<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
FOX KIDS WORLDWIDE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7812 95-4596247
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
10960 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(310) 235-5555
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
MEL WOODS, PRESIDENT, CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER
FOX KIDS WORLDWIDE, INC.
10960 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(310) 235-5100
(310) 235-5102 (FAX)
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
Copies to:
<TABLE>
<S> <C>
RICHARD E. TROOP JONATHAN A. SCHAFFZIN
LINDA M. GIUNTA CAHILL GORDON & REINDEL
TROOP MEISINGER STEUBER & PASICH, LLP 80 PINE STREET
10940 WILSHIRE BOULEVARD NEW YORK, NEW YORK 10005
LOS ANGELES, CALIFORNIA 90024 (212) 701-3000
(310) 824-7000 (212) 269-5420 (FAX)
(310) 443-7599 (FAX)
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
PROPOSED
MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock, par value $0.001 per share............. $150,000,000 $51,724
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee,
pursuant to Rule 457(o) under the Securities Act of 1933.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus, one to be used
in connection with an underwritten offering in the United States and Canada
(the "U.S. Prospectus") and one to be used in connection with a concurrent
international offering outside the United States and Canada (the
"International Prospectus"). The two prospectuses relate to an initial public
offering of up to shares of Class A Common Stock, par value $0.001
per share, of Fox Kids Worldwide, Inc., including up to shares that
may be sold pursuant to the underwriters' over-allotment option, if exercised.
The complete U.S. Prospectus follows this explanatory note. After the U.S.
Prospectus are the following alternate pages for the International Prospectus:
a front cover page, the Underwriting section and a back cover page. All other
pages of the U.S. Prospectus are to be used for both the United States
offering and the international offering. Each alternate page for the
International Prospectus included herein is labeled "Alternate Page for
International Prospectus." Final forms for each Prospectus will be filed with
the Securities and Exchange Commission pursuant to Rule 424(b).
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 27, 1996
PROSPECTUS
SHARES
FOX KIDS WORLDWIDE, INC.
[LOGO OF FOX KIDS] CLASS A COMMON STOCK
-----------
Of the shares of Class A Common Stock, par value $0.001 per share (the
"Class A Common Stock"), of Fox Kids Worldwide, Inc. (the "Company") offered
hereby, shares are being offered initially in the United States and
Canada by the U.S. Underwriters (the "U.S. Offering") and shares are
being offered in a concurrent offering outside the United States and Canada by
the International Underwriters (the "International Offering," and together with
the U.S. Offering, the "Offerings"). The initial public offering price and the
underwriting discount per share will be identical for both Offerings. See
"Underwriting."
Immediately following the Offerings, the Company's outstanding common stock
will be comprised of Class A Common Stock and Class B Common Stock, par value
$0.001 per share (the "Class B Common Stock" and, together with the Class A
Common Stock, the "Common Stock"). The rights of holders of each class of
Common Stock are identical, except that each share of Class B Common Stock
entitles its holder to ten votes and each share of Class A Common Stock
entitles its holder to one vote. Immediately following the Offerings, the
holders of the Company's Class B Common Stock will have approximately %, in
aggregate, of the combined voting power with respect to all matters submitted
for the vote of all stockholders, except as required by law. Immediately
following the Offerings, 50% of the shares of Class B Common Stock will be
beneficially owned by Fox Broadcasting Company, an indirect wholly owned
subsidiary of The News Corporation Limited, and 50% of the shares of Class B
Common Stock will be beneficially owned by the former stockholders of Saban
Entertainment, Inc. See "Principal Stockholders" and "Description of
Securities."
All of the shares of Class A Common Stock offered hereby are being
offered by the Company. Prior to the Offerings, there has been no public market
for the Class A Common Stock. It is currently estimated that the initial public
offering price will be between $ and $ per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price.
The Company intends to apply for listing of the Class A Common Stock on the
New York Stock Exchange.
SEE "RISK FACTORS" COMMENCING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
PROCEEDS TO THE
PRICE TO PUBLIC UNDERWRITING DISCOUNT(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $ $ $
- -----------------------------------------------------------------------------------------------------
Total(3)............................. $ $ $
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses, estimated at $ , payable by the Company.
(3) The Company has granted the U.S. Underwriters and the International
Underwriters options, exercisable within 30 days after the date hereof, to
purchase up to an aggregate of shares and shares of Class A
Common Stock, respectively, at the initial price to public per share, less
the underwriting discount, solely to cover over-allotments, if any. If
such options are exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to the Company will be $ , $ and
$ , respectively. See "Underwriting."
-----------
The Class A Common Stock is being offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of certificates for the shares of Class A Common Stock
will be made in New York, New York on or about , 1996.
-----------
MERRILL LYNCH & CO.
ALLEN & COMPANY INCORPORATED
BEAR, STEARNS & CO. INC.
-----------
The date of this Prospectus is , 1996.
<PAGE>
[PICTURES TO COME]
----------------
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
----------------
Mighty Morphin Power Rangers(R), Power Rangers(R), Saban(R) and Saban's VR
Troopers(R) are registered trademarks of Saban Entertainment, Inc. and Saban
International N.V. Big Bad Beetleborgs(TM), Eagle Riders(TM), Jim Knopf(TM),
Masked Rider(TM), Power Rangers ZEO(TM), Princess Sissi(TM), Saban Kids
Network(TM), Saban's Adventures of Oliver Twist(TM), Samurai Pizza Cats(TM),
The Why Why Family(TM), Walter Melon(TM) and Wunschpunsch(TM) are trademarks
of Saban Entertainment, Inc., and Saban International N.V. Eek! The Cat(R) is
a registered trademark of Fox Children's Network, Inc. Bobby's World(TM)and
The Tick(TM) are trademarks of Fox Children's Network, Inc. Space
Strikers(TM), Bureau of Alien Detectors (TM) and The Mouse and the Monster(TM)
are trademarks of UPN Kids, a joint venture in which Saban Entertainment, Inc.
and Saban International N.V. are partners.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, included elsewhere in this
Prospectus. Fox Kids Worldwide, Inc. (the "Company") was incorporated in August
1996 in order to acquire (i) all of the outstanding capital stock of FCN
Holding, Inc. (together with its consolidated subsidiary corporations, "FCN
Holding"), which is currently an indirect subsidiary of Fox Broadcasting
Company ("Fox Broadcasting"), (ii) all of the outstanding capital stock of
Saban Entertainment, Inc. (together with its consolidated subsidiary
corporations, "Saban") and (iii) Fox Broadcasting's direct and indirect members
interests in Fox Kids Worldwide, L.L.C., a strategic alliance between Saban and
FCN Holding (the "LLC") in the "Reorganization" (see "The Reorganization").
Unless otherwise indicated, the term the "Company" refers collectively to the
Company, FCN Holding, Saban and the LLC, and their respective subsidiaries; and
the information in this Prospectus gives effect to the Reorganization, which
will be effected immediately prior to the closing of the Offerings. All
references in this Prospectus to ratings refer to ratings compiled and
published by Nielsen Media Research ("Nielsen"). Unless otherwise indicated,
the information in this Prospectus assumes no exercise of the Underwriters'
over-allotment options, and an assumed initial public offering price of
$ per share, the mid-point of the initial offering price range. See
"Underwriting."
THE COMPANY
The Company is a fully-integrated global children's television entertainment
company which develops, acquires, produces, broadcasts and distributes quality
animated and live-action children's television programming. The Company's
principal operations are conducted by (i) Fox Children's Network, Inc. ("FCN"),
which operates the Fox Kids Network--the top-rated children's (ages 2-11)
oriented broadcast television network in the United States and (ii) Saban,
whose library of more than 3,700 half-hours of children's programming is among
the largest in the world. The Company is the result of the joint venture
launched in 1995 by Fox Broadcasting and Saban to match the complementary
programming and broadcasting strengths of the Fox Kids Network and the
international reach of Fox Broadcasting's parent company, The News Corporation
Limited ("News Corp."), with the development, production, distribution and
merchandising strengths of Saban. This combination has created a company with
the ability to manage children's properties and brands from the initial
creative concept through production, broadcast and the merchandising of related
consumer products.
Children represent an important and growing segment of the global consumer
market. The steady rise in birth rates and an increase in children's purchasing
power has resulted in increased marketing expenditures on products targeted
toward children. In the United States alone, children influence spending
decisions on over $150 billion worth of products annually. In order to reach
this market, manufacturers and other companies targeting children devote
significant resources to advertising and in the 1995-1996 broadcast season, an
estimated $725 million was spent in the United States on advertising directed
at children. Spending by these advertisers is concentrated on television
commercials; and over 80% of children report learning about new products
through watching television. The growth in advertising expenditures aimed at
children has led to the increased demand for children's programming from a
growing group of basic cable and broadcast television services targeting
children, including the Fox Kids Network and the Company's Saban Kids Network.
While television programming targeted toward children in the United States has
developed significantly over the past several years, the Company believes that
the children's television entertainment market in most countries remains
relatively underserved.
The Company creates, produces and acquires quality animated and live-action
children's television programming with brand-name characters and elements which
are either widely known to children, such as the Mighty Morphin Power Rangers
(including the recently introduced Power Rangers Zeo, "Power Rangers"), The
Tick, X-Men and Bobby's World, or which are or have been developed or acquired
due to their likelihood of maturing into popular brands. The Company produced
13 series in the 1995-1996 broadcast season and is
3
<PAGE>
currently producing 16 series for the 1996-1997 broadcast season, including
Power Rangers, which since shortly after its launch in 1993 has been the
highest rated children's television program in the United States, as well as in
most of the international markets in which it is broadcast.
The Company operates the Fox Kids Network, the leading U.S. children's
broadcast television network, and the Saban Kids Network, an ad hoc syndicated
distribution network. Collectively, these outlets will broadcast 26 1/2 hours
of children's programming per week during the 1996-1997 broadcast season, more
than double the number of hours broadcast by its nearest competitor, The Walt
Disney Company. The Fox Kids Network, launched in 1990, will broadcast 19 hours
of children's programming each week during the 1996-1997 broadcast season to
97% of U.S. television households, the broadest reach of any network targeting
children. The Fox Kids Network was formed by Fox Broadcasting and most of the
FOX Television Network member stations to provide children's programming
weekdays and Saturday mornings. The Fox Kids Network has been the number one
rated children's broadcaster for each of the past three seasons, and has had
the highest viewership among children in its time period during 15 consecutive
"sweeps" periods. According to Nielsen, 20 million children--approximately 52%
of all children in the United States--watch the Fox Kids Network at least once
each month. This network affords advertisers the opportunity to reach children
in a cost-effective manner, while ensuring consistent nationwide placement of
their advertisements by generally broadcasting its programming at the same
local time and on the same day ("day-and-date") in each market. The Fox Kids
Network's advertising customers include virtually every major advertiser to
children. The Company also distributes 7 1/2 hours of programming each week
through the Saban Kids Network which enables its programming on a weighted
average basis to reach over 86% of the television households in the United
States.
One of the essential attributes of quality children's programming is its
"portability." Children's programming produced for exhibition in a particular
country is considered "portable" because it generally can be modified at modest
cost and resold for exhibition in other countries through editing and dubbing
into other languages. The Company currently distributes its programming over
terrestrial broadcast services in most major television markets throughout the
world. To further capitalize on its broad library of children's programming and
its relationship with News Corp.--which has significant equity interests in
cable and satellite services in most major international markets--the Company
has recently agreed or agreed in principle to launch full time or partial day
"Fox Kids" branded direct-to-home ("DTH") satellite and cable channels in
various markets in Europe and Latin America. On October 19, 1996, the Company
launched a Fox Kids branded channel as part of BSkyB's Sky Multichannels
package, which through DTH and cable services is currently estimated to reach
over 5.5 million viewers in the United Kingdom and Republic of Ireland. Subject
to completion of negotiation of definitive agreements, additional international
channels are currently contemplated to be launched over the next two years on
DTH satellite and cable in Latin America and Asia. See "Business--Distribution:
Networks and Syndication--International Channels." In Australia, the Foxtel
cable service has been carrying a Fox Kids Network children's channel segment
since 1994 under a license recently assigned to the Company by Fox
Broadcasting.
Children's programming provides excellent opportunities for licensing and
merchandising, and the Company has been successful in licensing its properties
for use in toys and other children's products. The Company attempts to retain
worldwide rights to its brands, and licenses their use to manufacturers for
specific products in exchange for royalties, typically accompanied by cash
advances. The Company currently has toy licenses with Bandai, Mattel, Hasbro
and Toybiz, as well as licenses for other merchandise with over 500 licensees
worldwide. The Company also realizes revenues through the distribution of its
programs in the U.S. and international home video markets. Through an agreement
in principle with Twentieth Century Fox Home Entertainment, Inc. ("Fox Video"),
the Company is positioned to increase materially its presence in the children's
home video market.
The Company believes that as a result of its strengths in substantially all
facets of the children's television entertainment business, it is well
positioned to exploit a broad range of domestic and international children's
entertainment opportunities, including television, merchandising, licensing and
home video. The Company intends to expand its business in the United States by
capitalizing on the network strengths of the Fox Kids
4
<PAGE>
Network and the production and distribution strengths of Saban. As DTH
satellite and cable services continue to expand and become more prevalent
worldwide, the Company plans to launch additional international children's
television channels under the "Fox Kids" name. As the Company continues to
expand the distribution outlets which the Company controls, the Company
believes that it will also be able further to develop new programs, grow its
library of children's programming, build on its popular and branded characters
and increase revenue from its licensing and merchandising activities.
The Company is a Delaware corporation. Its principal executive offices are
located at 10960 Wilshire Boulevard, Los Angeles, California 90024 and its
telephone number is (310) 235-5100.
THE OFFERINGS
<TABLE>
<C> <S>
Class A Common Stock Offered:
U.S. Offering................................... shares(1)
International Offering.......................... shares(1)
----
Total................................... shares
Common Stock to be outstanding after the Offerings:
Class A Common Stock............................ shares(2)
Class B Common Stock............................ shares
----
Total................................... shares
Voting and Conversion Rights....................... The rights of the holders
of the Class A Common
Stock and Class B Common
Stock are identical,
except that each share of
Class B Common Stock
entitles the holder to ten
votes per share, while
each share of Class A
Common Stock entitles the
holder to one vote per
share. The Class A Common
Stock and the Class B
Common Stock vote as a
single class on all
matters, except as
otherwise required by law.
The Class B Common Stock
is convertible at any time
at the election of the
holder on a share-for-
share basis into Class A
Common Stock, and
automatically converts
into Class A Common Stock
under certain
circumstances. See
"Principal Stockholders"
and "Description of
Securities."
Use of Proceeds.................................... The aggregate net proceeds
from the Offerings are
estimated to be
approximately $ , all of
which will be used for
general corporate
purposes, including
working capital. See "Use
of Proceeds."
Proposed New York Stock Exchange Symbol............ The Company intends to
apply for listing of the
Class A Common Stock on
the New York Stock
Exchange.
</TABLE>
- --------
(1) Assumes no exercise of the over-allotment options granted by the Company to
the Underwriters.
(2) Does not include an aggregate of shares of the Class A
Common Stock currently issuable upon exercise of options granted to certain
members of management of the Company, nor an aggregate of approximately
shares of Class A Common Stock issuable upon the exercise of options,
exercisable at the initial offering price, which the Company intends to
grant to certain officers and employees under its stock incentive plan
prior to the completion of the Offerings. See "Management--Stock Options
and Stock Incentive Plan."
5
<PAGE>
THE REORGANIZATION
The Company's principal current operations are conducted by (i) Saban, which
is one of the largest suppliers of broadcast children's television programming
in the world, and (ii) FCN, which operates the Fox Kids Network-- the top-rated
children's (ages 2-11) oriented broadcast television network in the United
States. FCN is an indirect wholly-owned subsidiary of FCN Holding, itself an
indirect subsidiary of Fox Broadcasting, and both companies are indirect
subsidiaries of News Corp. Effective June 1, 1995, FCN Holding and Saban agreed
to form the LLC, a strategic alliance limited liability company, and since
November 1, 1995, each of Saban and FCN have been operated by their respective
managements subject to the overall supervision of the Members Committee of the
LLC.
Fox Kids Worldwide, Inc. was incorporated in Delaware in August 1996 in
connection with the Offerings to act as a holding company of FCN Holding, Saban
and the LLC. It currently conducts no business or operations. Immediately prior
to the closing of the Offerings, (i) Fox Broadcasting Sub, Inc., a wholly-owned
indirect subsidiary of Fox Broadcasting ("Fox Broadcasting Sub"), will exchange
its capital stock in FCN Holding, which indirectly owns FCN, for
shares of the Class B Common Stock, (ii) the other stockholders of FCN Holding
will exchange their capital stock in FCN Holding for an aggregate of
shares of the Class A Common Stock, (iii) Haim Saban and the other stockholders
of Saban (together, the "Saban Stockholders") (none of whom are affiliated with
News Corp.) will exchange their capital stock in Saban for an aggregate of
shares of the Class B Common Stock and (iv) all outstanding
management options to purchase Saban capital stock will become options to
purchase an aggregate of shares of the Class A Common Stock. In
addition, Fox Broadcasting will exchange its preferred, non-voting interest in
the LLC for an aggregate of 1,000,000 shares of the Company's Series A
Redeemable Preferred Stock, $0.001 par value per share (the "Series A Preferred
Stock"), and will exchange a $50 million contingent note receivable from the
LLC for a new preferred, non-voting interest in the LLC, which will entitle the
holder thereof to a priority right to "distributable cash" (see note 2 to
"Capitalization") of the LLC, Saban and FCN Holding and their respective
subsidiaries. See "Principal Stockholders," "Management--Stock Options and
Stock Incentive Plan," "Certain Transactions," "Underwriting" and "Description
of Securities." As a result of these transactions, which are referred to in
this Prospectus as the "Reorganization," FCN Holding, FCN, Saban and the LLC
will become direct or indirect subsidiaries of the Company.
The charts on the following page illustrate a simplified ownership structure
of the parties to the Reorganization (i) immediately before the Reorganization,
and (ii) immediately after the Reorganization and the Offerings. Certain
intermediate subsidiary corporations have not been included in these charts.
6
<PAGE>
BEFORE THE REORGANIZATION:
This flow chart sets forth the ownership structure of the Company before
the Reorganization. Fox Children's Network, Inc. is a subsidiary of FCN Holding
which is a subsidiary of Fox Broadcasting Sub, which is a subsidiary of Fox
Broadcasting, which is a subsidiary of News Corp. Fox Broadcasting owned a non-
voting preferred interest in the LLC and FCN Holding owned a 50% voting interest
in the LLC. The Saban stockholders own Saban and Saban has a 50% voting interest
in the LLC.
[CHART APPEARS HERE]
AFTER THE REORGANIZATION AND THE OFFERINGS:
This flow chart sets forth the ownership structure of the Company after the
Reorganization and the Offerings. FCN Holding, FCN, the LLC and Saban are now
subsidiaries of the Company. Fox Broadcasting Sub owns 50% of the Class B Common
Stock of the Company and the Former Saban Stockholders own the other 50% of the
Class B Common Stock. Fox Broadcasting owns all of the Series A Preferred Stock
and the Public and Other STockholders own all of the Class A Common Stock. Fox
Broadcasting owns a non-voting preferred interest in the LLC.
[CHART APPEARS HERE]
The consummation of the Reorganization is a condition to the Offerings.
Unless the context otherwise requires, for purposes of this Prospectus the
Reorganization is assumed to have been consummated, and all descriptions in
this Prospectus of the Company, its business, operations, capitalization and
ownership are presented as if the Reorganization had already occurred.
7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA
FINANCIAL DATA
Fox Kids Worldwide, Inc. was incorporated in Delaware in August 1996 in order
to effect the Reorganization. Prior to the Reorganization, it will not engage
in any business activities. Immediately following the Offerings and the
Reorganization, its sole assets will consist of the net proceeds of the
Offerings and the capital stock of its direct subsidiaries. Since November 1,
1995 (the "Effective Date"), each of Saban and FCN have been operated by their
respective managements subject to the overall supervision of the Members
Committee of the LLC. In connection with the Offerings, the Reorganization will
be effected, pursuant to which Saban, FCN Holding and the LLC will become
wholly-owned subsidiaries of Fox Kids Worldwide, Inc. Solely for financial
statement presentation purposes, although the Company will not acquire any of
the shares of the capital stock of Saban until immediately prior to the closing
of the Offerings, and the Reorganization will not be effected until immediately
prior to the closing of the Offerings, the assets and liabilities of Saban, FCN
Holding and the LLC are being presented on a combined basis and recorded at
historical cost from and after the Effective Date.
The following tables set forth, for the periods and on the dates indicated,
summary historical and pro forma consolidated financial data derived from the
financial statements included elsewhere in the Prospectus. The unaudited pro
forma financial data for the Company gives effect to the Reorganization as
though it had occured on July 3, 1995 (with respect to the statements of
operations data) and on June 30, 1996 (with respect to the balance sheet data).
The information presented below should be read together with the historical
financial statements and pro forma financial information included elsewhere
herein. The pro forma information, as well as the Company financial information
subsequent to October 31, 1995, are not necessarily indicative of actual
results of operations and financial position that would have been achieved had
the transactions been consummated on that date, and are not necessarily
indicative of future results of operations or financial position.
STATEMENTS OF OPERATIONS DATA:
SABAN ENTERTAINMENT, INC.
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED MAY 31, ENDED
------------------------------------- OCTOBER 31,
1992 1993 1994 1995 1995
-------- -------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues(1)............. $47,907 $57,244 $ 84,372 $242,468 $105,130
Operating income........ 9,011 11,286 27,338 73,017 51,570
Interest expense........ 1,274 1,279 2,337 1,315 539
Net income.............. 7,201 8,407 16,800 44,675 36,742
FCN HOLDING, INC. AND THE COMPANY
<CAPTION>
FCN HOLDING || THE COMPANY
------------------------------------------------- || ------------------------------
|| EIGHT
YEAR ENDED FOUR MONTHS || MONTHS FROM PRO FORMA
------------------------------------- ENDED || NOVEMBER 1, FOR THE
JUNE 30, JUNE 27, JULY 3, JULY 2, OCTOBER 31, || 1995 TO JUNE 30, YEAR ENDED
1992 1993 1994 1995 1995 || 1996 JUNE 30, 1996
-------- -------- -------- -------- ----------- || ---------------- -------------
(IN THOUSANDS) ||
<S> <C> <C> <C> <C> <C> || <C> <C>
Net revenues(1)......... $35,027 $85,729 $130,600 $168,871 $46,286 || $191,621 $327,105
Operating income ||
(loss)(2) ............. 364 (567) 7,435 18,174 (174) || 60,759 117,105
Interest expense........ 2,708 2,017 2,218 1,630 145 || 885 1,566
Net income (loss)....... (2,344) (2,584) 5,217 16,544 (319) || 31,600 71,370
</TABLE>
See Notes to Summary Historical and Pro Forma Financial Data
8
<PAGE>
BALANCE SHEET DATA:
THE COMPANY
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
--------------------
AS
ACTUAL ADJUSTED(3)
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.............................. $ 16,044 $
Programming costs, less accumulated amortization....... 181,427
Total assets........................................... 336,270
Long-term obligations (including current maturities)... 101,487
Stockholders' equity(4)................................ 72,831
</TABLE>
OTHER DATA:
SABAN ENTERTAINMENT, INC.
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED
OCTOBER 31,
YEAR ENDED MAY 31, 1995
----------------------------------- -----------
1992 1993 1994 1995
-------- --------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EBITDA(5)............... $ 9,122 $11,423 $27,521 $73,360 $51,730
Capital expenditures.... 480 789 1,795 2,242 4,020
Amortization of
programming costs...... 27,088 32,367 40,292 84,109 32,651
Investment in
programming(6)......... 38,340 50,388 65,092 114,903 34,988
FCN HOLDING, INC. AND THE COMPANY
<CAPTION>
FCN HOLDING || THE COMPANY
----------------------------------------------- || -----------------------
|| EIGHT MONTHS
FOUR || FROM PRO FORMA
YEAR ENDED MONTHS || NOVEMBER 1, FOR THE
----------------------------------- ENDED || 1995 TO YEAR ENDED
JUNE 30, JUNE 27, JULY 3, JULY 2, OCTOBER 31, || JUNE 30, JUNE 30,
1992 1993 1994 1995 1995 || 1996 1996
-------- --------- ------- -------- ----------- || ------------ ----------
(IN THOUSANDS) ||
<S> <C> <C> <C> <C> <C> || <C> <C>
EBITDA(4)............... $ 377 $ (531) $ 7,443 $ 18,191 $ (161) || $ 61,269 $117,756
Capital expenditures.... 0 6 10 91 31 || 3,053 6,897
Amortization of ||
programming costs...... 23,918 63,179 94,160 98,309 26,937 || 84,490 143,767
Investment in ||
programming(6)......... 27,475 66,545 88,999 107,368 28,884 || 113,506 170,777
</TABLE>
See Notes to Summary Historical and Pro Forma Financial Data
9
<PAGE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(1) Includes revenues recognized by Saban from FCN and revenues recognized by
FCN from Saban, as set forth below:
<TABLE>
<CAPTION>
FIVE MONTHS FOUR MONTHS
FISCAL YEAR ENDED ENDED
------------------------------ OCTOBER 31, OCTOBER 31,
1992 1993 1994 1995 1995 1995
------- ------ ------- ------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Saban revenues from FCN. $ -- $2,535 $10,483 $16,228 $9,651 n/a
FCN revenues from Saban. -- -- 885 14,662 n/a $973
</TABLE>
(2) Under agreements between FCN and Fox Broadcasting and certain of its
affiliated corporations (the "Fox Parties"), for periods prior to June 1,
1995, FCN accrued administrative fees, distribution fees and other payments
to the Fox Parties. Effective June 1, 1995, the Fox Parties assigned to the
Company its rights to these payments. Amounts expensed under these
agreements were $2.7 million, $13.5 million, $19.8 million, $26.9 million
and $9.1 million for the 1992, 1993, 1994 and 1995 fiscal years and for the
four months ended October 31, 1995.
(3) As adjusted to give effect to (i) the Offerings, (ii) the Reorganization
and (iii) the repayment by the LLC of $14.5 million of its $64.5 million
non-interest bearing indebtedness to Fox Broadcasting in September 1996,
and the receipt of $50 million of non-voting Class A Members Interests in
the LLC (see note 2 to "Capitalization") in exchange for the balance of
such indebtedness.
(4) Included in stockholders' equity are (i) Class A Preferred Member's
Interests in the LLC, which entitle the holder thereof (Fox Broadcasting)
to preferential distributions of "distributable cash" of $40 million at
June 30, 1996 ($50 million as adjusted) (see note 2 to Capitalization), and
(ii) Series A Preferred Stock of the Company with dividend and liquidation
preferences of $0 at June 30, 1996 ($50 million as adjusted).
(5) EBITDA represents income from operations before interest, taxes,
depreciation and amortization (excluding amortization of programming
costs), and (with respect to the Company) a $10 million non-cash charge
for investment advisory services rendered to FCN Holding in connection
with the formation of the LLC. EBITDA is presented because the Company
believes it is a standard financial statistic commonly reported and widely
used by analysts and other interested parties in the television industry.
The Company believes that EBITDA, while providing useful information,
should not be considered in isolation or as a substitute for net income or
loss, as an indicator of operating performance or as an alternative to
cash flow as a measure of liquidity. EBITDA also does not represent funds
available for dividends, reinvestment or other discretionary uses.
(6) Includes acquisitions of existing programming and programming libraries.
10
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors, in
addition to the other information contained in this Prospectus, including the
financial statements and the notes thereto, in evaluating the Company and its
business before purchasing shares of Class A Common Stock offered hereby.
DEPENDENCE ON POWER RANGERS
Since its introduction in the United States in 1993, the Power Rangers
series has been materially important to the success and growth of the Company,
and accounted for a significant portion of the Company's pro forma
consolidated revenues and operating profits for the fiscal year ended June 30,
1996, as well as a substantial portion of the historical revenues and
operating profits of Saban and FCN. For the fiscal year ended June 30, 1996,
revenues derived from the Company's production, distribution and worldwide
exploitation of Power Rangers accounted for approximately 44% of the Company's
pro forma consolidated revenues. While ratings of the Power Rangers over the
past three years have declined, Power Rangers has in each of these years been
the most watched children's television program in United States. However,
children's preferences change frequently, and there can be no assurance that
television viewership of Power Rangers will be maintained or that related
revenues will not be affected adversely. In addition, the carriage of highly
rated programs such as Power Rangers tends to enhance the viewership, and
ratings, of other programs broadcast on the Fox Kids Network, and thus further
contributes to the network's ratings. Any material decline in the viewership
of Power Rangers could also lead to a decline in the ratings of other programs
broadcast on the Fox Kids Network. Therefore, material declines in the ratings
of Power Rangers could materially and adversely affect the Company's results
of operations and financial condition. See "--Dependence on Key Contracts,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations" and "Business--Programming."
POSSIBLE DECLINE IN POPULARITY OF OTHER CURRENT PROGRAMS AND UNCERTAINTY OF
ACCEPTANCE OF NEW PROGRAMS
The Company's revenues are derived from the creation, development,
production, acquisition, distribution, merchandising and other exploitation of
children's television properties. For the fiscal year ended June 30, 1996,
revenues from these sources represented approximately 94% of the Company's pro
forma consolidated revenues. The success of each series depends upon
unpredictable and volatile factors beyond the Company's control, such as
children's preferences, competing programming and the availability of other
entertainment activities for children. A shift in children's interests could
cause the Company's current television programming to decline in popularity,
which could materially and adversely affect the Company's results of
operations and financial condition. The Company also intends to continue to
produce or acquire new properties, the success of which depends entirely upon
market acceptance. There can be no assurance as to the continuing commercial
success of any of the Company's currently distributed properties, or that the
Company will be successful in generating sufficient demand and market
acceptance for its new properties. While the Company is committed to the
ongoing development and acquisition of children's television programming, the
inability of the Company to develop or acquire new programs that are capable
of achieving commercial success could materially and adversely affect the
Company's results of operations and financial condition. See "--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the expertise and
services of certain key executives, including Haim Saban, the Company's
Chairman and Chief Executive Officer and the founder of Saban. The Company has
entered into an employment agreement with Mr. Saban and certain of its other
key executives. For a description of the terms of these agreements, see
"Management--Employment Agreements." The Company does not maintain "key
person" life insurance policies on any of its executives. The loss of the
services of Mr. Saban or any of the key personnel could have a material
adverse effect on the results of
11
<PAGE>
operations and financial condition of the Company. For a discussion of
agreements to which Mr. Saban is a party relating to his shareholdings, see
"Management--Employment Agreements," "--Agreement Regarding Election of
Directors; Change in Control" and "Description of Securities--Registration
Rights."
POSSIBILITY OF NON-RENEWAL OF FOX KIDS NETWORK AFFILIATED STATIONS
The Company currently distributes network programming to the television
stations which carry the Fox Kids Network (the "Fox Kids Network Affiliates")
pursuant to affiliation agreements, which will expire over the next two to ten
years. Although the Company currently expects to continue to be able to renew
its affiliation agreements as they mature, no assurance can be given that
these renewals will be obtained, or that they will be obtained on a cost-
effective basis. Substantially all of the current Fox Kids Network Affiliates
are also affiliates ("member stations") of Fox Broadcasting (the "FOX
Television Network"), and it is anticipated that renewals of most of the Fox
Kids Network affiliation agreements will occur in conjunction with renewals of
FOX Television Network affiliate agreements. If a FOX Television Network
member station decides not to renew its status as such, it is less likely that
it would renew its Fox Kids Network affiliate agreement. See "Business--
Distribution: Networks and Syndication" and "Business--The Strategic Alliance
with Fox/News Corp."
LIMITED NUMBER OF TIME SLOTS FOR U.S. CHILDREN'S TELEVISION PROGRAMMING
In addition to providing programming for the Fox Kids Network, the Company
is engaged in the creation, development and production of children's
television programming intended for broadcast on other networks, and in
syndication, in both the U.S. and international markets. For the fiscal year
ended June 30, 1996, in the U.S. and international markets, respectively,
approximately 3% and 15% of the Company's pro forma consolidated revenues were
derived from these activities. With respect to this programming, the Company
competes for time slots with a variety of companies which produce animated or
live-action television programming targeted at children. The number of U.S.
outlets available to producers of children's programming has expanded in the
last decade due, in part, to the growth in the number of broadcast and cable
outlets. However, the number of time slots currently allocated to children's
television programming remains limited (a "slot" is typically a half hour
broadcast time period for a program that either airs five times per week--
Monday through Friday--or once per week, usually on the weekend). In addition
to the seven shows owned and produced by the Company for broadcast on the Fox
Kids Network, the Company has cleared nine series in the United States for the
1996-1997 broadcast season, which will air primarily on the Saban Kids Network
and on UPN. The success of the Company will continue to be materially
dependent upon its ability to continue to be successful in obtaining
commercially reasonable levels of clearance for its programming.
DEPENDENCE ON KEY CONTRACTS
The Company has toy license agreements with Bandai America Incorporated
("Bandai") pursuant to which the Company has granted to Bandai worldwide toy
manufacturing and distribution rights to three series, including Power
Rangers. For the fiscal year ended June 30, 1996, approximately 20% of the
Company's pro forma consolidated revenues were derived from its license
agreements with Bandai. Should the Company's agreements with Bandai terminate,
there can be no assurance that the Company would be able to enter into license
agreements with other toy manufacturers on terms comparable to the Bandai
agreements. See "Business--Merchandising and Licensing." In addition, three of
the Company's 16 series for the 1996-1997 broadcast season are based on
programs originally developed by Toei Company Ltd. ("Toei"), which is
currently Japan's largest film company. The Company has been granted rights in
perpetuity to each of these series, including Power Rangers. Toei is obligated
to provide the Company with an exclusive option to acquire additional
children's programming through at least 2004. While the Company believes that
its ability successfully to develop future programming is not materially
dependent on its relationship with Toei, the possibility nonetheless exists
that any change in the Company's relationship with Toei, or the failure of
Toei to perform its obligations under its agreements with the Company, could
have a material adverse effect on the results of operations and financial
condition of the Company. See "Business--Programming--Relationships with
Marvel and Toei."
12
<PAGE>
OVERESTIMATION OF REVENUES OR UNDERESTIMATION OF COSTS
The Company follows Financial Accounting Standards Board Statement No. 53,
"Financial Reporting by Producers and Distributiors of Motion Picture Films,"
regarding revenue recognition and amortization of production costs, in which
the Company owns or controls all applicable rights. All costs incurred in
connection with an individual program or film, including acquisition,
development, production and allocable production overhead costs and interest,
are capitalized as television and film costs. These costs are stated at the
lower of unamortized cost or estimated net realizable value. Estimated total
production costs for an individual program or film are amortized in the
proportion that revenue realized relates to management's estimate of the total
revenues expected to be received from such program or film. For programs in
which the Company acquires only network broadcast rights, the Company
amortizes such program costs over the estimated number of broadcasts in
accordance with Financial Accounting Standards Board Statement No. 63,
"Financial Reporting by Broadcasters." If revenue or cost estimates change
with respect to a program or film, the Company may be required to write down
all or a portion of the unamortized costs for such program or film. No
assurance can be given that such write-downs, if they occur, will not have a
material adverse effect on the Company's results of operations or financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Use of Estimates."
SEASONALITY
All of the Company's television programming revenues are recognized either
when the program is available for broadcast or when advertising spots which
appear in the programs are broadcast. For this reason, significant
fluctuations in the Company's total revenues and net income can occur from
period to period depending upon availability dates of programs and advertising
revenues. In the United States, revenues from advertising targeted at children
are concentrated in the fourth calendar quarter of each year. In the
international television market, a significant portion of revenues are
recognized in connection with sales at international trade shows (principally
MIP in April and MIP-COM in October). As a result, the second and fourth
quarters of each calendar year have generally contributed a substantial
portion of the Company's total revenues. Due, in part, to these seasonality
factors, the results of any one quarter are not necessarily indicative of
results for future periods, and cash flows may not correlate with revenue
recognition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Revenue Recognition and Seasonality."
COMPETITION
The businesses in which the Company engages are highly competitive. Each of
the Company's primary business operations is subject to competition from
companies which, in some instances, have greater production, distribution and
capital resources than the Company.
The Company competes on the basis of relationships and pricing for access to
a limited supply of facilities and talented creative personnel to produce its
programs. The Company competes with major motion picture studios, such as
Warner Bros. Television Distribution, Inc. ("Warner Bros.") and The Walt
Disney Company, and animation production companies including Hanna-Barbera and
Film Roman for the services of writers, producers, animators, actors and other
creative personnel and specialized production facilities.
In the United States, the Company competes for time slots, ratings and
related advertising revenues. The Company currently competes, through its Fox
Kids Network, with the other broadcast television networks, public television
and cable television channels, such as Nickelodeon, USA cable network and The
Cartoon Network, for market acceptance of its programming and for viewership
ratings. In addition, The Walt Disney Company has recently announced plans to
launch an educational cable television channel for children. Over the past
five years, cable television has captured an increasing market share while
overall viewership of the networks, and broadcast television in general, has
declined. Further, the Company vies for the children's audience with
independent television stations, suppliers of cable television programs,
direct broadcast satellite and other DTH
13
<PAGE>
systems, radio and other forms of media. Through the Saban Kids Network, the
Company also competes with other syndicators, including The Disney Afternoon,
on a market-by-market basis for time slots, coverage commitments, ratings and
advertising revenue. As a result of heightened competition for the children
ages 2-11 category, virtually every major broadcast network suffered a decline
in ratings for each of the last two television seasons, and there can be no
assurance that such trend will not continue. Internationally, the Company
contends with a large number of U.S.-based and international distributors of
children's programming, including The Walt Disney Company and Warner Bros.,
with whom it must also compete in the development or acquisition of
programming expected to appeal to international audiences. Such programming
often must comply with foreign broadcast rules and regulations which may
stipulate certain local content requirements. See "--Licensing and
Merchandising," "--Government Regulation," "Business--Competition" and
"Business--Distribution: Networks and Syndication."
LICENSING AND MERCHANDISING
For the fiscal year ended June 30, 1996, the Company derived approximately
35% of its pro forma consolidated revenues from the licensing of its program
characters and other readily identifiable programming elements to others for
the production and distribution of a variety of products ranging from toys to
apparel and to merchandisers that utilized these characters or elements for
promotional purposes in their businesses. The Company competes with hundreds
of owners of creative content who seek to license their characters and
properties to a limited number of manufacturers and distributors. Although the
Company currently has entered into merchandising agreements with over 500
different manufacturing and commercial organizations, including manufacturers
such as Bandai, Toybiz, Hasbro and Mattel, and although the Company's
characters have been, and continue to be used in marketing campaigns by
international franchises such as McDonald's and Taco Bell, the ability of the
Company to continue successfully to exploit the merchandising opportunities
afforded by its programs will continue to be dependent on the favorable
ratings of the programs and the ability of the Company's characters to
continue to provide attractive merchandising features to its customers. See
"Business--Merchandising and Licensing."
INTERNATIONAL SUBCONTRACTING OF ANIMATION
As with other producers of animated programming, the Company subcontracts
some of the less creative and more labor-intensive components of its animation
production process to studios located in countries with relatively low-cost
labor, primarily in the Far East. With an increasing number of animated
feature films and animated television programs being produced in recent years,
the demand for the services of overseas studios has increased substantially.
This increased demand may lead overseas studios to increase their fees, which
could result in increased animated programming production costs incurred by
the Company or the inability of the Company to contract with its preferred
overseas studios. No assurance can be given that future subcontracting
arrangements will be obtainable on terms which are as favorable to the Company
as its current arrangements.
INTERNATIONAL SALES
Approximately 31% of the Company's pro forma consolidated revenues for the
fiscal year ended June 30, 1996 was derived from international operations. As
part of its business strategy, the Company intends to expand its international
program production and distribution activities, as well as its worldwide
merchandising, licensing and ancillary activities, including the launch of
children's channels on DTH satellite and cable platforms throughout the world.
See "Business--Business Strategies." The Company is subject to the special
risks inherent in international business activities, including (i) general
economic, social and political conditions in each country, (ii) currency
fluctuations, (iii) double taxation, (iv) unexpected changes in applicable
regulatory requirements and (v) compliance with a variety of international
laws and regulations. The operations of the Company's international entities
are measured in part in local currencies. For reporting purposes, assets and
liabilities are translated into U.S. dollars using exchange rates in effect at
the end of each reporting period. Revenues and expenses are translated into
U.S. dollars at the average exchange rates prevailing during the period. As a
result, the Company can expect to record foreign exchange losses and gains in
the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations--Overview."
14
<PAGE>
RAPID EXPANSION AND INTEGRATION OF THE BUSINESS
During the past three years, the Company has experienced rapid and
substantial growth in revenues, and diversification of its businesses. Any
future growth may place a significant strain on management and on its
financial and information processing systems. In addition, the integration of
the operations and business of the Fox Kids Network and Saban will require the
dedication of substantial management resources and may result in increased
administrative expenses. The failure to maintain or upgrade these systems, to
recruit additional staff and key personnel or to respond effectively to
difficulties encountered during expansion could have a material adverse effect
on the Company's results of operations and financial condition.
GOVERNMENT REGULATION
The Company's broadcast of its programming must comply with the provisions
of the Children's Television Act of 1990 ("CTA") and the rules and policies of
the Federal Communications Commission ("FCC") pertaining to the production and
distribution of television programs directed to children, particularly with
respect to the amount and type of commercial matter broadcast during programs
directed at children. Failure to comply with the children's television
commercial limitations can result in the imposition of sanctions, including
substantial monetary fines, on a broadcast television station, which could
adversely impact the Company.
On August 8, 1996, the FCC amended its rules to establish a "processing
guideline" for broadcast television stations of at least three hours per week,
averaged over a six-month period, of "programming that furthers the
educational and informational needs of children 16 and under in any respect,
including the child's intellectual/cognitive or social/emotional needs." Core
Programming has been defined as educational and informational programming
that, among other things, (i) has serving the educational and informational
needs of children "as a significant purpose," (ii) has a specified educational
and informational objective and a specified target child audience, (iii) is
regularly scheduled, weekly programming, (iv) is at least 30 minutes in
length, and (v) airs between 7:00 a.m. and 10:00 p.m. Any station that
satisfies the processing guideline by broadcasting at least three weekly hours
of Core Programming will receive FCC staff-level approval of the portion of
its license renewal application pertaining to the CTA. Alternatively, a
station may qualify for staff-level approval even if it broadcasts "somewhat
less" than three hours per week of Core Programming by demonstrating that it
has aired a weekly package of different types of educational and informational
programming that is "at least equivalent" to three hours of Core Programming.
Non-core programming that can qualify under this alternative includes
specials, public service announcements, short-form programs and regularly
scheduled non-weekly programs, "with a significant purpose of educating and
informing children." Although the Company has cleared a series called The Why
Why Family in the U.S. syndication market for the Fall of 1996, which it
believes qualifies as Core Programming under the new rules, the adoption of
the new quantitative guideline could result in a material increase in the
amount of educational and informational children's programming broadcast; and
it is unclear what impact, if any, such a result would have on the Company's
business.
The United States Congress and the FCC also currently have under
consideration, and may in the future adopt, new laws, regulations and policies
regarding a wide variety of matters which could, directly or indirectly,
materially adversely affect the operations of the Company. The Company is
unable to predict the outcome of future federal legislation or the impact of
any such laws or regulations on its operations. See "Business--Government
Regulation."
The Company is also subject to local content and quota requirements in
international markets which, although a significant portion of the Company's
library meets such current requirements in Europe, effectively limits access
to particular markets.
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of the Offerings, Haim Saban, the other Saban Stockholders
(each of which has granted to Haim Saban the irrevocable right to vote its
shares) and Fox Broadcasting (collectively, the "Class B
15
<PAGE>
Stockholders") will beneficially own all of the outstanding shares of the
Class B Common Stock, representing approximately % ( % if the
Underwriters' over-allotment options are exercised in full) of the votes
eligible to be cast on all matters submitted to a vote of the Company's
stockholders, except as required by law. The voting of the shares of the Class
B Common Stock owned by the Class B Stockholders is subject to the discretion
of the Class B Stockholders, which may differ from the interests of the
Company. As a result, the Class B Stockholders will have voting control on all
stockholder actions, including the sale or merger of the Company or a sale of
substantially all of its assets. In addition, holders of shares of the Class A
Common Stock and Class B Common Stock do not have cumulative voting rights,
and the Class B Stockholders will be able to elect all of the Company's
directors. This would effectively prevent a third party from acquiring control
of the Company without the Class B Stockholders' approval and could adversely
affect the market price of the Class A Common Stock. Moreover, while the Class
B Stockholders' positions as principal stockholders may make an unsolicited
takeover relatively unlikely, the enhanced voting power of Class B Common
Stock will enable Class B Stockholders to retain control of the Company even
if their economic stake is reduced, thereby further diminishing the likelihood
of a takeover bid, a merger proposal, a tender offer or a proxy contest. The
Class B Stockholders may have interests with respect to their ownership of the
Company which diverge from those of the Company's public stockholders. There
can be no assurance that the Company will not be adversely impacted by the
control which the Class B Stockholders will have with respect to matters
affecting the Company. See "Summary--The Reorganization," "Principal
Stockholders," "Certain Transactions" and "Description of Securities."
POTENTIAL FOR DEADLOCKS
The holders of the Class B Common Stock have agreed, so long as neither Fox
Broadcasting nor the former Saban Stockholders as a group have disposed of
more than one third of their respective initial Class B Common Stock
beneficial holdings, to vote their shares together on all matters presented to
the stockholders, and if they cannot agree as to how to vote on a matter, to
abstain from voting with respect thereto. With respect to the election of
directors, they have agreed to vote their shares for three directors selected
by Mr. Saban, three directors selected by Fox Broadcasting, and two
independent directors generally selected by both. Because the charter
documents provide that no Board action may be taken without a vote of at least
three-quarters of the directors, the possibility exists that, as a result of
differences which may arise in the future between Fox Broadcasting and Mr.
Saban, the Company may experience difficulties in defining and meeting its
business objectives, or in effecting a transaction which would be in the best
interests of the Company, which could materially and adversely affect the
results of operations and financial condition of the Company. See "Principal
Stockholders" and "Description of Securities."
STRATEGIC RELATIONSHIPS WITH NEWS CORP. AND FOX
The Company has had, and continues to have, a close strategic relationship
with News Corp. and its affiliated entities, including Fox Broadcasting, and
believes that this relationship is materially important to its business and
business strategies. However, except as may be provided in the agreements
between them which are discussed elsewhere in this Prospectus, neither News
Corp. or its affiliated companies, nor the Company, are obligated to engage in
any business transactions or jointly participate in any opportunities with the
other, and the possibility exists that the current strategic relationships
between the parties could materially change in the future.
TRANSACTIONS WITH STOCKHOLDERS AND THEIR AFFILIATES
The Company has in the past entered into transactions and agreements, some
of which are ongoing, with Mr. Saban and with Fox Broadcasting and News Corp.
and their affiliated companies. In addition, the Company may in the future
enter into additional agreements and other transactions with certain of these
affiliates. Although the Company has adopted a policy that future transactions
between the Company and any of these affiliates or family members must be
approved by a majority of the Board of Directors of the Company, including a
majority of the disinterested members of the Board, there can be no assurance
that any such future transactions will prove to be favorable to the Company.
See "Certain Transactions."
16
<PAGE>
BROAD DISCRETION AS TO USE OF PROCEEDS
The Company intends to use the net proceeds of the Offerings for general
corporate purposes, including working capital primarily to finance the
Company's development, acquisition and licensing of children's programming and
its expansion in international television markets. In addition, the Company
may use a portion of the net proceeds to acquire businesses, libraries, and
other assets believed by the Company to be complementary to the Company's
current businesses or which support the Company's strategic goals; although,
except as described in this Prospectus, the Company has no such commitments.
As a result, a significant portion of the net proceeds will be available for
projects that are not yet identified, and management will have broad
discretion with respect to the application of such proceeds. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Class A
Common Stock and there can be no assurance that an active public market for
the Class A Common Stock will develop after the Offerings. The initial public
offering price will be determined by negotiations between the Company and the
Underwriters based upon several factors, and there can be no assurance that
the market price of the Class A Common Stock after the Offerings will equal or
exceed the initial public offering price. The market price of the Company's
Class A Common Stock could be subject to wide fluctuations in response to
variations in operating results, announcements of developments by the Company
or its competitors, and other events or factors. In addition, the stock market
has from time to time experienced extreme price and volume fluctuations,
including those which have particularly affected the market price for
entertainment companies, and that may be unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Class A Common Stock. See "Underwriting."
SUBSTANTIAL DILUTION
Assuming an initial offering price of $ per share, purchasers of the
Class A Common Stock in the Offerings will realize immediate and substantial
dilution in net tangible book value as of June 30, 1996 of $ per share.
See "Dilution."
POTENTIAL ANTI-TAKEOVER EFFECTS
As a result of the agreements and charter provisions discussed under
"Control by Existing Stockholders" above, it is highly unlikely that any
transaction involving a change of control of the Company, including
transactions in which stockholders might receive a substantial premium for
their shares over then current market prices, could be effected without the
consent of both Fox Broadcasting and Mr. Saban, either of whom might determine
that such a transaction was not in its or his best interests. In addition,
other provisions of the Certificate of Incorporation and Bylaws, as well as
provisions of the Delaware General Corporation Law (the "DGCL"), may have the
effect of delaying or preventing transactions involving a change of control of
the Company, including transactions in which stockholders might receive a
substantial premium for their shares over then current market prices, and may
limit the ability of stockholders to approve transactions that they deem to be
in their best interest. See "Description of Securities."
IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have outstanding
shares of Class A Common Stock ( shares if the Underwriters' over-
allotment options are exercised in full), of which all but shares are being
sold in the Offerings, and shares of Class B Common Stock. Any portion, or
all, of the shares of Class B Common Stock are convertible into shares of
Class A Common Stock on a share-for-share basis at any time at the option of
the holder. Immediately following the Offerings, all shares of Class B Common
Stock will be held by "affiliates" (as defined in the Securities Act) of the
Company and will be "restricted
17
<PAGE>
securities" under the Securities Act. Under current rules of the Securities
and Exchange Commission, these shares cannot be sold other than pursuant to an
effective registration statement under the Securities Act or an applicable
exemption from the registration requirements of the Securities Act, including
Rule 144 thereunder. The Company intends to file a registration statement
under the Securities Act within 180 days following the completion of the
Offerings covering the shares of Class A Common Stock reserved for issuance
upon exercise of outstanding stock options, and additional options granted
pursuant to the Company's stock incentive plan. No prediction can be made as
to the effect, if any, that future sales of shares of Class A Common Stock or
the availability of these shares for future sale will have on the market price
of shares of Class A Common Stock prevailing from time to time. See "Shares
Eligible for Future Sale."
USE OF PROCEEDS
The net proceeds to the Company from the Offerings, at an assumed offering
price of $ per share and after deducting the underwriting discount and
expenses, are estimated to be approximately $ million ($ million if the
Underwriters' over-allotment options are exercised in full). The Company
intends to use the net proceeds for general corporate purposes, including
working capital, primarily to finance the Company's development, acquisition
and licensing of children's programming and its expansion in international
television markets. In addition, the Company may use a portion of the net
proceeds to acquire businesses, libraries and other assets believed by the
Company to be complementary to the Company's current businesses or which
support the Company's strategic goals; although the Company currently has no
such commitments. Although the Company on a regular basis has had, and intends
to continue to engage in, exploratory discussions and analyses concerning
acquisition opportunities which might be favorable to it, none of these
discussions has, to date, resulted in a probable acquisition opportunity.
Pending these uses, the net proceeds of the Offerings will be invested in
deposits with financial institutions, investment grade securities and short-
term, income-producing investments, including government obligations and other
money-market instruments. See "Risk Factors--Broad Discretion as to Use of
Proceeds."
DIVIDEND POLICY
The Company has no current intention of paying cash dividends on its Common
Stock. Any future determination to pay cash dividends will be made at the
discretion of the Board of Directors of the Company, and will be dependent
upon the Company's results of operations, financial condition and other
factors deemed relevant by the Board of Directors. The Certificate of
Incorporation of the Company provides that the Class A Common Stock and Class
B Common Stock participate on a share for share basis in all dividends paid to
holders of Common Stock (see "Description of Securities--Class A Common Stock
and Class B Common Stock"). The Company has outstanding 1,000,000 shares of
Series A Preferred Stock, all of which are owned by Fox Broadcasting. The
Series A Preferred Stock has a liquidation value of $50 per share less any
dividends declared and paid by the Company with respect thereto. The Company's
Certificate of Incorporation provides that, as long as any shares of Series A
Preferred Stock remain outstanding, the Company cannot pay, or set aside and
reserve for payment, any cash dividends on any series or class of equity
securities ranking junior to the Series A Preferred Stock. In addition, under
the terms of the Class A Members Interest of the LLC, Fox Broadcasting has a
priority right to receive the first $50 million of "distributable cash" (as
defined) of the LLC, Saban and FCN Holding and their respective subsidiaries.
The Series A Preferred Stock and the Class A Members Interest of the LLC may
each have the effect of precluding the payment of cash dividends for an
extensive period of time.
The current line of credit of Saban with its principal U.S. bank prohibits
the payment of dividends from that subsidiary to the Company for any purpose,
including the payment of dividends by the Company to its stockholders, without
prior bank approval. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." For a
description of distributions made prior to the Reorganization, see "Certain
Transactions."
18
<PAGE>
DILUTION
The net tangible book value of the Company at June 30, 1996, was $
million or $ per share of Common Stock. Net tangible book value per
share of Common Stock is equal to the Company's total assets less its total
liabilities, less the $50 million liquidation preference of the Series A
Preferred Stock, divided by the total number of outstanding shares of Common
Stock. After giving effect to the sale of shares of the Class A
Common Stock in the Offerings at an assumed initial public offering price of
$ per share, and the receipt and application of the net proceeds
therefrom (after deducting the estimated underwriting discount and expenses),
the pro forma net tangible book value of the Company at June 30, 1996 would
have been approximately $ million or $ per share of Common
Stock. This represents an immediate increase in such net tangible book value
of $ per share to the existing stockholders and an immediate dilution
of $ per share to new stockholders purchasing shares in the
Offerings. If the initial public offering price is higher or lower, the
dilution to the new stockholders will increase or decrease accordingly. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1).............. $
Net tangible book value per share of Common Stock
as of June 30, 1996.......................................... $
-----
Increase in net tangible book value per share of Common Stock
attributable to new stockholders.............................
-----
Pro Forma net tangible book value per share of Common Stock as
of June 30, 1996 after the Offerings..............................
-----
Dilution in net tangible book value per share of Common Stock
to new stockholders in the Offerings........................... $
=====
</TABLE>
- --------
(1) Before deduction of the underwriting discount and estimated expenses.
The calculations in the table set forth above assume no exercise of the
Underwriters' over-allotment options and do not reflect the shares
of Class A Common Stock reserved for issuance pursuant to outstanding options
or options to be granted in connection with the Offerings. See "Management--
Stock Options and Stock Incentive Plan."
The following table summarizes, as of June 30, 1996, the difference between
the number of shares acquired from the Company and the total consideration and
average price per share paid therefor by existing stockholders (assuming no
exercise of any outstanding options by the holders thereof) and by new
investors, assuming an initial public offering price of $ per share:
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED(1) CONSIDERATION(2)
-------------- ------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders....... % $ % $
New Investors...............
------ --- --------- ------ ------
Total................... 100% $ 100% $
====== === ========= ====== ======
</TABLE>
- --------
(1) Does not include shares of Class A Common Stock issuable
upon exercise of outstanding management stock options,
of which will be exercisable immediately after the Offerings (which
options, if exercised in full, would generate aggregate proceeds to the
Company of $ ).
(2) Based upon the purchase price paid, including services rendered, by the
existing stockholders for the securities of the companies which are
parties to the Reorganization; does not reflect (i) distributions and
dividends to the existing stockholders; or (ii) the receipt by Fox
Broadcasting of Series A Preferred Stock, with a $50 million liquidation
value, or Class A Members Interest in the LLC, with a $50 million
preference value, in connection with the Reorganization. See "Summary--The
Reorganization" and "Certain Transactions."
19
<PAGE>
CAPITALIZATION
The following table sets forth the combined capitalization of the Company
(i) at June 30, 1996 and (ii) as adjusted to give effect to the
Reorganization, to the repayment and exchange effected in September 1996 with
respect to $64.5 million in indebtedness due to Fox Broadcasting and to the
sale of shares of the Class A Common Stock offered hereby, at an assumed
offering price of $ per share.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
------------------
AS
ACTUAL ADJUSTED
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................. $ 16,044 $
======== ======
Long-term debt (including current portion)(1)............. $101,487 $
Capitalized lease obligations............................. --
-------- ------
Total long-term obligations............................. 101,487
-------- ------
Stockholders' equity:
Class A Preferred Member's Interest in the LLC
($40,000,000 liquidation preference actual and
$50,000,000 liquidation preference as adjusted)(2)..... 40,000 50,000(3)
Series A Preferred Stock, $0.001 par value; 1,000,000
shares authorized; none outstanding; 1,000,000 shares
issued and outstanding as adjusted ($40,000,000
liquidation preference actual and $50,000,000
liquidation preference as adjusted).................... --
Preferred Stock, $0.001 par value; 15,000,000 shares
authorized; no shares issued or outstanding............ --
Class A Common Stock, $0.001 par value; shares
authorized; none outstanding; shares issued and
outstanding as adjusted(4)............................. --
Class B Common Stock, $0.001 par value;
shares authorized; none outstanding; shares
issued and outstanding as adjusted..................... --
Common stock, $.01 par value, 10,000 shares authorized,
800 shares issued and outstanding (Saban Entertainment,
Inc.).................................................. --
Common stock, no par value, 2,000 shares authorized,
2,000 shares issued and outstanding (FCN Holding, Inc.)
....................................................... 2
Contributed capital..................................... 49,245
Cumulative translation adjustment....................... (11)
Retained deficit........................................ (16,405)
-------- ------
Total stockholders' equity.............................. $ 72,831 $
-------- ------
Total capitalization.................................. $174,318 $
======== ======
</TABLE>
- -------
(1) Includes $64.5 million of non-interest bearing indebtedness to Fox
Broadcasting. Of this indebtedness, $14.5 million was repaid after June
30, 1996. The balance of this indebtedness will on the Reorganization be
exchanged for $50 million of Class A Members Interest in the LLC.
(2) This non-voting members interest is entitled to preferential distributions
out of "distributable cash" (as defined), if any, of the LLC (which
includes cash available for Saban and FCN Holding and their respective
subsidiaries). The $40 million of Class A Members Interest in the LLC, and
a $10 million contingent liability of the LLC outstanding at June 30,
1996, will on the Reorganization be exchanged for 1,000,000 shares of the
Series A Preferred Stock of the Company. See "Certain Transactions--
Formation of the LLC and the Reorganization."
(3) Terminates in the event that $50 million in distributions have been
received .
(4) Does not include an aggregate of shares of the Class A Common Stock
currently issuable upon exercise of options granted to certain members of
management of the Company, nor an aggregate of approximately shares of
Class A Common Stock issuable upon the exercise of options, exercisable at
the initial offering price, which the Company intends to grant to certain
officers and employees under its stock incentive plan prior to the closing
of the Offerings. See "Management--Stock Options and Stock Incentive
Plan."
20
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheet reflects the
Reorganization as if it had occurred as of June 30, 1996. The following pro
forma consolidated statement of operations reflects, on a consolidated basis,
the results of operations of the Company, FCN Holding, Saban and the LLC as if
the Reorganization had occurred as of July 3, 1995. The pro forma information
is based on the historical financial statements of the Company, FCN Holding,
Saban and the LLC giving effect to the Reorganization, the results of
operations on a consolidated basis and the assumptions and adjustments in the
accompanying notes to the pro forma financial statements.
Included in the pro forma consolidated statement of operations for the year
ended June 30, 1996 are the statement of operations of the Company for the
eight months ended June 30, 1996 and the statement of operations of FCN
Holding for the four months ended October 31, 1995.
The pro forma consolidated statements have been prepared by the Company's
management based upon the financial statements of the Company, FCN Holding,
Saban and the LLC included elsewhere herein. These pro forma consolidated
statements may not be indicative of the results that actually would have
occurred if the combination had been in effect on the dates indicated or which
may be obtained in the future. The pro forma consolidated financial statements
should be read in conjunction with the audited financial statements and notes
of the Company, FCN Holding and Saban contained elsewhere herein.
21
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS CONSOLIDATED
----------- ----------- ------------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents............... $ 16,044 $ 16,044
Restricted cash......................... 8,000 8,000
Accounts receivable, net................ 56,225 56,225
Amounts receivable from related parties. 25,789 25,789
Programming costs, less accumulated
amortization........................... 181,427 181,427
Property and equipment, at cost, less
accumulated depreciation .............. 8,711 8,711
Deferred income taxes .................. 27,023 27,023
Other assets............................ 13,051 13,051
-------- --------
Total assets........................ $336,270 $336,270
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable........................ $ 8,192 $ 8,192
Accrued liabilities..................... 30,247 30,247
Deferred revenue........................ 67,882 67,882
Fox Kids Network affiliate
participations payable................. 13,738 13,738
Accrued programming expenditures........ 15,179 15,179
Accrued residuals and participations.... 22,040 22,040
Income taxes payable.................... 3,884 3,884
Deferred income taxes................... 790 790
Debt.................................... 19,916 19,916
Amounts payable to related parties...... 81,571 (60,000)(a) 21,571
-------- ------- --------
Total liabilities................... 263,439 (60,000) 203,439
Commitments and contingencies -- --
Stockholders' equity
Common stock, $.01 par value, 10,000
shares authorized, 800 shares issued
and outstanding (Saban).............. -- --
Common stock, no par value, 2,000
shares authorized, 2,000 shares
issued and outstanding (FCN Holding). 2 2
Class A Preferred Member's Interest in
the LLC ($40,000,000 liquidation
preference and $50,000,000
liquidation preference as adjusted).. 40,000 10,000(a) 50,000
Series A Preferred Stock, $0.001 par
value; 1,000,000 shares authorized;
none outstanding; 1,000,000 shares
issued and outstanding as adjusted
($50,000,000 liquidation preference
as adjusted)......................... -- 50,000(a) 50,000
Preferred Stock, $0.001 par value;
15,000,000 shares authorized; no
shares issued or outstanding......... -- --
Class A Common Stock, $0.001 par
value; shares authorized; none
outstanding; shares issued and
outstanding as adjusted.............. -- --
Class B Common Stock, $0.001 par
value; shares authorized;
none outstanding; shares issued
and outstanding as adjusted.......... -- --
Contributed capital................... 49,245 49,245
Cumulative translation adjustment..... (11) (11)
Retained deficit...................... (16,405) (16,405)
-------- ------- --------
Total stockholders' equity.............. 72,831 60,000 132,831
-------- ------- --------
Total liabilities and stockholders'
equity................................. $336,270 $336,270
======== ======= ========
</TABLE>
See notes to pro forma consolidated financial statements.
22
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
TWELVE MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA ADJUSTMENTS
----------------------------------- ----------------------------
FCN HOLDING, SABAN
FCN HOLDING AND THE LLC SABAN OTHER
---------------- ------------------ ------------------- --------
PERIOD FROM
JULY 3, 1995 EIGHT MONTHS FOUR MONTHS
TO ENDED ENDED PRO FORMA
OCTOBER 31, 1995 JUNE 30, 1996 OCTOBER 31, 1995(B) CONSOLIDATED(C)
---------------- ------------------ ------------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Net revenues............ $46,286 $191,621 $99,538 $(10,340)(c) $327,105
Costs and expenses:
Amortization of
programming costs,
residuals and
participations........ 29,698 98,937 39,177 (8,101)(c) 159,711
Fees and costs to a
related party......... 7,313 -- -- (7,313)(c) --
Selling, general and
administrative........ 2,566 23,072 10,397 700 (c) 36,735
Fox Kids Network
affiliate
participations........ 6,883 8,853 -- (2,182)(c) 13,554
------- -------- ------- -------- --------
Operating (loss) income
....................... (174) 60,759 49,964 6,556 (c) 117,105
Investment advisory fee. -- 10,000 -- -- 10,000
Interest expense........ 145 885 536 -- 1,566
------- -------- ------- -------- --------
(Loss) income before
provision for income
taxes.................. (319) 49,874 49,428 6,556 105,539
Provision for income
taxes.................. -- 18,274 13,840 2,055 (c) 34,169
------- -------- ------- -------- --------
Net (loss) income ...... $ (319) $ 31,600 $35,588 $ 4,501 $ 71,370
======= ======== ======= ======== ========
</TABLE>
See notes to pro forma consolidated financial statements.
23
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
(IN THOUSANDS)
(a) In connection with the formation of the LLC, the Company agreed to pay
to Fox Broadcasting a fee of $10 million for providing all uplink, transponder
and other facilities necessary to deliver via satellite Fox Kids Network
programming for broadcast to the Fox Kids Network Affiliates, and certain
other services. Such amount is included in other assets, net of accumulated
amortization, and amounts payable to related parties in the "As Reported"
column. In September 1996, the LLC paid this $10 million to Fox Broadcasting.
Immediately upon receipt of this $10 million payment, Fox Broadcasting made a
contribution to the LLC of $10 million in exchange for additional Class A
Member's Interest. In connection with the Reorganization, the $10 million of
additional Class A Member's Interest will be exchanged for $10 million of
Series A Preferred Stock in the Company.
In connection with the Reorganization the existing Class A Preferred
Member's Interest in the LLC will be exchanged for Series A Preferred Stock in
the Company.
Fox Broadcasting made a $64.5 million interest free loan to the LLC, of
which $14.5 million of the loan was repaid in September 1996. The $50 million
remainder of this loan is to be paid out of Distributable Cash of the LLC
before any distributions are made on the Class A and Class B Members
Interests. In connection with the Reorganization, immediately prior to the
closing of the Offerings, Fox Broadcasting will exchange this loan for new
Class A Members Interests in the LLC, which will grant Fox Broadcasting a
priority right to receive distributions of Distributable Cash and other
distributions from the LLC until it has received aggregate distributions of
$50 million, whereupon this interest will terminate and expire. "Distributable
Cash" means the amount of cash available for distribution by the LLC
(including cash available from Saban and FCN Holding), taking into account all
cash, debts, liabilities and obligations of the LLC then due and after setting
aside reserves to provide for the LLC's capital expenditures, debt service,
working capital and expansion plans.
(b) Represents results of operations of Saban for the four months ended
October 31, 1995
(c) A summary of adjustments to combine Saban, FCN Holding and the LLC for
the four months ended October 31, 1995:
<TABLE>
<S> <C>
Elimination of revenues between FCN and Saban................... $(10,340)
Reduction of amortization of programming costs resulting from
the elimination of revenues and costs between FCN and Saban.. 8,101
Amortization of Services Fee to Fox Broadcasting................ (700)
Elimination of fees and costs to related party(1)............... 7,313
Elimination of Fox Kids Network affiliate participations related
to Fox O&O's................................................. 2,182
Increase in provision for income taxes resulting from pro forma
adjustments.................................................. (2,055)
--------
$ 4,501
========
</TABLE>
- --------
(1) On December 22, 1995, in connection with the formation of the LLC,
distribution fees from the Fox Parties were assigned to the LLC by the Fox
Parties. The incremental costs to the Fox Parties for providing these
distribution services to the Company are not material. In future periods
these distribution services will be provided by the Company. The
incremental costs to the Company in connection with these distribution
services for such additional programs are not material.
24
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected financial data of Saban set forth below as of May 31, 1994 and
1995 and as of October 31, 1995 and for each of the two years in the period
ended May 31, 1995 and for the five months ended October 31, 1995 are derived
from Saban's consolidated financial statements audited by Ernst & Young LLP,
independent auditors, included elsewhere in this Prospectus. The selected
financial data of Saban presented below as of May 31, 1992 and 1993 and for
the two years ended May 31, 1993 are derived from Saban's consolidated
financial statements audited by Ernst & Young LLP, independent auditors.
The selected financial data of FCN Holding set forth below as of July 3,
1994, July 2, 1995 and as of October 31, 1995 and for each of the annual
fiscal periods in the two years ended July 2, 1995 and for the four months
ended October 31, 1995 are derived from FCN Holding's consolidated financial
statements audited by Ernst & Young LLP, independent auditors, included
elsewhere in this Prospectus.
The selected financial data of FCN Holding at June 30, 1992 and June 27,
1993 and for each of the annual fiscal periods in the two years ended June 27,
1993 are derived from FCN Holding's unaudited consolidated financial
statements. The unaudited consolidated financial statements from which such
selected financial data are derived include all adjustments, consisting of
only normal recurring accruals, which management considers necessary for a
fair presentation.
The selected financial data of the Company set forth below as of June 30,
1996 and for the eight months ended June 30, 1996 are derived from the
Company's combined financial statements audited by Ernst & Young LLP,
independent auditors, included elsewhere in this Prospectus.
The selected financial data presented below and under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
should be read in conjunction with the consolidated and combined financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus.
SABAN ENTERTAINMENT, INC.
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED MAY 31, ENDED
-------------------------------- OCTOBER 31,
1992 1993 1994 1995 1995
------- ------- ------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues(1)............. $47,907 $57,244 $84,372 $242,468 $105,130
Costs and expenses:
Amortization of
programming costs,
residuals and
participations........ 33,043 39,703 48,101 117,557 42,022
Selling, general and
administrative
expenses.............. 5,853 6,255 8,933 51,894 11,538
------- ------- ------- -------- --------
Operating income........ 9,011 11,286 27,338 73,017 51,570
Interest expense........ 1,274 1,279 2,337 1,315 539
------- ------- ------- -------- --------
Income before income tax
expense................ 7,737 10,007 25,001 71,702 51,031
Income tax expense...... 536 1,600 8,201 27,027 14,289
------- ------- ------- -------- --------
Net income.............. $ 7,201 $ 8,407 $16,800 $ 44,675 $ 36,742
======= ======= ======= ======== ========
<CAPTION>
AS OF MAY 31, AS OF
-------------------------------- OCTOBER 31,
1992 1993 1994 1995 1995
------- ------- ------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 990 $ 1,554 $ 3,849 $ 14,584 $ 16,207
Programming costs, less
accumulated
amortization........... 42,258 60,279 85,079 115,873 118,210
Total assets............ 69,043 94,916 136,967 218,197 207,479
Long-term obligations
(including current
maturities)............ 25,330 28,933 34,023 5,623 5,605
Stockholders' equity.... 28,241 36,648 53,253 58,122 94,971
</TABLE>
25
<PAGE>
FCN HOLDING, INC. AND THE COMPANY
<TABLE>
<CAPTION>
FCN HOLDING || THE COMPANY
--------------------------------------------------- || --------------------
YEAR ENDED ||
-------------------------------------- ||
|| EIGHT PRO
FOUR MONTHS || MONTHS FORMA YEAR
ENDED || ENDED ENDED
JUNE 30, JUNE 27, JULY 3, JULY 2, OCTOBER 31, || JUNE 30, JUNE 30,
1992 1993 1994 1995 1995 || 1996 1996
-------- -------- -------- -------- ----------- || -------- -----------
STATEMENT OF OPERATIONS ||
DATA: (IN THOUSANDS) ||
<S> <C> <C> <C> <C> <C> || <C> <C>
Net revenues(1)......... $ 35,027 $ 85,729 $130,600 $168,871 $46,286 || $191,621 $327,105
Costs and expenses: ||
Amortization of ||
programming costs, ||
residuals and ||
participations........ 26,954 67,804 98,725 109,259 29,698 || 98,937 159,711
Fees and costs to a ||
related party......... 4,434 14,682 20,861 24,713 7,313 || --
Selling, general and ||
administrative ||
expenses.............. 3,275 3,810 3,579 5,202 2,566 || 23,072 36,735
Fox Kids Network ||
affiliate ||
participation......... -- -- -- 11,523 6,883 || 8,853 13,554
-------- -------- -------- -------- ------- || -------- --------
Operating income ||
(loss)(2).............. 364 (567) 7,435 18,174 (174) || 60,759 117,105
Investment advisory fee. -- -- -- -- -- || 10,000 10,000
Interest expense........ 2,708 2,017 2,218 1,630 145 || 885 1,566
-------- -------- -------- -------- ------- || -------- --------
Income (loss) before ||
income tax expense..... (2,344) (2,584) 5,217 16,544 (319) || 49,874 105,539
Income tax expense...... -- -- -- -- -- || 18,274 34,169
-------- -------- -------- -------- ------- || -------- --------
Net income (loss)....... $ (2,344) $ (2,584) $ 5,217 $ 16,544 $ (319) || $ 31,600 $ 71,370
======== ======== ======== ======== ======= || ======== ========
<CAPTION>
AS OF || AS OF JUNE 30, 1996
--------------------------------------------------- || --------------------
JUNE 30, JUNE 27, JULY 3, JULY 2, OCTOBER 31, || AS
1992 1993 1994 1995 1995 || ACTUAL ADJUSTED(3)
-------- -------- -------- -------- ----------- || -------- -----------
BALANCE SHEET DATA: (IN THOUSANDS) ||
<S> <C> <C> <C> <C> <C> || <C> <C>
Cash and cash ||
equivalents............ $ 82 $ 304 $ 268 $ -- $ 317 || $ 16,044 $
Programming costs, less ||
accumulated ||
amortization........... 18,879 22,245 17,084 26,143 28,090 || 181,427
Total assets............ 27,321 39,476 35,950 49,816 52,792 || 336,270
Long-term obligations ||
(including current ||
maturities)............ 43,813 41,416 27,163 10,686 8,727 || 101,487
Stockholders' equity ||
(deficit).............. (22,991) (25,575) (20,356) (3,811) (4,130) || 72,831
</TABLE>
- --------
(1) Includes revenues recognized by Saban from FCN and by FCN from Saban as
set forth below:
<TABLE>
<CAPTION>
FIVE MONTHS FOUR MONTHS
FISCAL YEAR ENDED ENDED
----------------------------- OCTOBER 31, OCTOBER 31,
1992 1993 1994 1995 1995 1995
------ ------ ------- ------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Saban revenues from FCN. $ -- $2,535 $10,483 $16,228 $9,651 n/a
FCN revenues from Saban. -- -- 885 14,662 n/a $973
</TABLE>
(2) Under agreements between FCN and Fox Broadcasting, for periods prior to
June 1, 1995, FCN paid administrative and other fees to Fox Broadcasting.
Effective June 1, 1995, Fox Broadcasting assigned to the Company its
rights to these payments. Amounts expensed under these agreements were
$2.7 million, $13.5 million, $19.8 million, $26.9 million and $9.1
million, for the years ended June 30, 1992, 1993, 1994 and 1995 and the
four months ended October 31, 1995.
(3) As adjusted to give effect to (i) the Offerings, (ii) the Reorganization
and (iii) the repayment by the LLC of $14.5 million of its $64.5 million
non-interest bearing indebtedness to Fox Broadcasting in September 1996,
and the receipt of $50 million of non-voting Class A Members Interests in
the LLC (see note 2 to "Capitalization") in exchange for the balance of
such indebtedness.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's current principal operations are conducted by FCN, Saban and
the LLC. FCN commenced operations with the launch, in September 1990, of the
Fox Kids Network, which is currently the top-rated children's oriented
broadcast television network in the United States. Saban, which commenced
business in the mid-1980's, is currently one of the largest suppliers of
children's television programming in the world. The LLC was formed by FCN
Holding (a parent of FCN) and Saban pursuant to agreements executed on
November 1, 1995, as a strategic alliance between Saban and FCN. Under the
terms of the agreements relating to the strategic alliance, since November 1,
1995 each of Saban and FCN have been operated by their respective managements
subject to the overall supervision by the Members Committee of the LLC.
The Company was incorporated in August 1996 in connection with the Offerings
to act as a holding company of FCN Holding, Saban and the LLC, and their
respective subsidiaries. The Company currently conducts no business or
operations. The Reorganization will be effected pursuant to an agreement among
the stockholders of FCN Holding and Saban, which was entered into in
connection with the formation of the LLC, and which, among other things,
specified the manner in which the companies should be combined at the time of
any public offering of the combined companies. After consummation of the
Offerings and the closing of the Reorganization, the Company's sole assets
will consist of the net proceeds of the Offerings and the capital stock of
Saban and FCN Holding.
Solely for financial statement presentation purposes, although the Company
will not acquire any of the shares of the capital stock of Saban until
immediately prior to the closing of the Offerings, and although the
Reorganization will not be effected until immediately prior to the closing of
the Offerings, as the result of the foregoing, the assets and liabilities of
Saban, FCN Holding and the LLC are being presented on a combined basis and
recorded at historical cost from and after the Effective Date.
Included in this Prospectus are (i) pro forma consolidated financial
statements of the Company for the year ended June 30, 1996, which on a
hypothetical basis reflect the accounts of the Company, FCN Holding, Saban and
the LLC as if the Reorganization had occurred as of July 3, 1995, (ii) the
consolidated financial statements of Saban covering the two year period ended
May 31, 1995 and the five month period ended October 31, 1995 (the close of
business prior to the Effective Date), (iii) the consolidated financial
statements of FCN Holding covering the two year period ended July 2, 1995, and
the four month period ended October 31, 1995, and (iv) the combined financial
statements of the Company (FCN Holding, Saban and the LLC) for the eight month
period commencing on the Effective Date and ending June 30, 1996.
The following discussion provides information and analysis with respect to
results of operations reflected in the financial statements included in this
Prospectus, as well as the liquidity and capital resources of the Company.
This discussion should be read in conjunction with the historical and pro
forma financial statements and related notes, "Selected Historical and Pro
Forma Consolidated Financial Data" and "The Reorganization" included elsewhere
in this Prospectus.
Use of Estimates
As is industry practice, management has made a number of estimates and
assumptions relating to the amortization of programming costs and the
reporting of assets and liabilities in the preparation of the financial
statements discussed herein. Actual results could differ materially from these
estimates. Management periodically reviews and revises its estimates of future
airings and revenues for program and film rights, as necessary, which may
result in revised amortization of its program and film rights and may be
significantly affected by the periodic adjustments in such amortization.
Revenue Recognition and Seasonality
Children's television programming revenues have historically represented a
significant portion of the Company's total revenues, and, for the fiscal year
ended June 30, 1996, accounted for approximately 55% of the Company's pro
forma consolidated revenues (see "Results of Operations"). Revenues from
television
27
<PAGE>
programming lease agreements are recognized when the lease period begins,
collectibility is reasonably assured and the product is available pursuant to
the terms of the lease agreement. Advertising revenue is recognized as earned
in the period in which the advertising commercials are broadcast. For this
reason, significant fluctuations in the Company's revenues, and net income,
can occur from period to period depending upon the availability dates of
programs and advertising revenues. In the United States, revenues from
advertising targeted at children are concentrated in the fourth calendar
quarter, and in the international markets, a significant portion of revenues
are recognized in April and October. While 31% of the Company's pro forma
consolidated revenues for the fiscal year ended June 30, 1996 ("Fiscal 1996")
were recognized in the first fiscal quarter, in part as the result of
significant revenues from merchandising realized by the Company in that
quarter, the Company expects that its second and fourth fiscal quarters will
generally contribute a disproportionate share of total revenues for any fiscal
year. During the fiscal year ended June 30, 1996, 31% and 26%, respectively,
of the Company's pro forma consolidated television programming revenues were
recognized in the second fiscal quarter and fourth fiscal quarter of that
year. See "Risk Factors--Seasonality."
RESULTS OF OPERATIONS
Overview
The Company's revenues have historically been generated from (i) the
operations of FCN's Fox Kids Network, (ii) Saban's U.S. and international
distribution of children's television programming, (iii) the merchandising and
licensing of its characters and properties, (iv) home video and other
ancillary exploitation of its children's-oriented properties and (v) telefilms
and other non-children related activities.
The following tables set forth, for the periods indicated, certain data with
respect to revenues, and costs and expenses as a percentage of total revenues:
REVENUE SUMMARY
<TABLE>
<CAPTION>
SABAN ENTERTAINMENT, INC. FCN HOLDING, INC. || THE COMPANY
------------------------------------ -------------------------------------- || -----------------
|| PRO
|| EIGHT FORMA
YEAR ENDED MAY 31, FIVE MONTHS YEAR ENDED FOUR MONTHS || MONTHS YEAR
------------------------ ENDED -------------------------- ENDED || ENDED ENDED
OCTOBER 31, JUNE 27, JULY 3, JULY 2, OCTOBER 31, || JUNE 30, JUNE 30,
1993 1994 1995 1995 1993 1994 1995 1995 || 1996 1996
------- ------- -------- ----------- -------- -------- -------- ----------- || -------- --------
(IN THOUSANDS) ||
<S> <C> <C> <C> <C> <C> <C> <C> <C> || <C> <C>
Revenues: ||
Children's programming: ||
U.S. television ||
distribution(1)...... $ 8,837 $11,995 $ 31,529 $ 14,823 $80,008 $124,666 $148,725 $42,845 || $ 85,883 $132,810
Foreign television ||
distribution(2)...... 27,060 16,367 29,944 19,931 -- -- -- || 29,389 47,480
Merchandising and ||
licensing, home video ||
and other ancillary ||
revenues............. 4,037 32,274 164,273 65,772 5,721 5,934 20,146 3,441 || 60,541 127,631
------- ------- -------- -------- ------- -------- -------- ------- || -------- --------
Total................. 39,934 60,636 225,746 100,526 85,729 130,600 168,871 46,286 || 175,813 307,921
------- ------- -------- -------- ------- -------- -------- ------- || -------- --------
Telefilms: ||
U.S. distribution..... 8,156 13,954 1,196 26 -- -- -- -- || 4,474 4,500
Foreign distribution.. 9,154 9,782 15,526 4,578 -- -- -- -- || 11,334 14,684
------- ------- -------- -------- ------- -------- -------- ------- || -------- --------
Total................. 17,310 23,736 16,722 4,604 -- -- -- -- || 15,808 19,184
------- ------- -------- -------- ------- -------- -------- ------- || -------- --------
Total revenues........ $57,244 $84,372 $242,468 $105,130 $85,729 $130,600 $168,871 $46,286 || $191,621 $327,105
======= ======= ======== ======== ======= ======== ======== ======= || ======== ========
Power Rangers-related ||
revenues as a ||
percentage of total ||
revenues............. 8% 55% 72% 66% -- 15% 33% 23% || 38% 44%
</TABLE>
- --------
(1) Television distribution in the United States consists principally of
advertising sales generated by FCN and barter advertising sales in
syndication generated by Saban.
(2) Foreign television distribution consists principally of cash transactions
with foreign broadcasters.
28
<PAGE>
COSTS AND EXPENSES AS A PERCENTAGE OF TOTAL REVENUES
<TABLE>
<CAPTION>
SABAN ENTERTAINMENT, INC. FCN HOLDING, INC. || THE COMPANY
----------------------------- ------------------------------------- || -----------------
|| PRO
YEAR ENDED || EIGHT FORMA
MAY 31, FIVE MONTHS YEAR ENDED FOUR MONTHS || MONTHS YEAR
---------------- ENDED ------------------------- ENDED || ENDED ENDED
OCTOBER 31, JUNE 27, JULY 3, JULY 2, OCTOBER 31, || JUNE 30, JUNE 30,
1993 1994 1995 1995 1993 1994 1995 1995 || 1996 1996
---- ---- ---- ----------- -------- ------- ------- ----------- || -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> || <C> <C>
Costs and expenses: ||
Amortization of films ||
and television costs, ||
residuals and ||
participations........ 69.4% 57.0% 48.5% 40.0% 79.1 % 75.6% 64.7% 64.2 % || 51.6% 48.8%
Affiliate ||
participations........ 6.8 14.9 || 4.6 4.1
Fees and costs to a ||
related party......... 17.1 16.0 14.6 15.8 || 0.0 0.0
Selling, general and ||
administrative ||
expenses.............. 10.9 10.6 21.4 11.0 4.4 2.7 3.1 5.5 || 12.0 11.2
---- ---- ---- ---- ----- ---- ---- ----- || ---- ----
Total costs and ||
expenses............ 80.3% 67.6% 69.9% 50.9% 100.6 % 94.3% 89.2% 100.4 % || 68.2% 64.1%
Operating income (loss). 19.7% 32.4% 30.1% 49.1% (0.6)% 5.7% 10.8% (0.4)% || 31.8% 35.9%
</TABLE>
Comparability
Even though, for accounting purposes, FCN Holding is deemed the "surviving
company" in the Reorganization, the operating results of the Company for the
eight month period ended June 30, 1996 are not comparable to the financial
statements of FCN Holding for periods prior to the Effective Date. Subsequent
to the Effective Date, the operations of the Company for the first time
included both FCN Holding and Saban, and thus the combined profit for that
period can be attributable to the results of both operations.
In addition, since 1993, Saban has licensed to FCN the Power Rangers, as
well as other series, for broadcast on the Fox Kids Network, and the parties
have entered into other arm's-length transactions concerning licensing,
merchandising and promotional activities. The following table sets forth
revenues recognized by Saban from FCN, and revenues recognized by FCN from
Saban, in each period preceding the Effective Date:
<TABLE>
<CAPTION>
FIVE MONTHS FOUR MONTHS
FISCAL YEAR ENDED ENDED
---------------------- OCTOBER 31, OCTOBER 31,
1993 1994 1995 1995 1995
------ ------- ------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Saban revenues from FCN.......... $2,535 $10,483 $16,228 $9,651 n/a
FCN revenues from Saban.......... -- 885 14,662 n/a $973
</TABLE>
Commencing on the Effective Date, all revenues between FCN and Saban have
been eliminated in the combined financial statements.
In addition, in connection with the formation of the LLC, Fox Broadcasting
and certain of its affiliate companies agreed, among other things, to assign
to the LLC, effective June 1, 1995, substantially all of their contracts with
FCN, and all revenues received or receivable from FCN (which had previously
been reflected as "fees and costs to related party" in FCN Holding's
statements of operations) thereafter.
Importance of the Power Rangers and Increased International Focus
Since its introduction in 1993, the Power Rangers series has been materially
important to the success and growth of the Company, and has accounted for a
significant portion of the Company's children's programming
29
<PAGE>
revenues, foreign distribution revenues and merchandising and licensing
revenues. While ratings for the Power Rangers have somewhat declined, Power
Rangers remains the most watched children's program in the United States, as
well as in most of the international markets in which it is broadcast. Some
continued decline in Power Rangers related revenues may be expected. Material
declines in the viewership of the Power Rangers could materially and adversely
affect the Company's results of operations and financial condition. See "Risk
Factors--Dependence on Power Rangers."
In recent years, revenues derived from international operations have become
increasingly significant to Saban (representing 31% of the Company's pro forma
consolidated revenues for the fiscal year ended June 30, 1996). As part of its
business strategy, the Company intends to expand its international program
production and distribution activities. See "Business--Business Strategies"
and "--Distribution: Networks and Syndication--International Channels." It may
be expected that certain of these activities, such as the rollout of new
international channels, will require material marketing and other expenses in
advance of the receipt of related revenues, thereby adversely affecting the
Company's results of operations as these activities are expanded and the
international markets are developed.
Minimum guarantees to Fox Kids Network Affiliates
The Fox Kids Network Affiliates are entitled to receive participations in
"net profits" (as defined) of FCN; and through June 30, 1996, an aggregate of
$31.4 million in participations had been accrued to Fox Kids Network
Affiliates, of which $15 million has been paid through June 30, 1996. In
connection with the formation of the LLC, certain of the Fox O&O's have waived
their rights in favor of the Company to their share of Fox Kids Network net
profits participations (see "Business--Distribution: Network and Syndication--
Fox Kids Network").
In connection with the Reorganization, the Company has offered Fox Kids
Network Affiliates that, should the Company launch a block of children's
programming on a U.S. cable channel, the Company would share with the Fox Kids
Network Affiliates 50% of the "net profits" (adjusted to deduct all costs
related to the cable channel and a 15% administrative fee) realized by the
Company from such block of programming. In addition, the Company has offered
to guarantee that profit participations to Fox Kids Network Affiliates,
including the Fox O&O's (Fox O&O's have been entitled to approximately 31% of
distributions to date) from both the cable operations and from FCN will
aggregate at least $75 million over the five year period commencing January 1,
1997; to the extent that net profits distributed in any year are less than $15
million, subject to certain recoupment rights, the Company would advance the
shortfall (see "Business--Distribution: Networks and Syndication--Fox Kids
Network"). The Fox Kids Network Affiliates are currently considering this
offer. To the extent that this offer is accepted, amounts paid to non-Fox O&O
Kids Network Affiliates in excess of their participations in net profits will,
for accounting purposes, be treated as expenses. To the extent that net income
of FCN and such cable operations is significantly below the $15 million
amount, net income of the Company would be adversely affected.
PRO FORMA FISCAL YEAR ENDED JUNE 30, 1996
In the discussion and analysis which follows, the results of operations for
the period from July 3, 1995 to June 30, 1996 are combined for certain items
of revenue and expense for the purpose of presenting the pro forma results of
operations of the Company for the fiscal year ended June 30, 1996 ("Fiscal
1996") as if the Effective Date had been July 3, 1995 and the operations of
the Company had been combined since that date. Pro forma information for the
fiscal year ended July 2, 1995 ("Fiscal 1995") has been prepared on a similar
basis. These pro forma statements may not be indicative of the results that
actually would have occurred if the combination had been in effect on the
dates indicated or which may be obtained in the future. The pro forma
financial statements should be read in conjunction with the audited financial
statements and notes of the Company, FCN Holding and Saban contained elsewhere
herein.
The Company's pro forma consolidated revenues for Fiscal 1996 were $327.1
million, a 14% decline from the pro forma consolidated revenues of $380.4
million for the period from July 4, 1994 to July 2, 1995. On a pro forma
basis, U.S. broadcasting revenues from the Fox Kids Network decreased by $16
million, or
30
<PAGE>
approximately 11%, from Fiscal 1995 to Fiscal 1996, primarily as the result of
the decline in ratings as compared to the prior year, offset, in part, by a 5%
increase in such revenues as a result of increases in rates (cost per thousand
viewers ("CPMs")) charged to advertisers. Management believes that the decline
in ratings of the Fox Kids Network (which during both periods remained the
number one rated U.S. children's network) was attributable to increased
competition from other children's services and an expected normal decline in
the ratings of Power Rangers from its previous extraordinary levels. Early
ratings results from the 1996-1997 broadcast season, which commenced in
September 1996, indicate a modest increase in Fox Kids Network ratings from
the comparable period of the prior year. However, children's preferences
change, and no assurance can be given that the Company will be able to sustain
this ratings improvement. See "Risk Factors--Possible Decline in Popularity of
Other Current Programs and Uncertainty of Acceptance of New Programs."
Merchandising, licensing and promotion royalties for Fiscal 1996 represented
approximately 35% of total pro forma consolidated revenues for the period.
Approximately 94% of these revenues were generated from the exploitation of
Power Rangers. Total merchandising, licensing and promotion pro forma
consolidated revenues related to Power Rangers in Fiscal 1996 were comparable
to those generated in the prior year. Royalties from home video distribution
during Fiscal 1996 decreased by approximately $24.2 million from the prior
year.
The balance of pro forma combined revenues for Fiscal 1996 was generated
principally from the foreign television distribution of children's programming
and telefilms. Revenues from foreign distribution of children's programming
increased by approximately $18.0 million, or 60%, from Fiscal 1995 to Fiscal
1996. Approximately 50% of this increase was attributable to the distribution
of the European co-production Iznogoud, with the balance attributable to an
increase in library sales. Revenues generated from the foreign distribution of
telefilms (see "Business--Home Video and Telefilms") for Fiscal 1996 were
comparable to the corresponding period of the prior year.
The Company and its predecessors have realized a significant reduction over
the past four years in amortization of programming costs, residuals and
participations ("Cost of Sales") as a percentage of total revenues. This
decrease in Cost of Sales as a percentage of total revenues is primarily
attributable to two factors--FCN's reduced dependence on programming supplied
by Warner Bros., and the significant increase in revenues from the Power
Rangers.
Historically, a significant portion of Fox Kids Network programming was
licensed from Warner Bros. under programming agreements which generally
required FCN to pay Warner Bros. 100% of broadcast revenues net, of
commissions, after payment of a 15% administration fee to Fox Broadcasting,
earned from Warner Bros.-supplied programming. The following table sets forth
the average number of Warner Bros. supplied programming hours broadcast or
scheduled to be broadcast by FCN each week during the periods indicated:
<TABLE>
<CAPTION>
AVERAGE FCN AVERAGE WARNER BROS.
HOURS BROADCAST HOURS BROADCAST ON
PER WEEK FCN PER WEEK
--------------- --------------------
<S> <C> <C>
Fiscal 1993.......................... 19 13 1/2
Fiscal 1994.......................... 19 11
Fiscal 1995.......................... 19 8 1/2
Fiscal 1996.......................... 19 5
Fiscal 1997.......................... 19 2 1/2
</TABLE>
All broadcast commitments to Warner Bros. expire at the end of the current
(1996-1997) broadcast season.
The second factor contributing to the decrease over the past four years in
Cost of Sales as a percentage of total revenues is the significant increase in
Power Rangers-related revenues as a percentage of total revenues. The success
of Power Rangers has resulted in higher than normal profit margins, leading to
an overall decrease in Cost of Sales as a percentage of total revenues.
31
<PAGE>
Affiliate participations as a percentage of pro forma consolidated total
revenues in Fiscal 1996 were approximately 4%, a significant reduction from
prior periods. This reduction is attributable primarily to the agreement of
the Fox Parties, effective June 1, 1995, to cause certain of the Fox O&O's to
waive the right to their share of Fox Kids Network affiliate participations
(see "Business--Distribution: Network and Syndication--Fox Kids Network").
Because of the determination of the Company to offer to guarantee minimum net
profit participation payments to Fox Kids Network Affiliates, the possibility
exists that this percentage relationship could increase in future periods. See
"--Minimum guarantees to Fox Kids Network Affiliates".
"Fees and costs to a related party" consists of administrative and other
fees charged by Fox Broadcasting to FCN. As described above, effective June 1,
1995, Fox Broadcasting and certain of its affiliates assigned to the LLC all
revenues received or receivable from FCN which had previously been reflected
in this item. As a result, no fees and costs to a related party are included
in the pro forma consolidated costs and expenses of the Company for Fiscal
1996.
Selling, general and administrative expenses, which were 11.2% of pro forma
consolidated total revenues for Fiscal 1996, include the combined overhead,
net of capitalized amounts, for FCN, Saban and the LLC during Fiscal 1996. In
Fiscal 1996, the Company recognized a non-cash $3.8 million charge as a result
of vesting under stock options granted by Saban to certain of its executive
officers; following the offerings, no similar charges are expected to be
required with respect to these options (see "Saban Entertainment, Inc.--Year
Ended May 31, 1995 ("Saban Fiscal 1995") compared with the year ended May 31,
1994 ("Saban Fiscal 1994")"). The Fiscal 1996 results also include a one-time
$10.0 million charge for investment advisory services to FCN Holding rendered
in connection with the formation of the LLC. Excluding the effect of charges
with respect to the options, and the one-time charge for investment advisory
services, selling, general and administrative expenses would have represented
approximately 7% of pro forma consolidated total revenues for fiscal 1996.
Selling, general and administrative expenses during Saban Fiscal 1995
included a charge of $18.1 million for bonus compensation paid to Haim Saban.
As discussed further below, no bonuses are payable to Mr. Saban for periods
subsequent to Fiscal 1995.
Primarily as a result of the factors discussed above, pro forma consolidated
net income increased by 5% from $68.2 million in Fiscal 1995 to $71.4 million
in Fiscal 1996.
SABAN ENTERTAINMENT, INC.
Five months ended October 31, 1995
Revenues for the five months ended October 31, 1995 totaled $105.1 million,
of which approximately 66% represented revenues attributable to Power Rangers,
as compared to 72% of Saban total revenues for the fiscal year ended May 31,
1995 ("Saban Fiscal 1995"). VR Troopers, Masked Rider and the European co-
production Iznogoud each contributed approximately 6% of revenues for the five
month period, and X-Men contributed just over 3%.
Cost of Sales for the five months ended October 31, 1995 was $42.0 million,
or 40% of total revenues for the period. Cost of Sales for Saban Fiscal 1995,
as a percentage of total revenues, was 48%. This improvement in Cost of Sales
as a percentage of revenues is attributable to an improvement in the gross
profit margin on Power Rangers. Gross profit from Power Rangers in Saban
Fiscal 1995 had been negatively impacted by costs of litigation which was
resolved during Saban Fiscal 1995.
Selling, general and administrative expenses for the five months ended
October 31, 1995 were $11.5 million, or approximately 11% of revenues for the
period. Selling, general and administrative expenses for Saban Fiscal 1995
were approximately 21% of revenues. This improvement in selling, general and
administrative expenses as a percentage of revenues is attributable to the
elimination of the contractual bonus payable to Haim Saban, and to a
significant reduction in non-cash charges related to stock options, both of
which are discussed further below. Excluding the effect of these items,
selling, general and administrative expenses would have been approximately 9%
of revenues for Saban Fiscal 1995.
32
<PAGE>
Saban's effective tax rate for the five months ended October 31, 1995 was
28%. The effective tax rate for Saban Fiscal 1995 was 38%. This change is
attributable to an increase in foreign source revenues as a percentage of
total revenues.
Year ended May 31, 1995 ("Saban Fiscal 1995") compared with the year ended
May 31, 1994 ("Saban Fiscal 1994")
Revenues for Saban Fiscal 1995 increased 187% to $242.5 million from $84.4
million for the prior fiscal year. This increase is primarily attributable to
the success of Power Rangers, in particular, significant increases (626%) in
toy, merchandising and licensing royalties and, to a lesser extent, increases
in broadcast related revenues, home video royalties and ancillary revenues.
During Saban Fiscal 1995, toy, merchandising and licensing royalties increased
to $115.1 million from $13.4 million for the prior fiscal year, accounting for
64% of the increase in total revenues for the year. Home video royalties
generated by Power Rangers in Saban Fiscal 1995 increased by $9.9 million,
broadcast related revenues increased by $8.2 million, and ancillary revenues
from the Power Rangers live stage tour (all of the revenues of which were
realized in 1995), and the Power Rangers fan club, contributed another $13.0
million and $3.1 million, respectively, to the increase in revenues for the
year. The series VR Troopers and Sweet Valley High, which began broadcast in
the Fall of 1994, contributed another $22.7 million and $5.1 million,
respectively, of revenues for Saban Fiscal 1995.
Cost of Sales for Saban Fiscal 1995 decreased as a percentage of total
revenues from 57% in Saban Fiscal 1994 to 48% in Saban Fiscal 1995. In
dollars, Cost of Sales in Saban Fiscal 1995 increased 144% to $117.6 million
from $48.1 million for the prior year. Approximately 65% of this increase is
attributable to increases in the amortization of production costs and accrual
of profit participations in connection with the significant increase in
revenues from the Power Rangers, described above. To a lesser extent, Cost of
Sales increased as a result of amortization of production costs related to the
series VR Troopers and Sweet Valley High.
Selling, general and administrative expenses for Saban Fiscal 1995 increased
483% to $51.9 million from $8.9 million for the prior year. This increase is
primarily attributable to $18.1 million in bonus compensation paid Haim Saban
pursuant to his previous employment agreement, and the recognition of a non-
cash $11 million charge related to stock options granted by Saban to certain
of its executive officers. On December 22, 1995, Mr. Saban entered into a new
employment agreement with the LLC pursuant to which his compensation has been
fixed, commencing July 1, 1995, at $1 million per year. The charge with
respect to options was required because of a provision in the option
agreements which obligates Saban, so long as it remains private, to repurchase
the option shares, and vested options, at fair market value upon termination
of the optionee's employment. Following the Offerings, no similar charges are
expected to be required with respect to these options.
The balance of the increase in selling, general and administrative expenses
for Saban Fiscal 1995 as compared to Saban Fiscal 1994 can be attributed to
increased legal and personnel costs associated with the growth of Saban.
Excluding the effect of Mr. Saban's bonus, and charges with respect to the
options, selling, general and administrative expenses would have decreased as
a percentage of total revenues from 11% in Saban Fiscal 1994 to 9% in Saban
Fiscal 1995.
Saban's effective tax rate for Saban Fiscal 1995 increased to 38% from 33%
for the prior fiscal year. This increase in the effective tax rate resulted
from an increase in income generated in the United States as a percentage of
total revenues. As noted in the notes to Saban's consolidated financial
statements, earnings from Saban's foreign subsidiaries are considered to be
indefinitely reinvested. Accordingly, no provision for U.S. Federal or state
income taxes has been recorded in connection with foreign earnings. To the
extent that Saban's international operations continue to expand, it can be
expected that the effective tax rate would decline.
Year ended May 31, 1994 ("Saban Fiscal 1994") compared with the year ended
May 31, 1993 ("Saban Fiscal 1993")
Revenues for Saban Fiscal 1994 increased 48% to $84.4 million from $57.2
million for Saban Fiscal 1993. Of this increase, $41.7 million of this
increase is attributable to the initial release in August 1993 of Power
33
<PAGE>
Rangers, and $8 million is attributable to an increase in revenues from
telefilms, offset by a reduction in sales of library programming. During Saban
Fiscal 1994, Saban realized significant increases in revenues generated by
Power Rangers from worldwide home video sales, worldwide licensing and
merchandising royalties and broadcast fees for Germany.
Cost of Sales for Saban Fiscal 1994 decreased as a percentage of total
revenues from 69% in Saban Fiscal 1994 to 57% in Saban Fiscal 1993, but
increased in dollars by 21%, to $48.1 million from $39.7 million for the prior
fiscal year. Amortization of film costs and the accrual of profit
participations related to Power Rangers increased $11.7 million in Saban
Fiscal 1994 and amortization on telefilms increased by $6.1 million as a
result of the increase in related revenues. The reduction in library revenues
resulted in a decrease in amortization related thereto.
Selling, general and administrative expenses for Saban Fiscal 1994 increased
41% to $8.9 million from $6.3 million for the prior fiscal year, but as a
percentage of total revenues remained relatively constant. This increase is
the result primarily of increased personnel costs associated with Saban's
revenue growth.
Saban's effective tax rate for Saban Fiscal 1994 increased to 33% from 16%
for the prior fiscal year. This increase is primarily related to an increase
in U.S. revenues resulting from the release of Power Rangers in September
1993.
FCN HOLDING, INC.
Four months ended October 31, 1995
Revenues for the four months ended October 31, 1995 were $46.3 million and
Cost of Sales as a percentage of revenues was 64%. Cost of Sales as a
percentage of revenues for the four month period is comparable to Cost of
Sales as a percentage of revenues for Fiscal 1995. The administrative fee
payable to Fox Broadcasting is based upon a percentage of net advertising
revenues, and thus varied in direct proportion to revenues.
Selling, general and administrative expenses for the four month period
increased from the prior year, both on a pro rata basis and as a percentage of
revenues. This increase in selling, general and administrative expenses is
attributable primarily to increased promotion costs of FCN.
Fiscal 1995 compared with Fiscal 1994
Revenues for Fiscal 1995 increased 29% to $168.9 million from $130.6 million
for Fiscal 1994. This increase of $38.3 million is attributable to an increase
in net revenues from advertising sales of $24.0 million, with the balance
related to an increase in ancillary revenues. This increase in revenue was
primarily a result of the success of Power Rangers, and to a lesser extent, to
the strength of the advertising market.
Cost of Sales as a percentage of revenues was 65% for Fiscal 1995 as
compared to 76% for Fiscal 1994. Cost of Sales for Fiscal 1995 increased 11%
to $109.3 million from $98.7 million for Fiscal 1994. While the overall
increase in Cost of Sales for Fiscal 1995 is attributable to the 29% increase
in revenues described above, the improvement in gross margin is attributable
principally to the increase in revenues related to Power Rangers, which
generated significantly higher gross margins than other FCN programming, as
well as to a reduction in the number of Warner Bros. supplied programming
hours.
The administrative and other fees payable to Fox Broadcasting for Fiscal
1995 increased 20% to $21.5 million from $17.9 million for Fiscal 1994. The
administrative fee is based, in part, upon net advertising revenues and the
increase for the year is directly attributable to the increase in net
advertising revenues for the year.
The Fox Kids Network affiliation agreements provide that FCN is to pay to
each of the Fox Kids Network affiliates (including Fox O&O's) participation
based upon the cumulative "net profits" (as defined) of FCN. Fiscal 1995 was
the first year in which FCN reached a level of defined net profits on a
cumulative basis. Therefore, Fiscal 1994 did not reflect a charge for
affiliate participations.
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Since the net profits of FCN are distributed to the affiliates, no taxes
have been provided on the income of FCN.
THE COMPANY
Eight Months ended June 30, 1996
The discussion and analysis for the eight months ended June 30, 1996 which
follows should be read in conjunction with the above discussion and analysis
for the pro forma consolidated results of operations for the fiscal year ended
June 30, 1996.
The following table compares the Company's revenues, by category, for the
eight months ended June 30, 1996 to the pro forma consolidated revenues for
the year ended June 30, 1996:
REVENUE SUMMARY
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED PRO FORMA YEAR ENDED
JUNE 30, 1996 JUNE 30, 1996
----------------------- -----------------------
DOLLARS DOLLARS
IN PERCENTAGE OF IN PERCENTAGE OF
THOUSANDS TOTAL THOUSANDS TOTAL
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Revenues:
Children's programming:
U.S. television distribu-
tion(1)................... $ 85,883 45% $132,810 40%
Foreign television distri-
bution(2)................. 29,389 15 47,480 15
Merchandising and licens-
ing, home video and other
ancillary revenues........ 60,541 32 127,631 39
-------- --- -------- ---
Total.................... 175,813 92 307,921 94
Telefilms:
U.S. distribution............ 4,474 2 4,500 1
Foreign distribution......... 11,334 6 14,684 5
-------- --- -------- ---
Total.................... 15,808 8 19,184 6
-------- --- -------- ---
Total revenues................. $191,621 100% $327,105 100%
======== === ======== ===
</TABLE>
Revenues from the U.S. television distribution of children's programming
during the eight months ended June 30, 1996 represented 45% of total revenues
during the eight month period, as compared to 40% of pro forma consolidated
revenues for the year ended June 30, 1996. For the eight month period ended
June 30, 1996, revenues from merchandising and licensing, home video and other
ancillary revenues represented 32% of total consolidated revenues, as compared
to 39% of pro forma consolidated revenues for the year ended June 30, 1996.
These changes in relative contribution to total revenues during the periods
are directly attributable to the inclusion in the pro forma consolidated
revenues of the results of operations of Saban for the four months ended
October 31, 1995. During the four months ended October 31, 1995, U.S.
television revenues for Saban represented 14% of its revenues for the period
and merchandising and licensing, home video and other ancillary revenues
represented 63% of its revenues for the period.
Cost of Sales and affiliate participations as a percentage of revenues for
the eight months ended June 30, 1996 were comparable to the pro forma
consolidated results for the year ended June 30, 1996.
Selling, general and administrative expenses were approximately 12% of
revenues for the eight months ended June 30, 1996. Included in selling,
general and administrative expenses for the eight month period was a $10
million charge for investment advisory services rendered to FCN Holding in
connection with the formation of the LLC. Without this charge, selling,
general and administrative expenses as a percentage of revenues would have
been approximately 7%.
35
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise primarily from (i) its working
capital needs, principally costs related to the development, production and
acquisition of children's programming, accounts receivable and other related
operating costs, and (ii) the international expansion of its operations (see
"Business--Business Strategies"). During the fiscal year ended June 30, 1996,
the Company also expended significant funds in connection with the
transactions relating to the formation of the LLC and the Reorganization. The
Company on a regular basis has had, and intends to continue to engage in,
exploratory discussions concerning programming and other acquisition
opportunities, and any such acquisition could result in additional
requirements for liquidity.
The discussion of comments of cash flows of Saban and FCN Holding for the
five and four months periods ended October 31, 1995, as applicable, includes
items of cash flow between these two companies (which are eliminated in the
combined cash flows for the eight month period ended June 30, 1996).
Management does not consider the existence of such intercompany items to be
material to an understanding of cash flows for Fiscal 1996. See "--Result of
Operations--Overview."
Net cash provided by (used in) operating activities (i) of the Company
during the eight month period ended June 30, 1996, (ii) of Saban during the
five month period ended October 31, 1995 and (iii) of FCN Holding during the
four month period ended October 31, 1995 were $12.9 million, $5.6 million and
$2.3 million, respectively. During this period, the Company distributed an
aggregate of $10.3 million to non-Fox O&O Affiliates. See "--Results of
Operations--Overview--Minimum guarantees to Fox Kids Network Affiliates."
Net cash provided by (used in) investing activities (i) of the Company
during the eight month period ended June 30, 1996, (ii) of Saban during the
five month period ended October 31, 1995 and (iii) of FCN Holding during the
four month period ended October 31, 1995, were $7.4 million, ($4.0 million)
and ($.03 million), respectively. The Company's net cash flow from investing
activities included $5.8 million (net of cash received) incurred in connection
with the purchase of U.S. and international programming and libraries, and
$16.2 million, representing Saban's cash balances at November 1, 1995. The net
cash flows used in investing activities of Saban and FCN Holdings related to
the purchase of property and equipment during the period.
Net cash provided by (used in) financing activities (i) of the Company
during the eight month period ended June 30, 1996 and (ii) of FCN Holding
during the four month period ended October 31, 1995, were ($4.5 million) and
($2.0 million), respectively. Net cash flows from financing activities of
Saban during the five month period ended October 31, 1995 were not
significant. The principal financing activities of the Company related to
agreements entered into in connection with the formation of the LLC, pursuant
to which Fox Broadcasting loaned the LLC $64.5 million, and the LLC paid the
stockholders of Saban an aggregate of $80.1 million in connection with rights
acquired under the Stock Ownership Agreement. See "Certain Transactions--
Formation of LLC and the Reorganization."
The Company's total unrestricted cash balances at June 30, 1996 were $16.0
million. Saban and its Saban International N.V. subsidiary have credit
facilities, currently aggregating $50 million, with a syndicate of banks.
Borrowings under these facilities are based upon the value of collateral
available to the banks. The credit facilities restrict payment of dividends,
and contain certain restrictive covenants regarding, among other things, the
maintenance of certain financial ratios and restrictions on the distribution
of assets. At June 30, 1996, no amounts have been borrowed under these credit
facilities. See Note 5 of Notes to the Company's combined financial
statements. Following the Offerings, the Company intends to seek expansion of
these credit facilities. However, no assurance can be given that the Company
will be successful in its efforts to expand these facilities.
The Company recently launched a DTH satellite and cable television
children's service in the United Kingdom and Republic of Ireland, and plans to
launch additional international channels over the next two years (see
"Business -- Distribution: Networks and Syndication -- International
Channels"). The Company has also explored and continues to explore
opportunities to develop a U.S. cable network. The Company also, from time to
time, considers the acquisition of other children's-oriented television
programming distribution and production
36
<PAGE>
companies, entertainment companies and libraries. The Company plans to produce
and release from 15 to 20 telefilms annually with an expected production
budget ranging from $500,000 to $1 million for each picture, and the Company
also plans to produce or co-produce a limited number of limited theatrical
release or direct-to-video children's films with expected production budgets
ranging from $3.0 million to $6.0 million for each film. The Company cannot
estimate with any degree of certainty the amount of other expenditures it may
make in the future in connection with such investments and acquisitions,
although if many of the Company's plans in this regard materialize, such
expenditures could be substantial. The Company anticipates funding all such
other investments and acquisitions from proceeds of the Offerings, internally
generated cash flow, additional borrowings, or additional issuances of its
Class A Common Stock.
The Company believes that the net proceeds of the Offerings, together with
cash flow from operations and borrowings under the Company's current borrowing
facilities, should be sufficient to fund its operations for the foreseeable
future.
37
<PAGE>
BUSINESS
The Company is a fully-integrated global children's television entertainment
company which develops, acquires, produces, broadcasts and distributes quality
animated and live-action children's television programming. The Company's
current operations are conducted by (i) FCN, which operates the Fox Kids
Network--the top-rated children's (ages 2-11) oriented broadcast television
network in the United States and (ii) Saban, whose library of more than 3,700
half-hours of children's programming is among the largest in the world. The
Company is the result of the joint venture launched in 1995 by Fox
Broadcasting and Saban to match the complementary programming and broadcasting
strengths of the Fox Kids Network and the international reach of Fox
Broadcasting's parent company, News Corp., with the development, production,
distribution and merchandising strengths of Saban. This combination has
created a company with the ability to manage children's properties and brands
from the initial creative concept through production, broadcast and the
merchandising of related consumer products.
Children represent an important and growing segment of the global consumer
market. The steady rise in birth rates and an increase in children's
purchasing power has resulted in increased marketing expenditures on products
targeted toward children. In the United States alone, children influence
spending decisions on over $150 billion worth of products annually. In order
to reach this market, manufacturers and other companies targeting children
devote significant resources to advertising and in the 1995-96 broadcast
season, an estimated $725 million was spent in the United States on
advertising directed at children. Spending by these advertisers is
concentrated on television commercials; and over 80% of children report
learning about new products through watching television. The growth in
advertising expenditures aimed at children has led to the increased demand for
children's programming from a growing group of basic cable and broadcast
television services targeting children, including the Fox Kids Network and the
Company's Saban Kids Network. While television programming targeted toward
children in the United States has developed significantly over the past
several years, the Company believes that the children's television
entertainment market in most countries remains relatively underserved.
The Company creates, produces and acquires quality animated and live-action
children's television programming with brand-name characters and elements
which are either widely known to children, such as Power Rangers, The Tick, X-
Men and Bobby's World, or which are or have been developed or acquired due to
their likelihood of maturing into popular brands. The Company produced 13
series in the 1995-1996 broadcast season and is currently producing 16 series
for the 1996-1997 broadcast season, including Power Rangers, which since
shortly after its launch in 1993 has been the highest rated children's
television program in the United States, as well as in most of the
international markets in which it is broadcast.
The Company operates the Fox Kids Network, the leading U.S. children's
broadcast television network, and the Saban Kids Network, an ad hoc syndicated
distribution network. Collectively, these outlets will broadcast 26 1/2 hours
of children's programming per week during the 1996-1997 broadcast season, more
than double the number of hours broadcast by its nearest competitor, The Walt
Disney Company. The Fox Kids Network, launched in 1990, will broadcast 19
hours of children's programming each week during the 1996-1997 broadcast
season to 97% of U.S. television households, the broadest reach of any network
targeting children. The Fox Kids Network was formed by Fox Broadcasting and
most of the FOX Television Network member stations to provide children's
programming weekday mornings and afternoons, and Saturday mornings. The Fox
Kids Network has been the number one rated children's broadcaster for each of
the past three seasons, and has had the highest viewership among children in
its time period during 15 consecutive "sweeps" periods. According to Nielsen,
20 million children--approximately 52% of all children in the United States--
watch the Fox Kids Network at least once each month. This network affords
advertisers the opportunity to reach children in a cost-effective manner,
while ensuring a consistent "day-and-date" placement of their advertisements
in each television market. The Fox Kids Network's advertising customers
include virtually every major advertiser to children. The Company also
distributes 7 1/2 hours of programming each week through the Saban Kids
Network which enables its programming on a weighted average basis to reach
over 86% of the television households in the United States.
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<PAGE>
One of the essential attributes of quality children's programming is its
"portability." Children's programming produced for exhibition in a particular
country is considered "portable" because it can generally be modified at
modest cost and resold for exhibition in other countries through editing and
dubbing into other languages. The Company currently distributes its
programming over terrestrial broadcast services in most major television
markets throughout the world. To further capitalize on its broad library of
children's programming and its current relationship with News Corp.--which has
significant equity interests in cable and satellite services in most
international markets--the Company has recently agreed or agreed in principle
to launch full time or partial day "Fox Kids" branded DTH satellite and cable
channels in various markets in Europe and Latin America. On October 19, 1996,
the Company launched a Fox Kids branded channel as part of BSkyB's Sky
Multichannels package, which through DTH and cable services, is currently
estimated to reach over 5.5 million viewers in the United Kingdom and Republic
of Ireland. Subject to completion of negotiation of definitive agreements,
additional international channels are currently contemplated to be launched
over the next two years on DTH and cable in Latin America and Asia. See "--
Distribution: Networks and Syndication--International Channels." In Australia,
the Foxtel cable service has been carrying a Fox Kids Network children's
channel segment since 1994 under a license recently assigned to the Company by
Fox Broadcasting.
Children's programming provides excellent opportunities for licensing and
merchandising, and the Company has been successful in licensing its properties
for use in toys and other children's products. The Company attempts to retain
worldwide rights to its brands, and licenses their use to manufacturers for
specific products in exchange for royalties, typically accompanied by cash
advances. The Company currently has toy licenses with Bandai, Mattel, Hasbro
and Toybiz, as well as licenses for other merchandise with over 500 licensees
worldwide. The Company also realizes revenues through the distribution of its
programs in the U.S. and international home video markets. Through an
agreement in principle entered into with Fox Video, the Company is positioned
to increase materially its presence in the children's home video market.
The Company believes that as a result of its strengths in substantially all
facets of the children's television entertainment business, it is well
positioned to exploit a broad range of domestic and international children's
entertainment opportunities, including television, merchandising, licensing
and home video. The Company intends to expand its business in the United
States by capitalizing on the network strengths of the Fox Kids Network and
the production and distribution strengths of Saban. As satellite and cable
services continue to expand and become more prevalent worldwide, the Company
plans to launch additional international children's television channels under
the "Fox Kids" name. As the Company continues to expand the distribution
outlets which the Company controls, the Company believes that it will also be
able further to develop new programs, grow its library of children's
programming, build on its popular and branded characters and increase revenue
from its licensing and merchandising activities.
INDUSTRY OVERVIEW
Children's Television
The U.S. television market is served principally by network-affiliated
stations, independent stations and cable or satellite television operators.
Historically, four major broadcast networks--ABC, CBS, FOX and NBC--
collectively have been watched by the vast majority of the television viewing
audience. In recent years UPN and WB have been launched as new national
broadcast television networks. Additional television entertainment options,
including cable channels and DTH satellite services, have also been launched
in recent years.
The networks and cable channels have increased the amount of children's
television programming broadcast in recent years. Because network affiliates
generally broadcast network programming nationwide, generally at the same
local time and on the same day, the formation of a children's network, such as
the Fox Kids Network, has allowed advertisers to efficiently plan and execute
their national advertising campaigns. As other networks recognized the value
of providing programming for this audience, the number of services offering
children's programming blocks has expanded. Weekend morning children's
programming now airs on Fox Kids Network, ABC, CBS, UPN Kids and Kids WB. In
addition, Fox Kids Network and Kids WB broadcast animated and live-action
programming for children Monday through Friday mornings and afternoons. For
the 1996-97 broadcast
39
<PAGE>
season, children's animated and live-action programming will occupy
approximately 40 hours of air time per week on the U.S. broadcast television
networks. UPN and the USA cable network, as well as many first-run
syndicators, provide children's programming blocks on Sunday mornings. Cable
channels which broadcast advertiser-supported children's programs include The
Cartoon Network, Nickelodeon, USA cable network and The Family Channel.
In the United States, an estimated $725 million was spent in the 1995-1996
broadcast season by advertisers on children, and expenditures have grown at an
average annual rate of 13% since 1990. For the period from September 1995
through May 1996, national advertiser expenditures on television commercials
targeting children, including major toy companies such as Mattel and Hasbro,
other children's consumer product companies such as Kellogg's and Quaker Oats,
and major fast food chains such as McDonald's, Burger King and Taco Bell were
over $230 million in the aggregate.
The growth in the number of international television outlets has created
additional global demand for children's programming. The privatization of the
international television industry has encouraged a ratings/revenue-oriented
focus among international broadcasters, increasing the demand for high-quality
television entertainment. Children's programs produced in the United States
have enjoyed wide acceptance internationally. In addition, the number of cable
and satellite programming services addressing the international community has
grown significantly in recent years. These added programming services have
created an opportunity for distributors, including the Company, to license
simultaneously both traditional broadcast and DTH satellite programing rights
within the same territory. International television, cable, DTH satellite and
home video sales of a children's program produced in the United States can
account for more than half of the revenue for a given program.
Suppliers and Distributors
Suppliers of television programming include the production divisions and
affiliated companies of the major motion picture studios, independent
production companies, syndicators, broadcast television networks, station
owners and advertising agencies. These suppliers sell programming to broadcast
networks or television stations for a fixed cash fee per episode, by barter,
or by a combination of cash and barter. Virtually all children's programming
sold though syndication is sold by barter, where a syndicator obtains
commitments from television stations to broadcast a program at a certain time,
retains a portion of the advertising time in the program in lieu of receiving
cash licensing fees and sells the retained advertising time for its own
account to national advertisers.
Broadcasters of children's television programming in the United States
consist primarily of networks (both over the air broadcast television networks
and basic cable networks) and independent television stations. Distributors of
children's programming generally sell television series to networks on a cash
basis and sell to independent television stations on a barter basis. Networks
typically pay a distributor a fixed cash license fee which entitles the
network to a number of runs of a series over a defined period of time.
Networks are generally entitled to retain 100% of the advertising revenues
generated by the broadcast of a series and sell advertising spots to national
advertisers on the basis of guaranteed ratings.
Independent television stations, which obtain series programming through
barter transactions, agree to provide a distributor with a certain number of
advertising spots during each broadcast of the series on the station in
exchange for the local broadcast rights. The advertising spots retained by the
independent station are sold by the station on a local basis. The advertising
spots retained by the distributor are sold to national advertisers on the
basis of guaranteed ratings. Nielsen periodically publishes data on the
percentage of viewers actually watching each program. If the actual viewership
falls below the guaranteed rating, the distributor or network, as the case may
be, generally provides the advertiser with "make-goods"--additional airings of
the advertiser's commercial in order to achieve the promised audience level--
or in some cases, cash refunds. When selling national advertising time, the
network or distributor typically holds back a certain number of advertising
spots to be used as future "make-goods." Since stations do not receive any
compensation for delivering ratings in excess
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of the guarantee, and "make-goods" lower the inventory of available commercial
time which can be sold on an up-front basis, accurately predicting a series'
rating is important to maximizing advertising revenues.
Licensing and Merchandising
In addition to utilizing television to advertise products to children,
children's programming itself provides broad licensing and merchandising
opportunities. Characters developed in a popular series, and often the series
themselves, achieve a high level of recognition and popularity among children,
making them valuable assets for the licensing and merchandising market, where
they can provide attractive "branding" opportunities. The children's market is
one of the fastest growing segments in licensed merchandising sales, with over
70% of the $6 billion spent in the United States on entertainment and
character-related properties in 1995 relating to children-oriented products.
Among the most popular licensed items are toys, t-shirts, food,
dinnerware/lunch boxes, watches and soft vinyl goods such as boots, backpacks
and raincoats. There are currently over 38 million children in the United
States between the ages of 2-11, with approximately 4.5 million children
entering the marketplace annually, and the average annual amount spent on toy
purchases for a child up to ten years of age is estimated at between $240 and
$300.
BUSINESS STRATEGIES
The Company intends to continue to increase its presence in the children's
television entertainment business, with the goal of becoming the leading
worldwide producer, broadcaster and distributor of children's television
programming. The principal elements of the Company's strategies for achieving
this objective include the following:
Develop Strong Branded Characters and Properties. Strong characters and
names not only dramatically improve the ratings, longevity and worldwide
distribution potential of programming, but also develop household name
"franchise values," which are leveragable into merchandising, movies and
spin-off and sequel shows. The Company intends to continue to create and
develop new entertainment properties with potential franchise value and to
further build on its existing and widely recognized institutional and
programming brands. Some of the Company's programming, such as the Power
Rangers, have already achieved franchise status, and their high consumer
awareness should provide opportunities to generate revenues from multiple
sources on a long-term basis (the Company expects to continue periodically
to freshen these series with new characters and other creative elements).
In addition, the Company's agreement with Marvel Entertainment Group
("Marvel") should provide access to many well-known comic book characters
(see "--Programming--Relationships with Marvel and Toei"). On an
institutional basis, the Fox Kids Network is a known leader in the United
States, and the Fox Kids and Saban names are recognized by broadcasters
internationally for popular and high quality programming. The Company
intends to use its Fox Kids brand for all of its international channels.
Maximize Revenue from Licensing and Merchandising. The Company intends to
capitalize on the popularity and recognition of its properties in all media
and markets, including toys, merchandising, home video and consumer
products. The Company plans to leverage the expertise it has developed
through its merchandising campaigns for Power Rangers, which have generated
retail sales in excess of $2.0 billion since 1993, and the relationships it
has built with major retailers, toy companies and more than 500 licensees
worldwide, to exploit the merchandising and other ancillary revenue
potential of its properties. Revenues from the licensing and merchandising
of the Company's branded characters and properties have contributed
materially to the Company's operating results, and represented
approximately 35% of the Company's pro forma consolidated revenues for the
fiscal year ended June 30, 1996.
Strengthen U.S. Broadcasting and Distribution Operations. The Company
strives to maintain and improve the ratings, reach and penetration of its
U.S. broadcasting and distribution operations. The Fox Kids Network is the
top-rated children's oriented broadcast television network in the United
States, currently reaching 97% of the television households in the United
States. The Saban Kids Network, an ad hoc syndicated network of independent
stations, currently broadcasts 7 1/2 hours of children's programming each
41
<PAGE>
week, with market reach, on a weighted average basis, to over 86% of U.S.
television households. The Company plans to seek to further improve its
ratings for both of its U.S. services, and to expand the reach of its Saban
Kids Network, by continuing to develop, acquire or license quality
programming which is attractive to children. The Company, which has created
such "hit" programs as the Power Rangers and Bobby's World, currently owns
most of the underlying rights to 15 of the 21 programs broadcast on its
networks, and will strive to increase the number of its owned programs
broadcast. This integration of ownership and distribution has the potential
to enhance the profitability of both the Fox Kids Network and the Company's
programming. In addition, its competitive position and reputation have
improved the Company's ability to attract quality sources for its
programming, such as those series opportunities available to the Company
under its recent agreement in principle with Marvel. See "--Programming--
Relationships with Marvel and Toei."
Broaden International Television Channels. The Company believes that
significant expansion opportunities exist in the international television
markets, where the Company believes that children's programming has been
relatively underserved. With its library of over 3,700 half-hour episodes
of children's programming, a significant portion of which meet the "local
content" requirement of various European countries, the Company intends to
focus significant resources on the expansion of its international
operations. The Company has an important strategic advantage because of its
current relationship with News Corp., and News Corp.'s interests in
international television distribution platforms have been helpful in
securing carriage agreements on those platforms. The Company intends to
expand globally the Fox Kids Network by launching "Fox Kids" branded cable
and DTH satellite channels targeting children in all major territories, and
the Company has recently entered into agreements or agreements in principle
to launch channels in the United Kingdom and Republic of Ireland and Latin
America, and is currently in active negotiations to launch several channels
in Europe and Asia. See "--Distribution: Networks and Syndication--
International Channels."
Expand Breadth and Depth of Programming Library. As services targeting
children expand worldwide, competition for access to attractive children's
programming has intensified. By owning a large, diversified library of
easily portable children's television programming, the Company has been
able to provide a consistent supply of programming for its own U.S. and
international broadcast and distribution operations without reliance on
third party suppliers, and believes that it is important to continue to
expand this library. The Company intends to continue to build its library
through internal creation, development and production, by pursuing co-
production arrangements with international partners and by acquiring
properties and libraries from third parties. In the twelve month periods
ended June 30, 1994, 1995 and 1996, the Company added 165, 343 and 1,595
half-hour episodes, respectively, to its library, which as of June 30,
1996, included 3,721 half-hour episodes of children's programming.
By managing every stage of the children's television business, from the
creation and production of programming to the worldwide licensing and
merchandising of properties, the Company believes it will be able to
coordinate all forms of exploitation in tandem with the timing of television
broadcasts on a worldwide basis with the goal of maximizing market reach and
revenues.
PROGRAMMING
The Company creates, produces and acquires quality animated and live-action
children's television programming. The Company believes that its library of
more than 3,700 half-hours of children's television programming is one of the
largest children's libraries in the world. The principal programming objective
of the Company is to develop or acquire on a cost-effective basis appealing
characters and concepts that can be commercially exploited throughout the
world through television exhibition, home video sales, licensing and
merchandising.
One of the essential attributes of quality children's programming is its
"portability." Children's programming produced for exhibition in a particular
country is "portable" because it can generally be modified
42
<PAGE>
at a modest cost and resold for exhibition in other countries through editing
and dubbing into other languages. The Power Rangers live-action series is an
example of this portability. Since its launch on the Fox Kids Network in
August 1993, Power Rangers has been the number one rated children's television
program in the United States. In 1992, the Company acquired rights from Toei,
a leading Japanese film company, to adapt, as the Power Rangers, a Japanese
program for sale and distribution throughout the world (other than certain
parts of Asia). The genre of programming which includes Power Rangers has been
continuously exhibited in Japan for over 25 years. By adapting the series for
the U.S. television market and acquiring broad U.S. and international rights
to license and otherwise exploit the series, the Company has developed a long-
running popular television series with extensive brand appeal. For the year
ended June 30, 1996, Power Rangers-related revenues (including broadcasting,
licensing and other merchandising revenues) accounted for approximately $142.7
million, or 44% of the Company's pro forma consolidated revenues. From time to
time, the Company refreshes the Power Rangers characters by changing their
costumes and ethnicity and last year introduced a sequel, Power Rangers Zeo.
Power Rangers is currently being broadcast in approximately 40 countries,
including Germany, the United Kingdom, France, Latin America and Australia.
Programming Library
As of June 30, 1996, the Company's library of children's programming was
comprised of 3,721 half-hour episodes. The two principal sources of the
Company's programming library are (i) television series that have been
originally produced by the Company for broadcast in the United States and
internationally (approximately 1,160 half-hours) and (ii) programming produced
by others for which the Company has acquired various distribution rights
(approximately 2,561 half-hours), of which approximately 40% have been
"freshened" with new scripts, voices and music prior to distribution. Of the
Company's library, 1,262 half-hours are original co-produced programming that
meet applicable European content requirements and are intended for initial
broadcast in Europe.
Approximately 86% of the library is animated programming, and the balance is
live-action. The Company believes that its distribution rights are broad
enough as to territory to permit it to meet broadcasters' requirements in
markets throughout the world. Of the episodes in the Company's library,
approximately 87% are parts of series consisting of 26 or more episodes,
facilitating their distribution as complete series in the United States and
international markets. The Company's international programming includes
worldwide distribution rights to a 445 half-hour episode library of family-
oriented programming acquired in the April 1996 acquisition of Paris-based
Creativite & Developpement ("C&D"), a leading European producer of family
entertainment, and a 706 half-hour episode library of animated children's
programming acquired in the April 1996 acquisition of Vesical Limited, a
library of international rights to programming originally produced by DIC. The
Vesical library includes non-U.S. rights to classic series such as Inspector
Gadget, Heathcliff and Dennis the Menace.
The following table sets forth, as of June 30, 1996, the growth in the size
of the Company's library. Approximately 31% of the library is relatively new,
having been produced since 1995. Approximately 472 additional half-hour
episodes were in production as of June 30, 1996 for release in 1997.
<TABLE>
<CAPTION>
TOTAL NUMBER OF EPISODES
----------------------------------------------------------------
YEAR ENDED EXISTING AT END OF
JUNE 30, PRODUCED ACQUIRED FISCAL YEAR
---------- -------- -------- ------------------
<S> <C> <C> <C>
1990 80 172 945
1991 169 127 1,241
1992 29 140 1,410
1993 117 91 1,618
1994 152 13 1,783
1995 267 76 2,126
1996 284 1,311 3,721
</TABLE>
43
<PAGE>
Creation and Development of Programming
The Company has and will continue to pursue ideas and properties for
original production from a number of sources. For example, the Company may
acquire production, distribution and possibly other rights to an existing
property (such as Marvel's X-Men or Francine Pascal's Sweet Valley High) or
series (such as Power Rangers or Heathcliff), develop internally a new
property based on an existing public domain property (such as Adventures of
Oliver Twist) or create or acquire an entirely new idea or character (such as
Eek! Stravaganza). The Company considers itself the producer of all series
which it has financed or co-financed, and in which it owns substantial
distribution rights. The Company has teams of employees in the United States
and France involved in programming development and currently has over 35
projects in various stages of active development. In general, production does
not commence without significant commitments for broadcasting by networks or
independent television stations. Typically, the Company has seven months to
one year to produce and deliver anywhere from 13 half-hour episodes (the
typical number of episodes ordered for a weekly series) to 65 half-hour
episodes (the typical maximum number of episodes ordered for a weekday
series). The Company attempts to produce programming in a cost-effective
manner while maintaining control over critical parts of the production process
to ensure continued high quality. For example, with respect to programming in
which the Company has assumed responsibility for physical production,
freelance script writers are utilized but supervised by a Company production
executive and certain labor-intensive animation work may be subcontracted to
countries with relatively low-cost labor, while the Company handles or
directly supervises both initial creative development and all post-production
work.
Pursuant to a letter agreement between them, Saban and UPN have each agreed,
subject to any third party contractual restrictions and other conditions, to
provide a Saban-UPN joint venture with a "first look" at any children's
properties for which it owns or controls U.S. network television distribution
rights, and, under certain circumstances, to co-finance the production of
children's programming for first run on UPN. The current Bureau of Alien
Detectors and The Mouse and the Monster series are being co-produced by this
venture. As a result of certain disagreements among the parties, the parties
are currently negotiating a termination of the letter agreement.
The Company also produces most of the on-air promotions, sales films and
public service announcements for its Fox Kids Network. The Company has
received numerous national awards of recognition for its Fox Kids Network
public service campaigns, including the George Foster Peabody Award, the
International Monitor Award, the Parent's Choice Award and the National
Education Association Award for the Advancement of Learning through
Broadcasting.
44
<PAGE>
The following is a list of the programs currently being broadcast in the
United States for the 1996-1997 broadcast season for which the Company owns or
controls most of the underlying property and distribution rights.
<TABLE>
<CAPTION>
EPISODES
IN PRODUCTION YEARS
FOR 1996-97 PROGRAM ON
SERIES SEASON SCHEDULE AIR PROGRAM DESCRIPTION
------ ------------- ------------- -------- ------------------------
<C> <C> <C> <C> <S>
Fox Kids Network:
Big Bad Beetleborgs+ 53 Weekday premiere Three kids become comic
book superheroes in
this comedy-adventure
series.
Bobby's World* 3 Weekday 7 Combines point of view
of a 4-year old with
spirit of Howie Mandel.
Eek! Stravaganza* 9 Weekday 5 The offbeat adventures
of everyone's favorite
feline and his zany
friends.
Power Rangers Zeo+ 40 Weekday 4 The next generation of
the Power Rangers saga.
Life With Louie* 13 Saturday A.M. 2 Comedian Louie
Anderson's childhood
ups 'n downs of dodging
bullies, eating pies
and going on family
vacations.
The Tick* 10 Saturday A.M. 3 A garden variety giant
blue 400-pound crime
fighter.
X-Men* 14 Saturday A.M. 5 Marvel comic book heroes
still going strong
after 30 years.
Saban Kids Network:
Masked Rider+ 13 Weekday 2 Alien superhero protects
the earth while leading
a normal life.
Samurai Pizza Cats* 40 Weekday premiere Futuristic feline
superheroes save the
world.
Adventures of Oliver Twist* 13 Weekend A.M. premiere Inspired by Charles
Dickens' timeless
classic.
Eagle Riders* 13 Weekend A.M. premiere Secret agents who glide
like birds in a battle
against VORAK.
Sweet Valley High+ 22 Saturday 3 Twins living the
California dream.
The Why Why Family* 13 Weekend A.M. premiere Animated "edutainment"
series.
UPN:
Bureau of Alien Detectors 13 Sunday A.M. premiere Idealistic individuals
(B.A.D.)*(1) defend humanity.
The Mouse and the Monster*(1) 13 Sunday A.M. premiere An 8-foot, one-eyed blue
monster, Mo and his
buddy, Chesbro the
mouse.
</TABLE>
- --------
+ Live-Action
* Animation
(1) Financed by a joint venture between Saban and UPN; the Company controls
worldwide merchandising and all international sales with respect to this
series.
45
<PAGE>
Production Facilities
The Company handles or directly supervises most aspects of the creative
development of a property from initial concept through the post-production of
a series, from the development of a story and writing of scripts to the
production of voices, music and special effects. Of the 15 series listed in
the foregoing table, 13 are being internally produced by the Company. The
Company films all of its live-action series at its production facilities in
Valencia, California. The Company also maintains a state of the art post-
production facility in Los Angeles, California. The Company records all of the
music for its programming and edits and adds audio and sound effects to its
programming.
