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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934.
For the fiscal year ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ____________to____________
COMMISSION FILE NO. 333-12995
FOX FAMILY WORLDWIDE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4596247
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NUMBER)
ORGANIZATION)
10960 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90024 (Address of
registrant's principal executive offices)
(310) 235-5100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of Registrant's voting stock held by non-affiliates:
NOT APPLICABLE
Number of shares of common stock outstanding as of September 20, 1999:
15,840,000 shares of Class B Common Stock; 160,000 shares of Class A Common
Stock
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PART I
ITEM 1. BUSINESS
OVERVIEW
The Company is a fully integrated global family and children's
entertainment company that produces, broadcasts and distributes live-action and
animated family and children's television programming. The Company's principal
broadcast operations comprise (i) the Fox Family Channel, one of the top 10 most
widely distributed cable television networks in the United States and one which
provides family-oriented entertainment programming reaching approximately 95% of
all cable and satellite television households, (ii) the Fox Kids Network, one of
the leading children's (ages 2-11) oriented broadcast television networks in the
United States, and (iii) a growing portfolio of Fox Kids branded cable and
direct-to-home ("DTH") satellite channels with approximately 22 million
subscribers operating in approximately 39 countries and 13 languages worldwide
(the "Fox Kids International Networks"). The Company's production and
distribution operations comprise Saban Entertainment, Inc. ("Saban"), whose
library of approximately 5,800 half-hours of completed and in-production
children's programming is among the largest in the world (the "Fox Family Kids
Library"). By combining a widely distributed cable platform, a top-rated
broadcast network, one of the world's largest children's programming libraries,
and the Fox Kids branded international channels, the Company has the ability to
manage family and children's properties and brands from their creation through
production, distribution and the merchandising of related consumer products.
The Company is the result of the joint venture launched in 1995 by Fox
Broadcasting Company ("Fox Broadcasting") and Saban to match the complementary
programming and broadcasting strengths of the Fox Kids Network and the
international reach of Fox Broadcasting's parent company, The News Corporation
Limited ("News Corp."), with the development, production, distribution and
merchandising strengths of Saban. In September 1997, the Company completed the
acquisition (the "IFE Acquisition") of International Family Entertainment, Inc.
("IFE"), whose principal business is the Fox Family Channel, the successor to
The Family Channel. The IFE Acquisition provides the Company with several
strategic advantages, including (i) a widely distributed cable platform, which
reaches approximately 75.3 million viewers, or approximately 95% of all U.S.
cable and direct broadcast satellite ("DBS") homes, providing an effective means
for more vigorous competition with other family- and children's-oriented cable
services, (ii) an additional outlet for Saban's existing children's programming
library, (iii) increased awareness in the children's (ages 2-11) target market
through expanded hours, increased brand exposure and additional licensing and
merchandising opportunities and (iv) cross-promotional opportunities with the
Fox Kids Network.
While maintaining the family image and general entertainment format of the
channel, the Company reformatted The Family Channel on August 15, 1998 as the
"Fox Family Channel" with a new schedule, look, marketing campaign and on-air
packaging designed to appeal to the adult 18-49 demographic during primetime and
evenings and to children during the day. From 7 a.m. to 6 p.m., the Fox Family
Channel telecasts programming targeted principally to children. From 6 p.m. to
11 p.m. and from midnight to 1 a.m., the Fox Family Channel telecasts
programming intended to appeal to families aged 18-49 and carries advertising
sold on the basis of adult demographics. Prime time programming consists
principally of new original productions produced or co-produced by the Company
and original and library product licensed from independent suppliers. Some of
the original programming developed for prime time includes CLIFFHANGERS,
EXTRAORDINARY WORLD OF ANIMALS, LIFE, CAMERA, ACTION!, SHOW ME THE FUNNY, RANDOM
ACTS OF COMEDY and THE NEW ADDAMS FAMILY series. Children's programming for the
Fox Family Channel is taken principally from the Company's library, with
selected productions acquired from independent suppliers, much of which has not
previously been broadcast in the United States.
The Company also owns and operates the Fox Kids Network, one of the leading
U.S. children's broadcast television networks, which broadcasts 14 hours of
children's programming each week to 97% of U.S. television households, the
broadest reach of any network targeting children. The Fox Kids Network was
formed by Fox Broadcasting and most of Fox Broadcasting's affiliates to provide
children's programming weekdays and Saturday
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mornings. The Fox Kids Network affords advertisers the opportunity to reach
children in a cost-effective manner, in part by ensuring consistent nationwide
placement of their advertisements by generally broadcasting its programming at
the same local time and on the same day ("day-and-date") in each television
market. The Fox Kids Network's advertising customers include virtually every
major children's advertiser.
The Company, through its Saban subsidiary, creates, produces and acquires
quality animated and live-action children's television programming with
brand-name characters and elements which are either widely known to children,
such as the MIGHTY MORPHIN POWER RANGERS ("POWER RANGERS") and X-MEN, or which
are or have been developed or purchased due to their likelihood of maturing into
popular brands. The Company will produce, finance or co-finance approximately
432 episodes of children's television programming for the 1999/2000 broadcast
season. The Company generally retains worldwide rights to its brands, and
currently has over 300 licensees worldwide, including toy companies Bandai
America, Inc. ("Bandai"), Playmates Toys, Inc., Hasbro, Inc. ("Hasbro") and
Tiger Electronics, Inc. One of the most attractive attributes of the Company's
children's programming is its "portability," in that it generally can be
modified at modest cost and resold for exhibition in other countries through
editing and dubbing into other languages. The Company currently distributes its
children's programming in most major television markets throughout the world.
Over the past two years, the Company has aggressively pursued a strategy of
launching Fox Kids branded cable and DTH channels in Europe and Latin America.
These channels are either fully owned and operated by the Company or in
conjunction with local partners. Much of the children's programming owned by the
Company is globally recognized and easily transportable, requiring only dubbing
which can be done at minimal cost. The Company has therefore been able to
efficiently leverage the potential of its content to expand its international
distribution outlets. The Fox Kids International Networks currently reach in the
aggregate over 22 million subscribers in Europe and Latin America.
Taking advantage of the emergence of digital television transmission, during
the fiscal year ending June 30, 2000 ("Fiscal 2000") the Company will launch two
new U.S. digital cable networks. In June 1999, two websites catering
specifically to boys (WWW.BCHANNEL.COM) and girls (WWW.GCHANNEL.COM) were
successfully launched and later in Fiscal 2000, the boyzChannel and the
girlzChannel will begin cable distribution. The boyzChannel and girlzChannel
will be full-time satellite networks. Programmed with original and exclusive
material, these two networks will offer boys and girls, respectively, a place of
their own on television. The daytime programming on each of these channels will
target ages 2-14, with evening programming targeting parents.
PROGRAMMING
The Company creates, produces and acquires quality family and children's
television programming. The Company has a library of approximately 4,300 hours
of completed family programming and made-for-television-movies. In addition, the
Fox Family Kids Library of approximately 5,800 half-hour episodes of completed
and in-production children's television programming is one of the largest
children's libraries in the world. The principal programming objective of the
Company is to develop or acquire appealing characters and concepts that can be
commercially exploited throughout the world through broadcast network and cable
television exhibition, home video sales, licensing and merchandising.
FOX FAMILY CHANNEL PROGRAMMING. On August 15, 1998, the Company debuted the
Fox Family Channel with a completely revamped programming schedule. The daytime
current lineup features a variety of original, acquired and library product
targeted to children, ages 2-11, with animated series including ROTTEN RALPH,
THE THREE FRIENDS & JERRY SHOW, WEIRD-OHS and THE KIDS FROM ROOM 402, live
action series such as I WAS A SIXTH GRADE ALIEN, BIG WOLF ON CAMPUS and GREAT
PRETENDERS, scheduled Monday through Friday from 7 a.m. - 6 p.m., and Saturday
and Sunday from 7 a.m. - 4 p.m. During the prime time hours of 6 p.m. - 11 p.m.
and from midnight to 1 a.m., Fox Family Channel provides programming which is
family-friendly but targeted primarily to the 18-49 demographic. With an
emphasis on original programming, the Fox Family Channel provides such new
series as RANDOM ACTS OF COMEDY, EXTRAORDINARY WORLD OF ANIMALS, FAMOUS
FAMILIES, WORLD GONE WILD and EXPLORING THE UNKNOWN. The Fox Family Channel also
programs between 10 and 12 original movies per year, with at least one original
film such as
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AU PAIR, MICHAEL JORDAN: AN AMERICAN HERO and DON'T LOOK BEHIND YOU airing
every month. The original movie, AU PAIR, which aired August 22, 1999, attracted
the largest single viewing audience in the entire history of the Channel.
Original specials will also become a signature of the network, with shows
including the WORLD MAGIC AWARDS and FOX FAMILY CHANNEL PRESENTS THE NOBEL PEACE
CONCERT regularly scheduled.
CHILDREN'S PROGRAMMING. The two principal sources of the Fox Family Kids
Library are (i) television series that have been originally produced by the
Company through its Saban subsidiary for broadcast in the United States and
internationally (approximately 2,400 half-hours) and (ii) children's programming
produced by others for which the Company has acquired various distribution
rights (approximately 3,400 half-hours). Of the Fox Family Kids Library,
including episodes in production as of June 30, 1999, approximately 1,500
half-hours are original co-produced programming that meet applicable European
content requirements and are intended for initial broadcast in Europe. In
January 1997, the Company obtained from FOX Television, a division of Fox
Entertainment Group, Inc. ("FOX Television") the distribution rights to the New
World Communications Group Incorporated's ("New World") animation library of
approximately 500 half-hour episodes. In July 1998, the Company agreed to
acquire the New World animation library from FOX Television.
The Company's international programming includes worldwide distribution
rights to a 445 half-hour episode library of family oriented programming
acquired in the April 1996 acquisition of Paris-based Creativite &
Developpement, S.A. ("C&D"), a leading European producer of family
entertainment, and a 712 half-hour episode library of animated children's
programming acquired in the April 1996 acquisition of Vesical Limited. The
Vesical library includes non-U.S. rights to classic series such as INSPECTOR
GADGET, HEATHCLIFF and DENNIS THE MENACE.
CREATION AND DEVELOPMENT OF PROGRAMMING
The Company has and will continue to pursue ideas and properties for
original production from a number of sources. For example, the Company may
acquire production, distribution and possibly other rights to an existing
property (such as Marvel's SPIDERMAN AND AVENGERS, Francine Pascal's SWEET
VALLEY HIGH and THE NEW ADDAMS FAMILY) or series (such as Scholastic/Protocol's
GOOSEBUMPS), develop internally a new property based on an existing public
domain property (such as SABAN'S ADVENTURES OF OLIVER TWIST) or create or
acquire an entirely new idea or character (such as XYBER 9 and THE SECRET FILES
OF THE SPY DOGS).
The Company also maintains a state-of-the-art post-production facility in
Los Angeles, California. The Company records all of the music for its
programming and edits and adds audio and sound effects to its programming. The
Company also produces most of the on-air promotions, sales films and public
service announcements for the Fox Family Channel and the Fox Kids Network.
The Company owns a full-service animation studio in Paris which develops
children's programming containing content that meets the local content
requirements of various European countries for local broadcast television. The
Paris studio has produced approximately 408 half-hours of children's programming
since its inception in 1990 through June 30, 1999. In general, the Company
enters into strategic co-production alliances to develop its French and European
content programming.
INTERNATIONAL SALES OF PROGRAMMING
Much of the Company's children's programming is distributed on a worldwide
basis. The Company believes that by owning and controlling the international
distribution rights to its programming, in addition to generating significant
revenue from the sale of its programming, it can also establish an international
presence for the Company and its properties.
The Company is currently party to distribution arrangements with
international television broadcasters and distributors to exhibit and distribute
the Company's children's programming to over 375 terrestrial, cable and
satellite distribution platforms in approximately 100 countries. These
distribution arrangements accounted for approximately $141 million, or 22% of
the Company's consolidated revenues for the fiscal year ended June 30,
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1999. For example, in January 1996, the Company entered into a distribution
agreement with ARD, the largest broadcaster in Germany, pursuant to which the
Company granted rights to at least 24 two-hour movies for television
("telefilms"), six co-produced animated children's program series (consisting of
JIM BUTTON, WUNSCHPUNSCH, WALTER MELON, THE WHY WHY FAMILY, PRINCESS SISSI and
SABAN'S ADVENTURES OF OLIVER TWIST), any coproduced series based on German
author Michel Ende's stories for which the Company controls the rights and 390
half-hour episodes of other children's animated programs. In addition, in
September 1997, a separate agreement was entered into with ARD to co-produce
four disaster genre television motion pictures, including EARTHQUAKE IN NEW
YORK, VOYAGE OF TERROR, FREEFALL, and HEAVEN'S FIRE.
DISTRIBUTION OUTLETS
The Company distributes its own programming, as well as the programming of
others, throughout the United States and in major markets throughout the world.
The Company is uniquely positioned as a distributor as a result of its strategic
relationship with Fox Broadcasting and News Corp. and by reason of its large
programming library. The Company owns three distribution outlets: the Fox Family
Channel, the Fox Kids Network and the Fox Kids International Networks.
THE FOX FAMILY CHANNEL
The Fox Family Channel is a basic cable network that provides
family-oriented entertainment and informational programming to approximately 95%
of all U.S. cable and satellite television households. The Company debuted the
Fox Family Channel in August 1998 with a new schedule, look, marketing campaign
and logo. The new format includes daytime programming for children followed by
evening programming targeting adults, but which is suitable for the entire
family. Evening programming includes original series, specials and movies
produced and licensed to the Fox Family Channel, as well as programs originally
televised on the major broadcast networks. Currently, the Fox Family Channel's
programs are transmitted 24 hours a day via satellite from the Fox Television
Network Broadcast Center's uplink facility in Los Angeles, California.
In general, pursuant to the Fox Family Channel's affiliation agreements,
each cable system operator or other delivery service distributing the Fox Family
Channel agrees to pay the Company a monthly fee per subscriber. The Fox Family
Channel affiliation agreements are generally three, five or ten years in
duration and provide for annual per subscriber rate increases. Increases in per
subscriber fees and, to a lesser extent, increased household penetration have
generated growth in the Fox Family Channel subscriber fee revenue. In addition,
the Fox Family Channel earns revenue through the sale of advertising spots.
PROGRAMMING. From Monday-Friday, the Company airs children's programming on
the Fox Family Channel from 7 a.m.-9 a.m. and 11 a.m.-6 p.m., with programming
gradually targeted to older children during the day. The Company targets
programming toward families aged 18-49 from 6 p.m.-8 p.m. and features a movie
each weekday evening from 8 p.m.-10 p.m. Following the movie, the Company will
air original series. The weekend schedules include children's programming from 7
a.m.-5 p.m. and comedy series, original movies and specials from 5
p.m.-midnight.
TRANSMISSION FACILITIES. With the reformat of the Fox Family Channel in
August 1998, the Company began transmitting all programming for the Fox Family
Channel from the Fox Television Network Broadcast Center located in Los Angeles,
California, by means of an earth station transmitting antenna (an "uplink"). The
uplink facility transmits the programming signal to a transponder on an orbiting
satellite, which in turn retransmits the signal to cable systems operators, DBS
services and other alternative delivery services. Programming is transmitted
using two separate "feeds" (one for the eastern, central and certain mountain
time zones and another for all other mountain time zones and the pacific time
zones) which are transmitted to two different satellite transponders. The
Company owns the transponders for these two feeds as well as a transponder on a
third satellite. All of the Company's owned transponders have "protected"
status. "Protected" status means that should the transponder fail, service will
be transferred to a spare transponder.
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FOX KIDS NETWORK
The Fox Kids Network, launched in September 1990, was the first television
network to broadcast children's programs during the week (Monday through Friday)
as well as on Saturday. The guiding philosophy of the Fox Kids Network is to
provide a diverse slate of quality entertainment targeted toward children. The
Fox Kids Network broadcasts 14 hours of programming per week; four hours on
Saturday mornings, and two hours each weekday afternoon. One half-hour of
programming each week is dedicated to educational programming for children.
Prior to September 1999, the Fox Kids Network broadcast 19 hours each week,
including one hour each weekday morning (the "Morning Block"). The Morning Block
was returned to the affiliates to program for a minimum of two years in exchange
for additional advertising spots during the remaining 14 hours per week of Fox
Kids Network programming. In addition, the Fox Kids Network agreed to provide an
optional 2 1/2 hours of educational programming to affiliates free of charge to
be broadcast in non-Fox Kids Network time periods. The revenue generated from
the additional advertising spots will more than offset the lost revenues from
the Morning Block.
Now in its tenth broadcast season, the Fox Kids Network currently is carried
by 182 television stations affiliated with the Fox Kids Network (the "Fox Kids
Network Affiliates"), 168 of which are affiliated with the FOX Television Member
Stations including 11 currently owned and operated by FOX Television (the "Fox
O&O's"). The Fox Kids Network Affiliates reach approximately 97% of all U.S.
television households. The Fox Kids Network produces and acquires programs,
markets and promotes these programs, makes its schedule available to its Fox
Kids Network Affiliates and sells network advertising. The Company
cross-promotes the Fox Kids Network through the Fox Family Channel, the Fox Kids
Club, FOX KIDS quarterly magazine, Fox Family Countdown radio show and Fox Kids
website.
RATINGS. The Fox Kids Network is measured by Nielsen in terms of ratings
and share points. For the 1998-1999 broadcast season, the potential viewing
universe of children in the United States was estimated to be 39 million. Each
ratings point represents 1.0% of these children who are watching television
during a particular time slot. For the 1998-1999 broadcast season to date
(September 12, 1998-September 12, 1999), the Fox Kids Network averaged a 1.8
rating Monday-Friday, a 2.8 rating on Saturday mornings and a 2.0 rating
Monday-Saturday during the hours it broadcasts.
FOX KIDS AFFILIATION AGREEMENTS. The Company's affiliation agreements with
the Fox Kids Network Affiliates expire over the next one to ten years and there
can be no assurance that they will be renewed.
In July 1998, the financial arrangements between the Fox Kids Network and
the Fox Kids Network Affiliates were changed. The new agreement provides that
all of the Fox Kids Network Affiliates will receive from the Company beginning
July 1, 1998 an aggregate amount of approximately $15.0 million per year for
five years in exchange for (i) guaranteed clearance of Fox Kids programming in
its current time period for ten years, (ii) relinquishment of any participation
in the current or future profits of the Fox Kids Network, and (iii) additional
allocation of promotional advertising spots for the next three and one-half
years. All current primary Fox Kids Network affiliates operate under this
agreement.
FOX KIDS INTERNATIONAL NETWORK
The Company believes that it is positioned strategically, particularly
through its relationship with News Corp., to take advantage of growth in
international DTH satellite and cable television services and the resulting
increase in demand for television programming. To date, the Company has launched
eight branded Fox Kids channels in 39 countries in 13 languages, which are
distributed via DTH satellite and cable in the United Kingdom, France, the
Netherlands, the Nordic countries, Poland, Spain, Latin America, including
Central and South America and the Caribbean, and Central and Eastern Europe. The
Company is in active discussions and negotiations to launch additional Fox
branded family oriented channels and Fox Kids branded children's oriented
channels in other countries throughout the world, with particular emphasis in
Italy and Germany. The Company's objective is to
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become the leading operator of international family and children's channels by
creating fully localized Fox Kids or Fox branded channels in every major
territory.
DIGITAL CHANNELS/INTERNET
Taking advantage of the emergence of digital television transmission, during
Fiscal 2000 the Company will launch two new U.S. digital cable networks. In June
1999, two websites catering specifically to boys (WWW.BCHANNEL.COM) and girls
(WWW.GCHANNEL.COM) were successfully launched and later in Fiscal 2000, the
boyzChannel and the girlzChannel will begin cable distribution. The boyzChannel
and girlzChannel will be full-time cable/satellite networks. Programmed mostly
with original and exclusive material, these two networks will offer boys and
girls, respectively, a place of their own on television. The daytime programming
on each of these channels will target ages 2-14, with evening programming
targeting parents. The Company intends to expand its websites to target children
with information, promotions and eventually, e-commerce.
ADVERTISING
The extensive reach of the Fox Family Channel and Fox Kids Network affords
advertisers substantial day-and-date capacity to conduct nationwide advertising
campaigns. Substantially all of the revenues of the Fox Kids Network are derived
from national network advertising sales, and approximately 54% of the Fox Family
Channel's revenues are derived from national advertising sales. For the year
ended June 30, 1999, the Company's domestic revenues from advertising were
approximately $249 million, or 39% of consolidated revenues. One of the
Company's objectives with the new schedule on the Fox Family Channel is to reach
viewers in demographics that are attractive to advertisers. The Company also
derives revenues from program sales which consist of sales of program length
periods of time for infomercials which currently air during certain portions of
the 1:00 a.m. to 7:00 a.m. time block on the Fox Family Channel.
MERCHANDISING AND LICENSING
The Company capitalizes on its popular characters and properties by entering
into licensing agreements with manufacturers and retailers of children's
products. Under these agreements, the Company seeks to earn revenue from the
sale of products while limiting the costs and risks associated with
manufacturing, distributing and marketing merchandise. For the year ended June
30, 1999, the Company's licensing and merchandising activities represented
approximately 4% of the Company's consolidated revenues. The revenue derived
from licensing and merchandising depends not only on the success, recognition
and appeal of a character, but also on the quality and extent of the marketing,
product development and retail efforts of the Company and its licensees. Sales
of licensed products also help the Company's shows by promoting the Company's
brands and characters. This in turn reinforces the strength of the Company's
distribution platform.
The Company has entered into merchandise license agreements with a number of
toy manufacturers pursuant to which the manufacturers are given the right to
create, manufacture and develop products representing characters from the
Company's series. For example, the Company has toy licenses with Bandai,
covering POWER RANGERS, BEETLEBORGS, MYSTIC KNIGHTS OF TIR NA NOG and XYBER 9,
and with Hasbro, covering NASCAR RACERS (a NASCAR-based property). According to
industry sources, POWER RANGERS is the largest selling action figure of the
1990's. These licenses generally grant the exclusive right to manufacture and
sell toys based upon the characters and other creative elements in the licensed
series. Pursuant to these agreements, the Company generally receives an up-front
advance that is non-refundable but is credited against royalties, generally
based on a percentage of net sales of the licensed product. The Company also
retains approval rights regarding advertising, packaging and the quality of its
licensed product, as well as continued ownership of the copyright and trademark.
The Company has licensing arrangements in place with over 300 different
licensees worldwide for consumer products targeting children, such as toys,
apparel, publishing, software, dinnerware/lunch boxes, watches, bedding and soft
vinyl goods, such as boots, backpacks and raincoats. Merchandise based on the
Company's characters and properties is sold in approximately 60 countries
throughout the world.
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HOME VIDEO AND TELEFILMS
HOME VIDEO. The Company grants home video distribution rights to
manufacture and distribute video cassettes based upon its television
programming. Through agreements with Twentieth Century Fox Home Entertainment,
Inc. ("Fox Video"), the Company distributes throughout the world its television
programs produced, owned or controlled by Saban or the Fox Kids Network. The
Company receives royalties from the sale of home video cassettes of its
television programming.
TELEFILMS. Historically, prior to the acquisition of the Family Channel, the
Company acquired international distribution rights to several telefilms ranging
from 12 to 15 motion pictures per year. While the Company occasionally acquired
U.S. rights to these films, the primary objective of acquiring telefilms was to
complement the Company's international children's programming sales activities.
With the acquisition of The Family Channel, the Company increased the number of
telefilms produced or acquired to 23 motion pictures for the year ended June 30,
1999. Further, whenever possible, the Company will acquire worldwide rights to
these features. These films are typically targeted at prime time audiences and
consist of family films, dramas, thrillers and action/adventure features. The
Company intends to air these features on the Fox Family Channel and to
distribute these features internationally to television broadcasters and home
video distributors.
THE STRATEGIC ALLIANCE WITH FOX/NEWS CORP.
News Corp., along with its subsidiaries, including the Fox Entertainment
Group, is a diversified international communications company principally engaged
in the production and distribution of motion pictures and television
programming, television broadcasting, the publication of newspapers, magazines,
books and free standing inserts, computer information services, and digital
broadcasting systems. Fox Entertainment Group owns 100% of Fox Broadcasting
Company. As of August 19, 1999, FOX Television had 180 prime time primary
television station affiliates and one prime time secondary television station
affiliate across the United States, including 22 Fox O&O's, reaching over 97% of
U.S. television households. Each television station affiliate is a party with
Fox Broadcasting to an affiliation agreement which governs the terms of the
relationship between them.
The Fox Kids Network is distributed over the same broadcast facilities as
FOX Television. In December 1995, Fox Broadcasting and certain of its affiliates
(the "Fox Parties") entered into a long-term strategic alliance with the Company
for the mutual support of the Fox Parties and the Company in the children's
entertainment business. Set forth below is a summary of certain of the material
portions of the relevant strategic alliance provisions contained in the Asset
Assignment Agreement (the "Asset Assignment Agreement"), pursuant to which the
Fox Parties assigned, effective as of June 1, 1995, certain assets and interests
to the Company.
LICENSE OF "FOX" NAME. The Fox Parties granted to the Company the perpetual
exclusive right to use the name "Fox" in conjunction with the words "Kids,"
"Kid" or "Children" in the United States and agreed not to use or license the
name "Fox" to others for similar purposes. The Fox Parties separately granted to
certain of the Company's non-United States affiliated subsidiaries similar
rights to the territories outside the United States.
NEW SERVICES AND OTHER NONCOMPETITION PROVISIONS. The Fox Parties agreed
not to operate in the United States any broadcast, cable or non-standard
programming service targeted toward children ages 2-11 (a "kids' service") other
than the Fox Kids Network. If the Fox Parties at any time determine to acquire a
new kids' service anywhere else in the world, which kids' service would bear the
"Fox" name, they are required to provide the Company with a right of first
refusal to acquire and own that new kids' service. Moreover, should the Fox
Parties or any of their affiliates at any time acquire a television, cable or
satellite network or any other business which includes a kids' programming
service, the Fox Parties will be required to offer the Company the right to
acquire and own that kids' service.
FIRST RIGHT TO FOX PARTIES ORIGINATED PROGRAMMING. The Fox Parties have
agreed to provide the Company with the first right to acquire first run
exhibition rights to any new programming suitable for a kids' service ("kids'
programming") prior to its sale or license to any third party; however, the Fox
Parties may freely license kids'
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programming to any broad based entertainment network (which is not a kids'
service) for prime time or late night broadcast and programming derived from
properties (such as THE SIMPSONS) not originally launched on the Fox Kids
Network.
COMPETITION
The businesses in which the Company engages are highly competitive. Each of
the Company's primary business segments are subject to competition from
companies which, in some instances, have greater production, distribution and
capital resources than those of the Company.
PROGRAMMING. The Company competes on the basis of relationships and pricing
for access to a limited supply of facilities and creative personnel to produce
its programs. The Company competes with major motion picture studios, such as
Warner Bros. and The Walt Disney Company, and animation production companies,
including Hanna Barbera, Film Roman and Klasky Cuspo, for the services of
writers, producers, animators, actors and other creative personnel and
specialized production facilities.
DISTRIBUTION OUTLETS. In the United States, the Company competes for
ratings and related advertising revenues. The Company currently competes through
the Fox Kids Network and the Fox Family Channel, with the other broadcast
television networks, public television and cable television channels, such as
USA Cable Network, Turner Network Television ("TNT"), The Cartoon Network and
Nickelodeon for market acceptance of its programming and for viewership ratings
and related advertising revenues. To the extent that the Company produces
original programming for distribution outlets it does not own, it competes with
other producers of children's programming. Internationally, the Company competes
with a large number of U.S.-based and international distributors of children's
programming, including The Walt Disney Company, Warner Bros. and Nickelodeon, in
the development or acquisition of programming expected to appeal to
international audiences. Such programming often must comply with foreign
broadcast rules and regulations, which may stipulate certain minimum local
content requirements.
DIGITAL CHANNELS. When the Company launches its digital cable networks in
Fiscal 2000, the Company will compete in a rapidly developing area of the
entertainment industry against companies that may have greater financial
resources and technical expertise in the area.
INTERNET. As the Company expands its websites and internet business, the
Company will compete with companies with substantially greater internet
presence, financial, technical, marketing and other services.
More generally, the Company competes with various other leisure-time
activities such as home videos, movie theaters, personal computers and other
alternative sources of entertainment and information.
GOVERNMENT REGULATION
Certain aspects of the Company's operations are subject, directly or
indirectly, to federal, state, and local regulation. At the federal level, the
operations of cable television systems, satellite distribution systems, other
multichannel distribution systems, broadcast television stations, and, in some
respects, vertically integrated cable programmers are subject to the
Communications Act of 1934, as amended, the Cable Communications Policy Act of
1984 (the "1984 Act"), the Cable Television Consumer Protection and Competition
Act (the "1992 Act"), and the Telecommunications Act of 1996 (the "1996 Act")
and regulations promulgated thereunder by the Federal Communications Commission
(the "FCC"). Cable television systems are also subject to regulation at the
state and local level. See "--State and Local Regulation."
The following does not purport to be a summary of all present and proposed
federal, state and local regulations and legislation relating to the
broadcasting and cable television industries and other industries involved in
the video marketplace; rather it attempts to identify those requirements that
could affect the Company's business. Also, other existing legislation and
regulations, copyright licensing, and, in many jurisdictions, state and local
franchise requirements, are currently the subject of a variety of judicial
proceedings, legislative hearings and administrative and legislative proposals
which could affect, in varying degrees, the manner in which the broadcasting and
cable television industries and other industries involved in the video
marketplace operate.
Page 9
<PAGE>
FEDERAL REGULATIONS AND LEGISLATION
The broadcast stations and cable systems that distribute the Company's
programming must comply with the provisions of the Children's Television Act of
1990 ("CTA") and the rules and policies of the FCC pertaining to television
programs directed to children, particularly with respect to the amount and type
of commercial matter broadcast during such programs. Failure to comply with the
children's television commercial limitations can result in the imposition of
sanctions, including substantial monetary fines, on a broadcast television
station or cable system, which could adversely impact the Company.
Under FCC license renewal "processing guidelines" promulgated under the CTA,
broadcast television stations are required to broadcast at least three hours per
week, averaged over a six-month period, of programming that furthers the
educational and informational needs of children 16 and under ("Core
Programming"). Core Programming has been defined as educational and
informational programming that, among other things, (i) has serving the
educational and informational needs of children "as a significant purpose," (ii)
has a specified educational and informational objective and a specified target
child audience, (iii) is regularly scheduled, weekly programming, (iv) is at
least 30 minutes in length and (v) airs between 7:00 a.m. and 10:00 p.m. Any
station that satisfies the processing guideline will receive FCC staff-level
approval of the portion of its license renewal application pertaining to the
CTA. Alternatively, a station may qualify for staff-level approval even if it
broadcasts "somewhat less" than three hours per week of Core Programming by
demonstrating that it has aired a weekly package of different types of
educational and informational programming that is "at least equivalent" to three
hours of Core Programming. At the present time, the Company makes at least three
hours per week of Core Programming to the Fox Kids Network Affiliates available,
thereby enabling them to fulfill their obligations under the CTA.
The 1996 Act took effect in February 1996, altering the network of federal,
state, and local laws and regulations pertaining to telecommunications providers
and services. To the extent the 1996 Act fosters greater competition for the
provision of multichannel video services to individual subscribers, the Company
should generally be impacted either neutrally or advantageously, as additional
providers are additional potential customers for the Company. The FCC is in the
process of promulgating rules interpreting and implementing the provisions of
the 1996 Act. At this time, it is impossible to state with precision the full
impact the 1996 Act will have on the Company.
The 1992 Act subjected all cable television operators not subject to
"effective competition" to rate regulation. Rate regulation under the 1992 Act
resulted in a reduction of rates to some subscribers in some markets. The 1996
Act phased out cable rate regulation on March 31, 1999, except with respect to
the "basic" tier (which must include all local broadcast stations and public,
educational and governmental access channels, and must be provided to all
subscribers). In response to the 1992 Act and the FCC's implementing
regulations, many cable systems retiered channels to create an attractively
priced basic tier, while offering satellite-delivered programming services such
as the Company's on a different service tier or on an a la carte basis. To the
extent such retiering or repricing of the Company's network induced customers to
discontinue their subscriptions, the Company's financial performance might have
been adversely affected. Deregulation of rates pursuant to the 1996 Act may
reverse such tiering and pricing decisions by cable system operators and,
correspondingly, reverse or ameliorate any adverse effects of the 1992 Act. On
the other hand, to the extent that rate deregulation causes a material increase
in cable rates, the individual subscriber base of the Company could be
decreased, potentially affecting the Company's subscriber revenues.
FCC regulations adopted pursuant to the 1992 Act prevent a cable operator
that has an attributable interest (including voting or non-voting stock
ownership of 5% or more or limited partnership equity interests of 5% or more)
in a programming vendor from exercising undue or improper influence over the
vendor in its dealings with competitors to cable. The regulations also prohibit
a cable programmer in which a cable operator has an attributable interest from
entering into exclusive contracts with any cable operator or from discriminating
among competing multichannel program distributors in the price, terms and
conditions of sale or delivery of programming. With respect to cable systems
having channel capacity of less than 76 channels, the FCC's regulations limit to
40% the number of programming channels that may be occupied by video programming
Page 10
<PAGE>
services in which the cable operator has an attributable interest. As a result
of Liberty Media's ownership interest in News Corp., the Fox Family Channel, the
boyzchannel and the girlzchannel are subject to these requirements. The FCC's
program access and non-discrimination regulations therefore affect the ability
of these programming services to enter into exclusive contracts. The rules also
permit multichannel video programming distributors (such as MMDS, satellite
master antenna televisions ("SMATV"), DBS and DTH operators) to bring complaints
against the Company to the FCC charging they are unable to obtain the affected
programming networks on nondiscriminatory terms. While cable systems are
expanding their capacity, there may be instances in which an AT&T Cable Service
system with 75 channels or less will not be able to carry one or more of the
Company's cable programming services or will have to remove another affiliated
channel.
The 1992 Act subjects cable systems to "must carry" rules, pursuant to which
local broadcast stations may elect to demand carriage. It also provides
favorable channel positioning rights for broadcasters electing to exercise their
must carry rights. The 1992 Act also gives television broadcast stations the
right to withhold consent to be carried by a cable system which may result in a
station receiving compensation for carriage.
The FCC has adopted rules requiring closed captioning of most broadcast and
cable programming on a phased-in basis, beginning in the year 2000. The
broadcast and cable industries have adopted, and the FCC has approved, a
voluntary content ratings system which, when used in conjunction with so-called
"V-Chip" technology, will permit the blocking of programs with a common rating.
The FCC has directed that all television receiver models with picture screens 13
inches or greater be equipped with "V-Chip" technology under a phased
implementation which began July 1, 1999. The Company may be called upon to
provide increased closed captioning to assist in complying with rules
promulgated under the 1996 Act and may be required to provide assistance or
information to establish ratings for its programming. Either of these
undertakings could increase the Company's operating expenses.
ONLINE SERVICES
The Children's Online Privacy Protection Act ("COPPA") prohibits web sites
from collecting personally identifiable information from children under age 13
without prior parental consent. The Federal Trade Commission is expected to
adopt final rules implementing COPPA by late 1999. Online services provided by
the Company may be subject to COPPA requirements. Congress may also consider
online privacy legislation that would apply to personal information collected
from teens and adults.
Congress and the FCC have under consideration, and in the future may
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that may affect, directly or indirectly, the operation, ownership and
profitability of the Company's business. These proposed changes include, for
example, expansion of program access requirements and potential must-carry
rights for digital television broadcast signals (which could limit multi video
program distributions ("MVPDs"') channel capacity available for the Company's
programming). The Company is unable to predict the outcome of future federal
legislation or the impact of any such laws or regulations on its operations.
STATE AND LOCAL REGULATION
Cable television systems are generally constructed and operated under
non-exclusive franchises granted by a municipality or other state or local
governmental entity. Franchises are granted for fixed terms and are subject to
periodic renewal. The 1984 Act places certain limitations on a local franchising
authority's ("LFA") ability to control the operations of a cable operator, and
the courts from time to time have reviewed the constitutionality of several
franchise requirements, often with inconsistent results. The 1992 Act prohibits
exclusive franchises, and allows LFAs to exercise greater control over the
operation of franchised cable television systems, especially in the areas of
customer service and rate regulation. The 1992 Act also allows LFAs to operate
their own multichannel video distribution systems without having to obtain
franchises. Moreover, LFAs are immunized from monetary damage awards arising
from their regulation of cable television systems or their decisions on
franchise grants, renewals, transfers, and amendments.
Page 11
<PAGE>
The terms and conditions of franchises vary materially from jurisdiction to
jurisdiction. Cable franchises generally contain provisions governing time
limitations on the commencement and completion of construction, and governing
conditions of service, including the number of channels, the types of
programming (but not the actual cable programming channels to be carried), and
the provision of free service to schools and certain other public institutions.
The specific terms and conditions of a franchise and the laws and regulations
under which it is granted directly affect the profitability of the cable
television system, and thus the cable television system's financial ability to
carry programming. Local governmental authorities also may certify to regulate
basic cable rates, and continue to exercise rate regulation authority over the
basic tier despite that regulation of other tiers has been eliminated. Local
rate regulation for a particular system could result in resistance on the part
of the cable operator to pay the amount of subscriber fees charged by the
Company for its programming.
Various proposals have been introduced at the state and local level with
regard to the regulation of cable television systems, and a number of states
have enacted legislation subjecting cable television systems to the jurisdiction
of centralized state governmental agencies.
INTERNATIONAL
The Company is also subject to local content and quota requirements in
international markets which, although a significant portion of the Company's
library meets such current requirements in Europe, effectively limit access to
particular markets.
INTELLECTUAL PROPERTY
The Company generally holds copyrights to its owned programming in its
library. Additionally, the Company holds registered trademarks on the various
characters and series contained in its owned programming. The Company also holds
significant rights as licensee of other productions, programming, characters and
series, most of which are subject to copyrights and trademarks owned by the
respective licensors of such properties. The Company considers its owned and
licensed copyrights and trademarks to be of significant value and importance to
the Company's business. Accordingly, the Company's policy is to vigorously
enforce copyrights and trademarks with respect to owned and licensed programming
against unlawful infringement by third parties.
EMPLOYEES
As of June 30, 1999, the Company had 862 full-time and 3 part-time employees
in the United States. Outside the United States, the Company had 239 full-time
and 7 part-time employees. The Company also regularly engages freelance creative
staff and other independent contractors on a project-by-project basis. The
Company believes its relations with its employees are good.
Page 12
<PAGE>
ITEM 2. PROPERTIES
The Company currently leases a total of approximately 218,000 square feet
of office and production space in its headquarters building in Los Angeles,
California under a lease expiring in April 2006, subject to two separate
five-year extension options. The Company also leases a multi-purpose production
facility in Valencia, California under a lease that expires in January 2000. The
Company's Paris operations currently lease 18,430 square feet of office and
production space under a lease expiring February 28, 2008; this lease may be
cancelled by the Company with six months prior notice on February 28, 2003 or
February 28, 2006. The Company also leases approximately 14,500 square feet of
office space for its European headquarters in London, England under a lease
expiring September 30, 2007. This lease may be cancelled after the fifth year
with nine months advance notice. In connection with the IFE Acquisition, the
Company acquired IFE's executive and administrative offices, a sales office and
an affiliate relations office in Virginia Beach, Virginia. The Company also
leases office facilities in other locations throughout the world, none of which
are considered material. The Company believes that its current office and
production space, together with space readily available without material cost in
the markets in which it operates, are adequate to meet its needs for the
foreseeable future.
ITEM 3. 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 position and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not Applicable.
Page 13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND STOCKHOLDER MATTERS
Not Applicable.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company set forth below as
of June 30, 1998 and 1999 and for the fiscal years ended June 30, 1998 and 1999
are derived from the Company's consolidated financial statements audited by
Arthur Andersen LLP, independent public accountants, included elsewhere in this
Report. The selected financial data of the Company set forth below for the eight
months ended June 30, 1996 and the fiscal year ended June 30, 1997 are derived
from the Company's combined financial statements audited by Ernst & Young LLP,
independent auditors.
The selected financial data of Saban set forth below as of May 31, 1995 and
as of October 31, 1995 and for the year ended May 31, 1995 and for the five
months ended October 31, 1995 are derived from Saban's consolidated financial
statements audited by Ernst & Young LLP, independent auditors.
The selected financial data of FCN Holding set forth below as of July 2,
1995 and as of October 31, 1995 and for the year ended July 2, 1995 and for the
four months ended October 31, 1995 are derived from FCN Holding's consolidated
financial statements audited by Ernst & Young LLP, independent auditors.
The financial statements of the Company for the year ended June 30, 1997 are
not comparable to the eight month period ended June 30, 1996 due to the
different lengths of the time periods compared and because neither period
includes the operations of IFE. In addition, the financial statements of the
Company as of and for the year ended June 30, 1998 (which includes the results
of operations of IFE from August 1, 1997) are not comparable to the year ended
June 30, 1997 as the prior period did not include the operations of IFE and the
financial statements of the Company as of and for the year ended June 30, 1999
are not comparable to the year ended June 30, 1998 as the prior period included
only eleven months of the operations of IFE.
Page 14
<PAGE>
The selected financial data presented below and under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" should
be read in conjunction with the consolidated and combined financial statements,
including the notes thereto, appearing elsewhere in this Report.
<TABLE>
THE COMPANY
<CAPTION>
EIGHT MONTHS YEAR ENDED
ENDED JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
1996 JUNE 30, 1997 1998(1) JUNE 30, 1999
(COMBINED) (COMBINED) (CONSOLIDATED) (CONSOLIDATED)
---------------- --------------- ---------------- ---------------
(IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Revenues $ 191,621 $ 307,820 $ 664,458 $ 635,273
Costs and expenses:
Production and programming.................... 107,790 186,575 356,664 315,504
Selling, general and administrative........... 22,562 61,263 141,394 159,973
Depreciation.................................. 510 1,203 9,370 10,083
Amortization of intangible assets............. -- -- 37,557 40,434
------------ ------------ ------------ -----------
130,862 249,041 544,985 525,994
Operating income................................... 60,759 58,779 119,473 109,279
Investment advisory fee............................ 10,000 -- -- --
Equity in loss of unconsolidated affiliate......... -- 1,546 6,790 5,088
Other expense (income), net........................ -- -- 8 (506)
Interest expense, net.............................. 885 2,226 134,002 169,107
------------ ------------ ------------ -----------
Income (loss) before provision for income taxes.... 49,874 55,007 (21,327) (64,410)
Provision for income taxes......................... 18,274 14,567 3,446 1,989
------------ ------------ ------------ -----------
Net income
(loss)............................................. $ 31,600 $ 40,440 $ (24,773) $ (66,399)
============ ============ ============ ===========
OTHER DATA:
Ratio of earnings to fixed charges................. 22:1 11:1 -- --
Deficiency of earnings available to cover fixed
charges....................................... -- -- $ (26,656) $ (68,848)
JUNE 30,
-----------------------------------------
1998 1999
------------------- -------------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $ 82,313 $ 46,858
Programming costs, less accumulated amortization.............. 453,608 538,219
Total assets.................................................. 2,516,024 2,471,874
Long-term obligations (including current maturities).......... 1,749,464 1,840,288
Mandatorily redeemable preferred stock........................ 345,000 345,000
Stockholders' equity (deficit)................................ 30,396 (67,743)
</TABLE>
Page 15
<PAGE>
<TABLE>
SABAN ENTERTAINMENT, INC.
<CAPTION>
FIVE MONTHS
ENDED
YEAR ENDED OCTOBER 31,
MAY 31, 1995 1995
----------------- ----------------
(IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C>
Revenues(2)........................................ $ 242,468 $ 105,130
Costs and expenses:
Production and programming.................... 117,557 42,022
Selling, general and administrative........... 51,894 11,538
--------- ---------
Operating income................................... 73,017 51,570
Interest expense................................... 1,315 539
--------- ---------
Income before provision for income taxes 71,702 51,031
Provision for income taxes......................... 27,027 14,289
--------- ---------
Net income......................................... $ 44,675 $ 36,742
========= =========
MAY 31, OCTOBER 31,
1995 1995
---------------- ----------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 14,584 $ 16,207
Programming costs, less accumulated amortization...... 115,873 118,210
Total assets.......................................... 218,197 207,479
Long-term obligations (including current maturities).. 5,623 5,605
Stockholders' equity.................................. 58,112 94,971
</TABLE>
Page 16
<PAGE>
<TABLE>
FCN HOLDING, INC.
<CAPTION>
FOUR MONTHS
ENDED
YEAR ENDED OCTOBER 31,
JULY 2, 1995 1995
---------------- -------------
(IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C>
Revenues (2)......................................... $ 168,871 $ 46,286
Costs and expenses:
Production and programming...................... 109,259 29,698
Fees and costs to a related party............... 24,713 7,313
Selling, general and administrative............. 5,202 2,566
Fox Kids Network affiliate participations....... 11,523 6,883
--------- --------
Operating income (loss)(3)........................... 18,174 (174)
Interest expense..................................... 1,630 145
--------- --------
Income (loss) before provision for income taxes...... 16,544 (319)
Provision for income taxes........................... -- --
--------- --------
Net income (loss).................................... $ 16,544 $ (319)
========= ========
JULY 2, OCTOBER 31,
1995 1995
--------------- -------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ -- $ 317
Programming costs, less accumulated amortization..... 26,143 27,085
Total assets......................................... 49,816 52,807
Long-term obligations (including current maturities). 10,686 8,727
Stockholders' deficit................................ (3,811) (4,130)
NOTES TO SELECTED HISTORICAL FINANCIAL DATA
- --------------
<FN>
(1) Includes the results of operations of IFE from the date of the acquisition
of a majority interest (August 1, 1997) through June 30, 1998.
