stockholders, as did Allen & Company. The Special Committee concluded
tentatively at that time that the ancillary documents did not affect the overall
fairness of the Merger to the Public Stockholders. The Special Committee
requested that J&G ask for more information regarding the proposed capital
structure of DCPI Investco, as well as more current financial information
regarding Capital Communications. Accordingly, J&G contacted the
-20-
CDP/Mosaic Group and was advised by Mr. Winterstern that a letter would be
forthcoming indicating that Capital Communications remained willing and able to
finance the proposed transaction if required.
On January 27, 2002, a conference call was held among Mr. La Maina, J&G
and the CDP/Mosaic Group to discuss certain issues raised in the employment
agreements regarding the management of DCPI Investco, as well as a detailed
conversation regarding the proposed management committee concept and how it
would work in case of deadlocks and other circumstances.
On January 29, 2002, the Company received an unsolicited proposal from
a small television syndication company for $12.75 per share of outstanding
Capital Stock, which was subject to numerous contingencies, including obtaining
third-party financing. The Special Committee and the Company discussed the
matter with Allen & Company, J&G and M&S. Allen & Company was charged with
contacting this television syndication company and determining whether it would
be able to improve the current proposal on the table. After a brief conversation
with this television syndication company, Allen & Company reported to the
Company that the offer involved numerous contingencies, including outside
financing. In addition, there was some discussion that the bidder would probably
not be able to increase its offer unless it engaged in a lengthy due diligence
review of the Company which had not yet begun. The Board decided that, unless
the bid increased and was altered to include fewer contingent terms, it would
not be considered.
On January 30, 2002, the Board, including members of the Special Committee,
held a meeting to discuss the status of the transactions. Mr. Weisberg reviewed
the status of the CDP/Mosaic Group proposal and the Philly Group proposal. The
Board was advised that the Philly Group believed it had proceeded as quickly as
possible and wanted exclusivity before it incurred any more expenses. In
addition to the request for exclusivity, the Philly Group asked the Company to
pay a portion of its costs that its proposed lenders would charge in order to
proceed with their due diligence review and provide the Philly Group with the
required financing. The Board, including members of the Special Committee,
discussed the continuing concerns that the Philly Group's requirement that the
Company permit the Philly Group to match a superior proposal, but not to exceed
it, would severely hamper its ability to enter into negotiations regarding a
potential superior proposal. The Board, including members of the Special
Committee, also discussed the certainty of closing given the financing
contingencies in the Philly Group's proposal. After a discussion, the Board
concluded that it was inappropriate for the Philly Group to ask the Company to
cover some of its expenses and that the Company should not, in any case, be
required to pay any expenses of any of the bidders. Accordingly, the Board
decided to reject the Philly Group's request for exclusivity. The Board then
reviewed the status of the CDP/Mosaic Group's proposal. As a result of the lack
of movement by the Philly Group on key issues and its request for expenses, the
Board decided to continue to proceed with negotiation of the CDP/Mosaic Group's
proposal. The Board, decided that, as too much time had passed and, if the
CDP/Mosaic Group was to be successful, it should be given a deadline to resolve
all open issues with regard to the Merger Agreement and all the other documents
by 5:00 p.m. Los Angeles time on February 1, 2002.
Mr. Weisberg contacted the CDP/Mosaic Group and informed it of the
deadline. The CDP/Mosaic Group agreed but requested that if it met the deadline,
the Company should grant the CDP/Mosaic Group an additional period of
exclusivity in order to conclude the documentation, which the Special Committee,
after discussions with J&G and M&S, agreed to do. At the same time, several
conversations were held by Allen & Company with the investment bankers for the
Philly Group. In order to proceed, the Philly Group proposed that the Company
pay the Philly Group a certain amount for expenses if the Company did not accept
the Philly Group's proposal and another amount would be paid by the Philly Group
to the Company if the Company accepted the Philly Group's proposal. The Company
and the Special Committee concluded that this proposal was not acceptable. In
order to determine the status of the transaction documents, J&G attempted to
contact the Philly Group's counsel and was told
-21-
by counsel that because the expense issue was unresolved it was not authorized
by the Philly Group to discuss the transaction further.
On February 1, 2002, the CDP/Mosaic Group delivered a memorandum to
J&G, which addressed most of the significant transaction and business issues
regarding the Merger Agreement and all the other documents to the satisfaction
of the Company and the Special Committee, although there remained some open
issues in the transaction documents. Further, the lawyers for the CDP/Mosaic
Group contacted J&G to set up a conference call to discuss any open issues later
that evening. A Board meeting was immediately convened and it was decided that
J&G should contact Skadden Arps and the other advisors to determine the next
steps in order to finalize the documentation. After a discussion during which
J&G summarized the responses, the Board considered not granting exclusivity to
either bidder and telling each of the Philly Group and the CDP/Mosaic Group to
provide their best proposal prior to a scheduled board meeting. After a
discussion was held as to whether such a process would be possible and whether
both parties would be interested in participating, the Board decided that the
Company should not grant exclusivity, but would proceed in good faith with the
CDP/Mosaic Group. The Board agreed to set a formal meeting for February 11,
2002, to discuss and approve, or not approve, the CDP/Mosaic Group's proposed
transaction.
During this time, Allen & Company received an unsolicited telephone
call from the Philly Group and was advised that it wanted to amend its proposal
so that the Public Stockholders would receive $14.00 per share instead of $13.00
and the Principal Stockholders would receive $12.53 per share instead of $13.00.
As part of the revised proposal Mr. Clark would also receive a promissory note
payable to Mr. Clark representing approximately $3,000,000 in deferred purchase
price. Even though the amended proposal increased the per share purchase price,
the Philly Group still required outside financing to consummate the transaction.
In consideration for increasing its bid, the Philly Group requested exclusivity
and also wanted certain of its expenses covered as discussed above.
The Special Committee discussed setting a tentative meeting date and
advising the two bidders to present their best offer several days prior to such
meeting, with neither party being granted exclusivity or reimbursement for
expenses. During this period, the Company would provide each party with access
to its books and records so they could complete their respective due diligence
reviews. J&G pointed out that the Philly Group most likely would not want to
proceed unless the Company agreed to pay some of its expenses. The Special
Committee also considered whether the CDP/Mosaic Group would want to participate
in the process but also noted that the CDP/Mosaic Group wanted some of its
expenses covered in light of the considerable expenses that the CDP/Mosaic Group
had already incurred. It was determined that no exclusivity would be granted to
either group at that time.
Accordingly, on February 1, 2002, Mr. Weisberg told the lawyers for the
CDP/Mosaic Group that a higher bid had been received from another bidder and
that the Board and the Special Committee would consider the other bidder's
proposal. The CDP/Mosaic Group expressed its disappointment and requested a
telephone conference with Messrs. Clark and La Maina. On February 3, 2002, a
series of telephonic conferences were held between J&G and Messrs. Clark and La
Maina to discuss the views of the CDP/Mosaic Group. J&G and Messrs. Clark and La
Maina agreed that the principals of each group should have a conference call.
Later on the morning of February 3, 2002, a conference call was held among all
the principals of the CDP/Mosaic Group and Messrs. Clark, La Maina and Weisberg.
Mr. Clark stated that, despite the fact that there had been delays, the Company
was still interested in proceeding with the CDP/Mosaic Group because of the
greater certainty of closing once all of the issues relating to the transaction
documents have been resolved. However, Mr. Clark noted that since a higher bid
had been received, it is the Board's obligation to review the bid and determine
whether, if such a transaction is consummated, it would be better for the Public
Stockholders if a transaction were consummated with that higher bidder.
-22-
In a series of telephonic discussions held between counsel on February
3 and 4, 2002, J&G mentioned that if the CDP/Mosaic Group significantly improved
its offer, the Company would be willing to grant exclusivity to the CDP/Mosaic
Group in order to conclude the negotiations. Otherwise, the CDP/Mosaic Group
could leave its bid where it was or increase it slightly and the Special
Committee and the Board would consider it, but no exclusivity would be granted.
J&G informed the CDP/Mosaic Group's counsel that the satisfactory conclusion of
the negotiations regarding the Merger Agreement and the voting agreement were
necessary to present the Special Committee with a final package as well as the
employment arrangements with both Messrs. Clark and La Maina due to the Special
Committee's concern that the merger transaction would not be capable of closing
without the conclusion of such agreements.
During this period, J&G tried to contact counsel to the Philly Group to
ascertain where the Philly Group stood regarding the documents. J&G was advised
by such counsel that its client still had not authorized them to proceed.
On February 5, 2002, M&S had discussions with Ladenburg Thalmann & Co.
Inc. ("Ladenburg") for the purpose of providing an additional fairness opinion
to the Board due to the fact that Mr. Senior, a director of the Company since
1987, is also a Managing Director of Allen & Company. On February 6, 2002,
Ladenburg was formally engaged by the Board for the express purpose of providing
a second fairness opinion to the Board.
On February 5, 2002, Mr. Weisberg was advised by Skadden Arps that the
CDP/Mosaic Group was prepared to make an increased price proposal for the shares
of the Public Stockholders. Skadden Arps said that if the price increase was
acceptable because it was sufficiently significant, the CDP/Mosaic Group would
ask for exclusivity through February 9, 2002, in order to allow the CDP/Mosaic
Group time to complete negotiations on all of the open points remaining in the
transaction documents including matters relating to the Company's intellectual
property and environmental matters, as well as the issues relating to Mr.
Clark's arrangement with the CDP/Mosaic Group. Furthermore, Skadden Arps
requested that if such negotiations were concluded, then exclusivity should be
extended until the February 12, 2002 Board meeting (formerly scheduled for
February 11, 2002). At the request of Mr. Weisberg, a Special Committee meeting
with M&S and J&G was convened to discuss the progress that had been made in
negotiating the terms of the CDP/Mosaic Group transaction and to discuss whether
it was appropriate for J&G to meet in person with the lawyers for the CDP/Mosaic
Group in order to finalize negotiations relating to the transaction documents.
On the night of February 5, 2002, the CDP/Mosaic Group contacted J&G to
advise that it had increased its bid to $14.00 per share, up from $13.00, to the
Public Stockholders and $12.50 per share, up from $12.00, to the Principal
Stockholders. J&G contacted M&S and the Special Committee to discuss the
proposal. After a brief discussion, the Special Committee rejected the proposal.
The Special Committee, M&S and J&G told the CDP/Mosaic Group that its increase
was not significant and that it would have to improve its proposal, or allow its
proposal to remain as currently proposed and it would be considered accordingly.
After some consideration, the CDP/Mosaic Group contacted J&G and M&S with a
price of $14.25 per share for the Public Stockholders and $12.50 per share to
the Principal Stockholders. Again, after a series of exchanges with J&G and M&S,
the Special Committee told the CDP/Mosaic Group that it was rejecting this
proposal. After further discussions, which occurred in the early morning of
February 6, 2002 between the Special Committee, M&S and J&G and the CDP/Mosaic
Group, the proposal was increased to $14.50 per share (an increase of $1.50 per
share over the December 4, 2001 proposal and $0.50 per share higher than the
Philly Group's contingent offer) to the Public Stockholders and $12.50 per share
(an increase of $0.50 per share over the December 4, 2001 proposal to the
Principal Stockholders). Following its proposed increase to $14.50 per share,
the CDP/Mosaic Group advised the Special Committee that it would not increase
the per share price any higher. This increase was considered significant enough
by the Special Committee and the entire Board to proceed with the CDP/Mosaic
-23-
Group and to agree to the request of the CDP/Mosaic Group for exclusivity in
order to complete the negotiations.
On February 6, 2002, a letter providing for the exclusivity arrangement
with the CDP/Mosaic Group through February 12, 2002 was signed. On February 7,
2002, representatives from J&G flew to Los Angeles to meet with the lawyers of
the CDP/Mosaic Group in order to conclude negotiations regarding the transaction
documents. On February 8, 2002, a meeting was held at the Company's offices with
Messrs. Clark, La Maina, Shapiro, Haimovitz and Winterstern and legal counsel.
At that time, an agreement in principle was reached on the remaining terms,
including an agreement to grant Mr. Clark options to purchase voting shares of
DCPI Investco representing 3% of the number of outstanding shares of DCPI
Investco at an exercise price of $1.00 per share, and a slight increase in the
termination fee, provided for in the Merger Agreement. From February 7, 2002
through February 10, 2002, meetings were held in Skadden Arps' Los Angeles
office to negotiate and finalize the documentation for the transaction. The
negotiations focused on, among other things, modifying the intellectual
property, environmental and other representations by the Company, strengthening
the financing representation by the CDP/Mosaic Group in the Merger Agreement and
reviewing the voting agreement. The employment agreements and stockholders
agreement were revised after lengthy negotiations and were distributed to the
respective working groups on both February 10, 2002 and February 11, 2002.
On February 12, 2002, the Board met with its legal and financial
advisors to consider the CDP/Mosaic Group's proposed transaction. Mr. Weisberg
of J&G summarized the terms of the Merger Agreement and related documents,
particularly those issues that had been changed or resolved over the preceding
week, including the terms of the Board's ability to address and provide
information in connection with any superior proposal made during the period from
the time of signing the Merger Agreement until the closing of the Merger. J&G
also reviewed with the Board Mr. Clark's agreement to pay a portion of any
excess profits derived by him from a superior offer, which allowed the
CDP/Mosaic Group to accept a lower termination fee, as well as the employment
agreements for Messrs. Clark and La Maina. Further, a brief discussion was held
describing the problems the Company faced from its continued operations. Allen &
Company then delivered its oral opinion to the Board, confirmed by delivery of a
written opinion dated February 13, 2002, to the effect that, as of such date and
based on and subject to the matters described in its opinion, the $14.50 per
share cash consideration to be received by the Public Stockholders for their
Common Stock in the Merger was fair from a financial point of view to such
holders. Allen & Company also discussed with the Board its review of the Company
from time to time and the financial analyses performed in connection with its
opinion as well as the steps it had taken to arrange for such a transaction with
potential bidders. Further, Allen & Company advised that the termination fee was
within the range of those found in prior comparable transactions. After asking
some further questions of Allen & Company and considering the information
delivered, the Board asked Allen & Company to leave the meeting. At that time,
Ladenburg joined the meeting. Ladenburg delivered an oral opinion to the Board,
which was confirmed by delivery of a written opinion, dated February 13, 2002,
to the effect that, as of such date, and based on and subject to the matters
described in its opinion, the $14.50 per share cash consideration to be received
by the Public Stockholders for their Common Stock in the Merger was fair from a
financial point of view to such holders. The Board then adjourned so that the
Special Committee could separately meet and discuss the proposed transaction
with its advisors. After considering the matters discussed, the Special
Committee reviewed the Merger Agreement, the voting agreement, and the other
agreements and concluded that it required one additional day to review and
deliberate on the information provided by the financial advisors and for the
documents to be finalized.
On February 13, 2002, the documents providing for the transaction with
the CDP/Mosaic Group were finalized and distributed, and all parties and their
advisors reviewed the latest versions of the transaction documents and confirmed
that such versions were satisfactory. After confirming with the
-24-
financial advisors their respective opinions, the Special Committee concluded
that the Merger and the terms and provisions of the Merger Agreement, including
the $14.50 per share in cash, without interest, to be received by the Public
Stockholders following consummation of the Merger (the "Merger Consideration"),
was fair to, and in the best interests of, the Company's stockholders, and
resolved to recommend to the Board that it adopt the Merger Agreement.
Following the meeting of the Special Committee, on February 13, 2002,
the Board met to consider the proposed transaction. After considering, among
other things, the Special Committee's recommendation and the opinions of the
financial advisors, the Board concluded that the Merger, and the terms and
provisions of the Merger Agreement, including the Merger Consideration of $14.50
in cash per share to the Public Stockholders, was fair to, and in the best
interests of, the Company's stockholders, unanimously adopted the Merger
Agreement, authorized the Company to enter into the Merger Agreement and
unanimously resolved to recommend to the Public Stockholders that they vote to
adopt the Merger Agreement.
Subsequent to the Board meeting, the Merger Agreement, the voting
agreement and the other related transaction agreements were executed by the
parties thereto. On February 14, 2002, the Company and the CDP/Mosaic Group
issued a press release announcing the transaction.
The following day, a putative class action complaint was filed in the
Superior Court of the State of California, County of Los Angeles on behalf of
Walter Valenti and an alleged class of stockholders of the Company other than
the defendants and their affiliates (the "Unaffiliated Stockholders"). The
complaint names the Company and its directors as defendants and alleges that the
defendants have engaged in acts of self-dealing and have violated fiduciary
duties of "care, loyalty, candor and independence" owed to the Unaffiliated
Stockholders in connection with the Merger. The complaint further alleges that
the $14.50 price per share is inadequate. The complaint seeks, among other
things, injunctive relief blocking the consummation of the Merger, or if it is
consummated, rescinding the Merger; imposition of a constructive trust, on
behalf of the plaintiff, upon any benefits received by defendants as a result of
their allegedly wrongful conduct; and costs and disbursements of the action,
including attorneys' and experts' fees in unspecified amounts. As of the date of
this proxy statement, the time for the defendants to respond to the complaint
has not yet expired.
Recommendations of the Special Committee and the Board; The Company's Purpose
and Reasons for the Merger
At a meeting of the Special Committee held on February 13, 2002, the
Special Committee, after careful review of the facts and circumstances relating
to the Merger, unanimously concluded that the Merger, and the terms and
provisions of the Merger Agreement, including the Merger Consideration of $14.50
in cash per share to the Public Stockholders, were fair from a financial point
of view to, and in the best interests of, the Company's stockholders, and
unanimously resolved to recommend to the Board that it authorize the Company to
enter into the Merger Agreement. At a special meeting of the Board held later in
the day on February 13, 2002, the Board unanimously concluded, based in part on
the recommendation of the Special Committee, that the Merger, and the terms and
provisions of the Merger Agreement, including the Merger Consideration of $14.50
in cash per share to the Public Stockholders, were fair and in the best
interests of the Company's stockholders, unanimously adopted the Merger
Agreement, authorized the Company to enter into the Merger Agreement and
unanimously resolved to recommend to the Public Stockholders that they vote to
adopt the Merger Agreement.
The Special Committee addressed its recommendation to the Board, and
the Board specifically addressed its recommendation to the Public Stockholders
as a separate individual class. Neither the Special Committee nor the Board
addressed its recommendation to the Principal Stockholders.
-25-
In determining to recommend to the Public Stockholders of the Company
that they adopt the Merger Agreement and the transactions contemplated thereby,
and in determining that the terms of the Merger Agreement were advisable, fair
to, and in the best interests of, the Company's stockholders, the Special
Committee and Board considered certain factors, including but not limited to,
the following:
(i) the financial condition, assets, results of operations,
business and prospects of the Company, and the risks inherent in achieving those
prospects;
(ii) changes in the television industry which are anticipated to
continue to have an adverse effect on the Company and its operations, including
(a) in-house production and syndication of primetime television programming by
the major networks, (b) increased competition with other forms of entertainment
and leisure time activities involving new areas of technology, (c) substantial
competition in the first-run syndication marketplace, resulting in fragmentation
of ratings and advertising revenues, and (d) numerous consolidations within the
industry which restrict the Company's ability to sell or license its
entertainment programming;
(iii) the terms and conditions of the Merger Agreement, including
the consideration payable to the Public Stockholders, and the fact that the
Principal Stockholders agreed to accept a price per share that is $2.00 less
than the amount to be received by the Public Stockholders;
(iv) the negotiations which took place between the CDP/Mosaic
Group, on the one hand, and the Company and the Special Committee, on the other
hand, with respect to the Merger Consideration and the belief by the members of
the Special Committee that $14.50 per share (which was the last of several
increased offers) was the highest price that the CDP/Mosaic Group would agree to
pay or that could be obtained from another source;
(v) the Merger was not subject to any financing contingencies;
(vi) that the Merger Consideration to be received by the Public
Stockholders in the Merger represents a premium of approximately 33% over the
$10.93 per share closing price on February 13, 2002, the last full trading day
before the public announcement by the Company of the signing of the Merger
Agreement; and that during the preceding six months, the Merger Consideration
represented a premium ranging from approximately 30% when the Common Stock
traded at $11.19 per share on February 11, 2002, to approximately 73%, when the
Common Stock traded at $8.40 per share on October 10, 2001;
(vii) that the Merger will provide the Company's Public Stockholders
with a level of liquidity currently unavailable in the market place; in
particular the fact that between February 13, 2001 and February 13, 2002, the
day immediately preceding the announcement of the signing of the Merger
Agreement, the trading volume of the Common Stock exceeded 1,000 shares on only
36 days and the average trading volume during such period was approximately 690
shares per day. Due to the small trading volume of the Common Stock, it is
reasonable to assume that any effort by a stockholder to dispose of a
significant number of shares would adversely affect the market price;
(viii) the Special Committee and the Company negotiated a flexible
no-solicitation provision in the Merger Agreement which provides the Company
with the ability to explore and discuss unsolicited proposals made to the
Company prior to the consummation of the Merger and which could result in the
termination of the Merger Agreement as the result of the receipt of a superior
proposal;
-26-
(ix) expressions of interest from other prospective purchasers
whose proposals required financing contingencies and who offered prices for the
shares of Capital Stock which, in all but one instance, were lower than the
Merger Consideration;
(x) the trading prices and volumes at which the Common Stock
traded since the Company's initial public offering; in particular the fact that
the closing price of the Common Stock had not reached $14.50 per share since
December 30, 1999;
(xi) the opinions of Allen & Company and Ladenburg as to the
fairness, from a financial point of view, of the Merger Consideration to be
received by the Public Stockholders as set forth in the Allen & Company and
Ladenburg opinions, respectively, and the analyses presented to the Board by the
financial advisors on February 12 and 13, 2002; and
(xii) the availability of appraisal rights under the Delaware
General Corporate Law, as amended from time to time (the "DGCL") to holders of
Common Stock who dissent from the Merger.
(xiii) the evaluation of the employment agreements for Messrs. Clark
and La Maina, and the DCPI Investco stockholders agreement, indicated no
disguised additional purchase price consideration.
Each of these factors favored the conclusion that the Merger was fair
to the Public Stockholders.
In light of the number and variety of factors the Special Committee and
Board considered in connection with their evaluation of the Merger, neither the
Board nor the Special Committee found it practicable to assign relative weights
to the foregoing factors, and, accordingly, neither the Board nor the Special
Committee did so. Rather, the Special Committee and the Board based their
recommendations on the totality of the information presented to and considered
by them, except that particular consideration was placed on: (i) the opinions of
Allen & Company and Ladenburg that the Merger Consideration was fair to the
Public Stockholders from a financial point of view, as set forth in the Allen &
Company and Ladenburg opinions, respectively; (ii) the negotiations that took
place between the Company and the Special Committee, on the one hand, and the
CDP/Mosaic Group, on the other hand, that resulted in the Merger Consideration
increasing from $10.00 per share to $14.50 per share; and (iii) the transaction
not being subject to any financing contingencies as Capital Communications
agreed to provide the financing in connection with the Merger.
The foregoing discussion of the factors considered by the Special
Committee and the Board is not meant to be exhaustive, but includes all material
factors considered by the Special Committee and the Board to support their
respective decisions to recommend the Merger.
The Board believes that the Merger is procedurally fair because: (i)
the Special Committee concluded that the Merger, and the terms and provisions of
the Merger Agreement, including the Merger Consideration of $14.50 in cash per
share to the Public Stockholders, was fair to, and in the best interests of the
Company's stockholders, and unanimously resolved to recommend to the Board that
it adopt the Merger Agreement; (ii) the Board, at the request of the Special
Committee, retained Ladenburg and the Special Committee retained M&S to advise
it in evaluating the fairness of the terms of the Merger (including, without
limitation, the Merger Consideration), due in part to the fact that Mr. Enrique
F. Senior, a director of the Company since 1987 is also a Managing Director of
Allen & Company; (iii) Allen & Company delivered its opinion to the Board that
the Merger Consideration was fair, from a financial point of view, to the Public
Stockholders; (iv) Ladenburg delivered its opinion to the Board that the Merger
Consideration was fair, from a financial point of view, to the Public
Stockholders; and (v) the Merger Agreement and other transaction documents were
extensively negotiated over a two-month period.
-27-
THE SPECIAL COMMITTEE AND THE BOARD BELIEVE THAT THE MERGER IS FAIR TO,
AND IN THE BEST INTERESTS OF, THE COMPANY'S STOCKHOLDERS. THE BOARD HAS ADOPTED
THE MERGER AGREEMENT AND RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE MERGER
AGREEMENT.
Except to the extent a recommendation is made in a person's capacity as
a director, no executive officer of the Company or Principal Stockholder has
made any recommendation with respect to the adoption of the Merger Agreement or
any other transaction contemplated by the Merger Agreement. Mr. Clark, the
Chairman, Chief Executive Officer and a director of the Company, who
beneficially owns approximately 68% of the Common Stock and 90% of the Class A
Common Stock, which together represent approximately 78.9% of the total votes
entitled to be cast by holders of the outstanding shares of Capital Stock, has
advised the Company that, pursuant to the voting agreement, the Principal
Stockholders will vote their shares of Common Stock and Class A Common Stock in
favor of the adoption of the Merger Agreement unless the Merger Agreement is
terminated in accordance with its terms. In addition, Mr. La Maina, the
President, Chief Operating Officer and a director of the Company, who
beneficially owns approximately 10% of the Common Stock and 10% of the Class A
Common Stock, which together represent approximately 9.9% of the total votes
entitled to be cast by holders of the outstanding shares of Capital Stock, has
advised the Company that he intends to vote his shares of Common Stock and Class
A Common Stock in favor of the adoption of the Merger Agreement unless the
Merger Agreement is terminated in accordance with its terms. Consequently, the
Principal Stockholders and Mr. La Maina possess a sufficient number of votes to
adopt the Merger Agreement under the DGCL.
Opinion of Allen & Company
On April 5, 1999, the Company retained Allen & Company to assist and
advise the Company in connection with possible transactions involving, among
other things, acquisitions, strategic joint ventures or partnerships, sales of
all or substantially all of the stock or assets of the Company, mergers,
consolidations, or any other form of business combination or similar
transactions with another entity. The terms of this engagement include the
payment of a fee to Allen & Company upon successful completion of a transaction,
such as the Merger, equal to 1.5% of the value of such transaction. This fee
will be payable upon the consummation of the Merger. The Company has also agreed
to reimburse Allen & Company for its reasonable expenses incurred in performing
its services in connection with this engagement. The Company selected Allen &
Company as its financial advisor based on Allen & Company's reputation,
expertise and familiarity with the Company and its business. Allen & Company
acted as lead manager in the initial public offering of the Common Stock in
January 1987, and Enrique Senior, an Executive Vice President and Managing
Director of Allen & Company, also serves as a director of the Company.
Pursuant to an engagement letter dated February 1, 2002, Allen &
Company agreed to provide the Board a fairness opinion in connection with the
Merger. The terms of this letter include payment to Allen & Company of a fee of
$250,000 plus reasonable expenses incurred in performing its services in
connection with this engagement letter. In addition, pursuant to both
engagements, the Company has agreed to indemnify Allen & Company and its
affiliates, directors, officers, agents and employees and each person, if any,
controlling Allen & Company or any of its affiliates against certain liabilities
and expenses, including certain liabilities under the federal securities laws,
related to or arising out of Allen & Company's engagements and any related
transactions.
On February 12, 2002, a meeting of the Board was held to adopt the
Merger Agreement. At that meeting, Allen & Company rendered an oral opinion,
which opinion was confirmed by delivery to the Board of a written opinion dated
February 13, 2002, to the effect that, as of that date and based on and subject
to the matters described in its opinion, the Merger Consideration to be received
was fair, from a financial point of view, to the Public Stockholders.
-28-
The full text of Allen & Company's written opinion dated February 13,
2002, which describes the assumptions made, matters considered and limitations
on the review undertaken, is attached to this proxy statement as Annex B.
ALLEN & COMPANY'S OPINION IS ADDRESSED TO THE BOARD AND RELATES ONLY TO
THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE
RECEIVED BY THE PUBLIC STOCKHOLDERS AS PROVIDED FOR IN THE MERGER. THE OPINION
DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR ANY RELATED TRANSACTIONS AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF THE COMMON STOCK AS TO
WHETHER SUCH STOCKHOLDER SHOULD VOTE OR ACT WITH RESPECT TO ANY MATTERS RELATING
TO THE MERGER. THE SUMMARY OF ALLEN & COMPANY'S OPINION DESCRIBED BELOW IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. YOU ARE
ENCOURAGED TO READ THE OPINION CAREFULLY IN ITS ENTIRETY.
In arriving at its opinion, Allen & Company:
. reviewed and analyzed a draft of the Merger Agreement, drafts of
the agreements ancillary thereto and the financial terms of the
Merger;
. reviewed and analyzed historical publicly available business
information and financial results of the Company, including the
Securities and Exchange Commission filings of the Company;
. reviewed and analyzed non-public operating and financial
information of the Company, including (i) a management budget for
the fiscal year ending June 30, 2002 and (ii) financial estimates
for the fiscal years ending June 30, 2003 and June 30, 2004, all
provided by the management of the Company;
. analyzed the present financial condition and business prospects of
the Company;
. reviewed and analyzed historical market prices and trading volumes
for the Common Stock since the Company's initial public offering;
. analyzed the current ownership structure of the Company;
. reviewed and analyzed financial and trading data for selected
publicly traded companies it deemed comparable to the Company;
. reviewed and analyzed publicly available financial information
relating to selected comparable merger and acquisition transactions
in the television production industry;
. analyzed the price of the Common Stock and market multiples of the
Company as compared to selected comparable companies;
. reviewed and analyzed the premiums paid in selected cash
acquisition transactions comparable to the Merger;
. reviewed and analyzed the termination fees paid in selected cash
acquisition transactions comparable to the Merger;
-29-
. analyzed the financial multiples of the Merger as compared to those
of selected comparable transactions;
. conducted discussions with management of the Company;
. analyzed discounted cash flows;
. reviewed and analyzed prevailing economic, monetary and market
conditions; and
. performed such other analyses and reviewed such other information
as Allen & Company deemed appropriate.
In rendering its opinion, Allen & Company relied upon and assumed,
without independent verification or investigation, the accuracy and completeness
of all of the financial and other information that the Company and its
employees, representatives and affiliates provided to, or discussed with, Allen
& Company. Allen & Company assumed, with the Company's consent, that the Merger
would be consummated in all material respects in accordance with the terms set
forth in the February 12, 2002 draft of the Merger Agreement and the related
documents, without waiver, modification or amendment of any material term,
condition or agreement and that, in the course of obtaining the necessary
regulatory or third party consents and approvals for the Merger, no limitations,
restrictions or conditions would be imposed that would have a material adverse
effect on the Company or the contemplated benefits of the Merger. Allen &
Company relied, at the direction of the senior management of the Company,
without independent verification or investigation, upon the assessments of the
management of the Company as to the anticipated financial and operational
benefits of the Merger and the risks associated therewith.
Allen & Company did not (i) make or obtain any independent evaluations
or appraisals of the assets or liabilities, contingent or otherwise, of the
Company, except for those provided by management, (ii) perform due diligence on
the Company's physical properties and facilities, sales, marketing or service
organizations or (iii) express any opinion as to the underlying valuation,
future performance or long-term viability of the Company, the price at which the
Common Stock would trade after announcement or upon consummation of the Merger
or the price at which the Common Stock would trade at any time in the future.
Allen & Company expressed no view as to, and Allen & Company's opinion does not
address, the underlying business decision of the Company to effect the Merger,
and the opinion does not constitute a recommendation of the Merger over any
alternative business strategy which might be available to the Company. Allen &
Company's opinion was necessarily based on the information available to Allen &
Company and general economic, financial and stock market conditions and
circumstances as they existed and could be evaluated by Allen & Company as of
the date of its opinion. Although subsequent developments may affect its
opinion, Allen & Company does not have any obligation to update, revise or
reaffirm its opinion. The Company imposed no other instructions or limitations
on Allen & Company with respect to the investigations made or the procedures
followed by Allen & Company in rendering its opinion.
This summary is not a complete description of Allen & Company's opinion
to the Board or the financial analyses performed and factors considered by Allen
& Company in connection with its opinion. The preparation of a fairness opinion
is a complex analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, a fairness opinion
is not readily susceptible to summary description. Allen & Company believes that
its analyses and this summary must be considered as a whole and that selecting
portions of its analyses and factors or solely focusing on information presented
in tabular format, without considering all analyses and factors or the narrative
description of the analyses,
-30-
could create a misleading or incomplete view of the processes underlying Allen &
Company's analyses and opinion.
In performing its analyses, Allen & Company considered industry
performance, general business, market and financial conditions and other matters
existing as of the date of its opinion, many of which are beyond the control of
the Company. No company or business used in the analyses as a comparison is
identical to the Company, and an evaluation of the results of those analyses is
not entirely mathematical. Rather, the analyses involve complex considerations
and judgments concerning financial and operating characteristics and other
factors that could affect the acquisition, public trading or other values of the
companies or business segments analyzed.
The estimates contained in Allen & Company's analysis and the ranges of
valuations resulting from any particular analysis are not necessarily indicative
of actual values or future results, which may be significantly more or less
favorable than those suggested by its analyses. In addition, analyses relating
to the value of businesses or securities do not necessarily purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, Allen & Company's analyses and estimates are
inherently subject to substantial uncertainty.
The type and amount of consideration payable in the Merger was
determined through negotiation between the Special Committee, the Board, the
Company, on the one hand, and the CDP/Mosaic Group, on the other hand, and the
decision to enter into the Merger was solely that of the Special Committee and
the Board. Allen & Company's opinion and financial analyses were only one of
many factors considered by the Special Committee and the Board in their
evaluation of the Merger and should not be viewed as determinative of the views
of the Board or the Company's management with respect to the Merger or the
consideration to be received by the Public Stockholders as provided for in the
Merger.
Each of the analyses conducted by Allen & Company was carried out to
provide a different perspective on the Merger and to enhance the total mix of
information. Allen & Company did not form a conclusion as to whether any
individual analysis, considered in isolation, supported or failed to support an
opinion as to the fairness to the Public Stockholders, from a financial point of
view, of the Merger Consideration to be received. Allen & Company did not place
any specific reliance or weight on any individual analysis, but instead
concluded that its analyses, taken as a whole, supported its determination.
Description of Cases
In order to properly assess and compare the value of the Merger
Consideration to be received by the Public Stockholders, Allen & Company
constructed the following four transaction cases:
. Actual Unadjusted: Reflects actual consideration paid (i.e., $12.50
per share to the Principal Stockholders and $14.50 per share for
the Public Stockholders) unadjusted for the restaurant operations
of the Company (i.e., transaction value and financial estimates
include the restaurant operations).
. Actual Adjusted: Reflects actual consideration paid (i.e., $12.50
per share to the Principal Stockholders and $14.50 per share for
the Public Stockholders) adjusted for the restaurant operations of
the Company (i.e., transaction value and financial estimates,
namely revenue, earnings before interest, taxes, minority interest,
depreciation and amortization ("EBITDA") and earnings before
interest, taxes and minority interest ("EBIT"), assume disposal of
restaurant operations).
-31-
. Implied Unadjusted: Reflects implied value of the Merger to the
Public Stockholders (i.e., $14.50 per share applied to all the
outstanding Common Stock and Class A Common Stock) unadjusted for
the restaurant operations of the Company.
. Implied Adjusted: Reflects implied value of the Merger to the
Public Stockholders (i.e., $14.50 per share applied to all the
outstanding Common Stock and Class A Common Stock) adjusted for the
restaurant operations of the Company. (i.e., transaction value and
financial estimates, namely revenue, EBITDA and EBIT, assume
disposal of restaurant operations).
Allen & Company's analyses exclude all termination fees and expenses.
Implied Value and Multiples of the Merger
Allen & Company analyzed the "total equity value" of the Merger,
calculated as the value of the outstanding Capital Stock plus in-the-money
option value minus cash proceeds from in-the-money options outstanding as a
multiple of the last 12 months ("LTM") ending December 31, 2001 net income,
estimated fiscal year 2002 net income and book equity value.
Allen & Company also analyzed the "total enterprise value" of the
Merger calculated as total equity value minus cash and cash equivalents
(including marketable securities) plus minority interest and adjusted for
restaurant residual value as applicable, as a multiple of LTM revenue, estimated
fiscal year 2002 revenue, LTM EBITDA, estimated fiscal year 2002 EBITDA, LTM
EBIT and estimated fiscal year 2002 EBIT. All multiples were based on closing
stock prices on February 11, 2002, and the following table shows the results of
this analysis:
Actual Implied
-----------------------------------------------------------------
Unadjusted Adjusted Unadjusted Adjusted
------------- ------------- --------------- -------------
Total Equity Value $136.1 $136.1 $150.4 $150.4
Total Enterprise Value 66.5 57.9 80.8 72.1
Total Enterprise Value/
LTM Revenue 1.1x 1.3x 1.3x 1.6x
FY2002E Revenue 1.0 1.2 1.2 1.5
LTM EBITDA 10.2 7.6 12.4 9.5
FY2002E EBITDA 7.1 5.9 8.6 7.4
LTM EBIT 14.3 7.8 17.4 9.7
FY2002E EBIT 8.2 6.0 9.9 7.5
Total Equity Value/
LTM Net Income 26.0x n/a 28.7x n/a
FY2002E Net Income 18.5 n/a 20.4 n/a
Book Equity Value 1.8 n/a 2.0 n/a
Historical Common Stock Price Analysis
Allen & Company reviewed recent Common Stock prices and trading volume
data, and the following table shows the results of this analysis:
No. of
Trading Days
Low Mean High w/ no Volume
----------------- --------------- ---------------- -------------------
Share Price
Current (2/11/02) - $ 11.19 - -
10-Day $ 9.70 $ 10.30 $ 11.19 -
30-Day $ 9.38 $ 9.94 $ 11.19 -
1-Year $ 8.40 $ 10.12 $ 13.00 -
-32-
No. of
Trading Days
Low Mean High w/ no Volume
------------ ----------- ----------- --------------
Daily Volume
10-Day 0 260 1,500 6
30-Day 0 827 15,200 12
1-Year 0 682 26,100 126
Allen & Company also reviewed long-term Common Stock and trading volume
data, and the following table shows the results of this analysis:
No. of
Trading Days
Low Mean High w/ no Volume
------------ -------------- ------------ ---------------
Share Price
Since FYE '96 $ 8.23 $ 11.31 $ 18.07 -
Since IPO $ 2.47 $ 7.32 $ 18.07 -
Daily Volume
Since FYE '96 0 1,965 97,020 531
Since IPO 0 4,401 859,719 854
Allen & Company also noted that the Common Stock has underperformed the
Dow Jones Industrial Average over the past year and its price has decreased
following a series of negative earnings announcements. Also, over the past year,
the Common Stock has slightly outperformed the Nasdaq Composite and an index of
comparable television production companies, but the Common Stock has
underperformed the broader market over the last five years, as well as since the
Company's initial public offering.
