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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
SPELLING ENTERTAINMENT GROUP INC.
(Name of Subject Company)
SPELLING ENTERTAINMENT GROUP INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.001 PER SHARE
(Title of Class of Securities)
847807104
(CUSIP Number of Class of Securities)
SALLY SUCHIL, ESQ.
SENIOR VICE PRESIDENT--
GENERAL COUNSEL, SECRETARY AND ADMINISTRATION
5700 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90036
(323) 965-5700
(Name, address and telephone number of person authorized to receive
notice and communication on behalf of the person(s) filing statement).
WITH A COPY TO:
ROBERT B. PINCUS, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
ONE RODNEY SQUARE
WILMINGTON, DELAWARE 19801
(302) 651-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Spelling Entertainment Group Inc., a
Delaware corporation (the "Company"), and the address of the principal executive
offices of the Company is 5700 Wilshire Boulevard, Los Angeles, California
90036. The title of the class of equity securities to which this statement
relates is the common stock, par value $0.001 per share (the " Common Stock" or
the "Shares"), of the Company.
ITEM 2. TENDER OFFER OF THE PURCHASER.
This statement relates to the tender offer by VSEG Acquisition Inc., a
Delaware corporation ("Purchaser") and a wholly owned subsidiary of Viacom
International Inc., a Delaware corporation ("Parent"), disclosed in a Tender
Offer Statement on Schedule 14D-1, dated May 21, 1999 (the "Schedule 14D-1"), to
purchase all issued and outstanding Shares at a price of $9.75 per Share, net to
the seller in cash (the "Per Share Amount"), upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated May 21, 1999 (the "Offer to
Purchase"), and the related Letter of Transmittal (which together constitute the
"Offer"). Parent is a wholly owned subsidiary of Viacom Inc., a Delaware
corporation ("Viacom").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of May 17, 1999 (the "Merger Agreement"), among Parent, Purchaser and the
Company. The Merger Agreement provides that, among other things, as soon as
practicable after the purchase of Shares pursuant to the Offer and the
satisfaction of the other conditions set forth in the Merger Agreement, in
accordance with the relevant provisions of the General Corporation Law of the
State of Delaware, as amended (the "DGCL"), Purchaser will be merged with and
into the Company. Following consummation of the Merger, the Company will
continue as the surviving corporation (the "Surviving Corporation") and will be
a direct wholly owned subsidiary of Parent. At the effective time of the Merger
(the "Effective Time"), each Share issued and outstanding immediately prior to
the Effective Time held by the holders of Shares, other than Parent and its
affiliates (the "Public Stockholders"), will be canceled and, subject to
appraisal rights under the DGCL, converted automatically into the right to
receive $9.75 in cash, or, in the event any higher price is paid in the Offer,
such higher price (the "Merger Consideration"), without interest.
A copy of the Merger Agreement is filed herewith as Exhibit 1 and is
incorporated herein by reference.
As set forth in the Schedule 14D- 1, the principal executive offices of
Parent and Purchaser are located at 1515 Broadway, New York, New York 10036.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Except as set forth in this Item 3(b), to the knowledge of the Company,
there are no material contracts, agreements, arrangements or understandings and
no actual or potential conflicts of interest between the Company or its
affiliates and (i) the Company's executive officers, directors or affiliates or
(ii) Parent or the Purchaser or their respective executive officers, directors
or affiliates.
ARRANGEMENTS WITH PARENT, PURCHASER OR THEIR AFFILIATES
THE MERGER AGREEMENT
The following is a summary of certain material provisions of the Merger
Agreement. This summary does not purport to be complete and is qualified in its
entirety by reference to the complete text of the
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Merger Agreement, a copy of which is filed as Exhibit 1 hereto and is
incorporated herein by reference. Capitalized terms not otherwise defined below
shall have the meanings set forth in the Merger Agreement.
THE OFFER. The Merger Agreement provides for the commencement of the Offer
as promptly as reasonably practicable, but in no event later than five business
days after the initial public announcement of Purchaser's intention to commence
the Offer. The obligation of Purchaser to accept for payment and pay for Shares
tendered pursuant to the Offer is subject to the satisfaction of certain
conditions that are described in the enclosed Offer to Purchase under the
caption "THE TENDER OFFER--Section 12. Certain Conditions of the Offer."
Purchaser and Parent have agreed that, without the prior written consent of the
Special Committee, no change in the Offer may be made which decreases the price
per Share payable in the Offer, which reduces the maximum number of Shares to be
purchased in the Offer, which changes the form of consideration payable in the
Offer, which adds to, modifies or supplements the conditions to the Offer set
forth in the enclosed Offer to Purchase under the caption "THE TENDER
OFFER--Section 12. Certain Conditions of the Offer," or which extends the
expiration date of the Offer beyond the twentieth business day following
commencement thereof; PROVIDED, HOWEVER, Purchaser may extend the expiration
date of the Offer, (i) upon the occurrence of any of the events set forth in the
enclosed Offer to Purchase under the caption "THE TENDER OFFER--Section 12.
Certain Conditions of the Offer," (ii) to the extent necessary to respond to
comments on the Offer Documents from the Commission and (iii) on one additional
occasion, for a period not to exceed ten business days. Purchaser and Parent may
also make such other changes in the terms or conditions of the Offer as are not
materially adverse to the holders of Shares without the prior written consent of
the Special Committee. The term "Offer Documents" means the Schedule 14D-1, the
Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3"), the
enclosed Offer to Purchase and the other documents, in each case filed by
Purchaser and Parent with the Commission in connection with the Offer, together
with all supplements and amendments thereto.
THE MERGER. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, and in accordance with the DGCL, at the Effective
Time, Purchaser shall be merged with and into the Company. As a result of the
Merger, the separate corporate existence of Purchaser will cease and the Company
shall continue as the Surviving Corporation. Upon consummation of the Merger,
each Share issued and outstanding immediately prior to the Effective Time held
by a Public Stockholder (other than any Shares as to which the holder has
perfected his or her Delaware law appraisal rights ("Dissenting Shares")) shall
be canceled and shall be converted automatically into the right to receive from
Surviving Corporation the Merger Consideration payable, without interest. Each
Share not held by a Public Stockholder immediately prior to the Effective Time
shall be canceled without any conversion thereof and no payment or distribution
shall be made with respect thereto.
Pursuant to the Merger Agreement, each share of common stock, par value $.01
per share, of Purchaser issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock, par value $.01 per share, of
the Surviving Corporation.
DIRECTORS AND OFFICERS, CERTIFICATE OF INCORPORATION AND BY-LAWS. The
Merger Agreement provides that the directors of Purchaser immediately prior to
the Effective Time (including Mr. Spelling) and the officers of the Company
immediately prior to the Effective Time will be the initial directors and
officers of the Surviving Corporation. The Merger Agreement also provides that
Mr. Spelling, the current Vice Chairman of the Board, will be the Chairman of
the Surviving Corporation. The Merger Agreement provides that the Certificate of
Incorporation of the Company, as in effect immediately prior to the Effective
Time, will be amended as set forth in the Merger Agreement, and the Certificate
of Incorporation as so amended at the Effective Time, will be the Certificate of
Incorporation of the
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Surviving Corporation. The Merger Agreement also provides that the By-laws of
Purchaser, as in effect immediately prior to the Effective Time, will be the
By-laws of the Surviving Corporation.
TREATMENT OF STOCK OPTIONS; OPTIONHOLDER AGREEMENTS. Pursuant to the Merger
Agreement, the Company shall take all actions necessary (including obtaining any
and all required consents from employees) such that immediately after the Tender
Offer Acceptance Date (as defined below), each outstanding option to purchase
Shares (in each case, an "Option") granted under the Company's stock option
plans, including, The Spelling Entertainment Group Inc. 1987 Stock Option Plan
and The Spelling Entertainment Group Inc. 1994 Stock Option Plan (the "Option
Plans"), whether or not then exercisable, shall be canceled by the Company. The
Merger Agreement provides that immediately after the Tender Offer Acceptance
Date, each holder of a canceled Option shall be entitled to receive from
Purchaser in consideration for the cancellation of such Option, an amount in
cash equal to the product of (i) the number of Shares previously subject to such
Option and (ii) the excess, if any, of the Per Share Amount over the exercise
price per Share previously subject to such Option. The Merger Agreement provides
that all applicable withholding taxes attributable to the payments made
thereunder or to distributions contemplated thereby shall be deducted from the
amounts payable thereunder and all such taxes attributable to the exercise or
deemed exercise of Options on or after the Effective Time shall be withheld from
the Merger Consideration. The term "Tender Offer Acceptance Date" means the date
on which Purchaser shall have accepted for payment all Shares validly tendered
and not withdrawn prior to the expiration date of the Offer. Except as otherwise
agreed to by the parties to the Merger Agreement and to the extent permitted
under the Option Plans, (i) the Option Plans shall terminate as of the Effective
Time and (ii) the Company shall use all reasonable efforts to ensure that
following the Effective Time no holder of Options shall have any right
thereunder to acquire any equity securities of the Company.
