<PAGE>
As filed with the Securities and Exchange Commission on March 25, 1998
REGISTRATION NO. 333-12995
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
FOX KIDS WORLDWIDE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 7812 95-4596247
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
10960 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(310) 235-5100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICE)
-------------
MEL WOODS
PRESIDENT, CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER
FOX KIDS WORLDWIDE, INC.
10960 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(310) 235-5100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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WITH COPIES TO:
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<CAPTION>
<S> <C> <C>
ARTHUR M. SISKIND, ESQ. JEFFREY W. RUBIN, ESQ. RICHARD E. TROOP, ESQ.
THE NEWS CORPORATION LIMITED SQUADRON, ELLENOFF, PLESENT & LINDA GIUNTA MICHAELSON, ESQ.
1211 AVENUE OF THE AMERICAS SHEINFELD, LLP TROOP MEISINGER STEUBER & PASICH, LLP
NEW YORK, NEW YORK 10036 551 FIFTH AVENUE 10940 WILSHIRE BOULEVARD
(212) 852-7000 NEW YORK, NEW YORK 10176 LOS ANGELES, CALIFORNIA 90024
(212) 661-6500 (310) 824-7000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, 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, 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(d)
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. [_]
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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, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement on Form S-4 is the fourth amendment to the
Company's Registration Statement which was amended by Amendment No. 1, and
Amendment No. 2 to Registration Statement on Form S-1 and Amendment No. 3 to
Registration Statement on Form S-4.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE NOTES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE NOTES 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 +
+NOTES 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, DATED MARCH 25, 1998
PROSPECTUS
[LOGO OF FOX KIDS WORLDWIDE, INC.]
FOX KIDS WORLDWIDE, INC.
OFFER FOR ANY AND ALL OUTSTANDING
9 1/4% SENIOR NOTES DUE 2007 AND
10 1/4% SENIOR DISCOUNT NOTES DUE 2007
IN EXCHANGE FOR, RESPECTIVELY,
9 1/4% SENIOR NOTES DUE 2007 AND
10 1/4% SENIOR DISCOUNT NOTES DUE 2007
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON APRIL 24, 1998, UNLESS EXTENDED.
Fox Kids Worldwide, Inc., a Delaware corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth herein and in the related Letter of Transmittal, to exchange up to
$475,000,000 aggregate principal amount of 9 1/4% Senior Notes Due 2007 (the
"Senior Notes") of the Company for a like amount of the privately placed 9 1/4%
Senior Notes Due 2007 (the "Old Senior Notes") of the Company issued on October
28, 1997, from the holders thereof (together with the holders of Senior Notes,
"Senior Noteholders") and to exchange up to $618,670,000 aggregate principal
amount at maturity of 10 1/4% Senior Discount Notes Due 2007 (the "Senior
Discount Notes") of the Company for a like amount of the privately placed 10
1/4% Senior Discount Notes Due 2007 (the "Old Senior Discount Notes") of the
Company issued on October 28, 1997, from the holders thereof (together with the
holders of Senior Discount Notes, "Discount Noteholders"). The Senior Notes and
the Senior Discount Notes have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement
of which this Prospectus is a part. The Old Senior Notes and the Old Senior
Discount Notes are referred to collectively herein as the "Old Notes" and the
Senior Notes and the Senior Discount Notes are referred to collectively herein
as the "Notes."
The Notes are being offered hereunder in order to satisfy the obligations of
the Company under two separate and substantially identical Registration Rights
Agreements with respect to the Senior Notes and the Senior Discount Notes,
respectively, each dated October 28, 1997 (together, the "Registration Rights
Agreement"), and each by and among the Company, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Citicorp Securities, Inc.,
(cover continued on following page)
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 HEREIN FOR A DISCUSSION OF CERTAIN
RISKS THAT HOLDERS OF OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE
OFFER AND AN INVESTMENT IN THE NOTES 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.
THE DATE OF THIS PROSPECTUS IS MARCH , 1998.
<PAGE>
(cover continued from previous page)
Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation,
and Morgan Stanley & Co. Incorporated (together the "Initial Purchasers").
Upon consummation of the Exchange Offer, certain rights under the Registration
Rights Agreement, including registration rights and the right to receive the
contingent increases in interest rates, will terminate, except under certain
circumstances. The Exchange Offer is designed to provide to Senior Noteholders
and Discount Noteholders (collectively, "Holders" or "Noteholders") an
opportunity to acquire the Notes which, unlike the Old Notes, are expected to
be freely transferable at all times, subject to state "blue sky" law
restrictions and provided that the Holder is not an "affiliate" of the Company
within the meaning of the Securities Act, and represents that the Notes are
being acquired in the ordinary course of such Holder's business and the Holder
is not engaged in, and does not intend to engage in, a distribution of the
Notes. With the exception of the freely transferable nature of the Notes, the
Notes are substantially identical to the Old Notes. See "The Exchange Offer--
Purpose of the Exchange Offer."
The Company will accept for exchange any and all validly tendered Old Notes
on or prior to 5:00 p.m., New York City time, on April 24, 1998, unless
extended by the Company in its sole discretion (the "Expiration Date").
Tenders of the Old Notes made pursuant to the Exchange Offer may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date
unless previously accepted for exchange by the Company. The Exchange Offer is
not conditioned upon any minimum principal amount of the Old Notes being
tendered for exchange. However, the Exchange Offer is subject to certain
conditions which may be waived by the Company and to the terms and provisions
of the Registration Rights Agreement. In the event the Company terminates the
Exchange Offer and does not accept any Old Notes with respect to the Exchange
Offer, the Company will promptly return such Old Notes to the Holders thereof.
The Old Notes may be tendered for exchange only in integral multiples of
$1,000 principal amount at maturity. See "The Exchange Offer."
Any waiver, extension or termination of the Exchange Offer will be publicly
announced by the Company through a release to the Dow Jones News Service and
as otherwise required by applicable law or regulations.
The Notes will be senior unsecured obligations of the Company and will rank
pari passu in right of payment to all future subordinated indebtedness of the
Company. The Notes will not be guaranteed by any of the Company's subsidiaries
or any third parties (including affiliates of the Company). The Notes will be
effectively subordinated to all secured indebtedness of the Company and to all
existing and future indebtedness of the Company's subsidiaries. As of December
31, 1997, the Company and its subsidiaries had an aggregate of approximately
$1.7 billion of indebtedness outstanding, including the Notes, of which
approximately $641 million of indebtedness would have been effectively senior
to the Notes and the balance of which (other than the Notes) would have been
subordinated in right of payment to the Notes. See "Description of Other
Indebtedness" and "Description of the Notes."
Cash interest on the Senior Notes will accrue at a rate of 9 1/4% per annum
and will be payable semiannually in arrears on each May 1 and November 1,
commencing May 1, 1998. The Old Senior Discount Notes were issued at a
substantial discount from their principal amount. Accordingly, cash interest
will not accrue or be payable on the Senior Discount Notes prior to November
1, 2002. Thereafter, cash interest on the Senior Discount Notes will accrue at
a rate of 10 1/4% per annum and will be payable semiannually in arrears on
each May 1 and November 1, commencing May 1, 2003; provided, however, that at
any time on or prior to November 1, 2002, the Company may make a Cash Interest
Election (as defined herein), in which case the outstanding principal amount
at maturity of each Senior Discount Note will on such interest payment date be
reduced to the Accreted Value (as defined herein) of such Senior Discount Note
as of such interest payment date, and cash interest (accruing at a rate of 10
1/4% per annum from the Cash Interest Election Date) will be payable with
respect to such Senior Discount Note on each interest payment date thereafter.
The Old Notes were sold by the Company on October 28, 1997 to the Initial
Purchasers in a transaction not registered under the Securities Act in
reliance upon an exemption from the registration requirements of the
Securities Act (the "Offering"). The Initial Purchasers subsequently placed
the Old Notes with qualified institutional buyers in reliance upon Rule 144A
promulgated under the Securities Act and with a limited number
i
<PAGE>
of accredited investors that agreed to comply with certain transfer
restrictions and other conditions. Accordingly, the Old Notes may not be
reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available.
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after November 1, 2002, at the redemption prices set forth
herein, plus accrued and unpaid interest thereon to the date of redemption. In
addition, on or prior to November 1, 2000, the Company may redeem up to 35% of
the originally issued aggregate principal amount of the Senior Notes at a
redemption price of 109.25% of the principal amount thereof, plus accrued and
unpaid interest thereon to the date of redemption, and may redeem up to 35% of
the originally issued principal amount at maturity of the Senior Discount
Notes at a redemption price equal to 110.25% of the Accreted Value at the
redemption date of the Senior Discount Notes so redeemed (or, if a Cash
Interest Election has been made, 110.25% of the principal amount at maturity
of the Senior Discount Notes so redeemed, plus accrued and unpaid interest to
the redemption date), in each case with the net cash proceeds of one or more
Public Equity Offerings (as defined herein) or sales of Qualified Equity
Interests (as defined herein) to Strategic Equity Investors (as defined
herein); provided, however, that not less than 65% of the originally issued
principal amount of Senior Notes and 65% of the originally issued principal
amount at maturity of the Senior Discount Notes is outstanding immediately
after giving effect to such redemption.
Following the occurrence of a Change of Control (as defined herein), each
Holder will have the right to require the Company to purchase all or a portion
of such Holder's Notes at a purchase price equal to 101% of the aggregate
principal amount of the Senior Notes, plus accrued and unpaid interest thereon
to the date of purchase, and at a purchase price equal to 101% of the Accreted
Value of the Senior Discount Notes at the date of purchase (unless the date of
purchase is on or after the earlier to occur of November 1, 2002 or the Cash
Election Date in which case such purchase price shall be equal to 101% of the
aggregate principal amount at maturity thereof, plus accrued and unpaid
interest thereon to the date of purchase). The Company may not, however, have
sufficient funds upon a Change of Control to redeem the Notes at the premium,
or at all. See "Description of the Notes."
The Notes will be senior unsecured obligations of the Company entitled to
the benefits of the Indentures (as defined herein). The form and terms of the
Notes will be identical in all material respects to the form and terms of the
Old Notes except that the Notes will be registered under the Securities Act.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and preferences, and will
be subject to all the limitations applicable thereto, under the Indentures
(except for those rights which terminate upon consummation of the Exchange
Offer). Following consummation of the Exchange Offer, any Holders of the Old
Notes will continue to be subject to the existing restrictions upon transfers
thereof, and the Company will have no further obligation to such Holders
(other than under certain limited circumstances) to provide for the
registration under the Securities Act of the Old Notes held by them. Following
completion of the Exchange Offer, none of the Notes will be entitled to the
contingent increase in interest rate provided pursuant to the Indentures, the
Registration Rights Agreement and the Old Notes. See "The Exchange Offer."
The Company is making the Exchange Offer in reliance on the position of the
staff of the Securities and Exchange Commission (the "Commission") as set
forth in no-action letters issued to third parties in other transactions.
However, the Company has not sought its own no-action letter and there can be
no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other
circumstances. Based on those interpretations by the staff of the Commission,
the Company believes that the Notes issued pursuant to the Exchange Offer in
exchange for the Old Notes may be offered for resale, resold and otherwise
transferred by any Holder thereof (other than broker-dealers, as set forth
below, and any such Holder that is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such Notes are acquired in the ordinary course of such Holder's
business and that such Holder is not participating, (cover continued from
previous page)
ii
<PAGE>
(cover continued from previous page)
does not intend to participate and has no arrangement or understanding with
any person to participate, in the distribution of such Notes. Any Holder who
participates in the Exchange Offer with the intention to participate, or for
the purpose of participating, in a distribution of the Notes may not rely upon
the position of the staff ofthe Commission as set forth in these no-action
letters and, in the absence of an exemption therefrom, must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction, and any such secondary
resale transaction must be covered by an effective registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K promulgated under the Securities Act. Holders of Old Notes
wishing to accept the Exchange Offer must represent to the Company in the
Letter of Transmittal that such conditions have been met.
Each broker-dealer (other than an affiliate of the Company) that receives
the Notes for its own account pursuant to the Exchange Offer must acknowledge
that it acquired the Old Notes as the result of market-making activities or
other trading activities and will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Notes received in exchange for Old
Notes where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 90 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution." Any broker-dealer who is an affiliate of
the Company may not participate in the Exchange Offer and may not rely on the
no-action letters referred to above and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. See "The Exchange Offer."
The Notes constitute new issues of securities with no established trading
market. Although the Old Notes have been approved for trading in The Private
Offerings, Resale and Trading through Automatic Linkages ("PORTAL") market of
The Nasdaq Stock Market, Inc., there has been no public market for the Old
Notes and it is not currently anticipated that an active public market for the
Notes will develop. The Company does not intend to apply for the listing of
the Notes on any securities exchange or to seek approval for quotation through
any automated quotation system. The Initial Purchasers have advised the
Company that each of the Initial Purchasers currently intends to make a market
in the Notes; however, none are obligated to do so and any market-making may
be discontinued by any Initial Purchaser at any time without notice.
Accordingly, no assurance can be given as to the liquidity or the trading
market for the Notes. The Notes will settle through the book-entry facilities
of The Depository Trust Company. See "Description of the Notes."
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of the Old Notes as of March 27, 1998. As of March 25,
there was one registered Holder of the Old Senior Notes and one registered
Holder of the Old Senior Discount Notes.
The Company will not receive any proceeds from the Exchange Offer. No
dealer-manager is being used in connection with the Exchange Offer. See "Use
of Proceeds" and "Plan of Distribution."
iii
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(cover continued from previous page)
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS PROSPECTUS
AND INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF
THE COMPANY WITH RESPECT TO (I) THE COMPANY'S REPROGRAMMING OF THE FAMILY
CHANNEL, (II) TRENDS AFFECTING THE COMPANY'S FINANCIAL CONDITION OR RESULTS OF
OPERATIONS, (III) THE IMPACT OF COMPETITION AND (IV) THE EXPANSION OF THE
COMPANY'S INTERNATIONAL CHANNELS AND CERTAIN OTHER OPERATIONS.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS
ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES,
AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE IN THE FORWARD-
LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. THE ACCOMPANYING
INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, THE
INFORMATION UNDER "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND "BUSINESS" IDENTIFIES
IMPORTANT FACTORS THAT COULD CAUSE SUCH DIFFERENCES.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 which has been amended by this registration statement on Form S-4 relating
to the Notes offered hereby (together with all amendments, exhibits, schedules
and supplements thereto, the "Registration Statement") under the Securities
Act. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company, the Exchange Offer and the Notes, reference is hereby made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract, agreement or other document referred to accurately
describe all material terms so referred to, but are not necessarily a complete
description of the contents of any such contract, agreement or other document.
The Registration Statement and the exhibits and schedules thereto and any
periodic reports or other information filed by the Company pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), may be
inspected without charge and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at Seven World Trade
Center, Suite 1300, New York, New York 10048 and at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such materials can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, Washington, D.C. 20549, at prescribed rates.
The Commission maintains a website at http://www.sec.gov that contains
reports, proxy and information statements and other information filed
electronically with the Commission.
Upon effectiveness of the Registration Statement, the Company will be
subject to the reporting requirements of Section 15(d) the Exchange Act, and
in accordance therewith, the Company will initially be required to file
periodic reports and other information with the Commission. If the Company
ceases to be subject to the informational requirements of the Exchange Act,
the Company will be required under the Indentures to continue to file with the
Commission the annual and quarterly reports, information, documents or other
reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K,
which would be required pursuant to the informational requirements of the
Exchange Act. The Company will also furnish such other reports as may be
required by law. In addition, for so long as any of the Notes are restricted
securities within the meaning of Rule 144(a)(3) under
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the Securities Act, the Company has agreed to make available to any
prospective purchaser of the Notes or beneficial owner of the Notes, in
connection with any sale thereof, the information required by Rule 144(d)(4)
under the Securities Act.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS OF OLD NOTES FOR EXCHANGE FROM, HOLDERS IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE
HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH
THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED
UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT
NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A
TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT, ANY REPRESENTATION INCONSISTENT
WITH THE PROVISIONS OF THIS PARAGRAPH.
----------------
Mighty Morphin Power Rangers, Power Rangers and Saban are registered
trademarks of Saban Entertainment, Inc. and Saban International N.V. Big Bad
BeetleBorgs, BeetleBorgs Metallix, Breaker High, Jim Knopf, Power Rangers In
Space, Power Rangers Zeo, Power Rangers Turbo, Princess Sissi, Saban's
Adventures of Oliver Twist, Space Goofs, The Why Why Family, Walter Melon and
Wunschpunsch are trademarks of Saban Entertainment, Inc. and Saban
International N.V. Bobby's World, The Tick, Life With Louie, Eek! Stravaganza
and Eek! The Cat are trademarks of Fox Children's Network, Inc. The Family
Channel and International Family Entertainment are registered U.S. service
marks of International Family Entertainment, Inc. All other trademarks and
trade names referred to in this Prospectus are the property of their
respective owners.
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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. Unless otherwise indicated herein, the term the "Company" refers
collectively to Fox Kids Worldwide, Inc. and its subsidiaries. All references
in this Prospectus to ratings refer to ratings compiled and published by
Nielsen Media Research ("Nielsen").
THE COMPANY
The Company is an integrated global children's and family entertainment
company which develops, acquires, produces, broadcasts and distributes quality
television programming. The Company's principal operations comprise (i) Saban
Entertainment, Inc. ("Saban"), whose library of over 5,400 half-hours of
completed and in-production children's programming is among the largest in the
world, (ii) International Family Entertainment, Inc. ("IFE"), which operates
The Family Channel, a leading basic cable television network that provides
family-oriented entertainment programming in the United States, reaching
approximately 95% of all cable and satellite television households, (iii) the
Fox Kids Network--the top-rated children's (ages 2-11) oriented broadcast
television network in the United States and (iv) a growing portfolio of Fox
Kids branded cable and direct-to-home ("DTH") satellite channels operating in
approximately 25 countries worldwide. By combining one of the world's largest
children's programming libraries with a widely distributed cable platform, a
top-rated broadcast network and the Fox Kids branded international channels,
the Company has the ability to manage children's properties and brands from
their creation through production, distribution and the merchandising of
related consumer products.
The Company is the result of the joint venture launched in 1995 by Fox
Broadcasting Company ("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. In September 1997, the Company finalized the
acquisition of IFE (the "IFE Acquisition"), whose principal business is The
Family Channel. The IFE Acquisition provides the Company with several strategic
advantages, including (i) a widely distributed cable platform, which reaches
approximately 71 million homes, providing an effective means for more vigorous
competition with other children's- and family-oriented cable services, (ii) an
additional outlet for the Company's existing children's programming library,
(iii) increased awareness in the Company's primary target market (children ages
2-11) through expanded hours, increased brand exposure and additional licensing
and merchandising opportunities and (iv) cross-promotional opportunities with
the Fox Kids Network.
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
("Power Rangers"), Casper, Spider-Man, X-Men, Goosebumps and Bobby's World, or
which are or have been developed or purchased due to their likelihood of
maturing into popular brands. The Company produced, financed or co-financed 14
shows for each of the 1996-1997 and the 1997-1998 broadcast seasons, including
Power Rangers, which since shortly after its launch in 1993 has been the
highest rated children's weekday strip broadcast television program in the
United States among boys ages 2-11. The Company generally retains worldwide
rights to its brands, and currently has approximately 375 licensees worldwide,
including toy companies Bandai, Playmates and Tiger. One of the most attractive
attributes of the Company's children's programming is its "portability," in
that 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.
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While maintaining the family image and general entertainment format of the
channel, the Company intends to reprogram The Family Channel in August 1998 as
the "Fox Family Channel" with a new schedule, look, marketing campaign and
logo. From 6 a.m. to 6 p.m., the Fox Family Channel will carry a total of 76.5
hours of weekly programming targeted principally to children. From 6 p.m. to 11
p.m., the Fox Family Channel will broadcast programming intended to appeal to
the entire family and will carry advertising to be sold on the basis of adult
demographics. Programming will be selected from the Company's existing library,
new original productions produced or co-produced by the Company and original
and library product licensed from independent suppliers.
The Company also owns and operates the Fox Kids Network, the leading U.S.
children's broadcast television network, which broadcasts 19 hours of
children's programming each week 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 Fox Broadcasting's affiliates to provide
children's programming weekdays and Saturday mornings. The Fox Kids Network has
had the highest broadcast television viewership among children Monday through
Friday and Saturday only in its time period during 20 consecutive quarterly
"sweeps" periods through November 1997. In February 1998, the Fox Kids Network
finished first in the Monday through Friday quarterly "sweeps" and second in
the Saturday only quarterly "sweeps", just behind ABC. According to Nielsen,
during the 1996-1997 broadcast season, approximately 19 million children--50%
of all children (ages 2-11) in the United States--watched the Fox Kids Network
at least once each month. The Fox Kids Network affords advertisers the
opportunity to reach children in a cost-effective manner, in part by 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 television market. The Fox Kids Network's advertising
customers include virtually every major advertiser to children.
To capitalize on the Company's extensive library of children's programming,
since 1996 the Company has launched Fox Kids branded DTH satellite and cable
channels in approximately 25 countries throughout Europe and Latin America. The
Company intends to leverage its relationship with News Corp., which has
significant equity interests in cable and satellite services in most major
international markets, to further its international presence. For example,
since October 1996, the Company has operated a Fox Kids branded channel as part
of News Corp.'s 40%-owned British Sky Broadcasting Group Plc's ("BSkyB") Sky
Multi-Channels package, which through DTH currently reaches 3.5 million viewers
in the United Kingdom and the Republic of Ireland.
The Company intends to continue to increase its presence in the children's
and family television entertainment business, with the goal of becoming the
leading worldwide producer, broadcaster and distributor of children's and
family television programming.
The Company intends to focus on the following strategies to achieve its
objective:
. Capitalize on U.S. Cable Platform. While maintaining the family image and
general entertainment format of the channel, the Company plans to
reprogram The Family Channel as the Fox Family Channel in August 1998
with a new schedule, image and promotional campaign intended to enhance
ratings among the approximately 71 million subscribers of The Family
Channel. The Fox Family Channel will feature children's programming seven
days per week during the daytime hours and family-oriented programming
during prime time. The Company also currently has plans to add original
series to The Family Channel's prime time schedule and to double the
number of original prime time movies premiering annually on the Fox
Family Channel from the current level of approximately 12 to 24 or more
original features. The Company believes that the availability of original
and exclusive features should enhance ratings, improve demographics and
build audience loyalty to the Fox Family Channel.
. Continue to Strengthen U.S. Broadcasting Operations. The Company strives
to maintain and improve the ratings, reach and penetration of its U.S.
broadcasting network, the Fox Kids Network. The Fox Kids Network is the
top-rated children's-oriented broadcast television network, currently
reaching approximately 97% of the television households in the United
States. The Company plans to improve its ratings for the Fox 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
2
<PAGE>
and Bobby's World, currently owns most of the underlying rights to seven
of the 14 different programs broadcast on the Fox Kids Network and will
strive to increase the number of its owned programs broadcast.
. Develop Strong Branded Characters and Properties. The Company intends to
continue to create and develop new entertainment properties with
potential franchise value and to build on its existing and widely
recognized institutional and programming brands in order to increase
viewership on its networks and maximize revenue from the licensing and
merchandising of its branded characters and properties. Some of the
Company's programming, such as the Power Rangers, have already achieved
franchise status, and high consumer awareness should provide
opportunities to generate revenues from multiple sources on a long-term
basis. The Company intends to capitalize on 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 entertainment properties.
. Continue to Develop and Produce Cost-Effective Programming. The Company
intends to continue its practice of obtaining contractual upfront
commitments from networks, independent television stations, international
broadcasters and merchandisers prior to commencing production. The
Company also intends to continue to produce programming in a cost-
effective manner while maintaining control over critical parts of the
production process to ensure continued high quality.
. Launch Additional International Channels. The Company believes that
significant expansion opportunities exist in the international television
markets, where the children's market has been relatively underserved.
With its library of over 5,400 half-hour episodes of completed and in-
production children's programming, many 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 through its relationship
with News Corp., whose equity interests in international television
distribution platforms and reputation throughout the world have been
helpful in securing carriage agreements on those platforms. The Company
intends to expand the Fox Kids Network globally by launching additional
Fox Kids branded cable and DTH satellite channels targeting children in
many major international territories. The Company's objective is to
create synergies across the base of these channels and thereby reduce
programming costs while marketing and localizing the channels to
distinguish Fox Kids from its competitors.
The principal executive offices of the Company are located at 10960 Wilshire
Boulevard, Los Angeles, California 90024. The Company's telephone number at
such address is (310) 235-5100.
FINANCING PLAN
The purpose of the Offering was to repay $615 million of the $1.25 billion
borrowed under a Credit Agreement dated September 4, 1997, between the Company
and Citicorp USA, Inc. ("Citibank"), among others (the "Old Credit Facility"),
and to repay $215 million of the $345.5 million principal amount of the
subordinated note issued to News America Holdings Incorporated ("NAHI") on
September 4, 1997 (the "NAHI Bridge Note"). All of this indebtedness was
incurred in connection with the IFE Acquisition. Upon consummation of the
Offering and the application of the net proceeds therefrom, there was
approximately $635 million of indebtedness under the Amended Credit Facility
(as defined below) and approximately $94.8 million remaining under the NAHI
Bridge Note, which also reflects the reduction of $35.7 million from a portion
of the net proceeds received on the sale of the Company's equity stake in
Flextech plc (the "Flextech Transaction"). In connection with the Offering, the
Old Credit Facility was amended to allow, among other things, the repayment of
a portion of the NAHI Bridge Note. The Amended Credit Facility consists of a
$710 million facility, comprised of a seven-year amortizing term loan and a
seven-year reducing revolving credit facility (the "Amended Credit Facility").
See "Description of Other Indebtedness," and "Business--Acquisition of
International Family Entertainment, Inc."
3
<PAGE>
THE OFFERING
The Company consummated the Offering on October 28, 1997. The Old Notes were
sold to the Initial Purchasers in reliance upon an exemption from the
registration requirements of the Securities Act. The net proceeds to the
Company from the Offering were used to repay $615 million of the $1.25 billion
borrowed under the Old Credit Facility and to repay $215 million of the $345.5
million principal amount of the NAHI Bridge Note.
THE EXCHANGE OFFER
The Notes Offered........... $475,000,000 aggregate principal amount of 9 1/4%
Senior Notes due 2007.
$618,670,000 aggregate principal amount at
maturity of 10 1/4% Senior Discount Notes due
2007. The yield to maturity on the Senior
Discount Notes is 10 1/4% (computed on a semi-
annual bond equivalent basis), calculated from
October 28, 1997. See "Certain United States
Federal Income Tax Considerations."
Maturity.................... November 1, 2007.
The Exchange Offer..........
Pursuant to the Exchange Offer, the Notes are
being offered in exchange for a like principal
amount of the Old Notes. The Old Notes may be
exchanged only in integral multiples of $1,000
principal amount at maturity. The issuance of the
Notes is intended to satisfy obligations of the
Company contained in the Registration Rights
Agreement. Upon consummation of the Exchange
Offer, certain rights under the Registration
Rights Agreement, including registration rights
and the right to receive the contingent increases
in interest rates, will terminate, except under
certain limited circumstances. As of March 25,
1998, there was one registered Holder of the Old
Senior Notes and one registered Holder of the Old
Senior Discount Notes. On that date, $475,000,000
aggregate principal amount of Old Senior Notes
were outstanding and $618,670,000 aggregate
principal amount at maturity of Old Senior
Discount Notes were outstanding. See "The
Exchange Offer."
The Holders of the Old Notes whose Old Notes are
not tendered and accepted in the Exchange Offer
will continue to hold their Old Notes and will be
entitled to all the rights and preferences
(except for those rights which terminate upon
consummation of the Exchange Offer) and will be
subject to all the limitations applicable thereto
under the Indentures governing the Old Notes and
the Notes, each dated as of October 28, 1997, and
each between the Company and The Bank of New
York, as trustee (together the "Indentures").
Following consummation of the Exchange Offer, the
holders of Old Notes will continue to be subject
to the existing restrictions upon transfer
thereof, and the Company will have no further
obligation to such holders (other than under
certain limited circumstances) to provide for the
registration under the Securities Act of the Old
Notes held by them. The Notes will not be
entitled to certain contingent increases in
interest rates which were available under the Old
Notes if the Company failed to timely file this
Registration Statement.
4
<PAGE>
Resale...................... Based on interpretations by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes the Notes
issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale,
resold and otherwise transferred by any Holder
(other than broker-dealers, as set forth below,
and any such Holder that is an "affiliate" of the
Company within the meaning of Rule 405
promulgated under the Securities Act) without
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that such Notes are acquired in the
ordinary course of such Holder's business and
that such Holder is not participating, does not
intend to participate, and has no arrangement or
understanding with any person to participate, in
the distribution of such Notes. Any Holder of Old
Notes who tenders in the Exchange Offer with the
intention to participate, or for the purpose of
participating, in a distribution of the Notes may
not rely upon such interpretations by the staff
of the Commission and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any
secondary resale transaction, and any such
secondary resale transaction must be covered by
an effective registration statement containing
the selling security holder information required
by Item 507 of Regulation S-K promulgated under
the Securities Act. Failure to comply with these
requirements in such instance may result in the
Holder incurring liabilities under the Securities
Act for which the Holder is not indemnified by
the Company. Each broker-dealer (other than an
affiliate of the Company) that receives Notes for
its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a
prospectus in connection with any resale of such
Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the
Securities Act. The Company has agreed that, for
a period of 90 days after the Expiration Date, it
will make this Prospectus available to any
broker-dealer for use in connection with any such
resale. See "Plan of Distribution." Any broker-
dealer who is an affiliate of the Company may not
participate in the Exchange Offer, may not rely
on the no-action letters referred to above and
must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with a secondary resale transaction.
See "The Exchange Offer."
Expiration Date............. The Exchange Offer will expire at 5:00 p.m., New
York City time, on April 24, 1998 (20 business
days after the Exchange Offer documents are
mailed to the Holders), unless extended by the
Company in its sole discretion, in which case the
term "Expiration Date" shall mean the latest date
and time to which the Exchange Offer is extended.
Any extension, if made, will be publicly
announced through a release to the Dow Jones News
Service and as otherwise required by applicable
law or regulations.
5
<PAGE>
Conditions to the Exchange
Offer....................... The Exchange Offer is subject to certain
conditions, any of which may be waived by the
Company. See "The Exchange Offer--Conditions of
the Exchange Offer." The Exchange Offer is not
conditioned upon any minimum principal amount of
the Old Notes being tendered for exchange.
Procedures for Tendering
the Old Notes.............. Brokers, dealers, commercial banks, trust
companies and other nominees who hold the Old
Notes through The Depository Trust Company
("DTC") may effect tenders by book-entry transfer
in accordance with DTC's Automated Tender Offer
Program ("ATOP"). The Holders of Old Notes
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
are urged to contact such record holder promptly
if they wish to tender the Old Notes. In order
for the Old Notes to be tendered by a means other
than by book-entry transfer, a Holder of the Old
Notes must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or a facsimile thereof,
together with such Old Notes and any other
documents required by the Letter of Transmittal
to The Bank of New York, the Exchange Agent, at
the address set forth herein and therein. By
executing a Letter of Transmittal, a Holder will
represent to the Company that, among other
things, the Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary
course of business of the person receiving such
Notes, whether or not such person is the Holder,
that neither the Holder nor any such other person
has an arrangement or understanding with any
person to participate in the distribution of such
Notes, if the Holder is not a broker-dealer, or
is a broker-dealer but will not receive the Notes
for its own account in exchange for the Old
Notes, neither the Holder nor any such other
person is engaged in or intends to participate in
the distribution of such Notes and that neither
the Holder nor any such other person is an
"affiliate" of the Company within the meaning of
Rule 405 promulgated under the Securities Act.
See "The Exchange Offer--Terms of the Exchange
Offer--Procedures for Tendering Old Notes" and
"The Exchange Offer--Terms of the Exchange
Offer--Guaranteed Delivery Procedures."
Guaranteed Delivery
Procedures................. The Holders of the Old Notes who wish to tender
their Old Notes and whose Old Notes are not
immediately available or who cannot deliver their
Old Notes, the Letter of Transmittal or any other
documents required by such Letter of Transmittal
to the Exchange Agent prior to the Expiration
Date, must tender their Old Notes according to
the guaranteed delivery procedures set forth in
"The Exchange Offer--Terms of the Exchange
Offer--Guaranteed Delivery Procedures."
6
<PAGE>
Acceptance of the Old Notes
and Delivery of the
Notes...................... Subject to certain conditions (as described more
fully in "The Exchange Offer--Conditions of the
Exchange Offer"), the Company will accept for
exchange any and all Old Notes which are properly
tendered in the Exchange Offer and not withdrawn,
prior to 5:00 p.m., New York City time, on the
Expiration Date. The Notes issued pursuant to the
Exchange Offer will be delivered as promptly as
practicable following the Expiration Date.
Withdrawal Rights........... Except as otherwise provided herein, tenders of
the Old Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer--Terms
of the Exchange Offer."
Taxation.................... There will be no United States federal income tax
consequences to a U.S. Holder exchanging an Old
Note for a Note. Each Note will be treated as
having been issued at the time the Old Note
exchanged therefor was originally issued, and
therefore a U.S. Holder will have the same
adjusted basis and holding period in the Note as
it had in the Old Note immediately before the
exchange. See "Certain United States Federal
Income Tax Considerations."
Exchange Agent.............. The Bank of New York is the Exchange Agent. The
address, telephone number and facsimile number of
the Exchange Agent are set forth in "The Exchange
Offer--Exchange Agent."
SUMMARY OF TERMS OF THE NOTES
Interest Payment Dates:
The Senior Notes............ May 1 and November 1 of each year, commencing May
1, 1998.
The Senior Discount Notes... Cash interest will not accrue or be payable on
the Senior Discount Notes prior to November 1,
2002. Thereafter, cash interest on the Senior
Discount Notes will accrue at a rate of 10 1/4%
per annum and will be payable semi-annually in
arrears on each May 1 and November 1, commencing
May 1, 2003; provided, however, that at any time
on or prior to November 1, 2002, the Company may
make a Cash Interest Election on any interest
payment date to commence the accrual of cash
interest from and after the Cash Interest
Election Date, in which case the outstanding
principal amount at maturity of each Senior
Discount Note will on that interest payment date
be reduced to the Accreted Value of such Senior
Discount Note as of that interest payment date,
and cash interest (accruing at a rate of 10 1/4%
per annum from the Cash Interest Election Date)
shall thereafter be payable with respect to each
Senior Discount Note.
Optional Redemption......... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after November 1, 2002, at the redemption prices
set forth herein, plus accrued and unpaid
interest thereon to the date of redemption. See
"Description of the Notes--Optional Redemption."
7
<PAGE>
In addition, on or prior to November 1, 2000, the
Company may redeem up to 35% of the originally
issued aggregate principal amount of the Senior
Notes at a redemption price of 109.25% of the
principal amount thereof, plus accrued and unpaid
interest thereon to the date of redemption, and
may redeem up to 35% of the originally issued
principal amount at maturity of the Senior
Discount Notes at a redemption price equal to
110.25% of the Accreted Value at the redemption
date of the Senior Discount Notes so redeemed
(or, if a Cash Interest Election has been made,
110.25% of the principal amount at maturity of
the Senior Discount Notes so redeemed, plus
accrued and unpaid interest to the redemption
date), in each case with the net cash proceeds of
one or more Public Equity Offerings or sales of
Qualified Equity Interests to Strategic Equity
Investors; provided, however, that not less than
65% of the originally issued aggregate principal
amount of the Senior Notes and not less than 65%
of the originally issued principal amount at
maturity of the Senior Discount Notes is
outstanding immediately after giving effect to
such redemption. See "Description of the Notes--
Optional Redemption."
Ranking..................... The Notes will be senior unsecured obligations of
the Company and will rank pari passu in right of
payment with all existing and future unsecured
and unsubordinated indebtedness of the Company
and senior in right of payment to all future
subordinated indebtedness of the Company. The
Notes will be effectively subordinated to all
secured indebtedness of the Company to the extent
of the assets securing such indebtedness and all
existing and future indebtedness of the
subsidiaries of the Company, including
indebtedness under the Amended Credit Facility.
As of December 31, 1997, the Company and its
subsidiaries had approximately $1.7 billion in
indebtedness outstanding, including the Notes, of
which approximately $641 million would have been
effectively senior to the Notes and the balance
(other than the Notes) would have been
subordinated in right of payment to the Notes.
See "Description of Other Indebtedness."
Change of Control........... Following the occurrence of a Change of Control,
each Holder will have the right to require the
Company to purchase all or a portion of such
Holder's Notes at a purchase price equal to (i)
with respect to the Senior Notes, 101% of the
aggregate principal amount thereof, plus accrued
and unpaid interest thereon to the date of
purchase, and (ii) with respect to the Senior
Discount Notes, 101% of the Accreted Value on the
date of purchase (unless the date of purchase is
on or after the earlier to occur of November 1,
2002 or the Cash Interest Election Date, in which
case such purchase price shall be equal to 101%
of the aggregate principal amount at maturity
thereof, plus accrued and unpaid interest to the
date of purchase). The Company may not, however,
have sufficient funds upon a Change of Control to
redeem the Notes at a premium or at all. See
"Description of the Notes--Change of Control."
8
<PAGE>
Certain Covenants........... The Indentures pursuant to which the Old Notes
were issued and the Notes will be issued contain
certain covenants, including (i) limitations on
indebtedness, (ii) limitations on restricted
payments, (iii) limitations on liens, (iv)
limitations on dividends and other payment
restrictions affecting Restricted Subsidiaries
(as defined under "Description of the Notes--
Certain Definitions"), (v) limitations on
preferred stock of Restricted Subsidiaries,
(vi) limitations on transactions with affiliates,
(vii) limitations on sale leaseback transactions,
(viii) limitations on the disposition of proceeds
of asset sales and (ix) limitations on
designations of Unrestricted Subsidiaries (as
defined under "Description of the Notes--Certain
Definitions"). In addition, the Indentures limit
the ability of the Company to consolidate, merge
or sell all or substantially all of its assets.
These covenants are subject to important
exceptions and qualifications. See "Description
of the Notes--Certain Covenants."
Absence of Public Market
for Notes................... The Notes will constitute new issues of
securities for which there is no established
public trading market. Although the Old Notes
have been designated for trading in the PORTAL
market, there has been no public market for the
Old Notes and it is not currently anticipated
that an active public market for the Notes will
develop. The Company does not intend to apply for
the listing of the Notes on any securities
exchange or to seek approval for quotation
through any automated quotation system. Although
the Initial Purchasers have informed the Company
that they currently intend to make a market in
the Notes, they are not obligated to do so and
any such market making may be discontinued at any
time without notice. Accordingly, there can be no
assurance as to the development or liquidity of
any market for the Notes. See "Risk Factors--
Absence of Public Market for the Notes" and "Plan
of Distribution."
For additional information regarding the Notes, see "Description of the
Notes" and "Certain United States Federal Income Tax Considerations."
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the Notes
pursuant to this Prospectus. See "Use of Proceeds."
RISK FACTORS
An investment in the Notes involves a high degree of risk. Prospective
investors should carefully consider the matters set forth under "Risk Factors"
beginning on page 14.
9
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL DATA
Fox Kids Worldwide, Inc. was incorporated to effect the Reorganization of Fox
Kids Worldwide, L.L.C. (the "LLC"), a joint venture between Saban and FCN
Holding, Inc. ("FCN Holding"). As a result of the Reorganization, Fox Kids
Worldwide, Inc. became the owner of (i) all of the outstanding capital stock of
FCN Holding, which was an indirect subsidiary of Fox Broadcasting, (ii) all of
the outstanding capital stock of Saban and (iii) Fox Broadcasting's direct and
indirect member's interests in the LLC and, consequently, Saban, FCN Holding
and the LLC became wholly owned subsidiaries of Fox Kids Worldwide, Inc. Prior
to the Reorganization, the Company did not engage in any business activities.
The Reorganization was consummated on August 1, 1997. From November 1, 1995
(the "Effective Date") until August 1, 1997, each of Saban and FCN Holding had
been operated by its respective management subject to the overall supervision
of a governing committee of the LLC comprised of an equal number of
representatives of each of Saban and FCN Holding. As a result of the formation
of the joint venture and the common management of the joint venture business,
the respective assets, liabilities and operations of Saban, FCN Holding and the
LLC have been combined at historical cost from and after the Effective Date.
See "Formation of the Company."
The following tables set forth, for the periods and on the dates indicated,
summary historical and pro forma consolidated financial data of the Company
derived from the financial statements included elsewhere in this Prospectus.
The unaudited pro forma financial data for the Company give effect to the IFE
Acquisition and related financing and the Reorganization as though they had
occurred at the beginning of each period presented (with respect to the
statements of operations data and other data). The unaudited pro forma as
adjusted information gives effect to the IFE Acquisition and related financing
and the Reorganization, as adjusted for the Offering, the Exchange Offer and
the reduction of the NAHI Bridge Note from the Flextech Transaction. 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, are not necessarily indicative of actual results of operations and
the financial position that would have been achieved had the transactions been
consummated on the dates indicated, and are not necessarily indicative of
future results of operations or financial position.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
DATA:
EIGHT MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED ENDED
JUNE 30, 1996 JUNE 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997
------------- ------------- ----------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues............ $191,621 $307,820 $173,790 $332,971
Amortization of
intangible assets...... -- -- -- 17,436
Operating income........ 60,759 58,779 43,083 57,638
Interest expense........ 885 2,226 1,528 58,388
Net income (loss)....... 31,600 40,440 30,040 (5,603)
Net income (loss)
attributable to common
shares ................ 31,600 40,440 30,040 (18,618)
Net income (loss) per
common share--basic and
diluted................ $ 1.98 $ 2.53 $ 1.88 $ (1.16)
Weighted average shares
outstanding--basic and
diluted................ 16,000 16,000 16,000 16,000
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED PRO FORMA
PRO FORMA FOR THE YEAR FOR SIX MONTHS
FOR THE YEAR ENDED ENDED ENDED
JUNE 30, 1997(1) JUNE 30, 1997(2) DECEMBER 31, 1997(3)
------------------ ---------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues............ $614,618 $614,618 $357,456
Amortization of
intangible assets...... 41,819 41,819 20,923
Operating income........ 118,548 118,548 61,427
Interest expense........ 148,966 159,251 81,901
Net loss................ (29,884) (36,055) (18,832)
Net loss attributable to
common shares.......... (60,934) (67,105) (34,485)
Net loss per common
share--basic and
diluted................ $ (3.81) $ (4.19) $ (2.16)
Weighted average shares
outstanding--basic and
diluted................ 16,000 16,000 16,000
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
OTHER DATA:
EIGHT MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED ENDED
JUNE 30, 1996 JUNE 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997
------------- ------------- ----------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
EBITDA (4).............. $61,269 $58,436 $43,592 $ 77,566
Amortization of
intangible assets...... -- -- -- 17,436
Net cash provided by
(used in) operations... 15,893 (2,015) 6,878 (15,911)
Net cash provided by
(used in) investing
activities............. 4,383 (17,059) (1,667) (1,336,230)
Net cash provided by
(used in) financing
activities............. (4,549) 31,907 (4,711) 1,378,673
Capital expenditures.... 3,053 3,435 1,667 4,504
Amortization of
programming costs...... 83,485 144,713 75,383 158,427
Investment in
programming ........... 113,506 198,861 101,220 139,614
Ratio of earnings to
fixed charges.......... 22:1 11:1 17:1 --
Deficiency of earnings
available to cover
fixed charges.......... -- -- -- (3,952)
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED PRO FORMA
PRO FORMA FOR THE YEAR FOR SIX MONTHS
FOR THE YEAR ENDED ENDED ENDED
JUNE 30, 1997(1) JUNE 30, 1997(2) DECEMBER 31, 1997(3)
------------------ ---------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C>
EBITDA (4).............. $172,018 $172,018 $85,901
Amortization of
intangible assets...... 41,819 41,819 20,923
Capital expenditures.... 12,510 12,510 4,727
Amortization of
programming costs...... 249,620 249,620 167,128
Investment in
programming ........... 312,088 312,088 148,959
Deficiency of earnings
available to cover
fixed charges.......... (32,442) (42,727) (23,309)
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
AS OF
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents..................................... $ 55,409
Programming costs, less accumulated amortization.............. 354,348
Total assets.................................................. 2,504,376
Long-term obligations (including current maturities).......... 1,713,572
Series A preferred stock...................................... 345,000
Stockholders' equity.......................................... 66,049
</TABLE>
- -------
(1) The pro forma information gives effect to the IFE Acquisition and related
financing and the Reorganization as if they had occurred at the beginning
of each period presented (with respect to the Statements of Operations Data
and Other Data).
(2) The pro forma as adjusted information gives effect to the IFE Acquisition
and related financing and the Reorganization described in footnote (1), as
adjusted for the Offering, the Exchange Offer and the reduction of the NAHI
Bridge Note from the Flextech Transaction.
(3) The pro forma information gives effect to the IFE Acquisition and related
financing and the Reorganization, as well as the Offering, the Exchange
Offer and the reduction of the NAHI Bridge Note from the Flextech
Transaction.
(4) EBITDA represents income from operations before interest, taxes,
depreciation and amortization (excluding capitalized depreciation and
amortization of programming costs). Capitalized depreciation was $1,075,000
for the eight months ended June 30, 1996, $2,023,000 for the year ended
June 30, 1997 and $992,000 and $1,100,000 for the six months ended December
31, 1996 and 1997, respectively. 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.
EBITDA, as determined by the Company, may not be comparable to similarly
titled measures reported by other companies. The Company believes that
EBITDA, while providing useful information, should not be considered in
isolation or as a substitute measure for net income or loss, as an
indicator of operating performance or as an alternative to cash flow as a
measure of liquidity as determined under GAAP. EBITDA also does not
represent funds available for interest, dividends, reinvestment or other
discretionary uses.
11
<PAGE>
FORMATION OF THE COMPANY
In June 1995, FCN Holding and Saban formed the LLC, a strategic alliance
limited liability company, 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. Between
November 1, 1995 and August 1, 1997, each of Saban and FCN Holding was
operated by its respective management subject to the overall supervision of a
governing committee of the LLC comprised of an equal number of representatives
of each of FCN Holding and Saban.
The Company was incorporated in August 1996 under Delaware law as a holding
company of FCN Holding, Saban and the LLC. Between August 1996 and August
1997, the Company conducted no business or operations. On August 1, 1997, in
connection with the Company's acquisition of a controlling interest in IFE,
(i) Fox Broadcasting Sub, Inc., a wholly owned indirect subsidiary of Fox
Broadcasting ("Fox Broadcasting Sub"), exchanged its capital stock in FCN
Holding, which indirectly owns the Fox Children's Network, Inc. ("FCN"), for
7,920,000 shares of Class B Common Stock of the Company, (ii) the other
stockholder of FCN Holding exchanged its capital stock in FCN Holding for an
aggregate of 160,000 shares of Class A Common Stock of the Company, (iii) Haim
Saban and the other stockholders of Saban (together, the "Saban Stockholders")
(none of whom is affiliated with News Corp.) exchanged their capital stock of
Saban for an aggregate of 7,920,000 shares of Class B Common Stock of the
Company, and (iv) all outstanding management options to purchase Saban capital
stock became options to purchase an aggregate of 646,548 shares of Class A
Common Stock of the Company. In addition, Fox Broadcasting exchanged its
preferred, non-voting interest in the LLC and its $50 million contingent note
receivable from the LLC for a new subordinated pay-in-kind note from the
Company ("Fox Subordinated Note"), which currently has an outstanding
principal amount of approximately $108.6 million. See "Description of
Indebtedness--Fox Subordinated Note" and "Certain Transactions--Formation of
the LLC and the Reorganization." As a result of these transactions, which are
referred to in this Prospectus as the "Reorganization," FCN Holding, FCN,
Saban and the LLC became direct or indirect wholly owned subsidiaries of the
Company.
The charts on the following page illustrate a simplified ownership structure
of the parties to the Reorganization (i) before the Reorganization, IFE
Acquisition and the Offering and (ii) after the Reorganization, IFE
Acquisition and the Offering. Certain intermediate subsidiary corporations
have not been included in these charts.
12
<PAGE>
Before the Reorganization, IFE Acquisition and the Offering:
[BEFORE THE REORGANIZATION GRAPH APPEARS HERE]
After the Reorganization, IFE Acquisition and the Offering:
[AFTER THE REORGANIZATION GRAPH APPEARS HERE]
13
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors, in
addition to the other information contained in this Prospectus, in evaluating
the Company and its business.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
As of December 31, 1997, the Company's total amount of consolidated debt
outstanding was approximately $1.7 billion, or 80% of total capitalization.
The Company's deficiency of earnings available to cover fixed charges would
have been approximately $23.3 million for the six months ended December 31,
1997 after giving pro forma effect to the Offering, the IFE Acquisition and
the related financing, the Reorganization (as defined) and the Flextech
Transaction (collectively, the "Transactions"). In addition, the Company does
not expect to have net income for the fiscal year ending June 30, 1998 due
primarily to the amount of interest expense and amortization of intangible
assets. The Indentures will permit the Company and its subsidiaries to incur
additional debt, subject to certain limitations. See "Capitalization,"
"Selected Historical Consolidated Financial Data" and "Description of the
Notes--Certain Covenants--Limitation on Indebtedness." The Company is a
holding company and its ability to obtain funds from its subsidiaries and
affiliates could be limited. See "--Risks Associated with Holding Company
Structure."
The degree to which the Company is leveraged following the Exchange Offer
could have important consequences to the Holders, including, but not limited
to, the following: (i) the Company's ability to obtain financing in the future
for working capital, capital expenditures or general corporate purposes may be
impaired; (ii) a substantial portion of cash flows from the operation of the
Company's subsidiaries will be dedicated to the payment of the principal of
and interest on its debt and will not be available for other purposes; and
(iii) certain of the Company's borrowings are at variable rates of interest,
which could result in higher interest expense in the event of increases in
interest rates. Further, the Indentures and the Amended Credit Facility
contain certain restrictive financial and operating covenants which will
affect, and in many respects significantly limit or prohibit, among other
things, the ability of the Company to incur indebtedness, make prepayments of
certain indebtedness, pay dividends, make investments, engage in transactions
with affiliates, create liens, sell assets and engage in mergers and
consolidations. These covenants may significantly limit the operating and
financial flexibility of the Company and may limit its ability to respond to
changes in its business or competitive activities. The failure by the Company
to comply with such covenants could result in an event of default under the
applicable instrument, which could permit acceleration of the debt under the
instrument and in some cases acceleration of debt under other instruments
containing cross-default or cross-acceleration provisions. See "Description of
the Notes--Certain Covenants--Limitation on Indebtedness" and "--Events of
Default."
The Company's ability to make scheduled payments of principal of, or to pay
interest on or to refinance, its debt (including the Notes) depends on its
future financial performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors beyond its control. Although management believes that cash from
operations, together with available borrowings pursuant to the Amended Credit
Facility, will be adequate to meet the Company's anticipated future
requirements for working capital, capital expenditures and scheduled payments
of interest on its debt (including the Notes) for the foreseeable future, this
is a forward-looking statement and there can be no assurance, that the
Company's business will generate sufficient cash flow from operations or that
future working capital borrowings will be available in an amount sufficient to
enable the Company to service its debt (including the Notes) or to make
necessary capital expenditures or other expenditures. Furthermore, there can
be no assurance that the Company will be able to raise additional capital for
any required refinancing in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
PAYMENT OF NOTES NOT GUARANTEED
The Notes will not be guaranteed by any of the Company's subsidiaries or any
third parties (including any affiliates of the Company). Therefore, there
should be no expectation that any person other than the Company will in the
future make payments of principal, interest or premium (if any) with respect
to the Notes. See "Description of the Notes."
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<PAGE>
RISKS ASSOCIATED WITH HOLDING COMPANY STRUCTURE
The Company is a holding company and its assets consist solely of
investments in its subsidiaries. As a holding company, the Company's ability
to meet its financial obligations, including its obligations under the Notes
and the Amended Credit Facility and its funding and other commitments to its
subsidiaries, is dependent upon the earnings of the subsidiaries and the
distribution or other payment of such earnings to the Company in the form of
dividend distributions, loans or other advances, payment or reimbursement for
management fees and expenses and repayment of loans and advances from the
Company. Accordingly, the Company's ability to pay interest on the Notes and
otherwise to meet its liquidity requirements may be limited as a result of its
dependence upon the distribution of earnings and advances of funds by its
subsidiaries. The payment of dividends or the making of loans or advances to
the Company by its subsidiaries may be subject to statutory, regulatory or
contractual restrictions, are contingent upon the earnings of those
subsidiaries and are subject to various business considerations. Certain of
the Company's subsidiaries may in the future be subject to loan or other
agreements prohibiting or limiting the transfer of funds to the Company, or
requiring that any indebtedness of such subsidiaries or affiliates to the
Company be subordinate to the indebtedness under such agreements.
In addition, because the Company is a holding company, the Notes will be
effectively subordinated to all existing and future liabilities, including
those under the Amended Credit Facility, and trade payables of the Company's
subsidiaries, except to the extent that the Company may itself be a creditor
with recognized claims against such subsidiary. Any right of the Company as an
equity holder to participate in the distribution of the assets of any
subsidiary upon the subsidiary's liquidation or reorganization will be subject
to the prior claims of the creditors (including trade creditors) of that
subsidiary. As of December 31, 1997, the Company and its subsidiaries had an
aggregate of approximately $1.7 billion of indebtedness outstanding, including
the Notes, of which approximately $641 million would have been effectively
senior to the Notes and the balance of which (other than the Notes) would have
been subordinated in right of payment to the Notes.
RISK OF INABILITY TO REDEEM NOTES
Following the occurrence of a Change of Control, each Holder will have the
right to require the Company to purchase all or a portion of such Holder's
Notes at a purchase price equal to 101% of the aggregate principal amount of
the Senior Notes, plus accrued and unpaid interest thereon to the date of
purchase, and at a purchase price equal to 101% of the Accreted Value of the
Senior Discount Notes at the date of purchase (unless the date of purchase is
on or after the earlier to occur of November 1, 2002 or the Cash Election Date
in which case such purchase price shall be equal to 101% of the aggregate
principal amount at maturity thereof, plus accrued and unpaid interest thereon
to the date of purchase). The Company may not, however, have sufficient funds
upon a Change of Control to redeem the Notes at a premium or at all.
ACQUISITION OF IFE
No Prior Cable Television Operations History. The IFE Acquisition expanded
the Company's operations into the cable television business, a business in
which it had never before operated. The cable television business is highly
competitive, subject to government regulation and at risk to technological
change. Cable television only reaches 70.1% of the United States' television
households ("TVHH") compared to 98% for broadcast television and 6.8% for
direct-to-home satellite television. Cable television reaches approximately 26
million of U.S. children between the ages of 2-11. In the cable television
market the Company is subject to competition from other cable television
companies which, in many instances, have greater production, distribution and
capital resources than the cable television operations of the Company.
Programming Changes at The Family Channel. The Company intends to change the
programming of The Family Channel and there is no guarantee that the
reprogrammed channel will retain its existing viewers or attract new viewers.
If the ratings of The Family Channel when reprogrammed as the Fox Family
Channel were to fail to meet the Company's expectations, the Company could be
materially adversely affected. The Company acquired IFE with the expectation
that the acquisition would result in synergies for the combined business.
These
15
<PAGE>
include the potential to realize a greater return on its children's
programming library through distribution on the Fox Family Channel and
operational synergies through the sale of "packaged advertising," cross-
promotional opportunities with the Fox Kids Network, consolidation of
duplicative functions and the elimination of excess overhead. Achieving these
anticipated business benefits will depend in part on whether the operations of
IFE can be integrated with the operations of the Company in an efficient,
effective and timely manner and the success of the programming changes at The
Family Channel currently anticipated to be introduced in August 1998. In
addition, the integration of operations of IFE into the Company will require
the dedication of management resources, which may affect management's
attention regarding the day-to-day business of the Company. The inability of
management to integrate successfully the operations of the companies could
have a material adverse effect on the business, results of operations and
financial condition of the Company. See "Business--Acquisition of
International Family Entertainment, Inc."
INTERNATIONAL CHANNELS
The Company is spending considerable resources on the development of
international DTH and cable children's channels. The launch of channels
throughout the world is particularly capital intensive. In many markets a
number of the Company's competitors already have well established children's
channels. Not only does the Company have to negotiate to obtain channel
capacity (which is limited in many markets), but the Company must also acquire
additional programming or adapt existing programming so that it appeals to
local viewers. See "Business--Distribution--International Channels."
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 revenues and
operating profits for the fiscal year ended June 30, 1997, as well as a
substantial portion of the historical revenues and operating profits of Saban
and FCN. For the fiscal year ended June 30, 1997 and the six months ended
December 31, 1997, revenues derived from the Company's production,
distribution and worldwide exploitation of Power Rangers accounted for
approximately 23% and 7% of the Company's consolidated revenues and, giving
effect to the IFE Acquisition as if it had occurred on July 1, 1996, 12% and
7% of pro forma consolidated revenues for the fiscal year ended June 30, 1997
and the six months ended December 31, 1997, respectively.
Although Power Rangers' ratings among children ages 2-11 have declined over
the past three broadcast seasons from an 8.9 rating in the 1994-1995 broadcast
season to a 4.9 rating in the 1995-1996 broadcast season and to a 3.8 rating
in the 1996-1997 broadcast season, Power Rangers has, according to Nielsen
Media Research, been the most watched children's weekday broadcast television
program among boys ages 2-11 in the United States in two of the past three
broadcast seasons. The corresponding broadcast ratings for Power Rangers among
boys ages 2-11 for the 1994-1995, 1995-1996 and 1996-1997 broadcast seasons
were 11.1, 7.5 and 6.0, respectively. At its peak, near the beginning of the
1994-1995 broadcast season, Power Rangers hit a 14.3 rating, which makes Power
Rangers the highest rated children's program ever broadcast on the Fox Kids
Network to date. However, children's preferences change fairly frequently, and
there can be no assurance the television viewership of Power Rangers will be
maintained or that related revenues will not be affected adversely. In
addition, the carriage of a highly rated program such as Power Rangers tends
to enhance the viewership, and ratings, of other programs broadcast on the Fox
Kids Network. During the four "sweeps" periods for the same 1994-1995, 1995-
1996 and 1996-1997 broadcast seasons, the Fox Kids Network had the highest
average rating among all broadcast network children's programming in every
sweeps period except one which was a tie for first with ABC. The Fox Kids
Network averaged a 5.725 rating for the 1994-1995 broadcast season sweeps
periods, a 3.45 rating for the 1995-1996 broadcast season sweeps periods and a
2.9 rating for the 1996-1997 broadcast season sweeps periods. Thus, although
having the highest broadcast network average ratings, the Fox Kids Network's
ratings overall have followed the trend of the Power Rangers' 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, or the failure
by the Company
16
<PAGE>
to create competitive replacement programs for Power Rangers could materially
and adversely affect the Company's results of operations and financial
condition. See "--Decline in Ratings of Fox Kids Network, --Key Contracts,"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Results of Operations.
POSSIBLE DECLINE IN POPULARITY OF CURRENT PROGRAMS AND UNCERTAINTY OF
ACCEPTANCE OF NEW PROGRAMS
A significant portion of the Company's revenues are derived from the
creation, development, production, acquisition, international distribution,
merchandising and other exploitation of children's television properties. For
the fiscal year ended June 30, 1997, revenues from these sources represented
approximately 91% of the Company's consolidated revenues, and, giving effect
to the IFE Acquisition as if it had occurred on July 1, 1996, 45% of pro forma
consolidated revenues. For the six months ended December 31, 1997, which
included IFE from August 1, 1997, revenues from these sources represented
approximately 41% of the Company's consolidated revenues, and giving effect to
the IFE Acquisition as if it had occurred on July 1, 1996, 38% of pro forma
consolidated revenues. As a result of the planned reprogramming of The Family
Channel to emphasize children's programming during the day, it can be
anticipated that in the near future revenues from children's programming as a
percentage of total revenues will increase. The success of any 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 ability of the Company to continue
successfully to exploit the merchandising opportunities afforded by its
programs will also be dependent on the favorable ratings of the programs and
the ability of the Company's characters to continue to provide attractive
merchandising opportunities for its licensees. The Company 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 "Business--
Competition."
DECLINE IN RATINGS OF FOX KIDS NETWORK
Ratings for the Fox Kids Network among children ages 2-11 decreased 12% from
the 1995-1996 broadcast season to the 1996-1997 broadcast season and, based on
figures available to date for the 1997-1998 season, it is possible that
ratings may decrease from the 1996-1997 season to the 1997-1998 season. As a
result, the Company ordered nine new series in addition to the returning shows
for the 1997-1998 season. No assurance can be given that the new series will
perform better than the cancelled series. Although the Fox Kids Network still
leads in ratings among the children's broadcast television networks, certain
children's oriented cable channels have seen ratings increase. The Company
believes that part of the decline is due to the fact that children have many
entertainment options, which are likely to continue, including more hours of
children's programming on cable, new video games, computers and home videos.
Material declines in the ratings of the Fox Kids Network could materially and
adversely affect the Company's results of operations and financial condition.
POSSIBILITY OF NON-RENEWAL OF AFFILIATION AGREEMENTS BY FOX TELEVISION MEMBER
STATIONS
Over 93% of the affiliation agreements with Fox Broadcasting's member
stations ("FOX Television Member Stations") require the affiliates also to
carry the Fox Kids Network. Fox Broadcasting currently expects to continue to
be able to renew its affiliation agreements with the FOX Television Member
Stations as they mature. A FOX Television Member Station may choose not to
renew its affiliation agreement with Fox Broadcasting and at the same time
discontinue carriage of the Fox Kids Network. If a FOX Television Member
Station decides not to renew its status as such, it is less likely that it
would continue to carry Fox Kids Network
17
<PAGE>
programming. If the Company fails to renew its affiliation agreements, there
could be a material and adverse effect on the results of operations and
financial condition of the Company. See "Business--Distribution--Fox Kids
Network" and "Business--The Strategic Alliance with Fox/News Corp."
POSSIBLE REDUCTION IN DISTRIBUTION OR NON-RENEWAL OF THE FAMILY CHANNEL BY
CABLE OPERATORS
The Company distributes The Family Channel to cable operators pursuant to
affiliation agreements whereby the cable operator agrees to provide carriage
for a specified per subscriber fee. At December 31, 1997, The Family Channel
had affiliation agreements with approximately 850 affiliated cable operators,
terminating on various dates from 1998 to 2006. Pursuant to these agreements,
The Family Channel currently has 71 million cable and satellite subscribers
out of a potential audience reach of 74 million households at December 31,
1997. Under these agreements, cable operators and other distributors may
discontinue carriage of The Family Channel or move The Family Channel to a
more narrowly distributed level of service or tier. Any such discontinuance or
movement would greatly limit The Family Channel's ability to generate national
advertising revenues, as these depend on broad distribution, particularly by
cable operators. The Company currently expects to continue to be able to renew
its affiliation agreements as they mature or to maintain its carriage on
"expanded basic," the most widely distributed level of service. However, there
can be no assurance that these affiliation agreements will be renewed or that
they will be renewed on the same or more favorable terms. See "--Acquisition
of IFE" and "Business--Acquisition of International Family Entertainment,
Inc."
DEPENDENCE UPON 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 employment agreements with Mr. Saban and certain of its other key
executives. 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
operations and financial condition of the Company. See "Management."
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 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 currently competes through its Fox Kids
Network and The Family Channel, and will compete through its Fox Kids Network
and the Fox Family Channel, 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, viewership ratings and related advertising revenues. Further, the
Company vies for audiences with independent television stations, suppliers of
cable television programs, radio and other forms of media. As a result of
heightened competition for the children ages 2-11 category, the broadcast
networks suffered a decline in ratings of their children's programming during
the last two television seasons, and there can be no assurance that the
decline will not continue. In addition, increased competition for viewers in
the cable industry may result from technological advances, such as digital
compression technology, which allow cable systems to expand channel capacity;
the further deployment of fiber optic cable, which has the capacity to carry a
much greater number of channels than coaxial cable; and
18
<PAGE>
"multiplexing," in which programming services offer more than one feed of
their programming. The increased number of choices available to the Fox Family
Channel's family viewing audience as a result of technological advances may
lead to a reduction in the Company's market share.
When The Family Channel's reprogramming as the Fox Family Channel is
complete, the cable channels with which the Fox Family Channel will compete
head-on include Nickelodeon (an MTV Networks company), the Disney Channel and
the Cartoon Network. In addition to these direct cable competitors, the Fox
Family Channel will also compete with its Fox Kids Network sister, the WB,
ABC, UPN, CBS and PBS. The Company intends to differentiate itself from this
competition by cross-promoting programming with the Fox Kids Network. In
addition, the Fox Family Channel will also serve as an additional outlet for
Fox Kids original programming.
The Company will compete for advertising revenue with the television
programming services described above, as well as with other national and
international television programming services, superstations, broadcast
television networks, local over-the-air television stations, radio and print
media, in addition to alternative delivery services that now exist or are
expected to develop in the future. More generally, the Company competes with
various other leisure-time activities such as home videos, movie theaters,
personal computers and other alternative sources of entertainment and
information.
Internationally, the Company contends with a large number of U.S.-based and
international distributors of children's programming, including The Walt
Disney Company, Warner Bros. and Nickelodeon, with whom the Company 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 "--Potential Adverse Impact of Regulation" and "Business--
Competition."
KEY CONTRACTS
The Company has master 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 existing series,
including Power Rangers, and to as many as two new series each year through
the end of the year 2002. For the fiscal year ended June 30, 1997, and the six
months ended December 31, 1997, 12% and 1%, respectively, of the Company's
consolidated revenues and, giving effect to the IFE Acquisition as if it had
occurred on July 1, 1996, 6% and 1% of the Company's pro forma consolidated
revenues, for the fiscal year ended June 30, 1997 and six months ended
December 31, 1997, respectively, 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 the same or more favorable terms. See "Business--
Merchandising and Licensing." In addition, two of the Company's 16 series for
the 1997-98 broadcast season are based on programs originally developed by
Toei Company, Ltd. ("Toei"), which is currently one of Japan's largest film
companies. 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 2006. While the Company believes that its ability to successfully
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 business, results of operations and financial condition of the Company.
OVERESTIMATION OF REVENUES OR UNDERESTIMATION OF COSTS
The Company follows Financial Accounting Standards Board Statement No. 53,
"Financial Reporting by Producers and Distributors of Motion Picture Films,"
regarding revenue recognition and amortization of production costs for
programs and films 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
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<PAGE>
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--Significant
Accounting Factors--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 are
broadcast during a program. 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 the international sales 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--Significant Accounting Factors--Revenue Recognition and
Seasonality."
DEPENDENCE UPON SATELLITE TRANSPONDERS
Distribution of The Family Channel depends upon the operation of satellites
by third parties. The Company currently owns three full-time transponders on
three different satellites for use by The Family Channel. The Company
transmits The Family Channel programming using two separate "feeds" which are
uplinked to two of its satellites. All of the Company-owned transponders have
"protected" status. "Protected" status means that should the transponder fail,
service will be transferred, subject to availability, to a spare transponder,
and, if one is not available, then to a transponder with "preemptable status"
on the same satellite and/or another satellite owned by the same seller or
lessor, subject to certain limitations. "Preemptable" status means that the
transponder can be preempted in the event of a failure of a "protected"
transponder.
Satellites are subject to significant risks that may prevent or impair
proper commercial operations, including satellite defects, launch failure,
destruction and damage and incorrect orbital placement. At present, there are
a limited number of domestic communications satellites available for the
transmission of cable television programming to cable system operators. If
satellite transmission is interrupted or terminated due to the failure or
unavailability of a transponder, the termination or interruption could have a
material adverse effect on the Company. The availability of additional
transponders in the future is dependent on a number of factors over which the
Company has no control. These factors include the future authorization of
additional domestic satellites, future competition among prospective users for
available transponder space, the uncertain status of the United States' Space
Shuttle Program (including priority allocations of future shuttle cargo space
to military rather than commercial payloads) and the uncertain availability of
satellites launching by private entities in the United States and by private
or governmental entities in other countries. See "Business--Distribution--The
Family Channel/Fox Family Channel--Transmission Facilities."
INTERNATIONAL SUBCONTRACTING OF ANIMATION
As with other producers of animated programming, the Company subcontracts
some of the more labor-intensive components of its animation production
process to animation 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
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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
For the fiscal year ended June 30, 1997 and for the six months ended
December 31, 1997, the Company derived approximately 35% and 20% of its
consolidated revenues, respectively, and, giving effect to the IFE Acquisition
as if it had occurred on July 1, 1996, 19% and 19%, respectively, of its pro
forma consolidated revenues 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."
POTENTIAL ADVERSE IMPACT OF REGULATION
The United States Congress and the Federal Communications Commission (the
"FCC") currently have under consideration, and may in the future consider and
adopt, new laws, regulations and policies regarding a wide variety of matters
that may affect, directly or indirectly, the operation, ownership and
profitability of the Company's business. These proposed changes include, for
example, expansion of program access requirements and potential must-carry
rights for digital television broadcast stations (which could limit the
capacity of multichannel video programming distributors available for the
Company's programming). It is impossible to predict the outcome of federal
legislation currently under consideration or the potential effect thereof on
the Company's business. In addition, certain aspects of the Company's cable
operations are subject, directly or indirectly, to regulation at the state
and/or local level. State and/or local authorities could adopt laws or
regulations in this area that could further restrict the operations of the
Company. See "Business--Government Regulation."
POTENTIAL FOR DEADLOCKS
The holders of the Class B Common Stock of the Company 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. There is no mechanism for
breaking a deadlock among the holders of Class B Common Stock. With respect to
the election of directors, the holders of the Class B Common Stock have agreed
to vote their shares for three directors selected by Haim Saban and three
directors selected by Fox Broadcasting. 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 in the future arise 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 adversely affect the results of operations and
financial condition of the Company.
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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. See "Business--The
Strategic Alliance with Fox/News Corp."
TRANSACTIONS WITH STOCKHOLDERS AND THEIR AFFILIATES
The Company has in the past entered into transactions and agreements, some
of which are ongoing, with Haim 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, there can be
no assurance that any such future transactions will prove to be favorable to
the Company. In addition, the Indentures provide, with certain exceptions,
that the Company may not enter into any transactions with affiliates except on
terms that are no less favorable to the Company than the Company would obtain
in a comparable arm's-length transaction. See "Certain Transactions."
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Senior Discount Notes will be issued at a discount from their principal
amount at maturity. Although cash interest is not expected to accrue on the
Senior Discount Notes prior to November 1, 2002, and there are not expected to
be any periodic payments of interest on the Senior Discount Notes prior to May
1, 2003 (unless a Cash Interest Election has been made), original issue
discount (the difference between the "stated redemption price at maturity" and
the "issue price," as such terms are defined in the Internal Revenue Code of
1986, as amended (the "Code"), and Treasury Regulations thereunder) ("OID") of
the Senior Discount Notes will accrete from the issue date of such Notes up to
the maturity date. Consequently, Holders of the Senior Discount Notes
generally will be required to include amounts in gross income for United
States federal income tax purposes in advance of their receipt of the cash
payments to which the income is attributable. Such amounts in the aggregate
will be equal to the difference between the "stated redemption price at
maturity" (inclusive of stated interest on the Senior Discount Notes) and the
"issue price" of the Senior Discount Notes. See "Certain United States Federal
Income Tax Considerations" for a more detailed discussion of the federal
income tax consequences of the purchase, ownership and disposition of the
Senior Discount Notes.
In the event a bankruptcy case is commenced by or against the Company under
the United States Bankruptcy Code (the "Bankruptcy Code"), the claim of a
Holder of the Senior Discount Notes may be limited to an amount equal to the
sum of (i) the initial offering price and (ii) that portion of the OID which
is not deemed to constitute "unmatured interest" for purposes of the
Bankruptcy Code. Any OID that was not amortized as of the date of any such
bankruptcy filing would constitute "unmatured interest." To the extent that
the Bankruptcy Code differs from the Code in determining the method of
amortization of OID, a Holder of the Senior Discount Notes may realize taxable
gain or loss on payment of such holder's claim in bankruptcy.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes will constitute new issues of securities for which there is no
established public trading market. Although the Old Notes are eligible for
trading on PORTAL, the Company does not intend to apply for listing of the
Notes on a national securities exchange or quotation of the Notes on any
automated quotation system. The Initial Purchasers have advised the Company
that they currently intend to make a market in the Notes, although the Initial
Purchasers are not obligated to do so, and any such market making with respect
to the Notes may be discontinued at any time without notice. Accordingly,
there can be no assurance as to the development or
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liquidity of any market that may develop for the Notes, the ability of the
holders of the Notes to sell their Notes or the price at which such holders
would be able to sell their Notes. If a market were to exist, the Notes could
trade at prices that may be lower than the initial offering price thereof,
depending on many factors, including prevailing interest rates and the markets
for similar securities, general economic conditions and the financial
condition and performance of, and prospects for, the Company. See "Plan of
Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
The Notes will be issued in exchange for the Old Notes only after timely
receipt by the Exchange Agent of such Old Notes or a book-entry confirmation
of a book-entry transfer of the Old Notes into the Exchange Agent's account at
DTC, including an Agent's Message (as defined herein) if the tendering Holder
does not deliver a properly completed and duly executed Letter of Transmittal,
or, in the case of book-entry transfer, an Agent's Message in lieu of the
Letter of Transmittal, including all other documents required by such Letter
of Transmittal. Therefore, the Holders of the Old Notes desiring to tender
such Old Notes in exchange for the Notes should allow sufficient time to
ensure timely delivery. Neither the Exchange Agent nor the Company is under
any duty to give notification of defects or irregularities with respect to
tenders of the Old Notes for exchange. The Old Notes that are not tendered or
are tendered but not accepted will, following consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereon (as set forth in the legend thereon). Subject to the obligation of the
Company to file a shelf registration statement covering resales of the Old
Notes in certain limited circumstances, the Company does not intend to
register the Old Notes under the Securities Act and, after consummation of the
Exchange Offer, will not be obligated to do so. Upon consummation of the
Exchange Offer, certain rights under the Registration Rights Agreement,
including registration rights and the right to receive the contingent
increases in interest rates, will terminate, except under limited
circumstances. In addition, any holder of the Old Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the Notes
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer who holds the Old Notes acquired for its own account as a
result of market-making or other trading activities and who receives the Notes
for its own account in exchange for such Old Notes pursuant to the Exchange
Offer, must acknowledge that it will deliver a prospectus in connection with
any resale of such Notes. To the extent that the Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes could be adversely affected due to the limited
amount, or "float," of the Old Notes that are expected to remain outstanding
following the Exchange Offer. Generally, a lower "float" of a security could
result in less demand to purchase such security and could, therefore, result
in lower prices for such security. For the same reason, to the extent that a
large amount of the Old Notes are not tendered or are tendered and not
accepted in the Exchange Offer, the trading market for the Notes could be
adversely affected. See "The Exchange Offer."
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. In connection with the
original issue and sale of the Old Notes, the Company agreed to file with the
Commission a registration statement covering the exchange by the Company of
the Notes for the Old Notes. The Registration Rights Agreement provides, among
other things, that (i) the Company will file the Registration Statement with
the Commission on or prior to January 26, 1998, (ii) the Company will use its
best efforts to cause the Registration Statement to become effective under the
Securities Act on or prior to March 27, 1998 and to effect the Exchange Offer
before April 26, 1998, (iii) if the Exchange Offer is not effected before
April 26, 1998, or if certain holders of the Old Notes notify the Company they
are not permitted to participate in, or would not receive freely tradeable
Notes pursuant to the Exchange Offer, the Company will use its best efforts to
cause to become effective a registration statement (the "Shelf Registration
Statement") with respect to the resale of the Old Notes and to keep the Shelf
Registration Statement effective until up to two years after the effective
date thereof, or such shorter period as the Old Notes may become eligible for
sale to the public without volume or manner of sale restrictions under Rule
144(k) promulgated under the Securities Act.
If (i) the Company fails to file any of the registration statements required
by the Registration Rights Agreement on or before the date specified for such
filing, (ii) any of such registration statements is not declared effective by
the Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (iii) the Exchange Offer is required to be
consummated under the Registration Rights Agreement and the Company fails to
issue the Notes in exchange for all Old Notes properly tendered and not
withdrawn in the Exchange Offer within 45 days of the Effectiveness Target
Date with respect to the Registration Statement, or (iv) the Shelf
Registration Statement or the Registration Statement is declared effective but
thereafter ceases to be effective or usable in connection with the Exchange
Offer or resales of Transfer Restricted Notes, as the case may be, during the
periods specified in the Registration Rights Agreement (each such event
referred to in clauses (i) through (iv) above, a "Registration Default"), then
the Company will be required to pay as liquidated damages additional interest
("Additional Interest") on the Notes as to which the Registration Default
exists. If a Registration Default exists with respect to the Senior Notes (or
with respect to the Senior Discount Notes if it occurs after the Cash Interest
Election Date), the interest rate on such Transfer Restricted Notes will
increase, with respect to the first 90-day period (or portion thereof) while a
Registration Default is continuing immediately following the occurrence of
such Registration Default, .25% per annum, such interest rate increasing by an
additional .25% per annum at the beginning of each subsequent 90-day period
(or portion thereof) while a Registration Default is continuing until all
Registration Defaults have been cured, up to a maximum rate of Additional
Interest of 1.00% per annum. If a Registration Default exists with respect to
the Senior Discount Notes prior to the Cash Interest Election Date, the
Company will make cash payments of Additional Interest on each interest
payment date on the Senior Discount Notes which are Transfer Restricted Notes
at the rates set forth in the preceding sentence multiplied by the Accreted
Value of the Senior Discount Notes as of the interest payment date on which
such payment is made. Upon (w) the filing of the applicable registration
statement (in the case of clause (i) of this paragraph), (x) the effectiveness
of the applicable registration statement (in the case of clause (ii) of this
paragraph), (y) the issuance of Notes in exchange for all Old Notes properly
tendered and not withdrawn in the Exchange Offer (in the case of clause (iii)
of this paragraph) or (z) the effectiveness of the Registration Statement or
the Shelf Registration Statement, as the case may be, which had ceased to be
effective (in the case of clause (iv) of this paragraph), Additional Interest
as a result of the Registration Default described will cease to accrue (but
any accrued amount shall be payable) and the interest rate on the Notes will
revert to the original rate if no other Registration Default has occurred and
is continuing. Except under certain limited circumstances, registration rights
and the right to receive additional interest will terminate upon consummation
of the Exchange Offer.
For purposes of the foregoing, "Transfer Restricted Notes" means each Old
Note until (i) the date on which the Old Note has been exchanged by a person
other than a broker-dealer referred to in clause (ii) below for a Note in the
Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange
Offer of an Old
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Note for a Note, the date on which the Note is sold to a purchaser who
receives from a broker-dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement, as
amended or supplemented, (iii) the date on which the Old Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement, (iv) the date on which the Old Note is
eligible for distribution to the public pursuant to Rule 144(k) under the
Securities Act (or any similar provision then in force, but not Rule 144A
under the Securities Act), (v) the date on which the Old Note shall have been
otherwise transferred by the holder thereof and a Note not bearing a legend
restricting further transfer will have been delivered by the Company and
subsequent disposition of the Note will not require registration or
qualification under the Securities Act or any similar state law then in force
or (vi) the Note ceases to be outstanding.
The outstanding Old Senior Notes in the aggregate principal amount at
maturity of $475,000,000 and the Old Senior Discount Notes in the aggregate
principal amount at maturity of $618,670,000 were originally issued and sold
on October 28, 1997 (the "Issue Date"). The original sale to the Initial
Purchasers was not registered under the Securities Act in reliance upon the
exemption provided by Section 4(2) of the Securities Act and the concurrent
resale of the Old Notes to investors was not registered under the Securities
Act in reliance upon the exemption provided by Rule 144A under the Securities
Act. The Old Notes may not be reoffered, resold or transferred other than
pursuant to a registration statement filed pursuant to the Securities Act or
unless an exemption from the registration requirements of the Securities Act
is available. Pursuant to Rule 144 promulgated under the Securities Act, the
Old Notes may generally be resold (a) commencing one year after the Issue
Date, in an amount up to, for any three-month period, the greater of 1% of the
Old Notes then outstanding or the average weekly trading volume of the Old
Notes during the four calendar weeks immediately preceding the filing of the
required notice of sale with the Commission and (b) commencing two years after
the Issue Date, in any amount and otherwise without restriction by a Holder
who is not, and has not been for the preceding 90 days, an affiliate of the
Company. The Old Notes are eligible for trading in the PORTAL market, and may
be resold to certain Qualified Institutional Buyers pursuant to Rule 144A
promulgated under the Securities Act. Certain other exemptions may also be
available under other provisions of the federal securities laws for the resale
of the Old Notes.
Under existing interpretations by the Staff of the Commission as set forth
in no-action letters issued to third parties in other transactions, the Notes
will, in general, be freely transferable after the Exchange Offer without
further registration under the Securities Act, subject to any restrictions on
transfer imposed by state "blue sky" laws and provided that the Holder is not
an affiliate of the Company and that, in the case of broker-dealers
participating in the Exchange Offer, a prospectus meeting the requirements of
the Securities Act must be delivered by such broker-dealers in connection with
resales of the Notes. The Company has agreed, for a period of 90 days after
consummation of the Exchange Offer, to make available a prospectus meeting the
requirements of the Securities Act to any such broker-dealer for use in
connection with any resale of any Notes acquired in the Exchange Offer. A
broker-dealer which delivers such a prospectus to purchasers in connection
with resales will be subject to certain of the civil liability provisions
under the Securities Act and will be bound by the provisions of the
Registration Rights Agreement (including certain indemnification rights and
obligations). Any broker-dealer who is an affiliate of the Company may not
participate in the Exchange Offer and may not rely on the no-action letters
referred to above and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. Subject to the minimum denomination requirements
of the Notes, the Notes are being offered in exchange for a like principal
amount of Old Notes. Old Notes may be exchanged only in integral multiples of
$1,000 principal amount at maturity.
The form and terms of the Notes will be identical in all material respects
to the form and terms of the Old Notes except that the Notes will be
registered under the Securities Act and, therefore, will not bear legends
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restricting the transfer thereof. The Notes will evidence the same debt as the
the Old Notes and will be entitled to the benefits of the Indentures. The
Notes will be treated as a single class under the Indentures with any Old
Notes that remain outstanding. The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Old Notes being tendered for exchange.
As of December 31, 1997, $475,000,000 aggregate principal amount of Old
Senior Notes were outstanding and $618,670,000 aggregate principal amount at
maturity of Old Senior Discount Notes were outstanding. The Initial Purchasers
do not currently hold any of the Old Senior Notes or Old Senior Discount
Notes. This Prospectus, the Letter of Transmittal and Notice of Guaranteed
Delivery are being sent to all registered Holders of the Old Notes as of that
date. Tendering Holders will not be required to pay brokerage commissions or
fees or, subject to the instructions in the Letter of Transmittal, transfer
taxes with respect to the exchange of the Old Notes pursuant to the Exchange
Offer. The Company will pay all charges and expenses, other than certain
transfer taxes which may be imposed, in connection with the Exchange Offer.
See "--Payment of Expenses."
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law in connection with the Exchange Offer.
EXPIRATION DATE; EXTENSIONS; TERMINATION
The Exchange Offer will expire at 5:00 P.M., New York City time, on April
24, 1998 (20 business days following the date notice of the Exchange Offer was
mailed to the Holders). The Company reserves the right to extend the Exchange
Offer at its discretion, in which event the term "Expiration Date" will mean
the time and date on which the Exchange Offer as so extended will expire. The
Company will notify the Exchange Agent of any extension by written notice and
will mail to the registered Holders of the Old Notes an announcement thereof,
each prior to 9:00 A.M., New York City time, on the next business day after
the previously scheduled Expiration Date.
The Company reserves the right to extend or terminate the Exchange Offer and
not accept for exchange any Old Notes if any of the events set forth below
under the caption "Conditions to the Exchange Offer" occur and are not waived
by the Company, by giving written notice of such delay or termination to the
Exchange Agent. See "--Conditions to the Exchange Offer." The rights reserved
by the Company in this paragraph are in addition to the Company's rights set
forth below under the caption "--Conditions to the Exchange Offer."
PROCEDURES FOR TENDERING
The tender to the Company of the Old Notes by a Holder thereof pursuant to
one of the procedures set forth below and the acceptance thereof by the
Company will constitute an agreement between the Holder and the Company in
accordance with the terms and subject to the conditions set forth herein and
in the Letter of Transmittal.
Except as set forth below, a Holder who wishes to tender the Old Notes for
exchange pursuant to the Exchange Offer must transmit an Agent's Message (as
defined below) or a properly completed and duly executed Letter of
Transmittal, including all other documents required by such Letter of
Transmittal, to the Exchange Agent at the address set forth below under
"Exchange Agent" on or prior to the Expiration Date. In addition, either (i)
certificates for Old Notes must be received by the Exchange Agent along with
the Letter of Transmittal, (ii) a timely confirmation of a book-entry transfer
(a "Book-Entry Confirmation") of Old Notes, if such procedure is available,
into the Exchange Agent's account at DTC pursuant to the procedure of book-
entry transfer described below, must be received by the Exchange Agent prior
to the Expiration Date, or (iii) the Holder must comply with the guaranteed
delivery procedures described below. LETTERS OF TRANSMITTAL AND THE OLD NOTES
SHOULD NOT BE SENT TO THE COMPANY.
The term "Agent's Message" means a message, transmitted by DTC to and
received by the Exchange Agent and forming a part of a Book-Entry
Confirmation, which states that DTC has received an express acknowledgement
from the tendering participant, which acknowledgment states that the
participant has received and agrees to be bound by the Letter of Transmittal
and that the Company may enforce the Letter of Transmittal against the
participant.
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Signatures on a Letter of Transmittal must be guaranteed unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered Holder of Old
Notes who has not completed the box entitled "Special Issuance and Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of any firm
that is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. (the "NASD") or a
commercial bank or trust company having an office in the United States (an
"Eligible Institution"). In the event that signatures on a Letter of
Transmittal are required to be guaranteed, the guarantee must be by an
Eligible Institution.
The method of delivery of Old Notes and other documents to the Exchange
Agent is at the election and risk of the Holder, but if delivery is by mail it
is suggested that the mailing be made sufficiently in advance of the
Expiration Date to permit delivery to the Exchange Agent before the Expiration
Date.
If the Letter of Transmittal is signed by a person other than a registered
Holder of an Old Note tendered therewith, such Old Note must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name of the registered Holder appears on the Old Note.
If the Letter of Transmittal or an Old Note or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must
be submitted.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes will be resolved by the Company,
whose determination will be final and binding. The Company reserves the
absolute right to reject any or all tenders that are not in proper form or the
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to particular Old Notes. The Company's interpretation
of the terms and conditions of the Exchange Offer (including the instructions
in the Letter of Transmittal) will be final and binding. Unless waived, any
irregularities in connection with tenders must be cured within such time as
the Company shall determine. Neither the Company nor the Exchange Agent shall
be under any duty to give notification of defects in such tenders or shall
incur liabilities for failure to give such notification. Tenders of the Old
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Holder, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
The Company's acceptance for exchange of Old Notes tendered pursuant to the
Exchange Offer will constitute a binding agreement between the tendering
person and the Company upon the terms and subject to the conditions of the
Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at DTC for purposes of the Exchange Offer within two business
days after the date of this Prospectus, and any financial institution that is
a participant in DTC's book-entry transfer facility systems may make book-
entry delivery of Old Notes by causing DTC to transfer the Old Notes into the
Exchange Agent's account at DTC in accordance with DTC's ATOP procedures for
transfer. However, although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, an Agent's
Message or a duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, must in any case be
transmitted to and received by the Exchange Agent at one of the addresses set
forth below under the caption "Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
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GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or (iii) the procedures for delivery by book-entry transfer
cannot be completed on a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from the
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of
the Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes, or a Book-
Entry Confirmation, as the case may be, and any other documents required by
the Letter of Transmittal will be deposited by the Eligible Institution
with the Exchange Agent; and
(c) the properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within three New York Stock Exchange
trading days after the Expiration Date.
Upon request of the Exchange Agent, a Notice of Guaranteed Delivery (as well
as a copy of this Prospectus and the Letter of Transmittal) will be sent to
Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Old Notes for any Notes, and, as described
below, may terminate the Exchange Offer (whether or not any Old Notes have
theretofore been accepted for exchange) or may waive any conditions to or
amend the Exchange Offer, if any of the following conditions have occurred or
exists or have not been satisfied:
(a) there shall have occurred a change in the current interpretation by
the staff of the Commission which permits the Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes to be offered for resale,
resold and otherwise transferred by the Holders thereof (other than broker-
dealers and any such Holder which is an "affiliate" of the Company within
the meaning of Rule 405 promulgated under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the Notes are acquired in the ordinary course
of the Holders' business and the Holders have no arrangement or
understanding with any person to participate in the distribution of the
Notes; or
(b) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of the Company, would reasonably be expected
to impair its ability to proceed with the Exchange Offer; or
(c) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement, or proceedings shall have been initiated or, to the knowledge of
the Company, threatened for that purpose, or any governmental approval has
not been obtained, which approval the Company shall, in its sole
discretion, deem necessary for the consummation of the Exchange Offer as
contemplated hereby; or
(d) the Company shall have received an opinion of counsel experienced in
such matters to the effect that there exists any actual or threatened legal
impediment (including a default or prospective default under an agreement,
indenture or other instrument or obligation to which the Company is a party
or by which it is bound) to the consummation of the transactions
contemplated by the Exchange Offer.
If the Company determines in its sole and absolute discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied, it may, subject to applicable law, terminate the Exchange Offer
28
<PAGE>
(whether or not any Old Notes have theretofore been accepted for exchange) or
waive any condition or otherwise amend the terms of the Exchange Offer in any
respect. If a waiver or amendment constitutes a material change to the
Exchange Offer, the Company will promptly disclose the waiver or amendment by
means of a prospectus supplement that will be distributed to the registered
Holders of the Old Notes and will extend the Exchange Offer to the extent
required by Rule 14e-1 promulgated under the Exchange Act.
The foregoing conditions are for the sole benefit of the Company and may be
waived by the Company, in whole or in part, in its reasonable discretion. Any
determination made by the Company concerning an event, development or
circumstance described or referred to above will be final and binding on all
parties.
ACCEPTANCE OF THE OLD NOTES FOR EXCHANGE; DELIVERY OF THE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will accept all Old Notes validly tendered and not withdrawn prior to
5:00 P.M., New York City time, on the Expiration Date. The Company will
deliver the Notes in exchange for the Old Notes promptly following the
Expiration Date.
Subject to the conditions set forth under the caption "--Conditions to the
Exchange Offer," delivery of Notes in exchange for Old Notes tendered and
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for the Old Notes or a
Book-Entry Confirmation of a book-entry transfer of Old Notes into the
Exchange Agent's account at DTC, including an Agent's Message if the tendering
Holder does not deliver a Letter of Transmittal, a completed Letter of
Transmittal, or, in the case of a book-entry transfer, an Agent's Message in
lieu of the Letter of Transmittal and any other documents required by such
Letter of Transmittal. Accordingly, the delivery of Notes might not be made to
all tendering Holders at the same time, and will depend upon when certificates
for the Old Notes, Book-Entry Confirmations with respect to the Old Notes and
other required documents are received by the Exchange Agent.
Subject to the terms and conditions of the Exchange Offer, the Company will
be deemed to have accepted for exchange, and thereby exchanged, any Old Notes
validly tendered and not withdrawn as, if and when the Company gives oral or
written notice to the Exchange Agent of the Company's acceptance of the Old
Notes for exchange pursuant to the Exchange Offer. The Exchange Agent will act
as agent for the Company for the purpose of receiving tenders of the Old
Notes, the Letters of Transmittal and related documents, and as agent for the
tendering Holders for the purpose of receiving the Old Notes, the Letters of
Transmittal and related documents and transmitting Notes which will not be
held in global form by DTC or a nominee of DTC to validly tendered Holders.
The exchange will be made promptly after the Expiration Date. If for any
reason whatsoever, acceptance for exchange or the exchange of any Old Notes
tendered pursuant to the Exchange Offer is delayed (whether before or after
the Company's acceptance for exchange of Old Notes) or the Company extends the
Exchange Offer or is unable to accept for exchange or exchange the Old Notes
tendered pursuant to the Exchange Offer, then, without prejudice to the
Company's rights set forth herein, the Exchange Agent may, nevertheless, on
behalf of the Company and subject to Rule 14e-1(c) promulgated under the
Exchange Act, retain the tendered Old Notes and such Old Notes may not be
withdrawn except to the extent tendering holders are entitled to withdrawal
rights as described under the caption "--Withdrawal Rights."
Pursuant to an Agent's Message or a Letter of Transmittal, a Holder of the
Old Notes will represent, warrant and agree in the Letter of Transmittal that
it has full power and authority to tender, exchange, sell, assign and transfer
Old Notes, that the Company will acquire good, marketable and unencumbered
title to the tendered Old Notes, free and clear of all liens, restrictions,
charges and encumbrances, and the Old Notes tendered for exchange are not
subject to any adverse claims or proxies. The Holder also will warrant and
agree that it will, upon request, execute and deliver any additional documents
deemed by the Company or the Exchange Agent to be necessary or desirable to
complete the exchange, sale, assignment, and transfer of the Old Notes
tendered pursuant to the Exchange Offer.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any unaccepted Old Notes will be returned, at the
29
<PAGE>
Company's expense, to the tendering Holder thereof as promptly as practicable
after the expiration or termination of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at the
address set forth below under the caption "--Exchange Agent." Any notice of
withdrawal must specify the name of the person having tendered the Old Notes
to be withdrawn, identify the Old Notes to be withdrawn (including the
principal amount of such Old Notes), and (where certificates for Old Notes
have been transmitted) specify the name in which such Old Notes are
registered, if different from that of the withdrawing Holder. If certificates
for Old Notes have been delivered or otherwise identified to the Exchange
Agent, then, prior to the release of certificates the withdrawing Holder must
also submit the serial numbers of the particular certificates to be withdrawn
and a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such Holder is an Eligible Institution. If the Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawn Old Notes and otherwise
comply with the procedures of such facility. All questions as to the validity,
form and eligibility (including time of receipt) of notices will be determined
by the Company, whose determination shall be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the Holder thereof without cost to such Holder (or in the case of
the Old Notes tendered by book-entry transfer into the Exchange Agent's
account at DTC pursuant to the book-entry transfer procedures described above,
such Old Notes will be credited to an account maintained with DTC for the Old
Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under the
caption "--Procedures for Tendering" above at any time on or prior to the
Expiration Date.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. All correspondence in connection with the Exchange Offer and the Letter
of Transmittal should be addressed to the Exchange Agent as follows:
By Registered or Certified Mail, or
Hand Delivery or Overnight Courier
101 Barclay Street
Reorganization Section/7E
New York, New York 10286
Facsimile Transmission:
(212) 815-6339
Confirm by Telephone:
(212) 815-6337
Requests for additional copies of the Prospectus or the Letter of
Transmittal should be directed to the Exchange Agent.
PAYMENT OF EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer.
30
<PAGE>
The Company, however, will pay reasonable and customary fees and reasonable
out-of-pocket expenses to the Exchange Agent in connection therewith. The
Company will also pay all cash expenses it incurs in connection with the
Exchange Offer, including accounting, legal, printing, and related fees and
expenses.
CONSEQUENCES OF FAILURE TO EXCHANGE
Upon consummation of the Exchange Offer, certain rights under the
Registration Rights Agreement, including registration rights and the right to
receive the contingent increases in interest rate, will terminate. Old Notes
that are not exchanged for Notes pursuant to the Exchange Offer will remain
restricted securities within the meaning of Rule 144 under the Securities Act.
Accordingly, such Old Notes may be resold only (i) to the Company or any
subsidiary thereof, (ii) to a qualified institutional buyer in compliance with
Rule 144A under the Securities Act, (iii) to an institutional accredited
investor that, prior to such transfer, furnishes to the Trustee a signed
letter containing certain representations and agreements relating to the
restrictions on transfer of the Old Notes (the form of which letter can be
obtained from the Trustee) and, if such transfer is in respect of an aggregate
principal amount of Old Notes in the time of transfer of less than $100,000,
an opinion of counsel acceptable to the Company that such transfer is in
compliance with the Securities Act, (iv) pursuant to the exemption from
registration provided by Rule 144 under the Securities Act (if available) or
(v) pursuant to an effective registration statement under the Securities Act.
The liquidity of the Old Notes could be adversely affected by the Exchange
Offer. See "Risk Factors--Consequences of Failure to Exchange."
ACCOUNTING TREATMENT
The Notes will be recorded at the same carrying value as the Old Notes, as
reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized. See
"Certain United States Federal Income Tax Considerations."
31
<PAGE>
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Notes in the Exchange Offer. In consideration for issuing the Notes as
contemplated in this Prospectus, the Company will receive Old Notes in like
principal amount. The form and terms of the Notes are identical in all
material respects to the form and terms of the Old Notes, except for certain
transfer restrictions and registration rights relating to the Old Notes and
except for certain provisions providing for an increase in the interest rate
on the Old Notes under certain circumstances relating to the timing of the
Exchange Offer. The Old Notes surrendered in exchange for the Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Notes will not result in any increase in the outstanding debt of the Company.
The net proceeds to the Company from the Offering were $465,500,000 with
respect to the Old Senior Notes and approximately $365,629,948 with respect to
the Old Senior Discount Notes, in each case, after deducting selling
discounts, commissions and estimated offering expenses. The net proceeds to
the Company from the Offering were used to repay $615 million of the $1.25
billion borrowed under the Old Credit Facility and to repay $215 million of
the $345.5 million principal amount of the NAHI Bridge Note.
32
<PAGE>
CAPITALIZATION
The following table sets forth the combined capitalization of the Company at
December 31, 1997.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)
<S> <C>
CASH AND CASH EQUIVALENTS................................... $ 55,409
==========
LONG-TERM DEBT (INCLUDING CURRENT PORTION):
Other debt (1)............................................ $ 20,745
Amended Credit Facility................................... 620,000
Senior Notes.............................................. 475,000
Senior Discount Notes .................................... 381,853
NAHI Bridge Note.......................................... 102,471
Fox Subordinated Note..................................... 113,503
----------
Total long-term obligations............................. $1,713,572
----------
Series A Preferred Stock, $0.001 par value; 500,000 shares
authorized; 345,000 shares issued and outstanding (2)...... $ 345,000
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.001 par value; 19,500,000 shares
authorized; no shares issued or outstanding.............. --
Class A Common Stock, $0.001 par value; 16,000,000 shares
authorized; 160,000 shares issued and outstanding (3).... --
Class B Common Stock, $0.001 par value; 16,000,000 shares
authorized; 15,840,000 shares issued and outstanding..... 16
Contributed capital....................................... 61,032
Cumulative translation adjustment......................... (416)
Retained earnings......................................... 5,417
----------
Total stockholders' equity.............................. $ 66,049
----------
Total capitalization.................................. $2,124,621
==========
</TABLE>
- --------
(1) Includes $14.4 million of indebtedness of Saban and its subsidiaries and
$6.3 million of indebtedness owed by IFE.
(2) News Corp. and News Publishing Australia Limited ("NPAL") have jointly and
severally agreed that, upon the occurrence and during the continuation of
an event of default under the Series A Preferred Stock or liquidation,
dissolution, winding up or other similar event of the Company, News Corp.
or NPAL will advance the Company all amounts necessary to redeem in full,
or pay the liquidation distribution on, all of the outstanding Series A
Preferred Stock. See "Ownership and Control of the Company--The Series A
Preferred Stock."
(3) Does not include an aggregate of 484,911 shares of Class A Common Stock
reserved for issuance upon the exercise of options granted to certain
members of management of the Company.
33
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated condensed statement of
operations for the twelve months ended June 30, 1997 reflects, on a
consolidated basis, the results of operations of the Company as if the IFE
Acquisition and related financing and the Reorganization had occurred as of
the beginning of the period presented. The pro forma as adjusted statement of
operations reflects the IFE Acquisition and related financing and the
Reorganization as adjusted for the Offering, the Exchange Offer and the
reduction of the NAHI Bridge Note from the Flextech transaction. The unaudited
pro forma condensed statement of operations for the six months ended December
31, 1997 gives effect to the results of operations of the Company as if the
IFE Acquisition and the related financing and the Reorganization as well as
the Offering, the Exchange Offer and the reduction of the NAHI Bridge Note
from the Flextech transaction had occurred at the beginning of the period
presented. The pro forma consolidated statements of operations, prepared by
the Company's management, are based on the historical financial statements of
the Company and IFE giving effect to the adjustments described in the
accompanying notes to the unaudited pro forma consolidated statements of
operations. IFE's fiscal year end was December 31; accordingly, included in
the pro forma consolidated statement of operations for the year ended June 30,
1997 are the consolidated statements of operations of IFE for the four fiscal
quarters ended June 30, 1997. These pro forma consolidated statements of
operations may not be indicative of the results that actually would have
occurred if the IFE Acquisition and Reorganization had occurred 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 thereto of the Company and IFE contained elsewhere
herein.
A preliminary allocation of the purchase price of IFE has been made to major
categories of assets and liabilities for purposes of the pro forma financial
statements based upon available information and assumptions that the Company's
management believes are reasonable. However, such amounts are subject to
change and final amounts may differ although such changes are not expected to
be material from the preliminary allocations. The Company's management expects
the final allocation of the purchase price of IFE to be completed by June 30,
1998.
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA AS
THE COMPANY IFE PRO FORMA PRO FORMA AS ADJUSTED ADJUSTED
ACTUAL ACTUAL ADJUSTMENTS CONSOLIDATED ADJUSTMENTS CONSOLIDATED
----------- -------- ----------- ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $307,820 $379,242 $(72,444)(1) $614,618 -- $614,618
Costs and expenses:
Production and
programming.......... 180,381 218,804 (96,751)(1) 306,557 -- 306,557
4,123 (2)
Selling, general and
administrative....... 62,466 99,128 (20,094)(1) 141,500 -- 141,500
Fox Kids Network
affiliate
participations....... 6,194 -- -- 6,194 --
Amortization of
intangible assets.... -- 2,204 (2,204)(1) 41,819 -- 41,819
41,819 (2)
-------- -------- -------- -------- ------- --------
Operating (loss)
income................. 58,779 59,106 663 118,548 -- 118,548
Equity in loss of
unconsolidated
affiliate.............. 1,546 -- -- 1,546 -- 1,546
Other (income) expense.. -- 10,443 (10,742)(1) (299) -- (299)
Interest expense........ 2,226 12,445 (11,503)(1) 148,966 10,285 (5) 159,251
11,782 (3)
134,016 (4)
-------- -------- -------- -------- ------- --------
Income (loss) before
provision for income
taxes.................. 55,007 36,218 (122,890) (31,665) (10,285) (41,950)
Provision (benefit) for
income taxes........... 14,567 15,811 (32,159)(6) (1,781) (4,114)(6) (5,895)
-------- -------- -------- -------- ------- --------
Net income (loss)....... $ 40,440 $ 20,407 $(90,731) $(29,884) $(6,171) $(36,055)
======== ======== ======== ======== ======= ========
Net loss attributable to
common shares.......... $ 40,440 $(60,934) $(67,105)
======== ======== ========
Net loss per common
share--basic and
diluted................ $ 2.53 $ (3.81) $ (4.19)
======== ======== ========
Weighted average shares
outstanding--basic and
diluted................ 16,000 16,000 16,000
======== ======== ========
</TABLE>
34
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
THE COMPANY PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS CONSOLIDATED
----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues.......................... $332,971 $ 24,485(7) $357,456
Costs and Expenses:
Production and programming.......... 195,297 10,805(7) 206,102
Selling, general and
administrative..................... 62,435 6,404(7) 68,839
Fox Kids Network affiliate
participations..................... 165 -- 165
Amortization of intangible assets .. 17,436 3,487(2) 20,923
-------- -------- --------
Operating income...................... 57,638 3,789 61,427
Equity in loss of unconsolidated
affiliate............................ 2,388 -- 2,388
Other expense......................... 62 -- 62
Interest expense...................... 58,388 74(7) 81,901
23,439(5)
-------- -------- --------
Loss before provision for income
taxes................................ (3,200) (19,724) (22,924)
Provision (benefit) for income taxes.. 2,403 (6,495)(6) (4,092)
-------- -------- --------
Net loss.............................. $ (5,603) $(13,229) $(18,832)
======== ======== ========
Net loss attributable to common
shares............................... $(18,618) $(34,485)
======== ========
Net loss per common share--basic and
diluted.............................. $ (1.16) $ (2.16)
======== ========
Weighted average shares outstanding--
basic and diluted.................... 16,000 16,000
======== ========
</TABLE>
35
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(1) The Company plans to dispose of IFE's production and live entertainment
businesses and IFE's interests in cable and international networks not
directly related to The Family Channel. The operations of these businesses
have been eliminated from the pro forma consolidated condensed statements
of operations and will be excluded from future operating results; assets of
these businesses are reflected in historical financial statements as assets
held for sale.
(2) The IFE Acquisition was accounted for under the purchase method of
accounting. The total purchase price of approximately $1.9 billion
(including payoff of existing IFE credit facilities) was allocated to the
tangible and intangible assets acquired and liabilities assumed by the
Company based upon their respective fair values as of the acquisition date.
The pro forma statements of operations reflect the amortization of
intangible assets using a 40-year life and additional depreciation expense
resulting from the valuation of property and equipment acquired from IFE.
(3) In connection with the Reorganization, the Company issued the Fox
Subordinated Note in exchange for a $50 million interest in the LLC and
$58.6 million of amounts receivable from the LLC. The pro forma statements
of operations reflect the interest expense on the Fox Subordinated Note
using the interest rate of 10.427% as if the Reorganization had occurred as
of the beginning of each period presented.
(4) In connection with the IFE Acquisition, the Company incurred indebtedness
under the Old Credit Facility of $1.25 billion and issued the NAHI Bridge
Note in the amount of $345.5 million. Debt issue costs of $8.8 million were
incurred in connection with the establishment of the Old Credit Facility.
The proceeds from those borrowings were used to finance the IFE Acquisition
and repay certain indebtedness of the Company and IFE. The pro forma
consolidated statements of operations reflect the interest expense on those
borrowings, the amortization of the debt issue costs and the elimination of
interest expense associated with the obligations repaid as if the IFE
Acquisition had occurred as of the beginning of each period presented.
The pro forma interest charge was based on the 10.427% interest rate for
the NAHI Bridge Note and the 7.63% interest rate in effect at the time of
the IFE Acquisition for the Old Credit Facility. A change of 100 basis
points in the interest rate for the Old Credit Facility would change the
pro forma interest charge by $12.5 million.
(5) The pro forma interest expense adjustment gives effect to the IFE
Acquisition and related financing and the Reorganization described in
footnote (4) as adjusted for the Offering, the Exchange Offer and the
reduction of the NAHI Bridge Note from the Flextech Transaction.
(6) Reflects the income tax effect of the pro forma adjustments.
(7) Reflects the on-going results of operations for IFE for the period July 1,
1997 to July 31, 1997. The operations of IFE's production and live
entertainment businesses and IFE's interests in cable and international
networks not directly related to The Family Channel have been excluded.
IFE's on-going results of operations subsequent to July 31, 1997 are
consolidated with the results of the Company.
36
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected financial data of the Company set forth below as of June 30,
1996 and June 30, 1997, for the eight months ended June 30, 1996 and the
fiscal year ended June 30, 1997 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 of the
Company set forth below as of December 31, 1997 and for the six months ended
December 31, 1996 and 1997 are derived from the Company's unaudited combined
financial statements.
The selected financial data of Saban set forth below as of May 31, 1995 and
as of October 31, 1995 and for the year 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, 1993 and 1994 and for each of the two years in the period
ended May 31, 1994 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 2,
1995 and as of October 31, 1995 and for the year 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 presented below at July 3, 1994 and for the year ended July 3,
1994 are derived from FCN Holding's consolidated financial statements audited
by Ernst & Young LLP, independent auditors. The selected financial data of FCN
Holding presented below at June 27, 1993, and for the year 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 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.
37
<PAGE>
THE COMPANY
<TABLE>
<CAPTION>
EIGHT
MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
JUNE 30, YEAR ENDED DECEMBER 31, DECEMBER 31,
1996 JUNE 30, 1997 1996 1997
-------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net revenues................. $191,621 $307,820 $173,790 $332,971
Costs and expenses:
Production and
programming............... 98,937 180,381 96,802 195,297
Selling, general and
administrative............ 23,072 62,466 26,832 62,435
Fox Kids Network affiliate
participations............ 8,853 6,194 7,073 165
Amortization of intangible
assets.................... -- -- -- 17,436
-------- -------- -------- --------
Operating income............. 60,759 58,779 43,083 57,638
Investment advisory fee...... 10,000 -- -- --
Equity in loss of
unconsolidated affiliate.... -- 1,546 -- 2,388
Other expense................ -- -- -- 62
Interest expense............. 885 2,226 1,528 58,388
-------- -------- -------- --------
Income before income tax
expense..................... 49,874 55,007 41,555 (3,200)
Income tax expense........... 18,274 14,567 11,515 2,403
-------- -------- -------- --------
Net income (loss)............ $ 31,600 $ 40,440 $ 30,040 $ (5,603)
======== ======== ======== ========
Net income (loss)
attributable to common
shareholders................ $ 31,600 $ 40,440 $ 30,040 $(18,618)
======== ======== ======== ========
Net income (loss) per common
share--basic and diluted.... $ 1.98 $ 2.53 $ 1.88 $ (1.16)
======== ======== ======== ========
Weighted average shares
outstanding--basic and
diluted..................... 16,000 16,000 16,000 16,000
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
----------------- DECEMBER 31,
1996 1997 1997
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 16,044 $ 28,877 $ 55,409
Programming costs, less accumulated
amortization.................................. 181,427 235,575 354,348
Total assets................................... 336,270 412,401 2,504,376
Long-term obligations (including current
maturities)................................... 101,487 116,264 1,713,572
Stockholders' equity........................... 72,831 132,687 66,049
</TABLE>
38
<PAGE>
SABAN ENTERTAINMENT, INC.
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED MAY 31, ENDED
------------------------- OCTOBER 31,
1993 1994 1995 1995
------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues(1)............................. $57,244 $ 84,372 $242,468 $105,130
Costs and expenses:
Production and programming............ 39,703 48,101 117,557 42,022
Selling, general and administrative... 6,255 8,933 51,894 11,538
------- -------- -------- --------
Operating income........................ 11,286 27,338 73,017 51,570
Interest expense........................ 1,279 2,337 1,315 539
------- -------- -------- --------
Income before provision for income
taxes.................................. 10,007 25,001 71,702 51,031
Provision for income taxes.............. 1,600 8,201 27,027 14,289
------- -------- -------- --------
Net income.............................. $ 8,407 $ 16,800 $ 44,675 $ 36,742
======= ======== ======== ========
<CAPTION>
AS OF MAY 31, AS OF
------------------------- OCTOBER 31,
1993 1994 1995 1995
------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 1,554 $ 3,849 $ 14,584 $ 16,207
Programming costs, less accumulated am-
ortization............................. 60,279 85,079 115,873 118,210
Total assets............................ 94,916 136,967 218,197 207,479
Long-term obligations (including current
maturities)............................ 28,933 34,023 5,623 5,605
Stockholders' equity.................... 36,648 53,253 58,112 94,971
</TABLE>
39
<PAGE>
FCN HOLDING, INC.
<TABLE>
<CAPTION>
FOUR
YEAR ENDED MONTHS
---------------------------- ENDED
JUNE 27, JULY 3, JULY 2, OCTOBER 31,
1993 1994 1995 1995
-------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues(1)..................... $ 85,729 $130,600 $168,871 $46,286
Costs and expenses:
Production and programming........ 67,804 98,725 109,259 29,698
Fees and costs to a related
party............................ 14,682 20,861 24,713 7,313
Selling, general and
administrative................... 3,810 3,579 5,202 2,566
Fox Kids Network affiliate
participations................... -- -- 11,523 6,883
-------- -------- -------- -------
Operating income (loss)(2).......... (567) 7,435 18,174 (174)
Interest expense.................... 2,017 2,218 1,630 145
-------- -------- -------- -------
Income (loss) before provision for
income taxes....................... (2,584) 5,217 16,544 (319)
Provision for income taxes.......... -- -- -- --
-------- -------- -------- -------
Net income (loss)................... $ (2,584) $ 5,217 $ 16,544 $ (319)
======== ======== ======== =======
<CAPTION>
AS OF
-----------------------------------------
JUNE 27, JULY 3, JULY 2, OCTOBER 31,
1993 1994 1995 1995
-------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 304 $ 268 $ -- $ 317
Programming costs, less accumulated
amortization....................... 22,245 17,084 26,143 27,085
Total assets........................ 39,476 35,950 49,816 52,807
Long-term obligations (including
current maturities)................ 41,416 27,163 10,686 8,727
Stockholders' deficit............... (25,575) (20,356) (3,811) (4,130)
</TABLE>
NOTES TO SELECTED HISTORICAL FINANCIAL DATA
- --------
(1) Includes revenues recognized by Saban from FCN and by FCN from Saban as set
forth below:
<TABLE>
<CAPTION>
FIVE FOUR
MONTHS 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>
(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 such payments accrued thereafter. Amounts expensed under these
agreements were $13.5 million, $19.8 million, $26.9 million and $9.1
million, for the years ended June 30, 1993, 1994 and 1995 and the four
months ended October 31, 1995, respectively.
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company's current principal operations are conducted through FCN, Saban
and IFE. 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-1980s, is currently one of the largest suppliers of
children's television programming in the world. IFE operates The Family
Channel, one of the largest cable television networks in the United States,
reaching approximately 95% of all U.S. cable and satellite television
households. FCN Holding (a parent of FCN) and Saban formed a joint venture
pursuant to agreements entered into on November 1, 1995. Under the terms of
the agreements relating to the joint venture, between November 1, 1995 (the
Effective Date) and August 1, 1997 (the date of the Reorganization), each of
Saban and FCN was operated by its respective management subject to the overall
supervision of a governing committee comprised of an equal number of
representatives of each of FCN and Saban. As a result of the formation of the
joint venture and the common management of the joint venture business, the
respective assets, liabilities and operations of Saban, FCN Holding and the
LLC have been combined at historical cost from and after November 1, 1995.
The Company was incorporated in August 1996 as a holding company of FCN
Holding, Saban and their respective subsidiaries. The Reorganization was
effected on August 1, 1997. The Company acquired a controlling interest in IFE
on August 1, 1997 and completed the IFE Acquisition on September 4, 1997. The
IFE Acquisition was accounted for using the purchase accounting method, and,
consequently, the historical financial statements included herein do not
reflect the results of operations of IFE prior to the date the Company first
acquired a controlling interest in IFE on August 1, 1997. In connection with
the IFE Acquisition, the Company decided that IFE's production and live
entertainment businesses are not strategic to the Company. The Company intends
to sell or otherwise discontinue use of certain of these assets which
generated $111.5 million in revenues and $150.4 million in expenses in the
twelve month period ended June 30, 1997. These assets include certain of the
assets of MTM Entertainment, Inc. and its subsidiaries ("MTM"), FiT TV
Partnership ("FiT TV") and certain other assets unrelated to the operations of
The Family Channel, and are reflected in financial statements for the three
months ended December 31, 1997 as assets held for sale; the operations of such
businesses will be excluded from future operating results.
Included in this Prospectus are (i) pro forma consolidated statements of
operations of the Company for the year ended June 30, 1997 and the six months
ended December 31, 1997, which on a hypothetical basis reflect the accounts of
the Company and IFE as if the IFE Acquisition had occurred at the beginning of
each period presented, (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 on the date 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, (iv) the combined financial statements of the Company
for the eight month period commencing on the Effective Date and ending June
30, 1996, and for the year ended June 30, 1997 and the consolidated financial
statements of the Company for the six months ended December 31, 1997, and (v)
the consolidated financial statements of IFE for the three year period ended
December 31, 1996 and the six month period ended June 30, 1997.
The financial statements of the Company for the eight months ended June 30,
1996 are not comparable to the financial statements of FCN Holding or Saban
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, commencing on the Effective Date, all revenues
between FCN and Saban have been eliminated in the combined financial
statements. The financial statements of the Company for the year ended June
30, 1997 are not comparable to the eight month period ended June 30, 1996 due
to the different lengths of the time periods compared and because neither
period includes the operations of IFE. In addition, the financial statements
of the Company as of and for the six
41
<PAGE>
months ended December 31, 1997 (which included the results of operations of
IFE from August 1, 1997) are not comparable to the six month period ended
December 31, 1996 as the prior period did not include the operations of IFE.
As noted in "Risk Factors--Acquisition of IFE--Programming Changes to The
Family Channel," the Company intends to make significant changes to the
programming of The Family Channel. For example, it is planned that each week
the Fox Family Channel will carry a total of 76.5 hours of programming
targeted principally to children; at the time of its acquisition by the
Company, The Family Channel did not carry any material amounts of programming
targeted to this audience. Because of these changes, results of operations of
IFE in prior periods may not be comparable to results of operations for future
periods.
The following discussion provides information and analysis with respect to
the 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
Consolidated Financial Data" and "Formation of the Company," included
elsewhere in this Prospectus.
SIGNIFICANT ACCOUNTING FACTORS
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 as necessary, which may result in revised amortization of
its programming costs. Results of operations 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, 1997 and the six months ended December 31, 1997, accounted for
approximately 90% and 41%, respectively, of the Company's consolidated
revenues. See "--Results of Operations." Giving effect to the IFE Acquisition
as if it had occurred on July 1, 1996, children's television programming
revenues accounted for approximately 45% and 38% of the Company's pro forma
consolidated revenues for the fiscal year ended June 30, 1997 and the six
months ended December 31, 1997, respectively. As a result of the planned
reprogramming of The Family Channel to emphasize children's programming during
the day, it can be anticipated that in the near future revenues from
children's programming as a percentage of total revenues will increase.
Revenues from television 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 21% of the Company's consolidated
revenues and 28% of the Company's net income for the fiscal year ended June
30, 1997 ("Fiscal 1997") 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 may contribute a disproportionate share of total revenues and net
income for any fiscal year. During the fiscal year ended June 30, 1997, 36%
and 24% of the Company's consolidated revenues were recognized in the second
fiscal quarter and fourth fiscal quarter, respectively, of that year. See
"Risk Factors--Seasonality."
42
<PAGE>
Increased International Focus
In recent years, revenues derived from international operations have become
increasingly significant to the Company (representing 35% and 20%,
respectively, of the Company's consolidated revenues for the fiscal year ended
June 30, 1997 and the six months ended December 31, 1997). As part of its
business strategy, the Company intends to expand its international program
production and distribution activities. See "Business--Business Strategies"
and "--Distribution--International Channels." Certain of these activities,
such as the rollout of new international channels, may 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.
43
<PAGE>
RESULTS OF OPERATIONS
THE COMPANY
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.
------------------------------------ --------------------------------------
FIVE FOUR
YEAR ENDED MAY 31, MONTHS YEAR ENDED MONTHS
------------------------ ENDED -------------------------- ENDED
OCTOBER 31, JUNE 27, JULY 3, JULY 2, OCTOBER 31,
1993 1994 1995 1995 1993 1994 1995 1995
------- ------- -------- ----------- -------- -------- -------- -----------
(IN THOUSANDS)
<S> <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
Foreign television
distribution(2)....... 27,060 16,367 29,944 19,931 -- -- -- --
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
------- ------- -------- -------- ------- -------- -------- -------
Total.................. 39,934 60,636 225,746 100,526 85,729 130,600 168,871 46,286
------- ------- -------- -------- ------- -------- -------- -------
Telefilms/Family
programming:
U.S. distribution...... 8,156 13,954 1,196 26 -- -- -- --
Foreign distribution... 9,154 9,782 15,526 4,578 -- -- -- --
------- ------- -------- -------- ------- -------- -------- -------
Total.................. 17,310 23,736 16,722 4,604 -- -- -- --
------- ------- -------- -------- ------- -------- -------- -------
Total Revenues.......... $57,244 $84,372 $242,468 $105,130 $85,729 $130,600 $168,871 $46,286
======= ======= ======== ======== ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY
------------------------------------------------------------------
EIGHT PRO FORMA SIX SIX PRO FORMA
MONTHS YEAR YEAR MONTHS MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1996 1997 1997
-------- -------- --------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Children's programming:
U.S. television
distribution(1)....... $ 85,883 $126,796 $126,796 $ 77,725 $ 78,819 $ 78,819
Foreign television
distribution(2)....... 29,389 58,844 58,844 24,681 45,227 45,227
Merchandising and
licensing, home
video and other
ancillary revenues.... 60,541 96,766 96,766 60,048 63,786 63,786
-------- -------- -------- -------- -------- --------
Total.................. 175,813 282,406 282,406 162,454 187,832 187,832
-------- -------- -------- -------- -------- --------
Telefilms/Family
programming:
U.S. distribution...... 4,474 3,574 30,828 1,115 7,270 8,616
Foreign distribution... 11,334 21,840 30,714 10,221 16,077 17,674
-------- -------- -------- -------- -------- --------
Total.................. 15,808 25,414 61,542 11,336 23,347 26,290
-------- -------- -------- -------- -------- --------
Domestic cable:
Fox Family Channel(3).. -- -- 270,670 -- 121,792 143,334
-------- -------- -------- -------- -------- --------
Total Revenues.......... $191,621 $307,820 $614,618 $173,790 $332,971 $357,456
======== ======== ======== ======== ======== ========
</TABLE>
- --------
(1) Television distribution in the United States consists principally of
advertising sales generated by FCN and Saban.
(2) Foreign television distribution consists principally of cash transactions
with foreign broadcasters.
(3) Domestic cable consists principally of advertising revenues and subscriber
fees.
44
<PAGE>
COSTS AND EXPENSES AS A PERCENTAGE OF TOTAL REVENUES
<TABLE>
<CAPTION>
SABAN ENTERTAINMENT, INC. FCN HOLDING, INC.
----------------------------------- ------------------------------------
FIVE FOUR
YEAR ENDED MAY 31, MONTHS YEAR ENDED MONTHS
---------------------- ENDED ------------------------ ENDED
OCTOBER 31, JUNE 27, JULY 3, JULY 2, OCTOBER 31,
1993 1994 1995 1995 1993 1994 1995 1995
------ ------ ------ ----------- -------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Costs and expenses:
Production and
programming........... 69.4% 57.0% 48.5% 40.0% 79.1% 75.6% 64.7% 64.2%
Affiliate
participations........ -- -- -- -- -- -- 6.8 14.9
Fees and costs to a
related party......... -- -- -- -- 17.1 16.0 14.6 15.8
Selling, general and
administrative........ 10.9 10.6 21.4 11.0 4.4 2.7 3.1 5.5
Amortization of
intangible assets..... -- -- -- -- -- -- -- --
------ ------ ------ ---- ----- ---- ---- -----
Total costs and
expenses.............. 80.3% 67.6% 69.9% 51.0% 100.6% 94.3% 89.2% 100.4%
Operating income
(loss)................. 19.7% 32.4% 30.1% 49.0% (0.6)% 5.7% 10.8% (0.4)%
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY
-------------------------------------------------------------------------
PRO FORMA
EIGHT MONTHS PRO FORMA SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1996 1997 1997
------------ ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Costs and expenses:
Production and
programming........... 51.6% 58.6% 49.9% 55.7% 58.7% 57.7%
Affiliate
participations........ 4.6 2.0 1.0 4.1 -- --
Selling, general and
administrative........ 12.0 20.3 23.0 15.4 18.8 19.3
Amortization of
intangible assets..... -- -- 6.8 -- 5.2 5.9
---- ---- ---- ---- ---- ----
Total costs and
expenses.............. 68.2% 80.9% 80.7% 75.2% 82.7% 82.9%
Operating income ....... 31.8% 19.1% 19.3% 24.8% 17.3% 17.1%
</TABLE>
Six months ended December 31, 1997 compared with the six months ended
December 31, 1996
Revenues for the six months ended December 31, 1997 were $333.0 million as
compared to $173.8 million for the six months ended December 31, 1996, an
increase of $159.2 million. This increase in revenues is due principally to
the inclusion of $134.4 million of revenues from IFE for the five months ended
December 31, 1997. The Company acquired a controlling interest in IFE on
August 1, 1997. Revenues for the six months ending December 31, 1997 also
included the home video releases of the direct to video movie "Casper: A New
Beginning", which contributed $35.8 million in revenues during the period and
"Turbo: A Power Ranger Movie" which contributed $10.1 million in revenues.
Revenues for the six months ended December 31, 1997 were also positively
impacted by the television series Sweet Valley High and Breaker High which
commenced broadcast on UPN in the fall of 1997 and generated combined revenues
of $14.2 million. These increases in revenue were offset by a decrease of
$22.9 million in revenues related to the television series Power Rangers for
the six months ended December 31, 1997 as compared to the same six month
period of the prior year. Also, the six months ended December 31, 1996
included $20 million of revenue in connection with the settlement and
termination of an output agreement with Warner Bros. Home Video.
For the six months ended December 31, 1997, Power Rangers related revenues
represented 7% of the Company's total consolidated revenues as compared to 22%
for the six months ended December 31, 1996. This decrease in Power Rangers
revenues as a percentage of total revenues results primarily from the addition
of revenues from IFE to the Company's revenue base. For the six months ended
December 31, 1997, Power Rangers related revenues aggregated approximately
$24.8 million as compared to $37.5 million for the six months ended
December 31, 1996. While Power Rangers revenues no longer represent a material
percentage of the company's revenue base, the series continues as a strong
ratings performer on the Fox Kids Network and the Company has seen a recent
resurgence in both toy and merchandising related revenues. For the first two
months of calendar 1998, Bandai, the Power Rangers' master toy licensee, has
reported that Power Rangers toy sales are up 11.3% as compared to the first
two months of 1997.
Production and programming costs as a percentage of total revenues increased
to 59% for the six months ended December 31, 1997 from 56% for the six months
ended December 31, 1996. This increase in production and programming costs as
a percentage of revenues results primarily from the reduction in Power Rangers
related revenues discussed above. Due to the long term success of Power
Rangers, the property enjoys a significantly greater profit margin than the
Company's other programming.
45
<PAGE>
Selling, general and administrative expenses increased to $62.4 million or
19% of total revenues for the six months ended December 31, 1997 as compared
to $26.8 million or 15% for the six months ended December 31, 1996. The
increase of $35.6 million is due primarily to expenses associated with the
company's international channels ($3.2 million), higher costs, primarily
marketing and promotion, at Fox Children's Network ($3.2 million) and the
inclusion of five months activity of IFE ($27.8 million).
Fox Kids Network affiliate participation expense decreased from $7.1 million
or 4.1% of revenue for the six months ended December 31, 1996 to $.2 million
for the six months ended December 31, 1997. This decrease results from lower
revenue levels, higher production costs and increased selling, general and
administrative expenses for Fox Kids Network for the six months ended
December 31, 1997 as compared to the six months ended December 31, 1996.
In February 1998 the Company reached an agreement in principle with the
Affiliates' Board of Governors (the "Affiliate Board") for the Fox Kids
Network to modify the financial arrangements between the Fox Kids Network and
its affiliates. Commencing July 1, 1998, all of the affiliated stations will
be paid an aggregate amount of approximately $5.6 million per year for five
years in exchange for an increased allocation of advertising inventory for
approximately three and one-half years. In addition, beginning July 1, 1998
the non-owned-and-operated affiliated stations will be paid approximately $9.4
million per year for five years in exchange for (i) guaranteed clearance of
Fox Kids programming in its current time period for ten years and
(ii) relinquishment of any participation in the current or future profits of
the Fox Kids Network. This agreement is subject to approval by the individual
affiliated stations.
Amortization of intangible assets results from the acquisition of IFE. These
intangible assets are being amortized over 40 years.
The equity in loss of unconsolidated affiliate represents the Company's
portion of the loss generated by TV10, a cable network based in Holland. The
Company acquired its initial interest in TV10 in March 1997.
Interest expense for the six month period ended December 31, 1997 was
$58.4 million as compared to $1.5 for the six months ended December 31, 1996.
The increase is due to interest on the debt incurred in connection with the
acquisition of IFE. Due primarily to the amount of interest expense and
amortization of intangible assets, the Company does not expect to report net
income for fiscal 1998.
The Company's provision for taxes for the period ended December 31, 1997
results from the non-deductibility of amortization of excess costs over net
assets acquired and foreign withholding taxes. The effective tax rate
excluding the amortization of excess costs over net assets acquired would have
been 17% as compared to 28% for the six months ended December 31, 1997. The
decrease is due to losses generated by the Company's international channels.
Year ended June 30, 1997 compared with the eight months ended June 30, 1996
Revenues for the year ended June 30, 1997 were $307.8 million as compared to
$191.6 million for the eight months ended June 30, 1996. For the year ended
June 30, 1997, 23% of revenues were derived from Power Rangers as compared
with 38% for the eight months ended June 30, 1996. The decrease in revenues
from Power Rangers was offset by an increase in revenues from Big Bad
BeetleBorgs and by $20 million of previously deferred revenue recognized
during the year ended June 30, 1997 in connection with the settlement and
termination of an output agreement with Warner Bros. Home Video. The Company
has replaced the Warner Bros. Home Video agreement with a long term output
agreement with Twentieth Century Fox Home Entertainment, Inc. ("Fox Video").
Production and programming costs (including costs in connection with the
settlement and termination of an output agreement with Warner Bros. Home
Video) as a percentage of total revenues increased to approximately 59% for
the year ended June 30, 1997 as compared with 52% for the eight months ended
June 30, 1996. This increase in production and programming costs as a
percentage of revenues resulted principally from the reduction in Power
Rangers revenues described above which have historically had a high profit
margin.
Selling, general and administrative expenses increased to 20% of total
revenues for the year ended June 30, 1997 as compared to 12% for the eight
months ended June 30, 1996. This increase resulted from overhead associated
with the start-up of the Company's international channels. To a lesser extent,
selling, general and administrative expenses increased at the Fox Kids Network
as a result of greater marketing, promotional and publicity activities at the
network and these expenses increased at the Company's Paris office as a result
of the acquisition of the Paris-based Creativite & Developpement ("C&D") and
Vesical Limited programming libraries.
46
<PAGE>
Fox Kids Network affiliate participation costs were approximately 2% for the
year ended June 30, 1997 as compared to approximately 5% for the eight months
ended June 30, 1996. The decrease in such costs can be attributed to lower
profits at FCN Holding resulting principally from the increased selling,
general and administrative expenses described above.
The Company's effective tax rate for the year ended June 30, 1997 was 26%.
The Company's effective tax rate for the eight months ended June 30, 1996 was
37%. This change is attributable to the non-deductible investment advisory fee
in the eight months ended June 30, 1996.
SABAN ENTERTAINMENT, INC.
Five months ended October 31, 1995
Revenues for the five months ended October 31, 1995 were $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%.
Production and programming costs for the five months ended October 31, 1995
were $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 production and programming costs 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 total revenues
for the period. Selling, general and administrative expenses for Saban Fiscal
1995, as a percentage of total revenues, were approximately 21%. This
improvement in selling, general and administrative expenses as a percentage of
revenues was 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.
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 Saban Fiscal 1994. This increase was primarily attributable to the
success of Power Rangers, in particular, significant increases (687%) 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.
Production and programming costs for Saban Fiscal 1995 decreased as a
percentage of total revenues to 48% from 57% in Saban Fiscal 1994. Production
and programming costs in Saban Fiscal 1995 increased 144% to $117.6 million
from $48.1 million for Saban Fiscal 1994. Approximately 63% of this increase
is attributable to increases in the amortization of production costs and
accrual of profit participations in connection with the
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significant increase in revenues from the Power Rangers, described above. To a
lesser extent, production and programming costs 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 Saban Fiscal 1994. This increase
is primarily attributable to $18.1 million in bonus compensation paid to 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 $1.0 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.
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 Saban Fiscal 1994. 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 is attributable
to the initial release in August 1993 of Power Rangers, and $6.4 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.