Further, Allen & Company noted that the Common Stock has had very
limited liquidity over time because of a number of factors, including:
. closely-held ownership giving it limited public float;
. relatively small size;
. lack of Wall Street analyst coverage; and
. scarcity of market makers.
Comparable Market Trading Multiple Analysis
Allen & Company analyzed selected companies in the television
production industry which are similar to the Company. However, there are few
public companies in the television production industry of similar size to the
Company that provide a meaningful comparison because most of these companies
have ceased being public companies or have been acquired by much larger
companies. The two companies which Allen & Company deemed comparable were Cinar
Corp. and Lions Gate Entertainment (the "Allen & Company Comparable Companies")
due to their size and scope of operations.
Allen & Company reviewed and compared certain financial, operating and
stock market information related to the Company with the Allen & Company
Comparable Companies, and it analyzed their Enterprise Value and Equity Value as
multiples of certain financial items. The following table shows the results of
this analysis.
-33-
Selected Multiples for Comparable Companies(a)
Enterprise Value/ Equity Value/
--------------------------------------------------------- ---------------------
LTM CY2001E LTM CY2001E LTM CY2001E LTM CY2001E
Revenue Revenue EBITDA EBITDA EBIT EBIT Earnings Earnings
---------- ------- -------- -------- ------- -------- ---------- ----------
Cinar Corp. 0.6x NA 1.4x NA 1.6x NA 53.7x NA
Lions Gate Entertainment 1.3 1.1x 9.2 15.3 11.9 23.0x 13.1 NM
Mean 1.0x 1.1x 5.3x 15.3 6.8 23.0x 33.4x NA
High 1.3 1.1 9.2 15.3 11.9 23.0 53.7 NA
Low 0.6 1.1 1.4 15.3 1.6 23.0 13.1 NA
- -----------------------------------------------------------------------------------------------------
depi at February 11, 2001:
Unadjusted 0.8x 0.8x 7.1x 7.1x 9.9x 9.9x 22.1x 22.1x
Adjusted(b) 0.8 0.8 4.9 4.9 5.1 5.1 NA NA
depi at Implied Transaction Value to Public
Unadjusted 1.3 1.3 12.4 12.4 17.4 17.4 28.7 28.7
Adjusted(b) 1.6 1.6 9.5 9.5 9.7 9.7 NA NA
- -----------------------------------------------------------------------------------------------------
_________________
Projections Sources: dcpi (management estimates, 2/02); Lions Gate (Arnhold
Bleichroeder, 1/10/02); Cinar (none available)
Note: Financial estimates have been calendarized using forward fiscal year
estimates for companies with non-December fiscal year-ends
(a) Multiples for Allen & Co. Comparable Companies are as of February 11, 2001;
LTM for Cinar and Lions Gate as of August 30, 2001 and September 30, 2002
respectively
(b) Enterprise value and financial estimates exclusive of restaurant operations
Based on this analysis, the Unadjusted and Adjusted trading multiples of the
Company are within or above the range of multiples of the Allen & Company
Comparable Companies, except for the multiples of estimated (i) calendar year
2001 revenue, (ii) calendar year 2001 EBITDA and (iii) calendar year 2001 EBIT
which are below those of the Allen & Company Comparable Companies. Also, the
implied value of the Merger Consideration to the Public Stockholders on an
Unadjusted and Adjusted basis represents multiples that are within or above the
range of the multiples for the Allen & Company Comparable Companies, except for
the multiples of estimated (i) calendar year 2001 EBITDA and (ii) calendar year
2001 EBIT which are below the range found for the Allen & Company Comparable
Companies.
LTM Multiple Trading History Analysis
Allen & Company also analyzed the LTM EBITDA of the Company as a
multiple of the closing price of the Common Stock on February 11, 2002 and
historically on a quarterly basis since fiscal year 1996. The mean of this
multiple was 6.3x, the maximum was 10.2x, the minimum was 2.3x and the current
multiple as of February 11, 2002 was 7.1x. Thus, the current LTM EBITDA trading
multiple is within the range and above the mean of the historical LTM EBITDA
trading multiples of the Allen & Company Comparable Companies. Also, using the
implied unadjusted case, the LTM EBITDA trading multiple for the Merger is
12.4x, which is above the range of historical LTM EBITDA trading multiples of
the Allen & Company Comparable Companies.
Based on all of the foregoing analyses, Allen & Company believes that
the closing price of the Common Stock of $11.19 per share on February 11, 2002
is a representative public market price for the Common Stock.
Transaction Premiums Analysis
Allen & Company analyzed the premium represented by the Merger
Consideration to be received by the Public Stockholders in the Merger over the
same periods, and the following table shows the results of this analysis:
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Company Common Stock
Price Premium
-------------------- ---------------
One day prior (February 11, 2002) $ 11.19 29.6%
One week prior (February 5, 2002) $ 10.15 42.9%
Four weeks prior (January 15, 2002) $ 9.90 46.5%
Allen & Company analyzed 31 all cash acquisitions valued between $100
million and $150 million that have occurred since 1999. Allen & Company did this
analysis to determine premiums paid in these transactions over the applicable
stock price of the target company one day, one week and four weeks prior to
announcement of the transaction. The following table shows the results of this
analysis:
Premium over Market
-----------------------------------------------------------------------------
One Day Prior to One Week Prior to Four Weeks Prior to
Announcement Announcement Announcement
--------------------- ------------------------- -------------------------
Mean 31.8% 31.5% 29.4%
Median 32.6% 30.8% 25.4%
High 60.0% 55.4% 60.0%
Low 1.7% 2.5% 4.1%
Based on this analysis, the premium to be paid to the Public
Stockholders in the Merger one day prior to the announcement was within the
range but below the mean of the premiums paid in the recent selected comparable
transactions, and one week and four weeks prior to the announcement, the premium
to be paid in the Merger to the Public Stockholders was within the range and
above the mean of the premiums paid in the recent selected comparable
transactions.
Precedent Transaction Analysis
Allen & Company reviewed and compared certain financial, operating and
stock market information related to ten selected precedent acquisition
transactions in the television production industry (the "precedent
transactions"). Allen & Company analyzed the Enterprise Value and Equity Value
in the precedent transactions as multiples of certain financial items. The
following table shows the results of this analysis:
Enterprise Value to Equity Value/
----------------------------------------------------- ----------------------
LTM Book
LTM Revenue LTM EBITDA LTM EBIT Earnings Value
------------------ ----------------- -------------- ------------ --------
Mean 2.2x 8.3x 12.6x 20.7x 3.4x
Median 1.9 11.0 12.4 20.7 3.3
High 4.5 15.3 14.3 23.4 6.0
Low 0.4 0.5 11.1 18.1 1.0
- ----------------------------------------------------------------------------------------------------------
Company at Implied Transaction Value to Public:
Unadjusted 1.3x 12.4x 17.4x 28.7x 2.0x
Adjusted(a) 1.6 9.5 9.7 n/a n/a
- ----------------------------------------------------------------------------------------------------------
_____________
(a) Enterprise Value and financial estimates exclusive of restaurant operations
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Based on this analysis, the multiples paid in the Merger in the Unadjusted Cases
are generally within or above the range of the multiples paid in the precedent
transactions, and the multiples paid in the Adjusted Cases are within the range
and below the mean of the LTM revenue multiples, within the range and above the
mean of the LTM EBITDA multiples and below the range of the LTM EBIT multiples
paid in the precedent transactions.
Termination Fee Analysis
Allen & Company analyzed the termination fees provided for in 31 all
cash acquisitions valued between $100 million and $150 million that have
occurred since 1999. The range of these termination fees as a percentage of the
total equity value of the transaction is from 1.1% to 6.1% with a mean of 3.4%.
The termination fee as provided for in the Merger is either (i) $4.25 million,
which equals 3.1% of the total equity value or (ii) $4.085 million, which equals
3.0% of the total equity value, if a superior proposal is accepted which
provides for a payment to the Principal Stockholders in excess of $13.00 per
share. Therefore, the termination fee in the Merger is within the range of the
termination fees provided for in the comparable recent transactions and below
the mean.
Discounted Cash Flow Analysis
Allen & Company also performed a discounted cash flow analysis on the
projected financial information of the Company based on financial information
provided by the management of the Company for the calendar years 2002 through
2004. To estimate the residual value of the Company at the end of the forecast
period, Allen & Company applied multiples to projected fiscal 2004 EBITDA
ranging from 4.0x to 6.0x. Allen & Company used discount rates ranging from
10.0% to 14.0%.
Based on these discount rates, Allen & Company calculated that the net
present equity value per share of the Common Stock has a range of $11.99 to
$14.11.
The financial forecasts that underlie this analysis are subject to
substantial uncertainty, and accordingly, actual results may be substantially
different.
Miscellaneous
Allen & Company is an internationally recognized investment banking
firm and, as part of its investment banking business, is regularly engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, private placements and related financings, bankruptcy
reorganizations and similar recapitalizations, negotiated underwritings,
secondary distributions of listed and unlisted securities, and valuations for
corporate and other purposes.
Opinion of Ladenburg
On February 6, 2002, the Board engaged Ladenburg to act as financial
advisor, in connection with the Merger, and as part of this engagement, the
Board requested that Ladenburg evaluate the fairness, from a financial point of
view, to the Public Stockholders of the Merger Consideration to be received. On
February 12, 2002, a meeting of the Board was held to adopt the Merger
Agreement. Ladenburg rendered an oral opinion, which opinion was confirmed by
delivery to the Board of a written opinion dated February 13, 2002, to the
effect that, as of that date and based on and subject to the matters described
in its opinion, the Merger Consideration to be received was fair, from a
financial point of view, to the Public Stockholders.
The full text of Ladenburg's written opinion dated February 13, 2002,
which describes the assumptions made, matters considered and limitations on the
review undertaken, is attached to this proxy statement as Annex C.
LADENBURG'S OPINION IS ADDRESSED TO THE BOARD AND RELATES ONLY TO THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED BY
THE PUBLIC STOCKHOLDERS AS PROVIDED FOR IN THE MERGER. THE
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OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR ANY RELATED
TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF THE COMMON
STOCK AS TO WHETHER SUCH STOCKHOLDER SHOULD VOTE OR ACT WITH RESPECT TO ANY
MATTERS RELATING TO THE MERGER. THE SUMMARY OF LADENBURG'S OPINION DESCRIBED
BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
YOU ARE ENCOURAGED TO READ THE OPINION CAREFULLY IN ITS ENTIRETY.
In arriving at its opinion, Ladenburg:
. reviewed the draft Merger Agreement dated February 12, 2002;
. reviewed the Company's Annual Reports to stockholders on Form 10-K for the
fiscal years ended June 30, 2001 and June 30, 2000;
. reviewed the Company's Quarterly Report to stockholders on Form 10-Q for the
quarter ended September 30, 2001;
. reviewed the Company's draft Quarterly Report to stockholders on Form 10-Q
for the quarter ended December 31, 2001;
. reviewed certain other historical, operating and financial information and
projections, provided by the management of the Company;
. compared the results of operations of the Company with those of certain
companies which Ladenburg deemed to be reasonably comparable to the Company;
. reviewed the financial terms, to the extent publicly available, of certain
transactions which Ladenburg deemed to be reasonably comparable to the
Merger;
. reviewed certain historical information regarding trading of the Common
Stock; and
. conducted such other analyses and examinations and considered such other
financial, economic and market criteria as Ladenburg deemed necessary in
arriving at its opinion.
In rendering its opinion, Ladenburg assumed, without independent
verification, the accuracy and completeness of all the financial and other
information regarding the Company which has been provided to Ladenburg by the
Company. Ladenburg was not retained to and did not complete any independent
valuation or appraisal of the assets and liabilities of the Company nor did
Ladenburg verify any of the records of the Company. With respect to all legal
matters, Ladenburg relied on the information provided by the Company and its
respective agents.
This summary is necessarily based on economic, market and other
considerations in effect on, and the information made available to Ladenburg as
of the date of its opinion. It should be understood that subsequent developments
may affect the results with resulting changes in the materials herein.
This summary is not a complete description of Ladenburg's opinion to
the Board or the financial analyses performed and factors considered by
Ladenburg in connection with its opinion. Ladenburg believes that the analyses
must be considered as a whole and that selecting portions of the analyses and of
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the factors considered, without considering all factors and analyses, could
result in a misleading conclusion.
In connection with the opinion, Ladenburg made certain assumptions with
respect to industry performance, general business and economic conditions and
other matters which were deemed appropriate, many of which are beyond the
Company's control. As a result, the opinion is not necessarily representative of
actual values or prospects for the Company, which may be significantly more or
less favorable. Estimates of value of companies do not purport to be appraisals
or to necessarily reflect the prices at which companies may be sold.
In its opinion, Ladenburg did not in any manner address whether or not
the Merger Consideration being paid to the Public Stockholders is fair from a
financial point of view when compared to the consideration to be received by the
Principal Stockholders. Ladenburg did not undertake nor has it been furnished an
evaluation or appraisal of business arrangements among Capital Communications,
DCPI Investco, and Messrs. Clark and La Maina that might be construed as
compensation to Messrs. Clark and La Maina in addition to the Merger
Consideration. In addition, Ladenburg did not perform any additional due
diligence with respect to Capital Communications, DCPI Investco or DCPI
Mergerco.
In arriving at its opinion, Ladenburg performed the following primary
analyses, among others:
(i) Premiums Paid Analysis - Ladenburg reviewed the premium of the
Merger Consideration to the trading prices one day, one week and
four weeks prior to the announcement date of selected
acquisition transactions in the media and entertainment industry
announced since January 1, 2000 (the "Media and Entertainment
Transactions"). Ladenburg then compared the premiums paid for
the Media and Entertainment Transactions to the premium being
offered to the Public Stockholders of the Company. The Media and
Entertainment Transactions mean premium to the closing prices
one day, one week and four weeks prior to the announcement date
were 16.5%, 20.9% and 23.2%, respectively. Ladenburg stated that
the Merger Consideration to the Public Stockholders of the
Company of $14.50 represents a 32.7% premium to the $10.93 per
share closing price one day prior to February 13, 2002, a 49.5%
premium to the $9.70 per share closing price one week prior to
February 13, 2002, and a 46.5% premium to the $9.65 per share
closing price four weeks prior to February 13, 2002. Ladenburg
stated that the premiums being offered to the Public
Stockholders of the Company were above the range of mean
premiums paid for the Media and Entertainment Transactions.
(ii) Comparable Company Analysis - Using publicly available
information, Ladenburg compared selected historical, current and
projected operating and financial data and financial ratios for
the Company with certain data from selected publicly traded
media and entertainment companies that, in Ladenburg's
judgement, were reasonably comparable to the Company. The media
and entertainment companies selected were: Alliance Atlantis
Communications, Inc., CINAR Corporation, Film Roman, Inc., Image
Entertainment, Inc., J2 Communications, and Peace Arch
Entertainment Group Inc. (collectively, the "Ladenburg
Comparable Companies"). Ladenburg reviewed, among other things,
the following data with respect to the Ladenburg Comparable
Companies: operating statement data, including latest twelve
months ("LTM") Revenue; Projected 2001 Revenue; Projected 2002
Revenue; LTM Operating Income (EBIT); LTM Operating Cash Flow
(EBITDA); LTM Net Income; Projected 2001 Net Income; Projected
2002 Net Income and Most Recent Quarter's ("MRQ") Book Value.
Utilizing this information, Ladenburg calculated a range of
market multiples for the Ladenburg Comparable Companies by
dividing the "Enterprise Value" (total common shares
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outstanding multiplied by closing market price per share on
February 11, 2002, or "Market Equity Value", plus total debt,
less cash and equivalents) for each Comparable Company by, among
other things, such company's LTM Revenue, LTM EBIT, LTM EBITDA,
and by dividing each of the Ladenburg Comparable Companies'
Market Equity Value by, among other things, the companies' LTM
Net Income, Projected 2001 Net Income, Projected 2002 Net Income
and the MRQ Book Value.
For the Ladenburg Comparable Companies: (a) the LTM Revenue
multiples ranged from 0.48x to 1.47x (0.79x mean), (b) the LTM
EBIT multiples ranged from 0.22x to 44.72x (15.50x mean), (c)
the LTM EBITDA multiples ranged from 3.72x to 11.17x (7.85x
mean), (d) the LTM Net Income multiples ranged from 13.26x to
16.75x (15.00x mean), (e) the sole Projected 2001 Net Income
multiple was 13.60x, (f) the sole Projected 2002 Net Income
multiple was 15.07x, and (g) the MRQ Book Value multiples ranged
from 0.60x to 2.43x (1.27x mean).
Ladenburg then compared the market multiples for the Ladenburg
Comparable Companies to the multiples being offered to the Public Stockholders.
Based on a Merger Consideration to the Public Stockholders of $14.50 per share,
the implied multiples were as follows: (a) the Enterprise Value to LTM Revenue
was 1.26x, (b) the Enterprise Value to LTM EBIT was 16.74x, (c) the Enterprise
Value to Projected LTM EBITDA was 11.91x, (d) the Market Equity Value to LTM Net
Income was 28.34x, (e) the Market Equity Value to Projected 2002 Net Income was
34.83x, (f) the Market Equity Value to Projected 2003 Net Income was 17.88x, and
(g) the MRQ Book Value multiple was 1.99x. Ladenburg determined that the LTM
Revenue, the LTM EBIT, the LTM EBITDA, the LTM Net Income, the Projected 2002
Net Income, the Projected 2003 Net Income, and the MRQ Book Value multiples
being offered to the Public Stockholders were either within or above the range
of the Ladenburg Comparable Companies.
(iii) Comparable Transaction Analysis - Ladenburg reviewed selected
publicly available financial data at the effective date of those
transactions, including Enterprise Value to LTM Revenue,
Enterprise Value to LTM EBIT, Enterprise Value to LTM EBITDA,
Market Equity Value to LTM Net Income and MRQ Book Value,
regarding seventeen transactions (the "Ladenburg Comparable
Transactions") with transaction values (including net debt) of
up to $4.6 billion. The 17 Ladenburg Comparable Transactions
selected, which were announced between January 2000 and the date
of the Ladenburg opinion were as follows: (a) the acquisition of
85.0% of Ascent Entertainment Group, Inc. by Liberty Media
Group, (b) the acquisition of 100.0% of Trimark Holdings, Inc.
by Lions Gate Entertainment Corp., (c) the acquisition of 100.0%
of Video Services Corp. by Liberty Livewire Corp., (d) the
acquisition of 9.63% of Omega Project Co. Ltd. by Marubeni
Corp., (e) the acquisition of 100.0% of Salter Street Films Ltd.
by Alliance Atlantis Communications, Inc., (f) the acquisition
of 19.65% of Expand SA by StudioCanal (Canal Plus), (g) the
tender offer for 0.51% of the outstanding shares of Expand SA
(StudioCanal) at $47.30 per share by StudioCanal (Canal Plus),
(h) the acquisition of the remaining interest of Expand SA
(StudioCanal) not already owned by StudioCanal (Canal Plus SA),
(i) the acquisition of 42.85% of Zee Telefilms Ltd. by Goldman
Sachs Invest MV Ltd., (j) the acquisition of Flextech PLC by
Telewest Communications PLC, (k) the acquisition of 99.2% of
Endemol Entertainment NV by Telefonica SA, (l) the acquisition
of 94.0% of Nelvana Ltd. by Corus Entertainment, Inc., (m) the
acquisition of 25.0% of CinemaxX AG by Senator Film AG, (n) the
acquisition of 8.05% of Golden Harvest Entertainment by
Prudential Asset Management, (o) the acquisition of 14.8% of
StudioCanal (Canal Plus) by Groupe Canal Plus, (p) the
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acquisition of 100% of Motion International, Inc. by TVA
International (TVA Group) and (q) the acquisition of 100% of
Brainpool TV AG by Viva Media AG.
Ladenburg calculated the multiples of each of the aforementioned
selected data points for the Ladenburg Comparable Transactions.
The range of multiples calculated for the Ladenburg Comparable
Transactions were: (a) Enterprise Value to LTM Revenue were
0.67x to 3.22x (1.81x mean), (b) Enterprise Value to LTM EBIT
were 8.85x to 37.22x (19.79x mean), (c) Enterprise Value to LTM
EBITDA were 1.34x to 12.88x (6.71x mean), (d) Market Equity
Value to LTM Net Income were 11.16x to 56.29x (28.19x mean), and
(e) Market Equity Value to MRQ Book Value were 1.33x to 2.99x
(1.83x mean).
Based on a Merger Consideration to the Public Stockholders of $14.50
per share, the implied multiples were as follows: (a) LTM Revenue was 1.26x, (b)
LTM EBIT was 16.74x, (c) LTM EBITDA was 11.91x, (d) LTM Net Income was 28.34x,
and (e) MRQ Book Value was 1.99x. Ladenburg stated that the LTM Revenue, the LTM
EBIT, LTM EBITDA, the LTM Net Income, and the MRQ Book Value multiples being
offered to the Public Stockholders were either within or above the range of the
Ladenburg Comparable Transactions.
(iv) Discounted Cash Flow Analysis - Ladenburg performed two
Discounted Cash Flow ("DCF") analyses of the Company on a
stand-alone basis, based upon financial projections presented by
management. The two DCF analyses are based on two different
terminal multiple metrics: Projected Revenue and EBITDA. For
each DCF analysis, Ladenburg reduced the Company's Projected
Revenues by 20% to adjust for volatility, and discounted the
projected unleveraged free cash flows (earnings before interest
and taxes, plus depreciation and amortization, less capital
expenditures and changes in working capital) for the respective
three years and the terminal value (calculated as a multiple of
Projected 2004 Revenue or EBITDA). From this Enterprise Value,
Ladenburg subtracted all debt obligations appearing on the
Company's draft balance sheet at December 31, 2001, and added
the cash balance on such balance sheet to arrive at an implied
equity value ("Equity Value"). The terminal value was computed
by applying Revenue and EBITDA multiples ranging from 1.0x to
2.0x and 7.0x to 9.0x to the forecasted Revenue and EBITDA for
fiscal 2004, respectively.
Applying discount rates ranging from 12.5% to 16.5% for both
Projected Revenue and Projected EBITDA, Ladenburg calculated the
Company's Equity Value.
Ladenburg's calculation of the Company's Equity Value ranged
from $111.5 million to $149.5 million at Revenue multiples
ranging from 1.0x to 2.0x. Ladenburg stated that the mean Equity
Value observation assuming a weighted average cost of capital of
14.5% and a terminal Revenue multiple of 1.5x was $129.6 million
or $12.71 per share.
Ladenburg's calculation of the Company's Equity Value ranged
from $118.7 million to $135.6 million at EBITDA multiples
ranging from 7.0x to 9.0x. Ladenburg stated that the mean Equity
Value observation assuming a weighted average cost of capital of
14.5% and a terminal EBITDA multiple of 8.0x was $126.8 million
or $12.43 per share.
Based upon and subject to the foregoing and other factors it deemed
relevant, Ladenburg is of the opinion that, as of the date of its opinion, the
Merger Consideration to be received by the Public Stockholders of the Company
with respect to the Merger is fair from a financial point of view to the Public
Stockholders.
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Interests of Messrs. Clark and La Maina in the Merger and the Company
In considering the recommendation of the Board, you should be aware
that Mr. Clark, the Chairman, Chief Executive Officer and a director of the
Company, and Mr. La Maina, the President, Chief Operating Officer and a director
of the Company have relationships or interests in the Merger and the
transactions contemplated thereby, including those referred to below, that are
different from the interests of other stockholders and that may present actual
or potential conflicts of interest. The Special Committee and Board were aware
of these potential and actual conflicts of interest and considered them in
evaluating the proposed Merger.
Stock Ownership. As of the close of business on [________], 2002,
fixed by the Board as the record date for the determination of stockholders of
the Company entitled to notice of, and to vote at, the Company's special
meeting to be held on [________], 2002 at [________] and any adjournments or
postponements thereof (the "Special Meeting"), Mr. Clark, who will be a
stockholder of DCPI Investco following the consummation of the Merger,
beneficially owns 6,309,142 shares of Common Stock (which includes shares
beneficially owned by Mrs. Clark), representing approximately 68% of the total
outstanding shares of Common Stock and 818,605 shares of Class A Common Stock,
representing approximately 90% of the total outstanding shares of Class A
Common Stock of the Company on that date. In the Merger, Mr. Clark will be
entitled to receive $12.50 for each share of Common Stock and a portion of the
Class A Common Stock held by him. A portion of the Class A Common Stock held by
Mr. Clark will be contributed to DCPI Investco for up to 20% of the outstanding
common stock of DCPI Investco. Mr. Clark will receive $12.50 of common stock of
DCPI Investco for each share of Class A Common Stock contributed to DCPI
Investco. Mr. Clark is obligated to acquire, through the contribution of a
portion of his shares of Class A Common Stock $6,028,600 of shares of common
stock of DCPI Investco.
As of the record date, Mr. La Maina, who will be a stockholder of DCPI
Investco following the consummation of the Merger, beneficially owns 909,501
shares of Common Stock, representing approximately 10% of the total outstanding
shares of Common Stock and 90,955 shares of Class A Common Stock, representing
approximately 10% of the total outstanding shares of Class A Common Stock of the
Company on that date. In the Merger, Mr. La Maina will be entitled to receive
$14.50 for each share of Common Stock and a portion of the Class A Common Stock
held by him. A portion of the Class A Common Stock held by Mr. La Maina will be
contributed to DCPI Investco for up to 2.3% of the outstanding common stock of
DCPI Investco. Mr. La Maina will receive $14.50 of common stock of DCPI Investco
for each share of Class A Common Stock contributed to DCPI Investco. Mr. La
Maina is obligated to acquire, through the contribution of a portion of his
shares of Class A Common Stock $700,000 of shares of common stock of DCPI
Investco.
Stock Options. As of the date of the Merger Agreement, there were an
aggregate of 289,589 options to purchase Common Stock granted by the
Company outstanding under the Company's stock option plans, of which 257,725
were held by directors and executive officers of the Company. Mr. La Maina
holds 200,649 stock options. Immediately prior to the time when the Merger is
consummated (the "Effective Time"), all outstanding stock options are to be
cancelled. In consideration of such termination, DCPI Investco will pay to
the holder of each such stock option, in cash and as full settlement for such
stock option, whether or not then exercisable, an amount determined by
multiplying (i) the excess, if any, of $14.50 over the applicable exercise price
per share of Common Stock subject to such stock option by (ii) the total number
of shares of Common Stock subject to such stock option. Based upon such formula,
Mr. La Maina will be entitled to receive approximately $2,267,000 in
consideration for the termination of his stock options. See "THE MERGER
AGREEMENT -- Stock Options."
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Directors and Officers of the Surviving Corporation. Upon consummation
of the Merger, Messrs. Clark and La Maina will be elected to the board of
directors of DCPI Investco and will constitute 2 of the 9 members of DCPI
Investco's board of directors. In addition, Mr. Clark shall serve as Chairman
and Chief Executive Officer of the Surviving Corporation and Mr. La Maina shall
serve as the President and Chief Operating Officer of the of the Surviving
Corporation.
Employment Agreements. Effective upon the consummation of the Merger,
each of Messrs. Clark and La Maina will have an employment agreement with the
Surviving Corporation. There are no other plans, proposals or negotiations that
relate to, or would result in, a change in the material terms of the employment
agreements of the Company's executive officers. See "RELATED AGREEMENTS --
Employment Agreements."
Indemnification Arrangements. The Company has entered into indemnification
agreements, dated as of October 1, 2001, with each of its directors and senior
officers (each individually, an "Indemnitee"). According to the terms of each
indemnification agreement, the Company agrees to defend, indemnify and save
harmless the Indemnitee against judgments, fines or settlements of actions
arising out of the fact that the Indemnitee served as a director or senior
officer of the Company, as the case may be, or served another entity at the
request of the Company, unless (i) a judgment or other adjudication adverse to
the Indemnitee establishes that the acts were committed in bad faith, by gross
negligence or were the result of active and deliberate dishonesty and, in either
case, were material to the cause of action so adjudicated or (ii) as a result of
such acts, the Indemnitee personally gained in fact a financial profit or other
advantage to which the Indemnitee was not legally entitled. These agreements
terminate upon the later of (i) 6 years after the Indemnitee has ceased to be a
director or senior officer of the Company, as the case may be, or to serve
another entity at the request of the Company or (ii) the final termination of
all pending actions with respect to the Indemnitee. For a discussion of certain
requirements in the Merger Agreement for the indemnification of directors and
officers of the Company and the maintenance of directors' and officers'
insurance, see "THE MERGER AGREEMENT -- Indemnification and Insurance."
Effect of the Merger
Certificate of Incorporation and Bylaws of the Surviving Corporation.
Pursuant to the Merger Agreement, the certificate of incorporation and bylaws of
DCPI Mergerco in effect immediately prior to the Effective Time will be the
certificate of incorporation and bylaws of the Surviving Corporation; provided
--------
that, at the Effective Time, Article I of the Certificate of Incorporation of
the Surviving Corporation shall be amended to reflect that the name of the
Company shall be the name of the Surviving Corporation. See "THE MERGER
AGREEMENT -- The Merger; Governance of the Surviving Corporation."
Registration Under the Exchange Act. The Company's shares are currently
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which requires, among other things, that the Company furnish certain
information to its stockholders and to the Securities and Exchange Commission
(the "SEC") and comply with the Exchange Act's proxy rules in connection with
meetings of the Company's stockholders. Upon consummation of the Merger, the
Company intends to file with the SEC a certification to the effect that there
are fewer than 500 holders of record and therefore would cease to be registered
under the Exchange Act.
Market for the Shares. The Company's shares are currently listed and
traded on the Nasdaq National Market under the symbol "DCPI." Upon consummation
of the Merger, the Company will no longer meet the criteria for continued
listing on the Nasdaq National Market or trading on any other
-42-
securities market and will accordingly be delisted. As a result of the Merger,
these shares will no longer be outstanding.
Continued Interest in the Company. Although the Company will continue
its operations following completion of the Merger, the stockholders of the
Company (other than Richard W. Clark and Francis C. La Maina) will no longer
have an equity interest in the Company. Under Delaware law, stockholders of the
Company who do not vote for adoption of the Merger Agreement and who comply with
the requirements of section 262 of the DGCL may elect to receive, in cash, the
judicially determined fair market value of their shares of Common Stock in lieu
of the $14.50 Merger Consideration.
Margin Regulations. The Company's shares are currently "margin
securities" under the rules of the Federal Reserve Board. This has the effect,
among other things, of allowing brokers to extend credit on the shares as
collateral. Following consummation of the Merger, the shares will no longer
qualify as margin securities.
Conduct of the Business of the Company if the Merger is not Consummated
The Board has made no determination as to the direction of the Company
should the Merger not be consummated, except that the Company may, from time to
time, dispose of certain units of the restaurant operations due to the continued
declining operating results from such units. The Board currently expects that
the Company's present management will continue to operate the Company's business
substantially as presently operated prior to the consummation of the Merger.
However, even if the Merger is not consummated, management and the Board intend,
from time to time, to evaluate and review the Company's businesses, operations,
properties, management and other personnel, corporate structure, dividend policy
and capitalization, and make such changes as are deemed appropriate and to
continue to explore joint ventures and other opportunities to expand and enhance
the Company's business.
Certain United States Federal Income Tax Consequences
The following is a general summary of the material United States
federal income tax consequences of the Merger to the Public Stockholders under
provisions of the United States Internal Revenue Code of 1986, as amended (the
"Code"), and existing regulations and administrative and judicial
interpretations thereunder in effect as of the date hereof, all of which are
subject to change, possibly with retroactive effect. The discussion applies only
to Public Stockholders who hold shares of Common Stock as capital assets within
the meaning of Section 1221 of the Code. In addition, the discussion does not
apply to any stockholder who, after the Merger, will own (or be deemed to own
under Section 318 of the Code) any shares of the Company, any Public Stockholder
who is not a United States person within the meaning of Section 7701(a)(30) of
the Code, any Public Stockholder who acquired shares in a compensatory
transaction, including upon the exercise of an option, any Public Stockholder
who holds shares as part of a hedging or conversion transaction, straddle or
other risk reduction transaction, and any other category of Public Stockholder
who is subject to special tax rules, such as financial institutions, insurance
companies, broker-dealers and tax-exempt entities. In addition, the following
discussion does not consider the effect of any state, local, foreign or other
tax laws.
SINCE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, YOU ARE ADVISED TO CONSULT
WITH YOUR TAX ADVISOR AS TO THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX CONSEQUENCES OF THE MERGER TO YOU.
If the Merger is consummated, each Public Stockholder should be treated
as having sold such Public Stockholder's shares in a taxable transaction. As a
result, and subject to the discussion in the following paragraphs, a Public
Stockholder should recognize capital gain or loss in an amount equal to
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the difference between the Merger Consideration and the Public Stockholder's
adjusted tax basis in such shares. Any such capital gain or loss will be a
long-term capital gain or loss if the Public Stockholder has held the shares for
more than one year at the Effective Time even though the Merger Consideration is
not paid to the Public Stockholder at the Effective Time. There are certain
limitations on the deductibility of capital losses. Gain or loss must be
determined separately for each block of the outstanding shares of Common Stock
held by the Public Stockholders (i.e., shares acquired at the same cost in a
single transaction).
There is authority that, under certain circumstances, treats the
disproportionate allocation of consideration among stockholders in a merger as a
constructive payment (treated as ordinary income) from those stockholders
receiving less than their pro-rata share of the merger consideration to those
stockholders receiving more that their pro-rata share of the merger
consideration, to the extent that the amount received as a result of the
disproportionate allocation of the merger consideration exceeds the amount that
would have been received had the merger consideration been allocated
proportionately. Thus, there is a risk that the Internal Revenue Service could
treat a portion (approximately $1.40) of the Merger Consideration received by
each Public Stockholder as ordinary income because the Principal Stockholders
are receiving less cash per share in the Merger.
To prevent backup withholding with respect to the Merger Consideration
payable to a Public Stockholder, the Public Stockholder must either (i)
establish an exemption from backup withholding (e.g. because it is a
corporation) or (ii) provide its taxpayer identification number to the Paying
Agent, certify that the Public Stockholder is not subject to backup withholding
and otherwise comply with the backup withholding rules under the Code. Backup
withholding is not an additional tax; rather, any amount so withheld is credited
against the Public Stockholder's federal income tax liability.
Certain penalties may apply to a failure to furnish correct
information. Public Stockholders should consult with their tax advisors as to
the qualifications for an exemption from withholding and the procedures for
obtaining an exemption.
Fees and Expenses
Estimated fees and expenses (rounded to the nearest thousand dollars)
incurred or to be incurred by the Company in connection with the Merger are
approximately as follows:
Legal, accounting and financial advisors' fees and expenses .......... $[___________]
Securities and Exchange Commission filing fee ........................ $ 13,000.00
Printing and mailing expenses ........................................ $[___________]
Miscellaneous ........................................................ $[___________]
Total ....................................................... $[___________]
The Merger Agreement provides that, except in certain circumstances, in
the event of termination of the Merger Agreement without consummation of the
Merger, the Company, on the one hand, and DCPI Investco and DCPI Mergerco, on
the other hand, will pay their own expenses. The fees and expenses to be borne
by the Company will include those of financial advisors, accountants and counsel
for the Company and the Special Committee, and fees and expenses for the
preparation, printing, mailing and filing of documents used in connection with
the Merger, except that the SEC filing fees relating to this proxy statement
will be split equally between the Company and DCPI Investco.
If the Merger Agreement is terminated due to the Company's accepting a
Superior Proposal (as defined in the Merger Agreement), then the Company shall
pay DCPI Investco a termination fee equal to $4,250,000, or $4,085,000 if the
Company accepts a Superior Proposal which provides for the payment of
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consideration to the Principal Stockholders in excess of $13.00 per share in
respect of the Common Stock and Class A Common Stock of the Principal
Stockholders. See "THE MERGER AGREEMENT -- Termination."
Neither the Company, DCPI Investco or DCPI Mergerco will pay any fees
or commissions to any broker or dealer or any other person for soliciting
proxies pursuant to the Merger. Brokers, banks, and other custodians, nominees
and fiduciaries will, upon request, be reimbursed by the Company for reasonable
out-of-pocket expenses incurred by them in forwarding proxy soliciting materials
to the beneficial owners of shares.
Accounting Treatment
For accounting and financial reporting purposes, the Merger will be
accounted for as a purchase.
Financing of the Merger
The Company and DCPI Investco estimate that the total amount of funds
required to consummate the Merger, and to pay the related fees and expenses,
will be approximately $133 million. DCPI Investco expects to obtain these funds
from the following sources:
. DCPI Investco will raise $23.4 million from the sale of common stock of
DCPI Investco to its existing stockholders, Capital Communications, Mosaic
Media Group, Inc., Jules Haimovitz and Henry Winterstern.
. DCPI Investco will arrange for approximately $41.5 million of indebtedness
on the following terms:
. $20 million of senior debt with a 5-year term that will accrue
interest at a rate equal to the London InterBank Offered Rate plus
500 basis points per annum;
. $15 million of mezzanine debt with a 7-year term that will accrue
interest at a rate equal to 12.5% per annum, of which 2.5% will be
payable in kind; and
. $6.5 million of bridge financing with a 2-year term that will
accrue interest at a rate equal to 20% per annum, payable in cash
or in kind.
. The remaining $70 million of financing will come from cash held by the
Company.
Capital Communication has agreed to provide DCPI Investco with
sufficient funds to enable it to satisfy its obligations under the Merger
Agreement.
Regulatory Approvals
The Company does not believe that any material federal or state
regulatory approvals, filings or notices are required by the Company in
connection with the Merger other than (i) filings required under the Exchange
Act, (ii) filing of a certificate of merger with the Delaware Secretary of
State, and (iii) filings under applicable alcohol and beverage laws and
regulations relating to liquor licenses used in connection with the Company's
restaurant business. The Company believes that none of such filings would
present an obstacle to the prompt completion of the Merger.