The Company has a full-service animation studio in Paris which develops
programming containing content that meets the local content requirements of
various European countries for local broadcast television. The Paris studio
has produced almost 200 half-hours of programming since its inception in 1990
and has an additional 78 half-hours in development for the Fall 1996
television season. In general, the Company enters into strategic co-production
alliances to develop its French and European content programming. Many of the
projects developed by the Paris studio are based upon existing, popular
European characters, such as Iznogoud, which was based upon the popular comic
books of Rene Goscinny, creator of Asterix (which have sold 350 million copies
in Europe). Among the Company's European co-production partners are Canal
Plus, France 2, M6 and Television Francaise 1 ("TF1") in France, Radio
Television Luxembourg 4 ("RTLF4") in Holland, Compagnie Luxembourgois de
Telediffusion ("CLT") in Luxemburg, British Broadcasting Company ("BBC") in
the United Kingdom, Television Suisse Romande ("TSR") in Switzerland, Radio-
Television Belge de la Communaute ("RTFB") in Belgium, Radiotelevisione
Italiana ("RAI") in Italy, Tele 5 in Spain and Arbeitsgemeinschaft der
Oeffentlichen Rechtlichen Rundfunkanstalten Deutschlands ("ARD") in Germany.
Relationships with Marvel and Toei
The two most significant third party sources for characters on which the
Company bases original programming have been, and are currently expected to
continue to be, Marvel and Toei.
In June 1996, the Company and Marvel reached an understanding on the
principal terms of an agreement granting to the Company the exclusive right to
produce and distribute animated series, subject to other preexisting
agreements, based on characters from Marvel's library of approximately 3,500
comic book characters, including Silver Surfer, Captain America and Daredevil.
Marvel has agreed, subject to the negotiation and execution of definitive
documents, to contribute a portion of the Company's production costs while the
Company will bear all development and distribution costs. The parties are in
the final stages of negotiations with respect to the definitive agreement, and
the Company expects this agreement to be executed in the near future. The
remainder of this paragraph assumes that the agreement is executed in its
current form; no assurance can be given that the final agreement will not vary
materially from the discussion which follows, or that any agreement will be
executed. Pursuant to the agreement, the Company will commit to produce a
minimum of 52 episodes of at least four new series over the next seven years.
The Company will have worldwide television and home video distribution rights
to all series produced for a period of 21 years. The term of the agreement may
be extended for an additional three year period if during the first two years,
the Company orders a minimum of 104 episodes and such programming is comprised
of a minimum of 8 separate series, with each series based on a different
Marvel character. While Marvel has retained all merchandising and other
ancillary rights to its characters, the Company will receive a portion of
worldwide merchandising revenues received by Marvel from characters or series
broadcast on the Company's Fox Kids Network. The Company and Marvel will share
U.S. syndication revenues. To date, the Company plans to develop, produce and
distribute either a Silver Surfer or Captain America series for inclusion in
the 1997-1998 Fox Kids Network schedule.
Although the Company's relationship with Toei dates from the 1980's, it was
through an August 1992 distribution agreement that the Company acquired the
right to adapt elements of Toei's live-action programming into new series. The
first adaptation resulted in Mighty Morphin Power Rangers. The distribution
agreement granted the Company the exclusive right to acquire additional Toei
live-action programming through March
46
<PAGE>
1995, subject to extension by one year for each new series so acquired. To
date, the Company has exercised this option nine times, thus extending its
exclusive right to acquire additional series through March 2004. The
additional series acquired by the Company have been used as the basis for
additional Power Rangers episodes, VR Troopers, Masked Rider and Big Bad
Beetleborgs. The distribution agreement grants the Company the right in
perpetuity to distribute, adapt and exploit all elements and characters of
these series in all non-Asian markets through all media outlets including
television, video, music, soundtracks, theatrical use and literary publishing
and all other ancillary rights. In general, the Company pays Toei a fee per
episode for all rights to exploit the applicable property throughout the world
(other than certain parts of Asia) in all media and pays Toei a royalty based
on merchandising royalties and/or certain distribution revenues.
DISTRIBUTION: NETWORKS AND SYNDICATION
The Company distributes its own programming, as well as the programming of
others, throughout the United States and in major markets throughout the
world. The Company is uniquely positioned as a distributor as a result of its
strategic relationship with Fox Broadcasting and News Corp. and by reason of
its large programming library. See "Risk Factors--Strategic Relationships with
News Corp. and Fox," "--The Strategic Alliance with Fox/News Corp." and "--
Programming."
In the United States, the Company operates the Fox Kids Network, the number
one rated children's television broadcaster in its time slots for the last
three seasons. Through the FOX Television Network, the Fox Kids Network
reaches approximately 97% of U.S. television households. According to Nielsen,
20 million children--approximately 52% of all children in the United States--
watch the Fox Kids Network at least once each month. In the 1996-97 broadcast
season, the Fox Kids Network will broadcast 19 televised hours of children's
programming each week, of which approximately 12 hours will represent the
Company's own programming. The Company has recently agreed or agreed in
principle, to launch full time or partial day "Fox Kids" branded DTH satellite
and cable channels in various markets in Europe and Latin America. On October
19, 1996, the Company launched a Fox Kids branded channel, as part of BSkyB's
Sky Multichannels package, which through DTH and cable services is expected to
reach more than 5.5 million viewers in the United Kingdom and Republic of
Ireland. Subject to completion of negotiation of definitive agreements,
additional international channels are currently contemplated to be launched
over the next two years on DTH and cable in Latin America and Asia. In
Australia, the Foxtel cable service has been carrying a Fox Kids Network
children's channel segment since 1994 under a license recently assigned to the
Company by Fox Broadcasting.
In the United States the Company also distributes programming through
syndication to independent television stations. One of the Company's current
distribution strategies in the United States is to package some of its
original and library programming under the Saban Kids Network name. In the
1996-97 broadcast season, the Company will distribute under the Saban Kids
Network name a block of 7 1/2 hours of programming each week which, on a
weighted average basis, reaches over 86% of the television households in the
United States. See "--Syndication."
Fox Kids Network
The Fox Kids Network, launched in September 1990, is the result of an
arrangement between Fox Broadcasting and participating FOX Television Network
member stations which formed a broadcast television network focused on
children (ages 2-11). This Network was the first television network to
broadcast children's programs during the week (Monday through Friday) as well
as on Saturday. The guiding philosophy of the Fox Kids Network is to provide a
diverse slate of quality entertainment targeted toward children. Of its 19
hours of children's programming per week, the Fox Kids Network generally
broadcasts four hours on Saturday mornings, one hour each weekday morning and
two hours each weekday afternoon. At least three hours of programming each
week are dedicated to educational programming for children. See "--Government
Regulation."
Now in its sixth broadcast season, the Fox Kids Network currently is carried
by 172 affiliated stations (the "FOX Kids Network Affiliates"), including ten
of Fox Television Station, Inc.'s ("FOX Television") 12
47
<PAGE>
currently owned and operated stations ("Fox O&O's") and (representing over 91%
of the FOX Television Network member stations). The Fox Kids Network
Affiliates currently reach approximately 97% of all U.S. television
households. According to Nielsen, 20 million children--approximately 52% of
all children in the United States--watch the Fox Kids Network at least once
each month. The Fox Kids Network produces and acquires programs, markets and
promotes those programs, makes its schedule available to its Fox Kids Network
Affiliates and sells network advertising.
Under an Administration Agreement between Fox Broadcasting and FCN, Fox
Broadcasting agreed to perform certain of FCN's activities, including network
national advertising sales and the administration thereof, commercial
trafficking and broadcast operations (including the delivery of programming to
the Fox Kids Network Affiliates) and overhead charges related to Fox
Broadcasting's in-house administrative support in the areas of research,
promotion, business affairs, legal affairs and accounting. In exchange for
these services, FCN agreed to pay Fox Broadcasting an administrative fee,
which is currently equal to 15% of the net advertising revenues derived from
Fox Kids Network national commercials and other advertising. Effective June 1,
1995, Fox Broadcasting assigned all of its rights under this agreement to the
Company, including the rights to such fees, and agreed to continue to provide
the Company for a one-time fee (which has been paid) all uplink, transponder
and other facilities necessary to deliver via satellite Fox Kids Network
programming for broadcast to the Fox Kids Network Affiliates, as well as
certain other services. See "Certain Transactions--Formation of the LLC and
the Reorganization."
The extensive reach of the Fox Kids Network affords Fox Kids Network
advertisers substantial day-and-date capacity to conduct nationwide
advertising campaigns. The Company believes that day-and-date capacity,
coupled with programming which has won 15 consecutive sweeps victories, has
resulted in the Fox Kids Network achieving the highest advertising rate
structure among all of the competitors for its target audience of children
(ages 2-11).
Advertising. Substantially all of the revenues of the Fox Kids Network are
derived from national network advertising and the merchandising of its
characters and related series elements. Of the top 20 advertisers targeting
children who advertised on FOX, ABC, NBC, Nickelodeon and The Cartoon Network,
the Company believes that over $110 million, or over 45% of their total U. S.
children's television advertising budgets for the 1995-1996 broadcast season,
were spent on national advertising on the Fox Kids Network. The following
advertisers are representative of those who have historically advertised on
the Fox Kids Network on a regular basis:
<TABLE>
<CAPTION>
FAST FOOD CEREAL
FRANCHISES MANUFACTURERS TOY COMPANIES
---------- ------------- -------------
<S> <C> <C> <C>
Burger King
Corp. Kellogg Co. Hasbro Inc. Nintendo Co.
McDonald's Corp. Quaker Oats Company Lego Systems Inc. Toybiz Inc.
Taco Bell Corp. Post Cereals Lewis Galoob Toys Inc. Tyco Toys Inc.
Wendy's Interna- Mattel Inc.
tional, Inc.
</TABLE>
<TABLE>
<CAPTION>
FOOD AND BEVERAGE
COMPANIES ENTERTAINMENT COMPANIES CANDY COMPANIES
----------------- ----------------------- ---------------
<S> <C> <C>
Campbell Soup Co. Fox Hershey Foods Corp.
Coca Cola Co. Time Warner Inc. Mars Inc.
Kraft The Walt Disney Company Nestle SA
Nabisco William Wrigley Jr. Co.
Oscar Mayer
Pepsi-Cola Inc.
</TABLE>
48
<PAGE>
Ratings and Programming. The following table sets forth, for each of the
broadcast seasons indicated, the average number of weekly hours of children's
programming which appeared on the Fox Kids Network, the number of FOX
Television Network member stations carrying the Fox Kids Network, and
clearance information.
<TABLE>
<CAPTION>
BROADCAST SEASON
---------------------------------------------------------------------
1990-1991 1991-1992 1992-1993 1993-1994 1994-1995 1995-1996 1996-1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Average Number of Weekly
Hours Broadcast........ 5.5 10.5 19 19 19 19 19
Fox Kids Network
Affiliates:
Independent Fox
television member
stations(1).......... 133 143 150 152 145 130 142
Fox O&O's............. 7 7 7 8 8 12 12
Non-Fox member
stations(2).......... -- -- -- -- 8 19 18
--- ---- --- --- --- --- ---
Total............... 140 150 157 160 161 161 172
% of Coverage of U.S.
Television Households.. 91% 92% 94% 95% 95% 97% 97%
</TABLE>
- --------
(1)Stations which carry both FOX prime-time and Fox Kids Network.
(2)Stations which carry only Fox Kids Network.
The following table sets forth, for each of the broadcast seasons indicated,
ratings and share information relating to the Fox Kids Network, Monday through
Saturday, and as compared to ABC, CBS, NBC and Kids WB for Saturday mornings,
as well as Fox Kids Network's Saturday morning rank. In the television
industry, for the 1996-1997 broadcast season each kids 2-11 rating point
represents an estimated 388,900 children, or 1% of the total number of
children (ages 2-11) in the United States, and references to one share point
are to 1% of these children who are watching television during the time slot
involved. In the past two seasons, the Fox Kids Network has experienced some
erosion in its ratings due to the increasing competition from cable television
and other forms of entertainment targeted at children. Despite the decline in
ratings, the Fox Kids Network garnered a 20 share for the 1995-96 season--more
than one in five children watching television at the time Fox Kids Network was
broadcasting was watching the Fox Kids Network.
<TABLE>
<CAPTION>
BROADCAST SEASON
------------------------------------------------------------------------
1990-1991 1991-1992 1992-1993 1993-1994 1994-1995 1995-1996 1996-1997(3)
--------- --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kids 2-11 Rating/
Share(1):
Fox Kids (M-Sat.)...... 3.4/15 3.5/20 4.3/24 5.7/30 5.1/30 3.3/20 3.5/21
Fox Kids (M-F Only).... 4.7/25 4.0/24 4.6/27 5.4/33 4.9/31 3.0/21 2.6/19
Fox Kids (Sat. Only)... 3.2/15 3.7/16 5.2/21 6.6/27 5.7/25 4.4/20 5.1/22
ABC (Sat. A.M.)........ 5.9/23 5.0/21 4.6/19 4.1/17 3.5/15 2.5/12 2.9/13
CBS (Sat. A.M.)........ 6.6/26 5.5/22 4.7/19 3.9/16 3.0/13 2.3/10 1.5/7
NBC (Sat. A.M.) (2).... 4.2/16 3.6/14 2.6/10 1.2/5 1.5/6 1.4/6 1.3/6
Kids WB (Sat. A.M.).... n/a n/a n/a n/a n/a 1.9/9 1.7/8
Fox Kids Saturday A.M.
Rank................... #4 #3 #3 #1 #1 #1 #1
</TABLE>
- --------
(1) Ratings are for children, ages 2-11, in the Monday-Saturday television
schedule. Fox Kids Network remains the leader in children's broadcasting.
(2)NBC has changed the focus of its programming for Saturday morning from
children to teens.
(3)Represents the period from September 7, 1996 through September 14, 1996.
49
<PAGE>
The current Fox Kids Network schedule for the 1996-1997 broadcast season is
set forth below. The Company believes that the programming designated below as
"educational" complies with the FCC's requirement that broadcast television
stations show at least three hours of "educational" programming per week.
SATURDAY MORNING PROGRAMMING
<TABLE>
<CAPTION>
TIME PERIOD YEARS ON
(EST) PROGRAM PRODUCER AIR PROGRAM DESCRIPTION
----------- ------------------- ------------------- -------- ------------------------
<C> <C> <C> <C> <S>
8:00-8:30 AM C Bear & Jamal Film Roman premiere Life of Jamal Wingo, a
(educational) 10-year old African-
American boy, whose
thrift-store teddy bear
comes to life.
8:30-9:00 AM Big Bad Beetleborgs The Company premiere Three kids become comic
book superheroes in
this comedy-adventure
series.
9:00-9:30 AM Casper Universal Family 1 The friendly ghost.
Entertainment
9:30-10:00 AM Spider-Man Marvel Films 3 Based on the most
Animation popular Marvel comic
book hero in history.
10:00-10:30 AM Goosebumps Scholastic/Protocol 2 Based on the best-
selling suspense novels
by R.L. Stine.
10:30-11:00 AM Life With Louie The Company 2 Comedian Louie
Anderson's childhood
ups 'n downs of dodging
bullies, eating pies
and going on family
vacations.
11:00-11:30 AM X-Men The Company 5 Marvel comic book heroes
still going strong
after 30 years.
11:30 AM- The Tick The Company 3 A garden variety, giant
12 NOON blue 400-pound crime
fighter.
WEEKDAY PROGRAMMING
<CAPTION>
TIME PERIOD YEARS ON
(EST) PROGRAM PRODUCER AIR PROGRAM DESCRIPTION
----------- ------------------- ------------------- -------- ------------------------
<C> <C> <C> <C> <S>
7:30-8:00 AM Bobby's World The Company 7 Combines point-of-view
of a 4-year old with
the spirit of comedian
Howie Mandel.
8:00-8:30 AM Where On Earth DIC 4 Master thief Carmen
Is Carmen Sandiego? Sandiego is tracked
(educational) down by teen super
sleuths while teaching
viewers geography, art
and history.
3:00-3:30 PM Eek! Stravaganza The Company 5 The offbeat adventures
of everyone's favorite
feline and his zany friends.
3:30-4:00 PM The Adventures of Warner 3 The Dynamic Duo use
Batman & Robin their powers to protect
the citizens of Gotham
City.
4:00-4:30 PM Big Bad Beetleborgs The Company premiere Three kids become comic
book superheroes in
this comedy-adventure
series.
4:30-5:00 PM Power Rangers ZEO The Company 4 The next generation of
the Power Rangers saga.
</TABLE>
50
<PAGE>
Fox Kids Affiliation Agreements. Currently, more than 91% of the FOX
Television Network member stations, including ten of the 12 Fox O&O's, carry
the Fox Kids Network pursuant to their affiliation agreements with Fox
Broadcasting. These affiliation agreements expire over the next two to ten
years and there can be no assurance that they will be renewed. See "Risk
Factors--Possibility of Non-Renewal of Fox Kids Network Affiliated Stations."
The Fox Kids Network affiliation agreements provide that FCN is to pay to
each of the Fox Kids Network Affiliates (including the Fox O&O's)
participations based upon the "net profits" (as defined) of FCN, with the
participations allocated among the Fox Kids Network Affiliates based upon each
affiliate's percentage of audience delivery as compared to the other Fox Kids
Network Affiliates. "Net profits" is defined on a cumulative basis to include
amounts actually received by FCN from the exhibition, distribution and other
exploitation of Fox Kids programs and the merchandising and other rights
relating thereto, less administrative fees, production/license fees,
distribution and merchandising fees (including those payable to the Company),
overhead and other expenses and reserves. Certain of the Fox O&O's have waived
in favor of the Company their rights to receive these participations, and the
amounts of their participations are retained by the Company, representing
through June 30, 1996 $4.7 million, or approximately 31% of the total amounts
paid to all Fox Kids Network Affiliates.
The non-Fox O&O Fox Kids Network Affiliates have appointed a board of their
members (the "Affiliate Board") for the purpose of representing all of the
non-Fox O&O Affiliates in dealings with FCN. On behalf of the Company, Fox
Broadcasting from time to time meets with the Affiliate Board to review the
operations and operating policies of FCN and the Fox Kids Network.
In connection with the announcement of the Reorganization to the Fox Kids
Network Affiliates, the Company has offered to the Fox Kids Network Affiliates
that, should the Company launch a block of children's programming on a U.S.
cable channel, the Company would share with the Fox Kids Network Affiliates
50% of the "net profits" (adjusted to deduct all costs related to the cable
channel and a 15% administrative fee) realized by the Company from such block
of programming. In addition, the Company has offered to guarantee that, for
the five-year period commencing January 1, 1997, profits (including net
profits from both cable operations and from FCN) distributed to the Fox Kids
Network Affiliates as a group (including certain of the Fox O&O's, who have,
however, waived their rights to receive their share of these participations in
favor of the Company) will aggregate at least $75 million. To the extent that
net profits distributed in any year during the guarantee period are less than
$15 million, the Company would advance the shortfall. To the extent that net
profits distributable in any year during the guarantee period exceed $15
million, the Company would be entitled to credit the excess against advances
previously paid or thereafter due. The Fox Kids Network Affiliates are
currently considering this offer.
On July 17, 1996, News Corp. agreed, subject to customary closing
conditions, to acquire New World Communications Group Incorporated ("New
World"), which owns 11 television stations (one of which, an NBC affiliate is
scheduled to be sold). Although none of the New World stations had carried the
Fox Kids Network, one of these stations has agreed, commencing September 14,
1996, to provide clearance of the Fox Kids Network's Monday through Saturday
line-up in addition to FOX prime-time, news and sports coverage. All of the
New World stations are located in markets currently served by existing Fox
Kids Network Affiliates.
Promotions. The Company also promotes the Fox Kids Network with innovative
contests, promotions and other programs targeting children, including the
following:
Contests. The Company regularly sponsors contests, such as Fox Kids
McWorld Home Arcade, in which over 650,000 entries were received from
children, and the winner received four full-sized arcade games. Contests
have been effective ways to promote the Company's television programs
because they appeal to children and at the same time provide valuable
information about the Company's programming.
Fox Kids Club. Fox Kids Club is a club linking the Fox Kids Network with
over 5.3 million of its viewers. The Company publishes a monthly full-color
magazine called Totally Kids, which includes games,
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articles and celebrity interviews, that is mailed to each club member's
household. In addition, the Company sells advertising in the magazine and
allocates space to each of its local affiliates so that the magazine is
tailored to the broadcast schedule of each local market.
Fox Kids Countdown. Fox Kids Countdown is a nationally syndicated weekly
radio program for children which is currently broadcast by 183 radio
stations. The Company produces a two hour top contemporary hits countdown
show, including guest hosts from the Company's shows, and national
sponsorships from such companies as McDonald's, Marvel and Bandai. Fox Kids
Countdown provides an attractive way to reach current and potential
viewers, and to extend the Company's brands though the exploitation of
additional media outlets.
Fox Kids Website. Fox Kids Network launched its Fox Kids Cyberstation
(www.foxkids.com) site on the World Wide Web on July 1, 1996. This website
includes excerpts from Totally Kids magazine, inside scoops on the
Company's programming, contests and coloring books featuring, for example,
The Tick, Goosebumps and Eek! Stravaganza. The Website also offers children
the opportunity to join the Fox Kids Club.
Syndication
Saban Kids Network. The Company syndicates programming, currently under the
Saban Kids Network name, to television stations with market reach on a
weighted average basis of over 86% of television households in the United
States. For the 1996-1997 broadcast season, two Monday through Friday half-
hour television shows and five weekly half-hour series are being broadcast.
The Company intends to attempt to increase its share of broadcasting hours in
existing markets by continuing to provide broadcasters with attractive
syndicated programming and by using its available resources, including its
extensive library, to offer additional programming to existing and potential
program distributors. Distribution through the Saban Kids Network affords the
Company the opportunity to generate additional revenues at modest additional
cost by exploiting its existing library and broadcasting lower cost acquired
programming. Beginning in the 1996-1997 broadcast season, Fox Broadcasting's
advertising sales staff has assumed responsibility for sales of advertisements
for the Saban Kids Network; one apparent result of this arrangement has been a
14% increase in average advertising rates for Saban Kids Network's
programming. The following table sets forth, for each of the seasons
indicated, the average number of weekly hours of children's syndicated
programming distributed by Saban, as well as ratings and clearance
information. The Company began using the name "Saban Kids Network" in the
1996-1997 broadcast season.
<TABLE>
<CAPTION>
BROADCAST SEASON
-----------------------------
1994-1995 1995-1996 1996-1997
--------- --------- ---------
<S> <C> <C> <C>
Average Number of Weekly Hours................... 4.0 4.5 7.5
Average Ratings (children 2-11).................. 1.9 1.1 n/a
Average Percent of Coverage of U.S. Television
Households...................................... 79% 75% 86%
</TABLE>
International Channels
The Company believes that it is positioned strategically to take advantage
of growth in international DTH satellite and cable television services and the
resulting increase in demand for television programming, including through its
current relationship with News Corp. In addition to its recent launch of Fox
Kids branded DTH satellite and cable channels in the United Kingdom and
Republic of Ireland, the Company is in active discussions and negotiations to
launch additional Fox Kids branded channels on other distribution platforms
throughout the world. Except with respect to British Sky Broadcasting Group
plc ("BSkyB") and certain Latin American cable operators, the Company has not
yet reached agreement as to the terms of carriage, and no assurance can be
given that the parties will be able to reach such agreement, or that any such
agreement will be on terms favorable to the Company.
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United Kingdom and Republic of Ireland. On October 19, 1996, pursuant to an
agreement with BSkyB, the Company launched a Fox Kids channel as part of
BSkyB's Sky Multichannels package, a service which, through DTH and cable, is
currently estimated to reach over 5.5 million viewers in the United Kingdom
and Republic of Ireland. News Corp. holds a 40% interest in BSkyB, a public
company, which operates the leading pay television broadcasting service in the
United Kingdom and the Republic of Ireland. The Fox Kids channel is carried
from 6 a.m. to 7 p.m. each day. The term of the agreement is eight years. The
Fox Kids Channel is part of the Sky Multichannels DTH package, sharing a
transponder with Sky2 which occupies the balance of the schedule each day. As
part of its agreement with BSkyB, the Company has acquired, for approximately
$3.7 million, all of BSkyB's United Kingdom license rights to approximately
1,400 half-hours of children's programming which had been acquired for
broadcast by BSkyB prior to launch of this channel. BSkyB also carries
Nickelodeon, a 24-hour service targeting children. In September 1996, media
reports in the United Kingdom disclosed that Viacom, which owns Nickelodeon,
had expressed concerns about the carriage of the Fox Kids Network on BSkyB,
and was considering filing an action for injunctive relief to prevent launch
of the Company's channel on BSkyB. To the knowledge of the Company, at the
date of this Prospectus, no such action had been filed. The Company is unable
at this time to assess the merits of Viacom's reported position. Should such
an action be filed, and should Viacom prevail, the Company's ability to launch
a United Kingdom-targeted children's service could be materially and adversely
affected.
Latin America. Since 1994, Canal FOX, a general entertainment channel
servicing 19 countries in Latin America (and reaching, in June 1996,
approximately 5.9 million households), has carried a Fox Kids-branded
children's programming block under a license agreement between FCN and Canal
FOX, which expired in September 1996. Revenues to the Company under this
license have not been material. It is anticipated that the Fox Kids-branded
channel will be carried over the pan-regional channels described below,
commencing November 1, 1996.
The Company plans to launch its own 24 hour Fox Kids-branded pan-regional
Latin America DTH satellite and cable channels, which will simultaneously
broadcast programming in Spanish, Portuguese and English, and is currently in
active negotiations with a number of DTH satellite and cable operators for
carriage of this service. The following paragraphs describe the current status
of these operations.
On November 1, 1996, the Company is scheduled to launch the Fox Kids channel
in Brazil over NetSat Serbicos Ltda. ("NetSat"). NetSat is a DTH satellite
platform which currently reaches over 100,000 Brazilian households, and is 36%
owned indirectly by News Corp. The Company is also currently negotiating
carriage of this channel on various Brazilian cable systems.
The Company expects shortly to reach agreement to launch the Fox Kids
channel over various cable services in the balance of South America,
commencing November 1, 1996. Subject to the negotiation and execution of
agreements, the Company intends to expand the channel to Mexico (DTH satellite
and cable) and Central America in December 1996. The Company is also in
preliminary discussions for the launch of the Fox Kids channel on DTH
satellite and cable platforms covering the balance of South America during the
first half of 1997.
The launch of each of these services is dependent on the conclusion of
negotiations concerning the terms of carriage. No assurance can be given that
agreement will be reached in time to meet the Company's launch schedule, or
that any or all of these channels will be launched.
Australia. Foxtel, an Australian-based cable service, has carried a Fox Kids
Network children's channel segment since 1994 under a license agreement
between Foxtel and an affiliate of Fox Broadcasting. This license was recently
assigned to the Company. Revenues to the Company under this license are not
material. Foxtel is a 50/50 partnership between News Corp. and the Australian
telephone company, Telstra.
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Asia, India and the Pacific Rim. STAR TV is a 100% owned subsidiary of News
Corp., and is currently the Asia Pacific region's largest DTH satellite
television broadcaster (News Corp. has entered into a binding agreement to
sell 7.5% of its interest in STAR TV to a third party). STAR TV broadcasts
television and radio programming over an area covering all of China and India,
as well as approximately 50 other countries. The Company has recently entered
into exploratory negotiations with STAR TV for carriage of Fox Kids branded
services over various STAR TV platforms.
Germany. The Company has commenced discussions with DF1, a DTH satellite
joint venture between BSkyB and Germany's Kirsh Group, for the carriage of a
Fox Kids channel targeting German speaking Europe.
International Distribution
The Company also distributes its programming to others on a worldwide basis.
The Company believes that by owning and controlling the international
distribution rights to its programming, it not only can generate significant
revenue from the sales of its programming, but can also establish an
international presence for the Company and its properties which should support
its international licensing and merchandising efforts. The Company is
currently party to distribution arrangements with international television
broadcasters and distributors to exhibit and distribute the Company's
programming to over 375 terrestrial, cable and satellite distribution
platforms in approximately 100 countries. The Company has also used its
international presence to expand its operations in emerging television
markets.
In January 1996, the Company entered into a distribution agreement with ARD,
the largest broadcaster in Germany, pursuant to which the Company agreed to
grant to ARD rights to at least 24 two-hour movies for television
("telefilms"), six co-produced animated children's program series (consisting
of Jim Knopf, Wunschpunsch, Walter Melon, The Why Why Family, Princess Sissi
and The Adventures of Oliver Twist), plus any coproduced series based on
German author Michel Ende's stories for which the Company controls the rights,
and 390 half-hour episodes of other children's animated programs. The
territory is limited to German-speaking Europe. ARD's rights include the right
to transmit (with unlimited runs), broadcast, exhibit, dub and sublease within
its territory each telefilm and series, and to receive a profit participation,
as defined in the agreement, in net revenues, from the distribution of certain
properties covered by the agreement. The terms are ten years for the
telefilms, thirteen years for the six co-produced series and seven years for
the other half hour episodes.
MERCHANDISING AND LICENSING
The Company capitalizes on its popular characters and properties by entering
into licensing agreements with manufacturers and retailers of children's
products. By controlling licensing and merchandising rights, the Company earns
revenue from the sale of products while limiting the costs and risks
associated with manufacturing, distributing and marketing merchandise. The
revenue derived from licensing and merchandising depends not only on the
success, recognition and appeal of a character, but also on the quality and
extent of the marketing efforts of the Company and its licensees. Sales of
licensed products also help the Company's shows by promoting the Company's
characters.
The Company has entered into toy license agreements with a number of toy
manufacturers pursuant to which the toy companies are given the exclusive
right to create, manufacture and develop toys representing characters from the
Company's series. For example, the Company has toy licenses with Bandai
covering Power Rangers, Masked Rider and Big Bad Beetleborgs, with Hasbro
covering VR Troopers, with Mattel covering Bureau of Alien Detectors and with
Toybiz covering Space Strikers. These licenses generally grant the exclusive
right to manufacture and sell toys based upon the characters and other
creative elements in the licensed series. Pursuant to these agreements, the
Company generally receives an up-front advance that is non-refundable but
credited against royalties, generally based on a percentage of net sales of
the licensed product. The Company also retains approval rights regarding
advertising, packaging and the quality of its licensed product, as well as
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continued ownership of the copyright and trademark. For the year ended June
30, 1996, the Company's licensing and merchandising activities represented
approximately 35% of the Company's pro forma consolidated revenues.
The Company has licensing arrangements in place with over 500 different
licensees for consumer products targeting children, such as apparel, school
supplies, watches and dinnerware/lunch boxes. Merchandise based on the
Company's characters and properties is sold in approximately 60 countries
throughout the world.
The following table sets forth examples of the licensee and products for
some of the more than 60 licensees of the Power Rangers series.
<TABLE>
<CAPTION>
LICENSEE PRODUCTS INCLUDING
-------- ------------------
<C> <S>
Aladdin Properties Plastic lunch kits
Bandai Toys including action figures and video games
Best Personalized Books Childrens' books
Butterick Company Halloween costumes and sweatshirts
Colgate-Palmolive Company Colgate Plus toothbrush
Ero Marketing Backpacks and other soft vinyl goods
Fruit of the Loom, Inc. Girl's and boy's underwear
Good Humor-Breyers Ice Cream Frozen novelties
Hasbro Games and puzzles
High Point Knitting Belts, hats and other apparel
Milton Appel Co., Inc. Childrens' optical frames
R. F. Frookies Cookies and candy
Springs Industries Sheets and other bedding products
Toybiz Fitness sets and remote control vehicles
Tyco Industries Individual films and film viewers
Zebco Corporation Fishing rods & reels and fishing tackle
</TABLE>
HOME VIDEO AND TELEFILMS
Home Video. The Company produces direct-to-video feature films, in addition
to granting home video distribution rights to manufacture and distribute video
cassettes based upon its television programming. For example, the Company has
acquired the rights to produce films based upon the characters "Casper" and
"Richie Rich." The Company has also acquired the rights to produce new live-
action television specials and series programs based upon the "The Addams
Family" characters. The Company also receives royalties from the sale of home
video cassettes of its television programming.
Telefilms. The Company, through its Libra Pictures division, acquires
international distribution rights to telefilms--ranging from 12 to 15 motion
pictures per year over the past three years. While the Company occasionally
acquires U.S. rights to these films, the primary objective of acquiring
telefilms is to complement the Company's international sales activities. These
films are typically targeted at prime time audiences and consist of dramas,
thrillers and action/adventure features. The films typically have a budget of
less than $2.0 million, but include one or more "name" actors to enhance the
film's commercial appeal. The Company distributes these features
internationally to television broadcasters and home video distributors and
generally seeks to limit its cost for such international distribution rights
to less than $800,000 per film.
THE STRATEGIC ALLIANCE WITH FOX/NEWS CORP.
News Corp., along with its subsidiaries, including Fox Broadcasting, is a
diversified international communications company principally engaged in the
production and distribution of motion pictures and television programming;
television broadcasting; the publication of newspapers, magazines, books and
free standing inserts; computer information services; and digital broadcasting
systems. As of September 1, 1996, the FOX Television Network had 165 prime
time primary television station affiliates and seven prime time secondary
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television station affiliates across the United States, including 12 Fox
O&O's, reaching over 96% of U.S. television households. Each television
station affiliate is a party to an affiliation agreement with Fox
Broadcasting, which governs the terms of the relationship between them.
The Fox Kids Network is distributed to its Fox Kids Network Affiliates over
the same broadcast facilities as the FOX Television Network. In December 1995,
Fox Broadcasting and certain of its affiliated companies (the "Fox Parties")
entered into a long-term strategic alliance with the Company for the mutual
support of the Fox Parties and the Company in the children's entertainment
business. See "Certain Transactions."
Set forth below is a summary of certain of the material portions of the
relevant strategic alliance provisions contained in the Asset Assignment
Agreement (the "Asset Assignment Agreement"), pursuant to which the Fox
Parties assigned, effective as of June 1, 1995, certain assets and interests
to the Company. See "Certain Transactions." This summary is qualified by
reference to the full Asset Assignment Agreement, which is filed as an exhibit
to the Registration Statement of which this Prospectus is a part.
License of "Fox" Name. The Fox Parties granted to the Company, on the
terms set forth in the Asset Assignment Agreement, the perpetual worldwide
exclusive right to use the name "Fox" in conjunction with the words "Kids,"
"Kid" or "Children," and agreed not to use or license the name "Fox" to
others for similar purposes.
New Services and other Noncompetition Provisions. The Fox Parties agreed
not to operate in the United States any broadcast, cable or non-standard
programming service targeted at children, ages 2-11 (a "kids' service")
other than Fox Kids Network. If the Fox Parties at any time determine to
acquire a new kids' service anywhere else in the world, which kids' service
would bear the "Fox" name, they are required to provide the Company,
pursuant to the terms of the agreement, with a right of first refusal to
acquire and own that new kids' service. Moreover, should the Fox Parties or
any of their affiliates at any time acquire a television, cable or
satellite network or any other business which includes a kids' programming
service, the Fox Parties will be required to offer the Company, pursuant to
the terms of the Asset Assignment Agreement, the right to acquire and own
that kids' service.
First Right to Fox Parties Originated Programming. The Fox Parties have
agreed to provide the Company with the first right to acquire first run
exhibition rights to any new programming suitable for a kids' service
("kids' programming") prior to its sale or license to any third party;
however, the Fox Parties may freely license kids' programming to any broad
based entertainment network (which is not a kids' service) for prime time
or late night broadcast and programming derived from properties (such as
The Simpsons) not originally launched on the Fox Kids Network.
The Company is working with News Corp. to capitalize on the international
demand for quality children's programming. In addition to its current channel
in the United Kingdom, the Company plans to launch additional new children's
television channels, generally using the name "Fox Kids," on television
distribution platforms in certain of the territories in which News Corp. has
an interest in such platforms. See "--Distribution: Networks and Syndication--
International Channels."
Other Fox Services. The Company has historically maintained a close working
relationship with the Fox Parties, pursuant to which the Company and its
operating subsidiaries have been granted access to the Fox Parties' motion
picture studio and other ancillary facilities, as well as their distribution
and administrative services (see "Certain Transactions"), and, although the
Fox Parties are not generally obligated to provide these or similar services
in the future, the Company intends to seek access to these services where the
Company believes that they may be beneficial to the Company.
For example, although the Company has no current plans generally to enter
the theatrical feature film business, in 1995 the Company's Mighty Morphin
Power Rangers motion picture, which had U.S. box office receipts in excess of
$38 million, was financed, produced and distributed worldwide by Twentieth
Century Fox.
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The Company is currently producing a lower budget sequel to the initial Power
Rangers movie which is expected to be released in the Spring of 1997. The
sequel will be produced and financed by the Company and will be distributed
worldwide by Twentieth Century Fox. Twentieth Century Fox will be responsible
for all print and advertising costs and will retain a distribution fee after
recouping its print, advertising and other distribution costs; all other net
receipts after fees and costs will be remitted to the Company. While the
Company has no definitive plans to produce future feature films for theatrical
release, the Company may determine that it is appropriate to produce a motion
picture based on one of its programs. The Company is required to afford
Twentieth Century Fox the first right of negotiation with respect to the
distribution of any of these films. The Company also is planning to produce
within the next 18 months three direct to video films, including sequels to
Casper, Richie Rich and The Addams Family. See "--Home Video and Telefilms."
It is anticipated that all of these films will be co-produced with Twentieth
Century Fox and distributed in the home video markets by Fox Video, with the
exception of Richie Rich, which will be distributed in the home video markets
by Warner Bros.
COMPETITION
The businesses in which the Company engages are highly competitive. Each of
the Company's primary market business operations is subject to competition
from companies which, in some instances, have greater production, distribution
and capital resources than those of the Company.
Production. The Company competes on the basis of relationships and pricing
for access to a limited supply of facilities and talented creative personnel
to produce its programs. The Company competes with major motion pictures
studios, such as Warner Bros. and The Walt Disney Company, and animation
production companies including Hanna-Barbera and Film Roman, for the services
of writers, producers, animators, actors and other creative personnel and
specialized production facilities.
Distribution. In the United States, the Company competes for time slots,
ratings and related advertising revenues. The Company currently competes,
through Fox Kids Network, with the other broadcast television networks, public
television and cable television channels, such as Nickelodeon, USA cable
network and The Cartoon Network for market acceptance of its programming and
for viewership ratings. The Walt Disney Company has recently announced its
plans to launch a 24-hour cable television children's channel. Further, the
Company vies for the children's audience with independent television stations,
suppliers of cable television programs, direct broadcast satellite and other
DTH satellite systems, radio and other forms of media. Through the Saban Kids
Network, the Company also competes with other syndicators, including The
Disney Afternoon, on a market-by-market basis for time slots, coverage
commitments, ratings and advertising revenue. Internationally, the Company
contends with a large number of U.S.-based and international distributors of
children's programming, including The Walt Disney Company and Warner Bros.,
with whom it must compete in the development or acquisition of programming
expected to appeal to international audiences. Such programming often must
comply with foreign broadcast rules and regulations which may stipulate
certain minimum local content requirements.
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The following chart reflects, for the Fox Kids Network and its primary
competitors, the percentage of coverage of U.S. television households for the
1995-1996 broadcast season to date through July 1996.
[Bar graph depicting the percentage of coverage of U.S. television households
for the 1995-1996 broadcast season through July 1996. The "y" axis reflects
values from 0% to 100%. The "x" axis compares Fox Kids Network coverage (97%) to
each of ABC (91%), CBS (91%), The Disney Afternoon (88%), Kids WB (83%),
Nickelodeon (69%) and The Cartoon Network (28%)]
Source: Nielsen Media Research.
Merchandising. The Company also competes with hundreds of owners of creative
content who seek to license their characters and properties to a limited
number of manufacturers and distributors. Although the Company currently has
entered into merchandising agreements with over 500 different manufacturing
and commercial organizations, including manufacturers such as Bandai, Toybiz,
Hasbro and Mattel, and although the Company's characters have been used in
marketing campaigns by retail chains such as McDonald's and Burger King, the
ability of the Company to continue successfully to exploit the merchandising
opportunities afforded by its programs will continue to be dependent on the
favorable ratings of its programs and the ability of the Company's characters
to continue to provide attractive merchandising features to its customers.
GOVERNMENT REGULATION
The Company's programming must comply with the provisions of the CTA and the
rules and policies of the FCC pertaining to the production and distribution of
television programs directed to children. With respect to programs originally
produced and broadcast primarily for children ages 12 and under, the CTA and
FCC rules, among other things, (i) limit the number of minutes of commercial
matter per hour, (ii) generally require that program material be clearly
separated from commercial matter, (iii) prohibit the broadcast within a
program of commercials for products associated with that program, and (iv)
prohibit program personalities, whether live or animated, from delivering
commercials during, or in close proximity to, programs in which the
personalities appear or with which they are associated. Failure to comply with
the children's television commercial limitations can result in the imposition
of sanctions, including substantial monetary fines, on a broadcast television
station.
On August 8, 1996, the FCC amended its rules to establish a "processing
guideline" for broadcast television stations of at least three hours per week,
averaged over a six-month period, of "programming that furthers the
educational and informational needs of children 16 and under in any respect,
including the child's intellectual/cognitive or social/emotional needs." Core
Programming has been defined as educational and informational programming
that, among other things, (i) has served the educational and informational
needs of children "as a significant purpose," (ii) has a specified educational
and informational objective and a specified target child audience, (iii) is
regularly scheduled, weekly programming, (iv) is at least 30 minutes in
length, and
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(v) airs between 7:00 a.m. and 10:00 p.m. Any station that satisfies the
processing guideline by broadcasting at least three weekly hours of Core
Programming will receive FCC staff-level approval of the portion of its
license renewal application pertaining to the CTA. Alternatively, a station
may qualify for staff-level approval even if it broadcasts "somewhat less"
than three hours per week of Core Programming by demonstrating that it has
aired a weekly package of different types of educational and informational
programming that is "at least equivalent" to three hours of Core Programming.
Non-core programming that can qualify under this alternative includes
specials, public service announcements, short-form programs and regularly
scheduled non-weekly programs, "with a significant purpose of educating and
informing children."
A licensee that does not meet the processing guideline under either of these
alternatives will be referred by the FCC's staff to the Commissioners of the
FCC, who will evaluate the licensee's compliance with the CTA on the basis of
both its programming and its other efforts related to children's educational
and informational programming, e.g., its sponsorship of Core Programming on
other stations in the market, or nonbroadcast activities "which enhance the
value" of such programming. A television station ultimately found not to have
complied with the CTA could face sanctions including monetary fines and the
possible non-renewal of its broadcast license. The Company believes that its
current program offering on the Fox Kids Network exceeds the processing
guidelines. In addition, the Company has cleared a series called The Why Why
Family in the U.S. syndication market for the Fall of 1996, which it believes
qualifies as Core Programming under the new rules. Nonetheless the adoption of
the new quantitative guideline could result in a material increase in the
amount of educational and informational children's programming broadcast; and
it is unclear what impact, if any, such a result would have on the Company's
business.
Pursuant to the 1992 Cable Act, the FCC substantially reregulated the cable
television industry in various areas, including rate regulation, competitive
access to programming, "must-carry" and retransmission consent for broadcast
stations, and customer service regulations. These rules, among other things,
restrict the extent to which a cable system may profit from (or recover the
costs associated with) adding new program channels, impose certain carriage
requirements with respect to television broadcast stations, limit exclusivity
provisions in programming contracts, and require prior notice for channel
additions, deletions and changes.
Cable operators and satellite cable or satellite broadcast programmers in
which cable operators have attributable interests are prohibited from using
unfair methods of competition or unfair acts or deceptive acts or practices,
the purpose or effect of which is to hinder significantly or prevent any
multichannel video programming distributor from providing satellite cable or
satellite broadcast programming to customers. A cable operator with an
attributable interest (defined as five percent equity or five percent voting
control) in a satellite cable or satellite broadcast programmer must not
improperly influence the programmer's decision to sell programming to an
unaffiliated multichannel video programming distributor (or the terms and
conditions of such a sale). Similarly, a satellite cable programmer in which a
cable operator has an attributable interest may not discriminate among
competing cable systems or other multichannel video programming distributors
in the prices, terms and conditions of sale or delivery of programming. Such
programmers may offer discounts, however, based on actual cost savings.
Exclusive contracts between affiliated cable operators and programmers are
prohibited for areas not served by the cable operator as of October 1992. In
areas served by the affiliated cable operator, exclusive contracts are
prohibited unless the FCC makes a prior determination that such a contract
would serve the public interest. Multichannel video programming distributors
are generally prohibited from restraining the ability of unaffiliated
programmers to compete fairly by discriminating in the selection, terms or
conditions of carriage of programming services based on affiliation.
It is not possible to predict at this time the impact, if any, that these
rules may have on the Company's plans to distribute programming through cable
and DTH satellite systems, some of which could be deemed to be affiliated with
the Company.
The United States Congress and the FCC also currently have under
consideration, and may in the future adopt, new laws, regulations and policies
regarding a wide variety of matters which could, directly or indirectly,
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materially adversely affect the operations of the Company. The Company is
unable to predict the outcome of future federal legislation or the impact of
any such laws or regulations on its operations.
The Company is also subject to local content and quota requirements in
international markets which, although a significant portion of the Company's
library meets current European and French requirements, effectively limits
access to particular markets.
FACILITIES
The Company currently leases a total of 111,225 square feet of office and
production space in its headquarters building in Los Angeles, California under
a lease expiring in April 2006, subject to two separate five-year extension
options. The Company's Fox Kids Network also leases 18,568 square feet of
office and production space in a separate facility in Los Angeles on a month-
to-month arrangement with FOX Television. See "Certain Transactions." The
Company also leases a multi-purpose production facility in Valencia,
California under a lease expiring in January 1997, subject to two separate
one-year extension options. The Company's Paris animation studio currently
leases 1,379 square meters of office and production space under a lease
expiring February 28, 2005, but the lease may be canceled by the Company with
six months notice on February 28, 1999 or February 28, 2002. The Company also
leases office facilities in other locations throughout the world, none of
which are considered material. The Company believes that its current office
and production space, together with space readily available without material
cost in the markets in which it operates, are adequate to meet its needs for
the foreseeable future.
EMPLOYEES
As of September 1, 1996, the Company had 366 full-time employees in the
United States and 38 full-time employees outside the United States. The
Company also regularly engages freelance creative staff and other independent
contractors on a project-by-project basis. The Company believes its relations
with its employees are good.
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INTELLECTUAL PROPERTY
The Company generally holds copyrights to its owned programming in its
library. Additionally, the Company holds registered trademarks on the various
characters and series contained in its owned programming. The Company also
holds significant rights as licensee of other productions, programming,
characters and series, most of which are subject to copyrights and trademarks
owned by the respective licensors of such properties. The following table
lists the Company's network and syndication programming for the 1996-1997
broadcast season, the nature of the ownership of the copyrights and trademarks
associated with such programming and certain restrictions applicable to such
licensed copyrights and trademarks.
<TABLE>
<CAPTION>
INTELLECTUAL PROPERTY DISTRIBUTION RIGHTS
--------------------- ------------------------------------------------------------------
HOME NON-
COPYRIGHTS TRADEMARKS TERRITORY TELEVISION VIDEO THEATRICAL THEATRICAL MERCHANDISING
---------- ---------- ------------- ---------- ----- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Adventures of Oliver . . Worldwide . . . . .
Twist
Big Bad Beetleborgs . . Worldwide . . . . .
(except Asia)
Bobby's World . . Worldwide . . . . .
Bureau of Alien .(1) .(1) International . . . . .
Detectors (B.A.D.) (worldwide)
Dragonball Z V(2) V(2) United States . . V V V
Eagle Riders V(3) . Worldwide . . . . .
(except Asia)
Eek! Stravaganza . . Worldwide . . . . .
Life With Louie . . Worldwide . . . . .
Masked Rider . . Worldwide . . . . .
The Mouse and the .(1) .(1) International . . . . .
Monster (worldwide)
Power Rangers Zeo . . Worldwide . . . . .
(except Asia)
Samurai Pizza Cats V(4) . Worldwide . . . . .
(except Asia)
Sweet Valley High . V Worldwide . . . . .
(except
publishing)
The Tick . . Worldwide . . . . .
The Why Why Family . . Worldwide . . . . .
X-Men V(5) V(5) Worldwide . . V V V
</TABLE>
- --------
("." Company owns the intellectual property rights or programming distribution
rights; "V" Company does not own the intellectual property rights or
programming distribution rights)
(1) Copyrights and trademarks are owned jointly with UPN.
(2) FUNimation and Toei Animation own copyrights and trademarks. The Company
has exclusive U.S. distribution rights on a year-to-year basis through
2001.
(3) Tatsunoko and Intervision own copyrights. The Company has exclusive
distribution rights through 2004, with a right to extend for 15 years.
(4) Tatsunoko owns copyrights. The Company has distribution rights through
2000, with a right to extend for 10 years.
(5) Marvel owns copyrights and trademarks. The Company has exclusive
distribution rights for 15 years.
The Company considers its owned and licensed copyrights and trademarks to be
of significant value and importance to the Company's business. Accordingly,
the Company's policy is to vigorously enforce copyrights and trademarks with
respect to owned and licensed programming against unlawful infringement by
third parties.
LEGAL PROCEEDINGS
The Company is engaged in litigation in the ordinary course of its business,
none of which the Company believes is material.
61
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, and their ages at June
30, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Haim Saban 51 Chairman of the Board and Chief Executive Officer of the
Company; Chairman and Chief Executive Officer of Saban
Margaret Loesch 50 President and Director of the Company; Chairman and
Chief Executive Officer of Fox Kids Networks Worldwide
Mel Woods 44 President, Chief Operating Officer, Chief Financial
Officer and Director of the Company; President and
Chief Operating Officer of Saban
Shuki Levy 50 Executive Vice President and Director of the Company
William Josey 49 Senior Vice President, Business Affairs and General
Counsel--Saban
Mark Ittner 44 Senior Vice President of Finance--Saban
K. Rupert Murdoch 65 Director
Chase Carey 42 Director
</TABLE>
The Company intends to appoint two independent directors to its Board of
Directors within 90 days of the date of this Prospectus, and expects that each
of such directors will be appointed as members of the audit and compensation
committees of the Board of Directors.
HAIM SABAN, the founder of Saban, has served as its Chairman and Chief
Executive Officer since the establishment of the company in 1983. Mr. Saban is
a creator and executive producer of the Company's live-action series, Power
Rangers. Mr. Saban has also served as a Senior Executive Officer of the LLC
since June 1995.
MARGARET LOESCH has served as President of Fox Kids Networks Worldwide since
January 1996. Ms. Loesch has been President of Fox Kids Network since its
inception in March 1990. From 1984 to 1990, Ms. Loesch was President and Chief
Executive Officer of Marvel Productions Ltd., where she supervised the
development of numerous series, including Jim Henson's Muppet Babies, Dungeons
and Dragons and Jim Henson's Fraggle Rock. Before joining Marvel, Ms. Loesch
was Executive Vice President of Programming for Hanna-Barbera Productions,
which she joined in 1979 as Vice President of Children's Programming. Ms.
Loesch is an active member of the Academy of Television Arts and Sciences,
where she served three terms as an Academy Governor for children's
programming. She currently serves as Vice President of the Academy of
Television Arts and Sciences Foundation. Ms. Loesch is the recipient of four
Emmy Awards.
MEL WOODS has served as the President and Chief Operating Officer of Saban
since 1991. Mr. Woods has also been a director of Saban since 1991. From 1987
to 1991, Mr. Woods served as Senior Vice President and Chief Financial Officer
of DIC Enterprises, an animation production company. Prior to joining DIC, Mr.
Woods was Senior Vice President, Chief Financial Officer and Treasurer of
Orion Pictures Corp. and served as a member of its board of directors.
SHUKI LEVY has served as an independent contractor performing production
related assignments for Saban since 1983. Mr. Levy became the Executive Vice
President of the Company in 1996, responsible for productions. Mr. Levy is
executive producer of the Company's live-action series, Power Rangers, and
also serves as executive producer for Big Bad Beetleborgs and Masked Rider.
Mr. Levy is also a singer, having sold more than 14 million records worldwide,
a composer of theme music for television movies, series and feature films, a
screenwriter and a feature film director.
62
<PAGE>
WILLIAM JOSEY has served as Senior Vice President of Business Affairs and
General Counsel since joining Saban in 1991. Prior to joining Saban, Mr. Josey
served as Senior Vice President of MGM/UA Telecommunications, supervising
business and legal matters. During the past 20 years, Mr. Josey has also held
a number of executive positions, including Vice President of Business and
Legal Affairs for The Disney Channel; Vice President of Business Affairs for
Lorimar Television; Vice President of Business Affairs for Polygram
Television; Director of Business Affairs for Columbia Pictures Television; and
Director of Contracts for ABC Television Network. Mr. Josey received his Juris
Doctor from the University of Houston in 1973.
MARK ITTNER has served as Senior Vice President of Finance of Saban since
joining the company in 1993. From 1990 to 1993, Mr. Ittner served as Vice
President and Controller of Imagine Films, a motion picture and television
production company. Prior to joining Imagine Films, Mr. Ittner was the acting
Co-Chief Financial Officer of Weintraub Entertainment Group, after joining
Weintraub as a Vice President and Controller in January 1988. From 1979 to
1984, Mr. Ittner was first Assistant Controller and then in 1984, Vice
President and Controller, of Hanna-Barbera Productions, Inc., and its parent
company, The Taft Entertainment Company. Mr. Ittner is a Certified Public
Accountant and is a member of the California Society of Certified Public
Accountants and the American Institute of Certified Public Accountants.
K. RUPERT MURDOCH has served as Executive Director of News Corp. since 1959
and remains its Chairman, Managing Director and Chief Executive. He also has
served as Director of News Limited, News Corp.'s principal subsidiary in
Australia, since 1953. He has been Director of News International plc, News
Corp.'s principal subsidiary in the United Kingdom, since 1969 and Managing
Director from December 1986 to January 1990. He has served as Chairman, Chief
Executive Officer and a director of News America Holdings Incorporated
("NAHI"), News Corp.'s principal subsidiary in the United States, since 1973.
He became President of NAHI in October 1985. He has served as Chairman and a
Director of STAR TV since July 1993. He also has been a Member of the Board of
Directors of BSkyB since November 1990.
CHASE CAREY has served as Chairman and Chief Executive Officer of Fox
Television since July 1994. Mr. Carey is responsible for all divisions of Fox
Television including Fox Broadcasting, Fox Television, Twentieth Television's
domestic syndication unit and Fox's cable interests. Mr. Carey joined Fox Inc.
in 1988 as Executive Vice President, served as Chief Financial Officer, and
assumed the title of Chief Operating Officer in February 1992. Prior to
joining Fox, Mr. Carey worked at Columbia Pictures in several executive
positions, including President of Pay/Cable and Home Entertainment and
Executive Vice President of Columbia Pictures International. Mr. Carey is a
member of the board of directors of Gateway 2000 and Colgate University.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors will establish an Audit Committee and a Compensation
Committee following the Offerings. The Audit Committee, which will consist of
the two independent directors of the Company and will, among other things,
make recommendations to the Board of Directors regarding the independent
auditors to be nominated for ratification by the stockholders, review the
independence of those auditors, approve the scope of the annual activities of
the independent auditors and review audit results. The Compensation Committee,
which will consist of the two independent directors of the Company, will
recommend to the Board compensation plans and arrangements with respect to the
Company's executive officers and key personnel.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to consummation of the Offerings, there was no Compensation Committee
of the Board of Directors. During the fiscal year ended June 30, 1996,
executive compensation decisions were made at Saban by the management of Saban
and at FCN by the management of Fox Broadcasting.
63
<PAGE>
TERMS OF OFFICE
Each director is elected to hold office until the next annual meeting of
stockholders and until his or her respective successor is elected and
qualified. Officers serve at the discretion of the Board of Directors, except
that Haim Saban may not be removed or replaced until such time as he and the
other stockholders whose shares he controls collectively transfer to
unaffiliated parties more than one-third of their beneficial Class B Common
Stock holdings.
AGREEMENT REGARDING ELECTION OF DIRECTORS; CHANGE IN CONTROL
Under the terms of an agreement between them, Fox Broadcasting and Mr. Saban
have agreed to vote all of the shares of Class B Common Stock beneficially
owned by each of them to the election of three directors designated by Fox
Broadcasting, three directors designated by Mr. Saban, and two independent
directors generally acceptable to each of them. If they are unable to mutually
agree as to the independent directors, Fox Broadcasting has the right to
nominate one independent director and Mr. Saban has the right to nominate the
other, and each will vote for both. Fox Broadcasting has agreed with Ms.
Loesch that she will, during the term of her employment with the Company, be
one of Fox's designees to the Board of Directors. Fox Broadcasting's other
designees are currently Messrs. Murdoch and Carey. Messrs. Saban, Woods and
Levy are the designees of Mr. Saban. See "Principal Stockholders."
Under agreements between Mr. Saban, the other Saban Stockholders and Fox
Broadcasting, Fox Broadcasting has the right and option, commencing in
December 2002 or earlier in certain circumstances, to acquire all of the
shares of Class B Common Stock of the Company then held by Mr. Saban and the
other Saban Stockholders and Mr. Saban has the right and option, commencing in
December 2000, or earlier in the event of a change in control of Fox
Broadcasting or certain limited circumstances, to cause Fox Broadcasting to
purchase all of these shares. These agreements do not restrict Mr. Saban's
ability publicly to dispose of his shares.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash and non-cash compensation
paid or accrued by the Company to the Chief Executive Officer and the other
four most highly compensated executive officers ("Named Executive Officers")
compensated in excess of $100,000 for the fiscal year ended June 30, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
--------------------------- ---- ---------- --------
<S> <C> <C> <C>
Haim Saban......................................... 1996 $1,000,000 $ --
Chairman and Chief Executive Officer
Margaret Loesch.................................... 1996 500,000 250,000
President
Mel Woods.......................................... 1996 428,000 624,000
President, Chief Operating Officer and
Chief Financial Officer
Shuki Levy(1)...................................... 1996 500,000(1) --
Executive Vice President
William Josey...................................... 1996 238,700 15,000
Senior Vice-President, Business Affairs and
General Counsel--Saban
</TABLE>
- --------
(1) Includes amounts paid to Mr. Levy as a consultant during the fiscal year
ended June 30, 1996. The Company intends to pay Mr. Levy a bonus of
$700,000 for services rendered.
See "Certain Transactions--Transactions between Haim Saban, other executive
officers and Saban" for information with respect to certain loans,
forgivenesses of loans and other transactions for the benefit of certain of
the Named Executive Officers.
64
<PAGE>
EMPLOYMENT AGREEMENTS
Haim Saban
Effective December 22, 1995, Haim Saban entered into an employment agreement
with the Company which extends through June 20, 2002. Pursuant to the terms of
the employment agreement, Mr. Saban is to be paid an annual salary of
$1.0 million. Mr. Saban may not be removed or replaced with or without cause
until he and the other stockholders whose shares he controls collectively
transfer more than one-third of the number of shares of Class B Common Stock
they beneficially own at the time of the Offerings. If Mr. Saban is terminated
following such an event, he will be entitled to receive an amount equal to his
annual base salary from the date of his termination through June 30, 2002.
Other Executives
The Company has entered into employment agreements with each of the
following executives on substantially the same terms and conditions. Pursuant
to the terms of each employment agreement, the Company may terminate the
executive's employment at any time with or without cause and the executive may
terminate his or her employment upon the Company's material breach of the
employment agreement. If the executive is terminated by the Company with
cause, he or she will be entitled to receive (i) annual base salary for the
period in which the date of termination falls, pro-rated to the date of such
termination and (ii) vested rights with respect to certain stock options
granted in connection with the employment agreement. Should the executive
terminate his or her employment or should his or her employment be terminated
by the Company without cause, the executive will be entitled to receive (i)
his or her annual base salary for the period in which the date of termination
falls, pro-rated to the date of such termination, (ii) severance pay for the
balance of the term of the employment agreement, subject to offset against the
executive's future earnings, (iii) bonus compensation for the period in which
the date of termination falls, pro-rated to the date of such termination and
(iv) vested rights with respect to certain stock options granted in connection
with the employment agreement.
Margaret Loesch. Effective January 1, 1996, Margaret Loesch entered into a
five-year employment agreement with the Company. Pursuant to the terms of the
employment agreement, Ms. Loesch is to be paid an annual base salary of
$550,000 for 1996, increasing by $25,000 each year thereafter, and an annual
contingent bonus of between $300,000 and $575,000 for 1996, with the maximum
bonus increasing $25,000 each year thereafter. Concurrent with the execution
of the employment agreement, the Company and Ms. Loesch entered into a five-
year, non-exclusive consulting agreement pursuant to which, among other
things, the Company agreed that if the employment agreement is not extended
beyond its five-year term, the Company would, on the terms set forth therein,
be obligated to pay Ms. Loesch over a five-year period an annual consulting
fee at a rate not exceeding $250,000 per year. In connection with the
execution of Ms. Loesch's employment agreement, Fox Broadcasting agreed to
nominate Ms. Loesch (for the term of her employment) as one of the Fox
appointees to the Board of Directors of the Company. In addition, Fox
Broadcasting agreed with Ms. Loesch that all stock options granted by New
Corp. to Ms. Loesch through December 31, 1995 would remain outstanding and
continue to vest as if Ms. Loesch were still employed by Fox, Inc. or a Fox,
Inc. subsidiary.
Mel Woods. Effective June 1, 1994, Mr. Woods entered into a five-year
employment agreement with the Company. Pursuant to the terms of the employment
agreement, Mr. Woods is to be paid an annual base salary of $450,000, $475,000
and $500,000 for each of the remaining 1996-97, 1997-98 and 1998-99 periods,
respectively, and an annual contingent bonus which is limited to $650,000,
$675,000 and $700,000 for each of the 1996-97, 1997-98 and 1998-99 periods,
respectively.
Shuki Levy. Effective June 1, 1996, Mr. Levy entered into an employment
agreement with the Company. The term of the employment agreement extends
through May 31, 1999. Pursuant to the terms of the employment agreement, Mr.
Levy is to be paid an annual base salary of $500,000 for 1996-97, 1997-98 and
1998-99, respectively, and is eligible to receive additional benefits.
65
<PAGE>
STOCK OPTIONS AND STOCK INCENTIVE PLAN
The following table sets forth information for the Named Executive Officers
with respect to grants of options to purchase Class A Common Stock of the
Company made during the fiscal year ended June 30, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS 10-YEAR OPTION TERM
--------------------------------------------------- ------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO PER SHARE
OPTIONS EMPLOYEES EXERCISE EXPIRATION
NAME GRANTED(1) IN FISCAL YEAR PRICE DATE 0% 5% 10%
- ---- ---------- -------------- --------- --------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Margaret Loesch......... 100% January 1, 2006
</TABLE>
- --------
(1) This option vested with respect to one-fifth of the shares on January 1,
1996. The balance of the option will vest in 20% increments on each
December 31 thereafter. The option will terminate on January 1, 2006,
unless terminated earlier as provided in the stock option agreement.
The following table summarizes information with respect to the number of
shares of Class A Common Stock underlying stock options held by each of the
Named Executive Officers at June 30, 1996, and the value of unexercised
options, assuming a value of $ per share, which is the assumed
initial public offering price per share of Class A Common Stock in the
Offerings.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END
---------------------------------------------- ------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------------- ---------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Margaret Loesch......... $ $
Mel Woods...............
Shuki Levy..............
</TABLE>
Each of these options has a term of 10 years from the date of its grant
(June 1, 2004 in the case of Messrs. Woods and Levy, and January 1, 2006 in
the case of Ms. Loesch), unless terminated earlier as provided in the
agreement granting the option.
Stock Incentive Plan
In September 1996, the Board of Directors and stockholders of the Company
approved the Company's 1996 Stock Incentive Plan (the "1996 Plan"). The 1996
Plan was adopted in order to enable the Company and its subsidiaries to
attract, retain and motivate selected eligible directors, officers, employees
and consultants of the Company by providing for or increasing the proprietary
interests of those persons in the Company, and by associating their interests
in the Company with those of the Company's stockholders.
Any person who is a director, officer, employee or consultant of the
Company, or any of its current or future subsidiaries, shall be eligible to be
considered for the grant of Awards under the Plan. The Plan shall be
administered by a committee of the Board of Directors of the Company (the
"Committee"). Pursuant to the 1996 Plan, the Committee may grant, without
limitation, any of the following awards: shares of Class A Common Stock or any
option, warrant, convertible security, stock appreciation right or similar
right with an exercise or conversion privilege at a price related to an equity
security, or similar securities with a value derived from the value of an
equity security (an "Award"). Awards are not restricted to any specified form
or structure and may include, but need not be limited to, sales, bonuses and
other transfers of stock, restricted stock, stock options, reload stock
options, stock purchase warrants, other rights to acquire stock or securities
convertible into or redeemable for stock, stock appreciation rights, phantom
stock, dividend equivalents, performance units or
66
<PAGE>
performance shares, and an Award may consist of one such security or benefit,
or two or more of them in tandem or in the alternative. The Committee, in its
sole discretion, determines all of the terms and conditions of each Award
granted under the 1996 Plan.
An aggregate of shares of Class A Common Stock have been
reserved for issuance in connection with the Awards made under the 1996 Plan.
The 1996 Plan is effective for a period of ten years, through 2006.
The Committee may amend or terminate the 1996 Plan at any time and in any
manner but no such amendment or termination may terminate or modify any Award
previously granted under the 1996 Plan without the consent of the recipient of
the Award. The Company has granted to independent directors and certain
members of management options to purchase an aggregate of shares of the
Class A Common Stock. In addition, the Company intends to grant prior to the
closing of the Offerings to certain officers and employees under its stock
incentive plan options to purchase shares of Class A Common Stock,
exercisable at the initial offering price.
67
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of September 15, 1996
(after giving effect to the Reorganization) with respect to the shares of
Class A Common Stock and Class B Common Stock beneficially owned by (i) each
director of the Company; (ii) each person known to the Company to be the
beneficial owner of more than 5% of either class of Common Stock; (iii) each
Named Executive Officer; and (iv) all directors and executive officers of the
Company as a group. Except as may be indicated in the footnotes to the table,
each of such persons has the sole voting and investment power with respect to
the shares owned, subject to applicable community property laws. The address
of each person listed is in care of the Company, 10960 Wilshire Boulevard, Los
Angeles, California 90024.
<TABLE>
<CAPTION>
CLASS B
CLASS A COMMON STOCK (1) COMMON STOCK (1)
--------------------------- ------------------
PERCENT OF CLASS AGGREGATE VOTING
OWNED POWER
------------------- -------------------
NUMBER PRIOR TO AFTER NUMBER PERCENT PRIOR TO AFTER
OF THE THE OF OF CLASS THE THE
SHARES OFFERINGS OFFERINGS SHARES OWNED OFFERINGS OFFERINGS
------- --------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Haim Saban(2)(3)........ 100.0% 100.0% 100.0%
Silverlight Enterprises,
L.P.(2)(3)............. 17.4 17.4 17.4
Fox Broadcasting(3)..... 100.0 100.0 100.0
Margaret Loesch.........
Mel Woods...............
Shuki Levy..............
Rupert Murdoch.......... 100.0 100.0 100.0
Chase Carey............. 100.0 100.0 100.0
All of the Company's
executive officers and
directors as a group
(eight persons)........ 100.0 100.0 100.0
</TABLE>
- --------
* Less than one percent
(1) Under Rule 13d-3 of the Securities Exchange Act, certain shares may be
deemed to be beneficially owned by more than one person (if, for example,
persons share the power to vote or the power to dispose of the shares). In
addition, shares are deemed to be beneficially owned by a person if the
person has the right to acquire the shares (for example, upon exercise of
an option) within 60 days of the date as of which the information is
provided. In computing the percentage ownership of any person, the amount
of shares outstanding is deemed to include the amount of shares
beneficially owned by that person (and only that person) by reason of
these acquisition rights. As a result, the percentage of outstanding
shares of any person as shown in this table does not necessarily reflect
the person's actual ownership or voting power with respect to the number
of shares of Common Stock actually outstanding at September 15, 1996.
(2) Pursuant to Rule 13d-3 under the Securities Exchange Act, Haim Saban may
be deemed to beneficially own all shares of Class B Common Stock held by
the Company as the result of an agreement between them, pursuant to which
Mr. Saban has the right to direct the voting of these shares with respect
to all matters submitted to a vote of the stockholders, including the
election of directors of the Company.
(3) Pursuant to Rule 13d-3 under the Securities Exchange Act, Haim Saban and
Fox Broadcasting may be deemed to beneficially own all shares of Class B
Common Stock held by each of them, and by the other stockholders
identified in the following table, as the result of an agreement pursuant
to which Mr. Saban and Fox Broadcasting have the right to direct the
voting of such shares with respect to all matters submitted to a vote of
the stockholders, including the election of directors of the Company. With
regard to the election of directors, Fox Broadcasting has agreed to vote
in favor of three nominees designated by Haim Saban and Haim Saban has
agreed to vote in favor of three nominees designated by Fox Broadcasting.
Fox Broadcasting and Haim Saban will mutually agree on the two independent
directors. If they are unable to
68
<PAGE>
mutually agree, Fox Broadcasting will nominate one independent director and
Haim Saban will nominate the other and they will each vote for both
nominees. If either Haim Saban or Fox Broadcasting transfers more than one-
third of their initial holdings of Class B Common Stock, then, at the
option of the other, the voting agreement will terminate. As part of the
voting agreement, both Mr. Saban and Fox Broadcasting have agreed to a
standstill whereby neither of them will, without the consent of the other,
among other things, (i) purchase, acquire, offer or agree to purchase or
acquire any shares of capital stock or other voting securities of the
Company; (ii) solicit stockholders for the approval of stockholder
proposals; or (iii) otherwise act, alone or in concert with others, to
assert or encourage any other person or entity in seeking to control the
management, board of directors or policies of the Company or to propose or
effect a business combination, restructuring, recapitalization,
liquidation, dissolution or similar transaction. See "Management--Agreement
Regarding Election of Directors; Change in Control."
Under agreements between Mr. Saban, the other Saban Stockholders and Fox
Broadcasting, Fox Broadcasting has the right and option, commencing in
December 2002 or earlier in certain circumstances, to acquire all of the
shares of Class B Common Stock of the Company held by Mr. Saban and the
other Saban Stockholders and Mr. Saban has the right and option, commencing
in December 2000, or earlier in the event of a change in control of Fox
Broadcasting or certain limited circumstances, to cause Fox Broadcasting to
purchase all of such shares.
As of September 15, 1996, the number of shares of Common Stock beneficially
owned by Mr. Saban, the entities which he controls, and Fox Broadcasting
over which each member thereof had sole investment power was as follows:
<TABLE>
<CAPTION>
PRIOR TO THE AFTER
OFFERINGS THE OFFERINGS
-------------------- -------------
NUMBER
OF AGGREGATE AGGREGATE
SHARES VOTING POWER VOTING POWER
------- ------------ -------------
<S> <C> <C> <C>
Haim Saban............................... 49.9%
Quartz Enterprises, L.P.................. 4.8
Merlot Investments, a California general
partnership............................. 4.0
Silverlight Enterprises, L.P............. 17.4
Celia Enterprises, L.P................... 0.1
Fox Broadcasting......................... 49.9
</TABLE>
(4) Because of their positions with the Company, each of Messrs. Murdoch and
Carey may be deemed to beneficially own all of the shares of Common Stock
owned or controlled by Fox Broadcasting. Each of Messrs. Murdoch and Carey
disclaims any pecuniary interest in such securities.
69
<PAGE>
CERTAIN TRANSACTIONS
The following discussion is qualified by reference to the full agreements,
each of which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
FORMATION OF THE LLC AND THE REORGANIZATION
In connection with the formation of the LLC, Haim Saban, Saban and the Fox
Parties entered into a series of agreements. As a result of the
Reorganization, the LLC will become a subsidiary of the Company and the
Company will be entitled to the benefits of and subject to these agreements.
On November 1, 1995, Saban, FCN Holding and Fox Broadcasting entered into a
LLC Formation Agreement pursuant to which the parties agreed to cause the
formation of the LLC. Pursuant thereto, Fox Broadcasting agreed to enter into
an Asset Assignment Agreement (described below) with the LLC, and deliver
certain cash, documents and other assets, summarized below, at the closing of
the formation of the LLC. In addition, FCN Holding and Saban each paid and
contributed $100,000 to the LLC. In consideration for Fox Broadcasting's
contribution, Fox Broadcasting received a non-voting Class A Members Interest
in the LLC; and in consideration for the contributions from Saban and FCN
Holding, each received a Class B Members Interest in the LLC. See "Summary--
The Reorganization."
As a Class A Member of the LLC, Fox Broadcasting was granted a priority
right to receive distributions of Distributable Cash (defined below) and other
distributions until it has received aggregate distributions in an amount equal
to $40 million. As described below, in September 1996, Fox Broadcasting
purchased, for $10 million cash, an additional $10 million of Class A Members
Interest. Pursuant to the terms of the Reorganization, immediately prior to
the closing of the Offerings, Fox Broadcasting will exchange all of its Class
A Members Interest for shares of the Company's Series A Preferred Stock.
See "Summary--The Reorganization." This Series A Preferred Stock terminates
once an aggregate of $50 million in dividend and redemption amounts are paid
to Fox Broadcasting. See "Description of Securities--Series A Preferred
Stock." As a Class B Member of the LLC, each of Saban and FCN Holding also
obtained the right to receive distributions of Distributable Cash, and other
distributions, generally junior in right to the distributions of Fox
Broadcasting.
Fox Broadcasting also made a $64.5 million interest free loan to the LLC, of
which $14.5 million was repaid in September 1996. The $50 million remainder of
this loan was to be paid from time to time out of Distributable Cash of the
LLC before any distributions are made on the Class A and Class B Members
Interest. In connection with the Reorganization, immediately prior to the
closing of the Offerings, Fox Broadcasting will exchange this loan for a new
Class A Members Interest in the LLC, which will grant Fox Broadcasting a
priority right to receive distributions of Distributable Cash and other
distributions from the LLC until it has received aggregate distributions of
$50 million, whereupon it will terminate and expire. Distributable Cash
generally means the amount of cash available for distribution by the LLC
(including cash available from Saban and FCN Holding and their respective
subsidiaries), taking into account all cash, debts, liabilities and
obligations of the LLC then due and after setting aside reserves to provide
for the LLC's capital expenditures, debt service, working capital and
expansion plans.
Pursuant to the Asset Assignment Agreement (which survives the
Reorganization), the Fox Parties agreed to provide the LLC certain business
opportunities (see "Business--The Strategic Alliance with Fox/News Corp."),
and the parties further agreed to the following:
Programming. The LLC agreed to make programming available at market rates
to any program services which were offered to and rejected by the LLC and
thereafter operated by the Fox Parties or their affiliates.
Distribution Services. The Fox Parties and their affiliates were granted
a right of first negotiation and first refusal, with certain exceptions, to
provide any of the distribution services which the Fox Parties typically
provide and which the LLC decides to obtain from a third party. If the Fox
Parties or their affiliates
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do not accept the offer, the LLC may obtain the services from a third
party. In the event of any material change in terms, the LLC must reoffer
the opportunity to the Fox Parties.
Other Agreements. The Fox Parties also assigned to the LLC most of their
other agreements with FCN, including agreements which had granted the Fox
Parties the right, for a fee, to provide programming, distribution and
merchandising services for FCN (discussed below). The Fox Parties also
assigned to the LLC all of their rights in an Administration Agreement
(discussed below) between Fox Broadcasting and FCN pursuant to which Fox
Broadcasting agreed to provide for a fee certain administrative services to
FCN, including network national advertising sales, commercial trafficking
and broadcast operations and certain in-house administrative support in the
areas of research, promotions, business affairs, legal affairs and
accounting. See "Business--Distribution: Networks and Syndication--Fox Kids
Network."
In addition to assigning to the LLC the agreements referred to above, the
Fox Parties agreed to pay to the LLC (i) an amount equal to the aggregate of
the distribution fees and commissions received by or credited to the Fox
Parties in connection with the merchandising and distribution agreements
described under "Other Strategic Relationships", (ii) certain "net" revenues
with respect to the existing series properties, and (iii) fees and commissions
under the Administration Agreement, in each case for the period from June 1,
1995 through December 22, 1995 (collectively, the "Catch-Up Payments"). All of
the payments were due on or before July 15, 1996, with interest on the amount
in excess of $14.5 million at a rate of 7% per annum. In September 1996, the
Fox Parties paid $25.4 million to the LLC pursuant to these provisions.
Fox Broadcasting also agreed to contribute to the LLC an amount equal to the
difference, if any, between $35,755,000 and the amount of actual cash payments
made to the LLC pursuant to the Asset Assignment Agreement plus certain
dividends paid to a subsidiary of FCN Holding pursuant to the terms of the LLC
Operating Agreement. In September 1996, Fox Broadcasting paid $10.4 million to
the LLC pursuant to these provisions.
As part of the closing of the formation of the LLC, Saban, the Saban
Stockholders, Fox Broadcasting, FCN Holding and one of its subsidiaries
entered into a Strategic Stockholders Agreement which provided, among other
things, for restrictions on transfer of the stock held by the parties, certain
voting rights between them, as well as the terms of the Reorganization, should
either party subsequently determine to effect an initial public offering of a
successor entity, such as the Offerings.
The parties to the Strategic Stockholders Agreement also agreed to provide
Haim Saban and the Saban Stockholders and Fox Broadcasting certain
registration rights. See "Description of Securities--Registration Rights."
In connection with the Reorganization, in September 1996, the LLC paid to
Fox Broadcasting $10 million, representing the unpaid balance of a fee for
providing all uplink, transponder and other facilities necessary to deliver
via satellite Fox Kids Network programming for broadcast to the Fox Kids
Network Affiliates, and certain other services. Immediately upon receipt of
this $10 million payment, Fox Broadcasting made a contribution to the LLC of
$10 million in exchange for the additional Class A Members Interest described
above.
Pursuant to a Stock Ownership Agreement dated December 22, 1995, the LLC was
granted an option to purchase, upon the occurrence of certain events, all of
the Saban common stock (or the stock of a successor entity, including the
Company) held by the Saban Stockholders, and any of their transferees. The
option is triggered upon the occurrence of the following events and may be
exercised as follows: (i) for a period of one year following the death of Haim
Saban, if he dies prior to December 22, 2012; (ii) upon delivery of written
notice by Fox Broadcasting at any time on or after December 22, 2002 or before
December 22, 2012; or (iii) upon receipt by Fox Broadcasting of written notice
(which generally cannot be delivered prior to December 22, 2001) from Haim
Saban of his desire to cause Fox Broadcasting to purchase all of the shares of
Class B Common Stock held by the Saban Stockholders. The LLC paid to the Saban
Stockholders an aggregate
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of $80.1 million for the grant of the option. The purchase price formula under
the option is based on the fair market value of the Company. As part of the
Reorganization, in September 1996 the LLC distributed the Stock Ownership
Agreement to FCN Holding, which immediately distributed that agreement to Fox
Broadcasting Sub.
CERTAIN TRANSACTIONS BETWEEN THE COMPANY AND THE FOX PARTIES
In May 1996, Saban entered into an agreement in principle with Fox Video
(the "Fox Agreement") for the production and distribution of a live-action
feature film for the home video market based upon the animated character of
Casper (the "Film") to be delivered to Fox Video no later than June 30, 1997.
See "Business--Home Video and Telefilms." The distribution term runs for seven
years from the earlier of the initial release date or December 31, 1997.
Pursuant to the Fox Agreement, Saban will develop, produce and deliver the
Film to Fox Video. Saban has the right and obligation to market, distribute
(at no charge) and exploit the Film in all forms of television, non-theatrical
and airline markets. Fox Video has the right and obligation to market,
manufacture, package, distribute (at no charge) and exploit the Film in home
video formats, and will release the Film in the United States and major
international territories. Saban and Fox Video each will contribute one-half
of the production costs of the Film subject to the rights of both parties to
recoup certain of these costs. Saban and Fox Video will share the television
net income 55% and 45%, respectively, and the home video net income 45% and
55%, respectively subject to the participation rights of the Harvey
Entertainment Company which holds the copyright to Casper.
Fox Video and Saban are currently negotiating a Home Video Rights
Acquisition Agreement pursuant to which, under the proposed terms of the
agreement, Saban will grant to Fox Video the right to distribute English and
Spanish language versions throughout the United States and Canada of certain
of its programs, including Sweet Valley High, all television programs produced
for children and owned or controlled by Saban or FCN, all television programs
produced or to be produced pursuant to the Marvel Agreement and all television
programs which are owned or controlled first by Marvel and subsequently by
Saban, the LLC or the Company. The execution of this agreement is subject to
the earlier termination of an agreement (the "Warner Agreement") dated as of
March 1, 1994 between Saban and Warner Home Video. The beginning of the term
of this agreement varies by type of program, but the term ends as to all
programs between seven and nine years from the date of termination of the
Warner Agreement. Saban is required to make available for release by Fox Video
at least six programs each year, at least two of which will not have been
previously released for home video distribution in any of the territories
covered by the agreement. In consideration of the grant of the distribution
rights, Fox Video has agreed to pay Saban 50% of gross receipts, after
deduction of certain expenses.
The Company has also entered into, and is currently in negotiations with
respect to, a number of agreements with affiliates of News Corp. to launch new
international children's channels. See "Business--Distribution: Networks and
Syndication--International Channels."
Saban and Fox Broadcasting are parties to a Barter Syndication Agreement
dated as of January 5, 1996, pursuant to which Saban engaged Fox Broadcasting
to provide barter advertising sales for the 1996-1997 broadcast season for the
Saban Kids Network. Fox Broadcasting's services will include advertising
sales, sales administration, account maintenance, ratings processing, credit
and collection, sales data entry and reporting and commercials broadcast
standards and practices. In consideration for the services rendered by Fox
Broadcasting to Saban, Saban has agreed to pay Fox Broadcasting a barter
advertising sales fee of $800,000.
FCN and Twentieth Century Fox Licensing and Merchandising, a unit of Fox
Inc. ("Twentieth Fox Licensing") are parties to a Merchandising Rights
Acquisition Agreement dated as of July 1, 1990, pursuant to which FCN licenses
to Twentieth Fox Licensing the right to acquire and exercise throughout the
world literary publishing rights and merchandising rights with respect to each
program currently existing or produced by or on behalf of FCN for initial
exhibition in the United States, including, for example, Bobby's World. The
term of the agreement extends in perpetuity, unless FCN sets forth limitations
with respect to the term of a particular program. In consideration for the
rights granted, Twentieth Fox Licensing agreed to pay to FCN an amount equal
to 100% of "Net Profits," which equaled gross receipts less distribution fees
and expenses. For the fiscal years
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ended June 30, 1994 and 1995, Twentieth Fox Licensing retained approximately
$218,000 and $567,000 as distribution fees under this agreement. On December
22, 1995, in connection with the formation of the LLC, this agreement, and all
amounts retained as distribution fees by Twentieth Fox Licensing from June 1,
1995, were assigned to the LLC by the Fox Parties.
FCN and Twentieth Century Fox are parties to a Distribution Rights
Acquisition Agreement dated as of September 1, 1990, pursuant to which FCN
licensed to Twentieth Century Fox certain worldwide distribution rights with
respect to programming provided by FCN to its affiliated television stations.
The term of the agreement extends in perpetuity, unless FCN sets forth
limitations regarding a particular program's duration. In consideration for
the rights granted, Twentieth Century Fox agreed to pay to FCN 100% of Net
Profits, which equaled gross receipts less distribution fees and expenses. For
the fiscal years ended June 30, 1994 and 1995, Twentieth Century Fox retained
approximately $1.2 million in each year as distribution fees under this
agreement. On December 22,1995, in connection with the formation of the LLC,
this agreement, and all rights of Twentieth Century Fox commencing June 1,
1995, were assigned to the LLC by the Fox Parties.
FCN and Fox Broadcasting are parties to an Administration Agreement dated as
of February 7, 1990, pursuant to which Fox Broadcasting agreed to provide the
following services to FCN: network national advertising sales and the
administration thereof, commercial trafficking and broadcast operations
(including program delivery to Fox Kids Network Affiliates) and overhead
charges related to Fox Broadcasting in-house administrative support in the
areas of research, promotion, business affairs, legal affairs and accounting.
FCN agreed to pay to Fox Broadcasting a fee equal to 15% of 100% of the net
advertising revenue (gross advertising revenue less advertising agency
commissions) derived with respect to national commercials, commercial material
or other advertising matter included or used in connection with any of the
programs exhibited on the Fox Kids Network. For the fiscal years ended June
30, 1994 and 1995, FCN paid to Fox Broadcasting approximately $16.2 million
and $21.3 million in fees pursuant to this agreement. On December 22, 1995, in
connection with the terms of LLC, this agreement, and all rights of Fox
Broadcasting to receive management fees on or subsequent to June 1, 1995, were
assigned to the LLC by the Fox Parties.
Saban is currently negotiating with Fox Family Films, Inc. ("Distributor")
for the distribution of Mighty Morphin Power Rangers II, a "PG-rated" sequel
to the original motion picture (the "Sequel"). Under the proposed terms of the
agreement, Saban will produce and deliver the Sequel to Distributor for
worldwide distribution and grant to Distributor all rights necessary to
advertise, promote, publicize and distribute the Sequel. Saban will hold the
copyright to the Sequel as well as certain rights including, without
limitation, merchandising, television, stage and animated-theatrical rights.
Commercial tie-in rights will be mutually controlled by Saban and Distributor.
Saban will receive 100% of gross receipts after certain distribution fees and
expenses are deducted, based upon a formula set forth in the agreement.
Saban is party to six program exhibition agreements for the 1996-1997
broadcast season with FOX Television and one with FoxNet, both subsidiaries of
Fox Broadcasting, pursuant to which Saban licenses certain of Fox Television's
owned and operated stations and the FoxNet cable television service the right
to broadcast certain series which are part of the Saban Kids Network. All
series are licensed on a barter basis, as described in "Distribution: Networks
and Syndication--Syndication."
TRANSACTIONS BETWEEN HAIM SABAN, OTHER EXECUTIVE OFFICERS AND SABAN
From time to time, Saban has loaned and advanced funds to Haim Saban, the
Company's Chairman and Chief Executive Officer. For the past three fiscal
years, the highest aggregate amounts outstanding from Mr. Saban to Saban were
approximately $922,000 for the fiscal year ended June 30, 1994, and
$2.7 million for each of the fiscal years ended June 30, 1995 and June 30,
1996. In connection with the formation of the LLC, on December 22, 1995, Saban
forgave in full all amounts then owing from Haim Saban, aggregating
$2,649,000. All of these loans accrued interest at the rate of one percent
over City National Bank's prime rate.
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During the same period Haim Saban loaned and advanced funds to Saban to
cover working capital needs of Saban. The highest aggregate amounts
outstanding from Saban to Mr. Saban were approximately $13.3 million for the
fiscal year ended June 30, 1994 and $9.0 million for the fiscal year ended
June 30, 1995. The balance of these loans was repaid in full in October 1994.
All of the loans owing to Mr. Saban accrued interest at the rate of one
percent over City National Bank's prime rate.
From time to time, Saban has loaned and advanced funds to Shuki Levy, the
Company's Executive Vice President. For the past three fiscal years, the
highest aggregate amounts outstanding from Mr. Levy to Saban were $980,000 for
the fiscal year ended June 30, 1994, $1.0 million for the fiscal year ended
June 30, 1995 and $1.2 million for the fiscal year ended June 30, 1996. As of
September 1, 1996, the total amount outstanding, including accrued and unpaid
interest, was $1.2 million. All of the amounts outstanding under these loans
accrued interest at rates ranging from 5% to 6.5% per annum.
Saban currently leases and distributes certain of its properties (e.g.,
motion pictures, television programs, merchandising and licensing rights) in
Israel through Duveen Trading Ltd., a corporation wholly-owned by Haim Saban's
brother. The term of the agreement extends through December 31, 1997, subject
to extension by Saban for an additional three years. Duveen Trading Ltd. is
not obligated to make any payments to Saban under this agreement.
In connection with Mr. Saban's employment agreement, the LLC agreed to
reimburse Mr. Saban for all out-of-pocket costs and expenses for domestic and
international travel, including private air charter which may include aircraft
owned by Mr. Saban. Saban has entered into a contract with the agency which
leases Mr. Saban's airplane to charter from that agency Mr. Saban's or another
similar airplane for a minimum of fifty charter hours during a twelve-month
period. From March 1996 through June 30, 1996, Saban has paid approximately
$370,000 for such services.
In September 1994, Saban entered into a music services agreement (the "Music
Agreement") with Haim Saban, which agreement was amended in June 1995 and
assigned to a corporation wholly-owned by Mr. Saban in January 1996. The Music
Agreement remains in effect until August 31, 2001. Under the terms of the
Music Agreement, all original theme music, underscores, cues and songs for use
in all programming produced by Saban will be supplied to Saban through Mr.
Saban. Saban is entitled to license third party musical compositions for use
in its programming so long as such compositions are not used as opening or
closing themes nor constitute more than 15% of the total musical content of
any program or episode, without Haim Saban's prior written consent. Saban has
the royalty-free right to use the compositions in articles of merchandise such
as home video units, video games and interactive toys. Saban has been granted
the non-exclusive, worldwide, perpetual license to (i) synchronize and perform
compositions in theatrical motion pictures and (ii) synchronize compositions
in all other forms of programming. Saban creates and owns all right, title and
interest in master recordings of compositions for use in Saban's programming,
and Saban owns the proceeds derived from all forms of exploitation thereof. In
consideration for the provision of the compositions to Saban, Mr. Saban is
entitled to receive all publishing income, directly or through Saban, in
connection with the exploitation of such compositions. Saban is entitled to
reimbursement from Mr. Saban of certain costs associated with the creation of
the compositions. To date, Saban has made no payments of publishing income to
Mr. Saban and Mr. Saban has made no payments for reimbursement of costs to
Saban. For the fiscal year ended June 30, 1996 approximately $262,000 was owed
to Mr. Saban under this agreement.
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DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of shares of
Class A Common Stock, shares of Class B Common Stock, 15,000,000
shares of Preferred Stock, and 1,000,000 shares of Series A Preferred Stock.
As of the Closing Date, including the shares being offered hereunder,
shares of Class A Common Stock, shares of Class B Common
Stock and 1,000,000 shares of Series A Preferred Stock will be issued and
outstanding and no shares of Preferred Stock will be issued or outstanding.
The following descriptions of the securities of the Company and certain
provisions of the Company's Certificate of Incorporation and Bylaws are
summaries, do not purport to be complete and are subject to the detailed
provisions of, and are qualified in their entirety by reference to, the
Certificate of Incorporation and Bylaws of the Company.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
The Certificate of Incorporation provides for two classes of common stock,
Class A Common Stock and Class B Common Stock, the two classes of which are
substantially identical, except for disparity in voting power.
Voting. Each share of Class B Common Stock entitles the holder of record to
ten votes and each share of Class A Common Stock entitles the holder to one
vote at each annual or special meeting of stockholders, in the case of any
written consent of stockholders, and for all other purposes. The holders of
Class A Common Stock and Class B Common Stock will vote as a single class on
all matters submitted to a vote of the stockholders, except as otherwise
provided by law. Neither the holders of Class A Common Stock nor the holders
of Class B Common Stock have cumulative voting rights. The Company may, as a
condition to counting the votes cast by any holder of Class B Common Stock at
any annual or special meeting of stockholders, in the case of any written
consent of stockholders, or for any other purpose, require the furnishing of
such affidavits or other proof as it may reasonably request to establish that
the Class B Common Stock held by such holder has not, by virtue of the
provisions of the Certificate of Incorporation, been converted into Class A
Common Stock.
Conversion Rights. Each share of Class B Common Stock is convertible at the
holder's option at all times, without cost to the stockholder, into one share
of Class A Common Stock. In addition, Class B Common Stock is subject to
automatic conversion in the event of a transfer in violation of the transfer
restrictions described below.
Dividends and Other Distributions. The holders of Class A Common Stock and
Class B Common Stock will be entitled to receive dividends and other
distributions as may be declared thereon by the board of directors of the
Company out of assets or funds of the Company legally available therefor,
subject to the rights of the holders of the Series A Preferred Stock or any
other series of Preferred Stock and any other provision of the Certificate of
Incorporation. The Certificate of Incorporation provides that if at any time a
dividend or other distribution in cash or other property is paid on Class A
Common Stock or Class B Common Stock, a like dividend or other distribution in
cash or other property will also be paid on Class B Common Stock or Class A
Common Stock, as the case may be, in an equal amount per share. In this
connection, the Certificate of Incorporation specifically provides that if
shares of Class B Common Stock are paid on Class B Common Stock and shares of
Class A Common Stock are paid on Class A Common Stock, in an equal amount per
share of Class B Common Stock and Class A Common Stock, such payment will be
deemed to be a like dividend or other distribution. In the case of any split,
subdivision, combination or reclassification of Class B Common Stock or Class
A Common Stock, the shares of Class A Common Stock or Class B Common Stock, as
the case may be, will also be split, subdivided, combined or reclassified so
that the number of shares of Class B Common Stock and Class A Common Stock
outstanding immediately following such split, subdivision, combination or
reclassification will bear the same relationship to each other as that which
existed immediately prior thereto.
Distributions Upon Liquidation. In the event of any liquidation, dissolution
or winding up of the Company, the holders of Class B Common Stock and the
holders of Class A Common Stock will be entitled to receive the
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assets and funds of the Company available for distribution after payments to
creditors and to the holders of the Series A Preferred Stock or any Preferred
Stock of the Company that may at the time be outstanding, in proportion to the
number of shares held by them, respectively, without regard to class.
Transferability of Shares. The shares of Class A Common Stock offered hereby
are freely transferable, subject to certain restrictions on resale imposed on
affiliates of the Company. Class B Common Stock is not transferable by a
stockholder except to the following transferees (each a "Permitted
Transferee"): (i) to any other Class B Stockholder, any of Haim Saban's family
members, any trust established solely for the benefit of one or more of Haim
Saban's family members or any legal entity in which Haim Saban or such persons
are the sole beneficial owners; (ii) to a direct or indirect wholly-owned
subsidiary of such Class B Stockholder (or with respect to a Class B
Stockholder which is a natural person, a corporation or other person wholly-
owned by the Class B Stockholder); or (iii) to a Fox Inc. Subsidiary. A "Fox
Inc. Subsidiary" is Twentieth Holdings Corp. and any corporation or other
person in which Fox Inc., or Twentieth Holdings Corp. is the sole beneficial
owner (either directly or indirectly though one or more wholly-owned
subsidiaries) of all the outstanding voting securities of that corporation or
other person. Any purported transfer of Class B Common Stock other than to a
Permitted Transferee shall be null and void and of no effect and the purported
transfer by a holder of Class B Common Stock, other than to a Permitted
Transferee, will result in the immediate and automatic conversion of such
holder's shares of Class B Common Stock into shares of Class A Common Stock.
Reorganization. In the event of any corporate merger, consolidation,
purchase or acquisition of property or stock, or other reorganization in which
any consideration is to be received by the holders of Class B Common Stock or
the holders of Class A Common Stock, the holders of Class B Common Stock and
the holders of Class A Common Stock will receive the same consideration on a
per share basis; except that, if such consideration shall consist in any part
of voting securities) (or of options or warrants to purchase voting
securities, or of securities convertible into or exchangeable for voting
securities), the holders of Class B Common Stock may receive, on a per share
basis, voting securities with ten times the number of votes per share as those
voting securities to be received by the holders of Class A Common Stock (or
options or warrants to purchase, or securities convertible into or
exchangeable for, voting securities with ten times the number of votes per
share as those voting securities issuable upon the exercise of the options or
warrants, or into which the convertible or exchangeable securities may be
converted or exchanged, received by the holders of Class A Common Stock).
Except as expressly set forth in the Certificate of Incorporation, the
rights of the holders of Class B Common Stock and the rights of the holders of
Class A Common Stock are in all respects identical.
SERIES A PREFERRED STOCK
The holders of Series A Preferred Stock have no preemptive rights and are
not subject to future assessments by the Company. All outstanding shares of
Series A Preferred Stock are fully paid and nonassessable. The Series A
Preferred Stock has aggregate dividend and/or redemption obligations of $50
million. Once an aggregate of $50 million has been paid, the Series A
Preferred Stock will cease to be outstanding. The Series A Preferred Stock,
with respect to dividend rights and rights on liquidation, winding up and
dissolution, ranks senior to the Preferred Stock and to the Common Stock. The
holders of the shares of Series A Preferred Stock are entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available therefor, cash dividends in an amount equal to the Distributable
Cash of the Company. No more than $49 in dividends may be paid with respect to
any share of Series A Preferred Stock. "Distributable Cash" means, at the time
a determination of Distributable Cash is made, the net cash provided by
operating activities of the Company (on a consolidated basis) from the date of
issuance of the Series A Preferred Stock through the end of the last fiscal
quarter ending not less than 90 days prior to the time of determination, less
the sum of (i) all restricted cash, (ii) all Reserves, and (iii) all amounts
previously paid as dividends on the Series A Preferred Stock. "Reserves" are
those amounts determined from time to time by the Board of Directors as
necessary to provide, over such period as the Board of Directors considers
appropriate, for current and planned capital expenditures, debt service,
working capital requirements and expansion plans; and if the Board of
Directors is unable to reach agreement thereon, the
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Reserves shall be maintained at a level equal to the sum of (i) $30 million,
plus (ii) the net proceeds realized by the Company from the Offerings. The
Company will have the right from time to time to redeem the Series A Preferred
Stock, in whole or in part, with the consent of the holders of the Series A
Preferred Stock, at a redemption price equal to the then-current liquidation
value of the Series A Preferred Stock. If the liquidation value of the Series
A Preferred Stock is $1.00 per share, the Company will have the right and
power at any time thereafter to redeem all, and not less than all, of the
Series A Preferred Stock at a redemption price of $1.00 per share. The holders
of Series A Preferred Stock will have no voting rights with respect to
corporate matters except as provided by law.
PREFERRED STOCK
The Certificate of Incorporation provides that shares of Preferred Stock may
be issued from time to time in one or more series. The Board of Directors is
authorized to fix the voting rights, if any, designations, powers, preferences
and the relative participation, optional or other rights, if any, and the
qualifications, limitations or restrictions thereof, of any unissued series of
Preferred Stock, to fix the number of shares constituting such series, and to
increase or decrease the number of shares of any such series (but not below
the number of shares of such series then outstanding). Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue Preferred
Stock with dividend, liquidation, conversion, voting or other rights which
could adversely affect the voting power or other rights of the holders of the
Company's Class B Common Stock and Class A Common Stock. In the event of
issuance, these shares of Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing an
acquisition or a change in control of the Company. The Company currently does
not intend to issue any of the authorized but unissued shares of its Preferred
Stock.
REGISTRATION RIGHTS
Following the closing of the Offerings, Haim Saban and the other former
Saban Stockholders and Fox Broadcasting Sub (the "Holders") who hold all of
the shares of the Class B Common Stock in the aggregate (the "Registrable
Securities") will be entitled to certain rights with respect to the
registration of such shares under the Securities Act. Pursuant to the terms of
the Company's Certificate of Incorporation, upon transfer, the Registrable
Securities become Class A Common Stock. The rights are provided under the
terms of an agreement among the Holders, Saban and FCN Holding. Subject to
certain limitations in the agreement, the Holders of at least 10% of the
Registrable Securities may require the registration of at least the lesser of
50% of the Registrable Securities then outstanding or a number of shares
expected to have an aggregate offering price of $15 million at any time after
six months from the effective date of the Offerings. If the Company receives a
request to register any of the Common Stock for the account of the Holders, or
the Company registers Common Stock for its own account, the Company must offer
to other Holders of Registrable Securities and all others who have a
contractual right, the opportunity to include their shares in the
registration. The Holders may require no more than two long-form registration
statements in any year and no more than three registration statements on Form
S-3 for which the Company will pay all registration expenses. The Company is
not required to pay for a long-form registration statement unless the
Registrable Securities will be disposed of in a firm commitment underwritten
offering. A Holder's right to include shares in an underwritten registration
is subject to the ability of the underwriters to limit the number of shares
included in the offering. The Company is not required to prepare and file a
registration statement which would become effective within 270 days following
the effective date of a registration statement filed by the Company.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of the DGCL and of the Certificate of Incorporation and
Bylaws, summarized in the following paragraphs, may be considered to have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt that a stockholder might consider to be in
such stockholder's best interest, including such an attempt as might result in
payment of a premium over the market price for shares held by stockholders.
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Delaware Anti-Takeover Law. Section 203 ("Section 203") of the DGCL
provides, in general, that a stockholder acquiring more than 15% of the
outstanding voting stock of a corporation subject to the statute (an
"Interested Stockholder") but less than 85% of such stock may not engage in
certain "Business Combinations" with the corporation for a period of three
years subsequent to the date on which the stockholder became an Interested
Stockholder unless (i) prior to such date the corporation's board of directors
approved either the Business Combination or the transaction in which the
stockholder became an Interested Stockholder or (ii) the Business Combination
is approved by the corporation's board of directors and authorized by a vote
of at least 66 2/3% of the outstanding voting stock of the corporation not
owned by the Interested Stockholder.
The Restated Certificate of Incorporation of the Company, which will be
filed immediately prior to the closing of the Reorganization, will exclude the
Company from the restrictions imposed by Section 203.
Special Meetings of Stockholders. The Bylaws provide that special meetings
of stockholders may be called only by the Chairman of the Board of Directors,
Chief Executive Officer or by order of the Board of Directors.
Removal of Directors and Related Matters. Any director may be removed with
or without cause only by the vote of at least 75% of the shares entitled to
vote for the election of directors. The Certificate of Incorporation and
Bylaws require the affirmative vote of holders of at least 66 2/3% of the
combined voting power of the then outstanding shares of stock of all classes
entitled to vote generally in the election of Directors cast at a meeting of
the stockholders, as well as more than 66 2/3% of the then-outstanding Class B
Common Stock, called for the purpose to amend or repeal these Certificate of
Incorporation provisions.
Voting by Directors. All actions of the Board of Directors (including, but
not limited to, interested party transactions, financing transactions, mergers
and acquisitions, changes in executive officers, director nominations and
committee appointments) will require the vote of at least 75% of the then duly
elected and acting members of the Board of Directors. Interested directors
will be counted and may cast votes. In addition, the Bylaws provide that any
committee of the Board of Directors, other than the audit and compensation
committees, shall have four members and that decisions of the committee shall
be made by at least three of the four members.
Director Liability and Indemnification. The Certificate of Incorporation and
the Bylaws, taken together, provide that the Company shall, to the fullest
extent permitted by the DGCL as then in effect, indemnify any person who was
or is involved in any manner or was or is threatened to be made so involved in
any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, or investigative, by reason of the fact that
he is or was a director, officer, employee or agent of the Company or is or
was serving at the request of the Company as director, officer, employee or
agent of another corporation or other enterprise against all expenses,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such proceeding. The Certificate of
Incorporation provides that no director of the Company will be personally
liable to the Company or to its stockholders for monetary damages for breach
of fiduciary duty as a director. This right to indemnification includes the
right to receive payment of any expenses incurred by the person being
indemnified in connection with such proceeding in advance of the final
disposition of the proceeding consistent with applicable law as then in
effect. All rights to indemnification conferred in the Certificate of
Incorporation shall be contract rights. The right of indemnification,
including the right to receive payment in advance of expenses, conferred by
the Certificate of Incorporation and Bylaws are not exclusive of any other
rights to which any person seeking indemnification may otherwise be entitled.
The Certificate of Incorporation requires the affirmative vote of holders of
at least % of the combined voting power of the then outstanding shares of
stock of all classes entitled to vote generally in the election of Directors
to amend or repeal the Certificate of Incorporation indemnification
provisions.
TRANSFER AGENT
The registrar and transfer agent for the Class A Common Stock is
.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The shares of Class A Common Stock sold by the Company in the Offerings will
be freely tradable without restriction or further registration under the
Securities Act., except for shares held by "affiliates" of the Company (as
that term is defined in Rule 144 under the Securities Act). Upon completion of
the Offerings, the Company will have shares of Class A Common Stock
outstanding ( shares if the Underwriters' over-allotment options are
exercised in full) and shares of Class B Common Stock outstanding. Each
share of Class B Common Stock is convertible into a share of Class A Common
Stock at any time at the option of the holder. Any shares held by affiliates
of the Company may be sold only if they are registered under the Securities
Act or are sold pursuant to an applicable exemption from the registration
requirements of the Securities Act, including Rule 144 thereunder. Immediately
following the Offerings, the shares of Class B Common Stock will be held by
affiliates and will be "restricted securities" under the Securities Act. Such
shares cannot be sold other than pursuant to an effective registration
statement under the Securities Act or an applicable exemption from the
registration requirements of the Securities Act, including Rule 144
thereunder. All current holders of Class A Common Stock and Class B Common
Stock (representing % of the outstanding Class A Common Stock and % of the
Class B Common Stock) and all directors and executive officers of the Company
have agreed with the Underwriters not to offer, sell, contract to sell, grant
any option to purchase or otherwise dispose of any of their shares or any
securities convertible into or exchangeable for their shares or in any other
manner transfer all or a portion of the economic consequences associated with
ownership of their shares for a period of 180 days after the date of this
Prospectus without the prior written consent of Merrill Lynch, Pierce, Fenner
& Smith Incorporated acting on behalf of the Underwriters.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
two years is entitled to sell, within any three-month period, a number of
shares which does not exceed the greater of 1% of the then-outstanding shares
of the Company's Common Stock (approximately shares immediately
after the Offerings) or the average weekly trading volume of the Company's
Common Stock in the over-the-counter market or on a recognized exchange during
the four calendar weeks preceding the date on which notice of the sale is
filed with the Commission. Sales under Rule 144 may also be subject to certain
manner of sale provisions, notice requirements and the availability of current
public information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the three months preceding a sale, and who has beneficially owned
shares within the definition of "restricted securities" under Rule 144 for at
least three years, is entitled to sell such shares under Rule 144(k) without
regard to the volume limitation, manner of sale provisions, public information
requirements or notice requirements. To the extent shares were acquired from
an affiliate of the Company, such stockholder's holding period for the purpose
of effecting a sale under Rule 144 commences on the date of transfer from the
affiliate. The Commission has recently proposed to amend Rule 144 to shorten
each of the two-year and three-year holding periods by one year.
The Company is authorized to issue up to shares of Class A
Common Stock under its Stock Incentive Plan, of which are subject to
options which have been granted as of the date of this Prospectus (see
"Management--Stock Options and Stock Incentive Plan"). The Company intends to
file a registration statement under the Securities Act within 180 days
following the completion of the Offerings covering these shares of Class A
Common Stock. Accordingly, shares registered under such registration statement
will, subject to Rule 144 volume limitations applicable to affiliates, be
available for sale in the open market, subject to vesting restrictions and the
lock-up arrangements described above.
79
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States Federal tax
consequences of the ownership and disposition of Class A Common Stock by a
holder that, for United States Federal income tax purposes, is not a "United
States person" (a "Non-United States Holder"). For purposes of this
discussion, a "United States person" means a citizen or resident of the United
States; a corporation or partnership created or organized in the United States
or under the laws of the United States or of any political subdivision
thereof; or an estate or trust the income of which is includible in gross
income for United States Federal income tax purposes regardless of its source.
Resident alien individuals will be subject to United States Federal income tax
with respect to the Class A Common Stock as if they were United States
citizens.
This discussion does not consider any specific facts or circumstances that
may apply to a particular Non-United States Holder. Prospective investors are
urged to consult their tax advisors regarding the United States Federal tax
consequences of owning and disposing of Class A Common Stock (including such
investor's status as a United States person or Non-United States Holder), as
well as any tax consequences that may arise under the laws of any state,
municipality or other taxing jurisdiction.
Proposed United States Treasury Regulations were issued on April 15, 1996
(the "Proposed Regulations") which, if adopted, would affect the U.S. taxation
of dividends paid to a Non-United States Holder on Class A Common Stock. The
Proposed Regulations are generally proposed to be effective with respect to
dividends paid and other payments made after December 31, 1997, subject to
certain transition rules. The discussion below is not intended to be a
complete discussion of the provisions of the Proposed Regulations, and
prospective investors are urged to consult their tax advisors with respect to
the effect the Proposed Regulations would have if adopted.
DIVIDENDS
Dividends paid to a Non-United States Holder generally will be subject to
withholding of United States Federal income tax at the rate of 30% unless the
dividend is effectively connected with the conduct of a trade or business
within the United States by the Non-United States Holder, in which case the
dividend will be subject to the United States Federal income tax on net income
that applies to United States persons (and, with respect to corporate holders
and under certain circumstances, the branch profits tax). Non-United States
Holders should consult any applicable income tax treaties which may provide
for reduced withholding or other rules different from those described above. A
Non-United States Holder may be required to satisfy certain certification
requirements in order to claim treaty benefits or to otherwise claim a
reduction of or exemption from withholding under the foregoing rules.
Under the Proposed Regulations, to obtain a reduced rate of withholding
under a treaty, a Non-United States Holder would generally be required to
provide an Internal Revenue Service Form W-8 certifying such Non-United States
Holder's entitlement to benefits under a treaty together with, in certain
circumstances, additional information. The Proposed Regulations also would
provide special rules to determine whether, for purposes of determining the
applicability of a tax treaty and for purposes of the 30% withholding tax
described above, dividends paid to a Non-United States Holder that is an
entity should be treated as paid to the entity or to those holding an interest
in that entity.
GAIN ON DISPOSITION
Subject to special rules applicable to individuals as described in the next
paragraph, a Non-United States Holder will not generally be subject to United
States Federal income tax on gain recognized on a sale or other disposition of
Class A Common Stock unless (i) the gain is effectively connected with the
conduct of a trade or business within the United States by the Non-United
States Holder (or by a partnership, trust or estate in which the Non-United
States Holder is a partner or beneficiary) or (ii) the Company is or becomes a
"United States real property holding corporation" for United States Federal
income tax purposes (a "USRPHC") and certain
80
<PAGE>
other requirements are met. The Company believes that it has not been, and is
not currently, a USRPHC. It is possible, however, that the Company may become
a USRPHC in the future. If the Company were to become a USRPHC at any time
within the shorter of (a) the five year period preceding a sale of Class A
Common Stock by a Non-United States Holder or (b) such Non-United States
Holder's holding period for such stock (the "Testing Period"), then gain
realized on a disposition of Class A Common Stock by a Non-United States
Holder that owns, actually or constructively, more than 5% of the Class A
Common Stock at any time during the Testing Period generally will be treated
as effectively connected with the conduct of a trade or business within the
United States by such Non-United States Holder. Gain that is effectively
connected with the conduct of a trade or business within the United States by
the Non-United States Holder will be subject to the United States Federal
income tax on net income that applies to United States persons (and, with
respect to corporate holders and under certain circumstances, the branch
profits tax) and may be subject to withholding. Non-United States Holders
should consult applicable income tax treaties, which may provide for different
rules.
In addition to being subject to the rules described above, an individual
Non-United States Holder who holds Class A Common Stock as a capital asset
will generally be subject to tax at a 30% rate on any gain recognized on the
disposition of such stock if such individual is present in the United States
for 183 days or more in the taxable year of disposition. Individual Non-United
States Holders may also be subject to tax pursuant to provisions of United
States Federal income tax law applicable to certain United States expatriates.
FEDERAL ESTATE TAXES
Class A Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as specially defined for United States Federal estate tax
purposes) of the United States at the date of death will be included in such
individual's estate for United States Federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Internal Revenue Service (the
"Service") and to each Non-United States Holder the amount of dividends paid
to, and the tax withheld with respect to, such holder, regardless of whether
tax was actually withheld. That information may also be made available to the
tax authorities of the country in which the Non-United States Holder resides.
United States Federal backup withholding (which generally is withholding
imposed at the rate of 31% on certain payments to persons not otherwise exempt
who fail to furnish certain information) will not generally apply to dividends
paid to a Non-United States Holder that are subject to withholding at the 30%
rate (or would be so subject but for a reduced rate under an applicable
treaty). In addition, the payor of dividends currently may rely on the payee's
foreign address in determining that the payee is exempt from backup
withholding, unless the payor has knowledge that the payee is a United States
person.
Those backup withholding and information reporting requirements also apply
to the gross proceeds paid to a Non-United States Holder upon the disposition
of Class A Common Stock by or through a United States office of a United
States or foreign broker, unless the holder certifies to the broker under
penalties of perjury as to its name, address and status as a Non-United States
Holder or the holder otherwise establishes an exemption. Information reporting
requirements (but not backup withholding) will apply to a payment of the
proceeds of a disposition of Class A Common Stock by or through a foreign
office of (i) a United States broker, (ii) a foreign broker 50% or more of
whose gross income for certain periods is effectively connected with the
conduct of a trade or business in the United States or (iii) a foreign broker
that is a "controlled foreign corporation" for United States Federal income
tax purposes, unless the broker has documentary evidence in its records that
the holder is a Non-United States Holder and certain other conditions are met,
or the holder otherwise establishes an exemption. Neither backup withholding
nor information reporting generally will apply to a payment of the proceeds of
a disposition of Class A Common Stock by or through a foreign office of a
foreign broker not subject to the preceding sentence.
81
<PAGE>
The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions under which a Non-United States Holder would be subject
to backup withholding and information reporting unless the Company receives
certification from the holder of non-United States status.
Any amounts withheld under the backup withholding rules will be refunded or
credited against the Non-United States Holder's United States Federal income
tax liability, provided that required information is furnished to the Service.
82
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"U.S. Purchase Agreement"), the Company has agreed to sell to each of the
underwriters named below (the "U.S. Underwriters"), and each of the U.S.
Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Allen & Company Incorporated and Bear, Stearns & Co. Inc.
are acting as representatives (the "U.S. Representatives"), severally has
agreed to purchase, the aggregate number of shares of Class A Common Stock set
forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
OF
U.S. UNDERWRITERS SHARES
----------------- --------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................
Allen & Company Incorporated.....................................
Bear, Stearns & Co. Inc..........................................
--------
Total..........................................................
========
</TABLE>
The Company has also entered into a purchase agreement (the "International
Purchase Agreement" and, together with the U.S. Purchase Agreement, the
"Purchase Agreements") with Merrill Lynch International, Allen & Company
Incorporated and Bear, Stearns International Limited, acting as
representatives (the "International Representatives" and, together with the
U.S. Representatives, the "Representatives"), and certain other underwriters
outside the United States and Canada (collectively, the "International
Underwriters" and, together with the U.S. Underwriters, the "Underwriters").
Subject to the terms and conditions set forth in the International Purchase
Agreement, the Company has agreed to sell to the International Underwriters,
and the International Underwriters severally have agreed to purchase, an
aggregate of shares of Class A Common Stock.
In each Purchase Agreement, the Underwriters named therein have agreed,
subject to the terms and conditions set forth in such Purchase Agreement, to
purchase all of the shares of Class A Common Stock being sold pursuant to such
Purchase Agreement if any of the shares of Class A Common Stock being sold
pursuant to such Purchase Agreement are purchased. Under certain
circumstances, under the Purchase Agreements, the commitments of non-
defaulting Underwriters may be increased. Each Purchase Agreement provides
that the Company is not obligated to sell, and the Underwriters named therein
are not obligated to purchase, the shares of Class A Common Stock under the
terms of the Purchase Agreement unless all of the shares of Class A Common
Stock to be sold pursuant to the Purchase Agreements are contemporaneously
sold.
The U.S. Representatives have advised the Company that the U.S. Underwriters
propose to offer the shares of Class A Common Stock offered hereby to the
public initially at the public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share of Class A Common Stock, and that the U.S.
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share of Class A Common Stock on sales to certain other dealers.
After the Offerings, the public offering price, concession and discount may be
changed.
The public offering price per share of Class A Common Stock and the
underwriting discount per share of Class A Common Stock are identical for both
Offerings.
The Company has granted to the U.S. Underwriters and the International
Underwriters options to purchase up to an aggregate of shares and shares
of Class A Common Stock, respectively, at the initial public offering price,
less the underwriting discount. Such options, which will expire 30 days after
the date of this Prospectus, may be exercised solely to cover over-allotments.
The Company has been informed that the Underwriters have entered into an
agreement (the "Intersyndicate Agreement") providing for the coordination of
their activities. Pursuant to the Intersyndicate Agreement, the
83
<PAGE>
U.S. Underwriters and the International Underwriters are permitted to sell
shares of Class A Common Stock to each other. The Company has been informed
that, under the terms of the Intersyndicate Agreement, the U.S. Underwriters
and any dealer to whom they sell shares of Class A Common Stock will not offer
to sell or resell shares of Class A Common Stock to persons who are non-U.S.
or non-Canadian persons or to persons they believe intend to resell to persons
who are non-U.S. or non-Canadian persons, and the International Underwriters
and any bank, broker or dealer to whom they sell shares of Class A Common
Stock will not offer to resell shares of Class A Common Stock to U.S. persons
or to Canadian persons or to persons they believe intend to resell to U.S.
persons or to Canadian persons, except in the case of transactions pursuant to
the Intersyndicate Agreement which, among other things, permits the
Underwriters to purchase from each other and to offer to resell such number of
shares of Class A Common Stock as the selling Underwriter or Underwriters and
the purchasing Underwriter or Underwriters may agree.
The Company, Fox Broadcasting, Haim Saban and certain officers and directors
of the Company have each agreed not to sell or grant any option for the sale
of, or otherwise dispose of, any Common Stock, or any securities convertible
into or exchangeable or exercisable for shares of Common Stock, other than the
shares of Common Stock that may be offered by the Company in the Offerings and
not to file or request to be filed, as the case may be, any registration
statement with respect to Common Stock for a period of 180 days after the date
of this Prospectus without the prior written consent of Merrill Lynch.
The U.S. Underwriters and the International Underwriters have informed the
Company that they do not intend to sell shares of Class A Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
Prior to the Offerings, there has been no public market for the Class A
Common Stock of the Company. The initial public offering price for the Class A
Common Stock has been determined by negotiation between the Company and the
U.S. Representatives and International Representatives. Among the factors that
were considered in determining the initial public offering price were the
Company's results of operations, the Company's current financial condition,
its future prospects, the experience of its management, the economics of the
industry in general, the general condition of the equity securities market,
the demand for similar securities of companies considered comparable to the
Company and other relevant factors.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
Certain of the Underwriters or their affiliates have provided from time to
time, and may provide in the future, commercial and investment banking
services to News Corp. and its affiliates, for which such Underwriters or
their affiliates have received or will receive fees and commissions.
Allen & Company Incorporated ("Allen") has, over the years, rendered
investment banking and financial advisory services to News Corp. and various
of its subsidiaries, as well as to Saban, in connection with a number of
matters. Stanley S. Shuman, a Managing Director and Executive Vice President
of Allen, has been a non-Executive Director of News Corp. since 1982. Allen
acquired 16 16/99 shares of common stock of FCN Holding in lieu of a cash fee
earned in December 1995 for certain financial advisory and other investment
banking services rendered to FCN Holding in connection with the negotiation,
structuring, formation and capitalization of the LLC. These shares will be
exchanged in the Reorganization for shares of Class A Common Stock of
the Company. As a result, after the Reorganization and before the Offerings,
Allen will own an aggregate of shares of Class A Common Stock of the
Company.
84
<PAGE>
LEGAL MATTERS
Counsel for the Company, Troop Meisinger Steuber & Pasich, LLP, Los Angeles,
California, has rendered an opinion to the effect that the Class A Common
Stock offered by the Company upon sale will be duly and validly issued, fully
paid and nonassessable. Certain legal matters will be passed upon for the
Underwriters by Cahill Gordon & Reindel (a partnership including a
professional corporation), New York, New York.
EXPERTS
The consolidated financial statements of Saban Entertainment, Inc. at May
31, 1994 and 1995 and at October 31, 1995, and for each of the three years in
the period ended May 31, 1995 and the five month period ended October 31,
1995, appearing in this Prospectus and Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of FCN Holding, Inc. at July 3, 1994,
July 2, 1995 and October 29, 1995, and for each of the two years in the period
ended July 2, 1995 and for the four months ended October 29, 1995 and the
Balance Sheet of Fox Kids Worldwide, Inc. at September 27, 1996, appearing in
this Prospectus and Registration Statement, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The combined financial statements of FCN Holding, Inc., Saban Entertainment,
Inc. and Fox Kids Worldwide, L.L.C. (from and after the date of the
Reorganization, Fox Kids Worldwide, Inc.) at June 30, 1996 and for the eight
months ended June 30, 1996, appearing in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as
set forth in their report thereon appearing elsewhere herein, and are included
in reliance upon such report given upon the authority of such firm as experts
in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement under the Securities Act with respect to the shares of
Class A Common Stock offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits
thereto, certain portions of which have been omitted pursuant to the rules and
regulations of the Commission. Statements contained in this Prospectus as to
the contents of any contract or any other document referred to are not
necessarily complete, and with respect to any contract or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such
statement is qualified in its entirety by such reference. For further
information with respect to the Company and the shares offered hereby,
reference is hereby made to the Registration Statement and exhibits thereto. A
copy of the Registration Statement, including the exhibits thereto, may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, upon payment of certain prescribed rates.
Upon consummation of the Offerings, the Company will become subject to the
information and reporting requirements of the Securities Exchange Act and, in
accordance therewith, will file reports and other information with the
Commission in accordance with its rules. Such reports and other information
concerning the Company may be inspected and copied at the address set forth
above and the Commission's Regional Offices in New York (Suite 1300, Seven
World Trade Center, New York, New York 10048) and Chicago (Citicorp Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661).
Application has been made to list the Class A
85
<PAGE>
Common Stock on the New York Stock Exchange. If approved for listing, any such
material will also be available for inspection at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company intends to furnish holders of Class A Common Stock annual
reports containing audited consolidated financial statements and quarterly
reports containing unaudited financial information. Such audited financial
statements and unaudited quarterly financial information will be prepared in
accordance with generally accepted accounting principles in the United States.
86
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE,
L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS
WORLDWIDE, INC.)
Report of Independent Auditors......................................... F-2
Combined Balance Sheet as of June 30, 1996............................. F-3
Combined Statement of Operations for the eight months ended June 30,
1996.................................................................. F-4
Combined Statement of Stockholders' Equity for the eight months ended
June 30, 1996......................................................... F-5
Combined Statement of Cash Flows for the eight months ended June 30,
1996.................................................................. F-6
Notes to Combined Financial Statements................................. F-7
FCN HOLDING, INC.
Report of Independent Auditors.......................................... F-21
Consolidated Balance Sheets as of July 3, 1994, July 2, 1995 and October
31, 1995............................................................... F-22
Consolidated Statements of Operations for the periods ended July 3,
1994, July 2, 1995 and October 31, 1995................................ F-23
Consolidated Statements of Stockholder's Equity for the periods ended
July 3, 1994, July 2, 1995 and October 31, 1995........................ F-24
Consolidated Statements of Cash Flows for the period ended July 3, 1994,
July 2, 1995 and October 31, 1995...................................... F-25
Notes to Consolidated Financial Statements.............................. F-26
SABAN ENTERTAINMENT, INC.
Report of Independent Auditors.......................................... F-31
Consolidated Balance Sheets as of May 31, 1994 and 1995 and October 31,
1995................................................................... F-32
Consolidated Statements of Operations for the years ended May 31, 1994
and 1995 and for the five months ended October 31, 1995................ F-33
Consolidated Statements of Stockholders' Equity for the years ended May
31, 1994 and 1995 and for the five months ended October 31, 1995....... F-34
Consolidated Statements of Cash Flows for the years ended May 31, 1994
and 1995 and for the five months ended October 31, 1995................ F-35
Notes to Consolidated Financial Statements.............................. F-36
FOX KIDS WORLDWIDE, INC.
Report of Independent Auditors.......................................... F-47
Balance Sheet as of September 27, 1996.................................. F-48
Notes to Financial Statements........................................... F-49
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Boards of Directors and Members Committee
FCN Holding, Inc., Saban Entertainment, Inc. and Fox Kids Worldwide, L.L.C.
We have audited the accompanying combined balance sheet of FCN Holding,
Inc., Saban Entertainment, Inc. and Fox Kids Worldwide, L.L.C. (from and after
the date of the Reorganization (Note 1), Fox Kids Worldwide, Inc.) as of June
30, 1996 and the related combined statements of operations, stockholders'
equity, and cash flows for the eight months ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of FCN
Holding, Inc., Saban Entertainment, Inc. and Fox Kids Worldwide, L.L.C. (from
and after the date of the Reorganization (Note 1), Fox Kids Worldwide, Inc.)
and the combined results of their operations and their cash flows for the
eight months ended June 30, 1996, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Los Angeles, California
September 27, 1996
F-2
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
COMBINED BALANCE SHEET
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents........................................ $ 16,044,000
Restricted cash.................................................. 8,000,000
Accounts receivable, net of allowance for doubtful accounts of
$1,690,000 and including $3,119,000 from related parties........ 56,225,000
Amounts receivable from related parties.......................... 25,789,000
Programming costs, less accumulated amortization................. 181,427,000
Property and equipment, at cost, less accumulated depreciation... 8,711,000
Deferred income taxes............................................ 27,023,000
Other assets..................................................... 13,051,000
------------
Total assets..................................................... $336,270,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................................................. $ 8,192,000
Accrued liabilities.............................................. 30,247,000
Deferred revenue................................................. 67,882,000
Fox Kids Network affiliate participation payable................. 13,738,000
Accrued programming expenditures................................. 15,179,000
Accrued residuals and participations............................. 22,040,000
Income taxes payable............................................. 3,884,000
Deferred income taxes............................................ 790,000
Debt............................................................. 19,916,000
Amounts payable to related parties............................... 81,571,000
------------
Total liabilities................................................ $263,439,000
Commitments and contingencies.................................... --
Stockholders' equity
Preferred class A members interest............................. 40,000,000
Common stock, $.01 par value, 10,000 shares authorized, 800
shares issued and outstanding (Saban Entertainment, Inc.)..... --
Common stock, no par value, 2,000 shares authorized, 2,000
shares issued and outstanding (FCN Holding, Inc.) ............ 2,000
Contributed capital............................................ 49,245,000
Cumulative translation adjustment.............................. (11,000)
Retained deficit............................................... (16,405,000)
------------
Total stockholders' equity....................................... 72,831,000
------------
Total liabilities and stockholders' equity....................... $336,270,000
============
</TABLE>
See accompanying notes.
F-3
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
COMBINED STATEMENT OF OPERATIONS
EIGHT MONTHS ENDED JUNE 30, 1996
<TABLE>
<S> <C>
Net revenues (including $5,498,000 from related parties)........... $191,621,000
Costs and expenses:
Amortization of programming costs, residuals and participations.. 98,937,000
Selling, general and administrative (including $1,114,000 to a
related party).................................................. 23,072,000
Fox Kids Network affiliate participations........................ 8,853,000
------------
Operating income................................................... 60,759,000
Investment advisory fee............................................ 10,000,000
Interest expense (including $170,000 to a related party)........... 885,000
------------
Income before provision for income taxes........................... 49,874,000
Provision for income taxes......................................... 18,274,000
------------
Net income......................................................... $ 31,600,000
============
Net income attributable to common stock............................ $
============
Net income per common share........................................ $
============
Weighted average shares outstanding................................
============
</TABLE>
See accompanying notes.
F-4
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
JUNE 30, 1996
<TABLE>
<CAPTION>
PREFERRED CLASS A
MEMBERS INTEREST COMMON STOCK CUMULATIVE
------------------ ------------- CONTRIBUTED TRANSLATION RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT TOTAL
------ ----------- ------ ------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at November 1,
1995 .................. -- $ -- 2,000 $2,000 $ -- $ -- $ (4,132,000) $ (4,130,000)
Transactions at November
1, 1995:
Capital contributions.. -- -- -- -- 29,344,000 -- -- 29,344,000
Forgiveness of debt.... -- -- -- -- 5,124,000 -- -- 5,124,000
Distribution........... -- -- -- -- -- -- (2,700,000) (2,700,000)
Saban Entertainment,
Inc................... -- -- 800 -- 11,751,000 46,000 83,174,000 94,971,000
Elimination of certain
amounts between FCN
Holding, Inc. and
Saban Entertainment,
Inc. ................. -- -- -- -- -- -- (4,247,000) (4,247,000)
Payment to a related
party for a stock
purchase option........ -- -- -- -- -- -- (80,100,000) (80,100,000)
Related party tax
obligation............. -- -- -- -- 3,026,000 -- -- 3,026,000
Exchange loss on
translation of foreign
subsidiaries' financial
statements............. -- -- -- -- -- (57,000) -- (57,000)
Net income.............. -- -- -- -- -- -- 31,600,000 31,600,000
Amount attributable to
Series A Preferred
Stock.................. -- 40,000,000 -- -- -- -- (40,000,000) --
--- ----------- ----- ------ ----------- -------- ------------ ------------
Balance at June 30,
1996................... -- $40,000,000 2,800 $2,000 $49,245,000 $(11,000) $(16,405,000) $ 72,831,000
=== =========== ===== ====== =========== ======== ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
COMBINED STATEMENT OF CASH FLOWS
EIGHT MONTHS ENDED JUNE 30, 1996
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income..................................................... $ 31,600,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Amortization of programming costs............................ 84,490,000
Depreciation................................................. 1,585,000
Cumulative translation adjustment............................ (57,000)
Investment advisory fee...................................... 10,000,000
Changes in operating assets and liabilities:
Restricted cash............................................ (3,000,000)
Accounts receivable........................................ 11,896,000
Amounts receivable from related parties.................... (8,672,000)
Additions to programming costs............................. (113,506,000)
Other assets............................................... 2,194,000
Accounts payable........................................... (8,009,000)
Accrued liabilities........................................ 224,000
Accrued residuals and participations....................... 5,771,000
Administration fee payable to a related party.............. (6,173,000)
Income taxes payable and deferred income taxes............. (9,583,000)
Deferred revenue........................................... 23,437,000
Fox Kids Network affiliate participation payable........... (4,667,000)
Accrued programming expenditures........................... (4,637,000)
-------------
Net cash provided by operating activities...................... 12,893,000
INVESTING ACTIVITIES
Purchase of property and equipment............................. (3,053,000)
Acquisition of programming rights.............................. (7,200,000)
Acquisition of Creativite & Developpement SA................... (1,722,000)
Cash acquired in acquisition of Creativite & Developpement SA.. 3,151,000
Cash acquired in deemed acquisition of Saban Entertainment,
Inc........................................................... 16,207,000
-------------
Net cash provided by investing activities...................... 7,383,000
FINANCING ACTIVITIES
Proceeds from bank borrowings.................................. 15,880,000
Payments on bank borrowings.................................... (11,606,000)
Payment to a related party for a stock purchase option......... (80,100,000)
Proceeds from related parties.................................. 207,400,000
Payments to related parties.................................... (139,433,000)
Capital contributions from related parties..................... 3,310,000
-------------
Net cash used in financing activities.......................... (4,549,000)
-------------
Increase in cash and cash equivalents.......................... 15,727,000
Cash and cash equivalents at beginning of period............... 317,000
-------------
Cash and cash equivalents at end of period..................... $ 16,044,000
=============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized)........................ $ 414,000
=============
Income taxes................................................. $ 27,796,000
=============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Amounts payable to a related party of $5,124,000 were forgiven
and recorded as contributed capital.
The Company accrued $10,000,000 in other assets and amounts
payable to related parties in connection with the formation of
the LLC.
A receivable from a related party of $2,700,000 was forgiven
and charged to retained earnings.
The Company recorded $3,026,000 arising under a tax sharing
obligation which was deemed to be contributed to capital by
the related party.
</TABLE>
See accompanying notes.
F-6
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
1. BASIS OF FINANCIAL STATEMENT PRESENTATION, ORGANIZATION AND RELATED PARTY
TRANSACTIONS
On November 1, 1995 (the "Effective Date") FCN Holding, Inc. ("FCN Holding")
and Saban Entertainment, Inc. ("Saban") formed Fox Kids Worldwide, L.L.C. (the
"LLC"), a limited liability company, for the purpose of jointly expanding the
worldwide childrens' businesses of FCN Holding and Saban. Since the Effective
Date, FCN Holding and Saban have been operated by their respective managements
subject to the overall supervision of the Members Committee of the LLC. In
connection with the initial public offerings referred to below (the
"Offerings"), a reorganization (the "Reorganization") will be effected
pursuant to which Saban, FCN Holding and the LLC will become wholly-owned
subsidiaries of Fox Kids Worldwide, Inc. ("Fox Kids Worldwide" or the
"Company"). Solely for financial statement presentation purposes, although the
Company will not acquire any of the shares of the capital stock of Saban until
immediately prior to the closing of the Offerings, and although the
Reorganization will not be effected until immediately prior to the closing of
the Offerings, as the result of the foregoing, the assets and liabilities of
Saban, FCN Holding and the LLC are being recorded at historical cost from and
after the Effective Date. The combined historical financial statements of the
Company (as the deemed successor to Saban, FCN Holding and the LLC) included
herein represent the historical financial statements of FCN Holding (after
giving effect to such combination as of the Effective Date).
The combined financial statements of the Company includes the balance sheets
of FCN Holding, Saban and the LLC at June 30, 1996 together with the combined
results of operations of FCN Holding, Saban and the LLC since November 1,
1995. The operations of certain foreign subsidiaries of Saban have been
combined at May 31, 1996 and include operations for the eight month period
ended May 31, 1996. Unaudited pro forma consolidated statements of operations
for the period from July 4, 1994 to July 2, 1995 and from July 3, 1995 to June
30, 1996, which would consolidate the results of operations of FCN Holding,
Saban and the LLC from the beginning of the respective periods are presented
below.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JULY 4, 1994 JULY 3, 1995
TO TO
JULY 2, 1995 JUNE 30, 1996
------------ -------------
<S> <C> <C>
Pro-forma revenues.............................. $380,449,000 $327,105,000
Pro-forma net income............................ $ 68,170,000 $ 71,370,000
============ ============
</TABLE>
The Company is a fully-integrated global children's television entertainment
company which develops, acquires, produces, broadcasts and distributes quality
animated and live-action children's television programming. The Company's
principal operations are conducted by (i) Fox Children's Network, Inc.
("FCN"), which operates the Fox Kids Network--the top rated children's (ages
2-11) oriented broadcast television network in the United States ("Fox Kids
Network") and (ii) Saban, whose library of more than 3,700 half-hours of
children's programming is among the largest in the world. The Company is the
result of the joint venture (the LLC) formed in 1995 by Fox Broadcasting
Company ("Fox Broadcasting") and Saban. All significant intercompany
transactions and accounts have been eliminated.
THE REORGANIZATION
Fox Kids Worldwide was incorporated in Delaware in August 1996 and currently
conducts no business or operations. Immediately prior to the closing of the
Offerings, (i) Fox Broadcasting Sub, Inc.; a wholly-owned subsidiary of Fox
Broadcasting ("Fox Broadcasting Sub"), will exchange its capital stock in FCN
Holding, which indirectly owns FCN, for 50% of the number of shares of the Fox
Kids Worldwide's class B common
F-7
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
stock, par value $0.001 per share ("Class B Common Stock"), which will be
outstanding immediately after the Reorganization and prior to the closing of
the Offerings (the "Reorganization Closing"), (ii) the other stockholders of
FCN Holding will exchange their capital stock in FCN Holding for an aggregate
of one percent of the aggregate number of shares of Class A Common Stock and
Class B Common Stock (the "Common Stock") which will be outstanding
immediately after the Reorganization Closing, (iii) the Chairman and Chief
Executive Officer of Saban ("Haim Saban") and the other stockholders of Saban
will exchange their capital stock in Saban for an aggregate of 50% of the
number of shares of Class B Common Stock which will be outstanding immediately
after the Reorganization Closing and (iv) all outstanding management options
to purchase Saban capital stock will become options to purchase an aggregate
of approximately four percent of the aggregate number of shares of Common
Stock which will be outstanding immediately after the Reorganization Closing.
In addition, Fox Broadcasting will exchange its preferred, non-voting interest
in the LLC for an aggregate of 1,000,000 shares of Fox Kids Worldwide's series
A redeemable preferred stock, $0.001 par value per share (the "Series A
Preferred Stock") and will exchange a $50 million contingent note receivable
from the LLC for a new preferred, non-voting interest in the LLC. As a result
of these transaction, FCN Holding, FCN, Saban and the LLC will become direct
or indirect subsidiaries of Fox Kids Worldwide, Inc.
RELATED PARTY TRANSACTIONS IN CONNECTION WITH THE FORMATION OF THE LLC AND THE
SUBSEQUENT REORGANIZATION
As described more fully below, in connection with the formation of the LLC
and the subsequent Reorganization, various corporate affiliates of Fox
Broadcasting transferred certain distribution rights and other contractual
rights to the LLC, made a cash loan to the LLC and committed to provide
certain administrative services to FCN Holding on an on-going basis. In
consideration, Fox Broadcasting is entitled to receive payment of its loan and
certain other cash distributions in priority to the common stockholders of the
Company.
