Lorimar Settles 10 Suits Over Merger Deal : Terms of Agreement Not Disclosed in Proxy

Lorimar Telepictures disclosed Tuesday that its attorneys agreed last week to settle 10 class-action lawsuits brought by shareholders alleging that the company froze out other bidders when it negotiated its impending merger with Warner Communications.

The amount of the settlement was not stated, but the defendants--including Warner--agreed not to oppose paying legal fees and expenses of “less than $500,000” in connection with the suits. A Lorimar spokeswoman said she did not know the total amount of the settlement or how it would be divided by the defendants.

Settlement of the suits must be approved by the boards of both Lorimar and Warner as well as by a judge in Delaware Chancery Court, where the suits were filed.

Culver City-based Lorimar reported the settlement in a proxy statement mailed for its Oct. 3 annual stockholders meeting, at which a majority vote in favor of the merger is needed for the deal to go through.

Consolidated July 29

The merger agreement calls for Lorimar stockholders to get 0.415 share of Warner stock for each Lorimar share. The deal would be worth about $14.16 a share, based on the current price of Warner stock, which closed Tuesday at $34.125 on the New York Stock Exchange. Lorimar’s board has a right to terminate the merger if the value is less than $15.

According to the proxy, the legal settlement includes a provision that could lighten the penalties to Lorimar if the merger does not go through. Instead of a flat $10-million merger cancellation fee, the New York entertainment giant could collect actual expenses from Lorimar not to exceed $10 million. Also, instead of being allowed to buy 8.5 million Lorimar shares, Warner would be entitled to buy no more than 4 million shares at $15 each.

The class-action suits, filed last May after the Warner-Lorimar merger was announced, were consolidated by the court July 29.

Generally, the proxy said, the suits alleged that Lorimar’s board engaged in a scheme to keep control of the company for current management at the expense of the public shareholders.

According to the proxy, the suits alleged that Lorimar’s directors, once they began negotiations with Warner early this year, had a fiduciary duty to take all steps to maximize stockholder value. The directors breached that duty, the complaints said, by “selectively negotiating” the deal with Warner “to protect their own personal financial interests (particularly employment and other arrangements with (Warner) for Lorimar’s executive officers).”

The suits also alleged that Lorimar directors refused to negotiate with financier Marvin Davis and agreed on a price from Warner “which is inadequate and inferior to Davis’ $17-per-share, all-cash acquisition proposal.” Further, the suits said, Lorimar directors prevented Davis and any other party from acquiring Lorimar by granting Warner the merger cancellation fee.

The proxy also disclosed that it is “currently contemplated” that Warner would invest about $56 million in a proposed new entertainment venture by Merv Adelson, Lorimar’s chairman and chief executive.

Proxy Describes New Post

Adelson would put up about $22 million, and further financing is anticipated from “certain corporate and institutional investors,” including the investment banking firm Drexel Burnham Lambert.

“The venture would be under the direction of Mr. Adelson, and Mr. Adelson and (Warner) would jointly determine major investments to be made by the venture,” the proxy said.

If the venture is undertaken with Warner backing, the proxy said, Adelson would resign from a Warner position he is to take after the Lorimar merger “in order to avoid any appearance of a conflict of interest.” The proxy described the Warner position as senior corporate officer on a “nonexclusive basis” for three years. Warner would seek to get him elected as a director and vice chairman of the board.

Early last month, Lorimar confirmed that Adelson was considering forming a company to acquire media and entertainment properties.