UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 333-12995
FOX FAMILY WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4596247
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10960 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: (310) 235-5100
Former name, address and fiscal year, if changed since last report
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of May 1, 1999,
there were 160,000 shares of Class A Common Stock outstanding and 15,840,000
shares of Class B Common Stock outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
FOX FAMILY WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
June 30, March 31,
1998 1999
(audited) (unaudited)
------------ -------------
<S> <C> <C>
Assets:
Cash and cash equivalents................................. $ 82,313 $ 38,554
Restricted cash........................................... 8,000 8,200
Accounts receivable, net.................................. 132,053 141,526
Amounts receivable from related parties................... 58,043 44,865
Programming costs, net.................................... 453,608 524,385
Property and equipment, net............................... 60,805 60,418
Deferred income taxes..................................... 39,779 39,779
Intangible assets, net.................................... 1,594,286 1,563,626
Other assets, net......................................... 87,137 72,484
------------ ------------
Total assets............................................ $ 2,516,024 $ 2,493,837
============ ============
Liabilities and stockholders' equity (deficit):
Accounts payable.......................................... $ 37,668 $ 36,785
Accrued liabilities ...................................... 194,353 200,688
Deferred revenue.......................................... 74,518 65,341
Accrued residuals and participations...................... 52,601 38,331
Income taxes payable...................................... 10,326 26,416
Deferred income taxes..................................... 21,698 22,293
Bank and other debt....................................... 1,746,510 1,784,761
Amounts payable to related parties........................ 2,954 11,819
------------ ------------
Total liabilities....................................... 2,140,628 2,186,434
------------ ------------
Commitments and contingencies
Series A Mandatorily Redeemable Preferred Stock,
$0.001 par value, 500,000 shares authorized,
345,000 shares issued and outstanding
($1,000 per share liquidation value) ................... 345,000 345,000
------------ ------------
Stockholders' equity (deficit):
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....................................... -- --
Class B Common Stock, $0.001 par value, 16,000,000
shares authorized, 15,840,000 shares issued and
outstanding ...................................... 16 16
Contributed capital.................................. 60,731 60,731
Accumulated comprehensive loss....................... (1,201) (1,411)
Deficit.............................................. (29,150) (96,933)
------------ ------------
Total stockholders' equity (deficit)................. 30,396 (37,597)
------------ ------------
Total liabilities and stockholders' equity (deficit).... $ 2,516,024 $ 2,493,837
============ ============
</TABLE>
See accompanying notes.
Page 2
<PAGE>
FOX FAMILY WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED
MARCH 31, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31, Nine Months Ended March 31,
1998 1999 1998 1999
------------ ----------- ----------- ------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Revenues............................ $ 153,441 $ 129,355 $ 486,412 $ 493,133
Costs and expenses:
Production and programming....... 77,480 57,205 270,106 247,063
Selling, general and
administrative................. 32,329 35,770 92,658 123,785
Depreciation..................... 2,810 2,630 7,752 7,597
Amortization of intangible
assets......................... 10,463 10,220 27,899 30,660
----------- ----------- ----------- ------------
123,082 105,825 398,415 409,105
Operating income.................... 30,359 23,530 87,997 84,028
Equity in loss of unconsolidated
affiliate........................ 1,174 1,175 3,562 3,840
Other (income) expense, net......... 122 (16) 184 (298)
Interest expense, net............... 37,972 40,868 96,360 123,703
----------- ----------- ----------- ------------
Loss before provision (credit) for
income taxes...................... (8,909) (18,497) (12,109) (43,217)
Provision (credit) for
income taxes...................... (944) 542 1,459 1,258
----------- ----------- ----------- ------------
Net loss............................ $ (7,965) $ (19,039) $ (13,568) $ (44,475)
=========== =========== =========== ============
</TABLE>
See accompanying notes.
Page 3
<PAGE>
<TABLE>
FOX FAMILY WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
MARCH 31, 1998 AND 1999
(UNAUDITED)
<CAPTION>
1998 1999
------ ------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................................... $ (13,568) $ (44,475)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization of programming costs............................ 220,213 207,141
Depreciation of property and equipment....................... 7,752 7,597
Amortization of intangible assets............................ 27,899 30,660
Equity in loss of unconsolidated affiliate................... 3,562 3,840
Non-cash interest expense.................................... 34,361 49,417
Changes in operating assets and liabilities:
Restricted cash........................................... -- (200)
Accounts receivable....................................... (7,637) (9,473)
Amounts receivable from related parties................... (5,817) 13,178
Other assets.............................................. (21,702) 13,760
Accounts payable and accrued liabilities.................. 3,539 5,452
Accrued residuals and participations ..................... 6,731 (14,270)
Income taxes payable and deferred income taxes ........... 12,847 16,685
Deferred revenue.......................................... 22,541 (9,177)
----------- ----------
Net cash provided by operating activities.......................... 290,721 270,135
----------- ----------
INVESTING ACTIVITIES:
Purchase of property and equipment................................. (7,841) (10,041)
Additions to programming costs..................................... (258,220) (275,087)
Acquisition of IFE................................................. (1,370,076) --
Sale of marketable securities...................................... 61,396 --
Proceeds from sale of property and equipment....................... 1,100 --
Cash acquired in acquisition of IFE................................ 19,241 --
Other.............................................................. (53,305) (3,157)
----------- ----------
Net cash used in investing activities.............................. (1,607,705) (288,285)
----------- ----------
FINANCING ACTIVITIES:
Proceeds from bank borrowings...................................... 1,282,063 622
Paydown on bank borrowings......................................... (836,753) (11,586)
Proceeds from News America Bridge Note............................. 345,514 --
Paydown on News America Bridge Note................................ (250,819) (202)
Issuance of Senior Notes........................................... 475,000 --
Issuance of Senior Discount Notes.................................. 375,001 --
Dividends on Mandatorily Redeemable Preferred Stock................ (20,671) (23,308)
Issuance of common stock........................................... 10 --
Proceeds from related party borrowings............................. 1,073 8,865
----------- ----------
Net cash provided by (used in) financing activities................ 1,370,418 (25,609)
----------- ----------
Increase (decrease) in cash and cash equivalents................... 53,434 (43,759)
Cash and cash equivalents at beginning of period................... 28,877 82,313
----------- ----------
Cash and cash equivalents at end of period......................... $ 82,311 $ 38,554
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized......................... $ 22,994 $ 53,901
Income taxes................................................. $ 1,858 $ 1,996
</TABLE>
See accompanying notes.
Page 4
<PAGE>
FOX FAMILY WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
Note 1--Basis of Preparation of Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements
of Fox Family Worldwide, Inc. (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Certain prior year amounts have been reclassified to conform to
the current year presentation. Operating results for the three and nine month
periods ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ended June 30, 1999.
These interim condensed consolidated financial statements and the notes
thereto should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended June 30, 1998.
The preparation of the condensed consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the condensed
consolidated financial statements and accompanying notes, principally
amortization of programming costs. Actual results could differ from those
estimates. Management periodically reviews and revises its estimates of future
broadcast 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.
Note 2--Acquisition of International Family Entertainment, Inc.
In September 1997, the Company completed the acquisition of
International Family Entertainment, Inc. ("IFE"). The following unaudited pro
forma information for the nine months ended March 31, 1998 reflect the results
of the Company's consolidated operations as if the acquisition had occurred at
the beginning of the period presented. The unaudited pro forma consolidated
financial results are not necessarily indicative of the actual results that
would have been reported had the acquisition occurred at the beginning of the
period presented (in thousands).
<TABLE>
<CAPTION>
Nine Months
Ended
March 31, 1998
(unaudited)
---------------
<S> <C>
Revenues.................................................. $ 510,897
Operating income.......................................... 91,786
Net loss.................................................. (27,081)
</TABLE>
Page 5
<PAGE>
Note 3--Programming Costs
Programming costs, less accumulated amortization, are comprised of the
following:
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------------------------------
(in thousands)
Accumulated Programming
Cost Amortization Costs, Net
------------- ------------ -----------
<S> <C> <C> <C>
Children's programming......................... $ 1,081,397 $ 900,785 $ 180,612
Family programming, movies and mini-series .... 413,507 214,006 199,501
Projects in production......................... 67,070 -- 67,070
Development.................................... 6,425 -- 6,425
------------- ----------- -----------
$ 1,568,399 $ 1,114,791 453,608
============= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------------------------
(in thousands)
Accumulated Programming
Cost Amortization Costs, Net
------------- ------------- -----------
<S> <C> <C> <C>
Children's programming......................... $ 1,197,123 $ 1,017,246 $ 179,877
Family programming, movies and mini-series .... 539,616 304,686 234,930
Projects in production......................... 102,494 -- 102,494
Development.................................... 7,084 -- 7,084
------------- ------------- -----------
$ 1,846,317 $ 1,321,932 $ 524,385
============= ============= ===========
</TABLE>
Interest expense amounting to $2,414,000 and $1,232,000 was capitalized to
programming costs for the nine months ended March 31, 1999 and 1998,
respectively.
Note 4--Comprehensive Income (Loss)
Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
Comprehensive income (loss) for the three and nine month periods ended March 31,
1998 and 1999 are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, Nine Months Ended March 31,
1998 1999 1998 1999
----------- ---------- ----------- ------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net loss ............................... $ (7,965) $ (19,039) $ (13,568) $ (44,475)
Foreign currency translation
adjustment ........................... (342) (806) 45 (210)
----------- ---------- ----------- ------------
Comprehensive income (loss) ............ $ (8,307) $ (19,845) $ (13,523) $ (44,685)
=========== ========== =========== ============
</TABLE>
Accumulated comprehensive loss at March 31, 1998 consisted of foreign currency
translation adjustments of $758,000.