(2) Includes revenues recognized by Saban from FCN and by FCN from Saban as set
forth below:
</FN>
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR FIVE MONTHS ENDED FOUR MONTHS ENDED
1995 OCTOBER 31, 1995 OCTOBER 31, 1995
------------------------- ---------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C>
Saban revenues from FCN $ 16,228 $ 9,651 n/a
FCN revenues from Saban $ 14,662 n/a $ 973
<FN>
(3) Under agreements between FCN and Fox Broadcasting, for periods prior to
June 1, 1995, FCN paid administrative and other fees to Fox Broadcasting.
Effective June 1, 1995, Fox Broadcasting assigned to the Company its
rights to such payments accrued thereafter. Amounts expensed under these
agreements were $26.9 million and $9.1 million, for the year ended June
30, 1995 and the four months ended October 31, 1995, respectively.
</FN>
</TABLE>
Page 17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
INTRODUCTION
The Company's current principal operations are conducted through IFE, FCN,
Saban and the Fox Kids International Networks. IFE operates the Fox Family
Channel, one of the top ten most widely distributed cable television networks in
the United States, reaching approximately 95% of all cable and satellite
television households. FCN commenced operations with the launch, in September
1990, of the Fox Kids Network, which is currently one of the top-rated
children's-oriented broadcast television networks in the United States. Saban,
which commenced business in 1983, is currently one of the largest suppliers of
children's television programming in the world. The Fox Kids International
Networks have approximately 22 million subscribers and operate in approximately
39 countries and in 13 languages worldwide.
FCN Holding, Inc. ("FCN Holding"), which indirectly owns FCN, and Saban
entered into a strategic alliance, which included the formation of Fox Kids
Worldwide, LLC ("the LLC") pursuant to agreements entered into on November 1,
1995 (the "Effective Date"). Under the terms of the agreements relating to the
strategic alliance, between November 1, 1995 and August 1, 1997 (the date of the
Reorganization described below), each of Saban and FCN was operated by its
respective management subject to the overall supervision of a governing
committee comprised of an equal number of representatives of each of FCN and
Saban. As a result of the formation of the joint venture and the common
management of the joint venture business, the respective assets, liabilities and
operations of Saban, FCN Holding and the LLC have been combined at historical
cost from and after November 1, 1995.
Fox Family Worldwide, Inc. was incorporated in August 1996 under Delaware
law as a holding company of FCN Holding and Saban. Between August 1996
and August 1997, the Company conducted no business or operations. On August 1,
1997, in connection with the Company's acquisition of a controlling interest in
IFE, (i) Fox Broadcasting Sub, Inc., a wholly owned indirect subsidiary of Fox
Broadcasting ("Fox Broadcasting Sub"), exchanged its capital stock in FCN
Holding, which indirectly owns FCN, for 7,920,000 shares of Class B Common Stock
of the Company, (ii) the other stockholder of FCN Holding exchanged its capital
stock in FCN Holding for an aggregate of 160,000 shares of Class A Common Stock
of the Company, (iii) Haim Saban and the other stockholders of Saban (together,
the "Saban Stockholders") exchanged their capital stock of Saban for an
aggregate of 7,920,000 shares of Class B Common Stock of the Company, and (iv)
all outstanding management options to purchase Saban capital stock became
options to purchase an aggregate of 646,548 shares of Class A Common Stock of
the Company (together, the "Reorganization"). In addition, Fox Broadcasting
exchanged its preferred, non-voting interest in the LLC and its $50 million
contingent note receivable from the LLC for a new subordinated pay-in-kind note
(the "Fox Subordinated Note") from the Company, which accrues interest at the
rate of 10.42%. The payment of principal and interest under the Fox Subordinated
Note are subordinated in right to the obligations of the Company and its
subsidiaries under the Second Amended and Restated Credit Agreement dated as of
October 28, 1997 between certain subsidiaries of the Company and certain banks
(as amended, supplemented or otherwise modified from time to time, the "Amended
Credit Facility") and the indentures relating to the Company's 9 1/4% Senior
Notes and 10 1/4% Senior Discount Notes (collectively, the "Company Notes"),
each dated as of October 28, 1997 between the Company and the Bank of New York,
as Trustee (collectively, the "Indentures").
The Company acquired a controlling interest in IFE on August 1, 1997 and
completed the IFE Acquisition on September 4, 1997. The IFE Acquisition was
accounted for using the purchase accounting method, and, consequently, the
historical financial statements included herein do not reflect the results of
operations of IFE prior to the date the Company first acquired a controlling
interest in IFE. Following the IFE Acquisition, the Company decided that certain
IFE assets unrelated to The Family Channel were not strategic to the Company.
The Company has sold, licensed or otherwise discontinued use of the majority of
these non-strategic assets which generated $72.8 million in revenues and $116.5
million in operating expenses in the twelve month period ended June 30, 1997.
The operations of such businesses have been excluded from operating results.
Page 18
<PAGE>
The financial statements of the Company as of and for the year ended June
30, 1998 (which includes the results of operations of IFE from August 1, 1997)
are not comparable to the year ended June 30, 1997 as the prior period did not
include the operations of IFE. In addition, the financial statements as of and
for the year ended June 30, 1999 are not comparable to the year ended June 30,
1998 as the prior period includes only eleven months of activity for IFE. The
Company has made significant changes to the programming of the Family Channel.
For example, each week the Fox Family Channel now broadcasts programming from 7
a.m. to 6 p.m. targeted principally to children; at the time of its acquisition
by the Company, The Family Channel did not carry any material amounts of
programming targeted to this audience. Because of these changes, results of
operations of IFE in prior periods may not be comparable to results of
operations for future periods.
The following discussion provides information and analysis with respect to
the results of operations reflected in the financial statements included in this
Report, as well as the liquidity and capital resources of the Company. This
discussion should be read in conjunction with the financial statements and
related notes and Item 6, "Selected Consolidated Financial Data" included
elsewhere in this Report.
SIGNIFICANT ACCOUNTING FACTORS
USE OF ESTIMATES
As is industry practice, management has made a number of estimates and
assumptions relating to the amortization of programming costs and the reporting
of assets and liabilities in the preparation of the financial statements
discussed herein. Actual results could differ materially from these estimates.
Management periodically reviews and revises its estimates of future airings and
revenues as necessary, which may result in revised amortization of its
programming costs. Results of operations may be significantly affected by the
periodic adjustments in such amortization.
REVENUE RECOGNITION AND SEASONALITY
Revenues from television programming lease agreements are recognized when
the lease period begins, collectibility is reasonably assured and the product is
available pursuant to the terms of the lease agreement. Advertising revenue is
recognized as earned in the period in which the advertising commercials are
broadcast. For this reason, significant fluctuations in the Company's revenues
and net income can occur from period to period depending upon the availability
dates of programs and advertising revenues. For example, in the United States,
revenues from advertising are normally significantly higher in the fourth
calendar quarter. During the fiscal year ended June 30, 1999, 29%, 28%, 20% and
23% of the Company's consolidated revenues were recognized in the first, second,
third and fourth fiscal quarters, respectively, of that year.
INCREASED INTERNATIONAL FOCUS
In recent years, revenues derived from international operations have become
increasingly significant to the Company, representing 25% of the Company's
consolidated revenues for the fiscal year ended June 30, 1999, as compared to
21% for the fiscal year ended June 30, 1998. As part of its business strategy,
the Company intends to expand its international program production and
distribution activities. Certain of these activities, such as the rollout of new
international channels, may require material marketing and other expenses in
advance of the receipt of related revenues, thereby adversely affecting the
Company's results of operations as these activities are expanded and the
international markets are developed.
Page 19
<PAGE>
RESULTS OF OPERATIONS
THE COMPANY
The following tables set forth, for the periods indicated, certain data with
respect to revenues, and costs and expenses of the Company as a percentage of
total revenue.
<TABLE>
YEARS ENDED JUNE 30,
-------------------------------------------------
1997 1998 1999
------------ ---------------- -------------
(IN THOUSANDS)
Revenues:
<S> <C> <C> <C>
Broadcasting.................................... $ 144,356 $ 423,060 $ 429,610
Production and distribution..................... 163,297 240,538 204,321
Other........................................... 167 860 1,342
------------ ------------- -------------
Total revenues............................. 307,820 664,458 635,273
Costs and expenses:
Production and programming...................... 186,575 356,664 315,504
Selling, general and administrative............. 61,263 141,394 159,973
Depreciation.................................... 1,203 9,370 10,083
Amortization of intangibles..................... -- 37,557 40,434
------------ ------------- -------------
249,041 544,985 525,994
Operating income..................................... 58,779 119,473 109,279
Other expenses:
Equity in loss of unconsolidated affiliate...... 1,546 6,790 5,088
Other expense (income), net..................... -- 8 (506)
Interest expense, net........................... 2,226 134,002 169,107
------------ ------------- -------------
Income (loss) before provision for income taxes...... 55,007 (21,327) (64,410)
Provision for income taxes........................... 14,567 3,446 1,989
------------ ------------- -------------
Net income (loss).................................... $ 40,440 $ (24,773) $ (66,399)
============ ============ =============
</TABLE>
<TABLE>
COSTS AND EXPENSES AS A PERCENTAGE OF TOTAL REVENUES
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------------
1997 1998 1999
------------ ------------- -------------
(IN THOUSANDS)
Costs and expenses:
<S> <C> <C> <C>
Production and programming...................... 60.6% 53.7% 49.7%
Selling, general and administrative............. 19.9 21.3 25.2
Depreciation.................................... 0.4 1.4 1.6
Amortization of intangibles..................... -- 5.6 6.3
------------ ------------- -------------
Total costs and expenses................. 80.9 82.0 82.8
Operating income .................................... 19.1% 18.0% 17.2%
</TABLE>
Page 20
<PAGE>
YEAR ENDED JUNE 30, 1999 COMPARED WITH THE YEAR ENDED JUNE 30, 1998
Revenues for the year ended June 30, 1999 were $635.3 million as compared to
$664.5 million for the year ended June 30, 1998, a decrease of 4.4%. On a pro
forma basis, giving effect to the IFE acquisition as if it had occurred on July
1, 1997, revenues decreased $53.7 million or 7.8%. The actual revenue decrease
of $29.2 million results primarily from lower direct-to-video revenue of $26.4
million and lower domestic revenues associated with the production and
distribution segment of the Company. The market for direct-to-video features is
highly competitive, primarily due to an oversupply of product in the
marketplace. These decreases were offset, in part, by two factors. Revenues for
the Company's broadcast segment increased as a result of subscriber revenue
growth for the Fox Family Channel (the Company acquired a controlling interest
in IFE on August 1, 1997, and only eleven months of activity were included for
the Fox Family Channel for the twelve-month period ended June 30, 1998) while
the international cable channels posted higher revenues as a result of increased
penetration in the marketplace and the launch of additional channels. The
channels currently are broadcast in approximately 39 countries as compared to
only approximately 28 countries in the prior year. These increases were
partially offset by lower domestic cable and network ad sale revenues due to
lower overall ratings as compared to the prior year.
On August 15, 1998, The Family Channel was reformatted 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 reformatting a channel is
challenging and will take time to accomplish. The industry response to the
reformatting has generally been positive. The Company has not lost any cable or
direct broadcast system subscribers as a result of the reformatting and the
distribution of the Fox Family Channel has increased by over 3 million homes
since the reformatting. Since the August 15, 1998 reformat, overall ratings
compared to last year are lower. However, the Company has 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 year ended June 30, 1999 decreased
11.5% to $315.5 million as compared to $356.7 million for the prior year.
Production and programming costs as a percentage of total revenues decreased to
49.7% for the year ended June 30, 1999 from 53.7% for the prior year. The
decreases in production and programming costs are attributable to a number of
factors in the Company's production and distribution segment, including the
decrease in direct-to-video distribution revenues described above, which have
high amortization rates, and lower amortization expense associated with
Company's distribution of domestic syndicated product. In addition, production
and programming costs associated with the Company's broadcast segment also
decreased principally as a result of lower production and programming expense
for the Fox Kids Network, including an approximately $15.9 million one-time
reduction in expense related to the Company's new affiliation agreement.
Selling, general and administrative expenses for the year ended June 30,
1999 increased $18.6 million or 13.1% as compared to the prior year. As a
percentage of total revenues, selling, general and administrative expenses
increased to 25.2% in the current year from 21.3% in the prior year. This
increase is due to a number of factors in the Company's broadcast segment
including one additional month of activity of IFE and various costs ($11.6
million) incurred with the reformatting of the Fox Family Channel and higher
international channel expenses ($5.9 million) as a result of the growth
described above.
Depreciation expense for the year ended June 30, 1999 increased $0.7 million
or 7.6% as compared to the year ended June 30, 1998. As a percentage of total
revenues, depreciation expense increased to 1.6% in the current year from 1.4%
in the prior year. The increase is due to depreciation on property and equipment
additions.
Amortization of intangible assets results from the acquisition of IFE in
August 1997. Twelve months of amortization was taken for the year ended June 30,
1999 as compared to only eleven months in the prior year.
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<PAGE>
The equity in loss of unconsolidated affiliate represents the Company's
portion of the loss generated by TV10 BV, a cable network based in The
Netherlands. The Company acquired its initial interest in TV10 BV in March 1997.
Effective August 1998, as part of a joint venture with a subsidiary of News
Corp., a subsidiary of the Company, Fox Kids Europe Holdings, Inc. ("FKEH"),
contributed its interest in TV10 BV to a U.S. limited liability company ("TV10
LLC") in exchange for a 50% equity interest in the TV10 LLC. The other 50%
equity interest is owned by a subsidiary of News Corp.
Interest expense increased by $35.1 million for the year ended June 30, 1999
as compared to the year ended June 30, 1998. The increase is 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 twelve months ended June
30, 1999 reflects foreign withholding taxes and state income taxes related to
normal recurring business activity. The decrease from the prior year is largely
due to U.S. federal and state income taxes related to IFE for the period before
IFE became part of the Company's U.S. consolidated tax return.
YEAR ENDED JUNE 30, 1998 COMPARED WITH THE YEAR ENDED JUNE 30, 1997
Revenues for the year ended June 30, 1998 were $664.5 million as compared to
$307.8 million for the year ended June 30, 1997, an increase of 115.9%. This
increase is primarily due to higher revenues as a result of the inclusion of
eleven months activity of IFE, a controlling interest in which was acquired on
August 1, 1997. As a result of this acquisition, broadcasting revenues increased
$277.0 million and production and distribution revenues increased $44.6 million
for the year ended June 30, 1998. In addition, production and distribution
revenues increased due to the home video releases of "Casper: A New Beginning"
and "Turbo: A Power Ranger Movie" which contributed $61.7 million in revenues
for the year ended June 30, 1998. There were no comparable video releases in the
prior year. In addition, syndication and other revenues for this same business
segment increased for the year ended June 30, 1998 offsetting the $20.0 million
recognized in the prior year in connection with the settlement and termination
of an output agreement with Warner Bros. Home Video. Total POWER RANGERS revenue
across all business segments (including "Turbo: A Power Rangers Movie") was
$50.5 million for the year ended June 30, 1998 as compared to $70.8 million for
the year ended June 30, 1997. As a result of the acquisition of IFE, the Company
expects that POWER RANGERS will represent a smaller percentage of the Company's
total revenue in the future.
Production and programming costs increased $170.1 million or 91.2% for the
year ended June 30, 1998 as compared to the prior year. This increase is
attributable to the inclusion of eleven months of activity for IFE, which
accounted for $107.8 million ($78.9 attributed to broadcasting while $28.9 is
attributed to production and distribution) of the increase, and the
significantly higher amortization expense associated with the two home video
releases described above. Production and programming expenses as a percentage of
total revenues decreased to 53.7% for the year ended June 30, 1998 from 60.6%
for the year ended June 30, 1997. This decrease is principally due to the
inclusion of IFE which has lower production and programming costs as a
percentage of revenues than the Company has historically experienced. The
Company expects this trend to continue.
Selling, general and administrative expenses for the year ended June 30,
1998 increased $80.1 million or 130.8% as compared to the year ended June 30,
1997. As a percentage of total revenues, selling, general and administrative
expenses increased to 21.3% for the year ended June 30, 1998 from 19.9% in the
prior year. This increase is primarily due to the inclusion of eleven months of
broadcast activity of IFE ($68.2 million) and higher expenses associated with
the Company's international channels ($5.4 million).
In July 1998, the financial arrangements between the Fox Kids Network and the
Fox Kids Network Affiliates were changed. The new agreement provides that all of
the Fox Kids Network Affiliates will receive from the Company beginning July 1,
1998 an aggregate amount of approximately $15.0 million per year for five years
in
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<PAGE>
exchange for (i) guaranteed clearance of Fox Kids programming in its current
time period for ten years, (ii) relinquishment of any participation in the
current or future profits of the Fox Kids Network, and (iii) additional
allocation of promotional advertising spots for the next three and one-half
years. All current Fox Kids Network affiliates operate under this agreement.
Depreciation expense for the year ended June 30, 1998 increased $8.2 million
or 678.9% as compared to the year ended June 30, 1997. As a percentage of total
revenues, depreciation expense increased to 1.4% in the current year from 0.4%
in the prior year. This increase is primarily due to the inclusion of eleven
months of broadcast activity of IFE.
Amortization of intangible assets results from the acquisition of a
controlling interest in IFE in August 1997. Eleven months of amortization was
taken for the year ended June 30, 1998.
The equity in loss of unconsolidated affiliate represents the portion of the
loss generated by TV10 BV, a cable network based in The Netherlands. The Company
acquired its initial interest in TV10 BV in March 1997.
Interest expense increased by $131.8 million for the year ended June 30,
1998 as compared to the year ended June 30, 1997. The increase is due to
interest on the debt incurred in connection with the acquisition of IFE.
The Company's provision for income taxes for the year ended June 30, 1998
reflects foreign withholding taxes and U.S. federal and state income taxes
related to IFE for the period before IFE became part of the Company's U.S.
consolidated income tax return. The effective tax rate, excluding the
amortization of intangible assets, is 21.1% as compared to 26.5% for the twelve
months ended June 30, 1997. The decrease from the prior year is largely due to
interest expense on the acquisition debt incurred by certain domestic
subsidiaries of the Company.
USE OF EBITDA
While many in the financial community consider earnings before interest
expense, taxes, depreciation and amortization of intangible assets ("EBITDA") to
be an important measure of comparative operating performance, it should be
considered in addition to, but not as a substitute for or superior to, operating
income, net income (loss), cash flow and other measures of financial performance
prepared in accordance with generally accepted accounting principles. EBITDA
does not reflect cash available to fund cash requirements, and the items
excluded from EBITDA, such as depreciation and non-film amortization, are
significant components in assessing the Company's financial performance. Other
significant uses of cash flows are required before cash will be available to the
Company, including debt service, taxes and expenditures for production,
distribution and broadcast assets. EBITDA eliminates the uneven effect across
business segments of depreciation and amortization primarily resulting from the
value of intangible assets acquired in business combinations accounted for by
the purchase method of accounting, including the Company's August 1997
acquisition of IFE. The Company's calculation of EBITDA may be different from
the calculation used by other companies and, therefore, comparability may be
limited.
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<PAGE>
The following table sets forth EBITDA for the years ended June 30, 1997,
1998 and 1999:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------
1997 1998 1999
---------- ---------- --------
(IN THOUSANDS)
Revenues:
<S> <C> <C> <C>
Broadcasting.................... $ 144,356 $ 423,060 $429,610
Production and distribution..... 163,297 240,538 204,321
Other........................... 167 860 1,342
----------- ----------- ---------
Total revenues............. 307,820 664,458 635,273
----------- ----------- ---------
EBITDA:
Broadcasting.................... 5,297 117,825 112,921
Production and distribution..... 59,445 57,737 54,314
Other........................... (6,306) (15,960) (12,021)
---------- ---------- --------
58,436 159,602 155,214
----------- ----------- ---------
Other Expenses
Interest expense................ 2,226 134,002 169,107
Depreciation.................... 1,203 9,370 10,083
Amortization of intangibles..... -- 37,557 40,434
----------- ----------- ---------
3,429 180,929 219,624
----------- ----------- ---------
Income (loss) before provision for
income taxes........................ 55,007 (21,327) (64,410)
Provision for income taxes.......... 14,567 3,446 1,989
----------- ----------- ---------
Net income (loss)................... $ 40,440 $ (24,773) $(66,399)
=========== =========== =========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
In September 1997, the Company completed the IFE Acquisition. The total
consideration for the IFE Acquisition was approximately $1.9 billion, including
assumption of debt, and was financed by (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 "NAHI Bridge Note"). In October 1997, the
Company completed an offering (the "Offering") of 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 NAHI Bridge
Note and the balance of $615 million was used to repay indebtedness under the
Company's Old Credit Facility. Approximately $119 million (including accreted
interest) was outstanding under the NAHI Bridge Note at June 30, 1999; however,
no payments are due under the NAHI Bridge Note until March 2008.
In October 1997, as part of the Offering, the Company amended the Old Credit
Facility to 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 June
30, 1999, $50 million was available under the Amended Credit Facility for
additional borrowings.
In June 1999, a subsidiary of the Company entered into a subscription
agreement with Fox Broadcasting pursuant to the terms of which Fox Broadcasting
paid the subsidiary $100 million in exchange for subscription rights for the
non-voting Class B Common Stock of the subsidiary. The stock will be issued to
Fox Broadcasting (subject to certain conditions) in connection with an initial
public offering of the subsidiary's common stock, a private sale of shares of
the capital stock of the subsidiary to an unaffiliated third party, and
subsequent public offerings of the subsidiary's common stock or any subsequent
private sale, until all of the shares of stock subscribed
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<PAGE>
for have been issued. Fox Broadcasting may hold the subscription rights
indefinitely, exchange the subscription rights for a deeply subordinated note
from the Company or exchange the subscription rights for new equity of the
Company at such time as the Company issues a new class of common stock or
preferred stock. In addition, in June 1999 the Company issued a deeply
subordinated note in the principal amount of $25 million to Fox Broadcasting.
The net proceeds from these two transactions were used to repay a portion of the
Amended Credit Facility.
As a result of the IFE Acquisition and the financing transactions described
above, the Company's principal liquidity requirements arise from interest
payments. The Company further anticipates certain seasonal working capital needs
related to the development, production and acquisition of programming, the
financing of accounts receivable and other related operating costs. The Company
on a regular basis has had, and intends to continue to engage in, exploratory
discussions concerning programming and other acquisition opportunities, and any
such acquisition could result in additional capital requirements. Commencing
July 1, 1998 the Company will be obligated to pay to the affiliates an aggregate
of approximately $15.0 million per year for five years in exchange for (i)
guaranteed clearance of Fox Kids programming in its current time period for ten
years, (ii) relinquishment of any participation in the current or future profits
of the Fox Kids Network, and (iii) additional allocation of promotional spots
for the next three and one-half years.
Net cash provided by operating activities of the Company for the year ended
June 30, 1999 was $331.6 million as compared to $315.8 million for the year
ended June 30, 1998, reflecting a full year of IFE activity as compared to
eleven months in the prior year.
Net cash used in investing activities of the Company during the years ended
June 30, 1998 and 1999 was $1.63 billion and $360.1 million, respectively. The
majority of the investing activity for the year ended June 30, 1998 was related
to the IFE Acquisition as described above, additions to production and
programming costs, and purchases of property and equipment. The investing
activities for the year ended June 30, 1999 primarily consisted of additions to
production and programming costs and purchases of property and equipment.
Net cash provided by (used in) financing activities of the Company during
the years ended June 30, 1998 and 1999 was $1.36 billion and ($7.0 million),
respectively. The financing activities for the year ended June 30, 1998
consisted primarily of bank and other borrowings in connection with the IFE
Acquisition, while the activities for the year ended June 30, 1999 consisted
primarily of proceeds from bank and other borrowings offset by dividends related
to the Company's Series A Manditorily Redeemable Preferred Stock and bank loan
paydowns.
The Company's total unrestricted cash balances at June 30, 1999 were $46.9
million.
The Company believes that the $50 million of available borrowings under the
Amended Credit Facility, together with cash flow from operations and cash on
hand and funding from the Company's stockholders, will be sufficient to fund its
operations and service its debt for the foreseeable future.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is effective for all quarters of
fiscal years beginning after June 15, 2000. This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
The Company has currently reviewed this statement and will apply such
provisions as it deems appropriate.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits instead of four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software 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,
Page 25
<PAGE>
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
The Company began its Year 2000 project in June 1998. In November 1998, the
Company 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 consultants, the Company completed its assessment
of the significant software applications and equipment used in the Company's
operations. The Company then substantially completed the modification or
replacement of its software and hardware so that the areas of information
technology and non-information technology will function properly with respect to
dates in the year 2000 and thereafter. The vast majority of this hardware and
software was tested and changes were implemented prior to June 1999. Based upon
its efforts to date, the Company believes that all mission critical hardware and
software has been vendor verified and tested as Year 2000 compliant. The small
percentage of items which remain to be fixed are identified as non-critical and
are on schedule to be completed by the end of the year.
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. The financial impact on the Company of such
third parties not achieving high levels of Year 2000 readiness cannot be
estimated with any degree of accuracy. In the area of business continuity,
technological operations dependent in some way on one or more third parties, the
situation is much less in the Company's ability to predict or control. In
addition, many of the Company's businesses are dependent on third parties that
are themselves heavily dependent on technology. In some cases, third party
dependence is on vendors of technology who are themselves working towards
solutions to Year 2000 problems. In other cases, third party dependence is on
suppliers of products or services that are themselves computer-intensive. The
Company has included in its "mission critical" inventory significant service
providers, vendors, suppliers and customers that are believed to be critical to
business operations. The Company is in various stages of attempting to ascertain
the state of Year 2000 readiness of significant third parties. The Company is
taking steps to attempt to ensure that the third parties on which it is heavily
reliant are Year 2000 ready, but cannot predict the likelihood of such
compliance nor the direct or indirect costs of non-readiness by those third
parties or of securing such services from alternate third parties.
Through June 30, 1999, the Company has incurred approximately $400,000 in
costs related to its Year 2000 readiness program which has been funded from its
operating cash flow. The Company currently estimates that the total costs of its
Year 2000 readiness program will not exceed $750,000. The total cost estimate is
based on the current assessment of the Company's Year 2000 readiness needs and
is subject to change as the program progresses. These costs have not all been
incremental, but rather reflect redeployment of internal resources from other
activities. The Company does not expect the activities of the Year 2000
readiness program to have a material adverse effect on the ongoing business
operations of the Company, although it is possible that certain maintenance and
upgrading processes will be delayed as the result of the priority being given to
Year 2000 readiness.
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 this Form 10-K.
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
Page 26
<PAGE>
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.
FACTORS THAT COULD IMPACT FUTURE RESULTS
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
As of June 30, 1999, the Company's total amount of consolidated debt
(including amounts payable to related parties) outstanding was approximately
$1.84 billion, or 86.9% of total capitalization. The Company is a holding
company and its ability to obtain funds from its subsidiaries and affiliates
could be limited.
The degree to which the Company is leveraged could have important
consequences, including, but not limited to, the following: (i) the Company's
ability to obtain financing in the future for working capital, capital
expenditures or general corporate purposes may be impaired; (ii) a substantial
portion of cash flows from the operation of the Company's subsidiaries will be
dedicated to the payment of the principal of and interest on its debt and will
not be available for other purposes; and (iii) certain of the Company's
borrowings are at variable rates of interest, which could result in higher
interest expense in the event of increases in interest rates. Further, the
Company's Amended Credit Facility and the Indentures contain certain restrictive
financial and operating covenants which affect, and in many respects
significantly limit or prohibit, among other things, the ability of the Company
to incur indebtedness, make prepayments of certain indebtedness, pay dividends,
make investments, engage in transactions with affiliates, create liens, sell
assets and engage in mergers and consolidations. These covenants may
significantly limit the operating and financial flexibility of the Company and
may limit its ability to respond to changes in its business or competitive
activities. The failure by the Company to comply with such covenants could
result in an event of default under the applicable instrument, which could
permit acceleration of the debt under the instrument and in some cases
acceleration of debt under other instruments containing cross-default or
cross-acceleration provisions.
The Company's ability to make scheduled payments of principal or to pay
interest on or to refinance its debt depends on its future financial
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors beyond its
control. Although management believes that cash from operations, together with
available borrowings pursuant to the Company's Amended Credit Facility, will be
adequate to meet the Company's anticipated future requirements for working
capital, capital expenditures and scheduled payments of interest on its debt for
the foreseeable future, this is a forward-looking statement and there can be no
assurance that the Company's business will generate sufficient cash flow from
operations or that future working capital borrowings will be available in an
amount sufficient to enable the Company to service its debt or to make necessary
capital expenditures or other expenditures. Furthermore, there can be no
assurance that the Company will be able to raise additional capital for any
required refinancing in the future. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
RISKS ASSOCIATED WITH HOLDING COMPANY STRUCTURE
The Company is a holding company and its assets consist solely of
investments in its subsidiaries. As a holding company, the Company's ability to
meet its financial obligations and its funding and other commitments to its
subsidiaries is dependent upon the earnings of the subsidiaries and the
distribution or other payment of such earnings to the Company in the form of
dividend distributions, loans or other advances, payment or reimbursement
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<PAGE>
for management fees and expenses and repayment of loans and advances from the
Company. Accordingly, the Company's ability to pay interest on its debt and
otherwise to meet its liquidity requirements may be limited as a result of its
dependence upon the distribution of earnings and advances of funds by its
subsidiaries. The payment of dividends or the making of loans or advances to the
Company by its subsidiaries may be subject to statutory, regulatory or
contractual restrictions, are contingent upon the earnings of those subsidiaries
and are subject to various business considerations. Certain of the Company's
subsidiaries may in the future be subject to loan or other agreements
prohibiting or limiting the transfer of funds to the Company, or requiring that
any indebtedness of such subsidiaries or affiliates to the Company be
subordinate to the indebtedness under such agreements.
ACQUISITION OF IFE
LIMITED CABLE TELEVISION OPERATIONS HISTORY. The IFE Acquisition expanded
the Company's operations into the cable television business, a business in which
it had never before operated. The cable television business is highly
competitive, subject to government regulation and at risk to technological
change. As of August 27, 1999, cable television reached 78.8% of the United
States' television households ("TVHH") compared to 98% for broadcast television
and 8.5% for DTH satellite television. Cable television reaches approximately
30.6 million of U.S. children between the ages of 2-11. In the cable television
market, the Company is subject to competition from other cable television
companies which, in many instances, have greater production, distribution and
capital resources than the cable television operations of the Company.
PROGRAMMING CHANGES AT THE FAMILY CHANNEL. The Company reformatted The
Family Channel as the Fox Family Channel in August 1998. There is no guarantee
that the reformatted channel will retain its existing viewers or attract new
viewers. If the ratings of the Fox Family Channel fail to meet the Company's
expectations, the Company could be materially adversely affected. The household
rating for the Fox Family Channel has dropped 34% since the reformatting,
although in the important adults 18-49 demographic the rating decrease has been
only 18%. In the children's 2-11 demographic, ratings have increased 100% from
the prior year. The Company has experienced improved ratings over the past few
months due to programming changes and increased viewership of its original
movies. The Company acquired IFE with the expectation that the acquisition would
result in synergies for the combined business. These include the potential to
realize a greater return on its children's programming library through
distribution on the Fox Family Channel and operational synergies through the
sale of "packaged advertising," cross-promotional opportunities with the Fox
Kids Network, consolidation of duplicative functions and the elimination of
excess overhead. Achieving these anticipated business benefits will depend in
part on whether the operations of IFE can be integrated with the operations of
the Company in an efficient, effective and timely manner and the success of the
programming changes. In addition, the integration of operations of IFE into the
Company has required the dedication of management resources, which may affect
management's attention regarding the day-to-day business of the Company. The
inability of management to integrate successfully the operations of the
companies could have a material adverse effect on the business, results of
operations and financial condition of the Company.
COMPETITION AMONG INTERNATIONAL CHANNELS
The Company is spending considerable resources on the development of
international DTH and cable children's channels. The launch of channels
throughout the world is particularly capital intensive. In many markets a number
of the Company's competitors already have well established children's channels.
Not only does the Company have to negotiate to obtain channel capacity (which is
limited in many markets), but the Company must also acquire additional
programming or adapt existing programming so that it appeals to local viewers.
POSSIBLE DECLINE IN POPULARITY OF CURRENT PROGRAMS AND UNCERTAINTY OF
ACCEPTANCE OF NEW PROGRAMS
A significant portion of the Company's revenues are derived from the
creation, development, production, acquisition, international distribution,
merchandising and other exploitation of children's television properties. For
the fiscal year ended June 30, 1999, revenues from these sources represented
approximately 44% of the Company's consolidated revenues. As a result of
reformatting The Family Channel as the Fox Family Channel to emphasize
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<PAGE>
children's programming during the day, it is anticipated that future
revenues from children's programming as a percentage of total revenues will
increase. The success of any series depends upon unpredictable and volatile
factors beyond the Company's control, such as children's preferences, competing
programming and the availability of other entertainment activities for children.
A shift in children's interests could cause the Company's current television
programming to decline in popularity, which could materially and adversely
affect the Company's results of operations and financial condition. The ability
of the Company to continue successfully to exploit the merchandising
opportunities afforded by its programs will also be dependent on the favorable
ratings of the programs and the ability of the Company's characters to continue
to provide attractive merchandising opportunities for its licensees. There can
be no assurance as to the continuing commercial success of any of the Company's
currently distributed properties, or that the Company will be successful in
generating sufficient demand and market acceptance for its new properties.
DECLINE IN RATINGS OF FOX KIDS NETWORK
Ratings for the Fox Kids Network among children ages 2-11 decreased 12% from
the 1995-1996 broadcast season to the 1996-1997 broadcast season, 21% from the
1996-1997 broadcast season to the 1997-1998 broadcast season and, based on
figures available to date for the 1998-1999 season, ratings have decreased 15%
from the 1997-1998 season to the 1998-1999 season. The Company believes that
part of the decline is due to the fact that children have many entertainment
options, which are likely to continue, including more hours of children's
programming on cable, new video games, computers and home videos. Material
declines in the ratings of the Fox Kids Network could materially and adversely
affect the Company's results of operations and financial condition.
POSSIBILITY OF NON-RENEWAL OF AFFILIATION AGREEMENTS BY FOX TELEVISION MEMBER
STATIONS
Over 93% of the affiliation agreements with Fox Broadcasting's member
stations ("FOX Television Member Stations") require the affiliates also to carry
the Fox Kids Network. Fox Broadcasting currently expects to continue to be able
to renew its affiliation agreements with the FOX Television Member Stations as
they mature. A FOX Television Member Station may choose not to renew its
affiliation agreement with Fox Broadcasting and at the same time discontinue
carriage of the Fox Kids Network. If a FOX Television Member Station decides not
to renew its status as such, it is less likely that it would continue to carry
Fox Kids Network programming. If the Company fails to renew its affiliation
agreements, there could be a material and adverse effect on the results of
operations and financial condition of the Company.
POSSIBLE REDUCTION IN DISTRIBUTION OR NON-RENEWAL OF THE FOX FAMILY CHANNEL
BY CABLE OPERATORS
The Company distributes the Fox Family Channel to cable operators pursuant
to affiliation agreements whereby the cable operator agrees to provide carriage
for a specified per subscriber fee. Currently, the Fox Family Channel has
affiliation agreements covering approximately 13,700 affiliates. Pursuant to
these agreements, the Fox Family Channel has approximately 75 million viewers
out of a potential audience reach of approximately 79 million households at
August 27, 1999. Under these agreements, cable operators and other distributors
may discontinue carriage of the Fox Family Channel or move the Fox Family
Channel to a more narrowly distributed level of service or tier. Such
discontinuance or movement, if it involved a significant number of subscribers,
could limit the Fox Family Channel's ability to generate national advertising
revenues, as these depend on broad distribution, particularly by cable
operators. Subsequent to the debut of the new programming on the Fox Family
Channel, no cable operators have discontinued carriage of the Fox Family Channel
service. The Company currently expects to continue to be able to renew its
affiliation agreements as they mature or to maintain its carriage on an
"expanded basic," the most widely distributed level of service. However, there
can be no assurance that these affiliation agreements will be renewed or that
they will be renewed on the same or more favorable terms.
Page 29
<PAGE>
DEPENDENCE UPON KEY PERSONNEL
The Company's success depends to a significant extent upon the expertise and
services of certain key executives, including Haim Saban, the Company's Chairman
and Chief Executive Officer and the founder of Saban. The Company has entered
into employment agreements with Mr. Saban and certain of its other key
executives. The Company does not maintain "key person" life insurance policies
on any of its executives. The loss of the services of Mr. Saban or any of the
key personnel could have a material adverse effect on the results of operations
and financial condition of the Company.
COMPETITION
The businesses in which the Company engages are highly competitive. Each of
the Company's primary business operations is subject to competition from
companies which, in some instances, have greater production, distribution and
capital resources than the Company.
PROGRAMMING. The Company competes on the basis of relationships and pricing
for access to a limited supply of facilities and creative personnel to produce
its programs. The Company competes with major motion picture studios, such as
Warner Bros. and The Walt Disney Company, and animation production companies,
including Hanna Barbera, Film Roman and Klasky Cuspo, for the services of
writers, producers, animators, actors and other creative personnel and
specialized production facilities.
DISTRIBUTION OUTLETS. In the United States, the Company competes for
ratings and related advertising revenues. The Company currently competes through
its Fox Kids Network and the Fox Family Channel, with the other broadcast
television networks, public television and cable television channels, such as
USA Cable Network, TNT, The Cartoon Network and Nickelodeon, for market
acceptance of its programming, viewership ratings and related advertising
revenues. To the extent that the Company produces original programming for
distribution outlets it does not own, it competes with other producers of
children's programming. Internationally, the Company contends with a large
number of U.S.-based and international distributors of children's programming,
including The Walt Disney Company, Warner Bros. and Nickelodeon in the
development or acquisition of programming expected to appeal to international
audiences. Such programming often must comply with foreign broadcast rules and
regulations which may stipulate certain local content requirements.
DIGITAL CHANNELS. When the Company launches its digital cable networks in
Fiscal 2000, the Company will compete in a rapidly developing area of the
entertainment industry against companies that may have greater financial
resources and technical expertise in the area.
INTERNET. As the Company expands its websites and internet business, the
Company will compete with companies with substantially greater internet
presence, financial, technical, marketing and other services. More generally,
the Company competes with various other leisure-time activities such as home
videos, movie theaters, personal computers and other alternative sources of
entertainment and information.
OVERESTIMATION OF REVENUES OR UNDERESTIMATION OF COSTS
The Company follows Financial Accounting Standards Board Statement No. 53,
"Financial Reporting by Producers and Distributors of Motion Picture Films,"
regarding revenue recognition and amortization of production costs for programs
and films in which the Company owns or controls all applicable rights. All costs
incurred in connection with an individual program or film, including
acquisition, development, production and allocable production overhead costs and
interest, are capitalized as television and film costs. These costs are stated
at the lower of unamortized cost or estimated net realizable value. Estimated
total production costs for an individual program or film are amortized in the
proportion that revenue realized relates to management's estimate of the total
revenues expected to be received from such program or film. For programs in
which the Company acquires only network or basic cable broadcast rights, the
Company amortizes such program costs over the estimated number of broadcasts in
accordance with Financial Accounting Standards Board Statement No. 63,
"Financial Reporting by Broadcasters." If revenue or cost estimates change with
respect to a program or film, the Company may be required to write down all or a
portion of the unamortized costs for such program or film. No assurance can be
Page 30
<PAGE>
given that such write-downs, if they occur, will not have a material adverse
effect on the Company's results of operations or financial condition.
SEASONALITY
All of the Company's television programming revenues are recognized either
when the program is available for broadcast or when advertising spots are
broadcast during a program. For this reason, significant fluctuations in the
Company's total revenues and net income can occur from period to period
depending upon availability dates of programs and advertising revenues. In the
United States, for example, revenues from advertising are concentrated in the
fourth calendar quarter of each year. Due, in part, to these seasonality
factors, the results of any one quarter are not necessarily indicative of
results for future periods, and cash flows may not correlate with revenue
recognition.
DEPENDENCE UPON SATELLITE TRANSPONDERS
Distribution of the Fox Family Channel depends upon the operation of
satellites by third parties. Since August 15, 1998, the Company has been
transmitting all programming for the Fox Family Channel from the FOX Television
Broadcast Center in Los Angeles, California. Satellites are subject to
significant risks that may prevent or impair proper commercial operations,
including satellite defects, launch failure, destruction and damage and
incorrect orbital placement. Currently, there are a limited number of domestic
communications satellites available for the transmission of cable television
programming to cable system operators. If satellite transmission is interrupted
or terminated due to the failure or unavailability of a transponder, the
termination or interruption could have a material adverse effect on the Company.
The availability of additional transponders in the future is dependent on a
number of factors over which the Company has no control. These factors include
the future authorization of additional domestic satellites, future competition
among prospective users for available transponder space, the uncertain status of
the United States' Space Shuttle Program (including priority allocations of
future shuttle cargo space to military rather than commercial payloads) and the
uncertain availability of satellite launching by private entities in the United
States and by private or governmental entities in other countries.
INTERNATIONAL SALES
For the fiscal year ended June 30, 1999, the Company derived approximately
25% of its consolidated revenues from international operations. As part of its
business strategy, the Company intends to expand its international program
production and distribution activities, as well as its worldwide merchandising,
licensing and ancillary activities, including the launch of children's channels
on DTH satellite and cable platforms throughout the world. The Company is
subject to the special risks inherent in international business activities,
including (i) general economic, social and political conditions in each country,
(ii) currency fluctuations, (iii) double taxation, (iv) unexpected changes in
applicable regulatory requirements and (v) compliance with a variety of
international laws and regulations. The operations of the Company's
international entities are measured in part in local currencies. For reporting
purposes, assets and liabilities are translated into U.S. dollars using exchange
rates in effect at the end of each reporting period. Revenues and expenses are
translated into U.S. dollars at the average exchange rates prevailing during the
period. As a result, the Company can expect to record foreign exchange losses
and gains in the future.
POTENTIAL ADVERSE IMPACT OF REGULATION
The United States Congress and the FCC currently have under consideration,
and may in the future consider and adopt, new laws, regulations and policies
regarding a wide variety of matters that may affect, directly or indirectly, the
operation, ownership and profitability of the Company's business. These proposed
changes include, for example, expansion of program access requirements and
potential must-carry rights for digital television broadcast stations (which
could limit the capacity of multi-channel video programming distributors
available for the Company's programming). It is impossible to predict the
outcome of federal legislation or administrative action currently under
consideration or the potential effect thereof on the Company's business. In
addition, certain aspects of the Company's cable operations are subject,
directly or indirectly, to regulation at the state and/or local level.
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<PAGE>
State and/or local authorities could adopt laws or regulations in this area that
could further restrict the operations of the Company.
POTENTIAL FOR DEADLOCKS
The holders of the Class B Common Stock of the Company have agreed, so long
as neither Fox Broadcasting nor Haim Saban and the other former stockholders of
Saban as a group have disposed of more than one-third of their respective
initial Class B Common Stock beneficial holdings, to vote their shares together
on all matters presented to the stockholders, and if they cannot agree as to how
to vote on a matter, to abstain from voting with respect thereto. There is no
mechanism for breaking a deadlock among the holders of Class B Common Stock.
With respect to the election of directors, the holders of the Class B Common
Stock have agreed to vote their shares for three directors selected by Haim
Saban and three directors selected by Fox Broadcasting. Because the charter
documents provide that no Board action may be taken without a vote of at least
three-quarters of the directors, the possibility exists that, as a result of
differences which may in the future arise between Fox Broadcasting and Mr.
Saban, the Company may experience difficulties in defining and meeting its
business objectives, or in effecting a transaction which would be in the best
interests of the Company, which could materially adversely affect the results of
operations and financial condition of the Company.
STRATEGIC RELATIONSHIPS WITH NEWS CORP. AND FOX
The Company has had, and continues to have, a close strategic relationship
with News Corp. and its affiliated entities, including Fox Broadcasting, and
believes that this relationship is materially important to its business and
business strategies. However, except as may be provided in the agreements
between them which are discussed elsewhere in this Form 10-K, neither News Corp.
or its affiliated companies nor the Company are obligated to engage in any
business transactions or jointly participate in any opportunities with the
other, and the possibility exists that the current strategic relationships
between the parties could materially change in the future.
TRANSACTIONS WITH STOCKHOLDERS AND THEIR AFFILIATES
The Company has in the past entered into transactions and agreements, some
of which are ongoing, with Haim Saban and with Fox Broadcasting and News Corp.
and their affiliated companies. In addition, the Company may in the future enter
into additional agreements and other transactions with certain of these
affiliates. Although the Company has adopted a policy that future transactions
between the Company and any of these affiliates or family members must be
approved by a majority of the Board of Directors of the Company, there can be no
assurance that any such future transactions will prove to be favorable to the
Company. In addition, the Indentures provide, with certain exceptions, that the
Company may not enter into any transactions with affiliates except on terms that
are no less favorable to the Company than the Company would obtain in a
comparable arm's-length transaction.
ITEM 7A. 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.