FCN and Twentieth Century Fox Licensing and Merchandising, a unit of Fox,
Inc. ("Twentieth Fox Licensing") had previously entered into a Merchandising
Rights Acquisition Agreement, dated as of July 1, 1990, pursuant to which FCN
licensed to Twentieth Fox Licensing the worldwide merchandising rights to
properties owned or controlled by FCN. The term of the agreement extends in
perpetuity. In consideration for the rights granted, Twentieth Fox Licensing
agreed to pay FCN an amount equal to 100% of net profits from exploitation of
such merchandising rights, which equaled gross receipts less distribution fees
and expenses. On December 22, 1995, in connection with the formation of the
LLC, this agreement, and all amounts retained as distribution fees by
Twentieth Fox Licensing from June 1, 1995 through that date, were assigned to
the LLC by Fox Broadcasting and certain of its affiliates ("Fox Parties").
FCN and Twentieth Century Fox Film Corporation ("Twentieth Century Fox") are
parties to a Distribution Rights Acquisition Agreement, dated as of September
1, 1990, pursuant to which FCN licensed to Twentieth Century Fox certain
worldwide distribution rights with respect to programming owned or controlled
by FCN. The term of this agreement extends in perpetuity. In consideration for
the rights granted, Twentieth Century Fox agreed to pay FCN 100% of net
profits, which equals gross receipts less distribution fees and expenses. On
December 22, 1995, in connection with the formation of the LLC, this
agreement, and all rights retained by Twentieth Century Fox commencing June 1,
1995, were assigned to the LLC by the Fox Parties.
FCN and Fox Broadcasting are parties to an Administration Agreement, dated
as of February 7, 1990, pursuant to which Fox Broadcasting agreed to provide
the following services to FCN: network national advertising sales and the
administration thereof, commercial trafficking and broadcast operations
(including
F-8
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
all uplink, transponder and other facilities necessary to deliver via
satellite Fox Kids Network programming for broadcast to the Fox Kids Network
Affiliates (defined below)) and overhead charges related to Fox Broadcasting's
in-house administrative support in the areas of research, promotion, business
affairs, legal affairs and accounting. FCN agreed to pay to Fox Broadcasting a
fee equal to 15% of 100% of the net advertising revenue (gross advertising
revenue less advertising agency commissions) derived with respect to national
commercials, commercial material or other advertising matter included or used
in connection with any of the programs exhibit on the Fox Kids Network. On
December 22, 1995, in connection with the terms of the LLC, this agreement,
and all rights of Fox Broadcasting to receive management fees on or subsequent
to June 1, 1995, were assigned to the LLC by the Fox Parties. Consequently,
the Company agreed to pay to Fox Broadcasting a fee of $10 million for
providing these services and such amount is included in other assets and
amounts payable to related parties at June 30, 1996. In September 1996, the
Company paid this fee and, immediately upon receipt of this $10 million
payment, Fox Broadcasting made a contribution to the LLC of $10 million in
exchange for additional Class A Members Interest, described above. Fox
Broadcasting continues to be obligated to provide the services described above
and estimates the incremental costs for providing these services to the
Company to be $2,200,000 per annum. Accordingly, the Company is amortizing the
$10 million fee over approximately five years, representing the period over
which the value of the services is estimated to be incurred, and has recorded
amortization of $1,467,000 for the eight months ended June 30, 1996. Fox
Broadcasting believes that these estimates were made on a reasonable basis.
However, these estimates may not necessarily be indicative of the level of
expenses that might have been incurred had the Company operated on a stand-
alone basis. Fox Broadcasting has not made a study or any attempt to obtain
quotes from third parties to determine what the costs of obtaining such
services from third parties would have been.
Pursuant to terms of the affiliation agreements ("Agreements") among the
Company, Fox Broadcasting and substantially all of its affiliated television
stations ("Fox Kids Network Affiliates"), the Fox Kids Network Affiliates,
including owned operated television stations of certain affiliates of Fox
Broadcasting ("Fox O&O's") are entitled to compensation which is equal to 100%
of FCN's programming Net Profits (as defined below). Amounts payable under
these compensation arrangements are due quarterly in amounts derived pursuant
to the provisions in the Agreements. "Net Profits" is defined on a cumulative
basis to include amounts actually received by FCN from the exhibition,
distribution and other exploitation of the Company's programs and the
merchandising and other rights relating thereto, less administrative fees,
production/license fees, distribution and merchandising fees (including those
payable to the Company), overhead and other expenses and reserves. Certain of
the Fox O&O's have waived in favor of the Company their rights to receive
these participations.
In addition to assigning to the LLC the agreements and Net Profit
participations referred to above, Fox Broadcasting agreed that the net cash
flow to the LLC from such agreements and participations for the twelve months
ended June 30, 1996 would be a minimum of $35,755,000. For the eight months
ended June 30, 1996, the Company recorded $16,611,000 as a decrease in
expenses. The remaining balance of $19,144,000 was recorded as a capital
contribution. Subsequent to June 30, 1996, the outstanding balance was paid.
In connection with the formation of the LLC, Fox Broadcasting made a $64.5
million interest free loan to the LLC, of which $14.5 million of the loan was
repaid in September 1996. The $50 million balance of this loan must be paid
out of Distributable Cash of the LLC before any distributions are made on the
Class A and Class B Members Interests. In connection with the Reorganization,
concurrent with the closing of the Offerings, Fox Broadcasting will exchange
this loan for new Class A Members Interests in the LLC, which will grant Fox
Broadcasting a priority right to receive distributions of Distributable Cash
(as defined below) and other
F-9
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
distributions from the LLC until it has received aggregate distributions of
$50 million, whereupon it will terminate and expire. Distributable Cash means
the amount of cash available for distribution by the LLC (including cash
available from Saban and FCN Holding), taking into account all cash, debts,
liabilities and obligations of the LLC then due and after setting aside
reserves to provide for the LLC's capital expenditures, debt service, working
capital and expansion plans ("Distributable Cash").
In addition to the priority distributions described in the paragraph above,
in connection with the formation of the LLC, Fox Broadcasting was also granted
a priority right to receive distributions of Distributable Cash and other
distributions until it receives aggregate distributions in an amount equal to
$40 million. As described below, in September 1996, Fox Broadcasting
purchased, for $10 million cash, an additional $10 million of Class A Members
Interest. Pursuant to the terms of the Reorganization and concurrent with the
closing of the Offerings, Fox Broadcasting will exchange this Class A Members
Interest for 1,000,000 shares of the Company's Series A Preferred Stock. This
Series A Preferred Stock terminates once an aggregate of $50 million in
dividends and redemption amounts are paid to Fox Broadcasting. The difference
between the carrying value of the Series A Preferred Stock and the liquidation
value has been accreted and charged against retained earnings.
Pursuant to an agreement, dated December 22, 1995, between the LLC and the
stockholders of Saban, the LLC was granted an option to purchase, upon the
occurrence of certain events, all of the Saban common stock (or the stock of a
successor entity, including the Company) held by the stockholders of Saban,
and any of their transferees ("Stock Ownership Agreement"). The option is
triggered upon the occurrence of the following events and may be exercised as
follows: (i) for a period of one year following the death of Haim Saban, if he
dies prior to December 22, 2012; (ii) upon delivery of written notice by Fox
Broadcasting at any time on or after December 22, 2002 or before December 22,
2012; or (iii) upon receipt by Fox Broadcasting of written notice (which
generally cannot be delivered prior to December 22, 2001) from Haim Saban of
his desire to cause Fox Broadcasting to purchase all of the shares of Class B
Common Stock held by the stockholders of Saban. The LLC paid to the
stockholders of Saban an aggregate of $80.1 million for payment under the
Stock Ownership Agreement. The purchase price formula under the option is
based on the fair market value of the Company. As part of the Reorganization,
the LLC distributed the Stock Ownership Agreement to Fox Broadcasting Sub.
OTHER RELATED PARTY TRANSACTIONS
Receivables from related parties include advances of $1,329,000 to certain
non-stockholder officers and directors of the Company.
Saban and Fox Broadcasting are parties to a barter syndication agreement,
dated as of January 5, 1996, pursuant to which Saban engaged Fox Broadcasting
to provide barter advertising sales for the 1996-1997 broadcast season for the
Saban Kids Network, an ad hoc syndicated distribution network.
Related companies of Fox Broadcasting have funded the operations of FCN
Holding from its inception through loans to the Company. All amounts derived
by the operations of FCN Holding are used to reduce such outstanding
borrowings. Amounts outstanding bear interest at the prime rate (8.25% at June
30, 1996). Amounts due to the related companies of Fox Broadcasting in
connection therewith, including interest, totalled $7,071,000 at June 30,
1996.
F-10
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company has also entered into a number of binding agreements with
affiliated companies of The News Corporation Limited, the parent company of
Fox Broadcasting, to launch new international children's channels.
From time to time, Saban has loaned and advanced funds to Haim Saban. In
connection with the formation of the LLC and as inducement to Haim Saban to
enter into certain documentation in connection with the formation of the LLC,
on December 22, 1995, Saban forgave in full the loan plus accrued interest
owing from Haim Saban in the amount of approximately $2,700,000. This amount
was treated as a distribution and charged to retained earnings in the eight
months ended June 30, 1996. In connection with Haim Saban's employment
agreement, dated December 22, 1995, with the LLC, the LLC agreed to reimburse
Haim Saban for all out-of-pocket costs and expenses for domestic and
international travel, including private air charter which may include aircraft
owned directly or indirectly by Haim Saban. For the eight months ended June
30, 1996, Saban has paid approximately $370,000 for such services.
Saban currently leases and distributes its entertainment properties (e.g.,
motion pictures, television programs, merchandising and licensing rights) in
Israel through Duveen Trading Ltd. ("Distributor"), a corporation owned wholly
by Haim Saban's brother. The term of the agreement extends through
December 31, 1997, subject to extension by Saban for an additional three
years. Duveen Trading Ltd. is not obligated to make any payments to Saban
under this agreement.
In September 1994, Saban entered into a music services agreement (the "Music
Agreement") with Haim Saban. The Music Agreement remains in effect until
August 31, 2001. Under the terms of the Music Agreement, all original theme
music, underscore, cues and songs for use in all programming produced by Saban
will be supplied through Haim Saban. Saban has been granted the non-exclusive,
worldwide, perpetual license to (i) synchronize and perform compositions in
theatrical motion pictures and (ii) synchronize composition in all other forms
of programming and has the royalty-free right to use the compositions in
articles of merchandise such as home video units, video games and interactive
toys. All music publishing income earned in connection with such musical
compositions is retained by Haim Saban. The Company has accrued $262,000 for
payment to Haim Saban pursuant to the terms of the Music Agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR-END
The Company's fiscal year ends on the Sunday closest to June 30.
REVENUE RECOGNITION
Advertising revenue is recognized as earned in the period in which the
advertising commercials are telecast and are net of agency commission fees of
$20,817,000. Revenues from television, music and merchandising lease
agreements, which provide for the receipt by the Company of nonrefundable
guaranteed amounts, are recognized when the lease period begins,
collectibility is reasonably assured and the product is available pursuant to
the terms of the lease agreement. Amounts in excess of minimum guarantees
under these lease agreements are recognized when earned. Amounts received in
advance of recognition of revenue are recorded as deferred revenue. FCN
Holding generally provides advertisers with guaranteed ratings in connection
with its domestic network broadcasts. Revenue is recorded net of estimated
shortfalls, which are settled either by additional advertising time ("make
goods") or cash refunds to the advertiser. FCN Holding accounts for the full
amount of the estimated shortfall.
F-11
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
PROGRAMMING COSTS
Programming costs, consisting of direct production costs, acquisition of
story rights, costs to acquire distribution rights, allocable production
overhead, interest and exploitation costs (which benefit future periods) are
capitalized as incurred. The individual film forecast method is used to
amortize programming costs in which the Company owns or controls distribution
rights. Costs accumulated in the production of a program are amortized in the
proportion that gross revenues realized bear to management's estimate of the
total gross revenues expected to be received. Estimated liabilities for
residuals and participations are accrued and expensed in the same manner as
programming cost inventories are amortized.
For programs in which the Company acquires only network broadcast rights,
the Company amortizes such program costs over the estimated number of
telecasts. The Company evaluates its programming rights for possible changes
in the estimated number of telecasts or the possibility of impairment.
Revenue estimates on a program-by-program basis are reviewed periodically by
management and are revised, if warranted, based upon management's appraisal of
current market conditions. Based on this review, if estimated future gross
revenues from a program are not sufficient to recover the unamortized costs,
the unamortized programming cost will be written down to net realizable value.
CONCENTRATION OF CREDIT RISKS
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with high
credit quality financial institutions or in a mutual fund which invests in
government securities and therefore are subject to reduced risk. The Company
has not incurred any losses relating to these investments.
The Company leases its product to distributors and broadcasters throughout
the world. The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Generally,
payment is received in full or in part prior to the Company's release of
product to such distributors and broadcasters. At June 30, 1996, substantially
all of the Company's trade receivables were from customers in the
entertainment or broadcast industries or from advertising agencies.
Receivables generally are due within 30 days. Credit losses relating to
customers in the entertainment and broadcast industries or advertising
agencies consistently have been within management's expectations.
CASH AND CASH EQUIVALENTS
For the purposes of balance sheet classification and the statement of cash
flows, the Company considers all highly liquid investments that are both
readily convertible into cash with original maturities when purchased of three
months or less to be cash equivalents.
RESTRICTED CASH
Restricted cash represents amounts held by financial institutions as
collateral on outstanding debt.
FINANCIAL INSTRUMENTS
Financial instruments are carried at historical cost which approximates fair
value.
F-12
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and depreciation is computed
using the straight-line method over their estimated useful lives of three to
five years. Leasehold improvements are amortized over the lesser of the term
of the lease or the estimated useful lives of the improvement using the
straight-line method.
FOREIGN CURRENCY TRANSLATION AND CUMULATIVE ADJUSTMENT
Saban International N.V. ("SINV"), after the Effective Date deemed to be a
wholly-owned subsidiary of the Company, uses the U.S. dollar as the functional
currency. Saban International Paris S.A.R.L. ("SIP"), Saban Entertainment
Germany GmbH and Saban Merchandising and Licensing GmbH and Saban
Entertainment (UK) Limited, all foreign subsidiaries of the Company, use local
currency as the functional currency. Assets and liabilities are translated
into U.S. dollars at current exchange rates. Revenue and expenses have been
translated into U.S. dollars based generally on the average rates prevailing
during the period.
Gains and losses arising from foreign currency transactions are included in
determining net income for the period. The aggregate transaction gains for the
eight months ended June 30, 1996 were $132,000.
The cumulative translation adjustment in stockholders' equity at June 30,
1996 represents the Company's net unrealized exchange losses on the
translation of foreign subsidiaries' financial statements.
INCOME TAXES
The Company provides for income taxes based on the liability method under
Statement of Financial Accounting Standards No. 109. Under this method,
deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes including amortization of programming costs. Actual results
could differ from those estimates. Management periodically reviews and revises
its estimates of future airings and revenues for program costs, as necessary,
which may result in revised amortization of its program costs and may be
significantly affected by the periodic adjustments in such amortization.
STOCK-BASED COMPENSATION
The Company accounts for its stock compensation arrangements under the
provisions of Accounting Principles Board No. 25, "Accounting for Stock Issued
to Employees" and intends to continue to do so.
NET INCOME PER COMMON SHARE
The per share data is based on the weighted average number of common and
common equivalent shares outstanding during the period and are calculated in
accordance with a Staff Accounting Bulletin of the Securities and Exchange
Commission whereby common and common share equivalents issued within a 12-
month period prior to an initial public offering are treated as outstanding
for all periods presented if the issue price was less than the proposed
initial public offering price. In addition, shares issuable upon the exercise
of options within the 12-month period are considered to have been outstanding
since inception of the Company.
F-13
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
For the eight months ended June 30, 1996, the per share amount gives effect
to the accretion of the preferred class A members interest up to its
liquidation value of $40,000,000.
3. PROGRAMMING COSTS
Programming costs, net of accumulated amortization, is comprised of the
following:
<TABLE>
<CAPTION>
NET
ACCUMULATED PROGRAMMING
COST AMORTIZATION COSTS
------------ ------------ ------------
<S> <C> <C> <C>
Children's programming, broadcast.... $303,161,000 $285,615,000 $ 17,546,000
Children's programming, other........ 434,773,000 344,638,000 90,135,000
Movies and mini-series............... 121,642,000 88,642,000 33,000,000
Projects in production............... 38,999,000 -- 38,999,000
Development.......................... 1,747,000 -- 1,747,000
------------ ------------ ------------
$900,322,000 $718,895,000 $181,427,000
============ ============ ============
</TABLE>
Based on the Company's estimate of future revenues, approximately 76% of
unamortized released programming costs at June 30, 1996 will be amortized
during the three years ending June 30, 1999.
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<S> <C>
Studio equipment................................................ $ 8,338,000
Office furniture and fixtures................................... 3,257,000
Leasehold improvements.......................................... 2,455,000
Other........................................................... 64,000
-----------
14,114,000
Less accumulated depreciation................................... 5,403,000
-----------
$ 8,711,000
===========
</TABLE>
5. DEBT
Debt is comprised of the following:
<TABLE>
<S> <C>
DeNationale Investeringsbank N.V.; secured line of credit due
April 18, 1999; interest at three month LIBOR (5.58% at June
30, 1996) plus 0.4% paid quarterly; maximum borrowings of
$8,000,000.................................................... $ 6,862,000
Secured lines of credit with varying due dates between December
31, 1997 and April 13, 1998; maximum borrowing availability
varying between FF 3,500,000 ($674,000 at June 30, 1996) and
FF 16,462,000 ($3,170,000 at June 30, 1996); varying interest
rates (between 4.79% and 8.75% at June 30, 1996) paid
quarterly..................................................... 3,554,000
Secured promissory notes with varying due dates between April
16, 1997 and August 5, 1999; original principal amounts paid
quarterly or at maturity; notes are non-interest bearing...... 6,484,000
Norwest Equipment Finance, Inc.; secured promissory note due
February 9, 2000 and principal paid annually; original
principal of $3,912,000; interest at 7.5% per annum and paid
annually...................................................... 3,016,000
-----------
$19,916,000
===========
</TABLE>
F-14
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Payments of principal on promissory notes in future periods are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30
-------------------
<S> <C>
1997............................................................ $6,895,000
1998............................................................ 947,000
1999............................................................ 879,000
2000............................................................ 779,000
----------
$9,500,000
==========
</TABLE>
In July 1995, Saban and SINV separately entered into credit agreements with
Imperial Bank ("Imperial"), as agent, and a group of lenders for secured
revolving credit facilities ("Credit Facilities") aggregating $50 million
maturing on July 31, 1998. Interest on the borrowings is at either the prime
rate (8.25% at June 30, 1996) plus .5% or .25% depending on Saban's and SINV's
tangible net worth or three month or six month LIBOR (5.58% and 5.81%,
respectively, at June 30, 1996) plus 2.25% or 2% depending on Saban's and
SINV's tangible net worth. Interest is payable at the end of the interest
period which is either one, three or six months. Saban and SINV are required
to pay a quarterly commitment fee of .25% per annum of the average daily
unused portion of the commitment. Saban and SINV also paid a loan fee
amounting to .75% of the commitment. The combined amount available for
borrowing under the Credit Facilities at any time is limited in accordance
with a formula based upon the value of collateral in Saban's and SINV's
borrowing bases. The borrowing bases include on and off balance sheet
receivables and amounts attributable to the value of Saban's and SINV's film
library. Saban's credit facility is secured by substantially all of the assets
of Saban and its subsidiaries (excluding SINV and other foreign subsidiaries
of Saban) and SINV's credit facility is secured by substantially all of the
assets of Saban and its subsidiaries. The Credit Facilities restrict the
payment of dividends.
The Credit Facilities contain restrictive covenants regarding, among other
things, additional indebtedness, payments and advances for product, the
maintenance of certain financial ratios and restrictions on the disposition of
assets. At June 30, 1996 the Company and SINV were in compliance or had
obtained waivers for these covenants. At June 30, 1996 no amounts were
outstanding under these Credit Facilities.
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<S> <C>
Deferred tax liabilities:
Accounts receivable...................................... $ 581,000
State taxes.............................................. 209,000
------------
Total deferred tax liabilities............................. $ 790,000
Deferred tax assets:
Deferred revenue......................................... $ 18,813,000
Book over tax amortization............................... 665,000
Accrued expenses and reserves............................ 6,095,000
Other.................................................... 1,450,000
------------
Total deferred tax assets.................................. 27,023,000
Valuation allowance for deferred tax assets................ --
------------
Net deferred tax assets.................................... 27,023,000
------------
Net deferred tax assets.................................... $(26,233,000)
============
</TABLE>
F-15
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
For financial reporting purposes, income before income taxes includes the
following components:
<TABLE>
<S> <C>
Pretax income:
United States............................................... $33,149,000
Foreign..................................................... 16,725,000
-----------
$49,874,000
===========
Significant components of the provision for income taxes are as follows:
Current:
Federal..................................................... $14,316,000
State....................................................... 3,964,000
Foreign..................................................... 586,000
-----------
$18,866,000
-----------
Deferred:
Federal..................................................... $ (431,000)
State....................................................... (161,000)
Foreign..................................................... 0
-----------
$ (592,000)
-----------
Total......................................................... $18,274,000
===========
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:
Tax at U.S. statutory rates................................. 35 %
State taxes, net of federal benefit......................... 5
Foreign subsidiary's income not subject to state or federal
tax........................................................ (13)
Foreign taxes............................................... 1
Other....................................................... 1
Non-deductible investment advisory fees..................... 8
-----------
37 %
===========
</TABLE>
A liability attributable to the tax provision of FCN Holding was deemed to
be contributed to capital by a related party.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $78,000,000 at June 30, 1996. Those earnings are considered to
be indefinitely reinvested and, accordingly, no provision for U.S. federal and
state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject
to both U.S. income taxes (subject to an adjustment for foreign tax credits)
and withholding taxes payable to the various foreign countries. Determination
of the amount of unrecognized deferred U.S. income tax liability is not
practicable because of the complexities associated with its hypothetical
calculation; however, unrecognized foreign tax credit carryforwards would be
available to reduce some portion of the U.S. liability.
F-16
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
The Company leased office space in Burbank, California, under a ten year
lease which was terminated in December 1995, and a lease termination fee of
$305,000 was paid. The Company also leases office space in New York City under
a three year lease which is cancelable after the end of each year by payment
of a termination fee. In addition, the Company leases office space in Paris,
France, Cologne, Germany and London, England under nine year, five year and
three year operating leases, respectively. One of the Paris, France leases
provides for early termination on January 15, 1997 and the other on February
28, 1999 and February 28, 2002, both upon six months advance written notice.
The London, England lease provides for early termination upon six months
advance written notice.
In July 1995, the Company entered into a 10 year lease commencing on April
1, 1996 for office space in Los Angeles, California. The lease provides for
early termination at the end of the sixth and eighth years upon payment of a
termination fee. The lease calls for monthly payments plus maintenance and
property tax payments. The Company also has two leases for production
facilities, one is a short-term lease in Los Angeles, California expiring
March 1997, and the other is a two-year lease in Valencia, California expiring
in January 1997 and subject to two one-year extensions.
Noncancelable future minimum payments for the remainder of the initial,
noncancelable lease periods are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30
- -------------------
<S> <C>
1997.............................................................. $ 4,095,000
1998.............................................................. 1,961,000
1999.............................................................. 2,208,000
2000.............................................................. 3,157,000
2001.............................................................. 3,307,000
Thereafter........................................................ 17,850,000
-----------
$32,578,000
===========
</TABLE>
Rent expense for the eight months ended June 30, 1996, net of amounts
capitalized, was approximately $1,006,000.
The Fox Kids Network occupies approximately 18,568 square feet of space in a
facility subleased from FOX Television Stations, Inc. ("FOX Television"). FOX
Television leases the space from Metromedia Inc. The Fox Kids Network
currently pays to FOX Television an annual rate of $24.17 per square foot for
use of this space. There is no written agreement evidencing any obligation
between the Fox Kids Network and FOX Television.
The Company is involved in various lawsuits, both as a plaintiff and
defendant, in the ordinary course of its business. Based on an evaluation
which included consultation with counsel concerning legal and factual issues
involved, management is of the opinion that the foregoing claims and lawsuits
will not have a material adverse effect on the Company's consolidated
financial position.
The Company has entered into employment agreements with certain key members
of management. Such agreements are for terms ranging from one to six and one-
half years and generally include bonus provisions. Additionally, one key
member of management has entered into a five-year, non-exclusive consulting
agreement pursuant to which, among other things, the Company agreed that if
the employment agreement is not extended
F-17
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
beyond the current five-year term, the Company would, on the terms set forth
therein, be obligated to pay this individual over a five-year period an annual
consulting fee at a rate not exceeding $250,000 per year. Future minimum
payments under these agreements approximate $24,543,000 of which $10,400,000
is due in 1997, $5,433,000 is due in 1998, $3,470,000 is due in 1999,
$1,639,000 is due in 2000 and $1,454,000 is due in 2001.
Effective June 1994, Saban issued to two employees and a consultant options
to purchase an aggregate of 48.981 shares of common stock, 19.592 of which
were exercisable at June 30, 1996. These options vest ratably over five years
and are exercisable at $122,496 per share, which approximates the fair market
value at the time of grant. Effective January 1996, Saban issued to one key
employee options to purchase 16.327 shares of common stock, 3.265 of which
were exercisable at June 30, 1996. These options vest ratably over five years
and are exercisable at $612,500 per share, which approximates the fair market
value at the time of grant. No options have been exercised at June 30, 1996.
With respect to termination for any reason, so long as the Company is not
public, the Company will purchase from the employee and the employee will sell
to the Company any and all option shares owned by the employee and the option
granted to the employee for an amount equal to the fair market value of the
option shares owned by the employee plus the fair market value of the option
shares with respect to which the employee's option has vested but not
exercised less the exercise price. Included in selling, general and
administrative expenses for the eight months ended June 30, 1996 is $3,800,000
and in accrued liabilities at June 30, 1996 is $17,200,000 related to
compensation recorded in connection with these options.
In connection with the Reorganization as described in Note 1, all options
will become options to purchase shares of the Class A Common Stock and will
have a term of 10 years from the date of grant, unless terminated earlier as
provided in the agreement granting the options.
As of June 30, 1996 65.308 shares of Saban common stock are reserved for
future issuance related to options.
Future estimated program commitments are approximately $37,173,000.
Effective April 3, 1996, FCN Holding has agreed to issue to an investment
banker 16.16 shares of common stock of FCN Holding as compensation for certain
financial advisory and other investment banking services rendered in
connection with the negotiation, structuring, formation and capitalization of
the LLC. In connection therewith, $10,000,000 is included in the combined
statement of operations for the eight months ended June 30, 1996. FCN Holding
has reserved 16.16 shares for future issuances.
8. PROFIT SHARING PLAN
Saban has a qualified tax deferred profit sharing plan (the "Plan") for all
of its eligible employees. Under the Plan, employees become eligible on the
first January 1 following such employees' completion of six months of service
with Saban. Each participant is permitted to make voluntary contributions, not
to exceed 15% of his or her respective compensation and the applicable
statutory limitation, which are immediately 100% vested. Saban, at the
discretion of the Board of Directors, may make matching contributions to the
Plan. Related expense for the eight months ended June 30, 1996, was
approximately $43,000.
9. ACQUISITIONS
On April 16, 1996, the Company acquired the stock of Creativite &
Developpement SA ("C&D"), a leading Paris-based producer of family
entertainment for $2,869,000, $1,721,000 payable upon closing (April 16,
F-18
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
1996) and $1,148,000 payable on April 16, 1997 and is secured by a letter of
credit. The Company has accounted for the acquisition as a purchase. No
goodwill was recorded as the entire purchase price was allocated to the
respective assets and liabilities. The acquisition included the international
distribution rights to over 400 half-hour episodes of children's programming.
As a result, the balance sheet of C&D at May 31, 1996, together with the
results of operations of C&D since the purchase date of April 16, 1996 have
been consolidated with the Company's results of operations for the year ended
June 30, 1996. Unaudited pro forma combined statements of operations for the
years ended June 30, 1996 and July 2, 1995, which would combine the results of
operations of the Company and C&D are not presented herein as such information
is not material to the combined results of operations.
In December 1995, the Company purchased from Vesical Limited ("Vesical") its
interest and rights to certain television programming and related account
receivable balances for $12,000,000, $7,200,000 payable upon closing (April
18, 1996) and $4,800,000 payable on April 18, 1997 and secured by a letter of
credit. The Company allocated the purchase price between the account
receivable balances and the television programming rights based upon the
respective assets fair market values using a discounted cash flow analysis.
10. SIGNIFICANT CUSTOMERS AND PROPERTIES AND GEOGRAPHICAL INFORMATION
The Company operates in one business segment which is the acquisition,
production and worldwide broadcast, distribution and leasing of entertainment
properties. For the eight months ended June 30, 1996, the Company earned
revenues from one significant customer of approximately $32,148,000 (17%). The
Company earned revenues of $72,668,000 (38%) from one significant property
(Power Rangers).
F-19
<PAGE>
FCN HOLDING, INC., SABAN ENTERTAINMENT, INC.
AND FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE,
INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Geographic information concerning the Company's operations is as follows:
<TABLE>
<S> <C>
Revenues:
Domestic..................................................... $129,645,000
International, principally Europe(/2/)....................... 61,976,000
------------
Total.......................................................... 191,621,000
Operating profit(/1/)
Domestic..................................................... 67,970,000
International, principally Europe(/2/) 24,714,000
------------
Total.......................................................... 92,684,000
Selling, general and administrative expenses................... 23,072,000
Fox Kids Network affiliate participations...................... 8,853,000
Investment advisory fee........................................ 10,000,000
Interest expense............................................... 885,000
------------
Income before provision for income taxes....................... $ 49,874,000
============
Identifiable assets:
Domestic..................................................... $197,315,000
International, principally Europe(/2/)....................... 138,955,000
------------
Total.......................................................... $336,270,000
============
</TABLE>
- --------
(1) For purposes of this presentation, operating profit is total revenues less
amortization of programming costs residuals and profit participations.
(2) International amounts relate principally to Western Europe in connection
with the Company's subsidiary, SINV, a Netherlands Antilles company with
offices in Switzerland.
11. SUBSEQUENT EVENT
In connection with the Reorganization, on September 25, 1996 the Company's
Board of Directors authorized management of the Company to file a Registration
Statement with the Securities and Exchange Commission to sell shares of its
common stock.
F-20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
FCN Holding, Inc.
We have audited the accompanying consolidated balance sheets of FCN Holding,
Inc., as of July 3, 1994, July 2, 1995 and October 31, 1995, and the related
consolidated statements of operations, stockholder's equity, and cash flows
for the period from June 28, 1993 to July 3, 1994, the period from July 4,
1994 to July 2, 1995 and the period from July 3, 1995 to October 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of FCN Holding, Inc. and the results of its operations and its cash flows for
the period from June 28, 1993 to July 3, 1994, the period from July 4, 1994 to
July 2, 1995 and the period from July 3, 1995 to October 31, 1995, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
September 27, 1996
F-21
<PAGE>
FCN HOLDING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 3, JULY 2, OCTOBER 31,
1994 1995 1995
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............... $ 268,000 $ -- $ 317,000
Accounts receivable, including
$3,717,000 (1994), $2,265,000 (July 2,
1995) and $2,341,000 (October 31, 1995)
from related parties................... 18,491,000 23,539,000 23,175,000
Programming costs, less accumulated
amortization........................... 17,084,000 26,143,000 28,090,000
Property and equipment, at cost, less
accumulated depreciation .............. 10,000 85,000 103,000
Other assets............................ 97,000 49,000 1,107,000
----------- ----------- -----------
Total assets............................ $35,950,000 $49,816,000 $52,792,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Accounts payable........................ $ 2,367,000 $ 1,991,000 1,718,000
Accrued liabilities..................... 1,095,000 876,000 1,291,000
Deferred revenue........................ -- 1,763,000 791,000
Fox Kids Network affiliate participation
payable................................ -- 11,523,000 18,406,000
Accrued programming expenditures........ 21,052,000 21,960,000 19,816,000
Administrative fee payable to a related
party.................................. 4,629,000 4,828,000 6,173,000
Amounts payable to related parties...... 27,163,000 10,686,000 8,727,000
----------- ----------- -----------
Total liabilities....................... 56,306,000 53,627,000 56,922,000
Commitments and contingencies -- -- --
Stockholder's deficit:
Common stock, no par value, 2,000
authorized, issued and outstanding
1,000 shares (1994) and 2,000 shares
(1995) .............................. 1,000 2,000 2,000
Retained deficit...................... (20,357,000) (3,813,000) (4,132,000)
----------- ----------- -----------
Total stockholder's deficit............. (20,356,000) (3,811,000) (4,130,000)
----------- ----------- -----------
Total liabilities and stockholder's
deficit................................ $35,950,000 $49,816,000 $52,792,000
=========== =========== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE>
FCN HOLDING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM
JUNE 28, 1993 JULY 4, 1994 JULY 3, 1995
TO TO TO
JULY 3, 1994 JULY 2, 1995 OCTOBER 31, 1995
------------- ------------ ----------------
<S> <C> <C> <C>
Net revenues (including $8,778,000
(1994), $8,443,000 (July 2, 1995)
and $2,822,000 (October 31, 1995)
from related parties)............. $130,600,000 $168,871,000 $46,286,000
Costs and expenses:
Amortization of programming
costs, residuals and
participations ................. 98,725,000 109,259,000 29,698,000
Ancillary market distribution
costs to a related party ....... 2,922,000 3,255,000 1,140,000
Administrative fee to a related
party........................... 17,939,000 21,458,000 6,173,000
Selling, general and
administrative (including
$1,118,000 (1994), $1,075,000
(July 2, 1995) and $448,000
(October 31, 1995) to related
parties)........................ 3,579,000 5,202,000 2,566,000
Fox Kids Network affiliate
participations.................. -- 11,523,000 6,883,000
------------ ------------ -----------
Operating income (loss)............ 7,435,000 18,174,000 (174,000)
------------ ------------ -----------
Interest expense to a related
party............................. 2,218,000 1,630,000 145,000
------------ ------------ -----------
Income (loss) before provision for
income taxes...................... 5,217,000 16,544,000 (319,000)
Provision for income taxes......... -- -- --
------------ ------------ -----------
Net income (loss).................. $ 5,217,000 $ 16,544,000 $ (319,000)
============ ============ ===========
Net income per common share........ $ $ $
============ ============ ===========
Weighted average shares
outstanding.......................
============ ============ ===========
</TABLE>
See accompanying notes.
F-23
<PAGE>
FCN HOLDING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------- RETAINED
SHARES AMOUNT DEFICIT TOTAL
------ ------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at June 27, 1993............. 1,000 $1,000 $(25,574,000) $(25,573,000)
Net income......................... -- -- 5,217,000 5,217,000
----- ------ ------------ ------------
Balance at July 3, 1994.............. 1,000 1,000 (20,357,000) (20,356,000)
Net income......................... -- -- 16,544,000 16,544,000
Issuance of stock.................. 1,000 1,000 -- 1,000
----- ------ ------------ ------------
Balance at July 2, 1995.............. 2,000 2,000 (3,813,000) (3,811,000)
Net loss........................... -- -- (319,000) (319,000)
----- ------ ------------ ------------
Balance at October 31, 1995.......... 2,000 $2,000 $ (4,132,000) $ (4,130,000)
===== ====== ============ ============
</TABLE>
See accompanying notes.
F-24
<PAGE>
FCN HOLDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM
JUNE 28, 1993 JULY 4, 1994 JULY 3, 1995
TO TO TO
JUNE 3, 1994 JULY 2, 1995 OCTOBER 31, 1995
------------- ------------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).............. $ 5,217,000 $ 16,544,000 $ (319,000)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Amortization of programming
costs....................... 94,160,000 98,309,000 26,937,000
Depreciation................. 8,000 17,000 13,000
Provision for doubtful
accounts.................... -- 480,000 --
Changes in operating assets
and liabilities:
Accounts receivable........ (1,611,000) (5,528,000) 364,000
Additions to programming
costs .................... (88,999,000) (107,368,000) (28,884,000)
Other assets............... (56,000) 48,000 (1,058,000)
Accounts payable........... 1,949,000 (376,000) (273,000)
Accrued liabilities........ 106,000 (219,000) 415,000
Administration fee payable
to a related party........ 1,753,000 199,000 1,345,000
Deferred revenue........... -- 1,763,000 (972,000)
Fox Kids Network affiliate
participation payable..... -- 11,523,000 6,883,000
Accrued programming
expenditures.............. 1,700,000 908,000 (2,144,000)
------------- ------------- ------------
Net cash provided by operating
activities.................... 14,227,000 16,300,000 2,307,000
INVESTING ACTIVITIES
Purchase of property and
equipment..................... (10,000) (91,000) (31,000)
------------- ------------- ------------
Net cash used in investing
activities.................... (10,000) (91,000) (31,000)
FINANCING ACTIVITIES
Proceeds from related parties.. 127,113,000 180,765,000 68,308,000
Payments to related parties.... (141,366,000) (197,242,000) (70,267,000)
------------- ------------- ------------
Net cash used in financing
activities.................... (14,253,000) (16,477,000) (1,959,000)
------------- ------------- ------------
(Decrease) increase in cash and
cash equivalents.............. (36,000) (268,000) 317,000
Cash and cash equivalents at
beginning of period........... 304,000 268,000 --
------------- ------------- ------------
Cash and cash equivalents at
end of period................. $ 268,000 $ -- $ 317,000
============= ============= ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the period
for:
Interest..................... $ 2,172,000 $ 2,053,000 $ 201,000
============= ============= ============
Income taxes................. $ -- $ -- $ --
============= ============= ============
</TABLE>
See accompanying notes.
F-25
<PAGE>
FCN HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995
1. BASIS OF FINANCIAL STATEMENT PRESENTATION AND ORGANIZATION
The accompanying consolidated financial statements include the accounts of
FCN Holding, Inc. and its wholly-owned subsidiaries, Fox Kids Club, Fox Kids
Countdown and Fox Storymakers (collectively "FCN Holding"). All significant
intercompany transactions and accounts have been eliminated.
FCN Holding is an indirect subsidiary of Fox Broadcasting Company ("Fox
Broadcasting"), itself an indirect subsidiary of The News Corporation Limited.
FCN Holding's largest operating entity is an indirect wholly-owned subsidiary,
Fox Children's Network, Inc. ("FCN"), which began primary operations on
September 8, 1990. FCN Holding produces and licenses children's animated and
live-action television shows with initial exploitation on the Fox Broadcasting
television network followed by distribution in ancillary markets when such
rights exist.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR-END
FCN Holding's fiscal year ends on the Sunday closest to June 30.
REVENUE RECOGNITION
Advertising revenue is recognized as earned in the period in which the
advertising commercials are telecast and are net of agency commission fees of
$21,343,000, $25,490,000 and $7,328,000 for the periods ended July 3, 1994,
July 2, 1995 and October 31, 1995, respectively. Revenues from foreign and
merchandising license agreements, which provide for the receipt by FCN Holding
of nonrefundable guaranteed amounts, are recognized when the license period
begins and the product is available pursuant to the terms of the license
agreement. Amounts in excess of minimum guarantees under these license
agreements are recognized when earned. Amounts received in advance of
recognition of revenue are recorded as deferred revenue. FCN Holding generally
provides advertisers with guaranteed ratings in connection with its domestic
network broadcasts. Revenue is recorded net of estimated shortfalls, which are
settled either by additional advertising time ("make goods") or cash refunds
to the advertiser. FCN Holding accounts for the full amount of the estimated
shortfall.
PROGRAMMING COSTS
Program licenses and rights include exhibition and exploitation rights
acquired under license agreements and costs of developing and producing
original programming for use by FCN Holding on its network. The individual
film forecast method is used to amortize programming costs in which FCN
Holding owns or controls distribution rights. Costs accumulated in the
production of a program are amortized in the proportion that gross revenues
realized bear to management's estimate of the total gross revenues expected to
be received. Estimated liabilities for residuals and participations are
accrued and expensed in the same manner as programming cost inventories are
amortized.
For programs in which the Company acquires only broadcast network rights,
the Company amortizes such program costs over the estimated number of
telecasts. The Company evaluates its programming rights for possible changes
in the estimated number of telecasts or the possibility of impairment.
Revenue estimates on a program-by-program basis are reviewed periodically by
management and are revised, if warranted, based upon management's appraisal of
current market conditions, such as changes in the
F-26
<PAGE>
FCN HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
distribution marketplace or changes in expected usage of a program on the
network. Based on this review, if estimated future gross revenues from a
program are not sufficient to recover the unamortized costs, the unamortized
programming cost will be written down to net realizable value.
CONCENTRATION OF CREDIT RISKS
Financial instruments which potentially subject FCN Holding to concentration
of credit risk consist principally of temporary cash investments and trade
receivables. FCN Holding places its temporary cash investments with high
credit quality financial institutions and therefore is subject to reduced
risk. FCN Holding has not incurred any losses relating to these investments.
At October 31, 1995, substantially all of FCN Holding's trade receivables
were from advertising agencies. FCN Holding performs periodic credit
evaluations of its customers' financial condition and generally does not
require collateral. Receivables generally are due within 30 days. Credit
losses relating to advertising agencies consistently have been within
management's expectations.
CASH AND CASH EQUIVALENTS
For the purposes of balance sheet classification and the statement of cash
flows, FCN Holding considers all highly liquid investments that are both
readily convertible into cash with original maturities when purchased of three
months or less to be cash equivalents.
FINANCIAL INSTRUMENTS
Financial instruments are carried at historical cost which approximates fair
value.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and depreciation is computed
using the straight-line method over their estimated useful lives of three to
five years. Leasehold improvements are amortized over the lesser of the term
of the lease or the estimated useful lives of the improvements using the
straight-line method.
INCOME TAXES
FCN Holding provides for income taxes based on the liability method under
Statement of Financial Accounting Standards No. 109. Under this method,
deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes including amortization of programming costs. Actual results
could differ from those estimates. Management periodically reviews and revises
its estimates of future airings and revenues for program costs, as necessary,
which may result in revised amortization of its program costs and may be
significantly affected by the periodic adjustments in such amortization.
NET INCOME PER COMMON SHARE
The per share data is based on the weighted average number of common and
common equivalent shares outstanding during the period.
F-27
<PAGE>
FCN HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROGRAMMING COSTS
Programming costs, net of accumulated amortization, are comprised of the
following:
<TABLE>
<CAPTION>
JULY 3, JULY 2, OCTOBER 31,
1994 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Programming costs, broadcast....... $159,565,000 $244,599,000 $261,078,000
Programming costs, produced........ 64,654,000 89,493,000 99,730,000
Programming costs in development
and production.................... 3,803,000 1,298,000 3,466,000
------------ ------------ ------------
228,022,000 335,390,000 364,274,000
------------ ------------ ------------
Accumulated amortization........... 210,938,000 309,247,000 336,184,000
------------ ------------ ------------
$ 17,084,000 $ 26,143,000 $ 28,090,000
============ ============ ============
</TABLE>
Based on FCN Holding's estimate of future revenues, substantially all of the
unamortized released programming costs at October 31, 1995 will be amortized
during the three year period ending October 31, 1998.
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
JULY 3, JULY 2, OCTOBER 31,
1994 1995 1995
------- ------- -----------
<S> <C> <C> <C>
Computer equipment............................. $43,000 $93,000 $100,000
Office furniture and fixtures.................. 4,000 4,000 28,000
Machinery and equipment........................ 31,000 41,000 41,000
Leasehold improvements......................... -- 32,000 32,000
------- ------- --------
78,000 170,000 201,000
Less accumulated depreciation.................. 68,000 85,000 98,000
------- ------- --------
$10,000 $85,000 $103,000
======= ======= ========
</TABLE>
5. RELATED PARTY TRANSACTIONS
FCN and Twentieth Century Fox Licensing and Merchandising, a unit of Fox,
Inc. ("Twentieth Fox Licensing") are parties to a Merchandising Rights
Acquisition Agreement, dated as of July 1, 1990, pursuant to which FCN
licenses to Twentieth Fox Licensing the worldwide merchandising and licensing
rights, in perpetuity, to programming owned or controlled by FCN. In
consideration for the rights granted, Twentieth Fox Licensing agreed to pay to
FCN an amount equal to 100% of net profits, which equaled gross receipts less
distribution fees and expenses.
FCN and Twentieth Century Fox Film Corporation ("Twentieth Century Fox") are
parties to a Distribution Rights Acquisition Agreement, dated as of September
1, 1990, pursuant to which FCN licensed to Twentieth Century Fox the worldwide
distribution rights, in perpetuity, with respect to programming owned or
controlled by FCN. In consideration for the rights granted, Twentieth Century
Fox agreed to pay to FCN 100% of net profits as defined in the agreement.
FCN and Fox Broadcasting are parties to an Administration Agreement, dated
as of February 7, 1990, pursuant to which Fox Broadcasting agreed to provide
the following services to FCN: network national advertising sales and the
administration thereof, commercial trafficking and broadcast operations
(including program delivery to Fox Kids Network Affiliates (see Note 8--"Fox
Kids Network Affiliate Participation
F-28
<PAGE>
FCN HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Payable")) and overhead charges related to Fox Broadcasting in-house
administrative support in the areas of research, promotion, business affairs,
legal affairs and accounting. FCN agreed to pay to Fox Broadcasting a fee
equal to 15% of 100% of the net advertising revenue (gross advertising revenue
less advertising agency commissions) derived with respect to national
commercials, commercial material or other advertising matter included or used
in connection with any of the programs exhibited on the Fox Kids Network.
FCN Holding leases office space on a month to month basis from a company
related to Fox Broadcasting. Rent expense to this related party was $199,000,
$231,000 and $88,000 for the periods ended July 3, 1994, July 2, 1995 and
October 31, 1995.
Related companies of Fox Broadcasting have funded the operation of FCN
Holding from its inception through loans to FCN Holding. All amounts derived
by the operations of FCN Holding are used to reduce such outstanding
borrowings. Amounts outstanding bear interest at the prime rate (8.75% at
October 31, 1995). Amounts due to the related companies of Fox Broadcasting
including interest totalled $27,163,000, $10,686,000 and $8,727,000 at July 3,
1994, July 2, 1995 and October 31, 1995, respectively.
6. INCOME TAXES
FCN Holding, together with other related companies of Fox Broadcasting,
files consolidated federal and state income tax returns. No deferred tax
assets or liabilities arising from FCN Holding's activities have been
allocated.
FCN Holding did not incur any current or deferred tax expense due to the
utilization of prior year net operating loss carryforwards.
The actual tax expense differs from the "expected" federal tax rate of 35%
as follows:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM
JUNE 28, 1993 JULY 4, 1994 JULY 3, 1995
TO TO TO
JULY 3, 1994 JULY 2, 1995 OCTOBER 31, 1995
------------- ------------ ----------------
<S> <C> <C> <C>
Computed "expected" tax expense. 35 % 35 % --%
Impact of utilized net operating
loss carryforward.............. (35)% (35)% --%
--- --- ---
-- -- --
=== === ===
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Future estimated program commitments are approximately $58,648,000.
FCN Holding is involved in certain legal proceedings arising from the normal
course of operations. Management believes that the ultimate resolution of
these matters will not have a material effect on its financial position or
results of operations.
FCN Holding has entered into employment agreements with several key
employees extending through fiscal year 1999 requiring future payments of
$1,135,000 in the one year period ended October 31, 1996, $788,000 in the one
year period ended October 31, 1997 and $257,000 in the one year period ended
October 31, 1998.
F-29
<PAGE>
FCN HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. FOX KIDS NETWORK AFFILIATE PARTICIPATION PAYABLE
Pursuant to the terms of the affiliation agreements ("Agreement") among Fox
Broadcasting and substantially all of its affiliated television stations ("Fox
Kids Network Affiliates"), the Fox Kids Network Affiliates in total are
entitled to compensation which is equal to 100% of FCN's programming Net
Profits (as defined below). Amounts payable under these compensation
arrangements are due quarterly in amounts derived pursuant to the provisions
in the Agreement. Net profits are defined on a cumulative basis to include
amounts actually received by FCN from the exhibition, distribution and other
exploitation of FCN Holding's programs and the merchandising and other rights
relating thereto, less amounts paid for administrative fees,
production/license fees, distribution and merchandising fees (including those
payable to FCN Holding), overhead and other expenses and reserves.
9. MAJOR CUSTOMERS AND PROPERTIES
For the year ended July 3, 1994, FCN Holding earned net revenues from two
significant customers of approximately $25,126,000 (20%). For the period ended
July 2, 1995, FCN Holding earned net revenues from two significant customers
of approximately $32,723,000 (20%). For the period ended October 31, 1995, FCN
Holding earned net revenues from three significant customers of approximately
$15,957,000 (34%). For the periods ended July 3, 1994, July 2, 1995 and
October 31, 1995, FCN Holding earned net revenues from one significant
property (Power Rangers) of $19,240,000 (15%), $55,805,000 (33%) and
$10,847,000 (23%), respectively.
10. SUBSEQUENT EVENT
On November 1, 1995 (the "Effective Date") FCN Holding and Saban
Entertainment, Inc. ("Saban") formed Fox Kids Worldwide, L.L.C. (the "LLC"), a
limited liability company, for the purpose of jointly expanding the worldwide
childrens' businesses of FCN Holding and Saban. Since the Effective Date, FCN
Holding and Saban have been operated by their respective managements subject
to the overall supervision of the members committee of the LLC.
THE REORGANIZATION
Fox Kids Worldwide, Inc. was incorporated in Delaware in August 1996 and
currently conducts no business or operations. Immediately prior to the closing
of proposed initial public offerings ("Offerings"), (i) Fox Broadcasting Sub,
Inc.; a wholly-owned subsidiary of Fox Broadcasting ("Fox Broadcasting Sub"),
will exchange its capital stock in FCN Holding, which indirectly owns FCN, for
50% of the number of shares of the Fox Kids Worldwide, Inc.'s class B common
stock, par value $0.001 per share ("Class B Common Stock"), which will be
outstanding immediately after the Reorganization and prior to the closing of
the Offerings (the "Reorganization Closing"), (ii) the other stockholders of
FCN Holding will exchange their capital stock in FCN Holding for an aggregate
of one percent of the aggregate number of shares of Fox Kids Worldwide, Inc.'s
class A common stock, par value $0.001 per share ("Class A Common Stock") and
Class B Common Stock (Class A Common Stock and Class B Common Stock are
collectively the "Common Stocks") which will be outstanding immediately after
the Reorganization Closing, (iii) the Chairman and Chief Executive Officer of
Saban ("Haim Saban") and the other stockholders of Saban will exchange their
capital stock in Saban for an aggregate of 50% of the number of shares of
Class B Common Stock which will be outstanding immediately after the
Reorganization Closing and (iv) all outstanding management options to purchase
Saban capital stock will become options to purchase an aggregate of
approximately four percent of the aggregate number of shares of Common Stock
which will be outstanding immediately after the Reorganization Closing. In
addition, Fox Broadcasting will exchange its preferred, non-voting interest in
the LLC for an aggregate of 1,000,000 shares of Fox Kids Worldwide, Inc.'s
series A redeemable preferred stock, $0.001 par value per share (the "Series A
Preferred Stock") and will exchange a $50 million contingent note receivable
from the LLC for a new preferred, non-voting interest in the LLC. As a result
of these transactions, FCN Holding, FCN, Saban and the LLC will become direct
or indirect subsidiaries of Fox Kids Worldwide, Inc.
F-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Saban Entertainment, Inc.
We have audited the accompanying consolidated balance sheets of Saban
Entertainment, Inc. as of May 31, 1994 and 1995 and as of October 31, 1995,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for the years ended May 31, 1994 and 1995 and for the five
months ended October 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Saban Entertainment, Inc. at May 31, 1994 and 1995, and at October 31, 1995
and the results of its operations and its cash flows for the years ended May
31, 1994 and 1995 and for the five months ended October 31, 1995, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
September 27, 1996
F-31
<PAGE>
SABAN ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31
-------------------------- OCTOBER 31
1994 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............. $ 3,849,000 $ 14,584,000 $ 16,207,000
Restricted cash....................... 299,000 5,000,000 5,000,000
Accounts receivable, net of allowance
for doubtful accounts of $385,000 at
May 31, 1994, $1,385,000 at May 31,
1995 and $1,385,000 at October 31,
1995 38,238,000 37,338,000 30,157,000
Amounts receivable from related par-
ties................................. 1,147,000 3,796,000 3,832,000
Programming costs, less accumulated
amortization......................... 85,079,000 115,873,000 118,210,000
Property and equipment, at cost, less
accumulated depreciation ............ 2,684,000 3,630,000 7,079,000
Deferred income taxes................. 4,920,000 35,473,000 26,186,000
Other assets.......................... 751,000 2,503,000 808,000
------------ ------------ ------------
Total assets.......................... $136,967,000 $218,197,000 $207,479,000
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable...................... $ 4,208,000 $ 6,818,000 $ 8,817,000
Accrued liabilities................... 3,479,000 29,606,000 23,411,000
Deferred revenue...................... 14,764,000 62,755,000 48,155,000
Accrued residuals and participations.. 12,335,000 9,672,000 10,074,000
Income taxes payable.................. 5,723,000 36,378,000 15,680,000
Deferred income taxes................. 9,182,000 9,233,000 766,000
Debt.................................. 19,891,000 5,623,000 5,605,000
Amounts payable to related parties.... 14,132,000 -- --
------------ ------------ ------------
83,714,000 160,085,000 112,508,000
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 10,000
shares authorized, 1,067 shares
issued and outstanding at May 31,
1994 and 800 shares issued and
outstanding at May 31, 1995 and
October 31, 1995 .................. -- -- --
Contributed capital................. 11,751,000 11,751,000 11,751,000
Cumulative translation adjustment... (255,000) (71,000) 46,000
Retained earnings................... 41,757,000 46,432,000 83,174,000
------------ ------------ ------------
Total stockholders' equity............ 53,253,000 58,112,000 94,971,000
------------ ------------ ------------
Total liabilities and stockholders'
equity............................... $136,967,000 $218,197,000 $207,479,000
============ ============ ============
</TABLE>
See accompanying notes.
F-32
<PAGE>
SABAN ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED MAY 31 ENDED
------------------------ OCTOBER 31
1994 1995 1995
----------- ------------ ------------
<S> <C> <C> <C>
Revenues................................. $84,372,000 $242,468,000 $105,130,000
Costs and expenses:
Amortization of programming costs,
residuals and participations.......... 48,101,000 117,557,000 42,022,000
Selling, general and administrative.... 8,933,000 51,894,000 11,538,000
----------- ------------ ------------
Operating income......................... 27,338,000 73,017,000 51,570,000
----------- ------------ ------------
Interest expense......................... 2,337,000 1,315,000 539,000
----------- ------------ ------------
Income before provision for income taxes. 25,001,000 71,702,000 51,031,000
Provision for income taxes............... 8,201,000 27,027,000 14,289,000
----------- ------------ ------------
Net income............................... $16,800,000 $ 44,675,000 $ 36,742,000
=========== ============ ============
Net income per common share.............. $ $ $
=========== ============ ============
Weighted average shares outstanding......
=========== ============ ============
</TABLE>
See accompanying notes.
F-33
<PAGE>
SABAN ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
-------------- CONTRIBUTED TRANSLATION RETAINED
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS TOTAL
------ ------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1993....... 1,067 $-- $11,751,000 $ (60,000) $ 24,957,000 $36,648,000
Exchange loss on translation
of foreign subsidiaries'
financial statements....... -- -- -- (255,000) -- (255,000)
Realized translation loss on
sale of equity investment
in unconsolidated
affiliated company......... -- -- -- 60,000 -- 60,000
Net income.................. -- -- -- -- 16,800,000 16,800,000
----- ---- ----------- --------- ------------ -----------
Balance at May 31, 1994....... 1,067 -- 11,751,000 (255,000) 41,757,000 53,253,000
Exchange gain on translation
of foreign subsidiaries'
financial statements....... -- -- -- 184,000 -- 184,000
Purchase of minority
stockholder shares......... (267) -- -- -- (40,000,000) (40,000,000)
Net income.................. -- -- -- -- 44,675,000 44,675,000
----- ---- ----------- --------- ------------ -----------
Balance at May 31, 1995....... 800 -- 11,751,000 (71,000) 46,432,000 58,112,000
Exchange gain on translation
of foreign subsidiaries'
financial statements....... -- -- -- 117,000 -- 117,000
Net income.................. -- -- -- -- 36,742,000 36,742,000
----- ---- ----------- --------- ------------ -----------
Balance at October 31, 1995... 800 $-- $11,751,000 $ 46,000 $ 83,174,000 $94,971,000
===== ==== =========== ========= ============ ===========
</TABLE>
See accompanying notes.
F-34
<PAGE>
SABAN ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED MAY 31 ENDED
--------------------------- OCTOBER 31
1994 1995 1995
------------ ------------- ------------
<S> <C> <C> <C>
Net income......................... $ 16,800,000 $ 44,675,000 $ 36,742,000
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities:
Amortization of programming
costs........................... 40,292,000 84,109,000 32,651,000
Depreciation..................... 827,000 1,296,000 571,000
Cumulative translation adjust-
ment............................ (195,000) 184,000 117,000
Provision for doubtful accounts.. -- 1,000,000
Changes in operating assets and
liabilities:
Restricted cash................ 51,000 (4,701,000) --
Accounts receivable............ (8,733,000) (100,000) 7,181,000
Amounts receivable from related
parties....................... (811,000) (2,649,000) (36,000)
Additions to programming costs. (65,092,000) (114,903,000) (34,988,000)
Other assets................... 425,000 (1,752,000) 1,695,000
Accounts payable............... 2,173,000 2,610,000 1,999,000
Accrued liabilities............ (4,373,000) 26,127,000 (6,195,000)
Accrued residuals and partici-
pations....................... 2,740,000 (2,663,000) 402,000
Accrued interest to related
parties....................... (488,000) (2,359,000) --
Income taxes payable and de-
ferred income taxes........... 7,524,000 153,000 (19,878,000)
Deferred revenue............... 7,372,000 47,991,000 (14,600,000)
------------ ------------- ------------
Net cash (used in) provided by op-
erating activities................ (1,488,000) 79,018,000 5,661,000
INVESTING ACTIVITIES
Purchase of property and equipment. (1,795,000) (2,242,000) (4,020,000)
------------ ------------- ------------
Net cash used in investing activi-
ties.............................. (1,795,000) (2,242,000) (4,020,000)
FINANCING ACTIVITIES
Proceeds from bank borrowings...... 41,891,000 7,395,000 11,000,000
Payments on bank borrowings........ (35,282,000) (21,663,000) (11,018,000)
Proceeds from related parties...... 700,000 1,000,000 --
Payments to related parties........ (1,731,000) (12,773,000) --
Purchase of minority stockholder
shares............................ -- (40,000,000) --
------------ ------------- ------------
Net cash provided by (used in) fi-
nancing activities................ 5,578,000 (66,041,000) (18,000)
------------ ------------- ------------
Increase in cash and cash equiva-
lents............................. 2,295,000 10,735,000 1,623,000
Cash and cash equivalents at begin-
ning of year...................... 1,554,000 3,849,000 14,584,000
------------ ------------- ------------
Cash and cash equivalents at end of
year.............................. $ 3,849,000 $ 14,584,000 $ 16,207,000
============ ============= ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest (net of amounts capital-
ized)........................... $ 2,377,000 $ 3,280,000 $ 347,000
============ ============= ============
Income taxes..................... $ 486,000 $ 26,884,000 $ 34,156,000
============ ============= ============
</TABLE>
See accompanying notes.
F-35
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995
1. BASIS OF FINANCIAL STATEMENTS PRESENTATION AND ORGANIZATION
Saban Entertainment, Inc. and its subsidiaries (collectively "Saban"), is a
broad-based entertainment company specializing in the creation, production,
acquisition, distribution, merchandising and licensing of animated and live-
action children's programming in the worldwide entertainment marketplace.
Saban is one of the largest independent suppliers of children's programming
in the world and its library of children's television programming is one of
the largest children's libraries in the world. Saban provides programming in
all dayparts for network, first-run syndication and cable television for both
domestic and international television. In the United States, Saban syndicates
its programming under the Saban Kids Network name.
In addition, Saban is involved in the creation and production of music and
the acquisition of international distribution rights to telefilms and mini
series. Saban's operations are conducted through offices in the United States,
France, Switzerland, Germany, Italy and the United Kingdom.
The accompanying consolidated financial statements include the accounts of
Saban Entertainment, Inc. and subsidiaries. All significant intercompany
transactions and accounts have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenues from television, music and merchandising lease agreements, which
provide for the receipt by the Company of nonrefundable guaranteed amounts,
are recognized when the lease period begins, collectibility is reasonably
assured and the product is available pursuant to the terms of the lease
agreement. Amounts in excess of minimum guarantees under these lease
agreements are recognized when earned. Amounts received in advance of
recognition of revenue are recorded as deferred revenue.
PROGRAMMING COSTS
Programming costs, consisting of direct production costs, acquisition of
story rights, costs to acquire distribution rights, allocable production
overhead, interest and exploitation costs (which benefit future periods) are
capitalized as incurred. The individual film forecast method is used to
amortize programming costs in which Saban owns or controls distribution
rights. Costs accumulated in the production of a program are amortized in the
proportion that gross revenues realized bear to management's estimate of the
total gross revenues expected to be received. Estimated liabilities for
residuals and participations are accrued and expensed in the same manner as
programming cost inventories are amortized.
Revenue estimates on a program-by-program basis are reviewed periodically by
management and are revised, if warranted, based upon management's appraisal of
current market conditions. Based on this review, if estimated future gross
revenues from a program are not sufficient to recover the unamortized costs,
the unamortized programming cost will be written down to net realizable value.
CONCENTRATION OF CREDIT RISKS
Financial instruments which potentially subject Saban to concentration of
credit risk consist principally of temporary cash investments and trade
receivables. Saban places its temporary cash investments principally in a
mutual fund which invests in government securities and therefore are subject
to reduced risk. Saban has not incurred any losses relating to these
investments.
F-36
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Saban leases its product to distributors and broadcasters throughout the
world. Saban performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Generally, payment is
received in full or in part prior to Saban's release of product to such
distributors and broadcasters. At October 31, 1995, substantially all of
Saban's trade receivables were from customers in the entertainment or
broadcast industries. Receivables generally are due within 30 days. Credit
losses relating to customers in the entertainment and broadcast industries
consistently have been within management's expectations.
CASH AND CASH EQUIVALENTS
For the purposes of balance sheet classification and the statement of cash
flows, Saban considers all highly liquid investments that are both readily
convertible into cash with original maturities when purchased of three months
or less to be cash equivalents.
RESTRICTED CASH
Restricted cash represents amounts held by financial institutions as
collateral on outstanding debt.
FINANCIAL INSTRUMENTS
Financial instruments are carried at historical cost which approximates fair
value.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and depreciation is computed
using the straight-line method over their estimated useful lives of five
years. Leasehold improvements are amortized over the lesser of the term of the
lease or the estimated useful lives of the improvement using the straight-line
method.
FOREIGN CURRENCY TRANSLATION AND CUMULATIVE ADJUSTMENT
Saban International N.V. ("SINV"), a wholly-owned subsidiary of Saban uses
the U.S. dollar as the functional currency. Saban International Paris S.A.R.L.
("SIP"), Saban Entertainment Germany GmbH and Saban Merchandising and
Licensing GmbH and Saban Entertainment (UK) Limited, all foreign subsidiaries
of Saban, use local currency as the functional currency. Assets and
liabilities are translated into U.S. dollars at current exchange rates.
Revenue and expenses have been translated into U.S. dollars based generally on
the average rates prevailing during the period.
Gains and losses arising from foreign currency transactions are included in
determining net income for the period. The aggregate transaction (losses)
gains for the years ended May 31, 1994 and 1995, and for the five months ended
October 31, 1995 were $(523,000), $577,000 and $135,000, respectively.
The cumulative translation adjustment in stockholders' equity at May 31,
1993, 1994 and 1995, and at October 31, 1995, represents Saban's net
unrealized exchange (losses) gains on the translation of foreign subsidiaries'
financial statements.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("FAS") No. 109, "Accounting for Income
Taxes." Saban adopted the provisions of the new standard in its financial
statements for the year ended May 31, 1994. As permitted by the FAS, prior
year financial statements have not been restated to reflect the change in
accounting method. The cumulative effect as of June 1, 1993, of adopting FAS
109 was not material to Saban's financial statements.
Under FAS 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Prior to the adoption
of FAS 109, income tax expense was determined using the deferred
F-37
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
method. Deferred tax expense was based on items of income and expense that
were reported in different years in the financial statements and the tax
returns and were measured at the tax rate in effect in the year the difference
originated.
STOCK-BASED COMPENSATION
Saban accounts for its stock compensation arrangements under the provisions
of Accounting Principles Board No. 25, "Accounting for Stock Issued to
Employees" and intends to continue to do so.
NET INCOME PER COMMON SHARE
The per share data is based on the weighted average number of common and
common equivalent shares outstanding during the period and are calculated in
accordance with a Staff Accounting Bulletin of the Securities and Exchange
Commission whereby common and common share equivalents issued within a 12-
month period prior to an initial public offering are treated as outstanding
for all periods presented if the issue price was less than the proposed
initial public offering price. In addition, shares issuable upon the exercise
of options within the 12-month period are considered to have been outstanding
since inception of the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes including amortization of programming costs. Actual results
could differ from those estimates. Management periodically reviews and revises
its estimates of future airings and revenues for program costs, as necessary,
which may result in revised amortization of its program costs and may be
significantly affected by the periodic adjustments in such amortization.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 financial statements to
conform to the current period presentation.
3. PROGRAMMING COSTS
Programming costs, net of accumulated amortization, is comprised of the
following:
<TABLE>
<CAPTION>
MAY 31, 1994 MAY 31, 1995
----------------------------------------- -----------------------------------------
ACCUMULATED NET PROGRAMMING ACCUMULATED NET PROGRAMMING
COST AMORTIZATION COSTS COST AMORTIZATION COSTS
------------ ------------ --------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Children's programming.. $113,730,000 $ 76,502,000 $37,228,000 $203,765,000 $147,813,000 $ 55,952,000
Movies and mini-series.. 85,049,000 63,413,000 21,636,000 101,656,000 76,211,000 25,445,000
Projects in production.. 25,471,000 -- 25,471,000 33,008,000 -- 33,008,000
Development............. 744,000 -- 744,000 1,468,000 -- 1,468,000
------------ ------------ ----------- ------------ ------------ ------------
$224,994,000 $139,915,000 $85,079,000 $339,897,000 $224,024,000 $115,873,000
============ ============ =========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, 1995
-----------------------------------------
ACCUMULATED NET PROGRAMMING
COST AMORTIZATION COSTS
------------ ------------ ---------------
<S> <C> <C> <C>
Children's programming................ $237,286,000 $177,232,000 $ 60,054,000
Movies and mini-series................ 112,554,000 79,443,000 33,111,000
Projects in production................ 24,177,000 -- 24,177,000
Development........................... 868,000 -- 868,000
------------ ------------ ------------
$374,885,000 $256,675,000 $118,210,000
============ ============ ============
</TABLE>
F-38
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Based on Saban's estimate of future revenues, approximately 70% of
unamortized released programming costs at October 31, 1995 will be amortized
during the three years ending October 31, 1998. Interest in the amount of
$757,000, $304,000 and $32,000 was capitalized to programming costs during the
years ended May 31, 1994 and 1995 and for the five months ended October 31,
1995, respectively.
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
MAY 31
--------------------- OCTOBER 31
1994 1995 1995
---------- ---------- -----------
<S> <C> <C> <C>
Studio equipment ............................ $3,384,000 $5,280,000 $ 5,832,000
Office furniture and fixtures................ 764,000 907,000 1,505,000
Leasehold improvements....................... 924,000 1,095,000 3,965,000
Other........................................ 67,000 64,000 64,000
---------- ---------- -----------
5,139,000 7,346,000 11,366,000
Less accumulated depreciation................ 2,455,000 3,716,000 4,287,000
---------- ---------- -----------
$2,684,000 $3,630,000 $ 7,079,000
========== ========== ===========
</TABLE>
5. DEBT
Debt is comprised of the following:
<TABLE>
<CAPTION>
MAY 31
---------------------- OCTOBER 31
1994 1995 1995
----------- ---------- ----------
<S> <C> <C> <C>
Imperial Bank; secured revolving line of
credit; interest at prime rate (8.75% at
October 31, 1995) plus .5% due monthly;
maximum borrowings of $25,000,000
(terminated on December 4, 1995).......... $19,372,000 $ -- $ --
DeNationale Investeringsbank N.V.; secured
line of credit due
July 31, 1997; interest at three month or
six month LIBOR (5.94% and 5.88%,
respectively, at October 31, 1995) plus
0.4% paid quarterly; maximum borrowings of
$5,000,000................................ -- 5,000,000 5,000,000
Coficine; secured revolving credit facility
due March 28, 1996; interest at the bank's
basis rate (8.1% at October 31, 1995) plus
1% paid quarterly; maximum borrowings of
FF 7,200,000.............................. 519,000 623,000 605,000
----------- ---------- ----------
$19,891,000 $5,623,000 $5,605,000
=========== ========== ==========
</TABLE>
In July 1995, Saban and SINV separately entered into credit agreements with
Imperial Bank ("Imperial"), as agent, and a group of lenders for secured
revolving credit facilities ("Credit Facilities") aggregating $50 million
maturing on July 31, 1998. Interest on the borrowings is at either the prime
rate (8.75% at October 31, 1995) plus .5% or .25% depending on Saban's and
SINV's tangible net worth or at three month or six month LIBOR (5.94% and
5.88%, respectively, at October 31, 1995) plus 2.25% or 2% depending on
Saban's and SINV's tangible net worth. Interest is payable at the end of the
interest period which is either one, three or six months. Saban and SINV are
required to pay a quarterly commitment fee of .25% per annum of the average
daily unused portion of the commitment. Saban and SINV also paid a loan fee
amounting to .75% of the commitment. The combined amount available for
borrowing under the Credit Facilities at any time is limited in accordance
with a formula based upon the value of collateral in Saban's and SINV's
borrowing bases. The borrowing bases include on and off balance sheet
receivables and amounts attributable to the value of Saban's
F-39
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and SINV's film library. Saban's credit facility is secured by substantially
all of the assets of Saban and its subsidiaries (excluding SINV and other
foreign subsidiaries of Saban) and SINV's credit facility is secured by
substantially all of the assets of Saban and its subsidiaries. The Credit
Facilities restrict the payment of dividends. The Credit Facilities contain
restrictive covenants regarding, among other things, additional indebtedness,
payments and advances for product, the maintenance of certain financial ratios
and restrictions on the disposition of assets. At October 31, 1995 Saban and
SINV were in compliance or had obtained waivers for those covenants. At
October 31, 1995 no amounts have been borrowed under the Credit Facilities.
In June 1993, SINV entered into a credit agreement with Imperial as agent
and DeNationale Investeringsbank N.V. (the "Bank Facility"). An additional
bank, Banque Nationale de Paris was added to the Bank Facility in March 1994.
SINV paid a quarterly commitment fee of .5% per annum of the average daily
unused portion of the commitment. Substantially all of SINV's cash collections
were paid into accounts controlled by Imperial and applied to repayment of
borrowings under the Bank Facility. The restricted cash balance of $299,000 at
May 31, 1994, represented cash held by Imperial and not yet transferred to
Saban. The amount that SINV borrowed was based upon the value of collateral in
the borrowing base which consists principally of accounts receivable. All
borrowings were collateralized by substantially all of the assets of Saban.
Further, Saban agreed to maintain, on a quarterly average basis, $1,000,000 in
compensating balances at Imperial. The Bank Facility contained restrictive
covenants regarding, among other things, additional indebtedness, payments and
advances for product, the maintenance of certain financial ratios and
restrictions on the disposition of assets. On December 4, 1995, the Bank
Facility was replaced by the Credit Facilities and any outstanding obligation
plus interest was paid.
SIP has a revolving credit facility with Coficine bank which provides for
borrowings against project receivables up to a maximum of FF 7,200,000
($1,475,000 at October 31, 1995). In March 1996 the outstanding obligation
plus interest was paid in full.
In September 1994, SIP entered into a credit agreement with DeNationale
Investeringsbank N.V. ("NIB"). The facility provides for maximum borrowings of
$5,000,000. The facility is secured by a $5,000,000 deposit at NIB pledged by
SINV. Such $5,000,000 deposit is included in restricted cash at October 31,
1995 and at May 31, 1995. In April 1996 the outstanding obligation plus
interest was paid in full and SIP and NIB entered into a new agreement for a
facility with similar terms, providing maximum borrowings of $8,000,000. The
new facility is secured by an $8,000,000 deposit at NIB pledged by SINV.
6. RELATED PARTY TRANSACTIONS
In March 1995, Saban purchased all of the outstanding shares of Saban held
by a former minority stockholder.
Receivables from stockholders and related parties consist of the following:
<TABLE>
<CAPTION>
MAY 31
--------------------- OCTOBER 31
1994 1995 1995
---------- ---------- ----------
<S> <C> <C> <C>
Advances due from the Chairman and Chief
Executive Officer of Saban ("Haim Saban"), or
entities controlled by Haim Saban, interest
at prime rate (8.75% at October 31, 1995)
plus 1% and due on demand.................... $ -- $2,649,000 $2,610,000
Advances to certain non-stockholder officers
and directors of Saban ($885,000 at 5% and
$337,000 noninterest bearing with varying due
dates)....................................... 1,147,000 1,147,000 1,222,000
---------- ---------- ----------
$1,147,000 $3,796,000 $3,832,000
========== ========== ==========
</TABLE>
F-40
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Notes and accrued interest payable to stockholders is comprised of the
following:
<TABLE>
<CAPTION>
MAY 31
---------------- OCTOBER 31
1994 1995 1995
----------- ---- ----------
<S> <C> <C> <C>
Notes and advances payable to Haim Saban or enti-
ties controlled by Haim Saban, interest at prime
rate (8.75% at October 31, 1995) plus 1%. Paid in
full October 1994................................. $10,773,000 $-- $--
Note payable to Visionlights, S.A., a controlled
subsidiary of a former minority stockholder,
interest at prime rate (8.75% at October 31, 1995)
plus 1%. Paid in full November 1994............... 1,000,000 -- --
Accrued interest to stockholders................... 2,359,000 --
----------- ---- ----
$14,132,000 $-- $--
=========== ==== ====
</TABLE>
During the year ended May 31, 1994, Saban paid approximately $880,000 to a
former outside director of Saban for selling, writing and production services
rendered in connection with various entertainment properties produced by
Saban.
An outside director of Saban acts as a legal consultant to Saban. Fees paid
to this director were approximately $315,000, $153,000 and $62,000 for the
years ended May 31, 1994 and 1995 and for the five months ended October 31,
1995, respectively.
In September 1994, Saban entered into a music services agreement (the "Music
Agreement") with Haim Saban. The Music Agreement remains in effect until
August 31, 2001. Under the terms of the Music Agreement, all original theme
music, underscore, cues and songs for use in all programming produced by Saban
will be supplied through Haim Saban. Saban has been granted the non-exclusive,
worldwide, perpetual license to (i) synchronize and perform compositions in
theatrical motion pictures and (ii) synchronize composition in all other forms
of programming and has the royalty-free right to use the compositions in
articles of merchandise such as home video units, video games and interactive
toys. All music publishing income earned in connection with such musical
compositions is retained by Haim Saban. As of October 31, 1995, no amounts
were owed to Haim Saban pursuant to the terms of the Music Agreement.
Saban currently licenses and distributes its entertainment properties (e.g.,
motion pictures, television programs, merchandising and licensing rights) in
Israel through Duveen Trading Ltd. ("Distributor"), a corporation owned wholly
by Haim Saban's brother. The term of the agreement extends through
December 31, 1997, subject to extension by Saban for an additional three
years. Duveen Trading Ltd. is not obligated to make any payments to Saban
under this agreement.
7. COMMITMENTS AND CONTINGENCIES
Saban leased office space in Burbank, California, under a ten year lease
which was terminated in December 1995, and a lease termination fee of $305,000
was paid. Saban also leases office space in New York City under a three year
lease which is cancelable after the end of each year by payment of a
termination fee. In addition, Saban leases office space in Paris, France,
Cologne, Germany and London, England under nine year, five year and three year
operating leases, respectively. The Paris, France lease provides for
termination on February 28, 1999 and February 28, 2002, both upon six months
advance written notice. The London, England lease provides for early
termination upon six months advance written notice.
In July 1995, Saban entered into a 10 year lease which commenced on April 1,
1996 for office space in Los Angeles, California. The lease contains two
separate five-year extension options and provides for early termination at the
end of the sixth and eighth years upon payment of a termination fee. The lease
calls for
F-41
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
monthly payments plus maintenance and property tax payments. Saban also has
two leases for production facilities, one is a short-term lease in Los
Angeles, California originally expiring in November 1995 and subsequently
extended to March 1997, and the other is a two year lease in Valencia,
California expiring in January 1997 and subject to two separate one-year
extension options.
Noncancelable future minimum payments for the remainder of the initial,
noncancelable lease periods are as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED OCTOBER 31
------------------------------
<S> <C>
1996............................................................ $ 2,449,000
1997............................................................ 2,921,000
1998............................................................ 1,838,000
1999............................................................ 2,589,000
2000............................................................ 3,157,000
Thereafter...................................................... 20,105,000
-----------
$33,059,000
===========
</TABLE>
Rent expense for the years ended May 31, 1994 and 1995 and for the five
months ended October 31, 1995, net of amounts capitalized, was approximately
$275,000, $797,000 and $365,000, respectively.
Saban is involved in various lawsuits, both as a plaintiff and defendant, in
the ordinary course of its business. Based on an evaluation which included
consultation with counsel concerning legal and factual issues involved,
management is of the opinion that the foregoing claims and lawsuits will not
have a material adverse effect on Saban's consolidated financial position.
Saban has entered into employment agreements with certain key members of
management including Haim Saban. Such agreements are for terms ranging from
one to seven years and generally include bonus provisions. Future minimum
payments under these agreements approximate $20,939,000 of which $5,184,000 is
due for the twelve months ended October 31, 1996, $5,104,000 is due in the
twelve months ended October 31, 1997, $4,434,000 is due in the twelve months
ended October 31, 1998 and $6,216,000 is due thereafter.
Effective June 1994, Saban issued to two employees and a consultant options
to purchase an aggregate of 48.981 shares of common stock, 9.796 of which were
exercisable at October 31, 1995. These options vest ratably over five years
and are exercisable at $122,496 per share, which approximates the fair market
value at the time of grant. No options have been exercised at October 31,
1995. With respect to termination for any reason, so long as the Company is
not public, the Company will purchase from the employee and the employee will
sell to the Company any and all option shares owned by the employee and the
option granted to the employee for an amount equal to the fair market value of
the option shares owned by the employee plus the fair market value of the
option shares with respect to which the employee's option has vested but not
exercised less the exercise price. Included in selling, general and
administrative expenses is $11,000,000 and $2,400,000 for the year ended May
31, 1995 and the five months ended October 31, 1995, respectively, and in
accrued liabilities is $11,000,000 and $13,400,000 at May 31, 1995 and October
31, 1995, respectively, related to compensation recorded in connection with
these options.
As of October 31, 1995, 48.981 shares of common stock are reserved for
future issuance related to options.
F-42
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. PROFIT SHARING PLAN
Saban has a qualified tax deferred profit sharing plan (the "Plan") for all
of its eligible employees. Under the Plan, employees become eligible on the
first January 1 following such employees' completion of six months of service
with Saban. Each participant is permitted to make voluntary contributions, not
to exceed 15% of his or her respective compensation and the applicable
statutory limitation, which are immediately 100% vested. Saban, at the
discretion of the Board of Directors, may make matching contributions to the
Plan. Related expense for the years ended May 31, 1994 and 1995, and for the
five months ended October 31, 1995 was approximately $45,000, $40,000 and
$10,000, respectively.
9. INCOME TAXES
Effective June 1, 1993, Saban changed its method of accounting for income
taxes from the deferred method to the liability method required by FAS 109,
"Accounting for Income Taxes" (see Note 2 "Income Taxes"). As permitted under
the new rules, prior years' financial statements have not been restated.
The cumulative effect of adopting FAS 109 as of June 1, 1993, was not
material to Saban's financial statements.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of Saban's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
MAY 31
------------------------ OCTOBER 31
1994 1995 1995
----------- ------------ ------------
<S> <C> <C> <C>
Deferred tax liabilities:
Accounts receivable.................... $ 7,068,000 $ 3,181,000 $ 563,000
Tax over book amortization............. 2,114,000 6,052,000 --
State taxes............................ -- -- 203,000
----------- ------------ ------------
Total deferred tax liabilities......... $ 9,182,000 $ 9,233,000 $ 766,000
Deferred tax assets:
State taxes............................ $ 101,000 $ 1,511,000 $ --
Deferred revenue....................... 3,582,000 20,268,000 18,244,000
Accrued expenses and reserves.......... 939,000 12,015,000 4,590,000
Tax over book amortization............. -- -- 2,299,000
Other.................................. 298,000 1,679,000 1,053,000
----------- ------------ ------------
Total deferred tax assets.............. 4,920,000 35,473,000 26,186,000
Valuation allowance for deferred tax
assets................................ -- -- --
----------- ------------ ------------
Net deferred tax assets................ 4,920,000 35,473,000 26,186,000
----------- ------------ ------------
Net deferred tax liabilities (assets).. $ 4,262,000 $(26,240,000) $(25,420,000)
=========== ============ ============
</TABLE>
For financial reporting purposes, income before income taxes includes the
following components:
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED MAY 31 ENDED
------------------------ OCTOBER 31
1994 1995 1995
----------- ------------ ------------
<S> <C> <C> <C>
Pretax income:
United States........................ $19,846,000 $ 56,193,000 $ 33,872,000
Foreign.............................. 5,155,000 15,509,000 17,159,000
----------- ------------ ------------
$25,001,000 $ 71,702,000 $ 51,031,000
=========== ============ ============
</TABLE>
F-43
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 FIVE MONTHS ENDED
----------------------- OCTOBER 31
1994 1995 1995
---------- ------------ -----------------
<S> <C> <C> <C>
Current:
Federal............................ $4,421,000 $ 47,213,000 $11,514,000
State.............................. 751,000 8,777,000 2,802,000
Foreign............................ 180,000 1,539,000 489,000
---------- ------------ -----------
5,352,000 57,529,000 14,805,000
Deferred:
Federal............................ $2,344,000 $(25,776,000) $ (301,000)
State.............................. 392,000 (4,726,000) (215,000)
Foreign............................ 113,000 -- --
---------- ------------ -----------
2,849,000 (30,502,000) (516,000)
---------- ------------ -----------
$8,201,000 $ 27,027,000 $14,289,000
========== ============ ===========
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:
<TABLE>
<CAPTION>
YEAR
ENDED MAY
31 FIVE MONTHS ENDED
---------- OCTOBER 31
1994 1995 1995
---- ---- -----------------
<S> <C> <C> <C>
Tax at U.S. statutory rates........................ 35% 35% 35%
State taxes, net of federal benefit................ -- 6 5
Foreign subsidiary's income not subject to state or
federal tax....................................... (7) (7) (13)
Foreign taxes...................................... 1 2 1
Other.............................................. 4 2 0
--- --- ---
33% 38% 28%
=== === ===
</TABLE>
Undistributed earnings of Saban's foreign subsidiaries amounted to
approximately $61,000,000 at October 31, 1995. Those earnings are considered
to be indefinitely reinvested and, accordingly, no provision for U.S. federal
and state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, Saban would be subject to both
U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the various foreign countries. Determination of
the amount of unrecognized deferred U.S. income tax liability is not
practicable because of the complexities associated with its hypothetical
calculation; however, unrecognized foreign tax credit carryforwards would be
available to reduce some portion of the U.S. liability.
During the year ended May 31, 1994, the Internal Revenue Service completed
an examination of the Saban's May 31, 1990 tax returns and concluded that no
changes were necessary to the income tax reported by the Company.
10. SIGNIFICANT CUSTOMERS AND PROPERTIES AND GEOGRAPHICAL INFORMATION
Saban operates in one business segment which is the acquisition, production
and worldwide distribution and leasing of entertainment properties. Saban did
not have any significant customers for the years ended May 31, 1994 and 1995.
For the five months ended October 31, 1995, Saban earned revenues from one
significant
F-44
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
customer of approximately $33,332,000 (32%). For the year ended May 31, 1995,
Saban earned revenues from one significant customer of $26,308,000 (11%). For
the year ended May 31, 1994, Saban earned revenues from one significant
customer of $10,483,000 (12%). For the years ended May 31, 1994 and 1995, and
for the five months ended October 31, 1995, Saban earned revenues from one
significant property (Power Rangers) of $46,444,000 (55%), $174,389,000 (72%)
and $68,975,000 (66%), respectively.
Geographic information concerning Saban's operations is as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED MAY 31 ENDED
------------------------- OCTOBER 31
1994 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Domestic.............................. $ 56,455,000 $172,239,000 $ 61,671,000
International, principally Eu-
rope(/2/)............................ 27,917,000 70,229,000 43,459,000
------------ ------------ ------------
Total................................... 84,372,000 242,468,000 105,130,000
Operating profit:(/1/)
Domestic.............................. 24,366,000 97,433,000 42,128,000
International, principally Eu-
rope(/2/)............................ 11,905,000 27,478,000 20,980,000
------------ ------------ ------------
Total................................... 36,271,000 124,911,000 63,108,000
Selling, general and administrative ex-
penses................................. 8,933,000 51,894,000 11,538,000
Interest expense........................ 2,337,000 1,315,000 539,000
------------ ------------ ------------
Income before provision for income tax-
es..................................... $ 25,001,000 $ 71,702,000 $ 51,031,000
============ ============ ============
Identifiable assets:
Domestic.............................. $ 47,089,000 $ 89,772,000 $ 82,145,000
International, principally Eu-
rope(/2/)............................ 89,878,000 128,425,000 125,334,000
------------ ------------ ------------
Total................................... $136,967,000 $218,197,000 $207,479,000
============ ============ ============
</TABLE>
- --------
(1) For purposes of this presentation, operating profit is total revenues less
amortization of programming costs, residuals and profit participations.
(2) International amounts relate principally to Western Europe in connection
with the Company's subsidiary, SINV, a Netherlands Antilles company with
offices in Switzerland.
11. SUBSEQUENT EVENTS
On April 16, 1996, Saban acquired the stock of Creativite & Developpement SA
("C&D"), a leading Paris-based producer of family entertainment for
$2,869,000, payable $1,721,000 upon closing (April 16, 1996) and $1,148,000
payable on April 16, 1997 and is secured by a letter of credit. Saban
accounted for the acquisition as a purchase. No goodwill was recorded as the
purchase price was allocated to the respective assets and liabilities. The
acquisition included the international distribution rights to over 400 half-
hour episodes of children's programming.
In December 1995, Saban purchased from Vesical Limited ("Vesical") its
interest and rights to certain television programming and certain account
receivable balances for $12,000,000, payable $7,200,000 upon closing (April
18, 1996) and $4,800,000 payable on April 18, 1997 and is secured by a letter
of credit. Saban allocated the purchase price between the account receivable
balances and the television programming rights based upon the respective
assets fair market values using a discounted cash flow analysis.
F-45
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective June 1, 1995, FCN Holding, Inc. ("FCN Holding") and Saban formed a
strategic alliance limited liability company ("LLC"), and since November 1,
1995, Saban and FCN Holding have been operating under the management of the
LLC.
THE REORGANIZATION
Fox Kids Worldwide, Inc. was incorporated in Delaware in August 1996 and
currently conducts no business or operations. Immediately prior to the closing
of proposed initial public offerings ("Offerings"), (i) Fox Broadcasting Sub,
Inc.; a wholly-owned subsidiary of Fox Broadcasting ("Fox Broadcasting Sub"),
will exchange its capital stock in FCN Holding, which indirectly owns FCN, for
50% of the number of shares of the Fox Kids Worldwide, Inc.'s class B common
stock, par value $0.001 per share ("Class B Common Stock"), which will be
outstanding immediately after the Reorganization and prior to the closing of
the Offerings (the "Reorganization Closing"), (ii) the other stockholders of
FCN Holding will exchange their capital stock in FCN Holding for an aggregate
of one percent of the aggregate number of shares of Fox Kids Worldwide, Inc.'s
class A common stock, par value $0.001 per share ("Class A Common Stock") and
Class B Common Stock (Class A Common Stock and Class B Common Stock are
collectively the "Common Stock") which will be outstanding immediately after
the Reorganization Closing, (iii) the Chairman and Chief Executive Officer of
Saban ("Haim Saban") and the other stockholders of Saban will exchange their
capital stock in Saban for an aggregate of 50% of the number of shares of
Class B Common Stock which will be outstanding immediately after the
Reorganization Closing and (iv) all outstanding management options to purchase
Saban capital stock will become options to purchase an aggregate of
approximately four percent of the aggregate number of shares of Common Stock
which will be outstanding immediately after the Reorganization Closing. In
addition, Fox Broadcasting will exchange its preferred, non-voting interest in
the LLC for an aggregate of 1,000,000 shares of Fox Kids Worldwide, Inc.'s
series A redeemable preferred stock, $0.001 par value per share (the "Series A
Preferred Stock") and will exchange a $50 million contingent note receivable
from the LLC for a new preferred, non-voting interest in the LLC. As a result
of these transaction, FCN Holding, FCN, Saban and the LLC will become direct
or indirect subsidiaries of Fox Kids Worldwide, Inc.
OTHER RELATED PARTY TRANSACTIONS
From time to time, Saban has loaned and advanced funds to Haim Saban. In
connection with the formation of the LLC and as inducement to Haim Saban to
enter into certain documentation in connection with the formation of the LLC,
on December 22, 1995, Saban forgave in full the loan plus accrued interest
owing from Haim Saban in the amount of approximately $2,700,000. In connection
with Haim Saban's employment agreement, dated December 22, 1995, with the LLC
, the LLC agreed to reimburse Haim Saban for all out-of-pocket costs and
expenses for domestic and international travel, including private air charter
which may include aircraft owned directly or indirectly by Haim Saban.
F-46
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Fox Kids Worldwide, Inc. (a Delaware corporation)
We have audited the accompanying balance sheet of Fox Kids Worldwide, Inc.
(a Delaware corporation) as of September 27, 1996. This financial statement is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of Fox Kids Worldwide, Inc.
(a Delaware corporation) as of September 27, 1996, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
September 27, 1996
F-47
<PAGE>
FOX KIDS WORLDWIDE, INC.
(A DELAWARE CORPORATION)
BALANCE SHEET
SEPTEMBER 27, 1996
<TABLE>
<S> <C>
STOCKHOLDERS' EQUITY
Common Stock, $0.001 par value: 1,000 shares authorized; none issued... $ --
Additional paid-in capital............................................. 300
Receivable from FCN Holding, Inc....................................... (300)
-----
$ --
=====
</TABLE>
See notes to balance sheet.
F-48
<PAGE>
FOX KIDS WORLDWIDE INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 27, 1996
1. DESCRIPTION OF BUSINESS
Fox Kids Worldwide, Inc. (the "Company") was incorporated in Delaware in
August 1996 in connection with proposed initial public offerings ("Offerings")
of certain shares of class A common stock, par value $0.001 per share ("Class
A Common Stock") of the Company and to hold the shares and interests of FCN
Holding, Inc. ("FCN Holding"), Saban Entertainment, Inc. and its subsidiaries
("Saban") and a strategic alliance limited liability company ("LLC") formed
between Fox Broadcasting Company ("Fox Broadcasting"), FCN Holding and Saban.
The Company currently conducts no business or operations. Immediately prior to
the closing of the Offerings, (i) Fox Broadcasting Sub, Inc., a wholly-owned
subsidiary of Fox Broadcasting, will exchange its capital stock in FCN
Holding, which indirectly owns Fox Children's Network, Inc. ("FCN"), for 50%
of the number of shares of the class B common stock, par value $0.001 per
share ("Class B Common Stock"), which will be outstanding immediately after
the Reorganization and prior to the closing of the Offerings (the
"Reorganization Closing"), (ii) the other stockholders of FCN Holding will
exchange their capital stock in FCN Holding for an aggregate of one percent of
the aggregate number of shares of Class A Common Stock and Class B Common
Stock (the "Common Stock") which will be outstanding immediately after the
Reorganization Closing, (iii) Haim Saban, the Chief Executive Officer and
Chairman of Saban ("Haim Saban"), and the other stockholders of Saban will
exchange their capital stock in Saban for an aggregate of 50% of the number of
shares of the Class B Common Stock which will be outstanding immediately after
the Reorganization Closing and (iv) all outstanding management options to
purchase Saban capital stock will become options to purchase an aggregate of
approximately four percent of the aggregate number of shares of Common Stock
which will be outstanding immediately after the Reorganization Closing. In
addition, Fox Broadcasting will exchange its preferred, non-voting interest in
the LLC for an aggregate of 1,000,000 shares of the Company's series A
redeemable preferred stock, $0.001 par value per share (the "Series A
Preferred Stock") and will exchange a $50 million contingent note receivable
from the LLC for a new preferred, non-voting interest in the LLC. As a result
of these transactions, FCN Holding, FCN, Saban and the LLC will become direct
or indirect subsidiaries of the Company.
DESCRIPTION OF SECURITIES
Simultaneously with the Reorganization, the capital stock of the Company
will be changed as follows:
The authorized capital stock of the Company consists of shares of
Class A Common Stock, shares of Class B Common Stock, 15,000,000 shares
of preferred stock ("Preferred Stock"), and 1,000,000 shares of Series A
Preferred Stock. As of the Closing Date, including the shares being offered
hereunder, shares of Class A Common Stock, shares of Class B
Common Stock and 1,000,000 shares of Series A Preferred Stock will be issued
and outstanding and no shares of Preferred Stock will be issued or
outstanding.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
The Certificate of Incorporation provides for two classes of common stock,
Class A Common Stock and Class B Common Stock, the two classes of which are
substantially identical, except for disparity in voting power.
Voting. Each share of Class B Common Stock entitles the holder of record to
ten votes and each share of Class A Common Stock entitles the holder to one
vote at each annual or special meeting of stockholders, in the case of any
written consent of stockholders, and for all other purposes. The holders of
Class A Common Stock and Class B Common Stock will vote as a single class on
all matters submitted to a vote of the stockholders, except as otherwise
provided by law. Neither the holders of Class A Common Stock nor the holders
of Class B
F-49
<PAGE>
FOX KIDS WORLDWIDE INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Common Stock have cumulative voting rights. The Company may, as a condition to
counting the votes cast by any holder of Class B Common Stock at any annual or
special meeting of stockholders, in the case of any written consent of
stockholders, or for any other purpose, require the furnishing of such
affidavits or other proof as it may reasonably request to establish that the
Class B Common Stock held by such holder has not, by virtue of the provisions
of the Certificate of Incorporation, been converted into Class A Common Stock.
Conversion Rights. Each share of Class B Common Stock is convertible at the
holder's option at all times, without cost to the stockholder, into one share
of Class A Common Stock. In addition, Class B Common Stock is subject to
automatic conversion in the event of a transfer in violation of the transfer
restrictions described below.
Dividends and Other Distributions. The holders of Class A Common Stock and
Class B Common Stock will be entitled to receive dividends and other
distributions as may be declared thereon by the board of directors of the
Company out of assets or funds of the Company legally available therefor,
subject to the rights of the holders of the Series A Preferred Stock or any
other series of Preferred Stock and any other provision of the Certificate of
Incorporation. The Certificate of Incorporation provides that if at any time a
dividend or other distribution in cash or other property is paid on Class A
Common Stock or Class B Common Stock, a like dividend or other distribution in
cash or other property will also be paid on Class B Common Stock or Class A
Common Stock, as the case may be, in an equal amount per share. In this
connection, the Certificate of Incorporation specifically provides that if
shares of Class B Common Stock are paid on Class B Common Stock and shares of
Class A Common Stock are paid on Class A Common Stock, in an equal amount per
share of Class B Common Stock and Class A Common Stock, such payment will be
deemed to be a like dividend or other distribution. In the case of any split,
subdivision, combination or reclassification of Class B Common Stock or Class
A Common Stock, the shares of Class A Common Stock or Class B Common Stock, as
the case may be, will also be split, subdivided, combined or reclassified so
that the number of shares of Class B Common Stock and Class A Common Stock
outstanding immediately following such split, subdivision, combination or
reclassification will bear the same relationship to each other as that which
existed immediately prior thereto.
Distributions Upon Liquidation. In the event of any liquidation, dissolution
or winding up of the Company, the holders of Class B Common Stock and the
holders of Class A Common Stock will be entitled to receive the assets and
funds of the Company available for distribution after payments to creditors
and to the holders of the Series A Preferred Stock or any Preferred Stock of
the Company that may at the time be outstanding, in proportion to the number
of shares held by them, respectively, without regard to class.
Transferability of Shares. The shares of Class A Common Stock offered hereby
are freely transferable, subject to certain restrictions on resale imposed on
affiliates of the Company. Class B Common Stock is not transferable by a
stockholder except to the following transferees (each a "Permitted
Transferee"): (i) to any other Class B Stockholder, any of Haim Saban's family
members, any trust established solely for the benefit of one or more of Haim
Saban's family members or any legal entity in which Haim Saban or such persons
are the sole beneficial owners; (ii) to a direct or indirect wholly-owned
subsidiary of such Class B Stockholder (or with respect to a Class B
Stockholder which is a natural person, a corporation or other person wholly-
owned by the Class B Stockholder); or (iii) to a Fox Subsidiary. A "Fox Inc.
Subsidiary" is Twentieth Holdings Corp. and any corporation or other person in
which Fox Inc., or Twentieth Holdings Corp. is the sole beneficial owner
(either directly or indirectly through one or more wholly-owned subsidiaries)
of all the outstanding voting securities of that corporation or other person.
Any purported transfer of Class B Common Stock other than to a Permitted
Transferee shall be null and void and of no effect and the purported transfer
by a holder of Class B Common Stock, other than to a Permitted Transferee,
will result in the immediate and automatic conversion of such holder's shares
of Class B Common Stock into shares of Class A Common Stock.
F-50
<PAGE>
FOX KIDS WORLDWIDE INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Reorganization. In the event of any corporate merger, consolidation,
purchase or acquisition of property or stock, or other reorganization in which
any consideration is to be received by the holders of Class B Common Stock or
the holders of Class A Common Stock, the holders of Class B Common Stock and
the holders of Class A Common Stock will receive the same consideration on a
per share basis; except that, if such consideration shall consist in any part
of voting securities) (or of options or warrants to purchase voting
securities, or of securities convertible into or exchangeable for voting
securities), the holders of Class B Common Stock may receive, on a per share
basis, voting securities with ten times the number of votes per share as those
voting securities to be received by the holders of Class A Common Stock (or
options or warrants to purchase, or securities convertible into or
exchangeable for, voting securities with ten times the number of votes per
share as those voting securities issuable upon the exercise of the options or
warrants, or into which the convertible or exchangeable securities may be
converted or exchange, received by the holders of Class A Common Stock).
Except as expressly set forth in the Certificate of Incorporation, the
rights of the holders of Class B Common Stock and the rights of the holders of
Class A Common Stock are in all respects identical.
SERIES A PREFERRED STOCK
The holders of Series A Preferred Stock have no preemptive rights and are
not subject to future assessments by the Company. All outstanding shares of
Series A Preferred Stock are fully paid and nonassessable. The Series A
Preferred Stock has aggregate dividend and/or redemption obligations of $50
million. Once an aggregate of $50 million has been paid, the Series A
Preferred Stock will cease to be outstanding. The Series A Preferred Stock,
with respect to dividend rights and rights on liquidation, winding up and
dissolution, ranks senior to the Preferred Stock and to the Common Stock. The
holders of the shares of Series A Preferred Stock are entitled to receive,
when, as and if declared by the board of directors, out of funds legally
available therefor, cash dividends in an amount equal to the Distributable
Cash of the Company. No more than $49 in dividends may be paid with respect to
any share of Series A Preferred Stock. "Distributable Cash" means, at the time
a determination of Distributable Cash is made, the net cash provided by
operating activities of the Company (on a consolidated basis) from the date of
issuance of the Series A Preferred Stock through the end of the last fiscal
quarter ending not less than 90 days prior to the time of determination, less
the sum of (i) all restricted cash, (ii) all Reserves, and (iii) all amounts
previously paid as dividends on the Series A Preferred Stock. "Reserves" are
those amounts determined from time to time by the board of directors as
necessary to provide, over such period as the board of directors considers
appropriate, for current and planned capital expenditures, debt service,
working capital requirements and expansion plans; and if the board of
directors is unable to reach agreement thereon, the Reserves shall be
maintained at a level equal to the sum of (i) $30 million, plus (ii) the net
proceeds realized by the Company from the Offerings. The Company shall have
the right from time to time to redeem the Series A Preferred Stock, in whole
or in part, with the consent of the holders of the Series A Preferred Stock,
at a redemption price equal to the then-current liquidation value of the
Series A Preferred Stock. If the liquidation value of the Series A Preferred
Stock is $1.00 per share, the Company shall have the right and power at any
time thereafter to redeem all, and not less than all, of the Series A
Preferred Stock at a redemption price of $1.00 per share. The holders of
Series A Preferred Stock shall have no voting rights with respect to corporate
matters except as provided by law.
PREFERRED STOCK
The Certificate of Incorporation provides that shares of Preferred Stock may
be issued from time to time in one or more series. The board of directors is
authorized to fix the voting rights, if any, designations, powers, preferences
and the relative participation, optional or other rights, if any, and the
qualifications, limitations or restrictions thereof, of any unissued series of
Preferred Stock, to fix the number of shares constituting such series, and to
increase or decrease the number of shares of any such series (but not below
the number of shares of such
F-51
<PAGE>
FOX KIDS WORLDWIDE INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
series then outstanding). Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect
the voting power or other rights of the holders of the Company's Class B
Common Stock and Class A Common Stock. In the event of issuance, these shares
of Preferred Stock could be utilized, under certain circumstances, as a method
of discouraging, delaying or preventing an acquisition or a change in control
of the Company. The Company currently does not intend to issue any of the
authorized but unissued shares of its Preferred Stock.
STOCK OPTIONS AND STOCK INCENTIVE PLAN
In 1996, the Board of Directors and stockholders of the Company
approved the Company's 1996 Stock Incentive Plan (the "1996 Plan"). The 1996
Plan was adopted in order to enable the Company and its subsidiaries to
attract, retain and motivate selected eligible directors, officers, employees
and consultants of the Company by providing for or increasing the proprietary
interests of those persons in the Company, and by associating their interests
in the Company with those of the Company's stockholders.
Any person who is a director, officer, employee or consultant of the
Company, or any of its current or future subsidiaries, shall be eligible to be
considered for the grant of Awards under the Plan. The Plan shall be
administered by a committee of the Board of Directors of the Company (the
"Committee"). Pursuant to the 1996 Plan, the Committee may grant, without
limitation, any of the following awards: shares of Class A Common Stock or any
option, warrant, convertible security, stock appreciation right or similar
right with an exercise or conversion privilege at a price related to an equity
security, or similar securities with a value derived from the value of an
equity security (an "Award"). Awards are not restricted to any specified form
or structure and may include, but need not be limited to, sales, bonuses and
other transfers of stock, restricted stock, stock options, reload stock
options, stock purchase warrants, other rights to acquire stock or securities
convertible into or redeemable for stock, stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance shares, and an
Award may consist of one such security or benefit, or two or more of them in
tandem or in the alternative. The Committee, in its sole discretion,
determines all of the terms and conditions of each Award granted under the
1996 Plan.
An aggregate of shares of Class A Common Stock have been reserved for
issuance in connection with the Awards made under the 1996 Plan. The 1996 Plan
is effective for a period of ten years, through 2006. The Committee may
amend or terminate the 1996 Plan at any time and in any manner but no such
amendment or termination may terminate or modify any Award previously granted
under the 1996 Plan without the consent of the recipient of the Award. The
Company has granted to independent directors and certain members of management
options to purchase an aggregate of shares of the Class A Common Stock.
In addition, the Company intends to grant prior to the closing of the
Offerings to certain officers and employees under its stock incentive plan
options to purchase shares of Class A Common Stock, exercisable at the
initial offering price.
F-52
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR ANY UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors ............................................................. 11
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Dilution ................................................................. 19
Capitalization............................................................ 20
Unaudited Pro Forma Financial Information................................. 21
Selected Historical and Pro Forma Financial Data.......................... 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 27
Business.................................................................. 38
Management................................................................ 62
Principal Stockholders.................................................... 68
Certain Transactions...................................................... 70
Description of Securities................................................. 75
Shares Eligible for Future Sale........................................... 79
Certain United States Federal Tax Consequences to Non-United States
Holders.................................................................. 80
Underwriting.............................................................. 83
Legal Matters............................................................. 85
Experts................................................................... 85
Available information..................................................... 85
Index to Financial Statements............................................. F-1
</TABLE>
---------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO OF FOX KIDS]
FOX KIDS
WORLDWIDE, INC.
CLASS A COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH & CO.
ALLEN & COMPANY
INCORPORATED
BEAR, STEARNS & CO. INC.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 27, 1996
PROSPECTUS
SHARES
FOX KIDS WORLDWIDE, INC.
[LOGO OF FOX KIDS] CLASS A COMMON STOCK
-----------
Of the shares of Class A Common Stock, par value $0.001 per share (the
"Class A Common Stock"), of Fox Kids Worldwide, Inc. (the "Company") offered
hereby, shares are being offered initially in the United States and
Canada by the U.S. Underwriters (the "U.S. Offering") and shares are
being offered in a concurrent offering outside the United States and Canada by
the International Underwriters (the "International Offering," and together with
the U.S. Offering, the "Offerings"). The initial public offering price and the
underwriting discount per share will be identical for both Offerings. See
"Underwriting."
Immediately following the Offerings, the Company's outstanding common stock
will be comprised of Class A Common Stock and Class B Common Stock, par value
$0.001 per share (the "Class B Common Stock" and, together with the Class A
Common Stock, the "Common Stock"). The rights of holders of each class of
Common Stock are identical, except that each share of Class B Common Stock
entitles its holder to ten votes and each share of Class A Common Stock
entitles its holder to one vote. Immediately following the Offerings, the
holders of the Company's Class B Common Stock will have approximately %, in
aggregate, of the combined voting power with respect to all matters submitted
for the vote of all stockholders, except as required by law. Immediately
following the Offerings, 50% of the shares of Class B Common Stock will be
beneficially owned by Fox Broadcasting Company, an indirect wholly owned
subsidiary of The News Corporation Limited and 50% of the shares of Class B
Common Stock will be beneficially owned by the former stockholders of Saban
Entertainment, Inc. See "Principal Stockholders" and "Description of
Securities."
All of the shares of Class A Common Stock offered hereby are being
offered by the Company. Prior to the Offerings, there has been no public market
for the Class A Common Stock. It is currently estimated that the initial public
offering price will be between $ and $ per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price.
The Company intends to apply for listing of the Class A Common Stock on the
New York Stock Exchange.
SEE "RISK FACTORS" COMMENCING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
PROCEEDS TO THE
PRICE TO PUBLIC UNDERWRITING DISCOUNT(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $ $ $
- -----------------------------------------------------------------------------------------------------
Total(3)............................. $ $ $
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses, estimated at $ , payable by the Company.
(3) The Company has granted the U.S. Underwriters and the International
Underwriters options, exercisable within 30 days after the date hereof, to
purchase up to an aggregate of and shares of Class A Common
Stock, respectively, at the initial price to public per share, less the
underwriting discount, solely to cover over-allotments, if any. If such
options are exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
-----------
The Class A Common Stock is being offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of certificates for the shares of Class A Common Stock
will be made in New York, New York on or about , 1996.
-----------
MERRILL LYNCH INTERNATIONAL
ALLEN & COMPANY INCORPORATED
BEAR, STEARNS INTERNATIONAL LIMITED
-----------
The date of this Prospectus is , 1996.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions set forth in the international purchase
agreement (the "International Purchase Agreement"), the Company and the
Selling Stockholders have agreed to sell to each of the underwriters named
below (the "International Underwriters"), and each of the International
Underwriters, for whom Merrill Lynch International, Allen & Company
Incorporated and Bear, Stearns International Limited are acting as
representatives (the "International Representatives"), severally has agreed to
purchase the aggregate number of shares of Class A Common Stock set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL UNDERWRITERS SHARES
-------------------------- ---------
<S> <C>
Merrill Lynch International.........................................
Allen & Company Incorporated........................................
Bear, Stearns International Limited.................................
-------
Total...........................................................
=======
</TABLE>
The Company has also entered into the U.S. purchase agreement (the "U.S.
Purchase Agreement" and, together with the International Purchase Agreement,
the "Purchase Agreements") with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), Allen & Company Incorporated and Bear, Stearns
& Co. Inc., acting as representatives (the "U.S. Representatives" and,
together with the International Representatives, the "Representatives"), and
certain other underwriters in the United States and Canada (collectively, the
"U.S. Underwriters" and, together with the International Underwriters, the
"Underwriters"). Subject to the terms and conditions set forth in the U.S.
Purchase Agreement, the Company has agreed to sell to the U.S. Underwriters,
and the U.S. Underwriters severally have agreed to purchase, an aggregate of
shares of Class A Common Stock.
In each Purchase Agreement, the Underwriters named therein have agreed,
subject to the terms and conditions set forth in such Purchase Agreement, to
purchase all of the shares of Class A Common Stock being sold pursuant to such
Purchase Agreement if any of the shares of Class A Common Stock being sold
pursuant to such Purchase Agreement are purchased. Under certain
circumstances, under the Purchase Agreements, the commitments of non-
defaulting Underwriters may be increased. Each Purchase Agreement provides
that the Company is not obligated to sell, and the Underwriters named therein
are not obligated to purchase, the shares of Class A Common Stock under the
terms of the Purchase Agreement unless all of the shares of Class A Common
Stock to be sold pursuant to the Purchase Agreements are contemporaneously
sold.
The International Representatives have advised the Company that the
International Underwriters propose to offer the shares of Class A Common Stock
offered hereby to the public initially at the public offering price set forth
on the cover page of this Prospectus and to certain dealers at such price less
a concession not in excess of $ per share of Class A Common Stock, and that
the International Underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per share of Class A Common Stock on sales to
certain other dealers. After the Offerings, the public offering price,
concession and discount may be changed.
The public offering price per share of Class A Common Stock and the
underwriting discount per share of Class A Common Stock are identical for both
Offerings.
The Company has granted to the International Underwriters and the U.S.
Underwriters options to purchase up to an aggregate of shares and
shares of Class A Common Stock at the initial public offering price,
less the underwriting discount. Such options, which will expire 30 days after
the date of this Prospectus, may be exercised solely to cover over-allotments.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
The Company has been informed that the Underwriters have entered into an
agreement (the "Intersyndicate Agreement") providing for the coordination of
their activities. Pursuant to the Intersyndicate Agreement, the International
Underwriters and the U.S. Underwriters are permitted to sell shares of Class A
Common Stock to each other. The Company has been informed that, under the
terms of the Intersyndicate Agreement, the International Underwriters and any
dealer to whom they sell shares of Class A Common Stock will not offer to sell
or resell shares of Class A Common Stock to persons who are U.S. or Canadian
persons or to persons they believe intend to resell to persons who are U.S. or
Canadian persons, and the U.S. Underwriters and any bank, broker or dealer to
whom they sell shares of Class A Common Stock will not offer to resell shares
of Class A Common Stock to non-U.S. persons or to non-Canadian persons or to
persons they believe intend to resell to non-U.S. persons or to non-Canadian
persons, except in the case of transactions pursuant to the Intersyndicate
Agreement which, among other things, permits the Underwriters to purchase from
each other and to offer to resell such number of shares of Class A Common
Stock as the selling Underwriter or Underwriters and the purchasing
Underwriter or Underwriters may agree.
The Company, Fox Broadcasting, Haim Saban and certain officers and directors
of the Company have each agreed not to sell or grant any option for the sale
of, or otherwise dispose of, any Common Stock, or any securities convertible
into or exchangeable or exercisable for shares of Common Stock, other than the
shares of Common Stock that may be offered by the Company in the Offerings and
not to file or request to be filed, as the case may be, any registration
statement with respect to Common Stock for a period of 180 days after the date
of this Prospectus without the prior written consent of Merrill Lynch.
Each International Underwriter has agreed that (i) it has not offered or
sold and it will not offer or sell, directly or indirectly, any shares of
Common Stock offered hereby in the United Kingdom by means of any document,
except in circumstances which do not constitute an offer to the public within
the meaning of the Companies Act 1985, (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Common Stock in, from or otherwise
involving the United Kingdom, and (iii) it has only issued or passed on and
will only issue or pass on to any person in the United Kingdom any document
received by it in connection with the issuance of Common Stock if that person
is of a kind described in Article 9(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1988 or is a person to whom the
document may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of Common
Stock, or the possession, circulation or distribution of this Prospectus or
any other material relating to the Company or shares of Common Stock, in any
jurisdiction where action for that purpose is required. Accordingly, the
shares of Common Stock may not be offered or sold, directly or indirectly, and
neither this prospectus nor any other offering material or advertisements in
connection with the shares of the Common Stock may be distributed or
published, in or from any country or jurisdiction except in compliance with
any applicable rules and regulations of such country or jurisdiction.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase, in addition to the offering price set forth on the
cover page hereof.
The International Underwriters and the U.S. Underwriters have informed the
Company that they do not intend to sell shares of Class A Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
Prior to the Offerings, there has been no public market for the Class A
Common Stock of the Company. The initial public offering price for the Class A
Common Stock has been determined by negotiation between the Company and the
U.S. Representatives and International Representatives. Among the factors that
were considered in determining the initial public offering price were the
Company's results of operations, the
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Company's current financial condition, its future prospects, the experience of
its management, the economics of the industry in general, the general
condition of the equity securities market, the demand for similar securities
of companies considered comparable to the Company and other relevant factors.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
Certain of the Underwriters or their affiliates have provided from time to
time, and may provide in the future, commercial and investment banking
services to News Corp. and its affiliates, for which such Underwriters or
their affiliates have received or will receive fees and commissions.
Allen & Company Incorporated ("Allen") has, over the years, rendered
investment banking and financial advisory services to News Corp. and various
of its subsidiaries, as well as Saban, in connection with a number of matters.
Stanley S. Shuman, a Managing Director and Executive Vice President of Allen,
has been a non-Executive Director of News Corp. since 1982. Allen acquired 16
16/99 shares of Common Stock of FCN Holding in lieu of a cash fee earned in
December 1995 for certain financial advisory and other investment banking
services rendered to FCN Holding in connection with the negotiation,
structuring, formation and capitalization of the LLC. These shares will be
exchanged in the Reorganization for shares of Class A Common Stock of
the Company. As a result, after the Reorganization and before the Offerings,
Allen will own an aggregate of shares of Class A Common Stock of the
Company.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CON-
NECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR ANY UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
THERE ARE RESTRICTIONS ON THE OFFER AND SALE OF THE CLASS A COMMON STOCK OF-
FERED HEREBY IN THE UNITED KINGDOM. ALL APPLICABLE PROVISIONS OF THE FINANCIAL
SERVICES ACT 1986 AND THE COMPANIES ACT 1985 WITH RESPECT TO ANYTHING DONE BY
ANY PERSONS IN RELATION TO THE CLASS A COMMON STOCK IN, FROM OR OTHERWISE IN-
VOLVING THE UNITED KINGDOM MUST BE COMPLIED WITH. SEE "UNDERWRITING."
IN THIS PROSPECTUS, REFERENCE TO "DOLLARS" AND "$" ARE TO UNITED STATES DOL-
LARS UNLESS STATED OTHERWISE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors ............................................................. 11
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Dilution ................................................................. 19
Capitalization............................................................ 20
Unaudited Pro Forma Financial Information................................. 21
Selected Historical and Pro Forma Financial Data.......................... 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 27
Business.................................................................. 38
Management................................................................ 62
Principal Stockholders.................................................... 68
Certain Transactions...................................................... 70
Description of Securities................................................. 75
Shares Eligible for Future Sale........................................... 79
Certain United States Federal Tax Consequences to Non-United States
Holders.................................................................. 80
Underwriting.............................................................. 83
Legal Matters............................................................. 85
Experts................................................................... 85
Available Information..................................................... 85
Index to Financial Statements............................................. F-1
</TABLE>
---------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO OF FOX KIDS]
FOX KIDS
WORLDWIDE, INC.
CLASS A COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH INTERNATIONAL
ALLEN & COMPANY
INCORPORATED
BEAR, STEARNS INTERNATIONAL LIMITED
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and distribution of the Class A Common Stock
being registered, other than underwriting discounts. All the amounts shown are
estimates except the Securities and Exchange Commission registration fee, the
NASD filing fee and the New York Stock Exchange filing fee.
<TABLE>
<S> <C>
Registration fee--Securities and Exchange Commission............. $51,724
NASD filing fee.................................................. 15,500
New York Stock Exchange filing fee...............................
Accounting fees and expenses.....................................
Legal fees and expenses (other than blue sky)....................
Printing; stock certificates.....................................
Transfer agent and registrar fees................................
Miscellaneous....................................................
-------
Total.......................................................... $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The U.S. Purchase Agreement and International Purchase Agreement (Exhibits
1.1 and 1.2 hereto) provide for indemnification by the Underwriters of the
Company and its officers and directors, and by the Company of the
Underwriters, for certain liabilities arising under the Securities Act or
otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) Since June 1, 1994, the Registrant and its predecessors have issued and
sold the following unregistered securities:
(1) On June 1, 1994, Saban granted to each of Mel Woods, Shuki Levy and
Stan Golden an option to purchase 16.327 shares of Saban common stock at a
purchase price of $122,496.48 per share. On January 1, 1996, Saban granted
to Margaret Loesch an option to purchase 16.327 shares of Saban common
stock at a purchase price of $612,500 per share.
(2) On September 26, 1996, FCN Holding issued and sold to Allen and
Company Incorporated ("Allen") and its affiliates including Stanley Shuman
("Shuman"), an employee of Allen, effective as of April 3, 1996, 16 16/99
shares of the common stock of FCN Holding valued at $10 million, in
consideration for financial advisory services and other investment banking
services rendered by Allen and Shuman to FCN Holding in connection with the
formation of the LLC.
(3) Immediately prior to the closing of the Offerings, (i) Fox
Broadcasting Sub, a wholly-owned subsidiary of Fox Broadcasting, will
exchange its capital stock in FCN Holding, which indirectly owns FCN, for
shares of the Class B Common Stock, (ii) the other stockholders of
FCN Holding will exchange their capital stock in FCN Holding for an
aggregate of shares of the Class A Common Stock, (iii) Haim Saban and
the other stockholders of Saban (none of whom are affiliated with News
Corp.) will exchange their capital stock in Saban for an aggregate of
shares of the Class B Common Stock and (iv) all outstanding management
options to purchase Saban common stock, as outstanding management options
to purchase Saban common stock, as more particularly described in Item
15(a) (1) above, will become options to purchase an aggregate of
shares of the Class A Common Stock. In addition, Fox Broadcasting will
exchange its preferred, non-voting interest in the LLC for an aggregate of
1,000,000 shares of the Company's Series A Redeemable Preferred Stock,
$0.001 par value per share. As a result of these transactions, FCN Holding,
FCN, Saban and the LLC will become direct or indirect wholly-owned
subsidiaries of the Company.
II-1
<PAGE>
(b) There were no underwritten offerings employed or commissions paid to any
person in connection with any of the transactions set forth in Item 15(a).
The issuances of the securities set forth in Item 15(a) were deemed to be
exempt from registration under the Securities Act of 1933, as amended (the
"Act") in reliance on Section 4(2) of such Act as transactions by an issuer
not involving any public offering. The recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the securities
issued in such transactions. All recipients of these securities had adequate
access, through their relationships with the Registrant and its subsidiaries,
to information about the Registrant and each affiliated issuer of securities
involved in the transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of U.S. Purchase Agreement.*
1.2 Form of International Purchase Agreement.*
2.1 Share Transfer Agreement dated as of April 15, 1996 by and
among Saban International Paris, as Purchaser and certain
parties as Sellers relating to Creativite & Developpement.(1)+
2.2 Agreement for the Purchase of Film Assets dated as of December
31, 1995 by and between Vesical Limited and Saban
International N.V.(1)+
3.1 Certificate of Incorporation of the Registrant.
3.2 Restated Certificate of Incorporation (to be filed with the
Delaware Secretary of State prior to effectiveness of this
Registration Statement).
3.3 Bylaws of the Registrant.
4.1 Specimen certificate evidencing Class A Common Stock of the
Registrant.*
5.1 Opinion of Troop Meisinger Steuber & Pasich, LLP.*
10.1 Strategic Stockholders Agreement dated as of December 22, 1995,
by and among Saban Entertainment, Inc., Haim Saban, certain
entities listed on Schedule A thereto, Fox Broadcasting
Company, FCN Holding, Inc. and FCNH Sub, Inc.+
10.2 Amendment No. 1 to Strategic Stockholders Agreement dated as of
February 26, 1996.
10.3 Amendment No. 2 to Strategic Stockholders Agreement dated as of
September 26, 1996.+
10.4 Amendment No. 3 to Strategic Stockholders Agreement dated as of
September 26, 1996 (to be executed prior to closing).
10.5 Form of Indemnification Agreement and Schedule of Indemnified
Parties.
10.6 1996 Stock Incentive Plan.
10.7 Employment Agreement effective December 22, 1995, between Fox
Kids Worldwide, L.L.C. and Haim Saban.
10.8 Employment Agreement effective January 1, 1996, between Fox
Kids Worldwide, L.L.C. and Margaret Loesch; Stock Option
Agreement effective January 1, 1996, between Saban
Entertainment, Inc. and Margaret Loesch, as amended by
Amendment No. 1.
10.9 Employment Agreement effective June 1, 1994, between Saban
Entertainment, Inc. and Mel Woods, as amended by Amendment
No. 1 to Employment Agreement.
10.10 Employment Agreement effective June 1, 1996, between Saban
Entertainment, Inc. and Shuki Levy; Stock Option Agreement
effective June 1, 1994 between Saban Entertainment, Inc. and
Shuki Levy, as amended by Amendment No. 1.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.11 LLC Formation Agreement dated as of November 1, 1995, between
Saban Entertainment, Inc., FCN Holding, Inc. and Fox
Broadcasting Company.
10.12 Operating Agreement for Fox Kids Worldwide, L.L.C. dated as of
December 22, 1995 by and among Saban Entertainment, Inc., FCN
Holding, Inc. and Fox Broadcasting Company.+
10.13 Amendment No. 1 to Operating Agreement dated as of September
26, 1996.
10.14 Amendment No. 2 to Operating Agreement dated as of , 1996.*
10.15 Asset Assignment Agreement dated as of December 22, 1995 by and
between Fox Kids Worldwide, L.L.C., on the one hand, and Fox,
Inc., Fox Broadcasting Company, Twentieth Century Fox Film
Corporation, Fox Television Stations, Inc., and FCN Holding,
Inc.+
10.16 Management Agreement dated as of December 22, 1995, by and
among Fox Kids Worldwide, L.L.C., Saban Entertainment, Inc.
and FCN Holding Sub, Inc.
10.17 Stock Ownership Agreement dated as of December 22, 1995 by and
among Haim Saban, certain entities listed on Schedule 1.1(a)
thereto and Fox Kids Worldwide, L.L.C.+
10.18 Amendment No. 1 to Stock Ownership Agreement dated as of
September 26, 1996.+
10.19 Home Video Rights Acquisition Agreement (Casper) dated as of
May 24, 1996, by and among Twentieth Century Fox Home
Entertainment Inc. on the one hand and Saban Entertainment,
Inc. and Saban International N.V. on the other hand.*
10.20 Form of Fox Broadcasting Company Station Affiliate Agreement.
10.21 Merchandising Rights Acquisition Agreement dated as of July 1,
1990 between Twentieth Century Fox Licensing and Merchandising
and Fox Children's Network, Inc.+
10.22 Indemnification Agreement dated as of December 22, 1995 between
Fox Broadcasting Company and Fox Children's Network, Inc.
10.23 Distribution Rights Acquisition Agreement dated of September 1,
1990 between Twentieth Century Fox Film Corporation and Fox
Children's Network, Inc.+
10.24 Administration Agreement dated as of February 7, 1990 between
Fox Broadcasting Company and Fox Children's Network, Inc.
10.25 Registration Agreement dated as of December 22, 1995 between
Haim Saban and Saban Entertainment, Inc. and certain entities
listed on Schedule A thereto.
10.26 Amendment No. 1 to Registration Agreement dated as of April 3,
1996.
10.27 Assumption Agreement dated as of , 1996.*
10.28 Guarantee dated as of December 22, 1995 by The News Corporation
Limited.
10.29 Senior Note in the amount of $64,500,000 dated as of December
22, 1995 between Fox Kids Worldwide, L.L.C. as Payor and Fox
Broadcasting Company as Payee.
10.30 Credit Agreement among Saban Entertainment, Inc., as borrower,
the lenders named therein and Imperial Bank, as agent for the
lenders, dated July 31, 1995.
10.31 Credit Agreement among Saban International N.V., as borrower,
the lenders named therein and Imperial Bank, as agent for the
lenders, dated July 31, 1995.
10.32 Heads of Agreement for Broadcasting Services for The Fox Kids
Network between Fox Kids (UK) and British Sky Broadcasting
Limited.*
10.33 Home Video Rights Acquisition Agreement among Saban
Entertainment, Inc., Saban International N.V. and Twentieth
Century Fox Home Entertainment, Inc.*
10.34 Agreement dated as of June 24, 1996 between Fox Kids Worldwide,
L.L.C. and Saban International N.V., on the one hand, and
Marvel Characters Group, Inc., on the other hand.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.35 Distribution Agreement dated as of August 21, 1992, as amended,
between Saban International N.V. and Saban International
Services, Inc. on the one hand and Toei Company Ltd.+
10.36 Memorandum of Agreement dated as of January 19, 1996 between
Saban Merchandising, Inc. and Ventura Film Distributors, B.V.
on the one hand and Bandai America Incorporated, on the other
hand.+
10.37 Term Sheet--Mighty Morphin Power Rangers II between Fox Family
Films, Inc. and Saban International N.V.*
10.38 10960 Wilshire Boulevard Office Lease dated as of July 17, 1995
between 10960 Property Corporation and Saban Entertainment,
Inc.
10.39 Production Facility Agreement dated as of January 5, 1994
between Magic Movie Studios of Valencia, Ltd. and Saban
Entertainment, Inc.
10.40 Letter Agreement dated as of January 1, 1995 between Saban
International, N.V. and Duveen Trading Ltd.*
10.41 Barter Syndication Agreement dated as of January 5, 1996
between Saban Entertainment, Inc. and Fox Broadcasting Company
(to be executed prior to closing).
10.42 Letter Agreement dated as of September 26, 1996, but effective
as of April 3, 1996 by and among Stanley S. Shuman, FCN
Holding, Inc., and Allen & Company Incorporated, as amended by
that certain Side Letter Agreement dated as of September 26,
1996, but effective as of April 3, 1996.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in
its opinion filed as Exhibit 5.1 hereto) (to include (S) 462
consent).
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney (included in page II-6).
27.1 Financial Data Schedule.
</TABLE>
- --------
*To be supplied by amendment.
+ Portions of exhibits deleted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidentiality.
(1) Upon request, the Registrant will furnish supplementally to the Securities
and Exchange Commission a copy of omitted schedule.
(b) Financial Statement Schedules.
FCN Holding, Inc., Saban Entertainment, Inc., and Fox Kids Worldwide,
L.L.C. (from and after the date of the Reorganization, Fox Kids Worldwide,
Inc.)
Schedule II--Valuation and Qualifying Accounts
FLN Holding, Inc.
Schedule II--Valuation and Qualifying Accounts
Saban Entertainment, Inc.
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Commission are either not required under the related
instructions or are inapplicable, and therefore have been omitted.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer of controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS
ANGELES, STATE OF CALIFORNIA, ON SEPTEMBER 26, 1996.
FOX KIDS WORLDWIDE, INC.
By /s/ Haim Saban
-------------------------------------
Haim Saban
Chief Executive Officer
EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS HAIM
SABAN AND MEL WOODS AND EACH OF THEM, AS HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT
AND AGENTS WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN
HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL
AMENDMENTS (INCLUDING POST EFFECTIVE AMENDMENTS) TO THIS REGISTRATION
STATEMENT AND A NEW REGISTRATION STATEMENT FILED PURSUANT TO RULE 462(B) OF
THE SECURITIES ACT OF 1933 AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO,
AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE FOREGOING, AS FULLY TO ALL
INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND
CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS, OR EITHER OF THEM, OR
THEIR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Haim Saban Chairman and Chief Executive September 26, 1996
____________________________________ Officer
Haim Saban
/s/ Margaret Loesch President, Director September 26, 1996
____________________________________
Margaret Loesch
/s/ Mel Woods President, Chief Financial September 26, 1996
__________________________________ Officer, Chief Operating
Mel Woods Officer, Director
/s/ Mark Ittner Principal Accounting Officer September 26, 1996
____________________________________
Mark Ittner
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Shuki Levy Director September 26, 1996
____________________________________
Shuki Levy
/s/ Rupert Murdoch Director September 26, 1996
____________________________________
Rupert Murdoch
/s/ Chase Carey Director September 26, 1996
____________________________________
Chase Carey
</TABLE>
II-7
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------
BALANCE CHARGED
AT TO COSTS CHARGED BALANCE
BEGINNING AND TO OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
SABAN ENTERTAINMENT, INC.
FY ended May 1994
Allowance for doubtful
accounts.................. 385,000 0 0 0 385,000
FY ended May 1995
Allowance for doubtful
accounts.................. 385,000 1,000,000 0 0 1,385,000
Five months ended October
1995
Allowance for doubtful
accounts.................. 1,385,000 0 0 0 1,385,000
</TABLE>
S-1
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-------------------
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FCN HOLDINGS, INC.
FY ended July 3, 1994
Allowance for doubtful
accounts............... 0 0 0 0 0
FY ended July 2, 1995
Allowance for doubtful
accounts............... 0 480,000 0 0 480,000
Four months ended October
29, 1995
Allowance for doubtful
accounts............... 480,000 0 0 0 480,000
</TABLE>
S-2
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE -------------------
AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- --------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
FCN HOLDING, INC., SABAN
ENTERTAINMENT, INC. AND
FOX KIDS WORLDWIDE, L.L.C.
(FROM AND AFTER THE DATE
OF THE REORGANIZATION, FOX
KIDS WORLDWIDE, INC.)
Eight months ended June 30,
1996
Allowance for doubtful
accounts................ 1,865,000 0 0 (175,000) 1,690,000
</TABLE>
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ------------
<C> <S> <C>
1.1 Form of U.S. Purchase Agreement.*
1.2 Form of International Purchase Agreement.*
2.1 Share Transfer Agreement dated as of April 15, 1996
by and among Saban International Paris, as
Purchaser and certain parties as Sellers relating
to Creativite & Developpement.(1)+
2.2 Agreement for the Purchase of Film Assets dated as
of December 31, 1995 by and between Vesical
Limited and Saban International N.V.(1)+
3.1 Certificate of Incorporation of the Registrant.
3.2 Restated Certificate of Incorporation (to be filed
with the Delaware Secretary of State prior to
effectiveness of this Registration Statement).
3.3 Bylaws of the Registrant.
4.1 Specimen certificate evidencing Class A Common
Stock of the Registrant.*
5.1 Opinion of Troop Meisinger Steuber & Pasich, LLP.*
10.1 Strategic Stockholders Agreement dated as of
December 22, 1995, by and among Saban
Entertainment, Inc., Haim Saban, certain entities
listed on Schedule A thereto, Fox Broadcasting
Company, FCN Holding, Inc. and FCNH Sub, Inc.+
10.2 Amendment No. 1 to Strategic Stockholders Agreement
dated as of February 26, 1996.
10.3 Amendment No. 2 to Strategic Stockholders Agreement
dated as of September 26, 1996.+
10.4 Amendment No. 3 to Strategic Stockholders Agreement
dated as of September 26, 1996 (to be executed
prior to closing).
10.5 Form of Indemnification Agreement and Schedule of
Indemnified Parties.
10.6 1996 Stock Incentive Plan.
10.7 Employment Agreement effective December 22, 1995,
between Fox Kids Worldwide, L.L.C. and Haim Saban.
10.8 Employment Agreement effective January 1, 1996,
between Fox Kids Worldwide, L.L.C. and Margaret
Loesch; Stock Option Agreement effective
January 1, 1996, between Saban Entertainment, Inc.
and Margaret Loesch, as amended by Amendment
No. 1.
10.9 Employment Agreement effective June 1, 1994,
between Saban Entertainment, Inc. and Mel Woods,
as amended by Amendment No. 1 to Employment
Agreement.
10.10 Employment Agreement effective June 1, 1996,
between Saban Entertainment, Inc. and Shuki Levy;
Stock Option Agreement effective June 1, 1994
between Saban Entertainment, Inc. and Shuki Levy,
as amended by Amendment No. 1.
10.11 LLC Formation Agreement dated as of November 1,
1995, between Saban Entertainment, Inc., FCN
Holding, Inc. and Fox Broadcasting Company.
10.12 Operating Agreement for Fox Kids Worldwide, L.L.C.
dated as of December 22, 1995 by and among Saban
Entertainment, Inc., FCN Holding, Inc. and Fox
Broadcasting Company.+
10.13 Amendment No. 1 to Operating Agreement dated as of
September 26, 1996.
10.14 Amendment No. 2 to Operating Agreement dated as of
, 1996.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ------------
<C> <S> <C>
10.15 Asset Assignment Agreement dated as of December 22,
1995 by and between Fox Kids Worldwide, L.L.C., on
the one hand, and Fox, Inc., Fox Broadcasting
Company, Twentieth Century Fox Film Corporation,
Fox Television Stations, Inc., and FCN Holding,
Inc.+
10.16 Management Agreement dated as of December 22, 1995,
by and among Fox Kids Worldwide, L.L.C., Saban
Entertainment, Inc. and FCN Holding Sub, Inc.
10.17 Stock Ownership Agreement dated as of December 22,
1995 by and among Haim Saban, certain entities
listed on Schedule 1.1(a) thereto and Fox Kids
Worldwide, L.L.C.+
10.18 Amendment No. 1 to Stock Ownership Agreement dated
as of September 26, 1996.+
10.19 Home Video Rights Acquisition Agreement (Casper)
dated as of May 24, 1996, by and among Twentieth
Century Fox Home Entertainment Inc. on the one
hand and Saban Entertainment, Inc. and Saban
International N.V. on the other hand.*
10.20 Form of Fox Broadcasting Company Station Affiliate
Agreement.
10.21 Merchandising Rights Acquisition Agreement dated as
of July 1, 1990 between Twentieth Century Fox
Licensing and Merchandising and Fox Children's
Network, Inc.+
10.22 Indemnification Agreement dated as of December 22,
1995 between Fox Broadcasting Company and Fox
Children's Network, Inc.
10.23 Distribution Rights Acquisition Agreement dated of
September 1, 1990 between Twentieth Century Fox
Film Corporation and Fox Children's Network, Inc.+
10.24 Administration Agreement dated as of February 7,
1990 between Fox Broadcasting Company and Fox
Children's Network, Inc.
10.25 Registration Agreement dated as of December 22,
1995 between Haim Saban and Saban Entertainment,
Inc. and certain entities listed on Schedule A
thereto.
10.26 Amendment No. 1 to Registration Agreement dated as
of April 3, 1996.
10.27 Assumption Agreement dated as of , 1996.*
10.28 Guarantee dated as of December 22, 1995 by The News
Corporation Limited.
10.29 Senior Note in the amount of $64,500,000 dated as
of December 22, 1995 between Fox Kids Worldwide,
L.L.C. as Payor and Fox Broadcasting Company as
Payee.
10.30 Credit Agreement among Saban Entertainment, Inc.,
as borrower, the lenders named therein and
Imperial Bank, as agent for the lenders, dated
July 31, 1995.
10.31 Credit Agreement among Saban International N.V., as
borrower, the lenders named therein and Imperial
Bank, as agent for the lenders, dated July 31,
1995.