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Risks that the Merger will not be Consummated
Consummation of the Merger is subject to certain conditions, including
adoption of the Merger Agreement by a majority of the stockholders of the
Company. See "THE MERGER AGREEMENT -- Conditions to the Merger." Even if the
requisite approval by stockholders is obtained, there can be no assurance that
the Merger will be consummated. See "LITIGATION PERTAINING TO THE MERGER."
Appraisal Rights
Record holders of the Common Stock are entitled to appraisal rights
under Section 262 of the DGCL in connection with the Merger. The following
discussion is not a complete statement of the law pertaining to appraisal rights
under the DGCL and is qualified in its entirety by reference to the full text of
Section 262 which is reprinted in its entirety as Annex D to this proxy
statement. Except as set forth herein and in Annex D, holders of Common Stock
will not be entitled to appraisal rights in connection with the Merger.
Under the DGCL, record holders of Common Stock who follow the
procedures set forth in Section 262 and who have not voted in favor of the
adoption of the Merger Agreement (including record holders who abstain from
voting) will be entitled to have their Common Stock appraised by the Delaware
Court of Chancery (the "Court") and to receive payment of the "fair value" of
such shares, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest, as
determined by such court.
Under Section 262, where a merger agreement is to be submitted for
adoption at a meeting of stockholders, as in the case of the Special Meeting,
not less than 20 days prior to such meeting, the company must notify each of the
holders of common stock at the close of business on the record date for such
meeting that such appraisal rights are available and include in each such notice
a copy of Section 262. This proxy statement constitutes such notice for purposes
of the Special Meeting. Any stockholder of record who wishes to exercise
appraisal rights should review the following discussion and Annex D carefully
because failure to timely and properly comply with the procedures specified in
Section 262 will result in the loss of appraisal rights under the DGCL.
A holder of Common Stock wishing to exercise appraisal rights must
deliver to the Company, before the vote on the adoption of the Merger Agreement
at the Special Meeting, a written demand for appraisal of such holder's Common
Stock. A holder of Common Stock will not satisfy the notice requirement under
Section 262, if the holder merely votes against the Merger. In addition, a
holder of Common Stock wishing to exercise appraisal rights must hold of record
such Common Stock on the date the written demand for appraisal is made and must
continue to hold such Common Stock through the Effective Time.
Only a holder of record of Common Stock is entitled to assert appraisal
rights for the Common Stock registered in that holder's name. A demand for
appraisal should reasonably inform the Company of the holder's identity and that
the holder intends to demand an appraisal with respect to such holder's Common
Stock.
Within 10 days after the Effective Time, the Company, as the Surviving
Corporation, must send a notice as to the effectiveness of the Merger to each
person who has satisfied the appropriate provisions of Section 262 and who has
not voted in favor of adoption of the Merger Agreement as of the Effective Time.
Within 120 days after the Effective Time, but not thereafter, the Surviving
Corporation or any such stockholder who has satisfied the foregoing conditions
and is otherwise entitled to appraisal rights, may file a petition in the Court
demanding a determination of the "fair value" of the Common Stock held by such
stockholder. If no such petition is filed, appraisal rights will be lost for all
stockholders who had
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previously demanded appraisal of their Common Stock. Stockholders of the Company
who wish to exercise their appraisal rights should therefore regard it as their
obligation to take all steps necessary to perfect their appraisal rights in the
manner prescribed in Section 262.
Within 120 days after the Effective Time, any record holder of Common
Stock who has complied with the provisions of Section 262 will be entitled, upon
written request, to receive from the Surviving Corporation a statement setting
forth the aggregate number of shares of Common Stock not voted in favor of
approval of the Merger Agreement and with respect to which demands for appraisal
were received by the Company, and the aggregate number of holders of such shares
of Common Stock. Such statement must be mailed within ten (10) days after the
written request therefor has been received by the Surviving Corporation or
within ten (10) days after expiration of the time for delivery of demands for
appraisal under Section 262, whichever is later.
If a petition for appraisal is timely filed, after a hearing on such
petition, the Court will determine the holders of Common Stock entitled to
appraisal rights and will appraise the "fair value" of the shares of Common
Stock, exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the "fair value." Holders considering
seeking appraisal should be aware that the "fair value" of their Common Stock as
determined under Section 262 could be more than, the same as or less than the
value of the Merger Consideration that they would otherwise receive if they had
not sought appraisal of their Common Stock. The Delaware Supreme Court has
stated that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community are otherwise admissible in
court" should be considered in the appraisal proceedings. In addition, Delaware
courts have decided that the statutory appraisal remedy, depending on factual
circumstances, may or may not be a dissenter's exclusive remedy. The Court will
also determine the amount of interest, if any, to be paid upon the amounts to be
received by persons whose shares of Common Stock have been appraised. The costs
of the action may be determined by the Court and taxed upon the parties as the
Court deems equitable. Upon application of a holder, the Court may also order
that all or a portion of the expenses incurred by any holder of Common Stock in
connection with an appraisal, including without limitation, reasonable
attorneys' fees and the fees and expenses of experts, be charged pro rata
against the value of all of the Common Stock entitled to appraisal.
Any stockholder of the Company who has duly demanded an appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote such stockholder's Common Stock for any purpose nor, after the Effective
Time, be entitled to the payment of dividends or other distributions thereon
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the Effective Time).
If no petition for an appraisal is filed within the time provided, or
if a stockholder of the Company delivers to the Surviving Corporation a written
withdrawal of his or her demand for an appraisal and an acceptance of the
Merger, within 60 days after the Effective Time or with the written approval of
the Surviving Corporation thereafter, then the right of such stockholder to an
appraisal will cease and such stockholder shall be entitled to receive the
Merger Consideration. No pending appraisal proceeding in the Court will be
dismissed as to any stockholder without the approval of the Court, which
approval may be conditioned on such terms as the Court deems just.
STOCKHOLDERS DESIRING TO EXERCISE THEIR APPRAISAL RIGHTS SHOULD STRICTLY COMPLY
WITH THE PROCEDURES SET FORTH IN SECTION 262 OF THE DGCL. FAILURE TO FOLLOW ANY
OF SUCH PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER OF APPRAISAL RIGHTS
UNDER SECTION 262 OF THE DGCL.
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LITIGATION PERTAINING TO THE MERGER
On February 14, 2002, the Company issued a press release announcing
that it had entered into the Merger Agreement. The following day, a putative
class action complaint was filed in the Superior Court of the State of
California, County of Los Angeles on behalf of Walter Valenti and an alleged
class of Unaffiliated Stockholders of the Company. The complaint names the
Company and its directors as defendants and alleges that the defendants have
engaged in acts of self-dealing and have violated fiduciary duties of "care,
loyalty, candor and independence" owed to the Unaffiliated Stockholders in
connection with the Merger. The complaint further alleges that the $14.50 price
per share is inadequate. The complaint seeks, among other things, injunctive
relief blocking the consummation of the Merger, or if it is consummated,
rescinding the Merger; imposition of a constructive trust, on behalf of the
plaintiff, upon any benefits received by defendants as a result of their
allegedly wrongful conduct; and costs and disbursements of the action, including
attorneys' and experts' fees in unspecified amounts. As of the date of this
proxy statement, the time for the defendants to respond to the complaint has not
yet expired.
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement. This summary is qualified in its entirety by reference to the full
text of the Merger Agreement, a copy of which is attached as Annex A to this
proxy statement and incorporated herein by reference. Any capitalized terms used
and not defined below have the meanings given to them in the Merger Agreement.
The Merger; Governance of the Surviving Corporation
The Merger Agreement provides that, upon the terms and provisions of
and subject to the conditions set forth in the Merger Agreement and the
Certificate of Merger, DCPI Mergerco will be merged with and into the Company at
the Effective Time. Following the Effective Time, DCPI Mergerco will cease to
exist as a separate entity and the Company shall be the Surviving Corporation.
The directors of DCPI Mergerco immediately prior to the Effective Time
will be the directors of the Surviving Corporation. The officers of the Company
immediately prior to the Effective Time will be the officers of the Surviving
Corporation.
Effective Time of the Merger
The Merger shall become effective upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware in accordance with
the DGCL or at such later time as is specified in the Certificate of Merger.
Merger Consideration; Exchange Procedure
At the Effective Time, each share of the Capital Stock issued and
outstanding immediately prior to the Effective Time (except for shares of Common
Stock held by stockholders who exercise their appraisal rights) will be
cancelled and automatically converted into the right to receive $14.50 in cash,
without interest or any other payment, with the exception that each issued and
outstanding share of the Capital Stock held by the Principal Stockholders will
be cancelled and automatically converted into the right to receive $12.50 in
cash, without interest or any other payment.
Promptly after the Effective Time, the Surviving Corporation will cause
a Paying Agent to mail to each holder of record of a certificate or certificates
which represented outstanding shares of the Capital
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Stock immediately prior to the Effective Time, a letter of transmittal and
instructions for surrendering such certificates in exchange for the Merger
Consideration.
Stock Options
Immediately prior to the Effective Time of the Merger, all outstanding
stock options are to be cancelled. In consideration of such termination, DCPI
Investco will pay to the holder of each such stock option, in cash and as full
settlement for such stock option, whether or not then exercisable, an amount
determined by multiplying (i) the excess, if any, of $14.50 over the applicable
exercise price per share of Common Stock subject to such stock option by (ii)
the total number of shares of Common Stock subject to such stock option.
Representations and Warranties
The Merger Agreement contains, subject to specified exceptions and
qualifications, representations and warranties customary in transactions of this
type, including the representations and warranties by the Company with regard to
the following:
. organization, standing and corporate power;
. subsidiaries;
. capital structure;
. consents and approvals required for the Merger;
. filings with the SEC and accuracy of information presented in such filings
and financial statements;
. environmental matters;
. absence of any recent material change or event;
. absence of material litigation;
. employee benefits and plans;
. tax matters;
. licenses or permits necessary to conduct business;
. state takeover statutes;
. fees for brokers or finders;
. intellectual property matters;
. real property matters;
. insurance coverage;
. material contracts;
. board consent and recommendation;
. related party transactions;
. stockholder vote required;
. employee relations and other labor-related matters;
. opinion of financial advisors;
. NASDAQ qualification; and
. memorabilia owned by the Company.
The Merger Agreement also contains representations and warranties made
by DCPI Investco, DCPI Mergerco and Capital Communications, jointly and
severally, relating to the following:
. organization, standing and similar corporate powers;
. consents and approvals required for the Merger;
. financing to be provided by Capital Communications to DCPI Investco and
DCPI Mergerco;
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. accuracy of information supplied for inclusion in the proxy statement;
. balance sheet of Capital Communications;
. no ownership of any Common Stock; and
. fees for brokers or finders.
Conduct of Business Pending the Merger
The Merger Agreement provides that, with certain exceptions, prior to
the Effective Time, the Company will conduct its business in all material
respects in the ordinary course consistent with past practices and to use
commercially reasonable efforts to:
. preserve the Company's business organization;
. keep available the services of the Company's key officers and employees;
and
. preserve existing material business relationships.
The Merger Agreement also provides that, with certain exceptions, prior
to the Effective Time, the Company will not take and will prevent its
subsidiaries from taking any of the following actions, without the prior consent
of DCPI Investco (which consent may not be unreasonably withheld or delayed):
. amending any charter, bylaws or similar organizational documents, except as
may be required by applicable law;
. issuing, selling, or transferring any class or series of Capital Stock
other than shares reserved for issuance on the date of the Merger Agreement
pursuant to the exercise of stock options outstanding on the date of the
Merger Agreement;
. effecting dividends or other distributions on their Capital Stock, other
than dividends and distributions by any direct or indirect wholly-owned
subsidiary of the Company;
. effecting splits, combinations or reclassifications of their Capital Stock;
. effecting redemptions, purchases or other acquisitions of the Capital Stock
other than in connection with the exercise of stock options outstanding as
of the date of the Merger Agreement;
. modifying, amending or terminating any of its material contracts, rights or
claims of the Company or its subsidiaries, except in the ordinary course of
business consistent with past practice;
. prepaying liabilities outside the ordinary course of business consistent
with past practice;
. entering into any commitments to produce projects whose production budgets
will exceed the licensing fee or third party financing by more than
$250,000 for any single expenditure or $500,000 in the aggregate;
. incurring, modifying or assuming any Indebtedness, other than in the
ordinary course of business consistent with past practice;
. becoming liable or responsible, directly or otherwise, for the obligations
of any other person or entity, except in the ordinary course of business
consistent with past practices;
. making any loans, advances or capital contributions to, or investments in
any other person or entity, except in the ordinary course of business
consistent with past practices;
. entering into any material commitments or transactions for the sale or
lease of assets or real estate, except in the ordinary course of business
consistent with past practices, and for any sale, transfer or other
disposition of assets related to the restaurant business;
. effecting transfers, leases, or sales of any assets, other than in the
ordinary course of business consistent with past practice or in connection
with any sale, transfer or other disposition of any of the Company's
restaurants;
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. changing the compensation or benefits to officers, directors, employees or
other agents of the Company or its subsidiaries, other than in the ordinary
course of business consistent with past practice;
. purchasing assets, other than in the ordinary course of business consistent
with past practices;
. hiring any permanent non-production full time new employees that would
create a new position at the Company with a salary in excess of $75,000;
. failing to file, on a timely basis, including allowable extensions, all tax
returns required to be filed by the Company with the appropriate tax
authorities;
. changing accounting methods used by the Company or its subsidiaries unless
required by generally accepted accounting principles;
. settling any litigation in excess of $250,000 that is not covered by
insurance; and
. entering into agreements to engage in any action prohibited under the
Merger Agreement.
No Solicitation of Offers; Notice of Proposals from Third Parties
The Company has agreed (and shall cause its officers, directors,
employees, representatives and agents, including investment bankers, attorneys
and accountants) not to encourage, solicit, participate in or initiate
(including by way of furnishing or disclosing non-public information) or
knowingly take any action designed to facilitate any discussions, inquiries,
negotiations or the making of any proposals with respect to or concerning any
merger, consolidation, share acquisition, asset purchase, share exchange,
business combination, tender offer, exchange offer or similar transaction
involving the acquisition of all or a substantial portion of the assets of the
Company and its subsidiaries, taken as a whole, or a significant equity interest
in (including by way of tender offer), or a recapitalization or restructuring
of, the Company.
However, the Company may furnish information (including non-public
information) to any person or entity pursuant to appropriate confidentiality
agreements and may negotiate and participate in discussions and negotiations
with such person concerning an Acquisition Proposal if: (A) such entity or group
has, on an unsolicited basis, submitted a bona fide written proposal to the
Board of the Company relating to any such transaction which the Board determines
in good faith, consistent with advice of an independent investment banker, (i)
is reasonably capable of being funded on the disclosed terms and (ii) is
reasonably likely to be consummated in accordance with its terms; and (B) in the
opinion of the Special Committee such action is reasonably expected to be
required in order to discharge the Board's fiduciary duties to the stockholders
of the Company under applicable law, determined only after the Special Committee
concludes in good faith that the Acquisition Proposal could reasonably be
expected to constitute a proposal that is superior, from a financial point of
view with respect to the Public Stockholders.
No Litigation Settlements
Except as set forth in the Merger Agreement, prior to the termination
of the Merger Agreement, the Company will not settle any litigation commenced
after the date of the Merger Agreement that relates to the Merger, the Merger
Agreement, or other transactions contemplated thereby, without the prior written
consent of DCPI Investco, which consent may not be unreasonably withheld or
delayed.
Stockholders Meeting
The Merger Agreement provides that the Company will take all actions
necessary in accordance with the laws of the State of Delaware including calling
a special meeting of the Company's stockholders as promptly as practicable,
which is the special meeting to which this proxy statement relates, to consider
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and adopt the Merger Agreement and the Merger. If an alternative Acquisition
Proposal is received by the Company that is deemed by the Special Committee of
the Board to be a Superior Proposal, then the Company may postpone the special
meeting for up to 12 business days.
Notwithstanding the foregoing, in the event that DCPI Investco, DCPI
Mergerco and any other Subsidiary of DCPI Investco acquire at least 90% in the
aggregate of the outstanding shares of the Capital Stock, the parties to the
Merger Agreement will take all steps needed to cause the Merger to become
effective as soon as practicable without a meeting of the stockholders of the
Company, in accordance with Section 253 of the DGCL.
Proxy Statement and Related Documents
The Merger Agreement provides that, if required under applicable law,
the Company will prepare and file this proxy statement and a Schedule 13E-3 with
the SEC relating to the Merger and other transactions contemplated by the Merger
Agreement. The Company will mail this proxy statement to the stockholders of the
Company as soon as the proxy statement and the Schedule 13E-3 have been cleared
by the SEC. Except as expressly permitted in the Merger Agreement, this proxy
statement will include the recommendation of the Board in favor of the adoption
of the Merger and the Merger Agreement.
Access to Information
The Merger Agreement provides that, prior to the Effective Time, DCPI
Investco and its officers, employees, accountants, counsel, financial advisors
and other representatives will have reasonable access to all properties, books,
contracts and records of the Company and its subsidiaries and may receive copies
of each additional report or other document filed by the Company or its
subsidiaries pursuant to federal and state securities laws.
Confidentiality
The Merger Agreement provides that, notwithstanding the termination of
the Merger Agreement, each of Capital Communications, DCPI Investco and DCPI
Mergerco will keep and will cause their respective representatives and agents to
keep confidential all Confidential Information about and furnished by the
Company unless otherwise agreed to by the Company.
Indemnification and Insurance
The Merger Agreement provides that the articles of incorporation and
the bylaws of the Surviving Corporation and its subsidiaries immediately after
the Effective Time are required to contain provisions concerning indemnification
and exculpation from liability that are at least as favorable to the persons to
be indemnified as the terms of such provisions exist for the Company and its
subsidiaries on the date of the Merger Agreement. Such provisions are not be
repealed or modified for a period of 6 years after the Effective Time in a
manner that would adversely affect the rights of such parties on or prior to the
Effective Time.
The Merger Agreement provides that the Surviving Corporation is
obligated to maintain officers' and directors' liability insurance and fiduciary
liability insurance covering the persons to be indemnified for a period of 6
years after the Effective Time at terms no less advantageous to such persons. If
enforcement of such indemnification provisions is required, the Surviving
Corporation is required to advance to the persons to be indemnified amounts
needed to pay all reasonable expenses such as attorneys' fees and disbursements
and costs of investigation.
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Expenses
All fees and expenses incurred in connection with the transactions
contemplated by the Merger Agreement will be paid by the party incurring such
fees or expenses, except that the SEC filing fees relating to this proxy
statement will be split equally between the Company and DCPI Investco.
Conditions to the Merger
Except as otherwise set forth in the Merger Agreement, the obligations of
DCPI Investco and DCPI Mergerco to complete the Merger are subject to the
satisfaction of each of the following conditions:
. the representations and warranties of the Company shall be true and correct
on the date of the Merger Agreement and at and as of the closing date;
. the Company will have performed in all material respects any material
obligation required to be performed by it under the Merger Agreement at or
prior to the closing date;
. certain required authorizations, consents or approvals from any
Governmental Entities and third parties indicated in the Merger Agreement
or the Disclosure Schedules shall have been obtained or made, free of any
material condition, prior to the closing date;
. there shall be no actual litigation or pending action against the Company
challenging the Merger, the Merger Agreement or the transactions
contemplated thereby which would reasonably be expected to have a material
adverse effect on the Company or any of the transactions contemplated by
the Merger Agreement;
. the voting agreement and the non-competition agreement shall have been duly
executed and delivered, Mr. Clark shall have performed all of his
obligations under such agreements as required to be performed by him on or
prior to the Closing, and there shall not have been any breach of the
voting agreement by the Principal Stockholders or the non-competition
agreement by Mr. Clark;
. an officer's certificate in the form provided in the Disclosure Schedules
shall have been executed and delivered by each of Messrs. Clark, La Maina and
Simon; and
. DCPI Investco shall have received a statement that satisfies DCPI
Investco's obligations under Treasury Regulation Section 1.1445-2(b)(2),
relieving DCPI Investco of any obligation to withhold any portion of
payments pursuant to the Merger Agreement to any of the Principal
Stockholders or any other stockholder of the Company.
Except as otherwise set forth in the Merger Agreement, the obligations of
the Company to complete the Merger are subject to the satisfaction of each of
the following conditions:
. the representations and warranties of Capital Communications, DCPI Investco
and DCPI Mergerco shall be true and correct on the date of the Merger
Agreement and at and as of the closing date; and
. each of Capital Communications, DCPI Investco and DCPI Mergerco shall have
performed in all material respects any material obligation required to be
performed by it under the Merger Agreement at or prior to the closing date.
Except as otherwise set forth in the Merger Agreement, the respective
obligations of each party to complete the Merger are subject to the satisfaction
of each of the following conditions:
. either the Company shall have obtained the affirmative vote of a majority of
votes entitled to be cast by holders of the outstanding shares of Common
Stock and Class A Common Stock of the Company, voting together as a class,
whether in person or by proxy, or the Merger can be consummated without a
meeting of stockholders in accordance with Section 253 of the DGCL; and
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. no injunctions or restraints preventing the consummation of the Merger or the
transactions contemplated thereby shall be in effect.
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time as follows:
. by the mutual written consent of DCPI Investco and the Company;
. by either DCPI Investco or the Company if: the Merger has not been
consummated on or before July 31, 2002; its consummation is prohibited under
a statute, rule, regulation, or order; or a restraining order enjoins or
prohibits the consummation of the Merger;
. by either DCPI Investco or the Company if the other party is in material
breach of its representation or warranties contained in the Merger Agreement
or fails to perform in any material respect its covenants on its part to be
observed or performed in the Merger Agreement; or
. by the Company, if the Board, after consulting with outside legal counsel and
its financial advisors, shall have determined in good faith that an agreement
in connection with a Superior Proposal should be approved and entered into
because consummating the transactions contemplated by the Merger Agreement
would not result in a transaction which shall be more favorable to the
Company's stockholders, other than the Principal Stockholders, from a
financial point of view, than the transaction contemplated by the Superior
Proposal.
In the event of termination of the Merger Agreement by either the Company
or DCPI Investco, the Merger Agreement shall forthwith become void and have no
effect. In the event that the Company terminates the Merger Agreement because it
has a Superior Proposal, then the Company shall concurrent with such termination
pay DCPI Investco a fee equal to $4,250,000, or $4,085,000 if such Superior
Proposal provides the Principal Stockholders with payment of Merger
Consideration in excess of $13.00 per share in respect of their Common Stock and
Class A Common Stock. Payment of the termination fee is not required if Capital
Communications, DCPI Investco or DCPI Mergerco is in material breach of its
representations and warranties or fails to perform in any material respect its
covenants or other agreements as required by the Merger Agreement. If the
Company terminates the Merger Agreement in such circumstances, then Capital
Communications, DCPI Investco, DCPI Mergerco or any affiliated entity will be
prohibited for two years from the date of termination from initiating or
participating in any hostile tender offer for the Capital Stock of the Company.
Amendment and Waiver
The Merger Agreement may be amended at any time by mutual written agreement
of the parties signed on behalf of each of the parties which complies with all
applicable laws.
At any time prior to the Effective Time, the parties may extend the time
for or waive the performance of any obligations or other acts of the other
parties. Such extension or waiver shall be valid only if is set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to assert any of its rights under the Merger Agreement or otherwise shall not
constitute a waiver of those rights.
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RELATED AGREEMENTS
Voting Agreement
As a condition and inducement to DCPI Investco entering into the Merger
Agreement, the Principal Stockholders entered into a voting agreement, dated as
of February 13, 2002, with DCPI Investco relating to 6,309,142 shares of Common
Stock and 818,605 shares of Class A Common Stock of the Company owned by the
Principal Stockholders. DCPI Investco did not pay any additional consideration
to the Principal Stockholders in connection with the execution and delivery of
the Voting Agreement.
Pursuant to the voting agreement, the Principal Stockholders have
agreed, with respect to all of their shares, (i) to vote in the manner specified
by DCPI Investco on all matters regarding the Merger and the transactions
contemplated thereby or any alternate Acquisition Proposal (as defined in the
Merger Agreement) as to which the Principal Stockholders are entitled to vote at
a meeting of the stockholders of the Company, and (ii) to express consent or
dissent to corporate action in writing without a meeting in the manner specified
by DCPI Investco for all matters regarding the Merger and the transactions
contemplated thereby or any alternate Acquisition Proposal to which stockholders
are allowed to express consent or dissent in writing without a meeting.
Pursuant to the voting agreement, each of the Principal Stockholders
has also granted to and appointed Pierre Belanger and Helene Belanger, each of
whom is an officer of DCPI Investco, or either of them in their respective
capacities as officers of DCPI Investco, with full power of substitution, as
attorneys and proxies to vote all the shares held by the Principal Stockholders
on all matters regarding the Merger and the transactions contemplated thereby or
any alternate Acquisition Proposal as to which the Principal Stockholders are
entitled to vote at a meeting of the stockholders of the Company, or to which
the Principal Stockholders are entitled to express consent or dissent to
corporate action in writing without a meeting, in their absolute, sole and
binding discretion. The voting agreement will terminate upon the Effective Time
or the termination of the Merger Agreement in accordance with its terms.
In the event that the Merger Agreement is terminated due to the Company
accepting a Superior Proposal, the voting agreement will be terminated and the
Principal Stockholders will pay DCPI Investco an amount equal to 50% of the net
proceeds received by the Principal Stockholders from the Superior Proposal
exceeding $12.50 but not in excess of $14.00 per share of their Common Stock and
Class A Common Stock.
Employment Agreements
The Company, DCPI Investco and Richard W. Clark are parties to an
employment agreement, dated as of February 13, 2002, pursuant to which Mr.
Clark, upon the closing of the Merger, will continue to serve as Chairman and
Chief Executive Officer of the Company. The employment agreement provides for a
term commencing on and as of the date of the consummation of the Merger, at
which point in time the employment agreement is deemed to be in effect and
expiring on June 30, 2007, unless earlier terminated by the Company or Mr. Clark
to the extent permitted by the employment agreement. The employment agreement
also provides that unless the Company gives written notice to Mr. Clark prior to
April 1, 2006 that the Company does not intend that the term of Mr. Clark's
employment be extended, Mr. Clark's employment agreement term shall
automatically extend for an additional period of five years from its
then-current expiration date. The employment agreement provides for a base
salary of $975,000, which is increased on an annual basis in accordance with the
consumer price index for Los Angeles, CA and a bonus determined in accordance
with the Company's newly created Management Bonus Plan which is similar to the
Company's current bonus plan and provides annual awards based on the amount
EBITDA exceeds a predetermined threshold for each such fiscal year. The
employment agreement also provides for various payments to Mr. Clark should the
Company terminate Mr. Clark's employment with the Company other than for Cause
(as such term is defined in the employment agreement) or materially reduces Mr.
Clark's responsibilities or should Mr. Clark terminate his employment upon a
Change of
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Control (as such term is defined in the employment agreement). Such payments
include full vesting of Mr. Clark's stock options and payment of base salary and
bonus for the greater of three years or the remainder of the term of Mr. Clark's
employment agreement. In addition, the Company shall reimburse Mr. Clark for
certain excise taxes imposed upon him due to payments received on account of a
change in control of the Company. Pursuant to the employment agreement, DCPI
Investco will grant to Mr. Clark (i) options to purchase voting shares of DCPI
Investco representing 3% of the number of outstanding shares of DCPI Investco at
an exercise price of $1.00 per share, and (ii) options or warrants to purchase
non-voting shares of DCPI Investco representing 3% of the number of voting and
non-voting outstanding shares of DCPI Investco at an exercise price of $0.01 per
share, each grant to be effective upon the consummation of the Merger. The
employment agreement will terminate, and be of no force and effect, if the
Merger is not consummated and Mr. Clark will then be subject to his current
employment agreement with the Company.
The Company, DCPI Investco and Francis C. La Maina are parties to an
employment agreement, dated as of February 13, 2002, pursuant to which Mr. La
Maina will continue to serve as President and Chief Operating Officer of the
Company. The employment agreement provides for a term commencing on and as of
the date of the consummation of the Merger and expiring on June 30, 2007, unless
earlier terminated by the Company or Mr. La Maina to the extent permitted by the
employment agreement. The employment agreement also provides that unless the
Company gives written notice to Mr. La Maina prior to April 1, 2005 that the
Company does not intend that the term of Mr. La Maina's employment be extended,
Mr. La Maina's employment agreement term shall automatically extend for an
additional period of five years from its then-current expiration date. The
employment agreement provides for a base salary of $604,439, which is increased
on an annual basis in accordance with the consumer price index for Los Angeles,
CA and a bonus determined in accordance with the Company's Management Bonus Plan
which provides annual awards based on the amount EBITDA exceeds a predetermined
threshold for each such fiscal year. The employment agreement also provides for
various payments to Mr. La Maina should the Company terminate Mr. La Maina's
employment with the Company other than for Cause (as such term is defined in the
employment agreement) or materially reduces Mr. La Maina's responsibilities or
should Mr. La Maina terminate his employment upon a Change of Control (as such
term is defined in the employment agreement). Such payments include full vesting
of Mr. La Maina's stock options and payment of base salary and bonus for the
greater of three years or the remainder of the term of Mr. La Maina's employment
agreement. In addition, the Company shall reimburse Mr. La Maina for certain
excise taxes imposed upon him due to payments received on account of a change in
control of the Company. In addition, DCPI Investco shall grant to Mr. La Maina
options to purchase voting shares representing 2.5% of the outstanding shares of
DCPI Investco at an exercise price of $1.00 per share, such grant to be
effective upon the consummation of the Merger. After two years of service under
the employment agreement, an option will exist to act as a consultant for the
greater of two years or the remainder of the term of Mr. La Maina's employment
agreement resulting in a 50% reduction in compensation and termination of 50% of
Mr. La Maina's unvested stock options. The employment agreement will terminate,
and be of no force or effect, if the Merger is not consummated and Mr. La Maina
will then be subject to his current employment agreement with the Company.
Mr. La Maina's employment agreement also provides that during his
employment with the Company or during the Consultancy Period (as such term is
defined in the employment agreement), if applicable, and for one year after Mr.
La Maina voluntary terminates his employment or consulting with the Company, or
the Company terminates Mr. La Maina's employment for Cause (as such term is
defined in the employment agreement), Mr. La Maina shall not engage or be
interested, in any capacity, in any other business which is competitive with the
Company and its subsidiaries anywhere in the world, subject to certain permitted
exceptions. Further, Mr. La Maina is bound under the employment agreement not to
disclose or use in competition with the Company any non-public or proprietary
confidential information regarding the Company. Lastly, Mr. La Maina may not
solicit, while employed by the Company or for
-56-
one year thereafter, any person (other than his personal assistants) for
employment who was employed full-time by the Company during the last year of Mr.
La Maina's term under the employment agreement. Mr. La Maina's employment
agreement also includes a confidentiality provision in which Mr. La Maina agrees
that he will not disclose any confidential information or utilize such
information for his benefit or for the benefit of third parties.
Non-Competition and Non-Solicitation Agreement
DCPI Investco and Richard W. Clark are parties to a non-competition and
non-solicitation agreement, dated February 13, 2002, pursuant to which Mr. Clark
covenants and agrees that for the later of five years from the date of the
agreement, or the one year anniversary of the termination of his employment in
accordance with the employment agreement entered into on February 13, 2002, he
will not, in any capacity except on behalf of the Company, engage in business
competitive to the Company (as such term is defined in the non-competition and
non-solicitation agreement), attempt to persuade a client of the Company to
reduce the amount of business conducted with the Company, solicit for employment
any current employees or those employed by the Company in the preceding 12
months, or render for any client services normally provided by the Company
except as permitted in the employment agreement. If Mr. Clark is terminated
Without Cause (as defined in the employment agreement) the foregoing provisions
are terminated. The agreement also includes a confidentiality provision in which
Mr. Clark agrees that he will not disclose any Confidential Information (as such
term is defined in the non-competition and non-solicitation agreement), or
utilize such information for his benefit or for the benefit of third parties.
This non-competition and non-solicitation agreement terminates upon the
termination of the Merger Agreement in accordance with its terms.
BUSINESS OF DCPI MERGERCO
DCPI Mergerco is a corporation that is wholly-owned by DCPI Investco,
does not conduct any business activities and has been formed solely to effect
the Merger. Pursuant to the Merger Agreement, DCPI Mergerco will be merged with
and into the Company, with the Company as the Surviving Corporation.
BUSINESS OF THE COMPANY
Background
The Company was incorporated in California in 1977 and was
reincorporated in November 1986 as a Delaware corporation. Since 1957, the
Company has developed and produced a wide range of television programming for
television networks, first-run domestic syndicators (which provide programming,
for independent and network affiliated stations), cable networks and
advertisers.
The Company's founder and principal stockholder is Richard ("Dick") W.
Clark, who is one of the best-known personalities in the entertainment industry.
Many of the Company's television and communications programs involve the
executive producing services and creative input of Mr. Clark. However, Mr.
Clark's performance services are not exclusive to the Company. In addition to
Mr. Clark, the Company employs other experienced producers who are actively
involved in the Company's entertainment business.
The Company's two principal lines of business, according to industry
segments, are (i) television production and related activities including the
Company's corporate productions and communications activities, and (ii)
restaurant operations, which the Company started in fiscal 1990 to capitalize on
the popularity of its music-related television projects including the American
Bandstand(R) television show.
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Television Production and Related Activities
The Company's television production division produces, licenses and
distributes traditional television programming as well as non-traditional
programming.
Historically, the Company has produced entertainment television
programming for daytime, primetime, and late night telecast. The Company's
diverse programming has included awards shows, entertainment and comedy specials
and series, children's programming, talk and game show series,
movies-for-television and dramatic series. Many of the established television
specials are produced annually and have become anticipated television events.
This breadth of production, together with the Company's reputation for
developing high-quality, popular shows on budget, distinguishes the Company as
one of the most highly-regarded programming providers and versatile independent
production companies in the entertainment industry.
A majority of the Company's revenue is derived from the production and
licensing of television programming. The Company's television programming is
licensed to the major television networks, cable networks, domestic and foreign
syndicators and advertisers. The Company also receives production fees from
programming buyers who retain ownership of the programming. The Company has sold
or licensed its programs to all of the major networks and to a number of
first-run syndicators, cable broadcasters and advertisers.
The Company owns the distribution rights to certain programming which
are not subject to restrictions associated with the initial license agreement.
The Company markets such programming in ancillary markets which include, among
others, cable television, foreign and domestic rerun syndication and home video.
Television Production. The Company develops and produces numerous
television projects for broadcast on network television, first-run syndication
and cable television including television awards programming, television
specials, and series which include music, variety, dramatic and comedy
programming formats, as well as reality-based programming.
Awards Specials. The Company is a leading television producer of award
----------------
specials, which are a significant part of the Company's television production
business, and provide an ongoing foundation of consistent revenue each fiscal
year. The Company has several long-term license agreements for recurring and
annual specials, three of which expire in 2005 and one in 2011. Some of the
Company's award specials include:
. "The Golden Globe Awards" - The Company produces this awards program
in association with the Hollywood Foreign Press Association,
acknowledging excellence in television and motion pictures. "The 59th
Annual Golden Globe Awards" (broadcast on NBC on January 20, 2002)
marked the Company's nineteenth annual production of this awards
program for the Hollywood Foreign Press Association.
. "The 29th Annual American Music Awards(R)" (broadcast in 2002 on
ABC) - The Company's most enduring award special, which again was
highly rated in the key demographic groups.
. "The 37th Annual Academy of Country Music Awards" (to be broadcast
on CBS) - This popular, long running awards production will be
produced by the Company in 2002 for the twenty-fourth consecutive
year.
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. "The 29th Annual Daytime Emmy Awards" (to be broadcast on CBS) - The 2002
awards program will be the Company's tenth year of production of this
special presented by the National Academy of Television Arts & Sciences.
. "The Family Television Awards" (broadcast on CBS) - The Company produced
this awards program for the second time in fiscal 2002.
. "Lifetime Presents: Disney's American Teacher Awards" (broadcast on
Lifetime) - The Company produced this awards program for the first time in
2002.
Television Specials. The Company's television specials serve two important
-------------------
aspects as they may serve as pilots for the development of series programming
and they may be produced on an annual or recurring basis. For example, the
Bloopers(R) programs evolved from an entertainment special to a series and are
still in production as television specials for ABC. Some of the Company's
television specials include:
. three "Bloopers" specials (broadcast in 2002 on ABC);
. "Dick Clark's New Year's Rockin' Eve(R) 2002" (broadcast on ABC), which was
the Company's 29th year of production;
. Pre- and post- shows in conjunction with Dick Clark's "New Years Rockin'
Eve(R) 2002" special (broadcast on ABC); and
. "Celebrity Boxing" special (broadcast in 2002 on Fox), which was rated
number one in its time period.
Series. The Company actively develops programs and ideas for potential
------
series production, which represents the most important area of development in
terms of potential revenue and profit growth for the Company. Series programming
presents many opportunities for long-term commitments and, in some cases, rerun
potential. Some of the Company's recent series productions include:
. In fiscal 2002, the Company produced and delivered 6 episodes of "The
Chamber" for Fox.
. In fiscal 2002, the Company produced and delivered a pilot and one episode
of "Guerilla Concerts" for VH1.
. In fiscal 2002, the Company executive produced and expects to deliver two
pilots for NBC, "Erin Brockovich" and "Miss American Pie."
. In fiscal 2001, the Company produced and delivered 13 episodes of "Beyond
Belief(R)", hosted by "Star Trek's" Jonathan Frakes, for Fox. This series
was first produced by the Company in fiscal 1997 with the initial six
episodes hosted by James Brolin and in both fiscal 1998 and 1999, wherein
13 episodes, hosted by Jonathan Frakes were produced and delivered each
fiscal year.
Of the series recently produced, the following have been cancelled by the
networks.
. In fiscal 2001, 22 one-hour episodes of the series "Your Big Break" were
produced and delivered in conjunction with Endemol Entertainment, Inc., for
broadcast syndication by Buena Vista Television. In fiscal 2000, 24
one-hour episodes of this series were produced and delivered. This series
was syndicated to more than 90 percent of the United States, including the
top 10 television markets.
-59-
. In fiscal 2000, the Company produced 43.5 hours of the game show
"GreedSM", hosted by Chuck Woolery (broadcast on Fox).
. In fiscal 2000, the Company completed production on TNN's "Prime Time
Country", a live one-hour, weeknight country music entertainment and
variety series, which premiered in January 1996.