Production and programming costs for Saban Fiscal 1994 decreased as a
percentage of total revenues to 57% from 69% in Saban Fiscal 1993, but
increased in dollars by 21% to $48.1 million from $39.7 million for Saban
Fiscal 1993. 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 Saban Fiscal 1993, 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 Saban Fiscal 1993. This increase is primarily related to an increase in
U.S. revenues resulting from the release of Power Rangers in September 1993.
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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%.
Production and programming costs as a percentage of revenues for the four
month period are comparable to production and programming costs 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.
Year ended July 2, 1995 ("FCN Fiscal 1995") compared with the year ended July
3, 1994 ("FCN Fiscal 1994")
Revenues for FCN Fiscal 1995 increased 29% to $168.9 million from $130.6
million for FCN 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.
Production and programming costs as a percentage of revenues were 65% for
FCN Fiscal 1995 as compared to 76% for FCN Fiscal 1994. Cost of sales for FCN
Fiscal 1995 increased 11% to $109.3 million from $98.7 million for FCN Fiscal
1994. While the overall increase in production and programming costs for FCN
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 FCN Fiscal
1995 increased 20% to $21.5 million from $17.9 million for FCN 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's owned and operated
stations ("Fox O&O's")) participations, based upon the cumulative "net
profits" (as defined) of FCN. FCN Fiscal 1995 was the first year in which FCN
reached a level of defined net profits on a cumulative basis. Therefore, FCN
Fiscal 1994 did not reflect a charge for affiliate participations.
Since the net profits of FCN are distributed to the affiliates, no taxes
have been provided on the income of FCN.
LIQUIDITY AND CAPITAL RESOURCES
In September 1997, the Company completed the IFE Acquisition. The total
consideration for the IFE Acquisition was approximately $1.9 billion,
including assumption of debt, and was financed by $1.25 billion borrowed under
the Old Credit Facility, approximately $345 million through the issuance of
Series A Preferred Stock to Liberty IFE and the balance through the NAHI
Bridge Note. Of the net proceeds from the Offering of approximately $830
million, $215 million was used to repay a portion of the NAHI Bridge Note and
the balance of $615 million was used to repay indebtedness under the Old
Credit Facility. Approximately $102.5 million (including accreted interest)
was outstanding under the NAHI Bridge Note at December 31, 1997; however, no
payments are due under the NAHI Bridge Note until March 2008.
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As part of the Offering, the Company amended the Old Credit Facility to
include a $710 million facility, comprised of a seven-year amortizing term
loan and a seven-year reducing revolving credit facility. The Amended Credit
Facility is scheduled to terminate September 29, 2004. Borrowings under the
Amended Credit Facility bear interest, through November 30, 1998, at the
Company's option at a rate per annum equal to either LIBOR plus a 1.5%
interest rate margin or a base rate plus a .5% interest rate margin. As of
December 31, 1997, $90 million was available under the Amended Credit Facility
for additional borrowings.
As a result of the IFE Acquisition and the financing transactions described
above, the Company's principal liquidity requirements arise from interest
payments. The Company further anticipates certain seasonal working capital
needs related to the development, production and acquisition of programming,
the financing of accounts receivable and other related operating costs. 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 capital
requirements. The Company expects to incur capital expenditures of
approximately $16 million over the next 24 months, including amounts to
support its existing international channels as well as the launch of future
international channels. If the Company's agreement in principle with the
Affiliate Board is approved by the individual affiliated stations, commencing
July 1, 1998 the Company will be obligated to pay all of the affiliates an
aggregate of approximately $5.6 million per year for five years in exchange
for an increased allocation of advertising inventory for approximately three
and one-half years. In addition, beginning July 1, 1998, the non-owned-and-
operated affiliated stations will be paid approximately $9.4 million per year
for five years in exchange for (i) guaranteed clearance of Fox Kids
programming in its current time period for ten years and (ii) relinquishment
of any participation in the current or future profits of the Fox Kids Network.
Net cash used in operating activities of the Company during the year ended
June 30, 1997, was $2.0 million and for the six months ended December 31,
1997, was $15.9 million. During the year ended June 30, 1997, the Company
distributed an aggregate of $708,000 to non-Fox O&O Affiliates, and during the
six months ended December 31, 1997, the Company distributed an aggregate of
$100,000 to non-Fox O&O Affiliates.
Net cash used in investing activities of the Company during the year ended
June 30, 1997 and during the six months ended December 31, 1997, was $17.0
million and $1.336 billion, respectively. The Company's net cash flow used in
investing activities for the year ended June 30, 1997 included $13.6 million
incurred in connection with the purchase of U.S. and international programming
and libraries and the purchase of a 90% interest in TV10, a cable network in
Holland. The majority of the investing activity for the six months ended
December 31, 1997 was related to the IFE Acquisition.
Net cash provided by financing activities of the Company during the year
ended June 30, 1997 and during the six months ended December 31, 1997, was
$31.9 million and $1.379 billion, respectively. The financing activities for
the year ended June 30, 1997 consisted primarily of proceeds from bank
borrowings, while the activities for the six months ended December 31, 1997
related to bank and other borrowings in connection with the IFE Acquisition.
The Company's total unrestricted cash balances at December 31, 1997 were
$55.4 million.
The Company believes that the $90 million of available borrowings under the
Amended Credit Facility, together with cash flow from operations, should be
sufficient to fund its operations and service its debt for the foreseeable
future.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income. The Statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The Statement applies to all enterprises that provide a
full set of general-purpose financial statements. The Statement becomes
effective for all financial statements for fiscal years
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beginning after December 15, 1997, with earlier application permitted.
Further, in June 1997, the FASB issued Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information. The Statement changes the
way public companies report segment information in annual financial statements
and also requires those companies to report selected segment information in
interim financial reports to shareholders. The proposal supersedes FASB
Statement No. 14 on segments and does not apply to nonpublic enterprises or to
not-for-profit organizations. The Statement becomes effective for all
financial statements for fiscal years beginning after December 15, 1997, with
earlier adoption permitted. The Company is currently reviewing those
Statements and will apply such provisions as deemed appropriate.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits instead of four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations causing potential disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
The Company has completed an assessment and has determined that it will be
required to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The Year 2000 project cost is not anticipated to have a material
effect on the results of operations.
The project is estimated to be completed not later than December 31, 1998
and the Company believes that with modifications to existing software and
conversions to new software, the Year 2000 Issue will not pose significant
operational problems for its computer systems. However, if such modifications
and conversions are not made or are not completed timely, the Year 2000 issue
could have an impact on the operations of the Company.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and similar uncertainties.
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BUSINESS
The Company is an integrated global children's and family entertainment
company which develops, acquires, produces, broadcasts and distributes quality
television programming. The Company's principal operations comprise (i) Saban,
whose library of over 5,400 half-hours of completed and in-production
children's programming is among the largest in the world, (ii) IFE, which
operates The Family Channel, a leading basic cable television network that
provides family-oriented entertainment programming in the United States,
reaching approximately 95% of all cable and satellite television households,
(iii) the Fox Kids Network--the top-rated children's (ages 2-11) oriented
broadcast television network in the United States and (iv) a growing portfolio
of Fox Kids branded cable and DTH satellite channels operating in
approximately 25 countries worldwide. By combining one of the world's largest
children's programming libraries with a widely distributed cable platform, a
top-rated broadcast network and the Fox Kids branded international channels,
the Company has the ability to manage children's properties and brands from
their creation through production, distribution and the merchandising of
related consumer products.
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. In September 1997, the
Company finalized the acquisition of IFE, whose principal business is The
Family Channel. The IFE Acquisition provides the Company with several
strategic advantages, including (i) a widely distributed cable platform, which
reaches approximately 71 million homes, providing an effective means for more
vigorous competition with other children's- and family-oriented cable
services, (ii) an additional outlet for the Company's existing children's
programming library, (iii) increased awareness in the Company's primary target
market (children ages 2-11) through expanded hours, increased brand exposure
and additional licensing and merchandising opportunities and (iv) cross-
promotional opportunities with the Fox Kids Network.
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 Power Rangers, Casper,
Spider-Man, X-Men, Goosebumps and Bobby's World, or which are or have been
developed or purchased due to their likelihood of maturing into popular
brands. The Company produced, financed or co-financed 14 shows for each of the
1996-1997 and the 1997-1998 broadcast seasons, including Power Rangers, which
since shortly after its launch in 1993 has been the highest rated children's
weekday strip broadcast television program in the United States among boys
ages 2-11. The Company generally retains worldwide rights to its brands, and
currently has approximately 375 licensees worldwide, including toy companies
Bandai, Playmates and Tiger. One of the most attractive attributes of the
Company's children's programming is its "portability," in that 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.
While maintaining the family image and general entertainment format of the
channel, the Company intends to reprogram The Family Channel in August 1998 as
the "Fox Family Channel" with a new schedule, look, marketing campaign and
logo. From 6 a.m. to 6 p.m., the Fox Family Channel will carry a total of 76.5
hours of weekly programming targeted principally to children. From 6 p.m. to
11 p.m., the Fox Family Channel will broadcast programming intended to appeal
to the entire family and will carry advertising to be sold on adult
demographics. Programming will be selected from the Company's existing
library, new original productions produced or co-produced by the Company and
original and library product licensed from independent suppliers.
The Company also owns and operates the Fox Kids Network, the leading U.S.
children's broadcast television network, which broadcasts 19 hours of
children's programming each week 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 Fox Broadcasting's affiliates to
provide children's programming weekdays and Saturday mornings. The Fox Kids
Network has had the highest broadcast television viewership among children
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Monday through Friday and Saturday only in its time period during 20
consecutive quarterly "sweeps" periods through November 1997. In February
1998, the Fox Kids Network finished first in the Monday through Friday
quarterly "sweeps" and second in the Saturday only quarterly "sweeps", just
behind ABC. According to Nielsen, during the 1996-1997 broadcast season,
approximately 19 million children--50% of all children (ages 2-11) in the
United States--watched the Fox Kids Network at least once each month. The Fox
Kids Network affords advertisers the opportunity to reach children in a cost-
effective manner, in part by 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 television market. The Fox
Kids Network's advertising customers include virtually every major advertiser
to children.
To capitalize on the Company's extensive library of children's programming,
since 1996 the Company has launched Fox Kids branded DTH satellite and cable
channels in approximately 25 countries throughout Europe and Latin America.
The Company intends to leverage its relationship with News Corp., which has
significant equity interests in cable and satellite services in most major
international markets, to further its international presence. For example,
since October 1996, the Company has operated a Fox Kids branded channel as
part of BSkyB's Sky Multi-Channels package, which through DTH currently
reaches 3.5 million viewers in the United Kingdom and the Republic of Ireland.
ACQUISITION OF INTERNATIONAL FAMILY ENTERTAINMENT, INC.
On August 1, 1997, the Company acquired a 50.7% interest in IFE through the
purchase for $35 per share of the stock owned by M.G. "Pat" Robertson, Tim
Robertson and certain trusts of which they are trustees, The Christian
Broadcasting Network, Inc. ("CBN") and Regent University (together, the
"Privately Owned Shares") and the exchange by Liberty IFE of all of the IFE
stock owned by it and $23 million principal amount of 6% Convertible Secured
Notes due 2004 of IFE (the "Convertible Notes") (which have since been
retired) for shares of Series A Preferred Stock of the Company. On September
4, 1997, the Company consummated a merger to acquire the remaining shares of
IFE from the public shareholders. Total consideration for the IFE Acquisition
was approximately $1.9 billion. The Company paid approximately $545 million
for the Privately Owned Shares and issued $345 million worth of its Series A
Preferred Stock to Liberty IFE as payment for the IFE stock and the
Convertible Notes. The balance of the consideration was paid to acquire the
publicly traded shares through the merger, to cash out existing options held
by IFE senior executives and employees, and to assume IFE's existing bank
debt, which has since been retired.
The Company financed the IFE Acquisition, in part, by borrowing $1.25
billion pursuant to the Old Credit Facility. On August 1, 1997, the Company
borrowed $602 million under the Old Credit Facility to finance the purchase
price of the Privately Owned Shares (and to refinance certain indebtedness of
Saban outstanding on the closing date of the acquisition of the Privately
Owned Shares). On September 4, 1997, the Company borrowed $648 million under
the Old Credit Facility in order to finance in part the cash consideration
payable to the remaining former public holders of the outstanding shares of
IFE stock for their shares in the merger, to cash out existing options held by
IFE senior executives and employees, to refinance certain indebtedness of IFE
and to pay certain related fees and expenses. See "Description of Other
Indebtedness."
IFE historically operated in three business segments: the operation of
advertiser-supported cable networks, the production ("Production") and
distribution of entertainment programming and the production of live
entertainment shows ("Live Entertainment"). The Company contemplates that it
will continue to operate The Family Channel as the Fox Family Channel but will
sell all of IFE's interests in its other cable and international networks not
directly related to The Family Channel. In addition, the Company intends to
dispose or otherwise discontinue IFE's Production and Live Entertainment
businesses.
INDUSTRY OVERVIEW
Broadcast and Cable Television
The U.S. television market is served principally by network-affiliated
stations, independent stations and cable or satellite television operators.
Because network affiliates generally broadcast network programming
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nationwide 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. In order to
reach the children's market, companies devote significant dollars to
advertising. From 1993 to 1996 alone, advertising in kid-specific media grew
more than 50% to $1.5 billion. 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 the number of international television outlets has created
additional global demand for children's programming. The increasing
privatization of the international television industry has encouraged a
ratings/revenue-oriented focus among international broadcasters, thereby
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 generate significant revenue from
international markets. International television, cable, satellite and home
video sales of a children's program produced in the United States can account
for half or more of the revenue for a given program.
Suppliers and Distributors
Suppliers of children's 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 a combination of cash and barter.
Distributors of children's television programming in the United States
consist primarily of networks (both broadcast television networks and basic
cable programming services) 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 networks 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.
Licensing and Merchandising
Children's programming provides broad licensing and merchandising
opportunities. Characters developed in a popular series, and often the series
themselves, may achieve a high level of recognition and popularity among
children, making them valuable assets for the licensing and merchandising
market, where they provide attractive "branding" opportunities. The children's
market is one of the fastest growing segments in licensed merchandising sales.
It is estimated that children 14 and under will directly spend approximately
$20 billion in 1997, and they will influence another $200 billion in spending.
Of the nearly $110 billion in all licensed products sold in 1996 worldwide,
$72 billion were licensed in the United States and Canada, the majority of
which were children's products. Of the $20.7 billion spent in 1996 on toys in
the United States, $7.8 billion was for licensed toys, and $10 billion was for
licensed and movie tie-in toys combined. Among the most popular licensed items
are toys, apparel, dinnerware/lunch boxes, watches, bedding and soft vinyl
goods such as boots, backpacks and raincoats.
BUSINESS STRATEGIES
The Company intends to continue to increase its presence in the children's
and family television entertainment business, with the goal of becoming the
leading worldwide producer, broadcaster and distributor of children's and
family television programming.
The Company intends to focus on the following strategies to achieve its
objective:
Capitalize on U.S. Cable Platform. While maintaining the family image and
general entertainment format of the channel, the Company plans to reprogram
The Family Channel as the Fox Family Channel in August 1998
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with a new schedule, image and promotional campaign intended to enhance
ratings among the approximately 71 million subscribers of The Family Channel.
The Fox Family Channel will feature children's programming seven days per week
during the daytime hours and family-oriented programming during prime time.
The Company also has plans to add original series to The Family Channel's
prime time schedule and to double the number of original prime time movies
premiering annually on the Fox Family Channel from the current level of
approximately 12 to 24 or more original features. The Company believes that
the availability of original and exclusive features will enhance ratings,
improve demographics and build audience loyalty to the Fox Family Channel.
Continue to Strengthen U.S. Broadcasting Operations. The Company strives to
maintain and improve the ratings, reach and penetration of its U.S.
broadcasting network, the Fox Kids Network. The Fox Kids Network is the top-
rated children's-oriented broadcast television network, currently reaching
approximately 97% of the television households in the United States. The
Company plans to further improve its ratings for the Fox 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 seven of the 14 different programs broadcast on the Fox Kids Network
and will strive to increase the number of its owned programs broadcast.
Develop Strong Branded Characters and Properties. The Company intends to
continue to create and develop new entertainment properties with potential
franchise value and to build on its existing and widely recognized
institutional and programming brands in order to increase viewership on its
networks and maximize revenue from the licensing and merchandising of its
branded characters and properties. 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 intends to capitalize on
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 entertainment properties.
Continue to Develop and Produce Cost-Effective Programming. The Company
intends to continue its practice of obtaining contractual upfront commitments
from networks, independent television stations, international broadcasters and
merchandisers prior to commencing production. The Company also intends to
continue to produce programming in a cost-effective manner while maintaining
control over critical parts of the production process to ensure continued high
quality.
Launch Additional International Channels. The Company believes that
significant expansion opportunities exist in the international television
markets, where the children's market has been relatively underserved. With its
library of over 5,400 half-hour episodes of completed and in-production
children's programming, many 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 through its relationship with News Corp., whose equity
interests in international television distribution platforms and reputation
throughout the world have been helpful in securing carriage agreements on
those platforms. The Company intends to expand the Fox Kids Network globally
by launching Fox Kids branded cable and DTH satellite channels targeting
children in many major international territories. The Company's objective is
to create synergies across the base of these channels and thereby reduce
programming costs while marketing and localizing the channels to distinguish
Fox Kids from its competitors.
PROGRAMMING
The Company creates, produces and acquires quality animated and live-action
children's television programming. The Company's library of approximately
5,400 half-hour episodes of completed and in-production 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
appealing characters and concepts that can be commercially exploited
throughout the world through broadcast network and cable television
exhibition, home video sales, licensing and merchandising. One of the most
attractive attributes of quality children's programming
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is its "portability." Children's programming produced for exhibition in a
particular country is considered "portable" because it can generally be
modified through editing and dubbing into other languages at a modest cost and
resold for exhibition in other countries.
Programming Library
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 2,094 half-
hours) and (ii) programming produced by others for which the Company has
acquired various distribution rights (approximately 3,334 half-hours), of
which approximately 38% have been updated or "freshened" with new scripts,
voices and music prior to distribution. Of the Company's library, including
episodes in production as of December 31, 1997, 1,458 half-hours are original
co-produced programming that meet applicable European content requirements and
are intended for initial broadcast in Europe.
Approximately 81% of the completed and in-production programming 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 of children's programming, approximately 86%
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 C&D, a
leading European producer of family entertainment, and a 712 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.
In January 1997, the Company obtained from FOX Television, a division of
Fox, Inc. ("FOX Television") the distribution rights to the New World
Communication Group Incorporated's ("New World") animation library of 515
half-hour episodes. The rights are terminable by FOX Television upon 30 days
written notice to the Company. See "Certain Transactions."
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 and Francine Pascal's Sweet Valley High) or
series (such as DragonBall Z and Saban's Adventures of Little Mermaid),
develop internally a new property based on an existing public domain property
(such as Saban's Adventures of Oliver Twist) or create or acquire an entirely
new idea or character (such as Eek!Stravaganza). 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 also produces most of the
on-air promotions, sales films and public service announcements for its Fox
Kids Network.
The Company owns 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 approximately 243 half-hours of programming since its inception
in 1990 through December 31, 1997, and has an additional 222 half-hours for
broadcast in 1998 and beyond. In general, the Company enters into strategic
co-production alliances to develop its French and European content
programming. Among the Company's European co-production partners are Canal
Plus, France 2, M6 and Television Francaise 1 in France, Radio Television
Luxembourg 4 in Holland, Compagnie Luxembourgois de Telediffusion in
Luxemburg, British Broadcasting Company in the United Kingdom, Television
Suisse Romande in Switzerland, Radio-Television Belge de la Communaute in
Belgium, Radiotelevisione Italiana in Italy, Tele 5 in Spain and
Arbeitsgemeinschaft der Oeffentlichen Rechtlichen Rundfunkanstalten
Deutschlands ("ARD") in Germany.
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Following are examples of the programs currently being broadcast in the
United States for the 1997-1998 broadcast season for which the Company owns or
controls most of the underlying property and distribution rights, and the
program schedule commencing in February 1998.
<TABLE>
<CAPTION>
EPISODES IN
PRODUCTION FOR
1997-98 PROGRAM
SERIES SEASON SCHEDULE YEARS ON AIR PROGRAM DESCRIPTION
------ -------------- -------- ------------ -------------------
<S> <C> <C> <C> <C>
FOX KIDS NETWORK:
BeetleBorgs Metallix+ 35 Monday-Thursday 2 Three kids become comic book
superheroes in this comedy
adventure series.
Bobby's World* 10 Monday-Thursday 8 Combines point of view of a 4-
year old with spirit of Howie
Mandel.
Power Rangers Turbo+ and 91 Monday-Thursday 5 The next generations of the
Power Rangers in Space+ Saturday Power Rangers adventure.
Life With Louie* 13 Monday-Thursday 3 Comedian Louie Anderson's
childhood ups 'n downs of
dodging bullies, eating pies
and going on family vacations.
Ninja Turtles: The Next 26 Friday P.M. premiere Based on the Teenage Mutuant
Mutation+ Ninja Turtles series, the
world's favorite party reptiles
use slapstick humor and high-
tech hardware to reach a new
generation of fans.
Silver Surfer* 13 Saturday A.M. premiere Marvel comic book action
adventure.
Space Goofs*(1) 26 Saturday A.M. premiere Adventures of alien monsters
who crash-land on earth and
hide out in a house for rent
until they get back home.
OTHER DISTRIBUTION OUTLETS:
Saban's Adventures of 13 Weekend A.M. 2 Inspired by Charles Dickens'
Oliver Twist* timeless classic.
DragonBall Z*(2) 26 Weekend A.M. 2 A mystical adventure series of
riveting stories, driven by
extraordinary characters who
embody the essence of good and
evil.
X-Men . . . And Marvel 52 Weekday 5 One hour of Marvel comic book
Superheroes* heroes including X-Men, Ironman
and Fantastic Four.
The All New Captain 26 Weekend A.M. premiere The classic children's program,
Kangaroo+ updated for a new generation.
Sweet Valley High+(3) 22 Sunday 4 Twins living the California
dream.
Breaker High+ 44 Sunday premiere The adventures of high school
on a cruise ship.
Incredible Hulk*(4) 8 Sunday 2 Based on the Marvel comic book
superhero.
</TABLE>
- --------
+ Live-action.
* Animation.
(1) The Company has U.S. television and U.S. and Canadian home video and
merchandising rights through 2002. Gaumont Multimedia owns the copyrights
and trademarks.
(2) The Company has exclusive U.S. distribution rights on a year-to-year basis
through 2001, although FUNimation and Toei Animation own the copyrights
and trademarks.
(3) Pursuant to an agreement dated November 27, 1996, UPN has agreed to
purchase from the Company the exclusive rights to Francine Pascal's Sweet
Valley High, committing to a 22-episode order for the 1997-1998 broadcast
season and acquiring all 66 previously aired episodes.
(4) Produced by New World Animation; the Company has worldwide distribution
rights, excluding merchandising.
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International Sales of Programming
Much of the Company's programming is distributed on a worldwide basis. The
Company believes that by owning and controlling the international distribution
rights to its programming, in addition to generating significant revenue from
the sale of its programming, it can also establish an international presence
for the Company and its properties.
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. These
distribution arrangements accounted for approximately $81 million, or 26% of
the Company's consolidated revenues for the fiscal year ended June 30, 1997
and approximately $61 million, or 18% of the Company's consolidated revenues
for the six months ended December 31, 1997, and, giving effect to the IFE
Acquisition as if it had occurred on July 1, 1996, 15% and 18% of its pro
forma consolidated revenues for the respective periods.
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 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 Saban's
Adventures of Oliver Twist), 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, based upon 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. The Company is currently negotiating an
extension of its distribution agreement with ARD.
DISTRIBUTION
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 "--The Strategic Alliance with Fox/News
Corp." and "--Programming." The Company owns three distribution outlets: The
Family Channel/Fox Family Channel, the Fox Kids Network and Fox Kids branded
international channels.
The Family Channel/Fox Family Channel
The Family Channel is a basic cable network that provides family-oriented
entertainment and informational programming to approximately 95% of all U.S.
cable and satellite television households. The Company intends to reprogram
The Family Channel in August 1998 as the Fox Family Channel with a new
schedule, look, marketing campaign and logo. The new format will include day-
time programming for children followed by evening programming which will be
suitable for the entire family. Evening programming is intended to include
original series, specials and movies produced and licensed to the Fox Family
Channel, as well as programs originally televised on the major broadcast
networks. Currently, The Family Channel's programs are transmitted 24 hours a
day via satellite from the Company's uplink facility in Virginia Beach.
In general, pursuant to The Family Channel's affiliation agreements, each
cable system operator or other delivery service distributing The Family
Channel agrees to pay the Company a monthly fee per subscriber. The Family
Channel affiliation agreements are generally three, five or ten years in
duration and provide for annual per subscriber rate increases. Increases in
per subscriber fees and, to a lesser extent, increased household penetration
have generated growth in The Family Channel subscriber fee revenue. In
addition, The Family Channel earns revenue through the sale of advertising
spots.
Ratings and Programming. The Company plans to air 76.5 hours of children's
programming from 6 a.m.-6 p.m. each week, and programming suitable for the
entire family from 6 p.m.-11 p.m. Throughout the course of
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the day, the Company intends to gradually target programming to more mature
audiences. Under an agreement with CBN, the Company will continue to air The
700 Club with Pat Robertson, an inspirational news and talk show, during three
time slots Monday-Friday, currently 10:00 a.m-11:30 a.m., 11 p.m.-midnight,
and 2 a.m.-3 a.m.
As of December 1997, The Family Channel billed cable systems for
approximately 65 million subscribers, as compared to Nielsen's estimate that
the network is available in 71 million households. The discrepancy may be
explained in part by sampling error, but more significantly by subscriber
theft, a common occurrence in the cable industry. According to Nielsen, The
Family Channel's prime time ratings averaged 1.11, or 759,000 of the 71
million households, for the nine months ended September 1997. For purposes of
reporting ratings, The Family Channel defines prime time as 7 p.m.-10 p.m.
Monday-Friday, 8:00 p.m.-midnight Saturday and 7:00 p.m.-11:00 p.m. Sunday.
Transmission Facilities. The Company transmits all programming for The
Family Channel from its facilities located in Virginia Beach, Virginia, by
means of an earth station transmitting antenna (an "uplink"). The uplink
facility transmits the programming signal to a transponder on an orbiting
satellite, which in turn retransmits the signal to cable systems operators,
DBS services and other alternative delivery services. Programming is
transmitted using two separate "feeds" (one for the eastern, central and
certain mountain time zones and another for all other mountain time zones and
the pacific time zones) which are transmitted to two different satellite
transponders. The Company owns the transponders for these two feeds as well as
a transponder on a third satellite. All of the Company's owned transponders
have "protected" status. "Protected" status means that should the transponder
fail, service will be transferred, subject to availability, to a spare
transponder and, if one is not available, then to a transponder with
"preemptable" status on the same satellite or on another satellite owned by
the same seller or lessor, subject to certain limitations. "Preemptable"
status means that the transponder can be preempted in the event of a failure
of a "protected" transponder. See "Risk Factors--Dependence Upon Satellite
Transponders."
Fox Kids Network
The Fox Kids Network, launched in September 1990, is the result of an
arrangement between Fox Broadcasting and participating FOX Television Member
Stations to form a broadcast television network focused on children (ages 2-
11). The Fox Kids 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 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 eighth broadcast season, the Fox Kids Network currently is
carried by 179 Fox Kids Network Affiliates, 164 of which are affiliated with
the FOX Television Member Stations and 12 of which are currently Fox O&O's.
The Fox Kids Network Affiliates reach approximately 97% of all U.S. television
households. The Fox Kids Network produces and acquires programs, markets and
promotes these programs, makes its schedule available to its Fox Kids Network
Affiliates and sells network advertising. The Company cross-promotes the Fox
Kids Network through its Fox Kids Club, Totally Fox Kids quarterly magazine,
Fox Kids Countdown radio show and Fox Kids website.
Under an Administration Agreement between Fox Broadcasting and FCN, Fox
Broadcasting agreed to administer 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,
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, and has agreed to continue to
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<PAGE>
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.
The Fox Kids Network schedule commencing in February 1998 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 CONSECUTIVE YEARS
(EST) PROGRAM ON AIR PROGRAM DESCRIPTION
- ----------- ------- ----------------- -------------------
<S> <C> <C> <C>
8:00-8:30 a.m. Mowgli: The New Adventures of the Jungle Book premiere Live action series inspired by
the Rudyard Kipling book "The
Jungle Book."
8:30-9:00 a.m. Ned's Newt premiere Animated comedy adventure
series of a young boy with his
7-foot tall pet salamander.
9:00-9:30 a.m. Goosebumps 3 Based on the best-selling
suspense novels by R.L. Stine.
9:30-10:00 a.m. Toonsylvania premiere Animated adventures of Dr.
Frankenstein's long-suffering
assistant, Igor.
10:00-10:30 a.m. Ultimate Goosebumps 3 Based on the best-selling
suspense novels by R.L. Stine.
10:30-11:00 a.m. Space Goofs premiere Adventures of alien monsters
who crash-land on earth and
hide out in a house for rent
until they get back home.
11:00-11:30 a.m. Eerie, Indiana: The Other Dimension premiere Spin-off series from the
original, following the
adventures of 2 kids
investigating strange going ons
in their home town.
11:30-Noon Silver Surfer premiere Based on the Marvel comic book
action adventures.
MONDAY-THURSDAY PROGRAMMING
<CAPTION>
TIME PERIOD CONSECUTIVE YEARS
(EST) PROGRAM ON AIR PROGRAM DESCRIPTION
- ----------- ------- ----------------- -------------------
<S> <C> <C> <C>
7:00-7:30 a.m. Bobby's World (educational) 8 Combines point-of-view of a 4-
year-old with the spirit of
comedian Howie Mandel.
and
7:30-8:00 a.m.
3:00-3:30 p.m. BeetleBorgs Metallix 2 The next generation of the Big
Bad BeetleBorgs.
3:30-4:00 p.m. Spider-Man 4 Based on the most popular
Marvel comic book hero in
history.
4:00-4:30 p.m. Power Rangers Turbo 5(1) The next generation of the
Power Rangers saga.
4:30-5:00 p.m. Life With Louie (educational) 3 Comedian Louie Anderson's
childhood ups 'n downs of
dodging bullies, eating pies
and going on family vacations.
</TABLE>
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<PAGE>
FRIDAY PROGRAMMING
<TABLE>
<CAPTION>
TIME PERIOD CONSECUTIVE YEARS
(EST) PROGRAM ON AIR PROGRAM DESCRIPTION
- ----------- ------- ----------------- -------------------
<S> <C> <C> <C>
7:00-7:30 a.m. C-Bear & Jamal (educational) 2 Life of Jamal Wingo, a 10-year
old African American boy whose
thrift store teddy bear comes
to life.
7:30-8:00 a.m. Casper 2 The friendly ghost.
and
3:00-3:30 p.m.
3:30-4:00 p.m. Sam & Max premiere In the frenetic world of tough
as nails cops, none is more
dysfunctional than the duo of
Sam, the dog, and Max, the
wild, psycho rabbit.
4:00-4:30 p.m. Power Rangers In Space premiere(1) The newest generation of the
Power Rangers Saga.
4:30-5:00 p.m. Ninja Turtles: The Next Mutation premiere Based on the Teenage Mutant
Ninja Turtles series, the
world's favorite party reptiles
use slapstick humor and high-
tech hardware to reach a new
generation of fans.
</TABLE>
- --------
(1) Power Rangers, as a franchise, has been on the air for five consecutive
years. Power Rangers Turbo has been on the air for approximately two years
and Power Rangers In Space premiered this season.
Ratings. The Fox Kids Network is measured by Nielsen in terms of ratings and
share points. For the 1997-1998 broadcast season, the potential viewing
universe of children in the United States is estimated to be 39 million. Each
ratings point represents 1.0% of these children who are watching television
during a particular time slot. For the 1996-1997 broadcast season, the Fox
Kids Network averaged a 2.4 rating and 16% share, Monday-Friday, and a 4.5
rating and 21% share Saturday mornings during the hours it broadcasts. The Fox
Kids Network's ratings for Saturday morning were almost twice that of its
closest broadcast competitor, ABC (2.6 rating and 12% share). For the 1997-
1998 broadcast season to date (September 22, 1997-February 28, 1998), the Fox
Kids Network averaged a 2.3 rating Monday-Friday and a 3.7 rating on Saturday
mornings during the hours it broadcasts.
Fox Kids Affiliation Agreements. Currently, more than 93% of the FOX
Television Member Stations, including 12 of the 22 Fox O&O's, carry the Fox
Kids Network pursuant to their affiliation agreements with Fox Broadcasting.
These affiliation agreements expire over the next one to ten years and there
can be no assurance that they will be renewed.
The affiliation agreements currently 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 cumulative 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, which
instead are retained by the Company. As a result of this waiver, through
December 31, 1997, $4.7 million, or approximately 30% of the total amounts
paid ($15.7 million) to all Fox Kids Network Affiliates, has been retained by
the Company.
The non-Fox O&O Fox Kids Network Affiliates are represented by the Affiliate
Board, which was convened for the purpose of facilitating communications
between the non-Fox O&O Affiliates and FCN. On behalf of the Company, Fox
Broadcasting from time to time meets with the Affiliate Board to review the
operations and
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operating policies of FCN and the Fox Kids Network. In February 1998, the
Company reached an agreement in principle with the Affiliate Board for the Fox
Kids Network to modify the financial arrangements between the Fox Kids Network
and the Fox Kids Network Affiliates. The agreement provides that all of the
Fox Kids Network Affiliates would receive beginning July 1, 1998 an aggregate
amount of approximately $5.6 million per year for five years in exchange for
an increased allocation of advertising inventory for approximately three and
one-half years. In addition, beginning July 1, 1998, the non owned-and-
operated affiliated stations will be paid approximately $9.4 million per year
for five years in exchange for (i) guaranteed clearance of Fox Kids
programming in its current time period for ten years and (ii) relinquishment
of any participation in the current or future profits of the Fox Kids Network.
The Affiliate Board has recommended that each of the Fox Kids Network
Affiliates accept the Company's proposal. The Fox Kids Network Affiliates are
currently considering the proposal.
International Channels
The Company believes that it is positioned strategically, particularly
through its relationship with News Corp., to take advantage of growth in
international DTH satellite and cable television services and the resulting
increase in demand for television programming. The Company has launched
branded Fox Kids channels, owned and operated by the Company, which are
distributed via DTH satellite and cable in the United Kingdom, the Republic of
Ireland, Latin America, France, Holland and Australia. The Company also has
signed agreements to launch Fox Kids branded channels in Scandinavia in early
April 1998 and Poland in mid-April 1998, and is in active discussions and
negotiations to launch additional Fox Kids branded channels in other countries
throughout the world, with particular emphasis in Germany, Spain, Italy,
Austria, Belgium, Switzerland and Turkey. The Company's objective is to become
the leading operator of international children's channels by creating fully
localized Fox Kids branded channels in every major territory.
United Kingdom and Republic of Ireland. The Company operates a Fox Kids
channel that is distributed to over 3.7 million subscribers in the United
Kingdom and the Republic of Ireland. The channel is distributed as part of
BSkyB's Sky Multi-Channels DTH package to over 3.5 million subscribers, and
over a number of cable systems to approximately 250,000 viewers. The Company
expects to grow significantly its subscriber base by increased distribution
through BSkyB, in which News Corp. owns a 40% interest, and through increased
cable distribution.
Latin America. Since November 1996, the Company has operated Fox Kids Latin
America ("FKLA"), a pan-regional Latin American channel, which simultaneously
broadcasts animated and live-action programming in Spanish, Portuguese and
English. The 24-hour service is transmitted via the PanAm Sat 5 satellite and
currently reaches 3.9 million cable and multi-channel multi-point distribution
system ("MMDS") homes in 19 countries throughout the region. In addition, the
Fox Kids channel is carried on two emerging Sky-branded DTH platforms
currently operating in Mexico and Brazil, which reach an additional 160,000
homes.
In October 1997, the Company launched FKLA on Brazil's largest multi-system
operator, NET (a subsidiary of Globo, Brazil's largest media company with a
potential reach of approximately 1.7 million subscribers). The Company also
has recently launched on Brazil's second largest multi-system operator, TV
Abril, making FKLA available up to an additional 450,000 homes in Brazil. The
Company is aggressively positioning FKLA in the Brazilian marketplace in
anticipation of 1,500 new cable licenses to be auctioned by the government,
which should expand Brazil's multi-channel universe to more than 6 million
subscribers by the year 2000.
Holland. The Company acquired 100% of TV10 from Arcade Media Group B.V. and
Wegener N.V. (90% in March 1997 and 10% in December 1997). TV10 is distributed
in Holland via cable to 89% of all television households. Before the Company's
purchase of its interest in TV10, the channel did not broadcast any children's
programming. On August 2, 1997, a Fox Kids service was launched on TV10,
broadcasting between the hours of 6:30 a.m. and 6:00 p.m. on weekdays and 5:00
p.m. on Saturday and Sunday. The Fox Kids block currently has a weekly average
of 10% market share for children 6-11, and a 12% market share for children
Monday through Friday.
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France. A new Fox Kids channel was launched in France in November 1997. The
channel is distributed as part of the basic package of the Canal Satellite DTH
platform to approximately 700,000 subscribers. The channel currently is
broadcasting 15 hours per day, seven days per week. The Company is in
discussions with all major cable operators to broaden distribution, although
there currently is limited channel capacity on most of the analog cable
systems in France.
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 assigned
to the Company. As of December 31, 1997, Foxtel had over 275,000 subscribers.
Foxtel is a 50/50 partnership between News Corp. and the Australian state-
owned telephone company, Telstra.
Scandinavia. The Company plans to launch a Fox Kids channel in Sweden,
Norway, Denmark and Finland on the new digital DTH platform of Canal Digital,
a joint venture between Telenor and Canal PLUS in early April 1998. Canal
Digital will act as agent in maximizing the distribution of the channel to
cable and satellite master antenna television ("SMATV") operators. The channel
will be operated from the United Kingdom and will broadcast children's
programming 12 hours per day, fully dubbed into Norwegian, Swedish and Danish.
Discussions are taking place to obtain analog DTH distribution as well as with
all major cable and SMATV operators for distribution of the Fox Kids
throughout Scandinavia, including distribution in Iceland.
Poland. The Company plans to launch a Fox Kids channel in Poland in mid-
April 1998, as part of @Entertainment's cable network (PTK) and new digital
DTH platform. @Entertainment is the largest provider of multi-channel
television services in Poland. Based on @Entertainment's projections, Fox Kids
is expected to reach 750,000 subscribers at launch and 1.2 million subscribers
by the end of 1998. @Entertainment will act as agent in maximizing the
distribution of the channel to cable operators in Poland. The channel will be
operated from the United Kingdom and will broadcast children's programming
12 hours per day, fully dubbed into the Polish language.
ADVERTISING
The extensive reach of The Family Channel and Fox Kids Network affords
advertisers substantial day-and-date capacity to conduct nationwide
advertising campaigns. 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. For the year ended June 30, 1997
and the six months ended December 31, 1997, the Company's revenues from
advertising were approximately $125 million or 41% and $141 million or 42% of
consolidated revenues, respectively, and, giving effect to the IFE Acquisition
as if it had occurred on July 1, 1996, $279 million, or 45%, and $152 million,
or 43%, respectively, of the Company's pro forma consolidated revenues. One of
the Company's objectives in its planned reprogramming of The Family Channel as
the Fox Family Channel is to reach viewers that are attractive to advertisers.
See "Risk Factors--Acquisition of IFE." The Company also derives revenues from
program sales which consist of sales of program length periods of time for
infomercials which currently air during certain portions of the 12 a.m. to 6
a.m. time block on The Family Channel and will continue to air on the Fox
Family Channel.
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. Under these agreements, the Company seeks to earn revenue from the
sale of products while limiting the costs and risks associated with
manufacturing, distributing and marketing merchandise. For the year ended June
30, 1997 and the six months ended December 31, 1997, the Company's licensing
and merchandising activities represented approximately 18% and 4% of the
Company's consolidated revenues, respectively, and giving effect to the IFE
Acquisition as if it had occurred on July 1, 1996, approximately 9% and 3%,
respectively, of pro forma consolidated revenues. 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,
product development and retail efforts of the Company and its licensees. Sales
of licensed products also help the Company's shows by promoting the Company's
characters.
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The Company has entered into merchandise license agreements with a number of
toy manufacturers pursuant to which the manufacturers are given the right to
create, manufacture and develop products representing characters from the
Company's series. For example, the Company has toy licenses with Bandai,
covering Power Rangers and BeetleBorgs, and with Playmates, Inc., covering
Captain Kangaroo. 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 is 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
continued ownership of the copyright and trademark. The Company has licensing
arrangements in place with approximately 375 different licensees worldwide for
other consumer products targeting children, such as toys, apparel, publishing,
software, dinnerware/lunch boxes, watches, bedding and soft vinyl goods, such
as boots, backpacks and raincoats. Merchandise based on the Company's
characters and properties is sold in approximately 60 countries throughout the
world.
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
released in September 1997 the direct-to-video film, Casper--A Spirited
Beginning, and is in production on a second film based upon the character
"Casper." The Company also is in pre-production on a film based on the
character "Richie Rich," and has acquired rights to produce new live-action
television specials and series programs based upon the "The Addams Family"
characters. Through a separate agreement with Fox Video, the Company
distributes throughout the United States and Canada all of its television
programs produced for children and owned or controlled by Saban or FCN. The
Company receives royalties from the sale of home video cassettes of its
television programming. See "Certain Transactions--Certain Transactions
Between the Company and the Fox Parties."
Telefilms. Historically, the Company acquired international distribution
rights to several telefilms ranging from 12 to 15 motion pictures per year
over the past three years. While the Company occasionally acquired U.S. rights
to these films, the primary objective of acquiring telefilms was to complement
the Company's international children's programming sales activities. With the
acquisition of The Family Channel, the Company has made a decision to increase
the number of telefilms produced or acquired each year to 25 or more motion
pictures. Further, whenever possible, the Company will acquire worldwide
rights to these features. These films are typically targeted at prime time
audiences and consist of dramas, thrillers and action/adventure features. The
Company intends to air these features on the Fox Family Channel and to
distribute these features internationally to television broadcasters and home
video distributors.
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 December 1, 1997, FOX Television had 175 prime time primary
television station affiliates and three prime time secondary television
station affiliates across the United States, including 22 Fox O&O's, reaching
over 96% of U.S. television households. Each television station affiliate is a
party with Fox Broadcasting to an affiliation agreement which governs the
terms of the relationship between them. See "Risk Factors--Strategic
Relationships with News Corp. and Fox."
The Fox Kids Network is distributed over the same broadcast facilities as
FOX Television. In December 1995, Fox Broadcasting and certain of its
affiliates (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. Set forth below is a summary of certain
of the material portions of the relevant strategic alliance
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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--Certain Transactions Between the Company and the Fox Parties."
License of "Fox" Name. The Fox Parties granted to the Company 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 the 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
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 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 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 such 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. Should the Fox Parties decide not to provide
these services, the Company believes similar services are readily available to
the Company at competitive prices.
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.
Programming. 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 ratings and
related advertising revenues. The Company currently competes and expects to
continue to compete, through the Fox Kids Network and the Fox Family Channel,
with the other broadcast television networks, public television and cable
television channels, such as Nickelodeon, USA Cable Network, Turner Network
Television and The Cartoon Network for market acceptance of its programming
and for viewership ratings and advertising revenues. To the extent that the
Company produces original programming for distribution outlets it does not
own, it competes with other producers of children's programming.
Internationally, the Company competes with a large number of U.S.-based and
international distributors of children's programming, including The Walt
Disney Company, Warner Bros. and Nickelodeon, 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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Cable. When The Family Channel's reprogramming as the Fox Family Channel is
complete, the cable channels with which the Fox Family Channel will compete
head-on include Nickelodeon (an MTV Networks company), the Disney Channel and
the Cartoon Network. In addition to these direct cable competitors, the Fox
Family Channel will also compete with its Fox Kids Network sister, the WB,
ABC, UPN, CBS and PBS. The Company intends to differentiate itself from this
competition by cross-promoting programming with the Fox Kids Network. In
addition, the Fox Family Channel will also serve as an additional outlet for
Fox Kids original programming.
GOVERNMENT REGULATION
The following does not purport to be a summary of all present and proposed
federal, state and local regulations and legislation relating to the
broadcasting and cable television industries and other industries involved in
the video marketplace; rather it attempts to identify those requirements that
could affect the Company's business. Also, other existing legislation and
regulations, copyright licensing, and, in many jurisdictions, state and local
franchise requirements, are currently the subject of a variety of judicial
proceedings, legislative hearings and administrative and legislative proposals
which could affect, in varying degrees, the manner in which the cable
television industry and other industries involved in the video marketplace
operate.
Federal Regulations and Legislation
The distribution of the Company's programming by broadcast stations and
cable systems must comply with the provisions of the Children's Television Act
of 1990 ("CTA") and the rules and policies of the 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 or cable system, which could adversely impact the Company.
FCC rules also 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. At the present time, the
Company provides three hours per week of Core Programming to affiliates of
FCN, thereby enabling them to fulfill their obligations under the CTA. The
Company believes that two additional programs, Life With Louie and The All New
Captain Kangaroo, also qualify as Core Programming under the new rules.
Certain aspects of the Company's cable operations are subject, directly or
indirectly, to federal, state, and local regulation. At the federal level, the
operations of cable television systems, satellite distribution systems, other
multichannel distribution systems, broadcast television stations, and, in some
respects, vertically integrated cable programmers are subject to the
Communications Act of 1934, as amended, the Cable Communications Policy Act of
1984 (the "1984 Act"), the Cable Television Consumer Protection and
Competition Act (the "1992 Act"), and the Telecommunications Act of 1996 (the
"1996 Act") and regulations promulgated thereunder by the Federal
Communications Commission (the "FCC"). Cable television systems are also
subject to regulation at the state and local level. See "--State and Local
Regulation."
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The 1996 Act took effect in February 1996, altering the network of federal,
state, and local laws and regulations pertaining to telecommunications
providers and services. The FCC is in the process of promulgating rules
interpreting and implementing the provisions of the 1996 Act. At this time, it
is impossible to state with precision the full impact the 1996 Act will have
on the Company.
The 1996 Act phases out cable rate regulation, except with respect to the
"basic" tier (which must include all local broadcast stations and public,
educational and governmental access channels and must be provided to all
subscribers). Beyond the basic tier of cable service, which continues to be
regulated by the local franchising authorities ("LFAs"), rate regulation of
other cable services between now and 1999 will only be triggered by a valid
rate complaint by a LFA, and only in an area where no effective competition
exists. Once a system's rates are initially set, the rules permit subsequent
increases that reflect inflation and increases in existing programming costs
and certain other costs. The rules thus permit cable operators that carried,
for example, The Family Channel when their rates were initially regulated to
pass through to subscribers any subsequent increases in licensing fees,
subject to a cap which will expire this year. Systems may also increase rates
when they add new channels to regulated tiers, but there is a cap on such
increases. Alternatively, systems may create "new product tiers" consisting
entirely of services not previously offered on regulated tiers, and these new
product tiers will generally not be subject to rate regulations.
Rate regulation under the 1992 Act resulted in a reduction of rates to some
subscribers in some markets. The deregulation under the 1996 Act may, however,
result in an increase in rates in some markets. In response to the 1992 Act
and the FCC's implementing regulations, many cable systems retiered channels
to create an attractively priced basic tier consisting exclusively of
broadcast and public, educational, and governmental access channels, while
offering satellite-delivered programming services such as The Family Channel
on a different service tier or on an a la carte basis. To the extent that such
retiering or repricing of the Company's networks induces customers to
discontinue their subscriptions, the Company's financial performance could be
adversely affected. Deregulation of rates pursuant to the 1996 Act may reverse
such tiering and pricing decisions by cable system operators and,
correspondingly, reverse or ameliorate any adverse effects of the 1992 Act,
although the impact of the 1996 Act and its implementing regulations cannot be
predicted at this time.
The 1996 Act addresses obscenity, indecency and violence in connection with
telecommunications services in several respects, including the establishment
of an encrypted rating in all video programming that, when used in conjunction
with so-called "V-Chip" technology, would permit the blocking of programs with
a common rating. On January 17, 1997, an industry proposal, as revised, was
submitted to the FCC describing a voluntary ratings system for all video
programming. The industry proposal was revised and resubmitted to the FCC on
August 1, 1997. Pursuant to the 1996 Act, the FCC is conducting separate
proceedings (i) to determine whether to accept the industry proposal or
establish and implement an alternative system for rating and blocking video
programming and (ii) addressing technical issues relating to the "V-Chip." The
Company cannot predict whether the FCC will accept the industry proposal
regarding the rating and blocking of video programming, or how changes in this
proposal or the implementation of "V-Chip" technology could affect the
Company's business.
Under the FCC's closed captioning rules, which became effective January 1,
1998, program distributors, and not producers, are generally responsible for
compliance with captioning rules. However, program distributors--defined to
include entities that distribute programming to subscribers--may demand
certifications from program producers that programming meets the minimum
captioning requirements. The rules divide programming into two groups: pre-
rule programming (which is defined to be programming that was first published
or exhibited on or before January 1, 1998 by any distribution method) and new
programming (programming that was first published or exhibited after that
date). Pre-rule programming is subject to no specific requirements until the
first calendar quarter of 2008. In that quarter, 75% of all pre-rule
programming actually aired or shown by a distributor is required to be
captioned. Compliance is measured on a per-channel basis, as averaged per
calendar quarter. Beginning in the first calendar quarter of 2000, new
programming that is not otherwise exempt from captioning requirements is
subject to a series of quarterly benchmarks, until by January 1, 2006, 95% of
all new, non-exempt programming is to be captioned. The rules exempt new
networks (cable
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and non-cable) for four years from launch date; networks with less than $3
million in annual gross revenues (not counting affiliate revenues); and
companies which have already devoted 2% of annual gross revenues to closed
captioning expenses. The FCC also may grant waivers on a case by case basis.
The FCC's rules are subject to petitions for reconsideration and the extent to
which the Company, as both a producer and distributor of programming, will be
required to comply with captioning requirements is not clear.
To the extent the 1996 Act fosters greater competition for the provision of
multichannel video services to individual subscribers, the Company should
generally be impacted either neutrally or advantageously, as additional
providers are additional potential customers for the Company. To the extent,
however, that rate deregulation causes a material increase in cable rates, the
subscriber base could be decreased potentially affecting the Company's
subscriber revenues. Further, the Company may be called upon to provide
increased closed captioning to assist in complying with rules promulgated
under the 1996 Act and may be required to provide assistance or information to
establish ratings for its programming. Either of these undertakings could
increase the Company's operating expenses.
The 1992 Act subjects cable systems to "must carry" rules, pursuant to which
local broadcast stations elect to demand carriage. It also provides favorable
channel positioning rights for broadcasters electing to exercise their must
carry rights. The 1992 Act also gives television broadcast stations the right
to withhold consent to be carried by a cable system which may result in a
station receiving compensation for carriage.
Congress and the FCC have under consideration, and in the future may
consider and adopt, new laws, regulations and policies regarding a wide
variety of matters that may affect, directly or indirectly, the operation,
ownership and profitability of the Company's business. These proposed changes
include, for example, expansion of program access requirements and potential
must-carry rights for digital television broadcast stations (which could limit
multi video program distributions ("MVPDs"') channel capacity available for
the Company's programming). In the Fourth Annual Cable Competition Report,
released January 13, 1998, the Commission expressed concern regarding recent
cable rate increases and increases in programming costs. The Chairman of the
FCC has directed the Cable Services Bureau to commence an inquiry into, among
other things, the reasons for increases in programming costs and whether such
cost increases should be passed through to subscribers. The Company is unable
to predict the outcome of future federal legislation or the impact of any such
laws or regulations on its operations.
State and Local Regulation
Cable television systems are generally constructed and operated under non-
exclusive franchises granted by a municipality or other state or local
governmental entity. Franchises are granted for fixed terms and are subject to
periodic renewal. The 1984 Act places certain limitations on a LFA's ability
to control the operations of a cable operator, and the courts from time to
time have reviewed the constitutionality of several franchise requirements,
often with inconsistent results. The 1992 Act prohibits exclusive franchises,
and allows LFAs to exercise greater control over the operation of franchised
cable television systems, especially in the areas of customer service and rate
regulation. The 1992 Act also allows LFAs to operate their own multichannel
video distribution systems without having to obtain franchises. Moreover, LFAs
are immunized from monetary damage awards arising from their regulation of
cable television systems or their decisions on franchise grants, renewals,
transfers, and amendments.
The terms and conditions of franchises vary materially from jurisdiction to
jurisdiction. Cable franchises generally contain provisions governing time
limitations on the commencement and completion of construction, and governing
conditions of service, including the number of channels, the types of
programming (but not the actual cable programming channels to be carried), and
the provision of free service to schools and certain other public
institutions. The specific terms and conditions of a franchise and the laws
and regulations under which it is granted directly affect the profitability of
the cable television system, and thus the cable television system's financial
ability to carry programming. Local governmental authorities also may certify
to regulate basic cable rates. Local rate regulation for a particular system
could result in resistance on the part of the cable operator to the amount of
subscriber fees charged by the Company for its programming.
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Various proposals have been introduced at the state and local level with
regard to the regulation of cable television systems, and a number of states
have enacted legislation subjecting cable television systems to the
jurisdiction of centralized state governmental agencies.
International
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 limit access to
particular markets.
FACILITIES
The Company currently leases a total of approximately 217,000 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. As of April 1, 1997, certain of the Fox Kids Network
employees and other Company employees relocated to a new facility in Los
Angeles which FOX Television recently acquired from New World. The Fox Kids
Network leases approximately 24,123 square feet in such facility. No rent has
been paid yet for this lease and the rate has not been negotiated. The Company
also leases a multi-purpose production facility in Valencia, California under
a lease that expires in January 1999. The Company's Paris animation studio
currently leases 1,379 square meters of office and production space under a
lease expiring February 28, 2005; this lease may be cancelled by the Company
with six months prior notice on February 28, 1999 or February 28, 2002. The
Company also leases approximately 14,500 square feet of office space for its
European headquarters in London, England under a lease expiring September 30,
2007. This lease may be cancelled after the fifth year with nine months
advance notice. In connection with IFE Acquisition, the Company acquired IFE's
executive and administrative offices, a sales office and an affiliate
relations office in Virginia Beach, Virginia. The Company also continues to
lease from CBN a portion of a corporate support building for its master
control, satellite uplink and postproduction facilities. 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 December 31, 1997, the Company (excluding IFE) had 500 full-time and 5
part-time employees in the United States and 121 full-time employees outside
the United States. In connection with the IFE Acquisition, the Company added
430 full-time and 150 part-time employees in the United States. As part of the
Company's planned sale or disposition of certain of IFE's businesses, the
number of IFE employees will be reduced. 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 some the Company's children's network and syndication programming for
the 1997-1998 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>
Saban's Adventures of
Oliver Twist * * Worldwide * * * * *
BeetleBorgs Metallix * * Worldwide * * * * *
(except Asia)
Bobby's World * * Worldwide * * * * *
Breaker High *(1) * Worldwide * * * * *
(except Canada)
DragonBall Z --(2) --(2) United States * -- -- -- --
Eek!Stravaganza * * Worldwide * * * * *
Life With Louie * * Worldwide * * * * *
Power Rangers in Space * * Worldwide * * * * *
(except Asia)
Power Rangers Turbo * * Worldwide * * * * *
(except Asia)
Sweet Valley High * -- Worldwide * * * * *
(except
publishing)
The Tick * * Worldwide * * * * *
X-Men --(3) --(3) Worldwide * * -- -- --
Casper -- -- United States, *(4) -- -- -- --
Latin America,
United Kingdom
Goosebumps -- -- Worldwide, * -- -- -- --
except Canada
Sam & Max -- -- United States, * *(5) -- -- --
United Kingdom,
Australia,
New Zealand,
Mexico,
Central America,
South America
Silver Surfer -- -- United States * * -- -- --
Space Goofs --(6) --(6) United States, * * -- -- *
Canada
Stickin' Around -- -- United States * -- -- -- --
The All New
Captain Kangaroo * *(7) Worldwide * * * * *
Marvel Superheroes --(8) --(8) Worldwide * * -- -- --
Toonsylvania -- -- United States, *(4) -- -- -- --
Latin America,
United Kingdom
Ninja Turtles: The Next * --(9) Worldwide * * -- -- --
Mutation (except Canada)
</TABLE>
- --------
("*" Company owns the intellectual property rights or programming distribution
rights; "--" Company does not own the intellectual property rights or
programming distribution rights)
(1) The Company owns worldwide copyrights, except in Canada.
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(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) Marvel owns copyrights and trademarks. The Company has exclusive
distribution rights for 15 years.
(4) Company controls all forms of television in the United States, but only
cable and satellite rights in the United Kingdom and Latin America.
(5) Home Video rights are worldwide, excluding the United States.
(6) Gaumont Multimedia owns the copyrights and trademarks. The Company has
exclusive U.S. and Canadian distribution rights through 2002.
(7) The Company uses the trademarks under license from Robert Keeshan
Associates, Inc.
(8) New World and Marvel own the copyrights and trademarks. The Company has
exclusive worldwide distribution rights.
(9) The Company owns worldwide copyrights, except in Canada. Trademarks are
used under a license from Mirage Studios.
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 currently and from time to time is engaged in litigation in the
ordinary course of its business. The Company is not currently a party to any
lawsuit or proceeding which, in the opinion of management, if decided
adversely to the Company, would be likely to have a material adverse effect on
the Company's financial condition and results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, and their ages at
January 1, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Haim Saban.............. 53 Chairman of the Board and Chief Executive Officer of
the Company; Chairman and Chief Executive Officer
of Saban; Co-Chairman of IFE
Mel Woods............... 46 President, Chief Operating Officer, Chief Financial
Officer and Director of the Company; President and
Chief Operating Officer of Saban; Executive Vice
President and Chief Operating Officer of IFE
Shuki Levy.............. 51 Executive Vice President and Director of the Company
William Josey........... 51 Senior Vice President, Business Affairs and General
Counsel of Saban, Secretary of the Company
Mark Ittner............. 45 Chief Accounting Officer of the Company and Senior
Vice President of Finance of Saban
K. Rupert Murdoch....... 66 Director
Chase Carey............. 44 Director
Lawrence Jacobson....... 38 Director
</TABLE>
HAIM SABAN, the founder of Saban, has served as the Chairman of the Board
and Chief Executive Officer of the Company since its inception in August 1996,
and Chairman and Chief Executive Officer of Saban since the establishment of
Saban in 1983. Mr. Saban is a creator and executive producer of the Company's
live-action series, Power Rangers.
MEL WOODS has served as President, Chief Operating Officer, Chief Financial
Officer and a director of the Company since its inception in August 1996. Mr.
Woods has also been the President and Chief Operating Officer and 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 became the Executive Vice President and a director of the Company
in 1996 and is responsible for productions. Mr. Levy has served as an
independent contractor performing production related assignments for Saban
since 1983. 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.
WILLIAM JOSEY has served as Secretary of the Company since its inception in
August 1996, and Senior Vice President, Business Affairs and General Counsel
of Saban 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 and Vice President of Business Affairs for Polygram Television.
MARK ITTNER has served as Chief Accounting Officer of the Company since its
inception in August 1996, and as Senior Vice President of Finance of Saban
since 1995 and as Vice President of Finance from 1993 to 1995. 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.
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K. RUPERT MURDOCH has served as a director of the Company since August 1996.
Mr. Murdoch is an Executive Director and has been the Chief Executive of News
Corp. since its formation in 1979 and has served as its Chairman since 1991.
From 1969 to 1979, Mr. Murdoch served as Chief Executive of News International
plc, which is now News Corp.'s principal operating subsidiary in the United
Kingdom. From 1953 to 1969, Mr. Murdoch served as Chief Executive of News
Limited, which is now News Corp.'s principal operating subsidiary in
Australia. Mr. Murdoch has served as Chairman of the Star Television Group
since 1993 and as a Director of BSkyB since 1990. Mr. Murdoch is also a member
of the board of directors of Philip Morris Companies, Inc.
CHASE CAREY has served as a director of the Company since August 1996. Mr.
Carey is an Executive Director and has been the Co-Chief Operating Officer of
News Corp. since October 1996. Mr. Carey has served as the 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
Stations, Twentieth Television's domestic syndication unit and FOX
Television'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 Television, 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 boards of
directors of Gateway 2000 and Colgate University.
LAWRENCE JACOBSON has served as a director of the Company since November
1997. Mr. Jacobson was named President of FOX Television Network, in September
1997. Mr. Jacobson had been Executive Vice President of Fox Television since
May 1996, and was named Executive Vice President and Chief Financial Officer
of Fox Broadcasting Company in July 1994. Mr. Jacobson joined Fox Inc. in
December 1990 as Vice President, Finance, and became Senior Vice President,
Finance in July 1992. Prior to Fox Inc., Mr. Jacobson had been Vice President
of Corporate Finance and Strategic Planning for Weintraub Entertainment Group
since December 1989. He joined the company as Vice President, Motion Picture
Division, in May 1987. He previously served as Manager, Pay Cable and Home
Entertainment Group, Columbia Pictures, from 1985 to 1987.
ELECTION OF DIRECTORS; CHANGE IN CONTROL
Pursuant to the terms of an Amended and Restated Strategic Stockholders
Agreement dated as of August 1, 1997 between, among others, Fox Broadcasting
and Haim Saban and the former Saban Stockholders (the "Amended and Restated
Strategic Stockholders Agreement"), 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 and
three directors designated by Mr. Saban. If in the future the Company becomes
subject to any requirement that the Company's Board of Directors include
independent directors, Fox Broadcasting and Mr. Saban are each to include
among their respective slates of nominees the number of independent directors
necessary to satisfy such requirement. Fox Broadcasting and Mr. Saban will
mutually agree on two independent directors. If they are unable to mutually
agree, Fox Broadcasting will nominate one independent director and Mr. 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
its initial holdings of Class B Common Stock (Mr. Saban's holdings to include
the shares of the former Saban Stockholders), then Fox Broadcasting or Mr.
Saban, as the case may be, has the right to designate the remaining two-thirds
of the authorized number of directors.
As part of the voting provisions of the Amended and Restated Strategic
Stockholders 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.
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<PAGE>
Fox Broadcasting's designees are currently K. Rupert Murdoch, Chase Carey
and Lawrence Jacobson. Haim Saban, Mel Woods and Shuki Levy are the designees
of Haim Saban.
Under an agreement among Fox Broadcasting, Haim Saban and the former Saban
Stockholders, 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
former Saban Stockholders, and pursuant to the Amended and Restated Strategic
Stockholders Agreement, 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. See "Certain Transactions--Formation of the LLC
and the Reorganization."
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, 1997.
Compensation decisions are currently made by the President and the Chief
Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ---- ------ ------- ------------
<S> <C> <C> <C> <C>
Haim Saban................................ 1997 $1,000,000 -- (1)
Chairman of the Board and Chief Executive
Officer
Mel Woods................................. 1997 452,100 650,000 (1)
President, Chief Operating Officer and
Chief Financial Officer
Margaret Loesch(2)........................ 1997 562,500 455,400 (1)
Shuki Levy................................ 1997 500,000 700,000 (1)
Executive Vice President
William Josey............................. 1997 256,300 10,000 (1)
Senior Vice President, Business Affairs
and General Counsel of Saban
</TABLE>
- --------
(1) Less than either $50,000 or 10% of total annual salary and bonus.
(2) Ms. Loesch's employment with the Company was terminated effective November
21, 1997.
See "Certain Transactions--Transactions between Haim Saban, other Executive
Officers and Saban" for information with respect to certain loans, forgiveness
of loans and other transactions for the benefit of certain of the Named
Executive Officers.
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<PAGE>
STOCK OPTIONS
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, 1997, and the value of unexercised
options, assuming a value of $50 per share, based on the difference between
the Company's estimate of the fair market of the Class A Common Stock and the
exercise price of the options.
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>
Haim Saban.............. -- -- $ -- $ --
Mel Woods............... 96,982 64,655 4,849,100 3,232,750
Margaret Loesch(1)...... 32,327 129,310 1,616,350 6,465,500
Shuki Levy.............. 96,982 64,655 4,849,100 3,232,750
William Josey........... -- -- -- --
</TABLE>
- --------
(1) Upon the termination of Margaret Loesch's employment with the Company in
November 1997, all of her options were terminated.
Under the terms of the option agreements, an executive whose employment is
terminated must sell his or her stock options (together with any shares
acquired pursuant to the exercise of such options, the "Option Shares") to the
Company for an amount equal to the fair market value of such shares plus the
fair market value of the shares with respect to which the executive's option
has vested but has not been exercised, less the executive's purchase price.
Such amount is to be paid to the executive 10% in cash and 90% by a promissory
note to be payable in nine equal annual installments.
In addition, in the event Haim Saban, any member of his immediate family or
any of his affiliated entities (with Haim Saban and such family members, the
"Saban Entities") sells to a third party any shares of common stock of the
Company (the "Saban Company Shares"), each executive must sell the "applicable
percentage" of his or her Option Shares for the same per share consideration
paid by the third party for the Saban Company Shares. The "applicable
percentage" is equal to the percentage of the Saban Company Shares sold to the
third party out of the total shares of the Company owned by the Saban Entities
immediately prior to the sale. The Company must purchase such shares for cash
consideration equal to the applicable percentage of the per share
consideration paid by the third party for the Saban Company Shares multiplied
by the number of Option Shares with respect to which such executives' options
have vested but have not been exercised, less the purchase price.
EMPLOYMENT AGREEMENTS
Haim Saban
Haim Saban has an employment agreement with the Company which extends
through June 30, 2002. Pursuant to the terms of the 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 of the
Company whose shares he controls collectively transfer more than one-third of
the number of shares of Class B Common Stock they currently beneficially own.
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. Under the agreement, Mr. Saban may engage
in certain activities for his own account, including music publishing,
investments and charity. The agreement generally provides that Mr. Saban will
not, during the term of his employment and for a period of five years
thereafter, compete with the Company.
William Josey
William Josey has an employment agreement with Saban that extends through
March 31, 2000. Mr. Josey is to be paid an annual base salary of $300,000,
$315,000 and $330,000 for each of the 1997-98, 1998-99 and 1999-2000 periods,
respectively. The employment agreement provides that the Company may terminate
Mr. Josey's employment only for cause.
75
<PAGE>
The Company has employment agreements with each of Mel Woods and Shuki Levy.
Each such agreement contains substantially the same terms and conditions as
the others. The Company may terminate each such 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, prorated 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.
Summarized below are terms of the employment agreements that are different
for each executive.
Mel Woods. The term of Mr. Woods' employment agreement with the Company
extends through May 31, 1999. Mr. Woods is to be paid an annual base salary of
$475,000 and $500,000 for each of the 1997-98 and the 1998-99 periods,
respectively, and an annual contingent bonus which is limited to $675,000 and
$700,000 for each of the 1997-98 and 1998-99 periods, respectively.
Shuki Levy. Mr. Levy's employment agreement with the Company extends through
May 31, 1999. Mr. Levy is to be paid an annual base salary of $500,000 for
each of the 1997-98 and 1998-99 periods and is eligible to receive additional
benefits.
76
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of January 1, 1998
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 A CLASS B
COMMON STOCK (1) COMMOM STOCK (1)
----------------- ------------------
PERCENT PERCENT
OF NUMBER OF
NUMBER CLASS OF CLASS
OF SHARES OWNED SHARES OWNED
--------- ------- ---------- -------
<S> <C> <C> <C> <C>
Haim Saban(2)............................ 15,840,000 100.0%
Silverlight Enterprises, L.P.(2)(3)...... 2,759,724 17.4
Fox Broadcasting(2)...................... 15,840,000 100.0
Allen & Co. Incorporated................. 160,000 100.0%
Mel Woods................................ 96,982 37.7
Margaret Loesch.......................... -- -- -- --
Shuki Levy............................... 96,982 37.7
William Josey............................ -- -- -- --
K. Rupert Murdoch........................ 15,840,100 100.0
Chase Carey.............................. 15,840,000 100.0
Lawrence Jacobson........................ -- -- -- --
All of the Company's executive officers
and directors as a group (seven
persons)................................ 193,964 54.8% 15,840,000 100.0%
</TABLE>
- --------
* Less than one percent
(1) Under Rule 13d-3 of the 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 January 1, 1998.
(2) Pursuant to Rule 13d-3 under the 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 (the
"Voting 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 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. If either Haim Saban, together with the entities he
controls, or Fox Broadcasting owns less than 2,640,000 shares 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
77
<PAGE>
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."
(3) Pursuant to Rule 13d-3 under the Exchange Act, Haim Saban may be deemed to
beneficially own all shares of Class B Common Stock held by Silverlight
Enterprises, L.P. as the result of the Voting Agreement 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.
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 January 1, 1998, the total number of shares of Class B Common Stock
and the percentage of Class B 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>
NUMBER AGGREGATE
OF SHARES VOTING POWER
--------- ------------
<S> <C> <C>
Haim Saban.......................................... 3,737,844 23.6%
Quartz Enterprises, L.P. ........................... 760,320 4.8
Merlot Investments, a California general
partnership........................................ 645,381 4.1
Silverlight Enterprises, L.P. ...................... 2,759,724 17.4
Celia Enterprises, L.P. ............................ 16,731 0.1
Fox Broadcasting.................................... 7,920,000 50.0%
</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 Class B
Common Stock owned or controlled by Fox Broadcasting. Each of Messrs.
Murdoch and Carey disclaims any pecuniary interest in such securities.
78
<PAGE>
DESCRIPTION OF EQUITY SECURITIES
The authorized capital stock of the Company consists of 16,000,000 shares of
Class A Common Stock, 16,000,000 shares of Class B Common Stock and 20,000,000
shares of Preferred Stock, of which 500,000 shares have been designated as
Series A Preferred Stock. As of January 23, 1998, 160,000 shares of Class A
Common Stock, 15,840,000 shares of Class B Common Stock and 345,000 shares of
Series A Preferred Stock were outstanding.
The following descriptions contain material provisions of the securities of
the Company and certain provisions of the Company's Corrected Restated
Certificate of Incorporation and Amended and Restated Bylaws (the "Bylaws").
THE COMMON STOCK
The holders of Class A Common Stock (the "Class A Stockholders") are
entitled to one vote per share and the holders of Class B Common Stock (the
"Class B Stockholders") are entitled to ten votes per share. Both classes vote
together as a single class. A majority vote (or any other greater percentage)
for stockholder action requires a majority of the aggregate number of votes
entitled to be cast at such vote. The Company's Corrected Restated Certificate
of Incorporation does not provide for cumulative voting rights.
Subject to the rights of the holders of shares of any series of Preferred
Stock, the Class A and Class B Stockholders are to receive like dividends and
other similar distributions of the Company. In the case of any split,
subdivision, combination or reclassification of shares of Class A or Class B
Common Stock, an equivalent split, subdivision, combination or
reclassification must be made to the shares of Class B or Class A Common
Stock, as the case may be.
The Class A and Class B Stockholders have equivalent rights to distributions
in the event of any liquidation, dissolution or winding up (either voluntary
or involuntary) of the Company, in proportion to the number of shares held by
them without regard to class.
In the event of any corporate merger, consolidating purchase or acquisition,
the Class A and Class B Stockholders are to receive the same consideration on
a per share basis, and if the consideration in such transaction consists in
any part of voting securities, the Class B Stockholders are to 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 Class A Stockholders.
The shares of Class A Common Stock are freely transferable, but the shares
of Class B Common Stock are subject to transfer restrictions as set forth more
fully in the Company's charter. The Class B Stockholders may only transfer
their shares to a "Permitted Transferee" and any unauthorized transfer will
cause an automatic conversion of such shares into shares of Class A Common
Stock. Regardless of the transfer restriction on the Class B Common Stock, any
Class B Stockholder may pledge its shares as collateral security for any
indebtedness or other obligation.
Each share of Class B Common Stock is convertible, at the option of its
holder, at any time into one validly issued, fully paid and non-assessable
share of Class A Common Stock.
THE SERIES A PREFERRED STOCK
The holders of the Series A Preferred Stock will receive cash dividends of
9% per annum in arrears, paid quarterly. Any accrued or unpaid dividends will
be added to the liquidation price and until such accrued and unpaid dividends
are paid in full, the dividend rate will increase to 11.5% of the liquidation
price. The liquidation price is $1,000 per share plus any accrued and unpaid
dividends.
79
<PAGE>
Pursuant to the Funding Agreement among News Corp., NPAL, a wholly owned
subsidiary of News Corp., and the Company (the "Funding Agreement"), each of
News Corp. and NPAL has, jointly and severally, agreed that, upon the
occurrence and during the continuation of an event of default under the
provisions governing the Series A Preferred Stock in the Company's Corrected
Restated Certificate of Incorporation or liquidation, dissolution, winding up
or other similar event of the Company, News Corp. or NPAL, as the case may be,
will provide the Company with the funds necessary to redeem in full, or pay
the liquidation distribution on, all of the outstanding Series A Preferred
Stock and to pay any other amounts owing in respect of such shares. Pursuant
to the Amended and Restated Strategic Stockholders Agreement (as defined),
such funds will be, except under certain circumstances, in the form of an
advance or loan to the Company. See "Certain Transactions--Formation of the
LLC and the Reorganization." The following constitute events of default with
respect to the Series A Preferred Stock under the Corrected Restated
Certificate of Incorporation of the Company: (i) the failure by the Company to
mandatorily redeem Series A Preferred Stock at the redemption dates indicated
below; (ii) a breach for thirty days of any of the covenants contained in the
provisions governing the Series A Preferred Stock (which may include a breach
of the Funding Agreement, including a net worth covenant therein); and (iii)
an event of default under the terms of the preferred stock of NPAL, if any
shares of which are outstanding. Upon an event of default, the Series A
Preferred Stock may be redeemed, at the holder's option, at a specified
redemption price (which may include a penalty under certain circumstances). In
addition, pursuant to the Exchange Agreement among NPAL, Liberty Media
Corporation ("Liberty Media") and Liberty IFE, each of the holders of the
Series A Preferred Stock has the right, upon the occurrence and during the
continuation of an event of default under the Corrected Restated Certificate
of Incorporation or the liquidation, winding up or other similar event of the
Company, to exchange their shares for an equivalent number of shares of
preferred stock of NPAL.
The Series A Preferred Stock issued to Liberty IFE will rank senior as to
dividend, redemption and liquidation rights to all other classes and series of
capital stock of the Company authorized on the date of issuance, or to any
other class or series of capital stock issued while any shares of the Series A
Preferred Stock remain outstanding. The Series A Preferred Stock does not have
voting rights, except as required by law, nor will holders of Series A
Preferred Stock have preemptive rights over any stock or securities that may
be issued by the Company.
The Series A Preferred Stock will be redeemed in 2027 at a price equal to
the liquidation price as of the date of such redemption, payable in cash. In
years 2017 and 2022, holders of the Series A Preferred Stock have a thirty day
period commencing August 2 of such years in which they can require the Company
to redeem the Series A Preferred Stock at a price equal to the liquidation
price, payable in cash. At any time after August 1, 2007, the Company may, at
its option, repurchase all shares of Series A Preferred Stock, again at a
price equal to the liquidation price, payable in cash. Under such redemption
requirements, any failure by the Company to redeem the Series A Preferred
Stock will obligate News Corp. and NPAL to perform under the Funding
Agreement.
80
<PAGE>
CERTAIN TRANSACTIONS
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 became a subsidiary of the Company and the Company is
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 to deliver
all cash, documents and other assets at the closing of the formation. In
addition, FCN Holding and Saban each paid and contributed $100,000 to the LLC.
In consideration for their respective contributions to the LLC, Fox
Broadcasting received a non-voting Class A Members Interest and each of Saban
and FCN Holding received a Class B Members Interest.
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 had received aggregate distributions in an amount equal
to $40 million. "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. As described below, in September 1996, Fox
Broadcasting purchased, for $10 million cash, an additional $10 million of
Class A Members Interests. 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 repaid from time to time out of
Distributable Cash of the LLC before any distributions were made on the Class
A and Class B Members Interests.
In connection with the Reorganization, Fox Broadcasting contributed to the
Company, pursuant to an Agreement Re Transfer of LLC Interests, the Class A
Members Interest and the $50 million remainder of the loan in exchange for the
Fox Subordinated Note. In addition, as part of the Agreement Re Transfer of
LLC Interests, the Company agreed to convert the Class A Members Interest into
a Class B Members Interest, as a result of which the Class B Members Interests
are held one-third by each of FCN Holding, Saban and the Company.
Pursuant to the Asset Assignment Agreement (which survived 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 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--Fox Kids Network."
81
<PAGE>
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. 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. Fox Broadcasting also agreed to contribute to the LLC an amount
equal to the difference, if any, between approximately $35.8 million 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's Operating Agreement. In September
1996, Fox Broadcasting paid $31 million to satisfy its obligations to the LLC
pursuant to these provisions.
As part 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. The parties to the Strategic
Stockholders Agreement also agreed to provide Haim Saban and the Saban
Stockholders and Fox Broadcasting certain registration rights. On August 1,
1997, the Strategic Stockholders Agreement was amended and restated to add
provisions regarding voting between Fox Broadcasting and the former Saban
Stockholders. See "Ownership and Control of the Company."
As part of the Amended and Restated Strategic Stockholders Agreement, Haim
Saban agreed with Fox Broadcasting Sub as follows: if the Company is unable to
meet its obligations (i) to pay any dividend under the terms of the Series A
Preferred Stock or to redeem the Series A Preferred Stock, (ii) under its
lease of 10960 Wilshire Boulevard, Los Angeles, California, or any obligation
guaranteed by News Corp., or (iii) under the Funding Agreement, and either
News Corp. or NPAL provides funds to the Company, the advance will be treated
as a loan, or if Citibank, in its sole discretion as administrative agent
under the Amended Credit Facility, determines it is unacceptable to treat the
advance as a loan, the advance will be treated as preferred stock.
To the extent the advance is treated as a loan and the amount exceeds $50
million, if the advance is not repaid after 18 months (or 12 months for all
advances after the third anniversary of the agreement), all or any portion of
the advance in excess of $50 million may be converted into shares of Class B
Common Stock. If Fox Broadcasting Sub elects to convert any portion of the
advance into Class B Common Stock, Haim Saban will have the right to purchase
from Fox Broadcasting Sub up to 50% of the number of shares of Class B Common
Stock issued pursuant to the conversion.
If instead, the advance is treated as preferred stock, the first $50 million
of the advance shall be applied to the issuance of shares of Series B
Preferred Stock, and the remainder of the advance shall be applied to the
issuance of Series C Convertible Preferred Stock, which is convertible into
Class B Common Stock at the election of the holder. Each of the Series B and
Series C Preferred Stock will have a liquidation preference equal to its issue
price of $100,000 per share. The Series B and Series C Preferred Stock will be
entitled to dividends at an annual rate of 11.7% of its liquidation value. If
Fox Broadcasting Sub elects to convert the Series C Convertible Preferred
Stock into Class B Common Stock, Haim Saban will have the right to purchase up
to 50% of the number of shares of Class B Common Stock issued pursuant to the
conversion. Notwithstanding the agreements, News Corp. has no obligation to
make any advances, and the Company has no obligation to accept any amounts
from News Corp.
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 Class B Common Stock held by the Saban
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Stockholders, and any of their transferees. The option 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, 2000) 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 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. 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 October 1997, the Company reached an agreement in principle with
Fox/Liberty Networks, LLC ("Fox/Liberty"), a joint venture between News Corp.
and Liberty Media, a wholly owned subsidiary of Tele-Communications, Inc., to
sell a majority ownership interest in FiT TV to Fox/Liberty (or an affiliate
of Fox/Liberty). The Company acquired FiT TV in September 1997 as part of the
IFE Acquisition.
In October 1997, the Company entered into an interim agreement with
Twentieth Century Fox Film Corp. ("Twentieth Century Fox"), pursuant to which
Twentieth Century Fox agreed to distribute the programming library of MTM, one
of the assets acquired in the IFE Acquisition. The Company is in discussions
to sell certain MTM assets to Twentieth Century Fox.
As part of the Reorganization, on July 31, 1997, the Company issued the Fox
Subordinated Note to Fox Broadcasting in the principal amount of approximately
$104.6 million, which amount was increased to $108.6 million (exclusive of any
capitalized interest) on October 28, 1997, and which is to be repaid in May
2008. The parties recently have agreed to restate the Fox Subordinated Note to
reflect a change in the interest rate, effective as of the date of issuance.
As restated, interest on the original principal amount on the Fox Subordinated
Note will accrete quarterly at the rate of 10.427% per annum and interest on
the increased principal amount of the Fox Subordinated Note will accrete
quarterly at the rate of 10.427% per annum. The Company may prepay the Fox
Subordinated Note in whole or in part, subject to the terms of the Amended
Credit Facility and the Indentures.
On August 29, 1997, in connection with the IFE Acquisition, the Company
issued the NAHI Bridge Note to NAHI upon substantially the same terms and
conditions as the Fox Subordinated Note, except that the NAHI Bridge Note has
a principal amount of $345.5 million. The parties recently have agreed to
restate the NAHI Bridge Note to reflect a change in the interest rate,
effective as of the date of issuance. As restated, the NAHI Bridge Note will
accrete interest at a rate of approximately 10.427% per annum. The Company may
repay the NAHI Bridge Note in whole or in part, subject to the terms of the
Amended Credit Facility and the Indentures. The payment of principal and
interest under the NAHI Bridge Note will be subordinated in right to the
obligations of the Company under the Old Credit Facility or the Amended Credit
Facility, as applicable, and the Notes.
On August 1, 1997, Saban entered into an amendment to the lease for its
corporate headquarters at 10960 Wilshire Boulevard in Los Angeles (the
original lease dated July 17, 1995 together with the amendment, the "Lease").
Pursuant to a Guaranty of Lease entered into on August 1, 1997 (the
"Guaranty"), News Corp. and NPAL have guaranteed certain of Saban's
obligations under the Lease. The Guaranty continues until Saban has paid all
obligations due under the Lease. Under the Guaranty, News Corp. and NPAL are
liable, jointly and severally, for any amounts not paid by Saban. News Corp.'s
and NPAL's aggregate liability under the Guaranty is limited to approximately
$8.6 million, to be reduced annually over five years on a straight-line basis.
In January 1997, the Company obtained from FOX Television, a division of
Fox, Inc. ("FOX Television") distribution rights to New World's animation
library of children's programming, which FOX Television acquired as part of
its purchase of New World. During the year ended June 30, 1997, the Company
spent approximately $1,218,000 in distribution costs in connection with this
programming which will be recoupable against New World's share of revenues.
The Company is in discussions with FOX Television to acquire the New World
programming.
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In May 1996, Saban entered into an agreement with Fox Video (the "Fox Video
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") which was released by Fox Video in the United States on September 9,
1997. See "Business--Home Video and Telefilms." The distribution term runs
through September 8, 2004. Saban has the right and obligation to market,
distribute (for no fee) 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 (for no fee) and exploit the Film in
home video formats, and will release the Film in major international
territories during the next six months. Saban and Fox Video each contributed
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 ("Harvey"), which holds the copyright to Casper.
Saban has entered into an agreement in principle with Fox Video for the
production and distribution of, and currently is in production on, a second
live-action feature film for the home video market based upon Casper (the
"Sequel"), which Fox Video presently intends to release in the U.S. during
September 1998 and in certain major international territories within six
months thereafter. The distribution term runs for seven years following
initial U.S. release. Saban has the right and obligation to market,
distribute, and exploit the Sequel in all forms of television, non-theatrical
and airline markets. Fox Video has the right and obligation to market,
manufacture, package, distribute, and exploit the Sequel in home video
formats. Distribution fees which Saban is entitled to retain in its Casper
rights agreement with Harvey are to be contributed by Fox Video and Saban to
the gross income to be distributed between Fox Video and Saban. Saban and Fox
Video each will contribute one-half of the production costs of the Sequel
subject to the rights of both parties to recoup certain of these costs. Saban
and Fox Video will share the combined television, non-theatrical, airline, and
home video receipts equally, subject to the participation rights of Harvey.
In August 1996, Fox Video and Saban entered into a Home Video Rights
Acquisition Agreement pursuant to which Saban granted to Fox Video the
exclusive home video rights to distribute English and Spanish language
versions throughout the United States and to distribute English language
versions throughout 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
an agreement with Marvel and all television programs which are owned or
controlled first by Marvel and subsequently by Saban, the LLC or the Company.
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 September 11,
1996. Saban is required to make available for release by Fox Video a minimum
of six video titles 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 for the grant of the distribution
rights, Fox Video has agreed to pay Saban 50% of gross receipts from these
home videos, after deduction of certain expenses.
In January 1998, Fox Video and Saban concluded a Home Video Rights
Acquisition Agreement which was effective as of May 1997 pursuant to which
Saban International N.V. granted to Fox Video the exclusive home video rights
to distribute local language versions in the "Fox Territories" of certain of
Saban's television programs produced for children and owned or controlled by
Saban or FCN. The "Fox Territories" are Australia, Denmark, Finland, France,
Germany, Italy, Japan, Korea, Mexico, New Zealand, Norway, Spain, Sweden, and
the United Kingdom. The term of this agreement began as of May 5, 1997, and
ends as to all programs between four and seven years thereafter. Each year
during the term, Saban is required to make available for release by Fox Video
a minimum of 24 one-hour videocassettes selected from among all children's
series not previously licensed in the Fox Territories in home video and which
have been broadcast in at least five key Fox Territories. In consideration for
the grant of the distribution rights, Fox Video has agreed to pay Saban a $3
million minimum guarantee against 50% of receipts from these home videos,
after deduction of the minimum guarantee and certain expenses.
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 and 1997-
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1998 broadcast seasons for the Saban Kids Network. Fox Broadcasting's services
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 for the 1996-1997
broadcast season and $840,000 for the 1997-1998 broadcast season.
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 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, respectively, in fees pursuant to this agreement. On
December 22, 1995, in connection with the terms of the LLC's Operating
Agreement, 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 party to an agreement with Fox Family Films, Inc. ("Distributor")
for the distribution of Turbo: A Power Rangers Movie, a "PG-rated" sequel to
the original Mighty Morphin Power Rangers motion picture (the "Sequel"), which
was released theatrically in the United States in Spring 1997 and in home
video in late Summer 1997. Under the terms of the agreement, Saban produced
and delivered the Sequel to Distributor for worldwide distribution and granted
to Distributor all rights necessary to advertise, promote, publicize and
distribute the Sequel. Distributor will hold in perpetuity worldwide
theatrical, non-theatrical, home video, and television rights in the movie
(except for Israel and the territory reserved to Toei Company Ltd.). Saban
will hold the copyright to the Sequel as well as certain rights including,
without limitation, merchandising, television series, live stage, publication,
radio, theme park and touring, music publishing and soundtrack. 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 various program exhibition agreements for the 1996-1997
and 1997-1998 broadcast seasons 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. All series are licensed on a
barter basis.
In January 1997, the Company obtained from FOX Television distribution
rights to the New World animation library of 515 half-hour episodes of
children's programming, which FOX Television acquired as part of its purchase
of New World. The Company is in discussions with FOX Television to acquire the
New World animation library.
In October 1996, the Company commenced the operations of Fox Kids U.K., a
cable and satellite channel broadcasting from 6 a.m. to 7 p.m. each day. The
channel is currently broadcast via analog transponder. The channel is
distributed as part of BSkyB's Sky Multichannels DTH package in the United
Kingdom and the 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. As part of its
agreement with BSkyB, the Company acquired for approximately $3.7 million, all
of BSkyB's United Kingdom license rights to children's programming which had
been acquired for broadcast by BSkyB prior to the launch of this channel.
Additionally, as part of the agreement with BSkyB, the Company has entered
into an analog transponder sublease agreement whereby the Company will lease
the analog transponder from BSkyB through February 1,
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2001 subject to extension in certain circumstances requiring a financial
commitment of approximately $28,188,000. The Company has also entered into a
digital transponder and uplink sublease agreement with BSkyB whereby the
Company will lease the digital transponder from BSkyB for eight years from the
analog launch date for approximately $1,115,000 per year per channel subject
to reduction in certain circumstances. Further, as part of this arrangement
with BSkyB, BSkyB will provide support services for the sale by the Company of
programming, sponsorship, advertising and other air-time for broadcast on the
channel as well as other operational and facilities support services. In
consideration for the services being provided to the Company, BSkyB will be
entitled to receive a fee equal to 15% of Net Revenue, as defined in the
agreement, plus a 5% bonus commission where Net Revenue exceeds mutually pre-
agreed annual targets plus an annual fee of approximately $326,000, subject to
adjustment in certain circumstances.
In November 1996, the Company launched Fox Kids Latin America ("FKLA"), a
Fox Kids branded pan-regional Latin American channel, which simultaneously
broadcasts animated and live-action programming in Spanish, Portuguese and
English. The Company has entered into a cost sharing arrangement for employees
and service support in connection with the operation of the channel with Canal
Fox, a related party. The Company believes that the arrangement for employees
and service support are at rates which approximate fair market value.
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 assigned to the
Company. Foxtel is a 50/50 partnership between News Corp. and the Australian
telephone company, Telstra.
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. The highest aggregate amounts
outstanding from Mr. Saban to Saban were approximately $2.7 million for the
fiscal year ended June 30, 1995, and $2.7 million for the fiscal year ended
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. The Company does not currently
intend to make below market loans to members of management outside a
negotiation of employment or compensation or to make loans and then forgive
them.
Haim Saban has in the past loaned and advanced funds to Saban to cover the
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 four fiscal years, the
highest aggregate amounts outstanding from Mr. Levy to Saban were $1.0 million
for the fiscal year ended June 30, 1995, $1.2 million for the fiscal years
ended June 30, 1996 and June 30, 1997 and the six months ended December 31,
1997. As of December 31, 1997, 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 9% 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, 2000. $500,000
is currently owed to Saban by Duveen Trading Ltd. 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
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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 July 1, 1996 through June 30, 1997, Saban
paid approximately $875,000 for such services. For the six months ended
December 31, 1997, Saban paid approximately $280,000 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. 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 neither
are used as opening or closing themes nor constitute more than 15% of the
total musical content of any program or episode, without Mr. 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 and 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. For
the year ended June 30, 1997, and for the six months ended December 31, 1997,
Mr. Saban paid approximately $374,000 and $296,000, respectively, to Saban for
reimbursement of costs to Saban. For the eight months ended June 30, 1996, Mr.
Saban made no payments for reimbursement of costs to Saban. At June 30, 1997
and December 31, 1997, approximately $211,000 and $66,000, respectively, was
owed to Saban by Mr. Saban pursuant to the Music Agreement.
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DESCRIPTION OF OTHER INDEBTEDNESS
Amended Credit Facility. On October 28, 1997, upon consummation of the
Offering, the Old Credit Facility was amended to provide for a $710 million
facility comprised of a seven-year amortizing term loan and a seven-year
reducing revolving credit facility under which FCN Holding, Saban and IFE are
borrowers (the "Co-borrowers"). Fox Kids Worldwide, Inc. is not a borrower
under the Amended Credit Facility but is a guarantor. Fox Kids Holdings, LLC,
a newly created, wholly owned subsidiary of Fox Kids Worldwide, Inc. ("FK
Holdings"), holds the equity interests of the Co-Borrowers and also guarantees
the obligations under the Amended Credit Facility. The following summary does
not purport to be a complete description of the Amended Credit Facility.
Borrowings under the Amended Credit Facility are unconditionally guaranteed
by each Co-borrower and each subsidiary that is wholly owned, directly or
indirectly, by any of the Co-borrowers (subject to certain limitations for
foreign subsidiaries). In addition, borrowings under the Amended Credit
Facility and the guarantees are secured by the equity interests of FK
Holdings, the borrowers and their subsidiaries (subject to certain limitations
for foreign and less than wholly owned subsidiaries) and intercompany
indebtedness.
Under the Amended Credit Facility, subject to certain conditions, the Co-
borrowers will be required to make certain mandatory prepayments. The
borrowings under the Amended Credit Facility will bear interest at the
Company's option at a rate per annum equal to either LIBOR or a base rate
plus, in each case, an applicable interest rate margin. In connection with the
Amended Credit Facility, the Company pays a commitment fee on the unused and
available amounts under the Amended Credit Facility.
The Amended Credit Facility contains a number of significant covenants that,
among other things, limit the ability of FK Holdings and the Co-borrowers and
their respective subsidiaries to incur additional indebtedness, create liens
and other encumbrances, make certain payments and investments, make capital
expenditures, make distributions to owners and repurchase debt and equity. In
addition, the Amended Credit Facility requires the maintenance of certain
specified financial and operating covenants, including, without limitation,
capital expenditure limitations and ratios of EBITDA to fixed charges, total
debt to EBITDA and EBITDA to interest expense. The Amended Credit Facility
also contains representations, warranties, covenants, conditions and events of
default customary for senior credit facilities of similar size and nature.
Fox Subordinated Note. As part of the Reorganization, on July 31, 1997, the
Company issued the Fox Subordinated Note to Fox Broadcasting in the principal
amount of approximately $104.6 million, which amount was increased to $108.6
million (exclusive of any capitalized interest) on October 28, 1997, and which
is to be repaid in May 2008. The parties recently have agreed to restate the
Fox Subordinated Note to reflect a change in the interest rate, effective as
of the date of issuance. As restated, interest on the original principal
amount on the Fox Subordinated Note will accrete quarterly at the rate of
10.427% per annum and interest on the increased principal amount of the Fox
Subordinated Note will accrete quarterly at the rate of 10.427% per annum. The
Company may prepay the Fox Subordinated Note in whole or in part, subject to
the terms of the Amended Credit Facility and the Indentures. The payment of
principal and interest under the Fox Subordinated Note will be subordinated in
right to the obligations of the Company under the Old Credit Facility or the
Amended Credit Facility, as applicable, and the Notes. Approximately
$113.5 million (including accreted interest) was outstanding as of
December 31, 1997.
NAHI Bridge Note. On August 29, 1997, in connection with the IFE
Acquisition, the Company issued the NAHI Bridge Note to NAHI upon
substantially the same terms and conditions as the Fox Subordinated Note,
except that the NAHI Bridge Note has a principal amount of $345.5 million. The
parties recently have agreed to restate the NAHI Bridge Note to reflect a
change in the interest rate, effective as of the date of issuance. As
restated, the NAHI Bridge Note will accrete interest at a rate of
approximately 10.427% per annum. The Company may repay the NAHI Bridge Note in
whole or in part, subject to the terms of the Amended Credit Facility and the
Indentures. The payment of principal and interest under the NAHI Bridge Note
will be subordinated in right to the obligations of the Company under the Old
Credit Facility or the Amended Credit Facility, as applicable, and the Notes.
Approximately $102.5 million (including accreted interest) was outstanding
under the NAHI Bridge Note as of December 31, 1997; however, no payments are
due until March 2008.
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DESCRIPTION OF THE NOTES
THE TERMS OF THE NOTES ARE IDENTICAL IN ALL MATERIAL RESPECTS TO THE OLD
NOTES, EXCEPT FOR CERTAIN TRANSFER RESTRICTIONS AND REGISTRATION RIGHTS
RELATING TO THE OLD NOTES. THE DESCRIPTION OF THE NOTES CONTAINED HEREIN
ASSUMES THAT ALL OLD NOTES ARE EXCHANGED FOR NOTES IN THE EXCHANGE OFFER. TO
THE EXTENT THAT OLD NOTES REMAIN OUTSTANDING AFTER THE CONSUMMATION OF THE
EXCHANGE OFFER, THE OLD NOTES AND THE NOTES WILL BE REDEEMED OR REPURCHASED
PRO RATA PURSUANT TO THE PROVISIONS CONTAINED IN THE INDENTURES AND DESCRIBED
HEREIN. IN ADDITION, AS THE OLD NOTES WERE, AND THE NOTES WILL BE, ISSUED
UNDER THE INDENTURES, TO THE EXTENT THAT OLD NOTES REMAIN OUTSTANDING AFTER
CONSUMMATION OF THE EXCHANGE OFFER, ANY ACTION DESCRIBED HEREIN AS PERMITTED
OR REQUIRED TO BE TAKEN THEREUNDER BY A SPECIFIED PORTION OF THE HOLDERS OF
THE NOTES MAY ONLY BE TAKEN BY SUCH PORTION OF THE HOLDERS OF THE OLD NOTES
AND THE NOTES, COUNTED AS A SINGLE SERIES.
The Old Senior Notes were issued, and the Senior Notes will be issued, under
an Indenture dated as of October 28, 1997 (the "Senior Notes Indenture")
between the Company and The Bank of New York, as trustee (the "Trustee"). The
Old Senior Discount Notes were issued, and the Senior Discount Notes will be
issued, under an Indenture dated as of October 28, 1997 (the "Senior Discount
Notes Indenture" and, together with the Senior Notes Indenture, the
"Indentures"), between the Company and The Bank of New York, as Trustee. The
Indentures are not and will not be qualified under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), except upon effectiveness of a
registration statement for the Exchange Offer. By their terms, however, the
Indentures will incorporate certain provisions of the Trust Indenture Act and,
upon consummation of the Exchange Offer, the Indentures will be subject to and
governed by the Trust Indenture Act. The following summary of the material
provisions of the Indentures and the Notes does not purport to be complete and
is subject to, and qualified in its entirety by, reference to the provisions
of the Indentures and the Notes, including the definitions of certain terms
contained therein and those terms made part of the Indentures by reference to
the Trust Indenture Act. A copy of each of the Indentures is attached as an
exhibit to the Registration Statement. The definition of certain capitalized
terms used in the following summary are set forth below under "--Certain
Definitions." References in this section to the Company refer to Fox Kids
Worldwide, Inc. without its subsidiaries.
GENERAL
The Notes will be issued only in registered form without coupons, in
denominations of $1,000 and integral multiples thereof. The Company has
appointed The Bank of New York to serve as registrar and paying agent under
the Indentures at its offices at 101 Barclay Street, New York, New York. No
service charge will be made for any transfer, exchange or redemption of Notes,
except in certain circumstances for any tax or other governmental charge that
may be imposed in connection therewith.
RANKING
The Notes will be senior unsecured obligations of the Company and will rank
senior in right of payment to all future subordinated indebtedness of the
Company. Claims of the holders of the Notes will effectively be subordinated
to the claims of creditors of the Company's subsidiaries, including the banks
under the Bank Facility.
MATURITY, INTEREST AND PRINCIPAL OF THE SENIOR NOTES
The Senior Notes will be limited to $475,000,000 aggregate principal amount
and will mature on November 1, 2007. Cash interest on the Senior Notes will
accrue at the rate of 9 1/4% per annum and will be payable semi-annually in
arrears on each May 1 and November 1, commencing May 1, 1998, to the holders
of record of the Senior Notes at the close of business on the April 15 and
October 15 immediately preceding such interest payment date. Interest on the
Senior Notes will accrue from the most recent date to which interest has been
paid
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or, if no interest has been paid, from the original date of issuance (the
"Issue Date"). Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
MATURITY, INTEREST AND PRINCIPAL OF THE SENIOR DISCOUNT NOTES
The Senior Discount Notes will be limited to $618,670,000 aggregate
principal amount at maturity and will mature on November 1, 2007. The Senior
Discount Notes will be issued in exchange for the Old Senior Discount Notes
which were issued at a discount to their aggregate principal amount at
maturity and generated gross proceeds of approximately $375,000,000. Based on
the issue price thereof, the yield to maturity of the Senior Discount Notes is
10 1/4% (computed on a semi-annual bond equivalent basis), calculated from
October 28, 1997. See "Certain United States Federal Income Tax
Considerations."
Cash interest will not accrue or be payable on the Senior Discount Notes
prior to November 1, 2002. Thereafter, cash interest on the Senior Discount
Notes will accrue at a rate of 10 1/4% per annum and will be payable semi-
annually in arrears on each May 1 and November 1, commencing on May 1, 2003,
to the holders of record of the Senior Discount Notes at the close of business
on the April 15 and October 15, respectively, immediately preceding such
interest payment date; provided, however, that at any time prior to November
1, 2002, the Company may elect (the "Cash Interest Election") on any interest
payment date (the date of such Cash Interest Election, the "Cash Interest
Election Date") to commence the accrual of cash interest from and after the
Cash Interest Election Date, in which case the principal amount at maturity of
each Senior Discount Note will on such interest payment date be reduced to the
Accreted Value of such Senior Discount Note as of such interest payment date,
and cash interest (accruing at a rate of 10 1/4% per annum from the Cash
Interest Election Date) shall be payable with respect to such Senior Discount
Note on each interest payment date thereafter. Cash interest will accrue from
the most recent interest payment date to which interest has been paid or, if
no interest has been paid, from the earlier of November 1, 2002 or the Cash
Interest Election Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
OPTIONAL REDEMPTION
Optional Redemption of Senior Notes. The Senior Notes will be redeemable at
the option of the Company, in whole or in part, at any time on or after
November 1, 2002, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest, if any,
to the redemption date, if redeemed during the 12-month period beginning on
November 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002................................... 104.625%
2003................................... 103.083%
2004................................... 101.542%
2005 and thereafter.................... 100.000%
</TABLE>
In addition, at any time, or from time to time, on or prior to November 1,
2000, the Company may, at its option, use the net cash proceeds of (a) one or
more Public Equity Offerings (as defined below) or (b) sales of Qualified
Equity Interests to Strategic Equity Investors resulting in gross cash
proceeds to the Company of at least $100,000,000 to redeem, on a pro rata
basis, up to an aggregate of 35% of the principal amount of the Senior Notes
originally issued, at a redemption price equal to 109.25% of the principal
amount thereof plus accrued and unpaid interest, if any, to the redemption
date; provided that at least 65% of the originally issued principal amount of
Senior Notes remains outstanding immediately after the occurrence of such
redemption.
"Public Equity Offering" means an underwritten public offering of Qualified
Equity Interests of the Company pursuant to a registration statement filed
with the Commission in accordance with the Securities Act, which public equity
offering results in gross cash proceeds to the Company of not less than
$100,000,000.
Optional Redemption of Senior Discount Notes. The Senior Discount Notes will
be redeemable at the option of the Company, in whole or in part, at any time
on or after November 1, 2002, at the redemption prices
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(expressed as a percentage of principal amount at maturity) set forth below,
plus accrued and unpaid interest thereon, if any, to the redemption date, if
redeemed during the 12-month period beginning on November 1 of the years
indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002................................... 105.125%
2003................................... 103.417%
2004................................... 101.708%
2005 and thereafter.................... 100.000%
</TABLE>
In addition, prior to November 1, 2000, the Company may redeem up to 35% of
the originally issued principal amount at maturity of the Senior Discount
Notes at a redemption price equal to 110.25% of the Accreted Value of the
Senior Discount Notes so redeemed at the redemption date or, if a Cash
Interest Election has been made, 110.25% of the principal amount at maturity
of the Senior Discount Notes so redeemed, plus accrued and unpaid interest
thereon, if any, to the redemption date, with the net cash proceeds of (a) one
or more Public Equity Offerings or (b) sales of Qualified Equity Interests of
the Company to one or more Strategic Equity Investors resulting in gross cash
proceeds to the Company of at least $100,000,000 in the aggregate; provided,
however, that at least 65% of the originally issued principal amount at
maturity of the Senior Discount Notes would remain outstanding immediately
after giving effect to any such redemption.
Selection and Notice. In the event that less than all of an issue of Notes
are to be redeemed at any time, selection of such Notes for redemption will be
made by the applicable Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed
or, if the Notes are not then listed on a national securities exchange, on a
pro rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided, however, that Notes shall only be redeemable in
principal amounts of $1,000 or an integral multiple of $1,000, provided,
further, that any redemption following one or more Public Equity Offerings or
sales of Qualified Equity Interests shall be made on a pro rata basis or as
nearly a pro rata basis as practicable (subject to the procedures of DTC).
Notice of redemption shall be mailed by or on behalf of the Company by first-
class mail at least 30 but not more than 60 days before the redemption date to
each holder of Notes to be redeemed at its registered address. In order to
effect a redemption with the proceeds of any Public Equity Offering or sales
of Qualified Equity Interests to one or more Strategic Equity Investors, the
Company shall send a redemption notice to the applicable Trustee not later
than 60 days after the consummation of any such Public Equity Offering or sale
of Qualified Equity Interests to one or more Strategic Equity Investors, as
the case may be. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof
upon surrender for cancellation of the original Note. On and after the
redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption, unless the Company defaults in the payment of the
redemption price.
SINKING FUND
The Notes will not be entitled to the benefit of any mandatory sinking fund.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company shall be obligated
to make an offer to purchase (a "Change of Control Offer"), on a business day
(the "Change of Control Purchase Date") not more than 60 nor less than 30 days
following the occurrence of the Change of Control, all of the then outstanding
Notes tendered at a purchase price in cash (the "Change of Control Purchase
Price") equal to (x) with respect to the Senior Notes, 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the Change of
Control Purchase Date and (y) with respect to the Senior Discount Notes, 101%
of the Accreted Value on the Change of Control Purchase Date, unless the
Change of Control Purchase Date is on or after the earlier to occur of
November 1, 2002 and the Cash Interest Election Date, in which case such
Change of Control Purchase Price
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shall be equal to 101% of the aggregate principal amount at maturity thereof,
plus accrued and unpaid interest thereon, if any, to the Change of Control
Purchase Date. The Company shall be required to purchase all Notes tendered
into the Change of Control Offer and not withdrawn. The Change of Control
Offer is required to remain open for at least 20 business days and until the
close of business on the Change of Control Purchase Date.
In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the Change of Control, mail to each holder of
Notes notice of the Change of Control Offer, which notice shall govern the
terms of the Change of Control Offer and shall state, among other things, the
procedures that holders of Notes must follow to accept the Change of Control
Offer. Prior to mailing a notice of a Change of Control Offer, but in any
event within 30 days following a Change of Control, the Company shall either
permanently repay all outstanding amounts under the Bank Facility and
terminate all commitments of the lenders thereunder or offer to permanently
repay in full all outstanding amounts under the Bank Facility and permanently
repay the Obligations held by each lender who has accepted such offer or
obtain the requisite consents, if any, under the Bank Facility to permit the
repurchase of the Notes required hereby. The failure to mail notice of the
Change of Control Offer when required will nonetheless constitute a Default
under the Indentures.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of
Notes seeking to accept the Change of Control Offer. The Company shall not be
required to make a Change of Control Offer upon a Change of Control if a third
party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements applicable to a Change of
Control Offer made by the Company and purchases all Notes validly tendered and
not withdrawn under such Change of Control Offer.
The definition of "Change of Control" excludes certain transactions by
Permitted Holders, including a direct or indirect sale, lease, exchange or
other transfer of all or substantially all of the assets of the Company to
Permitted Holders. The provisions of the Indentures may not afford Noteholders
protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the Company if such
transaction is not a transaction defined as a "Change of Control."
The use of the term "all or substantially all" in provisions of the
Indentures such as clause (b) of the definition of "Change of Control" and
under "--Consolidation, Mergers, Sale of Assets, Etc." has no clearly
established meaning under New York law (which governs the Indentures) and has
been the subject of limited judicial interpretation in only a few
jurisdictions. Accordingly, there may be a degree of uncertainty in
ascertaining whether any particular transaction would involve a disposition of
"all or substantially all" of the assets of a person, which uncertainty should
be considered by prospective purchasers of Notes.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder, to the extent such laws or
regulations are applicable, in the event that a Change of Control occurs and
the Company is required to purchase Notes as described above.
CERTAIN COVENANTS
The Indentures contain the following covenants, among others; provided
however, that if no Default shall have occurred and be continuing, after the
Notes are rated by both Moody's Investor Services, Inc. (or its successors)
and Standard & Poor's Rating Group (or its successors) in one of its generic
rating categories which signifies investment grade (which at the date hereof
are the four highest rating categories (within which there are sub-categories
indicating relative standing)) the limitations set forth below under the
captions "Limitation on Indebtedness," "Limitation on Restricted Payments,"
"Disposition of Proceeds of Asset Sales," "Limitation on Preferred Stock of
Subsidiaries," "Limitation on Transactions with Affiliates," "Limitation on
Dividends and other Payment Restrictions Affecting Restricted Subsidiaries,"
"Limitation on Sale-Leaseback Transactions" and "Limitation on Designation of
Unrestricted Subsidiaries" and in clause (c) under "Consolidation, Merger,
Sale of Assets, etc." shall no longer be applicable.
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Limitation on Indebtedness. The Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or in any manner become directly or indirectly
liable, contingently or otherwise (in each case, to "incur"), for the payment
of any Indebtedness (including any Acquired Indebtedness) other than Permitted
Indebtedness, unless the ratio of (i) the aggregate consolidated principal
amount of Indebtedness of the Company and its Restricted Subsidiaries
outstanding as of the most recently available quarterly or annual consolidated
balance sheet, after giving pro forma effect to the incurrence of such
Indebtedness and any other Indebtedness incurred since such balance sheet date
and the receipt and application of the proceeds thereof, to (ii) Consolidated
Cash Flow of the Company and its Restricted Subsidiaries for the four full
fiscal quarters next preceding the incurrence of such Indebtedness for which
consolidated financial statements are available, determined on a pro forma
basis as if any such Indebtedness had been incurred and the proceeds thereof
had been applied at the beginning of such four fiscal quarters, would be less
than 6.0 to 1.
Limitation on Restricted Payments. The Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other distribution or payment
on or in respect of Capital Stock of the Company or any of its Restricted
Subsidiaries or make any payment to the direct or indirect holders (in
their capacities as such) of Capital Stock of the Company or any of its
Restricted Subsidiaries (other than dividends or distributions payable
solely in Capital Stock of the Company (other than Redeemable Capital
Stock) or in options, warrants or other rights to purchase Capital Stock of
the Company (other than Redeemable Capital Stock)) (other than the
declaration or payment of dividends or other distributions to the extent
declared or paid to the Company or any Restricted Subsidiary),
(b) purchase, redeem, defease or otherwise acquire or retire for value
any Capital Stock (other than Redeemable Capital Stock) of the Company (or
of any Restricted Subsidiary of the Company if such Capital Stock is owned
by an Affiliate of the Company) or any options, warrants, or other rights
to purchase any such Capital Stock (other than any such securities owned by
a Restricted Subsidiary),
(c) make any principal payment on, or purchase, defease, repurchase,
redeem or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Redeemable Capital Stock or Subordinated Indebtedness
of the Company (other than any such Redeemable Capital Stock or
Subordinated Indebtedness owned by the Company or a Restricted Subsidiary),
(d) make any Investment (other than any Permitted Investment) in any
person, or
(e) (i) make any principal, interest or other payments on or in respect
of Deeply Subordinated Shareholder Loans or (ii) make any principal,
interest (other than interest payments after November 1, 2002) or other
payments on or in respect of the Existing Subordinated Notes or any
Existing Subordinated Note Refinancing Debt
(such payments or Investments described in the preceding clauses (a), (b),
(c), (d) and (e) are collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to the proposed Restricted
Payment (the amount of any such Restricted Payment, if other than cash, shall
be the Fair Market Value of the asset(s) proposed to be transferred by the
Company or such Restricted Subsidiary, as the case may be, pursuant to such
Restricted Payment), (A) no Default or Event of Default shall have occurred
and be continuing, (B) immediately prior to and after giving effect to such
Restricted Payment, the Company would be able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) and (C) the aggregate amount
of all Restricted Payments declared or made from and after the Issue Date
would not exceed the sum of:
(1) the excess of the aggregate Consolidated Cash Flow of the Company
minus the product of 1.5 times the Consolidated Interest Expense of the
Company accrued on a cumulative basis during the period beginning on the
Issue Date and ending on the last day of the fiscal quarter of the Company
immediately preceding the date of such proposed Restricted Payment;
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(2) the aggregate net cash proceeds received by the Company as capital
contributions to the Company after the Issue Date and which constitute
shareholders' equity of the Company in accordance with GAAP;
(3) the aggregate net cash proceeds received by the Company from the
issuance or sale of Capital Stock (excluding Redeemable Capital Stock) of
the Company to any person (other than to a Subsidiary of the Company) after
the Issue Date;
(4) the aggregate net cash proceeds received by the Company from any
person (other than a Subsidiary of the Company) upon the exercise of any
options, warrants or rights to purchase shares of Capital Stock (other than
Redeemable Capital Stock) of the Company after the Issue Date;
(5) the aggregate net cash proceeds received after the Issue Date by the
Company from any person (other than a Subsidiary of the Company) for debt
securities that have been converted or exchanged into or for Capital Stock
of the Company (other than Redeemable Capital Stock) (to the extent such
debt securities were originally sold for cash) plus the aggregate amount of
cash received by the Company (other than from a Subsidiary of the Company)
in connection with such conversion or exchange;
(6) the aggregate net cash proceeds received after the Issue Date by the
Company from the issuance of Deeply Subordinated Shareholder Loans to a
Permitted Holder (other than a Subsidiary of the Company);
(7) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment after the Issue Date, an amount equal to
the lesser of the return of capital with respect to such Investment and the
initial amount of such Investment, in either case, less the cost of the
disposition of such Investment; and
(8) so long as the Designation thereof was treated as a Restricted
Payment made after the Issue Date, with respect to any Unrestricted
Subsidiary that has been redesignated as a Restricted Subsidiary after the
Issue Date in accordance with "--Limitation on Designations of Unrestricted
Subsidiaries" below, the Fair Market Value of the Company's interest in
such Subsidiary calculated in accordance with GAAP, provided that such
amount shall not in any case exceed the Designation Amount with respect to
such Restricted Subsidiary upon its Designation,
minus:
the Designation Amount (measured as of the date of Designation) with
respect to any Subsidiary of the Company which has been designated as an
Unrestricted Subsidiary after the Issue Date in accordance with "--
Limitations on Designations of Unrestricted Subsidiaries" below.
For purposes of the preceding clause (C)(4), the value of the aggregate net
proceeds received by the Company upon the issuance of Capital Stock upon the
exercise of options, warrants or rights will be the net cash proceeds received
upon the issuance of such options, warrants or rights plus the incremental
amount received by the Company upon the exercise thereof.
None of the foregoing provisions will prohibit, so long, in the case of
clauses (ii) through (v) and (viii) below, as there is no Default or Event of
Default continuing, (i) the payment of any dividend or distribution within 60
days after the date of its declaration, if at the date of declaration such
payment would be permitted by the foregoing paragraph; (ii) the redemption,
repurchase or other acquisition or retirement of any shares of any class of
Capital Stock in exchange for, or out of the net cash proceeds of, a
substantially concurrent issue and sale of other shares of Capital Stock
(other than Redeemable Capital Stock) of the Company to any person (other than
to a Subsidiary of the Company); provided, however, that such net cash
proceeds are excluded from clause (C) of the preceding paragraph; (iii) any
redemption, repurchase or other acquisition or retirement of Subordinated
Indebtedness by exchange for, or out of the net cash proceeds of, a
substantially concurrent issue and sale of (1) Capital Stock (other than
Redeemable Capital Stock) of the Company to any person (other than to a
Subsidiary of the Company); provided, however, that any such net cash proceeds
are excluded from clause (C) of the preceding paragraph; or (2) Indebtedness
of the Company so long as such Indebtedness is Subordinated Indebtedness which
(w) has no Stated Maturity earlier than the 91st day after the Maturity Date,
(x) has an Average Life to Stated Maturity greater than the remaining Average
Life to Stated Maturity of the Notes, (y) is subordinated to the Notes in the
same manner and to the same extent as the Subordinated Indebtedness so
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purchased, exchanged, redeemed, acquired or retired and (z) if the proceeds of
such Indebtedness is to purchase, redeem, acquire or retire all of the
Existing Subordinated Notes ("Existing Subordinated Note Refinancing Debt"),
such Existing Subordinated Note Refinancing Debt provides for no cash payments
of interest prior to November 1, 2002 other than cash payments otherwise
permitted by this covenant; (iv) any redemption, repurchase or other
acquisition or retirement of Deeply Subordinated Shareholder Loans by exchange
for, or out of the net cash proceeds of, a substantially concurrent issue and
sale of (1) Capital Stock (other than Redeemable Capital Stock) of the Company
to any person (other than a Subsidiary of the Company) or (2) other Deeply
Subordinated Shareholder Loans to any Permitted Holder, provided, however,
that, in either case, such net cash proceeds are excluded from clause (C) of
the preceding paragraph; (v) Investments constituting Restricted Payments made
as a result of the receipt of non-cash consideration from any Asset Sale made
pursuant to and in compliance with the Indentures; (vi) payments to purchase
Capital Stock of the Company from management or employees of the Company or
any of its Subsidiaries, or their authorized representatives, upon the
happening of an event which provides for payment under any applicable plan, or
upon the death, disability or termination of employment of such employees, in
aggregate amounts under this clause (vi) not to exceed $8,000,000 in any
fiscal year of the Company; (vii) the payment of pro rata dividends to holders
of Capital Stock of Restricted Subsidiaries; (viii) the payment of dividends
on the Existing Preferred in accordance with its terms as in effect on the
Issue Date (or payments in comparable amounts to such dividends and at
comparable times in respect of claims by News Corp. or NPAL arising from News
Corp. or NPAL having cured or avoided a default by the Company in respect of
the Existing Preferred or the Company's Wilshire Boulevard lease; provided
amounts contributed to the Company by News Corp. or NPAL for such purpose
shall not be included in the calculation of clause (C) above); (ix) the
payment of in-kind interest in respect of Deeply Subordinated Shareholder
Loans and in respect of Existing Subordinated Notes; and (x) the repayment of
the Existing Subordinated Notes contemplated under "Use of Proceeds" in this
Prospectus. Any payments made pursuant to clauses (i), (v) and (vi) (to the
extent that such dividends are not included in Consolidated Interest Expense)
of this paragraph shall, without duplication, be taken into account in
calculating the amount of Restricted Payments made from and after the Issue
Date.
Limitation on Liens. The Company will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Liens of any
kind against or upon any of its property or assets, or any proceeds therefrom,
unless the Notes are equally and ratably secured (except that Liens securing
Subordinated Indebtedness shall not be permitted in any circumstances), except
for (a) Liens securing the Notes; (b) Liens securing Indebtedness which is (i)
incurred to refinance Indebtedness which has been secured by a Lien permitted
under the Indenture and (ii) incurred in accordance with the provisions of the
Indenture; provided, however, that such Liens do not extend to or cover any
property or assets of the Company or any of its Restricted Subsidiaries not
securing the Indebtedness so refinanced; and (c) Permitted Liens.
Disposition of Proceeds of Asset Sales. The Company will not, and will not
permit any of its Restricted Subsidiaries to, make any Asset Sale unless (a)
the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the shares or assets sold or otherwise disposed of and (b) at least
75% of such consideration consists of cash or Cash Equivalents or properties
or assets that will be used in the business of the Company and its Restricted
Subsidiaries provided that the amount of any liabilities (other than
Subordinated Indebtedness or Indebtedness of a Restricted Subsidiary that
would not constitute Restricted Subsidiary Indebtedness) that are assumed by
the transferee of any such assets pursuant to an agreement that
unconditionally releases the Company or such Restricted Subsidiary, as the
case may be, from further liability shall be treated as cash for purposes of
this covenant. The Company or the applicable Restricted Subsidiary, as the
case may be, shall, at the Company's option, (i) apply the Net Cash Proceeds
from any such Asset Sale within 365 days of the receipt thereof to repay
Indebtedness under the Bank Facility and elect to permanently reduce the
commitments thereunder by the amount of Indebtedness so repaid, (ii) apply the
Net Cash Proceeds from any such Asset Sale within 365 days of the receipt
thereof to repay an amount of other Indebtedness (other than Subordinated
Indebtedness) of the Company in an amount not exceeding the Other Senior Debt
Pro Rata Share and, in such case, elect to permanently reduce the amount of
the commitments thereunder by the amount of the Indebtedness so repaid, (iii)
apply the Net Cash
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Proceeds from any such Asset Sale by the Company or a Restricted Subsidiary to
repay any Restricted Subsidiary Indebtedness and elect to permanently reduce
the commitments thereunder by the amount of the Indebtedness so repaid and/or
(iv) apply the Net Cash Proceeds from any Asset Sale by the Company or a
Restricted Subsidiary, (x) to repay Indebtedness incurred not more than 90
days before such Asset Sale to purchase, or (y) to the purchase price for an
acquisition consummated not more than 90 days before such Asset Sale of, or
(z) within 365 days after such Asset Sale to an investment in, properties and
assets that replace the properties and assets that were the subject of such
Asset Sale or in properties and assets that will be used in the business of
the Company and its Restricted Subsidiaries existing on the Issue Date or in
businesses reasonably related thereto ("Replacement Assets"). Pending the
final application of any such Net Cash Proceeds, the Company or such
Restricted Subsidiary may temporarily reduce Indebtedness under a revolving
credit facility, if any, or otherwise invest such Net Cash Proceeds in Cash
Equivalents. Any Net Cash Proceeds from any Asset Sale that are neither used
to repay, and permanently reduce the commitments under, any Restricted
Subsidiary Indebtedness as set forth in clause (iii) of the second preceding
sentence or invested in Replacement Assets within the 365-day period as set
forth in clause (iv) shall constitute "Excess Proceeds." Any Excess Proceeds
not used as set forth in clause (i) or (ii) of the third preceding sentence
shall constitute "Offer Excess Proceeds" subject to disposition as provided
below.
When the aggregate amount of Offer Proceeds equals or exceeds $15,000,000,
the Company shall make an offer to purchase (an "Asset Sale Offer"), from all
holders of the Notes, an aggregate principal amount of Notes equal to such
Excess Proceeds, at a price (the "Asset Sale Purchase Price") in cash equal to
(x) with respect to the Senior Notes, 100% of the outstanding principal amount
thereof plus accrued and unpaid interest, if any, to the purchase date and (y)
with respect to the Senior Discount Notes, 100% of the Accreted Value on the
purchase date, unless the purchase date is on or after the earlier to occur of
November 1, 2002 and the Cash Interest Election Date, in which case such
purchase price shall be equal to 100% of the principal amount at maturity
thereof, plus accrued and unpaid interest, if any, to the purchase date. To
the extent that the aggregate principal amount of Notes tendered pursuant to
an Asset Sale Offer is less than the Offer Proceeds, the Company may use such
deficiency for any purpose not prohibited hereunder. The Notes shall be
purchased by the Company, at the option of the holder thereof, in whole or in
part in integral multiples of $1,000 of principal amount, on a date that is
not earlier than 30 days and not later than 60 days from the date the notice
is given to holders, or such later date as may be necessary for the Company to
comply with the requirements under the Exchange Act. If the aggregate purchase
price of Notes validly tendered and not withdrawn by holders thereof exceeds
the Offer Proceeds, Notes to be purchased will be selected on a pro rata
basis, based on the Asset Sale Purchase Price thereof. Upon completion of such
Asset Sale Offer, the amount of Excess Proceeds shall be reset to zero.
Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 75% of the
consideration of such Asset Sale constitutes Replacement Assets, cash or Cash
Equivalents (including obligations deemed to be cash under this covenant) and
(ii) such Asset Sale is for Fair Market Value; provided that (i) any
consideration constituting (or deemed to constitute) cash or Cash Equivalents
received by the Company or any of its Restricted Subsidiaries in connection
with any Asset Sale permitted to be consummated under this paragraph shall
constitute Net Cash Proceeds subject to the provisions of the two preceding
paragraphs and (ii) to the extent such replacement Assets include any Capital
Stock of any person, such person becomes a Restricted Subsidiary.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder, to the extent such laws and
regulations are applicable, in the event that an Asset Sale occurs and the
Company is required to purchase Notes as described above.
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any Restricted Subsidiary to issue any Preferred Stock other than
Preferred Stock issued to the Company or a Restricted Subsidiary. The Company
will not sell, transfer or otherwise dispose of Preferred Stock issued by a
Restricted Subsidiary of the Company or permit a Restricted Subsidiary to
sell, transfer or otherwise dispose of Preferred Stock issued by a Restricted
Subsidiary, other than to the Company or a Restricted Subsidiary.
Notwithstanding
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the foregoing, nothing in such covenant will prohibit the ownership of
Preferred Stock issued by a person prior to the time (A) such person becomes a
Restricted Subsidiary of the Company, (B) such person merges with or into a
Restricted Subsidiary of the Company or (C) a Restricted Subsidiary of the
Company merges with or into such person; provided, further, that such
Preferred Stock was not issued or incurred by such person in anticipation of a
transaction contemplated by subclause (A), (B), or (C) above.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into any transaction or series of related transactions (including,
without limitation, the sale, transfer, disposition, purchase, exchange or
lease of assets, property or services) with, or for the benefit of, any of its
Affiliates (other than Restricted Subsidiaries), except (a) on terms that are
no less favorable to the Company or such Restricted Subsidiary, as the case
may be, than those which could have been obtained in a comparable transaction
at such time from persons who are not Affiliates of the Company, (b) with
respect to a transaction or series of related transactions involving aggregate
payments or value equal to or greater than $25,000,000, the Company shall have
delivered an officer's certificate to the Trustee certifying that such
transaction or transactions comply with the preceding clause (a) and that such
transaction or transactions have been approved by a majority of the
Disinterested Members of the Board of Directors of the Company, and (c) with
respect to a transaction or series of related transactions involving aggregate
payments or value equal to or greater than $50,000,000 (other than agreements
whereby the Company or a Restricted Subsidiary of the Company obtains or
grants a license or other rights to syndicated entertainment programs in the
ordinary course of business), the Company shall have obtained a written
opinion from an Independent Financial Advisor stating that the terms of such
transaction or series of transactions are fair, from a financial point of
view, to the Company or the Restricted Subsidiary involved, as the case may
be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and the
Restricted Subsidiaries, (ii) customary directors' fees, indemnification and
similar arrangements, consulting fees, employee salaries, bonuses or
employment agreements, compensation or employee benefit arrangements and
incentive arrangements with any officer, director or employee of the Company
or any Restricted Subsidiary entered into in the ordinary course of business,
(iii) any dividends made in compliance with "--Limitation on Restricted
Payments" above, (iv) Permitted Investments, (v) loans and advances to
officers, directors and employees of the Company or any Restricted Subsidiary
for travel, entertainment, moving and other relocation expenses, in each case
made in the ordinary course of business, (vi) transactions pursuant to
agreements existing on the date of the Indentures or amendment thereto so long
as not disadvantageous to the holders of the Notes, (vii) Deeply Subordinated
Shareholder Loans and loans and advances in the same terms as the Existing
Subordinated Notes, or (viii) the incurrence of intercompany Indebtedness
which constitutes Permitted Indebtedness.
Limitation on Dividends and other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends, in
cash or otherwise, or make any other distributions on or in respect of its
Capital Stock or any other interest or participation in, or measured by, its
profits, (b) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary of the Company, (c) make loans or advances to the Company or any
other Restricted Subsidiary of the Company, (d) transfer any of its properties
or assets to the Company or any other Restricted Subsidiary of the Company or
(e) guarantee any Indebtedness of the Company or any other Restricted
Subsidiary of the Company, except for such encumbrances or restrictions
existing under or by reason of (i) applicable law, (ii) customary non-
subletting, non-assignment or other non-transfer provisions of any license,
contract or any lease governing a leasehold interest of the Company or any
Restricted Subsidiary of the Company, (iii) customary restrictions on
transfers of property subject to a Lien permitted under the Indenture, (iv)
the Bank Facility, but only if the Bank Facility permits payments to the
Company by its Restricted Subsidiaries in amounts sufficient to make interest
payments on the Notes unless there is a continuing default under the Bank
Facility or the making of any such interest payment would (with or without the
giving of notice or passage of time or both) result in a default under the
Bank Facility, (v) any
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agreement or other instrument of a person acquired by the Company or any
Restricted Subsidiary of the Company in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any person or any of its Subsidiaries, or the
properties or assets of any person or any of its Subsidiaries, other than the
person, or the property or assets of the person, so acquired, (vi) an
agreement entered into for the sale or disposition of all or substantially all
of the Capital Stock or assets of a Restricted Subsidiary or an agreement
entered into for the sale of specified assets (in either case, so long as such
encumbrance or restriction, by its terms, terminates on the earlier of the
termination of such agreement or the consummation of such agreement and so
long as such restriction applies only to the Capital Stock or assets to be
sold), (vii) any encumbrance or restriction in effect on the Issue Date and
(viii) any agreement that amends, extends, refinances, renews or replaces any
agreement described in the foregoing clauses, provided that the terms and
conditions of any such agreement are not materially less favorable to the
holders of the Notes than those under or pursuant to the agreement amended,
extended, refinanced, renewed or replaced.
Limitation on Designations of Unrestricted Subsidiaries. The Company may
designate after the Issue Date any Restricted Subsidiary as an "Unrestricted
Subsidiary" under the Indentures (a "Designation") only if:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(ii) the Company would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the "--Limitation on
Restricted Payments" above in an amount (the "Designation Amount") equal to
the Fair Market Value of the Company's interest in such Subsidiary on such
date calculated in accordance with GAAP; and
(iii) the Company would be permitted under the Indenture to incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the covenant described under "--Limitation on Indebtedness" at the time of
such Designation (assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
"--Limitation on Restricted Payments" for all purposes of the Indenture in the
Designation Amount. Each of the Subsidiaries conducting the businesses
identified as assets held for disposition or discontinuance in this Prospectus
shall constitute "Unrestricted Subsidiaries" on the Issue Date.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, at any time (x) provide credit support (other than guarantees
or pledges under the Bank Facility) for or subject any of its property or
assets (other than the Capital Stock of any Unrestricted Subsidiary) to the
satisfaction of, any Indebtedness of any Unrestricted Subsidiary (including
any undertaking, agreement or instrument evidencing such Indebtedness), (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary or (z) be directly or indirectly liable for any Indebtedness which
provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a default
with respect to any Indebtedness of any Unrestricted Subsidiary (including any
right to take enforcement action against such Unrestricted Subsidiary), except
any non-recourse guarantee given solely to support the pledge by the Company
or any Restricted Subsidiary of the Capital Stock of an Unrestricted
Subsidiary. No Unrestricted Subsidiary shall at any time guarantee or
otherwise provide credit support for any obligation of the Company or any
Restricted Subsidiary, except as provided in the Bank Facility. All
Subsidiaries of Unrestricted Subsidiaries shall automatically be deemed to be
Unrestricted Subsidiaries.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(i) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation;
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture; and
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(iii) any transaction (or series of related transactions) between such
Subsidiary and any of its Affiliates that occurred on or after the Issue
Date while such Subsidiary was an Unrestricted Subsidiary would be
permitted by "--Limitation on Transactions with Affiliates" above as if
such transaction (or series of related transactions) had occurred at the
time of such Revocation.
In the event the Company or a Restricted Subsidiary makes any Investment in
any person which was not previously a Subsidiary and such person thereby
becomes a Subsidiary, such person shall automatically be an Unrestricted
Subsidiary and the Company may designate such Subsidiary as a Restricted
Subsidiary only if it meets the foregoing requirements of clauses (i) and
(ii).
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
Limitation on Sale-Leaseback Transactions. The Company will not, and will
not permit any of its Restricted Subsidiaries to, enter into any Sale-
Leaseback Transaction with respect to any property of the Company or any of
its Restricted Subsidiaries. Notwithstanding the foregoing, the Company and
its Restricted Subsidiaries may enter into Sale-Leaseback Transactions,
provided, that (a) the Attributable Value of such Sale-Leaseback Transaction
shall be deemed to be Indebtedness of the Company or a Restricted Subsidiary
and (b) after giving pro forma effect to any such Sale-Leaseback Transaction
and the foregoing clause (a), the Company or a Restricted Subsidiary would be
able to incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the covenant described under "Limitation on
Indebtedness" above.