10.32 Heads of Agreement for Broadcasting Services for
The Fox Kids Network between Fox Kids (UK) and
British Sky Broadcasting Limited.*
10.33 Home Video Rights Acquisition Agreement among Saban
Entertainment, Inc., Saban International N.V. and
Twentieth Century Fox Home Entertainment, Inc.*
10.34 Agreement dated as of June 24, 1996 between Fox
Kids Worldwide, L.L.C. and Saban International
N.V., on the one hand, and Marvel Characters
Group, Inc., on the other hand.*
10.35 Distribution Agreement dated as of August 21, 1992,
as amended, between Saban International N.V. and
Saban International Services, Inc. on the one hand
and Toei Company Ltd.+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ------------
<C> <S> <C>
10.36 Memorandum of Agreement dated as of January 19,
1996 between Saban Merchandising, Inc. and Ventura
Film Distributors, B.V. on the one hand and Bandai
America Incorporated, on the other hand.+
10.37 Term Sheet--Mighty Morphin Power Rangers II between
Fox Family Films, Inc. and Saban International
N.V.*
10.38 10960 Wilshire Boulevard Office Lease dated as of
July 17, 1995 between 10960 Property Corporation
and Saban Entertainment, Inc.
10.39 Production Facility Agreement dated as of January
5, 1994 between Magic Movie Studios of Valencia,
Ltd. and Saban Entertainment, Inc.
10.40 Letter Agreement dated as of January 1, 1995
between Saban International, N.V. and Duveen
Trading Ltd.*
10.41 Barter Syndication Agreement dated as of January 5,
1996 between Saban Entertainment, Inc. and Fox
Broadcasting Company (to be executed prior to
closing).
10.42 Letter Agreement dated as of September 26, 1996,
but effective as of April 3, 1996 by and among
Stanley S. Shuman, FCN Holding, Inc., and Allen &
Company Incorporated, as amended by that certain
Side Letter Agreement dated as of September 26,
1996, but effective as of April 3, 1996.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Troop Meisinger Steuber & Pasich, LLP
(included in its opinion filed as Exhibit 5.1
hereto) (to include (S) 462 consent).
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney (included in page II-6).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
+ Portions of exhibits deleted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidentiality.
(1) Upon request, the Registrant will furnish supplementally to the Securities
and Exchange Commission a copy of any omitted schedule. Registrant has
requested confidentiality of entire exhibit. Accordingly, none of these
exhibits have been filed.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
----------------------------
OF FOX KIDS WORLDWIDE, INC.
FIRST: The name of the Company is FOX KIDS WORLDWIDE, INC.
-----
SECOND: The address of the registered office of the Company in the State
------
of Delaware is 9 East Loockerman Street, in the City of Dover, County of Kent,
19901. The name of its registered agent at that address is National Corporate
Research, Ltd.
THIRD: The purpose of the Company is to engage in any lawful act or
-----
activity for which a corporation may be organized under the Delaware General
Corporation Law (the "DGCL").
FOURTH: This Company is authorized to issue one class of shares designated
------
"Common Stock," par value $0.001 per share. The number of shares of Common
Stock authorized to be issued is 1,000.
FIFTH: The following provisions are inserted for the management of the
-----
business and the conduct of the affairs of the Company, and for further
definition, limitation and regulation of the powers of the Company and of its
directors and stockholders:
a. The business and affairs of the Company shall be managed by or
under the direction of the Board of Directors.
b. All actions of the Board of Directors (including, but not limited
to, interested party transactions, financing transactions, mergers and
acquisitions, changes in executive officers, director nominations and committee
appointments) will require the vote of at least 75% of the then duly elected and
acting members of the Board of Directors. Interested directors will be counted
and may cast votes.
c. The directors shall have concurrent power with the stockholders
to adopt, amend, or repeal the Bylaws of the Company.
d. The number of directors of the Company shall be as from time to
time fixed by, or in the manner provided in, the Bylaws of the Company. Election
of directors need not be by written ballot unless the Bylaws so provide.
e. No director shall be personally liable to the Company or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct of a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL, or (iv) for any transaction from
which the director derived an improper personal benefit. Any repeal or
modification of this Article FIFTH by the stockholders of the Company shall not
adversely affect any right or protection of a director of the Company existing
at the time of such repeal or modification with respect to acts or omissions
occurring prior to such repeal or modification.
<PAGE>
f. In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Company, subject, nevertheless, to the provisions of the DGCL, this
Certificate of Incorporation and any Bylaws adopted by the stockholders;
provided, however, that no Bylaws hereafter adopted by the stockholders shall
- -------- -------
invalidate any prior act of the directors which would have been valid if such
Bylaws had not been adopted.
SIXTH: The Company shall, to the fullest extent permitted by the
-----
provisions of Section 145 of the DGCL, as the same may be amended and
supplemented, indemnify any and all directors and officers whom it shall have
power to indemnify under said section from and against any and all of the
expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights of which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director or officer and shall inure to the benefit of the
heirs, executors, and administrators of such person.
Any repeal or modification of the foregoing paragraph shall not adversely
affect any right or protection of a director or officer of the Company existing
hereunder with respect to any act or omission occurring prior to such repeal or
modification.
SEVENTH: Meetings of stockholders may be held within or without the State
-------
of Delaware, as the Bylaws may provide. The books of the Company may be kept
(subject to any provision contained in the DGCL) outside the State of Delaware
at such place or places as may be designated from time to time by the Board or
in the Bylaws of the Company.
EIGHTH: The Company reserves the right to amend, alter, change or repeal
------
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed in this Certificate of Incorporation, the Bylaws of the
Company or the laws of the State of Delaware, and all rights herein conferred
upon stockholders are granted subject to such reservation.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Incorporation to be duly executed this 26th day of August, 1996.
/s/ Linda M. Giunta
-------------------------------
Linda M. Giunta
Incorporator
2
<PAGE>
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF FOX KIDS WORLDWIDE, INC.
Fox Kids Worldwide, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Fox Kids Worldwide, Inc. Fox Kids
Worldwide, Inc. was originally incorporated under the same name and the original
Certificate of Incorporation of the corporation was filed with the Secretary of
State of the State of Delaware on August 26, 1996.
2. Pursuant to Sections 241 and 245 of the General Corporation Law
of the State of Delaware, this Restated Certificate of Incorporation restates
and integrates and further amends the provisions of the Certificate of
Incorporation of this Corporation.
3. This Restated Certificate of Incorporation was duly adopted in
accordance with Sections 241 and 245 of the Delaware General Corporation Law.
4. The Corporation has not received any payment for any of its
stock.
5. The text of the Restated Certificate of Incorporation is hereby
restated and further amended to read in its entirety as follows:
FIRST: The name of the Company is FOX KIDS WORLDWIDE, INC.
-----
SECOND: The address of the registered office of the Company in the State
------
of Delaware is 9 East Loockerman Street, in the City of Dover, County of Kent,
19901. The name of its registered agent at that address is National Corporate
Research, Ltd.
THIRD: The purpose of the Company is to engage in any lawful act or
-----
activity for which a corporation may be organized under the Delaware General
Corporation Law (the "DGCL").
FOURTH: (a) Authorized Capital Stock. The Company is authorized to
------ ------------------------
issue ___________ shares of capital stock, of which ___________ shares shall be
shares of Class A Common Stock, par value $0.001 per share ("Class A Common
Stock"), ___________ shares shall be shares of Class B Common Stock, par value
$0.001 per share ("Class B Common Stock" and, together with the Class A Common
Stock, the "Common Stock"), 15,000,000 shares shall be shares of Preferred
Stock, par value $0.001 per share ("Preferred Stock"), of which [1,000,000]
shares shall be shares of Series A Preferred Stock, par value $0.001 per share
(the "Series A Preferred Stock").
(b) Common Stock. The powers, preferences and rights, and the
------------
qualifications, limitations and restrictions of each class of the Common Stock
are as follows:
<PAGE>
(1) Voting. (i) At each annual or special meeting of stockholders, in
------
the case of any written consent of stockholders in lieu of a meeting and for all
other purposes, each holder of record of shares of Class A Common Stock on the
relevant record date shall be entitled to one (1) vote for each share of Class A
Common Stock standing in such person's name on the stock transfer records of the
Company, and each holder of record of Class B Common Stock on the relevant
record date shall be entitled to ten (10) votes for each share of Class B Common
Stock standing in such person's name on the stock transfer records of the
Company. Except as otherwise required by law, and subject to the rights of
holders of the Series A Preferred Stock of the Company or any other series of
Preferred Stock of the Company that may be issued from time to time, the holders
of shares of Class A Common Stock and of shares of Class B Common Stock shall
vote as a single class on all matters with respect to which a vote of the
stockholders of the Company is required under applicable law, this Certificate
of Incorporation or the Bylaws of the Company, or on which a vote of
stockholders is otherwise duly called for by the Company, including, but not
limited to, the election of directors, matters concerning the sale, lease or
exchange of all or substantially all of the property and assets of the Company,
mergers or consolidations with another entity or entities, dissolution of the
Company and amendments to this Certificate of Incorporation. Except as provided
in this Article FOURTH or by applicable law, whenever applicable law, this
Certificate of Incorporation or the Bylaws of the Company provide for the
necessity of an affirmative vote of the stockholders entitled to cast at least a
majority (or any other greater percentage) of the votes which all stockholders
are entitled to cast thereon, or a "majority (or any other greater percentage)
of the voting stock," or language of similar effect, any and all such language
shall mean that the holders of shares of Class A Common Stock and the holders of
shares of Class B Common Stock shall vote as one class and that a majority (or
any other greater percentage) consists of a majority (or such other greater
percentage) of the total number of votes entitled to be cast in accordance with
the provisions of this Article FOURTH.
(ii) Neither the holders of shares of Class A Common Stock nor the
holders of shares of Class B Common Stock shall have cumulative voting rights.
(iii) The Company may, as a condition to counting the votes cast by
any holder of shares of Class B Common Stock at any annual or special meeting of
stockholders, in the case of any written consent of stockholders in lieu of a
meeting, or for any other purpose, require the furnishing of such affidavits or
other proof as it may reasonably request to establish that the shares of Class B
Common Stock held by such holder have not, by virtue of the provisions of
subparagraphs (b)(6) or (7) of this Article FOURTH, been converted into shares
of Class A Common Stock.
(2) Dividends; Stock Splits. Subject to the rights of the holders of
-----------------------
shares of any series of Preferred Stock, and subject to any other provisions of
this Certificate of Incorporation, holders of shares of Class A Common Stock and
shares of Class B Common Stock shall be entitled to receive such dividends and
other distributions in cash, stock or property of the Company as may be declared
thereon by the Board of Directors of the Company from time to time out of assets
or funds of the Company legally available therefor. If at any time a dividend or
other distribution in cash or other property (other than dividends or other
distributions payable in shares of Common Stock or options or warrants to
purchase shares of Common Stock or
2
<PAGE>
securities convertible into or exchangeable for shares of Common Stock) is paid
on the shares of Class A Common Stock or the shares of Class B Common Stock, a
like dividend or other distribution in cash or other property also shall be paid
on shares of Class B Common Stock or shares of Class A Common Stock, as the case
may be, in an equal amount per share. If at any time a dividend or other
distribution payable in shares of Common Stock or options or warrants to
purchase shares of Common Stock or securities convertible into or exchangeable
for shares of Common Stock is paid on shares of Class A Common Stock or Class B
Common Stock, a like dividend or other distribution shall be paid also on shares
of Class B Common Stock or Class A Common Stock, as the case may be, in an equal
amount per share; provided that, for this purpose, if shares of Class A Common
--------
Stock or other voting securities, or options or warrants to purchase shares of
Class A Common Stock or other voting securities or securities convertible into
or exchangeable for shares of Class A Common Stock or other voting securities,
are paid on shares of Class A Common Stock and shares of Class B Common Stock or
voting securities identical to the other securities paid on the shares of Class
A Common Stock (except that the voting securities paid on the Class B Common
Stock may have ten (10) times the number of votes per share as the other voting
securities to be received by the holders of the Class A Common Stock) or options
or warrants to purchase shares of Class B Common Stock or such other voting
securities or securities convertible into or exchangeable for shares of Class B
Common Stock or such other voting securities, are paid on shares of Class B
Common Stock in an equal amount per share of Class A Common Stock and Class B
Common Stock, such dividend or other distribution shall be deemed to be a like
dividend or other distribution. In the case of any split, subdivision,
combination or reclassification of shares of Class A Common Stock or Class B
Common Stock, the shares of Class B Common Stock or Class A Common Stock, as the
case may be, also shall be split, subdivided, combined or reclassified so that
the number of shares of Class A Common Stock and Class B Common Stock
outstanding immedi ately following such split, subdivision, combination or
reclassification shall bear the same relationship to each other as did the
number of shares of Class A Common Stock and Class B Common Stock outstanding
immediately prior to such split, subdivision, combination or reclassification.
(3) Liquidation, Dissolution, etc. In the event of any liquidation,
------------------------------
dissolution or winding up (either voluntary or involuntary) of the Company, the
holders of shares of Class A Common Stock and the holders of shares of Class B
Common Stock shall be entitled to receive the assets and funds of the Company
available for distribution, after payments to creditors and to the holders of
the Series A Preferred Stock or any Preferred Stock of the Company that may at
the time be outstanding, in proportion to the number of shares held by them,
respectively, without regard to class.
(4) Mergers, etc. In the event of any corporate merger, consolidation,
-------------
purchase or acquisition of property or stock, or other reorganization in which
any consideration is to be received by the holders of shares of Class A Common
Stock or the holders of shares of Class B Common Stock, the holders of shares of
Class A Common Stock and the holders of shares of Class B Common Stock shall
receive the same consideration on a per share basis; provided that, if such
--------
consideration shall consist in any part of voting securities (or of options or
warrants to purchase, or of securities convertible into or exchangeable for,
voting securities), the holders of shares of Class B Common Stock may receive,
on a per share basis, voting securities with
3
<PAGE>
ten (10) times the number of votes per share as those voting securities to be
received by the holders of shares of Class A Common Stock (or options or
warrants to purchase, or securities convertible into or exchangeable for, voting
securities with ten (10) times the number of votes per share as those voting
securities issuable upon exercise of the options or warrants to be received by
the holders of the shares of Class A Common Stock, or into which the convertible
or exchangeable securities to be received by the holders of the shares of Class
A Common Stock may be converted or exchanged).
(5) No Preemptive or Subscription Right. No holder of shares of Class A
-----------------------------------
Common Stock or Class B Common Stock shall be entitled to preemptive or
subscription rights.
(6) Transfer Restriction; Change of Control of Holders. Shares of Class A
--------------------------------------------------
Common Stock are freely transferable, however, (i) except as provided in
subparagraph (b)(6)(iv) of this Article FOURTH, no person holding record
ownership of shares of Class B Common Stock (hereinafter called a "Class B
Holder") may transfer, and the Company shall not register the transfer of, such
shares of Class B Common Stock, except to a Permitted Transferee of such Class B
Holder. Any purported transfer by a Class B Holder, other than to a Permitted
Transferee, shall be null and void and of no effect and such purported transfer
by the Class B Holder will result in the immediate and automatic conversion of
such Holder's shares of Class B Common Stock into shares of Class A Common
Stock. For the purposes hereof, a "Permitted Transferee" shall mean:
(A) any other Class B Stockholder, any of Haim Saban's family
members, any trust established solely for the benefit of one or more of Haim
Saban's family members or any legal entity in which Haim Saban or such persons
are the sole beneficial owners;
(B) a direct or indirect wholly-owned subsidiary of such Class B
Stockholder (or with respect to a Class B Stockholder which is a natural person,
a corporation or other person wholly-owned by the Class B Stockholder);
(C) in the case of a Class B Holder which is the estate of a
deceased Class B Holder, or which is the estate of a bankrupt or insolvent Class
B Holder, such Class B Holder's "Permitted Transferee" means a Permitted
Transferee of such deceased, bankrupt or insolvent Class B Holder; or
(D) in the case of any Class B Holder, such Class B Holder's
"Permitted Transferee" means, without limitation of the foregoing, any direct or
indirect Permitted Transferee of a Permitted Transferee of such Class B Holder.
(ii) Notwithstanding anything to the contrary set forth herein, but
subject to the provisions of subparagraph (b)(6)(iv) of this Article FOURTH, in
the event of any direct or indirect transfer of beneficial ownership of any
shares of Class B Common Stock which, had such transfer also been a transfer of
record ownership of such shares of Class B Common Stock, would not have been to
a Permitted Transferee, each share of Class B Common Stock transferred shall be
deemed, without further act of the part of the holder thereof or the
4
<PAGE>
Company, to be converted into one share of Class A Common Stock, and stock
certificates formerly representing each share of Class B Common Stock shall
thereupon and thereafter be deemed to represent such number of shares of Class A
Common Stock as equals the number of shares of Class A Common Stock into which
such shares of Class B Common Stock could be converted pursuant to the terms
hereof.
(iii) Notwithstanding anything to the contrary set forth herein, any
event which would result in the automatic conversion of shares of Class B Common
Stock into shares of Class A Common Stock shall not result in such conversion
if, after such event, the record holder of such shares of Class B Common Stock
is a corporation, limited liability company or partnership as to which, with
respect to the shares of Class B Common Stock held by such corporation, limited
liability company or partnership, any Permitted Transferee of the Class B Holder
prior to such event has, directly or indirectly, both investment power (which
includes the power to dispose, or direct the disposition of such shares of Class
B Common Stock) and voting power (which includes the power to vote, or direct
the voting of, such shares of Class B Common Stock); provided that no
--------
transaction or event intended to avoid the automatic conversion provisions of
this subparagraph (b)(6) of Article FOURTH shall in any event be entitled to the
benefit of this subparagraph (b)(6)(iii) of Article FOURTH.
(iv) Notwithstanding anything to the contrary set forth herein, any
Class B Holder may pledge such Class B Holder's shares of Class B Common Stock
to a pledgee pursuant to a bona fide pledge of such shares as collateral
security for any indebtedness or other obligation of any person; provided that,
--------
even if such shares are registered in the name of the pledgee or its nominee
(which registration is hereby expressly permitted and shall not be considered a
transfer hereunder), such shares shall remain subject to the provisions of this
subparagraph (b)(6) of Article FOURTH. In the event that such pledged shares of
Class B Common Stock (the "Pledged Stock") are foreclosed upon, each share of
such Pledged Stock shall be deemed, without further act on the part of the
holder thereof or the Company, to be converted into one share of Class A Common
Stock, and stock certificates formerly representing one share of Class B Common
Stock shall thereupon and thereafter be deemed to represent such number of
shares of Class A Common Stock as equals the number of shares of Class A Common
Stock into which such shares of Class B Common Stock could be converted pursuant
to the terms hereof upon the earlier of (i) if the pledgor is contesting the
foreclosure on such shares of Pledged Stock, 30 days after the date on which the
foreclosure on such Pledged Stock becomes final and non-appealable or (ii) if
the pledgor is not contesting the foreclosure on such shares of Pledged Stock,
30 days after the date on which such Pledged Stock is foreclosed upon; provided
--------
that the Pledged Stock shall not be automatically converted as provided in this
subparagraph (b)(6)(iv) of Article FOURTH hereof as a result of such foreclosure
if, prior to expiration of either such 30-day period, the Pledged Stock shall be
transferred by the pledgee or the purchaser in such foreclosure to a Class B
Holder or one or more Permitted Transferees of a Class B Holder.
(v) Notwithstanding anything to the contrary herein, the Company
shall not register the transfer of any shares of Class B Common Stock, unless
the transferee and the transferor of such Class B Common Stock have furnished
such affidavits and other proof as the Company may reasonably request to
establish that such proposed transferee is a Permitted
5
<PAGE>
Transferee. In addition, upon any purported transfer of shares of Class B Common
Stock not permitted hereunder, each share of Class B Common Stock purported to
be so transferred shall be deemed, without further act on the part of the holder
thereof or the Company, to be converted into one share of Class A Common Stock,
and stock certificates formerly representing one share of Class B Common Stock
shall thereupon and thereafter be deemed to represent such number of shares of
Class A Common Stock as equals the number of shares of Class A Common Stock into
which such shares of Class B Common Stock could be converted pursuant to the
terms hereof, and the Company shall register such shares of Class A Common Stock
in the name of the person to whom such shares of Class B Common Stock were
purported to be transferred.
(vi) The Company shall include on the certificates for shares of
Class B Common Stock a legend referring to the restrictions on transfer and
registration of transfer imposed by this subparagraph (b)(6) of Article FOURTH.
(7) Automatic Conversion. (i) In the event the aggregate number of
---------------------
shares of Class B Common Stock and Class A Common Stock held by the Class B
Holders and their Permitted Transferees at any time shall constitute less than
ten percent (10%) of the total number of shares of Common Stock issued and
outstanding at such time, then, without any further act on the part of the
holder thereof or the Company, each share of Class B Common Stock then issued
and outstanding shall be deemed to be converted into one share of Class A Common
Stock, and stock certificates formerly representing each share of Class B Common
Stock shall thereupon and thereafter be deemed to represent such number of
shares of Class A Common Stock as equals the number of shares of Class A Common
Stock into which such shares of Class B Common Stock could be converted pursuant
to the terms hereof. For purposes of the immediately preceding sentence, any
shares of Class A Common Stock and Class B Common Stock repurchased or otherwise
acquired by the Company and not subsequently sold or otherwise transferred by
the Company shall no longer be deemed "outstanding," from and after the date of
repurchase. Any event set forth in subparagraph (b)(6) or (7) of this Article
FOURTH pursuant to which shares of Class B Common Stock have been automatically
converted into shares of Class A Common Stock is hereafter referred to as an
"Event of Automatic Conversion."
(ii) Conversion pursuant to an Event of Automatic Conversion shall
be deemed to have been effected at the time the Event of Automatic Conversion
occurred (such time being the "Conversion Time"). The person entitled to receive
the shares of Class A Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder of such shares of Class A Common
Stock at and as of the Conversion Time, and the rights of such person as a
holder of shares of Class B Common Stock with respect to the shares of Class B
Common Stock that have been converted, shall cease and terminate at and as of
the Conversion Time.
(8) Voluntary Conversion. Each share of Class B Common Stock shall be
--------------------
convertible, at the option of its record holder, at any time into one validly
issued, fully paid and non-assessable share of Class A Common Stock. At the time
of a voluntary conversion, the record holder of shares of Class B Common Stock
shall deliver to the principal office of the Company or any transfer agent for
shares of the Class A Common Stock (i) the certificate or
6
<PAGE>
certificates representing the shares of Class B Common Stock to be converted,
duly endorsed in blank or accompanied by proper instruments of transfer and (ii)
written notice to the Company specifying the number of shares of Class B Common
Stock to be converted into shares of Class A Common Stock and stating the name
or names (with addresses) and denominations in which the certificate or
certificates representing the shares of Class A Common Stock issuable upon such
conversion are to be issued and including instructions for the delivery thereof.
Conversion shall be deemed to have been effected at the time when delivery is
made to the Company of both such written notice and the certificate or
certificates representing the shares of Class B Common Stock to be converted or
such later time as may be specified in such written notice, and as of such time
each person named in such written notice as the person to whom a certificate
representing shares of Class A Common Stock is to be issued shall be deemed to
be the holder of record of the number of shares of Class A Common Stock to be
evidenced by that certificate. Delivery of such certificates and such written
notice shall obligate the Company to issue such shares of Class A Common Stock,
and thereupon the Company or its transfer agent shall promptly issue and deliver
at such stated address to such record holder of shares of Class A Common Stock a
certificate or certificates representing the number of shares of Class A Common
Stock to which such record holder is entitled by reason of such conversion, and
shall cause such shares of Class A Common Stock to be registered in the name of
such record holder.
(9) Unconverted Shares; Notice Required. In the event of the conversion
-----------------------------------
of less than all of the shares of Class B Common Stock evidenced by a
certificate surrendered to the Company in accordance with the procedures of
subparagraphs (b)(6), (7) or (8) of this Article FOURTH, the Company shall
execute and deliver to or upon the written order of the holder of such
unconverted shares, without charge to such holder, a new certificate evidencing
the number of shares of Class B Common Stock not converted.
(10) Reservation. The Company hereby reserves and shall at all times
-----------
reserve and keep available, out of its authorized and unissued shares of Class A
Common Stock, for the purposes of effecting conversions, such number of duly
authorized shares of Class A Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Class B Common
Stock. All of the shares of Class A Common Stock so issuable shall, when so
issued, be duly and validly issued, fully paid and non-assessable. The Company
shall take all action as may be necessary to ensure that all such shares of
Class A Common Stock may be so issued without violation of any applicable law or
regulation, or of any requirements of any national securities exchange upon
which the shares of Class A Common Stock are or may be listed, or of any inter-
dealer quotation system of a registered national securities association upon
which the shares of Class A Common Stock are or may be listed or authorized for
quotation.
(11) Power to Sell and Purchase Shares. Subject to applicable law, the
---------------------------------
Company shall have the power and authority to issue and sell all or any part of
any shares of any class of capital stock herein or hereafter authorized to such
persons, and for such consideration, as the Board of Directors shall from time
to time, in its discretion, determine, whether or not greater consideration
could be received upon the issue or sale of the same number of shares of another
class, and as otherwise permitted by law. The Company shall have the power to
purchase any shares of any class of capital stock herein or hereafter authorized
from such persons, and for such consideration, as the Board of Directors shall
from time to time, in its discretion,
7
<PAGE>
determine, whether or not less consideration could be paid upon the purchase of
the same number of shares of another class, and as otherwise permitted by law.
(12) Rights Otherwise Identical. Except as expressly set forth herein,
--------------------------
the rights of the holders of Class A Common Stock and the rights of the holders
of Class B Common Stock shall be in all respects identical.
(13) For purposes of this Article FOURTH:
(i) The relationship of any person that is derived by or through
legal adoption shall be considered a natural one.
(ii) Each joint owner of shares of Class B Common Stock shall be
considered a "Class B Holder" of such shares.
(iii) A minor for whom shares of Class B Common Stock are held
pursuant to the Uniform Gifts to Minors Act or similar law shall be considered a
"Class B Holder" of such shares.
(iv) The term "beneficial ownership" (including, with a correlative
meaning, the term "beneficially own"), shall have the meaning assigned such term
in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended,
as in effect on July 31, 1996, except that a person shall be deemed to have
"beneficial ownership" of all shares that such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of time.
(v) Unless otherwise specified, the term "person" means both
natural persons and legal entities.
(vi) The term "transfer" means any direct or indirect transfer
(including by sale, assignment, gift, bequest, appointment or otherwise), and
shall also include, with respect to any Class B Holder, any direct or indirect
change in control of such person.
(vii) The term "control" (including, with correlative meanings, the
terms "controlling," "controlled by" and "under common control with"), as
applied to any person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
person or entity, whether through the ownership of voting securities, by
contract or otherwise.
(c) Preferred Stock.
---------------
(1) The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the Preferred Stock in one or more classes or
series, and to fix for each such class or series such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions
8
<PAGE>
adopted by the Board of Directors providing for the authorization of such class
or series, including, without limitation, the authority to provide that any such
class or series may be (i) subject to redemption at such time or times and at
such price or prices, (ii) entitled to receive dividends (which may be
cumulative or non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or any other series, (iii) entitled to
such rights upon the dissolution of, or upon any distribution of the assets of,
the Company, and/or (iv) convertible into, or exchangeable for, shares of any
other class or classes of capital stock, or of any other series of the same or
any other class or classes of stock, of the Company at such price or prices or
at such rates of exchange and with such adjustments, all as may be stated in
such resolution or resolutions.
(2) Series A Preferred Stock. The relative powers, preferences and
------------------------
rights, and the qualifications, limitations and restrictions of and with respect
to the Series A Preferred Stock are as follows:
(i) Designation and Amount. The Series A Preferred Stock is hereby
----------------------
designated as a separate series of the Preferred Stock, with a par value of
$0.001 per share; and the number of shares constituting the Series A Preferred
Stock shall be [1,000,000] shares.
(ii) Dividends. Subject to the restrictions on dividends and
---------
distributions to stockholders under the DGCL, the holders of record of Series A
Preferred Stock on the record date as established by the Board of Directors,
pursuant to subparagraph (b)(2) of this Article FOURTH shall from time to time
be entitled to receive dividends in an amount equal to the per share
"Distributable Cash" of the Company, when, as and if declared by the Board of
Directors of the Company; provided, that no more than an aggregate of $49 in
--------
dividends shall be paid with respect to any share of Series A Preferred Stock.
(iii) Distributable Cash. The per share "Distributable Cash" of the
------------------
Company shall mean, at the time a determination of per share Distributable Cash
is made, an amount in United States dollars equal to (A) the net cash available
to the Company provided by operating activities of the Company and its direct
and indirect subsidiary companies (on a consolidated basis), and by Fox Kids
Worldwide, L.L.C., a Delaware limited liability company, from December 22, 1995
and through the end of the last fiscal quarter of the Company ending not less
than 90 days prior to the time of determination, less the sum of (i) all
----
Restricted Cash (defined below), (ii) all Reserves, (iii) all amounts previously
paid as dividends on the Series A Preferred Stock, and (iv) all amounts paid in
redemption of shares of the Series A Preferred Stock; divided by (B) the number
-------
of shares of the Series A Preferred Stock issued and outstanding at the time of
determination. "Reserves" shall be those amounts determined from time to time
by the Board of Directors as necessary to provide, over such period as the Board
of Directors considers appropriate, for current and planned capital
expenditures, debt service, working capital requirements and expansion plans;
and if the Board of Directors is unable to reach agreement thereon, the Reserves
shall be maintained at a level equal to the sum of (x) $30 million plus (y) the
----
net proceeds realized by the Company from the sale of Class A Common Stock in
connection with its initial public offering. "Restricted Cash" shall mean cash
and cash equivalent assets
9
<PAGE>
which, under agreements binding upon the Company and its subsidiaries, or
applicable law, are not readily available to the Company for the payment of
dividends.
(iv) Determination of Distributable Cash. Within 15 business days
-----------------------------------
following the end of each fiscal quarter of the Company ending subsequent to the
date of issuance of any Series A Preferred Stock and as long as any Series A
Preferred Stock remains issued and outstanding, the Board of Directors shall
determine whether any Distributable Cash then exists, and if any Distributable
Cash then exists, the Board of Directors shall declare a per share dividend on
the Series A Preferred Stock equal to the per share Distributable Cash, payable
on the 30th business day following the end of such fiscal quarter to holders of
record on the 20th business day following the end of such fiscal quarter.
(v) Liquidation Rights. Upon any liquidation, dissolution or
------------------
winding up of the affairs of the Company, whether voluntary or involuntary
(collectively a "Liquidation"), no distribution shall be made to the holders of
the Company's Common Stock or any other class or series of capital stock of the
Company ranking junior to the Series A Preferred Stock (collectively referred to
as the "Junior Stock") unless, prior to any such distribution, the holders of
the Series A Preferred Stock shall have received in cash, out of the assets of
the Company available for distribution to its stockholders, after satisfaction
of indebtedness and other liabilities (the "net assets"), whether such assets
are capital or surplus and whether any dividends as such are declared, the
amount of $50 per share, less all dividends declared and paid by the Company
with respect thereto, for each outstanding share of Series A Preferred Stock
(the "Liquidation Value"). In the event of any Liquidation of the Company,
after payment in cash shall have been made to the holders of shares of Series A
Preferred Stock of the full amount to which they shall be entitled as aforesaid,
the holders of any class of Junior Stock shall be entitled, to the exclusion of
the holders of shares of Series A Preferred Stock, to share according to their
respective rights and preferences in all remaining assets of the Company
available for distribution to its stockholders.
If the net assets distributable in any Liquidation to the holders of
Series A Preferred Stock or any class or series of stock on a parity with the
Series A Preferred Stock as to Liquidation (the "Liquidation Parity Stock") are
insufficient to permit the payment to such holders of the full preferential
amounts to which they may be entitled, such assets shall be distributed ratably
among the holders of the Series A Preferred Stock and such Liquidation Parity
Stock in proportion to the full preferential amount each such holder would
otherwise be entitled to receive. Neither a merger nor a consolidation of the
Company with or into any other corporation or corporations nor a sale,
conveyance, exchange or transfer of all or any part of the assets of or property
of the Company shall be deemed to be a Liquidation.
(vi) Redemption. The Company may, by resolution of its Board of
----------
Directors, redeem at any time or from time to time, all or a portion of the
outstanding shares of Series A Preferred Stock at a redemption price per share
equal to the then-current Liquidation Value of the Series A Preferred Stock;
provided, that unless the Company shall have received a written legal opinion
- --------
from its counsel, in form and substance reasonably satisfactory to the holders
of a majority of the then-outstanding Series A Preferred Stock, that such
redemption would not,
10
<PAGE>
under applicable provisions of the U.S. Internal Revenue Code, as then in
effect, be treated as a dividend for federal income tax purposes, the Company
shall not effect such redemption.
If the Company pays $50 million, in the aggregate, either in dividends
on the Series A Preferred Stock, or in redemption thereof, the Series A
Preferred Stock shall no longer be deemed to be outstanding and shall have the
status of authorized but unissued shares of preferred stock, unclassified as to
series, and all rights of the holders thereof as stockholders of the Company on
account thereof shall cease. At such time, upon written demand by the Company,
all holders of the Series A Preferred Stock immediately shall surrender and
return to the Company any and all certificates and other documents evidencing
ownership of shares of the Series A Preferred Stock.
(vii) Procedure for Redemption. (1) In the event that fewer than
------------------------
all of the outstanding shares of Series A Preferred Stock are to be redeemed,
the number of shares to be redeemed shall be determined by the Board of
Directors and the shares to be redeemed shall be selected by lot or pro rata as
--------
may be determined by the Board of Directors.
(2) In the event the Company shall redeem shares of Series A
Preferred Stock, notice of such redemption shall be given by first class mail,
postage prepaid or by personal delivery, mailed or delivered not less than 10
and not more than 30 days prior to the applicable redemption date to each holder
of record of the shares of Series A Preferred Stock to be redeemed at such
holder's address as the same appears on the stock register of the Company;
provided, however, that neither the failure to give such notice nor any defect
- -------- -------
therein shall affect the validity of the proceeding for the redemption of any
share of Series A Preferred Stock to be redeemed and such notice requirement may
be waived or modified by the holders of the Series A Preferred Stock in writing.
Each such notice shall state (i) the redemption date; (ii) the number of shares
of Series A Preferred Stock to be redeemed and, if less than all the shares held
by such holder are to be redeemed, the number of shares to be redeemed from such
holder; (iii) the applicable redemption price; and (iv) the place or places
where certificates for such shares are to be surrendered for payment of the
redemption price.
(3) Notice having been mailed as aforesaid, from and after the
applicable redemption date, unless the Company defaults in paying the applicable
redemption price, such shares shall no longer be deemed to be outstanding and
shall have the status of authorized but unissued shares of preferred stock,
unclassified as to series, and shall not be reissued as shares of Series A
Preferred Stock and all rights of the holders thereof as stockholders of the
Company with respect thereto (except the right to receive from the Company the
applicable redemption price) shall cease. Upon surrender in accordance with said
notice of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors of the Company shall so require
and the notice shall so state), such shares shall be redeemed by the Company at
the applicable redemption price. In case fewer than all of the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares without cost to the holder thereof.
11
<PAGE>
(viii) Voting Rights. Except as otherwise provided by law, the holders
-------------
of Series A Preferred Stock shall not be entitled as such to vote on any matters
submitted for a vote of the holders of the Common Stock or of any other class of
capital stock.
(ix) Preemptive Rights and Assessments. The holders of Series A
---------------------------------
Preferred Stock shall have no preemptive rights and are not subject to future
assessments by the Company.
FIFTH: The following provisions are inserted for the management of the
-----
business and the conduct of the affairs of the Company, and for further
definition, limitation and regulation of the powers of the Company and of its
directors and stockholders:
(1) The business and affairs of the Company shall be managed by or
under the direction of the Board of Directors.
(2) All actions of the Board of Directors (including, but not limited
to, interested party transactions, financing transactions, mergers and
acquisitions, changes in executive officers, director nominations and committee
appointments) will require the vote of at least 75% of the then duly elected and
acting members of the Board of Directors. Interested directors will be counted,
and may cast votes.
(3) The directors shall have concurrent power with the stockholders
to adopt, amend, or repeal the Bylaws of the Company.
(4) The number of directors of the Company shall be as from time to
time fixed by, or in the manner provided in, the Bylaws of the Company. Election
of directors need not be by written ballot unless the Bylaws so provide.
(5) The Board of Directors may by resolution designate one or more
committees and delegate certain responsibilities, powers and the authority to
act to such committees, except to the extent such delegation is prohibited by
Section 141 of the DGCL, and only as provided for more specifically in the
Bylaws of the Company.
(6) No director shall be personally liable to the Company or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct of a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL, or (iv) for any transaction from
which the director derived an improper personal benefit. Any repeal or
modification of this Article FIFTH by the stockholders of the Company shall not
adversely affect any right or protection of a director of the Company existing
at the time of such repeal or modification with respect to acts or omissions
occurring prior to such repeal or modification.
(7) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Company, subject, nevertheless, to the provisions of the DGCL, this
Certificate of Incorporation and any Bylaws adopted by the
12
<PAGE>
stockholders; provided, however, that no Bylaws hereafter adopted by the
-------- -------
stockholders shall invalidate any prior act of the directors which would have
been valid if such Bylaws had not been adopted.
SIXTH: The Company shall, to the fullest extent permitted by the DGCL, as
-----
the same may be amended and supplemented, indemnify any and all directors whom
it shall have power to indemnify under said law from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by said
law, and the indemnification provided for herein shall not be deemed exclusive
of any other rights of which those indemnified may be entitled under any Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director and shall inure to the benefit of the heirs, executors, and
administrators of such person. The Company shall, in its sole discretion, have
the power to indemnify any and all officers of the Company and its subsidiaries
to the fullest extent permitted by the DGCL, as the same may be amended and
supplemented.
Any repeal or modification of the foregoing paragraph shall not adversely
affect any right or protection of a director or officer of the Company existing
hereunder with respect to any act or omission occurring prior to such repeal or
modification.
SEVENTH: Meetings of stockholders may be held within or without the State
-------
of Delaware, as the Bylaws may provide. The books of the Company may be kept
(subject to any provision contained in the DGCL) outside the State of Delaware
at such place or places as may be designated from time to time by the Board of
Directors or in the Bylaws of the Company.
EIGHTH: The Company reserves the right to amend, alter, change or repeal
------
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed in this Certificate of Incorporation, the Bylaws of the
Company or the laws of the State of Delaware, and all rights herein conferred
upon stockholders are granted subject to such reservation.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Incorporation to be duly executed this _____ day of ___________, 1996.
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
ATTEST:
____________________
13
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
FOX KIDS WORLDWIDE, INC.
A DELAWARE CORPORATION
<PAGE>
<TABLE>
<CAPTION>
BYLAWS
OF
FOX KIDS WORLDWIDE, INC.
A DELAWARE CORPORATION
Page No.
--------
<S> <C>
ARTICLE I - CORPORATE OFFICES.
Section 1. Registered Office................................................ 1
Section 2. Principal Office................................................. 1
Section 3. Other Offices.................................................... 1
ARTICLE II - STOCKHOLDERS MEETINGS.
Section 1. Place of Meeting................................................ 1
Section 2. Annual Meetings................................................. 1
Section 3. Special Meetings................................................ 1
Section 4. Notice of Meetings.............................................. 2
Section 5. Quorum.......................................................... 3
Section 6. Adjourned Meeting............................................... 3
Section 7. Voting.......................................................... 3
Section 8. Proxies......................................................... 4
Section 9. Stockholder List................................................ 4
Section 10. Consent of Stockholders in Lieu of Meeting...................... 4
Section 11. Inspectors of Election.......................................... 5
Section 12. Record Date..................................................... 5
Section 13. Procedures for Meetings......................................... 6
Section 14. Opening and Closing of Polls.................................... 6
ARTICLE III - BOARD OF DIRECTORS.
Section 1. Powers......................................................... 6
Section 2. Number and Qualification....................................... 7
Section 3. Election and Term of Office.................................... 7
Section 4. Vacancies...................................................... 7
Section 5. Place of Meeting............................................... 8
Section 6. Regular Meetings............................................... 8
Section 7. Special Meetings............................................... 9
Section 8. Meetings by Communication Equipment............................ 9
Section 9. Quorum and Manner of Acting.................................... 9
Section 10. Validation of Defectively Called or Noticed Meetings........... 9
Section 11. Action Without Meeting......................................... 9
Section 12. Compensation of Directors...................................... 10
Section 13. Committees..................................................... 10
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
ARTICLE IV - OFFICERS.
Section 1. Officers..................................................... 10
Section 2. Election of Officers......................................... 10
Section 3. Subordinate Officers......................................... 10
Section 4. Removal and Resignation of Officers.......................... 11
Section 5. Vacancies in Offices......................................... 11
Section 6. Chairman of the Board........................................ 11
Section 7. Chief Executive Officer...................................... 11
Section 8. Office of the President...................................... 11
Section 9. Vice Presidents.............................................. 12
Section 10. Secretary.................................................... 12
Section 11. Chief Financial Officer...................................... 12
ARTICLE V - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.
Section 1. Agents, Proceedings and Expenses.............................. 12
Section 2. Actions Other Than By The Company............................. 13
Section 3. Actions by the Company........................................ 13
Section 4. Successful Defense by Agent................................... 14
Section 5. Required Approval............................................. 14
Section 6. Advance of Expenses........................................... 14
Section 7. Contractual Rights............................................ 14
Section 8. Limitations................................................... 14
Section 9. Insurance..................................................... 14
Section 10.Constituent Corporations...................................... 15
Section 11.Definitions................................................... 15
ARTICLE VI - MISCELLANEOUS.
Section 1. Inspection of Books and Records by Stockholders.............. 15
Section 2. Inspection of Books and Records by Directors................. 16
Section 3. Checks, Drafts, Evidences of Indebtedness.................... 16
Section 4. Corporate Contracts and Instruments; How Executed............ 16
Section 5. Certificates for Shares...................................... 16
Section 6. Transfer of Shares........................................... 16
Section 7. Lost, Stolen or Destroyed Certificates....................... 17
Section 8. Representation of Shares of Other Companies.................. 17
Section 9. Construction and Definitions................................. 17
Section 10. Amendments................................................... 17
Section 11. Conformance to the Law....................................... 17
Section 12. Seal......................................................... 17
Section 13. Fiscal Year.................................................. 17
Section 14. Dividends; Surplus........................................... 17
</TABLE>
ii
<PAGE>
BYLAWS
OF
FOX KIDS WORLDWIDE, INC.
A DELAWARE CORPORATION
ARTICLE I
CORPORATE OFFICES
-----------------
Section 1. Registered Office. The registered office of Fox Kids
-----------------
Worldwide, Inc. (the "Company") in the State of Delaware is hereby located at 9
East Loockerman Street, City of Dover, County of Kent, 19901.
Section 2. Principal Office. The principal office of the Company is
----------------
hereby located at 10960 Wilshire Boulevard, Los Angeles, California 90024.
The Board of Directors (herein referred to as the "Board") is hereby granted the
full power and authority, by a resolution of a majority of the directors, to
change the principal office from one location to another. Any such change shall
be noted in these Bylaws opposite this section, and this section may be amended
to state the new location.
Section 3. Other Offices. The Company may establish any additional
-------------
offices, at any place or places, as the Board may designate, or as the business
of the Company shall require.
ARTICLE II
STOCKHOLDERS MEETINGS
---------------------
Section 1. Place of Meeting. Meetings of the Stockholders of the Company
----------------
shall be held at the principal office or at such place, within or without the
State of Delaware, as may from time to time be designated for that purpose
either by the Board or by the written consent of all persons entitled to vote
thereat and not present at the meeting, given either before or after the meeting
and filed with the Secretary of the Company.
Section 2. Annual Meetings. The annual meeting of the Stockholders shall
---------------
be held on such date and at such time designated, from time to time, by
resolution of the Board.
Section 3. Special Meetings. Special meetings of the Stockholders for the
----------------
purpose of taking any action which the Stockholders are permitted to take under
the General Corporation Law of the State of Delaware (herein, as the same may
from time to time be amended, referred to as the "DGCL") may be called at any
time by the Chairman of the Board of Directors, either President, or by order of
the Board of Directors.
<PAGE>
Section 4. Notice of Meetings. Except as otherwise provided by statute,
------------------
written or printed notice of each meeting of the Stockholders of the Company,
whether annual or special, shall be given not less than ten nor more than sixty
days prior to the date upon which the meeting is to be held to each Stockholder
entitled to vote at such meeting by leaving such notice with him personally at,
or by transmitting such notice with confirmed delivery (including telex,
telegraph, cable or other form of recorded communication, provided that delivery
of such notice in written form is confirmed in a writing) to, his residence or
usual place of business. If mailed, such notice shall be deemed delivered when
deposited in the United States mail in a sealed envelope addressed to the
Stockholder at his address as it appears on the stock records of the Company,
with postage thereon prepaid. Such notice shall state the place, date and hour
of the meeting, and, in the case of a special meeting, the purpose or purposes
for which the meeting is called. If a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken and, at
the adjourned meeting, such business may be transacted as might properly have
been transacted at the original meeting. If the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each Stockholder of
record entitled to vote at the meeting.
Notice of a Stockholders' meeting or adjournment thereof is waived upon the
occurrence of the following:
(a) A Stockholders' meeting is adjourned and a time and place for
readjournment is announced at the meeting at which the adjournment is taken, and
such date of readjustment is no more than 30 days from the date of adjournment.
(b) Receipt by the Company of a written notice of waiver, signed by the
person entitled to notice before or after the time stated therein.
(c) Attendance by the person entitled to notice and failure of such person
to object to the transaction of any business because the meeting is not lawfully
called or convened.
Whenever notice is required to be given under any statute or the
Certificate of Incorporation or these Bylaws to any Stockholder to whom (a)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings or (b) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve month period, have been mailed addressed to such
person at his address as shown on the records of the Company and have been
returned undeliverable, the giving of notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the Company a written notice setting
forth his then current address, the requirement that notice be given to such
person shall be reinstated.
2
<PAGE>
In the event that the action taken by the Company is such as to require the
filing of a certificate under any of the other sections of the DGCL, the
certificate need not state that notice was not given to persons to whom notice
was not required to be given pursuant to this Section 4.
Section 5. Quorum. On all questions, the presence of the holders of a
------
majority of the shares entitled to vote, in person or by proxy, shall constitute
a quorum for the transaction of business at any meeting of the Stockholders. On
all questions, the Stockholders present at a duly called or held meeting at
which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough Stockholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum.
Section 6. Adjourned Meeting. Any Stockholders' meeting, annual or
-----------------
special, whether or not a quorum is present, may be adjourned by vote of a
majority of the shares present, either in person or by proxy, but in the absence
of a quorum no other business may be transacted at such meeting, except as
expressly provided in Section 5 of this Article.
Section 7. Voting.
------
(a) The Stockholders entitled to notice of any meeting or to vote at such
meeting shall only be persons whose names stand on the stock records of the
Company on the record date determined in accordance with the provisions of
Section 12 of this Article; provided, however, that if no such record date shall
-------- -------
be fixed by the Board, only persons in whose names shares stand on the stock
records of the Company at the close of business on the business day next
preceding the day on which notice of the meeting is given or if such notice is
waived, at the close of business on the business day next preceding the day on
which the meeting of Stockholders is held, shall be entitled to vote at such
meeting, and such day shall be the record date for such meeting.
(b) Voting shall in all cases be subject to the provisions of Sections 217
and 218 of the DGCL (relating to voting of shares held by fiduciaries, or
pledges, held in joint ownership, and voting of shares by voting trusts or in
accordance with other voting agreements).
(c) At each meeting of the Stockholders of the Company, holders of a
majority of the voting power of the Company entitled to vote thereat, present
either in person or by proxy, shall constitute a quorum for the transaction of
business. In the absence of a quorum, the Stockholders of the Company present
in person or by proxy and entitled to vote at the meeting may, by majority vote,
or, in the absence of all Stockholders, any officer entitled to preside or act
as Secretary at such meeting, shall have the power to adjourn the meeting from
time to time until Stockholders holding the requisite amount of stock shall be
present in person or by proxy. At any such adjourned meeting at which a quorum
may be present, any business may be transacted which might have been transacted
at the meeting as originally called.
3
<PAGE>
(d) Each Stockholder of the Company entitled to vote on such questions
shall be entitled to vote in person or by proxy one vote for each share of Class
A Common Stock and ten votes for each share of Class B Common Stock of the
Company held by such Stockholder. Unless otherwise provided in the Certificate
of Incorporation or by statute, a casting in the affirmative of a majority of
the votes represented and voting at a duly held meeting at which a quorum is
present shall be the act of the Stockholders. Unless demanded by a Stockholder
present in person or by proxy at any meeting and entitled to vote thereat, the
vote on any question need not be by ballot. Upon demand for a vote by ballot
upon any question by any Stockholder present in person or by proxy at any
meeting and entitled to vote thereat, such vote shall be taken by ballot. On
any vote taken by ballot, each ballot shall be signed by the Stockholder voting,
or by his lawful proxy, and shall state the number and kind of shares voted.
Section 8. Proxies. Each Stockholder entitled to vote at a meeting of
-------
Stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. Any such proxy shall be
delivered to the secretary of such meeting, at or prior to the time designated
in the order of business for so delivering such proxies. A duly elected proxy
shall be irrevocable if it states that it is irrevocable and if, and only so
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Company generally.
Section 9. Stockholder List. The officer who has charge of the stock
----------------
ledger of the Company shall prepare and make, at least ten days before every
meeting of Stockholders, a complete list of the Stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
Stockholder and the number of shares registered in the name of each Stockholder.
Such list shall be open to the examination of any Stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list also shall be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any Stockholder who is
present.
Section 10. Consent of Stockholders in Lieu of Meeting. Any action
------------------------------------------
required to be taken, or that may be taken, at any annual or special meeting of
the Stockholders of the Company, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action to
be taken, shall have been signed by the holders of outstanding stock, eligible
to vote on such action, having not less than the minimum number of votes of
each class of stock that would be necessary to authorize or take such action at
a meeting at which all shares of each class of stock entitled to vote thereon
were present and voted.
4
<PAGE>
The Secretary shall give prompt notice of the taking of any corporate
action without a meeting by less than unanimous written consent to those
Stockholders who have not consented in writing.
Section 11. Inspectors of Election. In advance of any meeting of the
----------------------
Stockholders, the Board shall appoint at least one person, other than nominees
for office as inspectors of election to act at such meeting or any adjournment
thereof. The number of such inspectors of election shall be one or three. In
case any person appointed as inspector fails to appear or refuses to act, the
vacancy shall be filled by appointment by the Board in advance of the meeting,
or at the meeting by the chairman of the meeting. If there are three inspectors
of election, the decision, act or certificate of a majority is effective in all
respects as the decision, act or certificate of all.
The duties of each such inspector shall include: determining the number of
shares outstanding and voting power of each; determining the shares represented
at the meeting; determining the existence of a quorum; determining the
authenticity, validity and effect of proxies; receiving votes, ballots or
consents; hearing and determining all challenges and questions in any way
arising in connection with the right to vote; retaining for a reasonable period
the disposition of any challenges made to the inspector's determinations;
counting and tabulating all votes; determining when the polls shall close;
determining the result of any election; certifying the determination of the
number of shares represented at the meeting, and the count of all votes and
ballots; certifying any information considered in determining the validity and
counting of proxies and ballots if that information is used for the purpose of
reconciling proxies and ballots submitted by or on behalf of banks, brokers,
their nominees or similar persons which represent more votes than the
Stockholder holds of record; and performing such acts as may be proper to
conduct the election or vote with fairness to all Stockholders.
Section 12. Record Date. In order that the Company may determine the
-----------
Stockholders entitled to notice of or to vote at any meeting of Stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action.
If no record date is fixed:
(a) The record date for determining Stockholders entitled to notice of or
to vote at a meeting of Stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held;
5
<PAGE>
(b) The record date for determining Stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board is necessary, shall be the day on which the first written consent
is expressed;
(c) The record date for determining Stockholders for any other purpose
shall be at the close of business on the day on which the Board adopts the
resolution relating thereto.
A determination of Stockholders of record entitled to notice of or to vote
at a meeting of Stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
- -------- -------
meeting.
Section 13. Procedures for Meetings. All meetings of Stockholders shall
-----------------------
be conducted according to such rules and procedures as the Board of Directors
may establish by resolution from time to time as being in the best interests of
the Stockholders and as may be deemed appropriate for insuring that such
meetings are conducted in a fair and orderly manner and in accordance with the
Certificate of Incorporation and these Bylaws.
Section 14. Opening and Closing of Polls. An announcement shall be made
----------------------------
at each meeting of the Stockholders by the chairman of the meeting of the date
and time of the opening and closing of polls for each matter upon which the
Stockholders will vote at the meeting. No ballot, proxies or votes, nor any
revocations thereof or changes thereto, shall be accepted by the inspectors
after the closing of the polls unless the Delaware Court of Chancery upon
application by a Stockholder shall determine otherwise.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. Powers. The business and affairs of the Company shall be
------
managed by, or under the direction of the Board, except as may be otherwise
provided by the DGCL or in the Certificate of Incorporation or these Bylaws.
Without prejudice to such powers, but subject to the same limitation, it is
hereby expressly declared that the directors shall have the following powers in
addition to other powers enumerated in these Bylaws:
(a) To select and remove all officers, agents and employees of the Company;
prescribe any powers and duties for them that are consistent with law, with the
Certificate of Incorporation, and with these Bylaws; fix their compensation; and
require from them security for faithful service;
(b) To conduct, manage and control the affairs and business of the Company,
and to make rules and regulations therefor consistent with law, with the
Certificate of Incorporation and with these Bylaws;
6
<PAGE>
(c) To change the offices of the Company from one location to another; to
fix and locate from time to time one or more other offices of the Company within
or without the State of Delaware; to cause the Company to be qualified to do
business and to conduct business in any other state, territory, dependency or
country; and to designate any place within or without the State of Delaware for
the holding of any Stockholders meeting or meetings, including annual meetings;
(d) To adopt, make and use a corporate seal; to prescribe the forms and
certificates of stock; and to alter the form of the seal and certificates;
(e) To authorize the issuance of shares of stock of the Company from time
to time, upon such terms and for such consideration as may be lawful;
(f) To borrow money and incur indebtedness for the purposes of the Company,
and to cause to be executed and delivered therefor, in the corporate name,
promissory notes, bonds, debentures, deeds of trust, mortgages, pledges,
hypothecations, and other evidences of debt and securities therefor.
Section 2. Number and Qualification. The number of directors of the
------------------------
Company shall be not less than three (3) nor more than twelve (12), the actual
number to be fixed from time to time by resolution of the Board. The actual
number of directors until changed by subsequent resolution of the Board shall be
eight (8). Directors need not be Stockholders of the Company unless required by
the Certificate of Incorporation.
Section 3. Election and Term of Office. Members of the initial Board
---------------------------
shall hold office until the first annual meeting of Stockholders and until their
successors have been elected and qualified. The directors of the Company shall
be elected at the annual meeting of the Stockholders, but if such annual meeting
is not held or the directors are not elected thereat, the directors may be
elected at a special meeting held for that purpose. Each director shall hold
office until the next annual meeting and until a successor is elected and
qualified.
Section 4. Vacancies.
---------
(a) Unless otherwise provided in the Certificate of Incorporation,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors elected by all of the Stockholders having the
right to vote as a single class may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
(b) If at any time, by reason of death or resignation or other cause, the
Company should have no directors in office, then any officer or any Stockholder
or an executor, administrator, trustee or guardian of a Stockholder, or other
fiduciary entrusted with like responsibility for the person or estate of a
Stockholder, may call a special meeting of Stockholders in accordance with the
provisions of the Certificate of Incorporation and the Bylaws
7
<PAGE>
or may apply to the Delaware Court of Chancery for a decree summarily ordering
an election as provided in Section 211 of the DGCL.
(c) If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any Stockholder or
Stockholders holding at least 10 percent of the total number of shares at the
time outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by Section 211 of the DGCL.
(d) Unless otherwise provided in the Certificate of Incorporation, when one
or more directors shall resign from the Board, effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have the power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
director so chosen shall hold office as provided in these Bylaws.
(e) Any director or the entire Board may be removed, with or without cause,
by the holders of [75]% of the shares then entitled to vote at an election of
directors.
(f) Any director may resign effective upon giving written notice to the
Chairman of the Board, either President, the Secretary or the Board, unless the
notice specifies a later date for the effectiveness of such resignation.
Section 5. Place of Meeting. Unless otherwise provided in the Certificate
----------------
of Incorporation, or by unanimous written consent of all acting directors,
meetings, both regular and special, of the Board shall be held at the Company's
principal executive offices within the State of California or at such other
place or places within or without the State of Delaware, as the Board may from
time to time determine.
Section 6. Regular Meetings. Immediately following each annual meeting of
----------------
the Stockholders, the Board shall hold a regular meeting at the same place at
which such Stockholders' meeting is held, or any other place as may be fixed
from time to by the Board. Notice of such meeting need not be given.
Other regular meetings of the Board shall be held without call at such time
and place as the Board may from time to time by resolution determine. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting which would otherwise be held on that
day shall be held at the same hour on the next succeeding business day not a
legal holiday. Notice of a regular meeting need not be given.
8
<PAGE>
Section 7. Special Meetings. Except as otherwise provided in the
----------------
Certificate of Incorporation, special meetings of the Board for any purpose or
purposes may be called at any time by the Chairman of the Board, either
President, the Secretary or by any three directors.
Written notice of the time and place of special meetings shall be delivered
personally to each director or communicated to each director by telephone or
telegraph or telex or cable or mail or other form of recorded communication,
charges prepaid, addressed to each director at that director's address as it is
shown on the records of the Company or, if it is not so shown on such records or
is not readily ascertainable, at that director's residence or usual place of
business. In case such notice is mailed, it shall be deposited in the United
States mail at least seven days prior to the time of the holding of the meeting.
In case such notice is delivered personally or by other form of written
communication, it shall be delivered at least 48 hours before the time of the
holding of the meeting. The notice shall state the time of the meeting, but
need not specify the place of the meeting if the meeting is to be held at the
principal executive office of the Company. The notice need not state the
purpose of the meeting unless expressly provided otherwise by statute.
Section 8. Meetings by Communication Equipment. Members of the Board, or
-----------------------------------
any committee designated by the Board, may participate in a meeting of the Board
or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Participation in a meeting pursuant to this section shall
constitute presence in person at such meeting.
Section 9. Quorum and Manner of Acting. The presence of a majority of the
---------------------------
total number of directors shall constitute a quorum for the transaction of
business, and the act of 75% of all directors shall be the act of the Board.
In the absence of a quorum, a majority of the directors present may adjourn any
meeting from time to time until a quorum is present. Notice of an adjourned
meeting need not be given.
Section 10. Validation of Defectively Called or Noticed Meetings. The
----------------------------------------------------
transactions of any meeting of the Board, however called and noticed or wherever
held, shall be as valid as though made or performed at a meeting duly held after
regular call and notice, if, either before or after the meeting, each of the
directors not present or who, though present, has prior to the meeting or at its
commencement protested the lack of proper notice to such director, signs a
written waiver of notice or a consent to holding such meeting or approval of the
minutes thereof. All such waivers, consents or approvals shall be filed with
the corporate records or made a part of the minutes of the meeting.
Section 11. Action Without Meeting. Any action required or permitted to
----------------------
be taken at any meeting of the Board, or of any committee thereof, may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
9
<PAGE>
Section 12. Compensation of Directors. Directors and members of
-------------------------
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses incurred by them, as may be fixed or determined by
resolution of the Board.
Section 13. Committees. The Board may, by resolution passed by a majority
----------
of the directors, designate one or more committees, each committee (other than
the Audit and Compensation Committees) to consist of four directors of the
Company. All actions by such committee(s) will require the affirmative vote of
three of its four members. The Audit and Compensation Committees shall have two
members, [each of which shall be independent directors not otherwise employed by
the Company.] The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Any such committee, to the extent provided in the
resolution of the Board, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Company, with the exception of any authority the delegation of which is
prohibited by Section 141 of the DGCL and may authorize the seal of the Company
to be affixed to all papers which may require it. Any director may be removed
from a committee with or without cause by the affirmative vote of a majority of
the entire Board.
ARTICLE IV
OFFICERS
--------
Section 1. Officers. The officers of the Company shall be a Chairman, a
--------
Chief Executive Officer, two Presidents (who collectively operate the Office of
the President), a Chief Financial Officer and a Secretary. The Company may also
have, at the discretion of the Board, one or more Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
as may be appointed in accordance with the provisions of Section 3 of this
Article. Any number of offices may be held by the same person.
Section 2. Election of Officers. The officers of the Company, except such
--------------------
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article, shall be chosen annually by the Board, and each shall
serve at the pleasure of the Board, subject to the rights, if any, of an officer
under any contract of employment or other contractual arrangement with the
Company or its affiliates which prohibits his removal by the Board.
Section 3. Subordinate Officers. The Board may appoint, and may empower
--------------------
the Chief Executive Officer to appoint, such other officers as the business of
the Company may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in these Bylaws or as the
Board or Chief Executive Officer may from time to time determine.
10
<PAGE>
Section 4. Removal and Resignation of Officers. Without prejudice to the
-----------------------------------
rights, if any, of an officer under any contract of employment or other
contractual arrangement with the Company or its affiliates which prohibits his
removal by the Board, any officer may be removed, either with or without cause,
by the Board, at any regular or special meeting of the Board, or by any officer
upon whom such power of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the Company.
Any resignation shall take effect at the date of the receipt of that notice or
at any later time specified in that notice; the acceptance of the resignation
shall not be necessary to make it effective. Any resignation is without
prejudice to the rights, if any, of the Company under any contract to which the
officer is a party.
Section 5. Vacancies in Offices. A vacancy in any office because of
--------------------
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these Bylaws for regular election or appointment to
such office.
Section 6. Chairman of the Board. The Chairman of the Board, if such an
---------------------
officer be elected, shall, if present, preside at all meetings of the Board and
exercise and perform such other powers and duties as may be from time to time
assigned to him by the Board.
Section 7. Chief Executive Officer. Subject to such supervisory powers,
-----------------------
if any, as may be given by the Board to the Chairman of the Board, the Chief
Executive Officer, if such an officer be elected, shall, subject to the control
of the Board and the Chairman, have general supervision, direction and control
of the business and the officers of the Company. The Chief Executive Officer
shall preside at all meetings of the Stockholders and, in the absence of the
Chairman of the Board, or if there be none, at all meetings of the Board. The
Chief Executive Officer shall exercise and perform such other powers and duties
as may be from time to time assigned to him by the Board.
Section 8. Office of the President. Subject to such supervisory powers,
-----------------------
if any, as may be given by the Board to the Chairman of the Board and the Chief
Executive Officer, if there be such officers, the Office of the President shall,
subject to the control of the Board, have general supervision, direction, and
control of the business and the officers of the Company (other than the Chairman
and Chief Executive Officer). The Office of the President shall consist of two
Presidents of equal authority to act on behalf of the Company. At least one
President shall preside at all meetings of the Stockholders in the absence of
the Chairman and the Chief Executive Officer, and, in the absence of the
Chairman and the Chief Executive Officer, at all meetings of the Board. Each
President shall have the general powers and duties of management usually vested
in the office of the president and general manager of a corporation, and shall
have such other powers and duties as may be prescribed by the Board and the
Chief Executive Officer.
11
<PAGE>
Section 9. Vice Presidents. In the absence or disability of the Chairman,
---------------
the Chief Executive Officer and both Presidents, the Vice Presidents, if any, in
order of their rank as fixed by the Board, or, if not ranked, the Vice
President designated by the Board shall perform all the duties of such officer,
and when so acting shall have all the powers of, and be subject to all the
restrictions upon, such offices. The Vice Presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the Board, the Chief Executive Officer or the Office of the
President.
Section 10. Secretary. The Secretary shall keep, or cause to be kept, at
---------
the principal executive office or such other place as the Board may direct, a
book of minutes of all meetings and actions of directors, committees of
directors, and Stockholders, with the time and place of holding, whether regular
or special, and, if special, how authorized, the notice given, the names of
those present at directors' meetings or committee meetings, the number of shares
present or represented at Stockholders' meetings, and the proceedings.
The Secretary shall give, or cause to be given, notice of all meetings of
the Stockholders and of the Board required by the Bylaws or by law to be given,
and he shall keep the seal of the Company, if one be adopted, in safe custody,
and shall have such other powers and perform such other duties as may be
prescribed by the Board.
Section 11. Chief Financial Officer. The Chief Financial Officer shall
-----------------------
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
Company, including accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital, retained earnings and shares, and shall send or cause to
be sent to the Stockholders of the Company such financial statements and reports
as are by law or these Bylaws required to be sent to them. The books of account
shall at all reasonable times be open to inspection by any director.
The Chief Financial Officer shall deposit all monies and other valuables in
the name or to the credit of the Company with such depositories as may be
designated by the Board. The Chief Financial Officer shall disburse the funds
of the Company as may be ordered by the Board, shall render to the Presidents
and directors, whenever they request it, an account of all transactions
undertaken as Chief Financial Officer and of the financial condition of the
Company, and shall have such other powers and perform such other duties as may
be prescribed by the Board.
ARTICLE V
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND OTHER AGENTS
------------------------------------
Section 1. Agents, Proceedings and Expenses. For the purposes of this
--------------------------------
Article, "agent" means any person who is or was a director, officer, employee or
other agent of the corporation, or is or was a director, officer, employee or
other agent of the corporation as a
12
<PAGE>
director, officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or was a director,
officer, employee or agent of a foreign or domestic corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation; "proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative, or investigative; and "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under Section 2 or Section 3 of this Article.
Section 2. Actions Other Than By The Company. The Company shall have the
---------------------------------
power to indemnify any person who was or is a party or is threatened to be made
a party to any threat ened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Company) by reason of the fact that he is or was an
agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another Company, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 3. Actions by the Company. The Company shall have power to
----------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Company to procure a judgment in its favor by reason of the fact that he is or
was an agent of the Company, or is or was serving at the request of the Company
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the Company
and except that no indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the Delaware Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Delaware Court of Chancery or such other court shall deem proper.
13
<PAGE>
Section 4. Successful Defense by Agent. To the extent that a director,
---------------------------
officer, employee or agent of the Company has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections 2
and 3 of this Article, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Section 5. Required Approval. Any indemnification under Sections 1 and 2
-----------------
of this Article (unless ordered by a court) shall be made by the Company only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Sections 2 and 3. Such
determination shall be made (a) by the Board by a 75% vote [of a quorum]
consisting of directors who were not parties to such action, suit or proceeding,
or (b) if such disinterested directors so direct, by independent legal counsel
in a written opinion, or (c) by the affirmative vote of a majority of
Stockholders.
Section 6. Advance of Expenses. Expenses incurred in defending a civil or
-------------------
criminal action, suit or proceeding may be paid by the Company in advance of the
final disposition of such action, suit or proceeding as authorized by the Board
in the specific case upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the Company as
authorized in this Article. Such expenses incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the Board deems
appropriate.
Section 7. Contractual Rights. The indemnification provided by this
------------------
Article shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any agreement, vote of Stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
Section 8. Limitations. No indemnification or advance shall be made under
-----------
this Article, except as provided in Section 4 of this Article, in any
circumstance where it appears:
(a) That it would be inconsistent with a provision of the Certificate of
Incorporation, a resolution of the Stockholders or an agreement in effect at the
time of accrual of the alleged cause of action asserted in the proceeding in
which the expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed by a
court in approving a settlement.
Section 9. Insurance. The Company shall have the power to purchase and
---------
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the
14
<PAGE>
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Company would have the power to indemnify him against such
liability under the provisions of this Article.
Section 10. Constituent Corporations. For purposes of this Article,
------------------------
references to "the Company" shall include, in addition to the Company, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
Section 11. Definitions. For purposes of this Article, references to
-----------
"other enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its participants,
or beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Company" as referred to in this Article.
ARTICLE VI
MISCELLANEOUS
-------------
Section 1. Inspection of Books and Records by Stockholders. Any
-----------------------------------------------
Stockholder of record, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have the right during the
usual hours for business to inspect for any proper purpose the Company's stock
ledger, a list of its Stockholders, and its other books and records, and to make
copies or extracts therefrom. A proper purpose shall mean a purpose reasonably
related to such person's interest as a Stockholder. In every instance where an
attorney or other agent shall be the person who seeks the right to inspection,
the demand under oath shall be accompanied by a power of attorney or such other
writing which authorizes the attorney or other agent to so act on behalf of the
Stockholder. The demand under oath shall be directed to the Company at its
registered office in the State of Delaware or at its principal place of
business.
15
<PAGE>
Section 2. Inspection of Books and Records by Directors. Any director
--------------------------------------------
shall have the right to examine the Company's stock ledger, a list of its
Stockholders and its other books and records for a purpose reasonably related to
his position as a director. Such right to examine the books and records of the
Company shall include the right to make copies and extracts therefrom.
Section 3. Checks, Drafts, Evidences of Indebtedness. All checks, drafts
-----------------------------------------
or other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the Company, shall be signed or endorsed by
such person or persons and in such manner as, from time to time, shall be
determined by resolution of the Board.
Section 4. Corporate Contracts and Instruments; How Executed. The Board,
-------------------------------------------------
except as otherwise provided in these Bylaws, may authorize any officer or
officers, agent or agents, to enter into any contract or execute any instrument
in the name of and on behalf of the Company, and this authority may be general
or confined to specific instances; and, unless so authorized or ratified by the
Board or within the agency power of an officer, no officer, agent, or employee
shall have any power or authority to bind the Company by any contract or
engagement or to pledge its credit or to render it liable for any purpose or for
any amount.
Section 5. Certificates for Shares. Every holder of stock in the Company
-----------------------
shall be entitled to have a certificate signed by, or in the name of the Company
by the Chairman, Chief Executive Officer or either President, and by the Chief
Financial Officer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Company representing the number of shares owned by him in the
Company. Any or all of the signatures on the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Company with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Section 6. Transfer of Shares. Transfers of shares of the capital stock
------------------
of the Company shall be made only on the books of the Company by the holder
thereof, or by his attorney thereunto authorized by a power of attorney duly
executed and filed with the Secretary of the Company or a transfer agent of the
Company, if any, and on surrender of the certificate or certificates for such
shares properly endorsed. A person in whose name shares of stock appear on the
books of the Company shall be deemed the owner thereof as regards the Company,
and upon any transfer of shares of stock the person or persons into whose name
or names such shares shall have been transferred, shall enjoy and bear all
rights, privileges and obligations of holders of stock of the Company as against
the Company or any other person or persons. The term "person" or "persons"
wherever used herein shall be deemed to include any partnership, corporation,
association or other entity. Whenever any transfer of shares shall be made for
collateral security, and not absolutely, such fact, if known to the Secretary or
to such transfer agent, shall be so expressed in the entry of transfer.
16
<PAGE>
Section 7. Lost, Stolen or Destroyed Certificates. The Company may issue
--------------------------------------
a new certificate of stock in the place of any certificate theretofore issued by
it, alleged to have been lost, stolen or destroyed, and the Company may require
the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Company a bond sufficient to indemnify it against
any claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Section 8. Representation of Shares of Other Companies. The Chairman of
-------------------------------------------
the Board, Chief Executive Officer, each President or any person designated by
any of such officers, is authorized, in the absence of authorization by the
Board, to vote on behalf of the Company any and all shares of any other
corporation or corporations, foreign or domestic, for which the Company has the
right to vote. The authority granted to these officers to vote or represent on
behalf of the Company any and all shares held by the Company in any other
corporation or corporations may be exercised by any of these officers in person
or by any person authorized to do so by proxy duly executed by these officers.
Section 9. Construction and Definitions. Unless the context requires
----------------------------
otherwise, the general provisions, rules of construction, and definitions in the
DGCL shall govern the construction of these Bylaws. Without limiting the
generality of this provision, the singular number includes the plural and the
plural number includes the singular.
Section 10. Amendments. Unless otherwise provided in the Certificate of
----------
Incorporation, the power to adopt, amend or repeal any Bylaws of the Company
shall be in the Board of Directors or Stockholders of the Company entitled to
vote.
Section 11. Conformance to the Law. In the event that it is determined
----------------------
that these Bylaws, as now written or as amended, conflict with the DGCL, or any
other applicable law, as now enforced or as amended, these Bylaws shall be
deemed amended, without action of the Board or the Stockholders, to conform with
such law. Such amendment to be so interpreted as to bring these Bylaws within
minimum compliance. For purposes of this section "amendment" shall include a
repeal of, or a change in interpretation of, the relevant compendium.
Section 12. Seal. The Board of Directors shall provide a corporate seal,
----
which shall be in the form of a circle and shall have inscribed thereon the name
of the Company, the year of its incorporation and the words "Corporate Seal,
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 13. Fiscal Year. The fiscal year of the Company shall begin on
-----------
the first day of July of each year.
Section 14. Dividends; Surplus. Subject to the provisions of the
------------------
Certificate of Incorporation and any restrictions imposed by statute, the Board
may declare dividends out of the net assets of the Company in excess of its
capital or, in case there shall be no such excess,
17
<PAGE>
out of the net profits of the Company for the fiscal year then current and/or
the preceding fiscal year, or out of any funds at the time legally available for
the declaration of dividends (hereinafter referred to as "surplus or net
profits") whenever, and in such amounts as, in its sole discretion, the
conditions and affairs of the Company shall render advisable. The Board in its
sole discretion may, in accordance with law, from time to time set aside from
surplus or net profits such sum or sums as it may think proper as a reserve fund
to meet contingencies, or for equalizing dividends, or for the purpose of
maintaining or increasing the property or business of the Company, or for any
other purpose as it may think conducive to the best interests of the Company.
18
<PAGE>
Exhibit 10.1
Portions of this exhibit have been deleted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment. The redacted portions are identified by brackets with the character
"x" indicating deleted information.
<PAGE>
EXHIBIT 10.1
STRATEGIC STOCKHOLDERS AGREEMENT
This Strategic Stockholders Agreement (the "Agreement") is made and entered
into as of December 22, 1995, by and among Saban Entertainment, Inc., a Delaware
corporation ("SEI"), Haim Saban ("Saban"), each of the entities listed on
Schedule "A" hereto (the "SEI Entities" and, with Saban, the "SEI
Stockholders"), Fox Broadcasting Company, a Delaware corporation ("FBC," and,
together with the SEI Stockholders, the "Shareholders"), FCN Holding, Inc., a
Delaware corporation ("FCNH") and FCNH Sub, Inc., a Delaware corporation ("FCNH
Sub").
R E C I T A L S
---------------
A. The SEI Stockholders own, in the aggregate, 800 shares of the
common stock, par value $0.01 per share, of SEI (the "SEI Common Stock"),
constituting all of the shares of SEI Common Stock outstanding on the date
hereof.
B. FBC owns 800 shares of the common stock, without par value, of
FCNH (the "FCNH Common Stock", and with the SEI Common Stock, the "Shares"),
constituting all of the shares of FCNH Common Stock outstanding on the date
hereof.
C. Concurrent with the execution of this Agreement, the closing
under that certain LLC Formation Agreement, dated as of November 1, 1995, among
SEI, FBC and FCNH (the "LLC Formation Agreement") has occurred; the LLC
Formation Agreement provides, among other things, for the formation of FOX KIDS
WORLDWIDE L.L.C., a Delaware limited liability company (the "Management
Company"), and the execution and delivery of this Agreement is a condition to
that closing.
D. The SEI Stockholders and FBC desire to maximize the long-term
strategic values of their respective corporations, and have determined that it
would be in their respective best interests to achieve this objective by
entering into a strategic alliance for the purpose of sharing with each other
their respective strengths, to the mutual benefit of all of them, all on the
terms and conditions of this Agreement, the LLC Formation Agreement, and the
other agreements referred to herein or therein (collectively, the "Alliance
Agreements").
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing facts and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
<PAGE>
1. Defined Terms. The terms defined in Exhibit "A", which is
-------------
incorporated herein by this reference, shall have the same meanings when used
herein.
2. Restrictions on Transfer.
------------------------
(a) General Restriction. Except as permitted in this Agreement, none
-------------------
of the Shares may be transferred. ANY ATTEMPTED TRANSFER OF SEI COMMON STOCK OR
FCNH COMMON STOCK OTHER THAN IN ACCORDANCE WITH THIS AGREEMENT SHALL BE NULL AND
VOID AND OF NO FORCE OR EFFECT.
(b) No Liens. Except as specifically contemplated hereby, no Shares
--------
may be voluntarily subjected to a Lien by any party hereto, and any such Lien
shall be NULL AND VOID AND OF NO FORCE OR EFFECT.
(c) Effect of Transfers. Except for transfers covered by Section
-------------------
3(a)(i) or 3(a)(ii): (i) any Shares transferred in a transaction permitted
hereunder shall remain subject to all of the terms and provisions hereof as if
they were still owned by the transferor, and, without limiting the foregoing,
(x) all transfers of Shares by the transferee shall be subject to this
Agreement; and (y) SEI Common Stock transferred shall remain subject to the
Options granted in Section 7 hereof, and shall be transferred and sold at the
same time as the other shares of SEI Common Stock are transferred and sold
pursuant thereto; (ii) the transferee shall enter into a written agreement for
the benefit of the parties hereto, prepared by the corporation which is the
issuer of such Shares and in form and substance reasonably acceptable to Saban
and FBC, to be bound by the provisions of this Agreement relating to the
transferred Shares; and (iii) unless Saban and FBC shall otherwise agree, the
transferor of such Shares shall remain fully liable for all of its obligations
with respect to such Shares hereunder.
3. Permitted Transfers. Subject to Section 2(c), Shares may be
-------------------
transferred under the circumstances, and strictly upon the terms and conditions
of, any one of the following Sections:
(a) Public Transfers. Any Shareholder may transfer any or all its
----------------
Shares free and clear of any and all obligations and restrictions imposed on
such Shares under this Agreement:
(i) pursuant to the "Initial Public Offering" (as defined
below) or otherwise in a public offering effected in accordance with the
provisions of the "Registration Agreement" (as defined below); or
(ii) at any time or from time to time following the Initial
Public Offering, in a transaction effected on or through the facilities of
a national securities exchange or an automated quotations system.
2
<PAGE>
Any Shares transferred pursuant to this Section 3(a) shall cease to be
"Shares" under, or subject to, this Agreement; and without limiting the
generality of the foregoing, such Shares shall cease to be subject to the
Options granted in Section 7 of this Agreement.
(b) Transfers to Family Members or Trusts. The SEI Stockholders, or
-------------------------------------
any of them, may transfer all or any portion of their respective Shares, by
death or inter vivos, to any other SEI Stockholders, to any of Saban's family
----- -----
members (including the "spouse" of an "affected SEI Stockholder" (as defined
below)), to any trust established solely for the benefit of one or more of
Saban's family members, or to any legal entity in which Saban or any such
Persons are the sole beneficial owners; provided, however, that the Shares
-------- -------
transferred to the executor of an estate, in the case of death, to any such
family member, trust or legal entity shall be subject to the provisions of this
Agreement. In the event of the dissolution of the marital relationship of any
SEI Stockholder, including Saban, or in the event of the execution of a binding
agreement or issuance of an order with respect to marital property of any SEI
Stockholder, including Saban, any and all Shares transferred pursuant thereto to
the spouse (or ex-spouse) (herein, the "spouse") of such SEI Stockholder (the
"affected SEI Stockholder") shall be subject to all of the provisions of this
Agreement, including the provisions of Section 4 and Section 7 hereof; provided,
--------
that if the spouse desires to transfer any or all of such Shares pursuant to the
provisions of Section 4 hereof, the spouse shall first offer to sell to the
affected SEI Stockholder the Shares proposed to be transferred, and all of the
procedures of Section 4 shall apply thereto (with all references therein to
"Transferor" applying to the spouse, and all references to the "offeree" therein
applying to the affected SEI Stockholder); and the provisions of Section 8 of
this Agreement shall continue to be applicable to such spouse, notwithstanding
such dissolution or order.
(c) Transfer to Affiliates. Any Shareholder may transfer all or any
----------------------
portion of its Shares to a direct or indirect wholly-owned subsidiary of the
Shareholder (or, with respect to a Shareholder which is a natural person, a
corporation or other Person wholly-owned by the Shareholder), or, with respect
to FBC, to a Fox Inc. Subsidiary. A "Fox Inc. Subsidiary" is Twentieth Holdings
Corp. and any Person in which Fox Inc., a Colorado corporation, or Twentieth
Holdings Corp., a Delaware corporation, is the sole beneficial owner (either
directly or indirectly through one or more wholly-owned subsidiaries) of all of
the outstanding voting securities of that Person. If any transferee subsidiary,
including a Fox Inc. Subsidiary, loses its status as such, it shall, within 30
days of the occurrence of such event, transfer all of its Shares to a Person
which is then wholly-owned by a Shareholder, or a Fox, Inc. Subsidiary, as the
case may be, which transfer shall be effected in compliance with all other
applicable provisions of this Agreement.
3
<PAGE>
(d) Other Permitted Transfers. Any Person may effect a transfer
-------------------------
authorized by Sections 4, 6, 7 of this Agreement, or under and pursuant to the
"Stock Ownership Agreement," (as defined in Section 7(b) below).
4. Refusal Rights. No Shares may be transferred pursuant to this Section
--------------
4 prior to the first to occur of (i) the Initial Public Offering (subject to the
provisions of the Registration Agreement) or (ii) December 13, 1998.
(a) Offer. [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
-----
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]
(b) Manner of Payment. Payment of the purchase price for the offered
-----------------
Shares may, at the election of the offeree, be made by either (i) bank cashiers'
check in immediately available funds made payable to the order of the
Transferor, or (ii) wire transfer of immediately available funds to a designated
bank account of the offeree.
(c) Acceptance and Closing. Transferor's offer may be accepted only
----------------------
by delivering to Transferor written notice of acceptance prior to the expiration
of the offer period; provided, that such acceptance may be made subject to the
--------
final determination of the Fair Market Value of any non-cash consideration, in
which event such acceptance shall so state, and be accompanied by the offeree's
estimate of such Fair Market Value; and if the actual Fair Market Value differs
in any material respect from the offeree's estimate, the offeree may, within
four business days following receipt of the final determination of Fair Market
Value, withdraw its acceptance of the offer. If the offer is accepted and not
withdrawn as aforesaid, the closing of the sale shall take
4
<PAGE>
place at the time and place, and upon the terms, specified in the offer;
provided, however, that if the offeree disputes the Transferor's estimate of the
- -------- -------
Fair Market Value of any non-cash consideration, the closing shall be delayed to
five business days following the date of final determination of such Fair Market
Value, and if the purchase and sale of such Shares requires the obtaining of any
regulatory approvals or compliance with any other laws, the closing shall be
delayed for such time as is reasonably necessary to obtain such approvals and
comply with such laws; and provided further, however, that if the seeking of
-------- -------
such regulatory approvals and compliance with other applicable laws delays the
closing by more than 90 days, at any time subsequent to such 90-day period and
prior to the closing, the Transferor may, by written notice to offeree, treat
such delay as a rejection of the offer, and, following delivery of such notice,
the provisions of Section 4(d) shall be applicable; and provided further, if the
Management Company, SEI, FCNH or any of their respective Subsidiaries then owns
or controls a television broadcasting station operating under a license issued
by the Federal Communications Commission ("FCC"), and as a result of the
proposed transfer approval by the FCC is required, then such 90-day period
referred to in the preceding proviso shall be a one-year period. At the
closing, Transferor shall deliver to the offeree documents of transfer in form
and substance reasonably acceptable to the offeree and its counsel, necessary to
vest in the offeree good and marketable title to the Shares so sold, free and
clear of any and all Liens, other than those imposed under or pursuant to this
Agreement, against delivery by the offeree to the Transferor of the purchase
price therefor.
(d) Sale Pursuant to Bona Fide Offer. If the offeree fails to
--------------------------------
accept, or rejects, Transferor's offer, then, subject to the provisions of
Section 2(c), Transferor shall have the right to sell to the Person specified in
the Bona Fide Offer the Shares so offered pursuant to the terms and conditions
specified in the Bona Fide Offer or otherwise on terms and conditions no less
favorable to Transferor than the terms set forth in the Bona Fide Offer;
provided, that such sale is consummated within ninety days of the date of
- --------
delivery of Transferor's offer.
(e) Transferred Shares Subject to Agreement. All Shares transferred
---------------------------------------
pursuant to this Section 4 shall continue to be subject to this Agreement.
5. Covenants and Voting Agreements.
-------------------------------
(a) Of FBC and FCNH. Except as provided in or contemplated by this
---------------
Agreement or the LLC Formation Agreement, without the prior written consent of
Saban, which consent may be withheld by Saban at his sole and absolute
discretion, FCNH shall not, and FBC shall take any and all actions necessary to
cause FCNH not to: (i) issue or sell any FCNH Common Stock, or authorize, issue
or sell any shares of any other class or series of capital stock of FCNH, or any
options, warrants or rights to subscribe for or acquire, with or without
additional consideration, any shares of
5
<PAGE>
FCNH Common Stock or other class or series of FCNH capital stock; (ii) merge or
consolidate with any other Person; (iii) declare or pay any dividends or
distributions on or with respect to its outstanding securities, or make any
other payments, whether in the form of advances or loans, to FBC or any of its
Affiliates; (iv) sell, lease or dispose of any assets; (v) liquidate, dissolve,
recapitalize or reorganize in any form of transaction; (vi) engage in any
business or other material activity, other than that of holding its interest in
the Management Company, in FCNH Sub or own any other non-cash equivalent assets;
(vii) amend its Certificate of Incorporation or By-Laws; (viii) breach or fail
to perform any of its obligations under the Operating Agreement of the
Management Company, dated as of the date hereof, between SEI, FBC and FCNH (as
such agreement may from time to time be amended, the "Operating Agreement");
(ix) do any act, or permit any act to be done, which would result in FCNH being
unable to perform its obligations under this Agreement; (x) do any act, or
permit any act to be done, which would result in FCN being unable to perform its
obligations under the Management Agreement of even date herewith among, inter
-----
alia, the Management Company, SEI and FCNH Sub (the "Management Agreement") or
- ----
the other Alliance Agreements to which it is a party; or (xi) enter into any
commitment or agreement directly or indirectly to effect any of the foregoing.
(b) Of FNCH and FCNH Sub. Except as provided in or contemplated by
--------------------
this Agreement or the LLC Formation Agreement, without the prior written consent
of Saban, which consent may be withheld by Saban at his sole and absolute
discretion, FCNH Sub shall not, and FNCH shall take any and all actions
necessary to cause FCNH Sub not to: (i) issue or sell any FCNH Sub Common Stock,
or authorize, issue or sell any shares of any other class or series of capital
stock of FCNH Sub, or any options, warrants or rights to subscribe for or
acquire, with or without additional consideration, any shares of FCNH Sub Common
Stock or other class or series of FCNH Sub capital stock; (ii) merge or
consolidate with any other Person; (iii) declare or pay any dividends or
distributions on or with respect to its outstanding securities, or make any
other payments, whether in the form of advances or loans, to FCNH or any of its
Affiliates; (iv) sell, lease or dispose of any assets; (v) liquidate, dissolve,
recapitalize or reorganize in any form of transaction; (vi) engage in any
business or other material activity, other than that of holding its interest in
FCN and FCP; (vii) amend its Certificate of Incorporation or By-Laws; (viii) do
any act, or permit any act to be done, which would result in FCNH Sub being
unable to perform its obligations under this Agreement; (ix) do any act, or
permit any act to be done, which would result in FCNH Sub or FCN being unable to
perform its obligations under the Management Agreement of even date herewith
among, inter alia, the Management Company, SEI and FCNH Sub (the "Management
----- ----
Agreement") or the other Alliance Agreements to which it is a party; (x) breach
or fail to perform any of its obligations under the Management Agreement; or
(xi) enter into any commitment or agreement directly or indirectly to effect any
of the foregoing.
6
<PAGE>
(c) Of Saban, the SEI Stockholders and SEI. Except as provided in or
--------------------------------------
contemplated by this Agreement or the LLC Formation Agreement, without the prior
written consent of FBC, which consent may be withheld by FBC at its sole and
absolute discretion, SEI shall not, and Saban and the SEI Stockholders shall
take any and all actions necessary to cause SEI not to: (i) issue or sell any
SEI Common Stock other than pursuant to options and warrants outstanding on the
date hereof, or authorize, issue or sell any shares of any other class or series
of capital stock of SEI, or any options, warrants or rights to subscribe for or
acquire, with or without additional consideration, any shares of SEI Common
Stock or other class or series of SEI capital stock other than pursuant to
agreements existing as of the date hereof; (ii) merge or consolidate with any
other Person; (iii) declare or pay any dividends or distributions on or with
respect to its outstanding securities, or make any other payments, whether in
the form of advances or loans, to Saban and the SEI Stockholders or any of their
Affiliates; (iv) sell, lease or dispose of any assets other than in the ordinary
course of business; (v) liquidate, dissolve, recapitalize or reorganize in any
form of transaction; (vi) amend its Certificate of Incorporation or By-Laws;
(vii) breach or fail to perform any of its obligations under the Operating
Agreement or the Management Agreement; (viii) do any act, or permit any act to
be done, which would result in SEI being unable to perform its obligations under
this Agreement or the Management Agreement or the other Alliance Agreements to
which it is a party; or (ix) enter into any commitment or agreement directly or
indirectly to effect any of the foregoing.
(d) Performance. (i) Each of the SEI Stockholders shall take any and
-----------
all actions within their power as stockholders of SEI, including the calling of
special meetings of the stockholders of SEI and the voting of the SEI Common
Stock owned by them, required to cause SEI to perform its obligations under this
Agreement, the Management Agreement and the other Alliance Agreements to which
it is a party; (ii) FBC shall take any and all actions within its power as a
stockholder of FCNH, and shall cause FCNH to take any and all actions within its
power as stockholder of FCNH Sub, including the calling of special meetings of
the stockholders of FCNH or FCNH Sub, and the voting of the FCNH Common Stock or
the capital stock of FCNH Sub, required to cause FCNH and FCNH Sub to perform
all of their respective obligations under this Agreement and the other Alliance
Agreements to which either or both of them is a party; (iii) without limiting
the generality of clauses (i) and (ii), above, during the continuance of any
material breach or default by SEI, on the one hand, or FCNH or FCNH Sub, on the
other hand (a "breaching company") of any of its obligations under this
Agreement or the other Alliance Agreements to which it is a party, if the
controlling Shareholder (Saban or FBC) of the non-breaching company shall so
demand, the Shareholder(s) of the breaching company shall promptly discharge
their obligations under clause (i) or (ii), above, as applicable; and if the
Shareholders of the breaching company shall refuse or fail to vote or take the
demanded corporate action in compliance with this Section 5(c), without
7
<PAGE>
limiting any other rights which may then be available at law or in equity with
respect thereto, their Shares may be voted by the other of FBC or Saban, as the
case may be, to cure such breach or rectify such default; and in furtherance
thereof, each SEI Stockholder hereby appoints FBC, and FBC hereby appoints
Saban, as their or its respective proxies and attorneys-in-fact pursuant to the
provisions of Section 212(e) of the Delaware General Corporation Law, with full
power and authority from time to time to vote or act by written consent with
respect to the Shares, but only following written demand to the Shareholder(s)
granting such proxy to vote their Shares as required hereby, and then only as
may be necessary to ensure full compliance with the provisions of this Section
5(c). Each proxy granted hereby is coupled with an interest in the Shares to
which it relates, and in the corporation which has issued such Shares generally,
which interests include the rights granted to the Shareholders pursuant to the
provisions of Sections 6 and 7 of this Agreement, and the respective rights of
the parties hereto under the other Alliance Agreements to which they or some of
them are parties, and shall be irrevocable for the term of this Section 5.
(e) Term. All provisions of this Section 5 shall terminate and
----
expire on the first to occur of (i) the Initial Public Offering; or (ii) the
closing of the purchase and sale of the SEI Common Stock pursuant to Section 7.
6. Initial Public Offering.
-----------------------
(a) Election to Effect Initial Public Offering.
------------------------------------------
(i) Either Saban or FBC may at any time propose to the other
that the "Successor Entity" formed pursuant to Section 6(b) effect a firmly
underwritten public offering (the "Initial Public Offering") of its common
stock pursuant to a registration statement filed with the Commission under
the Securities Act and otherwise in accordance with the registration
agreement between the parties of even date herewith (the "Registration
Agreement"), a copy of which is attached hereto as Exhibit "B". Saban and
FBC shall thereafter attempt in good faith to reach agreement as to the
terms of the Initial Public Offering, including the designation of the
managing underwriter(s) (the "Underwriters") thereof, the size of the
offering, and the maximum aggregate offering price of securities to be
offered by the Successor Entity in the offering.
(ii) If Saban and FBC fail to agree on the terms of the offering
within 15 days from the date of the original proposal, the party first
proposing the Initial Public Offering (the "Initiating Holder") shall have
the right to cause the Initial Public Offering to be effected on such terms
as the Initiating Holder and the Underwriters designated by the Initiating
Holder may in good faith mutually agree; and all parties to this Agreement
shall fully cooperate in the Initial Public Offering.
8
<PAGE>
(iii) If the Initial Public Offering is terminated prior to the
sale of any securities, the provisions of this Section 6(a) shall be
applicable until an Initial Public Offering is actually effected. FBC and
each of the SEI Stockholders shall have the right to participate in the
Initial Public Offering, and in other future offerings, pursuant to the
Registration Agreement.
(iv) In no event may the effective date of the registration
statement relating to the Initial Public Offering occur prior to October 1,
1996 without the mutual approval of Saban and FBC.
(b) Formation and Structure of the Successor Entity.
-----------------------------------------------
(i) If an Initial Public Offering is to be effected pursuant
to Section 6(a), the parties hereto shall cooperate fully with each other,
and with the Underwriters, to cause SEI and FCNH to be restructured and
reorganized (the "Reorganization"), effective (the "Effective Time")
immediately prior to the first closing of the sale of securities to the
Underwriters pursuant to the Initial Public Offering, into a corporation or
such other entity as the Underwriters shall advise the parties is necessary
or reasonably advisable in order to successfully effect the Initial Public
Offering of the securities of an entity owning the business and operations
of both SEI and FCNH (such corporation or other entity being referred to
herein as the "Successor Entity"), and, subject to the foregoing, (x) Saban
and FBC shall consult with, and be guided by, the auditors and tax counsel
for the Management Company as to the form of the Reorganization (including
questions as to choice of entity, whether to form a new holding company or
effect a merger of SEI and FCNH and other structural issues) and, if the
accounting treatment or the tax treatment would differ depending on the
structure, the structure chosen shall be reasonably acceptable to, and
jointly approved by, both Saban and FBC (and, if they are unable, following
good faith reasonable efforts, to so agree: (A) the Successor Entity shall
be a newly-formed Delaware corporation, whose Certificate of Incorporation
and By-Laws shall include such standard and customary provisions as shall
then be applicable to public corporations incorporated under Delaware law;
(B) the Successor Entity shall have authorized but one class of voting
securities, which shall be shares of its common stock, with a par value of
$0.001 per share, and which shares shall be "Successor Entity Equity
Securities," as defined below; (C) the Successor Entity shall have
authorized one class of non-voting Preferred Stock to be issued to FBC,
which class shall have no voting or dividend rights and shall have a
liquidation preference and redemption right (in preference over any
dividends on or redemption of common stock) in the face amount of $50
million less any amounts previously distributed to the Class A Member
pursuant to the provisions of Sections 5.7.3
9
<PAGE>
and 5.7.4 of the Operating Agreement to be paid at the times provided for
therein and no other rights, (D) the Certificate of Incorporation and By-
laws of the Successor Entity shall have the broadest indemnification and
exculpation provisions provided by Delaware law; (E) unless distributed
sooner immediately prior to the Reorganization, the Management Company
shall distribute to FBC the "Call Option" (as defined in Section 7(b)
below); and (F) the Reorganization shall be effected by the contribution to
the Successor Entity by each of the SEI Stockholders of all of their
respective Shares and by FBC of all of its Shares and its Class A Interest
in the Management Company, solely in exchange for Shares of the Successor
Entity Equity Securities and Preferred Stock of the Successor Entity,
allocated as provided in (ii), below, which Reorganization shall be
effected in such a manner as to comply with the provisions of Section 351
of the Internal Revenue Code of 1986, as amended); (y) the Successor Entity
shall assume, and the parties hereto shall take any and all actions
necessary to cause the Successor Entity to assume, all obligations ascribed
to it under the Registration Agreement; and (z) Saban and FBC shall use
their respective best efforts in good faith to promptly designate and agree
upon which (if any) of those governance provisions contained in the
Operating Agreement are to continue in effect after the Reorganization, and
which are not to survive, and the manner in which they are to be
implemented or terminated.
(ii) The rights, preferences and privileges with respect to the
Successor Entity Equity Securities to be issued to the SEI Stockholders and
FBC by the Successor Entity shall be identical. In connection with the
Reorganization, the then-outstanding shares of SEI Common Stock shall be
exchanged for 50% of the Successor Entity Equity Securities to be
outstanding at the Effective Time, and the then-outstanding shares of FCNH
Common Stock shall be exchanged for 50% of the Successor Entity Equity
Securities to be outstanding at the Effective Time; provided, that any
--------
shares of SEI Common Stock or FCNH Common Stock issued subsequent to the
date hereof and prior to the Effective Time pursuant to the exercise of
stock options or other rights to purchase or acquire either SEI Common
Stock or FCNH Common Stock, as the case may be, shall be allocated 50%
against the shares otherwise issuable with respect to the other company's
Common Stock. The then outstanding Class A Interest in the Management
Company shall be exchanged for all of the Preferred Stock of the Successor
Entity to be outstanding at the Effective Time. All Shares of Successor
Entity Equity Securities issued with respect to the SEI Common Stock owned
by the SEI Stockholders or any of their transferees (other than FBC) shall
thereafter be deemed to be "SEI Common Stock" hereunder, and all Shares of
Successor Entity Equity Securities issued with respect to the FCNH Common
Stock owned by FBC or its transferees (other than Saban) shall thereafter
be deemed to be "FCNH Common Stock" hereunder; the Persons receiving such
Successor Entity Equity
10
<PAGE>
Security shall be deemed to be "Shareholders" hereunder; and, except as
specifically otherwise provided herein, all of such Shares shall following
the Reorganization continue to be subject to the provisions of this
Agreement.
(iii) The closing of the Reorganization shall be subject to such
conditions as Saban and FBC shall reasonably agree upon, including
compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1986,
the obtaining of all required regulatory approvals and compliance with all
other laws and the obtaining of all material consents applicable to the
Reorganization and the Initial Public Offering; but no such conditions
shall alter the exchange ratio set forth in (ii), above and the parties to
this Agreement shall fully cooperate with each other with respect to the
Reorganization, and shall take any and all such actions, and sign and
deliver any and all documents, as may be necessary or appropriate to effect
the Reorganization.
(iv) If required in connection with the Reorganization, at the
closing of the Reorganization, each of the Shareholders shall deliver to
the Successor Entity such documents of transfer or other documents or
agreements, in form and substance reasonably acceptable to Saban and FBC
and their counsel, necessary to vest in the Successor Entity good and
marketable title to their Shares, free and clear of any and all Liens,
other than those imposed under or pursuant to this Agreement, against
delivery to the Shareholders of the Successor Entity Equity Securities.
(c) FCNH Financial Statements. FBC shall, promptly following the
-------------------------
execution of this Agreement, take any and all actions as may be necessary or
appropriate in order to prepare, or cause to be prepared, consolidated
historical financial statements of FCNH, FCN and all of the businesses, assets,
liabilities and obligations contributed to the Management Company pursuant to
that certain Asset Assignment Agreement of even date herewith among, inter alia,
----- ----
the Management Company, FBC and FCNH (the "Asset Assignment Agreement") (FCNH,
FCN and such businesses, assets, liabilities and obligations being herein
collectively referred to as the "FBC-related Assets"), which financial
statements shall (i) cover a period of at least three fiscal years, with the
most recent fiscal year ended on or prior to July 1, 1995; (ii) be prepared in
accordance with Regulation S-X of the Commission; (iii) be certified without
material qualification by Arthur Andersen & Co. LLP; and (iv) otherwise contain
such information and notes as the independent certified public accountants for
the Management Company shall advise FBC are reasonably anticipated to be
required in connection with an Initial Public Offering whose effective date
would fall on October 1, 1996; and FBC shall cause Arthur Andersen & Co. LLP to
fully cooperate with the Successor Entity and its independent certified public
accountants with respect to the Initial Public Offering.
11
<PAGE>
7. Put Option.
----------
(a) Option.
------
(i) Upon the occurrence of each and every "Triggering Event," as
that term is defined in clause (ii), below, Saban shall have the right and
option (the "Put Option") to require FBC to purchase (x) with respect to
any Triggering Event which occurs prior to the Initial Public Offering,
all, and not less than all, of the SEI Common Stock owned by the SEI
Stockholders or any of their transferees (other than FBC); and (y) with
respect to any Triggering Event which occurs thereafter, all Shares of the
Successor Entity which, pursuant to Section 6(b), are deemed to be shares
of SEI Common Stock and which are owned by the SEI Stockholders or any of
their transferees (other than FBC and excluding Shares transferred pursuant
to Section 3(a)(i) or 3(a)(ii)); (the Shares subject to the Put Option are
referred to herein as the "SEI Option Shares") for the per share cash
purchase price determined pursuant to Section 7(c), by delivering written
notice of his election to FBC within the time period for that Triggering
Event set forth in clause (ii) below, accompanied by a separate written
notice to the Management Company, or to the person then holding the Stock
Ownership Agreement, of his election to cause a "Call Triggering Event"
thereunder.
(ii) The "Triggering Events," and the time periods for delivery
of election notices with respect thereto, shall be as follows:
(x) death of Saban prior to the 17th anniversary of this
Agreement -- 12 calendar months following death; notice of election
may be given by the executor of his estate, or by a majority in
interest of the holders of the affected Shares of SEI Common Stock;
(y) a Change in Control of FBC -- 90 business days after
the first public announcement of such event;
(z) the fifth anniversary of the date of this Agreement
-- notice must be given not later than 180 calendar days prior to the
fifth anniversary of the date of this Agreement; or
(aa) upon delivery of written notice by Saban of exercise
of the Option at any time on or after the seventh anniversary of the
date of this Agreement and on or prior to the seventeenth anniversary
of the date of this Agreement -- notice may be given at any time
during the period.
12
<PAGE>
The date of the Triggering Event to which the exercise of the Put Option
relates shall be the "Effective Date" of the Put Option. The failure or decision
not to exercise the Put Option upon the occurrence of a Triggering Event shall
not affect Saban's right to exercise the Put Option on any subsequent Triggering
Event.
(b) Rules of Priority of Call Option Over Put Option. The Management
------------------------------------------------
Company and Saban have entered into a separate Stock Ownership Agreement (the
"Stock Ownership Agreement") of even date herewith pursuant to which the SEI
Stockholders have granted a call option (the "Call Option") to the Management
Company. For purposes of determining whether the SEI Option Shares are being
sold under the Call Option or the Put Option, the following rules will apply:
(i) if the holder of the Call Option has duly exercised the
Call Option, unless the Management Company thereafter breaches or is unable
to perform its obligations with respect thereto, Saban shall not have the
right to exercise the Put Option; and
(ii) if Saban exercises the Put Option, and the holder of the
Call Option thereafter duly and timely exercises its Call Option, the
exercise of the Call Option shall take precedence over the Put Option, and
the SEI Option Shares shall be sold under and pursuant to the Call Option.
(c) Calculation of Purchase Price.
-----------------------------
(i) Put Option Price. The per share purchase price for the SEI
----------------
Option Shares under the Put Option shall be an amount equal to:
[XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
13
<PAGE>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]
(d) Put Option Closing. The closing of the purchase and sale of the
------------------
SEI Option Shares pursuant to this Section 7 shall take place at such time and
place as Saban and FBC shall mutually agree upon; provided, that the date of
--------
closing shall be five business days following the later of (i) the date of final
determination of Fair Market Value; and (ii) if the purchase and sale of such
Shares requires the obtaining of any material regulatory approvals or compliance
with any other material laws or regulations, the date upon which all such
approvals shall have been obtained, and such compliance effected; provided
--------
further, however, that if through no fault of the SEI Stockholders FBC is unable
- -------
fully to satisfy all conditions of clause (ii) within six calendar months of the
date of final determination of Fair Market Value, then FBC shall on the first
business day following the end of such six-month period pay and deliver to the
holders of the SEI Option Shares an amount equal to the per share purchase price
for such Shares, and the holders of the SEI Option Shares shall enter into such
agreements with respect to the subsequent voting and transfer of such Shares as
FBC shall reasonably request, including the agreement at any time thereafter to
transfer such Shares, without receipt of further consideration, to such Person
or Persons as may be designated by FBC. At the closing, each of the holders of
the SEI Option Shares shall deliver to FBC documents of transfer in form and
substance reasonably acceptable to FBC and its counsel, necessary to vest in FBC
good and marketable title to the SEI Option Shares so sold by the holder
thereof, free and clear of any and all Liens, other than those imposed under or
pursuant to this Agreement, against delivery by FBC to such holder of the
purchase price therefor, payable, at the election of Saban, by either (x) bank
cashiers' checks in
14
<PAGE>
immediately available funds payable to the order of the selling holders, or (y)
wire transfer of immediately available funds to an account or accounts
designated by Saban.
8. Special Provisions Concerning Spouses of SEI Stockholders.
---------------------------------------------------------
This Agreement has been executed by Saban and consented to by his
spouse, who may claim a community property interest, or other interest, in some
or all of the Shares or other rights hereunder held by Saban. Such spouse, in
executing her consent in the form of Exhibit "C" hereto, represents that she has
read provisions of this Agreement (including, without limitation, Sections 2 and
11(b) hereof) and that she has carefully reviewed the same with her counsel, and
acknowledges and irrevocably agrees that by such execution she is waiving any
rights which she may have during the continuance of her marriage, or at any time
thereafter, prior to the death or incompetency of Saban, to control SEI or the
Management Company. In making such waiver, she has carefully considered the
provisions of Section 1100 of the Family Code of the State of California which
grants to her, among other things, equal right to management and control of
certain community assets, and waives all of her rights thereunder with respect
thereto. Further, she specifically consents to and agrees that the SEI Common
Stock, to the extent that it is controlled by Saban, and the consent, veto and
other rights personally granted to him pursuant to this Agreement, the
Management Agreement and the other Alliance Agreements, constitute a "business
or an interest in a business" which is being operated or managed by Saban, so as
to cause Saban to have primary right to the management and control thereof, and
waives her right to prior notice of any sale, lease, exchange, encumbrance or
other disposition of all or substantially all of the personal property used in
the operation of such business. A copy of Section 1100 is attached as an
exhibit to Exhibit "C".
9. Representations and Warranties.
------------------------------
(a) Representations of FBC and the SEI Stockholders as to FCNH, FCNH
----------------------------------------------------------------
Sub, FCN and SEI. Each of the SEI Stockholders jointly and severally represents
- ----------------
and warrants to FBC with respect to SEI, and FBC represents and warrants to the
SEI Stockholders with respect to FCNH, FCNH Sub and FCN, (SEI, FCNH, FCNH Sub
and FCN each being separately referred to below as "Company") that, except as
set forth in the Schedule of Exceptions with respect to that Company attached
hereto as Schedules "SEI," "FCNH" and "FCN," the following statements are true
and correct in all material respects as of the date hereof(except with respect
to Subsections (vi), (ix), (x), (xi), (xii), (xiii), (xiv), (xv), (xvi), (xvii)
and (xviii), which, as to SEI and FCN, are made as of the date of the LLC
Formation Agreement (the "LLC FA Date"), and need only be true and correct on
that date; and under no circumstances shall any party be obligated to provide
more current documents or otherwise update or bring down to a more current date
any of the representations and warranties set forth therein):
15
<PAGE>
(i) Due Incorporation and Authority. Company is a corporation
-------------------------------
duly organized, validly existing and in good standing under the laws of the
state of its incorporation and has all requisite corporate power and
authority to own its properties and to carry on its business as now
conducted.
(ii) Subsidiaries and Other Affiliates. Schedule 9(a)(ii) sets
--------------------------------- -----------------
forth the name and jurisdiction of organization of each Subsidiary of
Company. Except for the Subsidiaries, Company does not directly or
indirectly own any interest in any other person.
(iii) Qualification. Each of Company and each of its Subsidiaries
-------------
is duly qualified or otherwise authorized as a foreign corporation or other
entity to transact business and is in good standing in the jurisdictions in
which such qualification or authorization is required by law, except for
jurisdictions in which the failure to be so qualified or to be in good
standing would not have a Material Adverse Effect.
(iv) Outstanding Capital Stock. All of the issued and
-------------------------
outstanding shares of Common Stock of SEI, FCN, FCNH and FCNH Sub are
owned, beneficially and of record, by, respectively, the SEI Stockholders,
FCNH, FBC and FCNH Sub, free and clear of all Liens, other than Liens
imposed under this Agreement and the other Alliance Agreements, and
applicable restrictions generally imposed by law. All of the issued and
outstanding shares of capital stock of Company and its Subsidiaries are
duly authorized and validly issued, fully paid and nonassessable. No other
class of capital stock or other ownership interest of Company or any of the
Subsidiaries is authorized or outstanding.
(v) Options or Other Rights. There are no outstanding right,
-----------------------
subscriptions, warrants, unsatisfied preemptive rights, options or other
agreements of any kind to purchase or otherwise to receive from Company,
any of its Subsidiaries, the SEI Stockholders, FCNH, FBC or FCNH Sub any of
the outstanding, authorized but unissued, unauthorized or treasury shares
of the capital stock or any other securities of Company or any of its
Subsidiaries, and there are no outstanding securities of any kind
convertible or exchangeable, with or without consideration, into any such
capital stock.
(vi) Financial Statements. The consolidated balance sheets of
--------------------
Company and its Subsidiaries as of May 31, 1995 (with respect to SEI) and
June 4, 1995 (with respect to FCN), respectively and the related
consolidated statements of income, stockholders' equity and cash flows for
the years then ended, including the footnotes thereto, certified by Ernst &
Young LLP, independent certified public accountants, and the Senior Vice
President, Finance of Fox Inc., respectively, which have been delivered to
FBC and Saban, as the case may
16
<PAGE>
be, fairly present the consolidated financial position of Company and its
Subsidiaries as at such date and the consolidated results of operations and
cash flows of Company and its Subsidiaries for such periods, in each case
in accordance with generally accepted accounting principles ("GAAP")
consistently applied for the periods covered thereby. The foregoing
consolidated financial statements of FCN and its Subsidiaries include the
operations of Fox Kids Music, Inc. and Fox Children's Music, Inc. The
foregoing consolidated financial statements of Company and its Subsidiaries
are sometimes herein called the "Financial Statements", the consolidated
balance sheet is sometimes herein called the "Balance Sheet" and May 31,
1995 and June 4, 1995, respectively, are sometimes herein called the
"Balance Sheet Date" with respect to the related Company.
(vii) FCNH. FCNH was formed as a Delaware corporation on October
----
26, 1995, and since such date has conducted no business, other than the
undertaking of matters incidental to the execution, delivery and
performance of this Agreement and the other Alliance Agreements to which it
is a party. The only assets of FCNH consist of (A) all of the issued and
outstanding shares of capital stock and other securities of FCNH Sub; (B)
those assets, if any, described in the Asset Assignment Agreement as being
owned by FCNH, all of which have, concurrent with the execution of this
Agreement, been transferred and assigned to the Management Company; (C) its
membership interest in the Management Company, for which it has paid and
contributed $100,000 to the Management Company; and (D) not more than
$50,000 in cash and cash-equivalent assets; its only material obligations
are those arising under and pursuant to this Agreement and the other
Alliance Agreements to which it is party; and FCNH has no material
liabilities.
(viii) FCNH Sub. FCNH Sub was formed as a Delaware corporation on
--------
November 6, 1995, and since such date has conducted no business, other than
the undertaking of matters incidental to the execution, delivery and
performance of this Agreement and the other Alliance Agreements to which it
is a party. The only assets of FCNH Sub consist of (A) those assets, if
any, described in the Asset Assignment Agreement as being owned by FCNH
Sub, all of which have, concurrent with the execution of this Agreement,
been transferred and assigned to the Management Company; (B) all of the
issued and outstanding capital stock and other securities of FCN and Fox
Children's Productions, Inc., a Delaware corporation; and (C) not more than
$50,000 in cash and cash-equivalent assets; its only material obligations
are those arising under and pursuant to this Agreement and the other
Alliance Agreements to which it is party; and FCNH Sub has no material
liabilities.
17
<PAGE>
(ix) Conduct of Business; No Material Adverse Change. Since the
-----------------------------------------------
Balance Sheet Date, each of FCN and SEI has been run in the ordinary course
and except as disclosed in the Schedule of Exceptions, or other schedules
to this Agreement, (A) there has been no change in the condition (financial
or otherwise), business, properties, assets or liabilities of Company, and
its Subsidiaries, considered as a whole, other than changes in the ordinary
course of its business, consistent with past practice, which, when
considered as a whole, have not had a Material Adverse Effect; (B) Company
has not declared or paid any dividend or made any distribution on or with
respect to its capital stock; redeemed, purchased or otherwise acquired any
of its capital stock; granted any options, warrants or other rights to
purchase shares of, or any other securities which may be convertible into
or exchangeable for, its capital stock; or issued any shares of its capital
stock; (C) there have been no loans for borrowed monies or guarantees made
by Company or any of its Subsidiaries to or for the benefit of any Person,
except in the ordinary course of business and consistent with past
practice; (D) there has been no increase in the compensation or benefits
payable or to become payable to any of the employees or executives of
Company or any of its Subsidiaries, other than increases in the ordinary
course of business and consistent with past practice; (E) there has been no
indebtedness incurred by Company or any of its Subsidiaries, or any
commitment for any such occurrence, except in the ordinary course of
business and consistent with past practice; (F) there has been no sale or
other disposition of any of the properties or assets of Company or any of
its Subsidiaries (whether tangible or intangible), except in the ordinary
course of business and consistent with past practice; and (G) there has
been no agreement binding upon Company or any of its Subsidiaries to do any
of the foregoing.
(x) Litigation. Except as set forth on Schedule 9(a)(x), there
----------
is no litigation, investigation or proceeding before any court or
governmental or other regulatory agency pending or, to the knowledge of
Saban or FBC, as applicable, threatened against Company or any of its
Subsidiaries which, if adversely determined, would have a Material Adverse
Effect or which questions or challenges the validity of this Agreement or
will prevent or interfere with the consummation of any transaction
contemplated hereby.
(xi) Title to Assets. Company and its Subsidiaries each has good
---------------
and marketable title to, or leasehold interests in, all of its assets, free
and clear of any Liens, except (i) for Liens for taxes not yet due, (ii)
for Liens imposed by law and incurred in the ordinary course of business
for obligations not yet due to carriers, warehousemen, laborers,
materialmen and the like, (iii) for Liens in respect of pledges or deposits
under workers' compensation laws or similar legislation, (iv) for Liens
18
<PAGE>
outstanding and aggregating less than $1,000,000, (v) for Liens disclosed
in the Financial Statements or the notes thereby, or incurred thereafter in
the ordinary course of its business, (vi) for Liens incurred in the
ordinary course of business for obligations to film and sound laboratories,
(vii) for Liens incurred in the ordinary course of business for obligations
to the Screen Actors' Guild of America, the Directors' Guild of America
and/or any other collective bargaining guilds or unions having jurisdiction
over any intellectual property owned or controlled by the Company and its
Subsidiaries; (viii) for Liens incurred in the ordinary course of business
for obligations to completion guarantors in connection with the production
of motion pictures, television programs or other productions or (xi) for
distribution and other exploitation rights and license heretofore granted
by Company and its Subsidiaries to Third Persons with respect to any
intellectual property owned or controlled by the Company and its
Subsidiaries.
(xii) Taxes. Company and each of its Subsidiaries has filed or
-----
caused to be filed, all federal, state, local and foreign income tax
returns and tax reports which were required to be filed by, or with respect
to the business of, Company or its Subsidiaries on or prior to the LLC FA
Date (taking into account any extension of time to file granted to or on
behalf of the Company or such Subsidiaries) (collectively, the "Returns"),
except where the failure to file any of such Returns would not have a
Material Adverse Effect. All material federal, state, local and foreign
income taxes (including interest and penalties) ("Taxes") shown to be due
and payable on or prior to the LLC FA Date on the Returns by Company or its
Subsidiaries have been paid. Neither Company nor any of its Subsidiaries
is delinquent in the payment of any tax, assessment or governmental charge,
does not have any tax deficiencies proposed or assessed against it and has
not executed any waiver of the statute of limitations on the assessment or
collection of any tax (collectively, any "Delinquencies"), except
Delinquencies whose failure to remedy would not, individually or when
aggregated with other Deficiencies, have a Material Adverse Effect. There
are no present disputes as to Taxes of any nature previously paid or
currently payable by Company or any of its Subsidiaries.
(xiii) Receivables. All accounts and notes receivable reflected on
-----------
the Balance Sheet, and all accounts and notes receivable arising in the
ordinary course of business subsequent to the Balance Sheet Date, have
arisen in the ordinary course of business of Company or its Subsidiaries,
and the reserve for bad debts reflected in the Balance Sheet has been
computed in a manner substantially consistent with past practice and, to
the best knowledge of Saban and FBC, as the case may be, is reasonably
estimated to reflect the probable results of collection.
19
<PAGE>
(xiv) Intangible Property. To the best knowledge of Saban or FBC,
-------------------
as applicable, Company and its Subsidiaries (i) own or have adequate rights
with respect to the underlying intellectual property rights material to the
conduct of its business as presently conducted, and (ii) Company and its
Subsidiaries are conducting their respective businesses without claim of
infringement of any material license, copyright or other intellectual
property right of others.
(xv) No Undisclosed Liabilities. To the best knowledge of Saban
--------------------------
or FBC, as applicable, Company and its Subsidiaries do not have any
material liabilities, obligations or commitments of any nature (whether
absolute, accrued, contingent or otherwise), matured or unmatured (herein
"Liabilities"), except (A) Liabilities that were disclosed or provided for
in the Financial Statements; (B) Liabilities not required to be disclosed
in Company's Financial Statements in accordance with GAAP, consistently
applied in accordance with past practice; (C) Liabilities disclosed in this
Agreement or in Company's Schedule of Exceptions; (D) Liabilities not
required to be disclosed in Company's Schedule of Exceptions, none of which
will, individually, or when aggregated with all other such Liabilities not
required to be disclosed in the Company Schedule of Exceptions, result in a
Material Adverse Effect, and (E) Liabilities which have been incurred in
the ordinary course of business consistent with past practice since the
Balance Sheet Date.
(xvi) Material Contracts and Commitments.
----------------------------------
(A) Schedule 9(a)(xvi) sets forth a list of all those
------------------
currently effective contracts and agreements to which Company or its
Subsidiaries is a party which would be required by Rule 601 of
Regulation S-K of the rules and regulations of the Commission to be
included as exhibits to its annual report on Form 10-K as of the LLC
FA Date, if Company were subject on that date to Section 12(g) of the
Securities Exchange Act of 1934, as amended (collectively, the
"Contracts");
(B) (I) each of the Contracts is a valid and binding
agreement of Company or its Subsidiaries, as applicable; and
(II) there has not occurred any material default under
any of the Contracts on the part of Company or its Subsidiaries, as
applicable, or, to the best knowledge of Saban or FBC, as applicable,
on the part of any other party thereto, which would have a Material
Adverse Effect.
(xvii) Interested Party Contracts. No officer, director,
--------------------------
stockholder or Affiliate of Company has any
20
<PAGE>
agreement with Company or any of its Subsidiaries or any interest in any
material property (real, personal or mixed, tangible or intangible) used in
or pertaining to the business of Company or any of its Subsidiaries, except
this Agreement, the other Alliance Agreements to which it is a party, or
any agreements solely as a shareholder or as an employee of Company.
(xviii) Disclosure. As of LLC FA Date, there was no fact within the
----------
best knowledge of Saban or FBC, as the case may be, (and thus not known or
provided to the other parties hereto, or their auditors, counsel or
advisors, or generally known or publicly available) which at that time
materially affected, or which in the future would, so far as could then be
foreseen, materially affect, the business, properties, assets or the
condition, financial or otherwise, of Company and its Subsidiaries,
considered as a whole, which was withheld from the other parties hereto, or
their auditors, counsel or other advisors, for the purpose of inducing them
to enter into this transaction, or for any other wrongful purpose.
(b) Representations and Warranties of each of FBC, FCNH and the SEI
---------------------------------------------------------------
Stockholders. Each of FBC and FCNH, jointly and severally for itself and
- ------------
themselves and with respect to FCN and its and their other Affiliates, and Saban
and the other SEI Stockholders, jointly and severally for itself and themselves
and with respect to SEI and its Subsidiaries, make the following representations
and warranties:
(i) Authorization; Execution and Delivery. Each of SEI, the SEI
-------------------------------------
Stockholders, FBC, FCNH and FCN has the requisite power and authority to
execute and deliver this Agreement and each of the other Alliance
Agreements to which it is a party and to consummate the transactions
pursuant hereto, and in the case of SEI, FBC, FCNH, FCN and each of the SEI
Entities, such execution, delivery and consummation have been duly
authorized by all necessary corporate or partnership action. This
Agreement has been duly executed and delivered by such Person and
constitutes the valid and binding obligation of such Person, enforceable
against such Person in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (whether enforcement is
sought by proceedings at law or in equity).
(ii) Consents. Except as set forth on Schedule 9(b)(ii), neither
-------- -----------------
the execution and delivery of this Agreement and each of the other Alliance
Agreements to which it is a party by SEI, the SEI Stockholders, FBC, FCNH
or FCN nor the consummation of the transactions pursuant hereto or thereto
will require any consent, approval, or authorization of,
21
<PAGE>
waiver by, notification to, or filing with, any court, governmental agency
or regulatory or administrative authority (each, a "Governmental Entity")
on the part of such Person or any of its Affiliates, other than filings of
certificates and other documents with respect to the transactions
contemplated hereby.
(iii) No Violation or Creation of Rights. The execution and
----------------------------------
delivery of this Agreement and each of the other Alliance Agreements to
which it is a party by SEI, the SEI Stockholders, FBC, FCNH or FCN or any
of their respective Affiliates and the performance by such Person and its
Affiliates of its and their obligations hereunder or thereunder do not and
will not (A) violate, conflict with, or constitute or result in a breach
of, any term, condition or provision of, or constitute a default (or an
event which, with notice or the lapse of time, or both, would constitute a
default), or result in the creation of any Lien upon any of their
respective assets under, or (with respect to the execution and delivery of
this Agreement, the execution, delivery or closing of the LLC Formation
Agreement, or the execution, delivery or closing of any of the other
Alliance Agreements whose execution, delivery or closing are being effected
concurrently with the execution and delivery of this Agreement) result in
the creation of any other right on the part of a third party to receive
payment of funds or other consideration on account thereof under (x) the
constitutive documents of such Person or any of its Subsidiaries, or (y)
any mortgage, indenture, loan or credit agreement or any other agreement or
instrument to which such Person is a party, or pursuant to which it is the
direct or indirect obligor, or by which such Person or any of its
Affiliates' properties are bound or affected, (B) violate any law,
regulation, judgment, injunction, order or decree binding upon such Person
or any of its Affiliates, (C) result in the loss of any license, franchise,
permit, legal privilege or legal right enjoyed or possessed by such Person
or any of its Affiliates, or (D) require the consent of any third party
(including a Governmental Entity). No such Person and no such Affiliate is
in violation of any statute, judgment, decree, order, rule or regulation
applicable to it, which, singly or in the aggregate, has materially
adversely affected or could reasonably be expected to materially adversely
affect such Person's ability to perform its obligations hereunder or under
any of the other Alliance Agreements to which it is a party.
(iv) Finders; Investment Bankers. Neither such party nor any of
---------------------------
its Affiliates, nor any of their respective officers or directors, has
employed any broker, finder or investment banker or incurred any liability
for any brokerage fees, commissions or finder's fees in connection with the
execution and delivery of this Agreement or the other Alliance Agreements,
except for those entities listed on Schedule 9(b)(iv) hereto, all of whose
-----------------
fees shall, under the terms of
22
<PAGE>
the LLC Formation Agreement, following mutual approval of Saban and FBC, be
paid by the Management Company.
(c) Best Knowledge.
--------------
(i) Best Knowledge of Saban. The term "best knowledge",
-----------------------
as it applies to the knowledge of Saban, shall refer only to those matters
which are actually known by Saban or Mel Woods.
(ii) Best Knowledge of FBC. The term "best knowledge", as
---------------------
it applies to the knowledge of FBC, shall refer only to those matters which
are actually known by Chase Carey, Bruce Churchill, Marc DiLorenzo, Larry
Jacobson or Margaret Loesch.
(d) No party makes any representation or warranty to the other except
as set forth in this Agreement. Without limiting the generality of the
foregoing, except as and to the extent provided in Sections 10(h) and 10(i)
hereof, no party hereto makes any representation or warranty to any other party
hereto with respect to any financial projection, forecast or other forward-
looking information with respect to its assets, business or operations.
10. Survival of Representations and Warranties; Indemnification.
-----------------------------------------------------------
(a) Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained in this Agreement shall survive the execution and
delivery of this Agreement and any investigation at any time made; and, with
respect to those matters subject to Section 10(c)(ii), below, shall terminate
and expire on the expiration of the "Indemnification Period" defined in Section
10(c)(ii), and shall be of no further force or effect thereafter, except with
respect to any claim written notice of which shall have been delivered to the
party making the representation or warranty subject to Section 10(c)(ii) on or
prior to the termination of the Indemnification Period, but only, if such claim
shall not thereto-fore have been settled, if litigation with respect to which
shall have been commenced on or prior to six months following the termination of
the Indemnification Period.
(b) Indemnification. FBC and FCNH, with respect to representations
---------------
and warranties made by either or both of them in Section 9 with respect to
themselves, FCNH or FCN, and the SEI Stockholders, with respect to
representations or warranties made by any of them in Section 9 with respect to
themselves, the other SEI Stockholders, or SEI (each group the "indemnifying
party"), jointly and severally agree to indemnify, defend, and hold the other
(such group, the "indemnified party") harmless against and in respect of:
(i) if and to the extent that any of the representations
and warranties of the indemnifying parties set forth in Section 9(a) are
incorrect, the damages sustained by
23
<PAGE>
the indemnified parties as a result thereof, which damages shall be fixed
at 50% of the positive difference, if any, between (i) the Fair Market
Value as of the LLC FA Date of SEI and its Subsidiaries (if the indemnified
parties are FBC or FCNH) or of FCNH and FCN (if the indemnified parties are
the SEI Stockholders) had the representations and warranties been true,
correct and complete in all respects (and thus taking into consideration
misstatements, errors and omissions which would have had the effect of
increasing such price, as well as those having the effect of depressing
such price), and (ii) the actual Fair Market Value as of the LLC FA Date of
SEI and its Subsidiaries, or of FCNH and FCN, as applicable;
(ii) if and to the extent that any representations and
warranties of the indemnifying parties in this Agreement other than in
Section 9(a) are incorrect, any loss, cost, liability or damage incurred by
the indemnified parties by reason thereof;
(iii) any and all loss, cost, liability, or damage incurred
by the indemnified party or the Management Company or operating companies
managed by it as the result of any claim, demand, action, suit or
proceeding by any third party alleged to be based upon any mortgage,
indenture, loan or credit agreement or any other agreement or instrument,
which, if the allegations in such claim, demand, action, suit or proceeding
were to be proved, would result in a breach of the representations and
warranties of the indemnifying party set forth in Section 9(b)(iii)(A)(y);
(iv) any and all loss, cost, liability, damage or deficiency
arising out of or in connection with any breach of any covenant or
agreement made or to be performed by the indemnifying parties under the
terms of this Agreement; and
(v) all claims, demands, actions, suits, proceedings,
judgments, costs, reasonable attorneys' fees and expenses, or liens,
charges, or encumbrances upon the assets of any of the indemnified parties
relating to or incurred by the indemnified parties incident to the
foregoing.
If a claim is made under Section 10(b)(i), Fair Market Value shall be determined
using only a "discounted cash flow" analysis, with the discount rate fixed at
10%.
(c) Limitations.
-----------
(i) The parties' rights to indemnification under this Section 10
shall be available only if a party entitled to indemnification pursuant to this
Section 10 delivers written notice to the party or parties required to provide
indemnification, setting forth in detail the factual basis for indemnification
and the amount thereof, or a good faith estimate thereof, sought to be
indemnified (the "Indemnification Notice"). The indemnified party
24
<PAGE>
or parties shall use its or their best efforts to provide in its or their
Indemnification Notice sufficient detail to enable the indemnifying party or
parties to evaluate the claim. Except with respect to Indemnification Claims
covered by Section 10(d) (which relates to third party claims), within 30 days
(the "Objection Period") of the date such Indemnification Notice is given, the
indemnifying party shall respond to the Indemnification Notice. The
indemnifying party shall be entitled to cure any default which is capable of
cure during the Objection Period, and the amount of the claim for
indemnification contained in the Indemnification Notice shall be reduced by the
amount of the damages mitigated by cure; and, to the extent that any default
relates to a matter covered by Section 10(h) or 10(i) hereof, payments made or
to be made thereunder shall be deemed to be payments made to cure such defaults,
in whole or in part. If the indemnifying party or parties agree in writing
during the Objection Period to accept any of the claims included in the
Indemnification Notice, such party shall promptly pay the amounts so agreed
upon. In all other cases, the indemnified party or parties and the indemnifying
party or parties shall use their respective good faith reasonable efforts to
resolve the dispute within 60 days of the date such Indemnification Notice is
given (the "Settlement Period"). If the dispute is not resolved within the
Settlement Period, the parties shall be free to commence litigation to enforce
their rights to indemnification under this Section 10; provided, however, that
-------- -------
if such litigation has not been commenced on or prior to six months following
the date such Indemnification Notice is given, all rights of the indemnified
party or parties to indemnification with respect to the matters set forth in
that Indemnification Notice shall be deemed to have been irrevocably waived and
released by the indemnified party or parties, and shall terminate and expire.
(ii) Notwithstanding any provision of this Section 10 to the
contrary, the parties' rights to indemnification for breaches of the
representations and warranties contained in Section 9(a) shall be available
only if the party entitled to such indemnification delivers an
Indemnification Notice with respect to such claim prior to the date which
is 24 months after the date of this Agreement (the "Indemnification
Period"). The rights of the parties to this Agreement to indemnification
under this Section 10 relating to any other representation or warranty
shall survive the Closing, and shall not be subject to the foregoing
Indemnification Period.
(d) Defense. If any of the indemnified parties is made or threatened
-------
to be made a defendant in or party to any action or proceeding, judicial or
administrative, instituted by any third party for the liability under which or
the costs or expenses of which any of the indemnified parties is entitled to be
indemnified pursuant to Section 10 (any such third party action or proceeding
being referred to as an "Indemnification Claim"), the indemnified party or
parties shall give prompt notice thereof to the indemnifying party; provided
--------
that the failure to give such notice
25
<PAGE>
shall not affect the indemnified party or parties' ability to seek
indemnification hereunder unless such failure has materially and adversely
affected the indemnifying party or parties' ability to prosecute successfully an
Indemnification Claim. Each indemnified party shall permit the indemnifying
party, at its own expense, to assume the defense of any such claim or any
litigation to which this Section 10(d) may be applicable, by counsel reasonably
satisfactory to the indemnified party or parties; provided, that the indemnified
--------
party or parties shall be entitled at any time, at its or their own cost and
expense (which expense shall not be recoverable from the indemnifying party
unless the indemnifying party is not adequately representing or, because of a
conflict of interest, may not adequately represent, the indemnified party or
parties' interests), to participate in such claim, action or proceeding and to
be represented by attorneys of its or their own choosing. If the indemnified
party or parties elects to participate in such defense, such party or parties
will cooperate with the indemnifying party in the conduct of such defense. The
indemnified party or parties may not concede, settle or compromise any
Indemnification Claim without the consent of the indemnifying party. The
indemnifying party, in the defense of any such claim or litigation, shall not,
except with the approval of each indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
or parties of a full and complete release from all liability in respect to such
claim or litigation. If the Indemnification Claim arises under Section
10(b)(iii), the indemnifying party shall defend the third party claim in the
name of the indemnifying party and pay any amounts to be indemnified under such
section directly to the claiming party.
(e) Indemnification is Sole and Exclusive Remedy. Except as provided
--------------------------------------------
in Section 5(c) and Section 11(l) of this Agreement, the rights of the parties
to indemnification under this Section 10 shall constitute the sole and exclusive
remedies of the parties for all breaches of representations and warranties of
the parties hereto or for the nonfulfillment or other breach by any of them of
any of their respective covenants and agreements contained herein, and each
party hereby waives any other rights or remedies which it may have against any
of the others, or arising out of any action or failure to act by any of them.
If any such breach or nonfulfillment of any representation, warranty or covenant
hereunder constitutes a breach or nonfulfillment of any representation, warranty
or covenant under any other of the Alliance Agreements, the damaged party or
parties shall have the right to seek relief under each of such agreements; but
in no event shall the amounts paid or recovered by such party and its Affiliates
result in a duplication of damages.
(f) Limitation on Claims. Except with respect to (i) third party
--------------------
Indemnification Claims subject to the terms and provisions of Section 10(d) of
this Agreement, (ii) claims based upon the failure of any party fully to comply
with all of its
26
<PAGE>
obligations under Sections 2 through 8 of this Agreement, no party shall have
the right to deliver an Indemnification Notice pursuant to this Section 10
unless (i) the amount of each of such party's separate claims included therein
is in excess of $500,000 (each, a "Permitted Claim") and the aggregate amount of
all such party's Permitted Claims included in that Indemnification Notice
exceeds $2,000,000, or (ii) the aggregate amount of all such party's claims
included in such Indemnification Notice (whether Permitted Claims or not)
exceeds $3,000,000.
(g) Discharge of Indemnification Obligation. Notwithstanding any
---------------------------------------
provision of this Section 10 to the contrary, with respect to any damages
relating to a breach of the representations and warranties set forth in Section
9(a), the indemnifying party or parties may, at its or their election, either
pay the damages with respect thereto directly to the indemnified parties, or,
alternatively, contribute such additional property reasonably acceptable to FBC
and Saban, or cash, or a combination thereof, to their Company to increase the
Fair Market Value thereof, defined under Section 10(b)(i), to that value which
it should have had, had the complained of representations and warranties been
true, correct and complete.
(h) SEI Net Cash Flow Payment. [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
-------------------------
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]
(i) FBC Cash Receipts Payments. FBC agrees, on the terms and subject
--------------------------
to the conditions of this Section 10(i), to loan to FCN amounts provided for in
Section 10(i)(A) below and indemnify the Management Company for amounts set
forth in Section 10(i)(B) below:
27
<PAGE>
(A) Promptly following the end of June 1996, FBC shall cause
FCN to prepare, or cause to be prepared, and deliver to the Management
Company and Saban a statement of FCN's programming "Net Profits," as
determined pursuant to Exhibit "C" to the Station Affiliate
Agreements, through June 30, 1996 (the "FCN Net Profits Statement"),
which report shall include the (i) the actual amounts paid by FCN to
FCN's Station Affiliates as their share of FCN's programming Net
Profits for fiscal 1996; (ii) any advances (the "Advances") made by
FCN to the FCN Station Affiliates in excess of the actual amount of
FCN cash available for payment to the FCN Station Affiliates with
respect to their share of FCN's programming Net Profits for fiscal
1996; and (iii) the actual amount of FCN cash available for payment at
June 30, 1996. If the Advances were paid pursuant to the mutual
agreement of FCNH and Saban, then FBC shall loan FCN an amount equal
to the aggregate of such Advances, which such loan shall (x) be
evidenced by a promissory note containing terms and conditions
customary in commercial transactions, (y) bear interest at the rate
historically charged FCN for advances by FBC, and (z) shall be repaid
on the same terms and at the same times as the Advances are recouped
by FCN from the Station Affiliates.
(B) If the aggregate amount of cash received by the Management
Company pursuant to or with respect to the Asset Assignment Agreement
during the period from the date of this Agreement though June 30, 1996
plus the amounts paid to FCNH Sub by way of dividend pursuant to the
terms of Section 5.9.2 of the Operating Agreement (the "Actual Cash
Payments") are less than $36,881,000, FBC shall, within 30 days
following receipt of the FCN Net Profits Statement, contribute to the
Management Company, without offset, an amount equal to the difference
between $36,881,000 and the Actual Cash Payments.
(C) Any payments made by FBC pursuant to Section 10(i)(B) above
shall be treated, as between FBC, FCNH and FCN, as payments subject to
Section 19.11 of the Asset Assignment Agreement. This Section 10(i)
is intended for the benefit of, and is enforceable by, the Management
Company, SEI and Saban.