. The syndicated talk show "Donny and Marie", for which the Company served
as executive producer, also wrapped up in fiscal 2000.
Television Licensing and Distribution. The Company is not committed
exclusively to any one network, syndicator, cable network or other licensee for
the licensing of the initial broadcast rights to all or any substantial part of
the Company's programming.
The Company's strategy is to develop programming that does not require
deficit financing, such as reality and variety series and award and other event
specials (which have the potential to be profitable in the first year of release
as well as to be renewed annually). The typical license agreement for this type
of programming provides for a fixed license fee to be paid in installments by
the licensee to the Company for the right to broadcast a program or series in
the United States for a specified number of times during a limited period of
time. In some instances, the Company shares its percentage of net profits from
distribution with third parties who contributed to the production of the
program. In the case of license agreements involving specials, music, variety or
game show series, the fixed license fee is ordinarily in excess of production
and distribution costs. For selected projects, however, the Company may elect to
produce programming for which the initial license fees will not cover its
production and distribution costs in the first year of release.
During the term of a first-run broadcast license, the Company occasionally
retains all other distribution rights associated with the program, including
foreign distribution rights. In the case of television movies, the Company often
will pre-sell domestic, foreign and other rights in order to cover all of the
production and distribution costs for the television movie. From time to time,
the Company has entered into agreements with distribution companies (such as
Alfred Haber, Inc., TVA International, Incendo Media Inc. and World
International Network, LLC) for the foreign distribution of certain of its
television programming and occasionally licenses such programming directly to
foreign broadcasters.
After the expiration of a first-run broadcast license, the Company makes
the program available for other types of domestic distribution where the Company
has retained ownership and/or distribution rights to the program. In fiscal
2000, the Company licensed 59 one-hour episodes of its "TV Bloopers and
Practical Jokes", 22 one-hour episodes of its "Super Bloopers and New Practical
Jokes" and 9 one-hour episodes of "TV Bloopers" (all of which had previously
been broadcast on network television as one hour shows) to The National Network.
The Company also retains the rights to the clips from its shows for use in its
own productions as well as the ability to continue to market the clips to media
archive customers. Additionally, the Company licenses the domestic rebroadcast
rights to television movies from its library, which the Company is able to
syndicate a number of times over a period of many years. For example, in fiscal
2002, the Company licensed the previously broadcast television movie "Man in the
Santa Claus Suit"; in fiscal 2001 the Company renewed a license for the
previously broadcast television movie, "A Cry For Help: The Tracy Thurman
Story"; and in fiscal 2000, the Company licensed the previously broadcast
television movie "The Good Doctor: the Paul Fleiss Story."
The Company has also used its library of entertainment and music specials
to create new programming and licensing opportunities including the following:
-60-
. Media Archives and Home Video. The Company believes that it owns one
-----------------------------
of the largest collections of musical performance footage from the
1950s to the present, including 16mm films that have been enhanced and
transferred to video tape. The Company keeps an updated, computerized
index of available material in order to easily access the performance
footage. The Company also occasionally acquires the rights to license
classic performances by popular recording artists. These rights are
acquired from the copyright holders and then licensed for television,
film, cable and home video. Although the Company's archives are used
as source material for the Company's productions, the Company also
actively licenses footage from its archives to third parties. In
fiscal 2002, the Company licensed footage from its library to
Time-Life Music, MTV, CNN, ABC and NBC, among many others.
. Live Shows. Certain Company concepts and trade names have been
----------
licensed for use by third parties in live shows. For example, in
fiscal 2000, the concept of the Dick Clark's "New Year's Rockin'
Eve(R)" annual television special was licensed to Holland America
Cruise Line for a theatrical show on its ships which ran through
December 31, 2000.
. Trademark Licensing. In fiscal 2000, the Company licensed to
-------------------
International Game Technology, the largest slot machine manufacturer
in the United States of America, the rights to develop three slot
machines based on the Company's entertainment concepts for sale to
gaming casinos. The slot machines are designed around the "New Year's
Rockin' Eve(R)," "American Bandstand(R)," and "Bloopers(R)" concepts.
Corporate Production and Communications Business. In January 1991, the
------------------------------------------------
Company established a subsidiary under the Company's entertainment division,
dick clark communications, inc., in order to enter the corporate productions and
communications business. This subsidiary specializes in the development and
execution of non-traditional marketing communications programs, corporate
meetings and special events, new product introductions, trade shows and
exhibits, event marketing, film, video and leisure attractions. The Company's
strategy is to provide value to its corporate communications clients by
accessing the wide range of talent and production resources the Company utilizes
for television production and by providing a level of creativity, production
quality and efficiency that is uncommon in this market.
The Company offers significant operating efficiencies and capitalizes on
the Company's internal resources, particularly, in the area of television
production. These resources help the Company provide solutions to businesses
seeking alternatives to the traditional forms of communication to reach their
intended audiences.
The Company uses its "strategic entertainment" approach to create
communications experiences, from live events and meetings to integrated
marketing communications programs for major corporations. Through this unique
blend of skills, the Company created corporate "experiences" for a variety of
clients during fiscal 2001 including helping Microsoft launch Microsoft XP by
producing a Sting concert live in New York and producing the Grand Opening Gala
of the Grove at Farmers Market in Los Angeles.
In collaboration with the CMJ Network and Coca-Cola, the Company announced
a new category for "The 29th Annual American Music Awards" to recognize unsigned
emerging talent and presented the first "New Music Award" at this show's January
2002 airing. The Company assisted in coordinating the events leading up to the
final appearance on the American Music Awards, which included five
semi-finalists that were chosen from the 50 artists/bands that were originally
selected, participating in a mini tour of several colleges and universities
around the country, culminating in a semi-finalist showdown where three
finalists were selected. The finalists competed for the "New Music Award" in Los
Angeles, days prior to the American Music Awards telecast in January 2002.
-61-
The corporate production and communications business has recently
experienced a slowing due to reduced corporate spending, resulting from, among
other things, weak general economic conditions exacerbated by the September 11,
2001 terrorist attacks in New York, Washington, D.C. and Pennsylvania and the
extreme impact on the economy of such attacks, especially in light of the
slowing general economy.
Record Business. In fiscal 1994, the Company established the CLICK Records
---------------
Inc. ("CLICK RECORDS(R)") label. During fiscal 1999, the Company entered into an
agreement with Anderson Merchandisers to produce and distribute compilation
albums under the CLICK RECORDS label. The first such album, "The American Music
Awards Present: Only The Hits", was produced and distributed during fiscal 1999,
exclusively at Wal-Mart stores nationwide.
In early fiscal 2000, the Company entered into an agreement with Q Records,
the record label of QVC, to create and sell a compact disc collectible box set
covering four decades of "American Bandstand(R)" music. In late fiscal 2000, the
Company extended its arrangement with Q Records to include a new compact disc
collection entitled "Dick Clark's Favorite Hits."
Restaurant Operations
The Company's restaurant operations are conducted by dick clark
restaurants, inc. ("dcri"), a wholly-owned subsidiary of the Company, and dcri's
wholly-owned subsidiaries. The Company started the restaurant operations under
the name "Dick Clark's American Bandstand Grill(R)" to capitalize on the
popularity of the American Bandstand(R) television show. The Company's concept
was to develop entertainment theme restaurants as an extension of the Company's
entertainment business. Elements of the theme include:
. the "Great American Food Experience(R)", a unique menu concept
featuring a variety of delicious regional specialties from around the
country;
. a design featuring a one-of-a-kind entertainment atmosphere based on
the American Bandstand(R) television show and the music industry over
the last four decades; and
. a dance club area within some of the restaurants with state-of-the-art
audio-visual entertainment systems; and signature "American Bandstand
Grill(R)" merchandise for customers to purchase.
Each restaurant also features memorabilia and other items generally associated
with rock n' roll and the Company's activities throughout the years, including
vintage photos, gold and platinum albums, original stage costumes, concert
programs, rock stars' musical instruments and rare posters. In fiscal 2000, dcri
opened the initial "Dick Clark's AB Diner(R)", an extension of the restaurant
concept. Some of the memorabilia used in the restaurants is owned by Olive and
is loaned to dcri without charge.
Currently, dcri has operations in the following eight locations: Overland
Park, Kansas, a suburb of Kansas City, Kansas; Indianapolis, Indiana; Columbus,
Ohio; Cincinnati, Ohio; King of Prussia, Pennsylvania; Grapevine Mills, Texas;
Auburn Hills, Michigan; and Schaumburg, Illinois.
In addition, dcri also licenses various applications of the restaurant
concept. The first three restaurants were licensed to HMS Host Corporation ("HMS
Host") in fiscal 2000 and have opened in the Indianapolis Airport, the Salt Lake
City Airport, and the Newark Airport. During fiscal 2001, dcri licensed a fourth
restaurant to the HMS Host. The fourth unit is expected to open in fiscal 2003
at Phoenix Sky Harbor International Airport in Arizona.
-62-
In an effort to streamline the administration and management of dcri and
substantially reduce the overhead costs of restaurant operations, the Company
retained Lincoln Restaurant Group ("Lincoln") of Dallas, Texas to provide such
services in December 2000. Lincoln, founded in 1984, provides management and
ancillary support services to approximately 420 restaurants - ranging from
fast-food to fine dining - and to approximately 185 restaurant owners
nationwide. Services provided by Lincoln include purchasing, accounting, human
resources, culinary service and standards.
As a result of continued declining operating results in certain of the
units in the restaurant segment caused by the economic downturn and the events
of September 11, 2001, the Company performed an evaluation of future operating
cash flows for all individual units as of December 31, 2001. This analysis
considered the undiscounted cash flows related to individual units based upon
current operating result forecasts and management's plans to dispose of certain
units within the next twelve months. This analysis indicated that the
undiscounted cash flows were insufficient to recover the carrying value of the
long-lived assets. Accordingly, the Company recorded an aggregate charge of
$4,785,000 during the quarter ended December 31, 2001 to write down the carrying
value of the fixed assets of those units to the estimated future discounted cash
flows and to accrue estimated disposal costs of $609,000.
Joint Ventures
The Company from time to time enters into joint ventures with parties not
otherwise affiliated with the Company whose purpose is the production of
entertainment programming and other entertainment related activities associated
with the Company's business.
The C&C Joint Venture was organized to develop and produce the various
Bloopers and Practical Jokes series. The Company has a controlling interest in
the C&C Joint Venture, and the Company's share of net profits and losses in that
venture is now 51%.
In fiscal 2001, the Company teamed with three other parties to launch a new
record label for emerging talent, known as Access Records, LLC. The Russian pop
group NA-NA! is the first act that has signed with the new label. The Company
has a 25% membership interest in Access Records, LLC.
Trademarks
The Company utilizes the service marks and trademarks American Bandstand
Grill(R), Dick Clark's American Bandstand Grill(R), and AB(R) (Stylized). The
Company also owns many other trademarks and service marks, including federal
registration for trademarks and service marks related to its television
programming and other businesses. Certain of the Company's trademarks and
service marks may be considered to be material to the Company, such as the
trademarks and service marks used in connection with the Company's restaurant
operations.
Competition
Competition in the television industry is intense. The most important
competitive factors include quality, variety of product and marketing. Many
companies compete to obtain the literary properties, production personnel and
financing, which are essential to the successful development of programming.
Competition for viewers of the Company's programs has been heightened by the
proliferation of cable networks, which has resulted in the fragmentation of the
viewing audience. The Company also competes with other production companies for
distribution and pre-sale arrangements, as well as the public's interest in, and
acceptance of, its programs. The Company's success is highly dependent upon such
unpredictable factors as the viewing public's taste. Public taste changes, and a
shift in demand could cause the Company's present programming to lose its
appeal. Therefore, acceptance of future
-63-
programming cannot be assured. Television and feature films compete with many
other forms of entertainment and leisure time activities, some of which involve
new areas of technology, including the proliferation of internet services and
new media games.
The Company's principal competitors in television production are the
television production divisions of the major television networks, motion picture
companies (which are also engaged in the television and feature film
distribution business) and many independent producers. Many of the Company's
principal competitors have greater financial resources and more personnel
engaged in the acquisition, development, production and distribution of
television programming. Presently, there is substantial competition in the
first-run syndication marketplace, resulting in fragmentation of ratings and
advertising revenues.
In 1995, the Federal Communications Commission allowed the Financial
Interest and Syndication Rule ("FinSyn Rule") to expire, thereby permitting the
major networks to produce and syndicate, in-house, all of their primetime
entertainment schedule. With the elimination of such restrictions, the major
networks have substantially increased the amount of programming they produce
through their own production companies. Numerous consolidations have also
occurred within the industry, further restricting the Company's ability to sell
or license its entertainment programming.
As a result of the elimination of the FinSyn Rule, the Company has
encountered increased competition in the domestic and foreign syndication of
future television programming which could adversely impact the Company's rerun
syndication revenues. The Company has also encountered increased competition
from emerging networks, which were previously exempt from any restrictions under
the FinSyn Rule. Finally, the Company will face increased competition as certain
laws have been amended so as to allow television and cable networks to acquire
local affiliates further reducing the number of customers available to the
Company. To continue to be competitive, the Company needs to find a way to
compete with the television networks. The Company believes, however, that it can
continue to compete successfully in this highly-competitive market for
television programming. This belief is based on management's extensive
experience in the industry, the Company's reputation for prompt, cost-efficient
completion of production commitments and the Company's ability to attract
creative talents.
The market for corporate communications services is large, but highly
competitive, with many companies vying for market share. Most customers require
bids on a competitive basis and some of the Company's competitors have larger
staffs and a greater global reach for information. Some principal competitors
have been in business longer and are more established. The Company believes that
it can compete successfully in this market by utilizing the Company's experience
in producing live events for television and its existing talent and business
relationships.
The restaurant industry is highly-competitive and is affected by many
factors including changes in the economy, changes in socio-demographic
characteristics of areas in which restaurants are located, changes in customer
tastes and preferences and increases in competition in the geographic area in
which the Company's restaurants are located. The degree to which such factors
may affect the Company's restaurant operations, however, are not generally
predictable such as the effects of the events of September 11, 2001.
Competition in the restaurant industry can be divided into three main
categories: fast food, casual dining and fine dining. The casual dining segment
(which includes the Company's restaurant operations) includes a much smaller
number of national chains than the fast-food segment but does include many local
and regional chains as well as thousands of independent operators. The fine
dining segment consists primarily of small independent operations in addition to
several regional chains.
-64-
Properties
The Company leases from Olive, under a triple net lease approximately
30,000 square feet of office space and equipment in two buildings located in
Burbank, California, for its principal executive offices. The current annual
rent is $682,000 and the lease expires on December 31, 2005. The lease provides
for rent increases on January 1, 2003 and January 1, 2005 based on increases in
the Consumer Price Index after December 2000. The Company subleases
approximately 10,000 square feet of space to third parties and affiliated
companies on a month-to-month basis. The Company believes that the subleases to
affiliated companies are no less favorable to the Company than could be obtained
from unaffiliated third parties on an arms-length basis.
The Company is also party to an agreement with Olive, pursuant to which
Olive provides records management services, including storage, retrieval and
inventory of customer records, files and other personal property. The term of
the agreement extends through September 2005.
The Company has entered into lease agreements with respect to numerous
restaurant sites that terminate at varying dates through December 31, 2012. The
Company believes the properties and facilities it leases are suitable and
adequate for the Company's present business and operations.
Legal Proceedings
The Company is involved in certain litigation in the ordinary course of its
business, none of which, in the opinion of management, is material to the
Company's financial position.
On December 2, 2001, an incident occurred at Dick Clark's American
Bandstand Grill(R), in Columbus, Ohio, which is a restaurant owned by Buckeye
Restaurants, Inc., a subsidiary of the Company. Mr. Grant Church, a club
ambassador (security person), attempted to remove Mr. Vincent L. Darling, a
patron, from the premises after Mr. Darling had an altercation with his
girlfriend. Mr. Darling resisted, was subdued, and police and medical units were
called to the scene. Mr. Darling was subsequently pronounced dead in an
ambulance en route to the hospital. The investigation into his death is ongoing
and, as of the date of this proxy statement, no criminal charges or civil suits
have been filed in connection with this incident.
The Company is the producer of the American Music Awards(R) television
program (the "AMA Program") which honors the top musical artists of the day as
voted by the fans. The AMA Program generally airs in January and features
performances from the then current hottest acts in a wide variety of musical
genres. On December 19, 2001, the Company filed a complaint (the "Complaint")
against C. Michael Greene, President and Chief Executive Officer of the National
Academy of Recording Arts & Sciences, Inc. (the "Academy") which runs the
GRAMMY(R) Awards program for the music industry and is televised each year in
February or March. On February 28, 2002, the Company amended the Complaint to
name the Academy as a defendant. The Company believes that, in the Academy's
name, Mr. Greene has implemented a policy that prohibits musical artists from
performing on the GRAMMY(R) Awards program if they perform on the AMA Program.
Over the last several years, numerous artists have wanted to perform on both
award shows and have been precluded from doing so because of this unfair policy.
In the Complaint, the Company raises claims of interference with contract,
interference with prospective business relations, and statutory unfair
competition for which the Company seeks compensatory damages, punitive damages,
and to enjoin Mr. Greene and the Academy from enforcing the policy of
prohibiting musical artists from performing on the GRAMMY(R) Awards program if
they also perform on the AMA Program.
The Company believes that the Complaint will not significantly impact the
Company's operations.
-65-
See "LITIGATION PERTAINING TO THE MERGER."
CERTAIN TRANSACTIONS
The Company is a tenant under a triple net lease, as amended (the "Lease"),
with Olive covering the premises occupied by the Company in Burbank, California.
The Company renegotiated its Lease with Olive extending the lease term from
December 31, 2000 to December 31, 2005. The Lease provides for a per annum rent
of approximately $682,000, which is subject to increase on January 1, 2003 and
January 1, 2005 based on increases in the Consumer Price Index after December
2000.
The Company subleases a portion of the space covered by the Lease to Olive
and to unrelated third parties on a month-to-month basis. In fiscal 2001, the
sublease income paid by Olive was $12,000. The Company also pays Olive for
certain storage services at a warehouse owned by Olive, for which the Company
paid Olive $169,000 in fiscal 2001. The Company believes that the terms of the
Lease, the subleases to Olive and to third parties and the warehouse services
arrangement are no less favorable to the Company than could have been obtained
from unaffiliated third parties on an arms-length basis.
Mr. Clark is actively involved in the Company's television programming and
many of the programs involve his executive producing services.
The Company retained the talent services of Mr. Clark, which are not
exclusive to the Company, as host for certain of its television programs and
other talent services during fiscal 2001, 2000 and 1999 for which the Company
paid him fees of $1,207,000, $762,000 and $730,000, respectively. These fees
increased in fiscal 2001 as compared to fiscal 2000 primarily as a result of an
increase in the number of television specials Mr. Clark was contracted to host
and appear on. The Company believes that the fees paid to Mr. Clark are no more
than it would have paid to an unaffiliated third party on an arms-length basis.
The compensation paid to Mr. Clark for these services is separate and in
addition to the compensation he receives as an executive of the Company, which
includes Mr. Clark's executive producing services.
During fiscal 2001, the Company provided management, consulting and office
services to Olive and other companies owned by Mr. Clark. The net amount paid by
Olive and the other companies during fiscal 2001 for such services was $242,000.
The Company believes that the terms of the transactions with Olive and such
other companies were no less favorable to the Company than could have been
obtained from unaffiliated third parties on an arms-length basis.
-66-
MARKET PRICES OF AND DIVIDENDS ON THE COMMON STOCK
On January 7, 1987, the Common Stock of the Company began trading on the
Nasdaq National Market under the symbol "DCPI" The following table sets forth
the high bid and low asked prices on the Nasdaq National Market for each quarter
during fiscal years 2000 and 2001 and the first, second and third quarters of
fiscal year 2002.
Period High Low
------ ---- ---
2000 First Quarter $13.86 $10.28
Second Quarter 20.91 9.66
Third Quarter 13.86 11.36
Fourth Quarter 13.25 11.02
2001 First Quarter $12.75 $9.00
Second Quarter 13.38 8.63
Third Quarter 14.00 9.50
Fourth Quarter 10.85 9.62
2002 First Quarter $10.81 $8.67
Second Quarter 9.75 8.40
Third Quarter (through 3/7/02) 14.50 8.50
On February 14, 2002, the Company announced that it had signed the Merger
Agreement which provides, among other things, that DCPI Mergerco will acquire
the outstanding shares of the Capital Stock held by the Public Stockholders for
$14.50 per share. On February 13, 2002, the closing price of the Common Stock on
the Nasdaq National Market was $10.93 per share. As of ______ __, 2002 the
closing price of the Common Stock on the Nasdaq National Market was $____ per
share. You are urged to obtain a current market quotation for your shares of
Common Stock. As of ______ __, 2002, there were approximately_______ holders of
record of the Common Stock of the Company.
On April 25, 2000, the Company declared a ten percent stock dividend of the
Common Stock and Class A Common Stock to all holders of record as of the close
of business on May 25, 2000, which was distributed on June 23, 2000.
-67-
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth information concerning the shares of Common
Stock and Class A Common Stock beneficially owned as of __________ __, 2002, by
(i) each stockholder known to the Company to own beneficially more than 5% of
the outstanding shares of either class of its Common Stock; (ii) the directors
during the last fiscal year of the Company; (iii) the executive officers of the
Company; and (iv) all executive officers and directors as a group. Except as
otherwise indicated in the footnotes to the tables below, the Company believes
that the beneficial owners of the Common Stock and Class A Common Stock, based
on information furnished by such owners, have sole investment power and voting
power with respect to such shares.
Common Stock
Percentage
----------
Name and Address Number of Shares of Class
---------------- ---------------- --------
Of Beneficial Owner Beneficially Owned(1)(2) Outstanding
------------------- ------------------------ -----------
Richard W. Clark(3) .......................................... 6,309,142 (4), (8) 67.96%
Karen W. Clark(3) ............................................ 3,561,143 (8) 38.36%
Francis C. La Maina(3) ....................................... 909,501 (5) 9.59%
Robert A. Chuck(3) ........................................... 0 *
William S. Simon(3) .......................................... 43,743 (6) *
Lewis Klein .................................................. 1,818 *
1475 Hampton Road
Rydal, Pennsylvania 19046
Enrique F. Senior ............................................ 0 *
711 Fifth Avenue
New York, New York 10022
All officers and directors as a group (seven persons) ........ 7,264,204 (7), (8) 76.24%
Charter Oak Partners, L.P..................................... 812,500 8.75%
P.O. Box 5147
Westport, Connecticut 06881
DCPI Investco, Inc............................................ 6,309,142 (8) 67.96%
9200 Sunset Boulevard, 10th Floor
Los Angeles, California 90069
-68-
Class A Common Stock
Percentage
----------
Name and Address Number of Shares of Class
---------------- ---------------- --------
of Beneficial Owner Beneficially Owned(1) Outstanding
------------------- --------------------- -----------
Richard W. Clark(3) ....................................... 818,605 (8) 90%
Francis C. La Maina(3) .................................... 90,955 10%
DCPI Investco, Inc. ........................................ 818,605 (8) 90%
All officers and directors as a group (seven persons
- - only two beneficial holders) ............................ 909,560 (8) 100%
___________________
* Less than 1%
(1) With the exception of Mrs. Clark, and except where otherwise indicated, all
parties listed below have sole voting and investment power over the shares
beneficially owned by them. Pursuant to a voting trust agreement between
Mr. Clark and Mrs. Clark, Mr. Clark has the sole voting power over the
shares owned by Mrs. Clark.
(2) Does not include shares of Common Stock issuable upon conversion of Class A
Common Stock.
(3) The business address of each of these individuals is 3003 West Olive
Avenue, Burbank, California 91505-4590.
(4) Includes 3,561,143 shares owned by Mrs. Clark and 418,316 shares owned by
Olive.
(5) Includes 606 shares owned by Mr. La Maina's wife and options to purchase
200,649 shares of Common Stock which are currently exercisable.
(6) Includes options to purchase 43,743 shares of Common Stock which are
currently exercisable.
(7) Includes 244,392 shares of Common Stock subject to options which are
currently exercisable.
(8) As a condition and inducement to DCPI Investco entering into the Merger
Agreement, the Principal Stockholders entered into a voting agreement with
DCPI Investco relating to 6,309,142 shares of Common Stock and 818,605
shares of Class A Common Stock owned by the Principal Stockholders. See
"RELATED AGREEMENTS -- Voting Agreement."
-69-
SELECTED FINANCIAL DATA OF THE COMPANY
The following selected financial data for each of the years in the
five-year period ended June 30, 2001 are derived from and are incorporated by
reference in this proxy statement from the Company's audited consolidated
financial data and notes thereto included in the Company's Annual Report on Form
10-K for the year ended June 30, 2001, a copy of which accompanies this proxy
statement. The selected financial data for the six months ended December 31,
2001 are derived from and are incorporated by reference in this proxy statement
from the Company's unaudited consolidated financial data and notes thereto
included in the Company's Quarterly Reports on Form 10-Q for the three months
ended September 30, 2001 and six months ended December 31, 2001, a copy of each
of which also accompanies this proxy statement. The results for the six months
ended December 31, 2001 are not necessarily indicative of results for the entire
fiscal year. The information presented below should be read in conjunction with
such financial statements and notes thereto, and the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2001 and
the Company's Quarterly Reports for the three months ended September 30, 2001
and six months ended December 31, 2001.
(In thousands, except per share data)
Six Months Six Months Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended Ended Ended
December 31, December 31, June 30, June 30, June 30, June 30, June 30,
2001 2000 2001 2000 1999 1998 1997
------------ ------------ ----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Revenue $17,598 $26,967 $70,772 $92,243 $72,334 $86,251 $66,129
Restaurant asset
impairment charge
included in operating
income (4,785) (4,092)
Operating income (6,484) (1,899) 4,440 13,393 2,047 11,353 9,242
Net (loss)/income (3,217) (168) 5,155 10,398 2,752 8,234 6,514
Net (loss)/income per
Share - Basic $ (0.32) $ (0.02) $ 0.51 $ 1.02 $ 0.27 $ 0.81 $ 0.65
- Diluted $ (0.32) $ (0.02) $ 0.50 $ 1.01 $ 0.27 $ 0.80 $ 0.64
Total assets $91,399 $91,341 $85,368 $83,397 $69,918 $73,215 $63,298
Long-term debt
(including capital
lease) -- -- -- -- -- -- --
Comparative Data
Purchase price - $14.50 per share to the Public Stockholders
Book value at December 31, 2001 - $7.23 per share
Net income for fiscal year ended June 30, 2001 - $0.51 per basic share, $0.50
per diluted share
Net (loss) for six months ended December 31, 2001 - $(0.32) per basic and
diluted share
Dividends for fiscal year ended June 30, 2001 and the six months ended December
31, 2001 - $0
-70-
Notes to Selected Financial Data
Restaurant asset impairment charge included in Operating Income
- ---------------------------------------------------------------
As a result of continued declining operating results in certain of the
units in the restaurant segment caused by the economic downturn and the events
of September 11, 2001, the Company performed an evaluation of future operating
cash flows for all individual units as required under SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" as of December 31, 2001. This analysis considered the undiscounted cash
flows related to individual units based upon current operating result forecasts
and management's plans to dispose of certain units within the next twelve
months. This analysis indicated that the undiscounted cash flows were
insufficient to recover the carrying value of the long-lived assets.
The Company recorded an aggregate charge of $4,785,000 during the
quarter ended December 31, 2001 to write down the carrying value of the fixed
assets to the estimated future discounted cash flows and to accrue estimated
disposal costs of $609,000. This charge was comprised of write downs of
$3,699,000 (relating to units that are held for sale to their estimated disposal
value of $1,410,000) and $1,086,000 (relating to one unit that will continue to
be operated). Operating losses for the three months ended September 30, 2001 and
six months ended December 31, 2001 for the units held for sale were $566,000 and
$1,027,000, respectively.
As a result of declining operating results in three of the restaurant
units during the fourth quarter of fiscal 1999, the Company recorded an
impairment charge of $4,092,000.
VOTE REQUIRED AND RECOMMENDATION
Approval of this proposal to adopt the Merger Agreement requires the
affirmative vote of a majority of the votes entitled to be cast by holders of
the outstanding shares of Common Stock and Class A Common Stock of the Company,
voting together as a class, whether in person or by proxy, entitled to vote on
the record date.
The Board recommends a vote "FOR" approval of the proposal
to adopt the Merger Agreement.
WHERE YOU CAN FIND MORE INFORMATION
The Securities and Exchange Commission allows the Company to
"incorporate by reference" information into this proxy statement, which means
that the Company can disclose important information by referring you to another
document filed separately with the Securities and Exchange Commission. The
following documents are incorporated by reference in this proxy statement and
are deemed to be a part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2001;
(2) The Company's Quarterly Reports on Form 10-Q for the quarters
ending September 30, 2001 and December 31, 2001; and
(3) The Company's Current Report on Form 8-K, dated February 15,
2002.
-71-
Any statement contained in a document incorporated by reference is
deemed to be modified or superseded for all purposes to the extent that a
statement contained in this proxy statement modifies or replaces such statement.
The Company also incorporates by reference the information contained in
all other documents the Company files with the Securities and Exchange
Commission pursuant to Sections 13(a), 13(c), 13(e), 14 or 15(d) of the Exchange
Act after the date of this proxy statement and before the Special Meeting. The
information contained in any such document will be considered part of this proxy
statement from the date the document is filed and will supplement or amend the
information contained in this proxy statement.
The Company undertakes to provide by first class mail, without charge
and within one business day of receipt of any request, to any person to whom a
copy of this proxy statement has been delivered, a copy of any or all of the
documents referred to above which have been incorporated by reference in this
proxy statement, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference therein).
AVAILABLE INFORMATION
The Company, Capital Communications, DCPI Investco and DCPI Mergerco
have filed with the Securities and Exchange Commission a Rule 13e-3 Transaction
Statement on Schedule 13E-3 under the Exchange Act with respect to the Merger.
This proxy statement does not contain all of the information set forth in the
Schedule 13E-3 and the exhibits to the Schedule 13E-3, certain parts of which
are omitted, as permitted in accordance with the rules and regulations of the
Securities and Exchange Commission. The Company is subject to the informational
requirements of the Exchange Act and, in accordance therewith, files reports,
proxy statements and other information with the Securities and Exchange
Commission. Among other things, copies of the written reports presented by Allen
& Company and Ladenburg, as to the fairness of the consideration to be received
in the Merger, were filed as exhibits to the Schedule 13E-3. Descriptions
contained herein concerning any documents are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Schedule 13E-3. Those descriptions are qualified in their
entirety by reference to the document filed as an exhibit to the Schedule 13E-3.
Copies of the Schedule 13E-3 and all exhibits to the Schedule 13E-3 are
available for inspection and copying at the principal executive offices of the
Company during regular business hours by any interested stockholder of the
Company, or a representative who has been so designated in writing, and may be
inspected and copied, or obtained by mail, without charge, by written request
directed to us at the following address: dick clark productions, inc., 3003 West
Olive Avenue, Burbank, CA 91505, Attn.: William S. Simon, telephone number (818)
841-3003.
The Company is currently subject to the information requirements of the
Exchange Act and in accordance therewith files periodic reports, proxy
statements and other information with the Securities and Exchange Commission
relating to its business, financial and other matters. Copies of such reports,
proxy statements and other information, as well as the Schedule 13E-3, may be
copied (at prescribed rates) at the public reference facilities maintained by
the Securities and Exchange Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at the following Regional Offices of
the Securities and Exchange Commission: 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 233 Broadway, New York, New York 10279. For further
information concerning the Securities and Exchange Commission's public reference
rooms, you may call the Securities and Exchange Commission at 1-800-SEC-0330.
Some of this information may also be accessed on the World Wide Web through the
Securities and Exchange Commission's Internet address at "http://www.sec.gov."
The Common Stock is listed on NASDAQ National Market, and materials also may be
inspected at the NASDAQ's National Market offices at 33 Whitehall Street, New
York, NY 10004.
-72-
MISCELLANEOUS
Stockholder Proposals
If the Merger is not consummated, the Company intends to hold its 2002
Annual Meeting of Stockholders on or about November 8, 2002. If this 2002 Annual
Meeting is held, stockholder proposals that are intended to be considered in the
Company's proxy statement and proxy card for that meeting, must be received at
the Company's principal executive offices not later than June 14, 2002. As to
any proposal that a stockholder intends to present to stockholders without
including it in the Company's proxy statement for the Company's 2002 Annual
Meeting of Stockholders, the proxies named in the Board's proxy for that meeting
will be entitled to exercise their discretionary authority on that proposal
unless the Company receives notice of the matter to be proposed not later than
August 30, 2002. Even if proper notice is timely received, the proxies named in
the Board's proxy for that meeting may nevertheless exercise their discretionary
authority with respect to such matter by advising stockholders of such proposal
and how they intend to exercise their discretion to vote on such matter, unless
the stockholder making the proposal solicits proxies with respect to such
proposal as required by Rule 14a-4(c)(2) under the Exchange Act.
Other Matters
The Board does not intend to bring before the Special Meeting for
action any matters other than those specifically referred to above and is not
aware of any other matters which are proposed to be presented by others. If any
other matters or motions should properly come before the Special Meeting, the
persons named in the proxy intend to vote thereon in accordance with their
judgment on such matters or motions, including any matters or motions dealing
with the conduct of the Special Meeting.
No person is authorized to give any information or to make any
representations with respect to the matters described in this proxy statement
other than those contained herein. Any information or representations with
respect to such matters not contained herein or therein must not be relied upon
as having been authorized by the Company. The delivery of this proxy statement
shall not under any circumstances create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information in this proxy statement is correct as of any time subsequent to the
date hereof.
By Order of the Board of Directors,
Martin Eric Weisberg
Secretary
______ __, 2002
-73-
Annex A
AGREEMENT AND PLAN OF MERGER
Dated as of February 13, 2002
by and
among
CAPITAL COMMUNICATIONS CDPQ INC.
DCPI INVESTCO, INC.
DCPI MERGERCO, INC.
and
dick clark productions, inc.