Reporting Requirements. For so long as the Notes are outstanding and the
Company is subject to Section 13(a) or 15(d) of the Exchange Act, or any
successor provision thereto, the Company shall file with the Commission (if
permitted by Commission practice and applicable law and regulations) the
annual reports, quarterly reports and other documents required to be filed
with the Commission (if permitted by Commission practice and applicable law
and regulations) pursuant to such Section 13(a) or 15(d) or any successor
provision thereto, such documents to be filed with the Commission on or prior
to the respective dates (the "Required Filing Dates") by which the Company is
required so to file such documents. The Company shall also in any event
(a) within 15 days after each Required Filing Date (i) transmit (or cause to
be transmitted) by mail to all holders of Notes, as their names and addresses
appear in the Note register, without cost to such Holders, and (ii) file with
the Trustee, copies of the annual reports, quarterly reports and other
documents which the Company is required to file with the Commission pursuant
to the preceding sentence, or, if such filing is not so permitted, information
and data of a similar nature, and (b) if, notwithstanding the preceding
sentence, filing such documents by the Company with the Commission is not
permitted by Commission practice or applicable law or regulations, promptly
upon written request supply copies of such documents to any holder of Notes.
In addition, for so long as any Notes remain outstanding, the Company will
furnish to the holders of Notes and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act, and, to any beneficial
holder of Notes, if not obtainable from the Commission, information of the
type that would be filed with the Commission pursuant to the foregoing
provisions upon the request of any such holder.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Company will not, in any transaction or series of transactions, merge or
consolidate with or into, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets as
an entirety to, any person or persons, and the Company will not permit any of
its Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in a sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of the
Company or the Company and its Restricted Subsidiaries, taken as a whole, to
any other person or persons, unless at the time and after giving effect
thereto (a) either (i) if the transaction or transactions is a merger or
consolidation, the Company or such Restricted Subsidiary, as the case may be,
shall
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be the surviving person of such merger or consolidation, or (ii) the person
formed by such consolidation or into which the Company, or such Restricted
Subsidiary, as the case may be, is merged or to which the properties and
assets of the Company or such Restricted Subsidiary, as the case may be,
substantially as an entirety, are transferred (any such surviving person or
transferee person being the "Surviving Entity") shall be a corporation
organized and existing under the laws of the United States of America, any
state thereof or the District of Columbia and shall expressly assume by
supplemental indentures executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Notes and the Indentures and the Registration Rights Agreement, and in each
case, the Indentures shall remain in full force and effect; (b) immediately
before and immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Default or Event of
Default shall have occurred and be continuing; and (c) the Company or the
Surviving Entity, as the case may be, after giving effect to such transaction
or series of transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions), could incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) under the
covenant described under "--Certain Covenants--Limitation on Indebtedness"
above.
In connection with any consolidation, merger, transfer, lease, assignment or
other disposition contemplated hereby, the Company shall deliver, or cause to
be delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger, transfer, lease, assignment or other
disposition and the supplemental indenture in respect thereof comply with the
requirements under the Indenture.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties
and assets of the Company in accordance with the immediately preceding
paragraphs, the successor person formed by such consolidation or into which
the Company or a Restricted Subsidiary, as the case may be, is merged or the
successor person to which such sale, assignment, conveyance, transfer, lease
or disposition is made shall succeed to, and be substituted for, and may
exercise every right and power of the Company under the Notes, Indentures
and/or the Registration Rights Agreement, as the case may be, with the same
effect as if such successor had been named as the Company in the Notes, the
Indentures and/or in the Registration Rights Agreement, as the case may be.
EVENTS OF DEFAULT
The following will be "Events of Default" under each Indenture with respect
to the Notes issued under such Indenture:
(i) default in the payment of the principal of or premium, if any, when
due and payable, on any of the Notes (at Stated Maturity, upon optional
redemption, required purchase or otherwise); or
(ii) default in the payment of an installment of interest on any of the
Notes, when due and payable, for 30 days; or
(iii) (a) default in the performance, or breach, of any covenant or
agreement of the Company under the applicable Indenture (other than a
default in the performance or breach of a covenant or agreement which is
specifically dealt with in clauses (i) or (ii) or subclauses (b), (c) or
(d) of this clause (iii)) and such default or breach shall continue for a
period of 45 days after written notice has been given, by certified mail,
(x) to the Company by the applicable Trustee or (y) to the Company and the
applicable Trustee by the holders of at least 25% in aggregate principal
amount of the outstanding Senior Notes or at least 25% in aggregate
principal amount at maturity of the Senior Discount Notes, as the case may
be; (b) there shall be a default in the performance or breach of the
provisions of "Consolidation, Merger and Sale of Assets, etc."; (c) the
Company shall have failed to make or consummate an Offer in accordance with
the provisions of the applicable Indenture described under "--Certain
Covenants--Dispositions of Proceeds of Asset Sales"; or (d) the Company
shall have failed to make or consummate a Change of Control Offer in
accordance with the provisions of the Indenture described under "Change of
Control"; or
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(iv) default or defaults under one or more agreements, instruments,
mortgages, bonds, debentures or other evidences of Indebtedness under which
the Company or any Significant Subsidiary of the Company then has
outstanding Indebtedness in excess of $20,000,000, individually or in the
aggregate, and either (a) such Indebtedness is already due and payable in
full or (b) such default or defaults have resulted in the acceleration of
the maturity of such Indebtedness; or
(v) one or more judgments, orders or decrees of any court or regulatory
or administrative agency of competent jurisdiction for the payment of money
in excess of $20,000,000 (net of any amounts covered by insurance therefor
which the insurance provider has been notified and not challenged coverage)
either individually or in the aggregate, shall be entered against the
Company or any Significant Subsidiary of the Company or any of their
respective properties and shall not be discharged and there shall have been
a period of 60 days after the date on which any period for appeal has
expired and during which a stay of enforcement of such judgment, order or
decree, shall not be in effect; or
(vi) the entry of a decree or order by a court having jurisdiction in the
premises (A) for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under the Federal
Bankruptcy Code or any other federal, state or foreign bankruptcy,
insolvency, reorganization or similar law or (B) adjudging the Company or
any Significant Subsidiary bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Significant Subsidiary under the Federal Bankruptcy Code
or any other similar federal, state or foreign law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or any Significant Subsidiary or of any
substantial part of any of their properties, or ordering the winding up or
liquidation of any of their affairs, and the continuance of any such decree
or order unstayed and in effect for a period of 60 consecutive days; or
(vii) the institution by the Company or any Significant Subsidiary of a
voluntary case or proceeding under the Federal Bankruptcy Code or any other
similar federal, state or foreign law or any other case or proceedings to
be adjudicated a bankrupt or insolvent, or the consent by the Company or
any Significant Subsidiary to the entry of a decree or order for relief in
respect of the Company or any Significant Subsidiary in any involuntary
case or proceeding under the Federal Bankruptcy Code or any other similar
federal, state or foreign law or to the institution of bankruptcy or
insolvency proceedings against the Company or any Significant Subsidiary,
or the filing by the Company or any Significant Subsidiary of a petition or
answer or consent seeking reorganization or relief under the Federal
Bankruptcy Code or any other similar federal, state or foreign law, or the
consent by it to the filing of any such petition or to the appointment of
or taking possession by a custodian, receiver, liquidator, assignee,
trustee or sequestrator (or other similar official) of any of the Company
or any Significant Subsidiary or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as
they become due or the taking of corporate action by the Company or any
Significant Subsidiary in furtherance of any such action.
If an Event of Default with respect to the Senior Notes or the Senior
Discount Notes (other than those covered by clause (vi) or (vii) above with
respect to the Company) shall occur and be continuing, the Trustee under the
applicable Indenture, by notice to the Company, or the holders of at least 25%
in aggregate principal amount of the Senior Notes then outstanding, or the
holders of at least 25% in aggregate principal amount at maturity of the
Senior Discount Notes then outstanding, as the case may be, by notice to the
applicable Trustee and the Company, may declare the Default Amount on all of
the outstanding Senior Notes or Senior Discount Notes, as the case may be, due
and payable immediately, upon which declaration, the Default Amount shall be
immediately due and payable; provided, however, that so long as the Bank
Facility shall be in full force and effect, if any acceleration arising from
any Event of Default (other than an Event of Default with respect to the
Company described in clause (vi) or (vii) of the preceding paragraph) shall
not become effective until the earlier to occur of (x) five Business Days
following delivery of written notice of such acceleration of the Notes to the
agent under the Bank Facility and (y) the acceleration (ipso facto or
otherwise) of any Indebtedness under the Bank Facility. If an Event of Default
specified in clause (vi) or (vii) above with respect to the Company occurs
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and is continuing, then the Default Amount on the outstanding Notes shall ipso
facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holder of Notes.
"Default Amount" means, with respect to (i) the Senior Discount Notes prior
to the earlier to occur of the Cash Interest Election Date and November 1,
2002, the Accreted Value thereof as of the payment date, (ii) the Senior
Notes, the principal amount thereof, and (iii) the Senior Discount Notes after
the earlier to occur of the Cash Interest Election Date and November 1, 2002,
the principal amount at maturity thereof, plus, in the case of clause (ii) and
clause (iii), accrued and unpaid interest thereon, if any, to the payment
date.
After a declaration of acceleration under the applicable Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee thereunder, the holders of a majority in aggregate principal
amount of the outstanding Senior Notes, or the holders of a majority in
aggregate principal amount at maturity of the outstanding Senior Discount
Notes, as the case may be, by written notice to the Company and the applicable
Trustee, may rescind such declaration if (a) the Company has paid or deposited
with the applicable Trustee a sum sufficient to pay (i) all sums paid or
advanced by the applicable Trustee under the applicable Indenture and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, (ii) all overdue interest on all Senior Notes or
Senior Discount Notes, as the case may be, (iii) the principal of and premium,
if any, on any Senior Notes or Senior Discount Notes which have become due
otherwise than by such declaration of acceleration and interest thereon at the
rate borne by such Notes, and (iv) to the extent that payment of such interest
is lawful, interest upon overdue interest and overdue principal at the rate
borne by such Notes which has become due otherwise than by such declaration of
acceleration; (b) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction; and (c) all Events of Default,
other than the non-payment of principal of, premium, if any, and interest on
the Senior Notes or Senior Discount Notes, as the case may be, that has become
due solely by such declaration of acceleration, have been cured or waived.
In the event of a declaration of acceleration under the Indentures because
of an Event of Default set forth in clause (iv) above has occurred and is
continuing as a result of the failure of the Company or any of its Significant
Subsidiaries to pay the principal of any Indebtedness upon the final maturity
thereof or the acceleration of such maturity, such declaration of acceleration
shall be automatically rescinded and annulled if either (i) the failure to pay
any such Indebtedness at the final maturity thereof shall have been waived or
the acceleration of the maturity thereof shall have been rescinded within 30
days of such maturity or declaration of acceleration, as the case may be, or
(ii) such Indebtedness shall have been discharged, or the underlying default
has been cured, within 30 days of such maturity or declaration of
acceleration, as the case may be.
The holders of not less than a majority in aggregate principal amount of the
outstanding Senior Notes or the Senior Discount Notes, as the case may be, may
on behalf of the holders of all Senior Notes or Senior Discount Notes, as the
case may be, waive any past defaults under the applicable Indenture, except a
default in the payment of the principal of, premium, if any, or interest on
any Note, or in respect of a covenant or provision which under such Indenture
cannot be modified or amended without the consent of the holder of each Senior
Note or Senior Discount Note outstanding.
No holder of any of the Notes has any right to institute any proceeding with
respect to an Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Senior Notes, or
the holders of at least 25% in aggregate principal amount at maturity of the
outstanding Senior Discount Notes, as the case may be, have made written
request, and offered reasonable indemnity, to the applicable Trustee to
institute such proceeding as Trustee under such Notes and the applicable
Indenture, the applicable Trustee has failed to institute such proceeding
within 15 days after receipt of such notice and the applicable Trustee, within
such 15-day period, has not received directions inconsistent with such written
request by holders of a majority in aggregate principal amount of the
outstanding Senior Notes or, in the case of the Senior Discount Notes, the
holders of a majority in aggregate principal amount at maturity. Such
limitations do not apply, however, to a suit instituted by a holder of a Note
for the enforcement of the payment of the principal of, premium, if any, or
interest on such Note on or after the respective due dates expressed in such
Note.
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During the existence of an Event of Default, each Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs. Subject to the provisions of an Indenture relating to the duties of
the Trustee thereunder, whether or not an Event of Default shall occur and be
continuing, such Trustee is not under any obligation to exercise any of its
rights or powers under the applicable Indenture at the request or direction of
any of the holders unless such holders shall have offered to the applicable
Trustee reasonable security or indemnity. Subject to certain provisions
concerning the rights of the Trustee, the holders of a majority in aggregate
principal amount of the outstanding Senior Notes or, with respect to the
Senior Discount Notes, the holders of a majority in aggregate principal amount
at maturity, have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred on the Trustee under the applicable Indenture.
If a Default or an Event of Default occurs and is continuing and is known to
the Trustee, the Trustee shall mail to each holder of the Notes affected
notice of the Default or Event of Default within 30 days after obtaining
knowledge thereof. Except in the case of a Default or an Event of Default in
payment of principal of, premium, if any, or interest on any Notes, the
applicable Trustee may withhold the notice to the holders of such Notes if a
committee of its trust officers in good faith determines that withholding the
notice is in the interest of the Noteholders.
The Company is required to furnish to each Trustee annual and quarterly
statements as to the performance by the Company of its obligations under the
Indentures and as to any default in such performance. The Company is also
required to notify each Trustee within five days of any event which is, or
after notice or lapse of time or both would become, an Event of Default.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate its obligations
with respect to the outstanding Notes issued under the Indentures
("defeasance") to the extent set forth below are satisfied. Such defeasance
means that the Company shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes issued under such Indenture,
except for (i) the rights of holders of outstanding Notes to receive payment
in respect of the principal of, premium, if any, and interest on such Notes
when such payments are due, (ii) the Company's obligations to issue temporary
Notes, register the transfer or exchange of any Notes, replace mutilated,
destroyed, lost or stolen Notes and maintain an office or agency for payments
in respect of the Notes, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and (iv) the defeasance provisions of such
Indentures. In addition, in connection with defeasance, the Company may, at
its option and at any time, elect to terminate the obligations of the Company
with respect to certain covenants ("covenant defeasance") that are set forth
in the Indentures, and are described under "--Certain Covenants" above. Upon
the exercise of the covenant of defeasance, the Company shall be released from
all obligations with respect to such covenants, and any subsequent failure to
comply with such obligations shall not constitute a Default or an Event of
Default with respect to the Notes issued under the Indentures.
In order to exercise either defeasance or covenant defeasance with respect
to an Indenture, (i) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the holders of the Notes issued thereunder, cash in
United States dollars, U.S. Government Obligations (as defined in the
Indenture), or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Notes to redemption or maturity (except lost, stolen or destroyed
Notes which have been replaced or paid); (ii) the Company shall have delivered
to the applicable Trustee an opinion of counsel to the effect that the holders
of the outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such defeasance or covenant defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such defeasance or
covenant defeasance had not occurred (in the case of defeasance, such opinion
must refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable federal income tax laws); (iii) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit;
(iv) such defeasance or covenant defeasance shall not cause the applicable
Trustee to have a conflicting interest with respect to any securities of the
Company; (v) such defeasance or covenant
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defeasance shall not result in a breach or violation of, or constitute a
default under, any agreement or instrument to which the Company is a party or
by which it is bound; (vi) the Company shall have delivered to the applicable
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (vii) the Company shall have delivered to the
applicable Trustee an officers' certificate stating that the deposit was not
made by the Company with the intent of preferring the holders of the Notes
over the other creditors of the Company with the intent of hindering, delaying
or defrauding creditors of the Company or others; (viii) no event or condition
shall exist that would prevent the Company from making payments of the
principal of, premium, if any, and interest on the Notes on the date of such
deposit or at any time ending on the 91st day after the date of such deposit;
and (ix) the Company shall have delivered to the applicable Trustee an
officers' certificate and an opinion of counsel, each stating that all
conditions precedent under the applicable Indenture to either defeasance or
covenant defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
Each Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
issued under such Indenture when (i) either (a) all the Notes theretofore
authenticated and delivered thereunder (except lost, stolen or destroyed Notes
which have been replaced or repaid and Notes for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust)
have been delivered to the Trustee for cancellation or (b) all Notes issued
thereunder not theretofore delivered to the applicable Trustee for
cancellation (except lost, stolen or destroyed Notes which have been replaced
or paid) have become due and payable and the Company has irrevocably deposited
or caused to be deposited with the applicable Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the applicable Trustee for cancellation, for
principal of, premium, if any, and interest on the Notes to the date of
deposit together with irrevocable instructions from the Company directing the
applicable Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be; (ii) the Company has paid all other sums
payable under the Indenture by the Company; and (iii) the Company has
delivered to the applicable Trustee an officers' certificate and an opinion of
counsel stating that all conditions precedent under such Indenture relating to
the satisfaction and discharge of the Indenture have been complied with.
AMENDMENTS AND WAIVERS
From time to time, the Company, when authorized by a resolution of its Board
of Directors, and the Trustee under the Indenture may, without the consent of
the holders of any outstanding Notes, amend, waive or supplement an Indenture
or the Notes issued thereunder for certain specified purposes, including,
among other things, curing ambiguities, defects or inconsistencies,
qualifying, or maintaining the qualification of, the Indenture under the Trust
Indenture Act of 1939, or making any change that does not adversely affect the
rights of any holder of Notes issued thereunder. Other amendments and
modifications of each Indenture or the Notes issued thereunder may be made by
the Company and the applicable Trustee with the consent of the holders of not
less than a majority of the aggregate principal amount of the outstanding
Senior Notes or, in the case of the Senior Discount Notes, the holders of a
majority of the aggregate principal amount at maturity; provided, however,
that no such modification or amendment may, without the consent of the holder
of each outstanding Note issued under such Indenture affected thereby, (i)
reduce the principal amount of, extend the fixed maturity of or alter the
redemption provisions of, such Notes, (ii) change the currency in which such
Notes or any premium or the interest thereon is payable, (iii) reduce the
percentage in principal amount of outstanding Notes issued thereunder that
must consent to an amendment, supplement or waiver or consent to take any
action under such Indenture or Notes, (iv) impair the right to institute suit
for the enforcement of any payment on or with respect to such Notes, (v) waive
a default in payment with respect to such Notes, (vi) following the occurrence
of a Change of Control or an Asset Sale, amend, change or modify the
obligation of the Company to make and consummate a Change of Control Offer or
make and consummate the offer with respect to any Asset Sale or modify any of
the provisions or definitions with respect thereto, (vii) reduce or change the
rate or time for
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payment of interest on such Notes or, in the case of the Senior Discount
Notes, amend or modify the definition of Accreted Value or (viii) modify or
change any provision of the Indenture affecting the ranking of such Notes in a
manner adverse to the holders of such Notes.
THE TRUSTEE
Each Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred
and is continuing, the Trustee will exercise such rights and powers vested in
it under the Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indentures and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights
of the Trustee thereunder, should it become a creditor of the Company, to
obtain payment of claims in certain cases or to realize on certain property
received by it in respect of any such claims, as security or otherwise. The
Trustee is permitted to engage in other transactions; provided, however, that
if it acquires any conflicting interest (as defined in such Act) it must
eliminate such conflict or resign. Such a conflicting interest could occur if
the Company were to default on the Senior Notes and not on the Senior Discount
Notes or on the Senior Discount Notes and not on the Senior Notes.
GOVERNING LAW
The Indentures and the Notes are and will be governed by the laws of the
State of New York, without regard to the principles of conflicts of law.
CERTAIN DEFINITIONS
"Accreted Value" means (a) as of any date prior to the Cash Interest
Election Date, if any (the "Specified Date"), with respect to each $1,000
principal face amount at maturity of Senior Discount Notes:
(i) if the Specified Date is one of the following dates (each a "Semi-
Annual Accrual Date"), the amount set forth opposite such date below:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
------------ ---------
<S> <C>
Issue Date...................................................... $ 606.14
November 1, 1997................................................ 606.65
May 1, 1998..................................................... 637.74
November 1, 1998................................................ 670.43
May 1, 1999..................................................... 704.79
November 1, 1999................................................ 740.91
May 1, 2000..................................................... 778.88
November 1, 2000................................................ 818.80
May 1, 2001..................................................... 860.76
November 1, 2001................................................ 904.87
May 1, 2002..................................................... 951.25
November 1, 2002................................................ $1,000.00;
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the sum of (a) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding the Specified Date and (b) an amount equal to the
product of (x) the Accreted Value for the Semi-Annual Accrual Date
immediately following the Specified Date less the Accreted Value for the
Semi-Annual Accrual Date immediately preceding the Specified Date and (y) a
fraction, the numerator of which is the number of days actually elapsed
from the immediately preceding Semi-Annual Accrual Date to the Specified
Date, using a 360-day year of twelve 30-day months, and the denominator of
which is 180; and
(iii) if the Specified Date is after November 1, 2002, $1,000; and
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(b) on and after the Cash Interest Election Date, with respect to each
$1,000 principal face amount of Senior Discount Notes, the Accreted Value
determined in accordance with the foregoing as of such Cash Interest Election
Date (without any further accretion).
"Acquired Indebtedness" means Indebtedness of a person (a) assumed in
connection with an Asset Acquisition from such person or (b) existing at the
time such person becomes a Subsidiary of any other person and not incurred in
connection with, or in contemplation of, such Asset Acquisition or such person
becoming a Subsidiary.
"Affiliate" means, with respect to any specified person, (i) any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person, (ii) any other person that
owns, directly or indirectly, 10% or more of such specified person's Capital
Stock, (iii) any officer or director of (A) any such specified person, (B) any
Subsidiary of such specified person or (C) any person described in clauses (i)
or (ii) above or (iv) the spouse of any natural person described in clauses
(i), (ii) or (iii) above or any person directly or indirectly controlling or
controlled by or under direct or indirect common control with such spouse.
"Asset Acquisition" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other person pursuant to which such person
shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any person which
constitute all or substantially all of the assets of such person, any division
or line of business of such person or any other properties or assets of such
person other than in the ordinary course of business.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition by the Company or any Restricted Subsidiary of the Company to any
person other than the Company or a Restricted Subsidiary of the Company, in
one or a series of related transactions for an aggregate consideration of more
than $1,000,000, of (a) any Capital Stock of any Subsidiary of the Company;
(b) all or substantially all of the properties and assets of any division or
line of business of the Company or any Restricted Subsidiary of the Company;
or (c) any other properties or assets of the Company or any Restricted
Subsidiary of the Company other than in the ordinary course of business
including any disposition of obsolete or worn-out assets. For purposes of the
covenant "Limitation on Disposition of Proceeds of Asset Sales," the following
shall not be deemed an Asset Sale: (i) any sale or other disposition by the
Company or a Restricted Subsidiary of the Company of the assets held for
disposition or discontinuance of IFE identified in this Prospectus for Fair
Market Value or (ii) an Investment of cash not prohibited by the Indentures.
For the purposes of this definition, the term "Asset Sale" shall not include
any sale, issuance, conveyance, transfer, lease or other disposition of
properties or assets that is governed by the provisions described under "--
Consolidation, Merger, Sale of Assets, Etc."
"Attributable Value" means, as to any particular lease under which any
person is at the time liable other than a Capitalized Lease Obligation, and at
any date as of which the amount thereof is to be determined, the total net
amount of rent required to be paid by such person under such lease during the
remaining term thereof (whether or not such lease is terminable at the option
of the lessee prior to the end of such term), including any period for which
such lease has been, or may, at the option of the lessor, be extended,
discounted from the last date of such term to the date of determination at a
rate per annum equal to the discount rate which would be applicable to a
Capitalized Lease Obligation with like term in accordance with GAAP. The net
amount of rent required to be paid under any lease for any such period shall
be the aggregate amount of rent payable by the lessee with respect to such
period after excluding amounts required to be paid on account of insurance,
taxes, assessments, utility, operating and labor costs and similar charges.
"Attributable Value" means, as to a Capitalized Lease Obligation under which
any person is at the time liable and at any date as of which the amount
thereof is to be determined, the capitalized amount thereof that would appear
on the face of a balance sheet of such person in accordance with GAAP.
"Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from such date to the
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date or dates of each successive scheduled principal payment (including,
without limitation, any sinking fund requirements) of such Indebtedness and
(b) the amount of each such principal payment by (ii) the sum of all such
principal payments.
"Bank Facility" means the Second Amended and Restated Credit Agreement dated
as of October 28, 1997 among FCN Holding, IFE and Saban, as borrowers, and FK
Holdings, as guarantor, and the initial lenders named therein, as initial
lenders, and Citicorp USA, Inc., as administrative agent, and Citicorp
Securities, Inc. and BankBoston N.A., as co-arrangers, including any initial
or successive deferrals, renewals, waivers, extensions, replacements,
refinancings (in whole or part) or refundings thereof, or any amendments,
modifications or supplements, thereto and including any related notes,
guarantees, security agreements, pledge agreements, mortgages and other
collateral documents executed in connection therewith.
"Board of Directors" means the board of directors of a company or its
equivalent, including managers of a limited liability company (or members of a
member managed limited liability company), general partners of a partnership
or trustees of a business trust, or any duly authorized committee thereof.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such person's capital stock or equity participations, and any rights (other
than debt securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock and, including,
without limitation, with respect to partnerships, limited liability companies
or business trusts, ownership interests (whether general or limited) and any
other interest or participation that confers on a Person the right to receive
a share of the profits and losses of, or distributions of assets of, such
partnerships, limited liability companies or business trusts.
"Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP, and, for the purpose of the Indentures,
the amount of such obligation at any date shall be the capitalized amount
thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with
a maturity of 365 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality
thereof (provided that the full faith and credit of the United States of
America is pledged in support thereof); (ii) certificates of deposit or
acceptances with a maturity of 365 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500,000,000, whose debt is
rated at least A-1 by S&P or at least P-1 by Moody's or at least an equivalent
rating category of another nationally recognized rating agency; (iii)
commercial paper with a maturity of 365 days or less issued by a corporation
that is not an Affiliate of the Company organized under the laws of any state
of the United States or the District of Columbia and rated at least A-1 by S&P
or at least P-1 by Moody's or at least an equivalent rating category of
another nationally recognized securities rating agency; (iv) repurchase
agreements and reverse repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the government of the
United States of America or issued by any agency thereof and backed by the
full faith and credit of the United States of America, in each case maturing
within 365 days
from the date of acquisition; and (v) money market instruments which are
principally invested in Cash Equivalents referred to in the preceding clauses
(i) through (iv).
"Change of Control" means the occurrence of any of the following events:
(a)(i) the Permitted Holders cease to own at least 50% of the total Voting
Stock of the Company or (ii) The News Corporation Limited, the Murdoch Family
or any of their respective Affiliates cease to own at least 30% of the total
Voting Stock of the Company; (b) the Company consolidates with, or merges with
or into, another person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any person, or
any person consolidates with, or merges with or into, the Company, in any such
event pursuant to a transaction in which the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other property,
other than any such transaction where (i) the outstanding Voting Stock of the
Company is converted into or exchanged for Voting Stock (other than Redeemable
Capital Stock) of the surviving or transferee corporation
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and immediately after such transaction (i) the Permitted Holders own at least
50% of the total Voting Stock of the surviving or transferee corporation and
(ii) The News Corporation Limited, the Murdoch Family or any of their
respective Affiliates own at least 30% of the total Voting Stock of the
surviving or transferee corporation; (c) during any consecutive two-year
period, individuals who at the beginning of such period constituted the Board
of Directors of the Company (together with any new directors whose election by
such Board of Directors or whose nomination for election by the stockholders
of the Company was approved by a vote of 66 2/3% of the directors then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute at least 50% of the Board of Directors of the Company
then in office; or (d) the Company is liquidated or dissolved or adopts a plan
of liquidation or any order, judgment or decree shall be entered against the
Company decreeing the dissolution or splitup of the Company and such order
shall remain undischarged or unstayed for a period in excess of 60 days.
"Consolidated Cash Flow" means, with respect to any person for any period,
(i) the sum of, without duplication, the amounts for such period, taken as a
single accounting period, of (a) Consolidated Net Income, (b) Consolidated
Non-cash Charges, (c) Consolidated Interest Expense, (d) Consolidated Income
Tax Expense (other than income tax expense (either positive or negative)
attributable to extraordinary and nonrecurring gains or losses), (e) an amount
equal to any extraordinary and nonrecurring losses (to the extent such losses
were deducted in computing Consolidated Net Income), less (ii) non-cash items
increasing Consolidated Net Income; provided, however, that if, during such
period, such person or any of its Restricted Subsidiaries shall have made any
Asset Sales or Asset Acquisitions, Consolidated Cash Flow for such person and
its Restricted Subsidiaries for such period shall be adjusted to give pro
forma effect to the Consolidated Cash Flow directly attributable to the assets
which are the subject of such Asset Sales or Asset Acquisitions during such
period.
"Consolidated Income Tax Expense" means, with respect to any person for any
period, the provision for federal, state, local and foreign income taxes of
such person and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any person for any
period, without duplication, the sum of (i) the interest expense of such
person and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount, (b) the net cost under Interest Rate
Protection Obligations (including any amortization of discounts), (c) the
interest portion of any deferred payment obligation, excluding accretion
recorded based upon liabilities arising from purchase accounting adjustments
from the acquisition of IFE, (d) all commissions, discounts and other fees and
charges owed with respect to letters of credit, bankers' acceptance financing
or similar facilities and (e) all capitalized and accrued interest and (ii)
the interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by such person and its Restricted Subsidiaries
during such period and (iii) the aggregate amount of dividends and other
distributions paid or accrued during such period in respect of Redeemable
Capital Stock (other than payments made in respect of the redemption of such
Redeemable Capital Stock (other than accrued and unpaid dividends thereon)) of
such person and its Restricted Subsidiaries on a consolidated basis, as
determined on a consolidated basis in accordance with GAAP. In no event shall
Consolidated Interest Expense include interest expense associated with Deeply
Subordinated Shareholder Loans.
"Consolidated Net Income" means, with respect to any person for any period,
the consolidated net income (or loss) of such person and its Restricted
Subsidiaries for such period as determined in accordance with GAAP, adjusted,
to the extent included in calculating such net income, by excluding, without
duplication, (i) all extraordinary gains or losses (net of fees and expenses
relating to the transaction giving rise thereto), (ii) the portion of net
income of such person and its Restricted Subsidiaries derived from or in
respect of Investments in persons other than Restricted Subsidiaries except to
the extent that cash dividends or distributions have not actually been
received by such person or one of its Restricted Subsidiaries, (iii) net
income (or loss) of any person combined with such person or one of its
Restricted Subsidiaries on a "pooling of interests" basis attributable to any
period prior to the date of combination, (iv) gains or losses in respect of
any Asset Sales by such person or one of its Restricted Subsidiaries (net of
fees and expenses relating to the transaction giving rise thereto), on an
after-tax basis, (v) the net income of any Restricted Subsidiary of such
person to the extent that
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the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulations
applicable to that Restricted Subsidiary or its stockholders and (vi) any gain
or loss realized as a result of the cumulative effect of a change in
accounting principles.
"Consolidated Net Tangible Assets" of any person means, as of any date, (a)
all amounts that would be shown as assets on a consolidated balance sheet of
such person and its Restricted Subsidiaries prepared in accordance with GAAP,
less (b) the amount thereof constituting goodwill and other intangible assets
as calculated in accordance with GAAP.
"Consolidated Non-cash Charges" means, with respect to any person for any
period, the aggregate depreciation, amortization (excluding amortization of
programming costs) and other non-cash expenses of such person and its
Restricted Subsidiaries reducing Consolidated Net Income of such person and
its Restricted Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP (excluding any such charges constituting an
extraordinary item or loss or any such charge which requires an accrual of or
a reserve for cash charges for any future period).
"control" when used with respect to any specified person means the power to
direct the management and policies of such person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Restricted Subsidiaries against fluctuations in currency
values.
"Deeply Subordinated Shareholder Loans" means any Indebtedness of the
Company for money borrowed from and held by either (x) a Permitted Holder or
(y) another person whose obligations have been guaranteed by a Permitted
Holder, provided that, except to the extent expressly permitted by the
covenant "Limitation on Restricted Payments," such Indebtedness of the Company
(i) has been expressly subordinated in right of payment as to all payments of
interest and principal to the Notes, (ii) provides for no payments of interest
(other than payments in-kind) or principal prior to the earlier of (a) the end
of the sixth month after the final maturity of the Notes and (b) the payment
in full cash of all Notes (or due provision therefor which results in the
discharge of all obligations under the Indenture); provided, further, that the
terms of any such Indebtedness shall be evidenced by a note in the form
annexed to the Indenture and the Company shall have delivered the specified
Opinions of Counsel as to the validity and enforceability of the subordination
terms thereof.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Member of the Board of Directors of the Company" means, with
respect to any transaction or series of transactions, a member of the Board of
Directors of the Company other than a member who has any material direct or
indirect financial interest in or with respect to such transaction or series
of transactions or who is an officer, director or an employee of any person
who has any direct or indirect financial interest in or with respect to such
transaction or series of transactions (other than the Company or a Restricted
Subsidiary of the Company).
"Entertainment/Programming Business" means a business engaged primarily in
the ownership, operation, acquisition, development, production, distribution
or syndication of general entertainment or children's programming including,
without limitation, any business engaged in by the Company and its Restricted
Subsidiaries on the Issue Date.
"Event of Default" has the meaning set forth under "Events of Default"
herein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Existing Preferred" means the Series A Preferred Stock outstanding on the
Issue Date.
"Existing Subordinated Notes" means (i) the Subordinated Note of the Company
issued to News America Holdings Incorporated in the principal amount
(excluding accreted interest) of approximately $345.5 million outstanding on
the Issue Date (before giving effect to the use of proceeds from the Offering
and the Flextech Transaction) and (ii) the Subordinated Note of the Company
issued to Fox Broadcasting Company in the principal amount (excluding accreted
interest) of approximately $108.6 million outstanding on the Issue Date
(before giving effect to the use of proceeds from the Offering).
Notwithstanding anything herein to the contrary, the Company may amend the
term of the Existing Subordinated Notes to make them Deeply Subordinated
Shareholder Loans.
"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction; provided, however, that, except with
respect to any Asset Sale which involves an asset or assets constituting less
than $25,000,000, the determination of the Fair Market Value of any asset or
assets shall be approved by the Board of Directors of the Company, acting in
good faith and shall be evidenced by resolutions of the Board of Directors of
the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable at the date
of the Indenture.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts available to be drawn down under letters of credit of
another person.
"Indebtedness" means, with respect to any person, without duplication, (a)
all liabilities of such person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities and liabilities for entertainment programming,
participations or residuals incurred in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of
such person in connection with any letters of credit, banker's acceptance or
other similar credit transaction, (b) all obligations of such person evidenced
by bonds, notes, debentures or other similar instruments, (c) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such person (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade accounts payable arising in the ordinary course of business, (d) all
Capitalized Lease Obligations of such person, (e) all Indebtedness referred to
in the preceding clauses of other persons and all dividends of other persons,
the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon property (including, without limitation, accounts and contract
rights) owned by such person, even though such person has not assumed or
become liable for the payment of such Indebtedness, (f) all guarantees of
Indebtedness referred to in this definition by such person, (g) all Redeemable
Capital Stock of such person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued dividends, (h) all
obligations under or in respect of Interest Rate Protection Obligations of
such person, and (i) any amendment, supplement, modification, deferral,
renewal, extension, refinancing or refunding of any liability of the types
referred to in clauses (a) through (h) above. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Capital Stock as if such Redeemable Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to
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the Indenture, and if such price is based upon, or measured by, the fair
market value of such Redeemable Capital Stock, such fair market value shall be
approved in good faith by the board of directors of the issuer of such
Redeemable Capital Stock. In the case of Indebtedness of other persons, the
payment of which is secured by a Lien on property owned by a person as
referred to in clause (e) above, the amount of the Indebtedness of such person
attributable to such Lien at any date shall be the lesser of the Fair Market
Value at such date of any asset subject to such Lien and the amount of the
Indebtedness secured. In no event shall "Indebtedness" include (i) Deeply
Subordinated Shareholder Loans so long as they are issued to and held by a
Permitted Holder or (ii) the Existing Preferred to the extent the terms
thereof are as in effect on the Issue Date.
"Independent Financial Advisor" means a nationally recognized accounting,
appraisal or investment banking firm (i) which does not, and whose directors,
officers and employees or Affiliates do not have, a direct or indirect
financial interest in the Company and (ii) which, in the judgment of the Board
of Directors of the Company, is otherwise independent and qualified to perform
the task for which it is to be engaged.
"Interest Rate Protection Agreement" means, with respect to any person, any
arrangement with any other person whereby, directly or indirectly, such person
is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such person calculated by
applying a fixed or a floating rate of interest on the same notional amount
and shall include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"Interest Rate Protection Obligations" means the obligations of any person
pursuant to any Interest Rate Protection Agreements.
"Investment" means, with respect to any person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any other person.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any
property of any kind. A person shall be deemed to own subject to a Lien any
property which such person 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.
"Maturity Date" means November 1, 2007.
"Murdoch Family" means one or more of (a) K. Rupert Murdoch, his wife,
parents, children or more remote issue, or brothers or sisters or children or
more remote issue of a brother or sister, (b) any person directly or
indirectly controlled by one or more of the persons referred to in clause (a)
of this definition or (c) a trust in which the majority of the trustees are
persons referred to in clause (a) or (b) of this definition or can be removed
or replaced by one or more of the persons referred to in clause (a) or (b) of
this definition.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary of the Company) net
of (i) brokerage commissions and other fees and expenses (including, without
limitation, fees and expenses of legal counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes payable as a result of such
Asset Sale and relocation costs, (iii) amounts required to be paid to any
person (other than the Company or any Restricted Subsidiary of the Company)
owning a beneficial interest in or a Lien upon the assets subject to the Asset
Sale, (iv) payments made to retire Indebtedness where payment of such
Indebtedness is secured by the assets or properties the subject of
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such Asset Sale, and (v) appropriate amounts to be provided by the Company or
any Restricted Subsidiary of the Company, as the case may be, as a reserve
required in accordance with GAAP against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary of the
Company, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an officers'
certificate delivered to the Trustee.
"Offer" has the meaning set forth in the definition of "Offer to Purchase"
below.
"Offer to Purchase" means a written offer (the "Offer") sent by or on behalf
of the Company by first-class mail, postage prepaid, to each holder at his
address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount or Accreted Value of Notes
specified in such Offer at the purchase price specified in such Offer (as
determined pursuant to the applicable Indenture). Unless otherwise provided
for in the Indentures or otherwise required by applicable law, the Offer shall
specify an expiration date (the "Expiration Date") of the Offer to Purchase,
which shall be not less than 20 Business Days nor more than 60 days after the
date of such Offer, and a settlement date (the "Purchase Date") for purchase
of Notes to occur no later than five Business Days after the Expiration Date.
The Company shall notify the applicable Trustee at least 15 Business Days
(or such shorter period as is acceptable to the applicable Trustee) prior to
the mailing of the Offer of the Company's obligation to make an Offer to
Purchase, and the Offer shall be mailed by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company. The
Offer shall contain all the information required by applicable law to be
included therein. The Offer shall also contain information concerning the
business of the Company and its Subsidiaries which the Company in good faith
believes will enable such Holders to make an informed decision with respect to
the Offer to Purchase (which at a minimum will include (i) the most recent
annual and quarterly financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
document required to be filed with the Trustee pursuant to the Indenture
(which requirements may be satisfied by delivery of such documents together
with the Offer), (ii) a description of material developments in the Company's
business subsequent to the date of the latest of such financial statements
referred to in clause (i) (including a description of the events requiring the
Company to make the Offer to Purchase), (iii) if applicable, appropriate pro
forma financial information concerning the Offer to Purchase and the events
requiring the Company to make the Offer to Purchase and (iv) any other
information required by applicable law to be included therein). The Offer
shall contain all instructions and materials necessary to enable such Holders
to tender Notes pursuant to the Offer to Purchase. The Offer shall also state:
(1) the Section of the Indenture pursuant to which the Offer to Purchase
is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Notes offered to be
purchased by the Company pursuant to the Offer to Purchase (including, if
less than 100%, the manner by which such amount has been determined
pursuant to the Section of the Indenture requiring the Offer to Purchase)
(the "Purchase Amount");
(4) in the case of the Senior Notes, the purchase price to be paid by the
Company for each $1,000 aggregate principal amount of Notes accepted for
payment (as specified pursuant to the Senior Notes Indenture) (the
"Purchase Price" with respect to the Senior Notes) and (b) in the case of
the Senior Discount Notes, the purchase price to be paid by the Company for
each $1,000 of Accreted Value (if the Purchase Date is prior to the earlier
of November 1, 2002 or the Cash Interest Election Date) or $1,000 aggregate
principal amount at maturity (if the Purchase Date is on or after such
earlier date) of Notes accepted for payment (as specified pursuant to the
Senior Discount Notes Indenture) (the "Purchase Price" with respect to the
Senior Discount Notes);
(5) that the holder may tender all or any portion of the Notes registered
in the name of such holder and that any portion of a Note tendered must be
tendered in an integral multiple of $1,000 principal face amount;
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(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not purchased
by the Company pursuant to the Offer to Purchase will continue to accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each holder electing to tender all or any portion of a Note
pursuant to the Offer to Purchase will be required to surrender such Note
at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Note being, if the Company or the
Trustee so requires, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Trustee
duly executed by, the holder thereof or his attorney duly authorized in
writing);
(10) that holders will be entitled to withdraw all or any portion of
Notes tendered if the Company (or its paying agent) receives, not later
than the close of business on the fifth Business Day next preceding the
Expiration Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the principal amount of the Note the
holder tendered, the certificate number of the Note the holder tendered and
a statement that such holder is withdrawing all or a portion of his tender;
(11) that (a) if Notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, the Company shall purchase all such Notes and (b)
if Notes in an aggregate principal amount in excess of the Purchase Amount
are tendered and not withdrawn pursuant to the Offer to Purchase, the
Company shall purchase Notes having an aggregate principal amount equal to
the Purchase Amount on a pro rata basis (with such adjustments as may be
deemed appropriate so that only Notes in denominations of $1,000 principal
amount at maturity or integral multiples thereof shall be purchased); and
(12) that in the case of any holder whose Note is purchased only in part,
the Company shall execute and the Trustee shall authenticate and deliver to
the holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion of
the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions pertaining to the type of Offer to which it relates. References
above to principal amount shall mean and refer to principal amount at maturity
with respect to the Senior Discount Notes, unless the context otherwise
requires.
"Other Senior Debt Pro Rata Share" means under an Indenture the amount of
the applicable Excess Proceeds obtained by multiplying the amount of such
Excess Proceeds by a fraction, (i) the numerator of which is the aggregate
accreted value and/or principal amount, as the case may be, of all
Indebtedness (other than (x) the Notes issued thereunder and (y) Subordinated
Indebtedness) of the Company outstanding at the time of the applicable Asset
Sale with respect to which the Company is required to use Exceed Proceeds to
repay or make an offer to purchase or repay and (ii) the denominator of which
is the sum of (a) the aggregate principal amount of all Notes issued
thereunder that are outstanding at the time of the offer to purchase or repay
with respect to the applicable Asset Sale and (b) the aggregate principal
amount or the aggregate accreted value, as the case may be, of all other
Indebtedness (other than Subordinated Indebtedness) of the Company outstanding
at the time of the applicable Asset Sale Offer with respect to which the
Company is required to use the applicable Excess Proceeds to offer to repay or
make an offer to purchase or repay.
"Permitted Holder" means any member of the Murdoch Family, The News
Corporation Limited, Haim Saban and their respective controlled Affiliates.
"Permitted Indebtedness" means, without duplication:
(a) Indebtedness of the Company evidenced by the Notes;
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(b) Indebtedness of the Company and Restricted Subsidiaries under the
Bank Facility in an aggregate principal amount at any one time outstanding
not to exceed $725 million, less any amounts permanently repaid in
accordance with the covenant described under "Disposition of Proceeds of
Asset Sales";
(c) Indebtedness of the Company or any Restricted Subsidiary outstanding
on the date of the Indenture;
(d) Indebtedness to third parties for the production of television
programming by one or more special purpose partnerships, corporations,
joint ventures or similar structures (in which any interest of the Company
or any of its Restricted Subsidiaries is held through a Special Purpose
Vehicle), the production decisions in respect of which are controlled by
the Company or a Restricted Subsidiary;
(e) Indebtedness consisting of the liabilities and obligations,
contingent or otherwise, incurred by the Company or its Restricted
Subsidiaries in the ordinary course of business (other than for borrowed
money) to acquire, produce, license or distribute television programming;
(f) Indebtedness of the Company or any Restricted Subsidiary of the
Company incurred in respect of performance bonds, bankers' acceptances and
letters of credit in the ordinary course of business, including
Indebtedness evidenced by letters of credit issued in the ordinary course
of business to support the insurance or self-insurance obligations of the
Company or any of its Restricted Subsidiaries (including to secure workers'
compensation and other similar insurance coverages), in the aggregate
amount not to exceed $10 million at any time; but excluding letters of
credit issued to secure money borrowed;
(g)(i) Interest Rate Protection Obligations of the Company covering
Indebtedness of the Company and (ii) Interest Rate Protection Obligations
of any Restricted Subsidiary covering Indebtedness of such Restricted
Subsidiary provided that, in the case of either clause (i) or (ii), the
notional principal amount of any such Interest Rate Protection Obligations
that exceeds the principal amount of the Indebtedness to which such
Interest Rate Protection Obligations relate is otherwise permitted to be
incurred under the Indenture;
(h) Indebtedness of the Company or any Restricted Subsidiaries under
Currency Agreements; provided that (x) such Currency Agreements relate to
Indebtedness or the purchase price of goods purchased or sold by the
Company or any Restricted Subsidiary in the ordinary course of its business
and (y) such Currency Agreements do not increase the Indebtedness or other
obligations of the Company or a Restricted Subsidiary outstanding other
than as a result of fluctuations in foreign currency exchange rates or by
reason of fees, indemnities and compensation payable thereunder;
(i) Indebtedness of a Restricted Subsidiary owed to and held by the
Company or another Restricted Subsidiary, except that (i) any transfer of
such Indebtedness by the Company or a Restricted Subsidiary (other than to
the Company or another Restricted Subsidiary) and (ii) the sale, transfer
or other disposition by the Company or any Restricted Subsidiary of the
Company of Capital Stock of a Restricted Subsidiary (other than to the
Company or a Restricted Subsidiary) which is owed Indebtedness of another
Restricted Subsidiary shall, in each case, be an incurrence of Indebtedness
by such Restricted Subsidiary subject to the other provisions of the
Indentures;
(j) Indebtedness of the Company owed to and held by a Restricted
Subsidiary which is unsecured and subordinated in right of payment to the
payment and performance of the obligations of the Company under the
Indentures and the Notes, except that (i) any transfer of such Indebtedness
by the Company or a Restricted Subsidiary (other than to another Restricted
Subsidiary) and (ii) the sale, transfer or other disposition by the Company
or any Restricted Subsidiary of the Company of Capital Stock of a
Restricted Subsidiary (other than to the Company or a Restricted
Subsidiary) which is owed Indebtedness of the Company shall, in each case,
be an incurrence of Indebtedness by the Company, subject to the other
provisions of the Indentures;
(k) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instruments inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within five business days of incurrence;
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(l) Indebtedness of the Company, in addition to that described in clauses
(a) through (k) of this definition, in an aggregate principal amount
outstanding at any time not to exceed $150 million;
(m) Indebtedness represented by obligations to purchase Capital Stock of
the Company pursuant to agreements, as in effect on the Issue Date, with
employees of the Company and its Restricted Subsidiaries upon the
termination of their employment in an aggregate principal amount not to
exceed $30 million during the term of the Indenture; and
(n) (i) Indebtedness of the Company the proceeds of which are used solely
to refinance (whether by amendment, renewal, extension or refunding)
Indebtedness of the Company or any of its Restricted Subsidiaries and (ii)
Indebtedness of any Restricted Subsidiary of the Company the proceeds of
which are used solely to refinance (whether by amendment, renewal,
extension or refunding) Indebtedness of any Restricted Subsidiary (in each
case other than the Indebtedness to be refinanced, redeemed or retired as
described under "Use of Proceeds" herein, and Indebtedness under clause (b)
or (g) through (m) of this definition); provided, however, that (x) the
principal amount of Indebtedness incurred pursuant to this clause (n) (or,
if such Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the
maturity thereof, the original issue price of such Indebtedness) shall not
exceed the sum of the principal amount of Indebtedness so refinanced, plus
the amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of such Indebtedness or the amount of any
premium reasonably determined by the Company as necessary to accomplish
such refinancing by means of a tender offer or privately negotiated
purchase, plus the amount of expenses in connection therewith, and (y) in
the case of Indebtedness incurred by the Company pursuant to this clause
(n) to refinance Subordinated Indebtedness, such Indebtedness (A) has no
scheduled principal payment prior to the 91st day after the Maturity Date,
(B) has an Average Life to Stated Maturity of the Notes and (C) is
subordinated to the Notes in the same manner and to the same extent that
the Subordinated Indebtedness being refinanced is subordinated to the
Notes.
"Permitted Investments" means any of the following: (i) Investments in the
Company or in a Restricted Subsidiary; (ii) Investments in another person, if
as a result of such Investment (A) such other person becomes a Restricted
Subsidiary or (B) such other person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to the Company or
a Restricted Subsidiary; (iii) Investments representing Capital Stock or
obligations issued to the Company or any of its Restricted Subsidiaries in
settlement of claims against any other person by reason of a composition or
readjustment of debt or a reorganization of any debtor of the Company or such
Restricted Subsidiary; (iv) Investments in Interest Rate Protection Agreements
on commercially reasonable terms entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business in connection with
the operations of the business of the Company or its Restricted Subsidiaries
to hedge against fluctuations in interest rates on its outstanding
Indebtedness; (v) Investments in the Notes; (vi) Investments in Cash
Equivalents; (vii) Investments acquired by the Company or any Restricted
Subsidiary in connection with an Asset Sale permitted under "--Certain
Covenants--Disposition of Proceeds of Asset Sales" to the extent such
Investments are non-cash proceeds as permitted under such covenant; (viii)
advances to employees or officers of the Company in the ordinary course of
business; (ix) any Investment to the extent that the consideration therefor is
Capital Stock (other than Redeemable Capital Stock) of the Company; and
(x) Investments in any person engaged in the Entertainment/Programming
Business not to exceed $65,000,000 at any time outstanding.
"Permitted Liens" means the following types of Liens:
(a) any Lien existing as of the date of the Indenture;
(b) Liens securing Indebtedness and other amounts owing under the Bank
Facility;
(c) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the Company or any Restricted Subsidiary, if such Lien does
not attach to any property or assets of the Company or any Restricted
Subsidiary other than the property or assets subject to the Lien prior to
such incurrence;
(d) Liens in favor of the Company or a Restricted Subsidiary;
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(e) Liens on and pledges of the Capital Stock of any Unrestricted
Subsidiary securing any Indebtedness of such Unrestricted Subsidiary;
(f) Liens for taxes, assessments or governmental charges or claims either
(i) not delinquent for 90 days or more or (ii) contested in good faith by
appropriate proceedings and as to which the Company or its Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(g) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent for
90 days or more or being contested in good faith and as to which reserves
or other appropriate provisions, if any, as shall be required by GAAP shall
have been made in respect thereof;
(h) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(i) judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which may
have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(j) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(k) any interest or title of a lessor or sublessor and any restriction or
encumbrance to which the interest or title of such lessor or sublessor may
be subject;
(l) purchase money Liens to finance property or assets of the Company or
any Restricted Subsidiary of the Company acquired in the ordinary course of
business; provided, however, that (i) the related purchase money
Indebtedness shall not be secured by any property or assets of the Company
or any Restricted Subsidiary of the Company other than the property and
assets so acquired and (ii) the Lien securing such Indebtedness shall be
created within 180 days of such acquisition;
(m) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(n) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and set-
off;
(o) Liens securing Interest Rate Protection Obligations which Interest
Rate Protection Obligations relate to Indebtedness that is secured by Liens
otherwise permitted under this Indenture;
(p) Liens on assets of Unrestricted Subsidiaries;
(q) Liens securing Capitalized Lease Obligations or incurred in
connection with Sale-Leaseback Transactions;
(r) Liens securing other Indebtedness in an aggregate amount not to
exceed 10% of the Company's Consolidated Net Tangible Assets as of the last
day of the Company's most recently completed fiscal period for which
financial information is available;
(s) Liens in favor of the Screen Actors Guild, the Writers Guild of
America, the Directors Guild of America or any other unions, guilds or
collective bargaining units under the collective bargaining agreements,
which Liens are incurred in the ordinary course of business solely to
secure the payment of residuals and other collective bargaining obligations
required to be paid by the Company or any of its Restricted Subsidiaries
under any such collective bargaining agreement;
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(t) Liens arising in connection with completion guarantees entered into
in the ordinary course of business and consistent with then current
industry practices, securing obligations (other than Indebtedness for
borrowed money) of the Company or any of its Restricted Subsidiaries not
yet due and payable;
(u) Liens in favor of suppliers and/or producers of any programming that
are incurred in the ordinary course of business solely to secure the
purchase price of such programming and such directly related rights or the
rendering of services necessary for the production of such programming;
provided, however, that no such Lien shall extend to or cover any property
or assets other than the programming and the rights directly related
thereto being so acquired or produced; and provided further that any
payment obligations secured by such Liens shall by their terms be payable
solely from the revenues that are derived directly from the exhibition,
syndication, exploitation, distribution or disposition of such item of
programming and/or such directly related rights;
(v) Liens upon any item of programming and rights directly relating
thereto in favor of distributors of such item of programming that are
incurred in each case in the ordinary course of business solely to secure
delivery of such item of programming and the licensing of the rights in
such item of programming directly related thereto; provided, however, that
no such Lien shall extend to or cover any property or assets other than the
item of programming being so delivered and the rights directly related
thereto; and provided further that any payment obligations secured by such
Liens shall by their terms be payable solely from the revenues that are
derived directly from the exhibition, syndication, exploitation,
distribution or disposition of such item of Product and/or such directly
related rights; and
(w) Liens on assets or Capital Stock of a Special Purpose Vehicle.
"person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock," as applied to any person, means Capital Stock of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such person, over
shares of Capital Stock of any other class of such person.
"principal amount at maturity" means, with respect to the Senior Discount
Notes, $1,000 per $1,000 face amount of Senior Discount Notes; provided,
however, that if the Company shall have made a Cash Interest Election, the
principal amount at maturity with respect to each Senior Discount Note shall
be the Accreted Value of such Senior Discount Note as of the Cash Interest
Election Date.
"Qualified Equity Interest" in a person means any interest in Capital Stock
of such person, other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is or upon the happening of an
event or passage of time would be, required to be redeemed prior to the
Maturity Date or is redeemable at the option of the holder thereof at any time
prior to the Maturity Date, or is convertible into or exchangeable for debt
securities at any time prior to the Maturity Date.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Restricted Subsidiary Indebtedness" means Indebtedness of any Restricted
Subsidiary (i) which is not subordinated to any other Indebtedness of such
Restricted Subsidiary and (ii) in respect of which the Company is not also
obligated (by means of a guarantee or otherwise) other than, in the case of
this clause (ii), Indebtedness under the Bank Facility.
"Sale-Leaseback Transaction" of any person means an arrangement with any
lender or investor or to which such lender or investor is a party providing
for the leasing by such person of any property or asset of such person
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which has been or is being sold or transferred by such Person after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any person to whom funds
have been or are to be advanced by such lender or investor on the security of
such property or asset. The stated maturity of such arrangement shall be the
date of the last payment of rent or any other amount due under such
arrangement prior to the first date on which such arrangement may be
terminated by the lessee without payment of a penalty.
"Significant Subsidiary" of any person means a Restricted Subsidiary of such
person which would be a significant subsidiary of such person as determined in
accordance with the definition in Section 210.1-02(w) of Regulation S-X
promulgated by the Commission and as in effect on the date of the Indenture.
"Special Purpose Vehicle" means a person which is, or was, established: (i)
with separate legal identity and limited liability; (ii) as an Affiliate of
the Company; and (iii) for the sole purpose of a single transaction, or series
of related transactions, and which has no assets and liabilities other than
those directly acquired or incurred in connection with such transaction(s).
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable, and when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness, or any installment of
interest thereon, is due and payable.
"Strategic Equity Investor" means a corporation or entity with an equity
market capitalization, a net asset value or annual revenues of at least $1.0
billion that primarily owns and operates businesses in the entertainment,
cable television, programming or similar or related industries.
"Subordinated Indebtedness" means, with respect to the Company, Indebtedness
of the Company which is expressly subordinated in right of payment to the
Notes.
"Subsidiary" means, with respect to any person, (i) a corporation at least
50% of whose Voting Stock is at the time, directly or indirectly, owned by
such person, by one or more Subsidiaries of such person or by such person and
one or more Subsidiaries thereof and (ii) any other person (other than a
corporation), including, without limitation, a partnership, limited liability
company, business trust or joint venture, in which such person, one or more
Subsidiaries thereof or such person and one or more Subsidiaries thereof,
directly or indirectly, at the date of determination thereof, has at least a
50% ownership interest entitled to vote in the election of directors, managers
or trustees thereof (or other person performing similar functions). For
purposes of this definition, any directors' qualifying shares or investments
by foreign nationals mandated by applicable law shall be disregarded in
determining the ownership of a Subsidiary.
"Unrestricted Subsidiary" means each Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under "--
Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries."
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least 50% of the board of directors, managers or trustees of any
person (irrespective of whether or not, at the time, stock of any other class
or classes shall have, or might have, voting power by reason of the happening
of any contingency).
BOOK-ENTRY; DELIVERY AND FORM
The Notes will be represented by a single, permanent global note in
definitive, fully registered book-entry form for each of the Senior Notes and
Senior Discount Notes (a "Global Security") which will be registered in the
name of a nominee of DTC and deposited on behalf of purchasers of the Notes
represented thereby with a custodian for DTC for credit to the respective
accounts of the purchasers (or to such other accounts as they may direct) at
DTC.
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The Global Securities. The Company expects that pursuant to procedures
established by DTC (a) upon deposit of the Global Securities, DTC or its
custodian will credit on its internal system portions of the Global Securities
which shall be comprised of the corresponding respective amounts of the Global
Securities to the respective accounts of persons who have accounts with such
depositary and (b) ownership of the Notes will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by DTC
or its nominee (with respect to interests of Participants (as defined below))
and the records of Participants (with respect to interests of persons other
than Participants). Ownership of beneficial interests in the Global Securities
will be limited to persons who have accounts with DTC ("Participants") or
persons who hold interests through Participants. Investors may hold their
interests in the Global Security directly through DTC if they are Participants
in such system, or indirectly through organizations which are Participants in
such system.
So long as DTC or its nominee is the registered owner or holder of any of
the Notes, DTC or such nominee will be considered the sole owner or holder of
such Notes represented by the Global Securities for all purposes under the
Indentures and under the Notes represented thereby. No beneficial owner of an
interest in the Global Securities will be able to transfer such interest
except in accordance with the applicable procedures of DTC in addition to
those provided for under the Indentures.
Payments of the principal of, premium, if any, and interest (including
Additional Interest) on the Notes represented by the Global Securities will be
made to DTC or its nominee, as the case may be, as the registered owner
thereof. None of the Company, the Trustee or any paying agent under the
Indenture will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
the principal of, premium, if any, and interest (including Additional
Interest) on the Notes represented by the Global Securities, will credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the Global Securities as shown in the
records of DTC or its nominee. The Company also expects that payments by
Participants to owners of beneficial interests in the Global Securities held
through such Participants will be governed by standing instructions and
customary practice as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payment
will be the responsibility of such Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a Certificated Security for any reason,
including to sell Notes to persons in states which require physical delivery
of such securities or to pledge such securities, such holder must transfer its
interest in the Global Securities in accordance with the normal procedures of
DTC and in accordance with the procedures set forth in the Indenture.
Any beneficial interest in one of the Global Securities that is transferred
to a person who takes delivery in the form of an interest in the other Global
Security will, upon transfer, cease to be an interest in such Global Security
and, accordingly, will thereafter be subject to all transfer restrictions, if
any, and other procedures applicable to beneficial interests in such other
Global Security with respect to the applicable notes for as long as it remains
such an interest.
DTC has advised the Company that DTC will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more Participants to whose
account the DTC interests in the Global Securities are credited and only in
respect of the aggregate principal amount as to which such Participant or
Participants has or have given such direction. However, if there is an Event
of Default under the Indenture, DTC will exchange the Global Securities for
Certificated Securities, which it will distribute to its Participants and
which will be legended as set forth under the heading "Notice to Investors."
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the
119
<PAGE>
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and facilitate the clearance and
settlement of securities transactions between Participants through electronic
book-entry changes in accounts of its Participants, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and
certain other organizations. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Global Securities among Participants
of DTC, it is under no obligation to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC, or its
respective direct or indirect participants of their respective obligations
under the rules and procedures governing their operations.
Certificated Securities. Interests in the Global Securities will be
exchanged for Certificated Securities if (i) DTC notifies the Company that it
is unwilling or unable to continue as depositary for the Global Securities, or
DTC ceases to be a "Clearing Agency" registered under the Exchange Act, and a
successor depositary is not appointed by the Company within 40 days, or (ii)
an Event of Default has occurred and is continuing with respect to the Notes.
Upon the occurrence of any of the events described in the preceding sentence,
the Company will cause the appropriate Certificated Securities to be
delivered.
120
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING SUMMARY OF THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES IS APPLICABLE IN ALL
MATERIAL RESPECTS TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE OLD NOTES.
UNLESS THE CONTEXT OTHERWISE REQUIRES, FOR PURPOSES OF THIS SUMMARY REFERENCES
TO THE "NOTES" ARE TO THE NOTES AND THE OLD NOTES, COLLECTIVELY, REFERENCES TO
THE "SENIOR NOTES" ARE TO THE SENIOR NOTES AND THE OLD SENIOR NOTES,
COLLECTIVELY, AND REFERENCES TO THE "SENIOR DISCOUNT NOTES" ARE TO THE SENIOR
DISCOUNT NOTES AND THE OLD SENIOR DISCOUNT NOTES, COLLECTIVELY.
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership and disposition of the Notes. It is
intended only as a descriptive summary and does not purport to be a complete
technical analysis or listing of all potential tax effects to Holders. Unless
otherwise stated, this summary only deals with Notes held as capital assets by
U.S. Holders (as defined herein) who purchased such Notes upon original
issuance at the issue price therefor. As used herein, "U.S. Holder" means a
beneficial owner of the Notes that is (a) an individual citizen or resident of
the United States or any political subdivision thereof, (b) a corporation or
partnership organized in or under the laws of the United States or a state,
(c) an estate the income of which is subject to United States federal income
taxation regardless of its source, or (d) a trust if (i) a court within the
United States is able to exercise primary supervision over the administration
of the trust and (ii) one or more United States persons have the authority to
control all substantial decisions of the trust. This discussion does not deal
with all classes of holders, such as banks, thrifts, real estate investment
trusts, regulated investment companies, dealers in securities or currencies,
tax-exempt investors, persons that have a functional currency other than the
U.S. dollar or persons that will hold the Notes as part of a "synthetic
security," "hedge," "straddle," "conversion transaction," or other than as a
capital asset. This summary is based upon the Internal Revenue Code of 1986,
as amended, Treasury Regulations thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. Prospective purchasers of the Notes
should consult with their tax advisors concerning issues including (i) the
application of United States federal income tax laws to them stemming from an
investment in the Notes, (ii) any consequences to them arising under the laws
of any other taxing jurisdiction, including, without limitation, the laws of
any state, local or foreign taxing jurisdiction, and (iii) the consequences of
purchasing the Notes at a price other than the issue price.
INTEREST
It is not expected that the Senior Notes will be issued with OID in excess
of a de minimis amount. Accordingly, interest on the Senior Notes will be
taxable to a U.S. Holder as ordinary interest income in accordance with the
U.S. Holder's method of tax accounting at the time that such interest is
accrued or (actually or constructively) received.
ORIGINAL ISSUE DISCOUNT
For United States federal income tax purposes, the Senior Discount Notes
will be considered to be issued with OID. The amount of OID will be the excess
of a Senior Discount Note's stated redemption price at maturity over its issue
price. The issue price of a Senior Discount Note will equal the first price at
which a substantial amount of the Senior Discount Notes are sold. The stated
redemption price at maturity of a Senior Discount Note will equal the amount
payable at maturity (i.e., 100% of the initial principal amount of the Senior
Discount Note) plus all stated interest thereon.
A U.S. Holder of a Senior Discount Note will be required to include OID in
its gross taxable income (as ordinary income) periodically over the term of
the Senior Discount Note before receipt of the cash attributable to such
income, using a constant yield method that takes into account the compounding
of interest. Such
121
<PAGE>
treatment will continue to apply whether or not the Company makes the Cash
Interest Election. The Company's exercise of the Cash Interest Election and
reduction of the principal amount at maturity of the Senior Discount Notes
will not represent a taxable event to a U.S. Holder of a Senior Discount Note.
The receipt of cash interest payments under a Senior Discount Note will not be
taxable to a holder; rather such payments will be treated as payments of OID
which will reduce the holder's adjusted tax basis in the Senior Discount Note.
The Company will furnish annually to the U.S. Internal Revenue Service and
to U.S. Holders (other than with respect to certain exempt holders, including,
in particular, corporations) information with respect to the OID accruing
while the Senior Discount Notes were held by the U.S. Holders. Such
information will be based on the accruals of OID as if the holder were the
original holder of the Senior Discount Note.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A U.S. Holder will recognize gain or loss equal to the difference between
the amount realized upon the sale, exchange or retirement of the Notes and the
U.S. Holder's adjusted tax basis in the Notes. A U.S. Holder's adjusted tax
basis in a Senior Discount Note will generally equal the issue price of such
Senior Discount Note, increased by the amount of any OID previously included
in income by such U.S. Holder with respect to such Senior Discount Note and
reduced by any principal and interest payments received by the U.S. Holder
with respect to such Senior Discount Note. Except with respect to accrued but
unpaid interest, such gain or loss will be capital gain or loss. Under the
recently enacted Taxpayer Relief Act of 1997, net capital gain (i.e.,
generally, capital gain in excess of capital loss) recognized by an individual
upon the sale or exchange of a capital asset that has been held for more than
18 months will generally be subject to tax at a rate not to exceed 20%. Net
capital gain recognized by an individual from the sale or exchange of a
capital asset that has been held for more than 12 months but not for more than
18 months will continue to be subject to tax at a rate not to exceed 28%, and
net capital gain recognized from the sale or exchange of a capital asset that
has been held for 12 months or less will continue to be subject to tax at
ordinary income tax rates. In addition, net capital gain recognized by a
corporate taxpayer will continue to be subject to tax at the ordinary income
tax rates applicable to corporations.
EXCHANGE OFFER
The exchange of Old Notes for Notes pursuant to the Exchange Offer will not
be taxable to the U.S. Holders of the Notes.
BACKUP WITHHOLDING
The backup withholding rules require the Company to deduct and withhold
federal income tax at the rate of 31% with respect to payments made to
noncorporate holders who are not otherwise exempt if (a) the holder fails to
furnish a taxpayer identification number ("TIN") to the Company, (b) the IRS
notifies the Company that the TIN furnished by the holder is incorrect, (c)
there has been notified payee underpaying, or (d) there has been payee
certification failure. Any amounts withheld from a payment to a holder under
the backup withholding rules will be allowed as a refund or credit against
such holder's federal income tax, provided that the required information is
furnished to the IRS.
NON-UNITED STATES HOLDERS
Payments of interest and OID on the Notes to a Holder who is not a U.S.
Holder (a "Non-U.S. Holder") may, if certain conditions are met, be exempt
from United States federal income tax, including withholding tax, unless the
interest and OID is effectively connected with the conduct of a trade or
business of the Non-U.S. Holder in the Untied States or, if a treaty applies,
the interest and OID is generally attributable to the United States permanent
establishment maintained by the Non-U.S. Holder.
A Non-U.S. Holder of the Notes will not be subject to United States federal
income tax, including withholding tax, on gain realized on the sale or other
disposition of the Notes unless (i) such gain is effectively connected with
the conduct by the Non-U.S. Holder of a trade or business within the United
States or, if a treaty applies, the gain is generally attributable to the
United States permanent establishment maintained by the Non-U.S. Holder, or
(ii) in the case of gain realized by an individual holder, the Holder is
present in the United States for at least 183 days in the taxable year of the
disposition and certain other conditions are met.
122
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives the Notes for its own account pursuant to
the Exchange Offer (a "Participating Broker") must acknowledge that it will
deliver a prospectus in connection with any resale of such Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker in connection with resales of the Notes
received in exchange for the Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. The Company
has agreed that for a period of 90 days after the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to any
Participating Broker for use in connection with any such resale. In addition,
until June 25, 1998 (90 days after the date of this Prospectus), all dealers
effecting transactions in the Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of the Notes by
broker-dealers. The Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Notes. Any broker-dealer that
resells Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Notes and any commissions
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that,
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any Participating Broker that requests such documents in
the Letter of Transmittal. The Company has agreed to pay all expenses incident
to the Exchange Offer (including the expenses of one counsel for the holders
of the Old Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the Old Notes (including any
Participating Broker) against certain liabilities, including liabilities under
the Securities Act.
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Squadron,
Ellenoff, Plesent & Sheinfeld, LLP, New York, New York. The Company has been
advised by Troop Meisinger Steuber & Pasich, LLP, Los Angeles, California and
Squadron, Ellenoff, Plesent & Sheinfeld, LLP, New York, New York with respect
to the Exchange Offer.
EXPERTS
The consolidated financial statements of Saban Entertainment, Inc. at May
31, 1995 and at October 31, 1995, and for the year 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 2, 1995
and October 29, 1995, and for the year ended July 2, 1995 and for the four
months ended October 29, 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.
123
<PAGE>
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 1997 and for
the eight months ended June 30, 1996 and for the year ended June 30, 1997,
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 International Family Entertainment,
Inc. at December 31, 1995 and 1996 and for each of the years in the three year
period ended December 31, 1996 have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm, as experts in accounting and auditing.
124
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
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.)
<S> <C>
Report of Independent Auditors.......................................... F-2
Combined Balance Sheets as of June 30, 1996 and 1997 and Consolidated
Balance Sheet as of December 31, 1997 (unaudited)...................... F-3
Combined Statements of Operations for the eight months ended June 30,
1996, for the year ended June 30, 1997 and for the six months ended
December 31, 1996 (unaudited) and Consolidated Statement of Operations
for the six months ended December 31, 1997 (unaudited)................. F-4
Combined Statements of Stockholders' Equity for the eight months ended
June 30, 1996, for the year ended June 30, 1997 and Consolidated
Statement of Stockholders' Equity for the six months ended December 31,
1997 (unaudited)....................................................... F-5
Combined Statements of Cash Flows for the eight months ended June 30,
1996 and for the year ended June 30, 1997 and for the six months ended
December 31, 1996 (unaudited) and Consolidated Statement of Cash Flows
for the six months ended December 31, 1997 (unaudited)................. F-6
Notes to Combined Financial Statements.................................. F-8
FCN HOLDING, INC.
Report of Independent Auditors.......................................... F-34
Consolidated Balance Sheets as of July 2, 1995 and October 31, 1995..... F-35
Consolidated Statements of Operations for the periods ended July 2, 1995
and October 31, 1995................................................... F-36
Consolidated Statements of Stockholder's Equity for the periods ended
July 2, 1995 and October 31, 1995...................................... F-37
Consolidated Statements of Cash Flows for the period ended July 2, 1995
and October 31, 1995................................................... F-38
Notes to Consolidated Financial Statements.............................. F-39
SABAN ENTERTAINMENT, INC.
Report of Independent Auditors.......................................... F-44
Consolidated Balance Sheets as of May 31, 1995 and October 31, 1995..... F-45
Consolidated Statements of Operations for the years ended May 31, 1995
and for the five months ended October 31, 1995......................... F-46
Consolidated Statements of Stockholders' Equity for the years ended May
31, 1995 and for the five months ended October 31, 1995................ F-47
Consolidated Statements of Cash Flows for the years ended May 31, 1995
and for the five months ended October 31, 1995......................... F-48
Notes to Consolidated Financial Statements.............................. F-49
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997
(unaudited)............................................................ F-59
Consolidated Statements of Operations for the six months ended June 30,
1996 and 1997 (unaudited).............................................. F-60
Consolidated Statements of Cash Flows for the six months ended June 30,
1996 and 1997 (unaudited).............................................. F-61
Notes to Consolidated Financial Statements (unaudited).................. F-62
Independent Auditors' Report............................................ F-66
Consolidated Balance Sheets as of December 31, 1995 and 1996............ F-67
Consolidated Statements of Operations for the years ended December 31,
1994, 1995 and 1996.................................................... F-68
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 ................................................... F-69
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996....................................... F-70
Notes to Consolidated Financial Statements.............................. F-71
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
FCN Holding, Inc., Saban Entertainment, Inc. and Fox Kids Worldwide, L.L.C.
We have audited 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 (Note 1), Fox Kids Worldwide, Inc.) as of June 30,
1996 and 1997 and the related combined statements of operations, stockholders
equity, and cash flows for the eight months ended June 30, 1996 and the year
ended June 30, 1997. 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 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.) at June 30,
1996 and 1997 and the combined results of their operations and their cash
flows for the eight months ended June 30, 1996 and the year ended June 30,
1997, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
September 29, 1997,
except for the 2nd, 3rd, 6th,
and 7th sentence of the 35th
paragraph of Note 1, as to
which the date is January 21,
1998.
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.)
BALANCE SHEETS
<TABLE>
<CAPTION>
COMBINED CONSOLIDATED
-------------------------- --------------
DECEMBER 31,
JUNE 30, JUNE 30, 1997
1996 1997 (UNAUDITED)
------------ ------------ --------------
<S> <C> <C> <C>
Assets
Cash and cash equivalents......... $ 16,044,000 $ 28,877,000 $ 55,409,000
Restricted cash................... 8,000,000 8,000,000 8,000,000
Accounts receivable, net of
allowance for doubtful accounts
of $1,690,000 (June 30, 1996) and
$1,410,000 (June 30, 1997 and
December 31, 1997)............... 53,106,000 63,316,000 166,406,000
Amounts receivable from related
parties.......................... 28,908,000 29,037,000 71,720,000
Income tax refund receivable...... -- -- 8,471,000
Programming costs, less
accumulated amortization......... 181,427,000 235,575,000 354,348,000
Property and equipment, at cost,
less accumulated depreciation.... 8,711,000 8,921,000 73,798,000
Deferred income taxes............. 27,023,000 17,651,000 32,478,000
Investment in and advances to
affiliates....................... -- 7,102,000 7,356,000
Assets held for sale, net......... -- -- 20,434,000
Intangible assets, less
accumulated amortization......... -- -- 1,656,515,000
Other assets, including $1,284,000
(June 30, 1997) associated with
related parties.................. 13,051,000 13,922,000 49,441,000
------------ ------------ --------------
Total assets...................... $336,270,000 $412,401,000 $2,504,376,000
============ ============ ==============
Liabilities and stockholders'
equity
Accounts payable (including
$3,088,000 (June 30, 1997) due to
related parties)................. $ 10,706,000 $ 19,481,000 $ 38,926,000
Accrued liabilities (including
$236,000 (June 30, 1996) and
$4,576,000 (June 30, 1997) due to
related parties)................. 27,733,000 42,991,000 127,998,000
Deferred revenue (including
$6,962,000 (June 30, 1997) from
related parties)................. 67,882,000 40,794,000 73,595,000
Fox Kids Network affiliate
participation payable............ 13,738,000 21,853,000 21,867,000
Accrued programming expenditures.. 15,179,000 9,796,000 72,456,000
Accrued residuals and
participations................... 22,040,000 24,028,000 36,576,000
Income taxes payable.............. 3,884,000 3,257,000 3,246,000
Deferred income taxes............. 790,000 1,250,000 5,091,000
Debt.............................. 19,916,000 57,592,000 640,745,000
Amounts payable to related
parties.......................... 81,571,000 58,672,000 --
Senior Notes...................... -- -- 475,000,000
Senior Discount Notes............. -- -- 381,853,000
NAHI Bridge Note.................. -- -- 102,471,000
Fox Subordinated Note............. -- -- 113,503,000
------------ ------------ --------------
Total liabilities................. 263,439,000 279,714,000 2,093,327,000
Commitments and contingencies
Series A Preferred Stock, $0.001
par value; 500,000 shares
authorized; 345,000 shares issued
and outstanding ($1,000 per share
liquidation value)............... -- -- 345,000,000
Stockholders' equity: -- -- --
Preferred Stock, $0.001 par
value; 19,500,000 shares
authorized; no shares issued or
outstanding.................... -- -- --
Preferred class A members
interest....................... 40,000,000 50,000,000 --
Common stock, $.01 par value:
10,000 shares authorized
800 shares issued and
outstanding (Saban
Entertainment, Inc.)......... -- -- --
Common stock, no par value:
2,000 (June 30, 1996) and
1,000 (June 30, 1997) shares
authorized
2,000 (June 30, 1996) and
816.16 (June 30, 1997) shares
issued and outstanding (FCN
Holding, Inc.)............... 2,000 800 --
Class A Common Stock, $0.001 par
value; 16,000,000 shares
authorized; 160,000 shares
issued and outstanding......... -- -- 160
Class B Common Stock, $0.001 par
value; 16,000,000 shares
authorized; 15,840,000 shares
issued and outstanding......... 15,840
Contributed capital............. 49,245,000 59,454,200 61,032,000
Cumulative translation
adjustment..................... (11,000) (803,000) (416,000)
Retained (deficit) earnings..... (16,405,000) 24,035,000 5,417,000
------------ ------------ --------------
Total stockholders' equity........ 72,831,000 132,687,000 66,049,000
------------ ------------ --------------
Total liabilities and
stockholders' equity............. $336,270,000 $412,401,000 $2,504,376,000
============ ============ ==============
</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.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
COMBINED CONSOLIDATED
----------------------------------------- -------------
SIX MONTHS SIX MONTHS
ENDED ENDED
EIGHT MONTHS DECEMBER 31, DECEMBER 31,
ENDED JUNE 30, YEAR ENDED 1996 1997
1996 JUNE 30, 1997 (UNAUDITED) (UNAUDITED)
-------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net revenues (including
$5,498,000 (1996) and
$21,316,000 (1997) from
related parties)....... $191,621,000 $307,820,000 $173,790,000 $ 332,971,000
Costs and expenses:
Production and
programming
(including $4,301,000
(1997) to a related
party)............... 98,937,000 180,381,000 96,802,000 195,297,000
Selling, general and
administrative
(including $1,114,000
(1996) and $2,322,000
(1997) to a related
party)............... 23,072,000 62,466,000 26,832,000 62,435,000
Fox Kids Network
affiliate
participations....... 8,853,000 6,194,000 7,073,000 165,000
Amortization of
intangible assets ... -- -- -- 17,436,000
------------ ------------ ------------ -------------
Operating income........ 60,759,000 58,779,000 43,083,000 57,638,000
Investment advisory
fee.................... 10,000,000 -- -- --
Equity in loss of
unconsolidated
affiliate.............. -- 1,546,000 -- 2,388,000
Other expense........... -- -- -- 62,000
Interest expense
(including $170,000
(1996) and $854,000
(1997) to a related
party)................. 885,000 2,226,000 1,528,000 58,388,000
------------ ------------ ------------ -------------
Income (loss) before
provision for income
taxes.................. 49,874,000 55,007,000 41,555,000 (3,200,000)
Provision for income
taxes.................. 18,274,000 14,567,000 11,515,000 2,403,000
------------ ------------ ------------ -------------
Net income (loss)....... $ 31,600,000 $ 40,440,000 $ 30,040,000 $ (5,603,000)
============ ============ ============ =============
Net income (loss)
attributable to common
shareholders........... $ 31,600,000 $ 40,440,000 $ 30,040,000 $ (18,618,000)
============ ============ ============ =============
Net income (loss) per
common share basic and
diluted................ $ 1.98 $ 2.53 $ 1.88 $ (1.16)
============ ============ ============ =============
Weighted average shares
outstanding basic and
diluted................ 16,000,000 16,000,000 16,000,000 16,000,000
============ ============ ============ =============
</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.)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED CLASS A
MEMBERS INTEREST COMMON STOCK CUMULATIVE RETAINED
------------------ ------------------- CONTRIBUTED TRANSLATION EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT (DEFICIT) TOTAL
------ ----------- ---------- ------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at November 1, 1995
(combined)................ -- $ -- 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
Preferred Class A Members
Interest................. -- 40,000,000 -- -- -- -- (40,000,000) --
--- ----------- ---------- ------- ----------- --------- ----------- ------------
Balance at June 30, 1996
(combined)................ -- 40,000,000 2,800 2,000 49,245,000 (11,000) (16,405,000) 72,831,000
Issuance of Preferred
Class A Members
Interest................. -- 10,000,000 -- -- -- -- -- 10,000,000
Capital contribution...... (1,183.84) (1,200) 1,200
Capital contributions..... -- -- -- -- 5,376,000 -- -- 5,376,000
Exchange loss on
translation of foreign
subsidiaries' financial
statements............... -- -- -- -- -- (792,000) -- (792,000)
Related party tax
obligation............... -- -- -- -- 4,832,000 -- -- 4,832,000
Net income................ -- -- -- -- -- -- 40,440,000 40,440,000
--- ----------- ---------- ------- ----------- --------- ----------- ------------
Balance at June 30, 1997
(combined)................ -- $50,000,000 1,616.16 $ 800 $59,454,200 $(803,000) $24,035,000 $132,687,000
Transactions related to
the reorganization:
Exchange of Preferred
Class A Members
Interest................ (50,000,000) (50,000,000)
Issuance of Class A
Common Stock............ 160,000 160 160
Issuance of Class B
Common Stock............ 15,840,000 15,840 (5,200) 10,640
Exchange of Common
Stock................... (1,616.16) (800) (800)
Capital contributions..... 1,583,000 1,583,000
Exchange loss on
translation of foreign
subsidiaries' financial
statements............... 387,000 387,000
Dividends on Series A
Preferred Stock.......... (13,015,000) (13,015,000)
Net loss.................. (5,603,000) (5,603,000)
--- ----------- ---------- ------- ----------- --------- ----------- ------------
Balance at December 31,
1997
(consolidated)(unaudited).. $ -- 16,000,000 $16,000 $61,032,000 $(416,000) $ 5,417,000 $ 66,049,000
=== =========== ========== ======= =========== ========= =========== ============
</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.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
COMBINED CONSOLIDATED
---------------------------------------------------- -----------------
EIGHT MONTHS YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
ENDED JUNE 30, 1996 JUNE 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- ------------- ----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $ 31,600,000 $ 40,440,000 $ 30,040,000 $ (5,603,000)
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Amortization of
programming costs..... 83,485,000 144,713,000 75,383,000 158,427,000
Depreciation........... 1,585,000 3,226,000 1,501,000 6,043,000
Amortization of
intangible assets..... -- -- -- 17,436,000
Cumulative translation
adjustment............ (57,000) (792,000) 146,000 387,000
Equity in loss of
unconsolidated
affiliate............. -- 1,546,000 -- 2,388,000
Investment advisory
fee................... 10,000,000 -- -- --
Non-cash interest
expense............... -- -- -- 19,320,000
Changes in operating
assets and
liabilities:
Accounts receivable.. 16,035,000 (10,210,000) (11,824,000) (36,882,000)
Amounts receivable
from related
parties............. (11,791,000) 3,860,000 25,936,000 (42,174,000)
Income tax refund
receivable.......... -- -- -- (8,471,000)
Additions to
programming costs... (113,506,000) (198,861,000) (101,220,000) (139,614,000)
Other assets......... 2,194,000 (872,000) (903,000) (22,725,000)
Accounts payable..... (5,495,000) 8,775,000 2,990,000 (1,612,000)
Accrued liabilities.. (2,290,000) 15,259,000 6,144,000 19,027,000
Accrued residuals and
participations...... 5,771,000 1,988,000 734,000 12,075,000
Administration fee
payable to a related
party............... (6,173,000) (769,000) 2,018,000 --
Income taxes payable
and deferred income
taxes............... (9,583,000) 14,038,000 8,944,000 9,460,000
Deferred revenue..... 23,437,000 (27,088,000) (37,217,000) 14,359,000
Fox Kids Network
affiliate
participation
payable............. (4,682,000) 8,115,000 7,073,000 14,000
Accrued programming
expenditures........ (4,637,000) (5,383,000) (2,867,000) (17,766,000)
------------ ------------ ------------ ---------------
Net cash (used in)
provided by operating
activities............. 15,893,000 (2,015,000) 6,878,000 (15,911,000)
INVESTING ACTIVITIES
Purchase of property and
equipment.............. (3,053,000) (3,435,000) (1,667,000) (4,504,000)
Proceeds from sale of
property and
equipment.............. -- -- -- 1,100,000
Acquisition of
programming rights..... (7,200,000) (4,800,000) -- --
Acquisition of
Creativite &
Developpement SA....... (1,722,000) (176,000) -- --
Acquisition of TV10..... -- (8,648,000) -- (950,000)
Acquisition of
International Family
Entertainment, Inc.,
net of preferred
stock.................. -- -- -- (1,369,918,000)
Sale of marketable
securities............. -- -- -- 61,396,000
Increase in assets held
for sale............... -- -- -- (42,595,000)
Increase in restricted
cash................... (3,000,000) -- -- --
Cash acquired in
acquisition of
Creativite &
Developpement SA....... 3,151,000 -- -- --
Cash acquired in deemed
acquisition of Saban
Entertainment, Inc..... 16,207,000 -- -- --
Cash acquired in
acquisition of
International Family
Entertainment, Inc. ... -- -- -- 19,241,000
------------ ------------ ------------ ---------------
Net cash (used in)
provided by investing
activities............. 4,383,000 (17,059,000) (1,667,000) (1,336,230,000)
FINANCING ACTIVITIES
Proceeds from bank
borrowings............. 15,880,000 52,569,000 9,145,000 1,281,674,000
Payments on bank
borrowings............. (11,606,000) (9,917,000) (1,968,000) (835,906,000)
Payment to a related
party for a stock
purchase option........ (80,100,000) -- -- --
Dividends on preferred
stock.................. -- -- -- (13,015,000)
Proceeds from issuance
of Preferred Class A
Members interest....... -- 10,000,000 10,000,000 --
Proceeds from NAHI
Bridge loan............ -- -- -- 345,514,000
Paydown on NAHI Bridge
Loan................... -- -- -- (250,679,000)
Issuance of Senior
Notes.................. -- -- -- 475,000,000
Issuance of Senior
Discount Notes......... -- -- -- 375,001,000
Issuance of common
stock.................. -- -- -- 10,000
Advances from related
parties................ 67,967,000 (20,285,000) (21,888,000) 1,074,000
Capital contributions
from related parties... 3,310,000 -- -- --
Capital distribution to
related party.......... -- (460,000) -- --
------------ ------------ ------------ ---------------
Net cash provided by
(used in) financing
activities............. (4,549,000) 31,907,000 (4,711,000) 1,378,673,000
------------ ------------ ------------ ---------------
Increase in cash and
cash equivalents....... 15,727,000 12,833,000 500,000 26,532,000
Cash and cash
equivalents at
beginning of period.... 317,000 16,044,000 16,044,000 28,877,000
------------ ------------ ------------ ---------------
$ 16,044,000 $ 28,877,000 $ 16,544,000 $ 55,409,000
============ ============ ============ ===============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION
Cash paid during the
period for:
Interest (net of
amounts
capitalized).......... $ 414,000 $ 1,466,000 $ 458,000 $ 22,994,000
============ ============ ============ ===============
Income taxes........... $ 27,796,000 $ 3,553,000 $ 2,571,000 $ 1,086,000
============ ============ ============ ===============
</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.)
STATEMENTS OF CASH FLOW--(CONTINUED)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTMENT ACTIVITIES
Eight months ended June 30, 1996
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 L.L.C.
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 capital by the related party.
Year ended June 30, 1997
Amounts payable to a related party of $5,835,000 were forgiven and recorded
as contributed capital.
The Company recorded $4,832,000 arising under a tax sharing obligation which
was deemed to be contributed capital by the related party.
Six months ended December 31, 1997
Amounts payable to a related party of $1,583,000 were forgiven and recorded
to contributed capital.
The Company issued a subordinated note to Fox Broadcasting ("FOX") in the
amount of $108,672,000 in exchange for FOX's $50,000,000 preferred Class A
members interest in the LLC, its $50,000,000 contingent note receivable and
certain other Company obligations.
Preferred stock in the amount of $345,000,000 was issued in connection with
the acquisition of International Family Entertainment, Inc.
Interest of $4,831,000, $7,636,000 and $6,852,000 was accreted on the Fox
Subordinated Note, NAHI Bridge Note, and Senior Discount Notes, respectively,
during the period.
See accompanying notes.
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
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
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 a joint venture, Fox Kids
Worldwide, L.L.C. (the LLC), a limited liability company, for the purpose of
jointly expanding the worldwide children's' 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. On August 1, 1997, a reorganization (the Reorganization)
referred to below was effected pursuant to which Saban, FCN Holding and the
LLC became wholly-owned subsidiaries of Fox Kids Worldwide, Inc. (Fox Kids
Worldwide or the Company). As a result of the formation of the joint venture
and the common management of the joint venture businesses, the respective
assets, liabilities and operations of Saban, FCN Holding and the LLC have been
combined at historical cost from and after the Effective Date. The combined
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 Holdings (after giving effect to such combination as of the
Effective Date).
The combined financial statements of the Company include the balance sheets
of FCN Holding, Saban and the LLC at June 30, 1996 and 1997 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 1997 and eight month period ended May 31,
1996 and 1997. Unaudited pro forma combined statements of operations for the
period from July 3, 1995 to June 30, 1996, which combine 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
JULY 3, 1995 TO
JUNE 30, 1996
---------------
<S> <C>
Pro forma revenues..................... $327,105,000
Pro forma net income................... $ 71,370,000
</TABLE>
The Company is an integrated global children's and family entertainment
company, which develops, acquires, produces, broadcasts and distributes
quality television programming. The Company's principal operations are
comprised of (i) Saban, whose library of over 5,300 half-hours of completed
and in-production children's programming is among the largest in the world,
(ii) the Fox Children's Network, Inc. (FCN), the-top-rated children's (ages 2-
11) oriented broadcast television network in the United States, and (iii) a
growing business of Fox Kids-branded cable and direct-to-home (DTH) satellite
international channels operating in approximately 25 countries worldwide. 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 August 1996 as a holding company of
FCN Holding, Saban and the LLC. Between August 1996 and August 1997, the
Company conducted no business or operations. On August 1, 1997, in connection
with the Company's acquisition of a controlling interest in International
Family Entertainment, Inc. (IFE), see Note 12, (i) Fox Broadcasting Sub, Inc,
Inc., a wholly-owned indirect subsidiary of Fox Broadcasting ("Fox
Broadcasting Sub"), exchanged its capital stock in FCN Holding, which
indirectly owns FCN, for 7,920,000 shares of Class B Common stock of the
Company, (ii) the other stockholder of
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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
FCN Holding exchanged its capital stock in FCN Holding for an aggregate of
160,000 shares of Class A Common Stock of the Company, (iii) Haim Saban and
the other stockholders of Saban (together, the "Saban Stockholders") exchanged
their capital stock of Saban for an aggregate of 7,920,000 shares of the Class
B Common Stock of the Company, and (iv) all outstanding management options to
purchase Saban capital stock became options to purchase an aggregate of
646,548 shares of the Class A Common Stock of the Company. In addition, as
described more fully below under Other Related Party Transactions --the "FBC
Subordinated Note," Fox Broadcasting exchanged its preferred, non-voting
interest in the LLC and its $50 million contingent note receivable from the
LLC for a new $108.6 million subordinated pay in kind note from the Company
due March 2008 bearing interest at 11.8%. As a result of these transactions,
which are referred to as the "Reorganization," FCN Holding, FCN, Saban and the
LLC became direct or indirect wholly-owned subsidiaries of the Company.
Acquisition of International Family Entertainment, Inc.
On August 1, 1997, the Company acquired a 50.7% interest in IFE through the
purchase for $35.00 per share of the stock owned by M.G. "Pat" Robertson, Tim
Robertson and certain trusts of which they are trustees, The Christian
Broadcasting Network, Inc. ("CBN") and Regent University (together, the
"Privately Owned Shares") and the exchange by Liberty IFE, Inc. ("Liberty
IFE") of all of the IFE stock owned by it and $23 million principal amount of
6% Convertible Secured Notes due 2004 of IFE (the "Convertible Notes") (which
have since been retired) for shares of Series A Preferred Stock of the
Company. On September 4, 1997, the Company consummated a merger to acquire the
remaining shares of IFE from the public shareholders. Total consideration for
the IFE Acquisition was approximately $1.9 billion including assumption of
liabilities. The Company paid approximately $545 million for the Privately
Owned Shares and issued $345 million of its Series A Preferred Stock to
Liberty IFE as payment for the IFE stock and the Notes. The balance of the
consideration was paid to acquire the publicly traded shares through the
merger, to cash out existing options to acquire shares of IFE stock held by
IFE senior executives and employees, and to assume IFE's existing bank debt,
which has since been retired.
The Company financed the IFE Acquisition, in part, by borrowing $1.25
billion pursuant to the Existing Credit Facility as described below. On August
1, 1997, the Company borrowed $602 million under the Existing Credit Facility
to finance the purchase price of the Privately Owned Shares (and to refinance
certain indebtedness of Saban outstanding on the closing date of the
acquisition of the Privately Owned Shares). On September 4, 1997, the Company
borrowed $648 million under the Existing Credit Facility in order to finance
in part the cash consideration payable to the remaining former public holders
of the outstanding shares of IFE stock for their shares in the merger, to cash
out existing options held by IFE senior executives and employees, to refinance
certain indebtedness of IFE and to pay certain related fees and expenses.
IFE historically operated in three business segments: the operation of
advertiser-supported cable networks ("Cable Networks"), the production and
distribution of entertainment programming ("Production & Distribution"), and
the production of live entertainment shows ("Live Entertainment"). The Company
contemplates that it will continue to operate IFE's The Family Channel as the
Fox Family Channel but will sell all of IFE's interests in its other cable and
international networks not directly related to The Family Channel. In
addition, the Company intends to sell IFE's Production and Distribution and
Live Entertainment businesses.
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
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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
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 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 broadcasting operations
(including 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
material included or used in connection with any of the programs exhibited 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. Concurrently, 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. 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 Preferred 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 expense of $1,467,000
and $2,200,000 for the eight months ended June 30, 1996 and the twelve months
ended June 30, 1997, respectively. 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 and 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.
For the year ended June 30, 1997 such amounts totaled $20,508,000 and was
recorded as a decrease in expenses.
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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
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 (as defined below) of the LLC before any
distributions are made on the Class A and Class B Members Interest.
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 above, in September 1996, Fox Broadcasting
purchased, for $10 million cash, an additional $10 million of Class A Members
Interest. In connection with the Reorganization, Fox Broadcasting contributed
to the Company, pursuant to an Agreement regarding Transfer of LLC Interests,
the note receivable from the LLC representing the $50 million remainder of the
loan and the Class A Members Interest in exchange for a note from the Company
(see Other Related Party Transactions--the "Fox Subordinated Note"). The $40
million difference between the carrying value of the Class A Members Interest
and the liquidation value has been 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 Class B Common Stock held by the
stockholders of Saban, and any of their transferees (Stock Ownership
Agreement). The option 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, 2000) from Haim Saban of his desire to cause Fox Broadcasting
to purchase all of the shares of Class B Common Stock held by the former
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. In September 1996 the LLC distributed the Stock Ownership Agreement
to FCN Holding, which immediately distributed that agreement to Fox
Broadcasting Sub.
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. The
parties to the Strategic Stockholders Agreement also agreed to provide Haim
Saban and the Saban Stockholders and Fox Broadcasting certain registration
rights. On August 1, 1997, the Strategic Stockholders Agreement was amended
and restated to add provisions regarding voting rights between Fox
Broadcasting and the former Saban Stockholders.
As part of the Amended and Restated Strategic Stockholders Agreement, dated
August 1, 1997, Haim Saban agreed with Fox Broadcasting Sub as follows: if the
Company is unable to meet its obligations (i) to pay any dividend under the
terms of the Series A Preferred Stock or to redeem the Series A Preferred
Stock, (ii) under its lease of 10960 Wilshire Boulevard, Los Angeles,
California, or any obligation guaranteed by The News Corporation Limited (News
Corp.), the parent of Fox Broadcasting, or (iii) under the Funding Agreement
dated
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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
as of June 11, 1997, and either News Corp. or News Publishing Australia
Limited ("NPAL") provides funds to the Company, the advance shall be treated
as a loan, or if Citicorp USA, Inc., in its sole discretion, as administrative
agent under the Existing Credit Facility, determines it is unacceptable to
treat the advance as a loan, the advance will be treated as preferred stock.
To the extent the advance is treated as a loan and the amount exceeds $50
million, if the advance is not repaid after 18 months (or 12 months for all
advances after the third anniversary of the agreement), all or any portion of
the advance in excess of $50 million may be converted into shares of Class B
Common Stock. If Fox Broadcasting Sub elects to convert any portion of the
advance into Class B Common Stock, Haim Sabam shall have the right to purchase
from Fox Broadcasting Sub up to 50% of the number of shares of Class B Common
Stock issued pursuant to the conversion.
If instead, the advance is treated as preferred stock, the first $50 million
of the advance shall be applied to the issuance of shares of Series B
Preferred Stock, and the remainder of the advance shall be applied to the
issuance of Series C Convertible Preferred Stock which is convertible into
Class B Common Stock at the election of the holder. The Series B and Series C
Preferred Stock shall be entitled to dividends at an annual rate of 11.7% of
its liquidation preference. Each of the Series B and Series C Preferred Stock
shall have a liquidation preference equal to $100,000 per share. The Series B
and Series C Preferred Stock shall be entitled to dividends at an annual rate
of 11.7% of its liquidation value. If Fox Broadcasting Sub elects to convert
the Series C Convertible Preferred Stock into Class B Common Stock, Haim Saban
shall have the right to purchase up to 50% of the number of shares of Class B
Common Stock issued pursuant to the conversion. Notwithstanding the
agreements, News Corp. has no obligation to make any advances, and the Company
has no obligation to accept any amounts from News Corp.
Other Related Party Transactions
Receivables from related parties include advances of $1,329,000 at June 30,
1996 and 1997 to certain non-stockholder officers and directors of the
Company.
The Company distributes product to related parties in the normal course of
business, and accordingly, included in Amounts Receivable from Related Parties
are $3,119,000 (1996) and $12,965,000 (1997) due from those related parties.
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 and 1997-1998 broadcast
season for the Saban Kids Network. Fox Broadcasting's services 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 for the 1996-1997
broadcast season and $840,000 for the 1997-1998 broadcast season.
Related companies of Fox Broadcasting have funded certain of the operations
of the Company from its inception through loans to the Company. Amounts due to
the related companies of Fox Broadcasting in connection therewith, including
interest, totaled $7,071,000 and $8,672,000 at June 30, 1996 and 1997,
respectively.
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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
In October 1996, the Company commenced operations of Fox Kids U.K., a cable
and satellite channel broadcasting from 6 a.m. to 7 p.m. each day. The channel
is currently broadcast via analogue transponder. The channel is distributed as
part of British Sky Broadcasting, Group plc's ("BSkyB") Sky Multichannels DTH
package in the United Kingdom and the 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 U.K. channel is also distributed via cable over a number
of systems, the largest of which are the systems operated by Comcast.
Discussions are also at an advanced stage with other major cable operators.
However, due to lack of capacity and the pre-existence of four other
children's channels, carriage is not guaranteed. As part of its agreement with
BSkyB, the Company acquired for approximately $3.7 million, all of BSkyB's
United Kingdom license rights to children's programming which had been
acquired for broadcast by BSkyB prior to the launch of this channel.
Additionally, as part of the agreement with BSkyB, the Company has entered
into an analog transponder sublease agreement whereby the Company will lease
the analog transponder from BSkyB through February 1, 2001 subject to
extension in certain circumstances requiring a financial commitment of
approximately $28,188,000. The Company has also entered into a digital
transponder and uplink sublease agreement with BSkyB whereby the Company will
lease the digital transponder from BSkyB for eight years from the analog
launch date requiring an annual financial commitment of approximately
$1,115,000 per channel subject to reduction in certain circumstances. Further,
as part of this arrangement with BSkyB, BSkyB shall provide support services
for the sale by the Company of programming sponsorship, advertising and other
air-time for broadcast on the channel as well as other operational and
facilities support services. In consideration for the services being provided
to the Company, BSkyB shall be entitled to receive a fee equal to 15% of Net
Revenue, as defined in the agreement, plus a 5% bonus commission where Net
Revenue exceeds mutually pre-agreed annual targets plus an annual fee of
approximately $326,000, subject to adjustment in certain circumstances.
In November 1996, the Company launched Fox Kids Latin America ("FKLA"), a
Fox Kids branded pan-regional Latin American channel, which simultaneously
broadcasts animated and live-action programming in Spanish, Portuguese and
English. The Company has entered into a cost sharing arrangement for employees
and service support in connection with the operation of the channel with Canal
Fox, a related party. The Company believes that such arrangement for employees
and service support are at rates which approximate fair market value.
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 assigned to the
Company. Foxtel is a 50/50 partnership between News Corp. and the Australian
telephone company, Telstra.
From time to time, Saban has loaned and advanced funds to Haim Saban. 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. 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
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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
charter hours during a twelve month period. For the eight months ended June
30, 1996 and the twelve months ended June 30, 1997, Saban has paid
approximately $370,000 and $875,000, respectively, 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 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. The
Company currently intends to extend this relationship. At June 30, 1996 and
1997, the Company was due $500,000 under this agreement.
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. 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 neither
are used as opening or closing themes nor constitute more than 15% of the
total musical content of any program or episode, without Mr. 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, and 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. For
the year ended June 30, 1997, Mr. Saban paid approximately $374,000 to Saban
for reimbursement of costs to Saban. For the eight months ended June 30, 1996,
Mr. Saban made no payments for reimbursement of costs to Saban. At June 30,
1996, Saban owed Mr. Saban approximately $262,000 pursuant to the Music
Agreement. At June 30, 1997, approximately $211,000 was owed to Saban by Mr.
Saban pursuant to the Music Agreement.
Saban is party to an agreement with Fox Family Films, Inc. ("Distributor")
for the distribution in Spring 1997 of Turbo: A Power Rangers Movie, a "PG-
rated" sequel to the original Mighty Morphin Power Rangers motion picture (the
"Sequel"), which was released theatrically in the United States in Spring 1997
and in home video in late Summer 1997. Under the terms of the agreement, Saban
produced and delivered the Sequel to Distributor for worldwide distribution
and granted to Distributor all rights necessary to advertise, promote,
publicize and distribute the Sequel. Distributor will hold in perpetuity
worldwide theatrical, non-theatrical, home video, and television rights in the
movie (except for the territories of Japan and certain Asian territories and
Israel). Saban will hold the copyright to the Sequel as well as certain rights
including, without limitation, merchandising, television series, stage,
publication, radio, theme park and touring, music publishing and soundtrack.
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.
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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
In October 1997, the Company reached an agreement in principle with
Fox/Liberty Networks, LLC a joint venture between News Corp. and Liberty Media
Corporation, a wholly owned subsidiary of Tele-Communications, Inc., to sell a
majority ownership interest in Fit TV to Fox/Liberty Networks, LLC. The
Company acquired Fit TV in September 1997 as part of the IFE Acquisition.
In January 1997, the Company obtained from Fox Television, a division of
Fox, Inc. ("Fox Television"), distribution rights to the New World
Communications Group Incorporated's ("New World") animation library of
children's programming, which Fox Television acquired as part of its purchase
of New World. During the year ended June 30, 1997, the Company spent
approximately $726,000 in distribution costs in connection with this product
which will be recoupable against New World's share of revenues. At June 30,
1997, such amount is included in accounts receivable from related parties. The
Company is in discussions with FOX Television to acquire the New World
animation library.
In October 1997, the Company entered into an interim agreement with
Twentieth Century Fox Film Corp. ("Twentieth Century Fox"), pursuant to which
Twentieth Century Fox will distribute the programming library of MTM
Entertainment, one of the assets acquired in the IFE Acquisition. The Company
is in discussions with Twentieth Century Fox to sell MTM to Twentieth Century
Fox.
As part of the Reorganization, on July 31, 1997, the Company issued a
subordinated promissory pay in kind note (the "Fox Subordinated Note") to Fox
Broadcasting in the principal amount of approximately $104 million, which
amount will be increased to $108.6 million (exclusive of any capitalized
interest) and which is to be repaid in May 2008. The parties recently have
agreed to restate the Fox Subordinated Note to reflect a change in the
interest rate, effective as of the date of issuance. As restated, interest on
the Fox Subordinated Note will accrete quarterly at the rate of 10.427% per
annum. At any time after the Existing Credit Facility or the Amended Credit
Facility, as applicable, has been paid in full, the Company may prepay the Fox
Subordinated Note in whole or in part, subject to the terms of the Indentures.
On August 29, 1997, in connection with the IFE Acquisition, the Company issued
a subordinated promissory pay in kind note to News America Holdings
Incorporated (the "NAHI Bridge Note"), upon substantially the same terms and
conditions as the Fox Subordinated Note including maturity dates, except that
the NAHI Bridge Note has a principal amount of $345.5 million. The parties
recently have agreed to restate the NAHI Bridge Note to reflect a change in
the interest rate, effective as of the date of issuance. As restated, the NAHI
Bridge Note will accrete interest at a rate of approximately 10.427% per
annum. The payment of principal and interest under both the Fox Subordinated
Note and the NAHI Bridge Note is subordinated in right to the obligations of
the Company under the Existing Credit Facility.
On August 1, 1997, Saban entered into an amendment to the lease for its
corporate headquarters at 10960 Wilshire Boulevard in Los Angeles (the
original lease dated July 17, 1995 together with the amendment, the "Lease").
The amendment provides for an annual base rent for the entire premises of
$620,505 through February 15, 2002 and $676,915 from February 16, 2002 through
March 31, 2006. Pursuant to a Guaranty of Lease entered into on August 1, 1997
(the "Guaranty"), News Corp. and NPAL have guaranteed certain of Saban's
obligations under the Lease. The Guaranty continues until Saban has paid all
obligations due under the Lease. Under the Guaranty, News Corp. and NPAL are
liable, jointly and severally, for any amounts not paid by Saban. News Corp.'s
and NPAL's aggregate liability under the Guaranty is limited to approximately
$8.6 million, to be reduced annually over five years on a straight-line basis.
In May 1996, Saban entered into an agreement in principle with Fox Video
(the "Fox Video Agreement") for the production and distribution of a live-
action feature film for the home video market based upon the
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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
animated character of Casper (the "Film") which was released by Fox Video in
the United States on September 9, 1997. The distribution term runs through
September 8, 2004. Pursuant to the Fox Video Agreement, Saban developed,
produced and delivered the Film to Fox Video. Saban has the right and
obligation to market, distribute (for no fee) 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 (for no fee)
and exploit the Film in home video formats, and will release the Film in major
international territories during the next six months. Saban and Fox Video each
contributed 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.
In August 1996, Fox Video and Saban entered into a Home Video Rights
Acquisition Agreement pursuant to which Saban granted to Fox Video the
exclusive home video rights to distribute English and Spanish language
versions throughout the United States and to distribute English language
versions throughout Canada of certain of its programs, all television programs
produced for children and owned or controlled by Saban or FCN, all television
programs produced or to be produced pursuant to an agreement with Marvel and
all television programs which are owned or controlled first by Marvel and
subsequently by Saban, the LLC or the Company. 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 September 11, 1996. Saban is required to
make available for release by Fox Video a minimum of six video titles 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 for the grant of the distribution rights, Fox Video has agreed
to pay Saban 50% of gross receipts from these home videos, after deduction of
certain expenses. In connection with this Agreement Saban received $8,000,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year-End
The Company's fiscal year ends on June 30.
Interim Financial Information
The unaudited consolidated financial statements as of September 30, 1997,
and for the three months ended September 30, 1997 and the unaudited combined
financial statements for the three months ended September 30, 1996, include,
in the opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the Company's consolidated/combined
financial position, results of operations and cash flows. Operating results
for the three months ended September 30, 1997, are not necessarily indicative
of the results that may be expected for the year ended June 30, 1998.
Revenue Recognition
Advertising revenue is recognized as earned in the period in which the
advertising commercials are telecast. 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
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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
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. Subscriber revenue is recognized by the international
channels monthly based upon the reported level of subscribers.
Production and 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. Production and programming costs
also include the use of satellite transponders and costs associated with
engineering and technical support services in connection with the
international channels.
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 Risk
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, 1997 and 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 maturities when purchased of three months
or less to be cash equivalents.
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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
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 compounded
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), which after the Effective Date is deemed to
be a wholly-owned subsidiary of the Company, uses the U.S. dollar as the
functional currency. All other 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 (losses)
gains for the eight months ended June 30, 1996 and the year ended June 30,
1997 were $132,000 and $(643,000), respectively.
The cumulative translation adjustment in stockholders' equity at June 30,
1996 and 1997, 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
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, as necessary, which may result
in revised amortization of its programming costs. Results of operations 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.
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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
Advertising Costs
Included in selling, general and administrative expenses are advertising
expenses amounting to $2,401,000 and $9,732,000 for the eight months ended
June 30, 1996 and the year ended June 30, 1997, respectively.
Net Income (Loss) per Common Share
The Company has adopted Statement of Financial Accounting Standards No. 128
(SFAS No. 128), Earnings Per Share, which is effective for annual and interim
financial statements issued for periods ending after December 15, 1997. In
accordance with the new statement prior years' earnings per share ("EPS") is
restated, if applicable. SFAS No. 128 was issued to simplify the standards for
calculating EPS previously found in APB No. 15, Earnings Per Share. SFAS 128
replaces the presentation of primary EPS with a presentation of basic EPS. The
new rules also require dual presentation of basic and diluted EPS on the face
of the statement of operations for companies with a complex capital structure.
Basic EPS will exclude the dilutive effects of stock options and warrants.
Diluted EPS for the Company will reflect all potential dilutive securities.
The per share data is based upon 16,000,000 shares deemed to be outstanding
during each period which represents the number of shares of common stock that
would have been outstanding had the Reorganization described in Note 1
occurred on November 1, 1995. Common equivalent shares consisting of
outstanding stock options are included in the calculation to the extent they
are dilutive. For the six months ended December 31, 1997 (unaudited), the net
loss per common share gives effect to dividends on the Series A Preferred
Stock which amounted to $13,015,000.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income. The Statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The Statement applies to all enterprises that provide a
full set of general-purpose financial statements. The Statement becomes
effective for all financial statements for fiscal years beginning after
December 15, 1997, with earlier application permitted. Further, in June 1997,
the FASB issued Statement No. 131, Disclosures about Segments of an Enterprise
and Related Information. The Statement changes the way public companies report
segment information in annual financial statements and also requires those
companies to report selected segment information in interim financial reports
to shareholders. The proposal supersedes FASB Statement No. 14 on segments and
does not apply to nonpublic enterprises or to not-for-profit organizations.
The Statement becomes effective for all financial statements for fiscal years
beginning after December 15, 1997, with earlier adoption permitted. The
Company is currently reviewing those Statements and will apply such provisions
as deemed appropriate.
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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
3. PROGRAMMING COSTS
Programming costs, net of accumulated amortization, are comprised of the
following:
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------
NET
ACCUMULATED PROGRAMMING
COST AMORTIZATION COSTS
-------------- ------------ ------------
<S> <C> <C> <C>
Children's programming............ $ 694,690,000 $589,160,000 $105,530,000
Movies and mini-series/Family pro-
gramming......................... 121,642,000 88,642,000 33,000,000
Projects in production............ 40,647,000 -- 40,647,000
Development....................... 2,648,000 398,000 2,250,000
-------------- ------------ ------------
$ 859,627,000 $678,200,000 $181,427,000
============== ============ ============
<CAPTION>
JUNE 30, 1997
----------------------------------------
NET
ACCUMULATED PROGRAMMING
COST AMORTIZATION COSTS
-------------- ------------ ------------
<S> <C> <C> <C>
Children's programming............ $ 860,582,000 $723,751,000 $136,831,000
Movies and mini-series/Family pro-
gramming......................... 135,685,000 99,162,000 36,523,000
Projects in production............ 58,167,000 -- 58,167,000
Development....................... 4,054,000 -- 4,054,000
-------------- ------------ ------------
$1,058,488,000 $822,913,000 $235,575,000
============== ============ ============
<CAPTION>
DECEMBER 31, 1997 (UNAUDITED)
----------------------------------------
NET
ACCUMULATED PROGRAMMING
COST AMORTIZATION COSTS
-------------- ------------ ------------
<S> <C> <C> <C>
Children's programming............ $ 953,177,000 $830,237,000 $122,940,000
Movies and mini-series/Family
programming...................... 323,903,000 151,102,000 172,801,000
Projects in production............ 53,255,000 -- 53,255,000
Development....................... 5,352,000 -- 5,352,000
-------------- ------------ ------------
$1,335,687,000 $981,339,000 $354,348,000
============== ============ ============
</TABLE>
Based on the Company's estimate of future revenues, approximately 73% of
unamortized released programming costs at June 30, 1997 will be amortized
during the three years ending June 30, 2000. Interest amounting to $1,146,000
and $368,000 was capitalized to programming costs for the year ended June 30,
1997 and the six months ended December 31, 1997, respectively.
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Studio equipment.................................... $ 8,338,000 $10,997,000
Office furniture and fixtures....................... 3,257,000 3,417,000
Leasehold improvements.............................. 2,455,000 2,957,000
Other............................................... 64,000 179,000
----------- -----------
14,114,000 17,550,000
Less accumulated depreciation....................... 5,403,000 8,629,000
----------- -----------
$ 8,711,000 $ 8,921,000
=========== ===========
</TABLE>
F-20
<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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
5. DEBT
Debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
DeNationale Investeringsbank N.V.;
secured line of credit due April 18,
1999; interest at three month LIBOR
(5.78% at June 30, 1997; 5.94% at
December 31, 1997) plus 0.4% paid
quarterly; maximum borrowings of
$8,000,000.......................... $ 6,862,000 $ 7,093,000 $ 7,332,000
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 ($607,000 at
June 30, 1997) and FF 16,462,000
($2,855,000 at June 30, 1997);
varying interest rates (between
3.98% and 8.60% at June 30, 1997;
between 4.29% and 8.60% at December
31, 1997) paid quarterly............ 3,554,000 3,879,000 3,773,000
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 1,280,000 949,000
Promissory note due February 1, 2002;
principal amounts paid annually
starting February 1999; interest at
6%.................................. -- -- 6,351,000
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 2,340,000 2,340,000
Imperial Bank; secured revolving line
of credit; interest at prime rate
(8.5% at June 30, 1997 and December
31, 1997) plus .5% or one month
LIBOR (5.69% at June 30, 1997) plus
2% paid monthly; maximum borrowings
of $50,000,000 (paid in full -
August 1997)........................ -- 43,000,000 --
Citicorp USA; secured revolving line
of credit; interest at prime rate
(8.5% at December 31, 1997) plus
1.25% or six month LIBOR (5.91% at
December 31, 1997) plus 2.25%;
maximum borrowings of $355,000,000.. -- -- 265,000,000
Citicorp USA; secured term loan
facility; interest at prime rate
(8.5% at December 31, 1997) plus
1.25% or six month LIBOR (5.91% at
December 31, 1997) plus 2.25%;
maximum borrowings of $355,000,000.. -- -- 355,000,000
----------- ----------- ------------
$19,916,000 $57,592,000 $640,745,000
=========== =========== ============
</TABLE>
F-21
<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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
Payments of principal on promissory notes in future periods are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30
-------------------
<S> <C>
1998........................................................... $ 1,924,000
1999........................................................... 892,000
2000........................................................... 804,000
2001........................................................... --
-----------
$ 3,620,000
===========
</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 (8.5% at June 30, 1997) plus .5% or .25% depending on Saban's and SINV's
tangible net worth or three month or six month LIBOR (5.78% and 5.91%,
respectively, at June 30, 1997) plus 2.25% or 2% (2% at June 30, 1997)
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
libraries. 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, 1997, the Company and SINV were in compliance or had
obtained waivers for these covenants. In August 1997, the Credit Facilities
were paid in full and terminated.
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>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Accounts receivable........................... $ 581,000 $ 1,250,000
State taxes................................... 209,000 --
------------ ------------
Total deferred tax liabilities.................. 790,000 1,250,000
Deferred tax assets:
State taxes................................... -- 483,000
Deferred revenue.............................. 18,813,000 5,978,000
Book over tax amortization.................... 665,000 17,696,000
Accrued expenses and reserves................. 6,095,000 7,625,000
Other......................................... 1,450,000 807,000
------------ ------------
Total deferred tax assets....................... 27,023,000 32,589,000
Valuation allowance for deferred tax assets..... -- (14,938,000)
------------ ------------
Deferred tax assets............................. 27,023,000 17,651,000
------------ ------------
Net deferred tax assets......................... $(26,233,000) $(16,401,000)
============ ============
</TABLE>
F-22
<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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
For financial reporting purposes, income before income taxes includes the
following components:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Pretax income:
United States....................................... $31,149,000 $31,605,000
Foreign............................................. 16,725,000 23,402,000
----------- -----------
$49,874,000 $55,007,000
=========== ===========
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Current:
Federal.......................................... $14,316,000 $ 3,430,000
State............................................ 3,964,000 (508,000)
Foreign.......................................... 586,000 1,881,000
----------- -----------
18,866,000 4,803,000
Deferred:
Federal.......................................... (431,000) 6,970,000
State............................................ (161,000) 2,794,000
Foreign.......................................... -- --
----------- -----------
(592,000) 9,764,000
----------- -----------
$18,274,000 $14,567,000
=========== ===========
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Tax at U.S. statutory rates..................................... 35% 35%
State taxes, net of federal benefit............................. 5 3
Foreign subsidiary's income not subject to state or federal
tax............................................................ (13) (15)
Foreign taxes................................................... 1 3
Other........................................................... 1 --
Non-deductible investment advisory fees......................... 8 --
--- ---
37% 26%
=== ===
</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 $79,700,000 at June 30, 1997. 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. It is possible that
the Internal Revenue Service could under certain theories attempt to tax the
foreign subsidiaries' income. Currently, management of the Company believe
that any such theories would be without merit.
F-23
<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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES
The Company 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 leases provide for early termination on
February 28, 1999 or February 28, 2002, 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 written lease commencing on
April 1, 1996 for office space in Los Angeles, California subject to two
separate five year extension options. 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 a two-year lease for production facilities in
Valencia, California expiring in January 1998 and subject to a one-year
extension.
In August 1997, the Company entered into a 10 year lease for office space in
London, England. The lease provides for early termination at the end of the
fifth year upon nine months advance written notice.
Noncancelable future minimum payments for the remainder of the initial,
noncancelable lease periods are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30
-------------------
<S> <C>
1998.......................................................... $ 4,546,000
1999.......................................................... 5,391,000
2000.......................................................... 6,442,000
2001.......................................................... 6,652,000
2002.......................................................... 7,618,000
Thereafter.................................................... 23,532,000
-----------
$54,181,000
===========
</TABLE>
Rent expense for the eight months ended June 30, 1996 and for the year ended
June 30, 1997, net of amounts capitalized, was approximately $1,006,000 and
$2,573,000, respectively.
The Fox Kids Network occupies approximately 6,134 square feet in a facility
subleased from FOX Television Stations, Inc. (FOX Television) on a month to
month arrangement. The Fox Kids Network currently pays to FOX Television an
annual rate of $25.17 per square foot for use of this space. As of April 1,
1997, the other Fox Kids Network employees and certain other of the Company's
employees relocated to a new facility in Los Angeles which FOX Television
recently acquired from New World. The Fox Kids Network leases 36,450 square
feet. No rent has been paid yet for this lease and the rate has not been
negotiated.
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 originally 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 beyond the current five-year
term, the Company would, on the terms set forth therein, be obligated to
F-24
<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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
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 $21,949,000 of which $10,795,000 is due in 1998,
$4,800,000 is due in 1999, $2,671,000 is due in 2000, $1,559,000 is due in
2001, and $1,250,000 is due in 2002 and $875,000 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, 29.388 of which
were exercisable at June 30, 1997. These options vest ratably over five years
and are exercisable at $122,496 per share, which approximates the fair value
at the time of grant. Effective January 1996, Saban issued to one key employee
options to purchase 16.327 shares of common stock, 6.531 of which were
exercisable at June 30, 1997. 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, 1997.
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 and the year
ended June 30, 1997 is $3,800,000 and $3,760,000, respectively, and in accrued
liabilities at June 30, 1996 and June 30, 1997 is $17,200,000 and $20,960,000,
respectively, related to compensation recorded in connection with these
options.
In connection with the Reorganization as described in Note 1, all options
became options to purchase 646,548 shares of the Class A Common Stock at
exercise prices of $12.37 and $61.87 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, 1997, 65.308 shares (646,548 shares of Class A Common Stock)
of Saban common stock are reserved for future issuance related to options.
Future estimated program commitments are approximately $32,611,000.
FCN Holding issued to an investment banker 16.16 shares of common stock of
FCN Holding (160,000 shares of Class A Common Stock) as compensation for
certain financial advisory and other investment banking services rendered in
connection with the negotiations, 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 (160,000 shares of Class A Common Stock) 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
limitations, 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 and the year ended June 30,
1997 was approximately $43,000 and $101,000, respectively.
F-25
<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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
9. ACQUISITIONS
On April 6, 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 paid upon closing and $1,148,000
payable approximately one year later subject to certain specified conditions
and is secured by letters of credit. The acquisition was accounted for as a
purchase and the entire purchase price was allocated principally to
international distribution rights to children's programming. The results of
operations of C&D since the purchase date of April 16, 1996, have been
included with the Company's results of operations for the eight months ended
June 30, 1997 and for the year ended June 30, 1997. Unaudited pro forma
combined statements of operations for the years ended July 2, 1995 and June
30, 1996, 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 1996, the Company purchased from Vesical Limited (Vesical) its
interest and rights to certain television programming and related accounts
receivable balances for $12,000,000, $7,200,000 paid upon closing (April 18,
1996) and $4,800,000 paid in April 1997. 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.
In March 1997, the Company acquired 90% of the shares in TV10 from Arcade
Media Group B.V. and Wegener N.V. TV10 operates a channel in Holland that is
distributed via cable. The Company intends to sell 50% of its interest in TV10
to a third party. Since the Company's control of TV10 is only temporary, the
Company has accounted for its investment under the equity method of accounting
and has recorded its share of TV10 operations since the acquisition date.
During the year ended June 30, 1997, the Company advanced TV10 approximately
$830,000 to fund operations.
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 and the year ended June
30, 1997, the Company earned revenues from one significant customer of
approximately $32,148,000 (17%) and $35,500,000 (12%), respectively. The
Company earned revenues of $72,668,000 (38%) and $70,810,000 (23%) for the
eight months ended June 30, 1996 and for the year ended June 30, 1997,
respectively, from one significant property (Power Rangers).
F-26
<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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
Geographical information concerning the Company's operations is as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Revenues:
Domestic....................................... $129,645,000 $199,575,000
International, principally Europe(2)........... 61,976,000 108,245,000
------------ ------------
191,621,000 307,820,000
Operating profit(1)
Domestic....................................... 67,970,000 84,295,000
International, principally Europe(2)........... 24,714,000 43,144,000
------------ ------------
92,684,000 127,439,000
Selling, general and administrative expense...... 23,072,000 62,466,000
Fox Kids Network affiliate participants.......... 8,853,000 6,194,000
Equity in loss of unconsolidated affiliate
(Europe)........................................ -- 1,546,000
Investment advisory fee.......................... 10,000,000 --
Interest expense................................. 885,000 2,226,000
------------ ------------
Income before provision for income taxes......... $ 49,874,000 $ 55,007,000
============ ============
Identifiable assets:
Domestic....................................... $197,315,000 $164,481,000
International, principally Europe(2)........... 138,955,000 247,920,000
------------ ------------
$336,270,000 $412,401,000
============ ============
</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. STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using the minimum value method with the following weighted-average
assumptions, respectively: risk-free interest rate of 5.86%; dividend yields
of 0%; and a weighted-average expected life of the option of 5 years.
The fair value of the options granted in January 1996 is $2,623,000 and the
remaining contractual life of these options is 8.5 years.
The minimum value valuation method was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee
F-27
<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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
stock options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
The pro forma net income determined as if the Company had accounted for its
employee stock options under the fair value method would be $31,338,000 and
$41,389,000 for the eight months ended June 30, 1996 and the year ended June
30, 1997, respectively.
12. SUBSEQUENT EVENTS
Description of Bank Facility
Existing Credit Facility. Fox Kids Worldwide Inc., FCN Holding, Saban and
IFE currently are borrowers (the co-borrowers) under the Existing Credit
Facility with a group of banks led by Citicorp in the amount of $1.25 billion.
The Existing Credit Facility comprises a $602 million seven-year secured
reducing revolving credit facility, a $298 million seven-year secured reducing
revolving credit facility and a $350 million nine year secured term loan
facility. The proceeds of the loans under the Existing Credit Facility were
used to finance, in part, the IFE Acquisition and to repay certain obligations
of subsidiaries of the Company and will be used, in part, for working capital
purposes.
Borrowings under the Existing Credit Facility are unconditionally guaranteed
by each Co-borrower and each subsidiary that is wholly-owned, directly or
indirectly, by any of the Co-borrowers. In addition, borrowings under the
Existing Credit Facility and the guarantees are secured by substantially all
of the assets of the Co-borrowers and their subsidiaries, who guaranteed the
obligations.
Revolving credit commitments will reduce on a quarterly basis commencing the
quarter ending December 28, 2000, and will continue through the quarter ending
September 29, 2004. Under the Existing Credit Facility, subject to certain
conditions, the Co-borrowers will be required to make certain mandatory
prepayments.
The borrowings under the Existing Credit Facility will bear interest at the
Company's option at a rate per annum equal to either LIBOR or a base rate
plus, in each case, an applicable interest rate margin.
In connection with the Existing Credit Facility, the Company will pay a
commitment fee on the unused and available amounts under the Existing Credit
Facility.
The Existing Credit Facility contains a number of significant covenants
that, among other things, limit the ability of the Co-borrowers and their
respective subsidiaries to incur additional indebtedness, create liens and
other encumbrances, make certain payments and investments, make capital
expenditures, make distributions to owners and repurchase debt and equity. In
addition, the Existing Credit Facility requires the maintenance of certain
specified financial and operating covenants, including, without limitation,
capital expenditure limitations and ratios of EBITDA to fixed charges, total
debt to EBITDA and EBITDA to interest expense. The Existing Credit Facility
also contains representations, warranties, covenants, conditions and events of
default customary for senior credit facilities of similar size and nature.
Amended Credit Facility. Upon consummation from an offering that the Company
plans to consummate in the latter part of calendar 1997, the Existing Credit
Facility will be amended (as amended, the "Amended Credit Facility") to
consist of a $355 million seven-year term loan and a $355 million seven-year
reducing revolving credit facility. Fox Kids Worldwide, Inc. will not be a
borrower under the Amended Credit Facility.
F-28
<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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
Instead, Fox Kids Worldwide, Inc. will create a wholly-owned subsidiary
organized as a limited liability company ("FK Holdings"), which will hold the
equity interests of FCN Holding, Saban and IFE (which will remain borrowers)
and which will guarantee the Amended Credit Facility.
The collateral for the Amended Credit Facility will be limited to the equity
interests of FK Holdings, the borrowers and their subsidiaries (subject to
certain limitations for foreign and less than wholly owned subsidiaries) and
intercompany indebtedness. Scheduled payments on the term loan will begin
September 28, 2000, with 10% of the term loan being reduced in year 3 of the
loan, 20% in each of years 4 and 5 and 25% in each of years 6 and 7. Scheduled
quarterly reductions to the revolving credit commitment will begin September
27, 2002, with 15% of the commitment being reduced in each of years 5 and 6
and 70% in year 7. Certain of the baskets and exceptions to the negative
covenants in the Existing Credit Facility will be broadened in the Amended
Credit Facility to allow more flexibility. Additionally, certain financial
covenants will be adjusted to reflect the new structure.
Equity Ownership
After the Reorganization as described above and the IFE acquisition as
described below, the equity ownership of the Company is as follows: Haim Saban
and the former Saban Stockholders collectively own 7,920,000 shares (50%) of
the Class B Common Stock, par value $.001 per share ("Class B Common Stock"),
and an indirect wholly-owned subsidiary of Fox Broadcasting Company (itself a
subsidiary of News Corp.) owns 7,920,000 shares (50%) of the Class B Common
Stock. Allen & Company Incorporated owns 160,000 shares (100%) of the Class A
Common Stock, par value $.001 (the "Class A Common Stock"). Liberty IFE owns
345,000 shares (100%) of Series A Preferred Stock.
The Common Stock
The holders of Class A Common Stock (the "Class A Stockholders") are
entitled to one vote per share and the holders of Class B Common Stock (the
"Class B Stockholders") are entitled to ten votes per share. Both classes vote
together as a single class. A "majority" vote (or any other greater
percentage) for stockholder action requires a majority of the aggregate number
of votes entitled to be cast at such vote. The Company's Certificate of
Incorporation does not provide for cumulative voting rights.
Subject to the rights of the holders of shares of any series of Preferred
Stock, the Class A and Class B Stockholders are to receive like dividends and
other similar distributions of the Company. In the case of any split,
subdivision, combination or reclassification of shares of Class A or Class B
Common Stock, an equivalent split, subdivision, combination or
reclassification must be made to the shares of Class B or Class A Common
Stock, as the case may be.
The Class A and Class B Stockholders have equivalent rights to distributions
in the event of any liquidation, dissolution or winding up (either voluntary
or involuntary) of the Company, in proportion to the number of shares held by
them without regard to class.
In the event of any corporate merger, consolidating purchase or acquisition,
the Class A and Class B Stockholders are to receive the same consideration on
a per share basis, and if the consideration in such transaction consists in
any part of voting securities, the Class B Stockholders are to 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 Class A Stockholders.
F-29
<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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
The shares of Class A Common Stock are freely transferable, but the shares
of Class B Common Stock are subject to transfer restrictions as set forth more
fully in the Company's charter. The Class B Stockholders may only transfer
their shares to a "Permitted Transferee" and any unauthorized transfer will
cause an automatic conversion of such shares into shares of Class A Common
Stock. Regardless of the transfer restriction on the Class B Common Stock, any
Class B Stockholder may pledge its shares as collateral security for any
indebtedness or other obligation.
Each share of Class B Common Stock is convertible, at the option of its
holder, at any time into one validly issued, fully paid and non-assessable
shares of Class A Common Stock.
The Series A Preferred Stock
The holders of the Series A Preferred Stock (or the "Liberty Preferred")
will receive cash dividends of 9% per annum in arrears, paid quarterly. Any
accrued or unpaid dividends will be added to the liquidation price and until
such accrued and unpaid dividends are paid in full, the dividend rate will
increase to 11.5% of the liquidation price. The liquidation price is $1,000
per share plus any accrued and unpaid dividends.
Pursuant to the Funding Agreement among News Corp., News Publishing
Australia Limited ("NPAL"), a wholly-owned subsidiary of News Corp., and the
Company (the "Funding Agreement"), each of News Corp. and NPAL has
unconditionally agreed that, upon the occurrence and during the continuation
of an event of default under the provisions governing the Series A Preferred
Stock in the Company's Corrected Restated Certificate of Incorporation or
liquidation, dissolution, winding up or other similar event of the Company,
News Corp. or NPAL, as the case may be, will provide the Company with the
funds necessary to redeem in full, or pay the liquidation distribution on all
of the outstanding Series A Preferred Stock and to pay any other amounts owing
in respect of such shares. Pursuant to the Amended and Restated Strategic
Stockholders Agreement (as defined), such funds will be, except under certain
circumstances, in the form of an advance or loan to the Company. The following
constitute events of default with respect to the Series A Preferred Stock
under the Corrected Restated Certificate of Incorporation: (i) the failure of
the Company to mandatorily redeem Series A Preferred Stock at the redemption
dates indicated below; (ii) a breach for thirty days of any of the covenants
contained in the provisions governing the Series A Preferred Stock; and (iii)
an event of default under the terms of the preferred stock of NPAL, if any
shares of which are outstanding. In addition, pursuant to the Exchange
Agreement among NPAL, Liberty Media Corporation ("Liberty Media") and Liberty
IFE (the "Exchange Agreement"), each of the holders of the Series A Preferred
Stock has the right, upon the occurrence and during the continuation of an
event of default under the Corrected Restated Certificate of Incorporation or
the liquidation, winding up or other similar event of the Company, to exchange
their shares for an equivalent number of shares of preferred stock of NPAL.