11. Miscellaneous Provisions.
------------------------
(a) In this Agreement, headings are for convenience only and shall
not affect interpretation, and except to the extent that the context otherwise
requires: (i) references to any legislation or to any provision of any
legislation include any modification or re-enactment of, or any legislative
provision substituted for, and all statutory instruments issued under, such
legislation or such
28
<PAGE>
provision; (ii) words denoting the singular include the plural and vice versa;
(iii) words denoting individuals include corporations and other Persons and vice
versa; (iv) words denoting any gender include all genders; (v) references to any
document, agreement or other instrument (including this Agreement) include
references to such document, agreement or other instrument as amended, novated,
supplemented or replaced from time to time; (vi) references to clauses, sub-
clauses, sections, sub-sections, Schedules and Exhibits are to clauses, sub-
clauses, sections, sub-sections, Schedules and Exhibits of this Agreement; (vii)
"or" is not exclusive; (viii) "$", and all other references to dollar amounts,
are in U. S. currency; (ix) references to any party to this Agreement or any
other document, agreement or other instrument includes its successors or
permitted assigns; and (x) "writing" and cognate expressions include all means
of reproducing words in a tangible and permanently visible form.
(b) Rights Personal to FBC and Saban. Each and every right and
--------------------------------
obligation which refers to "Saban" or "FBC" is personal to Saban or FBC, as the
case may be, and shall not attach to, or be deemed to relate to or concern the
Shares held by Saban or FBC; and thus, without the prior written consent of both
Saban and FBC, none of such rights or obligations may be assigned, delegated or
transferred to any other Person; provided, however, that in the event of the
-------- -------
incompetency or death of Saban, all rights granted to Saban hereunder shall be
exercisable by his conservator, executor or administrator, or by a single Person
from time to time designated by SEI Stockholders then holding a majority of the
then outstanding Shares of SEI Common Stock held by all SEI Stockholders.
(c) Notices. All notices, demands or other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given (i) if delivered
in person, upon delivery thereof, or (ii) if mailed, certified first class mail,
postage pre-paid, with return receipt requested, on the fifth day after the
mailing, or (iii) if sent by telex or facsimile transmission, with a copy mailed
on the same day in the manner provided in (ii) above, when transmitted and
receipt is confirmed by telephone or telex or facsimile response, or (iv) if
otherwise actually delivered, when delivered:
(i) if to FBC:
Fox Broadcasting Company, Inc.
P.O. Box 900
10201 West Pico Boulevard
Los Angeles, CA 90035
Attention: Jay Itzkowitz, Esq.
Fax: (310) 369-1391
29
<PAGE>
With a copy to:
Squadron, Ellenoff, Plesent &
Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Harvey Horowitz, Esq.
Fax: (212) 697-6686
(ii) if to FCNH:
FCN Holding, Inc.
Fox Inc.
10201 West Pico Boulevard
Los Angeles, CA 90035
SVP Legal Affairs
Fox Television Group
Attention: Jay Itzkowitz, Esq.
Fax: (310) 369-2572
With a copy to:
Squadron, Ellenoff, Plesent &
Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Harvey Horowitz, Esq.
Fax: (212) 697-6686
(iii) If to Saban or any of the Other SEI Stockholders:
Haim Saban
Saban Entertainment, Inc.
10960 Wilshire Boulevard
Los Angeles, CA 90024
Fax: (310) 235-5108
With a copy to:
Matthew G. Krane, Esq.
2051 Hercules Drive
Los Angeles, CA 90046
Fax: (213) 851-1178
and with a copy to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard, Suite 800
Los Angeles, California 90024
Attention: Richard E. Troop, Esq.
Fax: (310) 443-8503
30
<PAGE>
or at such other address or addresses as may have been furnished by such Person
in like manner to the other parties.
(d) Severability. Should any Section or any part of a Section within
------------
this Agreement be rendered void, invalid or unenforceable by any court of law
for any reason, such invalidity or unenforceability shall not void or render
invalid or unenforceable any other Section or part of a Section in this
Agreement.
(e) Governing Law. THE TERMS OF THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE WITHIN, AND TO BE PERFORMED WITHIN, SUCH STATE, EXCLUDING
CHOICE OF LAW PRINCIPLES OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE
LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
(f) No Adverse Construction. The rule that a contract is to be
-----------------------
construed against the party drafting the contract is hereby waived, and shall
have no applicability in construing this Agreement or the terms of this
Agreement.
(g) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. Each counterpart may
consist of a number of copies hereof, each signed by less than all, but together
signed by all, of the parties hereto.
(h) Costs and Attorneys' Fees. In the event that any action, suit,
-------------------------
or other proceeding is instituted concerning or arising out of this Agreement,
the prevailing party shall recover all of such party's costs, and attorneys'
fees incurred in each and every such action, suit, or other proceeding,
including any and all appeals or petitions therefrom. As used herein,
"attorneys' fees" shall mean the full and actual costs of any legal services
actually rendered in connection with the matters involved, calculated on the
basis of the usual fee charged by the attorneys performing such services, and
shall not be limited to "reasonable attorneys' fees" as defined by any statute
or rule of court.
(i) Successors and Assigns. Except as otherwise provided in this
----------------------
Agreement, all rights, covenants and agreements of the parties contained in this
Agreement shall be binding upon and inure to the benefit of their respective
successors and permitted assigns. Except as otherwise specifically set forth
herein, nothing in this Agreement, expressed or implied, is intended to confer
on any Person other than the parties to this Agreement or their respective
successors and assigns any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
(j) Amendments and Waivers. Neither this Agreement nor any term
----------------------
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any term of this Agreement may be
31
<PAGE>
amended and the observance of any such term may be waived (either generally or
in a particular instance and either retroactively or prospectively) with (but
only with) the written consent of Saban and FBC; provided, however, that no such
-------- -------
amendment or waiver shall extend to or affect any obligation not expressly
waived or impair any right consequent therein. No delay or omission to exercise
any right, power or remedy accruing to any party hereto shall impair any such
right, power or remedy of such party nor be construed to be a waiver of any such
right, power or remedy nor constitute any course of dealing or performance
hereunder.
(k) Entire Agreement. This Agreement, the attached Exhibits and
----------------
Schedules and the Alliance Agreements, and the agreements referred to herein and
therein, together contain the entire understanding of the parties, and there are
no further or other agreements or understandings, written or oral, in effect
between the parties relating to the subject matter hereof unless expressly
referred to herein. No party to this Agreement makes any representation or
warranty except as expressly set forth herein.
(l) Specific Performance and Other Remedies. The parties hereto
---------------------------------------
acknowledge and agree that the Shares (including the SEI Common Stock, the FCNH
Common Stock and the Successor Entity Equity Securities) are unique, and that
the parties will have no adequate remedy at law should any party hereto breach
the provisions of Sections 2 through 8 hereof. In the event of the refusal or
failure of any party hereto to fully comply with any of those provisions, the
other parties, and each of them, shall have the right, in addition to any other
rights and remedies which it or they may have hereunder, to specific
performance, and other appropriate injunctive relief with respect thereto. In
no event shall any party to any such proceeding urge or raise as a defense in
any such action that an adequate remedy at law exists.
(m) Agreement to Perform Required Acts. Each party hereto agrees to
----------------------------------
perform any further acts and to execute and deliver any further documents that
may be reasonably necessary to carry out the provisions hereof, that may be
required to secure performance of any party's duties hereunder or that may be
required to assure the legal and binding effect of the provisions hereof.
(n) Consent to Jurisdiction; Forum Selection. Any actions, suits or
----------------------------------------
proceedings instituted in connection with this Agreement or the performance by
the parties of their obligations hereunder shall be instituted and maintained
exclusively in the Superior Court for the State of California, County of Los
Angeles or in the United States District Court for the Central District of
California. By execution and delivery hereof, each party hereto hereby
consents, for itself and in respect of its property, to the jurisdiction of the
aforesaid courts solely for the purpose of adjudicating its rights or
obligations under, or any disputes involving, this Agreement or any document
related hereto. Each party hereto hereby irrevocably waives, to the extent
permitted by applicable law, any objection, including, without limitation, any
32
<PAGE>
objection that the other corporate party or parties lack the capacity to sue or
defend based upon its or their lack of a certificate of qualification to conduct
intrastate business in California, and any objection to the laying of venue or
based on the grounds of forum non conveniens, which it may now or hereafter have
----- --- ----------
to the bringing of any action or proceeding in such jurisdiction in respect of
this Agreement or any document related
hereto.
(o) Legends. Each of the SEI Stockholders, SEI, FBC and FCNH hereby
-------
agree that each certificate or other writing evidencing any of the Shares or any
securities of FCN, and each certificate or other writing issued in exchange or
upon the transfer of any Shares or any securities of FCN shall be stamped or
otherwise imprinted with a legend, either on the face of such certificate, or on
the reverse of such certificate, with reference thereto appearing on the face of
such certificate, in substantially the following form:
[DESCRIBE THE SHARES] REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO MATERIAL RESTRICTIONS ON TRANSFER, RIGHTS OF FIRST REFUSAL,
OPTIONS TO PURCHASE AND IRREVOCABLE PROXIES, AMONG OTHER
RESTRICTIONS, UNDER THAT CERTAIN STRATEGIC STOCKHOLDERS AGREEMENT
DATED AS OF DECEMBER 22, 1995, BY AND AMONG THE ISSUER, THE
RECORD HOLDER OF THE SECURITIES SUBJECT TO THIS CERTIFICATE AND
CERTAIN OTHER PERSONS. A COPY OF THE STRATEGIC STOCKHOLDERS
AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE ISSUER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE TO THE HOLDER HEREOF
UPON SUCH HOLDER'S WRITTEN REQUEST.
Each of SEI and FCNH covenants and agrees that it shall refuse to recognize
any transfer of any Shares effected otherwise than in strict compliance with the
provisions of this Agreement.
(p) Additional Alliance Agreement. The following agreement has been
-----------------------------
executed by the parties concurrent with the execution and delivery of this
Agreement, and has applicability to the provisions of this Agreement:
The guarantee of The News Corporation Limited, substantially in
the form of Exhibit "D" hereto.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SABAN ENTERTAINMENT, INC.
By: /s/ Haim Saban
---------------------------
Haim Saban
Its: Chief Executive Officer
/s/ Haim Saban
---------------------------------
HAIM SABAN
QUARTZ ENTERPRISES, L.P.
By: /s/ Stan Golden
----------------------------
_____________________________
MERLOT INVESTMENTS
By: /s/ Bill Josey
----------------------------
_____________________________
SILVERLIGHT ENTERPRISES, L.P.
By: /s/ Mel Woods
----------------------------
_____________________________
[SIGNATURES CONTINUED ON NEXT PAGE]
34
<PAGE>
CELIA ENTERPRISES, L.P.
By: /s/ Matt Krane
----------------------------
____________________________
35
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
FOX BROADCASTING COMPANY
By: /s/ Jay Itzkowitz
----------------------------
Its: Senior Vice President
FCN Holding, Inc.
By: /s/ Jay Itzkowitz
----------------------------
Its: Senior Vice President
36
<PAGE>
EXHIBITS AND SCHEDULES
Exhibits
- --------
Exhibit "A" - Defined Terms
Exhibit "B" - Registration Agreement
Exhibit "C" - Spousal Consent
Exhibit "D" - The News Corporation Limited Guarantee
Exhibit 10(h) - SEI Projections
Schedules
- ---------
Schedule "A"
Schedule 9(a)(ii) Subsidiaries
Schedule 9(a)(iv) Stock Pledged
Schedule 9(a)(v) Stock Options Granted
Schedule 9(a)(x) Litigation
Schedule 9(a)(xi) Credit Agreements
Schedule 9(a)(xvi) Material Contracts
Schedule 9(a)(xvii) Interested Party Contracts
Schedule 9(a)(xviii) Disclosures
Schedule 9(b)(ii) Consents
Schedule 9(b)(iv) Investment Banking Relationships
<PAGE>
SCHEDULE "A"
SEI STOCKHOLDERS NUMBER OF SHARES
- ---------------- ----------------
<TABLE>
<CAPTION>
<S> <C>
HAIM SABAN 377.56
QUARTZ ENTERPRISES, L.P. 76.80
MERLOT INVESTMENTS 65.19
SILVERLIGHT ENTERPRISES, L.P. 278.76
CELIA ENTERPRISES, L.P. 1.69
</TABLE>
<PAGE>
EXHIBIT "A"
Definitions. As used in the Agreement to which this Exhibit is
-----------
attached (the "Agreement"), the following terms shall have the following
meanings:
"Affiliate" means, when used with reference to a specified Person, any
Person that directly or indirectly through one or more intermediaries controls
or is controlled by, or is under common control with, the specified Person.
"Bona Fide Offer" shall mean an offer from a person which is not an
Affiliate, or otherwise related to, the offeree, and which person has the means
to make or obtain financing for the offer, and which offer clearly identifies,
and is binding upon, the offeror, and which contains all relevant terms and
conditions of an offer to purchase any Shares, including (i) the length and
expiration of the offer, (ii) the purchase price, (iii) the manner of
acceptance, (iv) the manner and mode of payment, and (v) the time, place and
date of the proposed closing.
"Change in Control" of FBC shall mean any event or series of events,
regardless of how structured, as the result of which (i) FBC ceases to be an
Affiliate of Fox Inc. or The News Corporation Limited, or (ii) the primary
business of FBC ceases to be controlled by Fox Inc. or The News Corporation
Limited.
"Commission" shall mean the U.S. Securities and Exchange Commission.
"Control" (including as used in the terms "controlling," "controlled
by" and "under common control with") means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities by contract or
otherwise.
"Fair Market Value" shall mean the value determined pursuant hereto
consistent with the provisions of the Agreement, and, with respect to Section 7
of the Agreement, shall be determined on the basis of the businesses,
properties, historical financial performance and financial condition,
projections and prospects for the further growth of the entity or entities whose
Fair Market Value is being determined. The parties will, in each case, use
reasonable efforts to reach agreement on Fair Market Value. In the event of a
disagreement between the parties regarding the Fair Market Value, (i) each of
Saban and FBC shall retain a reputable investment bank to determine such value,
and within 30 days thereafter, shall deliver to the other the written report of
its investment bank as to such value; (ii) if the higher valuation is less than
10% above the lower valuation, the average shall be the Fair Market Value; (iii)
if the valuations exceed such 10% difference, Saban and FBC shall instruct their
investment banks to forthwith select a third reputable investment bank, and (x)
if
<PAGE>
the third investment bank's valuation is between the valuations of the other
banks, the third investment bank's valuation shall be the Fair Market Value, or
(y) if the third investment bank's valuation is outside the range of the other
banks, the other banks will continue to select new third investment banks, until
a third bank so selected provides a valuation which is between the first two
valuations, and such valuation shall be the Fair Market Value. In connection
with such valuations, the parties shall cause the entity or entities being
valued to, on a confidential basis, deliver or provide access to each investment
bank of all information reasonably requested by the investment bank in order to
determine Fair Market Value. The cost of the appraisal (x) shall be shared
equally by the parties if Fair Market Value is determined without reference to a
third investment bank, and (y) otherwise, shall be borne by the party whose
investment bank's valuation is furthest from the Fair Market Value.
"Family Member" shall any descendant of the grandfather of Saban or
his spouse.
"FCN" means Fox Children's Network, Inc., a Delaware corporation.
"FCNH" means FCN Holding, Inc., a Delaware corporation.
"FCNH Sub" means FCNH Sub, Inc., a Delaware corporation.
"FCP" means Fox Children's Productions, Inc., a Delaware corporation.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect to such asset.
For purposes of the Agreement, any Person shall be deemed to own, subject to a
Lien, any asset which it has acquired or holds, subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
"Material Adverse Effect" shall mean any event, act or failure to act
which would have a material adverse effect upon the business, properties or
financial condition of the entity with respect to which such term is used and
all of its Affiliates and Subsidiaries, considered as a whole.
"O & O's" shall have the meaning ascribed thereto in the Asset
Assignment Agreement.
"Person" includes an individual, partnership, trust, corporation,
joint venture, limited liability company, association, government bureau or
agency or other entity of whatsoever kind or nature.
"Securities Act" means the Securities Act of 1933.
2
<PAGE>
"Shares" shall include, without limitation, any securities issued with
respect to such Shares upon the Reorganization, any security issued by the
issuer of such Shares by way of dividend or split or similar transaction, or by
the issuer or successor issuer in connection with any recapitalization, merger,
consolidation or other reorganization.
"Station Affiliate" and "Station Affiliate Agreements" shall have the
meanings ascribed to such terms in the Asset Assignment Agreement.
"Subsidiary" of a Person means (i) any corporation of which equity
securities possessing a majority of the ordinary voting power in electing the
board of directors are, at the time as of which such determination is being
made, owned by such Person either directly or through one or more Subsidiaries,
and (ii) any Person (other than a corporation) in which such Person, or any
Subsidiary or Subsidiaries, directly or indirectly, has more than a 50%
ownership interest. With respect to FBC, FCNH, FCN and their respective
subsidiaries, the term "Subsidiary" shall include Twentieth Holding Corporation
and its subsidiaries.
The "transfer" of any Share shall include, without limitation, any
direct or indirect sale, transfer (with or without consideration, or whether by
operation of law or otherwise), assignment, pledge, hypothecation, encumbrance,
or other disposition of the Share, or the making, issuance, grant or sale,
directly or indirectly, of any option, warrants, convertible security or other
right or agreement which affords any Person the right to purchase or otherwise
acquire the Share.
"Voting Power" means the power to vote, directly or indirectly, for
the election of directors or exercise other rights of holders of voting common
shares to vote on, approve or consent to matters as a shareholder under the
General Corporation Law of the State of Delaware, as the same may from time to
time be amended.
3
<PAGE>
EXHIBIT "C"
SPOUSAL ACKNOWLEDGMENT AND CONSENT
The undersigned, Cheryl Saban, acknowledges and agrees that:
(i) she has read the Strategic Stockholders Agreement, dated as of
December 22, 1995 (the "Agreement"), to which this Spousal Acknowledgment and
Consent (this "Consent") is attached, the parties to which include her husband,
and including, without limitation, Sections 2, 3, 8 and 11(b) thereof; and that
the execution and delivery of this Consent is a condition precedent to the
"Closing" referred to in the Agreement;
(ii) she consents to the execution and performance of the Agreement
by her husband, and specifically consents and agrees that all provisions of the
Agreement, and the other "Alliance Agreements" (as therein defined) which relate
to the SEI Stock also relate to any shares of the SEI Stock in which she has or
may have or may hereafter acquire a community property or other interest; and
she agrees to be subject to, and abide by the terms of, such provisions
(including, without limitation, the terms and conditions set forth in Section 2
and 3 thereof) as if she had been a party to the Agreement and such other
Alliance Agreements;
(iii) she hereby waives any rights she may have during the
continuance of her marriage, or at any time thereafter, prior to the death or
incompetency of her spouse, to control and/or manage Saban Entertainment, Inc.
("SEI") or the "Management Company," as that term is defined in the Agreement;
(iv) she has carefully considered the provisions of Section 1100 of
the California Family Code attached hereto, which Section grants to her, among
other things, equal rights to management and control of certain community
assets, and understands that by executing this Consent she has waived any rights
she may have thereunder with respect to SEI or the Management Company; and she
specifically consents to and agrees that the SEI Common Stock, to the extent
that it is controlled by her spouse, and the consent, approval and other rights
personally granted to him pursuant to the Agreement, the Management Agreement
and other Alliance Agreements, constitute a "business or an interest in a
business" which is being operated or managed by her spouse, so as to cause her
spouse to have primary right to the management and control thereof, and she
waives her right to prior notice of any sale, lease, exchange, encumbrance or
other disposition of any or all of the personal property used in the operation
of such business.
<PAGE>
(v) she was advised to seek independent counsel to review and
advise her with respect to the negotiation and execution of this Consent. She
hereby acknowledges that, of her own free will, she declined to do so.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Consent
as of the 22nd day of December, 1995.
_________________________________
Cheryl Saban
2
<PAGE>
(S) 1100. Community personal property; management and control; restrictions
on disposition
(a) Except as provided in subdivisions (b), (c), and (d) and Sections 761
and 1103, either spouse has the management and control of the community personal
property, whether acquired prior to or on or after January 1, 1975, with like
absolute power of disposition, other than testamentary, as the spouse has of the
separate estate of the spouse.
(b) A spouse may not make a gift of community personal property, or
dispose of community personal property for less than fair and reasonable value,
without the written consent of the other spouse. This subdivision does not apply
to gifts mutually given by both spouses to third parties and to gifts given by
one spouse to the other spouse.
(c) A spouse may not sell, convey or encumber community personal property
used as the family dwelling, or the furniture, furnishings, or fittings of the
home, or the clothing or wearing apparel of the other spouse or minor children
which is community personal property, without the written consent of the other
spouse.
(d) Except as provided in subdivisions (b) and (c), and in Section 1102, a
spouse who is operating or managing a business or an interest in a business that
is all or substantially all community personal property has the primary
management and control of the business or interest. Primary management and
control means that the managing spouse may act alone in all transactions but
shall give prior written notice to the other spouse of any sale, lease,
exchange, encumbrance, or other disposition of all or substantially all of the
personal property used in the operation of the business (including personal
property used for agricultural purposes), whether or not title to that property
is held in the name of only one spouse. Written notice is not, however,
required when prohibited by the law otherwise applicable to the transaction.
Remedies for the failure by a managing spouse to give prior written notice
as required by this subdivision are only as specified in Section 1101. A
Failure to give prior written notice shall not adversely affect the validity of
a transaction nor of any interest transferred.
(e) Each spouse shall act with respect to the other spouse in the
management and control of the community assets and liabilities in accordance
with the general rules governing fiduciary relationships which control the
actions of persons having relationships of personal confidence as specified in
Section 721, until such time as the assets and liabilities have been divided by
the parties or by a court. This duty includes the obligation to make full
disclosure to the other spouse of all material facts and information regarding
the existence, characterization, and valuation of all assets in which the
community has or may have an
<PAGE>
interest and debts for which the community is or may be liable, and to provide
equal access to all information, records, and books that pertain to the value
and character of those assets and debts, upon request.
2
<PAGE>
Exhibit 10.2
AMENDMENT NO. 1
TO
STRATEGIC STOCKHOLDERS AGREEMENT
This Amendment No. 1 to Strategic Stockholders Agreement (the "Amendment")
is made and entered into as of February 26, 1996, by and among Haim Saban
("Saban") and Fox Broadcasting Company, a Delaware corporation ("FBC").
R E C I T A L S
- - - - - - - -
A. Saban and FBC are two of the parties to that certain Strategic
Stockholders Agreement (the "Agreement"), dated as of December 22, 1995, among
Saban, FBC, the other "Shareholders" (as therein defined), and Saban
Entertainment, Inc., FCN Holding, Inc. and FCNH Sub, Inc., which are each
Delaware corporations. All terms defined in the Agreement which are not defined
in this Amendment shall have the same meanings when used in this Amendment.
B. The parties desire to amend the Agreement to correct a
mathematical error in Section 10(i)(B) thereof.
C. Pursuant to Section 11(j) of the Agreement, the Agreement may be
amended with the written consent of FBC and Saban. This Amendment constitutes
that consent.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing facts, the parties hereto
agree as follows:
1. Section 10(i)(B) of the Agreement is amended to read in full as
follows:
(B) If the aggregate amount of cash received by the Management
Company pursuant to or with respect to the Asset Assignment Agreement
during the period from the date of this Agreement through June 30, 1996
plus the amounts paid to FCNH Sub by way of dividend pursuant to the terms
of Section 5.9.2 of the Operating Agreement (the "Actual Cash Payments")
are less than $35,755,000, FBC shall, within 30 days following receipt of
the FCN Net Profits Statement, contribute to the
<PAGE>
Management Company, without offset, an amount equal to the difference
between $35,755,000 and the Actual Cash Payments.
2. Except as expressly modified herein, all terms of the Strategic
Stockholders Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
FOX BROADCASTING COMPANY
By /s/ Chase Carey
---------------
/s/ Haim Saban
----------------------
Its Chairman and CEO HAIM SABAN
----------------
2
<PAGE>
Exhibit 10.3
AMENDMENT NO. 2
TO
STRATEGIC STOCKHOLDERS AGREEMENT
This Amendment No. 2 to Strategic Stockholders Agreement (the "Amendment")
is made and entered into as of September 26, 1996, by and among Saban
Entertainment, Inc., a Delaware close corporation ("SEI"), Haim Saban ("Saban"),
each of the entities listed on Schedule "A" hereto (the "SEI Entities" and, with
Saban, the "SEI Stockholders"), Fox Broadcasting Company, a Delaware corporation
("FBC," and, together with the SEI Stockholders, the "Shareholders"), FCN
Holding, Inc., a Delaware close corporation ("FCNH"), FCNH Sub, Inc., a Delaware
close corporation ("FCNH Sub") and Allen & Company Incorporated, a New York
corporation ("Allen").
R E C I T A L S
- - - - - - - -
A. SEI, the Shareholders, FCNH and FCNH Sub are parties to that certain
Strategic Stockholders Agreement, dated as of December 22, 1995 (as amended by
Amendment No. 1 to Strategic Stockholders Agreement, dated as of February 26,
1996 and this Amendment, the "Agreement"). All terms defined in the Agreement
which are not defined in this Amendment shall have the same meanings when used
in this Amendment.
B. Pursuant to a letter agreement, dated as of September 26, 1996, but
effective as of April 3, 1996 (the "Allen Agreement") between FCNH and Allen,
FCNH has, concurrently with the execution and delivery of this Amendment, issued
and sold to Allen 16 16/99 shares (the "Allen Shares") of the Common Stock,
without par value, of FCNH.
C. The parties desire to amend the Agreement in order, inter alia, to
----- ----
consent to the issuance and sale of the Allen Shares, and clarify and otherwise
provide for the manner in which the Allen Shares are to be treated pursuant to
the provisions of the Agreement.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing facts, and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
EXHIBIT A
---------
<PAGE>
1. Definitions. Except as otherwise expressly hereinafter provided, all
-----------
references in Sections 2, 3 (but excluding Section 3(b)), 4, 5(dd), 6(b), 11(j),
11(l) and 11(o) of the Agreement (i) to the "FCNH Common Stock" and/or the
"Shares" shall include the Allen Shares, and (ii) to a "Shareholder" or the
"Shareholders" shall include Allen.
2. Restrictions on Transfer. Subsection 2(c)(i) of the Agreement is
------------------------
amended by appending thereto the following clause:
"and (z) Allen Shares transferred shall remain subject to the option
granted in Section 6(a) of the Allen Agreement, and shall be
transferred and sold at the same time as the other Allen Shares are
transferred and sold pursuant thereto;"
3. Permitted Transfers. Section 3(d) of the Agreement is amended to read
-------------------
in full as follows:
"(d) Other Permitted Transfers. Any Person may effect a transfer
-------------------------
authorized by Sections 4, 6 or 7 of this Agreement; any holder of SEI
Common Stock may effect a transfer under and pursuant to the "Stock
Ownership Agreement" (as defined in Section 7(b) below); and any
Person may effect a transfer of the Allen Shares under and pursuant to
Section 6(a) of the Allen Agreement."
4. Refusal Rights.
--------------
(i) The first sentence of Section 4(a) of the Agreement is amended to
read in full as follows:
"(a) Offer. If any Shareholder ("Transferor") desires to transfer any
-----
Shares pursuant to this Section 4, it shall deliver a written offer to
sell for cash the Shares, and all rights with respect to the Shares
(excluding rights under this Agreement which, pursuant to Section
11(b), are personal to Saban or FBC), (x) if Transferor is an SEI
Stockholder, to FBC, (y) if Transferor acquired the Shares pursuant to
this Section 4 directly or indirectly: (A) from FBC, to Saban, or (B)
from an SEI Stockholder, to FBC, or (C) from Allen, to both Saban and
FBC; (z) if Transferor is FBC, to Saban; and (aa) if Transferor is
Allen, to both FBC and Saban. In case of an offer to both FBC and
Saban, each of FBC and Saban shall be entitled to subscribe to
purchase 50% of the offered Shares, plus any and all of the offered
----
Shares not subscribed for by the other of Saban or FBC."
(ii) In case of an offer to both FBC and Saban pursuant to Section
4(a) of the Agreement, the provisions of Sections 4(b), 4(c) and 4(d) of the
Agreement shall be separately applicable to
2
<PAGE>
each of FBC and Saban, as an offeree, with respect to the Shares offered to,
subscribed for and purchased by, such offeree; and thus, if, for example, Saban
fails to accept, or rejects, Transferor's offer, but FBC accepts Transferor's
offer, Transferor would not have the right pursuant to Section 4(d) of the
Agreement to sell any of the Shares which FBC has so elected to purchase.
5. Covenants and Voting Agreements.
-------------------------------
(i) Section 5(d) of the Agreement is amended by substituting for each
reference to "Section 5(c)" a reference to "Section 5(d)."
(ii) Section 5 of the Agreement is amended by inserting the following
Section 5(dd) immediately preceding Section 5(e) of the Agreement:
(dd) Irrevocable Proxy. Allen hereby irrevocably and unconditionally
-----------------
appoints FBC, with full power of substitution, as its proxy and
attorney-in-fact pursuant to the provisions of Section 212(e) of the
Delaware General Corporation Law, with full power and authority from
time to time to attend meetings, vote, act by written consent, and in
all other ways act in Allen's place and stead with respect to the
Allen Shares (and any and all shares or other securities issued in
respect of such shares). The proxy granted hereby is coupled with an
interest in the Allen Shares, which interest includes the rights
granted to the Shareholders pursuant to the provisions of Section 6 of
this Agreement, and the rights granted to FCNH pursuant to the Allen
Agreement, and shall be irrevocable for the term of this Section 5.
For purposes of Section 5(d) of this Agreement only, the Allen Shares
shall be deemed to be "Shares" owned and controlled by FBC; and the
irrevocable proxy granted to Saban by FBC in Section 5(d) of this
Agreement shall include the grant by FBC to Saban (under the
irrevocable proxy created by this Section 5(dd)) of the power to vote
or act by written consent with respect to the Allen Shares, as therein
provided with respect to the Shares of FBC.
6. Initial Public Offering.
-----------------------
(i) Subsection 6(b)(i)(F) of the Agreement is amended by inserting
after the phrase "...the SEI Stockholders of all of their respective Shares..."
the following:
"..., by Allen of all of its Allen Shares,"
(ii) Subsection 6(b)(i) of the Agreement is further amended by
appending thereto the following sentence:
3
<PAGE>
"All determinations which are made pursuant to this Section 6(b)(i),
and including, without limitation, all determinations as to the form
and structure of the Successor Entity, and the terms and relative
rights, preferences and privileges of the Successor Entity Equity
Securities and the Preferred Stock, shall be binding upon all other
holders of the SEI Common Stock and/or the FCNH Common Stock,
including, without limitation, the other SEI Stockholders and Allen."
(iii) Subsection 6(b)(ii) of the Agreement is amended by substituting
for the second sentence thereof the following:
"In connection with the Reorganization, the Successor Entity Equity
Securities to be outstanding at the Effective Time (the "Pre-Offering Equity
Securities") shall be allocated as follows:
(x) each share of the then-outstanding SEI Common Stock,
other than "Later Issued SEI Shares," as defined below, shall be
exchanged for that number of Pre-Offering Equity Securities equal to
50% of the Pre-Offering Equity Securities divided by the sum of (A)
the number of shares of SEI Common Stock (excluding the Later Issued
SEI Shares) then outstanding plus (B) 50% of the total "Later Issued
----
Shares" (as defined below) then outstanding;
(y) each share of the then-outstanding FCNH Common Stock,
other than "Later Issued FCNH Shares," as defined below, shall be
exchanged for that number of Pre-Offering Equity Securities equal to
50% of the Pre-Offering Equity Securities divided by the sum of (A)
the number of shares of FCNH Common Stock (excluding the Later Issued
FCNH Shares) then outstanding plus (B) 50% of the total Later Issued
----
Shares then outstanding; and
(z) each share of the then-outstanding Later-Issued Shares
shall be exchanged for that number of Pre-Offering Equity Securities
equal to 100% of the Pre-Offering Equity Securities divided by the sum
of (A) the number of shares of FCNH Common Stock (excluding the Later
Issued FCNH Shares) then outstanding plus (B) the number of shares of
----
SEI Common Stock (excluding the Later Issued SEI Shares) then
outstanding, plus the total Later Issued Shares then outstanding.
----
4
<PAGE>
Pursuant to Section 5 of this Agreement, neither FCNH nor SEI may, without
the consent of Saban and FBC, effect any changes in the number of their
respective outstanding Shares through stock split, reverse stock split or stock
dividend. If any such changes are permitted, Saban and FBC shall amend this
subsection 6(b)(ii) to equitably adjust the foregoing exchange ratios.
If the rights, preferences and privileges included in the charter documents
of the Successor Entity with respect to the Successor Entity Equity Securities
to be sold in the Initial Public Offering differ from the rights, preferences
and privileges applicable to the Successor Entity Equity Securities to be
retained by the SEI Stockholders and FBC, then all of the shares of Pre-Offering
Equity Securities to be issued pursuant to clause (z), above, shall have the
same rights, preferences and privileges as the securities to be sold in the
Initial Public Offering; provided, that Saban and FBC may, at any time prior to
--------
the Effective Time, determine that some, or all, of such Pre-Offering Equity
Securities shall have rights, preferences and privileges identical to those
applicable to the Shares to be retained by the SEI Stockholders and FBC; and in
making such determination, Saban and FBC shall not be required to treat Allen,
or any other holder of the Later Issued Shares, in the same manner as other
holders of the Later Issued Shares.
As used in this Agreement, any shares of SEI Common Stock issued and sold
by SEI subsequent to December 22, 1995 and prior to the Effective Time are
referred to as "Later Issued SEI Shares," any shares of FCNH Common Stock issued
and sold by FCNH subsequent to December 22, 1995 and prior to the Effective
Time, including, without limitation, the Allen Shares, are referred to as "Later
Issued FCNH Shares," and the Later Issued SEI Shares and the Later Issued FCNH
Shares are collectively referred to as the "Later Issued Shares." "
(iv) Subsection 6(b)(ii) of the Agreement is further amended by
inserting in the fourth sentence thereof, immediately following the phrase
" ...deemed to be "SEI Common Stock" hereunder,..." the following:
"all Shares of Successor Entity Equity Securities issued with
respect to the Allen Shares shall be deemed to be "Allen Shares"
hereunder,"
5
<PAGE>
7. Put Option.
----------
(i) The title of Section 7 of the Agreement is amended to read in full
as follows:
"7. Put Option and Exchange Obligation".
-----------------------------------
(ii) Subsection 7(c)(i)(A) of the Agreement is amended to read in full
as follows:
[XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]
(iii) Section 7 of the Agreement is amended by adding, immediately
following Section 7(d), the following:
"(e) Exchange Obligation. (x) If none of the following events (the
-------------------
"Liquidity Events") have occurred on or before the 17th anniversary of
this Agreement: (i) the Reorganization; (ii) the Initial Public
Offering; (iii) the Effective Date of the Put Option; or (iv) the
effective date of the Call Option; then FBC shall during the 12 month
period following the 17th anniversary of this Agreement have the right
and option, by delivering during such period written notice of its
election to SEI and all then holders of the Allen Shares (excluding
SEI and FBC), to require SEI and such holders to effect the following
transactions:
(A) each such holder of the Allen Shares shall deliver to SEI
[XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] and
(B) SEI shall, [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.]
If any of the Liquidity Events occurs on or prior to the 17th
anniversary of this Agreement, this Section 7(e) shall terminate and
be of no further force or effect.
6
<PAGE>
(y) The closing of the exchange and transfer provided in (x)(A) and
(x)(B) above shall take place at the time (which shall be within 120
days of the delivery of the notice of election) and place designated
by FBC in its notice of election. At the closing, each of the holders
of the Allen Shares shall deliver to SEI documents of transfer in form
and substance reasonably acceptable to FBC and SEI and their
respective counsel, necessary to vest in SEI, and in FBC as its
transferee, good and marketable title to the Allen Shares so exchanged
by the holder thereof, free and clear of any and all Liens, other than
those imposed under or pursuant to this Agreement or the Other
Agreements, against delivery by SEI of the SEI Common Stock to be
exchanged therefor, registered in the name of the exchanging holder;
and upon receipt thereof, SEI shall deliver to FBC documents of
transfer in form and substance reasonably acceptable to FBC and its
counsel, necessary to transfer to FBC all right, title and interest of
SEI in and to the Allen Shares which it has so received in the
exchange. All Shares of SEI Common Stock received by such holders in
the exchange shall be "Allen Shares" and "Shares" subject to the terms
of this Agreement.
(z) The exchange ratio provided in Section 7(e)(x)(A) of this
Agreement shall be appropriately adjusted for any increase or decrease
in the number of shares of issued and outstanding SEI Common Stock or
FCNH Common Stock, as the case may be, resulting from a subdivision or
consolidation of shares, whether through reorganization,
recapitalization, stock split-up, stock distribution or combination of
shares, or payment of a share dividend of other increase or decrease
in the number of such Shares outstanding effected without receipt of
consideration by the issuing corporation."
8. Miscellaneous Provisions.
------------------------
(i) Section 11(c) of the Agreement is amended by adding, immediately
following clause (iii) thereof, the following:
"(iv) If to Allen:
Allen & Company Incorporated
711 Fifth Avenue
New York, New York 10022
Attention: Stanley S. Shuman,
Executive Vice President
Fax: (212) 832-8023"
(ii) Section 11(j) of the Agreement is amended to read in full as
follows:
7
<PAGE>
"(j) Amendments and Waivers. Neither this Agreement nor any term
----------------------
hereof may be changed, waived, discharged or terminated orally or in
writing, except that any term of this Agreement may be amended and the
observance of any such term may be waived (either generally or in a
particular instance and either retroactively or prospectively) by (and
only by) a written document executed by Saban and FBC; and any such
amendment or waiver executed by both Saban and FBC shall be binding
upon all of the parties to this Agreement, including each and every
Person (including Allen) who has agreed to be bound by provisions of
this Agreement relating to the Shares which it holds; provided,
--------
however, that no such amendment or waiver shall extend to or affect
-------
any obligation not expressly waived or impair any right consequent
therein. No delay or omission to exercise any right, power or remedy
accruing to any party hereto shall impair any such right, power or
remedy of such party nor be construed to be a waiver of any such
right, power or remedy nor constitute any course of dealing or
performance hereunder."
(iii) Financial Statements. Until the first to occur of a
--------------------
Liquidity Event or the date upon which Allen ceases to own at least 50% of
the Allen Shares, SEI and FCNH shall each from time to time deliver, on a
confidential basis, to Allen, within a reasonable time after their
availability:
(x) with respect to each of the first three fiscal quarters
of each fiscal year ending on or subsequent to the date of this
Amendment, an unaudited consolidated balance sheet of each of SEI and
FCNH, as well as (if available) Fox Kids, (each herein, the "Reporting
Company") as of the end of such period, and the related consolidated
statements of operations and cash flows of the Reporting Company for
each such period and for the period from the beginning of the current
fiscal year to the end of such quarterly period, setting forth in each
case, to the extent applicable, comparisons to the corresponding
period of the previous fiscal year; and
(y) with respect to each fiscal year ending after the date
of this Amendment, a consolidated balance sheet of the Reporting
Company as at the end of such year and consolidated statements of
operations and cash flows of the Reporting Company for such year,
setting forth in each case comparisons, to the extent applicable, to
the previous fiscal year, and, if and to the extent audited,
accompanied by the opinion thereon of the auditors for the Reporting
Company.
8
<PAGE>
9. Consent of Saban. Saban hereby consents to the issuance and sale of
----------------
the Allen Shares to Allen pursuant to the Allen Agreement.
10. Agreement of Allen. The Agreement is amended by adding thereto the
------------------
following Section 12:
"12. Agreement of Allen. By executing Amendment No. 2 to the
------------------
Agreement, Allen agrees to be bound by all of the provisions of
Sections 1 through 6, Section 7(e) and Section 11, of the Agreement,
including, without limitation, any provision included therein
applicable to the Allen Shares, or Allen as a "Shareholder" or "party"
to the Agreement. The provisions of Sections 7 (other than Section
7(e)), Section 8 and Section 9 of the Agreement are not for the
benefit of, or enforceable by, Allen. Allen further agrees to
indemnify, defend and hold all of the other parties to the Agreement,
and each of them, harmless against and in respect of any and all loss,
cost, liability, damage or deficiency arising out of or in connection
with any breach by Allen of any covenant or agreement made or to be
performed by Allen under the terms of the Agreement, and all claims,
demands, actions, suits, proceedings, judgments, costs, attorneys'
fees and expenses, or liens, charges or encumbrances upon the assets
of any of the indemnified parties relating to or incurred by the
indemnified parties incident to the foregoing."
11. Effective Date of Amendment. While this Amendment has been executed
---------------------------
as of its date, it shall be deemed to be effective as of April 3, 1996.
12. Effect of Amendment. Except as expressly modified herein, all terms
-------------------
of the Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
SABAN ENTERTAINMENT, INC.
By: /s/ Haim Saban
----------------------
Haim Saban
Its: Chief Executive Officer
[Signatures continued on next page]
9
<PAGE>
QUARTZ ENTERPRISES, L.P.
By: /s/ Stan Golden
--------------------
Its: ____________________
MERLOT INVESTMENTS
By: /s/ Bill Josey
--------------------
Its: ____________________
SILVERLIGHT ENTERPRISES, L.P.
By: /s/ Mel Woods
--------------------
Its: ____________________
CELIA ENTERPRISES, L.P.
By: /s/ Matthew Krane
--------------------
Its: ____________________
FOX BROADCASTING COMPANY
By: /s/ Larry Jacobson
____________________
Its: EVP
____________________
FCN HOLDING, INC.
By: /s/ Larry Jacobson
____________________
Its: EVP
____________________
[Signatures continued on next page]
10
<PAGE>
FCNH SUB, INC.
By: /s/ Larry Jacobson
____________________
Its: EVP
____________________
ALLEN & COMPANY INCORPORATED
By: /s/ Stanley S. Shuman
------------------------
Its: Executive Vice President
------------------------
11
<PAGE>
SCHEDULE "A"
SEI STOCKHOLDERS
----------------
Haim Saban
Quartz Enterprises, L.P.
Merlot Investments
Silverlight Enterprises, L.P.
Celia Enterprises, L.P.
12
<PAGE>
EXHIBIT 10.4
AMENDMENT NO. 3
TO
STRATEGIC STOCKHOLDERS AGREEMENT
This Amendment No. 3 to Strategic Stockholders Agreement (the "Amendment")
is made and entered into as of ___________, 1996, by and among Saban
Entertainment, Inc., a Delaware close corporation ("SEI"), Haim Saban ("Saban"),
each of the entities listed on Schedule "A" hereto (the "SEI Entities," and,
with Saban, the "SEI Stockholders"), Fox Broadcasting Company, a Delaware
corporation ("FBC"), Fox Broadcasting Sub, Inc., a Delaware close corporation
("FBC Sub," and, together with the SEI Stockholders, the "Shareholders"), and
FCN Holding, Inc., a Delaware close corporation ("FCNH").
R E C I T A L S
- - - - - - - -
A. SEI, Saban, the SEI Entities, FBC, FCNH and FCNH Sub and Allen &
Company Incorporated are parties to that certain Strategic Stockholders
Agreement, dated as of December 22, 1995 (as amended by Amendment No. 1 to
Strategic Stockholders Agreement, dated as of February 26, 1996, Amendment No. 2
to Strategic Stockholders Agreement, dated as of September 26, 1996 and this
Amendment, the "Agreement"). All terms defined in the Agreement which are not
defined in this Amendment shall have the same meanings when used in this
Amendment.
B. On September 26, 1996, FBC transferred and conveyed to FBC Sub all of
the FCNH Common Stock owned by it, and FBC Sub agreed to be bound by all of the
terms of the Agreement, as it then existed.
C. Pursuant to Section 6(b) of the Strategic Stockholders Agreement, Fox
Kids Worldwide, Inc., a Delaware corporation, has been formed as the Successor
Entity, and on September 26, 1996, agreed to assume and be bound by all
obligations of the Successor Entity under the Registration Agreement and the
other Alliance Agreements.
D. The Successor Entity has filed a registration statement under the
Securities Act of 1933, as amended, with respect to the Initial Public Offering.
E. In connection with the Reorganization, the parties desire to amend the
Agreement in order, inter alia, to provide for certain voting and other
----- ----
agreements among the parties.
<PAGE>
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing facts, and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. A new Section 12 is added to the Agreement, and shall read in full
as follows:
12. Additional Voting and Other Agreements with respect to the Successor
--------------------------------------------------------------------
Entity.
- ------
(a) Election of Directors of the Successor Entity.
---------------------------------------------
(i) Number of Authorized Directors. The SEI Stockholders, FBC and FBC
------------------------------
Sub shall use their respective best efforts to cause the number of authorized
members ("Directors") of the Board of Directors to be fixed at eight, or at such
other number as Saban and FBC may from time to time agree upon and mutually
designate in writing.
(ii) Nominees for Directors. Within 90 days subsequent to the end of
----------------------
each fiscal year of the Company, commencing with the fiscal year ending June 30,
1997, (x) Saban shall furnish to FBC his list of three nominees (the "Saban
Nominees") and two "Independent Directors" (as hereinafter defined) for election
as Directors at the annual meeting of the stockholders of the Successor Entity
to be held thereafter (the "Subject Meeting"), and (y) FBC shall furnish to
Saban its list of three nominees (the "FBC Nominees") and two Independent
Directors for election as Directors at the Subject Meeting. Notwithstanding the
foregoing, if Saban transfers, in the aggregate, 1/3 or more of the Shares
which are deemed to be SEI Common Stock hereunder (prior to such list being
furnished to and accepted by FBC), then Saban shall be entitled to nominate only
two Saban Nominees and no Independent Directors for election as Directors at the
Subject Meeting. If either or both of Saban and FBC fail to furnish the other
with its list of such nominees, the persons then serving on the Board of
Directors of the Successor Entity as that person's nominees, or as Independent
Directors, shall be that person's nominees for the Subject Meeting. Following
exchange of their lists, Saban and FBC shall endeavor to meet and jointly agree
upon the persons to be nominees for Independent Directors; and if Saban and FBC
have not reached agreement with respect thereto within 20 days following the
exchange of their lists, Saban shall have the right to designate one of the
persons on his list as his nominee for Independent Director, and FBC shall have
the right to designate one of the persons on its list as its nominee for
Independent Director; and Saban and FBC shall promptly thereafter advise the
Secretary of the Successor Entity of the identity of the nominees so selected,
and Saban and FBC shall use their best efforts to cause the slate of nominees
selected by the Board of Directors of the Successor Entity to consist of the
Saban Nominees, the FBC Nominees and the two Independent Directors selected as
hereinabove provided.
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<PAGE>
(iii) Independent Directors. For purposes of this Agreement, an
---------------------
"Independent Director" shall be a person who, but for his or her position as a
Director of the Successor Entity and/or one or more of its subsidiary
corporations, would qualify as a "Non-Employee Director" (as that term is
defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) and an "Outside Director" (as that term is defined in the
regulations of the Internal Revenue Service under Section 162(m) of the Internal
Revenue Code of 1986, as amended) of all of (x) the Successor Entity, (y) Saban
and any Person directly or indirectly controlled by Saban, and (z) The News
Corporation Limited ("News Corp."), and any Person directly or indirectly
controlled by News Corp.
(iv) Election of Directors. At each Subject Meeting, (x) FBC, FBC Sub
---------------------
and each of their respective transferees, successors and assigns (other than
with respect to transfers of Shares pursuant to Section 3(a)(i) or Section
3(a)(ii) of this Agreement) shall vote all of the Shares which are deemed to
constitute FCNH Common Stock hereunder, (y) Saban, each of the SEI Entities, and
each of their respective transferees, successors and assigns (other than with
respect to transfers of Shares pursuant to Section 3(a)(i) or Section 3(a)(ii)
of this Agreement) shall vote all of the Shares which are deemed to be SEI
Common Stock hereunder, and (z) each shall vote any and all other Shares of the
voting securities of the Successor Entity with respect to which he or it has
sole or shared voting power, in favor of the FBC Nominees, the Saban Nominees
and the Independent Nominees.
(v) Special Circumstances. If any Saban Nominee or FBC Nominee shall
---------------------
for any reason be unwilling or unable to serve as a Director of the Successor
Entity, the person designating such Nominee shall have the right at any time
prior to the opening of the polls with respect to the election of Directors at
the Subject Meeting to designate a replacement Nominee, and all parties shall
cast their respective votes for such replacement Nominee, in lieu of the
originally designated Nominee. If Saban desires at any time or from time to time
to remove any Saban Nominee, or FBC desires at any time or from time to time to
remove any FBC Nominee, Saban and FBC shall cooperate with each other, and shall
take any and all actions as reasonably may be required, to cause the removal of
such Director. If any Saban Nominee or FBC Nominee shall cease to serve as a
Director for any reason, Saban and FBC shall cooperate with each other, and
shall take any and all actions as reasonably may be required, to cause the
vacancy resulting therefrom to be filled, respectively, by a designee of Saban
or FBC. If any Independent Director for any reason is unwilling or unable to
serve as a Director, or ceases to serve as a Director for any reason, or ceases
to be an Independent Director, Saban and FBC shall cooperate with each other,
and shall take any and all actions
3
<PAGE>
as reasonably may be required, to replace such Director with a new Independent
Director selected by the party who initially proposed the former Independent
Director; and if the parties cannot agree as to which initially proposed the
former Independent Director, and are unable to reach agreement as to a
replacement Independent Director for that Director, the vacancy shall not be
filled until the next annual meeting of Stockholders. If any Directors are to be
elected at a meeting other than an annual meeting, or by means of written
consents, all of the provisions of this Section 12(a) shall apply to such
meeting or action, mutatis mutandis.
------- --------
(b) Other Shareholder Actions. With respect to each matter other than
-------------------------
the election or removal of Directors submitted to a vote of the stockholders of
the Successor Entity, or the holders of any class or classes of its outstanding
voting securities, whether at a meeting of stockholders or by written consent,
FBC, FBC Sub, Saban, each of the SEI Entities, and each of their respective
transferees, successors and assigns (other than with respect to transfers of
Shares pursuant to Section 3(a)(i) or Section 3(a)(ii) of this Agreement) shall
vote all of the Shares which are deemed to be FCNH Common Stock or SEI Common
Stock hereunder, as applicable, and any and all other Shares of the voting
securities of the Successor Entity with respect to which he or it has sole or
shared voting power, as follows: (i) if Saban and FBC are able to reach
agreement as to the manner in which the Shares are to be voted, in accordance
with that agreement; and (ii) in all other cases, each shall abstain from voting
or taking any other action with respect to such matter.
(c) Negative Covenants.
------------------
Without the prior written consent of FBC and Saban, neither (i)
FBC, or any direct or indirect Affiliate of FBC (including, without limitation,
News Corp. and its Affiliates), nor (ii) any of the SEI Stockholders, or any
direct or indirect Affiliate of any of the SEI Stockholders (excluding, however,
with respect to (i) or (ii) above, the Successor Entity and any Person directly
or indirectly controlled by the Successor Entity) shall:
i) purchase, acquire or offer or agree to purchase or acquire
any Successor Entity Equity Securities or other voting securities of the
Successor Entity;
ii) solicit, or encourage any persons to solicit, proxies or
become a "participant" or otherwise engage in any "solicitation" (as those terms
are defined in Regulation 14A under the Exchange Act), without regard to whether
the Successor Entity is subject to Regulation 14A, or otherwise seek to advise
or influence any person, entity or group to vote in opposition to a
recommendation of not less than two-thirds of the authorized number
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<PAGE>
of Directors of the Successor Entity with respect to any matter submitted to the
stockholders (except the election of Directors) of the Successor Entity;
iii) initiate, propose or otherwise solicit stockholders for
the approval of one or more stockholder proposals (as described in Rule 14a-8
under the Exchange Act) with respect to the Successor Entity;
iv) directly or indirectly participate in or encourage the
formation of, or in any manner provide assistance to, any "group" (as defined in
Section 13(d)(3) of the Exchange Act) seeking to acquire or effect control of
the Successor Entity, or for the purpose of acquiring, holding or disposing of
voting securities of the Successor Entity;
v) deposit any voting securities in a voting trust, or
subject any voting securities to a voting agreement, understanding or similar
agreement;
vi) otherwise act, alone or in concert with others, to assist
or encourage any other person, entity or group in seeking to control the
management, Board of Directors or policies of the Successor Entity or to propose
or effect any form of business combination with the Successor Entity or any
restructuring, recapitalization, liquidation, dissolution or other similar
transaction with respect to the Successor Entity; or
vii) enter into any agreement or understanding with any
person to do or effect any of the foregoing.
(d) Performance; Irrevocable Proxy. (i) Each of the SEI
------------------------------
Stockholders, FBC and FBC Sub shall take any and all actions within their power
as stockholders of the Successor Entity, including the calling of special
meetings of the stockholders of the Successor Entity and the voting of all of
the Shares with respect to which he or it has sole or shared voting power, in
order to carry out and perform their respective obligations under this
Agreement; (ii) FBC shall take any and all actions within its power as a
stockholder of FBC Sub, including the calling of special meetings of the
stockholders of FBC Sub, and the voting of the shares of capital stock of FBC
Sub, required to cause FBC Sub to perform all of its obligations under this
Agreement; and (iii) without limiting the generality of clauses (i) or (ii)
above, if and so long as any party hereto (a "breaching party") fails or refuses
to perform its obligations under this Section 12, following demand to perform
such obligations by Saban or FBC (whichever is not the breaching party, or a
party in control of the breaching party), without limiting any other rights
which may then be available at law or in equity with respect thereto, all of the
Shares of the breaching party (and, if
5
<PAGE>
the breaching party is FBC Sub, all of the voting securities of FBC Sub) and its
controlled Affiliates may be voted by the other of Saban or FBC Sub, as the case
may be, to cure such breach or rectify such default; and in furtherance thereof,
Saban hereby appoints FBC Sub, and FBC and FBC Sub each hereby appoints Saban,
as its proxy and attorney-in-fact pursuant to the provisions of Section 212(e)
of the Delaware General Corporation Law, with full power and authority from time
to time to vote or act by written consent with respect to the Shares, but only
following demand to the party granting such proxy to vote the Shares as required
hereby, and then only as may be necessary to ensure full compliance with the
provisions of this Section 12. Each proxy granted hereby is coupled with an
interest in the Shares to which it relates, and shall be irrevocable for the
term of this Section 12.
(e) Termination of Section 12. If at any time following the Initial
-------------------------
Public Offering (i) the SEI Stockholders, together with all other Persons to
whom the SEI Stockholders, or any of them, have transferred Shares pursuant to
Section 3(b) or 3(c) of this Agreement, beneficially own, in the aggregate less
than ________ Shares [33 1/3%] of the Class B Common Stock, par value $0.001 per
share (the "Class B Stock"), of the Successor Entity; or (ii) FBC, or FBC Sub,
together with all other Persons to whom FBC or FBC Sub have transferred Shares
pursuant to Section 3(b) or 3(c) of this Agreement, beneficially own, in the
aggregate, less than _____ shares of the Class B Stock; then FBC (in case of
(i), above) or Saban (in case of (ii), above), as the case may be, shall have
the right and power, by delivery of written notice to the transferring party, to
terminate the provisions of this Section 12. As used in this Section 12(a), a
Person shall have "beneficial ownership" of shares only if he or it has the
power to direct the voting of, and the disposition of, the Shares, which power
or powers are shared with no Person other than an Affiliate of such Person or
Persons to whom such Person could transfer the Shares under Section 3(b) or #(c)
of this Agreement. The number of shares referred to above shall be subject to
ratable and equitable adjustment with respect to any stock splits, stock
dividends, reverse stock splits, recapitalizations and other events affecting
all of the holders of the Surviving Entity's Class B Common Stock. The
termination of the provisions of this Section 12 shall not affect the continuing
validity of the other provisions of the Agreement.
(f) Legends. The certificates representing all of the Shares
-------
subject to this Section 12, until transferred pursuant to the provisions of
Section 3(a)(i) or 3(a)(ii) of the Agreement, shall bear the legend set forth in
Section 11(o) of the Agreement, except that the reference to "Strategic
Stockholders Agreement dated as of December 22, 1995" shall refer instead to
"Strategic Stockholders Agreement dated as of December 22, 1995, as amended."
6
<PAGE>
(g) Transfer of Shares. Unless Saban and FBC shall otherwise agree,
------------------
all Shares transferred pursuant to Section 3(b), 3(c) or 4 of the Agreement
shall continue to be subject to this Section 12.
2. Incorporation by Reference. All of the terms and provisions of
--------------------------
Section 11 of the Agreement shall be applicable to this Amendment.
3. Effect of Amendment. Except as expressly modified herein, all
-------------------
terms of the Agreement, as heretofore amended, shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
SABAN ENTERTAINMENT, INC.
By: ____________________
Haim Saban
Its: Chief Executive Officer
QUARTZ ENTERPRISES, L.P.
By: ____________________
Its: ____________________
MERLOT INVESTMENTS
By: ____________________
Its: ____________________
SILVERLIGHT ENTERPRISES, L.P.
By: ____________________
Its: ____________________
[Signatures continued on next page]
7
<PAGE>
CELIA ENTERPRISES, L.P.
By: ____________________
Its: ____________________
___________________________
HAIM SABAN
FOX BROADCASTING COMPANY
By: ____________________
Its: ____________________
FOX BROADCASTING SUB, INC.
By: ____________________
Its: ____________________
FCN HOLDING, INC.
By: ____________________
Its: ____________________
8
<PAGE>
CONSENT OF NEWS CORP.
As a material inducement to the parties to the Strategic Stockholders
Agreement dated as of December 22, 1995, as amended, to further amend such
agreement pursuant to Amendment No. 3 thereto (the "Amendment"), to which this
Consent is appended, the undersigned, The News Corporation Limited, a
corporation organized under the laws of South Australia, hereby covenants and
agrees that it shall, and it shall cause each of its Affiliates to, observe and
comply with all of the provisions of Section 12(c) of the Strategic Stockholders
Agreement, as reflected in the Amendment.
DATED: ___________, 1996
THE NEWS CORPORATION LIMITED
By: _______________________
And by: _______________________
9
<PAGE>
SCHEDULE "A"
SEI STOCKHOLDERS
----------------
Haim Saban
Quartz Enterprises, L.P.
Merlot Investments
Silverlight Enterprises, L.P.
Celia Enterprises, L.P.
10
<PAGE>
EXHIBIT 10.5
LIST OF INDEMNITEES
-------------------
The attached Form of Indemnification Agreement will be entered into by and
between Fox Kids Worldwide, Inc. and the following persons, each an
"Indemnitee".
1. Haim Saban
2. Mel Woods
3. Margaret Loesch
4. K. Rupert Murdoch
5. Chase Carey
6. Shuki Levy
7. William Josey
8. Mark Ittner
<PAGE>
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of this _____ day
of _____, 1996, by and between FOX KIDS WORLDWIDE, INC., a Delaware corporation
(the "Company"), and __________________ ("Indemnitee").
RECITALS
A. The Company and Indemnitee recognize the increasing difficulty in
obtaining liability insurance for directors, officers, employees and agents, the
significant increases in the cost of such insurance and the general reductions
in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
and agents to expensive litigation risk at the same time that the availability
and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employers and agents of the Company may not be willing to continue to
serve as directors, officers, employees and agents without additional
protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as directors, officers,
employees and agents of the Company and to indemnify its directors, officers,
employees and agents so as to provide them with the maximum protection permitted
by law.
AGREEMENT
The Company and Indemnitee hereby agree as follows:
1. AGREEMENT TO SERVE. Indemnitee agrees to serve and/or continue to serve
the Company, at the Company's will (or under separate written agreement approved
by the Board of Directors of the Company, if such agreement exists), in the
capacity Indemnitee currently serves the Company, as long as Indemnitee is duly
appointed or elected and qualified in accordance with the applicable provisions
of the Bylaws of the Company or any subsidiary of the Company or (subject to any
employment agreement between Indemnitee and the Company) until such time as
Indemnitee tenders a written resignation or is removed in accordance with the
Bylaws; provided, however, that nothing contained in this Agreement is intended
-------- -------
to or shall create any right (express or implied) to continued employment by
Indemnitee.
<PAGE>
2. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while a
director, officer, employee or agent, or by reason of the fact that Indemnitee
is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including, without limitation, attorneys'
fees, disbursements and retainers, accounting and witness fees, travel and
deposition costs, and expenses of investigations), judgments, fines and amounts
paid in settlement (if such settlement is approved in advance by the Company)
actually and reasonably incurred by Indemnitee in connection with such action,
suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
---- ----------
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Company or any subsidiary of the Company to procure a judgment in
its favor by reason of the fact that Indemnitee is or was a director, officer,
employee or agent of the Company, or any subsidiary of the Company, by reason of
any action or inaction on the part of Indemnitee while a director, officer,
employee or agent, or by reason of the fact that Indemnitee is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including, without limitation, attorneys' fees, disbursements and
retainers, accounting and witness fees, travel and deposition costs, and
expenses of investigations) and, to the fullest extent permitted by law, amounts
paid in settlement, in each case to the extent actually and reasonably incurred
by Indemnitee in connection with the defense or settlement of such action or
suit (i) if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company and its
stockholders, except that no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company in the performance of Indemnitee's duty to the Company and
its stockholders unless and only to the extent that the court in which such
action or suit is or was pending shall determine upon application that, in view
of all the circumstances of the case, Indemnitee is fairly
2
<PAGE>
and reasonably entitled to indemnity for expenses and then only to the extent
that the court shall determine; (ii) if Indemnitee is a director, to the extent
that the action or contemplated action seeks monetary damages for breach of
Indemnitee's duties to the Company and its stockholders in circumstances under
which Indemnitee's personal liability therefor has been eliminated as a result
of the provisions of Section 102(b)(7) of the Delaware General Corporation Law;
or (iii) if Indemnitee is an agent other than a director, to the extent that,
were Indemnitee a director, Indemnitee would have the right to be indemnified
under Section 2(b)(ii), above; and in the case of Section 2(b)(ii) and 2(b)(iii)
above, indemnification shall include, to the extent not prohibited by law,
indemnification against all judgments, fines and amounts paid in settlement
actually and reasonably incurred by Indemnitee in connection with such action,
suit or proceeding.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Subsection (a) or (b) of this Section 2 or the defense
of any claim, issue or matter therein, Indemnitee shall be indemnified against
expenses (including, without limitation, attorneys' fees, disbursements and
retainers, accounting and witness fees, travel and deposition costs, and
expenses of investigations) actually and reasonably incurred by Indemnitee in
connection therewith.
(d) INDEMNIFICATION FOR SERVING AS A WITNESS. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of
Indemnitee's status as a director, officer, employee or agent of the Company, a
witness in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, Indemnitee shall be indemnified against
expenses actually and reasonably incurred by Indemnitee in connection therewith.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all reasonable
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil, criminal, administrative or investigative
action, suit or proceeding referenced in Section 2(a) or (b) hereof (but not
amounts actually paid in settlement of any such action, suit or proceeding).
Indemnitee hereby undertakes to repay such amounts advanced only if, and to the
extent that, it shall ultimately be determined that Indemnitee is not entitled
to be indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to Indemnitee within 45 days following
delivery of a written request therefor by Indemnitee to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition
precedent to his right to be indemnified under this Agreement, give the Company
notice, in accordance with Section 14 hereof, of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
3
<PAGE>
(c) PROCEDURE. Any indemnification and advances provided for in Section 2
and this Section 3 shall be made no later than 45 days after receipt of the
written request of Indemnitee. If a claim under this Agreement, under any
statute, or under any provision of the Company's Certificate of Incorporation or
Bylaws providing for indemnification, is not paid in full by the Company within
45 days after a written request for payment thereof has first been received by
the Company, Indemnitee may, but need not, at any time thereafter bring an
action against the Company to recover the unpaid amount of the claim and,
subject to Section 13 of this Agreement, Indemnitee shall also be entitled to be
paid for the expenses (including attorneys' fees) of bringing such action. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in connection with any action, suit or proceeding in
advance of its final disposition) that Indemnitee has not met the standards of
conduct which make it permissible under applicable law for the Company to
indemnify Indemnitee. Indemnitee shall be entitled to receive interim payments
of expenses pursuant to Section 3(a) unless and until such defense may be
finally adjudicated by court order or judgment from which no further right of
appeal exists. It is the intention of the parties that if the Company contests
Indemnitee's right to indemnification, the question of Indemnitee's right to
indemnification shall be for the court to decide, and neither the failure of the
Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, independent legal counsel, or its stockholders) to have made
a determination that indemnification of Indemnitee is proper in the
circumstances because Indemnitee has met the applicable standard of conduct
required by applicable law, nor an actual determination by the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) that Indemnitee has
not met such applicable standard of conduct, shall create a presumption that
Indemnitee has or has not met the applicable standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of a
claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be obligated
under Section 3(a) hereof to pay the expenses of any proceedings against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, upon the delivery to
Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ separate counsel in any such proceeding at Indemnitee's expense;
and (ii) if (A) the employment of counsel by Indemnitee has been previously
authorized by the Company, (B) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company and
4
<PAGE>
Indemnitee in the conduct of any such defense, or (C) the Company shall not, in
fact, have employed counsel to assume the defense of such proceeding, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this Agreement,
the Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any change
in any applicable law, statute or rule which narrows the right of a Delaware
corporation to indemnify a member of its board of directors or its officers,
employees or agents, such change, to the extent not otherwise required by such
law, statute or rule to be applied to this Agreement, shall have no effect on
this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested Directors, the Corporation Law of the
State of Delaware or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity even
though he may have ceased to serve in such capacity at the time of any action,
suit or other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred by him
in the investigation, defense, appeal or settlement of any civil or criminal
action, suit or proceeding, but not, however, for the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion of such
expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees and/or agents
under this Agreement or other wise. Indemnitee understands and acknowledges that
the Company has undertaken or may be required in the future to undertake with
the Securities and Exchange Commission to submit the question of indemnification
to a court in certain circumstances for a determination of the Company's right
under public policy to indemnify Indemnitee.
7. LIABILITY INSURANCE. The Company shall, from time to time, make the
good faith determination whether or not it is practicable for the Company to
obtain and maintain a policy or policies of insurance with reputable insurance
companies providing the directors, officers, employees and agents of the Company
with coverage for losses from wrongful acts, or to ensure
5
<PAGE>
the Company's performance of its indemnification obligations under this
agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. In all such policies of liability insurance, Indemnitee shall be
named as an insured in such a manner as to provide Indemnitee the same rights
and benefits as are accorded to the most favorably insured of the Company's
directors, if Indemnitee is a director; or of the Company's officers, if
Indemnitee is not an director of the Company but is an officer; or of the
Company's employees, if Indemnitee is not a director or officer but is an
employee; or of the Company's agents, if Indemnitee is not a director, officer
or employee but is an agent. Notwithstanding the foregoing, the Company shall
have no obligation to obtain or maintain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if the
premium costs for such insurance are dispro portionate to the amount of coverage
provided, if the coverage provided by such insurance is limited by exclusions so
as to provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a subsidiary or parent of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
never theless indemnify Indemnitee to the full extent permitted by any
applicable portion of this Agreement that shall not have been invalidated, and
the balance of this Agreement not so invalidated shall be enforceable in
accordance with its terms.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement :
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or otherwise as required under Section 145
of the Delaware General Corporation Law, but such indemnification or advancement
of expenses may be provided by the Company in specific cases if the Board of
Directors has approved the initiation or bringing of such suit;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and
6
<PAGE>
amounts paid in settlement) which have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
or other policy of insurance maintained by the Company;
(d) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute;
(e) UNLAWFUL CLAIMS. To indemnify Indemnitee in any manner which is
contrary to public policy or which a court of competent jurisdiction has finally
determined to be unlawful;
(f) FAILURE TO SETTLE PROCEEDING. To indemnify Indemnitee for
liabilities in excess of the total amount at which settlement reasonably could
have been made, or for any cost and/or expenses incurred by Indemnitee following
the time such settlement reasonably could have been effected, if Indemnitee
shall have unreasonably delayed, refused or failed to enter into a settlement of
any action, suit or proceeding (or investigation or appeal thereof) recommended
in good faith, in writing, by the Company; or
(g) BREACH OF EMPLOYMENT AGREEMENT. To indemnify Indemnitee for any
breach by Indemnitee of any employment agreement between Indemnitee and the
Company or any of its subsidiaries.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees and/or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee or agent of the Company or any
subsidiary of the Company which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and if Indemnitee acted in good faith and in
a manner Indemnitee
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<PAGE>
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan, Indemnitee shall be deemed to have acted in a
manner "not opposed to the best interest of the Company" as referred to in this
Agreement.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, Indemnitee shall be entitled to be
paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
14. NOTICE. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California,
or in Federal courts located in such State.
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<PAGE>
16. CHOICE OF LAW. This Agreement shall be governed by and its provisions
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
FOX KIDS WORLDWIDE, INC.,
a Delaware corporation,
as the Company
By:____________________________________
Name:_____________________________
Title:____________________________
Notice Address:
Fox Kids Worldwide, Inc.
10960 Wilshire Boulevard
Los Angeles, California 90024
AGREED TO AND ACCEPTED:
INDEMNITEE:
___________________________
___________________________
Notice Address:
___________________________
___________________________
___________________________
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<PAGE>
EXHIBIT 10.6
FOX KIDS WORLDWIDE, INC.
1996 STOCK INCENTIVE PLAN
1. PURPOSE OF THE PLAN.
The purpose of this 1996 Stock Incentive Plan (the "Plan") is to provide
incentives and rewards to selected eligible directors, officers, employees and
consultants of Fox Kids Worldwide, Inc. (the "Company") or its subsidiaries in
order to assist the Company and its subsidiaries in attracting, retaining and
motivating those persons by providing for or increasing the proprietary
interests of those persons in the Company, and by associating their interests in
the Company with those of the Company's stockholders.
2. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by a committee of the Board of Directors of
the Company (the "Committee") consisting of two or more directors, each of whom
shall be both a "Non-Employee Director," as that term is defined in Rule 16b-
3(b) of the Rules and Regulations (the "Rules") of the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, and an
"outside director" for purposes of Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code") and the regulations of the Internal Revenue
Service adopted thereunder, as such Rules and such Section and regulations may
from time to time be amended or interpreted. Members of the Committee shall
serve at the pleasure of the Board of Directors of the Company.
The Committee shall have all the powers vested in it by the terms of the
Plan, including exclusive authority (i) to select from among eligible directors,
officers, employees and consultants those persons to be granted "Awards" (as
defined below) under the Plan; (ii) to determine the type, size and terms of
individual Awards (which need not be identical) to be made to each employee
selected; (iii) to determine the time when Awards will be granted and to
establish objectives and conditions (including, without limitation, vesting and
performance conditions), if any, for earning Awards and whether Awards will be
paid after the end of the Award period; (iv) to amend the terms or conditions of
any outstanding Award, subject to applicable legal restrictions and to the
consent of the other party to such Award; (v) to determine the duration and
purpose of leaves of absences which may be granted to holders of Awards without
constituting termination of their employment for purposes of their Awards; (vi)
to authorize any person to execute, on behalf of the Company, any instrument
required to carry out the purposes of the Plan; and (vii) to make any and all
other determinations which it determines to be necessary or advisable in the
administration of the Plan. The Committee shall have full power and authority
to administer and interpret the Plan and to adopt, amend and revoke such rules,
regulations, agreements, guidelines and instruments for the administration of
the Plan and for the conduct of its business as the Committee deems necessary or
advisable. The Committee's interpretation of the Plan, and all actions taken
and determinations made by the Committee pursuant to the powers vested in it
hereunder, shall be conclusive and binding
<PAGE>
on all parties concerned, including the Company, its stockholders, any
participants in the Plan and any other employee of the Company or any of its
subsidiaries.
3. PERSONS ELIGIBLE UNDER THE PLAN.
Any person who is a director, officer, employee or consultant of the
Company, or any of its current or future subsidiaries (an "Employee"), shall be
eligible to be considered for the grant of Awards under the Plan.
4. AWARDS.
(a) Common Stock and Derivative Security Awards. Awards authorized under
the Plan shall consist of any type of arrangement with an Employee that is not
inconsistent with the provisions of the Plan and that, by its terms, involves or
might involve or be made with reference to the issuance of (i) shares of the
Class A Common Stock, par value $0.001 per share, of the Company (the "Class A
Common Stock") or (ii) a "derivative security" (as that term is defined in Rule
16a-l(c) of the Rules, as the same may be amended from time to time) with an
exercise or conversion price related to the Class A Common Stock or with a value
derived from the value of the Class A Common Stock.
(b) Types of Awards. Awards are not restricted to any specified form or
structure and may include, but need not be limited to, sales, bonuses and other
transfers of stock, restricted stock, stock options, reload stock options, stock
purchase warrants, other rights to acquire stock or securities convertible into
or redeemable for stock, stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance shares, or any other type of Award
which the Committee shall determine is consistent with the objectives and
limitations of the Plan. An Award may consist of one such security or benefit,
or two or more of them in tandem or in the alternative.
(c) Consideration. Class A Common Stock may be issued pursuant to an
Award for any lawful consideration as determined by the Committee, including,
without limitation, services rendered, or to the extent permitted by applicable
state law, to be rendered by the recipient of the Award, or the delivery of a
promissory note or other deferred payment obligation by the Employee. With
respect to an Award under which shares of the Class A Common Stock are or may in
the future be issued for any other type of consideration, the amount of such
consideration shall be at least equal to the amount (such as the par value of
such shares) required under applicable state law to be received by the Company.
(d) Guidelines. The Committee may adopt, amend or revoke from time to
time written policies implementing the Plan. Such policies may include, but need
not be limited to, the type, size and term of Awards to be made to participants
and the conditions for payment of such Awards.
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<PAGE>
(e) Terms and Conditions. Subject to the provisions of the Plan, the
Committee, in its sole and absolute discretion, shall determine all of the terms
and conditions of each Award granted pursuant to the Plan, which terms and
conditions may include, among other things:
(i) any provision necessary for such Award to qualify as an
incentive stock option under Section 422 of the Code (an "Incentive Stock
Option");
(ii) a provision permitting the recipient of such Award to pay the
purchase price of the Class A Common Stock or other property issuable
pursuant to such Award, or to pay such recipient's tax withholding
obligation with respect to such issuance, in whole or in part, by
delivering previously owned shares of capital stock of the Company
(including "pyramiding") or other property, or by reducing the number of
shares of Class A Common Stock or the amount of other property otherwise
issuable pursuant to such Award; or
(iii) a provision conditioning or accelerating the receipt of
benefits pursuant to the Award, or terminating the Award, either
automatically or in the discretion of the Committee, upon the occurrence of
specified events, including, without limitation, a change of control of the
Company, an acquisition of a specified percentage of the voting power of
the Company, the dissolution or liquidation of the Company, a sale of
substantially all of the property and assets of the Company or an event of
the type described in Section 8 of the Plan.
(f) Maximum Awards. An Employee may be granted multiple Awards under the
Plan. However, notwithstanding any other provision of the Plan, the maximum
number of shares of Class A Common Stock with respect to which options or rights
or other Awards may be granted under the Plan to any Employee during any fiscal
year shall be , subject to adjustment as provided in Section 8 of the Plan.
(g) Suspension or Termination of Awards. If the Company believes that an
Employee has committed an act of misconduct as described below, the Company may
suspend the Employee's rights under any then outstanding Award pending a
determination by the Board of Directors of the Company. If the Board of
Directors determines that an Employee has committed an act of embezzlement,
fraud, nonpayment of any obligation owed to the Company or any subsidiary,
breach of fiduciary duty or deliberate disregard of the Company's rules
resulting in loss, damage or injury to the Company, or if an Employee makes an
unauthorized disclosure of trade secret or confidential information of the
Company, engages in any conduct constituting unfair competition, or induces any
customer of the Company to breach a contract with the Company, neither the
Employee nor his or her estate shall be entitled to exercise any rights
whatsoever with respect to such Award. In making such determination, the Board
of Directors shall act fairly and shall give the Employee a reasonable
opportunity to appear and present evidence on his or her behalf at a hearing
before a committee of the Board of Directors;
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<PAGE>
and if the Employee is an "officer" under Rule 16a-l(f) of the Rules, the
determination of the Board of Directors shall be subject to the approval of the
Committee.
5. SHARES OF CLASS A COMMON STOCK SUBJECT TO THE PLAN.
The aggregate number of shares of Class A Common Stock that may be issued
or issuable pursuant to all Awards under the Plan (including Awards in the form
of Incentive Stock Options and Non-Statutory Options) shall not exceed an
aggregate of shares of Class A Common Stock, subject to adjustment as provided
in Section 8 of the Plan; and the aggregate number of shares of Class A Common
Stock that may be issued pursuant to all Incentive Stock Options granted under
the Plan shall not exceed shares, subject to adjustment as provided in Section 8
of the Plan. Shares of Class A Common Stock subject to the Plan may consist, in
whole or in part, of authorized and unissued shares or treasury shares. Any
shares of Class A Common Stock subject to an Award which for any reason expires
or is terminated unexercised as to such shares shall again be available for
issuance under the Plan. For purposes of this Section 5, the aggregate number
of shares of Class A Common Stock that may be issued at any time pursuant to
Awards granted under the Plan shall be reduced by: (i) the number of shares of
Class A Common Stock previously issued pursuant to Awards granted under the
Plan, other than shares of Class A Common Stock subsequently reacquired by the
Company pursuant to the terms and conditions of such Awards and with respect to
which the holder thereof received no benefits of ownership, such as dividends;
and (ii) the number of shares of Class A Common Stock which were otherwise
issuable pursuant to Awards granted under this Plan but which were withheld by
the Company as payment of the purchase price of the Class A Common Stock issued
pursuant to such Awards or as payment of the recipient's tax withholding
obligation with respect to such issuance.
6. PAYMENT OF AWARDS.
The Committee shall determine the extent to which Awards shall be payable
in cash, shares of Class A Common Stock or any combination thereof. The
Committee may, upon request of a participant, determine that all or a portion of
a payment to that participant under the Plan, whether it is to be made in cash,
shares of Class A Common Stock or a combination thereof, shall be deferred.
Deferrals shall be for such periods and upon such terms as the Committee may
determine in its sole discretion.
7. VESTING.
The Committee may determine that all or a portion of a payment to a
participant under the Plan, whether it is to be made in cash, shares of Class A
Common Stock or a combination thereof, shall be vested at such times and upon
such terms as may be selected by the Committee in its sole discretion.
4
<PAGE>
8. DILUTION AND OTHER ADJUSTMENTS.
In the event of any change in the outstanding shares of the Class A Common
Stock or other securities then subject to the Plan by reason of any stock split,
reverse stock split, stock dividend, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate change, or if the
outstanding securities of the class then subject to the Plan are exchanged for
or converted into cash, property or a different kind of securities, or if cash,
property or securities are distributed in respect of such outstanding securities
(other than a regular cash dividend), then, unless the terms of such transaction
shall provide otherwise, such equitable adjustments shall be made in the Plan
and the Awards thereunder (including, without limitation, appropriate and
proportionate adjustments in (i) the number and type of shares or other
securities or cash or other property that may be acquired pursuant to Incentive
Stock Options and other Awards theretofore granted under the Plan, (ii) the
maximum number and type of shares or other securities that may be issued
pursuant to Incentive Stock Options and other Awards thereafter granted under
the Plan and (iii) the maximum number of securities with respect to which Awards
may thereafter be granted to any Employee in any fiscal year) as the Committee
determines are necessary or appropriate, including, if necessary, any
adjustments in the maximum number of shares referred to in Section 5 of the
Plan. Such adjustments shall be conclusive and binding for all purposes of the
Plan.
9. MISCELLANEOUS PROVISIONS.
(a) Definitions. As used herein, "subsidiary" means any current or future
corporation which would be a "subsidiary corporation," as that term is defined
in Section 425(f) of the Code, of the Company; and the term "or" means "and/or."
(b) Conditions on Issuance. Securities shall not be issued pursuant to
Awards unless the grant and issuance thereof shall comply with all relevant
provisions of law and the requirements of any securities exchange or quotation
system upon which any securities of the Company are listed, and shall be further
subject to approval of counsel for the Company with respect to such compliance.
Inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is determined by Company counsel to be necessary
to the lawful issuance and sale of any security or Award, shall relieve the
Company of any liability in respect of the nonissuance or sale of such
securities as to which requisite authority shall not have been obtained.
(c) Rights as Stockholder. A participant under the Plan shall have no
rights as a holder of Class A Common Stock with respect to Awards hereunder,
unless and until certificates for shares of such stock are issued to the
participant.
(d) Assignment or Transfer. No Awards under the Plan or any rights or
interests therein shall be assignable or transferable by a participant except by
will or the laws of descent
5
<PAGE>
and distribution. During the lifetime of a participant, Awards hereunder are
exercisable only by, and payable only to, the participant.
(e) Agreements. All Awards granted under the Plan shall be evidenced by
written agreements in such form and containing such terms and conditions (not
inconsistent with the Plan) as the Committee shall from time to time adopt.
(f) Withholding Taxes. The Company shall have the right to deduct from
all Awards hereunder paid in cash any federal, state, local or foreign taxes
required by law to be withheld with respect to such awards and, with respect to
awards paid in stock, to require the payment (through withholding from the
participant's salary or otherwise) of any such taxes. The obligation of the
Company to make delivery of Awards in cash or Class A Common Stock shall be
subject to currency or other restrictions imposed by any government authorities.
(g) No Rights to Award. No Employee or other person shall have any right
to be granted an Award under the Plan. Neither the Plan nor any action taken
hereunder shall be construed as giving any Employee any right to be retained in
the employ of the Company or any of its subsidiaries or shall interfere with or
restrict in any way the rights of the Company or any of its subsidiaries, which
are hereby reserved, to discharge the Employee at any time for any reason
whatsoever, with or without good cause.
(h) Costs and Expenses. The costs and expenses of administering the Plan
shall be borne by the Company and not charged to any Award nor to any Employee
receiving an Award.
(i) Funding of Plan. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Award under the Plan.
10. AMENDMENTS AND TERMINATION.
(a) Amendments. The Committee may at any time terminate or from time to
time amend the Plan in whole or in part, but no such action shall adversely
affect any rights or obligations with respect to any Awards theretofore made
under the Plan. However, with the consent of the Employee affected, the
Committee may amend outstanding agreements evidencing Awards under the Plan in a
manner not inconsistent with the terms of the Plan.
(b) Stockholder Approval. To the extent that Rule 16b-3 of the Rules,
Section 422 of the Code, other applicable law, or the rules, regulations,
procedures or listing agreement of any national securities exchange or quotation
system, requires that any such amendment to the Plan be approved by the
stockholders of the Company, no such amendment shall be effective unless and
until it is approved by the stockholders in such a manner and to such a degree
as is required.
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<PAGE>
(c) Termination. Unless the Plan shall theretofore have been terminated
as above provided, the Plan (but not the awards theretofore granted under the
Plan) shall terminate on and no awards shall be granted after September __,
20__ .
11. EFFECTIVE DATE.
The Plan is effective on September ___, 1996, the date on which it was
adopted by the Board of Directors of the Company and the holders of the majority
of the Class A and Class B Common Stock of the Company.
12. GOVERNING LAW.
The corporate law of Delaware shall govern issues related to the
validity and issuance of Class A Common Stock. Otherwise, the Plan and any
agreements entered into thereunder shall be construed and governed by the laws
of the State of California applicable to contracts made within, and to be
performed wholly within, such state.
7
<PAGE>
OPTION CERTIFICATE
(NON-STATUTORY STOCK OPTION)
THIS IS TO CERTIFY that Fox Kids Worldwide, Inc., a Delware corporation
(the "COMPANY"), has granted to the person named below ("OPTIONEE") a non-
statutory stock option (the "OPTION") to purchase shares of the Company's Class
A Common Stock (the "SHARES") under its 1996 Stock Incentive Plan and upon the
terms and conditions as follows:
Name of Optionee: __________________________________
Address of Optionee: __________________________________
__________________________________
__________________________________
Number of Shares: __________________________________
Option Exercise Price: $_______________________ per share
Date of Grant: _______________________ ___, 199__
Option Expiration Date: ______________________ ___, 200__
EXERCISE SCHEDULE: The Option shall become exercisable as follows:
SUMMARY OF OTHER TERMS: This Option is defined in the Stock Option
Agreement (Non-statutory Stock Option) (the "OPTION AGREEMENT") which is
attached to this Option Certificate (the "CERTIFICATE") as Annex I. This
Certificate summarizes certain of the provisions of the Option Agreement for
your information, but is not complete. Your rights are governed by the Option
Agreement, not by this summary. The Company strongly suggests that you
---
carefully review the full Option Agreement prior to signing this Certificate or
exercising the Option.
8
<PAGE>
Among the terms of the Option Agreement are the following:
EMPLOYMENT: The Option Agreement does not obligate the Company to retain
you for any period of time. Unless otherwise agreed in writing, the Company
-- -------
reserves the right to terminate any employee at any time, with or without cause.
See Section 5(d) of the attached Option Agreement.
TERMINATION OF EMPLOYMENT: While the Option terminates on the Option
Expiration Date, it will terminate earlier if you cease to be employed by the
Company. If your employment ends due to death or permanent disability, the
Option terminates six months after the date of death or disability, and is
exercisable during such six-month period as to the portion of the Option which
had vested prior to the date of death or disability. In all other cases, the
Option terminates 45 days after the date of termination of employment, and is
exercisable during such time period as to the portion of the Option which had
vested prior to the date of termination of employment; provided, however, if you
-------- -------
are terminated "for cause," the Option will terminate 30 days after the date of
termination of your employment and is exercisable during such time period as to
the portion of the Option which had vested prior to the date of termination of
employment. See Section 5 of the attached Option Agreement.
TRANSFER: The Option is personal to you, and cannot be sold, transferred,
assigned or otherwise disposed of to any other person, except by will or the
laws of descent and distribution. See Section 15(d) of the attached Option
Agreement.
EXERCISE: You can exercise the Option (once it is exercisable), in whole
or in part, by delivering to the Company a Notice of Exercise identical to
Exhibit "A" attached to the Option Agreement, accompanied by payment of the
Exercise Price for the Shares to be purchased. The Company will then issue a
certificate to you for the Shares you have purchased. You are under no
obligation to exercise the Option. See Section 4 of the attached Option
Agreement.
ADJUSTMENTS UPON RECAPITALIZATION: The Option contains provisions which
affect your rights in the event of stock splits, stock dividends, mergers and
other major corporate reorganizations. See Section 7 of the attached Option
Agreement.
WAIVER: By signing this Certificate, you will be agreeing to all of the
terms of the Option Agreement, including those not summarized in this
Certificate. You will waive your rights to options or stock which may otherwise
have been promised to you. See Section 8 of the attached Option Agreement.
WITHHOLDING: The Company may require you to make any arrangements
necessary to insure the proper withholding of any amount of tax, if any,
required to be withheld by the Company as a result of the exercise of the
Option. See Section 13 of the attached Option Agreement.
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<PAGE>
AGREEMENT
Fox Kids Worldwide, Inc., a Delaware corporation, and Optionee each hereby
agrees to be bound by all of the terms and conditions of the Stock Option
Agreement (Non-Statutory Stock Option) which is attached hereto as Annex I and
incorporated herein by this reference as if set forth in full in this document.
DATED: ________________________
FOX KIDS WORLDWIDE, INC.
By: __________________________________________
Its: __________________________________________
OPTIONEE
_______________________________________________
Name:
_______________________________________________
(Please print your name exactly as you wish it
to appear on any stock certificates issued to
you upon exercise of the Option)
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<PAGE>
ANNEX I
STOCK OPTION AGREEMENT
(NON-STATUTORY STOCK OPTION)
This STOCK OPTION AGREEMENT (this "OPTION AGREEMENT") is made and entered
into as of the execution date of the Option Certificate to which it is attached
(the "CERTIFICATE") by and between Fox Kids Worldwide, Inc., a Delaware
corporation (the "COMPANY"), and the person named in the Certificate
("OPTIONEE").
Pursuant to the Fox Kids Worldwide, Inc. 1996 Stock Incentive Plan (the
"PLAN"), the Board of Directors of the Company (the "BOARD") has authorized the
grant to Optionee of a non-statutory stock option to purchase shares of the
Company's Class A Common Stock, par value $.0.001 per share (the "CLASS A COMMON
STOCK"), upon the terms and subject to the conditions set forth in this Option
Agreement and in the Plan.
The Company and Optionee agree as follows:
GRANT OF OPTION.
The Company hereby grants to Optionee the right and option (the
"OPTION"), upon the terms and subject to the conditions set forth in this Option
Agreement and the Plan, to purchase all or any portion of that number of shares
of the Class A Common Stock (the "SHARES") set forth in the Certificate at the
Option exercise price set forth in the Certificate (the "EXERCISE PRICE").
1. TERM OF OPTION.
The Option shall terminate and expire on the Option Expiration Date
set forth in the Certificate (the "EXPIRATION DATE"), unless sooner terminated
as provided herein. In no event shall the Option be exercisable after the
expiration of ten years from the date it was granted.
2. EXERCISE PERIOD.
(a) Subject to the provisions of Sections 3(b), 5 and 7(b) of this
Option Agreement, the Option shall become exercisable (in whole or in part) upon
and after the dates set forth under the caption "Exercise Schedule" in the
Certificate. The installments shall be cumulative; i.e., the Option may be
----
exercised, as to any or all Shares covered by an installment, at any time or
times after the installment first becomes exercisable and until the Option
Expiration Date or the termination of the Option.
11
<PAGE>
(b) Notwithstanding anything to the contrary contained in this Option
Agreement, the Option may not be exercised, in whole or in part, unless and
until any then-applicable requirements of all federal, state and local laws and
regulatory agencies shall have been fully complied with to the satisfaction of
the Company and its counsel.
3. EXERCISE OF OPTION.
There is no obligation to exercise the Option, in whole or in part.
The Option may be exercised, in whole or in part, only by delivery to the
Company of:
(a) written notice of exercise in form and substance identical to
Exhibit "A" attached to this Option Agreement stating the number of Shares then
being purchased (the "PURCHASED SHARES");
(b) payment of the Exercise Price of the Purchased Shares, either (1)
in cash, or (2) with the consent of the Board (which may be withheld in its
absolute discretion), by (i) delivery to the Company of other shares of Class A
Common Stock with an aggregate Fair Market Value equal to the total Exercise
Price of the Purchased Shares, (ii) according to a deferred payment or other
arrangement (which may include without limiting the generality of the foregoing,
the use of other shares of Class A Common Stock) with the person to whom the
Option is granted or to whom the Option is transferred pursuant to the terms of
this Option Agreement or (iii) in any other form of legal consideration that may
be acceptable to the Board; and
(c) if requested by the Company, a letter of investment intent in
such form and containing such provisions as the Company may require.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be payable at the minimum rate of interest
necessary to avoid the imputation of interest, under the applicable provision of
the Internal Revenue Code of 1986, as amended (the "CODE") and Treasury
Regulations.
Following receipt of the notice and payment referred to above, the
Company shall issue and deliver to Optionee a stock certificate or stock
certificates evidencing the Purchased Shares; provided, however, that the
-------- -------
Company shall not be obligated to issue a fraction or fractions of a share of
its Class A Common Stock, and may pay to Optionee, in cash or by check, the Fair
Market Value of any fraction or fractions of a share exercised by Optionee.
"FAIR MARKET VALUE" shall be determined as follows: (1) if the Class A Common
Stock is listed on any established stock exchange or a national market system,
including without limitation the Nasdaq National Market, the Fair Market Value
of a share of Class A Common Stock shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such system
or exchange (or the exchange with the greatest volume of trading in the Class A
Common Stock) on the last market trading day prior to the day of determination,
as reported
12
<PAGE>
in the Wall Street Journal or such other source as the Board deems reliable; (2)
if the Class A Common Stock is quoted on the Nasdaq System (but not on the
Nasdaq National Market) or is regularly quoted by a recognized securities dealer
but selling prices are not reported, the Fair Market Value of a share of Class A
Common Stock shall be the mean between the bid and asked prices for the Class A
Common Stock on the last market trading day prior to the day of determination,
as reported in the Wall Street Journal or such other source as the Board deems
reliable; and (3) in the absence of an established market for the Class A Common
Stock, the Fair Market Value shall be determined in good faith by the Board.
4. TERMINATION OF SERVICES.
(a) If Optionee shall cease to be an officer, director, consultant or
employee of the Company, or any Subsidiary or Parent of the Company, for any
reason other than death or permanent disability (a "TERMINATING EVENT"),
Optionee shall have the right, subject to the provisions of Section 5(c) below,
to exercise the Option at any time following such Terminating Event until the
earlier to occur of (1) 45 following the date of such Terminating Event and (2)
the Expiration Date. The Option may be exercised following a Terminating Event
only to the extent exercisable as of the date of the Terminating Event. To the
extent unexercised at the end of the period referred to above, the Option shall
terminate. The Board, in its sole and absolute discretion, shall determine
whether or not authorized leaves of absence shall constitute termination of
employment for purposes of this Option Agreement.
(b) If, by reason of death or disability (a "SPECIAL TERMINATING
EVENT"), Optionee shall cease to be an officer, director, consultant or employee
of the Company or any Subsidiary or Parent of the Company, then Optionee,
Optionee's executors or administrators or any person or persons acquiring the
Option directly from Optionee by bequest or inheritance, shall have the right to
exercise the Option at any time following such Special Terminating Event until
the earlier to occur of (1) six months following the date of such Special
Terminating Event and (2) the Expiration Date. The Option may be exercised
following a Special Terminating Event only to the extent exercisable at the date
of the Special Terminating Event. To the extent unexercised at the end of the
period referred to above, the Option shall terminate. For purposes of this
Option Agreement, "disability" shall mean total and permanent disability as
defined in Section 22(e)(3) of the Code. Optionee shall not be considered
permanently disabled unless he furnishes proof of such disability in such form
and manner, and at such times, as the Board may from time to time require.
(c) If Optionee shall be terminated "for cause" by the Company, any
Subsidiary or any Parent, Optionee shall have the right to exercise the Option
at any time following such Terminating Event until the earlier to occur of (1)
30 days following the date of such Terminating Event and (2) the Expiration
Date. For purposes of this Option Agreement, "for cause" shall mean:
13
<PAGE>
(1) with respect to Optionees of the Company the following to
the extent it results in substantial harm to the Company or could reasonably be
expected to result in substantial harm to the Company:
(i) the willful failure or refusal by Optionee to perform
his duties to the Company; or
(ii) Optionee's willful disobedience of any orders or
directives of the Board or any officers thereof acting under the authority
thereof or Optionee's deliberate interference with the compliance by other
employees of the Company with any such orders or directives; or
(iii) the willful failure or refusal of Optionee to abide by
or comply with the written policies, standard procedures or regulations of the
Company; or
(iv) any willful or continued act or course of conduct by
Optionee which the Board in good faith determines might reasonably be expected
to have a material detrimental effect on the Company or the business,
operations, affairs or financial position thereof; or
(v) the committing by the Optionee of any fraud, theft,
embezzlement or other dishonest act against the Company; or
(vi) the determination by the Board, in good faith and in
the exercise of reasonable discretion, that Optionee is not competent to perform
his duties of employment; and
(2) with respect to consultants, any material breach of their
consulting agreement with the Company.
(d) Nothing in the Plan, the Certificate or this Option Agreement
shall confer upon Optionee any right to continue in the service and/or employ of
the Company or any Affiliate (as defined in the Plan) or shall affect the right
of the Company or any Affiliate to terminate the relationship or employment of
Optionee, with or without cause.
5. RESTRICTIONS ON PURCHASED SHARES.
(a) SECURITIES LAW RESTRICTIONS. None of the Purchased Shares shall
be Transferred (with or without consideration) and the Company shall not be
required to register any such Transfer and the Company may instruct its transfer
agent not to register any such Transfer, unless and until all of the following
events shall have occurred:
14
<PAGE>
(1) the Purchased Shares are Transferred pursuant to and in
conformity with (i) (A) an effective registration statement filed with the
Securities and Exchange Commission (the "COMMISSION") pursuant to the 1933 Act,
or (B) an exemption from registration under the 1933 Act, and (ii) the
securities laws of any state of the United States; and
(2) Optionee has, prior to the Transfer of such Purchased
Shares, and if requested by the Company, provided all relevant information to
Company's counsel so that upon Company's request, Company's counsel is able to,
and actually prepares and delivers to the Company a written opinion that the
proposed Transfer (i) (A) is pursuant to a registration statement which has been
filed with the Commission and is then effective, or (B) is exempt from
registration under the 1933 Act as then in effect, and the Rules and Regulations
of the Commission thereunder, and (ii) is either qualified or registered under
any applicable state securities laws, or exempt from such qualification or
registration. The Company shall bear all reasonable costs of preparing such
opinion.
(b) NONCOMPLYING TRANSFERS INVALID. Any attempted Transfer which
is not in full compliance with this Section 6 shall be null and void ab initio,
---------
and of no force or effect.
6. ADJUSTMENTS UPON RECAPITALIZATION.
(a) Subject to the provisions of Section 7(b), if any change is made
in the Class A Common Stock, without receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company) the Option will be appropriately adjusted in the
class(es) and number of shares and price per share of stock subject to the
Option. Such adjustments shall be made by the Board, the determination of which
shall be final, binding and conclusive. The conversion of any convertible
securities of the Company shall not be treated as a "transaction not involving
the receipt of consideration by the Company."
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Class A
Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then, at the sole discretion of the Board and to the extent
permitted by applicable law, the Option shall (i) terminate upon such event and
may be exercised prior thereto to the extent the Option is then exercisable or
(ii) continue in full force and effect and, if applicable, the surviving
corporation or an Affiliate of such surviving corporation shall assume the
Option and/or shall substitute a similar option or award in place of the Option.
15
<PAGE>
(c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, and its
determination shall be final, binding and conclusive.
(d) The provisions of this Section 7 are intended to be exclusive,
and Optionee shall have no other rights upon the occurrence of any of the events
described in this Section 7.
(e) The grant of the Option shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations or
changes in its capital or business structure, or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.
7. WAIVER OF RIGHTS TO PURCHASE STOCK.
By signing this Option Agreement, Optionee acknowledges and agrees
that neither the Company nor any other person or entity is under any obligation
to sell or transfer to Optionee any option or equity security of the Company,
other than the Shares subject to the Option and any other right or option to
purchase Class A Common Stock which was previously granted in writing to
Optionee by the Board. By signing this Option Agreement, Optionee specifically
waives all rights which he or she may have had prior to the date of this Option
Agreement to receive any option or equity security of the Company.
8. INVESTMENT INTENT.
Optionee represents and agrees that if he or she exercises the Option
in whole or in part, and if at the time of such exercise the Plan and/or the
Purchased Shares have not been registered under the 1933 Act, he or she will
acquire the Shares upon such exercise for the purpose of investment and not with
a view to the distribution of such Shares, and that upon each exercise of the
Option he or she will furnish to the Company a written statement to such effect.
9. LEGEND ON STOCK CERTIFICATES.
Optionee agrees that all certificates representing the Purchased
Shares will be subject to such stock transfer orders and other restrictions (if
any) as the Company may deem advisable under the rules, regulations and other
requirements of the Commission, any stock exchange upon which the Class A Common
Stock is then listed and any applicable federal or state securities laws, and
the Company may cause a legend or legends to be put on such certificates to make
appropriate reference to such restrictions.
10. NO RIGHTS AS SHAREHOLDER.
Except as provided in Section 7 of this Option Agreement, Optionee
shall have no rights as a shareholder with respect to the Shares until the date
of the issuance to Optionee
16
<PAGE>
of a stock certificate or stock certificates evidencing such Shares. Except as
may be provided in Section 7 of this Option Agreement, no adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued.
11. MODIFICATION.
Subject to the terms and conditions and within the limitations of the
Plan, the Board (excluding the Optionee) may modify, extend or renew the Option
or accept the surrender of, and authorize the grant of a new option in
substitution for, the Option (to the extent not previously exercised). No
modification of the Option shall be made which, without the consent of Optionee,
would alter or impair any rights of the Optionee under the Option.
12. WITHHOLDING.
(a) The Company shall be entitled to require as a condition of
delivery of any Purchased Shares upon exercise of any Option that the Optionee
agree to remit, at the time of such delivery or at such later date as the
Company may determine, an amount sufficient to satisfy all federal, state and
local withholding tax requirements relating thereto, and Optionee agrees to take
such other action required by the Company to satisfy such withholding
requirements.
(b) With the consent of the Board (excluding the Optionee), and in
accordance with any rules and procedures from time to time adopted by the Board,
Optionee may elect to satisfy his or her obligations under Section 13(a) above
by (1) directing the Company to withhold a portion of the Shares otherwise
deliverable (or to tender back to the Company a portion of the Shares issued
where the Optionee (a "SECTION 16(B) RECIPIENT") is required to report the
ownership of the Shares pursuant to Section 16(a) of the Securities Exchange Act
of 1934, as amended, and has not made an election under Section 83(b) of the
Code (a "WITHHOLDING RIGHT")); or (2) tendering other shares of the Class A
Common Stock of the Company which are already owned by Optionee which in all
cases have a Fair Market Value (as determined in accordance with the provisions
of Section 4 hereof) on the date as of which the amount of tax to be withheld is
determined (the "TAX DATE") equal to the amount of taxes to be paid by such
method.
(c) To exercise a Withholding Right, the Optionee must follow the
election procedures set forth below, together with such additional procedures
and conditions set forth in this Option Agreement or otherwise adopted by the
Board:
(1) the Optionee must deliver to the Company a written notice of
election (the "ELECTION") and specify whether all or a stated percentage of the
applicable taxes will be paid in accordance with Section 13(b) above and whether
the amount so paid shall be
17
<PAGE>
made in accordance with the "flat" withholding rates for supplemental wages or
as determined in accordance with Optionee's form W-4 (or comparable state or
local form);
(2) unless disapproved by the Board (excluding the Optionee) as
provided in subsection (3) below, the Election once made will be irrevocable;
(3) no Election is valid unless the Board (excluding the
Optionee) has the right and power, in its sole discretion, with or without cause
or reason therefor, to consent to the Election, to refuse to consent to the
Election, or to disapprove the Election; and if the Board has not consented to
the Election on or prior to the Tax Date, the Election will be deemed approved;
and
(4) if the Optionee on the date of delivery of the Election to
the Company is a Section 16(b) Recipient, the following additional provisions
will apply:
(i) the Election cannot be made during the six calendar
month period commencing with the date of grant of the Withholding Right (even if
the Option to which such Withholding Right relates has been granted prior to
such date); and
(ii) the Election (and the exercise of the related Option)
must be made either during the period beginning on the third business day
following the date of release for publication of the quarterly or annual summary
statements of sales and earnings of the Company and ending on the 12th business
day following such date or at least six calendar months or more prior to the Tax
Date.
13. CHARACTER OF OPTION.
The Option is not intended to qualify as an "incentive stock option"
as that term is defined in Section 422 of the Code.
14. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Optionee shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Option
Agreement.
(b) NOTICES. All notices, requests, demands and other communications
under this Option Agreement shall be in writing and shall be given to the
parties hereto as follows:
(1) If to the Company, to:
Fox Kids Worldwide, Inc.
10960 Wilshire Boulevard
18
<PAGE>
Los Angeles, California 90024
(2) If to Optionee, to the address set
forth in the records of the Company,
or at such other address or addresses as may have been furnished by such either
party in writing to the other party hereto. Any such notice, request, demand or
other communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mail by first-class certified mail, return
receipt requested, postage prepaid, addressed as aforesaid, or (ii) if given by
any other means, when delivered at the address specified in this subsection (b).
(c) TRANSFER OF RIGHTS UNDER THIS OPTION AGREEMENT. The Company may
at any time transfer and assign its rights and delegate its obligations under
this Option Agreement to any other person, corporation, firm or entity,
including its officers, directors and stockholders, with or without
consideration.
(d) OPTION NON-TRANSFERABLE. Optionee may not sell, transfer, assign
or otherwise dispose of the Option except by will or the laws of descent and
distribution, and the Option may be exercised during the lifetime of Optionee
only by Optionee or by his or her guardian or legal representative in the case
of a disability, and upon Optionee's death only by his or her Estate or by any
person who acquired the Option by bequest or inheritance or by reason of the
death of Optionee.
(e) SUCCESSORS AND ASSIGNS. Except to the extent specifically
limited by the terms and provisions of this Option Agreement, this Option
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, assigns, heirs and personal representatives.
(f) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE, EXCEPT TO THE EXTENT
PREEMPTED BY FEDERAL LAW, WHICH SHALL TO THAT EXTENT GOVERN.
(g) INCORPORATION OF PLAN BY REFERENCE. This Option is granted
pursuant to the terms of the Plan, the terms of which are incorporated herein by
reference, and it is intended that this Option Agreement shall be interpreted in
a manner to comply therewith. Any provision of this Option Agreement
inconsistent with the Plan shall be superseded and governed by the Plan.
(h) A COMMITTEE. As provided in the Plan, the Board may delegate
administration of the Plan and this Option Agreement to a committee (the
"Committee"). If
19
<PAGE>
administration is delegated to a Committee, the Committee shall have, in
connection with the this Option Agreement, the powers theretofore possessed by
the Board (and references in this Option Agreement to the Board shall thereafter
be to the Committee).
(i) MISCELLANEOUS. Titles and captions contained in this Option
Agreement are inserted for convenience of reference only and do not constitute a
part of this Option Agreement for any other purpose. Except as specifically
provided herein, neither this Option Agreement nor any right pursuant hereto or
interest herein shall be assignable by any of the parties hereto without the
prior written consent of the other party hereto.
THE SIGNATURE PAGE TO THIS OPTION AGREEMENT CONSISTS OF THE LAST PAGE
OF THE CERTIFICATE.
20
<PAGE>
Exhibit "A"
NOTICE OF EXERCISE
(To be signed only upon exercise of the Option)
To: Fox Kids Worldwide, Inc.
The undersigned, the holder of the enclosed Stock Option Agreement (Non-
Statutory Stock Option), hereby irrevocably elects to exercise the purchase
rights represented by the Option and to purchase thereunder _________ * shares
of Class A Common Stock of Fox Kids Worldwide, Inc. (the "COMPANY"), and
herewith encloses payment of $__________ and/or _________ shares of the
Company's Class A Common Stock in full payment of the purchase price of such
shares being purchased.
Dated: ______________________
______________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of the
Option)
______________________________________________
(Please Print Name)
______________________________________________
(Address)
* Insert here the number of Shares called for on the face of the Option
(or, in the case of a partial exercise, the number of Shares being exercised),
in either case without making any adjustment for additional Class A Common Stock
of the Company, other securities or property which, pursuant to the adjustment
provisions of the Option, may be deliverable upon exercise.
21
<PAGE>
OPTION CERTIFICATE
(INCENTIVE STOCK OPTION)
THIS IS TO CERTIFY that Fox Kids Worldwide, Inc., a Delaware corporation
(the "COMPANY"), has granted to the employee named below ("EMPLOYEE") an
incentive stock option (the "OPTION") to purchase shares of the Company's Common
Stock (the "SHARES") under its 1996 Stock Incentive Plan and upon the terms and
conditions as follows:
Name of Employee: ___________________________________
Address of Employee: ___________________________________
___________________________________
___________________________________
Number of Shares: ___________________________________
Option Exercise Price: $________________________ per share
Date of Grant: ________________________ ___, 199__
Option Expiration Date: ________________________ ___, 200__
EXERCISE SCHEDULE: The Option shall become exercisable as follows:
SUMMARY OF OTHER TERMS: This Option is defined in the Stock Option
Agreement (Incentive Stock Option) (the "OPTION AGREEMENT") which is attached to
this Option Certificate (the "CERTIFICATE") as Annex I. This Certificate
summarizes certain of the provisions of the Option Agreement for your
information, but is not complete. Your rights are governed by the Option
Agreement, not by this summary. The Company strongly suggests that you
---
carefully review the full Option Agreement prior to signing this Certificate or
exercising the Option.
22
<PAGE>
Among the terms of the Option Agreement are the following:
EMPLOYMENT: The Option Agreement does not obligate the Company to retain
you for any period of time. Unless otherwise agreed in writing, the Company
-- -------
reserves the right to terminate any employee at any time, with or without cause.
See Section 5(d) of the attached Option Agreement.
TERMINATION OF EMPLOYMENT: While the Option terminates on the Option
Expiration Date, it will terminate earlier if you cease to be employed by the
Company. If your employment ends due to death or permanent disability, the
Option terminates six months after the date of death or disability, and is
exercisable during such six-month period as to the portion of the Option which
had vested prior to the date of death or disability. In all other cases, the
Option terminates 45 days after the date of termination of employment, and is
exercisable during such time period as to the portion of the Option which had
vested prior to the date of termination of employment; provided, however, if you
-------- -------
are terminated "for cause," the Option will terminate 30 days after the date of
termination of your employment and is exercisable during such time period as to
the portion of the Option which had vested prior to the date of termination of
employment. See Section 5 of the attached Option Agreement.
TRANSFER: The Option is personal to you, and cannot be sold, transferred,
assigned or otherwise disposed of to any other person, except on your death.
See Section 15(d) of the attached Option Agreement.
EXERCISE: You can exercise the Option (once it is exercisable), in whole
or in part, by delivering to the Company a Notice of Exercise identical to
Exhibit "A" attached to the Option Agreement, accompanied by payment of the
Exercise Price for the Shares to be purchased. The Company will then issue a
certificate to you for the Shares you have purchased. You are under no
obligation to exercise the Option. See Section 4 of the attached Option
Agreement. If at the time of the grant of the Option you own stock possessing
more than 10 percent (10%) of the total combined voting power of all classes of
stock of the Company (applying the attribution rules), you may not exercise the
Option for five (5) years from the date the Option is granted.
MARKET STAND-OFF: The Option provides that in connection with any
underwritten public offering by the Company, you may not sell or transfer any of
your Shares without the prior written consent of the Company or its underwriters
for a period of up to 180 days after the effective date of the offering. See
Section 6(a) of the attached Option Agreement.
ADJUSTMENTS UPON RECAPITALIZATION: The Option contains provisions which
affect your rights in the event of stock splits, stock dividends, mergers and
other major corporate reorganizations. See Section 7 of the attached Option
Agreement.
WAIVER: By signing this Certificate, you will be agreeing to all of the
terms of the Option Agreement, including those not summarized in this
Certificate. You will waive your
23
<PAGE>
rights to options or stock which may otherwise have been promised to you. See
Section 8 of the attached Option Agreement.
WITHHOLDING: The Company may require you to make any arrangements
necessary to insure the proper withholding of any amount of tax, if any,
required to be withheld by the Company as a result of the exercise of the
Option. See Section 13 of the attached Option Agreement.
24
<PAGE>
AGREEMENT
Fox Kids Worldwide, Inc., a Delaware corporation, and Employee each hereby
agrees to be bound by all of the terms and conditions of the Stock Option
Agreement (Incentive Stock Option) which is attached hereto as Annex I and
incorporated herein by this reference as if set forth in full in this document.
DATED: _________________________
FOX KIDS WORLDWIDE, INC.
By: _______________________________________
Its: _______________________________________
EMPLOYEE
____________________________________________
Name:
____________________________________________
(Please print your name exactly as you wish
it to appear on any stock certificates
issued to you upon exercise of the Option)
25
<PAGE>
ANNEX I
STOCK OPTION AGREEMENT
(INCENTIVE STOCK OPTION)
This STOCK OPTION AGREEMENT (this "OPTION AGREEMENT") is made and entered
into as of the execution date of the Option Certificate to which it is attached
(the "CERTIFICATE") by and between Fox Kids Worldwide, Inc., a Delaware
corporation (the "COMPANY"), and the employee named in the Certificate
("EMPLOYEE").
Pursuant to the Fox Kids Worldwide, Inc. 1996 Stock Incentive Plan (the
"PLAN"), the Board of Directors of the Company (the "BOARD") has authorized the
grant to Employee of an incentive stock option to purchase shares of the
Company's Common Stock, par value $.____ per share (the "COMMON STOCK"), upon
the terms and subject to the conditions set forth in this Option Agreement and
in the Plan.
The Company and Employee agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to Employee the right and option (the
"OPTION"), upon the terms and subject to the conditions set forth in this Option
Agreement and the Plan, to purchase all or any portion of that number of shares
of the Common Stock (the "SHARES") set forth in the Certificate at the Option
exercise price set forth in the Certificate (the "EXERCISE PRICE").
2. TERM OF OPTION.
The Option shall terminate and expire on the Option Expiration Date
set forth in the Certificate (the "EXPIRATION DATE"), unless sooner terminated
as provided herein. In no event shall the Option be exercisable after the
expiration of ten years from the date it was granted.
3. EXERCISE PERIOD.
(a) Subject to the provisions of Sections 3(b), 5 and 7(b) of this
Option Agreement, the Option shall become exercisable (in whole or in part) upon
and after the dates set forth under the caption "Exercise Schedule" in the
Certificate. The installments shall be cumulative; i.e., the Option may be
----
exercised, as to any or all Shares covered by an installment, at any time or
times after the installment first becomes exercisable and until the Option
Expiration Date or the termination of the Option.
26
<PAGE>
(b) Notwithstanding anything to the contrary contained in this Option
Agreement, the Option may not be exercised, in whole or in part, unless and
until any then-applicable requirements of all federal, state and local laws and
regulatory agencies shall have been fully complied with to the satisfaction of
the Company and its counsel.
(c) Nothwithstanding anything to the contrary contained in this
Option Agreement, if at the time of the grant of the Option you own stock
possessing more than 10 percent (10%) of the total combined voting power of all
classes of stock of the Company (applying the attribution rules as required
under the Code), you may not exercise the Option for five (5) years from the
date the Option is granted.
4. EXERCISE OF OPTION.
There is no obligation to exercise the Option, in whole or in part.
The Option may be exercised, in whole or in part, only by delivery to the
Company of:
(a) written notice of exercise in form and substance identical to
Exhibit "A" attached to this Option Agreement stating the number of Shares then
being purchased (the "PURCHASED SHARES");
(b) payment of the Exercise Price of the Purchased Shares, either (1)
in cash, or (2) with the consent of the Board (which may be withheld in its
absolute discretion), by (i) delivery to the Company of other shares of Common
Stock with an aggregate Fair Market Value equal to the total Exercise Price of
the Purchased Shares, (ii) according to a deferred payment or other arrangement
(which may include without limiting the generality of the foregoing, the use of
other shares of Common Stock) with the person to whom the Option is granted or
to whom the Option is transferred pursuant to the terms of this Option
Agreement, or (iii) in any other form of legal consideration that may be
acceptable to the Board; and
(c) if requested by the Company, a letter of investment intent in
such form and containing such provisions as the Company may require.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be payable at the minimum rate of interest
necessary to avoid the imputation of interest, under the applicable provision of
the Internal Revenue Code of 1986, as amended (the "CODE") and Treasury
Regulations.
Following receipt of the notice and payment referred to above, the
Company shall issue and deliver to Employee a stock certificate or stock
certificates evidencing the Purchased Shares; provided, however, that the
-------- -------
Company shall not be obligated to issue a fraction or fractions of a share of
its Common Stock, and may pay to Employee, in cash or by check, the Fair Market
Value of any fraction or fractions of a share exercised by Employee. "FAIR
MARKET VALUE" shall be determined as follows: (1) if the Common Stock is listed
on any established
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<PAGE>
stock exchange or a national market system, including without limitation the
Nasdaq National Market, the Fair Market Value of a share of Common Stock shall
be the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in the Common Stock) on the last market trading day
prior to the day of determination, as reported in the Wall Street Journal or
such other source as the Board deems reliable; (2) if the Common Stock is quoted
on the Nasdaq System (but not on the Nasdaq National Market) or is regularly
quoted by a recognized securities dealer but selling prices are not reported,
the Fair Market Value of a share of Common Stock shall be the mean between the
bid and asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable; and (3) in the absence of an
established market for the Common Stock, the Fair Market Value shall be
determined in good faith by the Board.
5. TERMINATION OF EMPLOYMENT.
(a) If Employee shall cease to be an officer or employee of the
Company, or any Subsidiary or Parent of the Company, for any reason other than
death or permanent disability (a "TERMINATING EVENT"), Employee shall have the
right, subject to the provisions of Section 5(c) below, to exercise the Option
at any time following such Terminating Event until the earlier to occur of (1)
45 days following the date of such Terminating Event and (2) the Expiration
Date. The Option may be exercised following a Terminating Event only to the
extent exercisable as of the date of the Terminating Event. To the extent
unexercised at the end of the period referred to above, the Option shall
terminate. The Board, in its sole and absolute discretion, shall determine
whether or not authorized leaves of absence shall constitute termination of
employment for purposes of this Option Agreement.
(b) If, by reason of death or disability (a "SPECIAL TERMINATING
EVENT"), Employee shall cease to be an officer or employee the Company or any
Subsidiary or Parent of the Company, then Employee, Employee's executors or
administrators or any person or persons acquiring the Option directly from
Employee by bequest or inheritance, shall have the right to exercise the Option
at any time following such Special Terminating Event until the earlier to occur
of (1) six months following the date of such Special Terminating Event and (2)
the Expiration Date. The Option may be exercised following a Special
Terminating Event only to the extent exercisable at the date of the Special
Terminating Event. To the extent unexercised at the end of the period referred
to above, the Option shall terminate. For purposes of this Option Agreement,
"disability" shall mean total and permanent disability as defined in Section
22(e)(3) of the Code. Employee shall not be considered permanently disabled
unless he furnishes proof of such disability in such form and manner, and at
such times, as the Board may from time to time require.
(c) If Employee shall be terminated "for cause" by the Company, any
Subsidiary or any Parent, Employee shall have the right to exercise the Option
at any time following such Terminating Event until the earlier to occur of (1)
30 days following the date of
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such Terminating Event and (2) the Expiration Date. For purposes of this Option
Agreement, "for cause" shall mean the following to the extent it results in
substantial harm to the Company or could reasonably be expected to result in
substantial harm to the Company:
(1) the willful failure or refusal by Employee to perform his
duties to the Company; or
(2) Employee's willful disobedience of any orders or directives
of the Board or any officers thereof acting under the authority thereof or
Employee's deliberate interference with the compliance by other employees of the
Company with any such orders or directives; or
(3) the willful failure or refusal of Employee to abide by or
comply with the written policies, standard procedures or regulations of the
Company; or
(4) any willful or continued act or course of conduct by
Employee which the Board in good faith determines might reasonably be expected
to have a material detrimental effect on the Company or the business,
operations, affairs or financial position thereof; or
(5) the committing by the Employee of any fraud, theft,
embezzlement or other dishonest act against the Company; or
(6) the determination by the Board, in good faith and in the
exercise of reasonable discretion, that Employee is not competent to perform his
duties of employment.
(d) Nothing in the Plan, the Certificate or this Option
Agreement shall confer upon the Employee any right to continue in the employ of
the Company or any affiliate (as defined in the Plan) or shall affect the right
of the Company or any Affiliate to terminate the employment of the Employee,
with or without cause.
6. RESTRICTIONS ON PURCHASED SHARES.
(a) MARKET STAND-OFF.
(1) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended (the "1933 ACT"), including
the Company's initial public offering, Employee shall not sell, make any short
sale of, loan, hypothecate, pledge, grant any option for the purchase of, or
otherwise dispose or transfer for value or otherwise agree to engage in any of
the foregoing transactions with respect to any Purchased Shares without the
prior written consent of the Company or its underwriters, for such period of
time from and after the effective date of such registration statement as may be
requested by the Company or such
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underwriters; provided, however, that in no event shall such period exceed 180
-------- -------
days. Employee agrees to execute and deliver to the Company such further
documents or instruments as the Company reasonably determines to be necessary or
appropriate to effect the provisions of this Section 6(a).
(2) In the event of any stock dividend, stock split,
recapitalization or other transaction resulting in an adjustment under Section 7
hereof, then any new, substituted or additional securities or other property
which is by reason of such transaction distributed with respect to or in
exchange for the Purchased Shares shall be immediately subject to the provisions
of this Section 6(a), to the same extent the Purchased Share are at such time
covered by such provisions.
(3) In order to enforce the provisions of Section 6(a), the
Company may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
(b) SECURITIES LAW RESTRICTIONS. None of the Purchased Shares shall
be Transferred (with or without consideration) and the Company shall not be
required to register any such Transfer and the Company may instruct its transfer
agent not to register any such Transfer, unless and until all of the following
events shall have occurred:
(1) the Purchased Shares are Transferred pursuant to and in
conformity with (i) (A) an effective registration statement filed with the
Securities and Exchange Commission (the "COMMISSION") pursuant to the 1933 Act,
or (B) an exemption from registration under the 1933 Act, and (ii) the
securities laws of any state of the United States; and
(2) Employee has, prior to the Transfer of such Purchased
Shares, and if requested by the Company, provided all relevant information to
Company's counsel so that upon Company's request, Company's counsel is able to,
and actually prepares and delivers to the Company a written opinion that the
proposed Transfer (i) (A) is pursuant to a registration statement which has been
filed with the Commission and is then effective, or (B) is exempt from
registration under the 1933 Act as then in effect, and the Rules and Regulations
of the Commission thereunder, and (ii) is either qualified or registered under
any applicable state securities laws, or exempt from such qualification or
registration. The Company shall bear all reasonable costs of preparing such
opinion.
(c) NONCOMPLYING TRANSFERS INVALID. Any attempted Transfer which
is not in full compliance with this Section 6 shall be null and void ab initio,
---------
and of no force or effect.
7. ADJUSTMENTS UPON RECAPITALIZATION.
(a) Subject to the provisions of Section 7(b), if any change is made
in the Common Stock, without receipt of consideration by the Company (through
merger,
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consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company) the Option will be appropriately adjusted in the class(es) and number
of shares and price per share of stock subject to the Option. Such adjustments
shall be made by the Board, the determination of which shall be final, binding
and conclusive. The conversion of any convertible securities of the Company
shall not be treated as a "transaction not involving the receipt of
consideration by the Company."
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then, at the sole discretion of the Board and to the extent permitted
by applicable law, the Option shall (i) terminate upon such event and may be
exercised prior thereto to the extent the Option is then exercisable or (ii)
continue in full force and effect and, if applicable, the surviving corporation
or an Affiliate of such surviving corporation shall assume the Option and/or
shall substitute similar option or award in place of the Option.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, and its
determination shall be final, binding and conclusive.
(d) The provisions of this Section 7 are intended to be exclusive,
and Employee shall have no other rights upon the occurrence of any of the events
described in this Section 7.
(e) The grant of the Option shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations or
changes in its capital or business structure, or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.
8. WAIVER OF RIGHTS TO PURCHASE STOCK.
By signing this Option Agreement, Employee acknowledges and agrees
that neither the Company nor any other person or entity is under any obligation
to sell or transfer to Employee any option or equity security of the Company,
other than the Shares subject to the Option and any other right or option to
purchase Common Stock which was previously granted in writing to Employee by the
Board. By signing this Option Agreement, Employee specifically waives all
rights which he or she may have had prior to the date of this Option Agreement
to receive any option or equity security of the Company.
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<PAGE>
9. INVESTMENT INTENT.
Employee represents and agrees that if he or she exercises the Option
in whole or in part, and if at the time of such exercise the Plan and/or the
Purchased Shares have not been registered under the 1933 Act, he or she will
acquire the Shares upon such exercise for the purpose of investment and not with
a view to the distribution of such Shares, and that upon each exercise of the
Option he or she will furnish to the Company a written statement to such effect.
10. LEGEND ON STOCK CERTIFICATES.
Employee agrees that all certificates representing the Purchased
Shares will be subject to such stock transfer orders and other restrictions (if
any) as the Company may deem advisable under the rules, regulations and other
requirements of the Commission, any stock exchange upon which the Common Stock
is then listed and any applicable federal or state securities laws, and the
Company may cause a legend or legends to be put on such certificates to make
appropriate reference to such restrictions.
11. NO RIGHTS AS SHAREHOLDER.
Except as provided in Section 7 of this Option Agreement, Employee
shall have no rights as a shareholder with respect to the Shares until the date
of the issuance to Employee of a stock certificate or stock certificates
evidencing such Shares. Except as may be provided in Section 7 of this Option
Agreement, no adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is issued.
12. MODIFICATION.
Subject to the terms and conditions and within the limitations of the
Plan, the Board (excluding the Employee) may modify, extend or renew the Option
or accept the surrender of, and authorize the grant of a new option in
substitution for, the Option (to the extent not previously exercised). No
modification of the Option shall be made which, without the consent of Employee,
would cause the Option to fail to continue to qualify as an "incentive stock
option" under Section 422 of the Code or would alter or impair any rights of the
Employee under the Option.
13. DISQUALIFYING DISPOSITION; WITHHOLDING.
(a) To receive the favorable tax treatment accorded grants and
exercises of incentive stock options, Employee must hold the Purchased Shares
until the later of two years after the grant of this Option or one year after
the issuance of the Purchased Shares to the Employee (the "HOLDING PERIOD").
Employee understands that should he or she make a disposition of those shares
(as defined in Section 424(c) of the Code) (a "DISQUALIFYING
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DISPOSITION") before the end of the Holding Period, Employee will recognize
taxable ordinary income to the extent of the difference between the Fair Market
Value of the Purchased Shares upon the exercise and the Exercise Price.
Employee agrees that should he or she make a Disqualifying Disposition of all or
any of the Purchased Shares, he or she shall immediately advise the Company in
writing as to the occurrence of the sale and the price realized upon the sale of
such Purchased Shares. Employee agrees that he or she shall maintain all
Purchased Shares in his or her name so long as he or she maintains beneficial
ownership of such Shares.
(b) The Company shall be entitled to require as a condition of
delivery of any Purchased Shares upon exercise of any Option that the Employee
agree to remit, at the time of such delivery or at such later date as the
Company may determine, an amount sufficient to satisfy all federal, state and
local withholding tax requirements relating thereto, and Employee agrees to take
such other action required by the Company to satisfy such withholding
requirements.
(c) With the consent of the Board, and in accordance with any rules
and procedures from time to time adopted by the Board, Employee may elect to
satisfy his or her obligations under Section 13(b) above by (1) directing the
Company to withhold a portion of the Shares otherwise deliverable (or to tender
back to the Company a portion of the Shares issued where the Employee (a
"SECTION 16(B) RECIPIENT") is required to report the ownership of the Shares
pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended,
and has not made an election under Section 83(b) of the Code (a "WITHHOLDING
RIGHT")); or (2) tendering other shares of the Common Stock of the Company which
are already owned by Employee which in all cases have a Fair Market Value (as
determined in accordance with the provisions of Section 4 hereof) on the date as
of which the amount of tax to be withheld is determined (the "TAX DATE") equal
to the amount of taxes to be paid by such method.
(d) To exercise a Withholding Right, the Employee must follow the
election procedures set forth below, together with such additional procedures
and conditions set forth in this Option Agreement or otherwise adopted by the
Board:
(1) the Employee must deliver to the Company a written notice of
election (the "ELECTION") and specify whether all or a stated percentage of the
applicable taxes will be paid in accordance with Section 13(c) above and whether
the amount so paid shall be made in accordance with the "flat" withholding rates
for supplemental wages or as determined in accordance with Employee's form W-4
(or comparable state or local form);
(2) unless disapproved by the Board as provided in subsection
(3) below, the Election once made will be irrevocable;
(3) no Election is valid unless the Board has the right and
power, in its sole discretion, with or without cause or reason therefor, to
consent to the Election, to refuse
33
<PAGE>
to consent to the Election, or to disapprove the Election; and if the Board has
not consented to the Election on or prior to the Tax Date, the Election will be
deemed approved; and
(4) if the Employee on the date of delivery of the Election to
the Company is a Section 16(b) Recipient, the following additional provisions
will apply:
(i) the Election cannot be made during the six calendar
month period commencing with the date of grant of the Withholding Right (even if
the Option to which such Withholding Right relates has been granted prior to
such date); and
(ii) the Election (and the exercise of the related Option)
must be made either during the period beginning on the third business day
following the date of release for publication of the quarterly or annual summary
statements of sales and earnings of the Company and ending on the 12th business
day following such date or at least six calendar months or more prior to the Tax
Date.
14. CHARACTER OF OPTION.
The Option is intended to qualify as an "incentive stock option" as
that term is defined in Section 422 of the Code.
15. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Employee shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Option
Agreement.
(b) NOTICES. All notices, requests, demands and other communications
under this Option Agreement shall be in writing and shall be given to the
parties hereto as follows:
(1) If to the Company, to:
Fox Kids Worldwide, Inc.
10960 Wilshire Boulevard
Los Angeles, California 90024
(2) If to Employee, to the address set
forth in the records of the Company,
or at such other address or addresses as may have been furnished by such either
party in writing to the other party hereto. Any such notice, request, demand or
other communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mail by first-class certified mail, return
receipt requested, postage prepaid, addressed as aforesaid,
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or (ii) if given by any other means, when delivered at the address specified in
this subsection (b).
(c) TRANSFER OF RIGHTS UNDER THIS OPTION AGREEMENT. The Company may
at any time transfer and assign its rights and delegate its obligations under
this Option Agreement to any other person, corporation, firm or entity,
including its officers, directors and stockholders, with or without
consideration.
(d) OPTION NON-TRANSFERABLE. Employee may not sell, transfer, assign
or otherwise dispose of the Option except by will or the laws of descent and
distribution, and the Option may be exercised during the lifetime of Employee
only by Employee or by his or her guardian or legal representative in the case
of a disability, and upon the Employee's death only by his or her Estate or by
any person who acquired the Option by bequest or inheritance or by reason of the
death of the Employee.
(e) SUCCESSORS AND ASSIGNS. Except to the extent specifically limited
by the terms and provisions of this Option Agreement, this Option Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors, assigns, heirs and personal representatives.
(f) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE, EXCEPT TO THE EXTENT
PREEMPTED BY FEDERAL LAW, WHICH SHALL TO THAT EXTENT GOVERN.
(g) INCORPORATION OF PLAN BY REFERENCE. This Option is granted
pursuant to the terms of the Plan, the terms of which are incorporated herein by
reference, and it is intended that this Option Agreement shall be interpreted in
a manner to comply therewith. Any provision of this Option Agreement
inconsistent with the Plan shall be superseded and governed by the Plan.
(h) A COMMITTEE. As provided in the Plan, the Board may delegate
administration of the Plan and this Option Agreement to a committee (the
"COMMITTEE"). If administration is delegated to a Committee, the Committee
shall have, in connection with the this Option Agreement, the powers theretofore
possessed by the Board (and references in this Option Agreement to the Board
shall thereafter be to the Committee).
(i) MISCELLANEOUS. Titles and captions contained in this Option
Agreement are inserted for convenience of reference only and do not constitute a
part of this Option
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Agreement for any other purpose. Except as specifically provided herein,
neither this Option Agreement nor any right pursuant hereto or interest herein
shall be assignable by any of the parties hereto without the prior written
consent of the other party hereto.
THE SIGNATURE PAGE TO THIS OPTION AGREEMENT CONSISTS OF THE LAST PAGE
OF THE CERTIFICATE.
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Exhibit "A"
NOTICE OF EXERCISE
(To be signed only upon exercise of the Option)
To: Fox Kids Worldwide, Inc.
The undersigned, the holder of the enclosed Stock Option Agreement
(Incentive Stock Option), hereby irrevocably elects to exercise the purchase
rights represented by the Option and to purchase thereunder ______* shares of
Common Stock of Fox Kids Worldwide, Inc. (the "COMPANY"), and herewith encloses
payment of $__________ and/or _________ shares of the Company's Common Stock in
full payment of the purchase price of such shares being purchased.
Dated: ____________________
____________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Option)
____________________________________________
(Please Print Name)
____________________________________________
(Address)
* Insert here the number of Shares called for on the face of the Option
(or, in the case of a partial exercise, the number of Shares being exercised),
in either case without making any adjustment for additional Common Stock of the
Company, other securities or property which, pursuant to the adjustment
provisions of the Option, may be deliverable upon exercise.
<PAGE>
EXHIBIT 10.7
MEMORANDUM OF EMPLOYMENT AGREEMENT
This Memorandum of Employment Agreement (this "Agreement"), is made and
entered into as of December 22, 1995, by and between FOX KIDS WORLDWIDE, L.L.C.,
a Delaware limited liability company (the "Company"), and HAIM SABAN
("Executive").
R E C I T A L S
A. Concurrent with the execution of this Agreement, the closing under that
certain LLC Formation Agreement (the "LLC Formation Agreement") dated as of
November 1, 1995, among Saban Entertainment, Inc., a Delaware close corporation
("SEI"), FCN Holding, Inc., a Delaware close corporation ("FCNH") and Fox
Broadcasting Company, a Delaware corporation ("FBC") has occurred; the LLC
Formation Agreement provides, among other things, for the formation and
capitalization of the Company and the negotiation, execution and delivery of
this Agreement; and the execution and delivery of this Agreement is a condition
to that closing.
B. All terms defined in the LLC Formation Agreement which are not otherwise
defined herein shall have the same meanings when used herein; and all terms
defined in the Operating Agreement of the Company (the "Operating Agreement")
dated as of December 22, 1995, by and among SEI, FCNH and FBC, which are not
otherwise defined in the LLC Formation Agreement or this Agreement shall have
the same meanings when used herein.
C. The parties hereto have determined that it is in their respective best
interests to enter into this Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing facts and the mutual
covenants and agreements contained herein, the parties agree as follows:
1. Engagement. Company hereby employs Executive as the Senior Executive-
----------
Saban Entertainment of the Company, to manage, control and supervise, in all
respects and particulars, SEI and each of its direct and indirect subsidiaries
(other than as provided in that certain Employment Agreement dated as of July 1,
1994, by and between Executive and Saban International N.V., for certain non-
United States services of Executive (such agreement, as amended by a Memorandum
of Amendment of even date herewith, the "Other Employment Agreement")), and the
other SEI Managed Businesses, and the businesses, activities, operations,
assets, obligations and liabilities of the SEI Managed Businesses. The rights,
powers and duties of Executive as the Senior Executive-Saban Entertainment shall
include all such rights and powers
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delegated to the person holding that title pursuant to the Operating Agreement,
and shall include, without limitation, to the maximum extent permitted by law
and subject to the limitations contained in the Operating Agreement and subject
to any contractual obligations of the SEI Managed Businesses, any and all
rights, powers and obligations with respect to the SEI Managed Businesses which
under Delaware law are granted to the shareholders, Boards of Directors, general
managers and/or executive officers of the SEI Managed Businesses, including but
not limited to, the right to appoint and remove the directors of the SEI Managed
Businesses, to determine the retention, termination, and designation and
appointment of all corporate officers and other employees, and to delegate any
of such duties and responsibilities to other officers and employees of the SEI
Managed Businesses. The rights, powers and authorities delegated to the Senior
Executive-Saban hereunder shall include, but not be limited to, the exercise of
all rights, powers and authorities of the Company with respect to SEI under the
Management Agreement. All other officers of the SEI Managed Businesses shall
report to, and be subject to the final authority of, Executive.
Executive hereby accepts such engagement and agrees to be bound by all of
the terms and conditions hereof.
2. Term. The term of engagement hereunder ("Term") shall commence on
----
December 22, 1995 and shall expire on the close of business on June 30, 2002,
unless sooner terminated pursuant to the terms of this Agreement.
3. No Power to Remove or Replace Executive. Except as specifically
---------------------------------------
provided in the Operating Agreement, without the prior written consent of
Executive, the Company shall not have the right or power to remove or replace
Executive as Senior Executive-Saban Entertainment, with or without cause, or to
terminate this Agreement or to terminate or modify in any respect or particular
the rights and powers delegated to Executive pursuant to this Agreement, whether
during the Term of this Agreement or thereafter; and notwithstanding the
expiration of the Term, so long as Executive remains Senior Executive-Saban
Entertainment under the terms and conditions of the Operating Agreement, subject
to any written agreement between the parties hereto, the terms and conditions of
this Agreement shall continue to govern the terms of the employment of Executive
as Senior Executive-Saban Entertainment.
4. Exclusive Engagement. Executive shall, during the Term and for so
--------------------
long thereafter as he continues as the Senior Executive-Saban Entertainment
under the terms of the Operating Agreement, devote substantially all of his
business time to the business and affairs of the Company and the SEI Managed
Businesses and shall
2
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give such businesses his highest business priority; provided, however, that
--------
Executive shall have the right to devote a reasonable amount of time to carry on
for his own account (i) any activity within the scope of that certain music
production agreement between Haim Saban d/b/a Bubale Music and SEI, or (ii) any
activity which is outside the scope of the current or anticipated businesses of
the Company or the SEI Managed Businesses, (including, without limitation, the
management of his own investments (none of which would constitute a "Competitive
Activity" under Section 6 hereof) and/or his continued involvement in charitable
and community activities and pursuits) in each case so long as such activities
do not materially affect Executive's ability to fully and faithfully perform his
duties hereunder.