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<PAGE>
The following table provides information about the Company's interest rate
swaps at June 30, 1999.
<TABLE>
<CAPTION>
AMOUNTS
SCHEDULED FOR
MATURITY FOR ESTIMATED FAIR
THE YEAR ENDING VALUE AT
JUNE 30, 2000 JUNE 30, 1999
--------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Interest rate swap Variable to fixed:
Notional value............. $ 25,000 $ (384)
Average pay rate........... 5.875%
Average receive rate...... 5.000%
</TABLE>
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 following table provides information about the Company's sensitivity to
foreign currency exchange contracts into which the Company enters. The contracts
generally mature within one year. The Company currently intends to continue to
enter into such contracts to hedge against future material foreign currency
exchange rate risks.
<TABLE>
<CAPTION>
AMOUNTS
SCHEDULED FOR
MATURITY FOR ESTIMATED FAIR
THE YEAR ENDING VALUE AT
JUNE 30, 2000 JUNE 30, 1999
--------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
$US Functional Currency
Forward exchange agreements
(receive CAD/pay $US).......
Contract amount (CAD$).... $ 1,650 $ (2)
Average contractual
exchange rate............. 0.68058
</TABLE>
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.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Index to Financial Statements, Reports of Independent Public
Accountants, Financial Statements and Notes to the Financial Statements appear
in a separate section of this Form 10-K (beginning on page F-1) following Part
IV.
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<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, and their ages at June
30, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Haim Saban................ 54 Chairman of the Board and Chief Executive
Officer of the Company
Mel Woods................. 47 President, Chief Operating Officer, Chief
Financial Officer and Director of the
Company
Shuki Levy................ 53 Executive Vice President and Director of
the Company
Donna Cunningham.......... 38 Executive Vice President, Business and
Legal Affairs and General Counsel of
the Company
Mark Ittner............... 47 Senior Vice President of Finance and
Chief Accounting Officer of the Company
K. Rupert Murdoch......... 68 Director
Chase Carey............... 45 Director
Lawrence Jacobson......... 40 Director
</TABLE>
HAIM SABAN, the founder of Saban, has served as the Chairman of the Board
and Chief Executive Officer of the Company since its inception in August 1996,
and Chairman and Chief Executive Officer of Saban since the establishment of
Saban in 1983. Mr. Saban is a creator and executive producer of the Company's
live-action series, POWER RANGERS.
MEL WOODS has served as President, Chief Operating Officer, Chief Financial
Officer and a director of the Company since its inception in August 1996. Mr.
Woods has also been the President and Chief Operating Officer and a director of
Saban since 1991. From 1987 to 1991, Mr. Woods served as Senior Vice President
and Chief Financial Officer of DIC Enterprises, an animation production company.
Prior to joining DIC, Mr. Woods was Senior Vice President, Chief Financial
Officer and Treasurer of Orion Pictures Corp. and served as a member of its
board of directors. Mr. Woods is a member of the board of directors of On Stage
Entertainment, Inc., a producer of live entertainment shows.
SHUKI LEVY became the Executive Vice President and a director of the Company
in 1996 and is responsible for productions. Mr. Levy has served as an
independent contractor performing production related assignments for Saban since
1983. Mr. Levy is executive producer of the Company's live-action series, POWER
RANGERS, and also has served as executive producer for BIG BAD BEETLEBORGS and
MASKED RIDER.
DONNA CUNNINGHAM became the Executive Vice President of the Company in June
of 1998 and is responsible for overseeing the business and legal affairs of the
Company. From March 1996 to December 1996, Ms. Cunningham served as Vice
President, Business and Legal Affairs for the Fox Kids Network, and from
December 1996 to June 1998, she served as Senior Vice President of Business and
Legal Affairs for Fox Kids Worldwide, overseeing all business and legal affairs
for both the Fox Kids Network and the Fox Family Channel. From September 1995
through March 1996, Ms. Cunningham was Vice President of Business and Legal
Affairs for Hanna-Barbera, Inc., a full service animation production and
distribution company. From March 1991 through
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<PAGE>
September 1995, she served as Director, Vice President and Consultant of
Business and Legal Affairs for animation production company DIC Entertainment,
Inc. (formerly known as DIC Animation City, Inc.).
MARK ITTNER has served as Senior Vice President of Finance and Chief
Accounting Officer of the Company since September 1997, and as Senior Vice
President of Finance of Saban since March 1995 and as Vice President of Finance
from February 1993 to March 1995. From 1990 to 1993, Mr. Ittner served as Vice
President and Controller of Imagine Films, a motion picture and television
production company. Prior to joining Imagine Films, Mr. Ittner was the acting
Co-Chief Financial Officer of Weintraub Entertainment Group, after joining
Weintraub as a Vice President and Controller in January 1988. From 1979 to 1984,
Mr. Ittner was first Assistant Controller and then in 1984, Vice President and
Controller, of Hanna-Barbera Productions, Inc. and its parent company, The Taft
Entertainment Company.
K. RUPERT MURDOCH has served as a director of the Company since August 1996.
Mr. Murdoch is an Executive Director and has been the Chief Executive of News
Corp. since its formation in 1979 and has served as its Chairman since 1991. Mr.
Murdoch has been a director of Fox Entertainment Group since 1985, Chairman
since 1992 and Chief Executive Officer since 1995. Mr. Murdoch has served as a
director of News International plc, News Corp.'s principal operating subsidiary
in the United Kingdom since 1969, a director of News Limited, News Corp.'s
principal operating subsidiary in Australia since 1983, and a director of New
America Incorporated, News Corp's principal operating subsidiary in the United
States, since 1973. Mr. Murdoch has served as director of the Star Television
Group since 1993 and as a director of BSkyB since 1990 and Chairman since 1999.
Mr. Murdoch is also a member of the board of directors of Philip Morris
Companies, Inc.
CHASE CAREY has served as a director of the Company since August 1996.
Mr. Carey is an Executive Director and has been the Co-Chief Operating
Officer of News Corp. since October 1996. Mr. Carey has been a director of
Fox Entertainment Group since 1992 and Co-Chief Operating Officer since
August 1998. Mr. Carey has served as the Chairman and Chief Executive
Officer of FOX Television since July 1994. Mr. Carey joined Fox Inc. in 1988
as Executive Vice President, served as Chief Financial Officer, and assumed
the title of Chief Operating Officer in February 1992. Mr. Carey is a member
of the boards of directors of TV Guide, Inc., Gateway 2000 and Colgate
University.
LAWRENCE JACOBSON has served as a director of the Company since November
1997. Mr. Jacobson was named President of FOX Television Network, in
September 1997. Mr. Jacobson had been Executive Vice President of Fox
Television since May 1996, and was named Executive Vice President and Chief
Financial Officer of Fox Broadcasting Company in July 1994. Mr. Jacobson
joined Fox Inc. in December 1990 as Vice President, Finance, and became
Senior Vice President, Finance in July 1992.
ELECTION OF DIRECTORS; CHANGE IN CONTROL
Pursuant to the terms of an Amended and Restated Strategic Stockholders
Agreement dated as of August 1, 1997 between, among others, Fox Broadcasting and
Haim Saban and the former Saban Stockholders (the "Amended and Restated
Strategic Stockholders Agreement"), Fox Broadcasting and Mr. Saban have agreed
to vote all of the shares of Class B Common Stock beneficially owned by each of
them to the election of three directors designated by Fox Broadcasting and three
directors designated by Mr. Saban. If in the future the Company becomes subject
to any requirement that the Company's Board of Directors include independent
directors, Fox Broadcasting and Mr. Saban are each to include among their
respective slates of nominees the number of independent directors necessary to
satisfy such requirement. Fox Broadcasting and Mr. Saban will mutually agree on
two independent directors. If they are unable to mutually agree, Fox
Broadcasting will nominate one independent director and Mr. Saban will nominate
the other and they will each vote for both nominees.
If either Haim Saban or Fox Broadcasting transfers more than one-third of
its initial holdings of Class B Common Stock (Mr. Saban's holdings to include
the shares of the former Saban Stockholders), then Fox Broadcasting or Mr.
Saban, as the case may be, has the right to designate the remaining two-thirds
of the authorized number of directors.
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<PAGE>
As part of the voting provisions of the Amended and Restated Strategic
Stockholders Agreement, both Mr. Saban and Fox Broadcasting have agreed to a
standstill whereby neither of them will, without the consent of the other, among
other things, (i) purchase, acquire, offer or agree to purchase or acquire any
shares of capital stock or other voting securities of the Company; (ii) solicit
stockholders for the approval of stockholder proposals; or (iii) otherwise act,
alone or in concert with others, to assert or encourage any other person or
entity in seeking to control the management, board of directors or policies of
the Company or to propose or effect a business combination, restructuring,
recapitalization, liquidation, dissolution or similar transaction.
Fox Broadcasting's designees are currently K. Rupert Murdoch, Chase Carey
and Lawrence Jacobson. Haim Saban, Mel Woods and Shuki Levy are the designees
of Haim Saban.
Under an agreement among Fox Broadcasting, Haim Saban and the former Saban
Stockholders, Fox Broadcasting has the right and option, commencing in December
2002 or earlier in certain circumstances, to acquire all of the shares of Class
B Common Stock of the Company then held by Mr. Saban and the former Saban
Stockholders, and pursuant to the Amended and Restated Strategic Stockholders
Agreement, Mr. Saban has the right and option, commencing in December 2000, or
earlier in the event of a change in control of Fox Broadcasting or certain
limited circumstances, to cause Fox Broadcasting to purchase all of these
shares. See Item 13, "Certain Relationships and Related Transactions."
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Not Applicable.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash and non-cash compensation
paid or accrued by the Company to the Chief Executive Officer and the other four
most highly compensated executive officers ("Named Executive Officers")
compensated in excess of $100,000 for the fiscal year ended June 30, 1999.
Compensation decisions are currently made by the President and the Chief
Executive Officer.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
OTHER
ANNUAL
NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION COMPENSATION
--------------------------- ------------------- ------------
YEAR SALARY BONUS
---- ------ -----
<S> <C> <C> <C> <C>
Haim Saban ........................1997 $1,000,000 $ -- (1)
Chairman of the Board and 1998 1,000,000 -- (1)
Chief Executive Officer 1999 1,000,000 -- (1)
Mel Woods..........................1997 $ 452,100 $ 650,000 (1)
President, Chief Operating 1998 476,500 2,528,700(2) (1)
Officer and Chief Financial 1999 506,700 2,028,400(2) (1)
Officer
Shuki Levy.........................1997 $ 500,000 $ 700,000 (1)
Executive Vice President 1998 500,000 -- (1)
1999 500,000 -- (1)
Donna Cunningham...................1997 $ 199,300 $ 10,000 (1)
Executive Vice President, 1998 246,200 130,000 (1)
Business and Legal Affairs 1999 300,000 -- (1)
and General Counsel
Mark Ittner........................1997 $ 198,600 $ 10,000 (1)
Senior Vice President of Finance 1998 222,900 27,500 (1)
and Chief Accounting Officer 1999 227,200 25,000 (1)
<FN>
- ---------------------
(1) Less than either $50,000 or 10% of total annual salary and bonus.
(2) See Item 13, "Certain Relationships and Related Transactions--Transactions
between Haim Saban, other Executive Officers and Saban."
</FN>
</TABLE>
See Item 13, "Certain Relationships and Related Transactions--Transactions
between Haim Saban, other Executive Officers and Saban" for information with
respect to certain loans, forgiveness of loans and other transactions for the
benefit of certain of the Named Executive Officers.
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<PAGE>
STOCK OPTIONS
The following table summarizes information with respect to the number of
shares of Class A Common Stock underlying stock options held by each of the
Named Executive Officers at June 30, 1999, and the value of unexercised options,
assuming a value of $62.50 per share of Class A Common Stock at June 30, 1999.
<TABLE>
<CAPTION>
AGGREGATED FISCAL YEAR-END OPTION VALUES
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
NAME UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS
OPTIONS AT FISCAL AT FISCAL YEAR
YEAR END END
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Haim Saban................................. -- -- -- --
Mel Woods(1)............................... 161,637 -- $4,601,805 --
Shuki Levy(2).............................. 161,637 -- $8,102,863 --
Mark Ittner................................ -- -- -- --
Donna Cunningham........................... -- -- -- --
<FN>
- --------------
(1) The value of unexercised in-the-money options at fiscal year end is based on
the difference between the Company's estimate of $62.50 for the fair market
value of the Class A Common Stock and the exercise price of $34.02 for the
options. See "--Employment Agreements".
(2) The value of unexercised in-the-money options at fiscal year end is based on
the difference between the Company's estimate of $62.50 for the fair market
value of the Class A Common Stock and the exercise price of $12.37 for the
options.
</FN>
</TABLE>
Under the terms of the option agreements, an executive whose employment is
terminated must sell his or her stock options (together with any shares acquired
pursuant to the exercise of such options, the "Option Shares") to the Company
for an amount equal to the fair market value of such Option Shares plus the fair
market value of the shares with respect to which the executive's option has
vested but has not been exercised, less the executive's purchase price. Such
amount is to be paid to the executive 10% in cash and 90% by a promissory note
to be payable in nine equal annual installments.
In addition, in the event Haim Saban, any member of his immediate family or
any of his affiliated entities (Haim Saban and such family members, the "Saban
Entities") sells to a third party any shares of common stock of the Company (the
"Saban Company Shares"), each executive must sell the "applicable percentage" of
his or her Option Shares for the same per share consideration paid by the third
party for the Saban Company Shares. The "applicable percentage" is equal to the
percentage of the Saban Company Shares sold to the third party out of the total
shares of the Company owned by the Saban Entities immediately prior to the sale.
The Company must purchase such shares for cash consideration equal to the
applicable percentage of the per share consideration paid by the third party for
the Saban Company Shares multiplied by the number of Option Shares with respect
to which such executives' options have vested but have not been exercised, less
the purchase price.
EMPLOYMENT AGREEMENTS
Haim Saban has an employment agreement with the Company which extends
through June 30, 2002. Pursuant to the terms of the agreement, Mr. Saban is to
be paid an annual salary of $1.0 million. Mr. Saban may not be removed or
replaced with or without cause until he and the other stockholders of the
Company whose shares he controls collectively transfer more than one-third of
the number of shares of Class B Common Stock they currently beneficially own. If
Mr. Saban is terminated following such an event, he will be entitled to receive
an
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<PAGE>
amount equal to his annual base salary from the date of his termination
through June 30, 2002. Under the agreement, Mr. Saban may engage in certain
activities for his own account, including music, composing and publishing,
investments and charity. The agreement generally provides that Mr. Saban will
not, during the term of his employment and for a period of five years
thereafter, compete with the Company.
The Company has a new employment agreement with Mel Woods dated April 1,
1999. The term of Mr. Woods' employment agreement with the Company extends
through May 31, 2002. Mr. Woods will receive an annual base salary of $625,000,
$650,000 and $675,000 for each of the 1998-2000, 2000-2001 and 2001-2002
periods, respectively, and an annual contingent bonus which is limited to
$650,000, $675,000 and $700,000 for each of the 1999-2000, 2000-2001 and
2001-2002 periods, respectively. At the option of the Company, the Company may
extend Mr. Woods' term of employment for two years. The Company may terminate
Mr. Woods' employment only for cause or upon his death or disability, and Mr.
Woods may terminate his employment upon the Company's material breach of the
employment agreement. If Mr. Woods' employment is terminated by the Company for
cause, he will be entitled to receive (i) his annual base salary for the period
in which the date of termination falls, pro-rated to the date of such
termination, (ii) his bonus compensation for the period in which the date of the
termination falls, pro-rated to date of termination, and (iii) vested rights
with respect to certain stock options granted in connection with the employment
agreement. All of Mr. Woods' options are vested. Should Mr. Woods terminate his
employment as a result of a material breach by the Company, he will be entitled
to receive (i) his annual base salary for the period in which the date of
termination falls, pro-rated to the date of such termination, (ii) severance pay
for the balance of the term of the employment agreement, (iii) bonus
compensation for the period in which the date of termination falls, pro-rated to
the date of such termination and (iv) vested rights with respect to certain
stock options granted in connection with the employment agreement. If the
Company decides not to renew Mr. Woods' employment at the end of the initial
three-year term, Mr. Woods will be entitled to receive as severance his base
salary for the third term year and his actual bonus. On May 20, 1998, the
Company amended Mr. Woods' original employment agreement and paid Mr. Woods
compensation of $2,000,000 in the form of an advance against amounts to be paid
to Mr. Woods upon termination of his employment. In connection with Mr. Woods'
new employment agreement with the Company, Mr. Woods received a second advance
of $1,500,000 against amounts to be paid to Mr. Woods upon termination of his
employment. These advances do not bear interest and were included in Mr. Woods'
compensation during the fiscal years in which they were made. Further, if Mr.
Woods exercises any stock options to acquire shares of the Company's Class A
Common Stock, Mr. Woods shall concurrently repay the advances through an
increase in the purchase price in connection with the exercise.
The Company has reached an agreement in principle for a new employment
agreement with Shuki Levy that extends through May 31, 2002. Mr. Levy will
receive an annual salary of $525,000 for the year ending May 31, 2000, $550,000
in the second year of employment, $575,000 for the third and fourth years of
employment and is eligible to receive additional benefits. The Company may
terminate Mr. Levy's employment with cause, and Mr. Levy may terminate his
employment upon the Company's material breach of the employment agreement. If
Mr. Levy's employment with the Company is terminated as a result of the
Company's breach or as a result of the Company's decision not to extend the
agreement beyong the term he will be entitled to receive as severance, $575,000.
The Company has an employment agreement with Donna Cunningham to serve as
Executive Vice President, Business and Legal Affairs and General Counsel of the
Company. The employment agreement was amended as of July 1, 1999. The term of
the employment agreement extends through June 30, 2001. The Company has one
two-year option to extend the term. Ms. Cunningham is to be paid an annual base
salary of $400,000 for the one year period from July 1, 1999 through June 30,
2000 and a base salary of $425,000 from July 1, 2000 through June 30, 2001. The
employment agreement provides that the Company may terminate Ms. Cunningham's
employment for cause.
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<PAGE>
The Company has an employment agreement, as amended, with Mark Ittner to
serve as Senior Vice President of Finance. The term of the employment agreement
extends through March 31, 2002. Mr. Ittner will receive an annual base salary of
$235,000 for the period from April 1, 1999 through March 31, 2000 and $255,000
for the period from April 1, 2000 through March 31, 2001 and $270,000 for the
period April 1, 2001 to March 31, 2002. The employment agreement provides that
the Company may terminate Mr. Ittner's employment for cause.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 30, 1999 with
respect to the shares of Class A Common Stock and Class B Common Stock
beneficially owned by (i) each director of the Company; (ii) each person known
to the Company to be the beneficial owner of more than 5% of either class of
Common Stock; (iii) each Named Executive Officer; and (iv) all directors and
executive officers of the Company as a group. Except as may be indicated in the
footnotes to the table, each of such persons has sole voting and investment
power with respect to the shares owned, subject to applicable community property
laws. The address of each person listed is in care of the Company, 10960
Wilshire Boulevard, Los Angeles, California 90024.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK(1) COMMON STOCK(1)
-------------- ---------------
NUMBER PERCENT OF NUMBER PERCENT OF
OF CLASS OF CLASS
SHARES OWNED SHARES OWNED
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Haim Saban(2)(3)................ -- -- 15,840,000 100.0%
SilverlightEnterprises,
L.P.(2)(3)...................... -- -- 2,759,724 17.4
Fox Broadcasting(2)(3).......... -- -- 15,840,000 100.0
Allen & Co. Incorporated........ 160,000 100.0% -- --
Mel Woods(5).................... 161,637 50.3 -- --
Shuki Levy(5)................... 161,637 50.3 -- --
Donna Cunningham................ -- -- -- --
Mark Ittner..................... -- -- -- --
K. Rupert Murdoch(4)............ -- -- 15,840,000 100.0
Chase Carey(4).................. -- -- 15,840,000 100.0
Lawrence Jacobson............... -- -- -- --
All of the Company's executive
officers and directors as a
group (eight persons)........... 323,274 66.9% 15,840,000 100.0%
- -------------
<FN>
(1) Under Rule 13d-3 of the Exchange Act, certain shares may be deemed to be
beneficially owned by more than one person (if, for example, persons share
the power to vote or the power to dispose of the shares). In addition,
shares are deemed to be beneficially owned by a person if the person has the
right to acquire the shares (for example, upon exercise of an option) within
60 days of the date as of which the information is provided. In computing
the percentage ownership of any person, the amount of shares outstanding is
deemed to include the amount of shares beneficially owned by that person
(and only that person) by reason of these acquisition rights. As a result,
the percentage of outstanding shares of any person as shown in this table
does not necessarily reflect the person's actual ownership or voting power
with respect to the number of shares of Common Stock actually outstanding at
June 30, 1999.
(2) Pursuant to Rule 13d-3 under the Exchange Act, Haim Saban and Fox
Broadcasting may be deemed to beneficially own all shares of Class B Common
Stock held by each of them, and by the other stockholders identified in the
table, as the result of an agreement (the "Voting Agreement") pursuant to
which Mr. Saban and Fox Broadcasting have the right to direct the voting of
such shares with respect to all matters submitted to a vote of stockholders,
including the election of directors of the Company. With regard to the
election of directors, Fox Broadcasting has agreed to vote in favor of three
nominees designated by Haim Saban and Haim Saban has agreed to vote in favor
of three nominees designated by Fox Broadcasting. If either Haim Saban,
together with the entities he controls, or Fox Broadcasting owns less than
2,640,000 shares of Class B Common Stock, then, at the option of the other,
the Voting Agreement will terminate. As part of the Voting Agreement, both
Mr. Saban and Fox Broadcasting have agreed to a standstill whereby neither
of them will, without the consent of the other, among other things,
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(i) purchase, acquire, offer or agree to purchase or acquire any shares of
capital stock or other voting securities of the Company; (ii) solicit
stockholders for the approval of stockholder proposals; or (iii) otherwise
act, alone or in concert with others, to assert or encourage any other
person or entity in seeking to control the management, board of directors or
policies of the Company or to propose or effect a business combination,
restructuring, recapitalization, liquidation, dissolution or similar
transaction. See "--Election of Directors; Change in Control."
(3) Pursuant to Rule 13d-3 under the Exchange Act, Haim Saban may be deemed to
beneficially own all shares of Class B Common Stock held by Silverlight
Enterprises, L.P. as the result of the Voting Agreement pursuant to which
Mr. Saban has the right to direct the voting of these shares with respect to
all matters submitted to a vote of the stockholders, including the election
of directors of the Company.
</FN>
</TABLE>
Under agreements between Mr. Saban, the other Saban Stockholders and Fox
Broadcasting, Fox Broadcasting has the right and option, commencing in
December 2002 or earlier in certain circumstances, to acquire all of the
shares of Class B Common Stock of the Company held by Mr. Saban and the
other Saban Stockholders and Mr. Saban has the right and option, commencing
in December 2000, or earlier in the event of a change in control of Fox
Broadcasting or certain limited circumstances, to cause Fox Broadcasting to
purchase all of such shares.
As of June 30, 1999, the total number of shares of Class B Common Stock and
the percentage of Class B Common Stock beneficially owned by Mr. Saban, the
entities which he controls, and Fox Broadcasting over which each had sole
investment power was as follows:
<TABLE>
<CAPTION>
NUMBER AGGREGATE
OF VOTING
SHARES POWER
--------- ---------
<S> <C> <C>
Haim Saban........................... 3,737,844 23.6%
Quartz Enterprises, L.P. ............ 760,320 4.8
Merlot Investments, a California
general partnership.................. 645,381 4.1
Silverlight Enterprises, L.P. ....... 2,759,724 17.4
Celia Enterprises, L.P. ............. 16,731 0.1
Fox Broadcasting..................... 7,920,000 50.0%
<FN>
(4) Because of their positions with Fox Broadcasting, each of Messrs. Murdoch
and Carey may be deemed to beneficially own all of the shares of Class B
Common Stock owned or controlled by Fox Broadcasting. Each of Messrs.
Murdoch and Carey disclaims any pecuniary interest in such securities.
(5) Represents shares reserved for issuance upon exercise of stock options
exercisable within 60 days of June 30, 1999.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE REORGANIZATION
The Company was incorporated in August 1996 under Delaware law as a holding
company of FCN Holding and Saban. Between August 1996 and August 1997,
the Company conducted no business or operations. On August 1, 1997, in
connection with the Company's acquisition of a controlling interest in IFE, (i)
Fox Broadcasting Sub, a wholly owned indirect subsidiary of Fox Broadcasting,
exchanged its capital stock in FCN Holding, which indirectly owns FCN, for
7,920,000 shares of Class B Common Stock of the Company, (ii) the other
stockholder of FCN Holding exchanged its capital stock in FCN Holding for an
aggregate of 160,000 shares of Class A Common Stock of the Company, (iii) Haim
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Saban and the Saban Stockholders exchanged their capital stock of Saban for an
aggregate of 7,920,000 shares of Class B Common Stock of the Company, and (iv)
all outstanding management options to purchase Saban capital stock became
options to purchase an aggregate of 646,548 shares of Class A Common Stock of
the Company (together, the "Reorganization"). In addition, Fox Broadcasting
exchanged its preferred, non-voting interest in the LLC and its $50 million
contingent note receivable from the LLC for the Fox Subordinated Note from the
Company, which accrues interest at the rate of 10.42%. The payment of principal
and interest under the Fox Subordinated Note are subordinated in right to the
obligations of the Company and its subsidiaries under the Amended Credit
Facility and the Indentures.
On August 29, 1997, in connection with the acquisition of IFE, the Company
issued the NAHI Bridge Note to NAHI upon substantially the same terms and
conditions as the Fox Subordinated Note, except that the NAHI Bridge Note had a
principal amount of $345.5 million. In connection with the Offering, $215
million of the net proceeds was used to repay a portion of the NAHI Bridge Note.
The NAHI Bridge Note was restated on May 19, 1998 to reflect a change in the
interest rate, effective as of the date of issuance. As restated, the NAHI
Bridge Note accretes interest at a rate of approximately 10.427% per annum. The
Company may repay the NAHI Bridge Note in whole or in part, subject to the terms
of the Amended Credit Facility and the Indentures. The payment of principal and
interest under the NAHI Bridge Note will be subordinated in right to the
obligations of the Company under the Amended Credit Facility and the Indentures.
As part of the formation of the LLC, Saban, the Saban Stockholders, Fox
Broadcasting, FCN Holding and one of its subsidiaries entered into a Strategic
Stockholders Agreement dated December 22, 1995, which provided, among other
things, for restrictions on transfer of the stock held by the parties, certain
voting rights between them, as well as the terms of the Reorganization. The
parties to the Strategic Stockholders Agreement also agreed to provide Haim
Saban and the Saban Stockholders and Fox Broadcasting certain registration
rights. On August 1, 1997, the Strategic Stockholders Agreement was amended and
restated (the "Amended and Restated Strategic Stockholders Agreement") to add
provisions regarding voting between Fox Broadcasting and the former Saban
Stockholders. See Item 10, "Directors and Executive Officers of the
Registrant--Election of Directors; Change in Control."
As part of the Amended and Restated Strategic Stockholders Agreement, Haim
Saban agreed with Fox Broadcasting Sub as follows: if the Company is unable to
meet its obligations (i) to pay any dividend under the terms of the Series A
Preferred Stock or to redeem the Series A Preferred Stock, (ii) under its lease
of 10960 Wilshire Boulevard, Los Angeles, California, or any obligation
guaranteed by News Corp., or (iii) under the Funding Agreement, and either News
Corp. or NPAL provides funds to the Company, the advance will be treated as a
loan, or if Citibank, in its sole discretion as administrative agent under the
Amended Credit Facility, determines it is unacceptable to treat the advance as a
loan, the advance will be treated as preferred stock. To the extent the advance
is treated as a loan and the amount exceeds $50 million, if the advance is not
repaid after 18 months (or 12 months for all advances after the third
anniversary of the agreement), all or any portion of the advance in excess of
$50 million may be converted into shares of Class B Common Stock. If Fox
Broadcasting Sub elects to convert any portion of the advance into Class B
Common Stock, Haim Saban will have the right to purchase from Fox Broadcasting
Sub up to 50% of the number of shares of Class B Common Stock issued pursuant to
the conversion. If instead, the advance is treated as preferred stock, the first
$50 million of the advance shall be applied to the issuance of shares of Series
B Preferred Stock, and the remainder of the advance shall be applied to the
issuance of Series C Convertible Preferred Stock, which is convertible into
Class B Common Stock at the election of the holder. Each of the Series B and
Series C Preferred Stock will have a liquidation preference equal to its issue
price of $100,000 per share. The Series B and Series C Preferred Stock will be
entitled to dividends at an annual rate of 11.7% of its liquidation value. If
Fox Broadcasting Sub elects to convert the Series C Convertible Preferred Stock
into Class B Common Stock, Haim Saban will have the right to purchase up to 50%
of the number of shares of Class B Common Stock issued pursuant to the
conversion. Notwithstanding the agreements, News Corp. has no obligation to make
any advances, and the Company has no obligation to accept any amounts from News
Corp.
In connection with the formation of the LLC and pursuant to a Stock
Ownership Agreement dated December 22, 1995, the LLC was granted an option to
purchase, upon the occurrence of certain events, all of the Class B
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<PAGE>
Common Stock held by the Saban Stockholders, and any of their transferees. The
LLC paid to the Saban Stockholders an aggregate of $80.1 million for the grant
of the option. In September 1996 the LLC distributed the Stock Ownership
Agreement to FCN Holding, which immediately transferred the agreement to Fox
Broadcasting Sub, a wholly owned subsidiary of Fox Broadcasting. Accordingly,
the option may be exercised by Fox Broadcasting Sub as follows: (i) for a period
of one year following the death of Haim Saban, if he dies prior to December 22,
2012; (ii) on December 22, 2000, upon receipt by Fox Broadcasting of written
notice from Haim Saban of his desire to cause Fox Broadcasting to purchase all
of the shares of Class B Common Stock held by the Saban Stockholders; or (iii)
upon delivery of written notice by Fox Broadcasting at any time on or after
December 22, 2002, or before December 22, 2012. The purchase price formula under
the option is based on the fair market value of the Company. In addition, Haim
Saban has the right and option, commencing in December 2002, or earlier in the
event of a change in control of Fox Broadcasting or certain other limited
circumstances, to cause Fox Broadcasting to purchase all of the Class B Common
Stock held by the Saban Stockholders.
In connection with the acquisition of IFE, the Company issued to Liberty
IFE, Inc. $345 million of Series A Preferred Stock which receives cash dividends
of 9% per annum, in arrears, paid quarterly. Any accrued and unpaid dividends
are added to the liquidation price and until such accrued and unpaid dividends
are paid in full, the dividend rate increases to 11.5%. The Series A Preferred
Stock will be redeemed by the Company in 2027 at a price equal to the
liquidation price as of the date of redemption, payable in cash. Holders of the
Series A Preferred Stock can require the Company to redeem the Series A
Preferred Stock in years 2017 and 2022 and the Company has an option to
repurchase the Series A Preferred Stock at any time following August 1, 2007.
Pursuant to a Funding Agreement among News Corp., News Publishing Australia
Limited ("NPAL") and the Company (the "Funding Agreement"), each of News Corp.
and NPAL, jointly and severally, agreed to provide the Company with the funds
necessary to redeem in full or pay the liquidation distribution on all other
amounts owing in respect of the Series A Preferred Stock in the event of an
event of default under the provisions governing the Series A Preferred Stock
contained in the Company's Certificate of Incorporation or a liquidation,
dissolution or similar event of the Company. In addition, pursuant to an
Exchange Agreement among NPAL, Liberty Media Corporation and Liberty IFE, Inc.,
each holder of the Series A Preferred Stock has the right, in the event of an
event of default under the provisions governing the Series A Preferred Stock
contained in the Company's Certificate of Incorporation or a liquidation,
dissolution or similar event of the Company, to exchange its shares for an
equivalent number of shares of preferred stock of NPAL.
In June 1999, a subsidiary of the Company, Fox Kids Europe Holdings, Inc.
("FKEH") entered into a subscription agreement (the "Subscription Agreement")
with Fox Broadcasting pursuant to the terms of which Fox Broadcasting paid FKEH
$100 million in exchange for subscription rights (the "Subscription Rights") for
shares of FKEH's non-voting Class B Common Stock (the "Stock"). The Stock will
be issued to Fox Broadcasting (subject to certain conditions) in connection with
an initial public offering of common stock, a private sale of shares of the
capital stock of FKEH to an unaffiliated third party, and subsequent public
offerings of FKEH's common stock or any subsequent private sale (each an
"Event"), until all the shares of stock subscribed for have been issued. In the
event that an Event does not occur, FKEH's Stock will not be issued to Fox
Broadcasting; however, Fox Broadcasting may hold the Subscription Rights
indefinitely. Fox Broadcasting does not have any claim on FKEH or its assets
other than in an Event as provided specifically in the Subscription Agreement.
In addition, in June 1999, Fox Broadcasting entered into an exchange agreement
with the Company, pursuant to which Fox Broadcasting has the right but not the
obligation to require the Company to acquire all or any portion of its
Subscription Rights in exchange for new equity in the Company at such time as
the Company issues a new class of equity, or a deeply subordinated note with an
interest rate of 20% per annum to be issued by the Company.
In June 1999, the Company issued a deeply subordinated note in the principal
amount of $25 million to Fox Broadcasting payable on June 28, 2009 with interest
accreting at a rate of 20% per annum.
CERTAIN TRANSACTIONS BETWEEN THE COMPANY AND THE FOX PARTIES
The Company, on the one hand, and News Corp. and the Fox Parties, on the
other hand, are engaged in a broad range of transactions in the ordinary course
of business, including agreements with Fox Video to produce and/or distribute
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<PAGE>
live action feature films and other family and children's programming for the
home video market, both domestic and international; agreements with Twentieth
Century Fox Film Corporation for the licensing of certain library programming;
agreements with Fox Broadcasting for barter advertising sales; and agreements
with certain of the Fox Parties with respect to owning and operating the
Company's international channels. Although the terms of these agreements were
determined by negotiation and not by third parties or by competitive bid, the
Company believes that the terms and conditions of these transactions are
comparable to that which could have been obtained in transactions with
unaffiliated parties. For a description of these transactions, see Note 10 of
the Notes to Fox Family Worldwide, Inc. Financial Statements.
The Company, on the one hand, and Tele-Communications, Inc. ("TCI") and its
subsidiaries and affiliates, on the other hand, are engaged in a broad range of
transactions in the ordinary course of business, including agreements with
Encore Media for the sale of air time and agreements with TCI, Liberty
Communications, Inc. and Netlink International for subscriber fees. Although the
terms of these agreements were determined by negotiation and not by third
parties or by competitive bid, the Company believes that the terms and
conditions of these transactions are comparable to that which could have been
obtained in transactions with unaffiliated parties. For a description of these
transactions, see Note 10 of the Notes to Fox Family Worldwide, Inc. Financial
Statements.
TRANSACTIONS BETWEEN HAIM SABAN, OTHER EXECUTIVE OFFICERS AND SABAN
From time to time, the Company has loaned and advanced funds and entered
into certain agreements with its executive officers and directors. For a
description of these loans, advances and agreements, see Note 10 of the Notes to
Fox Family Worldwide, Inc. Financial Statements.
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<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report of Form
10-K for the fiscal year ended June 30, 1999.
1. Financial Statements:
Financial Statements are listed in the "Index to Financial Statements
and Schedules" at page F-1.
2. Schedules:
Financial Statements schedules are listed in the "Index to Financial
Statements and Schedules" at page F-1 herein.
3. Exhibits (numbered in accordance with Item 601 of Regulation S-K):
(a) The Exhibits listed below are filed or incorporated by reference as
part of this Report.
EXHIBIT NO. DESCRIPTION
- ----------- ------------
2.1 Agreement and Plan of Merger dated as of June 11, 1997 by and among
Fox Kids Worldwide, Inc., Fox Kids Merger Corporation and
International Family Entertainment, Inc. (2)
2.2 Amended and Restated Agreement dated as of August 1, 1997 by and
among Fox Kids Worldwide, Inc., Saban Entertainment, Inc., Fox
Broadcasting Sub, Inc., Allen & Company Incorporated, Haim Saban
and certain entities listed on Schedule A thereto. (2)
3.1 Corrected Restated Certificate of Incorporation of the Registrant,
as amended. (2)
3.2 Amended and Restated Bylaws of the Registrant. (2)
4.1 Senior Notes Indenture dated as of October 28, 1997 between Fox
Kids Worldwide, Inc., as obligor, and The Bank of New York, as
trustee, and form of Notes. (2)
4.2 Senior Discount Notes Indenture dated as of October 28, 1997
between Fox Kids Worldwide, Inc., as obligor, and The Bank of New
York, as trustee, and form of Notes. (2)
10.1 Amended and Restated Strategic Stockholders Agreement dated as of
August 1, 1997 by and among Haim Saban, certain entities listed
on Schedule A thereto, Fox Broadcasting Company, Fox Broadcasting
Sub, Inc., and Allen & Company Incorporated. (2)
10.2 Form of Indemnification Agreement and Schedule of Indemnified
Parties. (2)
10.3 Employment Agreement dated as of December 22, 1995 between Fox Kids
Worldwide, L.L.C. and Haim Saban. (1) +
10.4 Employment Agreement dated as of September 1, 1996 between Fox Kids
Worldwide, Inc. and Shuki Levy; Stock Option Agreement dated as
of June 1, 1994 between Saban Entertainment, Inc. and Shuki
Levy, as amended by Amendment No. 1. (2) +
10.5 Employment Agreement dates as of April 1, 1999 by and among Fox
Family Management, L.L.C., Fox Family Worldwide, Inc. and Mel
Woods. (7) +
10.6 Employment Agreement dated as of September 15, 1997 between Fox
Kids Worldwide, Inc. and Donna Cunningham, as amended by
Amendment to Employment Agreement dated May 18, 1998. (6) +
10.7 Employment Agreement dated as of April 1, 1997 between Saban
Entertainment, Inc. and Mark Ittner. (6) +
10.8 Amendment No. 1 to Employment Agreement dated as of April 1, 1999
between Fox Family Worldwide, Inc. and Mark Ittner. (7) +
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10.9 Operating Agreement for Fox Kids Worldwide, L.L.C., dated as of
December 22, 1995, by and
among Saban Entertainment, Inc., FCN Holding, Inc. and Fox
Broadcasting Company. (1)
10.10 Amendment No. 1 to Operating Agreement dated as of September 26,
1996, by and among Saban Entertainment, Inc., FCN Holding, Inc.
and Fox Broadcasting Company. (1)
10.11 Amendment No. 2 to Operating Agreement dated as of July 31, 1997 by
and among Saban Entertainment, Inc., FCN Holding, Inc., Fox
Broadcasting Company and Fox Kids Worldwide, Inc. (2)
10.12 Agreement Re Transfer of LLC Interests dated as of July 31, 1997 by
and among Fox Kids Worldwide, Inc., Fox Kids Worldwide, L.L.C.
and Fox Broadcasting Company. (2)
10.13 Management Agreement dated as of December 22, 1995 by and among Fox
Kids Worldwide, L.L.C., Saban Entertainment, Inc. and FCNH Sub,
Inc. (1)
10.14 Stock Ownership Agreement dated as of December 22, 1995 by and
among Haim Saban, certain entities listed on Schedule 1.1(a)
thereto and Fox Kids Worldwide, L.L.C. (2)
10.15 Amendment No. 1 to Stock Ownership Agreement dated as of September
26, 1996 by and among Haim Saban, certain entities listed on
Schedule "A" thereto, Fox Broadcasting Sub, Inc., and Fox
Broadcasting Company. (2)
10.16 Home Video Rights Acquisition Agreement dated as of August 8, 1996
among Saban Entertainment, Inc., Ventura Film Distributors, B.V.
and Twentieth Century Fox Home Entertainment. (3)
10.17 Form of Fox Broadcasting Company Station Affiliate Agreement. (2)
10.18 Registration Agreement (the "Saban/Fox Registration Agreement")
dated as of December 22, 1995 among Saban Entertainment, Inc.,
Haim Saban, certain entities listed on Schedule A thereto, Fox
Broadcasting Company, Inc., and FCN Holding, Inc. (2)
10.19 Amendment No. 1 to Saban/Fox Registration Agreement dated as of
September 27, 1996. (2)
10.20 Guarantee dated as of December 22, 1995 by The News Corporation
Limited. (2)
10.21 10960 Wilshire Boulevard Office Lease dated as of July 17, 1995
between 10960 Property Corporation and Saban Entertainment,
Inc. (2)
10.22 First Amendment to 10960 Wilshire Boulevard Lease dated as of
August 1, 1997. (2)
10.23 Guaranty of Lease by The News Corporation Limited and News
Publishing Australia Limited in favor of Beacon Properties,
L.P., dated as of August 1, 1997. (2)
10.24 Production Facility Agreements dated as of June 7, 1994 and January
5, 1994 between Magic Movie Studios of Valencia, Ltd. And Saban
Entertainment, Inc. (2)
10.25 Second Amended and Restated Credit Agreement dated as of October
28, 1997 among FCN Holding, Inc., International Family
Entertainment, Inc. and Saban Entertainment, Inc. as Borrowers,
and Fox Kids Holdings, LLC, as Guarantor, and the initial
lenders named therein, as Initial Lenders, and Citicorp U.S.A.,
Inc. as Administrative Agent, and Citicorp Securities, Inc. and
Bank Boston, N.A., as Co-Arrangers. (3)
10.26 Letter Amendment No. 1 to the Second Amended and Restated Credit
Agreement dated as of November 18, 1997. (3)
10.27 Letter Amendment No. 2 to the Second Amended and Restated Credit
Agreement dated as of April 16, 1998. (5)
10.28 Letter Amendment and Waiver No. 3 to the Loan Documents dated as of
June 29, 1998. (6)
10.29 Letter Amendment and Waiver No. 4 to the Second Amended and
Restated Credit Agreement dated as of May 26, 1999.
10.30 Amended and Restated Subordinated Note Agreement dated as of May
19, 1998 by and among Fox Broadcasting Company, as lender, Fox
Family Worldwide, Inc., f/k/a Fox Kids Worldwide, Inc.,
Page 47
<PAGE>
as borrower, and Citicorp USA, Inc., as the Senior Representative
for the Senior Creditors. (6)
10.31 Amended and Restated Subordinated Note Agreement dated as of May
19, 1998 by and among Fox Family Worldwide, Inc. f/k/a Fox Kids
Worldwide, Inc., as borrower, News America Incorporated f/k/a
News American Holdings Incorporated, as lender, and Citicorp USA,
Inc., as the Senior Representative for the Senior Creditors (6)
10.32 Subordinated Note dated as of June 28, 1999 between Fox Family
Worldwide, Inc., as borrower, and Fox Broadcasting Company, as
Subordinated Lender.
10.33 Funding Agreement dated as of June 11, 1997 by and among The News
Corporation Limited, News Publishing Australia Limited and Fox
Kids Worldwide, Inc. (2)
10.34 Guaranty dated as of June 11, 1997 by The News Corporation Limited
in favor of International Family Entertainment, Inc. (2)
10.35 Distribution Agreement dated as of August 21, 1992, as amended,
between Saban International N.V. and Saban International
Services, Inc. on the one hand and Toei Company Ltd. (2)
10.36 Memorandum of Agreement dated as of January 19, 1996 between Saban
Merchandising, Inc. and Ventura Film Distributors, B.V. on the
one hand and Bandai America Incorporated, on the other hand. (2)
10.37 Letter Agreement dated as of January 1, 1995 between Saban
International, N.V. and Duveen Trading Ltd. (2)
10.38 Barter Syndication Agreement dated as of January 5, 1996 between
Saban Entertainment, Inc. and Fox Broadcasting Company, Inc. (2)
10.39 Agreement Re Registration Rights dated as of August 1, 1997 by
and among Saban Entertainment, Inc., Haim Saban, certain entities
listed on Schedule A to the Saban/Fox Registration Agreement, Fox
Broadcasting Company, FCN Holding, Inc., Fox Kids Worldwide,
Inc., Liberty Media Corporation and Liberty IFE, Inc. (2)
10.40 Amendment to Affiliation Agreement dated June 11, 1997, between
International Family Entertainment, Inc. and Satellite Services,
Inc. (Filed as exhibit 99.4.1 to International Family
Entertainment's Report on Form 8-K, dated June 11, 1997, and
incorporated herein by reference). (3)
10.41 Letter of Amendment dated as of May 16, 1996, amending the
International Family Entertainment, Inc. Family Channel
Affiliation Agreement dated as of December 28, 1989, between
Satellite Services, Inc. and International Family Entertainment,
Inc. (Filed as Exhibit 10.28 to International Family
Entertainment's Annual Report of Form 10-K/A for the year ended
December 31, 1996, and incorporated herein by reference). (3)
10.42 Program Time Agreement dated as of January 5, 1990, between The
Christian Broadcasting Network, Inc. and International Family
Entertainment, Inc. and Amendment No. 1 to Program Time
Agreement dated as of June 11, 1997. (3)
10.43 International Family Entertainment, Inc. Family Channel Affiliation
Agreement, dated as of December 28, 1989, between Satellite
Services, Inc. and International Family Entertainment, Inc.