The Series A Preferred Stock issued to Liberty IFE will rank senior as to
dividend, redemption and liquidation rights to all other classes and series of
capital stock of the Company authorized on the date of issuance, or to any
other class or series of capital stock issued while any shares of the Series A
Preferred Stock remain outstanding. The Series A Preferred Stock does not have
voting rights, except as required by law, nor will stockholders of Series A
Preferred Stock have preemptive rights over any stock or securities that may
be issued by the Company.
The Series A Preferred Stock will be redeemed in 2027 at a price equal to
the liquidation price as of the date of such redemption, payable in cash. In
years 2017 and 2022, holders of the Series A Preferred Stock have a thirty day
period commencing August 2 of such years in which they can require the Company
to redeem the
F-30
<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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
Series A Preferred Stock at a price equal to the liquidation price, payable in
cash. At any time after August 1, 2007, the Company may, at its option,
repurchase all shares of Series A Preferred Stock, again at a price equal to
the liquidation price, payable in cash. Under such redemption requirements,
any failure by the Company to redeem the Series A Preferred Stock will
obligate News Corp. and NPAL to perform under the Funding Agreement.
13. EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITOR'S
REPORT
The acquisition of IFE was accounted for as a purchase by the Company of
IFE. Based upon a preliminary review by management, the aggregate purchase
price of IFE in excess of the fair value of the identifiable assets of IFE at
the date of acquisition was approximately $1.7 billion and is being amortized
over 40 years. These intangible assets are reviewed periodically to determine
if the facts and circumstances suggest that it may be impaired. If this review
indicates that these intangible assets will not be recoverable, as determined
based upon discounted cash flows of the acquired business over the remaining
amortization period, then the carrying value of the related intangible assets
will be reduced by the estimated shortfalls of cash flows. The results of
operations of IFE since the purchase date of August 1, 1997 have been included
with the Company's results of operations for the six months ended December 31,
1997.
Certain operations and assets of IFE are intended to be sold by the Company.
Accordingly, such assets have been reflected as assets held for sale in the
December 31, 1997 balance sheet.
The following unaudited pro forma information for the six months ended
December 31, 1996 and 1997 reflect the results of the Company's consolidated
operations as if the acquisition occurred at the beginning of each period
presented. The unaudited pro forma consolidated financial results are not
necessarily indicative of the actual results that would have occurred had the
acquisition occurred at the beginning of each period presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Revenues.................................. 327,057,000 $357,456,000
Net loss.................................. (10,408,000) (18,832,000)
Net loss per common share--basic and
diluted.................................. (1.63) (2.16)
</TABLE>
On October 28, 1997, the Company issued $475,000,000 aggregate principal
amount of 9 1/4% Senior Notes Due 2007 ("Senior Notes") and $618,670,000
aggregate principal amount at maturity of 10 1/4% Senior Discount Notes Due
2007 ("Senior Discount Notes" and collectively the "Notes") in a transaction
not registered under the Securities Act in reliance upon an exemption from the
registration requirements of the Securities Act. Gross proceeds from the
offering amounted to $850,000,000.
Cash interest on the Senior Notes will be payable semi-annually in arrears
on each May 1 and November 1, commencing May 1, 1998. Cash interest will not
accrue or be payable on the Senior Discount Notes prior to November 1, 2002.
Thereafter, cash interest on the Senior Discount Notes will be payable semi-
annually in arrears on each May 1 and November 1, commencing on May 1, 2003.
However, that at any time prior to November 1, 2002, the Company may elect
(the "Cash Interest Election") on any interest payment date (the date of such
Cash Interest Election, the "Cash Interest Election Date") to commence the
accrual of cash interest from and after the Cash Interest Election Date, in
which case the principal amount at maturity of each Senior Discount Note will
on such interest payment date be reduced to the accreted value of such Senior
Discount Note
F-31
<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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
as of such interest payment date, and cash interest (accruing at a rate of 10
1/4% per annum from the Cash Interest Election Date) shall be payable with
respect to such Senior Discount Note on each interest payment date thereafter.
The Senior Notes will be redeemable at the option of the Company, in whole
or in part, at any time on or after November 1, 2002, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued
and unpaid interest, if any, to the redemption date, if redeemed during the
12-month period beginning on November 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002.......................................................... 104.625%
2003.......................................................... 103.083%
2004.......................................................... 101.542%
2005 and thereafter........................................... 100.000%
</TABLE>
In addition, at any time, or from time to time, on or prior to November 1,
2000, the Company may, at its option, use the net cash proceeds of (a) one or
more public equity offerings or (b) sales of qualified equity interests to
strategic equity investors resulting in gross cash proceeds to the Company of
at least $100,000,000 to redeem, on a pro rata basis, up to an aggregate of
35% of the principal amount of the Senior Notes originally issued, at a
redemption price equal to 109.25% of the principal amount thereof plus accrued
and unpaid interest, if any, to the redemption date; provided that at least
65% of the originally issued principal amount of Senior Notes remains
outstanding immediately after the occurrence of such redemption.
The Senior Discount Notes will be redeemable at the option of the Company,
in whole or in part, at any time on or after November 1, 2002, at the
redemption prices (expressed as a percentage of principal amount at maturity)
set forth below, plus accrued and unpaid interest thereon, if any, to the
redemption date, if redeemed during the 12-month period beginning on November
1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002.......................................................... 105.125%
2003.......................................................... 103.417%
2004.......................................................... 101.708%
2005 and thereafter........................................... 100.000%
</TABLE>
In addition, prior to November 1, 2000, the Company may redeem up to 35% of
the originally issued principal amount at maturity of the Senior Discount
Notes at a redemption price equal to 110.25% of the accreted value of the
Senior Discount Notes so redeemed at the redemption date or, if a Cash
Interest Election has been made, 110.25% of the principal amount at maturity
of the Senior Discount Notes so redeemed, plus accrued and unpaid interest
thereon, if any, to the redemption date, with the net cash proceeds of (a) one
or more public equity offerings or (b) sales of qualified equity interests of
the Company to one or more strategic equity investors resulting in gross cash
proceeds to the Company of at least $100,000,000 in the aggregate; provided,
however, that at least 65% of the originally issued principal amount at
maturity of the Senior Discount Notes would remain outstanding immediately
after giving effect to any such redemption.
Upon the occurrence of a change of control, the Company shall be obligated
to make an offer to purchase (a "Change of Control Offer"), on a business day
(the "Change of Control Purchase Date") not more than 60
F-32
<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)
(INFORMATION WITH RESPECT TO DECEMBER 31, 1997 AND TO THE SIX MONTH PERIODS
ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
nor less than 30 days following the occurrence of the change of control, all
of the then outstanding Notes tendered at a purchase price in cash (the
"Change of Control Purchase Price") equal to (x) with respect to the Senior
Notes, 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to the Change of Control Purchase Date and (y) with respect to the
Senior Discount Notes, 101% of the accreted value on the Change of Control
Purchase Date, unless the Change of Control Purchase Date is on or after the
earlier to occur of November 1, 2002 and the Cash Interest Election Date, in
which case such Change of Control Purchase Price shall be equal to 101% of the
aggregate principal amount at maturity thereof, plus accrued and unpaid
interest thereon, if any, to the Change of Control Purchase Date. The Company
shall be required to purchase all Notes tendered into the Change of Control
Offer and not withdrawn. The Change of Control Offer is required to remain
open for at least 20 business days and until the close of business on the
Change of Control Purchase Date.
The Notes will be senior unsecured obligations of the Company and will rank
senior in right of payment to all future subordinated indebtedness of the
Company. Claims of the holders of the Notes will effectively be subordinated
to the claims of creditors of the Company's subsidiaries, including the banks
under the Bank Facility.
The Company is subject to certain covenants in connection with the issuance
of the Notes which include for example limitation on indebtedness, restricted
payments, liens, dividends, transactions with affiliates and disposition of
assets.
In February 1998, the Company reached an agreement in principle with the
Affiliates' Board of Governors (the "Affiliate Board") for the Fox Kids
Network to modify the financial arrangements between the Fox Kids Network and
its affiliates. Commencing July 1, 1998, the affiliated stations will be paid
approximately $5.6 million per year for five years in exchange for an
increased allocation of advertising inventory for approximately three and a
half years. In addition, commencing July 1, 1998, the non owned and operated
affiliated stations will be paid approximately $9.4 million per year for five
years in exchange for, (i) guaranteed clearance of Fox Kids programming in its
current time period for ten years and (ii) relinquishment of any participation
in the current or future profits of Fox Kids Network. This agreement to
subject to approval by the individual affiliated stations. The Affiliate Board
has recommended that each of the Fox Kids Network Affiliates accept the
Company's proposal. The Fox Kids Network Affiliates are currently considering
the proposal.
F-33
<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 2, 1995 and October 31, 1995, and the related consolidated
statements of operations, stockholder's equity, and cash flows for 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 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, except for
the second paragraph
of Note 10 as to which
the date is September 29, 1997
F-34
<PAGE>
FCN HOLDING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 2, OCTOBER 31,
1995 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................ $ -- $ 317,000
Accounts receivable, including $2,265,000 (July 2,
1995) and $2,341,000 (October 31, 1995) from related
parties............................................. 23,539,000 24,195,000
Programming costs, less accumulated amortization..... 26,143,000 27,085,000
Property and equipment, at cost, less accumulated
depreciation ....................................... 85,000 103,000
Other assets......................................... 49,000 1,107,000
----------- -----------
Total assets......................................... $49,816,000 $52,807,000
=========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Accounts payable..................................... $ 1,991,000 1,718,000
Accrued liabilities.................................. 876,000 1,291,000
Deferred revenue..................................... 1,763,000 791,000
Fox Kids Network affiliate participation payable..... 11,523,000 18,421,000
Accrued programming expenditures..................... 21,960,000 19,816,000
Administrative fee payable to a related party........ 4,828,000 6,173,000
Amounts payable to related parties................... 10,686,000 8,727,000
----------- -----------
Total liabilities.................................... 53,627,000 56,937,000
Commitments and contingencies -- --
Stockholder's deficit:
Common stock, no par value, 2,000 authorized,
issued and outstanding 2,000 shares............... 2,000 2,000
Retained deficit................................... (3,813,000) (4,132,000)
----------- -----------
Total stockholder's deficit.......................... (3,811,000) (4,130,000)
----------- -----------
Total liabilities and stockholder's deficit.......... $49,816,000 $52,807,000
=========== ===========
</TABLE>
See accompanying notes.
F-35
<PAGE>
FCN HOLDING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JULY 4, 1994 JULY 3, 1995
TO TO
JULY 2, 1995 OCTOBER 31, 1995
------------ ----------------
<S> <C> <C>
Net revenues (including $8,443,000 (July 2, 1995)
and $2,822,000 (October 31, 1995) from related
parties)........................................ $168,871,000 $46,286,000
Costs and expenses:
Production and programming .................... 109,259,000 29,698,000
Ancillary market distribution costs to a
related party ................................ 3,255,000 1,140,000
Administrative fee to a related party.......... 21,458,000 6,173,000
Selling, general and administrative (including
$1,075,000 (July 2, 1995) and $448,000
(October 31, 1995) to related parties)........ 5,202,000 2,566,000
Fox Kids Network affiliate participations...... 11,523,000 6,883,000
------------ -----------
Operating income (loss).......................... 18,174,000 (174,000)
------------ -----------
Interest expense to a related party.............. 1,630,000 145,000
------------ -----------
Income (loss) before provision for income taxes.. 16,544,000 (319,000)
Provision for income taxes....................... -- --
------------ -----------
Net income (loss)................................ $ 16,544,000 $ (319,000)
============ ===========
</TABLE>
See accompanying notes.
F-36
<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 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-37
<PAGE>
FCN HOLDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JULY 4, 1994 JULY 3, 1995
TO TO
JULY 2, 1995 OCTOBER 31, 1995
------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................. $ 16,544,000 $ (319,000)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Amortization of programming costs........... 98,309,000 27,942,000
Depreciation................................ 17,000 13,000
Provision for doubtful accounts............. 480,000 --
Changes in operating assets and liabilities:
Accounts receivable....................... (5,528,000) (656,000)
Additions to programming costs ........... (107,368,000) (28,884,000)
Other assets.............................. 48,000 (1,058,000)
Accounts payable.......................... (376,000) (273,000)
Accrued liabilities....................... (219,000) 415,000
Administration fee payable to a related
party.................................... 199,000 1,345,000
Deferred revenue.......................... 1,763,000 (972,000)
Fox Kids Network affiliate participation
payable.................................. 11,523,000 6,898,000
Accrued programming expenditures.......... 908,000 (2,144,000)
------------- ------------
Net cash provided by operating activities..... 16,300,000 2,307,000
INVESTING ACTIVITIES
Purchase of property and equipment............ (91,000) (31,000)
------------- ------------
Net cash used in investing activities......... (91,000) (31,000)
FINANCING ACTIVITIES
Proceeds from related parties................. 180,765,000 68,308,000
Payments to related parties................... (197,242,000) (70,267,000)
------------- ------------
Net cash used in financing activities......... (16,477,000) (1,959,000)
------------- ------------
(Decrease) increase in cash and cash
equivalents.................................. (268,000) 317,000
Cash and cash equivalents at beginning of
period....................................... 268,000 --
------------- ------------
Cash and cash equivalents at end of period.... $ -- $ 317,000
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest.................................... $ 2,053,000 $ 201,000
============= ============
Income taxes................................ $ -- $ --
============= ============
</TABLE>
See accompanying notes.
F-38
<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
$25,429,000 and $7,305,000 for the periods ended 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-39
<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.
ADVERTISING COSTS
Included in selling, general and administrative expenses are advertising
expenses amounting to $1,639,000 and $1,350,000 for the year ended July 2,
1995 and for the four months ended October 31, 1995, respectively.
F-40
<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 2, OCTOBER 31,
1995 1995
------------ ------------
<S> <C> <C>
Programming costs, broadcast................... $244,599,000 $261,078,000
Programming costs, produced.................... 89,493,000 99,730,000
Programming costs in development and
production.................................... 1,298,000 3,466,000
------------ ------------
335,390,000 364,274,000
------------ ------------
Accumulated amortization....................... 309,247,000 337,189,000
------------ ------------
$ 26,143,000 $ 27,085,000
============ ============
</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 2, OCTOBER 31,
1995 1995
------- -----------
<S> <C> <C>
Computer equipment..................................... $93,000 $100,000
Office furniture and fixtures.......................... 4,000 28,000
Machinery and equipment................................ 41,000 41,000
Leasehold improvements................................. 32,000 32,000
------- --------
170,000 201,000
Less accumulated depreciation.......................... 85,000 98,000
------- --------
$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-41
<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 $231,000
and $88,000 for the periods ended 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 $10,686,000 and $8,727,000 at 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
JULY 4, 1994 JULY 3, 1995
TO TO
JULY 2, 1995 OCTOBER 31, 1995
------------ ----------------
<S> <C> <C>
Computed "expected" tax expense.............. 35 % -- %
Impact of utilized net operating loss
carryforward................................ (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.
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
F-42
<PAGE>
FCN HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 period ended July 2, 1995, FCN Holding earned net revenues from two
significant customers of approximately $16,662,000 (10%) and $16,061,000
(10%). For the period ended October 31, 1995, FCN earned net revenues from
three significant customers of approximately $5,527,000 (12%), $5,706,000
(12%) and $4,724,000 (10%). For the periods ended July 2, 1995 and October 31,
1995, FCN Holding earned net revenues from one significant property (Power
Rangers) of $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 August 1996 to act as a holding
company of FCN Holding, Saban and the LLC. Between August 1996 and August
1997, it conducted no business or operations. On August 1, 1997, in connection
with Fox Kids Worldwide Inc.'s acquisition of a controlling interest in
International Family Entertainment, Inc., (i) Fox Broadcasting Sub, Inc., a
wholly owned indirect subsidiary of Fox Broadcasting, exchanged its capital
stock in FCN Holding, which indirectly owned the FCN, for 7,920,000 shares of
Class B Common Stock of Fox Kids Worldwide Inc., (ii) the other stockholder of
FCN Holding exchanged its capital stock in FCN Holding for an aggregate of
160,000 shares of Class A Common Stock of Fox Kids Worldwide Inc., (iii) Haim
Saban and the other stockholders of Saban exchanged their capital stock of
Saban for an aggregate of 7,920,000 shares of Class B Common Stock of Fox Kids
Worldwide Inc. and (iv) all outstanding management options to purchase Saban
capital stock became options to purchase an aggregate of 646,548 shares of
Class A Common Stock of Fox Kids Worldwide Inc. In addition, Fox Broadcasting
exchanged its preferred, non-voting interest in the LLC and its $50 million
contingent note receivable from the LLC for a new approximately $108.6 million
subordinated note from Fox Kids Worldwide Inc. (which also included
approximately $8.6 million of intercompany indebtedness). As a result of these
transactions, FCN Holding, FCN, Saban and the LLC became direct or indirect
wholly owned subsidiaries of Fox Kids Worldwide Inc.
F-43
<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, 1995 and as of October 31, 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year ended May 31, 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, 1995, and at October 31, 1995 and the
results of its operations and its cash flows for the year ended May 31, 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 except for
the third paragraph of
Note 11 as to which the
date is September 29, 1997.
F-44
<PAGE>
SABAN ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, OCTOBER 31,
1995 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents........................... $ 14,584,000 $ 16,207,000
Restricted cash..................................... 5,000,000 5,000,000
Accounts receivable, net of allowance for doubtful
accounts of $1,385,000 at May 31, 1995 and
$1,385,000 at October 31, 1995..................... 37,338,000 30,157,000
Amounts receivable from related parties............. 3,796,000 3,832,000
Programming costs, less accumulated amortization.... 115,873,000 118,210,000
Property and equipment, at cost, less accumulated
depreciation ...................................... 3,630,000 7,079,000
Deferred income taxes............................... 35,473,000 26,186,000
Other assets........................................ 2,503,000 808,000
------------ ------------
Total assets........................................ $218,197,000 $207,479,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.................................... $ 6,818,000 $ 8,817,000
Accrued liabilities................................. 29,606,000 23,411,000
Deferred revenue.................................... 62,755,000 48,155,000
Accrued residuals and participations................ 9,672,000 10,074,000
Income taxes payable................................ 36,378,000 15,680,000
Deferred income taxes............................... 9,233,000 766,000
Debt................................................ 5,623,000 5,605,000
Amounts payable to related parties.................. -- --
------------ ------------
160,085,000 112,508,000
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 10,000 shares
authorized, 800 shares issued and outstanding at
May 31, 1995 and October 31, 1995 ............... -- --
Contributed capital............................... 11,751,000 11,751,000
Cumulative translation adjustment................. (71,000) 46,000
Retained earnings................................. 46,432,000 83,174,000
------------ ------------
Total stockholders' equity.......................... 58,112,000 94,971,000
------------ ------------
Total liabilities and stockholders' equity.......... $218,197,000 $207,479,000
============ ============
</TABLE>
See accompanying notes.
F-45
<PAGE>
SABAN ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED OCTOBER 31,
MAY 31, 1995 1995
------------ -----------------
<S> <C> <C>
Revenues......................................... $242,468,000 $105,130,000
Costs and expenses:
Production and programming..................... 117,557,000 42,022,000
Selling, general and administrative............ 51,894,000 11,538,000
------------ ------------
Operating income................................. 73,017,000 51,570,000
Interest expense................................. 1,315,000 539,000
------------ ------------
Income before provision for income taxes......... 71,702,000 51,031,000
Provision for income taxes....................... 27,027,000 14,289,000
------------ ------------
Net income....................................... $ 44,675,000 $ 36,742,000
============ ============
</TABLE>
See accompanying notes.
F-46
<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, 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-47
<PAGE>
SABAN ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED
YEAR ENDED OCTOBER 31,
MAY 31, 1995 1995
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income....................................... $ 44,675,000 $ 36,742,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of programming costs.............. 84,109,000 32,651,000
Depreciation................................... 1,296,000 571,000
Cumulative translation adjustment.............. 184,000 117,000
Provision for doubtful accounts................ 1,000,000
Changes in operating assets and liabilities:
Restricted cash.............................. (4,701,000) --
Accounts receivable.......................... (100,000) 7,181,000
Amounts receivable from related parties...... (2,649,000) (36,000)
Additions to programming costs............... (114,903,000) (34,988,000)
Other assets................................. (1,752,000) 1,695,000
Accounts payable............................. 2,610,000 1,999,000
Accrued liabilities.......................... 26,127,000 (6,195,000)
Accrued residuals and participations......... (2,663,000) 402,000
Accrued interest to related parties.......... (2,359,000) --
Income taxes payable and deferred income
taxes....................................... 153,000 (19,878,000)
Deferred revenue............................. 47,991,000 (14,600,000)
------------- ------------
Net cash (used in) provided by operating
activities...................................... 79,018,000 5,661,000
INVESTING ACTIVITIES
Purchase of property and equipment............... (2,242,000) (4,020,000)
------------- ------------
Net cash used in investing activities............ (2,242,000) (4,020,000)
FINANCING ACTIVITIES
Proceeds from bank borrowings.................... 7,395,000 11,000,000
Payments on bank borrowings...................... (21,663,000) (11,018,000)
Proceeds from related parties.................... 1,000,000 --
Payments to related parties...................... (12,773,000) --
Purchase of minority stockholder shares.......... (40,000,000) --
------------- ------------
Net cash provided by (used in) financing
activities...................................... (66,041,000) (18,000)
------------- ------------
Increase in cash and cash equivalents............ 10,735,000 1,623,000
Cash and cash equivalents at beginning of year... 3,849,000 14,584,000
------------- ------------
Cash and cash equivalents at end of year......... $ 14,584,000 $ 16,207,000
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (net of amounts capitalized).......... $ 3,280,000 $ 347,000
============= ============
Income taxes................................... $ 26,884,000 $ 34,156,000
============= ============
</TABLE>
See accompanying notes.
F-48
<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. Barter revenues,
representing the exchange of programming for advertising time on a television
station, are recognized upon the airing of an advertisement during such
advertising time and related programming costs are amortized in accordance
with the individual film forecast method.
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
F-49
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
mutual fund which invests in government securities and therefore are subject
to reduced risk. Saban has not incurred any losses relating to these
investments.
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 gains for the
years ended May 31, 1995, and for the five months ended October 31, 1995 were
$577,000 and $135,000, respectively.
The cumulative translation adjustment in stockholders' equity at May 31,
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
F-50
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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.
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.
3. PROGRAMMING COSTS
Programming costs, net of accumulated amortization, is comprised of the
following:
<TABLE>
<CAPTION>
MAY 31, 1995
-----------------------------------------
ACCUMULATED NET PROGRAMMING
COST AMORTIZATION COSTS
------------ ------------ ---------------
<S> <C> <C> <C>
Children's programming............... $203,765,000 $147,813,000 $ 55,952,000
Movies and mini-series............... 101,656,000 76,211,000 25,445,000
Projects in production............... 33,008,000 -- 33,008,000
Development.......................... 1,468,000 -- 1,468,000
------------ ------------ ------------
$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-51
<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
$304,000 and $32,000 was capitalized to programming costs during the years
ended May 31, 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,
1995 1995
---------- -----------
<S> <C> <C>
Studio equipment ....................................... $5,280,000 $ 5,832,000
Office furniture and fixtures........................... 907,000 1,505,000
Leasehold improvements.................................. 1,095,000 3,965,000
Other................................................... 64,000 64,000
---------- -----------
7,346,000 11,366,000
Less accumulated depreciation........................... 3,716,000 4,287,000
---------- -----------
$3,630,000 $ 7,079,000
========== ===========
</TABLE>
5. DEBT
Debt is comprised of the following:
<TABLE>
<CAPTION>
MAY 31, OCTOBER 31,
1995 1995
---------- -----------
<S> <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)....................... $ -- $ --
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............................. 623,000 605,000
---------- ----------
$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-52
<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
1995 1995
---------- ----------
<S> <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 1,222,000
---------- ----------
$3,796,000 $3,832,000
========== ==========
</TABLE>
F-53
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
An outside director of Saban acts as a legal consultant to Saban. Fees paid
to this director were approximately $153,000 and $62,000 for the years ended
May 31, 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 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>
F-54
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rent expense for the years ended May 31, 1995 and for the five months ended
October 31, 1995, net of amounts capitalized, was approximately $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.
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, 1995, and for the five
months ended October 31, 1995 was approximately $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.
F-55
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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,
1995 1995
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Accounts receivable................................ $ 3,181,000 $ 563,000
Tax over book amortization......................... 6,052,000 --
State taxes........................................ -- 203,000
------------ ------------
Total deferred tax liabilities..................... $ 9,233,000 $ 766,000
Deferred tax assets:
State taxes........................................ $ 1,511,000 $ --
Deferred revenue................................... 20,268,000 18,244,000
Accrued expenses and reserves...................... 12,015,000 4,590,000
Tax over book amortization......................... -- 2,299,000
Other.............................................. 1,679,000 1,053,000
------------ ------------
Total deferred tax assets.......................... 35,473,000 26,186,000
Valuation allowance for deferred tax assets........ -- --
------------ ------------
Net deferred tax assets............................ 35,473,000 26,186,000
------------ ------------
Net deferred tax liabilities (assets).............. $(26,240,000) $(25,420,000)
============ ============
For financial reporting purposes, income before income taxes includes the
following components:
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED
MAY 31, OCTOBER 31,
1995 1995
------------ ------------
<S> <C> <C>
Pretax income:
United States.................................... $ 56,193,000 $ 33,872,000
Foreign.......................................... 15,509,000 17,159,000
------------ ------------
$ 71,702,000 $ 51,031,000
============ ============
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED
MAY 31, OCTOBER 31,
1995 1995
------------ -----------------
<S> <C> <C>
Current:
Federal....................................... $ 47,213,000 $11,514,000
State......................................... 8,777,000 2,802,000
Foreign....................................... 1,539,000 489,000
------------ -----------
57,529,000 14,805,000
Deferred:
Federal....................................... $(25,776,000) $ (301,000)
State......................................... (4,726,000) (215,000)
Foreign....................................... -- --
------------ -----------
(30,502,000) (516,000)
------------ -----------
$ 27,027,000 $14,289,000
============ ===========
</TABLE>
F-56
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED
MAY 31, 1995 OCTOBER 31, 1995
------------ -----------------
<S> <C> <C>
Tax at U.S. statutory rates.................... 35% 35%
State taxes, net of federal benefit............ 6 5
Foreign subsidiary's income not subject to
state or federal tax.......................... (7) (13)
Foreign taxes.................................. 2 1
Other.......................................... 2 0
--- ---
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.
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. For the
year ended May 31, 1995, Saban earned revenues from one significant customer
of $26,308,000 (11%). For the five months ended October 31, 1995, Saban earned
revenues from one significant customer of approximately $33,332,000 (32%). For
the year ended May 31 1995, and for the five months ended October 31, 1995,
Saban earned revenues from one significant property (Power Rangers) of
$174,389,000 (72%) and $68,975,000 (66%), respectively.
Geographic information concerning Saban's operations is as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED
YEAR ENDED OCTOBER 31,
MAY 31, 1995 1995
------------ ------------
<S> <C> <C>
Revenues:
Domestic........................................... $172,239,000 $ 61,671,000
International, principally Europe(/2/)............. 70,229,000 43,459,000
------------ ------------
Total................................................ 242,468,000 105,130,000
Operating profit:(/1/)
Domestic........................................... 97,433,000 42,128,000
International, principally Europe(/2/)............. 27,478,000 20,980,000
------------ ------------
Total................................................ 124,911,000 63,108,000
Selling, general and administrative expenses......... 51,894,000 11,538,000
Interest expense..................................... 1,315,000 539,000
------------ ------------
Income before provision for income taxes............. $ 71,702,000 $ 51,031,000
============ ============
Identifiable assets:
Domestic........................................... $ 89,772,000 $ 82,145,000
International, principally Europe(/2/)............. 128,425,000 125,334,000
------------ ------------
Total................................................ $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.
F-57
<PAGE>
SABAN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
THE REORGANIZATION
Fox Kids Worldwide, Inc. was incorporated in August 1996 to act as a holding
company of FCN Holding, Saban and the LLC. Between August 1996 and August
1997, it conducted no business or operations. On August 1, 1997, in connection
with Fox Kids Worldwide, Inc.'s acquisition of a controlling interest in
International Family Entertainment, Inc., (i) Fox Broadcasting Sub, Inc., a
wholly owned indirect subsidiary of Fox Broadcasting, exchanged its capital
stock in FCN Holding, which indirectly owned the Fox Children's Network, Inc.
("FCN"), for 7,920,000 shares of Class B Common Stock of Fox Kids Worldwide,
Inc., (ii) the other stockholder of FCN Holding exchanged its capital stock in
FCN Holding for an aggregate of 160,000 shares of Class A Common Stock of Fox
Kids Worldwide, Inc., (iii) Haim Saban and the other stockholders of Saban
exchanged their capital stock of Saban for an aggregate of 7,920,000 shares of
Class B Common Stock of Fox Kids Worldwide, Inc. and (iv) all outstanding
management options to purchase Saban capital stock became options to purchase
an aggregate of 646,548 shares of Class A Common Stock of Fox Kids Worldwide,
Inc. In addition, Fox Broadcasting exchanged its preferred, non-voting
interest in the LLC and its $50 million contingent note receivable from the
LLC for a new approximately $108.6 million subordinated note from Fox Kids
Worldwide, Inc. (which also included approximately $8.6 million of
intercompany indebtedness). As a result of these transactions, FCN Holding,
FCN, Saban and the LLC became direct or indirect wholly owned 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-58
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................... $ 4,997,000 $ 4,275,000
Investment in marketable securities.......... 9,053,000 5,554,000
Accounts receivable, net of allowances of
$4,662,000 and $4,579,000................... 121,359,000 127,465,000
Film rights, current portion................. 97,441,000 92,037,000
Prepaid expenses and other................... 7,005,000 13,692,000
------------ ------------
Total current assets....................... 239,855,000 243,023,000
Property and equipment, net of accumulated
depreciation and amortization of $29,860,000
and $34,398,000............................... 62,877,000 61,139,000
Film rights.................................... 144,680,000 121,660,000
Long-term accounts receivable, net of allow-
ances of $126,000 and $81,000................. 17,530,000 13,142,000
Investment in equity securities--related par-
ty............................................ 35,458,000 65,160,000
Other investments, net of deferred gain of
$2,616,000.................................... 14,889,000 14,729,000
Goodwill, net of accumulated amortization of
$8,830,000 and $9,970,000..................... 48,517,000 47,377,000
Deferred tax benefit........................... 1,076,000 1,076,000
Other assets................................... 3,801,000 4,076,000
------------ ------------
$568,683,000 $571,382,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable............................. $ 12,874,000 $ 8,980,000
Accrued liabilities.......................... 11,756,000 16,022,000
Accrued participations and residuals......... 15,613,000 12,303,000
Current portion of film rights payable....... 44,050,000 48,117,000
Current maturities of debt................... 1,205,000 2,110,000
Income taxes payable......................... 9,214,000 1,675,000
Current portion of deferred income taxes..... 6,544,000 8,582,000
Deferred income.............................. 7,927,000 9,443,000
------------ ------------
Total current liabilities.................. 109,183,000 107,232,000
Film rights payable............................ 50,643,000 34,794,000
Long-term debt................................. 171,251,000 155,739,000
Accrued interest--related party................ 273,000 246,000
Convertible Notes--related party............... 23,000,000 23,000,000
Other liabilities, including participations and
residuals..................................... 11,079,000 10,943,000
Deferred income taxes.......................... -- 12,326,000
Commitments and contingencies (Note E)
Minority interests............................. 2,062,000 1,254,000
Stockholders' equity
Class A Common Stock, $.01 par value,
convertible, 10,000,000 shares authorized,
5,000,000 shares issued and outstanding..... 143,000 143,000
Class B Common Stock, $.01 par value,
100,000,000 shares authorized, 32,786,538
and 32,781,545 shares issued and
outstanding................................. 101,456,000 101,368,000
Class C Common Stock, $.01 par value,
convertible, 20,000,000 shares authorized,
7,088,732 shares issued and outstanding..... 50,717,000 50,717,000
Unearned compensation--Stock Plan............ (562,000) (288,000)
Unrealized gain on marketable securities..... 351,000 17,376,000
Retained earnings............................ 49,087,000 56,532,000
------------ ------------
Total stockholders' equity................. 201,192,000 225,848,000
------------ ------------
$568,683,000 $571,382,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-59
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Operating revenues................................ $149,965,000 $196,397,000
------------ ------------
Operating expenses
Production and programming...................... 73,097,000 113,139,000
Selling and marketing........................... 31,589,000 33,805,000
New business development........................ 1,091,000 1,466,000
General and administrative...................... 14,806,000 15,737,000
Amortization of goodwill........................ 1,214,000 1,140,000
------------ ------------
Total operating expenses...................... 121,797,000 165,287,000
------------ ------------
Operating income.............................. 28,168,000 31,110,000
------------ ------------
Other income (expense)
Investment income............................... 2,246,000 874,000
Interest expense--related parties............... (934,000) (660,000)
Interest expense--other......................... (5,599,000) (5,767,000)
Minority interests in losses.................... 1,701,000 808,000
Gain on disposition of assets--related party.... 13,685,000 --
Share of losses of affiliates................... (192,000) (1,582,000)
Other expense, net.............................. (5,059,000) (11,409,000)
------------ ------------
Total other income (expense).................. 5,848,000 (17,736,000)
------------ ------------
Income before income taxes.................... 34,016,000 13,374,000
Provision for income taxes........................ (14,853,000) (5,929,000)
------------ ------------
Net income.................................... $ 19,163,000 $ 7,445,000
============ ============
Primary and fully diluted earnings per common
share............................................ $ 0.41 $ 0.16
============ ============
Primary and fully diluted average common and com-
mon equivalent shares............................ 47,990,954 48,457,984
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-60
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income....................................... $ 19,163,000 $ 7,445,000
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization of film rights.................... 55,526,000 99,420,000
Depreciation and amortization of property and
equipment, goodwill, and other assets......... 5,629,000 6,110,000
Allowances against investments................. 4,750,000 9,700,000
Share of losses of affiliates.................. 192,000 1,582,000
Minority interests in losses................... (1,701,000) (808,000)
Gain on sale of marketable securities.......... (1,630,000) (292,000)
Gain on disposition of assets--related party... (13,685,000) --
Compensation--Stock Plan....................... 345,000 260,000
Deferred income tax expense.................... 6,134,000 2,964,000
Changes in assets and liabilities, net of
effect of 1996 disposition.................... (10,868,000) (8,764,000)
------------ ------------
Total adjustments............................ 44,692,000 110,172,000
------------ ------------
Net cash provided by operating activities....... 63,855,000 117,617,000
------------ ------------
Cash flows from investing activities
Acquisitions of original programming............. (41,051,000) (64,301,000)
Other investments, including advances............ (12,102,000) (11,110,000)
Sales of marketable securities................... 4,865,000 3,584,000
Additions to property and equipment.............. (2,846,000) (3,266,000)
------------ ------------
Net cash used in investing activities........... (51,134,000) (75,093,000)
------------ ------------
Cash flows from financing activities
Payments on film rights.......................... (25,709,000) (28,565,000)
Proceeds from debt issuances..................... 10,650,000 17,000,000
Principal payments on debt....................... (22,088,000) (31,607,000)
Cash provided by minority partners............... 3,000,000 --
Repurchases of Common Stock...................... (2,815,000) (74,000)
------------ ------------
Net cash used in financing activities........... (36,962,000) (43,246,000)
------------ ------------
Effect of foreign currency rate changes............ (253,000) --
------------ ------------
Decrease in cash and cash equivalents.............. (24,494,000) (722,000)
Cash and cash equivalents at beginning of period... 32,865,000 4,997,000
------------ ------------
Cash and cash equivalents at end of period......... $ 8,371,000 $ 4,275,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-61
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
NOTE A--PRESENTATION OF INTERIM FINANCIAL STATEMENTS
In management's opinion, the accompanying unaudited consolidated financial
statements of International Family Entertainment, Inc. (together with its
consolidated subsidiaries "IFE" or the "Company") reflect all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the consolidated results of operations for the interim periods presented. The
consolidated results of operations for such interim periods are not
necessarily indicative of the results that may be expected for future interim
periods or for the year ended December 31, 1997. These interim consolidated
financial statements and the notes thereto should be read in conjunction with
the audited consolidated financial statements and the notes thereto for the
year ended December 31, 1996. Certain amounts have been reclassified for
comparability with the 1997 financial statement presentation.
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these interim consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
As discussed in Note G, the Company has entered into the Merger Agreement
with FKWW. The effects of the Merger, when consummated, on management's
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities cannot be estimated
with any degree of certainty at this time, although such effects could be
substantial.
NOTE B--EARNINGS PER SHARE
The 6% Convertible Secured Notes due 2004 (the "Convertible Notes") are
considered to be common stock equivalents and, accordingly, the computations
of primary and fully diluted earnings per share assume conversion of the
Convertible Notes if the effect of such conversion is dilutive. Stock options
are also included in the computations of primary and fully diluted earnings
per share if their effect is dilutive.
For the six months ended June 30, 1996 and 1997, primary and fully diluted
earnings per common share were computed by increasing net income by the
interest on the Convertible Notes, net of related tax effect, and dividing the
result by the average number of common and common equivalent shares
outstanding during such periods.
NOTE C--MINORITY INTERESTS
THE FAMILY CHANNEL (UK)
Prior to April 22, 1996, minority interests were primarily attributable to a
minority partner's 39% interest in The Family Channel (UK) which was operated
as a joint venture. IFE and Flextech plc, the holder of the minority 39%
interest, funded the operations of The Family Channel (UK) through capital
investments and loans. On April 22, 1996, the Company consummated the sale of
its 61% interest in The Family Channel (UK) to Flextech, as described in Note
F.
The minority partner's share of the net loss resulting from the operations
of The Family Channel (UK), through the date of sale, amounted to $1,419,000
for the six month period ended June 30, 1996.
F-62
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FIT TV
On April 30, 1996, the Company, an affiliate of Liberty Media Corporation
("Liberty Media"), and an affiliate of Reebok International Limited ("Reebok")
entered into a definitive partnership agreement forming a partnership (the
"FiT TV Partnership"), effective January 1, 1996, to own and operate the FiT
TV cable network. FiT TV had previously been owned and operated by Cable
Health TV, Inc. ("CHTV"), a 90%-owned subsidiary of IFE. Prior to August 1,
1997, another affiliate of Liberty Media was the holder of the Convertible
Notes and all of the Company's outstanding Class C Common Stock. Liberty Media
is an affiliate of Tele-Communications, Inc. ("TCI"), one of the largest cable
television system operators in the United States and, as such, a major
provider of carriage for FiT TV.
The minority partners' combined 20% share of the net loss resulting from the
operations of the FiT TV Partnership, since its formation on April 30, 1996,
is reflected in the accompanying Consolidated Statements of Operations. The
minority partners' combined 20% share of the net loss of FiT TV amounted to
$280,000 and $808,000 for the six month periods ended June 30, 1996 and 1997,
respectively.
NOTE D--SUPPLEMENTAL CASH FLOW INFORMATION
Total interest costs paid were approximately $4,666,000 and $6,600,000
during the six months ended June 30, 1996 and 1997, respectively. Income taxes
paid during the six months ended June 30, 1996 and 1997 were approximately
$2,915,000 and $11,107,000, respectively.
Non-cash investing and financing activities included the acquisition of film
rights under license agreements, which aggregated approximately $26,937,000,
and $14,994,000 for the six months ended June 30, 1996 and 1997, respectively.
As described in Note F, on April 22, 1996, the Company consummated the sale
of its television production studio in Maidstone, England and its 61% interest
in The Family Channel (UK) to a related party. This sale was primarily a non-
cash transaction in which the Company received equity securities. Cash
received in the transaction amounting to approximately $4,600,000 was offset
by the cash balances of the businesses sold (which were transferred to the
buyer) and cash outlays for expenses of the sale.
NOTE E--COMMITMENTS AND CONTINGENCIES
The Company has commitments under program contracts for film rights related
to the production, exhibition, or distribution of programming, which was not
available as of June 30, 1997. The commitments under these program contracts
as well as commitments under program development agreements and employment
agreements totaled approximately $209,000,000 as of June 30, 1997. The unpaid
balance under program contracts for film rights (as well as the aggregate
future estimated payments of accrued participations and residuals) related to
the production, exhibition, or distribution of programming that was available
as of June 30, 1997 is reflected as a liability in the accompanying
consolidated financial statements.
The Company has guaranteed a $12,000,000 bank credit facility for a certain
sports marketing enterprise in which the Company holds convertible notes.
These notes will be convertible, beginning in 1998, at the option of the
Company, into a majority interest in such enterprise (which purchased the Ice
Capades from the Company in December 1995). The Company has a valuation
allowance in connection with its investment in the aforementioned convertible
notes. Increases in this valuation allowance, which amounted to $2,000,000 and
$9,700,000 for the six month periods ended June 30, 1996 and 1997,
respectively, are reflected in the determination of other expense in the
accompanying Consolidated Statements of Operations.
F-63
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company leases office facilities and certain other property and
equipment under non-cancelable operating leases.
In addition, the Company has contingent liabilities related to legal
proceedings and other matters arising from the normal course of operations.
Management does not expect that amounts, if any, which may be required to
satisfy such contingencies will be material in relation to the accompanying
consolidated financial statements.
NOTE F--GAIN ON DISPOSITION OF ASSETS--RELATED PARTY
On April 22, 1996, the Company consummated the sale of its television
production studio in Maidstone, England and its 61% interest in The Family
Channel (UK) to Flextech pursuant to agreements dated as of March 20, 1996.
Flextech previously owned a 39% interest in The Family Channel (UK).
Flextech's majority owner is Tele-Communications International, Inc., a
majority-owned subsidiary of TCI. Prior to August 1, 1997, another affiliate
of TCI was the holder of the Convertible Notes and all of the Company's
outstanding Class C Common Stock.
As consideration for this transaction, the Company received pound sterling
3,000,000 (approximately $4,600,000) in cash and 5,792,008 shares of
Flextech's convertible, redeemable, non-voting common stock. This common stock
was convertible, under certain circumstances, into Flextech's voting ordinary
shares which are listed on the London Stock Exchange. The underlying market
value of the voting ordinary shares as of the date of the agreement was
$46,100,000. The shares were recorded, for financial statement purposes, at
approximately pound sterling 23,000,000 ($35,458,000 based on the exchange
rate on the date of closing), which amount reflects a discount determined by
an independent valuation.
In April 1997, the aforementioned 5,792,008 shares of Flextech's
convertible, redeemable, non-voting common stock were converted on a share-
for-share basis into Flextech's voting ordinary common stock, which is listed
on the London Stock Exchange. As a result of this conversion, the Company's
investment in Flextech common stock is classified as "available-for-sale"
securities and, accordingly, the carrying value of such investment has been
adjusted to fair value (although the unrealized gain is excluded from the
determination of net income). The unrealized gain is reported, net of related
tax effect, as a separate component of stockholders' equity.
NOTE G--PROPOSED MERGER
On June 11, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Fox Kids Worldwide, Inc., a Delaware corporation
("FKWW"), and Fox Kids Merger Corporation, a Delaware corporation and a
wholly-owned subsidiary of FKWW ("FKW Sub"), providing for the merger (the
"Merger") of FKW Sub into the Company, with the Company as the surviving
corporation, pursuant to which each share of Common Stock of the Company
issued and outstanding immediately prior to the effective time of the Merger
(other than shares owned by FKWW, FKW Sub or the Company, or any of their
respective subsidiaries, or by stockholders who have validly perfected their
appraisal rights under the Delaware General Corporation Law) will be converted
into the right to receive a cash payment equal to $35 per share (the "Merger
Consideration"), without interest. Stockholders of the Company who
collectively held a majority of the outstanding voting power of the Company's
Common Stock approved the Merger by written consent delivered to the Company
on June 11, 1997 following the execution of the Merger Agreement.
Concurrently with the execution of the Merger Agreement, (i) certain
stockholders of the Company entered into stock purchase agreements
(collectively, the "Stock Purchase Agreements") with FKWW providing for the
sale to FKWW of an aggregate of 15,587,427 shares of Class B Common Stock,
including 5,000,000 shares of
F-64
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Class B Common Stock issuable upon conversion of all of the Company's
outstanding Class A Common Stock and 1,250,000 shares of Class B Common Stock
issuable upon the exercise of certain stock options, for $35 per share in
cash; and (ii) Liberty IFE, Inc. ("LIFE"), a Colorado corporation and a wholly
owned subsidiary of Liberty Media, which at the time held 7,088,732 shares of
Class C Common Stock and the Convertible Notes, convertible into 2,587,500
shares of Class C Common Stock, entered into a Contribution and Exchange
Agreement (the "Contribution Agreement") with FKWW pursuant to which LIFE
agreed to contribute such shares of Class C Common Stock and the Convertible
Notes to FKWW in exchange for shares of a new series of preferred stock of
FKWW. This series of preferred stock has a liquidation preference of $35 per
share or share equivalent of Class C Common Stock, plus $6.33 million designed
to compensate LIFE for foregone interest on the Convertible Notes and for
certain tax consequences.
NOTE H--SUBSEQUENT EVENT
On August 1, 1997, the Stock Purchase Agreements and the Contribution
Agreement described in Note G were consummated. The Merger Agreement provides
that, upon the consummation of the Stock Purchase Agreements, FKWW shall be
entitled to designate, at its option upon notice to the Company, up to a
majority of the Company's Board of Directors. In this event, the Company will
either increase the size of the Board of Directors and/or obtain the
resignation of such number of its current directors as is necessary to enable
FKWW's designees to be elected.
The Merger will be consummated upon the expiration of twenty days from the
date a definitive information statement pursuant to Section 14(c) of the
Securities Exchange Act of 1934, as amended, is first sent or given to the
Company's stockholders.
F-65
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
International Family Entertainment, Inc.:
We have audited the accompanying consolidated balance sheets of
International Family Entertainment, Inc. and subsidiaries (the "Company") as
of December 31, 1995 and 1996, and the related consolidated statements of
operations, cash flows and stockholders' equity for each of the years in the
three-year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 financial position of
International Family Entertainment, Inc. and subsidiaries as of December 31,
1995 and 1996, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Norfolk, Virginia
March 17, 1997
F-66
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................ $ 32,865,000 $ 4,997,000
Investment in marketable securities.............. 8,290,000 9,053,000
Accounts receivable, net of allowances of
$5,780,000 and $4,662,000....................... 95,699,000 121,359,000
Film rights, current portion..................... 56,355,000 97,441,000
Prepaid expenses and other....................... 11,511,000 4,401,000
------------ ------------
Total current assets........................... 204,720,000 237,251,000
Property and equipment, net........................ 73,028,000 62,877,000
Film rights........................................ 105,094,000 144,680,000
Long-term accounts receivable, net of allowances of
$520,000 and $126,000............................. 24,754,000 17,530,000
Investment in equity securities--related party..... -- 35,458,000
Other investments, net of deferred gain of
$2,616,000........................................ 16,575,000 14,889,000
Goodwill, net of accumulated amortization of
$6,552,000 and $8,830,000......................... 54,795,000 48,517,000
Deferred tax benefit............................... -- 1,076,000
Other assets....................................... 2,461,000 6,405,000
------------ ------------
$481,427,000 $568,683,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................. $ 14,598,000 $ 12,874,000
Accrued liabilities.............................. 13,121,000 11,756,000
Accrued participations and residuals............. 11,615,000 15,613,000
Current portion of film rights payable........... 38,161,000 44,050,000
Current maturities of debt....................... 181,000 1,205,000
Income taxes payable............................. -- 9,214,000
Current portion of deferred income taxes......... 611,000 6,544,000
Deferred income.................................. 5,891,000 7,927,000
------------ ------------
Total current liabilities...................... 84,178,000 109,183,000
Film rights payable................................ 32,714,000 50,643,000
Long-term debt..................................... 153,752,000 171,251,000
Accrued interest--related party.................... 327,000 273,000
Convertible Notes--related party................... 23,000,000 23,000,000
Other liabilities, including participations and
residuals......................................... 10,347,000 11,079,000
Deferred income taxes.............................. 2,676,000 --
Commitments and contingencies (Note N)
Minority interests................................. 3,130,000 2,062,000
Stockholders' equity
Class A Common Stock, $.01 par value,
convertible, 10,000,000 shares authorized,
5,000,000 shares issued and outstanding......... 143,000 143,000
Class B Common Stock, $.01 par value, 100,000,000
shares authorized, 33,039,831 and 32,786,538
shares issued and outstanding................... 104,886,000 101,456,000
Class C Common Stock, $.01 par value,
convertible, 20,000,000 shares authorized,
7,088,732 shares issued and outstanding......... 50,717,000 50,717,000
Unearned compensation--Stock Plan................ (1,697,000) (562,000)
Cumulative foreign currency translation adjust-
ment............................................ 665,000 --
Unrealized gain (loss) on marketable securities.. (373,000) 351,000
Retained earnings................................ 16,962,000 49,087,000
------------ ------------
Total stockholders' equity..................... 171,303,000 201,192,000
------------ ------------
$481,427,000 $568,683,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-67
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Operating revenues.................. $242,050,000 $294,858,000 $332,810,000
------------ ------------ ------------
Operating expenses
Production and programming........ 137,294,000 155,685,000 178,762,000
Selling and marketing............. 49,819,000 61,122,000 64,544,000
New business development.......... 4,991,000 9,908,000 2,317,000
General and administrative........ 21,967,000 27,088,000 28,745,000
Amortization of goodwill.......... 2,532,000 2,657,000 2,278,000
------------ ------------ ------------
Total operating expenses........ 216,603,000 256,460,000 276,646,000
------------ ------------ ------------
Operating income................ 25,447,000 38,398,000 56,164,000
------------ ------------ ------------
Other income (expense)
Investment income (loss).......... (2,522,000) 1,883,000 2,843,000
Interest expense--related par-
ties............................. (1,754,000) (2,134,000) (1,606,000)
Interest expense--other........... (9,280,000) (10,855,000) (10,945,000)
Minority interests in losses...... 5,277,000 4,916,000 2,359,000
Gain on disposition of assets--re-
lated party...................... -- -- 13,685,000
Other income (expense), net (Note
B)............................... 7,789,000 522,000 (5,640,000)
------------ ------------ ------------
Total other income (expense).... (490,000) (5,668,000) 696,000
------------ ------------ ------------
Income before income taxes...... 24,957,000 32,730,000 56,860,000
Provision for income taxes.......... (10,165,000) (14,066,000) (24,735,000)
------------ ------------ ------------
Net income...................... 14,792,000 18,664,000 32,125,000
Dividend requirement on Preferred
Stock.............................. (2,200,000) -- --
Distribution--exchange of Preferred
Stock.............................. -- (12,163,000) --
------------ ------------ ------------
Net income available for Common
Stock.......................... $ 12,592,000 $ 6,501,000 $ 32,125,000
============ ============ ============
Primary and fully diluted earnings
per common share................... $ 0.30 $ 0.16 $ 0.69
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-68
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activi-
ties
Net income........................ $ 14,792,000 $ 18,664,000 $ 32,125,000
------------ ------------- -------------
Adjustments to reconcile net
income to net cash provided by
operating activities
Amortization of film rights..... 103,231,000 120,277,000 145,047,000
Depreciation and amortization of
property and equipment,
goodwill, and other assets..... 9,611,000 10,840,000 11,270,000
Write-downs of marketable secu-
rities......................... 3,706,000 -- --
Allowances against investments.. -- -- 5,250,000
Share of losses of affiliates,
net............................ -- 1,345,000 514,000
Minority interests in losses.... (5,277,000) (4,916,000) (2,359,000)
Gain on marketable securities... -- -- (1,924,000)
Gain on disposition of assets--
related party.................. -- -- (13,685,000)
Compensation--Stock Plan........ 1,127,000 1,351,000 686,000
Deferred income tax expense..... 1,206,000 11,654,000 5,477,000
Changes in assets and
liabilities, net of effect of
acquisitions and dispositions
Accounts receivable, net of
allowances................... 1,093,000 (29,048,000) (23,257,000)
Marketable securities,
prepaids, and other.......... 9,020,000 (5,837,000) (14,264,000)
Accounts payable and accrued
liabilities.................. (15,211,000) (1,304,000) 1,440,000
Income taxes payable.......... 6,202,000 (10,428,000) 8,702,000
Deferred income............... 3,451,000 (6,278,000) 1,537,000
------------ ------------- -------------
Total adjustments............... 118,159,000 87,656,000 124,434,000
------------ ------------- -------------
Net cash provided by operating
activities................... 132,951,000 106,320,000 156,559,000
------------ ------------- -------------
Cash flows from investing activi-
ties
Acquisitions of original pro-
gramming....................... (82,806,000) (57,184,000) (133,527,000)
Acquisitions of original pro-
gramming--related parties...... (457,000) (2,747,000) (2,197,000)
Cash paid for acquisition....... -- (3,060,000) --
Other investments, including ad-
vances......................... -- (6,102,000) (21,506,000)
Repayment of advances........... -- -- 17,494,000
Purchases of marketable securi-
ties........................... (12,217,000) (858,000) --
Sales of marketable securities.. 3,689,000 1,089,000 4,954,000
Additions to property and equip-
ment........................... (9,443,000) (10,182,000) (9,775,000)
Proceeds from sales of property
and equipment.................. 2,504,000 -- --
------------ ------------- -------------
Net cash used in investing ac-
tivities..................... (98,730,000) (79,044,000) (144,557,000)
------------ ------------- -------------
Cash flows from financing activi-
ties
Payments on film rights......... (42,428,000) (46,167,000) (58,142,000)
Proceeds from debt issuances.... 5,000,000 313,250,000 59,150,000
Principal payments on debt...... (31,201,000) (285,417,000) (40,703,000)
Cash provided by minority part-
ners........................... 2,774,000 4,523,000 3,000,000
Payment of Preferred Stock divi-
dends.......................... (2,200,000) (1,109,000) --
Repurchases of Common Stock..... (2,661,000) (4,357,000) (2,981,000)
Repurchases of Common Stock--re-
lated parties.................. -- (13,819,000) --
------------ ------------- -------------
Net cash used in financing ac-
tivities..................... (70,716,000) (33,096,000) (39,676,000)
------------ ------------- -------------
Effect of foreign currency rate
changes.......................... 1,094,000 (31,000) (194,000)
------------ ------------- -------------
Decrease in cash and cash equiva-
lents............................ (35,401,000) (5,851,000) (27,868,000)
Cash and cash equivalents at be-
ginning of year.................. 74,117,000 38,716,000 32,865,000
------------ ------------- -------------
Cash and cash equivalents at end
of year.......................... $ 38,716,000 $ 32,865,000 $ 4,997,000
============ ============= =============
</TABLE>
See accompanying notes to consolidated financial statements
F-69
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
10% CUMULATIVE UNREALIZED
CONVERTIBLE FOREIGN GAIN
CUMULATIVE CLASS A CLASS B CLASS C UNEARNED CURRENCY (LOSS) ON RETAINED
PREFERRED COMMON COMMON COMMON COMPENSATION TRANSLATION MARKETABLE EARNINGS
STOCK STOCK STOCK STOCK STOCK PLAN ADJUSTMENT SECURITIES (DEFICIT)
------------ -------- ------------ ----------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT
JANUARY 1,
1994........... $ 21,670,000 $150,000 $146,198,000 $ -- $(1,701,000) $ (11,000) $ -- $(13,089,000)
Conversion of
Class A Common
Stock, 500,000
shares......... -- (17,000) 17,000 -- -- -- -- --
Issuance of
Class B Common
Stock under the
Stock Plan,
140,482
shares......... -- -- 2,258,000 -- (2,257,000) -- -- --
Forfeiture of
Class B
Common Stock
under the Stock
Plan,
14,000 shares.. -- -- (148,000) -- 147,000 -- -- --
Compensation--
Stock Plan..... -- -- -- -- 1,127,000 -- -- --
Repurchase and
retirement of
Class B Common
Stock,
176,033
shares......... -- -- (2,661,000) -- -- -- -- --
Increase in
deferred tax
benefit
related to
initial basis
differences
(Note K)....... -- -- 6,000,000 -- -- -- -- --
Foreign currency
translation
adjustment..... -- -- -- -- -- 989,000 -- --
Unrealized loss
on
marketable
securities..... -- -- -- -- -- -- (156,000) --
Net income...... -- -- -- -- -- -- -- 14,792,000
Preferred Stock
dividends
paid........... -- -- -- -- -- -- -- (2,200,000)
------------ -------- ------------ ----------- ----------- --------- --------- ------------
BALANCES AT
DECEMBER 31,
1994........... 21,670,000 133,000 151,664,000 -- (2,684,000) 978,000 (156,000) (497,000)
Exchange of
Preferred Stock
for Class B
Common Stock,
4,000,000
shares......... (21,670,000) -- 21,670,000 -- -- -- -- --
Exchange of
Class B Common
Stock for Class
C Common
Stock,
5,670,986
shares (Note
H)............. -- -- (50,703,000) 50,703,000 -- -- -- --
Issuance of
Class B Common
Stock under the
Stock
Plan, 37,637
shares......... -- -- 578,000 -- (578,000) -- -- --
Forfeiture of
Class B Common
Stock under the
Stock
Plan, 15,280
shares......... -- -- (214,000) -- 214,000 -- -- --
Compensation--
Stock Plan..... -- -- -- -- 1,351,000 -- -- --
Repurchase and
retirement of
Class B Common
Stock,
1,357,456
shares......... -- -- (18,176,000) -- -- -- -- --
Five-for-four
stock split,
including
$5,000 paid for
fractional
shares (Note
I)............. -- 10,000 67,000 14,000 -- -- -- (96,000)
Foreign currency
translation
adjustments.... -- -- -- -- -- (313,000) -- --
Unrealized loss
on
marketable
securities..... -- -- -- -- -- -- (217,000) --
Net income...... -- -- -- -- -- -- -- 18,664,000
Preferred Stock
dividends
paid........... -- -- -- -- -- -- -- (1,109,000)
------------ -------- ------------ ----------- ----------- --------- --------- ------------
BALANCES AT
DECEMBER 31,
1995........... -- 143,000 104,886,000 50,717,000 (1,697,000) 665,000 (373,000) 16,962,000
Issuance of
Class B Common
Stock under the
Stock
Plan, 812
shares......... -- -- 11,000 -- (11,000) -- -- --
Forfeiture of
Class B Common
Stock under the
Stock
Plan, 31,936
shares......... -- -- (460,000) -- 460,000 -- -- --
Exercise of
options to
purchase
Class B Common
Stock under the
Stock Plan,
19,333 shares.. -- -- 266,000 -- -- -- -- --
Compensation--
Stock Plan..... -- -- -- -- 686,000 -- -- --
Repurchase and
retirement of
Class B Common
Stock,
241,502
shares......... -- -- (3,247,000) -- -- -- -- --
Foreign currency
translation
adjustment..... -- -- -- -- -- (665,000) -- --
Unrealized gain
on marketable
securities..... -- -- -- -- -- -- 724,000 --
Net income...... -- -- -- -- -- -- -- 32,125,000
------------ -------- ------------ ----------- ----------- --------- --------- ------------
BALANCES AT
DECEMBER 31,
1996........... $ -- $143,000 $101,456,000 $50,717,000 $ (562,000) $ -- $ 351,000 $ 49,087,000
============ ======== ============ =========== =========== ========= ========= ============
<CAPTION>
TOTAL
-------------
<S> <C>
BALANCES AT
JANUARY 1,
1994........... $153,217,000
Conversion of
Class A Common
Stock, 500,000
shares......... --
Issuance of
Class B Common
Stock under the
Stock Plan,
140,482
shares......... 1,000
Forfeiture of
Class B
Common Stock
under the Stock
Plan,
14,000 shares.. (1,000)
Compensation--
Stock Plan..... 1,127,000
Repurchase and
retirement of
Class B Common
Stock,
176,033
shares......... (2,661,000)
Increase in
deferred tax
benefit
related to
initial basis
differences
(Note K)....... 6,000,000
Foreign currency
translation
adjustment..... 989,000
Unrealized loss
on
marketable
securities..... (156,000)
Net income...... 14,792,000
Preferred Stock
dividends
paid........... (2,200,000)
-------------
BALANCES AT
DECEMBER 31,
1994........... 171,108,000
Exchange of
Preferred Stock
for Class B
Common Stock,
4,000,000
shares......... --
Exchange of
Class B Common
Stock for Class
C Common
Stock,
5,670,986
shares (Note
H)............. --
Issuance of
Class B Common
Stock under the
Stock
Plan, 37,637
shares......... --
Forfeiture of
Class B Common
Stock under the
Stock
Plan, 15,280
shares......... --
Compensation--
Stock Plan..... 1,351,000
Repurchase and
retirement of
Class B Common
Stock,
1,357,456
shares......... (18,176,000)
Five-for-four
stock split,
including
$5,000 paid for
fractional
shares (Note
I)............. (5,000)
Foreign currency
translation
adjustments.... (313,000)
Unrealized loss
on
marketable
securities..... (217,000)
Net income...... 18,664,000
Preferred Stock
dividends
paid........... (1,109,000)
-------------
BALANCES AT
DECEMBER 31,
1995........... 171,303,000
Issuance of
Class B Common
Stock under the
Stock
Plan, 812
shares......... --
Forfeiture of
Class B Common
Stock under the
Stock
Plan, 31,936
shares......... --
Exercise of
options to
purchase
Class B Common
Stock under the
Stock Plan,
19,333 shares.. 266,000
Compensation--
Stock Plan..... 686,000
Repurchase and
retirement of
Class B Common
Stock,
241,502
shares......... (3,247,000)
Foreign currency
translation
adjustment..... (665,000)
Unrealized gain
on marketable
securities..... 724,000
Net income...... 32,125,000
-------------
BALANCES AT
DECEMBER 31,
1996........... $201,192,000
=============
</TABLE>
See accompanying notes to consolidated financial statements
F-70
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
International Family Entertainment, Inc. (together with its consolidated
subsidiaries, "IFE" or the "Company") produces, exhibits, and distributes
entertainment and informational programming as well as related products
targeted at families worldwide. IFE's principal business is The Family
Channel, an advertiser-supported cable television network that provides
family-oriented entertainment and informational programming in the United
States.
In addition, IFE owns MTM Entertainment, Inc. ("MTM"), a producer and
worldwide distributor of television series and made-for-television movies and
the owner of a significant library of television programming; FiT TV, an
advertiser-supported health and fitness cable network which operates
principally in the United States; and Calvin Gilmore Productions, Inc., a
producer of live musical variety shows. IFE also operated The Family Channel
(UK), an advertiser-supported network in the United Kingdom, through its
disposition on April 22, 1996, and The Family Channel De Las Americas, which
provided Spanish-language, family-oriented entertainment programming, as well
as fitness programming, to Mexico, Central America, and portions of South
America, through the discontinuance of its operations in November 1996.
Additionally, in 1995, IFE operated the Ice Capades, a touring ice show.
Basis of Presentation
The accompanying consolidated financial statements for the years ended
December 31, 1994, 1995, and 1996 include the accounts of the Company and all
majority-owned subsidiaries (including joint ventures). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Cash Equivalents
All highly-liquid debt instruments purchased with original maturities of
three months or less are classified as cash equivalents.
Marketable Securities
Marketable securities consist of investments in U.S. Government bonds and
notes and other marketable debt or equity securities. Debt and equity
securities that are bought and held principally for the purpose of selling
them in the near term are classified as "trading" securities and reported at
fair value, with unrealized gains and losses included in the determination of
net income. Gains and losses on transactions involving futures contracts or
other derivative securities are also included in the determination of net
income. Debt and equity securities not classified as trading securities are
classified as "available-for-sale" securities and reported at fair value, with
unrealized gains and losses excluded from the determination of net income
(unless an other-than-temporary impairment shall have occurred) and reported,
net of related tax effect, as a separate component of stockholders' equity.
The cost of securities sold is determined using the specific identification
method.
Property and Equipment
Property and equipment is stated at cost. Buildings and equipment under
capital leases are stated at the present value of minimum lease payments.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets: buildings and building improvements--20 to 40 years;
satellite transponders--12 years; broadcasting and production equipment--3 to
5 years; and furniture and other equipment--3 to 10 years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease terms or estimated useful lives of the assets.
F-71
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Film Rights
Film rights include exhibition and exploitation rights acquired under
license agreements for the Company's own use on its cable networks and for
relicensing to others. Also included in film rights are costs of programming,
including films-in-progress, produced for exhibition by the Company on its
cable networks or produced for others. These costs, including allocated
overhead, are capitalized as incurred. Rights acquired under license
agreements, along with the related obligations, are recorded at the face
amount of the contract at the time the programming is made available.
Film rights, other than films-in-progress (which are stated at cost), are
stated at the lower of cost, less related amortization, or net realizable
value. Exhibition rights are amortized on a straight-line basis over the
estimated number of airings. Production and exploitation costs related to
programs produced for others are amortized based on the percentage that
current year revenues bear to estimated future revenues on a program-by-
program basis. Estimates of future airings and revenues are periodically
reviewed by management and revised when warranted by changing conditions, such
as changes in expected usage of a program on the Company's cable networks or
changes in the distribution marketplace.
The current portion of film rights is based upon the estimated portion of
these assets which is expected to be amortized over the next year.
Other Investments
Other investments in which the Company's voting interest is less than 20%
are carried at cost.
Investments in affiliates in which the Company's voting interest is 20% to
50% are accounted for under the equity method. Under this method, the
investment, originally recorded at cost, is adjusted to recognize the
Company's share of the net earnings or losses of the affiliates as they occur.
The excess of the cost of the stock of those affiliates over the Company's
share of net assets at the acquisition date is amortized on a straight-line
basis over the expected period to be benefited, generally 25 years.
Goodwill
Goodwill, which represents the excess of purchase price over the fair value
of net assets acquired, is amortized on a straight-line basis over the
expected period to be benefited, generally 25 years. At each balance sheet
date, the Company evaluates the realizability of goodwill based upon
expectations of nondiscounted future operating cash flows for each subsidiary
having a material goodwill balance. The evaluation of goodwill will be
impacted if estimated future operating cash flows are not achieved. Based upon
its most recent analysis, the Company believes that no material impairment of
goodwill existed at December 31, 1996.
Foreign Currency Translation
All balance sheet accounts of foreign investments were translated at the
current exchange rate as of the end of the accounting period. The resulting
translation adjustment was recorded as a separate component of stockholders'
equity. Income statement items are translated at average currency exchange
rates.
Revenue Recognition
Advertising revenue is recognized in the period in which the advertising
commercials or programs are telecast. Subscriber fees are recognized in the
period during which the network services are provided to a cable system
operator or other distributor.
F-72
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Production and distribution revenues are recognized in the period in which
programming becomes available for telecast by others. Long-term receivables
arising from distribution arrangements are recorded at their net present
values when revenue is recognized. Amounts received in advance of recognition
of revenue are recorded as deferred income. Costs of profit participations and
residual payments are accrued, based upon amounts expected to be payable, at
the time revenue is recognized.
Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to be applicable to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the period that includes the
enactment date.
Stock Options
Prior to January 1, 1996, the Company accounted for stock options in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25. Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, which
permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS No.
123 also allows entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as
if the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.
Earnings Per Share
The Convertible Notes, as described in Note F, are considered to be common
stock equivalents and, accordingly, the computations of primary and fully
diluted earnings per share assume conversion of the Convertible Notes if the
effect of such conversion is dilutive. Stock options are also included in the
computations of primary and fully diluted earnings per share if their effect
is dilutive.
For the years ended December 31, 1994 and 1995, primary and fully diluted
earnings per common share were computed by dividing net income available for
Common Stock by the average number of common shares (41,820,072 and
40,754,635, respectively) outstanding during such years. In 1995, the impact
of the Exchange Agreement, as described in Note H, on earnings per common
share was a reduction of $0.24 per common share.
For the year ended December 31, 1996, primary and fully diluted earnings per
common share were computed by increasing net income available for Common Stock
by the interest on the Convertible Notes, net of the related tax effect, and
dividing the result by the average number of common shares (48,022,327)
outstanding during 1996.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
F-73
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reclassifications
Certain amounts have been reclassified for comparability with the 1996
financial statement presentation.
NOTE B--ACQUISITIONS AND OTHER INVESTMENTS
Body By Jake Enterprises
In July 1995, the Company acquired a 20% interest in Body By Jake
Enterprises, LLC ("BBJE"), a fitness licensing and television production
company, for $4,000,000 in cash.
China Entertainment Television Broadcast Limited
In June 1995, the Company acquired a 33 1/3% interest in an entity which
held convertible demand notes, which were convertible into an 80% equity
interest in China Entertainment Television Broadcast Limited. This entity
recorded a valuation allowance in 1995 of which the Company's share was
approximately $1,500,000, which is reflected in the determination of other
income and expense in the 1995 Consolidated Statement of Operations. In
November 1996, these convertible demand notes were sold to a third party for
approximately 77.5% of their face value.
Ice Capades
In February 1995, the Company acquired the assets of the Ice Capades for
consideration, consisting principally of assumed liabilities, amounting to
approximately $10,200,000. The liabilities assumed in the transaction included
$6,728,000 of cash advances by IFE prior to closing.
On December 31, 1995, the Company sold its interest in the Ice Capades to a
certain sports marketing enterprise in exchange for 7 1/2% convertible notes,
due in 2005, in the principal amount of $10,200,000 and the assumption of cash
advances due to the Company amounting to $4,090,000 at December 31, 1995.
These notes will be convertible, beginning in 1998, at the option of the
Company, into a majority interest in the acquiring entity. Accordingly, the
gain on this transaction amounting to $2,616,000 was deferred. In addition, on
this same date, the Company and the acquiring entity entered into a revolving
credit agreement whereby the Company agreed to advance the acquiring entity up
to $12,000,000 (including the aforementioned $4,090,000 in cash advances).
During 1996, this revolving credit agreement was replaced by a bank credit
facility which is guaranteed by IFE. In 1996, the Company recorded a valuation
allowance in connection with its investment in the aforementioned 7 1/2%
convertible notes. Such valuation allowance, which amounted to $5,300,000, is
reflected in the determination of other income and expense in the 1996
Consolidated Statement of Operations.
TVS ENTERTAINMENT PLC
During 1993, the Company acquired all of the outstanding capital stock of
TVS ENTERTAINMENT PLC ("TVS"), which was the parent company of MTM at that
time. Upon consummation of the acquisition of TVS, several contingencies
existed and the amounts related thereto were included in the allocation of the
purchase price, based upon management estimates utilizing the best available
information. Such estimates are periodically reviewed by management and
revised when warranted. Generally, after the first twelve months following an
acquisition, changes in estimates are included in the determination of net
income. Accordingly, the effects of the final resolution in 1994 and 1995 of
certain pre-acquisition contingencies recorded in the acquisition of TVS were
included in the determination of net income. Such effects, which amounted to
$7,291,000 and $2,521,000, were included in the determination of other income
and expense in the 1994 and 1995 Consolidated Statements of Operations,
respectively.
F-74
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
United Family Communications
In November 1996, the Company and a third party formed United Family
Communications, LLC ("UFC") to operate and distribute satellite-delivered
television programming services in Mexico, Central America, and South America.
The Company has agreed to make an initial cash contribution of $5,200,000 and
has contributed certain assets of The Family Channel De Las Americas (subject
to the joint venture's assumption of related liabilities) in exchange for a
50% interest in UFC. It is the current intent of UFC to launch one or more
advertiser-supported, satellite-delivered television programming services in
1997.
NOTE C--MARKETABLE SECURITIES
Marketable securities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Available-for-sale securities, at fair value..... $6,271,000 $4,072,000
Trading securities, at fair value................ 2,019,000 4,981,000
---------- ----------
$8,290,000 $9,053,000
========== ==========
</TABLE>
Available-for-sale securities, consisting primarily of equity securities,
had an amortized cost of $6,904,000 and $3,477,000 at December 31, 1995 and
1996, respectively. As of December 31, 1995, the unrealized loss related to
securities classified as available-for-sale amounted to $633,000 ($373,000
after related tax effect). As of December 31, 1996, the unrealized gain
related to securities classified as available-for-sale amounted to $595,000
($351,000 after related tax effect). For the years ended December 31, 1995 and
1996, proceeds from the disposition of available-for-sale securities amounted
to $1,089,000 and $4,954,000, respectively, and gross realized gains and
losses were $29,000 and $(119,000) in 1995 and $1,093,000 and $(22,000) in
1996.
As of December 31, 1996, the unrealized gain related to trading securities
(with a cost of $4,129,000) amounted to $852,000, which amount is included in
the determination of investment income. For the year ended December 31, 1996,
proceeds from the disposition of trading securities amounted to $952,000, and
gross realized gains and losses were $164,000 and $(49,000) in 1996.
The Company recognized a $3,691,000 loss in 1994 on the impairment of
certain equity securities classified as available-for-sale securities. This
loss for 1994 was accounted for as a realized loss in the determination of
investment income. Also included in the determination of investment income for
1994 were realized losses aggregating $2,338,000 on transactions which
involved futures contracts or other derivative securities.
NOTE D--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Land and buildings............................... $21,010,000 $14,156,000
Satellite transponders........................... 36,415,000 36,415,000
Broadcasting and production equipment............ 16,857,000 12,248,000
Furniture and other equipment.................... 16,584,000 24,494,000
Leasehold and building improvements.............. 5,993,000 5,424,000
----------- -----------
96,859,000 92,737,000
Less accumulated depreciation and amortization... 23,831,000 29,860,000
----------- -----------
$73,028,000 $62,877,000
=========== ===========
</TABLE>
F-75
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE E--LONG-TERM DEBT
Long-term debt, other than the Convertible Notes described in Note F,
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
------------ ------------
<S> <C> <C>
Revolving Credit Facility...................... $133,000,000 $150,500,000
Subsidiary Credit Agreement.................... 8,850,000 10,000,000
6% notes payable, subordinated................. 6,720,000 6,720,000
Capital lease obligations...................... 5,363,000 5,236,000
------------ ------------
153,933,000 172,456,000
Less current maturities........................ 181,000 1,205,000
------------ ------------
$153,752,000 $171,251,000
============ ============
</TABLE>
Revolving Credit Facility
The Company has a long-term bank credit facility (the "Revolving Credit
Facility") with a group of banks with a maximum loan commitment thereunder of
$250,000,000. The Revolving Credit Facility provides for semi-annual
reductions of one-tenth of the loan commitment, beginning in December 1997,
with a final expiration in June 2002. Interest on borrowings under the
Revolving Credit Facility is payable quarterly at the prime rate or, at the
option of the Company, at a Eurodollar-based interest rate (5 9/16% at
December 31, 1996), plus a margin of 7/8% to 1 3/8%, depending on the
Company's overall leverage. In addition, the Company pays a fee of 1/4% to
3/8% per annum, depending on leverage, on the average unborrowed portion of
the total amount available for borrowings. The Revolving Credit Facility
contains (i) a negative pledge of substantially all of the Company's assets
and (ii) various restrictive covenants which, among other things, obligate the
Company to maintain certain financial ratios and limit the ability of the
Company to incur additional indebtedness, liens, and guarantees. Under the
terms of the Revolving Credit Facility, the aggregate amount of future
dividends on, and future redemptions of, the Company's common stock cannot
exceed approximately $50,000,000 as of December 31, 1996.
Interest Rate Exchange Agreement
In August 1996, the Company entered into an interest rate exchange agreement
pursuant to which it will make payments based upon a fixed rate of interest (5
7/8% per annum) on a notional amount of $25,000,000 and, in exchange, receive
payments based upon a variable rate of interest using a Eurodollar-based
interest rate determined on a quarterly basis. The initial term of this
agreement is two years, with an additional term of one year at the option of
the counterparty. Although the Company does not anticipate nonperformance by
the counterparty, the Company is exposed to credit losses for the periodic
settlement of amounts due under this interest rate exchange agreement in the
event of such party's nonperformance.
Subsidiary Credit Agreement
In January 1995, a subsidiary of the Company entered into a $10,000,000
credit agreement with a certain bank (the "Subsidiary Credit Agreement"). The
terms of the Subsidiary Credit Agreement are substantially the same as those
of the Revolving Credit Facility.
F-76
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future Minimum Payments
The December 31, 1996 balance of long-term debt, other than the Convertible
Notes, is payable as follows:
<TABLE>
<CAPTION>
REVOLVING SUBSIDIARY CAPITAL
CREDIT CREDIT 6% NOTES LEASE
YEARS ENDED DECEMBER 31 FACILITY AGREEMENT PAYABLE OBLIGATIONS TOTAL
- ----------------------- ------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1997.................... $ -- $ 1,000,000 $ -- $ 581,000 $ 1,581,000
1998.................... -- 2,000,000 -- 450,000 2,450,000
1999.................... 25,500,000 2,000,000 1,680,000 425,000 29,605,000
2000.................... 50,000,000 2,000,000 1,680,000 435,000 54,115,000
2001.................... 50,000,000 2,000,000 1,680,000 480,000 54,160,000
Thereafter.............. 25,000,000 1,000,000 1,680,000 8,283,000 35,963,000
Less amounts
representing interest
on capital lease
obligations............ -- -- -- (5,418,000) (5,418,000)
------------ ----------- ---------- ---------- ------------
$150,500,000 $10,000,000 $6,720,000 $5,236,000 $172,456,000
============ =========== ========== ========== ============
</TABLE>
NOTE F--CONVERTIBLE NOTES
The Company's 6% Convertible Secured Notes due 2004 (the "Convertible
Notes") were issued to a related party. The Convertible Notes provide for a
security interest in the Company's rights in two satellite transponders, and
contain restrictive covenants which, among other things, require the Company
to maintain certain financial ratios and limit the ability of the Company to
incur additional indebtedness. In addition, no dividends may be declared or
paid on any shares of the Company's capital stock (other than dividends
payable solely in shares of the capital stock of the Company) at any time when
payments of principal, interest or other amounts are past due under the
Convertible Notes or while any event of default is continuing under the
Convertible Notes or would result from such dividend.
The $23,000,000 in principal amount of the Convertible Notes is payable in
five equal annual installments beginning December 31, 2000. The Convertible
Notes are subordinated to borrowings under the Revolving Credit Facility
described in Note E. Each $1,000 in principal amount of the Convertible Notes
may be converted into 112 1/2 shares of Class C Common Stock. Each share of
Class C Common Stock is convertible, at the option of the holder, into one
share of Class B Common Stock. Accordingly, the Company has reserved 2,587,500
shares of Class C Common Stock for potential future conversion of the
Convertible Notes (and, in addition, 2,587,500 shares of Class B Common Stock
for potential future conversion of the resulting Class C Common Stock).
NOTE G--MINORITY INTERESTS
The Family Channel (UK)
Prior to April 22, 1996, minority interests were primarily attributable to a
minority partner's 39% interest in The Family Channel (UK) which was operated
as a joint venture. IFE and Flextech plc, the holder of the minority 39%
interest, funded the operations of The Family Channel (UK) through capital
investments and loans. On April 22, 1996, the Company consummated the sale of
its 61% interest in The Family Channel (UK) to Flextech, as described in Note
P.
The minority partner's 39% share of the net loss resulting from the
operations of The Family Channel (UK) amounted to $5,107,000 and $4,954,000
for the years ended December 31, 1994 and 1995, respectively. The minority
partner's 39% share of the net loss of this joint venture, through the date of
sale, amounted to $1,419,000 for 1996.
F-77
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FiT TV
On April 30, 1996, the Company, an affiliate of Liberty Media Corporation
("Liberty Media"), and an affiliate of Reebok International Limited ("Reebok")
entered into a definitive partnership agreement (the "FiT TV Partnership
Agreement") forming a partnership (the "FiT TV Partnership"), effective
January 1, 1996, to own and operate the FiT TV cable network. FiT TV had
previously been owned and operated by Cable Health TV, Inc. ("CHTV"), a 90%-
owned subsidiary of IFE. Another affiliate of Liberty Media is the holder of
the Convertible Notes and all of the Company's outstanding Class C Common
Stock. Liberty Media is an affiliate of Tele-Communications, Inc. ("TCI"), one
of the largest cable television system operators in the United States and, as
such, a major provider of carriage for FiT TV.
In accordance with the terms of the FiT TV Partnership Agreement, CHTV
contributed all of the assets and liabilities of FiT TV to the FiT TV
Partnership in exchange for an 80% partnership interest and functions as the
FiT TV Partnership's managing partner. Reebok contributed cash of $2,000,000
and other consideration agreed upon by the parties in exchange for a 10%
partnership interest. Liberty Media contributed cash of $1,000,000 and other
consideration agreed upon by the parties in exchange for a 10% partnership
interest.
In conjunction with this transaction, CHTV and Liberty Media entered into an
agreement whereby Liberty Media was granted a five-year option to purchase an
additional 10% partnership interest from CHTV. The exercise price for this
option varies (up to a maximum of $5,000,000) depending on the number of
domestic subscribers receiving FiT TV from delivery systems owned or managed
by Liberty Media or an affiliate of Liberty Media (including TCI) at the time
of exercise.
The minority partners' combined 20% share of the net loss resulting from the
operations of the FiT TV Partnership, since its formation on April 30, 1996,
is reflected in the 1996 Consolidated Statement of Operations. The minority
partners' combined 20% share of the net loss of FiT TV amounted to $938,000
for the year ended December 31, 1996.
NOTE H--EXCHANGE OF PREFERRED STOCK
On December 15, 1995, the Company and Liberty IFE, Inc., an affiliate of
Liberty Media, the then holder of the 10% Convertible Cumulative Preferred
Stock (the "Preferred Stock"), and holder of the Convertible Notes, entered
into an exchange agreement (the "Exchange Agreement") whereby Liberty IFE (i)
exchanged its holdings of all of the Preferred Stock for shares of Class B
Common Stock, (ii) exchanged all of its holdings of Class B Common Stock
(including the shares of Class B Common Stock received in exchange for the
Preferred Stock) for an equal number of shares of non-voting Class C Common
Stock, (iii) amended the terms of the Convertible Notes to provide, among
other things, for conversion of such notes into shares of non-voting Class C
Common Stock in lieu of shares of Class B Common Stock and for the elimination
of provisions which required the Company to issue Class C Common Stock in the
event of the occurrence of certain payment defaults, and (iv) amended the
terms of certain other agreements, including the shareholder agreement among
the Company and certain of its principal shareholders.
The Exchange Agreement had no impact on the determination of net income for
the year ended December 31, 1995. However, net income available for Common
Stock for the year ended December 31, 1995 has been reduced by a distribution
of $12,163,000 (or $0.30 per common share), which amount represents the excess
of (i) the fair value of the shares of Class B Common Stock which were
transferred in the transaction by the Company to the former holder of the
Preferred Stock over (ii) the fair value of the Class B Common Stock which was
issuable pursuant to the original conversion terms. The amount of this
distribution approximates the present value of the dividend payments for 1995
and future years that would have been required on the Preferred Stock.
Excluding the effect of the dividend which would have been required for 1995,
the impact of the Exchange
F-78
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Agreement on earnings per common share was a reduction of $0.24 per common
share for the year ended December 31, 1995.
NOTE I--CAPITAL STOCK
Preferred Stock
Prior to the consummation of the Exchange Agreement described in Note H, the
Preferred Stock was entitled to a dividend at an annual rate of 10% of the
$22,000,000 original liquidation preference, payable semiannually in January
and July. The liquidation preference was increased by cumulative dividends,
whether or not they were declared. At December 31, 1994, undeclared dividends
totaled $1,109,000, which was the amount of the dividend declared and paid in
January 1995.
Common Stock
The Company has two classes of voting common stock. The Class A Common Stock
has ten votes per share and the Class B Common Stock has one vote per share.
Each share of Class A Common Stock is convertible, at the option of the
holder, into one share of Class B Common Stock. Each share of Class C Common
Stock is non-voting and is convertible, at the option of the holder, into one
share of Class B Common Stock.
The Class A Common Stock and Class B Common Stock vote together as a single
class on all matters except that (i) so long as the outstanding Class A Common
Stock has more than 40% of the total outstanding voting power of all common
stock entitled to vote, the holders of Class A Common Stock, voting separately
as a class, are entitled to elect a majority of the Company's directors, with
the remainder of the directors being elected by the holders of the Class B
Common Stock, voting separately as a class, and (ii) the approval of a
majority of each of the Class A Common Stock and the Class B Common Stock is
required for certain extraordinary corporate actions.
Stock Split
On November 16, 1995, the Company's Board of Directors approved a five-for-
four stock split which was effected in the form of a 25% stock dividend and
payable on January 5, 1996 to the shareholders of record at the close of
business on December 15, 1995. In connection with the stock split, all classes
of common stock were credited and retained earnings was charged for the
aggregate par value of the shares that were issued. A total of 1,000,000
shares of Class A Common Stock, 6,607,657 shares of Class B Common Stock, and
1,417,746 shares of Class C Common Stock were issued in connection with the
stock split.
Shareholder Agreement
Pursuant to the amended shareholder agreement (the "Shareholder Agreement")
among the Company and certain of its principal stockholders, each of the
parties to the Shareholder Agreement will, in the event of any future offering
of capital stock by the Company, be entitled to purchase additional shares of
such capital stock in order to maintain its percentage ownership of each class
of capital stock. The Shareholder Agreement also provides that, under certain
circumstances, Liberty IFE has a right of first refusal with respect to
certain sales, conversions or transfers of Class A Common Stock.
NOTE J--SUPPLEMENTAL CASH FLOW INFORMATION
Total interest costs paid during the years ended December 31, 1994, 1995,
and 1996 were $9,172,000, $12,087,000, and $12,045,000, respectively. Income
taxes paid during the years ended December 31, 1994, 1995, and 1996 amounted
to $2,757,000, $13,397,000, and $10,018,000, respectively.
F-79
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Non-cash investing and financing activities included the acquisition of film
rights under license agreements which aggregated approximately $30,343,000,
$37,221,000, and $73,893,000 for the years ended December 31, 1994, 1995, and
1996, respectively.
As described in Note P, on April 22, 1996, the Company consummated the sale
of its television production studio in Maidstone, England and its 61% interest
in The Family Channel (UK) to a related party. This sale was primarily a non-
cash transaction in which the Company received equity securities. Cash
received in the transaction amounting to approximately $4,600,000 was offset
by the cash balances of the businesses sold (which were transferred to the
buyer) and cash outlays for expenses of the sale.
Non-cash investing and financing activities for the year ended December 31,
1995 included approximately $7,140,000 of liabilities assumed in the
acquisition of the Ice Capades. Non-cash purchases of property and equipment
under capital leases amounted to $5,380,000 and $76,000 for the years ended
December 31, 1995 and 1996, respectively. The exchange of Preferred Stock for
Common Stock with a related party during the year ended December 31, 1995 was
a non-cash transaction. Non-cash investing and financing activities also
included the sale of the Ice Capades in December 1995, in exchange for
$10,200,000 in notes receivable and other consideration, as described in Note
B.
NOTE K--INCOME TAXES
In January 1990, the Company acquired the assets of The Family Channel from
The Christian Broadcasting Network, Inc. ("CBN"). For income tax purposes, the
Company established the basis of the assets it acquired from CBN at the
respective fair market values of the assets as determined by the negotiated
sales price and an independent appraisal. IFE and CBN are considered to be
related parties for financial reporting purposes and, accordingly, the net
assets acquired were recorded at CBN's book value at the date of acquisition.
Therefore, the tax basis of the assets acquired exceeds the amount reflected
in the accompanying consolidated financial statements. This initial basis
difference reduces the amount of the Company's income subject to income taxes
to the extent that it is amortizable for income tax purposes.
The Company's income tax return for 1990, the year in which the Company
acquired the assets of The Family Channel from CBN, is currently under
examination by the Internal Revenue Service ("IRS"). As discussed in the
preceding paragraph, this acquisition gave rise to the initial difference
between the basis of the assets acquired from CBN for financial statement
purposes and the basis of those assets for tax purposes. In May 1994, the
Company and the IRS entered into a closing agreement (the "Closing Agreement")
settling all outstanding issues regarding the method and amounts of
amortization in respect of the assets acquired from CBN. These amounts had
previously been estimated by the Company. As a result of the Closing
Agreement, the amount of deferred tax benefit recorded by the Company was
increased in 1994 by $6,000,000 with a corresponding increase in stockholders'
equity. The Company's reported earnings were not affected by the Closing
Agreement.
Income before income taxes, as shown in the Consolidated Statements of
Operations, is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Domestic............................ $20,120,000 $36,737,000 $63,882,000
Foreign............................. 4,837,000 (4,007,000) (7,022,000)
----------- ----------- -----------
$24,957,000 $32,730,000 $56,860,000
=========== =========== ===========
</TABLE>
F-80
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal............................ $ 4,593,000 $ 2,775,000 $14,969,000
State.............................. 1,064,000 668,000 3,564,000
Foreign............................ 3,302,000 (752,000) 926,000
----------- ----------- -----------
8,959,000 2,691,000 19,459,000
----------- ----------- -----------
Deferred:
Federal............................ (410,000) 6,032,000 4,261,000
State.............................. (70,000) 1,691,000 1,015,000
Foreign............................ 1,686,000 3,652,000 --
----------- ----------- -----------
1,206,000 11,375,000 5,276,000
----------- ----------- -----------
$10,165,000 $14,066,000 $24,735,000
=========== =========== ===========
</TABLE>
Domestic and foreign income before income taxes include all income derived
from operations in the respective U.S. and foreign geographic areas, whereas
provisions for taxes on income include all income taxes payable to U.S.,
foreign, and other governments, as applicable, regardless of the location in
which the taxable income is generated.
The actual provision for income taxes differs from the expected tax expense
(computed by applying the U.S. Federal corporate tax rate of 35% to income
before income taxes) as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Computed expected income tax
expense........................... $ 8,735,000 $11,456,000 $19,901,000
State income taxes, net of Federal
benefit........................... 646,000 1,637,000 2,967,000
Effect of amortization of
nondeductible goodwill............ 677,000 744,000 588,000
Effect of liquidation of foreign
subsidiary........................ 800,000 -- --
Other, net......................... (693,000) 229,000 1,279,000
----------- ----------- -----------
$10,165,000 $14,066,000 $24,735,000
=========== =========== ===========
</TABLE>
F-81
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets
Initial basis differences..................... $ 9,821,000 $ 5,800,000
Accrued liabilities, participations, and
residuals.................................... 7,199,000 12,131,000
Film rights................................... 18,372,000 13,434,000
Other......................................... 7,527,000 7,006,000
------------ ------------
Total gross deferred tax assets.............. 42,919,000 38,371,000
Less valuation allowance...................... (9,599,000) (9,408,000)
------------ ------------
Net deferred tax assets...................... 33,320,000 28,963,000
------------ ------------
Deferred tax liabilities
Accounts receivable, principally due to
differences in revenue recognition........... (27,735,000) (24,779,000)
Property and equipment, principally due to
differences in depreciation and capitalized
interest..................................... (7,203,000) (7,991,000)
Other......................................... (1,669,000) (1,661,000)
------------ ------------
Total deferred tax liabilities............... (36,607,000) (34,431,000)
------------ ------------
Net deferred tax liability................... $ (3,287,000) $ (5,468,000)
============ ============
</TABLE>
Based on the Company's historical levels of income before income taxes and
its anticipated future levels of income before income taxes, management
considers it more likely than not that the Company will have sufficient
taxable income to realize the full amount of its net deferred tax assets at
December 31, 1996, although realization is not assured.
NOTE L--RELATED PARTY TRANSACTIONS
The Chairman of the Company is also the Chairman of the Board of CBN. During
the year ended December 31, 1995, the Company repurchased shares of Class B
Common Stock in transactions with CBN and an affiliate of CBN for an aggregate
consideration of $13,819,000. Also, in December 1995, the Company and Liberty
IFE entered into an exchange agreement whereby Liberty IFE exchanged its
holdings of all of the Preferred Stock for shares of Common Stock, as
described in Note H.
The Company provides specified program time to CBN at charges equal to the
Company's cost, pursuant to an agreement which extends through 2004 and
automatically renews at CBN's option. Also, the Company leases certain office
space and other operational facilities from CBN and, from time to time, enters
into various other transactions with CBN and its subsidiaries.
The Company holds a 20% interest in BBJE. BBJE provides certain services,
including television production, for FiT TV and pays an annual dividend to the
Company. Cash dividends received from BBJE amounted to $343,000 and $125,000
in 1995 and 1996, respectively.
The Company and TCI have entered into a cable affiliation agreement,
extending to 2006, with respect to The Family Channel. Under the terms of the
agreement, the Company has granted TCI and its affiliates the right
F-82
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to carry The Family Channel on certain cable television systems in exchange
for subscriber fees. The Company has also entered into a long-term agreement
granting TCI and its affiliates the right to carry FiT TV.
The Company subleased a transponder for The Family Channel (UK), until its
disposition on April 22, 1996, from Flextech. On such date, the Company sold
its 61% interest in The Family Channel (UK) to Flextech, as described in Note
P.
Related party transactions and balances, not otherwise disclosed, are
summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues..................... $15,662,000 $17,863,000 $23,176,000
=========== =========== ===========
Operating expenses..................... $ 6,402,000 $ 8,028,000 $ 5,191,000
=========== =========== ===========
Accounts receivable.................... $ 3,798,000 $ 4,632,000 $12,114,000
=========== =========== ===========
Accounts payable....................... $ 855,000 $ 588,000 $ 1,195,000
=========== =========== ===========
</TABLE>
NOTE M--EMPLOYEE BENEFIT PLANS
Stock Plan
The Company has a stock incentive plan (the "Stock Plan") covering 6,200,000
shares of Class B Common Stock. There were 142,226 shares and 569,100 shares
available for grant as of December 31, 1995 and 1996, respectively. Prior to
May 1996, awards could be made separately or in any combination of stock
options and restricted stock. Beginning May 1996, awards under the Stock Plan
may only be made in the form of stock options. The number of awards granted
under the Stock Plan to individual employees is determined by a committee of
the Company's Board of Directors.
Issuances and forfeitures of restricted stock under the Stock Plan are
reflected in the accompanying Consolidated Statements of Stockholders' Equity.
The shares of restricted stock issued during the years ended December 31,
1994, 1995, and 1996 were sold to the employees at the par value of $.01 per
share. The difference between the market value and the amount paid for
restricted stock is reflected as a reduction of stockholders' equity. This
unearned compensation is recognized as expense over a five-year vesting
period. At December 31, 1996, 126,794 shares of restricted stock were subject
to forfeiture under the Stock Plan.
Stock options may be granted for the purchase of Class B Common Stock at a
price not less than fair market value on the date of grant. The 1994 option
awards were granted at an exercise price higher than the fair market value on
the date of grant. The options are generally exercisable after one or more
years and expire no later than 10 years from the date of grant.
The Company has elected to continue to use the intrinsic value-based method
to account for all of its employee stock-based compensation plans. Under APB
Opinion No. 25, Accounting for Stock Issued to Employees, the Company has
recorded no compensation costs related to its stock option plans for the years
ended December 31, 1994, 1995, and 1996 because the exercise price of each
option equals or exceeds the fair value of the underlying common stock as of
the grant date for each stock option.
Pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, the
Company is required to disclose the pro forma effects on net income and
earnings per share data as if the Company had elected to use the fair value
approach to account for all its employee stock-based compensation plans. If
compensation cost for the
F-83
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company's plans had been determined consistent with the fair value approach
set forth in SFAS No. 123, the Company's pro forma net income and pro forma
earnings per share for the years ended December 31, 1995 and 1996 would have
been decreased as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996
------------ ------------
<S> <C> <C>
Net income
As reported.................................. $ 18,664,000 $ 32,125,000
============ ============
Pro forma.................................... $ 18,002,000 $ 30,486,000
============ ============
Primary and fully diluted earnings per common
share
As reported.................................. $ 0.16 $ 0.69
============ ============
Pro forma.................................... $ 0.14 $ 0.66
============ ============
</TABLE>
Pro forma net income reflects only options granted in 1995 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options'
vesting periods and compensation cost for options granted prior to January 1,
1995 is not considered.
The fair value of options granted was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996, respectively: risk-free interest
rates of 6.23% and 5.96%; expected lives of 5.8 years and 4.6 years; expected
volatility of 31.0% and 34.5%; and no dividends.
A summary of stock options to purchase Class B Common Stock, as of December
31, 1994, 1995, and 1996, and changes during the years then ended, is
presented below:
<TABLE>
<CAPTION>
1994 1995 1996
----------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options at beginning of
year................... 166,250 $16.70 350,000 $14.30 2,106,250 $12.44
Granted................. 183,750 $12.13 1,812,500 $12.14 298,000 $15.70
Exercised............... -- -- (19,333) $15.16
Forfeited............... -- (56,250) $14.30 (49,417) $15.50
------- ---------- ----------
Options at end of year.. 350,000 $14.30 2,106,250 $12.44 2,335,500 $12.81
======= ========== ==========
Options exercisable at
year-end............... 36,250 $16.70 114,250 $14.48 653,560 $12.61
======= ========== ==========
Weighted-average
estimated fair value of
options granted during
the year............... $ 5.11 $ 6.08
========== ==========
</TABLE>
F-84
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about stock options to purchase
Class B Common Stock which are outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED- WEIGHTED-
WEIGHTED-AVE. AVE. AVE.
REMAINING EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE SHARES PRICE
- ------------------------ --------- ---------------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$12.00 to $13.10........ 1,918,750 8.9 years $12.11 582,810 $ 12.11
$15.00 to $17.75........ 416,750 9.2 years $15.99 70,750 $ 16.70
--------- ----------
$12.00 to $17.75........ 2,335,500 9.0 years $12.81 653,560 $ 12.61
========= ==========
</TABLE>
Subsidiary Stock Option Plan
The Company has adopted a separate stock option plan for a certain
subsidiary. This stock option plan was created as a means of attracting and
retaining employees and to stimulate the personal and active interest of such
individuals in the Company's (and such subsidiary's) development and financial
success.
During 1995, this subsidiary granted an employee an option to purchase
shares of its common stock. The effect of this option has been included in the
calculation of pro forma net income and pro forma primary and fully diluted
earnings per common share.
401(k) Plan
The Company has a 401(k) retirement savings plan (the "401(k) Plan") which
covers the majority of its employees. Subject to certain limitations,
employees may contribute up to 15% of their compensation to the 401(k) Plan.
The Company's contribution to the 401(k) Plan is discretionary as determined
annually by the Company's Board of Directors. The Company contributed
$405,000, $486,000, and $629,000 to the 401(k) Plan for the years ended
December 31, 1994, 1995, and 1996, respectively.
Employment Agreements
The Company has employment agreements with its Chairman, its President &
Chief Executive Officer, and most other members of its senior management.
NOTE N--COMMITMENTS AND CONTINGENCIES
The unpaid balance under program contracts for film rights related to the
production, exhibition, or distribution of programming that was available as
of the end of the year is reflected as a liability in the 1996 Consolidated
Balance Sheet. The balance due as of December 31, 1996 is payable as follows:
$44,050,000 in 1997; $32,692,000 in 1998; $13,721,000 in 1999; $2,551,000 in
2000; $265,000 in 2001; and $1,414,000 thereafter.
The Company has commitments under various program contracts for film rights
related to the production, exhibition, or distribution of programming which
was not available as of December 31, 1996. The commitments under these program
contracts as well as commitments under program development agreements and
employment agreements totaled approximately $93,000,000 as of December 31,
1996. Subsequent to December 31, 1996, the Company made additional commitments
under long-term program contracts, for the exhibition rights to certain
television series and movies, totaling approximately $75,000,000.
F-85
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Aggregate future estimated payments of accrued participations and residuals
as of December 31, 1996 are as follows: $15,613,000 in 1997; $6,731,000 in
1998; $1,704,000 in 1999; $499,000 in 2000; and $844,000 in 2001.
The Company leases office facilities and certain other property and
equipment under noncancelable operating leases with future minimum lease
payments as follows: $3,275,000 in 1997; $2,917,000 in 1998; $2,825,000 in
1999; $2,449,000 in 2000; $2,275,000 in 2001; and $22,765,000 thereafter.
Total rent expense under operating leases amounted to approximately
$7,770,000, $8,942,000, and $5,193,000 for the years ended December 31, 1994,
1995, and 1996, respectively.
The Company has guaranteed a $12,000,000 bank credit facility for the entity
that purchased the Ice Capades from the Company, as described in Note B. In
addition, the Company has contingent liabilities related to legal proceedings
and other matters arising from the normal course of operations. Management
does not expect that amounts, if any, which may be required to satisfy such
contingencies will be material in relation to the accompanying consolidated
financial statements.
NOTE O--DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Investment in Equity Securities--Related Party
As described in Note P, on April 22, 1996, the Company received 5,792,008
shares of Flextech's convertible redeemable non-voting common stock. This
common stock is convertible, under certain circumstances, into Flextech's
voting common stock which is listed on the London Stock Exchange. Based upon
the market value of the underlying voting common stock (and the applicable
foreign currency exchange rate), as of December 31, 1996, and after applying
the same rate of discount as was determined by an independent valuation when
the shares were received, the estimated fair value of the Company's investment
in Flextech is $53,750,000.
Film Rights Payable
The amount reflected as film rights payable at December 31, 1996 represents
future payments to be made under program contract agreements. The fair value
of film rights payable is the present value of these future payments. At
December 31, 1996, the present value of these future payments is approximately
$85,000,000.
Revolving Credit Facility and Subsidiary Credit Agreement
The Company's borrowings under the Revolving Credit Facility and Subsidiary
Credit Agreement are at floating rates of interest. Since the cost of carrying
this indebtedness fluctuates with current market conditions, it is assumed
that the carrying values would approximate fair value.
Convertible Notes
The Company has $23,000,000 in principal amount of Convertible Notes
outstanding. These notes are convertible into 2,587,500 shares of non-voting
Class C Common Stock, which Class C Common Stock is convertible, at the option
of the holder, into Class B Common Stock, on a share-for-share basis, as
described in Note F. The Company estimates that the fair value of the
Convertible Notes approximates the trading value of the underlying shares.
Accordingly, based on the average closing price of the Class B Common Stock
for December 1996, the estimated fair value of the Convertible Notes is
$39,783,000.
Limitations
Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and
F-86
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect these estimates.
NOTE P--GAIN ON DISPOSITION OF ASSETS--RELATED PARTY
On April 22, 1996, the Company consummated the sale of its television
production studio in Maidstone, England and its 61% interest in The Family
Channel (UK) to Flextech pursuant to agreements dated as of March 20, 1996.
Flextech previously owned a 39% interest in The Family Channel (UK).
Flextech's majority owner is Tele-Communications International, Inc. ("TCI
International"), a majority-owned subsidiary of TCI. Another affiliate of TCI
is the holder of the Convertible Notes and all of the Company's outstanding
Class C Common Stock.
As consideration for this transaction, the Company received
(Pounds)3,000,000 (approximately $4,600,000) in cash and 5,792,008 shares of
Flextech's convertible redeemable non-voting common stock. This common stock
is convertible, under certain circumstances, into Flextech's voting common
stock which is listed on the London Stock Exchange. The market value of the
underlying voting common stock as of the date of the aforementioned agreements
was $46,100,000. The shares were recorded, for financial statement purposes,
at approximately (Pounds)23,000,000 ($35,458,000 based on the applicable
foreign currency exchange rate on the date of closing), which reflects a
discount determined by an independent valuation to allow for the lack of
marketability during the required holding period.
The Company received the right to "put" its holdings of Flextech's non-
voting stock to TCI International, beginning in June 1997 (if the shares do
not first become convertible). Upon exercise of the put, TCI International has
the option of redeeming the stock for cash at the then-market value of
Flextech's voting common stock. If the shares are not redeemed for cash, the
Company has the option of either (i) converting 50% of the shares on a share-
for-share basis into Flextech's voting common stock and 50% of the shares into
common stock of the same value of TCI International, or (ii) converting 100%
of the shares into common stock of the same value of TCI International.
NOTE Q--INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in three business segments: the operation of
advertiser-supported cable networks ("Cable Networks"), the production and
distribution of entertainment programming ("Production & Distribution"), and
the production of live entertainment shows ("Live Entertainment").
Within the Cable Networks business segment, the Company operates The Family
Channel, an advertiser-supported cable television network that provides
family-oriented entertainment and informational programming in the United
States and FiT TV, an advertiser-supported health and fitness cable network
which operates principally in the United States. IFE also operated The Family
Channel (UK), an advertiser-supported network in the United Kingdom, through
its disposition on April 22, 1996, and The Family Channel De Las Americas,
launched on July 1, 1995, which provided Spanish-language, family-oriented
entertainment programming, as well as fitness programming, to Mexico, Central
America, and portions of South America, through the discontinuance of its
operations in November 1996.
Within the Production & Distribution business segment, the Company produces
and distributes television programming in the United States and throughout
many other parts of the world ("MTM Operations"), co-
F-87
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
produced a motion picture through Family Channel Pictures, and operated a
television production studio in Maidstone, England (the "UK Studio") until its
disposition on April 22, 1996.
Within the Live Entertainment business segment, the Company produces live
musical variety shows and, in 1995, operated the Ice Capades, a touring ice
show.
The following table sets forth comparative information regarding operating
revenues, operating income or loss, total assets, depreciation and
amortization, and capital expenditures by business segment.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Operating Revenues
Cable Networks...................... $178,746,000 $213,775,000 $249,620,000
Production & Distribution........... 70,340,000 86,990,000 104,519,000
Live Entertainment.................. 8,951,000 10,481,000 7,751,000
Intersegment Eliminations........... (15,987,000) (16,388,000) (29,080,000)
------------ ------------ ------------
$242,050,000 $294,858,000 $332,810,000
============ ============ ============
Operating Income (Loss)
Cable Networks...................... $ 31,482,000 $ 42,899,000 $ 77,635,000
Production & Distribution........... (1,066,000) 1,155,000 (19,029,000)
Live Entertainment.................. (1,880,000) (5,012,000) (2,782,000)
Intersegment Eliminations........... (3,089,000) (644,000) 340,000
------------ ------------ ------------
$ 25,447,000 $ 38,398,000 $ 56,164,000
============ ============ ============
Total Assets
Cable Networks...................... $276,875,000 $286,738,000 $338,188,000
Production & Distribution........... 174,078,000 171,892,000 211,402,000
Live Entertainment.................. 22,305,000 27,783,000 26,392,000
Intersegment Eliminations........... (4,986,000) (4,986,000) (7,299,000)
------------ ------------ ------------
$468,272,000 $481,427,000 $568,683,000
============ ============ ============
Depreciation and Amortization
Cable Networks...................... $ 74,044,000 $ 79,313,000 $ 83,415,000
Production & Distribution........... 48,832,000 63,367,000 100,885,000
Live Entertainment.................. 1,035,000 1,772,000 1,488,000
Intersegment Eliminations........... (11,069,000) (13,335,000) (29,471,000)
------------ ------------ ------------
$112,842,000 $131,117,000 $156,317,000
============ ============ ============
Capital Expenditures
Cable Networks...................... $ 7,049,000 $ 7,418,000 $ 7,622,000
Production & Distribution........... 1,962,000 2,037,000 1,808,000
Live Entertainment.................. 432,000 6,107,000 421,000
------------ ------------ ------------
$ 9,443,000 $ 15,562,000 $ 9,851,000
============ ============ ============
</TABLE>
F-88
<PAGE>
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth comparative information regarding operating
revenues, operating income or loss, total assets, depreciation and
amortization, and capital expenditures by geographic area.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Operating Revenues
Domestic............................ $229,848,000 $281,143,000 $327,415,000
International....................... 13,771,000 16,285,000 6,070,000
Interarea Eliminations.............. (1,569,000) (2,570,000) (675,000)
------------ ------------ ------------
$242,050,000 $294,858,000 $332,810,000
============ ============ ============
Operating Income (Loss)
Domestic............................ $ 39,982,000 $ 53,045,000 $ 65,047,000
International....................... (14,495,000) (14,268,000) (9,042,000)
Interarea Eliminations.............. (40,000) (379,000) 159,000
------------ ------------ ------------
$ 25,447,000 $ 38,398,000 $ 56,164,000
============ ============ ============
Total Assets
Domestic............................ $419,051,000 $438,843,000 $532,305,000
International....................... 49,547,000 43,735,000 36,378,000
Interarea Eliminations.............. (326,000) (1,151,000) --
------------ ------------ ------------
$468,272,000 $481,427,000 $568,683,000
============ ============ ============
Depreciation and Amortization
Domestic............................ $109,350,000 $126,452,000 $152,312,000
International....................... 5,021,000 6,551,000 4,797,000
Interarea Eliminations.............. (1,529,000) (1,886,000) (792,000)
------------ ------------ ------------
$112,842,000 $131,117,000 $156,317,000
============ ============ ============
Capital Expenditures
Domestic............................ $ 7,883,000 $ 14,890,000 $ 9,810,000
International....................... 1,560,000 672,000 41,000
------------ ------------ ------------
$ 9,443,000 $ 15,562,000 $ 9,851,000
============ ============ ============
</TABLE>
Included in domestic operating revenues are export sales of $15,320,000,
$18,091,000, and $15,355,000 for the years ended December 31, 1994, 1995, and
1996, respectively.
F-89
<PAGE>
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER MADE
HEREBY TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS OR IN THE ACCOMPANYING LETTER OF TRANSMITTAL,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING
LETTER OF TRANSMITTAL NOR BOTH OF THEM TOGETHER CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES BY ANY PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE
ACCOMPANYING LETTER OF TRANSMITTAL NOR BOTH OF THEM TOGETHER NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements................................................. iv
Available Information...................................................... iv
Summary.................................................................... 1
Formation of Company....................................................... 12
Risk Factors............................................................... 14
The Exchange Offer......................................................... 24
Use of Proceeds............................................................ 32
Capitalization............................................................. 33
Unaudited Pro Forma Consolidated Financial Information..................... 34
Selected Historical Consolidated Financial Data............................ 37
Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 41
Business................................................................... 52
Management................................................................. 72
Principal Stockholders..................................................... 77
Description of Equity Securities........................................... 79
Certain Transactions....................................................... 81
Description of Other Indebtedness.......................................... 88
Description of the Notes................................................... 89
Book-Entry; Delivery and Form.............................................. 118
Certain United States Federal Income Tax Considerations.................... 121
Plan of Distribution....................................................... 123
Legal Matters.............................................................. 123
Experts.................................................................... 123
Index to Financial Statements.............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$1,093,670,000
[LOGO OF FOX KIDS WORLDWIDE, INC.]
$475,000,000
9 1/4% SENIOR NOTES DUE 2007
$618,670,000
10 1/4% SENIOR DISCOUNT NOTES
DUE 2007
---------------
PROSPECTUS
---------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
With respect to the Company, Section 145 of the General Corporation Law of
the State of Delaware empowers a Delaware corporation 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, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation or is or was serving at the
request of such corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
The indemnity may include expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding, provided that such
person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. A Delaware corporation may
indemnify directors, officers, employees and other agents of such corporation
in an action by or in the right of the corporation under the same conditions,
except that no indemnification is permitted without judicial approval if the
person to be indemnified has been adjudged to be liable to the corporation.
Where a director, officer, employee or agent of the corporation is successful
on the merits or otherwise in the defense of any action, suit or proceeding
referred to above or in defense of any claim, issue or matter therein, the
corporation must indemnify such person against the expenses (including
attorney's fees) which he or she actually and reasonably incurred in
connection therewith.
The Company's Bylaws contain provisions that provide for indemnification of
officers and directors to the fullest extent permitted by, and in the manner
permissible under, the General Corporation Law of the State of Delaware.
As permitted by Section 102(b)(7) of the General Corporation Law of the
State of Delaware, the Company's Corrected and Restated Certificate of
Incorporation contains a provision eliminating the personal liability of a
director to the Company's or its stockholders for monetary damages for breach
of fiduciary duty as a director, subject to certain exceptions.
The Company maintains policies insuring its respective officers, directors
or members and managers, as the case may be, against certain civil
liabilities, including liabilities under the Securities Act.
Pursuant to the Registration Rights Agreement, the Company has agreed to
indemnify the holders of the registrable Notes against certain liabilities.
Also pursuant to the Registration Rights Agreement, the Company and certain
broker-dealers, including certain persons associated with such broker-dealers,
have agreed to indemnify each other against certain liabilities.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
**1.1 Purchase Agreement dated October 22, 1997 among Fox Kids
Worldwide, Inc., as issuer, and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Citicorp Securities,
Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, and Morgan Stanley & Co. Incorporated, as
initial purchasers.
**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)
**2.3 Agreement and Plan of Merger dated as of June 11, 1997 by and
among Fox Kids Worldwide, Inc., Fox Kids Merger Corporation and
International Family Entertainment, Inc.
**2.4 Stock Purchase Agreement dated as of June 11, 1997 by and between
Fox Kids Worldwide, Inc., M.G. "Pat" Robertson, individually and
as trustee of certain trusts named therein, Lisa N. Robertson and
Timothy B. Robertson, as joint tenants, and Tim Robertson,
individually, as trustee of certain trusts named therein, and as
custodian to and for each of Abigail H. Robertson, Laura N.
Robertson, Elizabeth C. Robertson, Willis H. Robertson and
Caroline S. Robertson.
**2.5 Stock Purchase Agreement dated as of June 11, 1997 by and between
Fox Kids Worldwide, Inc. and The Christian Broadcasting Network,
Inc.
**2.6 Stock Purchase Agreement dated as of June 11, 1997 by and between
Fox Kids Worldwide, Inc. and Regent University.
**2.7 Amended and Restated Agreement dated as of August 1, 1997 by and
among Fox Kids Worldwide, Inc., Saban Entertainment, Inc., Fox
Broadcasting Sub, Inc., Allen & Company Incorporated, Haim Saban
and certain entities listed on Schedule A thereto.
**3.1 Corrected Restated Certificate of Incorporation of the Registrant.
**3.2 Amended and Restated Bylaws of the Registrant.
**4.1 Senior Notes Indenture dated as of October 28, 1997 (the "Senior
Notes Indenture") between Fox Kids Worldwide, Inc., as obligor,
and The Bank of New York, as trustee, and form of Notes.
**4.2 Senior Discount Notes Indenture dated as of October 28, 1997 (the
"Senior Discount Notes Indenture") between Fox Kids Worldwide,
Inc., as obligor, and The Bank of New York, as trustee, and form
of Notes.
**4.3 Senior Notes Registration Rights Agreement dated as of October 28,
1997 between Fox Kids Worldwide, Inc., as issuer, and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Citicorp Securities,
Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, and Morgan Stanley & Co. as initial
purchasers.
**4.4 Senior Discount Notes Registration Rights Agreement dated as of
October 28, 1997 between Fox Kids Worldwide, Inc., as issuer, and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citicorp
Securities, Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, and Morgan Stanley & Co., as
initial purchasers.
**4.5 Senior Notes Liquidated Damages Agreement dated as of October 28,
1997 between Fox Kids Worldwide, Inc., as issuer, and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Citicorp Securities, Inc., Bear, Stearns & Co. Inc., Donaldson,
Lufkin & Jenrette Securities Corporation, and Morgan Stanley &
Co., as initial purchasers.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
**4.6 Senior Discount Notes Liquidated Damages Agreement dated as of
October 28, 1997 between Fox Kids Worldwide, Inc., as issuer, and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Citicorp Securities, Inc., Bear, Stearns & Co. Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, and Morgan
Stanley & Co., as initial purchasers.
5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP regarding
the validity of the Notes.
**10.1 Amended and Restated Strategic Stockholders Agreement dated as of
August 1, 1997 by and among Haim Saban, certain entities listed on
Schedule A thereto, Fox Broadcasting Company, Fox Broadcasting
Sub, Inc., and Allen & Company Incorporated.
**10.2 Employment Assumption Agreement dated as of July 31, 1997 by and
among Saban Entertainment, Inc., Fox Kids Worldwide, Inc. and Mel
Woods.
**10.3 Employment Assumption Agreement dated as of July 31, 1997 by and
among Fox Kids Worldwide, L.L.C., Fox Kids Worldwide, Inc. and
Haim Saban.
10.4 Reserved.
**10.5 Form of Indemnification Agreement and Schedule of Indemnified
Parties.
**10.6 Employment Agreement dated as of April 1, 1997 between Saban
Entertainment, Inc. and William Josey.
*10.7 Employment Agreement dated as of December 22, 1995 between Fox
Kids Worldwide, L.L.C. and Haim Saban.
**10.8 Employment Agreement dated as of September 1, 1996 between Fox
Kids Worldwide, Inc. and Shuki Levy; Stock Option Agreement dated
as of June 1, 1994 between Saban Entertainment, Inc. and Shuki
Levy, as amended by Amendment No. 1.
**10.9 Employment Agreement dated as of June 1, 1994 between Saban
Entertainment, Inc. and Mel Woods, as amended by Amendment No. 1
to Employment Agreement dated as of September 26, 1996.
10.10 Reserved.
*10.11 LLC Formation Agreement dated as of November 1, 1995 among Saban
Entertainment, Inc., FCN Holding Company and Fox Broadcasting
Company, Inc.
**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, by and among Saban Entertainment, Inc., FCN Holding, Inc.
and Fox Broadcasting Company.
**10.14 Amendment No. 2 to Operating Agreement dated as of July 31, 1997
by and among Saban Entertainment, Inc., FCN Holding, Inc., Fox
Broadcasting Company and Fox Kids Worldwide, Inc.
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.,
on the other hand.
*10.16 Management Agreement dated as of December 22, 1995 by and among
Fox Kids Worldwide, L.L.C., Saban Entertainment, Inc. and FCNH
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 by and among Haim Saban, certain entities listed on
Schedule "A" thereto, Fox Broadcasting Sub, Inc., and Fox
Broadcasting Company.
***10.19 Home Video Rights Acquisition Agreement dated as of August 8, 1996
among Saban Entertainment, Inc., Ventura Film Distributors, B.V.
and Twentieth Century Fox Home Entertainment, Inc.+
**10.20 Form of Fox Broadcasting Company Station Affiliate Agreement.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.21 Merchandising Rights Acquisition Agreement dated as of July 1,
1990 between Twentieth Century Fox Licensing and Merchandising, a
unit of Fox Inc. 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 as 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 (the "Saban/Fox Registration Agreement")
dated as of December 22, 1995 among Saban Entertainment, Inc.,
Haim Saban, certain entities listed on Schedule A thereto, Fox
Broadcasting Company, Inc., and FCN Holding, Inc.
**10.26 Amendment No. 1 to Saban/Fox Registration Agreement dated as of
September 27, 1996.
**10.27 Contribution and Exchange Agreement dated June 11, 1997 by and
among Liberty Media Corporation, Liberty IFE, Inc. and Fox Kids
Worldwide, Inc.
**10.28 Guarantee dated as of December 22, 1995 by The News Corporation
Limited.
**10.29 First Amendment to 10960 Wilshire Boulevard Lease dated as of
August 1, 1997.
**10.30 Guaranty of Lease by The News Corporation Limited and News
Publishing Australia Limited in favor of Beacon Properties, L.P.,
dated as of August 1, 1997.
10.31 Second Amended and Restated Credit Agreement dated as of October
28, 1997 among FCN Holding, Inc., International Family
Entertainment, Inc. and Saban Entertainment, Inc., as Borrowers,
and Fox Kids Holdings, LLC, as Guarantor, and the initial lenders
named therein, as Initial Lenders, and Citicorp U.S.A., Inc., as
Administrative Agent, and Citicorp Securities, Inc. and Bank
Boston, N.A., as Co-Arrangers.
***10.32 Letter Amendment No. 1 to the Second Amended and Restated Credit
Agreement dated as of November 18, 1997.
**10.33 Funding Agreement dated as of June 11, 1997 by and among The News
Corporation Limited, News Publishing Australia Limited and Fox
Kids Worldwide, Inc.
**10.34 Guaranty dated as of June 11, 1997 by The News Corporation Limited
in favor of International Family Entertainment, Inc.
**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 Reserved.
**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 Agreements dated as of June 7, 1994 and
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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
**10.41 Barter Syndication Agreement dated as of January 5, 1996 between
Saban Entertainment, Inc. and Fox Broadcasting Company, Inc.
**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.
**10.43 First Amendment to the Contribution and Exchange Agreement dated
as of August 1, 1997 by and among Liberty Media Corporation,
Liberty IFE, Inc. and Fox Kids Worldwide, Inc.
**10.44 Agreement Re Registration Rights dated as of August 1, 1997 by and
among Saban Entertainment, Inc., Haim Saban, certain entities
listed on Schedule A to the Saban/Fox Registration Agreement, Fox
Broadcasting Company, FCN Holding, Inc., Fox Kids Worldwide, Inc.,
Liberty Media Corporation and Liberty IFE, Inc.
***10.45 Exchange Agreement dated August 1, 1997 among News Publishing
Australia Limited, Liberty Media Corporation and Liberty IFE, Inc.
**10.46 Agreement Re Transfer of LLC Interests dated as of July 31, 1997
by and among Fox Kids Worldwide, Inc., Fox Kids Worldwide, L.L.C.
and Fox Broadcasting Company.
***10.47 Subordinated Note Agreement dated July 31, 1997 by and among Fox
Broadcasting Company, as lender, Fox Kids Worldwide, Inc., as
borrower, and Citicorp USA, Inc.; Subordinated Promissory
Note dated July 31, 1997 made by Fox Kids Worldwide, Inc., as
borrower, in favor of Fox Broadcasting Company, as lender; First
Amendment to Subordinated Note Agreement dated September 4, 1997;
Second Amendment to Subordinated Note Agreement dated October 28,
1997 and Subordinated Promissory Note dated October 28, 1997 made
by Fox Kids Worldwide Inc., as borrower in favor of Fox
Broadcasting Company, as lender.
**10.48 Subordinated Note dated August 29, 1997 between Fox Kids
Worldwide, Inc., as borrower, and News America Holdings
Incorporated, as lender, and Subordinated Note Agreement dated
August 9, 1997 between Fox Kids Worldwide, Inc., as borrower, News
America Holdings Incorporated, as lender, and Citicorp USA, Inc.
and First Amendment to Subordinated Note Agreement dated
October 28, 1997.
***10.49 Amendment to Affiliation Agreement dated June 11, 1997, between
International Family Entertainment, Inc. and Satellite Services,
Inc. (Filed as Exhibit 99.4.1 to International Family
Entertainment's Report on Form 8-K, dated June 11, 1997, and
incorporated herein by reference).+
10.50 Letter of Amendment dated as of May 16, 1996, amending the
International Family Entertainment, Inc. Family Channel
Affiliation Agreement dated as of December 28, 1989, between
Satellite Services, Inc. and International Family Entertainment,
Inc. (Filed as Exhibit 10.28 to International Family
Entertainment's Annual Report on Form 10-K/A for the year ended
December 31, 1996, and incorporated herein by reference).+
***10.51 Program Time Agreement dated as of January 5, 1990, between The
Christian Broadcasting Network, Inc. and International Family
Entertainment, Inc. and Amendment No. 1 to Program Time Agreement
dated as of June 11, 1997.
***10.52 International Family Entertainment, Inc. Family Channel
Affiliation Agreement, dated as of December 28, 1989, between
Satellite Services, Inc. and International Family Entertainment,
Inc. (Filed as Exhibit 10.8 to International Family
Entertainment's Registration Statement on Form S-1 (No. 33-45967),
and incorporated herein by reference).+
***10.53 Amendment, dated as of January 1, 1994, amending the International
Family Entertainment, Inc. Family Channel Affiliation Agreement,
dated as of December 28, 1989, between Satellite Services, Inc.
and International Family Entertainment Inc.
**10.54 Registration Rights Agreement dated August 1, 1997 by and among
Fox Kids Worldwide, Inc., Liberty Media Corporation and Liberty
IFE, Inc.
***10.55 Galaxy V Transponder Purchase Agreement, dated as of January 23,
1992, between Hughes Communications Galaxy, Inc. and International
Family Entertainment, Inc. (Filed as Exhibit 10.8 to International
Family Entertainment's Annual Report on Form 10-K for the year
ended December 31, 1994, and incorporated herein by reference).+
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
***10.56 GE C-3/C-4 Satellite Transponder Sales Agreement dated as of July
7, 1989 between GE American Communications and The Christian
Broadcasting Network Inc. (Filed as an exhibit to International
Family Entertainment's Registration Statement on Form S-1 (No. 33-
45967), and incorporated herein by reference).+
***10.57 C-3/C-4 Satellite Transponder Sales Agreement Amendment Number One
dated as of December 15, 1989, between GE American Communications,
Inc. and The Christian Broadcasting Network, Inc.
10.58 C3/C4 Satellite Transponder Sales Agreement Amendment Number Two
dated as of December 15, 1989, between GE American Communications,
Inc. and The Christian Broadcasting Network, Inc.
***10.59 Letter of Amendment dated September 30, 1991, re: C-3/C-4
Satellite Transponder Sales Agreement by and between GE American
Communications, Inc. and The Christian Broadcasting Network, Inc.
as predecessor in interest to International Family Entertainment,
Inc.
***10.60 C3/C4 Satellite Transponder Sales Agreement Amendment Number Four
dated as of November 24, 1992 by and between GE American
Communications, Inc. and International Family Entertainment, Inc.
****12.1 Ratio of Earnings to Fixed Charges.
**21.1 Subsidiaries of the Registrant.
23.1 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (included
in Exhibit 5.1 hereto).
23.2 Consent of Ernst & Young LLP regarding Saban Entertainment, Inc.,
regarding FCN Holding, Inc., and regarding FCN Holding, Inc.,
Saban Entertainment, Inc., and Fox Kids Worldwide, L.L.C.
23.3 Consent of KPMG Peat Marwick LLP regarding International Family
Entertainment, Inc.
*24.1 Power of Attorney.
**24.2 Power of Attorney of Lawrence Jacobson dated January 22, 1998.
**25.1 Statement of Eligibility of The Bank of New York, as Trustee.
****27.1 Financial Data Schedule.
****99.1 Form of Letter of Transmittal.
****99.2 Form of Notice of Guaranteed Delivery.
****99.3 Form of Exchange Agent Agreement.
****99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
****99.5 Form of Letter to Clients.
</TABLE>
- --------
* Previously filed as an exhibit to the Registrant's Form S-1 on
September 27, 1996
** Previously filed as an exhibit to the Registrant's Amendment No. 1 to Form
S-1 on January 26, 1998.
*** Previously filed as an exhibit to the Registrant's Amendment No. 2 to Form
S-1 on February 20, 1998.
**** Previously filed as an exhibit to the Registrant's Amendment No. 3 to
Form S-4 on March 12, 1998.
+ 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 schedules.
(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
FCN Holding, Inc.
Schedule II--Valuation and Qualifying Accounts
Saban Entertainment, Inc.
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provisions 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-6
<PAGE>
ITEM 22. UNDERTAKINGS
1. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, members, officers and controlling
persons, as the case may be, 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 or controlling person, as the case may be, of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person, as the case may be, in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by 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 adjustment of such issue.
2. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
3. The undersigned registrant hereby undertakes to respond to requests for
information that are incorporated by reference into the prospectus pursuant to
item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
4. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
5. The undersigned registrant hereby undertakes to file an application for
the purposes of determining the eligibility of the trustee to act under
subsection (a) of section 310 of the Trust Indenture Act in accordance with
the rules and regulations prescribed by the Commission under section 305(b)(2)
of the Trust Indenture Act.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on the 25th day of March, 1998.
Fox Kids Worldwide, Inc.
By: /s/ Mel Woods
____________________________________
MEL WOODS
PRESIDENT, CHIEF OPERATING OFFICER
AND CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities and on the dates stated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Haim Saban Chairman of the Board March 25, 1998
____________________________________ and Chief Executive
HAIM SABAN Officer (Principal
Executive Officer)
/s/ Mel Woods President, Chief March 25, 1998
____________________________________ Operating Officer,
MEL WOODS Chief Financial
Officer and Director
(Principal Financial
Officer)
/s/ Mark Ittner Chief Accounting March 25, 1998
____________________________________ Officer (Principal
MARK ITTNER Accounting Officer)
* Director March 25, 1998
____________________________________
SHUKI LEVY
* Director March 25, 1998
____________________________________
K. RUPERT MURDOCH
*
____________________________________ Director March 25, 1998
CHASE CAREY
** Director March 25, 1998
____________________________________
LAWRENCE JACOBSON
</TABLE>
- --------
* Executed by Mel Woods as attorney-in-fact pursuant to a power of attorney
included in the Registration Statement as originally filed on September 26,
1996.
** Executed by Mel Woods as attorney-in-fact pursuant to a power of attorney
included as Exhibit 24.2 in Amendment No. 1 to Registration Statement, filed
on January 26, 1998.
II-8
<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 HOLDING, 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
FY ended June 30, 1997
Allowance for doubtful
accounts................ 1,690,000 200,000 0 (480,000) 1,410,000
</TABLE>
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
**1.1 Purchase Agreement dated October 22, 1997 among Fox Kids
Worldwide, Inc., as issuer, and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Citicorp Securities,
Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, and Morgan Stanley & Co. Incorporated, as
initial purchasers.
**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)
**2.3 Agreement and Plan of Merger dated as of June 11, 1997 by and
among Fox Kids Worldwide, Inc., Fox Kids Merger Corporation and
International Family Entertainment, Inc.
**2.4 Stock Purchase Agreement dated as of June 11, 1997 by and between
Fox Kids Worldwide, Inc., M.G. "Pat" Robertson, individually and
as trustee of certain trusts named therein, Lisa N. Robertson and
Timothy B. Robertson, as joint tenants, and Tim Robertson,
individually, as trustee of certain trusts named therein, and as
custodian to and for each of Abigail H. Robertson, Laura N.
Robertson, Elizabeth C. Robertson, Willis H. Robertson and
Caroline S. Robertson.
**2.5 Stock Purchase Agreement dated as of June 11, 1997 by and between
Fox Kids Worldwide, Inc. and The Christian Broadcasting Network,
Inc.
**2.6 Stock Purchase Agreement dated as of June 11, 1997 by and between
Fox Kids Worldwide, Inc. and Regent University.
**2.7 Amended and Restated Agreement dated as of August 1, 1997 by and
among Fox Kids Worldwide, Inc., Saban Entertainment, Inc., Fox
Broadcasting Sub, Inc., Allen & Company Incorporated, Haim Saban
and certain entities listed on Schedule A thereto.
**3.1 Corrected Restated Certificate of Incorporation of the Registrant.
**3.2 Amended and Restated Bylaws of the Registrant.
**4.1 Senior Notes Indenture dated as of October 28, 1997 (the "Senior
Notes Indenture") between Fox Kids Worldwide, Inc., as obligor,
and The Bank of New York, as trustee, and form of Notes.
**4.2 Senior Discount Notes Indenture dated as of October 28, 1997 (the
"Senior Discount Notes Indenture") between Fox Kids Worldwide,
Inc., as obligor, and The Bank of New York, as trustee, and form
of Notes.
**4.3 Senior Notes Registration Rights Agreement dated as of October 28,
1997 between Fox Kids Worldwide, Inc., as issuer, and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Citicorp Securities,
Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, and Morgan Stanley & Co. as initial
purchasers.
**4.4 Senior Discount Notes Registration Rights Agreement dated as of
October 28, 1997 between Fox Kids Worldwide, Inc., as issuer, and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citicorp
Securities, Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, and Morgan Stanley & Co., as
initial purchasers.
**4.5 Senior Notes Liquidated Damages Agreement dated as of October 28,
1997 between Fox Kids Worldwide, Inc., as issuer, and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Citicorp Securities, Inc., Bear, Stearns & Co. Inc., Donaldson,
Lufkin & Jenrette Securities Corporation, and Morgan Stanley &
Co., as initial purchasers.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
**4.6 Senior Discount Notes Liquidated Damages Agreement dated as of
October 28, 1997 between Fox Kids Worldwide, Inc., as issuer, and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Citicorp Securities, Inc., Bear, Stearns & Co. Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, and Morgan
Stanley & Co., as initial purchasers.