5. Compensation. In consideration for the services to be rendered by
------------
Executive hereunder, the Company shall pay to Employee:
(a) A base salary (i) (x) of $1,000,000 per year for each "Contract
Year" of this agreement; and (y) at the rate of $1,000,000 per year for the
period from December 22, 1995 through June 30, 1996, and for any other partial
Contract Year ( "Contract Year" shall mean that 12 calendar month period
commencing on July 1 in a year during which this Agreement is in effect); in
each case less any amounts allocable to Executive's services pursuant to Section
4(a) of the Other Employment Agreement.
If during the period from July 1, 1995 through the date of this
Agreement Executive has received payments of base salary under that certain
Employment Agreement dated as of July 1, 1994 between Executive and SEI (the
"Assumed Agreement") and/or the Other Employment Agreement (without regard to
the amendment to that document effected concurrently with the execution of this
Agreement) with respect to the current Contract Year, which payments in the
aggregate exceeded $473,972, the amount of such excess payments shall be deemed
to be payments of base salary to Executive under this Section 5(a) and Section
4(a) of the Other Employment Agreement, as amended, and shall be applied as a
credit against the first payments of base salary to be made to Executive
hereunder and under the Other Employment Agreement.
(b) Reimbursement for all ordinary and necessary out-of-pocket
expenses incurred by Executive in connection with the business of the Company,
including any entertainment expenses and any expenses incurred by Executive in
carrying on the business of the Company or the Saban Managed Businesses at
Executive's home. In addition, Company shall provide to Executive for
Executive's use Company's limousine and driver and shall further reimburse or
pay directly all gas, oil maintenance, insurance and license and registration
fees for one automobile of Executive, specified by Executive. Executive is
authorized to incur and will be reimbursed
3
<PAGE>
by the Company for all out-of pocket costs and expenses of Executive for
domestic and international business travel, including, with respect to air
travel, all costs and expenses of private air charter (which may include, if
Executive so determines, aircraft owned or personally leased by Executive or an
Affiliate of Executive, in which case Executive will be entitled to charge the
Company for the use of such aircraft at then-current market rates for comparable
aircraft). Executive shall keep such records and provide such documentation as
shall be required to substantiate such expenses in accordance with applicable
Internal Revenue regulations.
6. Noncompetition. Executive agrees that for so long as Executive
--------------
remains Senior Executive -- Saban Entertainment under the Operating Agreement,
and for a period terminating five years thereafter (excluding, however, any
period following termination of Executive as a result of the breach of this
Agreement by the Company), he will not, directly or indirectly, provide
consultative services to, or own, manage, operate, control, participate in, or
be connected as a stockholder, partner or otherwise with, any Person (including
that Person's Affiliates) that is engaged in competition with the business of
the Company or any subsidiary of the Company, as such business has been
conducted during the 12-month period ending on the date of termination of
Executive's employment as Senior Executive - Saban Entertainment (such
activities collectively, the "Competitive Activities"). Notwithstanding the
foregoing, Executive shall not be deemed to be engaged in a Competing Activity
by reason of owning up to five percent of any class of the outstanding debt or
equity securities of a Person, any of whose securities are listed on a national
securities exchange, registered under Section 12(g) of the Securities Exchange
Act of 1934, as amended, or otherwise regularly traded in the over-the-counter
market. The provisions of Section 11 of the Assumed Agreement shall apply to any
breach by Executive of the provisions of this Section 7.
7. Additional Right to Terminate. Notwithstanding the provisions of
-----------------------------
Section 16 of the Assumed Agreement (as modified by the provisions of Section 8
of this Agreement), this Agreement may be terminated by the Company at any time
subsequent to the date upon which a "Terminating Event" (as that term is defined
in Section 4.10 of the Operating Agreement) has occurred, by delivery to
Executive of written notice of the Company's election to terminate Executive
pursuant hereto, accompanied by payment, in immediately available funds, and
without offset, of an amount equal to Executive's base salary for the balance of
the Term, determined by multiplying Executive's annual base salary as in effect
at the date of such notice by the number of Contract Years, and fractions of a
Contract Year, between the date of such notice and June 30, 2002.
4
<PAGE>
8. Assumed Agreement; Incorporation by Reference. All of the terms of
---------------------------------------------
the Assumed Agreement, a copy of which is attached hereto as Exhibit "A", which
are not inconsistent with this Agreement are incorporated herein by reference
and shall form a part of this Agreement, as if they had been fully set forth
herein; provided, that all references therein to "Employer," "Employee" and
--------
"TVE" shall refer instead, mutatis mutandis, to the Company, Executive, and the
------- --------
Senior Executive-Children's Network; the following provisions are not
incorporated herein, and shall be of no force or effect: Section 1, Section 2,
the first four sentences of Section 3, Section 4, Section 6(a)(iii), Section
7(a)(iii), the last sentence of Section 16 and Section 18; and the Company's
right to terminate the Agreement pursuant to Section 16 shall be subject to
Section 3 of this Agreement (provided, however, that Section 16 shall apply in
-------- -------
full at such time as either a "Triggering Event" or a "Terminating Event," as
those terms are defined in Section 4.10 of the Operating Agreement, has
occurred); and the following provisions are modified as follows: all references
to "Section 4(a)" shall refer instead to Section 5(a) of this Agreement; and the
address set forth in Section 19 shall refer instead to 10960 Wilshire Boulevard,
Los Angeles, California 90024. Except as incorporated herein and assumed hereby,
the Assumed Agreement shall not be applicable for any periods subsequent to the
date of this Agreement, and Executive shall be the employee of the Company, and
not SEI, effective December 22, 1995.
9. Miscellaneous Provisions.
------------------------
9.1 In this Agreement, headings are for convenience only and shall
not affect interpretation, and except to the extent that the context otherwise
requires: (i) references to any legislation or to any provision of any
legislation include any modification or re-enactment of, or any legislative
provision substituted for, and all statutory instruments issued under, such
legislation or such provision; (ii) words denoting the singular include the
plural and vice versa; (iii) words denoting individuals include corporations and
other Persons and vice versa; (iv) words denoting any gender include all
genders; (v) references to any document, agreement or other instrument
(including this Agreement) include references to such document, agreement or
other instrument as amended, novated, supplemented or replaced from time to
time; (vi) references to clauses, sub-clauses, sections, sub-sections, Schedules
and Exhibits are to clauses, sub-clauses, sections, sub-sections, Schedules and
Exhibits of this Agreement; (vii) "or" is not exclusive; (viii) "$", and all
other references to dollar amounts, are in U. S. currency; (ix) references to
any party to this Agreement or any other document, agreement or other instrument
includes its successors or permitted assigns; and (x) "writing" and
5
<PAGE>
cognate expressions include all means of reproducing words in a tangible and
permanently visible form.
9.2 Notices. All notices, demands or other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given (i) if delivered
in person, upon delivery thereof, or (ii) if mailed, certified first class mail,
postage pre-paid, with return receipt requested, on the fifth day after the
mailing, or (iii) if sent by telex or facsimile transmission, with a copy mailed
on the same day in the manner provided in (ii) above, when transmitted and
receipt is confirmed by telephone or telex or facsimile response, or (iv) if
otherwise actually delivered, when delivered:
9.2.1 If to Company, the registered agent in the State of
Delaware.
With a copy to:
Squadron, Ellenoff, Plesent & Scheinfeld, LLP
555 Fifth Avenue
New York, New York 10176
Fax: (212) 697-6686
Attn: Harvey Horowitz, Esq.
9.2.2 If to Executive:
Haim Saban
Saban Entertainment, Inc.
10960 Wilshire Boulevard
Los Angeles, CA 90024
Fax:
With a copy to:
Matthew G. Krane, Esq.
2051 Hercules Drive
Los Angeles, CA 90046
Fax: 213-851-1178
and with a copy to:
Troop Meisinger Steuber & Pasich
10940 Wilshire Boulevard, Suite 800
Los Angeles, California 90024
Attention: Richard E. Troop, Esq.
Fax: 310-443-8503
6
<PAGE>
or at such other address or addresses as may have been furnished by such Person
in like manner to the other parties.
9.3 Severability. Should any Section or any part of a Section within
------------
this Agreement be rendered void, invalid or unenforceable by any court of law
for any reason, such invalidity or unenforceability shall not void or render
invalid or unenforceable any other Section or part of a Section in this
Agreement.
9.4 Governing Law. THE TERMS OF THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE WITHIN, AND TO BE PERFORMED WITHIN, SUCH STATE, EXCLUDING
CHOICE OF LAW PRINCIPLES OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE
LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
9.5 Amendments and Waivers. Neither this Agreement nor any term
----------------------
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any term of this Agreement may be amended and the observance of any
such term may be waived (either generally or in a particular instance and either
retroactively or prospectively) with (but only with) the written consent of both
parties hereto. No delay or omission to exercise any right, power or remedy
accruing to any party hereto shall impair any such right, power or remedy of
such party nor be construed to be a waiver of any such right, power or remedy
nor constitute any course of dealing or performance hereunder.
9.6 Entire Agreement. This Agreement contains the entire
----------------
understanding of the parties, and there are no further or other agreements or
understandings, written or oral, in effect between the parties relating to the
subject matter hereof unless expressly referred to herein. No party to this
Agreement makes any representation or warranty except as expressly set forth
herein.
9.7 Formal Documentation. Pursuant to Section 4.4 of the LLC
--------------------
Formation Agreement, Executive and FCNH were to negotiate and cause to be
prepared, and to be executed and delivered, the "Saban Employment Agreements"
therein referred to. This Agreement and the amendment to the Other Employment
Agreement constitute such agreements, and are fully binding on the parties
hereto. However, in the interests of time, the terms of the Assumed Employment
Agreement incorporated herein by reference, and the terms of the Other
Employment Agreement, have not been fully negotiated by the parties; and each
party reserves the right at any time on or prior to June 30, 1996 to require
both parties to enter into negotiations with respect thereto, and to cause an
integrated contract resulting therefrom to be executed by the parties; all
disputes arising in such negotiations shall be subject to the dispute resolution
7
<PAGE>
procedures set forth in said Section 4.4. In no event shall any proposed
modifications to the provisions of Sections 1 through 5 hereof be subject to
such proceedings.
9.8 Rules of Precedence. In the event of any conflict between the
-------------------
provisions of this Agreement and either the LLC Formation Agreement, the
Operating Agreement or the Assumed Agreement, the conflicts will be resolved in
the following order of precedence: the Operating Agreement, this Agreement, the
LLC Formation Agreement and the Assumed Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Memorandum of
Employment Agreement to be duly executed and delivered as of the date first
written above.
/s/ Haim Saban
----------------------------------
HAIM SABAN
FOX KIDS WORLDWIDE, L.L.C
By: /s/ Jay Itzkowitz
------------------------------
Its: _________________________
8
<PAGE>
CONSENT
THE UNDERSIGNED, Saban Entertainment, Inc., hereby consents to the
foregoing assumption by Fox Kids Worldwide, L.L.C., of the Employment Agreement
of Haim Saban dated as of July 1, 1994.
DATED: December 22, 1995
SABAN ENTERTAINMENT, INC.
By: /s/ Mel Woods
------------------------------
Mel Woods
Its: Chief Operating Officer
9
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (this "Agreement") is entered into as of the
first day of January, 1996 by and between Fox Kids Worldwide, L.L.C., a Delaware
limited liability company ("Company"), and Margaret Loesch ("Employee"):
1. ENGAGEMENT.
(a) Engagement; Title. Company hereby engages Employee (i) until
-----------------
such time as the "Reorganization" (as defined in the Strategic Stockholders
Agreement dated as of December 22, 1995 by and among Saban Entertainment, Inc.
("Saban"), Haim Saban, each of the entities listed in Schedule A thereto, Fox
Broadcasting Company, FCN Holding, Inc. and FCNH Sub, Inc. ("FCNHSub") (the
"Strategic Stockholders Agreement")) is effected, to render services as the
"Senior Executive -- Children's Network" of Company, and as the "Chairman and
Chief Executive Officer" of its Fox Kids Networks Worldwide division, and (ii)
from and after the date upon which a Reorganization is effected, to render
services as one of the two Presidents of the "Successor Entity" (as defined in
the Strategic Stockholders Agreement) and as the Chairman and Chief Executive
Officer of its Fox Kids Networks Worldwide division, in each case pursuant to
the terms and conditions hereof, and Employee hereby accepts such engagement.
(b) Effect of Reorganization. If the Reorganization is effected,
------------------------
this Agreement shall be assigned by Company to the Successor Entity, which shall
assume all obligations of Company hereunder; and unless the context shall
otherwise require, from and after the date of the Reorganization all references
in this Agreement to "Company" shall refer instead to the Successor Entity. All
references in this Agreement to the "Board of Directors" of the Company shall,
prior to the Reorganization, refer instead to the Members Committee (and
including the Operating Committee thereof) of the Company.
(c) Reporting. Employee shall initially report and be subject to the
---------
overall direction and supervision of the Operating Committee of Company.
Following the Reorganization, Employee shall report to and be subject to the
overall direction and supervision of Haim Saban, the Chairman and Chief
Executive Officer of the Successor Entity. Should the position of Chairman and
Chief Executive Officer of the Successor Entity be held at any time by two
different people, Employee shall report to and be subject to the overall
direction and supervision of the Chief Executive Officer. Employee understands
that certain other executives of
<PAGE>
Company will also report directly to Haim Saban and to the Chief Executive
Officer of the Successor Entity.
(d) Directorships; Other Responsibilities. Initially, Employee will
-------------------------------------
be named a Class I Committee Member of the Members committee and the Operating
Committee of Company. Following the Reorganization, subject to legal and other
considerations, it is intended that Employee will be elected as one of the Fox
appointees to the Board of Directors of Successor Entity. Employee agrees to
accept her election or appointment to each of such positions.
2. NATURE AND PLACE OF SERVICES.
(i) Employee shall be primarily responsible for the customary and
regular duties of a network president, including but not limited to the creative
aspects of programming relating to the Fox Kids Channel, and to each other Fox
Kids Channel included in Fox Kids Networks Worldwide, including cable and
satellite services (collectively, "Network Responsibilities"), and will render
all services usually and customarily rendered by and required of executives
similarly employed in the entertainment industry, as well as such other services
as may be reasonably required by Company. Company will not, during the term of
this Agreement, hire any person with Network Responsibilities senior to Employee
or any person with Network Responsibilities who does not report, directly or
indirectly, to Employee.
(ii) Employee shall render her services for the Company in Los Angeles
County, California.
3. EXCLUSIVITY. Employee shall work full-time for Company and its
affiliates during the Term hereof. Without limiting the foregoing, Employee's
services shall be rendered exclusively to Company and its affiliates hereunder
during the Term (as defined below) of this Agreement, and Employee shall not
render services of any nature to or for any other person, firm or corporation
during the Term of this Agreement without the prior written consent of Company.
For so long as Employee is employed pursuant to the terms hereof, Employee shall
not become financially interested in or associated with, directly or indirectly,
any other person or entity engaged in the production, distribution or exhibition
of motion pictures, television programs, phonograph recordings, or any visual or
audio recordings of any kind, or in the broadcasting or music publishing
businesses, anywhere in the world; provided, that Employee may invest in the
capital stock or other securities of any corporation whose stock or other
securities are publicly owned or are regularly traded on any securities exchange
or in the over-the-counter market, so long as Employee's ownership of such
securities does not exceed 5% of the issued and outstanding securities of such
entity and Employee's holdings in any one such entity does not in
2
<PAGE>
the aggregate cost Employee more than $100,000. Company acknowledges that
Employee has an ownership interest in certain radio stations in the North
Carolina area. This investment is hereby excluded from the application of this
Paragraph 3 as long as such investment does not interfere with Employee's
ability to perform the duties set forth hereunder.
4. TERM. The term of this Agreement ("Term") shall commence on January 1,
1996 and, subject to termination as hereinafter provided, expire with the close
of business on December 31, 2000. Each consecutive year of the Term beginning
on January 1 and ending on the following December 31 shall be referred to as a
"Term Year."
5. COMPENSATION.
(a) Fixed Salary. As consideration for the services to be rendered by
------------
Employee pursuant hereto, and upon condition that Employee is substantially
performing all of the services required hereunder, that Employee is not in
material default, and that grounds do not then exist under this Agreement for
the termination of Employee hereunder, Company will pay or will cause to be paid
to Employee, subject to all applicable laws and requirements respecting
withholding of federal, state, and/or local taxes, a fixed annual salary,
payable in equal installments, no less frequently than semi-monthly, in the
following amounts:
FOR THE FIRST TERM YEAR: Five Hundred Fifty Thousand Dollars ($550,000).
FOR THE SECOND TERM YEAR: Five Hundred Seventy-Five Thousand Dollars
($575,000).
FOR THE THIRD TERM YEAR: Six Hundred Thousand Dollars ($600,000).
FOR THE FOURTH TERM YEAR: Six Hundred Twenty-Five Thousand Dollars
($625,000).
FOR THE FIFTH TERM YEAR: Six Hundred Fifty Dollars ($650,000).
(b) Contingent Bonus. Provided Employee is not in material default
----------------
hereof, and that grounds do not then exist under this Agreement for the
termination of Employee hereunder, Company will pay or will cause to be paid to
Employee, subject to all applicable laws and requirements respecting withholding
of federal, state, and/or local taxes, the "Contingent Bonus," as hereinafter
defined, for each Term Year. The Contingent Bonus for any Term Year shall be an
amount equal to the greater of (i) one percent (1%) of the "Net Pre-Tax Income"
-------
of FCNHSub, as defined in Paragraph 5(c) below, for the fiscal year of FCNHSub
ending within
3
<PAGE>
such Term Year, or (ii) one percent (1%) of the "Combined Net Pre-Tax Income" of
FCNHSub and Saban, as defined in Paragraph 5(d) below, for the fiscal year of
FCNHSub ending within such Term Year; provided, however, that the Contingent
-------- -------
Bonus shall be no less than $300,000 in any one Term Year and shall not be in
excess of $575,000 in the First Term Year, $600,000 in the Second Term Year,
$625,000 in the Third Term Year, $650,000 in the Fourth Term Year or $675,000 in
the Fifth Term Year.
(c) Net Pre-Tax Income. "Net Pre-Tax Income" for any Term Year shall
------------------
be the net pre-tax income, before extraordinary items, of FCNHSub and its
consolidated subsidiaries (excluding, for purposes of such computation, the net
pre-tax income of Company) for the fiscal year of FCNHSub which ends within such
Term Year.
(d) Combined Net Pre-Tax Income. "Combined Net Pre-Tax Income" for
---------------------------
any Term Year shall be the amount, if any, by which the net pre-tax income of
Saban and FCNHSub, for the fiscal year of FCNHSub which ends within such Term
Year, on a combined basis, before extraordinary items, and after combining
adjustments to avoid duplication of items of income or expenses, exceeds $60
million.
(e) Payment of Contingent Bonus. The Contingent Bonus, if any, for
---------------------------
any Term Year shall be payable to Employee on the last business day of the first
calendar week in the first calendar year following the Term Year; provided, that
--------
if the auditors for FCNHSub and Saban have not issued their respective audited
consolidated financial statements for their fiscal years by the end of the
related Term Year, Company will pay or will cause to be paid to Employee,
subject to all applicable laws and requirements respecting withholding of
federal, state, and/or local taxes, an amount equal to eighty-five percent (85%)
of the amount that would constitute the Contingent Bonus for such Term Year if
the Contingent Bonus were computed based on FCNHSub's and Saban's then most
recently prepared unaudited consolidated income statements for such fiscal year.
However, if FCNHSub's audited financial statements are completed but Saban's are
not, or vice versa, then Company shall pay to Employee the portion of the
---- -----
Contingent Bonus based on such individual company's audited financial
statements. In any case, such amount shall constitute an advance against the
Contingent Bonus for such Term Year. In the event such advance is in excess of
the Contingent Bonus for such Term Year, Employee shall, within three (3)
business days after issuance of the audited consolidated financial statements
for such fiscal year, pay to Company an amount equal to such excess.
(f) Stock Options. Saban has, effective January 1, 1996, granted to
-------------
Employee an option to purchase sixteen and three hundred twenty-seven one
thousandths (16.327) shares ("Option
4
<PAGE>
Shares") of Saban common stock at a purchase price of Six Hundred Twelve
Thousand Five Hundred Dollars ($612,500.00) per share, subject to the terms and
conditions of that certain Stock Option Agreement dated as of January 1, 1996
between Saban and Employee (the "Stock Option Agreement").
(g) Employee Benefits.
(i) Reimbursements. Company shall reimburse Employee for
--------------
all ordinary and necessary business, entertainment and other expenses reasonably
incurred by Employee in the performance of Employee's duties and obligations
under this Agreement, including reimbursement for air travel and accommodations
for business travel. Company agrees to repay or reimburse Employee for such
business expenses upon the presentation of itemized statements of such business
expenses in accordance with Company's policy.
(ii) Annual Vacations. Employee shall be entitled to take
----------------
four (4) weeks annual vacation for each Term Year.
(iii) Health Insurance and Other Employee Benefits.
--------------------------------------------
Company shall provide Employee with health insurance for her and her dependents
no less favorable in benefits than any other employee of Company. To the extent
that Company establishes any other employee benefit plan which provides benefits
to executives of Company generally, Employee shall be entitled to participate in
such plan pursuant to the terms thereof, except that Company may exclude
Employee's participation in any plan which is a stock option plan or plan
similar to a stock option plan. If Employee cannot receive medical coverage
under Company's medical plans, Company will make certain that Employee does not
lose medical coverage on the transfer of her employment from Fox, Inc. to
Company.
6. CONSULTING AGREEMENT. Provided that Employee is not in material
default hereof, and that grounds do not then exist under this Agreement (other
than the expiration of the Term hereof) for the termination of Employee
hereunder, if not less than three months nor more than six months prior to the
expiration of the Term Employee requests in writing that the Company renew this
Agreement, on substantially the same terms (excluding, however, the grant of any
additional stock options), for a period of not less than two years, and if the
Company does not renew this Agreement for at least two years, then, effective on
the last day of the Term, Company and Employee will enter into a five-year, non-
exclusive Consulting Agreement, substantially in the form of Exhibit "A" hereto,
pursuant to which, inter alia, Company will agree, on the terms and conditions
----- ----
therein set forth, that Company shall pay to Employee, ratably over the five-
year period, an amount equal, in the aggregate, to the amount (if any) by which
$1,250,000 exceeds
5
<PAGE>
((A) the fair market value of Employee's Option Shares with respect to which
Employee's option granted under the Stock Option Agreement has vested but has
not been exercised, less Employee's purchase price for the Option Shares with
respect to which Employee's option has vested but has not been exercised, plus
(B) the fair market value of any Option Shares owned by Employee, or any
individual, corporation or other entity which acquired such shares from Employee
other than on an arm's-length basis (such persons referred to herein as the
"related holders"), less the option exercise paid by Employee therefor, plus (c)
----
the aggregate amount actually received by Employee or any related holders on the
sale or other disposition of Option Shares, less the option exercise price paid
----
by Employee therefor) (such amount is hereinafter referred to as the "Consulting
Payment"). The value referred to in the preceding sentence shall be determined
as of the termination date. If there is no Consulting Payment, the parties will
not enter into the Consulting Agreement.
7. REPRESENTATIONS AND WARRANTIES.
(a) Representations of Employee. Employee represents and warrants
---------------------------
that Employee has all right, power, authority and capacity, and is free to enter
into this Agreement; that by doing so, Employee will not violate or interfere
with the rights of any other person or entity; and that Employee is not subject
to any contract, understanding or obligation which will or might prevent,
interfere with or impair the performance of this Agreement by Employee. Employee
will indemnify and hold Company harmless with respect to any losses,
liabilities, demands, claims, fees, expenses, damages and costs (including
attorneys fees and court costs) resulting from or arising out of any claim or
action based upon Employee's entering into this Agreement.
(b) Representations of Company. Company represents and warrants that
--------------------------
Company has all right, power and authority, without the consent of any other
person, to execute and deliver, and perform its obligations under, this
Agreement. All corporate and other actions required to be taken by Company to
authorize the execution, delivery and performance of this Agreement and the
consummation of all transactions contemplated hereby have been duly and properly
taken. This Agreement is the lawful, valid and legally binding obligation of
Company, enforceable in accordance with its terms.
(c) Materiality of Representations. The representations, warranties
------------------------------
and covenants set forth in this Agreement shall be deemed to be material and to
have been relied upon by the parties hereto.
8. RELATIONSHIP AND COVENANTS OF EMPLOYEE.
6
<PAGE>
(a) Covenant Not To Disclose. Employee shall not at any time during
------------------------
or after the termination of the Term, knowingly reveal, divulge or make known to
any person (other than Company or its affiliates) or use for Employee's own
account any non-public information concerning or used by Company of which
Employee was apprised or otherwise had become aware during the term of
Employee's employment by Company (excluding any such information which becomes
public for reasons other than Employee's breach of this Agreement or which
Employee is required to disclose by law).
(b) Covenant to Deliver Records. All memoranda, notes, records and
---------------------------
other documents made or compiled by Employee, or made available to Employee
during the term of this Agreement concerning the business of Company shall be
Company's property and shall be delivered to Company on the termination of this
Agreement or at any other time on request. Employee shall keep in confidence and
shall not use for Employee or others, or divulge to others, any secret or
confidential information, knowledge or data of Company obtained by Employee as a
result of Company's employment, unless authorized by Company or required by law.
Employee shall be entitled to retain for her own records only copies of any and
all memoranda, notes, records and other documents made or compiled by Employee
during the Term of this Agreement.
(c) Covenant Not To Divert. Employee shall not so long as Employee is
----------------------
employed hereunder, or if such employment shall terminate during or at the
expiration of the Term, for a period of two years following such termination,
directly or indirectly, either on Employee's own behalf, or as a member of a
partnership, joint venture or corporation, or as an employee or agent on behalf
of any person, firm, partnership, joint venture or corporation, either (i)
solicit, induce (or attempt to induce), or endeavor to entice away any clients
of Company (unless Company consents in writing), (ii) solicit, divert, or seek
to develop or exploit any existing entertainment projects on which Company is
working at the time of termination (unless Company thereafter advises Employee
in writing that it has abandoned such project), or (iii) solicit, interfere
with, induce (or attempt to induce) or endeavor to entice away any employee
(other than Employee's assistant) associated with Company to become affiliated
with her or any other person, firm, partnership, joint venture, corporation or
business organization.
(d) Limitations Upon Covenants. The provisions under this Paragraph 8
--------------------------
shall survive the termination of this Agreement. The parties hereto agree that,
in the event any of the provisions set forth in this Paragraph 8 are held by any
court or other duly constituted legal authority to be effective in any
particular area or jurisdiction only if modified to limit their duration or
scope or to be void or otherwise unenforceable in any particular area or
jurisdiction, then such provisions shall be deemed amended and
7
<PAGE>
modified with respect to that particular area or jurisdiction so as to comply
with the order of any such court or other duly constituted legal authority and,
as to all other areas and jurisdictions, and as to all other provisions of this
Paragraph 8, such provisions shall remain in full force and effect as set forth
in this Agreement.
(e) Remedies. Employee acknowledges that Company will have no
--------
adequate remedy at law if Employee violates the terms of the provisions of this
Paragraph 8 or any other provisions of this Agreement (including, without
limitation, the exclusivity provisions of Paragraph 3, above). In such event,
Company shall have the right, in addition to any other rights it may have, to
obtain in any court of competent jurisdiction injunctive relief to restrain any
breach or threatened breach or specific performance of this Agreement.
9. CERTAIN RIGHTS OF COMPANY.
(a) Announcement. Subject to Company's obligations in connection
------------
with becoming a public company, or as a public company, Company shall provide
Employee with the right to review and approve any public announcement of the
terms, provisions, or execution of this Agreement; provided, however, that
-------- -------
Employee shall not unreasonably withhold such approval.
(b) Use of Name, Likeness and Biography. Company shall have the right
-----------------------------------
(but not the obligation) to use, publish and broadcast, and to authorize others
to do so, the name, approved likeness and approved biographical material of
Employee to advertise, publicize and promote the business of Company and of
affiliates, but not for the purposes of direct endorsement without Employee's
consent. An "approved likeness" and "approved biographical material" shall be,
respectively, any photograph or other depiction of Employee, or any biographical
information or life story concerning the professional career of Employee, which
has been submitted to and approved by Employee prior to its first use,
publication or broadcast, such approval not to be unreasonably withheld.
(c) Corporate Offices. In addition to her positions described in
-----------------
Paragraph 1, Company or its affiliates may from time to time appoint Employee to
one or more corporate offices of Company or its affiliates. Employee agrees to
accept such offices if consistent with Employee's stature and experience.
(d) Right to Insure. Company shall have the right to secure in its
---------------
own name, or otherwise, and at its own expense, life, health, accident or other
insurance covering Employee, and Employee shall have no right, title or interest
in and to such insurance.
8
<PAGE>
Employee shall assist Company in procuring such insurance by submitting to
examinations and by signing such applications and other instruments as may be
required by the insurance carriers to which application is made for any such
insurance.
10. TERMINATION.
(a) Disability. If Employee shall be rendered incapable by illness
----------
(physical or mental disability) of substantially complying with the material
terms, provisions and conditions hereof on her part to be performed for a period
in excess of 90 consecutive days or 250 days in the aggregate during the Term,
then Company may, at its option, prior to the date Employee resumes the
rendering of services, terminate this Agreement by written notice to that effect
sent by registered or certified mail. Such termination shall terminate any and
all obligations to Employee under this Agreement effective as of the date of
such written notice except (i) Employee's right to receive the Fixed Salary in
Paragraph 5(a) for the Term Year in which the date of such written notice falls,
pro-rated to the date of such written notice, (ii) Employee's right to receive
the Contingent Bonus in Paragraph 5(b) for the Term Year in which the date of
such written notice falls, prorated to the date of such written notice (payable
at the time set forth in Paragraph 5(e)), and (iii) Employee's vested rights
with respect to the option set forth in the Stock Option Agreement.
(b) Death. If Employee dies during the Term of this Agreement, such
-----
death shall terminate any and all obligations to Employee under this Agreement
effective as of the date of death except (i) Employee's right to receive the
Fixed Salary in Paragraph 5(a) for the Term Year in which the date of death
falls, pro-rated to the date of death, (ii) Employee's right to receive the
Contingent Bonus in Paragraph 5(b) for the Term Year in which the date of death
falls, pro-rated to the date of death (payable at the time set forth in
Paragraph 5(e)), and (iii) Employee's vested rights with respect to the option
set forth in the Stock Option Agreement.
(c) Cause. Company may terminate Employee's employment hereunder for
-----
cause, which shall mean (i) indictment of Employee for a felony or a crime
involving a high degree of moral turpitude, (ii) the commission by Employee of
an act or acts of dishonesty constituting a crime, which act or acts are
intended to result, directly or indirectly, in gain or personal enrichment at
the expense of Company or any of its subsidiaries or affiliates by Employee,
(iii) certification by a medical doctor that Employee is a habitual alcoholic or
is a narcotic addict, (iv) Employee's material breach of this Agreement. To the
extent that a breach pursuant to subparagraph (iv) is curable by Employee
without harm to Company or its reputation, then Company shall, instead of
9
<PAGE>
immediately terminating Employee pursuant to this Paragraph, provide Employee
with notice of such breach and, specifying the actions required to cure such
breach, Employee shall have ten days to cure such breach by performing the
actions so specified. If Employee fails to cure such breach within the ten day
period, Company may terminate Employee. Any termination pursuant to this
Paragraph shall terminate any and all obligations to Employee under this
Agreement and the Stock Option Agreement effective as of the date of such
written notice except Employee's right to receive the Fixed Salary in Paragraph
5(a) for the Term Year in which the date of such written notice falls, pro-rated
to the date of such written notice.
(d) At Convenience of Company. Company shall have the absolute and
-------------------------
unconditional right to terminate Employee's employment hereunder at any time,
other than pursuant to Paragraphs 10(a), 10(b) or 10(c), by written notice to
that effect delivered in person or sent by registered or certified mail. Subject
to the provisions of Paragraph 11, if applicable, such termination shall
terminate any and all obligations to Employee under this Agreement effective as
of the date of such written notice except (i) Employee's right to receive the
Fixed Salary in Paragraph 5(a) for the Term Year in which the date of such
written notice falls, pro-rated to the date of such written notice, (ii)
Employee's right to receive the Severance Pay provided in, and subject to the
terms and conditions of, Paragraph 11 hereof, (iii) Employee's right to receive
the Contingent Bonus in Paragraph 5(b) for the Term Year in which the date of
such written notice falls, prorated to the date of such written notice (payable
at the time set forth in Paragraph 5(e)), and (iv) Employee's vested rights with
respect to the option set forth in the Stock Option Agreement.
(e) At Employee's Election. Employee may terminate her employment
----------------------
hereunder upon Company's material breach of this Agreement by written notice to
that effect delivered in person or sent by registered or certified mail. Such
termination shall terminate any and all obligations of Company to Employee under
this Agreement, including liabilities with respect to such breach, effective as
of the date of such written notice except (i) Employee's right to receive the
Fixed Salary in Paragraph 5(a) for the Term Year in which the date of such
written notice falls, pro-rated to the date of such written notice, (ii)
Employee's right to receive the Severance Pay provided in, and subject to the
terms and conditions of, Paragraph 11 hereof, (iii) Employee's right to receive
the Contingent Bonus in Paragraph 5(b) for the Term Year in which the date of
such written notice falls, prorated to the date of such written notice (payable
at the time set forth in Paragraph 5(e)), and (iv) Employee's vested rights with
respect to the option set forth in the Stock Option Agreement.
10
<PAGE>
11. SEVERANCE PAY.
In the event Employee's services are terminated by Company pursuant to
Paragraph 10(d) or by Employee pursuant to Paragraph 10(e) above prior to the
completion of the Term, Employee shall receive Employee's fixed salary set forth
in Paragraph 5(a) hereof for the balance of the Term, payable in equal
installments no less frequently than semi-monthly. The termination benefits
contemplated by this Paragraph shall be reduced by the aggregate amount of any
wages, salaries, fees or other compensation ("Earnings") earned by Employee
during the period in which payments pursuant to the first sentence of this
Paragraph are otherwise to be made, as compensation for full-time or part-time
services rendered as an employee, consultant, manager, independent contractor or
in any other employment capacity. For the purposes of determining the amount of
such Earnings, if any, Employee shall apprise Company from time to time, upon
its request, of such amounts earned, providing to Company such evidence thereof
(on a confidential basis), including, without limitation, Employee's federal and
state income tax returns, as Company may reasonably request.
12. ARBITRATION.
(a) The terms of this Paragraph 12 contain the sole and exclusive
method, means and procedure to resolve any and all claims, disputes or
disagreements arising under this Agreement, except those arising under the
provisions of Paragraph 8, above. The parties irrevocably waive any and all
rights to the contrary and shall at all times conduct themselves in accordance
with the terms of this Paragraph 12; any attempt to circumvent the terms of this
Paragraph 12 shall be null and void and of no force or effect.
(b) Within ten (10) days after delivery of written notice (the
"Notice of Dispute") of the existence and nature of any dispute given by any
party to the other party, and unless otherwise provided herein in any specific
instance, the parties shall each (i) appoint one (1) lawyer actively engaged in
the licensed and full time practice of law in the County of Los Angeles for a
continuous period immediately preceding the date of delivery (the "Dispute
Date") of the Notice of Dispute of not less than ten (10) years, but who has at
no time ever represented or acted on behalf of any of the parties, and (ii)
deliver written notice of the identity of such lawyer and a copy of his or her
written acceptance of such appointment and acknowledgment of and agreement to be
bound by the time constraints and other terms of this Paragraph 12 (the
"Acceptance") to the other party hereto. In the event that any party fails to so
act, that party's arbitrator shall be appointed pursuant to the same procedure
that is followed when agreement cannot be reached as to the third arbitrator.
Within ten (10) days
11
<PAGE>
after such appointment and notice, such lawyers shall appoint a third lawyer
(who, together with the first two (2) lawyers, shall hereinafter be referred to
collectively as the "Arbitration Panel") of the same qualification and
background as the first two (2) lawyers (including the qualification that he or
she has at no time ever represented or acted on behalf of any of the parties)
and shall deliver written notice of the identity of such lawyers and a copy of
his or her written Acceptance of such appointment to each of the parties. If
agreement cannot be reached on the appointment of a third lawyer within such
period, such appointment and notification shall be made as rapidly as possible
by any court of competent jurisdiction, by any licensing authority, agency or
organization having jurisdiction over such lawyers, by any professional
association of lawyers in existence for not less than ten (10) years at the time
of such dispute or disagreement and the geographical membership boundaries of
which extend to the County of Los Angeles, or by any arbitration association or
organization in existence for not less than ten (10) years at the time of such
dispute or disagreement and the geographic boundaries of which extend to the
County of Los Angeles, as determined by the party giving such Notice of Dispute
and simultaneously confirmed in writing delivered by such party to the other
party. Any such court, authority, agency, association or organization shall be
entitled either to directly select such third lawyer or to designate in writing
delivered to each of the parties an individual who shall do so. In the event of
any subsequent vacancies or inabilities to perform among the Arbitration Panel,
the lawyer or lawyers involved shall be replaced in accordance with the terms of
this Paragraph 12 as if such replacement was an initial appointment to be made
under this Paragraph 12 within the time constraints set forth in this Paragraph
12, measured from the date of notice of such vacancy or inability to the person
or persons required to make such appointment, with all attendant consequences of
failure to act timely if such appointment is not so made. Unless the parties
shall otherwise agree, all arbitration proceedings shall be conducted at such
location within Los Angeles County as the members of the Arbitration Panel shall
by majority vote from time to time designate.
(c) Consistent with the terms of this Paragraph 12, the members of
the Arbitration Panel shall utilize their utmost skill and shall apply
themselves diligently so as to hear and decide, by majority vote, the outcome
and resolution of any dispute or disagreement submitted to the Arbitration Panel
as promptly as possible, but in any event on or before the expiration of sixty
(60) days after the appointment of the members of the Arbitration Panel. None
of the members of the Arbitration Panel shall have any liability whatsoever for
any acts or omissions performed or omitted in good faith pursuant to the
provisions of this Article.
12
<PAGE>
(d) The Arbitration Panel shall (i) enforce and interpret the rights
and obligations set forth in this Agreement to the extent not prohibited by law,
(ii) fix and establish any and all rules as it shall consider appropriate in its
sole and absolute discretion to govern the proceedings before it, including any
and all rules of discovery, procedure and/or evidence, provided however, that
such rules shall be consistent with such rules established by the American
Arbitration Association and (iii) make and issue any and all orders, final or
otherwise, and any all awards, as a court of competent jurisdiction sitting at
law or in equity could make and issue and as it shall consider appropriate in
its sole and absolute discretion, including the awarding of monetary damages
(but specifically excluding the awarding of consequential, punitive or exemplary
damages or the awarding of attorneys' fees and costs to either party) to the
prevailing party as determined by the Arbitration Panel in its sole and absolute
discretion, and the issuance of injunctive relief.
(e) The decision of the Arbitration Panel shall be final and binding,
and may be confirmed and entered by any court of competent jurisdiction at the
request of any party and may not be appealed to any court of competent
jurisdiction or otherwise, except upon a claim of fraud on the part of any
member of the Arbitration Panel (except as to the arbitrator chosen by the party
claiming the fraud), or on the basis of a manifest error as to the applicable
law. The Arbitration Panel shall retain jurisdiction over any dispute until its
award has been implemented, and judgment on any such award may be entered in any
court having appropriate jurisdiction and may be enforced against either party
and its assets pursuant to applicable laws and procedures.
(f) Each member of the Arbitration Panel (i) shall be compensated for
any and all services rendered under this Paragraph 12 at a rate of compensation
equal to the sum of Two Hundred Fifty Dollars ($250.00) per hour, which sum
shall be increased each year in accordance with annual increases in the Consumer
Price Index for Urban Wage Earners and Clerical Workers, Los Angeles-Anaheim-
Riverside, California 1982-84 = 100 ("CPI"), and (ii) shall be reimbursed for
any and all expenses incurred in connection with the rendering of such services,
payable in full promptly upon conclusion of the proceedings before the
Arbitration Panel. Such compensation and reimbursement shall be borne by the
non-prevailing party as determined by the Arbitration Panel in its sole and
absolute discretion, unless the Arbitration Panel does not make a determination
that one of the parties is the prevailing party, in which case the parties shall
bear the cost as fixed by the Arbitration Panel.
13. INDEMNIFICATION. Concurrent with the execution and delivery of this
Agreement, Company and Employee have entered into
13
<PAGE>
an Indemnification Agreement, pursuant to which, inter alia, Company has agreed,
----- ----
on the terms and conditions therein set forth, to indemnify Employee against
certain claims arising by reason of the fact that she is or was an officer or
director of Company.
14. GENERAL.
(a) Assignment; Successors; Affiliates. Company may assign this
----------------------------------
Agreement (or the interest of Company therein) to any affiliate of Company or to
any entity which is a party to a merger, reorganization, or consolidation with
Company or to a subsidiary of Company or to an entity or entities acquiring
substantially all of the assets of Company or of any division with respect to
which Employee is providing services (providing any such assignee assumes
Company's obligations under this Agreement). Employee shall, if requested by
Company, perform Employee's services and duties, as specified in this Agreement,
to or for the benefit of any subsidiary or other affiliate of Company. Upon such
assignment, acquisition, merger, consolidation, or reorganization, the term
"Company" as used herein shall be deemed to refer to such assignee or such
successor entity. Employee shall not have the right to assign Employee's
interest in this Agreement, any rights under this Agreement or any duties
imposed under this Agreement nor shall Employee (or Employee's spouse, heirs,
beneficiaries, administrator's or executors) have the right to pledge,
hypothecate or otherwise encumber Employee's right to receive compensation
hereunder without the consent of Company.
(b) Headings. The subject headings of the paragraphs and
--------
subparagraphs of this Agreement are included for purposes of convenience only,
and shall not affect the construction or interpretation of any of its
provisions.
(c) Severability. It is agreed that if any term, covenant, provision,
------------
paragraph or condition of this Agreement shall be illegal, such illegality shall
not invalidate the whole Agreement but it shall be construed as if not
containing the illegal part, and the rights and obligations of the parties shall
be construed and enforced accordingly.
(d) Entire Agreement. The parties hereto agree that this Agreement
----------------
supersedes all existing agreements between Company and Employee, whether oral,
written, expressed or implied, and contains the entire understanding and
agreement between the parties. This Agreement shall not be amended, modified or
supplemented in any respect except by a subsequent written agreement entered
into by both parties hereto.
(e) Choice of Law. This Agreement and the performance hereunder shall
-------------
be construed in accordance with and under and
14
<PAGE>
pursuant to the internal substantive laws of the State of California applicable
to agreements fully executed and to be performed entirely in such state.
(f) Notices. All communications and notices hereunder shall be in
-------
writing and shall be deemed to have been duly given and delivered personally if
sent by United States registered or certified mail, postage prepaid:
If to Company: Fox Kids Worldwide, L.L.C.
10960 Wilshire Boulevard
Los Angeles, California 90024
Attn: Haim Saban
15
<PAGE>
With a copy to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard
Los Angeles, California 90024
Attention: Richard E. Troop, Esq.
If to Employee:
Margaret Loesch
Fox Kids Network
5746 Sunset Boulevard, #635
Los Angeles, California 90028
With a copy to:
Myman, Abell, Fineman, Greenspan & Bowan
11777 San Vicente Boulevard
Suite No. 880
Los Angeles, California 90049
Attention: Leslie B. Abell, Esq.
or to such other addresses as may be designated in writing by either of the
parties.
(g) No Joint Venture. Nothing herein contained shall constitute a
----------------
partnership between or joint venture by the parties hereto or appoint any party
the agent of any other party. No party shall hold itself out contrary to the
terms of this paragraph and, except as otherwise specifically provided herein,
no party shall become liable for the representation, act or omission of any
other party. This Agreement is not for the benefit of any third party who is not
referred to herein and shall not be deemed to give any right or remedy to any
such third party.
(h) The News Corporation Limited Stock Options. Subject to the terms
------------------------------------------
of The News Corporation Limited ("News Corp.") Share Option Plan, Company
acknowledges that for so long as Employee remains employed by Company or
Successor Entity, all News Corp. stock options granted to Employee, through
December 31, 1995, may, if News Corp. and Employee so agree, remain outstanding
and continue to vest as if Employee were still employed by Fox, Inc. or a Fox,
Inc. subsidiary.
(i) Contractual Nomenclature. All reference herein to "Dollars" or
------------------------
"$" shall mean Dollars of the United States of America, its legal tender for all
debts public and private. Where used herein and to the extent appropriate, the
masculine, feminine or neuter gender shall include the other two genders, the
singular
16
<PAGE>
shall include the plural, and the plural shall include the singular.
(i) Time of Essence. Time is of the essence of each provision in
---------------
this Agreement in which time is an element.
(j) No Adverse Construction. The rule that a contract is to be
-----------------------
construed against the party drafting the contract is hereby waived, and shall
have no applicability in construing this Agreement or the terms of this
Agreement.
(k) Effective Date; 1996 Salary and Bonus Payments from Fox, Inc. and
-----------------------------------------------------------------
its Subsidiaries. While this Agreement has been executed as of August __, 1996,
- ----------------
it is effective as of January 1, 1996, the date upon which the parties agreed to
the material terms hereof; provided, however, that the first dollar amounts
-------- -------
payable to Employee as Fixed Salary under the provisions of Paragraph 5(a)
hereof shall be reduced, dollar-for-dollar, by the gross amount (before
deduction for federal, state and/or local taxes, or any other amounts withheld)
actually received by Employee during 1996 from News Corp., Fox, Inc. or any Fox,
Inc. subsidiary (including Fox Children's Network, Inc.), including, without
limitation, salary and bonus payments, on account of Employee's services during
1996. To the extent Employee receives bonus payments during 1996 which apply to
services rendered during 1995, one-half of such bonus payments paid during 1996
will not be deducted from the Fixed Salary paid to Employee in 1996.
* * *
IN WITNESS WHEREOF, Company and Employee have executed this Agreement as of
the first day of January, 1996.
FOX KIDS WORLDWIDE, L.L.C.
By \s\ Mel Woods
-------------------------
\s\ Margaret Loesch
-----------------------------
MARGARET LOESCH
17
<PAGE>
STOCK OPTION AGREEMENT
----------------------
This Stock Option Agreement (this "Agreement") is entered into as of
the first day of January, 1996 by and between Saban Entertainment, Inc.
("Company") and Margaret Loesch ("Loesch").
R E C I T A L S
- - - - - - - -
1. Loesch and Fox Kids Worldwide, L.L.C., a Delaware limited liability
company ("Fox Kids"), are parties to that certain Employment Agreement, pursuant
to which, inter alia, effective January 1, 1996, Fox Kids engaged Loesch as its
----------
Senior Executive -- Children's Network (the "Employment Agreement").
2. In connection with the employment of Loesch by Fox Kids, Company has
agreed to grant to Loesch certain stock options.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing facts and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
I. Defined Terms.
A. All terms which are defined in the Employment Agreement and which
are not defined in this Agreement shall have the same meanings when used herein.
B. All terms which are defined in that certain Strategic
Stockholders Agreement dated as of December 22, 1995 by and among Company, Haim
Saban, the other "SEI Stockholders" (as therein defined), Fox Broadcasting
Company, a Delaware corporation ("FBC"), FCN Holding, Inc., a Delaware close
corporation ("FCNH") and FCNH Sub, Inc., a Delaware close corporation ("FCNH
Sub") (as amended by Amendment No.1 and Amendment No.2 thereto, and as the same
may hereafter from time to time be amended, the "Strategic Stockholders
Agreement") and which are not defined in this Agreement shall have the same
meanings when used herein.
II. Grant of Stock Option.
Subject to the terms and conditions hereof, including the vesting
requirements under Paragraph IV., below, Company hereby grants to Loesch the
option to purchase sixteen and three hundred twenty-seven one thousandths
(16.327) shares ("Option Shares") of the common stock, par value $0.001 per
share (the "Common Stock"), of the Company, at a purchase price of Six Hundred
Twelve Thousand Five Hundred Dollars ($612,500.00) per share.
III. Term of Stock Option.
<PAGE>
The option shall terminate and expire on January 1, 2006, unless
sooner terminated as provided herein.
IV. Exercisability
A. The option shall vest and be exercisable by Loesch with respect
to one-fifth (1/5) of the Option Shares on the date of execution of this
Agreement. The 80% balance of the option shall vest and be exercisable by
Loesch, with respect to 20% of the 80% (or 16%) after the completion of each
Term Year of the Term (and thus the first 16% installment shall vest as of the
close of business on December 31, 1996) provided Loesch is and has continuously
been employed by Fox Kids or the Successor Entity at the end of each such Term
Year. Notwithstanding the foregoing:
(1) if (I) Loesch dies during the Term or Loesch's employment is
terminated by reason of disability as set forth in Paragraph 10(a) of the
Employment Agreement, (II) Loesch was until then continuously employed by
Fox Kids or Successor Entity, and (III) the option has then vested and
become exercisable with respect to less than one-half (1/2) of the Option
---- ----
Shares, based on a vesting period beginning June 1, 1994, then the option
shall immediately vest and be exercisable by Loesch with respect to an
additional number of Option Shares equal to one-half the Option Shares less
the number of Option Shares which have theretofore vested and become
exercisable;
(2) if (I) Loesch's employment is terminated during any Term Year
pursuant to Paragraph 10(d) of the Employment Agreement (a termination
other than for cause), (II) Loesch was until then continuously employed by
Fox Kids or Successor Entity, and (III) the option has then vested and
become exercisable with respect to less than one-half (1/2) of the Option
---------
Shares, based on a vesting period beginning June 1, 1994, then the option
shall immediately vest and be exercisable by Loesch with respect to an
additional number of Option Shares equal to one-half the Option Shares less
the number of Option Shares which have theretofore vested and become
exercisable; and
(3) if (I) Loesch's employment is terminated during any Term Year
pursuant to Paragraph 10(d) of the Employment Agreement, (II) Loesch was
until then continuously employed by Fox Kids or Successor Entity, and (III)
the option has then vested and become exercisable with respect to at least
--------
one-half (1/2) of the Option Shares, based on a vesting period beginning
June 1, 1994, then the option shall, effective immediately prior to such
termination, vest and be exercisable by Loesch with respect to that portion
of the Option Shares which would have vested upon completion of the Term
Year in which Loesch's termination occurs, had such termination not
occurred.
B. Upon termination of Loesch's employment with Fox Kids or Successor
Entity for any reason, Loesch shall be entitled to exercise only the portion of
the option that has vested
<PAGE>
pursuant to Paragraph IV.A., above, as of the termination date. Nothing in this
Paragraph IV.B. shall, however, be construed to limit any of Loesch's rights or
remedies in the event of Fox Kids' or Successor Entity's breach of the
Employment Agreement.
C. During Loesch's lifetime, the option may be exercised only by her
and may not be transferred, assigned, pledged or hypothecated (whether by
operation of law or otherwise) other than by will or the applicable laws of
descent or distribution. If Loesch dies at a time when the option, or a portion
thereof, is exercisable by her, the portion of the option that is then
exercisable by her shall be exercisable by Loesch's executors, personal
representatives, legatees or distributees, as applicable.
D. The option granted hereunder shall be exercised by Loesch by
giving written notice to Company in form and substance identical to Exhibit "A"
attached to this Agreement stating the number of Option Shares with respect to
which the option is being exercised and tendering payment therefor in cash or by
certified check. As a condition to the issuance of the Option Shares, Loesch
shall (1) execute such further documents and instruments and take whatever acts
are necessary in order for the issuance to be in compliance with all applicable
federal and state securities laws, (2) enter into a stockholders agreement
restricting the transferability of the Option Shares and providing for such
other matters as the parties may agree, the terms of which stockholders
agreement shall be negotiated in good faith, and (3) enter into a voting trust
agreement or such other arrangement as is reasonably satisfactory to Company
whereunder Haim Saban (or, in the event of Haim Saban's death, his successor) is
granted the power to vote the Option Shares. As soon as reasonably practicable
thereafter, a certificate representing the Option Shares with respect to which
the option is exercised shall be delivered to Loesch. Such certificate may
contain a legend thereon reflecting the restrictions set forth in subparagraphs
(1), (2) and (3), above, and Paragraphs VIII.A. and B., below.
E. Upon the exercise of the option hereunder, Company shall have the
right to require Loesch to remit to Company, prior to the issuance of any Option
Shares, an amount sufficient to satisfy all federal, state and local withholding
tax requirements.
V. No Rights As Stockholder
Loesch shall have none of the rights or privileges of a stockholder of
Company in respect of any of the Option Shares, unless and until the purchase
price for such Option Shares shall have been paid in full.
<PAGE>
VI. Adjustments
The number of Option Shares shall be appropriately adjusted for any
increase or decrease in the number of shares of issued and outstanding common
stock of Company resulting from a subdivision or consolidation of shares,
whether through reorganization, recapitalization, stock split-up, stock
distribution or combination of shares, or payment of a share dividend or other
increase or decrease in the number of such shares outstanding effected without
receipt of consideration by Company. In the event of any such adjustment, the
purchase price per share for the Option Shares as so adjusted shall be adjusted
by dividing Ten Million Dollars ($10,000,000) by the number of Option Shares as
so adjusted. Upon a merger or consolidation of Company in which Company is not
the surviving corporation or an exchange of all of the outstanding shares of
common stock of Company or all or a substantial portion of the assets of Company
for shares of another corporation or equity interests in a partnership, limited
partnership, limited liability company or other entity (any such corporation and
any such entity is referred to in this Paragraph VI. as a "corporation"), the
successor or exchanging corporation shall assume all obligations under this
Agreement and such option shall be converted into an option for a number of
shares or other equity interests of the successor or exchanging corporation (or
cash, property or such other consideration) that Loesch would have received
pursuant to the applicable terms of the Strategic Stockholder's Agreement if
Loesch had owned the Option Shares on the effective date of such transaction,
and the purchase price per share of the stock or other equity interests of the
successor or exchanging corporation under such converted option shall be equal
to Ten Million Dollars ($10,000,000) divided by the number of shares of the
stock or other equity interests of such successor or exchanging corporation to
which the converted option applies (if, following such merger, consolidation or
exchange, Loesch would receive non-share (or other equity interest)
consideration upon exercise of the option, the purchase price to be paid upon
exercise of the option shall be equal to Ten Million Dollars ($10,000,000)
multiplied by a fraction equal to that portion of the option then being
exercised). Upon the dissolution or liquidation of Company other than following
an asset transfer subject to this Paragraph VI., the option granted hereunder
shall expire as of the effective date of such transaction, provided, however,
that Company shall give at least sixty (60) days prior written notice of such
event to Loesch during which time she shall have a right to exercise her
unexercised vested option.
VII. Registration
As soon as reasonably practicable following the "initial public
offering" (as that term is defined in Paragraph VIII.D. hereof), Successor
Entity shall prepare, or cause to be prepared, and file with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-8
under the Securities Act of 1933, as amended (the "Act"), (or such successor
form of registration statement as shall then have been adopted by the
Commission) covering the offer and sale by Company of the Option Shares
underlying the then unexercised portion of the option granted to Loesch
hereunder, and, to the extent permitted under such form, any Option Shares
issued upon exercise of such option prior to the initial public offering; and
Successor Entity shall use its best efforts during the term of the option to
maintain such registration statement in effect, and to comply with the rules and
<PAGE>
regulations of the Commission applicable to securities covered by such
registration statement, so that the issuance of any Option Shares upon exercise
of the option shall be registered under the Act.
VIII. Repurchase of Stock by Company
A. After Loesch's employment with Fox Kids or Successor Entity is
terminated for any reason, Company shall purchase from Loesch and Loesch shall
sell to Company any and all Option Shares owned by Loesch and the option granted
to Loesch hereunder for an amount (the "Termination Purchase Price") equal to
(A) the fair market value of the Option Shares owned by Loesch plus the fair
market value of the Option Shares with respect to which Loesch's option has
vested but has not been exercised, less (B) Loesch's purchase price, determined
under Paragraph II., above, for the Option Shares with respect to which Loesch's
option has vested but has not been exercised. The fair market value of the
Option Shares for purposes of the Termination Purchase Price shall be determined
as of the date of Loesch's termination of her employment ("Termination Date").
The per share fair market value of the Option Shares is an amount equal to 50%
of the Fair Market Value as of the Termination Date of the Company and FCNH Sub
and their respective subsidiaries and other consolidated or owned operations,
divided by the sum of (i) the number of shares of Common Stock then outstanding
(excluding the Later Issued FCNH Shares) plus (ii) 50% of the number of Later
Issued Shares then outstanding.
If any securities of Company are at any time issued to Loesch with
respect to the Option Shares, whether by stock split, stock dividend or
otherwise, or if the option or Option Shares are exchanged for securities of the
Successor Entity pursuant to the provisions of the Strategic Stockholders
Agreement, or otherwise, all of such securities and options shall be considered
"Option Shares" for purposes of this Paragraph VIII.A., and shall be subject to
repurchase as herein provided.
The Fair Market Value for purposes of the Termination Purchase Price shall be
determined by mutual agreement of the parties; provided, if the parties are
--------
unable to reach agreement within thirty (30) days of the Termination Date, the
fair market value of the Option Shares shall be determined by the following
appraisal procedure: Each party shall appoint an appraiser by giving notice of
such appointment to the other party within forty-five (45) days from the
Termination Date. Such appraiser shall be a certified public accountant
practicing in the entertainment, licensing and television industries or such
other person with experience in valuing companies in the entertainment,
licensing and television businesses. If either party fails to appoint an
appraiser within said time period, the other party's appointed appraiser shall
be the sole appraiser. If both parties have so appointed appraisers, then
within thirty (30) days from the appointment of both parties' appraisers, the
appraisers so appointed shall appoint a third appraiser, with the same
qualifications. The third appraiser (or the sole appraiser if either party
fails to appoint an appraiser within the required time period) shall then
determine the fair market value of the Option Shares within sixty (60) days
after the appointment of the third appraiser (or within sixty (60) days after
the failure by either party to appoint an appraiser within the required time
period). The third appraiser, or such sole appraiser, as applicable, is referred
to hereinbelow as the "Selected Appraiser." The determination of the Selected
Appraiser shall be binding on the parties
<PAGE>
hereto. The costs and fees of the Selected Appraiser shall be borne equally by
the parties hereto. Company shall give the Selected Appraiser reasonable access
to its books and records to enable him or her to undertake his or her appraisal.
Within ten (10) days after the parties' agreement on the fair market value of
the Option Shares, or, failing such agreement, the notification by the Selected
Appraiser of his or her appraisal, Company shall pay to Employee ten percent
(10%) of the Termination Purchase Price (the "Down Payment") and shall deliver
to Employee a promissory note (the "Note") for payment of the remainder of the
Termination Purchase Price in nine (9) equal annual installments. The Note shall
provide for the annual payment of interest on the outstanding balance of the
remainder of the Termination Purchase Price at the rate per annum equal to the
"prime" or "reference" rate charged by Company's principal bank (currently
Imperial Bank), as determined from time to time. Concurrently with the payment
of the Down Payment and delivery of the Note, Employee shall execute and deliver
to Company an assignment of the option in form reasonably satisfactory to
Company and an assignment separate from certificate for the Option Shares, in
each case free and clear of any and all liens, claims, encumbrances and
restrictions of any type, kind or nature.
B. Except as provided below, in the event Haim Saban, any member of
his immediate family or any of his affiliated entities (collectively with Haim
Saban and such family members, "Saban Entities") sells to a third party in a
bona fide sale any of his or its shares of the common stock of Company ("Saban
Shares"), the parties agree as follows:
1. Company shall purchase from Loesch and Loesch shall sell to
Company the "Applicable Percentage," as defined below, of the Option Shares
owned by Loesch for a per-share consideration equal to the per-share
consideration paid by the third party for the Saban Shares. If the
consideration paid by the third party for the Saban Shares includes non-cash
consideration and/or deferred consideration, the consideration paid by Company
to Loesch for the Option Shares sold by Loesch to Company under this
subparagraph 1. shall consist of similar non-cash and/or deferred consideration
in the same ratio as the non-cash and/or deferred consideration paid by the
third party for the Saban Shares bears to the total consideration paid by the
third party for the Saban Shares. The "Applicable Percentage" shall equal the
percentage that the Saban Shares sold to the third party represents of the total
shares of Company owned by the Saban Entities immediately prior to the sale. The
purchase and sale of the Option Shares under this subparagraph 1. shall close no
later than ten (10) days after the closing of the sale of the Saban Shares to
the third party. Concurrently with the purchase and sale of the Option Shares
under this subparagraph 1., Loesch shall execute and deliver to Company an
assignment separate from certificate for the Option Shares, free and clear of
any and all liens, claims, encumbrances and restrictions of any type, kind or
nature.
2. Company shall pay to Loesch an amount equal to the Applicable
Percentage (as defined in subparagraph 1. above) of (x) the per-share
consideration paid by the third party for the Saban Shares multiplied by the
number of Option Shares with respect to which Loesch's option has vested but has
not been exercised, less (y) Loesch's purchase price, determined under Paragraph
II., above, for such Option Shares. If the consideration paid by the third party
for the Saban Shares includes non-cash consideration and/or deferred
consideration, the payment by Company to
<PAGE>
Loesch under this subparagraph 2. shall consist of similar non-cash and/or
deferred consideration in the same ratio as the non-cash and/or deferred
consideration paid by the third party for the Saban Shares bears to the total
consideration paid by the third party for the Saban Shares. The payment under
this subparagraph 2. shall be made no later than ten (10) days after the closing
of the sale of the Saban Shares to the third party.
3. The number of Option Shares Loesch shall have the option to
purchase pursuant to Paragraph A shall immediately be reduced by a number of
shares of Company equal to the Applicable Percentage (as defined in subparagraph
1., above) of the Option Shares with respect to which Loesch's option has vested
but has not been exercised. Such reduction shall reduce only the Option Shares
with respect to which Loesch's option has vested but has not been exercised and
shall not reduce any Option Shares with respect to which Loesch's option has not
then vested.
4. If in connection with any sale of Saban Shares subject to
this Paragraph B., Haim Saban is required to enter into an agreement which
includes provisions restricting his ability to compete, directly or indirectly
(including, without limitation, through an ownership or licensing arrangement
with a competitor or potential competitor of Company), with Company
("noncompetition provisions"), and if the purchaser of the Saban Shares so
requires, Loesch shall, in connection with the sale of the Option Shares and
payment for vested options under this Paragraph B., execute and deliver to
Company and such purchaser an agreement, in form and substance reasonably
acceptable to the purchaser, which agreement shall contain noncompetition
provisions, the scope, duration, terms and provisions of which are substantially
identical to the noncompetition provisions contained in Haim Saban's agreement;
provided, that no separate payment will be required to be made to Loesch on
account of such agreement.
This subparagraph 4. shall not apply to (A) any sale by a Saban Entity pursuant
to an "initial public offering" (as defined in Paragraph D.) of the common stock
of Company or (B) any transaction subject to Paragraph VI.A., above.
C. The obligations of Company to make any payment or payments to
Loesch with respect to the purchase of Option Shares by Company (including any
payments under the Note) are subject to the satisfaction by Company of any
applicable statutory provisions restricting Company's ability to make such
payments, including, without limitation, Section 160 of the Delaware General
Corporation Law and Chapter 5 of the California General Corporation Law, and if
and to the extent that under those provisions, any such payment would expose the
directors of Company to any liability, or would be unlawful, Company shall
deliver to Loesch, in lieu of such payment, a promissory note with terms
identical to the Note, which note shall be due and payable at the earliest
practicable date thereafter when such payment would not be violative of such
statutory provisions.
D. Notwithstanding any provision of this Paragraph VIII. to the
contrary, following the earlier to occur of (I) the first closing of an offer
and sale of shares of the common stock of Company (whether such shares are sold
by Company, existing stockholders or both) for cash
<PAGE>
pursuant to a firmly underwritten public offering effected pursuant to a
registration statement filed by Company with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (or such successor
legislation as shall then be in effect) or (II) the date upon which the shares
of common stock of Company are first authorized for quotation on the Nasdaq
National Market, or listed on the New York Stock Exchange or American Stock
Exchange (either event, an "initial public offering"):
1. the provisions of Paragraphs VIII.A. and B. shall terminate
and be of no further force or effect;
2. the provisions of any voting trust agreement entered into
pursuant to Paragraph VI.D. shall not prevent or restrict Employee's right to
sell and transfer any of the Option Shares free and clear of the obligations
therein set forth;
3. the option shall terminate and expire, to the extent not
theretofore exercised, (x) if Loesch's employment with Company is terminated for
any reason other than for "cause" pursuant to Paragraph 10(c) of the Employment
Agreement, on the first anniversary of the date of such termination, and (y) if
Employee's employment with Company is terminated for "cause" pursuant to
Paragraph 10(c) of the Employment Agreement, on the thirtieth (30th) day
following the date of such termination; and
4. after Loesch's employment with Company is terminated for
any reason, Company shall have the right and option, exercisable at any time
prior to the date of expiration of the option by delivery of written notice of
such exercise to Loesch, to purchase from Loesch, and if such option is
exercised, Loesch shall sell to Company, any and all Option Shares owned by
Loesch on the date of receipt of the notice of exercise (or acquired thereafter
upon exercise of the option and prior to the closing of such purchase) and the
option granted to Loesch hereunder for an amount equal to the "Termination
Purchase Price," as provided in Paragraph VIII.A. above; provided, however, that
-------- -------
the fair market value of an Option Share shall be equal to the average closing
price of the Common Stock over the 20 trading day period ending on the
Termination Date. Company shall pay the Termination Purchase Price to Loesch,
against delivery by Loesch to Company of an assignment of the option in form
reasonably satisfactory to Company and an assignment separate from certificate
for the Option Shares, in each case free and clear of any and all liens, claims,
encumbrances and restrictions of any type, kind or nature.
<PAGE>
IX. TRANSFER RESTRICTIONS.
A. Loesch is aware that Company is a Delaware statutory close
corporation, and that significant restrictions exist under that law, this
Agreement and the Strategic Stockholders Agreement with respect to any sale,
transfer, assignment, pledge, hypothecation or other disposition (with or
without consideration) of shares of Saban, and Loesch agrees that she will abide
by all such restrictions and will enter into a stockholders agreement to that
effect, as provided in Paragraph VI.D.
B. In the event of the initial public offering of Successor Entity
(as contemplated by the Strategic Stockholders Agreement), if the underwriters
so request, Loesch shall enter into a lock-up agreement with the underwriters,
pursuant to which Loesch will agree, for a period of up to 180 days from the
offering date, not to offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to any shares of
common stock of Company or Successor Entity, any options or warrants to purchase
such shares or securities convertible into or dischargeable for shares of common
stock owned or later acquired by Loesch.
X. INVESTMENT INTENT.
Loesch represents and agrees that if Loesch exercises the option in
whole or in part and if at the time of such exercise the Option Shares have not
been registered under the Securities Act of 1933, Loesch will acquire the Option
Shares upon such exercise for the purpose of investment and not with a view to
the distribution of such Option Shares, and that upon each exercise of the
option, Loesch will furnish to the Company a written statement to such effect.
XI. GENERAL.
A. Assignment; Successors; Affiliates. Company may assign this
----------------------------------
Agreement (or the interest of Company therein) to any affiliate of Company or to
any entity which is a party to a merger, reorganization, or consolidation with
Company or to a subsidiary of Company or to an entity or entities acquiring
substantially all of the assets of Company (providing any such assignee assumes
Company's obligations under this Agreement). Upon such assignment, acquisition,
merger, consolidation, or reorganization, the term "Company" as used herein
shall be deemed to refer to such assignee or such successor entity. Loesch
shall not have the right to assign Loesch's interest in this Agreement, any
rights under this Agreement or any duties imposed under this Agreement.
B. Headings. The subject headings of the paragraphs and subparagraphs
--------
of this Agreement are included for purposes of convenience only, and shall not
affect the construction or interpretation of any of its provisions.
<PAGE>
C. Severability. It is agreed that if any term, covenant, provision,
------------
paragraph or condition of this Agreement shall be illegal, such illegality shall
not invalidate the whole Agreement but it shall be construed as if not
containing the illegal part, and the rights and obligations of the parties shall
be construed and enforced accordingly.
D. Entire Agreement. The parties hereto agree that this Agreement
----------------
supersedes all existing agreements between Company and Employee, whether oral,
written, expressed or implied, and contains the entire understanding and
agreement between the parties. This Agreement shall not be amended, modified or
supplemented in any respect except by a subsequent written agreement entered
into by both parties hereto.
E. Choice of Law. This Agreement and the performance hereunder shall
-------------
be construed in accordance with and under and pursuant to the internal
substantive laws of the State of California applicable to agreements fully
executed and to be performed entirely in such state.
F. Further Assurances. Loesch shall promptly take all actions and
------------------
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Agreement.
G. Notices. All communications and notices hereunder shall be in
-------
writing and shall be deemed to have been duly given and delivered personally if
sent by United States registered or certified mail, postage prepaid:
If to Company:
Saban Entertainment, Inc.
10960 Wilshire Boulevard
Los Angeles, California 90024
Attention: Haim Saban
With a copy to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard
Los Angeles, California 90024
Attention: Richard E. Troop, Esq.
If to Margaret Loesch:
Margaret Loesch
<PAGE>
5746 Sunset Boulevard, #635
Los Angeles, California 90028
With a copy to:
Myman, Abell, Fineman, Greenspan & Bowan
11777 San Vicente Boulevard, Suite 880
Los Angeles, California 90049
Attention: Leslie B. Abell
or to such other addresses as may be designated in writing by either of the
parties.
H. No Joint Venture. Nothing herein contained shall constitute a
----------------
partnership between or joint venture by the parties hereto or appoint any party
the agent of any other party. No party shall hold itself out contrary to the
terms of this paragraph and, except as otherwise specifically provided herein,
no party shall become liable for the representation, act or omission of any
other party. This Agreement is not for the benefit of any third party who is not
referred to herein and shall not be deemed to give any right or remedy to any
such third party.
I. Contractual Nomenclature. All reference herein to "Dollars" or
------------------------
"$" shall mean Dollars of the United States of America, its legal tender for all
debts public and private. Where used herein and to the extent appropriate, the
masculine, feminine or neuter gender shall include the other two genders, the
singular shall include the plural, and the plural shall include the singular.
(i) Time of Essence. Time is of the essence of each provision in
---------------
this Agreement in which time is an element.
(j) No Adverse Construction. The rule that a contract is to be
-----------------------
construed against the party drafting the contract is hereby waived, and shall
have no applicability in construing this Agreement or the terms of this
Agreement.
* * *
<PAGE>
IN WITNESS WHEREOF, Company and Employee have executed this Agreement as of
the first day of January, 1996.
SABAN ENTERTAINMENT, INC.
By /s/ Haim Saban
___________________________
Haim Saban
Chief Executive Officer
/s/ Margaret Loesch
___________________________
MARGARET LOESCH
<PAGE>
Exhibit "A"
NOTICE OF EXERCISE
(To be signed only upon exercise of the Option)
TO: Saban Entertainment, Inc.
The undersigned, the holder of an option ("Option") to purchase that
number of shares of Common Stock of Saban Entertainment, Inc. (the "Company") as
set forth in the attached Stock Option Agreement, hereby irrevocably elects to
exercise the option and to purchase thereunder _______* shares of Common Stock
of the Company, and herewith encloses payment of $_________ and/or ___________
shares of the Company's Common Stock in full payment of the purchase price of
such shares being purchased.
Dated: _____________, ____
__________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the option)
__________________________________________
(Please Print Name)
__________________________________________
(Address)
* Insert here the number of shares called for on the face of the option
(or, in the case of a partial exercise, the number of shares being exercised),
in either case without making any adjustment for additional Common Stock of the
Company, other securities or property which, pursuant to the adjustment
provisions of the option, may be deliverable upon exercise.
<PAGE>
AMENDMENT NO. 1
TO
STOCK OPTION AGREEMENT
This Amendment No. 1 to Stock Option Agreement (the "Amendment") is made
and entered into as of September 26, 1996, by and between Saban Entertainment,
Inc., a Delaware corporation ("SEI") and Margaret Loesch ("Loesch").
R E C I T A L S
- - - - - - - -
A. Loesch and SEI are parties to that certain Stock Option
Agreement, dated as of January 1, 1996 (the "Agreement"). All terms defined in
the Agreement which are not defined in this Amendment shall have the same
meanings when used in this Amendment.
B. The parties hereto desire to amend the Agreement from and after
the effective date of the initial public offering (the "Initial Public
Offering") of Fox Kids Worldwide, Inc., a Delaware corporation ("Fox Kids
Worldwide").
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing facts, the parties hereto
agree that from and after the effective date of the Initial Public Offering, the
following sections are amended as follows:
1. Termination of Option. From and after the effective date of the
---------------------
Initial Public Offering, Paragraph VIII(D)(4) of the Agreement shall terminate
and be of no further force or effect.
2. Effect of Amendment. Except as expressly modified herein, all terms
-------------------
of the Agreement remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
SABAN ENTERTAINMENT, INC.
By: Mel Woods
_____________________________
Its: President
____________________________
MARGARET LOESCH
/s/ Margaret Loesch
____________________________
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is entered into as of the 1st day of June, 1994
by and between Saban Entertainment, Inc., a Delaware corporation ("Company") and
Mel Woods ("Employee"):
1. ENGAGEMENT. Company hereby engages Employee to render services as
President and Chief Operating Officer of Company pursuant to the terms and
conditions hereof, and Employee hereby accepts such engagement. Employee shall
report solely to Haim Saban, the Chairman and Chief Executive Officer of
Company, subject to the overall direction and supervision of Company's Board of
Directors; provided that from and after a "Change of Control," as defined in
Section 12, below, Employee agrees that he may be required to report to some
other person. If Employee is elected to the Board of Directors of Company,
Employee agrees to accept such appointment.
2. NATURE AND PLACE OF SERVICES. Employee shall render all services
usually and customarily rendered by and required of executives similarly
employed in the entertainment industry and such other services as may be
reasonably required by Company. The location of Employee's office shall be at
Company's principal Southern California executive offices, which will be located
at such place or places in Los Angeles County as the Board of Directors of
Company shall from time to time designate; and the duties of Employee shall be
performed at such offices, except for such travel as may from time to time be
required.
3. EXCLUSIVITY. Employee shall work full-time for Company and its
affiliates during the Term hereof. Without limiting the foregoing, Employee's
services shall be rendered exclusively to Company and its affiliates hereunder
during the Term of this Agreement, and Employee shall not render services of any
nature to or for any other person, firm or corporation during the Term of this
Agreement without the prior written consent of Company. For so long as Employee
is employed pursuant to the terms hereof, Employee shall not become financially
interested in or associated with, directly or indirectly, any other person or
entity engaged in the production, distribution or exhibition of motion pictures,
television programs, phonograph recordings, or any visual or audio recordings of
any kind, or in the broadcasting or music publishing businesses, anywhere in the
world; provided, that Employee may invest in the capital stock or other
securities of any corporation whose stock or other securities are publicly owned
or are regularly traded on any securities exchange or in the over-the-counter
market, so long as Employee's ownership of such securities does not
<PAGE>
exceed 5% of the issued and outstanding securities of such entity and Employee's
holdings in any one such entity does not in the aggregate cost Employee more
than $100,000.
4. TERM. The term of this Agreement ("Term") shall commence on June 1,
1994 and, subject to termination as hereinafter provided, expire with the close
of business on May 31, 1999. Each consecutive year of the Term beginning on June
1 and ending on the following May 31 shall be referred to as a "Term Year."
5. COMPENSATION.
(a) Fixed Salary. As consideration for the services to be rendered by
Employee pursuant hereto, and upon condition that Employee is substantially
performing all of the services required hereunder, that Employee is not in
material default, and that grounds do not then exist under this Agreement for
the termination of Employee hereunder, Company will pay or will cause to be paid
to Employee, subject to all applicable laws and requirements respecting
withholding of federal, state, and/or local taxes, a fixed annual salary,
payable in equal installments, no less frequently than semi-monthly, in the
following amounts:
FOR THE FIRST TERM YEAR: Four Hundred Twenty-Six Thousand Dollars
($426,000).
FOR THE SECOND TERM YEAR: Four Hundred Twenty-Six Thousand Dollars
($426,000).
FOR THE THIRD TERM YEAR: Four Hundred Fifty Thousand Dollars ($450,000).
FOR THE FOURTH TERM YEAR: Four Hundred Seventy-Five Thousand Dollars
($475,000).
FOR THE FIFTH TERM YEAR: Five Hundred Thousand Dollars ($500,000).
(b) Contingent Bonus. Provided Employee is not in material default
hereof, and that grounds do not then exist under this Agreement for the
termination of Employee hereunder, Company will pay or will cause to be paid to
Employee, subject to all applicable laws and requirements respecting withholding
of federal, state, and/or local taxes, the "Contingent Bonus," as hereinafter
defined, for each Term Year. The Contingent Bonus for any Term Year shall be an
amount equal to the lesser of one percent (1%) of the "Consolidated Pre-Tax
------
Income" of Company, as defined in Paragraph 5(c), below, for such Term Year, or
the "Maximum Bonus Amount," as defined in Paragraph 5(d), below, for such Term
Year.
2
<PAGE>
(c) Consolidated Pre-Tax Income. "Consolidated Pre-Tax Income" for
any Term Year shall be the "Consolidated Pre-Tax Income" of Company, as such
term is defined in Section 4 of that certain Employment Agreement dated as of
July 1, 1994 by and between Company and Haim Saban; and, as is provided therein,
no portion of any Annual Bonus Amount payable or paid to Haim Saban shall be
treated as an expense in computing "Consolidated Pre-Tax Income" for any period.
(d) Maximum Bonus Amount. The "Maximum Bonus Amount" for any Term
Year shall be as follows:
FOR THE FIRST TERM YEAR: Five Hundred Seventy-Four Thousand Dollars
($574,000).
FOR THE SECOND TERM YEAR: Six Hundred Twenty-Four Thousand Dollars
($624,000).
FOR THE THIRD TERM YEAR: Six Hundred Fifty Thousand Dollars ($650,000).
FOR THE FOURTH TERM YEAR: Six Hundred Seventy-Five Thousand Dollars
($675,000).
FOR THE FIFTH TERM YEAR: Seven Hundred Thousand Dollars ($700,000).
(e) Payment of Contingent Bonus. The Contingent Bonus, if any, for
any Term Year shall be payable to Employee within thirty (30) days after the
issuance by Company's auditors of Company's audited consolidated financial
statements for Company's fiscal year which is concurrent with such Term Year;
provided that, if such statements are not issued within nine (9) months after
the close of such fiscal year, Company will pay or will cause to be paid to
Employee, subject to all applicable laws and requirements respecting withholding
of federal, state, and/or local taxes, an amount equal to eighty-five percent
(85%) of the amount that would constitute the Contingent Bonus for such Term
Year if the Contingent Bonus were computed based on the lesser of the Maximum
Bonus Amount or Company's then most recently prepared unaudited consolidated
income statements for such fiscal year. Such amount shall constitute an advance
against the Contingent Bonus for such Term Year and in the event such amount is
in excess of the Contingent Bonus for such Term Year, Employee shall, within
three (3) business days after issuance of the audited consolidated financial
statements for such fiscal year, pay to Company an amount equal to such excess.
(f) Stock Options.
3
<PAGE>
(i) Subject to the terms and conditions hereof, including the
vesting requirements under Paragraph 5(f)(ii), below, Company hereby grants to
Employee the option to purchase sixteen and three hundred twenty-seven one
thousandths (16.327) shares ("Option Shares") of Company common stock at a
purchase price of One Hundred Twenty-Two Thousand Four Hundred Ninety-Six
Dollars and Forty-Eight Cents ($122,496.48) per share.
(ii) The option shall vest and be exercisable by Employee with
respect to one-fifth (1/5) of the Option Shares after the completion of the
first Term Year provided Employee is then and has continuously been employed by
Company. The option shall vest and be exercisable by Employee with respect to an
additional one-fifth (1/5) of the Option Shares after the completion of each
Term Year of the Term, provided Employee is and has continuously been employed
by Company at the end of each such Term Year. Notwithstanding the foregoing:
(A) if (I) Employee dies during the Term or Employee's
employment is terminated by reason of disability as set forth in Paragraph
10(a) hereof, (II) Employee was until then continuously employed by
Company, and (III) the option has then vested and become exercisable with
respect to less than one-half (1/2) of the Option Shares, then the option
shall immediately vest and be exercisable by Employee with respect to an
additional number of Option Shares equal to one-half the Option Shares less
the number of Option Shares which have theretofore vested and become
exercisable;
(B) if (I) Employee's employment is terminated during
any Term Year pursuant to Paragraph 10(d) hereof (a termination other than
for cause), (II) Employee was until then continuously employed by Company,
and (III) the option has then vested and become exercisable with respect to
less than one-half (1/2) of the Option Shares, then the option shall
immediately vest and be exercisable by Employee with respect to an
additional number of Option Shares equal to one-half the Option Shares less
the number of Option Shares which have theretofore vested and become
exercisable; and
(C) if (I) Employee's employment is terminated during
any Term Year pursuant to Paragraph 10(d) hereof, (II) Employee was until
then continuously employed by Company, and (III) the option has then vested
and become exercisable with respect to at least one-half (1/2) of the
Option Shares, then the option shall,effective immediately prior to such
termination, vest and be exercisable by Employee with respect to that
portion of the Option Shares which would have vested upon completion of the
Term Year in which
4
<PAGE>
Employee's termination occurs, had such termination not occurred.
(iii) Upon termination of Employee's employment with Company
for any reason, Employee shall be entitled to exercise only the portion of the
option that has vested pursuant to Paragraph 5(f)(ii), above, as of the
termination date. Nothing in this Paragraph 5(f)(iii) shall, however, be
construed to limit any of Employee's rights or remedies in the event of
Company's breach of this Agreement.
(iv) During Employee's lifetime, the option may be exercised
only by him and may not be transferred, assigned, pledged or hypothecated
(whether by operation of law or otherwise) other than by will or the applicable
laws of descent or distribution. If Employee dies at a time when the option, or
a portion thereof, is exercisable by him, the portion of the option that is then
exercisable by him shall be exercisable by Employee's executors, personal
representatives, legatees or distributees, as applicable.
(v) The option granted hereunder shall be exercised by
Employee by giving written notice to Company stating the number of Option Shares
with respect to which the option is being exercised and tendering payment
therefor in cash or by certified check. As a condition to the issuance of the
Option Shares, Employee shall (A) execute such further documents and instruments
and take whatever acts are necessary in order for the issuance to be in
compliance with all applicable federal and state securities laws, (B) enter into
a shareholders agreement restricting the transferability of the Option Shares
and providing for such other matters as the parties may agree, the terms of
which shareholders agreement shall be negotiated in good faith, and (C) enter
into a voting trust agreement or such other arrangement as is reasonably
satisfactory to Company whereunder Haim Saban (or, in the event of Haim Saban's
death, his successor) is granted the power to vote the Option Shares. As soon as
reasonably practicable thereafter, a certificate representing the Option Shares
with respect to which the option is exercised shall be delivered to Employee.
Such certificate may contain a legend thereon reflecting the restrictions set
forth in subparagraphs (A), (B) and (C), above, and Paragraphs 5(f)(ix) and
5(f)(x), below.
(vi) Employee shall have none of the rights or privileges of a
shareholder of Company in respect of any of the Option Shares, unless and until
the purchase price for such Option Shares shall have been paid in full.
(vii) The number of Option Shares shall be appropriately
adjusted for any increase or decrease in the number of shares of issued and
outstanding common stock of Company
5
<PAGE>
resulting from a subdivision or consolidation of shares, whether through
reorganization, recapitalization, stock split-up, stock distribution or
combination of shares, or payment of a share dividend or other increase or
decrease in the number of such shares outstanding effected without receipt of
consideration by Company. In the event of any such adjustment, the purchase
price per share for the Option Shares as so adjusted shall be adjusted by
dividing Two Million Dollars ($2,000,000) by the number of Option Shares as so
adjusted. Upon a merger or consolidation of Company in which Company is not the
surviving corporation or an exchange of all of the outstanding shares of common
stock of Company or all or a substantial portion of the assets of Company for
shares of another corporation or equity interests in a partnership, limited
partnership, limited liability company or other entity (any such corporation and
any such entity is referred to in this subparagraph (vii) as a "corporation"),
the successor or exchanging corporation shall assume all obligations under this
Agreement and such option shall be converted into an option for a number of
shares or other equity interests of the successor or exchanging corporation (or
cash, property or such other consideration) that Employee would have received if
Employee had owned the Option Shares on the effective date of such transaction,
and the purchase price per share of the stock or other equity interests of the
successor or exchanging corporation under such converted option shall be equal
to Two Million Dollars ($2,000,000) divided by the number of shares of the stock
or other equity interests of such successor or exchanging corporation to which
the converted option applies (if, following such merger, consolidation or
exchange, Employee would receive non-share (or other equity interest)
consideration upon exercise of the option, the purchase price to be paid upon
exercise of the option shall be equal to Two Million Dollars ($2,000,000)
multiplied by a fraction equal to that portion of the option then being
exercised). Upon the dissolution or liquidation of Company other than following
an asset transfer subject to this subparagraph (vii), the option granted
hereunder shall expire as of the effective date of such transaction, provided,
however, that Company shall give at least sixty (60) days prior written notice
of such event to Employee during which time he shall have a right to exercise
his unexercised vested option.
(viii) Upon the exercise of the option hereunder, Company shall
have the right to require Employee to remit to Company, prior to the issuance of
any Option Shares, an amount sufficient to satisfy all federal, state and local
withholding tax requirements. As soon as reasonably practicable following the
"initial public offering" (as that term is defined in Paragraph 5(f)(xii)
hereof), Company shall prepare, or cause to be prepared, and file with the
Securities and Exchange Commission (the "Commission") a registration statement
on Form S-8 under the Securities Act of 1933, as amended (the "Act"), (or such
successor
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form of registration statement as shall then have been adopted by the
Commission) covering the offer and sale by Company of the Option Shares
underlying the then unexercised portion of the option granted to Employee
hereunder, and, to the extent permitted under such form, any Option Shares
issued upon exercise of such option prior to the initial public offering; and
Company shall use its best efforts during the term of the option to maintain
such registration statement in effect, and to comply with the rules and
regulations of the Commission applicable to securities covered by such
registration statement, so that the issuance of any Option Shares upon exercise
of the option shall be registered under the Act.
(ix) After Employee's employment with Company is terminated for
any reason, Company shall purchase from Employee and Employee shall sell to
Company any and all Option Shares owned by Employee and the option granted to
Employee hereunder for an amount (the "Termination Purchase Price") equal to (A)
the fair market value of the Option Shares owned by Employee plus the fair
market value of the Option Shares with respect to which Employee's option has
vested but has not been exercised, less (B) Employee's purchase price,
determined under Paragraph 5(f)(i), above, for the Option Shares with respect to
which Employee's option has vested but has not been exercised. The fair market
value of the Option Shares for purposes of the Termination Purchase Price shall
be determined by mutual agreement of the parties as of the date of Employee's
termination of his employment ("Termination Date"). In the event the parties are
unable to reach agreement within thirty (30) days of the Termination Date, the
fair market value of the Option Shares shall be determined by the following
appraisal procedure: Each party shall appoint an appraiser by giving notice of
such appointment to the other party within forty-five (45) days from the
Termination Date. Such appraiser shall be a certified public accountant
practicing in the entertainment, licensing and television industries or such
other person with experience in valuing companies in the entertainment,
licensing and television businesses. If either party fails to appoint an
appraiser within said time period, the other party's appointed appraiser shall
be the sole appraiser. If both parties have so appointed appraisers, then within
thirty (30) days from the appointment of both parties' appraisers, the
appraisers so appointed shall appoint a third appraiser, with the same
qualifications. The third appraiser (or the sole appraiser if either party fails
to appoint an appraiser within the required time period) shall then determine
the fair market value of the Option Shares within sixty (60) days after the
appointment of the third appraiser (or within sixty (60) days after the failure
by either party to appoint an appraiser within the required time period). The
third appraiser, or such sole appraiser, as applicable, is referred to
hereinbelow as the
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"Selected Appraiser." The determination of the Selected Appraiser shall be
binding on the parties hereto. The costs and fees of the Selected Appraiser
shall be borne equally by the parties hereto. Company shall give the Selected
Appraiser reasonable access to its books and records to enable him or her to
undertake his or her appraisal. Within ten (10) days after the parties'
agreement on the fair market value of the Option Shares, or, failing such
agreement, the notification by the Selected Appraiser of his or her appraisal,
Company shall pay to Employee ten percent (10%) of the Termination Purchase
Price (the "Down Payment") and shall deliver to Employee a promissory note (the
"Note") for payment of the remainder of the Termination Purchase Price in nine
(9) equal annual installments. The Note shall provide for the annual payment of
interest on the outstanding balance of the remainder of the Termination Purchase
Price at the rate per annum equal to the "prime" or "reference" rate charged by
Company's principal bank (currently Imperial Bank), as determined from time to
time. Concurrently with the payment of the Down Payment and delivery of the
Note, Employee shall execute and deliver to Company an assignment of the option
in form reasonably satisfactory to Company and an assignment separate from
certificate for the Option Shares, in each case free and clear of any and all
liens, claims, encumbrances and restrictions of any type, kind or nature.
(x) Except as provided below, in the event Haim Saban, any
member of his immediate family or any of his affiliated entities (collectively
with Haim Saban and such family members, "Saban Entities") sells to a third
party in a bona fide sale any of his or its shares of the common stock of
Company ("Saban Shares"), the parties agree as follows:
(A) Company shall purchase from Employee and Employee shall
sell to Company the "Applicable Percentage," as defined below, of the Option
Shares owned by Employee for a per-share consideration equal to the per-share
consideration paid by the third party for the Saban Shares. If the consideration
paid by the third party for the Saban Shares includes non-cash consideration
and/or deferred consideration, the consideration paid by Company to Employee for
the Option Shares sold by Employee to Company under this subparagraph (A) shall
consist of similar non-cash and/or deferred consideration in the same ratio as
the non-cash and/or deferred consideration paid by the third party for the Saban
Shares bears to the total consideration paid by the third party for the Saban
Shares. The "Applicable Percentage" shall equal the percentage that the Saban
Shares sold to the third party represents of the total shares of Company owned
by the Saban Entities immediately prior to the sale. The purchase and sale of
the Option Shares under this subparagraph (A) shall close no later than ten (10)
days after the closing of the sale of the Saban Shares to the third party.
Concurrently with the purchase and sale
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of the Option Shares under this subparagraph (A), Employee shall execute and
deliver to Company an assignment separate from certificate for the Option
Shares, free and clear of any and all liens, claims, encumbrances and
restrictions of any type, kind or nature.
(B) Company shall pay to Employee an amount equal to the
Applicable Percentage (as defined in subparagraph (A) above) of (x) the per-
share consideration paid by the third party for the Saban Shares multiplied by
the number of Option Shares with respect to which Employee's option has vested
but has not been exercised, less (y) Employee's purchase price, determined under
Paragraph 5(f)(i), above, for such Option Shares. If the consideration paid by
the third party for the Saban Shares includes non-cash consideration and/or
deferred consideration, the payment by Company to Employee under this
subparagraph (B) shall consist of similar non-cash and/or deferred consideration
in the same ratio as the non-cash and/or deferred consideration paid by the
third party for the Saban Shares bears to the total consideration paid by the
third party for the Saban Shares. The payment under this subparagraph (B) shall
be made no later than ten (10) days after the closing of the sale of the Saban
Shares to the third party .
(C) The number of Option Shares Employee shall have the
option to purchase pursuant to this Paragraph 5(f) shall immediately be reduced
by a number of shares of Company equal to the Applicable Percentage (as defined
in subparagraph (A), above) of the Option Shares with respect to which
Employee's option has vested but has not been exercised. Such reduction shall
reduce only the Option Shares with respect to which Employee's option has vested
but has not been exercised and shall not reduce any Option Shares with respect
to which Employee's option has not then vested.
(D) If in connection with any sale of Saban Shares subject
to this Paragraph 5(f)(x), Haim Saban is required to enter into an agreement
which includes provisions restricting his ability to compete, directly or
indirectly (including, without limitation, through an ownership or licensing
arrangement with a competitor or potential competitor of Company), with Company
("noncompetition provisions"), and if the purchaser of the Saban Shares so
requires, Employee shall, in connection with the sale of the Option Shares and
payment for vested options under this Paragraph 5(f)(x), execute and deliver to
Company and such purchaser an agreement, in form and substance reasonably
acceptable to the purchaser, which agreement shall contain noncompetition
provisions, the scope, duration, terms and provisions of which are substantially
identical to the noncompetition provisions contained in Haim Saban's agreement;
provided, that no separate payment will be required to be made to Employee on
account of such agreement.
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This subparagraph (x) shall not apply to (A) any sale by a Saban Entity pursuant
to an "initial public offering" (as defined in Paragraph 5(f)(xii)) of the
common stock of the Company or (B) any transaction subject to Paragraph
5(f)(vii), above.
(xi) The obligations of Company to make any payment or payments
to Employee with respect to the purchase of Option Shares by Company (including
any payments under the Note) are subject to the satisfaction by Company of any
applicable statutory provisions restricting Company's ability to make such
payments, including, without limitation, Section 160 of the Delaware General
Corporation Law and Chapter 5 of the California General Corporation Law, and if
and to the extent that under those provisions, any such payment would expose the
directors of Company to any liability, or would be unlawful, Company shall
deliver to Employee, in lieu of such payment, a promissory note with terms
identical to the Note, which note shall be due and payable at the earliest
practicable date thereafter when such payment would not be violative of such
statutory provisions.
(xii) Notwithstanding any provision of this Paragraph 5(f) to
the contrary, following the earlier to occur of (I) the first closing of an
offer and sale of shares of the common stock of Company (whether such shares are
sold by Company, existing stockholders or both) for cash pursuant to a firmly
underwritten public offering effected pursuant to a registration statement filed
by Company with the Securities and Exchange Commission under the Securities Act
of 1933, as amended (or such successor legislation as shall then be in effect)
or (II) the date upon which the shares of common stock of Company are first
authorized for quotation on the Nasdaq National Market, or listed on the New
York Stock Exchange or American Stock Exchange (either event, an "initial public
offering"):
(A) the provisions of Paragraphs 5(f)(ix) and 5(f)(x) shall
terminate and be of no further force or effect;
(B) the provisions of any voting trust agreement entered into
pursuant to Paragraph 5(f)(v)(C) shall not prevent or restrict Employee's right
to sell and transfer any of the Option Shares free and clear of the obligations
therein set forth;
(C) the option shall terminate and expire, to the extent not
theretofore exercised, (x) if Employee's employment with Company is terminated
for any reason other than for "cause" pursuant to Paragraph 10(c) hereof, on the
first anniversary of the date of such termination, and (y) if Employee's
employment with Company is terminated for "cause" pursuant to Paragraph 10(c)
hereof, on the thirtieth (30th) day following the date of such termination; and
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(D) after Employee's employment with Company is terminated for
any reason, Company shall have the right and option, exercisable at any time
prior to the date of expiration of the option by delivery of written notice of
such exercise to Employee, to purchase from Employee, and if such option is
exercised, Employee shall sell to Company, any and all Option Shares owned by
Employee on the date of receipt of the notice of exercise (or acquired
thereafter upon exercise of the option and prior to the closing of such
purchase) and the option granted to Employee hereunder for an amount equal to
the "Termination Purchase Price," as defined in and determined pursuant to the
procedures provided in Paragraph 5(f)(ix), above; and within ten (10) days after
the parties' agreement on the fair market value of the Option Shares, or,
failing such agreement, the notification by the Selected Appraiser of his or her
appraisal, Company shall pay the Termination Purchase Price to Employee, against
delivery by Employee to Company of an assignment of the option in form
reasonably satisfactory to Company and an assignment separate from certificate
for the Option Shares, in each case free and clear of any and all liens, claims,
encumbrances and restrictions of any type, kind or nature.
(g) Employee Benefits.
(i) Reimbursements. Company shall reimburse Employee for
all ordinary and necessary business, entertainment and other expenses reasonably
incurred by Employee in the performance of Employee's duties and obligations
under this Agreement, including reimbursement for air travel and accommodations
for business travel. Company agrees to repay or reimburse Employee for such
business expenses upon the presentation of itemized statements of such business
expenses in accordance with Company's policy.
(ii) Annual Vacations. Employee shall be entitled to take
four (4) weeks annual vacation for each Term Year.
(iii) Health Insurance and Other Employee Benefits.
Company shall provide Employee with health insurance for him and his dependents
no less favorable in benefits than any other employee of Company. To the extent
that Company establishes any other employee benefit plan which provides benefits
to executives of Company generally, Employee shall be entitled to participate in
such plan pursuant to the terms thereof, except that Company may exclude
Employee's participation in any plan which is a stock option plan or plan
similar to a stock option plan.
(h) Signing Bonus. On or prior to execution hereof, Company will pay
or will cause to be paid to Employee, subject to
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all applicable laws and requirements respecting withholding of federal, state,
and/or local taxes, a signing bonus of One Hundred Thousand Dollars ($100,000).
Employee hereby acknowledges receipt in full of such signing bonus.
6. [INTENTIONALLY DELETED]
7. REPRESENTATIONS AND WARRANTIES.
(a) Representations of Employee. Employee represents and warrants
that Employee has all right, power, authority and capacity, and is free, to
enter into this Agreement; that by doing so Employee will not violate or
interfere with the rights of any other person or entity; and that Employee is
not subject to any contract, understanding or obligation which will or might
prevent, interfere with or impair the performance of this Agreement by Employee.
Employee will indemnify and hold Company harmless with respect to any losses,
liabilities, demands, claims, fees, expenses, damages and costs (including
attorneys fees and court costs) resulting from or arising out of any claim or
action based upon Employee's entering into this Agreement.
(b) Representations of Company. Company represents and warrants that
Company has all right, power and authority, without the consent of any other
person, to execute and deliver, and perform its obligations under, this
Agreement. All corporate and other actions required to be taken by Company to
authorize the execution, delivery and performance of this Agreement and the
consummation of all transactions contemplated hereby have been duly and properly
taken. This Agreement is the lawful, valid and legally binding obligation of
Company, enforceable in accordance with its terms.
(c) Materiality of Representations. The representations, warranties
and covenants set forth in this Agreement shall be deemed to be material and to
have been relied upon by the parties hereto.
8. RELATIONSHIP AND COVENANTS OF EMPLOYEE.
(a) Covenant Not To Disclose. Employee shall not at any time during
or after the termination of the Term, knowingly reveal, divulge or make known to
any person (other than the Company or its affiliates) or use for Employee's own
account any non-public information concerning or used by Company of which
Employee was apprised or otherwise had become aware during the term of
Employee's employment by Company (excluding any such information
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which becomes public for reasons other than Employee's breach of this Agreement
or which Employee is required to disclose by law).
(b) Covenant to Deliver Records. All memoranda, notes, records and
other documents made or compiled by Employee, or made available to Employee
during the term of this Agreement concerning the business of Company shall be
Company's property and shall be delivered to Company on the termination of this
Agreement or at any other time on request. Employee shall keep in confidence and
shall not use for Employee or others, or divulge to others, any secret or
confidential information, knowledge or data of Company obtained by Employee as a
result of Company's employment, unless authorized by Company or required by law.
Employee shall be entitled to retain for his own records copies of any and all
memoranda, notes, records and other documents made or compiled by Employee
during the Term of this Agreement.
(c) Covenant Not To Divert. Employee shall not so long as Employee
is employed hereunder, or if such employment shall terminate during or at the
expiration of the Term, for a period of two years following such termination,
directly or indirectly, either on Employee's own behalf, or as a member of a
partnership, joint venture or corporation, or as an employee or agent on behalf
of any person, firm, partnership, joint venture or corporation, either (i)
solicit, induce (or attempt to induce), or endeavor to entice away any clients
of Company (unless Company consents in writing), (ii) solicit, divert, or seek
to develop or exploit any existing entertainment projects on which Company is
working at the time of termination (unless Company thereafter advises Employee
in writing that it has abandoned such project), or (iii) solicit, interfere
with, induce (or attempt to induce) or endeavor to entice away any employee
(other than Employee's assistant) associated with Company to become affiliated
with him or any other person, firm, partnership, joint venture, corporation or
business organization.
(d) Limitations Upon Covenants. The provisions under this Paragraph
8 shall survive the termination of this Agreement. The parties hereto agree
that, in the event any of the provisions set forth in this Paragraph 8 are held
by any court or other duly constituted legal authority to be effective in any
particular area or jurisdiction only if modified to limit their duration or
scope or to be void or otherwise unenforceable in any particular area or
jurisdiction, then such provisions shall be deemed amended and modified with
respect to that particular area or jurisdiction so as to comply with the order
of any such court or other duly constituted legal authority and, as to all other
areas and jurisdictions, and as to all other provisions of this Paragraph 8,
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such provisions shall remain in full force and effect as set forth in this
Agreement.
(e) Remedies. Employee acknowledges that Company will have no
adequate remedy at law if Employee violates the terms of the provisions of this
Paragraph 8 or any other provisions of this Agreement (including, without
limitation, the exclusivity provisions of Paragraph 3, above). In such event,
Company shall have the right, in addition to any other rights it may have, to
obtain in any court of competent jurisdiction injunctive relief to restrain any
breach or threatened breach or specific performance of this Agreement.
9. CERTAIN RIGHTS OF COMPANY.
(a) Announcement. Company shall have the sole right to make a public
announcement of the terms, provisions, or execution of this Agreement.
(b) Use of Name, Likeness, and Biography. Company shall have the
right (but not the obligation) to use, publish and broadcast, and to authorize
others to do so, the name, approved likeness and approved biographical material
of Employee to advertise, publicize and promote the business of Company and of
affiliates, but not for the purposes of direct endorsement without Employee's
consent. An "approved likeness" and "approved biographical material" shall be,
respectively, any photograph or other depiction of Employee, or any biographical
information or life story concerning the professional career of Employee, which
has been submitted to and approved by Employee prior to its first use,
publication or broadcast, such approval not to be unreasonably withheld.
(c) Corporate Offices. In addition to his positions as President and
Chief Operating Officer of the Company, Company or its affiliates may from time
to time appoint Employee to one or more corporate offices of Company or its
affiliates. Employee agrees to accept such offices if consistent with Employee's
stature and experience.
(d) Right to Insure. Company shall have the right to secure in its
own name, or otherwise, and at its own expense, life, health, accident or other
insurance covering Employee, and Employee shall have no right, title or interest
in and to such insurance. Employee shall assist Company in procuring such
insurance by submitting to examinations and by signing such applications and
other instruments as may be required by the insurance carriers to which
application is made for any such insurance.
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10. TERMINATION.
(a) Disability. If Employee shall be rendered incapable by illness
(physical or mental disability) of complying with the terms, provisions and
conditions hereof on his part to be performed for a period in excess of 90
consecutive days or 250 days in the aggregate during the Term, then Company may,
at its option, prior to the date Employee resumes the rendering of services,
terminate this Agreement by written notice to that effect sent by registered or
certified mail. Such termination shall terminate any and all obligations to
Employee under this Agreement effective as of the date of such written notice
except (i) Employee's right to receive the Fixed Salary in Paragraph 5(a) for
the Term Year in which the date of such written notice falls, pro-rated to the
date of such written notice, (ii) Employee's right to receive the Contingent
Bonus in Paragraph 5(b) for the Term Year in which the date of such written
notice falls, prorated to the date of such written notice (payable at the time
set forth in Paragraph 5(e)), and (iii) Employee's vested rights with respect to
the option set forth in Paragraph 5(f).
(b) Death. In the event Employee dies during the Term of this
Agreement, such death shall terminate any and all obligations to Employee under
this Agreement effective as of the date of death except (i) Employee's right to
receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date
of death falls, pro-rated to the date of death, (ii) Employee's right to receive
the Contingent Bonus in Paragraph 5(b) for the Term Year in which the date of
death falls, pro-rated to the date of death (payable at the time set forth in
Paragraph 5(e)), and (iii) Employee's vested rights with respect to the option
set forth in Paragraph 5(f).
(c) Cause. Company may terminate Employee's employment hereunder for
cause, which shall mean (i) indictment of Employee for a felony or a crime
involving a high degree of moral turpitude, (ii) the commission by Employee of
an act or acts of dishonesty constituting a crime, which act or acts are
intended to result, directly or indirectly, in gain or personal enrichment at
the expense of Company or any of its subsidiaries or affiliates by Employee,
(iii) certification by a medical doctor that Employee is a habitual alcoholic or
is a narcotic addict, (iv) Employee's material breach of this Agreement. Such
termination shall terminate any and all obligations to Employee under this
Agreement effective as of the date of such written notice except (i) Employee's
right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which
the date of such written notice falls, pro-rated to the date of such written
notice, and (ii) Employee's
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vested rights with respect to the option set forth in Paragraph 5(f).
(d) At Convenience of Company. Company shall have the absolute and
unconditional right to terminate Employee's employment hereunder at any time,
other than pursuant to Paragraphs 10(a), 10(b) or 10(c), by written notice to
that effect delivered in person or sent by registered or certified mail. Such
termination shall terminate any and all obligations to Employee under this
Agreement effective as of the date of such written notice except (i) Employee's
right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which
the date of such written notice falls, pro-rated to the date of such written
notice, (ii) Employee's right to receive the Severance Pay provided in, and
subject to the terms and conditions of, Paragraph 11 hereof, (iii) Employee's
right to receive the Contingent Bonus in Paragraph 5(b) for the Term Year in
which the date of such written notice falls, prorated to the date of such
written notice (payable at the time set forth in Paragraph 5(e)), and (iv)
Employee's vested rights with respect to the option set forth in Paragraph 5(f).
(e) At Employee's Election. Employee may terminate his employment
hereunder upon Company's material breach of this Agreement by written notice to
that effect delivered in person or sent by registered or certified mail. Such
termination shall terminate any and all obligations of Company to Employee under
this Agreement, including liabilities with respect to such breach, effective as
of the date of such written notice except (i) Employee's right to receive the
Fixed Salary in Paragraph 5(a) for the Term Year in which the date of such
written notice falls, pro-rated to the date of such written notice, (ii)
Employee's right to receive the Severance Pay provided in, and subject to the
terms and conditions of, Paragraph 11 hereof, (iii) Employee's right to receive
the Contingent Bonus in Paragraph 5(b) for the Term Year in which the date of
such written notice falls, prorated to the date of such written notice (payable
at the time set forth in Paragraph 5(e)), and (iv) Employee's vested rights with
respect to the option set forth in Paragraph 5(f).
11. SEVERANCE PAY. In the event Employee's services are terminated by
Company pursuant to Paragraph 10(d) or by Employee pursuant to Paragraph 10(e)
above prior to the completion of the Term, Employee shall receive Employee's
fixed salary set forth in Paragraph 5(a) hereof for the balance of the Term,
payable in equal installments no less frequently than semi-monthly. The
termination benefits contemplated by this Paragraph shall be reduced by the
aggregate amount of any wages, salaries, fees or other compensation ("Earnings")
earned by Employee during the period in which payments
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pursuant to the first sentence of this Paragraph are otherwise to be made, as
compensation for full-time or part-time services rendered as an employee,
consultant, manager, independent contractor or in any other employment capacity.
For the purposes of determining the amount of such Earnings, if any, Employee
shall apprise Company from time to time, upon its request, of such amounts
earned, providing to Company such evidence thereof (on a confidential basis),
including, without limitation, Employee's federal and state income tax returns,
as Company may reasonably request.
12. CHANGE OF CONTROL.
(a) For the purposes of this Section 12, the following definitions
shall apply:
The following events shall each constitute a "Change of Control"
of Company: (i) the acquisition of one or more shares of the voting securities
of Company by any Acquiring Person, or any group of two or more Acquiring
Persons acting in concert, as a result of which such Person or group
beneficially owns fifty percent (50%) or more of the issued and outstanding
voting securities of Company; (ii) the consolidation with, or merger with or
into, any other entity, by Company and, in connection with such merger or
consolidation, Company is not the continuing or surviving entity; (iii) the sale
or transfer by other means by Company in one transaction or a series of related
transactions, of assets or earning power aggregating fifty percent (50%) or more
of the assets or earning power of Company and its subsidiaries (taken as a whole
and calculated on the basis of Company's most recent regularly prepared
financial statements) to any other person or persons (but excluding sales of
inventory in the ordinary course of business). The determination as to which
party to a merger or consolidation is the "continuing" or "surviving"
corporation shall be made on the basis of the relative equity interests of the
shareholders in the corporation existing after the merger or consolidation, as
follows: if following any merger or reorganization, the holders of outstanding
voting securities of Company immediately prior to the merger or consolidation
beneficially own fifty percent (50%) or more of the voting power of the entity
existing following the merger or consolidation, then for purposes of this
Agreement, Company shall be the survivor or continuing corporation. In making
the determination of beneficial ownership by the shareholders of a corporation
immediately after the merger or consolidation, of equity securities which the
shareholders owned immediately before the merger or consolidation, shares which
they beneficially owned as shareholders of another party to the transaction
shall be disregarded.
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"Acquiring Person" shall mean any individual, corporation,
partnership, limited liability company or other entity or group other than Haim
Saban or any other of the Saban Entities, Employee or Company or any of its
wholly-owned subsidiaries.
"Beneficial Ownership" shall be determined pursuant to Rule 13d-3 of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as in effect on the date of this Agreement.
(b) If, in the event of a Change of Control of Company, any Acquiring
Person or other person or group proposing to acquire control of Company and/or
the business of Company (the "Proposed Acquiror") objects to any of the terms of
this Agreement, Employee agrees to negotiate in good faith with Company to amend
this Agreement in such manner as to make it acceptable to the Proposed Acquiror.
Haim Saban and Company shall in any event use their best efforts to cause the
Proposed Acquiror to accept the terms of this Agreement.
13. ARBITRATION.
(a) The terms of this Paragraph 13 contain the sole and exclusive method,
means and procedure to resolve any and all claims, disputes or disagreements
arising under this Agreement, except those arising under the provisions of
Paragraph 8, above. The parties irrevocably waive any and all rights to the
contrary and shall at all times conduct themselves in accordance with the terms
of this Paragraph 13; any attempt to circumvent the terms of this Paragraph 13
shall be null and void and of no force or effect.
(b) Within ten (10) days after delivery of written notice (the "Notice of
Dispute") of the existence and nature of any dispute given by any party to the
other party, and unless otherwise provided herein in any specific instance, the
parties shall each (i) appoint one (1) lawyer actively engaged in the licensed
and full time practice of law in the County of Los Angeles for a continuous
period immediately preceding the date of delivery (the "Dispute Date") of the
Notice of Dispute of not less than ten (10) years, but who has at no time ever
represented or acted on behalf of any of the parties, and (ii) deliver written
notice of the identity of such lawyer and a copy of his or her written
acceptance of such appointment and acknowledgment of and agreement to be bound
by the time constraints and other terms of this Paragraph 13 (the "Acceptance")
to the other party hereto. In the event that any party fails to so act, that
party's arbitrator shall be appointed pursuant to the same procedure that is
followed when agreement cannot be reached as to the third arbitrator. Within ten
(10) days
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after such appointment and notice, such lawyers shall appoint a third lawyer
(who, together with the first two (2) lawyers, shall hereinafter be referred to
collectively as the "Arbitration Panel") of the same qualification and
background as the first two (2) lawyers (including the qualification that he or
she has at no time ever represented or acted on behalf of any of the parties)
and shall deliver written notice of the identity of such lawyers and a copy of
his or her written Acceptance of such appointment to each of the parties. If
agreement cannot be reached on the appointment of a third lawyer within such
period, such appointment and notification shall be made as rapidly as possible
by any court of competent jurisdiction, by any licensing authority, agency or
organization having jurisdiction over such lawyers, by any professional
association of lawyers in existence for not less than ten (10) years at the time
of such dispute or disagreement and the geographical membership boundaries of
which extend to the County of Los Angeles, or by any arbitration association or
organization in existence for not less than ten (10) years at the time of such
dispute or disagreement and the geographic boundaries of which extend to the
County of Los Angeles, as determined by the party giving such Notice of Dispute
and simultaneously confirmed in writing delivered by such party to the other
party. Any such court, authority, agency, association or organization shall be
entitled either to directly select such third lawyer or to designate in writing
delivered to each of the parties an individual who shall do so. In the event of
any subsequent vacancies or inabilities to perform among the Arbitration Panel,
the lawyer or lawyers involved shall be replaced in accordance with the terms of
this Paragraph 13 as if such replacement was an initial appointment to be made
under this Paragraph 13 within the time constraints set forth in this Paragraph
13, measured from the date of notice of such vacancy or inability to the person
or persons required to make such appointment, with all attendant consequences of
failure to act timely if such appointment is not so made. Unless the parties
shall otherwise agree, all arbitration proceedings shall be conducted at such
location within Los Angeles County as the members of the Arbitration Panel shall
by majority vote from time to time designate.
(c) Consistent with the terms of this Paragraph 13, the members of the
Arbitration Panel shall utilize their utmost skill and shall apply themselves
diligently so as to hear and decide, by majority vote, the outcome and
resolution of any dispute or disagreement submitted to the Arbitration Panel as
promptly as possible, but in any event on or before the expiration of sixty (60)
days after the appointment of the members of the Arbitration Panel. None of the
members of the Arbitration Panel shall have any
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liability whatsoever for any acts or omissions performed or omitted in good
faith pursuant to the provisions of this Article.
(d) The Arbitration Panel shall (i) enforce and interpret the rights and
obligations set forth in this Agreement to the extent not prohibited by law,
(ii) fix and establish any and all rules as it shall consider appropriate in its
sole and absolute discretion to govern the proceedings before it, including any
and all rules of discovery, procedure and/or evidence, provided however, that
such rules shall be consistent with such rules established by the American
Arbitration Association and (iii) make and issue any and all orders, final or
otherwise, and any all awards, as a court of competent jurisdiction sitting at
law or in equity could make and issue and as it shall consider appropriate in
its sole and absolute discretion, including the awarding of monetary damages
(but specifically excluding the awarding of consequential, punitive or exemplary
damages or the awarding of attorneys' fees and costs to either party) to the
prevailing party as determined by the Arbitration Panel in its sole and absolute
discretion, and the issuance of injunctive relief.
(e) The decision of the Arbitration Panel shall be final and binding, and
may be confirmed and entered by any court of competent jurisdiction at the
request of any party and may not be appealed to any court of competent
jurisdiction or otherwise, except upon a claim of fraud on the part of any
member of the Arbitration Panel (except as to the arbitrator chosen by the party
claiming the fraud), or on the basis of a manifest error as to the applicable
law. The Arbitration Panel shall retain jurisdiction over any dispute until its
award has been implemented, and judgment on any such award may be entered in any
court having appropriate jurisdiction and may be enforced against either party
and its assets pursuant to applicable laws and procedures.
(f) Each member of the Arbitration Panel (i) shall be compensated for any
and all services rendered under this Paragraph 13 at a rate of compensation
equal to the sum of Two Hundred Fifty Dollars ($250.00) per hour, which sum
shall be increased each year in accordance with annual increases in the Consumer
Price Index for Urban Wage Earners and Clerical Workers, Los Angeles-Anaheim-
Riverside, California 1982-84 = 100 ("CPI"), and (ii) shall be reimbursed for
any and all expenses incurred in connection with the rendering of such services,
payable in full promptly upon conclusion of the proceedings before the
Arbitration Panel. Such compensation and reimbursement shall be borne by the
non-prevailing party as determined by the Arbitration Panel in its sole and
absolute discretion, unless the Arbitration Panel does not make a determination
that one of the parties is the prevailing party, in
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which case the parties shall bear the cost as fixed by the Arbitration Panel.
14. INDEMNIFICATION. Concurrent with the execution and delivery of this
Agreement, Company and Employee have entered into an Indemnification Agreement,
pursuant to which, inter alia, Company has agreed, on the terms and conditions
----- ----
therein set forth, to indemnify Employee against certain claims arising by
reason of the fact that he is or was an officer or director of Company.
15. GENERAL.
(a) Assignment; Successors; Affiliates. Company may assign this
Agreement (or the interest of Company therein) to any affiliate of Company or to
any entity which is a party to a merger, reorganization, or consolidation with
Company or to a subsidiary of Company or to an entity or entities acquiring
substantially all of the assets of Company or of any division with respect to
which Employee is providing services (providing any such assignee assumes
Company's obligations under this Agreement). Employee shall, if requested by
Company, perform Employee's services and duties, as specified in this Agreement,
to or for the benefit of any subsidiary or other affiliate of Company. Upon such
assignment, acquisition, merger, consolidation, or reorganization, the term
"Company" as used herein shall be deemed to refer to such assignee or such
successor entity. Employee shall not have the right to assign Employee's
interest in this Agreement, any rights under this Agreement or any duties
imposed under this Agreement nor shall Employee (or Employee's spouse, heirs,
beneficiaries, administrator's or executors) have the right to pledge,
hypothecate or otherwise encumber Employee's right to receive compensation
hereunder without the consent of Company.
(b) Headings. The subject headings of the paragraphs and
subparagraphs of this Agreement are included for purposes of convenience only,
and shall not affect the construction or interpretation of any of its
provisions.
(c) Severability. It is agreed that if any term, covenant,
provision, paragraph or condition of this Agreement shall be illegal, such
illegality shall not invalidate the whole Agreement but it shall be construed as
if not containing the illegal part, and the rights and obligations of the
parties shall be construed and enforced accordingly.
(d) Entire Agreement. The parties hereto agree that this Agreement
supersedes all existing agreements between Company and Employee, whether oral,
written, expressed or implied, and contains
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the entire understanding and agreement between the parties. This Agreement shall
not be amended, modified, or supplemented in any respect except by a subsequent
written agreement entered into by both parties hereto.
(e) Choice of Law. This Agreement and the performance hereunder
shall be construed in accordance with and under and pursuant to the internal
substantive laws of the State of California applicable to agreements fully
executed and to be performed entirely in such state.
(f) Notices. All communications and notices hereunder shall be in
writing and shall be deemed to have been duly given and delivered personally if
sent by united States registered or certified mail, postage prepaid:
If to Company: Saban Entertainment, Inc.
4000 West Alameda Avenue
Burbank, California 91505
Attn: Haim Saban
With a copy to:
Matthew G. Krane, Esq.
Attorney
2051 Hercules Drive
Los Angeles, California 90046
If to Employee:
Mel Woods
1430 Beaudry Boulevard
Glendale, California 91208
or to such other addresses as my be designated in writing by either of the
parties.
(g) No Joint Venture. Nothing herein contained shall constitute a
partnership between or joint venture by the parties hereto or appoint any party
the agent of any other party. No party shall hold itself out contrary to the
terms of this paragraph and, except as otherwise specifically provided herein,
no party shall become liable for the representation, act or omission of any
other party. This Agreement is not for the benefit of any third party who is not
referred to herein and shall not be deemed to give any right or remedy to any
such third party.
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(h) Contractual Nomenclature. All reference herein to "Dollars" or
"$" shall mean Dollars of the United States of America, its legal tender for all
debts public and private. Where used herein and to the extent appropriate, the
masculine, feminine or neuter gender shall include the other two genders, the
singular shall include the plural, and the plural shall include the singular.
(i) Time of Essence. Time is of the essence of each provision in
this Agreement in which time is an element.
(j) No Adverse Construction. The rule that a contract is to be
construed against the party drafting the contract is hereby waived, and shall
have no applicability in construing this Agreement or the terms of this
Agreement.
* * *
IN WITNESS WHEREOF, Company and Employee have executed this Agreement as of
the 1st day of June 1994.
SABAN ENTERTAINMENT, INC.
By \s\ Haim Saban
-------------------------------------------------
\s\ Mel Woods
--------------------------------------------------
MEL WOODS
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<PAGE>
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement (the "Amendment") is made and
entered into as of September 26, 1996, by and between Saban Entertainment,
Inc., a Delaware corporation ("SEI") and Mel Woods ("Woods").
R E C I T A L S
----------------
A. Woods and SEI are parties to that certain Employment Agreement,
dated as of June 1, 1994 (the "Agreement"). All terms defined in the Agreement
which are not defined in this Amendment shall have the same meanings when used
in this Amendment.
B. The parties hereto desire to amend the Agreement from and after
the effective date of the initial public offering (the "Initial Public
Offering") of Fox Kids Worldwide, Inc., a Delaware corporation ("Fox Kids
Worldwide").
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing facts, the parties hereto
agree that from and after the effective date of the Initial Public Offering, the
following sections are amended as follows:
1. Expiration of Stock Option. From and after the effective date of the
--------------------------
Initial Public Offering, Paragraph 5(f)(i) of the Agreement is amended by adding
the following sentence at the end of such Paragraph.
"As long as the option is not earlier exercised or terminated in
accordance with the terms of this Agreement, the option shall expire on June 1,
2004."
2. Termination of Option. From and after the effective date of the
---------------------
Initial Public Offering, Paragraph 5(f)(xii)(D) of the Agreement shall terminate
and be of no further force or effect.
3. Effect of Amendment. Except as expressly modified herein, all terms
-------------------
of the Agreement remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
SABAN ENTERTAINMENT, INC.
By: /s/ Haim Saban
________________________________________
Its: Chairman and Chief Executive Officer
________________________________________
MEL WOODS
/s/ Mel Woods
________________________________________
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is entered into as of the 1st day of June,
1996 by and between Fox Kids Worldwide, Inc., a Delaware corporation ("Company")
and Shuki Levy ("Employee"):
1. ENGAGEMENT. Company hereby engages Employee to render services as
Executive Vice-President and Supervising Producer of Live Action Programming of
Company pursuant to the terms and conditions hereof, and Employee hereby accepts
such engagement. Concurrently with the execution of this Agreement, the parties
hereto acknowledge the termination of that certain Loan Out Agreement dated as
of January 1, 1995 by and between Saban Entertainment, Inc. and Arpeggio
Productions, Inc. Employee shall report solely to Haim Saban, the Chairman and
Chief Executive Officer of Company, subject to the overall direction and
supervision of Company's Board of Directors; provided that from and after a
"Change of Control," as defined in Section 12, below, Employee agrees that he
may be required to report to some other person. If Employee is elected to the
Board of Directors of Company, Employee agrees to accept such appointment.
2. NATURE AND PLACE OF SERVICES. Employee shall render all services
usually and customarily rendered by and required of executives similarly
employed in the entertainment industry and such other services as may be
reasonably required by Company. The location of Employee's office shall be at
Company's principal Southern California executive offices, which will be located
at such place or places in Los Angeles County as the Board of Directors of
Company shall from time to time designate; and the duties of Employee shall be
performed at such offices, except for such travel as may from time to time be
required.
3. EXCLUSIVITY. Employee shall work for Company and its affiliates during
the Term hereof on a full-time, non-exclusive basis. Notwithstanding the
foregoing, the Company and its affiliates shall have priority on Employee's
services during the Term of this Agreement, and Employee shall not render
services of any nature to or for any other person, firm or corporation in
connection with children's entertainment during the Term of this Agreement
without the prior written consent of Company. For so long as Employee is
employed pursuant to the terms hereof, Employee shall not become financially
interested in or associated with, directly or indirectly, any other person or
entity engaged in the production, distribution or exhibition of motion pictures,
television programs, phonograph recording, or any visual or audio recordings of
any kind (except in connection with Employee's employment as a composer by
Bubale Music and/or 5161 Corporation), or in the broadcasting or music
publishing businesses, anywhere in the world; provided, that Employee may invest
in the capital stock or other securities of any corporation whose stock or other
securities are publicly owned or are regularly traded on any securities exchange
or in the over-the-counter market, so long as Employee's ownership of such
securities does not
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exceed 5% of the issued and outstanding securities of such entity and Employee's
holdings in any one such entity does not in the aggregate cost Employee more
than $100,000.
4. TERM. The term of this Agreement ("Term") shall commence on June
1, 1996 and, subject to termination as hereinafter provided, expire with the
close of business on May 31, 1999. Each consecutive year of the Term ending on
May 31 shall be referred to as a "Term Year."
5. COMPENSATION.
(a) Fixed Annual Compensation. The Company shall pay to Employee, as
consideration for all services rendered by Employee pursuant to this Agreement
fixed compensation of Five Hundred Thousand Dollars ($500,000) per year for each
Term Year hereunder.
(b) Stock Options. On June 1, 1994, Employee and Saban Entertainment,
Inc. entered into a Stock Option Agreement, a copy of which is attached to this
Agreement. The Stock Option Agreement shall continue in full force and effect
during the Term, with all references therein to "Consultant" and "engagement"
being deemed to refer to and include, respectively, Employee and his engagement
hereunder.
(c) Bonuses. The Company may in its discretion grant to Employee a
discretionary bonus for each Term Year.
(d) Employee Benefits.
(i) Reimbursements. Company shall reimburse Employee for
all ordinary and necessary business, entertainment and other expenses reasonably
incurred by Employee in the performance of Employee's duties and obligations
under this Agreement, including reimbursement for air travel and accommodations
for business travel. Company agrees to repay or reimburse Employee for such
business expenses upon the presentation of itemized statements of such business
expenses in accordance with Company's policy.
(ii) Annual Vacations. Employee shall be entitled to take
four (4) weeks annual vacation for each Term Year.
(iii) Health Insurance and Other Employee Benefits.
Company shall provide Employee with health insurance for him and his dependents
no less favorable in benefits than any other employee of Company. To the extent
that Company establishes any other employee benefit plan which provides benefits
to executives of Company generally, Employee shall be entitled to participate in
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such plan pursuant to the terms thereof, except that Company may exclude
Employee's participation in any plan which is a stock option plan or plan
similar to a stock option plan.
6. [INTENTIONALLY DELETED]
7. REPRESENTATIONS AND WARRANTIES.
(a) Representations of Employee. Employee represents and warrants
that Employee has all right, power, authority and capacity, and is free, to
enter into this Agreement; that by doing so Employee will not violate or
interfere with the rights of any other person or entity; and that Employee is
not subject to any contract, understanding or obligation which will or might
prevent, interfere with or impair the performance of this Agreement by Employee.
Employee will indemnify and hold Company harmless with respect to any losses,
liabilities, demands, claims, fees, expenses, damages and costs (including
attorneys fees and court costs) resulting from or arising out of any claim or
action based upon Employee's entering into this Agreement.
(b) Representations of Company. Company represents and warrants that
Company has all right, power and authority, without the consent of any other
person, to execute and deliver, and perform its obligations under, this
Agreement. All corporate and other actions required to be taken by Company to
authorize the execution, delivery and performance of this Agreement and the
consummation of all transactions contemplated hereby have been duly and properly
taken. This Agreement is the lawful, valid and legally binding obligation of
Company, enforceable in accordance with its terms.
(c) Materiality of Representations. The representations, warranties
and covenants set forth in this Agreement shall be deemed to be material and to
have been relied upon by the parties hereto.
8. RELATIONSHIP AND COVENANTS OF EMPLOYEE.
(a) Covenant Not To Disclose. Employee shall not at any time during
or after the termination of the Term, knowingly reveal, divulge or make known to
any person (other than the Company or its affiliates) or use for Employee's own
account any non-public information concerning or used by Company of which
Employee was apprised or otherwise had become aware during the term of
Employee's employment by Company (excluding any such information which becomes
public for reasons other than Employee's breach of this Agreement or which
Employee is required to disclose by law).
3
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(b) Covenant to Deliver Records. All memoranda, notes, records and
other documents made or compiled by Employee, or made available to Employee
during the term of this Agreement concerning the business of Company shall be
Company's property and shall be delivered to Company on the termination of this
Agreement or at any other time on request. Employee shall keep in confidence and
shall not use for Employee or others, or divulge to others, any secret or
confidential information, knowledge or data of Company obtained by Employee as a
result of Company's employment, unless authorized by Company or required by law.
Employee shall be entitled to retain for his own records copies of any and all
memoranda, notes, records and other documents made or compiled by Employee
during the Term of this Agreement.
(c) Covenant Not To Divert. Employee shall not so long as Employee is
employed hereunder, or if such employment shall terminate during or at the
expiration of the Term, for a period of two years following such termination,
directly or indirectly, either on Employee's own behalf, or as a member of a
partnership, joint venture or corporation, or as an employee or agent on behalf
of any person, firm, partnership, joint venture or corporation, either (i)
solicit, induce (or attempt to induce), or endeavor to entice away any clients
of Company (unless Company consents in writing), (ii) solicit, divert, or seek
to develop or exploit any existing entertainment projects on which Company is
working at the time of termination (unless Company thereafter advises Employee
in writing that it has abandoned such project), or (iii) solicit, interfere
with, induce (or attempt to induce) or endeavor to entice away any employee
(other than Employee's assistant) associated with Company to become affiliated
with him or any other person, firm, partnership, joint venture, corporation or
business organization.
(d) Limitations Upon Covenants. The provisions under this Paragraph 8
shall survive the termination of this Agreement. The parties hereto agree that,
in the event any of the provisions set forth in this Paragraph 8 are held by any
court or other duly constituted legal authority to be effective in any
particular area or jurisdiction only if modified to limit their duration or
scope or to be void or otherwise unenforceable in any particular area or
jurisdiction, then such provisions shall be deemed amended and modified with
respect to that particular area or jurisdiction so as to comply with the order
of any such court or other duly constituted legal authority and, as to all other
areas and jurisdictions, and as to all other provisions of this Paragraph 8,
such provisions shall remain in full force and effect as set forth in this
Agreement.
(e) Remedies. Employee acknowledges that Company will have no adequate
remedy at law if Employee violates the terms of the provisions of this Paragraph
8 or any other provisions of this
4
<PAGE>
Agreement (including, without limitation, the exclusivity provisions of
Paragraph 3, above). In such event, Company shall have the right, in addition to
any other rights it may have, to obtain in any court of competent jurisdiction
injunctive relief to restrain any breach or threatened breach or specific
performance of this Agreement.
9. CERTAIN RIGHTS OF COMPANY.
(a) Announcement. Company shall have the sole right to make a public
announcement of the terms, provisions, or execution of this Agreement.
(b) Use of Name, Likeness, and Biography. Company shall have the right
(but not the obligation) to use, publish and broadcast, and to authorize others
to do so, the name, approved likeness and approved biographical material of
Employee to advertise, publicize and promote the business of Company and of
affiliates, but not for the purposes of direct endorsement without Employee's
consent. An "approved likeness" and "approved biographical material" shall be,
respectively, any photograph or other depiction of Employee, or any biographical
information or life story concerning the professional career of Employee, which
has been submitted to and approved by Employee prior to its first use,
publication or broadcast, such approval not to be unreasonably withheld.
(c) Corporate Offices. In addition to his positions as Executive Vice-
President and Supervising Producer of Live Action Programming of the Company,
Company or its affiliates may from time to time appoint Employee to one or more
corporate offices of Company or its affiliates. Employee agrees to accept such
offices if consistent with Employee's stature and experience.
(d) Right to Insure. Company shall have the right to secure in its own
name, or otherwise, and at its own expense, life, health, accident or other
insurance covering Employee, and Employee shall have no right, title or interest
in and to such insurance. Employee shall assist Company in procuring such
insurance by submitting to examinations and by signing such applications and
other instruments as may be required by the insurance carriers to which
application is made for any such insurance.
10. TERMINATION.
(a) Disability. If Employee shall be rendered incapable by illness
(physical or mental disability) of complying with the terms, provisions and
conditions hereof on his part to be performed for a period in excess of 90
consecutive days or 250 days in the aggregate during the Term, then Company may,
at its option, prior
5
<PAGE>
to the date Employee resumes the rendering of services, terminate this Agreement
by written notice to that effect sent by registered or certified mail. Such
termination shall terminate any and all obligations to Employee under this
Agreement effective as of the date of such written notice except Employee's
right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which
the date of such written notice falls, pro-rated to the date of such written
notice.
(b) Death. In the event Employee dies during the Term of this
Agreement, such death shall terminate any and all obligations to Employee under
this Agreement effective as of the date of death except Employee's right to
receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date
of death falls, pro-rated to the date of death.
(c) Cause. Company may terminate Employee's employment hereunder for
cause, which shall mean (i) indictment of Employee for a felony or a crime
involving a high degree of moral turpitude, (ii) the commission by Employee of
an act or acts of dishonesty constituting a crime, which act or acts are
intended to result, directly or indirectly, in gain or personal enrichment at
the expense of Company or any of its subsidiaries or affiliates by Employee,
(iii) certification by a medical doctor that Employee is a habitual alcoholic or
is a narcotic addict, (iv) Employee's material breach of this Agreement. Such
termination shall terminate any and all obligations to Employee under this
Agreement effective as of the date of such written notice except Employee's
right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which
the date of such written notice falls, pro-rated to the date of such written
notice.
(d) At Convenience of Company. Company shall have the absolute and
unconditional right to terminate Employee's employment hereunder at any time,
other than pursuant to Paragraphs 10(a), 10(b) or 10(c), by written notice to
that effect delivered in person or sent by registered or certified mail. Such
termination shall terminate any and all obligations to Employee under this
Agreement effective as of the date of such written notice except (i) Employee's
right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which
the date of such written notice falls, pro-rated to the date of such written
notice, and (ii) Employee's right to receive the Severance Pay provided in, and
subject to the terms and conditions of, Paragraph 11 hereof.
(e) At Employee's Election. Employee may terminate his employment
hereunder upon Company's material breach of this Agreement by written notice to
that effect delivered in person or sent by registered or certified mail. Such
termination shall terminate any and all obligations of Company to Employee under
this
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Agreement, including liabilities with respect to such breach, effective as of
the date of such written notice except (i) Employee's right to receive the Fixed
Salary in Paragraph 5(a) for the Term Year in which the date of such written
notice falls, pro-rated to the date of such written notice, and (ii) Employee's
right to receive the Severance Pay provided in, and subject to the terms and
conditions of, Paragraph 11 hereof.
11. SEVERANCE PAY. In the event Employee's services are terminated by
Company pursuant to Paragraph 10(d) or by Employee pursuant to Paragraph 10(e)
above prior to the completion of the Term, Employee shall receive Employee's
fixed salary set forth in Paragraph 5(a) hereof for the balance of the Term,
payable in equal installments no less frequently than semi-monthly. The
termination benefits contemplated by this Paragraph shall be reduced by the
aggregate amount of any wages, salaries, fees or other compensation ("Earnings")
earned by Employee during the period in which payments pursuant to the first
sentence of this Paragraph are otherwise to be made, as compensation for full-
time or part-time services rendered as an employee, consultant, manager,
independent contractor or in any other employment capacity. For the purposes of
determining the amount of such Earnings, if any, Employee shall apprise Company
from time to time, upon its request, of such amounts earned, providing to
Company such evidence thereof (on a confidential basis), including, without
limitation, Employee's federal and state income tax returns, as Company may
reasonably request.
12. CHANGE OF CONTROL.
(a) For the purposes of this Section 12, the following definitions
shall apply:
The following events shall each constitute a "Change of Control" of
Company: (i) the acquisition of one or more shares of the voting securities of
Company by any Acquiring Person, or any group of two or more Acquiring Persons
acting in concert, as a result of which such Person or group beneficially owns
fifty percent (50%) or more of the issued and outstanding voting securities of
Company; (ii) the consolidation with, or merger with or into, any other entity,
by Company and, in connection with such merger or consolidation, Company is not
the continuing or surviving entity; (iii) the sale or transfer by other means by
Company in one transaction or a series of related transactions, of assets or
earning power aggregating fifty percent (50%) or more of the assets or earning
power of Company and its subsidiaries (taken as a whole and calculated on the
basis of Company's most recent regularly prepared financial statements) to any
other person or persons (but excluding sales of inventory in the ordinary course
of business). The determination as to which party to a merger or consolidation
is
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the "continuing" or "surviving" corporation shall be made on the basis of the
relative equity interests of the shareholders in the corporation existing after
the merger or consolidation, as follows: if following any merger or
reorganization, the holders of outstanding voting securities of Company
immediately prior to the merger or consolidation beneficially own fifty percent
(50%) or more of the voting power of the entity existing following the merger or
consolidation, then for purposes of this Agreement, Company shall be the
survivor or continuing corporation. In making the determination of beneficial
ownership by the shareholders of a corporation immediately after the merger or
consolidation, of equity securities which the shareholders owned immediately
before the merger or consolidation, shares which they beneficially owned as
shareholders of another party to the transaction shall be disregarded.
"Acquiring Person" shall mean any individual, corporation,
partnership, limited liability company or other entity or group other than Haim
Saban or any other of the Saban Entities, Employee or Company or any of its
wholly-owned subsidiaries.
"Beneficial Ownership" shall be determined pursuant to Rule 13d-3 of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as in effect on the date of this Agreement.
(b) If, in the event of a Change of Control of Company, any Acquiring
Person or other person or group proposing to acquire control of Company and/or
the business of Company (the "Proposed Acquiror") objects to any of the terms of
this Agreement, Employee agrees to negotiate in good faith with Company to amend
this Agreement in such manner as to make it acceptable to the Proposed Acquiror.
Haim Saban and Company shall in any event use their best efforts to cause the
Proposed Acquiror to accept the terms of this Agreement.
