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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                               ----------------
 
                                 SCHEDULE 14D-9
 
               SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
            SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
 
                               ----------------
 
                       ALL AMERICAN COMMUNICATIONS, INC.
                           (NAME OF SUBJECT COMPANY)
 
                       ALL AMERICAN COMMUNICATIONS, INC.
                       (NAME OF PERSON FILING STATEMENT)
 
                               ----------------
 
                    COMMON STOCK, PAR VALUE $.0001 PER SHARE
                CLASS B COMMON STOCK, PAR VALUE $.0001 PER SHARE
                         (TITLE OF CLASS OF SECURITIES)
 
                               ----------------
 
                                   016480105
                                   016480204
                                   016480402
                     (CUSIP NUMBER OF CLASS OF SECURITIES)
 
                                THOMAS BRADSHAW
                            CHIEF FINANCIAL OFFICER
                       ALL AMERICAN COMMUNICATIONS, INC.
                             808 WILSHIRE BOULEVARD
                      SANTA MONICA, CALIFORNIA 90401-1810
                                 (310) 656-1100
  (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED TO RECEIVE NOTICES
       AND COMMUNICATIONS ON BEHALF OF THE PERSON FILING THIS STATEMENT)
 
                                    COPY TO:
 
                             BARRY L. DASTIN, ESQ.
                  KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP
                      1999 AVENUE OF THE STARS, SUITE 1600
                         LOS ANGELES, CALIFORNIA 90067
                                 (310) 788-1070
 
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<PAGE>
 
                                 INTRODUCTION
 
  This Solicitation/Recommendation Statement on Schedule 14D-9 (this "Schedule
14D-9" or this "Statement") relates to an offer by Pearson Merger Company,
Inc., a Delaware corporation and wholly-owned indirect subsidiary of Pearson
plc, a corporation organized under the laws of England, to purchase all of the
Shares (as defined below) of All American Communications, Inc., a Delaware
corporation. Capitalized terms used herein and not otherwise defined shall
have the same respective meanings assigned to them in the Offer to Purchase,
dated October 7, 1997.
 
ITEM 1. SECURITY AND SUBJECT COMPANY.
 
  The name of the subject company is All American Communications, Inc., a
Delaware corporation (the "Company"), and the address of the principal
executive offices of the Company is 808 Wilshire Boulevard, Santa Monica,
California 90401-1810. The titles of the classes of equity securities to which
this Statement relates are the Company's Common Stock, par value $.0001 per
share (the "Common Stock"), and the Company's Class B Common Stock, par value
$.0001 per share (the "Class B Common Stock," and together with the Common
Stock, the "Shares").
 
ITEM 2. TENDER OFFER OF THE BIDDER.
 
  This Statement relates to the tender offer (the "Offer") described in the
Tender Offer Statement on Schedule 14D-1, dated October 7, 1997 (as amended or
supplemented, the "Schedule 14D-1"), filed by Pearson Merger Company, Inc., a
Delaware corporation ("Purchaser"), which is a wholly-owned indirect
subsidiary of Pearson plc, a corporation organized under the laws of England
("Parent"), and Parent with the Securities and Exchange Commission (the
"Commission") relating to an offer by Purchaser to purchase all of the
outstanding Shares at a price of $25.50 per Share in cash, net to the seller,
without interest thereon, upon the terms and subject to the conditions set
forth in Purchaser's Offer to Purchase, dated October 7, 1997, as amended or
supplemented, and the related Letter of Transmittal (which together constitute
the "Offer Documents"). The Offer Documents indicate that the principal
executive offices of Parent are located at 3 Burlington Gardens, London W1X
1LE, England and the principal executive offices of Purchaser are located at
30 Rockefeller Plaza, New York, New York 10112.
 
  The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of October 1, 1997 (the "Merger Agreement"), by and among the Company,
Parent and Purchaser. A copy of the Merger Agreement is filed as Exhibit 1 to
this Schedule 14D-9 and is incorporated herein by reference in its entirety.
Pursuant to the Merger Agreement, following the consummation of the Offer and
upon the satisfaction or waiver of certain conditions, Purchaser will be
merged with and into the Company (the "Merger"). At the Effective Time of the
Merger (as defined in the Merger Agreement), each Share issued and outstanding
immediately prior to the Effective Time (other than Shares owned by Parent,
Purchaser or any other subsidiary or affiliate of Parent (collectively, the
"Parent Companies"), or Shares held by stockholders who properly exercise
their appraisal rights (the "Dissenting Shares") pursuant to Section 262 of
the General Corporation Law of the State of Delaware (the "DGCL")) will, by
virtue of the Merger and without any action by the holder thereof, be
converted into the right to receive, in cash, the greater of (x) $25.50 or (y)
such greater amount which may be paid pursuant to the Offer, net to the
seller, without interest thereon (the "Merger Consideration"), upon the
surrender of the certificate representing such Shares. The Merger Agreement is
summarized in Item 3 of this Schedule 14D-9.
 
ITEM 3. IDENTITY AND BACKGROUND.
 
  (a) The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above. Unless the context otherwise
requires, references to the Company in this Schedule 14D-9 are to the
"Company" and its direct and indirect subsidiaries, viewed as a single entity.
 
  (b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and certain of its executive officers, directors
or affiliates are described in Annex A--Information Statement
 
                                       2
<PAGE>
 
Pursuant to Section 14(f) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Rule 14f-1 thereunder attached to this Schedule 14D-
9 and incorporated herein by reference. See "Executive Compensation and Other
Information Concerning Directors and Executive Officers" therein.
 
  Except as described or incorporated by reference herein, to the knowledge of
the Company, as of the date hereof, there exists no material contract,
agreement, arrangement or understanding and no actual or potential material
conflict of interest between the Company or its affiliates and (i) the
Company's executive officers, directors or affiliates or (ii) Purchaser or its
executive officers, directors or affiliates. See "--Stockholders Agreement,"
"--Scotti Agreement Not to Compete and Scotti Amendment to Employment
Agreement" and "--Certain Arrangements with Respect to Interpublic" for a more
detailed description of the matters referred to therein.
 
MERGER AGREEMENT
 
  The following summary of the Merger Agreement does not purport to be
complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is filed as Exhibit 1 to this Schedule 14D-9 and is
incorporated by reference herein. The Merger Agreement should be read in its
entirety for a more complete description of the matters summarized below.
 
  The Offer. The Merger Agreement provides that as promptly as reasonably
practicable after the date of execution of the Merger Agreement, but in no
event later than five business days after the public announcement of the
execution of the Merger Agreement, Parent or Purchaser will commence the Offer
for all of the outstanding Shares at a price of not less than $25.50 per
Share, in cash, net to the seller, subject to the conditions set forth in
Exhibit A to the Merger Agreement and, subject only to the terms and
conditions of the Offer, will pay, as promptly as reasonably practicable after
expiration of the Offer, the purchase price for all Shares duly tendered and
not withdrawn. Purchaser may waive any such condition other than the Minimum
Condition (as defined below), increase the price per Share payable in the
Offer, and make any other changes in the terms and conditions of the Offer;
provided, however, that no change may be made to the Minimum Condition, and no
change 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
imposes conditions to the Offer other than those described below or which
extends the Offer (except as set forth in the following sentence).
Notwithstanding the foregoing, Purchaser may, without the consent of the
Company, (i) extend the Offer beyond the scheduled expiration date (the
initial scheduled expiration date being twenty (20) business days following
the commencement of the Offer) if, at the scheduled expiration date of the
Offer, any of the conditions to Purchaser's obligation to accept for payment,
and to pay for, the Shares, shall not have been satisfied or waived, (ii)
extend the Offer for any period required by any rule, regulation or
interpretation of the SEC or the staff thereof applicable to the Offer, or
(iii) extend the Offer for an aggregate period of not more than ten (10)
business days beyond the latest applicable date that would otherwise be
permitted under clause (i) or (ii) of this sentence, if as of such date, all
of the conditions to Purchaser's obligations to accept for payment, and to pay
for, the Shares are satisfied or waived, but (x) the number of Shares validly
tendered and not withdrawn pursuant to the Offer is less than ninety percent
(90%) and (y) Purchaser reasonably believes that such extension would cause
the number of validly tendered and not withdrawn Shares to exceed ninety
percent (90%) of the outstanding Shares. Notwithstanding the foregoing, the
Company has the right to terminate the Merger Agreement if Purchaser has not
purchased any Shares pursuant to the Offer by the later of 45 days after the
date of the Merger Agreement and three business days after the expiration or
termination of any waiting period (and any extension thereof) applicable to
the consummation of the Offer under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and any required
approvals in connection with any pre-merger notification filing with the
German Federal Cartel Office have been obtained.
 
  For purposes hereof, the term "Minimum Condition" shall mean a majority of
the outstanding shares of Common Stock and a majority of the outstanding
Shares (including for purposes of such calculation all Shares issued upon
exercise of all stock options and warrants prior to or simultaneously with the
acceptance of the Offer) being validly tendered and not withdrawn prior to the
expiration of the Offer.
 
                                       3
<PAGE>
 
  The Merger. The Merger Agreement provides that, subject to the terms and
conditions thereof, at the Effective Time, Purchaser shall be merged with and
into the Company and the separate corporate existence of Purchaser shall
thereupon cease. The Company shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving Corporation") and shall
continue to be governed by the laws of the State of Delaware, and the separate
corporate existence of the Company with all its rights, privileges, immunities
and franchises shall continue unaffected by the Merger. At the Effective Time,
each Share issued and outstanding immediately prior to the Effective Time
(other than Shares owned by the Parent Companies or the Dissenting Shares or
Shares held in the treasury of the Company) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive, in cash, the Merger Consideration. All Shares, by virtue of
the Merger and without any action on the part of the holders thereof, shall no
longer be outstanding, shall be canceled and retired and shall cease to exist,
and each holder of a certificate representing any such Shares shall thereafter
cease to have any rights with respect to such Shares, except the right to
receive the Merger Consideration for such Shares without interest upon the
surrender of such certificate in accordance with the Merger Agreement or the
right, if any, to receive payment from the Surviving Corporation of the "fair
value" of such Shares as determined in accordance with Section 262 of the
DGCL.
 
  Charter Documents; Initial Directors and Officers. The Merger Agreement
provides that the Restated Certificate of Incorporation of the Company in
effect at the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation, provided that, subject to the requirement that such
Certificate of Incorporation contain the provisions with respect to
indemnification, advancement of expenses and director exculpation set forth in
the Restated Certificate of Incorporation of the Company, it shall be amended
to read as set forth in Exhibit A to the Merger Agreement. The Merger
Agreement also provides that the Bylaws of the Company in effect at the
Effective Time shall be the Bylaws of the Surviving Corporation, provided
that, subject to the requirement that such Bylaws contain the provisions with
respect to indemnification, advancement of expenses and director exculpation
set forth in the Bylaws of the Company, they shall be amended to read as set
forth in Exhibit B to the Merger Agreement. Pursuant to the Merger Agreement,
the directors and officers of Purchaser at the Effective Time shall, from and
after the Effective Time, continue as the directors and officers,
respectively, of the Surviving Corporation until their successors have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
 
  Stockholders Meeting. The Merger Agreement provides that the Company will
take all action reasonably necessary in accordance with applicable law and its
Restated Certificate of Incorporation and Bylaws to convene a meeting of its
stockholders to consider and vote upon the approval of the Merger Agreement
and the Merger and such other matters as may be necessary to effectuate the
transactions contemplated by the Merger Agreement (the "Transactions"), if
necessary to comply with applicable law, as promptly as practicable after the
expiration of the Offer. The Board of Directors of the Company shall recommend
such approval and take all lawful action to solicit such approval; provided,
however, that the Board of Directors of the Company may at any time prior to
such time as Parent's designees shall constitute a majority of the members of
the Board of Directors of the Company (the "Transition Time") withdraw, modify
or change any such recommendations to the extent that the Board of Directors
of the Company determines in good faith after consultation with independent
legal counsel that the failure to so withdraw, modify or change its
recommendation would cause the Board of Directors of the Company to breach its
fiduciary duties to the Company's stockholders under applicable law. The
Parent Companies will vote all Shares over which they exercise voting control
in favor of the Merger Agreement and the Merger.
 
  Notwithstanding the foregoing, in the event that Parent acquires at least
ninety percent (90%) of the then outstanding Shares of each then outstanding
class of shares of the Company, the Company, Parent and Purchaser will take
all necessary and appropriate action to cause the Merger to become effective,
in accordance with Section 253 of the DGCL, as soon as reasonably practicable
after such acquisition, without a meeting of the stockholders of the Company.
Pursuant to the Company's Restated Certificate of Incorporation, at or
immediately prior to the Transition Time, shares of Class B Common Stock will
be automatically converted into shares of Common Stock.
 
                                       4
<PAGE>
 
  Conduct of Business. Pursuant to the Merger Agreement, the Company covenants
and agrees that, prior to the Transition Time (unless Parent shall otherwise
agree in writing and except as otherwise contemplated or disclosed pursuant to
the Merger Agreement).
 
    (a) the business of the Company and any subsidiary of the Company
  identified as a Company Subsidiary on the Company Disclosure Schedule (each
  a "Company Subsidiary") shall be conducted only in the ordinary and usual
  course and, to the extent consistent therewith, each of the Company and the
  Company Subsidiaries shall use commercially reasonable efforts to preserve
  its business organization and maintain its existing relations with
  customers, employees and business associates;
 
    (b) the Company shall not (i) sell or pledge or agree to sell or pledge
  any stock owned by it in any of the Company Subsidiaries (except in
  connection with its bank working capital facility); (ii) amend its Restated
  Certificate of Incorporation or Bylaws or the similar organizational
  documents of any of the Company Subsidiaries; (iii) split, combine or
  reclassify the outstanding Shares; or (iv) declare, set aside or pay
  (unless declared prior to the date of the Merger Agreement) any dividend
  payable in cash, stock or property with respect to the Shares;
 
    (c) neither the Company nor any of the Company Subsidiaries shall (i)
  issue, deliver or sell or authorize or propose the issuance, delivery or
  sale of, any shares of, or securities convertible or exchangeable for, or
  options, warrants, calls, commitments or rights of any kind to acquire,
  capital stock of any class of the Company or the Company Subsidiaries other
  than Shares issuable pursuant to the agreements described in Section 3.3 of
  the Company Disclosure Schedule or (ii) repurchase, redeem or otherwise
  acquire, or permit any Company Subsidiary to repurchase, redeem or
  otherwise acquire, any shares of capital stock of the Company;
 
    (d) neither the Company nor any of the Company Subsidiaries shall (i)
  grant any increase in the compensation of any director, officer or employee
  earning in excess of $100,000 per year except for increases contemplated by
  or required under employment agreements, (ii) enter into any new
  employment, severance or termination agreement with any such director,
  officer or employee or (iii) except as may be required to comply with
  applicable law, become obligated under any bonus, deferred compensation,
  severance pay, profit-sharing, retirement, insurance, stock purchase, stock
  option, or other fringe benefit plan, arrangement or practice maintained,
  or contributed to, by the Company or any of the Company Subsidiaries for
  the benefit of any current or former employees, officers or directors of
  the Company or of the Company Subsidiaries (each a "Benefit Plan") that was
  not in existence on the date of the Merger Agreement or amend any Benefit
  Plan in existence on the date of the Merger Agreement to enhance the
  benefits thereunder;
 
    (e) the Company shall not, and shall not permit any of the Company
  Subsidiaries to, sell, lease, license, encumber or otherwise dispose of, or
  agree to sell, lease, license, encumber or otherwise dispose of, any of its
  material assets outside the ordinary course of business other than (i)
  dispositions listed in Section 5.1 (e) of the Company Disclosure Schedule,
  (ii) assets no longer used in the operation of the Company's and the
  Company Subsidiaries' respective businesses and (iii) assets related to any
  discontinued operations of the Company and the Company Subsidiaries;
 
    (f) the Company shall not, and shall not permit any of the Company
  Subsidiaries to, incur or enter into any agreement to incur any
  indebtedness for borrowed money or guarantee any such indebtedness or issue
  or sell any debt securities or warrants or rights to acquire any debt
  securities of the Company or any Company Subsidiary, except in the ordinary
  course of business consistent with past practice, including, without
  limitation, borrowings under the Company's existing credit agreements, as
  amended from time to time in the ordinary course of business, and overnight
  borrowings.
 
    (g) the Company shall not and shall not permit any of the Company
  Subsidiaries to enter into any contract or agreement or series of related
  contracts or agreements which involves the expenditure by the Company of
  over (i) One Hundred Thousand Dollars ($100,000) if outside the ordinary
  course of business, or (ii) Five Hundred Thousand Dollars ($500,000) if
  within the ordinary course of business; and
 
    (h) neither the Company nor any of the Company Subsidiaries will enter
  into an agreement to do any of the foregoing.
 
                                       5
<PAGE>
 
  The Company's Amended and Restated Credit, Security, Guaranty and Pledge
Agreement, dated as of April 13, 1995, as amended and restated as of October
23, 1996, and as in effect on the date hereof (the "Credit Agreement"),
between the Company and The Chase Manhattan Bank, as agent and fronting bank
("Chase") provides that upon a Change of Control, as defined therein, Chase
will have the right to accelerate the indebtedness outstanding thereunder and
take the other remedies provided therein. Although the execution of the
Stockholders Agreement may be deemed to constitute a Change of Control under
the Credit Agreement, Chase orally agreed to waive any right it may have to
consider the execution of such agreement to be a Change of Control and is
currently seeking a written waiver from the necessary number of lenders under
the Credit Agreement. Additionally, the Indenture with respect to the
Company's Senior Subordinated Notes due 2001 (the "Senior Subordinated Notes")
provides that the Company is required to make an offer to repurchase all of
such Senior Subordinated Notes upon a Change of Control (as defined in the
Indenture), which provision would be triggered by the purchase of Shares in
the Offer, at an amount equal to 101% of the principal amount of the Senior
Subordinated Notes plus accrued and unpaid interest thereon. The acceleration
of the Credit Agreement following or prior to the consummation of any of the
Transactions. Accordingly, upon consumation of the Offer, holders of Shares
who do not tender in the Offering may be subject to the risks of acceleration
of indebtedness prior to the consummation of the Merger would permit the
noteholders or the trustee under the Indenture to accelerate the Senior
Subordinated Notes and take the other remedies provided therein.
 