Page 6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This report contains statements that constitute "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The
words "expect", "estimate", "anticipate", "predict", "believe" and similar
expressions and variations thereof are intended to identify forward-looking
statements. These statements appear in a number of places in this report and
include statements regarding the intent, belief or current expectations of the
Company, its directors or its officers with respect to, among other things: (a)
trends affecting the Company's financial condition or results of operations; (b)
the Company's programming on its channels; (c) the impact of competition; and
(d) the expansion of the Company's international channels and certain other
operations. The readers of this report 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 projected in this filing, including, without limitation, those risks and
uncertainties discussed under the headings "Factors That Could Impact Future
Results" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998 as well as the information set forth below. The
Company does not ordinarily make public projections of its future operating
results and undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Readers should carefully review the risk factors referred
to above and the other documents the Company files from time to time with the
Securities and Exchange Commission, including the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1998, the quarterly reports on Form
10-Q filed by the Company, and any current reports on Form 8-K filed by the
Company.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1999 COMPARED WITH NINE MONTHS ENDED MARCH 31,
1998
For the nine-month period ended March 31, 1999, revenues increased 1.4%
to $493.1 million as compared to $486.4 million for the same nine-month period
of the prior year. On a pro forma basis, giving effect to the International
Family Entertainment, Inc. ("IFE") acquisition as if it had occurred on July 1,
1997, revenues decreased $17.8 million or 3.5%. The actual revenue increase of
$6.7 million for the period results from a number of factors, including the
results of one additional month of operations for the Fox Family Channel (the
Company acquired a controlling interest in IFE on August 1, 1997, and only eight
months were included for the Fox Family Channel for the nine-month period ended
March 31, 1998) and increased domestic and foreign revenue. The domestic and
foreign revenue increase of approximately $12.3 million resulted principally
from increased licensing of library product accompanied by higher revenue from
the international cable channels as a result of increased penetration in the
marketplace. These increases were offset, in part, by a decrease in
direct-to-video revenue of approximately $23.6 million. The market for
direct-to-video features is highly competitive, primarily due to an oversupply
of product in the marketplace.
On August 15, 1998, The Family Channel was rebranded as the Fox Family
Channel to the cable households of America with new programming and a new
schedule, which included children's programming, followed by evening and
late-night programming for the entire family. The Company utilizes its library
product along with other third party acquired and original programming during
the daytime children's block. Prime time programming, on the other hand,
consists principally of original series, specials, and movies produced for or
licensed by the Fox Family Channel. The process of repositioning the Fox Family
Channel is challenging and will take time to accomplish. The industry response
to the rebranding has been positive. The Company has not lost any cable or
direct broadcast system subscribers as a result of the rebranding. Since August
15, 1998, overall ratings compared to last year are lower. However, the Company
introduced various programming changes which have had a positive impact on
ratings and have improved important demographics. The Company continues to
pursue its long-term objective of attracting a broader audience with improved
advertiser demographics.
Production and programming costs for the nine-month period ended March
31, 1999 decreased 8.5% to $247.1 million as compared to $270.1 million for the
same nine-month period of the prior year. Production and programming costs as a
percentage of total revenues decreased to 50.1% for the nine-month period ended
March 31, 1999 from 55.5% for the comparable prior year period. The decreases in
production and programming costs are attributable to a number of factors,
including the decrease in direct-to-video revenues described above, which have
high amortization rates, and lower amortization expense associated with the
Company's mix of domestic and foreign revenues, also described above, offset by
the inclusion of the operations of IFE for nine months versus eight months in
the prior year.
Page 7
<PAGE>
Selling, general and administrative expenses increased 33.6% to $123.8
million for the nine-month period ended March 31, 1999, from $92.7 million for
the same nine months of the prior year. This increase is due principally to
various one-time costs of approximately $26.9 million incurred in connection
with the rebranding of the Fox Family Channel and from the inclusion of nine
months of activity at IFE as compared to eight months in the prior year.
Amortization of intangible assets for the nine-month period ended March
31, 1999 results from the acquisition of IFE. These intangible assets are being
amortized over 40 years. The increase in amortization expense results from nine
months of IFE activity for the nine-month period ended March 31, 1999 as
compared to eight months of activity for the nine months ended March 31, 1998.
The equity in loss of unconsolidated affiliate represents the Company's
portion of the loss generated by TV10, a cable network based in The Netherlands.
The Company has entered into an agreement, which is subject to approval of the
Company's lender under the Amended Credit Facility (defined below), to sell 50%
of its interest in TV10 to an affiliate.
Interest expense increased by $27.3 million for the nine-month period
ended March 31, 1999, as compared to the same period in 1998. The increase is
principally due to interest on the debt and long-term liabilities incurred in
connection with the acquisition of IFE plus the offering described below.
The Company's provision for income taxes for the nine-month period ended
March 31, 1999 reflects foreign withholding taxes.
Due primarily to the amount of interest expense, the Company does not
expect to report net income for fiscal 1999.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
For the three-month period ended March 31, 1999, revenues decreased
15.7% to $129.4 million as compared to $153.4 million for the same three-month
period of the prior year. The decrease in revenues for the current quarter
primarily relates to lower revenues for the Company's direct-to-video releases
and lower advertising sales revenue for the Fox Family Channel offset by an
increase in Fox Family Channel subscriber fees. In the prior year period, the
Company released "Casper: A Spirited Beginning" and "Turbo: A Power Rangers
Movie" which generated revenue of $11.9 million. No such revenue was generated
in the current year by the Company's new releases.
Production and programming costs for the three-month period ended March
31, 1999 decreased 26.2% to $57.2 million as compared to $77.5 million for the
same three-month period of the prior year. Production and programming costs as a
percentage of total revenues decreased to 44.2% for the three-month period ended
March 31, 1999 from 50.5% for the comparable prior year period. These decreases
are attributable principally to the decrease in direct-to-video revenues
discussed above and to a lesser extent, lower amortization expense associated
with the Company's current period revenue mix.
Selling, general and administrative expenses increased 10.6% to $35.8
million for the three-month period ended March 31, 1999, from $32.3 million for
the same three months of the prior year. This increase is due principally to
various one-time costs of $4.6 million incurred in connection with the
rebranding of the Fox Family Channel.
Interest expense increased by $2.9 million for the three-month period
ended March 31, 1999, as compared to the same three-month period in 1998. The
increase is principally due to increased interest expense on the Company's
subordinated debt and imputed interest on long-term Fox Family Channel film
contracts partially offset by lower interest rates on the bank facility.
The Company's provision for income taxes for the three-month period
ended March 31, 1999 reflects foreign withholding taxes.
Page 8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In September 1997, the Company completed the acquisition of IFE (the
"IFE Acquisition"). The total consideration for the IFE Acquisition was
approximately $1.9 billion, including assumption of debt, and was financed by
(i) the borrowing of $1.25 billion under a credit facility (the "Old Credit
Facility"), (ii) the issuance of approximately $345 million of Series A
Preferred Stock to Liberty IFE, Inc. ("Liberty IFE") and (iii) the issuance of a
note to News America Incorporated in the amount of $345.5 million (the "News
America Bridge Note"). In October 1997, the Company completed an offering (the
"Offering") of 9 1/4% Senior Notes due 2007 and 10 1/4% Senior Discount Notes
due 2007 (collectively, the "Company Notes"), generating net proceeds to the
Company of approximately $830 million. Of the net proceeds from the Offering,
$215 million was used to repay a portion of the News America Bridge Note and the
balance of $615 million was used to repay indebtedness under the Company's Old
Credit Facility. Approximately $116.1 million (including accreted interest) was
outstanding under the News America Bridge Note at March 31, 1999; however, no
payments are due under the News America Bridge Note until March 2008.
In October 1997, as part of the Offering, the Company amended the Old
Credit Facility to a new credit facility (the "Amended Credit Facility") which
includes 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, 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 March 31, 1999, $75 million was available under the
Amended Credit Facility for additional borrowings subject to certain
restrictions. Consequently, the Company's principal sources of liquidity include
borrowings under the Amended Credit Facility and cash generated from operations.
As a result of the IFE Acquisition and the financing transactions
described above, the Company's principal liquidity requirements arise from
interest and dividend 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.
Net cash provided by operating activities of the Company for the nine
months ended March 31, 1999 was $270.1 million as compared to $290.7 million for
the nine months ended March 31, 1998, primarily reflecting one-time costs
incurred in connection with the rebranding of the Fox Family Channel and
expansion of the Company's international channel activities.
Net cash used in investing activities of the Company during the nine
months ended March 31, 1999 and 1998 was $288.3 million and approximately $1.6
billion, respectively. The net cash flow used in investing activities for the
nine months ended March 31, 1999 primarily related to additions to programming
costs. The Company's net cash flow used in investing activities for the nine
months ended March 31, 1998 primarily related to the IFE Acquisition as
described above and additions to programming costs.
Net cash provided by (used in) financing activities of the Company
during the nine months ended March 31, 1999 and 1998 was $(25.6) million and
approximately $1.4 billion, respectively. The financing activities for the nine
months ended March 31, 1999 related to payments of dividends and paydown of bank
borrowings while the financing activities for the nine months ended March 31,
1998 related to bank and other borrowings in connection with the IFE
Acquisition.
The Company's total unrestricted cash and cash equivalents balance at
March 31, 1999 was $38.6 million.
The Company believes that the available borrowings under the Amended
Credit Facility, together with cash flows from operations, cash on hand and
funding from the Company's stockholders should be sufficient to fund its
operations and service its debt for the foreseeable future.
Page 9
<PAGE>
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 or facilities or
equipment containing embedded micro-controllers 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's Year 2000 compliance project is divided into two areas:
information technology and non-information technology. The Company began its
Year 2000 information technology project in June 1998 and has completed its
assessment of the significant software applications and equipment used in the
Company's operations. The Company has substantially completed the modification
or replacement of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The Company is
also in the process of testing and implementing both software and hardware
changes where required. The Company expects that these phases of the project
will continue through the end of the second calendar quarter of 1999.
With respect to the Company's Year 2000 project for non-information
technology, the Company has identified two areas which require attention:
engineering and operations. The assessment phase of the engineering project and
the operations project are in process. The Company has engaged the services of a
consulting firm to review all phases completed to date, to assist the Company
with testing and to help the Company build its contingency plan. With the
assistance of the consultant, the Company's goal is to complete all phases of
its information technology and non-information technology project by the end of
the second calendar quarter of 1999.
The Company is in the process of contacting its key vendors and
customers to determine if there are any significant Year 2000 exposures which
would have a material effect on the Company. However, if the Company, its
customers or vendors are unable to resolve any Year 2000 compliance problems in
a timely manner, it could result in a material financial risk. Accordingly,
management plans to devote the resources it concludes are appropriate to resolve
all significant Year 2000 problems in a timely manner.
The Year 2000 project cost has not been material to date and, based on
preliminary information, is not currently anticipated to have a material adverse
effect on the Company's financial condition, results of operations or cash flows
in future periods.
Based upon its efforts to date, the Company continues to believe that
the vast majority of its systems will be able to process date-related data
without error after January 1, 2000. Accordingly, the Company does not currently
anticipate that internal systems failures will result in any material adverse
effect to its operations or financial condition. At this time, the Company
continues to believe that the most likely "worst-case" scenario involves
potential disruptions in areas in which the Company's operations must rely on
third parties whose systems may not work properly after January 1, 2000. While
such failures could affect important operations of the Company and its
subsidiaries, either directly or indirectly, in a significant manner, the
Company cannot, at present, estimate either the likelihood or the potential cost
of such failures.