13. ARBITRATION.
(a) The terms of this Paragraph 13 contain the sole and exclusive
method, means and procedure to resolve any and all claims, disputes or
disagreements arising under this Agreement, except those arising under the
provisions of Paragraph 8, above. The parties irrevocably waive any and all
rights to the contrary and shall at all times conduct themselves in accordance
with the terms of this Paragraph 13; any attempt to circumvent the terms of this
Paragraph 13 shall be null and void and of no force or effect.
(b) Within ten (10) days after delivery of written notice (the
"Notice of Dispute") of the existence and nature of any dispute given by any
party to the other party, and unless otherwise
8
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provided herein in any specific instance, the parties shall each (i) appoint one
(1) lawyer actively engaged in the licensed and full time practice of law in the
County of Los Angeles for a continuous period immediately preceding the date of
delivery (the "Dispute Date") of the Notice of Dispute of not less than ten (10)
years, but who has at no time ever represented or acted on behalf of any of the
parties, and (ii) deliver written notice of the identity of such lawyer and a
copy of his or her written acceptance of such appointment and acknowledgment of
and agreement to be bound by the time constraints and other terms of this
Paragraph 13 (the "Acceptance") to the other party hereto. In the event that
any party fails to so act, that party's arbitrator shall be appointed pursuant
to the same procedure that is followed when agreement cannot be reached as to
the third arbitrator. Within ten (10) days after such appointment and notice,
such lawyers shall appoint a third lawyer (who, together with the first two (2)
lawyers, shall hereinafter be referred to collectively as the "Arbitration
Panel") of the same qualification and background as the first two (2) lawyers
(including the qualification that he or she has at no time ever represented or
acted on behalf of any of the parties) and shall deliver written notice of the
identity of such lawyers and a copy of his or her written Acceptance of such
appointment to each of the parties. If agreement cannot be reached on the
appointment of a third lawyer within such period, such appointment and
notification shall be made as rapidly as possible by any court of competent
jurisdiction, by any licensing authority, agency or organization having
jurisdiction over such lawyers, by any professional association of lawyers in
existence for not less than ten (10) years at the time of such dispute or
disagreement and the geographical membership boundaries of which extend to the
County of Los Angeles, or by any arbitration association or organization in
existence for not less than ten (10) years at the time of such dispute or
disagreement and the geographic boundaries of which extend to the County of Los
Angeles, as determined by the party giving such Notice of Dispute and
simultaneously confirmed in writing delivered by such party to the other party.
Any such court, authority, agency, association or organization shall be entitled
either to directly select such third lawyer or to designate in writing delivered
to each of the parties an individual who shall do so. In the event of any
subsequent vacancies or inabilities to perform among the Arbitration Panel, the
lawyer or lawyers involved shall be replaced in accordance with the terms of
this Paragraph 13 as if such replacement was an initial appointment to be made
under this Paragraph 13 within the time constraints set forth in this Paragraph
13, measured from the date of notice of such vacancy or inability to the person
or persons required to make such appointment, with all attendant consequences of
failure to act timely if such appointment is not so made. Unless the parties
shall otherwise agree, all arbitration proceedings shall be conducted at such
location within Los Angeles County as the members of the
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Arbitration Panel shall by majority vote from time to time designate.
(c) Consistent with the terms of this Paragraph 13, the members of the
Arbitration Panel shall utilize their utmost skill and shall apply themselves
diligently so as to hear and decide, by majority vote, the outcome and
resolution of any dispute or disagreement submitted to the Arbitration Panel as
promptly as possible, but in any event on or before the expiration of sixty (60)
days after the appointment of the members of the Arbitration Panel. None of the
members of the Arbitration Panel shall have any liability whatsoever for any
acts or omissions performed or omitted in good faith pursuant to the provisions
of this Article.
(d) The Arbitration Panel shall (i) enforce and interpret the rights and
obligations set forth in this Agreement to the extent not prohibited by law,
(ii) fix and establish any and all rules as it shall consider appropriate in its
sole and absolute discretion to govern the proceedings before it, including any
and all rules of discovery, procedure and/or evidence, provided however, that
such rules shall be consistent with such rules established by the American
Arbitration Association and (iii) make and issue any and all orders, final or
otherwise, and any all awards, as a court of competent jurisdiction sitting at
law or in equity could make and issue and as it shall consider appropriate in
its sole and absolute discretion, including the awarding of monetary damages
(but specifically excluding the awarding of consequential, punitive or exemplary
damages or the awarding of attorneys' fees and costs to either party) to the
prevailing party as determined by the Arbitration Panel in its sole and absolute
discretion, and the issuance of injunctive relief.
(e) The decision of the Arbitration Panel shall be final and binding, and
may be confirmed and entered by any court of competent jurisdiction at the
request of any party and may not be appealed to any court of competent
jurisdiction or otherwise, except upon a claim of fraud on the part of any
member of the Arbitration Panel (except as to the arbitrator chosen by the party
claiming the fraud), or on the basis of a manifest error as to the applicable
law. The Arbitration Panel shall retain jurisdiction over any dispute until its
award has been implemented, and judgment on any such award may be entered in any
court having appropriate jurisdiction and may be enforced against either party
and its assets pursuant to applicable laws and procedures.
(f) Each member of the Arbitration Panel (i) shall be compensated for any
and all services rendered under this Paragraph 13 at a rate of compensation
equal to the sum of Two Hundred Fifty Dollars ($250.00) per hour, which sum
shall be increased each year in accordance with annual increases in the Consumer
Price Index for
10
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Urban Wage Earners and Clerical Workers, Los Angeles-Anaheim-Riverside,
California 1982-84 = 100 ("CPI"), and (ii) shall be reimbursed for any and all
expenses incurred in connection with the rendering of such services, payable in
full promptly upon conclusion of the proceedings before the Arbitration Panel.
Such compensation and reimbursement shall be borne by the non-prevailing party
as determined by the Arbitration Panel in its sole and absolute discretion,
unless the Arbitration Panel does not make a determination that one of the
parties is the prevailing party, in which case the parties shall bear the cost
as fixed by the Arbitration Panel.
14. INDEMNIFICATION. Concurrent with the execution and delivery of this
Agreement, Company and Employee have entered into an Indemnification Agreement,
pursuant to which, inter alia, Company has agreed, on the terms and conditions
----- ----
therein set forth, to indemnify Employee against certain claims arising by
reason of the fact that he is or was an officer or director of Company.
15. GENERAL.
(a) Assignment; Successors; Affiliates. Company may assign this
Agreement (or the interest of Company therein) to any affiliate of Company or to
any entity which is a party to a merger, reorganization, or consolidation with
Company or to a subsidiary of Company or to an entity or entities acquiring
substantially all of the assets of Company or of any division with respect to
which Employee is providing services (providing any such assignee assumes
Company's obligations under this Agreement). Employee shall, if requested by
Company, perform Employee's services and duties, as specified in this Agreement,
to or for the benefit of any subsidiary or other affiliate of Company. Upon such
assignment, acquisition, merger, consolidation, or reorganization, the term
"Company" as used herein shall be deemed to refer to such assignee or such
successor entity. Employee shall not have the right to assign Employee's
interest in this Agreement, any rights under this Agreement or any duties
imposed under this Agreement nor shall Employee (or Employee's spouse, heirs,
beneficiaries, administrator's or executors) have the right to pledge,
hypothecate or otherwise encumber Employee's right to receive compensation
hereunder without the consent of Company.
(b) Headings. The subject headings of the paragraphs and subparagraphs
of this Agreement are included for purposes of convenience only, and shall not
affect the construction or interpretation of any of its provisions.
(c) Severability. It is agreed that if any term, covenant, provision,
paragraph or condition of this Agreement shall be illegal, such illegality shall
not invalidate the whole
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Agreement but it shall be construed as if not containing the illegal part, and
the rights and obligations of the parties shall be construed and enforced
accordingly.
(d) Entire Agreement. The parties hereto agree that this Agreement
supersedes all existing agreements between Company and Employee, whether oral,
written, expressed or implied, and contains the entire understanding and
agreement between the parties. This Agreement shall not be amended, modified, or
supplemented in any respect except by a subsequent written agreement entered
into by both parties hereto.
(e) Choice of Law. This Agreement and the performance hereunder shall
be construed in accordance with and under and pursuant to the internal
substantive laws of the State of California applicable to agreements fully
executed and to be performed entirely in such state.
(f) Notices. All communications and notices hereunder shall be in
writing and shall be deemed to have been duly given and delivered personally if
sent by united States registered or certified mail, postage prepaid:
If to Company: Fox Kids Worldwide, Inc.
10960 Wilshire Boulevard
Los Angeles, California 90024
Attn: Haim Saban
With a copy to:
Matthew G. Krane, Esq.
Attorney
2051 Hercules Drive
Los Angeles, California 90046
If to Employee:
Shuki Levy
c/o Saban Entertainment, Inc.
10960 Wilshire Boulevard
Los Angeles, CA 90024
or to such other addresses as my be designated in writing by either of the
parties.
(g) No Joint Venture. Nothing herein contained shall constitute a
partnership between or joint venture by the parties hereto or appoint any party
the agent of any other party. No party shall hold itself out contrary to the
terms of this paragraph and,
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except as otherwise specifically provided herein, no party shall become liable
for the representation, act or omission of any other party. This Agreement is
not for the benefit of any third party who is not referred to herein and shall
not be deemed to give any right or remedy to any such third party.
(h) Contractual Nomenclature. All reference herein to "Dollars" or "$"
shall mean Dollars of the United States of America, its legal tender for all
debts public and private. Where used herein and to the extent appropriate, the
masculine, feminine or neuter gender shall include the other two genders, the
singular shall include the plural, and the plural shall include the singular.
(i) Time of Essence. Time is of the essence of each provision in
this Agreement in which time is an element.
(j) No Adverse Construction. The rule that a contract is to be
construed against the party drafting the contract is hereby waived, and shall
have no applicability in construing this Agreement or the terms of this
Agreement.
* * *
IN WITNESS WHEREOF, Company and Employee have executed this Agreement as of
the _____ day of September 1996.
FOX KIDS WORLDWIDE, INC.
By /s/ MEL WOODS
---------------------------------
MEL WOODS
/s/ SHUKI LEVY
---------------------------------
SHUKI LEVY
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STOCK OPTION AGREEMENT
----------------------
This STOCK OPTION AGREEMENT (this "Option Agreement") is made and entered
into as of the 1st day of June, 1994 by and between Saban Entertainment, Inc., a
Delaware corporation ("Company"), and Shuki Levy ("Consultant"):
R E C I T A L S
---------------
A. Consultant is currently engaged by Company as a consultant pursuant to
an oral consulting agreement, terminable at will by either party, with or
without cause; the parties intend to memorialize that agreement in the near
future. If and when the agreement is memorialized, terms used herein will be
defined consistent with the understanding of the parties as to their use and
meaning herein.
B. As used herein, "Term Year" means a period of twelve (12) consecutive
calendar months ending on May 31 of each year. The first Term Year shall
commence on the date of this Agreement. The "Term" shall be a period of five (5)
consecutive years, commencing with the date of this Agreement.
Company and Consultant agree as follows:
1. Subject to the terms and conditions hereof, including the vesting
requirements under Paragraph 2, below, Company hereby grants to Consultant the
option to purchase sixteen and three hundred twenty-seven one thousandths
(16.327) shares ("Option Shares") of Company common stock at a purchase price of
One Hundred Twenty-Two Thousand Four Hundred Ninety-Six Dollars and Forty-Eight
Cents ($122,496.48) per share.
2. The option shall vest and be exercisable by Consultant with respect to
one-fifth (1/5) of the Option Shares after the completion of the first Term
Year, provided Consultant is then and has continuously been engaged by Company.
The option shall vest and be exercisable by Consultant with respect to an
additional one-fifth (1/5) of the Option Shares after the completion of each
Term Year of the Term, provided Consultant is
<PAGE>
and has continuously been engaged by Company at the end of each such Term Year.
Notwithstanding the foregoing:
(A) if (I) Consultant dies during the Term or Consultant's
engagement is terminated by reason of disability, (II) Consultant was until
then continuously engaged by Company, and (III) the option has then vested
and become exercisable with respect to less than one-half (1/2) of the
Option Shares, then the option shall immediately vest and be exercisable by
Consultant with respect to an additional number of Option Shares equal to
one-half the Option Shares less the number of Option Shares which have
theretofore vested and become exercisable;
(B) if (I) Consultant's engagement is terminated during any Term
Year other than for cause, death or disability, (II) Consultant was until
then continuously engaged by Company, and (III) the option has then vested
and become exercisable with respect to less than one-half (1/2) of the
Option Shares, then the option shall immediately vest and be exercisable by
Consultant with respect to an additional number of Option Shares equal to
one-half the Option Shares less the number of Option Shares which have
theretofore vested and become exercisable; and
(C) if (I) Consultant's engagement is terminated during any Term
Year other than for cause, death or disability, (II) Consultant was until
then continuously engaged by Company, and (III) the option has then vested
and become exercisable with respect to at least one-half (1/2) of the
Option Shares, then the option shall, effective immediately prior to such
termination, vest and be exercisable by Consultant with respect to that
portion of the Option Shares which would have vested upon completion of the
Term Year in which Consultant's termination occurs, had such termination
not occurred.
3. Upon termination of Consultant's engagement with Company for any
reason, Consultant shall be entitled to exercise only the portion of the option
that has vested pursuant to Paragraph 2, above, as of the termination date.
Nothing in this Paragraph 3 shall, however, be construed to limit any of
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<PAGE>
Consultant's rights or remedies in the event of Company's breach of this
Agreement.
4. During Consultant's lifetime, the option may be exercised only by
him and may not be transferred, assigned, pledged or hypothecated (whether by
operation of law or otherwise) other than by will or the applicable laws of
descent or distribution. If Consultant dies at a time when the option, or a
portion thereof, is exercisable by him, the portion of the option that is then
exercisable by him shall be exercisable by Consultant's executors, personal
representatives, legatees or distributees, as applicable.
5. The option granted hereunder shall be exercised by Consultant by
giving written notice to Company stating the number of Option Shares with
respect to which the option is being exercised and tendering payment therefor in
cash or by certified check. As a condition to the issuance of the Option Shares,
Consultant shall (A) execute such further documents and instruments and take
whatever acts are necessary in order for the issuance to be in compliance with
all applicable federal and state securities laws, (B) enter into a shareholders
agreement restricting the transferability of the Option Shares and providing for
such other matters as the parties may agree, the terms of which shareholders
agreement shall be negotiated in good faith, and (C) enter into a voting trust
agreement or such other arrangement as is reasonably satisfactory to Company
whereunder Haim Saban (or, in the event of Haim Saban's death, his successor) is
granted the power to vote the Option Shares. As soon as reasonably practicable
thereafter, a certificate representing the Option Shares with respect to which
the option is exercised shall be delivered to Consultant. Such certificate may
contain a legend thereon reflecting the restrictions set forth in subparagraphs
(A), (B) and (C), above, and Paragraphs 9 and 10, below.
6. Consultant shall have none of the rights or privileges of a
shareholder of Company in respect of any of the Option Shares, unless and until
the purchase price for such Option Shares shall have been paid in full.
7. The number of Option Shares shall be appropriately adjusted for
any increase or decrease in the number
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<PAGE>
of shares of issued and outstanding common stock of Company resulting from a
subdivision or consolidation of shares, whether through reorganization,
recapitalization, stock split-up, stock distribution or combination of shares,
or payment of a share dividend or other increase or decrease in the number of
such shares outstanding effected without receipt of consideration by Company. In
the event of any such adjustment, the purchase price per share for the Option
Shares as so adjusted shall be adjusted by dividing Two Million Dollars
($2,000,000) by the number of Option Shares as so adjusted. Upon a merger or
consolidation of Company in which Company is not the surviving corporation or an
exchange of all of the outstanding shares of common stock of Company or all or a
substantial portion of the assets of Company for shares of another corporation
or equity interests in a partnership, limited partnership, limited liability
company or other entity (any such corporation and any such entity is referred to
in this Paragraph 7 as a "corporation"), the successor or exchanging corporation
shall assume all obligations under this Agreement and such option shall be
converted into an option for a number of shares or other equity interests of the
successor or exchanging corporation (or cash, property or such other
consideration) that Consultant would have received if Consultant had owned the
Option Shares on the effective date of such transaction, and the purchase price
per share of the stock or other equity interests of the successor or exchanging
corporation under such converted option shall be equal to Two Million Dollars
($2,000,000) divided by the number of shares of the stock or other equity
interests of such successor or exchanging corporation to which the converted
option applies (if, following such merger, consolidation or exchange, Consultant
would receive non-share (or other equity interest) consideration upon exercise
of the option, the purchase price to be paid upon exercise of the option shall
be equal to Two Million Dollars ($2,000,000) multiplied by a fraction equal to
that portion of the option then being exercised). Upon the dissolution or
liquidation of Company other than following an asset transfer subject to this
Paragraph 7, the option granted hereunder shall expire as of the effective date
of such transaction, provided, however, that Company shall give at least sixty
(60) days prior written notice of such event to Consultant during which time he
shall have a right to exercise his unexercised vested option.
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<PAGE>
8. Upon the exercise of the option hereunder, Company shall have
the right to require Consultant to remit to Company, prior to the issuance of
any Option Shares, an amount sufficient to satisfy all federal, state and local
withholding tax requirements. As soon as reasonably practicable following the
"initial public offering" (as that term is defined in Paragraph 5(f)(xii)
hereof), Company shall prepare, or cause to be prepared, and file with the
Securities and Exchange Commission (the "Commission") a registration statement
on Form S-8 under the Securities Act of 1933, as amended (the "Act"), (or such
successor form of registration statement as shall then have been adopted by the
Commission) covering the offer and sale by Company of the Option Shares
underlying the then unexercised portion of the option granted to Employee
hereunder, and, to the extent permitted under such form, any Option Shares
issued upon exercise of such option prior to the initial public offering; and
Company shall use its best efforts during the term of the option to maintain
such registration statement in effect, and to comply with the rules and
regulations of the Commission applicable to securities covered by such
registration statement, so that the issuance of any Option Shares upon exercise
of the option shall be registered under the Act.
9. After Consultant's engagement with Company is terminated for any
reason, Company shall purchase from Consultant and Consultant shall sell to
Company any and all Option Shares owned by Consultant and the option granted to
Consultant hereunder for an amount (the "Termination Purchase Price") equal to
(A) the fair market value of the Option Shares owned by Consultant plus the fair
market value of the Option Shares with respect to which Consultant's option has
vested but has not been exercised, less (B) Consultant's purchase price,
determined under Paragraph 1, above, for the Option Shares with respect to which
Consultant's option has vested but has not been exercised. The fair market
value of the Option Shares for purposes of the Termination Purchase Price shall
be determined by mutual agreement of the parties as of the date of Consultant's
termination of his engagement ("Termination Date"). In the event the parties
are unable to reach agreement within thirty (30) days of the Termination Date,
the fair market value of the Option Shares shall be determined by the following
appraisal procedure: Each party shall appoint an appraiser by giving notice
of such appointment to the other party within forty-five (45) days
5
<PAGE>
from the Termination Date. Such appraiser shall be a certified public accountant
practicing in the entertainment, licensing and television industries or such
other person with experience in valuing companies in the entertainment,
licensing and television businesses. If either party fails to appoint an
appraiser within said time period, the other party's appointed appraiser shall
be the sole appraiser. If both parties have so appointed appraisers, then within
thirty (30) days from the appointment of both parties' appraisers, the
appraisers so appointed shall appoint a third appraiser, with the same
qualifications. The third appraiser (or the sole appraiser if either party fails
to appoint an appraiser within the required time period) shall then determine
the fair market value of the Option Shares within sixty (60) days after the
appointment of the third appraiser (or within sixty (60) days after the failure
by either party to appoint an appraiser within the required time period). The
third appraiser, or such sole appraiser, as applicable, is referred to
hereinbelow as the "Selected Appraiser." The determination of the Selected
Appraiser shall be binding on the parties hereto. The costs and fees of the
Selected Appraiser shall be borne equally by the parties hereto. Company shall
give the Selected Appraiser reasonable access to its books and records to enable
him or her to undertake his or her appraisal. Within ten (10) days after the
parties' agreement on the fair market value of the Option Shares, or, failing
such agreement, the notification by the Selected Appraiser of his or her
appraisal, Company shall pay to Consultant ten percent (10%) of the Termination
Purchase Price (the "Down Payment") and shall deliver to Consultant a promissory
note (the "Note") for payment of the remainder of the Termination Purchase Price
in nine (9) equal annual installments. The Note shall provide for the annual
payment of interest on the outstanding balance of the remainder of the
Termination Purchase Price at the rate per annum equal to the "prime" or
"reference" rate charged by Company's principal bank (currently Imperial Bank),
as determined from time to time. Concurrently with the payment of the Down
Payment and delivery of the Note, Consultant shall execute and deliver to
Company an assignment of the option in form reasonably satisfactory to Company
and an assignment separate from certificate for the Option Shares, in each case
free and clear of any and all liens, claims, encumbrances and restrictions of
any type, kind or nature.
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<PAGE>
10. Except as provided below, in the event Haim Saban, any member of
his immediate family or any of his affiliated entities (collectively with Haim
Saban and such family members, "Saban Entities") sells to a third party in a
bona fide sale any of his or its shares of the common stock of Company ("Saban
Shares"), the parties agree as follows:
(a) Company shall purchase from Consultant and Consultant shall
sell to Company the "Applicable Percentage," as defined below, of the Option
Shares owned by Consultant for a per-share consideration equal to the per-share
consideration paid by the third party for the Saban Shares. If the consideration
paid by the third party for the Saban Shares includes non-cash consideration
and/or deferred consideration, the consideration paid by Company to Consultant
for the Option Shares sold by Consultant to Company under this subparagraph (a)
shall consist of similar non-cash and/or deferred consideration in the same
ratio as the non-cash and/or deferred consideration paid by the third party for
the Saban Shares bears to the total consideration paid by the third party for
the Saban Shares. The "Applicable Percentage" shall equal the percentage that
the Saban Shares sold to the third party represents of the total shares of
Company owned by the Saban Entities immediately prior to the sale. The purchase
and sale of the Option Shares under this subparagraph (a) shall close no later
than ten (10) days after the closing of the sale of the Saban Shares to the
third party. Concurrently with the purchase and sale of the Option Shares under
this subparagraph (a), Consultant shall execute and deliver to Company an
assignment separate from certificate for the Option Shares, free and clear of
any and all liens, claims, encumbrances and restrictions of any type, kind or
nature.
a. Company shall pay to Consultant an amount equal to the
Applicable Percentage (as defined in subparagraph (a) above) of (x) the per-
share consideration paid by the third party for the Saban Shares multiplied by
the number of Option Shares with respect to which Consultant's option has vested
but has not been exercised, less (y) Consultant's purchase price, determined
under Paragraph 1, above, for such Option Shares. If the consideration paid by
the third party for the Saban Shares includes non-cash consideration and/or
deferred consideration, the payment by Company to Consultant under this
subparagraph (b) shall consist of similar non-cash and/or deferred consideration
in the same ratio as the
7
<PAGE>
non-cash and/or deferred consideration paid by the third party for the Saban
Shares bears to the total consideration paid by the third party for the Saban
Shares. The payment under this subparagraph (b) shall be made no later than ten
(10) days after the closing of the sale of the Saban Shares to the third party.
b. The number of Option Shares Consultant shall have the option to
purchase pursuant to this Agreement shall immediately be reduced by a number of
shares of Company equal to the Applicable Percentage (as defined in subparagraph
(a), above) of the Option Shares with respect to which Consultant's option has
vested but has not been exercised. Such reduction shall reduce only the Option
Shares with respect to which Consultant's option has vested but has not been
exercised and shall not reduce any Option Shares with respect to which
Consultant's option has not then vested.
d. If in connection with any sale of Saban Shares subject to this
Paragraph 10, Haim Saban is required to enter into an agreement which includes
provisions restricting his ability to compete, directly or indirectly
(including, without limitation, through an ownership or licensing arrangement
with a competitor or potential competitor of Company), with Company
("noncompetition provisions"), and if the purchaser of the Saban Shares so
requires, Consultant shall, in connection with the sale of the Option Shares and
payment for vested options under this Paragraph 10, execute and deliver to
Company and such purchaser an agreement, in form and substance reasonably
acceptable to the purchaser, which agreement shall contain noncompetition
provisions, the scope, duration, terms and provisions of which are substantially
identical to the noncompetition provisions contained in Haim Saban's agreement;
provided, that no separate payment will be required to be made to Consultant on
account of such agreement.
This Paragraph 10 shall not apply to (i) any sale by a Saban Entity pursuant to
an "initial public offering" (as defined in Paragraph 12) of the common stock of
the Company or (ii) any transaction subject to Paragraph 7, above.
11. The obligations of Company to make any payment or payments to
Consultant with respect to the purchase of Option Shares by Company (including
any payments under the Note)
8
<PAGE>
are subject to the satisfaction by Company of any applicable statutory
provisions restricting Company's ability to make such payments, including,
without limitation, Section 160 of the Delaware General Corporation Law and
Chapter 5 of the California General Corporation Law, and if and to the extent
that under those provisions, any such payment would expose the directors of
Company to any liability, or would be unlawful, Company shall deliver to
Consultant, in lieu of such payment, a promissory note with terms identical to
the Note, which note shall be due and payable at the earliest practicable date
thereafter when such payment would not be violative of such statutory
provisions.
12. Notwithstanding any provision of this Paragraph Agreement to the
contrary, following the earlier to occur of (I) the first closing of an offer
and sale of shares of the common stock of Company (whether such shares are sold
by Company, existing stockholders or both) for cash pursuant to a firmly
underwritten public offering effected pursuant to a registration statement filed
by Company with the Securities and Exchange Commission under the Securities Act
of 1933, as amended (or such successor legislation as shall then be in effect)
or (II) the date upon which the shares of common stock of Company are first
authorized for quotation on the Nasdaq National Market, or listed on the New
York Stock Exchange or American Stock Exchange (either event, an "initial public
offering"):
(A) the provisions of Paragraphs 9 and 10 shall terminate and be of no
further force or effect;
(B) the provisions of any voting trust agreement entered into pursuant
to Paragraph 5(C) shall not prevent or restrict Consultant's right to sell and
transfer any of the Option Shares free and clear of the obligations therein set
forth;
(C) the option shall terminate and expire, to the extent not
theretofore exercised, (x) if Consultant's engagement with Company is terminated
for any reason other than for "cause", on the first anniversary of such
termination, and (y) if Consultant's engagement with Company is terminated for
"cause", on
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<PAGE>
the thirtieth (30th) day following the date of such termination; and
(D) after Consultant's engagement with Company is terminated for any
reason, Company shall have the right and option, exercisable at any time prior
to the date of expiration of the option by delivery of written notice of such
exercise to Consultant, to purchase from Consultant, and if such option is
exercised, Consultant shall sell to Company, any and all Option Shares owned by
Consultant on the date of receipt of the notice of exercise (or acquired
thereafter upon exercise of the option and prior to the closing of such
purchase) and the option granted to Consultant hereunder for an amount equal to
the "Termination Purchase Price," as defined in and determined pursuant to the
procedures provided in Paragraph 9, above; and within ten (10) days after the
parties' agreement on the fair market value of the Option Shares, or, failing
such agreement, the notification by the Selected Appraiser of his or her
appraisal, Company shall pay the Termination Purchase Price to Consultant,
against delivery by Consultant to Company of an assignment of the option in form
reasonably satisfactory to Company and an assignment separate from certificate
for the Option Shares, in each case free and clear of any and all liens, claims,
encumbrances and restrictions of any type, kind or nature.
13. ARBITRATION.
(a) The terms of this Paragraph 13 contain the sole and exclusive
method, means and procedure to resolve any and all claims, disputes or
disagreements arising under this Agreement, except those arising under the
provisions of Paragraph 9, above. The parties irrevocably waive any and all
rights to the contrary and shall at all times conduct themselves in accordance
with the terms of this Paragraph 13; any attempt to circumvent the terms of this
Paragraph 13 shall be null and void and of no force or effect.
(b) Within ten (10) days after delivery of written notice (the "Notice
of Dispute") of the existence and nature of any dispute given by any party to
the other party, and unless otherwise provided herein in any specific instance,
the parties shall each
10
<PAGE>
(i) appoint one (1) lawyer actively engaged in the licensed and full time
practice of law in the County of Los Angeles for a continuous period immediately
preceding the date of delivery (the "Dispute Date") of the Notice of Dispute of
not less than ten (10) years, but who has at no time ever represented or acted
on behalf of any of the parties, and (ii) deliver written notice of the identity
of such lawyer and a copy of his or her written acceptance of such appointment
and acknowledgment of and agreement to be bound by the time constraints and
other terms of this Paragraph 13 (the "Acceptance") to the other party hereto.
In the event that any party fails to so act, that party's arbitrator shall be
appointed pursuant to the same procedure that is followed when agreement cannot
be reached as to the third arbitrator. Within ten (10) days after such
appointment and notice, such lawyers shall appoint a third lawyer (who, together
with the first two (2) lawyers, shall hereinafter be referred to collectively as
the "Arbitration Panel") of the same qualification and background as the first
two (2) lawyers (including the qualification that he or she has at no time ever
represented or acted on behalf of any of the parties) and shall deliver written
notice of the identity of such lawyers and a copy of his or her written
Acceptance of such appointment to each of the parties. If agreement cannot be
reached on the appointment of a third lawyer within such period, such
appointment and notification shall be made as rapidly as possible by any court
of competent jurisdiction, by any licensing authority, agency or organization
having jurisdiction over such lawyers, by any professional association of
lawyers in existence for not less than ten (10) years at the time of such
dispute or disagreement and the geographical membership boundaries of which
extend to the County of Los Angeles, or by any arbitration association or
organization in existence for not less than ten (10) years at the time of such
dispute or disagreement and the geographic boundaries of which extend to the
County of Los Angeles, as determined by the party giving such Notice of Dispute
and simultaneously confirmed in writing delivered by such party to the other
party. Any such court, authority, agency, association or organization shall be
entitled either to directly select such third lawyer or to designate in writing
delivered to each of the parties an individual who shall do so. In the event of
any subsequent vacancies or inabilities to perform among the Arbitration Panel,
the lawyer or
11
<PAGE>
lawyers involved shall be replaced in accordance with the terms of this
Paragraph 13 as if such replacement was an initial appointment to be made under
this Paragraph 13 within the time constraints set forth in this Paragraph 13,
measured from the date of notice of such vacancy or inability to the person or
persons required to make such appointment, with all attendant consequences of
failure to act timely if such appointment is not so made. Unless the parties
shall otherwise agree, all arbitration proceedings shall be conducted at such
location within Los Angeles County as the members of the Arbitration Panel shall
by majority vote from time to time designate.
(c) Consistent with the terms of this Paragraph 13, the members of the
Arbitration Panel shall utilize their utmost skill and shall apply themselves
diligently so as to hear and decide, by majority vote, the outcome and
resolution of any dispute or disagreement submitted to the Arbitration Panel as
promptly as possible, but in any event on or before the expiration of sixty (60)
days after the appointment of the members of the Arbitration Panel. None of the
members of the Arbitration Panel shall have any liability whatsoever for any
acts or omissions performed or omitted in good faith pursuant to the provisions
of this Article.
(d) The Arbitration Panel shall (i) enforce and interpret the rights and
obligations set forth in this Agreement to the extent not prohibited by law,
(ii) fix and establish any and all rules as it shall consider appropriate in its
sole and absolute discretion to govern the proceedings before it, including any
and all rules of discovery, procedure and/or evidence, provided however, that
such rules shall be consistent with such rules established by the American
Arbitration Association and (iii) make and issue any and all orders, final or
otherwise, and any all awards, as a court of competent jurisdiction sitting at
law or in equity could make and issue and as it shall consider appropriate in
its sole and absolute discretion, including the awarding of monetary damages
(but specifically excluding the awarding of consequential, punitive or exemplary
damages or the awarding of attorneys' fees and costs to either party) to the
prevailing party as determined by the Arbitration Panel in its sole and absolute
discretion, and the issuance of injunctive relief.
12
<PAGE>
(e) The decision of the Arbitration Panel shall be final and binding, and
may be confirmed and entered by any court of competent jurisdiction at the
request of any party and may not be appealed to any court of competent
jurisdiction or otherwise, except upon a claim of fraud on the part of any
member of the Arbitration Panel (except as to the arbitrator chosen by the party
claiming the fraud), or on the basis of a manifest error as to the applicable
law. The Arbitration Panel shall retain jurisdiction over any dispute until its
award has been implemented, and judgment on any such award may be entered in any
court having appropriate jurisdiction and may be enforced against either party
and its assets pursuant to applicable laws and procedures.
(f) Each member of the Arbitration Panel (i) shall be compensated for any
and all services rendered under this Paragraph 13 at a rate of compensation
equal to the sum of Two Hundred Fifty Dollars ($250.00) per hour, which sum
shall be increased each year in accordance with annual increases in the Consumer
Price Index for Urban Wage Earners and Clerical Workers, Los Angeles-Anaheim-
Riverside, California 1982-84 = 100 ("CPI"), and (ii) shall be reimbursed for
any and all expenses incurred in connection with the rendering of such services,
payable in full promptly upon conclusion of the proceedings before the
Arbitration Panel. Such compensation and reimbursement shall be borne by the
non-prevailing party as determined by the Arbitration Panel in its sole and
absolute discretion, unless the Arbitration Panel does not make a determination
that one of the parties is the prevailing party, in which case the parties shall
bear the cost as fixed by the Arbitration Panel.
14. GENERAL.
A. Assignment; Successors; Affiliates. Company may assign this
Agreement (or the interest of Company therein) to any affiliate of Company or to
any entity which is a party to a merger, reorganization, or consolidation with
Company or to a subsidiary of Company or to an entity or entities acquiring
substantially all of the assets of Company or of any division with respect to
which Consultant is providing services (providing any such assignee
13
<PAGE>
assumes Company's obligations under this Agreement). Consultant shall, if
requested by Company, perform Consultant's services and duties, as specified in
this Agreement, to or for the benefit of any subsidiary or other affiliate of
Company. Upon such assignment, acquisition, merger, consolidation, or
reorganization, the term "Company" as used herein shall be deemed to refer to
such assignee or such successor entity. Consultant shall not have the right to
assign Consultant's interest in this Agreement, any rights under this Agreement
or any duties imposed under this Agreement nor shall Consultant (or Consultant's
spouse, heirs, beneficiaries, administrator's or executors) have the right to
pledge, hypothecate or otherwise encumber Consultant's right to receive
compensation hereunder without the consent of Company.
B. Headings. The subject headings of the paragraphs and
subparagraphs of this Agreement are included for purposes of convenience only,
and shall not affect the construction or interpretation of any of its
provisions.
C. Severability. It is agreed that if any term, covenant, provision,
paragraph or condition of this Agreement shall be illegal, such illegality shall
not invalidate the whole Agreement but it shall be construed as if not
containing the illegal part, and the rights and obligations of the parties shall
be construed and enforced accordingly.
D. Entire Agreement. The parties hereto agree that this Agreement
supersedes all existing agreements between Company and Consultant, whether oral,
written, expressed or implied, and contains the entire understanding and
agreement between the parties. This Agreement shall not be amended, modified, or
supplemented in any respect except by a subsequent written agreement entered
into by both parties hereto.
E. Choice of Law. This Agreement and the performance hereunder shall
be construed in accordance with and under and pursuant to the internal
substantive laws of the State of California applicable to agreements fully
executed and to be performed entirely in such state.
14
<PAGE>
F. Notices. All communications and notices hereunder shall be in
writing and shall be deemed to have been duly given and delivered personally if
sent by united States registered or certified mail, postage prepaid:
If to Company: Saban Entertainment, Inc.
4000 West Alameda Avenue
Burbank, California 91505
Attn: Haim Saban
With a copy to:
Matthew G. Krane, Esq.
Attorney
2051 Hercules Drive
Los Angeles, California 90046
If to Consultant:
Shuki Levy
------------------------
------------------------
or to such other addresses as my be designated in writing by either of the
parties.
G. No Joint Venture. Nothing herein contained shall constitute a
partnership between or joint venture by the parties hereto or appoint any party
the agent of any other party. No party shall hold itself out contrary to the
terms of this paragraph and, except as otherwise specifically provided herein,
no party shall become liable for the representation, act or omission of any
other party. This Agreement is not for the benefit of any third party who is not
referred to herein and shall not be deemed to give any right or remedy to any
such third party.
H. Contractual Nomenclature. All reference herein to "Dollars" or
"$" shall mean Dollars of the United States of America, its legal tender for all
debts public and private. Where
15
<PAGE>
used herein and to the extent appropriate, the masculine, feminine or neuter
gender shall include the other two genders, the singular shall include the
plural, and the plural shall include the singular.
(i) Time of Essence. Time is of the essence of each provision in
this Agreement in which time is an element.
(j) No Adverse Construction. The rule that a contract is to be
construed against the party drafting the contract is hereby waived, and shall
have no applicability in construing this Agreement or the terms of this
Agreement.
* * *
IN WITNESS WHEREOF, Company and Consultant have executed this Agreement as
of the 1st day of June 1994.
SABAN ENTERTAINMENT, INC.
By /s/ Haim Saban
----------------------------
/s/ Shuki Levy
----------------------------
SHUKI LEVY
16
<PAGE>
AMENDMENT NO. 1
TO
STOCK OPTION AGREEMENT
This Amendment No. 1 to Stock Option Agreement (the "Amendment") is made
and entered into as of September 26, 1996, by and between Saban Entertainment,
Inc., a Delaware corporation ("SEI") and Shuki Levy ("Levy").
R E C I T A L S
----------------
A. Levy and SEI are parties to that certain Stock Option Agreement,
dated as of June 1, 1994 (the "Agreement"). All terms defined in the Agreement
which are not defined in this Amendment shall have the same meanings when used
in this Amendment.
B. The parties hereto desire to amend the Agreement from and after
the effective date of the initial public offering (the "Initial Public
Offering") of Fox Kids Worldwide, Inc., a Delaware corporation ("Fox Kids
Worldwide").
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing facts, the parties hereto
agree that from and after the effective date of the Initial Public Offering, the
following sections are amended as follows:
1. Expiration of Stock Option. From and after the effective date of the
--------------------------
Initial Public Offering, Paragraph 1. of the Agreement is amended by adding the
following sentence at the end of such Paragraph.
"As long as the option is not earlier exercised or terminated in
accordance with the terms of this Agreement, the option shall expire on June 1,
2004."
2. Termination of Option. From and after the effective date of the
---------------------
Initial Public Offering, Paragraph 12(D) of the Agreement shall terminate and be
of no further force or effect.
3. Effect of Amendment. Except as expressly modified herein, all terms
-------------------
of the Agreement remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
SABAN ENTERTAINMENT, INC.
By: /s/ Mel Woods
_________________________
Its: President
________________________
SHUKI LEVY
/s/ Shuki Levy
_________________________
<PAGE>
EXHIBIT 10.11
LLC FORMATION AGREEMENT
THIS LLC FORMATION AGREEMENT (the "Agreement") is made and entered
into as of November 1, 1995 by Saban Entertainment, Inc., a Delaware corporation
("SEI"), FCN Holding Company, a Delaware corporation ("FCNH") and Fox
Broadcasting Company, Inc., a Delaware corporation ("FBC").
R E C I T A L S
- - - - - - - -
A. SEI, FCNH and FBC desire to maximize their respective long-term
strategic values, and have determined that it would be in their respective best
interests to achieve this objective by entering into a strategic alliance for
the purpose of sharing with each other their strengths, to the mutual benefit of
all of them all on the terms and conditions of this Agreement, all of the
agreements attached hereto as exhibits and all of the other agreements referred
to herein or therein (collectively, the "Alliance Agreements").
B. In connection with the foregoing, SEI, FCNH and FBC desire to
cause the formation of FOX KIDS COMPANY L.L.C. (the "Management Company"), as a
limited liability company under the Delaware Limited Liability Company Act (the
"Act"), on the terms and conditions hereof.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing facts and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. ORGANIZATION OF THE MANAGEMENT COMPANY. On the terms and subject to
the conditions set forth in this Agreement, at the "Closing" (as defined in
Section 2):
1.1 ORGANIZATION OF THE MANAGEMENT COMPANY. FCNH, FBC and SEI shall
--------------------------------------
form the Management Company under the Act pursuant to the terms of an Operating
Agreement, substantially in the form of Exhibit "A" hereto (the "Operating
-----------
Agreement"); and
1.2 CONTRIBUTIONS; ACQUISITION OF MEMBERSHIP INTERESTS. FBC shall
--------------------------------------------------
execute and deliver to the Management Company an Asset Assignment Agreement,
substantially in the form of Exhibit "B" (the "Asset Assignment Agreement") and
-----------
fully perform all obligations, and deliver all cash, documents, agreements and
other assets, to be performed or delivered at the Closing pursuant to the Asset
Assignment Agreement (the "FBC Contribution"); and each of SEI and
<PAGE>
FCNH shall pay and contribute $100,000 to the Management Company (the "Saban
Contribution" and the "FCNH Contribution," respectively, and together with the
FBC Contribution, the "Contributions"). In consideration for the FBC
Contribution, FBC shall receive its Class A membership interest and in
consideration for the Saban Contribution and the FCNH Contribution, SEI and
FCNH, respectively, shall receive their respective Class B membership interests
in the Management Company, all as provided in the Operating Agreement.
2. CLOSING.
2.1 THE CLOSING. The Closing of the formation and initial
-----------
capitalization of the Management Company as provided in Section 1 (the
"Closing") shall take place on December 14, 1995, at 10:00 a.m., Los Angeles
time, at the offices of Troop Meisinger Steuber & Pasich, LLP, 10940 Wilshire
Boulevard, Los Angeles, California, or at such other time or place as the
parties hereto shall mutually determine; provided, however, that if any of the
-------- -------
conditions set forth in this Agreement have not been satisfied or waived on or
prior to that date, the Closing shall take place on the second business day
following satisfaction or waiver of all of such conditions, or at such other
time or place as the parties hereto shall mutually agree. The date of the
Closing is referred to herein as the "Closing Date."
2.2 ACTIONS OF THE PARTIES AT THE CLOSING. In addition to the
-------------------------------------
Contributions provided in Section 1.2, at or prior to the Closing, SEI, FBC and
FCNH shall (i) cause a Certificate of Formation of the Management Company to be
filed as required under the Act; (ii) execute and deliver among themselves, and
the other parties, if any, thereto, the Operating Agreement and each of the
other Alliance Agreements to which such Person is a party; and (iii) cause the
Management Company to execute and deliver each of the Alliance Agreements to
which it is a party.
2.3 FURTHER ASSURANCES. From and after the date hereof, each of the
------------------
parties shall do such acts and things, and, in connection therewith, execute and
deliver such documents and instruments, as may be required to effect and
otherwise carry out the purposes of this Agreement and the transactions
contemplated hereby, including using its best efforts to obtain all necessary
waivers, consents and approvals, executing and delivering all such documents,
and effecting all necessary registrations, filings and applications, including,
without limitation, effecting all required filings, if any, under the Hart-
Scott-Rodino Antitrust Improvements Act of 1986 ("HSR Act") and using its best
efforts to respond to any requests or inquiries from any government or
government agency (each, a "Governmental Entity") with respect thereto. Without
limiting the generality of the foregoing, if and to the extent that any
Governmental Entity or other Person demands, as a condition to
2
<PAGE>
granting any such waiver, consent or approval, that the parties hereto, or
either of them, execute any agreements or perform or refrain from performing any
acts or actions, including, without limitation, the disposition by the parties
of any assets, or restrictions on or modifications to the terms of the Operating
Agreement or any other Alliance Agreement, and if the parties are unable to
agree upon the course of action to be taken with respect thereto, the parties
shall select and designate special counsel (whose firm shall not have
represented either of the parties or any of their Affiliates within the prior
three years) to represent the interests of the Management Company in respect
thereto, and the parties shall take such acts as such counsel shall advise are
mandatorily required in order to obtain such waivers, consents and/or approvals.
3. REPRESENTATIONS AND WARRANTIES. SEI represents and warrants to FCNH
and FBC with respect to SEI; FCNH represents and warrants to SEI and FBC with
respect to FCNH; and FBC represents and warrants to SEI and FCNH with respect to
FBC (each of SEI, FBC and FCNH being separately referred to below as "Company")
that, except as set forth in the Schedule of Exceptions with respect to that
Company attached hereto as Schedules "SEI," "FBC" and "FCNH," the following
statements are true and correct in all material respects as of the date hereof:
3.1 DUE INCORPORATION AND AUTHORITY. Company is a corporation duly
-------------------------------
organized, validly existing and in good standing under the laws of the state of
its incorporation and has all requisite corporate power and authority to own its
properties and to carry on its business as now conducted.
3.2 AUTHORIZATION; EXECUTION AND DELIVERY. Company has the requisite
-------------------------------------
power and authority to execute and deliver this Agreement, and each of the
Alliance Agreements to which it is to be a party, and to consummate the
transactions pursuant hereto and thereto, and such execution, delivery and
consummation has been duly authorized by all necessary corporate action. This
Agreement has been duly executed and delivered by Company and constitutes the
valid and binding obligation of Company, enforceable against Company in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings at law or in equity) and each of
the Alliance Agreements to which Company is a party, when executed and delivered
by Company, will constitute the valid and binding obligation of Company,
enforceable against Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting the enforcement of creditors'
rights
3
<PAGE>
generally and by general equitable principles (whether enforcement is sought by
proceedings at law or in equity).
3.3 NO VIOLATION OR CREATION OF RIGHTS. The execution and delivery
----------------------------------
of this Agreement and each of the Alliance Agreements to which it is a party by
the Company and the performance by the Company of its obligations hereunder or
thereunder does not and will not (a) violate, conflict with, or constitute or
result in a breach of, any term, condition or provision of, or constitute a
default (or an event which, with notice or the lapse of time, or both, would
constitute a default), or result in the creation of any Lien upon any of its
assets under this or (with respect to the execution, delivery and closing under
this Agreement or the execution, delivery and closing of the other Alliance
Agreements which execution, delivery and closing are being effected concurrently
hereunder) result in the creation of any other right on the part of a third
party to receive a payment of funds or other consideration on account thereof
under (i) the certificate of incorporation or by-laws of Company, or (ii) any
mortgage, indenture, loan or credit agreement or any other agreement or
instrument to which Company is a party, or pursuant to which it is the direct or
indirect obligor, or by which Company's properties are bound or affected; (b)
violate any law, regulation, judgment, injunction, order or decree binding upon
Company; (c) result in the loss of any license, franchise, permit, legal
privilege or legal right enjoyed or possessed by Company; or (d) require the
consent of any third party (including a governmental entity). Company is not in
violation of any statute, judgment, decree, order, rule or regulation applicable
to it, which, singly or in the aggregate, has materially adversely affected or
could reasonably be expected to materially adversely affect Company's ability to
perform its obligations hereunder or under any of the other Alliance Agreements
to which it is a party.
4. PRE-CLOSING COVENANTS.
4.1 COVENANTS OF FCNH. From and after the date hereof and through the
-----------------
Closing, FCNH shall take any and all actions as may be necessary to execute and
deliver at the Closing the Operating Agreement and each of the other Alliance
Agreements to which it is a party, and FCNH shall take any and all actions as
may be necessary to cause FCNH Sub, Inc., a Delaware corporation and a wholly
owned subsidiary of FCNH ("FCNH Sub"), to execute and deliver at the Closing
each of the Alliance Agreements to which FCNH Sub is a party. Except with the
prior consent of SEI, from and after the date hereof and through the Closing,
FCNH shall, and FCNH shall cause FCNH Sub, to, perform all acts and refrain from
performing any act, which, had the Operating Agreement and all of the Alliance
Agreements then been in full force and effect, would be required, or prohibited,
as the case may be, thereunder, or
4
<PAGE>
which would result in the representations and warranties of FCNH hereunder not
being true and correct at and as of the Closing Date.
4.2 COVENANTS OF SEI. From and after the date hereof and through the
----------------
Closing, SEI shall take any and all actions as may be necessary to execute and
deliver at the Closing the Operating Agreement and each of the other Alliance
Agreements to which it is a party. Except with the prior consent of FCNH, from
and after the date hereof and through the Closing SEI shall perform all acts,
and refrain from performing any act, which, had the Operating Agreement and the
Alliance Agreements then been in full force and effect, would be required, or
prohibited, as the case may be, thereunder, or which would result in the
representations and warranties of SEI hereunder not being true and correct at
and as of the Closing Date.
4.3 COVENANTS OF FBC. From and after the date hereof and through the
----------------
Closing, FBC shall take any and all actions as may be necessary to execute and
deliver at the Closing the Operating Agreement and each of the other Alliance
Agreements to which it is a party. Except with the prior consent of SEI, from
and after the date hereof and through the Closing, FBC shall perform all acts,
and refrain from performing any act, which, had the Operating Agreement and the
Alliance Agreements then been in full force and effect, would be required, or
prohibited, as the case may be, thereunder, or which would result in the
representations and warranties of FBC hereunder not being true and correct at
and as of the Closing Date.
4.4 SABAN EMPLOYMENT AGREEMENTS. Promptly following execution and
---------------------------
delivery of this Agreement, Haim Saban ("Saban") and FCNH, on behalf of the
Management Company, shall negotiate and use their respective best efforts (i) to
agree upon all of the terms and conditions of a seven-year employment agreement
between the Management Company and Saban, for services of Saban within the
United States, and a seven-year employment agreement between Saban
International, N.V., a Netherlands Antilles corporation ("SINV"), and Saban, for
services of Saban outside of the United States, which agreements shall be on
terms and conditions complementary to this Agreement and the Operating
Agreement, shall provide that Saban shall devote substantially all of his
business time and otherwise within industry-standard terms applicable to the
chief executive officer of a company within the entertainment industry
comparable to the combined businesses of FCN, Fox Children's Productions, Inc.,
a Delaware corporation, SEI and the Management Company; and (ii) to cause such
employment agreements (the "Saban Employment Agreements") to be prepared, and to
be executed and delivered on or prior to the Closing Date. If Saban and FCNH
have not reached agreement as to the terms and conditions of the Saban
Employment Agreements within 30 days following the date of this Agreement,
either party shall have the right at any time thereafter
5
<PAGE>
by notice to the other to initiate the following dispute resolution procedure:
(a) Saban and FCNH shall each (i) appoint a reputable lawyer whose
practice includes significant representation and advice concerning executive
employment agreements, and who has not within the prior three years represented
or acted on behalf of any of the parties, or any of their Affiliates and (ii)
advise the other of such appointment, accompanied by a written undertaking of
such lawyer to be bound by the time constraints and other terms of this Section
4.3. If either party fails to so act, that party's lawyer shall be appointed
pursuant to the procedure provided below to be followed when agreement cannot be
reached as to the third lawyer. Within five days after such appointment, such
lawyers shall appoint a third, similarly qualified, lawyer (together with the
first two lawyers, the "Panel"), who shall deliver a similar undertaking. If the
appointment of a third lawyer has not been effected within such period, such
appointment and notification shall be made as rapidly as practicable by any
court of competent jurisdiction, by any licensing authority, agency or
organization having jurisdiction over such lawyers, by any professional
association of lawyers located in Los Angeles County, or by any recognized
arbitration association or organization located in Los Angeles County, as
selected by the party commencing such proceedings.
(b) The members of the Panel shall utilize their utmost skill and
shall apply themselves diligently so as to promptly determine any then-open
terms and conditions of the Saban Employment Agreement and decide, by majority
vote, the outcome and resolution of any dispute or disagreement submitted to
them as promptly as possible, but in any event on or before the expiration of
thirty days after the appointment of the last member of the Panel.
(c) In connection with the proceedings, the Panel shall (i) interpret
the rights and obligations set forth in this Agreement, (ii) retain such
compensation experts as it considers appropriate, and (iii) retain jurisdiction
over the matter until it has been furnished and has reviewed and approved the
final draft of the Saban Employment Agreements.
(d) The decision of the Panel shall be final and binding upon Saban,
FCNH, FBC, SEI and the Management Company, and may not be appealed to any court
or otherwise.
(e) Each member of the Panel shall be compensated at his or her then
regular hourly rates, and shall be reimbursed for any and all expenses incurred
in connection with the rendering of such services. Such compensation and
reimbursement shall be borne and paid by the Management Company.
6
<PAGE>
4.5 CORPORATE RESTRUCTURING. On or prior to the Closing, FCNH shall
-----------------------
form a new, wholly owned subsidiary ("FCNH Sub") and FBC and FCNH, and their
respective Affiliates, shall take any and all actions necessary (i) to cause FCN
and FCP to become wholly owned subsidiaries of FCNH Sub and (ii) to cause
Storymakers, Inc., a Delaware corporation, ("SI") to become a wholly owned
subsidiary of FCP. Fox Children's Music, Inc., a Delaware corporation, ("FCM")
and Fox Kids Music, Inc., a Delaware corporation, ("FKM") are wholly owned
subsidiaries of FCN.
4.6 ELECTION RE CLOSE CORPORATION. On or prior to the Closing, SEI
-----------------------------
shall elect, and FCNH shall cause each of FCNH Sub, FCN, FCP, FCM, FKM and SI to
elect, pursuant to the provisions of Section 344 of the Delaware General
Corporation Law, to become a "close corporation," as defined in Subchapter XIV
of such law, by executing, acknowledging, filing and recording the certificate
of amendment of its certificate of incorporation, substantially in the form of
Exhibit "E" to this Agreement.
- -----------
5. CONDITIONS TO OBLIGATIONS OF SEI. The obligations of SEI to perform
the actions required hereunder to be performed at the Closing are subject to the
fulfillment at or prior to the Closing of the following conditions, any of which
may be waived,in whole or in part, by SEI:
5.1 CONSENTS AND WAIVERS. FCNH and FBC shall have obtained any and
--------------------
all consents, permits and waivers, and made any and all filings, necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement and the Alliance Agreements, including, without limitation, such
filings as are required under the HSR Act.
5.2 HSR ACT WAITING PERIOD. The HSR Act waiting period, if any,
----------------------
shall have expired and no proceeding or action thereunder with respect thereto
shall have been instituted or filed.
5.3 SABAN EMPLOYMENT AGREEMENTS. The Management Company shall have
---------------------------
executed and delivered to Saban a signed counterpart of the Saban Employment
Agreement to which it is a party.
5.4 OTHER ALLIANCE AGREEMENTS. Each of FCN, FBC, FCNH Sub and News
-------------------------
Corporation shall have executed and delivered counterpart copies of each of the
Alliance Agreements to which it is a party.
6. CONDITIONS TO OBLIGATIONS OF FCNH AND FBC. The obligations of FCNH to
perform the actions required hereunder to be performed at the Closing are
subject to the fulfillment at or prior to the Closing of the following
conditions, any of which may be waived,in whole or in part, by FCNH and FBC:
7
<PAGE>
6.1 CONSENTS AND WAIVERS. SEI shall have obtained any and all
--------------------
consents, permits and waivers, and made any and all filings, necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement and the Alliance Agreements, including, without limitation, such
filings as are required under the HSR Act.
6.2 HSR ACT WAITING PERIOD. The HSR Act waiting period shall have
----------------------
expired and no proceeding or action thereunder with respect thereto shall have
been instituted or filed.
6.3 SABAN EMPLOYMENT AGREEMENTS. Saban shall have executed and
---------------------------
delivered to the Management Company a signed counterpart of the Saban Employment
Agreement to which they are parties, and Saban and SINV shall have executed and
delivered among themselves signed counterparts of the Saban Employment Agreement
to which they are parties.
6.4 OTHER ALLIANCE AGREEMENTS. Each of the stockholders of SEI shall
-------------------------
have executed and delivered counterpart copies of each of the Alliance
Agreements to which it is a party.
7. MISCELLANEOUS PROVISIONS.
7.1 GENERAL. In this Agreement, headings are for con venience only
-------
and shall not affect interpretation, and except to the extent that the context
otherwise requires: (a) words denoting the singular include the plural and vice
versa; (b) words denoting individuals include corporations and other Persons and
vice versa; (c) words denoting any gender include all genders; (d) references to
clauses, sub-clauses, sections, sub-sections, Schedules and Exhibits are to
clauses, sub-clauses, sections, sub-sections, Schedules and Exhibits of this
Agreement; (e) "or" is not exclusive; and (f) "$", and all other references to
dollar amounts, are in U. S. currency;
7.2 NOTICES. All notices, demands or other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given (i) if delivered
in person, upon delivery thereof, or (ii) if mailed, certified first class mail,
postage pre-paid, with return receipt requested, on the fifth day after the
mailing, or (iii) if sent by telex or facsimile transmission, with a copy mailed
on the same day in the manner provided in (ii) above, when transmitted and
receipt is confirmed by telephone or telex or facsimile response, or (iv) if
otherwise actually delivered, when delivered:
8
<PAGE>
(a) if to FCNH:
FCN Holding Company
FOX INC.
10201 W. Pico Boulevard
SVP Legal Affairs
Fox Television Group
Bldg. 12, Room 111
Attention: Jay Itzkowitz, Esq.
Fax: (310) 369-2572
With a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld
551 Fifth Avenue
New York, New York 10176
(b) if to FBC:
FOX INC.
10201 W. Pico Boulevard
SVP Legal Affairs
Fox Television Group
Bldg. 12, Room 111
Attention: Jay Itzkowitz, Esq.
Fax: (310) 369-2572
With a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld
551 Fifth Avenue
New York, New York 10176
(c) If to SEI:
Saban Entertainment, Inc.
4000 West Alameda Avenue
Burbank, CA 91505
Fax: 818-972-4894
With a copy to:
Matthew G. Krane, Esq.
2051 Hercules Drive
Los Angeles, CA 90046
Fax: 213-851-1178
9
<PAGE>
and with a copy to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard, Suite 800
Los Angeles, California 90024
Attention: Richard E. Troop, Esq.
Fax: 310-443-8503
or at such other address or addresses as may have been furnished by such Person
in like manner to the other parties.
7.3 SEVERABILITY. Should any Section or any part of a Section within
------------
this Agreement be rendered void, invalid or unenforceable by any court of law
for any reason, such invalidity or unenforceability shall not void or render
invalid or unenforceable any other Section or part of a Section in this
Agreement.
7.4 GOVERNING LAW. THE TERMS OF THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE WITHIN, AND TO BE PERFORMED WITHIN, SUCH STATE, EXCLUDING
CHOICE OF LAW PRINCIPLES OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE
LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
7.5 NO ADVERSE CONSTRUCTION. The rule that a contract is to be
-----------------------
construed against the party drafting the contract is hereby waived, and shall
have no applicability in construing this Agreement or the terms of this
Agreement.
7.6 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. Each counterpart may
consist of a number of copies hereof, each signed by less than all, but together
signed by all, of the parties hereto.
7.7 COSTS AND ATTORNEYS' FEES. In the event that any action, suit,
-------------------------
or other proceeding is instituted concerning or arising out of this Agreement,
the prevailing party shall recover all of such party's costs, and attorneys'
fees incurred in each and every such action, suit, or other proceeding,
including any and all appeals or petitions therefrom. As used herein,
"attorneys' fees" shall mean the full and actual costs of any legal services
actually rendered in connection with the matters involved, calculated on the
basis of the usual fee charged by the attorneys performing such services, and
shall not be limited to "reasonable attorneys' fees" as defined by any statute
or rule of court.
7.8 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
----------------------
Agreement, all rights, covenants and agreements of
10
<PAGE>
the parties contained in this Agreement shall be binding upon and inure to the
benefit of their respective successors and permitted assigns. Except as
otherwise specifically set forth herein, nothing in this Agreement, expressed or
implied, is intended to confer on any Person other than the parties to this
Agreement or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
7.9 AMENDMENTS AND WAIVERS. Neither this Agreement nor any term
----------------------
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any term of this Agreement may be amended and the observance of any
such term may be waived (either generally or in a particular instance and either
retroactively or prospectively) with (but only with) the written consent of SEI,
FCNH and FBC; provided, however, that no such amendment or waiver shall extend
-------- -------
to or affect any obligation not expressly waived or impair any right consequent
therein. No delay or omission to exercise any right, power or remedy accruing
to any party hereto shall impair any such right, power or remedy of such party
nor be construed to be a waiver of any such right, power or remedy nor
constitute any course of dealing or performance hereunder.
7.10 ENTIRE AGREEMENT. This Agreement, the attached Exhibits and the
----------------
Alliance Agreements, and the agreements referred to herein and therein, together
contain the entire understanding of the parties, and there are no further or
other agreements or understandings, written or oral, in effect between the
parties relating to the subject matter hereof unless expressly referred to
herein. No party to this Agreement makes any representation or warranty except
as expressly set forth herein.
7.11 AGREEMENT TO PERFORM REQUIRED ACTS. Each party hereto agrees to
----------------------------------
perform any further acts and to execute and deliver any further documents from
and after the Closing that may be reasonably necessary to carry out the
provisions hereof, that may be required to secure performance of any party's
duties hereunder or that may be required to assure the legal and binding effect
of the provisions hereof.
7.12 CONSENT TO JURISDICTION; FORUM SELECTION. Any actions, suits or
----------------------------------------
proceedings instituted in connection with this Agreement or the performance by
the parties of their obligations hereunder shall be instituted and maintained
exclusively in the Superior Court for the State of California, County of Los
Angeles or in the United States District Court for the Central District of
California. By execution and delivery hereof, each party hereto hereby
consents, for itself and in respect of its property, to the jurisdiction of the
aforesaid courts solely for the purpose of adjudicating its rights or
obligations under, or any disputes involving, this Agreement or any document
related hereto. Each party hereto hereby irrevocably waives, to the extent
permitted by
11
<PAGE>
applicable law, any objection, including, without limitation, any objection that
the other corporate party or parties lack the capacity to sue or defend based
upon its or their lack of a certificate of qualification to conduct intrastate
business in California, and any objection to the laying of venue or based on the
grounds of forum non conveniens, which it may now or hereafter have to the
----- --- ----------
bringing of any action or proceeding in such jurisdiction in respect of this
Agreement or any document related hereto.
7.13 PUBLICITY. FCNH, FBC and SEI shall treat this Agreement and the
---------
other Alliance Agreements in confidence and shall consult with one other and
mutually agree upon any proposed publicity or releases concerning the
transactions referred to in this Agreement or any Alliance Agreement to be
issued by any party at or prior to the Closing.
7.14 DEFINITIONS. When used in this Agreement, the following terms
-----------
shall have the meanings set forth below: "Affiliate" means, when used with
reference to a specified Person, any Person that directly or indirectly through
one or more intermediaries controls or is controlled by, or is under common
control with, the specified Person; "Control" (including as used in the terms
"controlling," "controlled by" and "under common control with") means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of voting
securities by contract or otherwise; "Lien" means, with respect to any asset,
any mortgage, lien, pledge, charge, security interest or encumbrance of any kind
in respect to such asset; and "Person" includes an individual, partnership,
trust, corporation, joint venture, limited liability company, association,
government bureau or agency or other entity of whatsoever kind or nature.
7.15 EXPENSES. SEI, FBC and FCNH agree to cause the Management
--------
Company to pay all costs and expenses incurred by each party and their
respective Affiliates to this Agreement or any of the Alliance Agreements, on or
prior to the Closing, including, without limitation, any fees and disbursements
of counsel, accountants, investment bankers and other experts and any and all
costs and out of pocket expenses incurred by such party, in connection with the
documentation, negotiation and execution of this Agreement or any of the
Alliance Agreements and the consummation of the transactions contemplated by
such agreements.
12
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date and year first above written.
SABAN ENTERTAINMENT, INC.
By: /s/ Haim Saban
------------------------------
Haim Saban
Its Chief Executive Officer
FCN HOLDING COMPANY
By: /s/ Jay Itzkowitz
------------------------------
Its _________________________
FOX BROADCASTING COMPANY, INC.
By: /s/ Jay Itzkowitz
------------------------------
Its _________________________
13
<PAGE>
AFFILIATE AGREEMENT
Each of the undersigned Affiliates of either SEI, FBC or FCNH hereby agrees
to, and to take any and all actions as may be necessary to, execute and deliver
at the Closing each of the Alliance Agreements to which it is a party and to
cause each of its subsidiaries to execute and deliver at the Closing each of the
Alliance Agreements to which such subsidiary is a party. Saban additionally
agrees to be bound by the terms of Section 4.3 of the LLC Formation Agreement to
which this document is attached, as if
he had been a signatory thereto.
/s/ Haim Saban
-----------------------------------
HAIM SABAN
QUARTZ ENTERPRISES, L.P., A LIMITED
PARTNERSHIP
By: Indigo Enterprises, L.P., its General
Partner
By: /s/ Stan Golden
-------------------------
Its ____________________
MERLOT INVESTMENTS, A CALIFORNIA GENERAL
PARTNERSHIP
___________________________________
By: Indigo Enterprises, L.P., its General
Partner
By: /s/ Bill Josey
-------------------------
Its ____________________
SILVERLIGHT ENTERPRISES, L.P.
By: Glass Wave Enterprises, L.P., its
General Partner
By: /s/ Mel Woods
-------------------------
Its ____________________
14
<PAGE>
CELIA ENTERPRISES, L.P.
By: /s/ Matthew Krane
------------------------------
Its _________________________
THE NEWS CORPORATION LIMITED
By: /s/ (Signature Unknown)
------------------------------
Its _________________________
FOX BROADCASTING COMPANY, INC.
By: /s/ Jay Itzkowitz
------------------------------
Its _________________________
FOX CHILDREN'S NETWORK, INC.
By: /s/ Bruce Churchill
------------------------------
Its Senior Vice President
-------------------------
FOX CHILDREN'S PRODUCTIONS, INC.
By: /s/ Bruce Churchill
------------------------------
Its Senior Vice President
-------------------------
15
<PAGE>
EXHIBIT INDEX
Exhibit A - Operating Agreement
Exhibit B - Asset Assignment Agreement
Exhibit C - Management Agreement
Exhibit D - Strategic Stockholders Agreement
Exhibit E - Close Corporation Provisions
Exhibit F - Call Option
16
<PAGE>
December 22, 1996
Saban Entertainment, Inc.
10960 Wilshire Boulevard
Los Angeles, CA 90024
Attention: Haim Saban
Fox Broadcasting Company
10201 West Pico Boulevard
Los Angeles, CA 90035
Attention: Jay Itzkowitz,Esq.
FCN Holding, Inc.
c/o Fox Children's Network, Inc.
10201 West Pico Boulevard
Los Angeles, CA 90035
Attention: Margaret Loesch
Re: Modifications to LLC Formation Agreement and Alliance Agreements
Dear Sirs:
Reference is made to that certain LLC Formation Agreement, dated as of
November 1, 1995, by and among Saban Entertainment,Inc., a Delaware corporation
("SEI"), Fox Broadcasting Company, a Delaware corporation and "FCN Holding
Company", a Delaware corporation (the "LLC Formation Agreement"). All terms
defined therein shall have the same meaning when used herein.
The parties hereto agree as follows:
1. FCNH. The LLC Formation Agreement, and certain of the Alliance
----
Agreements, inadvertently referred to FCN Holding, Inc., a Delaware corporation,
as "FCN Holding Company." The parties agree that all references in the LLC
Formation Agreement to "FCN Holding Company" and "FCNH" are references to FCN
Holding, Inc.; and the other Alliance Agreements have, prior to their execution,
been revised, inter alia, to correct such references.
----- ----
2. The Management Company. The parties have determined that name of the
----------------------
Management Company shall be "Fox Kids Worldwide, L.L.C., " and not "Fox Kids
Company, L.L.C., and all references in LLC Formation Agreement to "Fox Kids
Company,
<PAGE>
L.L.C, "are references to Fox Kids Worldwide, L.L.C.; and the other Alliance
Agreements have, prior to their execution, been revised, inter alia, to reflect
----- ----
this change.
3. SEI Schedule of Exceptions. SEI has determined that it needs to
--------------------------
receive waivers from Imperial Bank under its Credit Agreement with Imperial Bank
dated July 31, 1995. The waivers are exceptions to be representations and
warranties set forth in Section 3 of the LLC Formation Agreement, and are
therefore set forth in the Schedule of Exceptions attached hereto as Exhibit A.
---------
4. Call Option. The Schedule of Exhibits to the LLC Formation Agreement
-----------
and certain of the Alliance Agreements inadvertently referred to the Stock
Ownership Agreement as the "Call Option." The parties agree that all references
in the LLC Formation Agreement and the Schedule of Exhibits thereto "Call
Option" are references to the Stock Ownership Agreement and the other Alliance
Agreements have, prior to their execution, been revised, inter alia, to correct
----- ----
such references.
5. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute on and the same instrument.
Accepted and Agreed by:
SABAN ENTERTAINMENT, INC.
By:\s\ Mel Woods
-------------------
Its:________________
FOX BROADCASTING COMPANY
By:\s\Jay Itzkowitz
-------------------
Its:________________
FCN HOLDING, INC.
By:\s\Jay Itzkowitz
-------------------
Its:________________
<PAGE>
Portions of this exhibit have been deleted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment. The redacted portions are identified by brackets with the character
"x" indicating deleted information.
<PAGE>
EXHIBIT 10.12
OPERATING AGREEMENT
OF
FOX KIDS WORLDWIDE, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
R E C I T A L S......................................................................................... 2
ARTICLE 1 DEFINED TERMS............................................................................... 2
1.1 Defined Terms............................................................................... 2
ARTICLE 2 FORMATION AND BUSINESS OF THE COMPANY....................................................... 2
2.1 Formation of the Company.................................................................... 2
2.2 Name of Company............................................................................. 3
2.3 Place of Business........................................................................... 3
2.4 Service Of Process: Registered Office....................................................... 3
2.5 Purposes.................................................................................... 3
2.6 Powers...................................................................................... 3
2.7 Term........................................................................................ 4
ARTICLE 3 MEMBERS..................................................................................... 4
3.1 Limited Liability........................................................................... 4
3.2 Class A Member.
3.3 Class B Members.
3.4 Admission of Additional Members............................................................. 4
3.5 Withdrawals................................................................................. 5
3.6 Transfer and Assignment of Interests........................................................ 5
3.7 Transactions between Members and their Affiliates........................................... 5
ARTICLE 4 GOVERNANCE AND MANAGEMENT................................................................... 5
4.1 Members Committee........................................................................... 5
4.1.1 Composition of the Members Committee................................................. 5
4.2 Meetings Of The Members Committee........................................................... 6
4.3 Voting By Members of the Members Committee.................................................. 7
4.4 Operating Committee......................................................................... 7
4.5 Other Committees Of The Members Committee................................................... 7
4.6 Vote by Haim Saban.......................................................................... 7
4.7 Delegation Of Authority; Officers........................................................... 8
4.8 Senior Executives........................................................................... 9
4.9 Operational Veto Rights..................................................................... 10
4.10 Sale of More than One-Third Original Interest............................................... 11
4.11 Indemnification............................................................................. 11
4.12 Special Provision Related to Israel Licensee................................................ 12
4.13 Saban Receivable............................................................................ 12
4.14 Fiduciary Duties............................................................................ 12
ARTICLE 5 CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS,
ALLOCATION OF TAX ITEMS; MEMBER LOANS; DISTRIBUTIONS........................................ 12
5.1 Initial Capital Contributions............................................................... 12
5.2 Additional Capital Contributions............................................................ 13
5.3 Maintenance Of Capital Accounts............................................................. 13
5.4 Allocation Of Tax Items..................................................................... 13
5.5 Negative Capital Accounts................................................................... 14
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
5.6 Tax Distributions........................................................................... 14
5.7 Additional Distributions.................................................................... 14
5.8 FBC Loan.................................................................................... 15
5.9 Transfer of Distributable Cash to the Company; Dividends ................................... 15
5.10 Return of Distributions..................................................................... 15
5.11 No Interest................................................................................. 16
5.12 Tax Matters Partner......................................................................... 16
5.13 Taxation As a Partnership................................................................... 16
ARTICLE 6 EXCULPATION; INDEMNIFICATION............................................................... 16
6.1 No Liability................................................................................ 16
6.2 Company Indemnity Obligations............................................................... 16
6.3 Settlement; Procedures...................................................................... 17
6.4 Withdrawal.................................................................................. 17
6.5 Settlements Conditioned Upon Full Release................................................... 17
6.6 Subrogation................................................................................. 17
ARTICLE 7 BOOKS OF ACCOUNT, ACCOUNTING AND REPORTS.................................................... 18
7.1 Books and Records........................................................................... 18
7.2 Inspection Rights........................................................................... 18
7.3 Annual and Quarterly Statements............................................................. 18
7.4 Certified Public Accountants................................................................ 19
7.5 Bank Accounts............................................................................... 19
7.6 Tax Elections............................................................................... 19
ARTICLE 8 DISSOLUTION AND LIQUIDATION OF THE COMPANY.................................................. 19
8.1 Dissolution................................................................................. 19
8.2 Effect Of Dissolution....................................................................... 19
8.3 No Recourse Against Members For Distribution................................................ 20
8.4 Liquidation................................................................................. 20
ARTICLE 9 MISCELLANEOUS PROVISIONS.................................................................... 21
9.1 Miscellaneous............................................................................... 21
9.2 Rights Personal to FCNH and Saban........................................................... 21
9.3 Notices..................................................................................... 22
9.3.4 Severability....................................................................... 23
9.3.5 Governing Law...................................................................... 23
9.3.6 No Adverse Construction............................................................ 23
9.3.7 Counterparts....................................................................... 23
9.3.8 Costs and Attorneys' Fees.......................................................... 24
9.3.9 Successors and Assigns............................................................. 24
9.3.10 Amendments and Waivers............................................................. 24
9.3.11 Entire Agreement................................................................... 24
9.3.12 Agreement to Perform Required Acts................................................. 25
9.3.13 Consent to Jurisdiction; Forum Selection........................................... 25
9.3.14 Deadlock........................................................................... 25
EXHIBIT A Defined Terms............................................................................... 27
</TABLE>
ii
<PAGE>
OPERATING AGREEMENT
FOR
FOX KIDS WORLDWIDE, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY
This Operating Agreement (the "Agreement") is made and entered into as of
December 22, 1995, by and among Saban Entertainment, Inc., a Delaware
corporation ("SEI"), FCN Holding, Inc., a Delaware corporation ("FCNH"), and Fox
Broadcasting Company, a Delaware corporation ("FBC").
R E C I T A L S
---------------
A. SEI, FBC and FCNH desire to maximize their long-term strategic
values, and have determined that it would be in their respective best interests
to achieve this objective by entering into a strategic alliance for the purpose
of sharing with each other their respective strengths, to the mutual benefit of
all of them, all on the terms and conditions of this Agreement, and in
connection therewith have entered into that certain LLC Formation Agreement
dated as of November 1, 1995 (the "Formation Agreement").
B. Pursuant to the Formation Agreement, SEI, FCNH and FBC have
formed FOX KIDS WORLDWIDE, L.L.C. (the "Company") under the laws of the State of
Delaware and have entered into this Agreement to regulate the rights,
preferences and privileges of the Members of the Company.
ARTICLE 1
DEFINED TERMS
-------------
1.1 DEFINED TERMS. The terms defined in Exhibit "A" shall have the same
-------------
meanings when used herein.
ARTICLE 2
FORMATION AND BUSINESS
----------------------
OF THE COMPANY
--------------
2.1 FORMATION OF THE COMPANY. Pursuant to the Delaware Act, the
Members have formed a Delaware limited liability company under the laws of the
State of Delaware by filing the Certificate of Formation attached hereto as
Schedule 2.1 with the Delaware Secretary of State and entering into this
- ------------
Agreement. It is the
2
<PAGE>
intent of the parties that this Agreement be deemed effective as of June 1, 1995
and that, to the extent permissible under GAAP, the operations of the Company
and the Operating Entities be accounted for as if this Agreement had been
entered into at such time. The rights and obligations of the Members shall be
determined pursuant to the Delaware Act and this Agreement. To the extent that
the rights or obligations of any Member are different by reason of any provision
of this Agreement than they would be in the absence of such provision, this
Agreement shall, to the extent permitted by the Delaware Act, control.
2.2 NAME OF COMPANY. The name of the Company is FOX KIDS WORLDWIDE,
L.L.C., and all of the Company's business shall be conducted under this name or
under any other name approved by the Members Committee, but in any case, only to
the extent permitted by applicable law. The Operating Entities shall operate
under their respective names as of the date of this Agreement unless otherwise
determined by the Members Committee.
2.3 PLACE OF BUSINESS. The location of the principal place of business
shall from time to time be determined by the Members Committee. The Company may
have such additional offices and places of business as may be established at
such other locations as may from time to time be approved by the Members
Committee.
2.4 SERVICE OF PROCESS: REGISTERED OFFICE. The registered agent for the
service of process and the registered office shall be that Person and location
reflected in the Certificate of Formation. The Members Committee may, from time
to time, change the registered agent or office through appropriate filings with
the Secretary of State of the State of Delaware. In the event the registered
agent ceases to act as such for any reason, or the registered office shall
change, the Members Committee promptly shall designate a replacement registered
agent or file a notice of change of address as the case may be, all in
accordance with any applicable requirements of the Delaware Act.
2.5 PURPOSES. The purpose of the Company shall be to engage in the
business of forming and operating an integrated children's entertainment
business which shall include, but not be limited to, the business currently
operated or contemplated by the Operating Entities (including, in the case of
SEI, the operations of its movie, merchandising and consumer products
divisions). Initially, it is contemplated that the Company's primary operations
will be limited to the management of the Operating Entities pursuant to the
provisions of the Management Agreement. The Company may engage in any lawful
business which is incidental, necessary, or desirable to carry out the business
of the Company as described herein.
2.6 POWERS. The Company will have the power to do any and all acts and
things necessary, appropriate, advisable, or
3
<PAGE>
convenient for the furtherance and accomplishment of the purposes of the
Company, including, without limitation, to engage in any kind of activity and to
enter into and perform obligations of any kind necessary to or in connection
with, or incidental to, the accomplishment of the purposes of the Company.
2.7 TERM. Unless sooner terminated in accordance with Article 8 hereof,
the Company shall liquidate and dissolve on October 31, 2070.
ARTICLE 3
MEMBERS
-------
3.1 LIMITED LIABILITY. Except as required under the Act or as expressly
set forth in this Agreement, no Member shall be personally liable for any debt,
obligation, or liability of the Company, whether that liability or obligation
arises in contract, tort or otherwise.
3.2 CLASS A MEMBER. FBC shall be a Class A Member hereunder. As a Class
A Member, FBC shall have the right to receive distributions of Distributable
Cash pursuant to Sections 5.7.3 and 5.7.4 hereof, distributions on dissolution
or liquidation pursuant to Sections 8.4.1(c) and 8.4.1(d) and allocations of net
profits and net losses and similar items from the Company as expressly provided
for in Section 5.4 hereof, but shall not have any other rights of a Member
including, without limitation, the right to vote or participate in the
management or any right to information concerning the business and affairs of
the Company. FBC's Class A membership in the Company shall terminate at such
time as FBC shall receive aggregate distributions from the Company under
Sections 5.7.3, 5.7.4, 8.4.1(c) and 8.4.1(d) or otherwise in an aggregate amount
equal to $50 million.
3.3 CLASS B MEMBERS. Each of SEI and FCNH shall be a Class B Member. As
a Class B Member, each of SEI and FCNH shall have the right to receive
distributions of Distributable Cash pursuant to Section 5.7 hereof,
distributions on dissolution or liquidation pursuant to Section 8.4.1(e) hereof,
allocations of net profits and net losses and similar items from the Company as
expressly provided for in Section 5.4 hereof, and the right to vote on or
participate in the management and the right to receive information concerning
the business and affairs of the Company, all as provided for herein.
3.4 ADMISSION OF ADDITIONAL MEMBERS. The Company shall not admit any
Members other than SEI, FCNH and FBC.
4
<PAGE>
3.5 WITHDRAWALS OR RESIGNATIONS. No Member may withdraw or resign from
the Company.
3.6 TRANSFER AND ASSIGNMENT OF INTERESTS. No Member shall be entitled
to transfer, assign, convey, sell, encumber or in any way alienate all or any
part of its membership interest in the Company, including by way of involuntary
transfer.
3.7 TRANSACTIONS BETWEEN MEMBERS AND THEIR AFFILIATES. Except as
provided in Sections 4.12 and 4.13 hereof, (i) all transactions between any
Member or any Subsidiary of such Member, on the one hand, and any Affiliate of
such Member, on the other, shall be made only with the prior approval of the
Senior Executive-Children's Network, in the case of SEI and its Subsidiaries and
Affiliates, and the Senior Executive-Saban Entertainment, in the case of FCNH
and FBC and their respective Subsidiaries and Affiliates, and (ii) all
agreements between the Company, on the one hand, and any Member or any Affiliate
of a Member, on the other, shall be negotiated and approved by the Senior
Executive-Children's Network, in the case of SEI and its Subsidiaries and
Affiliates, and the Senior Executive-Saban Entertainment, in the case of FCNH
and FBC and their respective Subsidiaries and Affiliates. SEI shall have the
right and power, without approval of the Members Committee, to cause the
Company, SEI or any of its Subsidiaries to pursue any claim or litigation
against FBC or FCNH or any of their respective Affiliates for breach of any
contract between such Person and the Company or any of the Operating Entities.
FCNH shall have the right and power, without approval of the Members Committee,
to cause the Company, FCNH or FBC or any of their respective Subsidiaries, to
pursue any claim or litigation against SEI or any of its Affiliates for breach
of any contract between such Person and the Company or any of the Operating
Entities.
ARTICLE 4
GOVERNANCE AND MANAGEMENT
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4.1 MEMBERS COMMITTEE
4.1.1 COMPOSITION OF THE MEMBERS COMMITTEE. The Members shall
manage the Company's Business through a members committee (the "Members
Committee") which, except as otherwise expressly provided herein, shall have and
exercise full power and discretion and final authority with respect to the
management of the affairs of the Company. The Members Committee shall be
comprised of eight members (each, a "Member of the Members Committee" or a
"Committee Member") to be elected by the Class B Members as provided in this
Section 4.1.1 and Section 4.10 below. Until the occurrence of a Terminating
Event, the Committee Members shall be divided into two (2) classes. Subject to
the provisions of Section 4.10 below, the
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first class ("Class I Committee Members") shall consist of four (4) Committee
Members to be designated by FCNH and the second class ("Class II Committee
Members") shall consist of four (4) Committee Members to be designated by Saban.
FCNH or Saban each may, at any time, change any or all of the Class I or Class
II Committee Members, respectively, appointed by it and, upon such change, or
the death, permanent disability sufficient to prevent performance of the duties
of a Member of the Members Committee or resignation of any Class I or Class II
Committee Member, a successor shall be designated (in a notice delivered to all
Members) by the Person which appointed the Member of the Members Committee being
replaced. From and after a Terminating Event, the Members Committee shall
consist of one class of four Committee Members to be elected as provided in
Section 4.10 below.
4.2 MEETINGS OF THE MEMBERS COMMITTEE.
4.2.1 Regular meetings of the Members Committee may be held upon
such notice, or without notice, and at such time and at such place as shall from
time to time be determined by the Members Committee. Special meetings of the
Members Committee may be called by either Class B Member on 48 hours notice to
each Member of the Members Committee, given in person or by telephone or
facsimile transmission, or by overnight mail or courier delivery. Actions taken
at a meeting at which a quorum is present shall be effective irrespective of the
lack of appropriate notice to any Member of the Members Committee. The business
to be transacted at a Special Meeting must be specified in the notice of such
meeting.
4.2.2 Subject to the provisions of Section 4.10 below, a quorum of
the Members Committee shall consist of at least two Class I Committee Members
and two Class II Committee Members (except if Saban is present at the meeting,
his presence shall be sufficient for quorum purposes so long as two Class I
Committee Members are also present). No vote of Committee Members at any meeting
at which a quorum is not present shall be effective. If a quorum is not present
at any meeting, the meeting shall be adjourned and reconvened only with the
giving of notice as required by Section 4.2.1.
4.2.3 Committee Members may participate in a meeting of the
Members Committee by conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other, and
such participation in a meeting shall constitute presence in person at the
meeting.
4.2.4 Any action required or permitted to be taken at a meeting of
the Members Committee may be taken without a meeting upon consent of a majority
vote of each Class of Committee Members. Such consent shall be obtained through
the signing of a resolution
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authorizing action without a meeting. Such resolution shall be provided to all
Committee Members in advance of a vote thereon. The signed consent to action
without a meeting shall be inserted in the minutes of the Members Committee
along with the record of the written vote on the underlying action.
4.3 VOTING BY MEMBERS OF THE MEMBERS COMMITTEE. On all matters
submitted to the Members Committee, each Member of the Members Committee shall
be entitled to one vote. Subject to the provisions of Section 4.10 below, action
by the Members Committee shall require the approval or authorization by the
Members Committee evidenced by a resolution adopted by a vote of a majority of
the Class I Committee Members present and voting and a majority of the Class II
Committee Members present and voting at a duly called meeting of the Members
Committee.
4.4 OPERATING COMMITTEE. Subject to the provisions of Section 4.10
below, there shall be an Operating Committee to be composed of two Class I
Committee Members to be appointed by the Class I Committee Members as a group
and two Class II Committee Members (which shall include Saban) to be appointed
by the Class II Committee Members as a group. The Operating Committee shall have
all of the powers of the Members Committee as a whole and shall oversee the
operations of the Company. A quorum of the Operating Committee shall consist of
at least one Class I Committee Member and at least one Class II Committee
Member. An action by the Operating Committee shall require the approval or
authorization by such committee evidenced by a resolution adopted unanimously by
all of the Committee Members present and voting at a duly called meeting of the
committee. The provisions of Sections 4.2.2, 4.2.3 and 4.2.4 shall also govern
the conduct of the Operating Committee to the extent not otherwise inconsistent
with the provisions of this Section 4.4.
4.5 OTHER COMMITTEES OF THE MEMBERS COMMITTEE. The Members Committee
may designate from among the Committee Members such other committees as it shall
deem appropriate to conduct such investigation and other business as it deems
necessary or appropriate from time to time.
4.6 VOTE BY HAIM SABAN. Notwithstanding anything to the contrary
contained herein, until such time as the Successor Entity (as defined in the
Strategic Shareholders Agreement) registers any of its equity securities under
the Securities Act of 1933, as amended, if Saban is present and voting at any
meeting of the Members Committee or any meeting of a committee thereof of which
he is a member (including, but not limited to, the Operating Committee), then he
shall have the sole right to cast any vote of the Class II Committee Members. If
the vote or consent of the Members Committee or committee thereof is being
solicited by written consent pursuant to the provisions of Section 4.2.4 hereof,
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the action of Saban evidenced by his written consent shall be deemed the written
consent of all other Class II Committee Members entitled to vote thereon
notwithstanding their failure or refusal to execute such written consent.
4.7 DELEGATION OF AUTHORITY; OFFICERS.
4.7.1 The officers of the Company shall include a Senior
Executive-Children's Network and a Senior Executive-Saban Entertainment, each of
whom shall be employees of the Company. The Company also may have such other
officers as the Members Committee may in its discretion appoint, including
without limitation: (a) one or more Vice Presidents, (b) a Chief Financial
Officer, (c) a Chief Operating Officer, and (d) a Secretary. Any number of the
offices established in the discretion of the Members Committee may be held by
the same individual.
4.7.2 The initial Senior Executive-Children's Network shall be
Loesch and the initial Senior Executive-Saban Entertainment shall be Saban
(referred to herein collectively as the "Senior Executives"). Saban may not be
removed or replaced as Senior Executive-Saban Entertainment by vote of the
Members, the Members Committee or any committee thereof (including the Operating
Committee) or otherwise, with or without cause; provided, however, that, subject
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to the terms and provisions of any employment agreement between the Company and
Saban, the provisions of this sentence shall have no force or effect at such
time as either a "Triggering Event" or a "Terminating Event," as those terms are
defined in Section 4.10 hereof, as occurred. Until the first to occur of (i) a
Triggering Event, (ii) a Terminating Event, or (iii) that date on which this
Section 4.7.2 is amended (which shall require the consent of each of SEI, FCNH
and Saban) to provide that the Senior Executives shall be appointed and serve at
the pleasure of the Members Committee, FCNH shall have the sole and exclusive
right to appoint (or remove) the Senior Executive Officer-Children's Network and
Saban shall have the sole and exclusive right to appoint (or remove) the Senior
Executive-Saban Entertainment; provided, however, each such Person will have the
right to veto one person proposed by the other to serve as such Senior Executive
in the course of designating each successor for Saban and Loesch. From and after
the date of such event or amendment identified in the preceding sentence, the
Senior Executives shall be appointed by the Members Committee.
4.7.3 Subject to the provisions of Section 4.8 below, the officers
of the Company shall have such powers, duties and obligations as are from time-
to-time designated by the Members Committee or the Operating Committee.
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4.8 SENIOR EXECUTIVES.
4.8.1 Subject to the provisions of Section 4.9 and 4.10 below, the
Members hereby delegate to and authorize the Senior Executive-Saban
Entertainment, to manage, control and supervise, in all respects and
particulars, SEI and any other businesses allocated to Senior Executive-Saban
Entertainment pursuant to Section 4.8.3 hereof (collectively, the "SEI Managed
Businesses"), and the business, activities, operations, assets, obligations and
liabilities of the SEI Managed Businesses. The rights, powers and duties of the
Senior Executive-Saban Entertainment shall, to the maximum extent permitted by
law, and subject to any contractual obligations of the SEI Managed Businesses,
include any and all rights, powers and obligations with respect to the SEI
Managed Businesses which under Delaware laws are granted to the shareholders,
board of directors, general managers and/or executive officers of the SEI
Managed Businesses, including but not limited to, the right to appoint and
remove the directors of the SEI Managed Businesses, to determine the retention,
termination, and designation and appointment of all corporate officers and other
employees, and to delegate any of such duties and responsibilities to other
officers and employees of the SEI Managed Businesses. The rights, powers and
authorities delegated to the Senior Executive-Saban hereunder shall include, but
not be limited to, the exercise of all rights, powers and authorities of the
Company with respect to SEI under the Management Agreement.
4.8.2 Subject to the provisions of Sections 4.9 and 4.10 below,
the Members hereby delegate to and authorize the Senior Executive- Children's
Network to manage, control and supervise, in all respects and particulars, FCN,
FCNH Sub and FCP, and any other businesses allocated to Senior Executive-
Children's Network pursuant to Section 4.8.3 hereof (collectively, the
"Children's Network Managed Businesses")and the business, activities,
operations, assets, obligations and liabilities of the Children's Network
Managed Businesses. The rights, powers and duties of the Senior Executive-
Children's Network hereunder shall, to the maximum extent permitted by law, and
subject to any contractual obligations of the Children's Network Managed
Businesses, include any and all rights, powers and obligations with respect to
each such Person which, under the Delaware laws are granted at law to the
shareholders, board of directors, general managers and/or executive officers of
the Children's Network Managed Businesses, including but not limited to, the
right to appoint and remove the directors of the Children's Network Managed
Businesses, to determine the retention, termination, and designation and
appointment of all corporate officers and other employees, and to delegate any
of such duties and responsibilities to other officers and employees of the
Children's Network Managed Businesses. The rights, powers and authorities
delegated to the Senior Executive-Children's Network hereunder shall include,
but not be limited to,
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the exercise of all rights, powers and authorities of the Company with respect
to FCN and FCP under the Management Agreement.
4.8.3 For purposes of this Agreement, those assets assigned to the
Management Company at the closing under the Formation Agreement pursuant to that
certain Asset Assignment Agreement of even date herewith and any operating
assets acquired after the date hereof (such as a separate kid's service or
production company), shall be allocated by the Members Committee to either or
both of the Children's Network Managed Businesses and the SEI Managed
Businesses.
4.9 OPERATIONAL VETO RIGHTS.
4.9.1 [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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4.10 SALE OF MORE THAN ONE-THIRD ORIGINAL INTEREST. Upon the occurrence
of a Triggering Event with respect to SEI or FCNH, then (x) the rights of the
applicable Senior Executive under Section 4.9 above shall terminate, (y) a
quorum for the conduct of business by the Members Committee and Operating
Committee under Sections 4.2.2 and 4.4 shall be modified to mean a majority of
the Committee Members of the Company, in the case of the Members Committee, and
a majority of the members of the committee, in the case of the Operating
Committee, (z) the requirement that action by the Members Committee or Operating
Committee be approved by a majority of the Class I Committee Members and a
majority of the Class II Committee Members shall terminate, and all further
action shall take place solely upon vote of a majority of those entitled to vote
thereon, and (aa) the class of Committee Members to be appointed by FCNH and
Saban, as the case may be, shall be reduced by one-half and the number of
representatives from such class on the Operating Committee shall be reduced by
one-half, and (bb) the right of FCNH or Saban, as the case may be, to appoint
the applicable Senior Executive pursuant to Section 4.7.2 shall terminate. Upon
the occurrence of a Terminating Event, the applicable party (FCNH in the case of
a Terminating Event with respect to FCNH and Saban with respect to a Terminating
Event with respect to SEI) shall lose all rights to appoint Committee Members to
the Members Committee of the Company and all other approval rights provided for
in this Agreement. For purposes of this Agreement, a Triggering Event with
respect to SEI or FCNH shall be deemed to occur on such date as the SEI
Stockholders or FBC, respectively, transfer more than one-third (after
adjustment for any stock splits, stock dividends, reorganization or
recapitalization effected after the date hereof) of the number of shares of SEI
Common Stock or FCNH Common Stock which they own at the date hereof; provided,
however, that any transfer effected pursuant to Section 3(b) or 3(c) of the
Strategic Stockholders Agreement shall not be deemed a transfer for these
purposes. A Terminating Event with respect to SEI or FCNH shall be deemed to
occur on such date as the SEI Stockholders or FBC, respectively, transfer more
than two-thirds (after adjustment for any stock splits, stock dividends,
reorganization or recapitalization effected after the date hereof) of the number
of shares of SEI Common Stock or FCNH Common Stock which they own at the date
hereof; provided, however, that any transfer effected pursuant to Section 3(b)
or 3(c) of the Strategic Stockholders Agreement shall not be deemed a transfer
for these purposes.
4.11 INDEMNIFICATION. The officers, Committee Members, employees and
agents of the Company shall be entitled to be indemnified by the Company for any
action taken or failure to act within the scope of the authority conferred on
the Member by this Agreement or by law, unless such action or omission was
performed or omitted in bad faith, involved intentional misconduct or a knowing
violation of law. This right of indemnification shall not be construed as being
in lieu of, or otherwise limiting, any right
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that any party may have under any agreement providing for indemnification by the
Company, any Member or any Operating Entity.
4.12 SPECIAL PROVISION RELATED TO ISRAEL LICENSEE. SEI currently
licenses and distributes certain of its properties (e.g., motion pictures,
television programs, other productions, merchandising and license rights) in the
country of Israel through Israel Audiovisual Corporation (the "Israeli
------------------
Licensee"). Notwithstanding anything to the contrary contained herein or in any
of other Alliance Agreement, so long as Saban is the Senior Executive-Saban
Entertainment, SEI may distribute and/or license all current or future
properties of the Company, FCN and SEI to the Israel Licensee on the same basis
as SEI currently distributes its properties in Israel. Notwithstanding the
foregoing, SEI shall not grant rights to the Israeli Licensee that conflict with
or restrict the Company's ability to grant to others satellite broadcast rights
in a territory including Israel.
4.13 SABAN RECEIVABLE. At the date hereof, Saban owes SEI an amount
equal to $2,649,000. Notwithstanding anything to the contrary contained herein,
effective as of the date hereof, SEI shall forgive the payment of such amount
and Saban shall have no further liability with respect thereto.
4.14 FIDUCIARY DUTIES. Notwithstanding anything to the contrary
contained herein, each of the Members, on its own behalf and on behalf of its
Affiliates, agrees that it will exercise the governance rights and veto rights
accorded to it pursuant to this Agreement and the other Alliance Agreements in
good faith and in a manner it believes to be in the best interests of the
Company and the Members taken as a whole and shall not exercise any of such
rights for the purpose of exploiting a business opportunity itself separate from
the Company.
ARTICLE 5
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS, ALLOCATION OF TAX ITEMS; MEMBER LOANS;
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DISTRIBUTIONS
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5.1 INITIAL CAPITAL CONTRIBUTIONS.
5.1.1 Each of SEI, FBC and FCNH have made initial capital
contributions to the Company as provided in the Formation Agreement.
5.1.2 SEI shall make an additional capital contribution in an
amount up to $14.5 million to the Company to the extent the Members Committee
determines that such contribution is necessary in
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order to allow the Company to make the first installment payment due on the FBC
Loan referred to in Section 5.8 hereof.
5.1.3 For purposes of this Agreement, any payment to the Company
by FBC pursuant to Section 10(i)(B) of the Strategic Stockholders Agreement
shall constitute a capital contribution by FBC.
5.2 ADDITIONAL CAPITAL CONTRIBUTIONS. Other than as set forth in
Section 5.1 hereof or pursuant to the provisions of Section 5.9.1 hereof, no
Member is required to make any additional capital contribution to the Company
and no such additional capital contribution may be made by any Member without
the approval of the Members Committee.
5.3 MAINTENANCE OF CAPITAL ACCOUNTS. A Capital Account shall be
established and maintained on the books of the Company for each Member.
5.4 ALLOCATION OF TAX ITEMS. "Net Income" and "Net Loss" shall mean,
with respect to each taxable year of the Company, the net income or net loss of
the Company for such taxable year for federal and state income tax purposes,
including, without limitation, each item of Company taxable income, loss,
deduction or credit and any net gain or net loss from the sale, exchange or
other disposition of Company assets.
5.4.1 Net Income for each taxable year of the Company (the
"Subject Taxable Year") shall be allocated to the Members as follows:
(a) First, to the Members to the extent that aggregate Net
Losses allocated to them pursuant to Section 5.4.2 hereof, from the inception of
the Company, are in excess of aggregate Net Income allocated to them pursuant to
this Section 5.4.1(a), from the inception of the Company, in accordance with the
ratio of such excesses, until all such excesses shall have been eliminated.
(b) Second, to the Class A Member, to the extent of the
excess, if any, of (i) the aggregate of the amounts distributed to it under
Sections 5.7.3, 5.7.4, 8.4.1(c) and 8.4.1(d) with respect to all taxable years
of the Company up to and including the Subject Taxable Year over (ii) the
aggregate Net Income allocated to it under this Section 5.4.1(b) for all taxable
years of the Company prior to the Subject Taxable Year.
(c) Third, to the Class B Members in accordance with their
Interests in the Company.
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5.4.2 Net Loss for each taxable year of the Company shall be
allocated to the Members in accordance with their Interest in the Company.
5.4.3 Notwithstanding any provision in this Section 5, if by
reason of any of the transactions set forth in this Agreement or the Asset
Assignment Agreement any Member is treated as receiving imputed interest from
the Company, any corresponding deduction allowed to the Company for such
interest shall be specially allocated to the Member which is treated as
receiving such imputed interest.
5.4.4 Notwithstanding any provision in this Section 5, if any
distribution to a Member under this Section 5 is treated as a payment to a
Member other than in its capacity as a Member and such payment constitutes
income to such Member for tax purposes, any deduction allowed to the Company by
reason of such treatment shall be specially allocated to such Member.
5.5 NEGATIVE CAPITAL ACCOUNTS. Except to the extent the Members make
contributions to the capital of the Company, no Member shall be required to pay
to the Company or to any other Member any deficit or negative balance which may
exist from time to time in such Member's Capital Account.
5.6 TAX DISTRIBUTIONS. The Company shall make mandatory distributions
of Distributable Cash to cover the actual tax liability of the Members with
respect to their allocable share of the income of the Company, except that no
such distributions shall be made to cover any Member's tax liability with
respect to any income allocated to it under Section 5.4.1(a) or Section 5.4.1(b)
hereof. In no event shall distributions be made under this Section 5.6 to the
Class A Member until the aggregate Net Income allocated to it from the inception
of the Company exceeds the aggregate Net Losses allocated to it from the
inception of the Company by $50,000,000.
5.7 ADDITIONAL DISTRIBUTIONS. Unless the Members Committee of the
Company determines otherwise (which discretion shall terminate at the time of a
Triggering Event), the Company shall distribute all of its Distributable Cash at
the end of each fiscal year within 90 days thereafter in the following order of
priority:
5.7.1 First, as provided in Section 5.6 hereof;
5.7.2 Second, to reduce the principal balance on the FBC Loan
prov1 ided for in Section 5.8 hereof until such principal balance has been paid
in full;
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5.7.3 Third, to FBC in payment of the Company's obligations under
Section 9.3.15 hereof until such obligation is paid in full;
5.7.4 Fourth, to the Class A Member until the Class A Member has
received aggregate distributions under this Section 5.7.4 in the aggregate
amount of $40 million, after which the Class A Member shall not have any further
right to receive any distributions hereunder.
5.7.5 Fifth, to the Class B Members as from time to time
determined by the Members Committee.
5.8 FBC LOAN. FBC shall loan the Company $64.5 million interest free on
the date of this Agreement, which loan (the "FBC Loan") shall (i) be evidenced
by a separate unsecured promissory note reasonably acceptable to the Company and
FBC which contains the terms summarized in this Section 5.8 and otherwise terms
and conditions customary in commercial transactions, and (ii) be repaid in
installments, the first installment being in the amount of $14.5 million and
payable on July 15, 1996 and the remaining installments payable solely out of
Distributable Cash as provided in Section 5.7.2 and liquidation proceeds as
provided in Section 8.4.1(b) hereof.
5.9 TRANSFER OF DISTRIBUTABLE CASH TO THE COMPANY; DIVIDENDS.
5.9.1 In the event any Distributable Cash is located in the
accounts of any Operating Entity and the Company is obligated under this
Agreement to distribute such Distributable Cash, then the Members shall
cooperate with one another in order to arrange for a transfer of such
Distributable Cash to the Company for distribution to the Members.
5.9.2 Further, FCNH agrees to cause FCN to make a dividend payment
to FCNH Sub at the time or times during each fiscal year that FCN distributes
net profits to its station affiliates in the amount that would have been payable
to Fox Television Stations, Inc. on behalf of the Designated Fox O&Os (as
defined in the Asset Assignment Agreement dated as of the date hereof by and
between FBC and the Company (the "Asset Assignment Agreement") pursuant to the
terms of the Station Affiliate Agreements between such entities and FCN had such
Station Affiliate Agreements not been amended in accordance with the provisions
of the Asset Assignment Agreement.
5.10 RETURN OF DISTRIBUTIONS. Except for distributions made in violation
of the Delaware Act or this Agreement, no Member shall be obligated to return
any distribution to the Company or pay the amount of any distribution for the
account of the Company or to any
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creditor of the Company. The amount of any distribution returned to the Company
by a Member or paid by a Member for the account of the Company or to a creditor
of the Company shall be added to the account or accounts from which it was
subtracted when it was distributed to the Member.
5.11 NO INTEREST. No Member shall be entitled to receive any payment or
accrual in the nature of interest on such Member's capital contributions.
5.12 TAX MATTERS PARTNER. The Members Committee shall designate one of
the Members as the "tax matters partner" (as defined in the Code). The Tax
Matters Partner shall take no action which is reasonably likely to have a
material adverse affect on one or more of the Members unless such action is
approved by the Members Committee or the Operating Committee.
5.13 TAXATION AS A PARTNERSHIP. The Members intend that, for federal and
state tax purposes, the Company should and will be taxed as a partnership. The
Members agree to cooperate and to take such steps as are reasonably necessary,
if any, by amendment of this Agreement or otherwise to assure that the Company
will be taxed as a partnership.
ARTICLE 6
EXCULPATION; INDEMNIFICATION
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6.1 NO LIABILITY. No Member, officer, director, partner, shareholder,
employee, attorney, trustee, manager or adviser of any Member or any of the
Operating Entities shall be liable, accountable or responsible in damages or
otherwise to a Member or the Company for any action taken or failure to act
within the scope of the authority conferred on the Member or such other Person
by this Agreement or with regard to this Agreement by law, unless such action or
omission was performed or omitted in bad faith, involved intentional misconduct
or a knowing violation of law.
6.2 COMPANY INDEMNITY OBLIGATIONS. The Company shall indemnify and hold
harmless each of the Members, their respective Affiliates, and their respective
officers, directors, partners, shareholders, employees, attorneys, trustees,
managers, advisers and agents (the "Indemnified Parties") from and against any
and all losses incurred by any of them by reason of any acts, omissions or
alleged acts or omissions by any of the Indemnified Parties (i) undertaken or
omitted in the good faith belief that such act or omission was in furtherance of
the Company's Business, (ii) undertaken or omitted not in contravention of this
Agreement, and (iii) other than where such loss is incurred as a result of any
actual or threatened civil, criminal, administrative or
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investigative action, proceeding or claim; provided, however, that if an
Indemnified Party is finally determined by any court of competent jurisdiction
or by any arbitrator to have acted or omitted to act in a manner which is in
contravention of the standard set forth in any of the foregoing clauses (i),
(ii) or (iii), the Indemnified Party shall repay all amounts paid or reimbursed
by the Company.
6.3 SETTLEMENT; PROCEDURES. The Company shall not be required to
indemnify any Indemnified Party for any amount paid or payable by such
Indemnified Party in the settlement of any action, proceeding or investigation
agreed to without the written consent of such Company (which consent shall not
be unreasonably withheld or delayed). Promptly after receipt by an Indemnified
Party of notice of its involvement in any action, proceeding or investigation,
such Indemnified Party shall, if a claim in respect thereof is to be made
against the Company under this Section, notify Company in writing of such
involvement. No failure by such an Indemnified Party to so notify the Company
shall relieve the Company from the obligation to indemnify such Indemnified
Party unless and to the extent that the Company shall have been actually
prejudiced by such failure. To the extent it wishes, the Company shall be
entitled to assume the defense of any action that is the subject of this Section
with counsel reasonably satisfactory to such Indemnified Party; provided,
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however, that such Indemnified Party may retain its own counsel at its expense
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if representation of both such Indemnified Party and the Company would, in the
reasonable judgment of such Indemnified Party, be inappropriate due to actual or
potential differing interests between them.
6.4 WITHDRAWAL. This Article 6 shall survive the withdrawal of any
Member from the Company and any termination or dissolution of the Company:
provided, however, that in no event shall any Member (or former Member) be
- -------- -------
liable for any liability or obligation resulting from acts or omissions which
occurred following such withdrawal, termination or dissolution except as
expressly provided in this Agreement.
6.5 SETTLEMENTS CONDITIONED UPON FULL RELEASE. The Company will not,
without the prior written consent of each affected Indemnified Party, settle or
compromise any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought under this Article 6, unless such
settlement or compromise includes a full and unconditional release of each such
Indemnified Party from all liability arising out of such claim, action, suit or
proceeding, reasonably satisfactory in form and substance to such Indemnified
Party.
6.6 SUBROGATION. If any Indemnified Party receives payment or other
indemnification from the Company with respect to any claim or demand by any
third Person against the Indemnified Party, the
17
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Company shall be subrogated to the extent of such payment or indemnification to
all rights in respect of the subject matter of such claim to which the
Indemnified Party may be entitled, to institute appropriate action for the
recovery thereof, and the Indemnified Party agrees to provide reasonable levels
of assistance and cooperation to the Company, in enforcing such rights;
provided, however, that no right of subrogation shall exist in favor of the
- -------- -------
Company to institute any action for the recovery of any amount from any officer
or Member of the Members Committee or any officer or director of any Member, if
the actions of such officer, director or Member of the Members Committee giving
rise to the indemnified claim would prohibit indemnification by the Company of
such officer, director or Member of the Members Committee under this Agreement
solely because such officer, director or Member of the Members Committee did not
meet the applicable standard of conduct set forth in this Agreement, and not as
a result of the unavailability of indemnification as a result of any public
policy or for any other reason.
ARTICLE 7
BOOKS OF ACCOUNT, ACCOUNTING AND REPORTS
----------------------------------------
7.1 BOOKS AND RECORDS. The books and records of the Company shall be
kept, and the financial position and the results of its operations recorded, in
accordance with the GAAP. The books and records of the Company shall reflect all
Company transactions and shall be appropriate and adequate for the Company's
business.
7.2 INSPECTION RIGHTS. Each Class B Member and any of its designated
representatives has the right, upon reasonable request for purposes reasonably
related to the interest of the Person as a Member, to inspect and copy, at the
Company's expense, during normal business hours any of the Company books and
records.
7.3 ANNUAL AND QUARTERLY STATEMENTS.
7.3.1 Within 45 days following the end of each fiscal quarter of
the Company, the Members Committee shall prepare and submit or cause to be
prepared and submitted to the Class B Members an unaudited income statement for
such fiscal quarter and a balance sheet as of the end of such quarter, in each
case (where applicable) with information for the comparable period during the
prior fiscal year of the Company and further, in each case prepared in
accordance with GAAP.
7.3.2 Within 90 days following the end of each fiscal year of the
Company, the Members Committee shall prepare and submit or cause to be prepared
and submitted to the Class B Members (i) an audited balance sheet, together with
audited income statements,
18
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Members equity and changes in financial position for the Company during such
fiscal year; a report on activities during the fiscal year; and an audited
statement showing any amounts distributed to a Member in respect of such fiscal
year.
7.3.3 The Members Committee shall cause to be prepared at least
annually, at the expense of the Company, information necessary for the
preparation of the Members' federal and state income tax returns. The Members
Committee shall send or cause to be sent to each Member within 60 days after the
end of each taxable year such information as is necessary to complete its
federal and state income tax or information returns, and, a copy of the
Company's federal, state, and local income tax or information returns for that
year.
7.4 CERTIFIED PUBLIC ACCOUNTANTS. Until otherwise determined by the
Members Committee, Ernst & Young LLP shall serve as the outside accountants for
the Company.
7.5 BANK ACCOUNTS. All funds and monies of the Company shall be
deposited in its name in such accounts and at such banks as shall be from time
to time determined by the Members Committee.
7.6 TAX ELECTIONS. All federal or state income tax elections, and other
tax policy determinations shall be subject to approval of the Members Committee.
ARTICLE 8
DISSOLUTION AND LIQUIDATION OF THE COMPANY
------------------------------------------
8.1 DISSOLUTION. The Company shall dissolve upon the happening of any
one of the following events:
8.1.1 Any event which results in the Company having less than two
Members.
8.1.2 The Bankruptcy, death, retirement, withdrawal, or incapacity
of any Member, unless the remaining Members determine to continue the existence
of the Company. Each of SEI and FCNH hereby agree to continue the existence of
the Company notwithstanding the termination of FBC's Class A Membership pursuant
to the provisions of Section 3.2 hereof.
8.2 EFFECT OF DISSOLUTION. The dissolution of the Company shall be
effective on the day on which the event occurs giving rise to the dissolution,
but the Company shall not terminate until this Agreement has been canceled and
the assets of the Company shall have been distributed as provided in Section 8.4
of this Agreement and the Delaware Act. Notwithstanding the dissolution of the
19
<PAGE>
Company, prior to the termination of the Company, the business of the Company
and the affairs of the Members, as such, shall continue to be governed by this
Agreement. The dissolution of the Company shall not result in the termination or
modification of any provision of any other agreement between the Company and any
of its Members or Affiliates thereof except as provided in such other agreement.
8.3 NO RECOURSE AGAINST MEMBERS FOR DISTRIBUTION. Except as expressly
provided herein to the contrary, each Member shall look solely to the assets of
the Company for all distributions with respect to the Company, for return of its
capital contribution thereto, for its share of net profit or net loss, and for
any other payment in respect of its interest in the Company, and shall have no
recourse therefor (upon dissolution or otherwise) against the other Members.
8.4 LIQUIDATION.
8.4.1 Upon dissolution of the Company, the Class B Members shall
liquidate the assets of the Company, and after allocating all Net Income or Net
Loss for the fiscal year in which such dissolution occurs (including any capital
gain or loss resulting from the disposition of such assets) in accordance with
Section 5.4 hereof and shall apply and distribute the proceeds thereof (a)
first, to the payment of the obligations of the Company to third parties, to the
expenses of liquidation, and to the setting up of any reserves for contingencies
which the Members may consider necessary, (b) second, to FBC to retire any
remaining outstanding and unpaid principal on the FBC Loan, (c) third, to FBC in
an amount equal to the positive difference, if any, between $10 million and the
aggregate of all payments out of Distributable Cash paid to FBC pursuant to
Section 5.7.3 hereof, (d) fourth, to the Class A Member in an amount equal to
the positive difference, if any, between $40 million and the aggregate of all
distributions of Distributable Cash distributed to the Class A Member pursuant
to Section 5.7.4 hereof, and (e) the balance to the Class B Members in
accordance with their respective Capital Accounts (as adjusted to reflect the
aforesaid allocation of Net Income or Net Loss).
8.4.2 Notwithstanding Section 8.4.1, in the event that the Class B
Members determine that an immediate sale of all or any portion of the Company's
assets would cause undue loss to the Members, the Class B Members, in order to
avoid such loss, may either defer liquidation of and withhold from distribution
for a reasonable time any assets of the Company except those necessary to
satisfy the Company's debts and obligations, or distribute the assets to the
Members in kind.
8.4.3 If any assets of the Company are to be distributed in kind,
such assets shall be distributed on the basis
20
<PAGE>
of the fair market value thereof, and any Member entitled to any interest in
such assets shall receive an interest therein as a tenant-in-common with all
other Members so entitled.
8.4.4 The Members Committee or surviving Member shall cause the
cancellation of this Agreement following the liquidation and distribution of all
of the Company's assets.
8.4.5 Notwithstanding anything in this Article 8 to the contrary,
in the event of dissolution as required in Section 8.1.1 the Members shall work
with one another to arrive at terms and conditions for the ordinary and
equitable dissolution of the Company.
8.4.6 No Member shall have any obligation to restore any deficit
balance in such Member's Capital Account upon completion of the liquidation
described in this Section 8.4.
ARTICLE 9
MISCELLANEOUS PROVISIONS
------------------------
9.1 MISCELLANEOUS. In this Agreement, headings are for con venience
only and shall not affect interpretation, and except to the extent that the
context otherwise requires: (a) references to any legislation or to any
provision of any legislation include any modification or re-enactment of, or any
legislative provision substituted for, and all statutory instruments issued
under, such legislation or such provision; (b) words denoting the singular
include the plural and vice versa; (c) words denoting individuals include
corporations and other Persons and vice versa; (d) words denoting any gender
include all genders; (e) references to any document, agreement or other
instrument (including this Agreement) include references to such document,
agreement or other instrument as amended, novated, supplemented or replaced from
time to time; (f) references to clauses, sub-clauses, sections, sub-sections,
Schedules and Exhibits are to clauses, sub-clauses, sections, sub-sections,
Schedules and Exhibits of this Agreement; (g) "or" is not exclusive; (h) "$",
and all other references to dollar amounts, are in U. S. currency; (i)
references to any party to this Agreement or any other document, agreement or
other instrument includes its successors or permitted assigns; and (j) "writing"
and cognate expressions include all means of reproducing words in a tangible and
permanently visible form.
9.2 RIGHTS PERSONAL TO FCNH AND SABAN. Each and every right and
obligation which refers to "Saban" or FCNH is personal to Saban or FCNH, as the
case may be, and shall not attach to, or be deemed to relate to or concern the
Shares held by Saban or FCNH; and thus, without the prior written consent of
both Saban and FCNH none of
21
<PAGE>
such rights or obligations may be assigned, delegated or transferred to any
other Person; provided, however, that in the event of the incompetency or death
-------- -------
of Saban, all rights granted to Saban hereunder shall be exercisable by his
conservator, executor or administrator, or by a single Person from time to time
designated by SEI Stockholders then holding a majority of the then outstanding
Shares of SEI Common Stock held by all SEI Stockholders.
9.3 NOTICES. All notices, demands or other communications hereunder
shall be in writing and shall be deemed to have been duly given (i) if delivered
in person, upon delivery thereof, or (ii) if mailed, certified first class mail,
postage pre-paid, with return receipt requested, on the fifth day after the
mailing, or (iii) if sent by telex or facsimile transmission, with a copy mailed
on the same day in the manner provided in (ii) above, when transmitted and
receipt is confirmed by telephone or telex or facsimile response, or (iv) if
otherwise actually delivered, when delivered:
9.3.1 If to FCNH:
FCN Holding, Inc.
FOX INC.
10201 W. Pico Boulevard
Los Angeles, CA 90035
SVP Legal Affairs
Fox Television Group
Attention: Jay Itzkowitz, Esq.
Fax: (310) 369-2572
With a copy to:
Squadron, Ellenoff, Plesent &
Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Harry Horowitz, Esq.
Fax: (212) 697-6686
9.3.2 If to FBC:
FOX INC.
10201 W. Pico Boulevard
Los Angeles, CA
SVP Legal Affairs
Fox Television Group
Attention: Jay Itzkowitz, Esq.
Fax: (310) 369-2572
22
<PAGE>
With a copy to:
Squadron, Ellenoff, Plesent &
Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Harry Horowitz, Esq.
Fax: (212) 697-6686
9.3.3 If to Saban or SEI:
Saban Entertainment, Inc.
10960 Wilshire Boulevard
Los Angeles, CA 90024
Fax: (310) 235-5108
With a copy to:
Matthew G. Krane, Esq.
2051 Hercules Drive
Los Angeles, CA 90046
Fax: (213) 851-1178
and with a copy to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard, Suite 800
Los Angeles, California 90024
Attention: Richard E. Troop, Esq.
Fax: (310) 443-8503
or at such other address or addresses as may have been furnished by such Person
in like manner to the other parties.
9.3.4 SEVERABILITY. Should any Section or any part of a Section
within this Agreement be rendered void, invalid or unenforceable by any court of
law for any reason, such invalidity or unenforceability shall not void or render
invalid or unenforceable any other Section or part of a Section in this
Agreement.
9.3.5 GOVERNING LAW. THE TERMS OF THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA
APPLICABLE TO CONTRACTS MADE WITHIN, AND TO BE PERFORMED WITHIN, SUCH STATE,
EXCLUDING CHOICE OF LAW PRINCIPLES OF SUCH STATE THAT WOULD REQUIRE THE
APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
9.3.6 NO ADVERSE CONSTRUCTION. The rule that a contract is to be
construed against the party drafting the contract
23
<PAGE>
is hereby waived, and shall have no applicability in construing this Agreement
or the terms of this Agreement.
9.3.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. Each counterpart may
consist of a number of copies hereof, each signed by less than all, but together
signed by all, of the parties hereto.
9.3.8 COSTS AND ATTORNEYS' FEES. In the event that any action,
suit, or other proceeding is instituted concerning or arising out of this
Agreement, the prevailing party shall recover all of such party's costs, and
attorneys' fees incurred in each and every such action, suit, or other
proceeding, including any and all appeals or petitions therefrom. As used
herein, "attorneys' fees" shall mean the full and actual costs of any legal
services actually rendered in connection with the matters involved, calculated
on the basis of the usual fee charged by the attorneys performing such services,
and shall not be limited to "reasonable attorneys' fees" as defined by any
statute or rule of court.
9.3.9 SUCCESSORS AND ASSIGNS. Except as otherwise provided in
this Agreement, all rights, covenants and agreements of the parties contained in
this Agreement shall be binding upon and inure to the benefit of their
respective successors and permitted assigns. Except as otherwise specifically
set forth herein, nothing in this Agreement, expressed or implied, is intended
to confer on any Person other than the parties to this Agreement or their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
9.3.10 AMENDMENTS AND WAIVERS. Neither this Agreement nor any term
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any term of this Agreement may be amended and the observance of any
such term may be waived (either generally or in a particular instance and either
retroactively or prospectively) with (but only with) the written consent of each
of the Class B Members and Saban; provided, however, that no such amendment or
-------- -------
waiver shall extend to or affect the obligation to make distributions to the
Class A Member pursuant to Sections 5.7.2, 5.7.3, 5.7.4, 8.4.1(b), 8.4.1(c) or
8.4.1(d) without the consent of the Class A Member; and provided further, that
----------------
no such amendment or waiver shall extend to or affect any obligation not
expressly waived or impair any right consequent therein. No delay or omission to
exercise any right, power or remedy accruing to any party hereto shall impair
any such right, power or remedy of such party nor be construed to be a waiver of
any such right, power or remedy nor constitute any course of dealing or
performance hereunder.
24
<PAGE>
9.3.11 ENTIRE AGREEMENT. This Agreement, the attached Exhibits and
Schedules and the agreements referred to herein and therein, together contain
the entire understanding of the parties, and there are no further or other
agreements or understandings, written or oral, in effect between the parties
relating to the subject matter hereof unless expressly referred to herein. No
party to this Agreement makes any representation or warranty except as expressly
set forth herein.
9.3.12 AGREEMENT TO PERFORM REQUIRED ACTS. Each party hereto
agrees to perform any further acts and to execute and deliver any further
documents that may be reasonably necessary to carry out the provisions hereof,
that may be required to secure performance of any party's duties hereunder or
that may be required to assure the legal and binding effect of the provisions
hereof.
9.3.13 CONSENT TO JURISDICTION; FORUM SELECTION. Any actions,
suits or proceedings instituted in connection with this Agreement or the
performance by the parties of their obligations hereunder shall be instituted
and maintained exclusively in the Superior Court for the State of California,
County of Los Angeles or in the United States District Court for the Central
District of California. By execution and delivery hereof, each party hereto
hereby consents, for itself and in respect of its property, to the jurisdiction
of the aforesaid courts solely for the purpose of adjudicating its rights or
obligations under, or any disputes involving, this Agreement or any document
related hereto. Each party hereto hereby irrevocably waives, to the extent
permitted by applicable law, any objection, including, without limitation, any
objection that the other corporate party or parties lack the capacity to sue or
defend based upon its or their lack of a certificate of qualification to conduct
intrastate business in California, and any objection to the laying of venue or
based on the grounds of forum non conveniens, which it may now or hereafter have
----- --- ----------
to the bringing of any action or proceeding in such jurisdiction in respect of
this Agreement or any document related hereto.
9.3.14 DEADLOCK. The parties intend that any controversy or
dispute with regard to the management of the Company which results in a deadlock
between them, or between members of the Members Committee or the Operating
Committee, is to be resolved between them without the intervention of any court
or other tribunal and each party expressly waives the right or power to seek
relief (including, but not limited to dissolution) from any court (whether
sitting in law or equity) with respect thereto.
9.3.15 ADMINISTRATION AGREEMENT. Pursuant to Section 10.2 of the
Asset Assignment Agreement, the Company has assumed all of the executory
obligations of FBC under that certain Administration Agreement by and between
FCN and FBC dated as of
25
<PAGE>
February 7, 1990 ("Administration Agreement"). For so long as FCNH remains a
Member hereunder, it shall be the sole responsibility of FBC to carry out all of
such obligations on behalf of the Company. FBC shall receive a fixed fee in the
amount of $10,000,000 in consideration of all services performed under this
Section, which amount shall be solely paid out of Distributable Cash or
liquidation proceeds as provided in Sections 5.7.3 and 8.4.1(c). The Company
may, upon delivery of six months notice to FBC, release FBC from any and all of
its obligations under this Section 9.3.15, provided that such release shall not
-------- ----
affect FBC's right to receive its fee hereunder, and provided further, that such
-------- -------
release shall not affect the obligations in the Administration Agreement assumed
by Company.
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
SABAN ENTERTAINMENT, INC.
By: /s/ Haim Saban
----------------------------
Haim Saban
Its: Chief Executive Officer
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
FCN HOLDING, INC.
By: /s/ Jay Itzkowitz
------------------------------
Its: Senior Vice President
FOX BROADCASTING COMPANY
By: /s/ Jay Itzkowitz
------------------------------
Its: Senior Vice President
28
<PAGE>
EXHIBIT A
DEFINED TERMS
Definitions. As used in the Agreement to which this Exhibit is attached
-----------
(the "Agreement"), the following terms shall have the following meanings:
"AFFILIATE" shall mean, any Person which directly or indirectly
controls, or is controlled by, or is under common control with another Person.
The term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, or otherwise.
"ALLIANCE AGREEMENTS" shall have the meaning set forth in the
Formation Agreement.
"ASSET ASSIGNMENT AGREEMENT" means that certain Asset Assignment
Agreement, dated as of the date hereof, by and among, inter alia, FBC and the
----- ----
Company.
"BANKRUPTCY" means: (a) the filing of an application by a Member for,
or its consent to, the appointment of, a trustee, receiver or custodian of its
assets; (b) the entry of an order for relief with respect to a Member in
proceedings under the United States Bankruptcy Code, as amended from time to
time; (c) the making by a Member of a general assignment for the benefit of
creditors; (d) the entry of an order, judgment or decree by any court of
competent jurisdiction appointing a trustee, receiver or custodian of the assets
of a Member unless the proceedings and the Person appointed are dismissed within
one hundred twenty (120) days; or (e) the failure by a Member generally to pay
its debts as the debts become due within the meaning of Section 303(h)(1) of the
United States Bankruptcy Code, as determined by the Bankruptcy Court, or the
admission by a Member in writing of its inability to pay its debts as they
become due.
"CAPITAL ACCOUNTS" mean capital accounts maintained for the Members
in accordance with Section 1.704-1(b) of the Treasury Regulations.
"CERTIFICATE OF FORMATION" means the Certificate of Formation of the
Company in the form set forth in Schedule 2.1, which has been filed with the
------------
Secretary of State of the State of Delaware.
29
<PAGE>
"CLASS A MEMBER" means FBC.
"CLASS B MEMBERS" means SEI and FCNH.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" shall mean FOX KIDS WORLDWIDE, L.L.C., the limited liability
company formed hereby.
"COMPANY'S BUSINESS" shall have the meaning set forth in Section 2.5
of this Agreement.
"DELAWARE ACT" shall mean the Limited Liability Company Act of the
State of Delaware as the same may be amended from time to time.
"DISTRIBUTABLE CASH" means, at the time a determination of
Distributable Cash is made, the amount of cash which the Members Committee
reasonably determines is available for distribution to Members taking into
account all cash amounts, debts, liabilities, and obligations of the Company and
each of the Operating Entities then due and after setting aside reserves
("Reserves") in an amount reasonably deemed necessary to provide for the
Company's or such Operating Entities' current or planned capital expenditures,
debt service, working capital and expansion plans. If the Members Committee is
unable to agree as to the amount of the Reserves, then Reserves shall be
maintained in an amount equal to $30 Million.
"FBC" shall mean the Fox Broadcasting Company, a Delaware corporation.
"FBC COMMON STOCK shall have the meaning ascribed to such term in the
Strategic Stockholders Agreement.
"FBC LOAN" shall have the meaning set forth in Section 5.8 of this
Agreement.
"FBC SERVICE FEE" shall have the meaning set forth in Section 9.3.15
of this Agreement.
"FCN" means the Fox Children's Network, Inc., a Delaware corporation,
and its direct and indirect subsidiaries.
"FCNH SUB" means FCNH Sub, Inc., a Delaware corporation and a wholly
owned subsidiary of FCNH and the parent of FCN and FCP.
"FCNH" means FCN Holding, Inc., a Delaware corporation.
30
<PAGE>
"FCP" means Fox Children's Productions, Inc., a Delaware corporation.
"FORMATION AGREEMENT" shall have the meaning set forth in the Recitals
to this Agreement
"GAAP" means generally accepted principles as in effect on the date
hereof.
"INTEREST IN THE COMPANY" shall mean with respect to each Member its
"partner's interest in the partnership," as such term is defined in Section
704(b) of the Code and the Treasury Regulations thereunder.
"LOESCH" means Margaret Loesch.
"MANAGEMENT AGREEMENT" means that certain Management Agreement, dated
as of the date hereof, by and among FCNH Sub, SEI and the Company.
"MANAGEMENT DECISION NOTICE" shall have the meaning set forth in
Section 4.9.1 of this Agreement.
"MEMBER(S)" shall mean individually each of the Class A Members and
the Class B Members and collectively all of the foregoing.
"MEMBERS COMMITTEE" shall have the meaning set forth in Section 4.1.1
of this Agreement.
"OPERATING AGREEMENT" shall mean this Operating Agreement entered into
by and between SEI, FBC and FCNH.
"OPERATING COMMITTEE" shall mean that certain operating committee
established by the Members Committee pursuant to Section 4.4 of the Operating
Agreement.
"OPERATING ENTITIES" shall mean and include SEI, FCN and FCP and their
respective subsidiaries.
"PERSON" means an individual, partnership, corporation, limited
liability company, limited liability partnership, business trust, joint stock
company, trust, unincorporated association, joint venture, governmental
authority or other entity of whatever nature.
"SABAN" means Haim Saban.
"SEI" means Saban Entertainment, Inc., a Delaware corporation, and its
direct and indirect subsidiaries.
31
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"SEI STOCKHOLDERS AND SEI COMMON STOCK shall have the meanings
ascribed to such terms in the Strategic Stockholders Agreement.
"STRATEGIC SHAREHOLDERS AGREEMENT" shall mean that certain Strategic
Shareholders Agreement dated as of the date hereof by and between, among others,
SEI, FCNH, Saban, FBC and the SEI Stockholders named therein.
"TERMINATING EVENT" shall have the meaning set forth in Section 4.10
of this Agreement.
"TREASURY REGULATIONS" means the Treasury Regulations, as amended,
adopted by the Internal Revenue Service under the Code.
"TRIGGERING EVENT" shall have the meaning set forth in Section 4.10
hereof.
32
<PAGE>
Exhibit 10.13
AMENDMENT NO. 1
to
OPERATING AGREEMENT
This Amendment No. 1 to the Operating Agreement (the "Amendment") is made
and entered into as of September 26, 1996, by and among Saban Entertainment,
Inc. ("SEI"), FCN Holding, Inc. ("FCNH") and Fox Broadcasting Company ("FBC"),
which are each Delaware corporations.
R E C I T A L S
- - - - - - - -
A. SEI, FCNH and FBC are parties to that certain Operating Agreement,
dated as of December 22, 1995 (the "Agreement"). All terms defined in the
Agreement which are not defined in this Amendment shall have the same meanings
when used in this Amendment.
B. The parties desire to amend the Agreement to reflect agreed upon
modifications and deletions of various sections thereof.
C. Pursuant to Section 9.3.10 of the Agreement, Sections 3.2, 5.7.4 and
8.4.1(d) of the Agreement may be amended only with the written consent of each
of the Class B Members, Saban and the Class A Member.
D. The parties to this Amendment have determined that it is in the best
interest of all of the parties that the obligation to pay $10 million to FBC
pursuant to Section 9.3.15 of the Agreement be fixed and unconditional.
E. Concurrently with the execution of this Amendment, Fox Kids Worldwide,
L.L.C. (the "LLC") has paid to FBC $10 million representing the full
satisfaction of all obligations owing to FBC related to the services heretofore
performed and hereafter to be performed by FBC for and on behalf of the LLC
pursuant to Section 9.3.15 of the Agreement and that certain Agreement re
Obligations under Administration Agreement.
F. Upon receipt of the $10 million from the LLC, FBC concurrently has paid
$10 million to the LLC in exchange for an additional $10 million of Class A
Members Interests in the LLC.
<PAGE>
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing facts, the parties hereto
agree as follows:
1. Section 3.2 of the Agreement is amended to read in full as follows:
3.2 Class A Member. FBC shall be a Class A Member hereunder. As a
Class A Member, FBC shall have the right to receive distributions of
Distributable Cash pursuant to Section 5.7.4 hereof, distributions on
dissolution or liquidation pursuant to Section 8.4.1(d) hereof and
allocations of net profits and net losses and similar items from the
Company as expressly provided for in Section 5.4 hereof, but shall not have
any other rights of a Member including, without limitation, the right to
vote or participate in the management or any right to information
concerning the business and affairs of the Company. FBC's Class A
membership in the Company shall terminate at such time as FBC shall receive
aggregate distributions from the Company under Sections 5.7.4 and 8.4.1(d)
or otherwise in an aggregate amount equal to $50 million.
2. Section 5.4.1(b) of the Agreement is amended to read in full as
follows:
Second, to the Class A Member, to the extent of the excess, if any, of
(i) the aggregate of the amounts distributed to it under Sections 5.7.4 and
8.4.1(d) with respect to all taxable years of the Company up to and
including the Subject Taxable Year over (ii) the aggregate Net Income
allocated to it under this Section 5.4.1(b) for all taxable years of the
Company prior to the Subject Taxable Years.
3. Section 5.7.3 of the Agreement is amended to read in full as follows:
5.7.3 [Intentionally deleted.]
4. Section 5.7.4 of the Agreement is amended to read in full as follows:
5.7.4 Third, to the Class A Member until the Class A Member has
received aggregate distributions under this Section 5.7.4 in the aggregate
amount of $50 million, after which the Class A Member shall not have any
further right to receive any distributions hereunder.
5. Section 5.7.5 of the Agreement is amended to read in full as follows:
<PAGE>
5.7.5 Fourth, to the Class B Members as from time to time
determined by the Members Committee.
6. Section 8.4.1(c) of the Agreement is amended to read in full as
follows:
(c) [Intentionally deleted.]
7. Section 8.4.1(d) of the Agreement is amended to read in full as
follows:
(d) third, to the Class A Member in an amount equal to the
positive difference, if any, between $50 million and the aggregate of all
distributions of Distributable Cash distributed to the Class A Member
pursuant to Section 5.7.4 hereof.
8. Section 9.3.15 of the Agreement is amended by adding the following
sentence at the end of such Section.
From and after the date of that certain Agreement re Obligation Under
Administration Agreement between FBC and the Company, this Section 9.3.15
shall have no further force or effect.
9. Except as expressly modified herein, all terms of the Operating
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
SABAN ENTERTAINMENT, INC.
By /s/ Haim Saban
--------------------------
Haim Saban
Its: Chief Executive Officer
FOX BROADCASTING COMPANY FCN HOLDING, INC.
By /s/ Jay Itzkowitz By /s/ Jay Itzkowitz
---------------------- ---------------------------
Jay Itzkowitz Jay Itzkowitz
Its: Senior Vice President Its: Senior Vice President
<PAGE>
The Undersigned hereby consents and agrees to the foregoing Amendment, as of the
date first above written.
/s/ Haim Saban
----------------------------
Haim Saban
<PAGE>
Exhibit 10.16
Portions of this exhibit have been deleted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment. The redacted portions are identified by brackets with the character
"x" indicating deleted information.
<PAGE>
Exhibit 10.15
ASSET ASSIGNMENT AGREEMENT
This Asset Assignment Agreement is entered into as of this 22nd day of
December, 1995 by and between Fox Kids Worldwide L.L.C. (the "Management
Company"), on the one hand, and Fox, Inc. ("Fox"), Fox Broadcasting Company
("FBC"), Twentieth Century Fox Film Corporation ("Twentieth"), Fox Television
Stations, Inc. ("FTSI") and FCN Holding, Inc. ("FCNH") (Fox, FBC, Twentieth,
FTSI and FCNH being collectively referred to herein as the "Fox Parties" and
each being individually referred to as a "Fox Party"), on the other hand.
WHEREAS, the Management Company, a Delaware limited liability company,
currently owned by Saban Entertainment, Inc. ("SEI"), FBC and FCNH, and the Fox
Parties desire to enter into this Agreement in connection with the Management
Company's creation, operation and management of an integrated children's
entertainment business; and
WHEREAS, the Fox Parties, other than FBC, are direct or indirect Affiliates
of FBC, each of which will be directly or indirectly benefitted by the formation
and capitalization of the Management Company; and
WHEREAS, pursuant to Section 1.2 of that certain LLC Formation Agreement
dated as of November 1, 1995 ("LLC Formation Agreement") by and among SEI, FBC
and FCNH, FBC is obligated to deliver this Agreement to the Management Company,
in consideration for the acquisition by FBC of a membership interest therein;
and
WHEREAS, as an inducement to SEI to enter into and perform its obligations
under that certain Operating Agreement of the Management Company dated as of the
date hereof ("Operating Agreement") by and among SEI, FCNH Sub and FBC, the Fox
Parties desire to enter into and perform their obligations under this Agreement;
and
WHEREAS, FCNH currently controls the Fox Children's Network, Inc. ("FCN"),
as a wholly-owned second tier subsidiary;
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement and for other good and valuable consideration (the
receipt and sufficiency of which is hereby acknowledged by each of the parties
hereto), the Management Company and the Fox Parties hereby agree as follows:
1. DEFINITIONS: Capitalized terms used but not defined herein shall have the
-----------
respective meanings ascribed thereto in Exhibit "A" attached hereto and
incorporated herein by this reference.
1
<PAGE>
2. ASSIGNMENT OF MERCHANDISING AGREEMENT:
-------------------------------------
2.1. Assignment: The Fox Parties hereby irrevocably and unconditionally
----------
assign and transfer to the Management Company, effective as of June 1, 1995, all
of the Fox Parties' right, title and interest in and to, and arising under, that
certain Merchandising Rights Acquisition Agreement dated as of July 1, 1990
between Fox Licensing and FCN (the "Merchandising Agreement"), free and clear of
any Liens, other than Excepted Liens; in addition, the Fox Parties hereby
irrevocably and unconditionally assign and transfer to the Management Company,
effective as of June 1, 1995, all of the Fox Parties' right, title and
interest, in their capacity as the licensor or transferor thereunder, in and to
and arising under the Existing Merchandising Licenses (as defined in Paragraph
16.4.2 below), free and clear of any Liens.