  No Solicitation of Transactions. The Merger Agreement provides that the
Company will not, and will instruct its officers, employees, counsel,
accountants and other authorized representatives ("Representatives") not to,
initiate, solicit or encourage (including by way of furnishing information or
assistance) any Competing Transaction (as defined below), or enter into or
maintain discussions or negotiate with any person in furtherance of or
relating to or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize or permit any Representative of the
Company or any of its subsidiaries to take any such action, and the Company
shall use its reasonable best efforts to cause Representatives of the Company
and its subsidiaries not to take any such action; provided, however, that
nothing contained in this section shall prohibit the Board of Directors of the
Company prior to stockholder approval of the Merger from (i) furnishing
information to, or entering into discussions or negotiations with, any person
that makes an unsolicited bona fide proposal regarding a Competing
Transaction, if, and only to the extent that, (A) the Board of Directors of
the Company, after consultation with independent legal counsel, determines in
good faith that such action is required for the Board of Directors of the
Company to comply with its fiduciary duties to stockholders under applicable
law and (B) prior to furnishing such information to such person, the Company
receives from such person an executed confidentiality agreement with terms no
less favorable to the Company than those contained in the Confidentiality
Agreement (as defined below under "--Confidentiality Agreement") between one
of the Parent Companies and the Company; or (ii) complying with Rule 14e-2
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") with regard to a Competing Transaction. Pursuant to the Merger
Agreement, the Company shall promptly advise Parent if any such proposal or
offer, or any inquiry or contact made with any person with respect thereto, is
made.
 
  For purposes of the Merger Agreement, a "Competing Transaction" means any of
the following involving the Company or any of its subsidiaries: (a) any
merger, consolidation, business combination, or other similar transaction
(other than the Merger) which results in a sale of the Company; (b) any sale
or other disposition outside the ordinary course of business of 30% or more of
the fair market value of the assets (other than assets held in inventory for
resale and other than the licensing of the Company's programming in the
ordinary course of business) of the Company and its subsidiaries, taken as a
whole, in a single transaction or series of transactions; or (c) any tender
offer or exchange offer for more than 50% of the outstanding Shares.
 
  Directors. The Merger Agreement provides that, promptly upon the acceptance
for payment of, and payment for, Shares constituting a majority of the then
outstanding Shares by Parent or Purchaser, as applicable, pursuant to the
Offer, Parent from time to time shall be entitled to designate such number of
directors (rounded up to the next whole number) on the Company's Board of
Directors as will give Parent or Purchaser, as applicable, subject to
compliance with Section 14(f) of the Exchange Act, that percentage of the
total number of directors on the Company's Board of Directors (giving effect
to the election of any additional directors pursuant
 
                                       6
<PAGE>
 
to the Merger Agreement) equal to the percentage of then outstanding Shares
owned by Parent or Purchaser (provided that such percentage of the total
number of directors shall not be less than a majority of the Company's Board
of Directors), and the Company shall, at such time, cause Parent's or
Purchaser's designees, as applicable, to be elected by the Company's existing
Board of Directors; provided, however, that in the event that such designees
are elected to the Company's Board of Directors, until the Effective Time such
Board of Directors shall have at least two directors who are directors on the
date of the Merger Agreement and who are neither officers of the Company or of
any holder of more than 5% of the Shares (as of the date of the Merger
Agreement) nor affiliates of Parent or Purchaser (the "Independent
Directors"); and provided further that if the number of Independent Directors
shall be reduced below two for any reasons whatsoever, the remaining
Independent Directors shall designate a person to fill such vacancy who shall
be deemed to be an Independent Director for purposes of the Merger Agreement
or, if no Independent Directors then remain, the other directors shall
designate two persons to fill such vacancies who shall not be officers or
affiliates of the Company or of any holder of more than 5% of the Shares (as
of the date of the Merger Agreement) or officers or affiliates of Parent or
any of its subsidiaries, and such persons shall be deemed to be Independent
Directors for purposes of the Merger Agreement.
 
  The Merger Agreement also provides that, subject to applicable law, the
Company will take all actions requested by Parent necessary to effect any such
election, including mailing to its stockholders the Information Statement
containing the information required by Section 14(f) of the Exchange Act and
Rule 14f-1 promulgated thereunder by the Commission, and that the Company will
make such mailing with the mailing of this Schedule 14D-9. Purchaser has
informed the Company that it will choose its director-designees from the
persons listed in Schedule I to this Schedule 14D-9. Purchaser has informed
the Company that each of the persons listed in Schedule I to this Schedule
14D-9 has consented to act as a director, if so designated. In connection with
the foregoing, subject to the Independent Director requirement discussed
above, the Company has agreed to promptly, at the option of Parent, either
increase the size of the Company's Board of Directors and/or obtain the
resignation of such number of its current directors as is necessary to enable
Parent's or Purchaser's designees, as applicable, to be elected or appointed
to, and to constitute (rounded up to the next whole number) that percentage of
the total number of directors on the Company's Board of Directors (giving
effect to the election of any additional directors) equal to the percentage of
then outstanding Shares owned by Parent or Purchaser (provided that such
percentage of the total number of directors shall not be less than a majority
of the Company's Board of Directors).
 
  The Merger Agreement also provides that following the election of Parent's
or Purchaser's designees, as applicable, pursuant to the Merger Agreement,
prior to the Effective Time, any amendment or termination of the Merger
Agreement or waiver of any of the Company's rights thereunder requires the
concurrence of a majority of the Independent Directors.
 
  Indemnification. The Merger Agreement requires that the Certificate of
Incorporation and Bylaws of the Surviving Corporation contain the provisions
with respect to indemnification, advancement of expenses and director
exculpation set forth in the Restated Certificate of Incorporation and Bylaws
of the Company as of the date of the Merger Agreement, which provisions shall
not be amended, repealed or otherwise modified for a period of six years after
the Effective Time in any manner that would adversely affect the rights
thereunder of persons who at any time prior to the Effective Time were
entitled to indemnification, advancement of expenses or exculpation under the
Restated Certificate of Incorporation or Bylaws of the Company in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the Transactions). The Company recently amended its Bylaws
to increase the scope of indemnification to cover employees and agents, and to
mandate the advancement of expenses consistent with the provisions of the
Merger Agreement referred to in the following paragraph. A copy of the Bylaws,
as amended, are attached hereto as Exhibit 2.
 
  The Merger Agreement further provides that from and after the Effective
Time, Parent and the Surviving Corporation shall, jointly and severally,
indemnify, defend and hold harmless the present and former officers, directors
and employees of the Company and its subsidiaries (collectively, the
"Indemnified Parties") against all losses, expenses, claims, damages,
liabilities or amounts that are paid in settlement of (with approval of Parent
and the Surviving Corporation, which approval shall not be unreasonably
withheld or delayed), or otherwise in
 
                                       7
<PAGE>
 
connection with, any claim, action, suit, proceeding or investigation (a
"Claim"), to which any such person is or may become a party by virtue of his or
her service as a present or former director, officer or employee of the Company
and any of its subsidiaries and arising out of actual or alleged events,
actions or omissions occurring or alleged to have occurred at or prior to the
Effective Time (including, without limitation, the Transactions), in each case
to the fullest extent permitted under the DGCL (and shall pay expenses in
advance of the final disposition of any such action or proceeding to each
Indemnified Party to the fullest extent permitted under the DGCL, upon receipt
from the Indemnified Party to whom expenses are advanced of the undertaking to
repay such advances contemplated by Section 145(e) of the DGCL).
 
  Parent has agreed to maintain in effect for not less than six years after the
Effective Time (except to the extent not generally available in the market)
directors' and officers' liability insurance and fiduciary liability insurance
that is substantially equivalent in coverage to the Company's current
insurance, with an amount of coverage of not less than 100% of the amount of
coverage (which was increased as of the most recent renewal time to
$30 million) maintained by the Company as of the date of the Merger Agreement
with respect to matters occurring prior to the Effective Time.
 
  Use of Name.  In the Merger Agreement, effective as of the Effective Time,
pursuant to pre-existing contractual obligations, the Company confirmed the
assignment to Anthony J. Scotti and Benjamin J. Scotti all of the Company's
rights, title and interest in the name "Scotti Brothers" and all variations and
derivations thereof (the "Retained Names"). Promptly after the Effective Time,
Parent agreed to cause the names of the Company and its subsidiaries which
contain the Retained Names to be changed so as not to include the Retained
Names. No Parent Company will put into use after 90 days after the Effective
Time any products, signs, television or recorded music credits and other
materials that bear any Retained Name or any name, mark or logo similar
thereto. Notwithstanding the foregoing, the Parent Companies have the right to
continue using the Retained Names in connection with the sale of inventory
which as of the Effective Time contains any Retained Name on the label
identifying such inventory.
 
  Company Options and Warrants. In the Merger Agreement, Parent acknowledged
that the consummation of the Offer and the other Transactions will constitute
an "Event" (as defined in the Company's 1991 Incentive Stock Option Plan and
1994 Stock Incentive Plan (collectively, the "Plans")) with respect to the
options granted thereunder and certain other options granted by the Company and
other options specified in Section 3.3 of the Company Disclosure Schedule and
that the vesting of such options will therefore become accelerated as a result
of the Transactions. Parent acknowledged that the accelerated vesting will
occur simultaneously with the acceptance of the Offer so as to permit the
exercise of any such unvested options and tender of the underlying Shares. At
the Effective Time, each holder of a then outstanding option or warrant to
purchase Shares, whether or not then exercisable, shall, in settlement thereof,
except to the extent otherwise agreed to by the holder of the option or
warrant, the Company and Parent, receive from the Company (from funds provided
by Parent to the paying agent) for each Share subject to such stock option or
warrant an amount in cash equal to the excess, if any, of the Merger
Consideration over the per Share exercise price of such stock option or warrant
(such amount being hereinafter referred to as the "Option Consideration"). Upon
receipt of the Option Consideration, the stock option or warrant shall be
canceled. The surrender of any stock option or warrant to the Company in
exchange for the Option Consideration shall be deemed a release of any and all
rights the holder had or may have had in respect of such stock option or
warrant. Prior to the Effective Time, the Company shall use its best efforts to
obtain all necessary consents or releases from holders of stock options and
warrants and to take all such other lawful action as may be necessary to give
effect to the transactions contemplated above (except for such action that may
require the approval of the Company's stockholders). Except as otherwise agreed
to by the parties, (a) the Plans shall terminate, effective as of the Effective
Time, and the Company shall use its reasonable efforts to cause the provisions
in any other plan, program or arrangement providing for the issuance or grant
of any other interest in respect of the capital stock of the Company or any of
its subsidiaries to be canceled as of the Effective Time and (b) the Company
shall use its reasonable efforts to ensure that following the Effective Time no
participant in the Plans or other plans, programs or arrangements shall have
any right thereunder to acquire equity securities of the Company, the Surviving
Corporation or any subsidiary of the Company or the Surviving Corporation and
to terminate all such plans, programs or arrangements.
 
 
                                       8
<PAGE>
 
  Employee Benefit Plans. Pursuant to the Merger Agreement, Parent agreed to
cause the Surviving Corporation (and any successor thereto) to honor, without
modification, all employment, consulting, severance, termination or
indemnification agreements, arrangements or understandings, including
recognition of the value (either in cash, replacement options or other
consideration) of any outstanding agreement to issue a fixed number of options
in the future (up to 123,000), between the Company or any of its subsidiaries
and any current or former employee, officer or director of the Company or any
of its subsidiaries in effect on the date of the Merger Agreement except as
may be otherwise mutually agreed by the Parent and a current or former
employee, officer or director covered by such an agreement. Certain members of
the Board of Directors of the Company and certain of the directors' family
members have employment agreements with the Company for original terms of up
to five years. The aggregate remaining amount payable to such persons
(excluding Anthony J. Scotti) pursuant to such employment agreements is
approximately $6,200,000. See "--Scotti Agreement Not to Compete and Scotti
Amendment to Employment Ageement" below with respect to certain arrangements
regarding Anthony J. Scotti. Parent also agreed to cause the Surviving
Corporation and its successors to pay or provide all benefits vested as of the
Effective Time under any Benefit Plan in accordance with the terms of such
plans. Parent will for a period of at least 24 months cause the Company or the
Surviving Corporation and its successors to maintain for all employees of the
Company employee benefit plans, programs, policies and practices which, in the
aggregate, provide substantially equivalent benefits to such employees as the
benefit plans from time to time in effect for employees of the Surviving
Corporation, provided that employees covered by collective bargaining
agreements shall be provided the benefits required under such agreements. For
purposes of their participation in Parent's or the Surviving Corporation's
employee and fringe benefit plans, programs, policies and practices, Parent
will credit each Company employee with full credit for all service credited
under the comparable plan, program, policy or practice of the Company
(including service with the Company prior to the Effective Time and, where
applicable, service with prior or predecessor employers to the extent credit
is given for such service under the comparable Company plans) for purposes of
eligibility to participate and for purposes of vesting.
 
  Conditions to the Offer. The Merger Agreement provides that, notwithstanding
any other provision of the Offer, Parent or Purchaser shall not be required to
accept for payment or pay for any Shares tendered, and may terminate or amend
the Offer (subject to the provisions of the Merger Agreement) and may postpone
the acceptance of, and payment for, subject to Rule 14e-1(c) of the Exchange
Act, any Shares tendered, if:
 
    1. the Minimum Condition shall not have been satisfied prior to the
  expiration of the Offer;
 
    2. any applicable waiting period under the HSR Act shall not have expired
  or been terminated prior to the expiration of the Offer or other approvals
  required by the German Federal Cartel Office shall not have been obtained;
  or
 
    3. at any time on or after the date of the Merger Agreement, and prior to
  the expiration of the Offer, any of the following conditions shall exist:
 
      (a) (i) there shall be threatened or pending any suit, action or
    proceeding brought by any Governmental Authority (as herein defined)
    against the Parent, Purchaser, the Company or any Company Subsidiary
    (A) seeking to prohibit or impose any material limitations on Parent's
    or Purchaser's ownership or operation (or that of any of their
    respective subsidiaries or affiliates) of all or a material portion of
    the Company's businesses or assets, or to compel Parent or Purchaser or
    their respective subsidiaries or affiliates to dispose of or hold
    separate any material portion of the business or assets of the Company
    or any of the Company Subsidiaries, (B) challenging the acquisition by
    Parent or Purchaser of any Shares under the Offer, seeking to restrain
    or prohibit the making or consummation of the Offer or the Merger or
    the performance of any of the other transactions contemplated by the
    Merger Agreement or the Stockholders Agreement, or seeking to obtain
    from the Company, Parent or Purchaser any damages that are material in
    relation to the Company and its subsidiaries taken as a whole, (C)
    seeking to impose material limitations on the ability of the Purchaser,
    or render the Purchaser unable, to accept for payment, pay for or
    purchase some or all of the Shares pursuant to the Offer and the Merger
    or (D) seeking to impose material limitations on the ability of Parent
    or Purchaser effectively to exercise full rights of ownership of the
    Shares, including, without limitation, the right to vote the Shares
    purchased by it on all matters properly presented to the
 
                                       9
<PAGE>
 
    Company's stockholders; or (ii) any Governmental Authority or other
    person or entity shall have obtained an injunction (A) prohibiting the
    making of the Offer, the acceptance for payment of, or payment for, any
    Shares by Parent, Purchaser, or any other affiliate of Parent or (B)
    prohibiting the ownership by the Parent or any of its subsidiaries of
    the Company, or compelling the Company, Parent or any of their
    respective subsidiaries to dispose of or to hold separate all or any
    material portion of the business or assets of the Company, Parent or
    any of their respective Subsidiaries, as a result of the Transactions;
 
      (b) there shall have been any Law enacted, entered, enforced,
    promulgated, amended, issued or deemed applicable to (i) Parent, the
    Company or any Subsidiary or affiliate of Parent or the Company or (ii)
    any Transaction, by any government or Governmental Authority other than
    the routine application of the waiting period provisions of the HSR Act
    to the Offer or the Merger, which effects any of the consequences
    referred to in paragraph (a) above;
 
      (c) there shall have occurred and be continuing any Company Material
    Adverse Effect (as defined below) or any event or series of events
    which would result in a Company Material Adverse Effect;
 
      (d) there shall have occurred and be continuing a declaration of a
    banking moratorium or any suspension of payments in respect of banks in
    the City of New York;
 
      (e) the Board of Directors of the Company or any committee thereof
    shall have withdrawn, modified or changed in a manner adverse to Parent
    or Purchaser the approval or recommendation of the Offer, the Merger or
    the Merger Agreement, or approved or recommended any Competing
    Transaction or any other acquisition of Shares other than the Offer or
    the Merger;
 
      (f) any representation and warranty of the Company shall not be true
    and correct as of the date of the Merger Agreement or as of the
    expiration of the Offer except for (i) changes specifically
    contemplated by the Merger Agreement and (ii) those representations and
    warranties that address matters only as of a particular date (which
    shall remain true and correct as of such date) and in each case except
    where failure of such representation and warranty to be so true and
    correct individually or together with failures of other representations
    and warranties to be true and correct would not have a Company Material
    Adverse Effect (other than representations and warranties that are
    already so qualified or that are qualified as to the prevention or
    delay of the consummation of any of the Transactions or as to the
    performance by the Company of its obligations under the Merger
    Agreement, which in each such case shall be true and correct as
    written);
 
      (g) the Company shall have failed to perform any obligation or to
    comply with any agreement or covenant of the Company to be performed or
    complied with by it under the Agreement unless such failures, would
    not, individually or in the aggregate, have a Company Material Adverse
    Effect;
 
      (h) the Merger Agreement shall have been terminated in accordance
    with its terms; or
 
      (i) Parent and the Company shall have agreed that Parent or
    Purchaser, as applicable, shall terminate the Offer.
 
  The term "Company Material Adverse Effect" means, for all purposes of the
Merger Agreement, any change in the business of the Company and the Company
Subsidiaries that is materially adverse (or any group of such changes, none of
which individually is materially adverse, but which in the aggregate are
materially adverse) to the business, operations, properties, financial
position or results of operations of the Company and its subsidiaries, taken
as a whole, provided that none of the following shall constitute a Company
Material Adverse Effect: (a) a decline in the ratings of any television
programs distributed or produced by the Company or its subsidiaries or the
cancellation of any television programs distributed or produced by the Company
or its subsidiaries, (b) the filing, initiation and subsequent prosecution, by
or on behalf of stockholders of the Company, of litigation that challenges or
otherwise seeks damages with respect to the Transactions, (c) occurrences due
to a disruption of the Company's or its subsidiaries' businesses as a result
of the announcement of the execution of the Merger Agreement, (d) general
economic conditions or (e) any changes generally affecting the industries in
which the Company and its subsidiaries operate.
 
 
                                      10
<PAGE>
 
  The foregoing conditions (other than the Minimum Condition) may be waived by
Parent or Purchaser in whole or in part at any time and from time to time in
their sole discretion, subject in each case to the terms of the Merger
Agreement. The failure by Parent or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right; the
waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances; and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time.
 