(Filed as Exhibit 10.8 to International Family Entertainment's
Registration Statement on Form S-1 (NO. 33-45967), and
incorporated herein by reference). (3)
10.44 Amendment, dated as of January 1, 1994, amending the International
Family Entertainment, Inc. Family Channel Affiliation Agreement,
dated as of December 28, 1989, between Satellite Services, Inc.
and International Family Entertainment Inc. (3)
10.45 Registration Rights Agreement dated August 1, 1997 by and among Fox
Kids Worldwide, Inc., Liberty Media Corporation and Liberty IFE,
Inc. (2)
10.46 Galaxy V Transponder Purchase Agreement, dated as of January 23,
1992, between Hughes Communications Galaxy, Inc. and
International Family Entertainment, Inc. (Filed as Exhibit 10.8
to International Family Entertainment's Annual Report on Form
10-K for the year ended December 31, 1994, and incorporated
Page 48
<PAGE>
herein by reference). (3)
10.47 GE C-3/C-4 Satellite Transponder Sales Agreement dates as of July
7, 1989 between GE American Communications and The Christian
Broadcasting Network Inc. (Filed as an exhibit to International
Family Entertainment's Registration Statement on Form S-1 (No.
33-45967), and incorporated herein by reference). (3)
10.48 C-3/C-4 Satellite Transponder Sales Agreement Amendment Number One
dated as of December 15, 1989, between GE American
Communications, Inc. and the Christian Broadcasting Network,
Inc. (3)
10.49 C-3/C-4 Satellite Transponder Sales Agreement Amendment Number Two
dated as of December 15, 1989, between GE American
Communications, Inc. and the Christian Broadcasting Network,
Inc. (3)
10.50 Letter of Amendment dated September 30, 1991, re: C-3/C-4 Satellite
Transponder Sales Agreement by and between GE American
Communications, Inc. and The Christina Broadcasting Network,
Inc. as predecessor in interest to International Family
Entertainment, Inc. (3)
10.51 C-3/C-4 Satellite Transponder Sales Agreement Amendment Number
Four dated as of November 24, 1992 by and between GE American
Communications, Inc. and International Family Entertainment, Inc.
License Agreement dated as of June 26, 1998 among Twentieth
Century Fox Film Corporation and MTM Holding Company, Inc., MTM
Enterprises, Inc. and certain of their respective subsidiaries.
(3)
10.52 Subscription Agreement between Fox Kids Europe Holdings, Inc. and
Fox Broadcasting Company, dated as of June 28, 1999.
10.53 Exchange Agreement by and among Fox Broadcasting Company, Fox
Family Worldwide and Fox Kids Europe Holdings, Inc., dated as of
June 28, 1999.
12.1 Ratio of Earnings (Deficiency) to Fixed Charges.
21.1 Subsidiaries of the registrant.
27.1 Financial Data Schedule.
- ------------
(1) Previously filed as an exhibit to the Registrant's Form S-1 on
September 27, 1996
(2) Previously filed as an exhibit to the Registrant's Amendment No. 1
to Form S-1 on January 26, 1998
(3) Previously filed as an exhibit to the Registrant's Amendment No. 2
to Form S-1 on February 20, 1998
(4) Previously filed as an exhibit to the Registrant's Amendment No. 4
to Form S-4 on March 25, 1998
(5) Previously filed as an exhibit to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998
(6) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended June 30, 1998
(7) Previously filed as an exhibit to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1999
(8) Portions of exhibits deleted and granted confidential treatment by
the Securities and Exchange Commission pursuant to a request for
confidentiality.
+ Denotes employment contract.
(b) Reports on Form 8-K
No current Reports on Form 8-K were filed by the Company during the
quarter ended June 30, 1999.
Supplemental Information to be furnished with reports filed pursuant to
Section 15(d) of the Act by Registrants which have not registered securities
pursuant to Section 12 of the Act: No annual report or proxy material has been
sent to security holders. A copy of this Report will be sent to security holders
of the Registrant.
Page 49
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunder duly authorized.
Dated: September 27, 1999
FOX FAMILY WORLDWIDE, INC.
/S/ MEL WOODS
--------------------------
Mel Woods
President, Chief
Operating Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates stated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ HAIM SABAN Chairman of the Board and Chief September 27, 1999
- --------------------- Executive Officer (Principal
HAIM SABAN Executive Officer)
/S/ MEL WOODS President, Chief Operating September 27, 1999
- --------------------- Officer, Chief Finanical Officer
MEL WOODS and Director
(Principal Financial Officer)
/S/ MARK ITTNER Senior Vice President of September 27, 1999
- --------------------- Finance and
MARK ITTNER Chief Accounting Officer
(Principal Accounting Officer)
/S/ SHUKI LEVY Director September 27, 1999
- ----------------------
SHUKI LEVY
/s/ LAWRENCE JACOBSON Director September 27, 1999
- ----------------------
LAWRENCE JACOBSON
</TABLE>
Page 50
<PAGE>
INDEX TO FINANCIAL STATEMENT AND SCHEDULES
FOX FAMILY WORLDWIDE, INC.
Report of Independent Public Accountants.................................F-2
Report of Independent Auditors ..........................................F-3
Consolidated Balance Sheets as of June 30, 1998 and 1999.................F-4
Statements of Operations for each of the three years
in the period ended June 30, 1999......................................F-5
Statements of Stockholders' Equity (Deficit) and Comprehensive Income
(Loss) for each of the three years in the period ended June 30, 1999...F-6
Statements of Cash Flows for each of the three years
in the period ended June 30, 1999......................................F-7
Notes to Financial Statements............................................F-9
FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants
SCHEDULE I: CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Fox Family Worldwide, Inc.:
We have audited the accompanying consolidated balance sheets of Fox Family
Worldwide, Inc. and its subsidiaries as of June 30, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity (deficit)
and comprehensive income (loss), and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
and its subsidiaries as of June 30, 1998 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
September 16, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
FCN Holding, Inc., Saban Entertainment, Inc. and Fox Kids Worldwide, L.L.C.
We have audited the combined statements of operations, stockholders' equity
(deficit) and comprehensive income (loss), and cash flows of FCN Holding, Inc.,
Saban Entertainment, Inc. and Fox Kids Worldwide, L.L.C. (from and after the
date of the Reorganization (Note 1), Fox Kids Worldwide, Inc.) for the year
ended June 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined results of operations and cash flows of
FCN Holding, Inc., Saban Entertainment, Inc. and Fox Kids Worldwide, L.L.C.
(from and after the date of the Reorganization (Note 1), Fox Kids Worldwide,
Inc.) for the year ended June 30, 1997, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
September 29, 1997
F-3
<PAGE>
FOX FAMILY WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999
---------- --------
IN THOUSANDS,
EXCEPT SHARE DATA
<S> <C> <C>
ASSETS:
Cash and cash equivalents............................... $ 82,313 $ 46,858
Restricted cash......................................... 8,000 8,204
Accounts receivable, net of allowance for doubtful
accounts of $1,594 and $2,493 at June 30, 1998
and 1999, respectively................................ 132,053 145,050
Amounts receivable from related parties................. 58,043 19,082
Programming costs, net.................................. 453,608 538,219
Property and equipment, net............................. 60,805 58,096
Deferred income taxes................................... 39,779 38,829
Intangible assets, net.................................. 1,594,286 1,539,852
Other assets, net....................................... 87,137 77,684
---------- ---------
Total assets........................................ $2,516,024 $2,471,874
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Accounts payable........................................ $ 37,668 $ 44,743
Accrued liabilities..................................... 204,679 190,664
Deferred revenue........................................ 74,518 59,314
Accrued participations.................................. 52,601 38,860
Deferred income taxes................................... 21,698 20,748
Bank and other debt..................................... 1,746,510 1,726,315
Amounts payable to related parties...................... 2,954 113,973
---------- ---------
Total liabilities................................... 2,140,628 2,194,617
---------- ---------
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, $0.0001 par value; 16,000,000
shares authorized, 160,000 shares
issued and outstanding at June 30, 1998 and 1999,
respectively........................................ -- --
Class B Common Stock, $0.0001 par value; 16,000,000
shares authorized, 15,840,000 shares
issued and outstanding at June 30, 1998 and 1999,
respectively........................................ 16 16
Contributed capital................................... 60,731 60,731
Accumulated other comprehensive loss.................. (1,201) (1,893)
Accumulated deficit................................... (29,150) (126,597)
---------- ---------
Total stockholders' equity (deficit)................ 30,396 (67,743)
---------- -----------
Total liabilities and stockholders' equity (deficit) $2,516,024 $2,471,874
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
FOX FAMILY WORLDWIDE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------
1997 1998 1999
(COMBINED) (CONSOLIDATED) (CONSOLIDATED)
--------- ------------- -------------
IN THOUSANDS
<S> <C> <C> <C>
Revenues.................................. $307,820 $664,458 $ 635,273
Costs and expenses:
Production and programming............ 186,575 356,664 315,504
Selling, general and administrative... 61,263 141,394 159,973
Depreciation.......................... 1,203 9,370 10,083
Amortization of intangibles........... -- 37,557 40,434
--------- --------- ----------
249,041 544,985 525,994
Operating income.......................... 58,779 119,473 109,279
Equity in loss of unconsolidated affiliate 1,546 6,790 5,088
Other expense (income), net............... -- 8 (506)
Interest expense, net..................... 2,226 134,002 169,107
--------- --------- ----------
Income (loss) before provision for
income taxes.......................... 55,007 (21,327) (64,410)
Provision for income taxes................ 14,567 3,446 1,989
--------- --------- ----------
Net income (loss)......................... $ 40,440 $(24,773) $ (66,399)
========= ========= ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
FOX FAMILY WORLDWIDE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
AND COMPREHENSIVE INCOME (LOSS)
(In Thousands)
<CAPTION>
PREFERRED CLASS A ACCUMULATED
MEMBERS INTEREST COMMON STOCK OTHER RETAINED
------------------ ---------------- CONTRIBUTED COMPREHENSIVE EARNINGS COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (LOSS) (DEFICIT) TOTAL INCOME (LOSS)
------ ------ ------ ------ ----------- ------------- --------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1996 (combined)............. -- $ 40,000 3 $ 2 $ 49,245 $ (11) $ (16,405) $ 72,831
Issuance of Preferred
Class A Members
Interest.................. -- 10,000 -- -- -- -- -- 10,000
Capital contribution....... -- -- (1) (1) 1 -- -- --
Capital contributions...... -- -- -- -- 5,376 -- -- 5,376
Related party tax
obligation................ -- -- -- -- 4,832 -- -- 4,832
Exchange loss on
translation of foreign
subsidiaries'
financial statements...... -- -- -- -- -- (792) -- (792) $ (792)
Net income................. -- -- -- -- -- -- 40,440 40,440 40,440
------ ------ ------ ------ ---------- --------- ----------- -------- --------
Balance at June 30, 1997
(combined).................. -- 50,000 2 1 59,454 (803) 24,035 132,687 $ 39,648
========
Transactions related
to reorganization:
Exchange of Preferred
Class A
Members Interest......... -- (50,000) -- -- -- -- -- (50,000)
Issuance of Class A
Common Stock............. -- -- 160 -- -- -- -- --
Issuance of Class B
Common Stock............. -- -- 15,840 16 (5) -- -- 11
Exchange of Common
Stock.................... -- -- (2) (1) -- -- -- (1)
Capital contributions...... -- -- -- -- 1,282 -- -- 1,282
Dividends on Series A
Mandatorily
Redeemable Preferred
Stock..................... -- -- -- -- -- -- (28,412) (28,412)
Exchange loss on
translation of foreign
subsidiaries'
financial statements...... -- -- -- -- -- (398) -- (398) $ (398)
Net loss................... -- -- -- -- -- -- (24,773) (24,773) (24,773)
------ ------ ------ ------ ---------- --------- ----------- -------- --------
Balance at June 30, 1998
(consolidated) -- -- 16,000 16 60,731 (1,201) (29,150) 30,396 $(25,171)
========
Dividends on Series A
Mandatorily
Redeemable Preferred
Stock..................... -- -- -- -- -- -- (31,048) (31,048)
Exchange loss on
translation of foreign
subsidiaries'
financial statements...... -- -- -- -- -- (692) -- (692) $ (692)
Net loss................... -- -- -- -- -- -- (66,399) (66,399) (66,399)
------ ------ ------ ------ ---------- --------- ----------- -------- --------
Balance at June 30, 1999
(consolidated).............. -- $ -- 16,000 $ 16 $ 60,731 $ (1,893) $(126,597) $(67,743) $(67,091)
====== ====== ====== ====== ========== ========= ========== ========= =========
</TABLE>
See accompanying notes
F-6
<PAGE>
FOX FAMILY WORLDWIDE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------
1997 1998 1999
(COMBINED) (CONSOLIDATED) (CONSOLIDATED)
---------- -------------- -------------
IN THOUSANDS
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................ $ 40,440 $ (24,773) $ (66,399)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Amortization of programming costs.............. 144,713 291,878 277,808
Depreciation................................... 1,203 9,370 10,083
Amortization of intangibles.................... -- 37,557 40,434
Amortization of debt issuance costs............ -- 2,453 3,253
Equity in loss of unconsolidated affiliate..... 1,546 6,790 5,088
Non-cash interest expense...................... -- 50,410 66,746
Changes in operating assets and liabilities:
Restricted cash............................... -- -- (204)
Accounts receivable........................... (10,210) 61,957 (12,997)
Amounts receivable from related parties....... 3,860 (29,836) 38,961
Other assets.................................. (1,664) (59,004) 4,699
Accounts payable and accrued liabilities...... 17,255 (40,807) (6,940)
Accrued participations........................ 10,103 (11,442) (13,741)
Deferred income taxes......................... 14,665 7,977 --
Deferred revenue.............................. (27,088) 13,309 (15,204)
------- --------- ---------
Net cash provided by operating activities 194,823 315,839 331,587
------- --------- ---------
INVESTING ACTIVITIES:
Purchase of property and equipment............... (3,435) (10,515) (11,394)
Proceeds from sale of property and equipment
and assets held for sale, net.................. -- 3,376 --
Additions to production and programming costs.... (201,814) (326,092) (358,399)
Acquisition of International Family
Entertainment, Inc............................. -- (1,370,076) --
Intangible assets................................ -- -- 14,000
Cash acquired in acquisitions.................... -- 19,296 --
Sale of marketable securities.................... -- 61,396 --
Other............................................ (8,648) (4,390) (4,279)
--------- ----------- ---------
Net cash used in investing activities..... (213,897) (1,627,005) (360,072)
--------- ----------- ----------
FINANCING ACTIVITIES:
Proceeds from bank borrowings.................... 52,569 1,282,063 25,622
Payments on bank borrowings...................... (9,917) (837,924) (137,296)
Dividends on Preferred Stock..................... -- (28,412) (31,048)
Proceeds from issuance of Preferred Class A
Members interest............................... 10,000 -- --
Proceeds from NAHI Bridge loan................... -- 345,514 --
Paydown on NAHI Bridge loan...................... -- (250,886) (267)
Proceeds from Fox Subordinated Debt.............. -- -- 25,000
Issuance of Senior Notes......................... -- 475,000 --
Issuance of Senior Discount Notes................ -- 375,001 --
Issuance of Common Stock......................... -- 10 --
Advances (to) from related parties............... (20,285) 4,236 111,019
Capital contributions to related parties......... (460) -- --
-------- --------- ---------
Net cash provided by (used in)financing
activities............................. 31,907 1,364,602 (6,970)
-------- --------- ---------
Increase (decrease) in cash and cash equivalents. 12,833 53,436 (35,455)
Cash and cash equivalents at beginning of year... 16,044 28,877 82,313
-------- --------- ---------
Cash and cash equivalents at end of year......... $ 28,877 $ 82,313 $ 46,858
======== ========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for:
Interest (net of amounts capitalized)......... $ 1,466 $ 65,860 $ 86,874
======== ========== =========
Income taxes.................................. $ 3,553 $ 2,202 $ 2,296
======== ========== =========
</TABLE>
See accompanying notes.
F-7
<PAGE>
FOX FAMILY WORLDWIDE, INC.
STATEMENTS OF CASH FLOWS--(CONTINUED)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTMENT ACTIVITIES
YEAR ENDED JUNE 30, 1997
Amounts payable to a related party of $5,835,000 were forgiven and recorded
as contributed capital.
The Company recorded $4,832,000 arising under a tax sharing obligation which
was deemed to be contributed capital by the related party.
YEAR ENDED JUNE 30, 1998
Amounts payable to a related party of $1,282,000 were forgiven and recorded
to contributed capital.
The Company issued a subordinated note to Fox Broadcasting ("Fox") in the
amount of $108,672,000 in exchange for Fox's $50,000,000 Preferred Class A
Members Interest in the LLC, its $50,000,000 contingent note receivable and
certain other Company obligations.
Preferred Stock in the amount of $345,000,000 was issued in connection with
the acquisition of International Family Entertainment, Inc.
Certain assets held for sale were sold by the Company. In connection with the
sale, the Company agreed to assume a $10,000,000 bank loan, the Company's
$6,720,000 note payable to an outside party was forgiven and marketable
securities of $1,737,000 were transferred to the Company.
See accompanying notes.
F-8
<PAGE>
FOX FAMILY WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENT PRESENTATION AND ORGANIZATION
On November 1, 1995 (the "Effective Date"), FCN Holding, Inc. ("FCN Holding")
and Saban Entertainment, Inc. ("Saban") formed a joint venture, Fox Kids
Worldwide, L.L.C. (the "LLC"), a limited liability company, for the purpose of
jointly expanding the worldwide children's businesses of FCN Holding and Saban.
On August 1, 1997, a reorganization referred to below was effected pursuant to
which Saban, FCN Holding and the LLC became wholly-owned subsidiaries of Fox
Family Worldwide, Inc. (formerly Fox Kids Worldwide, Inc.) ("Fox Family
Worldwide" or the "Company"). As a result of the formation of the joint venture
and the common management of the joint venture businesses, the respective
assets, liabilities and operations of Saban, FCN Holding and the LLC have been
combined at historical cost from and after the Effective Date. The combined
financial statements of the Company (as the deemed successor to Saban, FCN
Holding and the LLC) included herein represent the historical financial
statements of FCN Holdings (after giving effect to such combination as of the
Effective Date).
The Company is an integrated global children's and family entertainment
company, which develops, acquires, produces, broadcasts and distributes quality
television programming. The Company's principal operations comprise (i)
International Family Entertainment, Inc. ("IFE"), which operates the Fox Family
Channel, (ii) Saban, whose library of approximately 5,800 half-hours of
completed and in-production children's programming is among the largest in the
world, (iii) the Fox Kids Network ("Fox Kids"), one of the leading U.S.
children's broadcast television network, and a growing business of Fox
Kids'-branded cable and DTH satellite channels operating in approximately 39
countries and 13 languages worldwide. Through these operating units, the Company
has the ability to manage properties and brands from their creation through
production, distribution and merchandizing of related consumer products. As the
distributor of Fox Kids programming on Fox Kids and owner and operator of the
Fox Family Channel, the Company controls the distribution of programming on both
a major broadcast network and a widely distributed cable network.
Television production, distribution and broadcast are speculative and
inherently risky. There can be no assurance of the economic success of
television programming since the revenues derived from the production,
distribution and broadcast (which do not necessarily bear a direct correlation
to the production or distribution costs incurred) depend primarily upon its
acceptance by the public, which cannot be predicted. The commercial success of
programming also depends upon the quality and acceptance of other competing
programming released into the marketplace at or near the same time, the
availability of alternative forms of entertainment and leisure time activities,
general economic conditions and other tangible and intangible factors, all of
which can change and cannot be predicted with certainty. The success of the
Company's television programming also may be impacted by prevailing advertising
rates, which are subject to fluctuation. Therefore, there is a risk that not all
of the Company's television projects will be commercially successful, resulting
in costs not being recouped or anticipated profits not being realized.
The financial statements of the Company as of June 30, 1997 together with the
results of operations for the year ended June 30, 1997, reflect the combined
financial statements of FCN Holding, Saban and the LLC. The financial statements
of the Company as of and for the years ended June 30, 1998 and 1999 reflect the
consolidated financial statements of Fox Family Worldwide and subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
F-9
<PAGE>
FOX FAMILY WORLDWIDE, INC.
THE REORGANIZATION
The Company was incorporated in August 1996 under Delaware law as a holding
company of FCN Holding and Saban. Between August 1996 and August 1997,
the Company conducted no business or operations. On August 1, 1997, in
connection with the Company's acquisition of IFE (see Note 3), (i) a wholly
owned indirect subsidiary of Fox Broadcasting Company ("Fox Broadcasting"),
exchanged its capital stock in FCN Holding, which indirectly owns Fox Children's
Network, Inc. ("FCN") for 7,920,000 shares of Class B Common Stock of the
Company, (ii) the other stockholder of FCN Holding exchanged its capital stock
in FCN Holding for an aggregate of 160,000 shares of Class A Common Stock of the
Company, (iii) Haim Saban and the Saban Stockholders exchanged their capital
stock of Saban for an aggregate of 7,920,000 shares of Class B Common Stock of
the Company, and (iv) all outstanding management options to purchase Saban
capital stock became options to purchase an aggregate of 646,548 shares of Class
A Common Stock of the Company (together, the "Reorganization"). In addition, Fox
Broadcasting exchanged its preferred, non-voting interest in the LLC and its $50
million contingent note receivable from the LLC for the Fox Subordinated Note.
In connection with the acquisition of IFE, the Company issued the NAHI Bridge
Note to News America Holding, Inc. ("NAHI") upon substantially the same terms
and conditions as the Fox Subordinated Note. In addition, the Company issued to
Liberty IFE, Inc. $345,000,000 of Series A Mandatorily Redeemable Preferred
Stock.
As part of the formation of the LLC, Saban, the Saban Stockholders, Fox
Broadcasting, FCN Holding and one of its subsidiaries entered into a Strategic
Stockholders Agreement dated December 22, 1995, which provided, among other
things, for restrictions on transfer of the stock held by the parties, certain
voting rights between them, as well as the terms of the Reorganization. The
parties to the Strategic Stockholders Agreement also agreed to provide Haim
Saban and the Saban Stockholders and Fox Broadcasting certain registration
rights. On August 1, 1997, the Strategic Stockholders Agreement was amended and
restated (the "Amended and Restated Strategic Stockholders Agreement") to add
provisions regarding voting between Fox Broadcasting and the former Saban
Stockholders.
As part of the Amended and Restated Strategic Stockholders Agreement, Haim
Saban agreed with Fox Broadcasting Sub as follows: if the Company is unable to
meet its obligations (i) to pay any dividend under the terms of the Series A
Mandatorily Redeemable Preferred Stock or to redeem the Series A Mandatorily
Redeemable Preferred Stock, (ii) under its lease of 10960 Wilshire Boulevard,
Los Angeles, California, or any obligation guaranteed by News Corp., or (iii)
under the Funding Agreement, and either News Corp. or News Publishing Australia
Limited ("NPAL"), a wholly owned subsidiary of News Corp., provides funds to the
Company, the advance will be treated as a loan, or if Citibank, in its sole
discretion as administrative agent under the Amended Credit Facility, determines
it is unacceptable to treat the advance as a loan, the advance will be treated
as preferred stock. To the extent the advance is treated as a loan and the
amount exceeds $50,000,000, if the advance is not repaid after 18 months (or 12
months for all advances after the third anniversary of the agreement), all or
any portion of the advance in excess of $50,000,000 may be converted into shares
of Class B Common Stock. If Fox Broadcasting Sub elects to convert any portion
of the advance into Class B Common Stock, Haim Saban will have the right to
purchase from Fox Broadcasting up to 50% of the number of shares of Class B
Common Stock issued pursuant to the conversion. If instead, the advance is
treated as preferred stock, the first $50,000,000 of the advance shall be
applied to the issuance of shares of Series B Preferred Stock, and the remainder
of the advance shall be applied to the issuance of Series C Convertible
Preferred Stock, which is convertible into Class B Common Stock at the election
of the holder. Each of the Series B and Series C Preferred Stock will have a
liquidation preference equal to its issue price of $100,000 per share. The
Series B and Series C Preferred Stock will be entitled to dividends at an annual
rate of 11.7% of its liquidation value. If Fox Broadcasting elects to convert
the Series C Convertible Preferred Stock into Class B Common Stock, Haim Saban
will have the right to purchase up to 50% of the number of shares of Class B
Common Stock issued pursuant to the conversion. Notwithstanding the agreements,
News Corp. has no obligation to make any advances, and the Company has no
F-10
<PAGE>
obligation to accept any amounts from News Corp.
In connection with the formation of the LLC and pursuant to a Stock Ownership
Agreement dated December 22, 1995, the LLC was granted an option to purchase,
upon the occurrence of certain events, all of the Class B Common Stock held by
the Saban Stockholders, and any of their transferees. The option may be
exercised as follows: (i) for a period of one year following the death of Haim
Saban, if he dies prior to December 22, 2012; (ii) upon delivery of written
notice by Fox Broadcasting at any time on or after December 22, 2002, or before
December 22, 2012; or (iii) upon receipt by Fox Broadcasting of written notice
(which generally cannot be delivered prior to December 22, 2000) from Haim Saban
of his desire to cause Fox Broadcasting to purchase all of the shares of Class B
Common Stock held by the Saban Stockholders. The LLC paid to the Saban
Stockholders an aggregate of $80,100,000 for the grant of the option. The
purchase price formula under the option is based on the fair market value of the
Company. In September 1996 the LLC distributed the Stock Ownership Agreement to
FCN Holding, which immediately distributed that agreement to Fox Broadcasting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements for the years ended June 30, 1998 and
1999 include the accounts of FCN Holding, Fox Kids Worldwide LLC, Saban, IFE and
all of their majority-owned and controlled subsidiaries. The Company's
investments in related companies which represent a 20% to 50% ownership interest
over which the Company has significant influence but not control are accounted
for using the equity method. All significant intercompany balances have been
eliminated.
As permitted by Statement of Financial Accounting Standards ("SFAS") No. 53,
"Financial Reporting by Producers and Distributors of Motion Pictures," the
Company has presented an unclassified consolidated balance sheet.
REVENUE RECOGNITION
Revenues from television, music, and merchandising lease agreements, which
provide for the receipt by the Company of nonrefundable guaranteed amounts, are
recognized when the lease period begins, collectibility is reasonably assured
and the product is available pursuant to the terms of the lease agreement.
Amounts in excess of minimum guarantees under these lease agreements are
recognized when earned. Amounts received in advance of recognition of revenue
are recorded as deferred revenue. Advertising revenue is recognized as earned in
the period in which the advertising commercials are telecast. The Company
generally provides advertisers with guaranteed ratings in connection with its
domestic network broadcasts. Revenue is recorded net of estimated shortfalls,
which are settled either by additional advertising time ("make goods") or cash
refunds to the advertiser. Subscriber revenue is recognized based upon the
reported level of subscribers. Barter revenues, representing the exchange of
programming for advertising time on a television station, are recognized upon
the airing of an advertisement during such advertising time.
PRODUCTION AND PROGRAMMING COSTS
Programming costs, consisting of direct production costs, acquisition of
story rights, costs to acquire distribution rights, allocable production
overhead, interest and exploitation costs which are expected to benefit future
periods are capitalized as incurred. The individual film forecast method is used
to amortize programming costs in which the Company owns or controls distribution
rights. Under such method, costs accumulated in the production of a program are
amortized in the proportion that gross revenues realized bear to management's
estimate of the total gross revenues expected to be received. Estimated
liabilities for residuals and participations are accrued and expensed in the
same manner as programming cost inventories are amortized.
F-11
<PAGE>
For programs in which the Company acquires only broadcast rights, the Company
amortizes such program costs over the estimated number of telecasts. The Company
evaluates its programming rights for possible changes in the estimated number of
telecasts or the possibility of impairment.
Revenue estimates on a program-by-program basis are reviewed periodically by
management and are revised, if warranted, based upon management's appraisal of
current market conditions. Based on this review, if estimated future gross
revenues from a program are not sufficient to recover the unamortized costs, the
unamortized programming cost will be written down to net realizable value.
Production and programming costs also include the use of satellite
transponders and costs associated with engineering and technical support
services.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with high credit
quality financial institutions or in a mutual fund which invests in government
securities and therefore are subject to reduced risk. The Company has not
incurred any losses relating to these investments.
The Company leases its product to distributors and broadcasters and sells
advertising time throughout the world. The Company performs periodic credit
evaluations of its customers' condition and generally does not require
collateral. Generally, payment is received in full or in part prior to the
Company's release of product to such distributors and broadcasters. At June 30,
1998 and June 30, 1999, substantially all of the Company's trade receivables
were from customers in the entertainment or broadcast industries or from
advertising agencies. Receivables generally are due within 30 days. Credit
losses relating to customers in the entertainment and broadcast industries or
advertising agencies consistently have been within management's expectations.
CASH AND CASH EQUIVALENTS
For the purposes of balance sheet classification and the statement of cash
flows, the Company considers all highly liquid investments that are both readily
convertible into cash and with maturities when purchased of three months or less
to be cash equivalents.
RESTRICTED CASH
Restricted cash represents amounts held by financial institutions as
collateral on outstanding debt.
FINANCIAL INSTRUMENTS
Financial instruments are carried at historical cost which approximate fair
value.
PROPERTY AND EQUIPMENT, NET
Property and equipment are stated at cost. Property and equipment acquired
as part of the acquisition of IFE is stated at estimated fair market value.
Depreciation of property and equipment is computed under the straight-line
method over the expected useful lives of applicable assets, ranging from three
to eight years. Leasehold improvements are amortized under the straight-line
method over the shorter of the estimated useful lives of the assets or the terms
of the related leases. When property is sold or otherwise disposed of, the cost
and related accumulated depreciation is removed from the accounts, and any
resulting gain or loss is included in income. The costs of normal maintenance,
repairs and minor replacements are charged to expense when incurred.
F-12
<PAGE>
INTANGIBLE ASSETS, NET
The intangible assets resulting from the acquisition of IFE are amortized
over an estimated useful life of 40 years using the straight-line method. The
Company has adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of." This statement establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used for long-lived assets and certain identifiable intangibles to be disposed
of. The carrying value of existing assets are reviewed when events or changes in
circumstances indicate that an impairment test is necessary in order to
determine if an impairment has occurred. When factors indicate that such assets
should be evaluated for possible impairment, the Company will estimate the
future cash flows expected to result from the use of the assets and their
eventual disposition, and compare the amounts to the carrying value of the
assets to determine if an impairment loss has occurred. Accumulated amortization
of intangibles as of June 30, 1998 and 1999 was $37,557,000 and $77,991,000,
respectively. For the year ended June 30, 1999, intangible assets related to the
IFE acquisition was reduced by $14,000,000 due to the favorable resolution of
certain pre-acquisition tax contingencies.
OTHER ASSETS, NET
Included within other assets, net are debt issuance costs and deferred loan
fees incurred in connection with the issuance of the Senior Notes and the Senior
Discount Notes and the Amended Credit Facility (see Note 6). Such costs and fees
are being amortized over the term of the debt using the straight line method.
Accumulated amortization of debt issuance costs and deferred loan fees was
$2,453,000 and $5,706,000 as of June 30, 1998 and 1999, respectively.
FOREIGN CURRENCY TRANSLATION AND CUMULATIVE ADJUSTMENT
Saban International N.V. (SINV), which after the Effective Date is deemed
to be a wholly-owned subsidiary of the Company, uses the U.S. dollar as the
functional currency. All other foreign subsidiaries of the Company use local
currency as the functional currency. Assets and liabilities are translated into
U.S. dollars at current exchange rates. Revenue and expenses have been
translated into U.S. dollars based generally on the average rates prevailing
during the period.
Gains and losses arising from foreign currency transactions are included in
determining net income for the period. The aggregate transaction losses for the
years ended June 30, 1997, 1998 and 1999, were $(643,000), $(1,442,000), and
($1,596,000), respectively.
The cumulative translation adjustment included in accumulated other
comprehensive income (loss) in stockholders' equity (deficit) at June 30, 1997,
1998 and 1999, represents the Company's net unrealized exchange losses on the
translation of foreign subsidiaries' financial statements.
COMPREHENSIVE INCOME (LOSS)
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective for the year beginning July 1, 1998. This statement establishes
standards for the reporting and display of comprehensive income (loss) and its
components in financial statements and thereby reports a measure of all changes
in equity of an enterprise that result from transactions and other economic
events other than transactions with owners.
INCOME TAXES
In accordance with SFAS No. 109 "Accounting for Income Taxes," deferred tax
assets and liabilities are recognized with respect to the tax consequences
attributable to differences between the financial statement carrying values and
tax bases of existing assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which these temporary differences are expected to be
recovered or settled. Further, the effect on deferred tax assets and liabilities
of changes in tax rates is recognized in income in the period that included the
enactment date.
F-13
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes
including amortization of programming costs. Actual results could differ from
those estimates. Management periodically reviews and revises its estimates of
future airings and revenues, as necessary, which may result in revised
amortization of its programming costs. Results of operations may be
significantly affected by the periodic adjustments in such amortization.
STOCK-BASED COMPENSATION
The Company accounts for its stock compensation arrangements under the
provisions of Accounting Principles Board ("APB") No. 25, "Accounting for Stock
Issued to Employees." As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant or allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma disclosures for employee
stock option grants as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No.
123.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for all quarters of
fiscal years beginning after June 15, 2000. This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
The Company is currently reviewing this statement and will apply such
provisions as deemed appropriate.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' financial statements
to conform with current classifications.
3. ACQUISITION OF INTERNATIONAL FAMILY ENTERTAINMENT, INC.
On August 1, 1997, the Company acquired a 50.7% interest in IFE through the
purchase for $35 per share of the stock owned by M.G. "Pat" Robertson, Tim
Robertson and certain trusts of which they are trustees, The Christian
Broadcasting Network, Inc. ("CBN") and Regent University (together, the
"Privately Owned Shares") and the exchange by Liberty IFE, Inc. ("Liberty IFE")
of all of the IFE stock owned by it and $23,000,000 principal amount of 6%
Convertible Secured Notes due 2004 of IFE (the "Convertible Notes") (which have
since been retired) for shares of Series A Mandatorily Redeemable Preferred
Stock of the Company. On September 4, 1997, the Company consummated a merger to
acquire the remaining shares of IFE from the public shareholders. Total
consideration for the IFE Acquisition was approximately $1.9 billion including
assumption of liabilities. The Company paid approximately $545,000,000 for the
Privately Owned Shares and issued $345,000,000 of its Series A Mandatorily
Redeemable Preferred Stock to Liberty IFE as payment for the IFE stock and the
Notes. The balance of the consideration was paid to acquire the publicly traded
shares through the merger, to cash out existing options to acquire shares of IFE
stock held by IFE senior executives and employees, and to assume IFE's existing
bank debt, which has since been retired.
The Company financed the IFE Acquisition, in part, by borrowing $1.25 billion
pursuant to the Existing Credit Facility as described below. On August 1, 1997,
the Company borrowed $602,000,000 under the Existing Credit Facility to finance
the purchase price of the Privately Owned Shares (and to refinance certain
indebtedness of Saban outstanding on the closing date of the acquisition of the
F-14
<PAGE>
Privately Owned Shares). On September 4, 1997, the Company borrowed
$648,000,000 under the Existing Credit Facility in order to finance in part the
cash consideration payable to the remaining former public holders of the
outstanding shares of IFE stock for their shares in the merger, to cash out
existing options held by IFE senior executives and employees, to refinance
certain indebtedness of IFE and to pay certain related fees and expenses.
The IFE Acquisition has been accounted for as a purchase. IFE's assets and
liabilities have been recorded in the Company's financial statements at their
estimated fair values at the acquisition date allocated as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable........................................ $ 130,694
Film and television costs.................................. 181,360
Other assets............................................... 135,877
Intangible assets.......................................... 1,631,843
Liabilities assumed, including severance and
related reserves of $36,500............................. (383,994)
Cash on hand............................................... 19,296
Preferred stock issuance................................... (345,000)
----------
Cash purchase price........................................ $1,370,076
==========
</TABLE>
The Company has made severance and related payments of $19,850,000 from the
date of acquisition to June 30, 1998 and $8,873,000 for the year ended June 30,
1999. The results of operations of IFE since the purchase date of August 1, 1997
have been included with the Company's results of operations.
The following unaudited pro forma information for the two years ended June
30, 1997 and 1998 reflect the results of the Company's consolidated operations
as if the acquisition and related financing occurred at the beginning of each
period presented. The unaudited pro forma consolidated financial results are not
necessarily indicative of the actual results that would have occurred had the
acquisition occurred at the beginning of each period presented (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Revenues.......................................... $614,618 $688,943
Operating income.................................. 124,793 123,798
Net loss.......................................... $(32,129) $(45,610)
</TABLE>
4. PROGRAMMING COSTS
Programming costs, net of accumulated amortization, are comprised of the
following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------------------
NET
ACCUMULATED PROGRAMMING
COST AMORTIZATION COSTS
----------- ------------ -----------
<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>
F-15
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------------
NET
ACCUMULATED PROGRAMMING
COST AMORTIZATION COSTS
---------- ------------ -----------
<S> <C> <C> <C>
Children's programming............. $1,289,026 $1,064,308 $ 224,718
Family programming, movies and
mini-series..................... 562,304 328,291 234,013
Projects in production............. 72,172 -- 72,172
Development........................ 7,316 -- 7,316
---------- ----------- ----------
$1,930,818 $1,392,599 $ 538,219
========== ========== ===========
</TABLE>
Future estimated program commitments at June 30, 1999 are approximately $167
million.
Based on the Company's estimate of future revenues, approximately 69% of
unamortized released programming costs at June 30, 1999 will be amortized during
the three years ending June 30, 2002. Interest amounting to $1,146,000,
$3,160,000, and $3,128,000 was capitalized to programming costs for the years
ended June 30, 1997, 1998 and 1999, respectively. Capitalized depreciation
expense for the years ended June 30, 1997, 1998 and 1999 amounted to
$2,023,000, $2,459,000 and $4,020,000, respectively.
5. PROPERTY AND EQUIPMENT, NET
Property and equipment is comprised of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999
--------- ---------
<S> <C> <C>
Studio and other equipment................... $ 19,087 $ 25,424
Satellite transponders....................... 39,596 39,596
Office furniture and fixtures................ 13,451 16,119
Leasehold improvements....................... 6,161 7,869
Other........................................ 2,493 2,478
--------- ---------
80,788 91,486
Less accumulated depreciation................ (19,983) (33,390)
--------- ---------
$ 60,805 $ 58,096
========= =========
</TABLE>
6. BANK AND OTHER DEBT
Bank and other debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999
---------- ----------
<S> <C> <C>
Senior Notes...................................... $ 475,000 $ 475,000
Senior Discount Notes, net of unamortized
discount of $217,038 and $174,935 at June
30, 1998 and 1999, respectively................ 401,632 443,735
NAHI Bridge Note.................................. 107,631 119,056
Fox Subordinated Notes............................ 119,448 157,399
Citicorp USA, secured revolving line of
credit; interest at prime rate (7.75% at
June 30, 1999) plus 1.25% or six month
LIBOR (5.30% at June 30, 1999) plus 2.25%;
maximum borrowings of $355,000................. 280,000 305,000
Citicorp USA; secured term loan facility;
interest at prime rate (7.75% at June 30,
1999) plus 1.25% or six month LIBOR (5.30%
at June 30, 1999) plus 2.25%; maximum
borrowings of $215,000......................... 340,000 215,000
Secured lines of credit with varying due dates
between December 12, 1999 and April 18,
2002; maximum borrowing availability
$11,182 at June 30, 1999; varying interest
rates between 3.32% and 5.40%.................. 20,323 10,249
Other............................................. 2,476 876
---------- ----------
$1,746,510 $1,726,315
========== ==========
</TABLE>
F-16
<PAGE>
Payments of bank and other debt in future periods are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
<S> <C>
2000.................................................... $ 3,792
2001.................................................... 40,676
2002.................................................... 88,133
2003.................................................... 100,952
2004.................................................... 229,671
Thereafter.............................................. 1,263,091
----------
$1,726,315
==========
</TABLE>
In August 1997, the Company, FCN Holding, Saban and IFE entered into a credit
facility ("Old Credit Facility") with a group of banks led by Citicorp in the
amount of $1.25 billion. The Old Credit Facility comprised a $602,000,000
seven-year secured reducing revolving credit facility, a $298,000,000 seven-year
secured reducing revolving credit facility and a $350,000,000 nine-year secured
term loan facility.
The proceeds of the loans under the old Credit Facility were used to finance,
in part, the IFE Acquisition and to repay certain obligations of subsidiaries of
the Company.
In October 1997, upon consummation of the Company's Offering, the Old
Credit Facility was amended (the "Amended Credit Facility") to provide a
$355,000,000 seven-year term loan, subsequently reduced to $215,000,000 as of
June 30, 1999, and a $355,000,000 seven-year reducing revolving credit facility.
The Company is not a borrower under the Amended Credit Facility but is a
guarantor. A wholly-owned subsidiary of the Company, Fox Kids Holdings, LLC was
created by the Company to hold the equity interests of FCN Holding, Saban and
IFE (which will remain borrowers) and guarantee the Amended Credit Facility.
The collateral for the Amended Credit Facility is limited to the equity
interests of Fox Kids Holdings, LLC, the borrowers and their subsidiaries
(subject to certain limitations for foreign and less than wholly owned
subsidiaries) and intercompany indebtedness. Scheduled payments on the term loan
will begin September 28, 2000, with 10% of the term loan being reduced in year 3
of the loan, 20% in each of years 4 and 5 and 25% in each of years 6 and 7.
Scheduled quarterly reductions to the revolving credit commitment will begin
September 27, 2002, with 15% of the commitment being reduced in each of years 5
and 6 and 70% in year 7.
The borrowings under the Amended Credit Facility bear interest at the
Company's option at a rate per annum equal to either LIBOR or a base rate plus,
in each case, an applicable interest rate margin. In addition, the Company pays
a commitment fee on the unused and available amounts under the Amended Credit
Facility.
The Amended Credit Facility contains a number of significant covenants that,
among other things, limit the ability of the co-borrowers and their respective
subsidiaries to incur additional indebtedness, create liens and other
encumbrances, make certain payments and investments, make capital expenditures,
make distributions to owners and repurchase debt and equity. In addition, the
Amended Credit Facility requires the maintenance of certain specified financial
and operating covenants, including, without limitation, capital expenditure
limitations and ratios of EBITDA to fixed charges, total debt to EBITDA and
EBITDA to interest expense. The Amended Credit Facility also contains
representations, warranties, covenants, conditions and events of default
customary for senior credit facilities of similar size and nature.
On October 28, 1997, the Company issued $475,000,000 aggregate principal
amount of 9-1/4% Senior Notes Due 2007 ("Senior Notes") and $618,670,000
aggregate principal amount at maturity of 10-1/4% Senior Discount Notes Due 2007
("Senior Discount Notes" and collectively the "Notes") in a transaction not
registered under the Securities Act in reliance upon an exemption from the
registration requirements of the Securities Act. Gross proceeds from the
offering amounted to $850,000,000. The discount on the Senior Discount Notes is
being accreted under the effective interest method.
Cash interest on the Senior Notes will be payable semi-annually in arrears on
each May 1 and November 1, commencing May 1, 1998. Cash interest will not accrue
or be payable on the Senior Discount Notes prior to November 1, 2002.
F-17
<PAGE>
Thereafter, cash interest on the Senior Discount Notes will be payable
semi-annually in arrears on each May 1 and November 1, commencing on May 1,
2003. However, at any time prior to November 1, 2002, the Company may elect (the
"Cash Interest Election") on any interest payment date (the date of such Cash
Interest Election, the "Cash Interest Election Date") to commence the accrual of
cash interest from and after the Cash Interest Election Date, in which case the
principal amount at maturity of each Senior Discount Note will on such interest
payment date be reduced to the accreted value of such Senior Discount Note as of
such interest payment date, and cash interest (accruing at a rate of 10-1/4% per
annum from the Cash Interest Election Date) shall be payable with respect to
such Senior Discount Note on each interest payment date thereafter.
The Senior Notes will be redeemable at the option of the Company, in whole or
in part, at any time on or after November 1, 2002, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest, if any, to the redemption date, if redeemed during the 12-month
period beginning on November 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002........................................................ 104.63%
2003........................................................ 103.08%
2004........................................................ 101.54%
2005 and thereafter......................................... 100.00%
</TABLE>
In addition, at any time, or from time to time, on or prior to November 1,
2000, the Company may, at its option, use the net cash proceeds of (a) one or
more public equity offerings or (b) sales of qualified equity interests to
strategic equity investors resulting in gross cash proceeds to the Company of at
least $100,000,000 to redeem, on a pro rata basis, up to an aggregate of 35% of
the principal amount of the Senior Notes originally issued, at a redemption
price equal to 109.25% of the principal amount thereof plus accrued and unpaid
interest, if any, to the redemption date; provided that at least 65% of the
originally issued principal amount of Senior Notes remains outstanding
immediately after the occurrence of such redemption.
The Senior Discount Notes will be redeemable at the option of the Company, in
whole or in part, at any time on or after November 1, 2002, at the redemption
prices (expressed as a percentage of principal amount at maturity) set forth
below, plus accrued and unpaid interest thereon, if any, to the redemption date,
if redeemed during the 12-month period beginning on November 1 of the years
indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002....................................................... 105.13%
2003....................................................... 103.42%
2004....................................................... 101.71%
2005 and thereafter........................................ 100.00%
</TABLE>
In addition, prior to November 1, 2000, the Company may redeem up to 35% of
the originally issued principal amount at maturity of the Senior Discount Notes
at a redemption price equal to 110.25% of the accreted value of the Senior
Discount Notes so redeemed at the redemption date or, if a Cash Interest
Election has been made, 110.25% of the principal amount at maturity of the
Senior Discount Notes so redeemed, plus accrued and unpaid interest thereon, if
any, to the redemption date, with the net cash proceeds of (a) one or more
public equity offerings or (b) sales of qualified equity interests of the
Company to one or more strategic equity investors resulting in gross cash
proceeds to the Company of at least $100,000,000 in the aggregate; provided,
however, that at least 65% of the originally issued principal amount at maturity
of the Senior Discount Notes would remain outstanding immediately after giving
effect to any such redemption.