5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP regarding
the validity of the Notes.
**10.1 Amended and Restated Strategic Stockholders Agreement dated as of
August 1, 1997 by and among Haim Saban, certain entities listed on
Schedule A thereto, Fox Broadcasting Company, Fox Broadcasting
Sub, Inc., and Allen & Company Incorporated.
**10.2 Employment Assumption Agreement dated as of July 31, 1997 by and
among Saban Entertainment, Inc., Fox Kids Worldwide, Inc. and Mel
Woods.
**10.3 Employment Assumption Agreement dated as of July 31, 1997 by and
among Fox Kids Worldwide, L.L.C., Fox Kids Worldwide, Inc. and
Haim Saban.
10.4 Reserved.
**10.5 Form of Indemnification Agreement and Schedule of Indemnified
Parties.
**10.6 Employment Agreement dated as of April 1, 1997 between Saban
Entertainment, Inc. and William Josey.
*10.7 Employment Agreement dated as of December 22, 1995 between Fox
Kids Worldwide, L.L.C. and Haim Saban.
**10.8 Employment Agreement dated as of September 1, 1996 between Fox
Kids Worldwide, Inc. and Shuki Levy; Stock Option Agreement dated
as of June 1, 1994 between Saban Entertainment, Inc. and Shuki
Levy, as amended by Amendment No. 1.
**10.9 Employment Agreement dated as of June 1, 1994 between Saban
Entertainment, Inc. and Mel Woods, as amended by Amendment No. 1
to Employment Agreement dated as of September 26, 1996.
10.10 Reserved.
*10.11 LLC Formation Agreement dated as of November 1, 1995 among Saban
Entertainment, Inc., FCN Holding Company and Fox Broadcasting
Company, Inc.
**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, by and among Saban Entertainment, Inc., FCN Holding, Inc.
and Fox Broadcasting Company.
**10.14 Amendment No. 2 to Operating Agreement dated as of July 31, 1997
by and among Saban Entertainment, Inc., FCN Holding, Inc., Fox
Broadcasting Company and Fox Kids Worldwide, Inc.
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.,
on the other hand.
*10.16 Management Agreement dated as of December 22, 1995 by and among
Fox Kids Worldwide, L.L.C., Saban Entertainment, Inc. and FCNH
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 by and among Haim Saban, certain entities listed on
Schedule "A" thereto, Fox Broadcasting Sub, Inc., and Fox
Broadcasting Company.
***10.19 Home Video Rights Acquisition Agreement dated as of August 8, 1996
among Saban Entertainment, Inc., Ventura Film Distributors, B.V.
and Twentieth Century Fox Home Entertainment, Inc.+
**10.20 Form of Fox Broadcasting Company Station Affiliate Agreement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.21 Merchandising Rights Acquisition Agreement dated as of July 1,
1990 between Twentieth Century Fox Licensing and Merchandising, a
unit of Fox Inc. 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 as 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 (the "Saban/Fox Registration Agreement")
dated as of December 22, 1995 among Saban Entertainment, Inc.,
Haim Saban, certain entities listed on Schedule A thereto, Fox
Broadcasting Company, Inc., and FCN Holding, Inc.
**10.26 Amendment No. 1 to Saban/Fox Registration Agreement dated as of
September 27, 1996.
**10.27 Contribution and Exchange Agreement dated June 11, 1997 by and
among Liberty Media Corporation, Liberty IFE, Inc. and Fox Kids
Worldwide, Inc.
**10.28 Guarantee dated as of December 22, 1995 by The News Corporation
Limited.
**10.29 First Amendment to 10960 Wilshire Boulevard Lease dated as of
August 1, 1997.
**10.30 Guaranty of Lease by The News Corporation Limited and News
Publishing Australia Limited in favor of Beacon Properties, L.P.,
dated as of August 1, 1997.
10.31 Second Amended and Restated Credit Agreement dated as of October
28, 1997 among FCN Holding, Inc., International Family
Entertainment, Inc. and Saban Entertainment, Inc., as Borrowers,
and Fox Kids Holdings, LLC, as Guarantor, and the initial lenders
named therein, as Initial Lenders, and Citicorp U.S.A., Inc., as
Administrative Agent, and Citicorp Securities, Inc. and Bank
Boston, N.A., as Co-Arrangers.
***10.32 Letter Amendment No. 1 to the Second Amended and Restated Credit
Agreement dated as of November 18, 1997.
**10.33 Funding Agreement dated as of June 11, 1997 by and among The News
Corporation Limited, News Publishing Australia Limited and Fox
Kids Worldwide, Inc.
**10.34 Guaranty dated as of June 11, 1997 by The News Corporation Limited
in favor of International Family Entertainment, Inc.
**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 Reserved.
**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 Agreements dated as of June 7, 1994 and
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
**10.41 Barter Syndication Agreement dated as of January 5, 1996 between
Saban Entertainment, Inc. and Fox Broadcasting Company, Inc.
**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.
**10.43 First Amendment to the Contribution and Exchange Agreement dated
as of August 1, 1997 by and among Liberty Media Corporation,
Liberty IFE, Inc. and Fox Kids Worldwide, Inc.
**10.44 Agreement Re Registration Rights dated as of August 1, 1997 by and
among Saban Entertainment, Inc., Haim Saban, certain entities
listed on Schedule A to the Saban/Fox Registration Agreement, Fox
Broadcasting Company, FCN Holding, Inc., Fox Kids Worldwide, Inc.,
Liberty Media Corporation and Liberty IFE, Inc.
***10.45 Exchange Agreement dated August 1, 1997 among News Publishing
Australia Limited, Liberty Media Corporation and Liberty IFE, Inc.
**10.46 Agreement Re Transfer of LLC Interests dated as of July 31, 1997
by and among Fox Kids Worldwide, Inc., Fox Kids Worldwide, L.L.C.
and Fox Broadcasting Company.
***10.47 Subordinated Note Agreement dated July 31, 1997 by and among Fox
Broadcasting Company, as lender, Fox Kids Worldwide, Inc., as
borrower, and Citicorp USA, Inc.; Subordinated Promissory
Note dated July 31, 1997 made by Fox Kids Worldwide, Inc., as
borrower, in favor of Fox Broadcasting Company, as lender; First
Amendment to Subordinated Note Agreement dated September 4, 1997;
Second Amendment to Subordinated Note Agreement dated October 28,
1997 and Subordinated Promissory Note dated October 28, 1997 made
by Fox Kids Worldwide Inc., as borrower in favor of Fox
Broadcasting Company, as lender.
**10.48 Subordinated Note dated August 29, 1997 between Fox Kids
Worldwide, Inc., as borrower, and News America Holdings
Incorporated, as lender, and Subordinated Note Agreement dated
August 9, 1997 between Fox Kids Worldwide, Inc., as borrower, News
America Holdings Incorporated, as lender, and Citicorp USA, Inc.
and First Amendment to Subordinated Note Agreement dated
October 28, 1997.
***10.49 Amendment to Affiliation Agreement dated June 11, 1997, between
International Family Entertainment, Inc. and Satellite Services,
Inc. (Filed as Exhibit 99.4.1 to International Family
Entertainment's Report on Form 8-K, dated June 11, 1997, and
incorporated herein by reference).+
10.50 Letter of Amendment dated as of May 16, 1996, amending the
International Family Entertainment, Inc. Family Channel
Affiliation Agreement dated as of December 28, 1989, between
Satellite Services, Inc. and International Family Entertainment,
Inc. (Filed as Exhibit 10.28 to International Family
Entertainment's Annual Report on Form 10-K/A for the year ended
December 31, 1996, and incorporated herein by reference).+
***10.51 Program Time Agreement dated as of January 5, 1990, between The
Christian Broadcasting Network, Inc. and International Family
Entertainment, Inc. and Amendment No. 1 to Program Time Agreement
dated as of June 11, 1997.
***10.52 International Family Entertainment, Inc. Family Channel
Affiliation Agreement, dated as of December 28, 1989, between
Satellite Services, Inc. and International Family Entertainment,
Inc. (Filed as Exhibit 10.8 to International Family
Entertainment's Registration Statement on Form S-1 (No. 33-45967),
and incorporated herein by reference).+
***10.53 Amendment, dated as of January 1, 1994, amending the International
Family Entertainment, Inc. Family Channel Affiliation Agreement,
dated as of December 28, 1989, between Satellite Services, Inc.
and International Family Entertainment Inc.
**10.54 Registration Rights Agreement dated August 1, 1997 by and among
Fox Kids Worldwide, Inc., Liberty Media Corporation and Liberty
IFE, Inc.
***10.55 Galaxy V Transponder Purchase Agreement, dated as of January 23,
1992, between Hughes Communications Galaxy, Inc. and International
Family Entertainment, Inc. (Filed as Exhibit 10.8 to International
Family Entertainment's Annual Report on Form 10-K for the year
ended December 31, 1994, and incorporated herein by reference).+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
***10.56 GE C-3/C-4 Satellite Transponder Sales Agreement dated as of July
7, 1989 between GE American Communications and The Christian
Broadcasting Network Inc. (Filed as an exhibit to International
Family Entertainment's Registration Statement on Form S-1 (No. 33-
45967), and incorporated herein by reference).+
***10.57 C-3/C-4 Satellite Transponder Sales Agreement Amendment Number One
dated as of December 15, 1989, between GE American Communications,
Inc. and The Christian Broadcasting Network, Inc.
10.58 C3/C4 Satellite Transponder Sales Agreement Amendment Number Two
dated as of December 15, 1989, between GE American Communications,
Inc. and The Christian Broadcasting Network, Inc.
***10.59 Letter of Amendment dated September 30, 1991, re: C-3/C-4
Satellite Transponder Sales Agreement by and between GE American
Communications, Inc. and The Christian Broadcasting Network, Inc.
as predecessor in interest to International Family Entertainment,
Inc.
***10.60 C3/C4 Satellite Transponder Sales Agreement Amendment Number Four
dated as of November 24, 1992 by and between GE American
Communications, Inc. and International Family Entertainment, Inc.
****12.1 Ratio of Earnings to Fixed Charges.
**21.1 Subsidiaries of the Registrant.
23.1 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (included
in Exhibit 5.1 hereto).
23.2 Consent of Ernst & Young LLP regarding Saban Entertainment, Inc.,
regarding FCN Holding, Inc., and regarding FCN Holding, Inc.,
Saban Entertainment, Inc., and Fox Kids Worldwide, L.L.C.
23.3 Consent of KPMG Peat Marwick LLP regarding International Family
Entertainment, Inc.
*24.1 Power of Attorney.
**24.2 Power of Attorney of Lawrence Jacobson dated January 22, 1998.
**25.1 Statement of Eligibility of The Bank of New York, as Trustee.
****27.1 Financial Data Schedule.
****99.1 Form of Letter of Transmittal.
****99.2 Form of Notice of Guaranteed Delivery.
****99.3 Form of Exchange Agent Agreement.
****99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
****99.5 Form of Letter to Clients.
</TABLE>
- --------
* Previously filed as an exhibit to the Registrant's Form S-1 on September
27, 1996
** Previously filed as an exhibit to the Registrant's Amendment No. 1 to Form
S-1 on January 26, 1998.
*** Previously filed as an exhibit to the Registrant's Amendment No. 2 to Form
S-1 on February 20, 1998.
**** Previously filed as an exhibit to the Registrant's Amendment No. 3 to Form
S-4 on March 12, 1998.
+ 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 schedules.
<PAGE>
EXHIBIT 5.1
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176-0001
(212) 661-6500
March 25, 1998
Fox Kids Worldwide, Inc.
10960 Wilshire Boulevard
Los Angeles, California 90024
Re: Registration Statement on Form S-4
File No. 333-12995
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for Fox Kids Worldwide, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission (the "Commission") of the Company's
Registration Statement on Form S-4, as amended (Registration Number 333-12995
the "Registration Statement"), under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the proposed issuance of (i) up to $475,000,000
aggregate principal amount of the Company's 9 1/4% Senior Notes due 2007 (the
"Exchange Senior Notes") in exchange for a like amount of the Company's
privately placed 9 1/4% Senior Notes due 2007 (the "Original Senior Notes") and
(ii) up to $618,670,000 aggregate principal amount at maturity of the Company's
10 1/4% Senior Discount Notes due 2007 (the "Exchange Senior Discount Notes" and
together with the Exchange Senior Notes, the "Exchange Notes") in exchange for a
like amount of the Company's privately placed 10 1/4% Senior Discount Notes (the
"Original Senior Discount Notes" and together with the Original Senior Notes,
the "Original Notes"). The Original Senior Notes were issued and the Exchange
Senior Notes will be issued pursuant to that certain Indenture, dated as of
October 28, 1997 (the "Senior Notes Indenture"), by and among the Company and
The Bank of New York, as trustee (the "Senior Notes Trustee"), and the Original
Senior Discount Notes were issued and the Exchange Senior Discount Notes will be
issued, pursuant to that certain Indenture, dated as of October 28, 1997 (the
"Senior Discount Notes Indenture" and together with the Senior Notes Indenture,
the "Indentures"), by and among the Company and The Bank of New York, as trustee
(the "Senior Discount Notes Trustee" and together with the Senior Notes Trustee,
the "Trustee").
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of the Registration Statement, the Indentures, and such
corporate records, agreements, documents and other instruments, and such
certificates or comparable documents of public officials and of officers and
representatives of the Company, and have made such inquiries of such officers
and
<PAGE>
Fox Kids Worldwide, Inc.
March 20, 1998
Page 2
representatives as we have deemed relevant and necessary as a basis for the
opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such latter documents. As to all
questions of fact material to this opinion that have not been independently
established, we have relied upon certificates or comparable documents of
officers and representatives of the Company. The opinion set forth below is also
based on the assumption that the Registration Statement, as amended (including
any necessary post-effective amendments), has become effective under the
Securities Act and that the Indentures have been qualified under the Trust
Indenture Act of 1939, as amended, and have been duly executed and delivered by
the Trustee.
Based on the foregoing, and subject to the qualifications stated herein,
we are of the opinion that the Exchange Notes, when duly issued and
authenticated by the Trustee in accordance with the provisions of the Indentures
and delivered in exchange for the Original Notes pursuant to the Registration
Statement, will be validly issued and will constitute legal and binding
obligations of the Company in accordance with their terms (subject in each case
to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally from time
to time in effect and to general principles of equity, including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing, regardless of whether considered in a proceeding in equity or at law).
The opinion herein is limited to the laws of the State of New York, the
corporate laws of the State of Delaware and the federal laws of the United
States, and we express no opinion as to the effect on the matters covered by
this opinion of the laws of any other jurisdiction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In so doing, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission promulgated
thereunder.
Sincerely,
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
<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) clear FCN in substantially the same
percentage of U.S. television households as is currently the case; and (b) clear
FCN in 75% of U.S. television households in substantially the same time periods
as is currently the case. These obligations will run through the tenth
anniversary hereof. In determining whether or not FBC has met its clearance
obligations, the following will apply:
(a) If FBC ensures continuing clearance on an existing FCN
Station Affiliate in a market or ensures comparable clearance in that market,
FBC will be deemed to have satisfied its clearance obligations as to that
market.
(b) If FBC deems it necessary to offer economic consideration to
a Station Affiliate to ensure clearance of FCN in a market, FBC will have the
right, subject to the Management Company's approval, to offer such economic
consideration at the Management Company's expense. If the Management Company
does not approve the offer of economic consideration, FBC will be deemed to have
satisfied its clearance obligation as to that market. In any case, FBC will
have the right to offer, at a minimum, the current economic arrangement embodied
in Exhibit "C" to Exhibit "C-1" hereof to Station Affiliates on a going forward
basis.
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) FBC shall cause current Fox O&Os (i.e., the Stations which
constitute the Fox O&Os as of the date hereof) to continue to clear FCN in a
manner substantially equivalent to their current practice. If a Fox O&O in a
market wishes to cease clearing FCN and FBC can assure, at no cost to the
Management Company, comparable clearance in the relevant market on another
Station, the Fox O&O will be free to cease clearing FCN.
6
<PAGE>
(b) With respect to any new Fox O&O (i.e., any Station which
becomes a Fox O&O after the date hereof) which is clearing children's
programming at the time of its acquisition by the Fox Group, FBC shall cause
such Station to offer to clear FCN in a manner comparable to such Station's then
existing clearance of children's programming, subject to then existing
contractual arrangements.
(c) With respect to any new Fox O&O (i.e., any Station which
becomes a Fox O&O after the date hereof) which is not clearing children's
programming at the time of its acquisition by the Fox Group, FBC will not be
required to cause such Station to clear FCN; provided, however, that FBC shall
use its best efforts and shall work together with the Management Company to
clear FCN on another Station in the market serviced by such new Fox O&O.
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: If one or more of the Designated Fox O&Os
----------------
shall cease to be an FCN Affiliate Station (a "Dropped Station"), then,
thereafter, FBC shall pay directly to the
7
<PAGE>
Management Company an amount equal to the total FCN Net Profits available for
distribution in the relevant year multiplied by the following percentage: the
fraction, expressed as a percentage, whose numerator is the applicable Station's
cumulative aggregate audience delivery for FCN Programming from the commencement
of such Station becoming an FCN Affiliated Station through the date such Station
ceased to be an FCN Affiliated Station ("Exit Date") and whose denominator is
equal to the cumulative, aggregate audience delivery for FCN Programming for all
FCN Station Affiliates, past and present, through the Exit Date; for purposes of
this measurement, audience delivery shall be determined in accordance with the
method utilized as of September 3, 1990 by FBC with respect to FBC programming
(other than FCN Programming) in its formula for distribution of station
compensation to its Station Affiliates (except that the rating base shall be
kids, ages 2 to 11). The current applicable percentage figures for the
Designated Fox O&Os are set forth on Schedule "9.2.3" attached hereto (and
incorporated herein by this reference). Any sum payable pursuant to this
Paragraph 9.2.3 shall be paid by FBC to the Management Company concurrently with
the payment corresponding of FCN Net Profits to the then current FCN Affiliated
Stations.
9.2.4. Re-Categorizing Fox O&OS: Notwithstanding the parties'
current designation of the Fox O&Os which are to be included within the
"Designated Fox O&Os" for purposes of this Agreement, if, at any time hereafter,
the Fox O&Os which do not constitute "Designated Fox O&Os" (the "Excluded Fox
O&Os) become entitled, in the aggregate, to a distributive share of the FCN Net
agreed that, for purposes of calculating FCN Net Profits, the ratings of the
Designated Fox O&Os will continue to be included in the applicable computations,
notwithstanding the waiver of payment set forth in Paragraph 9.2.1 above), FBC
shall designate one or more of the Excluded O&Os to thereafter be included
within the "Designated Fox O&Os", on terms and conditions to be negotiated in
good faith at the time between FBC and the Management Company.
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
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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
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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
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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").
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<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
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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
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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
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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.
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<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.
23
<PAGE>
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 10.21
MERCHANDISING RIGHTS ACQUISITION AGREEMENT
AGREEMENT dated as of July 1, 1990 ("Effective Date") between TWENTIETH CENTURY
FOX LICENSING AND MERCHANDISING a unit of FOX INC. ("Fox") and FOX CHILDREN'S
NETWORK, INC. ("Licensor").
1. DEFINITIONS: In addition to the following terms defined in this Paragraph
-----------
1., all initially capitalized words shall have the meaning set forth for such
words where they appear herein in initial quotation marks.
(a) "Literary Material": Written matter, whether published or unpublished
-------------------
in any form, including a novel, treatment, outline, screenplay, teleplay,
story, manuscript, play or otherwise, which may be included in a "Program"
(as defined in Paragraph 2. below) or upon which a Program may be based.
(b) "Literary Publishing Rights": The right to publish and distribute for
----------------------------
sale to the public hardcover or soft-cover printed publications (including
novelizations, screenplays and teleplays) of all or any part of the
Literary Material or other material (other than music and/or lyrics) used
in connection with a Program, including artwork, logos or photographic
stills (but solely to the extent that the right to make such use of such
other material has been separately obtained from the owner thereof), other
than the publications included within Merchandising Rights.
(c) "Merchandising Rights": The right to license, manufacture, distribute,
----------------------
and sell articles of merchandise and/or products (including toys, board and
video games, novelties, trinkets, souvenirs, wearing apparel, fabric,
foods, beverages and cosmetics) and the right to license, distribute, and
sell services, which embody on or in such merchandise, products or services
characters, designs, visual representations, names, likenesses and/or
characteristics of artists, physical properties or other materials
appearing or used in or in connection with a Program or all or any part of
the Literary Material and the right to publish, distribute, and sell
souvenir programs, picture books, comic books, post cards, photo novels,
illustration books, and activity books or booklets which embody on or in
the foregoing any or all of the characters, designs, visual
representations, names, likenesses and;or characteristics of artists,
physical properties or other materials papering or used in or in connection
with a Program or all or any part of the Literary Material.
2. SCOPE OF AGREEMENT: This Agreement covers the acquisition and exercise by
------------------
Fox of Merchandising Rights and Literary Publishing Rights (collectively
"Rights") in and to each Program which comprises a part of the programming ("FCN
Programming") that Licensor provides to its affiliated television stations ("FCN
Affiliated Stations") as part of its national program service. As used herein,
Program means each Television Motion Picture or Television Series currently
existing or hereinafter produced by or on behalf of Licensor for initial
exhibition in the United States as part of FCN Programming, including each of
the following Television
<PAGE>
Series: "BOBBY'S WORLD", "ATTACK OF THE KILLER TOMATOES", "PIGGSBURG PIGS" and
"FOX'S PETER PAN AND THE PIRATES".
3. LICENSE: Licensor grants and licenses to Fox, for the Term and the
-------
Territory specified below, the sole and exclusive right and license under
copyright to exercise all Rights with respect to each Program to the extent that
such Rights are owned and/or controlled by Licensor.
4. TERM: The period during which Fox may exercise the Rights with respect to
----
each Program ("Term") shall commence on the date of this Agreement and shall
continue in perpetuity, unless limitations with respect to the Term of a Program
are set forth in writing by Licensor. Any such limitations shall take the form
of Exhibit "___" which shall be attached to and become a part of this Agreement.
To the extent that any Program created after the date hereof shall have less
than a perpetual Term, Licensor shall deliver to Fox a written notice specifying
the relevant Program and the duration of its Term. Upon receipt by Fox, such
notice shall constitute an amendment to Exhibit "B" and shall be deemed to be a
part of this Agreement for all purposes.
5. TERRITORY: The "Territory" in which Fox may exercise the Rights shall
---------
consist of the entire world.
6. LICENSOR'S RESERVED RIGHTS: Licensor reserves all rights in the Programs
--------------------------
and the literary, dramatic and musical material on which they are based which
are not specifically granted to Fox hereunder or under any other agreement
between Licensor and Fox.
7. PAYMENTS TO LICENSOR:
--------------------
(a) Licensor's Share of Net Profits: In consideration of the Rights, Fox
-------------------------------
shall pay to Licensor an amount equal to 100% of Net Profits ("Licensor's
Share of Net Profits").
(b) Terminology: As used herein, the term "Net Profits" means, with
-----------
respect to any particular Program, the amount, if any, remaining after Fox
has deducted and retained the aggregate of the following from the Gross
Receipts derived from Fox's exercise of Rights in respect of such Program
in the following order of priority:
(i) Fox's Distribution Fees: Fox shall be entitled to keep for its own
-----------------------
account 35% of Gross Receipts. From its 35% share of Gross
Receipts, Fox acknowledges and agrees that it shall bear
responsibility for the payment of any and all agent fees incurred
in connection with the exploitation of the Rights, as described in
Paragraph 9. hereinbelow.
(ii) Distribution Expenses: With respect to any particular Program,
---------------------
the aggregate of Distribution Expenses, as defined in Exhibit "A,"
incurred in connection with Fox's exercise of Distribution Rights in
respect of such Program.
2
<PAGE>
The computation of Gross Receipts shall be as set forth in Exhibit "A"
hereto. In connection therewith, the term "Participant's Percentage
Participation" as used in Exhibit "A" is synonymous with Licensor's Share
of Net Profits as defined in paragraph 7.(a) above.
8. OBLIGATIONS OF FOX: Fox agrees:
------------------
(a) to diligently and continuously promote and expand the licensing and
other exploitation of Rights derived from the Programs throughout the
Territory during the Term by soliciting and negotiating merchandising
license agreements and promotion license agreements (collectively "License
Agreements") with manufacturers and distributors of commercial products
and/or services ("Licensee Companies") in accordance with the terms and
conditions of this Agreement;
(b) to administer, supervise and service the License Agreements, including,
without limitation, by collecting all revenues earned and/or derived from
the License Agreements and/or other means of exploitation of the
Merchandising Rights and by accounting for all such revenues to Licensor as
provided herein;
(c) to protect and defend the property rights of Licensor in and to any
copyrights, trademarks, trade names, service marks and other related rights
in respect of the Programs by maintaining approval processes in connection
with the Merchandise manufactured and distributed pursuant to the License
Agreements; and
(d) to perform any and all other services reasonably required by Licensor
in connection with the exercise and exploitation of Rights arising out of
the Programs.
9. APPOINTMENT OF AGENTS: Fox shall be free, in its sole discretion, to
---------------------
appoint third parties to act as agents throughout the Territory either with
respect to a particular geographical region or with respect to a specialized
aspect for representation of the Rights. Fox shall enter into contractual
arrangements with all such agents pursuant to which Fox shall maintain full
control and supervision over the manner in which such agents represent the
Rights in and to the Programs. In no event shall any agents have the authority
to bind either Licensor or Fox in any manner whatsoever.
10. EXPLOITATION OF RIGHTS: Fox shall have complete, exclusive and unqualified
----------------------
discretion and control as to the time, manner and terms of the marketing, sales,
distribution, promotion and related activities in respect of its duties in
connection with the Rights in accordance with such policies, terms and
conditions and through such parties as Fox in its sole business judgment may
determine proper or expedient. Notwithstanding the foregoing, Fox agrees that
it shall transmit each and every merchandising proposal in the form of a deal
memo to Licensor's designee for Licensor's written approval. If such approval
is given, Fox shall prepare and issue from license agreements (or negotiate any
agreements issued by licensees) among Fox, Licensor and each licensee which Fox
is authorized to sign on behalf of Licensor. Such license agreements, whether
prepared by Fox or by a licensee, shall expressly require that samples of
merchandise and related materials, in all stages of development, both prior to
and
3
<PAGE>
upon manufacture, be submitted to Licensor for its approval. License agreements
shall specify the correct copyright and trademark notices, as dictated to Fox by
Licensor, for inclusion on all merchandise and related materials derived from
each Program. Fox makes no representation or implied warranty or agreement as
to the manner or extent of any exercise or exploitation of any Rights in and to
a particular Program nor the amount of money to be derived from any such
exploitation or exercise. Fox does not guarantee the performance of any third
party who becomes a licensee of any Rights for any Program.
11. WARRANTIES AND INDEMNIFICATIONS:
-------------------------------
(a) Rights/Payments/Quality: Licensor warrants, represents and agrees as
-----------------------
follows:
(i) it has and shall continue to have during the Term,
exclusively, all rights necessary to enter into this Agreement free
and clear of any and all restrictions (other than any restrictions
upon the rights disclosed by Licensor to Fox upon execution of this
Agreement or upon acquisition or development of any new Programs
during the Term hereof), claims, litigation, encumbrances, impairments
or defects of any kind;
(ii) it has not and will not commit or omit to perform any act by
which any of the Rights could or will be encumbered, diminished or
impaired;
(iii) neither the execution by Fox of this Agreement nor anything
contained in any Program nor the exercise by Fox of any of the Rights
will violate or infringe upon any rights of any kind of any Party nor
require Fox, its parent company, Affiliates or any of their licensees
or agents to make any payment of any kind to any party for any reason
(such payments, if any, being the sole responsibility and obligation
of Licensor) other than as described in Paragraph 4.(b) of Exhibit "A"
hereto.
(iv) each of Fox, its parent company, Affiliates and each of its
and their licensees and agents will peacefully enjoy and possess each
and all of the rights and licenses granted or purported to be granted
herein throughout the Term without impairment and without hindrance on
the part of any third party.
(b) Copyright: Licensor warrants, represents and agrees as follows:
---------
(i) the copyright in each Program or any part thereof and in the
literary, dramatic and musical material upon which each Program or any
part thereof is based or which is contained therein will be valid and
subsisting during the Term throughout the Territory; and
(ii) it will secure, register, renew and extend all copyrights in
each Program and any part thereof and all related properties upon
eligibility for copyright registration, renewal and extension.
Licensor hereby irrevocably designates Fox as its attorney-in-fact to
do so if Licensor fails to do so, and also designates Fox
4
<PAGE>
as its attorney-in-fact to take reasonable steps to defend said
copyrights against any and all infringements thereof. Licensor agrees
that the foregoing designations constitute powers coupled with an
interest, are irrevocable throughout the Term and may be exercised at
Fox's sole discretion. Fox shall not be liable to Licensor for any
action or failure to act on behalf of Licensor within the scope of
authority conferred on Fox under this Paragraph 11.(b) unless such
action or omission was performed or omitted fraudulently or in bad
faith or constituted wanton and willful misconduct or gross
negligence.
(c) Trademark Protection: Licensor warrants, represents and agrees that it
--------------------
will secure, register and maintain at Licensor's expense federal trademark
registrations and protection both in the United States and in those
countries in which Fox exploits the Rights and engages in licensing
activity in the classes and categories and to the extent to which the
parties hereto may mutually agree such protection is required.
(d) Indemnity: Licensor agrees to indemnify and hold Fox, its parent
---------
company, Subsidiaries and Affiliates and their respective officers, agents,
directors, employees and licensees harmless from and against any and all
claims, actions or proceedings of any kind and from any and all damages,
liabilities, costs and expenses (including reasonable attorneys' fees)
relating to or arising out of any violation of any of the warranties,
representations or agreements or any error or omission in any of the
material or information furnished to Fox in accordance with this Agreement.
If Licensor shall fail to do so promptly upon Fox's written request, Fox
shall have the right to adjust, settle, litigate and take any other action
Fox deems necessary or desirable for the disposition thereof. In any such
event, Licensor shall reimburse Fox on demand for all amounts paid or
incurred by Fox, including reasonable attorneys' fees, and Fox shall have
the right to deduct the amount thereof from sums accruing to Licensor under
this Agreement.
12. FOX'S DEFAULT: Licensor shall not have any right to terminate or rescind
-------------
this Agreement because of any default or breach of any kind by Fox, its parent
company, Affiliates or their licensees. Licensor shall not be entitled to seek
or obtain any injunctive relief with respect to the exercise of the Distribution
Rights granted hereunder by reason of any alleged default or breach by Fox or
its parent company, Affiliates or their licensees, it being agreed that the only
remedy of Licensor in any such event shall be an action for an accounting or for
damages.
13. CHOICE OF LAW/VENUE: This Agreement will be interpreted in accordance with
-------------------
the Laws of the State of California applicable to contracts made therein, but
without regard to any principles of conflict of laws. Licensor agrees that any
legal action or proceeding relating to this Agreement may be instituted in any
State or Federal court in the County of Los Angeles, State of California and
irrevocably submits to the jurisdiction of such courts.
14. NOTICES: All notices to Licensor or Fox shall be in writing and shall be
-------
sent by registered or certified mail to the respective address set forth below
or such other address as shall be designated by written notice. The address for
all notices to Fox shall be as follows:
5
<PAGE>
Twentieth Century Fox Licensing and Merchandising
P.O. Box 900
Beverly Hills, California 90213
Attention: Senior Vice President
with an additional copy sent to the following person at the above address:
Attention: Counsel, Legal Affairs
The address for all notices to Licensor shall be as follows:
Fox Children's Network
P.O. Box 900
Beverly Hills, California 90213
Attention: Senior Vice President, Business Affairs
with an additional copy sent to the following person at the above address:
Attention: Legal Affairs
15. RELATIONSHIP OF PARTIES: Neither Fox nor Licensor is an agent or
-----------------------
representative of the other, and neither shall be liable for or bound by any
representation, act or omission whatever of the other. This Agreement shall in
no way create a joint venture or partnership nor be for the benefit of any third
party.
16. ENTIRE AGREEMENT: This Agreement and each of the Exhibits and Schedules
----------------
attached hereto embody the entire agreement between Fox and Licensor as to the
subject matter hereof, and expressly and unequivocally supersedes all previous
agreements, warranties or representations, oral or written, which may have been
made between Fox and Licensor as to the subject matter hereof. This Agreement
may only be amended by a written instrument duly signed by Fox and Licensor.
By signing in the spaces provided below, Fox and Licensor accept and agree to
all of the terms and conditions of this Agreement.
FOX CHILDREN'S NETWORK, INC. TWENTIETH CENTURY FOX LICENSING
("Licensor") AND MERCHANDISING, a unit of
FOX INC. ("Fox")
By/s/ R. Vokulich By /s/ Jamie Samson for Al Ovadia
----------------------------------- --------------------------------
Its: Vice-President, Business Affairs Its: Sr. Vice President
6
<PAGE>
EXHIBIT "A"
Exhibit "A" to the Merchandising Rights Acquisition Agreement dated as of July
1, 1990 ("Agreement") between TWENTIETH CENTURY FOX LICENSING AND MERCHANDISING
("Fox") and FOX CHILDREN'S NETWORK, INC. (referred to as "Licensor" in the
Agreement and as "Participant" herein).
1. DEFINED TERMS: All words appearing within the text of this Exhibit with
-------------
initial letters capitalized (except the first word of a sentence and proper
nouns) and all words appearing within underlined paragraph captions with initial
letters capitalized and within quotation marks are specifically defined terms
for purposes of this Exhibit, the definitions for which are set forth within the
text of this Exhibit. Words which appear within parentheses with initial
letters capitalized and within quotation marks are specifically defined terms
for purposes of this Exhibit defined by the text immediately preceding the
parentheses.
2. "PARTICIPANT'S PERCENTAGE PARTICIPATION": Participant's Percentage
----------------------------------------
Participation refers to the share of monies to which Participant is entitled
under the Agreement and which shall be accounted for and paid as provided in the
Agreement and this Exhibit.
3. "GROSS RECEIPTS": Gross Receipts means the aggregate of the following
----------------
received with respect to each Program:
(a) "Revenues": All monies actually received and earned by Fox from the
----------
exercise of the Rights in respect of each Program.
(b) "Net Recoveries":
----------------
(i) Copyright and Trademark Infringement: All monies actually
------------------------------------
received by Fox by reason of the settlement of any dispute or on
account of any judgment or decree in any litigation relative to any
claims for unauthorized exercise of the Rights and/or for
infringement, plagiarism or other interference by any party with the
copyright or trademark of a Program and/or of the exercise of all
rights granted Fox pursuant to the Agreement remaining after first
deducting all costs and expenses incurred in connection with obtaining
such monies, including reasonable attorneys' fees. Costs and expenses
in excess of monies received shall be deducted from Gross Receipts in
accordance with Paragraph 4. hereof.
(ii) Breach of Contract: All monies received by Fox by reason of the
------------------
settlement of any dispute or on account of any judgment or decree in
any litigation relating to any claims for breach of contract in
connection with the exercise of Rights remaining after first
deducting all costs and expenses incurred in connection with obtaining
such monies, including reasonable attorneys' fees. Costs and expenses
in excess of monies received shall be deducted from Gross Receipts in
accordance with Paragraph 4. hereof.
4. "DISTRIBUTION EXPENSES": Distribution Expenses shall mean all costs,
-----------------------
1
<PAGE>
expenses and charges (collectively "costs") paid, advanced or incurred by reason
of, in connection with or relative to the derivation of Gross Receipts with
respect to a particular Program including without limitation the aggregate of
the "Distribution Costs" and "All Other Expenses" described below. In no event
shall the aggregate of Fox's Distribution Costs and All Other Expenses exceed 5%
of Gross Receipts during any calendar quarter without the prior written
permission of Participant, which permission shall not be unreasonably withheld.
(a) "Distribution Costs": All costs, expenses and charges, paid, advanced
--------------------
or incurred by reason of, in connection with, or relative to the derivation
of Gross Receipts with respect to the exercise of Rights arising from the
Programs, including without limitation: costs of marketing, sales,
publicity and promotion involved in the exercise of the Rights, agent fees,
costs of proprietary protection in the form of trademarks, copyrights and
patents, currency conversion and transmission costs, taxes, imposts,
duties, tariffs and governmental fees of any nature, however denominated or
characterized, imposed by any taxing authority anywhere, directly or
indirectly, checking and collection costs, trade association fees, guild
and union payments, general advertising costs (including without
limitation, publications, direct mail, display, advertising
agency/consultant fees, promotional activities, entertainment, commercial
tie-ins, research, surveys and tests, promotional material and printing
materials), claims and litigation costs, copyright and trademark
enforcement costs, physical material costs, shipping, delivery and
transmission costs and insurance costs.
(b) "All Other Expenses": All other expenses, costs, fees and other
--------------------
outlays advanced, paid or incurred by reason of, in connection with, or
relative to the exercise of and other exploitation of the Rights in and to
the Programs.
5. ACCOUNTING PRACTICES: Books of account which pertain to the exercise of
--------------------
Rights with respect to each Program shall be maintained by Fox or under its
supervision at such place or places as may from time to time be customary with
Fox pursuant to its ordinary business practices. All financial matters shall be
determined, accounted for and calculated in all respects pursuant to
participation accounting practices customarily used by Fox. Fox may establish
reasonable reserves for anticipated Distribution Expenses. If Fox incurs any
costs and/or receives any receipts pertaining to a Program together with other
matters, a portion of such costs and/or receipts shall be allocated to such
Program in accordance with the participation accounting practices customarily
used by Fox.
6. FOREIGN REMITTANCES: No monies shall be included in Gross Receipts unless
-------------------
and until such sums have been received in U.S. Dollars in the United States.
All Gross Receipts received in a foreign currency will be converted into United
States Dollars and remitted to Fox in the United States as promptly as
applicable laws will permit. As to funds received in a foreign country which
are not includable in Gross Receipts as a result of being in a Restricted
Currency ("Restricted Proceeds"), Fox shall notify Participant of the amount of
such funds on the appropriate Participation Statement. As and when
Participant's Percentage Participation becomes payable to Participant,
Participant may notify Fox in writing that Participant elects to require
settlement of Participant's share of the Restricted Proceeds remaining in any
country (not yet converted into United States Dollars and therefore not
includable in Gross Receipts) in the
2
<PAGE>
currency of such country, by designating a bank or other representative in such
country, to whom payment may be made for Participant's account. Subject to
applicable laws affecting such transactions, such payment shall be made to such
bank or representative at Participant's expense and shall fully satisfy Fox's
obligations to Participant as to such funds and Participant's share thereof.
Any taxes or expenses incurred in connection with the making of such payments
shall be deducted from amounts paid, or otherwise charged to or paid by the
Participant, in advance, if so required. In no event shall Fox be obligated to
apply Gross Receipts not actually received by Fox in United States Dollars in
the United States to the recoupment of any costs deductible from Gross Receipts
hereunder.
7. STATEMENTS: Fox shall render to Participant periodic Participation
----------
Statements showing, in summary form, Gross Receipts for each Program during the
Term thereof and permitted deductions therefrom, accompanied by payment of the
amount, if any, shown thereon to be due Participant by check drawn to the order
of Participant. The initial Participation Statement shall be rendered for the
period ending as of the close of the calendar quarter during which the exercise
of any Rights with respect to a specific Program by Fox commences.
Participation Statements shall be rendered for periods of 3 months in length
following the end of the period covered by the first Participation Statement.
The period covered by a Participation Statement is referred to as a Statement
Period. No Participation Statements need be rendered for any Statement Period
during which no Gross Receipts are received. Each Participation Statement shall
be furnished 90 days after the close of the Statement Period for which the
Participation Statement is rendered. Any Participation Statement may be changed
from time to time to effectuate year-end adjustments made by Fox's Accounting
Department or its certified public accountants or to correct any errors or
omissions. Each Participation Statement will be mailed to Participant at
Participant's then current address for Notices under the Agreement.
8. WITHHOLDINGS: There shall be deducted from any payments to or for the
------------
account of Participant hereunder, the amount of any tax or other withholding
which, pursuant to applicable laws, is required to be made by Fox, based upon,
measured by, or resulting from payments to or for the account of Participant.
Such deduction shall be in accordance with the good faith interpretation by Fox
of such laws. Fox shall not be liable to Participant for the amount of such
deductions because of the payment of said amount to the Party involved.
Participant shall make and prosecute any and all claims which it may have as to
such tax deductions and/or withholdings directly with the Party involved.
9. OVERPAYMENT/OFFSET: If Fox makes an overpayment to Participant hereunder
------------------
for any reason or if Participant is indebted to Fox for any reason relating to
the Agreement, Participant shall pay Fox such overpayment or indebtedness on
demand, or at the election of Fox, Fox may deduct and retain for its own account
an amount equal to any such overpayment or indebtedness from any sums that may
become due or payable by Fox to Participant for the account of Participant, or
to any company owned by, owning, or under common ownership with Participant.
10. AUDIT: If Participant requests, Fox shall permit during the Term of a
-----
Program, at the sole cost and expense of Participant, a first class and
reputable firm of certified public accountants to examine Fox's books of account
which relate to the Participation Statements
3
<PAGE>
rendered to Participant in respect to such Program which have not become
incontestable. Participant may make copies of or make excerpts from only such
part of Fox's books of account which relate to the matters subject to
examination as herein provided. Such examination shall be only at such place
where said books of account are maintained and during reasonable business hours
in such manner as not to interfere with Fox's normal business activities and not
more frequently than once each calendar year. No examination may last for more
than 30 days. A true copy of all reports made by Participant's representative
pursuant to the foregoing provisions shall be delivered to Fox at the same time
as delivered to Participant. Such right to examine is limited to the Programs
and under no circumstances shall Participant or its authorized representatives
have the right to examine records relating to Fox's business generally or with
respect to any other motion pictures for purposes of comparison or otherwise.
11. INCONTESTABILITY: All information on Participation Statements rendered to
----------------
Participant will be deemed conclusive and binding on Participant unless a
written statement specifying the transactions or items to which Participant
objects is delivered to Fox within 36 months after the date of the first
Participation Statement reflecting the transaction or item in question. If
Participant's objections are not resolved amicably, Participant may maintain or
institute an action with respect to an objection raised and not resolved
amicably if commenced within 6 months after the expiration of said 36-month
period or the expiration of the period for the applicable statute of limitations
established by law as to such transactions or items, whichever first occurs.
The Fox books of account and all supporting documentation need not be retained
and may be destroyed after the expiration of said 36-month period unless
Participant has duly objected prior thereto and instituted an action as herein
provided. Participant agrees that Participant's sole right to receive
accountings in connection with the Rights granted, to examine records, and/or to
object as to transactions or items of information and/or any other matter with
respect to Participant's Participation and/or to maintain or institute any
action or proceeding shall be only as provided in this Exhibit, and Participant
hereby waives the benefits of any applicable Law under which Participant
otherwise may be entitled to an accounting, rights of examination and/or rights
of objection and/or rights to maintain or institute any action or proceeding and
agrees that the accountings to Participant as provided in this Exhibit shall not
be deemed a book account or an open account between Fox and Participant and
shall not be viewed in any way so as to deny the applicability of the
incontestability provisions set forth in this Exhibit.
12. OTHER TERMS AND CONDITIONS:
--------------------------
(a) Creditor - Debtor Relationship: Participant expressly acknowledges the
------------------------------
relationship between Participant and Fox to be that of creditor and debtor
with respect to the payment of monies due Participant hereunder. Nothing
contained herein shall be construed to create a trust or specific fund as
to Gross Receipts of any Program or Participant's share thereof or any
other monies, or to prevent or preclude Fox from commingling Gross Receipts
or any monies due Participant with any other monies or to give Participant
a lien on any Program or an assignment of the proceeds thereof.
(b) Litigation: Participant waives any right which Participant may have at
----------
law or equity to revoke, terminate, diminish or enjoin any rights granted
or acquired by Fox
4
<PAGE>
hereunder by reason of any claim which Participant may assert for non-
payment of any monies claimed due and payable hereunder, it being agreed
that Participant shall be limited to an action at law for recovery of any
such monies claimed and for damages (if any) as a result of non-payment.
(c) No Joint Venture or Partnership: Nothing contained herein shall be
-------------------------------
construed so as to create a joint venture or partnership between
Participant and Fox, or a third party beneficiary relationship as to any
third party.
(d) No Representations: Fox has not made any express or implied
------------------
representation, warranty, guarantee or agreement that any the exercise of
Rights with respect to any Program will earn any minimum amount of Gross
Receipts, Net Profits, or any minimum amount of monies will be expended in
connection therewith or that Participant's Percentage Participation will
equal or exceed any minimum amount or that the Rights in and to any Program
will be exploited in any particular manner.
(e) Assignment by Participant: Subject to all applicable laws and to the
-------------------------
rights of Fox hereunder, Participant may assign the rights to Participant's
Percentage Participation at any time during the Term provided that a Notice
of Irrevocable Authority and Acceptance in Fox's usual form shall be
executed by Participant and by the assignee and delivered to Fox. Fox
shall no be obligated to pay in accordance with any partial assignment if
the formula or basis of computation creates any doubt of interpretation
whereby Fox takes any risk whatsoever and/or it all the assignees fail to
execute and deliver an agreement in Fox's usual form appointing a single
person as a disbursing agent, to whom Fox may make all such payments
thereafter regardless of any further assignment(s). Fox's payment in
accordance with any such assignment or designation shall be deemed to be
equivalent of payment to Participant hereunder and shall discharge Fox from
any further liability or obligation to Participant for the payment of
monies hereunder. Participant's rights to inspect and audit Fox's books of
account shall not be assignable without Fox's prior written consent.
(f) Captions: Captions of paragraphs hereof are inserted for reference and
--------
convenience only and in no way define, limit or prescribe the scope or
intent of any provisions hereof.
5
<PAGE>
Exhibit 10.23
DISTRIBUTION RIGHTS ACQUISITION AGREEMENT
AGREEMENT dated as of September 1, 1990 ("Effective Date") between
TWENTIETH CENTURY FOX FILM CORPORATION ("Fox") and FOX CHILDREN'S NETWORK, INC.
("Licensor"). Capitalized words used herein not otherwise defined have the
meanings set forth in Exhibit "A" hereto and the Glossary attached to Exhibit
"A" as Schedule "1."
1. Scope of Agreement: This Agreement covers the distribution by Fox of
------------------
each Program which comprises a part of the programming ("FCN" Programming")
that Licensor provides to its affiliated television stations ("FCN
Affiliated Stations") as part of its national program service. As used
herein, "Program" means each Television Motion Picture or Television Series
currently existing or hereinafter produced by or on behalf of Licensor for
initial exhibition in the United States as part of FCN Programming,
including each of the following Television Series: "BOBBY'S WORLD,"
"ATTACK OF THE KILLER TOMATOES,"ZAZOO U," "PIGGSBURG PIGS" and "FOX'S
PETER PAN AND THE PIRATES."
2. LICENSE:
-------
(a) Distribution Rights: Subject to subsection (iii) below, Licensor
-------------------
grants and licenses to Fox the following, collectively referred to as
"Distribution Rights," for the term and the Territory specified below:
(i) General Grant of Rights: The sole and exclusive right and
-----------------------
license under copyright to exercise all rights of Free
Television Distribution, Free Television Exhibition, Pay
Television Distribution, Pay Television Exhibition, Home
Video Distribution, Home Video Exhibition, Theatrical
Distribution, Theatrical Exhibition, Non-Theatrical
Distribution and Non-Theatrical Exhibition with respect to
each program and trailers thereof and excerpts and clips
therefrom for an unlimited number of exhibitions in any
language version, including dubbed, subtitled and narrated
versions, using any form of Motion Picture Copy. Without
limiting the generality of the foregoing, Fox shall have
the right, in connection with the marketing, distribution
and exploitation of each Program, (A) to use and to
authorize others to use the title of each Program or to
change any such title, (B) to use and perform and to
authorize others to use and perform any musical material
contained in each Program, (C) to cut, edit and alter any
Program or any part thereof as Fox may reasonably deem
necessary to conform to censorship, import permit and other
legal requirements and/or to conform to time segment
requirements and/or the exhibition standards of licensees
or
<PAGE>
exhibitors engaged in the Pay Television Exhibition, Free
Television Exhibition, Theatrical Exhibition, Non-
Theatrical Exhibition or Home Video Exhibition of the
Programs, and (D) to use Fox's name and trademark and/or
the name and trademark of any of Fox's Subdistributors and
licensees in such manner, position and form as Fox, its
Subdistributors or licensees may elect.
(ii) Advertising and Publicity Rights: For purposes of
--------------------------------
advertising and publicizing each Program, the right (A) to
publish and to license and authorize others to publish in
any language, in any media and in such form as Fox deems
advisable, synopses, summaries, adaptations, resumes and
stories of and excerpts from each Program and from any
literary, dramatic or musical material contained in each
Program or upon which each Program is based, (B) to use
and authorize others to use the name, voice and likeness
(and any simulation or reproduction thereof) of any person
appearing in or rendering services in connection with each
Program, (C) to broadcast and authorize others to broadcast
by radio and television in any language version excerpts
from each Program and from any literary, dramatic, or
musical material contained in each Program or upon which
each Program is based, and (D) to use Fox's name and
trademark and/or the name and trademark of any of Fox's
Subdistributors and licensees in such manner, position and
form as Fox, its Subdistributors or licensees may elect.
(iii) Limitation on Grant of Distribution Rights: To
------------------------------------------
the extent that the Distribution Rights granted to Fox
hereunder with respect to any of the Programs are limited
in any manner, such limitations are set forth on Exhibit
"D" hereto. To the extent that the Distribution Rights
granted to Fox hereunder are limited with respect to any
Program created after the date hereof, Licensor shall
deliver to Fox a written notice specifying the relevant
Program and the limitations on Fox's Distribution Rights
with respect thereto. Upon receipt by Fox, such notice
shall constitute an amendment to Exhibit "D" and shall be
deemed to be a part of this Agreement for all purposes.
(b) Secondary Transmission: Licensor grants Fox a beneficial
----------------------
interest in all revenues to which Licensor is entitled under the Law
of countries in the Territory by reason of the secondary transmission
of any Program by cable television or similar distribution system, the
primary transmission of which is
2
<PAGE>
made pursuant to a valid license agreement from Fox. All such
revenues, whether collected by Licensor or Fox, shall be included
within Gross Receipts of the Programs. Licensor hereby names Fox its
duly appointed agent to make all necessary filings and to collect all
such revenues resulting from the secondary transmission of any Program
to which Licensor, as copyright owner, would otherwise be entitled and
to include such revenues within Gross Receipts of the Programs.
3. TERM: The period during which Fox may exercise the Distribution
----
Rights with respect to each Program ("Term") shall commence on the
Effective Date and shall continue in perpetuity, except as set forth on
Exhibit "D" hereto. To the extent that any Program created after the date
hereof shall have less than a perpetual Term, Licensor shall deliver to Fox
a written notice specifying the relevant Program and the duration of its
Term. Upon receipt by Fox, such notice shall constitute an amendment to
Exhibit "C" and shall be deemed to be a part of this Agreement for all
purposes.
4. TERRITORY: The "Territory" in which Fox may exercise the Distribution
---------
Rights shall consist of the entire world.
5. LICENSOR'S RESERVED RIGHTS/HOLDBACK:
-----------------------------------
(a) Reserved Rights: Licensor reserves all rights in the Programs
---------------
and the literary, dramatic and musical material on which they are
based which are not specifically granted to Fox hereunder or under any
other agreement between Licensor and Fox.
(b) Holdback: With respect to each Program, Fox shall not exercise
--------
or authorize others to exercise the Distribution Rights in the United
States until the expiration of the period during which the FCN
Affiliated Stations are entitled to exhibit the relevant Program as
part of FCN Programming under their applicable station affiliation
agreement. Licensor shall give Fox at least 6 months prior notice of
the availability date for each Program.
6. PAYMENTS TO LICENSOR:
--------------------
(a) Licensor's Share of Net Profits: In consideration of the
-------------------------------
Distribution Rights, Fox shall pay to Licensor an amount equal to 100%
of Net Profits ("Licensor's Share of Net Profits").
(b) Terminology: As used herein, the term "Net Profits" means, with
-----------
respect to any particular Program, the amount, if any, remaining after
Fox has deducted and retained the aggregate of the following from the
Gross Receipts derived from
3
<PAGE>
Fox's exercise of Distribution Rights in respect of such Program in
the following order of priority:
(i) Fox's Distribution Fees: Fox shall be entitled to keep for
-----------------------
its own account the following percentages of Gross Receipts from
the categories listed below:
Network Exhibitions and/or licenses
to a Network in the United States
(excluding Licensor's licenses of FCN
Programming to FCN Affiliated Stations).............10%
Free Television Distribution in the
United States (excluding Network
Television and Barter Sales)........................30%
Barter Sales from Free Television
Distribution in the United States
(excluding Network Television)......................20%
Pay Television Distribution in the
United States.......................................30%
Free Television Distribution and
Pay Television Distribution in Canada...............25%
Free Television Distribution in the
Foreign Territory...................................40%
Pay Television Distribution in the
Foreign Territory...................................30%
Home Video Distribution in the
Domestic Territory..................................20%
Home Video Distribution in the
Foreign Territory...................................30%
Non-Theatrical Distribution in the
Domestic Territory and the Foreign
Territory...........................................50%
4
<PAGE>
Theatrical Distribution in the Domestic
Territory...........................................35%
Theatrical Distribution in the Foreign
Territory...........................................40%
All other Gross Receipts from the
Domestic Territory and the Foreign
Territory...........................................50%
Fox agrees to notify Licensor at any time that the standard
distribution fee charged by Fox for any one of the categories
listed above is lower than the distribution fee set forth above
for such category. In such event, the parties agree to negotiate
in good faith with respect to the amount of such fee.
(c) Distribution Expenses: With respect to any particular Program,
---------------------
the aggregate of Distribution Expenses, as defined in Exhibit
"A," incurred in connection with Fox's exercise of Distribution
Rights in respect of such Program.
The computation of Gross Receipts shall be as set forth in Exhibit "A"
hereto. In connection therewith, the term "Participant's Percentage
Participation" as used in Exhibit "A" is synonymous with Licensor's
Share of Net Profits as defined in Paragraph 6.(a) above.
7. DELIVERY:
--------
(a) Delivery Date: The date on which delivery of all of the Delivery
-------------
Items set forth in subparagraph (b) of this Paragraph 7. is completed
is referred to herein as the "Delivery Date."
(b) Delivery: Delivery of each Program shall consist of the
--------
completion of the delivery of all of the following Delivery Items with
respect to such Program (to the extent that the relevant Program is a
Television Series, Licensor shall deliver the Delivery Items set forth
below with respect to each Episode of such Television Series):
(i) Laboratory Access Letters: Such number of fully-executed
-------------------------
laboratory access letters, substantially in the form of Exhibit
"B" hereto, as are necessary to enable Fox to obtain all of the
following physical materials with respect to each Program:
5
<PAGE>
(A) Masters:
-------
(1) NTSC: 1 new one-inch (1") first generation high
----
band color videotape of each Program conformed to NTSC
specifications (523 line) in 1.33:1 ratio and suitable
for the reproduction of videotape copies therefrom of a
first-class quality, with picture and sound; and
(2) PAL: 1 new C-Format first generation color
---
videotape of each Program conformed to PAL
specifications (625 line) in 1.33:1 ratio and suitable
for the reproduction of videotape copies therefrom of a
first-class quality, with picture and sound.
Collectively, the foregoing first generation videotapes
shall be referred to herein as the "Masters."
(B) Sound Tracks:
------------
(1) Dialogue-Voice Track: A dialogue-voice track which
--------------------
is in perfect synchronization with each Master; and
(2) Music and Effects Track: A music and effects
-----------------------
track, including all music and effects in such Program,
which is in perfect synchronization with each Master.
Collectively, the foregoing sound tracks shall be referred
to herein as the "Sound Tracks." Sound Tracks shall be in
either 16mm optical or 1/4 magnetic version, containing a
new-pilot sync pulse and able to perform at 60 cycles and 7
1/2 inches per second or 60 cycles and 15 inches per
second, or, for tape materials, 59.9 cycles and 7 1/2
inches per second.
(ii) Documentation: As specified in subparagraph (c) of this
-------------
Paragraph 7.
(iii) Advertising Materials: As specified in subparagraph (d) of
---------------------
this Paragraph 7.
(iv) Exclusive License: A fully-executed Exclusive License with
-----------------
respect to each Program in the form of Exhibit "C" hereto, which is
incorporated herein by this reference.
6
<PAGE>
Collectively, the laboratory access letters, together with the
Documentation, Advertising Materials and Exclusive License, are
referred to herein as the "Delivery Items."
(c) Documentation: Licensor shall deliver promptly to Fox the
-------------
following documents ("Documentation"):
(i) One copy of the music cue sheet for each Program:
(ii) Evidence of Errors and Omissions Insurance (as required
under Paragraph 8.(a) below) for each Program:
(iii) One copy of the final script, credit list and title list
for each Program; and
(iv) Statements setting forth (A) contractual restrictions (if
any) on the exercise of the Distribution Rights, and (B)
restrictions (if any) on the editing and dubbing of any
Program.
All of the foregoing materials shall be delivered to Fox at the
address set forth for notices in Paragraph 13. below, Attention: Legal
Department, Television Distribution. In addition, upon Fox's request,
Licensor shall deliver to Fox any other documentation of rights
requested by Fox that may in the reasonable opinion of Fox be
necessary for Fox to effectuate the purposes and intents of this
Agreement or the exercise of the Distribution Rights in the Territory.
(d) Advertising Materials: Licensor shall deliver to Fox still
---------------------
photographs and color transparencies, synopses, cast lists, trailers
and pressbooks for each Program as are available ("Advertising
Materials") at the address set forth for notices in Paragraph 13.
below. Attention: Creative Services, Television Distribution. If Fox
determines that additional materials are necessary for the advertising
and promotion of any Program in connection with Fox's exercise of the
Distribution Rights, Fox may request that Licensor deliver such
materials and Licensor shall inform Fox of the estimated cost of
preparing and delivering any such materials. If Fox so requests.
Licensor shall promptly prepare and deliver such materials to Fox or
its Subdistributor, provided, however, that Licensor's failure or
inability to provide any such materials to Fox or its Subdistributor
shall not constitute a breach of this Agreement. Fox shall reimburse
Licensor for the actual cost of preparing such materials, provided,
however, that such reimbursement shall not exceed 110% of the
estimated cost. Any such items so paid for by Fox shall be owned by
Fox but may only be used by Fox or its Subdistributor in accordance
with the terms and conditions of this Agreement.
7
<PAGE>
(e) Disposition of Physical Materials Upon Expiration: Fox may retain
-------------------------------------------------
any and all Motion Picture Copies in its possession relating to a
particular Program during such Program's Term. All Motion Picture
Copies made by or for Fox shall be Fox's property. Upon expiration of
a particular Program's Term, all Motion Picture Copies, Advertising
Materials and other materials relating to such Program delivered to
Fox by Licensor which are existing and within Fox's control at the
time of such expiration (other than Documentation) shall, at Fox's
election, be returned to licensor to such place as Licensor shall
designate at Licensor's sole cost and expense or shall be destroyed
with certificates of destruction furnished to Licensor.
8. WARRANTIES AND INDEMNIFICATIONS:
-------------------------------
(a) Rights/Payments/Quality: Licensor warrants, represents and
-----------------------
agrees as follows:
(i) it has and shall continue to have during the Term,
exclusively, all rights necessary to enter into this Agreement
free and clear of any and all restrictions, claims, litigation,
encumbrances, impairments or defects of any kind;
(ii) it has not and will not commit or omit to perform any act
by which any of the Distribution Rights could or will be
encumbered, diminished or impaired;
(iii) neither the execution by Fox of this Agreement nor
anything contained in any Program nor the exercise by Fox of any
of the Distribution Rights will violate or infringe upon any
rights of any kind of any Party nor require Fox, its
Subsidiaries, Affiliates, Subdistributors or any of their
licensees or agents to make any payment of any kind to any Party
for any reason (such payments, if any, being the sole
responsibility and obligation of Licensor); and
(iv) each of Fox, its Subsidiaries, Affiliates and
Subdistributors and each of its and their licensees and agents
will peacefully enjoy and possess each and all of the rights and
licenses granted or purported to be granted herein throughout the
Term without impairment and without hindrance on the part of any
third Party.
(b) Guild Payments and Royalties: Licensor warrants, represents and
----------------------------
agrees that all payments required under applicable collective
bargaining agreements, including employer fringe benefits and taxes
payable with respect thereto, by reason of or as a condition to any
exhibition of any Program or any part thereof,
8
<PAGE>
or any use or reuse thereof for any purposes or in any media
whatsoever, as well as the costs of all licenses required to permit
exhibition, distribution or other use of any Program or any part
thereof, including fees for use of any patented equipment or process,
synchronization, recording or performing royalties and fees with
respect to performance of lyrics and music and literary material,
shall be, have been and will be promptly paid as due by Licensor and
shall be the sole responsibility and obligation of Licensor.
(c) Copyright: Licensor warrants, represents and agrees as follows:
---------
(i) the copyright in each Program or any part thereof and in the
literary, dramatic and musical material upon which each Program
or any part thereof is based or which is contained therein will
be valid and subsisting during the Term throughout the Territory,
and no part of any Program or of any such literary, dramatic or
musical material is or will be in the public domain; and
(ii) it will secure, register, renew and extend all copyrights in
each Program and any part thereof and all related properties upon
eligibility for copyright registration, renewal and extension.
Licensor hereby irrevocably designates Fox as its attorney-in-
fact to do so if Licensor fails to do so, and also designates Fox
as its attorney-in-fact to take reasonable steps to defend said
copyrights against any and all infringements thereof. Licensor
agrees that the foregoing designations constitute powers coupled
with an interest, are irrevocable throughout the Term and may be
exercised at Fox's sole discretion. Fox shall not be liable to
Licensor for any action or failure to act on behalf of Licensor
within the scope of authority conferred on Fox under this
Paragraph 8.(c) unless such action or omission was performed or
omitted fraudulently or in bad faith or constituted wanton and
willful misconduct or gross negligence.
(d) Indemnity: Licensor agrees to indemnify and hold Fox, its parent
---------
company, Subsidiaries, Affiliates and Subdistributors and their
respective officers, agents, directors, employees and licensees
harmless from and against any kind and all claims, actions or
proceedings of any kind and from any and all damages, liabilities,
costs and expenses (including reasonable attorneys' fees) relating to
or arising out of any violation of any of the warranties,
representations or agreements or any error or omission in any of the
material or information furnished to Fox in accordance with this
Agreement. If Licensor shall fail to do so promptly upon Fox's
written request, Fox shall have the right to adjust, settle, litigate
and take any other action Fox deems necessary or desirable for the
disposition thereof. In any such event, Licensor shall reimburse Fox
on demand for all amounts paid or incurred by Fox, including
reasonable attorneys' fees, and
9
<PAGE>
Fox shall have the right to deduct the amount thereof from sums
accruing to Licensor under this Agreement.
(e) Errors and Omissions Insurance: Licensor has as of the Effective
------------------------------
Date and shall maintain throughout the Term of this Agreement a policy
of Motion Picture Producers and Distributors Errors and Omissions
Insurance covering each Program in a form acceptable to Fox from a
qualified insurance company acceptable to Fox naming Fox and each and
all of the Parties indemnified herein as additional named insureds.
The insurance which is afforded by such policy shall be for a minimum
of $1 million for any single party's claim arising out of a single
occurrence and $4 million for all claims arising out of a single
occurrence. Such insurance shall provide for 30 days prior notice to
Fox in the event of any revision, modification or cancellation and
shall be deemed to afford primary insurance such that any insurance
coverage obtained by Fox shall be excess insurance not subject to
exposure until the coverage afforded under Licensor's policy shall be
exhausted in its entirety.
9. DISTRIBUTION AND EXPLOITATION: Fox shall have complete, exclusive and
-----------------------------
unqualified discretion and control as to the time, manner and terms of
distribution, exhibition and exploitation of any Program in accordance with
such policies, terms and conditions and through such Parties as Fox in its
sole business judgment may determine proper or expedient. Fox makes no
express or implied warranty or representation as to the manner or extent of
any distribution or exploitation of any Program, nor the amount of money to
be derived therefrom or expended in connection therewith. Fox does not
guarantee the performance of any Party in connection with the distribution
or exploitation of any Program.
10. MPEAA: Licensor acknowledges that Fox is a member of the Motion
-----
Picture Export Association of America, Inc. ("MPEAA"), and agrees that Fox
may, in Fox's sole discretion, abide by any regulations or directives of
the MPEAA, including but not limited to directives to its members not to
license or ship Motion Pictures for distribution or exhibition in any
geographic area of the world.
11. FOX'S DEFAULT: Licensor shall not have any right to terminate or
-------------
rescind this Agreement because of any default or breach of any kind by Fox,
its Subsidiaries, Affiliates, Subdistributors or their licensees. Licensor
shall not be entitled to seek or obtain any injunctive relief with respect
to the exercise of the Distribution Rights granted hereunder by reason of
any alleged default or breach by Fox or its Subsidiaries, Affiliates,
Subdistributors or their licensees, it being agreed that the only remedy of
Licensor in any such event shall be an action for an accounting or for
damages.
10
<PAGE>
12. CHOICE OF LAW/VENUE: This Agreement will be interpreted in accordance
-------------------
with the Laws of the State of California applicable to contracts made
therein, but without regard to any principles of conflict of laws.
Licensor agrees that any legal action or proceeding relating to this
Agreement may be instituted in any State or Federal court in the County of
Los angeles, State of California and irrevocably submits to the
jurisdiction of such courts.
13. NOTICES: All notices to Licensor or Fox shall be in writing and shall
-------
be sent by registered or certified mail to the respective address set forth
below or such other address as shall be designated by written notice. The
address for all notices to Fox shall be as follows:
Twentieth Century Fox Film Corporation
P.O. Box 900
Beverly Hills, California 90213
Attention: Vice President, Business Affairs
Twentieth Television - Television Distribution
with an additional copy sent to the following person at the above address:
Attention: Vice President, Legal Affairs
Twentieth Television - Television Distribution
The address for all notices to Licensor shall be as follows:
Fox Children's Network
P.O Box 900
Beverly Hills, California 90213
Attention: Senior Vice President, Business Affairs
with an additional copy sent to the following person at the above address:
Attention: Legal Affairs
14. RELATIONSHIP OF PARTIES: Neither Fox nor Licensor is an agent or
-----------------------
representative of the other, and neither shall be liable for or bound by
any representation, act or omission whatever of the other. This Agreement
shall in no way create a joint venture or partnership nor be for the
benefit of any third Party. Neither Fox nor Licensor shall have the
authority to bind the other or the other's representatives in any way.
11
<PAGE>
15. ENTIRE AGREEMENT: This Agreement and each of the Exhibits and
----------------
Schedules attached hereto embody the entire agreement between Fox and
Licensor as to the subject matter hereof, and expressly and unequivocally
supersedes all previous agreements, warranties or representations, oral or
written, which may have been made between Fox and Licensor as to the
subject matter hereof. This Agreement may only be amended by a written
agreement duly signed by Fox and Licensor.
By signing in the spaces provided below, Fox and Licensor accept and agree
to all of the terms and conditions of this Agreement.
FOX CHILDREN'S NETWORK, INC. TWENTIETH CENTURY FOX FILM
("Licensor") CORPORATION ("Fox")
By /s/ By /s/
-------------------------- ----------------------------
Its Its
[Executed by an authorized officer of each party to the agreement; however, the
signatures are illegible]
12
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EXHIBIT "A"
Exhibit "A" to the Distribution Rights Acquisition Agreement dated as of
September 1, 1990 ("Agreement") between TWENTIETH CENTURY FOX FILM CORPORATION
("Fox") and FOX CHILDREN'S NETWORK, INC. (referred to as "Licensor" in the
Agreement and as "Participant" herein).
1. DEFINED TERMS: All words appearing within the text of this Exhibit
-------------
with initial letters capitalized (except the first word of a sentence and
proper nouns) and all words appearing within underlined paragraph captions
with initial letters capitalized and within quotation marks are
specifically defined terms for purposes of this Exhibit, the definitions
for which are set forth within the text of this Exhibit or the Glossary
attached hereto as Schedule "1." Words which appear within parenthesis with
initial letters capitalized and within quotation marks are specifically
defined terms for purposes of this Exhibit defined by the text immediately
preceding the parenthesis.
2. "PARTICIPANT'S PERCENTAGE PARTICIPATION": Participant's Percentage
----------------------------------------
Participation refers to the share of monies to which Participant is
entitled under the Agreement and which shall be accounted for and paid as
provided in the Agreement and this Exhibit.
3. "GROSS RECEIPTS": Gross Receipts means the aggregate of the following
----------------
received with respect to each Program:
(a) "License Fees": All monies actually received and earned by
--------------
Distributor from the Theatrical Distribution and Theatrical
Exhibition, Non-Theatrical Distribution and Non-Theatrical Exhibition,
Free Television Distribution and Free Television Exhibition, Pay
Television Distribution and Pay Television Exhibition of each
Program.
(b) "Home Video Receipts": Product royalty amounts equal to the
---------------------
aggregate of the following from the Home Video Distribution of the
Programs:
(i) High Price Sales: 20% of all monies actually received and
----------------
earned by the Home Video Distributor from Home Video Distribution
of Cassettes of the Programs which are sold as other than Economy
Line Product or Direct Marketing Sales ("High Price Sales").
(ii) Direct Marketing Sales: 15% of Net Direct Marketing Income.
----------------------
Net Direct Marketing Income shall mean 100% of the monies received
by the Party directly engaged in Home Video Distribution of the
Programs by means of direct marketing to consumers for Home Video
Exhibition (e.g., through direct mail, mail order, telephone
order, club memberships
13
<PAGE>
continuity series offerings or single title offerings) ("Direct
Marketing Sales"), less Sales Taxes, returns, credits and bad
debts.
(iii) Economy Line Sales: 10% of all monies actually received
------------------
and earned by the Home Video Distributor from Home Video
Distribution of Cassettes of the Programs which are sold as
Economy Line Product (other than Direct Marketing Sales)
("Economy Line Sales").
(A) "Economy Lien Product": Cassettes of Theatrical
--------------------
Motion Pictures which are sold for Home Video Exhibition
at a Wholesale List Price which is less than $30.00 shall
be deemed Economy Line Product.
(B) "Wholesale List Price": The published wholesale
distributor price for the sale of Cassettes in the
applicable Territory of the Licensed Territory; provided,
however, that (1) if, at any time during the License
Period, there is no published wholesale distributor price
in effect in such Territory of the Licensed Territory, the
Wholesale List Price shall be the published list price
less the standard discount, and (2) if, at any time during
the License Period, there is no published wholesale
distributor price and no standard wholesale distributor
discount, the Wholesale List Price shall be the published
list price less the average wholesale distributor discount
as computed on a calendar quarterly basis.
No monies other than the product royalty based solely on the
amounts described in this Paragraph 3., subparagraphs (b)(i),
(ii) and (iii) derived from the sale or rental of Cassettes
shall be included in Gross Receipts by reason of or in
connection with the Home Video Distribution and/or Home Video
Exhibition of the Programs.
(c) "Net Recoveries":
----------------
(i) Unauthorized Exhibition/Copyright Infringement: All monies
----------------------------------------------
actually received by Distributor by reason of the settlement of
any dispute or on account of any judgment or decrees in any
litigation relative to any claims for unauthorized exhibition,
distribution or other use of a Program and/or for infringement,
plagiarism or other interference by any Party with the copyright
or trademark of a Program and/or of the exercise of all rights
granted Distributor pursuant to the Agreement remaining after
first deducting all costs and expenses incurred in connection
with obtaining
14
<PAGE>
such monies, including reasonable attorneys' fees. Cost and
expenses in excess of monies received shall be deducted from
Gross Receipts.
(ii) Breach of Contract: All monies actually received by
------------------
Distributor by reason of the settlement of any dispute or on
account of any judgment or decree in any litigation relating to
any claims for breach of contract in connection with the
distribution and/or exhibition of a Program remaining after first
deducting all costs and expenses incurred in connection with
obtaining such monies.
4. EXCLUSIONS FROM GROSS RECEIPTS: In no event shall the following be
------------------------------
included in Gross Receipts:
(a) Advances/Guarantees: Returnable advance payments and security
-------------------
deposits, until earned or forfeited, provided, however, that non-
returnable advances and guarantees shall be included in Gross Receipts
upon receipt.
(b) Rebates/Refunds/Adjustments: All adjustments, refunds or rebates
---------------------------
given by Distributor or Subdistributors to licensees of a Program. To
the extent any such amounts represent a return of amounts previously
included in Gross Receipts, an appropriate adjustment in Gross
Receipts and Fox Distribution Fees shall be made.
(c) Collected Taxes: Any amounts collected by Distributor of a
---------------
Subdistributor or licensee of a Program as taxes or for payment as
taxes, such as admission, sales and value-added taxes.
(d) Salvage: All monies received by Distributor of a Subdistributor
-------
from the scrapping or disposal of Motion Picture Copies or other
materials.
5. "DISTRIBUTION EXPENSES": The aggregate of the following:
-----------------------
(a) "Distribution Costs": All costs, expenses and charges, paid,
--------------------
advanced or incurred by reason of, in connection with, or relative to
the derivation of Gross Receipts with respect to the Programs and/or
the exhibition thereof, including without limitation: all conversion
and transmission costs, taxes, imposts, duties, tariffs and
governmental fees of any nature, however denominated or characterized,
imposed by any taxing authority anywhere, directly or indirectly,
checking and collection costs, trade association fees, guild and union
payments, general advertising costs (including without limitation,
publications, radio and television, direct mail, display, advertising
agency/consultant fees, promotional activities, entertainment,
commercial tie-ins, research, surveys and tests, promotional material
and printing materials), foreign version costs, re-editing
15
<PAGE>
costs, physical material costs, shipping, delivery and transmission
costs, royalties, insurance costs, copyright costs, copyrights
infringement costs, claims and litigation costs, industry assessments
and quota losses.
(b) "Deferments" and "Percentage Participations": Any amounts not
--------------------------------------------
included within production costs payable (or advanced) to any
individual, corporate entity, partnership, joint venture, organization
or other entity, firm or governmental agency ("Party"), including
Participant, for rights, services, materials, or facilities granted or
used in connection with the Programs, whether as a fixed sum, the
payment of which vests upon the expiration of a period of time, the
occurrence of a specified event or events, and/or the attainment of a
specified level of receipts or profits of the Programs ("Deferment"),
or as a percentage of the receipts of the Programs which remain after
giving effect to the specified exclusions and deductions ("Percentage
Participation"), if any, all as set forth in the agreement providing
for such payment, whether or not such Deferment or Percentage
Participation is defined or computed in the same manner as set forth
in this Exhibit.
(c) "All other Expenses": All other expenses, costs, fees and other
--------------------
outlays advanced, paid or incurred by reason of, in connection with,
or relative to the distribution and other exploitation of the Programs
and the advertising, publicizing and promotion thereof.
6. ACCOUNTING PRACTICES: Books of account which pertain to the
--------------------
distribution of each Program shall be maintained by Fox or under its
supervision at such place or laces as may from time to time be customary
with Fox pursuant to its ordinary business practices. All financial matters
shall be determined, accounted for an calculated in all respects pursuant
to participation accounting practices customarily used by Fox. Fox may
establish reasonable reserves for anticipated Distribution Expenses. If Fox
incurs any costs and/or receives any receipts pertaining to a Program
together with other matters, a portion of such costs and/or receipts shall
be allocated to such Program in accordance with the participation
accounting practices customarily used by Fox.
7. FOREIGN REMITTANCES: No monies shall be included in Gross Receipts
-------------------
unless and until such sums have been received in U.S. Dollars in the United
States. All Gross Receipts received in a foreign currency will be
converted into United States Dollars and remitted to Fox in the United
States as promptly as applicable Laws will permit. As to funds received in
a foreign country which are not includable in Gross Receipts as a result of
being in a Restricted Currency ("Restricted Proceeds"), Fox shall notify
Participant of the amount of such funds on the appropriate Participation
Statement. As and when Participant's Percentage Participation becomes
payable to Participant. Participant may notify Fox in writing that
Participant elects to require settlement of Participant's share of the
Restricted Proceeds remaining in any country (not yet converted
16
<PAGE>
into United States Dollars and therefore not includable in Gross Receipts)
in the currency of such country, by designating a bank or other
representative in such country, to whom payment may be made for
Participant's account. Subject to the applicable laws affecting such
transactions, such payment shall be made to such bank or representative at
Participant's expenses and shall fully satisfy Fox's obligations to
Participant as to such funds and Participant's share thereof. Any taxes or
expenses incurred in connection with the making of such payments shall be
deducted from amounts paid, or otherwise charged to or paid by the
Participant, in advance, if so required. In no event shall Fox be obligated
to apply Gross Receipts not actually received by Fox in United States
Dollars in the United States to the recoupment of any costs deductible from
Gross Receipts hereunder.
8. STATEMENTS: Fox shall render to Participant periodic Participation
----------
Statements showing, in summary form, Gross Receipts for each Program during
the Term thereof and permitted deductions therefrom, accompanied by payment
of the amount, if any, shown thereon to be due Participant by check drawn
to the order of Participant. The initial Participation Statement shall be
rendered for the period ending as of the close of the calendar quarter
during which delivery of any Programs to Fox occurs. Participation
Statements shall be rendered for periods of 3 months in length following
the end of the period covered by the first Participation Statement for 2
years, and then for periods of 6 months in length for 3 years and
thereafter for periods of 12 months in length. The period covered by a
Participation Statement is referred to as a Statement Period during which
no Gross Receipts are received. Each Participation Statement shall be
furnished 90 days after the close of the Statement Period for which the
Participation Statement is rendered. Any Participation Statement may be
changed from time to time to effectuate year-end adjustments made by Fox's
Accounting Department or its certified public accountants or to correct any
errors or omissions. Each Participation Statement will be mailed to
Participant at Participant's then current address for Notices under the
Agreement.
9. WITHHOLDINGS: There shall be deducted from payments to or for the
------------
account of Participant hereunder, the amount of any tax or other
withholding which, pursuant to applicable Laws, is required to be made by
Fox, based upon, measured by, or resulting from payments to or for the
account of Participant. Such deduction shall be in accordance with the
good faith interpretation by Fox of such Laws. Fox shall not be liable to
Participant for the amount of such deductions because of the payment of
said amount to the Party involved. Participant shall make and prosecute
any and all claims which it may have as to such tax deductions and/or
withholdings directly with the Party involved.
10. OVERPAYMENT/OFFSET: If Fox makes an overpayment to Participant
------------------
hereunder for any reason or if Participant is indebted to Distributor for
any reason relating to the Agreement, Participant shall pay Fox such
overpayment or indebtedness
17
<PAGE>
on demand, or at the election of Fox, Fox may deduct and retain for its own
account an amount equal to any such overpayment or indebtedness from any
sums that may become due or payable by Fox to Participant for the account
of Participant, or to any company owned by, owning, or under common
ownership with Participant.
11. AUDIT: If Participant requests, Fox shall permit during the Term of a
-----
Program, at the sole cost and expense of Participant, a first class and
reputable firm of certified public accountants to examine Fox's books of
account which relate to the Participation Statements rendered to
Participant in respect to such Program which have not become incontestable.
Participant may make copies of or make excerpts from only such part of
Fox's books of account which relate tot he matters subject to examination
as herein provided. Such examination shall be only at such place where
said books of account are maintained and during reasonable business hours
in such manner as not to interfere with Fox's normal business activities
and not more frequently than once each calendar year. NO examination may
last for more than 30 days. A true copy of all reports made by
Participant's representative pursuant to the foregoing provisions shall be
delivered to Fox at the same time as delivered to Participant. Such right
to examine is limited to the Programs and under no circumstances shall
Participant or its authorized representatives have the right to examine
records relating to Fox's business generally or which respect to any other
Motion Pictures for purposes of comparison or otherwise.
12. INCONTESTABILITY: All information on Participation Statements
----------------
rendered to Participant will be deemed conclusive and binding on
Participant unless a written statement specifying the transactions on items
to which Participant objects is delivered to Fox within 36 months after the
date of the first Participation Statement reflecting the transaction or
item in question. If Participant's objections are not resolved amicably,
Participant may maintain or institute an action with respect to an
objection raised and not resolved amicably if commenced within 6 months
after the expiration of said 36-month period or the expiration of the
period of the applicable statute of limitations established by Law as to
such transactions or items, whichever first occurs. The Fox books of
account and all supporting documentation need not be retained and may be
destroyed after the expiration of said 36-month period unless Participant
has duly objected prior thereto and instituted an action as herein
provided.
13. OTHER TERMS AND CONDITIONS:
--------------------------
(a) Creditor - Debtor Relationship: Participant expressly
------------------------------
acknowledges the relationship between Participant and Fox to be that
of creditor and debtor with respect to the payment of any monies due
Participant hereunder. Nothing contained herein shall be construed to
create a trust or specific fund as to Gross Receipts of any Program or
Participant's share thereof or any other monies, or to prevent or
preclude Fox from commingling Gross Receipts or any monies due
18
<PAGE>
Participant with any other monies or to give Participant a lien on any
Program or an assignment of the proceeds thereof.
(b) Litigation: Participant waives any right which Participant may
----------
have at law or equity to revoke, terminate, diminish or enjoin any
rights granted or acquired by Fox hereunder by reason of any claim
which Participant may assert for non-payment of any monies claimed due
and payable hereunder, it being agreed that Participant shall be
limited to an action at law for recovery of any such monies claimed
and for damages (if any) as a result of non-payment.
(c) No Joint Venture or Partnership: Nothing contained herein shall
-------------------------------
be construed so as to create a joint venture or partnership between
Participant and Fox, or a third Party beneficiary relationship as to
any third Party. Except as otherwise specifically set forth herein,
neither Participant nor Fox shall be authorized or empowered to make
any representation or commitment or to perform any act which shall be
binding on the other unless expressly unauthorized or empowered in
writing.
(d) No Representations: Fox has not made any express or implied
------------------
representation, warranty, guarantee or agreement that any Program will
be distributed or that the quality of any Program will equal or exceed
any minimum standard of quality, or that any Program will earn a
minimum amount of Gross Receipts, Net Profits, or any minimum amount
of monies will be expended in connection therewith or that
Participant's Percentage Participation will equal or exceed any
minimum amount or that any program will be distributed or exploited in
any particular manner.
(e) Assignment of Participant: Subject to all applicable laws and to
-------------------------
the rights of Distributor hereunder, Participant may assign the rights
to Participant's Percentage Participation at any time after the
Delivery Date, provided that a Notice of Irrevocable Authority and
Acceptance in Fox's usual form shall be executed by Participant and by
the assignee and delivered to Fox. Fox shall not be obligated to pay
in accordance with any partial assignment if the formula or basis of
computation creates any doubt of interpretation whereby Fox takes any
risk whatsoever and/or it all the assignees fail to execute and
deliver an agreement in Fox's usual form appointing a single person as
a disbursing agent, to whom Fox may make all such payments thereafter
regardless of any further assignment(s). Fox's payment in accordance
with any such assignment or designation shall be deemed to be
equivalent of payment to Participant hereunder and shall please and
discharge Fox from any further liability or obligation to Participant
for the payment of monies hereunder. Participant's right to inspect
and audit Fox's books of account shall not be assignable without Fox's
prior written consent.
19
<PAGE>
(f) Captions: Captions and paragraphs hereof are inserted for
--------
reference and convenience only and in no way define, limit or
prescribe the scope or intent of any provision hereof.
20
<PAGE>
SCHEDULE "1"
GLOSSARY
Schedule "1" of Exhibit "A" of the Distribution Rights Acquisition Agreement
("Agreement") dated as of September 1, 1990 between TWENTIETH CENTURY FOX FILM
CORPORATION ("Fox") and FOX CHILDREN'S NETWORK, INC. (referred to as "Licensor"
in the Agreement and as "Participant" in Exhibit "A").
As used in Exhibit "A" and the Agreement, the following words and phrases have
the defined meanings set forth below:
A. "Affiliate": A joint venture or partnership or other entity, other than a
-----------
corporation, with respect to which Fox shares in the actual management,
operation, and expenses thereof, or a corporate entity in which Fox or a
Subsidiary has a financial interest represented by stock ownership in excess of
20%, but not more than 50%. of the total issued and outstanding voting stock of
such corporate entity.
B. "Barter Sales": The sale by Distributor of commercial time in connection
--------------
with Free Television Distribution of the Programs.
C. "Canada": Canada and military installations, aircraft and/or ships flying
--------
the Canadian flag, and aircraft and/or ships owned or operated by any entity
whose principal administrative office is located within any of the
aforementioned Territories but excluding territorial areas and possessions.
D. "Cassettes": Motion Picture Copies in the form of a cassette, cartridge,
-----------
videogram, video disc, tape or other similar device now known or hereafter
devised and designed to be used in conjunction with a reproduction apparatus
which causes a Motion Picture to be visible on the screen of a television
receiver, television monitor or comparable device now known or hereafter
devised.
E. "Distributor": Fox and Subsidiaries and Affiliates engaged in the
-------------
distribution of the Programs for exhibition by other Parties. The term
"Distributor" shall not include the following: theaters, television broadcast
stations, electronic transmission systems (including cable, direct broadcast
satellite, microwave and master antenna), program delivery services and radio
stations (or other exhibitors of Motion Pictures by any means now known or
hereafter devised), or laboratories producing and/or distributing Motion Picture
Copies, or merchandisers, manufacturers, sellers, wholesale dealers or retail
dealers of Cassettes or any other products, or book or music publishers, or
Parties producing or selling phonograph records, or advertising agencies, or
agents for barter sales, or any Parties similar to any of the foregoing excluded
Parties (whether or not any of the foregoing excluded parties are Subsidiaries
of Affiliates), or Subdistributors.
1
<PAGE>
F. "Domestic Territory": The United States and Canada.
--------------------
G. "Episode": Each episodic program of a Television Series or Television
---------
Motion Picture, including a Pilot.
H. "Force Majeure": The interpretation of or material interference with the
---------------
preparation, production, completion, or distribution of any of the Programs or
of a substantial number of Motion Pictures produced and/or distributed or
proposed to be produced and/or distributed by Distributor or Home Video
Distributor by any cause or occurrence beyond the control of Fox or Participant
as the case may be, including fire, flood, epidemic, earthquake, explosion,
accident, riot, war (declared or undeclared), blockade, embargo, act of public
enemy, civil disturbance, labor dispute, strike, lockout, inability to secure
sufficient labor, power, essential commodities, necessary equipment or adequate
transportation or transmission facilities, failure or non-availability of any
means for electronic transmission or reception of Motion Pictures, any
applicable Law, or any act of God.
I. "Foreign Territory": All Territories other than the United States and
-------------------
Canada.
J. "Free Television Distribution": The lease or license of a Motion Picture
------------------------------
to one or more Parties with the right to engage in the Free Television
Exhibition of the Motion Picture and/or to grant licenses to other Parties to
engage in the Free Television Exhibition and/or Free Television Distribution of
the Motion Picture.
K. "Free Television Exhibition": Television Exhibition, other than Pay
----------------------------
Television Exhibition, without any fee being charged to the viewer for the
privilege of unimpaired reception of such exhibition. For purposes of this
definition, any government imposed fees or taxes applicable to the use of
television receivers generally or a regulate periodic access, carriage or
equipment fee (but not any optional premium subscription charge or fee paid with
respect to Pay Television Exhibition) paid by a subscriber to a cable television
transmission service or agency for the privilege of unimpaired reception shall
not be deemed a fee charged to the viewer.
L. "Home Video Distribution": The lease or license of a Motion Picture to one
-------------------------
or more Parties with the right to engage in the manufacture, distribution,
rental and/or sale of Cassettes of the Motion Picture to one or more Parties for
Home/Video Exhibition of the Motion Picture and/or to engage in the further
lease or license of the Motion Picture to other parties with the right to engage
in the manufacture, distribution, rental and/or sale of Cassettes of the Motion
Picture for Home Video Exhibition of the Motion Picture.
M. "Home Video Distributor": Home Video Distributor means Fox, a Subsidiary,
------------------------
or an Affiliate engaged in Home Video Distribution including Home Video
Distribution directly to wholesale dealers which sell Cassettes embodying the
Picture to retail outlets.
2
<PAGE>
N. "Home Video Exhibition": The non-public exhibition of a Motion Picture by
-----------------------
means of a Cassette in a private residence for viewing at the place of origin of
such exhibition.
O. "Including": Whenever examples are used after the word "including," such
-----------
examples are intended to be illustrative only and shall not limit the generality
of the words preceding the word "including."
P. "In perpetuity": The most extensive period of time permitted, including
---------------
renewal and extension periods, if any, by any applicable Law.
Q. "Law": 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.
R. "Literary Material": Written matter, whether published or unpublished, in
-------------------
any form, including a novel, treatment, outline, screenplay, teleplay, story,
manuscript, play or otherwise, which may be included in a Motion Picture or upon
which a Motion Picture may be based.
S. "Literary Publishing Rights": The right to publish and distribute for sale
----------------------------
to the public hardcover or soft-cover printed publications (including
novelizations, screenplays and teleplays) of all or any part of the Literary
Material or other material (other than music and/or lyrics) used in connection
with a Motion Picture, including artwork, logos or photographic stills (but
solely to the extent that the right to make such use of such other material has
been separately obtained from the owner thereof), other than the publications
included within Merchandising Rights.
T. "Merchandising Rights": The right to license, manufacture, distribute, and
----------------------
sell articles of merchandise and/or products (including toys, board and video
games, novelties, trinkets, souvenirs, wearing apparel, fabric, foods, beverages
and cosmetics) and the right to license, distribute, and sell services which
embody on or in such merchandise, products or services characters, designs,
visual representations, names, likenesses and/or characteristics of artists,
physical properties or other materials appearing or use in or in connection with
a Motion Picture or all or any part of the Literary Material and the right to
publish, distribute, and sell services, which embody on or in such merchandise,
products or services characters, designs, visual representations, names,
likenesses and/or characteristics of artists, physical properties or other
materials appearing or used in or in connection with a Motion Picture or all or
any part o the Literary Material and the right to publish, distribute, and sell
souvenir programs, pictures books, comic books, post cards, movie novels, photo
novels, illustration books, and activity books or booklets which embody on or in
the foregoing any or all of the characters, designs, visual representations,
names, likenesses and/or characteristics of artists, physical properties or
other materials appearing or used in or in connection with a Motion Picture or
all or any part of the Literary Material.
3
<PAGE>
U. "Motion Picture": Pictures of every kind and character whatsoever,
----------------
including all present and future technological developments, whether produced by
means of any photographic, electrical, electronic, mechanical or other processes
or devices now known or hereafter devised, and their accompanying devices and
processes whereby pictures, images, visual and aural representations are
recorded or otherwise preserved for projection, reproduction, exhibition, or
transmission by any means or media now known or hereafter devised in such manner
as to appear to be in motion or in sequence, including computer-generated
pictures and graphics other than video games.
V. "Motion Picture Copy": Any negative or positive Motion Picture film in any
---------------------
gauge, video or electronic tape recording, Cassette, disc or other physical
material or substance of any kind produced by means of any photographic,
electrical, electronic, mechanical or other process or device now known or
hereafter devised, on or with respect to which a Motion Picture or any part
thereof is printed, imprinted, recorded, reproduced, duplicated or otherwise
preserved.
W. "Network": Each group of television stations affiliated with either
---------
Capitol Cities/ABC, Inc. ("ABC"), CBS, Inc. ("CBS"), or National Broadcasting
Company ("NBC") which transmits programs included in the program services of
ABC, CBS or NBC, respectively.
X. "Network Exhibition": The Free Television Exhibition of a Motion Picture
--------------------
by a Network.
Y. "Network Television": The transmission of the program services of ABC, CBS
--------------------
and NBC (as the case may be) by each Network.
Z. "Non-Theatrical Distribution": The lease or license of a Motion Picture to
-----------------------------
one or more Parties with the right to engage in the Non-Theatrical Exhibition of
the Motion Picture and/or to grant licenses to other Parties to engage in the
Non-Theatrical Exhibition and/or Non-Theatrical Distribution of the Motion
Picture.
AA. "Non-Theatrical Exhibition": The exhibition of a Motion Picture using any
---------------------------
form of Motion Picture Copy in any manner now known or hereafter devised by any
medium or process now known or hereafter devised, other than Theatrical
Exhibition, Television Exhibition, or Home Video Exhibition. Non-Theatrical
Exhibition includes the exhibition of a Motion Picture (1) in private residences
(other than Television Exhibition and Home Video Exhibition), (2) on airplanes,
trains, ships and other common carriers, (3) in schools, colleges and other
educational institutions, libraries, governmental agencies, business and service
organizations and clubs, churches and other religious oriented groups, museums,
and film societies (including transmission of the exhibition by closed circuit
within the immediate area of the origin of such exhibition), and (4) in
permanent or temporary military installations, shut-in institutions, prisons,
retirement centers, offshore drilling rigs, logging camps, and remote forestry
and construction camps (including transmission of the exhibition by closed
circuit within the immediate are of the origin of such exhibition).
4
<PAGE>
AB. "Outright Sale": The exclusive leasing or licensing of a Motion Picture to
---------------
any Party for a fixed period of time solely for a fixed price without such fixed
price being computed and paid with respect to any monies or levels thereof
actually derived or expenses actually incurred by such Party from the
distribution or exhibition of the Motion Picture.
AC. "Party": Any individual, corporation, partnership, joint venture,
-------
organization or any other business entity or firm or governmental agency.
AD. "Pay Television Distribution": The lease or license of a Motion Picture to
-----------------------------
one or more Parties with the right to engage in the Pay Television Exhibition of
the Motion Picture and/or to grant licenses to other Parties to engage in the
Pay Television Exhibition and/or Pay Television Distribution of the Motion
Picture.
AE. "Pay Television Exhibition": Television Exhibition which is available on
---------------------------
the basis of the payment of a premium subscription charge or fee (as
distinguished from an access, carriage or equipment fee) for the privilege of
unimpaired reception of a transmission for viewing in a private residence or in
a hotel, motel, hospital or other living accommodation or non-public area,
whether (1) such transmission is on a pay-per-view, pay-per-show, pay-per-
channel or pay-per-time period basis, or (2) such premium subscription charge or
fee is charged to the operator of a hotel, motel, hospital or other living
accommodation.
AF. "Pilot": A Television Motion Picture produced as a prototype for the
-------
purpose of interesting an exhibitor, sponsor or distributing entity in ordering
a Television Series based upon such Television Motion Picture.
AG. "Restricted Currency": A currency which is or becomes subject to
---------------------
moratorium, embargo, banking or exchange restrictions or restrictions against
remittances, or which in the business judgment of Fox is commercially
impracticable to remit.
AH. "Subdistributor": A party licensed by Distributor to distribute or license
----------------
the Programs for exhibition in any portion of the Territory, other than a
Subsidiary, Affiliate, exhibitor, a licensee of an Outright Sale transaction, or
a licensee which is a program delivery service for Television Exhibition (such
as a network system for over-the-air television broadcast stations and/or for
cable systems and/or for direct broadcast satellite service and/or for hotels
and/or for hospitals).
AI. "Subsidiary": A Party in which Fox has a financial interest represented by
------------
stock ownership in excess of 50% of the total issued and outstanding voting
stock of such Party.
AJ. "Television Distribution": The lease or license of a Motion Picture to one
-------------------------
or more Parties with the right to engage in the Television Exhibition of the
Motion Picture and/or to grant licenses to other Parties to engage in the
Television Exhibition and/or Television Distribution of the Motion Picture.
5
<PAGE>
AK. "Television Exhibition": The exhibition of a Motion Picture using any form
-----------------------
of Motion Picture Copy for transmission by any means now known or hereafter
devised (including over-the-air, cable, wire, fiber, master antenna, satellite,
microwave, closed circuit, laster, multi-point distribution services or direct
broadcast systems) which transmission is received, directly or indirectly by
retransmission or otherwise, impaired or unimpaired, for viewing the motion
Picture on the screen of a television receiver or comparable device now known or
hereafter devised (including high definition television), other than Home Video
Exhibit or Theatrical Exhibition.
AL. "Television Motion Picture": A Motion Picture primarily intended to be
---------------------------
initially distributed for Television Exhibition, including a mini-series or any
other form of television program other than a Television Series. Where the
context required, "Television Motion Picture" shall mean each and every Episode
of such Television Motion Picture.
AM. "Television Series": Related Episodes intended to be distributed as a
-------------------
group in episodic format (in which a continuing cast of characters performs
roles in different factual situations in each Episode in accordance with an
established story line) or anthology format (in which there is no continuing
cast of characters performing roles and no continuing established story line) or
a combination of an episodic and an anthology format. Where the context
requires. "Television Series" shall mean each and every Episode in such
Television Series.
AN. "Territory": Any specific geographic area constituting a nation, country,
-----------
state, governmental entity or any subdivision thereof located anywhere in the
universe.
AO. "Theatrical Distribution": The lease or license of a Motion Picture to one
-------------------------
or more Parties with the right to engage in Theatrical Exhibition of the Motion
Picture and/or to grant licenses to other Parties to engage in the Theatrical
Exhibition and/or Theatrical Distribution of the Motion Picture.
AP. "Theatrical Exhibition": The exhibition of a Motion Picture using any form
-----------------------
of Motion Picture Copy by any process now known or hereafter devised in walk-in
or drive-in theaters open to the general public on a regularly scheduled basis
where a fee is charged for admission to vide the Motion Picture.
AQ. "United States": The continental United States of America, including the
---------------
District of Columbia, the States of Alaska and Hawaii, Puerto Rico, Guam, Samoa
and the U.S. Virgin Islands, and military installations, aircraft and/or ships
flying the United States flag, and aircraft and/or ships owned or operated by
any entity whose principal administrative office is located within any of the
aforementioned Territories.
6
<PAGE>
EXHIBIT 10.31
================================================================================
$710,000,000
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF OCTOBER 28, 1997
Among
FCN HOLDING, INC.,
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
and
SABAN ENTERTAINMENT, INC.,
as Borrowers,
-- ---------
and
FOX KIDS HOLDINGS, LLC,
as a Guarantor,
-- - ---------
and
THE INITIAL LENDERS NAMED HEREIN,
as Initial Lenders,
-- ------- -------
and
CITICORP USA, INC.,
as Administrative Agent,
-- -------------- -----
and
CITICORP SECURITIES, INC., CHASE SECURITIES, INC.
AND BANKBOSTON, N.A.,
as Co-Arrangers
-- ------------
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
<S> <C>
SECTION 1.01. Certain Defined Terms..................................... 2
SECTION 1.02. Computation of Time Periods............................... 45
SECTION 1.03. Accounting Terms.......................................... 45
SECTION 1.04. Currency Equivalents Generally............................ 46
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances.............................................. 46
SECTION 2.02. Making the Advances....................................... 47
SECTION 2.03. Repayment of Advances..................................... 49
SECTION 2.04. Termination or Reduction of the Commitments............... 50
SECTION 2.05. Prepayments............................................... 52
SECTION 2.06. Interest on Advances...................................... 54
SECTION 2.07. Fees...................................................... 55
SECTION 2.08. Conversion of Advances.................................... 55
SECTION 2.09. Increased Costs, Etc...................................... 57
SECTION 2.10. Payments and Computations................................. 59
SECTION 2.11. Taxes..................................................... 62
SECTION 2.12. Sharing of Payments, Etc.................................. 65
SECTION 2.13. Defaulting Lenders........................................ 66
SECTION 2.14. Use of Proceeds........................................... 68
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of this Agreement... 68
SECTION 3.02. Conditions Precedent to Each Borrowing.................... 74
SECTION 3.03. Determinations Under Section 3.01......................... 75
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties............................ 75
</TABLE>
ARTICLE V
COVENANTS OF HOLDINGS AND THE BORROWERS
<PAGE>
ii
<TABLE>
<S> <C>
SECTION 5.01. Affirmative Covenants....................................... 85
SECTION 5.02. Negative Covenants.......................................... 89
SECTION 5.03. Reporting Requirements...................................... 111
SECTION 5.04. Financial Covenants......................................... 117
SECTION 5.05. Covenant of Holdings........................................ 119
ARTICLE VI
GUARANTEE
SECTION 6.01. Guarantee................................................... 120
SECTION 6.02. Guarantee Absolute.......................................... 121
SECTION 6.03. Waivers and Acknowledgments................................. 122
SECTION 6.04. Subrogation................................................. 123
SECTION 6.05. Continuing Guarantee; Assignments........................... 124
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. Events of Default........................................... 124
ARTICLE VIII
THE AGENTS
SECTION 8.01. Authorization and Action.................................... 128
SECTION 8.02. Administrative Agent's Reliance, Etc........................ 129
SECTION 8.03. The Administrative Agent, the Co-Arrangers and Affiliates... 130
SECTION 8.04. Lender Credit Decision...................................... 130
SECTION 8.05. Indemnification............................................. 130
SECTION 8.06. Successor Administrative Agent.............................. 131
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments, Etc............................................. 132
SECTION 9.02. Notices, Etc................................................ 133
SECTION 9.03. No Waiver; Remedies......................................... 134
SECTION 9.04. Indemnification............................................. 134
SECTION 9.05. Costs and Expenses.......................................... 137
SECTION 9.06. Right of Setoff............................................. 139
SECTION 9.07. Binding Effect.............................................. 139
SECTION 9.08. Assignments and Participations.............................. 139
SECTION 9.09. Confidentiality............................................. 143
SECTION 9.10. Execution in Counterparts................................... 143
SECTION 9.11. Governing Law; Jurisdiction, Etc............................ 143
SECTION 9.12. WAIVER OF JURY TRIAL........................................ 144
</TABLE>
<PAGE>
iii
<TABLE>
<CAPTION>
SCHEDULES
---------
<S> <C>
Schedule I - Existing Advances/Commitments and Lending Offices
Schedule 4.01(b) - Subsidiaries
Schedule 4.01(d) - Governmental Authorizations
Schedule 4.01(p) - Intellectual Property Infringements
Schedule 4.01(y) - Plans and Multiemployer Plans
Schedule 4.01(ff) - Tax Returns and Reports
Schedule 4.01(gg) - Open Years
Schedule 4.01(jj) - Surviving Indebtedness
Schedule 4.01(kk) - Existing Investments
Schedule 5.02(a) - Existing Liens
Schedule 5.02(i) - Existing Dividends and Payment Restrictions
<CAPTION>
EXHIBITS
--------
<S> <C>
Exhibit A-1 - Form of Revolving Credit Note
Exhibit A-2 - Form of Term Note
Exhibit B-1 - Form of Notice of Borrowing
Exhibit B-2 - Form of Notice of Conversion
Exhibit C - Form of Assignment and Acceptance
Exhibit D-1 - Form of Pledge and Assignment Agreement
Exhibit D-2 - Form of U.K./Saban U.K.Pledge Agreement
Exhibit D-3 - Form of U.K./FKE Pledge Agreement
Exhibit E-1 - Form of Fox Kids Guarantee
Exhibit E-2 - Form of Subsidiaries Guarantee
Exhibit F - Form of Assumption Agreement
Exhibit G-1 - Form of Opinion of Louis A. Isakoff, Esq.
Exhibit G-2 - Form of Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP
Exhibit G-3 - Form of Opinion of Troop Meisinger Steuber & Pasich, LLP
Exhibit G-4 - Form of Opinion of Westaway & Co.
Exhibit G-5 - Form of Opinion of Norton Rose
Exhibit H-1 - Form of Intercompany Note
Exhibit H-2 - Form of Permitted Affiliate Subordinated Note
</TABLE>
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of October 28,
1997 among FCN HOLDING, INC., a Delaware corporation ("FCN HOLDING"),
INTERNATIONAL FAMILY ENTERTAINMENT, INC., a Delaware corporation ("IFE"), SABAN
ENTERTAINMENT, INC., a Delaware corporation ("SABAN" and, together with FCN
Holding and IFE, the "BORROWERS"), FOX KIDS HOLDINGS, LLC, a Delaware limited
liability company and the owner of all of the issued and outstanding Equity
Interests (as hereinafter defined) in each of the Borrowers ("HOLDINGS"), the
banks, financial institutions and other institutional lenders set forth on the
signature pages to this Agreement under the caption "The Initial Lenders"
(collectively, the "INITIAL LENDERS"), CITICORP SECURITIES, INC., a Delaware
corporation ("CITICORP SECURITIES"), CHASE SECURITIES, INC., a Delaware
corporation ("CHASE SECURITIES") and BANKBOSTON, N.A., a national banking
association ("BANKBOSTON"), as the co-arrangers (the "CO-ARRANGERS") for the
Facilities (as hereinafter defined), and CITICORP USA, INC., a Delaware
corporation ("CITICORP USA"), as the administrative agent and the collateral
agent (together with any successor thereto appointed pursuant to Article VIII,
the "ADMINISTRATIVE AGENT") for the Lenders and the other Secured Parties (each
as hereinafter defined).
PRELIMINARY STATEMENTS
(1) In connection with the acquisition by Fox Kids Worldwide, Inc., a
Delaware corporation and the owner of all of the issued and outstanding Equity
Interests in Holdings ("FOX KIDS"), through a series of related transactions, of
a majority of the issued and outstanding Equity Interests and Voting Interests
(as hereinafter defined) in International Family Entertainment, Inc., a Delaware
corporation and the predecessor in interest to IFE ("PRE-MERGER IFE"), Fox Kids,
FCN Holdings, Merger Corporation (as hereinafter defined) and Saban (the
"ORIGINAL BORROWERS") entered into the Credit Agreement dated as of August 1,
1997 (the "ORIGINAL CREDIT AGREEMENT") with Citicorp USA, as the sole initial
lender thereunder (the "ORIGINAL LENDER"), Citicorp Securities, as the arranger
and the syndication agent for the credit facilities thereunder, and Citicorp
USA, as the administrative agent and the collateral agent for the Original
Lender and the other secured parties referred to therein. Pursuant to the terms
of the Original Credit Agreement, the Original Lender made advances to Fox Kids
and Saban in an aggregate principal amount of $602,000,000 in order to
consummate such acquisition, to refinance certain Indebtedness (as hereinafter
defined) of Saban outstanding at such time and to pay fees and expenses incurred
in connection with the consummation of such acquisition and refinancing and the
other transactions described in the Original Credit Agreement.
(2) In connection with the consummation of the merger (the "MERGER")
of Pre-Merger IFE with and into Fox Kids Merger Corporation, a Delaware
corporation and a Subsidiary (as hereinafter defined) of Fox Kids organized
thereby to effect the Merger ("MERGER CORPORATION"), with IFE being the
surviving corporation, the Original Borrowers entered into the Amended and
Restated Credit Agreement dated as of September 4, 1997 (the "EXISTING CREDIT
AGREEMENT") with the banks, financial institutional and other institutional
lenders party thereto (the "EXISTING LENDERS"), Citicorp Securities, as the
arranger and the syndication agent for the credit facilities thereunder, and
Citicorp USA, as the administrative agent and the collateral agent for the
Existing Lenders and the other secured parties referred to therein. Pursuant to
the terms of the Existing Credit Agreement, the Existing Lenders made additional
advances to the Original Borrowers in an aggregate principal amount of
$648,000,000 (for an aggregate principal amount outstanding thereunder of
$1,250,000,000) in order to finance in part the cash consideration payable to
the remaining former holders of the outstanding Equity Interests in Pre-Merger
IFE for their
<PAGE>
2
shares in the Merger, to refinance certain Indebtedness of IFE outstanding at
such time and to pay certain fees and expenses incurred in connection with the
consummation of the Merger and such refinancing and the other transactions
described in the Existing Credit Agreement.
(3) Fox Kids and the Borrowers have requested that the Lenders amend
and restate the terms of the Existing Credit Agreement in its entirety and agree
to lend the Borrowers from time to time up to $710,000,000 at any time
outstanding in order to refinance (the "REFINANCING") in part the advances
("EXISTING ADVANCES") made by the Existing Lenders to the Original Borrowers
under the terms of the Existing Credit Agreement, to pay certain fees and
expenses incurred in connection with the consummation of the Transaction (as
hereinafter defined) and for other general corporate purposes not otherwise
prohibited under the terms of the Loan Documents (as hereinafter defined). The
Lenders have indicated their willingness to agree to amend and restate the
Existing Credit Agreement in its entirety and to lend such amounts on the terms
and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"ADJUSTED CONSOLIDATED EBITDA" means, for any period, the sum of (a)
Consolidated EBITDA of Fox Kids and its Subsidiaries for such period, (b)
the aggregate amount of all capital contributions made to Fox Kids in cash
by one or more of its Affiliates and (c) the aggregate Net Cash Proceeds
received by Fox Kids from the issuance and sale of any Equity Interests
therein to one or more of its Affiliates or the issuance and sale of one or
more Permitted Affiliate Subordinated Notes, in each case under this clause
(c) so long as (i) such issuance and sale is otherwise expressly permitted
under the terms of the Loan Documents and (ii) all of the Net Cash Proceeds
received by Fox Kids from such issuance and sale are used to repay
Obligations of Fox Kids and its Subsidiaries as they become due and payable
in accordance with their respective terms.
"ADJUSTED FUNDED INDEBTEDNESS" means, with respect to any Person and
its Subsidiaries at any date of determination, all Funded Indebtedness of
such Person and its Subsidiaries outstanding on such date, after excluding
therefrom (solely to the extent otherwise included in the determination of
Funded Indebtedness at such date) all intercompany Indebtedness among such
Person and its Subsidiaries outstanding on such date and, in the case of
Fox Kids and its Subsidiaries, (a) all of the Indebtedness under the shares
of Series A Preferred Stock, the FBC Subordinated Notes and the NAHI
Subordinated Notes outstanding on such date, (b) all of the Funded
Indebtedness of Calvin Gilmore Productions, Inc. outstanding on any such
date occurring prior to September 30, 1998 and (c) all of the Funded
Indebtedness of Saban International Paris SARL that is 100% collateralized
by cash or Cash Equivalents.
<PAGE>
3
"ADMINISTRATIVE AGENT" has the meaning specified in the recital of
parties to this Agreement.
"ADMINISTRATIVE AGENT'S ACCOUNT" means the account of the
Administrative Agent maintained by the Administrative Agent at its office
at 399 Park Avenue, New York, New York 10043, Account No. 36852248,
Reference: Fox Kids Worldwide, Inc., Attention: Bank Loan Syndications,
or such other account maintained by the Administrative Agent and designated
by the Administrative Agent as such in a written notice to the each of the
Borrowers and each of the Lenders.
"ADVANCE" means a Revolving Credit Advance or a Term Advance, as the
context may require.
"AFFECTED LENDERS" has the meaning specified in Section 2.09(e).
"AFFILIATE" means, with respect to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person, or is a director or officer of such Person or,
with respect to any individual, has a relationship with such individual by
blood, marriage or adoption not more remote than first cousin. For
purposes of this definition, the term "control" (including the terms
"controlling", "controlled by" and "under common control with") of a Person
means the possession, direct or indirect, of the power to vote 10% or more
of the Voting Interests in such Person or to direct or cause the direction
of the management and policies of such Person, whether through the
ownership of Voting Interests, by contract or otherwise.
"AGENTS" means, collectively, the Administrative Agent, the Co-
Arrangers and each of the co-agents or sub-agents appointed by the
Administrative Agent from time to time pursuant to Section 8.01(b).
"APPLICABLE LENDING OFFICE" means, with respect to each of the
Lenders, such Lender's Base Rate Lending Office in the case of a Base Rate
Advance and such Lender's Eurodollar Lending Office in the case of a
Eurodollar Rate Advance.
"APPLICABLE MARGIN" means (a) at any time during the period from the
date of this Agreement through the earlier of (i) the date on which the
Consolidated financial statements of Holdings and its Subsidiaries for the
Fiscal Quarter ending September 30, 1998 are delivered to the Lenders
pursuant to Section 5.03(b) and (ii) November 30, 1998, 0.500% per annum
for Base Rate Advances and 1.500% per annum for Eurodollar Rate Advances
and (b) at any time and from time to time thereafter, a percentage per
annum equal to the applicable percentage set forth below for the
Performance Level set forth below:
=============================================================
EURODOLLAR RATE
PERFORMANCE LEVEL BASE RATE ADVANCES ADVANCES
- -------------------------------------------------------------
I 0.000% 0.750%
- -------------------------------------------------------------
II 0.125% 1.125%
- -------------------------------------------------------------
III 0.500% 1.500%
- -------------------------------------------------------------
<PAGE>
4
=============================================================
EURODOLLAR RATE
PERFORMANCE LEVEL BASE RATE ADVANCES ADVANCES
- -------------------------------------------------------------
IV 0.875% 1.875%
- -------------------------------------------------------------
V 1.250% 2.250%
=============================================================
provided, however, that if, on or prior to November 18, 1997, the Term
Commitments have not been reduced in accordance with Section 2.04(b)(iv),
and the outstanding Term Advances have not been prepaid pursuant to Section
2.05(b), with at least $15,000,000 in Net Cash Proceeds from the sale,
lease transfer or other disposition of property and assets otherwise
permitted to be sold, leased, transferred or otherwise disposed of under
Section 5.02(d)(vii), then, notwithstanding the terms of clause (a) of this
definition, the Applicable Margin at any time during the period from the
date of this Agreement through the earlier of (A) the date on which the
Consolidated financial statements of Holdings and its Subsidiaries for the
Fiscal Quarter ending September 30, 1998 are delivered to the Lenders
pursuant to Section 5.03(b) and (B) November 30, 1998, shall be 0.875%
per annum for Base Rate Advances and 1.875% per annum for Eurodollar Rate
Advances. For purposes of clause (b) of the immediately preceding sentence,
the Applicable Margin for each Base Rate Advance shall be determined by
reference to the Performance Level in effect from time to time and the
Applicable Margin for each Eurodollar Rate Advance shall be determined by
reference to the Performance Level in effect on the first day of each
Interest Period for such Advance.
"APPLICABLE PERCENTAGE" means, with respect to the Commitment Fee, (a)
at any time during the period from the date of this Agreement through the
earlier of (i) the date on which the Consolidated financial statements of
Holdings and its Subsidiaries for the Fiscal Quarter ending September 30,
1998 are delivered to the Lenders pursuant to Section 5.03(b) and (ii)
November 30, 1998, 0.375% per annum and (b) at any time and from time to
time thereafter, a percentage per annum equal to the applicable percentage
set forth below for the Performance Level set forth below:
=================================================
PERFORMANCE LEVEL COMMITMENT FEE
- -------------------------------------------------
I 0.250%
- -------------------------------------------------
II 0.250%
- -------------------------------------------------
III 0.375%
- -------------------------------------------------
IV 0.500%
- -------------------------------------------------
V 0.500%
=================================================
provided, however, that if, on or prior to November 18, 1997, the Term
Commitments have not been reduced in accordance with Section 2.04(b)(iv),
and the outstanding Term Advances have not been prepaid pursuant to Section
2.05(b), with at least $15,000,000 in Net Cash Proceeds from the sale,
lease transfer or other disposition of property and assets otherwise
permitted to be sold, leased, transferred or otherwise disposed of under
Section 5.02(d)(vii), then, notwithstanding the terms of clause (a) of this
definition, the Applicable Percentage at any time
<PAGE>
5
during the period from the date of this Agreement through the earlier of
(A) the date on which the Consolidated financial statements of Holdings and
its Subsidiaries for the Fiscal Quarter ending September 30, 1998 are
delivered to the Lenders pursuant to Section 5.03(b) and (B) November 30,
1998, shall be 0.500% per annum. For purposes of clause (b) of the
immediately preceding sentence, the Applicable Percentage for the
Commitment Fee shall be determined by reference to the Performance Level in
effect from time to time.
"APPLICATION DATE" has the meaning specified in Section 2.04(b)(v)(A).
"APPROPRIATE BORROWER" means (a) with respect to the Revolving Credit
Facility, FCN Holding, IFE and Saban and (b) with respect to the Term
Facility, IFE.
"APPROPRIATE BORROWER'S ACCOUNT" means (a) with respect to FCN
Holding, the account of FCN Holding maintained thereby with Imperial Bank
at its office at 9777 Wilshire Boulevard, Beverly Hills, California 90212,
ABA#122201444, Account No. 60-080-720, (b) with respect to IFE, the
account of IFE maintained thereby with Imperial Bank at its office at
9777 Wilshire Boulevard, Beverly Hills, California 90212, ABA#122201444,
Account No. 60-080-712, and (c) with respect to Saban, the account of
Saban maintained thereby with Imperial Bank at its office at 9777
Wilshire Boulevard, Beverly Hills, California 90212, ABA#122201444,
Account No. 60-082-421, or (d) with respect to any of the Borrowers, such
other account of such Borrower as is agreed from time to time in writing
between such Borrower and the Administrative Agent.
"APPROPRIATE LENDER" means, with respect to either of the Facilities
at any time, a Lender that has a Commitment with respect to such Facility
at such time.
"APPROVED COMPLETION GUARANTEE" means, with respect to any of the
items of Product, a guarantee in support of the completion of such item of
Product issued by any Person that has a claims paying ability rating of at
least "A-" (or the then equivalent rating) from A.M. Best Company or S&P or
an insurance financial strength rating of at least A3 from Moody's or that
is approved in writing by the Lenders (such approval not to be unreasonably
withheld or delayed) in favor of the Borrower or the Subsidiary of any of
the Borrowers that is producing such item of Product, in each case together
with a "cut-through" endorsement issued by the reinsurer of such Person
reasonably acceptable to the Lenders in favor of such Borrower or such
Subsidiary as beneficiary thereunder, naming the Administrative Agent, on
behalf of the Secured Parties, as the direct beneficiary of all proceeds
thereunder, and otherwise in form and substance reasonably satisfactory to
the Lenders.
"ASSET SWAP" means, with respect to the sale, transfer or other
disposition of all of the Equity Interests in, or all of the operating
assets comprising a business unit, division or branch (or any other
distinct unit of operation that contributes a discrete and readily
discernable amount of Consolidated EBITDA) of, any Person by any of the
Borrowers or any of their respective Subsidiaries, the application of the
Net Cash Proceeds received directly or indirectly by or on behalf of such
Borrower or any such Subsidiary within 90 days of such sale, transfer or
other disposition to the purchase or other acquisition of:
<PAGE>
6
(a) an amount and class of Equity Interests in any other Person
(i) having cash flows and value that are substantially the same in
amount, contingency, quality and timing as the cash flows and value of
the Equity Interests being so sold, transferred or otherwise disposed
of, (ii) that will entitle such Borrower or such Subsidiary to
distributions that are substantially the same in amount, contingency,
quality and timing as the distributions received by such Borrower or
such Subsidiary from the Equity Interests being so sold, transferred
or otherwise disposed of and (iii) that will subject or expose such
Borrower or such Subsidiary to contingent liabilities that are no
greater in amount, contingency, quality or timing than the contingent
liabilities being assigned or otherwise transferred with the Equity
Interests being so sold, transferred or otherwise disposed of, all as
determined in good faith by the board of directors of the applicable
Borrower (and, in the case of subclause (a)(iii) of this definition,
taking into account, among other things, all appropriate and adequate
reserves that would be established for such contingent liabilities in
accordance with GAAP in effect at the time of such purchase or other
acquisition); provided that, if the Equity Interests being so sold,
transferred or otherwise disposed of comprise all or any part of the
Equity Interests in a Restricted Subsidiary, the Person purchased or
otherwise acquired in the related transaction shall constitute a
Restricted Subsidiary; or
(b) operating assets (i) having cash flows, value and use that
are substantially the same in amount, contingency, quality and timing
as the cash flows, value and use of the operating assets that are
being so sold, transferred or otherwise disposed of and (ii) having
contingent liabilities (or being sold together with the assumption of
contingent liabilities) that are no greater in amount, contingency,
quality or timing than the contingent liabilities being assigned or
otherwise transferred with the operating assets so sold, transferred
or otherwise disposed of, all as determined in good faith by the board
of directors of the applicable Borrower (and, in the case of subclause
(b)(ii) of this definition, taking into account, among other things,
all appropriate and adequate reserves that would be established for
such contingent liabilities in accordance with GAAP in effect at the
time of such purchase or other acquisition).
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered
into by and between a Lender and an Eligible Assignee, and accepted by the
Administrative Agent and, if required, Holdings, in accordance with Section
9.08 and in substantially the form of Exhibit C hereto.
"ASSUMPTION AGREEMENT" has the meaning specified in Section
3.01(i)(xii).
"ATTRIBUTABLE ASSET EBITDA" means, with respect to the sale, transfer
or other disposition of any of the property or assets of any of the
Borrowers or any of their Subsidiaries, an amount equal to that portion of
Consolidated EBITDA of Holdings and its Subsidiaries for the most recently
completed Measurement Period prior to the date of such sale, transfer or
other disposition for which Holdings and/or the Borrowers have delivered
Consolidated financial statements of Holdings and its Subsidiaries pursuant
to Section 5.03(b) or 5.03(c) that was directly contributed thereto by such
property or asset.
<PAGE>
7
"AVAILABLE CASH FLOW" means, with respect to Holdings and its
Subsidiaries for any period, (a) Consolidated EBITDA of Holdings and its
Subsidiaries for such period less (b) the sum (without duplication) of (i)
all Consolidated Cash Interest Expense of Holdings and its Subsidiaries for
such period, (ii) all Consolidated Cash Taxes paid by or on behalf of
Holdings or any of its Subsidiaries during such period, (iii) the aggregate
amount of all Capital Expenditures made by Holdings and its Subsidiaries
during such period, (iv) the aggregate amount of all Required Principal
Payments made by Holdings and its Subsidiaries during such period and (v)
the aggregate amount of all Cash Distributions made by or on behalf of
Holdings during such period.
"BANKBOSTON" has the meaning specified in the recital of parties to
this Agreement.
"BANK HEDGE AGREEMENT" means any interest rate Hedge Agreement
permitted under Article V that is entered into by and between any of the
Borrowers and any of the Lenders.
"BASE RATE" means a fluctuating interest rate per annum in effect from
time to time, which rate per annum shall at all times be equal to the
highest of:
(a) the rate of interest announced publicly by Citibank in New
York, New York, from time to time, as Citibank's base rate;
(b) the sum (adjusted to the nearest 1/4 of 1% or, if there is no
nearest 1/4 of 1%, to the next higher 1/4 of 1%) of (i) 1/2 of 1% per
annum plus (ii) the rate obtained by dividing (A) the latest three-
week moving average of secondary market morning offering rates in the
United States of America for three-month certificates of deposit of
major United States money market banks, such three-week moving average
(adjusted on the basis of a year of 360 days) being determined weekly
on each Monday (or, if such day is not a Business Day, on the next
succeeding Business Day) for the three-week period ending on the
previous Friday by Citibank on the basis of such rates reported by
certificate of deposit dealers to and published by the Federal Reserve
Bank of New York or, if such publication shall be suspended or
terminated, on the basis of quotations for such rates received by
Citibank from three New York certificate of deposit dealers of
recognized standing selected by Citibank, by (B) a percentage equal to
100% minus the average of the daily percentages specified during such
three-week period by the Board of Governors of the Federal Reserve
System (or any successor thereto) for determining the maximum reserve
requirement (including, but not limited to, any emergency,
supplemental or other marginal reserve requirement) for Citibank with
respect to liabilities consisting of or including (among other
liabilities) three-month U.S. dollar nonpersonal time deposits in the
United States of America plus (iii) the average during such three-week
period of the annual assessment rates estimated by Citibank for
determining the then current annual assessment payable by Citibank to
the Federal Deposit Insurance Corporation (or any successor thereto)
for insuring U.S. dollar deposits of Citibank in the United States of
America; and
(c) 0.50% per annum above the Federal Funds Rate.
<PAGE>
8
"BASE RATE ADVANCE" means an Advance that bears interest as provided
in Section 2.06(a)(i).
"BASE RATE LENDING OFFICE" means, with respect to each of the Lenders,
the office of such Lender specified as its "Base Rate Lending Office"
opposite its name on Part B of Schedule I hereto or in the Assignment and
Acceptance pursuant to which it became a Lender, as the case may be, or
such other office of such Lender as such Lender may from time to time
specify to each of the Appropriate Borrowers and the Administrative Agent
for such purpose.
"BORROWERS" has the meaning specified in the recital of parties to
this Agreement.
"BORROWING" means a Revolving Credit Borrowing or a Term Borrowing, as
the context may require.
"BUSINESS DAY" means a day of the year on which banks are not required
or authorized by law to close in New York, New York, and, if the applicable
Business Day relates to any Eurodollar Rate Advances, on which dealings in
U.S. dollar deposits are carried on in the London interbank market.
"CAPITAL ASSETS" means, with respect to any Person, all equipment,
fixed assets and real property or improvements of such Person, or
replacements or substitutions therefor or additions thereto, that, in
accordance with GAAP, have been or should be reflected as additions to
property, plant or equipment on the balance sheet of such Person or that
have a useful life of more than one year.
"CAPITAL EXPENDITURES" means, with respect to any Person for any
period, (a) all expenditures made directly or indirectly by such Person
during such period for Capital Assets (whether paid in cash or other
consideration or accrued as a liability and including, without limitation,
all expenditures for maintenance and repairs which are required, in
accordance with GAAP, to be capitalized on the books of such Person) and
(b) solely to the extent not otherwise included in clause (a) of this
definition, the aggregate principal amount of all Indebtedness (including,
without limitation, Obligations in respect of Capitalized Leases) assumed
or incurred during such period in connection with any such expenditures for
Capital Assets.
"CAPITALIZED LEASE" means any lease with respect to which the lessee
is required to recognize concurrently the acquisition of property or an
asset and the incurrence of a liability in accordance with GAAP.
"CASH COLLATERAL ACCOUNT LETTERS" has the meaning specified in Section
5(a) of the Pledge and Assignment Agreement.
"CASH COLLATERAL ACCOUNTS" has the meaning specified in Preliminary
Statement (6) of the Pledge and Assignment Agreement.
"CASH DISTRIBUTIONS" means, with respect to any Person for any period,
all dividends and distributions on any of the outstanding Equity Interests
in such Person, all purchases, redemptions, retirements, defeasances or
other acquisitions of any of the outstanding Equity
<PAGE>
9
Interests in such Person and all returns of capital to the stockholders,
partners or members (or the equivalent persons) of such Person, in each
case to the extent paid in cash by or on behalf of such Person during such
period.
"CASH EQUIVALENTS" means any of the following types of Investments, to
the extent owned by Fox Kids or any of its Subsidiaries free and clear of
all Liens (other than Liens created under the Collateral Documents):
(a) readily marketable obligations issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof having maturities of not more than 360 days
from the date of acquisition thereof; provided that the full faith and
credit of the United States of America is pledged in support thereof;
(b) time deposits with, or insured certificates of deposit or
bankers' acceptances of, any commercial bank that (i) (A) is a Lender
or (B) is organized under the laws of the United States of America,
any state thereof or the District of Columbia or is the principal
banking subsidiary of a bank holding company organized under the laws
of the United States of America, any state thereof or the District of
Columbia and is a member of the Federal Reserve System, (ii) issues
(or the parent of which issues) commercial paper rated as described in
clause (c) of this definition and (iii) has combined capital and
surplus of at least $1,000,000,000, in each case with maturities of
not more than 180 days from the date of acquisition thereof;
(c) commercial paper issued by any Person organized under the
laws of any state of the United States of America and rated at least
"Prime-1" (or the then equivalent grade) by Moody's or at least "A-1"
(or the then equivalent grade) by S&P, in each case with maturities of
not more than 180 days from the date of acquisition thereof; and
(d) Investments, classified in accordance with GAAP as current
assets of Fox Kids or any of its Subsidiaries, in money market
investment programs registered under the Investment Company Act of
1940, as amended, which are administered by financial institutions
that have the highest rating obtainable from either Moody's or S&P,
and the portfolios of which are limited solely to Investments of the
character and quality described in clauses (a), (b) and (c) of this
definition.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended from time to time.
"CERCLIS" means the Comprehensive Environmental Response, Compensation
and Liability Information System maintained by the United States
Environmental Protection Agency.
"CHANGE OF CONTROL" means, at any time:
(a) the TNCL Group shall cease to own and control legally and
beneficially, either directly or indirectly, (i) Voting Interests in
Fox Kids representing at least 30% of the combined voting power of all
of the Voting Interests in Fox Kids (on a fully diluted
<PAGE>
10
basis) and (ii) Equity Interests in Fox Kids representing at least 30%
of the issued and outstanding Equity Interests in Fox Kids (on a fully
diluted basis);
(b) any "person" or "group" (each as used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act) becomes the "beneficial owner" (as
defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of
(A) Voting Interests in Fox Kids (including through securities
convertible into or exchangeable for such Voting Interests)
representing a percentage of the combined voting power of all of the
Voting Interests in Fox Kids (on a fully diluted basis) that is equal
to or greater than the percentage of such combined voting power
legally and beneficially owned, directly or indirectly, by the TNCL
Group (on a fully diluted basis) or (B) Equity Interests in Fox Kids
representing a percentage of the aggregate Equity Interests in Fox
Kids (on a fully diluted basis) outstanding at such time that is equal
to or greater than the aggregate Equity Interests in Fox Kids legally
and beneficially owned directly or indirectly by the TNCL Group (on a
fully diluted basis) at such time; provided, however, that Haim Saban
and/or one or more of his Affiliates may own (1) Voting Interests in
Fox Kids (including through securities convertible into or
exchangeable for such Voting Interests) representing a percentage of
the combined voting power of all of the Voting Interests in Fox Kids
(on a fully diluted basis) that is equal to (but not greater than) the
percentage of such combined voting power legally and beneficially
owned, directly or indirectly, by the TNCL Group (on a fully diluted
basis) and/or (2) Equity Interests in Fox Kids representing not more
than 55% of the aggregate Equity Interests in Fox Kids (on a fully
diluted basis) outstanding at such time;
(c) (i) the TNCL Group shall cease to have the ability, directly
or indirectly, to elect at least one-half of the members of the board
of directors of Fox Kids or (ii) any "person" or "group" (each as used
in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than the
TNCL Group otherwise acquires the ability, directly or indirectly, to
elect a majority of the board of directors of Fox Kids;
(d) any Person or two or more Persons acting in concert other
than the TNCL Group shall have acquired by contract or otherwise, or
shall have entered into a contract or arrangement that, upon
consummation thereof, will result in its or their acquisition of the
power to exercise, directly or indirectly, a controlling influence on
the management or policies of Fox Kids;
(e) with respect to any pledge or other security agreement
covering all or any portion of the Equity Interests in Fox Kids, any
secured party or pledgee thereunder shall become the holder of record
of any such shares (except in the case of a registration of the pledge
of such Equity Interests to such secured party or pledgee solely in
its capacity as a pledgee) or shall receive dividends or other cash or
cash equivalent distributions (including, without limitation, stock
repurchases) in respect thereof, or shall proceed to exercise voting
or other consensual rights in respect thereof (whether by proxy,
voting or other similar arrangement or otherwise), or shall otherwise
commence to realize upon such shares;
(f) Fox Kids shall cease, directly or indirectly, to own and
control legally and beneficially all of the Equity Interests in
Holdings; or
<PAGE>
11
(g) Holdings shall cease, directly or indirectly, to own and
control legally and beneficially all of the Equity Interests in each
of the Borrowers.
"CHASE SECURITIES" shall have the meaning specified in the recital of
parties to this Agreement.
"CITIBANK" means Citibank, N.A., a national banking association and an
affiliate of Citicorp Securities and Citicorp USA.
"CITICORP SECURITIES" has the meaning specified in the recital of
parties to this Agreement.
"CITICORP USA" has the meaning specified in the recital of parties to
this Agreement.
"CO-ARRANGERS" has the meaning specified in the recital of parties to
this Agreement.
"COLLATERAL" means all of the "Collateral" referred to in the
Collateral Documents and all of the other property and assets that are or
are intended under the terms of the Collateral Documents to be subject to
Liens in favor of the Administrative Agent for the benefit of the Secured
Parties.