  Conditions to the Obligations of Each Party. The Merger Agreement provides
that the respective obligations of each party to consummate the Merger are
subject to the satisfaction of the following conditions: (a) if required by
the DGCL, the Merger Agreement shall have been approved and adopted by the
stockholders of the Company in accordance with the DGCL, the Company's
Certificate of Incorporation and its Bylaws, (b) any waiting period (and any
extension thereof) applicable to the consummation of the Merger under the HSR
Act shall have expired or been terminated, and any required approvals in
connection with any pre-merger notification filing with the German Federal
Cartel Office shall have been obtained and shall remain in full force and
effect, (c) no United States (federal, state or local) or foreign government
or governmental regulatory, administrative authority, agency, commission,
board, bureau, court or instrumentality or arbitrator of any kind
("Governmental Authority") shall have enacted, issued, promulgated, enforced
or entered any law, rule, regulation, executive order or other order, that is
then in effect and has the effect of prohibiting the consummation of the
Merger, and (d) the Offer shall not have been terminated in accordance with
its terms prior to the purchase of any Shares.
 
  Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto including, but
not limited to, representations by the Company as to corporate organization
and qualification, subsidiaries, capitalization, authority to enter into the
Merger Agreement, no conflicts, required filings and consents, filings with
the Commission and other governmental authorities, financial statements, the
absence of certain changes or events, intellectual property, material
contracts, environmental matters, benefit plans, tax matters, litigation, the
opinion of the Company's financial advisors, brokers, properties and assets,
compliance with laws in general, labor matters and insurance.
 
  Payment of Expenses. Except as otherwise set forth in the Merger Agreement,
whether or not the Merger is consummated, each party will pay its own Expenses
incident to preparing for, entering into and carrying out the Merger Agreement
and the consummation of the Merger. "Expenses" as used in the Merger Agreement
will include all reasonable out-of-pocket expenses (including, without
limitation, all fees and expenses of outside counsel, investment bankers,
experts and consultants to a party thereto) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of the Merger Agreement and all other
matters relating to the closing of the Transactions. Pursuant to the Merger
Agreement, the Company agrees that (a) if Parent terminates the Merger
Agreement as a result of a breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in the Merger Agreement such
that any of the conditions set forth in clause (f) or (g) of "--Conditions to
the Offer" above would not be satisfied, (b) if Parent terminates the Merger
Agreement because the Board of Directors of the Company withdraws, modifies or
changes its recommendation of the Merger Agreement or the Merger in a manner
adverse to Parent or Purchaser or the Board of Directors of the Company
recommends to the stockholders of the Company any Competing Transaction or (c)
if the Company terminates the Merger Agreement because the Board of Directors
of the Company withdraws, modifies or changes its recommendation of the Merger
Agreement or the Merger or recommends to the stockholders of the Company a
Competing Transaction (the termination described in these subclauses (b) and
(c) shall be referred to as a "Fiduciary Termination"), the Company will
reimburse Parent for its Expenses up to an aggregate amount not to exceed
$500,000. In addition, if the Merger Agreement is terminated pursuant to a
termination right which constitutes a Fiduciary Termination or a Competing
Transaction Termination (as defined herein), then the Company will pay Parent
$3,500,000 upon demand after such termination, and if, within twelve months
after such termination, a Competing Transaction shall be consummated, the
Company will pay Parent an additional $3,500,000 concurrently with the
consummation of such Competing Transaction. Pursuant to the Merger Agreement,
Parent agrees that if the
 
                                      11
<PAGE>
 
Company terminates the Merger Agreement as a result of a breach of any
material representation, warranty, covenant or agreement on the part of Parent
as set forth in the Merger Agreement ("Terminating Purchaser Breach"), Parent
will reimburse the Company for its Expenses and all damages caused to the
Company as a result thereof.
 
  Termination of the Merger Agreement. The Merger Agreement may be terminated
and the Merger and the other Transactions may be abandoned at any time prior
to the Effective Time, before or after the approval by holders of Common
Stock, by the mutual consent of Parent and the Company, by action of their
respective Boards of Directors. In addition, the Merger Agreement may be
terminated and the Merger and the other Transactions may be abandoned by
action of the Board of Directors of either Parent or the Company if (a) the
Merger has not been consummated on or before February 28, 1998, unless the
failure to consummate the Merger is the result of a material breach of the
Merger Agreement by the party seeking to terminate the Merger Agreement, (b)
there is any Law that makes consummation of the Merger illegal or otherwise
prohibited or any Order that is final and nonappealable preventing the
consummation of the Merger, or (c) Purchaser and Parent have terminated the
Offer in accordance with its terms and conditions without purchasing any
Shares pursuant thereto.
 
  The Merger Agreement may be terminated and the Merger and the other
Transactions may be abandoned at any time prior to the Effective Time, before
or after approval of the holders of Common Stock, by action of the Board of
Directors of Parent:
 
    (a) if, prior to the Transition Time there has been a breach of any
  representation, warranty, covenant or agreement on the part of the Company
  set forth in the Merger Agreement such that any of the conditions set forth
  in clause (f) or (g) of "--Conditions to the Offer" above would not be
  satisfied (a "Terminating Company Breach") provided, however, that, if such
  Terminating Company Breach is curable by the Company through the exercise
  of its reasonable best efforts and for so long as the Company continues to
  exercise such reasonable best efforts (but in no event longer than 30 days
  after Parent's notification to the Company of the occurrence of such
  Terminating Company Breach), Parent may not terminate the Merger Agreement
  as a result thereof; or
 
    (b) if prior to the Transition Time (i) the Board of Directors of the
  Company withdraws, modifies or changes its recommendation of the Merger
  Agreement or the Merger or other Transactions in a manner adverse to Parent
  or Purchaser or (ii) the Board of Directors of the Company shall have
  recommended to the stockholders of the Company any proposal involving a
  Competing Transaction.
 
  The Merger Agreement may be terminated and the Merger and the other
Transactions may be abandoned at any time prior to the Effective Time, before
or after the approval by holders of Common Stock by action of the Board of
Directors of the Company:
 
    (a) if there has been a Terminating Purchaser Breach; provided, however,
  that, if such Terminating Purchaser Breach is curable by Parent or
  Purchaser through the exercise of its reasonable best efforts and for so
  long as Parent or Purchaser continue to exercise such reasonable best
  efforts (but in no event longer than 30 days after the Company's
  notification to Purchaser of the occurrence of such Terminating Purchaser
  Breach), the Company may not terminate the Merger Agreement as a result
  thereof; or
 
    (b) if prior to the Transition Time (i) the Board of Directors of the
  Company withdraws, modifies or changes its recommendation of the Merger
  Agreement or the Merger or other Transactions or (ii) the Board of
  Directors of the Company shall have recommended to the stockholders of the
  Company any Competing Transaction, or resolved to do either of the
  foregoing after consultation with independent legal counsel, having
  determined in good faith that such action is required for the Board of
  Directors of the Company to comply with its fiduciary duties to
  stockholders under applicable law; provided, that any such termination of
  this Agreement by the Company shall not be effective until the close of
  business on the second (or, in the event that the party with whom the
  Company proposes to engage in the Competing Transaction was a participant
  in the competitive sale process described in "Item 4. Background of the
  Offer," the fifth) full business day after notice of such termination to
  Parent; or
 
 
                                      12
<PAGE>
 
    (c) if (i) Parent or Purchaser have failed to commence the Offer within
  five business days after the public announcement of the execution of the
  Merger Agreement, or (ii) Purchaser or Parent will not have purchased any
  Shares pursuant to the Offer by the later of 45 days after the date of this
  Agreement and three business days after the expiration or termination of
  any waiting period (and any extension thereof) applicable to the
  consummation of the Offer under the HSR Act and any required approvals in
  connection with any pre-merger notification filing with the German Federal
  Cartel Office have been obtained or (iii) the Offer shall have been
  terminated without Parent or Purchaser having purchased any Shares pursuant
  thereto.
 
  Issuance of New or Treasury Shares. The Merger Agreement provides that if
the Merger Agreement is terminated because of a Fiduciary Termination or if
the Purchaser terminates the Offer because the Minimum Condition is not
satisfied and at or prior to such time there has been publicly announced or
the Company has received one or more proposals for a Competing Transaction
which at the time of such termination has not been absolutely or
unconditionally withdrawn or abandoned (a "Competing Transaction
Termination"), the Company will not, until the expiration of one year
following such termination, issue any new or treasury shares (other than
pursuant to commitments in effect on the date of the Merger Agreement) unless
it shall have first given Parent at least five business days advance written
notice thereof (the "Issuance Notice"). Parent may, by written notice to the
Company prior to the expiration of five business days from receipt of the
Issuance Notice, elect to exercise the Option (as defined below) in full to
acquire Shares from the stockholders party to the Stockholders Agreement. If
Purchaser has exercised the Option the Company shall not thereafter issue any
such shares unless Parent shall have consented in advance thereto, which
consent shall not be unreasonably withheld. If at any time after the exercise
of the Option, Parent beneficially owns, or if before exercise of the Option,
if the Option were fully exercised Purchaser would own, less than 30% if the
voting securities of the Company on a fully diluted basis, the above
restrictions on the issuance of shares will immediately terminate and be of no
further force or effect with respect to any issuances of shares by the
Company.
 
  Timing. The exact timing and details of the Merger will depend upon legal
requirements and a variety of other factors, including the number of Shares
acquired by Purchaser pursuant to the Offer. Although Purchaser and Parent
have agreed to cause the Merger to be consummated on the terms set forth
above, there is no assurance as to the timing of the Merger.
 
  Appraisal Rights. Stockholders do not have dissenters' rights as a result of
the Offer. However, if the Merger is consummated, any Dissenting Shares held
by a person (a "Dissenting Stockholder") who did not vote in favor of the
Merger or consent thereto in writing and who has demanded properly in writing
appraisal for such Dissenting Shares in accordance with Section 262 of the
DGCL will not be converted into the right to receive, in cash, the Merger
Consideration, but will become the right to receive such consideration as may
be determined to be due to such Dissenting Shareholder pursuant to the laws of
the State of Delaware. If, after the Effective Time, such Dissenting
Stockholder withdraws its demand for appraisal or fails to perfect or
otherwise loses its right of appraisal, its Shares shall be deemed to be
converted as of the Effective Time into the right to receive the Merger
Consideration without interest. The Company will give Parent prompt notice of
any demands for appraisal of shares received by the Company. The Company will
not, without the prior written consent of Parent, make any payment with
respect to, or settle, offer to settle or otherwise negotiate, any such
demands.
 
  Under the DGCL, dissenting stockholders who comply with the applicable
statutory procedures will be entitled to receive a judicial determination of
the fair value of their Shares (exclusive of any element of value arising from
the accomplishment or expectation of the Merger) and to receive payment of
such fair value in cash, together with a fair rate of interest, if any. Any
such judicial determination of the fair value of the Shares could be based
upon considerations other than or in addition to the price paid in the Offer
(or the Merger) and the market value of the Shares. Stockholders should
recognize that the value so determined could be higher or lower than the price
per Share paid pursuant to the Offer or the Merger. Moreover, Parent or
Purchaser may argue in an appraisal proceeding that, for purposes of such a
proceeding, the fair value of the Shares is less than the price paid in the
Offer (or the Merger). THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING
STOCKHOLDERS DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF PROCEDURES TO BE
FOLLOWED BY STOCKHOLDERS DESIRING TO EXERCISE THEIR DISSENTERS' RIGHTS.
 
                                      13
<PAGE>
 
THE STOCKHOLDERS AGREEMENT
 
  The following is a summary of certain provisions of the Stockholders
Agreement (the "Stockholders Agreement"), dated October 1, 1997, by and among
Parent, Purchaser, Anthony J. Scotti, Benjamin J. Scotti, Myron I. Roth,
Thomas Bradshaw, Sydney D. Vinnedge, Lawrence E. Lamattina and Interpublic
(collectively, the "Selling Stockholders"). The summary is qualified in its
entirety by reference to the Stockholders Agreement which is incorporated
herein by reference and a copy of which has been filed with the Commission as
Exhibit 3 to this Schedule 14D-9.
 
  As a condition and inducement to Parent's and Purchaser's entering into the
Merger Agreement and incurring the liabilities therein, concurrently with the
execution and delivery of the Merger Agreement, the Selling Stockholders, who
own or share voting power and dispositive power with respect to approximately
55.79% of the Shares (excluding Shares issuable upon exercise of options and
warrants), have entered into a Stockholders Agreement. In the Stockholders
Agreement, the Selling Stockholders have represented that they own, in the
aggregate, 6,789,260 Shares. The Stockholders Agreement provides that nothing
therein shall be construed to prohibit any Selling Stockholder or any
affiliate of any Selling Stockholder who is or has been designated a member of
the Board of Directors of the Company from taking any action solely in his or
her capacity as a member of the Board of Directors of the Company or from
exercising his or her fiduciary duties as a member of such Board of Directors.
 
  Agreement to Tender. Each Selling Stockholder has severally agreed to tender
his Shares and any Shares subsequently acquired pursuant to exercises after
the date thereof of options or warrants to purchase Common Stock or Class B
Common Stock (the "Subject Shares") into the Offer in accordance with the
terms and conditions of the Offer and to not withdraw any Subject Shares so
tendered unless the Merger Agreement is terminated in accordance with its
terms. In addition, each Selling Stockholder has agreed to sell to Purchaser,
and Purchaser has agreed to purchase, all such Selling Stockholders' Subject
Shares at a price per Share equal to $25.50 or such higher price per Share as
may be offered by Purchaser in the Offer (the "Purchase Price"), provided that
such obligation to purchase is subject to Purchaser having accepted Shares for
payment under the Offer and the Minimum Condition and other conditions
described in "--Merger Agreement--Conditions to the Offer" above having been
satisfied, which conditions (other than the Minimum Condition) may be waived
by Purchaser in its sole discretion. Notwithstanding anything to the contrary
herein, the Subject Shares which are shares of Common Stock, shall not, in the
aggregate for all purposes of the Stockholders Agreement, exceed 49.9% of the
then outstanding shares of Common Stock, and the number of Subject Shares
shall be reduced on a share-for-share basis for any Shares owned by Parent or
any affiliate thereof as of the date of the Merger Agreement. In the Merger
Agreement, Parent represented to the Company that, to its knowledge, neither
Parent nor any affiliate thereof owned any Shares as of the date of the Merger
Agreement. As of September 30, 1997, there were 5,972,759 Subject Shares,
consisting of 3,502,759 shares of Common Stock and 2,470,000 shares of Class B
Common Stock (approximately 48% of the outstanding Class B Common Stock) prior
to giving effect to any Shares acquired pursuant to exercises after the date
of the Stockholders Agreement of options or warrants to purchase Common Stock
or Class B Common Stock. The Company's Restated Certificate of Incorporation
provides that the Class B Common Stock, which is non-voting stock,
automatically converts to Common Stock, which is voting stock, upon a Change
of Control (as defined in the Restated Certificate of Incorporation). The
Company believes that the execution of the Stockholders Agreement does not
result in a Change of Control.
 
  Agreement to Vote and Grant of Proxy. Each Selling Stockholder has agreed
that at any meeting (whether annual or special and whether or not an adjourned
or postponed meeting) of the holders of Shares, however called, or in
connection with any written consent of the holders of Shares solicited by the
Board of Directors of the Company, such Selling Stockholder will appear at the
meeting or otherwise cause the Proxy Shares (as such term is hereinafter
defined) to be counted as present thereat for purposes of establishing a
quorum and vote or consent ( or cause to be voted or consented) such Selling
Stockholder's Proxy Shares (as hereinafter defined) (i) in favor of the Merger
during the term of the Merger Agreement and (ii) against any Competing
Transaction (as defined in the Merger Agreement) during the term of the
Stockholders Agreement. "Proxy Shares" shall mean (i) the Subject Shares
unless and until the Class B Common Stock shall have become voting stock, and
(ii) all
 
                                      14
<PAGE>
 
shares of voting stock of the Company from and after the time that the Class B
Common Stock shall have become voting stock; provided, however, that unless
and until the Transition Time shall have occurred, the Proxy Shares shall not
in the aggregate exceed such amount of the then outstanding shares of voting
stock of the Company as would result in the occurrence of a Change in Control
under the Indenture with respect to the Senior Subordinated Notes.
 
  Each Selling Stockholder has granted to, and appointed Purchaser and any
nominee thereof, its proxy and attorney-in-fact (with full power of
substitution) during the term of the Stockholders Agreement, for and in the
name, place and stead of such Selling Stockholder, to vote such Selling
Stockholder's Proxy Shares, or grant a consent or approval in respect of such
Selling Stockholder's Proxy Shares, in connection with any meeting of the
stockholders of the Company (i) in favor of the Merger during the term of the
Merger Agreement, and (ii) against any Competing Transaction during the term
of the Stockholders Agreement.
 
  Until any such Selling Stockholder's Proxy Shares are purchased by Purchaser
pursuant to the Stockholders Agreement, such Selling Stockholder shall retain
the right to vote such Selling Stockholder's Proxy Shares (as well as any
other Shares) for the election of directors of the Company and for any other
matter other than those specified in the Stockholders Agreement.
 
  Option. Each Selling Stockholder has also granted to Purchaser an
irrevocable option (collectively, the "Option") to purchase such Selling
Stockholder's Subject Shares at a price per Share equal to the Purchase Price,
exercisable in whole but not in part during the one year period after (i) a
Fiduciary Termination or (ii) a Competing Transaction Termination. Any such
purchase under the Option shall be subject to the expiration of any applicable
waiting period under the HSR Act and any required approvals in connection with
any pre-merger notification with the German Federal Cartel Office ("FCO").
 
  Agreement not to Transfer. Each Selling Stockholder agreed that prior to the
termination of the Stockholders Agreement such Selling Stockholder will not
(a) transfer or consent to any transfer of any or all of such Selling
Stockholder's Shares; (b) enter into any contract, option or other agreement
or understanding with respect to any transfer of any or all of such Selling
Stockholder's Shares or any interest therein; (c) except as described below,
grant any proxy, power-of-attorney or other authorization or consent with
respect to such Selling Stockholder's Shares; or (d) deposit such Selling
Stockholder's Shares into a voting trust or enter into a voting agreement or
arrangement with respect to such Selling Stockholder's Shares. The Selling
Stockholders may transfer all or a portion of their Shares to persons or
entities who, by written instrument reasonably acceptable in form and
substance to Purchaser, agree to be bound by each of the terms of the
Stockholders Agreement, and any Selling Stockholder may sell any of such
Stockholder's Shares in a sale which complies with Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), subject to a right
of first refusal in favor of Purchaser at the Purchase Price. Prior to the
Transition Time, no Selling Stockholder shall exercise any outstanding options
or warrants to purchase Common Stock except (a) as necessary to avoid the
expiration of such option or warrant or (b) in connection with the tender or
sale of the underlying Shares to Purchaser or its affiliates.
 