Readers are cautioned that forward-looking statements contained in this
Year 2000 disclosure should be read in conjunction with the Company's
disclosures under the heading "Factors That Could Impact Future Results" in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998.
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, third-party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved, or that there will not be a delay in, or increased costs associated
with, the implementation of the Company's Year 2000 compliance project. 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, timely responses to and
corrections by third parties and suppliers, the ability to implement interfaces
between the new systems and the systems not being replaced, and similar
uncertainties. Due to the general uncertainty inherent in the Year 2000
readiness of third parties and the interconnection of national and international
businesses, the Company cannot ensure that its ability to timely and cost
effectively resolve problems associated with the Year 2000 issue will not affect
its operations and business, or expose it to third party liability.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary market risks include fluctuations in interest
rates, variability in interest rate spread relationships (i.e., prime to LIBOR
spreads) and exchange rate variability. The Company manages these market risks
by using derivative financial instruments in accordance with established
policies and procedures. The Company does not use derivative financial
instruments for trading purposes.
When the Company licenses its programming outside the United States, the
majority of transactions are denominated in U.S. dollars. Channel subscription
fees are denominated in local currencies. For those transactions denominated in
foreign currencies, to the extent possible, sales and purchases in specific
currencies are offset against each other. The foreign currencies in which the
Company has the most significant exchange rate exposure are the British pound,
French franc, German mark and Canadian dollar. To manage these exposures, the
Company periodically initiates hedging activities by entering into currency
exchange agreements, consisting primarily of currency forward contracts, to
minimize cost variations which could result from fluctuations in currency
exchange rates. The currency exchange agreements which provide hedge coverage
typically mature within one year of origination, consistent with the underlying
purchase or sales commitment.
The Company maintains a mix of fixed and floating debt to mitigate its
exposure to interest rate fluctuations.
The Company's management believes that fluctuations in interest rates
and currency exchange rates in the near term would not materially affect the
Company's consolidated operating results, financial position or cash flows as
the Company has limited risks related to interest rate and currency exchange
rate fluctuations.
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PART II. OTHER INFORMATION
ITEM 1. 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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
10.1 Employment Agreement dated as of April 1, 1999 between
Mel Woods, on the one hand, and Fox Family Management,
LLC and Fox Family Worldwide, Inc., on the other hand.
10.2 First Amendment to Employment Agreement dated as of
April 1, 1999 between Saban Entertainment, Inc. and
Mark Ittner.
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K:
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOX FAMILY WORLDWIDE, INC.
Date: May 14, 1999 /S/ MEL WOODS
-------------
Mel Woods
President, Chief Operating Officer
and Chief Financial Officer
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EXHIBIT INDEX
ITEM EXHIBIT PAGE
- ---- ------- -----
10.1 Employment Agreement dated as of April 1, 1999 between
Mel Woods, on the one hand, and Fox Family Management,
LLC and Fox Family Worldwide, Inc., on the other hand
10.2 First Amendment to Employment Agreement dated as of
April 1, 1999 between Mark Ittner and Saban Entertainment, Inc.
27.1 Financial Data Schedule
Page 14
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is dated as of April 1, 1999, between FOX
FAMILY MANAGEMENT, LLC, a Delaware limited liability company (the "Company"),
FOX FAMILY WORLDWIDE, INC. ("Fox Family Worldwide") and MEL WOODS ("Employee").
R E C I T A L S
WHEREAS, Saban Entertainment, Inc. ("Saban Entertainment") and
Employee are parties to that certain Employment Agreement dated as of June 1,
1994 (the "Original Employment Agreement");
WHEREAS, Saban Entertainment and Employee are parties to that certain
Amendment No. 1 to Employment Agreement dated as of September 26, 1996;
WHEREAS, Saban Entertainment and Employee are parties to that certain
Amendment No. 2 to Employment Agreement dated as of May 20, 1998;
WHEREAS, the Original Employment Agreement expires on May 31, 1999;
and
WHEREAS, the Company and Employee desire to renew the employment
relationship and believe that Employee should be an Employee of the Company,
instead of an Employee of Saban Entertainment
NOW, THEREFORE, in consideration of the foregoing facts, the parties
hereby agree as follows:
1. TERM OF EMPLOYMENT. The Company hereby employs Employee, and
Employee hereby accepts employment, on the terms and subject to the conditions
hereinafter set forth, for a term (the "Employment Period") commencing on June
1, 1999 (the "Effective Date") and continuing until May 31, 2002. Each
consecutive year of the Employment Period beginning on June 1 and ending on the
following May 31 shall be referred to as a "Term Year." At the option of the
Company, exercisable by delivery of written notice to Employee at least 180 days
prior to the expiration date of the Employment Period, the Employment Period
shall be extended for two additional years ending on May 31, 2004 (the
"Extension Period"). The expiration date of the Employment Term (as extended, if
applicable) is hereinafter referred to as the "Expiration Date."
2. DUTIES AND PRIVILEGES. During the Employment Period, Employee shall
serve as President, Chief Operating Officer and Chief Financial Officer of the
Company and of the Company's parent company, Fox Family Worldwide. Employee
shall be responsible to and report solely to Haim Saban or his successor as the
Chairman and Chief Executive Officer of Fox Family Worldwide, subject to the
overall direction and supervision of Fox Family Worldwide's Board of Directors.
Employee shall perform such services consistent with Employee's position
hereunder as the Chief Executive Officer of Fox Family Worldwide may from time
to time require. Employee shall devote Employee's entire business time, ability
and energy exclusively to the performance of Employee's duties hereunder; and
use Employee's best efforts to advance the interests and businesses of the
Company, Fox Family Worldwide, its divisions and subsidiaries. Employee's
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duties may be modified from time to time by the Chief Executive Officer of Fox
Family Worldwide provided Employee's duties, as so modified, are consistent with
Employee's position hereunder. Employee shall perform his duties at the
Company's Southern California executive offices which will be located in Los
Angeles County, California, as the Board of Directors of Fox Family Worldwide
may from time to time designate, except for such travel as may from time to time
be required.
3. EXCLUSIVITY. Employee shall work full-time for the Company and its
affiliates during the Employment Period. Without limiting the foregoing,
Employee's services shall be rendered exclusively to the Company, and its parent
company and affiliates hereunder during the Employment Period, and Employee
shall not render services of any nature to or for any other person, firm or
corporation during the Employment Period without the prior written consent of
Fox Family Worldwide. For so long as Employee is employed pursuant to the terms
hereof, Employee shall not become financially interested in or associated with,
directly or indirectly, any other person or entity engaged in the production,
distribution or exhibition of motion pictures, television programs, phonograph
recordings, or any visual or audio recordings of any kind, or in the
broadcasting or music publishing businesses, anywhere in the world; provided,
that Employee may invest in the capital stock or other securities of any
corporation whose stock or other securities are publicly owned or are regularly
traded on any securities exchange or in the over-the-counter market, so long as
Employee's ownership of such securities does not exceed 1% of the issued and
outstanding securities of such entity and Employee's holdings in any one such
entity does not in the aggregate cost Employee more than $250,000.
4. COMPENSATION.
(a) FIXED SALARY. As consideration for the services to be rendered by Employee
pursuant to this Agreement, and upon the condition that Employee is
substantially performing all of the services required hereunder, that Employee
is not in material default, and that grounds do not then exist under this
Agreement for the termination of Employee hereunder, the Company will pay or
will cause to be paid to Employee, subject to all applicable laws and
requirements respecting the withholding of federal, state and/or local taxes, a
fixed annual salary, payable in equal installments, no less frequently than
semi-monthly, in the following amounts:
FOR THE FIRST TERM YEAR: Six Hundred Twenty-Five Thousand Dollars
($625,000).
FOR THE SECOND TERM YEAR: Six Hundred Fifty Thousand Dollars
($650,000).
FOR THE THIRD TERM YEAR: Six Hundred Seventy-Five Thousand Dollars
($675,000).
FOR THE FIRST YEAR OF THE EXTENSION PERIOD (if applicable): Six
Hundred Seventy-Five Thousand Dollars ($675,000).
FOR THE SECOND YEAR OF THE EXTENSION PERIOD (if applicable): Six
Hundred Seventy-Five Thousand Dollars ($675,000).
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(b) BONUS COMPENSATION.
(i) BONUS YEAR. A "bonus year" shall mean that 12 calendar month
period ending on March 31 of each Term Year during the Employment Period,
commencing April 1, 1999.
(ii) MAXIMUM BONUS AMOUNT. The "Maximum Bonus Amount" shall be
computed for each Term Year (as opposed to a bonus year) and shall be as
follows:
FOR THE FIRST TERM YEAR: Six Hundred Fifty Thousand Dollars
($650,000).
FOR THE SECOND TERM YEAR: Six Hundred Seventy-Five Thousand
Dollars ($675,000).
FOR THE THIRD TERM YEAR: Seven Hundred Thousand Dollars
($700,000).
FOR THE FIRST YEAR OF THE EXTENSION PERIOD (if applicable): Seven
Hundred Thousand Dollars ($700,000).
FOR THE SECOND YEAR OF THE EXTENSION PERIOD (if applicable):
Seven Hundred Thousand Dollars ($700,000).
(iii) CALCULATION OF BONUS BASED ON SUBJECT INCOME. Provided that
Employee is not in material default hereunder, and that grounds do not then
exist under this Agreement for the termination of Employment hereunder, subject
to subparagraph (vii), below, the Company will pay or will cause to be paid to
Employee three percent (3%) of the "Subject Income" as defined, computed, and
accounted for pursuant to subparagraph (iv) below, from the first dollar of such
Subject Income ("Bonus Compensation"); PROVIDED, HOWEVER, that Bonus
Compensation, on a title-by-title basis, shall accrue, but shall be deferred and
shall not be payable unless and until Fox Family Worldwide and its affiliates
recoup from all Subject Income with respect to such title the rights payment
advances, if any, payable (or otherwise allocable thereto in good faith) in
connection therewith, at which point accrued Bonus Compensation shall be paid
out of subsequent Subject Income received by Fox Family Worldwide and its
affiliates from the exploitation of the applicable title, if any. The Subject
Income attributable to each title comprising the Company's Properties (defined
below) shall be computed separately and shall not be cross-collateralized with
any other title, and thus if Fox Family Worldwide and its affiliates do not
recoup in full all rights payment advances, if any, attributable to a particular
title, then the amount of accrued Bonus Compensation attributable to such title
shall not be paid to Employee.