Upon the occurrence of a change of control, the Company shall be obligated to
make an offer to purchase (a "Change of Control Offer"), on a business day (the
"Change of Control Purchase Date") not more than 60 nor less than 30 days
F-18
<PAGE>
following the occurrence of the change of control, all of the then outstanding
Notes tendered at a purchase price in cash (the "Change of Control Purchase
Price") equal to (x) with respect to the Senior Notes, 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the Change of
Control Purchase Date and (y) with respect to the Senior Discount Notes, 101%
of the accreted value on the Change of Control Purchase Date, unless the Change
of Control Purchase Date is on or after the earlier to occur of November 1, 2002
and the Cash Interest Election Date, in which case such Change of Control
Purchase Price shall be equal to 101% of the aggregate principal amount at
maturity thereof, plus accrued and unpaid interest thereon, if any, to the
Change of Control Purchase Date. The Company shall be required to purchase all
Notes tendered into the Change of Control Offer and not withdrawn. The Change of
Control Offer is required to remain open for at least 20 business days and until
the close of business on the Change of Control Purchase Date.
The Notes will be senior unsecured obligations of the Company and will rank
senior in right of payment to all future subordinated indebtedness of the
Company. Claims of the holders of the Notes will effectively be subordinated to
the claims of creditors of the Company's subsidiaries, including the banks under
the Bank Facility.
The Company is subject to certain covenants in connection with the issuance
of the Notes which include for example limitation on indebtedness, restricted
payments, liens, dividends, transactions with affiliates and disposition of
assets.
The initial Fox Subordinated Note accretes interest at the rate of 10.42% and
is due on May 1, 2008. An additional Fox Subordinated Note in the amount of $25
million was issued in June 1999 and accretes interest at the rate of 20% and is
due on June 28, 2009. The payment of principal and interest under the Fox
Subordinated Notes are subordinated in right to the obligations of the Company
and its subsidiaries under the Amended Credit Facility and the Indentures.
On August 29, 1997, in connection with the acquisition of IFE, the Company
issued the NAHI Bridge Note to NAHI upon substantially the same terms and
conditions as the Fox Subordinated Note, except that the NAHI Bridge Note has a
principal amount of $345,500,000. The NAHI Bridge Note was restated on May 19,
1998 to reflect a change in the interest rate, effective as of the date of
issuance. As restated, the NAHI Bridge Note accretes interest at a rate of
approximately 10.427% per annum. The Company may repay the NAHI Bridge Note in
whole or in part, subject to the terms of the Amended Credit Facility and the
Indentures. The payment of principal and interest under the NAHI Bridge Note
will be subordinated in right to the obligations of the Company under the
Amended Credit Facility and the Indentures.
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows (in thousands):
F-19
<PAGE>
<TABLE>
<CAPTION>
JUNE JUNE
30, 1998 30, 1999
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Accounts receivable....................... $ 1,224 $ 927
Property and equipment.................... 11,670 9,497
Contract discount......................... 7,120 2,184
State taxes............................... -- 103
Other..................................... 1,684 8,037
--------- ---------
Total deferred tax liabilities.................. 21,698 20,748
--------- ---------
Deferred tax assets:
Deferred revenue.......................... 6,008 1,926
Programming costs......................... 34,909 20,362
Accrued expenses and reserves............. 34,955 20,693
Loss carryforwards........................ 20,496 75,329
Other..................................... 3,796 4,688
--------- ---------
Total deferred tax assets....................... 100,164 122,998
Valuation allowance for deferred tax assets..... (60,385) (84,169)
--------- ---------
Deferred tax assets............................. 39,779 38,829
--------- ---------
Net deferred tax assets......................... $ 18,081 $ 18,081
========= =========
</TABLE>
The Company currently has approximately $175,600,000 of operating loss
carryforwards which will expire at various dates through June 30, 2019.
Approximately $12,500,000 of the operating loss carryforwards are separate
return year losses. As such federal and state income tax law and regulations
might limit utilization.
Management has determined that as of June 30, 1999, $84,169,000 of deferred
tax assets do not satisfy the recognition criteria set forth in SFAS No. 109.
Accordingly, a valuation allowance has been recorded for this amount.
Approximately $35,000,000 of the valuation allowance relates to deferred tax
assets acquired in the IFE acquisition. (See Note 3--Acquisition of
International Family Entertainment, Inc.) Accordingly, no benefit to the income
statement will be recorded if these deferred tax assets are realized.
For financial reporting purposes, income before income taxes includes the
following components (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------
1997 1998 1999
--------- -------- --------
<S> <C> <C> <C>
Pretax income (loss):
United States........................ $ 31,605 $(45,733) $(86,202)
Foreign.............................. 23,402 24,406 21,792
--------- --------- ---------
$ 55,007 $(21,327) $(64,410)
========= ========= =========
</TABLE>
Significant components of the provision for income taxes are as follows (in
thousands):
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1997 1998 1999
--------- ------- --------
<S> <C> <C> <C>
Current:
Federal.............................. $ 3,430 $ -- $ --
State................................ (508) -- 500
Foreign.............................. 1,881 1,766 1,489
--------- ------- --------
4,803 1,766 1,989
Deferred:
Federal.............................. 6,970 1,470 --
State................................ 2,794 210 --
Foreign.............................. -- -- --
--------- ------- --------
9,764 1,680 --
--------- ------- --------
$ 14,567 $ 3,446 $ 1,989
========= ======= ========
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to the provision for income taxes:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1997 1998 1999
--------- ------- --------
<S> <C> <C> <C>
Tax at U.S. statutory rates.......... 35 % (35)% (35)%
State taxes, net of federal benefit.. 3 (5) (4)
Earnings from foreign operations
taxed at a lower rate than the
U.S. rate.......................... (12) (38) (10)
U.S. operating loss for which no
federal and state benefit
was derived........................ -- 23 26
Non-deductible amortization of
intangibles........................ -- 71 24
Other................................ -- -- 2
--------- -------- --------
26 % 16 % 3 %
========= ======= ========
</TABLE>
F-20
<PAGE>
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $127,800,000 at June 30, 1999. Those earnings are considered to be
indefinitely reinvested and, accordingly, no provision for U.S. federal and
state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to
both U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the various foreign countries. Determination of the
amount of unrecognized deferred U.S. income tax liability is not practicable
because of the complexities associated with its hypothetical calculation;
however, unrecognized foreign tax credit carryforwards would be available to
reduce some portion of the U.S. liability. It is possible that the Internal
Revenue Service could under certain theories attempt to tax the foreign
subsidiaries' income. Currently, management of the Company believe that any such
theories would be without merit.
8. COMMITMENTS AND CONTINGENCIES
LEASES
In July 1995, the Company entered into a ten-year lease commencing on April
1, 1996 for office space in Los Angeles, California subject to two separate five
year extension options. The lease provides for early termination at the end of
the sixth and eighth years upon payment of a termination fee. The lease calls
for monthly payments plus maintenance and property tax payments. The Company
also leases other facilities throughout the world on an as needed basis expiring
at various dates.
Noncancellable future minimum payments for the remainder of the initial,
noncancellable lease periods are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
2000.................................................... $ 9,436
2001.................................................... 8,849
2002.................................................... 9,123
2003.................................................... 8,254
2004.................................................... 7,740
Thereafter.............................................. 17,484
--------
$ 60,886
========
</TABLE>
Rent expense for the years ended June 30, 1997, 1998 and 1999, net of amounts
capitalized, was approximately $2,573,000, $5,098,000 and $6,392,000,
respectively.
LEGAL MATTERS
The Company is involved in various lawsuits, both as a plaintiff and
defendant, in the ordinary course of its business. Based on an evaluation which
included consultation with counsel concerning legal and factual issues involved,
management is of the opinion that the foregoing claims and lawsuits will not
have a material adverse effect on the Company's consolidated financial position
or results of operations.
F-21
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain key members
of management. Such agreements are for terms originally ranging from one to six
and one-half years and generally include bonus provisions. Future minimum
payments under these agreements approximate $50,867,000, of which $23,047,000 is
due in 2000, $14,720,000 is due in 2001, $8,322,000 is due in 2002, $2,874,000
is due in 2003, $1,614,000 is due in 2004 and $290,000 is in 2005.
9. PROFIT SHARING PLAN
The Company has a qualified tax deferred profit sharing plan (the Plan) for
all of its eligible employees. Under the Plan, employees become eligible on the
first January 1 following such employees' completion of six months of service
with the Company. Each participant is permitted to make voluntary contributions,
not to exceed 15% of his or her respective compensation and the applicable
statutory limitations, which are immediately 100% vested. The Company, at the
discretion of the Board of Directors, may make matching contributions to the
Plan. Related expense for the years ended June 30, 1997, 1998 and 1999, was
approximately $101,000, $122,000 and $448,000, respectively.
IFE had a 401(k) retirement savings plan (the "401(k) Plan") which covered
the majority of its employees. Subject to certain limitations, employees were
permitted to contribute up to 15% of their compensation to the 401(k) Plan.
IFE's contribution to the 401(k) Plan was discretionary as determined annually
by the Company's Board of Directors. IFE contributed $349,000 to the 401(k) Plan
for the year ended June 30, 1998. As of January 1, 1999, the 401(k) Plan was
terminated and the participating employee contributions were transferred to the
Company's Plan.
10. OTHER RELATED PARTY TRANSACTIONS
The following amounts are included within the statements of operations and
balance sheets in relation to related party transactions (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1997 1998 1999
-------- --------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenues........................... $21,316 $131,980 $106,205
Production and programming costs(1) 4,301 6,456 7,179
Selling, general and
administrative expenses.......... 2,322 5,328 9,090
Interest expense................... 854 23,871 24,642
</TABLE>
<TABLE>
<CAPTION>
JUNE JUNE
30, 1998 30, 1999
--------- ---------
<S> <C> <C>
BALANCE SHEETS
Accounts receivable from related parties.......... $ 58,043 $ 19,082
Other assets...................................... 652 --
Accounts payable.................................. 4,984 3,542
Accrued liabilities............................... 15,984 4,775
Deferred revenue.................................. 5,577 6,185
NAHI Bridge Note.................................. 107,631 119,056
Fox Subordinated Note............................. 119,448 157,399
Amounts payable to related parties................ 2,954 113,973
- ------------
<FN>
(1) Comprises satellite transponder, engineering and technical support costs.
</FN>
</TABLE>
Receivables from related parties include advances of $4,174,000 and
$4,023,000 at June 30, 1998 and 1999, respectively, to certain non-stockholder
officers and directors of the Company.
F-22
<PAGE>
The Company distributes product to related parties in the normal course of
business, and accordingly, included in accounts receivable from related parties
are $39,578,000 and $14,045,000 due from those related parties at June 30, 1998
and 1999, respectively.
The Company and Fox Broadcasting were parties to a Barter Syndication
Agreement dated as of January 5, 1996, pursuant to which the Company engaged Fox
Broadcasting to provide barter advertising sales for the 1997-1998 broadcast
season for the Company's syndicated programming. In consideration for the
services rendered by Fox Broadcasting to the Company, the Company agreed to pay
Fox Broadcasting a barter advertising sales fee of $840,000 for the 1997-1998
broadcast season.
Related companies of Fox Broadcasting have funded certain of the operations
of the Company from its inception through loans to the Company. Amounts due to
the related companies of Fox Broadcasting in connection therewith, including
interest, totaled $2,954,000 and $13,973,000 at June 30, 1998 and 1999,
respectively.
The Company broadcasts Fox Kids U.K., a cable and satellite channel via
analogue transponder. The channel is distributed as part of British Sky
Broadcasting, Group plc's ("BSkyB") Sky Multichannels DTH package. News Corp.
holds an approximately 40% interest in BSkyB, a public company. As part of its
agreement with BSkyB, the Company acquired for approximately $3,100,000, certain
of BSkyB's United Kingdom license rights to children's programming which had
been previously acquired by BSkyB. Additionally, the Company will enter into an
analog transponder sublease agreement with BSkyB through February 1, 2001
subject to extension in certain circumstances requiring a financial commitment
of approximately $28,000,000 and a five-year digital transponder and uplink
sublease agreement, commencing in late 1998, requiring a financial commitment of
approximately $5,600,000. In addition, BSkyB provides support services for the
Company for a fee equal to 15% of net revenue, as defined in the agreement.
The Company broadcasts Fox Kids Latin America, a Fox Kids branded
pan-regional Latin American channel. The Company has entered into a cost sharing
arrangement for employees and service support in connection with the operation
of the channel with Canal Fox, a related party. The Company believes that such
arrangement for employees and service support are at rates which approximate
fair market value.
Foxtel, an Australian-based cable service, has carried a Fox Kids Network
children's channel segment since 1994 under a license agreement between Foxtel
and an affiliate of Fox Broadcasting. This license was assigned to the Company.
Foxtel is a 50/50 partnership between News Corp. and the Australian telephone
company, Telstra.
In connection with Haim Saban's employment agreement, the Company agreed to
reimburse Haim Saban for all out-of-pocket costs and expenses for domestic and
international travel, including private air charter which may include aircraft
owned directly or indirectly by Haim Saban. The Company has entered into a
contract to charter Haim Saban's or another similar airplane for a minimum of
fifty charter hours during a twelve month period. For the twelve months ended
June 30, 1997, 1998 and 1999, the Company has paid approximately $875,000,
$730,000 and $722,000, respectively, for such services.
The Company currently leases and distributes its entertainment properties
(e.g., motion pictures, television programs, merchandising and licensing rights)
in Israel through Duveen Trading Ltd. (Distributor), a corporation wholly-owned
by Haim Saban's brother. The term of the agreement extends through December 31,
2000, subject to extension by the Company for an additional three years. At June
30, 1998 and 1999, the Company was due $500,000 under this agreement.
The Company is party to a music services agreement (the "Music Agreement")
with 5161 Corporation ("5161"), a corporation wholly owned by Haim Saban, the
Chief Executive Officer of the Company. Under the terms of the Music Agreement,
the Company acquires substantially all of the original theme music, underscores,
cues and songs it uses in programming produced by the Company from 5161. In
addition, the Company has the royalty-free right to use the compositions in
articles of merchandise such as home video units, video games and interactive
toys and has been granted the non-exclusive, worldwide, and perpetual license to
use the music to (i) synchronize and perform compositions in theatrical motion
pictures and (ii) synchronize compositions in all other forms of programming.
F-23
<PAGE>
The Company creates and owns all right, title and interest in master recordings
of compositions for use in the Company's programming, and the Company owns the
proceeds derived from all forms of exploitation thereof. In consideration for
providing the compositions to the Company, 5161 receives no payment from the
Company but is entitled to receive all publishing income derived from the
exploitation of such compositions. 5161 does reimburse the Company for certain
costs associated with the creation of the compositions, which amounted to
$374,000, $451,000 and $301,000, respectively, for the years ended June 30,
1997, 1998 and 1999. At June 30, 1998 and 1999, approximately $378,000 and
$126,000, respectively, was owed to 5161 by the Company in connection with
royalties collected by the Company on behalf of 5161.
The Company is party to a distribution agreement with Fox Family Films, Inc.
("Distributor") for TURBO: A POWER RANGERS MOVIE, which was released
theatrically in the United States in Spring 1997 and in home video in late
Summer 1997. Distributor holds in perpetuity worldwide theatrical,
non-theatrical, home video, and television rights in the movie (except for the
territories of Japan and certain Asian territories and Israel). The Company
holds the copyright as well as certain rights including merchandising,
television series, stage, publication, radio, theme park and touring, music
publishing and soundtrack. Commercial tie-in rights are mutually controlled by
the Company and Distributor. The Company will receive 100% of gross receipts
after certain distribution fees and expenses are deducted, based upon a formula
set forth in the agreement.
In April 1998, the Company sold its ownership interest in Fit TV and certain
other assets to Fox/Liberty Networks, LLC, a joint venture between News Corp.
and Liberty Media Corporation, a wholly owned subsidiary of Tele-Communications,
Inc. for $15,000,000. The Company acquired Fit TV in August 1997 as part of the
IFE Acquisition.
In January 1997, the Company obtained from Fox Television, a division of Fox,
Inc. ("Fox Television"), distribution rights to the New World Communications
Group Incorporated's ("New World") animation library of children's programming,
which Fox Television acquired as part of its purchase of New World. In July
1998, the Company agreed to acquire the New World animation library from Fox
Television for approximately $14.1 million.
The Company entered into a long-term license agreement effective October 1,
1997 with Twentieth Century Fox Film Corp. ("Twentieth Century Fox"), pursuant
to which Twentieth Century Fox will distribute certain products in the Company's
programming library.
Pursuant to a Guaranty of Lease entered into on August 1, 1997 (the
"Guaranty"), News Corp. and NPAL have guaranteed certain of the Company's
obligations under the lease of its corporate headquarters. Under the Guaranty,
News Corp. and NPAL are liable, jointly and severally, for any amounts not paid
by the Company. News Corp.'s and NPAL's aggregate liability under the Guaranty
is limited to approximately $8.6 million, to be reduced annually over five years
on a straight-line basis.
In May 1996, the Company entered into an agreement with Fox Video (the "Fox
Video Agreement") for the production and distribution of a live-action feature
film for the home video market based upon the animated character of CASPER (the
"Film") which was released by Fox Video in the United States on September 9,
1997. The Company and Fox Video each contributed one-half of the production
costs of the Film subject to the rights of both parties to recoup certain of
these costs. The Company and Fox Video will share the television net income 55%
and 45%, respectively, and the home video net income 45% and 55%, respectively,
subject to the participation rights of the Harvey Entertainment Company
("Harvey"), which holds the copyright to CASPER.
The Company has entered into an agreement in principle with Fox Video for the
production and distribution of, a second live-action feature film (CASPER MEETS
WENDY) for the home video market released in fiscal 1999. Saban and Fox Video
each will contribute one-half of the production costs subject to the rights of
both parties to recoup certain of these costs. The Company and Fox Video will
share the combined television, non-theatrical, airline, and home video receipts
equally, subject to the participation rights of Harvey.
In August 1996, Fox Video and the Company entered into a Home Video Rights
Acquisition Agreement pursuant to which the Company granted to Fox Video the
exclusive home video rights to distribute English and Spanish language versions
F-24
<PAGE>
throughout the United States and to distribute English language versions
throughout Canada of certain of its programs, all television programs produced
for children and owned or controlled by the Company or FCN, all television
programs produced or to be produced pursuant to an agreement with Marvel and all
television programs which are owned or controlled first by Marvel and
subsequently by the Company. In consideration for the grant of the distribution
rights, Fox Video has agreed to pay the Company 50% of gross receipts from these
home videos, after deduction of certain expenses. In connection with this
Agreement the Company has received $8,000,000 through June 30, 1999.
Effective August 1, 1998, as part of a joint venture with a subsidiary of
News Corp., a subsidiary of the Company, Fox Kids Europe Holdings, Inc.
("FKEH"),contributed its 100% interest in a cable network in The Netherlands,
TV10 BV, to a U.S. limited liability company ("LLC") in exchange for a 50%
equity interest in the LLC. The subsidiary of News Corp. agreed to contribute
$20,000,000 in cash to the LLC in exchange for its 50% equity interest in the
LLC. In accordance with the operating agreement between the parties, an
affiliate of the Company is responsible for procuring the supply of programming
during the hours of 6:00a.m. and 6:00p.m. and an affiliate of News Corp. is
responsible for the hours of 6:00p.m. to 1:00a.m. The parties retain the
revenues and are responsible for costs and expenses related to their respective
programming hours (or "day parts"). Costs that are not directly related to
specific day parts are shared on the basis of a formula that ensures that News
Corp.'s share will not exceed two-thirds of total indirect costs. No proceeds
were received as of June 30, 1999. Subsequent to June 30, 1999, the Company
received $15,000,000 of the $20,000,000 contribution. No gain or loss will be
recorded by the Company related to this transaction.
In June 1999, a subsidiary of the Company, Fox Kids Europe Holdings, Inc.
("FKEH") entered into a subscription agreement (the "Subscription Agreement")
with Fox Broadcasting pursuant to the terms of which Fox Broadcasting paid FKEH
$100,000,000 in exchange for a subscription (the "Subscription Rights") for
shares of FKEH's non-voting Class B Common Stock (the "Stock"). The Stock will
be issued to Fox Broadcasting in connection with an initial public offering of
common stock, a private sale of shares of the capital stock of FKEH to an
unaffiliated third party, and subsequent public offering of the Company's common
stock or any subsequent private sale (each an "Event"). In the event that an
Event does not occur, FKEH's Stock will not be issued to Fox Broadcasting;
however, Fox Broadcasting may hold the Subscription Rights indefinitely. Fox
Broadcasting does not have any claim on FKEH or its assets other than in an
Event as provided specifically in the Subscription Agreement. In addition, in
June 1999, Fox entered into an exchange agreement with the Company pursuant to
which Fox Broadcasting has the right, but not the obligation, to require the
Company to acquire its Subscription Rights in exchange for a deeply subordinated
note with an interest rate of 20% per annum to be issued by the Company. If this
conversion right is exercised, interest will begin to accrete as of the earlier
of the exercise date or January 1, 2000. At June 30, 1999, the amount paid by
Fox Broadcasting was included in amounts payable to related parties.
In June 1999, the Company issued a deeply subordinated note in the
principal amount of $25,000,000 to Fox Broadcasting payable on June 28, 2009
with interest accreting at a rate of 20% per annum.
11. BUSINESS SEGMENT REPORTING
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," for its fiscal year ended June 30, 1999,
which changed the way the Company reports information about its operating
segments. The Company's business units have been aggregated into two reportable
operating segments: production and distribution and broadcasting. The Other
column includes corporate related items and income and expenses not allocated to
reportable segments. The Company's reportable operating segments have been
determined in accordance with the Company's internal management structure, which
is organized based on operating activities. The accounting policies of the
operating segments are the same as those described in the summary of significant
accounting policies (see Note 2). The Company evaluates performance based upon
several factors, of which the primary financial measure is segment income (loss)
before income taxes, interest, depreciation and amortization of intangibles.
F-25
<PAGE>
Summarized financial information concerning the Company's reportable segments
is shown in the following tables (in thousands):
<TABLE>
<CAPTION>
PRODUCTION
AND
DISTRIBUTION BROADCASTING OTHER TOTAL
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Year Ended June 30,
1999:
Revenues............. $ 204,321 $ 429,610 $ 1,342 $ 635,273
Income (loss)
before income
taxes, interest,
depreciation and
amortization of
intangibles........ 54,314 112,921 (12,021) 155,214
Identifiable assets.. 587,672 304,680 39,670 932,022
Intangible assets,
net................ -- 1,539,852 -- 1,539,852
Capital expenditures. 7,957 2,790 647 11,394
Depreciation expense. 1,491 8,432 160 10,083
Year Ended June 30,
1998:
Revenues............. $ 240,538 $ 423,060 $ 860 $ 664,458
Income (loss)
before income
taxes, interest,
depreciation and
amortization of
intangibles........ 57,737 117,825 (15,960) 159,602
Identifiable assets.. 573,143 293,117 55,478 921,738
Intangible assets,
net................ -- 1,594,286 -- 1,594,286
Capital expenditures. 7,667 1,782 1,066 10,515
Depreciation expense. 1,047 8,234 89 9,370
Year Ended June 30,
1997:
Revenues............. $ 163,297 $ 144,356 $ 167 $ 307,820
Income (loss)
before income
taxes, interest,
depreciation and
amortization of
intangibles........ 59,445 5,297 (6,306) 58,436
Identifiable assets.. 314,330 76,461 21,610 412,401
Intangible assets,
net................ -- -- -- --
Capital expenditures. 2,057 1,362 16 3,435
Depreciation expense. 899 304 -- 1,203
</TABLE>
The following table reconciles segment income (loss) before income taxes,
interest, depreciation and amortization of intangibles to the Company's
consolidated or combined (as applicable) net income (loss) (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------
1997 1998 1999
----------- ---------- ----------
<S> <C> <C> <C>
Income (loss) before income
taxes, interest,
depreciation and amortization
of intangibles................. $ 58,436 $ 159,602 $ 155,214
Amortization of intangibles...... -- (37,557) (40,434)
Interest expense................. (2,226) (134,002) (169,107)
Depreciation..................... (1,203) (9,370) (10,083)
Provision for income taxes....... (14,567) (3,446) (1,989)
----------- ---------- ----------
Net income (loss)................ $ 40,440 $ (24,773) $ (66,399)
=========== ========== ==========
</TABLE>
F-26
<PAGE>
GEOGRAPHIC SEGMENTS
Revenues are attributed to geographic segments based upon origin of sale.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------------
1997 1998 1999
---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
United States................. $ 199,575 $ 524,076 $ 474,629
Europe........................ 107,522 131,145 151,995
Central and South America..... 723 9,237 8,649
========== ========== ===========
$ 307,820 $ 664,458 $ 635,273
========== ========== ===========
YEARS ENDED JUNE 30,
------------------------------------
IDENTIFIABLE AND INTANGIBLE ASSETS 1997 1998 1999
---------- ---------- -----------
(IN THOUSANDS)
United States................. $ 153,560 $2,213,103 $2,076,243
Europe........................ 257,398 301,288 394,696
Central and South America..... 1,443 1,633 935
========== =========== ===========
$ 412,401 $2,516,024 $2,471,874
========== =========== ===========
</TABLE>
For the year ended June 30, 1997, the Company earned revenues from one
significant customer of approximately $35,500,000 (12%) and also earned revenues
from one significant property (Power Rangers) of $70,810,000 (23%). The Company
had no significant customers or significant properties for the years ended June
30, 1998 and 1999.
12. CAPITAL STOCK
COMMON STOCK
The authorized capital stock of the Company consists of 16,000,000 shares of
Class A Common Stock, 16,000,000 shares of Class B Common Stock and 20,000,000
shares of Preferred Stock, of which 500,000 shares have been designated as
Series A Preferred Stock. As of June 30, 1998 and 1999, 160,000 shares of Class
A Common Stock and 15,840,000 shares of Class B Common Stock were outstanding.
The holders of Class A Common Stock (the "Class A Stockholders") are entitled
to one vote per share and the holders of Class B Common Stock (the "Class B
Stockholders") are entitled to ten votes per share. Both classes vote together
as a single class. A majority vote (or any other greater percentage) for
stockholder action requires a majority of the aggregate number of votes entitled
to be cast as such vote. The Company's Corrected Restated Certificate of
Incorporation does not provide for cumulative voting rights.
Subject to the rights of the holders of shares of any series of Preferred
Stock, the Class A and Class B Stockholders are to receive like dividends and
other similar distributions of the Company. In the case of any split,
subdivision, combination or reclassification of shares of Class A or Class B
Common Stock, an equivalent split, subdivision, combination or reclassification
must be made to the shares of Class B or Class A Common Stock, as the case may
be.
The Class A and Class B Stockholders have equivalent rights to distributions
in the event of any liquidation, dissolution or winding up (either voluntary or
involuntary) of the Company, in proportion to the number of shares held by them
without regard to class.
In the event of any corporate merger, consolidating purchase or acquisition,
the Class A and Class B Stockholders are to receive the same consideration on a
per share basis, and if the consideration in such transaction consists in any
part of voting securities, the Class B Stockholders are to receive, on a per
share basis, voting securities with ten times the number of votes per share as
those voting securities to be received by the Class A Stockholders.
F-27
<PAGE>
The shares of Class A Common Stock are freely transferable, but the shares of
Class B Common Stock are subject to transfer restrictions as set forth more
fully in the Company's charter. The Class B Stockholders may only transfer their
shares to a "Permitted Transferee" and any unauthorized transfer will cause an
automatic conversion of such shares into shares of Class A Common Stock.
Regardless of the transfer restriction on the Class B Common Stock, any Class B
Stockholder may pledge its shares as collateral security for any indebtedness or
other obligation.
Each share of Class B Common Stock is convertible, at the option of its
holder, at any time into one validly issued, fully paid and non-assessable share
of Class A Common Stock.
STOCK OPTIONS
Effective June 1994, the Company issued stock options to three employees. In
connection with the Reorganization as described in Note 1, the options became
options to purchase an aggregate of 484,911 shares of Class A Common Stock, all
of which were exercisable at June 30, 1999. These options vest ratably over five
years and are exercisable at prices ranging from $12.37 to $34.02 per share. No
options have been exercised at June 30, 1999. With respect to termination for
any reason, so long as the Company is not public, the Company will purchase from
the employee and the employee will sell to the Company any and all option shares
owned by the employee and the option granted to the employee for an amount equal
to the fair market value of the option shares owned by the employee plus the
fair market value of the option shares with respect to which the employee's
option has vested but not exercised less the exercise price.
In May 1998, the Company provided two employees compensation of $2,000,000
each and in April 1999, the Company provided the two employees additional
compensation of $1,500,000 each in the form of an advance (together the
"Advances"). The Advances were included in the employees' taxable income and
bear no interest. Further, if the two employees exercise any stock options to
acquire shares of the Company's Class A Common Stock, the two employees shall
concurrently repay the Advances through an increase in the purchase price in
connection with the exercise.
Included in selling, general and administrative expenses for the years ended
June 30, 1997, 1998 and 1999 is $3,760,0000, $0 and $0, respectively, and in
accrued liabilities at June 30, 1998, and 1999 is $16,040,000 and $13,040,000,
respectively, related to compensation recorded in connection with these options.
As of June 30, 1999, 646,548 shares of Class A Common Stock are reserved for
future issuance related to options.
MANDATORILY REDEEMABLE PREFERRED STOCK
In connection with the acquisition of IFE, the Company issued 345,000 shares
of Series A Mandatorily Redeemable Preferred Stock to Liberty IFE. The holders
of the Series A Mandatorily Redeemable Preferred Stock (or the "Liberty
Preferred") will receive cash dividends of 9% per annum in arrears, paid
quarterly. Any accrued or unpaid dividends will be added to the liquidation
price and until such accrued and unpaid dividends are paid in full, the dividend
rate will increase to 11.5% of the liquidation price. The liquidation price is
$1,000 per share plus any accrued and unpaid dividends.
Pursuant to the Funding Agreement among News Corp., NPAL, and the Company
(the "Funding Agreement"), each of News Corp. and NPAL has unconditionally
agreed that, upon the occurrence and during the continuation of an event of
default under the provisions governing the Series A Mandatorily Redeemable
Preferred Stock in the Company's Corrected Restated Certificate of Incorporation
or liquidation, dissolution, winding up or other similar event of the Company,
News Corp. or NPAL, as the case may be, will provide the Company with the funds
necessary to redeem in full, or pay the liquidation distribution on all of the
outstanding Series A Mandatorily Redeemable Preferred Stock and to pay any other
amounts owing in respect of such shares. Pursuant to the Amended and Restated
Strategic Stockholders Agreement (as defined), such funds will be, except under
certain circumstances, in the form of an advance or loan to the Company. The
following constitute events of default with respect to the Series A Mandatorily
Redeemable Preferred Stock under the Corrected Restated Certificate of
F-28
<PAGE>
Incorporation: (i) the failure of the Company to mandatorily redeem Series A
Mandatorily Redeemable Preferred Stock at the redemption dates indicated below;
(ii) a breach for thirty days of any of the covenants contained in the
provisions governing the Series A Mandatorily Redeemable Preferred Stock; and
(iii) an event of default under the terms of the preferred stock of NPAL, if any
shares of which are outstanding. In addition, pursuant to the Exchange Agreement
among NPAL, Liberty Media Corporation ("Liberty Media") and Liberty IFE (the
"Exchange Agreement"), each of the holders of the Series A Mandatorily
Redeemable Preferred Stock has the right, upon the occurrence and during the
continuation of an event of default under the Corrected Restated Certificate of
Incorporation or the liquidation, winding up or other similar event of the
Company, to exchange their shares for an equivalent number of shares of
preferred stock of NPAL.
The Series A Mandatorily Redeemable Preferred Stock issued to Liberty IFE
will rank senior as to dividend, redemption and liquidation rights to all other
classes and series of capital stock of the Company authorized on the date of
issuance, or to any other class or series of capital stock issued while any
shares of the Series A Mandatorily Redeemable Preferred Stock remain
outstanding. The Series A Mandatorily Redeemable Preferred Stock does not have
voting rights, except as required by law, nor will stockholders of Series A
Mandatorily Redeemable Preferred Stock have preemptive rights over any stock or
securities that may be issued by the Company.
STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related Interpretations
in accounting for its employee stock options.
Pro forma information regarding net income and earnings per share as required
by FASB Statement No. 123, "Accounting for Stock-Based Compensation," has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement. The fair value for these options was
estimated at the date of grant in January 1996 to be $2,623,000 using the
minimum value method with the following weighted-average assumptions,
respectively: risk-free interest rate of 5.86%; dividend yields of 0%; and a
weighted-average expected life of the option of 5 years. The remaining
contractual life of these options is 6.5 years.
The minimum value valuation method was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The pro forma net income (loss) determined as if the Company had accounted
for its employee stock options under the fair value method would be $39,915,000,
$(25,298,000) and $(66,924,000) for the years ended June 30, 1997, 1998 and
1999, respectively.
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Fox Family Worldwide, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Fox Family Worldwide, Inc. and its
subsidiaries as of and for the years ended June 30, 1998 and 1999 included in
this Report on Form 10-K and have issued our report thereon dated September 16,
1999. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index at F-1
are the responsibility of the Company's management and are presented for
purposes of complying with the Securities and Exchange Commissions rules and are
not part of the basic financial statements. These schedules have been subjected
to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
September 16, 1999
S-1
<PAGE>
SCHEDULE 1 -- CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
FOX FAMILY WORLDWIDE, INC.
(PARENT ONLY)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1998 1999
--------- ----------
IN THOUSANDS,
EXCEPT SHARE DATA
<S> <C> <C>
ASSETS:
Cash and cash equivalents........................ $ 6,939 $ 37
Investments in and advances to subsidiaries...... 1,454,652 1,455,476
Other assets, net.... ........................... 28,552 25,314
----------- -----------
Total assets................................. $ 1,490,143 $ 1,480,827
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Accounts payable................................ $ -- $ 443
Accrued liabilities............................. 11,036 7,937
NAHI Bridge Note................................ 107,631 119,056
Fox Subordinated Note........................... 119,448 157,399
Senior Notes.................................... 475,000 475,000
Senior Discount Notes, net of unamortized
discount of $217,038 and $174,935
at June 30, 1998 and 1999, respectively........ 401,632 443,735
----------- -----------
Total liabilities............................ 1,114,747 1,203,570
----------- -----------
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
and outstanding................................ -- --
Class A Common Stock, $0.0001 par value;
16,000,000 shares authorized, 160,000 shares
issued and outstanding at June 30, 1998
and 1999, respectively......................... -- --
Class B Common Stock, $0.0001 par value;
16,000,000 shares authorized, 15,840,000 shares
issued and outstanding at June 30, 1998
and 1999, respectively......................... 16 16
Contributed capital.............................. 60,731 60,731
Accumulated other comprehensive loss............. (1,201) (1,893)
Accumulated deficit.............................. (29,150) (126,597)
------------ ------------
Total stockholders' equity (deficit)........ 30,396 (67,743)
------------ ------------
Total liabilities and stockholders'
equity (deficit)......................... $ 1,490,143 $ 1,480,827
============ ============
</TABLE>
See accompanying notes
S-2
<PAGE>
FOX FAMILY WORLDWIDE, INC.
(PARENT ONLY)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30,
--------------------
1998 1999
--------- ---------
IN THOUSANDS
<S> <C> <C>
Revenues:
Equity in income of subsidiaries............. $ 86,382 $ 55,700
Other........................................ 861 135
--------- ---------
Total revenue............................. 87,243 55,835
Costs and expenses:
Selling, general and administrative.......... 8,470 6,172
Depreciation................................. 157 133
Interest expense............................. 99,943 113,940
--------- ---------
Loss before provision for income taxes.......... (21,327) (64,410)
Provision for income taxes...................... 3,446 1,989
--------- ---------
Net loss........................................ $(24,773) $(66,399)
========= =========
</TABLE>
See accompanying notes
S-3
<PAGE>
FOX FAMILY WORLDWIDE, INC.
(PARENT ONLY)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,
----------------------
1998 1999
--------- ---------
IN THOUSANDS
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss......................................... $ (24,773) $ (66,399)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity gains on investments, net............... (86,382) (55,700)
Amortization of debt issuance costs............ 2,453 3,253
Depreciation expense........................... 157 133
Non-cash interest expense...................... 50,410 66,746
Increase in other assets....................... (30,691) (1,069)
Increase (decrease) in accounts payable
and accrued liabilities....................... 11,036 (2,656)
----------- ----------
Net cash used in operating activities (77,790) (55,692)
----------- ----------
INVESTING ACTIVITIES:
Purchase of property and equipment........... (868) (410)
Acquisition of International Family
Entertainment, Inc........................ (1,370,076) --
Cash acquired in acquisition................. 19,296 --
----------- ---------
Net cash used in investing activities..... (1,351,648) (410)
----------- ---------
FINANCING ACTIVITIES:
Proceeds from NAHI Bridge Loan............... 345,514 --
Paydown of NAHI Bridge Loan.................. (250,886) (267)
Issuance of Senior Notes..................... 475,000 --
Issuance of Senior Discount Notes............ 375,001 --
Proceeds from Fox Subordinated Note.......... -- 25,000
Issuance of Common Stock..................... 10 --
Dividends on Preferred Stock................. (28,412) (31,048)
Net intercompany advances.................... 520,150 55,515
---------- ---------
Net cash provided by financing activities. 1,436,377 49,200
---------- ---------
Increase (decrease) in cash and cash equivalents. 6,939 (6,902)
Cash and cash equivalents, beginning of year..... -- 6,939
---------- ---------
Cash and cash equivalents, end of year.......... $ 6,939 $ 37
========== =========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INVESTMENT ACTIVITIES (IN THOUSANDS):
YEAR ENDED JUNE 30, 1998
The Company issued a subordinated note to Fox Broadcasting ("Fox") in the
amount of $108,672 in exchange for Fox's $50,000 Preferred Class A Members
Interest in the LLC, its $50,000 contingent note receivable and certain other
Company obligations Preferred Stock in the amount of $345,000 was issued in
connection with the acquisition of International Family Entertainment, Inc.
YEAR ENDED JUNE 30, 1999
Property and equipment with a book value of $638 was transferred to a
subsidiary.
See accompanying notes
S-4
<PAGE>
FOX FAMILY WORLDWIDE, INC.
(PARENT ONLY)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Fox Family
Worldwide, Inc. ("the Company") presented on a separate company (parent only)
basis. The Company is a Delaware corporation formed in August, 1996 as a holding
company. Between August 1996 and August 1997, the Company conducted no business
or operations. On August 1, 1997 the Company underwent a reorganization in
connection with its acquisition of International Family Entertainment, Inc. This
reorganization is more fully explained in Note 1 to the Financial Statements.
2. DEBT
Information relating to the NAHI Bridge Note, Fox Subordinated Notes,
Senior Notes and Senior Discount Notes is contained in Note 6 to the Financial
Statements. Payments of principal in future periods are all due subsequent to
June 30, 2003. The Company is a guarantor under the Amended Credit Facility, as
described in Note 6 to the Financial Statements.
S-5
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE CHARGED ACQUIRED OR
AT TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
--------- --------- ----------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1997
Allowance for doubtful
accounts.......................... $ 1,690 $ 200 $ -- $ (480) $ 1,410
Year ended June 30, 1998
Allowance for doubtful
accounts......................... 1,410 (27) 211 -- 1,594
Reserve for severance and
related costs under
acquisition...................... -- 36,500 -- (19,850) 16,650
Year ended June 30, 1999
Allowance for doubtful
accounts......................... 1,594 990 -- (91) 2,493
Reserve for severance and
related costs under
acquisition...................... 16,650 -- -- (8,873) 7,777
</TABLE>
S-6
AMENDMENT AND WAIVER NO. 4 TO THE LOAN DOCUMENTS
AMENDMENT AND WAIVER dated as of May 26, 1999 to (a) the Second
Amended and Restated Credit Agreement dated as of October 28, 1997 (as amended
by Letter Amendment No. 1 dated as of November 18, 1997, Letter Amendment No. 2
dated as of April 16, 1998, and Amendment and Waiver No. 3 to the Loan Documents
dated as of June 29, 1998, the "CREDIT AGREEMENT") among FCN Holding, Inc., a
Delaware corporation ("FCN HOLDING"), International Family Entertainment, Inc.,
a Delaware corporation ("IFE"), Saban Entertainment, Inc., a Delaware
corporation ("SABAN"), Fox Family Properties, Inc., a Delaware corporation ("FOX
PROPERTIES"), Fox Family Management, LLC, a Delaware limited liability company
("FOX MANAGEMENT" and, together with FCN Holding, IFE, Saban and Fox Properties,
the "BORROWERS"), Fox Kids Holdings, LLC, a Delaware limited liability company
("HOLDINGS"), as Guarantor, the banks, financial institutions and other
institutional lenders (collectively, the "LENDERS") party to the Credit
Agreement, Citicorp USA, Inc., as administrative agent (the "ADMINISTRATIVE
AGENT") for such Lenders and the other Secured Parties referred to therein, and
Salomon Smith Barney Inc. (formerly known as Citicorp Securities, Inc.), Chase
Securities, Inc. and BankBoston, N.A., as Co-Arrangers for the Facilities
referred to therein, (b) the Permitted Affiliate Subordinated Note dated October
28, 1997 issued by Fox Family Worldwide, Inc. (formerly known as Fox Kids
Worldwide, Inc.), a Delaware corporation ("FOX KIDS"), to IFE (the "FOX KIDS
SUBORDINATED NOTE"), (c) the Intercompany Notes each dated September 4, 1997
issued by a Reorganized Foreign Subsidiary (as hereinafter defined) to Saban or
Saban International Services, Inc. (collectively, the "REORGANIZED FOREIGN
SUBSIDIARIES INTERCOMPANY NOTES"), (d) the Fox Kids Guarantee dated as of
October 28, 1997 (as amended by Letter Amendment No. 2 dated as of April 16,
1998 and Amendment and Waiver No. 3 to the Loan Documents dated as of June 29,
1998, the "FOX KIDS GUARANTEE") made by Fox Kids in favor of the Secured Parties
referred to therein, (e) the Pledge and Assignment Agreement dated as of October
28, 1997 (as amended by Amendment and Waiver No. 3 to the Loan Documents dated
as of June 29, 1998 and as further amended, supplemented or otherwise modified
through the date hereof, the "PLEDGE AND ASSIGNMENT AGREEMENT") made by Fox
Kids, Holdings and each of the Subsidiaries of Holdings listed on the signature
pages thereof as pledgors to and in favor of the Administrative Agent, and (f)
the other Loan Documents. Capitalized terms not otherwise defined in this
Amendment and Waiver have the same meanings as specified therefor in the Credit
Agreement.
PRELIMINARY STATEMENTS
(1) The Borrowers, Holdings and Fox Kids have requested that the
Lenders agree to amend and otherwise modify the Credit Agreement and the other
Loan Documents in order to:
(a) permit Saban to reorganize its equity ownership of Saban
Entertainment Germany GmbH ("SABAN GERMANY"), Saban Entertainment Italy
SrL ("SABAN ITALY") and Saban Entertainment U.K. Limited ("SABAN U.K."
and, together with Saban Germany and Saban Italy, the "REORGANIZED
FOREIGN SUBSIDIARIES") so that each such Reorganized Foreign Subsidiary
would become an indirect wholly owned Subsidiary of Saban International,
N.V. and, in connection with such reorganization, to invest not more
than $800,000 in the Reorganized Foreign Subsidiaries and either
contribute or cancel the outstanding Reorganized Foreign Subsidiaries
Intercompany Notes;
(b) permit Fox Kids Europe Holdings, Inc. ("FKE HOLDINGS") to
enter into a joint venture with an affiliate of The News Corporation
Limited ("TNCL") in which FKE Holdings would contribute all of the
outstanding Equity Interests in T.V. 10 B.V., a corporation organized
under the laws of the Netherlands Antilles ("TV 10"), in exchange for a
50% ownership interest in the joint venture and such affiliate of TNCL
would contribute at least $20,000,000 in exchange for a 50% ownership
interest in the joint venture, which $20,000,000 would be immediately
lent by the joint venture to Fox Kids on a subordinated basis and
applied, through the repayment of a portion of the
<PAGE>
Fox Kids Subordinated Note, to the permanent reduction of the Term
Commitments (and the corresponding prepayment of outstanding Term
Advances); and
(c) permit IFE to sell an aggregate of 80% of the outstanding
Equity Interests in Asia Television Advertising, LLC ("ATA") to ATA in
exchange for a promissory note issued by ATA in the initial principal
amount of $300,000 and the release of IFE from its remaining obligations
to make capital contributions to ATA.
The transactions described in clause (a) above are referred to herein as the
"FOREIGN SUBSIDIARIES REORGANIZATION". The transactions described in clause (b)
above are referred to herein as the "TV 10 TRANSACTIONS". The transactions
described in clause (c) above are referred to herein as the "ASIAN TELEVISION
TRANSACTIONS".