  Termination of the Stockholders Agreement. The Stockholders Agreement
terminates upon the earlier of (a) the date that is one year following a
Competing Transaction Termination or a Fiduciary Termination or immediately on
the date upon which the Merger Agreement otherwise terminates in accordance
with its terms or (b) the Effective Time.
 
SCOTTI AGREEMENT NOT TO COMPETE AND SCOTTI AMENDMENT TO EMPLOYMENT AGREEMENT
 
  The following is a summary of certain provisions of the agreement relating
to noncompetition, nonsolicitation, nondisclosure and other matters by and
between the Company and Anthony J. Scotti (the "Agreement Not to Compete") and
Fifth Amendment to Employment Agreement by and between the Company and Anthony
J. Scotti (the "Amendment to Employment Agreement") entered into in connection
with the
 
                                      15
<PAGE>
 
Merger Agreement. The summary is qualified in its entirety by reference to the
Agreement Not to Compete and Amendment to Employment Agreement which are
incorporated herein by reference and a copy each of which has been filed with
the Commission as Exhibit 4 and Exhibit 5, respectively, to this Schedule 14D-
9.
 
  Under his employment agreement, as amended, with the Company, Anthony J.
Scotti has the right, upon a change of control of the Company, to terminate
his employment and compete with the Company. Upon the insistence of Parent and
Purchaser and to induce Parent and Purchaser to enter into the Merger
Agreement, the Company and Anthony J. Scotti entered into the Agreement Not to
Compete and Amendment to Employment Agreement.
 
  Pursuant to the Agreement Not to Compete, effective as of and only upon the
occurrence of the time Purchaser purchases more than 50% of the Shares (the
"Non Compete Time"), Mr. Scotti has agreed that: (a) he will resign (i) as
Chief Executive Officer of Company, (ii) from the Board of Directors of the
Company (and all committees thereof), (iii) from the Boards of Directors (and
all committees thereof) of all Company Subsidiaries of which he is a member,
and (iv) any other position of employment or engagement which he may occupy in
the Company or any affiliate of the Company and waive his right to further
compensation and benefits under his employment agreement, except for certain
specified benefits; and (b) during the period commencing at the Non Compete
Time and continuing until December 1, 1999, (i) he will not engage in any
activity which is competitive with the Company's "game show business" or
"music business" (each as defined in the Agreement Not to Compete) (subject to
certain exceptions relating to musical compositions or performances of family
members of Mr. Scotti); (ii) he will not solicit or entice away any employee
or independent contractor of the Company or performer engaged by the Company;
(iii) he will not discuss or negotiate with respect to television projects
which were submitted to or in development with the Company prior to the Non
Compete Time, unless they are resubmitted to the Company after the Non Compete
Time; and (iv) he will not reveal any trade secrets or confidential
information of or about the Company. In addition, under the Agreement Not to
Compete and effective as January 1, 1998, Mr. Scotti has agreed to exercise
his existing option to sublease from the Company the Gulfstream aircraft
leased by the Company and to assume all of the Company's obligations under the
aircraft lease. After the Non Compete Time but prior to January 1, 1998, Mr.
Scotti will have the exclusive use of the aircraft but will be responsible for
all costs incurred in connection with the aircraft after the Transition Time.
In consideration of the matters described in (b,(i),(ii) and (iii) above, the
Company has agreed to pay to Mr. Scotti approximately $2,900,000 (which amount
is less than the compensation due to Mr. Scotti over the term of his
employment agreement), subject to appropriate adjustment if the Non Compete
Time does not occur by December 1, 1997.
 
  Under the Amendment to Employment Agreement, the Company has agreed to
indemnify Mr. Scotti for any interest and penalties payable to any taxing
authority in connection with his agreement to report certain income to be
received by him as a result of the Merger and the Transactions in accordance
with the Form W-2 to be provided by the Company. The Company has also
reaffirmed its pre-existing agreement to reimburse Mr. Scotti for any federal,
state or local excise tax ("Excise Tax"), and any additional taxes to which he
may be subject, on any payments to Mr. Scotti from the Company as a result of
accelerated vesting of this option grant upon a change in control or
otherwise, up to a maximum reimbursement equal to twice the amount of such
Excise Tax.
 
CONFIDENTIALITY AGREEMENT
 
  The following is a summary of certain provisions of the Confidentiality
Agreement, dated as of November 20, 1995 (terminated December 7, 1995 and
reinstated February 16, 1996), between Pearson Television Limited
("Pearson TV") and the Company (the "Confidentiality Agreement"). This summary
is qualified in its entirety by reference to the Confidentiality Agreement
which is incorporated herein by reference and a copy of which has been filed
with the Commission as Exhibit 6 to the Schedule 14D-9. The Confidentiality
Agreement contains customary provisions pursuant to which, among other
matters, Pearson TV and its affiliates, including Parent, agreed to keep
confidential all nonpublic, confidential or proprietary information furnished
to it by the Company relating to the Company, subject to certain exceptions
(the "Confidential Information"), and to use the Confidential Information
solely for the purpose of evaluating a possible transaction involving the
Company and
 
                                      16
<PAGE>
 
Parent. The Confidentiality Agreement also contains customary non-solicitation
and standstill provisions. The Company has agreed that such standstill
provisions will not be applicable to the Offer or the Merger Agreement, or
after the earlier to occur of (a) a Fiduciary Termination, (b) a Competing
Transaction Termination, (c) November 20, 1997, or (d) the Transition Time.
 
CERTAIN ARRANGEMENTS WITH RESPECT TO INTERPUBLIC
 
  Interpublic owns one percent (1%) of Fremantle International, Inc., the
other 99% of which is owned by the Company. In connection with negotiations
relating to the Merger Agreement, discussions were held with respect to the
acquisition by Purchaser or Parent of an option to acquire such minority
interest from Interpublic. No agreement was reached.
 
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
 
 Recommendation of the Board of Directors.
 
  THE COMPANY'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE
BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY AND RECOMMENDS THAT ALL
STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER ALL THEIR SHARES
PURSUANT TO THE OFFER. THE BOARD OF DIRECTORS CONSIDERED A NUMBER OF FACTORS
IN REACHING ITS CONCLUSION. SEE "REASONS FOR THE RECOMMENDATION."
 
  As set forth in the Offer Documents, Purchaser will purchase Shares tendered
prior to the close of the Offer if the Minimum Condition has been satisfied by
that time and if all other conditions to the Offer have been satisfied (or
waived). Stockholders considering not tendering their Shares in order to wait
for the Merger should note that if the Minimum Condition is not satisfied or
any of the other conditions to the Offer are not satisfied, Purchaser is not
obligated to purchase any Shares, and can terminate the Offer and the Merger
Agreement and not proceed with the Merger. Under the DGCL, the approval of the
Company's Board of Directors and the affirmative vote of the holders of a
majority of the outstanding voting shares of the Company are required to
approve the Merger. Accordingly, if the Minimum Condition is satisfied and
subsequent to such satisfaction, no options or warrants of the Company are
exercised, Purchaser will have sufficient voting power to cause the approval
of the Merger without the affirmative vote of any other stockholder. Further,
under the DGCL, if Purchaser acquires at least 90% of the then outstanding
Shares of each then outstanding class of shares of the Company, Purchaser will
be able to approve the Merger without a vote of the Company's stockholders.
 
  The Offer is scheduled to expire at 12:00 Midnight, New York City time, on
Tuesday, November 4, 1997, unless Parent, in its sole discretion, elects to
extend the period of time for which the Offer is open. A copy of the press
release issued by the Company on October 1, 1997 announcing the Merger and the
Offer is filed as Exhibit 7 to this Schedule 14D-9 and is incorporated herein
by reference in its entirety.
 
 Background of the Offer.
 
 
  In late October 1995, at the invitation of Parent, Anthony J. Scotti,
President and Chief Executive Officer of the Company, and Thomas Bradshaw,
Executive Vice President and Chief Financial Officer, had preliminary
discussions concerning the Company's business with representatives of Pearson
TV.
 
  On November 20, 1995, Parent and the Company executed a confidentiality
agreement (the "Confidentiality Agreement") and the Company provided to
Pearson TV certain limited confidential non-public information concerning the
Company. In early December 1995, the Company decided not to proceed with any
further discussions with Parent or its affiliates. At the Company's request,
all discussions were terminated and the Company requested that Parent return
all confidential information previously provided.
 
  On February 16, 1996, following renewed contact between Parent and the
Company, the Company sent a letter reinstating the Confidentiality Agreement.
In March and April 1996, the Company provided additional
 
                                      17
<PAGE>
 
information to Parent and representatives of the Company had several meetings
with representatives of Parent and Pearson TV. Discussions were subsequently
terminated in April 1996 when it became clear that Parent was not interested
in proceeding with a transaction based on a premium to the Company's then
market price at a level believed by management to be adequate.
 
  In October 1996, in order to substantially increase its liquidity, the
Company effected a recapitalization plan which included an increase of its
secured bank facility to $155 million, and the refinancing of its outstanding
$60 million of convertible debentures with $100 million of Senior Subordinated
Notes.
 
  In late January 1997, the Company was again contacted by representatives of
Pearson TV. The Company informally retained the services of Danielle Kadeyan
of Media Finance Inc. ("Media Finance") to act as intermediary. Media Finance
prepared an information book concerning the Company which was provided to
Pearson TV in a meeting on February 12, 1997. In March and April 1997, Ms.
Kadeyan had discussions with representatives of Pearson TV and Lazard Freres &
Co. LLC ("Lazard"), its financial advisor, and separate discussions with
representatives of several other parties that had contacted the Company
concerning a possible strategic transaction. The discussions between Ms.
Kadeyan and Lazard included discussions concerning the range of value of the
Company's Common Stock.
 
  In May 1997, management of the Company determined to consider a possible
transaction on a more formal and competitive basis. Accordingly, on May 15,
1997, the Company retained Goldman, Sachs & Co. ("Goldman Sachs") and Media
Finance to represent the Company as financial advisors in a possible sale
transaction. Upon advice from its financial advisors, the Company determined
to conduct a competitive sale process unless Parent promptly submitted a
preemptive offer.
 
  In late May 1997, representatives of Goldman Sachs contacted representatives
of Lazard to offer Parent a limited opportunity to submit a preemptive bid for
the Company prior to the commencement of a formal competitive sale process.
Parent declined to submit a bid at that time because its bid would not be in a
range which the Company then considered preemptive.
 
  In June through August 1997, the Company, Goldman Sachs and Media Finance
contacted multiple potential bidders, and the Company began negotiating and
executing confidentiality agreements with interested qualified parties. The
Company provided an information book prepared by Goldman Sachs with the
assistance of Media Finance based on information provided by the Company's
management, to such parties. The Company also allowed certain of the potential
bidders to conduct preliminary due diligence examinations and provided them
with access to key members of management.
 
  On July 30, 1997, the Company's Board of Directors held a special meeting at
its offices in Santa Monica, California in which the Board was apprised of
developments to date.
 
  On September 3, 1997, Goldman Sachs, on behalf of the Company, invited
Pearson TV and certain other selected potential bidders to submit their best
offers to acquire the Company by September 22, 1997. The Company provided
access to a data room containing its contracts and other documents to these
selected bidders.
 
  On September 9, 1997, representatives of Parent and Lazard met with
representatives of the Company and Goldman Sachs in Los Angeles, California to
discuss the potential transaction. Representatives of the Company mailed a
letter to Parent transmitting a draft of the Merger Agreement. On September 9
and 10, 1997, representatives of Parent, Parent's outside counsel, O'Melveny &
Myers LLP ("O'Melveny") and other representatives of Parent conducted
extensive legal and financial due diligence. Representatives of the Company
also met with and provided due diligence information to other potential
bidders.
 
  On September 15, 1997, the Company issued a press release stating that it
was in preliminary discussions with third parties concerning a possible sale
of the Company and that it had retained Goldman Sachs and Media Finance in
connection therewith. Following such announcement, the Company received
inquiries from representatives of several additional potential bidders during
such period.
 
 
                                      18
<PAGE>
 
  On September 23, 1997, Parent submitted a proposal to the Company with a
purchase price of $25.50 per Share. At that time, Parent also submitted a
mark-up of the Company's form of Merger Agreement and a draft of the
Stockholders Agreement and confirmed that it would not require financing to
complete the proposed transaction.
 
  On September 24, 1997, the Company's Board of Directors held a special
telephonic meeting to consider the bid received by Pearson and, after
reviewing the status of all alternatives, authorized the appropriate officers
of the Company to negotiate with Pearson with respect to its offer.
 
  On September 26, 1997, revised drafts of the Merger Agreement and a revised
form of Stockholders Agreement to be executed by certain Company stockholders
were delivered to Parent, O'Melveny and Lazard for their review.
 
  On September 28, 1997, representatives of the Company, Parent, Goldman
Sachs, Lazard, the Company's outside counsel, Kaye, Scholer, Fierman, Hays &
Handler, LLP ("Kaye, Scholer"), Stroock & Stroock & Lavan LLP ("Stroock"),
personal counsel to Anthony J. Scotti, and O'Melveny met in the offices of
Kaye, Scholer to begin negotiations of the terms of the Merger Agreement and
ancillary agreements.
 
  On September 29, 1997, representatives of the Company, Lazard and O'Melveny
met in the offices of Kaye, Scholer and telephonically with representatives of
Parent, Goldman Sachs, Kaye, Scholer and Stroock to finalize negotiations of
the Merger Agreement and ancillary agreements.
 
  On September 30, 1997, the Company's Board of Directors held a special
meeting at its offices in Santa Monica, California to consider the Merger
Agreement, the Offer, the Merger and the Transactions contemplated thereby.
All of the Company's directors were present at the meeting. At the meeting,
the Board reviewed the Merger Agreement, the Offer, the Merger and the
transactions contemplated thereby with the Company's management,
representatives of Kaye, Scholer and representatives of Goldman Sachs and
Media Finance. The Board heard a presentation by the Company's legal counsel
with respect to the members' fiduciary duties and the terms of the proposed
Offer and Merger (and related ancillary agreements) and by representatives of
Goldman Sachs with respect to the financial terms of the proposed Offer and
the Merger. The Board discussed among themselves and with the Company's
management and advisors alternatives reasonably available to the Company. At
the conclusion of their presentation, Goldman Sachs delivered its oral opinion
to the Board (subsequently confirmed in writing) to the effect that, as of the
date of such opinion, the $25.50 per Share in cash to be received by the
holders of Shares pursuant to the Offer and the Merger was fair from a
financial point of view to such holders (other than Parent and its
subsidiaries).
 
  Based upon such discussions, presentations and opinion, the Board
unanimously (a) approved the Offer, the Merger and the Merger Agreement, in
the form presented to the Board, and the transactions contemplated by the
Merger Agreement, (b) recommended that the Company's stockholders accept the
Offer and tender their Shares pursuant to the Offer and approve and adopt the
Merger Agreement and the transactions contemplated thereby and (c) approved
the acquisition of Common Stock and Class B Common Stock by Parent and/or
Purchaser pursuant to the Merger or the Offer, for the purpose of exempting
Parent and/or Purchaser from Section 203 of the DGCL in connection with any
such acquisition. The Board of Directors also approved Parent as an
"Interested Stockholder" within the meaning of Section 203 of the DGCL with
respect to the Merger, any acquisition of Shares pursuant to the Stockholders
Agreement or the Offer or any of the other Transactions.
 
  On October 1, 1997, the day following Board approval, (a) representatives of
the Company, Parent and Purchaser signed the Merger Agreement, (b)
simultaneously with the execution of the Merger Agreement representatives of
Parent and Purchaser, Anthony J. Scotti, Benjamin J. Scotti, Myron I. Roth,
Thomas Bradshaw, Sydney D. Vinnedge, Lawrence E. Lamattina and a
representative of Interpublic signed the Stockholders Agreement (c) Anthony J.
Scotti and a representative of the Company signed the Agreement Not to
Compete, (d) Anthony J. Scotti and a representative of the Company signed the
Amendment to Employment Agreement, and (e) shortly thereafter Parent and the
Company each issued a press release with respect to the Offer and the Merger.
 
                                      19
<PAGE>
 
 Reasons for the Recommendation
 
  In reaching its conclusions described above, the Company's Board of
Directors considered a number of factors, including, without limitation, the
following:
 
    1. the financial and other terms and conditions of the Offer and the
  Merger Agreement;
 
    2. the Company's business, financial condition, results of operations,
  assets, liabilities, business strategy and prospects, as well as various
  uncertainties associated with those prospects;
 
    3. The fact that the $25.50 per Share to be paid in the Offer and the
  Merger represented;
 
      a. a 98.3% premium to the closing price per Share on May 15, 1997,
    the date that Goldman Sachs and Media Finance were retained to
    represent the Company in a possible sale transaction;
 
      b. a 17.6% premium to the closing price per Share on September 15,
    1997, the day that the Company issued a press release stating that it
    was in preliminary discussions with third parties concerning a possible
    sale of the Company;
 
      c. an 8.0% premium to the closing price per Share on September 30,
    1997, the day prior to the signing of the Merger Agreement and the
    issuance of the press release with respect to the Offer and the Merger;
 
    4. the fact that such price would be payable in cash, thus eliminating
  any uncertainties in valuing the consideration to be received by the
  Company's stockholders;
 
    5. the fact that the Offer and the Merger would not be subject to any
  financing condition, that Parent has represented that the funds necessary
  to consummate the Offer and the Merger will be provided and has agreed to
  cause Purchaser to fully perform all of Purchaser's obligations under the
  Merger Agreement;
 
    6. the opinion of Goldman Sachs, delivered on September 30, 1997, to the
  effect that, as of such date, the $25.50 per Share in cash to be received
  by the holders of Shares pursuant to the Offer and the Merger was fair from
  a financial point of view to such holders (other than Parent and its
  subsidiaries). The full text of the letter confirming Goldman Sachs' oral
  opinion, which sets forth assumptions made, matters considered and
  limitations on the review undertaken in connection with such opinion is
  attached hereto as Exhibit 8 (also attached hereto as Annex B) and is
  incorporated herein by reference. Goldman Sachs' opinion was provided for
  the information and assistance of the Board of Directors of the Company in
  connection with its consideration of the transaction contemplated by the
  Merger Agreement, and such opinion does not constitute a recommendation as
  to how any holder of Shares should vote with respect to, or whether or not
  any holder of Shares should tender such Shares into the Offer in connection
  with, such transaction. HOLDERS OF SHARES ARE URGED TO, AND SHOULD, READ
  GOLDMAN SACHS' LETTER IN ITS ENTIRETY;
 
    7. the likelihood that the proposed Merger would be consummated,
  including the terms of the Merger Agreement related thereto and the
  reputation and experience of Parent;
 
    8. a review of possible values realizable by the Company's stockholders
  through other strategic alternatives;
 
    9. the fact that, to the extent required by the fiduciary obligations of
  the Company's Board of Directors to the stockholders under the DGCL, the
  Company retained the legal right to terminate the Merger Agreement in order
  to approve a tender offer or exchange offer for the Shares or other
  proposed business combination by a third party on terms more favorable to
  the Company's stockholders than the Offer and the Merger taken together,
  upon the payment of $3,500,000 upon demand after such termination and if,
  within 12 months after such termination, a Competing Transaction is
  consummated, an additional $3,500,000 concurrently with the consummation of
  such Competing Transaction and Parent's expenses associated with the Offer
  and the Merger (limited to $500,000). See Item 3. "Identity and
  Background--Merger Agreement-Expenses" and "--Termination of the Merger
  Agreement";
 
    10. the requirement by Parent, as a condition to entering into the Merger
  Agreement, that the Selling Stockholders enter into the Stockholders
  Agreement with respect to 49.9% of the outstanding Common
 
                                      20
<PAGE>
 
  Stock and approximately 48% of Class B Common Stock, including the
  deleterious effect that entering into such agreement would have on
  potential subsequent Competing Transactions; and
 
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
 
  The Company retained Goldman Sachs and Media Finance as its financial
advisors in connection with the Offer and the Merger. Pursuant to a letter
agreement dated as of May 15, 1997, the Company will pay Goldman Sachs a
transaction fee of .55% of the aggregate consideration paid and debt assumed
in the Offer and the Merger plus 1.0% of the amount paid by Purchaser in
excess of $25 per Share but less than $29 per Share, plus 2.7% of the amount
paid by Purchaser in excess of $29 per Share. In addition to the foregoing
compensation, the Company has agreed to reimburse Goldman Sachs for its out-
of-pocket expenses, including reasonable fees and expenses of its counsel and
to indemnify Goldman Sachs against certain liabilities and expenses arising
out of the engagement and the transactions in connection therewith, including
certain liabilities under the federal securities laws.
 