(iv) SUBJECT INCOME. The term "Subject Income" shall mean the
gross proceeds actually received by Fox Family Worldwide, or any of its
affiliated entities during the Employment Period from foreign licenses secured
by Stan Golden: (i) to exhibit Fox Family Worldwide's or any of its affiliated
entities' television and cable properties ("Company's Properties") on television
(including, without limitation, free TV, pay TV, and syndicated TV); and (ii) to
manufacture and distribute videocassettes and discs embodying the Company's
Properties; AFTER
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deduction on a continuing basis, as paid, of the following unrecoupable costs
and expenses, in each case attributable or related to such licenses, or such
gross proceeds:
(A) CLAIMS. The gross amount paid for the settlement of any
claims or complaints (or on account of any judgment or decree in any litigation
relating to any claims or complaints), including, without limitation, claims for
infringement, unfair competition, violation of any right of privacy, right of
publicity, defamation or breach of contract, or arising out of other matters in
connection with the Company's Properties, or the production, distribution,
exploitation of exhibition thereof, and including in each case all expenses,
court costs and attorneys' fees in connection with any such claims or
litigation, or in connection with the investigation, assertion, prosecution or
defense of any other claims or litigation relating to the Company's Properties
or their distribution, exhibition or exploitation.
(B) COMMISSION. Any and all fees, payments, costs, expenses
and/or commissions payable to or retained by agents, distributors or others in
connection with the license of the Company's Properties.
(C) CONVERSION. Costs, discounts and expenses incurred in
obtaining remittances of receipts to the United States, including costs of
contesting the imposition of restrictions which result in restricted funds.
(D) OTHER VERSIONS. Dubbing costs incurred to purchase,
make, deliver and use French versions of the Company's Properties.
(E) TAXES. Taxes and governmental fees of any nature and
however characterized, including, without limitation, costs of contesting,
interest and penalties thereon, imposed directly or indirectly on the Company's
Properties or any part thereof or on the gross proceeds or the license,
distribution or exhibition of the Company's Properties, or collection,
conversion or remittance of monies connected therewith.
Notwithstanding anything to the contrary contained herein, if in
addition to, or in lieu of, a license fee, a foreign "sale" of the Company's
Properties is comprised of a co-production and/or other investment component,
then the gross proceeds with respect thereto shall be deemed to be an amount
equal to the highest actual sale of a comparable completed United States
production in the applicable territory. The Company and Employee shall mutually
agree upon said amount in good faith. In the event the parties are unable to so
agree, then the parties hereby agree to submit the matter to arbitration in
accordance with the terms of Paragraph 10 of the Agreement.
(v) ACCOUNTING.
(A) GENERAL. The Company shall render quarterly statements
to Employee reflecting in summary form the appropriate calculations relating to
the calculation of Subject Income. Such statements shall be provided within 30
days of the end of the quarter. Such statements shall reflect gross receipts on
a cash basis. The Company agrees that all such statements shall be prepared in
the same manner Saban Entertainment has typically prepared such statements.
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(B) WITHHOLDINGS. All amounts payable to Employee under this
Exhibit shall be subject to all laws and regulations now or hereafter in
existence requiring the reporting, deduction or withholding of payments for
income or other taxes payable by or assessable against Employee.
(C) STATEMENTS. Should the Company make any overpayment to
Employee hereunder for any reason, the Company shall have the right to deduct
and retain for its own account an amount equal to any such overpayment from any
sums that may thereafter become due or payable by the Company to Employee or for
Employee's account, or may demand repayment from Employee in which event
Employee shall repay the same when such demand is made.
(D) RESERVES. The Company shall have the right to establish
customary, appropriate reserves and adjust same from time to time for any costs,
expenses, or other items which the Company reasonably anticipates will in the
future become deductible from gross proceeds hereunder. The Company agrees to
liquidate any reserves hereunder within a reasonable period of time.
(E) RESTRICTED FUNDS. No sums received by Fox Family
Worldwide in respect of the Company's Properties shall be included in gross
proceeds or in statements hereunder for the purpose of determining any amount
payable to Employee, unless such sums are freely remittable to Fox Family
Worldwide in U.S. dollars in the United States, or otherwise actually used by
Fox Family Worldwide. Sums derived from territories outside of the United States
which are not remittable to Fox Family Worldwide in the United States in U.S.
dollars by reason of currency or other restrictions shall be reflected on
statements rendered hereunder for informational purposes only, and the Company
shall, at the request and expense of Employee (subject to any and all
limitations, restrictions, laws, rules, and regulations affecting such
transactions), deposit into a bank designated by Employee in the country
involved, or pay to any other party designated by Employee in such territory,
such part thereof, if any, as would have been payable to Employee hereunder.
Such deposits or payments to or for Employee shall constitute remittance to
Employee, and the Company shall have no further responsibility therefor. The
Company makes no warranties or representations that any part of any such foreign
currencies may be converted into U.S. dollars or transferred to the account of
Employee in any foreign country.
(vi) COMPUTATION OF BONUS COMPENSATION. Bonus Compensation shall
be computed on a calendar quarterly basis, based upon Subject Income actually
received during the preceding calendar quarter, and shall be payable within
thirty (30) days after the end of each calendar quarter. The "Bonus
Compensation" for any Term Year shall mean the Bonus Compensation, calculated as
above provided, for the bonus year which ends on March 31 of that Term Year.
(vii) LIMITATION ON BONUS COMPENSATION.
(A) Notwithstanding any provision of Paragraph 4(b)(iii) or
4(b)(vi) to the contrary, in no event shall the total Bonus Compensation for any
Term Year exceed the Maximum Bonus Amount for that Term Year; and to the extent
that Bonus Compensation payable in any calendar quarter of any Term Year would
result in the aggregate Bonus Compensation for such Term Year exceeding the
Maximum Bonus Amount, the Bonus Compensation payable to Employee for such
calendar quarter shall be the difference between such Maximum Bonus Amount
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and the aggregate Bonus Compensation previously paid to Employee for such Term
Year. In addition, nothing in this Agreement shall prevent Employee from
receiving any bonus due to Employee under the Original Employment Agreement.
(B) Notwithstanding any provision of Paragraph 4(b)(iii) or
4(b)(vi) to the contrary, if during the Employment Period Employee exercises the
Option or any portion of the Option (defined below) and the cumulative aggregate
exercise price exceeds $1.5 million, then the Maximum Bonus Amount shall be
increased by $150,000 for the Term Year in which the exercise occurs, adjusted
pro rata during the year of exercise, and all future Term Years.
(c) Stock Options.
(i) ORIGINAL GRANT. On June 1, 1994, Saban Entertainment granted
to Employee an option to (the "Option") purchase 16.327 shares (the "Option
Shares") of Saban Entertainment's common stock at a purchase price of
$122,496.48 per share. On August 1, 1997, in connection with the reorganization
of Fox Family Worldwide, Saban Entertainment became a wholly owned subsidiary of
Fox Family Worldwide and Employee's option to purchase 16.327 shares of Saban
Entertainment at $122,496.48 per share became an option to purchase 161,637
shares of Fox Family Worldwide, Inc.'s Class A Common Stock at $12.37 per share.
Upon receipt by Employee of the First Advance (defined below) on May 20, 1998,
Employee's option exercise price, under certain circumstances, is increased to
$24.74 per share. Upon receipt by Employee of the Second Advance (defined below)
on the date of execution of this Agreement, Employee's option exercise price,
under certain circumstances, will be increased to $34.03 per share. Upon
exercise of the Option, Employee shall own approximately 1% of the total
outstanding shares of Fox Family Worldwide.
(ii) TERMS OF ORIGINAL GRANT. On the Effective Date of this
Agreement, the Option shall be fully vested. Unless earlier terminated as
provided herein, the Options shall be exercisable until December 31, 2004.
However, the Company will use its reasonable best efforts prior to the
expiration of the Option to cause Fox Family Worldwide to extend the term of the
Option to December 31, 2005. Upon the termination of Employee's employment with
the Company for any reason, Employee shall continue to be entitled to exercise
the Option.
(iii) EXERCISABILITY OF OPTION. During Employee's lifetime, the
Option may be exercised only by Employee and may not be transferred, assigned,
pledged or hypothecated (whether by operation of law or otherwise) other than by
will or the applicable laws of descent or distribution. If Employee dies, the
Option shall be exercisable by Employee's executors, personal representatives,
legatees or distributees, as applicable.
(iv) NOTICE OF EXERCISE. The Option shall be exercised by
Employee by giving written notice to Fox Family Worldwide stating the number of
Option Shares with respect to which the Option is being exercised and tendering
payment therefor in cash or by certified check. As a condition to the issuance
of the Option Shares, Employee shall (A) execute such further documents and
instruments and take whatever acts are necessary in order for the issuance to be
in compliance with all applicable federal and state securities laws, and (B)
enter into a shareholders agreement restricting the transferability of the
Option Shares and providing for such other matters as the parties may agree, the
terms of which shareholders agreement shall be negotiated in good
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faith. As soon as reasonably practicable thereafter, a stock certificate
representing the Option Shares with respect to which the Option is exercised
shall be delivered to Employee. Such certificate may contain a legend thereon
reflecting the restrictions set forth in subparagraphs (A) and (B), above.
(v) NO RIGHTS OF STOCKHOLDER. Employee shall have none of the
rights or privileges of a stockholder of Fox Family Worldwide in respect of any
of the Option Shares, unless and until the purchase price for such Option Shares
shall have been paid in full.
(vi) ADJUSTMENTS. The number of Option Shares shall be
appropriately adjusted for any increase or decrease in the number of shares of
issued and outstanding common stock of Fox Family Worldwide resulting from a
subdivision or consolidation of shares, whether through reorganization,
recapitalization, stock split-up, stock distribution or combination of shares,
or payment of a share dividend or other increase or decrease in the number of
such shares outstanding effected without receipt of consideration by Fox Family
Worldwide. In the event of such adjustment, the purchase price per share for the
Option Shares as so adjusted shall be adjusted by dividing an amount equal to
(A) the aggregate exercise price for the Option Shares, plus (B) the First
Advance and Second Advance, less (C) any amounts previously paid to exercise
Options (the "Adjusted Price") by the number of Option Shares as so adjusted.