In order to prevent the dilution of its greater than 80% interest in the
Common Stock of the Company that could result from the exercise of Options
during the period between the commencement of the Offer and the earlier of (i)
the Tender Offer Acceptance Date and (ii) the expiration of the Offer prior to
the purchase of any Shares thereunder, Parent, prior to the commencement of the
Offer, entered into agreements (each an "Optionholder Agreement") with various
directors, officers and employees who are holders of Options covering
approximately 2,583,055 Shares, pursuant to which such holders of Options have
agreed not to exercise their Options during such period of time, and Parent has
agreed to cause such holders' Options (consistent with the treatment of all
options under the terms of the Merger Agreement) to be canceled immediately
after the Tender Offer Acceptance Date and to make the payments described in the
paragraph above to the holders of Options.
WITHHOLDING TAXES. The Surviving Corporation or the designated paying agent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to the Merger Agreement to any holder of Shares any amounts
that the Surviving Corporation or such paying agent is required to deduct and
withhold with respect to the making of such payment under the United States
Internal Revenue Code of 1986, as amended, the rules and regulations promulgated
thereunder or any provision of state, local or foreign tax law.
AGREEMENTS OF PARENT, PURCHASER AND THE COMPANY; STOCKHOLDERS' MEETING.
Pursuant to the Merger Agreement, the Company shall, if required by applicable
law in order to consummate the Merger, take all necessary action to duly call,
give notice of, convene and hold a special meeting of its stockholders as soon
as practicable following consummation of the Offer for the purpose of
considering and taking action on the Merger Agreement and the Transactions (the
"Stockholders' Meeting"). At the Stockholders' Meeting, Parent and Purchaser
shall cause all Shares then owned by them to be voted in favor of the approval
and adoption of the Merger Agreement and the Transactions. In the event a
Stockholders' Meeting is called, the Company shall use its reasonable best
efforts to solicit from stockholders of the Company proxies in favor of the
approval and adoption of the Merger Agreement
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and to secure the vote or consent of stockholders required by the DGCL to
approve and adopt the Merger Agreement, unless otherwise required by the
applicable fiduciary duties of the directors of the Company or of the Company's
directors constituting the Special Committee, as determined by such directors in
good faith, and after consultation with independent legal counsel (which may
include the Company's regularly engaged legal counsel).
PROXY STATEMENT. The Merger Agreement provides that Parent, Purchaser and
the Company shall, if required by applicable law, as soon as practicable
following consummation of the Offer, file a proxy statement (the "Proxy
Statement") with respect to the Stockholders' Meeting with the Commission under
the Exchange Act, and use its best efforts to have the Proxy Statement cleared
by the Commission. Parent, Purchaser and the Company shall cooperate with each
other in the preparation of the Proxy Statement, and the Company shall notify
Parent of the receipt of any comments of the Commission with respect to the
Proxy Statement and of any requests by the Commission for any amendment thereof
or supplement thereto or for additional information and shall provide to Parent
promptly copies of all correspondence between the Company or any representative
of the Company and the Commission. The Company shall give Parent and its counsel
the opportunity to review the Proxy Statement prior to its being filed with the
Commission and shall give Parent and its counsel the opportunity to review all
amendments and supplements to the Proxy Statements and all responses to requests
for additional information from the Commission and replies to comments from the
Commission prior to their being filed with, or sent to, the Commission. Each of
the Company, Parent and Purchaser shall use its reasonable efforts after
consultation with the other parties to the Merger Agreement, to respond promptly
to all such comments of and requests by the Commission and to cause the Proxy
Statement and all required amendments thereof and supplements thereto to be
mailed to the holders of Shares entitled to vote at the Stockholders' Meeting at
the earliest practicable time.
CONDUCT OF BUSINESS. Pursuant to the Merger Agreement, prior to the
Effective Time, unless otherwise expressly contemplated by the Merger Agreement
or consented to in writing by Parent, the Company shall and shall cause its
subsidiaries (the "Subsidiaries" and, individually, a "Subsidiary") to (i)
operate its business in the usual and ordinary course consistent with past
practices, (ii) use its reasonable best efforts to preserve substantially intact
its business organization, maintain its rights and franchises, retain the
services of its respective principal officers and key employees and maintain its
relationships with its respective principal customers, suppliers and other
persons with which it or any of its subsidiaries has significant business
relations and (iii) use its reasonable best efforts to maintain and keep its
properties and assets in as good repair and condition as at present, ordinary
wear and tear excepted.
ACCESS TO INFORMATION. Pursuant to the Merger Agreement, from the date of
the Merger Agreement to the Effective Time, the Company shall, and shall cause
the officers, directors, employees, auditors and agents of the Company, to
afford the officers, employees and agents of Parent and Purchaser complete
access at all reasonable times to the officers, employees, agents, properties,
offices, plants and other facilities, books and records of the Company, and
shall furnish Parent and Purchaser with all financial, operating and other data
and information as Parent or Purchaser, through its officers, employees or
agents, may reasonably request.
DIRECTORS AND OFFICERS' INDEMNIFICATION AND INSURANCE. The Merger Agreement
further provides that the By-laws of the Surviving Corporation shall contain
provisions no less favorable with respect to indemnification of the officers and
directors of the Company than those set forth in Article XII of the By-laws of
the Company, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at the Effective
Time were directors or officers, employees, fiduciaries or agents of the Company
in respect of actions or omissions occurring at or prior to the Effective Time,
unless such modification shall be required by law.
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The Merger Agreement also provides that from and after the Effective Time,
Parent and the Surviving Corporation shall, to the fullest extent permitted
under the DGCL, indemnify and hold harmless, each present and former director
and officer of the Company (collectively, the "Indemnified Parties") against all
costs and expenses (including attorneys' fees), judgments, fines, losses,
claims, damages, liabilities and settlement amounts paid in connection with any
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), based on the fact that such person is or was a
director or officer of the Company and arising out of or pertaining to any
action or omission occurring at or before the Effective Time (and shall promptly
pay any expenses in advance of the final disposition of such action or
proceeding to each Indemnified Party to the fullest extent permitted under the
DGCL, upon receipt from the Indemnified Party to whom expenses are to be
advanced of any undertaking to repay such advances as required under the DGCL).
In the event of any such actual or threatened claim, action, suit, proceeding or
investigation, the Merger Agreement provides that (i) the Surviving Corporation
shall pay the reasonable fees and expenses of counsel selected by the
Indemnified Parties, which counsel shall be reasonably satisfactory to the
Surviving Corporation, promptly after statements therefor are received and shall
pay all other reasonable expenses in advance of the final disposition of such
action, (ii) the Surviving Corporation shall cooperate and use all reasonable
efforts to assist in the vigorous defense of any such matter and (iii) to the
extent any determination is required to be made with respect to whether any
Indemnified Party's conduct complies with the standards set forth under the
DGCL, such determination shall be made by independent legal counsel selected by
the Indemnified Party and reasonably acceptable to the Surviving Corporation;
PROVIDED, HOWEVER, that the Surviving Corporation shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld or delayed); and PROVIDED FURTHER that the Surviving
Corporation shall not be obligated to pay the fees and expenses of more than one
counsel (plus appropriate local counsel) for all Indemnified Parties in any
single action except to the extent, as determined by counsel to the Indemnified
Parties, that two or more of such Indemnified Parties have conflicting interests
in the outcome of such action, in which case such additional counsel (including
local counsel) as may be required to avoid any such conflict or likely conflict
may be retained by the Indemnified Parties at the expense of the Surviving
Corporation.
The Merger Agreement provides that the Surviving Corporation shall use its
reasonable best efforts to maintain in effect for three years from the Effective
Time, if available, the current directors' and officers' liability insurance
policies maintained by the Company (PROVIDED that the Surviving Corporation may
substitute therefor policies of at least the same coverage containing terms and
conditions which are not materially less favorable) with respect to matters
occurring prior to the Effective Time; PROVIDED, HOWEVER, that in no event shall
the Surviving Corporation be required to expend more than an amount per year
equal to 150% of the current annual premiums paid by the Company for such
insurance.
The Merger Agreement provides that in the event the Surviving Corporation or
any of its respective successors or assigns (i) consolidates with or merges into
any other person and shall not be the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers all or substantially
all of its properties and assets to any person, then, and in each such case,
proper provision shall be made so that the successors and assigns of the
Surviving Corporation, or, at Parent's option, Parent, shall assume the
foregoing indemnity obligations.
The Merger Agreement provides that Parent shall pay all reasonable expenses
incurred by any Indemnified Party in connection with the enforcement of the
provisions of the Merger Agreement relating to directors' and officers'
indemnification and insurance.