  In addition, pursuant to a letter agreement dated May 15, 1997, the Company
will pay Media Finance a transaction fee of .35% of the aggregate
consideration paid and debt assumed in the Offer and the Merger plus .65% of
the amount paid by Purchaser in excess of $25 per Share but less than $29 per
Share, plus .95% of the amount paid by Purchaser in excess of $29 per Share.
In addition to the foregoing compensation, the Company has agreed to reimburse
Media Finance for its out-of-pocket expenses, including reasonable fees and
expenses of its counsel and to indemnify Media Finance against certain
liabilities and expenses arising out of the engagement and the transactions in
connection therewith, including certain liabilities under the federal
securities laws.
 
  Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the stockholders of the Company on
its behalf with respect to the Offer and the Merger.
 
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
 
  (a) During the past sixty days, no transactions in the Shares have been
effected by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate, or subsidiary of the Company.
 
  (b) To the best knowledge of the Company, all of its executive officers and
directors currently intend to tender pursuant to the Offer all Shares owned by
them. As of October 1, 1997, the executive officers and directors as a group
beneficially owned 5,099,710 shares of Common Stock (representing 61.2% of the
Common Stock) and 748,500 shares of Class B Common Stock (representing 12.69%
of the Class B Common Stock) and Interpublic beneficially owned 580,000 shares
of Common Stock (representing 8.26% of the Common Stock) and 2,470,000 shares
of Class B Common Stock (representing 47.96% of the Class B Common Stock).
 
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
 
  (a) Except as set forth herein, no negotiation is being undertaken or is
underway by the Company 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 thereof; (ii) a
purchase, sale or transfer of a material amount of assets by the Company or
any subsidiary thereof; (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 set forth herein, there is no transaction, board resolution,
agreement in principle or signed contract in response to the Offer that
relates to or would result in one or more of the events referred to in
Item 7(a) above.
 
 
                                      21
<PAGE>
 
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
 
SECTION 203
 
  As a Delaware corporation, the Company is subject to Section 203 of the DGCL
("Section 203"). Section 203 would prevent an "Interested Stockholder"
(generally defined as a person beneficially owning 15% or more of a
corporation's voting stock) from engaging in a "Business Combination" (as
defined in Section 203) with a Delaware corporation for three years following
the date such person became an Interested Stockholder unless: (i) before such
person became an Interested Stockholder, the board of directors of the
corporation approved the transaction in which the Interested Stockholder
became an Interested Stockholder or approved the Business Combination, (ii)
upon consummation of the transaction which resulted in the Interested
Stockholder becoming an Interested Stockholder, the Interested Stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding for purposes of determining the
number of shares of outstanding stock held by directors who are also officers
and by employee stock ownership plans that do not allow plan participants to
determine confidentially whether to tender shares), or (iii) following the
transaction in which such person became an Interested Stockholder, the
Business Combination is (x) approved by the board of directors of the
corporation and (y) authorized at a meeting of stockholders by the affirmative
vote of the holders of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder. In accordance with the
provisions of the Company's Restated Certificate of Incorporation and Section
203, the Board of Directors of the Company has approved the Merger Agreement
and the Stockholders Agreement and Purchaser's acquisition of Shares pursuant
to the Offer and the Merger and the Transactions contemplated by the Merger
Agreement and, therefore, the restrictions of Section 203 are inapplicable to
the Merger, the Offer, the Stockholders Agreement and the related
Transactions.
 
ANTITRUST
 
  Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), certain acquisition transactions may not be
consummated unless certain information has been furnished to the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
and the FTC, and certain waiting period requirements have been satisfied. The
acquisition of Shares by Purchaser pursuant to the Offer is subject to such
requirements.
 
  Pursuant to the requirements of the HSR Act, Parent filed the required
Notification and Report Forms (the "Forms") with the Antitrust Division and
the FTC on October 7, 1997, and the Company expects to file the Forms with
such agencies on October 8, 1997. The statutory waiting period applicable to
the purchase of Shares pursuant to the Offer is to expire at 11:59 P.M., New
York City time, on Wednesday, October 22, 1997. However, prior to such date,
the Antitrust Division or the FTC may extend the waiting periods by requesting
additional information or documentary material relevant to the acquisition. If
such a request is made, the waiting period will be extended until 11:59 P.M.,
New York City time, on the tenth day after substantial compliance by Parent
with such request. Thereafter, such waiting periods can be extended only by
court order. A request is being made pursuant to the HSR Act for early
termination of the applicable waiting period. There is no assurance, however,
that the waiting period will be terminated early. The Merger Agreement
provides that, if by the expiration of the Offer, the applicable waiting
period under the HSR Act shall not have expired or been terminated, Parent
may, without the consent of the Company, extend the Offer for an aggregate
period of not more than 10 business days beyond the latest applicable date
that the Offer may otherwise be extended.
 
  The Antitrust Division and the FTC frequently scrutinize the legality of
transactions under the antitrust laws. At any time before or after the
consummation of any such transactions, the Antitrust Division or the FTC
could, notwithstanding termination of the waiting period, take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of Shares pursuant to the
Offer or seeking divestiture of the Shares so acquired or divestiture of
substantial assets of Parent or the Company. Private parties may also bring
legal actions under the antitrust laws. There is no assurance that a challenge
to the Offer on antitrust grounds will not be made, or if such a challenge is
made, what the result will be. See Item 3,
 
                                      22
<PAGE>
 
"Identity and Background--Merger Agreement--Conditions to the Obligations of
Each Party" and "--Conditions to the Obligations of Parent and Purchaser."
 
  Germany. The Company conducts certain operations in Germany. Therefore, the
acquisition of the Company by the Purchaser would have an effect within the
area of application of the ARC pursuant to Section 98, paragraph 2 of the ARC.
Consequently, the proposed acquisition constitutes a merger subject to merger
control by the FCO. As the consolidated world-wide turnover of the Purchaser
in the financial year ended 31 December 1996 exceeded DM 2 billion, the
proposed acquisition must be notified to the FCO prior to completion and a
filing is therefore being submitted to the FCO. Under the ARC, the substantive
test for clearance is whether the notified merger will create or strengthen a
dominant market position and, if so, whether any such dominance is likely to
be outweighed by any countervailing competitive benefits from the merger.
After filing the pre-merger notification, completion of the proposed
acquisition will need to be suspended until either (i) the applicable waiting
periods under the ARC have expired without the FCO having prohibited the
acquisition, or (ii) the FCO has notified the parties that the conditions for
prohibiting the proposed acquisition are not fulfilled. The Merger Agreement
provides that the respective obligations of each party to consummate the
Merger are subject to the satisfaction of certain conditions, including that
any required approvals in connection with any pre-merger notification filing
with the FCO shall have been obtained and shall remain in full force and
effect.
 
                                      23
<PAGE>
 
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
 
Exhibit 1   Agreement and Plan of Merger, dated as of October 1, 1997, by and
            among Parent, Purchaser and the Company
 
Exhibit 2   Restated Bylaws of the Company
 
Exhibit 3   Stockholders Agreement, dated as of October 1, 1997, by and among
            Parent, Purchaser and Anthony J. Scotti, Benjamin Scotti, Myron
            Roth, Thomas Bradshaw, Sydney D. Vinnedge, Lawrence E. Lamattina
            and The Interpublic Group of Companies, Inc.
 
Exhibit 4   Agreement Not to Compete, dated October 1, 1997, by and between
            the Company and Anthony J. Scotti
 
Exhibit 5   Fifth Amendment to Employment Agreement between All American
            Communications, Inc. and Anthony J. Scotti
 
Exhibit 6   Confidentiality Agreement, dated as of November 20, 1995
            (terminated December 7, 1995 and reinstated February 16, 1996),
            between Pearson Television Limited (a subsidiary of Parent) and
            the Company. Letter dated as of October 1, 1997 regarding
            Confidentiality Agreement and Standstill Provisions
 
Exhibit 7   Press Release of the Company, issued October 1, 1997
 
Exhibit 8   Letter of Goldman, Sachs & Co., dated October 6, 1997, confirming
            its oral opinion delivered to the Board of Directors of the
            Company on September 30, 1997 (Attached to Schedule 14D-9 mailed
            to stockholders as Annex B)
 
Exhibit 9   Letter, dated October 7, 1997, from Anthony J. Scotti to the
            stockholders of the Company (included with Schedule 14D-9 mailed
            to stockholders)
 
                                      24
<PAGE>
 
                                   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.
 
October 7, 1997
 
                                         ALL AMERICAN COMMUNICATIONS, INC.
 
                                         By:  /s/ Anthony J. Scotti
                                            ___________________________________
                                         Name:Anthony J. Scotti
                                         Title:Chairman and Chief Executive
                                          Officer
 
                                      25
<PAGE>
 
                                                                        ANNEX A
 
                       ALL AMERICAN COMMUNICATIONS, INC.
                            808 WILSHIRE BOULEVARD
                        SANTA MONICA, CALIFORNIA 90401
                                (310) 656-1100
 
                       INFORMATION STATEMENT PURSUANT TO
                        SECTION 14(F) OF THE SECURITIES
                EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
 
GENERAL
 
  This Information Statement is being mailed on or about October 7, 1997, with
the Solicitation/ Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") of All American Communications, Inc., a Delaware corporation,
(the"Company") with respect to the Offer to Purchase dated October 7, 1997 (as
supplemented, the "Offer to Purchase") of Pearson Merger Company, Inc.
("Purchaser"), a Delaware corporation and a wholly-owned indirect subsidiary
of Pearson plc, a corporation organized under the laws of England ("Parent").
Purchaser is offering to purchase all outstanding shares of Common Stock, par
value $.0001 per share (the "Common Stock") and Class B Common Stock, par
value $.0001 per share (the "Class B Common Stock" and with the Common Stock,
the "Shares"), of the Company at a price of $25.50 per Share, net to the
seller in cash (the "Offer"). The Offer is being made pursuant to the
Agreement and Plan of Merger, dated as of October 1, 1997 (the "Merger
Agreement"), by and among Parent, Purchaser and the Company. You are receiving
this Information Statement in connection with the possible election of persons
designated by Purchaser (the "Purchaser Designees") to at least a majority of
the seats on the Board of Directors (the "Board") of the Company pursuant to
the Merger Agreement. The Merger Agreement is more fully described under Item
3 of the Schedule 14D-9, to which this Information Statement is attached as
Annex A. Capitalized terms used and not defined herein have the same
respective meanings assigned to them in the Schedule 14D-9.
 
  The following information is based upon the Company's Proxy Statement, dated
as of July 8, 1997, and except as indicated, such information is given as of
that date.
 
  The information with respect to the Purchaser Designees has been supplied to
the Company by Purchaser for inclusion or incorporation by reference herein,
and the Company assumes no responsibility for the accuracy or completeness of
such information.
 
  This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
promulgated thereunder. You are urged to read this Information Statement
carefully. You are not, however, required to take any action.
 
THE PURCHASER DESIGNEES
 
  Pursuant to the Merger Agreement and subject to compliance with applicable
law, promptly upon the acceptance for payment of, and payment for, Shares
constituting a majority of the then outstanding Shares by Purchaser pursuant
to the Offer, Purchaser at any time and from time to time shall be entitled to
designate such number of directors (rounded up to the next whole number) on
the Board of the Company as will give Purchaser that percentage of the total
number of directors on the Board (giving effect to the election of any
additional directors) equal to the percentage of then outstanding Shares owned
by Parent or Purchaser (provided that such percentage of the total number of
directors shall not be less than a majority of the Board). The Merger
Agreement further provides that at least two directors who were directors of
the Company as of the date of the Merger Agreement and who are not officers of
the Company (each such director, an "Independent Director") shall continue to
serve on the Board until the effectiveness of the Merger; provided, however,
that if the number of Independent Directors shall be reduced below two for any
reasons whatsoever, the remaining Independent Directors or other directors, as
applicable, shall fill such vacancy or vacancies by designation of a person or
 
                                      A-1
<PAGE>
 
persons eligible to serve pursuant to the terms of the Merger Agreement. The
Company has agreed to take all action necessary to effect the election of the
Purchaser Designees to the Board, including, in connection therewith,
increasing the size of the Board or seeking and obtaining the resignation of
such number of its current directors or both to enable the Purchaser Designees
to be elected to the Board as provided above.
 
  Purchaser has informed the Company that it will choose the Purchaser
Designees from the persons listed in Schedule I to this Schedule 14D-9.
Purchaser has informed the Company that each of the persons listed in Schedule
I to this Schedule 14D-9 has consented to act as a director, if so designated.
 
  The Purchaser Designees are expected to assume office at any time or from
time to time following the purchase by Purchaser of the specified minimum
number of Shares pursuant to the Offer, which purchase cannot be earlier than
November 4, 1997.
 
CERTAIN INFORMATION CONCERNING THE COMPANY
 
  The authorized stock of the Company consists of (a) 40,000,000 shares of
common stock consisting of (i)20,000,000 shares of Common Stock and (ii)
20,000,000 shares of Class B Common Stock and (b) 5,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"). As of
October 1, 1997, (a) 17,981 shares of the Common Stock issued and outstanding
before the Company's March 20, 1992 4-for-1 reverse stock split but not
exchanged for certificates representing the Company's post-split Common Stock
were issued and outstanding (4,495.25 equivalent shares of post-split Common
Stock), 7,015,062 shares of Common Stock and 5,149,650 shares of Class B
Common Stock were issued and outstanding, (b) 80,000 shares of Common Stock
and 578,200 shares of Class B Common Stock were held in the treasury of the
Company, (c) 30,000 shares of restricted Common Stock were awarded in August
1994 but not issued, and (d) no shares of Preferred Stock were issued and
outstanding. The shares of Common Stock presently constitute the only class of
voting securities of the Company. Each share of Common Stock entitles its
record holder to one vote. Stockholders of the Company do not have cumulative
voting rights. The Board currently consists of ten members.
 
                                      A-2
<PAGE>
 
THE CURRENT MEMBERS OF THE BOARD AND EXECUTIVES OFFICERS OF THE COMPANY
 
  To the extent the Board will consist of persons who are not Purchaser
Designees, the Board is expected to continue to consist of those persons who
are currently directors of the Company who do not resign. The current
directors and executive officers of the Company and their ages, positions and
terms of office with the Company as of July 8, 1997 are set forth below.
 
<TABLE>
<CAPTION>
                NAME                AGE                 POSITION
                ----                ---                 --------
 <C>                                <C> <S>
 Anthony J. Scotti**..............   57 Chairman and Chief Executive Officer

 Myron I. Roth**..................   64 President, Chief Operating Officer and
                                        Director

 Thomas Bradshaw**................   54 Chief Financial Officer, Senior
                                        Executive Vice
                                        President and Director
 Sydney D. Vinnedge...............   53 Senior Executive Vice President and
                                        Director

 Benjamin J. Scotti...............   60 Senior Executive Vice President,
                                        Executive Vice
                                        President--All American Music Group and
                                        Director

 Lawrence E. Lamattina............   52 Chief Executive Officer, President--All
                                        American/Fremantle Television Group and
                                        Director

 Gordon C. Luce+*.................   71 Director

 R. Timothy O'Donnell+*++.........   42 Director

 David A. Mount+*++...............   54 Director

 Eugene P. Beard..................   62 Director
</TABLE>
--------
 * Member of Stock Option Committee
** Member of Executive Committee
 + Member of Compensation Committee
++ Member of Audit Committee
 
  Each of the persons listed above (other than Messrs. Lamattina, O'Donnell,
Mount and Beard) assumed their respective positions listed above on February
25, 1991, the date on which Scotti Brothers Entertainment Industries, Inc.
("SBEI") merged (the "SBEI Merger") into All American Television, Inc.
("AATV"), which was the legal predecessor to the Company. Prior to such date,
Anthony J. Scotti and Mr. Vinnedge were already directors of AATV.
 
  ANTHONY J. SCOTTI was a co-founder of the Company and has been a director of
the Company since its inception in 1982. He became Chairman and Chief
Executive Officer on February 25, 1991. Mr. Scotti served as a consultant to
Carolco Pictures Inc. (motion picture production) and was a director of LIVE
Entertainment, Inc. (entertainment software) from November 1988 until his
resignation in May 1996. Mr. Scotti was the non-executive Chairman of the
Board of LIVE Entertainment from November 1992 until his resignation from such
position in March 1996. He is the brother of Benjamin J. Scotti.
 