(2) The Lenders have indicated their willingness to agree to
amend the Credit Agreement and the other Loan Documents in order, among other
things, to permit the amendments and modifications thereto described above in
Preliminary Statement (1) on the terms and subject to the satisfaction of
conditions set forth herein.
SECTION 1. AMENDMENTS TO CERTAIN PROVISIONS OF THE CREDIT
AGREEMENT IN CONNECTION WITH THE FOREIGN SUBSIDIARIES REORGANIZATION. The Credit
Agreement is, upon the occurrence of the Foreign Subsidiaries Reorganization
Effective Date (as hereinafter defined), hereby amended to read as follows:
(a) The definition of "RELATED DOCUMENTS" set forth in Section
1.01 of the Credit Agreement is hereby amended by inserting at the end
thereof the phrase "and the Foreign Subsidiaries Reorganization
Documents".
(b) Section 1.01 of the Credit Agreement is hereby amended by
inserting the following new definitions in their appropriate
alphabetical order:
"FOREIGN SUBSIDIARIES REORGANIZATION DOCUMENTS" means each
of the instruments, agreements and documents (other than
correspondence) setting forth the terms of the Foreign
Subsidiaries Reorganization (as defined in Amendment No. 4 to the
Loan Documents), in each case, as such instrument, agreement or
document may be amended, supplemented or otherwise modified from
time to time in accordance with the terms thereof, but to the
extent permitted under the terms of the Loan Documents.
"SIBV" means Saban International, B.V., a corporation
organized under the laws of the Netherlands and a wholly owned
Subsidiary of Saban.
"SINV" means Saban International, N.V., a corporation
organized under the laws of the Netherlands Antilles and a wholly
owned Subsidiary of Saban
(c) Section 5.02(e) of the Credit Agreement is hereby amended (i)
by deleting the phrase "or (C)" in the third line of clause (v) thereof
and by substituting therefor the new phrase ", (C)" and (ii) by adding
the following new language at the end of clause (v) thereof:
", (D) Saban in SIBV comprised solely of all of the outstanding
Equity Interests in Saban Entertainment Germany GmbH, Saban
Entertainment Italy SrL and Saban Entertainment U.K. Limited and
(E) Saban in SINV comprised solely of all of the outstanding
Equity Interests in SIBV".
<PAGE>
(d) Section 5.02(g)(ii) of the Credit Agreement is hereby amended
and restated in its entirety to read as follows:
"Amend, modify or change in any manner any of the terms or
conditions of any of the Surviving Indebtedness or any of the
other Intercompany Notes, except as otherwise expressly permitted
under the terms of the Loan Documents or, solely in the case of
the Intercompany Notes, as, either individually or in the
aggregate, could not adversely affect Fox Kids or any of its
Subsidiaries or any of the rights or interests of the
Administrative Agent or the Lenders in any manner".
SECTION 2. AMENDMENTS TO CERTAIN PROVISIONS OF THE CREDIT
AGREEMENT IN CONNECTION WITH THE TV 10 TRANSACTIONS. The Credit Agreement is,
upon the occurrence of the TV 10 Transactions Effective Date (as hereinafter
defined), hereby amended to read as follows:
(a) The definition of "RELATED DOCUMENTS" set forth in Section
1.01 of the Credit Agreement is hereby amended by inserting at the end
thereof the phrase "and the TV 10 Transactions Documents".
(b) Section 1.01 of the Credit Agreement is hereby amended by
inserting the following new definitions in their appropriate
alphabetical order:
"TV 10 TRANSACTIONS DOCUMENTS" means (a) the Heads of
Agreement dated January 8, 1999 between Fox TV 10 Holdings, Inc.
and FKE Holdings, (b) the Security Agreement dated as of May 28,
1999 made by TV 10 Holdings in favor of FKE Holdings, (c) the
Loan Agreement dated as of May 28, 1999 between Fox Kids and TV
10 Holdings, (d) the Irrevocable Payment Instructions dated May
28, 1999 made by TV 10 Holdings to Fox Kids, (e) the Subordinated
Note dated May 28, 1999 issued by Fox Kids in favor of FKE
Holdings, (f) the Subordinated Note dated May 28, 1999 issued by
Fox Kids in favor of TV 10 Holdings, (g) the Assumption Agreement
dated as of May 28, 1999 between FKE Holdings and TV 10 Holdings,
(h) the Assumption Agreement dated as of May 28, 1999 between Fox
Kids and FKE Holdings and (i) each of the other instruments,
agreements or documents (other than correspondence) setting forth
the terms of the TV 10 Transactions (as defined in Amendment No.
4 to the Loan Documents), in each case, as such Agreement, Note
or other instrument, agreement or document may be amended,
supplemented or otherwise modified from time to time in
accordance with the terms thereof, but to the extent permitted
under the terms of the Loan Documents.
"TV 10 HOLDINGS" means TV 10 Holdings LLC, a Delaware
limited liability company.
"TV 10 TRANSACTIONS EFFECTIVE DATE" has the meaning
specified therefor in Amendment No. 4 to the Loan Documents.
(c) Section 4.01(ll) of the Credit Agreement is hereby amended by
inserting after the phrase "on the Effective Date" in the second line
thereof the new phrase "or on the TV 10 Transactions Effective Date, as
the case may be,".
<PAGE>
(d) Section 5.02(e) of the Credit Agreement is hereby amended (i)
by deleting the word "and" at the end of clause (xi) thereof, (ii) by
deleting the punctuation "." at the end of clause (xii) thereof and by
substituting therefor the new language "; and" and (iii) by adding the
following new clause (xiii) thereto:
"(xiii)the Investment by FKE Holdings in TV 10 Holdings, a
joint venture with an Affiliate of TNCL, of all of the
outstanding Equity Interests in T.V. 10 B.V., a corporation
organized under the laws of the Netherlands and a wholly owned
Subsidiary of FKE Holdings, in exchange for 50% of each class of
outstanding Equity Interests in TV 10 Holdings (on a fully
diluted basis); PROVIDED, HOWEVER, that at or prior to the date
of such Investment by FKE Holdings, such Affiliate of TNCL shall
have invested at least $15,000,000 in cash in TV 10 Holdings, and
shall have agreed to invest an additional $5,000,000 in cash in
TV 10 Holdings upon execution and delivery of the documents
described in subclause (B) of the immediately succeeding proviso,
but in any event, no later than 90 days after the TV 10
Transactions Effective Date, in exchange for 50% of each class of
outstanding Equity Interests in TV 10 Holdings (on a fully
diluted basis); PROVIDED FURTHER, HOWEVER, that (A) all of the
agreements, instruments and other documents evidencing or setting
forth the terms and conditions of the formation of TV 10
Holdings, the governance arrangements therefor and the
Obligations of any of the equityholders therein shall be in form
and substance reasonably satisfactory to the Lenders, (B) any
amendment, amendment and restatement, supplement or other
modification to the TV 10 Transaction Documents or any of the
other agreements, instruments or other documents described in
subclause (A) above (1) shall be delivered to the Administrative
Agent at least three Business Days prior to becoming effective
and (2) shall be on terms and conditions that, both individually
and in the aggregate, could not adversely affect Fox Kids or any
of its Subsidiaries or any of the rights or interests of the
Administrative Agent or the Lenders under or in respect of any of
the Loan Documents, and (C) the aggregate cash contributions made
to TV 10 Holdings by the equityholders therein shall be advanced
on the date of receipt thereof by TV 10 Holdings to Fox Kids
pursuant to a promissory note in the form of a Permitted
Affiliate Subordinated Note and otherwise on terms and conditions
satisfactory to the Lenders and, on the date of receipt thereof
by Fox Kids, applied (through the repayment by Fox Kids of a
portion of the subordinated note dated October 28, 1997 issued by
Fox Kids to and in favor of IFE and, immediately thereafter, the
application by IFE of the amount received from Fox Kids pursuant
to such repayment) to reduce the Commitments in accordance with,
and to the extent required under, Section 2.04(b)(iv) and to
prepay the Advances outstanding at such time in accordance with,
and to the extent required under, Section 2.05(b).".
SECTION 3. AMENDMENTS TO CERTAIN PROVISIONS OF THE CREDIT
AGREEMENT IN CONNECTION WITH THE ASIAN TELEVISION TRANSACTIONS. The Credit
Agreement is, upon the occurrence of the Asian Television Transactions Effective
Date (as hereinafter defined), hereby amended to read as follows:
(a) The definition of "RELATED DOCUMENTS" set forth in Section
1.01 of the Credit Agreement is hereby amended by inserting at the end
thereof the phrase "and the Asian Television Transactions Documents".
(b) Section 1.01 of the Credit Agreement is hereby amended by
inserting the following new definitions in their appropriate
alphabetical order:
<PAGE>
"ASIAN TELEVISION TRANSACTIONS DOCUMENTS" means (a) the
Agreement dated as of December 1, 1998 among IFE, Asia Television
Advertising, L.L.C. and Asian Television & Communications
International, LLC, (b) the Promissory Note dated as of December
1, 1998 issued by Asia Television Advertising, L.L.C. in favor of
IFE in the principal amount of $300,000 and (c) each of the other
instruments, agreements or documents (other than correspondence)
setting forth the terms of the Asian Television Transactions (as
defined in Amendment No. 4 to the Loan Documents), in each case,
as such Agreement, Promissory Note or other instrument, agreement
or document may be amended, supplemented or otherwise modified
from time to time in accordance with the terms thereof, but to
the extent permitted under the terms of the Loan Documents.
(c) Section 5.02(d) of the Credit Agreement is hereby amended (i)
by deleting the word "and" at the end of clause (ix) thereof, (ii) by
deleting the punctuation "." at the end of clause (x) thereof and by
substituting therefor the new language "; and" and (iii) by adding the
following new clause (xi) thereto:
"(xii) IFE may transfer 80% of the outstanding Equity
Interests in Asia Television Advertising, LLC to Asia Television
Advertising, LLC in exchange for (A) a promissory note to be
issued by Asia Television Advertising, LLC to IFE in an aggregate
principal amount of at least $300,000 and (B) the release of IFE
from all of its ongoing Obligations to Asia Television
Advertising, LLC.".
(d) Section 5.02(e) of the Credit Agreement is hereby amended by
deleting the phrase "in accordance with clause (vii), (viii) or (ix) of
Section 5.02(d)" in clause (viii) thereof and by substituting therefor
the new phrase "in accordance with clause (vii), (viii), (ix) or (xii)
of Section 5.02(d)".
SECTION 4. AMENDMENTS TO CERTAIN PROVISIONS OF THE FOX KIDS
GUARANTEE. (a) Section 6(aa) of the Fox Kids Guarantee is, upon the occurrence
of the TV 10 Transactions Effective Date, hereby amended by inserting after the
phrase "on the Effective Date" in the second line thereof the new phrase "or on
the TV 10 Transactions Effective Date, as the case may be,".
(b) Section 8(d)(iii) of the Fox Kids Guarantee is, upon the
occurrence of the Foreign Subsidiaries Reorganization Effective Date, hereby
amended by inserting at the end thereof the following new language:
"or, solely in the case of the FBC Subordinated Notes Documents,
the NAHI Subordinated Notes Documents or the Permitted Affiliate
Subordinated Notes, as, either individually or in the aggregate,
could not adversely affect Fox Kids or any of its Subsidiaries or
any of the rights or interests of the Administrative Agent or the
Lenders in any manner".
SECTION 5. AMENDMENT OF THE FORM OF INTERCOMPANY NOTES. The Form
of Intercompany Note attached to the Credit Agreement as Exhibit H-1 is, upon
the occurrence of the Foreign Subsidiaries Reorganization Effective Date, hereby
amended by amending and restating clause (c) of the second full paragraph on
page 5 of the Form of Intercompany Note in its entirety to read as follows:
"(c) Permit the terms of any of the Subordinated Indebtedness to
be amended, waived, supplemented or otherwise modified in such manner
as, either individually or in the aggregate with the "SUBORDINATED
INDEBTEDNESS" under all other Intercompany Notes, could adversely affect
Fox Kids or any of its Subsidiaries or any of the rights or interests of
the
<PAGE>
Administrative Agent or the Lenders under or in respect of this
Intercompany Note or any of the Loan Documents in any manner.".
SECTION 6. AMENDMENT AND AFFIRMATION OF INTERCOMPANY NOTES. Each
of the Borrowers hereby agrees that each outstanding Intercompany Note to which
such Borrower is a party, whether as issuer or holder thereof, is amended in the
same manner as set forth in Section 5 and hereby also agrees that each such
Intercompany Note, as so amended, is hereby ratified and confirmed in all
respects.
SECTION 7. AMENDMENT OF THE PERMITTED AFFILIATE SUBORDINATED
NOTES. The Form of Permitted Affiliate Subordinated Note attached to the Credit
Agreement as Exhibit H-2 is, upon the occurrence of the Foreign Subsidiaries
Reorganization Effective Date, hereby amended by amending and restating clause
(c) on page 6 of the Form of Permitted Affiliate Subordinated Note in its
entirety to read as follows:
"(c) Permit the terms of any of the Subordinated Indebtedness to
be amended, waived, supplemented or otherwise modified in such manner
as, either individually or in the aggregate with the "SUBORDINATED
INDEBTEDNESS" under all other Permitted Affiliate Subordinated Notes,
could adversely affect Fox Kids or any of its Subsidiaries or any of the
rights or interests of the Senior Representative or any of the other
Senior Creditors under this Subordinated Note, any of the Loan
Documents, any of the Indentures or any of the other agreements,
instruments or other documents evidencing or otherwise setting forth the
terms of any of the Senior Indebtedness.".
SECTION 8. CONSENT TO AMENDMENT OF OUTSTANDING PERMITTED
AFFILIATE SUBORDINATED NOTES. The Required Lenders hereby consent to the
amendment of any Permitted Affiliate Subordinated Note in any manner as, either
individually or in the aggregate with the "SUBORDINATED INDEBTEDNESS" under all
other Permitted Affiliate Subordinated Notes, could not adversely affect Fox
Kids or any of its Subsidiaries or any of the rights or interests of the
Administrative Agent or any of the Lenders under or in respect of such Permitted
Affiliate Subordinated Note or any of the Loan Documents in any manner.
SECTION 9. WAIVERS OF CERTAIN PROVISIONS OF AND CONSENTS UNDER
THE CREDIT AGREEMENT AND THE PLEDGE AND ASSIGNMENT AGREEMENT. (a) Each of the
Lenders and the Agents hereby agree, on and as of the Foreign Subsidiaries
Reorganization Effective Date, but solely in connection with the consummation of
the Foreign Subsidiaries Reorganization, to waive:
(i) the provisions of Section 5.02(e)(xii)(3) of the Credit
Agreement that a Responsible Officer of Saban certify that the
requirements of such subclause (xii)(3) have been satisfied at the time
of the Investments made in the Reorganized Foreign Subsidiaries as part
of the Foreign Subsidiaries Reorganization (although all of the other
requirements of Section 5.02(e)(xii)(3) of the Credit Agreement shall be
complied with in accordance with its terms); and
(ii) the requirements of Section 5.02(j) of the Credit Agreement
applicable to (and the related provisions of Section 1(a)(ii) of the
Pledge and Assignment Agreement applicable to the Equity Interests in)
Saban International, B.V. directly owned by Saban prior to the
consummation of the Foreign Subsidiaries Reorganization, so long as the
Foreign Subsidiaries Reorganization is consummated within ten Business
Days after the Foreign Subsidiaries Reorganization Effective Date.
In addition, each of the Lenders and the Agents hereby consent, on and as of the
later of (A) the Foreign Subsidiaries Reorganization Effective Date and (B) the
date of consummation of the Foreign Subsidiaries Reorganization, to the release
of the lien and security interest of the Secured Parties in (1) the Equity
Interests in the Reorganized Foreign Subsidiaries comprising part of the
Collateral and (2) the
<PAGE>
Reorganized Foreign Subsidiaries Intercompany Notes comprising part of the
Collateral, in each case, in accordance with the terms of Section 23(a) of
the Pledge and Assignment Agreement (and any similar provisions of any of
the other Collateral Documents).
(b) Each of the Lenders and the Agents hereby consent, on and as
of the later of (i) the TV 10 Transactions Effective Date and (ii) the date of
contribution of all of the Equity Interests in TV 10 to TV 10 Holdings as part
of the TV 10 Transactions, to the release of the lien and security interest of
the Secured Parties in the Equity Interests in TV 10 comprising part of the
Collateral in accordance with the terms of Section 23(a) of the Pledge and
Assignment Agreement (and any similar provisions of any of the other Collateral
Documents).
(c) Each of the Lenders and the Agents hereby agree, on and as of
the TV 10 Transactions Effective Date, but solely in connection with the TV 10
Transactions, to waive the provisions of the Fox Kids Subordinated Note that
prohibit or restrict the ability of Fox Kids to pay or otherwise satisfy its
Obligations to IFE thereunder prior to the payment in full of the Senior
Indebtedness (as defined therein).
(d) Each of the Lenders and the Agents hereby consent, on and as
of the later of (i) the Asian Television Transactions Effective Date and (ii)
the date of the disposition of 80% of the outstanding Equity Interests in ATA by
IFE as part of the Asian Television Transactions, to the release of the lien and
security interest of the Secured Parties in the Equity Interests in ATA
comprising part of the Collateral in accordance with the terms of Section 23(a)
of the Pledge and Assignment Agreement (and any similar provisions of any of the
other Collateral Documents).
SECTION 10. CONDITIONS OF EFFECTIVENESS TO THIS AMENDMENT AND
WAIVER. (a) Sections 2, 4(a) , 9(b) and 9(c) of this Amendment and Waiver shall
become effective on the first date (the "TV 10 TRANSACTIONS EFFECTIVE DATE") on
which, and only if, each of the following conditions precedent shall have been
satisfied:
(i) The Administrative Agent shall have received (A) counterparts
of this Amendment and Waiver executed by the Borrowers, Fox Kids,
Holdings and the Required Lenders or, as to any of the Lenders, advice
satisfactory to the Administrative Agent that such Lender has executed
this Amendment and Waiver and (ii) the Consent attached hereto executed
by each of the Loan Parties (other than Holdings, Fox Kids and the
Borrowers).
(ii) The Required Lenders shall be reasonably satisfied with any
and all additions, or amendments, supplements or other modifications, to
the documents, instruments and agreements setting forth the terms and
conditions of the TV 10 Transactions from those documents, instruments
and agreements delivered to the Lenders at least two Business Days prior
to the date of this Amendment and Waiver. The outstanding Equity
Interests in TV 10 transferred to TV 10 Holdings in connection with the
TV 10 Transactions shall, at the time of such transfer, have a Fair
Market Value, as set forth in an officer's certificate of FKE Holdings,
of $40,000,000; PROVIDED, HOWEVER, that in determining such Fair Market
Value, FKE shall not be required to comply with the provisos to the
definition of "FAIR MARKET VALUE" set forth in Section 1.01 of the
Credit Agreement. Fox Kids shall have received at least $15,000,000 in
Net Cash Proceeds from TV 10 Holdings as a subordinated loan and shall
have applied the Net Cash Proceeds from such subordinated loan to the
permanent prepayment of the Fox Kids Subordinated Note and, immediately
thereafter, IFE shall have applied the Net Cash Proceeds received from
Fox Kids in satisfaction of a portion of the Fox Kids Subordinated Note
to the reduction of the Term Commitments in accordance with Section 2.04
of the Credit Agreement, and to the corresponding prepayment of the Term
Advances outstanding at such time in accordance with Section 2.05 of the
Credit Agreement. FKE Holdings shall have taken all actions that may be
necessary or that the Administrative Agent may reasonably deem desirable
in order to perfect
<PAGE>
and protect the lien and security interest of the Administrative Agent,
on behalf of the Secured Parties, in all of the Equity Interests in TV
10 Holdings owned or otherwise held by FKE Holdings, after giving
effect to consummation of the TV 10 Transactions (including, without
limitation, delivery to the Administrative Agent of any certificates or
other documents evidencing such Equity Interests and execution of a
substitute membership agreement).
(iii) All of the Governmental Authorizations, and all of the
consents, approvals and authorizations of, notices and filings to or
with, and other actions by, any other Person necessary in connection
with any aspect of the TV 10 Transaction or any of the other
transactions contemplated thereby shall have been obtained (without the
imposition of any conditions that are not reasonably acceptable to the
Required Lenders) and shall remain in full force and effect; all
applicable waiting periods shall have expired without any action being
taken by any competent authority; and no Requirement of Law shall be
applicable in the reasonable judgment of the Required Lenders that
restrains, prevents or imposes materially adverse conditions upon any
aspect of the TV 10 Transactions or any of the other transactions
contemplated thereby. Each aspect of the TV 10 Transactions shall have
been consummated or shall be consummated on or prior to the TV 10
Transactions Effective Date in compliance with all applicable
Requirements of Law.
(iv) The representations and warranties set forth in each of the
Loan Documents shall be correct in all material respects on and as of
the date first above written and the TV 10 Transactions Effective Date,
before and after giving effect to this Amendment and Waiver and the TV
10 Transactions, as though made on and as of such date (except for any
such representation and warranty that, by its terms, refers to a
specific date other than the TV 10 Transactions Effective Date, in which
case as of such specific date).
(v) No event shall have occurred and be continuing, or shall
result from the effectiveness of this Amendment and Waiver or the TV 10
Transactions, that constitutes a Default.
(vi) All of the accrued fees and expenses of the Administrative
Agent and the Lenders (including the accrued fees and expenses of
counsel for the Administrative Agent) shall have been paid in full.
(b) Section 3 and Section 9(d) of this Amendment and Waiver shall
become effective on the first date (the "ASIAN TELEVISION TRANSACTIONS EFFECTIVE
DATE") on which, and only if, each of the following conditions precedent shall
have been satisfied:
(i) The Administrative Agent shall have received (A) counterparts
of this Amendment and Waiver executed by the Borrowers, Fox Kids,
Holdings and the Required Lenders or, as to any of the Lenders, advice
satisfactory to the Administrative Agent that such Lender has executed
this Amendment and Waiver and (ii) the Consent attached hereto executed
by each of the Loan Parties (other than Holdings, Fox Kids and the
Borrowers).
(ii) The Required Lenders shall be reasonably satisfied with any
and all additions, or amendments, supplements or other modifications, to
the documents, instruments and agreements setting forth the terms and
conditions of the Asian Television Transactions from those documents,
instruments and agreements delivered to the Lenders at least two
Business Days prior to the date of this Amendment and Waiver. IFE shall
have received a promissory note from ATA in an initial principal amount
of at least $300,000 and shall have been released from all of its
Obligations under and in respect of the documentation evidencing IFE's
Investment in ATA.
<PAGE>
(iii) All of the Governmental Authorizations, and all of the
consents, approvals and authorizations of, notices and filings to or
with, and other actions by, any other Person necessary in connection
with any aspect of the Asian Television Transactions or any of the other
transactions contemplated thereby shall have been obtained (without the
imposition of any conditions that are not reasonably acceptable to the
Required Lenders) and shall remain in full force and effect; all
applicable waiting periods shall have expired without any action being
taken by any competent authority; and no Requirement of Law shall be
applicable in the reasonable judgment of the Required Lenders that
restrains, prevents or imposes materially adverse conditions upon any
aspect of the Asian Television Transactions or any of the other
transactions contemplated thereby. Each aspect of the Asian Television
Transactions shall have been consummated or shall be consummated on or
prior to the Asian Television Transactions Effective Date in compliance
with all applicable Requirements of Law.
(iv) The representations and warranties set forth in each of the
Loan Documents shall be correct in all material respects on and as of
the date first above written and the Asian Television Transactions
Effective Date, before and after giving effect to this Amendment and
Waiver and the Asian Television Transactions, as though made on and as
of such date (except for any such representation and warranty that, by
its terms, refers to a specific date other than the Asian Television
Transactions Effective Date, in which case as of such specific date).
(v) No event shall have occurred and be continuing, or shall
result from the effectiveness of this Amendment and Waiver or the Asian
Television Transactions, that constitutes a Default.
(vi) All of the accrued fees and expenses of the Administrative
Agent and the Lenders (including the accrued fees and expenses of
counsel for the Administrative Agent) shall have been paid in full.
(c) Sections 1, 4(b), 5, 7 and 9(a) shall become effective on the
first date (the "FOREIGN SUBSIDIARIES REORGANIZATION EFFECTIVE DATE") on which,
and only if, each of the following conditions precedent shall have been
satisfied:
(i) The Administrative Agent shall have received (A) counterparts
of this Amendment and Waiver executed by the Borrowers, Fox Kids,
Holdings and the Required Lenders or, as to any of the Lenders, advice
satisfactory to the Administrative Agent that such Lender has executed
this Amendment and Waiver and (ii) the Consent attached hereto executed
by each of the Loan Parties (other than Holdings, Fox Kids and the
Borrowers).
(ii) All of the Governmental Authorizations, and all of the
consents, approvals and authorizations of, notices and filings to or
with, and other actions by, any other Person necessary in connection
with any aspect of the Foreign Subsidiaries Reorganization or any of the
other transactions contemplated thereby shall have been obtained
(without the imposition of any conditions that are not reasonably
acceptable to the Required Lenders) and shall remain in full force and
effect; all applicable waiting periods shall have expired without any
action being taken by any competent authority; and no Requirement of Law
shall be applicable in the reasonable judgment of the Required Lenders
that restrains, prevents or imposes materially adverse conditions upon
any aspect of the Foreign Subsidiaries Reorganization or any of the
other transactions contemplated thereby. Each aspect of the Foreign
Subsidiaries Reorganization shall have been consummated or shall be
consummated on or prior to the Foreign Subsidiaries Reorganization
Effective Date in compliance with all applicable Requirements of Law.
(iii) The representations and warranties set forth in each of the
Loan Documents shall be correct in all material respects on and as of
the date first above written and the Foreign
<PAGE>
Subsidiaries Reorganization Effective Date, before and after giving
effect to this Amendment and Waiver and the Foreign Subsidiaries
Reorganization Effective Date, as though made on and as of such date
(except for any such representation and warranty that, by its terms,
refers to a specific date other than the Foreign Subsidiaries
Reorganization Effective Date, in which case as of such specific date).
(iv) No event shall have occurred and be continuing, or shall
result from the effectiveness of this Amendment and Waiver or the
Foreign Subsidiaries Reorganization, that constitutes a Default.
(v) All of the accrued fees and expenses of the Administrative
Agent and the Lenders (including the accrued fees and expenses of
counsel for the Administrative Agent) shall have been paid in full.
The effectiveness of this Amendment and Waiver is further conditioned upon the
accuracy of all of the factual matters described herein. This Amendment and
Waiver is subject to the provisions of Section 9.01 of the Credit Agreement.
SECTION 11. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS. (a) On
and after the Foreign Subsidiaries Reorganization Effective Date, (i) each
reference in the Credit Agreement to "THIS AGREEMENT", "HEREUNDER", "HEREOF" or
words of like import referring to the Credit Agreement, and each reference in
the Notes and each of the other Loan Documents to "THE CREDIT AGREEMENT",
"THEREUNDER", "THEREOF" or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement, as amended and
otherwise modified by this Amendment and Waiver, (ii) each reference in the Fox
Kids Subordinated Note to "THIS NOTE", "HEREUNDER", "HEREOF" or words of like
import referring to the Fox Kids Subordinated Note, and each reference in each
of the other Loan Documents to "THE PERMITTED AFFILIATE SUBORDINATED NOTES",
"THEREUNDER", "THEREOF" or words of like import referring to the Fox Kids
Subordinated Note, shall mean and be a reference to the Fox Kids Subordinated
Note, as amended and otherwise modified by this Amendment and Waiver, and (iii)
each reference in any of the Reorganized Foreign Subsidiaries Intercompany Notes
to "THIS NOTE", "HEREUNDER", "HEREOF" or words of like import referring to such
Reorganized Foreign Subsidiaries Intercompany Note, and each reference in each
of the other Loan Documents to "THE INTERCOMPANY NOTES", "THEREUNDER", "THEREOF"
or words of like import referring to any of the Reorganized Foreign Subsidiaries
Intercompany Notes, shall mean and be a reference to such Reorganized Foreign
Subsidiaries Intercompany Note, as amended and otherwise modified by this
Amendment and Waiver.
(b) The Credit Agreement, the Notes and each of the other Loan
Documents, as amended, supplemented and otherwise modified by the amendments,
supplements, waivers and affirmations specifically provided above in Sections 1
through 11, are and shall continue to be in full force and effect and are hereby
in all respects ratified and confirmed. Without limiting the generality of the
foregoing, each of the Collateral Documents and all of the Collateral described
therein do and shall continue to secure the payment of all Obligations of the
Loan Parties under the Loan Documents, in each case as amended and otherwise
modified in accordance with this Amendment and Waiver.
(c) The execution, delivery and effectiveness of this Amendment
and Waiver shall not, except as expressly provided herein, operate as a waiver
of any right, power or remedy of any of the Secured Parties or the
Administrative Agent under any of the Loan Documents, nor constitute a waiver of
any provision of any of the Loan Documents.
SECTION 12. COSTS AND EXPENSES. Each of the Borrowers hereby
severally agrees to pay, upon demand, all of the reasonably and properly
documented costs and expenses of the Administrative Agent (including, without
limitation, the reasonable fees and expenses of counsel for the Administrative
Agent) in connection with the preparation, execution, delivery, administration,
<PAGE>
modification and amendment of this Amendment and Waiver and all of the
instruments, agreements and other documents delivered or to be delivered in
connection herewith, all in accordance with the terms of Section 9.05 of the
Credit Agreement.
SECTION 13. EXECUTION IN COUNTERPARTS. This Amendment and Waiver
may be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment and Waiver by telecopier shall be effective as delivery of a manually
executed counterpart of this Amendment and Waiver.
<PAGE>
SECTION 14. GOVERNING LAW. This Amendment and Waiver shall be
governed by, and construed in accordance with, the laws of the State of New
York, excluding (to the fullest extent a New York court would permit) any rule
of law that would cause application of the laws of any jurisdiction other than
the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
and Waiver to be executed by their respective officers, thereunto duly
authorized, as of the date first written above.
THE LOAN PARTIES
FCN HOLDING, INC.
By /S/ MEL WOODS
-----------------------
Name: Mel Woods
Title:
INTERNATIONAL FAMILY
ENTERTAINMENT, INC.
By /S/ MEL WOODS
----------------------
Name: Mel Woods
Title:
SABAN ENTERTAINMENT, INC.
By /S/ STAN GOLDEN
---------------------
Name: Stan Golden
Title:
FOX FAMILY MANAGEMENT LLC
By: Haim Saban, as its Manager
/S/ HAIM SABAN
-----------------------
FOX FAMILY PROPERTIES, INC.
By /S/ MEL WOODS
----------------------
Name: Mel Woods
Title:
FOX FAMILY WORLDWIDE, INC.
By /S/ MEL WOODS
----------------------
Name: Mel Woods
Title:
FOX KIDS HOLDINGS, LLC
By: Fox Family Worldwide, Inc.
as its Managing Member
By /S/ MEL WOODS
----------------------
Name: Mel Woods
Title:
<PAGE>
THE AGENTS AND THE LENDERS
CITICORP USA, INC., as Agent and as
Lender
By /S/ R. PARR
------------------------
Name: R. Parr
Title: Managing Director
CITICORP SECURITIES, INC., as Agent
By /S/ R. PARR
------------------------
Name: R. Parr
Title: Managing Director
<PAGE>
BANKBOSTON, N.A., as Agent and as
Lender
By /S/ ROBERT MILORDI
--------------------------
Name: Robert F. Milordi
Title: Managing Director
<PAGE>
THE CHASE MANHATTAN BANK, as
Lender
By
---------------------------
Name:
Title:
CHASE SECURITIES, INC., as Agent
By
---------------------------
Name:
Title:
<PAGE>
BANK OF AMERICA NT & SA, as Lender
By /S/ SEAN CASSIDY
---------------------------
Name: Sean W. Cassidy
Title: Vice President
<PAGE>
THE BANK OF NOVA SCOTIA, as Lender
By
---------------------------
Name:
Title:
<PAGE>
FLEET BANK, N.A., as Lender
By
---------------------------
Name:
Title:
<PAGE>
THE INDUSTRIAL BANK OF JAPAN
LIMITED, LOS ANGELES AGENCY, as
Lender
By /S/ STEVEN SAVOLDELLI
----------------------------
Name: Steven Savoldelli
Title: Vice President
<PAGE>
NATIONSBANK N.A., as Lender
By /S/ SEAN CASSIDY
----------------------------
Name: Sean W. Cassidy
Title: Vice President
<PAGE>
TORONTO-DOMINION (TEXAS), INC., as
Lender
By /S/ LYNN CHASIN
----------------------------
Name: Lynn Chasin
Title: Vice President
<PAGE>
SOCIETE GENERALE, NEW YORK
BRANCH, as Lender
By /S/ ELAINE KHALIL
----------------------------
Name: Elaine Khalil
Title: Vice President
<PAGE>
THE BANK OF NEW YORK, as Lender
By /S/ STEPHEN M. NETTLER
-------------------------------
Name: Stephen M. Nettler
Title: Assistant Vice President
<PAGE>
BANQUE NATIONALE DE PARIS, as
Lender
By /S/ MARLEY
---------------------------
Name:
Title: Vice President
By /S/ BRIAN M. FOSTER
---------------------------
Name: Brian M. Foster
Title: Vice President
<PAGE>
THE MITSUBISHI TRUST AND BANKING
CORPORATION, LOS ANGELES
AGENCY, as Lender
By
---------------------------
Name:
Title:
<PAGE>
THE SUMITOMO BANK, LIMITED, as
Lender
By
---------------------------
Name:
Title:
<PAGE>
CRESTAR BANK, as Lender
By /S/ LA TANYA B. MASON
------------------------------
Name: LaTanya B. Mason
Title: Assistant Vice President
<PAGE>
THE DAI-ICHI KANGYO BANK, LIMITED,
as Lender
By /S/ THOMAS CHA
------------------------------
Name: Thomas Cha
Title: Account Officer
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Lender
By /S/ DEIRDRE SHEEDY
-----------------------------
Name: Deirdre Sheedy
Title: Associate
<PAGE>
LONG TERM CREDIT BANK OF
JAPAN, as Lender
By /S/ NOBORU AKAHANE
------------------------------
Name: Noboru Akahane
Title: Deputy General Manager
<PAGE>
FIRST HAWAIIAN BANK, as Lender
By /S/ TRAVIS RUETENIR
-----------------------------
Name: Travis Ruetenir
Title: C.E.O.
<PAGE>
ISRAEL DISCOUNT BANK LIMITED, LOS
ANGELES AGENCY, as Lender
By /S/ HIEU T. NGUYEN
------------------------------
Name: Hieu T. Nguyen
Title: Vice President
<PAGE>
CONSENT
Reference is made to (a) Amendment and Waiver No. 4 dated as of
May 26, 1999 (the "AMENDMENT AND WAIVER"; capitalized terms not otherwise
defined herein being used herein as defined in the Amendment and Waiver and in
the Credit Agreement referred to therein), (b) the Second Amended and Restated
Credit Agreement dated as of October 28, 1997 (as amended by Letter Amendment
No. 1 dated as of November 18, 1997, Letter Amendment No. 2 dated as of April
16, 1998, Amendment and Waiver No. 3 to the Loan Documents dated as of June 29,
1998, and the Amendment and Waiver, the "CREDIT AGREEMENT") among FCN Holding,
Inc., International Family Entertainment, Inc., Saban Entertainment, Inc., Fox
Family Properties, Inc. and Fox Family Management, LLC (collectively, the
"BORROWERS"), Fox Kids Holdings, LLC, a Delaware limited liability company
("HOLDINGS"), as Guarantor, the banks, financial institutions and other
institutional lenders (collectively, the "LENDERS") party to the Credit
Agreement, Citicorp USA, Inc., as administrative agent (the "ADMINISTRATIVE
AGENT") for such Lenders and the other Secured Parties referred to therein, and
Salomon Smith Barney Inc. (formerly known as Citicorp Securities, Inc.), Chase
Securities, Inc. and BankBoston, N.A., as Co-Arrangers for the Facilities
referred to therein, and (c) the other Loan Documents referred to therein.
Each of the undersigned, in its capacity as (a) a Guarantor under
the Second Amended and Restated Subsidiaries Guarantee dated October 28, 1997
(the "SUBSIDIARIES GUARANTEE") in favor of the Secured Parties referred to
therein and a Pledgor under the Pledge and Assignment Agreement and/or (b) a
Pledgor under the Pledge and Assignment Agreement and/or under one or more of
(i) the Amended and Restated Memorandum of Deposit of Shares of Equity Interests
dated October 28, 1997 (the "U.K./SABAN U.K. PLEDGE AGREEMENT") between Saban
and the Administrative Agent, (ii) the Amended and Restated Memorandum of
Deposit of Shares of Equity Interests dated October 28, 1997 (the "U.K./FKE
PLEDGE Agreement"), among FKE Holdings, Fox Kids Network and the Administrative
Agent, (iii) the Deeds of Pledge dated September 4, 1997 and June 24, 1998
(collectively, the "NETHERLANDS PLEDGE AGREEMENT"), among FKE Holdings, T.V. 10
and the Administrative Agent, (iv) the Amended and Restated Pledge Agreement of
Shares dated September 4, 1997 (the "NETHERLANDS ANTILLES PLEDGE AGREEMENT"),
among Saban, SINV and the Administrative Agent, (v) the Pledge Agreement dated
September 4, 1997 (the "GERMAN PLEDGE AGREEMENT") among Saban and the
Administrative Agent, (vi) the Deed of Pledge of Shares dated September 4, 1997
(the "FRENCH/FOX KIDS SARL PLEDGE AGREEMENT"), among FKE Holdings, Fox Kids
Network, Fox Kids France SARL and the Administrative Agent, and (vii) the Deed
of Pledge of Shares dated September 4, 1997 (together with the U.K./Saban U.K.
Pledge Agreement, the U.K./FKE Pledge Agreement, the Netherlands Pledge
Agreement, the Netherlands Antilles Pledge Agreement, the German Pledge
Agreement and the French/Fox Kids SARL Pledge Agreement, the "FOREIGN SUBSIDIARY
PLEDGE AGREEMENTS"), among Saban, Saban International Paris SARL and the
Administrative Agent, hereby consents to the execution, delivery and performance
of the Amendment and Waiver and agrees that:
(A) each of the Subsidiaries Guarantee, the Pledge and Assignment
Agreement and the Foreign Subsidiary Pledge Agreements to which it is a
party is, and shall continue to be, in full force and effect and is
hereby in all respects ratified and confirmed on each of the TV 10
Transactions Effective Date, the Foreign Subsidiaries Reorganization
Effective Date and the Asian Television Transactions Effective Date,
except that, (1) on and after the TV 10 Transactions Effective Date, (I)
each reference to "THE CREDIT AGREEMENT", "THEREUNDER", "THEREOF",
"THEREIN" or words of like import referring to the Credit Agreement
shall mean and be a reference to the Credit Agreement, as amended and
otherwise modified by Section 2 of the Amendment and Waiver, and (II)
each reference to "THE FOX KIDS GUARANTEE", "THEREUNDER", "THEREOF",
"THEREIN" or words of like import referring to the Fox Kids Guarantee
shall mean and be a reference to the Fox Kids Guarantee, as amended and
otherwise modified by Section 4(a) of the Amendment and Waiver, (2) on
and after the Foreign Subsidiaries Reorganization Effective Date, (I)
each reference to "THE CREDIT AGREEMENT", "THEREUNDER", "THEREOF",
"THEREIN" or words of like import referring to the Credit Agreement
shall mean and be a reference to the Credit Agreement, as amended and
otherwise modified by Section 1 of the Amendment and Waiver, and (II)
each reference to "THE FOX KIDS GUARANTEE", "THEREUNDER", "THEREOF",
"THEREIN" or words of like import referring to the Fox Kids Guarantee
shall mean and be a reference to the Fox Kids Guarantee, as amended and
otherwise modified by Section 4(b) of the Amendment and Waiver and (3)
on and after the Asian Television Transactions
<PAGE>
Effective Date, each reference to "THE CREDIT AGREEMENT", "THEREUNDER",
"THEREOF", "THEREIN" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Credit Agreement, as
amended and otherwise modified by Section 3 of the Amendment and
Waiver; and
(B) as of each of the TV 10 Transactions Effective Date, the
Foreign Subsidiaries Reorganization Effective Date and the Asian
Television Transactions Effective Date, the Pledge and Assignment
Agreement and the Foreign Subsidiary Pledge Agreements to which it is a
party and all of the Collateral of such Person described therein do, and
shall continue to, secure the payment of all of the Secured
Obligations.
Each of the undersigned hereby agrees that, as of the Foreign
Subsidiaries Reorganization Effective Date, each outstanding Intercompany Note
to which such Person is a party, whether as issuer or holder thereof, is amended
in the same manner as set forth in Section 5 of the Amendment and Waiver and
hereby also agrees that each such Intercompany Note, as so amended, is hereby
ratified and confirmed in all respects.
This Consent shall be governed by, and construed in accordance
with, the laws of the State of New York, excluding (to the fullest extent a New
York court would permit) any rule of law that would cause application of the
laws of any jurisdiction other than the State of New York.
Delivery of an executed counterpart of a signature page of this
Consent by telecopier shall be effective as the delivery of a manually executed
counterpart of this Consent.
ANGEL GROVE PRODUCTIONS, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
BUGBOY PRODUCTIONS, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
CYBERPROD, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
FOX KIDS EUROPE HOLDINGS, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
ERIK PRODUCTIONS
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
FOX KIDS (LATIN AMERICA), INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
FOX KIDS EUROPE LIMITED
By
------------------------------
Name:
Title: Vice President
<PAGE>
FOX KIDS WORLDWIDE, L.L.C.
By: Fox Kids Holdings, LLC,
as Managing Member
By: Fox Family Worldwide, Inc.,
as Managing Member
By /S/ MEL WOODS
------------------------------
Name:
Title:
IAN PRODUCTIONS, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
INTERPROD, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
KIDS ROCK, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
LAUREL WAY PRODUCTIONS, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
MMPR PRODUCTIONS, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
FOX KIDS NETWORKS-EUROPE, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
POCKET PRODUCTIONS, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
SABAN DOMESTIC SERVICES, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
SABAN FOODS, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
SABAN INTERNATIONAL SERVICES, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
SABAN MERCHANDISING, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
SABAN/SCHERICK PRODUCTIONS, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
SANDSCAPE, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
TEEN DREAM PRODUCTIONS, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
MELVILLE PRODUCTIONS, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title: Vice President
FCNH SUB, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
FOX CHILDREN'S PRODUCTIONS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
FOX CHILDREN'S NETWORK, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
STORYMAKERS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
FOX KID'S MUSIC, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
FOX CHILDREN'S MUSIC, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
APOLLO PRODUCTIONS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
BLANKET SHOW PRODUCTIONS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
CAPE PRODUCTIONS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
COMPANY SIX, LTD.
By /S/ MEL WOODS
------------------------------
Name:
Title:
DITCHDIGGERS PRODUCTIONS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
EARTH PRODUCTIONS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
FAMILY CHALLENGE PRODUCTIONS,
INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
FAMILY CHANNEL PICTURES, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
FAMILY DEVELOPMENT CORP.
By /S/ MEL WOODS
------------------------------
Name:
Title:
FAMILY GAME SHOWS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
GAME TV, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
GILMORE ACQUISITION CORP.
By /S/ MEL WOODS
------------------------------
Name:
Title:
GOOD NEWS PRODUCTIONS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
HOME PRODUCTIONS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
IFE CHINA, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
IFE DIRECT MARKETING, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
IFE JAKE ACQUISITION CORP.
By /S/ MEL WOODS
------------------------------
Name:
Title:
IFE LATIN AMERICA, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
KIPPER PRODUCTIONS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
LYNNHAVEN ACQUISITION CORP.
By /S/ MEL WOODS
------------------------------
Name:
Title:
MELODY TO MELODY, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
MIMSEY MUSIC, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
MOBILINK PARTNERS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
MTM ACQUISITION COMPANY, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
MTM CONSUMER PRODUCTS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
MTM ENTERPRISES, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
MTM ENTERTAINMENT, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
MTM HOLDING COMPANY, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
MTM MUSIC, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
MUSIC TO MUSIC, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
PRETENDER PRODUCTIONS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
QUEENS PRODUCTIONS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
SPARKS PRODUCTIONS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
TREASURE PRODUCTIONS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
UNITED STATES FAMILY
ENTERTAINMENT, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
RED CHECK, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
PLAZA PICTURES, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
PAPER GARDENS, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
WEBSTER PARK, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
APRIL PARK, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
FAMILY SATELLITE BROADCASTING SERVICES, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
F.F.P. WEST, L.L.C.
By /S/ MEL WOODS
------------------------------
Name:
Title:
FIRST PAPER, INC.
By /S/ MEL WOODS
------------------------------
Name:
Title:
FOX FAMILY MUSIC, L.L.C.
By /S/ MEL WOODS
------------------------------
Name:
Title:
FOX FAMILY MUSIC, INC.
By /S/ TONY HOWE
------------------------------
Name:
Title:
FOX FAMILY POST PRODUCTION, INC.
By /S/ TONY HOWE
-------------------------------
Name:
Title: Vice President
FOX FAMILY POST PRODUCTION, L.L.C.
By: Mel Woods, as its Manager
/S/ MEL WOODS
------------------------------
FOX FAMILY RECORDING ARTISTS, INC.
By /S/ MEL WOODS
-------------------------------
Name:
Title:
HOPSCOTCH PRODUCTIONS, INC.