NOTIFICATION OF CERTAIN MATTERS. The Merger Agreement provides that the
Company shall give prompt notice to Parent, and Parent shall give prompt notice
to the Company, of (i) the occurrence, or nonoccurrence, of any event the
occurrence, or nonoccurrence, of which would be likely to cause any
representation or warranty contained in the Merger Agreement to be untrue or
inaccurate and (ii) any
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failure of the Company, Parent or Purchaser, as the case may be, to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it thereunder; PROVIDED, HOWEVER, that the delivery of any notice pursuant to
the provisions of the Merger Agreement relating to notification of certain
matters shall not limit or otherwise affect the remedies available under the
Merger Agreement to the party receiving such notice.
The Merger Agreement provides that the Company shall give prompt written
notice to Parent of any proposal, offer or other communication from any person
(i) relating to any acquisition or purchase of all or any portion of the capital
stock of the Company or any Subsidiary or assets of the Company or any
Subsidiary, (ii) to enter into any business combination with the Company or any
Subsidiary or (iii) to enter into any other extraordinary business transaction
involving or otherwise relating to the Company or any subsidiary. The Merger
Agreement also provides that the Company shall notify Parent promptly if any
such proposal or offer, or any inquiry or other contact with any person with
respect thereto, is made and shall, in any such notice to Parent, indicate in
reasonable detail the identity of the person making such proposal, offer,
inquiry or contact and the terms and conditions of such proposal, offer, inquiry
or other contact.
PUBLIC ANNOUNCEMENTS. Pursuant to the Merger Agreement, Parent and the
Company shall each obtain the prior consent of each other before issuing any
press release or otherwise making any public statements with respect to the
Merger Agreement or any transaction contemplated thereby and shall not issue any
such press release or make any such public statement without such prior consent,
except as may be required by law or any listing agreement with a national
securities exchange to which Parent or the Company is a party.
FURTHER ACTION. The Merger Agreement provides that, subject to its terms
and conditions, each of the parties thereto covenants and agrees to use all
reasonable best efforts to deliver or cause to be delivered such documents and
other papers and to take or cause to be taken such further actions as may be
necessary, proper or advisable under applicable laws to consummate and make
effective the transactions contemplated by the Merger Agreement, including the
Merger.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties of the parties thereto including
representations by the Company, Parent and Purchaser as to the enforceability of
the Merger Agreement. The Company also has provided, subject to appropriate
materiality standards, representations and warranties as to absence of certain
changes or events concerning the Company's business, compliance with law,
absence of litigation, corporate status, capitalization, the accuracy of
financial statements and filings with the Commission and intellectual property
rights.
CONDITIONS TO THE MERGER. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of the following conditions, any or all of
which may be waived, in whole or in part, to the extent permitted by applicable
law: (i) the Merger Agreement and the transactions contemplated thereby shall
have been approved and adopted by the affirmative vote of the stockholders of
the Company to the extent required by the DGCL and the Certificate of
Incorporation and the By-laws of the Company; (ii) no foreign, United States or
state governmental authority or other agency or commission or foreign, United
States or state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of making the acquisition of Shares
by Purchaser illegal or otherwise restricting, preventing or prohibiting
consummation of the Offer or the Merger; and (iii) Purchaser or its permitted
assignee shall have purchased all Shares validly tendered and not withdrawn
pursuant to the Offer; PROVIDED, HOWEVER, that this condition shall not be
applicable to the obligations of Parent or Purchaser if, in breach of the
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Merger Agreement or the terms of the Offer, Purchaser fails to purchase any
Shares validly tendered and not withdrawn pursuant to the Offer.
TERMINATION; FEES AND EXPENSES. The Merger Agreement may be terminated and
the Merger and the other transactions contemplated thereby may be abandoned at
any time prior to the Effective Time, notwithstanding any requisite approval and
adoption of the Merger Agreement and the transactions contemplated thereby by
the stockholders of the Company: (i) by mutual written consent duly authorized
by the Board of Directors of Parent, Purchaser and the Company, if such
termination is also approved by the Special Committee; (ii) by either Parent,
Purchaser or the Company if (a) the Effective Time shall not have occurred on or
before December 31, 1999; PROVIDED, HOWEVER, that such right to terminate shall
not be available to any party whose failure to fulfill any obligation under the
Merger Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date or (b) any court of competent
jurisdiction or other governmental authority shall have issued an order, decree
or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable; (iii) by Parent, if (a) due to an occurrence or
circumstance that would result in a failure to satisfy any condition set forth
in the enclosed Offer to Purchase under the caption "THE TENDER OFFER--Section
12. Certain Conditions of the Offer," Purchaser shall have (1) failed to
commence the Offer within 60 days following the date of the Merger Agreement,
(2) terminated the Offer without having accepted any Shares for payment
thereunder, or (3) failed to pay for the Shares validly tendered pursuant to the
Offer within 90 days following the commencement of the Offer, unless such
termination or failure to pay for Shares shall have been caused by or resulted
from the failure of Parent or Purchaser to perform in any material respect any
covenant or agreement of either of them contained in the Merger Agreement or the
material breach by Parent or Purchaser of any representation or warranty of
either of them contained in the Merger Agreement or (b) prior to the purchase of
any Shares validly tendered pursuant to the Offer, the Special Committee shall
have withdrawn or modified in a manner that is, in the reasonable judgment of
Parent, materially adverse to Parent or Purchaser, its approval or
recommendation of the Merger Agreement, the Offer, the Merger or any other
transaction contemplated by the Merger Agreement or shall have recommended
another merger, consolidation or business combination involving, or acquisition
of, the Company or its assets or another tender offer for Shares, or shall have
resolved to do any of the foregoing; (iv) by the Company, upon approval of the
Special Committee, if due to an occurrence or circumstance that would result in
a failure to satisfy any condition set forth in the enclosed Offer to Purchase
under the caption "THE TENDER OFFER--Section 12. Certain Conditions of the
Offer," Purchaser shall have (a) failed to commence the Offer within 60 days
following the date of the Merger Agreement, (b) terminated the Offer without
having accepted any Shares for payment thereunder, or (c) failed to pay for the
Shares validly tendered pursuant to the Offer within 90 days following the
commencement of the Offer, unless such termination or failure to pay for Shares
shall have been caused by or resulted from the failure of the Company to perform
in any material respect any covenant or agreement of it contained in the Merger
Agreement or the material breach by the Company of any representation or
warranty of it contained in the Merger Agreement or (v) by the Company, upon
approval of the Special Committee, if any representation or warranty of Parent
and Purchaser in the Merger Agreement which is qualified as to materiality shall
not be true and correct in all respects or any such representation or warranty
that is not so qualified shall not be true and correct in any material respect,
in each case as if such representation or warranty was made as of such time on
or after the date of the Merger Agreement, or Parent or Purchaser shall have
failed to perform in any material respect any obligation or to comply in any
material respect with any agreement or covenant of Parent or Purchaser to be
performed or complied with by it under the Merger Agreement; PROVIDED that if
such material breach or failure to perform is curable by Parent or Purchaser
through the exercise of its reasonable efforts and for so long as Parent or
Purchaser continues to exercise such reasonable efforts, the Company may not
terminate the Merger Agreement under Section 8.01(e) thereof.
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The right of any party hereto to terminate the Merger Agreement pursuant to
the provisions of the Merger Agreement relating to termination will remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any party thereto, any person controlling any such party or any
of their respective officers or directors, whether prior to or after the
execution of the Merger Agreement.
In the event of the termination of the Merger Agreement, the Merger
Agreement shall forthwith become void, except for certain provisions of the
Merger Agreement (including those related to fees and expenses described below)
which survive termination. The Merger Agreement also provides that no party
shall be relieved from liability for any wilful breach thereof.
All fees and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby shall be paid by Parent.
CERTAIN TRANSACTIONS
Parent owns more than 80% of the outstanding Common Stock. Viacom owns 100%
of the outstanding common stock of Parent. The Company is an indirect, more than
80%-owned subsidiary of Viacom.