"COLLATERAL DOCUMENTS" means, collectively, the Pledge and Assignment
Agreement, the Foreign Subsidiary Pledge Agreements, the Cash Collateral
Account Letters and each of the other agreements that creates or purports
to create a Lien in favor of the Administrative Agent for the benefit of
the Secured Parties.
"COMMITMENT" means a Revolving Credit Commitment or a Term Commitment,
as the context may require.
"COMMITMENT DATE" has the meaning specified in Section 2.04(b)(v)(A).
"COMMITMENT FEE" has the meaning specified in Section 2.07(a).
"CONFIDENTIAL INFORMATION" means information that is furnished to the
Administrative Agent or any of the Lenders by or on behalf of Fox Kids,
Holdings or any of the Borrowers that either is conspicuously marked as
confidential or that a reasonable person would believe is confidential or
proprietary in nature, but does not include any such information that (a)
is or becomes generally available to the public (other than as a result of
a breach by the Administrative Agent or such Lender of its confidentiality
obligations under this Agreement) or (b) is or becomes available to the
Administrative Agent or such Lender from a source other than Fox Kids,
Holdings or any of the Borrowers that is not, to the best of the
Administrative Agent's or such Lender's knowledge, acting in violation of a
confidentiality agreement with Fox Kids, Holdings or any of the Borrowers
or otherwise legally prohibited from disclosing such information.
"CONSOLIDATED" refers to the consolidation of accounts in accordance
with GAAP.
"CONSOLIDATED CASH INTEREST EXPENSE" means, with respect to any Person
for any period, all interest expense paid or payable on all Indebtedness of
such Person and its Subsidiaries for
<PAGE>
12
such period, determined on a Consolidated basis and in accordance with GAAP
for such period, including, without limitation, (a) in the case of each of
the Borrowers, (i) interest expense paid or payable in respect of
Indebtedness resulting from Advances and (ii) all fees paid or payable
pursuant to Section 2.07(a), (b) the interest component of all Obligations
in respect of Capitalized Leases, (c) commissions, discounts and other fees
and charges paid or payable in connection with letters of credit and (d)
the net payment, if any, paid or payable in connection with Hedge
Agreements less the net credit, if any, received in connection with Hedge
Agreements, but excluding, in each case, (A) any amortization of original
issue discount, (B) the interest portion of any deferred payment obligation
and (C) any other interest not payable in cash.
"CONSOLIDATED CASH TAXES" means, with respect to any Person for any
period, (a) the aggregate amount of all payments in respect of income taxes
made in cash by such Person and its Subsidiaries to any applicable
Governmental Authority during such period less (b) the aggregate amount of
all cash refunds in respect of income taxes received by such Person and its
Subsidiaries from any applicable Governmental Authority during such period,
after giving effect, to the extent available, to the application of net
operating losses available to such Person or any such Subsidiary.
"CONSOLIDATED EBITDA" means, with respect to any Person for any
period, (a) the Consolidated Net Income of such Person and its Subsidiaries
for such period plus (b) the sum of each of the following expenses that
have been deducted from the determination of the Consolidated Net Income of
such Person and its Subsidiaries for such period: (i) all interest expense
of such Person and its Subsidiaries for such period, (ii) all income tax
expense (whether federal, state, local, foreign or otherwise) of such
Person and its Subsidiaries for such period, (iii) all depreciation expense
of such Person and its Subsidiaries for such period, (iv) all amortization
expense of such Person and its Subsidiaries (other than any such
amortization expense attributable to programming costs, Participations and
Residuals) for such period and (v) all extraordinary losses deducted in
determining the Consolidated Net Income of such Person and its Subsidiaries
for such period less all extraordinary gains added in determining the
Consolidated Net Income of such Person and its Subsidiaries for such
period, in each case determined on a Consolidated basis and in accordance
with GAAP for such period.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the net income (or net loss) of such Person and its Subsidiaries
for such period, determined on a Consolidated basis and in accordance with
GAAP for such period.
"CONSOLIDATED NET WORTH" means, with respect to any Person at any date
of determination, the sum of (a) the capital stock and additional paid-in
capital of such Person and its Subsidiaries plus (b) retained earnings (or
less accumulated deficits) of such Person and its Subsidiaries, determined
on a Consolidated basis and in accordance with GAAP for such period.
"CONSTITUTIVE DOCUMENTS" means, with respect to any Person, the
certificate of incorporation or registration (including, if applicable,
certificate of change of name), articles of incorporation or association,
memorandum of association, charter, bylaws, partnership agreement, trust
agreement, joint venture agreement, limited liability company operating or
members agreement, joint venture agreement or one or more similar
agreements, instruments or documents constituting the organization or
formation of such Person.
<PAGE>
13
"CONSULTING AGREEMENT" means the Letter Employment Agreement dated June 11,
1997 between Fox Kids and M.G. "Pat" Robertson, as such agreement may be
amended, supplemented or otherwise modified from time to time in accordance
with the terms thereof, but to the extent permitted under the terms of the
Loan Documents.
"CONSULTING AGREEMENT GUARANTY" means the Guaranty dated as of June
11, 1997 made by TNCL in favor of M.G. "Pat" Robertson, as such guaranty
may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof, but to the extent permitted under the
terms of the Loan Documents.
"CONTINGENT OBLIGATION" means, with respect to any Person, any
obligation of such Person to guarantee or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary
obligations") of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, (a) the
direct or indirect guaranty, endorsement (other than for collection or
deposit in the ordinary course of business), co-making, discounting with
recourse or sale with recourse by such Person of the obligation of a
primary obligor, (b) the obligation to make take-or-pay or similar
payments, if required, regardless of nonperformance by any other party or
parties to an agreement or (c) any obligation of such Person, whether or
not contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or
supply funds (A) for the purchase or payment of any such primary obligation
or (B) to maintain working capital or equity capital of the primary obligor
or otherwise to maintain the net worth or solvency of the primary obligor,
(iii) to purchase property, assets, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation
or (iv) otherwise to assure or hold harmless the holder of such primary
obligation against loss in respect thereof. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made (or, if less, the maximum amount of such
primary obligation for which such Person may be liable pursuant to the
terms of the instrument evidencing such Contingent Obligation) or, if not
stated or determinable, the maximum reasonably anticipated liability in
respect thereof (assuming such Person is required to perform thereunder),
as determined by such Person in good faith.
"CONVERSION", "CONVERT" and "CONVERTED" each refer to a conversion of
Advances of one Type into Advances of the other Type pursuant to Section
2.06 or 2.08.
"CURRENT ASSETS" means, with respect to any Person, all assets of such
Person that, in accordance with GAAP, would be classified as current assets
on the balance sheet of a company conducting a business the same as or
similar to that of such Person, after deducting appropriate and adequate
reserves therefrom in accordance with GAAP.
"CURRENT LIABILITIES" means, with respect to any Person, (a) all
Indebtedness of such Person that by its terms is payable on demand or
matures within one year after the date of determination (excluding any
Indebtedness renewable or extendible, at the option of such Person, to a
date more than one year from such date or arising under a revolving credit
or similar agreement that obligates the lender or lenders to extend credit
during a period of more than one year from such date), (b) all amounts of
Funded Indebtedness of such Person required to be paid
<PAGE>
14
or prepaid within one year after such date and (c) all other items
(including, without limitation, taxes accrued as estimated, Programming
Liabilities, Participations and Residuals otherwise excluded from Funded
Indebtedness under the proviso to the definition thereof and trade payables
otherwise excluded from Indebtedness under clause (b) of the definition
thereof) that, in accordance with GAAP, would be classified on the balance
sheet of such Person as current liabilities of such Person.
"DEFAULT" means any Event of Default or any event or condition that
would constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
"DEFAULTED ADVANCE" means, with respect to any of the Lenders at any
time, the portion of any Advance required to be made by such Lender to any
of the Borrowers pursuant to Section 2.01 at or prior to such time that has
not been made by such Lender or by the Administrative Agent for the account
of such Lender pursuant to Section 2.02(d) as of such time. If a portion
of a Defaulted Advance shall be deemed made pursuant to Section 2.13(a),
the remaining portion of such Defaulted Advance shall be considered a
Defaulted Advance originally required to be made pursuant to Section 2.01
on the same date as the Defaulted Advance so deemed made in part.
"DEFAULTED AMOUNT" means, with respect to any of the Lenders at any
time, any amount required to be paid by such Lender to the Administrative
Agent or any of the other Lenders under this Agreement or any of the other
Loan Documents at or prior to such time that has not been so paid as of
such time, including, without limitation, any amount required to be paid by
such Lender to (a) the Administrative Agent pursuant to Section 2.02(d) to
reimburse the Administrative Agent for the amount of any Advance made by
the Administrative Agent for the account of such Lender, (b) any of the
other Lenders pursuant to Section 2.12 to purchase any participation in
Advances owing to such other Lender and (c) the Administrative Agent
pursuant to Section 8.05 to reimburse the Administrative Agent for such
Lender's ratable share of any amount required to be paid by the Lenders to
the Administrative Agent as provided therein. If a portion of a Defaulted
Amount shall be deemed paid pursuant to Section 2.13(b), the remaining
portion of such Defaulted Amount shall be considered a Defaulted Amount
originally required to be paid under this Agreement or any of the other
applicable Loan Documents on the same date as the Defaulted Amount so
deemed paid in part.
"DEFAULTING LENDER" means, at any time, any of the Lenders that, at
such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall
take any action or be the subject of any action or proceeding of a type
described in Section 7.01(f).
"DOMESTIC SUBSIDIARY" means, at any time, any of the direct or
indirect Subsidiaries of Holdings (other than any of the other Borrowers)
that is incorporated or organized under the laws of any state of the United
States of America or the District of Columbia.
"ECF PERCENTAGE" means (a) at any date of determination on which the
Total Leverage Ratio for the most recently completed Measurement Period
prior to such date is less than 6.00:1, 0% and (b) at any date of
determination on which the Total Leverage Ratio for the most recently
completed Measurement Period prior to such date is greater than or equal
to 6.00:1, 50%.
<PAGE>
15
"EFFECTIVE DATE" has the meaning specified in Section 3.01.
"ELIGIBLE ASSIGNEE" means:
(a) a Lender;
(b) an Affiliate of a Lender;
(c) a commercial bank organized under the laws of the United
States of America or any state thereof and having total assets in
excess of $5,000,000,000;
(d) a commercial bank organized under the laws of any country
other than the United States of America that is a member of the OECD
or a political subdivision of any such country and having total assets
in excess of $5,000,000,000, so long as such bank is acting through a
branch or agency located in the United States of America;
(e) the central bank of any country that is a member of the OECD;
(f) any finance company, insurance company or other financial
institution or fund (whether a corporation, partnership, trust or
other entity) that is engaged in making, purchasing or otherwise
investing in commercial loans in the ordinary course of its business
and has total assets in excess of $300,000,000; or
(g) any other Person approved by the Administrative Agent and
Holdings (in each case such approval not to be unreasonably withheld
or delayed);
provided, however, that, notwithstanding any of the foregoing provisions of
this definition, neither any of the Loan Parties nor any Affiliate of any
of the Loan Parties shall qualify as an Eligible Assignee.
"ENVIRONMENTAL ACTION" means any action, suit, demand, demand letter,
claim, notice of noncompliance or violation, notice of liability or
potential liability, investigation, proceeding, consent order or consent
agreement, abatement order or other order or directive (conditional or
otherwise) relating in any way to any Environmental Law, any Environmental
Permit or any Hazardous Materials or arising from alleged injury or threat
to health, safety, natural resources or the environment, including, without
limitation, (a) by any Governmental Authority for enforcement, cleanup,
removal, response, remedial or other actions or damages and (b) by any
applicable Governmental Authority or other third party for damages,
contribution, indemnification, cost recovery, compensation or injunctive
relief.
"ENVIRONMENTAL LAW" means any Requirement of Law, or any judicial or
agency interpretation, policy, guideline or other requirement of any
Governmental Authority, relating to (a) the generation, use, handling,
transportation, treatment, storage, disposal, release or discharge of
Hazardous Materials, (b) pollution or the protection of the environment,
health, safety or natural resources or (c) occupational safety and health,
industrial hygiene, land use or the protection of human, plant or animal
health or welfare, including CERCLA, the Hazardous Materials Transportation
Act (49 U.S.C. (S) 1801 et seq.), the Resource Conservation and
<PAGE>
16
Recovery Act (42 U.S.C. (S) 6901 et seq.), the Federal Water Pollution
Control Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C. (S)
7401 et seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et
seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. (S)
136 et seq.), the Occupational Safety and Health Act (29 U.S.C. (S) 651 et
seq.), the Oil Pollution Act (33 U.S.C. (S) 2701 et seq.) and the Emergency
Planning and Community Right-to-Know Act (42 U.S.C. (S) 11001 et seq.), in
each case as amended from time to time, and including the regulations
promulgated and the rulings issued from time to time thereunder.
"ENVIRONMENTAL PERMIT" means any permit, approval, license,
identification number or other authorization required under any
Environmental Law.
"EQUITY INTERESTS" means, with respect to any Person, all of the
shares of capital stock of (or other ownership or profit interests in) such
Person, all of the warrants, options or other rights for the purchase or
acquisition from such Person of shares of capital stock of (or other
ownership or profit interests in) such Person, all of the securities
convertible into or exchangeable for shares of capital stock of (or other
ownership or profit interests in) such Person or warrants, rights or
options for the purchase or acquisition from such Person of such shares (or
such other interests), and all of the other ownership or profit interests
in such Person (including, without limitation, partnership, member or trust
interests therein), whether voting or nonvoting, and whether or not such
shares, warrants, options, rights or other interests are authorized or
otherwise existing on any date of determination.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and the rulings
issued from time to time thereunder.
"ERISA AFFILIATE" means any Person that for purposes of Title IV of
ERISA is a member of the controlled group of any of the Loan Parties, or
under common control with any of the Loan Parties, within the meaning of
Section 414 of the Internal Revenue Code.
"ERISA EVENT" means:
(a) (i) the occurrence of a reportable event, within the meaning
of Section 4043(c) of ERISA, with respect to any Plan unless the 30-
day notice requirement with respect to such event has been waived by
the PBGC or (ii) the requirements of paragraph (1) of Section 4043(b)
of ERISA are met with respect to a contributing sponsor, as defined in
Section 4001(a)(13) of ERISA, of a Plan, and an event described in
paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA
could reasonably be expected to occur with respect to such Plan within
the following 30 days;
(b) the application for a minimum funding waiver with respect to
a Plan;
(c) the provision by the administrator of any Plan of a notice of
intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA
(including any such notice with respect to a plan amendment referred
to in Section 4041(e) of ERISA);
<PAGE>
17
(d) the cessation of operations at a facility of any of the Loan
Parties or any of the ERISA Affiliates under the circumstances
described in Section 4062(e) of ERISA;
(e) the withdrawal or partial withdrawal by any of the Loan
Parties or any of the ERISA Affiliates from a Plan or a Multiemployer
Plan;
(f) the conditions for the imposition of a Lien under Section
302(f) of ERISA shall have been met with respect to any Plan;
(g) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307 of ERISA;
or
(h) the institution by the PBGC of proceedings to terminate a
Plan pursuant to Section 4042 of ERISA, or the occurrence of any event
or condition described in Section 4042 of ERISA, that constitutes
grounds for the termination of, or the appointment of a trustee to
administer, a Plan.
"EUROCURRENCY LIABILITIES" has the meaning specified in Regulation D
of the Board of Governors of the Federal Reserve System, as in effect from
time to time.
"EURODOLLAR LENDING OFFICE" means, with respect to each of the
Lenders, the office of such Lender specified as its "Eurodollar Lending
Office" opposite its name on Part B of Schedule I hereto or in the
Assignment and Acceptance pursuant to which it became a Lender, as the case
may be (or, if no such office is specified, its Base Rate Lending Office),
or such other office of such Lender as such Lender may from time to time
specify to each of the Appropriate Borrowers and the Administrative Agent
for such purpose.
"EURODOLLAR RATE" means, for any Interest Period for all of the
Eurodollar Rate Advances comprising part of the same Borrowing, an interest
rate per annum equal to the rate per annum obtained by dividing (a) the
average (rounded upward to the nearest whole multiple of 1/16 of 1% per
annum, if such average is not such a multiple) of the rate per annum at
which deposits in U.S. dollars are offered by the principal office of each
of the Reference Banks in London, England to prime banks in the London
interbank market at 11:00 A.M. (London time) two Business Days before the
first day of such Interest Period in an amount substantially equal to such
Reference Bank's Eurodollar Rate Advance (or, in the case of Citibank,
Citicorp USA's Eurodollar Rate Advance) comprising part of such Borrowing
to be outstanding during such Interest Period (or, if any Reference Bank
(or, in the case of Citibank, Citicorp USA) shall not have such a
Eurodollar Rate Advance, $1,000,000) and for a period equal to such
Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate
Reserve Percentage for such Interest Period. The Eurodollar Rate for any
Interest Period for each of the Eurodollar Rate Advances comprising part of
the same Borrowing shall be determined by the Administrative Agent on the
basis of applicable rates furnished to and received by the Administrative
Agent from the Reference Banks two Business Days before the first day of
such Interest Period, subject, however, to the provisions of Section
2.06(c).
"EURODOLLAR RATE ADVANCE" means an Advance that bears interest as
provided in Section 2.06(a)(ii).
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18
"EURODOLLAR RATE RESERVE PERCENTAGE" means, for any Interest Period for all
of the Eurodollar Rate Advances comprising part of the same Borrowing, the
reserve percentage applicable two Business Days before the first day of
such Interest Period under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor thereto)
for determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve
requirement) for a member bank of the Federal Reserve System in New York,
New York with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to which the interest rate
on Eurodollar Rate Advances is determined) having a term equal to such
Interest Period.
"EVENTS OF DEFAULT" has the meaning specified in Section 7.01.
"EXCESS CASH FLOW" means, for any period (without duplication):
(a) Consolidated pre-tax income (or pre-tax loss) of Fox
Kids and its Subsidiaries for such period, less
(b) Consolidated income tax expense of Fox Kids and its
Subsidiaries for such period, plus
(c) an amount equal to the aggregate amount of all noncash
charges deducted in determining the Consolidated Net Income of Fox
Kids and its Subsidiaries for such period, plus
(d) an amount (whether positive or negative) equal to the
change in Consolidated Current Liabilities of Fox Kids and its
Subsidiaries during such period, less
(e) an amount equal to the aggregate amount of all noncash
credits included in determining the Consolidated Net Income of Fox
Kids and its Subsidiaries for such period, less
(f) an amount (whether positive or negative) equal to the
change in Consolidated Current Assets (excluding cash and Cash
Equivalents) of Fox Kids and its Subsidiaries during such period, less
(g) to the extent not otherwise excluded from the
calculation of Excess Cash Flow for such period, an amount equal to
the net gain, if any, attributable to the sale, lease, transfer or
other disposition of property and assets of Fox Kids and its
Subsidiaries and included in determining the Consolidated Net Income
of Fox Kids and its Subsidiaries for such period, less
(h) to the extent not otherwise excluded from the
calculation of Excess Cash Flow for such period, an amount equal to
all programming costs of the Subsidiaries of Holdings paid in cash
during such period, less
<PAGE>
19
(i) an amount equal to the aggregate amount of all
Capital Expenditures made in cash by Fox Kids and its Subsidiaries
during such period, less
(j) an amount equal to the aggregate amount of all
Required Principal Payments made by Fox Kids and its Subsidiaries
during such period, less
(k) an amount equal to the aggregate amount of all Cash
Distributions paid by Fox Kids during such period.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and the regulations promulgated and the rulings issued
thereunder.
"EXCHANGE AGREEMENT" means the Exchange Agreement dated as of August
1, 1997 among NPAL, Liberty Media Corporation and Liberty IFE, Inc., as
such agreement may be amended, supplemented or otherwise modified from time
to time in accordance with the terms thereof, but to the extent permitted
under the terms of the Loan Documents.
"EXCLUDED FOX KIDS SUBSIDIARIES" means any of the Subsidiaries of Fox
Kids other than Holdings or any of its direct or indirect Subsidiaries.
"EXISTING ADVANCES" has the meaning specified in Preliminary Statement
(3) to this Agreement.
"EXISTING CREDIT AGREEMENT" has the meaning specified in Preliminary
Statement (2) to this Agreement.
"EXISTING LENDERS" has the meaning specified in Preliminary Statement
(2) to this Agreement.
"EXISTING NAHI SUBORDINATED NOTES" has the meaning ascribed to the
term "NAHI Subordinated Notes" under the Existing Credit Agreement.
"EXISTING REVOLVING CREDIT ADVANCES" means the Existing Advances which
constitute "Revolving Credit Advances" under the Existing Credit Agreement.
"EXISTING REVOLVING CREDIT LENDER" means any of the Existing Lenders
that is owed an Existing Revolving Credit Advance at any time prior to the
consummation by such Existing Lender of the sales and assignments referred
to in Section 2.01(a).
"EXISTING TERM ADVANCES" means the Existing Advances which constitute
"Term Advances" under the Existing Credit Agreement.
"EXISTING TERM LENDER" means any of the Existing Lenders that is owed
an Existing Term Advance at any time prior to the consummation by such
Existing Lender of the sales and assignments referred to in Section
2.01(b).
<PAGE>
20
"EXTRAORDINARY RECEIPT" means any cash received by or paid to or for
the account of any Person other than in the ordinary course of business,
including, without limitation, tax refunds, pension plan reversions,
proceeds of insurance (other than proceeds of business interruption
insurance to the extent such proceeds constitute compensation for lost
earnings), condemnation awards (and payments in lieu thereof), indemnity
payments and payments in respect of judgments or settlements of litigation
or proceedings; provided, however, that Extraordinary Receipts shall not
include cash receipts received from proceeds of insurance, condemnation
awards (or payments in lieu thereof), indemnity payments or payments in
respect of judgments or settlements of litigation or proceedings to the
extent that such proceeds, awards or payments (a) are in respect of loss or
damage to any Capital Asset or reimbursements of liabilities previously
paid by such Person or promptly paid thereafter to any third party that is
not an Affiliate of such Person and (b) are applied (or are in respect of
expenditures that were previously incurred) to replace or repair such
Capital Asset or to reimburse such amounts previously paid or to be paid
promptly to any such third party, in each case in accordance with the terms
of the Loan Documents and so long as such application is commenced within
90 days after the receipt of such proceeds, awards or payments.
"FACILITY" means the Revolving Credit Facility or the Term Facility,
as the context may require.
"FAIR MARKET VALUE" means, with respect to any property or assets
(including, without limitation, any of the Equity Interests) of any Person
on any date of determination, the value of the consideration obtainable in
a sale of such property or asset in the open market on such date assuming
an arm's-length sale that has been arranged without duress or compulsion
between a willing seller and a willing and knowledgeable purchaser in a
commercially reasonable manner over a reasonable period of time under all
conditions necessary or desirable for a fair sale (taking into account the
nature and characteristics of such property or asset); provided that the
Fair Market Value of any of the property or assets of any of the Loan
Parties or any of their respective Subsidiaries shall be determined in good
faith by the board of directors (or persons performing similar functions)
of such Loan Party or such Subsidiary, as the case may be, and certified by
a Responsible Officer of such Loan Party or such Subsidiary in a
certificate delivered to the Administrative Agent, on behalf of the
Lenders; and provided, however, that any determination of the Fair Market
Value of any such property (whether real or personal) or asset that is
customarily appraised shall be based upon an appraisal by an independent
qualified appraiser when such property or asset is determined in good faith
by the board of directors (or persons performing similar functions) of such
Loan Party or such Subsidiary to have a Fair Market Value in excess of
$25,000,000.
"FBC" means Fox Broadcasting Company, a Delaware corporation and the
owner of a portion of the issued and outstanding Equity Interests in Fox
Kids.
"FBC SUB" means Fox Broadcasting Sub, Inc., a Delaware corporation and
the owner of a portion of the issued and outstanding Equity Interests in
Fox Kids.
"FBC SUBORDINATED NOTES" means, collectively the subordinated note of
Fox Kids due May 1, 2008 and issued in an aggregate principal amount of
$104,573,000 and the subordinated note of Fox Kids due May 1, 2008 and
issued in aggregate principal amount of $4,099,000, in
<PAGE>
21
each case pursuant to the FBC Subordinated Notes Documents, and any note or
notes issued in replacement or substitution therefor.
"FBC SUBORDINATED NOTES DOCUMENTS" means the Subordinated Note
Agreement dated as of July 31, 1997 (as amended by the First Amendment to
the Subordinated Note Agreement dated September 4, 1997 and the Second
Amendment to the Subordinated Note Agreement dated October 28, 1997) by and
among FBC, Fox Kids and the Administrative Agent, on behalf of the Secured
Parties, the FBC Subordinated Notes and all of the other instruments,
agreements or other documents pursuant to which the FBC Subordinated Notes
are issued or otherwise setting forth the terms of the FBC Subordinated
Notes, in each case as such agreement, instrument or other document may be
further amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof, but to the extent permitted under the
terms of the Loan Documents.
"FCC" means the Federal Communications Commission of the United States
of America or any successor thereto.
"FCN HOLDING" has the meaning specified in the recital of parties to
this Agreement.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted
average of the rates on overnight federal funds transactions with members
of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the
immediately preceding Business Day) by the Federal Reserve Bank of New York
or, if such rate is not so published for any day that is a Business Day,
the average of the quotations for such day for such transactions received
by the Administrative Agent from three federal funds brokers of recognized
standing selected by it.
"FINAL OFFERING MEMORANDUM" means the Final Offering Memorandum for
the Senior Notes dated October 22, 1997 used in connection with the
offering and sale thereof pursuant to an exemption from the registration
requirements under the Securities Act.
"FISCAL QUARTER" means, with respect to Fox Kids or any of its
Subsidiaries, the period commencing July 1 in any Fiscal Year and ending on
the next succeeding September 30, the period commencing October 1 in any
Fiscal Year and ending on the next succeeding December 31, the period
commencing January 1 in any Fiscal Year and ending on the next succeeding
March 31, or the period commencing April 1 in any Fiscal Year and ending on
the next succeeding June 30, as the context may require, or, if any such
Subsidiary was not in existence on the first day of any such period, the
period commencing on the date on which such Subsidiary is incorporated,
organized, formed or otherwise created and ending on the last day of such
period.
"FISCAL YEAR" means, with respect to Fox Kids or any of its
Subsidiaries, the period commencing on July 1 in any calendar year and
ending on the next succeeding June 30 or, if any such Subsidiary was not in
existence on July 1 in any calendar year, the period commencing on the date
on which such Subsidiary is incorporated, organized, formed or otherwise
created and ending on the next succeeding June 30.
<PAGE>
22
"FIXED CHARGE COVERAGE RATIO" means, with respect to Fox Kids and its
Subsidiaries for any Measurement Period, the ratio of (a) Adjusted Consolidated
EBITDA for such period to (b) the sum (without duplication) of (i) all
Consolidated Cash Interest Expense of Fox Kids and its Subsidiaries for such
period, (ii) all Consolidated Cash Taxes paid by or on behalf of Fox Kids or any
of its Subsidiaries during such period,(iii) the amount by which (A) the
aggregate amount of all programming costs of the Subsidiaries of Fox Kids paid
in cash during such period exceeds (B) the aggregate Programming Amortization
during such period, (iv) the aggregate amount of all Capital Expenditures made
by Fox Kids and its Subsidiaries during such period, (v) the aggregate amount of
all Required Principal Payments made by Fox Kids and its Subsidiaries during
such period and (vi) the aggregate amount of all Cash Distributions made by or
on behalf of Fox Kids during such period.
"FKE HOLDINGS" means Fox Kids Europe Holdings, Inc., a California
corporation and a direct wholly owned Subsidiary of Saban.
"FOREIGN CORPORATION" means any Foreign Subsidiary that constitutes a
"controlled foreign corporation" under Section 957 of the Internal Revenue
Code.
"FOREIGN SUBSIDIARY" means, at any time, any of the direct or indirect
Subsidiaries of Holdings that is not a Borrower or a Domestic Subsidiary at
such time.
"FOREIGN SUBSIDIARY PLEDGE AGREEMENTS" means, collectively, (a) the
U.K./FKE Pledge Agreement, (b) the U.K./Saban U.K. Pledge Agreement, (c)
the Deed of Pledge dated the Phase II Closing Date among FKE Holdings,
T.V.10 and the Administrative Agent, (d) the Amended and Restated Pledge
Agreement of Shares dated the Phase II Closing Date among Saban, Saban
International, N.V. and the Administrative Agent, (e) the Pledge Agreement
dated the Phase II Closing Date between Saban and the Administrative Agent,
(f) the Deed of Pledge of Shares dated the Phase II Closing Date among FKE
Holdings, Fox Kids Network, Fox Kids France SARL and the Administrative
Agent, (g) the Deed of Pledge of Shares dated the Phase II Closing Date
among Saban, Saban International Paris SARL and the Administrative Agent
and (h) each of the other pledge agreements, assignment agreements (or
other similar documents) governed by the laws of a jurisdiction outside of
the United States of America that is delivered pursuant to Section 5.02(j),
in each of the foregoing cases as amended, supplemented or otherwise
modified hereafter from time to time in accordance with the terms hereof
and Section 9.01.
"FOX KIDS" has the meaning specified in Preliminary Statement (1) to
this Agreement.
"FOX KIDS GUARANTEE" has the meaning specified in Section 3.01(i)(x).
"FOX KIDS NETWORK" means Fox Kids Network-Europe, Inc., a California
corporation and a direct wholly owned Subsidiary of Saban.
"FOX KIDS OPTIONHOLDERS" means, collectively, Stan Golden, Shuki Levi,
Margaret Loesch and Mel Woods and any permitted transferees thereof.
"FUNDED INDEBTEDNESS" means, with respect to any Person (without
duplication), Indebtedness in respect of the Advances in the case of the
Borrowers, and all other Indebtedness
<PAGE>
23
of such Person that by its terms matures more than one year after any date
of determination or matures within one year from such date but is renewable
or extendible, at the option of such Person, to a date more than one year
after such date or arises under a revolving credit or similar agreement
that obligates the lender or lenders to extend credit during a period of
more than one year after such date, in each case determined on a
Consolidated basis in accordance with GAAP; provided, however, that the
term "Funded Indebtedness" shall not include (a) any Programming
Liabilities, Participations or Residuals of any of the Borrowers or any of
their respective Subsidiaries incurred in the ordinary course of business
or (b) any Contingent Obligations of such Person (if and to the extent such
Contingent Obligations would otherwise be included in such term on any date
of determination) that are incurred solely to support Indebtedness of one
or more Subsidiaries of such Person to the extent such Contingent
Obligations are otherwise expressly permitted to be incurred under Section
5.02(b).
"FUNDING AGREEMENT" means the Funding Agreement dated as of June 11,
1997 by and among TNCL, NPAL and Fox Kids, as such agreement may be
amended, supplemented or otherwise modified from time to time in accordance
with the terms thereof, but to the extent permitted under the terms of the
Loan Documents.
"GAAP" means generally accepted accounting principles in effect from
time to time in the United States of America and applied on a consistent
basis, subject, however, to the terms of Section 1.03.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state,
province, city, municipal entity or other political subdivision thereof,
and any governmental, executive, legislative, judicial, administrative or
regulatory agency, department, authority, instrumentality, commission,
board or similar body, whether federal, state, provincial, territorial,
local or foreign.
"GOVERNMENTAL AUTHORIZATION" means any authorization, approval,
consent, franchise, license, covenant, order, ruling, permit,
certification, exemption, notice, declaration or similar right, undertaking
or other action of, to or by, or any filing, qualification or registration
with, any Governmental Authority.
"GUARANTEE" has the meaning specified in Section 6.01(a).
"GUARANTEE SUPPLEMENT" has the meaning specified in Section 8(b) of
the Subsidiaries Guarantee.
"GUARANTEED OBLIGATIONS" has the meaning specified in Section 6.01(a).
"HAZARDOUS MATERIALS" means: (a) any chemical, material or substance
at any time defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "acutely hazardous waste", "radioactive waste",
"biohazardous waste", "pollutant", "toxic pollutant", "contaminant",
"restricted hazardous waste", "infectious waste", "toxic substances", or
any other term or expression intended to define, list or classify
substances by reason of properties harmful to health, safety or the indoor
or outdoor environment (including, without limitation, harmful properties
such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity,
reproductive toxicity, "TCLP
<PAGE>
24
toxicity" or "EP toxicity" or words of similar import under any applicable
Environmental Laws); (b) any oil, petroleum, petroleum fraction or
petroleum derived substance; (c) any drilling fluids, produced waters and
other wastes associated with the exploration, development or production of
crude oil, natural gas or geothermal resources; (d) any flammable
substances or explosives; (e) any radioactive materials; (f) any asbestos-
containing materials; (g) any urea formaldehyde foam insulation; (h) any
electrical equipment which contains any oil or dielectric fluid containing
polychlorinated biphenyls; (i) any pesticides; (j) any radon gas; and (k)
any other chemical, material or substance designated, classified or
regulated as hazardous or toxic or as a pollutant or contaminant under any
Environmental Law or which could pose a hazard to health, safety or the
environment.
"HEDGE AGREEMENTS" means, collectively, interest rate swap, cap or
collar agreements, interest rate future or option contracts, commodity
future or option contracts, currency swap agreements, currency future or
option contracts and other similar agreements.
"HEDGE BANK" means any Person that is a Lender, in its capacity as a
party to a Bank Hedge Agreement.
"HOLDINGS" has the meaning specified in the recital of parties to this
Agreement.
"IFE" has the meaning specified in the recital of parties to this
Agreement.
"IMPLIED DEBT RATING" means, at any date of determination, the
"implied" statistical rating that has been most recently assigned by either
S&P or Moody's to any class of long term senior secured debt issued by the
Borrowers. For purposes of the foregoing:
(a) each such assignment of a statistical rating by S&P or
Moody's shall be set forth in a written notice therefrom to the
Borrowers (a copy of which shall be delivered to the Administrative
Agent);
(b) if any rating established by S&P or Moody's shall be changed,
such change shall be effective as of the date on which the
Administrative Agent receives a copy of the notice from S&P or Moody's
referred to in clause (a) of this definition, setting forth such
change; and
(c) if either S&P or Moody's shall change the basis on which
ratings are established by it, each reference to the Implied Debt
Rating assigned by S&P or Moody's shall refer to the then equivalent
rating by S&P or Moody's, as the case may be.
"INDEBTEDNESS" means, with respect to any Person (without
duplication):
(a) all indebtedness of such Person for borrowed money;
(b) all Obligations of such Person for the deferred purchase
price of property and assets or services (other than trade payables or
other accounts payable incurred in the ordinary course of such
Person's business and not past due for more than 90 days after the
date on which each such trade payable or account payable was created);
<PAGE>
25
(c) all Obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, or upon which interest
payments are customarily made;
(d) all Obligations of such Person created or arising under any
conditional sale or other title retention agreement with respect to
property or assets acquired by such Person (even though the rights and
remedies of the seller or the lender under such agreement in the event
of default are limited to repossession or sale of such property or
assets);
(e) all Obligations of such Person as lessee under Capitalized
Leases;
(f) all Obligations, contingent or otherwise, of such Person
under acceptance, letter of credit or similar facilities (other than
letters of credit given in support of trade payables incurred in the
ordinary course of such Person's business and with an expiration date
of not more than 90 days after the date on which such letter of credit
was issued);
(g) all Obligations of such Person to purchase, redeem, retire,
defease or otherwise make any payment in respect of any Equity
Interests in such Person or in any other Person valued, in the case of
any Redeemable Preferred Interests, at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends
(but excluding (i) any such Obligation arising solely as a result of
the declaration of a dividend (or similar distribution) on any such
Equity Interest of such Person and (ii) in the case of Fox Kids, any
such Obligation in respect of the shares of Permitted Preferred Stock
issued from time to time thereby);
(h) all Obligations of such Person in respect of Hedge
Agreements, take-or-pay agreements or other similar arrangements;
(i) all Obligations of such Person under any synthetic lease, tax
retention operating lease, off-balance sheet loan or similar off-
balance sheet financing if the transaction giving rise to such
Obligation is considered indebtedness for borrowed money for tax
purposes but is classified as an operating lease in accordance with
GAAP;
(j) all Contingent Obligations; and
(k) all Indebtedness referred to in clauses (a) through (j) above
of another Person secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on property or assets (including, without
limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of
such Indebtedness, valued, in the case of any such Indebtedness as to
which recourse for the payment thereof is expressly limited to the
property or assets on which such Lien is granted, at the lesser of (i)
the stated or determinable amount of the Indebtedness that is so
secured or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) and (ii) the Fair Market Value of such
property or assets.
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26
The Indebtedness of any Person shall include (i) all Obligations of the
types described in clauses (a) through (k) above of any partnership in
which such Person is a general partner and (ii) all Obligations of the
types described in clauses (a) through (k) above of such Person to the
extent such Person remains legally liable in respect thereof,
notwithstanding that any such Obligation is deemed to be extinguished under
GAAP at any date of determination.
"INDEMNIFIABLE MATTERS" has the meaning specified in Section 9.04(a).
"INDEMNIFIED PARTY" has the meaning specified in Section 9.04(a).
"INFORMATION MEMORANDUM" means the information memorandum dated July
1997 used in connection with the syndication of the Commitments.
"INITIAL LENDERS" has the meaning specified in the recital of parties
to this Agreement.
"INITIAL PLEDGED INDEBTEDNESS" has the meaning specified in Section
1(a)(iii) of the Pledge and Assignment Agreement.
"INITIAL PLEDGED INTERESTS" has the meaning specified in Section
1(a)(i) of the Pledge and Assignment Agreement.
"INTERCOMPANY NOTES" means the promissory notes, in each case in
substantially the form of Exhibit H-1 hereto, evidencing the intercompany
Indebtedness outstanding from time to time pursuant to Section
5.02(b)(iii)(C) or 5.02(f)(i).
"INTEREST COVERAGE RATIO" means, with respect to Fox Kids and its
Subsidiaries for any Measurement Period, the ratio of (a) Adjusted
Consolidated EBITDA for such period to (b) Consolidated Cash Interest
Expense of Fox Kids and its Subsidiaries for such period.
"INTEREST PERIOD" means, for each of the Eurodollar Rate Advances
comprising part of the same Borrowing, the period commencing on the date of
such Eurodollar Rate Advance or the date of the Conversion of any Base Rate
Advance into such Eurodollar Rate Advance, as the case may be, and ending
on the last day of the period selected by the Borrower requesting such
Borrowing or Conversion pursuant to the provisions below and, thereafter,
each subsequent period commencing on the last day of the immediately
preceding Interest Period and ending on the last day of the period selected
by such Borrower pursuant to the provisions set forth below. The duration
of each such Interest Period shall be one, two, three or six months and,
subject to clause (c) of this definition, nine months as the Borrower
requesting such Borrowing or Conversion may, upon notice received by the
Administrative Agent not later than 11:00 A.M. (New York City time) on the
third Business Day prior to the first day of such Interest Period, select;
provided, however, that:
(a) such Borrower may not select any Interest Period with respect
to any Eurodollar Rate Advance comprising part of a Term Borrowing
that ends after any principal repayment installment date for the Term
Facility or any Eurodollar Rate Advance comprising part of a Revolving
Credit Borrowing that ends after any scheduled commitment reduction
date for the related Revolving Credit Facility unless, after giving
<PAGE>
27
effect to such selection, the aggregate principal amount of all Base
Rate Advances and of all Eurodollar Rate Advances having Interest
Periods that end on or prior to such principal repayment installment
date or such scheduled commitment reduction date, as the case may be,
shall be at least equal to the aggregate principal amount of Advances
under the Term Facility or the applicable Revolving Credit Facility,
respectively, due and payable on or prior to such date;
(b) Interest Periods commencing on the same date for Eurodollar
Rate Advances comprising part of the same Borrowing shall be of the
same duration;
(c) the Borrower requesting such Borrowing or Conversion shall
not be entitled to select an Interest Period having a duration of nine
months unless, by 2:00 P.M. (New York City time) on the third Business
Day prior to the first day of such Interest Period, each of the
Appropriate Lenders notifies the Administrative Agent that such
Appropriate Lender will be providing funding for such Borrowing with
such Interest Period (the failure of any Appropriate Lender to so
respond by such time being deemed for all purposes of this Agreement
as an objection by such Appropriate Lender to the requested duration
of such Interest Period); provided that if any of the Appropriate
Lenders objects (or is deemed to have objected) to the requested
duration of such Interest Period, the duration of the Interest Period
for such Borrowing shall be one, two, three or six months, as
specified by such Borrower in the applicable Notice of Borrowing or
Notice of Conversion as the desired alternative to an Interest Period
of nine months therefor;
(d) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding
Business Day, provided, however, that, if such extension would cause
the last day of such Interest Period to occur in the next succeeding
calendar month, the last day of such Interest Period shall occur on
the immediately preceding Business Day; and
(e) whenever the first day of any Interest Period occurs on a day
of an initial calendar month for which there is no numerically
corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months
in such Interest Period, such Interest Period shall end on the last
Business Day of such succeeding calendar month.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and the rulings
issued thereunder.
"INVESTMENT" means, with respect to any Person, any loan or advance to
such Person, any purchase or other acquisition of Equity Interests in, or
other obligations or other securities of, such Person, any capital
contribution to such Person or any other investment in such Person,
including, without limitation, any arrangement pursuant to which the
investor incurs Indebtedness of the types referred to in clause (j) or (k)
of the definition of "Indebtedness" set forth in this Section 1.01 in
respect of such Person.
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28
"INVESTMENT GRADE PERFORMANCE TEST" means at any date of
determination, either (a) the long term senior secured debt of the Borrowers
shall have an Implied Debt Rating in effect on such date of at least BBB- by S&P
and Baa3 by Moody's or (b) the Total Leverage Ratio for the most recently
completed Measurement Period prior to such date shall be less than 4.00:1;
provided, however, that, with respect to clause (a) of this definition at any
such date:
(i) if, as of such date, only one of S&P and Moody's
shall have Implied Debt Rating in effect, the satisfaction of the
Investment an Grade Performance Test shall be determined by reference
to the available rating on such date; and
(ii) if, as of such date, both S&P and Moody's shall
have an Implied Debt Rating in effect, the satisfaction of the
Investment Grade Performance Test shall be determined by reference to
the higher of such Implied Debt Ratings unless the Implied Debt Rating
of S&P or Moody's in effect on such date shall differ from the
corresponding Implied Debt Rating of Moody's or S&P, respectively, in
effect on such date by at least two levels, in which case the
satisfaction of the Investment Grade Performance Test shall be
determined by reference to the rating of such statistical rating
organization that has the lower of such Implied Debt Ratings in effect
on such date and shall be deemed to be the rating of such statistical
rating organization that is one level above such lower Implied Debt
Rating.
"LENDER INDEMNIFIED COSTS" has the meaning specified in Section 8.05.
"LENDERS" means, collectively, the Initial Lenders and each Person
that becomes a Lender pursuant to Section 9.08.
"LIEN" means, with respect to any Person, (a) any mortgage, lien
(statutory or other), pledge, hypothecation, security interest, charge or
other preference or encumbrance of any kind (including, without limitation,
any agreement to give any of the foregoing), (b) any sale of accounts
receivable or chattel paper, or any assignment, deposit arrangement or
lease intended as, or having the effect of, security, (c) any easement,
right of way or other encumbrance on title to real property or (d) any
other interest or title of any vendor, lessor, lender or other secured
party to or of such Person under any conditional sale or other title
retention agreement or any Capitalized Lease or upon or with respect to any
property or asset of such Person (including, in the case of Equity
Interests, voting trust agreements and other similar arrangements).
"LOAN DOCUMENTS" means, collectively, (a) for all purposes of this
Agreement (other than Article VI) and the Notes and any amendment,
supplement or other modification hereof or thereof and for all other
purposes other than for purposes of Article VI, the Fox Kids Guarantee, the
Subsidiaries Guarantee, the Collateral Documents, the Intercompany Notes
and the TNCL Group Subordinated Notes, (i) this Agreement, (ii) the Notes,
(iii) the Fox Kids Guarantee, (iv) the Subsidiaries Guarantee, (v) the
Collateral Documents, (vi) the Assumption Agreement and (vii) each of the
other agreements evidencing any of the Obligations of any of the Loan
Parties secured by the Collateral Documents and (b) for all purposes of
Article VI, the Fox Kids Guarantee, the Subsidiaries Guarantee, the
Collateral Documents, the Intercompany Notes and the TNCL Group
Subordinated Notes, (i) this Agreement, (ii) the Notes, (iii) the Fox Kids
Guarantee, (iv) the Subsidiaries Guarantee, (v) the Collateral Documents,
(vi) the Assumption
<PAGE>
29
Agreement, (vii) the Bank Hedge Agreements and (viii) each of the other
agreements evidencing any of the Obligations of any of the Loan Parties
secured by the Collateral Documents, in each case as amended, supplemented
or otherwise modified hereafter from time to time in accordance with the
terms thereof and Section 9.01.
"LOAN PARTIES" means, collectively, Fox Kids, Holdings, each of the
Borrowers and each of the Restricted Subsidiaries.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, condition (financial or otherwise), operations, performance,
properties or prospects of Fox Kids and its Subsidiaries, taken as a whole,
(b) the rights and remedies of the Administrative Agent or any of the
Lenders under any of the Loan Documents or any of the Related Documents
(unless the material adverse effect on any such rights and remedies, either
individually or in the aggregate, would apply solely to an immaterial
portion of the Collateral and could not reasonably be expected to impair
the repayment of the Advances and the payment of all other amounts owing
under or in respect of the Loan Documents in a timely manner) or (c) the
ability of any of the Loan Parties to perform any of their respective
Obligations under any of the Loan Documents or any of the Related Documents
to which it is or is to be a party (unless the material adverse effect on
any such ability, either individually or in the aggregate, would apply
solely to the immaterial nonpayment Obligations of any of the Subsidiaries
of Fox Kids (other than any of the other Borrowers)).
"MEASUREMENT PERIOD" means, at any date of determination, the most
recently completed four consecutive Fiscal Quarters on or immediately prior
to such date or, if less than four consecutive Fiscal Quarters have been
completed since the Phase II Closing Date, the Fiscal Quarters that have
been completed since the Phase II Closing Date; provided, however, that any
calculation of Consolidated EBITDA and Consolidated Cash Interest Expense
for the first Measurement Period ending after the Effective Date shall be
multiplied by two and any calculation of Consolidated EBITDA and
Consolidated Cash Interest Expense for the second Measurement Period ending
after the Effective Date shall be multiplied by 1.33.
"MERGER" has the meaning specified in Preliminary Statement (2) to
this Agreement.
"MERGER CORPORATION" has the meaning specified in Preliminary
Statement (2) to this Agreement.
"MOODY'S" means Moody's Investors Service, Inc.
"MTM ENTERTAINMENT" means MTM Entertainment, Inc., a Delaware
corporation and an indirect Subsidiary of IFE.
"MULTIEMPLOYER PLAN" means a multiemployer plan (as defined in Section
4001(a)(3) of ERISA) to which any of the Loan Parties or any of the ERISA
Affiliates (a) is making or accruing an obligation to make contributions or
(b) has within any of the preceding five plan years made or accrued an
obligation to make contributions and with respect to which any of the Loan
Parties or any of the ERISA Affiliates could reasonably be expected to have
liability.
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30
"MULTIPLE EMPLOYER PLAN" means a single employer plan (as defined in
Section 4001(a)(15) of ERISA) that (a) is maintained for employees of any
of the Loan Parties or any of the ERISA Affiliates and at least one Person
other than the Loan Parties and the ERISA Affiliates or (b) was so
maintained and in respect of which any of the Loan Parties or any of the
ERISA Affiliates could reasonably be expected to have liability under
Section 4064 or 4069 of ERISA in the event such plan has been or were to be
terminated.
"MURDOCH FAMILY" means one or more of (a) K. Rupert Murdoch, his wife,
parents, children or more remote issue, or brothers or sisters or children
or more remote issue of a brother or sister, (b) any Person directly or
indirectly controlled by one or more of the Persons referred to in clause
(a) of this definition or (c) a trust in which the majority of the trustees
are Persons referred to in clause (a) or (b) of this definition or can be
removed or replaced by one or more of the Persons referred to in clause (a)
or (b) of this definition.
"NAHI" means News America Holdings Incorporated, a Delaware
corporation and an indirect wholly owned Subsidiary of TNCL.
"NAHI SUBORDINATED NOTES" means the subordinated note of Fox Kids due
May 1, 2008 and issued in an aggregate principal amount of $345,513,865
pursuant to the NAHI Subordinated Notes Documents, and any note or notes
issued in replacement or substitution therefor.
"NAHI SUBORDINATED NOTES DOCUMENTS" means the Subordinated Note
Agreement dated August 29, 1997 (as amended by the First Amendment to the
Subordinated Note Agreement dated October 28, 1997) by and among NAHI, Fox
Kids and the Administrative Agent, on behalf of the Secured Parties, the
NAHI Subordinated Notes and all of the other instruments, agreements or
other documents pursuant to which the NAHI Subordinated Notes are issued or
otherwise setting forth the terms of the NAHI Subordinated Notes, in each
case as such agreement, instrument or other document may be further
amended, supplemented or otherwise modified from time to time in accordance
with the terms thereof, but to the extent permitted under the terms of the
Loan Documents.
"NCP PERCENTAGE" means (a) at any date of determination on which the
Investment Grade Performance Test is satisfied, 0% with respect to any sale,
lease, transfer or other disposition of any property or assets, 50% with respect
to the incurrence or issuance of any Indebtedness, 0% with respect to the sale
or issuance of any Equity Interests in any Person by such Person and 0% with
respect to any Extraordinary Receipts received by or paid to or for the account
of any Person and (b) at any date of determination on which the Investment Grade
Performance Test is not satisfied, 100% with respect to any sale, lease,
transfer or other disposition of any property or assets, the incurrence or
issuance of any Indebtedness, the sale or issuance of any Equity Interests in
any Person by such Person and any Extraordinary Receipts received by or paid to
or for the account of any Person.
"NET CASH PROCEEDS" means, with respect to any sale, lease, transfer
or other disposition of any property or asset, or the incurrence or
issuance of any Indebtedness, or the sale or issuance of any Equity
Interests in any Person, or any Extraordinary Receipt received by or paid
to or for the account of any Person, as the case may be, the aggregate
amount of cash received from time to time (whether as initial consideration
or through payment or disposition of deferred
<PAGE>
31
consideration) by or on behalf of such Person for its own account in
connection with any such transaction, after deducting therefrom only:
(a) reasonable and customary brokerage commissions, underwriting
fees and discounts, legal fees, finder's fees, filing and registration
fees with the Securities and Exchange Commission (or any similar
Governmental Authority or any national or international securities
exchange) and other similar fees and commissions;
(b) the amount of taxes payable in connection with or as a result
of such transaction;
(c) in the case of any sale, lease, transfer or other disposition
of any property or asset, the outstanding principal amount of, the
premium or penalty, if any, on, and any accrued and unpaid interest
on, any Indebtedness (other than the Indebtedness under or in respect
of the Loan Documents) that is secured by a Lien on the property and
assets subject to such sale, lease, transfer or other disposition and
is required to be repaid under the terms thereof as a result of such
sale, lease, transfer or other disposition; and
(d) in the case of any sale, lease, transfer or other disposition
of any property or asset, the amount required to be reserved, in
accordance with GAAP as in effect on the date on which the Net Cash
Proceeds from such sale, lease, transfer or other disposition are
determined, and so reserved, against liabilities under indemnification
obligations, liabilities related to environmental matters or other
similar contingent liabilities associated with the property and assets
subject to such sale, lease, transfer or other disposition that are
required to be so provided for under the terms of the documentation
for such sale, lease, transfer or other disposition;
in each case to the extent, but only to the extent, that the amounts so
deducted are properly attributable to such transaction or to the property
or asset that is the subject thereof and (i) in the case of clauses (a) and
(c) of this definition, are actually paid at the time of receipt of such
cash to a Person that is not an Affiliate of such Person or any of the Loan
Parties or of any Affiliate of any of the Loan Parties and (ii) in the case
of clauses (b) and (d) of this definition, are actually paid at the time of
receipt of such cash to a Person that is not an Affiliate of such Person or
any of the Loan Parties or any Affiliate of any of the Loan Parties or, so
long as such Person is not otherwise indemnified therefor, are reserved for
in accordance with GAAP at the time of receipt of such cash based upon such
Person's reasonable estimate of such taxes or contingent liabilities, as
the case may be; provided, however, that if, at the time such taxes or such
contingent liabilities are actually paid or otherwise satisfied, the amount
of the reserve therefor exceeds the amount paid or otherwise satisfied,
then the Borrowers shall reduce the Commitments in accordance with the
terms of Section 2.04(b)(iv), and shall prepay the outstanding Advances in
accordance with the terms of Section 2.05(b), in an amount equal to the
amount of such excess reserve.
"NEW SUBSIDIARY" has the meaning specified in Section 5.02(j).
"NOTE" means a Revolving Credit Note or a Term Note, as the context
may require.
"NOTICE OF BORROWING" has the meaning specified in Section 2.02(a).
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32
"NOTICE OF CONVERSION" has the meaning specified in Section 2.08(a).
"NPAL" means News Publishing Australia Limited, a Delaware
corporation.
"NPAL CHARTER AMENDMENT" means the Certificate of Amendment of the
Certificate of Incorporation of NPAL, which, among other things, authorizes
NPAL to issue up to 500,000 shares of NPAL Preferred Stock, par value
$0.001 per share, and describes the designations, voting powers,
preferences and relative, participating, optional and other special rights
of such NPAL Preferred Stock and the qualifications, limitations and
restrictions thereof.
"NPL" means the National Priorities List under CERCLA.
"OBLIGATION" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including,
without limitation, any liability of such Person on any claim, whether or
not the right of any creditor to payment in respect of such claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
disputed, undisputed, legal, equitable, secured or unsecured, and whether
or not such claim is discharged, stayed or otherwise affected by any
proceeding of the type referred to in Section 7.01(f). Without limiting
the generality of the immediately preceding sentence, the Obligations of
the Loan Parties under or in respect of the Loan Documents include (a) the
obligation to pay principal, interest, commissions, charges, expenses,
fees, attorneys' fees and disbursements, indemnities and other amounts
payable by any of the Loan Parties under or in respect of any of the Loan
Documents and (b) the obligation of any of the Loan Parties to reimburse
any amount in respect of any of the items described above in clause (a) of
this definition that the Administrative Agent or any of the Lenders, in its
sole discretion, may elect to pay or advance on behalf of such Loan Party.
"OECD" means the Organization for Economic Cooperation and
Development.
"OPEN YEAR" means, with respect to any Person, any year for which a
United States federal income tax return has been filed by or on behalf of
such Person and for which the expiration of the applicable statute of
limitations for assessment, reassessment or collection has not occurred
(whether by reason of extension or otherwise).
"ORIGINAL BORROWERS" has the meaning specified in Preliminary
Statement (1) to this Agreement.
"ORIGINAL CREDIT AGREEMENT" has the meaning specified in Preliminary
Statement (1) to this Agreement.
"ORIGINAL LENDER" has the meaning specified in Preliminary Statement
(1) to this Agreement.
"OTHER TAXES" has the meaning specified in Section 2.11(b).
"PARTICIPATIONS" means all amounts (other than Residuals) payable to
any Person other than any of the Loan Parties or any of their respective
Affiliates in connection with the development, acquisition, production,
exhibition, syndication, exploitation or distribution of any
<PAGE>
33
item of Product, the payment of which is contingent upon and payable only
to the extent of the receipt by the obligor of revenues from the
exhibition, syndication or exploitation of such item of Product.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"PERFORMANCE LEVEL" means Performance Level I, Performance Level II,
Performance Level III, Performance Level IV or Performance Level V, as the
context may require. For purposes of determining the Performance Level at
any date of determination:
(a) not more than one decrease in the Performance Level
(thereby resulting in a decrease in the Applicable Margin and the
Applicable Percentage) shall occur in any three-month period; and
(b) no change in the Performance Level shall be effective until
five Business Days after the date on which the Administrative Agent
receives Consolidated financial statements of Holdings and its
Subsidiaries pursuant to (and satisfying all of the requirements of)
Section 5.03(b) or 5.03(c) reflecting such change and the related
certificate pursuant to Section 5.03(d); provided, however, that if
Holdings or the Borrowers have not submitted to the Administrative
Agent all of the information required under this clause (b) within
five Business Days after the date on which such information is
otherwise required under Section 5.03(b) or 5.03(c) and Section
5.03(d), as the case may be, the Performance Level shall be deemed to
be at Performance Level V for so long as such information has not been
submitted.
"PERFORMANCE LEVEL I" means, at any date of determination, that
Holdings and its Subsidiaries shall have maintained a Senior Leverage Ratio
of less than 3.00:1 for the most recently completed Measurement Period
prior to such date.
"PERFORMANCE LEVEL II" means, at any date of determination, that (a)
the Performance Level does not meet the requirements of Performance Level I
and (b) Holdings and its Subsidiaries shall have maintained a Senior
Leverage Ratio of less than 3.50:1 for the most recently completed
Measurement Period prior to such date.
"PERFORMANCE LEVEL III" means, at any date of determination, that (a)
the Performance Level does not meet the requirements of Performance Level I
or Performance Level II and (b) Holdings and its Subsidiaries shall have
maintained a Senior Leverage Ratio of less than 4.00:1 for the most
recently completed Measurement Period prior to such date.
"PERFORMANCE LEVEL IV" means, at any date of determination, that (a)
the Performance Level does not meet the requirements of Performance Level
I, Performance Level II or Performance Level III and (b) Holdings and its
Subsidiaries shall have maintained a Senior Leverage Ratio of less than
4.25:1 for the most recently completed Measurement Period prior to such
date.
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34
"PERFORMANCE LEVEL V" means, at any date of determination, that the
Performance Level does not meet the requirements of Performance Level I,
Performance Level II, Performance Level III or Performance Level IV.
"PERMITTED AFFILIATE INVESTMENT" means (a) any capital contribution
to Holdings made directly or indirectly by Fox Kids or any of the direct or
indirect owners of any of the Equity Interests therein or (b) the Net Cash
Proceeds received by Holdings from the issuance and sale of shares of the
Permitted Preferred Stock or one or more Permitted Affiliate Subordinated Notes;
provided that on the date on which any such Permitted Affiliate Investment is
made, Fox Kids shall deliver to the Administrative Agent, on behalf of the
Lenders, a certificate of a Responsible Officer of Fox Kids, certifying that
such capital contribution or the Net Cash Proceeds received by Fox Kids from
such issuance and sale are intended to constitute, and are to be used for, one
or more Investments in accordance with the terms of Section 5.02(e)(xii).
"PERMITTED AFFILIATE SUBORDINATED NOTES" means one or more notes, in
each case in the form of Exhibit H-2 hereto, issued from time to time by
Fox Kids to any of the members of the TNCL Group or the Saban Group and
having a maturity date that is not earlier than (and no scheduled or
mandatory redemption or repurchase date prior to) the tenth anniversary of
the date of issuance of any such note; provided that on the date on which
each of the Permitted Affiliate Subordinated Notes is issued, Fox Kids
shall deliver to the Administrative Agent, on behalf of the Lenders, a
certificate of a Responsible Officer of Fox Kids, certifying in reasonable
detail the intended use by Fox Kids and/or any of its Subsidiaries of the
proceeds of such issuance.
"PERMITTED FILM FINANCING" means, with respect to any of the Special
Purpose Vehicles, financing received by such Special Purpose Vehicle (whether
through the issuance or incurrence of Indebtedness or the issuance and sale of
Equity Interests) from any other Person that is not an Affiliate thereof or of
any of the Loan Parties, the proceeds of which will be used solely for the
acquisition, production, exhibition, syndication, exploitation or distribution
of television films or other programming and as to which none of the Loan
Parties has incurred or will incur any Indebtedness or other Obligations other
than the obligation to pay for any item of Product of such Special Purpose
Vehicle (or any or all of the rights in such item of Product) that is the
subject of such Permitted Film Financing and is (or which rights are) acquired
by any such Loan Party in the ordinary course of business upon the completion
and delivery thereto of such item of Product.
"PERMITTED LIENS" means the following types of Liens (excluding any
such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal
Revenue Code or by ERISA or any such Lien relating to or imposed in connection
with any Environmental Action), in each case as to which no enforcement,
collection, execution, levy or foreclosure proceeding shall have been
commenced:
(a) Liens for taxes, assessments and governmental charges
or levies to the extent not otherwise required to be paid under
Section 5.01(b);
(b) Liens imposed by law, such materialmen's, mechanics',
carriers', workmen's, storage and repairmen's Liens and other similar
Liens arising in the ordinary course of business and securing
obligations (other than Indebtedness for borrowed money)
<PAGE>
35
(i) that are not overdue for a period of more than 60 days or (ii) the
amount, applicability or validity of which are being contested in good
faith and by appropriate proceedings diligently conducted and with
respect to which Fox Kids or any of its Subsidiaries, as the case may
be, has established reserves in accordance with GAAP;
(c) pledges or deposits to secure obligations incurred in
the ordinary course of business under workers' compensation laws,
unemployment insurance or other similar social security legislation
(other than in respect of employee benefit plans subject to ERISA) or
to secure public or statutory obligations;
(d) Liens securing the performance of, or payment in
respect of, bids, tenders, government contracts (other than for the
repayment of borrowed money), surety and appeal bonds and other
obligations of a similar nature incurred in the ordinary course of
business;
(e) any interest or title of a lessor or sublessor and
any restriction or encumbrance to which the interest or title of such
lessor or sublessor may be subject that is incurred in the ordinary
course of business and, either individually or when aggregated with
all other Permitted Liens in effect on any date of determination,
could not be reasonably expected to have a Material Adverse Effect;
(f) Liens in favor of customs and revenue authorities
arising as a matter of law or pursuant to a bond to secure payment of
customs duties in connection with the importation of goods;
(g) customary rights of setoff upon deposits of cash in
favor of banks or other depository institutions in which such cash is
maintained in the ordinary course of business;
(h) Liens arising out of judgments or awards that do not
constitute an Event of Default under Section 7.01(g) or 7.01(h) and in
respect of which Fox Kids or any of its Subsidiaries subject thereto
shall be prosecuting an appeal or proceedings for review in good faith
and, pending such appeal or proceedings, shall have secured within ten
days after the entry thereof a subsisting stay of execution and shall
be maintaining reserves, in accordance with GAAP, with respect to any
such judgment or award; and
(i) easements, rights of way, zoning restrictions and
other encumbrances and minor survey exceptions, minor title
irregularities and other similar minor restrictions on title to, or
the use of, real property that do not, either individually or in the
aggregate, materially and adversely affect the use of such real
property for its intended purposes or the conduct of the business of
Holdings and its Subsidiaries in the ordinary course and that were not
incurred in connection with and do not secure Indebtedness or other
extensions of credit.
"PERMITTED PREFERRED STOCK" means Preferred Interests in Fox Kids
issued from time to time to one or more of its Affiliates that have (a) no
dividends required to be paid in cash, and no scheduled or mandatory
redemption or repurchase dates, in whole or in part, prior to the
<PAGE>
36
payment in full in cash of all of the Obligations of the Loan Parties under
or in respect of the Loan Documents and any extension, refinancing or
replacement thereof, and the termination of all commitments to extend
credit under any of the foregoing, (b) no voting rights and (c) no other
conditions, covenants or events of default; provided that on the date on
which each of the shares of Permitted Preferred Stock is issued, Fox Kids
shall deliver to the Administrative Agent, on behalf of the Lenders, a
certificate of a Responsible Officer of Fox Kids, certifying in reasonable
detail the intended use by Fox Kids and/or any of its Subsidiaries of the
proceeds of such issuance.
"PERSON" means an individual, partnership, corporation (including a
business trust), limited liability company, unlimited liability company,
joint stock company, trust, unincorporated association, joint venture or
other entity, or a government or any political subdivision or agency
thereof.
"PHASE II CLOSING DATE" means September 4, 1997, the date on which the
initial borrowing under the Existing Credit Agreement occurred following
the satisfaction or waiver of all of the conditions precedent to such
borrowing set forth in Sections 3.01 and 3.03 of the Existing Credit
Agreement.
"PLAN" means a Single Employer Plan and/or a Multiple Employer Plan,
as the context may require.
"PLEDGE AGREEMENT SUPPLEMENT" has the meaning specified in Section
18(b) of the Pledge and Assignment Agreement.
"PLEDGE AND ASSIGNMENT AGREEMENT" has the meaning specified in Section
3.01(i)(viii).
"PREFERRED INTERESTS" means, with respect to any Person, Equity
Interests issued by such Person that are entitled to a preference or
priority over any other Equity Interests issued by such Person upon any
distribution of such Person's property and assets, whether by dividend or
upon liquidation.
"PRE-MERGER IFE" has the meaning specified in Preliminary Statement
(1) to this Agreement.
"PREPRINT MATERIALS" means, with respect to any item of Product, the
original motion picture negative for such item of Product, the optical
soundtrack negative for such item of Product, the magnetic soundtrack
(consisting of separate mixed dialogue and separate mixed music and effects
tracks) for such item of Product and/or such other materials as are
necessary to duplicate such Product (including interpositives, negatives,
duplicate negatives, internegatives, color reversals, intermediates,
lavenders, fine grain master prints and matrices, and all other forms of
preprint materials that may be necessary or useful to produce prints or
other copies or additional preprint materials), whether now known or
hereafter devised.
"PRIMARY OBLIGATION" has the meaning specified in the definition of
"Contingent Obligation" set forth in this Section 1.01.
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37
"PRIMARY OBLIGOR" has the meaning specified in the definition of
"Contingent Obligations" set forth in this Section 1.01.
"PRO FORMA CONSOLIDATED EBITDA" means, at any date of determination,
an amount equal to the Consolidated EBITDA of Holdings and its Subsidiaries
for the most recently completed Measurement Period prior to such date for
which Holdings and/or the Borrowers have delivered Consolidated financial
statements of Holdings and its Subsidiaries pursuant to Section 5.03(b) or
5.03(c); provided that with respect to any sale, transfer or other
disposition of any property or assets of any of the Borrowers or any of
their respective Subsidiaries pursuant to Section 5.02(d)(viii) or
5.02(d)(ix), if any of the Borrowers or any of their respective
Subsidiaries shall have purchased or otherwise acquired or shall have sold,
transferred or otherwise disposed of any other property or assets at any
time on or after the first day of such Measurement Period and prior to such
date, such Consolidated EBITDA shall be increased (in the case of each such
purchase or other acquisition) or reduced (in the case of each such sale,
transfer or other disposition) by the Consolidated EBITDA of Holdings and
its Subsidiaries that would have been directly contributed thereto by such
other property or assets during such Measurement Period, determined in good
faith by the board of directors of the applicable Borrower on a pro forma
basis as though such Borrower or the Subsidiary of such Borrower that is
effecting such transaction had purchased or otherwise acquired or had sold,
transferred or otherwise disposed of such other property or assets on the
first day of such Measurement Period.
"PRO RATA SHARE" of any amount means, with respect to any of the
Lenders at any time, the product of (a) a fraction the numerator of which
is the amount of such Lender's Commitment under the applicable Facility or
Facilities at such time and the denominator of which is the aggregate
amount of such Facility or Facilities at such time and (b) such amount.
"PRODUCT" means any feature or nonfeature motion picture, television
program, series, miniseries, pilot, movie-of-the-week, special, animated
cartoon, interactive game, short or other type of recorded audiovisual
production (whether now existing or hereafter created, devised, developed
or acquired) (including, without limitation, the film and television
libraries of the Borrowers and their respective Subsidiaries), whether made
for or distributed in any market, including, without limitation,
theatrical, nontheatrical, television, home video or exhibition in any
other market or medium, whether now existing or hereafter created, devised
or developed and whether produced, recorded, distributed, performed or
exhibited on or by photographic film, videotape, wire, disc, cartridge,
cassette or any other means, methods or devices now existing or hereafter
created, devised or developed and further including, without limitation,
all exposed and developed negative film, soundtracks, positive prints,
cutouts and trims connected with any such Product, whether or not in
completed form or in a state of completion, and all related goods and
physical properties, including, without limitation, exposed film, developed
film, positives, negatives, prints, answer prints, special effects,
Preprint Materials, soundtracks, recordings, audio and video tape and discs
of all types and gauges, cutouts, trims and any and all other physical
properties of every kind and nature relating to any such Product in
whatever state of completion, and all duplicates, drafts, versions,
variations and copies of each thereof, all rights to produce, release,
sell, distribute, lease, perform, market, license, promote, merchandise,
exhibit, broadcast, reproduce, record, publicize or otherwise exploit the
foregoing and all Special Assets and any and all rights therein, in any
manner and in any media whatsoever throughout any territory, including,
without limitation, free, pay, toll, cable, sustaining, subscription,
sponsored
<PAGE>
38
and direct satellite broadcast, in theaters, nontheatrically, on cassettes,
cartridges and discs and by any and all other scientific, mechanical or
electronic means, methods, processes or devices now known or hereafter
conceived, devised or created.
"PROGRAMMING AMORTIZATION" means, for any period, that portion of all
of the Programming Rights of the Subsidiaries of Fox Kids that are expensed
on the Consolidated statement of operations of Fox Kids and its
Subsidiaries for such period.
"PROGRAMMING LIABILITIES" means all outstanding Indebtedness of the
type described in clause (b) of the definition of "Indebtedness" set forth
in this Section 1.01 that is incurred by any of the Borrowers or any of
their respective Subsidiaries to acquire, produce, exhibit, syndicate,
exploit, license or distribute television films or other programming in the
ordinary course of business.
"PROGRAMMING RIGHTS" means the rights to distribute, exhibit,
syndicate and exploit television films and other programming acquired by
any of the Subsidiaries of Fox Kids under license agreements and other
similar arrangements for use on the cable networks of IFE or any of the
other Subsidiaries of Fox Kids and for distribution and relicensing to
other Persons, which rights shall include the costs of programming
(including films-in-progress) and allocated overhead (which shall be
capitalized as incurred).
"REDEEMABLE" means, with respect to any Equity Interest, any
Indebtedness or any other right or Obligation, any such Equity Interest,
Indebtedness, right or Obligation that (a) the issuer has undertaken to
redeem at a fixed or determinable date or dates, whether by operation of a
sinking fund or otherwise, or upon the occurrence of a condition not solely
within the control of the issuer or (b) is redeemable at the option of the
holder.
"REFERENCE BANKS" means Citibank, Chase Manhattan Bank and BankBoston
or, in the event that any of such commercial banks ceases to be a Lender at
any time, any other commercial bank designated by Holdings and approved by
the Required Lenders as constituting a "Reference Bank" hereunder.
"REFINANCING" has the meaning specified in Preliminary Statement (3)
to this Agreement.
"REGISTER" has the meaning specified in Section 9.08(d).
"RELATED DOCUMENTS" means the Exchange Agreement, the Funding
Agreement, the NPAL Charter Amendment, the Stockholders Agreement, the
Series A Certificate of Designation, the FBC Subordinated Notes Documents
and the NAHI Subordinated Notes Documents and each of the other
instruments, agreements or documents (other than correspondence) setting
forth the terms of or otherwise relating to the Refinancing.
"REQUIRED LENDERS" means, at any time, Lenders owed or holding not
less than a majority in interest of the sum of (a) the aggregate principal
amount of all Advances outstanding at such time, (b) the aggregate unused
Term Commitments at such time and (c) the aggregate Unused Revolving Credit
Commitments at such time; provided, however, that if any of the Lenders
shall be a Defaulting Lender at such time, there shall be excluded from the
determination
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39
of Required Lenders at such time (i) the aggregate principal amount of all
Advances owing to such Defaulting Lender and outstanding at such time, (ii)
the unused portion of the Term Commitment of such Defaulting Lender at such
time and (iii) the Unused Revolving Credit Commitment of such Defaulting
Lender at such time.
"REQUIRED PRINCIPAL PAYMENTS" means, with respect to any Person for
any period, the sum of all regularly scheduled principal payments or
redemptions and all required prepayments, repurchases, redemptions or
similar acquisitions for value of outstanding Funded Indebtedness made
during such period, but excluding any such payments to the extent
refinanced through the incurrence of additional Indebtedness otherwise
expressly permitted under Section 5.02(b)(iii)(N).
"REQUIREMENTS OF LAW" means, with respect to any Person, all laws,
constitutions, statutes, treaties, ordinances, rules and regulations, all
orders, writs, decrees, injunctions, judgments, determinations or awards of
an arbitrator, a court or any other Governmental Authority, and all
Governmental Authorizations, binding upon or applicable to such Person or
to any of its properties, assets or businesses.
"RESIDUALS" means all amounts payable by any of the Borrowers or any
of their respective Subsidiaries pursuant to guild agreements or collective
bargaining agreements in connection with the exhibition, syndication,
exploitation or distribution of any item of Product.
"RESPONSIBLE OFFICER" means, with respect to Fox Kids or any of its
Subsidiaries, the chief executive officer, the president, the chief
financial officer, the principal accounting officer or the treasurer (or
the equivalent of any of the foregoing) or any other officer, partner or
member (or person performing similar functions) of Fox Kids or any such
Subsidiary responsible for overseeing the administration of, or reviewing
compliance with, all or any portion of this Agreement or any of the other
Loan Documents.
"RESTRICTED SUBSIDIARY" means (a) any of the wholly owned Domestic
Subsidiaries or (b) at the option of Holdings, any of the other
Subsidiaries of Holdings (other than any of the other Borrowers) (i) that
executes and delivers a Guarantee Supplement and a Pledge Agreement
Supplement, (ii) in which 100% of the issued and outstanding Equity
Interests are pledged to the Administrative Agent, on behalf of the Secured
Parties, pursuant to the applicable Collateral Documents and (iii) that
delivers such other agreements, opinions, certificates and other documents
as the Administrative Agent, or the Required Lenders through the
Administrative Agent, shall reasonably request; provided, however, that
none of the Special Purpose Vehicles shall constitute a Restricted
Subsidiary.
"REVOLVING CREDIT ADVANCES" has the meaning specified in Section
2.01(a).
"REVOLVING CREDIT BORROWING" means a borrowing consisting of
simultaneous Revolving Credit Advances of the same Type made by (or, in the
case of the Existing Revolving Credit Advances, deemed to have been made
by) the Revolving Credit Lenders.
"REVOLVING CREDIT COMMITMENT" means, with respect to any of the
Revolving Credit Lenders at any time, the amount set forth opposite such
Revolving Credit Lender's name on Part B of Schedule I hereto under the
caption "Revolving Credit Commitment" or, if such Revolving
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40
Credit Lender has entered into one or more Assignments and Acceptances, the
amount set forth for such Revolving Credit Lender in the Register
maintained by the Administrative Agent pursuant to Section 9.08(d) as such
Revolving Credit Lender's "Revolving Credit Commitment", as such amount may
be reduced at or prior to such time pursuant to Section 2.04.
"REVOLVING CREDIT FACILITY" means, at any time, the aggregate
Revolving Credit Commitments of all of the Revolving Credit Lenders at such
time.
"REVOLVING CREDIT LENDER" means, at any time, any of the Lenders that
has a Revolving Credit Commitment at such time.
"REVOLVING CREDIT NOTE" means a promissory note of an Appropriate
Borrower payable to the order of any of the Revolving Credit Lenders, in
substantially the form of Exhibit A-1 hereto, evidencing the aggregate
indebtedness of such Appropriate Borrower to such Revolving Credit Lender
resulting from the Revolving Credit Advances made by (or, in the case of
the Existing Revolving Credit Advances, deemed to have been made by) such
Revolving Credit Lender.
"RIGHTS IN PRODUCT" means (a) any right, whether arising under written
contracts or otherwise, to sell, produce, distribute, subdistribute,
exhibit, syndicate, lease, sublease, license, sublicense or otherwise
exploit any item of Product, including rights under so-called "pick up"
arrangements and other contracts and agreements relating to the acquisition
of any item of Product or any interest therein in any market, including the
theatrical, nontheatrical, stage, television (including broadcast, cable
and pay television) and home markets, whether by film, videotape, cassette
cartridge or disc or by any other means, method, process or device now
known or hereafter developed, (b) any right to sell trailer and advertising
accessories relating to any item of Product, (c) any sequel, series,
serial, reissue or re-make rights relating to any item of Product and (d)
any rights to exploit any element or component of any item of Product or
any ancillary rights relating to any item of Product, including
merchandising and character rights, stage rights, sound track recording
rights and music publishing rights relating to any music embodied in or
written for any item of Product, including the right to grant licenses to
print, perform or mechanically reproduce such music.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"SABAN" has the meaning specified in the recital of parties to this
Agreement.
"SABAN GROUP" means, collectively, Haim Saban, Celia Enterprises L.P.,
a California limited partnership, Merlot Investments, a California general
partnership, Silverlight Enterprises, L.P., a California limited
partnership, and Quartz Enterprises L.P., a California limited partnership.
"SECURED OBLIGATIONS" has the meaning specified in Section 2 of the
Pledge and Assignment Agreement.
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41
"SECURED PARTIES" means, collectively, the Agents, the Lenders, the
Hedge Banks and the other Persons, if any, the Obligations owing to which
are or are purported to be secured by the Collateral under the terms of the
Collateral Documents.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
regulations promulgated and the rulings issued thereunder.
"SENIOR LEVERAGE RATIO" means, with respect to Holdings and its
Subsidiaries at any date of determination, the ratio of (a) Adjusted Funded
Indebtedness of Holdings and its Subsidiaries at such date to (b)
Consolidated EBITDA of Holdings and its Subsidiaries for the most recently
completed Measurement Period prior to such date.
"SENIOR NOTES" means, collectively, (a) the 9-1/4% senior notes due
2007 in an aggregate principal amount of $475,000,000 to be issued and sold
by Fox Kids on or prior to the Effective Date pursuant to the terms of the
applicable Senior Notes Indenture and (a) the 10-1/4% senior discount notes
due 2007 having an accreted value on the date of purchase of $375,000,634
(and an aggregate principal amount at maturity of $618,670,000) to be
issued and sold by Fox Kids on or prior to the Effective Date pursuant to
the terms of the applicable Senior Notes Indenture.
"SENIOR NOTES DOCUMENTS" means the Senior Notes Indentures, the Senior
Notes and all of the other agreements, instruments and other documents
pursuant to which the Senior Notes will be issued or otherwise setting
forth the terms of the Senior Notes, in each case as such agreement,
instrument or other document may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof, but to the
extent permitted under the terms of the Loan Documents.
"SENIOR NOTES INDENTURES" means, collectively, (a) the Indenture dated
on or about the Effective Date between Fox Kids and The Bank of New York,
as Trustee, and (b) the Indenture dated on or about the Effective Date
between Fox Kids and The Bank of New York, as Trustee, in each case as such
agreement, instrument or document may be amended, supplemented or otherwise
modified hereafter from time to time in accordance with the terms thereof,
but to the extent permitted under the terms of the Loan Documents.
"SERIES A CERTIFICATE OF DESIGNATION" means the Certificate of
Designation of the Series A Preferred Stock, which describes the
designation and amount thereof and the voting powers, preferences and
relative, participating, optional and other special rights of the shares of
such series and the qualifications, limitations and restrictions thereof,
as amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof, but to the extent permitted under the
terms of the Loan Documents.
"SERIES A PREFERRED STOCK" means the 345,000 shares of Series A
Preferred Stock of Fox Kids, par value $0.001 per share, issued to Liberty
IFE, Inc. in exchange for all of the Equity Interests in Pre-Merger IFE
owned thereby and all Indebtedness of Pre-Merger IFE owing thereto.
"SINGLE EMPLOYER PLAN" means a single employer plan (as defined in
Section 4001(a)(15) of ERISA) that (a) is maintained for employees of any
of the Loan Parties or any of the ERISA
<PAGE>
42
Affiliates and no Person other than the Loan Parties and the ERISA
Affiliates or (b) was so maintained and in respect of which any of the Loan
Parties or any of the ERISA Affiliates could reasonably be expected to have
liability under Section 4069 of ERISA in the event such plan has been or
were to be terminated.
"SOLVENT" means, with respect to any Person on any date of
determination, that, on such date:
(a) the fair value of the property and assets of such Person is
greater than the total amount of liabilities (including, without
limitation, contingent liabilities) of such Person;
(b) the present fair salable value of the property and assets of
such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become
absolute and matured;
(c) such Person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such Person's ability to pay
such debts and liabilities as they mature; and
(d) such Person is not engaged in business or in a transaction,
and is not about to engage in business or in a transaction, for which
such Person's property and assets would constitute an unreasonably
small capital.
The amount of contingent and unliquidated liabilities at any time shall be
computed as the amount that, in the light of all of the facts and
circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability. In
addition, unmatured Obligations of any Person under any executory contract
(including, without limitation, leases) shall, subject to the limitations
set forth in the immediately preceding sentence, be considered a "net
liability" to the extent that, at any date of determination, the Fair
Market Value of the consideration to be received by such Person pursuant to
such executory contract is less than the Fair Market Value of the
consideration to be given by such Person pursuant to such executory
contract and shall be considered a "net asset" to the extent that, at any
date of determination, the Fair Market Value of the consideration to be
received by such Person pursuant to such executory contract is greater than
the Fair Market Value of the consideration to be given by such Person
pursuant to such executory contract.
"SPECIAL ASSETS" means rights of every kind and nature in and to
literary, trademark, service mark, literary property, personal property,
photograph, name, likeness, character, motion picture, musical, dramatic or
other literary material of any kind or nature upon which, in whole or in
part, any item of Product is or may be based or from which it is or may be
adapted or inspired, or which may be or have been used or included in such
item of Product, including, without limitation, the screenplays therefor
and all other scripts, scenarios, screenplays, bibles, scores, treatments,
novels, outlines, books, play titles, characters, concepts, manuscripts,
music, musical compositions, and sound and related rights and copyrights of
every kind or nature in such literary or music property, in whatever state
of completion, and all drafts, versions and variations
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43
thereof, and merchandising and licensing rights therefor, including,
without limitation, in trademarks.
"SPECIAL PURPOSE VEHICLE" means any Person that is not, and is not
required under the terms of the Loan Documents to be, a Loan Party (a)
which has been organized for the sole purpose of effecting one or more
Permitted Film Financings and acquiring, producing, exhibiting,
syndicating, exploiting or distributing television films and other
programming with the proceeds thereof, (b) which has no property, assets or
liabilities other than those directly acquired or incurred in connection
with such Permitted Film Financings, (c) all of the liabilities and other
Obligations of which are nonrecourse for the payment or performance thereof
to any other Person (including, without limitation, any of the Loan
Parties) and (d) the legal structure and capitalization of which has been
approved by the Administrative Agent, such approval not to be unreasonably
withheld or delayed.
"STOCKHOLDERS AGREEMENT" means the Amended and Restated Strategic
Stockholders Agreement dated as of August 1, 1997 by and among Haim Saban,
each of the Persons listed on Schedule A thereto, FBC, FBC Sub and Allen &
Company Incorporated, as such agreement may be further amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof, but to the extent permitted under the terms of the Loan
Documents.
"SUBSIDIARIES GUARANTEE" has the meaning specified in Section
3.01(i)(xi).
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, joint venture, limited liability company, unlimited liability
company, trust or estate of which (or in which) more than 50% of:
(a) the issued and outstanding shares of capital stock having
ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether at the time shares of
capital stock of any other class or classes of such corporation shall
or might have voting power upon the occurrence of any contingency);
(b) the interest in the capital or profits of such partnership,
joint venture, limited liability company or unlimited liability
company; or
(c) the beneficial interest in such trust or estate,
is at the time, directly or indirectly, owned or controlled by such Person,
by such Person and one or more of its other Subsidiaries or by one or more
of such Person's other Subsidiaries.
"SUBSTITUTE RATE" has the meaning specified in Section 2.09(e).
"SURVIVING INDEBTEDNESS" means all of the Indebtedness of the Loan
Parties and their Subsidiaries in existence on the Effective Date and not
prepaid, redeemed, defeased or otherwise satisfied in full on such date.
"TAXES" has the meaning specified in Section 2.11(a).
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44
"TERM ADVANCE" has the meaning specified in Section 2.01(b).
"TERM BORROWING" means a borrowing consisting of simultaneous Term
Advances of the same Type made by (or, in the case of the Existing Term
Advances, purchased and assumed by) the Term Lenders.
"TERM COMMITMENT" means, with respect to any of the Term Lenders at
any time, the amount set forth opposite such Term Lender's name on Part B
of Schedule I hereto under the caption "Term Commitment" or, if such Term
Lender has entered into one or more Assignments and Acceptances, the amount
set forth for such Term Lender in the Register maintained by the
Administrative Agent pursuant to Section 9.08(d) as such Term Lender's
"Term Commitment", as such amount may be reduced at or prior to such time
pursuant to Section 2.04.
"TERM FACILITY" means, at any time, the aggregate Term Commitments of
all of the Term Lenders at such time.
"TERM LENDER" means, at any time, any of the Lenders that has a Term
Commitment at such time.
"TERM NOTE" means a promissory note of IFE payable to the order of any
of the Term Lenders, in substantially the form of Exhibit A-2 hereto,
evidencing the aggregate indebtedness of IFE to such Term Lender resulting
from the Term Advances made by (or, in the case of the Existing Term
Advances, purchased and assumed by) such Term Lender.
"TERMINATION DATE" means the earlier of (a) September 29, 2004 and (b)
the date of termination in whole of the Revolving Credit Commitments and
the Term Commitments pursuant to Section 2.04 or 7.01.
"TNCL" means The News Corporation Limited, a corporation organized and
existing under the laws of South Australia, Australia.
"TNCL GROUP" means TNCL and its Subsidiaries; provided that, for
purposes of this definition, the Subsidiaries of TNCL shall also include
Twentieth Holdings Corporation and its Subsidiaries and any other Person in
which more than a majority in interest of the combined voting power of all
of the Voting Interests in such Person (on a fully diluted basis) are owned
directly or indirectly by the Murdoch Family.
"TNCL GROUP SUBORDINATED NOTES" means, collectively, the FBC
Subordinated Notes, the NAHI Subordinated Notes and the Permitted Affiliate
Subordinated Notes.
"TOTAL LEVERAGE RATIO" means, with respect to Fox Kids and its
Subsidiaries at any date of determination, the ratio of (a) Adjusted Funded
Indebtedness of Fox Kids and its Subsidiaries at such date to (b)
Consolidated EBITDA of Fox Kids and its Subsidiaries for the most recently
completed Measurement Period prior to such date.
"TRANSACTION" means, collectively, (a) the organization of Holdings
and the issuance of all of the Equity Interests therein to Fox Kids, (b)
the issuance and sale of the Senior Notes, (c)
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45
the consummation of the Refinancing, (d) the entering into by Fox Kids and
certain of its Subsidiaries of the Loan Documents and the Related Documents
to which they are or are intended to be a party, (e) the repayment of
certain outstanding principal of, and accrued and unpaid interests on, the
Existing NAHI Subordinated Notes and (f) the payment of the fees and
expenses incurred in connection with the consummation of the foregoing.
"T.V.10" means T.V.10 B.V., a Netherlands limited company and an
indirect Subsidiary of Saban.
"TYPE" refers to the distinction between Advances bearing interest at
the Base Rate and Advances bearing interest at the Eurodollar Rate.
"U.K./FKE PLEDGE AGREEMENT" has the meaning specified in Section
3.01(i)(ix)(B).
"U.K./SABAN U.K. PLEDGE AGREEMENT" has the meaning specified in
Section 3.01(i)(ix)(A).
"UNRESTRICTED SUBSIDIARY" means, at any time, any of the Subsidiaries
of Holdings that does not constitute a Borrower or a Restricted Subsidiary
at such time; provided, however, that none of the Special Purpose Vehicles
shall constitute an Unrestricted Subsidiary.
"UNUSED REVOLVING CREDIT COMMITMENT" means, with respect to any of the
Revolving Credit Lenders at any time, (a) the Revolving Credit Commitment
of such Revolving Credit Lenders at such time less (b) the aggregate
principal amount of all Revolving Credit Advances made by (or, in the case
of the Existing Revolving Credit Advances, deemed to have been made by)
such Revolving Credit Lender and outstanding at such time.
"VOTING EQUITY INTERESTS" has the meaning specified in Section
5.02(j)(iv).
"VOTING INTERESTS" means shares of capital stock issued by a
corporation, or equivalent Equity Interests in any other Person, the
holders of which are ordinarily, in the absence of contingencies, entitled
to vote for the election of directors (or persons performing similar
functions) of such Person, even if the right so to vote has been suspended
by the happening of such a contingency.
"WITHDRAWAL LIABILITY" has the meaning specified in Part I of Subtitle
E of Title IV of ERISA.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
---------------------------
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including", the word "through" means "through
and including" and the words "to" and "until" each mean "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
----------------
specifically defined herein shall be construed in accordance with GAAP;
provided, however, that, if any changes in accounting principles from those used
in the preparation of the Consolidated financial statements of Fox Kids and its
Subsidiaries or Holdings and its Subsidiaries for the Fiscal Quarter ending
December 31, 1997 (as are
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46
delivered to the Lenders pursuant to Section 7(i)(i) of the Fox Kids Guarantee
or Section 5.03(b) hereof, respectively) occur by reason of the promulgation of
rules, regulations, pronouncements, opinions or other requirements of the
Financial Accounting Standards Board or the American Institute of Certified
Public Accountants (or successors thereto or agencies with similar functions)
and such changes would affect (or would result in a change in the method of
calculation of) any of the covenants set forth in Section 8(b)(ii)(D) of the Fox
Kids Guarantee or Section 5.02 or 5.04 hereof, or any of the defined terms
related thereto contained in Section 1.01 hereof, then Fox Kids or Holdings, as
applicable, shall enter into negotiations in good faith with the Administrative
Agent and the Lenders, if and to the extent necessary, to amend in accordance
with Section 9.01 all such covenants or terms as would be affected by such
changes in GAAP in such a manner as would maintain the economic terms of such
covenants as in effect under the Fox Kids Guarantee or this Agreement, as the
case may be, prior to giving effect to the occurrence of any such changes; and
provided further, however, that, until the amendment of the covenants and the
defined terms referred to in the immediately preceding proviso becomes
effective, all covenants and defined terms shall be performed, observed and
determined, and any determination of compliance with any such covenant shall be
made, as though no such changes in accounting principles had been made.
SECTION 1.04. Currency Equivalents Generally. Any amount specified in
------------------------------
this Agreement (other than in Articles II, VIII and IX) or any of the other Loan
Documents to be in U.S. dollars shall also include the equivalent of such amount
in any currency other than U.S. dollars, such equivalent amount to be determined
at the rate of exchange quoted by Citibank in New York, New York, at the close
of business on the Business Day immediately preceding any date of determination
thereof, to prime banks in New York, New York for the spot purchase in the New
York foreign exchange market of such amount in U.S. dollars with such other
currency.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances. (a) The Revolving Credit Advances.
------------ -----------------------------
Each of the Existing Revolving Credit Lenders will, as of the Effective Date,
sell and assign to the other Revolving Credit Lenders an interest in and to all
of its respective rights and obligations under and in respect of the Existing
Revolving Credit Advances set forth opposite such Existing Revolving Credit
Lender's name on Part A of Schedule I hereto under the caption "Existing
Revolving Credit Advances", and each of the other Revolving Credit Lenders will
purchase and assume that portion of such Existing Revolving Credit Advances set
forth opposite such other Revolving Credit Lender's name on Part A of Schedule I
hereto under the caption "Existing Revolving Credit Advances". Each of the
Revolving Credit Lenders severally agrees, on the terms and conditions
hereinafter set forth, to make advances (each, a "REVOLVING CREDIT ADVANCE") in
U.S. dollars to the Borrowers from time to time on any Business Day during the
period from the date of this Agreement until the Termination Date in an amount
for each such Revolving Credit Advance not to exceed the Unused Revolving Credit
Commitment of such Revolving Credit Lender at such time. The Existing Revolving
Credit Advances referred to opposite the name of such Revolving Credit Lender on
Part A of Schedule I hereto and outstanding on the Effective Date shall be
deemed to be Revolving Credit Advances for all purposes of this Agreement. Each
of the Revolving Credit Borrowings shall be in an aggregate amount of
$10,000,000 or an integral multiple of $1,000,000 in excess thereof (or, if
less, the amount of the aggregate Unused Revolving Credit Commitments). Each
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47
of the Revolving Credit Borrowings shall consist of Revolving Credit Advances
made simultaneously by the Revolving Credit Lenders in accordance with their
respective Pro Rata Shares of the Revolving Credit Facility. Within the limits
of the Unused Revolving Credit Commitment of each of the Revolving Credit
Lenders in effect from time to time, each of the Borrowers may borrow under this
Section 2.01(a), prepay pursuant to Section 2.05(a) and reborrow under this
Section 2.01(a).
(b) The Term Advances. Each of the Existing Term Lenders will, as of
-----------------
the Effective Date, sell and assign to the other Term Lenders an interest in and
to all of its respective rights and obligations under and in respect of the
Existing Term Advances set forth opposite such Existing Term Lender's name on
Part A of Schedule I hereto under the caption "Existing Term Advances", and each
of the other Term Lenders will purchase and assume that portion of such Existing
Term Advances set forth opposite such other Term Lender's name on Part A of
Schedule I hereto under the caption "Existing Term Advances". Each of the Term
Lenders severally agrees, on the terms and conditions hereinafter set forth, to
make a single advance (a "TERM ADVANCE") in U.S. dollars to IFE on the Effective
Date in an amount not to exceed the excess, if any, of (i) the Term Commitment
of such Term Lender on the Effective Date over (ii) the aggregate principal
amount of the Existing Term Advances retained, or purchased and assumed, by such
Term Lender on the Effective Date. The Existing Term Advances set forth
opposite such Term Lender's name on Part A of Schedule I hereto and outstanding
on the Effective Date shall be deemed to be Term Advances for all purposes of
this Agreement. The Term Borrowing made on the Effective Date shall consist of
Term Advances made simultaneously by the Term Lenders in accordance with their
respective Pro Rata Shares of the Term Facility. Amounts borrowed under this
Section 2.01(b) and repaid or prepaid may not be reborrowed.
SECTION 2.02. Making the Advances. (a) Notices of Borrowing. Each
------------------- --------------------
of the Borrowings shall be made on notice, given not later than 11:00 A.M. (New
York City time) on the third Business Day prior to the date of the proposed
Borrowing in the case of a Borrowing comprised of Eurodollar Rate Advances or on
the first Business Day prior to the date of the proposed Borrowing in the case
of a Borrowing comprised of Base Rate Advances by an Appropriate Borrower to the
Administrative Agent, which shall give prompt notice thereof to each of the
Appropriate Lenders by telex or telecopier. Each notice of a Borrowing (a
"NOTICE OF BORROWING") shall be delivered by telephone, confirmed immediately in
writing, or by telex or telecopier, in substantially the form of Exhibit B-1
hereto, shall be duly executed by a Responsible Officer of such Appropriate
Borrower, and shall specify therein:
(i) the requested date of such Borrowing (which shall be a Business
Day);
(ii) the Facility under which such Borrowing is requested to be made;
(iii) the Type of Advances requested to comprise such Borrowing;
(iv) the requested aggregate amount of such Borrowing; and
(v) in the case of a Borrowing comprised of Eurodollar Rate Advances,
the requested duration of the initial Interest Period for each such Advance
(and, if the requested duration of such initial Interest Period is
specified to be nine months, the desired alternative Interest Period for
each such Eurodollar Rate Advance).
<PAGE>
48
Each of the Appropriate Lenders shall, before 1:00 P.M. (New York City time) on
the date of each Borrowing, make available for the account of its Applicable
Lending Office to the Administrative Agent at the Administrative Agent's
Account, in same day funds, such Lender's Pro Rata Share of such Borrowing.
After the Administrative Agent's receipt of such funds and upon fulfillment of
the applicable conditions set forth in Article III, the Administrative Agent
will make such funds available to the Borrower that requested such Borrowing by
crediting the Appropriate Borrower's Account.
(b) Limitations on Borrowings. Anything in Section 2.02(a) to the
-------------------------
contrary notwithstanding, none of the Borrowers may select Eurodollar Rate
Advances for any Borrowing if the aggregate amount of such Borrowing is less
than $5,000,000 or if the obligation of the Appropriate Lenders to make
Eurodollar Rate Advances shall then be suspended pursuant to Section 2.08 or
2.09. In addition, the Revolving Credit Advances may not be outstanding as part
of more than eight separate Revolving Credit Borrowings and the Term Advances
may not be outstanding as part of more than eight separate Term Borrowings.
(c) Binding Effect of Notices of Borrowing. Each Notice of Borrowing
--------------------------------------
shall be irrevocable and binding on the Borrower that requested such Borrowing.
In the case of any Borrowing that the related Notice of Borrowing specifies is
to be comprised of Eurodollar Rate Advances, the Borrower that requested such
Borrowing shall indemnify each of the Appropriate Lenders against any loss, cost
or expense incurred by such Lender as a result of any failure to fulfill on or
before the date specified in the Notice of Borrowing for such Borrowing the
applicable conditions set forth in Article III, including, without limitation,
any loss (including loss of anticipated profits other than any amount
attributable solely to the Applicable Margin), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such Lender to fund the Advance to be made by such Lender as part of such
Borrowing when such Advance, as a result of such failure, is not made on such
date.
(d) Assumption of Administrative Agent. Unless the Administrative
----------------------------------
Agent shall have received notice from an Appropriate Lender prior to the date of
any Borrowing under a Facility under which such Lender has a Commitment that
such Lender will not make available to the Administrative Agent such Lender's
Pro Rata Share of such Borrowing, the Administrative Agent may assume that such
Lender has made such Pro Rata Share available to the Administrative Agent on the
date of such Borrowing in accordance with subsection (a) of this Section 2.02
and the Administrative Agent may, in reliance upon such assumption, make
available to the Borrower that requested such Borrowing on such date a
corresponding amount. If and to the extent that such Lender shall not have so
made such Pro Rata Share available to the Administrative Agent, such Lender and
the Borrower that requested such Borrowing severally agree to repay or to pay to
the Administrative Agent forthwith on demand such corresponding amount, together
with interest thereon, for each day from the date such amount is made available
to such Borrower until the date such amount is repaid or paid to the
Administrative Agent, at (i) in the case of such Borrower, the interest rate
applicable at such time under Section 2.06 to Advances comprising part of such
Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such
Lender shall pay to the Administrative Agent such corresponding amount, such
amount so paid shall constitute such Lender's Advance as part of such Borrowing
for all purposes under this Agreement.
(e) Failure to Make Advances. The failure of any Lender to make the
------------------------
Advance to be made by it as part of any Borrowing shall not relieve any other
Lender of its obligation, if any, hereunder to make its Advance on the date of
such Borrowing, but no Lender shall be responsible for
<PAGE>
49
the failure of any other Lender to make the Advance to be made by such other
Lender on the date of any Borrowing.
SECTION 2.03. Repayment of Advances. (a) Revolving Credit Advances.
--------------------- -------------------------
Each of the Borrowers shall repay to the Administrative Agent for the ratable
account of the Revolving Credit Lenders on the Termination Date the aggregate
principal amount of all of the Revolving Credit Advances made to such Borrower
and outstanding on such date.
(b) Term Advances. IFE shall repay to the Administrative Agent for
-------------
the ratable account of the Term Lenders the aggregate principal amount of the
Term Advances outstanding on the following dates in an amount equal to the
percentage of the aggregate principal amount of all of the Term Advances
outstanding on the Effective Date (after giving effect to the Term Borrowing, if
any, made on the Effective Date) set forth opposite such dates (in each case
which amounts shall be reduced as a result of the application of prepayments in
accordance with the order of priority set forth in Section 2.05):
<TABLE>
<CAPTION>
DATE PERCENTAGE
---- ----------
<S> <C>
December 30, 1999 2.50%
March 30, 2000 2.50%
June 29, 2000 2.50%
September 29, 2000 2.50%
December 28, 2000 5.00%
March 29, 2001 5.00%
June 28, 2001 5.00%
September 27, 2001 5.00%
December 28, 2001 5.00%
March 28, 2002 5.00%
June 27, 2002 5.00%
September 27, 2002 5.00%
December 30, 2002 6.25%
March 29, 2003 6.25%
June 27, 2003 6.25%
September 29, 2003 6.25%
December 30, 2003 6.25%
March 30, 2004 6.25%
June 29, 2004 6.25%
September 29, 2004 6.25%
</TABLE>
provided, however, that, notwithstanding the foregoing provisions of this
Section 2.03(b), the final principal repayment installment of the Term Advances
shall be repaid in full on the Termination Date and in any event shall be in an
amount equal to the aggregate principal amount of all Term Advances outstanding
on such date.
<PAGE>
50
SECTION 2.04. Termination or Reduction of the Commitments. (a)
-------------------------------------------
Optional. The Appropriate Borrowers, upon at least three Business Days' notice
- --------
to the Administrative Agent, may terminate in whole or reduce in part the unused
portion of the Term Commitments or the Unused Revolving Credit Commitments;
provided, however, that each partial reduction of either of the Facilities shall
be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in
excess thereof or, if less, the aggregate amount of such Facility. Each
reduction of the unused portions of the Term Commitments pursuant to this
Section 2.04(a) shall be applied first, to the next two succeeding principal
repayment installments of the Term Facility in direct order of maturity until
such principal repayment installments are repaid in full and second, to the
remaining principal repayment installments of the Term Facility on a pro rata
basis. Each reduction of the Unused Revolving Credit Commitments pursuant to
this Section 2.04(a) shall be applied first, to the next two succeeding
scheduled commitment reduction installments of the Revolving Credit Facility in
direct order of maturity until such scheduled commitment reduction installments
are reduced in full and second, to the remaining scheduled commitment reduction
installments of the Revolving Credit Facility on a pro rata basis.
(b) Mandatory. (i) On the Effective Date, after giving effect to the Term
---------
Borrowing, if any, to be made on such date, and from time to time thereafter
upon each repayment or prepayment of the Term Advances, the Term Facility shall
be automatically and permanently reduced by an amount equal to the amount by
which the Term Facility immediately prior to such reduction exceeds the
aggregate unpaid principal amount of the Term Advances outstanding at such
time.
(ii) The Revolving Credit Facility shall be automatically and permanently
reduced on the following dates in an amount equal to the percentage of the
aggregate Revolving Credit Commitments of the Revolving Credit Lenders on the
Effective Date set forth opposite such dates (after giving effect to all
reductions in such amounts on or prior to any such date as a result of the
application of commitment reductions in accordance with the order of priority
set forth in subsection (a) of this Section 2.04 or clause (iii), (iv) or (v) of
this Section 2.04(b)).
<TABLE>
<CAPTION>
DATE PERCENTAGE
---- ----------
<S> <C>
December 28, 2001 3.75%
March 28, 2002 3.75%
June 27, 2002 3.75%
September 27, 2002 3.75%
December 30, 2002 3.75%
March 29, 2003 3.75%
June 27, 2003 3.75%
September 29, 2003 3.75%
December 30, 2003 17.50%
March 30, 2004 17.50%
June 29, 2004 17.50%
September 29, 2004 17.50%
</TABLE>
<PAGE>
51
provided, however, that, notwithstanding the foregoing provisions of this
clause (ii), all of the Revolving Credit Commitments of the Revolving Credit
Lenders shall be terminated in whole on the termination Date
(iii) The Facilities shall be automatically and permanently reduced,
on the tenth day following each date on which Fox Kids deliver to the Lenders
the audited Consolidated financial statements of Fox Kids and its Subsidiaries
referred to in Section 7(i)(ii) of the Fox Kids Guarantee (but in any event
within 130 days after the end of each Fiscal Year), commencing with such audited
Consolidated financial statements for the Fiscal Year ending June 30, 1998, by
an amount equal to the product of (A) the ECF Percentage in effect on the last
day of the related Fiscal Year and (B) the amount of Excess Cash Flow for such
Fiscal Year. Each reduction of the Facilities pursuant to this clause
(iii) shall be applied in the manner set forth in clause (i) of Section 2.04(c).
(iv) The Facilities shall be automatically and permanently reduced, on
the date of receipt of the Net Cash Proceeds by Fox Kids or any of its
Subsidiaries from:
(A) the sale, lease, transfer or other disposition of any property or
assets of Fox Kids or any of its Subsidiaries (other than (1) any property
or assets expressly permitted to be sold, leased, transferred or disposed
of under any of clauses (i) through (v) of Section 5.02(d) or, solely to
the extent provided therein, clause (vi), (viii) or (ix) of Section 5.02(d)
or (2) any property or assets of any of the Excluded Fox Kids
Subsidiaries);
(B) the incurrence or issuance by Fox Kids or any of its Subsidiaries
of any Indebtedness (other than (1) Indebtedness expressly permitted to be
incurred or issued pursuant to clause (i) or (ii), or subclause
(iii)(A),(iii)(C) or (iii)(G), of Section 5.02(b) or, to the extent the
aggregate amount of gross proceeds from all Indebtedness of the Borrowers
and their respective Subsidiaries issued or incurred under subclause
(iii)(L) of Section 5.02(b) on or prior to such date does not exceed
$20,000,000, subclause (iii)(L) of Section 5.02(b) and (2) the Senior Notes
and Permitted Affiliated Subordinated Notes (unless all or any portion of
the proceeds thereof are specified in the related certificate of a
Responsible Officer of Fox Kids to be so applied));
(C) the issuance or sale by Fox Kids or any of its Subsidiaries of
any Equity Interests therein (other than any such issuance or sale of
Equity Interests in Fox Kids or any of its Subsidiaries pursuant to
subclause (v), (vi) or (vii) of Section 5.02(f) hereof or subsection (iii)
or (vi) (unless all or any portion of the proceeds of the issuance and sale
of such permitted Preferred Stock are specified in the related certificate
of a Responsible Officer of Fox Kids to be so applied) of Section 8(c) of
the Fox Kids Guarantee); and
(D) any Extraordinary Receipts received by or paid to or for the
account of Fox Kids or any of its Subsidiaries and not otherwise included
in subclause (iv)(A),(iv)(B) or (iv)(C) of this Section 2.04(b),
by an amount equal to the product of (1) the NCP Percentage in effect on the
date of receipt of such Net Cash Proceeds and (2) the amount of such Net Cash
Proceeds. Each reduction of the Facilities pursuant to this clause (iv) shall be
applied in the manner set forth in clause (i) of Section 2.04(c).
(v) Notwithstanding any of the other provisions of this Section 2.04,
<PAGE>
52
(A) if, following the occurrence of any "Asset Sale" (as defined in
the applicable Senior Notes Indenture), Fox Kids is required to commit by a
particular date (a "Commitment Date") to apply or to cause any of its
Subsidiaries to apply an amount equal to any of the "Net Cash Proceeds" (as
defined in the applicable Senior Notes Indenture) thereof in a particular
manner, or to apply or to cause any of its Subsidiaries to apply by a particular
date (an "Application Date") an amount equal to any such "Net Cash Proceeds" in
a particular manner, in either case in order to excuse Fox Kids from being
required to make an offer to redeem or to repurchase all or a portion of the
Senior Notes as a result of such "Asset Sale", and Fox Kids shall have failed to
so commit or to so apply, or to have caused any of its Subsidiaries to so commit
or to so apply, an amount equal to such "Net Cash Proceeds" at least 30 days
before the Commitment Date or the Application Date, as the case may be, or
(B) if Fox Kids at any other time shall have failed to apply or to
commit, or to have caused any of its Subsidiaries to apply or to commit, an
amount equal to any such "Net Cash Proceeds", and within 30 days thereafter
assuming no further application or commitment of an amount equal to such "Net
Cash Proceeds", Fox Kids would otherwise be required to make an offer to redeem
or to repurchase all or a portion of the Senior Notes as a result of such "Asset
Sale",
then, in either such case, the Facilities shall be automatically and permanently
reduced on such date by an amount equal to the product of (1) the NCP Percentage
in effect on such date and (2) the amount of such "Net Cash Proceeds" required
to excuse Fox Kids from making any such offer of redemption or repurchase. Each
reduction of the Facilities pursuant to this clause (v) shall be applied in the
manner set forth in clause (i) of Section 2.04(c).
(c) Application of Commitment Reductions. (i) Each reduction of the
------------------------------------
Facilities pursuant to clause (iii), (iv) or (v) of Section 2.04(b) shall be
applied first, to the next two succeeding principal repayment installments of
the Term Facility in direct order of maturity until such principal repayment
installments are repaid in full, second, to the remaining principal repayment
installments of the Term Facility on a pro rata basis, third, to the next two
succeeding scheduled commitment reduction installments of the Revolving Credit
Facility in direct order of maturity until such scheduled commitment reduction
installments are reduced in whole and fourth, to the remaining scheduled
commitment reduction installments of the Revolving Credit Facility on a pro rata
basis.
(ii) Upon each reduction of either of the Facilities pursuant to this
Section 2.04, the Commitment of each of the Appropriate Lenders under such
Facility shall be reduced by such Lenders Pro Rata Share of the amount by which
such Facility is reduced.
SECTION 2.05. Prepayments. (a) Optional. Each of the Appropriate
----------- --------
Borrowers may, upon at least three Business Days' notice to the Administrative
Agent stating the Facility under which Advances are proposed to be prepaid and
the proposed date and aggregate principal amount of the prepayment, and if such
notice is given such Borrower shall, prepay the aggregate principal amount of
Advances comprising part of the same Borrowing and outstanding on such date, in
whole or ratably in part; provided, however, that (i) each partial prepayment
shall be in an aggregate principal amount of $5,000,000 or an integral multiple
of $1,000,000 in excess thereof and (ii) in the case of any such prepayment of a
Eurodollar Rate Advance on a date other than the last day of an Interest Period
therefor, the Borrower making such prepayment shall also pay any amounts owing
in respect of such Eurodollar
<PAGE>
53
Rate Advance pursuant to Section 9.05(b). Each such prepayment of any Term
Advances shall be applied first, to the next two succeeding principal repayment
installments of the Term Facility in direct order of maturity until such
principal repayment installments are repaid in full and second, to the remaining
principal repayment installments of the Term Facility on a pro rata basis.
(b) Mandatory. (i) The Appropriate Borrowers shall, on each Business
---------
Day, prepay:
(A) an aggregate principal amount of the Term Advances comprising part
of the same Term Borrowings equal to the amount by which (1) the aggregate
principal amount of all Term Advances outstanding on such Business Day
exceeds (2) the Term Facility on such Business Day (after giving effect to
any permanent reduction thereof pursuant to Section 2.04 on such Business
Day), each such prepayment to be applied first, to the next two succeeding
principal repayment installments of the Term Facility in direct order of
maturity until such principal repayment installments are repaid in full and
second, to the remaining principal repayment installments of the Term
Facility on a pro rata basis; and
(B) an aggregate principal amount of the Revolving Credit Advances
comprising part of the same Revolving Credit Borrowings equal to the amount
by which (1) the aggregate principal amount of all Revolving Credit
Advances outstanding on such Business Day exceeds (2) the Revolving Credit
Facility on such Business Day (after giving effect to any permanent
reduction thereof pursuant to Section 2.04 on such Business Day), each such
prepayment to be applied first, to the next two succeeding scheduled
commitment reduction installments of the Revolving Credit Facility in
direct order of maturity until such scheduled commitment reduction
installments are reduced in full and second, to the remaining scheduled
commitment reduction installments of the Revolving Credit Facility on a pro
rata basis.
Any Excess Cash Flow or Net Cash Proceeds remaining after the application
thereof to the prepayment of Advances outstanding on the date of receipt thereof
pursuant to clause (iii), (iv) or (v) of Section 2.04(b) and this Section
2.05(b) may be retained by the applicable Borrower for use in its businesses and
operations in the ordinary course or as otherwise permitted under the terms of
this Agreement.
(ii) Notwithstanding any of the other provisions of this Section
2.05(b), so long as no Default under Section 7.01(a) or 7.01(f) or Event of
Default shall have occurred and be continuing, if any prepayment of Eurodollar
Rate Advances is required to be made under this Section 2.05(b) other than on
the last day of the Interest Period therefor, the Borrower to which such
Eurodollar Rate Advances were made may, in its sole discretion, deposit the
amount of any such prepayment otherwise required to be made hereunder into the
Cash Collateral Account of such Borrower until the last day of such Interest
Period, at which time the Administrative Agent shall be authorized (without any
further action by or notice to or from such Borrower) to apply such amount to
the prepayment of such Advances in accordance with this Section 2.05(b).
(c) Prepayments to Include Accrued Interest. All prepayments under
---------------------------------------
this Section 2.05 shall be made together with (i) accrued and unpaid interest to
the date of such prepayment on the principal amount so prepaid and (ii) in the
case of any such prepayment of a Eurodollar Rate Advance on a date other than
the last day of an Interest Period therefor, any amounts owing in respect of
such Eurodollar Rate Advance pursuant to Section 9.05(b).
<PAGE>
54
SECTION 2.06. Interest on Advances. (a) Scheduled Interest. Each
-------------------- ------------------
of the Borrowers shall pay interest on the unpaid principal amount of each
Advance made to such Borrower from the date of such Advance until such principal
amount shall be paid in full, at the following rates per annum:
(i) Base Rate Advances. During such periods as such Advance is a Base
------------------
Rate Advance, a rate per annum equal at all times to the sum of (A) the
Base Rate in effect from time to time and (B) the Applicable Margin for
such Advance in effect from time to time, payable in arrears quarterly on
the second Business Day prior to the last day of each December, March, June
and September during such periods and on the date such Base Rate Advance
shall be Converted or paid in full.
(ii) Eurodollar Rate Advances. During such periods as such Advance is
------------------------
a Eurodollar Rate Advance, a rate per annum equal at all times during each
Interest Period for such Advance to the sum of (A) the Eurodollar Rate for
such Advance for such Interest Period and (B) the Applicable Margin for
such Advance in effect on the first day of such Interest Period, payable in
arrears on the last day of such Interest Period and, if such Interest
Period has a duration of more than three months, on each day that occurs
during such Interest Period every three months from the first day of such
Interest Period and on the date such Eurodollar Rate Advance shall be
Converted or paid in full.
(b) Default Interest. Upon the occurrence and during the continuance
----------------
of a Default under Section 7.01(a) or 7.01(f) or an Event of Default, the
Borrowers shall pay interest on (i) the unpaid principal amount of each Advance
owing to each of the Lenders, payable in arrears on the dates referred to in
clause (i) or (ii) of Section 2.06(a), as applicable, and on demand, at a rate
per annum equal at all times to 2% per annum above the rate per annum required
to be paid on such Advance pursuant to clause (i) or (ii) of Section 2.06(a), as
applicable, and (ii) to the fullest extent permitted by applicable law, the
amount of any interest, fee or other amount payable under this Agreement or any
of the other Loan Documents that is not paid when due, from the date such amount
shall be due until such amount shall be paid in full, payable in arrears on the
date such amount shall be paid in full and on demand, at a rate per annum equal
at all times to 2% per annum above the rate per annum required to be paid, in
the case of interest, on the Type of Advance on which such interest has accrued
pursuant to clause (i) or (ii) of Section 2.06(a), as applicable, and, in all
other cases, on Base Rate Advances pursuant to clause (i) of Section 2.06(a).
(c) Information from Reference Banks. Each of the Reference Banks
--------------------------------
hereby agrees to furnish to the Administrative Agent timely information for the
purpose of determining each Eurodollar Rate. If any one of the Reference Banks
shall not furnish such timely information to the Administrative Agent for the
purpose of determining any such interest rate, the Administrative Agent shall
determine such interest rate on the basis of timely information furnished by the
remaining Reference Banks. If fewer than two Reference Banks furnish timely
information to the Administrative Agent for the purpose of determining the
Eurodollar Rate for any Eurodollar Rate Advances:
(i) the Administrative Agent shall forthwith notify the Borrower that
requested the Borrowing to have been comprised of such Eurodollar Rate
Advances and the Appropriate Lenders that the interest rate cannot be
determined for such Eurodollar Rate Advances;
<PAGE>
55
(ii) each such Eurodollar Rate Advance will automatically, on the last
day of the then existing Interest Period therefor, Convert into a Base Rate
Advance (or, if such Advance is then a Base Rate Advance, will continue as
a Base Rate Advance); and
(iii) the obligation of the Lenders to make Eurodollar Rate Advances,
or to Convert Advances into Eurodollar Rate Advances, shall be suspended
until the Administrative Agent shall notify the Borrowers and the Lenders
that the circumstances causing such suspension no longer exist.
(d) Notice of Interest Rate. Promptly after receipt of a Notice of
-----------------------
Borrowing pursuant to Section 2.02(a), the Administrative Agent shall give
notice to the Borrower that delivered such Notice of Borrowing and each of the
Appropriate Lenders of the applicable interest rate determined by the
Administrative Agent for purposes of clause (i) or (ii) of Section 2.06(a), as
applicable. If any Notice of Borrowing delivered pursuant to Section 2.02(a)
specifies that the requested duration of the initial Interest Period for the
Eurodollar Rate Advances to comprise the Borrowing requested therein is nine
months, then the Administrative Agent shall send written confirmation, given not
later than 11:00 A.M. (New York City time) on the second Business Day prior to
the date of such Borrowing, to each of the Appropriate Lenders, by telex or
telecopier, confirming the actual duration of the initial Interest Period for
all such Eurodollar Rate Advances determined in accordance with clause (c) of
the definition of "Interest Period" set forth in Section 1.01.
SECTION 2.07. Fees. (a) Commitment Fee. The Borrowers jointly and
---- --------------
severally agree to pay to the Administrative Agent for the account of the
Lenders a commitment fee (the "Commitment Fee"), from the Effective Date in the
case of each of the Initial Lenders and from the effective date specified in the
Assignment and Acceptance pursuant to which it became a Lender in the case of
each of the other Lenders until the Termination Date, payable in arrears
quarterly on the second Business Day prior to the last day of each December,
March, June and September, commencing December 30, 1997, and on the Termination
Date, at a rate per annum equal to the Applicable Percentage in effect from time
to time on the average daily unused portion of the Term Commitment of each of
the Term Lenders during such quarter and on the average daily Unused Revolving
Credit Commitment of each of the Revolving Credit Lenders during such quarter;
provided, however, that no Commitment Fee shall accrue on any of the Commitments
of a Defaulting Lender so long as such Lender shall be a Defaulting Lender.
(b) Administrative Agent's and Co-Arranger's Fees. The Borrowers
---------------------------------------------
shall pay to the Administrative Agent, for its own account and, if applicable,
the account of the Co-Arrangers, such fees as have been agreed in the fee letter
dated June 6, 1997 between Fox Kids, on behalf of itself and the other
Borrowers, and Citicorp Securities, on behalf of itself and the Administrative
Agent, and as may hereafter from time to time be agreed among one or more of the
Borrowers, on the one hand, and the Administrative Agent, on the other hand.
SECTION 2.08. Conversion of Advances. (a) Optional. Each of the
---------------------- --------
Borrowers may on any Business Day, upon notice given to the Administrative Agent
not later than 11:00 A.M. (New York City time) on the third Business Day prior
to the date of the proposed Conversion in the case of a Conversion of Base Rate
Advances into Eurodollar Rate Advances or of Eurodollar Rate Advances of one
Interest Period into Eurodollar Rate Advances of another Interest Period, or
11:00 A.M. (New York City time) on the Business Day immediately preceding the
date of the proposed Conversion in the case of a Conversion of Eurodollar Rate
Advances into Base Rate Advances, and subject to the provisions of
<PAGE>
56
Sections 2.06(c) and 2.09, Convert all or any portion of the Advances of one
Type comprising the same Borrowing into Advances of the other Type; provided,
however, that:
(i) any Conversion of Eurodollar Rate Advances into Base Rate Advances
shall be made only on the last day of an Interest Period for such
Eurodollar Rate Advances;
(ii) any Conversion of Base Rate Advances into Eurodollar Rate
Advances shall be made only if no Default under Section 7.01(a) or 7.01(f)
or Event of Default shall have occurred and be continuing on the date of
such Conversion and shall be in an amount not less than the minimum amount
specified in Section 2.02(b); and
(iii) each Conversion of Advances comprising part of the same
Borrowing under any Facility shall be made among the Appropriate Lenders in
accordance with their respective Pro Rata Shares of such Borrowing.
Each notice of a Conversion (a "NOTICE OF CONVERSION") shall be delivered by
telephone, confirmed immediately in writing, or by telex or telecopier, in
substantially the form of Exhibit B-2 hereto, shall be duly executed by a
Responsible Officer of such Appropriate Borrower, and shall, within the
restrictions set forth in the immediately preceding sentence, specify therein:
(A) the requested date of such Conversion (which shall be a Business
Day);
(B) the Advances requested to be Converted; and
(C) if such Conversion is into Eurodollar Rate Advances, the requested
duration of the Interest Period for such Eurodollar Rate Advances (and, if
the requested duration of such Interest Period is specified to be nine
months, the desired alternative Interest Period therefor).
The Administrative Agent shall give each of the Appropriate Lenders prompt
notice of each Notice of Conversion received by it, by telex or telecopier.
Each Notice of Conversion shall be irrevocable and binding on the Borrower that
requested such Conversion.
(b) Mandatory. (i) On the date on which the aggregate unpaid
---------
principal amount of Eurodollar Rate Advances comprising any Borrowing shall be
reduced, by payment, prepayment or otherwise, to less than $5,000,000, such
Eurodollar Rate Advances shall automatically Convert into Base Rate Advances.
(ii) If any of the Borrowers shall fail to select the duration of any
Interest Period for any Eurodollar Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" set forth in Section
1.01, the Administrative Agent will forthwith so notify such Borrower and the
Appropriate Lenders, whereupon each such Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Eurodollar Rate Advance with an Interest Period of one month.
(iii) Upon the occurrence and during the continuance of any Default
under Section 7.01(a) or 7.01(f) or any Event of Default, (A) each Eurodollar
Rate Advance will automatically, on the last day of the then existing Interest
Period therefor, Convert into a Base Rate Advance and (B) the
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57
obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended.
SECTION 2.09. Increased Costs, Etc. (a) If, due to either (i) the
--------------------
introduction of or any change (other than any change by way of the imposition of
or increase in reserve requirements included in the Eurodollar Rate Reserve
Percentage) in or in the interpretation or application of any Requirement of Law
after the date of this Agreement or (ii) the compliance with (A) any official
directive, guideline or request from any central bank or other Governmental
Authority or (B) any change therein or in the interpretation, application,
implementation, administration or enforcement thereof, that, in the case of
subclause (ii)(A) or (ii)(B) of this Section 2.09(a), becomes effective or is
issued or made after the date of this Agreement (whether or not having the force
of law), there shall be any increase in the cost to any of the Lenders of
agreeing to make or making, agreeing to participate in or participating in,
agreeing to renew or renewing or funding or maintaining any Advances of either
Type, or any reduction in the amount owing to any of the Lenders or their
respective Applicable Lending Offices under this Agreement in respect of any
Advances of either Type (excluding, for purposes of this Section 2.09, any such
increased costs resulting from (1) Taxes or Other Taxes (as to which Section
2.11 shall govern) and (2) changes in the basis of taxation of overall net
income or overall gross income by the United States of America or the
jurisdiction under the laws of which such Lender is organized or has either of
its Applicable Lending Offices or any political subdivision thereof), then the
Borrowers hereby jointly and severally agree to pay, from time to time upon
demand by such Lender (with a copy of such demand to the Administrative Agent),
to the Administrative Agent for the account of such Lender additional amounts
sufficient to compensate or to reimburse such Lender for all such increased
costs or reduced amounts. A certificate of the Lender requesting such
additional compensation pursuant to this Section 2.09(a), submitted to the
Borrowers by such Lender and specifying therein the amount of such additional
compensation (including the basis of calculation thereof), shall be conclusive
and binding for all purposes, absent manifest error.
(b) If any of the Lenders determines that compliance with any
Requirement of Law, or (i) any official directive, guideline or request from any
central bank or other Governmental Authority (whether or not having the force of
law) or (ii) any change therein or in the interpretation, application,
implementation, administration or enforcement thereof, that, in the case of
clause (i) or (ii) of this Section 2.09(b), is enacted or becomes effective, or
is implemented or is first required or expected to be complied with, after the
date of this Agreement affects the amount of capital required or expected to be
maintained by such Lender (or either of the Applicable Lending Offices of such
Lender) or by any Person controlling such Lender and that the amount of such
capital is increased by or is based upon the existence of the commitment of such
Lender to lend hereunder and other commitments of this type, then the Borrowers
hereby jointly and severally agree to pay, upon demand by such Lender (with a
copy of such demand to the Administrative Agent), to the Administrative Agent
for the account of such Lender, from time to time as specified by such Lender,
additional amounts sufficient to compensate such Lender or such Person in light
of such circumstances, to the extent that such Lender or such Person reasonably
determines such increase in capital to be allocable to the existence of the
commitment of such Lender to lend hereunder. A certificate of the Lender
requesting such additional compensation pursuant to this Section 2.09(b),
submitted to the Borrowers by such Lender and specifying therein the amount of
such additional compensation (including the basis of calculation thereof), shall
be conclusive and binding for all purposes, absent manifest error.
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58
(c) If, with respect to any Eurodollar Rate Advances under either of
the Facilities, Lenders owed or holding not less than a majority in interest of
the aggregate principal amount of all Advances outstanding under such Facility
at any time notify the Administrative Agent that the Eurodollar Rate for any
Interest Period for such Advances will not adequately reflect the cost to such
Lenders of making, participating in or renewing, or funding or maintaining,
their Eurodollar Rate Advances for such Interest Period, the Administrative
Agent shall forthwith so notify the Appropriate Borrowers and the Appropriate
Lenders, whereupon (i) each such Eurodollar Rate Advance under such Facility
will automatically, on the last day of the then existing Interest Period
therefor, Convert into a Base Rate Advance and (ii) the obligation of the
Appropriate Lenders to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended until the Administrative Agent shall notify the
Appropriate Borrowers (promptly following notice from the Appropriate Lenders)
that such Appropriate Lenders have determined that the circumstances causing
such suspension no longer exist.
(d) Notwithstanding any of the other provisions of this Agreement, if
any Lender shall notify the Administrative Agent that the introduction of or any
change in or in the interpretation or application of any Requirement of Law
makes it unlawful, or any central bank or other Governmental Authority asserts
that it is unlawful, for such Lender or its Eurodollar Lending Office to perform
its obligations hereunder to make, to participate in or to renew, or to fund or
maintain, Eurodollar Rate Advances hereunder, then (i) each Eurodollar Rate
Advance of such Lender will automatically, on the last day of the then existing
Interest Period therefor, if permitted by applicable law, or otherwise upon
demand, Convert into a Base Rate Advance of such Lender and (ii) the obligation
of such Lender to make, or to Convert Advances into, Eurodollar Rate Advances
shall be suspended until the Administrative Agent shall notify the Borrowers
(promptly following notice from such Lender) that the circumstances causing such
suspension no longer exist. If the obligation of a Lender to make Eurodollar
Rate Advances is suspended pursuant to this Section 2.09(d), then, subject to
subsection (e) of this Section 2.09, until the circumstances that gave rise to
such suspension no longer apply to such Lender, all Eurodollar Rate Advances
that would otherwise be made by such Lender as part of any Borrowing shall be
made instead as Base Rate Advances and all payments of principal of and interest
on such Base Rate Advances shall be made at the same time as payments on the
Eurodollar Rate Advances otherwise comprising part of such Borrowing.
(e) If, at any time, the Administrative Agent shall notify any of the
Borrowers of the suspension of the obligations of Lenders owed or holding not
less than a majority in interest of the aggregate principal amount of all
Advances outstanding at any time (the "AFFECTED LENDERS") to make, participate
in or renew, or to fund or maintain, their Eurodollar Rate Advances pursuant to
Section 2.09(c) or 2.09(d), then the Administrative Agent (in consultation with
each of the Affected Lenders) and the Borrowers shall enter into negotiations in
good faith with a view to agreeing upon an alternative basis acceptable to the
Borrowers and the Affected Lenders for determining a substitute rate of interest
(the "SUBSTITUTE RATE") for the Eurodollar Rate that shall be applicable to the
Affected Lenders during the period of time that such suspension continues, which
Substitute Rate shall reflect the cost to each of the Affected Lenders of
making, participating in or renewing, or funding or maintaining, such Advances
under the circumstances that gave rise to such suspension from alternative
sources plus the Applicable Margin in effect from time to time for Eurodollar
Rate Advances under the applicable Facility; provided that if any of the
Affected Lenders shall be a Defaulting Lender at any such time, then such
Defaulting Lender shall not be entitled to participate in the negotiations for
determining a Substitute Rate and the approval of such Defaulting Lender shall
not be required for an alternative rate of interest to become a Substitute Rate.
If a Substitute Rate is so agreed to among the Borrowers and the Affected
Lenders, then,
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59
until the circumstances that gave rise to such suspension no longer apply to the
Affected Lenders, all Eurodollar Rate Advances that would otherwise be made by
the Affected Lenders as part of any Borrowing shall be made instead as Advances
bearing interest at the Substitute Rate and all payments of principal of and
interest on such Advances shall be made at the same time as payments of
principal of and interest on the Eurodollar Rate Advances otherwise comprising
part of such Borrowing. If at any time during which a Substitute Rate is in
effect the cost to any of the Affected Lenders of making, participating in or
renewing, or funding or maintaining, such Advances from alternative sources
increases, the Affected Lenders shall promptly notify the Borrowers of the
amount of such increase and the Borrowers shall have the option either (i) to
pay to the Administrative Agent for the account of each such Affected Lender,
from time to time as specified by such Lender, additional amounts sufficient to
compensate such Affected Lender for such increase or (ii) to Convert each such
Advance bearing interest at the Substitute Rate into a Base Rate Advance. A
certificate of any of the Affected Lenders pursuant to this Section 2.09(e),
submitted to the Borrowers by such Affected Lender and specifying therein the
cost to such Affected Lender of making, participating in or renewing, or funding
or maintaining, Eurodollar Rate Advances from alternative sources and the
circumstances that gave rise to the related suspension thereof, shall be
conclusive and binding for all purposes, absent manifest error.
(f) Each of the Lenders hereby agrees that, upon the occurrence of any
circumstances entitling such Lender to additional compensation or to cease
making, participating in or renewing, or funding or maintaining, Eurodollar Rate
Advances under any of the foregoing provisions of this Section 2.09, such Lender
shall use reasonable efforts (consistent with its existing internal policy
applied on a nondiscriminatory basis and with applicable legal and regulatory
restrictions) to designate a different Applicable Lending Office for any
Advances affected by such circumstances and/or to take any other reasonable
actions requested by the Borrowers if the making of such designation or the
taking of such actions, in the case of Section 2.09(a) or 2.09(b), would avoid
the need for such additional compensation or, in the case of Section 2.09(c) or
2.09(d), would allow such Lender to continue to perform its obligations to make,
to participate in or renew, or to fund or maintain, Eurodollar Rate Advances,
and, in any such case, would not, in the reasonable judgment of such Lender, be
otherwise disadvantageous to such Lender. If any of the Lenders entitled to
additional compensation under any of the foregoing provisions of this Section
2.09 shall fail to designate a different Applicable Lending Office or to take
such reasonable actions as provided in this Section 2.09(f) or if the inadequacy
or illegality contemplated under Section 2.09(c) or 2.09(d), respectively, shall
continue with respect to such Lender notwithstanding such designation or such
reasonable actions, then, subject to the terms of Section 9.08(a), Holdings may
cause such Lender to (and, if Holdings so demands, such Lender shall) assign all
of its rights and obligations under this Agreement in accordance with Section
9.08(a); provided that if, upon such demand by Holdings, such Lender elects to
waive its request for additional compensation pursuant to Section 2.09(a) or
2.09(b), the demand by Holdings for such Lender to so assign all of its rights
and obligations under the Agreement shall thereupon be deemed withdrawn.
Nothing in this Section 2.09(f) shall affect or postpone any of the rights of
any of the Lenders or any of the obligations of the Borrowers under any of the
foregoing provisions of this Section 2.09 in any manner.