  MYRON I. ROTH joined SBEI in December 1990 as President and Chief Operating
Officer, and he assumed the same titles and became a director of the Company
on February 25, 1991. Mr. Roth is a member of the Board of Directors of the
Recording Industry Association of America.
 
  THOMAS BRADSHAW was a director, Senior Executive Vice President and Chief
Financial Officer of SBEI from 1985 and, on February 25, 1991, he assumed the
same positions at the Company. In addition, Mr. Bradshaw was a director of
LIVE Entertainment, Inc. from December 1988 to November 1993.
 
  SYDNEY D. VINNEDGE is a co-founder of the Company and has been a director of
the Company since its inception in 1982. Since February 25, 1991, Mr. Vinnedge
has served as Senior Executive Vice President of the Company.
 
                                      A-3
<PAGE>
 
  BENJAMIN J. SCOTTI co-founded the predecessor to SBEI in 1974 and served as
Co-Chairman of SBEI until February 25, 1991. Since February 25, 1991, Mr.
Scotti has been Senior Executive Vice President of the Company, Senior
Executive Vice President of All American Music Group (a subsidiary of the
Company) and a Director of the Company. He is the brother of Anthony J.
Scotti.
 
  LAWRENCE E. LAMATTINA became Chief Executive Officer and President of All
American/Fremantle Television Group (an operating division of the Company) on
August 3, 1994 and a director of the Company on October 12, 1994. Since May
1989, he has been Chairman of the Board of Fremantle International, Inc. and
Chairman and Chief Executive Officer of EC TV, a division of The Interpublic
Group of Companies, Inc. ("Interpublic"). Mr. Lamattina also continues to act
as a consultant to Interpublic with respect to areas that are not competitive
with the Company.
 
  GORDON C. LUCE is a senior advisor to Eastman & Benirschke Financial Group
(financial planning and insurance brokerage), a position which he has held
from July 1990 to the present. Mr. Luce is a member of the Board of Directors
of PS Group (a diversified investment company) and Molecular Biosystems, Inc.
(a medical research enterprise) and is currently a member of the Board of
Trustees of the University of Southern California and the Chairman of Scripps
Health. He became a director of the Company on February 25, 1991. Mr. Luce was
a director of Carolco Pictures, Inc. until his resignation in November 1995.
 
  R. TIMOTHY O'DONNELL was elected to the Company's Board effective January 2,
1992. He is President of Jefferson Capital Group, Ltd., a privately held
investment banking group co-founded by Mr. O'Donnell in September 1989. In
February 1996, Mr. O'Donnell resigned from his directorship of LIVE
Entertainment, Inc. which he had held since 1988. Mr. O'Donnell has been a
director of Shorewood Packaging Corporation (packager for records, videos and
cassettes) since October 1991 and a director of Cinergi Pictures Entertainment
Inc. (motion picture production) since March 1994.
 
  DAVID A. MOUNT was appointed a director of the Company on May 5, 1994. In
March 1995, Mr. Mount was named Chairman and Chief Executive Officer of WEA,
Inc. Prior to that time, Mr. Mount had been President and Chief Executive
Officer of Warner/Elektra/Atlantic Corporation, a division of Time Warner,
Inc., since October 1993. Mr. Mount was President and Chief Executive Officer
of LIVE Entertainment Inc. from December 1991 through September 1993. In
addition, Mr. Mount served as a director of LIVE Entertainment in 1989 and
from December 1991 to December 1993. On February 2, 1993, LIVE Entertainment
filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code and
emerged pursuant to a plan of reorganization on March 17, 1993. From August
1989 to June 1993, Mr. Mount was President of LIVE Home Video Inc., a
subsidiary of LIVE Entertainment. He was Chief Executive Officer of LIVE Home
Video from August 1989 to October 1993.
 
  EUGENE P. BEARD became a member of the Board on October 12, 1994. Mr. Beard
has been the Vice Chairman--Finance and Operations of Interpublic since
October 1995, was Executive Vice President--Finance and Operations of
Interpublic prior to that time and has served as a director of Interpublic
since 1982. Mr. Beard is a member of the Board of Directors of Brown Brothers
Harriman 59 Wall Street Fund, Inc. (diversified investment fund) and
Micrografx, Inc. (computer software).
 
BOARD MEETINGS AND COMMITTEES
 
  The Board has a standing Audit Committee, Compensation Committee, Stock
Option Committee and Executive Committee. The Audit Committee, which held one
meeting during fiscal 1996, consists of R. Timothy O'Donnell and David A.
Mount. The Audit Committee recommends engagement of the Company's independent
accountants and is primarily responsible for approving the services performed
by the Company's independent accountants and for reviewing and evaluating the
Company's accounting principles and its system of internal accounting
controls. The Compensation Committee consists of Gordon C. Luce, R. Timothy
O'Donnell and David A. Mount. The Compensation Committee held no formal
meetings during fiscal 1996, but it acted by unanimous written consent on one
occasion. The Compensation Committee was appointed to assist in the
establishment of executive compensation of its senior management and the
performance goals of the Company
 
                                      A-4
<PAGE>
 
and to administer the Company's 1994 Stock Incentive Plan (the "1994 Plan").
The Stock Option Committee consists of R. Timothy O'Donnell, Gordon C. Luce
and David A. Mount. The Stock Option Committee is responsible for
administering the Company's 1991 Incentive Stock Option Plan, as amended (the
"1991 Plan"). The Stock Option Committee did not meet during fiscal 1996, but
it acted by unanimous written consent on one occasion. The Executive Committee
consists of Anthony J. Scotti, Myron Roth and Thomas Bradshaw. The Executive
Committee assists the Board in the overall management of the business and
affairs of the Company. The Executive Committee did not meet during fiscal
1996 but acted by unanimous written consent on one occasion.
 
  During the 1996 fiscal year, the Company's Board met three times. All
members participated in one meeting, Messrs. O'Donnell and Vinnedge each were
absent from one meeting and Mr. Mount was absent from two meetings.
Additionally, the Board acted by unanimous written consent on two occasions.
 
                                      A-5
<PAGE>
 
                    PRINCIPAL HOLDERS OF VOTING SECURITIES
             SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS(/1/)
 
  The following table sets forth information as of October 1, 1997 concerning
the beneficial ownership of certain securities of the Company by (i) each
person who is known to the Company to be a beneficial owner of more than five
percent of the outstanding Common Stock or Class B Common Stock of the
Company, (ii) each of the current directors of the Company, and (iii) all
current directors, the Chief Executive Officer and the four most highly
compensated officers of the Company who served in such capacities during the
1996 fiscal year, as a group. Unless otherwise specified, the address of each
beneficial owner listed below is 808 Wilshire Boulevard, Santa Monica,
California 90401-1810.
 
<TABLE>
<CAPTION>
                                                                     PERCENT OF
                                           PERCENT OF    CLASS B      CLASS B
                             COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
                             BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
                               OWNED(2)      OWNED       OWNED(2)      OWNED
                             ------------ ------------ ------------ ------------
<S>                          <C>          <C>          <C>          <C>
Anthony J. Scotti(3).......   3,448,465      41.96%       450,000       8.04%
Benjamin J. Scotti(4)......   1,445,995      20.34%        30,000          *
Myron I. Roth(5)...........     440,850       6.12%        50,000          *
Thomas Bradshaw(6).........     385,850       5.38%       145,000       2.74%
Sydney D. Vinnedge(7)......     153,875       2.16%         9,000          *
Lawrence E. Lamattina(8)...     155,000       2.15%        37,500          *
Gordon C. Luce(9)..........       5,000          *          9,000          *
David A. Mount(9)..........       3,000          *          9,000          *
R. Timothy O'Donnell(10)...      98,600       1.39%         9,000          *
 Jefferson Capital Group,
 Ltd.
 One James Center
 901 East Cary Street,
 Suite 1400
 Richmond, Virginia 23219
Eugene P. Beard(11)........         --         --             --         --
 The Interpublic Group of
 Companies, Inc.
 1271 Avenue of the
 Americas
 New York, New York 10020
The Interpublic Group of
 Companies,                     580,000       8.17%     2,470,000      47.97%
 Inc.(12)(13)..............
 1271 Avenue of the
 Americas
 New York, New York 10020
The Capital Group                   --         --         540,000      10.49%
 Companies, Inc.(14).......
 333 South Hope Street,
 52nd Floor
 Los Angeles, California
 90071
FMR Corp.(15)..............   1,246,234      17.55%           --         --
 82 Devonshire Street
 Boston, Massachusetts
 02109
Janus Capital Corp.(16)....         --         --         500,000       9.71%
 100 Fillmore Street, Suite
 300
 Denver, Colorado 80206
All Directors and Executive
 Officers
 as a Group (10 persons)...   5,099,710      61.20%       748,500      12.69%
</TABLE>
 
                                      A-6
<PAGE>
 
--------
 *Less than 1%
(1) This table does not give effect to the vesting of certain options within
    60 days herefrom or the execution of the Stockholders Agreement.
    Similarly, this table does not take into account the consummation of the
    Offer and the other transactions constituting a change of control in the
    Merger Agreement, which transactions accelerate the vesting of unvested
    options reflected on this table or in the footnotes hereto.
(2) Amounts include options and other securities exercisable into shares of
    Common Stock or Class B Common Stock, as the case may be, held by such
    beneficial owner, unless such securities are not convertible or
    exercisable within 60 days.
(3) Common Stock includes 1,483,775 shares beneficially owned by Messrs. Roth,
    Bradshaw, Vinnedge, Lamattina and certain other employees which Anthony J.
    Scotti has a proxy to vote. See "Certain Relationships and Related
    Transactions--Management Stockholders Agreement." Includes vested options
    to purchase 500,000 shares of Common Stock and 450,000 shares of Class B
    Common Stock. Does not include 750,000 shares of Class B Common Stock
    issuable to Mr. Scotti upon exercise of options which have not vested and
    are not subject to vesting within the next 60 days.
(4) Includes 10,000 time vesting Common Stock options which have vested and
    vested performance options to purchase 30,000 shares of Class B Common
    Stock. Does not include options to purchase 10,000 shares of Common Stock
    which have not vested and are not subject to vesting within the next 60
    days. Further, does not include 70,000 shares of Class B Common Stock
    issuable to Benjamin J. Scotti upon exercise of options which have not
    vested and are not subject to vesting within the next 60 days.
(5) 415,850 of such Common Stock shares are subject to a voting proxy granted
    to Anthony J. Scotti. Includes vested performance options to purchase
    100,000 shares of Common Stock and 50,000 shares of Class B Common stock.
(6) 385,850 of such Common Stock shares are subject to a voting proxy granted
    to Anthony J. Scotti. Includes vested performance options to purchase
    70,000 shares of Common Stock and 145,000 shares of Class B Common Stock.
    Does not include 105,000 shares of Class B Common Stock issuable to Mr.
    Bradshaw upon exercise of options which have not vested and are not
    subject to vesting within the next 60 days.
(7) 120,225 of such Common Stock shares are subject to a voting proxy granted
    to Anthony J. Scotti. Includes vested performance options to purchase
    12,000 shares of Common Stock and 9,000 shares of Class B Common Stock.
    Does not include 3,000 shares of Class B Common Stock issuable to Mr.
    Vinnedge upon exercise of options which have not vested and are not
    subject to vesting within the next 60 days.
(8) Mr. Lamattina owns 30,000 shares of restricted Common Stock which vest in
    July 1998, is vested in time vesting options to purchase 75,000 shares of
    Common Stock and is vested in performance options to purchase 50,000
    shares of Common Stock and 37,500 shares of Class B Common Stock. All such
    Common Stock shares are subject to a voting proxy granted to Anthony J.
    Scotti. Excludes 50,000 time vesting Common Stock options which have not
    vested and are not subject to vesting within the next 60 days. Further,
    does not include 12,500 shares of Class B Common Stock issuable upon
    exercise of options which have not vested and are not subject to vesting
    within the next 60 days.
(9) Includes 3,000 time vesting Common Stock options which have vested and
    vested options to purchase 9,000 shares of Class B Common Stock. Excludes
    3,000 time vesting Common Stock options which have not vested and are not
    subject to vesting within the next 60 days.
(10) Mr. O'Donnell owns 33,100 shares of Common Stock, and his affiliate,
     Jefferson Capital Group, Ltd., owns 62,500 shares of Common Stock.
     Includes 3,000 time vesting Common Stock options which have vested and
     vested options to purchase 9,000 shares of Class B Common Stock. Excludes
     3,000 time vesting Common Stock options which have not vested and are not
     subject to vesting within the next 60 days.
(11) Mr. Beard was appointed to the Board on October 12, 1994 to fill a
     vacancy. Mr. Beard does not own any shares of Common Stock or Class B
     Common Stock directly and disclaims beneficial ownership of the 630,000
     shares of Common Stock and the 2,520,000 shares of Class B Common Stock
     owned by Interpublic.
(12) As disclosed on a Schedule 13D, dated August 12, 1996.
(13) Represents approximately 26% (approximately 20% on a fully-diluted basis)
     of outstanding Shares.
(14) As disclosed on a Schedule 13G, dated February 12, 1997.
(15) As disclosed on a Schedule 13G, dated February 10, 1997.
(16)As disclosed on a Schedule 13G, dated February 13, 1996.
 
                                      A-7
<PAGE>
 
                 EXECUTIVE COMPENSATION AND OTHER INFORMATION
                  CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
 
SUMMARY OF EXECUTIVE COMPENSATION
 
  The following table sets forth the total compensation paid or accrued by the
Company to the Chief Executive Officer and the four most highly compensated
executive officers of the Company who served in such capacities during the
1996 fiscal year (the "Named Executive Officers") for services rendered during
each of the last three fiscal years.
 
                          SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                          ANNUAL COMPENSATION       LONG TERM COMPENSATION AWARDS
                         ---------------------- ----------------------------------------
                                                              SECURITIES
                                                RESTRICTED    UNDERLYING     ALL OTHER
        NAME AND                                  STOCK      OPTIONS/SAR'S  COMPENSATION
   PRINCIPAL POSITION    YEAR  SALARY   BONUS     AWARDS          (#)           (1)
   ------------------    ---- -------- -------- ----------   -------------  ------------
<S>                      <C>  <C>      <C>      <C>          <C>            <C>
Anthony J. Scotti....... 1996 $895,000 $    --   $    --       1,500,000(2)    $ --
 Chairman and Chief      1995  813,000      --        --         100,000(3)      --
 Executive Officer       1994  719,000      --        --         100,000(3)      --

Myron I. Roth........... 1996  425,000      --        --          50,000(4)      --
 President and Chief     1995  425,000   79,000       --          50,000(3)      --
 Operating Officer       1994  408,000   79,000       --          50,000(3)      --

Thomas Bradshaw......... 1996  467,000      --        --         250,000(4)      --
 Chief Financial Officer 1995  419,000   43,000       --          35,000(3)      --
 and Senior Executive    1994  399,000   43,000       --          35,000(3)      --
 Vice President

Sydney D. Vinnedge...... 1996  273,000      --        --           6,000(4)      --
 Senior Executive        1995  396,000   13,000       --           6,000(3)      --
 Vice President          1994  371,000   13,000       --           6,000(3)      --

Lawrence E. 
 Lamattina (5).......... 1996  590,000  550,000       --          25,000(4)      --
 Chief Executive Officer 1995  561,000  550,000       --          25,000(3)      --
 and President, All      1994  229,000  229,000   218,000(6)     150,000(3)      --
 American/Fremantle
 Television Group
</TABLE>
--------
(1) The Named Executive Officers received compensation in the form of personal
    benefits, including automobile allowances, premiums for health insurance,
    disability insurance and life insurance, which did not exceed the lesser
    of $50,000 or 10% of the total annual salary and bonus reported for each
    year.
(2) Mr. Scotti was granted options to purchase 300,000 shares of Common Stock
    and options to purchase 1,200,000 shares of Class B Common Stock during
    1996. These grants were approved by the Company's stockholders at its 1996
    Annual Meeting.
(3) Options granted to purchase shares of Common Stock.
(4) Options granted to purchase shares of Class B Common Stock.
(5) Mr. Lamattina's employment with the Company commenced on August 3, 1994.
    For a discussion of Mr. Lamattina's employment agreement, including his
    right to bonus payments, see "Report on Executive Compensation--Employment
    Agreements."
(6) In accordance with his employment agreement dated August 3, 1994, Mr.
    Lamattina was granted restricted stock awards under the 1994 Plan, as of
    July 6, 1994, for 30,000 shares of Common Stock, with a vesting date of
    July 5, 1998. The shares have been valued using the closing bid price on
    July 6, 1994 of $7.25.
 
                                      A-8
<PAGE>
 
                             OPTION GRANTS IN 1996
 
<TABLE>
<CAPTION>
                           NUMBER OF
                           SHARES OF    PERCENT OF TOTAL
                         CAPITAL STOCK      OPTIONS
                          UNDERLYING       GRANTED TO    EXERCISE OR                    GRANT DATE
                            OPTIONS       EMPLOYEES IN   BASE PRICE                    PRESENT VALUE
          NAME            GRANTED (#)         1996       ($/SH) (1)   EXPIRATION DATE       (2)
          ----           -------------  ---------------- ----------- ----------------- -------------
<S>                      <C>            <C>              <C>         <C>               <C>
Anthony J. Scotti.......      50,000(3)       2.20%        $10.863   February 26, 2001  $  149,000
                             250,000(4)      11.01%          9.875   February 26, 2006     833,000
                           1,200,000(5)      52.84%          9.875   February 26, 2006   3,180,000

Myron I. Roth...........      50,000(6)       2.20%          7.875   February 26, 2006     133,000

Thomas Bradshaw.........     250,000(7)      11.01%          7.875   February 26, 2006     663,000

Sydney D. Vinnedge......       6,000(6)       0.26%          7.875   February 26, 2006      16,000

Lawrence E. Lamattina...      25,000(6)       1.10%          7.875   February 26, 2006      66,000
</TABLE>
--------
(1) Unless otherwise noted, the exercise price is the respective closing sales
    price of the Common Stock or Class B Common Stock as the case may be on
    the date of grant.
(2) Grant date present value is determined using the Black-Scholes option
    valuation model with the following weighted average assumptions for 1996:
    risk-free interest rate of 6.0%; dividend yield of 0%; volatility factors
    of the expected market price of the Shares of 0.40; and a weighed average
    expected life of the options of three years.
(3) Options to purchase shares of Common Stock which vested immediately with
    an exercise price equal to 110% of the closing sales price of the Common
    Stock on the date of grant.
(4) Options to purchase shares of Common Stock which vested immediately.
(5) Options to purchase 450,000 shares of Class B Common Stock vested
    subsequent to December 31, 1996 upon the Company's achievement of the
    specified performance targets. The remaining options to purchase 750,000
    shares of Class B Common Stock are subject to vesting in tranches of
    300,000 shares over each of the next three years upon the Company's
    achievement of specified performance targets or nine years and nine months
    from the date of grant, to the extent not previously vested, if such
    specified performance targets are not achieved. The foregoing grant was
    approved by the Company's stockholders at its 1996 Annual Meeting. One
    half of the 1997 options vested as a result of Board recognition of
    substantial overperformance by management. The other half of the 1997
    options are subject to the performance goals for 1997, which management
    believes have substantially been met through September 1997.
(6) These options to purchase shares of Class B Common Stock vest in varying
    percentages based upon the satisfaction of certain performance targets.
    None of these options had vested as of December 31, 1996. All of these
    options became fully vested subsequent to December 31, 1996 upon the
    Company's achievement of the specified performance targets. The foregoing
    grants to Messrs. Vinnedge and Lamattina were approved by the Company's
    stockholders at its 1996 Annual Meeting.
(7) Options to purchase 100,000 shares of Class B Common Stock vested on the
    date of grant. Options to purchase 45,000 shares of Class B Common Stock
    vested subsequent to December 31, 1996 upon the Company's achievement of
    the specified performance targets. The remaining options to purchase
    105,000 shares of Class B Common Stock are subject to vesting in tranches
    of 30,000 shares over each of the next four years upon the Company's
    achievement of specified performance targets or nine years and nine months
    from the date of grant, to the extent not previously vested, if such
    specified performance targets are not achieved. See "Report on Executive
    Compensation--Employment Agreements." The foregoing grant was approved by
    the Company's stockholders at the 1996 Annual Meeting. One half of the
    1997 options are vested as a result of Board recognition of substantial
    overperformance by management. The other half of the 1997 options are
    subject to the performance goals for 1997, which management believes have
    substantially been met through September 1997.
 