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS ........................................................... 2
- ---------------------
ARTICLE II THE MERGER ........................................................... 10
- ---------------------
Section 2.1 The Merger .................................................. 10
----------- ----------
Section 2.2 Closing ..................................................... 10
----------- -------
Section 2.3 Effective Time .............................................. 10
----------- --------------
Section 2.4 Effects of the Merger ....................................... 10
----------- ---------------------
Section 2.5 Corporate Governance Documents .............................. 11
----------- ------------------------------
Section 2.6 Directors ................................................... 11
----------- ---------
Section 2.7 Officers .................................................... 11
----------- --------
Section 2.8 Further Actions ............................................. 11
----------- ---------------
Section 2.9 Effect on Capital Stock of the Company and Merger Sub ....... 11
----------- -----------------------------------------------------
Section 2.10 Exchange of Certificates .................................... 12
------------ ------------------------
Section 2.11 Stock Option Plans .......................................... 14
------------ ------------------
Section 2.12 Certain Adjustments ......................................... 14
------------ -------------------
Section 2.13 Withholding ................................................. 14
------------ -----------
Section 2.14 Lost, Stolen or Destroyed Certificates ...................... 15
------------ --------------------------------------
Section 2.15 Stock Transfer Books ........................................ 15
------------ --------------------
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY ....................... 15
- ---------------------------------------------------------
Section 3.1 Organization, Standing and Corporate Power .................. 16
----------- ------------------------------------------
Section 3.2 Subsidiaries ................................................ 16
----------- ------------
Section 3.3 Capital Structure ........................................... 16
----------- -----------------
Section 3.4 Authority; Noncontravention ................................. 18
----------- ---------------------------
Section 3.5 SEC Documents; Financial Statements; Cash Balance ........... 19
----------- -------------------------------------------------
Section 3.6 Environmental ............................................... 20
----------- -------------
Section 3.7 Absence of Certain Changes or Events ........................ 21
----------- ------------------------------------
Section 3.8 Litigation .................................................. 22
----------- ----------
Section 3.9 [Omitted] ................................................... 22
----------- ---------
Section 3.10 [Omitted] ................................................... 22
------------ ---------
Section 3.11 Employee Benefits; ERISA .................................... 22
------------ ------------------------
Section 3.12 Taxes ....................................................... 26
------------ -----
Section 3.13 [Omitted] ................................................... 28
------------ ---------
Section 3.14 Permits; Compliance with Laws ............................... 28
------------ -----------------------------
Section 3.15 State Takeover Statutes ..................................... 29
------------ -----------------------
Section 3.16 Broker's or Finder's Fee .................................... 29
------------ ------------------------
Section 3.17 Company Intellectual Property and Library Properties ........ 29
------------ ----------------------------------------------------
Section 3.18 Real Property ............................................... 32
------------ -------------
Section 3.19 Insurance ................................................... 34
------------ ---------
Section 3.20 Contracts ................................................... 34
------------ ---------
Section 3.21 Board Consent and Recommendation ............................ 35
------------ --------------------------------
Section 3.22 [Omitted] ................................................... 35
------------ ---------
Section 3.23 Related Party Transactions .................................. 35
------------ --------------------------
A-i
Section 3.24 Vote Required .................................................. 35
------------ -------------
Section 3.25 Employment Matters ............................................. 35
------------ ------------------
Section 3.26 [Omitted] ...................................................... 36
------------ ---------
Section 3.27 Opinion of Financial Advisor ................................... 36
------------ ----------------------------
Section 3.28 [Omitted] ...................................................... 37
------------ ---------
Section 3.29 NASDAQ Qualification ........................................... 37
------------ --------------------
Section 3.30 Memorabilia .................................................... 37
------------ -----------
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT, MERGER
- -----------------------------------------------------------
SUB AND CAPITAL COMMUNICATIONS ..................................................... 37
- ------------------------------
Section 4.1 Organization, Standing and Corporate Power ..................... 37
----------- ------------------------------------------
Section 4.2 Authority; Noncontravention .................................... 38
----------- ---------------------------
Section 4.3 Financing ...................................................... 38
----------- ---------
Section 4.4 Information Supplied ........................................... 38
----------- --------------------
Section 4.5 Balance Sheet .................................................. 39
----------- -------------
Section 4.6 Ownership of Shares ............................................ 39
----------- -------------------
Section 4.7 Brokers or Finders ............................................. 39
----------- ------------------
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS ................................ 39
- ---------------------------------------------------
Section 5.1 Conduct of Business ............................................ 39
----------- -------------------
Section 5.2 Advice of Changes .............................................. 42
----------- -----------------
Section 5.3 No Solicitation of Offers; Notice of Proposals from Others ..... 43
----------- ----------------------------------------------------------
Section 5.4 Third Party Standstill Agreements .............................. 45
----------- ---------------------------------
Section 5.5 Certain Litigation ............................................. 45
----------- ------------------
Section 5.6 Assignment of Company Intellectual Property .................... 45
----------- -------------------------------------------
Section 5.7 Trademark License .............................................. 45
----------- -----------------
ARTICLE VI ADDITIONAL AGREEMENTS ................................................... 46
- --------------------------------
Section 6.1 Stockholders Meeting; Proxy Statement; Provided Information .... 46
----------- -----------------------------------------------------------
Section 6.2 Access to Information; Confidentiality ......................... 48
----------- --------------------------------------
Section 6.3 Reasonable Efforts; Notification ............................... 49
----------- --------------------------------
Section 6.4 Indemnification and Insurance .................................. 50
----------- -----------------------------
Section 6.5 Expenses ....................................................... 51
----------- --------
Section 6.6 Public Announcement ............................................ 51
----------- -------------------
Section 6.7 Transfer Taxes ................................................. 51
----------- --------------
ARTICLE VII CONDITIONS PRECEDENT ................................................... 52
- --------------------------------
Section 7.1 Conditions to Obligations of Parent and Merger Sub ............. 52
----------- --------------------------------------------------
Section 7.2 Conditions to Obligations of the Company ....................... 53
----------- ----------------------------------------
Section 7.3 Conditions to Each Party's Obligation To Effect the
----------- ---------------------------------------------------
Merger Prior to the Closing Date ............................... 53
--------------------------------
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER ..................................... 54
- ----------------------------------------------
Section 8.1 Termination .................................................... 54
----------- -----------
Section 8.2 Effect of Termination .......................................... 55
----------- ---------------------
Section 8.3 Amendment ...................................................... 55
----------- ---------
Section 8.4 Extension; Waiver .............................................. 56
----------- -----------------
A-ii
ARTICLE IX GENERAL PROVISIONS .............................................. 56
- -----------------------------
Section 9.1 Nonsurvival of Representations ........................... 56
- ----------- ------------------------------
Section 9.2 Notices .................................................. 56
- ----------- -------
Section 9.3 Interpretation ........................................... 59
- ----------- --------------
Section 9.4 Counterparts ............................................. 59
- ----------- ------------
Section 9.5 Entire Agreement; No Third-Party Beneficiaries ........... 59
- ----------- ----------------------------------------------
Section 9.6 Governing Law ............................................ 59
- ----------- -------------
Section 9.7 Assignment ............................................... 59
- ----------- ----------
Section 9.8 Enforcement .............................................. 60
- ----------- -----------
Section 9.9 Severability ............................................. 60
- ----------- ------------
Section 9.10 Independent Counsel ...................................... 60
- ------------ -------------------
A-iii
COMPANY DISCLOSURE SCHEDULES
Section 3.2 Subsidiaries
Section 3.3(a) Outstanding Company Stock
Section 3.3(b) Outstanding Company Securities
Section 3.3(c) Voting Trusts or Other Agreements
Section 3.3(e) Capital Stock Liens
Section 3.4(a) Licenses
Section 3.4(b) Consents
Section 3.5(d) December Balance Sheet
Section 3.6(b) Pending Claims
Section 3.6(c) Activities or Events
Section 3.6(d) Materials of Environmental Concern
Section 3.7 Certain Changes or Events
Section 3.8 Litigation and Claims
Section 3.11(a) Employee Benefits
Section 3.11(c) Title IV of ERISA
Section 3.11(g) Qualified ERISA Plans
Section 3.11(h) Post-Employment Benefits
Section 3.11(k) Excess Parachute Payments
Section 3.11(m) Leased Employees
Section 3.12(f) Power of Attorney
Section 3.14(a) Governmental Approvals
Section 3.17(b)(i) Applications and Registrations
-Pending Trademark Applications
-U.S. Trademark Registrations
-Japanese Trademark Registrations
-Registered Domain Names
-Copyrights
Section 3.17(b)(ii) Applications and Registration - Pending
Trademark Applications to be Assigned
Section 3.17(c) Library Properties
Section 3.17(e) Material Intellectual Property
Section 3.17(g) Intellectual Property Litigation
Section 3.17(h) Settlements and Judgments
Section 3.17(j) Infringement
Section 3.18(a) Owned Properties
Section 3.18(b) Leased Properties
Section 3.23 Related Party Transactions
Section 3.25 Employment Matters
Section 3.30 Material Memorabilia
Section 5.1 Conduct of Business
Section 7.1(f) Officers' Certificate
A-iv
PARENT, MERGER SUB AND CAPITAL COMMUNICATIONS
DISCLOSURE SCHEDULES
Section 4.7 Stockholders Agreement
A-v
AGREEMENT AND PLAN OF MERGER dated as of February 13, 2002 (this
"Agreement"), by and among CAPITAL COMMUNICATIONS CDPQ INC., a Quebec
corporation ("Capital Communications") DCPI INVESTCO, Inc., a Delaware
corporation ("Parent"), DCPI Mergerco, Inc., a Delaware corporation ("Merger
Sub"), and dick clark productions, inc., Delaware corporation ( the "Company").
W I T N E S S E T H
-------------------
WHEREAS, a Special Committee of the Board of Directors of the
Company (the "Special Committee") has (i) determined that the merger of Merger
Sub with and into the Company (the "Merger"), upon the terms and provisions of
and subject to the conditions set forth in this Agreement is advisable and in
the best interests of the Company's stockholders, and (ii) approved the Merger
and recommended approval of the Merger by the Board of Directors of the Company;
WHEREAS, the Board of Directors of the Company, subsequent to the
recommendation of the Special Committee, has (i) determined that the Merger is
advisable and in the best interests of the Company's stockholders, and (ii)
approved the Merger;
WHEREAS, the board of directors of each of Merger Sub and Parent
has determined that the Merger is advisable and in the best interests of its
stockholders;
WHEREAS, by resolutions duly adopted, the respective boards of
directors of the Company, Capital Communications, Merger Sub and Parent have
approved this Agreement and the transactions and other agreements contemplated
hereby; and
WHEREAS, contemporaneously with the execution and delivery of
this Agreement, as a condition and an inducement to the willingness of Capital
Communications, Parent and Merger Sub to enter into this Agreement, Parent is
entering into a Voting Agreement (the "Voting Agreement") with Richard W. Clark,
Karen W. Clark and Olive Enterprises, Inc. (collectively, the "Principal
Stockholders") pursuant to which, on the terms and subject to the conditions
thereof, the Principal Stockholders have agreed to vote (i) 818,605 shares of
Class A common stock, par value $0.01 per share of the Company (the "Class A
Common Stock"), and (ii) 6,309,142 shares of common stock, par value of $0.01
per share of the Company (the "Common Stock" and together with the Class A
Common Stock, the "Capital Stock") owned by the Principal Stockholders of record
and beneficially, in favor of the adoption of this Agreement and approval of the
transactions contemplated hereby to be performed by the Company, upon the terms
and conditions set forth in the Voting Agreement; and
WHEREAS, the parties hereto desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained in this Agreement and for other
good
A-1
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
Capitalized and certain other terms used in this Agreement and
not otherwise defined have the meanings set forth below. Unless the context
otherwise requires, such terms shall include the singular and plural and the
conjunctive and disjunctive forms of the terms defined.
"Acquisition Proposal" has the meaning set forth in Section
5.3(a).
"Affiliate" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person.
"Agreement" has the meaning set forth in the recitals hereof.
"Audit" means any audit, assessment of Taxes, other examination
by any Tax Authority, administrative or court proceeding or appeal of such
proceeding relating to Taxes.
"Balance Sheet Date" has the meaning set forth in Section 3.7.
"Board" means the Board of Directors of the Company.
"Business Day" means any day other than Saturday, Sunday and any
day upon which banking institutions in the City of New York are required or
authorized by law or other governmental action to close.
"Capital Communications" has the meaning set forth in the
recitals hereof.
"Capital Stock" has the meaning set forth in the recitals hereof.
"Certificate of Merger" has the meaning set forth in Section 2.1.
"Class A Common Stock" has the meaning set forth in the recitals
hereof.
"Closing" has the meaning set forth in Section 2.2.
"Closing Date" has the meaning set forth in Section 2.2.
"Code" has the meaning set forth in Section 3.11(a).
"Common Stock" has the meaning set forth in the recitals hereof.
A-2
"Company" has the meaning set forth in the recitals hereof.
"Company Certificates" has the meaning set forth in Section
2.10(b).
"Company Intellectual Property" means the Intellectual Property
Rights owned by, or used or held for use by, the Company or any Subsidiary in
the course of its business, excluding, however, (i) any right, title and
interest in and to any mark comprised solely of the name "Dick Clark"; (ii) any
right, title and interest in and to any mark containing the name "Dick Clark"
except for those Trademarks set forth on Section 3.17(b)(i) of the Disclosure
Schedules; (iii) any right to use the mark or name "Dick Clark" as part of a
corporate or trade name except for the non-exclusive right to use the mark or
name "Dick Clark" as part of the corporate name of the Company and its
Subsidiaries; (iv) any right to use the likeness of Richard W. Clark; and (v)
any other rights to the mark and name "Dick Clark" not specifically included or
licensed as contemplated herein ((i) through (v) collectively, the "Excluded
Intellectual Property"). The foregoing definition of Company Intellectual
Property shall in no way limit or preclude the Company's or any of its
Subsidiaries': (i) rights in and to the Excluded Intellectual Property pursuant
to any other agreement, including, but not limited to, the Employment Agreement,
or (ii) rights to use any Excluded Intellectual Property which may be embodied
in any Library Property.
"Company SEC Reports" has the meaning set forth in Section
3.5(a).
"Company Securities" has the meaning set forth in Section 3.3(b).
"Company Stock Option" has the meaning set forth in Section 2.11.
"Company Stock Option Plans" has the meaning set forth in Section
2.11.
"Confidential Information" has the meaning set forth in Section
6.2.
"Contracts" has the meaning set forth in Section 3.20(a).
"control" when used with respect to any specified Person, means
the power to direct or cause the direction of the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" shall have meanings correlative to the foregoing.
"Copyright" has the meaning set forth in the definition of
"Intellectual Property Rights" in this section.
"December Balance Sheet" has the meaning set forth in Section
3.5(d).
"DGCL" means the Delaware General Corporation Law, as amended
from time to time.
"Disclosure Schedules" has the meaning set forth in Article III.
A-3
"Dissenting Shares" has the meaning set forth in Section 2.10(f).
"Effective Time" has the meaning set forth in Section 2.3.
"ERISA" means the United States Employee Retirement Income
Security Act of 1974, as amended.
"ERISA Affiliate" has the meaning set forth in Section 3.11(a).
"ERISA Plans" has the meaning set forth in Section 3.11(a).
"Employment Agreement" means the Employment Agreement dated as of
February 13, 2002 by and among the Company, Parent and Richard W. Clark.
"Enterprises" has the meaning set forth in Section 3.17(b).
"Environmental Claim" means any claim, action, cause of action,
investigation or written notice by any Person or entity alleging potential
liability (including, without limitation, potential liability for investigatory
costs, cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries, or penalties) arising out of, based on or
resulting from circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law.
"Environmental Laws" means all federal, state, local and foreign
laws and regulations relating to pollution or protection of public health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata, and natural resources), including,
without limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of Materials of Environmental Concern, or
otherwise relating to the treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
"Exchange Funds" has the meaning set forth in Section 2.10(a).
"Excluded Intellectual Property" has the meaning set forth in the
definition of Company Intellectual Property in this section.
"Exploitation Rights" means any and all rights to publish,
perform, distribute, reproduce, adapt, translate and create derivative works of,
including, without limitation, any remake, abridgement, sequel, prequel, series,
compilation, and any ancillary rights of every kind, including, but not limited
to, merchandising and marketing, in all media including, without limitation,
stage, theatrical, non-theatrical, home video, television, internet,
interactive, or any other media now known.
"Financial Statements" has the meaning set forth in Section
3.5(a).
A-4
"GAAP" means generally accepted accounting principles of the
United States of America, as in effect from time to time.
"Governmental Entity" means any Federal, state or local
government or any court, administrative or regulatory agency or commission or
other governmental authority or agency, domestic or foreign.
"HSR Act" means the United States Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Improvements" has the meaning set forth in Section 3.18(f).
"Indebtedness" means, with respect to any Person, without
duplication, (a) all obligations of such Person for borrowed money, or with
respect to deposits or advances of any kind, excluding advances or deposits
received in connection with the exploitation of Intellectual Property Rights,
(b) all obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, (c) all obligations of such Person upon which interest
charges are customarily paid (other than trade payables incurred in the ordinary
course of business), (d) all obligations of such Person under conditional sale
or other title retention agreements relating to property purchased by such
Person, (e) all obligations of such Person issued or assumed as the deferred
purchase price of property or services (excluding obligations of such Person to
creditors for raw materials, inventory, services and supplies incurred in the
ordinary course of such Person's business), (f) all lease obligations of such
Person capitalized on the books and records of such Person, (g) all obligations
of others secured by any Lien on property or assets owned or acquired by such
Person, whether or not the obligations secured thereby have been assumed, (h)
all obligations of such Person under interest rate, or currency or commodity
hedging, swap or similar derivative transactions (valued in accordance with
GAAP), (i) all letters of credit issued for the account of such Person
(excluding letters of credit issued for the benefit of suppliers or lessors to
support accounts payable to suppliers incurred in the ordinary course of
business) and (j) all guarantees and arrangements having the economic effect of
a guarantee by such Person of the Indebtedness of any other Person.
"Indemnified Parties" has the meaning set forth in Section
6.4(a).
"Intellectual Property Rights" means (i) all U.S., foreign and
state trademarks, service marks, trade names, Internet domain names, designs,
slogans, and general intangibles of like nature, together with all goodwill
associated therewith, and all rights to apply for or register, applications for
and registrations of any of the foregoing ("Trademarks"); (ii) U.S. and foreign
patents (including, without limitation, provisionals, utility patents,
divisionals, continuations, continuations-in-part, renewals, reissues,
reexaminations, extensions), including all rights to apply for, applications
for, and any issuances or registrations of the foregoing ("Patents"); (iii) U.S.
and foreign copyrights (whether registered or unregistered), including all
rights to apply for, applications to register, registrations of any of the
foregoing and all moral rights ("Copyrights"); (v) trade secrets ("Trade
Secrets"); and (vi) all rights to privacy and publicity in
A-5
connection with the use of the names, likenesses, signatures and biographical
information of any natural Person.
"knowledge" of any Person means with respect to the matter in
question the actual knowledge of the executive officers of such Person, or in
the case of the Company (including its Subsidiaries) the actual knowledge of
Richard W. Clark, Francis C. La Maina, William S. Simon or Andrew Suser.
"law" means any law, statute, ordinance, code, regulation or
rule or any judgment, decree, order, injunction, regulation or rule of any court
or governmental authority or body.
"Leases" has the meaning set forth in Section 3.18(b).
"Leased Real Property" has the meaning set forth in Section
3.18(b).
"Library Agreements" means any and all (i) contracts in
respect of the production of Library Properties, including, but not limited to,
all contracts with authors, writers, composers, musicians, directors, producers,
performers, artists, animators, voice talent or other parties, including, but
not limited to, contracts pertaining to the assignment or license of all Library
Underlying Rights in connection therewith and (ii) contracts granting or
obtaining Exploitation Rights in any Library Properties.
"Library Properties" means any and all audio, visual, and/or
audio-visual works of any kind or character which the Company or any of its
Subsidiaries own or in which the Company or any of its Subsidiaries has
Exploitation Rights including, without limitation, programs, films, and
recordings, whether animated, live action or both, whether produced for
theatrical, non-theatrical, television, home video, interactive, the internet,
tapes, CDs, or any other media now known.
"Library Underlying Rights" means all rights in all: (i)
literary, dramatic, or other works of authorship incorporated into the Library
Properties or upon which the Library Properties are based or derived, including,
but not limited to, screenplays, stories, adaptations, scripts, treatments,
formats, bibles, scenarios, characters, titles, and (ii) musical works contained
in the Library Properties including, but not limited to, music synchronization
and public performance rights.
"License Agreements" means all contracts granting or obtaining
rights to use, exploit, or practice any rights in any Company Intellectual
Property.
"Lien" means any mortgage, pledge, assessment, security
interest, lease, sublease, lien, adverse claim, levy, charge, option, or other
encumbrance of any kind, whether imposed by agreement, understanding, law or
equity, or any conditional sale contract, title retention contract or other
contract to give or to refrain from giving any of the foregoing.
A-6
"material adverse change" or "material adverse effect" with
respect to any Person means any change or effect that is individually or in the
aggregate materially adverse to the business, prospects, properties, assets or
financial condition or results of operations of such Person and its
Subsidiaries, taken as a whole; provided that any such (i) changes in
--------
circumstances or conditions affecting the entertainment industry in general and
not solely the Company, (ii) changes in circumstances or conditions affecting
the advertising industry in general and not solely the Company, (iii) changes in
circumstances or conditions affecting broadcast, cable and satellite television
ratings insofar as they relate to the Company's television shows, or any
reduction in ratings of the Company's television properties, (iv) reduced
revenues or operating margins in the Company's restaurant operations and/or
dispositions of restaurant units, (v) changes in the United States or global
economy or financial market conditions or (vi) changes in GAAP, shall not be
considered a material adverse change or a material adverse effect.
"Materials of Environmental Concern" means, pollutants,
contaminants, solid and hazardous waste as defined in the Resource Conservation
and Recovery Act ("RCRA"), hazardous substances, as defined in the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), petroleum and
petroleum products, asbestos or asbestos-containing materials, polychlorinated
biphenyls, lead or lead-based paints or materials, or radon.
"Merger" has the meaning set forth in the recitals hereof.
"Merger Consideration" has the meaning set forth in Section
2.9(a).
"Merger Sub" has the meaning set forth in the recitals hereof.
"Non-Competition Agreement" means the Non-Competition and
Non-Solicitation Agreement, dated as of February 13, 2002, by and between
Richard W. Clark and Parent.
"Outside Date" has the meaning set forth in Section 8.1(b).
"Owned Real Property" has the meaning set forth in Section
3.18(a).
"Parent" has the meaning set forth in the recitals hereof.
"Patents" has the meaning set forth in the definition of
"Intellectual Property Rights" as defined in this Section.
"Paying Agent" has the meaning set forth in Section 2.10(a).
"Permits" has the meaning set forth in Section 3.14(a).
"Permitted Lien" means (i) any Lien for Taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet
A-7
due or delinquent, (iii) any minor imperfection of title or similar Lien which
individually or in the aggregate with other such Liens does not materially
impair the value of the property subject to such Lien or the use of such
property in the conduct of the business of the Company and its Subsidiaries
taken as a whole, (iv) any Lien securing an obligation of Capital
Communications, Parent or Merger Sub, (v) real estate taxes, assessments and
water and sewer charges that are a Lien, but not yet due and payable, (vi) any
Liens that are to be discharged or satisfied by the Company or any of its
Subsidiaries at Closing, (vii) any Lien to which any Lease where the Company or
its Affiliate is a lessee is subject or subordinate, (viii) any covenant,
condition, restriction or easement which encumbers any of the Real Property
which individually or in the aggregate with other such Liens does not materially
impair the value of the property subject to such Lien or the use of such
property in the conduct of the business of the Company and its Subsidiaries
taken as a whole, and (ix) anything an accurate survey of any of the Real
Property would disclose, provided that neither the value nor the use of such
--------
Real Property is materially and adversely affected.
"Person" means any natural person, corporation, general
partnership, limited partnership, limited liability company, limited liability
partnership, proprietorship, trust, union, association, enterprise, authority or
other form of business organization.
"Physical Media" means all physical embodiments of all audio,
visual, and/or audio-visual works of any kind or character which the Company or
any of its Subsidiaries own or in which the Company or any of its Subsidiaries
has Exploitation Rights including, without limitation, programs, films, and
recordings, whether animated, live action or both, whether produced for
theatrical, non-theatrical, television, home video, interactive, the internet,
tapes, CDs, or any other media now known.
"Plans" has the meaning set forth in Section 3.11(a).
"Principal Stockholders" has the meaning set forth in the
recitals hereof.
"Proxy Statement" has the meaning set forth in Section 6.1(c).
"Real Property" has the meaning set forth in Section 3.18(c).
"Related Parties" has the meaning set forth in Section 3.23.
"Requisite Vote" has the meaning set forth in Section 3.24.
"Schedule 13E-3" has the meaning set forth in Section 3.4(b).
"SEC" means the United States Securities and Exchange
Commission.
"SPD" has the meaning set forth in Section 3.11(b)(iv).
"Securities Act" means the United States Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
A-8
"Special Committee" has the meaning set forth in the recitals
hereof.
"Special Meeting" has the meaning set forth in Section 6.1(a).
"Subsidiary" means, with respect to any Person, (a) any
corporation with respect to which such Person, directly or indirectly through
one or more Subsidiaries, (i) owns more than 50% of the outstanding shares of
capital stock having generally the right to vote in the election of directors or
(ii) has the power, under ordinary circumstances, to elect, or to direct the
election of, a majority of the board of directors of such corporation, (b) any
partnership with respect to which (i) such Person or a Subsidiary of such Person
is a general partner, (ii) such Person and its Subsidiaries together own more
than 50% of the interests therein, or (iii) such Person and its Subsidiaries
have the right to appoint or elect or direct the appointment or election of a
majority of the directors or other Person or body responsible for the governance
or management thereof, (c) any limited liability company with respect to which
(i) such Person or a Subsidiary of such Person is the manager or managing
member, (ii) such Person and its Subsidiaries together own more than 50% of the
interests therein, or (iii) such Person and its Subsidiaries have the right to
appoint or elect or direct the appointment or election of a majority of the
directors or other Person or body responsible for the governance or management
thereof, or (d) any other entity in which such Person has, and/or one or more of
its Subsidiaries have, directly or indirectly, (i) at least a 50% ownership
interest or (ii) the power to appoint or elect or direct the appointment or
election of a majority of the directors or other Person or body responsible for
the governance or management thereof.
"Superior Proposal" has the meaning set forth in Section
5.3(a)(B).
"Surviving Corporation" has the meaning set forth in Section
2.1.
"Surviving Corporation Common Stock" means the Common Stock of
Surviving Corporation, par value $0.001.
"Tax" or "Taxes" means all Federal, state, local and foreign
taxes and other assessments and governmental charges of a similar nature,
including any property Tax (whether imposed directly or through withholdings),
including any interest, penalties and additions to Tax applicable thereto.
"Tax Authority" means the United States Internal Revenue
Service and any other domestic or foreign governmental authority responsible for
the administration or collection of any Taxes.
"Tax Returns" means all Federal, state, local and foreign
returns, declarations, statements, reports, schedules, forms and information
returns relating to Taxes, and all amendments thereto.
"Termination Fee" has the meaning set forth in Section 8.2(b).
A-9
"Trademark" has the meaning set forth in the definition of
"Intellectual Property Rights" as defined in this Section.
"Trade Secrets" has the meaning set forth in the definition of
"Intellectual Property Rights" as defined in this Section.
"Voting Agreement" has the meaning set forth in the recitals
hereof.
"WARN Act" has the meaning set forth in Section 3.25(c).
ARTICLE II
THE MERGER
Section 2.1 The Merger. Upon the terms and provisions of and
subject to the conditions set forth in this Agreement and the certificate of
merger (the "Certificate of Merger"), and in accordance with the applicable
provisions of the DGCL, Merger Sub shall be merged with and into the Company at
the Effective Time (as hereinafter defined), and at the Effective Time the
separate existence of Merger Sub will cease and the Company shall continue as
the surviving corporation (the "Surviving Corporation").
Section 2.2 Closing. The closing (the "Closing") of the
Merger will take place at 10:00 a.m., Los Angeles time, on a date (the "Closing
Date") to be agreed to by the parties, which may be on, but shall be no later
than the fifth Business Day after, the day on which there shall have been
satisfaction or waiver of the conditions set forth in Article VII. The Closing
shall be held at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 300
South Grand Avenue, Suite 3400, Los Angeles, California 90071 unless another
time, date or place is agreed to in writing by the parties hereto.
Section 2.3 Effective Time. On or before the Closing Date
but following the satisfaction or waiver of all conditions to Closing, (i) the
parties shall cause the Certificate of Merger to be executed and filed with the
Secretary of State of the State of Delaware in such form and executed as
provided in the DGCL, and (ii) make all other filings or recordings as may be
required by applicable law in connection with the Merger. The Merger shall
become effective at such time as the Certificate of Merger is duly filed with
the Secretary of State of the State of Delaware, or at such other later time as
the parties shall agree and specify in the Certificate of Merger (the time the
Merger becomes effective being the "Effective Time").
Section 2.4 Effects of the Merger. The Merger shall have the
effects set forth in the DGCL. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time, all the properties, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
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Section 2.5 Corporate Governance Documents. The Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
after the Effective Time, and thereafter may be amended in accordance with its
terms and as provided by applicable law; provided, however, that at the
Effective Time, Article I of the Certificate of Incorporation of the Surviving
Corporation shall be amended to reflect that the name of the Company shall be
the name of the Surviving Corporation. The By-laws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the By-laws of the Surviving
Corporation after the Effective Time, and thereafter may be amended in
accordance with their terms and as provided by applicable law.
Section 2.6 Directors. The directors of Merger Sub immediately
prior to the Effective Time shall be the directors of the Surviving Corporation,
and shall serve in such capacity until the earlier of their resignation or
removal, or until their respective successors are duly elected or appointed and
qualified, as the case may be.
Section 2.7 Officers. The officers of the Company immediately
prior to the Effective Time shall be the officers of the Surviving Corporation,
and shall serve in such capacity until the earlier of their resignation or
removal, or until their respective successors are duly elected or appointed and
qualified, as the case may be.
Section 2.8 Further Actions. At and after the Effective Time, the
Surviving Corporation shall take all action as shall be required in connection
with the Merger, including, but not limited to, the execution and delivery of
any further deeds, assignments, instruments or documents as are necessary or
desirable to carry out and effectuate the Merger and the other transactions
contemplated hereby.
Section 2.9 Effect on Capital Stock of the Company and Merger
Sub. At the Effective Time, by virtue of the Merger and without any further
action on the part of the holder of any securities of the Company or Merger Sub:
(a) Capital Stock. (i) Subject to Section 2.14, each
issued and outstanding share of Capital Stock (other than shares to be cancelled
in accordance with Section 2.9(c), shares of Capital Stock held by the Principal
Stockholders and Dissenting Shares (as hereinafter defined)), shall be converted
automatically into the right to receive from the Surviving Corporation $14.50 in
cash, and (ii) each issued and outstanding share of Capital Stock held by the
Principal Stockholders shall be converted automatically into the right to
receive from the Surviving Corporation $12.50 in cash (collectively, the "Merger
Consideration"), payable, without interest to the holder of such share, upon
surrender in the manner provided in Section 2.10, of the certificate that
formerly evidenced such share. At the Effective Time, all shares of Capital
Stock upon which the Merger Consideration is payable pursuant to this Section
2.9(a) shall no longer be outstanding and shall automatically be cancelled and
retired and shall cease to exist, and each holder of a certificate representing
any such shares of Capital Stock shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration in respect of such
holder's shares.
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(b) Capital Stock of Merger Sub. Each share of the Merger
Sub Common Stock issued and outstanding immediately prior to the Effective Time
shall be converted, into and become one fully paid and nonassessable share of
Surviving Corporation Common Stock.
(c) Cancellation of Treasury Stock and Parent or Merger
Sub Owned Stock. Each share of Capital Stock that is owned by Parent, Merger
Sub, the Company or by any Subsidiary of the Company shall automatically be
cancelled and retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor.
Section 2.10 Exchange of Certificates
(a) Paying Agent. Immediately prior to the Effective Time,
Capital Communications, Parent or Merger Sub shall designate a bank or trust
company, reasonably satisfactory to the Company, to act as paying agent in the
Merger (the "Paying Agent"), and, on or prior to the Effective Time, Parent or
Merger Sub shall deposit with the Paying Agent immediately available funds (the
"Exchange Funds") in an amount necessary for the payment of the Merger
Consideration upon surrender of certificates representing Capital Stock as part
of the Merger pursuant to Section 2.9, it being understood that any and all
interest, dividend or other income earned on the Exchange Funds shall be the
property of the Surviving Corporation.
(b) Exchange Procedure. Promptly after the Effective Time,
the Surviving Corporation shall cause the Paying Agent to mail to each holder of
record of a certificate or certificates which immediately prior to the Effective
Time represented outstanding shares of Capital Stock (the "Company
Certificates") whose shares were converted into the right to receive the Merger
Consideration pursuant to Section 2.9, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Company Certificates shall pass, only upon delivery of the Company Certificates
to the Paying Agent and shall be in such form and have such other customary
provisions as the Surviving Corporation may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Company Certificates in
exchange for the Merger Consideration. Upon surrender of a Company Certificate
for cancellation to the Paying Agent or to such other agent or agents as may be
appointed by the Surviving Corporation, together with such letter of
transmittal, duly completed and validly executed, and such other customary
documents as may reasonably be required by the Paying Agent, the holder of such
Company Certificate shall be entitled to receive in exchange therefor the Merger
Consideration into which the shares of Capital Stock theretofore represented by
such Company Certificate shall have been converted pursuant to Section 2.9 and
such Company Certificate so surrendered shall forthwith be cancelled. In the
event of a transfer of ownership of such Capital Stock which is not registered
in the transfer records of the Company, payment may be made to a Person other
than the Person in whose name the Company Certificate so surrendered is
registered, if such Company Certificate shall be properly endorsed or otherwise
be in proper form for transfer and the Person requesting such payment shall pay
any transfer or other taxes required by reason of the payment to a Person other
than the registered holder of such Company Certificate or
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establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable. Until surrendered as contemplated by this
Section 2.10(b), each Company Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
Merger Consideration, without interest, into which the shares of capital stock
theretofore represented by such Company Certificate shall have been converted
pursuant to Section 2.9. No interest will be paid or will accrue on the
consideration payable upon the surrender of any Company Certificate.
(c) No Further Ownership Rights in Capital Stock. All
consideration paid upon the surrender of the Company Certificates in accordance
with the terms of this Article II shall be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of capital stock theretofore
represented by such Company Certificates.
(d) Termination of Exchange Funds. Any portion of the
Exchange Funds which remains undistributed to the holders of the Company
Certificates for nine (9) months after the Effective Time shall be delivered to
an entity identified in writing to the Paying Agent by the Surviving
Corporation, upon demand, and any holders of the Company Certificates who have
not theretofore complied with this Article II shall thereafter look only to the
Surviving Corporation (subject to abandoned property, escheat or other similar
laws) only as general creditors thereof with respect to the Merger Consideration
payable upon due surrender of their Company Certificates without any interest
thereon.
(e) No Liability. None of Parent, Merger Sub, the
Company, the Surviving Corporation or the Paying Agent shall be liable to any
Person in respect of any cash delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(f) Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of Capital Stock which are issued and
outstanding immediately prior to the Effective Time and which are held by a
holder who did not vote such shares in favor of the Merger and who has complied
with all of the relevant provisions of Section 262 of the DGCL ("Dissenting
Shares") shall not be converted into a right to receive the Merger Consideration
unless and until the holder or holders thereof shall have failed to perfect or
shall have effectively withdrawn or lost their rights to appraisal under the
DGCL. The holders of such Dissenting Shares shall be entitled only to such
rights as are granted by Section 262 of the DGCL. Each holder of Dissenting
Shares who becomes entitled to payment for such shares pursuant to Section 262
of the DGCL shall receive payment therefor from the Surviving Corporation in
accordance with the DGCL, and any portion of the Merger Consideration deposited
with the Paying Agent to pay for such shares shall be returned to the Surviving
Corporation upon demand; provided, however, that if any such holder of
Dissenting Shares (i) shall have failed to establish such holder's entitlement
to relief as a dissenting stockholder as provided in Section 262 of the DGCL,
(ii) shall have effectively withdrawn such holder's demand for relief as a
dissenting stockholder with respect to such Dissenting Shares or lost such
holder's right to relief as a dissenting stockholder and payment for such
holder's
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Dissenting Shares under Section 262 of the DGCL, or (iii) shall have failed
to file a complaint with the appropriate court seeking relief as to
determination of the value of all Dissenting Shares within the time provided in
Section 262 of the DGCL, if applicable, such holder shall forfeit the right to
relief as a dissenting stockholder with respect to such shares of Capital Stock,
and each such share shall be converted into the right to receive the Merger
Consideration without interest thereon, from the Surviving Corporation as
provided in Section 2.9. The Company shall give Parent (i) written notice as
soon as reasonably practical of any demands received by the Company for relief
as a dissenting stockholder, attempted withdrawals of such demands and any other
instruments served pursuant to the DGCL and received by the Company relating to
stockholders' rights of appraisal, and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
DGCL. The Company shall not, except with the prior written consent of Parent,
make any payment with respect to, or settle or offer to settle, any such
demands.
Section 2.11 Stock Option Plans. As soon as practicable following
the date of this Agreement, but in any event no later than thirty (30) days
before the Closing Date, the Board (or, if appropriate, any committee
administering the Company Stock Option Plans (as hereinafter defined)) shall
adopt such resolutions or use all reasonable efforts to take such other actions
as are required to provide that each then outstanding stock option (whether or
not vested) to purchase shares of Company Common Stock (each a "Company Stock
Option") heretofore granted under any stock option or other stock-based
incentive plan, program or arrangement of the Company (collectively, the
"Company Stock Option Plans") shall be cancelled immediately prior to the
Effective Time in exchange for payment of an amount in cash equal to the product
of (i) the number of unexercised shares of Company Common Stock subject to such
Company Stock Option immediately prior to the Effective Time and (ii) the
excess, if any, of the Merger Consideration over the per share exercise price of
such Company Stock Option.
Section 2.12 Certain Adjustments. If at any time during the period
between the date of this Agreement and the Effective Time, any change in the
outstanding shares of capital stock of the Company shall occur by reason of any
reclassification, recapitalization, stock split, reverse stock split, exchange
or readjustment of shares, or any similar transaction, or any stock dividend
thereon with a record date during such period, the Merger Consideration shall be
appropriately adjusted to provide the holders of shares of Capital Stock the
same economic effect as contemplated by this Agreement.
Section 2.13 Withholding. The Surviving Corporation and the Paying
Agent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Capital Stock or
Company Stock Options, such amounts as the Surviving Corporation or the Paying
Agent is required to deduct and withhold with respect to the making of such
payment under any provision of applicable Federal, state, local or foreign tax
law. To the extent that amounts are so withheld by the Surviving Corporation or
the Paying Agent, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the shares of Capital Stock
or Company Stock Options in respect of which such deduction
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and withholding was made by the Surviving Corporation or the Paying Agent, as
the case may be.
Section 2.14 Lost, Stolen or Destroyed Certificates. In the event
any Company Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Company
Certificate to be lost, stolen or destroyed, the Paying Agent will issue in
exchange for such lost, stolen or destroyed Company Certificate, the Merger
Consideration deliverable in respect thereof as determined in accordance with
this Article II; provided that the Person to whom the Merger Consideration is
paid shall, as a condition precedent to the payment thereof, give the Surviving
Corporation a written indemnity agreement in form and substance reasonably
satisfactory to the Surviving Corporation and which is customary in such
instances and, if deemed reasonably advisable by the Surviving Corporation, a
bond in such sum as the Surviving Corporation may direct as indemnity against
any claim that may be made against the Surviving Corporation with respect to
such Company Certificate claimed to have been lost, stolen or destroyed.
Section 2.15 Stock Transfer Books. After the Effective Time, the
stock transfer books of the Company shall be closed and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of shares of Capital Stock which were outstanding immediately prior
to the Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except (i) as set forth in the corresponding numbered sections
of the disclosure schedules to this Agreement delivered by the Company to Parent
and Merger Sub concurrently with the execution of this Agreement (the
"Disclosure Schedules"), (ii) disclosed in the Company SEC Reports (as
hereinafter defined) or (iii) referenced in the particular section of this
Article III to which exception is being taken, the Company represents and
warrants to Parent and Merger Sub as follows:
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Section 3.1 Organization, Standing and Corporate Power. Each of the
Company and its Subsidiaries is a corporation, partnership or limited liability
company, as the case may be, duly formed or organized, validly existing and in
good standing under the laws of the jurisdiction in which it is formed or
organized and has the requisite corporate, partnership or limited liability
company power and authority to carry on its business as now being conducted.
Each of the Company and its Subsidiaries is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed would not reasonably be expected to have a material
adverse effect on the Company. The Company has delivered to Parent and Merger
Sub complete and correct copies of the Certificate of Incorporation and By-laws
of the Company and the comparable charter and organizational documents of each
of its Subsidiaries, in each case as amended to the date of this Agreement.
Section 3.2 Subsidiaries. Each Subsidiary of the Company is identified
on Section 3.2 of the Disclosure Schedules. Except as otherwise provided in
Section 3.2 of the Disclosure Schedules, all the outstanding equity interests of
each Subsidiary are owned by the Company, free and clear of all Liens other than
Permitted Liens. There are no proxies with respect to any shares of any such
Subsidiary. Other than with respect to the Subsidiaries of the Company, and as
set forth on Section 3.2 of the Disclosure Schedules, the Company does not own,
directly or indirectly, any capital stock or other equity securities of any
corporation or have any direct or indirect equity or ownership interest,
including interests in partnerships and joint ventures, in any business. There
are no outstanding options, warrants or other rights of any kind to acquire any
additional shares of capital stock of any Subsidiary of the Company or
securities convertible into or exchangeable for any capital stock of any
Subsidiary of the Company, or which otherwise confer on the holder thereof any
right to acquire any such additional shares of any Subsidiary, nor is any
Subsidiary committed to issue any such option, warrant, right or security.