SECTION 2.10. Payments and Computations. (a) Each of the Borrowers
-------------------------
shall make each payment under this Agreement and under the Notes, irrespective
of any right of counterclaim or setoff (except as otherwise provided in Section
2.13), not later than 12:00 Noon (New York City time) on the day when due (or,
in the case of payments made by Holdings or any of the Borrowers pursuant to
Section 6.01, on the date of demand therefor) in U.S. dollars to the
Administrative Agent at the Administrative Agent's Account in same day funds,
with payments received by the Administrative Agent
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60
after 12:00 Noon (New York City time) on any such day being deemed to have been
received on the next succeeding Business Day. The Administrative Agent will
promptly thereafter cause like funds to be distributed (i) if such payment by
Holdings or any of the Borrowers is in respect of principal, interest,
Commitment Fees or any other Obligation then payable under this Agreement and
under the Notes to more than one of the Lenders, to such Lenders for the account
of their respective Applicable Lending Offices in accordance with their
respective Pro Rata Shares of the amounts of such respective Obligations payable
to such Lenders at such time and (ii) if such payment by Holdings or any of the
Borrowers is in respect of any Obligation payable under this Agreement to one of
the Lenders at such time, to such Lender for the account of its Applicable
Lending Office, in each case to be applied in accordance with the terms of this
Agreement. Upon the acceptance of an Assignment and Acceptance by the
Administrative Agent and the recording of the information contained therein in
the Register pursuant to Section 9.08(d), from and after the effective date of
such Assignment and Acceptance, the Administrative Agent shall make all payments
under this Agreement and the Notes in respect of the interest assigned thereby
to the Lender assignee thereunder, and the parties to such Assignment and
Acceptance shall make all appropriate adjustments in such payments for periods
prior to such effective date directly between themselves.
(b) All computations of interest based on clause (a) of the definition
of "Base Rate" set forth in Section 1.01 shall be made by the Administrative
Agent on the basis of a year of 365 or 366 days, as the case may be, and all
computations of interest based on the Eurodollar Rate or the Federal Funds Rate
and all computations of fees (including, without limitation, fees payable under
Section 2.07) shall be made by the Administrative Agent on the basis of a year
of 360 days, in each case for the actual number of days (including the first day
but excluding the last day) occurring in the period for which such interest or
fees are payable. Each determination by the Administrative Agent of an interest
rate or fee hereunder shall be conclusive and binding for all purposes, absent
manifest error.
(c) Whenever any payment under this Agreement or the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or fees, as the case
may be; provided, however, that if such extension would cause payment of
interest on or principal of Eurodollar Rate Advances to be made in the next
succeeding calendar month, such payment shall be made on the immediately
preceding Business Day.
(d) Unless the Administrative Agent shall have received notice from
the applicable Borrower prior to the date on which any payment is due from such
Borrower to any of the Lenders under this Agreement that such Borrower will not
make such payment in full, the Administrative Agent may assume that such
Borrower has made such payment in full to the Administrative Agent on such date
and the Administrative Agent may, in reliance upon such assumption, cause to be
distributed to such Lender on such date an amount equal to the amount due to
such Lender on such date. If and to the extent such Borrower shall not have so
made such payment in full to the Administrative Agent, each such Lender shall
repay to the Administrative Agent forthwith on demand such amount distributed to
such Lender, together with interest thereon, for each day from the date such
amount is distributed to such Lender until the date such Lender repays such
amount to the Administrative Agent, at the Federal Funds Rate.
(e) Whenever any payment received by the Administrative Agent under
this Agreement or any of the other Loan Documents is insufficient to pay in full
all amounts due and payable to the Agents and the Lenders under or in respect of
this Agreement and the other Loan Documents on
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any date, such payment shall be distributed by the Administrative Agent and
applied by the Agents and the Lenders in the following order of priority:
(i) first, to the payment of all of the fees, indemnification
payments, costs and expenses that are due and payable to the Agents (solely
in their respective capacities as Agents) under or in respect of this
Agreement or any of the other Loan Documents on such date, ratably based
upon the respective aggregate amounts of all such fees, indemnification
payments, costs and expenses owing to the Agents on such date;
(ii) second, to the payment of all of the indemnification payments,
costs and expenses that are due and payable to the Lenders under Sections
9.04 and 9.05 hereof, Section 13 of the Fox Kids Guarantee, Section 12 of
the Subsidiaries Guarantee, Section 21 of the Pledge and Assignment
Agreement or the applicable section of any of the other Loan Documents on
such date, ratably based upon the respective aggregate amounts of all such
indemnification payments, costs and expenses owing to the Lenders on such
date;
(iii) third, to the payment of all of the amounts that are due and
payable to the Administrative Agent and the Lenders under Sections 2.09 and
2.11 hereof, Section 5 of the Fox Kids Guarantee or Section 5 of the
Subsidiaries Guarantee on such date, ratably based upon the respective
aggregate amounts thereof owing to the Administrative Agent and the Lenders
on such date;
(iv) fourth, to the payment of all of the fees that are due and
payable to the Lenders under Section 2.07(a) on such date, ratably based
upon the respective aggregate Commitments of the Lenders under both of the
Facilities on such date;
(v) fifth, to the payment of all of the accrued and unpaid interest on
the Obligations of the Borrowers under or in respect of the Loan Documents
that is due and payable to the Administrative Agent and the Lenders under
Section 2.06(b) on such date, ratably based upon the respective aggregate
amounts of all such interest owing to the Administrative Agent and the
Lenders on such date;
(vi) sixth, to the payment of all of the accrued and unpaid interest
on the Advances that is due and payable to the Administrative Agent and the
Lenders under Section 2.06(a) on such date, ratably based upon the
respective aggregate amounts of all such interest owing to the
Administrative Agent and the Lenders on such date;
(vii) seventh, to the payment of the principal amount of all of the
outstanding Advances that is due and payable to the Administrative Agent
and the Lenders on such date, ratably based upon the respective aggregate
amounts of all such principal owing to the Administrative Agent and the
Lenders on such date; and
(viii) eighth, to the payment of all other Obligations of the Loan
Parties owing under or in respect of the Loan Documents that are due and
payable to the Administrative Agent and the other Secured Parties on such
date, ratably based upon the respective aggregate amounts of all such
Obligations owing to the Administrative Agent and the other Secured Parties
on such date.
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62
If the Administrative Agent receives funds for application to the Obligations of
the Loan Parties under or in respect of the Loan Documents under circumstances
for which the Loan Documents do not specify the Advances or the Facility to
which, or the manner in which, such funds are to be applied, the Administrative
Agent may, but shall not be obligated to, elect to distribute such funds to each
of the Lenders in accordance with such Lender's Pro Rata Share of the aggregate
principal amount of all Advances outstanding at such time, in repayment or
prepayment of such of the outstanding Advances or other Obligations owing to
such Lender, and, in the case of the Term Facility, for application to such
principal repayment installments thereof, as the Administrative Agent shall
direct, and, in the case of the Revolving Credit Facility, for application to
such scheduled commitment reduction installments thereof, as the Administrative
Agent shall direct.
SECTION 2.11. Taxes. (a) Any and all payments by Holdings or any of
-----
the Borrowers under or in respect of this Agreement or any of the other Loan
Documents to which Holdings or such Borrower is a party shall be made, in
accordance with Section 2.10 (or the applicable provisions of such other Loan
Document), free and clear of and without deduction for any and all present or
future taxes, levies, imposts, duties, deductions, charges or withholdings, and
all liabilities with respect thereto, excluding, in the case of each of the
Lenders and each of the Agents, taxes that are imposed on its overall net income
by the United States of America and taxes that are imposed on its overall net
income (and franchise taxes that are imposed in lieu thereof) by the state or
foreign jurisdiction under the laws of which such Lender or such Agent, as the
case may be, is organized or is a resident, or has a fixed place of business or
a permanent establishment, or any political subdivision of any of the foregoing,
and, in the case of each of the Lenders, taxes that are imposed on its overall
net income (and franchise taxes that are imposed in lieu thereof) by the state
or foreign jurisdiction of either of the Applicable Lending Offices of such
Lender or any political subdivision thereof (all such nonexcluded taxes, levies,
imposts, duties, deductions, charges, withholdings and liabilities in respect of
payments by Holdings or any of the Borrowers under or in respect of this
Agreement or any of the other Loan Documents to which Holdings or any such
Borrower is a party being, collectively, "TAXES"). If Holdings or any of the
Borrowers shall be required by applicable Requirements of Law to deduct any
Taxes from or in respect of any sum payable under or in respect of this
Agreement or any of the other Loan Documents to which Holdings or such Borrower
is a party to any of the Lenders or any of the Agents, (i) the sum payable shall
be increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.11) such Lender or such Agent, as the case may be, receives an amount equal to
the sum it would have received had no such deductions been made, (ii) Holdings
or such Borrower shall make such deductions and (iii) Holdings or such Borrower
shall pay the full amount deducted to the relevant taxation authority or other
Governmental Authority in accordance with the applicable Requirements of Law.
(b) In addition, Holdings and each of the Borrowers hereby agree to
pay any present or future stamp, recording, documentary, excise, property or
similar taxes, charges or levies that arise from any payment made under or in
respect of this Agreement or any of the other Loan Documents to which Holdings
or such Borrower is a party, or from the execution, delivery or registration of,
or any performance under, or otherwise with respect to, under or in respect of
this Agreement or any of the other Loan Documents to which Holdings or such
Borrower is a party (collectively, "OTHER TAXES").
(c) Holdings and each of the Borrowers hereby agree to indemnify each
of the Lenders and each of the Agents for the full amount of Taxes and Other
Taxes, and for the full amount of taxes imposed by any jurisdiction on amounts
payable under this Section 2.11, imposed on or paid by
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63
such Lender or such Agent, as the case may be, and any liability (including
penalties, additions to tax, interest and expenses) arising therefrom or with
respect thereto. The indemnity by Holdings and the Borrowers provided for in
this subsection (c) shall apply and be made whether or not the Taxes or Other
Taxes for which indemnification hereunder is sought have been correctly or
legally asserted; provided, however, that such Lender or such Agent seeking such
indemnification shall take all reasonable actions (consistent with its existing
internal policy applied on a nondiscriminatory basis and legal and regulatory
restrictions) requested by Holdings or any of the Borrowers to assist Holdings
or such Borrower in recovering the amounts paid thereby pursuant to this
subsection (c) from the relevant taxation authority or other Governmental
Authority. Amounts payable by Holdings or any of the Borrowers under the
indemnity set forth in this subsection (c) shall be paid within 30 days from the
date on which the applicable Lender or Agent, as the case may be, makes written
demand therefor. With respect to each payment by Holdings or any of the
Borrowers under or in respect of this Agreement or any of the other Loan
Documents to which Holdings or such Borrower is a party, the amount of Taxes due
from Holdings or such Borrower pursuant to this subsection (c) shall only be
payable to the extent such amount exceeds the amount of Taxes paid by Holdings
or such Borrower pursuant to subsection (a) of this Section 2.11 with respect to
such payment.
(d) Within 30 days after the date of any payment of Taxes, Holdings or
the Borrower making such payment (or on whose behalf such payment was made)
shall furnish to the Administrative Agent, at its address referred to in Section
9.02, the original or a certified copy of a receipt evidencing payment thereof,
to the extent such a receipt is issued therefor, or other written proof of
payment thereof that is reasonably satisfactory to the Administrative Agent. In
the case of any payment under or in respect of this Agreement or any of the
other Loan Documents by or on behalf of Holdings or any of the Borrowers through
an account or branch outside the United States, or on behalf of Holdings or such
Borrower by a payor that is not a United States person, if Holdings or such
Borrower determines that no Taxes are payable in respect thereof, Holdings or
such Borrower shall furnish, or shall cause such payor to furnish, to the
Administrative Agent, at its address referred to in Section 9.02, an opinion of
counsel reasonably acceptable to the Administrative Agent stating that such
payment is exempt from Taxes. For purposes of this subsection (d) and
subsection (e) of this Section 2.11, the terms "UNITED STATES" and "UNITED
STATES PERSON" shall have the meanings specified in Section 7701 of the Internal
Revenue Code.
(e) Each of the Lenders organized under the laws of a jurisdiction
outside the United States shall, on or prior to the date of its execution and
delivery of this Agreement in the case of each of the Initial Lenders, and on
the date of the Assignment and Acceptance pursuant to which it becomes a Lender
in the case of each of the other Lenders, and from time to time thereafter as
reasonably requested in writing by Holdings or the Administrative Agent (but
only so long thereafter as such Lender remains lawfully able to do so), provide
Holdings and the Administrative Agent with two original Internal Revenue Service
forms 1001 or 4224 or, in the case of any of the Lenders that is claiming
exemption from United States withholding tax under Section 871(h) or 881(c) of
the Internal Revenue Code with respect to payments of "portfolio interest", form
W-8 (and, if such Lender delivers a form W-8, a certificate representing that
such Lender is not (i) a "bank" for purposes of Section 881(c) of the Internal
Revenue Code, (ii) a ten-percent shareholder (within the meaning of Section
871(h)(3)(B) of the Internal Revenue Code) of Holdings or any of the Borrowers
or (iii) a controlled foreign corporation related to Holdings or any of the
Borrowers (within the meaning of Section 864(d)(4) of the Internal Revenue
Code), as appropriate), or any successor or other form prescribed by the
Internal Revenue Service, certifying that such Lender is exempt from or entitled
to a reduced rate of United States withholding tax on payments pursuant to this
Agreement or the other Loan Documents or, in the case of a Lender
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64
delivering a form W-8, certifying that such Lender is a foreign corporation,
partnership, estate or trust. If the forms referred to above in this subsection
(e) that are provided by a Lender at the time such Lender first becomes a party
to this Agreement indicate a United States interest withholding tax rate in
excess of zero, withholding tax at such rate shall be considered excluded from
Taxes unless and until such Lender provides the appropriate form certifying that
a lesser rate applies, whereupon withholding tax at such lesser rate shall be
considered excluded from Taxes solely for the periods governed by such form.
However, if, at the date of the Assignment and Acceptance pursuant to which a
Lender assignee becomes a party to this Agreement, the Lender assignor was
entitled to payments under subsection (a) of this Section 2.11 in respect of
United States withholding tax with respect to interest paid at such date, then,
to such extent (and only to such extent), the term "Taxes" shall include (in
addition to withholding taxes that may be imposed in the future or other amounts
otherwise includable in Taxes) United States withholding tax, if any, applicable
with respect to such Lender assignee on such date. If any of the forms,
certificates or other documents referred to in this subsection (e) requires the
disclosure of information, other than information necessary to compute the tax
payable and information required on the date hereof by Internal Revenue Service
form 1001, 4224 or W-8 (or the related certificate described above), that a
Lender reasonably considers to be confidential, such Lender shall give notice
thereof to Holdings and the Administrative Agent and shall not be obligated to
include in such form, certificate or document such confidential information.
None of the Lenders shall be entitled to payment pursuant to subsection (a), (b)
or (c) of this Section 2.11 with respect to any additional Taxes that resulted
solely and directly from the change in either of the Applicable Lending Offices
of such Lender (other than any such additional Taxes that are imposed as a
result of a change in the applicable Requirements of Law, or in the
interpretation or application thereof, occurring after the date of such change),
unless such change is made pursuant to the terms of Section 2.09(f) or 2.11(g)
or as a result of a request therefor by Holdings or any of the Borrowers.
(f) For any period with respect to which any of the Lenders has failed
(i) to provide Holdings with the appropriate form, certificate or other document
described in subsection (e) of this Section 2.11 (other than if such failure is
due to a change in the applicable Requirements of Law, or in the interpretation
or application thereof, occurring after the date on which a form, certificate or
other document originally was required to be provided or if such form otherwise
is not required under subsection (e) of this Section 2.11) or (ii) to notify the
Appropriate Borrowers of any change in either of the Applicable Lending Offices
of such Lender pursuant to the definition of "Base Rate Lending Office" or
"Eurodollar Lending Office" set forth in Section 1.01, as applicable (other than
any such change that is made pursuant to the terms of Section 2.09(f) or 2.11(g)
or as a result of a request therefor by Holdings or any of the Borrowers), such
Lender shall not be entitled to any payment or indemnification under subsection
(a) or (c) of this Section 2.11 with respect to Taxes imposed by the United
States by reason of such failure; provided, however, that should any of the
Lenders become subject to Taxes because of its failure to deliver a form,
certificate or other document required hereunder, Holdings and each of the
Borrowers hereby agree to take such steps as such Lender shall reasonably
request to assist such Lender in recovering such Taxes.
(g) Any Lender claiming any additional amounts payable pursuant to
this Section 2.11 hereby agrees to use reasonable efforts (consistent with its
existing internal policy applied on a nondiscriminatory basis and legal and
regulatory restrictions) to change the jurisdiction of either of its Applicable
Lending Offices and/or to take any other reasonable actions requested by
Holdings if the making of such a change or the taking of such reasonable actions
would avoid the need for, or reduce the amount of, any such additional amounts
that may thereafter accrue and would not, in the reasonable
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65
judgment of such Lender, be otherwise disadvantageous to such Lender. If any
Lender entitled to additional compensation under any of the foregoing provisions
of this Section 2.11 shall fail to change the jurisdiction of either of its
Applicable Lending Offices or to take such reasonable actions as provided in
this subsection (g), or if the failure of such Lender to disclose information
which such Lender has determined to be confidential in the form, certificate or
other document delivered by such Lender pursuant to subsection (e) of this
Section 2.11 would increase the liability of Holdings or any of the Borrowers
under this Section 2.11, then, subject to the terms of Section 9.08(a), Holdings
may cause such Lender to (and, if Holdings so demands, such Lender shall) assign
all of its rights and obligations under this Agreement in accordance with
Section 9.08(a); provided that if, upon such demand by Holdings, such Lender
elects to waive its right to additional amounts payable pursuant to this Section
2.11, the demand by Holdings for such Lender to so assign all of its rights and
obligations under this Agreement shall thereupon be deemed withdrawn. Nothing
in this subsection (g) shall affect or postpone any of the rights of any of the
Lenders or any of the obligations of Holdings or any of the Borrowers under any
of the foregoing provisions of this Section 2.11 in any manner.
(h) All payments made by any of the Borrowers pursuant to subsection
(a), (b) or (c) of this Section 2.11 shall, to the fullest extent permitted by
applicable law, be treated by such Borrower as additional interest.
SECTION 2.12. Sharing of Payments, Etc. If any of the Lenders shall
------------------------
obtain at any time any payment (whether voluntary, involuntary, through the
exercise of any right of setoff or otherwise) on account of (a) Obligations due
and payable to such Lender under or in respect of this Agreement and the other
Loan Documents at such time in excess of its ratable share (according to the
proportion of (i) the amount of such Obligations due and payable to such Lender
at such time (other than pursuant to Section 2.09, 2.11, 9.04, 9.05 or 9.08) to
(ii) the aggregate amount of the Obligations due and payable to all of the
Lenders under or in respect of this Agreement and the other Loan Documents at
such time) of payments on account of the Obligations due and payable to all of
the Lenders under or in respect of this Agreement and the other Loan Documents
at such time obtained by all of the Lenders at such time or (b) Obligations
owing (but not due and payable) to such Lender under or in respect of this
Agreement and the other Loan Documents at such time in excess of its ratable
share (according to the proportion of (i) the amount of such Obligations owing
(but not yet due and payable) to such Lender at such time (other than pursuant
to Section 2.09, 2.11, 9.04, 9.05 or 9.08) to (ii) the aggregate amount of the
Obligations owing (but not due and payable) to all of the Lenders under or in
respect of this Agreement and the other Loan Documents at such time) of payments
on account of the Obligations owing (but not due and payable) to all of the
Lenders under or in respect of this Agreement and the other Loan Documents at
such time obtained by all of the Lenders at such time, such Lender shall
forthwith purchase from the other Lenders such participations in the Obligations
due and payable or owing to them, as the case may be, as shall be necessary to
cause such purchasing Lender to share the excess payment ratably with each of
them; provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, such purchase from each of the
other Lenders shall be rescinded and such other Lender shall repay to the
purchasing Lender the purchase price to the extent of such other Lender's
ratable share (according to the proportion of (A) the purchase price paid to
such other Lender to (B) the aggregate purchase price paid to all of the
Lenders) of such recovery, together with an amount equal to such other Lender's
ratable share (according to the proportion of (1) the amount of such other
Lender's required repayment to (2) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. Holdings and
each of the Borrowers hereby agree that any Lender so purchasing a
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66
participation from another Lender pursuant to this Section 2.12 may, to the
fullest extent permitted by applicable law, exercise all of its rights of
payment (including, without limitation, the right of setoff) with respect to
such participation as fully as if such Lender were the direct creditor of
Holdings or such Borrower in the amount of such participation.
SECTION 2.13. Defaulting Lenders. (a) If, at any time, (i) any of
------------------
the Lenders shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe
one or more Defaulted Advances to any of the Borrowers and (iii) such Borrower
or any of the other Borrowers shall be required to make any payment under this
Agreement or any of the other Loan Documents to or for the account of such
Defaulting Lender, then the paying Borrower may, so long as no Default shall
have occurred and be continuing at such time and to the fullest extent permitted
by applicable law, set off and otherwise apply the obligation of such Borrower
and the other Borrowers to make such payment to or for the account of such
Defaulting Lender against the obligation of such Defaulting Lender to make such
Defaulted Advances. If, on any date, any of the Borrowers shall so set off and
otherwise apply its obligation or the obligation of any of the other Borrowers
to make any such payment against the obligation of such Defaulting Lender to
make any such Defaulted Advance on or prior to such date, the amount so set off
and otherwise applied by such Borrower shall constitute for all purposes of this
Agreement and the other Loan Documents an Advance under each of the Facilities
pursuant to which, and made on the respective dates on which, each such
Defaulted Advance was originally required to have been made by such Defaulting
Lender pursuant to Section 2.01 (and, in doing so, such setoff shall satisfy the
obligation of such Borrower to such Defaulting Lender to the extent of the
aggregate amount so set off or otherwise applied). Each such Advance shall be a
Base Rate Advance and shall be considered for all purposes of this Agreement to
comprise part of the Borrowing in connection with which such Defaulted Advance
was originally required to have been made pursuant to Section 2.01, even if the
other Advances comprising such Borrowing shall be Eurodollar Rate Advances on
the date such Advance is deemed to be made pursuant to this Section 2.13(a).
Each of the Borrowers shall promptly notify the Administrative Agent at any time
that such Borrower exercises its right of setoff or otherwise reduces the amount
of its obligation or the obligation of any of the other Borrowers to any
Defaulting Lender pursuant to this Section 2.13(a) and shall set forth in such
notice (A) the name of the Defaulting Lender and the Defaulted Advance required
to be made by such Defaulting Lender, (B) the obligation of the Borrowers to
such Defaulting Lender against which such Defaulted Advance was so set off and
applied and (C) the amount set off and otherwise applied in respect of such
Defaulted Advance pursuant to this Section 2.13(a). Any portion of such payment
otherwise required to be made by any of the Borrowers to or for the account of
such Defaulting Lender that is paid by such Borrower, after giving effect to the
amount set off and otherwise applied by such Borrower or any of the other
Borrowers pursuant to this Section 2.13(a), shall be applied by the
Administrative Agent as specified in Section 2.13(b) or 2.13(c).
(b) If, at any time, (i) any of the Lenders shall be a Defaulting
Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to the
Administrative Agent or any of the other Lenders and (iii) any of the Borrowers
shall make any payment under or in respect of this Agreement or any of the other
Loan Documents to the Administrative Agent for the account of such Defaulting
Lender, then the Administrative Agent may, on its behalf or on behalf of such
other Lenders and to the fullest extent permitted by applicable law, apply at
such time the amount so paid by such Borrower to or for the account of such
Defaulting Lender to the payment of each such Defaulted Amount to the extent
required to pay such Defaulted Amount. If the Administrative Agent shall so
apply any such amount to the payment of any such Defaulted Amount on any date,
the amount so applied by the Administrative Agent shall constitute for all
purposes of this Agreement and the other Loan Documents payment, to such
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67
extent, of such Defaulted Amount on such date. Any such amount so applied by
the Administrative Agent shall be retained by the Administrative Agent or
distributed by the Administrative Agent to such other Lenders in accordance with
the respective Pro Rata Shares of such Defaulted Amounts payable at such time to
the Administrative Agent and such other Lenders and, if the amount of such
payment made by such Borrower shall at such time be insufficient to pay all of
the Defaulted Amounts owing to the Administrative Agent and the other Lenders at
such time, in the following order of priority:
(A) first, to the Administrative Agent for any Defaulted Amount owing
to the Administrative Agent (solely in its capacity as Administrative
Agent) at such time; and
(B) second, to the Lenders for any Defaulted Amounts owing to the
Lenders at such time, ratably based upon the respective Defaulted Amounts
owing to the Lenders at such time.
Any portion of such amount paid by any of the Borrowers for the account of such
Defaulting Lender remaining, after giving effect to the amount applied by the
Administrative Agent pursuant to this Section 2.13(b), shall be applied by the
Administrative Agent as specified in Section 2.13(c).
(c) If, at any time, (i) any of the Lenders shall be a Defaulting
Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance or a
Defaulted Amount and (iii) any of the Borrowers, the Administrative Agent or any
of the other Lenders shall be required to pay or to distribute any amount under
or in respect of this Agreement or any of the other Loan Documents to or for the
account of such Defaulting Lender, then such Borrower or such other Lender shall
pay such amount to the Administrative Agent to be held by the Administrative
Agent, to the fullest extent permitted by applicable law, in escrow or the
Administrative Agent shall, to the fullest extent permitted by applicable law,
hold in escrow such amount otherwise held by it. Any funds held by the
Administrative Agent in escrow under this Section 2.13(c) shall be deposited by
the Administrative Agent in an account with Citibank, in the name and under the
control of the Administrative Agent, but subject to the provisions of this
Section 2.13(c). The terms applicable to such account, including the rate of
interest payable with respect to the credit balance of such account from time to
time, shall be Citibank's standard terms applicable to escrow accounts
maintained with it. Any interest credited to such account from time to time
shall be held by the Administrative Agent in escrow under, and applied by the
Administrative Agent from time to time in accordance with the terms of, this
Section 2.13(c). The Administrative Agent shall, to the fullest extent
permitted by applicable law, apply all funds so held in escrow by it from time
to time to the extent necessary to make any Advances required to be made by such
Defaulting Lender to any of the Borrowers and to pay any other amounts payable
by such Defaulting Lender under this Agreement or any of the other Loan
Documents to the Administrative Agent, any of the other Agents or any of the
other Lenders, as and when such Advances or other amounts are required to be
made or paid and, if the amount so held in escrow shall at any time be
insufficient to make all such Advances and to pay all such other amounts
required to be made or paid at such time, in the following order of priority:
(A) first, to the Agents for any Advances and any other amounts due
and payable by such Defaulting Lender to the Agents (solely in their
respective capacities as Agents) under or in respect of this Agreement and
the other Loan Documents at such time, ratably based upon the respective
aggregate Advances and other amounts due and payable to the Agents at such
time;
(B) second, to the other Lenders for any amounts due and payable by
such Defaulting Lender to the other Lenders under or in respect of this
Agreement and the other Loan Documents
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68
at such time, ratably based upon the respective aggregate amounts due and
payable to the other Lenders at such time; and
(C) third, to the Appropriate Borrower for any Advances required to be
made by such Defaulting Lender pursuant to a Commitment of such Defaulting
Lender.
If any of the Lenders that is a Defaulting Lender shall, at any time, cease to
be a Defaulting Lender, any funds held by the Administrative Agent in escrow at
such time with respect to such Lender shall be distributed by the Administrative
Agent to such Lender and applied by such Lender to the Obligations owing to such
Lender under or in respect of this Agreement and the other Loan Documents at
such time, ratably based upon the respective amounts of such Obligations
outstanding at such time.
(d) The rights and remedies against a Defaulting Lender under this
Section 2.13 are in addition to other rights and remedies that any of the
Borrowers may have against such Defaulting Lender with respect to any Defaulted
Advances and that the Administrative Agent, any of the other Agents or any of
the other Lenders may have against such Defaulting Lender with respect to any
Defaulted Amount.
SECTION 2.14. Use of Proceeds. The proceeds of the Revolving Credit
---------------
Advances shall be (or, in the case of the Existing Revolving Credit Advances,
shall remain) available on and from time to time after the Effective Date, and
each of the Borrowers hereby agrees to use such proceeds, solely to finance in
part the Refinancing, to pay certain fees and expenses incurred in connection
with the consummation of the Transaction and for other general corporate
purposes not otherwise prohibited under the terms of the Loan Documents. The
proceeds of the Term Advances shall be (or, in the case of the Existing Term
Advances, shall remain) available on the Effective Date, and IFE hereby agrees
to use such proceeds solely to finance in part the Refinancing and to pay
certain fees and expenses incurred in connection with the consummation of the
Transaction.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of this
---------------------------------------------
Agreement. This Agreement shall become effective on and as of the first date
(the "EFFECTIVE DATE") on which all of the following conditions precedent shall
have been satisfied:
(a) The Lenders shall be reasonably satisfied with (i) the
organizational and legal structure and capitalization of Fox Kids and
Holdings and (ii) all changes in the organizational and legal structure and
capitalization of each of the other Loan Parties and their respective
Subsidiaries since the Phase II Closing Date (including, in the case of
clauses (i) and (ii) of this subsection (a), without limitation, the terms
and conditions of the Constitutive Documents and each class of Equity
Interests in Fox Kids, Holdings, each such other Loan Party and each such
Subsidiary and of each agreement or instrument relating to such structure
or capitalization). All of the Related Documents shall be in full force
and effect in the form received by the Lenders on or prior to the Effective
Date.
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69
(b) All of the Governmental Authorizations, and all of the consents,
approvals and authorizations of, notices and filings to or with, and other
actions by, any other Person necessary in connection with any aspect of the
Transaction, any of the Loan Documents or the Related Documents or any of
the other transactions contemplated thereby shall have been obtained
(without the imposition of any conditions that are not reasonably
acceptable to the Lenders) and shall remain in full force and effect; all
applicable waiting periods shall have expired without any action being
taken by any competent authority; and no Requirement of Law shall be
applicable in the reasonable judgment of the Lenders that restrains,
prevents or imposes materially adverse conditions upon any aspect of the
Transaction, any of the Loan Documents or the Related Documents or any of
the other transactions contemplated thereby.
(c) Before giving effect and immediately after giving pro forma effect
to the Transaction, no material adverse change shall have occurred in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of Fox Kids and its Subsidiaries, taken as a whole,
since December 31, 1996.
(d) There shall exist no action, suit, investigation, litigation,
arbitration or proceeding pending or, to the best knowledge of Holdings and
each of the Borrowers, threatened against or affecting any of the Loan
Parties or any of their respective Subsidiaries or any of the property or
assets thereof in any court or before any arbitrator or by or before any
Governmental Authority of any kind (i) that, either individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect
or (ii) in which there is a reasonable likelihood of an adverse
determination and which purports to affect the legality, validity, binding
effect or enforceability of any aspect of the Transaction, any of the Loan
Documents or the Related Documents or any of the other transactions
contemplated thereby.
(e) Each aspect of the Transaction shall have been consummated or
shall be consummated on the Effective Date in compliance with all
applicable Requirements of Law. All of the Collateral shall be owned by
one or more of the Loan Parties, in each case free and clear of any Lien,
other than the liens and security interests created under the Loan
Documents; and the Administrative Agent, on behalf of the Secured Parties,
shall have a valid and perfected first priority lien on and security
interest in all of the Collateral. All of the filings, recordations and
searches necessary or desirable in connection with such liens and security
interests shall have been duly made, and all filing and recording fees and
taxes shall have been duly paid.
(f) All of the Senior Notes Documents shall be on terms and conditions
reasonably satisfactory to the Lenders; and each of the Lenders shall have
received a copy of the Final Offering Memorandum at least two Business Days
prior to the Effective Date. Fox Kids shall have received at least
$725,000,000 in gross proceeds from the issuance and sale of the Senior
Notes, from which at least $615,000,000 of such gross proceeds shall have
been used to permanently repay Existing Advances outstanding on the
Effective Date and accrued and unpaid interest thereon and the remainder of
which shall have been used or shall be used to pay fees and expenses
incurred in connection with the consummation of the Transaction and to
repay outstanding principal under, and accrued and unpaid interest on, the
Existing NAHI Subordinated Notes. After giving effect to the Transaction
and all of the Borrowings to be made on the Effective Date, the amount of
the aggregate Unused Revolving Credit Commitments shall be at least
$75,000,000.
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70
(g) The representations and warranties contained in each of the Loan
Documents shall be correct in all material respects on and as of the
Effective Date, before and after giving effect to the Borrowings to be made
on the Effective Date and to the application of proceeds therefrom, as
though made on and as of such date (other than any such representation and
warranty that, by its terms, refers to a specific date other than the
Effective Date, in which case, as of such specific date). No event shall
have occurred and be continuing, or shall occur as a result of any of the
Borrowings to be made on the Effective Date or the application of proceeds
therefrom, that would constitute a Default.
(h) All of the accrued reasonable fees and expenses of the Agents and
the Lenders (including, without limitation, all of the accrued reasonable
fees and expenses of counsel for the Administrative Agent and local counsel
for the Lenders) that are required to be paid by Fox Kids or any of its
Affiliates shall have been paid in full.
(i) The Administrative Agent shall have received on or before the
Effective Date the following, each dated such date (unless otherwise
specified), in form and substance reasonably satisfactory to the Lenders
(unless otherwise specified) and (except for the Notes) in sufficient
copies for each of the Lenders:
(i) The Revolving Credit Notes, payable to the order of the
Revolving Credit Lenders, and the Term Notes, payable to the order of
the Term Lenders, respectively.
(ii) Certified copies of the resolutions of the board of
directors (or persons performing similar functions) of each of the
Loan Parties approving each of the Loan Documents and the Related
Documents to which it is or is to be a party, the consummation of each
aspect of the Transaction involving or affecting such Loan Party and
the other transactions contemplated by any of the foregoing, and of
all documents evidencing necessary Governmental Authorizations, or
other necessary consents, approvals, authorizations, notices, filings
or actions, with respect to any of the Loan Documents or the Related
Documents to which it is or is to be a party, the consummation of any
aspect of the Transaction involving or affecting such Loan Party or
any of the other transactions contemplated by any of the foregoing.
(iii) A copy of all of the Constitutive Documents of Holdings,
and each amendment thereto, certified (as of a date reasonably near
the Effective Date) as being a true and complete copy thereof by the
Secretary of State of the State of Delaware.
(iv) A copy of a certificate of the Secretary of State of the
State of Delaware, dated reasonably near the Effective Date, listing
the operating agreement (or similar Constitutive Document) of Holdings
and each amendment thereto on file in the office of such Secretary of
State and certifying that (A) such amendments are the only amendments
to the operating agreement (or similar Constitutive Document) of
Holdings on file in its office, (B) Holdings has paid all franchise
taxes (or the equivalent thereof) to the date of such certificate and
(C) Holdings is duly organized and is in good standing under the laws
of the State of Delaware.
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71
(v) A copy of the certificate of the Secretary of State (or the
equivalent Governmental Authority) of each jurisdiction in which
Holdings is qualified or licensed as a foreign limited liability
company, in each case dated reasonably near the Effective Date and
stating that Holdings is duly qualified and in good standing as a
foreign limited liability company in such jurisdiction and has filed
all annual reports required to be filed, and has paid all franchise
taxes (or the equivalent thereof) required to be paid, in such
jurisdiction to the date of such certificate.
(vi) A certificate of each of the Loan Parties, signed on behalf
of such Loan Party by its President or a Vice President and its
Secretary or an Assistant Secretary (or persons performing similar
functions), dated the Effective Date (the statements made in which
certificate shall be true on and as of the Effective Date), certifying
as to:
(A) the absence of any amendments to the certificate or
articles of incorporation (or similar Constitutive Document) of
such Loan Party since the date of the Secretary of State's (or
equivalent Governmental Authority's) certificate delivered
pursuant to Section 3.01(i)(iv) of the Existing Credit Agreement,
or any steps taken by the board of directors (or persons
performing similar functions) or the shareholders, partners,
members or equivalent persons of such Loan Party to effect or
authorize any further amendment, supplement or other modification
thereto;
(B) the accuracy and completeness of the bylaws (or similar
Constitutive Documents) of such Loan Party as in effect on the
date on which the resolutions of the board of directors (or
persons performing similar functions) of such Loan Party referred
to in clause (ii) of this Section 3.01(i) were adopted and on the
Effective Date (a copy of which shall be attached to such
certificate);
(C) the due organization and good standing of such Loan
Party as a Person organized under the laws of the jurisdiction of
its organization, and the absence of any proceeding (either
pending or contemplated) for the dissolution, liquidation or
other termination of the existence of such Loan Party or any of
their respective Subsidiaries;
(D) since December 31, 1996, the absence of any change in
the jurisdiction of organization of such Loan Party, any merger,
consolidation or other similar transaction directly or indirectly
involving such Loan Party or any issuance or sale of any Equity
Interests in such Loan Party, except for (i) the Merger and (ii)
the issuance of all of the Equity Interests in Holdings to Fox
Kids in connection with the formation of Holdings on October 21,
1997;
(E) the legal and beneficial ownership by such Loan Party of
all of the Collateral in which it is purported to have granted a
lien and security interest to the Administrative Agent, on behalf
of the Secured Parties, under the Collateral Documents, free and
clear of all Liens, except for the liens and security interests
created under the Loan Documents;
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72
(F) the accuracy in all material respects of the
representations and warranties made by such Loan Party in the
Loan Documents to which it is or is to be a party as though made
on and as of the Effective Date, before and after giving effect
to the Borrowings to be made on the Effective Date and to the
application of proceeds therefrom; and
(G) the absence of any event occurring and continuing, or
resulting from any of the Borrowings to be made on the Effective
Date or the application of proceeds therefrom, that would
constitute a Default.
(vii) A certificate of the Secretary or an Assistant Secretary
(or a person performing similar functions) of each of the Loan Parties
certifying the names and true signatures of the officers, partners,
members or equivalent persons of such Loan Party authorized to sign
each of the Loan Documents to which it is or is to be a party and the
other agreements, instruments and documents to be delivered hereunder
and thereunder.
(viii) A pledge and assignment agreement, in substantially the
form of Exhibit D-1 hereto (together with each Pledge Agreement
Supplement and each other pledge agreement, assignment agreement (or
other similar document) delivered pursuant to Section 5.02(j), in each
case as amended, supplemented or otherwise modified hereafter from
time to time in accordance with the terms thereof and Section 9.01,
the "PLEDGE AND ASSIGNMENT AGREEMENT"), duly executed by each of the
Loan Parties, together with (unless otherwise delivered to the
Administrative Agent, in form and substance reasonably satisfactory to
the Lenders, prior to the Effective Date):
(A) certificates representing the Initial Pledged Interests
referred to therein, accompanied by undated stock powers or other
appropriate powers, duly executed in blank;
(B) instruments evidencing the Initial Pledged Indebtedness
referred to therein, duly endorsed in blank;
(C) proper financing statements (Form UCC-1 or a comparable
form) or amendments to existing financing statements (Form UCC-3
or a comparable form) or the equivalent thereof under the Uniform
Commercial Code (or any similar Requirements of Law) of all
jurisdictions that may be necessary or that the Administrative
Agent may reasonably deem desirable in order to perfect and
protect the liens and security interests created or purported to
be created under the Pledge and Assignment Agreement, covering
the Collateral described therein, in each case completed in a
manner satisfactory to the Lenders and duly executed by the
applicable Loan Party;
(D) each of the Cash Collateral Account Letters, duly
executed by the applicable Borrower and Citibank; and
(E) evidence that all of the other actions (including,
without limitation, the completion of all of the other recordings
and filings of or with
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73
respect to the Pledge and Assignment Agreement) that may be
necessary or that the Administrative Agent may reasonably deem
desirable in order to perfect and protect the liens and security
interests created under the Pledge and Assignment Agreement have
been taken or will be taken in accordance with the terms of the
Loan Documents.
(ix) (A) An amended and restated memorandum of deposit of
shares of equity interests, in substantially the form of Exhibit D-2
hereto (as further amended, supplemented or otherwise modified
hereafter from time to time in accordance with the terms thereof and
Section 9.01, the "U.K./SABAN U.K. PLEDGE AGREEMENT"), duly executed
by Saban, and (B) an amended and restated memorandum of deposit of
shares of equity interests, in substantially the form of Exhibit D-3
hereto (as further amended, supplemented or otherwise modified
hereafter from time to time in accordance with the terms thereof and
Section 9.01, the "U.K./FKE PLEDGE AGREEMENT"), duly executed by each
of FKE Holdings, Fox Kids Network and Fox Kids Europe Limited.
(x) A guarantee, in substantially the form of Exhibit E-1
hereto (as amended, supplemented or otherwise modified hereafter from
time to time in accordance with the terms thereof and Section 9.01,
the "FOX KIDS GUARANTEE"), duly executed by Fox Kids.
(xi) An amended and restated guarantee, in substantially the
form of Exhibit E-2 hereto (together with each Guarantee Supplement
delivered pursuant to Section 5.02(j), in each case as amended,
supplemented or otherwise modified hereafter from time to time in
accordance with the terms thereof and Section 9.01, the "SUBSIDIARIES
GUARANTEE"), duly executed by each of the wholly owned Domestic
Subsidiaries and each of the other Subsidiaries of Holdings that are
to constitute Restricted Subsidiaries on the Effective Date.
(xii) An assumption agreement, in substantially the form of
Exhibit F hereto (the "ASSUMPTION AGREEMENT"), duly executed by Fox
Kids and IFE.
(xiii) Certified copies of all of the Related Documents, all of
the Senior Notes Documents and all of the agreements, instruments and
other documents evidencing or setting forth the terms and conditions
of the Surviving Indebtedness that is outstanding or has commitments
for the extension of credit on the Effective Date in an aggregate
amount of at least $1,000,000, in each case duly executed by each of
the parties thereto.
(xiv) Certified copies of (A) each of the employment and other
compensation agreements with each senior executive officer of any of
the Loan Parties in effect on the Effective Date and (B) the
Consulting Agreement and the Consulting Agreement Guaranty.
(xv) Certified copies of forecasts prepared by management of
Fox Kids, in form and substance reasonably satisfactory to the
Lenders, of Consolidated balance sheets, income statements and cash
flow statements of Fox Kids and its Subsidiaries on an annual basis
for each Fiscal Year from the Fiscal Year in which the Effective Date
occurs through the scheduled Termination Date.
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(xvi) Evidence of all of the insurance of Fox Kids and its
Subsidiaries required to be maintained thereby under Section 5.01(d)
hereof or Section 7(c) of the Fox Kids Guarantee.
(xvii) A duly completed and executed Notice of Borrowing for
each of the Borrowings to be made on the Effective Date.
(xviii) A favorable opinion of Louis A. Isakoff, Esq., General
Counsel of IFE, in substantially the form of Exhibit G-1 hereto, and
addressing such other matters as any of the Lenders through the
Administrative Agent may reasonably request.
(xix) (A) A favorable opinion of Squadron, Ellenoff, Plesent &
Sheinfeld, LLP, counsel for the Loan Parties, in substantially the
form of Exhibit G-2 hereto, and addressing such other matters as any
of the Lenders through the Administrative Agent may reasonably
request, and (B) a letter from Squadron, Ellenoff, Plesent &
Sheinfeld, LLP, counsel for the Loan Parties, addressed to the
Administrative Agent and each of the Lenders and otherwise in form and
substance reasonably satisfactory to the Administrative Agent, stating
that the Administrative Agent and each such Lender may rely upon the
favorable opinion of such counsel being delivered in connection with
the issuance and sale of the Senior Notes, together with a copy of
such opinion.
(xx) (A) A favorable opinion of Troop Meisinger Steuber &
Pasich, LLP, special counsel for the Loan Parties, in substantially
the form of Exhibit G-3 hereto, and addressing such other matters as
any of the Lenders through the Administrative Agent may reasonably
request, and (B) a letter from Troop Meisinger Steuber & Pasich, LLP,
special counsel for the Loan Parties, addressed to the Administrative
Agent and each of the Lenders and otherwise in form and substance
reasonably satisfactory to the Administrative Agent, stating that the
Administrative Agent and each such Lender may rely upon the favorable
opinion of such counsel being delivered in connection with the
issuance and sale of the Senior Notes, together with a copy of such
opinion.
(xxi) (A) A favorable opinion of Westaway & Co., special
United Kingdom counsel for Saban, in substantially the form of Exhibit
G-4 hereto and (B) a favorable opinion of Norton Rose, special United
Kingdom counsel for FKE Holdings, Fox Kids Network and Fox Kids Europe
Limited, in substantially the form of Exhibit G-5 hereto and, in each
case addressing such other matters as any of the Lenders through the
Administrative Agent may reasonably request.
(xxii) A favorable opinion of Shearman & Sterling, counsel for
the Administrative Agent, in form and substance satisfactory to the
Administrative Agent.
SECTION 3.02. Conditions Precedent to Each Borrowing. The obligation
--------------------------------------
of each of the Appropriate Lenders to make an Advance on the occasion of each
Borrowing (including each Borrowing made on the Effective Date) shall be subject
to the further conditions precedent that on the date of such Borrowing (a) the
following statements shall be true (and each of the giving of the applicable
Notice of Borrowing by any of the Borrowers and the acceptance by the Borrower
that requested such Borrowing of the proceeds of such Borrowing shall constitute
a representation and warranty by such
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75
Borrower that, both on the date of such notice and on the date of such
Borrowing, such statements are true):
(i) the representations and warranties contained in each of the Loan
Documents are correct in all material respects on and as of such date,
before and after giving effect to such Borrowing and to the application of
the proceeds therefrom, as though made on and as of such date (other than
any such representation and warranty that, by its terms, refers to a
specific date other than the date of such Borrowing, in which case as of
such specific date); and
(ii) no event has occurred and is continuing, or would result from
such Borrowing or from the application of the proceeds therefrom, that
constitutes a Default;
and (b) the Administrative Agent shall have received such other approvals,
authorizations, opinions, documents and information as any of the Appropriate
Lenders through the Administrative Agent may reasonably request.
SECTION 3.03. Determinations Under Section 3.01. For purposes of
---------------------------------
determining compliance with the conditions specified in Section 3.01, each of
the Lenders shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by, or acceptable or satisfactory to, the Lenders unless an
officer of the Administrative Agent responsible for the transactions
contemplated by the Loan Documents shall have received notice from such Lender
prior to the Effective Date specifying its objection thereto and, if such Lender
has a Commitment on the Effective Date under any of the Facilities under which a
Borrowing is to be made on such date, such Lender shall not have made available
to the Administrative Agent such Lender's Pro Rata Share of such Borrowing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties. Holdings and each of
------------------------------
the Borrowers represent and warrant as follows:
(a) Each of the Loan Parties and each of their respective Subsidiaries
(i) are corporations, partnerships or limited liability companies duly
organized and validly existing under the laws of the jurisdictions of their
respective organization and, in the case of each such Loan Party and each
such Subsidiary organized under the laws of any state of the United States
of America, are in good standing under the laws of such state and (ii) are
duly qualified as foreign corporations, partnerships or limited liability
companies and are in good standing in each other jurisdiction in which the
ownership, lease or operation of their respective property and assets or
the conduct of their respective businesses require them to so qualify or be
licensed, except, solely in the case of this clause (ii), where the failure
to so qualify or be licensed or to be in good standing, either individually
or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect. Each of the Loan Parties and each of their respective
Subsidiaries have all of the requisite power and authority, and the legal
right, to own or lease and to operate all of the property and assets they
purport to own, lease or operate and to conduct all of their respective
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76
businesses as now conducted and as proposed to be conducted. Each of the
Loan Parties has all of the requisite power and authority, and the legal
right, to execute and deliver each of the Loan Documents and the Related
Documents to which it is or is to be a party, to perform all of its
Obligations hereunder and thereunder and to consummate the Transaction and
all of the other transactions contemplated hereby and thereby.
(b) Set forth on Schedule 4.01(b) hereto is a complete and accurate
list of all of the Subsidiaries of Fox Kids, showing, as of the date of
this Agreement, as to each such Subsidiary, the correct legal name thereof,
the legal structure thereof, the jurisdiction of its organization, the
number and type of each class of its Equity Interests authorized and the
number outstanding, and the percentage of each such class of its Equity
Interests outstanding on such date that are owned by any of the Loan
Parties. All of the outstanding Equity Interests in Holdings are owned
directly by Fox Kids, free and clear of all Liens (including, without
limitation, preemptive or other similar rights of the holders thereof),
except for the liens and security interests created under the Pledge and
Assignment Agreement. All of the outstanding Equity Interests in each of
the Borrowers are owned directly by Holdings, free and clear of all Liens
(including, without limitation, preemptive or other similar rights of the
holders thereof), except for the liens and security interests created under
the Pledge and Assignment Agreement. Except as set forth on Schedule
4.01(b) hereto, all of the outstanding Equity Interests in each of the
Subsidiaries of the Borrowers are owned directly or indirectly by one or
more of the Loan Parties, free and clear of all Liens (including, without
limitation, preemptive or other similar rights of the holders thereof),
except for the liens and security interests created under the Collateral
Documents. All of the outstanding Equity Interests in Holdings and each of
its Subsidiaries have been validly issued and are fully paid and
nonassessable.
(c) The execution, delivery and performance by each of the Loan
Parties of each of the Loan Documents and the Related Documents to which it
is or is to be a party, and the consummation of the Transaction and the
other transactions contemplated hereby and thereby, have been duly
authorized by all necessary action (including, without limitation, all
necessary shareholder, partner, member or other similar action) and do not:
(i) contravene the Constitutive Documents of such Loan Party;
(ii) violate any Requirement of Law;
(iii) conflict with or result in the breach of, or constitute a
default under, any loan agreement, indenture, mortgage, deed of trust,
lease, instrument, contract or other agreement binding on or affecting
such Loan Party, any of its Subsidiaries or any of their respective
property or assets; or
(iv) except for the Liens created under the Loan Documents,
result in or require the creation or imposition of any Lien upon or
with respect to any of the property or assets of such Loan Party or
any of its Subsidiaries.
Neither any of the Loan Parties nor any of their respective Subsidiaries is
in violation of any Requirement of Law or in breach of any loan agreement,
indenture, mortgage, deed of trust, lease, instrument, contract or other
agreement referred to in the immediately preceding sentence,
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77
the violation or breach of which, either individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
(d) Each of the Loan Parties and each of their respective Subsidiaries
own or possess all of the Governmental Authorizations that are necessary to
own or lease and operate their respective property and assets and to
conduct their respective businesses as now conducted and as proposed to be
conducted, except where and to the extent that the failure to obtain or
maintain in effect any such Governmental Authorization, either individually
or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect. Neither any of the Loan Parties nor any of their
respective Subsidiaries has received any notice relating to or threatening
the revocation, termination, cancellation, denial, impairment or
modification of any such Governmental Authorization, or is in violation or
contravention of, or in default under, any such Governmental Authorization.
No Governmental Authorization, and no consent, approval or authorization
of, or notice to or filing with, or other action by, any other Person is
required for:
(i) the due execution, delivery, recordation, filing or
performance by any of the Loan Parties of any of the Loan Documents or
the Related Documents to which it is or is to be a party, or for the
consummation of any aspect of the Transaction or the other
transactions contemplated hereby or thereby;
(ii) the grant by any of the Loan Parties of the Liens granted
by it pursuant to the Collateral Documents;
(iii) the perfection or maintenance of the Liens created under
the Collateral Documents (including the first priority nature
thereof); or
(iv) the exercise by the Administrative Agent or any of the
Lenders of its rights under the Loan Documents or the remedies in
respect of the Collateral pursuant to the Collateral Documents;
except for the Governmental Authorizations, and the consents, approvals,
authorizations, notices, filings and other actions, described on Schedule
4.01(d) hereto. All of the Governmental Authorizations, and the consents,
approvals, authorizations, notices, filings and other actions, described on
Schedule 4.01(d) hereto have been or will have been duly obtained, taken,
given or made on or prior to the Effective Date and are, or on the
Effective Date will be, in full force and effect, or, if expressly provided
for on Schedule 4.01(d) hereto, will be duly obtained, taken, given or made
in accordance with the terms set forth therefor on Schedule 4.01(d) hereto
and, thereafter, will be in full force and effect. All applicable waiting
periods in connection with each aspect of the Transaction and the other
transactions contemplated hereby and thereby have expired without any
action having been taken by any competent authority restraining, preventing
or imposing materially adverse conditions upon any aspect of the
Transaction or the rights of any of the Loan Parties or their respective
Subsidiaries freely to transfer or otherwise dispose of, or to create any
Lien on, any property or assets now owned or hereafter acquired by any of
them.
(e) This Agreement has been, and each of the Notes, each of the other
Loan Documents and each of the Related Documents when delivered hereunder
will have been, duly executed and delivered by each of the Loan Parties
intended to be a party thereto. This Agreement is, and each of the Notes,
each of the other Loan Documents and each of the Related
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78
Documents when delivered hereunder will be, the legal, valid and binding
obligations of each of the Loan Parties intended to be a party thereto,
enforceable against such Loan Party in accordance with their respective
terms, except to the extent such enforceability may be limited by the
effect of applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights
generally.
(f) The Consolidated balance sheet of FCN Holding and its Subsidiaries
as of March 31, 1997, and the related Consolidated statements of operations
and cash flows of FCN Holding and its Subsidiaries for the three-month
period then ended, duly certified by a Responsible Officer of FCN Holding,
copies of which have been furnished to each of the Lenders, fairly present
(subject to normal year-end audit adjustments) the Consolidated financial
condition of FCN Holding and its Subsidiaries as at such date and the
Consolidated results of operations and cash flows of FCN Holding and its
Subsidiaries for the period ended on such date. All of the Consolidated
financial statements referred to above in this Section 4.01(f) have been
prepared in accordance with generally accepted accounting principles
applied consistently throughout the period covered thereby.
(g) The Consolidated balance sheet of Saban and its Subsidiaries as of
March 31, 1997, and the related Consolidated statements of operations and
cash flows of Saban and its Subsidiaries for the three-month period then
ended, duly certified by a Responsible Officer of Saban, copies of which
have been furnished to each of the Lenders, fairly present (subject to
normal year-end audit adjustments) the Consolidated financial condition of
Saban and its Subsidiaries as at such date and the Consolidated results of
operations and cash flows of Saban and its Subsidiaries for the period
ended on such date. All of the Consolidated financial statements referred
to above in this Section 4.01(g) have been prepared in accordance with
generally accepted accounting principles applied consistently throughout
the period covered thereby.
(h) The Consolidated balance sheets of Pre-Merger IFE and its
Subsidiaries as of December 31, 1995 and December 31, 1996, and the related
Consolidated statements of liabilities, stockholders' equity and cash flows
of Pre-Merger IFE and its Subsidiaries for the fiscal years of Pre-Merger
IFE ended December 31, 1995 and December 31, 1996, in each case including
the schedules and notes thereto and accompanied by an opinion of KPMG Peat
Marwick LLP, the independent accountants of Pre-Merger IFE, and the
Consolidated balance sheet of Pre-Merger IFE and its Subsidiaries as of
June 30, 1997, and the related Consolidated statements of liabilities,
stockholders' equity and cash flows of Pre-Merger IFE and its Subsidiaries
for the six-month period then ended, duly certified by a Responsible
Officer of Pre-Merger IFE, copies of all of which have been furnished to
each of the Lenders, fairly present (subject, in the case of such balance
sheet as of June 30, 1997 and such statements of liabilities, stockholders'
equity and cash flows for the six-month period then ended, to normal year-
end audit adjustments) the Consolidated financial condition of Pre-Merger
IFE and its Subsidiaries as at such dates and the Consolidated results of
operations and cash flows of Pre-Merger IFE and its Subsidiaries for the
respective periods ended on such dates. All of the Consolidated financial
statements referred to above in this Section 4.01(h), including the
schedules and notes thereto, have been prepared in accordance with
generally accepted accounting principles applied consistently throughout
the respective periods covered thereby.
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79
(i) The combined balance sheets of Fox Kids and its Subsidiaries as of
June 30, 1996 and June 30, 1997, and the related combined statements of
operations, stockholders' equity and cash flows of Fox Kids and its
Subsidiaries for the eight-month period ended June 30, 1996 and the 12-
month period ended June 30, 1997, respectively, in each case including the
schedules and notes thereto and accompanied by an opinion of Ernst & Young
LLP, the independent accountants of Fox Kids, copies of which have been
furnished to each of the Lenders, fairly present the combined financial
condition of Fox Kids and its Subsidiaries as at such dates and the
combined results of operations and cash flows of Fox Kids and its
Subsidiaries for the respective periods ended on such dates. All of the
combined financial statements referred to above in this Section 4.01(i),
including the schedules and notes thereto, have been prepared in accordance
with generally accepted accounting principles applied consistently
throughout the respective periods covered thereby.
(j) The pro forma Consolidated balance sheet of Fox Kids and its
Subsidiaries as of June 30, 1997, and the related pro forma Consolidated
statements of operations and stockholders' equity of Fox Kids and its
Subsidiaries for the 12-month period ended June 30, 1997, as set forth in
the Final Offering Memorandum, copies of which have been furnished to each
of the Lenders, fairly present the pro forma Consolidated financial
condition of Fox Kids and its Subsidiaries as at such date and the pro
forma Consolidated results of operations and cash flows of Fox Kids and its
Subsidiaries for the period ended on such date, in each case after giving
effect to the Transaction.
(k) The forecasted Consolidated balance sheets, statements of
operation and cash flow statements of Fox Kids and its Subsidiaries
delivered to the Lenders pursuant to Section 3.01(i)(xv) hereof or Section
7(i)(iv) of the Fox Kids Guarantee were prepared in good faith on the basis
of the assumptions stated therein, which assumptions were reasonable in the
light of conditions existing at the time of delivery of such forecasts, and
represented, at the time of delivery thereof to the Lenders, the Borrowers'
reasonable estimates of their future financial performance (although the
actual results during the periods covered by such forecasts may differ from
the forecasted results).
(l) No material adverse change has occurred in the business, condition
(financial or otherwise), operations, performance or properties of Fox Kids
and its Subsidiaries, taken as a whole, since December 31, 1996.
(m) The Information Memorandum (as supplemented by the Final Offering
Memorandum) and all of the other written information (other than financial
projections and pro forma information) furnished by or on behalf of any of
the Loan Parties or any of their respective Subsidiaries to the
Administrative Agent or any of the Lenders in connection with the Loan
Documents or the Related Documents or any aspect of the Transaction or any
of the other transactions contemplated hereby or thereby does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made therein, in light of the
circumstances in which any such statements were made, not misleading.
(n) There is no action, suit, investigation, litigation, arbitration
or proceeding pending or, to the best knowledge of Holdings and each of the
Borrowers, threatened against or affecting any of the Loan Parties or any
of their respective Subsidiaries or any of the property or assets
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thereof in any court or before any arbitrator or by or before any
Governmental Authority of any kind (i) that, either individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect
or (ii) in which there is a reasonable likelihood of an adverse
determination and which purports to affect the legality, validity, binding
effect or enforceability of any aspect of the Transaction, any of the Loan
Documents or the Related Documents or any of the other transactions
contemplated thereby.
(o) Each of the Loan Parties is the legal and beneficial owner of the
Collateral purported to be owned thereby under the Collateral Documents,
free and clear of all Liens, except for the liens and security interests
created under the Loan Documents. The Collateral Documents create valid
and perfected first priority liens on and security interests in the
Collateral in favor of the Administrative Agent, for the benefit of the
Secured Parties, securing the payment of the Secured Obligations. All of
the Equity Interests in Holdings and its Subsidiaries that are purported to
comprise part of the Collateral have been delivered to the Administrative
Agent as required under the terms of the Collateral Documents, together
with undated stock powers or other appropriate powers duly executed in
blank; all filings and other actions necessary to perfect and protect the
liens and security interests of the Administrative Agent in the Collateral
have been duly made or taken and are in full force and effect or will be
duly made or taken in accordance with the terms of the Loan Documents; and
all filing fees and recording taxes have been paid in full.
(p) Each of the Loan Parties and each of their respective Subsidiaries
own or possess all of the licenses, permits, franchises, authorizations,
consents and approvals, and own or have the legal right to use all of the
patents, copyrights, service marks, trademarks and trade names (or other
rights thereto), that are necessary to own or lease and operate their
respective property and assets and to conduct their respective businesses
as now conducted and as proposed to be conducted, without known conflict
with the rights of any other Person. No action, suit, investigation,
litigation, arbitration or proceeding is pending or, to the best knowledge
of Holdings and each of the Borrowers, is threatened challenging the use by
any of the Loan Parties or any of their respective Subsidiaries of any such
license, permit, franchise, authorization, consent, approval, patent,
copyright, service mark, trademark, trade name or other right, or the
validity or effectiveness thereof, except for any such action, suit,
investigation, litigation or proceeding that, either individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect. Except as described on Schedule 4.01(p) hereto:
(i) no product of any of the Loan Parties or any of their
respective Subsidiaries infringes in any material respect on any
license, permit, franchise, authorization, consent, approval, patent,
copyright, service mark, trademark, trade name or other right owned by
any other Person; and
(ii) there is no material violation by any Person of any right of
any of the Loan Parties or any of their respective Subsidiaries with
respect to any license, permit, franchise, authorization, consent,
approval, patent, copyright, service mark, trademark, trade name or
other right owned or used by any such Loan Party or any such
Subsidiary.
Neither the Administrative Agent nor any of the Lenders will, solely as a
result of their execution, delivery or performance of this Agreement or any
of the other Loan Documents, or
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the making of Advances or maintaining their Commitments hereunder, be
subject to the regulation or control of the FCC or any similar Governmental
Authority.
(q) None of the proceeds of any of the Advances will be used to
acquire any Equity Interests in any Person of a class that is registered
pursuant to Section 12 of the Exchange Act.
(r) Neither Fox Kids nor any of its Subsidiaries is engaged in the
business of extending credit for the purpose of purchasing or carrying any
"margin stock" (within the meaning of Regulation G or U of the Board of
Governors of the Federal Reserve System (12 CFR 207)). Following
application of the proceeds of each Advance made on or after the Effective
Date, not more than 25 percent of the value of the property and assets of
any of the Borrowers, either individually or together with its
Subsidiaries, taken as a whole, subject to the provisions of Section
5.02(a) or 5.02(d) or subject to any restriction contained in any agreement
or instrument between any such Borrower and any of the Lenders or any
Affiliate of any of the Lenders relating to Indebtedness and within the
scope of Section 7.01(e), will be margin stock.
(s) Neither any of the Loan Parties nor any of their respective
Subsidiaries is an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" (each as
defined in the Investment Company Act of 1940, as amended). None of the
making of any Advances or the application of the proceeds therefrom, the
repayment of any of the Advances by any of the Borrowers, or the
consummation of the Transaction or any of the other transactions
contemplated hereby, will violate any provision of the Investment Company
Act of 1940, as amended, or any rule, regulation or order of the Securities
and Exchange Commission thereunder.
(t) Holdings and its Subsidiaries, taken as a whole, is Solvent. Each
of the Borrowers and its Subsidiaries, taken as a whole, is Solvent.
(u) Neither any of the Loan Parties nor any of their respective
Subsidiaries is a party to any loan agreement, indenture, mortgage, deed of
trust, lease, instrument, contract or other agreements or is subject to any
restriction in its Constitutive Documents or any other corporate,
partnership, limited liability company or similar restriction that, in each
case either individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.
(v) Neither the business nor the property or assets of any of the Loan
Parties or any of their respective Subsidiaries have been affected by any
fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo or other act of God or of the public enemy
or other casualty (whether or not covered by insurance) that, either
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(w) There is (i) no unfair labor practice complaint pending or, to the
best knowledge of Holdings and each of the Borrowers, threatened against
any of the Loan Parties or any of their respective Subsidiaries by or
before any Governmental Authority and no grievance or arbitration
proceeding pending or, to the best knowledge of Holdings and each of the
Borrowers, threatened against any of the Loan Parties or any of their
respective Subsidiaries which arises out of or under any collective
bargaining agreement, (ii) no strike, labor dispute, slowdown, stoppage or
similar action or grievance pending or, to the best knowledge of Holdings
and each of the Borrowers, threatened against any of the Loan Parties or
any of their respective Subsidiaries and
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(iii) to the best knowledge of Holdings and each of the Borrowers, no union
representation question existing with respect to the employees of any of
the Loan Parties or any of their respective Subsidiaries and no union
organizing activity taking place with respect to any of the employees of
any of them that, in the case of any or all of clauses (i), (ii) and (iii)
of this Section 4.01(w), either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(x) There exists no actual or threatened termination, cancellation or
limitation of, or modification to or change in, the business relationship
between (i) any of the Borrowers or any of their respective Subsidiaries,
on the one hand, and any carrier, any customer or any group thereof, on the
other hand, whose agreements with any such Borrower or any such Subsidiary
are, or whose use of the property and assets or services thereof is, either
individually or in the aggregate, material to the business or operations of
Holdings and its Subsidiaries, taken as a whole, or (ii) any of the
Borrowers or any of their respective Subsidiaries, on the one hand, and any
material supplier thereof, on the other hand; and, to the best knowledge of
Holdings and each of the Borrowers, there exists no present state of facts
or circumstances that could reasonably be expected to give rise to or
result in any such termination, cancellation, limitation, modification or
change.
(y) Set forth on Schedule 4.01(y) hereto is a complete and accurate
list, as of the date of this Agreement, of all of the Plans and
Multiemployer Plans of the Loan Parties and the ERISA Affiliates. No
circumstances or conditions exist under any scheme or arrangement mandated
by any Governmental Authority other than Governmental Authorities of the
United States of America and the political subdivisions thereof that
require employer or employee contributions or compliance by any of the Loan
Parties or any of their respective Subsidiaries, and neither any of the
Loan Parties nor any of their respective Subsidiaries maintains or
contributes to any employee benefit plan that is not subject solely to the
Requirements of Law of the United States of America or any political
subdivision thereof, that, in any such case either individually or in the
aggregate, could reasonably be expected to result in any material liability
of any of the Loan Parties or any of their respective Subsidiaries. None
of legal or beneficial owners of any of the Equity Interests in Fox Kids is
a member of the "controlled group of corporations" (as defined in Treasury
Regulations 1.414(b) and 1.414(c)) of any of the Loan Parties.
(z) No ERISA Event has occurred or could reasonably be expected to
occur with respect to any Plan that has resulted or could reasonably be
expected to result in any material liability of any of the Loan Parties or
any of the ERISA Affiliates.
(aa) Schedule B (Actuarial Information) to the most recent annual
report (form 5500 series) for each of the Plans, copies of which have been
filed with the Internal Revenue Service and furnished to each of the
Lenders, is complete and accurate and fairly presents the funding status of
such Plan; and, since the date of such Schedule B, there has been no
material adverse change in the funding status of such Plan.
(bb) Neither any of the Loan Parties nor any of the ERISA Affiliates
(i) has incurred or could reasonably be expected to incur any Withdrawal
Liability to any Multiemployer Plan or (ii) has been notified by the
sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or has been terminated, within the meaning of Title IV of
ERISA, and no such
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Multiemployer Plan could reasonably be expected to be in reorganization or
to be terminated, within the meaning of Title IV of ERISA, that in any of
the foregoing cases under this Section 4.01(bb), either individually or in
the aggregate, could reasonably be expected to result in any material
liability of any of the Loan Parties or any of the ERISA Affiliates.
(cc) The operations and properties of each of the Loan Parties and
each of their respective Subsidiaries comply in all material respects with
all applicable Environmental Laws and Environmental Permits; all past
noncompliance with such Environmental Laws and Environmental Permits has
been resolved without any material ongoing obligations or costs; all
Environmental Permits that are necessary for the operations or properties
of any of the Loan Parties or any of their respective Subsidiaries have
been obtained and are in full force and effect; and no circumstances exist
that, either individually or in the aggregate, could reasonably be expected
to (i) form the basis of an Environmental Action against any of the Loan
Parties or any of their respective Subsidiaries or any of the properties
thereof that, either individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect or (ii) cause any such property
to be subject to any restrictions on ownership, occupancy, use or
transferability under any Environmental Law that, either individually or in
the aggregate, could reasonably be expected to have a Material Adverse
Effect.
(dd) (i) None of the properties owned or operated by any of the Loan
Parties or any of their respective Subsidiaries is listed or proposed for
listing on the NPL or on the CERCLIS or any analogous foreign, state,
provincial or local list or, to the best knowledge of Holdings and each of
the Borrowers, is adjacent to any such property; and (ii) except as, either
individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect, (A) there are no and never have been any
underground or aboveground storage tanks or any surface impoundments,
septic tanks, pits, sumps or lagoons in which Hazardous Materials are being
or have been treated, stored or disposed of on any property owned or
operated by any of the Loan Parties or any of their respective Subsidiaries
or, to the best knowledge of Holdings and each of the Borrowers, on any
property formerly owned or operated by any of the Loan Parties or any of
their respective Subsidiaries, (B) there is no asbestos or asbestos-
containing material on any property owned or operated by any of the Loan
Parties or any of their respective Subsidiaries and (C) Hazardous Materials
have not been released, discharged or disposed of on any property owned or
operated by any of the Loan Parties or any of their respective
Subsidiaries.
(ee) Neither any of the Loan Parties nor any of their respective
Subsidiaries is undertaking, and has not completed, either individually or
together with other potentially responsible parties, any investigation or
assessment or remedial or response action relating to any actual or
threatened release, discharge or disposal of Hazardous Materials at any
site, location or operation, either voluntarily or pursuant to the order of
any Governmental Authority or the requirements of any Environmental Law.
All Hazardous Materials generated, used, treated, handled or stored at, or
transported to or from, any property owned or operated by any of the Loan
Parties or any of their respective Subsidiaries have been disposed of in a
manner that, either individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect.
(ff) Each of the Loan Parties and each of their respective
Subsidiaries have filed, have caused to be filed or have been included in
all federal tax returns, reports and statements and all
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84
other material tax returns, reports and statements (foreign, state, local
and provincial) required to be filed and have paid all taxes, assessments,
levies, fees and other charges shown thereon (or on any assessments
received by any such Person or of which any such Person has been notified)
to be due and payable, together with applicable interest and penalties,
except for any such taxes, assessments, levies, fees and other charges the
amount, applicability or validity of which is being contested in good faith
and by appropriate proceedings diligently conducted and with respect to
which such Loan Party or such Subsidiary, as the case may be, has
established appropriate and adequate reserves in accordance with GAAP.
Except as set forth on Schedule 4.01(ff) hereto, all of the tax returns,
reports and statements referred to in the immediately preceding sentence
have been prepared in good faith and are complete and accurate in all
material respects for the Loan Parties and their Subsidiaries for the
respective periods covered thereby.
(gg) Set forth on Schedule 4.01(gg) hereto is a complete and accurate
list, as of the date of this Agreement, of each Open Year of each of the
Loan Parties and each of their respective Subsidiaries. There are no
adjustments to (i) the federal income tax liability (including, without
limitation, interest and penalties) of any of the Loan Parties or any of
their respective Subsidiaries proposed in writing by the Internal Revenue
Service with respect to Open Years or (ii) any foreign, state, local or
provincial tax liability (including, without limitation, interest and
penalties) of any of the Loan Parties or any of their respective
Subsidiaries proposed in writing by any foreign, state, local or provincial
taxation authority that, in the aggregate for subclauses (A) and (B) of
this sentence, would exceed $5,000,000. No issues have been raised by the
Internal Revenue Service in respect of Open Years or by any such foreign,
state, local or provincial taxation authorities that, either individually
or in the aggregate, could reasonably be expected to have a Material
Adverse Effect.
(hh) Neither any of the Loan Parties nor any of their respective
Subsidiaries has entered into an agreement or waiver or been requested to
enter into an agreement or waiver extending any statute of limitations
relating to the assessment, reassessment, payment or collection of taxes of
such Loan Party or any such Subsidiary, or is aware of any circumstances
that would cause the taxable years or other taxable periods of such Loan
Party or any such Subsidiary to no longer be subject to the normally
applicable statute of limitations, except that the taxable years of IFE
ended December 31, 1992 and December 31, 1993 have been extended to June
30, 1998 due to an ongoing audit by the Internal Revenue Service of the
taxable year of IFE ended December 31, 1992 and adjustments expected to be
made in subsequent periods. Neither any of the Loan Parties nor any of
their respective Subsidiaries has provided, with respect to itself or any
property held by it, any consent under Section 341(f) of the Internal
Revenue Code.
(ii) As of June 30, 1997: (i) Fox Kids and its Subsidiaries did not
have any net operating loss carryforwards for U.S. federal income tax
purposes; (ii) FCN Holding and its Subsidiaries had net operating loss
carryforwards for U.S. federal income tax purposes equal to at least
$100,000 in the aggregate; (iii) Saban and its Subsidiaries did not have
any net operating loss carryforwards for U.S. federal income tax purposes;
and (iv) IFE and its Subsidiaries did not have any net operating loss
carryforwards for U.S. federal income tax purposes.
(jj) Set forth on Schedule 4.01(jj) hereto is a complete and accurate
list, as of the date of this Agreement, of all of the Surviving
Indebtedness, showing, as of such date, each of the Loan Parties and/or
each of their respective Subsidiaries party thereto, the principal amount
<PAGE>
85
outstanding thereunder, the interest rate thereon, the scheduled maturity
date thereof and the amortization schedule, if any, therefor.
(kk) Set forth on Schedule 4.01(kk) hereto is a complete and accurate
list, as of the date of this Agreement, of all of the Investments (other
than Cash Equivalents) held by any of the Loan Parties or any of their
respective Subsidiaries, showing, as of such date, the amount, the obligor
or issuer thereof and the maturity, if any, thereof.
(ll) All of the Subsidiaries of Fox Kids constitute "Restricted
Subsidiaries" (as defined in the Senior Notes Indentures) on the Effective
Date for all purposes of the Senior Notes Documents other than the
Subsidiaries of IFE that are intended, and are expressly permitted, to be
sold, transferred or otherwise disposed of pursuant to Section
5.02(d)(vii).
ARTICLE V
COVENANTS OF HOLDINGS AND THE BORROWERS
SECTION 5.01. Affirmative Covenants. So long as any of the Advances
---------------------
shall remain unpaid or any of the Lenders shall have any Commitment hereunder,
Holdings and each of the Borrowers will, at all times (unless a specific time
period is specified herein):
(a) Compliance with Laws, Maintenance of Governmental Authorizations,
-----------------------------------------------------------------
Etc. (i) Comply, and cause each of its Subsidiaries to comply, in all
---
material respects, with all applicable Requirements of Law, such compliance
to include, without limitation, compliance with ERISA and the Racketeer
Influenced and Corrupt Organizations Chapter of the Organized Crime Control
Act of 1970, and (ii) except as provided in Section 5.01(e), obtain and
maintain in effect, and cause each of its Subsidiaries to obtain and
maintain in effect, all Governmental Authorizations that are necessary (A)
to own or lease and operate their respective property and assets and to
conduct their respective businesses as now conducted and as proposed to be
conducted, except where and to the extent that the failure to obtain or
maintain in effect any such Governmental Authorization, either individually
or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect, or (B) for the due execution, delivery, recordation, filing
or performance by Holdings or any of its Subsidiaries of any of the Loan
Documents or the Related Documents to which it is or is to be a party, or
for the consummation of any aspect of the Transaction or any of the other
transactions contemplated hereby and thereby, except in the case of this
subclause (ii)(B) for the Governmental Authorizations, and the consents,
approvals, authorizations, notices, filings and other actions, described on
Schedule 4.01(d) hereto as otherwise being required to be duly obtained,
taken, given or made in accordance with the terms set forth therefor on
Schedule 4.01(d) hereto. This Section 5.01(a) shall not apply to
compliance with Environmental Laws or Environmental Permits (which is the
subject of Section 5.01(c)).
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its
---------------------
Subsidiaries to pay and discharge, to the extent due and payable and before
the same shall become delinquent, (i) all taxes, assessments,
reassessments, levies and other governmental charges imposed upon it or
upon its property, assets, income or franchises and (ii) all lawful claims
that, if unpaid, might by law become a Lien upon its property and assets or
any part thereof; provided, however,
<PAGE>
86
that neither Holdings nor any of its Subsidiaries shall be required to pay
or discharge any such tax, assessment, reassessment, levy, charge or claim
the amount, applicability or validity of which is being contested in good
faith and by proper proceedings diligently conducted and as to which
appropriate and adequate reserves are being maintained in accordance with
GAAP, unless and until (i) such contest could subject Holdings or any of
its Subsidiaries to any criminal penalty or liability or the Administrative
Agent or any of the Lenders to any criminal penalty or liability or (except
for nonmaterial fines for which the Administrative Agent or such Lender is
fully indemnified under Section 9.04) any civil penalty or liability or
(ii) any Lien resulting therefrom attaches to any of the Collateral or a
material portion of its other property and assets and enforcement,
collection, execution, levy or foreclosure proceedings shall have been
commenced with respect thereto.
(c) Compliance with Environmental Laws. (i) Comply (and require all
----------------------------------
lessees and other Persons operating or occupying any of its properties to
comply), and cause each of its Subsidiaries to comply (and to require all
lessees and other Persons operating or occupying any of its properties to
comply), in all material respects, with all of the applicable Environmental
Laws and the Environmental Permits applicable to such Person or its
operations or properties; (ii) obtain and renew, and cause each of its
Subsidiaries to obtain and renew, all of the Environmental Permits
necessary for the ownership or operation of their respective properties or
the conduct of their respective businesses as now conducted and as proposed
to be conducted; and (iii) conduct, and cause each of its Subsidiaries to
conduct, any investigation, study, sampling or testing, and undertake, and
cause each of its Subsidiaries to undertake, any cleanup, removal, remedial
or other action, necessary to remove and clean up all of the Hazardous
Materials from any of its properties in accordance with the requirements of
all applicable Environmental Laws, except, in the case of clause (ii) or
(iii) of this Section 5.01(c), where the failure to obtain or renew any
such Environmental Permit, to conduct any such investigation, study,
sampling or testing or to undertake any such cleanup, removal, remedial or
other action, either individually or in the aggregate, could not reasonably
be expected (A) to have a Material Adverse Effect or (B) to subject
Holdings or any of its Subsidiaries to any criminal penalty or liability or
the Administrative Agent or any of the Lenders to any criminal penalty or
liability or (except for nonmaterial fines for which the Administrative
Agent or such Lender is fully indemnified under Section 9.04) any civil
penalty or liability; provided, however, that neither Holdings nor any of
its Subsidiaries shall be required to undertake any such cleanup, removal,
remedial or other action otherwise required under this Section 5.01(c) to
the extent that the amount, applicability or validity thereof is being
contested in good faith and by proper proceedings diligently conducted and
appropriate and adequate reserves are being maintained in accordance with
GAAP with respect to such circumstances.
(d) Maintenance of Insurance. Maintain, and cause each of its
------------------------
Subsidiaries to maintain, insurance for their respective properties, assets
and businesses (i) with insurance companies or associations that have, or
that have directly reinsured such insurance with insurance companies or
associations that have, an A.M. Best Company claims paying ability rating
of at least "A-" (or the then equivalent rating) and (ii) of such types
(including, without limitation, insurance against theft and fraud and
against loss or damage by fire, explosion or hazard of or to property,
errors and omissions insurance and insurance against liability for
defamation, libel, slander and invasion of privacy), in such amounts and
with such deductibles, covering such casualties and contingencies and
otherwise on such terms as are either (A) at least as favorable as those
usually carried by companies of established reputations engaged in similar
businesses and
<PAGE>
87
owning similar properties and assets in the same general areas in which
Holdings or the applicable Subsidiary of Holdings operates or (B)
recommended by Alexander & Alexander or another insurance broker of
recognized national standing and, in any case, as may otherwise be required
by applicable Requirements of Law; provided, however, that Holdings and its
Subsidiaries may effect workers' compensation insurance or similar coverage
with respect to their respective operations in any particular jurisdiction
through an insurance fund operated by such jurisdiction or by meeting the
self-insurance requirements of such jurisdiction so long as Holdings or
such Subsidiary establishes and maintains appropriate and adequate reserves
therefor in accordance with GAAP.
(e) Preservation of Corporate Existence, Etc. Preserve and maintain,
----------------------------------------
and cause each of its Subsidiaries to preserve and maintain, its existence,
legal structure, organization, rights (statutory and pursuant to its
Constitutive Documents), permits, licenses, approvals, privileges and
franchises; provided, however, that Holdings and its Subsidiaries (i) may
consummate any merger or consolidation otherwise expressly permitted under
Section 5.02(c), (ii) may wind up, liquidate or dissolve any of their
respective inactive Subsidiaries to the extent otherwise expressly
permitted under Section 5.02(d)(iv) and (iii) may amend, supplement or
otherwise modify their rights under their respective Constitutive Documents
to the extent otherwise expressly permitted under Section 5.02(l); and
provided further, however, that neither Holdings nor any of its
Subsidiaries shall be required to preserve any right, permit, license,
approval, privilege or franchise if the board of directors (or persons
performing similar functions) of Holdings or such Subsidiary shall
determine in good faith that the preservation thereof is no longer
desirable in the conduct of the business of Holdings or such Subsidiary, as
the case may be, and that the loss thereof is not disadvantageous in any
material respect to Holdings, such Subsidiary or the Lenders or, solely in
the case of any such permit, license or approval, that the loss thereof,
either individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.
(f) Visitation Rights. At any reasonable time and from time to time,
-----------------
upon reasonable notice, permit the Administrative Agent or any of the
Lenders, or any agents or representatives thereof (so long as such agent or
representative is or agrees to be bound by the provisions of Section 9.09),
to examine and make copies of and abstracts from the records and books of
account of, and to visit during normal business hours the properties of,
Holdings or any of its Subsidiaries, and to discuss the affairs, finances
and accounts of Holdings and/or any of its Subsidiaries with any of their
officers or directors and with their independent public accountants.
(g) Keeping of Books. Keep, and cause each of its Subsidiaries to
----------------
keep, proper books of record and account in which full and accurate entries
shall be made of all of the financial transactions and the property, assets
and businesses of Holdings and each of its Subsidiaries (including, without
limitation, the establishment and maintenance of adequate and appropriate
reserves) in accordance with all applicable Requirements of Law and with
GAAP.
(h) Maintenance of Properties, Etc. (i) Maintain and preserve, and
------------------------------
cause each of its Subsidiaries to maintain and preserve, all of its
properties that are used or useful in the conduct of its business in good
working order and condition, ordinary wear and tear and casualty and
condemnation excepted, and (ii) make, and cause each of its Subsidiaries to
make, from time to time, all necessary repairs, renewals, additions,
replacements, betterments and improvements of
<PAGE>
88
such properties in order to permit the business and activities carried on
in connection therewith to be properly conducted at all times.
(i) Compliance with Terms of Leaseholds. (i) Make all payments and
-----------------------------------
otherwise perform all obligations in respect of all leases of real property
to which any of the Borrowers or any of their respective Subsidiaries is a
party, keep such leases in full force and effect and not allow such leases
to lapse or to be terminated or any rights to renew such leases to be
forfeited or cancelled, in each case except to the extent that, in the
reasonable business judgment of the Borrower or the Subsidiary of any of
the Borrowers that is the lessee thereof, it is in the best interest of
such Borrower or such Subsidiary, as the case may be, to allow or to cause
such nonperformance, lapse, termination, forfeiture or cancellation, and
such nonperformance, lapse, termination, forfeiture or cancellation, either
individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect, and (ii) promptly notify the Administrative
Agent of (A) any default by any party with respect to any such lease that
could impair the interests of any of the Loan Parties or any of their
Subsidiaries therein in any material manner or the rights or interests of
the Administrative Agent or any of the Lenders in any manner, and cooperate
with the Administrative Agent to cure any such default, and (B) any
material nonperformance, or any lapse, termination, forfeiture or
cancellation of any lease otherwise permitted to occur under clause (i) of
this Section 5.01(i), and, in respect of each of the foregoing provisions
of this Section 5.01(i), cause each of its Subsidiaries to do so.
(j) Transactions with Affiliates. Conduct, and cause each of its
----------------------------
Subsidiaries to conduct, directly or indirectly, all transactions or series
of related transactions (including, without limitation, the purchase, sale,
lease, transfer or exchange of property or assets of any kind or the
rendering of services of any kind) otherwise permitted under the Loan
Documents with any of their Affiliates on terms that are fair and
reasonable and no less favorable to Holdings or any of its Subsidiaries
than it would obtain in a comparable arm's-length transaction with a Person
not an Affiliate thereof, other than:
(i) the consummation of the Refinancing;
(ii) the performance by Holdings or any of its Subsidiaries
of its obligations under the Related Documents, in each case in
accordance with the terms thereof as in effect on the date of this
Agreement;
(iii) any transaction or series of related transactions solely
between or among Holdings and one or more of the Borrowers or the
Restricted Subsidiaries, one or more of the Borrowers, one or more of
the Borrowers and one or more of the Restricted Subsidiaries, one or
more of the Restricted Subsidiaries or one or more of the Unrestricted
Subsidiaries, in each case to the extent such transaction or series of
related transactions is not otherwise prohibited under the terms of
the Loan Documents;
(iv) the payment of management fees to Fox Kids from time to
time by one or more of the Borrowers to the extent otherwise expressly
permitted under Section 5.02(b)(ii)(B);
(v) Investments in Fox Kids made by IFE on the Effective Date
pursuant to, and in accordance with the terms of, Section 5.02(e)(i),
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89
(vi) loans and advances by Holdings or any of its Subsidiaries to
one or more employees thereof, in each case to the extent otherwise
expressly permitted under Section 5.02(e); and
(vii) the declaration and payment of dividends and the making of
distributions by, and the issuance and sale of Equity Interests in,
Holdings or any of its Subsidiaries, in each case to the extent
otherwise expressly permitted under clause (i), (ii), (iii), (iv),
(vi) or (vii) of Section 5.02(f).
(k) Further Assurances. Promptly upon the request of the
------------------
Administrative Agent, or any of the Lenders through the Administrative
Agent, at any time and from time to time:
(i) correct, and cause each of its Subsidiaries to correct, any
defect or error that may be discovered in any of the Loan Documents or
in the execution, acknowledgment, filing or recordation thereof; and
(ii) do, execute, acknowledge, deliver, record, rerecord, file,
refile, register and reregister, and cause each of its Subsidiaries
promptly to do, execute, acknowledge, deliver, record, rerecord, file,
refile, register and reregister, any and all further acts,
conveyances, pledge agreements, assignments, financing statements and
continuations thereof, termination statements, notices of assignment,
transfers, certificates, assurances and other instruments as the
Administrative Agent, or any of the Lenders through the Administrative
Agent, may reasonably require from time to time in order to (A) carry
out more effectively the purposes of this Agreement, the Notes or any
of the other Loan Documents, (B) subject any of the property, assets,
rights or interests of any of the Loan Parties or any of their
respective Subsidiaries included or intended to be included in the
Collateral to the Liens created or now or hereafter intended to be
created under any of the Collateral Documents, (C) perfect and
maintain the validity, effectiveness and priority of any of the
Collateral Documents or any of the Liens created or intended to be
created thereunder and (D) assure, convey, grant, assign, transfer,
preserve, protect and confirm more effectively to the Administrative
Agent and the other Secured Parties the rights granted or now or
hereafter intended to be granted to the Administrative Agent and the
other Secured Parties under any of the Loan Documents, or under any of
the other instruments executed in connection with any such Loan
Document.
SECTION 5.02. Negative Covenants. So long as any of the Advances
------------------
shall remain unpaid or any of the Lenders shall have any Commitment hereunder,
neither Holdings nor any of the Borrowers will, at any time:
(a) Liens, Etc. Create, incur, assume or suffer to exist, or permit
----------
any of its Subsidiaries to create, incur, assume or suffer to exist, any
Lien on or with respect to any of its property or assets of any character
(including, without limitation, accounts), whether now owned or hereafter
acquired, or sign or file or suffer to exist, or permit any of its
Subsidiaries to sign or file or suffer to exist, under the Uniform
Commercial Code or any similar Requirements of Law of any jurisdiction, a
financing statement (or the equivalent thereof) that names Holdings or any
of its Subsidiaries as debtor, or sign or suffer to exist, or permit any of
its Subsidiaries to sign or suffer to exist, any security agreement
authorizing any secured party thereunder to file any such financing
statement (or the equivalent thereof), or sign or suffer to exist, or
permit any
<PAGE>
90
of its Subsidiaries to sign or suffer to exist, any agreement or arrangement
for the sale of any of its property or assets subject to an understanding or
agreement, contingent or otherwise, to repurchase such property or assets
(including sales or accounts receivable with recourse to Holdings or any of its
Subsidiaries), or assign, or permit any of its Subsidiaries to assign, any
accounts or other right to receive income, excluding, however, from the
operation of the foregoing restrictions (i) with respect to Holdings, (A) Liens
created under the Loan Documents; and (B) Permitted Liens of the type described
in clauses (a), (g) and (h) of the definition thereof set forth in Section 1.01;
and (ii) with respect to the Borrowers and their respective Subsidiaries, the
following :
(A) Liens created under the Loan Documents;
(B) Permitted Liens;
(C) Liens existing on the date of this Agreement and described on
Schedule 5.02(a) hereto;
(D) purchase money Liens upon or in real property or equipment
acquired or held by any of the Borrowers or any of their respective
Subsidiaries in the ordinary course of business to secure the purchase
price of such real property or equipment or to secure Indebtedness incurred
solely for the purpose of financing the acquisition, construction or
improvement of any such real property or equipment to be subject to such
Liens, or Liens existing on any such real property or equipment at the time
of or within 90 days after its acquisition or the completion of its
construction (other than any such Liens created in contemplation of such
acquisition that do not secure the purchase price of such real property or
equipment); provided, however, that no such Lien shall extend to or cover
any property or assets other than the real property or equipment being so
acquired, constructed or improved; and provided further that (1) the
principal amount of Indebtedness secured by any such Lien shall not exceed
the cost (including all such Indebtedness secured thereby, whether or not
assumed) to the applicable Borrower or the applicable Subsidiary of the
real property or equipment to be subject to any such Lien and (2) and
Indebtedness secured by Liens shall otherwise be expressly permitted under
Section 5.02(b)(iii)(D) and shall not otherwise be prohibited under the
terms of the Loan Documents;
(E) Liens arising in connection with Capitalized Leases otherwise
permitted under Section 5.02(b)(iii)(E) and not otherwise prohibited under
the terms of the Loan Documents; provided that no such Lien shall extend to
or cover any property or assets other than the property or assets subject
to such Capitalized Leases;
(F) Liens upon any of the property and assets (other than any Equity
Interests in any Person) existing at the time such property or asset is
purchased or otherwise acquired by any of the Borrowers or any of their
respective Subsidiaries; provided that any such Lien was not created in
contemplation of such purchase or other acquisition and does not extend to
or cover any property or assets other than the property or asset being so
purchased or otherwise acquired; and provided further that any Indebtedness
or other Obligations secured by such Liens shall otherwise be expressly
permitted under
<PAGE>
91
Section 5.02(b)(iii)(J) and shall not otherwise be prohibited under the
terms of the Loan Documents;
(G) Liens upon any of the property and assets (other than any Equity
Interests in any Person) of a Person and its Subsidiaries existing at the time
such Person is merged into or consolidated with any of the Subsidiaries of
Holdings, or otherwise becomes a Subsidiary of Holdings, in accordance with the
terms of the Loan Documents; provided, that such Lien was not created in
contemplation of such merger, consolidation or acquisition and does not extend
to or cover any property or assets other than property and assets of the Person
and its Subsidiaries being so merged into or consolidated with such Subsidiary
or being acquired by Holdings or such Subsidiary, as the case may be; and
provided further that any Indebtedness or other Obligations secured by such
Lien shall otherwise be expressly permitted under Section 5.02(b)(iii)(J) and
shall not otherwise be prohibited under the terms of the Loan Documents;
(H) deposits and letters of credit to secure the performance of leases of
property (whether real, personal or mixed) of the Holdings and its Subsidiaries
(excluding Capitalized Leases) in the ordinary course of business; provided
that no such Lien shall extend to or cover any property or assets other than
such deposit or such letter of credit and the property and assets subject to
such lease, as applicable;
(I) Liens upon any item of Product and the rights directly relating thereto
in favor of the Screen Actors Guild, the Writers Guild of America, the
Directors Guild of America or any other unions, guilds or collective bargaining
units the collective bargaining agreements of which apply to such item of
Product, which Liens are incurred in the ordinary course of business solely to
secure the payment of Residuals and other collective bargaining obligations
required to be paid by any of the Borrowers or any of their respective
Subsidiaries under any such collective bargaining agreement in respect of such
item of Product or such directly related rights; provided that no such Lien
shall extend to or cover any property or assets other than the item or items of
Product giving rise to such Lien, the rights directly relating thereto and the
proceeds thereof;
(J) Liens arising in connection with Approved Completion Guarantees entered
into in the ordinary course of business and consistent with then current
industry practices, securing Obligations (other than indebtedness for borrowed
money) of any of the Borrowers or any of their respective Subsidiaries not yet
due and payable; provided that, with respect to each Approved Completion
Guarantee covering one or more items of Product of any of the Borrowers or any
of the Restricted Subsidiaries, each such Lien shall be subject to an
intercreditor agreement, in form and substance reasonably satisfactory to the
Lenders, between the Person providing any such Approved Completion Guarantee
and the Administrative Agent, on behalf of the Secured Parties, pursuant to
which such Person irrevocably agrees not to interfere with or otherwise disturb
the exploitation, exhibition, syndication, distribution or disposition of the
related items of Product by any of the Borrowers or any of their respective
Subsidiaries or by the Administrative Agent or any of the Lenders or to
exercise any rights with respect to such Lien, in each case so long as the
applicable Borrower or the applicable Restricted Subsidiary (or the
Administrative Agent on its behalf) does not wrongfully reject delivery
<PAGE>
92
of such item of Product or fail to pay as and when due and payable by such
Borrower or such Restricted Subsidiary the contractual amounts that are related
to such item of Product and are required to be paid in order for all of the
rights, title and interest in such item of Product to fully vest in such
Borrower or such Restricted Subsidiary; and provided further that if the Person
providing any such Approved Completion Guarantee pays off upon the abandonment
of any of the items of Product covered by such Approved Completion Guarantee,
such Person shall have the right to take all of the rights, title and interest
in such item of Product in accordance with the terms set forth in such Approved
Completion Guarantee;
(K) Liens upon any or all of the property and assets of any Special Purpose
Vehicle to secure Indebtedness arising under one or more Permitted Film
Financings otherwise permitted to be incurred under Section 5.02(b)(iii)(G) and
not otherwise prohibited under the terms of the Loan Documents;
(L) Liens upon any item of Product and the rights directly relating
thereto in favor of suppliers and/or producers of such item of Product that are
incurred in the ordinary course to business solely to secure the purchase price
of such item of Product and such directly related rights or the rendering of
services necessary for the production of such item of Product; provided,
however, that no such Lien shall extend to or cover any property or assets
other than the item of Product and the rights directly related thereto being so
acquired or produced; and provided further that any payment Obligations secured
by such Liens shall by their terms be payable solely from the revenues of the
applicable Borrower or Subsidiary of any of the Borrowers that are derived
directly from the exhibition, syndication, exploitation, distribution or
disposition of such item of Product and/or such directly related rights;
(M) Liens upon any item of Product and rights directly relating thereto in
favor of distributors of such item of Product that are incurred in each case in
the ordinary course of business solely to secure delivery of such item of
Product and the licensing of the rights in such item of Product directly
related thereto; provided, however, that no such Lien shall extend to or cover
any property or assets other than the item of Product being so delivered and
the rights directly related thereto; and provided further that any payment
Obligations secured by such Liens shall by their terms be payable solely from
the revenues of the applicable Borrower or Subsidiary of any of the Borrowers
(or the applicable distributor) that are derived directly from the exhibition,
syndication, exploitation, distribution or disposition of such item of Product
and/or such directly related rights; and
(N) the replacement, extension or renewal of any Lien otherwise permitted
to be created or to exist under subclauses (ii)(C) (except to the extent
Schedule 5.02(a) hereto provides that such Liens shall not be replaced,
extended or renewed), (ii)(D), (ii)(E) or (ii)(K) of this Section 5.02(a) upon
or in the same property and assets theretofore subject thereto; provided that
no such extension, renewal or replacement shall extend to or cover any property
or assets not theretofore subject to the Lien being extended, renewed or
replaced; and provided further that any Obligations secured by such Liens shall
otherwise be expressly permitted under the terms of the Loan Documents.
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(b) Indebtedness. Create, incur, assume or suffer to exist, or permit
------------
any of its Subsidiaries to create, incur, assume or suffer to exist, directly
or indirectly, any Indebtedness other than:
(i) in the case of Holdings, Indebtedness under the Loan
Documents;
(ii) in the case of the Borrowers,
(A) Indebtedness in respect of interest rate Hedge
Agreements entered into from time to time by one or more of the
Borrowers with counterparties that are Lenders at the time any
such interest rate Hedge Agreement is entered into in an aggregate
notional amount not to exceed (A) 100% of the aggregate
Commitments under both of the Facilities at the time any such
interest rate Hedge Agreement is entered into less (B) the
aggregate notional amount of all interest rate Hedge Agreements
that constitute Investments made under Section 5.02(e)(iv) at such
time, provided that all such interest rate Hedge Agreements shall
be nonspeculative in nature (including, without limitation, with
respect to the term and purpose thereof), and
(B) Indebtedness comprised of management fees payable to Fox
Kids from time to time by one or more of the Borrowers in an
aggregate amount for any Fiscal Year not to exceed (1) $10,000,000
less (2) the aggregate amount of all dividends and other
distributions paid by Holdings to Fox Kids pursuant to Section
5.02(f)(ii)(D) during such Fiscal Year; provided that all such
management fees shall be subordinated in right of payment and
otherwise to all of the Obligations of the Borrowers under or in
respect of the Loan Documents on the same terms as the terms set
forth in the applicable Intercompany Notes, and all of the other
terms and conditions of such management fees (and each agreement
entered into in connection therewith) shall in form and substance
reasonably satisfactory to the Administrative Agent; and provided
further that the terms and conditions of any such management fees
(and copies of each agreement setting forth such terms and
conditions) shall be delivered to the Administrative Agent at
least ten Business Days prior to the date on which such terms and
conditions (or any such agreement) become effective; and
(iii) in the case of the Borrowers and their Subsidiaries,
(A) Indebtedness under the Loan Documents,
(B) Surviving Indebtedness,
(C) Indebtedness of (1) any of the Borrowers owing to any of
the other Borrowers or any of the Restricted Subsidiaries, (2) any
of the Restricted Subsidiaries owing to any of the Borrowers or
any of the other Restricted Subsidiaries, (3) any of the
Unrestricted Subsidiaries owing to any of the Borrowers or any of
the Restricted Subsidiaries to the extent the related
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94
Investment in such Unrestricted Subsidiary is otherwise expressly permitted
under Section 5.02(e)(xii) and (4) any of the Unrestricted Subsidiaries to any
of the other Unrestricted Subsidiaries, provided that all such intercompany
Indebtedness owing to any of the Borrowers or any of the Restricted
Subsidiaries shall be evidenced by an Intercompany Note, which shall be pledged
under the terms of the Collateral Documents to the Administrative Agent, on
behalf of the Secured Parties, immediately upon the creation thereof,
(D) Indebtedness secured by Liens expressly permitted under Section
5.02(a)(ii)(D) in an aggregate principal amount not to exceed, when aggregated
with the principal amount of all Indebtedness incurred under subclause (iii)(E)
of this Section 5.02(b), $25,000,000 at any time outstanding,
(E) Capitalized Leases that, when aggregated with the principal amount of
all Indebtedness incurred under subclause (iii)(D) of this Section 5.02(b), do
not exceed $25,000,000 at any time outstanding,
(F) Indebtedness arising from Programming Liabilities, and from
Participations and Residuals incurred in connection with items of Product and
Rights in Product that are produced or acquired by any of the Borrowers or any
of their respective Subsidiaries, in each case incurred in the ordinary course
of business,
(G) Indebtedness of one or more Special Purpose Vehicles arising under one
or more Permitted Film Financings in an aggregate principal amount not to
exceed $50,000,000 at any time outstanding, provided that the aggregate
principal amount of all Indebtedness incurred under this subclause (iii)(G) by
one or more Special Purpose Vehicles organized under the laws of, or having its
principal place of business in, the United States of America or any state
thereof shall not exceed $30,000,000 at any time outstanding,
(H) Indebtedness comprised of trade payables or other accounts payable to
trade creditors incurred in the ordinary course of business to the extent
otherwise included in the definition of "Indebtedness" set forth in Section
1.01,
(I) Contingent Obligations of any of the Borrowers or any of their
respective Subsidiaries issued in favor of one or more producers of items of
Product in the ordinary course of business to assure the right of any such
Borrower or any such Subsidiary to purchase or otherwise acquire any such item
of Product and the rights directly relating thereto upon the completion and
delivery thereof, provided, however, that no such producer shall be any
Affiliate of any of the Loan Parties or any of their respective Affiliates, and
provided further, however, that (1) no amounts shall be payable under any such
Contingent Obligation if such item of Product is not completed and delivered to
the applicable Borrower or Subsidiary of any of the Borrowers in accordance
with the terms of the agreement pursuant to which such Contingent Obligation
was
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95
incurred and (2) such Contingent Obligation shall not guarantee or otherwise
support any other Indebtedness of any of the Loan Parties or any of their
Subsidiaries,
(J) Indebtedness existing at the time that any property or asset is
purchased or otherwise acquired by any of the Borrowers or any of their
respective Subsidiaries and secured solely by such property or asset, or that
any Person (other than any of the other Borrowers or any of their respective
Subsidiaries) is merged into or consolidated with any of the Subsidiaries of
Holdings, or otherwise becomes a Subsidiary of Holdings, in accordance with the
terms of the Loan Documents, in an aggregate principal amount not to exceed (1)
if the Investment Grade Performance Test is not satisfied on the date on which
any such Indebtedness is incurred, $25,000,000 at any time outstanding and (2)
if the Investment Grade Performance Test is satisfied on the date on which any
such Indebtedness is incurred, $50,000,000 at any time outstanding, provided
that (x) no such Indebtedness shall be incurred in contemplation of any such
purchase or other acquisition or any such merger, consolidation or acquisition
and (y) immediately before and immediately after giving pro forma effect to
such Indebtedness, no Default shall have occurred and be continuing,
(K) Contingent Obligations of any of the Borrowers or any of the Restricted
Subsidiaries guaranteeing all or any portion of the outstanding Obligations
of any of the other Borrowers or any of the other Restricted Subsidiaries;
provided that such Obligations are not otherwise prohibited under the terms of
the Loan Documents,
(L) unsecured Indebtedness not otherwise permitted under this Section
5.02(b) incurred in the ordinary course of business and in an aggregate amount
not to exceed (1) if the Investment Grade Performance Test is not satisfied on
the date on which any such Indebtedness is incurred, $25,000,000 at any time
outstanding and (2) if the Investment Grade Performance Test is satisfied on
the date on which any such Indebtedness is incurred, $50,000,000 at any time
outstanding, provided that, with respect to any such Indebtedness issued or
incurred pursuant to this subclause (iii)(L), (w) such Indebtedness shall have
a stated maturity or redemption date of either (I) less than one year from
the date of creation thereof or (II) at least one year after the scheduled
Termination Date, (x) such Indebtedness shall not be guaranteed or otherwise
supported by any of the Loan Parties or any of their respective Subsidiaries,
(y) the other terms and conditions of such Indebtedness (and of any agreement
entered into and of any instrument issued in connection therewith) shall be no
less favorable to Fox Kids and its Subsidiaries or to the Administrative Agent
and Lenders than the terms of the Loan Documents and (z) immediately before and
immediately after giving pro forma effect to such Indebtedness, no Default
shall have occurred and be continuing.
(M) endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business, and
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96
(N) Indebtedness extending the maturity of, or refunding or
refinancing, in whole or in part, any Indebtedness incurred under
any of subclauses (iii)(B) (except to the extent Schedule 4.01(jj)
hereto provides that such Indebtedness shall not be replaced,
extended or renewed), (iii)(D), (iii)(E), (iii)(G) or (iii)(L) of
this Section 5.02(b), provided, however, that (1) the aggregate
principal amount of such extended, refunding or refinancing
Indebtedness shall not be increased above the principal amount
thereof and the premium, if any, thereon outstanding immediately
prior to such extension, refunding or refinancing, (2) the direct
and contingent obligors therefor shall not be changed as a result
of or in connection with such extension, refunding, replacement or
refinancing, (3) such extended, refunding or refinancing
Indebtedness shall not mature prior to the earlier of (x) the
stated maturity or redemption date of such extended, refunding or
refinancing Indebtedness and (y) one year after the scheduled
Termination Date, (4) if the Indebtedness being so extended,
refunded or refinanced is subordinated in right of payment or
otherwise to the Obligations of Fox Kids or any of its
Subsidiaries under or in respect of the Loan Documents, such
extended, refunded or refinanced Indebtedness shall be
subordinated to such Obligations to at least the same extent, (5)
the terms of any such extending, refunding or refinancing
Indebtedness (and of any agreement entered into and of any
instrument issued in connection therewith) shall be no less
favorable to Fox Kids and its Subsidiaries or to the
Administrative Agent and the Lenders than the terms of the
Indebtedness being so extended, refunded or refinanced, and (6)
immediately before and immediately after giving pro forma effect
to any such extension, refunding or refinancing, no Default shall
have occurred and be continuing.
(c) Mergers, Etc. Merge into or consolidate with any Person or permit
------------
any Person to merge into or consolidate with it, or permit any of its
Subsidiaries to do so, except that:
(i) any of the Borrowers may merge into or consolidate with
any of the other Borrowers;
(ii) any of the Restricted Subsidiaries may merge into or
consolidate with any of the Borrowers; provided that such Borrower is
the surviving corporation;
(iii) any of the Subsidiaries of the Borrowers may merge into or
consolidate with any of the Restricted Subsidiaries; provided that the
Person formed by such merger or consolidation is a Restricted
Subsidiary;
(iv) any of the Unrestricted Subsidiaries may merge into or
consolidate with any of the other Unrestricted Subsidiaries; and
(v) any of the Subsidiaries of the Borrowers may merge into or
consolidate with any Person; provided that (A) if such Subsidiary is a
Restricted Subsidiary, the Person formed by such merger or
consolidation shall be a Restricted Subsidiary, (B) if such Subsidiary
is a non-wholly owned Domestic Subsidiary, the Person formed by such
merger or consolidation shall be a Domestic Subsidiary and (C) if such
Subsidiary is a
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97
Foreign Subsidiary, the Person formed by such merger or consolidation
shall be a Subsidiary of Fox Kids; and provided further that the
Person into which or with which such Subsidiary is merging or
consolidating (1) shall be engaged in one or more of the existing
principal lines of business of the Borrowers and their Subsidiaries,
considered as a whole, in the ordinary course and (2) shall not have
any material contingent liabilities (as determined in good faith by
the board of directors (or persons performing similar functions) of
such Subsidiary).
In all cases under this Section 5.02(c), (1) such merger or consolidation
shall be effected in compliance with all applicable Requirements of Law,
(2) all Governmental Authorizations, and all consents, approvals and
authorizations of, notices and filings to or with, and other actions by,
any other Person necessary in connection with such merger or consolidation
shall have been obtained or made, (3) the Consolidated Net Worth of the
Borrower or the Subsidiary thereof that is the surviving entity of such
merger shall, after giving pro forma effect to such merger or
consolidation, be at least equal to the Consolidated Net Worth of such
Borrower or such Subsidiary immediately prior to giving effect thereto, (4)
(x) immediately before and immediately after giving pro forma effect to
such merger or consolidation, no Default shall have occurred and be
continuing and (y) immediately after giving effect to such merger or
consolidation, Fox Kids and its Subsidiaries shall be in pro forma
compliance with all of the covenants set forth in Section 5.04, such
compliance to be determined on the basis of the Consolidated financial
statements of Fox Kids and its Subsidiaries or Holdings and its
Subsidiaries, as applicable, most recently delivered to the Lenders
pursuant to Section 7(i)(i) or 7(i)(ii) of the Fox Kids Guarantee or
Section 5.03(b) or 5.03(c) hereof, respectively, as though such merger or
consolidation had been consummated on the first day of the fiscal period
covered thereby, and (5) one of the Borrowers shall notify the
Administrative Agent of the proposed merger or consolidation at least ten
Business Days prior to effecting such merger or consolidation and shall
deliver to the Administrative Agent, on behalf of the Lenders, at the time
such notice is delivered, a certificate of a Responsible Officer of such
Borrower, in form and substance reasonably satisfactory to the
Administrative Agent, certifying that all of the requirements set forth in
subclauses (1), (2), (3) and (4) of this paragraph have been satisfied and,
in the case of any merger or consolidation proposed to be effected pursuant
to clause (v) of this Section 5.02(c), that all of the matters described in
the provisos to such clause (v) have been satisfied and, in any event,
including a schedule that sets forth in reasonable detail all of the
computations used by such Borrower in determining its compliance with such
requirements.
(d) Sales, Etc. of Assets. Sell, lease, transfer or otherwise dispose
of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise
dispose of, any property or assets (including, without limitation,
substantially all of the property and assets constituting the business of a
division, branch or other unit of operation and any Equity Interests), or
grant any option or other right to purchase, lease or otherwise acquire any
property or assets, except that:
(i) the Borrowers and their respective Subsidiaries may sell,
distribute, license or otherwise exploit Product and Rights in Product
and may sell other inventory, all in the ordinary course of business;
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98
(ii) Fox Kids and its Subsidiaries may sell, lease, transfer or otherwise
dispose of property and assets in a transaction otherwise permitted by Section
5.02(a), 5.02(c), 5.02(e) or 5.02(f);
(iii) (A) Holdings or any of the Borrowers may sell, lease, transfer or
otherwise dispose of any of its property or assets (other than any Equity
Interests in the Borrowers) to any of the other Borrowers or any of the
Restricted Subsidiaries, (B) any of the Restricted Subsidiaries may sell, lease,
transfer or otherwise dispose of any of its property or assets to any of the
Borrowers or any of the other Restricted Subsidiaries and (C) any of the
Unrestricted Subsidiaries may sell, lease, transfer or otherwise dispose of any
of its property or assets for Fair Market Value to any of the Borrowers or any
of their respective Subsidiaries; provided that immediately before and
immediately after giving pro forma effect to such sale, lease, transfer or other
disposition, no Default shall have occurred and be continuing;
(iv) any of the Subsidiaries of the Borrowers that is no longer actively
engaged in any business or activities and does not have property and assets with
an aggregate book value or Fair Market Value in excess of $5,000,000 may be
wound up, liquidated or dissolved by the applicable Borrower so long as such
winding up, liquidation or dissolution is determined in good faith by the board
of directors of such Borrower (as evidenced in a resolution set forth in a
certificate of a Responsible Officer of such Borrower delivered to the
Administrative Agent, on behalf of the Lenders, prior to effecting such winding
up, liquidation or dissolution) to be in the best interests of Holdings and its
Subsidiaries;
(v) the Borrowers and their Subsidiaries may lease or sublease real
property to the extent required for their respective businesses and operations
in the ordinary course so long as such lease or sublease is not otherwise
prohibited under the terms of the Loan Documents;
(vi) the Borrowers and their respective Subsidiaries (A) may sell tangible
property and assets and apply the Net Cash Proceeds received by any such
Borrower or Subsidiary of any of the Borrowers therefrom within 90 days after
the date of such sale to the purchase or other acquisition of replacement
property and assets therefor having equal or greater value (as determined in
good faith by the board of directors of the applicable Borrower) and (B) may
sell, lease, transfer or otherwise dispose of any obsolete, damaged or worn out
equipment that is no longer useful in the conduct of their businesses and
operations in the ordinary course of business; provided, however, that in the
case of subclause (vi)(A), if such tangible property and assets are not replaced
within such 90-day period, then the Net Cash Proceeds of such sale shall be
applied on the last day of such period to reduce the Commitments in accordance
with, and to the extent required under, Section 2.04(b)(iv) and to prepay the
Advances outstanding at such time in accordance with, and to the extent required
under, Section 2.05(b);
(vii) IFE and its applicable Subsidiaries may sell, lease, transfer or
otherwise dispose of all or a portion of (A) their Equity Interests in, or the
property and assets of, Calvin Gilmore Production, Inc., Gilmore Acquisition
Corp., Cable Health TV, Inc., FiT TV Partnership or MTM Holding Company, Inc. or
any of its Subsidiaries at any time
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99
prior to September 30, 1998 and (B) the Indebtedness owed by Del Wilbur
Associates, Inc. to IFE on the date of this Agreement and described on Schedule
4.01(kk) hereto; provided that:
(1) the gross proceeds received from any such sale, lease, transfer or
other disposition are at least equal to the Fair Market Value of the
property and assets so sold, leased, transferred or disposed of, determined
at the time of such sale, lease, transfer or other disposition;
(2) at least 90% of the value of the aggregate consideration received
from any such sale, lease, transfer or other disposition shall be in cash;
(3) immediately before and immediately after giving pro forma effect to
any such sale, lease, transfer or other disposition, no Default shall have
occurred and be continuing; and
(4) all of the noncash consideration received in any such sale, lease
transfer or other disposition that is comprised of Equity Interests in, or
other securities of, any Person shall be pledged as Collateral to the
Administrative Agent, on behalf of the Secured Parties, under, and in
accordance with the terms of, the Collateral Documents promptly upon receipt
thereof;
(viii) the Borrowers and their respective Subsidiaries may sell, transfer or
otherwise dispose of all of the Equity Interests in, or all of the operating
assets comprising a business unit, division or branch (or any other distinct
unit of operation that contributes a discrete and readily discernable amount of
Consolidated EBITDA) of, any of its Subsidiaries or any other Person; provided
that in the case of any such sale, transfer or other disposition:
(A) the Attributable Asset EBITDA of all of the Equity Interests or
operating assets being so sold, transferred or otherwise disposed of, when
aggregated with the Attributable Asset EBITDA of all of the other Equity
Interests and operating assets of the Borrowers and their Subsidiaries that
have been sold, transferred or otherwise disposed of pursuant to this clause
(viii) and clause (ix) of this Section 5.02(d) during the one-year period
ending on the date of such sale, transfer or other disposition (or, if
shorter, the period commencing on the Effective Date and ending on such
date), shall not exceed an amount equal to 10% of Pro Forma Consolidated
EBITDA as of such date;
(B) the Attributable Asset EBITDA of all of the Equity Interests or
operating assets being so sold, transferred or otherwise disposed of, when
aggregated with the Attributable Asset EBITDA of all of the other Equity
Interests and operating assets of the Borrowers and their Subsidiaries that
have been sold, transferred or otherwise disposed of pursuant to this clause
(viii) and clause (ix) of this Section 5.02(d) since the date of this
Agreement, shall not exceed an amount equal to 20% of Pro Forma Consolidated
EBITDA as of such date;
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100
(C) at least 85% of the value of the aggregate consideration received
from any such sale, transfer or other disposition shall be in cash;
(D) immediately before and immediately after giving pro forma effect
to any such sale, transfer or other disposition, no Default shall have
occurred and be continuing;
(E) all of the noncash consideration received in any such sale,
transfer or other disposition that is comprised of Equity Interests in, or
other securities of, any Person shall be pledged as Collateral to the
Administrative Agent, on behalf of the Secured Parties, under, and in
accordance with the terms of, the Collateral Documents promptly upon receipt
thereof;
(F) subject to the next succeeding proviso, all of the Net Cash
Proceeds from such sale, transfer or other disposition shall be applied to
reduce the Commitments in accordance with, and to the extent required under,
Section 2.04(b)(iv) and to prepay the Advances outstanding at such time in
accordance with, and to the extent required under, Section 2.05(b); and
(G) the applicable Borrower shall deliver to the Administrative Agent,
on behalf of the Lenders, on the date of consummation of such sale, transfer
or other disposition, a certificate of a Responsible Officer of such
Borrower, in form and substance reasonably satisfactory to the
Administrative Agent, certifying that all of the requirements set forth in
subclauses (A) through (F) of this clause (viii) have been satisfied and
including a schedule that sets forth in reasonable detail all of the
computations used by such Borrower in determining its compliance with such
requirements;
provided, however, that up to $50,000,000 of Net Cash Proceeds received by or on
behalf of the Borrowers and their Subsidiaries from one or more sales, transfers
or other dispositions of Equity Interests or operating assets of the Borrowers
and their Subsidiaries effected pursuant to this clause (viii) (or deemed to
have been effected pursuant to this clause (viii) under the proviso to clause
(ix) of this Section 5.02(d)) may, at the option of the Borrowers, be reinvested
within 270 days of the date of receipt thereof in the businesses and operations
of the Borrowers and their Subsidiaries in the ordinary course of business
(although any such Net Cash Proceeds not so reinvested within such 270-day
period shall be applied on the last day of such 270-day period to reduce the
Commitments in accordance with, and to the extent required under, Section
2.04(b)(iv) and to prepay the Advances outstanding at such time in accordance
with, and to the extent required under, Section 2.05(b)); and
(ix) the Borrowers and their Subsidiaries may consummate one or more Asset
Swaps; provided that in the case of any such Asset Swap:
(A) the Attributable Asset EBITDA of all of the Equity Interests and
operating assets being sold, transferred or otherwise disposed of in such
Asset Swap, when aggregated with the Attributable Asset EBITDA of all of
the other Equity Interests and operating assets of the Borrowers and their
Subsidiaries that
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101
have been sold, transferred or otherwise disposed of pursuant to this
clause (ix) and clause (viii) of this Section 5.02(d) during the one-year
period ending on the date on which such Asset Swap is commenced (or, if
shorter, the period commencing on the Effective Date and ending on such
date), shall not exceed an amount equal to 10% of Pro Forma Consolidated
EBITDA as of such date;
(B) the Attributable Asset EBITDA of all of the Equity Interests and
operating assets being sold, transferred or otherwise disposed of in such
Asset Swap, when aggregated with the Attributable Asset EBITDA of all of
the other Equity Interests and operating assets of the Borrowers and their
Subsidiaries that have been sold, transferred or otherwise disposed of
pursuant to this clause (ix) and clause (viii) of this Section 5.02(d)
since the date of this Agreement, shall not exceed an amount equal to 20%
of Pro Forma Consolidated EBITDA as of such date;
(C) immediately before and immediately after giving pro forma effect
to any such Asset Swap, no Default shall have occurred and be continuing;
(D) all of the noncash consideration received in any such Asset Swap
that is comprised of Equity Interests in, or other securities of, any
Person shall be pledged as Collateral to the Administrative Agent, on
behalf of the Secured Parties, under, and in accordance with the terms of,
the Collateral Documents promptly upon receipt thereof; and
(E) the applicable Borrower shall deliver to the Administrative Agent,
on behalf of the Lenders, on the date of consummation of such Asset Swap, a
certificate of a Responsible Officer of such Borrower, in form and
substance reasonably satisfactory to the Administrative Agent, certifying
that all of the requirements set forth in subclauses (A) through (D) of,
and in the next succeeding proviso to, this clause (ix) and in the
definition of "Asset Swap" set forth in Section 1.01 have been satisfied
and including a schedule that sets forth in reasonable detail all of the
computations used by such Borrower in determining its compliance with such
requirements;
provided, however, that if all of the Net Cash Proceeds retained by the
applicable Borrower or Subsidiary of any of the Borrowers from the sale, lease,
transfer or other disposition of any their Equity Interests or operating assets
are not applied to the purchase or other acquisition of Equity Interests or
operating assets otherwise satisfying the requirements of the definition of
"Asset Swap" set forth in Section 1.01 and this clause (ix) within 90 days after
the date of receipt of such Net Cash Proceeds, then the sale, transfer or other
disposition of the Equity Interests or operating assets resulting in such Net
Cash Proceeds shall cease to constitute part of an Asset Swap and, instead,
shall be deemed to be a sale, transfer or other disposition of Equity Interests
or operating assets by such Borrower or such Subsidiary made pursuant to clause
(viii) of this Section 5.02(d) on and as of the date on which such Equity
Interests or operating assets were actually sold, transferred or otherwise
disposed of (and such sale, transfer or other disposition shall be required to
have satisfied the requirements of clause (viii) of this Section 5.02(d) as of
such date).
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(e) Investments in Other Persons. Make or hold, permit any of its
----------------------------
Subsidiaries to make or hold, any Investment in any Person other than:
(i) Investments made by IFE in Fox Kids on the Effective Date as
part of the Refinancing; provided that all of the Indebtedness of Fox Kids
resulting from such Investments shall be evidenced by an Intercompany Note,
which shall be pledged under the terms of the Collateral Documents to the
Administrative Agent, on behalf of the Secured Parties, immediately upon the
creation thereof;
(ii) Investments existing on the date of this Agreement and described
on Schedule 4.01(kk) hereto;
(iii) Investments by Holdings and its Subsidiaries in cash and Cash
Equivalents;
(iv) in the case of the Borrowers, Investments in respect of interest
rate Hedge Agreements entered into from time to time by one or more of the
Borrowers with one or more counterparties that are Lenders at the time any such
interest rate Hedge Agreement is entered into in an aggregate notional amount
not to exceed (A) 100% of the aggregate Commitments under both of the
Facilities at the time any such interest rate Hedge Agreement is entered into
less (B) the aggregate notional amount of any interest rate Hedge Agreements
that constitute Indebtedness incurred under Section 5.02(b)(ii)(A) at such
time; provided that all such interest rate Hedge Agreements shall be
nonspeculative in nature (including, without limitation, with respect to the
term and purpose thereof);
(v) Investments by (A) Holdings or any of the Borrowers in any of the
other Borrowers or any of the Restricted Subsidiaries, (B) any of the
Subsidiaries of any of the Borrowers in any of the Borrowers or any of the
Restricted Subsidiaries or (C) any of the Unrestricted Subsidiaries in any of
the other Unrestricted Subsidiaries;
(vi) loans and advances by the Borrowers and their Subsidiaries to
their respective employees in an aggregate principal amount not to exceed at any
time outstanding the lesser of (A) (1) the aggregate principal amount of all
such loans and advances outstanding on the date of this Agreement plus (2)
$5,000,000 and (B) $8,000,000;
(vii) Investments by the Borrowers and their Subsidiaries in account
debtors received in connection with the bankruptcy or reorganization, or in
settlement of the delinquent obligations of suppliers or customers, in the
ordinary course of business and in accordance with applicable collection and
credit policies established by such Borrower or such Subsidiary, as the case may
be;
(viii) the acceptance of promissory notes, contingent payment obligations
and other noncash consideration received as partial payment of the purchase
price of any property or assets sold, leased, transferred or otherwise disposed
of in accordance with clause (vii), (viii) or (ix) of Section 5.02(d);
<PAGE>
103
(ix) capital contributions by Holdings to one or more of the
Borrowers solely in exchange for additional shares of common stock thereof;
provided that all such additional shares shall be pledged as Collateral under
the Pledge and Assignment Agreement to the Administrative Agent, on behalf of
the Secured Parties, promptly upon receipt thereof;
(x) the assumption of Indebtedness of any Person existing at the time
that any property or asset of such Person is purchased or otherwise acquired by
any of the Borrowers or any of their respective Subsidiaries, or that such
Person is merged into or consolidated with any of the Subsidiaries of Holdings,
or becomes a Subsidiary of Holdings; provided that such Indebtedness is
otherwise expressly permitted to be incurred under Section 5.02(b)(iii)(J) and
such purchase or other acquisition or such merger, consolidation or acquisition
is not otherwise prohibited under the terms of the Loan Documents;
(xi) The purchase or other acquisition by the Borrowers and their
Subsidiaries of all of the Equity Interests in, or all of the operating assets
comprising a business unit, division or branch (or any other distinct unit of
operation that contributes a discrete and readily discernable amount of
Consolidated EBITDA) of, any Person as part of an Asset Swap otherwise expressly
permitted under Section 5.02(d)(ix); and
(xii) Investments by the Borrowers and their Subsidiaries not otherwise
permitted under this Section 5.02(e) (A) in an aggregate amount not to exceed
(1) if the Investment Grade Performance Test is not satisfied on the date on
which any such Investment is made, $100,000,000 at any time outstanding and (2)
if the Investment Grade Performance Test is satisfied on the date on which any
such Investment is made, $200,000,000 at any time outstanding or (B) made solely
with the proceeds of Permitted Affiliate Investments, provided that, with
respect to any such Investment made pursuant to this clause (xii):
(1) any business acquired or invested in shall be one or
more of the existing principal lines of business of the Borrowers and
their Subsidiaries, considered as a whole, in the ordinary course;
(2) any Subsidiary of any of the Borrowers acquired or
created as a result of or in connection with such Investment shall not
have any material contingent liabilities (as determined in good faith by
the board of directors (or persons performing similar functions) of the
applicable Borrower); and
(3) (x) immediately before and after giving pro forma effect
to such Investment, no Default shall have occurred and be continuing and
(y) immediately after giving effect to such Investment, Fox Kids and its
Subsidiaries shall be in pro forma compliance with all of the covenants
set forth in Section 5.04, such compliance to be determined on the basis
of the Consolidated financial statements of Fox Kids and its Subsidiaries
or Holdings and its Subsidiaries, as applicable, most recently delivered
to the Lenders pursuant to Section 7(i)(i) or 7(i)(ii) of the Fox Kids
Guarantee or Section
<PAGE>
104
5.03(b) or 5.03(c) hereof, respectively, as though such
Investment had been made on the first day of the fiscal period
covered thereby, and all of the requirements set forth in this
subclause (3) shall be certified by a Responsible Officer of the
applicable Borrower in a certificate, in form and substance
reasonably satisfactory to the Administrative Agent, and
delivered to the Administrative Agent, on behalf of the Lenders,
prior to making such Investment (which certificate shall also
include a schedule in reasonable detail of the computations used
by such Borrower in determining such compliance);
provided that, for purposes of this clause (xii), the determination of
the amount of any Investment comprised of the acquisition of any
Person or any property or assets of any Person shall be the aggregate
cash and noncash purchase price of such acquisition (including,
without limitation, all indemnities and other contingent payment
obligations to the sellers thereof, all write-downs of property and
assets and reserves for liabilities with respect thereto and all
assumptions of debt, liabilities and other obligations in connection
therewith).
(f) Dividends, Repurchases, Etc. Declare or pay any dividends on, or
---------------------------
purchase, redeem, retire, defease or otherwise acquire for value, any of
its Equity Interests, whether now or hereafter outstanding, return any
capital to its stockholders, partners or members (or the equivalent persons
thereof) as such, make any distribution of property, assets, Equity
Interests, obligations or securities to its stockholders, partners or
members (or the equivalent persons thereof) as such, or issue or sell any
of its Equity Interests, or permit any of its Subsidiaries to do any of the
foregoing, or permit any of its Subsidiaries to purchase, redeem, retire,
defease or otherwise acquire for value any Equity Interests in Holdings or
any of the Borrowers, or to issue or sell any of its Equity Interests in
order to acquire any such Equity Interests, except that, so long as no
Default shall have occurred and be continuing at the time of any action
described in clause (ii), (iii), (iv)(A), (iv)(C), (v), (vi), (vii) or
(viii) of this Section 5.02(f) or shall occur as a result thereof:
(i) Holdings or any of its Subsidiaries may declare and make
dividends and other distributions payable only in shares of its common
stock (or the equivalent Equity Interests thereto); provided that such
shares of common stock (or equivalent Equity Interests) shall, to the
extent required under the terms of the applicable Collateral
Documents, be pledged as Collateral thereunder to the Administrative
Agent, on behalf of the Secured Parties, promptly following the
issuance thereof;
(ii) Holdings may declare and pay dividends and make
distributions in cash to Fox Kids solely to the extent necessary in
order for Fox Kids (A) to pay scheduled interest on the outstanding
Senior Notes when due and payable in accordance with their terms in an
aggregate amount not to exceed the amount set forth below for each of
the Fiscal Years set forth below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDING AMOUNT
------------------ ------
<S> <C>
June 1998 $29,536,000
June 1999 43,938,000
June 2000 43,938,000
</TABLE>
<PAGE>
105
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
June 2001 43,938,000
June 2002 43,938,000
June 2003 86,037,000
June 2004 107,350,000
</TABLE>
(B) to declare and pay scheduled ordinary dividends on the outstanding shares of
Series A Preferred Stock to the extent permitted under, and then only in
accordance with the terms of, Section 8(c)(ii) of the Fox Kids Guarantee, (C) to
repurchase shares of its common stock and options therefor held by any of the
Fox Kids Optionholders upon the termination of the employment of such Fox Kids
Optionholder to the extent permitted under, and then only in accordance with the
terms of, Section 8(c)(iv) of the Fox Kids Guarantee and (D) to pay compensation
to its employees in an aggregate amount for any Fiscal Year not to exceed (1)
$10,000,000 less (2) the aggregate amount of all management fees paid by one or
more of the Borrowers to Fox Kids pursuant to Section 5.02(b)(ii)(B) during such
Fiscal Year;
(iii) commencing at any time after the Fiscal Quarter ending
September 30, 2000 and from time to time thereafter so long as the Total
Leverage Ratio for the most recently completed Measurement Period prior to any
date of determination under this clause(iii) is less than 4.50:1, Holdings may
declare and pay dividends and make other distributions in cash to Fox Kids for
any purpose not otherwise prohibited under the terms of the Loan Documents if,
after giving effect thereto, the aggregate amount of all such dividends and
distributions paid or made pursuant to this clause (iii) during the immediately
preceding 12 months would not exceed the lesser of (A) $50,000,000 and (B) 75%
of Available Cash Flow for the most recently completed Fiscal Year prior to such
declaration; provided that (1) immediately after giving effect to any such
declaration, Fox Kids and its Subsidiaries shall be in pro forma compliance with
all of the covenants set forth in Section 5.04, such compliance to be determined
on the basis of the Consolidated financial statements of Fox Kids and its
Subsidiaries or Holdings and its Subsidiaries, as applicable, most recently
delivered to the Lenders pursuant to Section 7(i)(i) or 7(i)(ii) of the Fox Kids
Guarantee or Section 5.03(b) or 5.03(c) hereof, respectively, as though payment
on such declaration had been made on the first day of the fiscal period covered
thereby, and (2) the Administrative Agent, on behalf of the Lenders, shall have
received a certificate from a Responsible Officer of Holdings, in form and
substance reasonably satisfactory to the Administrative Agent, at least ten
Business Days prior to the date of any such declaration, certifying that all of
the requirements set forth in this clause (iii) have been satisfied and
including a schedule that sets forth in reasonable detail all of the
computations used by Holdings in determining its compliance with such
requirements; and provided further that any dividend or other distribution
declared by Holdings pursuant to this clause (iii) shall be paid to Fox Kids
within 30 days of the date of declaration thereof;
(iv) (A) any of the Subsidiaries of Holdings may declare and make
dividends and distributions to Holdings to the extent necessary from
time to time in order for Holdings (1) to pay administrative and
operating expenses incurred thereby in the ordinary course of business
or (2) to dividend or otherwise distribute cash to Fox Kids
<PAGE>
106
pursuant to clause (ii) or (iii) of this Section 5.02(f), (B) any of
the Subsidiaries of Holdings may declare and make dividends and
distributions to any of the Borrowers or any of the Restricted
Subsidiaries and (C) any of the Unrestricted Subsidiaries may declare
and make dividends and distributions to any of the other Unrestricted
Subsidiaries;
(v) any of the non-wholly owned Subsidiaries of Holdings may
declare and make dividends and distributions, and may issue and sell
additional Equity Interests therein, to its shareholders, partners or
members (or the equivalent persons thereof) generally so long as each
of the Loan Parties and/or each of their respective Subsidiaries that
own any of the Equity Interests in such non-wholly owned Subsidiary
receive at least their respective proportionate shares of any such
dividend, distribution or issuance of Equity Interests (based upon
their relative holdings of the Equity Interests therein and taking
into account the relative preferences, if any, of the various classes
of the Equity Interests therein);
(vi) MTM Entertainment may issue shares of its common stock to
Anthony Thomopolous upon the exercise of his options therefor
outstanding on the date of this Agreement and described on Schedule
III to the Pledge and Assignment Agreement, which shares shall not
represent in the aggregate more than 4.76% of the Equity Interests in
MTM Entertainment (on a fully diluted basis) on the date of any such
issuance thereof;
(vii) Cable Health TV, Inc. may issue shares of its common stock
to Stephen Lentz or Liberty CHC, Inc. upon the exercise of their
respective options therefor outstanding on the date of this Agreement
and described on Schedule III to the Pledge and Assignment Agreement,
which shares shall not represent in the aggregate more than 12.5% of
the Equity Interests in Cable Health TV, Inc. (on a fully diluted
basis) on the date of any such issuance thereof; and
(viii) T.V.10 may grant an option to Holland Media Group, S.A. to
acquire newly issued shares of common stock of T.V.10 representing not
more than 50% of the Equity Interests in T.V.10 (on a fully diluted
basis) and, upon the exercise of such option, may issue such shares to
Holland Media Group, S.A.; provided that:
(A) the gross proceeds received from the sale of
such option, and from the issuance of any such shares upon the
exercise of such option, shall be at least equal to the Fair
Market Value therof, determined at the time of such sale; and
(B) all of the consideration received from the sale of
such option and, if applicable, from the issuance of such shares
shall be in cash.