                                      A-9
<PAGE>
 
              OPTION EXERCISES IN 1996 AND YEAR END OPTION VALUES
 
  The following table provides certain information concerning the exercise of
stock options and shows the number of shares covered by both exercisable and
non-exercisable stock options held as of the end of 1996. Also shown are
values for "in-the-money" options, which represent the positive difference
between the exercise price of such options and the per share price of the
Common Stock and Class B Common Stock at year end.
 
                  AGGREGATED OPTION EXERCISES DURING 1996 AND
                      OPTION VALUES ON DECEMBER 31, 1996
 
<TABLE>
<CAPTION>
                                               NUMBER OF SHARES
                                               OF CAPITAL STOCK
                          SHARES            UNDERLYING UNEXERCISED     VALUE OF UNEXERCISED
                         ACQUIRED                 OPTIONS AT          IN-THE-MONEY OPTIONS AT
                            ON     VALUE       DECEMBER 31, 1996         DECEMBER 31, 1996
          NAME           EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
          ----           -------- -------- ------------------------- -------------------------
<S>                      <C>      <C>      <C>                       <C>
Anthony J. Scotti.......   --       --         500,000/1,200,000       $1,850,625/$2,550,000

Myron I. Roth...........   --       --            100,000/50,000             443,750/106,250

Thomas Bradshaw.........   --       --           170,000/150,000             523,125/318,750

Sydney D. Vinnedge......   --       --              12,000/6,000               53,250/12,750

Lawrence E. Lamattina...   --       --           100,000/100,000             525,000/475,000
</TABLE>
 
DIRECTORS' REMUNERATION
 
  The Company does not pay any compensation to any person serving as a
director of the Company if such person is also an employee of the Company. All
outside directors are paid an annual fee of $25,000 for serving as a director,
except that Mr. Beard serves as a director without compensation for such
services. Non-employee directors receive automatic stock option grants of
6,000 shares of Class B Common Stock per year, with the exception of Mr. Beard
who has waived his right to stock options.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
  During the 1996 fiscal year, the Compensation Committee consisted of Gordon
C. Luce, R. Timothy O'Donnell and David A. Mount. During fiscal 1996, none of
the executive officers of the Company served on the Board or on the
compensation committee of any other entity, any of whose officers served
either on the Board or on the Compensation Committee of the Company.
 
                            COMPENSATION COMMITTEE
                       REPORT ON EXECUTIVE COMPENSATION
 
  The Compensation Committee has furnished the following report on executive
compensation. This report is as of July 8, 1997, unless otherwise indicated.
 
COMPENSATION OVERVIEW
 
  The Company uses a combination of salary and incentive compensation,
including cash bonus and periodic grants of stock options under the 1991 Plan
or the 1994 Plan or pursuant to other option plans or arrangements adopted by
the Board, to compensate its executive officers. Additional benefits,
including insurance benefits, are provided to executives and other key
employees that the Company believes are similar to those provided by other
companies in the entertainment industry. The Company draws most of its
executives and other key employees from the entertainment industry where
creative talent is crucial and commands a significant premium, and where
decisions made by a relatively small number of employees with an in-depth
knowledge of creative businesses
 
                                     A-10
<PAGE>
 
can have a major impact on the performance of the Company. Persons with such
unique qualifications are rare and are being pursued by other companies both
in and out of the entertainment industry, many of whom have greater available
resources than the Company. Except as otherwise described below, each of the
Company's executive officers is currently employed pursuant to a multi-year
employment agreement, the purpose of which is to retain the services of such
executive officer for an extended period. The Company believes that its
compensation program for executive officers benefits the Company through the
continuation of expansion and new opportunities designed to enhance
stockholder value.
 
  In May 1994, the Company amended certain of its employment agreements with
its executives following the recommendation of Towers Perrin, Inc. ("Towers"),
an executive compensation consultant retained by the Company. Towers assessed
the Company's current compensation levels for its executive officers and
reviewed the annual incentive and the long-term incentive compensation plans.
Towers compared such compensation and plans to 13 entertainment or
entertainment related companies for which data were publicly available (the
"Proxy Group"). This review was undertaken by the Company to establish
consistent yet competitive compensation arrangements that also reflect the
financial performance of the Company. Such review compared financial
performance of the Company and each of the members of the Proxy Group and cash
compensation and long-term incentives of comparable positions between such
companies. The Company had the highest return on equity and the second highest
average three-year rate of growth in the Proxy Group. Towers recommended that
the Company should target executive compensation at levels above Proxy Group
averages as an incentive to continue such level of performance. Overall,
Towers determined that the Company's cash compensation was below the Proxy
Group's median for the Chief Operating Officer and Chief Executive Officer and
above the Proxy Group's median for the Executive Vice Presidents and Chief
Financial Officer. Towers noted, however, that the Chief Financial Officer's
extensive involvement in Company operations warranted the higher base level
pay. Towers also determined that the Company fell below the competitive norms
for long-term incentive compensation. Towers recommended maintaining base
salaries (except for an increase in the Chief Executive Officer's salary) and,
for the short term, annual incentives at current levels while adopting a long-
term incentive plan, such as the 1994 Plan, that emphasizes both standard
stock options and performance-based stock options.
 
  Towers was also retained by the Company in 1996 to review certain option
awards to the Chief Executive Officer. See "--Employment Agreements." Towers
concluded that the vesting schedule of such option awards was not unreasonable
in the context of entertainment or entertainment related companies.
 
SALARY
 
  The base salary to which each of the Company's executive officers is
entitled is specified in such person's employment agreement (see "Employment
Agreements" below) and was established pursuant to arm's-length negotiations
with each executive officer, in part based on the subjective assessment of the
Company, which included a number of factors, including experience, tenure and
responsibility, and external factors, including similarly situated executives,
geographic and economic conditions, based on information drawn from a variety
of sources, including published survey data, information obtained from the
media, and the Company's own experience in recruiting and retaining
executives, although complete information is not easily obtainable. Most of
the employment agreements were entered into at the time of the SBEI Merger and
were subject to the review and approval of the financial advisors to the
parties in the SBEI Merger and ECD Corporation, an outside investor in the
Company in the SBEI Merger. Subsequent modifications to such employment
agreements have been made following negotiations with the underwriter of the
Company's Common Stock or following the report of Towers.
 
CASH BONUS
 
  Arrangements for bonus compensation for the Company's executive officers are
also negotiated individually with each executive officer and are generally
fixed by contract. Bonus arrangements take various forms and may be determined
based on factors such as the Company's or a specific segment of the Company's
operations,
 
                                     A-11
<PAGE>
 
financial performance or project developments. In 1994, each of Anthony J.
Scotti, Myron I. Roth, Thomas Bradshaw, Sidney D. Vinnedge and Benjamin J.
Scotti agreed to an amendment to their employment agreements to eliminate
bonus provisions tied to the achievement of certain financial objectives by
the Company in connection with the March 1992 public offering of the Company's
Common Stock at the request of the underwriter. The Company's executive
officers, however, are eligible to receive discretionary bonuses as may be
determined by the Board. Except for Messrs. Bradshaw, Lamattina, Roth and
Vinnedge, who are discussed below, the Chief Executive Officer develops
individual bonus recommendations following the end of each fiscal year based
on the subjective assessment of the Company's overall performance and each
executive officer's contribution to such performance. No specific formula is
used; however, factors may include improved competitive position, project
development, long-term objectives and such executive officer's leadership role
in any of the foregoing factors. Such factors are not necessarily linked to
any specific performance related targets or given any particular weight.
Messrs. Bradshaw, Roth and Vinnedge are eligible for a bonus in the discretion
of the Board. Mr. Lamattina's employment agreement provides for an annual
incentive compensation payment of up to $550,000 per year (prorated in the
case of 1994) based on the operating income of the All American/Fremantle
Television Group as compared to the operating income targets established by
the Compensation Committee. No discretionary bonuses were awarded to the
executive officers for 1994 or 1995.
 
OPTION GRANTS
 
  The Company uses incentive and non-qualified stock options and other
available forms of compensation under the Plans which are intended to provide
additional long-term incentives to key employees, including the Company's
executive officers. The Board believes that stock ownership, through options
or otherwise, aligns the executive officers' interests with the stockholders'
interest. The Plans have been approved by the Company's stockholders. Grants
under the Plans generally require the executive to be employed by the Company
on the exercise date and vest over a period of years (time vesting options) or
the Company's achievement of certain performance criteria (performance
options) following the date of grant. The exercise price of such grants is
generally equal to the per share market price of the Company's Common Stock or
Class B Common Stock on the grant date; therefore, option grants will only
benefit an executive if the per Share market price of the Company's Common
Stock or Class B Common Stock is greater than on the date of the option grant.
No specific formula is used to determine grants made to any particular
employee, including executive officers, but grants are generally based on
factors such as employment agreements, and competitive norms and subjective
factors, such as promotion, contribution to performance and individual
performance related criteria. The Chief Executive Officer makes
recommendations regarding option grants and vesting to the Stock Option
Committee with respect to grants under the 1991 Plan and to the Compensation
Committee with respect to grants under the 1994 Plan. While time vesting
options typically vest equally over a five-year period, options granted to
certain executive officers may have shorter or longer vesting periods.
Performance options typically vest upon the achievement of certain performance
criteria of the operations of the Company, its subsidiaries or divisions over
a certain period of time established by the Compensation Committee. In April
1995, the executive officers received stock option grants totaling 226,000
shares of Common Stock in accordance with the Towers report which found such
grants to be within competitive norms and recommended such grants to balance
pay for performance and integrate total compensation with long-term
stockholder returns. In June 1994, five of the executive officers (including
Mr. Anthony J. Scotti) received stock option grants totaling 201,000 shares of
Common Stock. In July 1994, the Company granted to Mr. Lamattina options to
acquire an aggregate of 150,000 shares and issued 30,000 shares of restricted
Common Stock pursuant to the 1994 Plan.
 
CHIEF EXECUTIVE OFFICER COMPENSATION
 
  Anthony J. Scotti, Chairman and Chief Executive Officer of the Company, is
compensated pursuant to an employment agreement described under "--Employment
Agreements" below. His original employment agreement had an initial term of
five years and was negotiated in connection with the SBEI Merger and amended
at the request of the underwriters in connection with the Company's 1992
offering of Common Stock. Mr. Scotti's employment agreement established an
annual base salary of $500,000, increasing by five percent on each anniversary
date of such agreement. The employment agreement also permits an annual bonus
in the
 
                                     A-12
<PAGE>
 
discretion of the Board. The term of Mr. Scotti's employment agreement was
extended in May 1994 to February 1999. In connection with such extension and
as recommended by the Towers report, Mr. Scotti's annual base salary was
increased to $750,000, increasing by ten percent on each anniversary date
(subject to a maximum base salary of $1,000,000). Mr. Scotti's employment
agreement was also amended, upon the recommendation of Towers, to provide for
the annual grant of options to acquire 100,000 shares of Common Stock,
commencing in 1994, in an effort to bring Mr. Scotti's long-term incentive
compensation within the competitive norms of the Proxy Group. These options
have now vested upon the satisfaction of certain performance criteria of the
Company as established by the Compensation Committee. These recommendations
were based on the strategic importance of Mr. Scotti to the Company, the
dilutive effect of the 1994 Plan on Mr. Scotti's ownership in the Company and
the review by Towers of competitive norms for companies in the Proxy Group.
The term of Mr. Scotti's employment agreement was extended in February 1996 to
February 2001. Towers also reviewed the award of stock options granted to Mr.
Scotti in 1996 as a portion of the inducement for him to extend his employment
Agreement. See "--Employment Agreements."
 
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
 
  Section 162(m) of the Internal Revenue Code (the "Code"), enacted in 1993,
generally limits tax deductions to public companies for compensation over
$1,000,000 paid to the corporation's chief executive officer and four other
most highly compensated executive officers. Qualifying performance based
compensation will not be subject to the deduction limit if certain
requirements are met. The Company intends to consider the provisions of
Section 162(m) in connection with the performance based portion of the
compensation of its executives (which currently consists of stock option
grants and annual bonuses described above). However, the Board does not
necessarily intend to structure compensation to its executives to avoid
disallowance of any tax deductions in the future in light of available tax
deductions to the Company and the requirements imposed by Section 162(m) and
the proposed regulations thereunder for compensation to be fully deductible
for income tax purposes.
 
EMPLOYMENT AGREEMENTS
 
  The Company has entered into employment agreements with all of the Named
Executive Officers: Anthony J. Scotti, Thomas Bradshaw, Sydney D. Vinnedge,
Lawrence Lamattina and Myron I. Roth. The employment agreement with Mr.
Scotti, originally entered into in February 1991 and amended most recently in
February 1996, provides that Mr. Scotti shall serve as Chief Executive Officer
of the Company through February 25, 2001 (unless earlier terminated in
accordance with the terms of such agreement), commencing at a base salary of
$907,500 in 1996 ($998,250 in 1997) and increasing by 10% per year (subject to
a maximum base salary of $1,000,000 per year). Mr. Scotti is required to
render his services on a full-time basis to the Company, provided that he may
devote such reasonable amount of time, as he determines, to other business
activities which may be conducted in the entertainment industry. The term of
the agreement may be terminated by the Company for "good cause" (as defined)
or by Mr. Scotti in the event of the "Company's Material Breach" (as defined)
or a "Change in Control" or other "Event" (as defined in the 1994 Plan).
 
  The employment agreement with Mr. Bradshaw, originally entered into in
February 1991 and amended most recently in February 1996, provides that Mr.
Bradshaw shall serve as Senior Executive Vice President, Finance and Chief
Financial Officer of the Company through February 25, 2001 (unless earlier
terminated), commencing at a base salary of $476,650 in 1996 ($505,249 in
1997) and increasing by a minimum of six percent per year. The five-year term
employment agreement with Mr. Vinnedge, originally entered into in February
1991, expired but he entered into a new employment agreement as of July 1,
1997, which provides that he will serve as a Senior Executive Vice President
of the Company through December 31, 1998, commencing at a base compensation of
$250,000 per year in the first year and increasing by 6% in the second year,
plus a discretionary bonus. The employment agreement with Mr. Lamattina,
entered into in August 1994, provides that Mr. Lamattina shall serve as the
Chief Executive Officer and President of the All American/Fremantle Television
Group through August 3, 1999 (unless earlier terminated), commencing at a base
salary of $550,000 and increasing by five percent per year. His current salary
is $636,694 for 1997. Mr. Lamattina is also entitled to receive annual
 
                                     A-13
<PAGE>
 
incentive compensation up to $550,000 per year if certain operating income
targets are achieved by the All American/Fremantle Television Group. Under Mr.
Lamattina's employment agreement, he is entitled to annual grants of options
to purchase 25,000 shares of Common Stock. See "Security Ownership of Certain
Beneficial Owners and Management" for a description of the vesting of Mr.
Lamattina's stock options. The five-year term employment agreement for Mr.
Roth, originally entered into in February 1991, has expired, but he continues
his employment with the Company as President and Chief Operating Officer
without an employment agreement under substantially the same terms as those in
effect in the last year of his employment agreement. Mr. Roth's current salary
is $446,698 in 1997 per year. Each of the Named Executive Officers is provided
with an automobile expense reimbursement allowance and an annual allowance to
cover premiums for life, health and disability insurance.
 
  Under his employment agreement prior to its amendment in February 1996,
Anthony J. Scotti was entitled to receive, as long-term incentive
compensation, 100,000 annual stock option grants (from 1994 to 1999). In
February 1996, subject to Mr. Scotti's relinquishment of his remaining
contractual right to future grants of 300,000 stock options in the aggregate
under his employment agreement, the Company granted to Mr. Scotti options
(under the 1994 Plan) to purchase 250,000 shares of Common Stock at the market
price ($9.875 per share) on the date of grant and options (under the 1991
Plan) to purchase 50,000 shares of Common Stock at 110% of the fair market
value ($10.8625 per share) on the date of grant. All such stock options vested
on the date of grant in February 1996.
 
  In addition, in connection with the extension of Mr. Scotti's employment
agreement, the Compensation Committee on February 26, 1996 granted to Mr.
Scotti, subject to stockholder ratification which was subsequently obtained,
options (under the 1994 Plan) to purchase 1,200,000 shares of the Company's
Class B Common Stock at an exercise price equal to the market price
($7.875 per share) on the date of grant. These options vest subject to Mr.
Scotti's staying in the continuous employment of the Company for a period of
nine years and nine months from the date of grant, subject to accelerated
vesting upon the achievement of certain operating income targets set by the
Compensation Committee or the Board or earlier upon the occurrence of a
"Change in Control" or other "Event" (as defined in the 1994 Plan unless
(a) such Event occurred within six months of stockholder approval of the
grant, or (b) such Event was (i) the consummation of an agreement to merge at
a price of less than $15.00 per share of Class B Common Stock or (ii) the
consummation of the sale of substantially all of the Company's business and/or
assets at a price of less than $15.00 per share of Class B Common Stock). All
of Mr. Scotti's unvested options will vest as a result of consummation of the
Transactions. The Company has also agreed to reimburse Mr. Scotti for any
federal, state or local excise tax ("Excise Tax"), and any additional taxes to
which he may be subject, on any payments to Mr. Scotti from the Company as a
result of accelerated vesting of this option grant upon a "Change in Control"
or otherwise, up to a maximum reimbursement equal to twice the amount of such
Excise Tax.
 