Upon a merger or consolidation of Fox Family Worldwide in which Fox Family
Worldwide is not the surviving corporation or an exchange of all of the
outstanding shares of common stock of Fox Family Worldwide or all or a
substantial portion of the assets of Fox Family Worldwide for shares of another
corporation or equity interests in a partnership, limited partnership, limited
liability company or other entity (any such corporation and any such entity is
referred to in this subparagraph (vi) as a "corporation"), the successor or
exchanging corporation shall assume all obligations under this Agreement and
such option shall be converted into an option for a number of shares or other
equity interests of the successor or exchanging corporation (or cash, property
or such other consideration) that Employee would have received if Employee had
owned the Option Shares on the effective date of such transaction, and the
purchase price per share of the stock or other equity interests of the successor
or exchanging corporation under such converted option shall be equal to the
Adjusted Price divided by the number of shares of the stock or other equity
interests of such successor or exchanging corporation to which the converted
option applies (if, following such merger, consolidation or exchange, Employee
would receive non-share (or other equity interest) consideration upon exercise
of the option, the purchase price to be paid upon exercise of the option shall
be equal to the Adjusted Price multiplied by a fraction equal to that portion of
the option then being exercised). Upon the dissolution or liquidation of Fox
Family Worldwide other than following an asset transfer subject to this
subparagraph (vi), the Option granted hereunder shall expire as of the effective
date of such transaction, provided, however, that Fox Family Worldwide shall
give at least sixty (60) days prior written notice of such event to Employee
during which time he shall have a right to exercise his unexercised vested
option.
(vii) PAYMENT OF TAXES. Upon the exercise of the Option
hereunder, Fox Family Worldwide shall have the right to require Employee to
remit to Fox Family Worldwide, prior to the issuance of any Option Shares, an
amount sufficient to satisfy all federal, state and local withholding tax
requirements. As soon as reasonably practicable following the date that Fox
Family Worldwide's equity securities become publicly traded, Fox Family
Worldwide shall prepare, or cause to be prepared, and file with the Securities
and Exchange Commission (the "Commission") a registration statement on Form S-8
or other appropriate registration statement under the Securities
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Act of 1933, as amended (the "Act"), (or such successor form of registration
statement as shall then have been adopted by the Commission) covering the offer
and sale by Fox Family Worldwide of the Option Shares underlying the then
unexercised portion of the option granted to Employee hereunder, and, to the
extent permitted under such form, any Option Shares issued upon exercise of such
option prior to the initial public offering; and Fox Family Worldwide shall use
its best efforts during the term of the option to maintain such registration
statement in effect, and to comply with the rules and regulations of the
Commission applicable to securities covered by such registration statement, so
that the issuance of any Option Shares upon exercise of the option shall be
registered under the Act.
(viii) PURCHASE OF OPTIONS UPON TERMINATION OF EMPLOYMENT. If at
the time Employee's employment with the Company is terminated for any reason,
Fox Family Worldwide does not have publicly traded equity securities, Fox Family
Worldwide shall purchase from Employee and Employee shall sell to Fox Family
Worldwide any and all Option Shares owned by Employee and the option granted to
Employee for an amount (the "Termination Purchase Price") equal to (A) the fair
market value per share of the Class B Common Stock of Fox Family Worldwide,
multiplied by the number of Option Shares owned by Employee plus the fair market
value per share of the Class B Common Stock of Fox Family Worldwide, multiplied
by the number of Option Shares with respect to which Employee's option has not
been exercised, less (B) Employee's purchase price, determined under
subparagraph (i), above, for the Option Shares with respect to which Employee's
option has not been exercised. The fair market value per share of the Class B
Common Stock of Fox Family Worldwide for purposes of the Termination Purchase
Price shall be determined by mutual agreement of the parties as of the date of
Employee's termination of his employment ("Termination Date"). In the event the
parties are unable to reach agreement within thirty (30) days of the Termination
Date, the fair market value of the Class B Common Stock of Fox Family Worldwide
shall be determined by the following appraisal procedure: each party shall
appoint an appraiser by giving notice of such appointment to the other party
within forty-five (45) days from the Termination Date. Such appraiser shall be a
certified public accountant practicing in the entertainment, licensing and
television industries or such other person with experience in valuing companies
in the entertainment, licensing and television businesses. If either party fails
to appoint an appraiser within said time period, the other party's appointed
appraiser shall be the sole appraiser. If both parties have so appointed
appraisers, then within thirty (30) days from the appointment of both parties'
appraisers, the appraisers so appointed shall appoint a third appraiser, with
the same qualifications. The third appraiser (or the sole appraiser if either
party fails to appoint an appraiser within the required time period) shall then
determine the fair market value of the Class B Common Stock of Fox Family
Worldwide within sixty (60) days after the appointment of the third appraiser
(or within sixty (60) days after the failure by either party to appoint an
appraiser within the required time period). The third appraiser, or such sole
appraiser, as applicable, is referred to hereinbelow as the "Selected
Appraiser." The determination of the Selected Appraiser shall be binding on the
parties hereto. The costs and fees of the Selected Appraiser shall be borne
equally by the parties hereto. Fox Family Worldwide shall give the Selected
Appraiser reasonable access to its books and records to enable him or her to
undertake his or her appraisal. Within ten (10) days after the parties'
agreement on the fair market value of the Class B Common Stock of Fox Family
Worldwide, or, failing such agreement, the notification by the Selected
Appraiser of his or her appraisal, Fox Family Worldwide shall pay to Employee
the Termination Purchase Price, against delivery by Employee to Fox Family
Worldwide of an assignment separate from certificate for the Option Shares, in
each
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case free and clear of any and all liens, claims, encumbrances and restrictions
of any type, kind or nature.
(ix) PURCHASE OF EMPLOYEE'S OPTION SHARES UPON SALE OF SHARES BY
HAIM SABAN. Except as provided below, in the event Haim Saban, any member of his
immediate family or any of his affiliated entities (collectively with Haim Saban
and such family members, the "Saban Entities") sells to a third party in a bona
fide sale any of his or its shares of the Class B Common Stock of Fox Family
Worldwide (or any other equity security of Fox Family Worldwide held by the
Saban Entities) (the "Saban Shares"), the parties agree as follows:
(A) Fox Family Worldwide shall purchase from Employee and
Employee shall sell to Fox Family Worldwide the "Applicable Percentage," as
defined below, of the Option Shares owned by Employee for a per-share
consideration equal to the per-share consideration paid by the third party for
the Saban Shares. If the consideration paid by the third party for the Saban
Shares includes non-cash consideration and/or deferred consideration, the
consideration paid by Fox Family Worldwide to Employee for the Option Shares
sold by Employee to Fox Family Worldwide under this subparagraph (A) shall
consist of similar non-cash and/or deferred compensation in the same ratio as
the non-cash and/or deferred consideration paid by the third party for the Saban
Shares bears to the total consideration paid by the third party for the Saban
Shares. The "Applicable Percentage" shall equal the percentage that the Saban
Shares sold to the third party represents of the total shares of Fox Family
Worldwide owned by the Saban Entities immediately prior to the sale. The
purchase and sale of the Option Shares under this subparagraph (A) shall close
no later than ten (10) days after the closing of the sale of the Saban Shares to
the third party. Concurrently with the purchase and sale of the Option Shares
under this subparagraph (A), Employee shall execute and deliver to Fox Family
Worldwide an assignment separate from certificate for the Applicable Percentage
of the Option Shares, free and clear of any and all liens, claims, encumbrances
and restrictions of any type, kind or nature.
(B) Fox Family Worldwide shall pay to Employee an amount
equal to the Applicable Percentage (as defined in subparagraph (A) above of (x)
the per-share consideration paid by the third party for the Saban Shares
multiplied by the number of Option Shares with respect to which Employee's
option has not been exercised, less (y) Employee's purchase price, determined
under subparagraph (i), above, for such Option Shares. If the consideration paid
by the third party for the Saban Shares includes non-cash consideration and/or
deferred compensation, the payment by Fox Family Worldwide to Employee under
this subparagraph (B) shall consist of similar non-cash and/or deferred
consideration in the same ratio as the non-cash and/or deferred consideration
paid by the third party for the Saban Shares bears to the total consideration
paid by the third parties for the Saban Shares. The payment under this
subparagraph (B) shall be made no later than ten (10) days after the closing of
the sale of the Saban Shares to the third party.
(C) The number of Option Shares Employee shall have the
option to purchase pursuant to this subparagraph (C) shall immediately be
reduced by a number of shares equal to the Applicable Percentage (as defined in
subparagraph (A), above) of the Option Shares with respect to which Employee's
Option has not been exercised.
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This subparagraph (ix) shall not apply to (A) any sale by a Saban Entity
pursuant to an "initial public offering" (as defined in subparagraph (xi) of any
common stock of Fox Family Worldwide or (B) any transaction subject to
subparagraph (vi), above.
(x) PAYMENTS ON OPTION SHARES SUBJECT TO SATISFACTION OF
APPLICABLE LAWS. The obligations of Fox Family Worldwide to make any payment or
payments to Employee with respect to the purchase of the Option Shares by Fox
Family Worldwide are subject to the satisfaction by Fox Family Worldwide of any
applicable statutory provisions restricting Fox Family Worldwide's ability to
make such payments, including, without limitation, Section 160 of the Delaware
General Corporation Law and Chapter 5 of the California General Corporation Law,
and if and to the extent that under those provisions, any such payment would
expose the directors of Fox Family Worldwide to any liability, or would be
unlawful, Fox Family Worldwide shall deliver to the Employee, in lieu of such
payment, a promissory note with terms identical to the Note, which note shall be
due and payable at the earliest practicable date thereafter when such payment
would not be violative of such statutory provisions.