(g) Prepayments, Etc. of Indebtedness. (i) Prepay, redeem, purchase,
---------------------------------
defease or otherwise satisfy prior to the scheduled maturity thereof in any
manner, or make any payment in violation of any subordination terms of, any
Indebtedness other than:
<PAGE>
107
(A) the prepayment of Advances outstanding from time to time
in accordance with the terms of this Agreement,
(B) so long as no Default shall have occurred and be
continuing or shall occur as a result thereof, any regularly scheduled
or required redemption, repurchase or repayment of Surviving
Indebtedness,
(C) the satisfaction of any Indebtedness incurred under
Sections 5.02(b)(iii)(D) and 5.02(b)(iii)(E) that is secured by a Lien
on the property or assets of the Borrower or the Subsidiary of any of
the Borrowers that incurred such Indebtedness, which property or
assets are otherwise permitted to be disposed of under Section
5.02(d),
(D) the regularly scheduled payment or required prepayment of
any Indebtedness that is refunded or refinanced in accordance with
Section 5.02(b)(iii)(N), and
(E) the prepayment, redemption, purchase, defeasance or other
satisfaction of Indebtedness of any Person existing at the time such
Person is being acquired by Holdings or any of its Subsidiaries to the
extent that such prepayment, redemption, purchase, defeasance or other
satisfaction is required by the terms of such Indebtedness; provided
that the acquisition of such Person is otherwise expressly permitted
under the terms of the Loan Documents;
(ii) Amend, modify or change in any manner any of the terms or
conditions of any of the Surviving Indebtedness, except as otherwise
expressly permitted under Section 5.02(b)(iii)(N); and
(iii) Permit any of its Subsidiaries to do any of the foregoing, other
than to prepay any Indebtedness payable to any of the Borrowers or, subject
to the terms of the applicable Intercompany Notes, the Restricted
Subsidiaries.
(h) Negative Pledge. Enter into or suffer to exist, or permit any
---------------
of its Subsidiaries to enter into or suffer to exist, any agreement
prohibiting or conditioning the creation or assumption of any Lien upon any
of its property or assets other than:
(i) any such agreement with or in favor of the Secured Parties
or the Administrative Agent, on behalf of the Secured Parties;
(ii) any such agreement with or in favor of the holders of the
Senior Notes or either of the trustees for the Senior Notes, on behalf
of the holders thereof, in each case as such agreement is in effect
under the Senior Notes Indentures on the date of this Guarantee;
(iii) in connection with (A) any Surviving Indebtedness to the
extent such agreement is in effect on the date of this Agreement, (B)
any Indebtedness otherwise
<PAGE>
108
permitted to be incurred under Section 5.02(b)(iii)(N) to the extent
such agreement is on terms that are no less favorable to Fox Kids or
any of its Subsidiaries or the Administrative Agent or the Lenders
than the terms in effect for the Indebtedness being refunded or
refinanced immediately prior to effecting such refunding or
refinancing and (C) any Indebtedness outstanding on the date any
Person first becomes a Subsidiary of any of the Borrowers; provided
that such agreement was not created in contemplation of the
acquisition of such Person and does not extend to or cover any
property or assets other than property and assets of the Person
becoming such Subsidiary;
(iv) any such agreement prohibiting other encumbrances on
specific property and assets of any of the Borrowers or any of their
respective Subsidiaries, which agreement secures the payment of
Indebtedness incurred solely to acquire, construct or improve such
property or assets or to finance the purchase price therefor and which
Indebtedness is otherwise expressly permitted to be incurred under the
terms of this Agreement;
(v) any agreement setting forth customary restrictions on the
subletting, assignment or transfer of any property or asset that is a
lease, license, conveyance or contract of similar property or assets;
and
(vi) any restriction or encumbrance imposed pursuant to an
agreement that has been entered into by Holdings or any of its
Subsidiaries for the sale, lease, transfer or other disposition of any
of its property or assets so long as such sale, lease, transfer or
other disposition is otherwise expressly permitted to be made under
Section 5.02(d).
(i) Dividends and Other Payment Restrictions Affecting Subsidiaries.
---------------------------------------------------------------
Enter into, create, assume or otherwise suffer to exist or become
effective, or permit any of its Subsidiaries to enter into, create, assume
or otherwise suffer to exist or become effective, directly or indirectly,
any encumbrance or restriction of any kind on the ability of any of its
Subsidiaries (i) to pay dividends or to make any other distributions on any
of the Equity Interests in such Subsidiary owned or otherwise held by
Holdings or any of its Subsidiaries, (ii) to pay or prepay or to
subordinate any Indebtedness owed to Fox Kids or any of its Subsidiaries,
(iii) to make loans or advances to Fox Kids or any of its Subsidiaries or
(iv) to transfer any of its property or assets to Fox Kids or any of its
Subsidiaries; provided, however, that nothing in any of clauses (i) through
(iv) of this Section 5.02(i) shall prohibit or restrict:
(A) this Agreement and the other Loan Documents;
(B) any agreements in effect on the date of this Agreement and
described on Schedule 5.02(i) hereto;
(C) any applicable law, rule or regulation (including, without
limitation, applicable currency control laws and applicable state
corporate statutes restricting the payment of dividends in certain
circumstances);
<PAGE>
109
(D) in the case of clause (iv) of this Section 5.02(i), any
agreement setting forth customary restrictions on the subletting,
assignment or transfer of any property or asset that is a lease,
license, conveyance or contract of similar property or assets;
(E) in the case of clause (iv) of this Section 5.02(i), any
agreement with the holder of a Lien otherwise permitted to exist under
Section 5.02(a)(ii)(D) or 5.02(a)(ii)(E) restricting on customary
terms the transfer of any property or assets subject thereto;
(F) any agreement evidencing Indebtedness outstanding on the date
a Person first becomes a Subsidiary of any of the Borrowers; provided
that such agreement was not created in contemplation of the
acquisition of such Person by such Borrower and does not extend to or
cover any property or assets other than the property or assets of the
Person becoming such Subsidiary; and
(G) any agreement evidencing or setting forth the terms of any
refunding or refinancing Indebtedness otherwise permitted to be
incurred under Section 5.02(b)(iii)(N) that contains any such
restrictions to the extent such restrictions are no less favorable to
Fox Kids or any of its Subsidiaries or the Administrative Agent or the
Lenders than the terms in effect in the Indebtedness being so refunded
or refinanced immediately prior to effecting such refunding or
refinancing.
(j) New Subsidiaries. Create, organize, incorporate or acquire any
----------------
Subsidiary other than a Special Purpose Vehicle (any such newly created,
organized, incorporated or acquired Subsidiary other than a Special Purpose
Vehicle being a "NEW SUBSIDIARY"), or permit any of its Subsidiaries to
create, organize, incorporate or acquire any New Subsidiary, unless:
(i) the Administrative Agent shall have approved the legal
structure and capitalization of such New Subsidiary, such approval not
to be unreasonably withheld or delayed;
(ii) such New Subsidiary shall execute and deliver to the
Administrative Agent, on behalf of the Secured Parties, promptly
following the date of its creation, organization, incorporation or
acquisition, (A) if such New Subsidiary constitutes (or is required or
intended to constitute) a Restricted Subsidiary, a Guarantee
Supplement and a Pledge Agreement Supplement and/or, if necessary or
in the reasonable opinion of the Administrative Agent desirable to
properly create and perfect a lien and security interest in the Equity
Interests in such New Subsidiary, or the Equity Interests owned or
otherwise held by (or to be owned or otherwise held by) or the
intercompany Indebtedness owed (or to be owed) to such New Subsidiary,
one or more other pledge agreements, assignment agreements (or other
similar documents), in form and substance reasonably satisfactory to
the Lenders, (B) if such New Subsidiary constitutes an Unrestricted
Subsidiary, such documentation as may be necessary or in the
reasonable opinion of the Administrative Agent desirable to properly
create and perfect a lien and security interest in the Equity
Interests of such Unrestricted Subsidiary referred to in clause (iv)
of this Section 5.02(j) and (C) in each case, such other agreements.
<PAGE>
110
instruments, certificates or documents as the Administrative Agent may
reasonably request, in each case in form and substance reasonably
satisfactory to the Lenders;
(iii) if such New Subsidiary constitutes (or is required or
intended to constitute) a Restricted Subsidiary, such New Subsidiary
and the owners of all of the Equity Interests therein shall have taken
or shall take all of the other actions that may be necessary or that
the Administrative Agent may reasonably deem desirable in order (A) to
perfect and protect any Liens granted under the Collateral Documents
and the Pledge Agreement Supplement and, if applicable, the other
pledge agreements, assignment agreements (or other similar documents)
referred to in clause (ii) of this Section 5.02(j) and (B) to enable
the Administrative Agent and the Lenders to exercise and enforce their
rights and remedies under the Loan Documents;
(iv) if such New Subsidiary constitutes an Unrestricted
Subsidiary, such New Subsidiary and each of the Borrowers and the
Restricted Subsidiaries that own any of the Equity Interests therein
shall have taken or shall take all of the other actions that may be
necessary or that the Administrative Agent may reasonably deem
desirable in order to perfect and protect any Liens granted or
intended to be granted under the Collateral Documents in (A) if such
New Subsidiary is not a Foreign Corporation, all of the Equity
Interests in such New Subsidiary that are owned or otherwise held by,
and all of the Indebtedness of such New Subsidiary owing from time to
time to, Fox Kids, Holdings, any of the Borrowers or any of the
Restricted Subsidiaries and (B) if such New Subsidiary is a Foreign
Corporation, 66% of the Equity Interests in such New Subsidiary
entitled to vote (within the meaning of Treasury Regulation Section
1.956-2(c)(2) promulgated under the Internal Revenue Code) (the
"VOTING EQUITY INTERESTS") (on a fully diluted basis) or, if less, all
of the Voting Equity Interests in such New Subsidiary owned by Fox
Kids, Holdings, the Borrowers and/or the Restricted Subsidiaries, and
all of the Equity Interests in such New Subsidiary not entitled to
vote (within the meaning of Treasury Regulation Section 1.956-2(c)(2)
promulgated under the Internal Revenue Code) now or hereafter owned by
Fox Kids, Holdings, the Borrowers and/or the Restricted Subsidiaries;
provided, however, that, if, as a result of any changes in the tax
laws of the United States of America after the date of this Agreement,
the pledge by any of the Loan Parties or any of their respective
wholly owned Subsidiaries of any additional Equity Interests in any
such Foreign Corporation to the Administrative Agent, on behalf of
itself and the other Secured Parties, would not result in an increase
in the aggregate net consolidated tax liabilities of Fox Kids and its
Subsidiaries, then, promptly after the changes in such laws, all such
additional Equity Interests shall be pledged to the Administrative
Agent, on behalf of the Secured Parties, pursuant to the terms and
conditions of the Collateral Documents and/or one or more additional
pledge agreements, assignment agreements (or other similar documents),
in form and substance reasonably acceptable to the Lenders; and
(v) upon the reasonable request of the Administrative Agent,
signed copies of one or more favorable opinions of special and
appropriate local and/or foreign counsel for such New Subsidiary and,
if appropriate, counsel for each of the owners of the Equity Interests
therein as the Administrative Agent shall reasonably request,
addressed to the
<PAGE>
111
Administrative Agent, on behalf of the Secured Parties, and reasonably
acceptable to the Administrative Agent and each of the other Secured
Parties, as to the Guarantee Supplement, the Pledge Agreement
Supplement and, if applicable, the other pledge agreements, assignment
agreements (or other similar documents) referred to in clause (ii) of
this Section 5.02(j) being the legal, valid and binding obligations of
such New Subsidiary or such owners of the Equity Interests therein, as
the case may be, enforceable against such New Subsidiary or each such
owner in accordance with their respective terms, as to the creation,
perfection and priority of the liens and security interests created or
purported to be created therein, as to the choice of New York law
being recognized in the courts of the jurisdiction in which such New
Subsidiary is organized and as such other matters as the
Administrative Agent, or any of the Lenders through the Administrative
Agent, may reasonably request.
(k) Change in Nature of Business. Make, or permit any of its
----------------------------
Subsidiaries to make, any change in the nature of its business that would
cause Holdings and its Subsidiaries, considered as a whole, to cease to be
primarily engaged in the businesses and activities they are engaged in on
the date of this Agreement.
(l) Amendments to Constitutive Documents. Amend, or permit any of its
------------------------------------
Subsidiaries to amend, its Constitutive Documents, except that Holdings or
any of its Subsidiaries may amend its bylaws (or other similar
organizational documents) in such a manner as, either individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect; provided that copies of any such amendment to the bylaws (or other
similar organizational document) of Holdings or any such Subsidiary shall
be delivered to the Administrative Agent at least ten Business Days prior
to the date on which such amendments are intended to become effective.
(m) Accounting Changes, Etc. Make or permit, or permit any of its
-----------------------
Subsidiaries to make or permit, any change in (i) its accounting policies
or reporting practices, except as required by applicable Requirements of
Law or by GAAP, or (ii) its Fiscal Year.
(n) Partnerships, Etc. Become a general partner in any general or
-----------------
limited partnership or joint venture, or permit any of its Subsidiaries to
do so, other than any Subsidiary the sole assets of which consist of its
interest in such partnership or joint venture.
(o) Speculative Transactions. Engage, or permit any of its
------------------------
Subsidiaries to engage, in any transaction involving commodity options or
futures contracts or any similar speculative transactions.
SECTION 5.03. Reporting Requirements. So long as any of the Advances
----------------------
shall remain unpaid or any of the Lenders shall have any Commitment hereunder,
Holdings and the Borrowers will furnish to the Lenders:
(a) Default Notices. As soon as possible and in any event within
---------------
three Business Days after the occurrence of each Default or any event,
development or occurrence that, either individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect
<PAGE>
112
continuing on the date of such statement, a statement of a Responsible
Officer of such Borrower setting forth the details of such Default, event,
development or occurrence (including, without limitation, the anticipated
effect thereof) and the action that Holdings and the Borrowers (or any of
them) have taken and/or propose to take with respect thereto.
(b) Quarterly Financials. As soon as available and in any event
--------------------
within 60 days after the end of each of the first three Fiscal Quarters of
each Fiscal Year, a Consolidated balance sheet of Holdings and its
Subsidiaries as of the end of such Fiscal Quarter and Consolidated
statements of operations, stockholders' equity and cash flows of Holdings
and its Subsidiaries for the period commencing at the end of the previous
Fiscal Quarter and ending with the end of such Fiscal Quarter and for the
period commencing at the end of the previous Fiscal Year and ending with
the end of such Fiscal Quarter, setting forth in comparative form for each
Fiscal Quarter occurring after the Fiscal Quarter ending June 30, 1998, in
the case of each such Consolidated balance sheet, the corresponding figures
as of the last day of the corresponding period in the immediately preceding
Fiscal Year from the Consolidated balance sheet of Holdings and its
Subsidiaries for such corresponding period and, in the case of each such
Consolidated statement of operations, stockholders' equity or cash flows,
the corresponding figures for the corresponding period in the immediately
preceding Fiscal Year, all in reasonable detail.
(c) Annual Financials. As soon as available and in any event within
-----------------
120 days after the end of each Fiscal Year, (i) a copy of the annual audit
report for such Fiscal Year for Holdings and its Subsidiaries, including
therein the Consolidated balance sheet of Holdings and its Subsidiaries as
of the end of such Fiscal Year and Consolidated statements of operations,
stockholders' equity and cash flows of Holdings and its Subsidiaries for
such Fiscal Year, accompanied by an unqualified opinion or an opinion
otherwise acceptable to the Required Lenders of Ernst & Young LLP or other
independent public accountants of recognized standing reasonably acceptable
to the Required Lenders, and (ii) unaudited Consolidated balance sheets of
each of FCN Holding and its Subsidiaries, Saban and its Subsidiaries and
IFE and its Subsidiaries as of the end of such Fiscal Year and unaudited
Consolidated statements of operations, stockholders' equity and cash flows
of each of FCN Holding and its Subsidiaries, Saban and its Subsidiaries and
IFE and its Subsidiaries for such Fiscal Year, setting forth in comparative
form for each Fiscal Year after the Fiscal Year ending June 30, 1998, in
the case of each such Consolidated balance sheet, the corresponding figures
as of the last day of the immediately preceding Fiscal Year from the
Consolidated balance sheet for such Persons for such immediately preceding
Fiscal Year and, in the case of each such Consolidated statement of
operations, stockholders' equity or cash flows, the corresponding figures
for the immediately preceding Fiscal Year, all in reasonable detail,
together with (A) a schedule in form reasonably satisfactory to the
Administrative Agent of the computations used by such accountants in
determining, as of the end of such Fiscal Year, compliance with the last
paragraph of Section 5.02(c), if applicable, and Sections 5.02(d)(viii),
5.02(d)(ix), 5.02(f)(iii) and 5.04(a) (including with respect to each such
Section, where applicable, the calculations of the maximum or minimum
amount, ratio or percentage, as the case may be, permissible under the
terms of such Section, and the calculation of the amount, ratio or
percentage then in existence) and (B) in the event of any change in the
generally accepted accounting principles used by such accountants in the
preparation of the audited financial statements referred to in clause (i)
of this Section 5.03(c), a reasonably detailed description of such changes
prepared by such accountants and, if and to the
<PAGE>
113
extent necessary for determining compliance with the last paragraph of
Section 5.02(c), if applicable, or any of Section 5.02(d)(viii),
5.02(d)(ix), 5.02(f)(iii) or 5.04(a), a statement of reconciliation
conforming such audited financial statements to the generally accepted
accounting principles applied in the preparation of the Consolidated
financial statements of Holdings and its Subsidiaries for the Fiscal
Quarter ending December 31, 1997.
(d) Compliance Certificate. Together with each delivery to the
----------------------
Lenders of the financial statements of Holdings and its Subsidiaries
referred to in Section 5.03(b) and 5.03(c), a certificate of the Chief
Financial Officer of Holdings, in form and substance reasonably
satisfactory to the Administrative Agent:
(i) duly certifying that, subject, in the case of any such
financial statements delivered to the Lenders pursuant to Section
5.03(b), to normal year-end audit adjustments, the Consolidated
financial statements delivered with such certificate fairly present
the Consolidated financial condition of Holdings and its Subsidiaries
as of the last day of such Fiscal Quarter or such Fiscal Year, as the
case may be, and the Consolidated results of operations and cash flows
of Holdings and its Subsidiaries for the Fiscal Quarter or the Fiscal
Year ended on such date;
(ii) in the case of any such financial statements delivered to
the Lenders pursuant to Section 5.03(c)(ii), duly certifying that the
Consolidated financial statements delivered with such certificate
fairly present the Consolidated financial condition of FCN Holding and
its Subsidiaries, Saban and its Subsidiaries or IFE and its
Subsidiaries, as appropriate, as of the last day of such Fiscal Year
and the Consolidated results of operations and cash flows of FCN
Holding and its Subsidiaries, Saban and its Subsidiaries or IFE and
its Subsidiaries, as appropriate, for the Fiscal Year ended on such
date;
(iii) duly certifying that, subject, in the case of any such
financial statements delivered to the Lenders pursuant to Section
5.03(b), to normal year-end audit adjustments, the Consolidated
financial statements delivered with such certificate have been
prepared in accordance with GAAP for such Fiscal Quarter or such
Fiscal Year, as the case may be;
(iv) duly certifying that no Default has occurred and is
continuing or, if a Default has occurred and is continuing, a
statement as to the nature thereof and the action that Holdings and
the Borrowers (or any of them) have taken and/or propose to take with
respect thereto;
(v) in the case of any such financial statements delivered to
the Lenders pursuant to Section 5.03(b), setting forth a schedule of
the computations used by Holdings and the Borrowers in determining
compliance with the last paragraph of Section 5.02(c), if applicable,
and Sections 5.02(d)(viii), 5.02(d)(ix), 5.02(f)(iii) and 5.04(a)
(including with respect to each such Section, where applicable, the
calculations of the maximum or minimum amount, ratio or percentage, as
the case may be, permissible
<PAGE>
114
under the terms of such Section, and the calculation of the amount,
ratio or percentage then in existence); and
(vi) in the case of any such financial statements delivered to
the Lenders pursuant to Section 5.03(b), (A) setting forth a
description in reasonable detail of all of the changes in the
generally accepted accounting principles applied in the preparation of
such financial statements from the generally accepted accounting
principles applied in the preparation of the Consolidated financial
statements of Holdings and its Subsidiaries for the Fiscal Quarter
ending December 31, 1997 and (B) accompanied by a statement of
reconciliation, if and to the extent necessary for determining whether
any of the changes in the generally accepted accounting principles
applied in the preparation of such financial statements would affect
the calculation of, or compliance with, the last paragraph of Section
5.02(c), if applicable, or any of Section 5.02(d)(viii), 5.02(d)(ix),
5.02(f)(iii) or 5.04(a), conforming such financial statements to the
generally accepted accounting principles applied in the preparation of
the Consolidated financial statements of Holdings and its Subsidiaries
for the Fiscal Quarter ending December 31, 1997.
(e) Licenses, Etc. Promptly and in any event within three Business
-------------
Days after receipt thereof, notice of any actual, pending or threatened
suspension, termination, or revocation of any of the Governmental
Authorizations of any of the Loan Parties or any of their respective
Subsidiaries that are necessary to own or lease and operate their
respective property and assets and to conduct their respective businesses
as now conducted and as proposed to be conducted, or any enjoinment,
barring or suspension of the ability of any such Loan Party or any such
Subsidiary to conduct any of its businesses in the ordinary course.
(f) Litigation. Promptly and in any event within five Business Days
----------
after the commencement thereof, notice of all actions, suits,
investigations, litigation, arbitrations and proceedings against or
affecting any of the Loan Parties or any of their respective Subsidiaries
or any of the property or assets thereof in any court or before any
arbitrator or by or before any Governmental Authority of any kind (i) that,
either individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect or (ii) that purports to affect the
legality, validity, binding effect or enforceability of any aspect of the
Transaction, any of the Loan Documents or the Related Documents or any of
the other transactions contemplated thereby; and, promptly after the
occurrence thereof, notice of any adverse change in the status or any
materially adverse financial effect on any of the Loan Parties or any of
their respective Subsidiaries of any such action, suit, investigation,
litigation, arbitration or proceeding; and, in each case, upon the
reasonable request of the Administrative Agent, any other information
available to any of the Loan Parties or any of their respective
Subsidiaries with respect to any of the foregoing that would enable the
Administrative Agent and the Lenders to more fully evaluate such action,
suit, investigation, litigation, arbitration or proceeding.
(g) ERISA Events and ERISA Reports; Plan Terminations, Etc. (i)
------------------------------------------------------
Promptly and in any event within ten days after any of the Loan Parties or
any of the ERISA Affiliates knows or has reason to know that any ERISA
Event has occurred, a statement of a Responsible Officer of Fox Kids,
Holdings or a Borrower describing such ERISA Event and the action, if any,
that such Loan Party or such ERISA Affiliate has taken and/or proposes to
take with respect thereto,
<PAGE>
115
together with all materials or information filed or to be filed with any
Governmental Authority or any trustee for any Plan as a result of such
ERISA Event; (ii) on the date on which any records, documents or other
information must be furnished to the PBGC with respect to any Plan pursuant
to Section 4010 of ERISA, a copy of such records, documents and
information; (iii) promptly and in any event within two Business Days after
receipt thereof by any of the Loan Parties or any of the ERISA Affiliates,
copies of each notice from the PBGC stating its intention to terminate any
Plan or to have a trustee appointed to administer any Plan; (iv) promptly
and in any event within 30 days after the filing thereof with the Internal
Revenue Service, a copy of Schedule B (Actuarial Information) to the annual
report (form 5500) with respect to each of the Plans; and (v) promptly and
in any event within five Business Days after receipt thereof by any of the
Loan Parties or any of the ERISA Affiliates from the sponsor of a
Multiemployer Plan, copies of each notice concerning (A) the imposition of
Withdrawal Liability by any such Multiemployer Plan, (B) the reorganization
or termination, within the meaning of Title IV of ERISA, of any such
Multiemployer Plan or (C) the amount of liability incurred, or that could
reasonably be expected to be incurred, by any such Loan Party or any such
ERISA Affiliate in connection with any event described in subclause (v)(A)
or (v)(B) of this Section 5.03(g); provided, however, that, notwithstanding
the foregoing provisions of this Section 5.03(g), none of the Borrowers
shall be required to notify the Administrative Agent or any of the Lenders
of the occurrence of any of the events, developments or circumstances, or
to deliver any of the reports or notices, referred to above under this
Section 5.03(g) unless and until the aggregate liability that could
reasonably be expected to be incurred by the Loan Parties and the ERISA
Affiliates as a result thereof exceeds $2,500,000.
(h) Securities Reports. Promptly and in any event within five
------------------
Business Days after the sending or filing thereof, copies of all proxy
statements, financial statements, material change reports and other
material reports that any of the Loan Parties or any of their respective
Subsidiaries sends to its stockholders, partners or members (or equivalent
persons thereto), copies of all regular, periodic and special reports and
information forms, and all registration statements, prospectuses and
information memoranda, that any of the Loan Parties or any of their
respective Subsidiaries files with the Securities and Exchange Commission
or any Governmental Authority that may be substituted therefor, or with any
national or international securities exchange, and copies of all private
placement or offering memoranda pursuant to which securities of any of the
Loan Parties or any of their respective Subsidiaries that are exempt from
registration under the Securities Act are proposed to be issued and sold
thereby.
(i) Creditor Reports. Promptly and in any event within five Business
----------------
Days after the furnishing or receipt thereof, copies of any statement or
report furnished to or received from any other holder of the securities of
any of the Loan Parties or any of their respective Subsidiaries pursuant to
the terms of any indenture, loan or credit agreement or similar agreement
of any of the Loan Parties or any of their respective Subsidiaries with
amounts outstanding or having commitments to extend credit in an aggregate
principal amount of at least $10,000,000 (including, without limitation,
any amendments, waivers or consents given or requested in respect thereof,
any notices of default, acceleration or redemption delivered thereunder,
any designations of Subsidiaries thereof as "Unrestricted Subsidiaries" or
the equivalent thereof under the terms thereof, and any compliance
certificates or fairness opinions delivered in connection therewith)
<PAGE>
116
and not otherwise required to be furnished to the Lenders pursuant to any
other clause of this Section 5.03.
(j) Related Document Notices. Promptly and in any event within five
------------------------
Business Days after the furnishing or receipt thereof, copies of all
notices, requests and other documents furnished to or received by any of
the Loan Parties or any of their Affiliates under or pursuant to any of the
Related Documents and, from time to time upon the reasonable request of the
Administrative Agent, such information and reports regarding the Related
Documents as the Administrative Agent, or any of the Lenders through the
Administrative Agent, may reasonably request.
(k) Tax Reports and Notices. (i) Within ten Business Days after
-----------------------
receipt thereof, copies of all Revenue Agent Reports (Internal Revenue
Service form 886) or other written proposals of the Internal Revenue
Service that propose, determine or otherwise set forth adjustments (whether
positive or negative) to the United States federal income tax liability of
the affiliated group (within the meaning of Section 1504(a)(1) of the
Internal Revenue Code) of which Holdings and the Borrowers are members
aggregating $5,000,000 or more; (ii) promptly and in any event within five
Business Days after the due date (after giving effect to all applicable
extensions) for filing the final federal income tax return in respect of
each taxable year of Fox Kids, a certificate of Fox Kids, duly executed by
a Responsible Officer thereof, stating that the common parent of the
affiliated group (within the meaning of Section 1504(a)(1) of the Internal
Revenue Code) of which Holdings and the Borrowers are members has paid to
the Internal Revenue Service or other relevant taxation authority, or to
Holdings or the applicable Borrower, the full amount that such affiliated
group is required to pay in respect of United States federal income taxes
for such taxable year and that Fox Kids and each of its Subsidiaries have
received any amount payable to them, and have not paid amounts in respect
of taxes (federal, state, local or foreign) in excess of the amount Fox
Kids or such Subsidiary is required to pay, under the established tax
sharing arrangements of Fox Kids and its Affiliates in respect of such
taxable year; and (iii) promptly and in any event within ten Business Days
after receipt thereof, copies of the determination of any request for a
ruling or determination letter from the Internal Revenue Service or any
other taxation authority regarding the actual or asserted tax liability or
deficiency of any of the Loan Parties or any of their respective
Subsidiaries.
(l) Environmental Conditions. Promptly and in any event within five
------------------------
Business Days after a Responsible Officer becomes aware of the assertion or
occurrence thereof, notice of:
(i) any condition or occurrence on or arising from any property
owned or operated by any of the Loan Parties or any of their
respective Subsidiaries that resulted or is alleged to have resulted
in noncompliance by any such Loan Party or any such Subsidiary with
any applicable Environmental Law or Environmental Permit in such a
manner as, either individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect;
(ii) any condition or occurrence on any property owned or
operated by any of the Loan Parties or any of their respective
Subsidiaries that could reasonably be expected to cause such property
to be subject to any restrictions on the ownership,
<PAGE>
117
occupancy, use or transferability by any such Loan Party or any such
Subsidiary of such property under any Environmental Law which, either
individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect; and
(iii) the taking of any removal or remedial action in response
to the actual or alleged presence of any Hazardous Materials on any
property owned or operated by any of the Loan Parties or any of their
respective Subsidiaries as required by any Environmental Law, any
Environmental Permit or any Governmental Authority.
All such notices shall set forth in reasonable detail the nature of the
condition, occurrence, removal or remedial action described therein and, in
the case of each such condition or occurrence, the action that such Loan
Party or such Subsidiary has taken and/or proposes to take with respect
thereto.
(m) Insurance. As soon as available and in any event within 30 days
---------
after the end of each Fiscal Year, a report summarizing the insurance
coverage in effect for each of the Loan Parties and each of their
respective Subsidiaries, specifying therein the type, carrier, amount,
deductibles, co-insurance requirements and expiration dates thereof and
containing such additional information as any of the Lenders, through the
Administrative Agent, may reasonably request.
(n) Implied Debt Rating. As promptly as practicable and in any event
-------------------
within five Business Days after receipt thereof, copies of each notice
received from S&P or Moody's assigning an Implied Debt Rating or a change
in any Implied Debt Rating.
(o) Other Information. Such other information respecting the
-----------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of any of the Loan Parties or any of their
respective Subsidiaries as any of the Lenders, through the Administrative
Agent, may from time to time reasonably request.
SECTION 5.04. Financial Covenants. So long as any of the Advances
-------------------
shall remain unpaid or any of the Lenders shall have any Commitment hereunder:
(a) Senior Leverage Ratio. Holdings will maintain a Senior Leverage
---------------------
Ratio at all times during each Measurement Period of not more than the
amount set forth below for each Measurement Period set forth below:
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
ENDING IN RATIO
------------------ -----
<S> <C>
December 1997 4.50:1
March 1998 4.50:1
June 1998 4.25:1
</TABLE>
<PAGE>
118
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
ENDING IN RATIO
------------------ -----
<S> <C>
September 1998 4.25:1
December 1998 4.25:1
March 1999 4.25:1
June 1999 3.50:1
September 1999 3.50:1
December 1999 3.50:1
March 2000 3.50:1
June 2000 and thereafter 3.00:1
</TABLE>
(b) Fixed Charge Coverage Ratio. Fox Kids will maintain a Fixed
---------------------------
Charge Coverage Ratio as of the last day of each Measurement Period of not
less than the amount set forth below for each Measurement Period set forth
below:
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
ENDING IN RATIO
------------------ -----
<S> <C>
December 1997 1.00:1
March 1998 1.00:1
June 1998 1.00:1
September 1998 1.00:1
December 1998 1.00:1
March 1999 1.00:1
June 1999 1.00:1
September 1999 and thereafter 1.10:1
</TABLE>
(c) Interest Coverage Ratio. Fox Kids will maintain an Interest
-----------------------
Coverage Ratio as of the last day of each Measurement Period of not less
than the amount set forth below for each Measurement Period set forth
below:
<PAGE>
119
<TABLE>
<CAPTION>
Measurement Period
Ending In Ratio
----------------------- -------------
<S> <C> <C>
December 1997 1.50:1
March 1998 1.50:1
June 1998 1.50:1
September 1998 1.50:1
December 1998 1.50:1
March 1999 1.50:1
June 1999 1.75:1
September 1999 1.75:1
December 1999 1.75:1
March 2000 1.75:1
June 2000 2.25:1
September 2000 2.25:1
December 2000 2.25:1
March 2001 2.25:1
June 2001 and thereafter 3.00:1
</TABLE>
SECTION 5.05. Covenant of Holdings. So long as any of the Advances
--------------------
shall remain unpaid or any of the Lenders shall have any Commitment hereunder,
Holdings will not, at any time, enter into or conduct any business or engage in
any activity other than:
(i) the holding of all of the Equity Interests in each of the
Borrowers;
(ii) the performance of its Obligations under each of the Loan
Documents to which it is or is to be a party, in accordance with the
respective terms thereof; and
(iii) the conduct of any business or the engagement in any activity
otherwise expressly permitted to be made or taken by Holdings under this
Agreement and the other Loan Documents.
<PAGE>
120
ARTICLE VI
GUARANTEE
SECTION 6.01. Guarantee. (a) Holdings and each of the Borrowers
---------
hereby unconditionally and irrevocably guarantee (the undertaking by Holdings
and each of the Borrowers under this Article VI being the "GUARANTEE") the
punctual payment when due, whether at scheduled maturity or at a date fixed for
prepayment or by acceleration, demand or otherwise, of all of the Obligations of
each of the other Loan Parties now or hereafter existing under or in respect of
the Loan Documents (including, without limitation, any extensions,
modifications, substitutions, amendments or renewals of any or all of the
foregoing Obligations), whether direct or indirect, absolute or contingent, and
whether for principal, interest, premium, fees, indemnification payments,
contract causes of action, costs, expenses or otherwise (such Obligations being
the "GUARANTEED OBLIGATIONS"), and agree to pay any and all expenses (including,
without limitation, reasonable fees and expenses of counsel) incurred by the
Administrative Agent or any of the other Secured Parties in enforcing any rights
under this Guarantee. Without limiting the generality of the foregoing, the
liability of Holdings and each of the Borrowers shall extend to all amounts that
constitute part of the Guaranteed Obligations and would be owed by any of the
other Loan Parties to the Administrative Agent or any of the other Secured
Parties under or in respect of the Loan Documents but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving such other Loan Party.
(b) Holdings and each of the Borrowers and, by its acceptance of this
Guarantee, the Administrative Agent and each of the other Secured Parties,
hereby confirm that it is the intention of all such Persons that this Guarantee
and the Obligations of Holdings and each of the Borrowers hereunder not
constitute a fraudulent transfer or conveyance for purposes of the United States
Federal Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform
Fraudulent Transfer Act or any similar federal or state Requirements of Law
covering the protection of creditors' rights or the relief of debtors to the
extent applicable to this Guarantee and the Obligations of Holdings and each of
the Borrowers hereunder. To effectuate the foregoing intention, Holdings, each
of the Borrowers, the Administrative Agent and each of the other Secured Parties
hereby irrevocably agree that, solely with respect to the Guaranteed Obligations
and the other liabilities of (i) Holdings and each of the Borrowers under this
Guarantee which result from or arise out of their respective guarantees under
subsection (a) of this Section 6.01 of the Obligations of Fox Kids under or in
respect of the Loan Documents and (ii) each of the Borrowers under this
Guarantee which result from or arise out of their respective guarantees under
subsection (a) of this Section 6.01 of the Obligations of Holdings under or in
respect of the Loan Documents, such Guaranteed Obligations and other liabilities
shall be limited to the maximum amount as will, after giving effect to such
maximum amount and all other contingent and fixed liabilities of Holdings or
such Borrower that are relevant under such Requirements of Law, and after giving
effect to any collections from, any rights to receive contributions from, or
payments made by or on behalf of, any of the Subsidiaries of the Borrowers in
respect of the Obligations of such Subsidiary under the Subsidiaries Guarantee
and, in the case of the Borrowers, this Guarantee, result in the Guaranteed
Obligations and all other liabilities of Holdings or such Borrower under this
Guarantee not constituting a fraudulent transfer or conveyance.
(c) Holdings and each of the Borrowers hereby unconditionally and
irrevocably agree that, in the event any payment shall be required to be made to
the Secured Parties under this Guarantee, the Fox Kids Guarantee, the
Subsidiaries Guarantee or any other guarantee, Holdings or such Borrower
<PAGE>
121
will contribute, to the fullest extent permitted by applicable law, such amounts
to Fox Kids, each of the Subsidiaries of Fox Kids party to the Subsidiaries
Guarantee or this Guarantee and each other guarantor as would maximize the
aggregate amount payable to the Secured Parties under or in respect of the Loan
Documents.
SECTION 6.02. Guarantee Absolute. (a) Holdings and each of the
------------------
Borrowers guarantee that all of the Guaranteed Obligations will be paid strictly
in accordance with the terms of the Loan Documents, regardless of any
Requirements of Law now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of the Administrative Agent or any of the other
Secured Parties with respect thereto. The Obligations of Holdings and each of
the Borrowers under this Guarantee are independent of the Guaranteed Obligations
or any other Obligations of any of the other Loan Parties under or in respect of
the Loan Documents, and a separate action or actions may be brought and
prosecuted against Holdings and each of the Borrowers to enforce this Guarantee,
irrespective of whether any action is brought against any of the other Loan
Parties or whether any of the other Loan Parties is joined in any such action or
actions. The liability of Holdings and each of the Borrowers under this
Guarantee shall be absolute, unconditional and irrevocable irrespective of, and
Holdings and each of the Borrowers hereby irrevocably waive any defenses they
may now have or may hereafter acquire in any way relating to, any and all of the
following:
(i) any lack of validity or enforceability of any of the Loan
Documents or any other agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Guaranteed Obligations or any other
Obligations of any of the Loan Parties under or in respect of the Loan
Documents, or any other amendment or waiver of or any consent to departure
from any of the Loan Documents (including, without limitation, any increase
in the Guaranteed Obligations resulting from the extension of additional
credit to any of the other Loan Parties or any of their respective
Subsidiaries or otherwise);
(iii) any taking, exchange, release or nonperfection of any of the
Collateral, or any taking, release or amendment or waiver of, or consent to
departure from, the Fox Kids Guarantee, the Subsidiaries Guarantee or any
other guarantee, for all or any of the Guaranteed Obligations;
(iv) any manner of application of Collateral, or proceeds thereof, to
all or any of the Guaranteed Obligations, or any manner of sale or other
disposition of any Collateral for all or any of the Guaranteed Obligations
or any other Obligations of any of the other Loan Parties under or in
respect of the Loan Documents, or any other property and assets of any of
the other Loan Parties or any of their respective Subsidiaries;
(v) any change, restructuring or termination of the legal structure
or existence of any of the other Loan Parties or any of their respective
Subsidiaries;
(vi) any failure of any of the Secured Parties to disclose to any of
the Loan Parties any information relating to the business, condition
(financial or otherwise), operations, performance, properties or prospects
of any of the other Loan Parties now or hereafter known to such Secured
Party;
<PAGE>
122
(vii) the failure of any other Person to execute the Fox Kids
Guarantee, the Subsidiaries Guarantee or any other guarantee or agreement
or the release or reduction of liability of any of the other Loan Parties
or any other guarantor or surety with respect to the Guaranteed
Obligations; or
(viii) any other circumstance (including, without limitation, any
statute of limitations or any existence of or reliance on any
representation by the Administrative Agent or any of the other Secured
Parties) that might otherwise constitute a defense available to, or a
discharge of, Holdings, such Borrower, any of the other Loan Parties or any
other guarantor or surety.
This Guarantee shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by the Administrative Agent or any of the other
Secured Parties or by any other Person upon the insolvency, bankruptcy or
reorganization of any of the other Loan Parties or otherwise, all as though such
payment had not been made, and Holdings and each of the Borrowers hereby
unconditionally and irrevocably agree that they will indemnify the
Administrative Agent and each of the other Secured Parties, upon demand, for all
of the costs and expenses (including, without limitation, reasonable fees and
expenses of counsel) incurred by the Administrative Agent or such other Secured
Party in connection with any such rescission or restoration, including any such
costs and expenses incurred in defending against any claim alleging that such
payment constituted a preference, a fraudulent transfer or a similar payment
under any bankruptcy, insolvency or similar Requirements of Law.
(b) Holdings and each of the Borrowers hereby further agree that, as
between Holdings or such Borrower, on the one hand, and the Administrative Agent
and the Secured Parties, on the other hand, (i) the Guaranteed Obligations of
Holdings or such Borrower may be declared to be forthwith due and payable as
provided in Section 7.01 (and shall be deemed to have become automatically due
and payable in the circumstances provided in Section 7.01) for purposes of
Section 6.01, notwithstanding any stay, injunction or other prohibition
preventing such declaration in respect of the Obligations of any of the Loan
Parties guaranteed hereunder (or preventing such Guaranteed Obligations from
becoming automatically due and payable) as against any other Person and (ii) in
the event of any declaration of acceleration of such Guaranteed Obligations (or
such Guaranteed Obligations being deemed to have become automatically due and
payable) as provided in Section 7.01, such Guaranteed Obligations (whether or
not due and payable by any other Person) shall forthwith become due and payable
by Holdings or such Borrower for all purposes of this Guarantee.
SECTION 6.03. Waivers and Acknowledgments. (a) Holdings and each of
---------------------------
the Borrowers hereby unconditionally and irrevocably waive promptness,
diligence, notice of acceptance, presentment, demand for performance, notice of
nonperformance, default, protest, dishonor and any other notice with respect to
any of the Guaranteed Obligations and this Guarantee, and any requirement that
the Administrative Agent or any of the other Secured Parties protect, secure,
perfect or insure any Lien or any property or assets subject thereto or exhaust
any right or take any action against any of the other Loan Parties or any other
Person or any of the Collateral.
(b) Holdings and each of the Borrowers hereby waive (i) any defense
arising by reason of any claim or defense based upon an election of remedies by
the Administrative Agent or the other Secured Parties which in any manner
impairs, reduces, releases or otherwise adversely affects the subrogation,
reimbursement, exoneration, contribution or indemnification rights of Holdings
or such Borrower or any other rights of Holdings or such Borrower to proceed
against any of the other Loan
<PAGE>
123
Parties, any other guarantor or any other Person or any of the Collateral, and
(ii) any defense based on any right of setoff or counterclaim against or in
respect of the Obligations of Holdings or such Borrower under this Guarantee.
(c) Holdings and each of the Borrowers hereby unconditionally and
irrevocably waive any duty on the part of the Administrative Agent or any of the
other Secured Parties to disclose to Holdings or such Borrower any matter, fact
or thing relating to the business, condition (financial or otherwise),
operations, performance, properties or prospects of any of the other Loan
Parties or any of their respective Subsidiaries or the property and assets
thereof now or hereafter known by the Administrative Agent or such other Secured
Party.
(d) Holdings and each of the Borrowers hereby unconditionally waive
any right to revoke this Guarantee, and acknowledge that this Guarantee is
continuing in nature and applies to all Guaranteed Obligations, whether existing
now or in the future.
(e) Holdings and each of the Borrowers hereby acknowledge that they
will receive substantial direct and indirect benefits from the financing
arrangements contemplated by the Loan Documents and that the waivers set forth
in Section 6.02 and in this Section 6.03 are knowingly made in contemplation of
such benefits.
SECTION 6.04. Subrogation. Holdings and each of the Borrowers hereby
-----------
unconditionally and irrevocably agree not to exercise any rights that they may
now have or may hereafter acquire against any of the other Loan Parties or any
other insider guarantor that arise from the existence, payment, performance or
enforcement of the Obligations of Holdings or such Borrower under this Guarantee
or any of the other Loan Documents, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution or indemnification and any
right to participate in any claim or remedy of the Administrative Agent or any
of the other Secured Parties against such other Loan Party or any other insider
guarantor or any Collateral, whether or not such claim, remedy or right arises
in equity or under contract, statute, common law or any other Requirements of
Law, including, without limitation, the right to take or receive from such other
Loan Party or any other insider guarantor, directly or indirectly, in cash or
other property or by set-off or in any other manner, payment or security on
account of such claim, remedy or right, unless and until such time as all of the
Guaranteed Obligations and all of the other amounts payable under this Guarantee
shall have been paid in full in cash, all of the Bank Hedge Agreements shall
have expired or been terminated and the Commitments shall have expired or
terminated. If any amount shall be paid to Holdings or any of the Borrowers in
violation of the immediately preceding sentence at any time prior to the latest
of (a) the payment in full in cash of all of the Guaranteed Obligations and all
of the other amounts payable under this Guarantee, (b) the expiration or
termination of all of the Bank Hedge Agreements and (c) the Termination Date,
such amount shall be received and held in trust for the benefit of the
Administrative Agent and the other Secured Parties, shall be segregated from the
other property and funds of Holdings or such Borrower and shall be delivered
forthwith to the Administrative Agent in the same form as so received (with any
necessary endorsement or assignment) to be credited and applied to the
Guaranteed Obligations and the other amounts payable under this Guarantee,
whether matured or unmatured, in accordance with the terms of the Loan
Documents, or to be held as Collateral for any of the Guaranteed Obligations or
any of the other amounts payable under this Guarantee thereafter arising. If
(i) Holdings or any of the Borrowers shall pay to the Administrative Agent all
or any part of the Guaranteed Obligations, (ii) all of the Guaranteed
Obligations and all of the other amounts payable under this Guarantee shall have
been paid in full in cash, (iii) all of the Bank Hedge Agreements shall have
expired or been terminated and (iv) the Termination Date shall
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have occurred, the Administrative Agent and the other Secured Parties will, at
Holdings' or such Borrower's request and expense, execute and deliver to
Holdings or such Borrower appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer of subrogation to
Holdings or such Borrower of an interest in the Guaranteed Obligations resulting
from the payment made by Holdings or such Borrower under this Guarantee.
SECTION 6.05. Continuing Guarantee; Assignments. This Guarantee is a
---------------------------------
continuing guarantee and shall (a) remain in full force and effect until the
latest of (i) the payment in full in cash of all of the Guaranteed Obligations
and all of the other amounts payable under this Guarantee, (ii) the expiration
or termination of all of the Bank Hedge Agreements and (iii) the Termination
Date, (b) be binding upon Holdings and each of the Borrowers and their
respective successors and assigns and (c) inure to the benefit of, and be
enforceable by, the Administrative Agent and the other Secured Parties and their
respective successors, transferees and assigns. Without limiting the generality
of clause (c) of the immediately preceding sentence, any of the Lenders may
assign or otherwise transfer all or any portion of its rights and obligations
under this Agreement (including, without limitation, all or any portion of its
Commitment or Commitments, the Advances owing to it and the Note or Notes held
by it) to any other Person, and such other Person shall thereupon become vested
with all the benefits in respect thereof granted to such Lender under this
Article VI or otherwise, in each case as provided in Section 9.08.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. Events of Default. If any of the following events
-----------------
("EVENTS OF DEFAULT") shall occur and be continuing:
(a) (i) any of the Borrowers shall fail to pay any principal of any
Advance made to it when the same shall become due and payable, whether by
scheduled maturity or at a date fixed for prepayment or by acceleration,
demand or otherwise, or (ii) any of the Borrowers shall fail to pay any
interest on any Advance made to it, or any of the other Loan Parties shall
fail to make any other payment under or in respect of any of the Loan
Documents required to have been made by it, whether by scheduled maturity
or at a date fixed for payment or prepayment or by acceleration, demand or
otherwise, and, in each case under this clause (ii), such default remains
unremedied for at least five consecutive days after the same becomes due
and payable; or
(b) any representation or warranty made by any of the Loan Parties (or
any of their respective officers) under or in connection with any of the
Loan Documents shall prove to have been incorrect in any material respect
on the date as of which it was made or deemed made; or
(c) (i) Holdings or any of the Borrowers shall fail to perform or
observe any term, covenant or agreement contained in Section 2.14,
5.01(a)(ii), 5.01(b),5.01(e), 5.01(f), 5.01(i), 5.01(j) or 5.01(k), 5.02,
5.03, 5.04 or 5.05 on its part to be performed or observed, (ii) Fox Kids
shall fail to perform or observe any term, covenant or agreement contained
in Section 7(a)(ii), 7(b), 7(d), 7(f), 7(g), 7(h) or 7(i) or 8 of the Fox
Kids Guarentee (iii) any of the Subsidiaries of the Borrowers shall fail
to perform any term, covenant or agreement contained in in Section 4 or 7
of the Subsidiaries Guarantee or (iv) any of the Loan Parties shall fail
to
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125
perform or observe any term, covenant or agreement contained in Section
4,5,6,9,10 or ll of the Pledge and Assignment Agreement or
(d) any of the Loan Parties shall fail to perform any term, covenant
or agreement contained in any of the Loan Documents on its part to be
performed or observed that is not otherwise referred to in Section 7.01(c)
if such failure shall remain unremedied for at least 15 consecutive
Business Days after the earlier of the date on which (i) a Responsible
Officer of any of the Loan Parties first becomes aware of such failure and
(ii) written notice thereof shall have been given to Holdings or any of the
Borrowers by the Administrative Agent or any of the Lenders; or
(e) (i) any of the Loan Parties or any of their respective
Subsidiaries (other than any of the Excluded Fox Kids Subsidiaries) shall
fail to pay any principal of, premium or interest on, or any other amount
payable in respect of, one or more items of Indebtedness of the Loan
Parties and their Subsidiaries (other than any of the Excluded Fox Kids
Subsidiaries) (excluding Indebtedness outstanding hereunder) that is
outstanding (or under which one or more Persons have a commitment to extend
credit) in an aggregate principal or notional amount of at least
$10,000,000 when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace period, if any, specified
in the agreements or instruments relating to all such Indebtedness; or (ii)
any other event shall occur or condition shall exist under the agreements
or instruments relating to one or more items of Indebtedness of the Loan
Parties and their Subsidiaries (other than any of the Excluded Fox Kids
Subsidiaries) (excluding Indebtedness outstanding hereunder) that is
outstanding (or under which one or more Persons have a commitment to extend
credit) in an aggregate principal or notional amount of at least
$10,000,000 and such other event or condition shall continue after the
applicable grace period, if any, specified in all such agreements or
instruments, if the effect of such event or condition is to accelerate, or
to permit the acceleration of, the maturity of such Indebtedness or
otherwise to cause, or to permit the holder thereof to cause, such
Indebtedness to mature; or (iii) one or more items of Indebtedness of the
Loan Parties and their Subsidiaries (other than any of the Excluded Fox
Kids Subsidiaries) (excluding Indebtedness outstanding hereunder) that is
outstanding (or under which one or more Persons have a commitment to extend
credit) in an aggregate principal or notional amount of at least
$10,000,000 shall be declared to be due and payable or required to be
prepaid or redeemed (other than by a regularly scheduled or required
prepayment or redemption), purchased or defeased, or an offer to prepay,
redeem, purchase or defease such Indebtedness shall be required to be made,
in each case prior to the stated maturity thereof; or
(f) any of the Loan Parties or any of their respective Subsidiaries
(other than any of the Excluded Fox Kids Subsidiaries) shall generally not
pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment
for the benefit of creditors; or any proceeding shall be instituted by or
against any of the Loan Parties or any of their respective Subsidiaries
(other than any of the Excluded Fox Kids Subsidiaries) seeking to
adjudicate it a bankrupt or insolvent, or (other than for the purpose of a
solvent amalgamation or reconstruction) seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition
of it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, administrator or other
similar official for it
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126
or for any substantial part of its property and assets and, in the case of
any such proceeding instituted against it (but not instituted by it) that
is being diligently contested by it in good faith, either such proceeding
shall remain undismissed or unstayed for a period of at least 45
consecutive days or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief against,
or the appointment of a receiver, trustee, custodian or other similar
official for, it or any substantial part of its property and assets) shall
occur; or any event or action analogous to or having a substantially
similar effect to any of the events or actions set forth above in this
Section 7.01(f) (other than a solvent reorganization) shall occur under the
Requirements of Law of any jurisdiction applicable to any of the Loan
Parties or any of their respective Subsidiaries (other than any of the
Excluded Fox Kids Subsidiaries); or any of the Loan Parties or any of their
respective Subsidiaries (other than any of the Excluded Fox Kids
Subsidiaries) shall take any corporate, partnership, limited liability
company or other similar action to authorize any of the actions set forth
above in this Section 7.01(f); or
(g) one or more judgments or orders for the payment of money in
excess of $10,000,000 in the aggregate shall be rendered against one or
more of the Loan Parties and their Subsidiaries (other than any of the
Excluded Fox Kids Subsidiaries) and shall remain unsatisfied and either (i)
enforcement proceedings shall have been commenced by any creditor upon any
such judgment or order or (ii) there shall be any period of at least 20
consecutive days during which a stay of enforcement of any such judgment
or order, by reason of a pending appeal or otherwise, shall not be in
effect; provided, however, that any such judgment or order shall not give
rise to an Event of Default under this Section 7.01(g) if and for so long
as (A) the amount of such judgment or order is covered by a valid and
binding policy of insurance between the defendant and the insurer covering
full payment thereof and (B) such insurer has been notified, and has not
disputed the claim made for payment, of the amount of such judgment or
order; or
(h) one or more nonmonetary judgments or orders (including, without
limitation, writs or warrants of attachment, garnishment, execution,
distraint or similar process) shall be rendered against any of the Loan
Parties or any of their respective Subsidiaries that, either individually
or in the aggregate, could reasonably be expected to have a Material
Adverse Effect, and there shall be any period of at least 20 consecutive
days during which a stay of enforcement of any such judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; or
(i) any provision of any of the Loan Documents after delivery thereof
pursuant to Section 3.01 or 5.02(j) shall for any reason (other than
pursuant to the terms thereof) cease to be valid and binding on or
enforceable against any of the Loan Parties intended to be a party to it,
or any such Loan Party shall so state in writing; or
(j) any of the Collateral Documents after delivery thereof pursuant to
Section 3.01 or 5.02(j) shall for any reason (other than pursuant to the
terms thereof) cease to create a valid and perfected first priority lien on
and security interest in the Collateral purported to be covered thereby; or
(k) any of the following events or conditions shall have occurred and
such event or condition, when aggregated with any and all other such events
or conditions, has resulted or could reasonably be expected to result in
liabilities of one or more of the Loan Parties and/or the ERISA Affiliates
in an aggregate amount exceeding $10,000,000 at any time:
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127
(i) any ERISA Event shall have occurred with respect to a
Plan; or
(ii) any of the Loan Parties or any of the ERISA Affiliates
shall have been notified by the sponsor of a Multiemployer Plan that
it has incurred Withdrawal Liability to such Multiemployer Plan; or
(iii) any of the Loan Parties or any of the ERISA Affiliates
shall have been notified by the sponsor of a Multiemployer Plan that
such Multiemployer Plan is in reorganization, is insolvent or is being
terminated, within the meaning of Title IV of ERISA, and, as a result
of such reorganization, insolvency or termination, the aggregate
annual contributions of the Loan Parties and the ERISA Affiliates to
all of the Multiemployer Plans that are in reorganization, are
insolvent or being terminated at such time have been or will be
increased over the amounts contributed to such Multiemployer Plans for
the plan years of such Multiemployer Plans immediately preceding the
plan year in which such reorganization, insolvency or termination
occurs; or
(iv) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA and Section 412 of the Internal Revenue Code),
whether or not waived, shall exist with respect to one or more of the
Plans, or any Lien shall exist on the property and assets of any of
the Loan Parties or any of the ERISA Affiliates in favor of the PBGC
or any Plan; or
(l) any of the Governmental Authorizations necessary in order to
permit any of the Loan Parties or any of their respective Subsidiaries to
fully own or lease and operate their respective property and assets or to
properly conduct their respective businesses shall cease to be in effect or
any such Loan Party or any such Subsidiary shall cease to have the full
intended benefit thereof or rights thereunder, unless the revocation,
termination, cancellation, denial, impairment or modification of such
Governmental Authorization, either individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect; or
(m) the Borrowers and their Subsidiaries shall be unable to
transmit programming for more than ten consecutive days as a result of the
loss of all of their transponders and the inability of the applicable
Borrower or Subsidiary of any of the Borrowers to arrange for the use of
suitable substitute transponders; or
(n) (i) NPAL, together with its consolidated subsidiaries, shall
own less than 50% of the Fair Market Value of the total assets of TNCL
(together with any successor by merger thereto), together with its
consolidated subsidiaries, located in the United States of America as of
June 11, 1997 and the proceeds of any disposition of any such assets
subsequent to August 1, 1997 and (ii) the total assets of NPAL, its
consolidated subsidiaries and its investments accounted for by the equity
method, as determined on the basis of the Fair Market Value of such assets,
shall at any time not exceed by at least $2,500,000,000 all of the
Indebtedness of NPAL, its consolidated subsidiaries and its investments
accounted for by the equity method; or
(o) a Change of Control shall occur;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrowers,
declare the obligation of each of the Lenders to
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128
make Advances to be terminated, whereupon the same shall forthwith terminate,
and (ii) shall at the request, or may with the consent, of the Required Lenders,
by notice to the Borrowers, declare the Notes, all interest thereon and all
other amounts payable under or in respect of this Agreement and the other Loan
Documents to be forthwith due and payable, whereupon the Notes, all such
interest and all such other amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by each of the Borrowers; provided,
however, that in the event of an actual or deemed entry of an order for relief
with respect to any of the Loan Parties under the United States Federal
Bankruptcy Code or a similar order or action under any other Requirements of Law
covering the protection of creditors' rights or the relief of debtors applicable
to such Loan Party, (A) the obligation of each of the Lenders to make Advances
shall automatically be terminated and (B) the Notes, all such interest and all
such amounts shall automatically become and be due and payable, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived by each of the Borrowers.
ARTICLE VIII
THE AGENTS
SECTION 8.01. Authorization and Action. (a) Each of the Lenders
------------------------
hereby appoints and authorizes the Administrative Agent to take such action as
agent on its behalf and to exercise such powers and discretion under this
Agreement and the other Loan Documents as are delegated to the Administrative
Agent by the terms hereof and thereof, together with such powers and discretion
as are reasonably incidental thereto. As to any matters not expressly provided
for under the Loan Documents (including, without limitation, enforcement or
collection of the Notes), the Administrative Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding upon all of the Lenders and all holders of Notes;
provided, however, that the Administrative Agent shall not be required to take
any action (i) that exposes the Administrative Agent to personal liability or
that is contrary to this Agreement or to applicable Requirements of Law or (ii)
as to which the Administrative Agent has not received adequate security or
indemnity (whether pursuant to Section 8.05 or otherwise). If the security or
indemnity furnished to the Administrative Agent for any purpose under or in
respect of the Loan Documents shall, in the good faith opinion of the
Administrative Agent, be insufficient or become impaired, then the
Administrative Agent may require additional security or indemnity and cease, or
not commence, to follow the directions or take the actions indemnified against
until such additional security or indemnity is furnished. The Administrative
Agent agrees to give to each of the Lenders prompt notice of each notice given
to it by Holdings or the Borrowers pursuant to the terms of this Agreement or by
Fox Kids pursuant to the terms of the Fox Kids Guarantee.
(b) The Administrative Agent shall also act as the "collateral agent"
under the Loan Documents, and each of the Lenders (in its capacity as a Lender
and a Secured Party) hereby appoints and authorizes the Administrative Agent to
act as the agent of such Lender for purposes of acquiring, holding and enforcing
any and all Liens on Collateral granted by any of the Loan Parties to secure any
of the Secured Obligations, together with such powers and discretion as are
reasonably incidental thereto. The Administrative Agent may from time to time
in its discretion appoint any of the other Lenders or any of the Affiliates of a
Lender to act as its co-agent or sub-agent for purposes of holding or enforcing
any Lien on the Collateral (or any portion thereof) granted under the Collateral
Documents or of exercising
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any rights and remedies thereunder at the direction of the Administrative Agent.
In this connection, the Administrative Agent, as "collateral agent", and such
co-agents and sub-agents shall be entitled to the benefits of all provisions of
this Article VIII (including, without limitation, Section 8.05, as though such
co-agents or sub-agents were the "collateral agent" under the Loan Documents) as
if set forth in full herein with respect thereto.
(c) Each of the Co-Arrangers shall have no powers or discretion under
this Agreement or any of the other Loan Documents other than those bestowed upon
it as a co-agent or sub-agent from time to time by the Administrative Agent
pursuant to subsection (b) of this Section 8.01, and each of the Lenders hereby
acknowledges that none of the Co-Arrangers have any liability under this
Agreement or any of the other Loan Documents.
SECTION 8.02. Administrative Agent's Reliance, Etc. Neither the
------------------------------------
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with the Loan Documents, except for its or their own gross
negligence or willful misconduct as determined in a final, nonappealable
judgment by a court of competent jurisdiction. Without limitation of the
generality of the immediately preceding sentence, the Administrative Agent:
(a) may treat the payee of any Note as the holder thereof until the
Administrative Agent receives and accepts an Assignment and Acceptance
entered into by the Lender that is the payee of such Note, as assignor, and
an Eligible Assignee, as assignee, as provided in Section 9.08;
(b) may consult with legal counsel (including counsel for any of the
Loan Parties), independent public accountants and other experts selected by
it and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel, accountants
or experts;
(c) makes no representation or warranty to any of the Secured Parties
and shall not be responsible to any of the Secured Parties for any
statements, representations or warranties (whether written or oral) made in
or in connection with the Loan Documents;
(d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of
any of the Loan Documents on the part of any of the Loan Parties or to
inspect the property and assets (including the books and records) of any of
the Loan Parties;
(e) shall not be responsible to any of the Secured Parties for the due
execution, legality, validity, enforceability, genuineness, sufficiency or
value of, or the perfection or priority of any lien or security interest
created or purported to be created under or in connection with, any of the
Loan Documents or any other instrument or document furnished pursuant
thereto; and
(f) shall incur no liability under or in respect of any of the Loan
Documents by acting upon any notice, consent, order, certificate or other
instrument or writing (which may be by telegram, telecopy or telex)
believed by it to be genuine and signed or sent by the proper party or
parties.
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130
SECTION 8.03. The Administrative Agent, the Co-Arrangers and
----------------------------------------------
Affiliates. With respect to its Commitment or Commitments, the Advances made by
- ----------
it and the Note or Notes issued to it, Citicorp USA shall have the same rights
and powers under the Loan Documents as any of the other Lenders and may exercise
the same as though it were not the Administrative Agent; and the term "Lender",
"Lenders", "Secured Party" or "Secured Parties" shall, unless otherwise
expressly indicated, include Citicorp USA, Citicorp Securities, Chase Securities
and BankBoston in their respective individual capacities. Citicorp USA, Citicorp
Securities, Chase Securities and BankBoston and their respective Affiliates
(whether or not parties hereto) may accept deposits from, lend money to, act as
trustee under indentures of, accept investment banking engagements from and
generally engage in any kind of business with, any of the Loan Parties, any of
their respective Subsidiaries and any Person who may do business with or own
securities of any of the Loan Parties or any such Subsidiary, all as if Citicorp
USA, Citicorp Securities, Chase Securities and BankBoston were not the Agents
and without any duty to account therefor to the other Lenders.
SECTION 8.04. Lender Credit Decision. Each of the Lenders hereby
----------------------
acknowledges that it has, independently and without reliance upon any of the
Agents or any of the other Lenders and based on the financial statements
referred to in Section 4.01 and such other documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this
Agreement. Each of the Lenders also hereby acknowledges that it will,
independently and without reliance upon any of the Agents or any of the other
Lenders and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement.
SECTION 8.05. Indemnification. Each of the Lenders hereby severally
---------------
agrees to indemnify the Administrative Agent (to the extent not promptly
reimbursed by the Borrowers) from and against such Lender's ratable share
(determined as provided below in this Section 8.05) of any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by, or asserted against the Administrative Agent in any way
relating to or arising out of the Loan Documents or any action taken or omitted
by the Administrative Agent under the Loan Documents (collectively, the "LENDER
INDEMNIFIED COSTS"); provided, however, that none of the Lenders shall be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
Administrative Agent's gross negligence or willful misconduct as determined in a
final, nonappealable judgment by a court of competent jurisdiction. In the case
of any claim, investigation, litigation or proceeding giving rise to any Lender
Indemnified Costs, the indemnification provided by the Lenders under this
Section 8.05 shall apply whether or not any such claim, investigation,
litigation or proceeding is brought by the Administrative Agent, any of the
other Agents, any of the Lenders or a third party. Without limiting any of the
provisions of the immediately preceding sentence, each of the Lenders hereby
agrees to reimburse the Administrative Agent promptly upon demand for its
ratable share of any costs and expenses (including, without limitation,
reasonable fees and expenses of counsel) incurred by the Administrative Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement or any of the other Loan Documents, to
the extent that the Administrative Agent is not promptly reimbursed for such
costs and expenses by the Borrowers. For purposes of this Section 8.05, the
Lenders' respective ratable shares of any amount shall be determined, at any
time, according to the sum of (a) the aggregate principal amount of all Advances
owing to the respective Lenders and outstanding at such time, (b) the aggregate
unused
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131
portion of the Term Commitments of the respective Term Lenders at such time and
(c) the Unused Revolving Credit Commitments of the respective Revolving Credit
Lenders at such time. If one or more Defaulted Advances shall be owing by any
Defaulting Lender at any time, such Defaulting Lender's Commitment under each of
the Facilities under which any such Defaulted Advance was required to have been
made shall be considered unused for purposes of this Section 8.05 to the extent
of such Defaulted Advance. The failure of any of the Lenders to reimburse the
Administrative Agent promptly upon demand for its ratable share of any amount
required to be paid by the Lenders to the Administrative Agent as provided in
this Section 8.05 shall not relieve any of the other Lenders of its obligation
hereunder to reimburse the Administrative Agent for its ratable share of such
amount, but none of the Lenders shall be responsible for the failure of any of
the other Lenders to reimburse the Administrative Agent for such other Lender's
ratable share of such amount. Without prejudice to the survival of any other
agreement of any of the Lenders hereunder, the agreement and obligations of each
of the Lenders contained in this Section 8.05 shall survive the payment in full
of all principal, interest and other amounts payable under this Agreement and
the other Loan Documents.
SECTION 8.06. Successor Administrative Agent. The Administrative
------------------------------
Agent may resign as to either or both of the Facilities at any time by giving
written notice thereof to the Lenders and the Borrowers and may be removed as to
both of the Facilities at any time with or without cause by the Required
Lenders. Upon any such resignation or removal, the Required Lenders shall have
the right to appoint a successor Administrative Agent as to such of the
Facilities as to which the Administrative Agent has resigned or been removed.
If no successor Administrative Agent shall have been so appointed by the
Required Lenders, and shall have accepted such appointment, within 30 days after
the retiring Administrative Agent's giving of notice of resignation or the
Required Lenders' removal of the retiring Administrative Agent, then the
retiring Administrative Agent may, on behalf of the Lenders and the other
Secured Parties, appoint a successor Administrative Agent, which shall be a
commercial bank organized under the laws of the United States of America or of
any state thereof and having a combined capital and surplus of at least
$5,000,000,000. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent as to both of the Facilities and
upon the execution and filing or recording of such Uniform Commercial Code
financing statements (or the equivalent thereof), or amendments thereto, and
such other instruments or notices, as may be necessary or desirable, or as the
Required Lenders may reasonably request, in order to continue the perfection of
the Liens granted or purported to be granted under the Collateral Documents,
such successor Administrative Agent shall succeed to and become vested with all
the rights, powers, discretion, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations under the Loan Documents. Upon the acceptance
of any appointment as Administrative Agent hereunder by a successor
Administrative Agent as to only one of the Facilities and upon the execution and
filing or recording of such Uniform Commercial Code financing statements (or the
equivalent thereof), or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as the Required Lenders may
reasonably request, in order to continue the perfection of the Liens granted or
purported to be granted under the Collateral Documents, such successor
Administrative Agent shall succeed to and become vested with all the rights,
powers, discretion, privileges and duties of the retiring Administrative Agent
as to such Facility, other than with respect to funds transfers and other
similar aspects of the administration of Borrowings under such Facility and
payments by the Appropriate Borrowers in respect of such Facility, and the
retiring Administrative Agent shall be discharged from its duties and
obligations under the Loan Documents as to such Facility, other than as
aforesaid. After any retiring Administrative Agent's resignation or removal
hereunder as Administrative Agent as to both of the Facilities, the provisions
of this Article VIII shall inure to its benefit as to any actions taken or
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omitted to be taken by it while it was Administrative Agent as to either of the
Facilities under this Agreement.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments, Etc. No amendment or waiver of any
---------------
provision of this Agreement or the Notes or, to the extent not otherwise
provided for therein, any of the other Loan Documents, nor consent to any
departure by any of the Loan Parties therefrom, shall in any event be effective
unless the same shall be in writing and signed (or, in the case of the
Collateral Documents, consented to) by the Required Lenders, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that:
(a) no amendment, waiver or consent shall, unless in writing and
signed by all of the Lenders (other than any of the Lenders that is, at
such time, a Defaulting Lender), do any of the following at any time:
(i) waive any of the conditions specified in Section 3.01 or,
in the case of the initial Borrowing under either of the Facilities,
Section 3.02;
(ii) change the number of Lenders or the percentage of the
Commitments or the aggregate outstanding principal amount of Advances
that, in any case, shall be required for the Lenders or any of them to
take any action hereunder;
(iii) reduce or limit the obligations of Holdings or any of the
Borrowers under Article VI, Fox Kids under Section 1 of the Fox Kids
Guarantee or any of the Subsidiaries of the Borrowers party to the
Subsidiaries Guarantee under Section 1 of the Subsidiaries Guarantee,
or otherwise limit any of the Loan Parties' liability with respect to
the Obligations owing to the Administrative Agent and the other
Secured Parties under or in respect of the Loan Documents;
(iv) release all or substantially all of the Collateral in any
transaction or any series of related transactions;
(v) permit the creation, incurrence, assumption or existence
of any Lien on any material portion of the Collateral in any
transaction or series of related transactions to secure any
Obligations other than Obligations owing to the Administrative Agent
and the other Secured Parties under or in respect of the Loan
Documents and other than Indebtedness owing to any other Person,
provided that, in the case of any Lien on a material portion of the
Collateral to secure Indebtedness owing to any other Person, (A) the
Borrowers shall, on the date such Indebtedness shall be incurred or
issued, reduce the Commitments pursuant to, and to the extent required
under, Section 2.04(b)(iv), and prepay the Advances pursuant to, and
to the extent required under, Section 2.05(b), in an aggregate
principal amount equal to the amount of the Net Cash Proceeds received
from the incurrence or issuance of such Indebtedness to the extent
required to do so under Section 2.04(b)(iv), (B) such Lien shall be
subordinate to the Liens created under
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the Loan Documents on terms reasonably acceptable to the Required
Lenders and (C) the Required Lenders shall otherwise permit the
creation, incurrence, assumption or existence of such Lien and, to
the extent not otherwise permitted under Section 5.02(b), such
Indebtness; or
(vi) amend this Section 9.01; and
(b) no amendment, waiver or consent shall, unless in writing and
signed by the Required Lenders and each of the Lenders that has a
Commitment under the Term Facility or the Revolving Credit Facility if
affected by such amendment, waiver or consent:
(i) increase the Commitments of such Lender or subject such
Lender to any additional Obligations;
(ii) reduce the principal of, or interest on, the Notes held by
such Lender or any fees or other amounts payable hereunder to such
Lender;
(iii) postpone any date fixed for the reduction of the
Commitment or Commitments of such Lender, or for any payment of
principal of, or interest on, the Notes held by such Lender or any
fees or other amounts payable hereunder to such Lender; or
(iv) change the order of application of any commitment reduction
set forth in Section 2.04 or any prepayment set forth in Section 2.05,
in either case in any manner that materially and adversely affects
such Lender; and
provided further that no amendment, waiver or consent shall, unless in writing
and signed by the Administrative Agent in addition to the Lenders required above
to take such action, affect the rights or duties of the Administrative Agent
under this Agreement or any of the other Loan Documents. Notwithstanding any of
the foregoing provisions of this Section 9.01, none of the defined terms set
forth in Section 1.01 shall be amended, supplemented or otherwise modified in
any manner that would change the meaning, purpose or effect of this Section 9.01
or any section referred to herein unless such amendment, supplement or
modification is agreed to in writing by the number and percentage of Lenders
(and the Administrative Agent, if applicable) otherwise required to amend such
section under the terms of this Section 9.01.
SECTION 9.02. Notices, Etc. (a) All notices and other
------------
communications provided for hereunder shall be in writing (including
telegraphic, telecopy or telex communication) and mailed by certified mail
return receipt requested, telegraphed, telecopied, telexed or delivered:
(i) if to Holdings or any of the Borrowers, at its address at 10960
Wilshire Boulevard, Los Angeles, California 90024, Telecopier No.: (310)
235-5552, Attention: Mr. Mel Woods;
(ii) if to any of the Initial Lenders, at its Base Rate Lending Office
specified opposite its name on Part B of Schedule I hereto;
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(iii) if to any of the other Lenders, at its Base Rate Lending Office
specified on Schedule I to the Assignment and Acceptance pursuant to which
it became a Lender; and
(iv) if to the Administrative Agent, at its address at 399 Park
Avenue, New York, New York 10043, Telecopier No.: (212) 793-8879,
Attention: Mr. Andrew Sriubas; or
(v) as to Holdings, each of the Borrowers and the Administrative
Agent, at such other address as shall be designated by such party in a
written notice to each of the other parties and, as to each other party, at
such other address as shall be designated by such party in a written notice
to Holdings, each of the Borrowers and the Administrative Agent.
Notwithstanding any of the other provisions of the Loan Documents, any notice to
Holdings or the Borrowers required to be made under this Agreement or any of the
other Loan Documents that is delivered to Holdings or one of the Borrowers in
accordance with this Section 9.02 shall constitute effective notice to Holdings
and each of the Borrowers. All such notices and communications shall, when
mailed, telegraphed, telecopied or telexed, be effective when deposited in the
mails, delivered to the telegraph company, transmitted by telecopier or
confirmed by telex answerback, respectively, addressed as aforesaid, except that
notices and communications to the Administrative Agent pursuant to Article II,
III or VIII shall not be effective until received by the Administrative Agent.
Delivery by telecopier of an executed counterpart of any amendment or waiver of
any provision of this Agreement or the Notes or of any Exhibit hereto to be
executed and delivered hereunder shall be effective as delivery of a manually
executed counterpart thereof.
(b) If any notice required under this Agreement or any of the other
Loan Documents is permitted to be made, and is made, by telephone, actions taken
or omitted to be taken in reliance thereon by the Administrative Agent or any of
the Lenders shall be binding upon the Borrowers notwithstanding any
inconsistency between the notice provided by telephone and any subsequent
writing in confirmation thereof provided to the Administrative Agent or such
Lender; provided that any such action taken or omitted to be taken by the
Administrative Agent or such Lender shall have been in good faith and in
accordance with the terms of this Agreement.
SECTION 9.03. No Waiver; Remedies. No failure on the part of any of
-------------------
the Lenders or the Administrative Agent to exercise, and no delay in exercising,
any right, power or privilege hereunder or under any Note shall operate as a
waiver thereof or consent thereto; nor shall any single or partial exercise of
any such right, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
applicable law.
SECTION 9.04. Indemnification. (a) Each of the Borrowers hereby
---------------
jointly and severally agrees to indemnify and hold harmless each of the Agents,
each of the Lenders and each of their respective affiliates and their respective
officers, directors, employees, agents, representatives and advisors (each, an
"INDEMNIFIED PARTY") from, and hold each of them harmless against, any and all
claims, damages, losses, liabilities and reasonable expenses (including, without
limitation, reasonable fees and expenses of counsel), joint or several, that may
be incurred by or asserted or awarded against any Indemnified Party, in each
case arising out of or in connection with or by reason of (including, without
limitation, in connection with any investigation, litigation or proceeding or
the preparation of a defense in connection therewith) (i) the Transaction (or
any aspect thereof) or any similar transaction of Fox Kids or any of its
Subsidiaries, (ii) the Facilities, the actual or proposed use of the proceeds of
any Advances,
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the Loan Documents or any of the other transactions contemplated thereby, (iii)
any acquisition or proposed acquisition by Fox Kids or any of its Subsidiaries
or Affiliates of all or any portion of the Equity Interests in, or substantially
all of the property and assets of, any other Person or (iv) the actual or
alleged presence of Hazardous Materials on any property of any of the Loan
Parties or any of their respective Subsidiaries or any Environmental Action
relating in any way to any of the Loan Parties or any of their respective
Subsidiaries (collectively, the "INDEMNIFIABLE MATTERS"), except to the extent,
in the case of any such Indemnified Party, that such claim, damage, loss,
liability or expense is found in a final, nonappealable judgment by a court of
competent jurisdiction to have resulted from such Indemnified Party's gross
negligence or willful misconduct. In the case of any investigation, litigation
or proceeding for which the indemnity under this Section 9.04(a) applies, such
indemnity shall be effective whether or not such investigation, litigation or
proceeding is brought by any of the Loan Parties, any of their respective
directors, stockholders, partners, members or creditors or an Indemnified Party
or any Indemnified Party is otherwise a party thereto and whether or not the
Transaction (or any part thereof) or any of the other transactions contemplated
hereby is consummated. Notwithstanding any of the foregoing provisions of this
Section 9.04(a), in the case of any Indemnifiable Matter of any of the Lenders
solely against one or more other Lenders (and not any Indemnifiable Matter by
one or more Lenders against the Administrative Agent or one or more of the other
Agents), none of the Borrowers shall be obligated to indemnify such Lender or
any of its affiliates or any of its officers, directors, employees, agents,
representatives or advisors for any claim, damage, loss, liability or expense
resulting from such Indemnifiable Matter, except to the extent such claim,
damage, loss, liability or expense is found in the final, nonappealable judgment
of a court of competent jurisdiction to have resulted from the action, inaction,
participation or contribution of any of the Loan Parties or any of their
respective Affiliates or any of their respective officers, directors,
stockholders, partners, members, employees, agents, representatives or advisors,
and then only to the extent of their collective action, inaction, participation
or contribution.
(b) Promptly after receipt by any of the Indemnified Parties of notice
of the commencement of any Indemnifiable Matter, such Indemnified Party shall,
if indemnification therefor is to be sought from any or all of the Borrowers
pursuant to subsection (a) of this Section 9.04, give notice to any of the
Borrowers of the commencement of such Indemnifiable Matter; provided, however,
that the failure of such Indemnified Party to give such notice to any of the
Borrowers shall not relieve any of the Borrowers of any of their Obligations
under this Section 9.04, unless, and then only to the extent that, such failure
results in the forfeiture of rights or defenses and the Borrowers incur an
increased indemnification obligation to such Indemnified Party under the terms
of subsection (a) of this Section 9.04 on account of such failure.
Notwithstanding the delivery of such notice to one or more of the Borrowers,
such Indemnified Party may defend against such Indemnifiable Matter in any
manner such Indemnified Party shall reasonably deem appropriate; provided that,
in the event that any of the Borrowers shall notify such Indemnified Party,
promptly following the delivery of such notice to such Borrower, that such
Borrower is assuming the defense of such Indemnifiable Matter, then (i) so long
as the Indemnifiable Matter referred to in such notice has not been commenced by
any of the Loan Parties or any of their respective Affiliates or any of their
officers, directors, stockholders, partners, members, employees, agents,
representatives or advisors and (ii) unless in the reasonable opinion of counsel
for such Indemnified Party (A) a conflict of interest between such Indemnified
Party and any of the Loan Parties or any of their respective Affiliates may
exist in respect of such Indemnifiable Matter and representation of both such
Indemnified Party and any such Loan Party or any such Affiliate would be
inappropriate or (B) there may be one or more legal defenses available to such
Indemnified Party that are different from or in addition to, but in any such
case are adverse to, any of the Loan Parties or any of their respective
Affiliates, such Borrower (either individually or together with the other
Borrowers) shall be entitled to
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participate in and to assume the defense of such Indemnifiable Matter solely on
the following terms and conditions:
(1) any and all counsel selected by such Borrower or Borrowers to
participate in the defense of any such Indemnifiable Matter shall be
reasonably satisfactory to such Indemnified Party, and such Borrower or
Borrowers shall be responsible for all of the fees and expenses of each
such counsel;
(2) such Indemnified Party shall have the right (but not any
obligation) to retain separate co-counsel and shall have the right, but not
the obligation, to assert any and all defenses, cross-claims and
counterclaims that it may have, and the fees and expenses of any such co-
counsel shall be at the expense of such Indemnified Party (except that such
Borrower or Borrowers shall be responsible for the fees and expenses of the
separate co-counsel (x) to the extent such Indemnified Party reasonably
concludes that any of the counsel chosen by such Borrower or Borrowers to
participate in the defense of any such Indemnifiable Matter has a conflict
of interest, (y) if such Borrower or Borrowers do not employ counsel
reasonably satisfactory to such Indemnified Party or (z) if such Borrower
or Borrowers or its counsel does not at all times defend such Indemnifiable
Matter vigorously and in good faith; and
(3) such Borrower or Borrowers shall confirm (in a writing reasonably
satisfactory to such Indemnified Party) that all of the liabilities and
obligations with respect to such Indemnifiable Matter will, upon the
election by such Borrower or Borrowers to participate in or assume the
defense of such Indemnifiable Matter, be solely the joint and several
liabilities and Obligations of the Borrowers, and such Borrower or
Borrowers will not consent to the entry of any judgment or enter into any
settlement with respect to such Indemnifiable Matter without providing
reasonable prior notice to such Indemnified Party and, if such Indemnified
Party does not exercise the rights afforded to it under the next succeeding
proviso, without obtaining (in a writing reasonably acceptable to such
Indemnified Party) a full and unconditional release and discharge of the
applicable Indemnified Party from all liability and potential liability on
claims that are the subject matter of such Indemnifiable Matter; provided,
however, that, notwithstanding any of the foregoing provisions of this
subclause (3), if the applicable Indemnified Party objects to the entry of
any such judgment or any such settlement, such Indemnified Party may
thereafter assume the defense of the Indemnifiable Matter and the Borrowers
shall be released from their respective Obligations under subsection (a) of
this Section 9.04 for all fees and expenses relating to such Indemnifiable
Matter arising after such objection, and their respective liabilities and
Obligations hereunder for other claims, damages, losses, liabilities and
expenses relating to such Indemnifiable Matter shall be limited in dollar
amount to the amount of the proposed judgment or settlement, as the case
may be.
In connection with the election by any of the Borrowers to participate in or
assume the defense of any Indemnifiable Matter in accordance with the terms
provided in this subsection (b), each of the Indemnified Parties subject thereto
shall supply such Borrower with all such information reasonably requested
thereby (and that is reasonably necessary or appropriate and would not, in the
judgment of such Indemnified Party, be materially disadvantageous to such
Indemnified Party) in order to cooperate in such Borrowers' participation in and
assumption of the defense of such Indemnifiable Matter.
(c) None of the Borrowers shall be liable to any of the Indemnified
Parties for the settlement by such Indemnified Party of any pending or
threatened litigation or proceeding for which such
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Indemnified Party may seek indemnity under Section 9.04(a) without the prior
written consent of such Borrower (which consent shall not be unreasonably
withheld or delayed and shall be deemed to have been given if the Borrower to
which such notice was provided has not objected to such settlement within 20
days after the date of notice thereto of such proposed settlement). In turn,
none of the Borrowers or any of their respective Affiliates or their respective
officers, directors, stockholders, partners, members, employees, agents,
representatives or advisors shall effect the settlement of any such pending or
threatened litigation or proceeding unless either (i) such settlement includes a
full and unconditional release and discharge of each of the Indemnified Parties
subject to such action or proceeding from all liability and potential liability
on claims that are the subject matter of such action or proceeding or (ii) each
of the Indemnified Parties subject to such action or proceeding shall give their
prior written consent to the settlement thereof (which consent shall not be
unreasonably withheld or delayed).
(d) Upon payment in full in cash of any Indemnifiable Matter by or on
behalf of any of the Borrowers to or on behalf of any of the Indemnified
Parties, the applicable Borrower (or the Person making payment on its behalf)
shall be subrogated to any claims that such Indemnified Party may have to seek
reimbursement from any other Person relating to such Indemnifiable Matter;
provided, however, that the applicable Borrower (or the Person making payment on
its behalf) shall not exercise any rights of subrogation, reimbursement,
contribution or indemnification that it may now or hereafter acquire against any
of the Loan Parties or any of their respective Subsidiaries or against any of
the Indemnified Parties until such time as all of the Advances and all of the
other amounts owing by any of the Loan Parties under or in respect of the Loan
Documents shall have been paid in full in cash, all of the Bank Hedge Agreements
shall have expired or been terminated and all of the Commitments shall have
expired or terminated. Each of the Indemnified Parties, if reasonably requested
by and at the expense of any of the Borrowers, will execute and deliver to such
Borrower appropriate documents, without recourse and without representation or
warranty, necessary to evidence the transfer of subrogation to such Borrower of
an interest in such claims resulting from the payment made by such Borrower
under the indemnity set forth in subsection (a) of this Section 9.04.
(e) Each of the Borrowers hereby also severally agrees that none of
the Indemnified Parties shall have any liability (whether direct or in direct,
in contract, tort or otherwise) to any of the Loan Parties or any of their
respective Affiliates or their respective officers, directors, stockholders,
partners, members, employees, agents, representatives or advisors, and each of
the Borrowers hereby severally agrees not to assert any claim against any of the
Indemnified Parties on any theory of liability, for special, indirect,
consequential or punitive damages, arising out of or otherwise relating to the
Transaction (or any aspect thereof), the Facilities, the actual or proposed use
of the proceeds of any Advances, the Loan Documents or any of the other
transactions contemplated thereby, except to the extent, in the case of any such
Indemnified Party, that such claim, damage, loss, liability or expense is found
in a final, nonappealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful misconduct.
SECTION 9.05. Costs and Expenses. (a) Each of the Borrowers hereby
------------------
agrees to pay, upon demand, (i) all reasonable and properly documented out-of-
pocket costs and expenses of each of the Agents in connection with the
preparation, execution, delivery, administration, modification and amendment of
the Loan Documents (including, without limitation, (A) all reasonable due
diligence, collateral review, syndication, transportation, computer,
duplication, appraisal, audit, insurance, consultant, search, filing and
recording fees and expenses and (B) the reasonable fees and expenses of counsel
for the Agents (which shall include only one counsel in each applicable
jurisdiction) with respect thereto, with respect to advising each of the Agents
as to their respective rights and responsibilities, or
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the perfection, protection or preservation of rights or interests, under the
Loan Documents, with respect to negotiations with any of the Loan Parties or
with other creditors of any of the Loan Parties or any of their respective
Subsidiaries arising out of any Default or any events or circumstances that may
give rise to a Default and with respect to presenting claims in or otherwise
participating in or monitoring any bankruptcy, insolvency or other similar
proceeding involving creditors' rights generally and any proceeding ancillary
thereto) and (ii) all reasonable and properly documented out-of-pocket costs and
expenses of the Agents and the Lenders in connection with the enforcement of the
Loan Documents, whether through negotiations, in any action, suit or litigation,
or in any bankruptcy, insolvency or other similar proceeding affecting
creditors' rights generally or otherwise (including, without limitation, the
reasonable fees and expenses of counsel for the Agents and the Lenders,
collectively, with respect thereto (which shall include only one counsel in each
applicable jurisdiction, each of which counsel shall be counsel selected by, and
counsel for, the Administrative Agent, unless (i) any of the Lenders shall
reasonably determine that a conflict of interest exists such that counsel for
the Administrative Agent is precluded by applicable Requirements of Law or by
standards of conduct from representing the Administrative Agent and the Lenders
as a group, in which case each of the Borrowers hereby agrees to pay, upon
demand, all reasonable and properly documented out-of-pocket fees and expenses
of the minimum number of counsel necessary in the reasonable judgment of the
Lenders to provide the Administrative Agent and each Lender with appropriate
legal representation in connection with the enforcement of their respective
rights under this Agreement and the other Loan Documents and (ii) any of the
Lenders elects to pursue its rights and remedies under this Agreement and the
other Loan Documents for nonpayment of any amounts due and payable hereunder or
thereunder in a proceeding separate from that of the Administrative Agent and/or
the other Lenders, in which case each of the Borrowers hereby agrees to pay,
upon demand, all reasonable and properly documented out-of-pocket fees and
expenses of one additional counsel for each such Lender in each of the
applicable jurisdictions)).
(b) If any payment of principal of, or Conversion of, any Eurodollar
Rate Advance is made by any of the Borrowers to or for the account of any of the
Lenders other than on the last day of the Interest Period for such Advance, as a
result of a payment, repayment or Conversion pursuant to Section 2.08(b)(i) or
2.09(d), a prepayment pursuant to Section 2.05, acceleration of the maturity of
the Notes pursuant to Section 7.01 or for any other reason, or by an Eligible
Assignee to a Lender other than on the last day of the Interest Period for such
Advance upon an assignment of rights and obligations under this Agreement
pursuant to Section 9.08 as a result of a demand by Holdings pursuant to Section
9.08(a), such Borrower shall, upon demand by such Lender (with a copy of such
demand to the Administrative Agent), pay to the Administrative Agent for the
account of such Lender any amounts required to compensate such Lender for any
additional losses (including losses of anticipated profits other than any amount
attributable solely to the Applicable Margin), costs or expenses that it may
reasonably incur as a result of such payment, including, without limitation, any
loss, cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by any of the Lenders to fund or maintain such
Advance.
(c) If any of the Loan Parties fails to pay when due any costs,
expenses or other amounts payable by it under or in respect of any of the Loan
Documents (including, without limitation, any reasonable fees and expenses of
counsel or any indemnities), such amount may be paid on behalf of such Loan
Party by the Administrative Agent or any of the Lenders, in its sole discretion.
(d) Without prejudice to the survival of any other agreement of any of
the Loan Parties under this Agreement or any of the other Loan Documents, the
agreements and obligations of each of the Borrowers contained in Sections 2.09,
2.11 and 9.04 and this Section 9.05 shall survive the
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payment in full of all principal, interest and all other amounts payable under
this Agreement and any of the other Loan Documents.
SECTION 9.06. Right of Setoff. Upon (a) the occurrence and during
---------------
the continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Section 7.01 to authorize the
Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 7.01, each of the Lenders and each of their respective
Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by applicable law, to set off and otherwise apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Lender or such
Affiliate to or for the credit or the account of Holdings or any of the
Borrowers against any and all of the Obligations of Holdings or any of the
Borrowers now or hereafter existing under this Agreement and the Note or Notes,
if any, held by such Lender, irrespective of whether such Lender shall have made
any demand under this Agreement or such Note or Notes and although such
obligations may be unmatured. Each of the Lenders hereby agrees to notify
Holdings or the applicable Borrower promptly after any such setoff and
application shall be made by such Lender or any of its Affiliates; provided,
however, that the failure to give such notice shall not affect the validity of
such setoff and application. The rights of each of the Lenders and each of
their respective Affiliates under this Section 9.06 are in addition to other
rights and remedies (including, without limitation, any other rights of setoff)
that such Lender or any of its Affiliates may have.
SECTION 9.07. Binding Effect. This Agreement shall become effective
--------------
when it shall have been executed by Holdings, each of the Borrowers and the
Administrative Agent and when the Administrative Agent shall have been notified
by each of the Initial Lenders that such Initial Lender has executed it and,
thereafter, shall be binding upon and inure to the benefit of, and be
enforceable by, Holdings, each of the Borrowers, each of the Agents and each of
the Lenders and their respective successors and assigns, except that neither
Holdings nor any of the Borrowers shall have the right to assign their
respective rights hereunder or any interest herein without the prior written
consent of all of the Lenders.
SECTION 9.08. Assignments and Participations. (a) Each of the
------------------------------
Lenders may, and, if demand is made by Holdings (following (i) a demand by such
Lender for the payment of additional compensation pursuant to Section 2.09(a),
2.09(b) or 2.11, (ii) an assertion by such Lender pursuant to Section 2.09(c) or
2.09(d) that it is impractical or unlawful for such Lender to make Eurodollar
Rate Advances or (iii) a refusal by such Lender to approve any amendment or
waiver of, or consent to departure from, any of the terms or conditions of this
Agreement or any of the other Loan Documents; provided that Holdings may not
demand the replacement of one or more Lenders pursuant to this subclause (iii)
holding, in the aggregate, more than 5% of the aggregate Commitments under both
of the Facilities as of the date of any such proposed amendment, waiver or
consent or the date of any such proposed demand), upon at least 30 days' notice
(or, solely in the case of clause (iii) of this Section 9.08(a), upon at least
five Business Days' prior notice) to such Lender and the Administrative Agent,
each of the Lenders will, assign to one or more Persons all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Commitment or Commitments, the Advances owing to it and the
Note or Notes held by it); provided, however, that:
(A) each such assignment with respect to either of the Facilities
shall be of a uniform, and not a varying, percentage of all rights and
obligations under and in respect of such Facility;
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(B) except in the case of an assignment to a Person that immediately
prior to such assignment was a Lender or an assignment of all of a Lender's
rights and obligations under either or both of the Facilities, the
aggregate amount of the Commitments of the assigning Lender under both of
the Facilities being assigned pursuant to each such assignment (determined
as of the date of the Assignment and Acceptance with respect to such
assignment) shall in no event be less than $10,000,000;
(C) each such assignment shall be to an Eligible Assignee;
(D) each such assignment made as a result of a demand by Holdings
pursuant to this Section 9.08(a) shall be arranged by Holdings with the
approval of the Administrative Agent, which approval shall not be
unreasonably withheld or delayed, and shall be either an assignment of all
of the rights and obligations of the assigning Lender under this Agreement
or an assignment of a portion of such rights and obligations made
concurrently with another such assignment or other such assignments that,
in the aggregate, cover all of the rights and obligations of the assigning
Lender under this Agreement;
(E) no Lender shall be obligated to make any such assignment as a
result of a demand by Holdings pursuant to this Section 9.08(a) unless and
until such Lender shall have received one or more payments from one or more
Eligible Assignees in an aggregate amount at least equal to the aggregate
outstanding principal amount of all Advances owing to such Lender, together
with accrued and unpaid interest thereon to the date of payment of such
principal amount, and from the Borrowers and/or one or more Eligible
Assignees in an aggregate amount equal to all other amounts payable to such
Lender under this Agreement and the Notes (including, without limitation,
any amounts owing to such Lenders under Sections 2.09, 2.11, 9.04 and
9.05);
(F) except in the case of any assignment made as a result of a demand
by Holdings pursuant to Section 9.08(a), the Lender assignor or the
Administrative Agent shall have given Holdings at least two Business Days'
prior notice of the intended assignment and the Person to which such
assignment is proposed to be made;
(G) the parties to each such assignment shall execute and deliver to
the Administrative Agent, for its acceptance and recording in the Register,
an Assignment and Acceptance, together with any Note or Notes subject to
such assignment; and
(H) the Lender assignor (or, if such assignment is being made pursuant
to a demand by Holdings therefor under this Section 9.08(a), the Borrowers
or the Lender assignee) shall pay to the Administrative Agent a processing
and recordation fee of $3,500.
(b) Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in such Assignment and Acceptance, (i) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (ii) the
Lender assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights (other than its rights under Sections 2.09, 2.11, 9.04 and
9.05 (and other similar provisions of the other Loan Documents that are
specified under the terms of such other Loan Documents to survive the payment in
full of the Obligations of the
<PAGE>
141
Loan Parties under or in respect of the Loan Documents) to the extent any claim
thereunder relates to an event arising prior to such assignment) and be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto).
(c) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows:
(i) other than as provided in such Assignment and Acceptance, such
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or any of the
other Loan Documents, or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of, or the perfection or priority of any
lien or security interest created or purported to be created under or in
connection with, this Agreement or any of the other Loan Documents, or any
other instrument or document furnished pursuant hereto or thereto;
(ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of any of
the Borrowers or any of the other Loan Parties or the performance or
observance by any of the Borrowers or any of the other Loan Parties of any
of their respective Obligations under or in respect of any of the Loan
Documents, or any other instrument or document furnished pursuant thereto;
(iii) such assignee confirms that it has received a copy of this
Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance;
(iv) such assignee will, independently and without reliance upon any
of the Agents, such assigning Lender or any of the other Lenders and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement;
(v) such assignee confirms that it is an Eligible Assignee;
(vi) such assignee appoints and authorizes the Administrative Agent
to take such action as an agent on its behalf and to exercise such powers
and discretion under the Loan Documents as are delegated to the
Administrative Agent by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with
their terms all of the obligations that by the terms of this Agreement are
required to be performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose (but only for
this purpose) as the agent of each of the Borrowers, shall maintain at its
address set forth in Section 9.02 a copy of each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the names
and addresses of the Lenders and the Commitment under each of the Facilities of,
and principal amount of the Advances owing under each of the Facilities to, each
of the Lenders from time to time (the
<PAGE>
142
"REGISTER"). The entries in the Register shall be conclusive and binding for
all purposes, absent manifest error, and Holdings, the Borrowers, the
Administrative Agent and the Lenders shall treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by Holdings, any of
the Borrowers, any of the Agents or any of the Lenders at any reasonable time
and from time to time during normal business hours upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee, together with any Note or Notes subject to
such assignment, the Administrative Agent shall, if such Assignment and
Acceptance has been completed and is in substantially the form of Exhibit C
hereto, (i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to the
Appropriate Borrowers. In the case of any assignment by a Lender, within five
Business Days after its receipt of such notice, each of the Appropriate
Borrowers, at its own expense, shall execute and deliver to the Administrative
Agent in exchange for the surrendered Note or Notes a new Note or new Notes from
such Borrower payable to or to the order of such Eligible Assignee in an amount
equal to the Commitment assumed by it under each of the Facilities pursuant to
such Assignment and Acceptance and, if the assigning Lender has retained a
Commitment under such Facility, a new Note or Notes from each such Appropriate
Borrower payable to or to the order of the assigning Lender in an amount equal
to the Commitment retained by it under such Facility. Each of the new Note or
Notes shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Note or Notes, shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the form
of Exhibit A-1 or Exhibit A-2 hereto, as appropriate.
(f) Each of the Lenders may sell participations to one or more Persons
(other than any of the Loan Parties or any of their respective Affiliates) in or
to all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment or
Commitments, the Advances owing to it and the Note or Notes, if any, held by
it); provided, however, that:
(i) such Lender's obligations under this Agreement (including,
without limitation, its Commitment or Commitments) shall remain unchanged;
(ii) the aggregate amount of the Commitments of the participating
Lender under both of the Facilities being sold in each such participation
(determined as of the date such participation is effected) shall in no
event be less than $5,000,000;
(iii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations;
(iv) such Lender shall remain the holder of any such Note for all
purposes of this Agreement;
(v) the Loan Parties, the Administrative Agent, the other Agents and
the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and the other Loan Documents; and
<PAGE>
143
(vi) no participant under any such participation shall have any right
to approve any amendment or waiver of any provision of any of the Loan
Documents, or any consent to any departure by any of the Loan Parties
therefrom, except to the extent that such amendment, waiver or consent
would reduce the principal of, or interest on, the Notes or any fees or
other amounts payable hereunder, in each case to the extent subject to such
participation, postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in
each case to the extent subject to such participation, or release all or
substantially all of the Collateral.
(g) Any of the Lenders may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
9.08, disclose to the assignee or participant or proposed assignee or
participant, any information relating to Fox Kids or any of its Subsidiaries, or
to any aspect of the Transaction, furnished to such Lender by or on behalf of
Fox Kids, Holdings or any of the Borrowers; provided, however, that, prior to
any such disclosure, the assignee or participant or proposed assignee or
participant shall agree to preserve the confidentiality of any Confidential
Information received by it from such Lender on substantially the same terms as
those set forth in Section 9.09.
(h) Any of the Lenders may at any time create a security interest in
all or any portion of its rights under this Agreement (including, without
limitation, the Advances owing to it and the Note or Notes held by it) in favor
of any Federal Reserve Bank in accordance with Regulation A of the Board of
Governors of the Federal Reserve System.
SECTION 9.09. Confidentiality. Neither any of the Agents nor any of
---------------
the Lenders shall disclose any Confidential Information to any Person without
the consent of Holdings, other than (a) to such Agent's or such Lender's
respective Affiliates and their respective officers, directors, employees,
agents, representatives, attorneys, auditors and other advisors on a
confidential basis, (b) to actual or prospective Eligible Assignees and
participants in each case on a confidential basis and otherwise in accordance
with Section 9.08(g), (c) as required by any applicable Requirements of Law or
by subpoena or any other judicial or other legal process, provided that solely
with respect to this clause (c), such Agent or such Lender shall notify Holdings
of the requirement or request that it disclose any such Confidential Information
prior to doing so unless such notification is prohibited by any applicable
Requirements of Law or judicial or legal process (although neither Holdings nor
any other Person having any right or interest in such Confidential Information
shall have any recourse against any such Agent or any such Lender for the
failure to deliver such notice to Holdings), (d) to other Agents and Lenders and
(e) as requested or required by any Governmental Authority or any state, federal
or foreign authority or examiner regulating banks or banking.
SECTION 9.10. Execution in Counterparts. This Agreement may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 9.11. Governing Law; Jurisdiction, Etc. (a) This Agreement
--------------------------------
shall be governed by, and construed in accordance with, the laws of the State of
New York, excluding (to the fullest extent a New York court would permit) any
rule of law that would cause application of the laws of any jurisdiction other
than the State of New York.
<PAGE>
144
(b) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property and assets, to the nonexclusive
jurisdiction of any New York state court or any federal court of the United
States of America sitting in New York City, New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or any of the other Loan Documents to which it is a party, or for
recognition or enforcement of any judgment in respect thereof, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
New York state court or, to the fullest extent permitted by applicable law, in
any such federal court. Each of the parties hereto hereby irrevocably consents
to the service of copies of any summons and complaint and any other process
which may be served in any such action or proceeding by certified mail, return
receipt requested, or by delivering a copy of such process to such party, at its
address specified in Section 9.02, or by any other method permitted by
applicable law. Each of the parties hereto hereby agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
applicable law. Nothing in this Agreement shall affect any right that any of
the parties hereto may otherwise have to bring any action or proceeding relating
to this Agreement or any of the other Loan Documents in the courts of any
jurisdiction.
(c) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any action or proceeding
arising out of or relating to this Agreement or any of the other Loan Documents
to which it is a party in any New York state court or federal court. Each of
the parties hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, the defense of an inconvenient forum to the maintenance of such
action or proceeding in any such court.
SECTION 9.12. WAIVER OF JURY TRIAL. HOLDINGS, EACH OF THE BORROWERS,
--------------------
EACH OF THE AGENTS AND EACH OF THE LENDERS IRREVOCABLY WAIVE ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT,
TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OF THE
OTHER LOAN DOCUMENTS, ANY OF THE DOCUMENTS DELIVERED PURSUANT TO THE TERMS OF
THE LOAN DOCUMENTS, THE ADVANCES, THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY OR THE ACTIONS OF ANY OF THE AGENTS OR ANY OF THE LENDERS IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
GUARANTOR
FOX KIDS HOLDINGS, LLC
By: Fox Kids Worldwide, Inc.,
as its Managing Member
/s/ JON FISSE
By _____________________________
Name: Jon Fisse
Title:
<PAGE>
145
THE BORROWERS
FCN HOLDING, INC.
/s/ JON FISSE
By _____________________________
Name: Jon Fisse
Title:
INTERNATIONAL FAMILY
ENTERTAINMENT, INC.
By /s/ JON FISSE
_____________________________
Name: Jon Fisse
Title:
SABAN ENTERTAINMENT, INC.
/s/ JON FISSE
By _____________________________
Name: Jon Fisse
Title:
THE ADMINISTRATIVE AGENT
CITICORP USA, INC., as the
Administrative Agent
/s/ JUDITH FISHLOW MINTER
By _____________________________
Name: Judith Fishlow Minter
Title: Attorney-in-Fact
THE CO-ARRANGERS
CITICORP SECURITIES, INC., as Co-Arranger
/s/ JUDITH FISHLOW MINTER
By _____________________________
Name: Judith Fishlow Minter
Title: Vice President
<PAGE>
146
CHASE SECURITIES, INC.,
as Syndication Agent and Co-Arranger
/s/ JOAN M. FITZGIBBON
By _________________________________
Name: Joan M. Fitzgibbon
Title: Managing Director
BANKBOSTON, N.A.,
as Documentation Agent and Co-Arranger
/s/ DAVID B. HERTER
By _________________________________
Name: David B. Herter
Title: Managing Director
THE INITIAL LENDERS
CITICORP USA, INC.
/s/ JUDITH FISHLOW MINTER
By _________________________________
Name:
Title:
BANKBOSTON, N.A.
/s/ DAVID B. HERTER
By _________________________________
Name: David B. Herter
Title: Managing Director
THE CHASE MANHATTAN BANK
/s/ JOHN P. HALTMAIER
By _________________________________
Name: JOHN P. HALTMAIER
Title: VICE PRESIDENT
<PAGE>
147
BANK OF AMERICA NT & SA,
as Managing Agent
/s/ CARL F. SALAS
By _________________________________
Name: CARL F. SALAS
Title: VICE PRESIDENT
THE BANK OF NOVA SCOTIA, as Managing Agent
/s/ MARGOT C. BRIGHT
By _________________________________
Name: MARGOT C. BRIGHT
Title: AUTHORIZED SIGNATORY
FLEET BANK, N.A., as Managing Agent
/s/ TANYA M. CROSSLEY
By _________________________________
Name: TANYA M. CROSSLEY
Title: VICE PRESIDENT
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY, as
Managing Agent
/s/ VICENTE L. TIMIRAOS
By _________________________________
Name: VICENTE L. TIMIRAOS
Title: SVP & SR. MGR
<PAGE>
148
NATIONSBANK OF TEXAS, N.A., as Managing
Agent
/s/ DAVID J. RABBITT
By _________________________________
Name: David J. Rabbitt
Title: VICE PRESIDENT
TORONTO-DOMINION (TEXAS), INC., as Managing
Agent
/s/ FREDERIC D. HAWLEY
By _________________________________
Name: FREDERIC HAWLEY
Title: VICE PRESIDENT
SOCIETE GENERALE, NEW YORK BRANCH,
as Co-Agent
/s/ ELAINE KHALIL
By _________________________________
Name: ELAINE KHALIL
Title: VICE PRESIDENT
THE BANK OF NEW YORK
/s/ STEPHEN M. NETTLER
By _________________________________
Name: STEPHEN M. NETTLER
Title: ASSISTANT VICE PRESIDENT
BANQUE NATIONALE DE PARIS
/s/ NUALA MARLEY
By _________________________________
Name: NUALA MARLEY
Title: VICE PRESIDENT
By /s/ BRIAN M. FOSTER
_________________________________
Name: BRIAN M. FOSTER
Title: VICE PRESIDENT
<PAGE>
149
THE MITSUBISHI TRUST & BANKING
CORPORATION, LOS ANGELES AGENCY
/s/ YASUSHI SATOMI
By _________________________________
Name: YASUSHI SATOMI
Title: SENIOR VICE PRESIDENT
THE SUMITOMO BANK, LIMITED
/s/ GORO HIRAI
By _________________________________
Name: GORO HIRAI
Title: JOINT GENERAL MANAGER
CRESTAR BANK
/s/ J. ERIC MILLHAM
By _________________________________
Name: J. ERIC MILLHAM
Title: VICE PRESIDENT
THE DAI-ICHI KANGYO BANK, LIMITED
/s/ NANCY STENGEL
By _________________________________
Name: NANCY STENGEL
Title: ASST. VICE PRESIDENT
THE FUJI BANK, LIMITED, LOS ANGELES AGENCY
/s/ MASAHITO FUKUDA
By: _________________________________
Name: MASAHITO FUKUDA
Title: JOINT GENERAL MANAGER
<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
"*" indicating deleted information.
<PAGE>
EXHIBIT 10.50
EXECUTION COPY
--------------
May 16, 1996
Mr. Louis A. Isakoff
Senior Vice President
and General Counsel
IFE Inc.
P.O. Box 2050
Virginia Beach, Virginia 23450-2050
RE: Affiliation agreement dated as of December 28, 1989, (the "Agreement") by
and between Satellite Services, Inc. ("Affiliate") and The Family Channel
("FAM"), a division of International Family Entertainment, Inc. ("IFE")
Dear Lou:
The parties hereto desire to amend the above-referenced Agreement to
reflect their understanding as of January 1, 1994. Terms not defined in this
Letter of Amendment shall have the definition given to them in the Agreement. In
consideration of the mutual promises herein contained and other good and
valuable consideration, the receipt of which is acknowledged, FAM and Affiliate
agree as follows:
1. Nationwide, Third Party SMATV Rights. Section 3(a) of the Agreement
------------------------------------
is hereby amended by adding at the end thereof the following new sentence:
"Notwithstanding the foregoing provisions of this Section 3(a), FAM hereby
grants to Affiliate and Affiliate hereby accepts the nationwide, non-exclusive
right to exhibit and distribute the FAM Service to any SMATV owned and operated
by a third party, provided that the rates for the exhibition and distribution of
the FAM Service to such a SMATV shall be equal to the Fees set forth in Section
7(i) (B) hereof, and provided further that FAM has the right to deliver the FAM
Service to each such SMATV. The customers served by such SMATV shall all be
considered Subscribers for purposes hereof pursuant to the provisions of Section
2(b) hereof."
2. Compression Rights. A new Section 3(c) shall be added to the
------------------
Agreement, as follows:
"(c) FAM hereby grants Affiliate, and any affiliate of Affiliate, the right
to receive the signal of the Service, to digitize, compress, modify, replace or
otherwise technologically manipulate the signal, and to transmit the signal as
so altered (the "Altered Signal") to a satellite, or to a location within the
continental United States designated by Affiliate (in its sole and absolute
discretion), for redistribution to terrestrial or other reception sites capable
of receiving and utilizing the Altered Signal, within the United States its
territories, commonwealths and
<PAGE>
possessions. FAM hereby grants Affiliate, any affiliate of Affiliate, and any
System having a valid affiliation agreement with FAM the right to deliver the
Altered Signal for the uses set forth in the Agreement, and the right to deliver
the Altered Signal to any third party, provided that such third party is
authorized by FAM pursuant to a valid agreement or otherwise to receive the
signal of the Service; and provided, further that no such alteration,
transmission, redistribution, reception or other use will cause a material
change in an average viewer's perception of the principal video or principal
audio presentation of the Service. Furthermore, FAM shall not change the signal
of the Service in such a way as technically or technologically to defeat, or
otherwise interfere with, Affiliate's, any affiliate of Affiliate's, or any
System's rights under this Section 3(c) . In the event FAM interferes with or
otherwise prevents receipt, digitization, compression, modification,
replacement, utilization or manipulation of the signal of the Service by
Affiliate, any affiliate of Affiliate, or any System pursuant to the terms of
this Section 3(c), then Affiliate shall have the right to delete any or all
Systems from Schedule 1 of this Agreement, immediately, and to discontinue
carriage, immediately, of the Service on any or all Systems."
3. Signal Hand-Off Rights. A new Section 3(d) shall be added to the
----------------------
Agreement, as follows:
"(d) FAM hereby gives its consent to permit Affiliate and any affiliate of
Affiliate to transmit by cable or other transmission system the signal of the
Service as received at the headend of any System to any third party; provided
that the cable or other transmission system of such third party is connected to
the cable or other transmission system of such System, and provided further that
such third party is authorized by FAM to receive the signal of the Service.
Affiliate will, at FAM's request, terminate delivery to any such third party,
provided FAM indemnifies Affiliate from any claim that FAM wrongfully directed
Affiliate to terminate delivery of the Service to such third party. Affiliate
will not terminate delivery to any such third person without six months' prior
written notice to FAM, which notice FAM may waive in FAM's sole and absolute
discretion. FAM also hereby gives its consent to permit Affiliate and any
affiliate of Affiliate during the Term to receive by cable or other transmission
system the signal of the Service from any third party, provided that such third
party is connected to the cable or other transmission system of any System."
4. Legally required data streams. A new Section 3(e) shall be added to
-----------------------------
the Agreement, as follows:
"(e) In the event that Affiliate is required by law, decree, ordinance or
administrative action to pass through to any of its customers any material
contained within the signal of the FAM Service (including but not limited to
ratings or V-Chip data), FAM shall not commingle such material with material
Affiliate is not required to pass through to its customers and shall not co-
locate such material on lines of the vertical blanking interval with material
Affiliate is not required to pass through to its customers.
2
<PAGE>
[*] CONFIDENTIAL TREATMENT REQUESTED
5. Term. Section 4 of the Agreement shall be deleted in its entirety, and
----
the following language shall be added in lieu thereof:
"4. Term. The term of this Agreement (the "Term") shall commence on January
----
1, 1990 and shall, unless sooner terminated pursuant to the terms hereof or
extended by agreement of the parties hereto, expire on December 31, 2009.
Affiliate shall have a one-time option to terminate this Agreement
effective December 31, 2006, provided written notice thereof is given to
FAM prior to December 31, 2005; and provided further the parties shall
negotiate in good faith a renewal agreement to be effective December 31,
2006 but the parties shall be under no obligation to reach such a renewed
agreement."
6. Fees. Sections 7(a) (i) and (ii) of the Agreement shall be deleted in
----
their entirety and the following language shall be added in lieu thereof:
"(i) (A) For the period prior to January 1, 1996, Affiliate shall pay
the monthly per subscriber Fees set forth in the provision of the Agreement
superseded by this amendment.
"(i) (B) For the period January 1, 1996 to December 31, 2001 Affiliate
shall pay the following monthly per subscriber Fees:
1996 1997 1998 1999 2000 2001
$[*] $[*] $[*] $[*] $[*] $[*]
Each annual [*] increase in the Fee shall go into effect either, at
Affiliate's annual option, on the last day of the year preceding the year
shown in the table immediately preceding this sentence or on the first day
of the year shown. If, as of November 1, 1994 Affiliate delivered FAM to at
least [*] subscribers, Affiliate shall be entitled throughout the Term to
a discount of [*], to be applied to the above rates.
"(i) (C) For the period of [*] Affiliate shall pay per subscriber
monthly Fees that are the [*] of (x) the prior year's rate, [*] or (y) the
rate arrived at by [*] FAM's then current, undiscounted cable television
industry rate card. Each annual increase in the Fee provided for in this
Section 7(a)(i)(C) shall go into effect either, at Affiliate's annual
option, on the last day of the year preceding the year it will mainly be in
effect or on the first day of the year it will be in effect.
"(i) (D) For the period [*] Affiliate shall pay per subscriber monthly
Fees that are the [*] of (x) the rate arrived at by [*] FAM's then current,
undiscounted cable television industry rate card, provided Affiliate's
Service Subscribers [*] in number and (y) the prior year's rate card [*].
Each annual increase in the Fee provided for in this Section 7(a)(i)(D)
shall go into effect either, at Affiliate's annual option, on the last day
of the year preceding the year it will mainly be in effect or on the first
day of the year it will be in effect.
"(i) (E) Once per each quarter during the Term prior to [*] FAM shall
[*] to Affiliate [*] of paid quarterly license fees in respect of any
System that offers FAM full-time as a basic level service or as an expanded
basic level service [*]. It is the sole responsibility of Affiliate to
provide a clear detailed statement certifying FAM carriage quarterly. In
the event FAM extends this channel position [*] beyond [*] Affiliate shall
be able to participate in it on terms at least as favorable as the most
favorable terms offered to any other multi-channel video programming
distributor.
"(i) (F) For Systems realigning (for the first time) or launching FAM
as a basic level or expanded basic level service [*], a [*] amount of [*]
per FAM subscriber will be paid to Affiliate."
"(i) (G) For the purposes of Section 7(g) hereof, 'net effective per
subscriber rate' will be calculated taking into account (a) all terms and
provisions of any agreement which involves financial outlays (excluding
contingent liabilities) by either party for the benefit of the other or in
direct connection with the rates for the FAM service, or which involves
direct or indirect consideration paid by either party to the other, such as
discounts, credits, marketing support or adjustments of any kind; and (b)
the actual number of subscribers to the FAM Service (rather than
'committed' or 'projected' subscribers) will be used. Net effective per
subscriber rate shall exclude [*] but Affiliate shall be entitled to
participate in such programs on the same basis as any other affiliate."
3
<PAGE>
7. A la Carte and Packaging. A new Section 17 (j) shall be added to the
------------------------
Agreement, as follows:
"(j) A la Carte and Packaging. In a System that is carrying FAM as of
------------------------
the date hereof, Affiliate may carry FAM a la carte, or on any level or in
any package of services, provided it does so according to the terms and
provisions of Exhibit B attached hereto and incorporated herein by this
reference. In a System that is not carrying FAM on the basic or expanded
basic level of service as of the date hereof, or in any system that becomes
a System after the date hereof and is not carrying
4
<PAGE>
[*] CONFIDENTIAL TREATMENT REQUESTED
FAM on the basic or expanded basic level of service as of the date hereof,
Affiliate may, after good faith consideration of carrying FAM on the basic
or expanded basic level of service, carry FAM a la carte, or on any level
or in any package of services, and shall pay the following amounts to FAM
in lieu of any Fees notwithstanding any provision in Section 7 of the
Agreement:
(i) [*] by the System for the Service if offered by the System on an
a la carte basis; or
(ii) if the Service is offered by the System as part of a package of
other services, then an [*] by the System for the package [*].
In no event may the a la carte or package amount be less than any Fee
provided for in Section 7(a) (i) hereof."
8. On-Air Acknowledgment. A new Section 17(k) shall be added to the
---------------------
Agreement as follows:
"(k) On-Air Acknowledgment. FAM shall provide an audible
---------------------
acknowledgment one time each day, in alternating day parts, stating that
programming on the Family Channel has been paid for in part by fees paid by
the local cable company. Subject to the provisions hereof, the scheduling
of the acknowledgment and the format and style of the acknowledgment shall
be at the sole discretion of FAM."
9. Effective Date. This Letter of Amendment shall be effective as of
--------------
January 1, 1994. Except as specifically provided in this Letter of Amendment,
the Agreement shall remain in full force and effect.
10. Audit Rights. A new Section 8(d) shall be added to the Agreement as
------------
follows:
"(d) FAM shall keep and maintain accurate books and records of all
matters directly relating to this Agreement including, without limitation,
all books and records necessary for FAM to demonstrate its compliance with
Section 7(g) hereof, in accordance with generally accepted accounting
principles. During the Term and for one (1) year after the termination of
this Agreement, such books and records shall be available to Affiliate for
inspection and audit, during normal business hours, at Affiliate's expense,
at FAM's offices upon reasonable notice to FAM; provided, however, that any
inspection and audit of FAM's books and records to determine compliance
with the provisions of Section 7(g) hereof shall be conducted with
reference to books and records relating to the then current
5
<PAGE>
calendar year and the two prior calendar years only, and shall be conducted
by a public accounting firm or an auditing firm that audits or otherwise
provides services to both Affiliate and FAM or an independent accounting
firm mutually agreed upon in good faith by the parties, provided that such
accounting firm is one of the six largest accounting firms in the United
States. If the parties cannot in good faith mutually agree upon such
independent accounting firm within ninety (90) days, then Affiliate shall
select an independent accounting firm to conduct such audit, provided that
such independent accounting firm is one of the six largest accounting firms
in the United States. The public accounting firm or auditing firm that
conducts the audit shall be referred to hereinafter as the "Auditor." If,
as a result of the examination performed hereunder by the Auditor, the
Auditor determines that FAM has fully complied with Section 7(g) hereof,
then such Auditor shall provide written notice to the parties stating only
that FAM has complied with Section 7(g), and under no circumstances shall
any information acquired during the course of the examination be disclosed
to Affiliate by the Auditor and all such information shall remain strictly
confidential. If, as a result of the examination performed hereunder, the
Auditor determines that FAM has failed to comply with Section 7(g), then
the Auditor shall discuss in good faith for a reasonable time with FAM the
provisions at issue. In the event that the Auditor and FAM resolve the
provisions at issue and conclude that FAM, in fact, has complied with
Section 7(g), then the Auditor shall provide written notice to the parties
stating only that FAM has complied with Section 7(g), and under no
circumstances shall any information acquired during the course of the
Examination and/or discussions be disclosed to Affiliate by the Auditor and
all such information shall remain strictly confidential. In the event that
the Auditor and FAM cannot resolve the provisions at issue and the Auditor
believes FAM has not complied with Section 7(g), then FAM shall have the
option, at FAM's sole election, either (i) to grant to Affiliate the more
favorable provision that was the subject of FAM's noncompliance with
Section 7(g) (in which case under no circumstances shall any information
acquired during the course of the examination be disclosed to Affiliate by
the Auditor and all such information shall remain strictly confidential),
or (ii) to authorize the Auditor to provide to Affiliate only that limited
information acquired during the course of the examination as is necessary
for Affiliate to pursue its claim or claims under this Agreement; any
information which is not so necessary shall not be disclosed to Affiliate
by the Auditor and shall remain strictly confidential. Affiliate's right to
audit FAM's compliance with Section 7(g) hereof shall be limited to once in
any twelve (12) month period during the Term and once in the year after
termination of this Agreement. Affiliate must make any claim against FAM
pursuant to Section 7(g) hereof within the earlier of (i) three (3) months
after Affiliate's auditor leaves FAM's offices and (ii) thirty-nine (39)
months after the close of the month that gave rise to such claim."
6
<PAGE>
11. MFN Amendment. Section 7(g) of the Agreement is hereby amended by
-------------
adding at the end thereof the following new sentence:
"For purposes of this Section 7(g), and for purposes of comparing the
actual rate per subscriber to the Service payable by Affiliate to the
actual rate per subscriber to the Service payable by a third party that is
distributing the Service via a common delivery system through which
multiple parties may distribute services (e.g., VDT or OVS providers), the
----
calculation of the penetration of the Service for such third party shall be
based on the total number of customers receiving programming services
through such common delivery system, regardless of the number of
distributors providing services through such common delivery system."
12. VDT Rights. Section 3 (a) of the Agreement is hereby amended by
----------
adding the following sentence at the end of the fourth sentence of Section
3 (a):
"Notwithstanding any other provision hereof, FAM hereby grants to Affiliate
and Affiliate hereby accepts the non-exclusive right to exhibit and
distribute the FAM Service, on a retail basis, in the United States, the
District of Columbia and the territories, possessions and commonwealths of
the United States by any' system or enterprise (regardless of whether such
system or enterprise is affiliated with the owner and/or operator of any
required distribution equipment) that distributes audio/visual signals
and/or programming over the distribution facilities. of a common carrier by
means of a video dial tone connection, open video system or other common
carrier arrangement, whether now existing or developed in the future
("VDT"), at the Fees set forth in Section 7 hereof." Each such system or
enterprise shall be a System for all purposes hereof.
13. Compression, digitization or encryption switch. Section 5(c) of the
----------------------------------------------
Agreement is hereby amended by adding at the end thereof the following two
new sentences:
"Notwithstanding the foregoing, In the event Network (x) compresses the
signal of the Service, (y) digitizes the signal of the Service, or (z)
changes the method of encryption of the signal of the Service, in such a
manner that the signal of the Service cannot be received or utilized by a
System or Systems, Network shall, at its sole and exclusive option, either
promptly reimburse each System for the cost to purchase and/or deploy the
equipment necessary for such System to receive or utilize the signal of the
Service, or promptly supply to each System all of the equipment necessary
for such System to receive or utilize the signal of the Service. The
preceding sentence shall only apply to Systems carrying the signal of the
Service as of the date of such a compression, digitization or encryption
change, and
7
<PAGE>
any System that is so compensated shall rebate to Network such compensation
in the event it discontinues carriage of the Service earlier than one year
after receiving such compensation."
If the foregoing accurately reflects your understanding, please so indicate
by executing this Letter of Amendment in the space indicated and returning it to
me.
Very truly yours,
/s/ Jedd S. Palmer
Jedd S. Palmer,
President
ACCEPTED AND AGREED TO
FOR THE FAMILY CHANNEL AND FOR
INTERNATIONAL FAMILY ENTERTAINMENT, INC. BY
/s/ Craig R. Sherwood
___________________________
(Name)
May 28, 1996
___________________________
(Date)
cc: Tim Robertson
Larry Dantzler
Craig Sherwood
8
<PAGE>
[*] CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT B
---------
1. A la carte. Affiliate shall have the right to carry the Service on an
----------
a la carte basis in any System where the Service is also carried in the most
highly penetrated package of service other than the broadcast basic package of
services. Affiliate shall pay FAM the Fees set forth in Section 7(i) hereof in
respect of such customers receiving the Service on an a la carte basis.
2. Packages. Affiliate shall have the right in any System to include the
--------
Service in a package of other services containing at least three other
programming networks (the "Mini-pack"). The programming networks included in the
Mini-pack shall be subject to FAM's prior written consent, provided that no such
consent shall be necessary if the Mini-pack includes at least three of the
following networks: WTBS, USA, Nickelodeon, TNT, ESPN, CNN, Headline News,
Discovery, AMC, TNN, WOR and WGN.
3. Packaging Fees. In the event that the Service is received by
--------------
[*] of Affiliate's total cable television subscriber universe, Affiliate
shall pay a total monthly license fee, in respect of Affiliate's cable
television subscribers receiving the Service in a package of services, that is
equal to the Fees set forth in Section 7(i) hereof. In the event that the
Service is received by [*] of Affiliate's total cable television
subscriber universe, Affiliate shall pay a total monthly license fee in respect
of Affiliate's cable television subscribers receiving the Service on an a la
carte or package basis, that is equal to the per subscriber rates, including
tier and a la carte rates, set forth below.
a. The a la carte rate shall be as follows:
(i) in Systems where the Service is offered to subscribers at [*]
Affiliate shall pay Network a per subscriber license fee for each
subscriber receiving the Service on an a la carte basis [*] specified in
the Agreement;
(ii) in Systems where the Service is offered to subscribers at [*]
Affiliate shall pay Network a per subscriber license fee for each
subscriber receiving the Service on an a la carte basis [*];
(iii) in Systems where the Service is offered to subscribers at [*]
Affiliate shall pay Network a per subscriber license fee for each
subscriber receiving the Service on an a la carte basis [*];
(iv) in Systems where the Service is offered to subscribers at a [*]
Affiliate shall pay Network a per subscriber license fee for each
subscriber receiving the Service on an a la carte basis [*].
9
<PAGE>
(b) The package rate shall be as follows:
(i) in Systems where the Service is received by [*] of the System's
subscribers, Affiliate shall pay FAM a per subscriber license fee for each
subscriber receiving the Service in a package of services equal to the Fees
set forth in Section 7(i) for the pertinent month;
(ii) in Systems where the Service is received by [*] of the System's
subscribers, Affiliate shall pay FAM a per subscriber license fee for each
subscriber receiving the Service in a package of services equal to the Fees
set forth in Section 7(i) for the pertinent month multiplied by two;
(iii) in Systems where the Service is received by [*] of the System's
subscribers, Affiliate shall pay FAM a per subscriber license fee for each
subscriber receiving the Service in a package of services equal to the Fees
set forth in Section 7(i) for the pertinent month multiplied by two-and-
one-half;
(iv) in Systems where the Service is received by [*] of the System's
subscribers, Affiliate shall pay FAM a per subscriber license fee for each
subscriber receiving the Service in a package of services equal to the Fees
set forth in Section 7(i) for the pertinent month multiplied by three.
4. The "Benchmark". If at any time the Service is received by [*]
----------------
of Affiliate's total cable television subscriber universe (excluding
lifeline subscribers and subscribers in systems purchased or otherwise acquired
after the date hereof and who were not previously receiving the Service) (the
"Benchmark"), then FAM may terminate this Exhibit B (but not the Agreement)
unless Affiliate cures the subscriber shortfall within sixty (60) days of the
end of the month in which the Benchmark was missed. For the purposes of this
Exhibit B, "lifeline subscribers" shall mean those subscribers of Affiliate
receiving a package of services that includes only the following services, in
any combination: the signals of local broadcast television stations, no more
than four satellite-delivered cable television networks and any number of
services that are services other than satellite-delivered cable television
networks.
5. Reports. Affiliate shall report to FAM, no later than the forty-fifth
-------
(45th) day following the end of each quarter in which this Exhibit B is
effective, the following information in respect of each System carrying the
Service in a package of services: the number of total subscribers receiving
cable service and the number of total subscribers receiving the Service via a
Mini-pack carriage.
10
<PAGE>
EXHIBIT 10.58
C3/C4 SATELLITE TRANSPONDER SALES AGREEMENT
-------------------------------------------
AMENDMENT NUMBER TWO
--------------------
This Amendment, made and entered into this 15th day of December 1989, by
and between GE American Communications, Inc. (GE Americom) and The Christian
Broadcasting Network, Inc. (CBN).
WITNESSETH
WHEREAS, GE Americom and CBN have entered into a C3/C4 Satellite
Transponder Sales Agreement dated July 7, 1989 (the "Agreement"); and
WHEREAS, the parties desire to amend the Agreement in certain respects;
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is acknowledged by
the parties, the parties, intending to be legally bound, hereby agree to amend
the Agreement as follows:
1. Revise the third sentence of Article 2.D. to read as follows:
From the effective date of this Agreement until (i) as to the C-3
Transponders, the end of thirty days after such notice and (ii) as to
the C-4 Transponders, the end of sixty days after such notice, CBN
shall have an option, on written notice to GE Americom, to purchase a
Fully Protected C-3 Transponder or a Fully Protected C-4 Transponder,
which will result in a total of three (3) Transponders purchased by
CBN hereunder.
2. Add a new Paragraph 5 to Article 24.B. as follows:
5. If C-3 and/or C-4 has not been launched by December 31, 1994,
provided that CBN's right to terminate shall apply only to the
Satellite(s) which have not been so launched.
3. Revise Article 24.C.1 to read as follows:
If before the date of the launch of C-4, the Viacom Group terminates
its agreements for purchase of six transponders on C-4, solely for the
reason that the FCC has not approved 50 state coverage.
4. Except as amended hereby, the Agreement shall remain in full force and
effect.
<PAGE>
IN WITNESS WHEREOF, The parties have executed this Amendment Number Two as
of the day and year herein above first written.
THE CHRISTIAN BROADCAST
NETWORK, INC.
By: /s/ Tim Robertson
-----------------------------------
GE AMERICAN COMMUNICATIONS, INC.
By: /s/ Martin C. Lafferty
----------------------
M.C. Lafferty
Vice President, Cable Services
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts," and
"Selected Historical Consolidated Financial Data" and to the use of our
reports dated September 29, 1997, except for the 2nd, 3rd, 6th, and 7th
sentence of the 35th paragraph of Note 1, as to which the date is January 21,
1998, with respect to 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.), September 27, 1996, except for the second paragraph of
Note 10 as to which the date is September 29, 1997 with respect to FCN
Holding, Inc. and September 27, 1996 except for the third paragraph of Note 11
as to which the date is September 29, 1997 with respect to Saban
Entertainment, Inc., in Amendment No. 4 to the Registration Statement
(Form S-1 No. 333-12995) and related Prospectus of Fox Kids Worldwide, Inc. for
the registration of 9 1/4% Senior Notes Due 2007 and 10 1/4% Senior Discount
Notes Due 2007.
Our audits also included the financial statement schedules listed in Item
16(b). These schedules are the responsibility of the company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
the financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
Ernst & Young LLP
Los Angeles, California
March 20, 1998
<PAGE>
EXHIBIT 23.3
The Board of Directors
International Family Entertainment, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Norfolk, Virginia
March 20, 1998