The Company and Viacom entered into a number of agreements to define the
ongoing relationship between the two companies. Because of Viacom's control over
the Company's operations, these agreements were not the result of negotiations
between independent parties, however, the Company and Viacom believe that terms
of such agreements are as favorable to the Company as could be obtained from an
unaffiliated party. The following is a summary of certain agreements between the
Company and Viacom (or their respective subsidiaries):
LINE OF CREDIT. On September 30, 1996, the Company and Viacom executed a
credit agreement (the "Viacom Credit Agreement"), which provides for (i) a term
loan of $200,000,000 and (ii) a revolving credit facility of $155,000,000 to
fund the Company's working capital and other requirements. All outstanding
borrowings under the Viacom Credit Agreement, as amended, mature on December 31,
2000. As of March 31, 1999 there were borrowings in the amount $231,000,000
outstanding under the Viacom Credit Agreement. Under the Viacom Credit
Agreement, the Company pays an annual fee (currently 0.2375%) based on the
unused portion of the facility, as well as certain facility and administration
fees. Effective January 1, 1999, interest on all outstanding borrowings is
payable, at the Company's option, at LIBOR plus a spread (currently 2.50%) or at
Citibank N.A.'s base rate. The spread is based on a sliding scale with regard to
the Company's leverage ratio, as defined. Borrowings under the Viacom Credit
Agreement are secured by all of the assets of the Company and its domestic
subsidiaries, and the entire amount outstanding under the Viacom Credit
Agreement may be accelerated if Viacom's borrowings under its separate credit
facilities were to be accelerated. Borrowings under the Viacom Credit Agreement
may be accelerated in the event of a change in control of the Company, as
defined in the Viacom Credit Agreement. Parent intends to terminate and
capitalize the Viacom Credit Agreement after the Effective Time.
TAX AGREEMENT. Viacom owns approximately 80% of the outstanding shares of
the Company's Common Stock and, therefore, the Company is required to be
included in the consolidated federal income tax return of Viacom. The Directors
of the Company approved an agreement dated November 12, 1997 between the Company
and Viacom that provides for the administration of federal, state and foreign
tax matters (the "Tax Agreement"). Under the Tax Agreement, the Company will
remain in the same tax position as it would have if it were continuing to file
its tax returns separate and apart from Viacom; as a result, the Company does
not anticipate any material impact to its financial condition or results of
operations.
8
ARRANGEMENTS WITH EXECUTIVE OFFICERS, DIRECTORS OR AFFILIATES OF THE COMPANY
GENERAL. In considering the recommendation of the Special Committee and of
the Board with respect to the Offer and the Merger and the fairness of the
consideration to be received in the Offer and the Merger, Public Stockholders
should be aware that members of the Company's management and the Board have the
interests and relationships summarized below that may present them with
potential conflicts of interest in connection with the Offer and the Merger. The
Special Committee and the Board recognized such interests and determined that
such interests neither supported nor detracted from the fairness of the Offer
and the Merger to the Public Stockholders.
COMPENSATION OF MEMBERS OF THE SPECIAL COMMITTEE. Mr. William M. Haber has
been compensated in the amount of $20,000 for serving as a member of the Special
Committee. Mr. John L. Muething has been compensated in the amount of $25,000
for serving as the chairman of the Special Committee. This compensation was
authorized by the Board in order to compensate the members thereof for the
significant additional time commitment that was required of them in connection
with fulfilling their duties and responsibilities as members of the Special
Committee and was paid without regard to whether the Special Committee approved
the Offer and the Merger or whether the Merger was consummated.
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The officers of the
Company immediately prior to the Effective Time will be the officers of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified. Mr. Spelling, the Vice Chairman of the Board of the
Company, will be the Chairman as well as a director of the Surviving
Corporation.
OWNERSHIP OF COMMON STOCK. As of April 30, 1999, the directors and
executive officers of the Company, as a group, beneficially owned an aggregate
of 50,500 Shares (representing approximately .05% of the then outstanding
Shares), excluding shares subject to Options. As of April 30, 1999, the members
of the Special Committee, as a group, beneficially owned an aggregate of 2,000
Shares. All such Shares held by such directors and executive officers and by the
members of the Special Committee will be treated in the Merger in the same
manner as Shares held by the other stockholders. See "--The Offer" and "--The
Merger." In the aggregate, the directors and executive officers of the Company
will be entitled to receive approximately $492,375 for their Shares upon
consummation of the Offer and the Merger (based upon the number of Shares owned
as of April 30, 1999 and the members of the Special Committee will be entitled
to receive approximately $19,500 for their Shares upon consummation of the Offer
and the Merger (based upon the number of Shares owned as of April 30, 1999).
OPTIONS. As of April 30, 1999, the directors and executive officers of the
Company had Options to acquire an aggregate of 2,172,500 Shares. Immediately
after the Tender Offer Acceptance Date, pursuant to the Merger Agreement, each
outstanding Option, including those held by such directors and executive
officers, whether or not then vested and exercisable will, in accordance with
procedures that apply to all holders of Options, be canceled and each holder of
an Option shall be entitled to receive from Purchaser in consideration for the
cancellation of such Option, an amount in cash, net of applicable withholding
taxes, equal to the product of (i) the number of Shares previously subject to
such Option and (ii) the excess, if any, of the Merger Consideration over the
exercise price per Share previously subject to such Option. The directors and
executive officers of the Company, as a group, will receive total consideration
of $5,342,500 (before applicable taxes) in exchange for the cancellation of
their Options based on the number of Options as of April 30, 1999. See
"--Treatment of Options; Optionholder Agreements."
INDEMNIFICATION AND INSURANCE. For a discussion of certain agreements by
Parent with respect to indemnification of, and insurance for, directors and
officers of the Company, see "--Directors and Officers' Indemnification and
Insurance."
9
RELATIONSHIPS OF DIRECTORS WITH VIACOM. Mr. Sumner Redstone, the Chairman
of the Board of the Company, is the Chairman of the Board and Chief Executive
Officer of Viacom. Mr. Redstone is also President, Chief Executive Officer and
Chairman of the Board of National Amusements, Inc. ("NAI"). As of April 8, 1999,
NAI owned approximately 67% of the Class A Common Stock and approximately 28% of
the Class A Common Stock and the Class B Common Stock of Viacom on a combined
basis. Mr. Philippe P. Dauman, a director of the Company, is Deputy Chairman of
the Board and Executive Vice President and Secretary of Viacom. Mr. Dauman is
also a director of NAI. Mr. Thomas E. Dooley, a director of the Company, is
Deputy Chairman and Executive Vice President Finance.
EMPLOYMENT CONTRACTS AND ARRANGEMENTS. Pursuant to an Employment Agreement
dated as of March 1, 1998 (the "Employment Agreement"), Mr. Spelling is employed
as Vice Chairman of the Board of the Company and as Chairman of the Board and
Chief Executive Officer of Spelling Television Inc. and is entitled to serve as
Executive Producer or Producer of substantially all television programs and
films (as he may elect) produced by the Company or its production subsidiaries.
Mr. Spelling's Employment Agreement extends through April 30, 2000. As
compensation for the performance of his obligations under the agreement, Mr.
Spelling received a salary of $129,167 per month for the first two months of the
agreement, and an annual base salary of $1,700,000 for the period May 1, 1998 to
April 30, 1999 ("first term year") and will receive an annual base salary of
$1,850,000 for the period May 1, 1999 to April 30, 2000 ("second term year").
Mr. Spelling is also entitled to receive a year-end bonus of $175,000 for the
first term year and $200,000 for the second term year. As compensation for
serving as an Executive Producer or Producer, Mr. Spelling receives certain
producer fees and other compensation.
Mr. Spelling has the right to terminate the Employment Agreement effective
upon seven (7) days' written notice in the event that the Company materially
breaches its obligations under the Employment Agreement or upon certain
circumstances involving a change of control of the Company. If the agreement is
terminated for any reason, Mr. Spelling may elect to continue to provide
Executive Producer services on the Company's product as set forth in the
agreement and the Company will pay him producer fees and other compensation as
set forth therein. If Mr. Spelling terminates the Employment Agreement based on
a material breach by the Company, Mr. Spelling has the right to cease providing
services and receive a lump sum payment equal to the present value of his base
salary for the remainder of the term, as well as Executive Producer fees and
other compensation payable in accordance with a formula provided in his
Employment Agreement, and the year-end bonuses. In addition, Mr. Spelling was
also granted 75,000 Options pursuant to his employment agreement. In connection
with the Merger Agreement, all outstanding vested and unvested Options Mr.
Spelling holds as of the date on which Purchaser shall have accepted for payment
all Shares validly tendered and not withdrawn prior to the expiration date with
respect to the Offer, will be canceled and Mr. Spelling will become entitled to
receive, in consideration of the cancellation of each such Option, an amount of
cash equal to the product of (a) the number of shares of Common Stock covered by
such Option as of such date and (b) the excess, if any, of the Merger
Consideration over the exercise price per share previously subject to such
Option. Mr. Spelling will receive an aggregate of $3,190,625 (before applicable
taxes) in connection with the cancellation of his 1,075,000 Options pursuant to
the Merger Agreement.
The Company has a three-year employment agreement with Peter H. Bachmann,
dated as of January 1, 1997, wherein he is employed as President of the Company
and received an annual salary of $675,000 during the first year of the term.