Section 3.3 Capital Structure
(a) The authorized capital stock of the Company consists of
22,000,000 shares of Capital Stock, consisting of 20,000,000 shares of Common
Stock, and 2,000,000 shares of Class A Common Stock. As of the date hereof,
10,193,576 shares of Capital Stock were issued and outstanding consisting of
9,284,016 shares of Common Stock and 909,560 shares of Class A Common Stock, all
of which were validly issued, fully paid and nonassessable and were issued free
of preemptive (or similar) rights. Section 3.3 of the Disclosure Schedules
contains a true, complete and correct list of all outstanding Company Stock
Options, and all other options, warrants, rights or other securities convertible
into or exercisable for shares of Capital Stock of the Company, the holders of
such options, warrants, rights and other securities, the portions of such
outstanding Company Stock Options that are exercisable, and the exercise price
with respect to such securities.
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(b) Except as set forth in this Article III and as set forth in
Section 3.3 of the Disclosure Schedules, and except as may result from the
exercise, prior to the consummation of the Merger, of Company Stock Options
outstanding on the date hereof, there are no outstanding (i) shares of capital
stock or other voting securities of the Company, (ii) securities of the Company
convertible into or exchangeable for shares of capital stock or voting
securities of the Company or its Subsidiaries, (iii) options or other rights to
acquire from the Company or its Subsidiaries, or obligations of the Company or
its Subsidiaries to issue, any shares of capital stock, voting securities or
securities of the Company or its Subsidiaries, and (iv) no equity equivalent
interests in the ownership or earnings of the Company or its Subsidiaries or
other similar rights (the items in clauses (b)(i), (ii), (iii) and (iv) being
referred to collectively as the "Company Securities"). There are no outstanding
obligations of the Company or any Subsidiary to repurchase, redeem or otherwise
acquire any Company Securities.
(c) Except for the Voting Agreement and as set forth in Section
3.3(c) of the Disclosure Schedules, there are no voting trusts or other
agreements or understandings to which the Company or any of its Subsidiaries is
a party with respect to the voting of the shares of any capital stock of the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries will be required to redeem, repurchase or otherwise acquire any
shares of capital stock of the Company (other than pursuant to the Merger in
accordance with the terms of this Agreement) or any of its Subsidiaries, as a
result of the Merger and the transactions contemplated by this Agreement.
(d) No agreement or other document grants or imposes on any
shares of Capital Stock any right, preference, privilege or transfer restriction
with respect to the transactions contemplated hereby (including, without
limitation, any rights of first refusal). All of the outstanding shares of
Capital Stock are, and all shares of Common Stock that may be issued upon the
exercise of outstanding Company Stock Options will be, when issued in accordance
with the terms thereof, duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. There are no outstanding
contractual obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of the Company or any of
its Subsidiaries or to provide funds to make any investment (in the form of a
loan, capital contribution or otherwise) in the Company, any of its Subsidiaries
or any other Person.
(e) Except as set forth on Section 3.3(e) of the Disclosure
Schedules, all of the issued and outstanding shares of capital stock of the
Company's Subsidiaries are owned beneficially and of record by the Company, free
and clear of all Liens, equities, voting restrictions, claims and options of any
nature, and all such shares have been duly authorized, validly issued and are
fully paid, nonassessable and free of preemptive rights. The Company has not
made, directly or indirectly, any material investment in, advance to or purchase
or guaranty of any obligations of, any Person other than obligations of its
Subsidiaries.
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Section 3.4 Authority; Noncontravention
(a) The Company has the requisite corporate power and authority
to enter into this Agreement, subject to approval of the Merger and this
Agreement by the Requisite Vote of the outstanding shares of Capital Stock, and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby to which the Company is a party have been duly
authorized by all necessary corporate action on the part of the Company,
subject, in the case of the Merger and this Agreement, to approval of the Merger
and this Agreement by the Requisite Vote of the outstanding shares of Capital
Stock. This Agreement has been duly executed and delivered by the Company, and
assuming this Agreement constitutes the valid and binding obligation of the
other parties hereto, this Agreement constitutes the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby to which the Company is a
party and compliance with the provisions of this Agreement by the Company will
not, require notice or consent under, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
or to loss of a benefit under, or result in the creation of any Lien other than
Permitted Liens upon any of the properties or assets of the Company or any of
its Subsidiaries under, (i) the Certificate of Incorporation or By-laws of the
Company or the comparable charter or organizational documents of any of its
Subsidiaries, (ii) except as set forth in Section 3.4(a) of the Disclosure
Schedules and other than subject to the other matters referred to in Section
3.4(b) hereof, (A) any loan or credit agreement, note, bond, mortgage,
indenture, or any material lease or other material agreement or instrument or
(B) any material permit, concession, franchise or license applicable to the
Company or any of its Subsidiaries or their respective properties or assets or
(iii) subject to the governmental filings and other matters referred to in
Section 3.4(b) hereof, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the Company or any of its Subsidiaries or their
respective properties or assets.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
the Company or any of its Subsidiaries in connection with the execution and
delivery of the Agreement by the Company or the consummation by the Company of
the transactions contemplated hereby, except as set forth on Section 3.4(b) of
the Disclosure Schedules and except for (i) the filing of a pre-merger
notification and report form by the Company under the HSR Act, (ii) the filing
with the SEC of (A) the Proxy Statement (B) a Rule 13E-3 Transaction Statement
on Schedule 13E-3 (the "Schedule 13E-3"), and (C) such reports under Section
13(a) of the Exchange Act as may be required in connection with this Agreement
and the transactions contemplated hereby, (iii) any registration, filing or
notification required pursuant to state securities or "blue sky" laws, and (iv)
the filing of the Certificate of Merger with the Secretary of State of the State
of Delaware in connection with the Merger except where the failure to obtain
such authorization, consent or
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approval would not reasonably be expected to have a material adverse effect
on the Company or on the consummation of the transactions contemplated hereby.
Section 3.5 SEC Documents; Financial Statements; Cash Balance
(a) The Company has filed with the SEC all forms, reports,
schedules, statements and other documents required to be filed by it since July
1, 1998, under the Securities Act or the Exchange Act (such documents, as
supplemented or amended since the time of filing, collectively, the "Company SEC
Reports"). As of their respective dates, the Company SEC Reports, including,
without limitation, any financial statements or schedules included or
incorporated by reference therein, at the time filed (and, in the case of
registration statements and proxy statements, on the dates of effectiveness and
the dates of mailing, respectively) (a) complied, in all material respects, with
all applicable requirements of the Securities Act and the Exchange Act, as the
case may be and (b) did not 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 therein, in light of the circumstances under which
they were made, not misleading. The audited consolidated financial statements
and unaudited consolidated interim financial statements (the "Financial
Statements") included or incorporated by reference in the Company SEC Reports
(including any related notes and schedules) fairly present, in all material
respects, the financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the results of their consolidated
operations and their consolidated cash flows for the periods set forth therein,
in each case in accordance with past practices and GAAP consistently applied
during the periods involved (except as otherwise disclosed in the notes thereto
and subject, where appropriate, to normal year-end adjustments and the absence
of notes in the case of interim statements.
(b) The Company has heretofore made available or promptly will
make available to Parent and Merger Sub a complete and correct copy of any
amendments or modifications to any Company SEC Reports to be filed with the SEC
but which have not yet been filed with the SEC.
(c) The Company will file with the SEC each registration
statement, report, schedule, proxy or information statement and other documents
(including exhibits thereto) required to be filed with the SEC under the
Securities Act or the Exchange Act following the execution of this Agreement.
(d) Attached as Section 3.5(d) of the Disclosure Schedules is the
unaudited and internally prepared consolidated balance sheet for the Company and
its consolidated Subsidiaries dated December 31, 2001 (the "December Balance
Sheet"). The December Balance Sheet fairly presents in all material respects the
financial position of the Company and its consolidated Subsidiaries at December
31, 2001 and has been prepared in accordance with past practices consistently
applied (except as otherwise disclosed in the notes thereto and subject, where
appropriate, to normal year end audit adjustments and the absence of notes).
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(e) The amount of cash and marketable securities held by the
Company as of February 7, 2002, excluding cash related to the Company's
restaurant operations, is at least $71.8 million and the cash held in the
Company's restaurant operations as of February 7, 2002, is greater than $0.
Section 3.6 Environmental
(a) The Company is in material compliance with the Environmental
Laws, which compliance includes, but is not limited to, the possession by the
Company of all permits and other governmental authorizations required under
applicable Environmental Laws, and is in material compliance to its knowledge
with the terms and conditions thereof. The Company has not received any written
communication, whether from a governmental authority, citizens group, employee
or otherwise, that alleges that the Company is not in such material compliance,
and, to the Company's knowledge, there are no circumstances that may prevent or
interfere with such material compliance in the future.
(b) Except as set forth on Section 3.6(b) of the Disclosure
Schedules, there is no Environmental Claim pending or to the Company's knowledge
threatened against the Company or, against any Person or entity whose liability
for any Environmental Claim the Company has retained or assumed contractually.
(c) Except as set forth on Section 3.6(c) of the Disclosure
Schedules, to the Company's knowledge, there are no past or present actions,
activities, circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that could reasonably form the basis of any
material Environmental Claim against the Company or, to the Company's knowledge,
against any Person or entity whose liability for any Environmental Claim the
Company has retained or assumed contractually.
(d) To the knowledge of the Company, (i) all on or off-site
locations at or to which the Company has stored (other than storage, in
compliance with applicable requirements, of commercial cleaning products or
other products regularly used in the normal course of its business which contain
Materials of Environmental Concern below applicable regulatory thresholds),
disposed or to which it has arranged for the disposal of Materials of
Environmental Concern, are identified in Section 3.6(d) of the Disclosure
Schedules, (ii) all underground storage tanks for Materials of Environmental
Concern, and the capacity and contents of such tanks, located on property owned
or leased by the Company, as identified in Sections 3.18(a) and 3.18(b) of the
Disclosure Schedules, are identified in Section 3.6(d) of the Disclosure
Schedules, (iii) except as set forth in Section 3.6(d) of the Disclosure
Schedules, there is no asbestos contained in or forming part of any building,
building component, structure or office space owned or leased by the Company as
identified in Sections 3.18(a) and 3.18(b) of the Disclosure Schedules, and (iv)
except as set forth in Section 3.6(d) of the Disclosure Schedules, no
polychlorinated biphenyls (PCBs) or PCB-containing items are used or stored at
any property owned or leased by the Company as identified in Sections 3.18(a)
and 3.18(b) of the Disclosure Schedules.
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(e) The Company has provided to Parent and Merger Sub all written
assessments, reports, data, results of investigations or audits, and other
information that are in the possession of, or to the Company's knowledge are
reasonably available to, the Company regarding environmental matters pertaining
to or the environmental condition of the business of the Company, or the
material compliance (or noncompliance) by the Company with any Environmental
Laws.
(f) To the knowledge of the Company, the Company is not required
by virtue of the Merger transactions contemplated hereby, or as a condition to
the effectiveness of any transactions contemplated hereby, (i) to perform a site
assessment for Materials of Environmental Concern, (ii) to remove or remediate
Materials of Environmental Concern, (iii) to give notice to or receive approval
from any governmental authority pertaining to environmental matters, or (iv) to
record or deliver to any Person or entity any disclosure document or statement
pertaining to environmental matters.
Section 3.7 Absence of Certain Changes or Events. Since September 30,
2001 (the "Balance Sheet Date"), except in connection with the transactions
contemplated hereby, and except as set forth on Section 3.7 of the Disclosure
Schedules, the Company and its Subsidiaries have conducted their respective
businesses only in the ordinary course of business consistent with past
practice, and, there has not been (a) any material adverse change in the
Company, (b) any declaration, setting aside or payment of any dividend or other
distribution with respect to its capital stock, (c) any split, combination or
reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock, (d) (i) any increase in the
compensation payable or to become payable to any of its officers, directors,
employees, agents or consultants (other than general increases in wages to
employees who are not officers or directors or Affiliates in the ordinary course
of business consistent with past practice or as required by agreements listed on
Section 3.7 or Section 3.11(a) of the Disclosure Schedules) or to persons
providing management services, (ii) any loans to any of its officers, directors,
employees, Affiliates, agents or consultants or made any change in its existing
borrowing or lending arrangements for or on behalf of any of such persons,
whether pursuant to an employee benefit plan or otherwise, other than advances
in the ordinary course of business and consistent with past practices, (iii) any
grant, issuance, acceleration, payment, accrual or agreement to pay or make any
accrual or arrangement for payment of salary or other payments, compensation or
benefits pursuant to, or adopt or amend, any new or existing employee benefit
plan, agreement or arrangement, except in the ordinary course of business
consistent with past practice, or any payment of any bonus, or any incurrence of
any obligation to pay a bonus, to any of the executive officers, directors, or
members of senior management of the Company, except to the extent provided for
in any agreements in effect on the date hereof, all of which are listed on
Section 3.7 or Section 3.11(a) of the Disclosure Schedules, (e) any damage,
destruction or loss affecting the businesses or assets of the Company or any of
its Subsidiaries, that has or reasonably would be expected to have a material
adverse effect on the Company, (f) any change in accounting methods, principles
or practices by the
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Company other than those disclosed in the Company SEC Reports or otherwise
required by applicable law or accounting policy, (g) entry into any commitment
or transaction material to the Company and its Subsidiaries taken as a whole
(including, without limitation, any borrowing or sale of assets) except in the
ordinary course of business consistent with past practice, (h) any incurrence,
assumption or guarantee by the Company or any of its Subsidiaries of any
Indebtedness in excess of $250,000 that is not permitted pursuant to Section 5.1
without the consent of Parent, (i) any creation or assumption by the Company or
any of its Subsidiaries of any material Lien on any material asset, (j) any
material adverse change in the business relationship of the Company or any of
its Subsidiaries with any significant customer, or network, cable or satellite
television provider (including, without limitation, with respect to any unpaid
invoices or uncollected accounts receivable) or, any material adverse change,
with respect to any of the Company Intellectual Property or (k) any making of
any loan, advance or capital contributions to or investment in excess of
$250,000 in any Person that is not permitted pursuant to Section 5.1 without the
consent of Parent.
Section 3.8 Litigation. Except as set forth in Section 3.8 of the
Disclosure Schedules, there are no investigations, actions, claims, suits or
proceedings pending against the Company or its Subsidiaries or, to the knowledge
of the Company, threatened against the Company or its Subsidiaries that would
reasonably be expected to have a material adverse effect on the Company or would
reasonably be expected to prevent, materially impair or materially delay the
consummation of the transactions contemplated by this Agreement. Neither the
Company nor its Subsidiaries is subject to any judgment, order or decree entered
in any lawsuit or proceeding which would reasonably be expected to have a
material adverse effect on the Company.
Section 3.9 [Omitted].
Section 3.10 [Omitted].
Section 3.11 Employee Benefits; ERISA
(a) Section 3.11(a) of the Disclosure Schedules contains a true
and complete list of each employment, consulting, bonus, deferred compensation,
incentive compensation, stock purchase, stock option, stock appreciation right
or other stock-based incentive, retention, severance, change-in-control or
termination pay, hospitalization or other medical, disability, life or other
employee insurance, supplemental unemployment benefits, profit-sharing, pension,
or retirement plan, program, agreement or arrangement, and each other employee
benefit plan, program, agreement or arrangement, sponsored, maintained or
contributed to or required to be contributed to by the Company or any of its
Subsidiaries, or by any trade or business, whether or not incorporated, that
together with the Company or any of its Subsidiaries would be deemed to comprise
a controlled group or affiliated service group or be deemed to be under common
control or otherwise aggregated for purposes of Sections 414(b), (c), (m) or (o)
of the United States Internal Revenue Code of 1986, as amended (the "Code") (an
"ERISA Affiliate"), for the benefit of any current or former employee or
director of the Company or any of its Subsidiaries, or any ERISA Affiliate (the
"Plans"). Section 3.11(a) of the Disclosure
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Schedules identifies each of the Plans that is an "employee welfare benefit
plan," or "employee pension benefit plan" as such terms are defined in Sections
3(1) and 3(2) of ERISA (such plans being hereinafter referred to collectively as
the "ERISA Plans"). Except as set forth on Section 3.11(a) of the Disclosure
Schedules, none of the Plans is subject to Title IV of ERISA. None of the
Company, any of its Subsidiaries nor any ERISA Affiliate has any formal plan or
commitment, whether legally binding or not, to create any additional Plan or,
except as required by applicable law or to maintain tax-qualified status, modify
or change any existing Plan that would affect any current or former employee or
director of the Company, any of its Subsidiaries or any ERISA Affiliate.
(b) With respect to each of the Plans, the Company has heretofore
delivered or as promptly as practicable after the date hereof shall deliver to
Merger Sub true and complete copies of each of the following documents, as
applicable:
(i) a copy of the Plan documents currently in effect
(including all amendments thereto) for each written Plan or a written
description of any Plan that is not otherwise in writing;
(ii) a copy of the annual report or Internal Revenue
Service Form 5500 Series, if required under ERISA, with respect to each
ERISA Plan for the last three (3) Plan years ending prior to the date of
this Agreement for which such a report was filed;
(iii) a copy of the actuarial report, if required under
ERISA, with respect to each ERISA Plan for the last three (3) Plan years
ending prior to the date of this Agreement;
(iv) a copy of the most recent Summary Plan
Description ("SPD"), together with all Summaries of Material Modification
issued with respect to such SPD, if required under ERISA, with respect to
each ERISA Plan, and all other material employee communications relating to
each ERISA Plan;
(v) if the Plan is funded through a trust or any
other funding vehicle, a copy of the trust or other funding agreement
(including all amendments thereto) and the latest financial statements
thereof, if any;
(vi) all contracts relating to the Plans with respect
to which the Company or any of its Subsidiaries or any ERISA Affiliate may
have any liability, including insurance contracts, investment management
agreements, subscription and participation agreements and record keeping
agreements; and
A-23
(vii) the most recent determination or opinion letter
received from the Internal Revenue Service with respect to each Plan that
is intended to be qualified under Section 401(a) of the Code.
(c) Except as set forth on Section 3.11(c) of the Disclosure
Schedules:
(i) No liability under Title IV of ERISA has been
incurred by the Company, any of its Subsidiaries or any ERISA Affiliate
since the effective date of ERISA that has not been satisfied in full, and,
to the knowledge of the Company, no condition exists that presents a
material risk to the Company, or any of its Subsidiaries or any ERISA
Affiliate of incurring any liability under such Title.
(ii) With respect to any ERISA Plan that is a
"multiemployer pension plan," as such term is defined in Section 4001(a)(3)
of ERISA, (1) neither the Company, any of its Subsidiaries nor any ERISA
Affiliate has, since September 26, 1980, made or suffered a "complete
withdrawal" or a "partial withdrawal," as such terms are respectively
defined in Sections 4203 and 4205 of ERISA, (2) to the knowledge of the
Company (or as the Company should reasonably be aware), no event has
occurred that presents a material risk of a complete or partial withdrawal,
(3) to the knowledge of the Company (or as the Company should reasonably be
aware), neither the Company, any of its Subsidiaries nor any ERISA
Affiliate has any contingent liability under Section 4204 of ERISA, (4) to
the knowledge of the Company, no circumstances exist that present a
material risk that any such multiemployer plan will go into reorganization,
and (5) to the knowledge of the Company (or as the Company should
reasonably be aware), the aggregate withdrawal liability of the Company,
each of its Subsidiaries and the ERISA Affiliates, computed as if a
complete withdrawal by the Company, each of its Subsidiaries and all of its
ERISA Affiliates had occurred under each such multiemployer pension plan on
the date hereof, would be greater than $50,000.
(iii) To the extent the representations in Sections
3.11(c)(i) and 3.11(c)(ii) apply to Sections 4064, 4069 or 4204 of Title IV
of ERISA, it is made not only with respect to the ERISA Plans but also with
respect to any employee benefit plan, program, agreement or arrangement
subject to Title IV of ERISA to which the Company or any of its
Subsidiaries or any ERISA Affiliate made, or was required to make,
contributions during the past six years.
(d) None of the Company, any of its Subsidiaries, any
ERISA Affiliate, any of the ERISA Plans, any trust created thereunder, nor to
the Company's knowledge, any trustee or administrator thereof has engaged in a
transaction or has taken or failed to take any action in connection with which
the Company, any of its
A-24
Subsidiaries, any ERISA Affiliate, any ERISA Plan or any such trust could be
subject to any material liability for either a civil penalty assessed pursuant
to Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975(a)
or (b), 4976 or 4980B of the Code.
(e) All contributions which the Company, any of its Subsidiaries
or any ERISA Affiliate is required to pay, prior to the date hereof, under the
terms of each of the ERISA Plans have been timely paid in full or properly
recorded on the financial statements or records of the Company or its
Subsidiaries.
(f) Each of the Plans has been operated and administered in all
material respects in accordance with its terms and applicable law, including but
not limited to ERISA and the Code.
(g) There has been no failure by any of the ERISA Plans that is
intended to be "qualified" within the meaning of Section 401(a) of the Code to
meet the requirements of such qualification. Except as set forth on Section
3.11(g) of the Disclosure Schedules hereto, the Company has applied for and
received a currently effective determination letter from the IRS stating that it
is so qualified including satisfaction of the requirements of the GUST
amendments (as referenced in IRS Announcement 2001-104), and no event has
occurred which would affect such qualified status.
(h) Except as set forth on Section 3.11(h) of the Disclosure
Schedules, no Plan provides benefits, including without limitation death or
medical benefits (whether or not insured), with respect to current or former
employees of the Company, its Subsidiaries or any ERISA Affiliate after
retirement or other termination of service (other than (i) coverage mandated by
applicable law, (ii) death benefits or retirement benefits under any "employee
pension plan," as that term is defined in Section 3(2) of ERISA, or (iii)
benefits, the full direct cost of which is borne by the current or former
employee (or beneficiary thereof)).
(i) The consummation of the transactions contemplated by this
Agreement will not, either alone or upon and in conjunction with the occurrence
of any additional or further acts or events, (i) entitle any current or former
employee, officer, consultant, agent or director of the Company, any of its
Subsidiaries or any ERISA Affiliate to severance pay, unemployment compensation
or any other similar termination payment, or (ii) accelerate the time of payment
or vesting, or increase the amount of or otherwise enhance any benefit due, or
any option or other equity security held by, any such employee, officer,
consultant, agent or director.
(j) There are no pending or, to the Company's knowledge,
threatened or anticipated claims by or on behalf of any Plan, by any employee or
beneficiary under any such Plan or otherwise involving any such Plan (other than
routine claims for benefits).
A-25
(k) Except as set forth on Section 3.11(k) of the Disclosure
Schedules, neither the Company nor any of its Subsidiaries has made any
payments, is obligated to make any payments, or is a party to any contract,
agreement or other arrangement which could result in the payment by the Company
or by any of its Subsidiaries of an "excess parachute payment" as that term is
used in Section 280G of the Code or the payment of compensation that will not be
deductible by the Company because of Section 162(m) of the Code.
(l) None of the Company, any of its Subsidiaries nor any ERISA
Affiliate has, prior to the Effective Time, violated any of the health care
continuation requirements of the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended or the Health Insurance Portability Accountability Act of
1996, as amended, or any similar provision of state law applicable to their
employees.
(m) Except as set forth in Section 3.11(m) of the Disclosure
Schedules, none of the Company, any of its Subsidiaries nor any ERISA Affiliate
has used the services or workers provided by third party contract labor
suppliers, temporary employees, "leased employees" (as that term is defined in
Section 414(n) of the Code), or individuals who have provided services as
independent contractors to the extent that any of these arrangements would
reasonably be expected to result in the disqualification of any of the Plans or
the imposition of penalties or excise taxes with respect to the Plans by the
IRS, the Department of Labor or the Pension Benefit Guaranty Corporation.
Section 3.12 Taxes
(a) All material Tax Returns required to be filed by the Company
and each of its Subsidiaries have been duly filed (or has had duly filed on its
behalf). All material Taxes that are due or claimed to be due from the Company
and each of its Subsidiaries have been paid other than those being contested in
good faith and by appropriate proceedings and for which adequate reserves have
been established on the balance sheets that are included in the Company SEC
Reports in accordance with GAAP. To the knowledge of the Company, the accruals
and reserves in the balance sheets that are included in the Company SEC Reports
in respect of any Tax liability of the Company and its Subsidiaries for any
taxable period not finally determined are adequate to meet any assessments of
Tax for any such period.
(b) No Audits are presently pending with regard to any Taxes or
Tax Returns of the Company or any of its Subsidiaries, and neither the Company
nor any of its Subsidiaries has received written notification that any such
Audit is threatened, contemplated, or may be initiated.
(c) There are no Liens for material Taxes upon any assets or
properties of the Company or any of its Subsidiaries, except for Liens for Taxes
not yet due.
(d) Other than any Tax Returns that have not yet been required to
be filed, the Company has delivered or made available to Parent and Merger Sub
true and
A-26
complete copies of its Tax Returns for each of the taxable years ended after
June 30, 1997.
(e) No deficiency or adjustment for any Taxes has been proposed,
asserted, assessed or to the Company's knowledge, threatened in writing against
the Company or its Subsidiaries.
(f) Except as set forth in Section 3.12(f) of the Disclosure
Schedules, to the knowledge of the Company, no outstanding power of attorney has
been granted by or with respect to the Company or its Subsidiaries with respect
to any matter relating to Taxes.
(g) The Company and each of its Subsidiaries have complied in all
material respects with all applicable laws, rules, and regulations relating to
the payment and withholding of Taxes (including withholding of Taxes pursuant to
Section 1441 and 1442 of the Code or similar provisions under any state, local
or foreign laws) and have, within the time and the manner prescribed by law,
withheld and paid over to the proper Tax Authorities all amounts required to be
so withheld and paid over under applicable laws.
(h) Neither the Company nor any of its Subsidiaries is required
to include in income any material adjustment pursuant to Section 481(a) of the
Code by reason of any change in accounting method (nor has any Tax Authority
proposed in writing any such adjustment or change of accounting method).
(i) Neither the Company nor any of its Subsidiaries is or has
been a member of any affiliated group filing a consolidated Federal income tax
return within the meaning of Section 1504(a) of the Code or any similar state,
local or foreign law (other than a group the common parent of which is or was
the Company) or has any liability for Taxes of any Person under Treasury
Regulation Section 1.1502-6 or any similar provisions of state, local or foreign
law as a transferee or successor, by contract, or otherwise.
(j) [Omitted].
(k) [Omitted].
(l) The Company has delivered or made available to Parent and
Merger Sub complete and accurate copies of each of (i) all Audit reports, letter
rulings, technical advice memoranda and similar documents issued by a Tax
Authority relating to Taxes due from or with respect to the Company or its
Subsidiaries and (ii) all closing agreements entered into by the Company or its
Subsidiaries with any Tax Authority, in each case existing on the date hereof.
(m) Neither the Company nor any of its Subsidiaries has received
written notice of any claim made by a Tax Authority in a jurisdiction where it
does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction.
A-27
(n) Neither the Company nor any of its Subsidiaries has (i)
received a ruling from any Tax Authority or signed an agreement with respect
thereto or (ii) signed any closing agreement with respect to any Tax year.
(o) Neither the Company nor any of its Subsidiaries has waived
any statutory period of limitations for the assessment of any Tax or agreed to
any extension of time with respect to a Tax assessment or deficiency, in each
case, which is currently outstanding, nor is any request to so waive or extend
currently outstanding.
(p) [Omitted].
(q) Neither the Company nor any of its Subsidiaries is a party
to, is bound by or has any obligation under any Tax sharing agreement, Tax
indemnification agreement or similar contract, and does not have any potential
liability or obligation to any Person as a result of, or pursuant to, any such
contract.
(r) Neither the Company nor any of its Subsidiaries has, with
regard to any assets or property held or acquired, filed a consent to the
application of Section 341(f) of the Code, or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a Subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by either the Company or any of
its Subsidiaries.
Section 3.13 [Omitted].
Section 3.14 Permits; Compliance with Laws
(a) Except as set forth on Section 3.14(a) of the Disclosure
Schedules, each of the Company and its Subsidiaries holds, to the extent legally
required, all federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, orders, registrations,
findings of suitability, licenses, notices, permits, applications and rights,
including all authorizations under any applicable law ("Permits"), necessary for
the Company and its Subsidiaries to own, lease or operate their properties and
assets and to carry on their business as now conducted, other than such Permits
the absence of which would not reasonably be expected to have a material adverse
effect on the Company, and there has occurred no default under any such Permit
other than such defaults which would not reasonably be expected to have a
material adverse effect on the Company. To the knowledge of the Company, no
event has occurred, and no facts or circumstances exist, which would reasonably
be expected to adversely affect the ability of the Company and its Subsidiaries
to obtain all necessary Permits to allow the Company and its Subsidiaries to
conduct its business in the manner the Company and its Subsidiaries proposes to
conduct such business, except where the failure to obtain all necessary permits
would not reasonably be expected to have a material adverse effect on the
Company.
(b) Each of the Company and its Subsidiaries is in compliance
with all applicable laws, except for possible noncompliance which would not
reasonably be expected to have a material adverse effect on the Company.
A-28
Section 3.15 State Takeover Statutes. For purposes of Section
203(a)(1) of the DGCL, the Board, including the Special Committee of the Board,
has approved this Agreement and the Merger, and the other transactions
contemplated hereby and thereby.
Section 3.16 Broker's or Finder's Fee. Except for Allen & Company
Incorporated and Ladenburg, Thalmann & Co., Inc., no agent, broker, Person or
firm acting on behalf of the Company is, or will be, entitled to any investment
banking or broker's or finder's fees from any of the parties hereto, or from any
Person controlling, controlled by, or under common control with any of the
parties hereto, in connection with this Agreement or any of the transactions
contemplated hereby. The Company has provided Parent and Merger Sub true and
correct copies of all agreements by and between Allen and Company Incorporated
and the Company and between Ladenburg, Thalmann & Co., Inc. and the Company and
such agreements will not be amended without the consent of Parent and Merger
Sub, as applicable and which consent will not be unreasonably withheld or
delayed.
Section 3.17 Company Intellectual Property and Library Properties
(a) The Company or its Subsidiaries own all right, title and
interest in, or have a valid right to use, all Company Intellectual Property and
Library Properties, subject to third party clearances on the content, free and
clear of all written agreements granting liens, security interests, pledges,
hypothecations and mortgages, except for any such liens, security interests,
pledges, hypothecations and mortgages granted pursuant to any collective
bargaining or distribution agreements. The Company or Subsidiaries may exercise
Exploitation Rights with respect to the Library Properties in a manner
consistent with the conduct of the business by the Company and its Subsidiaries
as currently conducted. Company Intellectual Property shall not include any of
the Excluded Intellectual Property, and the Company and its Subsidiaries shall
have no right to use the Excluded Intellectual Property after the Closing Date
except for the Company's or any of its Subsidiaries' (i) rights in and to the
Excluded Intellectual Property to the extent and only to the extent granted
pursuant to any other agreement, including, but not limited to, the Employment
Agreement, or (ii) rights to use any Excluded Intellectual Property which may be
embodied in any Library Property.
(b) Section 3.17(b)(i) of the Disclosure Schedules sets forth an
accurate and complete list of all registrations and applications for
registration for Trademarks, Patents, and Copyrights owned by the Company and
its Subsidiaries. Section 3.17(b)(ii) sets forth a list of those Trademarks
currently owned by the Company which it has previously agreed to assign to Olive
Enterprises, Inc. ("Enterprises") upon issuance of US Federal trademark
registration certificates for the same. No Trademark set forth on Section
3.17(b)(ii) of the Disclosure Schedules is subject to material usage in the
business of the Company or any of its Subsidiaries as currently conducted other
than the Trademarks AMERICA'S OLDEST LIVING TEENAGER and I LIKE THE BEAT. The
Trademarks AMERICA'S OLDEST LIVING TEENAGER and I LIKE THE BEAT will be licensed
to the Company upon Closing pursuant to an agreement as contemplated in Section
5.7.
A-29
(c) Section 3.17(c) of the Disclosure Schedules sets forth an
accurate and complete list of all Library Properties, indicating which Library
Properties are solely and exclusively owned by the Company or its Subsidiaries,
and which Library Properties are co-owned with or owned by third parties but as
to which the Company or its Subsidiaries has any Exploitation Rights.
(d) Neither the Company nor any of its Subsidiaries has (i)
licensed or sublicensed its rights in any material Company Intellectual Property
other than pursuant to License Agreements or Library Agreements; or (ii) granted
or obtained any material Exploitation Rights in the Library Properties, other
than pursuant to the Library Agreements.
(e) All material Trademarks, Copyrights, and Patents owned by
Company or its Subsidiaries are subsisting, in full force and effect, have not
been cancelled, expired, or abandoned, and to the knowledge of the Company are
valid and enforceable. Except as disclosed in Section 3.17(e) of the Disclosure
Schedules, the Company or one of its Subsidiaries is listed in the applicable
intellectual property registry as the record owner of any registration or
application for registration of any Trademark, Copyright or Patent owned by the
Company. Except as disclosed in Section 3.17(e) of the Disclosure Schedules,
there is no pending, or, to the knowledge of Company, threatened opposition,
interference, or cancellation proceeding before any court or registration
authority in any jurisdiction against any registrations or applications in
respect of any Trademark, Copyright or Patent owned by the Company.
(f) The exercise by the Company or any of its Subsidiaries of any
Exploitation Rights in the Library Properties in the United States and the
conduct of the Company's business (other than the exercise of Exploitation
Rights in the Library Properties), to the knowledge of the Company, does not
infringe, misappropriate, dilute or otherwise violate (either directly or
indirectly such as through contributory infringement or inducement to infringe)
any Intellectual Property Rights owned or controlled by any third party. Neither
the Library Properties nor the Company's, its Subsidiaries or licensee's
exercise of Exploitation Rights with respect thereto in the United States in a
manner consistent with past practices, libels, defames, violates the rights of
privacy or publicity of any person or violates any other applicable law that is
likely to result in a material adverse effect on the Company.
(g) Except as set forth on Section 3.17(g) of the Disclosure
Schedules, there is no pending, or to the knowledge of the Company, any
threatened claim, suit, arbitration or other adversarial proceeding before any
court, agency, arbitral tribunal, or registration authority in any jurisdiction
to which the Company or any Subsidiary or any of its licensees is a party (i)
involving the Company Intellectual Property or Library Properties; (ii) alleging
that the activities or the conduct of the business of the Company or any of its
Subsidiaries, or the exercise of any Exploitation Rights with respect to the
Library Properties infringes, misappropriates, dilutes, or otherwise violates,
the Intellectual Property Rights of any third party; or (iii) challenging the
ownership, use, validity, enforceability or registrability of any Company
Intellectual Property.
A-30
(h) Except as set forth on Section 3.17(h) of the Disclosure
Schedules, there are no settlements, forbearances to sue, consents, judgments,
or orders that (i) materially restrict the rights of the Company or any
Subsidiaries to own or use any Company Intellectual Property or Library
Properties; (ii) materially restrict the conduct of the business of the Company
or any of its Subsidiaries in order to accommodate a third party's Intellectual
Property Rights; or (iii) permit third parties to use any Company Intellectual
Property or to exercise Exploitation Rights with respect to any Library
Properties.
(i) All officers of the Company or any of its Subsidiaries
have executed written nondisclosure agreements and, to the knowledge of the
Company, no party to any such nondisclosure agreement is in material breach or
default thereof. The Company and its Subsidiaries take reasonable measures to
protect the confidentiality of their material Trade Secrets.
(j) Except as set forth on Section 3.17(j) of the Disclosure
Schedules, no third party, to the knowledge of the Company, is infringing,
misappropriating, diluting, or otherwise violating any Company Intellectual
Property or the Company's, its Subsidiaries' or their licensees' rights in the
Library Properties.
(k) The consummation of the transactions contemplated by this
Agreement will not result in the loss or impairment of the right of the Company
or any of its Subsidiaries to own or use Company Intellectual Property or
exercise any Exploitation Rights with respect to the Library Properties.
(l) To the knowledge of the Company, all material Library
Underlying Rights owned solely by the Company and its Subsidiaries, were (i)
developed by employees of the Company or its Subsidiaries within the scope of
their employment; (ii) developed by independent contractors as
"works-made-for-hire," as that term is defined under Section 101 of the United
States Copyright Act, 17 U.S.C.(S)101; (iii) developed by third parties who
have assigned all of their rights therein to the Company or a Subsidiary; (iv)
duly licensed to the Company or its Subsidiaries pursuant to the Library
Agreements; (v) in the public domain; (vi) permitted to be exploited by the
Company and its Subsidiaries pursuant to the provisions of 17 U.S.C.(S)107; or
(vii) a combination of any of the foregoing.
(m) To the knowledge of the Company, all music contained
within the Library Properties owned by the Company and its Subsidiaries is (i)
controlled by American Society of Composers, Authors and Publishers, Broadcast
Music Inc. or The Society of European Stage Authors and Composers; (ii) in the
public domain; or (iii) duly licensed or otherwise owned by the Company and its
Subsidiaries with sufficient rights to permit its public performance in the
United States in connection with the Library Properties subject, however, to the
terms and conditions of the License Agreements, Library Agreements and any
union, collective bargaining or guild agreement.
(n) The Physical Media are in good physical condition, and to
the knowledge of the Company, no Physical Media have been rejected by a third
party on the
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basis of defective physical condition, and neither the Company nor any of
its Subsidiaries has received any written notice of such rejection. A Physical
Media exists for every Library Property set forth on Section 3.17(c) of the
Disclosure Schedules.
(o) All material License Agreements and Library Agreements to
which the Company or one of its Subsidiaries is a party, or is otherwise
obligated, are valid and binding obligations of the Company and/or the
applicable Subsidiaries, enforceable in accordance with their agreed terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization, arrangement or similar laws affecting creditors' rights
generally and by general principles of equity. There exists no event or
condition which will result in a violation or breach of, or constitute a default
by the Company or any of its Subsidiaries or, to the knowledge of the Company,
any other party thereto, under any such License Agreement or Library Agreement
which are likely to result in a material adverse effect on the Company's
business as currently conducted.
(p) The Company and its Subsidiaries have good title in and to
any Physical Media for the Library Properties that are solely owned by the
Company and its Subsidiaries, except for distributors' rights pursuant to any
distribution agreements. Except for Library Properties that are financially
immaterial to the financial condition or results of operation of the business of
the Company and its Subsidiaries, taken as a whole, and the value of the Library
Properties, taken as a whole, the Company has customary access to the Physical
Media for the Library Properties that are solely owned, or that are jointly
owned but solely controlled, by the Company and its Subsidiaries including the
right to remove such Physical Media from the custody of any third party with
which the Company has a storage agreement relating thereto. To the knowledge of
the Company, no Library Property solely owned or controlled by the Company and
its Subsidiaries for which there is only one Physical Media in existence is in
the custody of a third party other than pursuant to an agreement that grants
Company or any of its Subsidiaries the right to remove such Physical Media from
the custody of such third party. At Closing, the Company shall provide a list of
each third party that is contracted to store the Physical Media for the Library
Properties, that are solely owned by the Company and its Subsidiaries as set
forth on Section 3.17(c) of the Disclosure Schedules, setting forth the identity
of the third party and providing contact information for such third party and
the location of the Physical Media.