By /S/ MEL WOODS
--------------------------------
Name:
Title:
MONUMENT PRODUCTIONS, INC.
By /S/ MEL WOODS
----------------------------------
Name:
Title:
THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO THE PRIOR
PAYMENT IN FULL IN CASH OF ALL OF THE SENIOR INDEBTEDNESS (AS DEFINED BELOW)
PURSUANT TO THE TERMS OF THIS SUBORDINATED NOTE AND TO THE EXTENT PROVIDED
HEREIN.
SUBORDINATED NOTE
Dated: June 28, 1999
FOR VALUE RECEIVED, the undersigned FOX FAMILY WORLDWIDE, INC.
(formerly known as Fox Kids Worldwide, Inc.), a Delaware corporation ("FOX
FAMILY"), HEREBY PROMISES TO PAY TO THE ORDER OF FOX BROADCASTING COMPANY, a
Delaware corporation, or its permitted registered assigns (the "SUBORDINATED
LENDER"), the principal amount of TWENTY-FIVE MILLION DOLLARS ($25,000,000.00)
on June 28, 2009. Interest shall accrue on the principal amount outstanding from
time to time under this Subordinated Note, from and including the date of
issuance hereof until such principal amount is paid in full, at a rate per annum
(computed on the basis of a 365/366-day year) equal to 20%. Accrued and unpaid
interest shall be added automatically to the principal amount outstanding under
this Subordinated Note on each September 30, December 31, March 31 and June 30,
commencing September 30, 1999, and shall become a part thereof unless, at any
time, Fox Family elects to pay all or a portion of such interest in cash and is
permitted to make such payment in cash under Section 8(d)(i)(D) of Fox Kids
Guarantee dated October 28, 1997 made by Fox Family in favor of the Secured
Parties referred to in the Credit Agreement (as hereinafter defined) and under
Sections 10.8 and 10.9 of the Indentures (as hereinafter defined). Capitalized
terms not otherwise defined in this Subordinated Note shall have the same
meanings as specified therefor in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America to the Subordinated Lender, at its offices at 10201
West Pico Boulevard, Los Angeles, CA 90035 (or at such other location as shall
be designated by the Subordinated Lender in a written notice to Fox Family and
the Senior Representative (as hereinafter defined)), in same day funds. The loan
made by the Subordinated Lender to Fox Family hereunder, and all payments and
prepayments made on account of principal hereof, shall be recorded by the
Subordinated Lender and, prior to any transfer hereof, endorsed on the grid
attached hereto that is part of this Subordinated Note; PROVIDED that the
failure of the Subordinated Lender to make any such recordation or endorsement
shall not affect the obligations of Fox Family under this Subordinated Note.
Subject to the provisions of the Credit Agreement, the Fox
Kids Guarantee and the Indentures, the principal amount outstanding under this
Subordinated Note may, at the option of Fox Family, be prepaid at any time, in
whole or in part, without penalty or premium.
The aggregate principal amount owing to the Subordinated
Lender from time to time under this Subordinated Note, all accrued and unpaid
interest thereon, and any other indebtedness evidenced by or otherwise owing in
respect of this Subordinated Note (collectively, the "SUBORDINATED
INDEBTEDNESS") is and shall be subordinate and junior in right of payment and
otherwise, to the extent and in the manner hereinafter set forth, to the prior
payment in full of all of the Senior Indebtedness (as hereinafter defined),
whether now or hereafter existing. For all purposes of this Subordinated Note,
<PAGE>
the following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and the plural forms of the terms
defined):
(a) "ADMINISTRATIVE AGENT" means Citicorp USA, Inc., as the
administrative agent and the collateral agent for the Senior Lenders
and the other Secured Parties, together with any successor thereto
appointed pursuant to Article VIII of the Credit Agreement.
(b) "CREDIT AGREEMENT" means the Second Amended and Restated
Credit Agreement dated as of October 28, 1997 among FCN Holding, Inc.,
International Family Entertainment, Inc. and Saban Entertainment, Inc.,
as the Borrowers thereunder, Fox Kids Holdings, LLC, as a guarantor
thereunder, the Senior Lenders, Citicorp Securities, Inc., Chase
Securities, Inc. and BankBoston, N.A., as the Co-Arrangers for the
Facilities referred to therein, and the Administrative Agent, as such
agreement may be amended, supplemented or otherwise modified from time
to time.
(c) "INDENTURES" means, collectively, (a) the Indenture dated
as of October 28, 1997 between Fox Family and The Bank of New York, as
Trustee, relating to the 9-1/4% Senior Notes due 2007, and the
Indenture dated as of October 28, 1997 between Fox Family and The Bank
of New York, as Trustee, relating to the 10-1/4 % Senior Discount Notes
due 2007, in each case as such agreement may be amended, supplemented
or otherwise modified from time to time.
(d) "SENIOR CREDITORS" means, collectively, the Senior Secured
Creditors, the Senior Notes Creditors and the other holders, if any, of
any of the Senior Indebtedness.
(e) "SENIOR INDEBTEDNESS" means, collectively, the Senior
Secured Indebtedness and the Senior Notes Indebtedness.
(f) "'SENIOR LENDERS" means the banks, financial institutions
and other institutional lenders from time to time party to the Credit
Agreement.
(g) "SENIOR NOTES" means, collectively, the 9-1/4% Senior
Notes due 2007 and the 10-1/4% Senior Discount Notes due 2007 issued
under the Indentures, in each case as amended, supplemented or
otherwise modified from time to time.
(h) "SENIOR NOTES CREDITORS" means, collectively, the trustees
under each of the Indentures and the holders from time to time of
Senior Notes Indebtedness.
(i) "SENIOR NOTES INDEBTEDNESS" means (i) all Obligations of
Fox Family, whether now or hereafter existing, under or in respect of
the Indentures and the Senior Notes, whether direct or indirect,
absolute or contingent, and whether for principal, interest (including,
without limitation, interest accruing after the filing of a petition
initiating any Insolvency Proceeding (as hereinafter defined), whether
or not such interest accrues after the filing of such petition for
purposes of any applicable Insolvency Laws (as hereinafter defined), or
is an allowed claim in such Insolvency Proceeding), premium, fees,
indemnification payments, contract causes of action, costs, expenses or
otherwise and (ii) any and all extensions,
Page 2
<PAGE>
modifications, substitutions, amendments, renewals, refinancings,
replacements and refundings of any or all of the Obligations referred
to in clause (i) of this definition, and any instrument or agreement
evidencing or otherwise setting forth the terms of any Indebtedness or
other Obligations incurred in any such extension, modification,
substitution, amendment, renewal, refinancing, replacement or
refunding.
(j) "SENIOR REPRESENTATIVE" means (i) the Administrative Agent
or (ii) after the payment in full of all of the Senior Secured
Obligations and the termination or expiration of all of the commitments
of the Senior Secured Creditors in respect thereof, either of the
trustees for the Senior Notes or the holders of a majority in aggregate
principal amount of the outstanding Senior Notes of either issue.
(k) "SENIOR SECURED CREDITORS" means, collectively, the
Administrative Agent, the Senior Lenders and the other Secured Parties
and any other holder of any of the Senior Secured Indebtedness.
(l) "SENIOR SECURED INDEBTEDNESS" means (i) all Obligations of
Fox Family, whether now or hereafter existing, under or in respect of
the Credit Agreement, the Notes and the other Loan Documents, whether
direct or indirect, absolute or contingent, and whether for principal,
interest (including, without limitation, interest accruing after the
filing of a petition initiating any Insolvency Proceeding, whether or
not such interest accrues after the filing of such petition for
purposes of any applicable Insolvency Laws, or is an allowed claim in
such Insolvency Proceeding), premium, fees, indemnification payments,
contract causes of action, costs, expenses or otherwise and (ii) any
and all extensions, modifications, substitutions, amendments, renewals,
refinancings, replacements and refundings of any or all of the
Obligations referred to in clause (i) of this definition, and any
instrument or agreement evidencing or otherwise setting forth the terms
of any Indebtedness or other Obligations incurred in any such
extension, modification, substitution, amendment, renewal, refinancing,
replacement or refunding.
Furthermore, for all purposes of this Subordinated Note, the Senior Indebtedness
shall not be deemed to have been paid in full until the latest of (A) the
payment in full in cash of all of the Senior Indebtedness and the expiration or
termination of all of the commitments of the Secured Parties and the other
holders thereof, (B) the expiration or termination of all of the Bank Hedge
Agreements and (C) the Termination Date.
In the event of any dissolution, winding up, liquidation,
arrangement, reorganization, adjustment, protection, relief or composition of
Fox Family or its debts, whether voluntary or involuntary, in any bankruptcy,
insolvency, arrangement, reorganization, receivership, relief or other similar
action or proceeding under the United States Federal Bankruptcy Code or any
other federal or state bankruptcy or insolvency laws or any similar Requirements
of Law of any other jurisdiction covering the protection of creditors' rights or
the relief of debtors (collectively, the "INSOLVENCY LAWS"), or upon an
assignment for the benefit of creditors or any other marshalling of the
property, assets and liabilities of Fox Family or otherwise (each, an
"INSOLVENCY PROCEEDING"), the Senior Creditors shall be entitled to receive
payment in full of all of the Senior Indebtedness before the Subordinated Lender
is entitled to receive any payment or distribution of any kind or character on
Page 3
<PAGE>
account of all or any of the Subordinated Indebtedness, and, to that end, any
payment or distribution of any kind or character (whether in cash, property or
securities) that otherwise would be payable or deliverable upon or with respect
to the Subordinated Indebtedness in any such Insolvency Proceeding (including,
without limitation, any payment that may be payable by reason of any other
Indebtedness of Fox Family being subordinated to payment of the Subordinated
Indebtedness) shall be paid or delivered forthwith directly to the Senior
Representative, for the ratable account of the Senior Secured Creditors and the
Senior Notes Creditors, in the same form as so received (with any necessary
endorsement or assignment), for application (in the case of cash) to, or to be
held as collateral (in the case of noncash property or securities) for, the
payment or prepayment of the Senior Indebtedness until all of the Senior
Indebtedness shall have been paid in full.
No payment or distribution of any property or assets of Fox
Family of any kind or character (including, without limitation, any payment that
may be payable by reason of any other Indebtedness of Fox Family being
subordinated to payment of the Subordinated Indebtedness) shall be made by or on
behalf of Fox Family for or on account of any Subordinated Indebtedness, unless
and until all of the Senior Indebtedness shall have been paid in full or unless
such payment is expressly permitted to be made under Section 8(d)(i)(D) of the
Fox Kids Guarantee and Sections 10.8 and 10.9 of the Indentures. Furthermore, so
long as the Senior Indebtedness shall not have been paid in full, the
Subordinated Lender shall not (a) ask, demand, sue for, take or receive from Fox
Family, directly or indirectly, in cash or other property or by setoff or in any
manner (including, without limitation, from or by way of collateral), payment of
all or any of the Subordinated Indebtedness, except to the extent that such
payment is expressly permitted to be made under Section 8(d)(i)(D) of the Fox
Kids Guarantee and Sections 10.8 and 10.9 of the Indentures, (b) commence, or
join with any creditor other than the Senior Representative in commencing, or
directly or indirectly cause Fox Family to commence, or assist Fox Family in
commencing, any Insolvency Proceeding, or (c) request or accept any collateral
or other security for the Subordinated Indebtedness. If the Subordinated Lender,
in contravention hereof, shall commence, prosecute or participate in any
Insolvency Proceeding, then the Senior Representative may intervene and
interpose as a defense or plea the terms of this Subordinated Note in its own
name or in the name of the Subordinated Lender.
Until such time as all of the Senior Indebtedness has been
paid in full, if any Insolvency Proceeding is commenced by or against Fox
Family:
(a) the Senior Representative is hereby irrevocably authorized
and empowered (in its own name or in the name of the Subordinated
Lender or otherwise), but shall have no obligation, to demand, sue for,
collect and receive every payment or distribution otherwise payable to
the Subordinated Lender in respect of this Subordinated Note and give
acquittance therefor, and to file claims and proofs of claim and take
such other actions (including, without limitation, voting the
Subordinated Indebtedness or enforcing any security interest or other
lien securing payment of the Subordinated Indebtedness) as it may deem
necessary or advisable for the exercise or enforcement of any of the
rights or interests of the Senior Representative or any of the other
Senior Creditors under this Subordinated Note; and
(b) the Subordinated Lender shall duly and promptly take such
action as the Senior Representative may reasonably request (i) to
collect the Subordinated Indebtedness for the account of the Senior
Representative, for the ratable benefit of the Senior Secured Creditors
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<PAGE>
and the Senior Notes Creditors, and to file appropriate claims or
proofs of claim in respect of the Subordinated Indebtedness, (ii) to
execute and deliver to the Senior Representative such powers of
attorney, assignments or other instruments as the Senior Representative
may reasonably request in order to enable the Senior Representative to
enforce any and all claims with respect to, and any security interests
and other liens securing payment of, the Subordinated Indebtedness and
(iii) to collect and receive any and all payments or distributions that
may be payable or deliverable upon or with respect to the Subordinated
Indebtedness.
All payments or distributions upon or with respect to the
Subordinated Indebtedness that are received by the Subordinated Lender contrary
to the provisions of this Subordinated Note shall be received in trust for the
benefit of the Senior Representative and the Senior Creditors, shall be
segregated from other property or funds of the Subordinated Lender and shall be
paid or delivered forthwith directly to the Senior Representative, for the
account of the Senior Secured Creditors and the Senior Notes Creditors, in the
same form as so received (with any necessary endorsement or assignment), to be
applied (in the case of cash) to, or held as collateral (in the case of noncash
property or securities) for, the payment or prepayment of the Senior
Indebtedness until all of the Senior Indebtedness shall have been paid in full.
To the extent that Fox Family, the Subordinated Lender or any
of their respective Subsidiaries or any other guarantor of or provider of
collateral for the Senior Indebtedness shall make any payment on the Senior
Indebtedness that is subsequently invalidated, declared to be fraudulent or
preferential or set aside or is required to be-repaid to a trustee, receiver or
any other party under any applicable Insolvency Law or equitable cause (any such
payment being a "VOIDED PAYMENT"), then to the extent of such Voided Payment,
that portion of the Senior Indebtedness that had been previously satisfied by
such Voided Payment shall be reinstated and continue in full force and effect as
if such Voided Payment had never been made. To the extent that the Subordinated
Lender shall have received any payments subsequent to the date of the initial
receipt of such Voided Payment by the Senior Representative or any of the other
Senior Creditors and such payments have not been invalidated, declared to be
fraudulent or preferential or set aside or required to be repaid to a trustee,
receiver or any other party under any applicable Insolvency Law or equitable
cause, the Subordinated Lender shall be obligated and hereby agrees that any
such payment so made or received shall be deemed to have been received in trust
for the benefit of the Senior Representative and the other Senior Creditors, and
the Subordinated Lender hereby agrees to pay to the Senior Representative, upon
demand, the full amount so received by the Subordinated Lender during such
period of time to the extent necessary to fully restore to the Senior
Representative and the other Senior Creditors the amount of such Voided Payment,
which amount shall be applied as set forth in the immediately preceding
paragraph.
The Senior Representative is hereby authorized to demand
specific performance of the subordination provisions of this Subordinated Note,
whether or not Fox Family shall have complied with any of the provisions hereof
applicable to it, at any time when the Subordinated Lender shall have failed to
comply with any of the subordination provisions of this Subordinated Note. The
Subordinated Lender hereby irrevocably waives any defense based on the adequacy
of a remedy at law which might be asserted as a bar to such remedy of specific
performance.
The Subordinated Lender will not:
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(a) (i) Cancel or otherwise discharge any of the Subordinated
Indebtedness (except upon payment in full of all of the Senior
Indebtedness or, at any time and from time to time prior thereto, to
the extent that such payment is expressly permitted to be made under
Section 8(d)(i)(D) of the Fox Kids Guarantee and under Sections 10.8
and 10.9 of the Indentures), (ii) convert or exchange any of the
Subordinated Indebtedness into or for any other Indebtedness (except to
the extent expressly permitted by the Indentures), (iii) convert or
exchange any of the Subordinated Indebtedness into or for any Equity
Interest in Fox Family or otherwise (except to the extent expressly
permitted by the Indentures) or (iv) subordinate any of the
Subordinated Indebtedness to any Indebtedness of Fox Family other than
the Senior Indebtedness (except that no consent of the holders of the
Senior Notes or either of the trustees for the Senior Notes shall be
required to subordinate any of the Subordinated Indebtedness to any
other Indebtedness of Fox Family (although nothing herein shall limit
the obligation of any holder of Indebtedness of Fox Family to turn over
or otherwise subordinate itself to any or all of the Senior Creditors
in accordance with any subordination provisions applicable to such
Indebtedness);
(b) Sell, assign, pledge, encumber or otherwise dispose of any
of the Subordinated Indebtedness; or
(c) Permit the terms of any of the Subordinated Indebtedness
to be amended, waived, supplemented or otherwise modified in such a
manner as could have an adverse effect upon the rights or interests of
the Senior Representative or any of the other Senior Creditors under
this Subordinated Note, any of the Loan Documents, either of the
Indentures or any of the other agreements, instruments or other
documents evidencing or otherwise setting forth the terms of any of the
Senior Indebtedness.
No payment or distribution to the Senior Representative or any
of the other Senior Creditors pursuant to the provisions of this Subordinated
Note shall entitle the Subordinated Lender to exercise any rights of subrogation
in respect thereof, nor shall the Subordinated Lender have any right of
reimbursement, restitution, exoneration, contribution or indemnification
whatsoever from any property or assets of Fox Family or any of the other
guarantors, sureties or providers of collateral security for the Senior
Indebtedness, or any right to participate in any claim or remedy of the Senior
Representative or any of the other Senior Creditors against Fox Family or any of
the Collateral, whether or not such claim, remedy or right arises in equity or
under contract, statute or common law (including, without limitation, the right
to take or receive from Fox Family, directly or indirectly, in cash or other
property or by setoff or in any other manner, payment or security on account of
such claim, remedy or right), until (i) all of the Senior Indebtedness shall
have been paid in full and all of the commitments of the Secured Parties and the
other holders thereof shall have expired or been terminated, (ii) all of the
Bank Hedge Agreements shall have expired or been terminated and (iii) the
Termination Date shall have occurred.
The holders of the Senior Indebtedness may, at any time and
from time to time, without any Consent of or notice to the Subordinated Lender
or any other holder of the Subordinated Indebtedness and without impairing or
releasing the obligations of the Subordinated Lender hereunder:
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(a) change the manner, place or terms of payment of, or change
or extend the time of payment of, or renew payment or change or extend
the time or payment of, or renew or alter, the Senior Indebtedness
(including any change in the rate of interest thereon), or amend,
supplement or otherwise modify in any manner any instrument, agreement
or other document under which any of the Senior Indebtedness is
outstanding;
(b) sell, exchange, release, not perfect and otherwise deal
with any of the property or assets of any Person at any time pledged,
assigned or mortgaged to secure the Senior Indebtedness;
(c) release any Person liable in any manner under or in
respect of the Senior Indebtedness;
(d) exercise or refrain from exercising any rights against Fox
Family, any of the other Loan Parties or any of their respective
Subsidiaries or any other Person;
(e) apply to the Senior Indebtedness any sums from time to
time received by or on behalf of the Senior Representative or any of
the other Senior Creditors; and
(f) sell, assign, transfer or exchange any of the Senior
Indebtedness.
Each of Fox Family and the Subordinated Lender will, if
reasonably requested by the Senior Representative or either of the trustees for
the Senior Notes, further mark their respective books of account in such a
manner as shall be effective to give proper notice of the effect of the
subordination provisions of this Subordinated Note. Each of Fox Family and the
Subordinated Lender will, at its sole expense and at any time and from time to
time, promptly execute and deliver all further instruments and documents, and
take all further actions, that may be necessary or that the Senior
Representative or either of the trustees for the Senior Notes may reasonably
deem desirable and may request in order to protect any right or interest granted
or purported to be granted under the subordination provisions of this
Subordinated Note or to enable the Senior Representative or any of the other
Senior Creditors to exercise and enforce its rights and remedies hereunder.
The foregoing provisions regarding subordination are and are
intended solely for the purpose of defining the relative rights of the holders
of the Senior Indebtedness, on the one hand, and the holders of the Subordinated
Indebtedness, on the other hand. Such provisions are for the benefit of the
holders of the Senior Indebtedness and shall inure to the benefit of, and shall
be enforceable by, the Senior Representative, on behalf of itself and the other
Senior Creditors, directly against the holders of the Subordinated Indebtedness,
and no holder of the Senior Indebtedness shall be prejudiced in its right to
enforce the subordination of any of the Subordinated Indebtedness by any act or
failure to act by Fox Family or any Person in custody of its property or assets.
The subordination provisions herein shall constitute a continuing offer to each
and every holder of Senior Indebtedness from time to time and such holders are
intended third party beneficiaries hereof. Nothing contained in the foregoing
provisions is intended to or shall impair, as between Fox Family and the holders
of the Subordinated Indebtedness, the obligations of Fox Family to such holders.
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<PAGE>
Fox Family agrees to pay, upon demand therefor, all of the
reasonable and properly documented out-of-pocket costs and expenses (including,
without limitation, reasonable fees and expenses of counsel) incurred by the
Senior Representative or any of the other Senior Creditors in enforcing the
provisions of this Subordinated Note.
Fox Family hereby waives promptness, diligence, presentment
for payment, demand, notice of dishonor and protest and any other notice with
respect to this Subordinated Note.
None of the rights or interests of the Subordinated Lender in
this Subordinated Note may be assigned or otherwise transferred thereby to any
Person other than a member of the TNCL Group the Saban Group without the prior
written consent of Fox Family and the Senior Representative.
No amendment, waiver or modification of this Subordinated Note
(including, without limitation, the subordination provisions hereof), and no
consent to any departure herefrom, shall be effective unless the same shall be
in writing and signed by the Subordinated Lender and, if any such amendment,
waiver or modification of this Subordinated Note (including, without limitation,
the subordination provisions hereof) could adversely affect the rights or
interests of the Senior Representative or any of the other Senior Creditors
under or in respect of this Subordinated Note, any of the Loan Documents, either
of the Indentures or any of the other agreements, instruments or other documents
evidencing or otherwise setting forth the terms of any of the Senior
Indebtedness in any manner, signed by the Senior Representative and/or each of
the trustees for the Senior Notes, and then, in each case, such waiver,
modification or consent shall be effective only in the specific instance and for
the specific purpose for which given; PROVIDED that neither of the trustees for
the Senior Notes shall be required to consent to any such amendment, waiver or
modification that would not adversely affect the rights or interests of any of
the Senior Notes Creditors.
No failure on the part of the Subordinated Lender or the
Senior Representative or any of the other Senior Creditors to exercise, and no
delay in exercising, any right, power or privilege hereunder shall operate as a
waiver thereof or a consent thereto; nor shall a single or partial exercise of
any such right, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The remedies
provided herein are cumulative and are not exclusive of any remedies provided by
applicable law.
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<PAGE>
This Subordinated Note shall be governed by, and construed in
accordance with, the laws of the State of New York, excluding (to the fullest
extent a New York court would permit) any rule of law that would cause
application of the laws of any jurisdiction other than the State of New York.
FOX FAMILY WORLDWIDE, INC.,
a Delaware corporation
By /S/ JACK SAMUELS
------------------------------------------
Name: Jack Samuels
Title: Senior Vice President/Secretary
ACCEPTED AND AGREED TO:
FOX BROADCASTING COMPANY,
a Delaware corporation
By /S/ JAY ITZKOWITZ
------------------------------
Name: Jay Itzkowitz
Title: Senior Vice President
Page 9
<PAGE>
LOAN AND PAYMENTS AND PREPAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of
Amount of Principal Paid Unpaid Principal Notation
Date Loan or Prepaid Balance Made by
<S> <C> <C> <C> <C>
</TABLE>
SUBSCRIPTION AGREEMENT
This Subscription Agreement (the "AGREEMENT"), dated as of June 28, 1999,
is entered into by and among Fox Broadcasting Company, a Delaware corporation
(the "PURCHASER"), and Fox Kids Europe Holdings, Inc., a California corporation
(the "COMPANY"), on the following terms and conditions:
R E C I T A L S
WHEREAS, as of the date hereof, (i) there are 1000 shares of Common Stock
(the "COMMON STOCK") of the Company authorized and 1000 shares issued and
outstanding and (ii) after giving effect to the amendment required in Section
6.1 hereof, there will be 1000 shares of Class B Stock (as defined herein)
authorized, none of which shares is issued or outstanding
WHEREAS, the Company intends to make an initial public offering (the
"IPO") of shares of the Common Stock, or to sell privately to an unaffiliated
third-party purchaser shares of the Common Stock to be issued in connection with
such sale (the "PRIVATE SALE"), and thereafter may make one or more additional
public offerings (each a "SUBSEQUENT PUBLIC OFFERING") and/or one or more
additional private sales (each a "SUBSEQUENT PRIVATE SALE");
WHEREAS, on the terms and subject to the conditions set forth in this
Agreement, the Purchaser desires to purchase, and the Company desires to issue
and sell to Purchaser, shares ("SHARES") of the Class B Stock of the Company;
WHEREAS, on the terms and subject to the conditions set forth in this
Agreement, the Purchaser desires to participate in the IPO or Private Sale, as
applicable, and, subject to the conditions set forth herein, any Subsequent
Public Offerings and any Subsequent Private Sales, and the Company is willing to
grant the Purchaser such rights as an inducement to the Purchaser to enter into
this Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration given to each party hereto, the receipt, value and
sufficiency of which are hereby acknowledged, the parties agree as follows.
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the meaning set forth below:
1.1. "BORROWERS" has the meaning given that term in the Credit
Agreement.
1.2. "CALCULATED NUMBER OF SHARES" means, for any Closing, the
Purchase Price for such Closing divided by the Related Sale Price for such
Closing.
1.3. "COMMON STOCK" has the meaning set forth in the Recitals to this
Agreement.
1.4. "CLASS B STOCK" means the shares of Class B Non-Voting Common
Stock of the Company which shall be authorized by the amendment to the Company's
Articles of Incorporation required by Section 6.1 hereof, which amendment shall
provide that such Class B Non-Voting Common Stock of the Company shall
automatically convert to Common Stock upon the earlier to occur of (a)
Purchaser's obtaining HSR Act (as defined herein) approval, and/or other
required regulatory approval, or (b) the transfer by the Purchaser of the Shares
to any third party (or affiliate of Purchaser) if no regulatory approval is
required with respect to such transfer and subsequent conversion to Common
Stock.
<PAGE>
1.5. "CLOSING" has the meaning set forth in Section 3 of this
Agreement.
1.6. "CLOSING DATE" has the meaning set forth in Section 3 of this
Agreement.
1.7. "CREDIT AGREEMENT" means that certain Second Amended and
Restated Credit Agreement dated as of October 28, 1997 among Saban
Entertainment, Inc., FCN Holding, Inc., International Family Entertainment,
Inc., Fox Kids Holdings, LLC, the banks, financial institutions and other
institutional lenders from time to time party thereto, Citicorp Securities,
Inc., Chase Securities, Inc. and BankBoston, N.A., as the Co-Arrangers for the
Facilities, and Citicorp USA, Inc., as the Administrative Agent for the Lenders
and the other Secured Parties, as amended.
1.8. "FINAL CLOSING" means the Closing for which the Purchase Price
equals the Total Purchase Price less the aggregate of Purchase Prices for all
prior Closings (if any).
1.9. "GOVERNMENTAL ENTITY" has the meaning set forth in Section 4.5
of this Agreement.
1.10. "HSR ACT" has the meaning set forth in Section 10.3 of this
Agreement.
1.11. "INTERCOMPANY LOAN" means a loan evidenced by an Intercompany
Note.
1.12. "INTERCOMPANY NOTES" has the meaning given that term in the
Credit Agreement.
1.13. "IPO" has the meaning set forth in the Recitals to this
Agreement.
1.14. "LOAN DOCUMENTS" has the meaning given that term in the Credit
Agreement.
1.15. "NOTICES" has the meaning set forth in Section 13.2 of this
Agreement.
1.16. "PIGGYBACK REGISTRATION" has the meaning set forth in Section
11.1 of this Agreement.
1.17. "PRIVATE SALE" has the meaning set forth in the Recitals to
this Agreement.
1.18. "PURCHASE PRICE" has the meaning set forth in Section 3 of this
Agreement.
1.19. "RELATED SALE" means, for any Closing, the IPO, Private Sale,
Subsequent Public Offering or Subsequent Private Sale in connection with which
such Closing occurs.
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<PAGE>
1.20. "RELATED SALE PRICE" means, for any Closing, the price per
share at which shares of the Common Stock of the Company are sold in the Related
Sale (as to any Related Sale that is an IPO or Subsequent Public Offering, net
of underwriter's discount).
1.21. "SECURITIES ACT" has the meaning set forth in Section 5.4 of
this Agreement.
1.22. "SENIOR NOTES INDENTURES" means, collectively, (a) the 9 1/4%
Senior Notes Indenture dated on or about October 28, 1997 between Fox Family
Worldwide, Inc., a Delaware corporation ("FFWW"), and The Bank of New York, as
Trustee, and (b) the 10 1/4% Senior Discount Notes Indenture dated on or about
October 28, 1997 between FFWW and The Bank of New York, as Trustee, in each case
as such agreement, instrument or document may have been and/or be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof.
1.23. "SHARES" has the meaning set forth in the Recitals to this
Agreement.
1.24. "SUBSEQUENT PRIVATE SALE" has the meaning set forth in the
Recitals to this Agreement.
1.25. "SUBSEQUENT PUBLIC OFFERING" has the meaning set forth in the
Recitals to this Agreement.
1.26. "TAG ALONG SALE" has the meaning set forth in Section 10.1 of
this Agreement.
1.27. "TAG ALONG SALE DATE" has the meaning set forth in Section 10.2
of this Agreement.
1.28. "TAG ALONG SALE NOTICE" has the meaning set forth in Section
10.2 of this Agreement.
1.29. "THIRD PARTY" has the meaning set forth in Section 10.1 of this
Agreement.
1.30. "TOTAL PURCHASE PRICE" means $100,000,000.00.
1.31. "VIOLATION" has the meaning set forth in Section 11.4(a) of
this Agreement.
2. AUTHORIZATION, ISSUANCE AND PURCHASE AND SALE OF THE SHARES OF CLASS B
STOCK. The Company hereby agrees to sell and the Purchaser hereby agrees to
purchase the Shares on the terms and subject to the conditions set forth in this
Agreement. At each Closing (as defined herein), the Company will issue and
deliver Shares to the Purchaser against prior payment by the Purchaser of the
Purchase Price (as defined herein) for such Closing (in connection with which
the parties acknowledge that payment by the Purchaser of the Total Purchase
Price shall constitute payment of the Purchase Price for each of the Closings).
The Purchaser agrees to pay the Total Purchase Price concurrently with the
execution of this Agreement by wire transfer to such account of the Company as
the Company has theretofore designated by notice to the Purchaser.
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<PAGE>
3. CLOSINGS. In connection with the IPO or Private Sale, and in connection
with any Subsequent Public Offering or Subsequent Private Sale (until the Final
Closing (as defined herein)), the parties shall conduct a closing (each, a
"CLOSING"). At each Closing, the Purchaser shall purchase from the Company a
number of Shares equal to the Calculated Number of Shares for that Closing for a
purchase price (the "PURCHASE PRICE" for such Closing) equal to the lesser of
(a) the Total Purchase Price less the aggregate of Purchase Prices for all prior
Closings, if any, and (b) the product of (i) the number of shares of Common
Stock being sold in the Related Sale for such Closing and (ii) the Related Sale
Price for such Closing. Each Closing shall take place on the later to occur of
(a) the date the Company and an underwriter of recognized national standing
execute an underwriting agreement for a firm commitment public offering for the
Related Sale (if the Related Sale is the IPO or a Subsequent Public Offering) or
the Company's having entered into a binding agreement to complete the Private
Sale or Subsequent Private Sale (if the Related Sale is the Private Sale or a
Subsequent Private Sale), and (b) satisfaction or waiver of each and every one
of the conditions set forth in Sections 6 and 7 hereof as such conditions relate
to such Closing, or such other date and time as the parties shall otherwise
agree to. The date of each Closing is referred to herein as the "CLOSING DATE"
for such Closing. At each Closing, the Company shall issue and deliver to the
Purchaser one or more certificates representing the Shares purchased at such
Closing.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants that the following representations and warranties are true and
correct in all material respects as of the date hereof, and covenants that each
such representation and warranty shall be true and correct in all material
respects on and as of each Closing Date, with the same force and effect as
though made on and as of such Closing Date, except for changes permitted or
contemplated by this Agreement. 4.1. ORGANIZATION, STANDING AND CORPORATE POWER.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, with adequate corporate
power and authority to own its properties and carry on its business as presently
conducted, except where the failure to be so incorporated or to have such power
and authority would not have a material adverse effect on the business,
financial condition or results of operation of the Company. Upon filing the
amendment to its Articles of Incorporation required by Section 6.1 hereof,
Company has all necessary corporate power and authority to enter into, execute
and deliver this Agreement and to consummate the transactions contemplated
hereby.
4.2. CAPITALIZATION. The authorized capital stock of the Company
consists of 1000 shares of the Common Stock of the Company. After giving effect
to the amendment to its Articles of Incorporation required by Section 6.1
hereof, the authorized capital stock of the Company will consist of 1000 shares
of the Common Stock of the Company and 1000 shares of the Class B Stock of the
Company. As of June 25, 1999, approximately 1000 shares of the Common Stock of
the Company and no shares of the Class B Stock of the Company were issued and
outstanding.
4.3. EXECUTION, DELIVERY, AND PERFORMANCE. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
of the Company, and the Company has taken all other actions required by law, its
Articles of Incorporation and its Bylaws in order to consummate the transactions
contemplated by this Agreement. This Agreement constitutes the valid and
Page 4
<PAGE>
binding obligations of the Company, and is enforceable in accordance with its
terms, except as enforceability may be subject to or limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally.
4.4. ARTICLES OF INCORPORATION. The Company has furnished to the
Purchaser a copy of the Articles of Incorporation of the Company, which are in
full force and effect.
4.5. NO CONSENTS. No consent, authorization, order or approval of, or
filing or registration with, any governmental authority, commission, board or
other regulatory body of the United States or any state or political subdivision
thereof, or any foreign jurisdiction (each, a "GOVERNMENTAL Entity"), is
required to be made or obtained by the Company for or in connection with the
sale by the Company of the Shares to the Purchaser as contemplated hereby.
4.6. NO CONFLICTS. The execution, delivery and performance by the
Company of this Agreement will not conflict with or violate the Articles of
Incorporation or Bylaws of the Company, the Senior Notes Indentures or the
Credit Agreement or violate any other material agreement to which the Company is
a party, including, without limitation, any voting agreement, stockholders
agreement or voting trust, or otherwise contravene, conflict with or result in a
violation of, any federal, state, local, municipal, foreign, international,
multi-national or other administrative order, constitution, law, ordinance,
regulation or statute, or give any individual, corporation, partnership,
governmental authority or regulatory body or any other person the right to
prevent the consummation of the sale of the Shares contemplated hereby.
4.7. NO BROKER. Except as previously disclosed to the Purchaser, the
Company has not employed any investment banker, broker, finder, consultant or
intermediary in connection with the transactions contemplated by this Agreement
which would be entitled to any investment banking, brokerage, finder's or
similar fee or commission in connection with this Agreement or the transactions
contemplated hereby.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants that the following representations and warranties are
true and correct in all material respects as of the date hereof, and covenants
that each such representation and warranty shall be true and correct in all
material respects on and as of each Closing Date, with the same force and effect
as though made on and as of such Closing Date, except for changes permitted or
contemplated by this Agreement:
5.1. ORGANIZATION, STANDING AND CORPORATE POWER OF THE PURCHASER. The
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, with adequate corporate power and
authority to own its properties and carry on its business as presently
conducted. The Purchaser has the corporate power and authority to enter into,
execute and deliver this Agreement and to consummate the transactions
contemplated hereby.
5.2. EXECUTION, DELIVERY AND PERFORMANCE BY THE PURCHASER. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action of the Purchaser, and the Purchaser has taken all other actions
required by law, its Certificate of Incorporation and its Bylaws in order
Page 5
<PAGE>
to consummate the transactions contemplated by this Agreement. This Agreement
constitutes the valid and binding obligations of the Purchaser and is
enforceable in accordance with its terms, except as enforceability may be
subject to or limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally.
5.3. NO CONFLICTS. The execution, delivery and performance by the
Purchaser of this Agreement will not conflict with or violate the Certificate of
Incorporation or Bylaws of the Company or violate any other agreement to which
the Purchaser is a party, or otherwise contravene, conflict with or result in a
violation of, any federal, state, local, municipal, foreign, international,
multi-national or other administrative order, constitution, law, ordinance,
regulation or statute, or give any individual, corporation, partnership,
governmental authority or regulatory body or any other person the right to
prevent the consummation of the sale of the Shares contemplated hereby.
5.4. PURCHASER ACKNOWLEDGMENTS AND REPRESENTATIONS. The Purchaser is
acquiring the Shares for its own account and not for the account of any other
Person. The Purchaser acknowledges and represents: (i) that it is aware that the
Shares are not registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT") and are subject to the restrictions thereof, including
pursuant to Rule 144 promulgated thereunder; (ii) that no federal or state
agency has passed upon the Shares or made any finding or determination as to the
fairness of the Purchaser's investment in the Shares; (iii) that there are risks
of loss associated with the Purchaser's purchase of the Shares; (iv) that the
investment in the Shares is an illiquid investment and the Purchaser may bear
the risk of its investment for an indefinite period of time; and (v) that it is
a an "accredited investor" as such term is defined in Rule 501 of Regulation D
promulgated under the Securities Act, and has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the investment and is able to bear such financial risk.. The Purchaser
understands and agrees that the following restriction and limitation is
applicable to Purchaser's investment in the Shares pursuant to Section 4(2) of
the Securities Act and/or Rule 506 of Regulation D:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS AND NEITHER THE
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND
SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND
OPINION ARE SATISFACTORY TO COUNSEL FOR THIS COMPANY, IS AVAILABLE."
5.5. The foregoing statement will be affixed as a legend on all
certificates representing the Shares.
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5.6. NO CONSENTS. No consent, authorization, order or approval of, or
filing or registration with, any Governmental Entity, is required to be made or
obtained by the Purchaser for or in connection with the sale by the Company of
the Shares to the Purchaser as contemplated hereby or the receipt by Fox of such
Shares.
5.7. NO BROKER. The Purchaser has not employed any investment banker,
broker, finder, consultant or intermediary in connection with the transactions
contemplated by this Agreement which would be entitled to any investment
banking, brokerage, finder's or similar fee or commission in connection with
this Agreement or the transactions contemplated hereby.
6. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. Unless waived, in whole or
in part, in writing by the Purchaser, the obligations of the Purchaser to
purchase the Shares shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions:
6.1. AMENDMENT OF ARTICLES OF INCORPORATION. Prior to the IPO or
Initial Private Sale, the Company will file a Certificate of Amendment to its
Articles of Incorporation in a form mutually agreeable to the Company and the
Purchaser, authorizing the issuance of Class B Stock.
6.2. ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of the Company contained herein shall be true and correct in all
material respects on and as of the Closing Date, with the same force and effect
as though made on and as of the Closing Date, except for changes permitted or
contemplated by this Agreement.
6.3. PERFORMANCE OF AGREEMENTS. The Company shall have performed in
all material respects all obligations and agreements contained in this Agreement
to be performed or complied with by it prior to or at the Closing Date.
6.4. OFFICER'S CERTIFICATE. The Purchaser shall have received a
certificate signed on behalf of the Company by the chief executive officer and
chief financial officer of the Company to the effect of Sections 6.2 and 6.3.
6.5. THE SHARES. The Company shall be prepared to deliver one or more
certificates for all the Shares to the Purchaser upon the Closing.
6.6. NO INJUNCTIONS. None of the parties hereto shall be subject to
any order or injunction of a court of competent jurisdiction that prohibits the
consummation of the sale of the Shares to the Purchaser contemplated by this
Agreement. In the event any such order or injunction shall have been issued,
each party agrees to use its reasonable efforts to have any such injunction
lifted.
6.7. NO ADVERSE ENACTMENTS. There shall not have been any statute,
rule, regulation or order promulgated, enacted or issued by any Government
Entity or court of competent jurisdiction which would make the consummation of
the sale of the Shares hereunder illegal.
7. CONDITIONS TO OBLIGATIONS OF THE COMPANY. Unless waived, in whole or in
part, in writing by the Company, the obligations of the Company to issue and
sell the Shares as contemplated by this Agreement shall be subject to the
fulfillment at or prior to the Closing Date of each of the following conditions:
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7.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of the Purchaser contained herein shall be true and correct in
all material respects on and as of the Closing Date, with the same effect as
though made on and as of the Closing Date, except for changes permitted or
contemplated by this Agreement.
7.2. PERFORMANCE OF AGREEMENTS. The Purchaser shall have performed in
all material respects all obligations and agreements contained in this Agreement
to be performed or complied with by it prior to or at the Closing Date. 7.3.
OFFICER'S CERTIFICATE. The Company shall have received a certificate signed on
behalf of the Purchaser by the chief executive officer and chief financial
officer of the Purchaser to the effect of Sections 7.1 and 7.2.
7.4. NO ADVERSE ENACTMENTS. There shall not have been any statute,
rule, regulation or order promulgated, enacted or issued by any Government
Entity or court of competent jurisdiction which would make the consummation of
the sale of the Shares hereunder illegal.
7.5. NO BREACH OF CREDIT AGREEMENT OR SENIOR NOTES INDENTURES;
CONSENTS, Etc. The consummation of the transactions contemplated by this
Agreement, including without limitation each of the Closings, shall not
constitute, cause or result in any Default (as that term is defined in the
Credit Agreement) or Event of Default (as that term is defined in the Credit
Agreement) or breach or default under any of the Loan Documents (as that term is
defined in the Credit Agreement), and the Company shall have obtained all such
consents, waivers and amendments under, of or to the Credit Agreement and Loan
Documents as are necessary to enable the consummation of the transactions
contemplated by this Agreement, including without limitation each of the
Closings, without constituting, causing or resulting in any such Default or
Event of Default under the Credit Agreement, or breach or default under any of
the Loan Documents; and the consummation of the transactions contemplated by
this Agreement, including without limitation each of the Closings, shall not
constitute, cause or result in any Event of Default (as that term is defined in
each of the Senior Notes Indentures).
7.6. NO INJUNCTIONS. None of the parties hereto shall be subject to
any order or injunction of a court of competent jurisdiction that prohibits the
consummation of the sale of the Shares to the Purchaser contemplated by this
Agreement. In the event any such order or injunction shall have been issued,
each party agrees to use its reasonable efforts to have any such injunction
lifted.
7.7. PURCHASE PRICE. The Purchaser shall have paid the Purchase Price
for all the Shares to the Company in the amount and manner contemplated hereby.
8. COVENANTS OF THE PURCHASER. The Purchaser hereby covenants and agrees as
follows: Subject to the terms and conditions of this Agreement, the Purchaser
agrees to use all reasonable efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
The Purchaser hereby agrees, while this Agreement is in effect, and except as
contemplated hereby, not to intentionally and knowingly take any action with the
intention and knowledge that such action would make any of its representations
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or warranties contained herein untrue or incorrect in any material respect or
have the effect of preventing or disabling it from performing its obligations
under this Agreement.
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9. COVENANTS OF THE COMPANY.
9.1. CONDUCT OF BUSINESS. The Company hereby covenants and agrees as
follows: Subject to the terms and conditions of this Agreement, the Company
agrees to use all reasonable efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions provided for by this Agreement.
The Company hereby agrees, while this Agreement is in effect, and except as
contemplated hereby, not to intentionally and knowingly take any action with the
intention and knowledge that such action would make any of its representations
or warranties contained herein untrue or incorrect in any material respect or
have the effect of preventing or disabling it from performing its obligations
under this Agreement. Without limiting the generality of the foregoing, and
except as contemplated by this Agreement, prior to the Final Closing Date, the
Company will not, without the prior written consent of Purchaser:
(a) Propose or adopt any amendments to the Articles of
Incorporation or Bylaws of the Company;
(b) Issue, sell or repurchase, or authorize or propose the
issuance, sale or repurchase of any shares of capital stock
of the Company, or securities convertible into such shares,
or any rights, warrants or options to acquire such shares or
other convertible securities; or
(c) Sell, lease, dispose of, convey or transfer or agree to
sell, lease, dispose of, convey or transfer substantially
all of the assets of the Company, except for sales in the
ordinary course of business.
9.2. REPAYMENT OF CREDIT AGREEMENT. The Company shall, on or before
the Closing Date for each Closing, apply the Purchase Price for such Closing to
repayment of the indebtedness owing under the Credit Agreement, PROVIDED,
HOWEVER, that the Company shall have complied with this Section 9.2 if (a) it
shall have made an Intercompany Loan to any of the Borrowers in the amount of
the Purchase Price for such Closing and (b) the Borrower to which such
Intercompany Loan is made uses the funds so lent to repay indebtedness under the
Credit Agreement in the amount of the funds so lent.
9.3. CONSENTS, WAIVERS AND AMENDMENTS TO CREDIT AGREEMENT. The
Company shall use its reasonable best efforts to obtain such consents, waivers
and amendments under, of or to the Credit Agreement and Loan Documents as the
Company reasonably believes are necessary to enable the consummation of the
transactions contemplated by this Agreement without constituting, causing or
resulting in any such Default or Event of Default under the Credit Agreement, or
breach or default under any of the Loan Documents.