Pursuant thereto, his salary increased to $725,000 on January 1, 1998 and
increased to $795,000 on January 1, 1999. Further, he is entitled to receive
target incentive compensation of 50% of his salary based on the Company's
performance and his individual performance. Mr. Bachmann is also entitled to
receive an annual grant of not less than 125,000 Options. Under certain
circumstances, including a change of control, sale, liquidation or other
disposition of the Company or if the Company engages in a "going private"
transaction (as defined in
10
his agreement), Mr. Bachmann's outstanding Options will become vested and fully
exercisable. In the event Mr. Bachmann is terminated without cause or he
terminates the agreement for good reason, he is entitled to receive his base
salary, bonus and certain other compensation for the balance of the employment
term, subject to mitigation after the first 18 months, and all outstanding
vested and unvested Options as of the end of the employment term shall remain
exercisable for six months following the date of termination (but not beyond the
expiration date of such Options). In connection with the Merger Agreement, all
outstanding vested and unvested Options Mr. Bachmann holds as of the date on
which Purchaser shall have accepted for payment all Shares validly tendered and
not withdrawn prior to the expiration date with respect to the Offer, will be
canceled and Mr. Bachmann will become entitled to receive, in consideration of
the cancellation of each such Option, an amount of cash equal to the product of
(a) the number of shares of Common Stock covered by such Option immediately
prior to such date and (b) the excess, if any, of the Merger Consideration over
the exercise price per share previously subject to such Option. Mr. Bachmann
will receive an aggregate of $1,466,875 (before applicable taxes) in connection
with the cancellation of his 780,000 Options pursuant to the Merger Agreement.
The Company has a two-year employment agreement with Ross G. Landsbaum,
dated as of July 20, 1998. Pursuant to such agreement, Mr. Landsbaum is employed
as Senior Vice President-- Chief Financial Officer of the Company at an annual
salary of $265,000 during the first year of the agreement and $285,000 during
the second year of the agreement. Further, he is entitled to receive target
incentive compensation of 40% of his base salary. In connection with the Merger
Agreement, all outstanding vested and unvested Options Mr. Landsbaum holds as of
the date on which Purchaser shall have accepted for payment all Shares validly
tendered and not withdrawn prior to the expiration date with respect to the
Offer, will be canceled and Mr. Landsbaum will become entitled to receive, in
consideration of the cancellation of each such Option, an amount of cash equal
to the product of (a) the number of shares of Common Stock covered by such
Option immediately prior to such date and (b) the excess, if any, of the Merger
Consideration over the exercise price per share previously subject to such
Option. Mr. Landsbaum will receive an aggregate of $312,500 (before applicable
taxes) in connection with the cancellation of his 137,500 Options pursuant to
the Merger Agreement.
The Company has an agreement with James Miller, dated as of January 6, 1997,
as amended as of June 30, 1998, which terminates on September 30, 2000. Pursuant
to such agreement, Mr. Miller is employed as Vice President and Controller of
the Company at an annual salary of $200,000 from October 1, 1998 to September
30, 1999 and $215,000 from October 1, 1999 to September 30, 2000. Mr. Miller is
also entitled to receive a bonus at the Company's discretion. Pursuant to Mr.
Miller's employment agreement, he was granted 20,000 Options vesting 25% each
year. In connection with the Merger Agreement, all outstanding vested and
unvested Options Mr. Miller holds as of the date on which Purchaser shall have
accepted for payment all Shares validly tendered and not withdrawn prior to the
expiration date with respect to the Offer, will be canceled and Mr. Miller will
become entitled to receive, in consideration of the cancellation of each such
Option, an amount of cash equal to the product of (a) the number of shares of
Common Stock covered by such Option immediately prior to such date and (b) the
excess, if any, of the Merger Consideration over the exercise price per share
previously subject to such Option. Mr. Miller will receive an aggregate of
$125,625 (before applicable taxes) in connection with the cancellation of his
50,000 Options pursuant to the Merger Agreement.
The Company has an agreement with Sally Suchil which terminates on January
4, 2000. Pursuant to such agreement, Ms. Suchil is employed as Senior Vice
President--General Counsel, Secretary and Administration of the Company at an
annual salary of $305,000 during the first year of the agreement, which
increased to $325,000 on January 1, 1999. Ms. Suchil is also entitled to receive
target incentive compensation of 30% of her base annual salary. In connection
with the Merger Agreement, all outstanding vested and unvested Options Ms.
Suchil holds as of the date on which Purchaser shall have accepted for payment
all Shares validly tendered and not withdrawn prior to the expiration date with
11
respect to the Offer, will be canceled and Ms. Suchil will become entitled to
receive, in consideration of the cancellation of each such Option, an amount of
cash equal to the product of (a) the number of shares of Common Stock covered by
such Option immediately prior to such date and (b) the excess, if any, of the
Merger Consideration over the exercise price per share previously subject to
such Option. Ms. Suchil will receive an aggregate of $246,875 (before applicable
taxes) in connection with the cancellation of her 130,000 Options pursuant to
the Merger Agreement.
OTHER AGREEMENTS. Spelling Television has an agreement with Tori Spelling,
Mr. Spelling's daughter, wherein Spelling Television is granted the exclusive
right and property in and to Ms. Spelling's television series services as an
actress in regard to the production of "Beverly Hills, 90210" for a period
dating from September 26, 1990. Spelling Television has recently extended the
term of the agreement for Ms. Spelling's services for a tenth season of the
series. Ms. Spelling is compensated: per program; for television re-runs,
theatrical re-runs, foreign telecasting and supplemental markets; for a portion
of the net profits derived from certain merchandising activities; and if Ms.
Spelling renders services for commercial announcements. Spelling Television
guarantees to employ and compensate or compensate Ms. Spelling for all episodes
produced in a season, but in no event for less than 26 episodes for the
1998/1999 season and no less than 26 episodes for the 1999/2000 season. Ms.
Spelling received $896,279 for the quarter ended March 31, 1999, $3,111,000 for
the years ended December 31, 1998 and 1997, respectively.
Spelling Television has an agreement dated as of September 24, 1996 with
Randy Spelling, Mr. Spelling's son, wherein Spelling Television is granted the
exclusive right to Randy Spelling's services as an actor in regard to the
production of "Sunset Beach," with options to extend the agreement. Pursuant to
such agreement, Randy Spelling is compensated: per episode (with a minimum
number of episodes per week); for a portion of the net profits derived from
certain merchandising activities; as well as for certain other required
payments. Spelling Television guarantees to employ and compensate or compensate
Randy Spelling for any episode for which Spelling Television has guaranteed him
compensation. Randy Spelling received $54,084 for the quarter ended March 31,
1999, $260,000 and $401,902 for the years ended December 31, 1998 and 1997,
respectively.
Spelling Television has an agreement with Mr. Spelling whereby he is
entitled to receive producer fees and other compensation on a per episode or per
hour basis on the product produced by Spelling Television, including series,
mini-series and movies for television, and for certain theatrical films.
Pursuant to such agreement, in fiscal year 1998, Mr. Spelling was paid
$7,207,000 in producers fees and other compensation by Spelling Television. The
Company believes that the amount of fees paid to Mr. Spelling are equal to or
less than fees paid to unaffiliated producers of comparable stature.
DIRECTOR COMPENSATION. Each member of the Board (excluding Messrs. Dauman,
Dooley and Redstone) are entitled to receive an annual fee of $15,000 plus $750
for each Board and Committee meeting attended. In addition, the directors
serving on the Special Committee have received additional compensation in
connection with such service. See "--Compensation of Members of the Special
Committee."
Stockholders also should be aware that Parent and Purchaser have certain
interests that present actual or potential conflicts of interest in connection
with the Offer and the Merger. As a result of Parent's current ownership of more
than 80% of the Shares and its affiliates' officers, constituting three of the
Company's six directors, Parent may be deemed to control the Company.
The Special Committee and the Board were aware of these actual and potential
conflicts of interest and considered them along with the other matters described
under "Item 4(b)--Background; Reasons for the Company Board's Recommendation."
To the best knowledge of, Parent and Purchaser, all of the executive
officers and directors of the Company currently intend to tender Shares owned by
them pursuant to the Offer. Several of the
12
officers of the Company have entered into Optionholder Agreements with Parent
pursuant to which they have agreed not to exercise their Options prior to the
earlier of the Tender Offer Acceptance Date and the date upon which the Offer
shall have expired without any Shares being purchased thereunder. See
"--Treatment of Options; Optionholder Agreements."
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE COMPANY BOARD
The Board, by unanimous vote of all directors present and voting, based
upon, among other things, the unanimous recommendation and approval of the
Special Committee, has determined that the Merger Agreement and the transactions
contemplated thereby, including each of the Offer and the Merger (collectively,
the "Transactions"), are fair to, and in the best interests of, the Company,
approved the Merger Agreement, the Offer and the Merger, declared the Merger
Agreement to be advisable and resolved to recommend that stockholders accept the
Offer and tender their Shares pursuant to the Offer.
A letter to the Company's stockholders communicating the Company Board's
recommendation and a press release announcing the execution of the Merger
Agreement are filed herewith as Exhibits 3 and 4, respectively, and are
incorporated herein by reference.