(xi) INITIAL PUBLIC OFFERING. Notwithstanding any provision of
this subparagraph (C) to the contrary, following the earlier to occur of (1) the
first closing of an offer and sale of shares of the common stock of Fox Family
Worldwide (whether such shares are sold by Fox Family Worldwide, existing
stockholders or both) for cash pursuant to a firmly underwritten public offering
effected pursuant to a registration statement filed by the Company with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
(or such successor legislation as shall then be in effect), or (2) the date upon
which the shares of common stock of Fox Family Worldwide are first authorized
for quotation on the Nasdaq National Market, or listed on the New York Stock
Exchange (either event, an "initial public offering"):
(A) the provisions of subparagraphs (viii) and (ix) shall
terminate and be of no further force or effect;
(B) the provisions of any voting trust agreement entered
into pursuant to subparagraph (iv) shall not prevent or restrict Employee's
right to sell and transfer any of the Option Shares free and clear of the
obligations therein set forth;
(C) the Option shall terminate and expire, to the extent not
theretofore exercised, (x) if Employee's employment with the Company is
terminated for any reason other than for "cause" pursuant to Paragraphs 8(a),
(b) or (d) hereof, on the first anniversary of the date of such termination, and
(y) if Employee's employment with the Company is terminated for "cause" pursuant
to Paragraph 8(c) hereof, on the thirtieth (30th) day following the date of such
termination; and
(D) after Employee's employment with the Company is
terminated for any reason, Fox Family Worldwide shall have the right and option,
exercisable at any time prior to the date of expiration of the Option by
delivery of written notice of such exercise to Employee, to purchase from
Employee, and if such option is exercised, Employee shall sell to Fox Family
Worldwide, any and all Option Shares owned by Employee on the date of receipt of
the notice of exercise (or acquired thereafter upon exercise of the Option and
prior to the closing of such purchase) and the Option granted to Employee
hereunder for an amount (the "IPO Termination
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Purchase Price") equal to (a) the fair market value per share of the Class B
Common Stock of Fox Family Worldwide, multiplied by the number of Option Shares
owned by Employee plus the fair market value per share of the Class B Common
Stock of Fox Family Worldwide, multiplied by the number of Option Shares with
respect to which Employee's Option has not been exercised, less (B) Employee's
purchase price, determined under subparagraph (i) above, for the Option Shares
with respect to which Employee's Option has not been exercised; for purposes of
this subparagraph, IPO Termination Purchase Price shall equal the greater of (x)
the average of the closing sale prices of Fox Family Worldwide's common stock
over the 180 trading days preceding the date of giving of written notice and (y)
the average of the closing sale prices of Fox Family Worldwide's common stock
over the five trading days preceding the date of giving of written notice; and
within ten (10) days after the determination of the fair market value of the
Option Shares, Fox Family Worldwide shall pay the IPO Termination Purchase Price
to Employee, against delivery by Employee to Fox Family Worldwide of an
assignment separate from certificate for the Option Shares, in each case free
and clear of any and all liens, claims, encumbrances and restrictions of any
type, kind or nature.
(d) AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT. On May 20, 1998,
Saban Entertainment and Employee entered into Amendment No. 2 to the Employment
Agreement. Pursuant to the terms of Amendment No. 2, Employee received, as
additional compensation, an advance of Two Million Dollars ($2,000,000) (the
"First Advance"). The First Advance bears no interest. Except if otherwise
repaid by Employee at Employee's election, as set forth Amendment No. 2, the
First Advance is payable solely by recourse against the amount otherwise payable
as the Termination Purchase Price that Fox Family Worldwide pays to Employee
pursuant to Paragraph 4(c)(viii) of this Agreement. Any exercise by Employee of
the Option to purchase Option Shares is conditioned upon Employee's concurrent
repayment in full of the First Advance. Employee may, at Employee's election,
make all or any portion of the repayment by increasing the purchase price to
$24.74 per share in connection with Employee's exercise (subject to the
satisfaction of all applicable requirements in connection with such increase set
forth in that certain Second Amended and Restated Credit Agreement dated as of
October 28, 1997 among FCN Holding, Inc., International Family Entertainment,
Inc., Saban Entertainment, Inc., Fox Kids Holdings, LLC, the initial lenders
named therein, Citicorp USA, Inc., Citicorp Securities, Inc., Chase Securities,
Inc. and BankBoston, N.A. (the "Credit Agreement")).
(e) SECOND ADVANCE.
(1) As additional compensation for entering into this
Agreement, the Company shall advance to Employee, on the date of execution of
this Agreement, the aggregate principal amount of One Million Five Hundred
Thousand Dollars ($1,500,000) (the "Second Advance"). The Second Advance shall
bear no interest. Except if otherwise repaid by Employee at Employee's election,
as set forth herein, the Second Advance will be payable solely by recourse
against the amount otherwise payable as the Termination Purchase Price that Fox
Family Worldwide pays to Employee pursuant to Paragraph 4(c)(viii) of this
Agreement. Any exercise by Employee of the Option to purchase Option Shares is
conditioned upon Employee's concurrent repayment in full of the Second Advance.
Employee may, at Employee's election, make all or any portion of the repayment
by increasing the purchase price to $34.03 per share in connection with
Employee's exercise (subject to the satisfaction of all applicable requirements
in connection with such increase set forth in the Credit Agreement).
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(2) Employee and the Company each agree to report the Second
Advance on all applicable federal and state tax returns (including, without
limitation, all income tax, employment tax and information tax returns)
(hereinafter "Returns") as compensation for services rendered and to treat the
Second Advance accordingly for all tax purposes. Employee and the Company each
agree that the Company shall withhold from the payment of the Second Advance all
amounts required to be withheld therefrom in accordance with the preceding
sentence. If Employee exercises the Option to purchase Option Shares pursuant to
Paragraph 4(c) of the Agreement, Employee, the Company and Fox Family Worldwide
agree to treat the repayment of the Second Advance for all tax purposes as an
increase in the purchase price of the Option Shares and to report, when
required, such repayment accordingly on all Returns. If Employee does not
exercise the Option to purchase the Option Shares pursuant to Paragraph 4(c) of
the Agreement, Employee, the Company and Fox Family Worldwide agree to treat the
repayment of the Second Advance for all tax purposes as a reduction in the
Termination Purchase Price and to report, when required, such repayment
accordingly on all Returns.
(f) BENEFITS.
(i) EMPLOYEE BENEFIT PLAN ELIGIBILITY. During the Employment
Period, Employee shall be eligible to participate in all then-operative employee
benefit plans (including health insurance for Employee and his dependents)
adopted and/or implemented by Fox Family Worldwide or its affiliates which are
applicable generally to the Company's and Fox Family Worldwide's employees and,
if different, the Company's or Fox Family Worldwide's senior executives
("Employee Benefit Plans"), subject to the respective terms and conditions of
such Employee Benefit Plans. Nothing contained in this Agreement shall obligate
the Company and/or any of its Affiliates to adopt or implement any Employee
Benefit Plan, or prevent or limit the Company and/or any of its Affiliates from
making any blanket amendments, changes, or modifications of the eligibility
requirements or any other provisions of, or terminating, any Employee Benefit
Plan at any time (whether during or after the Employment Period), and Employee's
participation in or entitlement under any such Employee Benefit Plan shall at
all times be subject in all respects thereto.
(ii) REIMBURSEMENTS. The Company shall reimburse Employee
for all ordinary and necessary business, entertainment and other expenses
reasonably incurred by Employee in the performance of Employee's duties and
obligations under this Agreement, including reimbursement for first class air
travel and accommodations for business travel. The Company agrees to repay or
reimburse Employee for such business expenses upon the presentation of itemized
statements of such business expenses in accordance with the Company's policy.
(iii) PHANTOM STOCK PLAN. In the event the Company
establishes a Phantom Stock Plan or similar stock incentive arrangement,
Employee shall be entitled to receive option grants comparable to the highest
level executive in the plan, excluding Haim Saban or any successor Chief
Executive Officer.
(iv) ANNUAL VACATIONS. Employee shall be entitled to take a
reasonable amount of annual vacations during the Employment Period, as mutually
agreed to between Employee and the Chief Executive Officer.
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5. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS OF EMPLOYEE. Employee represents and warrants that
Employee has all right, power, authority and capacity, and is free, to enter
into this Agreement; that by doing so Employee will not violate or interfere
with the rights of any other person or entity; and that Employee is not subject
to any contract, understanding or obligation which will or might prevent,
interfere with or impair the performance of this Agreement by Employee. Employee
will indemnify and hold the Company harmless with respect to any losses,
liabilities, demands, claims, fees, expenses, damages and costs (including
attorneys fees and court costs) resulting from or arising out of any claim or
action based upon Employee's entering into this Agreement.
(b) REPRESENTATIONS OF THE COMPANY. The Company represents and
warrants that the Company has all right, power and authority, without the
consent of any other person, to execute and deliver, and perform its obligations
under, this Agreement. All corporate and other actions required to be taken by
the Company to authorize the execution, delivery and performance of this
Agreement and the consummation of all transactions contemplated hereby have been
duly and properly taken. This Agreement is the lawful, valid and legally binding
obligation of the Company, enforceable in accordance with its terms
(c) MATERIALITY OF REPRESENTATIONS. The representations, warranties
and covenants set forth in this Agreement shall be deemed to be material and to
have been relied upon by the parties hereto.
6. RELATIONSHIP AND COVENANTS OF EMPLOYEE.
(a) COVENANT NOT TO DISCLOSE. Employee shall not at any time during or
after the termination of the Employment Period, knowingly reveal, divulge or
make known to any person (other than the Company or its affiliates) or use for
Employee's own account any non-public information concerning or used by the
Company of which Employee was apprised or otherwise had become aware during the
term of Employee's employment by the Company (excluding any such information
which becomes public for reason other than Employee's breach of this Agreement
or which Employee is required to disclose by law).
(b) COVENANT TO DELIVER RECORDS. All memoranda, notes, records and
other documents made or compiled by Employee, or made available to Employee
during the term of this Agreement concerning the business of the Company shall
be the Company's property and shall be delivered to the Company on the
termination of this Agreement or at any other time on request. Employee shall
keep in confidence and shall not use for Employee or others, or divulge to
others, any secret or confidential information, knowledge or data of the Company
obtained by Employee as a result of the Company's employment, unless authorized
by the Company or required by law. Employee shall be entitled to retain for his
own records copies of any and all memoranda, notes, records and other documents
made or compiled by Employee during the Employment Period.
(c) COVENANT NOT TO DIVERT. Employee shall not so long as Employee is
employed hereunder, or if such employment shall terminate during or at the
expiration of the Employment Period, for a period of two years following such
termination, directly or indirectly, either on Employee's own behalf, or as a
member of a partnership, joint venture or corporation, or as an
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employee or agent on behalf of any person, firm, partnership, joint venture or
corporation, either (i) solicit, induce (or attempt to induce), or endeavor to
entice away any clients of the Company (unless the Company consents in writing),
(ii) solicit, divert, or seek to develop or exploit any existing entertainment
projects on which the Company is working at the time of termination (unless the
Company thereafter advises Employee in writing that it has abandoned such
project), or (iii) solicit, interfere with, induce (or attempt to induce) or
endeavor to entice away any employee (other than Employee's assistant)
associated with the Company to become affiliated with him or any other person,
firm, partnership, joint venture, corporation or business organization.