10. TAG ALONG RIGHTS.
10.1. TAG ALONG RIGHTS. If the Company enters into an agreement (or
series of related agreements) to transfer or sell to one or more persons who,
directly or indirectly, own less than 10 percent of the outstanding Common Stock
of the Company (a "THIRD PARTY") any number of shares of Common Stock of the
Company (such transfer or sale, a "TAG ALONG SALE"), then the Purchaser shall
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have the obligation to participate in such Tag Along Sale. The Purchaser will be
entitled to sell all of its shares of Common Stock of the Company before the
Company is entitled to sell any shares.
10.2. SALE NOTICE. The Company shall provide the Purchaser with
written notice (the "TAG ALONG SALE NOTICE") not more than 60 nor less than 10
days prior to the proposed date of the Tag Along Sale (the "TAG ALONG SALE
Date"). Each Tag Along Sale Notice shall set forth: (i) the name and address of
each Third Party; (ii) the number of shares of Common Stock proposed to be
transferred or sold; (iii) the proposed amount and form of consideration to be
paid for such shares of Common Stock and the terms and conditions of payment
offered by the proposed transferee or purchaser, provided that if the form of
consideration proposed is other than cash, the Company may not require the
Purchaser's participation in the sale without the Purchaser's consent; (iv)
confirmation that the proposed purchaser or transferee has been informed of the
"Tag Along Rights" provided for herein and has agreed to purchase the shares of
the Purchaser before purchasing any shares from the Company; and (v) the Tag
Along Sale Date.
10.3. TAG ALONG PARTICIPATION. Upon receipt by the Purchaser of the
Tag Along Sale Notice, each of the Purchaser and the Company shall take all
actions necessary for the Purchaser to convert its Class B Stock into Common
Stock, including, if applicable, the filing of a Notification and Report Form
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR ACT"). Upon conversion of the Class B Stock and receipt of notice of
termination of the waiting period under the HSR Act, if applicable, the Company
and the Purchaser shall have the right to consummate the Tag Along Sale with the
Third Party on the terms and conditions included in the Tag Along Sale Notice.
11. REGISTRATION RIGHTS.
11.1. RIGHT TO PIGGYBACK. Whenever the Company proposes to register
any of its Common Stock under the Securities Act (other than a registration on
Form S-4 or Form S-8 or any successor or similar forms), and the registration
form to be used may be used for the registration of the shares of Common Stock
(a "PIGGYBACK REGISTRATION"), whether or not for sale for its own account, the
Company will give prompt written notice to the Purchaser of its intention to
effect such registration and will include in such registration all shares of the
Common Stock of the Company held by the Purchaser, to the extent such number of
shares is not greater than the number to be registered. Upon receipt of such
notice from the Company, the Purchaser will convert the Class B Stock into the
number of shares of Common Stock to be sold in the Piggyback Registration.
11.2. PRIORITY. If in a Piggyback Registration, the managing
underwriters advise the Company in writing that in their opinion the number of
shares of Common Stock requested to be included in such registration exceeds the
number which can be sold in such offering within a price range reasonably
acceptable to the Company, the Company will include in such registration (i)
first, the Common Stock of the Company that the Purchaser will sell and (ii)
second, the Common Stock of the Company that the Company proposes to sell.
11.3. REGISTRATION EXPENSES. The Company shall pay all Registration
Expenses relating to any registration of shares of Common Stock hereunder.
"Registration Expenses" shall include all fees and expenses incident to the
Company's performance of or compliance with this Agreement, including without
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limitation: (i) Securities and Exchange Commission, stock exchange or National
Association of Securities Dealers, Inc. registration and filing fees and all
listing fees with respect to the inclusion of the securities on a stock
exchange, (ii) fees and expenses of compliance with state securities or "blue
sky" laws, including without limitation, reasonable fees and expenses of blue
sky counsel, (iii) printing expenses, (iv) messenger and delivery expenses, (v)
fees and disbursements of counsel for the Company, (vi) reasonable fees and
expenses of one counsel for the Purchaser, (vii) fees and disbursements of all
independent public accountants and (viii) any other fees and disbursements of
underwriters, if any, customarily paid by issuers or sellers of securities.
11.4. INDEMNIFICATION. In the event any of the Purchaser's Common Stock is
included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless the Purchaser and each of its officers,
directors, employees and agents against any losses, claims,
damages or liabilities to which the Purchaser or its
officers, directors, employees or agents may become subject
under the Securities Act, the Securities Exchange Act of
1934 or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively, a
"Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration
statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or
supplements thereto or (ii) the omission or alleged omission
to state therein a material fact required to be stated
therein, or necessary to make the statements therein not
misleading, and the Company will reimburse the Purchaser for
any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss,
claim, damage, liability or action; PROVIDED, HOWEVER, that
the indemnity agreement contained in this Section shall not
apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected
without the consent of the Company, which consent shall not
be unreasonably withheld, nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon
a Violation which occurs in reliance upon and in conformity
with information furnished in writing for use in connection
with such registration by, or on behalf of, the Purchaser.
(b) To the extent permitted by law, the Purchaser will indemnify
and hold harmless the Company, each of its officers,
directors, agents or employees, and each Person, if any, who
controls the Company within the meaning of the Securities
Act, against any losses, claims, damages or liabilities to
which the Company or any such director, agent, employee,
officer or controlling Person, may become subject, under the
Securities Act, the Exchange Act or other federal or state
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law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based
upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and
in conformity with information furnished in writing by, or
on behalf of, the Purchaser for use in connection with such
registration; and the Purchaser will reimburse any legal or
other expenses reasonably incurred by the Company or any
such agent, employee, director, officer or controlling
Person, in connection with investigating or defending any
such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the indemnity agreement contained in this
Section shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Purchaser,
which consent shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action
(including any governmental action), such indemnified party
will, if a claim in respect thereof is to be made against
any indemnifying party under this Section, deliver to the
indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly
notified, to assume the defense thereof with counsel
mutually satisfactory to the parties; PROVIDED, HOWEVER,
that an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel
for the indemnified party, representation of such
indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party
and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable period of time of the
commencement of any such action shall relieve such
indemnifying party of any liability to the indemnified party
under this Section to the extent prejudicial to its ability
to defend such action, but the omission so to deliver
written notice to the indemnifying party will not relieve it
of any liability that it may have to any indemnified party
otherwise than under this Section.
(d) If the indemnification provided for in this Section is held
by a court of competent jurisdiction to be unavailable to an
indemnified party or insufficient to hold it harmless with
respect to any loss, liability, claim, damage or expense
referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall
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contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage
or expense in such proportion as is appropriate to
reflect the relative fault of the indemnifying party
on the one hand and of the indemnified party on the
other in connection with the statements or omissions that
resulted in such loss, liability, claim, damage or expense
as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to,
among other things whether the untrue or alleged untrue
statements of a material fact or the omission to state
a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information,
and opportunity to correct or prevent such statement or
omission.
12. POST-CLOSING COVENANTS; TERMINATION. The Company and the Purchaser
agree to execute such further documents or instruments and to take such other
actions as are necessary to transfer the Shares to the Purchaser and to
otherwise carry out the transactions provided for by this Agreement. Purchaser
agrees that, whether or not any Closings occur and whether or not the Final
Closing occurs, Purchaser shall not make any claim, assert or pursue any right
or remedy under this Agreement or otherwise take any action, that (as to any of
the foregoing) would either (a) constitute, cause or result in any Default (as
that term is defined in the Credit Agreement) or Event of Default (as that term
is defined in the Credit Agreement) or breach or default under any of the Loan
Documents (as that term is defined in the Credit Agreement), or (b) constitute,
cause or result in any Event of Default (as that term is defined in each of the
Senior Notes Indentures).
13. MISCELLANEOUS.
13.1. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns. Other than as set forth in the immediately succeeding sentence, no
party may assign any of its rights, or delegate any of its duties or
obligations, hereunder without the prior written consent of the other party, and
any such purported assignment or delegation shall be void AB INITIO.
Notwithstanding the foregoing, the Purchaser, its affiliates, and its successors
and assigns, may assign their rights and delegate their duties (a) to any
successor entity resulting from any liquidation, merger, consolidation,
reorganization, or transfer of all or substantially all of the assets or stock
of the Purchaser, or (b) to any affiliate of the Purchaser, or (c) to Fox Family
Worldwide, Inc.; PROVIDED, that in either case, any such assignee shall
expressly assume all of the obligations the Purchaser hereunder.
13.2. NOTICES. All notices, demands and other communications
(collectively, "NOTICES") given or made pursuant to this Agreement shall be in
writing and shall be deemed to have been duly given if sent by registered or
certified mail, return receipt requested, postage and fees prepaid, by overnight
service with a nationally recognized "next day" delivery company such as Federal
Express or United Parcel Service, by facsimile transmission, or otherwise
actually delivered to the following addresses:
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(a) IF TO THE PURCHASER:
Fox Broadcasting Company
10201 West Pico Boulevard
Building 100, Room 5015
Los Angeles, California 90035
WITH A COPY TO:
Squadron, Ellenoff, Plesent & Sheinfeld
551 Fifth Avenue
New York, New York 10176-0001
Attention: Stephen H. Kay
Fax: 212.697.6686
IF TO THE COMPANY:
Fox Kids Europe Holdings, Inc.
10960 Wilshire Boulevard, Twenty-fourth Floor
Los Angeles, California 90024
Attention: Mel Woods
Fax: 310.235.5552
WITH A COPY TO:
Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East, Twenty-fourth Floor
Los Angeles, California 90067-3010
Attn: Thomas Glen Leo
Fax: 310.728.2209
Any Notice shall be deemed duly given when received by the addressee thereof.
Any of the parties to this Agreement may from time to time change its address
for receiving notices by giving written notice thereof in the manner set forth
above.
13.3. AMENDMENT: WAIVER. No provision of this Agreement may be waived
unless in writing signed by all of the parties to this Agreement, and the waiver
of any one provision of this Agreement shall not be deemed to be a waiver of any
other provision. This Agreement may be amended, supplemented or otherwise
modified only by a written agreement executed by all of the parties to this
Agreement.
13.4. JURISDICTION. The parties hereto irrevocably submit to the
non-exclusive jurisdiction of the state and federal courts located in California
for the purposes of any suit, action or other proceeding arising out of this
Agreement (and agree not to commence any action, suit or proceeding relating
hereto except in such courts). Each party hereto hereby irrevocably designates
the following individual as its designee, appointee and agent to receive, for
and on behalf of it, service of process in such respective jurisdictions
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in any legal action or proceeding with respect to this Agreement or any document
related thereto: the Company designates Mel Woods; and the Purchaser designates
Jay Itzkowitz. It is understood that a copy of such process serviced on such
agent will be promptly forwarded by mail to it at its address set forth in
Section 13.2 hereof, but the failure to receive such copy shall not affect in
any way the service of such process. Each of the parties hereto further
irrevocably consents to the service of process of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to it at its said address, such
service to become effective upon confirmed delivery. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in the state or federal courts located in California, and hereby further
irrevocably and unconditionally waive and agree not to plead or claim in any
such action, suit or proceeding brought in any such court that such action, suit
or proceeding has been brought in an inconvenient forum.
13.5. GOVERNING LAW. This Agreement shall be governed by and
construed both as to validity and performance and enforced in accordance with
the laws of the State of California without giving effect to the choice of law
principles thereof.
13.6. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
13.7. REMEDIES CUMULATIVE. Each of the various rights, powers and
remedies shall be deemed to be cumulative with, and in addition to, all the
rights, powers and remedies which either party may have hereunder or under
applicable law relating hereto or to the subject matter hereof, and the exercise
or partial exercise of any such right, power or remedy shall constitute neither
an exclusive election thereof nor a waiver of any other such right, power or
remedy.
13.8. HEADINGS. The section and subsection headings contained in this
Agreement are included for convenience only and form no part of the agreement
between the parties.
13.9. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
13.10. EXPENSES. Each party shall pay its own costs, expenses,
including without limitation, the fees and expenses of their respective counsel
and financial advisors.
13.11. ENTIRE AGREEMENT. This Agreement constitutes and embodies the
entire understanding and agreement of the parties hereto relating to the subject
matter hereof and there are no other agreements or understandings, written or
oral, in effect between the parties relating to such subject matter except as
expressly referred to herein.
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13.12. PUBLICITY. The Purchaser and the Company agree that press
releases and other announcements with respect to the transactions contemplated
hereby shall be subject to mutual agreement; PROVIDED, HOWEVER, that either
party may make such announcement as, in the opinion of its counsel, such party
is required to make pursuant to applicable law, but in such event such party
shall, to the extent practicable, give the other party reasonable prior notice
and an opportunity to comment on the proposed announcement.
13.13. SPECIFIC PERFORMANCE. Each of the parties hereto recognizes
and acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other parties to sustain damages for which they
would not have an adequate remedy at law for money damages, and therefore each
of the parties hereto agrees that in the event of any such breach the aggrieved
party or parties shall be entitled to the remedy of specific performance of such
covenants and agreements and injunctive and other equitable relief, without the
posting of bond or other security, in addition to any other remedy to which it
or they may be entitled, at law or in equity.
13.14. NO THIRD PARTY BENEFICIARIES. This Agreement is not intended
to benefit, and shall not run to the benefit of or be enforceable by, any other
person or entity other than the parties hereto and their permitted successors
and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY
FOX KIDS EUROPE HOLDINGS, INC.
By: /s/ Stan Golden
-----------------------------
Its:
----------------------------
PURCHASER
FOX BROADCASTING COMPANY
By: /s/ Jay Itzkowitz
-----------------------------
Its:
----------------------------
Page 17
EXCHANGE AGREEMENT
This Exchange Agreement ("Agreement") is made as of June 28, 1999 by and
among Fox Broadcasting Company, a Delaware corporation ("Fox"), Fox Family
Worldwide, Inc., a Delaware corporation ("FFWW"), and Fox Kids Europe Holdings,
Inc., a California corporation and a wholly-owned indirect subsidiary of FFWW
("FKEH").
WHEREAS, Fox and FKEH have entered into a Subscription Agreement dated as
of even date herewith (the "Subscription Agreement"), pursuant to which Fox has
subscribed for certain securities of FKEH (the "FKEH Securities"), to be issued
to Fox upon the terms and subject to the conditions stated therein; and
WHEREAS, to induce Fox to enter into the Subscription Agreement, FFWW and
FKEH have agreed that, with respect to any payments made by Fox to FKEH under
the Subscription Agreement for which no Shares have been delivered by FKEH, Fox
shall have the right, but not the obligation to designate all or any portions of
such payments to FKEH as Exchange Amounts (as defined below) and to require FFWW
to deliver Exchange Securities, subject to the terms and conditions of this
Agreement, in lieu of receiving Shares of FKEH.
NOW, THEREFORE, in consideration of the agreements and mutual covenants
contained herein, the Parties hereto agree as follows:
1. CERTAIN DEFINITIONS. Capitalized terms used in this Agreement not
otherwise defined herein shall have the meaning set forth in the Subscription
Agreement. As used in this Agreement, the following terms shall have the meaning
set forth below:
1.1 "Deeply Subordinated Debt Note" means the term note or notes
issued by FFWW to Fox on any Exchange Closing Date in the form set forth as
EXHIBIT E to the Senior Note Indentures, each of which shall be dated as of June
30, 1999 and shall bear interest at the rate of twenty percent (20%) per annum
commencing on the earlier to occur of (i) such Exchange Closing Date, or (ii)
December 31, 1999.
1.2 "Deeply Subordinated Debt Principal Amount" means the principal
amount of any Deeply Subordinated Debt Note issued to Fox at an Exchange
Closing.
1.3 "Exchange Amount" means that portion of the Total Purchase Price
paid by Fox to FKEH pursuant to the Subscription Agreement designated in an
Exchange Notice by Fox as an Exchange Amount, which amount shall be allocable to
the Purchase Rights assigned to FFWW, and shall be deemed to have been paid AB
INITIO to FFWW.
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1.4 "Exchange Closing Date" means the date of the assignment of
Purchase Rights by Fox to FFWW and the delivery of Exchange Securities by FFWW
to Fox pursuant to an Exchange Notice.
1.5 "Exchange Notice" means the written notice given by Fox to FFWW
notifying FFWW that Fox has elected to assign all or any portion of its Purchase
Rights to FFWW in exchange for Exchange Securities, which notice shall be
delivered to FFWW at the notice address specified herein and shall specify (i)
the Exchange Securities to be delivered to Fox by FFWW in accordance with
Section 2; (ii) with respect to each Exchange Security to be delivered, the
Exchange Amount allocable to the Purchase Rights exchanged therefor; and (iii)
the proposed Exchange Closing Date, which date shall in any event be not less
than five (5) nor more than thirty (30) business days from the date of such
Notice, unless otherwise agreed by the Parties.
1.6 "FKEH Securities" means the Shares as defined under the
Subscription Agreement, which Shares shall be shares of Class B Common Stock
convertible into shares of Common Stock of FKEH as provided therein.
1.7 "Exchange Rights" means Fox's rights to cause FFWW to exchange
its Exchange Securities for Fox's Purchase Rights, as set forth herein.
1.8 "Exchange Securities" means the Deeply Subordinated Debt Notes,
and, upon delivery of the New Equity Notice as provided in Section 3 hereof, the
New Equity.
1.9 "Exchange Securities Value" means (i) with respect to any Deeply
Subordinated Debt Note, the Deeply Subordinated Debt Principal Amount; and (ii)
with respect to any New Equity, the New Equity Fair Market Value.
1.10 "New Equity" means a new class of common or preferred equity
interests in FFWW which FFWW proposes to issue at any time during the Term (i)
in a public offering or (ii) to any third party bona fide buyer or buyers in a
privately negotiated transaction or series of transactions.
1.11 "New Equity Fair Market Value" means the fair market value of
the equity interests in FFWW issued to Fox at an Exchange Closing, and shall be
calculated based on the price per share of such New Equity as of the Exchange
Closing Date multiplied by the number of shares delivered.
1.12 "New Equity Notice" means the notice of a proposed offering of
New Equity to be delivered by FFWW to Fox as required in Section 3.
1.13 "Parties" means the parties to this Agreement and any of their
permitted successors and assigns pursuant to Section 5.1 hereof.
1.14 "Purchase Rights" means Fox's rights under the Subscription
Agreement, including its rights to acquire FKEH Securities, as adjusted for any
prior assignment of such Purchase Rights to FFWW pursuant to the exercise by Fox
of its rights hereunder.
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1.15 "Term" means the period of time during which Fox may exercise
its rights under this Agreement as set forth in Section 2.3 hereof.
1.16 "Senior Lender" means lenders under the Credit Agreement, as
defined in the Subscription Agreement.
1.17 "Share Value" means the dollar amount of the number of Shares
for which Purchase Rights are assigned to FFWW multiplied by the Related Sale
Price.
2. EXCHANGE RIGHT.
2.1 EXCHANGE RIGHT. At any time during the Term, Fox shall have the
right (the "Exchange Right") to require FFWW to exchange all or any portion of
Fox's Purchase Rights for Exchange Securities issued by FFWW. Subject to
obtaining required consents as set forth in Section 2.4, if applicable, on the
Exchange Closing Date, Fox shall assign Purchase Rights to FFWW which entitle
Fox to acquire a number of shares of common stock of FKEH as provided in Section
3 of the Subscription Agreement which has a Share Value as of the Exchange
Closing Date equal to the Exchange Amount and FFWW shall accept such assignment.
Subject to obtaining required consents as set forth in Section 2.4, if
applicable, on the Exchange Closing Date, FFWW shall deliver Exchange Securities
to Fox which have an Exchange Securities Value equal to the Exchange Amount as
of the Exchange Closing Date specified in the Exchange Notice. Fox shall have
the sole right to determine the type of Exchange Security to be issued by FFWW
at each such Closing, and may require more than one type of Exchange Security to
be issued at any Closing, provided, however, that if no New Equity Notice has
been delivered prior to the date of the Exchange Notice, or if for any other
reason New Equity cannot be issued (including without limitation because all
authorized New Equity has been issued and remains outstanding), Fox may not
require FFWW to deliver New Equity at such Closing.
2.2 NOTICE. Fox shall deliver an Exchange Notice to FFWW in the event
it elects to cause FFWW to acquire all or any portion of its Purchase Rights.
Such Exchange Notice shall be delivered in accordance with the notice
requirements set forth herein. Fox may deliver Exchange Notices at any time and
from time to time during the Term until FKEH is no longer obligated to deliver
to Fox any FKEH Securities under the Subscription Agreement.
2.3 TERM. The Term of this Agreement shall commence as of the date
hereof and shall continue until the earlier to occur of (i) the date that all
FKEH Securities deliverable to Fox under the Subscription Agreement shall have
been delivered to Fox or (ii) the date that Fox shall have assigned all of its
Purchase Rights to FFWW pursuant to the exercise of its Exchange Rights.
2.4 CLOSING OF SALE OF EXCHANGE SECURITIES. The Closing of any
issuance of Exchange Securities shall be held at the offices of FFWW, or at such
other place as Fox and FFWW may agree. The obligation of FFWW to issue and
deliver New Equity is subject to the Company having obtained all such consents,
waivers and amendments under, of or to the Credit Agreement and Loan Documents
as are necessary to enable the issuance and delivery of such New Equity, without
constituting, causing or resulting in any Default (as that term is defined under
the Credit Agreement) or Event of Default (as that term is defined under the
Credit Agreement), or breach or default under
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any of the Loan Documents; and such issuance and delivery not constituting,
causing or resulting in any Event of Default (as that term is defined in each of
the Senior Notes Indentures). FFWW agrees to use its reasonable best efforts to
obtain any such lender consent, waiver and/or amendment and any other permits or
approvals which may be required. In the event that such consents, permits or
approvals are not obtained prior to the Exchange Closing Date specified in the
Exchange Notice, then the Closing shall occur within five (5) business days of
the date such consent, permit or approval is obtained by FFWW.
2.5 SUBSCRIPTION AGREEMENT; ACKNOWLEDGMENT OF CONSIDERATION. Upon
transfer by Fox of the Purchase Rights to FFWW and the issuance by FFWW of
Exchange Securities to Fox as provided herein, the obligation of FKEH to deliver
Shares under the Subscription Agreement with a Share Value equal to the Exchange
Amount pursuant to such transferred Purchase Rights shall terminate
automatically and without any action of any party to the Subscription Agreement.
That portion of the Total Purchase Price allocated as an Exchange Amount by Fox
in connection with the transfer of such Purchase Rights (i) in the case of the
issuance of any Deeply Subordinated Debt Notes pursuant to this Agreement, shall
be money borrowed by FFWW, with the proceeds of such Notes used to make a
capital contribution to Fox Kids Holdings, LLC, which will in turn use the
proceeds of such capital contribution to make a capital contribution to Saban
Entertainment, Inc., which will in turn use the proceeds of such contribution to
make a capital contribution to FKEH, which will lend the proceeds of such
capital contribution to International Family Entertainment, Inc., which will
repay obligations of the Borrowers under the Credit Agreement and permanently
reduce the commitments under the Credit Agreement; and (ii) in the case of the
issuance of any New Equity pursuant to this Agreement, shall be net cash
proceeds of such issuance, and shall be used to repay obligations of the
Borrowers under the Credit Agreement and permanently reduce the commitments
under the Credit Agreement.
2.6 TOTAL PURCHASE PRICE. Each of the Parties hereto (including FKEH)
agrees and acknowledges that the Total Purchase Price under the Subscription
Agreement shall have been fully paid to FKEH by Fox as of the date hereof, and
no further payments to FKEH shall be due to FKEH pursuant thereto on account of
any amounts of such Total Purchase Price which may be allocated to Purchase
Rights transferred to FFWW by Fox pursuant to the exercise of it Exchange
Rights. In the event that FKEH is unable to deliver Shares pursuant to the
Subscription Agreement, Fox shall not have the right to the return of all or any
portion of the Total Purchase Price paid to FKEH, but shall have the right
solely to allocate the Total Purchase Price to the exercise of its Exchange
Rights as provided in this Agreement.
3. PRE-EMPTIVE RIGHTS WITH RESPECT TO NEW EQUITY. In the event that FFWW
proposes to issue and sell New Equity, prior to any such sale, FFWW will deliver
written notice of such proposed issuance to Fox (the "New Equity Notice"), which
Notice shall set forth with specificity the terms of such proposed sale
including a description of the New Equity security to be issued, the price per
share, the proposed manner of sale and the proposed buyer or buyers. For a
period of sixty (60) days from the date such New Equity Notice is received by
Fox, Fox shall have the right, but not the obligation, to exercise the Exchange
Rights and to receive New Equity on the Exchange Closing Date; PROVIDED, THAT if
regulatory approval would be required with respect to the issuance to Fox of the
New Equity described in the New Equity Notice pursuant to the Hart-Scott Rodino
Antitrust Improvement Acts of 1976, as amended, FFWW agrees that, the shares of
New Equity issued to Fox
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shall be as described in the New Equity Notice, except that the shares issued to
Fox shall be non-voting unless and until Fox elects to convert such shares to
shares of voting equity with voting powers as described in the New Equity
Notice. Fox shall promptly deliver written notice of its election to convert its
shares of New Equity to FFWW. Fox shall not elect to make such conversion prior
to (i) Fox's obtaining any such regulatory approval, or (ii) the transfer by Fox
of the New Equity to any third party (or affiliate of Fox) if no regulatory
approval is required with respect to such transfer and subsequent conversion to
voting stock. Upon the issuance and sale by FFWW of any New Equity to any of the
proposed third party buyer or buyers, Fox shall be obligated, to the extent
allowable in such sale to third party buyer or buyers, to sell all of its shares
of New Equity to the buyer or buyers specified in the New Equity Notice (up to
the amount of New Equity being bought by such buyers). FFWW agrees to cooperate
fully and to use its reasonable commercial efforts to facilitate such sale. FFWW
shall have the right to issue and sell New Equity to third parties only upon the
terms set forth in the New Equity Notice and only following the sale by Fox of
all of its shares of New Equity.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PARTIES.
4.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF FFWW.
(a) FFWW represents and warrants that the following representations
and warranties are true and correct in all material respects, and covenants that
, with respect to FFWW and any Exchange Securities issued to Fox, each such
representation and warranty shall be true and correct in all material respects
on and as of each Exchange Closing Date, with the same force and effect as
though made on and as of such Exchange Closing Date, except for changes
permitted or contemplated by this Agreement:
(i) ORGANIZATION, STANDING AND CORPORATE POWER. FFWW is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, with adequate corporate power and authority to
own its properties and carry on its business as presently conducted, except
where the failure to be so incorporated or to have such power and authority
would not have a material adverse effect on the business, financial condition
or results of operation of FFWW. FFWW has all necessary corporate power and
authority to enter into, execute and deliver this Agreement and to consummate
the transactions contemplated hereby.
(ii) EXECUTION, DELIVERY, AND PERFORMANCE. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of FFWW, and FFWW has taken all other actions required by law,
its Certificate of Incorporation and its Bylaws in order to consummate the
transactions contemplated by this Agreement. This Agreement constitutes the
valid and binding obligations of FFWW, and is enforceable in accordance with
its terms, except as enforceability may be subject to or limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally.
(iii) CERTIFICATE OF INCORPORATION. FFWW has furnished to Fox a
copy of its Certificate of Incorporation which is in full force and effect.
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(iv) NO CONSENTS. No consent, authorization, order or approval
of, or filing or registration with, any governmental authority, commission,
board or other regulatory body of the United States or any state or political
subdivision thereof (each, a "Governmental Entity"), is required to be made or
obtained by FFWW for or in connection with the issuance by FFWW of the Exchange
Securities to Fox as contemplated hereby.
(v) NO CONFLICTS. The execution, delivery and performance by
FFWW of this Agreement will not conflict with or violate the Certificate of
Incorporation or Bylaws of FFWW or violate any other material agreement to
which FFWW is a party, including, without limitation, any voting agreement,
stockholders agreement or voting trust, or otherwise contravene, conflict with
or result in a violation of, any federal, state, local, municipal, foreign,
international, multi-national or other administrative order, constitution, law,
ordinance, regulation or statute, or give any individual, corporation,
partnership, governmental authority or regulatory body or any other person the
right to prevent the consummation of the exchange of the Exchange Securities
contemplated hereby.
(vi) NO BROKER. Except as previously disclosed to Fox, FFWW has
not employed any investment banker, broker, finder, consultant or intermediary
in connection with the transactions contemplated by this Agreement which would
be entitled to any investment banking, brokerage, finder's or similar fee or
commission in connection with this Agreement or the transactions contemplated
hereby.
(b) FFWW shall use its reasonable best efforts to obtain such
consents, waivers and amendments under, of or to the Credit Agreement and Loan
Documents as FFWW reasonably believes are necessary to enable the consummation
of the transactions contemplated by this Agreement without constituting, causing
or resulting in any such Default or Event of Default under the Credit Agreement,
or breach or default under any of the Loan Documents.
4.2 COVENANTS, REPRESENTATIONS AND WARRANTIES OF FOX. Fox represents
and warrants that the following representations and warranties are true and
correct in all material respects, and covenants that each such representation
and warranty shall be true and correct in all material respects on and as of
each Exchange Closing Date, with the same force and effect as though made on and
as of such Exchange Closing Date, except for changes permitted or contemplated
by this Agreement:
(a) ORGANIZATION, STANDING AND CORPORATE POWER OF FOX. Fox is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with adequate corporate power and authority to own its
properties and carry on its business as presently conducted. Fox has the
corporate power and authority to enter into, execute and deliver this Agreement
and to consummate the transactions contemplated hereby.
(b) EXECUTION, DELIVERY AND PERFORMANCE BY FOX. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of Fox, and Fox has taken all other actions required by law,
its Certificate of Incorporation and its Bylaws in order to consummate the
transactions contemplated by this Agreement. This Agreement constitutes the
valid and binding obligations of Fox and is enforceable in accordance with its
terms, except as enforceability may be subject to or limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
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relating to or affecting creditors' rights generally.
(c) NO CONFLICTS. The execution, delivery and performance by Fox of
this Agreement will not conflict with or violate the Certificate of
Incorporation or Bylaws of Fox or violate any other agreement to which Fox is a
party, or otherwise contravene, conflict with or result in a violation of, any
federal, state, local, municipal, foreign, international, multi-national or
other administrative order, constitution, law, ordinance, regulation or statute,
or give any individual, corporation, partnership, governmental authority or
regulatory body or any other person the right to prevent the consummation of the
issuance of the Exchange Securities to Fox contemplated hereby or the receipt by
Fox of such Exchange Securities.
(d) ACKNOWLEDGMENTS AND REPRESENTATIONS. Fox is acquiring the
Exchange Securities for its own account and not for the account of any other
Persons. Fox acknowledges and represents: (i) that it is aware that the Exchange
Securities are not registered under the Securities Act of 1933, as amended (the
"Securities Act") and are subject to the restrictions thereof, including
pursuant to Rule 144 promulgated thereunder; (ii) that no federal or state
agency has passed upon the Exchange Securities or made any finding or
determination as to the fairness of Fox's investment in the Exchange Securities;
(iii) that there are risks of loss associated with Fox's exchange of its
Purchase rights for the Exchange Securities; (iv) that the investment in the
Exchange Securities is an illiquid investment and Fox may bear the risk of its
investment for an indefinite period of time; and (v) that it is an "accredited
investor" as such term is defined in Rule 501 of Regulation D promulgated under
the Securities Act, and has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
investment and is able to bear such financial risk. The Purchaser understands
and agrees that the following restriction and limitation is applicable to
Purchaser's investment in the Exchange Securities pursuant to Section 4(2) of
the Securities Act and/or Rule 506 of Regulation D;
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS AND NEITHER THE
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND
SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND
OPINION ARE SATISFACTORY TO COUNSEL FOR THE COMPANY, IS AVAILABLE."
The foregoing statement will affixed as a legend on all certificates
representing the Exchange Securities.
(e) NO CONSENTS. No consent, authorization, order or approval of, or
filing or registration with, any Governmental Entity, is required to be made or
obtained by Fox for or in connection with the issuance by FFWW of the Exchange
Securities to Fox as contemplated hereby or the receipt by Fox of such Exchange
Securities.
(f) NO BROKER. Fox has not employed any investment banker, broker,
finder, consultant or intermediary in connection with the transactions
contemplated by this Agreement which
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would be entitled to any investment banking, brokerage, finder's or similar fee
or commission in connection with this Agreement or the transactions contemplated
hereby.
4.3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF FKEH.
(a) FKEH represents and warrants that the following representations
and warranties are true and correct in all material respects, and covenants that
each such representation and warranty shall be true and correct in all material
respects on and as of each Exchange Closing Date, with the same force and effect
as though made on and as of such Exchange Closing Date, except for changes
permitted or contemplated by this Agreement:
(i) ORGANIZATION, STANDING AND CORPORATE POWER. FKEH is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California, with adequate corporate power and authority to
own its properties and carry on its business as presently conducted, except
where the failure to be so incorporated or to have such power and authority
would not have a material adverse effect on the business, financial condition
or results of operation of FKEH. FKEH has all necessary corporate power and
authority to enter into, execute and deliver this Agreement and to consummate
the transactions contemplated hereby.
(ii) EXECUTION, DELIVERY, AND PERFORMANCE. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of FKEH, and FKEH has taken all other actions required by law,
its Articles of Incorporation and its Bylaws in order to consummate the
transactions contemplated by this Agreement. This Agreement constitutes the
valid and binding obligations of FKEH, and is enforceable in accordance with
its terms, except as enforceability may be subject to or limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally.
(iii) ARTICLES OF INCORPORATION. FKEH has furnished to Fox a
copy of its Articles of Incorporation which are in full force and effect.
(iv) NO CONSENTS. No consent, authorization, order or approval
of, or filing or registration with, any governmental authority, commission,
board or other regulatory body of the United States or any state or political
subdivision thereof (each, a "Governmental Entity"), is required to be made or
obtained by FKEH for or in connection with the issuance by FFWW of the Exchange
Securities to Fox as contemplated hereby.
(v) NO CONFLICTS. The execution, delivery and performance by
FKEH of this Agreement will not conflict with or violate the Articles of
Incorporation or Bylaws of FKEH or violate any other material agreement to
which FKEH is a party, including, without limitation, any voting agreement,
stockholders agreement or voting trust, or otherwise contravene, conflict with
or result in a violation of, any federal, state, local, municipal, foreign,
international, multi-national or other administrative order, constitution, law,
ordinance, regulation or statute, or give any individual, corporation,
partnership, governmental authority or regulatory body or any other person the
right to prevent the consummation of the exchange of the Exchange Securities
contemplated hereby.
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(vi) NO BROKER. Except as previously disclosed to Fox, FKEH
has not employed any investment banker, broker, finder, consultant or
intermediary in connection with the transactions contemplated by this Agreement
which would be entitled to any investment banking, brokerage, finder's or
similar fee or commission in connection with this Agreement or the transactions
contemplated hereby.
(b) FKEH shall use its reasonable best efforts to obtain such
consents, waivers and amendments under, of or to the Credit Agreement and Loan
Documents as FKEH reasonably believes are necessary to enable the consummation
of the transactions contemplated by this Agreement without constituting, causing
or resulting in any Default or Event of Default under the Credit Agreement, or
breach or default under any of the Loan Documents.
5. MISCELLANEOUS.
5.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the Parties hereto and their respective successors and
assigns. Other than as set forth in the immediately succeeding sentence, no
party may assign any of its rights, or delegate any of its duties or
obligations, hereunder without the prior written consent of the other party, and
any such purported assignment or delegation shall be void AB INITIO.
Notwithstanding the foregoing, Fox, its affiliates, and its successors and
assigns, may assign their rights and delegate their duties (i) to any successor
entity resulting from any liquidation, merger, consolidation, reorganization, or
transfer of all or substantially all of the assets or stock of Fox, or (ii) to
any affiliate of Fox; PROVIDED, that in either case, any such assignee shall
expressly assume all of the obligations Fox hereunder.
5.2 NOTICES. All notices, demands and other communications
(collectively, "Notices") given or made pursuant to this Agreement shall be in
writing and shall be deemed to have been duly if sent by registered or certified
mail, return receipt requested, postage and fees prepaid, by overnight service
with a nationally recognized "next day" delivery company such as Federal Express
or United Parcel Service, by facsimile transmission, or otherwise actually
delivered to the following addresses:
(a) IF TO FOX:
Fox Broadcasting Company
10201 West Pico Boulevard
Building 100 Room 5015
Los Angeles, CA 90035
WITH A COPY TO:
Squadron, Ellenoff, Plesent & Sheinfeld
551 Fifth Ave.
New York, NY 10176-0001
Attn: Stephen Kay
Fax: 212-697-6686
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(b) IF TO FFWW:
Fox Family Worldwide, Inc.
10960 Wilshire Boulevard, 24th Floor
Los Angeles, California 90024
Attn: Mel Woods
Fax: 310-235-5552
WITH A COPY TO:
Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East, Twenty-fourth Floor
Los Angeles, California 90067-3010
Attn: Thomas Glen Leo
Fax: 310-728-2209
(c) If to FKEH:
Fox Kids Europe Holdings, Inc.
10960 Wilshire Boulevard, 24th Floor
Los Angeles, California 90024
Attn: Mel Woods
Fax: 310-235-5552
WITH A COPY TO:
Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East, Twenty-fourth Floor
Los Angeles, California 90067-3010
Attn: Thomas Glen Leo
Fax: 310-728-2209
Any Notice shall be deemed duly given when received by the addressee
thereof. Any of the Parties to this Agreement may from time to time change its
address for receiving notices by giving written notice thereof in the manner set
forth above.
5.3 AMENDMENT; WAIVER. No provision of this Agreement may be waived
unless in writing signed by all of the Parties to this Agreement, and the waiver
of any one provision of this Agreement shall not be deemed to be a waiver of any
other provision. This Agreement may be amended, supplemented or otherwise
modified only by a written agreement executed by all of the Parties to this
Agreement.
5.4 JURISDICTION. The Parties hereto irrevocably submit to the
non-exclusive jurisdiction of the state and federal courts located in California
for the purposes of any suit, action or other proceeding arising out of this
Agreement (and agree not to commence any action, suit or proceeding relating
hereto except in such courts). Each of the Parties hereto hereby irrevocably
designates the
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following individual as its designee, appointee and agent to receive, for and on
behalf of it, service of process in such respective jurisdictions in any legal
action or proceeding with respect to this Agreement or any document related
thereto: FFWW and FKEH each designate Mel Woods, and Fox designates Jay
Itzkowitz. It is understood that a copy of such process serviced on such agent
will be promptly forwarded by mail to it at its address set forth in Section 5.2
hereof, but the failure to receive such copy shall not affect in any way the
service of such process. Each of the Parties hereto further irrevocably consents
to the service of process of any of the aforementioned courts in any such action
or proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to it at its said address, such service to become effective
upon confirmed delivery. The Parties irrevocably and unconditionally waive any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement or the transactions contemplated hereby in the state or
federal courts located in California, and hereby further irrevocably and
unconditionally waive and agree not to plead or claim in any such action, suit
or proceeding brought in any such court that such action, suit or proceeding has
been brought in an inconvenient forum.
5.5 GOVERNING LAW. This Agreement shall be governed by and construed
both as to validity and performance and enforced in accordance with the laws of
the State of California without giving effect to the choice of law principles
thereof.
5.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
5.7 REMEDIES CUMULATIVE. Each of the various rights, powers and
remedies shall be deemed to be cumulative with, and in addition to, all the
rights, powers and remedies which either party may have hereunder or under
applicable law relating hereto or to the subject matter hereof, and the exercise
or partial exercise of any such right, power or remedy shall constitute neither
an exclusive election thereof nor a waiver of any other such right, power or
remedy.
5.8 HEADINGS. The section and subsection headings contained in this
Agreement are included for convenience only and form no part of the agreement
between the Parties.
5.9 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
5.10 EXPENSES. Each party shall pay its own costs, expenses,
including without limitation, the fees and expenses of their respective counsel
and financial advisors.
5.11 ENTIRE AGREEMENT. This Agreement constitutes and embodies the
entire understanding and agreement of the Parties hereto relating to the subject
matter hereof and there are no other agreements or understandings, written or
oral, in effect between the Parties relating to such subject matter except as
expressly referred to herein.
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5.12 PUBLICITY. The Parties agree that press releases and other
announcements with respect to the transactions contemplated hereby shall be
subject to mutual agreement; PROVIDED, HOWEVER, that a Party may make such
announcement as, in the opinion of its counsel, such Party is required to make
pursuant to applicable law, but in such event such Party shall, to the extent
practicable, give the each of the other Parties reasonable prior notice and an
opportunity to comment on the proposed announcement.
5.13 SPECIFIC PERFORMANCE. Each of the Parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other Parties to sustain damages for which they
would not have an adequate remedy at law for money damages, and therefore each
of the Parties hereto agrees that in the event of any such breach the aggrieved
Party or Parties shall be entitled to the remedy of specific performance of such
covenants and agreements and injunctive and other equitable relief, without the
posting of bond or other security, in addition to any other remedy to which it
or they may be entitled, at law or in equity.
5.14 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to
benefit, and shall not run to the benefit of or be enforceable by, any other
person or entity other than the Parties hereto and their permitted successors
and assigns.
Page 12
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have signed this Agreement as of
the date first written above.
FOX BROADCASTING COMPANY
/s/ Jay Itzkowitz
By: ------------------------------------
Its: ------------------------------------
FOX FAMILY WORLDWIDE, INC.
/s/ Jack D. Samuels
By: ------------------------------------
Its: ------------------------------------
FOX KIDS EUROPE HOLDINGS, INC.
/s/ Stan Golden
By: ------------------------------------
Its: ------------------------------------
<PAGE>
EXHIBIT 12.1
<TABLE>
FOX FAMILY WORLDWIDE, INC.
RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
EIGHT YEARS ENDED JUNE 30,
MONTHS -------------------------------------
ENDED
JUNE 30, 1996 1997 1998 1999
------------- ------ ------ ------
FIXED CHARGES
<S> <C> <C> <C> <C>
Interest Expense, Net of Capitalized Interest $ 624,000 $ 1,938,000 $131,552,000 $164,669,000
Interest Capitalized During the Period 471,000 1,923,000 4,328,000 4,438,000
Amortization of Debt Issue Costs 261,000 288,000 2,453,000 3,253,000
Portion of Rent Expense Considered Interest 994,000 1,411,000 3,308,000 3,527,000
---------- ---------- ----------- -----------
2,350,000 5,560,000 141,641,000 175,887,000
EARNINGS
Income from Continuing Operations
Before Income Taxes $49,874,000 $55,007,000 $(21,327,000) $(64,410,000)
Fixed Charges, Less Capitalized Interest 1,879,000 3,637,000 137,312,000 171,449,000
---------- ---------- ------------ -----------
51,753,000 58,644,000 115,985,000 107,039,000
RATIO OF EARNINGS TO FIXED CHARGES 22:1 11:1 -- --
EARNINGS DEFICIENCY $ -- $ -- $(25,656,000) $(68,848,000)
</TABLE>
<TABLE>
Exhibit 21.1
Subsidiaries
<CAPTION>
NAME JURISDICTION OF INCORPORATION
<S> <C>
FCN Holding, Inc. Delaware
Fox Children's Network, Inc. Delaware
Fox Family Management, LLC Delaware
Fox Family Properties, Inc. Delaware
Fox Kids Europe Limited United Kingdom
Fox Kids Holdings, LLC Delaware
Fox Kids Worldwide, LLC Delaware
International Family Entertainment, Inc. Delaware
MTM Enterprises, Inc. California
Saban Entertainment, Inc. Delaware
Saban International N.V. Netherlands, Antilles
Saban Merchandising, Inc. California
</TABLE>
<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> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1999
<PERIOD-START> JUL-01-1997 JUL-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1999
<CASH> 90,313<F1> 55,062<F1>
<SECURITIES> 0 0
<RECEIVABLES> 191,690 166,625
<ALLOWANCES> (1,594) (2,493)
<INVENTORY> 453,608 538,219
<CURRENT-ASSETS> 0<F2> 0<F2>
<PP&E> 80,788 91,486
<DEPRECIATION> (19,983) (33,390)
<TOTAL-ASSETS> 2,516,024 2,471,874
<CURRENT-LIABILITIES> 0<F2> 0<F2>
<BONDS> 876,632 918,735
345,000 345,000
0 0
<COMMON> 16 16
<OTHER-SE> 30,380 (67,759)
<TOTAL-LIABILITY-AND-EQUITY> 2,516,024 2,471,874
<SALES> 664,458 635,273
<TOTAL-REVENUES> 664,458 635,273
<CGS> (356,664) (315,504)
<TOTAL-COSTS> (544,985) (525,994)
<OTHER-EXPENSES> (6,798) (4,582)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (134,002) (169,107)
<INCOME-PRETAX> (21,327) (64,410)
<INCOME-TAX> (3,446) (1,989)
<INCOME-CONTINUING> (24,773) (66,399)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (24,773) (66,399)
<EPS-BASIC> 0<F3> 0<F3>
<EPS-DILUTED> 0<F3> 0<F3>
<FN>
<F1> INCLUDES RESTRICTED CASH OF $8,204
<F2> THE COMPANY HAS ELECTED TO PRESENT AN UNCLASSIFIED BALANCE SHEET
<F3> EPS IS NOT APPLICABLE AS THE COMPANY HAS NO PUBLICLY TRADED EQUITY
</FN>
</TABLE>