(B) BACKGROUND; REASONS FOR THE COMPANY BOARD'S RECOMMENDATION
Viacom acquired Paramount Communications Inc. ("Paramount") in July 1994 and
Blockbuster Entertainment Corporation ("Blockbuster") in September 1994. Viacom
acquired an indirect controlling interest in the Company through its acquisition
of Blockbuster, which at that time owned approximately 75% of the Shares.
Viacom incurred significant indebtedness in connection with its acquisition
of Paramount. As a consequence, following the acquisition of Blockbuster, Viacom
undertook an asset disposition program, which included the non-interactive
entertainment assets of the Company, in order to reduce its level of
indebtedness. As part of this process, Viacom retained Bear Stearns & Co. Inc.
("Bear Stearns") in the summer of 1995 to determine the level of interest among
possible buyers for the Company's non-interactive entertainment assets. Bear
Stearns contacted approximately 100 parties, of which approximately 25 parties
requested and were provided with an offering memorandum containing detailed
information concerning the Company. The sale process yielded no firm proposals
for the acquisition of the Company.
Accordingly, in May of 1996, Viacom announced that it was terminating its
efforts to sell the Company. Viacom based its decision to do so on the lack of
interest among potential buyers, and the disruption to the Company caused by the
sale process.
In April of 1997, Viacom announced its intention to acquire additional
Shares to increase its ownership interest in the Company to over 80%, and
thereby enable Viacom to include the Company in Viacom's consolidated tax group.
This was achieved in November of 1997, and Viacom has owned more than 80% of the
Shares since that time.
In 1997 and 1998, the Company began to reposition itself through the sale
and discontinuation of certain of its businesses. In August of 1997, the Company
licensed the distribution rights to its 1997 home video rental titles to
Paramount Home Video, which allowed the Company to eliminate certain costs
associated with the distribution of home video titles to the rental market. In
February 1998, the Company announced its decision to exit the theatrical feature
film business and closed Spelling Films.
13
In April 1998, the Company sold TeleUNO, its Latin American entertainment
channel. The Company disposed of its Virgin Interactive Entertainment Limited
("VIEL") business which produced and distributed interactive games for the
Company through two transactions. In September 1998, the Company entered into a
seven-year licensing agreement with Artisan Home Entertainment Inc. covering the
domestic and Canadian home video and digital video disc ("DVD") distribution
rights to approximately 3,000 titles remaining in the Company's library, and in
connection therewith, the Company closed its domestic home video distribution
business. On September 4, 1998, the Company sold the stock of Westwood Studios,
Inc., a subsidiary of VIEL, and certain development assets of VIEL to Electronic
Arts Inc. On November 10, 1998, the Company completed the sale of all non-US
operations of VIEL, effectively completing the disposal of its interactive game
business.
At various times after termination of the sale process in 1996 through 1998,
Viacom held exploratory discussions with two parties in the entertainment
business concerning their potential interest in acquiring the Company. Neither
of these companies made any specific proposals to acquire the Company.
In late 1998, Viacom had preliminary discussions with an additional
entertainment company with significant television production assets. Such
company outlined a proposal to acquire part of Viacom's interest in the Company
for cash and to exchange such Company's television production assets for newly
issued shares of Common Stock that, together with the shares of Common Stock to
be acquired from Viacom, would constitute a controlling interest in the Company.
Viacom rejected the proposal because the proposed transaction did not include
the acquisition of Shares from the Company's public stockholders and included an
acquisition of only a portion of Viacom's shares, and because the parties did
not agree on the valuation of the assets to be transferred.
In early 1999, Viacom reviewed its strategy relative to its investment in
the Company. Viacom concluded that if it purchased the remaining stock of the
Company which it did not currently own, it could significantly reduce overhead
expense, by combining administrative functions and television sales force with
that of Paramount Television's, thereby reducing the Company's employment and
other costs of the Company. In addition, Viacom expects to be able to generate
increased revenues from the Company's current television production and its
television and film libraries. Viacom believed that unless it were to acquire
the remaining Shares and obtain the benefit of cost reductions, it was unlikely
to recover its investment in the Company and the Company would continue to
require financial support from Viacom. Based on this analysis, on March 18,
1999, the Board of Directors of Viacom approved the making of a proposal to the
Board of Directors of the Company to acquire the remaining publicly held Shares.
At a meeting of the Board held on March 19, 1999, Viacom presented its
proposal to acquire the remaining publicly held Shares in a merger transaction
for $9.00 per Share in cash (the "Proposal"). In response to the Proposal, the
Board formed the Special Committee, comprised of Messrs. John Muething and
William Haber. The Board authorized the Special Committee to review, evaluate
and negotiate the terms of the Proposal on behalf of the Company with a view
toward making a recommendation to the Board with respect to the Proposal. In
addition, the Board authorized the Special Committee, among other things, to
retain independent legal counsel and financial advisors. The Board authorized
the Company to pay $25,000 to Mr. Muething to serve as Chairman of the Special
Committee and $20,000 to Mr. Haber to serve as a member thereof and to indemnify
each member of the Special Committee to the fullest extent permitted by law from
all losses incurred by him in connection with his services as a member of the
Special Committee.
On March 19, 1999, the Special Committee retained Skadden, Arps, Slate,
Meagher & Flom LLP ("Skadden Arps") as special counsel to represent the Special
Committee. Later that day members of the Special Committee met with
representatives of Skadden Arps, who briefed the Special Committee
14
on the process and the scope of the Special Committee's duties and discussed the
fiduciary duties of the members of the Special Committee under applicable state
law. At that meeting, the Special Committee also discussed retaining independent
financial advisors and determined to interview investment banking firms in order
to select a financial advisor to the Special Committee.
On March 26 and 31, 1999, the Special Committee and representatives of
Skadden Arps met with four investment banking firms to discuss their credentials
and suitability to act as financial advisor to the Special Committee. Following
those meetings, the Special Committee determined to retain Lazard Freres as
financial advisor to the Special Committee based on its reputation, expertise in
the industry, advisory experience in similar transactions and the conclusion
that Lazard Freres would not have a conflict with the Company, Viacom or any of
their respective affiliates in relation to this assignment. On April 5, 1999,
the Special Committee finalized an engagement letter with Lazard Freres. See
"Item 5--Persons Retained, Employed or to be Compensated."
During the next three weeks, Lazard Freres commenced its due diligence
investigation of the Company and held ongoing discussions with the Company. On
April 9th, 10th, 21st and 22nd, representatives of Lazard Freres met with
members of the Company's management for due diligence sessions and to discuss
the Company's long range plans and objectives. During this period,
representatives of Lazard Freres also reviewed with Viacom the previous efforts
undertaken to sell the Company.
On April 23, 1999, the Special Committee met with representatives of Lazard
Freres and Skadden Arps. At that meeting, representatives of Lazard Freres
advised the Special Committee of the progress of its due diligence investigation
of the Company and presented the Special Committee with its preliminary views on
the Proposal. Representatives of Skadden Arps also discussed the possibility of
requesting that Viacom revise the structure of the Proposal to provide for a
first step cash tender offer for all Shares followed by a second step merger in
an effort to obtain payment to stockholders on a more accelerated basis than
contemplated by the Proposal. On April 27, 1999, the Special Committee held a
conference call with representatives of Lazard Freres and Skadden Arps to
discuss the Proposal. Following such discussions, the Special Committee
authorized representatives of Lazard Freres to meet with representatives of
Viacom to advise them that the Special Committee was not willing to recommend
the Proposal.
On April 28, 1999, representatives of Lazard Freres met with representatives
of Viacom and informed them that the Special Committee was not willing to
recommend the Proposal. Representatives of Viacom expressed their view that the
$9.00 per Share to be paid pursuant to the Proposal represented full and fair
value for the Shares. Representatives of Viacom informed Lazard Freres that
Viacom would consider the Special Committee's views and respond accordingly.
On May 10, 1999, representatives of Skadden Arps and Lazard Freres met with
counsel representing certain plaintiffs in litigation brought against the
Company, its directors and Viacom in connection with the Proposal and the
financial advisor to such plaintiffs. See the disclosure in the enclosed Offer
to Purchase under the caption "THE TENDER OFFER--Section 13. Certain Legal
Matters and Regulatory Approvals." At that meeting, such counsel expressed their
view that the consideration to be paid pursuant to the Proposal was inadequate.
Following that meeting, representatives of Lazard Freres informed the Special
Committee members and representatives of Viacom of the results of the meeting.
On May 11, 1999, representatives of Viacom informed representatives of
Lazard Freres that Viacom had considered the views of the Special Committee and
the plaintiffs, but continued to believe that the $9.00 per Share to be paid
pursuant to the Proposal was at the high end of the range of fairness and
represented a significant premium to any price that the Shares had traded in
recent times.