(q) The Company and its Subsidiaries, in the conduct of the
business as currently conducted, use only standard, commercially available and
"off-the-shelf" software licensed from third parties.
Section 3.18 Real Property.
(a) Owned Properties. Section 3.18(a) of the Disclosure
Schedules sets forth a true, correct and complete list of all real property
owned by the Company or any of its Subsidiaries (each, an "Owned Real
Property"). Except as otherwise set forth on Section 3.18(a) of the Disclosure
Schedules, with respect to each such parcel of Owned Real Property: (i) such
parcel is free and clear of all Liens, except for the Permitted Liens; (ii)
there are no leases, subleases, licenses, tenancies,
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concessions, or other agreements, written or oral, granting to any Person the
right of use or occupancy of any portion of such Owned Real Property; and (iii)
there are no outstanding actions, rights of first refusal or options to purchase
such parcel.
(b) Leased Properties. Section 3.18(b) of the Disclosure
Schedules sets forth a true, correct and complete list of all of the leases,
licenses, tenancies, subleases and all other material occupancy agreements
("Leases") in which the Company or any of its Subsidiaries is a tenant,
subtenant, landlord or sublandlord (the leased and subleased space or parcel of
Real Property thereunder being, collectively, the "Leased Real Property"), and
for each Lease indicates whether or not the consent of the landlord thereunder
will be required in connection with the Merger. With respect to each Lease: (i)
the Lease is in full force and effect; and (ii) neither the Company (or its
applicable Subsidiary), nor to the knowledge of the Company, any other party to
the Lease, is in material default under the Lease, and no event has occurred
which, with notice or lapse of time, would constitute a breach or default by the
Company (or such Subsidiary) under the Lease except where such breach or default
would not reasonably be expected to have a material adverse effect on the
Company or a material adverse effect on the Company's restaurant operations
taken as a whole.
(c) Real Property Disclosure. Except as disclosed on Sections
3.18(a) and 3.18(b) of the Disclosure Schedules, there is no Real Property (as
defined below) leased or owned by the Company or any of its Subsidiaries that is
used in their business. The Owned Real Property and Leased Real Property is
referred to collectively herein as the "Real Property."
(d) No Proceedings. There are no proceedings in eminent
domain, condemnation or other similar proceedings pending or, to the knowledge
of the Company, threatened, relating to or affecting any portion of the Real
Property.
(e) Current Use. The current use of the Real Property does not
violate any instrument of record or agreement affecting such Real Property in a
manner that has had, or is reasonably likely to have or result in, a material
adverse effect on the Company. There are no violations of any covenants,
conditions, restrictions, easements, agreements or orders of any Governmental
Entity having jurisdiction over any of the Real Property that affect such Real
Property or the use or occupancy thereof in a manner that has had, or is
reasonably likely to have or result in, a material adverse effect on the
Company. No damage or destruction has occurred with respect to any of the Real
Property that has had, or is reasonably likely to have or result in, a material
adverse effect on the Company.
(f) Condition and Operation of Improvements. To the knowledge
of the Company, all buildings, structures, fixtures and other improvements
included within the Real Property (the "Improvements") are, in all material
respects, in operating condition and repair and adequate to operate such
facilities as currently used, and there are no facts or conditions affecting any
of the Improvements which would, individually or in the aggregate, interfere in
any material respect with the current use, occupancy or operation thereof.
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Section 3.19 Insurance. The Company maintains insurance coverage with
reputable insurers in such amounts and covering such risks as are generally in
accordance with normal industry practice for companies engaged in businesses
similar to those of the Company and its Subsidiaries.
Section 3.20 Contracts
(a) The Company has provided to Parent true and complete
copies of all material contracts, undertakings, commitments, licenses or
agreements (other than contracts, undertakings, commitments or agreements for
employee benefit matters set forth in Section 3.11 of the Disclosure Schedules)
(the "Contracts") including, without limitation all:
(i) contracts requiring annual expenditures by or
liabilities of the Company and its Subsidiaries in excess of one
hundred thousand dollars ($100,000) which have a remaining term in
excess of one hundred eighty (180) days or are not cancellable (without
material penalty, cost or other liability) within one hundred eighty
(180) days;
(ii) contracts containing covenants limiting the
freedom of the Company or any of its Subsidiaries to engage in any line
of business (other than prohibitions against engaging in business
relating to specific product lines) or compete with any person, in any
product line or line of business, or operate at any location; and
(iii) contracts containing change of control
provisions or requiring payment of cash or other consideration
following a change of control.
(b) Each of the Contracts (other than License Agreements and
Library Agreements which are covered by Section 3.17(o)) is a valid and binding
obligation of the Company and, to the Company's knowledge, the other parties
thereto, enforceable against the other parties thereto in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium, reorganization, arrangement or similar laws affecting creditors'
rights generally and by general principles of equity.
(c) None of the Company or its Subsidiaries is in breach,
default or violation (and no event has occurred or not occurred through the
Company's action or inaction or, to the knowledge of the Company, through the
action or inaction of any third parties, which with notice or the lapse of time
or both would constitute a breach, default or violation) of any term, condition
or provision of any Contract (other than License Agreements and Library
Agreements which are covered by Section 3.17(o)) to which the Company or any of
its Subsidiaries is now a party or by which any of them or any of their
respective properties or assets may be bound, except for violations, breaches or
defaults that, individually or in the aggregate, would not have a material
adverse effect on the Company.
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Section 3.21 Board Consent and Recommendation. Each of the Board
and the Special Committee has (a) determined that the Merger and this Agreement,
and the transactions contemplated hereby are advisable and fair to and in the
best interests of the Company and its stockholders, (b) approved the Merger and
this Agreement and the transactions contemplated hereby to which the Company is
a party, and (c) resolved to recommend that the stockholders of the Company
approve the Merger and this Agreement and the transactions contemplated hereby
to which the Company is a party.
Section 3.22 [Omitted]
Section 3.23 Related Party Transactions. Except as set forth in
Section 3.23 of the Disclosure Schedules or in the Company's SEC Reports filed
prior to the date of this Agreement, no (a) beneficial owner of 5% or more of
the Company's outstanding capital stock, nor (b) officer or director of the
Company or (c) any Person (other than the Company) in which any such beneficial
owner, officer or director owns any beneficial interest (other than a publicly
held corporation whose stock is traded on a national securities exchange or in
the over-the-counter market and less than 1% of the stock of which is
beneficially owned by all such Persons) (collectively, "Related Parties") has
entered into any transactions with the Company or its Subsidiaries that are
required to be disclosed in or will be required to be disclosed in, any Company
SEC Reports. Copies of all agreements relating to such transactions have been
provided to, or made available to Parent.
Section 3.24 Vote Required. The affirmative vote of the holders
of at least a majority of the votes entitled to be cast by the holders of the
Class A Common Stock and Common Stock entitled to vote thereon (voting together
as a single class) (the "Requisite Vote") is the only vote of the holders of any
class or series of capital stock of the Company necessary to approve the Merger
and this Agreement and the transactions contemplated hereby to which the Company
is a party.
Section 3.25 Employment Matters
(a) Except as set forth on Section 3.25 of the Disclosure
Schedules, (i) neither the Company nor any Subsidiary is a party to or bound by
any collective bargaining agreement or similar agreement with any labor
organization, or work rules or practices agreed to with any labor organization
or employee association applicable to employees of the Company or any
Subsidiary, (ii) none of the employees of the Company or any Subsidiary are
represented by any labor organization and there are no organizational campaigns,
demands or proceedings pending or, to the knowledge of the Company, threatened
by any labor organization or group of employees seeking recognition or
certification as collective bargaining representatives of any group of employees
of the Company or any Subsidiary, (iii) to the knowledge of the Company, there
are no union claims to represent the employees of the Company or any Subsidiary,
(iv) there are no strikes, slowdowns, work stoppages, lockouts or material labor
disputes pending, or, to the knowledge of the Company, threatened against or
affecting the Company, and there has not been any such action during the past
five years.
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(b) Each of the Company and its Subsidiaries is and has at all
times during at least the last twelve months, been in material compliance with
all applicable laws, regulations, and ordinances respecting immigration,
employment and employment practices, and the terms and conditions of employment,
including without limitation, employment standards, equal employment
opportunity, family and medical leave, wages, hours of work and occupational
safety and health, and is not engaged in any unfair labor practices as defined
in the National Labor Relations Act or other applicable law, ordinance or
regulation, except where such material non-compliance would not, reasonably be
expected to have a material adverse effect on the Company. There are no
employment contracts or severance agreements with any employees of the Company
or any Subsidiary and no written personnel policies, rules or procedures
applicable to employees of the Company or any Subsidiary, other than those set
forth on Section 3.25 of the Disclosure Schedules, true and complete copies of
which have heretofore been made available to Parent and Merger Sub. Except as
set forth on Section 3.25 of the Disclosure Schedules, to the knowledge of the
Company, there are (i) no complaints, controversies, charges, investigations,
lawsuits or other proceedings relating to the Company or any Subsidiary pending
or threatened in any court or with any agency responsible for the enforcement of
Federal, state, local or foreign labor or employment laws regarding breach of
any express or implied contract of employment, any law or regulation governing
employment or the termination thereof or other illegal, discriminatory, wrongful
or tortious conduct in connection with the employment relationship, the terms
and conditions of employment, or applications for employment with the Company or
any Subsidiary except where such complaint, controversy, charge, investigation,
lawsuit, or other proceeding would not reasonably be expected to have a material
adverse effect on the Company or on the consummation of the transactions
contemplated hereby, and (ii) no Federal, state, local or foreign agency
responsible for the enforcement of immigration, labor, worker health and safety,
or employment laws intends to conduct or is conducting an investigation with
respect to or relating to the Company or any Subsidiary, except where such
investigation would not, reasonably be expected to have a material adverse
effect on the Company or on the consummation of the transactions contemplated
hereby.
(c) Except as set forth on Section 3.25 of the Disclosure
Schedules, since January 1, 1997, neither the Company nor any of its
Subsidiaries has effectuated (i) a "plant closing" as defined in the Worker
Adjustment and Retraining Notification Act of 1988 (the "WARN Act") affecting
any site of employment or one or more facilities or operating units within any
site of employment or facility of the Company or any of its Subsidiaries, or
(ii) a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or facility of the Company or any of its Subsidiaries; nor has the
Company nor any of its Subsidiaries been affected by any transaction or engaged
in layoffs or employment terminations sufficient in number to trigger
application of any similar state or local law.
Section 3.26 [Omitted].
Section 3.27 Opinion of Financial Advisor. The Board has received a
written opinion of Allen & Company Incorporated, dated as of the date of the
meeting of
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the Board approving this Agreement, to the effect that, as of the date of such
written opinion, the consideration to be received as a result of the Merger by
the holders of Common Stock, other than the Principal Stockholders, is fair,
from a financial point of view, to such stockholders. In addition, the Board has
received a written opinion of Ladenburg, Thalmann & Co., Inc., dated as of the
date hereof, to the effect that, as of the date of such written opinion, the
consideration to be received as a result of the Merger by the holders of Common
Stock, other than the Principal Stockholders, is fair, from a financial point of
view, to such stockholders.
Section 3.28 [Omitted].
Section 3.29 NASDAQ Qualification. All outstanding shares of the
Common Stock are designated as qualified for trading on the NASDAQ National
Market of the NASDAQ Stock Market operated by the NASDAQ Stock Market Inc.
Section 3.30 Memorabilia. Section 3.30 of the Disclosure Schedules
sets forth a list of memorabilia owned by the Company or its Subsidiaries, and
any memorabilia not set forth on Section 3.30 of the Disclosure Schedules shall
be deemed to be owned by Richard W. Clark, individually, or Enterprises. For the
avoidance of doubt, the corporate records or production documents of the Company
and its Subsidiaries shall not be considered "memorabilia" and shall be owned by
the Company or its Subsidiaries. Subject to the terms of the Employment
Agreement and the Non-Competition Agreement, all memorabilia not owned by the
Company which is currently located in the Company's or its Subsidiaries'
restaurants shall remain on loan to the Company and its Subsidiaries, free of
charge, so long as the Company or its Subsidiaries continue to operate the
restaurants.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT, MERGER SUB AND CAPITAL COMMUNICATIONS
Except as set forth in the corresponding numbered sections of the
disclosure schedules delivered by Parent, Merger Sub and Capital Communications
to the Company concurrently with the execution of this Agreement or referenced
in the particular section of this Article IV to which exception is being taken,
Parent, Merger Sub and Capital Communications jointly and severally each
represents and warrants to the Company as follows:
Section 4.1 Organization, Standing and Corporate Power. Each of
Parent, Merger Sub and Capital Communications is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware or
the Province of Quebec, Canada, as the case may be. Each of Parent and Capital
Communications has the requisite corporate power and authority to carry on its
business as now being conducted. Merger Sub was formed solely for the purpose of
engaging in the transactions contemplated hereby and has not engaged in any
business activities or
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conducted any operations other than in connection with the transactions
contemplated hereby.
Section 4.2 Authority; Noncontravention
(a) Each of Parent, Merger Sub and Capital Communications has
the requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by each of Parent, Merger Sub and Capital Communications and the
consummation by each of Parent, Merger Sub and Capital Communications of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of each of Parent, Merger Sub and Capital
Communications, respectively, and by Parent as the sole stockholder of Merger
Sub. This Agreement has been duly executed and delivered and, assuming this
Agreement constitutes the valid and binding obligation of the other parties
hereto, constitutes valid and binding obligations of each of Parent, Merger Sub
and Capital Communications, enforceable against each of Parent, Merger Sub and
Capital Communications, as the case may be, in accordance with its terms.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
Parent, Merger Sub or Capital Communications in connection with the execution
and delivery of this Agreement by Parent, Merger Sub and Capital Communications
or the consummation by Parent, Merger Sub and Capital Communications of any of
the transactions contemplated hereby and thereby, except (A) for the filing of a
pre-merger notification and report form by Parent, Merger Sub and Capital
Communications under the HSR Act, (B) applicable requirements under the Exchange
Act (C) for the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware and appropriate documents with the relevant authorities
of other states in which Parent, Merger Sub or Capital Communications is
qualified to do business and (D) such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made would not reasonably be expected to impair, in any material
respect, the ability of Parent, Merger Sub or Capital Communications to perform
their respective obligations under or prevent or significantly delay the
consummation of the transactions contemplated by this Agreement.
Section 4.3 Financing. Capital Communications has and will provide
sufficient funds to enable Parent and Merger Sub to perform any and all of the
respective obligations (including, without limitation, any and all financial
obligations) of the Parent and/or the Merger Sub under this Agreement and in
connection with the transactions contemplated hereby, including, without
limitation, the payment of the Merger Consideration as provided for in this
Agreement until the total Merger Consideration has been paid to the Paying Agent
pursuant to Section 2.10(a) after which time this representation and warranty
shall cease to have any force or effect.
Section 4.4 Information Supplied. None of the information
supplied or to be supplied in writing by Parent, Merger Sub, Capital
Communications or any of their
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respective affiliates specifically for inclusion in the Proxy Statement will, at
the date the Proxy Statement is first mailed to the Company's stockholders or
the time of the Special Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. Notwithstanding the foregoing, each of Parent,
Merger Sub and Capital Communications makes no representation or warranty with
respect to any information supplied by the Company or any of its representatives
which is contained in or incorporated by reference in any of the foregoing
documents.
Section 4.5 Balance Sheet. Capital Communications has previously
provided to the Company an audited balance sheet for the year ended December 31,
2000, and such balance sheet fairly presents, in all material respects, the
financial position of Capital Communications at December 31, 2000. Since
December 31, 2000 there has been no adverse change in the financial condition of
Capital Communications which could adversely affect the ability of Capital
Communications to perform any of its obligations under this Agreement and in
connection with the transactions contemplated hereby and Capital Communications
has, and will have as of the Effective Time, the liquidity to perform all of its
obligations under this Agreement and in connection with the transactions
contemplated hereby, as such obligations become due or are otherwise to be
performed.
Section 4.6 Ownership of Shares. Each of Parent and Merger Sub does
not own any shares of Common Stock of the Company.
Section 4.7 Brokers or Finders. Except for BNY Capital Markets, Inc.,
whose fees and expenses will be paid by the Parent in accordance with the
Parent's agreement with such firm, and the fees described in Section 10.11 of
the Stockholders Agreement, by and among Parent, Capital Communications and the
other stockholders of Parent, the form of which is attached hereto on Section
4.7 of the disclosure schedules of Parent, Merger Sub and Capital
Communications, no agent, broker, Person or firm acting on behalf of the Parent,
Merger Sub or Capital Communications is, or will be, entitled to any investment
banking or broker's or finder's fees from any of the parties hereto, or from any
Person controlling, controlled by, or under common control with any of the
parties hereto, in connection with this Agreement or any of the transactions
contemplated hereby. Parent, Merger Sub and Capital Communications have provided
the Company true and correct copies of all agreements by and between BNY Capital
Markets, Inc. and Parent, Merger Sub and Capital Communications and such
agreements will not be amended without the consent of the Company, as
applicable.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 5.1 Conduct of Business. The Company covenants and agrees that
prior to the Effective Time, except (i) as expressly contemplated by this
Agreement,
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or (ii) with the written consent of the Parent after the date hereof (which
consent shall not be unreasonably withheld or delayed):
(a) the Company shall not, and shall not permit any of its
Subsidiaries, to take any actions that would cause it not to conduct its
business in the ordinary course and consistent with past practices, and, except
as set forth on Section 5.1(a) of the Disclosure Schedules, the Company shall
use commercially reasonable efforts to preserve its business organization intact
and keep available the services of its current officers and employees and
maintain its existing material business relationships;
(b) the Company shall not, and shall not permit any of its
Subsidiaries, to: (i) amend its certificate of incorporation or by-laws or
similar organizational documents of its Subsidiaries except as may be required
by applicable law, (ii) issue, sell, transfer, pledge, dispose of or encumber
any shares of any class or series of its Capital Stock, or securities
convertible into or exchangeable for, or options, warrants, calls, commitments
or rights of any kind to acquire, any shares of any class or series of its
Capital Stock other than shares reserved for issuance on the date of this
Agreement pursuant to the exercise of Company Stock Options outstanding on the
date of this Agreement, (iii) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to any shares of
any class or series of its Capital Stock other than dividends and distributions
by any direct or indirect wholly owned Subsidiary of the Company to its parent,
(iv) split, combine or reclassify any shares of any class or series of its stock
or (v) redeem, purchase or otherwise acquire, directly or indirectly, any shares
of any class or series of its Capital Stock (other than in connection with the
exercise of Company Stock Options outstanding as of the date of this Agreement),
or any instrument or security which consists of or includes a right to acquire
such shares;
(c) the Company shall not and shall not permit any of its
Subsidiaries to: (i) modify, amend or terminate any of its material contracts or
waive, release or assign any material rights or claims, except in the ordinary
course of business and consistent with past practice or (ii) prepay liabilities
outside the ordinary course of business consistent with past practice;
(d) except as set forth on Section 5.1(d) of the Disclosure
Schedules, the Company shall not and shall not permit any of its Subsidiaries to
enter into any commitments to produce projects (including, without limitation,
TV shows, TV movies or syndicated shows) for which the production budget will
exceed the licensing fee or third party financing by more than $250,000 for any
single expenditure or $500,000 in the aggregate.
(e) the Company shall not and shall not permit any of its
Subsidiaries to: (i) other than in the ordinary course of business, consistent
with past practice, (x) incur or modify any Indebtedness for borrowed money, or
(y) incur or assume any other material Indebtedness; (ii) subject to Section
5.1(e) of the Disclosure Schedules, assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other Person,
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except in the ordinary course of business and consistent with past practice;
(iii) subject to Section 5.1(e) of the Disclosure Schedules, make any loans,
advances or capital contributions to, or investments in, any other Person except
in the ordinary course of business and consistent with past practices; or (iv)
subject to Section 5.1(e) of the Disclosure Schedules, enter into any material
commitment or transaction including any capital expenditure or purchase, sale or
lease of assets or real estate, except in the ordinary course of business and
consistent with past practices, and for any sale, transfer or other disposition
of assets related to the restaurant business, provided, further, that capital
-------- -------
expenditures, purchases, sales, except the sale or other disposition of the
Company's restaurants, or leases of capital assets or real property (excluding
acquisitions of Intellectual Property) may not exceed $250,000 in the aggregate
for the restaurant business of the Company and $250,000 in the aggregate for all
other businesses of the Company;
(f) except as permitted by Section 5.1(f) of the Disclosure
Schedules the Company shall not and shall not permit any of its Subsidiaries to
transfer, lease, license, sell, mortgage, pledge, dispose of, or encumber any
assets other than in the ordinary course of business and consistent with past
practice or in connection with any sale, transfer or other disposition of any of
the Company's restaurants; or
(g) except as set forth on Section 5.1(g) of the Disclosure
Schedules, the Company shall not and shall not permit any of its Subsidiaries to
(i) make or offer to make any change in the compensation or benefits payable or
to become payable (including acceleration of vesting or time of payment) to any
of its current officers, directors, employees, agents or consultants (other than
normal recurring increases in wages to employees who are not officers or
directors or Affiliates in the ordinary course of business and consistent with
past practice, or except for such offers or changes with respect to consultants
as are in the ordinary course of business consistent with past practice) or to
Persons providing management services (other than as set forth in existing
agreements with persons providing management services) or in the ordinary course
of business and consistent with past practices, or (ii) enter into or amend any
employment, severance, consulting, termination or other agreement or employee
benefit plan (other than such agreements or amendments which would not violate
subparagraph (i) hereof) or (iii) make any loans to any of its officers,
directors, employees, Affiliates, agents or consultants or make any change in
its existing borrowing or lending arrangements for or on behalf of any of such
Persons pursuant to an employee benefit plan or otherwise, other than advances
in the ordinary course of business consistent with past practices;
(h) except if not prohibited by Sections 5.1(d) and 5.1(e) the
Company shall not and shall not permit any of its Subsidiaries to enter into any
contract or transaction relating to the purchase of assets other than in the
ordinary course of business and consistent with past practices;
(i) the Company shall not and shall not permit any of its
Subsidiaries to hire any permanent non-production full time new employee with a
salary in excess of $75,000 per year but the Company may replace existing
employees whose
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employment with the Company terminates prior to the Effective Time with new
employees provided such new employees have positions and compensation that are
generally comparable to that of the replaced employees;
(j) the Company shall not and shall not permit any of its
Subsidiaries to fail to file, on a timely basis, including allowable extensions,
with appropriate Tax Authorities all Tax Returns required to be filed by or with
respect to the Company and each of its Subsidiaries for taxable years or periods
ending on or before the Closing Date or fail to timely pay or remit (or cause to
be paid or remitted) any Taxes due in respect of such taxable years or periods;
(k) the Company shall not and shall not permit any of its
Subsidiaries to: (i) change any of the accounting methods used by it unless
required by GAAP, or (ii) make any material election relating to Taxes, change
any material election relating to Taxes already made, adopt any material
accounting method relating to Taxes, change any material accounting method
relating to Taxes unless required by GAAP or change in the Code or the
regulations under the Code, enter into any closing agreement relating to Taxes,
settle any claim or assessment relating to Taxes or consent to any claim or
Audit relating to Taxes or any waiver of the statute of limitations for any such
claim or Audit;
(l) the Company shall not and shall not permit any of its
Subsidiaries to settle any litigation, where the Company is a defendant, that
requires the payment of in excess of $250,000, that is not covered by insurance;
and
(m) the Company shall not and shall not permit any of its
Subsidiaries to enter into any agreement, contract, commitment, understanding or
arrangement to engage in any action prohibited by this Section 5.1.
Section 5.2 Advice of Changes. Parent, Merger Sub, Capital
Communications and the Company shall promptly advise the other party orally and
in writing of:
(a) Any representation or warranty made by it contained in
this Agreement becoming untrue or inaccurate in any material respect;
(b) The failure by it to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement;
(c) Any change or event having, or which, to such party's
knowledge could reasonably be expected to constitute, a material adverse effect
or could reasonably be expected to delay or impede the ability of such party to
consummate the transactions contemplated by this Agreement or to fulfill its
obligations set forth herein;
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(d) Any written notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the Merger;
(e) Any material written notice or other material
communication from any Governmental Entity in connection with the Merger as well
as such other information or documentation from any Governmental Entity as may
be reasonably requested in writing from time to time by Parent, Merger Sub,
Capital Communications or the Company;
(f) Any action, suit, claim, investigation or proceeding
commenced or threatened in writing against, relating to or involving or
otherwise affecting the Company or any of its Subsidiaries or Parent, Merger Sub
or Capital Communications that relate to the consummation of the Merger; or
(g) Any offer to purchase assets relating to the Company's
restaurant operations which is being seriously considered by the Company.
provided, however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties set forth in this Agreement. Additionally, the
Company shall furnish to Parent, as promptly as practicable following Parent's
request therefor, all information reasonably necessary for Parent accurately to
determine (i) what amounts, if any, payable under any of the Plans or any other
contract, agreement, or arrangement as a result of which the Company or any of
its Subsidiaries may have any liability for Federal taxes (including the
inability to deduct such amounts) by virtue of section 162(m) or section 280G of
the Code, or (ii) whether the Company or any of its Subsidiaries has entered
into any contract, agreement or arrangement that would result in the
disallowance of any tax deductions pursuant to section 280G of the Code.
Section 5.3 No Solicitation of Offers; Notice of Proposals from
Others
(a) Neither the Company nor any of its Subsidiaries shall (and
the Company shall cause the officers, directors, employees, representatives and
agents of the Company and each of its Subsidiaries, including investment
bankers, attorneys and accountants, not to), directly or indirectly, encourage,
solicit, participate in or initiate (including by way of furnishing or
disclosing non-public information) or knowingly take any action designed to
facilitate any discussions, inquiries, negotiations or the making of any
proposals with respect to or concerning any merger, consolidation, share
acquisition, asset purchase, share exchange, business combination, tender offer,
exchange offer or similar transaction involving the acquisition of all or a
substantial portion of the assets of the Company and its Subsidiaries, taken as
a whole, or a significant equity interest in (including by way of tender offer),
or a recapitalization or restructuring of, the Company (any of those proposed
transactions being an "Acquisition Proposal"). Nothing contained in this Section
5.3 or any other provision of this Agreement shall prohibit the Company or the
Board from (i) taking and disclosing to the Company's stockholders a position
with respect to a tender or exchange offer by a third party not solicited,
encouraged, discussed,
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continued or failed to be ceased or terminated in contravention of this
Agreement pursuant to Rules 14d-9 and 14e-2 under the Exchange Act, or (ii)
making such disclosure to the Company's stockholders as, in the good faith
judgment of the Board, pursuant to advice from outside counsel, is reasonably
expected to be required under applicable law, provided that the Company may not,
except as permitted by Section 8.3, withdraw or modify its position with respect
to the Merger or approve or recommend any Acquisition Proposal, or enter into
any agreement with respect to any Acquisition Proposal. Upon execution of this
Agreement, the Company will immediately cease any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. Notwithstanding the foregoing, prior to the Effective
Time, the Company may furnish information (including non-public information) to
any Person pursuant to appropriate confidentiality agreements (which shall
permit the disclosure contemplated by this Section 5.3(a)), and may negotiate
and participate in discussions and negotiations with such Person concerning an
Acquisition Proposal if:
(A) such entity or group has, on an unsolicited basis,
submitted a bona fide written proposal to the Board relating to any such
transaction which the Board determines in good faith, consistent with advice of
an independent investment banker, (i) is reasonably capable of being funded on
the disclosed terms and (ii) is reasonably likely to be consummated in
accordance with its terms; and
(B) in the opinion of the Special Committee such action is
reasonably expected to be required in order to discharge the Board's fiduciary
duties to the Company's stockholders under applicable law, determined only after
the Special Committee concludes in good faith that the Acquisition Proposal
could reasonably be expected to constitute a proposal that is superior, from a
financial point of view with respect to the stockholders of the Company,
excluding the Principal Stockholders, to the Merger (a "Superior Proposal").
The Company will promptly notify the Parent of (i) the existence of any
Acquisition Proposal received by the Company or its agents or representatives,
the terms and conditions of such Acquisition Proposal and the identity of the
Person making such Acquisition Proposal, or (ii) any inquiry received by the
Company or any of its agents or representatives, in each case, with respect to
an Acquisition Proposal, and the Company will promptly communicate to the Parent
any material changes in the terms and conditions of any such Acquisition
Proposal which it or any of its representatives may receive. The Company will
promptly provide to the Parent any non-public information concerning the Company
provided to any other party which was not previously provided to the Parent.
(b) Except as set forth below in this Section 5.3(b), neither
the Board nor any committee thereof shall (i) withdraw or modify the approval or
recommendation by such Board or any such committee of this Agreement or the
Merger, (ii) approve or recommend any Acquisition Proposal or (iii) enter into
any agreement with respect to any Acquisition Proposal. Notwithstanding anything
set forth in this Agreement, prior to the Effective Time, the Board may, at any
time, withdraw or modify its approval or recommendation of this Agreement or the
Merger, approve or recommend
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a Superior Proposal, or enter into an agreement with respect to a Superior
Proposal, in each case at any time after the fourth Business Day following the
Parent's receipt of written notice from the Company advising the Parent that the
Board has received a Superior Proposal which it intends to accept, specifying
the terms and conditions of such Superior Proposal and identifying the Person
making such Superior Proposal.
Section 5.4 Third Party Standstill Agreements. During the period from
the date of this Agreement until the Effective Time or earlier termination of
this Agreement, the Company shall not terminate, amend, modify or waive any
provision of any confidentiality or standstill agreement to which it or any of
its Subsidiaries is a party (other than any involving Parent or its
Subsidiaries). During such period, the Company agrees to enforce, to the fullest
extent permitted under applicable law, the provisions of any such agreements,
including obtaining injunctions to prevent any breaches of such agreements and
to enforce specifically the terms and provisions thereof in any court of the
United States or any state thereof having jurisdiction.
Section 5.5 Certain Litigation. The Company agrees that, prior to the
termination of this Agreement pursuant to Article VIII, it shall not settle any
litigation commenced after the date of this Agreement against the Company or any
of its directors by any stockholder of the Company relating to the Merger, this
Agreement, the Voting Agreement or the other transactions contemplated hereby or
thereby, without the prior written consent of Parent, which consent shall not be
unreasonably withheld. In addition, prior to the termination of this Agreement
pursuant to Article VIII, but subject to the provisions of Section 5.3 hereto,
the Company shall not voluntarily cooperate with any Third Party that may
hereafter seek to restrain or prohibit or otherwise oppose the Merger and shall
cooperate with Parent to resist any such effort to restrain or prohibit or
otherwise oppose the Merger and the other transactions contemplated by this
Agreement, provided, however, voluntary cooperation shall not include the
Company acting in a derivative capacity without the support of the Board of
Directors.
Section 5.6 Assignment of Company Intellectual Property. Prior to the
Closing Date, the Company shall cause all Company Intellectual Property set
forth on Section 3.17(b)(i) of the Disclosure Schedules that is solely owned to
be effectively transferred to the Company or a Subsidiary, and the Company shall
record any such transfers in all applicable US intellectual property registries.
Section 5.7 Trademark License. Upon Closing, the parties shall enter
into a trademark license agreement that grants the Company and its Subsidiaries
a non-exclusive, royalty-free right and license to use the Trademarks AMERICA'S
OLDEST LIVING TEENAGER and I LIKE THE BEAT in connection with the sale of
clothing and other designated souvenir paraphernalia at the Company's or its
Subsidiaries' restaurants in the United States for so long as the Company or its
Subsidiaries continue to operate the restaurants. Such license shall contain
customary terms and conditions for licenses of this nature.
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ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Stockholders Meeting; Proxy Statement; Provided
Information
(a) If required by the Certificate of Incorporation and/or
applicable law in order to consummate the Merger, the Company shall take all
action necessary in accordance with the DGCL and its Certificate of
Incorporation and By-Laws duly to call, give notice of, convene and hold a
meeting of the Company's stockholders (the "Special Meeting") as promptly as
practicable for the purpose of considering and taking action upon this Agreement
and the Merger. Notwithstanding the foregoing, if prior to the scheduled date of
the Special Meeting the Special Committee determines that it has received an
Acquisition Proposal that constitutes a Superior Proposal, then the Company may
postpone the Special Meeting for up to twelve (12) business days. At the Special
Meeting, all of the Capital Stock then owned by Parent, Merger Sub or any other
Subsidiary of Parent shall be voted in favor of adoption of this Agreement and
to approve the Merger (subject to applicable law).
(b) Notwithstanding Section 6.1(a), in the event that Parent,
Merger Sub or any other Subsidiary of Parent shall have acquired at least 90%
(in the aggregate) of the outstanding shares of Capital Stock, the parties
hereto agree to take all necessary or appropriate action to cause the Merger to
become effective as soon as practicable after the acquisition of 90% of the
shares of Capital Stock of the Company without a meeting of stockholders of the
Company, in accordance with Section 253 of the DGCL.
(c) If required under applicable law, the Company shall as
promptly as practicable prepare and file with the SEC a preliminary proxy or
information statement and a Schedule 13E-3 relating to the Merger and the other
transactions contemplated by this Agreement and obtain and furnish the
information required to be included by the SEC in the Proxy Statement and, after
consultation with Parent, respond promptly to any comments made by the SEC with
respect to the preliminary proxy or information statement and the Schedule
13E-3, and cause a definitive proxy or information statement, including any
amendments or supplements thereto (the "Proxy Statement") to be mailed to its
stockholders at the earliest practicable date, provided that no amendments or
supplements to the Proxy Statement and the Schedule 13E-3 will be made by the
Company without consultation with Parent and its counsel. Capital
Communications, Parent and Merger Sub shall provide all information relating to
them required to be included in the Proxy Statement and the Schedule 13E-3, and
Capital Communications, Parent, Merger Sub and the Company shall cooperate with
each other in the preparation of the Proxy Statement and the Schedule 13E-3, and
the Company shall notify Parent of the receipt of any comments of the SEC with
respect to the Proxy Statement and the Schedule 13E-3 and of any requests by the
SEC for any amendment or supplement thereto or for additional information and
shall provide a copy of such comments or requests to Parent within three (3)
Business Days after receipt, and shall
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provide to Parent promptly copies of all correspondence between the Company
or any representative of the Company and the SEC. The Company shall give Parent
and its counsel the opportunity to review and comment on any proposed responses
to comments, which review shall be concluded as promptly as possible, but in no
event more than three (3) Business Days after the receipt of the Company's
proposed responses to comments or other correspondence to the SEC. If at any
time after the date the Proxy Statement is mailed to stockholders and prior to
the Special Meeting any information relating to the Company, Parent or Merger
Sub, or any of their respective Affiliates, officers or directors, is discovered
by the Company, Parent or Merger Sub which is required to be set forth in an
amendment or supplement to the Proxy Statement or the Schedule 13E-3 so that the
Proxy Statement or the Schedule 13E-3 will not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, the party which discovers such information shall promptly notify
the other parties hereto and an appropriate amendment or supplement describing
such information shall be promptly filed with the SEC and to the extent required
by applicable law, disseminated to the stockholders. As promptly as practicable
after the Proxy Statement and Schedule 13E-3 have been cleared by the SEC (or
sooner if permitted by applicable rule or regulation), the Company shall mail
the Proxy Statement to the stockholders of the Company. Except as expressly
permitted pursuant to Section 5.3, the Proxy Statement shall include the
recommendation of the Board in favor of the Merger and this Agreement.
(d) As promptly as practicable, each party hereto shall prepare
and file any other filings required under the Exchange Act, the Securities Act
or any other applicable laws relating to the Merger and the transactions
contemplated by this Agreement.
(e) The Company covenants that, except for information supplied
by Capital Communications, Parent and Merger Sub, all information in (a) the
Schedule 13E-3; and (b) the Proxy Statement will not, in the case of the
Schedule 13E-3, as of the date thereof, of each amendment or supplement thereto
and as of the Effective Time, and in the case of the Proxy Statement, either at
the date mailed to the Company's stockholders or at the time of the Special
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The Company covenants that each of the Proxy Statement and the
Schedule 13E-3, as to information supplied by the Company, will comply in all
material respects with all applicable provisions of the Exchange Act.
(f) Capital Communications, Parent and Merger Sub covenant that
the information supplied or to be supplied in writing by Capital Communications,
Parent and Merger Sub for inclusion in the Schedule 13E-3, and in the Proxy
Statement, as of the respective dates thereof, of each amendment or supplement
thereto and as of the Effective Time, will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Capital Communications, Parent and
Merger Sub covenant that the Schedule 13E-3, as to
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information supplied in writing by Capital Communications, the Parent and Merger
Sub, will comply in all material respects with all applicable provisions of the
Exchange Act.