(d) LIMITATIONS UPON COVENANTS. The provisions under this Paragraph 6
shall survive the termination of this Agreement. The parties hereto agree that,
in the event any of the provisions set forth in this Paragraph 6 are held by any
court or other duly constituted legal authority to be effective in any
particular area or jurisdiction only if modified to limit their duration or
scope or to be void or otherwise unenforceable in any particular area or
jurisdiction, then such provisions shall be deemed amended and modified with
respect to that particular area or jurisdiction so as to comply with the order
of any such court or other duly constituted legal authority and, as to all other
areas and jurisdictions, and as to all other provisions of this Paragraph 6,
such provisions shall remain in full force and effect as set forth in this
Agreement.
(e) REMEDIES. Employee acknowledges that the Company will have no
adequate remedy at law if Employee violates the terms of the provisions of this
Paragraph 6 or any other provisions of this Agreement (including, without
limitation, the exclusivity provisions of Paragraph 3, above). In such event,
the Company shall have the right, in addition to any other rights it may have,
to obtain in any court of competent jurisdiction injunctive relief to restrain
any breach or threatened breach or specific performance of this Agreement.
7. CERTAIN RIGHTS OF THE COMPANY.
(a) ANNOUNCEMENT. The Company shall have the sole right to make a
public announcement of the terms, provisions, or execution of this Agreement.
(b) USE OF NAME, LIKENESS, AND BIOGRAPHY. The Company shall have the
right (but not the obligation) to use, publish and broadcast, and to authorize
others to do so, the name, approved likeness and approved biographical material
of Employee to advertise, publicize and promote the business of the Company and
of its affiliates, but not for the purposes of direct endorsement without
Employee's consent. An "approved likeness" and "approved biographical material"
shall be, respectively, any photograph or other depiction of Employee, or any
biographical information or life story concerning the professional career of
Employee, which has been submitted to and approved by Employee prior to its
first use, publication or broadcast, such approval not to be unreasonably
withheld.
(c) CORPORATE OFFICES. In addition to his positions as President,
Chief Operating Officer and Chief Financial Officer and a Director of the
Company and Fox Family Worldwide, the Company or its affiliates may from time to
time appoint Employee to one or more other corporate offices or board positions
of the Company or its affiliates. Employee agrees to accept such offices if
consistent with Employee's stature and experience. The Company and Employee
hereby
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acknowledge and agree that Employee is currently serving, at the request of the
Company, as a member of the board of directors of On Stage Entertainment, Inc.
(d) RIGHT TO INSURE. The Company shall have the right to secure in its
own name, or otherwise, and at its own expense, life, health, accident or other
insurance covering Employee, and Employee shall have no right, title or interest
in and to such insurance. Employee shall assist the Company in procuring such
insurance by submitting to examinations and by signing such applications and
other instruments as may be required by the insurance carriers to which
application is made for any such insurance.
8. TERMINATION.
(a) DISABILITY. If Employee shall be rendered incapable by illness
(physical or mental disability) of complying with the terms, provisions and
conditions hereof on his part to be performed for a period in excess of 150
consecutive days or 250 days in the aggregate during the Employment Period, then
the Company may, at its option, prior to the date Employee resumes the rendering
of services, terminate this Agreement by written notice to that effect sent by
registered or certified mail. Such termination shall terminate any and all
obligations to Employee under this Agreement effective as of the date of such
written notice except (i) Employee's right to receive the Fixed Salary in
Paragraph 4(a) for the Term Year in which the date of such written notice falls,
pro-rated to the date of such written notice, (ii) Employee's right to receive
the Bonus Compensation in Paragraph 4(b) for the Term Year in which the date of
such written notice falls, prorated to the date of such written notice (payable
at the time set forth in Paragraph 4(b)(vi)), and (iii) Employee's vested rights
with respect to the option set forth in Paragraph 4(c) .
(b) DEATH. In the event Employee dies during the Employment Period,
such death shall terminate any and all obligations to Employee under this
Agreement effective as of the date of death except (i) Employee's right to
receive the Fixed Salary in Paragraph 4(a) for the Term Year in which the date
of death falls, pro-rated to the date of death, (ii) Employee's right to receive
the Bonus Compensation in Paragraph 4(b) for the Term Year in which the date of
death falls, pro-rated to the date of death (payable at the time set forth in
Paragraph 4(b)(vi)), and (iii) Employee's vested rights with respect to the
option set forth in Paragraph 4(c) .
(c) CAUSE. The Company may terminate Employee's employment hereunder
for cause, which shall mean (i) indictment of Employee for a felony or a crime
involving a high degree of moral turpitude, (ii) the commission by Employee of
an act or acts of dishonesty constituting a crime, which act or acts are
intended to result, directly or indirectly, in gain or personal enrichment at
the expense of the Company or any of its subsidiaries or affiliates by Employee,
(iii) certification by a medical doctor that Employee is a habitual alcoholic or
is a narcotic addict, or (iv) Employee's material breach of this Agreement. Such
termination shall terminate any and all obligations to Employee under this
Agreement effective as of the date of such written notice except (i) Employee's
right to receive the Fixed Salary in Paragraph 4(a) for the Term Year in which
the date of such written notice falls, prorated to the date of such written
notice, (ii) Employee's right to receive the Bonus Compensation in Paragraph
4(b) for the Term Year in which the date of such written notice falls, prorated
to the date of such written notice (payable at the time set forth in Paragraph
4(b)(vi)), and (iii) Employee's vested rights with respect to the option set
forth in Paragraph 4(c).
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(d) AT EMPLOYEE'S ELECTION. Employee may terminate his employment
hereunder upon the Company's material breach of this Agreement by written notice
to that effect delivered in person or sent by registered or certified mail. Such
termination shall terminate any and all obligations of the Company to Employee
under this Agreement, including liabilities with respect to such breach,
effective as of the date of such written notice except (i) Employee's right to
receive the Fixed Salary in Paragraph 4(a) for the Term Year in which the date
of such written notice falls, prorated to the date of such written notice, (ii)
Employee's right to receive the Severance Pay provided in, and subject to the
terms and conditions of, Paragraph 9 hereof, (iii) Employee's right to receive
the Bonus Compensation in Paragraph 4(b) for the Term Year in which the date of
such written notice falls, prorated to the date of such written notice (payable
at the time set forth in Paragraph 4(b)(vi)), and (iv) Employee's vested rights
with respect to the option set forth in Paragraph 4(c).
9. SEVERANCE PAY. In the event this Agreement is not renewed by the Company
at the end of its initial three-year term, Employee shall receive as severance
pay Employee's fixed salary for the Third Year Term set forth in Paragraph 4(a)
hereof and Employee's actual Bonus Compensation for the Third Term Year set
forth in Paragraph 4(b) for one year, payable in equal installments no less
frequently than semi-monthly.
10. ARBITRATION.
(a) The terms of this Paragraph 10 contain the sole and exclusive
method, means and procedure to resolve any and all claims, disputes or
disagreements arising under this Agreement, except those arising under the
provisions of Paragraph 6, above. The parties irrevocably waive any and all
rights to the contrary and shall at all times conduct themselves in accordance
with the terms of this Paragraph 10; any attempt to circumvent the terms of this
Paragraph 10 shall be null and void and of no force or effect.
(b) Within ten (10) days after delivery of written notice (the "Notice
of Dispute") of the existence and nature of any dispute given by any party to
the other party, and unless otherwise provided herein in any specific instance,
the parties shall each (i) appoint one (1) lawyer actively engaged in the
licensed and full time practice of law in the County of Los Angeles for a
continuous period immediately preceding the date of delivery (the "Dispute
Date") of the Notice of Dispute of not less than ten (10) years, but who has at
no time ever represented or acted on behalf of any of the parties, and (ii)
deliver written notice of the identity of such lawyer and a copy of his or her
written acceptance of such appointment and acknowledgment of and agreement to be
bound by the time constraints and other terms of this Paragraph 10 (the
"Acceptance") to the other party hereto. In the event that any party fails to so
act, that party's arbitrator shall be appointed pursuant to the same procedure
that is followed when agreement cannot be reached as to the third arbitrator.
Within ten (10) days after such appointment and notice, such lawyers shall
appoint a third lawyer (who, together with the first two (2) lawyers, shall
hereinafter be referred to collectively as the "Arbitration Panel") of the same
qualification and background as the first two (2) lawyers (including the
qualification that he or she has at no time ever represented or acted on behalf
of any of the parties) and shall deliver written notice of the identity of such
lawyers and a copy of his or her written Acceptance of such appointment to each
of the parties. If agreement cannot be reached on the appointment of a third
lawyer within such period, such appointment and notification shall be made as
rapidly as possible by any court of competent jurisdiction, by any licensing
authority, agency or organization having
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jurisdiction over such lawyers, by any professional association of lawyers in
existence for not less than ten (10) years at the time of such dispute or
disagreement and the geographical membership boundaries of which extend to the
County of Los Angeles, or by any arbitration association or organization in
existence for not less than ten (10) years at the time of such dispute or
disagreement and the geographic boundaries of which extend to the County of Los
Angeles, as determined by the party giving such Notice of Dispute and
simultaneously confirmed in writing delivered by such party to the other party.
Any such court, authority, agency, association or organization shall be entitled
either to directly select such third lawyer or to designate in writing delivered
to each of the parties an individual who shall do so. In the event of any
subsequent vacancies or inabilities to perform among the Arbitration Panel, the
lawyer or lawyers involved shall be replaced in accordance with the terms of
this Paragraph 10 as if such replacement was an initial appointment to be made
under this Paragraph 10 within the time constraints set forth in this Paragraph
10, measured from the date of notice of such vacancy or inability to the person
or persons required to make such appointment, with all attendant consequences of
failure to act timely if such appointment is not so made. Unless the parties
shall otherwise agree, all arbitration proceedings shall be conducted at such
location within Los Angeles County as the members of the Arbitration Panel shall
by majority vote from time to time designate.
(c) Consistent with the terms of this Paragraph 10, the members of the
Arbitration Panel shall utilize their utmost skill and shall apply themselves
diligently so as to hear and decide, by majority vote, the outcome and
resolution of any dispute or disagreement submitted to the Arbitration Panel as
promptly as possible, but in any event on or before the expiration of sixty (60)
days after the appointment of the members of the Arbitration Panel. None of the
members of the Arbitration Panel shall have any liability whatsoever for any
acts or omissions performed or omitted in good faith pursuant to the provisions
of this Article.