  The award of options to Mr. Scotti was reviewed by Towers, which concluded
that the vesting schedule of such awards was not unreasonable in the context
of entertainment or entertainment related companies.
 
  As part of the amendment of Mr. Bradshaw's employment agreement, the Company
granted to Mr. Bradshaw options to purchase 250,000 shares of the Company's
Class B Common Stock at the market price ($7.875 per share) on the date of
grant. One hundred thousand of such stock options vested on the date of grant
in February 1996. The remainder vests in a substantially similar manner to the
vesting provisions described above with respect to Mr. Scotti's stock options
to purchase Class B Common Stock.
 
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
 
  The disclosure set forth under "The Stockholders Agreement" and "Scotti
Agreement Not to Compete and Scotti Amendment to Employment Agreement" in Item
3 of the Schedule 14D-9 is incorporated by reference herein.
 
                                     A-14
<PAGE>
 
                         THE COMPENSATION COMMITTEE OF
                            THE BOARD OF DIRECTORS:
 
                                Gordon C. Luce
                             R. Timothy O'Donnell
                                David A. Mount
 
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
  Section 16(a) of the Exchange Act, requires executive officers, directors
and persons who beneficially own more than 10% of the Company's stock to file
initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission (the "SEC"). Executive officers, directors
and greater than 10% beneficial owners are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms filed by them.
 
  Based solely on a review of the copies of such forms furnished to the
Company, the Company believes that all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than 10%
beneficial owners were complied with, except that (i) Jefferson Capital Group,
Ltd., an affiliate of director R. Timothy O'Donnell, failed to file a Form 4
in November 1996 relating to its exercise of a warrant for 62,500 shares of
Common Stock in October 1996, and (ii) R. Timothy O'Donnell, a director,
failed to timely file a Form 5 in February 1997 relating to the grant of 3,000
stock options in February 1996.
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  In October 1994, the Company provided a loan of $250,000 to Thomas Bradshaw.
Such loan is secured by a pledge of shares of Common Stock owned by Mr.
Bradshaw, bears interest at a rate equal to a market rate determined by
reference to the Company's working capital line (8%) and has been extended to
mature upon the expiration of Mr. Bradshaw's current employment agreement
(February 2001).
 
  In December 1995, the Company entered into a domestic distribution agreement
for recorded music with Warner/Elektra/Atlantic Corporation, a division of
Time Warner, Inc. ("WEA Corp."). David A. Mount, a member of the Board, is
currently Chairman and Chief Executive Officer of WEA, Inc., the parent
company of WEA Corp. During the 1996 fiscal year, WEA Corp. accounted for 9%
of the Company's consolidated gross revenues and is expected to account for
approximately the same amount of such revenues in the 1997 fiscal year.
 
  In January 1996, the Company acquired from Interpublic the remaining 50%
interest of Mark Goodson Productions, LLC (the "LLC"). As a result, the
Company is responsible for the full share of the LLC's contingent purchase
price, to the extent earned. Such contingent purchase price, which may total
$48.5 million by the fifth anniversary of the initial acquisition of the LLC
in October 1995, will be treated as an increase in goodwill and will be
amortized coterminously with the original 25 year period. Through June 30,
1997, accrued contingent purchase price totaled $14.6 million (including
Interpublic's share through December 31, 1995 of $0.9 million). As of June 30,
1997, the total remaining contingent earnout payable in connection with the
Mark Goodson acquisition, to the extent such earnout in paid within five years
from the date of acquisition, is $31.7 million.
 
  The Company repurchased 50,000 shares of Common Stock and 50,000 shares of
Class B Common Stock from Interpublic as of July 14, 1997 at a price of $17.00
per share and $13.50 per share, respectively. Such amounts are included in the
treasury stock of the Company as of September 23, 1997.
 
  The Company currently leases, on a month-to-month basis, a building from
Anthony J. Scotti and Benjamin J. Scotti at a cost to the Company of
approximately $4,500 per month, which the Company believes is a market rate.
This building is used for office and warehouse space for the Company's
television production operations.
 
  The Company believes that the terms of the transactions described above are
substantially comparable to those that would have been obtainable in similar
or analogous transactions by the Company with unaffiliated parties.
 
  The disclosure set forth under "The Stockholders Agreement" and "Scotti
Agreement Not to Compete and Scotti Amendment to Employment Agreement" in Item
3 of Schedule 14D-9 is incorporated by reference herein.
 
                                     A-15
<PAGE>
 
MANAGEMENT STOCKHOLDERS AGREEMENT
 
  The Company has entered into a stockholders' agreement with Anthony J.
Scotti, Benjamin J. Scotti, Thomas Bradshaw, and Sydney D. Vinnedge (the
"Management Stockholders Agreement"), pursuant to which (i) each of Messrs.
Bradshaw and Vinnedge granted (a) to Anthony J. Scotti and Benjamin J. Scotti
a right of first refusal until August 25, 2001 on all shares of the Common
Stock owned by Mr. Bradshaw and 108,225 shares of Common Stock held by Mr.
Vinnedge and a right to purchase all such shares upon termination of their
employment for a reason other than "cause" (as defined in their respective
employment agreements), and (b) to Anthony J. Scotti an irrevocable proxy to
vote substantially all such shares until February 25, 2002; and (ii) each of
the individuals was granted certain registration rights for such shares owned
by him (such shares were subsequently registered on a registration statement
which was declared effective on January 29, 1997). Additionally, Myron Roth,
effective August 26, 1996, has granted to Anthony J. Scotti an irrevocable
proxy to vote 315,850 shares of Common Stock for the lesser of five years
(August 25, 2001) or the period of Mr. Roth's employment by the Company. The
proxies granted to Anthony J. Scotti give him the ability to control the
voting of 2,334,815 shares of the 7,019,557 shares (or approximately 33%) of
the Common Stock outstanding. Additionally, Messrs. Roth, Bradshaw and
Vinnedge have granted to Anthony J. Scotti an irrevocable proxy to vote all
shares of Common Stock acquired upon exercise of their options to purchase an
aggregate of 182,000 shares of Common Stock.
 
  Lawrence E. Lamattina and all other employees have granted to Anthony J.
Scotti an irrevocable proxy to vote all shares of Common Stock acquired upon
exercise of their options to purchase an aggregate of 474,350 shares of Common
Stock and, in Mr. Lamattina's case, 30,000 shares of restricted Common Stock
granted pursuant to the 1994 Plan.
 
  George Back has granted to Anthony J. Scotti a proxy for 90,200 shares of
Common Stock held by Mr. Back.
 
  In the aggregate, Anthony J. Scotti owns 1,504,690 shares of Common Stock,
has vested options to purchase 500,000 shares of Common Stock, has an
irrevocable proxy to vote 830,125 shares of Common Stock (excluding 30,000
shares of restricted Common Stock) and has irrevocable proxies to vote 623,650
shares of Common Stock when acquired upon exercise of vested options.
 
                                     A-16
<PAGE>
 
                     COMPARATIVE STOCK PERFORMANCE GRAPHS
 
STOCK PERFORMANCE GRAPHS
 
  The first graph below compares the stock price of the Company's Common Stock
with the performance of the Standard and Poors ("S&P") 500 Composite Index and
the S&P Entertainment Index as of the last trading date for each of 1991,
1992, 1993, 1994, 1995 and 1996. Such graph assumes that $100 was invested on
December 31, 1991 in the Company's Common Stock, and that all dividends were
reinvested. The second graph compares the stock price of the Company's Class B
Common Stock with the performance of the S&P 500 Composite Index and the S&P
Entertainment Index as of the last trading date for each of 1995 and 1996.
Such graph assumes that $100 was invested on December 11, 1995 in the
Company's Class B Common Stock, and that all dividends were reinvested. No
dividends have been declared or paid on the Company's Common Stock or Class B
Common Stock other than to holders of record of such Common Stock at February
25, 1991, who were paid an extraordinary dividend in the amount of $10.00 per
share in connection with the SBEI Merger. The historical price performance
data shown on the graph are not necessarily indicative of future price
performance.
 
 
                COMPARISON OF SIX-YEAR CUMULATIVE TOTAL RETURN
                   AMONG ALL AMERICAN COMMUNICATONS, INC., 
              S&P 500 COMPOSITE INDEX AND S&P ENTERTAINMENT INDEX
 
                TOTAL SHAREHOLDER RETURNS--DIVIDENDS REINVESTED
 
<TABLE>
<CAPTION>
            MEASUREMENT            ALL AMERICAN
        PERIOD (FISCAL YEAR    COMMUNICATIONS, INC. S&P 500 COMPOSITE S&P ENTERTAINMENT
              COVERED)             COMMON STOCK           INDEX             INDEX
        -------------------    -------------------- ----------------- -----------------
      <S>                      <C>                  <C>               <C>
      December 1991...........           100                100               100
      December 1992...........         95.31             107.62            143.00
      December 1993...........        115.83             118.46            165.28
      December 1994...........         78.13             120.03            157.84
      December 1995...........        125.00             165.13            189.40
      December 1996...........        168.75             203.05            192.30
</TABLE>
 
                                     A-17
<PAGE>
 
 
 
               COMPARISON OF TWO-YEAR CUMULATIVE TOTAL RETURN
                   AMONG ALL AMERICAN COMMUNICATONS, INC., 
              S&P 500 COMPOSITE INDEX AND S&P ENTERTAINMENT INDEX
  
                TOTAL SHAREHOLDER RETURNS--DIVIDENDS REINVESTED
 
<TABLE>
<CAPTION>
            MEASUREMENT            ALL AMERICAN
        PERIOD (FISCAL YEAR    COMMUNICATIONS, INC. S&P 500 COMPOSITE S&P ENTERTAINMENT
              COVERED)         CLASS B COMMON STOCK       INDEX             INDEX
        -------------------    -------------------- ----------------- -----------------
      <S>                      <C>                  <C>               <C>
      December 1995...........        83.33               99.42             97.46
      December 1996...........        95.24              122.25             98.96
</TABLE>
 
                                      A-18
<PAGE>
 
                                   SCHEDULE I
 
                               DIRECTOR NOMINEES
 
<TABLE>
<CAPTION>
                                                       PRESENT PRINCIPAL
                                                          OCCUPATION
                                                       OR EMPLOYMENT AND
                                                     FIVE-YEAR EMPLOYMENT
 NAME AND BUSINESS ADDRESS             AGE                  HISTORY            CITIZENSHIP
 -------------------------             ---           --------------------      -----------
 <C>                           <C>                 <S>                        <C>
 David M. Veit...............          58          Chairman of the Board of   United States
  30 Rockefeller Plaza                             Directors since 1987 and
  New York, New York 10112                         President since 1985 of
                                                   Pearson Inc.
 John G. Davis...............          35          Senior Vice President      United Kingdom
  30 Rockefeller Plaza                             and Chief Financial
  New York, New York 10112                         Officer of Pearson Inc.
                                                   since 1997. Various
                                                   positions at EMAP plc(1)
                                                   from 1992 to 1996
                                                   including, Director of
                                                   Treasury and Corporate
                                                   Finance and EMAP Radio
                                                   Finance Director.
 Thomas Wharton..............          50          Vice President--Taxation   United States
  30 Rockefeller Plaza                             and Secretary of Pearson
  New York, New York 10112                         Inc. since 1997.
                                                   Director of Tax from
                                                   1996 to 1997 of Pearson
                                                   Inc. Tax Manager from
                                                   1990 to 1996 of Pearson
                                                   Inc.
 David C.M. Bell.............          51          Executive Director of      United Kingdom
  3 Burlington Gardens                             Pearson plc since 1996.
  London W1X 1LE                                   Chief Executive of The
  England                                          Financial Times from
                                                   1993 to 1996. Director
                                                   of The Financial Times
                                                   from 1989 to 1993.
 Gregory Dyke................          50          Executive Director of      United Kingdom
  1, Stephen Street                                Pearson plc since 1996.
  London W1P 1PJ                                   Chairman and Chief
  England                                          Executive of Pearson
                                                   Television since 1995.
                                                   Chairman of Channel 5
                                                   Broadcasting Limited.
                                                   Chief Executive of
                                                   London Weekend
                                                   Television from 1987 to
                                                   1994.
 John C. Makinson............          42          Finance Director of        United Kingdom
  3 Burlington Gardens                             Pearson plc since 1996.
  London W1X 1LE                                   Managing Director of The
  England                                          Financial Times Group
                                                   from 1994 to 1996.
                                                   Partner of Makinson
                                                   Cowell from 1989 to
                                                   1994.
 Marjorie M. Scardino........          50          Chief Executive of         United States
  3 Burlington Gardens                             Pearson plc since 1997.
  London W1X 1LE                                   Chief Executive of The
  England                                          Economist Group Ltd.
                                                   from 1992 to 1996.
</TABLE>
 
                                      S-1
<PAGE>
 
                               DIRECTOR NOMINEES
                                  (CONTINUED)
 
<TABLE>
<CAPTION>
                                                       PRESENT PRINCIPAL
                                                         OCCUPATION OR
                                                        EMPLOYMENT AND
                                                     FIVE-YEAR EMPLOYMENT
 NAME AND BUSINESS ADDRESS             AGE                  HISTORY            CITIZENSHIP
 -------------------------             ---           --------------------      -----------
 <C>                           <C>                 <S>                        <C>
 Henry Dennistoun Stevenson
  C.B.E......................          52          Chairman of the Board of   United Kingdom
  78-80 St. John's Street                          Directors of Pearson plc
  London EC1M 4HR                                  since 1997. Deputy
  England                                          Chairman of the Board of
                                                   Directors of Pearson plc
                                                   from 1996 to 1997. Non-
                                                   executive Director of
                                                   Pearson plc since 1986.
                                                   Chairman of GPA:
                                                   Aircraft Leasing Company
                                                   and of the Trustees of
                                                   the Tate Gallery.
</TABLE>
 
                                      S-2
<PAGE>
 
                                                                        ANNEX B
-------------------------------------------------------------------------------
   Goldman, Sachs & Co. | 85 Broad Street | New York, New York 10004
   Tel: 212-902-1000
 
                                                         [LOGO OF GOLDMAN SACHS]
 
PERSONAL AND CONFIDENTIAL
-------------------------------------------------------------------------------
 
October 6, 1997
 
Board of Directors
All American Communications, Inc.
808 Wilshire Boulevard
Santa Monica, California 90401
 
Gentlemen:
 
You have requested that we confirm our oral opinion, delivered September 30,
1997, as to the fairness as of such date from a financial point of view to the
holders of the outstanding shares of the Common Stock and Class B Common
Stock, par value $.0001 per share (together, the "Shares"), of All American
Communications, Inc. (the "Company") of the $25.50 per Share in cash proposed
to be paid by Pearson PLC ("Buyer") or Pearson Merger Company, Inc. ("Merger
Sub"), a wholly-owned subsidiary of Buyer, in the Tender Offer and the Merger
(as defined below) pursuant to the Agreement and Plan of Merger, dated as of
October 1, 1997, by and among Buyer, Merger Sub and the Company (the
"Agreement"). The Agreement provides for a tender offer for all of the Shares
(the "Tender Offer") pursuant to which Buyer or Merger Sub will pay $25.50 per
Share in cash for each Share accepted. The Agreement further provides that
following completion of the Tender Offer, Merger Sub will be merged with the
Company (the "Merger") and each outstanding Share (other than Shares already
owned by Buyer or Merger Sub) will be converted into the right to receive
$25.50 in cash (or such greater amount which may be paid pursuant to the
Tender Offer).
 
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements, and valuations for estate, corporate and other
purposes. We are familiar with the Company, having acted as lead manager in
connection with the issuance of $100 million principal amount of the Company's
10.875% senior subordinated notes due October 15, 2001 (the "10.875% Notes"),
and having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement.
Goldman, Sachs & Co. has also provided certain investment banking services to
Buyer from time to time, including having acted as joint global coordinator in
September 1995 in a secondary offering by Buyer of securities of British Sky
Broadcasting Group plc, and Goldman, Sachs & Co. may provide investment
banking services to Buyer and its subsidiaries in the
 
New York | London | Tokyo | Boston | Chicago | Dallas | Frankfurt | George 
            Town | Hong Kong | Houston | Los Angeles | Memphis
         Miami | Milan | Montreal | Osaka | Paris | Philadelphia | San
         Francisco | Singapore | Sydney | Toronto | Vancouver | Zurich
 
 
                                      B-1
<PAGE>
 
All American Communications, Inc.
October 6, 1997
Page Two
 
future. Goldman, Sachs & Co. provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including
derivative securities, of the Company or Buyer for its own account and for the
accounts of customers. As of the date hereof, Goldman, Sachs & Co. accumulated
a long position of approximately $15 million principal amount of the 10.875%
Notes.
 
In connection with our opinion, we reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company for the five years ended December 31, 1996; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of the Company;
certain other communications from the Company to its stockholders; and certain
internal financial analyses and forecasts for the Company prepared by its
management. We also held discussions with members of the senior management of
the Company regarding its past and current business operations, financial
condition and future prospects. In addition, we reviewed the reported price
and trading activity for the Shares, compared certain financial and stock
market information for the Company with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the entertainment industry
specifically and in other industries generally and performed such other
studies and analyses as we considered appropriate.
 
We relied upon the accuracy and completeness of all of the financial and other
information reviewed by us and assumed such accuracy and completeness for
purposes of rendering our opinion. In addition, we did not make an independent
evaluation or appraisal of the assets and liabilities of the Company or any of
its subsidiaries and we were not furnished with any such evaluation or
appraisal. Our advisory services and the opinion confirmed herein were
provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the transaction contemplated
by the Agreement and such opinion does not constitute a recommendation as to
how any holder of Shares should vote with respect to, or whether or not any
holder of Shares should tender such Shares into the Tender Offer in connection
with, such transaction.
 
This letter confirms our oral opinion that, based upon and subject to the
foregoing and based upon such other matters as we considered relevant, as of
September 30, 1997, the $25.50 per Share in cash to be received by the holders
of Shares pursuant to the Tender Offer and the Merger was fair from a
financial point of view to such holders.
 
Very truly yours,
 
/s/ Goldman, Sachs & Co.
---------------------------------------
(GOLDMAN, SACHS & CO.)
 
                                      B-2