Section 6.2 Access to Information; Confidentiality. The Company
shall afford to Parent, and to its officers, employees, accountants, counsel,
financial advisers and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to all the
properties, books, contracts, commitments and records of the Company and its
Subsidiaries and, during such period, the Company shall furnish promptly to
Parent (a) a copy of each additional report, schedule, registration statement
and other document filed by it or its Subsidiaries during such period pursuant
to the requirements of Federal or state securities laws and (b) all other
information concerning its or its Subsidiaries' business, properties and
personnel as Parent may reasonably request. Except as otherwise agreed to by the
Company, notwithstanding termination of this Agreement, each of Capital
Communications, Parent and Merger Sub will keep, and will cause their respective
officers, employees, accountants, counsel, financial advisers and other
representatives and Affiliates to keep, all Confidential Information (as defined
below) confidential and not to disclose any Confidential Information to any
Person other than Capital Communications, Parent, Merger Sub or their respective
directors, officers, employees, Affiliates, representatives or agents, and then
only on a confidential basis; provided, however, that Capital Communications,
Parent and Merger Sub may disclose Confidential Information (i) as required by
applicable law, rule, regulation or judicial process, (ii) to its attorneys,
accountants, financial advisors, lenders, placement agents and underwriters on a
confidential basis, and (iii) as required by any Governmental Entity; provided,
--------
however, that Capital Communications, Parent and Merger Sub will cooperate with
- -------
the Company so that the Company may seek a protective order or other appropriate
remedy. For purposes of this Agreement, "Confidential Information" shall include
all information about the Company which has been furnished by the Company to
Parent; provided, however, that Confidential Information does not include
information which (A) is or becomes generally available to the public other than
as a result of a disclosure by Parent, its attorneys, accountants or financial
advisors not permitted by this Agreement, (B) was available to Parent on a
non-confidential basis prior to its disclosure to Parent by the Company or (C)
becomes available to Parent on a non-confidential basis from a Person other than
the Company who, to the knowledge of Parent, is not otherwise bound by a
confidentiality agreement with the Company or is not otherwise prohibited from
transmitting the relevant information to Parent. In the event of termination of
this Agreement for any reason, Capital Communications, Parent and Merger Sub
shall promptly destroy all Confidential Information without retaining any copy
thereof, and each of Capital Communications, Parent and Merger Sub will, and
will cause their respective attorneys, accountants and financial advisors to,
promptly destroy all copies of any analyses, compilations, studies or other
documents, records or data prepared by Capital Communications, Parent or Merger
Sub, as the case may be, which contain or otherwise reflect or are generated
from the Confidential Information, and a duly authorized officer of each of
Capital Communications, Parent and Merger Sub will certify in writing to the
Company that it has destroyed all the Confidential Information in its possession
and each of Capital Communications, Parent and Merger Sub will request
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written confirmation from each of their respective attorneys, accountants and
financial advisors that they have destroyed all the Confidential in their
possession, and Capital Communications, Parent and Merger Sub will forward a
copy of each such written confirmation to the Company.
Section 6.3 Reasonable Efforts; Notification
(a) Upon the terms and subject to the conditions set forth
in this Agreement, each of the parties agrees to use all commercially reasonable
efforts to take, or cause to be taken (including through its officers and
directors and other appropriate personnel), all actions, and to do, or cause to
be done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (a) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and filings (including
filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to obtain Permits or waivers from, or to avoid an
action or proceeding by, any Governmental Entity, (b) the seeking of all
necessary consents, approvals or waivers from third parties, (c) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of any of the transactions
contemplated herein, including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Entity vacated or reversed and
(d) the execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out the purposes
of, this Agreement.
(b) In connection with and without limiting the foregoing,
the Company and its Board shall (including through its officers and directors
and other appropriate personnel) (i) take all reasonable action necessary to
ensure that no U.S. state takeover, business combination, control share, fair
price or fair value statute or similar statute or regulation is or becomes
applicable to the Merger or any of the other transactions contemplated hereby,
other than Section 203 of the DGCL or (ii) if any U.S. state takeover, business
combination, control share, fair price or fair value statute or similar statute
or regulation becomes applicable to the Merger or any other transaction
contemplated hereby, take all reasonable action to ensure that the Merger and
the other transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated and otherwise to minimize the effect of
such statute or regulation on the Merger and the other transactions contemplated
hereby, except if doing so would result in a material adverse effect to the
Company.
(c) The Company, Capital Communications, Parent and Merger
Sub shall keep the other reasonably apprised of the status of matters relating
to completion of the transactions contemplated hereby, including promptly
furnishing the other with copies of notices or other communications received by
the Company, Capital Communications, Parent and Merger Sub, as the case may be,
or any of their respective Subsidiaries, from any third party and/or any
Governmental Entity with respect to the
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transactions contemplated by this Agreement; provided that this Section 6.3(c)
shall not be applicable to any Acquisition Proposal which shall be subject to
Section 5.3 hereof.
Section 6.4 Indemnification and Insurance
(a) Parent and Merger Sub agree that (i) the articles of
incorporation or the bylaws of the Surviving Corporation and its Subsidiaries
immediately after the Effective Time shall contain provisions with respect to
indemnification and exculpation from liability that are at least as favorable to
the beneficiaries of such provisions as those provisions that are set forth in
the certificate of incorporation and bylaws of the Company and its Subsidiaries,
respectively, on the date of this Agreement and to the fullest extent permitted
by applicable law, which provisions shall not be amended, repealed or otherwise
modified for a period of six (6) years following the Effective Time in any
manner that would adversely affect the rights thereunder of persons who on or
prior to the Effective Time were directors, officers, employees or agents of the
Company or any of its Subsidiaries (collectively, the "Indemnified Parties"),
unless the Surviving Corporation receives a written opinion of counsel, upon
which the Indemnified Parties shall have a right to rely and which shall be
delivered to them, that such modification is required by applicable law;
provided, however, in the event such modification alters, modifies or changes
the substance of such indemnification, the parties shall take all steps
reasonably necessary to alter, modify or change the terms hereof to provide
substantially similar benefits as shall be permitted by applicable law, and (ii)
all rights to indemnification as provided in any indemnification agreements with
any current or former directors, officers, employees or agents of the Company or
any of the its Subsidiaries as in effect as of the date hereof with respect to
matters occurring at or prior to the Effective Time shall survive the Merger and
thereafter terminate as provided in such agreements.
(b) For a period of six (6) years after the Effective Time,
the Surviving Corporation shall maintain officers' and directors' liability
insurance and fiduciary liability insurance covering the Indemnified Parties
(whether or not they are entitled to indemnification) or fiduciary liability
insurance policies on terms no less advantageous to such indemnified parties
than such existing insurance. The provisions of the immediately preceding
sentence shall be satisfied by the purchase and full prepayment of policies that
have been obtained by the Company and fully paid for by the Company prior to
Closing which policies provide such Indemnified Parties with coverage for an
aggregate period of six (6) years after the Effective Time with respect to
claims arising from facts or events that occurred on or before the Effective
Time.
(c) The Surviving Corporation shall advance to the
Indemnified Parties amounts needed to pay all reasonable expenses, including,
without limitation, attorneys' fees and disbursements and costs of
investigation, that may be incurred by any Indemnified Parties in enforcing the
indemnity and other provisions provided for in this Section 6.4 to the fullest
extent permitted by applicable law provided, however, the Indemnified Parties
shall reimburse the Surviving Corporation in accordance with, and if required
by, their respective indemnification agreements between the Company and such
Indemnified Parties.
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(d) In the event the Surviving Corporation or any of its
respective successors or assigns (i) consolidates with or merges into any other
Person and is not the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any Person as a condition precedent to any such
transaction, all necessary provisions shall be made so that the successors and
assigns of the Surviving Corporation fully assumes all of the obligations set
forth in this Section 6.4.
(e) This Section 6.4, which shall survive the consummation of
the Merger at the Effective Time and shall continue for the periods specified
herein, is intended to benefit the Company, the Surviving Corporation and the
Indemnified Parties (and the heirs, successors and representatives of the
Indemnified Parties), and shall be binding on all successors and assigns of
Parent and the Surviving Corporation and shall be enforceable by each
Indemnified Party and their heirs, representatives, and any Person or entity
referenced in this Section 6.4 or indemnified hereunder, each of whom may
enforce the provisions of this Section 6.4 (whether or not parties to this
Agreement). Without limiting the foregoing, the heirs, successors and
representatives of the Indemnified Parties shall be entitled to the benefits of
Section 6.4(b).
Section 6.5 Expenses. Except as set forth in this Section 6.5 and
Section 8.2, all fees and expenses incurred in connection with the transactions
contemplated by this Agreement, including, without limitation, the fees and
disbursements of counsel, financial advisors, accountants and consultants, shall
be paid by the party incurring such fees or expenses, whether or not the Merger
is consummated, except that each of Parent and the Company shall bear and pay
one-half of the costs and expenses solely arising out of the Merger (other than
the fees and expenses of each party's attorneys and accountants which shall be
paid by the party incurring such expenses) incurred by Parent, Merger Sub,
Capital Communications or the Company in connection with (i) the filings of the
premerger notification and report forms under the HSR Act (including filing
fees); and (ii) the filing of the Proxy Statement (including SEC filing fees).
Section 6.6 Public Announcement. Parent and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement or
any related agreements and shall not issue any such press release or make any
such public statement prior to such consultation and review by the other party
of such release or statement, except as may be required by applicable laws and
regulations, court process or by obligations pursuant to any listing agreement
with a national securities exchange or pursuant to applicable law or regulation.
Section 6.7 Transfer Taxes. Subject to Section 2.10(b), all liability
for any transfer or other similar taxes in connection with the consummation of
any transaction contemplated by this Agreement shall be borne by the Surviving
Corporation.
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ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to effect the Merger are subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
on the date hereof and at and as of the Closing Date (except for those
representations and warranties which address matters only as of a particular
date which need only be true and accurate as of such date), except where the
failure of such representations and warranties to be true and correct would not
reasonably be expected to have a material adverse effect on the Company.
(b) Covenants. The Company shall have performed in all
material respects any material obligation required to be performed by it under
this Agreement at or prior to the Closing Date.
(c) Consents. Other than filing the Certificate of Merger in
accordance with the DGCL and filings required under the HSR Act, any
authorization, consent or approval of (i) any Governmental Entities required to
be obtained prior to consummation of the Merger shall have been obtained and
(ii) the third parties listed in Sections 3.4(a) and 3.4(b) of the Disclosure
Schedules with respect to which consent is indicated on such Schedule to be
required to be obtained, shall have been obtained or made, free of any material
condition, prior to the Closing Date.
(d) Litigation. There are no actions, claims, suits or
proceedings pending against the Company challenging the Merger, this Agreement
or the transactions contemplated hereby, or seeking damages therefrom, which
would reasonably be expected to have a material adverse effect on the Company or
any of the transactions contemplated by this Agreement.
(e) Voting Agreement and Non-Competition Agreement. The
Voting Agreement and the Non-Competition Agreement shall have been duly executed
and delivered, Richard W. Clark shall have performed all of his obligations
under such agreements required to be performed by him on or prior to the Closing
and none of the Principal Stockholders shall be in breach of the Voting
Agreement and Richard W. Clark shall not be in breach of the Non-Competition
Agreement.
(f) Officers' Certificates. Each of Richard W. Clark, Francis
La Maina and William S. Simon shall have delivered to Parent and Merger Sub a
duly executed officer's certificate in the form attached as Section 7.1(f) of
the Disclosure Schedules.
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(g) Tax Withholding Forms and Certificates. Parent shall have
received a statement (in form and substance reasonably satisfactory to Parent)
that satisfies Parent's obligations under Treasury Regulation Section
1.1445-2(b)(2) in order to relieve Parent of any obligation to withhold any
portion of the payments pursuant to this Agreement to any of the Principal
Stockholders, or any other stockholder of the Company.
Section 7.2 Conditions to Obligations of the Company. The
obligations of the Company to effect the Merger are subject to the satisfaction
or waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Capital Communications, Parent and Merger Sub set forth in this
Agreement (disregarding all qualifications as to materiality or material adverse
effect set forth in such representations and warranties) shall be true and
correct on the date hereof and at and as of the Closing Date (except for those
representations and warranties that address matters only as of a particular date
which need only be true and accurate as of such date), except where the failure
of such representations and warranties to be true and correct would not
reasonably be expected to have a material adverse effect on Capital
Communications, Parent or Merger Sub.
(b) Covenants. Each of Capital Communications, Parent and
Merger Sub shall have performed in all material respects any material obligation
required to be performed by it under this Agreement at or prior to the Closing
Date.
Section 7.3 Conditions to Each Party's Obligation To Effect
the Merger Prior to the Closing Date. The respective obligations of each party
to effect the Merger are subject to the satisfaction or waiver on or prior to
the Closing Date of the following conditions:
(a) Stockholder Approval. Either (i) the Company shall have
obtained the Requisite Vote to approve this Agreement and the transactions
contemplated hereby to be performed by the Company in accordance with applicable
law and the Certificate of Incorporation of the Company, or (ii) the Merger can
be consummated without a meeting of stockholders in accordance with Section 253
of the DGCL.
(b) No Injunctions or Restraints. No statute, rule,
regulation, executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order enacted, entered, promulgated, enforced or
issued by any Governmental Entity or other legal restraint or prohibition
preventing the consummation of the Merger or the transactions contemplated
hereby shall be in effect; provided, in the case of a decree, injunction or
other order, each of the parties shall have used their best efforts to prevent
the entry of any such injunction or other order and to appeal as promptly as
possible any decree, injunction or other order that may be entered.
A-53
(c) HSR Act. Any waiting period (and any extension thereof)
applicable to the transactions contemplated by this Agreement under the HSR Act
shall have expired or shall have been terminated.
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
matters presented in connection with the Merger by the stockholders of the
Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if (i) the Merger has not
been consummated on or before July 31, 2002 (the "Outside Date"); provided,
however, that the right to terminate this Agreement pursuant to this Section
8.1(b)(i) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of the failure of the Merger
to have been consummated; (ii) a statute, rule, regulation or executive order
shall have been enacted, entered or promulgated prohibiting the consummation of
the Merger substantially on the terms contemplated hereby; or (iii) an order,
decree, ruling or injunction shall have been entered permanently restraining,
enjoining or otherwise prohibiting the consummation of the Merger substantially
on the terms contemplated hereby and such order, decree, ruling or injunction
shall have become final and non-appealable; provided, that the party seeking to
terminate this Agreement pursuant to this Section 8.1(b)(iii) shall have used
its reasonable best efforts to remove such order, decree, ruling or injunction
and shall not be in violation of Section 6.3; or (iv) if the other party is in
material breach of its representations or warranties or fails to perform in any
material respect its covenants or other agreements hereunder to the extent
required to have been performed at such time, which breach or failure to perform
is incapable of being cured by the party so breaching or failing to perform
prior to the Outside Date or, if capable of being cured by such date, has not
been cured within 30 days after the terminating party gives written notice of
such breach to the other party; provided, further, the Outside Date shall
automatically be extended by the number of days that the Special Meeting is
postponed pursuant to Section 6.1(a);
(c) by the Company, if the Board, after consultation with and
based upon the advice of outside legal counsel and its financial advisors, after
giving effect to all modifications to the Merger Consideration and all other
relevant terms and conditions, which may be proposed in writing by Parent, shall
have determined in good faith that an agreement in connection with a Superior
Proposal should be approved and entered into because consummating the
transactions contemplated by this Agreement would not result in a transaction
which is more favorable to its stockholders (other than the Principal
Stockholders) from a financial point of view, than the transaction contemplated
by the Superior Proposal; provided, however, that this Agreement may not be
terminated pursuant to this Section 8.1(c) unless (i) the Company shall have
provided Parent with at
A-54
least four (4) Business Days advance notice required under Section 5.3(b), and
(ii) concurrent with the termination, the Company pays Parent the fee required
by Section 8.2(b) hereof.
Section 8.2 Effect of Termination
(a) In the event of termination of this Agreement by either
the Company or Parent as provided in Section 8.1, this Agreement shall forthwith
become void and have no effect, without any liability or obligation on the part
of Parent or the Company, other than the provisions of Sections 6.2 and 6.5,
this Section 8.2 and Article IX and there shall be no other liability on the
part of Parent, Merger Sub or the Company or their respective officers or
directors except liability arising out of a material breach of this Agreement.
(b) In the event of termination of this Agreement by the
Company pursuant to Section 8.1(c), the Company shall concurrently with such
termination pay Parent a fee equal to either (i) $4,250,000 (four million two
hundred and fifty thousand dollars), or (ii) if such Superior Proposal provides
for the payment of consideration to the Principal Stockholders in excess of
$13.00 per share of Capital Stock, $4,085,000 (four million eighty-five thousand
dollars), ((i) or (ii) as applicable, the "Termination Fee"), payable by wire
transfer of immediately available funds, the receipt of which by Parent, shall
be a condition to the effectiveness of such termination provided, however, no
Termination Fee shall be payable if Capital Communications, Parent or Merger Sub
is in material breach of its representations and warranties or fails to perform
in any material respect its covenants or other agreements hereunder to the
extent required to be performed at such time. The Company acknowledges that the
agreements contained in this Section 8.2(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Parent and Merger Sub would not enter into this Agreement; accordingly, if the
Company fails to pay the amount due pursuant to this Section 8.2(b), and, in
order to obtain such payment, Parent commences a suit which results in a
judgment against the Company for the Termination Fee, the Company shall pay to
Parent its costs and expenses (including attorneys' fees and expenses) in
connection with such suit. The payment of the Termination Fee shall be paid
together with the payment of interest on the amount of the Termination Fee at
the prime rate of Citibank N.A. in effect on the date such payment was required
to be made.
(c) In the event of termination of this Agreement by the
Company pursuant to Section 8.1(a), (b) or (c), Capital Communications, the
Parent, Merger Sub and any Affiliate thereof shall be prohibited for two (2)
years from the date of termination from initiating or participating in any way
in a hostile tender offer for the Capital Stock of the Company.
Section 8.3 Amendment. This Agreement may be amended by the
mutual agreement of the parties at any time before or after any required
approval of matters presented in connection with the Merger by the stockholders
of the Company; provided, that after any such approval, there shall not be made
any amendment that by law requires further approval by such stockholders without
the further approval of such
A-55
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
Section 8.4 Extension; Waiver. At any time prior to the
Effective Time, the parties may, but are not obligated to (a) extend the time
for the performance of any of the obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties of the
other party contained in this Agreement or in any document delivered pursuant to
this Agreement or (c) subject to the proviso of Section 8.3, waive compliance by
the other party with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of those
rights.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Nonsurvival of Representations. None of the
representations and warranties in this Agreement shall survive the Effective
Time (except for the representation and warranty contained in Section 4.3, which
shall survive until the Merger Consideration has been paid to the Paying Agent
pursuant to Section 2.10(a)) and shall not be deemed waived or otherwise
affected by any investigation made by any party. This Section 9.1 shall not
limit or affect any covenant or agreement of the parties which by its terms
provides for performance after the Effective Time.
Section 9.2 Notices. All notices, demands, consents,
requests, instructions and other communications to be given or delivered or
permitted under or by reason of the provisions of this Agreement, or in
connection with the transactions contemplated hereby and thereby shall be in
writing and shall be deemed to be delivered and received by the intended
recipient as follows: (a) if personally delivered, on the Business Day of such
delivery (as evidenced by the receipt of the personal delivery service); (b) if
mailed by certified or registered mail return receipt requested, four (4)
Business Days after the aforesaid mailing; (c) if delivered by overnight courier
(with all charges having been prepaid), on the second Business Day of such
delivery (as evidenced by the receipt of the overnight courier service of
recognized standing); or (d) if delivered by facsimile transmission, on the
Business Day of such delivery if sent by 6:00 p.m. in the time zone of the
recipient, or if sent after that time, on the next succeeding Business Day (as
evidenced by the printed confirmation of delivery generated by the sending
party's telecopier machine). If any notice, demand, consent, request,
instruction or other communication cannot be delivered because of a changed
address of which no notice was given (in accordance with this Section 9.2), or
the refusal to accept same, the notice shall be deemed received on the Business
Day the notice is sent (as evidenced by a sworn affidavit of the sender). All
such notices, demands, consents, requests, instructions and other communications
will be sent to the following addresses or facsimile numbers as applicable:
A-56
If to the Merger Sub or Parent:
Allen Shapiro
Jules Haimovitz
CDP Investco, Inc.
9200 Sunset Blvd.
Los Angeles, CA 90064
Tel: (310) 786-4940
Fax: (310) 777-2140
and
Robert Cote
Senior Legal Counsel
Capital Communications CDPQ, Inc.
2001, avenue McGill College, 7e etage
Montreal, Quebec H3A1G1
Tel: (514) 847-2614
Fax: (514) 281-5212
with a copy of all notices and communications
concurrently sent to:
Jerome L. Coben, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071-3144
Tel: (213) 687-5010
Fax: (213) 687-5600
and
Sidney M. Horn, Esq.
Stikeman Elliott
Barristers & Solicitors
40th Floor
1155 Rene-Levesque Blvd. West
Montreal, Quebec
Tel: (514) 397-3342
Fax: (514) 397-3416
A-57
If to the Company:
Francis La Maina, President
dick clark productions, inc.
Burbank, CA 91505
Tel: (818) 841-3003_
Fax: (818) 954-8609
with a copy of all notices and communications
concurrently sent to:
Martin Eric Weisberg, Esq.
Jenkens & Gilchrist Parker Chapin LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
Tel: (212) 704-6050
Fax: (212) 704-6288
and to:
Solomon P. Friedman, Esq.
Moses & Singer LLP
1301 Avenue of the Americas
New York, NY 10019
Tel: (212) 554-7800
Fax: (212) 554-7700
If to Capital Communications:
Robert Cote
Senior Legal Counsel
Capital Communications CDPQ, Inc.
2001, avenue McGill College, 7e etage
Montreal, Quebec H3A1G1
Tel: (514) 847-2614
Fax: (514) 281-5212
with a copy of all notices and communications
concurrently sent to:
A-58
Sidney M. Horn, Esq.
Stikeman Elliott
Barristers & Solicitors
40th Floor
1155 Rene-Levesque Blvd. West
Montreal, Quebec
Tel: (514) 397-3342
Fax: (514) 397-3416
or to such other address as any party may specify by notice given to the other
party in accordance with this Section 9.2.
Section 9.3 Interpretation. When a reference is made in this Agreement
to an Article, Section or Schedule, such reference shall be to an Article or
Section of or a Schedule to this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
Section 9.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 9.5 Entire Agreement; No Third-Party Beneficiaries. This
Agreement (together with the schedules hereto) constitutes the entire agreement,
and supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter of this Agreement, and this
Agreement is not intended to confer upon any Person other than the parties any
rights or remedies hereunder, except that officers, directors, employees and
agents of the Company and its Subsidiaries are intended beneficiaries of the
covenants and agreements set forth in Section 6.4.
Section 9.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO ANY APPLICABLE CONFLICTS OF LAWS THAT WOULD DEFER TO THE SUBSTANTIVE LAWS OF
ANOTHER JURISDICTION.
Section 9.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, except that Merger Sub may assign, in its
sole discretion, any of or all its rights, interests and obligations under this
Agreement to any wholly-owned Subsidiary of Parent; provided such Subsidiary
assumes Merger Sub's obligations hereunder, and Merger Sub remains liable
hereunder. Subject to the immediately preceding sentence,
A-59
this Agreement will be binding upon, inure to the benefit of, and be enforceable
by, the parties and their respective successors and assigns.
Section 9.8 Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware or in Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to commit itself to the
personal jurisdiction of any Federal court located in the State of Delaware or
any Delaware state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement, (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a Federal or state court sitting in the
State of Delaware.
Section 9.9 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 herein is not affected in any manner
materially adverse to any party hereto, after taking into account the mitigation
contemplated by the next sentence. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually
acceptable manner.
Section 9.10 Independent Counsel. Each of the parties acknowledges that
it has been represented by independent counsel of its choice throughout all
negotiations that have preceded the execution of this Agreement and that it has
executed the same with consent and upon the advice of said independent counsel.
Each party and its counsel cooperated in the drafting and preparation of this
Agreement and the documents referred to herein, and any and all drafts relating
thereto shall be deemed the work product of the parties and may not be construed
against any party by reason of its preparation. Accordingly, any rule of law or
any legal decision that would require interpretation of any ambiguities in this
Agreement against the party that drafted it is of no application and is hereby
expressly waived. The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the intentions of the parties and this Agreement.
A-60
[PAGE LEFT INTENTIONALLY BLANK]
[signature page follows]
A-61
IN WITNESS WHEREOF, Parent, the Company and Merger Sub have
caused this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
CAPITAL COMMUNICATIONS CDPQ INC.
By: /s/ Helene Belanger /s/ Pierre Belanger
---------------------- -----------------------
Name: Helene Belanger Name: Pierre Belanger
Title: Vice President Title: President
DCPI INVESTCO, INC.
By: /s/ Pierre Belanger /s/ Robert Cote
---------------------- -----------------------
Name: Pierre Belanger Name: Robert Cote
Title: President Title: Vice President
DCPI MERGERCO, INC.
By: /s/ Pierre Belanger /s/ Robert Cote
---------------------- -----------------------
Name: Pierre Belanger Name: Robert Cote
Title: Vice President Title: Vice President
dick clark productions, inc.
By: /s/ Francis C. La Maina
------------------------
Name: Francis C. La Maina
Title: President and
Chief Operating Officer
A-62
Annex B
February 13, 2002
The Board of Directors
dick clark productions, inc.
3003 West Olive Avenue
Burbank, California 91505
Members of the Board of Directors:
We hereby confirm, as of the date hereof, our opinion (the "Opinion"),
as to the fairness, from a financial point of view, of the Consideration (as
defined below) to be received as a result of the Merger (as defined below) by
the stockholders of dick clark productions, inc. (the "Company") other than
Richard W. Clark, Karen W. Clark and Olive Enterprises, Inc. (the "Principal
Stockholders") to the stockholders of the Company other than the Principal
Stockholders that we presented to the Board of Directors of the Company (the
"Board") at its meeting on February 12, 2002.
We understand that Capital Communications CDPQ Inc., DCPI Investco,
Inc. (the "Parent"), DCPI Mergerco, Inc. ("Merger Sub") and the Company have
entered into an Agreement and Plan of Merger, dated as of February 13, 2002 (the
"Agreement"), pursuant to which (i) the Merger Sub will be merged with and into
the Company (the "Merger"), and the Company shall continue as the surviving
corporation (the "Surviving Corporation"), (ii) each issued and outstanding
share of Class A common stock and common stock of the Company (together, the
"Capital Stock") other than those held by (x) the Principal Stockholders, (y)
the Parent, Merger Sub, the Company or any subsidiary of the Company and (z) any
dissenting stockholders will be converted automatically into the right to
receive from the Surviving Corporation $14.50 in cash (the "Consideration"), and
(iii) each issued and outstanding share of Capital Stock held by the Principal
Stockholders will be converted automatically into the right to receive from the
Surviving Corporation $12.50 in cash.
We, as part of our investment banking business, are regularly engaged
in the valuation of businesses and their securities in connection with tender
offers, mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. We will receive a fee in
connection with services provided in rendering our Opinion pursuant to our
engagement agreement with the Company. As of the date of this letter, we or our
B-1
The Board of Directors
dick clark productions, inc.
February 13, 2002
affiliates are stockholders in the Company, and Enrique F. Senior, an Executive
Vice President and Managing Director of ours, also serves as a director of the
Company. In addition, we also act as a market maker in the Company's securities,
and in the ordinary course of our business, we or our affiliates may have long
or short positions, either on a discretionary or nondiscretionary basis, for our
own account or for those of our clients, in the securities of the Company.
In connection with delivering our Opinion, we:
(i) reviewed and analyzed a draft of the Agreement, drafts of
the agreements ancillary thereto and the financial terms of
the Merger;
(ii) reviewed and analyzed historical publicly available
business information and financial results of the Company,
including Securities and Exchange Commission filings of the
Company;
(iii) reviewed and analyzed non-public operating and financial
information of the Company, including (x) a management budget
for the fiscal year ending June 30, 2002 and (y) financial
estimates for the fiscal years ending June 30, 2003 and June
30, 2004, all provided by the management of the Company;
(iv) analyzed the present financial condition and business
prospects of the Company;
(v) reviewed and analyzed historical market prices and trading
volumes for the common stock of the Company since its initial
public offering;
(vi) analyzed the current ownership structure of the Company;
(vii) reviewed and analyzed financial and trading data for
selected publicly traded companies we deemed comparable to the
Company;
(viii) reviewed and analyzed publicly available financial
information relating to selected comparable merger and
acquisition transactions in the television production
industry;
(ix) analyzed the common stock price and market multiples of
the Company as compared to selected comparable companies;
(x) reviewed and analyzed the premiums paid in selected
comparable cash acquisition transactions;
B-2
The Board of Directors
dick clark productions, inc.
February 13, 2002
(xi) reviewed and analyzed the termination fees paid in
selected comparable cash acquisition transactions;
(xii) analyzed the financial multiples of the Merger as
compared to those of selected comparable transactions;
(xiii) conducted discussions with management of the Company;
(xiv) analyzed discounted cash flows based on estimates of the
management of the Company;
(xv) reviewed and analyzed prevailing economic, monetary and
market conditions; and
(xvi) performed such other analyses and reviewed such other
information as we deemed appropriate.
We have assumed and relied upon the accuracy and completeness of the
financial and other information used by us in arriving at our Opinion without
independent verification, and have further relied upon the assurances of
management of the Company that they are not aware of any facts that would make
such information inaccurate or misleading. In arriving at our Opinion, we
neither performed nor obtained any evaluations or appraisals of the assets or
liabilities of the Company. In addition to our review and analyses of the
specific information set forth above, our opinion herein reflects and gives
effect to our assessment of general economic, monetary, market and industry
conditions existing as of the date hereof as they may affect the business and
prospects of the Company. With respect to the financial projections provided to
us, we have assumed that they have been reasonably prepared in good faith
reflecting the best currently available estimates and judgments of the
management of the Company as to the future operating and financial performance
of the Company.
Our Opinion rendered herein does not constitute a recommendation of the
Merger over any other alternative transaction which may be available to the
Company. The Opinion contained herein relates to the fairness from a financial
point of view of the Consideration to be received by the stockholders of the
Company other than the Principal Stockholders as a result of the Merger to the
stockholders of the Company other than the Principal Stockholders and does not
address any other aspect of the Merger or any related transaction and does not
constitute a recommendation to any stockholder of the Company as to whether to
vote in favor of the Merger. It is understood that this letter is for the
information of the Board and may not be used for any other purpose without our
prior written consent, except that this letter may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission
with respect to the Merger.
B-3
The Board of Directors
dick clark productions, inc.
February 13, 2002
Based on the foregoing and subject to the qualifications stated herein,
we are of the Opinion that, as of the date hereof, the Consideration to be
received by the stockholders of Company other than the Principal Stockholders as
a result of the Merger is fair, from a financial point of view, to the
stockholders of the Company other than the Principal Stockholders.
Very truly yours,
ALLEN & COMPANY INCORPORATED
By: /s/ Kim M. Wieland
-----------------------
Kim M. Wieland
Managing Director
B-4
Annex C
February 13, 2002
The Board of Directors
dick clark productions, inc.
3003 West Olive Avenue
Burbank, CA 91505
Dear Sirs:
Ladenburg Thalmann & Co. Inc. ("Ladenburg") understands that dick clark
productions, inc., a Delaware corporation ("the Company"), Capital
Communications CDPQ Inc., a Quebec corporation ("Capital Communications"), DCPI
Investco, Inc., a Delaware corporation ("Parent"), and DCPI Mergerco, Inc., a
Delaware corporation ("Merger Sub"), have proposed entering into an Agreement
and Plan of Merger dated February 13, 2002 (the "Agreement") pursuant to which
Merger Sub shall be merged with and into the Company and the separate existence
of Merger Sub will cease and the Company shall continue as the surviving
corporation (the "Proposed Transaction"). Ladenburg further understands that at
the Effective Time, each issued and outstanding share of Capital Stock held by
stockholders other than shares held by the Principal Stockholders as defined in
the Agreement (the "Non-Affiliate Stockholders"), shall be converted
automatically into the right to receive from the surviving corporation $14.50 in
cash. Each issued and outstanding share of Capital Stock held by the Principal
Stockholders shall be converted automatically into the right to receive from the
surviving corporation $12.50 in cash (collectively, the "Merger Consideration").
In addition, each outstanding Company Stock Option shall be cancelled
immediately prior to the Effective Time in exchange for payment of an amount in
cash equal to the product of (i) the number of unexercised shares of the Company
Common Stock and (ii) the excess, if any, of the Merger Consideration over the
per share exercise price of such Company Stock Option.
In addition to a fairness opinion being provided to the Board of
Directors by Allen & Company Incorporated, you have requested the opinion of
Ladenburg, as investment bankers, as to whether the consideration to be received
by the Non-Affiliate Stockholders with respect to the Proposed Transaction is
fair as of the date hereof, from a financial point of view, to the Non-Affiliate
Stockholders. This opinion does not in any manner address, and shall not be
construed as addressing, the Company's underlying business decision to proceed
with the Proposed Transaction, the relative merits of the Proposed Transaction
as compared to any alternative business strategies
C-1
The Board of Directors
dick clark productions, Inc.
February 13, 2002
Page 2
that might exist for the Company, or the fairness or otherwise of any of the
other terms of the Proposed Transaction, including but not limited to whether or
not the consideration being paid to the Non-Affiliate Stockholders is fair from
a financial point of view when compared to the consideration to be received by
the Principal Stockholders.
In arriving at its opinion, Ladenburg has: (i) reviewed the draft
Agreement dated February 12, 2002; (ii) reviewed the Company's Annual Report to
shareholders on Form 10-K for the fiscal years ended June 30, 2001 and June 30,
2000; (iii) reviewed the Company's Quarterly Report to shareholders on Form 10-Q
for the quarters ended September 30, 2001; (iv) reviewed the Company's draft
Quarterly Report to shareholders on Form 10-Q for the quarter ended December 31,
2001; (v) reviewed certain other historical, operating and financial information
and projections, provided to us by the management of the Company relating to its
business prospects; (vi) compared the results of operations of the Company with
those of certain companies which we deemed to be reasonably comparable to the
Company; (vii) reviewed the financial terms, to the extent publicly available,
of certain transactions which we deemed to be reasonably comparable to the
Proposed Transaction; (viii) reviewed certain historical information regarding
trading of the common stock of the Company; and (ix) conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as Ladenburg deemed necessary in arriving at its opinion.
Ladenburg did not perform any due diligence with respect to Capital
Communications CDPQ, Inc., DCPI Investco, Inc. or DCPI Mergeco, Inc.
In rendering its opinion, Ladenburg has assumed and relied upon,
without independent verification, the accuracy and completeness of all financial
and other information publicly available or furnished to it by the Company and
its respective agents, or otherwise discussed with them. Ladenburg did not
undertake nor have we been furnished an evaluation or appraisal of any of the
individual assets or liabilities (contingent or otherwise) of the Company. With
respect to financial forecasts and other information provided to or otherwise
discussed with Ladenburg and prepared by the senior management of the Company
with respect to the expected future financial condition and performance of the
Company, Ladenburg assumed that such forecasts and other information were
reasonably prepared on bases reflecting the best currently available estimates
and judgements of such senior management. With respect to all legal matters, we
have relied on the advice of counsel to the Special Committee of the Board of
Directors of the Company and on the advice of counsel to the Company.
Ladenburg's opinion expressed herein is necessarily based upon financial,
economic, stock market and other conditions and circumstances existing and
disclosed as of the date hereof. Ladenburg did not undertake nor have we been
furnished an evaluation or appraisal of business arrangements among Capital
Communications, Parent and the Principal Stockholders that might be construed as
compensation to the Principal Stockholders in addition to the Merger
Consideration.
C-2
The Board of Directors
dick clark productions, Inc
February 13, 2002
Page 2
Ladenburg is acting as a financial advisor to the Board of Directors of
the Company in connection with the Proposed Transaction and will receive a fee
for its services and reimbursed expenses. In addition, the Company has agreed to
indemnify Ladenburg for certain liabilities arising out of such services.
The opinion expressed herein is strictly for the use of the Board of
Directors of the Company. Neither this opinion nor any copies or excerpts
therefrom may be relied upon, publicly distributed or disclosed to any third
person, firm or corporation without the express prior written consent of
Ladenburg which consent will not be unreasonably withheld.
Based upon and subject to the foregoing and other factors it deemed
relevant, Ladenburg is of the opinion that, as of the date hereof, the
consideration to be received by the Non-Affiliate Stockholders of the Company is
fair from a financial point of view to the Non-Affiliate Stockholders of the
Company.
Respectfully submitted,
/s/ Ladenburg Thalmann & Co. Inc.
Ladenburg Thalmann & Co. Inc.
C-3
ANNEX D
DELAWARE GENERAL CORPORATION LAW SECTION 262
--------------------------------------------
Section 262. Appraisal Rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S)228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251 (other than a merger effected pursuant to (S)251(g)
of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to (S)(S)251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
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d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (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
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, then, either a constituent corporation before the
effective date of the merger or consolidation, or the surviving or resulting
corporation within ten days thereafter, shall notify each of the holders of any
class or series of stock of such constituent corporation who are entitled to
appraisal rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such class or series of
stock of such constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such notice
did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a second
notice before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary
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or of the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's 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 such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its
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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 such stockholder's certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder 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 the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded 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 such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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PRELIMINARY PROXY MATERIALS --
CONFIDENTIAL, FOR THE USE OF THE
SECURITIES AND EXCHANGE COMMISSION ONLY
dick clark productions, inc.
3003 West Olive Avenue
Burbank, California 91505-4590
THIS PROXY IS SOLICITED BY dick clark productions'
BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS
To be held on ______ __, 2002
The undersigned holder of common stock of dick clark productions, inc., a
Delaware corporation (the "Company"), hereby appoints [_______________________],
and each of them, as proxies for the undersigned, each with full power of
substitution, for and in the name of the undersigned to act for the undersigned
and to vote, as designated below, all of the shares of stock of the Company that
the undersigned is entitled to vote at the Special Meeting of Stockholders of
the Company, to be held on ______ __, 2002 at 10:00 a.m. local time, at The
Holiday Inn Burbank, 150 East Angeleno Avenue, Burbank, CA 91502 and at any
adjournment or postponement thereof.
The Board of Directors recommends a vote FOR adoption of the Agreement
and Plan of Merger.
1. Approval and adoption of the Agreement and Plan of Merger as
described in the Company's Proxy Statement.
[_]FOR [_]AGAINST [_]ABSTAIN
2. Upon such other matters as may properly come before the Special
Meeting.
(Continue and Sign on Other Side)
(Continued from other side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" THE PROPOSAL SET FORTH IN ITEM 1 AND WITH REGARD TO
OTHER MATTERS THAT MAY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR
ADJOURNMENT THEREOF, IN THE DISCRETION OF THE PROXYHOLDERS AS DESCRIBED IN THE
PROXY STATEMENT.
The undersigned hereby acknowledges receipt of the Notice of the
Special Meeting and the accompanying proxy statement.
____________________________
(Signature)
____________________________
(Signature if held jointly)
Date__________________, 2002
Please sign exactly as name appears hereon and mail it promptly even though you
now plan to attend the Special Meeting. When shares are held by joint tenants,
both should sign. When signing as Attorney, Executor, Administrator, Guardian or
Trustee, please add your full title as such. If a corporation, please sign in
full corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
PLEASE MARK, SIGN AND DATE THIS PROXY CARD
AND PROMPTLY RETURN IT IN THE ENVELOPE PROVIDED.
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
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