2.2. Assumption of Obligations: The Management Company hereby assumes and
-------------------------
agrees to perform all of the executory obligations of the Fox Parties under the
Merchandising Agreement; in addition, the Management Company hereby assumes and
agrees to perform all of the executory obligations of the Fox Parties, in their
capacity as the licensor or transferor thereunder, under the Existing
Merchandising Licenses.
2.3. Payment Adjustment: Concurrently with the execution of this
------------------
Agreement, the Fox Parties shall, and hereby agree to, pay to the Management
Company an amount equal to the aggregate of the distribution fees and
commissions received by or credited to the account of the Fox Parties in
connection with the Merchandising Agreement during the period commencing on June
1, 1995 and concluding on the date hereof.
2.4. Remittance of Funds: If, at any time from and after the date hereof
-------------------
and notwithstanding the assignment set forth in Paragraph 2.1 above, the Fox
Parties, in their capacity as the former licensor or transferor thereunder,
shall receive (or have credited to their account) any further sums under any
Existing Merchandising Agreement, the Fox Parties shall be deemed to hold the
same in trust for the Management Company and shall, and hereby agree to,
promptly remit an amount equal to such sums, without deduction of any kind, to
the Management Company.
3. ASSIGNMENT OF DISTRIBUTION AGREEMENT:
------------------------------------
3.1. Assignment: The Fox Parties hereby irrevocably and unconditionally
----------
assign and transfer to the Management Company, effective as of June 1, 1995, all
of the Fox Parties' right, title and interest in and to, and arising under, that
certain Distribution Agreement dated as of September 1, 1990 between Twentieth
and FCN (the "Distribution Agreement"), free and clear of
2
<PAGE>
any Liens, other than Excepted Liens; in addition, the Fox Parties hereby
irrevocably and unconditionally assign and transfer to the Management Company,
effective as of June 1, 1995, all of the Fox Parties' right, title and interest,
in their capacity as the distributor or transferor thereunder, in and to and
arising under the Existing Distribution Licenses (as defined in Paragraph 16.5.2
below), free and clear of any Liens.
3.2. Assumption of Obligations: The Management Company hereby assumes and
-------------------------
agrees to perform all of the executory obligations of the Fox Parties under the
Distribution Agreement; in addition, the Management Company hereby assumes and
agrees to perform all of executory obligations of the Fox Parties, in their
capacity as the distributor or transferor thereunder, under the Existing
Distribution Licenses.
3.3. Payment Adjustment: Concurrently with the execution of this
------------------
Agreement, the Fox Parties shall, and hereby agree to, pay to the Management
Company an amount equal to the aggregate of the distribution fees and
commissions received by or credited to the account of the Fox Parties in
connection with the Distribution Agreement during the period commencing on June
1, 1995 and concluding on the date hereof.
3.4. Remittance of Funds: If, at any time from and after the date hereof
-------------------
and notwithstanding the assignment set forth in Paragraph 3.1 above, the Fox
Parties, in their capacity as the former distributor or transferor thereunder,
shall receive (or have credited to their account) any further sums under any
Existing Distribution Agreement, the Fox Parties shall be deemed to hold the
same in trust for the Management Company and shall, and hereby agree to,
promptly remit an amount equal to such sums, without deduction of any kind, to
the Management Company.
4. ASSIGNMENT OF EXISTING SERIES PROPERTIES:
----------------------------------------
4.1. Assignment: The Fox Parties, on behalf of the Fox Group, hereby
----------
irrevocably and unconditionally assign and transfer to the Management Company,
effective as of June 1, 1995, all of the Fox Group's right, title and interest
in and to, and in connection with, each of the television series described on
Schedule "4.1" attached hereto (and incorporated herein by this reference) (each
an "Existing Series Property" and collectively the "Existing Series
Properties"), including, without limitation, the Fox Group's right to hereafter
Exhibit and Exploit the same; without limiting the foregoing, the Fox Parties,
on behalf of the Fox Group, hereby irrevocably and unconditionally assign and
transfer to the Management Company, effective as of June 1, 1995, with respect
to each Existing Series Property, all of the Fox Group's right, title and
interest in and to: (i) the component parts of such Existing
3
<PAGE>
Series Property, including, without limitation, the individual episodes thereof,
the characters, storylines, music and artwork created in connection therewith
and title(s) thereof; (ii) any and all physical materials embodying such
Existing Series Property, or any episode thereof, including, without limitation,
any and all filmed or videotaped materials, any and all sound materials and any
and all animation cels; (iii) the right to produce (and/or authorize any Person
to produce) additional theatrical, television or other productions based on such
Existing Series Property (or on the component parts thereof), including new
episodes thereof; and (iv) any and all agreements with third Persons, if any,
relating to the Fox Group's acquisition, development and/or production of such
Existing Series Property.
4.2. Restrictions: The Management Company's right to Exhibit and Exploit
------------
the rights assigned to the Management Company pursuant to Paragraph 4.1 above
with respect to each Existing Series Property is: (i) subject to any pre-
existing obligations or commitments in favor of third Persons arising under (a)
any Existing Merchandising License and/or Existing Distribution License in
connection with such Existing Series Property and/or (b) any of the agreements
referred to in clause (iv) of Paragraph 4.1 above; and (ii) limited to the
rights with respect to such Existing Series Property actually owned or
controlled by the Fox Group (as set forth on Schedule "4.1").
4.3. Payment Adjustment: Concurrently with the execution of this
------------------
Agreement, the Fox Parties shall, and hereby agree to, pay to the Management
Company an amount equal to the aggregate "net" revenues (i.e., revenues less
actual direct third party out-of-pocket costs) received by (or credited to the
account of) the Fox Group, in their capacity as the Person(s) owning or
controlling rights in and to the Existing Series Properties, during the period
commencing on June 1, 1995 and concluding on the date hereof from the Exhibition
or Exploitation of the Fox Group's rights with respect to the Existing Series
Properties.
4.4. Remittance of Funds: If, at any time from and after the date hereof
-------------------
and notwithstanding the assignment set forth in Paragraph 4.1 above, the Fox
Group, in their capacity as the Person(s) formerly owning or controlling rights
in and to the Existing Series Properties, shall receive (or have credited to
their account) any further revenues from the Exhibition or Exploitation of the
Fox Group's rights with respect to the Existing Series Properties, the Fox
Parties shall be deemed to hold the same in trust for the Management Company and
shall, and hereby agree to, promptly remit an amount equal to such "net"
revenues, without any further deduction of any kind, to the Management Company.
4
<PAGE>
5. FOX KIDS CLUB:
-------------
5.1. Assignment: The Fox Parties hereby assign and transfer to the
----------
Management Company, effective as of June 1, 1995 and free and clear of all
Liens, other than Excepted Liens, the unincorporated division/operation of FBC
which is doing business as the "Fox Kids Club".
5.2. Assumption of Obligations: The Management Company hereby assumes and
-------------------------
agrees to perform all of the executory obligations of the "Fox Kids Club".
5.3. Access to Subscriber List: Notwithstanding the assignment set forth
-------------------------
in Paragraph 5.1 above, the Fox Group shall continue to have a non-exclusive
right of access to the Fox Kids Club subscriber list; the foregoing right of
access shall be at no cost to the Fox Group.
6. FOX KIDS COUNTDOWN:
------------------
6.1. Assignment: The Fox Parties hereby assign and transfer to the
----------
Management Company, effective as of June 1, 1995 and free and clear of all
Liens, other than Excepted Liens, the unincorporated division/operation of FBC
which is doing business as the "Fox Kids Countdown".
6.2. Assumption of Obligations: The Management Company hereby assumes and
-------------------------
agrees to perform all of the executory obligations of the "Fox Kids Countdown".
7. LICENSE OF FOX NAME: The Management Company shall have the right to use
-------------------
the name "Fox" and certain related trade and service names, marks, emblems and
logos in connection with the Management Company's business, subject to and in
accordance with the Fox License Agreement attached hereto as Exhibit "B" (and
incorporated herein by this reference).
8. ACTIONS OF THE MANAGEMENT COMPANY HEREUNDER: The approval/decision-making
-------------------------------------------
rights of the Management Company under this Agreement (including, without
limitation, Paragraph 12 hereof), unless otherwise noted, shall be exercised by
"Saban" (as defined in the Operating Agreement), until such time as a
"Terminating Event" (as defined in the Operating Agreement) has occurred.
5
<PAGE>
9. FBC AFFILIATION AGREEMENTS:
--------------------------
9.1. Affiliation Clearance Levels/Maintenance:
----------------------------------------
9.1.1. Current Clearance Agreements: Schedule "9.1.1" attached
----------------------------
hereto (and incorporated herein by this reference) sets forth the existing
clearance arrangements for FCN as of November 1, 1995. FBC shall use its best
efforts to enforce all existing agreements with current FCN Station Affiliates.
The existing agreements are substantially in the form of Exhibit "C" to the FBC
Station Affiliation Agreement, a copy of which is attached hereto as Exhibit "C-
1" (and incorporated herein by this reference) and largely expire in 1998.
9.1.2. Clearance Levels: In the course of renewing Station
----------------
Affiliation Agreements, FBC shall (a) [XXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] These
obligations will run through the [XXXXXXXXXXXXXXXXXXXXXXXXXXXX] In determining
whether or not FBC has met its clearance obligations, the following will apply:
(a) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]
(b) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]
9.1.3. Fox O&Os: FBC will have the following obligations with
--------
regard to the Fox O&Os (in addition to its obligations under Paragraphs 9.1.1
and 9.1.2 above):
(a) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX].
6
<PAGE>
(b) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXX].
(c) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX].
9.1.4. For the Benefit of the Management Company: The Fox Parties
-----------------------------------------
hereby acknowledge and agree that the undertakings and agreements by FBC
pursuant to this Paragraph 9.1 are for the express benefit of, and are
enforceable by, the Management Company.
9.2. Waiver of Right to Receive Certain Payments/Certain FBC
--------------------------------------------------------
Payments/Dropped Stations/Re-Categorizing Stations:
- --------------------------------------------------
9.2.1. Waiver of Rights to Receive FCN Net Profits: FTSI, on behalf of
-------------------------------------------
the Designated Fox O&Os and effective as of June 1, 1995, hereby irrevocably and
unconditionally releases FBC and FCN from making, and waives any further right
to receive or demand, any payment of FCN Net Profits which would have otherwise
have become due and payable to the Designated Fox O&Os pursuant to the Station
Affiliation Agreements to which they are a party (collectively, the "Designated
Fox O&Os Waived Payments"). FTSI, for itself and on behalf of the Designated
Fox O&Os, and FBC hereby agree to execute an amendment to each of the Station
Affiliation Agreements to which the Designated Fox O&Os are a party confirming
the waiver and release set forth in this Paragraph 9.2.1. Such amendments are
attached hereto as Schedule 9.2.1.
9.2.2. Payment Adjustment: Concurrently with the execution of this
------------------
Agreement, the Fox Parties shall, and hereby agree to, cause FTSI, on behalf of
the Designated Fox O&Os, to return and rebate to FCN an amount equal to any and
all payments of FCN Net Profits (if any) received by (or credited to the account
of) FTSI, for the account of the Designated Fox O&Os, during the period
commencing on June 1, 1995 and concluding on the date hereof.
9.2.3. Dropped Stations: [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
----------------
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
7
<PAGE>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX].
9.2.4. [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]
10. ADMINISTRATION AGREEMENT:
------------------------
10.1. Administration Agreement: The Fox Parties hereby irrevocably and
------------------------
unconditionally assign and transfer to the Management Company, effective as of
June 1, 1995, all of the Fox Parties' right, title and interest in and to, and
arising under, that certain Administration Agreement dated as of February 7,
1990 between FBC and FCN (the "Administration Agreement"), free and clear of any
Liens, other than Excepted Liens.
10.2. Assumption of Obligations: The Management Company hereby assumes
-------------------------
and agrees to perform all of the executory obligations of FBC under the
Administration Agreement.
8
<PAGE>
10.3. Payment Adjustment: Concurrently with the execution of this
------------------
Agreement, the Fox Parties shall, and hereby agree to, pay to the Management
Company an amount equal to the aggregate of the fees and commissions received by
or credited to the account of FBC in connection with the Administration
Agreement during the period commencing on June 1, 1995 and concluding on the
date hereof.
10.4. Remittance of Funds: If, from and after the date hereof and
-------------------
notwithstanding the assignment set forth in Paragraph 10.2 above, FBC shall
receive (or have credited to its account) any further fees and commissions under
the Administration Agreement, FBC shall be deemed to hold the same in trust for
the Management Company and shall, and hereby agrees to, promptly remit an amount
equal to such sums, without deduction of any kind, to the Management Company.
11. FOX NON-COMPETITION PROVISIONS:
------------------------------
The Fox Parties, on behalf of the Fox Group, hereby agree that the Fox
Group will not compete with the Management Company (except and to the limited
extent provided in Paragraph 12.2 below) as follows:
(a) by operating a U.S. terrestrial broadcasting service featuring
multiple programs transmitted as one or more discrete blocks of programming
targeted at the 2-11 year old audience, other than FCN; and/or
(b) by operating a programming service primarily targeted at the 2-11
year old audience in the U.S. by means of cable or other Non-Standard Television
technology (specifically, excluding, however, any "on-line" computer service
such as Delphi).
For purposes of this Agreement, a programming service primarily targeted at
the 2-11 year old audience, whether delivered by means of terrestrial broadcast
television or Non-Standard Television, shall constitute a "Kids Service".
12. MANAGEMENT COMPANY OPPORTUNITIES:
--------------------------------
12.1. Programming Service Opportunities:
---------------------------------
(a) The Fox Parties, on behalf of the Fox Group, shall offer
("Programming Service Offer") the Management Company the opportunity to own the
following (each, an "Offered Programming Service"): any non-U.S. Kids Service
which would bear the "Fox" name (in whole or in part).
(b) If the Management Company does not decide to accept or
conditionally accept (as set forth in Paragraph 12.1(d) below)
9
<PAGE>
the Programming Service Offer within 20 days of the Management Company's receipt
thereof, the Fox Group will be free to itself pursue the applicable Offered
Programming Service on substantially the same terms as were offered to the
Management Company pursuant to Paragraph 12.1.(a) above. In the case of a
Programming Service Offer relating to an Offered Programming Service which
broadcasts during only a portion of a day on a given satellite transponder or
broadcast or cable channel, the Programming Service Offer presented by the Fox
Parties will relate only to the portion of program time actually occupied by the
Offered Programming Service.
(c) In the event that the Fox Group is prepared to pursue an Offered
Programming Service (which had been offered to but was ultimately not accepted
by the Management Company) on terms which are not substantially the same terms
as were offered to the Management Company pursuant to Paragraph 12.1.(a), the
Fox Parties, on behalf of the Fox Group, shall first offer the Offered
Programming Service to the Management Company on such other terms and conditions
(a "Revised Programming Service Offer") before pursuing the same. If the
Management Company does not decide to accept or conditionally accept (as set
forth in Paragraph 12.1(d) below) the Revised Programming Service Offer within
20 days of the Management Company's receipt thereof, the Fox Group will be free
to pursue the Offered Programming Service on substantially the same terms as
were offered to the Management Company pursuant to this Paragraph 12.1.(c).
The provisions of this Paragraph 12.1.(c) shall apply each time that the Fox
Group is prepared to pursue an Offered Programming Service on terms which are
not substantially the same as those last offered to the Management Company.
(d) The Management Company shall have the right to condition its
acceptance of a Programming Service Offer or a Revised Programming Service
Offer, as applicable, upon the Management Company's securing of financing (on
terms acceptable to the Management Company) for the applicable transaction
and/or upon the Management Company's satisfaction with the outcome of its due
diligence review of the Offered Program Service. If the Management Company gives
a conditional acceptance, but does not, within the 25 business day period
following immediately thereafter, unconditionally accept the applicable
Programming Service Offer or Revised Programming Service Offer, the Fox Group
will be free to itself pursue the applicable Offered Programming Service on
substantially the same terms as were offered to the Management Company pursuant
to applicable offer and the Management Group shall be deemed to have rejected
the applicable offer (subject always, however, to the Management Company's
continuing rights and the Fox Parties' continuing obligations under Paragraph
12.1(c) above).
(e) If the Management Company accepts (as distinguished from the
Management Company conditionally accepting) a Programming
10
<PAGE>
Service Offer or a Revised Programming Service Offer pursuant to this Paragraph
12.2, the parties shall use good faith efforts to conclude the purchase and sale
(or the creation, if applicable) of the applicable Offered Programming Service
as expeditiously as is reasonably practicable, taking into account any and all
regulatory or other legal requirements.
12.2. New Acquisitions:
----------------
(a) If the Fox Group acquires a business which includes a U.S. Kids
Service (a "Business Acquisition"), the Fox Parties shall cause the Fox Group to
allocate, in good faith, a portion of the Fox Group's total purchase price for
the acquired business to such U.S. Kids Service (the "Proportionate Price").
(b) The Fox Parties shall then, on behalf of the Fox Group, offer
("Service Acquisition Offer") the Management Company the opportunity to acquire
such U.S. Kids Service for the Proportionate Price.
(c) If the Management Company does not decide to accept or
conditionally accept (pursuant to Paragraph 12.2(e) below) the Service
Acquisition Offer within 20 days of the date of the Management Company's receipt
thereof, the Fox Group will be free to retain or dispose of such U.S. Kids
Service as it sees fit, subject to Paragraph 12.2.(d) below.
(d) If the Fox Group is prepared to dispose of a U.S. Kids Service
(which had been offered to but was ultimately not accepted by the Management
Company) for less than the Proportionate Price (the "Reduced Price"), the Fox
Parties shall, on behalf of the Fox Group, first offer ("Revised Service
Acquisition Offer") the U.S. Kids Service to the Management Company at the
Reduced Price. If the Management Company does not decide to accept or
conditionally accept (pursuant to Paragraph 12.2(e) below) the Revised Service
Acquisition Offer within 20 days after the date of the Management Company's
receipt thereof, the Fox Group will be free to retain or dispose of such U.S.
Kids Service as it sees fit, subject to being obligated to re-offer the same to
the Management Company pursuant to this Paragraph 12.2.(d) if (and each time
that) the Fox Group offers to dispose of such U.S. Kids Service to a third
Person at a price below the Reduced Price last offered to the Management Company
pursuant to this Paragraph 12.2.(d).
(e) The Management Company shall have the right to condition its
acceptance of a Service Acquisition Offer or a Revised Service Acquisition
Offer, as applicable, upon the Management Company's securing of financing (on
terms acceptable to the Management Company) for the applicable transaction
and/or upon the Management Company's satisfaction with the outcome of its due
11
<PAGE>
diligence review of the offered U.S. Kids Service. If the Management Company
gives a conditional acceptance, but does not, within the 25 business day period
following immediately thereafter, unconditionally accept the applicable Service
Acquisition Offer or Revised Service Acquisition Offer, the Fox Group will be
free to retain or dispose of such U.S. Kids Service, subject always, however, to
the Management Company's continuing rights and the Fox Parties' continuing
obligations under Paragraph 12.2(d) above.
(f) If the Management Company accepts (as distinguished from the
Management Company conditionally accepting) a Service Acquisition Offer or
Revised Service Acquisition Offer pursuant to this Paragraph 12.2, the parties
shall use good faith efforts to conclude the purchase and sale of the applicable
U.S. Kids Service as expeditiously as is reasonably practicable, taking into
account any and all regulatory or other legal requirements.
(g) In connection with any U.S. Kids Service which the Management
Company has elected to acquire hereunder, it shall be incumbent upon the
Management Company to provide or otherwise secure the financing necessary to
make the purchase thereof. If, notwithstanding the Management Company having
exhausted all reasonable, commercially practicable means of securing the
financing for such purchase, the Management Company is unable to secure the
necessary financing, then the Fox Parties shall provide the necessary financing
to the Management Company, on a market rate basis (with the balance of the terms
and conditions of such financing to be negotiated at the time, in good faith and
upon commercially reasonable terms, between the Fox Parties and the Management
Company).
(h) In the event that the Proportionate Price for a U.S. Kids Service
allocated by the Fox Group is greater than or equal to fifty percent (50%) of
the price of the corresponding Business Acquisition, the Management Company
shall have the right, at any time within 20 days after the Management Company's
receipt of the applicable Service Acquisition Offer (or 25 business days after
the Management Company's conditional acceptance of the applicable Service
Acquisition Offer, if applicable), to elect to submit the issue of the proper
valuation of the Proportionate Price to binding arbitration (in accordance with
the rules and procedures of the American Arbitration Association). In such
event, all relevant time periods set forth in this Paragraph 12.2 shall be
"tolled" until the resolution of the arbitration.
12.3. Fox Originated Programs:
-----------------------
(a) The Fox Parties shall, on behalf of the Fox Parties and their
Controlled Affiliates, offer ("First Run Exhibition Offer") the Management
Company the opportunity to acquire the first
12
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run exhibition rights (at a minimum) to any new programming suitable to a Kids
Service ("New Kids Programming") prior to its sale/license to any third Person;
provided, that the foregoing shall be subject to Paragraph 12.3(b) below. The
parties specifically acknowledge that the rights offered by the Fox Parties as
part of a First Run Exhibition Offer may (but need not) include, without
limitation, the right to produce the applicable New Kids Programming and/or the
right to acquire and exploit the motion picture and/or the allied and ancillary
rights in connection with the applicable New Kids Programming.
(b) Notwithstanding the provisions of Paragraph 12.3(a) above: (i)
the Fox Parties are free to license, in their sole discretion, the first run
exhibition rights to any New Kids Programming to any broad based entertainment
network (which is not a Kids Service) for (but only for) prime time or late
night broadcast/cablecast (e.g., such rights may be licensed to ABC, CBS, NBC,
----
USA or HBO for prime time or late night broadcast/cablecast, but not the Cartoon
Channel or Nickelodeon); and (ii) the term "New Kids Programming" shall not
include programming produced for or on behalf of the Fox Group which is derived
from properties originally launched by the Fox Group other than on FCN (e.g.,
----
none of the following would constitute "New Kids Programming" for purposes of
this Paragraph 12.3: a children's version of THE SIMPSONS, an animated show
------------
featuring characters from HOME ALONE, or an animated version of a Harper Collins
----------
book such as Where The Wild Things Are).
-------------------------
(c) If the Management Company does not decide to accept (or
conditionally accept, pursuant to Paragraph 12.3(e) below) the First Run
Exhibition Offer within 20 days of the Management Company's receipt thereof, the
Fox Group will be free to enter into a first run exhibition agreement with a
third Person with respect to the applicable New Kids Programming, subject to
Paragraph 12.3.(d) below.
(d) In the event that the Fox Group is prepared to enter into an
agreement with a third Person with respect to any New Kids Programming (which
had been offered to but was ultimately not accepted by the Management Company)
on terms and conditions less favorable to the Fox Group than those last offered
to the Management Company, the Fox Parties shall, on behalf of the Fox Group,
first offer ("Revised First Run Exhibition Offer") the applicable New Kids
Programming to the Management Company on such other terms and conditions. If the
Management Company does not decide to accept (or conditionally accept, pursuant
to Paragraph 12.3(e) below) the Revised First Run Exhibition Offer within 20
days after the date of the Management Company's receipt thereof, the Fox Group
will be free to enter into a first run exhibition agreement with a third Person
with respect to the applicable New
13
<PAGE>
Kids Programming, subject to being obligated to re-offer the same to the
Management Company pursuant to this Paragraph 12.3.(d) if (and each time that)
the Fox Group offers to license the first run exhibition rights to such New Kids
Programming to a third Person on terms and conditions less favorable to the Fox
Group than those last offered to the Management Company pursuant to this
Paragraph 12.3.(d).
(e) The Management Company shall have the right to condition its
acceptance of a First Run Exhibition Offer or a Revised First Run Exhibition
Offer, as applicable, upon the Management Company's securing of financing (on
terms acceptable to the Management Company) for the applicable transaction
and/or upon the Management Company's satisfaction with the outcome of its due
diligence review of the offered New Kids Programming. If the Management Company
gives a conditional acceptance, but does not, within the 25 business day period
following immediately thereafter, unconditionally accept the applicable First
Run Exhibition Offer or Revised First Run Exhibition Offer, the Fox Group will
be free to enter into a first run exhibition agreement with a third Person with
respect to the applicable New Kids Programming, subject always, however, to the
Management Company's continuing rights and the Fox Parties continuing
obligations under Paragraph 12.3(d) above.
(f) If the Management Company accepts (as distinguished from the
Management Company conditionally accepting) a First Run Exhibition Offer or
Revised First Run Exhibition Offer pursuant to this Paragraph 12.3, the parties
shall use good faith efforts to conclude the documentation evidencing such
transaction as expeditiously as is reasonably practicable, taking into account
any and all regulatory or other legal requirements.
13. OPPORTUNITIES TO BE MADE AVAILABLE TO THE FOX PARTIES:
-----------------------------------------------------
13.1. Programming:
-----------
13.1.1. Undertaking: The Management Company, on its own behalf and
-----------
on behalf of FCN and the Management Company's Operating Entities, hereby agrees:
(i) to make the programming of the Management Company, FCN and/or the Management
Company's Operating Entities (collectively, the "MC Programming") available, at
market rates, to program services which are offered to and rejected by the
Management Company (pursuant to Paragraph 12.1 above) and which thereafter
become owned or operated by the Fox Group (collectively, the "Covered Fox
Services"); and (ii) to negotiate in good faith with any presently existing Fox
or Fox-Affiliate-owned program services that desires to license some or all of
the MC Programming. Notwithstanding the foregoing: (a) the Management Company
shall have no obligation to the Fox Group in connection with any
14
<PAGE>
particular Covered Fox Service above unless such Covered Fox Service shall
commit to license, on a "pay-or-play" basis, not less than 80% of the MC
Programming made available by the Management Company in the applicable market
serviced by such Covered Fox Service; (b) the obligations set forth in clauses
(i) and (ii) above, as they relate to the programming of the SEI Group, is
subject to any pre-existing contractual obligations of the SEI Group in favor of
third Persons; and (c) the Covered Fox Services shall not include any U.S. Kids
Service offered to but rejected by the Management Company pursuant to Paragraph
12.2 above.
13.1.2. Exceptions/Restrictions: Notwithstanding the foregoing, the
-----------------------
Management Company's obligation to make any particular MC Programming available
to a Covered Fox Service shall be subject to: (i) any and all applicable Laws,
(ii) any "holdback"-type restrictions applicable to such programming and (iii)
any limitations or restrictions (including, without limitation, any limitations
or restrictions expressed in terms of term, territory or media) on the rights
controlled by the Management Company with respect to such programming.
13.1.3 Right to Sublicense: With respect to any MC Programming made
-------------------
available to and licensed by a Covered Fox Service pursuant to this Paragraph
13.1.1, such Covered Fox Service shall have the right to sublicense the same
(within the limits and restrictions of the applicable license); provided, that
in no event shall any Covered Fox Service be entitled to sublicense any MC
Programming within the United States.
13.2. Third Party Services: The Fox Group will have a right of first
--------------------
negotiation and first refusal to provide, on market terms, any of the
distribution services which the Fox Group provides in the normal course of their
business and which are described on Schedule "13.2" attached hereto (and
incorporated herein by this reference), which the Management Company, itself or
on behalf of FCN and the Management Company Operating Entities, desires to
obtain from a third Person provider ("Required Third Party Services"), as
follows:
(a) With respect to any such Required Third Party Services, the
Management Company shall offer (a "Required Third Party Services Offer") the Fox
Parties the opportunity to have the Fox Group perform such Required Third Party
Services; provided, that the Management Company's foregoing obligation, as set
forth above and as it relates to the programming of the SEI Group, is subject to
any pre-existing contractual obligations of the SEI Group in favor of third
Persons; provided further, that notwithstanding the foregoing obligation, the
Management Company and any Management Company Operating Entities shall have the
right to obtain the Required Third Party Services from Ventura Film
15
<PAGE>
Distributors, B.V., a Netherlands corporation and/or Atalanta Films Australia
(Pty) Ltd., an Australian corporation, without first offering the Fox Parties
the opportunity to perform the same.
(b) If the Fox Parties, on behalf of the Fox Group, do not decide to
accept the Required Third Party Services Offer within 20 days of the Fox
Parties' receipt thereof, the Management Company will be free to engage a third
Person to perform the Required Third Party Services, subject to Paragraph
13.2.(c) below.
(c) If the Management Company is prepared to enter into an agreement
with a third Person to perform any Required Third Party Services (which had been
offered to but not accepted by the Fox Parties) on terms and conditions less
favorable to the Management Company than those last offered to the Fox Parties,
the Management Company shall first offer ("Revised Required Third Party Services
Offer") the applicable Required Third Party Services to the Fox Parties on such
other terms and conditions. If the Fox Parties do not decide to accept the
Revised Required Third Party Services Offer within 20 days after the date of the
Fox Parties' receipt thereof, the Management Company will be free to enter into
an agreement with a third Person with respect to the Required Third Party
Services on such terms and conditions, subject to being obligated to re-offer
the same to the Fox Parties pursuant to this Paragraph 13.2.(c) if (and each
time that) the Management Company offers to engage a third Party to perform the
applicable Required Third Party Services on terms and conditions less favorable
to the Management Company than those last offered to the Fox Group pursuant to
this Paragraph 13.2.(c).
(d) If the Fox Parties accept a Required Third Party Services Offer or
Revised Required Third Party Services Offer pursuant to this Paragraph 13.2, the
parties shall use good faith efforts to conclude the documentation evidencing
such transaction as expeditiously as is reasonably practicable, taking into
account any and all regulatory or other legal requirements.
(e) By way of clarification, the Fox Group's rights under this
Paragraph 13.2 do not apply in the circumstance where the Management Company
intends to perform the applicable distribution function itself or through a
member thereof. For example, the Management Company is free to produce a motion
picture version of one of its properties on its own, provided, however, that if
the Management Company desires to engage an un-Affiliated third Person to
distribute such motion picture, the Fox Group would have the rights described in
Paragraphs 13.2(a)-(c) above.
14. FCN INDEMNIFICATION AGREEMENT: Concurrently herewith, FBC and FCN are
-----------------------------
entering into an Indemnification Agreement in the form of Exhibit "D" attached
hereto (and incorporated herein by this
16
<PAGE>
reference). FBC hereby acknowledges and agrees that the Management Company, on
behalf of (and if necessary, in the name of) FCN shall have the right to enforce
FCN's rights arising thereunder.
15. COVENANT REGARDING CERTAIN FOX "PLATFORMS": The Fox Parties, on behalf of
------------------------------------------
the Fox Group, hereby agree they will not, and will not permit, any non-U.S.
programming "platform" which is controlled by the Fox Group to solicit from any
third Persons an equity interest in any Kids Service intended for possible
inclusion within the applicable programming "platform"; however, the Fox Parties
or such non-U.S. programming "platform" may take an equity interest in a third
Person's Kids Service so long as that third Person initiated the discussions.
16. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE FOX PARTIES:
------------------------------------------------------------
The Fox Parties hereby represent, warrant and covenant as follows:
16.1. Corporate Power: Each of the Fox Parties has the requisite
---------------
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder.
16.2. Duly Authorized: The execution and delivery of this Agreement
---------------
by each of the Fox Parties and the consummation by each of the Fox Parties of
the transactions contemplated hereby have been duly authorized and no other
corporate proceeding or consent on the part of the Fox Parties is necessary to
authorize this Agreement and the transactions contemplated hereby.
16.3. Power to Act on Behalf of the Fox Group: The Fox Parties have
---------------------------------------
the right to act on behalf of, and to commit and obligate, the Fox Group in the
manner contemplated by this Agreement.
16.4. Merchandising Agreement:
-----------------------
16.4.1. Exhibit "E" attached hereto (and incorporated herein by this
reference) is a true and correct copy of the Merchandising Agreement (including
any and all amendments, supplements, exhibits and/or schedules thereto).
16.4.2. Schedule "16.4.2" attached hereto (and incorporated herein
by this reference) sets forth a true and complete listing of each and every
presently effective license entered into by Fox Licensing pursuant to the
exercise of its rights under the Merchandising Agreement (the "Existing
Merchandising Licenses").
17
<PAGE>
16.4.3. Fox Licensing has not heretofore transferred or assigned any
of its rights or interests in the Merchandising Agreement.
16.4.4. Fox Licensing has the right to freely assign to the
Management Company (a) Fox Licensing's right, title and interest in and to the
Merchandising Agreement and (b) Fox Licensing's right, title and interest in and
to each of the Existing Merchandising Licenses.
16.4.5. Fox Licensing is not in breach or default of the
Merchandising Agreement, nor, to the best knowledge of Fox Licensing (including
that which it should have known in the exercise of reasonable prudence), is FCN;
with respect to the each of the Existing Merchandising Licenses, Fox Licensing
is not in breach or default thereof, nor, to the best knowledge of Fox Licensing
(including that which it should have known in the exercise of reasonable
prudence), is the licensee thereunder.
16.5. Distribution Agreement:
----------------------
16.5.1. Exhibit "F" attached hereto (and incorporated herein by this
reference) is a true and correct copy of the Distribution Agreement (including
any and all amendments, supplements, exhibits and/or schedules thereto).
16.5.2. Schedule "16.5.2" attached hereto (and incorporated herein
by this reference) sets forth a true and complete listing of each and every
presently effective license entered into by Twentieth pursuant to the exercise
of its rights under the Distribution Agreement (the "Existing Distribution
Licenses").
16.5.3. Twentieth has not heretofore transferred or assigned any of
its rights or interests in the Distribution Agreement.
16.5.4. Twentieth has the right to freely assign to the Management
Company (a) Twentieth's right, title and interest in and to the Distribution
Agreement and (b) Twentieth's right, title and interest in and to each of the
Existing Distribution Licenses.
16.5.5. Twentieth is not in breach or default of the Merchandising
Agreement, nor, to the best knowledge of Twentieth (including that which it
should have known in the exercise of reasonable prudence), is FCN; with respect
to the each of the Existing Distribution Licenses, Twentieth is not in breach or
default thereof, nor, to the best knowledge of Twentieth (including that which
it should have known in the exercise of reasonable prudence), is the licensee
thereunder.
18
<PAGE>
16.6. Administration Agreement:
------------------------
16.6.1. Exhibit "G" attached hereto (and incorporated herein by this
reference) is a true and correct copy of the Administration Agreement (including
any and all amendments, supplements, exhibits and/or schedules thereto).
16.6.2. FBC has not heretofore transferred or assigned any of its
rights or interests in the Administration Agreement.
16.6.3. FBC has the right to freely assign to the Management Company
all of FBC's right, title and interest in and to the Administration Agreement.
16.6.4. FBC is not in breach or default of the Administration
Agreement, nor, to the best knowledge of FBC (including that which it should
have known in the exercise of reasonable prudence), is FCN.
16.7. Existing Series Properties:
--------------------------
16.7.1. Schedule 4.1 attached hereto (and incorporated herein by
this reference): (i) sets forth, as the "Existing Series Properties", a true and
accurate list of the television series programming which was originally launched
on FCN or which is derived from any television series programming which was
originally launched on FCN; and (ii) fully and accurately sets forth, in summary
form, the nature and extent of the Fox Group's rights in connection with each of
the Existing Series Properties.
16.7.2. Neither the Existing Series Properties nor any part thereof
infringes upon the copyright, common-law right or literary, dramatic, musical or
motion picture right of any Person whomsoever; neither the Existing Series
Properties nor any part thereof constitute a libel or defamation of any Person
or an invasion of any other rights (including, without limitation, privacy or
publicity rights) of any Person. Neither the use, reproduction, performance or
exhibition of the Existing Series Properties, nor any part thereof, by or on
behalf of the Management Company, nor the exercise of any of the rights therein
which are included in the assignment set forth in Paragraph 4.1, will in any way
infringe upon the rights of any Person.
16.7.3. The Fox Group has not granted, assigned, mortgaged, pledged
or hypothecated any right, title and interest of any kind whatsoever in or to
any of the Existing Series Properties, other than pursuant to the Merchandising
License Agreement and/or the Distribution Agreement.
19
<PAGE>
16.7.4. There are no Liens, other than Excepted Liens, on the
Existing Literary Properties or adverse claims with respect thereto, nor is
there pending any litigation involving the Existing Literary Properties or any
part thereof.
16.8. FOX KIDS CLUB:
-------------
16.8.1. Schedule "16.8.1" attached hereto (and incorporated herein
by this reference) sets forth a true and correct list of any and all agreements,
written or oral, to which the "Fox Kids Club" is a party or to which the
business or assets of the "Fox Kids Club" are subject which (i) creates any
liability on the part of the "Fox Kids Club" or which commits or obligates the
"Fox Kids Club" to incur any liability which is in excess of $200,000 and/or
(ii) calls for the performance of services on the part of the "Fox Kids Club"
over a time period in excess of one year.
16.8.2. FBC is the sole owner of all of the rights, businesses and
assets of the "Fox Kids Club" and has not heretofore transferred or assigned any
of its rights or interests therein to any third Person.
16.8.3. FBC has the right to freely assign to the Management Company
all of FBC's right, title and interest in and to rights, businesses and assets
of the "Fox Kids Club".
16.8.4. FBC is not in breach or default of any of the agreements,
written or oral, to which the "Fox Kids Club" is a party or to which the
businesses or assets of the "Fox Kids Club" are subject.
16.8.5. The aggregate liabilities of the "Fox Kids Club", both "on-
balance sheet" and "off-balance sheet," (i) do not exceed, in the aggregate,
$1,000,000 and (ii) do not include any liabilities arising after June 1, 1995
except in the ordinary course of the business of "Fox Kids Club."
16.8.6. The $5,000,000 indebtedness owed by "Fox Kids Club" to FBC
as of November 1, 1995, has been irrevocably and unconditionally forgiven by
FBC.
16.9. FOX KIDS COUNTDOWN:
------------------
16.9.1. Schedule "16.9.1" attached hereto (and incorporated herein
by this reference) sets forth a true and correct list of any and all agreements,
written or oral, to which "Fox Kids Countdown" is a party or to which the
business or assets of "Fox Kids Countdown" are subject which (i) creates any
liability on the part of "Fox Kids Countdown" or which commits or obligates
20
<PAGE>
"Fox Kids Countdown" to incur any liability which is in excess of $200,000
and/or (ii) calls for the performance of services on the part of "Fox Kids
Countdown" over a time period in excess of one year.
16.9.2. FBC is the sole owner of all of the rights, businesses and
assets of "Fox Kids Countdown" and has not heretofore transferred or assigned
any of its rights or interests therein to any third Person.
16.9.3. FBC has the right to freely assign to the Management Company
all of FBC's right, title and interest in and to rights, businesses and assets
of "Fox Kids Countdown".
16.9.4. FBC is not in breach or default of any of the agreements,
written or oral, to which "Fox Kids Countdown" is a party or to which the
businesses or assets of "Fox Kids Countdown" are subject.
16.9.5 The aggregate liabilities of "Fox Kids Countdown", both "on-
balance sheet" and "off-balance sheet", (i) do not exceed, in the aggregate,
$1,000,000 and (ii) do not include any liabilities arising after June 1, 1995
except in the ordinary course of the business of "Fox Kids Countdown".
16.10. STORY MAKERS, INC.:
------------------
16.10.1. Story Makers, Inc., a Delaware corporation ("Story"), is a
first-tier wholly-owned direct subsidiary of FCP and a second-tier wholly-owned
indirect subsidiary of FCNH Sub.
16.10.2. Schedule "16.10.2" attached hereto (and incorporated herein
by this reference) sets forth a true and correct list of any and all agreements,
written or oral, to which Story is a party or to which the business or assets of
Story are subject which (i) creates any liability on the part of Story or which
commits or obligates Story to incur any liability which is in excess of $200,000
and/or (ii) calls for the performance of services on the part of Story over a
time period in excess of one year.
16.10.3. The aggregate liabilities of Story, both "on-balance sheet"
and "off-balance sheet", (i) do not exceed, in the aggregate, $1,000,000 and
(ii) do not include any liabilities arising after June 1, 1995 except in the
ordinary course of the business of Story.
16.10.4. The $124,000 indebtedness owed by Story to FBC as of
November 1, 1995, has been irrevocably and unconditionally forgiven by FBC.
21
<PAGE>
16.11. FOX CHILDREN'S PRODUCTIONS, INC.:
--------------------------------
16.11.1. Fox Children's Productions, Inc., a Delaware corporation
("FCP"), is a first-tier wholly-owned direct subsidiary of FCNH Sub.
16.11.2. Schedule "16.11.2" attached hereto (and incorporated herein
by this reference) sets forth a true and correct list of any and all agreements,
written or oral, to which FCP is a party or to which the business or assets of
FCP are subject which (i) creates any liability on the part of FCP or which
commits or obligates FCP to incur any liability which is in excess of $200,000
and/or (ii) calls for the performance of services on the part of FCP over a time
period in excess of one year.
16.11.3. The aggregate liabilities of FCP, both "on-balance sheet"
and "off-balance sheet", (i) do not exceed, in the aggregate, $1,000,000 and
(ii) do not include any liabilities arising after June 1, 1995 except in the
ordinary course of the business of FCP.
16.12. FOX CHILDREN'S MUSIC, INC.:
--------------------------
16.12.1. Fox Children's Music, Inc., a Delaware corporation ("FC
Music"), is a first-tier wholly-owned direct subsidiary of FCN and a second-tier
wholly-owned indirect subsidiary of FCNH Sub.
16.12.2. Schedule "16.12.2" attached hereto (and incorporated herein
by this reference) sets forth a true and correct list of any and all agreements,
written or oral, to which FC Music is a party or to which the business or assets
of FC Music are subject which (i) creates any liability on the part of FC Music
or which commits or obligates FC Music to incur any liability which is in excess
of $200,000 and/or (ii) calls for the performance of services on the part of FC
Music over a time period in excess of one year.
16.12.3. The aggregate liabilities of FC Music, both "on-balance
sheet" and "off-balance sheet", (i) do not exceed, in the aggregate, $1,000,000
and (ii) do not include any liabilities arising after June 1 1995 except in the
ordinary course of the business of FC Music.
16.13. FOX KID'S MUSIC, INC.:
---------------------
16.13.1. Fox Kid's Music, Inc., a Delaware corporation ("FK Music"),
is a first-tier wholly-owned direct subsidiary of FCN and a second-tier wholly-
owned indirect subsidiary of FCNH Sub.
22
<PAGE>
16.13.2. Schedule "16.13.2" attached hereto (and incorporated herein
by this reference) sets forth a true and correct list of any and all agreements,
written or oral, to which FK Music is a party or to which the business or assets
of FK Music are subject which (i) creates any liability on the part of FK Music
or which commits or obligates FC Music to incur any liability which is in excess
of $200,000 and/or (ii) calls for the performance of services on the part of FK
Music over a time period in excess of one year.
16.13.3. The aggregate liabilities of FK Music, both "on-balance
sheet" and "off-balance sheet", (i) do not exceed, in the aggregate, $1,000,000
and (ii) do not include any liabilities arising after June 1, 1995 except in the
ordinary course of the business of FK Music.
16.14. Consents: Except as set forth on Schedule 16.14 attached hereto
--------
(and incorporated herein by this reference), neither the execution and delivery
of this Agreement by the Fox Parties nor the consummation of the transactions
pursuant hereto will require any consent, approval, or authorization of, waiver
by, notification to, or filing with, any court, governmental agency or
regulatory or administrative authority (each, a "Governmental Entity") on the
part of the Fox Group.
16.15. No Violation: The execution and delivery of this Agreement by
------------
the Fox Parties and the performance by the Fox Parties of their obligations
hereunder do not and will not (i) violate, conflict with, or constitute or
result in a breach of, any term, condition or provision of, or constitute a
default (or an event which, with notice or the lapse of time, or both, would
constitute a default) under (A) the constitutive documents of any of the Fox
Parties, or (B) any mortgage, indenture, loan or credit agreement or any other
agreement or instrument to which any of the Fox Parties is a party, or pursuant
to which any of the Fox Parties is the direct or indirect obligor, or by which
any of the Fox Parties or any of their Affiliates' properties are bound or
affected, (ii) violate any law, regulation, judgment, injunction, order or
decree binding upon any of the Fox Parties or any of their Affiliates, (iii)
result in the loss of any license, franchise, permit, legal privilege or legal
right enjoyed or possessed by any of the Fox Parties or any of their Affiliates,
or (iv) require the consent of any third Person (including a Governmental
Entity). None of the Fox Parties and none of their Affiliates are in violation
of any statute, judgement, decree, order, rule or regulation applicable to it,
which, singly or in the aggregate, has materially adversely affected or could
reasonably be expected to materially adversely affect such Person's ability to
perform its obligations hereunder.
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16.16. FCN Affiliated Stations: Schedule 9.1.1 sets forth a true and
-----------------------
correct list of all current FCN Affiliated Stations as of November 1, 1995. The
Fox Parties have heretofore provided the Management Company with a true and
correct copy of the Station Affiliation Agreement (together with any and all
Exhibits, Schedules, amendments or supplements thereto) currently in effect for
each current FCN Affiliated Station.
16.17. Undertaking re Warner Bros. Agreement: The Fox Parties shall
-------------------------------------
indemnify and hold harmless the "Management Company Indemnified Parties" (as
defined in Paragraph 18.1 below), as well as FCN and the Management Company's
Operating Entities, from and against all loss, cost, liabilities and expenses
(including, without limitation, reasonable attorneys' fees, court costs and any
judgment and settlement payments) or claims suffered by, incurred by or imposed
upon any of the foregoing Persons by reason of any penalties arising under
and/or any breach, or alleged breach, by FCN pursuant to, the May 29, 1991
"blind programming" agreement between FCN and Warner Bros. Domestic Television.
For purposes of the indemnification obligation undertaken by the Fox Parties in
this Paragraph 16.17, the indemnification provisions of 18.4 below shall apply
hereto, as if herein set forth in full and as if all of the Persons entitled to
indemnification under this Paragraph 16.17 were included in the collective term
"Management Company Indemnified Parties" (as used therein).
16.18. Designated Fox O&Os Waived Payments: The waiver by FTSI, on
-----------------------------------
behalf of the Designated Fox O&Os, of the right to receive the Designated Fox
O&Os Waived Payments pursuant to Paragraph 9.2.1: (i) will not result in the
Designated Fox O&Os Waived Payments being made available, or deemed available,
for distribution as FCN Net Profits to any other FCN Affiliated Station(s); and
(ii) will not give rise, under any FCN Affiliated Station's Station Affiliation
Agreement, to any FCN Affiliated Station having the right to challenge or claim
an interest in the dividend(s) from FCN to FCNH Sub contemplated under Section
5.9 of the Operating Agreement.
17. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE MANAGEMENT COMPANY:
-------------------------------------------------------------------
The Management Company hereby represents, warrants and covenants, as
follows:
17.1. Power as L.L.C.: The Management Company has the requisite power
---------------
and authority as a limited liability company to enter into this Agreement and to
perform it obligations hereunder.
17.2. Duly Authorized: The execution and delivery of this
---------------
Agreement by the Management Company and the consummation by
24
<PAGE>
the Management Company of the transactions contemplated hereby have been duly
authorized and no other limited liability company proceeding or consent on the
part of the Management Company is necessary to authorize this Agreement and the
transactions contemplated hereby.
17.3. Consents: Except as set forth on Schedule 17.3 attached hereto
--------
(and incorporated herein by this reference), neither the execution and delivery
of this Agreement by the Management Company nor the consummation of the
transactions pursuant hereto will require any consent, approval, or
authorization of, waiver by, notification to, or filing with, any Governmental
Entity on the part of the Management Company.
17.4. No Violation: The execution and delivery of this Agreement by
------------
the Management Company and the performance by the Management Company of its
obligations hereunder do not and will not (i) violate, conflict with, or
constitute or result in a breach of, any term, condition or provision of, or
constitute a default (or an event which, with notice or the lapse of time, or
both, would constitute a default) under (A) the constitutive documents of the
Management Company, or (B) any mortgage, indenture, loan or credit agreement or
any other agreement or instrument to which the Management Company is a party, or
pursuant to which the Management Company is the direct or indirect obligor, or
by which the Management Company's properties are bound or affected, (ii) violate
any law, regulation, judgment, injunction, order or decree binding upon any of
the Management Company, (iii) result in the loss of any license, franchise,
permit, legal privilege or legal right enjoyed or possessed by any of the
Management Company, or (iv) require the consent of any third Person (including a
Governmental Entity). The Management Company is not in violation of any statute,
judgement, decree, order, rule or regulation applicable to it, which, singly or
in the aggregate, has materially adversely affected or could reasonably be
expected to materially adversely affect the Management Company's ability to
perform its obligations hereunder.
18. INDEMNIFICATION:
---------------
18.1. The Fox Parties Indemnification of the Management Company: The Fox
---------------------------------------------------------
Parties shall indemnify and hold harmless the Management Company (and the
Management Company's Affiliates, and its and their respective directors,
officers, employees, agents, successors, assigns and licensees) (collectively,
the "Management Company Indemnified Parties") from and against all loss, cost,
liabilities and expenses (including, without limitation, reasonable attorneys'
fees, court costs and any judgment and settlement payments) or claims suffered
by, incurred by or imposed upon the Management Company Indemnified Parties by
reason of any breach by
25
<PAGE>
the Fox Parties of any of the Fox Parties' representations, warranties,
undertakings and covenants hereunder.
18.2. The Management Company's Indemnification of the Fox Parties: The
-----------------------------------------------------------
Management Company shall indemnify and hold harmless the Fox Parties (and the
Fox Parties' Affiliates, and its and their respective directors, officers,
employees, agents, successors, assigns and licensees) (collectively, the "Fox
Indemnified Parties") from and against all loss, cost, liabilities and expenses
(including, without limitation, reasonable attorneys' fees, court costs and any
judgment and settlement payments) or claims suffered by, incurred by or imposed
upon the Fox Indemnified Parties by reason of any breach by the Management
Company of any of the Management Company's representations, warranties,
undertakings and covenants hereunder.
18.3. Limitations:
-----------
(i) The parties' rights to indemnification under this Paragraph 18.
shall be available only if the party entitled to indemnification pursuant to
this Paragraph 18 delivers written notice to the party or parties required to
provide indemnification, setting forth in detail the factual basis for
indemnification and the amount thereof, or a good faith estimate thereof, sought
to be indemnified (the "Indemnification Notice"). The indemnified party or
parties shall use its or their best efforts to provide in its or their
Indemnification Notice sufficient detail to enable the indemnifying party or
parties to evaluate the claim. Except with respect to Indemnification Claims
covered by Paragraph 18.4 (which relates to third party claims), within 30 days
(the "Objection Period") of the date such Indemnification Notice is given, the
indemnifying party shall respond to the Indemnification Notice. The indemnifying
party shall be entitled to cure any default which is capable of cure during the
Objection Period, and the amount of the claim for indemnification contained in
the Indemnification Notice shall be reduced by the amount of the damages
mitigated by cure. If the indemnifying party or parties agree in writing during
the Objection Period to accept any of the claims included in the Indemnification
Notice, such party shall promptly pay the amounts so agreed upon. In all other
cases, the indemnified party or parties and the indemnifying party or parties
shall use their respective good faith reasonable efforts to resolve the dispute
within 60 days of the date such Indemnification Notice is given (the "Settlement
Period"). If the dispute is not resolved within the Settlement Period, the
parties shall be free to commence litigation to enforce their rights to
indemnification under this Paragraph 18; provided, however, that if such
-------- -------
litigation has not been commenced on or prior to twelve months following the
date such Indemnification Notice is given, all rights of the indemnified party
or parties to indemnification with respect to the matters set
26
<PAGE>
forth in that Indemnification Notice shall be deemed to have been irrevocably
waived and released by the indemnified party or parties, and shall terminate and
expire.
(ii) Notwithstanding any provisions of this Section 18. to the
contrary, the Management Company's right to indemnification for breaches of the
representations, warranties and covenants contained in Section 16 (other than
Sections 16.17 and 16.18) shall be available only if the Management Company
delivers an Indemnification Notice with respect to such claim prior to the date
which is 24 months after the date of this Agreement (the "Section 18.3.(ii)
Indemnification Period"). The rights of the Management Company to
indemnification under this Section 18 relating to any other representation,
warranty or covenant of the Fox Parties shall not be subject to the Section
18.3.(ii) Indemnification Period.
(iii) Notwithstanding any provisions of this Section 18. to the
contrary, the Fox Parties' rights to indemnification for breaches of the
representations, warranties and covenants contained in Section 17 shall be
available only if the Fox Parties deliver an Indemnification Notice with respect
to such claim prior to the date which is 24 months after the date of this
Agreement (the "Section 18.3.(iii) Indemnification Period"). The rights of the
Fox Parties to indemnification under this Section 18 relating to any other
representation, warranty or covenant of the Management Company shall not be
subject to the Section 18.3.(iii) Indemnification Period.
18.4. Defense: If any of the indemnified parties is made or threatened
-------
to be made a defendant in or party to any action or proceeding, judicial or
administrative, instituted by any third Person for the liability under which or
the costs or expenses of which any of the indemnified parties is entitled to be
indemnified pursuant to Paragraph 18 (any such third party action or proceeding
being referred to as an "Indemnification Claim"), the indemnified party or
parties shall give prompt notice thereof to the indemnifying party; provided
--------
that the failure to give such notice shall not affect the indemnified party or
parties' ability to seek indemnification hereunder unless such failure has
materially and adversely affected the indemnifying party or parties' ability to
prosecute successfully an Indemnification Claim. Each indemnified party shall
permit the indemnifying party, at its own expense, to assume the defense of any
such claim or any litigation to which this Paragraph 18.4 may be applicable, by
counsel reasonably satisfactory to the indemnified party or parties; provided,
--------
that the indemnified party or parties shall be entitled at any time, at its or
their own cost and expense (which expense shall not be recoverable from the
indemnifying party unless the indemnifying party is not adequately representing
or, because of a conflict of interest, may not adequately represent, the
indemnified party or
27
<PAGE>
parties' interests), to participate in such claim, action or proceeding and to
be represented by attorneys of its or their own choosing. If the indemnified
party or parties elects to participate in such defense, such party or parties
will cooperate with the indemnifying party in the conduct of such defense. The
indemnified party or parties may not concede, settle or compromise any
Indemnification Claim without the consent of the indemnifying party. The
indemnifying party, in the defense of any such claim or litigation, shall not,
except with the approval of each indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
or parties of a full and complete release from all liability in respect to such
claim or litigation.
19. MISCELLANEOUS:
-------------
19.1. Assignment: Neither this Agreement nor either party's rights and
----------
obligations hereunder may be assigned or otherwise transferred by the Fox
Parties or the Management Company, either voluntarily or by operation of law,
without the prior written consent of the other. Notwithstanding the foregoing
either the Fox Parties or the Management Company may assign this Agreement or
such party's rights and obligations hereunder, with or without the other's
consent, to any Person with which it may be merged or consolidated or which
acquires all or substantially all of its assets, provided that such assignee or
transferee agrees in writing to assume all of the Fox Parties' or the Management
Company's (as applicable) obligations hereunder; provided, that without the
prior written consent of the non-assigning party, the assignor shall remain
liable for its obligations hereunder. Any purported assignment or transfer by
either party of any of its rights or obligations under this Agreement other than
in accordance with the provisions of this Agreement shall be invalid and void
and shall be of no force or effect whatsoever.
19.2. References, Etc.: In this Agreement, headings are for
----------------
convenience only and shall not affect interpretation, and except to the extent
that the context otherwise requires: (i) references to any legislation or to any
provision of any legislation include any modification or re-enactment of, or any
legislative provision substituted for, and all statutory instruments issued
under, such legislation or such provision; (ii) words denoting the singular
include the plural and vice versa; (iii) words denoting individuals include
corporations and other Persons and vice versa; (iv) words denoting any gender
include all genders; (v) references to any document, agreement or other
instrument (including this Agreement) include references to such document,
agreement or other instrument as amended, novated, supplemented or replaced from
time to time; (vi) "or" is not
28
<PAGE>
exclusive; (vii) references to any party to this Agreement or any other
document, agreement or other instrument referred to herein includes its
permitted successors and assigns; and (vii) "writing" and cognate expressions
include all means of reproducing words in a tangible and permanently visible
form.
19.3. Confidentiality: All information submitted or disclosed by the Fox
---------------
Parties or the Management Company to the other (the "Recipient") in accordance
with the terms of this Agreement shall be deemed confidential, shall not be
disclosed to any third Person, and shall be protected with the same degree of
care as the Recipient uses for the protection of its own confidential and
proprietary information. Such confidentiality obligations shall not apply to
information which (i) has become available to the general public without breach
of this Agreement by the Recipient; (ii) is disclosed to the Recipient by a
third Person, without a similar restriction on such third Person's rights; (iii)
is disclosed to the Recipient's bank or other financing institution provided
that such Person agrees to keep the information confidential; (iv) is disclosed
pursuant to judicial or administrative process, or in the opinion of Recipient's
counsel, by the requirements of Law (state or federal) including, without
limitation, a filing required under the Securities Act of 1933, the Securities
Exchange Act of 1934 or any state securities law; (v) is disclosed to the
Recipient's auditors or other advisers or (vi) is disclosed, to the limited
extent required, to a third Person entitled to a profit participation in
connection with an Existing Television Series, provided that such third Person
to whom it is disclosed agrees to keep such information confidential.
19.4. Governing Law: THE TERMS OF THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE WITHIN, AND TO BE PERFORMED WITHIN, SUCH STATE, EXCLUDING
CHOICE OF LAW PRINCIPLES OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE
LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
19.5. No Adverse Construction: The rule that a contract is to be
-----------------------
construed against the party drafting the contract is hereby waived, and shall
have no applicability in construing this Agreement or the terms of this
Agreement.
19.6. Counterparts: This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. Each counterpart may
consist of a number of copies hereof, each signed by less than all, but together
signed by all, of the parties hereto.
29
<PAGE>
19.7. Costs and Attorneys' Fees: In the event that any action, suit,
-------------------------
or other proceeding is instituted concerning or arising out of this Agreement,
the prevailing party shall recover all of such party's costs and attorneys' fees
incurred in each and every such action, suit, or other proceeding, including any
and all appeals or petitions therefrom. As used herein, "attorneys' fees" shall
mean the full and actual costs of any legal services actually rendered in
connection with the matters involved, calculated on the basis of the usual fee
charged by the attorneys performing such services, and shall not be limited to
"reasonable attorneys' fees" as defined by any statute or rule of court.
19.8. Successors and Assigns: Except as otherwise provided in this
----------------------
Agreement, all rights, covenants and agreements of the parties contained in this
Agreement shall be binding upon and inure to the benefit of their respective
permitted successors and assigns.
19.9. Amendments and Waivers: Neither this Agreement nor any term
----------------------
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any term of this Agreement may be amended and the observance of any
such term may be waived (either generally or in a particular instance and either
retroactively or prospectively) with (but only with) the written consent of all
of the parties hereto; provided, however, that no such amendment or waiver shall
-------- -------
extend to or affect any obligation not expressly waived or impair any right
consequent therein. No delay or omission to exercise any right, power or remedy
accruing to any party hereto shall impair any such right, power or remedy of
such party nor be construed to be a waiver of any such right, power or remedy
nor constitute any course of dealing or performance hereunder.
19.10. Consent to Jurisdiction; Forum Selection: Any actions, suits or
----------------------------------------
proceedings instituted in connection with this Agreement or the performance by
the parties of their obligations hereunder shall be instituted and maintained
exclusively in the Superior Court for the State of California, County of Los
Angeles or in the United States District Court for the Central District of
California. By execution and delivery hereof, each party hereto hereby
consents, for itself and in respect of its property, to the jurisdiction of the
aforesaid courts solely for the purpose of adjudicating its rights or
obligations under, or any disputes involving, this Agreement or any document
related hereto. Each party hereto hereby irrevocably waives, to the extent
permitted by applicable law, any objection, including, without limitation, any
objection that the other corporate party or parties lack the capacity to sue or
defend based upon its or their lack of a certificate of qualification to conduct
intrastate business in California, and any objection to the laying of venue or
based on
30
<PAGE>
the grounds of forum non conveniens, which it may now or hereafter have
----- --- ----------
to the bringing of any action or proceeding in such jurisdiction in respect of
this Agreement or any document related hereto.
19.11. Capital Contribution: For purposes of this Agreement, all
--------------------
rights, assets, monies and obligations transferred, assigned or delegated to the
Management Company under or pursuant to this Agreement by any party hereto other
than FBC shall constitute part of the capital contribution obligation of FBC
under and pursuant to Section 1.2 of the LLC Formation Agreement, and, as
between the Fox Parties, shall constitute a direct or indirect contribution to
the capital of FBC.
19.12. Notice: Any notice or demand which either the Management Company
------
or the Fox Parties is required, or may desire, to give to the other shall be in
writing and shall be given by addressing the same to the other at the address
hereinafter set forth, or at such other address as may be designated in writing
by any such party by notice given to the other in the manner prescribed in this
Paragraph 19.12 and shall be deemed given by being so addressed and (i)
delivered personally, (ii) deposited postage prepaid in the United States mail,
(iii) delivered to a telegraph or cable company toll prepaid or (iv) sent by
telecopy (or telefax), and the date of said personal delivery, deposit,
telegraphing or the sending of such telecopy shall be the date of the giving of
such notice; provided, however, that any notice alleging a default must be given
by the means set forth in (i), (iii) or (iv) above. Any notice or demand to
the Management Company shall be addressed as follows:
Fox Kids Worldwide, L.L.C.
c/o Fox Children's Network, Inc.
10201 W. Pico Boulevard
Los Angeles, California 90035
Attn: Margaret Loesch
and
Fox Kids Worldwide, L.L.C.
c/o Saban Entertainment, Inc.
10960 Wilshire Boulevard
Los Angeles, California 90024
Attn: Haim Saban
31
<PAGE>
With a copy to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard
Suite 800
Los Angeles, California 90024
Attention: Richard E. Troop, Esq.
Fax: (310) 443-8503
Any notice or demand to the Fox Parties shall be addressed as follows:
c/o Fox, Inc.
10201 W. Pico Boulevard
Los Angeles, CA 90035
SVP Legal Affairs
Fox Television Group
Attention: Jay Itzkowitz, Esq.
Fax: (310) 369-2572
With a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Harvey Horowitz, Esq.
Fax: (212) 697-6686
19.13. Severability: If any provision of this Agreement shall, for any
------------
reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein. If,
moreover, any restriction or other provision of this Agreement shall for any
reason be held to be too broad as to duration, geographical scope, activity or
subject, it shall be construed by limiting and reducing such provision or
restriction so as to be enforceable to the extent compatible with applicable
law, the parties hereby agreeing that said restrictions and other provisions of
this Agreement are fair and reasonable as at the date hereof. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
19.14. No Third Party Beneficiaries: Except as expressly otherwise
----------------------------
provided to the contrary in Paragraph 18.1 for the benefit of the Management
Company Indemnified Parties and the Fox Indemnified Parties, as applicable, this
Agreement is not for the
32
<PAGE>
benefit of any third party and shall not be deemed to give any right or remedy
to any such party whether referred to herein or not.
19.15. Audit Rights: The Management Company shall have the right, upon
------------
reasonable advance notice during normal business hours, to audit the books and
records of the Fox Parties for the limited purpose of ensuring the Fox Parties
compliance with their obligations hereunder.
19.16. Further Assurances: Each party to this Agreement agrees to
------------------
execute, acknowledge, deliver, file and record such further certificates,
amendments, instruments, agreements and documents, and to do all such other acts
and things, as may be required by Law or as may reasonably be necessary or
advisable to carry out the intent and purposes of this Agreement.
19.17. Entire Agreement: This Agreement, the attached Exhibits and
----------------
Schedules, together contain the entire understanding of the parties, and there
are no further or other agreements or understandings, written or oral, in effect
between the parties relating to the subject matter hereof unless expressly
referred to herein. No party to this Agreement makes any representation or
warranty except as expressly set forth herein.
33
<PAGE>
IN WITNESS WHEREOF, the Management Company and the Fox Parties have
executed this Agreement as of the date first above written.
FOX KIDS WORLDWIDE, L.L.C.
By: /s/ Haim Saban
----------------------------------
Its: Senior Executive - Saban Entertainment
FOX BROADCASTING COMPANY
By: /s/ Jay Itzkowitz
----------------------------------
Its: Senior Vice President
TWENTIETH CENTURY FOX FILM CORPORATION
By: /s/ Jay Itzkowitz
----------------------------------
Its: Secretary
FOX TELEVISION STATIONS, INC.
By: /s/ Jay Itzkowitz
----------------------------------
Its: Senior Vice President
FOX, INC.
By: /s/ Jay Itzkowitz
----------------------------------
Its: Senior Vice President
FCN HOLDING, INC.
By: /s/ Jay Itzkowitz
----------------------------------
Its: Senior Vice President
34
<PAGE>
EXHIBIT "A"
DEFINITIONS
As used in the Asset Assignment Agreement (and the other Exhibits and Schedules
thereto) to which this Exhibit "A" is attached, the following terms shall have
the following meanings:
(a) "Administration Agreement" shall have the meaning ascribed thereto in
--------------------------
Paragraph 10.1 of the Agreement.
(b) "Affiliate" means, when used with reference to a specified Person, any
-----------
Person that directly or indirectly through one or more intermediaries controls
or is controlled by, or is under common control with, the specified Person.
(c) "Affiliate Board" shall mean the Fox Broadcasting Company Affiliates'
-----------------
Association Board of Governors.
(d) "Affiliate Time" shall mean any commercial time occurring during FCN
----------------
Programming which has been allocated by FCN to the FCN Affiliated Stations, but
for which FCN has been appointed, by the Affiliate Board, to administer the sale
thereof on a national basis.
(e) "Affiliated Station" shall mean a Station which is party to a Station
--------------------
Affiliation Agreement with FBC.
(f) "Agreement" shall mean the Asset Assignment Agreement to which this
-----------
Exhibit "A" is attached, including all Exhibits thereto.
(g) "Business Acquisition" shall have the meaning ascribed thereto in
----------------------
Paragraph 12.2.(a) of the Agreement.
(h) "Control" (including as used in the terms "controlling", "controlled
---------
by" and "under common control with") shall mean the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract (whether written or oral) or otherwise.
(i) "Designated Fox O&Os" shall mean and refer to the following Stations
---------------------
which are currently owned and operated by FTSI: WNYW (New York), KTTV (Los
Angeles), WFLD (Chicago), KRIV (Houston), WTTG (Washington, D.C.), KSTU (Salt
Lake City), WTXF (Philadelphia) and WFXT (Boston).
1
<PAGE>
(j) "Designated Fox O&Os Waived Payments" shall have the meaning ascribed
-------------------------------------
thereto in Paragraph 9.2.1 of the Agreement.
(k) "Distribution Agreement" shall have the meaning ascribed thereto in
------------------------
Paragraph 3.1 of the Agreement.
(l) "Excepted Liens", with respect to any particular asset(s), business(es)
----------------
or interest(s), shall mean liens which do not materially impair or diminish the
value of the particular asset(s), business(es) or interest(s) at issue.
(m) "Excluded Fox O&Os" shall have the meaning ascribed thereto in
-------------------
Paragraph 9.4.4 of the Agreement.
(n) "Exhibition" shall mean distribution, transmission, display,
------------
exhibition or performance and "Exhibit" shall mean to cause the Exhibition.
--------
(o) "Existing Distribution Licenses" shall have the meaning ascribed
--------------------------------
thereto in Paragraph 16.5.2 of the Agreement.
(p) "Existing Merchandising Licenses" shall have the meaning ascribed
---------------------------------
thereto in Paragraph 16.4.2 of the Agreement.
(q) "Existing Series Properties" shall have the meaning ascribed thereto in
----------------------------
Paragraph 4.1 of the Agreement.
(r) "Exploitation" shall include, without limitation, Exhibition,
--------------
dissemination, publication, promotion, publicizing, advertising, reproduction,
rental, lease, license, sublicense, transfer, disposing of, commercializing,
merchandising, marketing, usage, trading in, turning to account, dealing with
and in and otherwise exploiting by all means, methods, modes, processes, media
devices and delivery systems of every kind and character (whether now known or
hereafter created), and "Exploit" shall mean to cause the Exploitation.
--------
(s) "FBC" shall mean Fox Broadcasting Company, a Delaware corporation.
-----
(t) "FCN" shall mean Fox Children's Network, Inc., a Delaware corporation.
-----
(u) "FCN Affiliated Station" shall mean an Affiliated Station which
------------------------
carries the FCN Programming.
(v) "FCN Net Profits" shall mean the compensation paid by FBC to its
-----------------
Affiliated Stations with respect to the "Net Profits" of FCN programming, as
determined in accordance with FBC's current, standard, performance-based station
compensation formula (as
2
<PAGE>
modified to reflect a ratings base of kids) (or such other methodology as FBC,
FCN and the Management Company shall hereafter mutually determine).
(w) "FCN Programming" shall mean the programming made available by FCN to
-----------------
FCN Affiliated Stations for broadcasting in the United States.
(x) "FCNH" shall mean FCN Holdings, Inc., a Delaware corporation.
------
(y) "FCNH Sub" shall mean FCNH Sub, Inc., a Delaware corporation and a
----------
wholly-owned subsidiary of FCNH.
(z) "First Run Exhibition Offer" shall have the meaning ascribed thereto
----------------------------
in Paragraph 12.3.(a) of the Agreement.
(aa) "Fox" shall mean Fox, Inc., a Colorado corporation.
-----
(ab) "Fox Group" shall mean, collectively, the Fox Parties and any and all
-----------
Affiliates of the Fox Parties; provided, that for purposes of this Agreement,
the "Fox Group" shall not include FCN (or any division or wholly-owned
subsidiary of FCN); provided further, that the parties expressly acknowledge and
agree that, for purposes of this Agreement, the Management Company shall not be
included in the Fox Group.
(ac) "Fox Indemnified Parties" shall have the meaning ascribed thereto in
-------------------------
Paragraph 18.2 of the Agreement.
(ad) "Fox Licensing" shall mean Fox Licensing and Merchandising, an
---------------
unincorporated unit of Fox.
(ae) "Fox O&O" shall mean the Stations in the United States which are, from
---------
time to time, owned and operated by the Fox Group.
(af) "Fox Partner" shall mean the member of the Fox Group which, from
-------------
time-to-time, holds the Fox Group's interest in the Management Company;
currently, FCNH is the Fox Partner.
(ag) "FTSI" shall mean Fox Television Stations, Inc., a Delaware
------
corporation.
(ah) "Governmental Entity" shall have the meaning ascribed thereto in
---------------------
Paragraph 16.14 of the Agreement.
(ai) "Indemnification Claim" shall have the meaning ascribed thereto in
-----------------------
Paragraph 18.4 of the Agreement.
3
<PAGE>
(aj) "Indemnification Notice" shall have the meaning ascribed thereto in
------------------------
Paragraph 18.3 of the Agreement.
(ak) "Kids Service" shall have the meaning ascribed thereto in Paragraph
--------------
11. of the Agreement.
(al) "Laws" shall mean any present or future statute or ordinance, whether
------
municipal, county, state, national or territorial; any executive, administrative
or judicial regulation, order, judgment or decree; any treaty or international
convention; any rule or principle of common law or equity, or any requirement
with force of law.
(am) "Lien" means, with respect to any asset, any mortgage, lien, pledge,
------
charge, security interest or encumbrance of any kind in respect to such asset.
For purposes of the Agreement, any Person shall be deemed to own, subject to a
Lien, any asset which it has acquired or holds, subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
(an) "LLC Formation Agreement" shall mean the LLC Formation Agreement dated
-------------------------
as of November 1, 1995 among SEI, FBC and FCNH.
(ao) "Management Company" shall mean Fox Kids Worldwide L.L.C., a Delaware
--------------------
limited liability company.
(ap) "Management Company Indemnified Parties" shall have the meaning
----------------------------------------
ascribed thereto in Paragraph 18.2 of the Agreement.
(aq) "MC Programming" shall have the meaning ascribed thereto in Paragraph
----------------
13.1 of the Agreement.
(ar) "Merchandising Agreement" shall have the meaning ascribed thereto in
-------------------------
Paragraph 2.1 of the Agreement.
(as) "New Kids Programming" shall have the meaning ascribed thereto in
----------------------
Paragraph 12.3.(a) of the Agreement.
(at) "Non-Standard Television" shall mean and refer to any and all means of
-------------------------
television Exhibition, other than Standard Broadcast Television, whether now
known or hereafter derived and regardless of the mode or method of delivery;
without limiting the generality of the foregoing, "Non-Standard Television"
shall include pay cable, basic cable, pay-per-view, satellite delivered, DBS,
STV, MDS, MMDS, SMATV and so-called "on demand" television.
(au) "Offered Programming Service" shall have the meaning ascribed thereto
-----------------------------
in Paragraph 12.1.(a) of the Agreement.
4
<PAGE>
(av) "Operating Agreement" shall mean the Operating Agreement dated
---------------------
concurrently herewith among SEI, FBC and FCNH Sub.
(aw) "Operating Entities", when used with reference to the Management
--------------------
Company, shall have the meaning ascribed thereto in the LLC Formation Agreement.
(ax) "Person" includes an individual, partnership, trust, corporation,
--------
joint venture, limited liability company, association, government bureau or
agency or other entity of whatsoever kind or nature.
(ay) "Programming Service Offer" shall have the meaning ascribed thereto in
---------------------------
Paragraph 12.1.(a) of the Agreement.
(az) "Proportionate Price" shall have the meaning ascribed thereto in
---------------------
Paragraph 12.2.(a) of the Agreement.
(ba) "Required Third Party Services" shall have the meaning ascribed
-------------------------------
thereto in Paragraph 13.2 of the Agreement .
(bb) "Required Third Party Services Offer" shall have the meaning ascribed
-------------------------------------
thereto in Paragraph 13.2.(a) of the Agreement.
(bc) "Revised First Run Exhibition Offer" shall have the meaning ascribed
------------------------------------
thereto in Paragraph 12.3.(d) of the Agreement.
(bd) "Revised Programming Service Offer" shall have the meaning ascribed
-----------------------------------
thereto in Paragraph 12.1.(c) of the Agreement.
(be) "Revised Required Third Party Services Offer" shall have the meaning
---------------------------------------------
ascribed thereto in Paragraph 13.2.(c) of the Agreement.
(bf) "Revised Service Acquisition Offer" shall have the meaning ascribed
-----------------------------------
thereto in Paragraph 12.2.(d) of the Agreement.
(bg) "Saban" shall have the meaning ascribed to such term in the Operating
-------
Agreement.
(bh) "Saban Group" shall mean, collectively, SEI and any and all Affiliates
-------------
of SEI; provided, that for purposes of this Agreement, the "Saban Group" shall
not include FCN (or any division or wholly-owned subsidiary of FCN); provided
further, that the parties expressly acknowledge and agree that, for purposes of
this Agreement, the Management Company shall not be included in the Saban Group.
(bi) "SEI" shall mean Saban Entertainment, Inc., a Delaware corporation.
-----
5
<PAGE>
(bj) "Settlement Period" shall have the meaning ascribed thereto in
-------------------
Paragraph 18.3 of the Agreement.
(bk) "Standard Broadcast Television" shall mean television Exhibition over
-------------------------------
standard VHF and/or UHF frequencies, the video and audio portions of which are
intelligibly receivable without charge for such reception by means of a standard
home television set.
(bl) "Station" shall mean an over-the-air television station broadcasting
---------
over standard VHF and/or UHF frequencies.
(bm) "Station Affiliation Agreement" shall refer to an agreement between
-------------------------------
FBC (on its own behalf and/or on behalf of FCN) and the Station which is other
party thereto for the carriage of FBC programming (and/or FCN Programming) over
the facilities of such Station.
(bn) "Twentieth" shall mean Twentieth Century Fox Film Corporation, a
-----------
Delaware corporation.
END OF EXHIBIT "A"
6
<PAGE>
LIST OF EXHIBITS/SCHEDULES TO ASSET ASSIGNMENT AGREEMENT
EXHIBIT "A" -- DEFINITIONS
EXHIBIT "B" -- FOX LICENSE AGREEMENT
EXHIBIT "C-1" -- FORM OF FBC STATION AFFILIATION AGREEMENT
EXHIBIT "D" -- INDEMNIFICATION AGREEMENT
EXHIBIT "E" -- MERCHANDISING AGREEMENT
EXHIBIT "F" -- DISTRIBUTION AGREEMENT
EXHIBIT "G" -- ADMINISTRATION AGREEMENT
SCHEDULE 4.1 -- EXISTING SERIES PROPERTIES
SCHEDULE 9.1.1 -- CURRENT CLEARANCE ARRANGEMENTS
SCHEDULE 9.2.1 -- AMENDMENTS TO STATION AFFILIATION
AGREEMENTS
SCHEDULE 9.2.3 -- DROPPED STATION PERCENTAGES
SCHEDULE 13.2 -- FOX DISTRIBUTION SERVICES
SCHEDULE 16.4.2 - EXISTING MERCHANDISING LICENSES
SCHEDULE 16.5.2 - EXISTING DISTRIBUTION LICENSES
SCHEDULE 16.8.1 - FOX KIDS CLUB
SCHEDULE 16.9.1 - FOX KIDS COUNTDOWN
SCHEDULE 16.10.2 - STORY MAKERS, INC.
SCHEDULE 16.11.2 - FOX CHILDREN'S PRODUCTIONS, INC.
SCHEDULE 16.12.2 - FOX CHILDREN'S MUSIC, INC.
SCHEDULE 16.13.2 - FOX KIDS MUSIC, INC.
SCHEDULE 16.14 -- CONSENTS
SCHEDULE 17.3 -- CONSENTS
1
<PAGE>
EXHIBIT 10.16
MANAGEMENT AGREEMENT
This Management Agreement (the "Agreement") is made and entered into as of
December 22, 1995, by and among FOX KIDS WORLDWIDE, L.L.C., a Delaware limited
liability company (the "Management Company"), Saban Entertainment, Inc., a
Delaware corporation ("SEI"), and FCNH Sub, Inc., a Delaware corporation ("FCNH
Sub").
R E C I T A L S
- - - - - - - -
A. The stockholders of SEI and the parent corporation of FCNH Sub,
in order to maximize the long-term strategic values of their respective
corporations, have determined that it would be in their respective best
interests to achieve this objective by entering into a strategic alliance for
the purpose of sharing with each other their respective strengths, to the mutual
benefit of all of them, and, in connection therewith, SEI, FCN Holding, Inc., a
Delaware corporation ("FCNH") and Fox Broadcasting Company, Inc., a Delaware
corporation ("FBC"), have formed the Management Company.
B. SEI desires to appoint and retain the Management Company to provide
advice, assistance and services to SEI in the manner and on the terms
hereinafter set forth.
C. FCNH Sub desires to appoint and retain the Management Company to
provide advice, assistance and services to FCNH Sub in the manner and on the
terms hereinafter set forth.
D. The Management Company desires to perform such services in the manner
and on the terms and conditions hereinafter set forth.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing facts and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Irrevocable Engagement of Management Company.
--------------------------------------------
(a) By SEI. SEI irrevocably appoints, employs and retains the
------
Management Company to manage, control and supervise, in all respects and
particulars, SEI, and, acting through the Board of Directors, officers and
employees of SEI, the current and future Subsidiaries of SEI, and the business,
activities, operations, assets, obligations and liabilities of SEI and such
Subsidiaries.
<PAGE>
The rights, powers and duties of the Management Company hereunder shall, to the
maximum extent permitted by law, and subject to any contractual obligations of
SEI, include any and all rights, powers and obligations with respect to SEI
which, under Delaware law, are granted to the shareholders, board of directors
and/or executive officers of SEI; and SEI hereby assigns and delegates to the
Management Company all of such rights, powers and obligations. The Management
Company accepts such appointment, and agrees to faithfully perform and render
the services and assume the obligations assigned and delegated to it as
hereinabove and elsewhere herein provided.
(b) By FCNH Sub. FCNH Sub irrevocably appoints, employs and retains
-----------
the Management Company to manage, control and supervise, in all respects and
particulars, FCNH Sub and, acting through the Board of Directors, officers and
employees of FCNH Sub, the current and future Subsidiaries of FCNH Sub, and the
business, activities, operations, assets, obligations and liabilities of FCNH
Sub and such Subsidiaries. The rights, powers and duties of the Management
Company shall, to the maximum extent permitted by law, and subject to any
contractual obligations of FCNH Sub or its Subsidiaries, include any and all
rights, powers and obligations with respect to FCNH Sub or its Subsidiaries
which, under Delaware law, are granted to the shareholders, board of directors
and/or executive officers of FCNH Sub and its Subsidiaries; and FCNH Sub and its
Subsidiaries hereby assigns and delegates to the Management Company all of such
rights, powers and obligations. The Management Company accepts such appointment,
and agrees to faithfully perform and render the services and assume the
obligations assigned and delegated to it as hereinabove and elsewhere herein
provided.
(c) SEI and FCNH; Third Party Beneficiary. SEI and FCNH, the parent
-------------------------------------
of FCNH Sub, are Class B Members of the Management Company, and each has a
significant and substantial interest in assuring the continued validity and
operation of this Agreement. Accordingly, no provision of this Agreement may be
amended or modified in any degree or particular, without the prior written
approval of both SEI and FCNH.
(d) Strategic Stockholders Agreement. In furtherance of the
--------------------------------
assignment and delegation of management rights, powers and obligations pursuant
to this Agreement, the stockholders of SEI, FCNH, FCNH Sub and FBC (which is the
sole stockholder of FCNH) have entered into a Strategic Stockholders Agreement
of even date herewith, providing, inter alia, for such stockholders to take any
----- ----
and all actions necessary as stockholders of SEI and FCNH Sub to cause this
Agreement to be fully performed.
2. Services to be Performed. The Management Company shall from time to
------------------------
time perform, and undertake to perform, such of the rights, powers and
obligations of SEI and FCNH Sub as are from time
2
<PAGE>
to time determined to be necessary, appropriate or proper pursuant to the
provisions of the Operating Agreement of the Management Company dated as of the
date hereof, as the same may from time to time be amended (the "Operating
Agreement"). Notwithstanding anything to the contrary contained in this Section
2 or in any other provision of this Agreement, the Management Company shall have
no right or authority to exercise any of the rights of SEI, FCNH or FBC under
the Operating Agreement in their capacity as Members of the Management Company.
3. Compensation. For the services to be rendered by the Management
------------
Company. SEI and FCNH Sub shall pay to the Management Company compensation at
the annual rate from time to time agreed to by SEI and FCNH Sub, on the one
hand, and the Management Company, on the other hand.
4. Term. This Agreement shall remain in effect until the date of
----
termination of the Management Company pursuant to the Operating Agreement.
5. Services of Management Company Not Exclusive. The services of the
--------------------------------------------
Management Company to SEI and FCNH Sub are not to be deemed exclusive, and the
Management Company shall, subject to the terms and provisions of the Operating
Agreement, be free to engage in any other business or to render similar services
to others so long as its services hereunder are not impaired thereby. The
Management Company assumes no responsibility under this Agreement other than to
render the services and undertake the obligations and duties called for
hereunder in good faith.
6. Miscellaneous Provisions.
------------------------
(a) Notices. All notices, demands or other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given (i) if delivered
in person, upon delivery thereof, or (ii) if mailed, certified first class mail,
postage pre-paid, with return receipt requested, on the fifth day after the
mailing, or (iii) if sent by telex or facsimile transmission, with a copy mailed
on the same day in the manner provided in (ii) above, when transmitted and
receipt is confirmed by telephone or telex or facsimile response, or (iv) if
otherwise actually delivered, when delivered:
3
<PAGE>
i) if to FCNH Sub:
FCNH Sub, Inc.
10201 West Pico Boulevard
SVP Legal Affairs
Fox Television Group
Los Angeles, CA 90035
Attention: Jay Itzkowitz, Esq.
Fax: (310) 369-2572
With a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Harry Horowitz, Esq.
Fax: (212) 697-6686
ii) If to SEI:
Saban Entertainment, Inc.
10960 Wilshire Boulevard
Los Angeles, CA 90024
Attention: Haim Saban, Chief Executive Officer
Fax: (310) 235-5108
With a copy to:
Matthew G. Krane, Esq.
2051 Hercules Drive
Los Angeles, CA 90046
Fax: (213) 851-1178
and with a copy to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard, Suite 800
Los Angeles, California 90024
Attention: Richard E. Troop, Esq.
Fax: (310) 443-8503
iii) if to the Management Company, to the
registered agent in the State of Delaware and with a copy to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard, Suite 800
Los Angeles, California 90024
Attention: Richard E. Troop, Esq.
Fax: (310) 443-8503
4
<PAGE>
With a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Harry Horowitz, Esq.
Fax: (212) 697-6686
(b) Governing Law. THE TERMS OF THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE WITHIN, AND TO BE PERFORMED WITHIN, SUCH STATE, EXCLUDING
CHOICE OF LAW PRINCIPLES OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE
LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
(c) No Adverse Construction. The rule that a contract is to be
-----------------------
construed against the party drafting the contract is hereby waived, and shall
have no applicability in construing this Agreement or the terms of this
Agreement.
(d) Costs and Attorneys' Fees. In the event that any action, suit, or
-------------------------
other proceeding is instituted concerning or arising out of this Agreement, the
prevailing party shall recover all of such party's costs, and attorneys' fees
incurred in each and every such action, suit, or other proceeding, including any
and all appeals or petitions therefrom. As used herein, "attorneys' fees" shall
mean the full and actual costs of any legal services actually rendered in
connection with the matters involved, calculated on the basis of the usual fee
charged by the attorneys performing such services, and shall not be limited to
"reasonable attorneys' fees" as defined by any statute or rule of court.
(e) Amendments and Waivers. Neither this Agreement nor any term
----------------------
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any term of this Agreement may be amended and the observance of any
such term may be waived (either generally or in a particular instance and either
retroactively or prospectively) with (but only with) the written consent of all
parties hereto; provided, however, that no such amendment or waiver shall extend
to or affect any obligation not expressly waived or impair any right consequent
therein. No delay or omission to exercise any right, power or remedy accruing to
any party hereto shall impair any such right, power or remedy of such party nor
be construed to be a waiver of any such right, power or remedy nor constitute
any course of dealing or performance hereunder.
(f) Definitions. As used in this Agreement, "Person" includes an
-----------
individual, partnership, trust, corporation, joint venture, limited liability
company, association, government bureau or agency or other entity of whatsoever
kind or nature; and "Subsidiary" of a Person means (i) any corporation of which
equity
5
<PAGE>
securities possessing a majority of the ordinary voting power in electing the
Board of Directors are, at the time as of which such determination is being
made, owned by such Person either directly or through one or more Subsidiaries,
and (ii) any Person (other than a corporation) in which such Person, or any
Subsidiary or Subsidiaries, directly or indirectly, has more than a 50%
ownership interest.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
FOX KIDS WORLDWIDE, L.L.C.
By: /s/ Haim Saban
------------------------------
Its: _________________________
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SABAN ENTERTAINMENT, INC.
By: /s/ Haim Saban
------------------------------
Haim Saban
Its: Chief Executive Officer
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
FCNH Sub, Inc.
By: /s/ Jay Itzkowitz
------------------------------
Its: Senior Vice President
FCN Holding, Inc.
By: /s/ Jay Itzkowitz
------------------------------
Its: Senior Vice President
8
<PAGE>
CONSENT OF STOCKHOLDERS OF SEI AND FCNH SUB.
--------------------------------------------
The undersigned, constituting all of the stockholders of SEI, do hereby
consent to the execution and delivery of the foregoing Management Agreement, and
confirm that such Agreement is, pursuant
to the provisions of Subchapter XIV of the Delaware General Corporation Law, a
valid and fully enforceable agreement.
DATED: _______________ /s/ Haim Saban
-----------------------------------
Haim Saban
QUARTZ ENTERPRISES, L.P.
By: /s/ Stan Golden
------------------------------
______________________________
MERLOT INVESTMENTS
By: /s/ Bill Josey
------------------------------
______________________________
SILVERLIGHT ENTERPRISES, L.P.
By: /s/ Mel Woods
------------------------------
______________________________
9
<PAGE>
CELIA ENTERPRISES, L.P.
By: /s/ Matthew Krane
------------------------------
______________________________
10
<PAGE>
Exhibit 10.17
Portions of this exhibit have been deleted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment. The redacted portions are identified by brackets with the character
"X" indicating deleted information.
<PAGE>
EXHIBIT 10.17
STOCK OWNERSHIP AGREEMENT
THIS STOCK OWNERSHIP AGREEMENT (the "Agreement") is made and entered into
as of December 22, 1995 by and among Haim Saban ("Saban"), each of the entities
listed on Schedule 1.1(a) hereto (the "SEI Entities" and, with Saban, the "SEI
Stockholders") and FOX KIDS WORLDWIDE, L.L.C., a Delaware limited liability
company (the "Management Company").
R E C I T A L S
- - - - - - - -
A. Concurrent with the execution of this Agreement, the parties have
entered into that certain Strategic Stockholders Agreement, which agreement is
intended, among other things, to enable the SEI Stockholders and FBC to maximize
the long-term strategic values of their respective corporations. Such
agreement, as the same may be amended from time to time, is referred to herein
as the "Strategic Stockholders Agreement." Terms defined in the Strategic
Stockholders Agreement which are not defined herein shall have the same meanings
when used herein.
B. Under the provisions of Section 6 of the Strategic Stockholders
Agreement, the parties have agreed, on the terms and conditions therein set
forth, to form a Successor Entity (herein, regardless of the form of such
Successor Entity, the "Corporation") in connection with the Initial Public
Offering.
C. The Management Company desires to acquire, and the SEI
Stockholders desire to sell, an option to acquire all of the SEI Option Shares
(as defined below), all on the terms and conditions contained herein.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of foregoing premises and of the mutual
covenants and agreements contained in this Agreement, and subject to the terms
and conditions set forth herein, the parties to this Agreement hereby agree as
follows:
1. Call Option.
-----------
1.1 Call Option.
-----------
(a) (i) In consideration for the payment in full to the SEI
Stockholders of the "Call Option Payment," as provided in Section 1.1(a)(ii)
hereof, the SEI Stockholders hereby severally grant to the Management Company
the right and option (the "Call Option") to purchase, upon the occurrence of any
of the "Call Triggering Events" described below, (x) with respect to any Call
<PAGE>
Triggering Event which occurs prior to the Initial Public Offering, all, and not
less than all, of the SEI Common Stock owned by the SEI Stockholders or any of
their transferees (other than FBC); and (y) with respect to any Call Triggering
Event which occurs thereafter, all Shares of the Successor Entity which,
pursuant to Section 6(b) of the Strategic Stockholders Agreement, are deemed to
be shares of SEI Common Stock and which are owned by the SEI Stockholders or any
of their transferees (other than FBC and excluding Shares transferred pursuant
to Section 3(a)(i) or 3(a)(ii) of the Strategic Stockholders Agreement); (the
Shares subject to the Call Option are referred to herein as the "SEI Option
Shares").
(ii) Concurrently with the execution and delivery of this Agreement,
the Management Company has paid to the SEI Stockholders an aggregate of SIXTY-
FOUR MILLION FIVE HUNDRED THOUSAND DOLLARS ($64,500,000), in amounts set forth
on Schedule 1.1(a) hereof, by wire transfer of immediately available funds to
the bank accounts designated by the SEI Stockholders on Schedule 1.1(a) hereto
(the "Initial Payment"). The Management Company agrees to pay, without offset,
to the order of the SEI Stockholders, on or prior to June 30, 1996, an aggregate
of an additional FIFTEEN MILLION SIX HUNDRED THOUSAND DOLLARS ($15,600,000) (the
"Additional Payment"), together with interest on the unpaid balance thereof from
February 20, 1996, to the extent that such amount has not been paid in full on
or prior to February 20, 1996, at the rate of 7% per annum; any amounts paid by
the Management Company pursuant to this sentence shall be applied first to any
accrued but unpaid interest, with the balance applied against the unpaid amount
of the Additional Payment. All payments with respect to the Additional Payment
shall be made by wire transfer of immediately available funds to the bank
accounts designated by the SEI Stockholders on Schedule 1.1(a) hereto, and shall
be allocated among the SEI Stockholders pro rata in the same percentages as the
--- ----
percentage of the Initial Payment allocated to each SEI Stockholder in Schedule
1.1(a) hereto bears to the total aggregate Initial Payment. The sum of the
Initial Payment, the Additional Payment, and interest, if any, payable thereon
is referred to in this Agreement as the "Call Option Payment."
(b) The "Call Triggering Events," and the time periods for delivery of
election notices with respect thereto, shall be as follows:
(x) death of Saban prior to the 17th anniversary of the date
of this Agreement -- 12 calendar months following death;
(y) upon delivery of written notice by the Management
Company of exercise of the Call Option at any time on or after the
seventh anniversary of the date of this Agreement and on or prior to
the seventeenth anniversary of the date of this Agreement -- notice
may be given at any time during the period; or
2
<PAGE>
(z) upon receipt by FBC of written notice from Saban of his
election pursuant to Section 7(a)(i) of the Strategic Stockholders
Agreement to cause a Call Triggering Event hereunder -- notice must be
given within 20 business days after receipt of Saban's notice.
The date of the Call Triggering Event to which the exercise of the Call
Option relates shall be the "Effective Date" of the Call Option; provided,
--------
that the Effective Date of a Call Triggering Event under (z), above, shall
be the Effective Date of the option under Section 7(a) of the Strategic
Stockholders Agreement to which the notice effecting such Call Triggering
Event relates. The failure or decision not to exercise the Call Option
upon the occurrence of any Call Triggering Event shall not affect FBC's
right to exercise the Call Option on any subsequent Call Triggering Event.
(c) The Call Option Payment is payment in consideration for the grant
of the Call Option, and shall not be a credit against, or a deduction from, the
purchase price payable to the SEI Stockholders upon the sale of Shares pursuant
to the exercise of the Call Option.
1.2 [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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(i) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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<PAGE>
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(iii) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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(iv) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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1.3 Option Closing. The closing of the purchase and sale of the SEI
--------------
Option Shares pursuant to this Section 1 shall take place at such time and place
as Saban and the Management Company shall mutually agree upon; provided, that
--------
the date of closing shall be five business days following the later of (i) the
date of final determination of Fair Market Value; and (ii) if the purchase and
sale of such Shares requires the obtaining of any material regulatory approvals
or compliance with any other material laws or regulations, the date upon which
all such approvals shall have been obtained, and such compliance effected;
provided further, however, that if through no fault of the SEI Stockholders,
- -------- -------
the Management Company is unable fully to satisfy all conditions of clause (ii)
within 3 calendar months of the date of final determination of Fair Market
Value, then the Management Company shall on the first business day following the
end of such 3-month period pay and deliver to the holders of the SEI Option
Shares an amount equal to the per share purchase price for such Shares, and the
holders of the SEI Option Shares shall enter into such agreements with respect
to the subsequent voting and transfer of such Shares as the Management Company
shall reasonably request, including the agreement at any time thereafter to
transfer such Shares, without receipt of further consideration, to such Person
or Persons as may be designated by the Management Company. At the closing, each
of the holders of the SEI Option Shares shall deliver to the Management Company
documents of transfer in form and substance reasonably acceptable to the
Management Company and its counsel, necessary to vest in the Management Company
good and marketable title to the SEI Option Shares so sold by the holder
thereof, free and clear of any and all Liens, other than those imposed under or
pursuant to this Agreement, against delivery by the Management Company to such
holder of the purchase price therefor, payable, at the election of Saban, by
either (x) bank cashiers' checks in immediately available funds payable to the
order of the selling holders, or (y) wire transfer of immediately available
funds to an account or accounts designated by Saban.
2. Miscellaneous Provisions.
------------------------
4
<PAGE>
(a) In this Agreement, headings are for convenience only and shall not
affect interpretation, and except to the extent that the context otherwise
requires: (a) references to any legislation or to any provision of any
legislation include any modification or re-enactment of, or any legislative
provision substituted for, and all statutory instruments issued under, such
legislation or such provision; (b) words denoting the singular include the
plural and vice versa; (c) words denoting individuals include corporations and
other Persons and vice versa; (d) words denoting any gender include all genders;
(e) references to any document, agreement or other instrument (including this
Agreement) include references to such document, agreement or other instrument as
amended, novated, supplemented or replaced from time to time; (f) references to
clauses, sub-clauses, sections, sub-sections, Schedules and Exhibits are to
clauses, sub-clauses, sections, sub-sections, Schedules and Exhibits of this
Agreement; (g) "or" is not exclusive; (h) "$", and all other references to
dollar amounts, are in U. S. currency; (i) references to any party to this
Agreement or any other document, agreement or other instrument includes its
successors or permitted assigns; and (j) "writing" and cognate expressions
include all means of reproducing words in a tangible and permanently visible
form.
(b) Rights Personal to Saban. Each and every right and obligation
------------------------
which refers to "Saban" or the "Management Company" is personal to Saban and the
Management Company and shall not attach to, or be deemed to relate to or concern
the Shares held by Saban; and thus, without the prior written consent of Saban
and the Management Company, other than as provided in the Strategic Stockholders
Agreement, none of such rights or obligations may be assigned, delegated or
transferred to any other Person; provided, however, this Stock Ownership
Agreement may be assigned to FBC; provided, further, that in the event of the
-------- -------
incompetency or death of Saban, all rights granted to Saban hereunder shall be
exercisable by his conservator, executor or administrator, or by a single Person
from time to time designated by SEI Stockholders then holding a majority of the
then outstanding Shares of SEI Common Stock held by all SEI Stockholders.
(c) Notices. All notices, demands or other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given (i) if delivered
in person, upon delivery thereof, or (ii) if mailed, certified first class mail,
postage pre-paid, with return receipt requested, on the fifth day after the
mailing, or (iii) if sent by telex or facsimile transmission, with a copy mailed
on the same day in the manner provided in (ii) above, when transmitted and
receipt is confirmed by telephone or telex or facsimile response, or (iv) if
otherwise actually delivered, when delivered:
5
<PAGE>
(i) If to Saban or any of the Other SEI Stockholders:
Haim Saban
Saban Entertainment, Inc.
10960 Wilshire Boulevard
Los Angeles, CA 90024
Fax: (310) 235-5108
With a copy to:
Matthew G. Krane, Esq.
2051 Hercules Drive
Los Angeles, CA 90046
Fax: (213) 851-1178
and with a copy to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard, Suite 800
Los Angeles, California 90024
Attention: Richard E. Troop, Esq.
Fax: (310) 443-8503
(ii) if to the Management Company, the registered agent in
the State of Delaware.
and with a copy to:
Squadron, Ellenoff, Plesent &
Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Fax: (212) 697-6686
Attn: Harvey Horowitz, Esq.
or at such other address or addresses as may have been furnished by such Person
in like manner to the other parties.
(d) Severability. Should any Section or any part of a Section within
------------
this Agreement be rendered void, invalid or unenforceable by any court of law
for any reason, such invalidity or unenforceability shall not void or render
invalid or unenforceable any other Section or part of a Section in this
Agreement.
(e) Governing Law. THE TERMS OF THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE WITHIN, AND TO BE PERFORMED WITHIN, SUCH STATE, EXCLUDING
CHOICE OF LAW PRINCIPLES OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE
LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
6
<PAGE>
(f) No Adverse Construction. The rule that a contract is to be
-----------------------
construed against the party drafting the contract is hereby waived, and shall
have no applicability in construing this Agreement or the terms of this
Agreement.
(g) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. Each counterpart may
consist of a number of copies hereof, each signed by less than all, but together
signed by all, of the parties hereto.
(h) Costs and Attorneys' Fees. In the event that any action, suit, or
-------------------------
other proceeding is instituted concerning or arising out of this Agreement, the
prevailing party shall recover all of such party's costs, and attorneys' fees
incurred in each and every such action, suit, or other proceeding, including any
and all appeals or petitions therefrom. As used herein, "attorneys' fees" shall
mean the full and actual costs of any legal services actually rendered in
connection with the matters involved, calculated on the basis of the usual fee
charged by the attorneys performing such services, and shall not be limited to
"reasonable attorneys' fees" as defined by any statute or rule of court.
(i) Successors and Assigns. Except as otherwise provided in this
----------------------
Agreement, all rights, covenants and agreements of the parties contained in this
Agreement shall be binding upon and inure to the benefit of their respective
successors and permitted assigns. Except as otherwise specifically set forth
herein, nothing in this Agreement, expressed or implied, is intended to confer
on any Person other than the parties to this Agreement or their respective
successors and assigns any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
(j) Amendments and Waivers. Neither this Agreement nor any term
----------------------
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any term of this Agreement may be amended and the observance of any
such term may be waived (either generally or in a particular instance and either
retroactively or prospectively) with (but only with) the written consent of
Saban and FBC; provided, however, that no such amendment or waiver shall extend
-------- -------
to or affect any obligation not expressly waived or impair any right consequent
therein. No delay or omission to exercise any right, power or remedy accruing
to any party hereto shall impair any such right, power or remedy of such party
nor be construed to be a waiver of any such right, power or remedy nor
constitute any course of dealing or performance hereunder.
(k) Entire Agreement. This Agreement, the attached Exhibits and
----------------
Schedules and the Alliance Agreements, and the agreements referred to herein and
therein, together contain the entire understanding of the parties, and there are
no further or other agreements or understandings, written or oral, in effect
between the parties relating to the subject matter hereof unless
7
<PAGE>
expressly referred to herein. No party to this Agreement makes any
representation or warranty except as expressly set forth herein.
(l) Specific Performance and Other Remedies. The parties hereto
---------------------------------------
acknowledge and agree that the Shares (including the SEI Common Stock, the FCNH
Common Stock and the Successor Entity Equity Securities) are unique, and that
the parties will have no adequate remedy at law should any party hereto breach
the provisions of Sections 2 through 8 hereof. In the event of the refusal or
failure of any party hereto fully to comply with any of those provisions, the
other parties, and each of them, shall have the right, in addition to any other
rights and remedies which it or they may have hereunder, to specific
performance, and other appropriate injunctive relief with respect thereto. In
no event shall any party to any such proceeding urge or raise as a defense in
any such action that an adequate remedy at law exists.
(m) Agreement to Perform Required Acts. Each party hereto agrees to
----------------------------------
perform any further acts and to execute and deliver any further documents that
may be reasonably necessary to carry out the provisions hereof, that may be
required to secure performance of any party's duties hereunder or that may be
required to assure the legal and binding effect of the provisions hereof.
(n) Consent to Jurisdiction; Forum Selection. Any actions, suits or
----------------------------------------
proceedings instituted in connection with this Agreement or the performance by
the parties of their obligations hereunder shall be instituted and maintained
exclusively in the Superior Court for the State of California, County of Los
Angeles or in the United States District Court for the Central District of
California. By execution and delivery hereof, each party hereto hereby
consents, for itself and in respect of its property, to the jurisdiction of the
aforesaid courts solely for the purpose of adjudicating its rights or
obligations under, or any disputes involving, this Agreement or any document
related hereto. Each party hereto hereby irrevocably waives, to the extent
permitted by applicable law, any objection, including, without limitation, any
objection that the other corporate party or parties lack the capacity to sue or
defend based upon its or their lack of a certificate of qualification to conduct
intrastate business in California, and any objection to the laying of venue or
based on the grounds of forum non conveniens, which it may now or hereafter have
----- --- ----------
to the bringing of any action or proceeding in such jurisdiction in respect of
this Agreement or any document related hereto.
(o) Legends. Each of the SEI Stockholders hereby agree that each
-------
certificate or other writing evidencing any of the SEI Option Shares, shall be
stamped or otherwise imprinted with a legend, either on the face of such
certificate, or on the reverse of such certificate, with reference thereto
appearing on the face of such certificate, in substantially the following form:
8
<PAGE>
[DESCRIBE THE SHARES] REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
OPTIONS TO PURCHASE UNDER THAT CERTAIN STOCK OWNERSHIP AGREEMENT DATED AS
OF DECEMBER 22, 1995, BY AND AMONG THE RECORD HOLDER OF THE SECURITIES
SUBJECT TO THIS CERTIFICATE AND FOX KIDS WORLDWIDE, L.L.C. A COPY OF THE
STOCK OWNERSHIP AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE ISSUER
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE TO THE HOLDER HEREOF UPON
SUCH HOLDER'S WRITTEN REQUEST.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
FOX KIDS WORLDWIDE, L.L.C.,
a Delaware limited liability company
By: /s/ Haim Saban
------------------------------
Its:
-------------------------
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
/s/ Haim Saban
--------------------------------
HAIM SABAN
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
QUARTZ ENTERPRISES, L.P.
By: /s/ Stan Golden
-------------------------
-------------------------
MERLOT INVESTMENTS
By: /s/ Bill Josey
---------------------------
---------------------------
SILVERLIGHT ENTERPRISES, L.P.
By: /s/ Mel Woods
---------------------------
---------------------------
CELIA ENTERPRISES, L.P.
By: /s/ Matthew Krane
---------------------------
---------------------------
11
<PAGE>
Exhibit 10.18
Portions of this exhibit have been deleted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment. The redacted portions are identified by brackets with the character
"X" indicating deleted information.
<PAGE>
Exhibit 10.18
AMENDMENT NO. 1
TO
STOCK OWNERSHIP AGREEMENT
This Amendment No. 1 to Stock Ownership Agreement (the "Amendment") is made
and entered into as of September 26, 1996, by and among Haim Saban ("Saban"),
each of the entities listed on Schedule "A" hereto (the "SEI Entities" and, with
Saban, the "SEI Stockholders") and Fox Broadcasting Sub, Inc., a Delaware close
corporation ("Fox Broadcasting Sub"), and Fox Broadcasting Company, a Delaware
corporation, has concurrently herewith consented to this Amendment.
R E C I T A L S
- - - - - - - -
A. The SEI Shareholders and the Management Company are parties to that
certain Stock Ownership Agreement, dated as of December 22, 1995 (as amended by
this Amendment, the "Agreement"). On September 26, 1996, Fox Kids Worldwide,
L.L.C. (the "LLC") assigned its rights thereunder to FCN Holding, Inc. which
assigned them to Fox Broadcasting Sub. All terms defined in the Agreement which
are not defined in this Amendment shall have the same meanings when used in this
Amendment.
B. Pursuant to a letter agreement, dated as of September 26, 1996, but
effective as of April 3, 1996 (the "Allen Agreement") between FCN Holding, Inc.,
a Delaware close corporation ("FCNH") and Allen, FCNH has, concurrently with the
execution and delivery of this Amendment, issued and sold to Allen 16 16/99
shares (the "Allen Shares") of the Common Stock, without par value, of FCNH.
C. The parties desire to amend the Agreement in order, inter alia, to
----- ----
clarify the effect of the issue and sale of the Allen Shares on the provisions
of the Agreement.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing facts, and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Calculation of Purchase Price. Section 1.2(i) of the Agreement is
-----------------------------
amended to read in full as follows:
EXHIBIT C
---------
<PAGE>
"(i) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]"
2. Miscellaneous Provisions. Section 2(j) of the Agreement is amended to
------------------------
read in full as follows:
"(j) Amendments and Waivers. Neither this Agreement nor any term
----------------------
hereof may be changed, waived, discharged or terminated orally or in
writing, except that any term of this Agreement may be amended and the
observance of any such term may be waived (either generally or in a
particular instance and either retroactively or prospectively) by (and
only by) a written document executed by Saban and Fox Broadcasting
Sub; and any such amendment or waiver executed by both Saban and Fox
Broadcasting Sub shall be binding upon all of the parties to this
Agreement, including each and every Person who has agreed to be bound
by provisions of this Agreement relating to the Shares which it holds;
provided, however, that no such amendment or waiver shall extend to or
-------- -------
affect any obligation not expressly waived or impair any right
consequent therein. No delay or omission to exercise any right, power
or remedy accruing to any party hereto shall impair any such right,
power or remedy of such party nor be construed to be a waiver of any
such right, power or remedy nor constitute any course of dealing or
performance hereunder."
3. Change of Name. All references in the Agreement to Fox Kids
--------------
Worldwide, L.L.C. or to the Management Company shall hereafter be references to
Fox Broadcasting Sub.
4. Effective Date of Amendment. While this Amendment has been executed
---------------------------
as of its date, it shall be deemed to be effective as of April 3, 1996.
5. Effect of Amendment. Except as expressly modified herein, all terms
-------------------
of the Agreement remain in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
FOX BROADCASTING SUB, INC.
as assignee of Fox Kids
Worldwide, L.L.C.
By: /s/ Larry Jacobson
--------------------
/s/ Haim Saban
-------------------------
Its: Executive Vice President HAIM SABAN
------------------------
QUARTZ ENTERPRISES, L.P.
By: /s/ Stan Golden
--------------------
Its:
--------------------
MERLOT INVESTMENTS
By: /s/ Bill Josey
--------------------
Its:
--------------------
SILVERLIGHT ENTERPRISES, L.P.
By: /s/ Mel Woods
-------------------
Its:
--------------------
3
<PAGE>
CELIA ENTERPRISES, L.P.
By: /s/ Matthew Krane
--------------------
Its:
--------------------
Each of the Undersigned hereby consents and agrees to the foregoing
Amendment, as of the date first above written.
FOX BROADCASTING COMPANY
By: /s/ Larry Jacobson
--------------------
Its: Executive Vice President
------------------------
/s/ Haim Saban
-------------------------
HAIM SABAN
4
<PAGE>
SCHEDULE "A"
SEI STOCKHOLDERS
----------------
Haim Saban
Quartz Enterprises, L.P.
Merlot Investments
Silverlight Enterprises, L.P.
Celia Enterprises, L.P.
5
<PAGE>
EXHIBIT 10.20
FOX BROADCASTING COMPANY
STATION AFFILIATION AGREEMENT
Date
Licensee
Call letters-TV
Station Address
City, State & Zip
Attention: Addressee, Title
This sets forth the terms and conditions of the agreement between Fox
Broadcasting Company ("Fox") , on behalf of itself and its wholly-owned
subsidiary, the Fox Children's Network, Inc. ("FCN"), and _________________
("Licensee") for the carriage of programming over the facilities of Licensee's
television station ______ ("Station"). As used in this Agreement, the terms
"program," "programming" and "Fox programming" and any derivations thereof shall
mean, unless specifically indicated otherwise, the programming of Fox and the
programming of FCN, and all terms of this Agreement shall apply to both.
1. Fox Programming: Fox will deliver to the Station for free over-the-air
---------------
television broadcasting, programming which Fox and FCN make available for
broadcasting in the community to which Station is presently licensed by the FCC,
which is ____________, __. The selection, scheduling, substitution and
withdrawal of any program or portion thereof shall at all times remain within
Fox's sole discretion and control. Licensee shall not and shall not authorize
others to broadcast or otherwise use any program (or part thereof) or other
material supplied by Fox except as specified in this Agreement, and without
limiting the foregoing, Station may broadcast Fox programming only: (i) as
scheduled by Fox, (ii) over Station's facilities in the Community specified
above in this Paragraph 1 ("Station's Community"), and (iii) by free over-the-
air television broadcasting.
2. Delivery: Fox will transmit the programming hereunder by satellite and
--------
shall keep Licensee apprised of both the satellite and transponder being used
for that transmission. Any and all costs of whatever kind that Station incurs
to pickup the programming from the satellite and rebroadcast it shall be the
sole responsibility of Licensee.
3. Carriage & Preemption:
---------------------
(a) Licensee agrees to broadcast over Station's facilities all Fox
programs in their entirety, including, but not limited to, all
commercial announcements, Fox i.d.'s, Fox promos and credits, without
interruption, deletion, addition, squeezing, alteration, or other
changes (except for adding Licensee's commercial announcements as
provided in this Agreement) on the dates and at the times the programs
are scheduled by Fox.
<PAGE>
(b) Fox commits to supply sufficient programming throughout the term of
this Agreement for the hours presently programmed by it (the
"Programmed Time Periods"), which Programmed Time Periods are as
follows (for programming other than FCN programming, the specified
rites apply for the Eastern or Pacific Time Zones, and the Mountain
and Central Time Zones are one hour earlier; for FCN programming, the
specified times apply to all Time Zones, unless Fox agrees otherwise):
Prime Time: 7-10 P.M. Sunday
8-10 P.M. Monday thru Saturday
Late Night: 11 P.M.-12:00 A.M. Monday thru Saturday
FCN: 7:30 A.M.-8:30 A.M. Monday thru Friday
3:00 P.M.-5:00 P.M. Monday thru Friday
8:00 A.M.-12:00 Noon Saturday
Weekend Sports: As scheduled by Fox, including pre-game and post-game
shows.
Subject only to the preemption rights in Paragraph 11 below, Licensee
shall broadcast over Station for the term of this Agreement, during
the Programmed Time Periods, all Fox programming specified by Fox,
except to the extent that Licensee is broadcasting programming
pursuant to (and within the specific limits of) a commitment expressly
set forth on Exhibit A (for non-sports programming) or Exhibit B (for
sports programming) to this Agreement (but not including any extension
or renewal of such commitment by option extension or otherwise). If
any Fox programming is not broadcast in its Programmed Time Period due
to any such commitment, Licensee shall broadcast that Fox programming
in the "make good" time period specified in Exhibit A or B, as
applicable.
(c) Without limiting subparagraph (b) above, each time that Licensee for
any reason fails to (or advises Fox it will not) telecast any Fox
programming as provided for in this Agreement, then upon Fox's
request, Licensee shall telecast that programming (or replacement
programming selected by Fox) and the commercial announcements
contained in it, in a substitute time period that is within the same
A.C. Nielsen broadcast ratings week as, and that is of a quality and
rating value as nearly as possible equal to that of, the time period
during which the programming was not telecast. Licensee shall give
Fox at least 72 hours advance notice that it intends not to broadcast
any Fox programming and in such notice shall identify the substitute
time period that License selects, which time period shall be subject
to Fox's prior approval. If Licensee does not fully comply with the
foregoing, then, without limitation to any other rights of Fox under
this Agreement or otherwise, Fox shall have the right to license the
broadcast rights to the applicable omitted programming (or replacement
programming) to another television station located in Station's
Community. In addition to the foregoing,
2
<PAGE>
with respect to programming for broadcast within the New Programmed
Time Periods (as defined in subparagraph 3(e) below), Fox will provide
Licensee with a minimum of six months notice for each program
addition, and Licensee shall be required to advise Fox within ten days
of receiving notification if Licensee does not wish to televise said
programming as scheduled by Fox. If Licensee refuses to broadcast any
program within a New Programmed Time Period for any reason other than
(i) a program conflict specified in subparagraph 3(e) below, or (ii)
those specified in Paragraph 11 below, then either Licensee or Fox
shall have the right to terminate this Agreement upon six months prior
notice to the other party.
(d) Under this Agreement, an "Approved Preemption" shall mean: any
failure to broadcast due to force majeure under Paragraph 7 below, any
preemption permitted by Exhibit A or B hereto that is "made good" in
accordance therewith and any preemption permitted by Paragraph 11
below. Any other preemption or failure to broadcast any Fox
programming is an"Unauthorized Preemption" and without limiting any
other rights of Fox under this Agreement or otherwise, if within any
12-month period during the term of this Agreement, Station makes three
(3) or more Unauthorized Preemptions of any Fox programming (or
Licensee or Station states, either in general or specific terms, that
Station intends to make such Unauthorized Preemptions or Fox
reasonably concludes, based upon Licensee's or Station's actions or
otherwise, that such Unauthorized Preemptions will occur), Fox may,
upon 30 days prior written notice to Licensee, elect to either: (1)
terminate Station's right to broadcast any one or more series or other
Fox programs, as Fox shall elect, and, to the extent and for the
period(s) that Fox elects, thereafter license the broadcast rights to
the applicable series or other Fox programs to any other television
station or stations located in Station's Community, or (2) terminate
this Agreement.
(e) Licensee shall broadcast over Station's facilities all Fox programming
to be offered during time periods not presently programmed by Fox
("New Programmed Time Periods"), subject to Fox providing to Licensee
at least six months notice prior to delivering any additional
programming within these time periods. Furthermore, if Licensee has
entered into any agreement(s) prior to an announcement by Fox to
program a specific time period and the agreement(s) is (are) for
barter programming that Licensee is required by the terms of the
agreement(s) to broadcast during a New Programmed Time Period, then
Licensee shall not be required to broadcast the new Fox programming
within the same time period, and the provisions of subparagraph 3(c)
of this Agreement shall govern; provided, however, in any such
instance(s) Licensee agrees not to renew or otherwise extend its
rights to broadcast such conflicting programming within a New
Programmed Time Period.
3
<PAGE>
4. Promotion:
---------
(a) Fox will provide Licensee with on-air promotional announcements, which
may be for any Fox programming ("Fox Promos"), including without
limitation, any FCN programming, for broadcast in Station's non-Fox
programming. Licensee shall use its good faith, best efforts to
provide an on-air promotional schedule consistent with Fox's
recommendations and in coordination with Fox, and to budget Station's
annual advertising funds so as to enable Station to participate, on a
year-round basis, in Fox's "co-op" advertising plan. Without
limitation to the foregoing, in each instance, if any, that Fox
determines that Station's "Sweeps Rating" (as defined below) is below
the average Sweeps Rating for all Fox affiliated stations, then
Station shall be deemed to be "Performing Below Average" and shall,
within 15 days of Fox giving Licensee written notice thereof, commence
full compliance with the following: (1) Station shall not broadcast,
during each one-half hour of all periods that Station is not
broadcasting Fox programming (the "Non-Fox Time Periods"), less than
one (1) thirty (30) second promotional announcement (or promotional
announcements aggregating 30 seconds, to the extent Fox so elects) for
Station's local, syndicated or Fox programming, and (2) during all
Non-Fox Time Periods, Licensee shall broadcast Fox Promos for not less
than 45% of 100% (the "Applicable Percentage") of the total, aggregate
"gross ratings points" for all the promotional announcements broadcast
by Licensee ("Aggregate Promotional GRP's") within the Non-Fox Time
Periods (the specific Fox Promos broadcast by Licensee and number of
broadcasts of each Fox Promo shall be, to the extent Fox elects, as
specified by Fox, and the broadcasts of the Fox Promos shall be made
so that the GRP's allocated thereto are distributed fairly and
reasonably across the Non-Fox Time Periods); provided, however, that
if Station's Sweeps Rating ranks Station within the bottom 50% (ranked
highest to lowest) of those Fox affiliated stations that are
Performing Below Average, then the Applicable Percentage for Station
shall be not less than 55% of 100% of said Aggregate Promotional
GRP's. Licensee's full compliance with the immediately foregoing
sentence shall continue until Licensee is no longer Performing Below
Average, as determined by the most recent Sweeps Rating. For purposes
hereof, the "Sweeps Rating" shall mean for each station the average
A.C. Nielsen rating for the most current completed "sweeps" period for
Adults 18-49 for all prime time hours programmed by Fox. Licensee
agrees to maintain complete and accurate records of all promotional
announcements broadcast as provided herein. Within two (2) weeks
following each request by Fox therefor, Licensee will submit copies of
all such records to Fox.
(b) In addition to providing the promotion announcements referred to
above, Fox shall make available to Licensee, at reasonable costs, such
other promotional and sales materials as Fox and Licensee may mutually
consider appropriate. Licensee shall not delete any copyright,
trademark, logo or other notice, or any credit, included in any
materials delivered pursuant to this paragraph or otherwise, and
Licensee shall not exhibit, display, distribute or otherwise use any
trademark,
4
<PAGE>
logo or other material or item delivered pursuant to this paragraph or
otherwise, except as instructed by Fox at the time.
5. Commercial Announcements:
------------------------
(a) Licensee may include in each individual Fox program the same number
and length of commercial announcements (including station breaks) as
Fox provides generally in that program for its affiliates on a
national basis, which is currently that set forth on Exhibit D
attached to this Agreement.
(b) Fox shall determine the placement, timing and format of Fox's and
Licensee's commercial announcements. Fox shall have the right to
include commercial announcements in all of the commercial time
available in each hour of the programming other than that expressly
allocated to Licensee in this Agreement.
(c) Licensee's broadcast over the Station of all commercial announcements
included by Fox in Fox programming is of the essence of this
Agreement, and nothing contained in Paragraph 3 above or elsewhere in
this Agreement (other than Paragraph 11 below) shall limit Fox's
rights or remedies at law or otherwise relating to failure to so
broadcast said commercial announcements. Licensee agrees to maintain
complete and accurate records of all commercial announcements
broadcast as provided in this Agreement. Within two (2) weeks
following each request by Fox therefor, Licensee will submit copies of
all such records to Fox.
6. Station Compensation: Subject to the terms and conditions of this
--------------------
Agreement and to the condition that Licensee is not in breach of this Agreement,
FCN shall pay Licensee a share of FCN's programming Net Profits. That share
shall be the amount obtained by multiplying Net Profits by a fraction, the
numerator of which is Station's cumulative, aggregate audience delivery for FCN
Programming from the commencement of the term of this Agreement under Paragraph
10 below, and the denominator of which is the cumulative, aggregate audience
delivery for FCN Programming for all FCN affiliates, past and present, from the
inception of FCN, and audience delivery shall be determined in accordance with
the method utilized as of September 3, 1990 by Fox with respect to Fox
programming (other than FCN programming) in its formula for distribution of
station compensation to its affiliates (except that the rating base shall be
kids, ages 2 to 11); provided, however, that said formula for dividing Net
Profits may be changed or modified to contain in whole or in part such other
factors as FCN shall determine from time to time. For purposes hereof, the term
"Net Profits" shall be defined, computed, accounted for and paid in accordance
with Exhibit C attached hereto and incorporated herein by this reference. If
this Agreement is terminated or otherwise expires, the provisions of Paragraph 6
of said Exhibit C shall apply. Notwithstanding anything to the contrary in this
Agreement or in Exhibit C hereto, in no event shall the provisions of Exhibit C
hereto or of this subparagraph (b) apply to any Fox programming other than the
FCN programming specifically covered by Paragraph 2 of Exhibit C hereto.
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7. Force Majeure: Neither Fox nor FCN shall be liable to Licensee for failure
-------------
to supply any programming or any part thereof, nor shall Licensee be liable to
Fox or FCN for failure to broadcast any such programming or any part thereof, by
reason of any act of God, labor dispute, non-delivery by program suppliers or
others, failure or breakdown of satellite or other facilities, legal enactment,
governmental order or regulation or any other similar or dissimilar cause beyond
their respective control ("force majeure event"). If, due to any force majeure
event(s), Fox substantially fails to provide the programming to be delivered to
Licensee under Paragraph 1 above, or Licensee substantially fails to broadcast
such programming as scheduled by Fox, for 4 consecutive weeks, or for 6 weeks in
the aggregate during any 12-month period, then the other party hereto (the
"unaffected party") may terminate this Agreement upon thirty (30) days prior
written notice to the party so failing, which notice may be given at any time
prior to the expiration of 7 days after the unaffected party's receipt of actual
notice that the force majeure event(s) has ended.
8. Assignment: This Agreement shall not be assigned by Licensee without the
----------
prior written consent of Fox, and any permitted assignment shall not relieve
Licensee of its obligations hereunder. Any purported assignment by Licensee
without such consent shall be null and void and not enforceable against Fox.
Licensee also agrees that if any application is made to the Federal
Communications Commission pertaining to an assignment or a transfer of control
of Licensee's license for the Station, or any interest therein, Licensee shall
immediately notify Fox in writing of the filing of such application. Except as
to "short form" assignments or transfers of control made pursuant to Section
73.3540(f) of the Rules and Regulations of the Federal Communications
Commission, Fox shall have the right to terminate this Agreement, effective upon
thirty (30) days notice to Licensee and the transferee or assignee of such
termination, which notice may be given at any time within ninety (90) days after
the later occurring of: (a) the date on which Fox learns that such assignment or
transfer has become effective, or (b) the date on which Fox receives written
notice of such assignment or transfer, or (c) the effective date of this
Agreement (the foregoing termination provision shall apply to any assignments or
transfers of control that become effective at any time on or after the beginning
of the sixth month prior to the effective date of this Agreement). Licensee
agrees, that upon Fox's request, Licensee shall procure and deliver to Fox, in
form satisfactory to Fox, the agreement of the proposed assignee or transferee
that, upon consummation of the assignment or transfer of control of the
Station's authorization, the assignee or transferee will assume and perform this
Agreement in its entirety without limitation of any kind. If Licensee fails to
notify Fox of the proposed assignment or transfer of control of said Station's
authorization, or fails to procure the agreement of the proposed assignee or
transferee in accordance with this Paragraph, then such failure shall be deemed
a material breach of this Agreement.
9. Unauthorized Copying: Licensee shall not, and shall not authorize others
--------------------
to, record, copy or duplicate any programming or other material furnished by Fox
hereunder, in whole or in part, and shall take all reasonable precautions to
prevent any such recordings, copying or duplicating. Notwithstanding the
foregoing, if Station is located in the Mountain Time Zone, Licensee may pre-
record programming from the satellite feed for later telecast at the times
scheduled by Fox. Licensee shall erase all such pre-recorded programming
promptly after its scheduled telecast.
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10. Term: The term of this Agreement shall commence on ___________, 19___ and
----
shall continue until the expiration of _____________________, 19____ (the
"initial period"). After the initial period, the term of this Agreement may be
extended for additional successive periods of two (2) years each, by Fox, in its
sole discretion, giving written notice of such extension (the "extension
notice") to Licensee at least one hundred twenty (120) days prior to the
expiration of the then-current period; provided, however, that if, within thirty
(30) days of Licensee's receipt of the extension notice, Licensee, in its sole
discretion, gives Fox written notice that Licensee rejects such extension, then
the extension notice shall not be effective and this Agreement shall terminate
upon expiration of the then current period. Any presently existing Station
Affiliation Agreements between Fox and Licensee and FCN and Licensee shall be
deemed terminated as of the commencement of this Agreement; provided, however,
that the following, between Fox and Licensee, shall remain in full effect: (1)
any presently existing Network Non-Duplication Amendment to any such existing
Station Affiliation Agreement (which shall be deemed a part of this Agreement
and is incorporated herein by this reference), (2) any existing Agreement and
Amendment to Station Affiliation Agreement (the "Retransmission Agreement") and
(3) the provisions of any existing NFL Amendment that relate to the
Retransmission Agreement. Notwithstanding anything to the contrary contained in
this Agreement, upon the termination or expiration of the term of this
Agreement, all of Licensee's and Station's rights to broadcast or otherwise use
any Fox program or any trademark, logo or other material or item hereunder shall
immediately cease and neither Licensee nor Station shall have any further rights
whatsoever with respect to any such program, material or item.
11. Applicable Law: The obligations of Licensee and Fox under this Agreement
--------------
are subject to all applicable federal, state, and local laws, rules and
regulations (including, but not limited to, the Communications Act of 1934, as
amended, and the rules and regulations of the Federal Communications Commission)
and this Agreement shall be deemed to have been negotiated and entered into, and
this Agreement and all matters or issues collateral thereto shall be governed
by, the law of the State of California applicable to contracts negotiated,
executed and performed entirely within that state. With respect to programs
offered or already contracted for pursuant to this Agreement, nothing in any
other Paragraph hereof shall be construed to prevent or hinder Licensee from (a)
rejecting or refusing Fox programs which Licensee reasonably believes to be
unsatisfactory, unsuitable or contrary to the public interest, or (b)
substituting a program which, in Licensee's opinion, is of greater local or
national importance; provided, however, Licensee shall give Fox written notice
of each such rejection or substitution and the justification therefor, at least
72 hours in advance of the scheduled broadcast, or as soon thereafter as
possible (including an explanation of the cause for any lesser notice).
Programming will be deemed to be unsatisfactory or unsuitable only if it (i) is
delivered in a form which does not meet accepted standards of good engineering
practice; (ii) does not comply with the rules and regulations of the FCC; or
(iii) is programming which Licensee reasonably believes would not meet
prevailing contemporary standards of good taste in its community of license. In
view of the limited nature of the Fox programming within each day-part as
specified in subparagraph 3(b) above, Licensee does not foresee any need to
substitute programming of greater local or national importance for Fox
programming, except to present locally originated, non-entertainment, non-
religious timely public interest programming, such as election coverage, live
coverage of fast-breaking news events, political debates, town hall-type
meetings and telethons that serve the public interest and that are approved by
Fox, which approval shall not be unreasonably withheld. Notwithstanding
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anything to the contrary expressed or implied herein, the parties acknowledge
that Station has the ultimate responsibility to determine the suitability of the
subject matter of program content, including commercial, promotional or public
service announcements.
12. Station Acquisition by Fox: If Fox or any of Fox's parent, affiliated,
--------------------------
subsidiary or related companies or other entities enters into any agreement to
acquire any significant ownership and/or controlling interest in any television
broadcast station licensed to any community within Station's television market,
then Fox shall have the right at any time after that agreement is made, to
terminate this Agreement upon not less than sixty (60) days notice to Licensee.
Said termination shall be effective as of such date as Fox shall designate in
said notice.
13. Change in Operations: If at any time Station's transmitter location,
--------------------
power, frequency, programming format, hours of operation, technical quality of
transmissions or any other material aspect of Station's operations is such that
Fox determines in its reasonable judgement that Station is of less value to Fox
as a broadcaster of Fox programming than at the date of this Agreement, then Fox
shall have the right to terminate this Agreement upon thirty (30) days prior
written notice to Licensee.
14. Non-Liability of Board Members: To the extent the Board and its members
------------------------------
are acting in their capacity as such, then the Board and each such member so
acting shall not have any obligation or legal or other liability whatsoever to
Licensee in connection with this Agreement or Exhibit C hereto, including
without limitation, with respect to the Board's or such member's approval or
non-approval of any matter, exercise or non-exercise of any right or taking of
or failing to take any other action in connection therewith.
15. Warranties and Indemnities:
--------------------------
(a) Fox represents and warrants that Station's broadcast, in accordance
with this Agreement, of any Fox programming provided by Fox to Station
shall not violate or infringe upon the trade name, trademark,
copyright, literary or dramatic right, or right of privacy or
publicity of any party, or constitute a libel or slander of any party;
provided, however, that the foregoing representations and warranties
shall not apply: (1) to public performance rights in music, (2) to any
material furnished or added by any party other than Fox after delivery
of the programming to Station or (3) to the extent such programming is
changed or otherwise affected by deletion of any material by any party
other than Fox after delivery of the programming to Station. Fox
agrees to indemnify and hold harmless Station and its parents,
affiliates, subsidiaries, successors and assigns, and the respective
owners, officers, directors, agents and employees of each, from and
against all liability, actions, claims, demands, losses, damages or
expenses (including reasonable attorneys' fees, but excluding
Licensee's or Station's lost profits or consequential damages, if any)
caused by or arising out of Fox's breach of the representations and
warranties set forth in the foregoing sentence. Fox makes no
representations, warranties or indemnities, express or implied, except
as expressly set forth in this subparagraph (a).
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(b) Without limitation to any of Licensee's other obligations and
agreements under this Agreement, Licensee agrees to indemnify and hold
harmless Fox and its parents, affiliates, subsidiaries, successors and
assigns, and the respective owners, officers, directors, agents and
employees of each, from and against all liability, actions, claims,
demands, losses, damages or expenses (including reasonable attorneys'
fees, but excluding Fox's lost profits or Fox's consequential damages,
if any) caused by or arising out of any matters excluded from Fox's
representations and warranties by subparagraphs (a)(1), (2) or (3)
above, or any breach of any of Licensee's representations, warranties
or agreements hereunder or any programming broadcast by Station other
than that provided by Fox hereunder.
(c) The indemnitor may assume, and if the indemnitee requests in writing
shall assume, the defense of any claim, demand or action covered by
indemnity hereunder, and upon the written request of the indemnitee,
shall allow the indemnitee to cooperate in the defense at the
indemnitee's sole cost and expense. The indemnitee shall give the
indemnitor prompt written notice of any claim, demand or action
covered by indemnity hereunder. If the indemnitee settles any claim,
demand or action without the prior written consent of the indemnitor,
the indemnitor shall be released from the indemnity in that instance.
16. Notices: All notices to each party required or permitted hereunder to be
-------
in writing shall be deemed given when personally delivered (including, without
limitation, upon delivery by overnight courier or other messenger or upon
receipt of facsimile copy), upon the date of mailing postage prepaid or when
delivered charges prepaid to the telegraph office for transmission, addressed as
specified below, or addressed to such other address as such party may hereafter
specify in a written notice given as provided herein. Such notices to Licensee
shall be to the address set forth for Licensee on page 1 of this Agreement.
Such notices to Fox shall be to: Fox Broadcasting Company, 10201 West Pico
Boulevard, Los Angeles, CA 90035, Attn: Network Distributions; with a copy to:
Fox Broadcasting Company, 10201 West Pico Boulevard, Los Angeles, CA 90035,
Attn: Legal Affairs.
17. Retransmission Consent: Without Fox's prior written approval, Licensee
----------------------
shall not grant its consent to the transmission or retransmission, by any cable
system, telephone system, microwave carrier, wireless cable system, satellite or
other technology wherever located, of Stations broadcast of any Fox programming.
18. Change In Fox Operations: Notwithstanding anything to the contrary in this
------------------------
Agreement and without limitation to any of Fox's rights, Fox reserves the right
to make changes in its operations (and/or terms of doing business) that will be
applicable to its affiliates generally but that will conflict with the terms of
this Agreement, and within 30 days after each instance that Fox notifies
Licensee that Fox has made or intends to make any such change, Licensee shall
notify Fox in writing (the "Response Notice") either that Licensee does or does
not agree that this Agreement shall be amended to reflect such change (if
Licensee fails to so notify Fox within said 30 days, then Licensee shall be
deemed to have agreed to said amendment). If such change is or will be
applicable to Fox affiliates representing in total at least 70% of U.S.
Television
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Households, then effective on such date, if any, as Fox shall elect after Fox's
receipt of the Response Notice: (1) this Agreement will be deemed amended to
reflect such change, if Licensee so agreed in the Response Notice (or is deemed
to have so agreed), or (2) this Agreement shall terminate, if Licensee did not
so agree.
19. Miscellaneous:
-------------
(a) Nothing contained in this Agreement shall create any partnership,
association, joint venture, fiduciary or agency relationship between
Fox and Licensee.
(b) No waiver of any failure of any condition or of the breach of any
obligation hereunder shall be deemed to be a waiver of any preceding
or succeeding failure of the same or any other condition, or a waiver
of any preceding or succeeding breach of the same or any other
obligation.
(c) In connection with Fox programming, Station shall at all times permit
Fox, without charge, to place, maintain and use on Station's premises,
at Fox's expense, such reasonable amounts of devices and equipment as
Fox shall require, in such location and manner, as to allow Fox to
economically, efficiently and accurately achieve the purposes of such
equipment. Station shall operate such equipment for Fox, to the
extent Fox reasonably requests, and no fee shall be charged by Station
therefor.
(d) This Agreement constitutes the entire understanding between Fox and
Licensee concerning the subject matter hereof and shall not be
amended, modified, changed, renewed, extended or discharged except by
an instrument in writing signed by Fox and Licensee or as otherwise
expressly provided herein. Fox and Licensee each hereby acknowledges
that neither is entering into this Agreement in reliance upon any
term, condition, representation or warranty not stated herein, and
that this Agreement replaces any and all prior and contemporaneous
agreements, whether oral or written, pertaining to the subject matter
hereof. All actions, proceedings or litigation brought against Fox by
Licensee shall be instituted and prosecuted solely within the County
of Los Angeles, California. Licensee hereby consents to the
jurisdiction of the state courts of California and the federal courts
located in the Central District of California as to any matter arising
out of, or related to this Agreement.
(e) Each and all of the several rights and remedies of each party hereto
under or contained in or by reason of this Agreement shall be
cumulative, and the exercise of one or more of said rights or remedies
shall not preclude the exercise of any other right or remedy under
this Agreement, at law, or in equity. Notwithstanding anything to the
contrary contained in this Agreement, in no event shall either party
hereto be entitled to or recover any lost profits or consequential
damages because of a breach or failure by the other party, and except
as expressly provided in this Agreement to the contrary, neither Fox
nor Licensee
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shall have any right against the other with respect to claims by any
third person or other third entity.
(f) It is understood that FCN is indemnifying Fox in connection with all
costs, expenses, liabilities and other matters relating to the FCN
programming covered hereunder.
(g) Paragraph headings are inserted for convenience only and shall not be
used to interpret this Agreement or any of the provisions hereof or
given any legal or other effect whatsoever.
(h) Licensee acknowledges that Station's rights contained in this
Agreement are subject to and must be exercised consistent with the
rights conveyed to Fox by the NFL, the NHL or any other licensor of
programming delivered under this Agreement and any limitations and
restrictions thereon.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
Fox Broadcasting Company ___________________________________
("Fox") ("Licensee")
By:_____________________________ By:________________________________
Title:__________________________ Title:_____________________________
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