15
Nevertheless, Viacom was willing to offer $9.25 per Share in an effort to
satisfy the members of the Special Committee.
During a conference call later that morning, representatives of Lazard
Freres advised Mr. Muething and representatives of Skadden Arps of Viacom's
offer. After lengthy discussion, Mr. Muething authorized representatives of
Lazard Freres to inform Viacom that he did not believe that $9.25 per Share was
adequate and that he was prepared to recommend to Mr. Haber that the Special
Committee recommend a transaction with Viacom where stockholders were paid
$10.75 per Share in cash.
By telephone call later that day, representatives of Lazard Freres informed
representatives of Viacom of Mr. Muething's position. Representatives of Viacom
said that Viacom was not willing to pay $10.75 per Share to acquire the minority
interest in the Company and that they believed that $9.25 per Share exceeded
fair value for the Shares. Nevertheless, representatives of Viacom said they
were willing to recommend that Viacom offer $9.75 per Share (the "Revised
Proposal") only if the members of the Special Committee would be willing to
recommend a transaction at that price.
Subsequent to that call, representatives of Lazard Freres informed Mr.
Muething and representatives of Skadden Arps of Viacom's position. After a
discussion of the appropriate response thereto, Mr. Muething authorized
representatives of Skadden Arps to send their proposed changes on the draft
merger agreement to Shearman & Sterling, Viacom's counsel.
Later that evening, Mr. Muething advised Mr. Haber of Viacom's position.
After discussions on the various aspects of the revised proposal, Messrs.
Muething and Haber determined that they would be willing to recommend the
Revised Proposal, so long as Viacom was willing to accept their proposed changes
on the draft merger agreement. On May 12, 1999, representatives of Lazard Freres
advised representatives of Viacom of the Special Committee's response.
During the period between May 11 and May 16, 1999, representatives of
Skadden Arps and the Special Committee negotiated the terms of the Merger
Agreement with representatives of Shearman & Sterling and Viacom. Viacom was
willing to accept the Special Committee's proposed changes, including revising
the structure of the transaction to provide for the Offer. During that same
period, representatives of Shearman & Sterling and counsel representing certain
plaintiffs in litigation brought against the Company, its directors and Viacom
conducted negotiations regarding the possible settlement of such litigation. See
the disclosure in the enclosed Offer to Purchase under the caption "THE TENDER
OFFER--Section 13. Certain Legal Matters and Regulatory Approvals."
On May 14, 1999, the Special Committee met with representatives of Lazard
Freres and Skadden Arps by telephone conference. At that meeting,
representatives of Lazard Freres orally advised the Special Committee that the
Per Share Amount and the Merger Consideration proposed to be received by the
Public Stockholders in the Offer and Merger was fair to such stockholders from a
financial point of view, which opinion was subsequently confirmed in writing. A
copy of such opinion is attached hereto as Exhibit 2. The Special Committee then
unanimously recommended that the Board approve and recommend to the Company's
stockholders the revised $9.75 per Share proposal, subject to negotiation and
execution of a mutually acceptable merger agreement.
After the Special Committee completed its meeting, the Board convened a
telephonic meeting. The Special Committee presented to the Board its
determination that the Merger Agreement was fair to the Public Stockholders, and
Lazard Freres confirmed that it had delivered its opinion to the Special
Committee that the Merger Consideration of $9.75 was fair to the Public
Stockholders, from a financial point of view. After the directors were given an
opportunity to discuss their questions and concerns relating to the Merger
Agreement, the Board, by unanimous vote of all Directors present and voting,
approved and declared to be advisable the Merger Agreement and the Merger, and
voted to
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recommend to the stockholders of the Company that they tender their Shares
pursuant to the Offer. On May 16, 1999, the Special Committee and
representatives of Skadden Arps completed their negotiations of the terms of the
Merger Agreement with Viacom and its advisors and the Merger Agreement was
executed the next day.
RECOMMENDATION OF THE COMPANY'S BOARD; FAIRNESS OF THE OFFER AND THE MERGER
ON MAY 14, 1999, THE SPECIAL COMMITTEE UNANIMOUSLY DETERMINED THAT THE
MERGER WAS FAIR TO, AND IN THE BEST INTERESTS OF, THE PUBLIC STOCKHOLDERS AND
UNANIMOUSLY VOTED TO RECOMMEND AND APPROVE THE MERGER AGREEMENT.
FAIRNESS OF THE MERGER. In reaching its determination, the Special
Committee considered:
- the historical market prices of the Shares, including the fact that the
$9.75 per Share represented a premium of approximately 44.4% over the
$6.75 per Share closing price on March 18, 1999, the last full trading day
prior to the March 19, 1999 announcement of the Proposal, and represented
a premium of approximately 52.9% over the closing price for the Shares on
the NYSE on the date 30 days prior to the announcement of the Proposal;
- the fact that the $9.75 per Share to be paid to the Public Stockholders in
the Offer and the Merger exceeded the highest price at which the Shares
have traded on the NYSE since May 3, 1996;
- the fact that the $9.75 per Share to be paid to Public Stockholders in the
Offer and the Merger represented a 228% premium over the net book value
per Share of $2.97 as of March 30, 1999;
- the opinion of Lazard Freres that, based upon and subject to the
assumptions and qualifications stated in its opinion, the $9.75 per Share
to be paid to the Public Stockholders in the Offer and the Merger is fair
to the Public Stockholders from a financial point of view, and the report
and analysis presented to the Special Committee in connection with the
Lazard Freres opinion (See the disclosure in the enclosed Offer to
Purchase under the caption "SPECIAL FACTORS-- Opinion of Lazard Freres.");
- that the terms of the Merger Agreement were determined through
arm's-length negotiations between the Special Committee and its legal and
financial advisors, on one hand, and representatives of Viacom, on the
other, and provide for the Offer in order to allow Public Stockholders to
receive payment for their Shares on an accelerated basis;
- that Viacom has sufficient stock ownership to control a disposition of the
Company and informed the Special Committee that it would not be interested
in a third-party sale of the Company; the Special Committee and Lazard
were not authorized to, and did not, solicit third-party indications of
interest for the acquisition of the Company, nor were any offers from
third parties received;
- the ability of Public Stockholders who object to the Merger to obtain
"fair value" for their Shares if they exercise and perfect their appraisal
rights under the DGCL;
- the results of the prior efforts by Viacom to sell the Company; and
- the fact that the Offer provides the Public Stockholders with liquidity to
dispose of their Shares which may not be available in the public market
due to the low level of trading volume of the Shares on the New York Stock
Exchange ("NYSE") prior to the announcement of the Proposal (an average
daily trading volume of 22,834 shares since December 31, 1998).
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In order to determine the fairness of the terms of the Offer and the Merger
and to approve the Merger Agreement and the Transactions, including the Offer
and the Merger, the Board concurred with and adopted the analysis of the Special
Committee with respect to the financial evaluation of the Company and of the
Offer and the Merger Consideration.
On May 14, 1999, the Board of Directors, by unanimous vote of all directors
present and voting, based upon, among other things, the unanimous recommendation
and approval of the Special Committee, determined that the Merger Agreement and
the Transactions are fair to, and in the best interests of, the Company,
approved the Merger Agreement, the Offer and the Merger, declared the Merger
Agreement to be advisable and recommended that stockholders accept the Offer and
tender their Shares pursuant to the Offer.
Neither the Board of Directors nor the Special Committee considered a
liquidation analysis because liquidation of the Company was not an alternative
presented in the Proposal.
In evaluating the Offer and the Merger, the members of the Board of
Directors, including the members of the Special Committee, considered their
knowledge of the business, financial condition and prospects of the Company, and
the advice of financial and legal advisors. In light of the number and variety
of factors that the Company's Board and the Special Committee considered in
connection with their evaluation of the Offer and the Merger, neither the
Company's Board nor the Special Committee found it practicable to assign
relative weights to the foregoing factors, and, accordingly, neither the
Company's Board nor the Special Committee did so.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to a letter agreement dated April 5, 1999, the Special Committee
retained Lazard Freres services as investment banker in connection with the
Transactions, including its delivery of an opinion as to the fairness to the
Company's stockholders (other than Parent), from a financial point of view, of
the consideration to be received in a transaction with Parent. Pursuant to the
letter agreement, the Company has paid Lazard Freres fees totaling $875,000. The
Company also has agreed to reimburse Lazard Freres for its reasonable
out-of-pocket expenses (including reasonable fees and expenses of its legal
counsel). In the ordinary course of its business, Lazard Freres and its
affiliates may actively trade in the securities of the Company for its own
account and for the account of its customers and, accordingly, may at any time
hold a long or short position.