(d) The Arbitration Panel shall (i) enforce and interpret the rights
and obligations set forth in this Agreement to the extent not prohibited by law,
(ii) fix and establish any and all rules as it shall consider appropriate in its
sole and absolute discretion to govern the proceedings before it, including any
and all rules of discovery, procedure and/or evidence, provided however, that
such rules shall be consistent with such rules established by the American
Arbitration Association and (iii) make and issue any and all orders, final or
otherwise, and any all awards, as a court of competent jurisdiction sitting at
law or in equity could make and issue and as it shall consider appropriate in
its sole and absolute discretion, including the awarding of monetary damages
(but specifically excluding the awarding of consequential, punitive or exemplary
damages or the awarding of attorneys' fees and costs to either party) to the
prevailing party as determined by the Arbitration Panel in its sole and absolute
discretion, and the issuance of injunctive relief.
(e) The decision of the Arbitration Panel shall be final and binding,
and may be confirmed and entered by any court of competent jurisdiction at the
request of any party and may not be appealed to any court of competent
jurisdiction or otherwise, except upon a claim of fraud on the part of any
member of the Arbitration Panel (except as to the arbitrator chosen by the party
claiming the fraud), or on the basis of a manifest error as to the applicable
law. The Arbitration Panel shall retain jurisdiction over any dispute until its
award has been implemented, and judgment on any such award may be entered in any
court having appropriate jurisdiction and may be enforced against either party
and its assets pursuant to applicable laws and procedures.
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(f) Each member of the Arbitration Panel (i) shall be compensated for
any and all services rendered under this Paragraph 10 at a rate of compensation
equal to the sum of Two Hundred Fifty Dollars ($250.00) per hour, which sum
shall be increased each year in accordance with annual increases in the Consumer
Price Index for Urban Wage Earners and Clerical Workers, Los
Angeles-Anaheim-Riverside, California 1982-84 = 100 ("CPI"), and (ii) shall be
reimbursed for any and all expenses incurred in connection with the rendering of
such services, payable in full promptly upon conclusion of the proceedings
before the Arbitration Panel. Such compensation and reimbursement shall be borne
by the non-prevailing party as determined by the Arbitration Panel in its sole
and absolute discretion, unless the Arbitration Panel does not make a
determination that one of the parties is the prevailing party, in which case the
parties shall bear the cost as fixed by the Arbitration Panel.
11. INDEMNIFICATION. Fox Family Worldwide and Employee are parties to an
Indemnification Agreement dated July 31, 1997, pursuant to which, INTER ALIA,
Fox Family Worldwide has agreed, on the terms and conditions therein set forth,
to indemnify Employee against certain claims arising by reason of the fact that
he is or was an officer or director of the Company. The Company and Employee
also agree that pursuant to the terms of the Indemnification Agreement, the
Company shall also indemnify Employee against certain claims arising by reason
of the fact that Employee is serving as the Company's designee to the board of
directors of On Stage Entertainment, Inc.
12. GENERAL.
(a) ASSIGNMENT; SUCCESSORS; AFFILIATES. The Company may assign this
Agreement (or the interest of the Company therein) to any parent or affiliate of
the Company or to any entity which is a party to a merger, reorganization, or
consolidation with the Company or to a subsidiary of the Company or to an entity
or entities acquiring substantially all of the assets of the Company or of any
division with respect to which Employee is providing services (providing any
such assignee assumes the Company's obligations under this Agreement). Employee
shall, if requested by the Company, perform Employee's services and duties, as
specified in this Agreement, to or for the benefit of any subsidiary or other
affiliate of the Company. Upon such assignment, acquisition, merger,
consolidation, or reorganization, the term "Company" as used herein shall be
deemed to refer to such assignee or such successor entity. Employee shall not
have the right to assign Employee's interest in this Agreement, any rights under
this Agreement or any duties imposed under this Agreement nor shall Employee (or
Employee's spouse, heirs, beneficiaries, administrator's or executors) have the
right to pledge, hypothecate or otherwise encumber Employee's right to receive
compensation hereunder without the consent of Company.
(b) HEADINGS. The subject headings of the paragraphs and subparagraphs
of this Agreement are included for purposes of convenience only, and shall not
affect the construction or interpretation of any of its provisions.
(c) SEVERABILITY. It is agreed that if any term, covenant, provision,
paragraph or condition of this Agreement shall be illegal, such illegality shall
not invalidate the whole Agreement but it shall be construed as if not
containing the illegal part, and the rights and obligations of the parties shall
be construed and enforced accordingly.
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(d) ENTIRE AGREEMENT. Except for the terms of Paragraph 4(b)(vii) of
this Agreement which specifically provide that any bonus due to Employee under
the Original Employment Agreement shall continue to be paid to Employee, the
parties hereto agree that this Agreement supersedes all existing agreements
between the Company and Employee, whether oral, written, expressed or implied,
and contains the entire understanding and agreement between the parties. This
Agreement shall not be amended, modified, or supplemented in any respect except
by a subsequent written agreement entered into by both parties hereto.
(e) CHOICE OF LAW. This Agreement and the performance hereunder shall
be construed in accordance with and under and pursuant to the internal
substantive laws of the State of California applicable to agreements fully
executed and to be performed entirely in such state.
(f) NOTICES. All communications and notices hereunder shall be in
writing and shall be deemed to have been duly given and delivered personally if
sent by United States registered or certified mail, postage prepaid:
If to the Company:
Fox Family Management, LLC
10960 Wilshire Boulevard
Los Angeles, California 90024
Attn: Haim Saban
If to Fox Family Worldwide:
Fox Family Worldwide, Inc.
10960 Wilshire Boulevard
Los Angeles, California 90024
Attn: Haim Saban
With a copy to:
Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East, 24th Floor
Los Angeles, California 90067
Attention: Linda Giunta Michaelson
If to Employee:
Mel Woods
or to such other addresses as my be designated in writing by either of the
parties.
(g) NO JOINT VENTURE. Nothing herein contained shall constitute a
partnership between or joint venture by the parties hereto or appoint any party
the agent of any other party. No party shall hold itself out contrary to the
terms of this paragraph and, except as otherwise specifically
Page 19
<PAGE>
provided herein, no party shall become liable for the representation, act or
omission of any other party. This Agreement is not for the benefit of any third
party who is not referred to herein and shall not be deemed to give any right or
remedy to any such third party.
(h) CONTRACTUAL NOMENCLATURE. All reference herein to "Dollars" or "$"
shall mean Dollars of the United States of America, its legal tender for all
debts public and private. Where used herein and to the extent appropriate, the
masculine, feminine or neuter gender shall include the other two genders, the
singular shall include the plural, and the plural shall include the singular.
(i) TIME OF ESSENCE. Time is of the essence of each provision in this
Agreement in which time is an element.
(j) NO ADVERSE CONSTRUCTION. The rule that a contract is to be
construed against the party drafting the contract is hereby waived, and shall
have no applicability in construing this Agreement or the tens of this
Agreement.
* * *
IN WITNESS WHEREOF, the Company, Fox Family Worldwide and Employee have
executed this Agreement as of the 1st day of April, 1999.
FOX FAMILY WORLDWIDE, INC.
By /S/ HAIM SABAN
----------------------------------
FOX FAMILY MANAGEMENT, LLC
By /S/ HAIM SABAN
----------------------------------
/S/ MEL WOODS
----------------------------------
MEL WOODS
FIRST AMENDMENT
This is the first amendment to that certain Employment Contract dated as of
April 1, 1997 between SABAN ENTERTAINMENT, INC. and MARK ITTNER.
1. The name of the Company employing you shall be changed from SABAN
ENTERTAINMENT, INC. TO FOX FAMILY WORLDWIDE, INC.
2. The Term of your employment pursuant to the terms of your Contract, as
amended, shall continue through March 31, 2002.
3. Paragraph 3(a) shall be amended by adding the following:
(4) During the fourth year of the Term, we will pay you a gross annual
salary of $255,000.
(5) During the fifth year of the Term, we will pay you a gross annual
salary of $270,000.
Paragraph 3(a)(4) of the Contract shall become Paragraph 3(a)(6).
In all other respects the Contract between us shall remain in full force and
effect.
IN WITNESS WHEREOF, you and we have entered into this First Amendment as of
April 1, 1999.
FOX FAMILY WORLDWIDE, INC.
By: /S/ MARK ITTNER By: /S/ JACK SAMUELS
----------------------------- -----------------------------
Mark Ittner Sr. V.P. General Counsel
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FOX
FAMILY WORLDWIDE, INC.'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS).
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1999
<PERIOD-START> JUL-01-1997 JUL-01-1998
<PERIOD-END> MAR-31-1998 MAR-31-1999
<CASH> 90,311<F1> 46,754<F1>
<SECURITIES> 0 0
<RECEIVABLES> 173,935 188,792
<ALLOWANCES> (1,410) (2,401)
<INVENTORY> 413,083 524,385
<CURRENT-ASSETS> 0<F2> 0<F2>
<PP&E> 91,628 90,829
<DEPRECIATION> (17,991) (30,411)
<TOTAL-ASSETS> 2,516,461 2,493,837
<CURRENT-LIABILITIES> 0<F2> 0<F2>
<BONDS> 866,341 907,788
345,000 345,000
0 0
<COMMON> 16 16
<OTHER-SE> 50,070 (37,613)
<TOTAL-LIABILITY-AND-EQUITY> 2,516,461 2,493,837
<SALES> 486,412 493,133
<TOTAL-REVENUES> 486,412 493,133
<CGS> (270,106) (247,063)
<TOTAL-COSTS> (398,415) (409,105)
<OTHER-EXPENSES> (3,746) (3,542)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (96,360) (123,703)
<INCOME-PRETAX> (12,109) (43,217)
<INCOME-TAX> (1,459) (1,258)
<INCOME-CONTINUING> (13,568) (44,475)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (13,568) (44,475)
<EPS-PRIMARY> 0<F3> 0<F3>
<EPS-DILUTED> 0<F3> 0<F3>
<FN>
<F1> INCLUDES RESTRICTED CASH OF $8,200
<F2> THE COMPANY HAS ELECTED TO PRESENT AN UNCLASSIFIED BALANCE SHEET
<F3> EPS IS NOT APPLICABLE AS THE COMPANY HAS NO PUBLICLY TRADED EQUITY
NOTE: CERTAIN PRIOR YEAR (MARCH 31, 1998) AMOUNTS HAVE BEEN RECLASSIFIED
TO CONFORM TO THE CURRENT YEAR PRESENTATION.
</FN>
</TABLE>