Except as disclosed herein, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations or
recommendations to the Company's stockholders with respect to the Offer or the
Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
a. Since March 22, 1999, 60 days prior to the date of this Schedule 14D-9,
through May 20, 1999, none of the Company, Viacom, Parent, Purchaser, any
majority-owned subsidiary thereof, any director or executive officer thereof and
no pension, profit-sharing or similar plan of the Company, Viacom, Parent or
Purchaser has effected any purchases or sales of Common Stock, except that
Parent has purchased Shares in private sales in the following amounts on the
following dates:
DATE NO. OF SHARES PRICE PER SHARE HOW AND WHERE EXECUTED
- ------------------------------------- ------------- ----------------- -------------------------------------------
3/22/99.............................. 27,000 $ 9.00 Private Purchase, New York, New York
3/23/99.............................. 8,125 $ 9.00 Private Purchase, New York, New York
4/13/99.............................. 44,847 $ 9.00 Private Purchase, New York, New York
4/23/99.............................. 87,500 $ 9.00 Private Purchase, New York, New York
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b. To the best knowledge of the Company, all of its executive officers,
directors, affiliates and subsidiaries currently intend to tender pursuant to
the Offer all Shares held of record or beneficially owned by them (other than
Shares issuable upon exercise of stock options and Shares, if any, which if
tendered could cause such persons to incur liability under the provisions of
Section 16(b) of the Exchange Act).
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
a. Except as set forth in this Schedule 14D-9, the Company is not engaged in
any negotiation in response to the Offer which relates to or would result in (i)
an extraordinary transaction, such as a merger or reorganization, involving the
Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company; (iii)
a tender offer for or other acquisition of securities by or of the Company; or
(iv) any material change in the present capitalization or dividend policy of the
Company.
b. Except as described in Item 3(b) and Item 4 above (the provisions of
which are hereby incorporated by reference), there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer which relate to or would result in one or more of the matters referred to
in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
LITIGATION. In March 1999, following the announcement of the Proposal, a
number of lawsuits were filed in Delaware by various individual shareholders of
the Company against the Company and certain of its officers and directors with
respect to the Proposal and the Merger Agreement. The Delaware lawsuits were
consolidated by court order under the caption In re Spelling Entertainment Group
Inc. Shareholders Litigation, Consolidated C.A. No. 17024 NC (the "Delaware
Action"). Additionally, a similar lawsuit was filed in the Superior Court of the
State of California.
The lawsuits purport to be class actions on behalf of all persons who hold
securities of the Company (except the defendants and their affiliates). The
lawsuits make allegations as to various violations of fiduciary duty by the
Company, its directors and Viacom including, among other things, that the
consideration to be offered to the Public Stockholders pursuant to the Offer and
Merger is inadequate and that the Company failed to take adequate steps to
determine and disclose the fair value of the publicly held Shares. Plaintiffs
seek injunctive relief, recission, damages, costs (including attorneys' and
experts' fees) and other equitable relief. As a result of settlement
negotiations between counsel for plaintiffs in the Consolidated Action and
counsel for defendants, the parties have reached an agreement in principle to
settle the Consolidated Action based upon the increase in the consideration from
$9.00 to $9.75 in cash per Share which Viacom has agreed, pursuant to the Merger
Agreement, to pay to acquire the publicly owned Shares. The settlement in
principle is subject to the execution of an appropriate Stipulation of
Settlement and such other documentation as may be required in order to obtain
final Court approval of the settlement and the dismissal of the Delaware Action
and the California action.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 Agreement and Plan of Merger, dated as of May 17, 1999, by and among Viacom
International Inc., VSEG Acquisition Inc. and Spelling Entertainment Group
Inc. (incorporated by reference to Exhibit 99.1 to the Company's Current
Report on Form 8-K reporting events occurring on May 17, 1999).
Exhibit 2 Opinion of Lazard Freres & Co. Inc., dated as of May 14, 1999.*
Exhibit 3 Letter to Stockholders of Spelling Entertainment Group Inc., dated May 21,
1999.*
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Exhibit 4 Press Release issued by the Company on May 17, 1999 (incorporated by reference
to Exhibit 99.2 to the Company's Current Report on Form 8-K reporting events
occurring on May 17, 1999).
Exhibit 5 Credit Agreement, dated as of September 30, 1996, by and among the Company,
certain subsidiaries of the Company and Viacom Inc. (incorporated by reference
to Exhibit 10.1 to the Company's Form 10-Q for quarterly period ended
September 30, 1996).
Exhibit 6 Pledge and Security Agreement, dated as of September 30, 1996, by and among
the Company, certain subsidiaries of the Company and Viacom Inc. (incorporated
by reference to Exhibit 10.2 to the Company's Form 10-Q for quarterly period
ended September 30, 1996).
Exhibit 7 Copyright Mortgage and Assignment; Power of Attorney dated as of September 30,
1996, by the Company and certain subsidiaries of the Company in favor of
Viacom Inc. (incorporated by reference to Exhibit 10.3 to the Company's Form
10-Q for quarterly period ended September 30, 1996).
Exhibit 8 Guaranty, dated as of September 30, 1996, by the Company and certain
subsidiaries of the Company in favor of Viacom Inc. (incorporated by reference
to Exhibit 10.4 to the Company's Form 10-Q for quarterly period ended
September 30, 1996).
Exhibit 9 Amendment No. 1 to the Credit Agreement, dated as of December 31, 1996, by and
among the Company, certain subsidiaries of the Company and Viacom Inc.
(incorporated by reference to Exhibit 10.5 to the Company's Form 10-K for
fiscal year ended December 31, 1996).
Exhibit 10 Amendment No. 2 to the Credit Agreement, dated as of December 31, 1997, by and
among the Company, certain subsidiaries of the Company and Viacom Inc.
(incorporated by reference to Exhibit 10. 6 to the Company's Form 10-K for
fiscal year ended December 31, 1997).
Exhibit 11 Amendment No. 3 to the Credit Agreement, dated as of December 31, 1998, by and
among the Company, certain subsidiaries of the Company and Viacom Inc.
(incorporated by reference to Exhibit 10.7 to the Company's Form 10-K for
fiscal year ended December 31, 1998).
Exhibit 12 Tax Agreement, dated November 12, 1997, by and among the Company and Viacom
Inc. (incorporated by reference to Exhibit 10.26 to the Company's Form 10-K
for fiscal year ended December 31, 1997).
Exhibit 13 Spelling Entertainment Group, Inc. Stock Option Plan and Amendment Nos. One
through Five thereto (incorporated by reference to Exhibit 4.03 to the
Company's Registration Statement No. 33-61914 on Form S-8).
Exhibit 14 Spelling Entertainment Group Inc. 1987 Stock Option Plan, as amended and
restated (incorporated by reference to Exhibit 99. 1 to the Company's
Post-Effective Amendment No. 1 to the Registration Statement No. 33-61914 on
Form S-8 dated February 26, 1998).
Exhibit 15 Spelling Entertainment Group Inc. 1994 Stock Option Plan (incorporated by
reference to Annex A to the Company's Notice of Annual Meeting and Proxy
Statement dated April 27, 1994).
Exhibit 16 Spelling Entertainment Group Inc. 1994 Stock Option Plan, as amended and
restated (incorporated by reference to Exhibit 99.1 to the Company's
Post-Effective Amendment No. 1 to the Registration Statement No. 33-53951 on
Form S-8 dated February 26, 1998).
Exhibit 17 Amended and Restated Employment Agreement, dated March 1, 1998, between the
Company and Aaron Spelling (incorporated by reference to Exhibit 10.31 to the
Company's Form 10-K for fiscal year ended December 31, 1997).
Exhibit 18 Employment Agreement, dated as of January 1, 1997, between the Company and
Peter H. Bachmann (incorporated by reference to Exhibit 10.1 to the Company's
Form 10-Q for quarterly period ended September 30, 1997).
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Exhibit 19 Employment Agreement, dated as of January 1, 1995, between the Company and
Sally Suchil (incorporated by reference to Exhibit 10.25 to the Company's Form
10-K for fiscal year ended December 31, 1995) and Amendment to Employment
Agreement dated as of December 12, 1997 (incorporated by reference to Exhibit
10.34 to the Company's Form 10-K for fiscal year ended December 31, 1997).
Exhibit 20 Employment Agreement, dated as of January 6, 1997, between the Company and
James Miller (incorporated by reference to Exhibit 10.27 to the Company's Form
10-K for fiscal year ended December 31, 1996) and Amendment to Employment
Agreement dated as of June 30, 1998.
Exhibit 21 Employment Agreement dated as of July 20, 1998, between the Company and Ross
G. Landsbaum (incorporated by reference to Exhibit 10.1 to the Company's Form
10-Q for the quarterly period ended September 20, 1998).
- ------------------------
* Included in copies of Schedule 14D-9 mailed to stockholders.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: May 21, 1999 SPELLING ENTERTAINMENT GROUP INC.
By: /s/ SUMNER M. REDSTONE
-----------------------------------------
Name: Sumner M. Redstone
Title: Chairman of the Board
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